NovaGold drills Donlin Creek

As part of a prefeasibility study, NovaGold Resources (NRI-T) has begun drilling at its Donlin Creek project in southwestern Alaska.

The work is being financed with proceeds from an $18.5-million equity offering arranged with agents Salman Partners, BMO Nesbitt Burns and Griffiths McBurney & Partners. The offering was oversubscribed at just fewer than 5.3 million units priced at $3.50 apiece. One unit includes one share plus half a share purchase warrant. A full warrant is exercisable at $4.50 for 18 months.

NovaGold will spend US$8 million on the proceeds in order to complete the prefeasibility study, which in turn will ensure it receives a 70% stake in the project. About US$6 million will go toward drilling, with the remaining funds earmarked for engineering, permitting and related issues.

The drilling will attempt to define and expand Donlin’s measured and indicated resource, as well as advance the inferred resource to the indicated and measured category. So far, 1,076 metres of core and reverse-circulation (RC) drilling have been completed in eleven holes. One diamond core drill is testing a 100-by-100-metre grid around the perimeter of the US$300-per-oz. pit boundary adjacent to the existing Acma and Lewis resource areas.

Another drill is working on an infill program to verify grade continuity at Acma. The holes are being drilled perpendicular to holes already sunk. All of the holes to date have cut intervals of porphyry gold mineralization.

RC drilling is testing targets outside the existing resource areas at Acma and Lewis and has returned significant mineralized intervals of porphyry and sedimentary rocks.

Earlier this year, an independent scoping study of the Donlin Creek proposed an annual production rate of 1 million oz. with a capital investment of $602.1 million.

An open-pit operation would extract 20,000 tonnes of mineralized material per day for 14 years. Life-of-mine cash costs are projected at US$166.57 per oz.; total production costs, at US$241.87 per oz. At a gold price of US$300 per oz., the operation would generate a pretax rate of return of 15.6%, or 10.7% after taxes. The net present value rings in at $164.7 million, using a 5% discount rate. The payback period would be just over five years.

All of the operating and economic projections are based on near-surface resources totalling 166.4 million tonnes averaging 3.6 grams per tonne. The resource, in turn, is based on a cutoff grade of 2 grams and includes material in the measured (3% of the total), indicated (41%) and inferred (56%) categories.

NovaGold is earning its 70% interest in the project from Placer Dome (PDG-T). Once NovaGold earns its 70% stake, Placer has three months in which to exercise a back-in right for 70%, remain at the 30% level or convert its interest into a 5% net profits interest.