Nearly a year after the cost over-run disaster at Galore Creek, analyst Paolo Lostritto of Wellington West Capital Markets wrote that the future actually looks promising for NovaGold Resources Inc. (NYSEMKT:NG).
With the Rock Creek mine up and running, NovaGold is finally generating some solid cash flows, and Mr. Lostritto figures that the company is well-positioned to establish a revolving line of credit.
The real promise for the company is in its two monster projects: Galore Creek and Donlin Creek. Mr. Lostritto noted that cost inflation concerns at these deposits are still on the minds of investors, but also calculated that NovaGold could generate EBITDA of C$695-million in 2015, growing to C$900-million in 2016, on the strength of these projects.
He has a "buy" rating on the stock and a C$7.00-a-share target price, well above the current level of around C$4.00. He noted that the current price does not take into account falling fuel and steel costs, and that as a result, the cost escalation figures that some analysts are using for large projects like Galore Creek and Donlin Creek are too punitive.
Mr. Lostritto's target for NovaGold assumes a long-term gold price of just $750 an ounce. But in what he calls the "ultra bullish" case of a $2,000 gold price, he calculated that NovaGold shares should be worth C$85 each.
NovaGold remains one of the highest leverage stocks in our coverage universe as a 10% change in the gold price results in a 32.8% change in our estimated [net asset value].