Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
According to 350 mining executives around the world who responded to the Fraser Institute’s 2016 Survey of Mining Companies, Alaska is the 14th best jurisdiction on Earth to seek and develop a mine.
NOVAGOLD Resources Inc. (NG:TSX; NG:NYSE.MKT) owns 50% of the Donlin Gold project in Alaska. Barrick Gold Corp. (ABX:TSX; ABX:NYSE) owns the other half. Although the project is still embroiled in an exhaustive permitting process, NOVAGOLD has a market cap of $1.3 billion.
The Donlin Gold project is regarded to be one of the largest, highest grade, known gold deposits in the world, containing 39 million ounces of gold in the measured and indicated (M&I) resource categories.
At $1280 USD/ounce, 39 million ounces of gold is worth $49 billion on the spot market. The ultimate profitability of the mine is dependent on many factors that are no yet known.
On October 3, 2017, NOVAGOLD released Q3 financial results and updates for the flagship Donlin Gold project. It reported 541 million tonnes at an average grade of approximately 2.2 grams per tonne.
NOVAGOLD also reported that the U.S. Army Corps of Engineers, the lead permitting agency, has finished the cooperating agency review of the Donlin Gold Environmental Impact Statement (EIS). Filing of the final document is scheduled for 2018.
NOVAGOLD and Barrick are currently drilling the Donlin Gold project, in an effort to optimize a mine plan.
As of August 31, 2017, NOVAGOLD has $88 million in its treasury—enough money, the company indicated, to complete the permitting and project optimization.
NOVAGOLD Q3 highlights include the following:
The Donlin Gold project has been drilled extensively. The current drill campaign plan includes 22 core drill holes, 9 holes of which have been completed to-date (4,502 meters). The campaign is aimed at acquiring additional geochemical and structural data to deepen the understanding of the mineralized zones.
NOVAGOLD noted that it is also assessing its selective mining methodology to see if it can achieve mined grade improvements and capital cost reductions.
With a project this size, community outreach is vitally important of the project development. The company noted that Donlin Gold engaged with multiple traditional village councils, including the Calista Corporation (mineral rights holders) and the Kuskokwim Corporation (surface rights holders).
On Oct. 12, 2017, BMO Capital Markets released a research report on gold projects with a capex greater than $1 billion and gold production greater than 400,000 ounces/year.
The report stated that “the move away from advancement of mega-projects” was largely caused by “cost overruns” and “industry-wide inflationary pressures.”
However, “with balance sheets largely repaired, the sector generating free cash, and a more constructive outlook on precious metal prices. . .we are seeing the early signs of re-emergence,” stated the BMO analysts.
“While conventional-sized discoveries will dominate project development in the near-term,” wrote BMO, “the lack of new discoveries will increasingly place an emphasis on development of Mega-projects to provide long-term stability of production. Another advantage of Mega-projects is their long mine lives and ability to capture multiple commodity cycles versus more conventional projects.”
“NOVAGOLD and its partner Barrick have been persistently working to realize the extraordinary potential of Donlin Gold,” stated NG President and CEO Gregory A. Lang. “With planned production averaging approximately 1,100,000 ounces of gold per year over its projected 27-year mine life and its extraordinary exploration potential which exists along an 8-kilometer gold mineralized belt, make it truly unique.”
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Disclosures from BMO Capital Markets, “Growth Revisited: Rise of the Mega-Projects,” Oct. 12, 2017
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Source: Streetwise Reports (10/31/17)
