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Donlin Gold remains on permit path

Barrick management shakeup does not change plans to submit applications this summer; new CEO quiet about focus of global miner

An early June shakeup at the upper echelon of Barrick Gold Corp. management, including the sacking of CEO Aaron Regent, calls to question the future of the 40 million-ounce Donlin Gold project in Southwest Alaska.

Regent, who had served as Barrick president and CEO since 2009, was replaced by executive vice president and CFO Jamie Sokalsky. Barrick founder and Chairman Peter Munk cited lackluster share performance when announcing the changes to the top executive office.

"We are fully committed to maximizing shareholder value, but have been disappointed with our share price performance," said Munk. "Our board has every confidence in Jamie's experience and commitment to take our company forward."

Sokalsky, who joined Barrick as treasurer in 1993 and was elevated to CFO in 1999, said, "I feel enormously privileged to take on this role at Barrick, a company that combines operational excellence and financial strength with a track record of successful execution."

Munk also ceded a portion of his control over Barrick by elevating Director John Thornton to join him as co-chairman of the gold company he founded.

"John's knowledge and experience of global business affairs are truly exceptional and we are all fortunate that he has agreed to take on this important role," said Munk.

This turnover of management at Barrick comes at a time when Donlin Gold LLC - a company formed to develop the 40 million-ounce gold deposit and owned equally by Barrick and NovaGold - is on the cusp of formally filing permit applications for a mine that is estimated to cost upward of US$6.7 billion.

While Barrick did not respond to questions regarding its plans to initiate permitting, Donlin Gold LLC External Affairs Manager Kurt Parkan told Mining News during a June 19 interview, "As far as we are concerned it is still full steam ahead."

"Our board just met and we are still planning to submit our permits this summer," he added.

The Donlin Gold board of directors is a four-member panel with equal representation from both partners.

"We are all really geared to meeting the timeframe that gets us in the door sometime this summer," the Donlin Gold spokesman told Mining News.

Donlin Gold estimates that it will take about 3 1/2 years to obtain the some 100 permits required to develop the Southwest Alaska project and construction will take about as long - putting production toward the end of 2019.

A big mine

While developing Donlin will be a monumental undertaking, once constructed the mine will be capable of producing more than 1 million ounces of gold per year, placing it in a category boasted by only a handful of operations worldwide.

"Donlin is amongst the top 1 percent of all undeveloped gold deposits in the world," NovaGold President and CEO Greg Lang informed shareholders during the company's annual meeting May 29.

Lang's familiarity with Donlin Gold is not a product of his executive office at NovaGold, a post he has only held since early January. Instead, his knowledge of the project comes from his nearly nine years as president of Barrick Gold Corp.'s North America Business Unit.

"Having come to the company directly from my position as the president of Barrick Gold North America, I had the privilege of being responsible for Barrick Gold's nine operations in the United States, Canada and the Dominican Republic. My responsibilities included representing Barrick's interest in the Donlin Gold project, which is equally owned by wholly-owned subsidiaries of NovaGold and Barrick. As such, I was intimately familiar with all aspects of the Donlin project and what I believe to be its uniquely attractive attributes," Lang wrote in a February letter to shareholders.

Among the attractive attributes touted by Lang is Donlin's enormous size. The deposit has 33.85 million ounces of gold reserves and about 6 million ounces of inferred resources.

"We have all seen a few deposits that ultimately grew to 40 million ounces but I can't think of any that started with a reserve-base of 40 million ounces," he said at the May NovaGold annual meeting.

At a 53,500-metric-ton-per-day throughput, these reserves are enough to support a 27-year mine life, according to an updated feasibility study completed for Donlin Gold in December.

The Kuskokwim-area mine is expected to produce an average 1.1 million ounces of gold per year at a cash cost of US$585 per ounce. During the first five years of operation, this massive operation is scheduled to produce 1.5 million ounces of gold annually at an average cash cost of US$409 per ounce.

Using a three-year trailing average of US$1,200-per-ounce gold price as the base, the feasibility study predicts an after-tax net present value (5 percent discount) of US$547 million and an after-tax internal rate of return of 6 percent. This base scenario foresees an annual after-tax cash flow of US$949.5 million for the first five years and US$500.7 million over the life of the mine - resulting in a payback period of 9.2 years.

Plugging in a US$1,700 per ounce gold price, the after-tax NPV (5 percent) jumps 837 percent, to US$4.58 billion, and the after-tax IRR more than doubles to 12.3 percent. Annual after-tax cash flow increases by more than 50 percent to US$1.5 billion over the first five years and US$814.9 million over the life of the mine - resulting in a payback period of 5.3 years.

"It's going to be a big mine, it is going to have very competitive cash-costs and it's located in the United States," Lang said.

Sokalsky will likely apply his three decades as a certified accountant as he weighs these attributes of Donlin Gold alongside Barrick's other projects worldwide.

"My focus will be on maximizing shareholder value and our mission of superior performance," said the new Barrick CEO.

Barrick's upper management has otherwise remained silent about the focus of the global mining firm since Sokalsky moved into the top executive office.

Author Bio

Shane Lasley, Publisher

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Over his more than 16 years of covering mining and mineral exploration, Shane has become renowned for his ability to report on the sector in a way that is technically sound enough to inform industry insiders while being easy to understand by a wider audience.


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