The world economy continues its frustrating, perplexing way. Are there any safe harbors in this storm? Well, some things look cheap to me.
Hey, they don’t call them “precious” metals for nothing!
Today I want to pull back the curtain and share insight from a recent talk I had with Rick van Nieuwenhuyse, president and CEO of NovaCopper (NCQ: AMEX), and still a director of the company he founded, NovaGold (NG: AMEX).
With metal prices well off their highs, this is a great time to talk about gold…and copper!
Let’s discuss NovaGold first. The company’s main focus is developing an asset called Donlin Gold, at a place called Donlin Creek, in western Alaska. It’s about 300 miles west of Anchorage.
Donlin has a resource in excess of 39 million ounces of gold — yes, 39 million ounces. It’s likely larger, but at some point, a company has to stop drilling and start developing.
Furthermore, the world might fall off a cliff if the politicians continue to wreck the economy and strangle economic growth. But something tells me that a 39 million ounce gold resource asset will come out OK on the other side of whatever is coming our way.
Along those lines, NovaGold is partnered with Barrick Gold (ABX: NYSE) to build a mine at Donlin. After the Barrick earn-in, the “official” NovaGold net share at Donlin is 19.5 million ounces — which means that Barrick has a huge upside play as well.
Donlin is a spectacular asset, and a huge operation to put together. Nothing comes easy — certainly not in the harsh, austere climate of Alaska. Yet the NovaGold play truly reflects the vision and effort of Rick van Nieuwenhuyse. He’s been working day and night, lashed to the wheel, for over 10 years putting all this together.
Donlin Gold is still a development effort. That is, right now there’s no gold production. NovaGold and Barrick are spending money on development, and there’s nothing to ring the cash register. Not yet. Still, eventually, Donlin will become one of the world’s largest gold mines. Really, where else do you find an asset with 39 million ounces, and likely more?
In that sense, Donlin Gold is a great long-term play. The NovaGold share price has been beaten down of late. Gold prices are in a swoon as well. But if you believe in the long-term appreciation of gold prices, then you’ll want NovaGold in the portfolio for the long haul. (Editor’s note: after the down turn in 2008, NovaGold shares traded as low as 45 cents. Then shares went on to trade above $20 in 2010 — that’s a 40-bagger! Although I don’t see an unbelievable run-up like that again, share prices could easily double or triple from their current levels.)
Remember, NovaGold is a developer. There’s no cash flow from operations, and no dividend. Then again, you’re buying into a piece of one of the world’s great gold developments. It’s for the patient long-term player.
The partner at Donlin is the very capable Barrick, which is in the mining business to do well and make money. Aside from Donlin, Barrick has 26 operating gold mines, much cash flow and a dividend — 2.1% just now.
Also, just recently, Barrick ousted Aaron Regent as its CEO, at the urging of Barrick founder Peter Munk. Apparently, there were issues regarding the company’s strategic focus, share price growth and overall financial management.
Looking ahead, I believe that we’ll see a renewed emphasis from Barrick on growing gold output, making money and increasing dividends. Barrick is a buy, and I expect good things to happen there.
Also looking ahead, I see the Barrick issues helping NovaGold. Barrick needs the Donlin project to work and get into production as soon as feasible. Thus, NovaGold is in a sweet spot. You just have to appreciate the technical risk of bringing a new mine to life in Alaska and be patient while the Donlin Gold play goes together. I’ve also listed NovaGold as a buy.
Fabulous Copper Play!
Now let’s discuss NovaCopper. This company was a spinoff that hit the markets last month, in May, focused on a locale called Ambler, in north-central Alaska. It’s about 250 miles northwest of Fairbanks. The president and CEO is Rick van Nieuwenhuyse. We had a very long talk about this play in our telephone call.
The Ambler area is a 70-mile-long belt of world-class volcanogenic massive sulfide (VMS) deposits rich in copper, zinc, lead, gold and silver. The short version of this is that ancient volcanic activity enriched the region in mineral deposits — and oh what minerals!
At one site named Arctic, exploration drilling has already identified high-grade VMS with over 19.4 million tonnes (metric tons, or Mt) of “indicated” resource with a grade of 4.1% copper, 6% zinc, 1.0% lead, 60 g/t silver and 0.8 g/t gold. There’s another 11.4Mt of “inferred” resource grading approximately 3.5% copper, 5% zinc, 0.8% lead, 47 g/t silver and 0.6 g/t gold.
This is some kind of expensive rock!
Meanwhile, at another site called Bornite, last year, one of the drill cores cut through 178 meters of ore grading 4.0% copper, include a 35-meter section grading 12.0% copper. Wow. It’s like drilling into the copper-tubing section of the plumbing department at Home Depot.
This ore is so rich that it’s like the specimens we studied in mineralogy class — the really good stuff, top-drawer. In an industrial sense, it’s like a time machine — finding ore zones that haven’t been seen in the mining biz for 100 years.
In addition to the Arctic and Bornite deposits at Ambler, the area hosts a series of high-potential polymetallic VMS targets (copper-gold-silver-lead-zinc and more), plus high-quality carbonate-hosted copper occurrences. Now in 2012, NovaCopper has an aggressive program to determine more about these occurrences.
Again, as with NovaGold, NovaCopper is a developer. It’s spending money to build up a resource base. There’s no cash flow, and no dividend. Still, the assets are superb. The drilling to date has been phenomenal. The relations with the Alaska native people are excellent. This project is on the tracks, and running well.
As long-term plays go for copper (with associated gold, silver, lead and more), NovaCopper has a strong future – it’s a buy. You need a willingness to accept the risks of development, though. Over time, we’ll have ups and downs. But in this beaten-down market, there’s a lot of upside in the event of a turnaround.
Thank for reading. Best wishes…
Byron W. King
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