Novagold’s Donlin costs, net value jump in update

[Ben Graham]

Novagold Resources (TSX: NG) says inflationary pressures mean its Donlin Gold project in Alaska will probably cost $9.2 billion – a 25% increase – while the value of the proposed mine has soared 66% on the back of higher commodity prices.

Based on a $2,100-per-oz. gold price and a 5% discount rate, Donlin’s net present value is now projected to be $5.1 billion, up from the $3 billion that was calculated in a 2021 feasibility study, Novagold said late Thursday in a regulatory filing. Sustaining capital expenditures now stand at $2.3 billion, up 35%, while operating costs have risen 27% since 2021 to $24.5 billion due to items such as energy, labour, consumables and freight.

“The increased costs are largely offset by increased revenues,” Rabi Nizami, a mining analyst at National Bank Financial in Toronto, said in a note on Friday. “The updated study largely reaffirms the project’s massive scale and grade from the 2021 baseline.”

Capital costs to bring Donlin into production might be “significantly higher” than expected, Novagold said in its filing.

Shares of the company fell 5.3% to C$13.69 Friday afternoon in Toronto, cutting Novagold’s market value to about C$5.6 billion ($4.1 billion).

Prime contractor

Donlin’s post-tax internal rate of return now stands at 10.3%, with after-tax cash flow pegged at $19.6 billion, Novagold also said. Payback will be achieved 6.5 years after the start of production.

“While costs calibrated higher, this was still a backward-looking and sub-optimized refresh to the older study,” Nizami said. “Its value in our opinion is to inform the next phase work program towards a properly optimized bankable feasibility study.”

Vancouver-based Novagold and US hedge fund billionaire John Paulson agreed in April to jointly buy Barrick Mining’s (TSX: ABX; NYSE: B) 50% stake in Donlin for $1 billion. The transaction, which closed June 3, boosted Novagold’s stake to 60% while giving Paulson a 40% interest. Paulson paid Barrick $800 million, while Novagold paid $200 million.

Donlin’s owners are aiming to select a prime contractor during the first quarter to conduct the feasibility study, Novagold said. They want the report – which would replace a 2011 analysis – to be completed sometime in the next two years.

Long life

Located in southwest Alaska’s Kuskokwim gold belt, Donlin is expected to become one of the biggest producers of the yellow metal in the Americas. Novagold expects construction at Donlin to begin in 2027, with commercial gold production starting in 2031 and lasting 27 years.

Donlin holds about 560 million measured and indicated tonnes grading 2.22 grams gold per tonne for contained metal of about 40 million oz., Novagold said in its filing. It also holds 88.9 million inferred tonnes grading 2.03 grams gold for 5.8 million contained ounces. The resource estimate is current as of Nov. 30.

Consultants Wood Group and Geosyntec used drilling results through the end of 2024 to prepare the technical report, Novagold said Thursday. They updated costs and long-term forecast gold prices to update the geologic and resource models and prepare resource estimates. 

High grade

Last year’s 18,454-metre drilling program at Donlin delivered high-grade intercepts across multiple zones, including standout intervals up to 26.22 grams gold, Novagold said. Some $131.4 million will be spent on the property this year to advance the feasibility study and pay for exploration, permitting and other activities.

At fiscal year-end, Novagold had a cash balance of $115 million. That’s enough to meet the joint venture budgets and corporate general and administrative expenses over the next year, Nizami said.

Separately, Novagold said Friday BMO Capital Markets, RBC Capital Markets and Scotiabank together agreed to boost the size of a previously announced private placement to $300 million from $200 million. The underwriters will also have the option of buying up to $45 million in additional shares, Novagold said.