Novagold gets US$275M for Galore Creek
Cash from sale will be applied to development of Donlin Gold
Last updated 8/10/2018 at 6:28am
Novagold Resources Inc. July 27 announced it has closed the deal to sell Newmont Mining Corp. its 50 percent interest in the Galore Creek copper-gold project in northwestern British Columbia for US$275 million.
"I'm very pleased that Novagold is receiving fair value for its interest in Galore Creek and believe that Newmont is the right organization to carry forward the track record of excellence that we have achieved with our partners over the years," said Novagold President and CEO Greg Lang.
Newmont delivered US$100 million to Novagold on the closing of the deal and the balance will be paid as milestone payments in the coming years – US$75 million upon completion of a prefeasibility study or three years, whichever comes first; US$25 million upon completion of feasibility study or five years, whichever comes first; and US$75 million upon a decision to develop a mine at Galore Creek.
"Novagold is expected to end this year with over US$150 million in cash, with a further US$100 million of guaranteed payments to follow over the next five years. Should Galore Creek proceed to a construction decision, Novagold will receive an additional US$75 million," said Novagold Chairman Thomas Kaplan.
A feasibility study completed in 2011 envisioned a mine at Galore Creek producing 6.2 billion pounds of copper over an 18-year span, which would rank as the largest copper operation in Canada.
Crediting the value of the 4 million oz of gold and 65.8 million oz of silver forecast to be recovered over that mine-life, Galore Creek also would be the lowest cost copper producer in the country.
Teck Resources Ltd., which owns the remaining 50 percent of Galore Creek, waived its right of first refusal on this world-class copper project in B.C.'s Golden Triangle, opting instead to advance Galore Creek in partnership with Newmont.
"We are delighted to have Newmont as a partner," Teck President and CEO Don Lindsay told investors on July 26.
Teck said it plans to invest US$10 million to US$15 million annually for its share of the work needed to complete an updated prefeasibility study for Galore Creek over the next three or four years.
"Our objective for Galore Creek is to complete an updated prefeasibility study over the next 3 to 4 years to improve our overall project understanding," said Lindsay.
Newmont has committed to contribute another US$10 million to US$15 million per year to carry forward the work completed by Novagold and Teck.
"Galore Creek holds the potential to support decades of profitable copper and gold production in a favorable mining jurisdiction, in line with our strategy to create long-term value for our stakeholders," said Newmont President and CEO Gary Goldberg. "Partnering with Teck allows us to bring both organizations' considerable technical, financial and sustainability strengths to bear in evaluating and refining development plans for Galore Creek, and to build on the strong relationships Teck has established with the Tahltan First Nation and British Columbia."
Cash for Donlin Gold
The sale of Galore Creek provides Novagold with cash to help achieve its primary goal – develop a mine at the world-class Donlin Gold project in Southwest Alaska.
"With approximately 39 million ounces of measured and indicated gold resources grading 2.24 grams per tonne (metric ton), Donlin Gold is one of the most valuable projects in our industry today," said Lang.
Novagold owns a 50 percent interest in Donlin Gold LLC, the company created to permit and eventually develop this enormous gold deposit, global gold miner Barrick Gold Corp. owns the other half.
Since the United States Army Corps of Engineers completed the final Environmental Impact Statement for Donlin Gold at the end of April, the partners are continuing to gain approvals for the more than 100 permits required to develop a mine there.
The next major milestone in the permitting process is for the Corps to complete a record of decision, a final EIS document that will reveal the preferred mine development alternative for Donlin and explain why this is the most environmentally sound, yet feasible, plan for advancing a globally significant mine at this gold deposit.
This decision is expected by the end of August and Novagold expects the remaining key permits and approvals to be issued by that time.
"As we approach receipt of the record of decision, marking successful completion of a multi-year National Environmental Policy Act assessment and federal and state permitting processes, as well as advancing the project optimization study with our partner Barrick Gold, our team is looking forward to continuing to build value for Donlin Gold with our customary discipline and professionalism," said Lang.
Optimizing Donlin Gold
The optimization studies being advanced by Novagold and Barrick are looking into ways to enhance the mine plan for Donlin Gold while maintaining upside potential and collecting the information needed to update a feasibility completed for the project in 2011.
The 2011 study details a 53,500-metric-ton-per-day operation that is estimated to average roughly 1.1 million oz gold annually over a projected 27-year mine-life.
This is based on the 504.8 million metric tons of proven and probable reserves averaging 2.09 grams per metric ton (33.85 million oz) gold currently slated for mining at Donlin.
As part of the optimization studies, Barrick and Novagold carried out a 16-hole drill program at Donlin last year.
Highlights from the 16 holes drilled include: 130.5 meters grading 5.93 g/t gold; 39 meters of 9.34 g/t gold; 43.9 meters of 7.6 g/t gold; 64 meters of 5.09 g/t gold; and 30.4 meters of 10.3 g/t gold.
With a better understanding of the mineralization and structures within the targeted zones, Novagold and Barrick said the new data will provide valuable inputs to advance optimization work.
"One of the opportunities being studied is the ability to mine more selectively, which could improve feed grade," said Lang.
This plan will likely entail feeding the higher grade ore into a smaller mill than envisioned in 2011, with the option to scale up production in stages.
The Novagold CEO said "innovative technologies in logistics and automation, and modular construction techniques to improve efficiencies," are other optimization ideas the Donlin Gold partners are looking into.
A decision on building a mine at Donlin Gold is not expected until after the optimization work is complete and the results are incorporated into the updated feasibility study.
Novagold said the sale of Galore Creek affords the company the time and money to be patient in making the decision to develop a world-class gold mine in Southwest Alaska.
"Reminding ourselves of our consistent refrain that such a decision, in turn, is expected to be taken at a point when gold has resumed its long-term bull market trajectory which should imply much, much higher share prices, the implications of this transaction for the value of Novagold's shares cannot be overstated," said Kaplan.