Loan guarantees can’t entice lenders to support Pine Cove

Nova Gold Resources (TSE) says two projects, each using environmentally friendly processing technology, could provide capital this year for the cash-strapped junior if financing can be secured.

The company needs about $14 million to construct an open pit, vat-leach operation at its Pine Cove gold project on the Bai Verte Peninsula in Newfoundland. At current gold prices, this operation could generate $13.4 million after payback over four years.

The company has a loan guarantee from the provincial and federal governments’ Atlantic Canada Opportunities Agency covering 85% of the $14-million capital cost of the project, but has yet to find a sympathetic Canadian lender. “We were told by the central banks in Toronto that Pine Cove is too small,” President Gerald McConnell said at the company’s annual meeting here recently, “despite the fact that the regional branches of the same banks liked the project.”

Environmental permits were obtained at lightning speed from the Newfoundland government — in 65 days — mainly because of the company’s track record in New Brunswick using the environmentally benign vat-leach process. That track record has won accolades from two major mining companies as well. They have expressed an interest using the process on two separate, larger-scale properties in South America. NovaGold could earn a royalty on these properties for engineering and possibly constructing the vat-leach facilities.

Test work on Meguma-type gold mineralization, funded by the Nova Scotia government, shows that this material is amenable to the vat-leach process and may prove the economic viability of these deposits. NovaGold has patents pending on the process.

The company’s other main project, in northern New Brunswick, is the Murray Brook gold-silver mine. It is in transition, moving toward becoming a small copper producer.

Babcock Contractors will begin construction this fall of a $4-million pilot plant to demonstrate the technical and economic feasibility of the ferric chloride leach process developed by the Canada Centre for Mineral and Energy Technology (CANMET) and licensed to NovaGold.

But about 100,000 tonnes of copper ore, grading 2.43%, will be leached outdoors this year. At current metals prices, this will provide a capital payback of about $3.5 million this year, according to McConnell. This phase of mining at Murray Brook should be much more profitable than the gold-silver phase, McConnell says. The company’s feasibility study pegs the value of recoverable copper at about $125 per tonne of ore mined compared with only $25 per tonne for the overlying gold-silver gossan. In 1991, the company netted $153,000 on revenues of $9.5 million from gold-silver operations at Murray Brook.

This phase of the operation will cease in July, but the deposit contains about 570,000 tonnes of copper reserves — good for five years of operation as a copper producer.