Page 9 - NOVAGOLD 2014 Annual Report

place where the rule of law isn’t a novelty and that the dwindling few locales that offer this advantage will result in a safety premium for the few companies with assets in these jurisdictions. It won’t be good enough to have “world-class assets”; desirability will depend on where in the world they are. But the story only gets better from there. Donlin Gold enjoys broad support, including from our Alaska Native Corporation stakeholders, the Calista Corporation (Calista) and The Kuskokwim Corporation (TKC), who own the mineral and surface rights to Donlin Gold. Our well-established track record of social engagement and environmental stewardship in the community is a huge plus. The government of Alaska cites Donlin Gold as a model project for responsible development, a reputation that was reinforced in 2014 by a unique strategic alliance with the National Fish and Wildlife Foundation. That’s not something you see every day, and we’re proud of it.
How are your relations with Barrick?
Dr. Kaplan: We believe it’s fair to say that relations have not been better. The animosities that still lingered from the 2006 takeover attempt are behind us, and our management teams enjoy mutual respect from years of interaction and genuinely friendly relations. Clearly, Barrick has been dealing with some challenges, and we weren’t immune from their backwash a few years ago. Despite this, at that time we truly wished them well, and the truth is that Barrick has been a responsible partner. Donlin Gold’s permitting process, for example, continued as planned. If anything, both teams are more excited now about Donlin Gold’s prospects than ever before. Having part of a great asset in a truly safe place is not something that is lost upon Barrick. With Donlin Gold in their stable, it gives them the best suite of North American assets in the industry. Even so, it should be stressed that neither of us have a build-at-any-gold-price mentality. For Barrick, that era is gone: their shareholders want to see capital discipline. We ourselves are owned by some of the best names in the financial world, and we all want to finance the project with the least dilution necessary. As such, both companies are happy to take a sober and constructive view not to subsidize the world’s consumption of gold by squandering the treasures that Mother Nature has given us, and that we’re happy to wait for higher gold prices that will make the project’s economics sing.
Are you and Barrick aligned as partners on Donlin Gold?
Dr. Kaplan & Mr. Lang: Barrick and NOVAGOLD’s strategy and narrative are completely aligned. Barrick’s fourth quarter 2014 disclosure on Donlin Gold, published February 18, 2015, is the best affirmation of that fact:
“The 50% owned Donlin Gold project located in Alaska is one of the largest undeveloped gold deposits
in the world. In terms of size, grade, and jurisdictional safety, Donlin Gold is an excellent asset in Barrick’s portfolio with significant leverage to the price of gold. The Donlin Gold project has approximately 39 million ounces of contained gold (100% basis) in the measured and indicated resource categories (approximately 8 million tonnes grading 2.52 g/t (measured) and 533 million tonnes grading 2.24 g/t (indicated)). In addition to its already large mineral endowment, the project also has exploration potential which could expand the current open pit resource.
Under our disciplined capital allocation framework, we have continued to work with our partner, Novagold Resources, to advance the Donlin Gold project. Current activities, by which we maintain and enhance the option value of this project at a modest cost, are focused on permitting, community outreach and workforce development. In 2014, Donlin Gold secured long-term surface use rights and significantly advanced the permitting of the Donlin Gold project which is now about halfway complete.
Barrick is working closely with its partner on alternatives designed to minimize initial capital outlay. The outcome of that effort may include engagement of third party operators and exploring possibilities for third party financing of some capital intensive infrastructure. Collectively, we are also investing about $3 million (100% basis) on technical studies to identify potential design and execution enhancements. Donlin Gold has substantial leverage to gold prices and has the potential to add significant value to Barrick and its future growth pipeline in a higher gold price environment. Any decision to proceed with development, either as currently envisaged, or in an optimized scenario, will depend on the project meeting Barrick’s minimum hurdle rate which will depend in large part on the prevailing gold prices and market conditions.”
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