North of 60 Mining News - The mining newspaper for Alaska and Canada's North

Will the new Barrick Gold Corp. sell its 50 percent stake in the Donlin Gold project? This is the question on the minds of many Donlin Gold stakeholders and Novagold Resources Inc. shareholders following Barrick Gold's merger with Randgold Resources Ltd.

Currently, Barrick and Novagold are 50-50 co-owners of Donlin Gold, a 39-million-ounce gold project in the Yukon-Kuskokwim region of Southwest Alaska. While the size of this deposit is definitely world-class and the resource grades, at 2.24 grams per metric ton, are fantastic for a deposit of this size, there are questions as to whether the project will meet the high bar set by the new Barrick Gold management.

Novagold Resources President and CEO Greg Lang said the Barrick-Randgold merger puts his company in a win-win situation – either Barrick sees Donlin as a core asset and moves the project forward or sells the world-class gold project to a company eager to realize the potential of this enormous asset.

"There is a reason why our chairman refers to the changes at Barrick as a 'white swan' event!" the Novagold President penned in the company's 2018 year-end financial report.

Reminding shareholders that Novagold has first right of refusal if Barrick does decide to sell Donlin, which gives them a voice in who a new partner would be, Novagold Chairman Thomas Kaplan said that either decision made by Barrick will raise the profile of Donlin Gold.

"Anything that allows us to have a partner, whether it's Barrick or whomever, will be accretive to us, because we have the best story in the space," Kaplan said.

"Any statement that makes our shares more publicly assessed is going to be very positive for us," he added.

Fitting the Randgold model

Mark Bristow, the former CEO of Randgold and the new CEO of Barrick, is well-known for ensuring that the assets in his company are able to survive low gold prices.

"If you want to be in mining, a good place to start is with world-class, high-quality assets and then you can survive the cyclicality of the industry, in particular the gold industry," the new Barrick Gold CEO told Bloomberg in November.

"Our drive, and mine in particular, is to get the new Barrick back to the Randgold model, where you are delivering returns through dividends and equity increases," he added.

Under the Randgold model, an asset would need to deliver returns at a US$1,000/oz gold price, which leaves Donlin Gold teetering on the edge of making the cut, at least under the plan outlined in a feasibility study completed in 2011.

This feasibility study for Donlin envisions 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.

"Donlin Gold has longevity with an anticipated production profile greater than 1 million ounces per year over a 27-year mine life. Clearly, in a league of its own when compared to the peer groups," Lang said.

This massive gold output more than matches the gold produced by all other Alaska mines and the deposit is considered high-grade for an asset of its size.

"Donlin grade, at 2.25 grams, is twice the world industry average and puts it in a category of its own as one of the highest grade known open-pit gold deposits," Lang informed investors and analysts on Jan. 24. "This is a very important quality in the context of the challenges facing the precious metals industry as reserve grades continue to decline and sources of emerging production become increasingly scarce."

The price tag to build the mine detailed in the 2011 study was nearly US$7 billion, which includes a roughly US$1 billion pipeline to deliver natural gas to the enormous gold project.

Based on the current gold price of US$1,300/oz, the Donlin Gold mine detailed in the study would produce a net present value of US$1.37 billion and an internal rate of return of 7.5 percent.

Over the past couple of years, Novagold and Barrick have been looking into options that would bring down costs and improve returns.

As part of the optimization studies, the Donlin Gold partners carried out a 16-hole drill program in 2017 that provides a better understanding of the mineralization and structures within the targeted zones.

Highlights from this program 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.

While the overall Donlin deposit is well above average for an open-pit mine, these long intersection of five to 10 g/t gold show that more selective mining could deliver even higher grades.

Given the results from this optimization drilling, coupled with statements by both Novagold and Barrick, it is anticipated that Donlin Gold will start out as a somewhat smaller mine that focuses on higher-grade portions of the deposit, an operation that could be scaled up in the future.

Such a strategy, coupled with incorporating new technologies and other ideas not considered in the 2011 study, would reduce initial capital outlays and would likely improve project economics.

The updated feasibility study, expected to be finalized once the new Barrick Gold team settles in, will provide further information on whether this optimized mine fits the Randgold model adopted by the new mega-gold-miner.

"With the recent completion of the merger between Barrick and Randgold, we are looking forward to working with the newly constituted technical team to advance the project in an efficient, responsible and cost-effective manner," said Lang.

Tremendous optimism

While Kaplan took the opportunity to address the question, the Novagold chairman is not convinced that Barrick would be willing to sell a North American gold asset as well-endowed as Donlin.

"Is there any reason why Barrick should sell it? From my perspective, 'no'," he said in response to an analyst's question on the topic.

But, he said, the expanded Barrick Gold has a global portfolio of assets to consider and prioritize, and it is ultimately up to that company's merged management team to decide what to do with its half of the Alaskan gold asset.

Thomas Kaplan

Whether Barrick decides to move ahead as Donlin partner or bolster its balance sheet with a sale of 39-million-ounce gold asset, Kaplan believes that the Barrick-Randgold merger and proposed Newmont Mining Corp.-Goldcorp Inc. merger show the need for gold projects of Donlin's magnitude.

"The Barricks of the world, the Newmonts of the world, they need to make deals, they need to add reserves," said the Novagold Resources chairman. "They know that they're burning through reserves faster than they can replace them."

This need for gold reserves is why Kaplan continues to be bullish about Donlin Gold and the future of Novagold, whether the next phase is with Barrick as a partner or another miner joins Novagold to develop a world-class mine at this enormous gold asset.

"We look forward to the future with a tremendous amount of optimism," he said.

Author Bio

Shane Lasley, Publisher

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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