BHP posts second straight year of record iron ore production, beats estimates
The world's largest listed miner said iron ore output from Western Australia on a 100% basis was 76.8 million tonnes in the three months to June 30.
Investors who have parked their money with NovaGold (AMEX:NG) must be wondering whether the company is ever going to pull gold out of the ground at its Donlin Gold Project in Alaska.
Yesterday the company released an updated feasibility study with a rather surprising, and expensive, addition: a proposed 500-kilometre natural gas pipeline from the Cook Inlet to the minesite at an additional cost of US$1 billion. That brings the total capex of the project to around $7 billion, which is $2.5 billion more than the initial capital costs estimated in 2009.
NovaGold said in a news release that using natural gas is expected to lower the mine’s power generating costs.
President and CEO Rick Van Niewenhuyse added that the project still looks favourable considering the gold price has more than doubled since ’09, and Donlin’s capital costs are in line with industry trends. He may be right, but investors have to wonder.
As Nathan Vardi of Forbes notes, even as the gold price has surged, NovaGold’s shares have sunk by more than 25% this year, with location being one of the main culprits:
The problem for NovaGold, which shares the Donlin Creek deposit with Barrick Gold, the world’s biggest gold miner, is that Donlin is in a remote location, making it very tough to develop a gold mine there. NovaGold has tried to estimate for years how much it might cost to build a mine at Donlin, which requires barging equipment up the Kuskokwim River, navigable only six months of the year, in the face of extreme weather and environmentalists.
Investors weren’t impressed by the ballooning costs; the share price has dropped over 11% in a day. And as Vardi points out, billionaire investor George Soros, through his hedge fund, sold a large stake in the company earlier this year.
Meanwhile, in neighbouring British Columbia, putting the Galore Creek mine, jointly owned by Nova Gold and Teck Resources, into production is estimated to cost $5.2 billion. The previous estimate was $4.5 billion but the company has revised the mine design to include a 14-kilometre tunnel that would be used to truck ore from the valley in which it is mined to another for processing.
If one or both of these projects ever goes ahead, investors could be richly rewarded. Galore Creek is estimated to contain 528 million tonnes of mineral reserves and with base cash costs of 80 cents per pound of copper (according to the prefeasibility study published in July) would be one of the lowest-cost copper producers in North America. Donlin Creek is anticipated to contain some 30 million ounces, which would put it in the big leagues of the world’s gold producers.
The question now is, how long can investors be expected to wait for NovaGold? As long as costs keep spiralling, high metals prices may not be enough to hold their interest, and some may be tempted, like Soros, to hit the sell button.
Comments
WAWAIT
The point everyone seems to miss with Donlin Creek is that the so called “ore” is highly refractory and contains considerable arsenic. Do you really think something like this will have an easy time getting permitted in Alaska? Dream on! Maybe Soros was smarter than we thought. He recognized a good market play even though the project was a dog.