NovaGold/Barrick Moving Forward at Donlin Creek

NovaGold Resources Inc. (AMEX: NG) and Barrick Gold Corporation (NYSE: ABX) announced the execution of documents settling all outstanding ownership issues at Donlin Creek. This would have otherwise been a non-event if not for the recent joint announcement with Teck Cominco Ltd. (NYSE: TCK) to place the Galore Creek project on hold. Considering the timing of the release following the announcement it provides an indication that both NovaGold and Barrick are on the same page to advance the Donlin Creek project in 2008.

We believe Donlin Creek project may be the story in 2008. While ownership of Donlin Creek was thoroughly hashed over following the tender offer by Barrick, we believe that the market does not fully understand the value of this asset. For example, the project is reported to have a resource of over 30 million ounces of gold. Without the cloud of uncertainty due to ultimate ownership which existed through November of this year it is more likely that the project will begin to take shape in the eyes of investors. The deposit is open to expansion, and based on testimony offered in court, the project has potential for expansion well beyond the identified resource. NovaGold reports that an update of drill results is expected before the end of 2007.

NovaGold and Barrick have provided their own ideas for the development of Donlin Creek. Much should be determined on this matter in 2008 as the partnership is scheduled to produce a feasibility study by mid-year. With little information on Donlin Creek over the past year investors have lacked the basis to draw an informed conclusion on the value of this important asset. It is certain that the industry is squeezed for resources and capital cost inflation will likely be seen at Donlin Creek in line with other projects in the industry. Unlike Galore Creek, the Donlin Creek project is located in Alaska and will not incur currency risks from increased costs in Canadian dollars. Capital costs will be defined by the ultimate approach to providing power to Donlin Creek. We understand that the most recent Barrick work was based on a dual diesel and wind power approach and that NovaGold’s SRK study was based on a connection to the Alaska power grid. Based on our investigation with Alaskan power utility companies we believe that connecting to the Alaskan power grid is a viable option. This option has good potential to help contain operating and capital costs and should be better understood by mid-2008.

We suspect that additional drill results may lead to an increase and upgrade of the identified resource at Donlin Creek. The SRK study indicated potential for an immediate 10 to 15 million ounce expansion potential beyond the current pit model. It would also appear that additional visibility on likely construction costs, including a consensus decision by NovaGold and Barrick regarding the optimal approach to power at Donlin, should be well received by investors. As Donlin Creek is among the world’s largest undeveloped gold projects, NovaGold shares at the current level appear to be significantly undervalued relative to the scheduled milestones in 2008 and the Company’s other assets. We believe that the recent sell off has presented an opportunity for value investors.

Disclosure: Author is long NG and has no positions in any other stocks mentioned in this report. An affiliate of the author’s employer provides corporate advisory services to NG.

Comments

[goldbug]

Gonna be interesting to see Alaska and the JV partner TNR Gold Corps development...

TNR's gonig up against Xstrata and there must be smth interesting... stocks' up 30% from mid June!!

TSX: tnr.v
tnrgoldcorp.com