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How have the soft markets impacted Donlin Gold’s pro forma economics?
Mr. Lang: The two raps on the company that we used to hear were the long lead time to production and the high capital cost. We don’t hear the rst criticism these days. It should be emphasized that, while other major gold projects around the world have seen delays and de facto cancellation, by proceeding at exactly the same pace with permitting as was previously envisioned, Donlin Gold is now rapidly moving up the ranks in terms of major gold projects and their timelines. Tom and I jokingly refer to Donlin Gold as Aesop’s tortoise. The hares are falling asleep while we’re halfway to the nish line.
The capital cost issue used to be cited as the key challenge. I don’t believe it is – or, I should say, will be, when the construction decision is ready to be made. Right now, with commodities and services soft, it’s clear that we completed the study at the peak of the commodity cycle and that multiple input costs have fallen. Even if that weren’t the case, it should be noted that the total capital cost estimate for Donlin Gold, which came in at $6.7B and included $1B in contingencies, was meant to be conservative and su ciently robust
to withstand the deserved scrutiny that many projects have faced since the industry experienced a series of capital expenditure blowouts. Our aim is for Donlin Gold not only to meet expectations, but to exceed them. To that end, many opportunities have been identi ed for potential reduction of the capital cost amount, including turning over construction and operation of signi cant infrastructure and ancillary projects – such as the gas pipeline, oxygen plant, and port operations – to other third-party owner/operators. Such exercises are routine for projects blessed with long mine lives. The capital cost bill for Donlin Gold remains well within the industry norms internationally, and does not take into account either resource expansion, which we consider likely, the potential capital cost reductions cited above, or North America’s jurisdictional safety and productivity.
How do the mechanics work in your relationships with Barrick and Teck Resources Limited? What roles do the respective companies play for each asset?
Mr. Lang: NOVAGOLD has positive and constructive relationships with both Barrick and Teck at the Donlin Gold and Galore Creek properties, respectively. Each project is operated by a subsidiary that is owned equally by NOVAGOLD and its partner: Donlin Gold LLC for Donlin Gold and Galore Creek Mining Corporation for Galore Creek.
Donlin Gold LLC’s board consists of four directors, with equal representation from each owner. I have been a member of the Donlin Gold board for the past four years. The chair of the board alternates every year between NOVAGOLD and Barrick. The operating agreements have mechanisms in place to resolve di erences and protect each partner in the event that one or the other chooses not to proceed and cease funding activities.
All owners share a joint commitment to the core principles of preserving local values, protecting natural resources, and safely delivering sustainable growth. With our partners, we continue to evaluate alternatives to advance the Donlin Gold and Galore Creek projects as well as improve their economics.
What’s Galore Creek worth and why sell your interest?
Mr. Lang: Galore Creek is a great asset, which is why each owner has invested greater than $250 million in the project. It’s an asset a company can be built around, and is expected to be one of the largest, highest- quality, lowest-cost copper producers in Canada – one of the few safe jurisdictions remaining for copper miners. The results from the 2013 drilling campaign, combined with the 2014 work program, focused on next- level mine planning and design, and should enhance the value of Galore Creek and its marketability.
Although we continue to evaluate opportunities to monetize our interest in the Galore Creek project to support the development of Donlin Gold, we are fortunate to have the exibility to continue to enhance the value of the asset with minimal spending as we wait for market conditions to improve.
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