NovaGold Resources: What A Slide
Summary
- The outstanding diluted and the long-term debt are kept at the same level, and the total cash is $155.13 million at the end of the 1Q22.
- The 2021 drill program was successfully completed, with 79 holes (24,264 meters) drilled in the ACMA and Lewis pit area.
- I recommend buying NG at or below $6.10.
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Introduction
NovaGold Resources (NYSE:NG) owns 50% of a gold project in Western Alaska called the Donlin Gold Project. The joint venture is shared with Barrick Gold. The company released its first-quarter results on April 5, 2022, ending 02/28/2022.
This article is an update of my article published on October 10, 2021.
CEO Gregory Lang said in the conference call:
At the end of the first quarter, we reported the final assay results in a joint release with Donlin and Barrick. The 2021 drill program was completed in late September, with 79 holes, totaling approximately 24,000 meters.
1 - Presentation and 1Q22 Results Snapshot
NovaGold Resources and Barrick Gold USA - a subsidiary of Barrick Gold (GOLD) - are developing the Donlin Creek open-pit gold project in Alaska under a 50-50 joint-venture ("JV") partnership called Donlin Gold (2007).
On April 8, 2022, the company issued a presentation on YouTube that I recommend watching. Click here to view.
The company filed its 10-Q for the first quarter of 2022 on April 4, 2022.
2 - Investment Thesis
The Donlin open-pit gold project is an exciting project that presents exceptional qualities. However, I am always hesitant to invest long-term too early in such a project despite the practical support of Barrick Gold which owns 50%.
There is always a large grey area and uncertainties regarding the accurate valuation of a gold project of this size, making it challenging to know where shareholders stand in terms of stock valuation.
The recent fluctuations based on relatively small gold price variations undoubtedly illustrate the problem we face. There is always a lot of hype attached, and I have noticed that entering the game too early is not a good idea.
Therefore, as I regularly recommend to my subscribers in my marketplace, "The Gold and Oil Corner," I strongly recommend trading short-term LIFO by using about 70% of your position. I also recommend building a core long-term investment that you keep and grow until the project reaches the final investment decision.
Note: Trading LIFO is only allowed in the USA but not in Europe or Canada. However, it is possible to trade NG and keep a long-term position while trading the short-term using two separate accounts. Please read my final note about it at the end of my article.
3 - Stock Performance
NG has dropped over 30% on a one-year basis, from nearly $9 to $6.2. We could use this downside as an opportunity to invest long term at a reasonable price, but be cautious.
NovaGold Resources 1Q22 (Ending August 31, 2021) - The Raw Numbers:
Note: The company is not generating revenues. Development stage.
| NOVAGOLD Resources | 1Q21 | 2Q21 | 3Q21 | 4Q21 | 1Q22 |
| Net Income in $ Million | -7.96 | -10.52 | -11.79 | -10.27 | -10.00 |
| EBITDA $ Million | -6.52 | -9.04 | -10.17 | -8.74 | -8.48 |
| EPS diluted in $/share | -0.02 | -0.03 | -0.04 | -0.03 | -0.03 |
| Operating Cash Flow in $ Million | -4.29 | -1.98 | -1.88 | -1.72 | -6,00 |
| Total Cash $ Million | 114.2 | 107.6 | 173.34 | 169.12 | 155.13 |
| Long term Debt in $ Million | 111.24 | 107.59 | 114.22 | 115.72 | 117.24 |
| Shares outstanding (diluted) in Million | 331.30 | 332.50 | 331.64 | 331.86 | 332.99* |
Source: NovaGold Resources 10-Q
* In the 10-Q: As of March 29, 2022, the Company had 333,192,571 common shares, no par value, outstanding.
As shown in the table above, the outstanding diluted and the long-term debt are kept at the same level, and the total cash is $155.13 million at the end of the 1Q22.
NG: Chart quarterly selected Balance sheet data History (Fun Trading)
The financial position is still strong, supporting the 2022 CapEx estimated at $60 million, including $34 million to fund the Donlin Gold project and $18 million for corporate general and administrative costs.
- Cash and cash equivalents of $77.133 million.
- Term deposits of $78 million denominated in U.S. dollars and held at Canadian chartered banks with high investment-grade ratings and maturities of one year or less.
- Notes receivable of $25 million due on the earlier completion of a Galore Creek feasibility study or July 27, 2023, and a note for $75 million fully contingent upon approval of a Galore Creek project construction plan by the owner.
- A promissory note is payable to Barrick of $117.235 million, including accrued interest at U.S. prime plus 2%. The promissory note and accrued interest are payable from 85% of the Company’s share of the revenue from future Donlin Gold project production or any net proceeds resulting from a reduction of the Company’s interest in Donlin Gold.
NG shows a strong treasury that will sustain operations until the company makes a construction decision on the Donlin Gold project.
Donlin Gold - An Impressive Open-pit Project
1 - Mineral reserves and mineral resources are indicated in the table below:
NG: Mineral Reserves (NovaGold Resources)
- The mineral reserves, P1 and P2, are 33,849K Au Oz with a cut-off grade of 0.57g/t gold, and the total grade, including mineral resources, is 2.24 g/t with a LOM of 27+ years. The company expects to produce 1.5 M Au Oz per year in the first five full years.
- The initial CapEx for Donlin Gold is $7,402 million. Because of the location, barging will be used as the main transport for goods.
- 2022 proposed overall CapEx is expected to be $60 million, equally shared with Barrick. 2022 Donlin Gold Drill Program is the Largest in more than a Decade, Focused on Advancing Preparation for Feasibility Work.
- Long-term debt represents a promissory note payable to Barrick Gold of $117+ million.
2 - Donlin Gold: 2021 drill program delivered encouraging gold intercepts. The 2022 budget is set at $60 million.
2021 drill program completed 79 holes (24,264 meters) drilled in the ACMA and Lewis pit area. Thirteen holes expanded the program plan.
The final results show numerous high-grade gold intercepts coupled with significant grade continuity.
The 2022 program focuses on ACMA and Lewis deposits. The total CapEx budget is $60 million.
- 2022 drill program is expected to be approximately 34,000 meters of core drilling. The CapEx is $34 million.
- 2022 affairs, permitting, environmental, land, and legal activities have a CapEx of $18 million.
- 2022 project planning and fieldwork have a CapEx of $8 million.
CEO Gregory Lang said in the conference call:
As a result of the success in the 2021 drill program, the program was extended into 2022. Once the 2021 drill data has been incorporated into an updated resource model, the owners will determine updated mining schedules and life of mine business plans prior to shifting to an updated feasibility study, which is, of course, subject to formal approval by the Donlin Gold LLC Board.
On April 28, NovaGold issued its 2021 annual report and announced the launch of its sustainability report.
Technical Analysis and Commentary
NG: TA Chart short-term (Fun Trading/Stockcharts)
NG forms a broadening right-angled ascending pattern with resistance at $8.30 and support at $6.10. The Broadening Right-Angled Ascending pattern has a horizontal support line and a rising resistance line. It formed after a steep recent decline starting on April 18.
As I have recommended in my preceding article, the trading strategy I suggest is selling LIFO 50% between $7.6 and $8.3 and waiting for a retracement to buy back at or below support at $6.10.
Note: The LIFO method is prohibited under International Financial Reporting Standards (IFRS). However, it is allowed in the United States to generally accepted accounting principles (GAAP). Therefore, only US traders can apply this method. Those who cannot trade LIFO can use an alternative by setting two different accounts for the same stocks, one for the long-term and one for short-term trading.
Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.
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This article was written by
Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives in NG over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
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