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Q:
Why be interested in NOVAGOLD today?
Dr. Thomas Kaplan
chairman, board of directors NOVAGOLD
A:
A:
John Hathaway
senior portfolio manager Tocqueville Asset Management
10
Our group’s vehicle of choice for exposure to gold remains NOVAGOLD. I’ve been a natural resource investor for over two decades, focusing specifically on what I call the category-killer assets; namely, those assets that are, by their very nature, rare and nearly impossible to replicate. When we entered NOVAGOLD as a white knight at the end of 2008, we did so with the view that the Company’s principal asset, Donlin Gold, was the quintessential category-killer: a large, high-grade deposit with a lot of growth potential – and located in Alaska, a premier jurisdiction with a well-developed history of mining. I was also attracted by the notion that NOVAGOLD’s partner was Barrick Gold, the largest gold company in the world with a great depth of knowledge of what it takes to build and operate a major North American gold mine. While to some the investment in NOVAGOLD seemed long-dated, to us it represented what John Hathaway likes to refer to as “a perpetual call on the gold price.” Now, with the project more than halfway through permitting, it doesn’t look long-dated any more. Indeed, as other less-attractive mining projects around the world are being cancelled at an accelerating rate, Donlin Gold has continued its progress at a steady pace.
In today’s market, NOVAGOLD is exceptional from a risk/ reward standpoint. With $127 million in cash and debt-free, it has sufficient resources that could sustain the Company for years to come. That, coupled with the fact that under Greg Lang’s able and experienced leadership the Company can effectively execute on its plans, gives me – as a large shareholder – comfort that NOVAGOLD is the best vehicle for both favorable and
less favorable market conditions. Putting it another way, as an investor, I am in NOVAGOLD to make exceptional returns when the gold price gets back into a secular bull market pattern. Yet
I can sleep well at night until that happens.
I really do believe that NOVAGOLD is indeed a perpetual call on the gold price. In one of my recent presentations I demonstrated that, by buying a share of NOVAGOLD, investors would be paying approximately 50 percent less than if they
had bought a 10-year call option for 100,000 ounces of gold. Plus, with publically traded shares come all the attributes of liquidity one wants to have in a well-traded company compared to a contract, which is, by definition, illiquid and potentially unattainable.
There’s another important aspect about NOVAGOLD that I’m quite bullish about: the environment in which Donlin Gold would be nearing production. What I mean is the current atmosphere of low gold discovery rates, particularly in safe jurisdictions. Shrinking mine lives of existing operations and the ever-increasing complexities of putting new mines into production could be hugely beneficial to NOVAGOLD as it gets closer to bringing its new long-life, low-cost gold mine into production.
In “Paper Gold: Utopia For Alchemists,” I speak about
the acute shortage of readily marketable physical gold – and how it will deepen in the years to come. Relentless dumping of synthetic or paper gold contracts since 2011 by speculators in Western financial markets has caused the shortage; the steady selling has driven down the price of physical gold, hobbling the gold-mining industry and draining the stores held in the vaults of Western financial centers. Moreover, we believe this shortage will worsen because (1) as previously mentioned, the precursors of production (exploration, discovery, reserve life) are very negative, (2) the mining industry has little financial credibility and seems unlikely to attract capital even with a big rise in gold prices, and (3) refining capacity limitations tend to create supply bottlenecks when physical demand spikes. In our view, this raises an extremely bullish case for the future of gold prices, and there are a small number of companies well-positioned to generate dynamic and exceptional performance for their investors once the uptrend begins to take hold.