Friday, April 16, 2010

NovaGold (AMEX:NG) Underwhelming to Some

NovaGold a challenge short term, great potential long term

For up to five years, it's possible NovaGold (AMEX:NG) could struggle strongly, even though it has two quality gold projects it has a stake in like Galore Creek and Donlin Creek.

It's not the long term prospects of NovaGold that concerns those following the company, as they are very bright, but it's not as simple as taking a stake in them and letting it ride, because until their large mines start to produce gold, there is a huge liquidity problem they face, which must be addressed and overcome if they're going to reach the day they can truly benefit from their holdings.

Even though John Paulson and George Soros invested $175 million in Novagold, which will help them in the early exploration part of their projects, but isn't much when considering the overall cost and scheme of things.

The two large project mentioned above are estimated to cost about $4 billion each to develop, so you can see that while $175 million helps, it's very little when looking at approximately $8 billion overall.

What NovaGold probably represents is the trend small mining companies which hold solid assets will be experiencing over the next several years, and this is larger companies will have to come in and acquire a large portion of those assets if they're to survive and thrive.

NovaGold has a 50/50 partnership with Barrick Gold (TSE:ABX) in their Donlin Creek project, as part of what we'll see going forward.

If NovaGold can survive the next several years, they do have extraordinary potential, and could generate a lot of profits for those investing in them. One must understand the short-term challenges though to determine how to proceed.

The fact that George Soros and John Paulson invested as they did in them show they understand what the huge potential of the company is, and whatever happens to NovaGold, they will reap the rewards, no matter which way they decide to head in the future.

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