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Vol. 12, No. 12 Week of March 25, 2007
Providing coverage of Alaska and Northwest Canada's mineral industry

MINING NEWS: NovaGold sees progress on three projects

Legal issues and construction challenges don’t deter the feisty junior, which is developing deposits in Alaska and British Columbia

By Sarah Hurst

For Mining News

Vancouver-based NovaGold Resources got some encouraging news on all three of its major projects recently. The U.S. Army Corps of Engineers reissued its permit for Rock Creek; Galore Creek received its British Columbia Environmental Assessment Certificate; and Donlin Creek expanded its resources by an impressive amount. But progress has come at a cost: the company had a net loss of $30.5 million in 2006, compared with a net loss of $5.8 million in 2005. Most of the additional expenditures — $21 million — went to fighting off Barrick Gold’s takeover bid.

The original corps permit issued for NovaGold’s Rock Creek gold project near Nome last August authorized the placement of fill material into 414.5 acres of wetlands. The corps suspended the permit Dec. 6 in response to a lawsuit filed in U.S. District Court by Trustees for Alaska and the Western Mining Action Project on behalf of three Nome residents. Among the plaintiffs’ problems with the project was the allegation that the corps violated the National Environmental Policy Act by issuing its permit without an environmental impact statement.

The corps announced in late February that it would reissue the permit and that the revised permit would become effective March 13. “We are committed to protecting important aquatic resources, while allowing reasonable development within the State of Alaska,” said Col. Kevin J. Wilson, commander of the Corps of Engineers’ Alaska District. “I’m confident that this decision is a positive reflection of our efforts to provide an equitable balance that is in the public’s best interest,” he added.

Wetlands fill reduced

As a result of revisions to project drawings and wetland mapping, the reissued permit will authorize the placement of fill into 346.5 acres of wetlands. Several of the original special conditions of the permit have been clarified to improve enforceability and new conditions have been added, requiring NovaGold’s subsidiary Alaska Gold to clearly mark boundaries of authorized fill sites and to submit an annual report to the corps.

The modified permit includes a number of mitigation measures to reduce overall project impacts, such as a plan to re-establish fish and wildlife habitat along Big Hurrah Creek. Other local streams that have been historically placer mined will also be restored to conditions similar to a pre-mining state. Alaska Gold will retrieve mine tailings that historically were disposed of in stream channels and use the material for road construction and other work associated with the project. The company will then re-contour the stream channels to a more natural condition.

“We are pleased with the corps’ decision to reinstate the permit, and have appreciated the support expressed for the project by the community of Nome, and in particular the Bering Straits and Sitnasuak Native corporations,” said Peter Harris, NovaGold’s senior vice president and chief operating officer. “The result of the permit review supports our belief that both NovaGold and the U.S. Army Corps of Engineers followed all necessary procedures when permitting Rock Creek,” he added.

Construction has been progressing

Construction at Rock Creek has been progressing in areas that were unaffected by the suspended permit, Harris told investors in a conference call March 2. The pit shop maintenance facility and the reagent storage facility are both complete, he said. Ball mill foundations, including major concrete pours, are also almost complete. “We’re very fortunate here in that although this property is very close to the Arctic Circle, temperatures during the major concrete pours, including the 300-year ball mill foundations, were round about zero degrees Celsius,” Harris said. “Access roads into the open pit and dump areas are in progress and recruitment of operating personnel is on schedule.”

NovaGold expects Rock Creek mine to commence operations later this year, producing about 100,000 ounces of gold annually, according to the company’s president and CEO, Rick Van Nieuwenhuyse. “We will be doing more exploration work in the district, we see a tremendous amount of exploration potential in this district,” Van Nieuwenhuyse said in the conference call. NovaGold plans to do about 10,000 meters of drilling on the project this year.

The company expects Trustees for Alaska to refile their lawsuit now that the permit has been reissued. “The biggest question is whether or not the court would grant an injunction, which they have requested. ... We would not then meet our targets,” Van Nieuwenhuyse said. “We hope that the court pays due respect to the vast majority of the wishes of the community of Nome,” he added.

Donlin Creek: Some $55 million spent in 2006

At the Donlin Creek gold project in southwest Alaska, where NovaGold is in a joint venture with Barrick, measured and indicated resources have risen by 5 million ounces, bringing the total to 19.8 million ounces as a result of the conversion of inferred resources. Inferred resources have been reduced to 1.6 million ounces from 13.6 million as a result of the conversion to measured and indicated resources, as well as reinterpretation of geology and changes in economic assumptions. Results from 42,000 meters of drilling completed in late 2006 have not yet been evaluated, Barrick said in a release Feb. 22.

Barrick spent approximately $55 million on the project in 2006 for exploration, including 92,800 meters of infill drilling, updating the geological model and confirming optimum tonnage. The project envisions two open pits, a milling capacity of 50,000 metric tons per day and a strip ratio of about 6:1. Barrick plans to spend about $87 million on Donlin Creek in 2007 to complete the feasibility study and continue drilling to increase measured and indicated resources. The company will carry out 70,000 meters of additional infill and in-pit delineation drilling.

NovaGold successfully defended itself against Barrick’s hostile takeover bid that ended in December, but the two companies are still embroiled in legal battles over the Donlin Creek feasibility study and the use of claims adjacent to Galore Creek, which Barrick now owns. Barrick is confident that it will meet the terms of the Donlin Creek joint venture agreement with NovaGold, which require Barrick to complete a bankable feasibility study in November and make a construction decision immediately afterwards. NovaGold’s management disagrees.

“By the middle of November the deadline for Barrick comes along and they will fail to meet their obligations for backing in, and NovaGold expects to resume management of the project,” Van Nieuwenhuyse said in the conference call. The issue hinges on the definition of a “bankable” feasibility study, as NovaGold says the feasibility study that Barrick will produce will not be bankable. If NovaGold prevails, it will remain as 70-percent owner of Donlin Creek, instead of Barrick increasing its ownership from 30 percent to 70 percent. NovaGold expects to spend “a couple of million dollars” on litigation in 2007, according to Chief Financial Officer Don MacDonald.

Company has certificate for Galore Creek

NovaGold announced Feb. 23 that it had received the environmental assessment certificate for the Galore Creek copper-gold-silver project in northwestern British Columbia. The certificate contains a series of commitments that NovaGold will implement throughout the various phases of the project. These include ongoing assessment of water treatment options; maintaining aquatic, fisheries and wildlife monitoring programs; continuing the collection and analysis of water, sediment and biota; developing a long-term maintenance and mitigation strategy for the tailings impoundment dam and spillway; and developing a wildlife mitigation and monitoring plan.

Approval of the project’s environmental assessment certificate clears the way for the issuance of the various permits and authorizations required to construct and operate the mine. NovaGold anticipates receiving these approvals in the second quarter of this year, with construction targeted to begin by mid-2007. As envisioned, Galore Creek would be developed as an open pit mine at a 65,000 metric tons-per-day processing rate over a minimum 20-year mine life. The project also includes the construction of a 128-kilometer road through mountainous terrain and a 3.8- kilometer tunnel.

After permits are received, NovaGold plans to spend $225 million on construction at Galore Creek in 2007, which is a reduction from the $303 million envisaged in the feasibility study. Since the Barrick takeover bid ended, NovaGold has seen significant additional interest in its financing plans for Galore Creek, CFO MacDonald told investors. “This has created somewhat of a quandary, because frankly we have many different opportunities, and we have to balance the interests between trying to achieve getting the best joint venture terms for the company and the best initial and long-term financing terms. A somewhat exciting position for us,” he said.

“Over the next 12 months, therefore, you can expect to hear from NovaGold that it has entered into a joint venture agreement on Galore Creek with either an industry partner or smelting group. That we have entered into initial financing for the project, either from a private equity strategic investor, or from a public equity and/or debt financing. We do not currently expect to need to complete the long-term debt financing for the project until at least 2008,” MacDonald added.

Senior project and construction management teams for Galore Creek are fully staffed and recruitment of supervisors is on schedule, COO Harris said in the conference call. About 30 percent of the camp and ancillary equipment required to support all ongoing construction startup activities has been shipped to site and the remaining equipment is either en route or in manufacturing, he added.

“Major contracts have been awarded to allow pre-positioning of contracting equipment ready for transportation into construction areas, including access road tunnel contracts, access road contracts, bridges, camp catering and electrical and avalanche control. All of these contracts have been inked and are ready to go,” Harris said. “Major contracts in final negotiation include helicopter support, fuel, explosives and others,” he added. The construction team office is now complete in Smithers and satellite communications have been installed to support construction and other current operations.

Additionally, NovaGold has revised its plans for Galore Creek to minimize construction risks, especially during phase 1, which will be supported entirely by helicopter through mid-2009, when the access road and tunnel are due to be completed. “These changes have extended our construction program by an additional summer construction period, but in doing so we have considerably reduced construction risk in phase 1 and reduced construction costs in 2007,” Harris said.

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