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While historically a small company, in its decade of exploring for gold and other valuable metals, NovaGold Resources takes on big projects--mineral resources measured in billions of pounds or millions of ounces.
Total mineral resources for the Vancouver, British Columbia-based exploration company, include 38.5 million ounces of gold, nearly 220 million ounces of silver and almost 15 billion pounds of copper.
Those metals come from the company's Nome area projects being developed, as well as three large-scale exploration projects. Those include the Donlin Creek gold project in Southwest Alaska, the Ambler polymetallic project in Northwestern Alaska and the Galore Creek copper-gold-silver mine being built in northwestern British Columbia, less than 60 miles from Wrangell.
"The first three or four years were tough, but the wind has been at our back the last five years plus," said Rick Van Nieuwenhuyse, NovaGold president and CEO. "Finding ore bodies is a matter of finding the right property and good exploration."
Since founding the company in 1998, Van Nieuwenhuyse's team has done just that--conducted good exploration on the right properties. Other strategies include aggressive exploration that quickly advances properties, working closely with local Alaska Native and First Nations business groups and striking deals--either property acquisition agreements or joint-venture working relationships--with large mining companies.
Showing incredible financial moxy, NovaGold financed the entire capital cost to construct Rock Creek through stock market offerings, while at the same time retaining enough cash to complete permitting work and to start construction on Galore Creek.
"Most junior companies do not have the luxury to do something like that themselves," said Van Nieuwenhuyse. "We raised more than $200 million earlier this year, which is unusual for a junior--they usually don't have the share price to do that."
CONSTRUCTION STARTS AT GALORE CREEK
A mammoth-sized project with a big price tag--about $1.8 billion--Galore Creek is expected to employ more than 1,000 construction workers and about 500 mine and mill employees once the mine is producing during its anticipated 20-year mine life.
"I'm a firm believer in limiting the amount of debt I have, both corporately and personally," said Van Nieuwenhuyse. "On Galore, it's not likely that we'll raise enough equity to be debt-free on that project like Rock Creek, but it's a good corporate goal."
According to a geological estimate released in March, Galore Creek is believed to contain a total of 14.3 billion pounds of copper, 13.1 million ounces of gold and 219.6 million ounces of silver.
Construction began in early June on the first phase of development at Galore Creek, which includes road access and infrastructure costs. Spending should total $262 million in 2007, according to the company's first-quarter report released in April.
Initial work includes construction of the mine-access road and tunnel, bridges, concentrate and diesel pipelines and a power transmission line from Bob Quinn on the Cassiar Highway to the Galore Creek Valley, a distance of about 37 miles.
In early September, close to nearly 750 people were working on the project, according to Van Nieuwenhuyse. Access and powerline work is expected to take 24 months, with completion expected in the second half of 2009.
The second phase of construction will focus on mine facilities and earth works, including construction of mine infrastructure, a tailings dam, open-pit stripping and process plant facilities. Mine production start-up is anticipated to begin in mid-2012, according to the company.
Once construction is completed, Galore Creek is designed to process 65,000 tonnes of ore per day, producing 430 million pounds of copper, 340,000 ounces of gold and 4 million ounces of silver annually for the first five years of operation.
TECK JOINS GALORE PROJECT
About two weeks prior to the start of construction at Galore Creek this summer, NovaGold announced its new partnership with mining giant Teck Cominco. The two companies are creating a jointly controlled operating company, Galore Creek Mining Corp., to direct all aspects of the mine project's construction and operations.
For its 50 percent interest in the partnership, Teck Cominco will fund the next $510 million of development costs, with each company responsible for its share of development and operating costs thereafter.
"NovaGold chose Teck Cominco as its partner, not just because of Teck's size and expertise, but also because of its corporate culture and a shared commitment to responsible mining," Van Nieuwenhuyse said in a press release announcing the partnership.
Teck Cominco, also based in Vancouver and the operator of both the Red Dog zinc and lead mine in Northwest Alaska and the Pogo gold mine near Delta Junction, noted that Galore Creek was one of the "world's largest mining assets," in a statement by its president, Don Lindsay. "Our investment in the Galore Creek partnership is aligned with our growth strategy and will significantly expand our copper and gold resources and production to create long-term value for our shareholders," he said.
NovaGold also will receive up to $50 million of preferential distributions once Galore Creek is fully operational, if the partnership revenues exceed certain established targets in the first year of commercial production. Teck Cominco will cooperate in arranging NovaGold's estimated $500 million of project debt financing during 2008. The new partnership will honor all commitments and obligations under the Tahltan Participation Agreement, signed in February 2006 with the regional First Nation organization.
DEVELOPMENT, DEBATE CONTINUES AT DONLIN CREEK
The project, which likely created the most attention for NovaGold, is Donlin Creek, located in Southwestern Alaska, about 175 miles up the Kuskokwim River from Bethel.
NovaGold optioned the gold property from Placer Dome in 2001 at the bottom of the market, negotiating a sweetheart deal to earn in a 70 percent interest in the property by spending $10 million over 10 years.
The junior company completed its contractual requirements in less than two years. NovaGold's exploration work doubled the size of the gold resource at Donlin, to more than 26 million ounces. Current resource estimates now place Donlin at more than 33 million ounces.
In November 2003, NovaGold and Placer Dome signed a five-year agreement, in which Placer would regain a 70 percent share in the property by bringing the property to a mine construction decision. Terms called for Placer to spend at least $30 million on the project, including producing a bankable feasibility plan and acquiring necessary permits to operate a large-scale mine and mill.
Less than two years ago, Barrick Gold merged with Placer Dome and took over its interest in Donlin Creek. During the 2006 season, eight drill rigs completed more than 300,000 feet of infill drilling work, focused on converting inferred gold resources to measured and indicated resources.
Talks to renegotiate the deadline broke down in 2006, and Barrick Gold attempted several times to take over NovaGold. The hostile bid takeover offer of $14.50 per share yielded about 14 percent of NovaGold's stock at the end of a four-month effort. That stock has since been sold, Van Nieuwenhuyse said. Fighting the hostile bid cost NovaGold about $21 million in legal, advisory and administrative costs related the issue, according to the company's fourth-quarter and 2006 year-end financial report.
Barrick continues to push ahead at Donlin, budgeting $87 million for the project in 2007, which includes a 230,000-foot drilling program and other development work. Barrick plans to complete a pre-feasibility study for the project and next year, to instigate the permitting process, according to NovaGold.
"NovaGold continues to believe that Barrick cannot meet the back-in milestones required to earn an additional 40 percent interest in the Donlin Creek project," the company reported in its second-quarter 2007 report. "NovaGold believes Barrick cannot deliver a meaningful construction decision, plan or budget without completing the environmental assessment process."
The company's lawsuit against Barrick on breach of contractual obligations and breach of fiduciary responsibility is currently before the U.S. Federal Court in Alaska. Van Nieuwenhuyse declined to comment on the Barrick issue, other than to note the approaching November deadline.
ADVANCING AMBLER
NovaGold also is working with Rio Tinto in a joint-venture on a property in the Ambler mineral district, primarily on the Arctic deposit, located about 170 miles east of Kotzebue in the Kobuk River area. Exploration at Ambler has revealed mineralization that contains substantial quantities of gold, silver, copper, lead and zinc.
NovaGold can earn a 51 percent interest by matching historic spending on the property, totaling $20 million, before 2016. During the first five years of the agreement, NovaGold must spend a minimum of $5 million on exploration and development, and obtain a memoranda of understanding with landowners in the region necessary to provide access for mine development.
During the second phase of the agreement, NovaGold must spend the balance of the earn-in funds, totaling $20 million, and complete a pre-feasibility study resulting in a positive rate of return.
In 2007, NovaGold spent close to $2 million on Ambler, Van Nieuwenhuyse said, supporting a crew of about 20 exploration workers this summer. Drilling work designed to complete about 10,000 feet of samples focused on "many promising targets near the main Arctic deposit," the company stated in its second-quarter report this year. NovaGold plans to complete a resource update and preliminary economic assessment for the project in 2007, the company said.
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