NovaGold drills turn on Donlin Creek

With $18.5 million in hand from a recently completed equity offering with agents Salman Partners, BMO Nesbitt Burns and Griffiths McBurney & Partners, NovaGold Resources (NRI-T) has begun a prefeasibility drill program on its Donlin Creek gold project in southwestern Alaska.

The offering was oversubscribed at just fewer than 5.3 million units, priced at $3.50 apiece. One unit includes one share plus half a share purchase warrant. A full warrant is exercisable at $4.50 for 18 months.

Of the proceeds, NovaGold plans on spending US$8 million on completing the prefeasibility study to earn its 70% stake in the project. About US$6 million will go toward drilling, with the remaining funds earmarked for engineering, permitting and related issues.

NovaGold has planned a staged drill program aimed at better defining and expanding Donlin’s measured and indicated resource and bumping the inferred resource to the indicated and measured category. Drilling will focus on delineating additional near-surface, high-grade (plus 5 gram gold per tonne) ounces.

The company has two diamond core drills and one reverse circulation (RC) rotary drill working on the property. So far, 1,076 metres of core and reverse circulation drilling have been completed in eleven holes.

One diamond core drill is testing a 100-by-100-metre grid around the perimeter of the modeled US$300-per-oz. pit boundary adjacent to the existing Acma and Lewis resource areas.

Another drill is working on an infill program to verify grade continuity at Acma. The holes are being drilled perpendicular to most holes already sunk on the zone. All of the holes sunk so far have cut intervals of strongly mineralized porphyry.

RC drilling is testing new targets outside the existing resource areas at Acma and Lewis, and has returned significant mineralized intervals of porphyry and sedimentary rocks.

Earlier this year, an independent scoping study of the Donlin Creek proposed an annual production rate of 1 million oz. with a capital investment of $602.1 million, including just under $80 million for contingencies.

An open-pit operation would extract 20,000 tonnes of mineralized material per day for 14 years. Life-of-mine cash costs are projected at US$166.57 per oz.; total production costs, at US$241.87 per oz. At a gold price of US$300 per oz., the operation would generate a pre-tax rate of return of 15.6%, or 10.7% after taxes. The net present value rings in at $164.7 million, using a 5% discount rate. The payback period would be just over five years.

All of the operating and economic projections are based on near-surface resources totalling 166.4 million tonnes averaging 3.6 grams per tonne. The resource, in turn, is based on a cutoff grade of 2 grams and includes material in the measured (3% of the total), indicated (41%) and inferred (56%) categories.

NovaGold is earning its 70% interest in the project from Placer Dome (PDG-T). Once NovaGold earns its 70% stake, Placer has three months in which to exercise a back-in right for 70%, remain at the 30% level or convert its interest into a 5% net profits interest.