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Founded a decade ago by a geologist looking to continue working in Alaska and to exit the large corporate employment culture, NovaGold Resources is about to celebrate its 10th anniversary with a big splash--complete with gold dore bars poured from the company's new mine being built near Nome.
The Vancouver, British Columbia-based minerals exploration company with significant gold and polymetallic property holdings throughout Alaska has grown up in the Last Frontier, weathering record low gold prices, a stagnant metals market and a steep business learning curve for its principals.
After racking up a number of exploration successes, realizing cash flow from real estate, aggregate and stock sales, reaping the financial benefits from a dramatic increase in metals prices and turning that into successful, open-market capital fundraising, NovaGold has become a successful company that employs more than 100 people and will soon become a gold producer.
Key to that transformation is the company's 100-percent owned Rock Creek open-pit, hard-rock gold mine, which is being built 7 miles north of Nome on the western Alaska coast. The Rock Creek facility is scheduled to be commissioned and to start producing gold before the end of the year.
With a capital cost of about $115 million, Rock Creek is expected to produce about 100,000 ounces of gold annually. "It makes us a producer, which is a major accomplishment for a company that was founded 10 years ago," said Rick Van Nieuwenhuyse, president and chief executive officer of NovaGold.
GOLD FEVER
In 1998, NovaGold consisted of its founder, Van Nieuwenhuyse, who grew up in the Eagle River and Anchorage areas, and two other geologists and coworkers from Placer Dome whom he convinced to join his new company.
At that time, Van Nieuwenhuyse, who was a new father, was facing reassignment to Africa and Asia with the large mining company. Additionally, the pace of corporate minerals exploration wasn't what he and his co-workers desired.
"Basically we were tired of working for a big company and we had the experience to make it happen for a small junior," Van Nieuwenhuyse said. "We were young and naive in some ways--we didn't know anything about raising money and we had a lot of hard lessons in a tough market."
Back then, gold prices were on their way to dropping to record lows of $250 an ounce. Stock market investors, enamored with dramatic gains in technology stocks, steered clear of gold and other metal-back investments. "It was the post Bre-X big scandal and no one would even open the door if you knocked," Van Nieuwenhuyse said. "When we started the company, it was the worst time. No one was into gold or junior exploration."
After "fumbling around" for a bit, Van Nieuwenhuyse put together a complex deal to acquire the assets of the inactive Alaska Gold Co., which included about 30,000 acres of patented mining land in the Interior and in western Alaska, some old dredging equipment and a sand and gravel operation in Nome.
The $5.5 million deal involved four different parties at the closing, three receiving checks, he said. "It was a matter of convincing one party to do one thing, and another to do something different at the same time," he said. "But it all came together quickly and it all clicked."
That acquisition gave NovaGold some leverage--real estate and products from the sand and gravel operation that could be sold, providing much-needed cash to fund exploration.
"About one-third of my time was spent as a real estate agent then," Van Nieuwenhuyse said.
GOLD IN THEM THAR HILLS
Also included in the Alaska Gold assets was the Rock Creek prospect, located on about 14,000 acres of patented mining land. NovaGold geologists started drilling the near-surface gold prospect, working to produce a resource that could be mined in a low-cost manner.
Testing showed that about 75 percent of Rock Creek's gold could be extracted by simply crushing the rock and running the ore through a gravity circuit. As planned, remaining ore at Rock Creek will run through a floatation and cyanide-leaching process contained in large tanks installed, with recovered ore poured into dore bars on-site.
Mine tailings will be detoxified, dewatered and stacked in an impoundment area, where, upon closure of the mine, the piles will be contoured and covered with topsoil to promote revegetation.
Rock Creek mining will be completed using a small fleet of 100-ton haul trucks, in an open pit that will eventually be 1,300 feet by 3,400 feet, with a depth of 400 feet. The strip ratio is almost 2:1, with an average gold grade of about .0437 ounces of gold per ton of rock.
In addition, during summer months, mine crews will produce ore from a satellite deposit called Big Hurrah, located 50 miles from Rock Creek, southeast of Nome off the Council Highway.
Gold grade at Big Hurrah is substantially richer, about .158 ounces of gold per ton of rock. Also planned to be developed as an open-pit mine, ore will be trucked to Rock Creek for processing. The ultimate pit size at Big Hurrah is expected to be 1,600 feet by 800 feet by 360 feet deep.
Combined, the two deposits contain an indicated resource of 677,000 ounces of gold. In addition, an inferred resource, which is based on wider-spaced drill holes completed during exploration, is estimated to contain an additional 100,000 ounces of gold.
Given those geological resources, Rock Creek has a mine life of four to five years, although NovaGold geologists continue to look for more gold in the area. Targets include the Saddle deposit, less than two miles southeast of the Rock Creek mine, which contains a historical resource of 260,000 ounces of gold.
NovaGold is also looking at a known mineralized area just west of the mill complex, a target called Mount Distin.
"I'm highly confident that our exploration will convert additional resources into reserves," Van Nieuwenhuyse said. "I can easily see a mine life up to 10 years."
GOLD DIGGER
In addition to gold contained in buried rock, NovaGold holds a placer-type of gold resource that could be recovered from existing mine tailings. Drilling work indicates that gold resource could contain as much as 1.6 million ounces of gold, with a possible additional 250,000 ounces, in a 194 million tonne sand and gravel aggregate resource.
Those resources are based on 7,249 drill holes, primarily churn holes drilled through gold-bearing sands and gravel into underlying bedrock, covering the 15,000-acre Nome Gold property owned by NovaGold.
The company is considering the economics of restarting alluvial gold production, combined with sand and gravel co-product production, which would increase the amount of construction aggregate material NovaGold currently provides for the region.
With a plan that could ultimately produce 25,000 ounces of gold annually, along with several million tonnes of screened and possibly crushed aggregate product, the Nome Gold operation would benefit from synergies with the Rock Creek mine plant and capital costs should be modest, according to the company.
Even without that additional aggregate production project, NovaGold has made a substantial impact on the Nome area, with its construction project and with ongoing hiring for the mine operations.
Primary construction contractor Alaska Mechanical filled one of the community's downtown hotels since work began on the project in late August 2006. Hotel rooms, apartments and rental cars are difficult, if not impossible, to find in town, according to Warren Woods, NovaGold's general manager of Nome operations.
The construction project has also cut into the region's available labor pool, he said. "We're our own worst enemy," Woods said, regarding the company's efforts to hire 140 workers needed to operate Rock Creek.
MINING ITS BUSINESS
As of late August, about half of the work force was hired. Several of the company's top managers for the Nome project, with experience in hard-rock mining and milling, have been recruited from the Fort Knox gold mine near Fairbanks.
"My philosophy is to hire the best people you can, and those types are generally not sitting around on their thumbs. You have to provide them a better opportunity," Nieuwenhuyse said. "It is challenging to find people in the environment we're in right now, with a boom in commodities."
To help in that process, NovaGold has worked closely with its Alaska Native partners, the Bering Straits Regional Corp. and the Sitnasuak Village Corp. In addition to the company's lease of about 20,000 acres of Native-owned land near Rock Creek, NovaGold has hired a number of shareholders and some of the Native corporation's subsidiaries to work on construction at the facility.
NovaGold has faced some time delays in developing Rock Creek, starting with a permitting process slower than expected. Permits to mine were issued in late August and with an anticipated nine-month construction schedule, NovaGold hoped to start gold production in mid-2007.
In November, a small group of Nome residents challenged the company's wetlands permit, and eventually the U.S. Army Corps of Engineers withdrew its permission to work on land designated as wetlands.
The Corps reinstated the wetlands permit in March, allowing crews access again. But the time delay cost the company, as part of the work involved scraping an area that had thawed, Woods said. Access would have been easier and less disturbing, had the work been completed while frozen.
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The permitting issues persisted this summer, as the local group and an Anchorage-based environmental group filed a lawsuit this spring against the Corps, challenging the wetlands permit.
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