Novagold targets new Donlin feasibility study by end 2027: CEO

[Redator]

Novagold Resources (TSX: NG) is pressing ahead with an updated feasibility study for its Donlin Gold project in Alaska now that Barrick Mining (TSX: ABX; NYSE: B) is no longer involved, CEO Greg Lang said.

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

Barrick to sell Donlin Gold stake to Paulson, Novagold for $1B

“We are fully aligned with Paulson that the next step for Donlin is to break out of this deadlock we were in with Barrick and move forward with updating the feasibility study,” Lang told The Northern Miner in an interview Wednesday.  “As the 60% owner, it’s incumbent upon us to chart a path forward and begin [the update] – an activity that Barrick, for a variety of reasons, was not able to commit to.”

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. It has proven and probable reserves of 504.8 million tonnes grading 2.1 grams per tonne gold for contained metal of about 33.9 million oz., according to a recent slide presentation posted on the company’s website.

‘Out of date’

Novagold wants to pick an engineering firm this year to freshen up the study, which was released in 2011.

“The last look at the feasibility study was many years ago. It’s certainly out of date,” Lang said.

Updating the document will take around two years and cost about $80 million, Lang said. Assuming Donlin’s owners decide to build the mine, construction and engineering would require another four years – meaning that production would start early next decade.

Using a spot gold price of $3,000 per oz. and a discount rate of 5%, Donlin has a net present value of $15.2 billion, Novagold says on its website.

Capital costs

Initial capital costs for the project are estimated to be $7.4 billion – though Lang admits the updated study will probably push that figure higher.

“We’re cautious, conservative people and we realize there has been inflation in projects in the industry,” he said. “We want to factor those into our estimates on the capital that will be required to build the mine.”

Donlin has the potential to produce 1.1 million oz. annually over 27 years at cash costs in the lower half of the industry’s cost range, Novagold says. Annual production would average 1.5 million oz. over the first five years.

Exploration potential

Extensive exploration potential remains at depth in the pits, according to the company.

A 35-year industry veteran, Lang spent 10 years at Barrick –including a stint as president of the miner’s North American unit – before joining Novagold in 2012. His former employer’s newfound focus on copper is one of the reasons the feasibility study for Donlin wasn’t updated earlier, he says.

“Very simply, Barrick is pivoting hard toward copper. They’ve even changed their name,” he said, alluding to the company’s decision to drop “Gold” and replace it with “Mining” last month.

Domestic energy boost

Donlin, which has already secured key federal permits and is awaiting final state permits, stands to benefit from the Trump administration’s focus on natural resource development, Lang said.

Novagold’s CEO is particularly encouraged by the possibility that a new pipeline could be built to bring natural gas to the Cook Inlet area. Using US gas instead of imports would bolster the case for the mine by lowering costs, he said.

“Donlin is absolutely non-partisan, but what is happening with some of the executive orders is frankly bullish for [us],” he said. “One of the most important things under consideration is bringing gas down into the Cook Inlet. We would not be importing gas, we would have gas delivered to our pipeline in the Cook Inlet. That would be quite substantial savings to Donlin. One of the biggest costs of operating a gold mine is the power.”

Gold rally continuing?

As a gold industry CEO, Lang is naturally bullish on the metal’s prospects – even after witnessing multiple all-time highs since the start of the year. Sustained central bank buying and shrinking mine output are two of the factors feeding his optimism.

“All the forces that have driven gold prices up are very real, they’re very long term, and they will continue. Gold will move higher in the coming years, not lower,” he said.

Even from a supply and demand perspective, the gold price should rise, Lang said.

“The fundamentals are there for gold to continue to touch new records,” he said. “At Novagold, we’re long-term bullish on gold and we anticipate we’ll see higher prices by the time the feasibility study is completed. It wouldn’t surprise me if in two years’ time, we see gold at $5,000 an ounce.”