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Wednesday, July 14, 2010

NovaGold's (AMEX:NG) Donlin Creek Getting More Expensive?

Now that NovaGold (AMEX:NG) losses have mounted over the last quarter, they are getting more aggressive in pursuing capital to work on their Donlin Creek project, which is by far their most important mine. They are in a 50/50 partnership with mining giant Barrick Gold Corp. (NYSE:ABX) in the project.

Either the costs at the project are increasing, or NovaGold is pushing harder to get it going, as the proven gold reserves of 34 million ounces, valued at about $41 billion at today's gold prices, has them salivating over the prospect of getting gold production going.

Marc Faber recently joined the board of the gold miner, and financial giants like John Paulson and George Soros have invested millions into the company.

At this time all the appropriate studies are being conducted, which take time, and the gold production may not start until as late as 2017.

With NovaGold having to pay close to $2.2 billion in capital costs for Donlin, you can see why they need more capital to operate until production begins.

This is of course nothing new to the industry, but if costs do increase, NovaGold faces challenges over the long term. Having Faber on the board and a resume of Paulson and Soros investing about $175 million in them, they do have a solid foundation and argument to work from.

Now they will attempt to battle to keep their 50 percent stake while raising capital, as their giant partner could easily take up the slack if problems arise, which NovaGold wouldn't want to allow to happen.

Over the long term this is a sure thing, now NovaGold has to raise the needed and significant amount of capital to last long enough to cash in, without giving up anything else.

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