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ONE-ON-ONE WITH DR. THOMAS KAPLAN
YOU’VE BEEN IN THE NOVAGOLD STORY FOR 12 YEARS NOW. PLEASE TELL US HOW YOUR INVOLVEMENT HAPPENED.
We at Electrum entered the NOVAGOLD saga on December
31, 2008 as something of a white knight, purchasing the company’s shares for the very first time in order to literally save it from existential challenges across an extraordinarily broad front. Putting aside the fact that the economic environment on that New Year’s Eve was not particularly permissive of any investment at all, our intervention appeared – even to our closest friends – as akin to catching a falling knife. But I had sold my hydrocarbon company, Leor Energy, for cash a year earlier in order to pivot to gold, and luck as well as opportunity coalesced beautifully right where I had put my focus: NOVAGOLD.
As a bit of background, I had long coveted exposure to the Donlin story. Watching at a distance from the early 2000s, I felt that I had missed the chance as NOVAGOLD’s shares rose from pennies into the teens on the back of drilling that produced what were clearly among the best exploration results in the gold industry.
I wasn’t the only one who saw this potential; Barrick not only shared my view, but also tried to buy the company in 2006 when NOVAGOLD’s market cap was approximately $1.2 billion. The failure of their takeover attempt was to have enormous implications for both companies.
By the end of 2008, NOVAGOLD was untouchable. Name the crisis and the company defined it: debt coming due that would have put it into bankruptcy, class-action lawsuits, environmental concerns with the EPA (regarding a modest gold property that was remediated and is now divested), loss of credibility with investors and analysts, and hostility from at least one of its key partners.
I could go on. But being that we were not irrational by nature – and that it’s much more fun to speak to what transpired afterward – we reached the conclusion that if we could turn this disaster around it would prove to be worth it.
Barrick itself was waiting in the wings to buy NOVAGOLD
out of bankruptcy. They were not the only ones. That was the reason I didn’t try to acquire the whole company. A wise head, Igor Levental (the guy married to Jessica and also Electrum’s president) was whispering in my ear: Remember Caesar, thou art mortal. The argument went as follows: If you try to take it all and right out from under the noses of the majors that covet the company, all they have to do is walk you up dollar for dollar and so long as the number they pay is less than the takeover price that Barrick offered (and
the shareholders rejected), it is worth it for them. It was a pretty good point, so we settled for less ownership but with certainty of transaction. There’s greedy, and there’s stupid. Nonetheless, I could count on the fog of war for only so long and the fuse on the rescue of this pariah was short. It was so short, in fact, that I decided to forego our characteristically fastidious due diligence process to rely upon NOVAGOLD’s joint disclosures with Barrick. I decided that I didn’t have to trust NOVAGOLD’s representations about Donlin,
just their partner’s.
Only after we had closed our investment in NOVAGOLD were we able to send our chief geologist, Dr. Larry Buchanan, to walk the property and share his impressions. Larry’s award-winning team had led the discovery and exploration at San Cristobal in Bolivia, which resulted in the identification of what developed into one
of the largest silver and zinc mines of his generation. A man of enormous integrity as well as talent, much like Igor he also only “speaks truth to power” and his opinion means a great deal to me. “Is the deposit at Donlin what we thought it was?”, I asked upon his return. “Oh no,” said Larry. Mercifully, before my heart sank, he then quickly added that there was, in his opinion, very much more than the 30 million ounces12 already identified. Moreover, with that 8km strike being a mere 5 or so percent of the property package, Larry’s conclusion was most emphatic when he said that “the next Donlin could be at Donlin. Congratulations.” Within a couple of years, we had sorted out the various messes that were leading NOVAGOLD to collapse before 2009, and by 2010 the equity returned to the price it had been during the Barrick takeover attempt.
12 In April 2009, Novagold reported 35.3 million ounces of gold, on a 100% basis, contained in measured and indicated mineral resources, inclusive of proven and probable mineral reserves,
of which Novagold’s share was 50%. This is supported by a past technical report, “Novagold Resources Inc., Donlin Creek Gold Project, Alaska, USA”, effective April 1, 2009. Measured resources, inclusive of proven reserves, totaled 10 million tonnes grading 2.53 grams per tonne, and indicated resources, inclusive of probable reserves, totaled 469 million tonnes grading 2.29 grams per tonne. This estimate has been superseded by the estimate contained in the Second Updated Feasibility Study effective November 18, 2011 and amended January 20, 2012. For current mineral reserves and resources, refer to “Cautionary Note Concerning Reserve & Resource Estimates” and “Mineral Reserves & Mineral Resources” table on page 50.
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