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 8 Last year you gamed out Barrick’s options with regard to Donlin. You concluded that no matter what your partner chose to do, it would be good for NOVAGOLD. Could you remind us why and then answer if these scenarios need updating?
I believed then and now – even more now, in fact, watching the peripatetic Mark Bristow circumnavigate the globe to own his bold narrative for Barrick – that the Randgold/Barrick merger has only added to NOVAGOLD’s buona fortuna. In fact, last year I took to calling it, and Mark, our white swans, as a re-energized Barrick could only serve to put a renewed and rather overdue focus on Donlin – one way or the other. Let us recap last year’s key scenarios.
If we take Donlin up the value chain together with Barrick, in preparation for higher gold prices, that will be great. If they choose to sell their 50% to someone more excited about what Donlin represents, also great. Of course, we cannot speak for our partner and will not try to predict how our common project will shake out in their priorities, but this I will say: In terms of the investor analysis, it really doesn’t matter. I believe more than ever that all scenarios are favorable for NOVAGOLD.
What will the new leadership of Barrick do? It’s still too early to tell, but even last year it was not too early to game it out with some possible scenarios.
The first is that Barrick simply decides that it has plenty on its plate and, for whatever reason, elects to sell their share of Donlin Gold. We would be fine with such a decision, as it would trigger a sale process that would shine a very strong light on Donlin’s unique combination of virtues. With a renewed bull market in gold, Donlin is accretive in terms of pretty much any acquisition metric – including the big ones like reserves, production, grade,
all-in cash costs, mine life, and jurisdictional risk
– highlighting these facts in the context of a sale process likely would strengthen our share price. As we enjoy a right of first refusal, we would help Barrick sell their share and, with partners, could even consider participating in its purchase. Owning more of Donlin would amount to a gift, and we believe that there are plenty of motivated buyers who would want to participate in the story – and indeed work with us to promote a narrative in a far more invigorated way than we’ve experienced heretofore with the pre- merger Barrick.
Of course Barrick could also decide to continue to frame, if not choose to enhance, the narrative and talk about Donlin as we have: a singularly attractive gold deposit with great leverage to higher prices in the future and located in a jurisdiction that has never caused them grief. This would be great for us too. It’s one thing for NOVAGOLD to sing about the virtues of
Donlin. But Barrick’s reach is farther and deeper, and its influence will only be accentuated by the merger. Knowing the new management, I can’t see them educating the myriad analysts who cover them without insisting that they should get NOVAGOLD’s market-driven valuation of Donlin factored into their own assessment. After all, with Galore gone, it’s pretty much an apples-to-apples equation. This works for us and, indeed, is likely to induce a virtuous circle if our shares rise and Barrick receives equal credit for its share, leading them to point out the valuation symmetry and so on. If anything, the Newmont/Goldcorp tie-up, which is more heavily tilted toward safer jurisdictions, adds a competitive impetus to Barrick emphasizing its own premium North American assets.
If Barrick is inclined to keep Donlin, and the Randgold mantra of a 20% Internal Rate of Return (IRR) at $1,000
  Substantial Exploration Upside Potential
     2006-11 exploration program increased measured and indicated resources by 135% to 39.0Moz*
3km ACMA & Lewis Pits
      8km mineralized trend
    * The percentage increase is the change between measured and indicated mineral resources previously reported by NOVAGOLD in 2006 and supported by the technical report “Preliminary Assessment, Donlin Creek Gold Project, Alaska, USA”, effective September 20, 2006, in which measured resources totaled 20 million tonnes grading 2.56 grams per tonne, and indicated resources totaled 196 million tonnes grading 2.39 grams per tonne. This estimate has been superseded by the estimate contained in the Second Updated Feasibility Study, “Donlin Creek Gold Project Alaska, USA, NI 43-101 Technical Report on Second Updated Feasibility Study” prepared by AMEC, effective November 18, 2011 and amended January 20, 2012. The 39 million ounces represents 100% of gold contained in measured and indicated mineral resources, inclusive of proven and probable mineral reserves, of which NOVAGOLD’s share is 50%. See “Cautionary Note Concerning Reserve & Resource Estimates” and “Mineral Reserves & Mineral Resources” table on page 46.
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