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project in the world, but that will materially affect our partner Barrick’s valuation as well.
In 2010, gold equities experienced a blistering bull run. NOVAGOLD was a star performer, multiplying several-fold in short order. It did so despite significant headwinds, including that its long-anticipated Feasibility Study on Donlin Gold was still a work- in-progress; the Pebble project raised an Alaskan question mark regarding permitting; the company’s balance sheet was modest; new senior management had not yet been hired; and prior missteps had created environmental and legal issues that had
yet to be sorted out. Despite these uncertainties, NOVAGOLD’s equity surged from $5 to $16 within a matter of weeks. The winds have since reversed. The headwinds no longer exist and the company is now poised to benefit from multiple tailwinds: from the robustness of its management, the exceptional technical attributes and quality of its resources, community support, solid balance sheet and jurisdictional safety, the company checks
all the boxes and is among the very best positioned to profit mightily from any hint of sentiment change.
An additional headwind when we acquired our interest
in NOVAGOLD and which increased several years later as NOVAGOLD’s partner, Barrick, underwent an internal upheaval, was the attitude that Barrick publicly exhibited towards Donlin Gold. The two companies had some history. In 2006, Barrick
had coveted Donlin Gold so much that it launched a $1.6 billion hostile takeover bid. The attempt failed when NOVAGOLD’s shareholders rejected the bid and NOVAGOLD’s shares soared into the $20s. I was not a shareholder at the time and bought in
a couple of years later after the company had fallen from grace and needed rescuing. Yet I had seen that Barrick knew precisely what it was doing. After all, Donlin Gold’s reserves have more than doubled since the failed bid and NOVAGOLD’s other major asset, Galore Creek, has shown almost the same level of resource growth. In the aftermath of the bid, however, there was a lot
of broken glass between the management teams, with Barrick smarting from its failure and yet still desirous of acquiring the 50% of Donlin Gold it did not own.
Very recently, Barrick’s message has changed as chairman John Thornton has adopted a no-nonsense approach to value creation and asset pruning. While in no more of a rush to build than we are, Barrick’s ambivalence has given way to a simple
and positive approach to Donlin. Though now is not the time for either Barrick or NOVAGOLD to build what will be the biggest pure gold producer in the world, when the time is right and gold prices are higher Donlin will be as good as it gets. With NOVAGOLD’s
senior management team having previously led Barrick’s North American operations, the trust-connection between Barrick
and NOVAGOLD is as strong as can be. In addition, Donlin will initially add 50% of 1.5 million ounces per year of production to Barrick’s pipeline, more than enough to replace production from the multiple assets Barrick is selling. The fact that Donlin is in North America, which has historically been home to the jewels
in Barrick’s crown, has not gone unnoticed either. Indeed, in Barrick’s most recent disclosures, its narrative sounds substantially like NOVAGOLD’s ... so much so that NOVAGOLD reprinted Barrick’s disclosure in its entirety in its own presentation under the headline “Perfect Alignment Between Partners.” This extraordinary solidarity was in full display in the November 30, 2015 Barrick- NOVAGOLD joint press release, in which the partners declared that they had reached a major permitting milestone through the filing of the draft Environmental Impact Statement for Donlin Gold. In that press release, the Calista Corporation, owner of the minerals, and The Kuskokwim Corporation, owner of the surface lands, also expressed their strong support for the successful development
of the project as a profitable business capable of providing much needed socio-economic benefits to many villages within the broader Yukon-Kuskokwim community and, through the facilities of the Alaska Native Claims Settlement Act (ANCSA), far beyond that. This alignment of partners at the local, state and federal government levels is a beautiful thing to behold.
If gold is positioning itself for better times, and quality equities are cheap, it stands to reason that open-minded investors should be looking closely at the space, however reviled it may
be at present. The way I would put it is like this: In the aftermath of the tech bust fifteen years ago, many technology stocks evaporated into oblivion. Even the “good stocks” were down
by over 90%. Yet imagine if you could go back, sift through the survivors of the tech bust and pick the winners. The Amazons and Pricelines of the world are up hundreds of times off their lows. Not all of us are smart enough to know how to evaluate a tech company’s business plan. But we do not even have to possess much of Voltaire’s common sense to understand that, in an industry characterized by enormous barriers to entry – nobody can recreate a unique asset like Donlin in a garage – there will
be a few star performers when “maximum pessimism” yields
to reason. Therein is the opportunity amidst the rubble of the precious metals equities. Having a second bite of the apple is
not reserved just for those who bought Apple. It can be had by carefully selecting an equity in an unpopular asset class with a global brand recognition greater even than Apple itself: gold.
Note: Certain technical information has been changed to be consistent with the Donlin Gold Second Updated Feasibility Study effective November 18, 2011, as amended January 20, 2012.
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