NovaGold expands Alaskan portfolio

NovaGold Resources (NG-T) has agreed to spend at least US$5 million exploring Rio Tinto‘s (RTP-N) Ambler volcanogenic massive sulphide property in northwestern Alaska over the next five years.

The work will go toward NovaGold earning a 51% stake in the property. Novagold is also responsible for negotiating deals with local landowners to ensure access for mine development during that time.

Thereafter, the agreement calls for NovaGold to bring its total investment at Ambler up to US$20 million, matching the expenditures of Rio’s subsidiary, Kennecott. The work must include a prefeasibility study resulting in a positive rate of return using a 10% discount rate. Novagold has until 2016 to reach its mark.

At that point, Rio can regain a controlling 51% interest in the property by buying back 2% from NovaGold for a sum equivalent to 4% of the project’s net present value, at a 12.5% discount. Rio would then assume management of the mine’s construction and operation.

The Ambler property’s most advanced target is the Arctic deposit, which is home to an historic inferred resource totalling 36.3 million tonnes running 0.7 gram gold and 54.9 grams silver per tonne, plus 4% copper, 5.5% zinc and 0.8% lead. The Alaska Division of Geological and Geophysical Surveys based the estimate on 70 widely spaced drill holes. Kennecott ranks the deposit among the world’s top VMS deposits, based on in-situ metal value.

The deposit’s mineralized horizon lies at a depth of around 200 metres, and generally parallels surface topography. The Ambler Sequence of felsic volcanic rocks that hosts the VMS mineralization throughout the district has been mapped over more than 15 km of strike length, both east and west of the Arctic deposit.

NovaGold plans a program of core re-logging plus an initial wave of around 1,800 metres of drilling this summer. The company has budgeted US$1 million for exploration and development in 2004.

NovaGold already has interests in several projects at various stages of development in Alaska, including the Donlin Creek project, where Placer Dome (PDG-T) recently decided to buy back a 70% interest. Under the agreement, the major has until late 2007 to green-light construction of a mine capable of producing at least 600,000 oz. gold per year.