Today has been an absolute bloodbath for NovaGold Resources (NG). Its been taken out back and shot, and that's putting it mildly. NG has been selling off in recent months with all of the other gold miners, [see any of the major gold miner indexes, GDX, GDXJ, NUGT, etc,] given that the price of Gold has been under pressure due to a stronger dollar and potential deflation risks. The largest gold ETF (GLD) is just about flat for the year, and before the recent rally on QE3 rumors, was negative on the year. After today however, it highly oversold in my opinion.
So why is NG being obliterated? It is due to Barrick Gold's (ABX) most recent quarterly report, specifically its decision with respect to the Donlin Gold Project in Alaska, in which NG is heavily vested owning 50% of it. In its recent filing, ABX stated about Donlin Gold that it "would not make a decision to construct them at this time. However, they contain large, long-life mineral resources in stable jurisdictions, have significant leverage to the price of gold, and therefore represent valuable long-term opportunities for the company."
Shares of NG opened trading at $3.93 and set it 52 week low of $3.61 mid morning. Shares of ABX were also getting crushed. All on a day where gold and the GLD are up handily after Mario Draghi's statements regarding the Euro. Further, the company's Relative Strength Index reading was well below 30, touching 23, technically suggesting that NG is indeed oversold. Midday, NG came out to state they they agree with ABX's decision. In response to ABX's decision, Greg Lang, President and CEO of NG had the following to say:
"With the annual expenditures at Donlin Gold through the permitting process expected to be a modest $40 million on a 100% basis over several years, the co-owners of the Project have an incredible opportunity to optimize capital and operating costs and yet take full advantage of Donlin Gold's significant leverage to the price of gold in an environment of what the Company strongly believes is a secular bull market in gold. We cannot over-emphasize our belief that, in an era increasingly defined by asset scarcity and resource nationalism, this exceptionally large, high-grade, long-life and geopolitically safe gold project provides its stakeholders with a unique opportunity for substantial wealth generation for many years to come. Furthermore, with its strong and time-honored relationship with Calista Corporation and The Kuskokwim Corporation, who own the mineral and surface rights to Donlin Gold, our Project team can continue strengthening its well-established track record of social engagement and environmental stewardship in the community."
Although in the short term progress has been halted, NG is poised well to profit along with its partners should this site come into full operation in coming years, particularly since I believe the long term secular bull market on gold is just getting started. While the decision from ABX is a significant short term headwind to NG, I believe NG is now an oversold buying opportunity for the long term gold investor. The entire gold mining sector has been battered in the last few months. Further, the price of gold is heading higher, especially if QE3 becomes a reality, which seems more and more likely. At the time of this writing, NG is 10% off of the lows. While the GLD is my favorite direct play on gold, I think an investor with a 5 to 10 year horizon would do well to consider NG as a speculative, long term investment in the gold mining space.