When some high profile U.S. investors recently paid US$175 million for shares in NovaGold Resources Inc. (TSX: T.NG, Stock Forum) and (AMEX: NG, Stock Forum), they were seeking cheap leverage to large, long-life gold and copper mines that may be developed over the next several years.
It is a message that NovaGold Chief Executive Officer Rick Van Nieuwenhuyse intended to convey when he travelled to Hong Kong this week to meet with Asian investors who might be interested in financing the company’s Alaska and British Columbia mining projects in return for a share of future metal production.
Vancouver-based NovaGold has sufficient funds to see it through the next two years after raising $175 million from the sale of shares at US$5.50 a share to U.S. investment funds controlled by Paulson & Co. Inc. and Quantum Partners Ltd. (a private fund managed by Soros Fund Management LLC).
Proceeds will be used to fund exploration and development of the Galore Creek copper-silver-gold mine in northwestern B.C., and the Donlin Creek gold project in western Alaska, where Teck Resources Ltd. (TSX: T.TCK.A, Stock Forum) and (TSX: T.TCK.B, Stock Forum) (Galore) and Barrick Gold Corp. (TSX: T.ABX, Stock Forum) (Donlin) are the joint venture partners.
While a formal production decision is still years away at both Donlin and Galore, NovaGold may need to raise up to $4 billion to fund its share of development costs if the two mines go ahead.
It is why NovaGold is starting the long process of developing relationships with parties in Asian countries such as South Korea, Japan, and China, and India which are potential destinations for junior’s 50% share of any future metal output.
“When we need to raise the capital to build these projects, we will have a number of possibilities,’’ said. Van Nieuwenhuyse, who is in Asia for the second time this year.
While NovaGold is working with established industry giants with a long track record for building mines, $4 billion is a lot of money for a relatively small exploration company with expected annual revenue of about $2 million this year. Its shares traded at $7.40 Friday in a 52-week range of $9.25 and $3.85, giving the company a market cap of close to $1.6 billion.
“I’m not saying that it won’t be challenging,’’ he said.
But having interests in large projects in politically-stable jurisdictions should make things easier, Van Nieuwenhuyse hopes. “A lot of investors like the fact that we are in North America.”
Meanwhile, time is clearly on his side.
At Galore Greek, partners NovaGold and Teck have launched a pre-feasibility study that will focus on capital cost estimates, permitting and construction timelines for a project that is contains a measured and indicated resource of almost 9 billion pounds of copper and 7.3 million ounces of gold.
Production at Galore Creek is not expected to begin until 2016 at the earliest.
Meanwhile, at Donlin Creek, NovaGold and Barrick are updating an earlier feasibility study to determine the benefits of supplying power to the site by building a pipeline to transport liquefied natural gas to the mine site from Cook Inlet on the Alaskan coast.
Van Nieuwenhuyse said the pipeline plan, if it proceeds, would be a cheaper alternative to a diesel and wind power combination which was envisaged under earlier studies, which also looked at the feasibility of mining 33.6 million ounces of gold reserves at Donlin.
However, assuming the Donlin feasibility study is completed on schedule late next year, it could be 2018 before the site is in production. That’s because it is expected to take about three years to secure the necessary mining permits in Alaska .
The actual construction phase may take up to 3.5 years.
Still, Van Nieuwenhuyse is pleased that both projects are back on track after some high profile hiccups.
Back in November 2007, Teck shocked the mining industry by postponing development of Galore Creek as a result of ballooning construction costs, a move that sent NovaGold’s stock price down 54% on the day that the decision was announced.
“It totally blew us away,’’ said Van Nieuwenhuyse, who found himself having to deal with class action lawsuits which have only recently been settled out of court.
Relations between NovaGold and Barrick turned frosty after the Toronto gold mining giant launched a US$1.3 billion ($14.50-a-share) hostile takeover bid for NovaGold in July, 2006.
But after what Van Nieuwenhuyse describes as a “transition period,” the working relationship between NovaGold and Barrick is now very good, he said. “We have patched things up with Barrick.’’
So after a difficult couple of years, NovaGold can now focus on doing what it needs to do to help get Galore and Donlin over the finish line.
It means working to line up metal-hungry investors over the next few years.
In an interview Van Nieuwenhuyse declined to say who he would be talking to in Hong Kong.
However, he said the company is relying on its Hong Kong-based director Marc Faber to scope out potential financiers. “He is very well connected in Asia and the Middle East,’’ he said.
Meanwhile, NovaGold has budgeted $900,000 for exploration in Argentina after striking a deal with Marifil Mines Ltd. (TSX: V.MFM, Stock Forum) to earn up to 70% stake in the San Roque project in Rio Negro Province.
Exploration crews at San Roque are targeting high grade gold and silver deposits in epithermal veins and disseminated in Jurasic Volcanics.
NovaGold is also eying exploration in northern Alaska after acquiring the Ambler project from Rio Tinto Plc (NYSE: RTP, Stock Forum)subsidiary Kennecott Exploration Co. for US$29 million last December. NovaGold says a resource estimate completed in 2008 has confirmed that Ambler contains what is thought to be one of the world’s largest copper-zinc volcanogenic massive sulphide deposits.
Bio of the CEO.
Rick Van Nieuwenhuyse is President and Chief Executive Officer of NovaGold Resources Inc. He assumed management of NovaGold in 1998, after previously working as vice-president of exploration at Placer Dome Inc. Having spent 30 years in the mining industry, he brings years of working experience and knowledge of Alaska, Western Canada, Africa and Asia, and has managed projects from grassroots discovery through to advanced feasibility studies and production. Rick holds a Candidature degree in Science from the Universite de Louvain in Belgium, and an M.Sc. in Geology from the University of Arizona.