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By Shane Lasley
Mining News 

Entering a new chapter for Donlin Gold

With an eye on gold price, partners close in on mine decision

 
Barrick Gold and Novagold Resources Donlin Gold mine project

Novagold Resources Inc.

Optimization drilling completed at Donlin in 2017 cut 130.5 meters of 5.93 g/t gold and 39 meters of 9.34 g/t gold, demonstrating that the higher grades that are found within the 39-million-ounce gold deposit in Southwest Alaska.

While neither Barrick Gold Corp. or Novagold Resources Inc. have officially announced plans to proceed with the development of Donlin Gold, there are indications that partners are leaning toward a positive decision on this 39-million-ounce gold mine project in Southwest Alaska.

"With permitting largely complete, we are shifting more focus on integrating scoping-level optimization work into a study that will serve as the basis for an updated project development plan," Novagold Resources President Greg Lang penned in the company's quarterly report.

"Given Donlin Gold's stage of development, this is the right time to advance work such as the Alaska Dam Safety certificates and engineering studies, to have the flexibility needed to proceed with the development of Donlin Gold," he added.

Though nuanced, this is a shift from previous dialogue focused on the optimization studies being carried out by Barrick and Novagold, equal partners in Donlin Gold, to incorporating the results of this work into a final design for the coming mine.

"We have moved Donlin Gold further up the value chain and look forward to the next chapter as we advance the project," said Lang.

There are also signs that following the merger with Randgold Resources Ltd., Barrick's new leadership remains interested in developing a mine at Donlin.

The Barrick-Randgold merger raised questions as to whether Donlin Gold would fit into the mega-gold-miner's future plans, considering that the combined company will likely sell off non-core assets as the company restructures the combined portfolio.

Former Randgold CEO Mark Bristow, who took over executive leadership at Barrick following the merger, is renowned for having high expectations for mines and development projects under his charge.

"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.

With 39 million ounces of gold in measured and indicated resources that average 2.24 grams per metric ton, Donlin Gold definitely fits into both the world-class and high-quality categories.

"Deposits like Donlin Gold are extremely scarce and very important, particularly given the industry's rapid decline in gold reserves and grade," said Lang.

The project, however, is also remote and will require upfront capital measured in the billions.

A 2011 feasibility study for Donlin Gold envisions a 53,500-metric-ton-per-day operation that would produce an average of roughly 1.1 million oz gold annually over a projected 27-year mine-life.

The price tag to build this mine was calculated at roughly US$7 billion, which includes a roughly US$1 billion pipeline to deliver natural gas to the enormous gold project about 300 miles west of Anchorage.

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$8.2 billion (without a discount). This value, however, substantially improves with the price of gold. At US$2,000/oz, a roughly 50 percent increase in gold price, the NPV more than doubles to US$19.2 billion.

The economics are expected to improve with the new mine plan that incorporates the optimization studies carried out by the Donlin Gold partners over the past few years.

One of the options being considered for the new plan is to start out with 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 feasibility study, would reduce initial capital outlays and likely improve project economics.

Lang indicated that the new Barrick team has remained interested in moving forward with the optimized Donlin Gold mine project and is bringing some new ideas to the table.

"With the completion of the recent Barrick-Randgold merger, the Donlin Gold partnership is clearly benefitting from very constructive input from Barrick's new technical team," said the Novagold CEO. "We have a common goal of advancing the project in a financially-disciplined manner with a focus on engineering excellence, environmental stewardship, safety and social responsibility."

The optimized mine plan and supporting feasibility study are expected to be finalized once the new Barrick Gold team has a chance to thoroughly go over the extensive data associated with developing a mine at Donlin.

"I think we are still some months out to committing to a firm date on when Barrick will finish getting their arms around the project," Lang informed investors and analysts on April 3.

This timeline works well for Novagold, which is not in a rush to pull the trigger on development.

"With time, we believe Donlin Gold's scarcity value can only get better as the industry depletes its established endowment in the face of what we expect to be a 'long wave' in gold to rival the first leg that took it from US$250 to US$1,900 per ounce," Lang said.

Novagold President and CEO Greg Lang Donlin Gold Mine project Alaska

This anticipated next leg up in gold price would also likely spur a significant boost in the Novagold share price, which would provide the company more options when it needs to raise money for funding its half of building a mine at Donlin.

"That's when we ... and Barrick will make a construction decision," said Novagold Chairman Thomas Kaplan.

With US$162 million in its treasury, Novagold has the financial wherewithal to wait for markets to turn its way and believes its shareholders and Donlin Gold stakeholders will be well rewarded with the company's patience to develop a streamlined mine in a gold price environment that pays dividends for the 39 million ounces of gold outlined so far in Southwest Alaska.

 

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