NOVAGOLD's strong cash position provides protection for weak gold prices

October 6, 2016 02:17 PM


NOVAGOLD's third quarter financial results show a balance sheet that should be sufficient to complete permitting of the Donlin Gold project in Alaska, according to National Bank Financial. NOVAGOLD this week released its financial results for the quarter and nine months ending Aug. 31 and provided updates for its 50%-owned Donlin Gold project in Alaska and its 50%-owned Galore Creek copper-gold-silver project in British Columbia.

NOVAGOLD reported cash and term deposits of $108 million at the end of the quarter, which analyst Raj Ray of National Bank Financial said is "expected to be more than sufficient to complete permitting of Donlin Gold." He noted that "NG continues to maintain a strong financial position," and "the strong cash balance also provides optionality protection over the next few years."

Ray noted, "Permitting activities for its Donlin Gold project (50% NG, 50% Barrick) in Alaska continue to move forward with the completion of the comment period on the draft environmental impact statement (EIS) at the end of August 2016." On permitting, Ray wrote that NOVAGOLD "is currently awaiting to hear from U.S. Army Corps of Engineers (USACE) regarding the potential timeline for review of the comments and filing of the final EIS. Management currently expects filing of the final EIS by early 2017."

"The argument for investing in a project like Donlin Gold lies in 'optionality' exposure, large scale and stable mining jurisdiction," noted Ray. Senior gold producers could see production declines in 2017–2018. "There is a scarcity value attached to large-scale gold deposits that have the capacity to move the production needle for the senior producers. We believe this is due to two reasons: a) dearth of large gold projects currently under development, and b) significant increase in development timeline from discovery to production (~15–20 years) of new gold projects," wrote Ray. 

Ray wrote that while the "current gold price environment is still not conducive for funding a project of Donlin Gold's size," the company's "strong cash position provides it with the ability to protect the optionality over an extended period of weak gold prices."

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