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Mining Explorers 2013: Novagold thrives during turmoil

Well-funded company expands Galore's Legacy; Donlin permitting on track

With roughly C$216.6 million in the bank at the end of the third quarter, Novagold Resources Inc. is well-positioned to complete permitting at its Donlin Gold project in Alaska and continue exploration at its Galore Creek copper-gold project in British Columbia.

"These are turbulent times in the business, but we have got the cash to see us through the permitting," Novagold President Greg Lang told attendees at the Denver Gold Forum.

Ahead of the financial tempest that is battering most of the titanic gold producers and junior exploration companies, Novagold topped off its coffers with the funds needed to carry the company through 2015, about the time permitting is expected to be complete at Donlin.

"Notwithstanding the share price and the continued market conditions challenging mining equities, we find ourselves in a better position as a company than we had hoped," Lang informed shareholders in a July 10 letter.

Additionally, the well-timed company significantly de-risked its balance sheet by shedding the Ambler and Rock Creek assets.

"We are a much simpler company focused on the Donlin project," Lang said in September.

Ambler, a high-grade volcanogenic massive sulfide project in Northwest Alaska, was spun out into NovaCopper, Inc. Rock Creek, a small gold operation near Nome that nearly reached production in 2008, was sold to Bering Straits Native Corp.

"In less than two years' time and ahead of the recent market decline, we completed the company's reorganization and the divestiture of non-core assets; streamlined expenses, reduced the debt and further strengthened the balance sheet; built a management with expertise in developing and operating large-scale projects; de-risked Donlin Gold and Galore Creek; as well as progressed our permitting and exploration activities as planned," Lang informed shareholders in a July 10 letter. "With these actions, we have effectively positioned the company to benefit tremendously from what we anticipate will be a very bullish environment for gold in the coming years."

In the meantime, NovaGold is positioned to take advantage of the market turmoil.

At a time when Novagold is beginning to shop around for the people, equipment and contractors needed to build and operate a mine at its 40-million-ounce Donlin Gold deposit, the company is finding these components are becoming surplus as the current downturn in mining equities and weakened metals prices are causing its peers in the mining sector scale back.

"A lot of circumstances are working in our favor right now," Lang told investors during a July 11 presentation.

Galore's Legacy

To further simplify Novagold, the Donlin Gold-focused company is also seeking a buyer for its 50 percent ownership of the Galore Creek project in northern British Columbia. But with no pressing need for the funds the sale would generate, the company is not willing to sell this enormous copper-gold asset at a bargain.

"Right now the industry is in a lot of turbulence and uncertainty; and frankly, it is not a good time to be selling assets," Lang conceded in July.

When asked what Novagold would consider as a fair price for Galore Creek, Lang pointed to the C$373 million Teck Resources Ltd. was willing to spend to earn a 50 percent ownership in the property as a reference point to the value of the copper asset.

According to a prefeasibility study completed in 2011, Galore Creek has proven and probable mineral reserves of 528 million metric tons averaging 0.6 percent copper, 0.32 grams per metric ton gold and 6.02 g/t silver.

The PFS foresees this deposit producing 6.2 billion pounds of copper, 4 million ounces of gold and 65.8 million ounces of silver over an 18-year span - making the proposed mine larger than any copper operation in Canada.

The study includes an enhanced plan that envisions adding some 200 million metric tons to these reserves by upgrading resources in Galore Creek's Central Pit and expanding it to encompass the adjacent Bountiful zone.

Galore Creek Mining Co. - the operating company equally owned and supported by subsidiaries of Novagold and Teck - began implementing the enhanced plan with an 18-hole program carried out in 2011, 15 of which cut significant intercepts.

A 27,900-meter drill program carried out by the Galore Creek partners in 2012 continued to have success in infilling the Central Pit, including Bountiful.

Highlights include:

GC12-0847 (Bountiful) cut 122 meters grading 1.02 percent copper, 0.28 g/t gold and 9.1 g/t silver;

GC12-0842 (Central - North) cut 207 meters grading 0.84 percent copper, 0.21g/t gold and 9.3 g/t silver; and

GC12-0838 (Bountiful) cut 193 meters grading 0.59 percent copper, 0.18 g/t gold and 5.8 g/t silver.

While results from the infill drilling were encouraging, the discovery of the adjacent Legacy was the high spot of the 2012 drill program. Intercepts along a 700-meter stretch of this new zone returned intercepts with grades and lengths comparable to the main ore-body.

Legacy highlights include:

GC12-0886 cut 245 meters grading 0.83 percent copper, 0.15 g/t gold and 7.2 g/t silver;

GC12-0877 cut 101 meters grading 1.01 percent copper, 0.39 g/t gold and 5.6 g/t silver;

GC12-0849 cut 86 meters grading 1.31 percent copper, 0.46 g/t gold and 6 g/t silver; and

GC12-0845 cut 229 meters grading 0.55 percent copper, 0.17 g/t gold and 7.2 g/t silver.

"Last year's exploration program yielded excellent drill results with impressive widths and gold grades which have extended the mineralization well beyond the current pit," Lang said upon the February release of the results.

Novagold is currently working on an estimate that will expand the Galore Creek resource with these results.

This year's C$16-million program at Galore Creek, borne equally by each partner, included an 11,000-meter drill program that is expected to further expansion of the newly discovered Legacy zone.

While Novagold continues to have a "for sale" sign on its Galore Creek asset, the company is content to keep doing property upgrades until a seller's market returns to the mining sector.

"We are happy to keep (Galore Creek) because it is a great asset, it is in British Columbia, and it will be recognized when sentiment changes," Lang said.

Donlin Gold on track

For Novagold, it would be ideal if this change in sentiment came before the end of 2015, the anticipated completion date of the Donlin Gold permitting process.

At roughly a year since Donlin Gold LLC - the operating company equally owned and supported by subsidiaries of Novagold Resource Inc. and Barrick Gold Corp. - Lang reports that the three-to-four-year process remains on schedule.

The permitting kicked off with a public scoping and comment period in which the project developers presented their vision of developing and mining the enormous gold deposit situated in the Kuskokwim region of Southwest Alaska.

The mine plan presented was based on a feasibility study completed in 2011.

This economic analysis of the potential mine envisions a 53,500-metric-ton-per-day mill churning out an average of 1.1 million ounces of gold annually at a cash cost of US$585 per ounce for 27 years. 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.

The U.S. Army Corps of Engineers is currently preparing a draft environmental impact statement, which is expected published around August 2014. Incorporating the input from the public comment period, the Corps will prepare a final EIS, an exercise expected to take about a year. A decision on the final EIS and the bevy of accompanying permits is slated for the end of 2015.

"We welcome the scrutiny that the permitting process brings, given the importance of a project of this size," Lang said. "And, we have sufficient funds to take us all the way through permitting and to a construction decision."

Thomas Kaplan, Novagold's chairman and largest shareholder, is confident that when permits are in hand the Donlin Gold owner(s) will be ready and willing to develop one of the biggest gold mines on the planet.

"Donlin will be built, and when it is built it will be one of the great trophies of the industry," he informed fellow shareholders at the company's annual meeting in May.

At the end of the second quarter, Kaplan's privately held company, Electrum Strategic Resources, held 27 percent of Novagold's issued and outstanding shares.


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