Vancouver —
Placer has elected to earn an additional 40% stake, for a total of 70%. To do so, it must spend a least US$30 million on project development, complete a feasibility study, and build a mine that produces no less than 600,000 oz. gold per year — all within five years.
“This is great news for the project, for the Calista and Kuskokwim Native Corporations, and for the state of Alaska,” says NovaGold President Richard Van Nieuwenhuyse. “Placer Dome’s decision endorses our view that the project has [graduated] from advanced exploration to development. We are pleased that Placer has shown its support for the project and believe it will be an excellent partner to develop it into potentially one of the largest gold mines in the world.”
Novagold is not required to contribute any more funding until Placer has spent its US$30 million. In addition, at NovaGold’s election, Placer is required help it arrange financing for its share of development costs.
Placer envisages a high-tonnage operation in the range of 20,000-30,000 tonnes per day, which could potential produce 1 million oz. gold per year.
“Novagold’s anticipated share of production is likely to range from 300,000 to 400,000 oz. gold per year,” says Van Nieuwenhuyse
The joint-venture partners expect to complete an updated resource estimate in March. Meanwhile, Amec’s prefeasibility study is ongoing.
“The deepest holes we have drilled are roughly 1,000 ft., and we’re in good-grade ore,” says Van Nieuwenhuyse. “We’re really only looking in detail at the southern few kilometres of a ten-kilometre-long system. That obviously speaks well for the long-term ability to generate new ounces. The focus now is on advancing to a production decision.”
According to a preliminary assessment by AMEC, released in March 2002, there is potential for constructing an open-pit mine capable of extracting 20,000 tonnes of mineralized material per day in each of 14 years at an average stripping ratio of 5.9-to-1. Head grades and recovery rates would be higher in the first five years, resulting in just over 10 million oz. of production over the life of the mine.
The study was based on a measured and indicated resource of 74 million tonnes averaging 3.51 grams gold, or 8.3 million contained ounces, using a cutoff grade of 2 grams per tonne. The inferred portion of the resource is 92.4 million tonnes averaging 3.66 grams gold, or 10.8 million contained ounces.
When the cutoff is lowered to 1.5 grams per tonne, the measured and indicated resource grows to 9.9 million oz. gold averaging 3 grams per tonne. The inferred resource is pegged at 17.9 million oz. averaging 3 grams.
The scoping study, also performed by AMEC, suggests Donlin Creek can support annual production of 1 million oz. with a capital investment of US$602.1 million. The cost includes US$79.6 million for contingencies. The payback period would be just over five years. Cash operating costs are pegged at US$166.57 per oz., while total production costs are estimated to be US$241.87 per oz.
The pretax rate of return is estimated at 15.6%, based on a gold price of US$300 per oz. At US$350 per oz., the pretax rate of return jumps to 25.3%. The after-tax return ranges from 10.7% to 17.9%, based on gold prices of US$300 and US$350 per oz., respectively.
The study assumes that the project access road, power supply and fuel storage would be provided by third parties, namely the Calista Corporation and the state and federal governments. The cost of power is deemed to be US5 per KWh.
There are three options for achieving power requirements:
r construction of a transmission line 620 km long at a cost of US$200 million;
r construction of a stand-alone diesel-powered plant on site at a cost of US$100 million; or
r the combination of an initial on-site diesel-powered plant followed by a large coal-fired plant with regional transmission.
NovaGold optioned the Donlin Creek project from Placer in July 2001, when the gold price was US$260 per oz. In the following 16 months, the junior spent more than US$10 million and drilled in excess of 58,000 metres. As a result, it was able to boost the measured and indicated resource to almost 10 million oz. and nearly triple the inferred category to 18 million oz.
After spending the required US$10 million to earn a 70% interest in the project, Placer Dome was given 90 days to decide on its course of action.
According to the deal between Placer and NovaGold, the major had three options:
r to remain at a 30% interest and contribute at that level throughout the development of the project;
r to convert to a non-contributing 5% net profits interest; or
r to undertake to exercise a back-in right to re-acquire an additional 40% stake in the project by completing certain conditions within the next five years.
The Donlin Creek property is 480 km west of Anchorage and occupies 109 sq. km of private patented land. It has an all-season, 100-man exploration camp, together with a 1,500-metre runway that can handle aircraft as large as the C-130 Hercules freighter.
Most of Donlin Creek’s resources are hosted by intrusive dykes and sills, plus high-grade stockworks in surrounding sedimentary rocks. Gold mineralization is structurally controlled and occurs as disseminations and veinlets in association with fine-grained arsenopyrite.
Metallurgical tests indicate that 95-98% of the gold is contained in fine-grained arsenopyrite mineralization. The gold can be recovered through conventional sulphide flotation, concentration, pressure-oxidation and carbon-in-leach cyanidation.
“Novagold has been pursuing several other opportunities, while remaining focused on Donlin Creek,” says Van Nieuwenhuyse. “And now that Donlin’s development will be managed by Placer, we will be moving our advanced-stage projects, like Rock Creek and Nome Gold, to the front burner.”
NovaGold currently has 50.1 million shares fully diluted and $20 million in its coffers.
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