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financial officer, responsible for all aspects of the company’s financial management, was another great catch. Dave is a highly accomplished financial executive, with more than
25 years of mining industry experience. Prior to joining NOVAGOLD, he served as vice president and controller for Newmont. Other members of the NOVAGOLD team are equally accomplished in their respective areas of expertise.
In order to attract this caliber of professionals, the company has to compete to recruit and retain top talent in the industry. And we did so successfully.
Such a remarkable series of kept promises certainly goes a long way in explaining why NOVAGOLD was so effective in executing on its value-building strategy.
CAN WE FURTHER EXPAND ON THAT? HOW DO YOU RATE THE IMPORTANCE OF THE NOVAGOLD MANAGEMENT TEAM IN THIS VALUE- MAXIMIZATION EXERCISE?
The luxury of therapeutic and refreshing slumber underpinned by our asset is accentuated mightily by the fact that, under CEO Greg Lang’s leadership, the stewards of NOVAGOLD’s fortunes are themselves best-in-breed when it comes to management. They have their eye on the ball, manage the company’s money frugally, care deeply about their shareholders and their partnerships, and are not remotely tempted to do stupid stuff. That latter part may sound like a low bar, but as my kids would say...is it really? Let’s be candid. We’re talking about an industry which, until very recently, was characterized by suboptimal performance and some epic examples of value destruction. Smart and humble management is thus enormously important – and valuable.
Simply put, as evidenced above, management has done everything right since NOVAGOLD very nearly went into bankruptcy and Electrum and the current team stepped in to turn the company around. Indeed, I genuinely believe that Greg and his team have not committed one misstep – not a single one – since they entered the scene. They have not made stupid decisions
that impaired shareholder value, not broken one promise, not left unchecked any box on the checklist of their business plan, and not forsaken any partner either legally or ethically.
Truth be told, we have also been blessed with the benevolence of La Fortuna, which constitutes a key attribute of any company. Whatever could have gone right for NOVAGOLD has effectively gone right – from having truly decent people as counterparts from the various government permitting agencies, to delivering with
our partners at Barrick stellar drill results, to having fabulous and lucky management. The latter point is not insignificant. General
Eisenhower, echoing the commentary of Cardinal Mazarin and Napoleon, once remarked: “I’d rather have a lucky general than a smart general. They win battles and make me lucky.” The ideal of course is to have both, and NOVAGOLD clearly does. And it shows. When I ask shareholders to name a specific mistake we made since our involvement in the company some nine years ago, they shake their heads.
YOU SPEAK OF DONLIN GOLD’S LEVERAGE TO GOLD. HOW DO YOU SEE IT PLAYING OUT IN VALUATION?
The “Sleeping Well Rule” comes with additional rewards. In our case, it renders Donlin Gold something of a go-to asset that the proverbial prudent man can buy happily. This safety premium plays out by creating an exceptional risk-to-reward ratio, based
on the leverage to higher gold prices enjoyed by Donlin Gold. The project’s after-tax Net Present Value (NPV) at US$1,700 per-ounce gold and a 5 percent discount rate was estimated to be US$4.6 billion ($14.6 billion if undiscounted). At US$2,000 per-ounce gold, the projected NPV increased 50 percent further to US$6.7 billion.21 At the zero discount rate at which I personally believe exploration- rich North American assets shall once again be rated – as they were not so long ago – that number would rise to over $19 billion. That is solely based on existing reserves. And, needless to say, I certainly do not believe that the $2,000 level just mentioned will prove to be a real number in the next up leg in gold. Such a figure will one day represent gold’s support, as the next wave takes that price point out and the bull market resumes in earnest.
Seen this way, NOVAGOLD to my mind constitutes the greatest unexpiring call option on gold – with the potential for larger underlying resources to revalue the optionality further as gold rises. Putting aside that I am obviously biased toward NOVAGOLD for
all the reasons I have cited, the reality is nonetheless quite simple. Look at what I do, not just what I say. If I thought a better buy was actually out there that I somehow could not afford to acquire with our present capital base, I would have already put NOVAGOLD into play and sold our position. But to the Electrum team and me, that theoretically superior asset and better value simply does not exist. By implication, we believe NOVAGOLD is an outstanding combination of deep value as well as growth stock.
21 Donlin Gold estimates as per the Second Updated Feasibility Study. All dollar figures are in USD, represent 100% of the project of which NOVAGOLD’s share is 50%, and reflect after-tax net present value (at 0% and 5% discount rates) of the Donlin Gold project using the feasibility study reference date of 1/1/2014 (start of Year -05) as the first year of discounting. Estimated project development costs of approximately $172M to be spent prior to the reference date are treated as sunk costs. At a 5% discount rate, the net present value is: $1,465M @ $1,300 gold; $3,147M
@ $1,500 gold; $4,581M @ $1,700 gold; $6,722M @ $2,000 gold; and $10,243M @ $2,500 gold.
The project requires a gold price of approximately $902 per ounce to break even on a cash flow basis. Wood Canada Limited (“Wood” formerly AMEC Americas Limited) is currently updating
all sections of the Second Updated Feasibility Study with updated costs, economic assessment, permitting information, and technical information related to permitting, generated on the Donlin Gold project since 2011, which is anticipated to be finalized and filed during 2021. Based on that cost review, Wood determined that updating the Second Updated Feasibility Study using 2020 costs and new gold price guidance results in no material change to the mineral resources or mineral reserves. The economic assessment in the updated study may be materially different than in the 2011 study.
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