NG:CC - NovaGold Resources: Still On The Back Burner After All Those Years (Upgrade)

2023-10-09 13:18:01 ET

Summary

• NovaGold Resources Inc. released its third quarter of 2023 results, posting a loss of $11.074 million.
• The Donlin Gold Project faces legal challenges over water impacts and other issues.
• The stock is attractive now. I recommend buying NovaGold Resources between $3.45 and $3.35 with potential lower support at $3.15.

Introduction

NovaGold Resources Inc. (NG) owns 50% of a gold project in Western Alaska called the Donlin Gold Project . The joint venture is shared with Barrick Gold Corporation ( GOLD ). Here is an excerpt from the company's filing.

The Donlin Gold project is owned and operated by Donlin Gold LLC ("Donlin Gold"), a limited liability company that is owned equally by wholly-owned subsidiaries of NOVAGOLD and Barrick Gold Corporation ("Barrick").

NovaGold Resources released its third quarter of 2023 results on October 3, 2023. This article updates my article published on June 28, 2023. I have followed NovaGold Resources since 2019.

CEO Greg Lang said in the conference call:

As currently envisioned, with approximately 39 million ounces, Donlin Gold host one of the largest and highest grade undeveloped open pit endowments in the world which would average over 1 million ounces per year for 27 years.

1 - Presentation and 3Q23 Results Snapshot

Reminder: NovaGold Resources and Barrick Gold USA - a subsidiary of Barrick Gold Corporation - are developing the Donlin Creek open-pit gold project in Alaska under a 50-50 joint-venture ("JV") partnership called Donlin Gold (2007).

NovaGold Resources posted a loss of $11.074 million, with total cash of $130.079 million , down from $131.93 million in 3Q22.

The company successfully completed the field program in July 2023. See details below:

In the conference call, CEO Greg Lang said:

This year's field program was safely completed as scheduled in July with the majority of our local hires coming from the Y-K region. The program included comprehensive field work and geotechnical drilling required for the Alaska Dam Safety certificates.

2 - Stock Performance and Commentary

NG has dropped 23% on a one-year basis. If we compare NG to GOLD, we can see that NG was tightly following GOLD on a one-year basis until June-July but dropped more dramatically after that.

3 - Investment Thesis

I consider the Donlin Project a good opportunity to invest long term, especially with the support of Barrick Gold. The recent drop in NovaGold Resources stock price should be viewed as an opportunity for very patient investors and traders.

It has been over 15 years of studies, and besides the Dam Safety permit (pending), the project seems now a go, or is it?

On October 5, 2023, we learned that the Donlin Project faces legal challenges over water impacts and other issues.

The most recent challenge was lodged on Monday, when two Tribal governments appealed to the state Supreme Court to overturn a lower court decision upholding state-issued permits. Those permits to withdraw water had been approved in April 2022 by the Alaska Department of Natural Resources; they were affirmed on Aug. 31 by Anchorage Superior Court Judge Dani Crosby.

Despite state officials affirming * that the agency's actions have been proper, the Orutsararmiut Native Council said:

“The impacts from this proposed open pit mine, which would be the largest pure gold mine in the world, must be taken seriously and considered comprehensively,”Orutsararmiut Native Council Executive Director Brian Henry said in the statement. “The State has an obligation to protect the Kuskokwim River and its tributaries from possible environmental damage caused by the Donlin Gold Mine. Our very existence and ways of life depend on it.

* Note: Those permits to withdraw water had been approved in April 2022 by the Alaska Department of Natural Resources, and they were affirmed on August 31 by Anchorage Superior Court Judge Dani Crosby.

Furthermore, " In addition to the new actions on the DNR and DEC permits, two other legal challenges are working their way through courts. "

1. One, from five Tribes and the environmental group Cook Inletkeeper, targets the state right-of-way lease for a pipeline that would supply natural gas to the mine . The case is pending with the state Supreme Court.
2. The second from six Tribes as plaintiffs is pending in federal court and challenging the authorizations granted by the U.S. Army Corps of Engineers and the U.S. Bureau of Land Management.

I believe the company will get the required permits, but it may take longer.

After NovaGold Resources Inc. recent selloff, it is obvious that investors are exhausted from waiting for the green light. However, NG looks attractive now, well below $4.

Thus, I regularly recommend trading NG short-term LIFO using about 80% of your NG position. I also recommend building a core long-term investment that you keep and grow until the project's final investment decision using mostly the short-term gains accumulated.

NovaGold Resources 3Q23 - The Raw Numbers:

Note: The Company is not generating revenues and is in development.

Source: NovaGold Resources .

* including the receipt of a $25 million note payment from Newmont in July 2023.

As shown in the table above, the outstanding shares diluted and the long-term Debt are maintained nearly at the same level, and the total cash increased to $130.079 million at the end of 3Q23.

The increase was due to an additional payment from Newmont Corporation ( NEM ) of $25 million in July 2023 related to the sale of NovaGold's 50% interest in the Galore Creek project in 2018. Also, NG owns a note receivable for $75 million contingent upon the owner's approval of a Galore Creek project construction plan.

The solid financial position supports the 2023 CapEx, which increased sequentially by $1 million to $32 million in 3Q23 .

In the third quarter of 2023, Net loss decreased by $5,049 from 2022, primarily due to lower field expenses at Donlin Gold compared to the same period in 2022, and increased interest income on cash and term deposits, partially offset by an increase in interest expense on the promissory note as well as higher corporate travel and legal expenses.

Mineral reserves are indicated in the table below. They are unchanged from the preceding quarter.

NovaGold Resources' share of the mineral reserve proven and probable is 16.925 Moz , with an additional 2.997 Moz in M&I and inferred. The basics have not changed since the preceding article.

• The mineral reserves, P1 and P2, are 33,849K Au Oz with a cut-off grade of 0.57g/t gold related to reserves, and the total grade is 2.09 g/t with a LOM of 27+ years. The Company expects to produce 1.5 M Au Oz annually in the first five years.
• The initial CapEx for Donlin Gold is $7,402 million . Because of the location, barging will be used as the main transport for goods.
• 2023 proposed overall CapEx is expected to be $32 million , equally shared with Barrick.
• Long-term debt represents a promissory note payable to Barrick Gold of $138.092 million.

CEO Greg Lang said in the conference call:

Donlin Gold has the potential to form the cornerstone of genuine and sustainable economic development in the Y-K region (Yukon-Kuskokwim region) for many decades to come.

Technical Analysis and Commentary

NG forms a steep descending channel pattern with resistance at $4.09 and support at $4.35 . RSI is now very oversold at 32, a strong buy signal.

Descending channel patterns are short-term bearish in that a stock moves lower within a descending channel, but they often form within longer-term uptrends as continuation patterns. Higher prices usually follow The descending channel pattern but only after an upside penetration of the upper trend line.

For further details see: