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I don’t have to add that, were the price of gold to actually go down before it makes new highs, the company building a mine could go out of business. This is, of course, the worst of all worlds: rushing to production at Donlin Gold, getting crushed – or worse – if gold goes to $900 before going to $1,900, and then having a bankrupt mine or a massively diluted vehicle. It makes no sense. This would constitute an unforgiving error of commission because it simply does not need to happen. Unless, that is, one operates in a jurisdiction that has use-it-or-lose-it provisions. I would argue, however, that if one has that kind of gun to one’s head, there’s a good chance that one is already dead – just not buried yet.
Given the work ahead to best position and prepare Donlin for future development, time is on our side. What do we lose by waiting? Nothing. We’ve seen that just sitting can prevent disaster. What about the argument that one could lose the juiciest part of an upswing in prices
by not being a producer? Let’s play that out. If I
consider selling forward at a much higher gold price,
I would be locking in a fairer price for my endowment
than if I sold it at a lower price with all its attendant
drawbacks. That has to be better than selling at the
whim of the market. Philosophically, I do not love
hedging. I believe that there are times when it is smart
and times when it is silly. But just being rationally
objective, I would rather consider hedging some gold
at higher prices as part of a project-financing
architecture than selling gold at today’s price.
Of course, mentioning the word “hedging” at these
higher prices, especially (ironically) to those who have
no problem parting with the company’s gold at $1,200
in their pursuit of production at any price, is likely to
prompt a vigorous debate.
The outcome of the Socratic dialogue, however,
usually ends up with my winning the argument –
because I have logic on my side. In other words, gold bulls get it; those who aren’t bullish on the fundamentals for gold sometimes don’t. But that’s fine. If you aren’t constructive on the price of gold, you aren’t going to buy our stock anyway. Nor should you. I know I wouldn’t either. As we say, “Bears don’t buy shares.” But bulls know a winner when they see one. For investors, as my old friend Mark Lettes would say, there comes a time when the shares of their company are worth more than the metal itself. When the macro stage is set and one is positioned to make a killing from the asset base, it all comes down to financing the project in the most advantageous and least dilutive way possible for the shareholders. As such, we always need to bear in mind our consistent refrain that a construction decision should be expected to be taken at a point when gold has resumed its long-term bull market trajectory – with the implication being that we should see much, much higher share prices.
12 Why not put some drill holes into Donlin while you wait?
“You cannot threaten us with a good time,” as the saying goes. We love to explore, and we have often said that, if given an opportunity to show the flexibility of the deposit, we would take it. There’s potentially a lot more gold at Donlin along the mineralized belt. And I believe my chief geologist was right when he suggested that “the next Donlin could well be at Donlin.”
Sufficient Cash to Advance Donlin Gold through Completion of Permitting
TREASURY
$148M
2019 cash and term deposit balance on August 31, 2019
GALORE CREEK PROCEEDS*
$75M $25M $75M
in 2021 in 2023 upon construction approval
* Formerly 50%-owned by NOVAGOLD. Deferred compensation on sale of Galore Creek includes $100M; $75M on earlier of Pre-Feasibility Study or July 27, 2021 and $25M on earlier of Feasibility Study or July 27, 2023. † Budget includes $20M Donlin Gold and $11M G&A.
PLANNED SPENDING
$31M
anticipated 2020 expenditures disclosed on January 22, 2020†
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