NovaGold Resources Inc.: Exhibit 1 - Filed by newsfilecorp.com
NOVAGOLD RESOURCES INC.
ANNUAL INFORMATION FORM
FOR THE YEAR ENDED NOVEMBER 30, 2011
February 22, 2012
NOVAGOLD RESOURCES INC.
(the “Company”)
ANNUAL INFORMATION FORM
TABLE OF CONTENTS
- i -
Preliminary Notes
Cautionary Statement Regarding Forward-Looking
Information
This Annual Information Form for NovaGold Resources Inc.
(“NovaGold” or “the Company”) contains statements of forward-looking
information. These forward-looking statements may include statements regarding
perceived merit of properties, exploration results and budgets, mineral reserves
and resource estimates, work programs, capital expenditures, operating costs,
cash flow estimates, production estimates and similar statements relating to the
economic viability of a project, timelines, strategic plans, including the
Company’s plans and expectations relating to its Galore Creek and Ambler
projects, completion of transactions, market prices for precious and base
metals, or other statements that are not statements of fact. These statements
relate to analyses and other information that are based on forecasts of future
results, estimates of amounts not yet determinable and assumptions of
management. Statements concerning mineral resource estimates may also be deemed
to constitute “forward-looking statements” to the extent that they involve
estimates of the mineralization that will be encountered if the property is
developed.
Any statements that express or involve discussions with respect
to predictions, expectations, beliefs, plans, projections, objectives,
assumptions or future events or performance (often, but not always, identified
by words or phrases such as “expects”, “is expected”, “anticipates”, “believes”,
“plans”, “projects”, “estimates”, “assumes”, “intends”, “strategy”, “goals”,
“objectives”, “potential”, “possible” or variations thereof or stating that
certain actions, events, conditions or results “may”, “could”, “would”,
“should”, “might” or “will” be taken, occur or be achieved, or the negative of
any of these terms and similar expressions) are not statements of historical
fact and may be forward-looking statements.
Forward-looking statements are based on a number of material
assumptions, including those listed below, which could prove to be significantly
incorrect:
- our ability to achieve production at any of the Company’s mineral
exploration and development properties;
- estimated capital costs, operating costs, production and economic returns;
- estimated metal pricing, metallurgy, mineability, marketability and
operating and capital costs, together with other assumptions underlying the
Company’s resource and reserve estimates;
- our expected ability to develop adequate infrastructure and that the cost
of doing so will be reasonable;
- assumptions that all necessary permits and governmental approvals will be
obtained;
- assumptions made in the interpretation of drill results, the geology,
grade and continuity of the Company’s mineral deposits;
- our expectations regarding demand for equipment, skilled labour and
services needed for exploration and development of mineral properties; and
- our activities will not be adversely disrupted or impeded by development,
operating or regulatory risks.
Forward-looking statements are subject to a variety of known
and unknown risks, uncertainties and other factors that could cause actual
events or results to differ from those reflected in the forward-looking
statements, including, without limitation:
- uncertainty of whether there will ever be production at the Company’s
mineral exploration and development properties;
- uncertainty of estimates of capital costs, operating costs, production and
economic returns;
- uncertainties relating to the assumptions underlying the Company’s
resource and reserve estimates, such as metal pricing, metallurgy,
mineability, marketability and operating and capital costs;
- risks related to the Company’s ability to commence production and generate
material revenues or obtain adequate financing for its planned exploration and
development activities;
- risks related to the Company’s ability to finance the development of its
mineral properties through external financing, strategic alliances, the sale
of property interests or otherwise;
- risks related to the third parties on which the Company depends for its
exploration and development activities;
- dependence on cooperation of joint venture partners in exploration and
development of properties;
- credit, liquidity, interest rate and currency risks;
- ii -
- risks related to market events and general economic conditions;
- uncertainty related to inferred mineral resources;
- risks and uncertainties relating to the interpretation of drill results,
the geology, grade and continuity of the Company’s mineral deposits;
- risks related to lack of infrastructure;
- mining and development risks, including risks related to infrastructure,
accidents, equipment breakdowns, labor disputes or other unanticipated
difficulties with or interruptions in development, construction or production;
- the risk that permits and governmental approvals necessary to develop and
operate mines on the Company’s properties will not be available on a timely
basis or at all;
- commodity price fluctuations;
- risks related to governmental regulation and permits, including
environmental regulation;
- risks related to the need for reclamation activities on the Company’s
properties and uncertainty of cost estimates related thereto;
- uncertainty related to title to the Company’s mineral properties;
- uncertainty related to unsettled aboriginal rights and title in British
Columbia;
- the Company’s history of losses and expectation of future losses;
- uncertainty as to the outcome of potential litigation;
- uncertainty inherent in litigation including the effects of discovery of
new evidence or advancement of new legal theories, the difficulty of
predicting decisions of judges and juries and the possibility that decisions
may be reversed on appeal;
- risks related to default under the Company’s unsecured convertible notes;
- risks related to the Company’s majority shareholder;
- risks related to increases in demand for equipment, skilled labor and
services needed for exploration and development of mineral properties, and
related cost increases;
- increased competition in the mining industry;
- the Company’s need to attract and retain qualified management and
technical personnel;
- risks related to the Company’s current practice of not using hedging
arrangements;
- uncertainty as to the Company’s ability to acquire additional commercially
mineable mineral rights;
- risks related to the integration of potential new acquisitions into the
Company’s existing operations;
- risks related to unknown liabilities in connection with acquisitions;
- risks related to conflicts of interests of some of the directors of the
Company;
- risks related to global climate change;
- risks related to adverse publicity from non-governmental organizations;
- uncertainty as to the Company’s ability to maintain the adequacy of
internal control over financial reporting as per the requirements of the
Sarbanes-Oxley Act;
- uncertainty relating to the timing and ability to complete the spin-off of
NovaCopper to the Company’s shareholders;
- increased regulatory compliance costs relating to the Dodd-Frank Act; and
- increased regulatory compliance costs related to the Company’s loss of its
foreign private issuer status in the event of a disposition of the Galore
Creek project.
This list is not exhaustive of the factors that may affect any
of the Company’s forward-looking statements. Forward-looking statements are
statements about the future and are inherently uncertain, and actual
achievements of the Company or other future events or conditions may differ
materially from those reflected in the forward-looking statements due to a
variety of risks, uncertainties and other factors, including, without
limitation, those referred to in this Annual Information Form under the heading
“Risk Factors” and elsewhere.
The Company’s forward-looking statements are based on the
beliefs, expectations and opinions of management on the date the statements are
made, and the Company does not assume any obligation to update forward-looking
statements if circumstances or management’s beliefs, expectations or opinions
should change, except as required by law. For the reasons set forth above,
investors should not place undue reliance on forward-looking statements.
- iii -
Cautionary Note to U.S. Investors – Information
Concerning Preparation of Resource and Reserve Estimates
This Annual Information Form has been prepared in accordance
with the requirements of the securities laws in effect in Canada, which differ
from the requirements of U.S. securities laws. Unless otherwise indicated, all
resource and reserve estimates included in this Annual Information Form have
been prepared in accordance with National Instrument 43-101 Standards of
Disclosure for Mineral Projects (“NI 43-101”) and the Canadian Institute of
Mining and Metallurgy Classification System. NI 43-101 is a rule developed by
the Canadian Securities Administrators which establishes standards for all
public disclosure an issuer makes of scientific and technical information
concerning mineral projects.
Canadian standards, including NI 43-101, differ significantly
from the requirements of the United States Securities and Exchange Commission
(“SEC”), and resource and reserve information contained herein may not be
comparable to similar information disclosed by U.S. companies. In particular,
and without limiting the generality of the foregoing, the term “resource” does
not equate to the term “reserves”. Under U.S. standards, mineralization may not
be classified as a “reserve” unless the determination has been made that the
mineralization could be economically and legally produced or extracted at the
time the reserve determination is made. The SEC’s disclosure standards normally
do not permit the inclusion of information concerning “measured mineral
resources”, “indicated mineral resources” or “inferred mineral resources” or
other descriptions of the amount of mineralization in mineral deposits that do
not constitute “reserves” by U.S. standards in documents filed with the SEC.
U.S. investors should also understand that “inferred mineral resources” have a
great amount of uncertainty as to their existence and great uncertainty as to
their economic and legal feasibility. It cannot be assumed that all or any part
of an “inferred mineral resource” will ever be upgraded to a higher category.
Under Canadian rules, estimated “inferred mineral resources” may not form the
basis of feasibility or pre-feasibility studies except in rare cases. Investors
are cautioned not to assume that all or any part of an “inferred mineral
resource” exists or is economically or legally mineable. Disclosure of
“contained ounces” in a resource is permitted disclosure under Canadian
regulations; however, the SEC normally only permits issuers to report
mineralization that does not constitute “reserves” by SEC standards as in-place
tonnage and grade without reference to unit measures. The requirements of NI
43-101 for identification of “reserves” are also not the same as those of the
SEC, and reserves reported by the Company in compliance with NI 43-101 may not
qualify as “reserves” under SEC standards. Accordingly, information concerning
mineral deposits set forth herein may not be comparable with information made
public by companies that report in accordance with U.S. standards.
Glossary and Defined Terms
The following is a glossary of certain mining terms used in
this Annual Information Form.
| aggregate |
Any of several hard, inert materials, such as sand,
gravel, slag or crushed stone, mixed with a cement or bituminous material
to form concrete, mortar or plaster, or used alone, as in railroad ballast
or graded fill. |
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| alluvial |
A placer formed by the action of running water, as in a
stream channel or alluvial fan; also said of the valuable mineral (e.g.
gold or diamond) associated with an alluvial placer. |
| |
|
| arsenopyrite |
The common arsenic mineral and principal ore of arsenic;
occurs in many sulfide ore deposits, particularly those containing lead,
silver and gold. |
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|
| alteration |
Refers to the process of hydrothermal fluids (hot water)
changing primary rock minerals (such as quartz, feldspar and hornblende)
to secondary minerals (quartz, carbonate and clay minerals). |
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|
| breccia |
A rock in which angular fragments are surrounded by a
mass of fine-grained minerals. |
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|
| CIM |
Canadian Institute of Mining, Metallurgy and Petroleum.
|
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| contained ounces |
Represents ounces in the ground before reduction of
ounces not able to be recovered by the applicable metallurgical process.
|
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| dike |
A tabular igneous intrusion that cuts across the bedding
or foliation of the country rock. |
- iv -
| g/t |
Grams per metric tonne. |
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|
| illite |
A group of three-layer mica-like clays. |
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|
| mafic |
Igneous rocks composed mostly of dark, iron- and
magnesium-rich minerals. |
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|
| masl |
Meters above sea level. |
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|
mineral resource,
measured mineral
resource, indicated
mineral resource, inferred
mineral resource |
Under CIM standards, a mineral resource is a
concentration or occurrence of natural, solid, inorganic or fossilized
organic material in or on the earth’s crust in such form and quantity and
of such a grade or quality that it has reasonable prospects for economic
extraction. The location, quantity, grade, geological characteristics and
continuity of a mineral resource are known, estimated or interpreted from
specific geological evidence and knowledge. |
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|
The terms “mineral resource”, “measured mineral
resource”, “indicated mineral resource”, and “inferred mineral resource”
used in this Annual Information Form are mining terms defined under CIM
standards and used in accordance with NI 43-101. They are not defined
terms under U.S. standards and generally may not be used in documents
filed with the SEC by U.S. companies. See “Cautionary Note to U.S.
Investors – Information Concerning Preparation of Resource and Reserve
Estimates”. |
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A mineral resource estimate is based on information on
the geology of the deposit and the continuity of mineralization.
Assumptions concerning economic and operating parameters, including
cut-off grades and economic mining widths, based on factors typical for
the type of deposit, may be used if these factors have not been
specifically established for the deposit at the time of the mineral
resource estimate. A mineral resource is categorized on the basis of the
degree of confidence in the estimate of quantity and grade or quality of
the deposit, as follows: |
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Inferred mineral resource: Under CIM standards, an
inferred mineral resource is that part of a mineral resource for which
quantity and grade or quality can be estimated on the basis of geological
evidence and limited sampling and reasonably assumed, but not verified,
geological and grade continuity. The estimate is based on limited
information and sampling gathered through appropriate techniques from
locations such as outcrops, trenches, pits, workings and drill holes.
|
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Indicated mineral resource: Under CIM standards, an
indicated mineral resource is that part of a mineral resource for which
quantity, grade or quality, densities, shape and physical characteristics
can be estimated with a level of confidence sufficient to allow the
appropriate application of technical and economic parameters to support
mine planning and evaluation of the economic viability of the deposit. The
estimate is based on detailed and reliable exploration and testing
information gathered through appropriate techniques from locations such as
outcrops, trenches, pits, workings and drill holes that are spaced closely
enough for geological and grade continuity to be reasonably assumed.
|
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Measured mineral resource: Under CIM standards, a
measured mineral resource is that part of a mineral resource for which
quantity, grade or quality, densities, shape and physical characteristics
are so well established that they can be estimated with confidence
sufficient to allow the appropriate application of technical and economic
parameters to support production planning and evaluation of the economic
viability of the deposit. The estimate is based on detailed and reliable
exploration, sampling and testing information gathered through appropriate
techniques from locations such as outcrops, trenches, pits, workings and
drill holes that are spaced closely enough to confirm both geological and
grade continuity. |
- v -
mineral reserve,
proven mineral
reserve,
probable mineral reserve |
Under CIM standards, a mineral reserve is the
economically mineable part of a measured or indicated mineral resource
demonstrated by a preliminary feasibility study or feasibility study. This
study must include adequate information on mining, processing,
metallurgical, economic and other relevant factors that demonstrate, at
the time of reporting, that economic extraction can be justified. A
mineral reserve includes diluting materials and allowances for losses that
may occur when the material is mined. |
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|
The terms “mineral reserve”, “proven mineral reserve” and
“probable mineral reserve” used in this Annual Information Form are mining
terms defined under CIM standards and used in accordance with NI 43-101.
Mineral reserves, proven mineral reserves and probable mineral reserves
presented under CIM standards may not conform with the definitions of
“reserves”, “proven reserves” or “probable reserves” under U.S. standards.
See “Cautionary Note to U.S. Investors – Information Concerning
Preparation of Resource and Reserve Estimates”. |
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|
Mineral reserves under CIM standards are those parts of
mineral resources which, after the application of all mining factors,
result in an estimated tonnage and grade which, in the opinion of the
Qualified Person(s) (as defined in NI 43-101) making the estimates, is the
basis of an economically viable project after taking account of all
relevant processing, metallurgical, economic, marketing, legal,
environment, socio-economic and governmental factors. Mineral reserves are
inclusive of diluting material that will be mined in conjunction with the
mineral reserves and delivered to the treatment plant or equivalent
facility. The term “mineral reserve” need not necessarily signify that
extraction facilities are in place or operative or that all governmental
approvals have been received. It does signify that there are reasonable
expectations of such approvals. |
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Under CIM standards, mineral reserves are subdivided in
order of increasing confidence into probable mineral reserves and proven
mineral reserves. A probable mineral reserve has a lower level of
confidence than a proven mineral reserve. |
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Proven mineral reserve: A proven mineral reserve is the
economically mineable part of a measured mineral resource demonstrated by
at least a preliminary feasibility study. This study must include adequate
information on mining, processing, metallurgical, economic and other
relevant factors that demonstrate, at the time of reporting, that the
economic extraction can be justified. |
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Probable mineral reserve: A probable mineral reserve is
the economically mineable part of an indicated and, in some circumstances,
a measured mineral resource demonstrated by at least a preliminary
feasibility study. This study must include adequate information on mining,
processing, metallurgical, economic and other relevant factors that
demonstrate, at the time of reporting, that the economic extraction can be
justified. |
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| mineralization |
An anomalous occurrence of metal or other commodity of
value defined by any method of sampling (surface outcrops, drill core,
underground channels). Under SEC standards, such a deposit does not
qualify as a reserve until comprehensive evaluation, based on unit cost,
grade, recoveries and other factors, concludes that the mineralization
could be legally and economically produced or extracted at the time the
reserve determination is made. |
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| net present value (“NPV”) |
The sum of the value on a given date of a series of
future cash payments and receipts, discounted to reflect the time value of
money and other factors such as investment risk. |
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|
| ore |
Rock containing metallic or non-metallic materials that
can be mined and processed at a profit. |
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|
| patent |
The ultimate stage of holding a mineral claim, after
which no more assessment work is necessary; determines that all mineral
rights, both surface and underground, have been earned. |
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|
| placer |
An alluvial deposit of sand and gravel, which may contain
valuable metals. |
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|
| pyrite |
An iron sulfide mineral (FeS2 ), the most
common naturally occurring sulfide mineral. |
- vi -
| reverse circulation (“RC”) |
A type of drilling using dual-walled drill pipe in which
the material drilled, water and mud are circulated up the center pipe
while air is blown down the outside pipe. |
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| schist |
A medium-to-course grained foliated metamorphic rock, the
grains of which have a roughly parallel arrangement; generally developed
by shearing. |
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|
| sill |
An intrusive sheet of igneous rock of roughly uniform
thickness that has been forced between the bedding planes of existing
rock. |
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| stockwork |
A three-dimensional network of closely spaced planar to
irregular veinlets. |
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| strike |
The direction, or bearing from true north, of a vein or
rock formation measured on a horizontal surface. |
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| sulfide |
A compound of sulfur and some other metallic element.
|
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| tpd |
Metric tonnes per day. |
Currency and Exchange Rates
All dollar amounts in this Annual Information Form are
expressed in Canadian dollars unless otherwise indicated. The noon rate of
exchange as reported by the Bank of Canada for the conversion of Canadian
dollars into U.S. dollars on February 21, 2012 was C$0.9955 per US$1.00
and on November 30, 2011 was C$1.0197 per US$1.00.
The following table sets forth (i) the rate of exchange for the
Canadian dollar, expressed in U.S. dollars, in effect at the end of the periods
indicated; (ii) the average exchange rates for the Canadian dollar, on the last
day of each month during such periods; and (iii) the high and low exchange rates
for the Canadian dollar, expressed in U.S. dollars, during such periods, each
based on the noon rate of exchange as reported by the Bank of Canada for
conversion of Canadian dollars into U.S. dollars:
| |
|
2011 |
|
|
2010 |
|
|
2009 |
|
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|
|
|
|
|
|
|
|
|
| Rate at end of period |
|
0.9807 |
|
|
0.9743 |
|
|
0.9457 |
|
| Average rate based on last day each month |
|
1.0155 |
|
|
0.9673 |
|
|
0.8643 |
|
| High for period |
|
1.0583 |
|
|
1.0039 |
|
|
0.9716 |
|
| Low for period |
|
0.9430 |
|
|
0.9278 |
|
|
0.7692 |
|
Metric Equivalents
The following table sets forth the factors for converting
Imperial measurements into metric equivalents:
| To convert from Imperial |
|
To Metric |
|
|
Multiply By |
|
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|
|
|
|
| Acres |
|
Hectares |
|
|
0.404686 |
|
| Feet |
|
Meters |
|
|
0.304800 |
|
| Miles |
|
Kilometers |
|
|
1.609344 |
|
| Tons |
|
Tonnes |
|
|
0.907185 |
|
| Ounces (troy)/ton |
|
Grams/Tonne |
|
|
34.28570 |
|
- 1 -
NOVAGOLD RESOURCES INC.
ANNUAL INFORMATION FORM
for its financial year ended November 30, 2011
ITEM 1 CORPORATE STRUCTURE
Name, Address and Incorporation
The Company was incorporated by memorandum of association on
December 5, 1984, under the Companies Act (Nova Scotia) as 1562756 Nova
Scotia Limited. On January 14, 1985, the Company changed its name to NovaCan
Mining Resources (l985) Limited and on March 20, 1987, the Company changed its
name to NovaGold Resources Inc. The Company is in good standing under the laws
of the Province of Nova Scotia. The registered office of the Company is located
at Suite 1300 – 1969 Upper Water Street, Halifax, Nova Scotia, Canada, B3J 3R7.
The Company’s principal office is located at Suite 2300, 200 Granville Street,
Vancouver, BC, Canada, V6C 1S4.
Intercorporate Relationships
As at the end of its most recently completed financial year,
the Company had the following material, direct and indirect, wholly-owned
subsidiaries: NovaGold Resources Alaska, Inc., NovaGold (Bermuda) Alaska Limited
and NovaGold Resources (Bermuda) Limited and NovaGold Canada Inc.
The following chart depicts the corporate structure of the
Company together with the jurisdiction of incorporation of each of the Company’s
material subsidiaries and related holding companies. All ownership is 100%
unless otherwise indicated.
All of the above companies are
sometimes referred to collectively herein as the “Company” or “NovaGold”.
- 2 -
ITEM 2 GENERAL DEVELOPMENT OF THE BUSINESS
Description of the Business
NovaGold is engaged in the exploration and development of
mineral properties. NovaGold is focused on advancing its flagship property,
Donlin Gold (formerly Donlin Creek). NovaGold has one of the largest mineral
reserve/resource bases among junior and mid-tier gold exploration companies. The
Company is also committed to maximizing the value of its non-core assets,
including its interest in the Galore Creek copper-gold-silver project, which the
Company is currently exploring opportunities to sell, in whole or in part.
NovaGold has an established track record of expanding deposits through
exploration and of forging collaborative partnerships, both with local
communities and with major mining companies. The Donlin Gold project in Alaska,
one of the world’s largest known undeveloped gold deposits, is held by a limited
liability company owned equally by wholly-owned subsidiaries of NovaGold and
Barrick Gold Corporation (“Barrick”). The Galore Creek project in British
Columbia, a large copper-gold-silver deposit, is held by a partnership owned
equally by wholly-owned subsidiaries of NovaGold and Teck Resources Limited
(“Teck”). NovaGold holds a 100% interest in the Ambler project, which contains
the high-grade Arctic copper-zinc-lead-gold-silver deposit in northern Alaska,
subject to a back-in right held by NANA Regional Corporation Inc. (“NANA”).
NovaGold also has other earlier-stage exploration properties. The Company’s
portfolio of properties includes:
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Donlin Gold, one of the world’s largest known undeveloped
gold deposits, is held by Donlin Gold LLC (formerly Donlin Creek LLC), a
limited liability company that is owned 50% by NovaGold Resources Alaska,
Inc. and 50% by Barrick Gold U.S. Inc. On December 5, 2011, NovaGold
announced the completion of a Feasibility Study for Donlin Gold (the
“Donlin Gold FS”). The Donlin Gold FS was compiled by AMEC Americas Ltd.
(“AMEC”) and revises the feasibility study completed in April 2009 (“2009
Feasibility Study”) with updated mineral reserves and resources, capital
costs and operating cost estimates. The Study is currently under review by
the Board of Directors of Donlin Gold LLC and has not yet been approved
pending clarification of certain outstanding issues. The Donlin Gold FS
also utilizes natural gas as the primary power source for the project
rather than the original diesel option. Donlin Gold is located in
southwestern Alaska on private Alaskan native-owned lands and Alaska state
mining claims totalling 81,361 acres (32,926 hectares). The property has
estimated proven and probable mineral reserves of 505 million tonnes
grading 2.09 grams per tonne gold for 33.8 million ounces of gold. This
represents an approximate 16% increase from the mineral reserve estimate
outlined in the 2009 Feasibility Study and is broadly comparable to the
March 2010 mineral reserve and resource update released by NovaGold. The
property hosts estimated measured and indicated mineral resources
(inclusive of mineral reserves) of 541 million tonnes grading 2.24 grams
per tonne gold for 39 million ounces of gold and inferred mineral
resources of 92 million tonnes grading 2.02 grams per tonne gold for 6.0
million ounces of gold. The total capital cost estimate for Donlin Gold is
US$6.7 billion, including costs related to the natural gas pipeline and a
contingency of US$984 million. The project’s estimated after-tax net
present value (NPV5% ) is US$547 million using the base case
gold price of US$1,200/oz, US$4.58 billion using a gold price of
US$1,700/oz and US$6.72 billion using a gold price of US$2,000/oz. The
corresponding Internal Rate of Returns (“IRR”) after-tax were estimated at
6.0%, 12.3% and 15.1%, respectively. Donlin Gold, if put into production
in accordance with the Donlin Gold FS, would average 1.46 million ounces
of gold production in each year of its first five years of operation at an
average cash cost of US$409/oz and an average of 1.13 million ounces of
gold per year over its projected 27 year mine life with an average cash
cost of US$585/oz. Mineral resources that are not mineral reserves do not
have demonstrated economic viability. The project is expected to be a
conventional truck and shovel open-pit operation. The mine life is
estimated to be 27 years based on a nominal processing rate of 53,500
tonnes per day. NovaGold believes that significant exploration potential
remains in the Donlin Gold district, with prospects to increase mine life
and/or justify future production expansions. NovaGold anticipates that
Donlin Gold will commence formal project permitting in the first half of
2012 following approval by the Board of Donlin Gold LLC. |
- 3 -
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Galore Creek, a large copper-gold-silver project located
in northwestern British Columbia, is held by a partnership (the “Galore
Creek Partnership”) in which NovaGold Canada Inc. and Teck Metals Ltd.
each own a 50% interest and is managed by Galore Creek Mining Corporation
(“GCMC”). The 293,837 acre (118,912 hectare) property holds a large,
porphyry-related copper-gold-silver deposit. The Pre-feasibility Study
(“PFS”) completed in July 2011 for the Galore Creek project estimates that
the project has proven and probable mineral reserves of 528 million tonnes
grading 0.59% copper, 0.32 grams per tonne gold and 6.02 grams per tonne
silver for estimated contained metal of 6.8 billion pounds of copper, 5.45
million ounces of gold and 102.1 million ounces of silver. In addition,
the property has estimated measured and indicated mineral resources
(exclusive of mineral reserves) of 286.7 million tonnes grading 0.33%
copper, 0.27 grams per tonne gold and 3.64 grams per tonne silver, for
estimated contained metal of 2.07 billion pounds of copper, 2.53 million
ounces of gold and 33.54 million ounces of silver and estimated inferred
mineral resources of 346.6 million tonnes grading 0.42% copper, 0.24 grams
per tonne gold and 4.28 grams per tonne silver, for estimated contained
metal of 3.23 billion pounds of copper, 2.70 million ounces of gold and
47.73 million ounces of silver. The PFS total capital cost estimate for
the Galore Creek project is $5.2 billion dollars. The PFS estimated net
present value (NPV7% ), using the base case metal price
assumptions set forth below, was assessed at $837 million and $137 million
on a pre-tax and post-tax basis, respectively. The corresponding post-tax
IRR of the project was estimated at 7.4%. Using the July 27, 2011 current
price case set forth below, the pre-tax and post-tax NPV7% of
the project were estimated at $4.7 billion and $2.7 billion, respectively,
with a post-tax IRR estimated at 14%. Base case metal prices used in the
PFS were US$2.65/lb copper, US$1,100/oz gold and US$18.50/oz silver with a
foreign exchange rate of US$0.91 = Cdn$1.00. The current price case used
metal prices on July 27, 2011 of US$4.44/lb copper, US$1,613/oz gold and
US$40.34/oz silver with a foreign exchange rate of US$1.05 = Cdn$1.00.
Mineral resources that are not mineral reserves do not have demonstrated
economic viability. NovaGold announced on November 16, 2011, that it is
exploring opportunities to sell all or a part of its interest in the
Galore Creek Partnership.
|
| |
|
|
| |
|
Ambler, which hosts the high-grade
copper-zinc-lead-gold-silver Arctic deposit, is, subject to a back-in
right held by NANA, 100% owned by a wholly-owned subsidiary of NovaGold.
Ambler is an exploration- stage property located in Alaska comprising
90,315 acres (36,549 hectares) of Federal patented mining claims and State
of Alaska mining claims, within which volcanogenic massive sulfide (“VMS”)
mineralization can be found. A mineral resource estimate for the Arctic
deposit shows an indicated mineral resource of 16.8 million tonnes grading
4.1% copper, 6.0% zinc, 0.83 grams/tonne gold and 59.62 grams/tonne silver
for estimated contained metal of 1.5 billion pounds of copper, 2.2 billion
pounds of zinc, 350.3 million pounds of lead, 447,000 ounces of gold and
32.3 million ounces of silver. In addition, the estimate shows an inferred
mineral resource of 12.1 million tonnes grading 3.5% copper, 4.9% zinc,
0.67 grams/tonne gold, and 48.04 grams/tonne silver containing 939.9
million pounds of copper, 1.3 billion pounds of zinc, 211.6 million pounds
of lead, 260,000 ounces of gold and 18.7 million ounces of silver. On
April 14, 2011, NovaGold announced the results of a preliminary economic
assessment (“PEA”) for the Arctic deposit. The project’s net present value
(NPV8% ) using the PEA base case metal price assumptions set
forth below was estimated at US$718 million and US$505 million on a
pre-tax and post-tax basis, respectively. The corresponding IRR were
estimated at 30% and 25%. Using the metal prices set forth below, the
pre-tax and post-tax NPV8% were estimated at US$2.2 billion and
US$1.6 billion, respectively, with corresponding IRRs estimated at 59% and
50%. Base case metal price assumptions used were US$2.50/lb copper,
US$1.05/lb zinc, US$1.00/lb lead, US$1,100/oz for gold and US$20/oz
silver. The metal price assumptions used were US$4.31/lb copper,
US$1.20/lb zinc, US$1.20/lb lead, US$1,425/oz gold and US$36/oz silver.
Mineral resources that are not mineral reserves do not have demonstrated
economic viability. On November 16, 2011, NovaGold announced that it
intends to distribute the shares of NovaCopper Inc. to its shareholders.
NovaCopper Inc. owns the Ambler project through its wholly-owned
subsidiary, NovaCopper US Inc. |
NovaGold also holds earlier-stage exploration projects that
have not advanced to the resource definition stage and the Rock Creek project
which is in the closure stage. For the purposes of NI 43-101, NovaGold’s
material properties are Donlin Gold and Galore Creek.
- 4 -
NovaGold Resources
Inc.
Proven and Probable
Mineral Reserves, Measured, Indicated and
Inferred Mineral Resources for Gold (Au), Silver
(Ag), Copper (Cu), Zinc (Zn) and Lead (Pb)
As at December5, 2011
- 5 -
Notes:
a. These resource estimates have been
prepared in accordance with NI43-101 and the CIM Definition Standard, unless
otherwise noted.
b. See numbered footnotes below on resource information.
c. AuEq - gold equivalent is calculated using gold and silver in the ratio
of gold + silver ÷ (US$1023 Au ÷ US$17 Ag) 2008 - 2010 average metal prices.
d. Rounding as required by reporting guidelines may result in apparent
summation differences between tonnes, grade and contained metal content
e.
Tonnage and grade measurements are in metric units. Contained gold and silver
ounces are reported as troy ounces, contained copper, zinc, and lead pounds as
imperial pounds
Resource Footnotes:
(1) Mineral
Reserves are contained within Measured and Indicated pit designs, and supported
by a mine plan, featuring variable throughput rates, stockpiling and cut-off
optimization. The pit designs and mine plan were optimized on diluted grades
using the following economic and technical parameters: Metal price for gold of
US$975/oz; reference mining cost of US$1.67/t incremented US$0.0031/ t/m with
depth from the 220 m elevation (equates to an average mining cost of US$2.14/t),
variable processing cost based on the formula 2.1874 x (S%) + 10.65 for each
US$/t processed; general and administrative cost of US$2.27/t processed;
stockpile rehandle costs of US$0.19/t processed assuming that 45% of mill feed
is rehandled; variable recoveries by rocktype, ranging from 86.66% in shale to
94.17% in intrusive rocks in the Akivik domain; refining and freight charges of
US$1.78/oz gold; royalty considerations of 4.5%; and variable pit slope angles,
ranging from 23º to 43º. Mineral Reserves are reported using an optimized net
sales return value based on the following equation: Net Sales Return = Au grade
* Recovery * (US$975/oz – (1.78 + (US$975/oz – 1.78) * 0.045)) - (10.65 + 2.1874
* (S%) + 2.27 + 0.19) and reported in US$/tonne. The life of mine strip ratio is
5.48. The assumed life-of-mine throughput rate is 53.5 kt/d.
(2) Mineral Reserves are contained within Measured and
Indicated pit designs using metal prices for copper, gold and silver of
US$2.50/lb, US$1,050/oz, and US$16.85/oz, respectively. Appropriate mining
costs, processing costs, metal recoveries and inter ramp pit slope angles
varying from 42º to 55º were used to generate the pit phase designs. Mineral
Reserves have been calculated using a 'cashflow grade' ($NSR/SAG mill hr)
cut-off which was varied from year to year to optimize NPV. The net smelter
return (NSR) was calculated as follows: NSR = Recoverable Revenue – TCRC (on a
per tonne basis), where: NSR = Net Smelter Return; TCRC = Transportation and
Refining Costs; Recoverable Revenue = Revenue in Canadian dollars for
recoverable copper, recoverable gold, and recoverable silver using metal prices
of US$2.50/lb, US$1,050/oz, and US$16.85/oz for copper, gold, and silver,
respectively, at an exchange rate of CDN$1.1 to US$1.0; Cu Recovery = Recovery
for copper based on mineral zone and total copper grade; for Mineral Reserves
this NSR calculation includes mining dilution. SAG throughputs were modeled by
correlation with alteration types. Cashflow grades were calculated as the
product of NSR value in $/t and throughput in t/hr. The life of mine strip ratio
is 2.16.
(3) Mineral Resources are inclusive of Mineral Reserves.
Mineral Resources that are not Mineral Reserves do not have demonstrated
economic viability. Mineral Resources are contained within a conceptual
Measured, Indicated and Inferred optimized pit shell using the following
assumptions: gold price of US$1,200/oz; variable process cost based on 2.1874 *
(sulphur grade) + 10.65; administration cost of US$2.29/t; refining, freight
& marketing (selling costs) of US$1.85/oz recovered; stockpile rehandle
costs of US$0.20/t processed assuming that 45% of mill feed is rehandled;
variable royalty rate, based on royalty of 4.5% – (Au price – selling cost).
Mineral Resources have been estimated using a constant Net Sales Return cut-off
of US$0.001/t milled. The Net Sales Return was calculated using the formula: Net
Sales Return = Au grade * Recovery * (US$1200/oz – (1.85 + ((US$1200/oz – 1.85)
* 0.045))) (10.65 + 2.1874 * (S%) + 2.29 + 0.20) and reported in US$/tonne. See
"Cautionary Note Concerning Reserve & Resource Estimates" .
(4) Mineral Resources are inclusive of Mineral Reserves.
Mineral resources are contained within a conceptual Measured, Indicated and
Inferred optimized pit shell using the same economic and technical parameters as
used for Mineral Reserves. Tonnages are assigned based on proportion of the
block below topography. The overburden/bedrock boundary has been assigned on a
whole block basis. Mineral resources have been estimated using a constant NSR
cut-off of C$10.08/t milled. The Net Smelter Return (NSR) was calculated as
follows: NSR = Recoverable Revenue – TCRC (on a per tonne basis), where: NSR =
Diluted Net Smelter Return; TCRC = Transportation and Refining Costs;
Recoverable Revenue = Revenue in Canadian dollars for recoverable copper,
recoverable gold, and recoverable silver using silver using the economic and
technical parameters mentioned above. The mineral resource includes material
within the conceptual M&I pit that is not scheduled for processing in the
mine plan but is above cutoff. See "Cautionary Note Concerning Reserve &
Resource Estimates" .
(5) The copper-equivalent grade was calculated as follows: CuEq
= Recoverable Revenue ÷ 2204.62 * 100 ÷ 1.55. Where: CuEq = Copper equivalent
grade; Recoverable Revenue = Revenue in US dollars for recoverable copper,
recoverable gold and recoverable silver using metal prices of US$1.55/lb,
US$650/oz, and US$11/oz for copper, gold, and silver, respectively; Cu Recovery
= 100%. Mineral Resources that are not Mineral Reserves do not have demonstrated
economic viability. Inferred Resources are in addition to Measured and Indicated
Resources. Inferred Resources have a great amount of uncertainty as to their
existence and whether they can be mined legally or economically. It cannot be
assumed that all or any part of the Inferred Resources will ever be upgraded to
a higher category. See "Cautionary Note Concerning Reserve & Resource
Estimates" .
(6) NovaGold Canada Inc. has agreed to transfer its 60% joint
venture interest in the Copper Canyon property to the Galore Creek Partnership,
which is equally owned by NovaGold Canada Inc. and a subsidiary of Teck
Resources Limited. The remaining 40% joint venture interest in the Copper Canyon
property is owned by another wholly owned subsidiary of NovaGold.
(7) Resources stated as contained within a potentially
economically minable underground shapes above a US$75.00/t NSR cut-off. NSR
calculation is based on assumed metal prices of US$2.50/lb for copper,
US$1,000/oz for gold, US$16.00/oz for silver, US$1.00/lb for zinc and US$1.00/lb
for lead. A mining cost of US$45.00/t and combined processing and G&A costs
of US$31.00 were assumed to form the basis for the resource NSR cut-off
determination. Mineral Resources that are not Mineral Reserves do not have
demonstrated economic viability. Inferred Resources are in addition to Measured
and Indicated Resources. Inferred Resources have a great amount of uncertainty
as to their existence and whether they can be mined legally or economically. It
cannot be assumed that all or any part of the Inferred Resources will ever be
upgraded to a higher category. See "Cautionary Note Concerning Reserve &
Resource Estimates" .
- 6 -
Cautionary Note Concerning
Reserve & Resource Estimates
This summary table uses the term “resources”, “measured
resources”, “indicated resources” and “inferred resources” . United States
investors are advised that, while such terms are recognized and required by
Canadian securities laws, the United States Securities and Exchange Commission
(the “SEC”) does not recognize them. Under United States standards,
mineralization may not be classified as a “reserve” unless the determination has
been made that the mineralization could be economically and legally produced or
extracted at the time the reserve determination is made. Mineral resources that
are not mineral reserves do not have demonstrated economic viability. United
States investors are cautioned not to assume that all or any part of measured or
indicated resources will ever be converted into reserves. Further, inferred
resources have a great amount of uncertainty as to their existence and as to
whether they can be mined legally or economically. It cannot be assumed that all
or any part of the inferred resources will ever be upgraded to a higher
category. Therefore, United States investors are also cautioned not to assume
that all or any part of the inferred resources exist, or that they can be mined
legally or economically. Disclosure of “contained ounces” is permitted
disclosure under Canadian regulations, however, the SEC normally only permits
issuers to report “resources” as in place tonnage and grade without reference to
unit measures. Accordingly, information concerning descriptions of
mineralization and resources contained in this release may not be comparable to
information made public by United States companies subject to the reporting and
disclosure requirements of the SEC.
NI 43-101 is a rule developed by the Canadian Securities
Administrators, which established standards for all public disclosure an issuer
makes of scientific and technical information concerning mineral projects.
Unless otherwise indicated, all resource estimates contained in this circular
have been prepared in accordance with NI 43-101 and the CIM Definition
Standards.
Technical Reports and
Qualified Persons
The documents referenced below provide supporting technical
information for each of NovaGold's projects.
| Project |
Qualified Person(s) |
Most Recent Disclosure &
Filing Date |
| Donlin Gold |
Tony Lipiec, P. Eng., AMEC |
Donlin Creek Gold Project |
| |
Gordon Seibel R.M. SME, AMEC |
Alaska, USA |
| |
Kirk Hanson P.E., AMEC |
NI 43-101 Technical Report on
Second Updated Feasibility Study |
| |
|
amended filing on January 23,
2012 |
| |
|
|
| Galore Creek |
Robert Gill, P.Eng., AMEC |
Galore Creek Copper–Gold Project,
|
| |
Jay Melnyk, P.Eng., AMEC |
British Columbia, NI 43-101
Technical Report on Pre-Feasibility Study, |
| |
Greg Kulla, P.Geo., AMEC |
filed on September 12, 2011
|
| |
Greg Wortman, P.Eng., AMEC |
|
| |
Dana Rogers, P.Eng., Lemley International |
|
| |
|
|
| Copper Canyon |
Erin Workman, P.Geo., NovaGold Resources Inc.
|
Not publicly released - updated
March 2008 |
| |
|
|
| Ambler |
Russ White, P.Geo., SRK Consulting |
NI 43-101 Preliminary Economic
Assessment, Ambler Project - May 9, 2011 |
| |
Neal Rigby, C.Eng., MIMMM, Ph.D., SRK
Consulting |
|
- 7 -
General Development of the Business – Three Year History
Changes to Senior Management
On November 16, 2011, the Company announced that Mr. Gregory A.
Lang had accepted the position of President and Chief Executive Officer of the
Company effective January 9, 2012. Mr. Lang was previously the President of
Barrick Gold North America, a wholly-owned subsidiary of Barrick. As the
President of Barrick Gold North America, Mr. Lang had executive responsibility
for Barrick’s nine operations in the United States, Canada and the Dominican
Republic, including the Donlin Gold project.
Effective January 9, 2012, Mr. Rick Van Nieuwenhuyse stepped
down from his position as President and Chief Executive Officer of the Company
and assumed the position of President and Chief Executive Officer of NovaCopper
Inc., a subsidiary. Mr. Van Nieuwenhuyse will continue to serve as a member of
the Board of Directors of NovaGold and will serve as senior advisor to Mr. Lang
for a period of one year.
Donlin Gold Feasibility Study and Updates
Donlin Gold (formerly Donlin Creek) is located in southwestern
Alaska on private Alaskan native-owned lands and Alaska state mining claims
totalling 81,431 acres (32,954 hectares).
On April 28, 2009, NovaGold announced it had commissioned AMEC
Americas Limited (“AMEC”) to provide an independent Qualified Person’s Review
and Technical Report for the Donlin Gold project based on information contained
in the 2009 Feasibility Study. Based on the 2009 Feasibility Study, the Donlin
Gold mine has been designed as a year-round, open-pit operation with a mill
throughput of 53,500 tonnes per day. While the 2009 Feasibility Study
anticipated a mine life of 21 years using the original 29.3 million ounce gold
reserve base, the reserve update in March 2010 (see below) to 33.6 million
ounces resulted in an anticipated mine life extension to 25 years. During the
first 5 full years, production is expected to average 1.6 million ounces with an
average total cash cost of US$394/oz. Gold production for the first 12 full
years is expected to average nearly 1.5 million ounces annually at an average
total cash cost of US$444/oz. Life of mine (“LOM”) production is estimated at an
average of 1.25 million ounces of gold annually. These production levels would
make Donlin Gold one of the world’s largest gold-producing mines. Donlin Gold
LLC continues to review the mine plan in light of prevailing gold prices.
Additional exploration potential remains in the Donlin Gold district.
As outlined in the 2009 Feasibility Study, the total estimated
cost to design and build the Donlin Gold project was US$4.5 billion, including
an owner-provided mining fleet and self-performed pre-development costs.
Sustaining capital requirements totaled US$803.0 million over the 20+ year mine
life; these will be recalculated for the longer mine life in the feasibility
revision. All costs from the 2009 Feasibility Study are expressed in Q4 2008
U.S. dollars with no allowances for taxes, duties or interest during
construction. LOM operating costs, including allocations for mining, processing,
administration and refining, were estimated at US$30.03/t milled and US$4.60/t
mined. The operating cost estimates were assembled by area and component, based
on estimated staffing levels, consumables and expenditures, according to the
mine plan and process design.
The project was expected to generate positive net cash flow at
the base case gold price assumption of US$725/oz used for the 2009 reserve
estimate. At a gold price of US$1,000/oz the project would generate US$8.4
billion in pre-tax cash flow and have a pre-tax net present value (NPV5% )
of US$2.7 billion with a pre-tax internal rate of return (“IRR”) of 12.3% .
The 2009 Feasibility Study included a reserve/resource estimate
in which a majority of the mineral resources were converted to mineral reserves.
Using a long-term gold price assumption of US$725/oz and US$850/oz respectively,
mineral reserves and mineral resources were estimated at 29.3 million ounces of
proven and probable gold reserves, with an additional 6.0 million ounces of
measured and indicated gold resources and 4.0 million ounces of inferred gold
resources.
- 8 -
On March 22, 2010, NovaGold announced an updated
reserve/resource estimate for the Donlin Gold project. The estimate was completed by an
independent engineering firm under the supervision of Donlin Gold LLC using a
gold price of US$825/oz, increasing the in-situ gold reserve by 4.3 million
ounces to 33.6 million ounces of gold on a 100% basis. NovaGold’s 50% interest
totals 16.8 million ounces of gold reserves, with an additional 2.1 million
ounces of measured and indicated gold resources and 2.2 million ounces of
inferred gold resources. The Donlin Gold reserve/resource estimate incorporates
results from 62 new drill holes totalling 25,094 meters for total drilling in the
reserve/resource model of 1,740 drill holes totalling 370,000 meters. The new pit
model used similar parameters to the resource model used in the 2009 Feasibility
Study. The new reserve estimate represented a 15% increase over the 29.3 million
ounce reserve estimate contained in the 2009 Feasibility Study, and was based on
the inclusion of additional drilling and a US$100/oz increase in long-term gold
price assumptions from those used in 2009. The increase in reserves was expected
to extend the mine life from 21 years to 25 years at the feasibility production
rate, and did not materially change the 2009 Feasibility Study. It is believed
that the additional storage capacity provided for in the 2009 Feasibility Study
will accommodate the increase in tailings and that the waste rock storage
facility can be modified to contain the additional unmineralized rock material.
On May 5, 2010, NovaGold announced the Donlin Gold FS had been
initiated at the Donlin Gold project to consider the construction and operation
of an underground 12-inch pipeline approximately 505 km (315 miles) from the
upper Cook Inlet area to the proposed Donlin Gold mine site. Gas from the
pipeline would be used to produce electricity at site, and the capital cost of
the pipeline could be partially offset by cost savings from elimination of the
wind cogeneration facility, the potential for a shorter access road and a
significant reduction in requirements for diesel storage, with some additional
cost reduction opportunities.
On December 5, 2011 NovaGold announced the completion of the
Donlin Gold FS. The Donlin Gold FS revises the 2009 Feasibility Study with
updated mineral reserves and resources, capital costs and operating cost
estimates. This updated study also looked at specific design aspects of the
project. One specific design change in the Donlin Gold FS is utilization of
natural gas as the primary power source for the project rather than diesel. The
property has estimated proven and probable mineral reserves of 505 million
tonnes grading 2.09 grams per tonne gold for 33.8 million ounces of gold. This
represents an approximate 16% increase from the mineral reserve estimate
outlined in the 2009 Feasibility Study and is broadly comparable to the March
2010 mineral reserve and resource update released by NovaGold. The property
hosts estimated measured and indicated mineral resources (inclusive of mineral
reserves) of 541 million tonnes grading 2.24 grams per tonne gold for 39 million
ounces of gold and inferred mineral resources of 92 million tonnes grading 2.02
grams per tonne gold for 6.0 million ounces of gold.
The total capital cost estimate for Donlin Gold is US$6.7
billion including costs related to the natural gas pipeline and a contingency of
US$984 million. The project’s estimated after-tax net present value
(NPV5%) is US$547 million using the base case gold price
of US$1,200/oz, US$4.58 billion using a gold price of US$1,700/oz and US$6.72
billion using a gold price of US$2,000/oz. The corresponding IRR after-tax were
estimated at 6.0%, 12.3% and 15.1%, respectively. Donlin Gold, if put into
production in accordance with the Donlin Gold FS, would average 1.46 million
ounces of gold production in each of its first five years of operation at an
average cash cost of US$409/oz and would average 1.13 million ounces of gold per
year over its projected 27 year mine life with an average cash cost of
US$585/oz.
The project is expected to be a conventional truck and shovel
open-pit operation. The mine life is estimated to be 27 years based on a nominal
processing rate of 53,500 tonnes per day.
NovaGold believes that significant exploration potential
remains in the Donlin Gold district, with prospects to increase mine life and/or
justify future production expansions.
Galore Creek Pre-Feasibility Study
Galore Creek, a large copper-gold-silver project located in
northwestern British Columbia, is held by a partnership in which NovaGold Canada
Inc. and Teck Metals Ltd. each own a 50% interest and is managed by GCMC. The
Galore Creek property comprises 293,837 acres (118,912 hectares) and hosts a
large, porphyry-related copper-gold-silver deposit.
During 2010, GCMC had reviewed a number of optimization
scenarios for the Galore Creek copper-gold-silver project with the objective of
expanding throughput, relocating the project facilities to allow for easier
construction and future expansion, and reducing the risks associated with
construction and operations. Based on these studies, GCMC has identified a preferred project design, and on April
20, 2010 NovaGold announced the PFS is underway with completion targeted for Q2
2011. The purpose of the PFS was to provide capital cost estimates using higher
copper and gold prices than used in previous studies, as well as possible
permitting, construction and production timelines.
- 9 -
Primary changes to the project include:
- Relocation of the tailings facility allowing for construction of a
conventional tailings dam;
- Relocation of the processing facilities allowing for future expansion;
- Realignment of the tunnel and access road; and
- Increase of daily throughput to approximately 90,000 tonnes per day.
Plans envision the ore being crushed in the valley and then
conveyed through the tunnel and along the access road to the processing plant.
From there, concentrate would be piped along the remainder of the access road to
Hwy 37. A trade off study will identify the best alternative for transport of
concentrate to market. The project would primarily use electric power, with a
power line built along the access road to tie into the 287-kV transmission line,
that the British Columbia and Canadian governments have announced their
intention to build. Some components of the revised Galore Creek mine plan, such
as the mill and tailings location, would require new permits or amendments to
existing permits. The majority of permits required for road construction remain
in good standing. GCMC may continue with road and bridge work as the project
moves through the feasibility stage, with the objective of shortening the
construction timeline and reducing the need for helicopter support.
On June 23, 2011, NovaGold announced the approval by the Galore
Creek Partnership of a $30.5 million budget to carry out further work at the
Galore Creek project during the remainder of 2011. Planned work included infill
drilling to convert inferred mineral resources to measured and indicated
categories, geotechnical drilling on the tunnel alignment and geotechnical
drilling to confirm open pit slopes in areas targeted for conversion of inferred
mineral resources. In June 2011, Teck completed its funding requirements of
$373.3 million to earn its 50% interest in the Galore Creek project. From the
date of completion of Teck’s earn-in, NovaGold and Teck are equally funding
further Galore Creek expenditures.
On July 27, 2011, NovaGold announced the results of the PFS for
the Galore Creek project. The PFS estimates the Galore Creek property has proven
and probable mineral reserves of 528 million tonnes grading 0.59% copper, 0.32
grams/tonne gold and 6.02 grams/tonne silver for estimated contained metal of
6.8 billion pounds of copper, 5.45 million ounces of gold and 102.1 million
ounces of silver. In addition, the property has estimated measured and indicated
mineral resources (exclusive of mineral reserves) of 286.7 million tonnes
grading 0.33% copper, 0.27 grams/tonne gold and 3.64 grams/tonne silver for
estimated contained metal of 2.07 billion pounds of copper, 2.53 million ounces
of gold and 33.54 million ounces of silver, and estimated inferred mineral
resources of 346.6 million tonnes grading 0.42% copper, 0.24 grams/tonne gold
and 4.28 grams/tonne silver for estimated contained metal of 3.23 billion pounds
of copper, 2.70 million ounces of gold and 47.73 million ounces of silver. The
PFS total capital cost estimate for the Galore Creek project was $5.2 billion
dollars. Capital costs are estimated with an accuracy range of +25% / -20%
(including contingency). The project’s estimated net present value (NPV7%),
using the PFS base case metal price assumptions set forth below, was assessed at
$837 million and $137 million on a pre-tax and post-tax basis, respectively. The
corresponding post-tax IRR of the project was estimated at 7.4% . Using the July
27, 2011 current price case set forth below, the pre-tax and post-tax NPV7%of
the project were estimated at $4.7 billion and $2.7 billion, respectively, with
a post-tax IRR estimated at 14%. Base case metal prices used in the PFS were
US$2.65/lb copper, US$1,100/oz gold and US$18.50/oz silver with a foreign
exchange rate of US$0.91 = Cdn$1.00. The current price case used metal prices on
July 27, 2011 of US$4.44/lb copper, US$1,613/oz gold and US$40.34/oz silver with
foreign exchange rate of US$1.05 = Cdn$1.00. Mineral resources that are not
mineral reserves do not have demonstrated economic viability.
Mining of the Galore Creek deposit is planned as a conventional
truck-shovel open-pit mining operation with a nominal 95,000 tonne-per-day
throughput. Life of mine throughput average is approximately 84,000 tonnes per
day due to the milling circuit constraining throughput as harder rock is
encountered deeper in the open pits. The current 528 million tonne mineral
reserve estimate is expected to support a mine life of approximately 18 years.
NovaGold believes there is potential to extend the mine life with additional
infill drilling and exploration. Using a conventional grinding and flotation circuit, the project would produce a
high-quality copper concentrate with significant gold and silver credits.
- 10 -
On November 16, 2011, NovaGold announced its interest in
exploring opportunities to sell all or part of its 50% interest in the Galore
Creek project.
Purchase of Copper Canyon Resources Ltd.
On December 20, 2010, NovaGold announced its intention to offer
to purchase all of the issued and outstanding common shares of Copper Canyon
Resources Ltd. (“Copper Canyon”), a junior exploration company whose principal
asset is its 40% joint venture interest in the Copper Canyon copper-gold-silver
property that is adjacent to the Galore Creek project. A wholly-owned subsidiary
of NovaGold held the remaining 60% joint venture interest in the Copper Canyon
property. Under the terms of the offer, each holder of Copper Canyon common
shares received 0.0425 of a NovaGold common share for each Copper Canyon common
share properly deposited under the offer. NovaGold subsequently filed and mailed
its Offer to Purchase and Circular on January 18, 2011. The offer was open for
acceptance until 5:00pm Eastern time on February 23, 2011.
Given the difficult topography, the small size and inferred category of the
known resources and the low copper grade on the Copper Canyon property, the
Copper Canyon resources are not currently and not anticipated to be part of the
mine plan for Galore Creek.
On May 20, 2011, NovaGold completed the acquisition of Copper
Canyon, and as a result, Copper Canyon is now a wholly-owned subsidiary of
NovaGold. NovaGold issued a total of 4,171,303 common shares under the
arrangement, representing approximately 1.7% of the number of NovaGold common
shares then outstanding and paid cash of $2.6 million. Under the arrangement,
Copper Canyon transferred to a new company, Omineca Mining and Metals Ltd.
(“Omineca”), substantially all of its assets other than certain cash and its 40%
interest in the Copper Canyon property. NovaGold holds and exercises control
over an aggregate of 1,725,858 common shares of Omineca, representing
approximately 10.8% of Omineca’s outstanding common shares. The Omineca shares
are being held by NovaGold as a portfolio investment.
Ambler Property Purchase and Preliminary Economic
Analysis
On January 7, 2010, NovaGold and AGC completed the purchase
from Kennecott Exploration Company and Kennecott Arctic Company (collectively
“Kennecott”) of a 100% interest in the Ambler property in northern Alaska, which
hosts the high-grade copper-zinc-gold-silver Arctic deposit. The Ambler property
comprises 90,315 acres (36,549 hectares) of State of Alaska mining claims and
Federal patented mining claims and hosts a number of deposits. NovaGold agreed
to pay Kennecott a total purchase price of US$29.0 million for the Ambler
property to be paid as: US$5.0 million by the issuance of 931,098 NovaGold
shares and two installments of US$12.0 million each, due in January 2011 and
January 2012, respectively. The NovaGold shares were issued in January 2010, the
first US$12 million payment was made on January 7, 2011 and the second US$12
million payment was made early on August 5, 2011. Kennecott retained a 1% net
smelter return royalty that NovaGold can purchase at any time for a one-time
payment of US$10.0 million. The agreement terminated the exploration agreement
between NovaGold and Kennecott dated March 22, 2004, as amended, under which
NovaGold had the ability to earn a 51% interest in the Ambler property.
On April 14, 2011, NovaGold announced the results of the PEA
for the Ambler project which focused on the Arctic deposit. The project’s net
present value (NPV8%) using the PEA base case metal price assumptions was
assessed at US$718 million and US$505 million on a pre-tax and post-tax basis,
respectively. The corresponding Internal Rates of Return (“IRR”) were estimated
at 30% and 25%. Using recent metal prices, the pre-tax and post-tax NPV8%were
estimated at US$2.2 billion and US$1.6 billion, respectively, with corresponding
IRRs estimated at 59% and 50%.
Based on the PEA, mining of the Ambler deposit is envisioned as
an underground operation processing up to 4,000 tonnes of material per day. The
current estimated mineral resource base of 16.8 million tonnes of indicated
mineral resources and 12.1 million tonnes of inferred mineral resources support
a 25-year mine life. The mine is anticipated to produce three concentrates: a
copper concentrate with gold byproduct, a lead concentrate with silver and gold
byproducts and a zinc concentrate with silver byproduct, with copper cash costs,
net of byproducts at long-term metal prices, estimated at $0.89/lb copper.
Average annual payable metal production is forecast at 67 million pounds of
copper, 80 million pounds of zinc, 12 million pounds of lead, 11,000 ounces of
gold and 866,000 ounces of silver. LOM payable metal production is
estimated at 1.7 billion pounds of copper, 2.0 billion pounds of zinc, 291
million pounds of lead, 266,000 ounces of gold and 22 million ounces of silver.
The production schedule is based on processing average-grade material through
the life of the operation, with potential upside to be obtained by mining
higher-grade ore during the early years of the project.
- 11 -
On October 19, 2011, NovaCopper US Inc. (“NovaCopper US”), a
wholly-owned subsidiary of NovaCopper Inc. (“NovaCopper”), entered into an
Exploration Agreement and Option to Lease (the “NANA Agreement”) with NANA
Regional Corporation, Inc. (“NANA”) for the cooperative development of their
respective resource interests in the Ambler mining district of Northwest Alaska.
The NANA Agreement consolidates NovaCopper’s and NANA’s land holdings into an
approximately [146,500 hectare] land package and provides a framework for the
exploration and development of this high-grade and prospective poly-metallic
belt.
The NANA Agreement provides NovaCopper US with the nonexclusive
right to enter on, and the exclusive right to explore, the Bornite Lands and the
ANCSA Lands (each as defined in the NANA Agreement) and in connection therewith,
to construct and utilize temporary access roads, camps, airstrips and other
incidental works. In consideration for this right, NovaCopper US paid to NANA
US$4 million in cash. NovaCopper US will also be required to make payments to
NANA for scholarship purposes in accordance with the terms of the NANA
Agreement. NovaCopper US has further agreed to use reasonable commercial efforts
to train and employ NANA shareholders to perform work for NovaCopper US in
connection with its operations on the Bornite Lands, ANCSA Lands and Ambler
Lands (as defined in the NANA Agreement) (collectively, the “Lands”).
On November 16, 2011, NovaGold announced its intention to
spin-out its wholly-owned subsidiary, NovaCopper by way of a Plan of Arrangement
(the “Plan”). Pursuant to the terms of the proposed Plan, common shares of
NovaCopper will be distributed to the shareholders of NovaGold as a return of
capital through a statutory Plan of Arrangement under the Companies Act
(Nova Scotia). The Plan will be voted on at a Special Meeting of Shareholders of
NovaGold to be held in early 2012 and will be subject to numerous conditions
including shareholder and court approval, approval by, and listing of, the
common shares of NovaCopper on the Toronto Stock Exchanges (“TSX”) and NYSE Amex
LLC (“NYSE Amex”) and completion of all required regulatory filings. The record
date for shareholders entitled to receive shares of NovaCopper under the Plan
will be the effective date of the Plan which is expected to be in the first half
of 2012.
NovaCopper owns the Ambler project and will have the right to
develop any mining project in the recently consolidated, approximately 146,500
hectare property located in the Ambler district of northwestern Alaska, subject
to the rights of NANA Corporation under the NANA Agreement.
Sale of Murray Brook Mine
Effective October 16, 2009, the Company sold its wholly-owned
subsidiary, Murray Brook Resources Inc., to Murray Brook Minerals Inc. (“MBM”).
The Company received $150,000 on the sale and MBM assumed all reclamation
liabilities on the Murray Brook property. The Company also subscribed for
$500,000 of MBM shares at a price of $0.35 per share in cash. MBM also has
early-stage mineral properties in Switzerland.
Financing
On January 22, 2009, the Company completed the sale of
53,134,616 units for a purchase price of US$1.30 per unit for gross proceeds of
approximately US$69.0 million. Electrum Strategic Resources LLC (“Electrum”)
purchased 46,153,847 units and several institutional investors purchased
6,980,769 units. On January 26, 2009, the Company completed the sale of
4,557,692 units to several institutional investors for gross proceeds of
approximately US$5.9 million. The total gross proceeds to NovaGold of these two
unit financings was US$75.0 million. Each unit consisted of one common share of
NovaGold and one common share purchase warrant of NovaGold. Each warrant
entitles the holder thereof to acquire one common share of NovaGold for an
exercise price of US$1.50 prior to 5:00 pm EST on January 21, 2013. Upon closing
of the private placement, Electrum became NovaGold’s largest shareholder,
currently owning approximately 19% of the issued and outstanding common shares
of the Company. Electrum also holds NovaGold warrants which, if exercised, would
increase its holdings a further 9% if no other shares were issued. See “Risk
Factors”.
- 12 -
Electrum has the right, for four years, to participate pro-rata
(on a fully diluted basis) in any future offering by NovaGold of equity
securities or any securities which are exercisable, exchangeable or convertible
into equity securities so long as Electrum and its affiliates own more than
15,000,000 common shares of NovaGold. This right of participation is subject to
certain exceptions including exceptions relating to a grant or exercise of
options issued under the Company’s stock option plan, issuances of common shares
on the exercise of outstanding warrants and convertible securities, issuance of
securities in connection with a strategic acquisition or transaction by
NovaGold, the primary purpose of which is not to raise equity, and the issuance
of securities in connection with an investment by, or partnership or joint
venture with, one or more strategic investors. Any exercise of such rights will
be subject to applicable TSX rules and NYSE Amex rules. NovaGold has also
entered into registration rights agreements with Electrum under which Electrum
may require NovaGold to qualify certain common shares for distribution in Canada
and/or the United States. NovaGold provided Electrum with the right to designate
an observer at all meetings of the Board of Directors of NovaGold and any
committee thereof so long as Electrum and its affiliates hold not less than 15%
of the Company’s common shares. Electrum designated Igor Levental as its
observer at NovaGold Board of Directors meetings, and in July 2010 NovaGold
appointed Igor Levental as a Director of NovaGold.
In March 2010, the Company completed the sale of 18,181,818
common shares of the Company at a price of US$5.50 per common share to
investment funds managed by Paulson & Co. Inc. and 13,636,364 common shares
of the Company at a price of US$5.50 per common share to Quantum Partners Ltd.,
a private investment fund managed by Soros Fund Management LLC, for total gross
proceeds of US$175.0 million. The financings were completed under supplements to
the Company’s base shelf prospectus for US$500.0 million dated December 30,
2009.
On February 7, 2012, the Company completed a bought deal equity
offering of 35,000,000 common shares of the Company at a price of US$9.50 per
common share for net proceeds of approximately US$318.9 million after deducting
underwriter commission and expenses. The syndicate of underwriters, led by RBC
Capital Markets and J.P. Morgan Securities LLC, included BMO Capital Markets,
Dahlman Rose & Company, National Bank Financial Inc. and TD Securities.
Sale of Marketable Securities
On January 8, 2009,
the Company completed the sale of its holdings in Alexco Resource Corp. for an
average net sale price of approximately $0.60 per share and net proceeds of $3.8
million.
Exercise of Warrants
During 2009, Auramet exercised
all of its 1,750,000 warrants at an exercise price of $1.53 per share for
proceeds of $2.7 million, and exercised 5,631,582 share purchase warrants with
an exercise price of US$1.50 for proceeds of $9.1 million.
During 2010, 8,346,153 share purchase warrants, issued as part
of the January 2009 financing, were exercised at an exercise price of
US$1.50 per share for proceeds of US$12.5 million.
During 2011, as part of the January 2009 financing,
7,099,969 share purchase warrants were exercised at an exercise price of US$1.50
per share for proceeds of US$10.7 million and 1,825,000 share purchase warrants
were exercised at an exercise price of US$1.48 per share for proceeds of US$2.7
million.
ITEM 3 DESCRIPTION OF THE BUSINESS
General
Donlin Gold Project, Alaska
Donlin Gold is an advanced-stage gold project held by Donlin
Gold LLC, a limited liability company that is owned 50% by the Company’s
wholly-owned subsidiary, NovaGold Resources Alaska, Inc. and 50% by Barrick’s
wholly-owned subsidiary, Barrick Gold U.S. Inc., located on private, Alaskan
Native-owned land and Alaska state mining claims, the 81,431 acre (32,954
hectare) property hosts a gold deposit currently estimated at 33.8 million
ounces of proven and probable reserves averaging 2.09 grams per tonne gold, 5.2
million ounces of measured and indicated resources and an additional 6.0 million ounces of inferred
resources. This reserve estimate represents a 15% increase over the 29.3 million
ounce reserve estimate outlined in the 2009 Feasibility Study, and is based on
the inclusion of additional drilling and a US$250/oz increase in long-term gold
price assumptions from that used in 2009.
- 13 -
On July 14, 2001, the Company, through its wholly-owned
subsidiary NovaGold Resources Alaska, Inc., entered into an exploration and
development option agreement with Placer Dome (acquired by Barrick in January
2006), granting the Company the right to earn up to a 70% interest in the Donlin
Gold property (“Option Agreement”). Under the terms of the Option Agreement, the
Company agreed to expend US$10.0 million within a ten-year period towards
exploration and development to earn a 70% interest in the Donlin Gold property.
In November 2002, the Company earned title to a 70% interest in the property,
with Placer Dome holding the remaining 30%, and a joint venture between the
parties was effectively formed, the rights and obligations of which became those
of Barrick in January 2006 following its acquisition of Placer Dome. During the
latter half of 2006 and the majority of 2007, there was a dispute between the
Company and Barrick regarding Barrick’s ability to meet the terms of the back-in
agreement and acquire a 70% interest in the property, which would have had the
effect of reducing the Company’s interest to 30%.
To resolve their differences, the Company and Barrick entered
into a limited liability company agreement dated December 1, 2007 that provided
for the conversion of the Donlin Gold joint venture into Donlin Gold LLC, which
is jointly owned by the Company and Barrick on a 50/50 basis. Pursuant to the
limited liability company agreement, the Company has agreed to reimburse Barrick
over time for approximately US$64.3 million, representing 50 percent of
Barrick’s approximately US$128.6 million expenditures at the Donlin Gold project
from April 1, 2006 to November 30, 2007. The Company reimbursed US$12.7 million
of this amount following the effective date of the agreement by paying US$12.7
million of Barrick’s share of project development costs. The remaining
approximately US$51.6 million will bear interest and be paid out of future mine
production cash flow. Funding is currently shared by both parties on a 50/50
basis.
On December 5, 2011, NovaGold announced the results of an
updated feasibility study for the Donlin Gold project. The Donlin Gold FS
revises the 2009 Feasibility Study with updated mineral reserves and resources,
capital costs and operating cost estimates. The feasibility study also utilizes
natural gas as the primary power source for the project rather than the original
diesel option. Based on the feasibility study, the project is expected to be a
conventional truck-and-shovel open-pit operation. The mine life is estimated to
be 27 years based on a nominal processing rate of 53,500 tonnes per day. During
the first five years, expected production averages 1.46 million ounces of gold
production in each year of its first five years of operation at an average cash
cost of US$409/oz and an average of 1.13 million ounces of gold per year over
its projected 27 year mine life with an average cash cost of US$585/oz.
The property has estimated proven and probable mineral reserves
of 505 million tonnes grading 2.09 grams per tonne gold for 33.8 million ounces
of gold. This represents an approximate 15% increase from the mineral reserve
estimate outlined in the 2009 Feasibility Study and is broadly comparable to the
March 2010 mineral reserve and resource update released by NovaGold. The
property hosts estimated measured and indicated mineral resources (inclusive of
mineral reserves) of 541 million tonnes grading 2.24 grams per tonne gold for 39
million ounces of gold and inferred mineral resources of 92 million tonnes
grading 2.02 grams per tonne gold for 6.0 million ounces of gold. NovaGold’s 50%
interest totals 16.9 million ounces of gold reserves, with an additional 2.6
million ounces of measured and indicated gold resources and 3.0 million ounces
of inferred gold resources. The Donlin Gold reserve/resource estimate
incorporates results from 62 new drill holes totalling 25,000 meters for total
drilling in the reserve/resource model of 1,740 drill holes totalling 370,000
meters. Mineral Reserves have been estimated using a long-term gold price
assumption of US$975/oz. Mineral resources are based on a Whittle™ pit optimized
for all Measured, Indicated, and Inferred blocks assuming a gold selling price
of US$1,200/oz and are inclusive of reserves.
Mineral resources have been classified using criteria
appropriate under the CIM Definition Standards by application of a net smelter
return based cut-off grade which incorporated mining and recovery parameters,
and constraint of the resources to a pit shell based on commodity prices.
Mineral reserves were estimated based on a series of Lerchs-Grossmann pit
shells, established following a number of throughput rationalization studies.
The pit shell considered measured and indicated resources only. Flotation
recoveries in the pit optimization varied by rock type, domain, and degree of
oxidation, and ranged from 86.66% to 94.17% .
- 14 -
Except for the information contained under the heading “Donlin
Gold – Current Activities” or as otherwise stated or implied, the scientific and
technical information regarding Donlin Gold in this Annual Information Form is
based on the technical report titled “Donlin Gold Project, Alaska, USA NI 43-101
Technical Report on Second Updated Feasibility Study” dated December 2011 (the
“Donlin Gold FS”) prepared by Kirk Hanson, P.E., Gordon Seibel, R.M. SME., and
Tony Lipiec, P.Eng., all of whom are Qualified Persons as defined in NI 43-101.
The Donlin Gold FS has been filed with the securities regulatory authorities in
each province of Canada and with the SEC. Portions of the following information
are based on assumptions, qualifications and procedures that are not fully
described herein. References should be made to the full text of the Donlin Gold
FS which is available for review on SEDAR located at www.sedar.com and on EDGAR
at www.sec.gov.
Donlin Gold – Property Description and Location
The Donlin Gold property is an advanced-stage gold project
located in southwestern Alaska and is one of the largest known undeveloped gold
deposits in the world. The property is under lease for subsurface and surface
rights, respectively, from Calista Corporation (“Calista”) and The Kuskokwim
Corporation (“TKC”), two Native Alaskan corporations. Calista is one of 13
regional Alaska Native corporations established as part of the Alaska Native
Claims Settlement Act (“ANCSA”) of 1971 and under ANCSA has title to the
subsurface estate in the region.
In March 2010, Donlin Gold LLC renegotiated its lease with
Calista, securing additional land to allow for future expansion and extending
the lease to 2031. In addition to the 49,671 acres (20,101 hectares) leased from
Calista, Donlin Gold LLC holds 242 Alaska State mining claims comprising 31,760
acres (12,852 hectares), bringing the total land package to 81,431 acres (32,954
hectares). The existing lease covers the subsurface rights for the entire Donlin
Gold mineral reserves and resources. Among other things, amendments to the
renegotiated lease provide for (i) the lease of certain additional lands that
may be required for the development of the property, (ii) an extension of the
term of the lease to April 30, 2031 and automatically year to year thereafter,
so long as either mining or processing operations are carried out on or with
respect to the property in good faith on a continuous basis in such year, or
Donlin Gold LLC pays to Calista an advanced minimum royalty of US$3.0 million
(subject to adjustment for increases in the Consumer Price Index) for such year,
(iii) the elimination of Calista’s option to acquire a 5% to 15% participating
operating interest in the project and replacement with the payment to Calista of
a net proceeds royalty equal to 8% of the net proceeds realized by Donlin Gold
LLC at the project after deducting certain capital and operating expenses
(including an overhead charge, actual interest expenses incurred on borrowed
funds and a 10% per annum deemed interest rate on investments not made with
borrowed funds), and (iv) an increase in the advanced minimum royalties payable
to Calista under the lease to US$0.5 million for the year ending April 30, 2010,
increasing on an annual basis thereafter until reaching US$1.0 million for each
of the years 2015 to 2024 inclusive and US$2.0 million for each of the years
2025 to 2030 inclusive. All advance minimum royalties paid to Calista continue
to be recoverable as a credit against Calista’s existing net smelter royalty
under the lease agreement, which remains unchanged.
Donlin Gold LLC, through native lease agreements, holds a
significant portion of the surface rights that will be required to support
mining operations in the proposed mining area. ANCSA established the Kuskokwim
Corporation (“TKC”) which is the owner of the surface rights estate for most of
the project lands. Donlin Gold operates under a surface use agreement with TKC.
Donlin Gold is negotiating a restructuring of the TKC agreement to, among other
things, add additional lands and extend the term, which currently expires in
June 2015 unless certain lease conditions are met. The surface use agreement
provides TKC with payments for lands used and protection of subsistence
activities.
Other lands required for offsite infrastructure, such as
required for the Jungjuk port site, road to the port site and gas pipeline are
categorized as Native, State of Alaska conveyed, or Bureau of Land Management
(“BLM”) lands. Rights-of-way will be required from the State and BLM for the
road and pipeline alignments where they cross state and federal lands,
respectively.
The resource area consists of the ACMA, 400 Zone, Aurora and
Akivik prospects (grouped as “ACMA”) and the Lewis, South Lewis, Vortex,
Rochelieu and Queen prospects (grouped as “Lewis”). The resource areas are
within T. 23 N., R. 49. W., Seward Meridian, Kuskokwim and Mt. McKinley
Recording Districts, Crooked Creek Mining District, Iditarod A-5 USGS 1:63,360
topography map.
- 15 -
Donlin Gold – Permits
Donlin Gold LLC has maintained all of the necessary permits for
exploration and camp facilities. These permits are active at the Alaska
Department of Natural Resources (hard rock exploration, temporary water use),
the Corp of Engineers (individual 404 and nationwide 26), Alaska State
Department of Conservation (wastewater, drinking water, food handling), the
Alaska Department of Fish and Game (title 16 – fish), the Environmental
Protection Agency (NPDES) and the Federal Aviation Administration (airport).
Current permits have allowed exploration and associated
feasibility study supporting testwork to be conducted under appropriate state
and federal laws. Development of Donlin Gold will require a considerable number
of additional permits and authorizations from both federal and state agencies.
Much of the groundwork to support a successful permitting effort is undertaken
prior to the submission of permit applications, so that issues can be identified
and resolved, supporting baseline data can be acquired and regulators and
stakeholders can become familiar with the proposed project.
To support successful application for the more than 60 permits
required, the project will likely require extensive baseline environmental
information, supporting scientific analysis and detailed engineering design.
Donlin Gold LLC and predecessors have invested significant money, resources and
time acquiring this information over the last five years, and in some cases over
the last 12 years. Designing the project in line with baseline data in advance
of filing permit applications has resulted in a project that affords due
consideration to all environmental concerns and is designed to mitigate
potential impacts on the environment wherever practicable.
At the same time, a comprehensive program of coordinating with
the Federal and State permitting agencies as well as meeting with village
representatives has been conducted. Overall, the proposed project has been
designed to address many of the potential issues and minimize environmental
impacts from construction through closure. In October 2011, a Memorandum of
Understanding (“MOU”) was signed with the U.S Army Corps of Engineers, which
will be the lead agency for compliance with the National Environmental Policy
Act (“NEPA”). This MOU provides the framework for preparation of the
environmental impact statement (“EIS”).
The comprehensive permitting process for Donlin Gold can be
divided into three categories, all of which are important to the successful
establishment of a future mining operation:
- Exploration-stage permitting – required to obtain approval for exploration
drilling, environmental baseline studies and feasibility engineering studies.
- Pre-application phase – conducted in parallel with feasibility engineering
studies. This stage includes the collection of environmental baseline data and
interaction with stakeholders and regulators to facilitate the development of
a project that can be successfully permitted.
- The NEPA process and formal permit applications – formal agency review and
analysis of the project, resulting in the issuance or denial of construction
and operation permits.
Permit review timelines are controlled by the requirements of
the federal NEPA review and state requirements for meaningful public and agency
participation to determine if the project is in the state’s best interest.
Upon completion of the NEPA review, a positive Record of
Decision (“ROD”) and final issuance of permits and authorizations, the
Environmental Management System (“EMS”), consisting of a number of management
and maintenance plans for the project, will be fully implemented. Each federal
and state permit will have compliance stipulations that require scrutiny and
negotiation that can typically be resolved within 60 days of the ROD. Project
delays could occur as a result of public opposition, limitations in regulatory
staff resources during regulator review or project changes made by Donlin Gold
LLC.
- 16 -
Donlin Gold – Mineral Tenure
The following information regarding mineral tenure at the
Donlin Gold project was compiled by the Company and is not included in the
Donlin Gold FS.
Most of the rights (surface and subsurface) are governed by
conditions defined by ANCSA. Section 12(a) of ANCSA entitled each village
corporation to select surface estate land from an area proximal to the village
in an amount established by its population size. Calista receives conveyance of
the subsurface when the surface estate in those lands is conveyed to the village
corporation. Section 12(b) of ANCSA allocated a smaller entitlement to the
regional corporations with the requirement they reallocate it to their villages
as they choose. Calista receives subsurface estate when its villages receive
12(b) lands. Calista reallocated its 12(b) entitlement in 1999 according to a
formula based on original village corporation enrolments.
The Donlin Gold exploration and mining lease currently includes
lands leased from Calista, which holds the subsurface (mineral) estate for
Native-owned lands in the region. The leased land is believed to contain 20,101
hectares (49,671 acres). Title to all of these lands have been conveyed to
Calista by the Federal Government. Calista owns the surface estate on a portion
of these lands. A separate Surface Use Agreement with TKC, which owns the
surface estate of the remaining lands, grants non-exclusive surface use rights
to Donlin Gold LLC. All of these lands have now been conveyed to Calista/TKC by
the Federal Government. Donlin Gold LLC has entered into negotiations with TKC
regarding amendments to the TKC Surface Use Agreement.
In addition to the leased land, Donlin Gold LLC holds 242 State
of Alaska mineral claims comprising 12,853 hectares (31,760 acres) primarily
surrounding the leased land in the Kuskokwim and Mt. McKinley recording
districts. Of these, 3 claims are on state selected lands; 158 claims are
tentatively approved for conveyance from the Federal to State government subject
to official surveying. These claims have not been legally surveyed. All claims
are either 16.2 hectares (40 acres) or 64.8 hectares (160 acres) in size.
- 17 -
Donlin Gold – Accessibility and Climate
The Donlin Gold property is located in southwestern Alaska,
approximately 20 km north of the village of Crooked Creek on the Kuskokwim
River. The Kuskokwim River is a regional transportation route and is serviced by
commercial barge lines. A 25 km long winter road, designated as an Alaska State
Highway route and transportation corridor, accesses the property from the barge
site at the village of Crooked Creek. The Project has an all-season, soft-sided
camp with facilities to house up to 150 people. An adjacent 1,500 m long
airstrip is capable of handling aircraft as large as C-130 Hercules (42,000 lb
or 19,050 kg), allowing efficient shipment of personnel, some heavy equipment,
and supplies. The Project can be serviced directly by charter air facilities out
of both Anchorage, 450 km to the east and Aniak, 80 km to the west.
The project area is one of low topographic relief on the
western flank of the Kuskokwim Mountains. Elevations range from 150 meters to
640 meters. Ridges are well rounded and easily accessible by all-terrain
vehicle. Hillsides are forested with black spruce, tamarack, alder, birch and
larch. Soft muskeg and discontinuous permafrost are common in poorly drained
areas at lower elevations. The area has a relatively dry interior continental
climate with typically less than 50 cm (20") total annual precipitation. Summer
temperatures are relatively warm and may reach nearly 30°C (83°F). Minimum
temperatures may fall to well below -42°C (-45°F) during the cold winter months.
The project is currently isolated from power and other public
infrastructure. Studies were undertaken in 2008 to consider potential power line
access to the project. Sufficient space is available to site the various
facilities, including personnel housing, stockpiles and processing plants.
Ample water supply is available from surface and subsurface sources.
- 18 -
Donlin Gold – Project History, Drilling and Exploration
Various operators, including Western Gold Exploration and
Mining Co. and Teck, undertook significant work on the property prior to 1995.
Between 1995 and 2000, Placer Dome completed approximately 87,000 meters of
diamond core drilling, 12,000 meters of reverse circulation (“RC”) drilling and
8,000 meters of trenching. In addition, Placer Dome undertook, amongst other
things, metallurgical testing and baseline environmental studies.
From 2001 to 2002, NovaGold completed approximately 39,000
meters of core drilling, 11,000 meters of RC drilling, 89 meters of geotechnical
drilling and 268 meters of water monitoring holes. NovaGold’s work on the
property in 2002 focused on expanding the ACMA resource and defining
mineralization and new resources in the adjacent prospect areas of Aurora, 400
Zone, Akivik and Vortex. In late 2002, Placer Dome elected to return as operator
as per the joint venture agreement. Placer Dome’s work in 2003 included updating
the resource estimation, calcium carbonate investigations and economic studies.
In 2004, Placer Dome focused on environmental and geotechnical studies,
including geological mapping and sampling for carbonate-rich material, and
continued with environmental baseline studies. Placer Dome focused on resource
conversion, geotechnical investigation and environmental studies in 2005.
In January 2006, Barrick acquired control of Placer Dome.
Barrick focused on resource conversion, geotechnical investigation,
metallurgical and environmental studies from 2006 through 2007. Work included
resource infill, geotechnical, metallurgical and condemnation drilling as well
as continued environmental baseline studies, water geochemistry, peat
exploration, wind power generation studies and metallurgical studies. In 2006,
the project team drilled 92,804 meters of core with eight LF-70 drill rigs in
327 drill holes. Of that, 235 holes totalling 84,800 meters of core was focused
on converting inferred resource to measured and indicated resource. However,
significant drilling was also devoted to a broad range of pre-feasibility and
feasibility objectives, including pit slope stability, metallurgy, waste rock
studies, facilities condemnation and engineering, and calcium carbonate resource
bulk sampling, delineation, and exploration. Barrick continued the same logging
procedures and down-hole and collar survey methods as used in the past. However,
ACE core orientation tools were utilized for oriented holes and the data were
entered into an acQuire database. Core recovery in both mineralized and
unmineralized rocks was consistently excellent and generally exceeded 90% in
intrusive rocks and 80% to >95% in sedimentary rocks. True widths of
mineralization are difficult to determine but drill holes were oriented to
reflect true width intercepts limited only by the equipment and geologic
knowledge.
In 2007, 124 exploration holes comprising 50,562 meters of core
were completed. Core recovery in both mineralized and unmineralized rocks was
consistently excellent and generally exceeded 90% in intrusive rocks and 80% to
>95% in sedimentary rocks. True widths of mineralization are difficult to
determine but drill holes were oriented to reflect true width intercepts limited
only by the equipment and geologic knowledge.
The 2008 exploration program focused on drilling the East ACMA
target area, designed to quickly determine the limits of mineralization in this
expanding target area. In 2009, chilled brine geotechnical drilling was
conducted to further assess permafrost in the Donlin Gold district. There was no
exploration drilling during 2009 or 2010 within the resource area.
- 19 -
Geological Setting
Regional Geology
The Kuskokwim region of
southwestern Alaska is predominately underlain by rocks of the Upper Cretaceous
Kuskokwim Group that filled a subsided northeast-trending strike-slip basin
between a series of amalgamated terranes. Intermediate composition
volcano-plutonic complexes intrude and overlie Kuskokwim Group rocks throughout
the region.
Local Geology
The Donlin Gold deposits lie between
two regional, northeast-trending, right lateral faults, in an area that contains
numerous northeast to east–northeast- and northwest to west–northwest-trending
lineaments that probably represent steeply-dipping strike-slip faults. Undivided
Kuskokwim Group sedimentary rocks and granite porphyry complexes are the main
rock units.
Property Geology
Greywacke is dominant in the
northern part of the area (“northern resource area” comprising Lewis, Queen,
Rochelieu, and Akivik), while shale-rich units are common in the southern part
of the area (“southern resource area” comprising South Lewis and ACMA). Overall,
sedimentary structure in the northern resource area is monoclinal, whereas
sedimentary rocks in the southern resource area display open easterly-trending
folds.
Gold deposits are associated with an extensive Late
Cretaceous–Early Tertiary gold–arsenic–antimony–mercury hydrothermal system.
Gold-bearing zones exhibit strong structural and host rock control along
north–northeast-trending fracture zones and are best developed where those zones
intersect relatively competent host rocks. Mineralized material is most abundant
in the igneous rocks, but sedimentary rocks are also mineralized within strong
fracture zones.
Exploration
Grids and Surveys
Drill hole collar and trench
locations were tied to a surveyed ground control net using conventional
theodolite survey methods from 1988 through 1993. Drill hole collars were
surveyed with Brunton compass and hip chain in 1995.
A Motorola GPS system was used in early 1996 to establish
survey control monuments and to survey some drill collars.
Traditional survey methods were subsequently used to locate all
1995–1999 and 2001 drill collars and trenches. An Ashtech Promark2 GPS
post-processed system that consists of a base unit and up to two roving units
was introduced in 2002.
Geological Mapping
A number of geological mapping
programs have been completed, using air photograph bases, at 1:20,000 and
1:10,000 regional scales. Mapping was primarily completed during the mid to late
1990s.
Geophysical Surveys
An airborne magnetic survey was
flown on behalf of WestGold in 1988–1989. Subsequently, ground electromagnetic,
resistivity and IP surveys were completed at regional and prospect scale to aid
in drill targeting.
Geochemical Sampling
Geochemical sampling to support
exploration-stage work programs have been undertaken as summarized in the table
below. This work has been superseded by the drill programs completed on the
property.
Trenching
Trenching programs were
completed as part of exploration-stage activities. Trench data are used to
construct the geological model.
- 20 -
Exploration Summary Table, Exclusive of Drilling
|
Year |
|
Company |
|
|
Work Performed |
|
|
Results |
|
|
|
|
|
|
|
|
|
|
|
|
| 1909 to 1956 |
|
Various prospectors and placer miners |
|
|
Gold discovered on Donlin Gold in 1909. Placer mining by
hand, underground, and hydraulic methods. |
|
|
Total placer gold production of approximately 30,000 oz. |
|
| |
|
|
|
|
|
|
|
|
|
| 1970s to present |
|
Robert Lyman and heirs |
|
|
Resumed sluice mining in Donlin area and placer mined
Snow Gulch. |
|
|
First year of mining Snow Gulch produced best results,
with 800 oz Au recovered. Donlin Gold LLC is presently negotiating with
the Lyman family to consolidate the land package around the proposed mine. |
|
|
|
|
|
|
|
|
|
|
|
| 1974, 1975 |
|
Resource Associates of Alaska (“RAA”) |
|
|
Regional mineral potential evaluation for Calista
Corporation. Soil grid and three bulldozer trenches dug in Snow Gulch
area. |
|
|
Soil, rock, and vein samples have anomalous gold values.
Trench rock sample results range from 2 g/t Au to 20 g/t Au. |
|
|
|
|
|
|
|
|
|
|
|
| 1984 to 1987 |
|
Calista Corporation |
|
|
Minor work. Various mining company geologists including
Cominco and Kennecott visit property. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1986 |
|
Lyman Resources |
|
|
Auger drilling for placer evaluation finds abundant gray,
sulfide-rich clay near Quartz Gulch. |
|
|
Assays of cuttings average over 7 g/t Au. Initial
discovery of Far Side(Carolyn) prospect. |
|
|
|
|
|
|
|
|
|
|
|
| 1987 |
|
Calista Corporation |
|
|
Rock sampling of ridge tops and auger drill sampling of
Far Side prospect. |
|
|
Anomalous gold values from auger holes: best result = 9.7
g/t Au. |
|
|
|
|
|
|
|
|
|
|
|
| 1988 to 1989 |
|
Western Gold Exploration and Mining Co.
(WestGold) |
|
|
Airborne geophysics, geological mapping, and soil
sampling over most of Project area. Total of 13,525 m of D9 Cat trenching
at all prospects. Over 15,000 soil, rock chip, and auger samples
collected. Drilling included 3,106 ft of AX core drilling, 404 m in 239
auger holes, and 10,423 m of RC drilling(125 holes). First metallurgical
tests and petrographic work. |
|
|
Initial work identified eight prospects with encouraging
geology ± Au values (Snow, Dome, Quartz, Carolyn, Queen, Upper Lewis,
Lower Lewis, and Rochelieu). Drilling at most of these prospects led to
identification of the Lewis areas as having the best bulk-mineable
potential. Mineral Resource estimate completed. |
|
|
|
|
|
|
|
|
|
|
|
| 1993 |
|
Teck Exploration Ltd. |
|
|
D-9 Cat trenching(1,400 m) and two 500 m soil lines in
Lewis area. Petrographic, fluid inclusion, and metallurgical work. |
|
|
Identified new mineralized areas, updated Mineral
Resource estimate. |
|
|
|
|
|
|
|
|
|
|
|
| 1995 to 2000 |
|
Placer Dome |
|
|
87,383 m of core, 11,909 m of RC drilling and 8,493 m of
trenching. Environmental monitoring and assessment. |
|
|
Drilled the American Creek magnetic anomaly (“ACMA”),
discovered the ACMA deposit. Numerous Mineral Resource estimation
iterations. |
|
|
|
|
|
|
|
|
|
|
|
| 2001 to 2002 |
|
NovaGold |
|
|
46,495 m of core, 38,022 ft of RC drilling, 89.5 m of
geotechnical drilling, and 268 m of water monitoring holes. |
|
|
Filed a preliminary assessment report on the Project.
Updated resource estimate. |
|
|
|
|
|
|
|
|
|
|
|
| 2003 to 2005 |
|
Donlin Gold Joint Venture |
|
|
25,448 m of core and 5,979 m of RC drilling. Calcium
carbonate exploration drilling; IP lines for facility condemnation
studies. |
|
|
Infill drilled throughout the resource area. Discovered a
calcium carbonate resource. Poor quality IP data. |
|
|
|
|
|
|
|
|
|
|
|
| 2006 |
|
Donlin Gold Joint Venture |
|
|
92,804 m of core drilling to support Mineral Resource
classification conversion, slope stability, metallurgy, waste rock,
carbonate exploration, facilities, and port road studies. |
|
|
Geological model and Mineral Resource update. |
|
|
|
|
|
|
|
|
|
|
|
| 2007 |
|
Donlin Gold Joint Venture |
|
|
Core drilling totalled 75,257 m and included resource
delineation, geotechnical and engineering, and carbonate exploration. 13
RC holes for monitor wells and pit pump tests totalled 1,043 m. |
|
|
Improved pit slope parameters, positive hydrogeological
results. Carbonate exploration was negative. Updated Mineral Resource
estimate. Completed feasibility study with positive results. |
|
|
|
|
|
|
|
|
|
|
|
| 2008 |
|
Donlin Gold LLC |
|
|
108 core holes totalling 33,425 m for exploration and
facility related geotechnical and condemnation studies. Updated resource
models. Metallurgical test work: flotation variability and CN leach. 54
test pits and 37 auger holes were also completed for overburden
characterization. |
|
|
Resource expansion indicated for East ACMA. CN leach
resource potential indicated for the main resource area, Snow, and Dome
prospects. Facility sites successfully condemned. Updated resource
estimates utilizing applicable data through 2007 |
|
|
|
|
|
|
|
|
|
|
|
| 2009 |
|
Donlin Gold LLC |
|
|
19 geotechnical core holes totalling 950 m in facility
sites and to address hydrology. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2010 |
|
Donlin
Gold LLC |
|
|
Six geotechnical core holes totalling 2,090 m to evaluate
slope stability of expanded pit. Also drilled 90 auger holes totalling 585
m and dug 59 test pits to further evaluate overburden conditions and
gravel supplies within TSF area. |
|
|
Pit slope stability of new pit design remained
acceptable. Evaluation of construction suitability of surficial materials
in TSF is ongoing. |
|
- 21 -
Geotechnical and Hydrology
A number of
geotechnical and hydrological studies have been completed in support of
feasibility and environmental reports for Donlin Gold.
Rowland Engineering Consultants performed the geotechnical
assessments for the geotechnical engineering for access roads between port site,
wind farm, airstrip, and plant site and geotechnical investigations to support
port site, airstrip, wind farm, and interconnecting roads.
The hydrological model is based on drill data. Lorax
Environmental (“Lorax”) performed water quality modelling for the planned mine
pit lake. CEMI provided design criteria and associated testwork for the water
treatment plant requirements during construction, operations, and closure.
Petrographic and Other Studies
There have been a
number of studies performed on the Donlin Gold mineralization, including fluid
inclusion studies, radiometric age dating (40Ar/39Ar), petrographic descriptions
of rock types based on thin sections and electron microprobe data, whole rock
analyses, trace element analyses, and sulfur, carbon, oxygen, and hydrogen
stable isotope studies.
Technical papers on the geology of the region, the deposit, and
on the mineralization have been presented in peer-reviewed journals, and at
conferences by Project personnel and personnel from the United States Geological
Survey.
Exploration Potential
The Mineral Resource defined
in this Report is confined to a small section of the Property. NovaGold believes
there is considerable potential for additions to the Mineral Resources at Donlin
Gold. Numerous other targets have been identified along the five mile-long
mineralized gold trend, and are defined by surface sampling and various
historical drill holes containing significant gold values.
Exploration potential in the vicinity of the open pit design in
the Donlin Gold FS includes extensions along strike to the East ACMA, Lewis, and
Crooked Creek dike areas. Mineralization remains open at depth under the current
pit limits. Mineralization also remains open to the north of the planned pit and
has been tested by shallow trenching and soil sampling, with limited drilling
undertaken to date.
The Donlin Gold project also retains exploration potential
outside the areas that have been the subject of the mine design in the
feasibility study. Gold mineralization is associated with an overall
north–northeasterly-trending high level dike/sill complex that has been outlined
in the regional aero-magnetics as a subtle 50 nT magnetic low. The zone,
approximately 8 km long, and 4 km wide, consists of a northern, dike-dominated
area, and a southern, more sill-dominated area.
The ACMA/Lewis area is the southern portion of this plan. No
drilling has been performed in the northern portion since initial exploration
activities, and some isolated drilling in the 1990s. Exploration targets
identified by NovaGold for additional work include Far Side, Duqum, Snow,
Quartz, Queen, Dome, and Ophir.
Mineralization
Southeast-dipping north–northeast-oriented fracture zones are
the primary control on gold bearing vein distribution within the north-northeast
mineralized corridors. Composite vein zones or mineralized corridors range up to
30 m in width and extend for hundreds of meters along strike. Intrusive rocks
and to a lesser extent competent massive greywacke are the most favored host
rocks, and act as a secondary control on the mineralization. Gold distribution
in the deposit closely mimics the intrusive rocks, which contain about 74% of
the Mineral Resource. Structural zones in competent sedimentary units account
for the remaining 26%.
Mineralized material in the ACMA or sill-dominant part of the
deposit tends to be higher grade and more continuous compared to Lewis and other
dike dominant areas of the deposit. The most extensive and highest grade
mineralized zones in ACMA are located where “feeder” dikes intersect the sill
sequence. Mineralized zones follow steeply-dipping dikes and sills beyond the
depth limits of current drilling, or over a vertical range of at least 945
m.
- 22 -
Veins
Multiple vein types apparently formed from a
single hydrothermal fluid. Vein mineral assemblages show a continuum from pyrite
through arsenopyrite, native arsenic, and realgar, rather than discrete
paragenetic stages.
Stibnite is ubiquitous in all vein types but seems to increase
in later vein stages. Gold grade and vein quartz generally increase from vein
types V1 through V3 and then markedly decrease in V4, a carbonate-dominant vein
type. Reflectance spectroscopy was routinely used to quantitatively define
specific clay, illite, and carbonate alteration zones in intrusive rocks.
Proximal to distal silicate alteration zones and carbonate and graphite
alteration products are associated with the ACMA–Lewis hydrothermal system;
silica is largely restricted to veins and is not an important wall rock
alteration product.
Mineralization
Gold-bearing sulfides occur in both
veins and disseminated zones in mafic igneous bodies, rhyodacite dikes and
sills, and sedimentary rocks. Quartz-carbonate-sulfide (pyrite, stibnite, and
arsenopyrite) veins are the primary mineralized features, but gold also occurs
in thin, discontinuous sulfide fracture fillings.
Veins seldom exceed half an inch wide; vein density can range
up to 5 to 10 per meter; and vein zones vary from 2 m to 35 m wide. Individual
vein zones generally display limited lateral and vertical continuity. However,
swarms of many anastomosing vein zones form larger mineralized corridors
characterized by extensive lateral and depth continuity.
The ACMA–Lewis style of mineralization is consistent with a
low-temperature, low-sulfidation, orogenic gold model involving a strongly
reduced, CO2-rich, weakly acidic, bisulfide-complexed, gold-bearing fluid. The
deposit(s) is characterized by an Au–As–Sb–Hg geochemical signature, quartz ±
carbonate and sulfide veins, and disseminated sulfide minerals. Common minerals
observed in mineralized zones include pyrite, marcasite, arsenopyrite, stibnite,
realgar, and native arsenic.
Pyrite is the most common mineral and appears to be the
earliest sulfide phase. It is ubiquitous in the rhyodacite and occurs as
disseminated grains and micro-fracture fillings. Disseminated pyrite in the
sedimentary rocks occurs as fine to coarse grains (up to 5 mm across)
preferentially concentrated near dike/sill contacts or as syngenetic pyrite
along sedimentary laminations. Relative abundance of pyrite is not an indicator
of gold grade.
Broad selvages of disseminated gold-bearing arsenopyrite and
pyrite are found adjacent to veins and vein zones. Arsenopyrite commonly
replaces pyrite and typically occurs as fine to very fine grains disseminated in
intrusive rocks and as coarser aggregates in fractures and quartz–carbonate
veins. In practice, fine-grained arsenopyrite can be difficult to distinguish
from ubiquitous disseminated graphite. Disseminated sulfides typically replace
biotite or other mafic mineral sites and rim or replace
illite–clay–carbonate-altered feldspar phenocrysts.
Native arsenic occurs as dark grey, granular, massive to
botryoidal grains that often fill vugs in quartz–carbonate ± sulfide veins and
other open spaces in breccias or fractures. Realgar occurs in late,
quartz–sulfide veins. Stibnite commonly occurs as disseminated grains and masses
within carbonate veins and occasionally as interlocking needles in open spaces
within quartz–carbonate veins and on fracture surfaces. Other accessory sulfides
and sulphosalts observed in the deposit include marcasite, pyrrhotite,
chalcopyrite, chalcocite, covellite, bornite, tennantite, tetrahedrite, galena,
sphalerite, and boulangerite. Pyrrhotite, stibnite, and boulangerite are
paragenetically late and appear to post-date most deformation while
chalcopyrite, tennantite–tetrahedrite, pyrite, and arsenopyrite are both pre-
and post-deformation.
Minor Elements and Deleterious Materials
The most
abundant minor elements associated with gold-bearing material are iron, arsenic,
antimony, and sulfur. They are contained primarily in the mineral suite
associated with hydrothermal deposition of gold, including pyrite, arsenopyrite,
realgar, native arsenic, and stibnite. Minor hydrothermal pyrrhotite, marcasite
and syngenetic or sedimentary pyrite, also account for some of the iron and
sulfur.
Much less abundant elements such as copper, lead, and zinc are
contained in relatively rare or accessory hydrothermal mineral species observed
in the deposit, including chalcopyrite, chalcocite, covellite, tennantite, tetrahedrite, bornite, native copper, galena, sphalerite, and
boulangerite. Small amounts of silver in the deposit are most likely
accommodated within the crystal structures of tetrahedrite and galena, and to a
lesser extent in some of the other sulfides. Molybdenum occurs in rare
molybdenite. Very minor nickel in the secondary sulfide mineral millerite and
minor cobalt in various secondary minerals have been observed in sedimentary
rocks. The Ni and Co probably have a sedimentary origin.
- 23 -
Three elements that have particular processing significance are
mercury, chlorine, and fluorine. Graphitic carbon and carbonate minerals also
negatively affect the metallurgical process.
Most of the Hg occurs as colloidal or microscopic cinnabar
inclusions in finer-grained sulfides. Pyrite accounts for about 66% of the Hg in
sulfide concentrates, followed by marcasite (18%) and arsenopyrite (3.6%) .
Elevated Hg is also associated with realgar. Macroscopic cinnabar (“HgS”) is
generally absent or exceedingly rare in the area of the Mineral Resource
estimate.
Chlorine in chloride ions can dissolve gold during pressure
oxidation (“POX”) as AuCl3. This gold compound is “preg-robbed,” or adsorbed, by
carbonaceous matter and may become incorporated in iron precipitates, resulting
in gold losses up to 10%. Fluorine is very corrosive in the POX process. Process
mineralogy studies show that muscovite and apatite are the principal sources of
chlorine and fluorine in sulfide concentrates and that the relatively more
abundant muscovite accounts for most of the chlorine (59%) and fluorine (93%).
Muscovite is normally a rock-forming mineral, but it can also form during
hydrothermal alteration along with structurally similar alteration products
(illite) associated with gold-bearing rocks. Apatite is commonly found as an
accessory mineral in igneous and sedimentary rocks and as a hydrothermal
alteration or vein mineral.
Graphitic carbon is preg-robbing and relatively abundant in the
sedimentary rocks and variably disseminated in the intrusive rocks as a possible
alteration product. Sulfide–carbonate binary particles tend not to float well.
Carbonate minerals occur as both pervasive, fine-grained hydrothermal alteration
products, often intergrown with fine disseminated sulfide, and also in carbonate
and quartz–carbonate ± sulfide veins. Common carbonate minerals include calcite,
ankerite, dolomite, and very minor siderite.
Donlin Gold – Sample Preparation and Analysis
Drill Hole Sample Preparation
Prior to 2006
Sample preparation, quality assurance and quality control for assays through
2002 were analyzed. The assays and the database are suitable for resource
estimation. No sample collection occurred within the mineral resource areas
between 2003 and the beginning of 2005.
2006–2010
Most of the core samples were crushed at the
Donlin camp facility. Samples of core split in Anchorage were shipped to an ALS
Chemex preparation lab for crushing, pulverizing and assaying.
The Donlin camp preparation lab is housed in a heated steel
building. A partition separates the core cutting area from the crushing area.
The crushing side of the operation is equipped with a dust control ventilation
system to minimize contamination. The camp sample preparation procedure consists
of the following steps:
- The entire bagged sample is dried in an oven heated to 90°C to 95°C for 12
hours.
- The sample and sample tag are placed into trays for processing.
- Blank samples (one of three QA/QC control samples) are inserted into the
sample stream.
- The sample is crushed in a TM Terminator jaw crusher until the end product
passes 70% minus 10 mesh (2 mm). Sieve analyses are performed daily to check
crush quality and the crusher jaws are adjusted as necessary. The crushers are
cleaned with blank material four times per 12-hour shift and before a new hole
is started. Cutting lists also specify special cleaning frequency when
unusually sulphide-rich material is processed.
- Crushed sample is then passed through a riffle splitter four to six times
to obtain a nominal 9 oz (25- g) split. This subsample is put into a numbered
pulp bag, and the remainder, or coarse reject, is put back into the original
sample bag. The splitter and sample pans are cleaned with compressed air.
- 24 -
- Two additional control samples—standard reference material (SRM) and a
duplicate split of crushed sample—are inserted as specified on the cutting
list prepared by the geologist. Two of each control sample type, including
SRM, duplicates, and blanks, are included in every batch of 78. The blank is
prepared by processing a sample from a bin of gravel-size crushed rock through
the jaw crusher and riffle-splitting it to ~7 oz (200 g). When a duplicate is
required, the crushed core sample is passed once through the riffle splitter,
and each half is split repeatedly to obtain a ~7 oz (200 g) sample.
Sample Analysis
Final sample preparation and chemical analysis for gold, sulfur
and trace element suites were completed at ALS Chemex in Vancouver, an
ISO9001:2000 accredited laboratory. The preparation consists of the following:
- Splits of crushed core were reduced to rock flour or
“pulp” (better than 85% passing minus 200 mesh or 75 µm) in a
ring-and-puck grinding mill.
- A 1 oz (30 g) subsample of the pulp was assayed by fire
assay-atomic absorption spectroscopy (AAS). Before 2007, the primary gold
assay method was Au-AA23, which had an analytical range of 0.005 to 10 g/t
Au. The Au-AA25 gold assay method was initiated in 2007 and had an
analytical range of 0.01 to 100 g/t Au. This switch was made to reduce the
cost and time delay associated with reassaying samples with values above
the 10 g/t Au analytical limit.
- Samples that exceeded the analytical limit for a given
method were re-assayed by fire-assay and gravimetric finish or “ore grade”
fire-assay AAS. ALS Chemex determined the sulphur content of each sample
according to the Leco method. The Leco method was also used to analyze
samples flagged for acid base accounting (ABA) for carbon content as well
as to determine neutralization potential (NP) and acid potential (AP)
according to the industry-standard ALS Chemex ABA procedure.
- Most trace and major element data for drill holes located
within the resource model boundary were acquired prior to the 2005 program
by various labs using industry-standard acid digestions followed by atomic
absorption (AA) or inductively coupled plasma (ICP) instrumental
determinations. Subsequent multi-element trace analyses were performed at
ALS Chemex using aqua regia or four-acid digestions followed by ICP ± mass
spectrometry.
SG Determination
- Samples of whole core approximately 2" to 4" (5 to 10 cm) in length were
first weighed dry and then weighed in water. The dry weighing tray assembly
was replaced with a wire basket and the sample was submerged in a five-gallon
bucket of water. A small tare weight (to compensate for the removed weighing
tray) was attached midway up the wire assembly to facilitate alternating wet
and dry measurements.
- The formula for SG calculation was: Weight in Air/(Weight in Air – Weight
in Water). The specific gravities were automatically computed in acQuire when
the weights were entered into the database.
- Measurements were collected for all rock types at a minimum frequency of
one sample from all logged rock type intervals and one sample every 49.2 to
65.6 ft (15 to 20 m) in the longer rock unit intervals. Mineralized rock takes
precedence over unmineralized rock in a given rock type interval, but
sufficient measurements of unmineralized material were also collected to
document potential variability.
Donlin Gold – Security and Sample Transport
Project Site
Core samples are transported from the
field and are brought to the yard adjacent to the geology office and logging
tents at the end of each drill shift. Core storage is secure because Donlin Gold
is a remote camp and access is strictly controlled. Unauthorized camp personnel
have generally been excluded from the core cutting and sample preparation
building, but strict access procedures were initiated following an audit by
Barrick of the sample preparation lab in mid-2006. Assay splits of prepared
core, along with the control samples, are packed in a shipping bag, secured with
a numbered security seal, and sealed in boxes for shipment. The coarse rejects
and remaining split core are returned to a storage yard south of the airstrip
for long-term storage. The sample shipment procedure is as follows:
- Boxed assay splits are flown from the Donlin camp to Aniak airport via
Vanderpool Flying Service.
- Samples are shipped from Aniak via Frontier Flying Service to the ALS
Chemex lab facility in Fairbanks, Alaska. All sample shipments are accompanied
by a Frontier Flying Service waybill. This allows each sample to be tracked
from camp to ALS Chemex.
- 25 -
The samples are logged into the ALS Chemex data system in
Fairbanks before shipment to the ALS Chemex Vancouver (or other ALS Chemex
facility), where they are pulverized and assayed. The Fairbanks lab returns a
custody form that reports on the condition of security seals.
Anchorage Security and Sample Transportation
In
December 2006 and January 2007, a total of approximately 39,360 ft (12,000 m) of
whole core was shipped to an off-site logging and core-splitting facility in
Anchorage. This facility was managed by Alaska Earth Science (AES) and staffed
with both AES and Barrick personnel to ensure that logging, sampling, core
splitting, and sample shipment procedures were identical to those used at the
Donlin site facility.
Donlin Gold – Assay Quality Assurance and Quality Control
(“QA/QC”)
1995–2002
Beginning with Placer Dome in 1995 and
continuing with NovaGold through 2002, a systematic and comprehensive program of
QA/QC has been employed for rock sampling and definition drilling programs at
Donlin Gold. The QA/QC protocols include the random and blind insertion of the
following:
- standard reference materials (SRMs) to monitor the accuracy of lab
results;
- coarse reject duplicates to monitor analytical precision; and
- blank control samples to monitor contamination during sample preparation
and analysis.
From 1996 to 2002, SRMs and coarse reject duplicates were
inserted at an average rate of one per 24 samples, and blanks were inserted at
an average rate of one per 25 samples. Almost all samples associated with SRM
and blank control samples that returned values beyond acceptable tolerance
limits were re-assayed until the control sample results were either acceptable
or validated by duplication.
2005-2006 QA/QC Protocol
No resource delineation
drilling was conducted in 2003 and 2004. Placer Dome implemented a slightly
modified QA/QC protocol in 2005, which Barrick continued in 2006. Three QA/QC
samples, consisting of one blank, one coarse reject duplicate, and one SRM, were
randomly inserted into every block of 20 sample numbers. Thus, every block of 20
sample numbers contained 17 drill hole samples and 3 QA/QC control samples.
2007-2010 QA/QC Protocol
The batch size submitted to
ALS Chemex was increased from 20 samples to 78 in 2007. To avoid sample mixing
with products from other sources in the fusion process, the ALS Chemex protocol
was based on a fusion batch size of 84 samples, where the lab added six internal
control samples, leaving space for 78 client samples in a given batch. Each
batch of 78 samples shipped to ALS Chemex for sample preparation and analysis
contained 9 control samples (12%) consisting of 3 each of standards, blanks, and
crushed duplicates. Spacing of the SRMs within the batch was left to the
judgment of the geologist. Up to 5% field duplicates (remaining half split of
core) were added to the sample batch at the discretion of the geologists for
geologic reasons.
Standard Reference Material and Blank Material
There
is no information available on SRMs used prior to the 2002 drilling campaign.
Two standards, (Std-C and Std-D), were used during the 2002 drill campaign.
Standard reference materials from the 2002 campaign were used
at the beginning of the 2005 season. Additional reference material was purchased
from Analytical Solutions (OREAS 6Pb and OREAS 7Pb) and CDN Laboratories
(CDN-GS-3) when these SRMs were depleted. After the 2005 season, two additional
standards (Std-G and Std-H) were created from Donlin Gold coarse reject
material. These two new standards and CDN-GS-3, were used during the 2006
season. The new standards created from coarse reject material were certified by
Barrick’s chief geochemist after industry accepted round robin assay and
statistical analyses.
Nine new “matrix matched” SRMs of varying gold grade were added
in early 2007, and the older standards were eventually phased out. The new SRMs
were created from coarse reject samples from throughout the deposit. Composites
of this material were pulverized and homogenized at CDN Laboratories in
Vancouver, BC. A Barrick geochemist certified the 2007 SRMs after industry-accepted
round-robin assay and statistical analyses. The final SRMs included four each
from unoxidized igneous and sedimentary host rocks and one oxidized igneous rock
SRM.
- 26 -
Blank Materials
Blank material consisting of washed
river gravel was purchased from Anchorage Sand and Gravel through early 2006 and
then replaced by granite landscape chips purchased from Lowe’s in Anchorage for
all subsequent drill campaigns.
QA/QC Results
Sample collection, preparation,
analysis and security for all Placer Dome, NovaGold, Barrick, DCJV, and Donlin
Gold core drill programs are in line with industry-standard methods for gold
deposits:
- Drill programs included insertion of blank, duplicate and standard
reference material samples
- QA/QC program results do not indicate any problems with the analytical
programs
- Data is subject to validation, which includes checks on surveys, collar
co-ordinates, lithology data, and assay data. The checks are appropriate, and
consistent with industry standards
- Independent data audits have been conducted, and indicate that the sample
collection and database entry procedures are acceptable
- All core has been catalogued and stored in designated areas
AMEC is of the opinion that the quality of the gold analytical
data from the Placer Dome, NovaGold, Barrick, DCJV, and Donlin Gold drill
programs are sufficiently reliable to support Mineral Resource and Mineral
reserve estimation without limitations on Mineral Resource confidence
categories.
Donlin Gold – Data Verification
Prior to 2005 Drilling Campaign
As a test of data
integrity, the data used to estimate the January 2002 Donlin Gold mineral
resources were checked several ways and it was concluded that the assay and
survey database was sufficiently free of error to be adequate for mineral
resource estimation.
2005 Drilling Campaign
NovaGold conducted a 100%
check of 2005 drill hole Au assays within the resource area against electronic
assay certificates. An error rate of less than 1.5% was uncovered. NovaGold also
checked the collar and down-hole survey data. Electronic down-hole survey files
were read for the drill holes and compared to those stored in the resource
database. As a result of the verification, NovaGold in 2005 considered that the
database at the time was adequate to support Mineral Resource estimation.
2006 and 2007 Drilling Campaigns
Drilling data were
captured using acQuire software and stored in MS SQL Server. Geologic logs,
collar and down-hole survey data were entered on site using acQuire data-entry
objects. Assay data were imported directly from electronic files provided by the
laboratories. The master Donlin database was moved from the Donlin camp to the
Anchorage office in the middle of 2006, and about 50% of the 2006 assay data
were imported directly into the master database in Anchorage. The acQuire
database was converted from the standard acQuire data-model to the more robust
acQuire “Corp” data-model to aid in data verification. Further verification of
legacy data took place by Barrick when data were migrated to the new
data-model.
NovaGold verified the drill hole data in the following manner:
Collar Surveys
Collar survey information is transferred
electronically from the electronic Ashtech survey instrument to the database,
minimizing the chance of input error. The Ashtech output files and geologic logs
were compared to 5 % of the electronic collar surveys. There was one unexplained
20-cm discrepancy between the elevation file and the database. Strangely, the
error rate against the geologic logs was much higher; most collar coordinates
were off by several meters. NovaGold does not know the reason but it is possible
that the geologic logs have the proposed coordinate and not the final coordinate written on them, or
there are transcription errors from the electronic database to the paper log.
NovaGold is satisfied that the collar surveys from the Ashtech data files are
sufficiently error free to be used for resource estimation.
- 27 -
Down-hole Surveys
Down-hole surveys are transcribed by hand
from the survey instrument to paper survey forms. The forms in turn are entered
into the electronic database manually. Ten percent of the drill holes were
checked and an unacceptable error rate of 4.4% was measured. The primary error
was that the down-hole survey was omitted from the electronic database. Other
errors were incorrect azimuth conversion, incorrect feet to meter conversion,
incorrect depth and incorrect priority code. Despite the high error rate, the
magnitude of the errors was small; therefore, in NovaGold’s opinion the impact
on the estimation of grade will be minimal.
Assays
Electronic assay certificates made available by
Barrick were merged into a single file and, by matching on sample number, were
directly compared to the electronic database. For 2006 drilling, 70% of the
assays were compared and an acceptable discrepancy rate of 0.4% was measured.
For 2007, 99% of the assays were compared to the electronic assay certificates
and a discrepancy rate of 1% was measured. NovaGold believes that the assay
database is sufficiently error free to be used for resource estimation.
2008 through 2010 Drilling Campaigns
AMEC reviewed
the March 2008 through December 2010 QAQC information for the drill hole data
used to construct the DC9 model from with the following results:
- Certified Reference Materials Results: AMEC reviewed the results for 691
CRMs from 2,078 samples and calculated that the relative bias for all CRMs is
within the acceptable limits of 5% relative bias (mean/best value)/1).
- Blank Material Results: AMEC reviewed the results for 694 blank samples
submitted for analysis. There were 4 samples which returned higher than
allowed gold assays which may be due in part to mislabelled samples. This is
an infrequent occurrence and will not affect project assay results, thus AMEC
considers that there is no significant risk to the resource estimate.
- Coarse Reject Duplicate Results: The absolute value of relative
differences (AVRD = |pair difference|/pair mean) of the crush duplicate pairs
that have pair means greater than 1 ppm Au show that 90% of these pairs agree
within 15 percent; this indicates acceptable precision is achieved thus the
current sample preparation procedure (crushing and pulverizing).
AMEC considers that a reasonable level of verification has been
completed during the 2011 data review, and that, between this review, and
reviews completed by NovaGold in 2007 and 2005, and AMEC in 2002, no material
issues would have been left unidentified from the verification programs
undertaken.
The QPs, who rely upon this work, have reviewed the appropriate
reports, and are of the opinion that the data verification programs undertaken
on the data collected from the Project adequately reflect deposit dimensions,
true widths of mineralization, and the style of the deposits, and adequately
support the geological interpretations, the analytical and database quality.
Donlin Gold – Geological Setting
The Donlin Gold project geology consists of a thick sequence of
Cretaceous Kuskokwim Group sedimentary rocks intruded by late Cretaceous to
early Tertiary felsic intrusive rocks. The sedimentary section consists of
inter-bedded greywacke, shale and siltstone. The overall bedding strikes
west-northwest and generally dips shallowly to the south, though in the ACMA
area and further south of Lewis an important overturned fold is present. Thin
inter-bedded shales within the Kuskokwim group are an important control on the
emplacement of intrusive sills. The intrusive units, both dikes and sills, are
the primary hosts of mineralization and consist of porphyritic rhyodacite and
rhyolite and lesser mafic dikes and sills. Sills predominate in the ACMA and
southern Lewis areas, whereas dikes dominate in the North Lewis area. The dikes
and sills range from a few meters to more than 60 meters in width.
- 28 -
The Donlin Gold project area lies between two major north-east
trending right lateral faults found in southwest Alaska: the Denali-Farewell
fault system to the south and the Iditarod-Nixon Fork fault system to the north.
The region contains abundant northeast to east-northeast and northwest to
west-northwest trending lineaments that likely represent steeply dipping strike
slip faults. Displacement along the main faults in the Donlin Gold region is
inferred to be right lateral on northeast structures and left lateral on
northwest faults. Because of the paucity of outcrop along the main faults in the
region, the inferred location and sense of displacement is speculative.
Donlin Gold – Alteration and Mineralization
Gold mineralization at Donlin Gold consists of low temperature
epithermal assemblage characterized by pyrite, auriferous arsenopyrite,
stibnite, native arsenic and realgar occurring as both north-northeast trending
extensional vein/fracture zones and disseminations. Gold grades are best
developed where structural zones intersect favorable host lithologies,
specifically the intrusive dikes and sills, and the more massive greywacke units
within the sedimentary section. Disseminated mineralization is also locally
present with highest concentrations typically adjacent to veins and vein zones.
The orientation of the mineralization is consistently
north-northeast of the compressive structural regime. Intrusive dikes which feed
the voluminous sill package present at Donlin Gold also strike north-northeast.
The gold occurs primarily in the lattice structure of arsenopyrite. Realgar,
native arsenic and stibnite can be found generally associated with the
higher-grade gold mineralization. Alteration is characterized by the extensive
development of illite, kaolinite and ankerite.
Donlin Gold – Metallurgy
Metallurgical testwork, under the direction of Barrick
personnel, appears to have been completed to sufficient detail to support a
feasibility study. Gold is mainly carried by arsenopyrite. Variation is observed
in processing behavior between intrusives and sediments, but less so between the
geographical sources.
Accordingly, process testing has been directed towards
development of the following conceptual flowsheet:
- concentration by flotation;
- high pressure oxidation in an autoclave;
- carbon-in-leach (“CIL”) cyanidation of the concentrate;
- carbon strip and regeneration circuits;
- gold electrowinning; and
- refining and production of doré bars.
This processing concept incorporates proven commercial unit
operations. No issues have been identified to date that might lead to economic
performance of this sequence that would be substantially different from similar
processes in commercial operation today.
Donlin Gold – Resource and Reserve Estimate
The mineral reserves for the Donlin Gold project were
classified using criteria appropriate under the CIM Definition Standards with an
effective date of July 11, 2011. The mineral
reserves are summarized in the table below.
Proven and Probable Donlin Gold Mineral Reserve Estimate
Reserve Category |
Tonnes
(kt) |
Gold
(g/t) |
Contained Gold
(kozs)
|
| Proven |
7,683 |
2.32 |
573 |
| Probable |
497,128 |
2.08 |
33,276 |
| Total Proven & Probable |
504,811 |
2.09 |
33,849 |
- 29 -
| Notes: |
|
| (1) |
Mineral Reserves are contained within Measured and
Indicated pit designs, and supported by a mine plan, featuring variable
throughput rates, stockpiling and cut-off optimization. The pit designs
and mine plan were optimized on diluted grades using the following
economic and technical parameters: Metal price for gold of US$975/oz;
reference mining cost of US$1.67/t incremented US$0.0031/t/m with depth
from the 220 m elevation (equates to an average mining cost of US$2.14/t),
variable processing cost based on the formula 2.1874 x (S%) + 10.65 for
each US$/t processed; general and administrative cost of US$2.27/t
processed; stockpile rehandle costs of US$0.19/t processed assuming that
45% of mill feed is rehandled; variable recoveries by rocktype, ranging
from 86.66% in shale to 94.17% in intrusive rocks in the Akivik domain;
refining and freight charges of US$1.78/oz gold; royalty considerations of
4.5%; and variable pit slope angles, ranging from 23º to 43º.See
“Cautionary Note to United States Investors”. |
| (2) |
Mineral Reserves are reported using an optimized net
sales return value based on the following equation: net sales return = Au
grade * Recovery * (US$975 – (1.78 + ($US975 – 1.78) * 0.045)) – (10.65 +
2.1874 * (S%) + 2.27 + 0.19) and reported in US$/tonne. |
| (3) |
The life of mine strip ratio is 5.48. The assumed
life-of-mine throughput rate is 53.5 kt/d. |
| (4) |
Rounding as required by reporting guidelines may result
in apparent summation differences between tonnes, grade and contained
metal content |
| (5) |
Mineral reserves are reported on a 100% basis. NovaGold
and Barrick each own 50% of the Donlin Gold project. Tonnage and grade
measurements are in metric units. Contained gold ounces are reported as
troy ounces. See “Cautionary Note to United States
Investors”. |
Mineral Reserves have been estimated using a long-term gold
price assumption of US$975/oz. Mineral resources are based on a Whittle™ pit
optimized for all Measured, Indicated, and Inferred blocks assuming a gold
selling price of US$1,200/oz and are inclusive of reserves.
Mineral resources were classified using criteria appropriate
under the CIM Definition Standards by application of the NSR-based cut-off grade
that incorporated mining and recovery parameters, and constraint of the mineral
resources to a pit shell based on commodity prices. The mineral resources have
an effective date of July 11, 2011. The mineral resources are summarized in the
table below.
Donlin Gold Measured and Indicated Resource (Inclusive of
Reserves)
and Inferred Mineral Resource Estimate
Resource Category |
Tonnes
(kt) |
Gold
(g/t) |
Contained Gold
(kozs)
|
| Measured |
7,731 |
2.52 |
626 |
| Indicated |
533,607 |
2.24 |
38,380 |
| Total Measured + Indicated |
541,337 |
2.24 |
39,007 |
| Inferred |
92,216 |
2.02 |
5,993 |
| Notes: |
|
| (1) |
Mineral Resources are inclusive of Mineral Reserves.
Mineral Resources that are not Mineral Reserves do not have demonstrated
economic viability. See “Cautionary Note to United States
Investors”. |
| (2) |
Mineral Resources are contained within a conceptual
Measured, Indicated and Inferred optimized pit shell using the following
assumptions: gold price of US$1,200/oz; variable process cost based on
2.1874 * (sulphur grade) + 10.65; administration cost of US$2.29/t;
refining, freight & marketing (selling costs) of US$1.85/oz recovered;
stockpile rehandle costs of US$0.20/t processed assuming that 45% of mill
feed is rehandled; variable royalty rate, based on royalty of 4.5% * (Au
price – selling cost). |
| (3) |
Mineral Resources have been estimated using a constant
net sales return -cut-off of US$0.001/t milled. The net sales return
cut-off was calculated using the formula: NSR = Au grade * Recovery *
(US$1,200 – (1.85 + (US$1,200 – 1.85) * 0.045)) – (10.65 + 2.1874 * (S%) +
2.29 + 0.20) and reported in US$/tonne. |
| (4) |
Rounding as required by reporting guidelines may result
in apparent summation differences between tonnes, grade and contained
metal content. |
| (5) |
Tonnage and grade measurements are in metric units.
Contained gold ounces are reported as troy ounces. See “Cautionary
Note to United States Investors”. |
Donlin Gold – 2008 Program
In 2008, Donlin Gold LLC drilled 108 HQ/NQ core holes totalling
33,425 m, as well as auger holes and test pits for geotechnical studies, soil,
stream sediment and stream concentrate geochemical samples. The 2008 exploration
program focused on drilling the East ACMA target area, designed to quickly
determine the limits of mineralization in this expanding target area. The East
ACMA area is highly prospective for additional resource discovery and simply follows the structural projection of mineralized sill
and dike intersections within the Donlin anticline, which hosts the majority of
resources at Donlin Gold. Results of the exploration program will aid in
facility and infrastructure planning for the Donlin Gold feasibility study. The
initial drilling proved successful in identifying deep mineralization along the
East ACMA trend. Additional drilling will be required to delineate
mineralization recognized in the initial program. A total of 108 HQ/NQ diameter
core holes totalling 33,425 m (109,663 feet) were drilled in support of
exploration, resource infill, condemnation and geotechnical studies. The 2008
drilling results have not yet been incorporated in a resource estimate but are
not anticipated to have a material impact on overall resources.
- 30 -
The Phase 2 program in 2008 was largely focused on finalizing
the feasibility study and preparing for permitting.
Donlin Gold – 2009 Program
The 2009 program at Donlin Gold comprised chilled brine
geotechnical drilling to further assess permafrost in the Donlin Gold district.
There were no exploration activities conducted in 2009 within the resource
area.
Donlin Gold – 2010 Program
During 2010, Donlin Gold LLC initiated studies for a potential
natural gas pipeline from Cook Inlet to the project site. Donlin Gold LLC worked
with multiple regulatory agencies, consultants and contractors to complete the
field season initiating environmental baseline and engineering studies along the
proposed pipeline corridor. There were no exploration activities conducted in
2010 within the resource area.
Donlin Gold – 2011 Program
During 2011, Donlin Gold LLC completed the updated feasibility
study incorporating a natural gas pipeline from Cook Inlet to the project site
to support the majority of power generation. Donlin Gold LLC worked with
multiple regulatory agencies, consultants and contractors to complete the
engineering studies along the proposed 500-kilometer-long pipeline corridor.
Continued community engagement and environmental baseline data collection also
progressed. There were no exploration activities conducted in 2011 within the
resource area.
Donlin Gold – Financial Summary
In the Donlin Gold FS, the overall economic viability of the
Donlin Gold project was evaluated by both discounted and undiscounted cash flow
analyses. Undiscounted techniques include total net cash flow, payback period
(measured from start of production), EBITDA, and cash costs. Discounted cash
flow techniques include IRR and NPV. Discounted values are calculated using a 5%
discount rate and a discrete end-of-year convention relative to reference dates
of January 1, 2012 and January 1, 2014. A period of approximately 3.5 years for
permitting, starting January 1, 2012, is included prior to start of
construction. The project is expected to generate after-tax net cash flows of
US$6.2 billion and yield an internal IRR of 6.0%, under a long-term gold price
assumption of US$1,200/oz. The base case after-tax (NPV5%) of the Donlin Gold
project is negative US$547 million.
The total capital cost estimate for Donlin Gold is US$6.7
billion including costs related to the natural gas pipeline and a contingency of
US$984 million. The project’s estimated after-tax net present value
(NPV5%) is US$547 million using the base case gold price
of US$1,200/oz, US$4.58 billion using a gold price of US$1,700/oz and US$6.72
billion using a gold price of US$2,000/oz. The corresponding IRR after-tax were
estimated at 6.0%, 12.3% and 15.1% respectively. Donlin Gold, if put into
production in accordance with the Donlin Gold FS, would average 1.36 million
ounces of gold production in each of its first five years of operations at an
average cash cost of US$409/oz and would average 1.13 million ounces of gold per
year over its projected 27 year mine life with an average cash cost of
US$585/oz.
The project is particularly sensitive to the gold price.
- 31 -
The Project requires a gold price of approximately US$902/oz to
break even on a cash flow basis and a gold price of approximately US$1,141/oz to
achieve an IRR of 5%. It was determined that a 10% change in the price of oil
translates into an approximate 1.28% change in total operating costs.
Base Case Project Sensitivity to Gold Price (Base Case is
Highlighted)
(All amounts in US$ unless otherwise indicated)
Gold
($/oz) |
LOM Cash Flow
($M) |
Jan 2014 NPV5%
($M) |
Jan 2014 IRR
(%) |
| 700 |
(5,690) |
(4,917) |
— |
| 800 |
(2,838) |
(3,637) |
— |
| 900 |
(45) |
(2,374) |
— |
| 1,000 |
2,143 |
(1,342) |
2.3 |
| 1,100 |
4,191 |
(385) |
4.3 |
| 1,200 |
6,197 |
547 |
6.0 |
| 1,300 |
8,187 |
1,465 |
7.5 |
| 1,400 |
10,166 |
2,375 |
8.9 |
| 1,500 |
11,631 |
3,147 |
10.2 |
| 1,600 |
13,092 |
3,862 |
11.2 |
| 1,700 |
14,616 |
4,581 |
12.3 |
| 1,800 |
16,156 |
5,296 |
13.2 |
| 1,900 |
17.699 |
6,010 |
14.2 |
| 2,000 |
19,248 |
6,722 |
15.1
|
Summary of Key Evaluation Metrics (Base Case is Highlighted)
(All amounts in US$ unless otherwise indicated)
| Item |
Unit |
Value |
| Total Mined |
Mt |
3,270 |
| Ore Tonnes Treated |
Mt |
505 |
| Strip Ratio |
W/O |
5.48 |
| Gold Recovered |
Moz |
30.401 |
| Gold Recovery |
% |
89.8 |
| Gold Price |
$/oz |
1,200 |
| Total Operating Costs |
$/oz |
584 |
| Total Costs Before Taxes |
$/oz |
908 |
| Total Costs Including Taxes |
$/oz |
998 |
| EBITDA(1) |
$M |
18,581 |
| Total Cash Flow(2) |
$M |
6,197 |
| Jan 2012 NPV5% (3) |
$M |
337 |
| Jan 2012 IRR |
% |
5.6 |
| Jan 2014 NPV5% (3) |
$M |
547 |
| Jan 2014 IRR |
% |
6.0 |
| Payback Period |
Years |
9.2 |
| Operation Life |
Years |
27.0 |
| Initial Capital |
$M |
6,679 |
| Total LOM Capital |
$M |
8,184 |
- 32 -
| Notes: |
|
| (1) |
EBITDA = Earnings before interest, taxes,
depreciation, and amortization |
| (2) |
Cash flow excludes sunk costs |
| (3) |
Reference dates for DCF metrics are January 1,
2012 and January 1, 2014. The DCF metrics for January 1, 2014 treat funds
expended |
| |
before that date as sunk. |
| |
|
|
During 2012 and 2013, Donlin Gold intends to complete
basic engineering and commence detailed engineering, in tandem with, and
in the case of detailed engineering, subject to, progress achieved on the
Environmental Impact Statement and associated permitting process.
Aggregate expenditures in these years are expected to be approximately
$172 million, which if excluded from the discounted cash flow analysis
would result in an increased project NPV5% and IRR from 2014
onwards of $210 million and 0.4%, respectively. |
The mine operating cost estimates incorporate costs for
operating and maintenance labour, staff, and supplies for each year. Operating
costs were prepared based on conditions prevailing in second quarter 2011.
Pre-production costs have been capitalized and included in the capital cost
estimate. A portion of mine operating costs related to waste stripping will be
deferred and, therefore, are excluded from the calculation of cash costs in
accordance with industry standards.
Operating Cost Estimates
| |
US$/Tonne Milled |
US$/Tonne Mined |
| Mining Cost |
16.24 |
2.52 |
| Process Cost |
15.47 |
2.40 |
| G&A, Community, Refining & Land |
6.42 |
0.99 |
| Total Operating Cost |
38.13 |
5.91 |
The total estimated cost to design and build the Donlin Gold
project is estimated at US$6.7 billion, including an Owner-provided mining fleet
and Owner-performed pre-development. The Donlin Gold FS capital cost estimate
was developed in accordance with Association for the Advancement of Cost
Engineering (AACE) Class 3 requirements, consisting of semi-detailed unit costs
and assembly line items. The level of accuracy for the estimate is -15% / +30%
of estimated final costs, per AACE Class 3 definition. No allowances are
included for escalation or de-escalation through construction, interest during
construction, taxes or duties.
The contingency provided in the capital cost estimate is
significant at US$984 million representing 25% of direct costs. The contingency
was selected to provide an 85% probability of the capital cost being at or below
the provided estimate. This is an increase in confidence limit from the 2009
Feasibility Study which utilized a 50% probability factor. The anticipated
timeline for mine construction is four years with the capital investment peaking
in the third year of the construction schedule. This estimate includes all
costs, including Owner’s costs and permitting, from January 1, 2012.
Capital Cost Estimates
| |
US$ million |
| Mining |
345 |
| Site preparation/roads |
236 |
| Process facilities |
1,326 |
| Tailings |
120 |
| Utilities (including natural gas pipeline) |
1,302 |
| Ancillary buildings |
304 |
| Off-site facilities |
243 |
| Total Direct Costs |
3,876 |
| Owners’ cost |
414 |
| Indirects |
1,405 |
| Contingency |
984 |
| Total Indirect & Contingency |
2,803 |
| Total Project Cost |
6,679 |
Sustaining capital requirements total US$1.5 billion over the
life of the mine.
- 33 -
Donlin Gold – Planned Mining Operations
Throughput studies were performed during 2007–2008 and mine
design and production schedules were developed for a nominal mill throughput of
19.5 Mt/a, or 53,500 t/d. Open pit mining on both 6 m and 12 m high benches
provided the best project economics. Approximately 40% of the ore and 19% of the
waste, or 22% of the total tonnage, is planned to be selectively mined on 6 m
benches.
Mining operations are envisaged as 355 days per year, with ten
days allowed for delays due to winter conditions; however, the plant is
provisionally scheduled to operate 365 days per year. Maximum vertical advance
per phase per year is sixteen 6 m benches. Where the vertical advance rate is
more than ten 6 m benches per year, some or all benches will be 12 m high so
that the combined vertical development rate does not exceed ten benches per
year.
The ACMA pit has a top elevation of 268 m above sea level
(“masl”), cuts across the American Creek drainage at 178 masl, and has a bottom
elevation of 344 m below sea level (“mbsl”). The grade of the gold
mineralization in ACMA is higher than in the Lewis area. The Lewis pit is on a
hill directly above and to the northeast of the ACMA pit, at elevations ranging
from 436 masl to 68 mbsl.
A set of fourteen mining phases were designed, nine in the ACMA
pit and five in the Lewis pit. This sequence aims to deplete ACMA as early as
possible to maximize use of the waste backfill dump designed inside the pit
while minimizing deviation from the optimal economic mining sequence. The
initial phases of the two pits are independent, but they partially merge later
in the mine life.
Donlin Gold is envisaged to be mined by a conventional
truck-and-shovel operation. Initial pioneering and pit development will be
undertaken to remove overburden, develop mine access roads suitable for large
mining equipment, and “face-up” the initial pit into productive set-ups for the
large shovel and mining equipment.
Large hydraulic shovels mining the full 12 m benches will be
the primary loading equipment in zones of waste and steeply dipping ore. The
same primary shovels will be used on the 6 m split benches, thereby avoiding the
need for a mixed fleet of hydraulic shovels. Large 360 t capacity haul trucks
will be used for transporting both ore and waste out of the pit.
Haul roads are designed at 10% maximum grade for uphill loaded
haulage and at a maximum of 8% for downhill loaded haulage. The final road width
design is 40 m.
Blasting will be required. Blast hole drilling in predominantly
waste areas will be performed with nominal 251 mm diameter production drills.
Ore zones will be drilled on a single 12 m bench with 200 mm diameter holes or a
single 6 m bench with 140 mm diameter holes, depending on the size and
continuity of the ore blocks outlined by grade control drilling. All blasting
will be based on 70% emulsion / 30% ammonium nitrate/fuel oil, which will be
manufactured on site.
Support equipment will be used for road, bench, and dump
maintenance and miscellaneous projects. Track dozers and rubber-tired dozers
will spot loads and maintain the waste spoil dumps. A fleet of graders will
maintain the roads. Crushed rock will be provided to help maintain good roads
and improve truck tire life. Water trucks will spray roads and working areas
during dry and dusty periods. Small backhoes will be used for ditch work and
other dewatering projects. Dozers will be used on larger construction projects
such as re-contouring waste dumps and spreading reclamation materials.
Donlin Gold – Proposed Production Plan and
Schedule
Based on the Donlin Gold FS, the operating mine life is
estimated to be 25+ years with the nominal processing rate of 53,500 tonnes per
day. Mine start-up is proposed for 2019 based on a timeline of 3-4 years for
project permitting and 3.5 to 4 years for construction, with permit applications
to be prepared and filed during 2012. The processing rate is variable from
period to period as a function of sulfur grade and ore hardness. To maximize
plant utilization, long-term ore stockpiling is required to balance sulfur feed
grades. Short-term stockpiling will also be required to handle crusher downtime and production fluctuations in the pit.
Short-term ore stockpile rehandle to achieve mill feed sulphur grade targets was
assumed for the Donlin Gold FS to be 45%.
- 34 -
Preproduction covers the first 15 months of the mine plan, when
mining activities will focus on providing sufficient ore exposure for plant
start-up. Ore mined during preproduction will be stockpiled and rehandled to the
mill during operations. Average production increases progressively during the
production stage from 350 kt/d to 417 kt/d. The peak rate of 437 kt/d is reached
in Year 6.
Donlin Gold – Waste Dumps
Waste rock from open pit mining will be placed in an ex-pit
waste rock facility in the American Creek Valley, east of the pit area, or in a
backfill dump in ACMA. The ultimate footprint of the facility covers an area of
approximately 9 km2. Approximately 2,222 Mt of waste rock and 42 Mt
of overburden will be placed in the facility. The top lift of the dump will be
at an elevation of approximately 520 masl, resulting in a maximum dump height of
about 340 m and thickness of about 300 m. Most of the waste rock facility will
be constructed in 30 m lifts. The toe of each subsequent lift will be set back
47 m from the crest of the previous lift, resulting in an overall dump slope of
3H:1V.
The potential magnitude of flow in the American Creek drainage,
as well as discharge from springs in the valley floors, warrants the
construction of an engineered rock drain system below the waste rock facility,
including connecting secondary rock (finger) drains in the smaller contributing
drainages. The rock drains were sized to contain the peak instantaneous flow
associated with the 100-year return period, 24-hour duration rainfall event for
American Creek.
Sufficient overburden will be stored separately for use in
final site reclamation; the remainder will be dumped into the waste rock
facility or used for construction and concurrent reclamation. Of the total
amount of waste rock, 2,232 Mt will be stored in the waste rock facility, and
approximately 423 Mt will ultimately be placed in the ACMA pit as backfill.
Backfilling will commence in Year 18 and continue until the end of mine life. In
addition, 103 Mt of waste rock will be used for construction purposes, and 16.6
Mt of overburden will be stored in overburden stockpiles for reclamation
purposes.
Waste rock was characterized by its potential for acid
generation and was assigned reactivity categories. Categories 1 to 4 are
non-acid-generating (“NAG”), and categories 5 to 7 are potentially
acid-generating (“PAG”). Waste rock consists of NAG and PAG rock from the ACMA
and Lewis pits. The disposal of PAG waste rock will depend on its reactivity
category: PAG rock of waste rock management category (WRMC) 7, or PAG-7, will
potentially start producing acid in less than a few years, PAG-6 in less than a
decade, and PAG-5 after several decades. PAG-5 rock will be blended with NAG
rock when placed in the waste rock facility; the NAG rock has enough
neutralizing potential to prevent the PAG-5 waste from producing acid. PAG-6
waste will initially be placed in encapsulated cells in the waste rock facility.
Water infiltration into this cell will be minimized by a cover of compacted
colluvium or terrace gravel.
NAG and PAG rock from the ACMA and Lewis pits will be routed to
the external waste dump (waste rock facility, WRF) during the first part of the
mine life. Later, as mining is completed in the ACMA pit, the remaining waste
rock will be routed there. In certain periods, suitable material will be sent to
the tailings dam location where it will be used for construction.
The PAG-7 waste will ideally be used to construct the water
reclaim structure in the tailings impoundment. This will be addressed further
during the detailed design and operational scheduling. Additional PAG-7 waste
will be stockpiled in the long-term ore stockpile area. The stockpiled PAG-7
waste will then be rehandled into the ACMA pit below the final pit lake water
level.
The waste rock facility was designed to meet or exceed a factor
of safety (“FS”) of 1.5 under static loading conditions and an FS of 1.1 under
seismic (pseudo-static) loading. The stability of the waste rock facility
exceeds these design criteria.
Concurrent reclamation of the waste rock facility will be
undertaken during operations as area becomes available.
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Donlin Gold – Proposed Tailings Storage
The tailings storage facility in the Anaconda Creek basin will
be a fully lined impoundment with cross valley dams at both the upstream (“upper
dam,” comprising upper north and upper south) and downstream (“main” dam) ends.
All tailings dams will be constructed of compacted rock fill
using the downstream method with a composite liner on the upstream face. The
tailings impoundment footprint will be lined with a linear low density
polyethylene liner over a layer of broadly graded silty sand and gravel acting
as low permeability bedding material and providing secondary containment.
Material for construction will be sourced from the plant site and fuel farm
during initial construction and from the open pit for the later raises during
operations.
The starter dam is sized to store one year of tailings plus the
200-year return period snowmelt, 24-hour probable maximum precipitation rainfall
event, excess water accumulation under average conditions in the site water
balance, and emergency freeboard. To meet these requirements, the starter and
ultimate dam will be 54.0 m and 141.5 m high, respectively, as measured from the
crest to the downstream toe. The ultimate capacity of the lined tailings
impoundment will be 412.35 Mm3.
Construction of the tailings facility will need to be scheduled
with special allowances for seasonal constraints and effects on earthworks and
liner placement productivity. Construction will take at least two years and will
commence no later than two years before mill commissioning, starting in a winter
construction period, assumed to be from November to March. The summer
construction period is from May to October. The month of April is assumed to be
non trafficable as the ground thaws. November is also likely to be a transition
month from summer to winter, but the trafficability is expected to be adequate
to maintain some construction activities.
Surface water management will be required during construction
and will comprise conventional best-management practices such as cofferdams,
sumps, sediment traps, and pumped diversions.
The proposed hazard classification of the tailings dam in
Anaconda Creek is Class I, or “High,” according to the Dam Safety
Guidelines.
Water dams are required during the construction period and
initial years of operation to protect the lined upstream faces of the upper
north and south tailings starter dams from a significant flood event, to provide
a reliable source of fresh water during operation of the process plant, and to
minimize runoff to the tailings storage facility. The water dams will be
incorporated into the downstream toe of the upper dams and are planned to be
constructed simultaneously with the starter dams before tailings placement.
Donlin Gold – Infrastructure
Current site infrastructure comprises an all-season, soft-sided
camp with facilities to house up to 150 people consisting of kitchen, living
quarters, equipment shop, drill shack and other buildings required for support
of year-round exploration activities.
There is sufficient area within the project to host an open-pit
mining operation, including any proposed open pit, waste dumps, tailings and
process facilities. Donlin Gold LLC has secured the majority of the surface
rights for the areas that may host these facilities.
Crooked Creek has approximately 140 residents and Aniak has a
population of approximately 570. The workforce for the project would be sourced
from the local area, from Alaskan regional centres and from other sources as
required.
The project is a greenfields site. The infrastructure for the
Project includes four main development sites in remote locations: the Jungjuk
port site, the mine and plant site area, the permanent camp, and the airstrip.
The plant site and fuel tank farm will be on a ridge above the proposed tailings
storage facility. The layout of the plant site was designed to take maximum
advantage of the natural topography. The layout also provides for efficient
movement of equipment and material products around the site.
- 36 -
Planned Off-site Infrastructure
The port-to-mine
access road (Jungjuk route) will traverse varied terrain from the mine site to
the Kuskokwim River dock site near the mouth of Jungjuk Creek to the mine site,
approximately 44 km long. The entire road will be new construction in an
untracked region, with no passage through or near any settlements or
communities, and no junctions with any existing road system. The road route will
traverse mostly upland terrain. A 4.8 km long spur road, beginning at route km
8.7, will serve the Project airstrip. The mine camp facilities will be located
at route 3.9 km. There are fifty identified stream or drainage crossings along the road
route, but only six of them are significant and will require bridging. Bridge
lengths vary from 7.5 m to 25 m. The primary purpose of the road is to transport
freight by mostly conventional highway tractors and trailers. However, critical
elements of the design will be dictated by specific oversize and overweight
loads associated with mine facility construction. Only mine support traffic will
use the road, and the design assumes that mine operations will control and
manage traffic on the road.
Planned Site Infrastructure
Planned site
infrastructure comprises: access roads, airstrip, accommodation camp, plant site
and fuel tank farm, primary and pebble crushers, coarse ore conveyor and coarse
ore stockpile, concentrator, water treatment plants, boiler house, utilidors and
access walkways, waste and tailings storage facilities, truck shop, truck wash,
workshops and vehicle repair facilities, assay laboratory, administration
facilities and change rooms.
The plant site and fuel tank farm will be in the Anaconda
valley on the ridge. The proposed facility layout contains the entire process
area within the Anaconda and American Creek valleys and therefore minimizes any
direct impact on Crooked Creek.
The layout of the plant site was designed to take maximum
advantage of the topography, ranging from an elevation of 305 m at the grinding
area and stepping down through the process to elevation 260 m at the flotation
tailings thickener. The layout also provides for efficient movement of equipment
and material products around the site. The primary crusher is located on a ridge
on the south side of American Creek. This location is compatible with the mining
plan, haul road layouts, and ultimate pit limits as well as the location of the
contact water dam and contact water pond. The crusher was orientated to make use
of the southern slope of the ridge, minimize the length of the conveyor, and
permit the design of the vertical and horizontal alignment to tie into the
coarse ore stockpile at the plant site. The process plant was orientated on the
plant site to take advantage of the natural topography, with the long axis of
the plant following the slope of the rounded hill to the south.
With the supply of natural gas to the mine site, heating for
the plant site buildings and modules, including the truckshop and accommodation
complex, will be provided by natural-gas-fired air unit heaters and makeup air
units. The accommodation complex will be heated by natural gas furnaces with a
forced-air system and supplemental baseboard heaters.
Donlin Gold – Power
Natural gas will be delivered to site by a 500-kilometer long
12-inch diameter pipeline. It will serve as the energy source for on-site power
generation. This natural gas pipeline is a lower-cost alternative to the
previously considered barging of diesel fuel. Operating costs include importing
liquefied natural gas (“LNG”) by ship to Anchorage and total delivery costs to
site which includes ship based regasification of the LNG and delivery from
Anchorage to the Donlin Gold project via the pipeline.
It would commence at the west end of the Beluga Gas Field,
approximately 48 km northwest of Anchorage at a tie-in near Beluga located in
the Matanuska-Susitna Borough and would run to the mine site. The pipeline would
receive booster compression supplied by one compressor station located at
approximately mile post 5. No additional compression along the pipeline route
would be required. The pipeline would transport approximately 1,415,842 m3pd per
day of natural gas.
Natural gas will be supplied to the various buildings at the
plant site for heating through an underground network of pipes. The main
distribution line will extend 7.2 km along the main access road to the permanent
accommodation complex and supply fuel for the forced-air heating system and for
the cooking appliances in the camp kitchen.
- 37 -
Donlin Gold – Water
Water requirements for the planned process facilities depend on
mill feed rates and vary annually. Water will primarily be sourced from contact
dam/pit dewatering. However, in years with average and below-average
precipitation, the contact water pond and pit dewatering system will not be able
to meet the year-round freshwater requirements for the plant. In this case,
additional water will be obtained from the north and south freshwater reservoirs
upstream of the tailings storage facility.
The source of water supply for the construction camp and,
later, the plant site potable water systems is an array of eight deep wells
south of Omega Gulch, near Crooked Creek. Water supply will be pumped to
freshwater storage tanks, and will be treated prior to consumption.
Donlin Gold – Markets
The marketing plan is for the members of Donlin Gold LLC to
take in kind their respective shares of the gold production, which they can then
sell for their own benefit. Under the agreement, the manager shall give the
members prompt notice in advance of the delivery date upon which their
respective shares of gold production will be available.
Since there are a large number of available gold purchasers,
the members should not be dependent upon the sale of gold to any one customer.
Gold can be sold to various gold bullion dealers or smelters on a competitive
basis at spot prices.
Spot prices are determined by open markets. The “London Gold
Fixing” is the procedure by which the price of gold is set on the London market
by five members of the London Gold Pool (who are all members of the London
Bullion Market Association). The London Gold Fixing is designed to fix a price
for settling contracts between members of the London bullion market but is
internationally recognized as a benchmark for gold prices and is used in the
pricing of the majority of gold products throughout the world’s markets.
It is expected that selling contracts for NovaGold’s share of
the gold production will be typical of, and consistent with, standard industry
practice, and be similar to contracts for the supply of doré elsewhere in the
world.
Donlin Gold – Taxation
Taxes that may be levied on the project can be summarized as
follows:
- Federal Income Tax – the greater of the U.S. Regular Tax of 35% or
Alternative Minimum Tax of 20%.
- Alaska State Income Tax – 9.4% of net income or Alternative Minimum Tax of
18% of Federal Alternative Minimum Tax.
- Alaska State Mining License Tax – 7% of taxable mining income, less
depletion. There is a 3.5-year tax holiday on the mining license tax.
Income tax becomes payable after deductions for capital
allowances.
Donlin Gold – Financial Analysis
The total capital cost estimate for Donlin Gold is US$6.7
billion including costs related to the natural gas pipeline and a contingency of
US$984 million. The project’s estimated after-tax net present value
(NPV5%) is US$547 million using the base case gold price
of US$1,200/oz, US$4.58 billion using a gold price of US$1,700/oz and US$6.72
billion using a gold price of US$2,000/oz. The corresponding IRR after-tax were
estimated at 6.0%, 12.3% and 15.1%, respectively.
In the Donlin Gold FS, the overall economic viability of the
project was evaluated by both discounted and undiscounted cash flow analyses,
based on the engineering studies and cost estimates discussed in this study.
Assumptions in the model comprised:
- 38 -
- For discounted cash flow (or NPV) purposes, the model is based from
January 1, 2014. Estimates were prepared for all the individual elements of
cash revenue and cash expenditures for ongoing operations.
- Estimated cash flows from revenue are based on a gold price of US$1,200/oz
as provided by Donlin Gold LLC. The pit has been optimized at a gold price of
US$975/oz, which was the guidance in effect at the time the pit optimization
work was completed. At the effective date of the Donlin Gold FS, gold was
trading at around US$1,650/oz.
- Recovery is estimated to average 89.8% over the LOM based on work and
testing performed for feasibility study and feasibility study update purposes.
- Doré refining and shipping charges were estimated at US$1.02/oz based on
actual refining charges for Barrick’s Goldstrike operations and a quotation
for transportation and insurance costs from the Donlin Gold mine site to a
U.S.-based refinery. An additional 0.1% of gold produced from the mine is
included in refining costs. This amount represents the refiner’s estimate of
the loss of gold that will occur during the refining process.
- The current hydrometallurgical process selection renders any contained
silver into a greater refractory state, which provides less than 10% silver
recovery through standard metal leaching. As a consequence, no silver credit
was applied to the project.
- Assets will be sold over the course of the mine life, when they are no
longer required for project-based work, as well as at the end of the mine
life. Total recovered value from these sales is estimated at approximately
US$23.0 million.
- Reclamation and closure costs were estimated at US$273.7 million to be
funded over the construction and operating period to fund closure and
post-closure activities.
- Inventory is included in the financial model as cash outflows in the year
before start-up of operations.
Donlin Gold – Current Activities
During 2011, expenditures at the Donlin Gold project totaled
approximately US$43.4 million, with 50% contributed by NovaGold. Key milestones
met during the 2011 program were completion of the Donlin Gold FS incorporating
the results of a natural gas pipeline feasibility study; and completion of
initial environmental baseline studies along the proposed pipeline corridor.
Donlin Gold LLC has conditionally approved a 2012 work program
of approximately US$37.3 million, of which the Company’s 50% share is
approximately US$18.7 million, includes funds for permitting activities,
community development and planning for future project development. Commencing
project permitting remains contingent on Board approval.
Galore Creek Project, British Columbia
Galore Creek Partnership
On August 1, 2007, the Company formed the Galore Creek
Partnership giving each of NovaGold and Teck a 50% interest in the Galore Creek
project. The activities of the Galore Creek Partnership are being conducted by
GCMC, an independent entity controlled equally by NovaGold and Teck. Under the
original agreement, the Company contributed its assets in the Galore Creek
project to the Galore Creek Partnership and Teck was to fund an initial
contribution after which both partners would be equally responsible to fund the
project going forward. In addition, under the terms of the original partnership
agreement, the Company would receive up to US$50.0 million of preferential
distributions once Galore Creek was fully operational, if partnership revenues
exceeded certain established targets in the first year of commercial
production.
On November 26, 2007, the Company announced that NovaGold and
Teck had reached the decision to suspend construction activities at the Galore
Creek project. In light of these developments, NovaGold and Teck amended the
terms of Teck’s earn-in obligations in connection with Galore Creek. Under the
amended arrangements, Teck’s total earn-in was approximately $403.0 million and
the Company was to receive up to US$25.0 million of preferential distributions
once Galore Creek became fully operational, if Partnership revenues exceeded
certain established targets in the first year of commercial production. Teck’s
sole funding of project costs incurred after August 1, 2007 was to total $264.0
million, and Teck agreed to invest an additional $72.0 million in the Galore
Creek Partnership to be used over the next five years, principally to reassess the
project and evaluate alternative development strategies. NovaGold and Teck were
to fund the next $100.0 million of project costs one third and two thirds
respectively, and would fund costs proportionately thereafter.
- 39 -
On February 11, 2009, NovaGold and Teck agreed to further amend
certain provisions of the Partnership Agreement relating to the Galore Creek
project. The agreement confirms that NovaGold and Teck each continue to hold a
50% interest in the Galore Creek Partnership. Under the amended agreement, Teck
agreed to fund 100% of Galore Creek costs until the total amount contributed by
Teck after November 1, 2008, together with approximately $15.8 million
previously contributed by Teck on optimization studies, equaled $60.0 million.
Teck would have a casting vote on the Galore Creek Partnership’s Management
Committee with respect to the timing and nature of expenses to be solely funded
by it. Following Teck’s $60.0 million contribution, all further costs at Galore
Creek will be funded by Teck and NovaGold in accordance with their respective
Galore Creek Partnership interests and there will no longer be any casting vote
for either party. The new funding arrangements replace the funding arrangements
agreed by Teck and NovaGold in November 2007.
Teck was the sole funding partner until June 22, 2011 when it
completed its $373.3 million earn-in obligation. At the Galore Creek project,
GCMC had an approved 2011 budget to focus on community engagement and completion
of the pre-feasibility study. Following completion of the pre-feasibility study,
the partners approved a budget of $30.5 million to carry out further work at the
Galore Creek project during the remainder of 2011. Planned work included infill
drilling to convert inferred mineral resources to measured and indicated
categories, geotechnical drilling on the tunnel alignment and geotechnical
drilling to confirm open pit slopes in areas targeted for conversion of inferred
mineral resources. For the year ended November 30, 2011, GCMC expended
approximately US$36.3 million and NovaGold contributed $14.1 million following
completion of Teck’s earn-in obligation. Depending on the results of the
enhancements to the pre-feasibility study, GCMC may consider resuming road
construction activities and move into feasibility and permitting activities to
advance Galore Creek toward a construction decision. A preliminary budget has
been discussed and would be refined for these activities at the time a decision
is made to proceed. At the Galore Creek project, GCMC has an approved 2012
budget of approximately $35.4 million to complete the enhancements to the
pre-feasibility study discussed above.
On November 16, 2011, NovaGold announced it is
exploring opportunities to sell all or part of its 50% interest in the Galore
Creek project.
Except for the information under the headings “Galore Creek –
Current Activities” or as otherwise stated or implied, the information in the
following sections is based on the technical report titled “Galore Creek
Copper-Gold Project NI 43-101 Technical Report on Pre-Feasibility Study, British
Columbia – Canada” dated September 12, 2011 (the “PFS”) prepared by Robert Gill,
P.Eng., Jay Melnyk, P.Eng., Greg Wortman, P.Eng., Greg Kulla, P.Geo., and Dana
Rogers, P.E., all of whom are Qualified Persons as defined in NI 43-101. The PFS
has been filed with the securities regulatory authorities in each province of
Canada. Portions of the following information are based on assumptions,
qualifications and procedures which are not fully described herein. Reference
should be made to the full text of the PFS which is available for review on
SEDAR at www.sedar.com and on EDGAR at www.sec.gov.
Galore Creek – Property Description and Location
The Galore Creek property is a large copper-gold-silver project
located in northwestern British Columbia. The main Galore Creek property, which
consists of the Southwest, Central, Junction and West Fork deposits, contains
most of the project’s known resources. Under an option agreement originally with
subsidiaries of Rio Tinto plc and Anglo American plc, the then shareholders of
Stikine Copper Limited, the owner of the core mineral claims at the Galore Creek
project, NovaGold could acquire 100% of such company. On June 1, 2007, the
Company completed the exercise of its option pursuant to the Galore Creek Option
Agreement to purchase 100% of Stikine Copper Limited by paying the final US$12.5
million of a US$20.3 million purchase. NovaGold’s financial earn-in requirements
under the Galore Creek Option Agreement were satisfied and all of Stikine
Copper’s assets were purchased by NovaGold and have been transferred to the
Galore Creek Partnership.
On February 13, 2006, the Company announced that it had entered
into a comprehensive agreement with the Tahltan Nation for their participation
in, and support of, the development of the Galore Creek project. Financial contributions will be made by GCMC to the Tahltan Heritage
Trust Fund which will be used to mitigate any adverse social and cultural
impacts of mine development. Trust Fund payments are currently $250,000 annually
during this period of review and care and maintenance, and will increase to
$500,000 annually should full-scale construction resume. During mine operations,
Trust Fund payments are guaranteed to be no less than $1.0 million annually.
Upon reaching certain agreed financial targets, and subject to positive mine
operating cash flow, the trust will receive the greater of $1.0 million or a 0.5
to 1.0% NSR royalty each year.
- 40 -
Galore Creek – Mineral Tenure
On May 23, 2007, NovaGold and Teck announced a 50/50
partnership to develop the Galore Creek property. On August 1, 2007 the Galore
Creek Partnership was established to develop the Galore Creek mine and created
GCMC, a jointly controlled operating company. In October 2007, all Galore Creek
claims held by NovaGold Canada Inc. were transferred to GCMC. GCMC currently
holds 118,912 hectares (293,837 acres) of British Columbia provincial mineral
claims in 264 tenures. Included in this total are the five Grace claims that
were acquired by GCMC from Pioneer Metals Corporation on December 3, 2007. To
date, BCLS legal surveys have been recorded on five Galore Creek mineral claims
(516158, 516165, 516459, 516177, 516335) and on four Bob Quinn area claims
(514548, 514551, 545723, 566898). At the adjoining Copper Canyon property, a
wholly owned subsidiary of NovaGold, acquired in May 2011 the remaining
outstanding interest in Copper Canyon, which holds 12 claims totalling 11,344
hectares (28,032 acres).
- 41 -
Galore Creek – Accessibility and Climate
The Galore Creek project is located approximately 70 km west of
the Bob Quinn airstrip on Highway 37 and 150 km northeast of the port of
Stewart, and 370 km northwest of the town of Smithers, British Columbia, Canada.
The town of Smithers, is the nearest major supply centre and has an airport with
regularly scheduled flights to and from Vancouver, BC. The project is located in
the Stikine area, the nearest point on the Stikine River to the project is the
mouth of the Anuk River, about 16 km west of the camp. Most personnel, supplies,
and equipment are staged from the Bob Quinn airstrip, on the Stewart-Cassiar
Highway (Highway 37) and transported via helicopter to the Galore Creek camp.
Bob Quinn is serviced by contract flights from Smithers and Terrace, each of
which has daily flights from Vancouver. Flight time from Vancouver to
Smithers/Terrace is about 90 minutes, then an additional 45 minutes to Bob
Quinn. The helicopter flight from Bob Quinn to the Galore Creek camp is about 30
minutes.
Galore Creek is located in the humid continental climate zone
of coastal British Columbia and is characterized by cold winters and short,
cool, summers. Within the Galore Creek Valley, mean monthly temperatures range
from -8.2ºC during the winter to 12.4ºC during the summer, with January and July
typically being the coolest and warmest months, respectively. In the Upper West
More Valley area, monthly average temperatures range from -8.9ºC in the winter
to 7.9ºC in the summer. Precipitation begins to fall as snow in early October
and continues until the end of May. A basinal average precipitation for the
whole Galore Creek Valley watershed was estimated to be in the order of 3,000
mm. June and July tend to receive the least amount of precipitation on an annual
basis (typically 40 to 60 mm of rain per month).
The project lies within a regional structure known as the
Stikine Arch. Medium to steep slopes characterize the local terrain in the
central and northern parts of the Galore Creek property. The surrounding
topography is mountainous. The elevation of the tree line is variable, but
alpine vegetation predominates above 1,100 m. The forests below consist of
Balsam fir, Sitka spruce and cedar. Alpine tundra is present at higher
elevations.
The project is currently isolated from power and other public
infrastructure and is currently not accessible by road. Because of glaciers
covering the surrounding mountain passes, a large cross-section tunnel is needed
to provide long-term vehicular access into the Galore Creek valley and for
mobilization of individual component pieces of large mining equipment needed for
mining the ore body using open pit methods. The time and cost for driving a
tunnel in new and unexplored underground terrain is subject to many unknowns
which could change the outcome significantly. The same surface constraints that
preclude building a road into the site (i.e. severe topography, snowpack,
glaciers and weather) also limit the amount of borehole information, geologic
mapping and other site specific data that can be obtained so that subsurface
conditions can be better understood before tunnelling begins. Construction of
the tunnel will most likely fall on the critical path for development of the
mine and thus represents a significant cost and schedule risk for development of
the Galore Creek property.
Within the ground holdings of GCMC, there is sufficient area to
allow construction of all required project infrastructure. Except for the access
corridor which is covered by the special use permit, all other infrastructure,
including the processing plant and tailings area in West More and for the Filter
Plant Area near Km 8 are located within GCMC’s mineral claims. GCMC intends to
file for mining leases to secure the surface rights for these areas, which are
held by the Crown. GCMC considers it a reasonable expectation that surface
rights usages will be granted to the project. Ample water supply is available
from surface and subsurface sources.
Galore Creek – Geological Setting
The main Galore Creek deposits lie in Stikinia, an accreted
terrain composed of tectonically juxtaposed Mesozoic volcano-stratigraphic
successions. The eastern boundary of the Coast Plutonic Complex lies about 7 km
west of the claim block. A suite of multiphase syenite intrusions cuts a section
of flysch-basin sedimentary strata and alkaline volcanic rocks of the middle to
upper Triassic Stuhini Group. The intrusive suite, centered in the West Fork
area, forms a north-northeast-trending belt 5 km long and 2 km wide and contains
stocks, dikes and extensive sills. The presence of numerous sub-volcanic syenite
sills indicates that the intrusions formed at a structurally high level. The
spatial and temporal association of the chemically similar intrusive and
extrusive igneous rocks indicates that the Galore Creek area is probably an
eroded volcanic center. The Galore Creek intrusions commonly follow two
orientations, one northwest and the other northeast. Post-intrusion and post-ore
faulting follows these same orientations. Regionally, the Stuhini section shows broad open
folding. The mineralized section is less deformed, so it is unclear whether the
deformation occurred prior to, during, or subsequent to mineralization.
- 42 -
Copper Canyon, a satellite copper-gold resource located 6 km
east of the Central Zone, shares a number of geological and geochemical
similarities with the main deposits, including the occurrence of identical
dike-rock types, a similar sulfide suite and occurrence within the same host
volcano-stratigraphic succession. Regional stratigraphic relationships suggest
that Copper Canyon represents a different but coeval volcanic edifice.
Galore Creek – Alteration and Mineralization
Mineralization at Galore Creek occurs primarily in altered
Triassic alkalic lavas, volcano-sedimentary strata and, to a lesser degree, in
alkalic intrusions. Twelve copper-gold-silver mineralized zones have been
identified on the property. Alteration mineral assemblages at Galore Creek are
somewhat unique due to the near total lack of quartz in the volcanic and
intrusive host rocks. In general, the center of the district shows potassic
alteration, including potassium-feldspar, biotite and magnetite, with local
concentrations of garnet. Copper-sulfides are most closely associated with
secondary biotite and magnetite. A propylitic assemblage, including epidote,
chlorite and pyrite occurs outboard of the potassic assemblage.
Most of the mineralized zones contain evenly disseminated
copper-sulfide with little apparent control by stockwork or larger scale
veining. The sulfide assemblage generally includes chalcopyrite, bornite and
pyrite. Uncertainty exists whether the pyrite is auriferous, but strong
magnetite commonly occurs within gold-enriched zones. Higher gold values occur
at the northern and southern ends of the Central deposit. These higher gold
values generally occur along with elevated concentrations of bornite. Locally,
as in the West Fork area, massive magnetite-bornite-chalcopyrite mineralization
contains bonanza grades (>20% copper with significant precious metal values).
Mineralization at Copper Canyon occurs primarily in a
sub-volcanic syenite intrusive complex. This host lithology defines the primary
difference from the main Galore Creek deposits. Chalcopyrite forms the primary
sulfide mineralogy; bornite is rare. As at Galore Creek, mineralization is
evenly disseminated and shows no apparent association with veining. The
periphery of known mineralization contains elevated gold/copper ratios along
with relatively higher concentrations of pyrite. Copper mineralization appears
to occur as an annular zone around a barren fluorine-rich diatreme breccia.
Galore Creek – Sampling and Assaying
Historically from 1963 to 1991, drill core in mineralized zones
was generally sampled in 3-meter intervals. The samples were tagged then split
in half using a mechanical splitter. One half of the core was returned to the
core box and the other half shipped to an outside laboratory for analysis. The
core returned to the boxes remains on site as a record of the hole. Much of the
core from the Central Zone was re-assayed as part of the 1991 exploration
program. No site-specific standards, blanks or field duplicate samples were used
in any of the previous exploration programs.
Sampling and assaying procedures used by the Company have been
overseen by qualified professional geologists. All drill core from the 2003
through 2010 programs, except intervals of overburden and till material, were
sampled. Drill core sampling occurred within a minimum of 1-meter and a maximum
of 3-meter intervals. The core was cut in half using a diamond saw. Half of the
core was taken as a sample and submitted to ALS Chemex Labs in Vancouver, BC.
The core that was returned to the box remains on site as a permanent record. In
addition to the core, control samples were inserted into the shipments at the
approximate rate of one standard, one blank and one duplicate per 20 core
samples. The placement of all control samples was essentially random within the
20-sample batch.
All assay analysis for the 2003 through 2007 programs was
carried out by ALS Chemex Labs of Vancouver, BC. Samples were logged into a
tracking system on arrival at ALS Chemex, and weighed. Samples were then
crushed, dried, and a 250 g split pulverized to greater than 85% passing 75
microns. Gold assays were determined using fire analysis followed by an AAS
finish. The lower detection limit was 0.005 ppm Au; the upper limit was 1,000
ppm Au. An additional 34-element suite was assayed by ICP_AES methodology,
following nitric acid aqua regia digestion. The copper analyses were completed by atomic
absorption (AA), following a triple acid digest. Sampling and assaying from 2007
through 2010 used the same protocols as described above.
- 43 -
Galore Creek – Project History, Drilling and
Exploration
Drilling History
Since initial discovery of the
Galore Creek property in 1960, approximately 255,601 m has been drilled in 1,078
core holes on the property. Most of this work has focused on the Central Zone,
with lesser amounts of work on eleven other target areas. Some zones have
received only reconnaissance drilling. During the 1970s, drilling was
principally confined to the Central Zone but nine holes were also drilled on the
North Junction Zone. Average core recovery in the Central Zone was between 75
and 85% with the poorest recovery at depths between 60 and 90 meters where
abundant open sheet fractures were encountered. At depths below 90 meters core
recovery approached 100%. In the North Junction Zone recovery averaged around
60% due to shattered and sheared sections encountered both near surface and at
intervals throughout the holes. In 1989–1990, Mingold, an Anglo American
subsidiary, drilled holes on the Southwest Zone (eight holes, 1,026 meters), the
North Rim showing (six holes, 546 meters), the Saddle Zone (two holes, 226
meters) and two reconnaissance holes. The 1991 drill program was mainly directed
at areas peripheral to the Central Zone as well as exploration holes located in
the Southwest, Butte, North Rim and Dry Creek Zones. Only six holes were drilled
within the Central Zone itself.
The first drill program directed by NovaGold began in September
of 2003, and consisted of eight core holes targeting four broad areas of the
deposit: the North Gold Zone, South Gold Zone, Central Replacement Zone and
Southwest Zone. Drilling was focused on understanding the zonation and gold
variability of the deposit. This program was responsible for the discovery of
new mineralization, known as the Bountiful Zone, found at depth below the South
Gold Lens.
2006 Program
The 2006 drill program focused
primarily on further definition of the deep Bountiful mineralization discovered
in 2003, further resource definition along the western margin of the Central
deposit and completion of condemnation drilling on the Grace claims in the
planned tailings disposal site. The program drilled in excess of 36,200 meters
in 67 drill holes and encountered significant new mineralization in the
Bountiful Zone, in the high-wall of the Central deposit and down dip in the West
Fork deposit. Additional geotechnical drilling in support of mine development
was also completed.
Wide-spaced drilling in the Bountiful Zone defined a
sub-horizontal zone occurring at roughly 300 meters depth and extending nearly
1,000 meters in the north-south direction and 700 meters in the east-west
direction. Drilling indicates that typical widths in the Bountiful Zone are
greater than 200 meters on average and up to 500 meters in a few exceptional
intervals. Drilling at depth in the high-wall of the Central Zone extended
mineralization from the North Gold lens approximately 250 meters to the west.
Additional drilling in the Dendritic Creek area about 750 meters south of the
North Gold lens shows limited mineralization to the west and likely the limited
loss of some previously inferred mineralization. Drilling down dip along the
north-dipping West Fork deposit continued to expand mineralization to depth and
toward the Bountiful and Southwest deposits.
2007 Program
The 2007 drilling program for Galore
Creek completed 15,000 meters of follow-up and exploration drilling. Targets
concentrated on optimization of the mine schedule by targeting shallow
moderate-grade resources that could displace low-grade stockpile material in
years seven to nine of operations. Additional exploration focused on scoping
potentially high-grade underground scenarios that could heighten the value of
the project.
Drilling was carried out at three primary locations: Copper
Canyon, the Grace Claims and the Lower Butte Zone. Drilling at the Lower Butte
Zone suggests potential for resource additions. At the Copper Canyon deposit,
drilling focused on testing up-slope historical soil anomalies, testing
higher-grade targets discovered in 2006 and expanding on depth and lateral
extensions of the current resource. As a result of the drilling at Copper
Canyon, NovaGold has earned a 60% interest in the neighbouring project.
Significant additional drilling was completed to test the geotechnical
characteristics of planned pit slopes, waste and tailings storage and water
diversion facilities.
- 44 -
2008 Program
The 2008 diamond drilling program at
Galore Creek was carried out between June 25, 2008 and September 17, 2008. The
program consisted of nine diamond drill holes totalling 2,050 meters. The main
objectives of the program were to obtain important acid base accounting (“ABA”)
data in the Central, Southwest, North Junction and Junction pits, to confirm
legacy grades in the Junction pit, and to collect metallurgical data in the
Central pit for engineering design. Seven drill holes totalling 1,297 meters
targeted gaps in the ABA model, specifically along the pit boundaries of the
Central (South Gold Lens), Southwest and North Junction pits and within the core
of the Junction pit. Two drill holes totalling 752 meters were drilled for the
purpose of collecting metallurgical data in the chalcopyrite-rich Central
Replacement Zone and the chalcopyrite-bornite-rich North Gold Lens.
2009 Program
There was no exploration program during
2009.
2010 Program
There were 9 drill holes, totalling
2,803 meters drilled into the Central Zone during 2010 for resource infill and
metallurgical testing purposes.
The Galore Creek project is host to seven under-explored
copper-gold prospects, five defined Mineral Resource areas, and numerous
showings and conceptual target areas.
Galore Creek – Metallurgy
The sulfide minerals at Galore Creek are predominately gold-
and silver-bearing chalcopyrite, bornite and pyrite. A primary grind of 80%
passing 150 microns provides sufficient rougher flotation liberation to separate
the copper minerals from the pyrite and gangue. At this grind, the majority of
the gold is either free or associated with the copper sulfides. The proposed
treatment process uses conventional flotation to produce a
precious-metal-bearing copper concentrate.
Galore Creek – Resource Estimate
The measured and indicated mineral resource for the Galore
Creek project (exclusive of mineral reserves) is estimated to total 286.7
million tonnes grading 0.33% copper, 0.27 g/t gold and 3.64 g/t silver for a
total estimated metal content of 2,070 million pounds of copper, 2.53 million
ounces of gold and 33.54 million ounces of silver at an NSR cut-off grade of
$10.08/t.
The updated inferred mineral resource, excluding NovaGold’s
100% interest in the Copper Canyon project, is estimated to total 346.6 million
tonnes grading 0.42% copper, 0.24 g/t gold and 4.28 g/t silver for a total
estimated metal content of 3,230 million pounds of copper, 2.7 million ounces of
gold and 47.7 million ounces of silver at an NSR cut-off grade of $10.08/t.
Galore Creek Mineral Resource Table, Effective Date July 11,
2011, G. Kulla, P.Geo.
| |
Tonnage |
Cu |
Au |
Ag |
Contained |
Contained |
Contained |
| |
(Million |
Grade |
Grade |
Grade |
Cu (Billion |
Au (Million |
Ag (Million |
| Category
|
tonnes) |
(%) |
(g/t) |
(g/t) |
pounds) |
ounces) |
ounces) |
| Measured |
39.5 |
0.25 |
0.39 |
2.58 |
0.22 |
0.50 |
3.27 |
| Indicated |
247.2 |
0.34
|
0.26
|
3.81
|
1.85
|
2.04
|
30.26 |
| Total Measured and Indicated |
286.7 |
0.33 |
0.27 |
3.64 |
2.07 |
2.53 |
33.54 |
| Inferred |
346.6 |
0.42
|
0.24
|
4.28
|
3.23
|
2.70
|
47.73 |
- 45 -
| Notes to Accompany Mineral Resources
Table: |
| 1. |
Mineral Resources are exclusive of Mineral Reserves.
Mineral Resources that are not Mineral Reserves do not have demonstrated
economic viability. See “Cautionary Note to United States
Investors”. |
| 2. |
Mineral Resources are contained within a conceptual
Measured, Indicated and Inferred optimized pit shell using the same
economic and technical parameters as used for Mineral Reserves. Tonnages
are assigned based on proportion of the block below topography. The
overburden/bedrock boundary has been assigned on a whole block basis.
|
| 3. |
Mineral resources have been estimated using a constant
NSR cut-off of $10.08/t milled. The Net Smelter Return (NSR) was
calculated as follows: NSR = Recoverable Revenue – TCRC (on a per tonne
basis), where: NSR = Diluted Net Smelter Return; TCRC = Transportation and
Refining Costs; Recoverable Revenue = Revenue in Canadian dollars for
recoverable copper, recoverable gold, and recoverable silver using silver
using the economic and technical parameters used for mineral reserves.
|
| 4. |
Rounding as required by reporting guidelines may result
in apparent summation differences between tonnes, grade and contained
metal content. |
| 5. |
Tonnage and grade measurements are in metric units.
Contained gold and silver ounces are reported as troy ounces, contained
copper pounds as imperial pounds. See “Cautionary Note to United States
Investors”. |
A rigorous quality control and quality assurance protocol has
been used on the project, including blank and reference samples with each batch
of assays. All NovaGold drill samples were analyzed by fire assay and ICP at ALS
Chemex Labs in Vancouver, BC, Canada.
Galore Creek – Mineral Reserve Estimate
The proven and probable mineral reserve estimate for the Galore
Creek project totals 528.0 million tonnes grading 0.59% copper, 0.32 g/t gold
and 6.02 g/t silver for a total estimated metal content of 6.8 billion pounds of
copper, 5.45 million ounces of gold and 102.1 million ounces of silver at an NSR
cut-off grade of $10.08/t.
Mineral Reserve Statement, Effective Date July 11, 2011, Jay
Melnyk, P.Eng.
| |
|
|
|
|
|
Contained |
Contained |
Contained |
| |
|
Tonnes |
|
Diluted |
Grade |
Cu |
Au |
Ag |
| |
|
(Million |
Cu |
Au |
Ag |
(Billion |
(Million |
(Million |
| |
|
tonnes) |
(%) |
(g/t) |
(g/t) |
pounds) |
ounces) |
ounces) |
| |
Proven |
69.0 |
0.61 |
0.52 |
4.94 |
0.9 |
1.15 |
11.0 |
| |
Probable |
459.1 |
0.58 |
0.29 |
6.18 |
5.9 |
4.30 |
91.2 |
| |
Proven and Probable |
528.0 |
0.59 |
0.32 |
6.02 |
6.8 |
5.45 |
102.1 |
| Notes to Accompany Mineral Reserves Table:
|
| 1. |
Mineral Reserves are contained within Measured and
Indicated pit designs, and supported by a mine plan, featuring variable
throughput rates, stockpiling and cut-off optimization. The pit designs
and mine plan were optimized on diluted grades using the following
economic and technical parameters: Metal prices for copper, gold and
silver of US$2.50/lb, US$1,050/oz, and US$16.85/oz, respectively. Mining
and ore based costs (process, G&A and mine general) of $1.60/t mined
and $10.08/t milled respectively; an exchange rate of US$0.91 to Cdn$1.00;
variable recovery versus head grade relationships for both oxidized and
non-oxidized material; appropriate smelting, refining and transportation
costs; and inter ramp pit slope angles varying from 42º to 55º. See
“Cautionary Note to United States Investors”. |
| 2. |
Mineral Reserves are reported using a ‘cash flow grade’
($NSR/SAG mill hr) cut-off which was varied from year to year in the
scheduling process to optimize NPV. The cash flow grade is a function of
the NSR ($/t) and SAG mill throughput (t/hr). The net smelter return (NSR)
was calculated as follows: NSR = Recoverable Revenue – TCRC (on a per
tonne basis), where: NSR = Net Smelter Return; TCRC = Transportation and
Refining Costs; Recoverable Revenue = Revenue in Canadian dollars for
recoverable copper, recoverable gold, and recoverable silver using the
economic and technical parameters mentioned above. SAG throughputs were
modeled by correlation with alteration types. |
| 3. |
The life of mine strip ratio is 2.16. |
| 4. |
Rounding as required by reporting guidelines may result
in apparent summation differences between tonnes, grade and contained
metal content. |
| 5. |
Tonnage and grade measurements are in metric units.
Contained gold and silver ounces are reported as troy ounces, contained
copper pounds as imperial pounds. See “Cautionary Note to United States
Investors”. |
- 46 -
Galore Creek – Construction
On June 5, 2007, NovaGold announced that it had received the
necessary Federal and Provincial authorizations and permits to allow NovaGold’s
Board of Directors to approve the start of construction at Galore Creek. Board
approval for construction activities was contingent on receiving full Provincial
and Federal authorization for the project. Federal authorization was posted to
the Canadian Environmental Assessment Registry on June 4, 2007.
On July 31, 2007, the Provincial Government announced the
issuance of a Mines Act permit for the Galore Creek project for construction of
the access tunnel. An interim permit issued on July 4, 2007 authorized limited
blasting to prepare and stabilize the rock face of the tunnel, as well as
preparatory work for the sediment ponds. Receipt of the new permit authorized
completion of the access road and tunnel and allowed for the start of earthworks
in the Galore Creek Valley.
Galore Creek – Construction Suspension
On November 26, 2007, the Company announced that NovaGold and
Teck had reached the decision to suspend construction activities at the Galore
Creek project. A review and completion of the first season of construction
indicated substantially higher capital costs and a longer construction schedule
for the project. This, combined with reduced operating margins as a result of
the stronger Canadian dollar, would make the project, as conceived and
permitted, uneconomic at then consensus long-term metal prices. NovaGold and
Teck continue to view the property as a substantial resource and are working to
identify an alternative development strategy that may allow for the resumption
of construction.
Prior to the suspension of construction, substantial work was
completed at Galore Creek, including clearing 80% of the 135-kilometer road
right-of-way, completing 66 kilometers of pioneer road, installing a number of
key bridges and initiating work on the road access tunnel into the Galore Creek
Valley. During the construction suspension and optimization period, the partners
have maintained and intend to continue to maintain the existing infrastructure.
While permits granted for the original project design remain in
place, the alternative project design will require new or additional permits
before construction can resume.
Galore Creek – Environmental Assessment and Permitting
The Galore Creek environmental assessment process was initiated
in February 2004. As part of the environmental assessment review process, a
series of public meetings was held in various communities in the Galore Creek
region, with the public and regulator comment periods running from July 10, 2006
to September 8, 2006 and September 22, 2006, respectively. The Tahltan Central
Council, which was actively engaged in the entire assessment process, submitted
their comments to the British Columbia Environmental Assessment Office (“BCEAO”)
on October 18, 2006, including a letter of support from the Chair of the Tahltan
Central Council. The permitting process for Galore Creek progressed as expected
resulting in the receipt of the BC Provincial Environmental Assessment
Certificate in February 2007. Federal authorizations were received during
Q2-2007.
Although construction at the Galore Creek project was suspended
in late 2007, the Canadian Federal and Provincial authorizations to proceed
remain in good standing as do the majority of key permits required to continue
construction. Specifically, since the Province has determined substantial
construction of the project was initiated, the previous environmental assessment
certificate remains valid without a time limit.
The new project design and configuration is different from the
design that was permitted under the original environmental assessment
certificate and that received Federal approval. Some of the most significant
changes are:
-
Better understanding of geochemistry, resulting in a different approach to
waste rock and tailings management;
-
Simplified waste and water management strategy in the Galore Creek Valley
plant site and tailings relocated outside of the Galore Creek Valley, in a new
previously unaffected watershed (West More);
- 47 -
-
Deletion of 30 km section of access road down the Sphaler Valley to
Porcupine and the Scott Simpson Valley, significantly reducing potential
environmental impacts and geohazards;
-
Deletion of the airstrip that was to be constructed in the Porcupine
Valley; and
-
Addition of new loadout facilities at the Port of Stewart.
While the new configuration is considered an improvement, with
reduced overall environmental impacts, it is anticipated that a new
environmental assessment process will be requested by the regulators for the
changes. This will involve parallel and harmonized reviews by both the BCEAO and
the Canadian Environmental Assessment Agency (“CEAA”). A comprehensive study
report will be required through CEAA. It is anticipated that the entire
environmental assessment review process will require two years from submission
of a project description to issuance of a new Environmental Assessment
Certificate (by the BC government) and a decision by the federal Minister of
Environment.
The existing Special Use Permit (“SUP”) for construction of the
access road remains valid as long as there are no proposed changes to the SUP,
thereby permitting GCMC to continue to build the access road. While there will
eventually be changes to the SUP to accommodate the new mine design
configuration, that relevant portion of the access road can be excluded from a
new environmental assessment as long as any SUP mitigation plan measures (e.g.,
fish compensation and PAG rock management plans) are implemented. Changes to the
current SUP will ultimately be required around the new tailings storage
facility, plus a branch to the south portal of the tunnel to the Galore Creek
Valley. An amendment to make these changes will be applied for once the
environmental assessment process has been completed.
Existing permits associated with the existing construction
camps, including water use and waste discharge, will continue to be maintained.
All other project permits will have to be applied for following completion of
the environmental assessment process, although the time-critical permits, such
as those needed for starting the tunnelling can be prepared concurrent with the
environmental assessment such that there should be little lag time following new
environmental assessment certification before tunnelling could begin.
Galore Creek – Financial Summary
The PFS total capital cost estimate for the Galore Creek
project is $5.2 billion dollars. Capital costs are estimated with an accuracy
range of +25% / -20% (including contingency). The project’s estimated net
present value (NPV7% ), using the PFS base case metal price assumptions set forth
below, was assessed at $837 million and $137 million on a pre-tax and post-tax
basis, respectively. The corresponding post-tax IRR of the project was estimated
at 7.4% . Using the July 27, 2011 current price case at the time of release of
the PFS set worth below, the pre-tax and post-tax NPV7% of the project were
estimated at $4.7 billion and $2.7 billion, respectively, with a post-tax IRR
estimated at 14%. Base case metal prices used in the PFS were US$2.65/lb copper,
US$1,100/oz gold and US$18.50/oz silver with a foreign exchange rate of US$0.91
= Cdn$1.00. The current metal prices used were closing prices on July 27, 2011
of US$4.44/lb copper, US$1,613/oz gold and US$40.34/oz silver with foreign
exchange rate of US$1.05 = Cdn$1.00.
Galore Creek – Current Activities
The PFS identified opportunities to extend the mine life,
improve the production profile, and potentially reduce the capital requirements
of the Galore Creek base case scenario. Further work has subsequently been
completed to move forward with enhancements to the project description required
for permitting and to support a feasibility decision. Areas identified for
improvement include an assessment of an increased production profile and
potential extension of the mine life as well as a possible reduction of initial
capital cost. The results of this work will provide the basis for the Company
and Teck to consider proceeding to a feasibility study and permitting. Depending
on the results of the enhancements to the pre-feasibility study, GCMC may
consider resuming road construction activities and move into feasibility and
permitting activities to advance Galore Creek toward a construction decision. A
preliminary budget has been discussed and would be refined for these activities
at the time a decision is made to proceed. At the Galore Creek project, GCMC has
an approved 2012 budget of approximately $35.4 million to complete the
enhancements to the pre-feasibility study.
- 48 -
Copper Canyon Acquisition
Under the Copper Canyon
Option Agreement, NovaGold had the option to acquire up to an 80% interest in
the Copper Canyon property, which is immediately east of the main Galore Creek
property. An initial 60% interest could be earned by expending $3.0 million on
the property, issuing 296,296 common shares of NovaGold (all of which have been
issued) and making property payments of up to $0.25 million. An additional 20%
interest in the property could be earned by paying $1.0 million and completing a
feasibility study by September 2011. On November 14, 2007, the Company provided
notice to Copper Canyon Resources Ltd. (“Copper Canyon”) that it had completed
its earn-in requirements to earn a 60% interest in the Copper Canyon property.
On February 12, 2008, NovaGold notified Copper Canyon that it would not exercise
the second option for an additional 20% interest in the Copper Canyon property
and, upon such notice, was deemed to have formed a joint venture with Copper
Canyon to develop the property. The Copper Canyon property is subject to a 2%
NSR royalty which may be reduced to 0.5% by the payment of $2.0 million to the
royalty holder.
On May 20, 2011, NovaGold completed the acquisition of Copper
Canyon Resources Ltd. (“Copper Canyon”) a junior exploration company whose
principal asset was its 40% joint venture interest in the Copper Canyon
copper-gold-silver property that is adjacent to the Galore Creek project. A
wholly-owned subsidiary of NovaGold holds the remaining 60% joint venture
interest in the Copper Canyon property which it has agreed to transfer to the
Galore Creek Partnership. Under the acquisition arrangement, NovaGold acquired
all of the issued and outstanding common shares of Copper Canyon which it did
not already hold. As a result, Copper Canyon is now a wholly-owned subsidiary of
NovaGold. NovaGold issued a total of 4,171,303 common shares under the
arrangement, representing approximately 1.7% of the number of NovaGold common
shares then outstanding and paid cash of $2,557,000. Under the arrangement,
Copper Canyon transferred to a new company, Omineca Mining and Metals Ltd.
(“Omineca”), substantially all of its assets other than certain cash and its 40%
interest in the Copper Canyon property. NovaGold holds and exercises control
over an aggregate of 1,725,858 common shares of Omineca, representing
approximately 10.8% of Omineca’s outstanding common shares. The Omineca shares
are being held by NovaGold as a portfolio investment.
Ambler Project, Alaska
The Ambler project comprises 90,315 acres (36,549 hectares) of
State of Alaska mining claims and Federal patented mining claims located in the
Ambler District, in the southern Brooks Range of northwestern Alaska at
geographic coordinates N67.17º latitude and W156.38º longitude, within which VMS
mineralization can be found. The current size of the Ambler project is
approximately 65km long x 8km wide.
Exploration on the Ambler project was intermittent between
discovery in 1965 and 1998. From 1998 until 2003, there was no work performed on
the Ambler project. An exploration agreement was signed on March 22, 2004, as
amended, between Kennecott Arctic Company and NovaGold under which the Company
had the ability to earn a 51% interest in the Ambler project. Since 2004,
NovaGold has been performing project level and regional mapping, drilling,
geophysics and geochemical surveys.
Under a purchase agreement dated December 18, 2009, between
NovaGold and Kennecott, NovaGold agreed to pay Kennecott a total purchase price
of US$29 million for a 100% interest in the Ambler project, to be paid as to:
US$5 million by the issuance of 931,098 NovaGold shares and two installments of
US$12 million in cash each, due 12 months and 24 months, respectively, from the
closing date on January 7, 2010. Kennecott retained a security interest in the
Ambler project to secure these cash payments. The NovaGold shares were issued in
January 2010, the first US$12 million payment was made on January 7, 2011 and
the second US$12 million payment was made early on August 5, 2011. Kennecott
retains a 1% NSR royalty that is purchasable at any time for a one-time payment
of US$10 million. The purchase agreement terminated the exploration agreement
dated March 22, 2004, as amended.
On October 19, 2011, NovaCopper US Inc. entered into the NANA
Agreement with NANA for the cooperative development of their respective resource
interests in the Ambler mining district of Northwest Alaska. The NANA Agreement
consolidates NovaCopper’s and NANA’s land holdings into an approximately
[146,500] hectare land package and provides a framework for the
exploration and development of this high-grade and prospective poly-metallic
belt.
- 49 -
The NANA Agreement provides NovaCopper US with the nonexclusive
right to enter on, and the exclusive right to explore, the Bornite Lands and the
ANCSA Lands (each as defined in the NANA Agreement) and in connection therewith,
to construct and utilize temporary access roads, camps, airstrips and other
incidental works. In consideration for this right, NovaCopper US paid to NANA
US$4 million in cash. NovaCopper US will also be required to make payments to
NANA for scholarship purposes in accordance with the terms of the NANA
Agreement. NovaCopper US has further agreed to use reasonable commercial efforts
to train and employ NANA shareholders to perform work for NovaCopper US in
connection with its operations on the Lands.
On November 16, 2011, NovaGold announced its intention to
spin-out its wholly-owned subsidiary, NovaCopper by way of a Plan of
Arrangement. Pursuant to the terms of the proposed Plan, common shares of
NovaCopper will be distributed to the shareholders of NovaGold as a return of
capital through a statutory Plan of Arrangement under the Companies Act
(Nova Scotia). The Plan will be voted on at a Special Meeting of Shareholders of
NovaGold to be held in early 2012 and will be subject to numerous conditions
including shareholder and court approval, approval by, and listing of, the
common shares of NovaCopper on the TSX and NYSE AMEX and completion of all
required regulatory filings. The record date for shareholders entitled to
receive shares of NovaCopper under the Plan will be the effective date of the
Plan which is expected to be in first half of 2012.
The Ambler property hosts a number of deposits, including the
high-grade copper-zinc-lead-gold-silver Arctic deposit, which was the focus of
the Preliminary Economic Assessment filed in May 2011. The Arctic deposit is
currently estimated at 16.8 million tonnes of indicated mineral resources and
12.1 million tonnes of inferred mineral resources.
Except for the information under the headings “Ambler – Current
Activities” or as otherwise stated or implied, the information in the following
sections is based on the technical report titled “NI 43-101 Preliminary Economic
Assessment, Ambler project, Kobuk, AK” dated May 9, 2011 (the “Preliminary
Economic Assessment” or “PEA”) prepared by Neal Rigby, PhD, CEng, MIMMM and Russ
White, P.Geo, both of whom are Qualified Persons as defined in NI 43-101. The
PEA has been filed with the securities regulatory authorities in each province
of Canada. Portions of the following information are based on assumptions,
qualifications and procedures which are not fully described herein. Reference
should be made to the full text of the PEA which is available for review on
SEDAR at www.sedar.com and on EDGAR at www.sec.gov.
Bornite – NANA Agreement
The NANA Agreement provides NovaCopper US with the nonexclusive
right to enter on, and the exclusive right to explore, the Bornite Lands and the
ANCSA Lands (each as defined in the NANA Agreement) and in connection therewith,
to construct and utilize temporary access roads, camps, airstrips and other
incidental works. In consideration for this right, NovaCopper US paid to NANA
US$4 million in cash. NovaCopper US will also be required to make payments to
NANA for scholarship purposes in accordance with the terms of the NANA
Agreement. NovaCopper US has further agreed to use reasonable commercial efforts
to train and employ NANA shareholders to perform work for NovaCopper US in
connection with its operations the Lands.
The NANA Agreement has a term of 20 years, with an option in
favour of NovaCopper US to extend the term for an additional 10 years. The NANA
Agreement may be terminated by mutual agreement of the parties or by NANA if
NovaCopper US does not meet certain expenditure requirements on the Bornite
Lands and ANCSA Lands.
In the event either of NovaCopper US or its parent company,
NovaCopper, conduct an initial public offering of their common shares, or if
NovaCopper US or NovaCopper offer shares on a private placement basis prior to
an initial public offering by NovaCopper US or NovaCopper, then in each case
NANA may participate on the same terms and conditions as other United States
purchasers in the offering by purchasing up to 15% of the common shares offered
in the initial public offering or private placement, or such number of common
shares having an aggregate value of US$4 million, whichever is greater. In
addition, if NovaCopper US or NovaCopper becomes a public company, NANA may, at
its option, nominate one member for election to the board of directors of the
public company during the five-year period following the date NovaCopper US or
NovaCopper becomes a public company.
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If, following receipt of a feasibility study and the release
for public comment of a draft environmental impact statement relating thereto,
NovaCopper US decides to proceed with construction of a mine on the Lands, NovaCopper US will notify NANA in writing and NANA will have
120 days to elect to either (a) exercise a non-transferrable back-in-right to
acquire between 16% and 25% (as specified by NANA) of that specific project; or
(b) not exercise its back-in-rights, and instead receive a net proceeds royalty
equal to 15% of the net proceeds realized by NovaCopper US from such project.
The cost to exercise such back-in-right is equal to the percentage interest in
the project multiplied by the difference between (i) all costs incurred by
NovaCopper US or its affiliates on the project, including historical costs
incurred prior to the date of the NANA Agreement together with interest on the
historical costs and (ii) US$40 million (subject to exceptions). This amount
will be payable by NANA to NovaCopper US in cash at the time the parties enter
into a joint venture agreement and in no event will the amount be less than
zero.
In the event that NANA elects to exercise its back-in-right,
the parties will as soon as reasonably practicable form a joint venture, with
NANA’s interest being between 16% to 25% and NovaCopper US owning the balance of
the interest in the joint venture. Upon formation of the joint venture, the
joint venture will assume all of the obligations of NovaCopper US and be
entitled to all the benefits of NovaCopper US under the NANA Agreement in
connection with the mine to be developed and the related Lands. A party’s
failure to pay its proportionate share of costs in connection with the joint
venture will result in dilution of its interest. Each party will have a right of
first refusal over any proposed transfer of the other party’s interest in the
joint venture other than to an affiliate or for the purposes of granting
security. A transfer by either party of a net smelter royalty return on the
Lands or any net proceeds royalty interest in a project other than for financing
purposes will also be subject to a first right of refusal.
In respect of a possible development on the Bornite Lands or
ANCSA Lands, NovaCopper US and NANA will execute a mining lease to allow
NovaCopper US or the joint venture to construct and operate a mine on the
Bornite Lands or ANCSA Lands. These leases will provide NANA a 2% net smelter
royalty as to production from the Bornite Lands and a 2.5% net smelter royalty
as to production from the ANCSA Lands. If NovaCopper US decides to proceed with
construction of a mine on the Ambler Lands, NANA will enter into a surface use
agreement with NovaCopper US which will afford NovaCopper US access to the
Ambler Lands along routes approved by NANA. In consideration for the grant of
such surface use rights, NovaCopper US will grant NANA a 1% net smelter royalty
on production and an annual payment of US$755 per acre (as adjusted for
inflation each year beginning with the second anniversary of the effective date
of the NANA Agreement and for each of the first 400 acres (and $100 for each
additional acres) of the lands owned by NANA and used for access which are
disturbed and not reclaimed.
NovaCopper US and NANA have formed an oversight committee,
which consists of four representatives from each of NovaCopper US and NANA (the
“Oversight Committee”). The Oversight Committee is responsible for certain
planning and oversight matters carried out by NovaCopper US under the NANA
Agreement. The planning and oversight matters that are the subject of the NANA
Agreement will be determined by majority vote. The representatives of each of
NovaCopper US and NANA attending a meeting will have one vote in the aggregate
and in the event of a tie, the NovaCopper US representatives jointly shall have
a casting vote on all matters other than Sustainability Matters, as that term is
defined in the NANA Agreement. There shall be no casting vote on Sustainability
Matters and NovaCopper US may not proceed with such matters unless approved by
majority vote of the oversight committee or with the consent of NANA, such
consent not to be unreasonably withheld or delayed.
Ambler – Property Description and Title
The Ambler project which was the subject of the PEA comprises
90,315 acres (36,549 hectares) of State of Alaska mining claims and Federal
patented mining claims located in the Ambler District, in the southern Brooks
Range of northwestern Alaska at geographic coordinates N67.17º latitude and
W156.38º longitude, within which VMS mineralization can be found. The current
size of the Ambler project is approximately 65km long x 8km wide and comprises a
total of 36,549 ha.
The Ambler project land tenure consists of 1,215 contiguous
claims, including 868 40-acre State claims, 347 160-acre State claims, and two
patented Federal claims comprising 272 acres. The Federal patented claim corners
at the Ambler project were located by U.S. Government Surveys (“USGS”). Rent for
each State claim is paid annually to the Alaska Department of Natural Resources.
The Arctic deposit is located on patented claims near the southern edge of the
center of the claim block. Mineralization is interpreted to extend west and east
and potentially north of the Arctic deposit and is covered by claims in these
directions.
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In 1971, the United States Congress passed the Alaska Native
Claims Settlement Act (“ANCSA”) which settled land and financial claims made by
the Alaska Natives and provided for the establishment of 13 regional
corporations to administer those claims. These are known as the Alaska Native
Regional Corporations (“ANCSA Corporations”). One of these 13 regional
corporations is NANA. Lands controlled by NANA bound the southern border of the
claim block. In addition, the northern property border is within 25km of
national park lands.
To date, the Ambler District has been the subject of various
early stage exploration programs. However, there has been no actual mine
development or production within the Ambler project area boundaries, and
therefore no known mine workings or mill tailings are present on the property.
In addition, there are no indications of any known environmental impairment or
enforcement actions associated with NovaGold’s activities on the Ambler project
to date.
Various permits are required during the exploration phase of
the Ambler project. The permit for exploration on the property, the State of
Alaska Annual Hardrock Exploration Permit, was obtained from the Alaska
Department of Natural Resources – State Division of Mining, Land and Water
(“Alaska DNR”) in 2008 and is valid for a period of five years to December 31,
2012. NovaGold has held exploration permits with the Alaska DNR since 2004. In
addition, since the property is situated within the Northwest Arctic Borough, a
Title 9 permit is also required.
Additional permits will be necessary to carry out environmental
baseline studies and detailed engineering studies as the Arctic deposit moves
closer to development.
The Ambler project will require multiple permits from
regulatory agencies and other entities at the Federal, State and local (Borough)
levels. As a result of the remoteness of the Ambler project and the lack of
existing infrastructure, it is likely that a significant permitting effort will
be a part of the development of support infrastructure. Due to the preliminary
stages, it is difficult to assess what specific permitting requirements will
ultimately apply to the Ambler project.
Ambler – Accessibility, Climate, Local Resources,
Infrastructure, and Physiography
Accessibility is one of the most significant challenges of
developing the Ambler project. Currently the project has no access
infrastructure. Numerous past studies have demonstrated that access
infrastructure will be required to make this a viable project.
There is no developed surface access to the Ambler District.
Primary access is by air using both fixed wing aircraft and helicopters. There
are four well maintained, 1,524m-long gravel airstrips capable of accommodating
charter aircraft. From the Arctic deposit, these airstrips are located 66km west
at Ambler, 46km southwest at Shungnak, 36km southwest at Kobuk and 32km
southwest at Dahl Creek. Additionally, there is a smaller and lesser-maintained
dirt airstrip near the Bornite deposit. From these points of fixed wing access,
helicopter use is required to access the Ambler project site and transport
personnel, equipment and supplies. A one-lane dirt track suitable for
high-clearance vehicles or construction equipment links the project site to the
Dahl Creek Camp. River access to Ambler, Shungnak and Kobuk by barge is
occasionally possible via the Kobuk River from Kotzebue Sound via Hotham Inlet.
High water during seasonal runoff is necessary for successful navigation of this
route since the Kobuk River is commonly shallow and impassable upstream of the
village of Ambler. The village of Kobuk is located 36km away and is accessible
by fixed wing aircraft.
The climate is typical of a sub-arctic environment. The
exploration season for the Ambler project is from late May until late September.
Weather conditions change suddenly during the field season and can vary
significantly from year to year. During this time period average high
temperatures range from 4 to 18°C, while average lows range from -2 to 10°C.
Record high and low temperatures during these months are 29 and -17°C,
respectively. Extended sunlight in late May and early June accelerates melting
of the winter snow pack on the property. By late September or early October,
poor weather can prohibit safe helicopter travel to the property. Heavy rains
and snow are also possible in August. The winter is long and cold and the
property is typically blanketed by snow and ice. During this time, snow cover
allows for increased access to the property by snow machine, track vehicle or by
fixed wing aircraft. Winter temperatures are routinely below -28°C and can
exceed -51°C. Annual precipitation in the region is roughly 546.1mm with the
most rainfall occurring from July through October and the most snowfall
occurring from December through April.
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The Ambler project is located along the south side of the
Brooks Range, one of the longest mountain ranges in Alaska. The Brooks Range
separates the arctic region from the Alaskan interior. The Ambler project is
located on the east side of Subarctic Creek straddling a 970m ridge between
Subarctic Creek and the Kogoluktuk River Valley. Subarctic Creek is a tributary
of the Shungnak River. The Ambler project area is marked by steep and rugged
terrain with extreme topographic relief. Elevations range from 30m above mean
sea level (“amsl”) at Ambler along the Kobuk River to 1,180mamsl on the peak
immediately north of the Ambler project area. The divide between the Shungnak
and Kogoluktuk Rivers in the Ambler Lowlands is just 220mamsl. Nearby surface
water includes Subarctic Creek, the Shungnak and Kogoluktuk Rivers, the Kobuk
River, and numerous small lakes. The Kobuk Valley marks the transition zone
between boreal forest and arctic tundra. Spruce, birch and poplar are found in
better-drained portions of the valley, with lichen and moss covering the ground.
Willow and alder thickets as well as isolated cottonwoods follow drainages, and
alpine tundra are found on the higher slopes and ridges. Tussock tundra and low,
heath-type vegetation covers most of the flat floor of the valley. Permafrost is
a layer of soil at variable depths beneath the surface where the temperature has
been below freezing continuously from a few to several thousands of years.
Permafrost exists where summer heating fails to penetrate to the base of the
layer of frozen ground and occurs in most of the northern third of Alaska as
well as in discontinuous or isolated patches in the central portion of the
State.
Because of the remote location of the Ambler project,
infrastructure, specifically transport of material and personnel to and from the
Ambler project and power, are the largest cost items. There is no developed
surface access to the Ambler project area and no power infrastructure near the
Ambler project area. The PEA examined various methods for accessing the Ambler
project and transporting materials. Of these various methods, the PEA focuses on
the use of a new road to the Dalton Highway.
The length of the proposed access road is approximately 340km
(211 miles). It extends west from the Dalton Highway along generally level
terrain to the village of Kobuk where it would connect with existing roads to
Bornite and the proposed mine area. The road alignment is consistent with
alignments that the Alaska Department of Transportation (“ADOT”) has previously
considered to access the Ambler District as well as all of the western coast of
Alaska. ADOT is currently undertaking a major planning study to further define
access options, including detailed road alignment and engineering evaluations,
for the Ambler District. NovaGold assumes that the proposed access road would be
constructed and operated through a public/private partnership. As such, the PEA
assumes that the State of Alaska would construct and maintain the road and that
NovaGold would be required to pay an annual fee.
The PEA assumes the use of two existing airports versus
constructing and maintaining a dedicated airstrip. These are the Dahl Creek
airport and the Kobuk airport, both are located southwest of the Ambler project
at 32km and 36km, respectively. Each has a maintained gravel runway suitable for
personnel and cargo charter aircraft.
Currently, electrical power in the region is produced by local
diesel generators as well as small wind generators in communities where wind
power can be economically harnessed. There are no interconnections with other
power grids in the State of Alaska. The PEA estimates that a mine complex at the
Arctic deposit will require 10.2MW capacity for a nominal 4,000t/d operation.
This capacity estimate is sufficient to meet the combined demand from the mine
and process facilities, the support infrastructure, and the man-camp. The
Preliminary Economic Assessment assumes the site will generate all its power
needs by using diesel generators.
Water supply for consumptive uses is assumed to be available
both from groundwater and surface water and that its quality is acceptable.
The transport of mine concentrates is to occur direct from the
Arctic deposit site in bulk form using container boxes hauled on
tractor-trailers; therefore the infrastructure requirements set out in the PEA
incorporates a container loading facility as well as a truck staging and
maintenance facility in a single structure. From here, the over-the-highway
trucks will be loaded with filled containers, weighed and then driven to a rail
site at Fairbanks using the proposed Ambler road and the existing Dalton
Highway. An off-site support facility is planned at the Pump Station 5 intersect
which includes a dormitory for rest and a light maintenance facility to handle
unforeseen issues with the tractor-trailers. Once in Fairbanks the
concentrate-laden containers will be off-loaded from the trucks and loaded onto
rail for transport to the nearest shipping port and subsequently to the
contracted smelter.
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In addition to the previously mentioned truck staging facility,
the preliminary mine design for the Arctic deposit in the PEA includes: the full
assortment of support facilities including an administration building/offices,
dry, laboratory, first aid clinic, lunch room, training room, process plant
maintenance shop, warehouse and the mill building; a power station in its own
dedicated facility located in close proximity to the fuel depot area; an
underground main mine shop; a mill and tailings disposal at the head of
Subarctic Creek; and underground waste disposal facilities will be adjacent to
the camp. Camp facilities will accommodate at least 200 people at one time,
including sleeping quarters, lavatories, a dining facility and recreational
facilities are also included in the preliminary design. Additionally, Pump
Station 5 facilities include a dormitory to facilitate the personnel located at
this off-site location along with the passing truck drivers.
Ambler – History and Exploration
BCMC, the exploration subsidiary of Kennecott, conducted
regional exploration of the Cosmos Hills and the southern Brooks Range while
drilling extensively at Bornite. Stream silts sampling in 1963 revealed a
1,400ppm Cu anomaly in Arctic Creek. This anomaly contributed to discoveries of
massive sulfide at Arctic and Dead Creeks in 1965. In 1966 and 1967, BCMC
drilled eight core holes at Dead Creek, also intercepting massive sulfide.
Structural complexities at Dead Creek hindered progress and BCMC focused on the
Arctic Creek area. In 1967, eight core holes were drilled at Arctic Creek
yielding impressive massive sulfide intercepts over a strike length of 460m.
This successful program resulted in the continuation of drilling over the next
several seasons at the Ambler project. BCMC intermittently conducted exploration
programs on the Ambler project from August 1967 to 1998. Over that span, 92
holes were drilled at the Ambler project, including 14 large diameter
metallurgical holes, totalling 17,572m. No drilling or additional exploration on
the Ambler project was conducted between 1998 and 2004.
In addition to drilling on the Ambler project, BCMC continued
their exploration of other prospects in the Ambler District. Competing
companies, including Sunshine Mining Company, Anaconda, Noranda, Teck Cominco,
Resource Associates of Alaska (“RAA”), Watts, Griffis and McOuat Ltd. (“WGM”),
and Houston Oil and Minerals Company, entered into a claim staking war in the
Ambler District in the early 1970’s. District exploration by Sunshine Mining
Company and others resulted in two substantial discoveries; the Sun deposit
located 60km east of the Arctic deposit and the Smucker deposit located 40km
west of the Arctic deposit. District exploration continued until the early 1980s
on the four larger deposits (Arctic, Bornite, Smucker and Sun) as well as many
lesser-defined prospects within the district, including Sunshine Creek, CS, Bud,
Horse Creek, Cliff, Dead Creek, Kogo, Red, BT and Tom Tom.
In the 1990s, Kennecott Minerals, the successor of BCMC, began
to re-evaluate the Arctic deposit. This included a review of the deposit geology
and the assembly of a computer database. A new computer-generated block model
was constructed and an updated resource was estimated from the block model. The
result, although believed by NovaGold management to have been relevant and
reliable, predates the development of NI 43-101 reporting guidelines, was not
estimated in compliance with NI 43-101 procedures and should not be relied
on.
Ambler – Historical Metallurgical Testwork
The first three metallurgical test campaigns performed on the
Arctic deposit mineralized material were conducted at the Kennecott Research
Center between 1968 and 1976. The focus was on selective flotation to provide
separate copper, lead and zinc concentrates for conventional smelting.
The initial amenability testing was carried out in 1968 on
individual samples and their composites made from cores from eight diamond
drillholes. Core drilled prior to 1998 was drilled using NQ- and BQ-sized
strings. An additional four samples were obtained from three holes and tested in
1972. Laboratory scale bench tests included a conventional selective flotation
approach to produce three separate (copper, lead and zinc) concentrates. The
major problems encountered were:
- Difficult copper-lead separation, and
- Zinc deportment to the copper and the lead concentrates.
The highest-grade copper concentrate contained over 30% Cu, 2%
to 3% Zn and less than 1% Pb, but at a low
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copper recovery of less than 80%. The lead concentrate was
low-grade 17% to 36% Pb and assayed 5% to 25% Cu. The subsequent sphalerite
flotation was generally efficient. The zinc concentrate grade was 55% and the
zinc recovery up to 70%, depending on how much zinc floated in the preceding
copper and lead flotation. Silver generally followed galena.
During 1975, large diameter cores from 14 drillholes were used
for more detailed testing to develop the concentrator flowsheet and process
parameters. Two composites were prepared: No.1 (Eastern zone) and No.2 (Western
zone). Most of the test work was conducted on the composite No.1, which
represented 75% of the resources. The test program included mineralogical
examinations, bench scale testing of various process parameters for each
selective flotation step and locked cycle tests. Complete analyses were done on
a number of concentrates to identify potential impurities. Preliminary tests for
bulk flotation of all sulfides were also carried out.
A 1976 conceptual study for the selection of the metallurgical
process for the Arctic deposit established that the Kennecott Sulfite Process
could be developed as an economic hydro metallurgical alternative to smelting.
Bulk concentrate could be amenable for processing with this novel technology.
Historical testing showed that a clear separation of various
sulfide minerals is difficult because of fine interlocking of mineral grains. It
showed that the economically most important minerals, chalcopyrite and
sphalerite, could be recovered into selective copper and zinc concentrates with
commercial concentrate grades and good recoveries. Lead and precious metals
easily reported to the copper concentrate. The production of a selective
high-grade lead concentrate was not successful. Only a low-grade, silver-bearing
lead concentrate (17% to 36% Pb) was obtained, containing high amounts of iron,
copper and zinc. Generally, the copper concentrate grade and recovery depended
on the amounts of lead and zinc prevented from floating during copper flotation
and cleaning. Production of two selective copper and zinc concentrates could be
confidently projected, although additional testing would be required to optimize
the flow sheet and all process parameters.
Silver was mainly associated with galena. The highest silver
recovery to copper concentrate was achieved when lead was recovered as well. If
galena was rejected from the copper concentrate, 20 to 40% of the silver,
associated with tetrahedrite and tennantite, remained in the copper concentrate.
Gold assaying was very sporadic during the three test campaigns
and was not provided. It was noted, however, that at least 70% of the gold
reported to the copper concentrate, although not enough testing was performed to
predict gold recovery.
Ambler – Historical Drilling
Between 1967 to July 1985, 86 holes were drilled (including 14
large diameter metallurgical test holes) totalling 16,080m. In 1998, Kennecott
drilled six core holes totalling 1,492m in the Arctic deposit to test for
extensions of the known resource, and to test for grade and thickness
continuity. Drilling for all BCMC/Kennecott campaigns in the Arctic deposit area
(1966–1998) totals 92 core holes for a combined 17,572m.
No drilling was performed on the project between 1998 and 2003.
NovaGold took control of the project in 2004. The 2004–2006 and 2008 drill
programs conducted by NovaGold are described under the heading “Drilling” below.
Ambler – Historical Geophysics
In 1998, an airborne geophysical survey of the entire claim
block generated numerous electromagnetic anomalies. Additional geophysical
surveys have been performed by NovaGold and are discussed under the heading
“Exploration” below.
Ambler – Geological Setting
The Ambler District occurs within an east–west trending zone of
Devonian to Jurassic age submarine volcanic and sedimentary rocks. VMS deposits
and prospects are hosted in the Middle Devonian to Early Mississippian age
Ambler Sequence, a group of metamorphosed bimodal volcanic rocks with
interbedded tuffaceous, graphitic and calcareous volcanoclastic metasediments. The Ambler Sequence
occurs in the upper part of the Anirak Schist, the thickest member of the
Coldfoot subterrane. VMS mineralization can be found along the entire 110km
strike length of the district. It is noted that the 1,980m-thick Devonian age
section of the Cosmos Hills, which includes the 915m-thick Bornite Carbonate
Sequence, is equivalent in age to the Anirak Schist and was mineralized during
the Ambler mineralizing event.
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The Ambler District is characterized by a series of east–west
trending belts of rocks of increasing metamorphic grade northward across the
strike of the units. The structure of the district is isoclinally folded in the
northern area and thrust faulted in the southern half. The Devonian to
Mississippian age Angayucham basalt and the Triassic to Jurassic age mafic
volcanic rocks are in low-angle thrust contact with various units of the
Coldfoot subterrane along the northern edge of the Ambler Lowlands.
VMS deposits are formed by and associated with sub-marine
volcanic-related hydrothermal events. These events are related to spreading
centers such as fore arc, back arc or mid-ocean ridges. VMS deposits are often
stratiform accumulations of sulfide minerals that precipitate from hydrothermal
fluids on or below the seafloor. These deposits are found in association with
volcanic, volcaniclastic and/or siliciclastic rocks. They are classified by
their depositional environment and associated proportions of mafic and/or felsic
igneous rocks to sedimentary rocks.
Prior to any subsequent deformation and/or metamorphism, these
deposits are often bowl- or mound-shaped with stockworks and stringers of
sulfide minerals found near vent zones. These types of deposit exhibit an
idealized zoning pattern with the following characteristics, pyrite and
chalcopyrite near vents; a halo around the vents consisting of chalcopyrite,
sphalerite and pyrite; a more distal zone of sphalerite and galena and metals
such as manganese; and increasing manganese with oxides such as hematite and
chert.
Alteration halos associated with VMS deposits often contain
sericite, ankerite, chlorite, hematite and magnetite close to the VMS with weak
sericite, carbonate, zeolite, prehnite and chert more distal. These alteration
assemblages and relationships are dependent on degree of post deposition
deformation and metamorphism. A modern analog of this type of deposit is found
around fumeroles or black smokers in association with rift zones.
The base of the Ambler sequence consists of meta-calcarenite,
limestone and quartzite and grades up to calcareous graphitic schist and
pillowed basaltic lava flows. Quartz muscovite schist and graphitic schist cap
this and host much of the sulfide mineralization in the district. These
sediments are capped by a “button” schist unit in which albite metamorphic
overgrowths overprint re-sedimented pyroclastic ejecta shed into the deeper
water setting. Variable accumulations of metagreywacke and silicic
volcanoclastic detritus grade upward in to Anirak schist. Variable thicknesses
of stratigraphic units suggest local syndepositional faulting which may have
focused hydrothermal activity. The Ambler sequence underwent two periods of
intense, penetrative deformation. Sustained upper greenschist-facies
metamorphism and associated folding has resulted in the deformed and folded
geometries of the host rocks.
Ambler – Mineralization
Mineralization at the Arctic deposit occurs as stratiform
semi-massive to massive sulfide beds. The sulfide beds average 4m thick but vary
from less than 1m up to 18m thick. The bulk of the mineralization is within four
zones located between two thrust faults, the upper Warm Springs Thrust and the
Lower Thrust. A smaller fifth zone is located below the Lower Thrust. All of
these zones are within an area of roughly 1km, with average zone length ranging
from 850m to 600m and width ranging from 700m to 350m. Mineralization has been
defined to a depth of approximately 250m below the surface and is open in
several areas. Host rocks are primarily graphitic chlorite schists and
fine-grained quartz sandstones.
Marginal to the Arctic deposit, mineralization is locally
present as discontinuous thin, “wispy” sulfide bands. No stockworks or stringers
in association with the mineralization have been observed. These features are
common in near-vent VMS deposits. Much of the core from the 2004 and 2005
programs within the deposit exhibits characteristics and textures common to
replacement-style mineralization.
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Mineralization is predominately coarse-grained sulfides
consisting mainly of chalcopyrite, sphalerite, galena, pyrite and pyrrhotite,
and may or may not include tetrahedrite. Tetrahedrite-tennantite, electrum and
enargite are also present in minor amounts. Pyrite is commonly associated with
the massive sulfide horizons, and pyrrhotite and arsenopyrite are present in
lesser amounts. Gangue minerals associated with the mineralized horizons include
quartz, barite, white mica, black chlorite, calcite, dolomite and cymrite, while
talc is common in the footwall.
Ambler – Drilling
Between 1967 to July 1985, 86 holes were drilled (including 14
large diameter metallurgical test holes) totalling 16,080m. In 1998, Kennecott
drilled six core holes totalling 1,492m in the Arctic deposit to test for
extensions of the known resource, and to test for grade and thickness
continuity. Drilling for all BCMC/Kennecott campaigns in the Arctic deposit area
(1966–1998) totals 92 core holes for a combined 17,572m.
Ambler - Drill Program and Objectives
The 2004 drilling focused on the Arctic deposit area and was
principally designed to verify the grade and continuity of the mineralized
intercepts encountered in the previous drill campaigns. Alternate geologic
models for the Arctic deposit were investigated through surface mapping, drill
core re-logging and re-interpretation of previous drill results. Eleven holes
totalling 2,996m were drilled. Significant mineralized intervals were
encountered in eight of the eleven holes drilled in the program. The twin and
infill drilling confirmed previously drilled intervals of base-metal
mineralization.
Drilling in 2005 again focused on extending and confirming
mineralization, particularly in the lower limb of the Arctic Antiform.
Approximately 3,030m of core drilling was completed and, although good
mineralization was encountered in several holes, structural discontinuities
appear to limit expansion of mineralization to the south and east. Results
suggest that the model remains open to the northeast and that the faulted
off-root zone has yet to be identified. Drill spacing for all programs is
dependent on the steep, rugged terrain for locating drill rigs; however, it
varies from 90 to 120m. Sections have been drawn at 61m intervals.
During the 2006 field season, an additional 3,010m of drilling
in 12 drillholes was completed. This drill program was focused on a more
regional basis to extend existing mineralization and to identify new mineralized
targets within the Ambler project. These holes were drilled at the Dead Creek,
Sunshine Creek, COU and Red prospects.
NovaGold completed a 14 hole drill program totalling 3,306m in
2008. All holes were designed to infill within the Arctic deposit, and three
holes were drilled for metallurgical testing purposes.
All NovaGold drill core was logged, photographed and sawn, with
half sent to the lab for analyses and half stored near the property. Core
logging was done using metric measurements. Lithology and visual alteration
features were captured on observed interval breaks. Mineralization data,
including total sulfide (recorded as percent), sulfide type (recorded as a
relative amount), gangue and vein mineralogy were collected for each sample
interval with an average interval of approximately 2m. Structure data were
collected as point data. Geotechnical data (core recovery, RQD) were collected
along drill run intervals. Using the 2004 logging procedure as a guide, data
from the earlier campaigns were taken from those drill logs and entered into the
database, with a focus on mineralization information.
The overall objectives of the three drill programs were to
verify mineralized intercepts from previous drill campaigns, explore continuity
of higher grade intercepts in the central part of the resource area; explore
possible extensions of mineralized zones; and building of a 3-D model of the
Arctic deposit.
Significant mineralized intervals were encountered in eight of
the 11 holes drilled in 2004. Twin and infill drilling confirmed previously
drilled intervals of high-grade base-metal mineralization. The results of the
2004 drilling program show a high degree of variability in thickness and grade
within areas of the deposit.
Drillholes designed to test extension of the Arctic deposit
failed to extend significant mineralization. Some holes encountered locally
anomalous or lower grade material, possibly representing distal mineralization.
An abrupt decrease in grade occurred below a fault zone, suggesting that
the mineralized zones may be offset or folded south of the known deposit.
AR04-87 was abandoned due to an inability to penetrate a major fault zone, and
was subsequently re-drilled as AR04-88. This hole ended at 387.6m in altered
quartz muscovite schist, short of the targeted Button Schist.
- 57 -
In April 2005, NovaGold made plans to drill 3,000m on the south
and east fringe of the Arctic deposit through the projected elevation of the
lower sulfide limb, completing a downhole TDEM geophysical survey and extending
the geologic mapping from the Arctic deposit area northwest toward Dead Creek.
Work completed toward extending the lower sulfide limb included nine holes
totalling 3,030m. Of these, two failed to achieve their targeted depth.
Downhole probing of selected holes and a large loop TDEM survey
over the Ambler project area was completed. Because mapping indicated permissive
stratigraphy coincident with the airborne anomaly west of Riley Ridge, an
additional TDEM loop survey was done over the anomaly core.
NovaGold geologists completed geochemical sampling of all
NovaGold core and spot sampling of much of the historical BCMC/Kennecott
Minerals Arctic core. This work is ongoing and will allow NovaGold to build a
reasonably comprehensive lithogeochemical model of the Arctic deposit.
The 2006 drilling program completed 3,010m in 12 holes. This
program was performed to test mineralization extensions and geophysical
anomalies outside the immediate Arctic deposit area, but within the claim block.
These holes were drilled at the Dead Creek, Sunshine Creek, COU and Red
prospects.
NovaGold completed a 14 hole drill program totalling 3,306m in
2008. All holes were designed to infill within the currently defined resource
area, and three holes were drilled for metallurgical testing purposes.
At Dead Creek, the holes were located based on a combination of
geophysics and geology. Each hole penetrated the targeted stratigraphy, and
showed that the sulfide system diminishes to the north and east but remains open
to the south and west. One of the Back-Door Creek holes penetrated an 8m zone
that contained several 2 to 7cm-thick pyrrhotite bands, but with only a trace of
chalcopyrite. This zone correlates stratigraphically with a mineralized interval
in a nearby historical hole, suggesting metallic mineral zonation from pyrite
and base-metal sulfide to pyrrhotite.
Drilling in the Sunshine Creek area tested the western extent
of mineralization observed in historical drill holes, which is interpreted to be
two sulfide-bearing horizons that lie sub-parallel to the stratigraphy, above a
carbonate package. The Company interprets the two mineralized horizons as limbs
of an F2 anticline. Drill intercepts from 2006 that correlate with these two
horizons had significantly lower grade and were thinner than historical
intercepts. Preliminary results indicate that the sulfide horizon becomes
dominated by pyrrhotite to the west. The Company currently interprets this
compositional change to represent a more distal portion of the mineralized
system.
Drilling at COU was performed to investigate an electromagnetic
anomaly and consisted of one hole. The source of this anomaly was a thick
sequence of graphitic black schist that contained abundant continuous pyrrhotite
bands. Downhole a few hundred meters it was recognized that the hole was still
in the hanging wall to the stratigraphic package that hosts the Ambler project.
This resulted in extending the hole. The hole was stopped slightly above its
target because of safety considerations. This hole has proven vital to the
Company’s understanding of the regional F2 folds and to the stratigraphic
stacking order in this area.
NovaGold drilled four holes into the Red prospect, located in
the lowlands of the Kogoluktuk Valley, about 5km east of the Ambler project.
These holes tested an electromagnetic anomaly and intersected a sulfide vein
system hosted by siltstone believed to underlie the Gnurgle Gneiss. The veins
have a quartz-calcite-fluorite gangue, and their margins commonly contain
concentrations of secondary brown biotite, suggesting an affinity to relatively
high-temperature potassic alteration. The F1 structural fabric deforms the
veins, suggesting that they are relatively old. The vein style of mineralization
makes this occurrence unique in the district.
- 58 -
An ongoing effort to gather and compile data for a new resource
model for the Arctic deposit includes re-logging of historical drill core,
detailed logging of individual mineralized intersections at 1:50 scale and work
with hole-to-hole correlations.
Multiple drillhole intersections have resulted in a reasonably
accurate knowledge of the orientation of the mineralization. Mineralization
follows enclosing stratigraphic layering and is further defined, except where
tightly folded, by bedding parallel to bedding subparallel foliation.
Most holes intersect the mineral zone nearly perpendicular to
foliation and to the mineralization, so the intersections represent near true
thickness. Exceptions are where mineralized zones wrap around tight fold hinges,
but these instances are rare.
Geotechnical drilling completed during the 2011 field season is
not considered material and has not been incorporated into the PEA results
released earlier in the year.
Ambler – Sampling, Assaying & Data Verification
The sampling protocol for all the NovaGold drill programs at
the Ambler deposit from 2004–2008 was the same. Core logging geologists mark the
sample intervals, which range from 1 to 3m in length. Varying rock types,
lithologic contacts and mineralized zones influence sample interval selection.
Sample boundaries are placed at lithologic contacts. Each hole was sampled in
its entirety, even in areas that encountered significant intervals of
unmineralized core. Sample intervals of 2 to 3m are most common in weakly to
unmineralized core, and sample intervals of 1 to 2m are more common in
mineralized zones or areas of varying lithology. Sample intervals used are well
within the width of the average mineralized zone in the resource area. This
sampling approach is considered sound and appropriate for this style of
mineralization and alteration. Core recovery was good to excellent, resulting in
quality samples with little to no bias. There are no known drilling and/or
recovery factors that could materially impact accuracy.
Sampling of drill core prior to 2004 by Kennecott and BCMC
focused primarily on the mineralized zones. During the 1998 campaign, Kennecott
did sample some broad zones of alteration and weak mineralization, but much of
the unaltered and unmineralized rock remains unsampled. ALS Chemex was also used
for analyses conducted by Kennecott.
Earlier BCMC sampling was even more restricted to mineralized
zones of core. Intervals of visible sulfide mineralization were selected for
sampling and analyses were conducted by Union Assay Office Inc. of Salt Lake
City, Utah. Numerous intervals of weak to moderate mineralization remain
unsampled in the historic drill care. NovaGold conducted some limited sampling
of this historical drill core to gain a better understanding of trace element
distribution around the Arctic deposit. During the relogging of much of this
historical core, 1m intervals were selected over each 10m of unmineralized core.
These 1m intervals were sawn in half, with one-half returned to the box and the
other half placed in a bag, labeled and sent to the laboratory for analysis.
This type of sampling was used to determine trace element distribution about the
deposit; none of the mineralized zones were sampled in this way.
With the lack of outcrop in a folded metamorphic terrane, it is
necessary to have a good understanding of the geologic model to predict
positioning of the drill to get a sample of true thickness in the mineralized
zone. NovaGold has been diligently relogging core and mapping the project to
gain this understanding. The use of oriented core is very important to this
interpretation. SRK has confidence that the samples collected at the Ambler
project are representative of the geometry of the mineralized zone.
The core from the NovaGold programs was sawn in half, with half
sent to labs in Fairbanks, AK for sample preparation and the other half returned
to the core box for storage. Samples were crushed to 70% <2mm and a nominal
250g split was sent to Vancouver, B.C. for analysis by ALS Chemex. There the
splits were pulverized to 85% <75um. Initial gold analysis was done by FA-AAA
on a nominal 30g split of the pulp. Samples returning over limit gold values
(>10ppm) were rerun using fire assay techniques. Initial results for all
other elements (27) were done via four acid digestion ICP analysis on a nominal
25g split of the pulp. Samples with over limit values for copper (>10,000ppm), lead (>10,000ppm), zinc
(>10,000ppm) or silver (>100ppm) were rerun using AA techniques.
- 59 -
Gold values for duplicate samples (both blind and laboratory)
from 2004 and for those samples re-assayed from earlier programs locally showed
high variability, indicating a possible nugget effect. As a result, a series of
samples was selected for MSA analysis. Results are pending.
A QA/QC program was instituted for the 2004 drill program and
utilized for subsequent programs. Samples were broken into 20 sample batches
that included three QA/QC samples. The QA/QC samples included one duplicate, one
blank and one standard. Duplicate samples were prepared at the prep facility by
taking a second split from the entire prepped sample. A local limestone source
was used as the blank material. A series of samples taken from the source area
and assayed confirm that the limestone is a suitable blank material. The
standard material was obtained from WCM Minerals of Burnaby, B.C. A base-metal
standard was selected that best represented the grade of the Arctic deposit
mineralization. Samples were either in the custody of NovaGold personnel or the
assay labs at all times.
A search was made through Kennecott’s Reno, NV warehouse for
sample pulps from pre-1998 drill campaigns. A total of 290 pulps were located,
mainly from the earliest drill programs, and sent to ALS Chemex Labs in
Vancouver, B.C. for analysis. The samples were analyzed for gold by FA-AAA as
well as 27 additional elements by ICP analysis (see analytical description).
Samples were arranged in batches of approximately 20, each with inserted QA/QC
samples. Of the 290 total pulps, 11 contained insufficient volume for any
analysis. The variable number of sample pairs is the result of either
insufficient sample size for analysis of select elements in 2004 (mainly over
limits) or because some elements were not selected for assay in earlier
campaigns. Zinc, silver and gold analyses all compared favorably. While lead
showed the largest variability, the average grades are relatively low, thereby
having little effect on the tonnage value. Copper values also had high
variability and averaged 10% lower than the original values. ALS Chemex has
attained ISO 9001:2000 registration. In addition, the ALS Chemex Vancouver
laboratory is accredited to ISO 17025 by Standards Council of Canada for a
number of specific test procedures including fire assay Au by AA, ICP and
gravimetric finish, multi-element ICP and AA Assays for Ag, Cu, Pb and Zn.
The apparently poor reproducibility of historic assay values is
likely a sign of a highly variable deposit, and not an assaying issue. While
sample assays are suitable for the PEA, further analysis and comparisons are
necessary for pre-feasibility.
The QA/QC data appears to be reasonable for a program of this
scope, a few discrepancies exist which are normal. A formal assessment will need
to be completed before pre-feasibility, and any significant problems addressed
by re-assaying samples which had issues.
Ambler – Data Verification
NovaGold performed a review of existing Ambler project data at
the Kennecott offices in Salt Lake City, Utah with a focus on data relating to
the Arctic deposit. Numerous reports and studies were scanned. All available
assay certificates as well as the current database were copied and/or scanned.
All pre-2004 drill assay values in the database provided by Kennecott were
compared to assay values from the original assay certificates. Local
discrepancies, mainly associated with precious metal results, were identified
and corrected.
SRK was supplied with paper and scanned electronic certificates
for the pre-2004 programs. Assay certificates for 472 samples out of 1,854 of
these samples were unavailable for review. SRK checked 10% of pre-2004 assay
certificates against the database. Only minor typographical discrepancies were
found and corrected. All of the highest 5% grades of all five elements were
checked where available. SRK also received electronic certificates (CSV text
files) for 2,612 assays (88% of the NovaGold Ambler samples) from the 2004–2005
drilling/sampling program, which also included numerous samples selected from
previously drilled core. All of these assays were verified successfully with the
provided database. QA/QC data was also made available for the 2005 sampling
program, consisting of 166 duplicate samples, 282 standards and 293 blanks.
These samples were well within acceptable limits. Although a few of the paper
certificates were unavailable, the available certificates provided reasonable
assurance that the database is accurate.
- 60 -
Ambler – Adjacent Properties
There are three properties adjacent to Arctic: Sun, Smucker and
Ruby Creek (Bornite). Sulfide systems similar in character to Arctic occur at
the exploration properties of Sun and Smucker, held by Andover and Teck Cominco,
respectively. Copper mineralization at Bornite, held by NANA, occurs with
hydrothermal dolomitization of the Bornite carbonate sequence. The information
for Sun, Smucker and Bornite, and the comparisons with Arctic, is in no way
indicative that a mineral deposit of similar size or grade does occur or will be
found at the Project.
Ambler – Mineral Processing and Metallurgical Testing
The Arctic deposit is a semi-massive sulfide intrusion in talc
schists. The principal economic minerals are chalcopyrite, tetrahedrite, galena
and sphalerite. The results of metallurgical studies on test composites from the
Arctic deposit are presented in this section.
In 1999 Kennecott commissioned Lakefield Research Limited
(“Lakefield”) to conduct a metallurgical research program on test composites
from the Arctic deposit, with the objective of confirming and improving upon the
results of the work carried out by Kennecott in the 1970’s. This work was
carried on test composites prepared from three separate drill holes. The test
composite from the upper portion of hole 72 has identified as being low in talc
content, however, composites formulated for the lower portion of hole 72, as
well as, holes 74 and 75 high in talc content.
Lakefield conducted a series of five tests on the low talc
mineralized composite (as represented by the upper zone of Hole 72). These tests
were all done at a grind of about P80 53µm and included bulk copper/lead rougher
flotation followed by zinc rougher flotation. The bulk copper/ lead concentrate
was reground and subjected to two stages of cleaner flotation and one stage of
copper/lead separation using zinc oxide and sodium cyanide to depress the copper
while floating the lead. The resulting lead rougher concentrate was upgraded
with two stages of cleaner flotation to produce the final lead concentrate. The
lead rougher flotation tailing represented the final copper concentrate. The
zinc rougher concentrate was reground and upgraded with two stages of cleaner
flotation. The results of the best test with the low talc composite demonstrate
that 68% of the lead could be recovered into an upgraded flotation concentrate
containing 58.8% Pb, and 86.8% of the copper could be recovered into a
concentrate containing 29% Cu, and 81% of the zinc could be recovered into an
upgraded zinc concentrate containing 59.1% Zn. No locked-cycle tests were
conducted so the deportment of the intermediate cleaner tailing products remains
to be defined.
Lakefield conducted flotation tests on each of the high talc
composites using a test procedure that was essentially the same as the procedure
used for the low talc composite, with the exception that carboxymethyl cellulose
(“CMC”) was added as a depressant for talc. The results of these tests
demonstrated the significant negative impact that the presence of talc has on
the selective flotation process. The average of these tests resulted in only
30.3% lead recovery into a lead cleaner flotation concentrate containing 35.3%
Pb, and only 43.3% copper recovery into a copper concentrate containing 26.0%
Cu. Zinc recovery was not influenced by the talc, with 81% of the zinc being
recovered into a zinc cleaner flotation concentrate containing 53.4% Zn.
Recognizing that talc is a naturally floatable mineral,
Lakefield investigated the effect of including talc flotation prior to sulfide
flotation as a means of removing this deleterious contaminant prior before
sulfide flotation. This work was conducted on a High Talc Composite that was
formulated by blending equal weights of composites from Hole 72 L, Hole 74 and
Hole 75. These tests were conducted at a somewhat coarser grind with two stages
of talc rougher flotation using only methyl isobutyl carbinol as a frother. The
resulting talc concentrate was then subjected to four stages of cleaner
flotation to remove any sulfide minerals that had been entrained in the talc
concentrate. Following talc flotation, the remaining sulfide minerals were
conditioned and floated to produce separate lead, copper and zinc concentrates
according the basic procedures employed by Lakefield in their previous testwork.
The results of the best test using this talc prefloat procedure showed that
about 62% of lead was recovered in to a lead flotation concentrate containing
43.7% Pb, and 62% of the copper was recovered into a copper flotation
concentrate containing 28.8% Cu. It should be noted that for some reason
unknown, Lakefield elected not to include zinc flotation as part of this test
series.
From the results of metallurgical work, it has been assessed
that separate lead, copper and zinc concentrates can be readily produced from
low talc mill feed from the Arctic deposit and high talc mill feed will require
the inclusion of talc flotation prior to sulfide flotation, but even with this,
production of a marketable grade lead concentrate remains a challenge
- 61 -
The metallurgical studies conducted by Lakefield are considered
to be at an amenability level of study; and during the next phase of study a
methodical metallurgical program should be undertaken on representative mill
feed samples to more thoroughly evaluate the process parameters required to
produce marketable grade concentrates from both the low talc and high talc mill
feed.
Ambler – Mineral Resource Estimate
The PEA contained herein is preliminary in nature and includes
inferred mineral resources that are considered too speculative geologically to
have the economic considerations applied to them that would enable them to be
categorized as mineral reserves. There is no certainty that the PEA will ever be
realized. Mineral resources that are not mineral reserves do not have
demonstrated economic viability.
Resources in the MS zones, which were estimated by the first
(50m) search, were classified as indicated. This is roughly based on a distance
that is twice the variogram range and within one cross section distance inside a
modeled shape, which is based on correlated intervals. All blocks outside of the
MS zones, and all other estimated blocks too distant from the samples for the
first pass, were classified as inferred. No resources were classified as
measured. Inferred resources have a great amount of uncertainty as to their
existence and as to whether they can be mined legally or economically. It cannot
be assumed that all or any part of inferred resources will ever be upgraded to a
higher category.
Mineral Resource Statement (as of May 9, 2011)
Resource
Category |
Zone |
Tonnage
(kt) |
Metal Grades |
Contained Metal |
Cu
(%) |
Zn
(%) |
Pb
(%) |
Au
(g/t) |
Ag
(g/t) |
Cu
(klb) |
Zn
(klb) |
Pb
(klb) |
Au
(koz) |
Ag
(koz) |
Indicated
|
1
2
3
4
11 |
5,293
2,982
1,964
6,089
517 |
4.56
4.36
3.66
3.82
4.16 |
6.45
5.82
5.98
6.00
3.32 |
1.05
0.80
0.93
0.98
0.34 |
0.96
0.52
0.52
1.01
0.25 |
62.77
45.76
51.02
68.71
32.86 |
532,571
286,906
158,357
513,088
47,400 |
752,305
382,593
259,080
805,142
37,854 |
122,428
52,831
40,173
130,965
3,859
|
163
50
33
197
4 |
10,683
4,387
3,222
13,451
546
|
| All Zones |
16,845 |
4.14 |
6.02 |
0.94 |
0.83 |
59.62 |
1,538,322 |
2,236,974 |
350,255 |
447 |
32,289 |
Inferred
|
0
1
2
3
4
11
All
Zones |
1,191
3,166
1,559
1,307
4,492
373
12,087 |
2.18
3.91
4.06
3.83
3.28
4.25
3.53 |
2.24
5.74
5.60
5.13
4.95
3.30
4.94 |
0.70
0.93
0.74
0.63
0.83
0.35
0.79 |
0.34
0.76
0.43
0.44
0.87
0.29
0.67 |
4.17
54.98
43.40
48.08
57.56
33.65
48.04 |
57,114
273,161
139,424
110,404
324,875
34,945
939,923 |
58,716
400,765
192,610
147,864
489,789
27,137
1,316,882 |
18,474
64,808
25,317
18,292
81,815
2,905
211,610 |
13
77
22
18
126
3
260 |
159
5,596
2,175
2,020
8,312
404
18,667 |
| Notes: |
| (1) |
Mineral Resources have been classified according to CIM
Definition Standards. The PEA contained herein includes inferred Mineral
Resources that are considered too speculative geologically to have the
economic considerations applied to them that would enable them to be
categorized as Mineral Reserves. |
| (2) |
Mineral Resources are not Mineral Reserves and do not
have demonstrated economic viability. There is no certainty that all or
any part of the Mineral Resources will be converted into Mineral Reserves.
|
| (3) |
Resources stated as contained within potentially
economically minable underground shapes above a $75.00/t NSR cut-off.
|
| (4) |
NSR calculation is based on assumed metal prices of
US$2.50/lb for copper, US$1.00/lb for zinc, US$1.00/lb for lead,
US$1,000/oz for gold and US$16/oz for silver. A mining cost of US$45.00/t
and combined processing and G&A costs of US$31.00 were assumed to form
the basis for the resource NSR cut-off determination. Note: these metal
prices and operating costs differ from those used for the cash flow model.
|
| (5) |
Mineral resource tonnage and contained metal have been
rounded to reflect the accuracy of the estimate, and numbers may not sum
due to rounding. |
| (6) |
The above table refers to “indicated resources” and
“inferred resources” which have been determined in accordance with
Canadian securities regulations (under NI 43-101), which differ from the
SEC’s standards for resource classification. See “Cautionary Note to
United States Investors” and “Risk Factors”.
|
- 62 -
The mineral resource estimate was prepared by Russ White,
P.Geo, Associate Resource Geologist at SRK Consulting Inc. (“SRK”). Grade
estimations were made using Ordinary Kriging based on a three-dimensional block
model constructed using Vulcan® commercial mine planning software. The project
limits are based on a UTM coordinate system (NAD 1927, Zone 24), and the block
model is based on a parent block size of 5m X x 5m Y x 5m Z, with a sub-cell
size of 5m X x 5m Y x 0.2m Z. Five mineralized massive sulfide zones have been
defined along a northeasterly striking corridor, with all zones tending to dip
moderately to the southwest. The mineralization at the Arctic deposit occurs as
massive sulfide lenses hosted within weakly to unmineralized schistose country
rocks. Potentially economic mineralization is associated with coarse-grained
sulfides. For the resource estimation work, all of the massive sulfide zones are
collectively referred to as the Arctic deposit.
The resource estimate has been generated from composites
derived from drill hole sample assay results, and is constrained by manually
interpreted sulfide bed boundaries constructed by SRK. No three dimensional
geologic model was utilized to constrain the resource estimate. Grade
interpolation parameters have been defined based largely on the geologic
understanding of controls on mineralization, drillhole spacing and
geostatistical analysis of the data. The resources have been classified by their
proximity to the sample locations and number of drill holes used to inform the
blocks. SRK finds the resource model and resource classification to be
acceptable for resource reporting under CIM guidelines.
The Arctic deposit is a high-grade, VMS deposit with excellent
potential but logistical challenges. Geologic interpretations by NovaGold
geologists show a complexly folded and potentially faulted deposit. Based on the
widely spaced data available, the current resource model omits these
complexities due to lack of correlatable data. However, based on the available
samples, this resource estimate should be volumetrically representative. The
resource estimate has been completed based on industry standards for this type
of deposit with this level of sample spacing. Given the amount of work performed
on the project, additional activities are required to confirm previous work and
further define the development scheme.
Ambler – Current Activities
Work at the Ambler property throughout 2008–2011 focused
primarily on community engagement, realizing broad support for the project in
the region. NovaGold has participated in the Northwestern Alaska Resource
Transportation Study, working closely with the Kobuk River villages, the
Northwest Arctic Borough, NANA Corporation and the State of Alaska to discuss
and evaluate various transportation alternatives, specifically identifying
opportunities for synergies in the region. As at all of its projects, NovaGold
is committed to working with local communities and Alaska Native corporations to
build a collaborative relationship, ensuring the project is developed in a
manner that protects the environment and traditional cultures and brings
tangible, lasting benefits to local communities.
During 2012, NovaGold will continue its community engagement
programs at Ambler, plan site activities, advance environmental baseline studies
and conduct engineering and technical studies at the Ambler project, with the
goal of gaining a better understanding of the true size and potential of the
district as well as the continuity and mineability of the other deposits in the
Ambler VMS belt.
Field work at the Ambler District during 2011 included
approximately 7,100 meters of exploration and geotechnical drilling. Exploration
drilling focused on the Bornite target located on NANA lands and geotechnical
drilling to provide structural information on the Arctic deposit for a greater
understanding of the deposit as well as subsurface hydrologic information. The
2012 work program will focus on advancing the environmental and engineering
studies required to initiate a pre-feasibility study for the Arctic deposit with
geotechnical, metallurgical and hydrological studies as well as environmental
baseline data collection. Significant exploration drilling is planned in 2012 on
the Bornite target as well as additional prospects in the area. Exploration
drilling is planned for prospects in the Ambler belt which have been identified
through further analysis and mapping completed during 2011.
- 63 -
Risk Factors
An investment in the Company is speculative and involves a high
degree of risk due to the nature of the Company’s business and the present stage
of exploration and development of its mineral properties. The following risk
factors, as well as risks not currently known to the Company, could materially
adversely affect the Company’s future business, operations and financial
condition and could cause them to differ materially from the estimates described
in the forward-looking statements relating to the Company and should be read in
conjunction with the Risk Factors in the Company’s year-end Management’s
Discussion and Analysis which is available on SEDAR at www.sedar.com.
NovaGold has no history of commercially producing
precious or base metals from its mineral exploration properties and there can be
no assurance that it will successfully establish mining operations or profitably
produce precious or base metals.
None of NovaGold’s mineral properties are in production,
NovaGold has no history of commercially producing precious or base metals from
its current portfolio of mineral exploration properties, and the Company has no
ongoing mining operations or revenue from mining operations. Mineral exploration
and development involves a high degree of risk and few properties that are
explored are ultimately developed into producing mines. None of the Company’s
properties are currently under construction. The future development of any
properties found to be economically feasible will require obtaining permits and
financing and the construction and operation of mines, processing plants and
related infrastructure, including road access. As a result, NovaGold is subject
to all of the risks associated with establishing new mining operations and
business enterprises, including:
- the timing and cost, which can be considerable, of the construction of
mining and processing facilities and related infrastructure;
- the availability and cost of skilled labor and mining equipment;
- the availability and cost of appropriate smelting and/or refining
arrangements;
- the need to obtain necessary environmental and other governmental
approvals and permits, and the timing of those approvals and permits;
- the availability of funds to finance construction and development
activities;
- potential opposition from non-governmental organizations, environmental
groups or local groups which may delay or prevent development activities; and
- potential increases in construction and operating costs due to changes in
the cost of fuel, power, materials and supplies and foreign exchange rates.
The costs, timing and complexities of mine construction and
development are increased by the remote location of the Company’s mining
properties, with additional challenges related thereto, including road access,
water and power supply and other support infrastructure. Cost estimates may
increase significantly as more detailed engineering work and studies are
completed on a project. It is common in new mining operations to experience
unexpected costs, problems and delays during development, construction and mine
start-up. In addition, delays in the commencement of mineral production often
occur. Accordingly, there are no assurances that the Company’s activities will
result in profitable mining operations or that the Company will successfully
establish mining operations or profitably produce precious or base metals at any
of its properties.
In addition, there is no assurance that the Company’s mineral
exploration activities will result in any discoveries of new bodies of ore. If
further mineralization is discovered there is also no assurance that the
mineralized material would be economical for commercial production. Discovery of
mineral deposits is dependent upon a number of factors and significantly
influenced by the technical skill of the exploration personnel involved. The
commercial viability of a mineral deposit is also dependent upon a number of
factors which are beyond the Company’s control, including the attributes of the
deposit, commodity prices, government policies and regulation and environmental
protection.
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Actual capital costs, operating costs, production and
economic returns may differ significantly from those NovaGold has anticipated
and there are no assurances that any future development activities will result
in profitable mining operations.
The capital costs to take the Company’s projects into
production may be significantly higher than anticipated. Escalation of costs was
a significant factor in the decisions to suspend construction at Galore Creek in
2007 and commissioning at Rock Creek. On December 5, 2011, the Company announced
the total capital cost estimate for the Donlin Gold project of approximately
US$6.7 billion including costs related to the natural gas pipeline. The previous
capital cost estimate for the project released in April 2009 was US$4.5 billion
and did not include a natural gas pipeline.
None of the Company’s mineral properties have an operating
history upon which the Company can base estimates of future operating costs.
Decisions about the development of these and other mineral properties will
ultimately be based upon feasibility studies. Feasibility studies derive
estimates of cash operating costs based upon, among other things:
- anticipated tonnage, grades and metallurgical characteristics of the ore
to be mined and processed;
- anticipated recovery rates of gold, copper and other metals from the ore;
- cash operating costs of comparable facilities and equipment; and
- anticipated climatic conditions.
Capital costs, operating costs, production and economic
returns, and other estimates contained in studies or estimates prepared by or
for the Company may differ significantly from those anticipated by NovaGold’s
current studies and estimates, and there can be no assurance that the Company’s
actual operating costs will not be higher than currently anticipated.
The figures for NovaGold’s mineral resources and mineral
reserves are estimates based on interpretation and assumptions and may yield
less mineral production under actual conditions than is currently estimated.
Unless otherwise indicated, mineralization figures presented in
this Prospectus and in the Company’s other filings with securities regulatory
authorities, press releases and other public statements that may be made from
time to time are based upon estimates made by Company personnel and independent
geologists. These estimates are imprecise and depend upon geologic
interpretation and statistical inferences drawn from drilling and sampling
analysis, which may prove to be unreliable. There can be no assurance that:
- these estimates will be accurate;
- mineral reserve, mineral resource or other mineralization figures will be
accurate; or
- this mineralization could be mined or processed profitably.
Because the Company has not commenced commercial production at
any of its properties, mineralization estimates for the Company’s properties may
require adjustments or downward revisions based upon further exploration or
development work or actual production experience. In addition, the grade of ore
ultimately mined, if any, may differ from that indicated by drilling results.
There can be no assurance that minerals recovered in small-scale tests will be
duplicated in large-scale tests under on-site conditions or in production scale.
The estimating of mineral reserves and mineral resources is a
subjective process that relies on the judgment of the persons preparing the
estimates. The process relies on the quantity and quality of available data and
is based on knowledge, mining experience, analysis of drilling results and
industry practices. Valid estimates made at a given time may significantly
change when new information becomes available. By their nature, mineral resource
and reserve estimates are imprecise and depend, to a certain extent, upon
analysis of drilling results and statistical inferences that may ultimately
prove to be inaccurate. There can be no assurances that actual results will meet
the estimates contained in studies. As well, further studies are required.
Estimated mineral reserves or mineral resources may have to be
recalculated based on changes in metal prices, further exploration or
development activity or actual production experience. This could materially and
adversely affect estimates of the volume or grade of mineralization,
estimated recovery rates or other important factors that influence mineral
reserve or mineral resource estimates. The extent to which mineral resources may
ultimately be reclassified as mineral reserves is dependent upon the
demonstration of their profitable recovery. Any material changes in mineral
resource estimates and grades of mineralization will affect the economic
viability of placing a property into production and a property’s return on
capital. The Company cannot provide assurance that mineralization can be mined
or processed profitably.
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The resource and reserve estimates contained in this Prospectus
have been determined and valued based on assumed future prices, cut-off grades
and operating costs that may prove to be inaccurate. Extended declines in market
prices for gold, silver and copper may render portions of the Company’s
mineralization uneconomic and result in reduced reported mineralization. Any
material reductions in estimates of mineralization, or of the Company’s ability
to extract this mineralization, could have a material adverse effect on
NovaGold’s results of operations or financial condition.
The Company has established the presence of proven and probable
reserves only at its Donlin Gold and Galore Creek properties. There can be no
assurance that any resource estimates for the Company’s mineral projects will
ultimately be reclassified as mineral reserves. There can be no assurance that
subsequent testing or future studies will establish proven and probable mineral
reserves at the Company’s other properties. The failure to establish proven and
probable mineral reserves could restrict the Company’s ability to successfully
implement its strategies for long-term growth and could impact future cash
flows, earnings, results of operation and financial condition.
NovaGold’s ability to continue its exploration activities
and any future development activities, and to continue as a going concern, will
depend in part on its ability to commence production and generate material
revenues or to obtain suitable financing.
NovaGold has limited financial resources. The Company intends
to fund its plan of operations from working capital, the proceeds of financings
and revenue from land and gravel sales. In the future, the Company’s ability to
continue its exploration and development activities, if any, will depend in part
on the Company’s ability to obtain suitable financing. Any unexpected costs,
problems or delays could severely impact the Company’s ability to continue
exploration and development activities.
There can be no assurance that the Company will commence
production at any of its mineral properties or generate sufficient revenues to
meet its obligations as they become due or obtain necessary financing on
acceptable terms, if at all. The Company’s failure to meet its ongoing
obligations on a timely basis could result in the loss or substantial dilution
of the Company’s interests (as existing or as proposed to be acquired) in its
properties. In addition, should the Company incur significant losses in future
periods, it may be unable to continue as a going concern, and realization of
assets and settlement of liabilities in other than the normal course of business
may be at amounts materially different than the Company’s estimates.
NovaGold will require external financing or may need to
enter into a strategic alliance or sell property interests to develop its
mineral properties.
The Company will need external financing to develop and
construct the Donlin Gold and, if applicable, the Galore Creek projects. If the
proposed Plan is not approved by the Court or shareholders of NovaGold and does
not become effective, the Company will need further external financing to
develop and construct the Ambler projects and to fund the exploration and
development of the Company’s other mineral properties. The mineral properties
that the Company is likely to develop are expected to require significant
capital expenditures. The sources of external financing that the Company may use
for these purposes include project or bank financing, or public or private
offerings of equity or debt. In addition, the Company may enter into a strategic
alliance, decide to sell certain property interests, and may utilize one or a
combination of all these alternatives. There can be no assurance that the
financing alternative chosen by the Company will be available on acceptable
terms, or at all. The failure to obtain financing could have a material adverse
effect on the Company’s growth strategy and results of operations and financial
condition. In addition, the Company may have to postpone further exploration or
development of, or sell, one or more of its properties.
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NovaGold is dependent on third parties that participate
in or are responsible for exploration and development on its properties.
NovaGold’s success may be dependent on the efforts and
expertise of third parties with whom the Company has contracted. Most of the
properties in which NovaGold holds interests are subject to third party
contracts. With respect to each of Donlin Gold and Galore Creek, the Company
holds a 50% interest and the remaining 50% interest is held by a third party
that is not under NovaGold’s control or direction. The Company is dependent on
such third parties for accurate information relating to its mining properties
and related assets and the progress and development of such properties and
assets. A third party may also be in default of its agreement with NovaGold,
without the Company’s knowledge, which may put the property and related assets
at risk. Third parties may also have different priorities which could impact the
timing of development of Donlin Gold and Galore Creek.
NovaGold is exposed to credit, liquidity, interest rate
and currency risk.
Credit risk is the risk of an unexpected loss if a customer or
third party to a financial instrument fails to meet its contractual obligations.
The Company’s cash equivalents and short-term investments are held through large
Canadian financial institutions. Short-term and long-term investments (including
those presented as part of cash and cash equivalents) are composed of financial
instruments issued by Canadian banks and companies with high investment-grade
ratings. These investments mature at various dates over the current operating
period. The Company’s HST and other receivables consist of general sales tax due
from the Federal Government of Canada and amounts due from related parties. The
carrying amount of financial assets recorded in the financial statements, net of
any allowances for losses, represents the Company’s maximum exposure to credit
risk.
Liquidity risk is the risk that the Company will not be able to
meet its financial obligations as they come due. The Company manages liquidity
risk through the management of its capital structure and financial leverage.
Accounts payable, accrued liabilities and coupon interest on the convertible
notes are due within one year from the balance sheet date.
Interest rate risk is the risk that the fair value or future
cash flows of a financial instrument will fluctuate because of changes in market
interest rates. The risk that the Company will realize a loss as a result of a
decline in the fair value of the short-term investments included in cash and
cash equivalents is limited because these investments, although
available-for-sale, are generally held to maturity. In respect of financial
liabilities, the bridge loan, convertible notes and capital leases are not
subject to interest rate risk because they are at fixed rates. The promissory
note owed to Barrick is variable with the U.S. prime rate. Based on the amount
owing on the promissory note as at November 30, 2011, and assuming that all
other variables remain constant, a 1% change in the U.S. prime rate would result
in an increase/decrease of $0.6 million in the interest accrued by the Company
per annum.
The Company is exposed to the financial risk related to the
fluctuation of foreign exchange rates. The Company operates in Canada and the
United States and a portion of its expenses are incurred in U.S. dollars. A
significant change in the currency exchange rates between the Canadian dollar
relative to the U.S. dollar could have an effect on the Company’s results of
operations, financial position or cash flows. The Company has not hedged its
exposure to currency fluctuations. Based on the Company’s net exposures as at
November 30, 2011, and assuming that all other variables remain constant, a 10%
depreciation or appreciation of the Canadian dollar against the U.S. dollar
would result in an increase/decrease of $6.5 million in the Company’s net
earnings before tax.
General economic conditions may adversely affect the
Company’s growth, future profitability and ability to finance.
The unprecedented events in global financial markets in the
past several years have had a profound impact on the global economy. Many
industries, including the mining industry, are impacted by these market
conditions. Some of the key impacts of the current financial market turmoil
include contraction in credit markets resulting in a widening of credit risk,
devaluations, high volatility in global equity, commodity, foreign exchange and
precious metal markets and a lack of market liquidity. A worsening or slowdown
in the financial markets or other economic conditions, including but not limited
to, consumer spending, employment rates, business conditions, inflation, fuel
and energy costs, consumer debt levels, lack of available credit, the state of
the financial markets, interest rates and tax rates, may adversely affect the
Company’s growth and ability to finance. Specifically:
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- the global credit/liquidity crisis could impact the cost and availability
of financing and the Company’s overall liquidity;
- the volatility of metal prices would impact the Company’s revenues,
profits, losses and cash flow;
- negative economic pressures could adversely impact demand for the
Company’s production;
- construction related costs could increase and adversely affect the
economics of any of the Company’s projects;
- volatile energy, commodity and consumables prices and currency exchange
rates would impact the Company’s production costs; and
- the devaluation and volatility of global stock markets would impact the
valuation of the Company’s equity and other securities.
Significant uncertainty exists related to inferred
mineral resources.
There is a risk that inferred mineral resources referred to in
this Prospectus cannot be converted into measured or indicated mineral
resources. Due to the uncertainty relating to inferred mineral resources, there
is no assurance that inferred mineral resources will be upgraded to resources
with sufficient geological and grade continuity to constitute measured and
indicated resources as a result of continued exploration.
Lack of infrastructure could delay or prevent NovaGold
from developing advanced projects.
Completion of the development of the Company’s advanced
projects is subject to various requirements, including the availability and
timing of acceptable arrangements for power, water, transportation, access and
facilities. The lack of availability on acceptable terms or the delay in the
availability of any one or more of these items could prevent or delay
development of the Company’s advanced projects. There can be no assurance that
adequate infrastructure, including road access, will be built, that it will be
built in a timely manner or that the cost of such infrastructure will be
reasonable or that it will sufficiently satisfy the requirements of the advanced
projects. If adequate infrastructure is not available in a timely manner, there
can be no assurance that:
- the development of the Company’s projects will be commenced or completed
on a timely basis, if at all;
- the resulting operations will achieve the anticipated production volume;
or
- the construction costs and ongoing operating costs associated with the
development of the Company’s advanced projects will not be higher than
anticipated.
Access to Ambler, Donlin Gold and Galore Creek is limited and
there is no infrastructure in the respective areas. Furthermore, at Galore
Creek, a minimum 13.6 km long, 9.5 m diameter tunnel is needed for vehicular
access into the Galore Creek valley. Tunnels are high risk undertakings and in
the case of Galore Creek, tunnelling risks are further exacerbated by deep cover
and restricted access for gathering necessary geotechnical data. Cost and
schedule estimates may increase significantly as more detailed engineering work
and geotechnical studies are completed.
Mining is inherently dangerous and subject to conditions
or events beyond NovaGold’s control, which could have a material adverse effect
on NovaGold’s business.
Mining involves various types of risks and hazards,
including:
- environmental hazards;
- industrial accidents;
- metallurgical and other processing problems;
- unusual or unexpected rock formations;
- structural cave-ins or slides;
- flooding;
- fires;
- power outages;
- labour disruptions;
- explosions;
- 68 -
- landslides and avalanches;
- mechanical equipment and facility performance problems;
- availability of materials and equipment;
- metals losses; and
- periodic interruptions due to inclement or hazardous weather conditions.
These risks could result in damage to, or destruction of,
mineral properties, production facilities or other properties; personal injury
or death, including to employees; environmental damage; delays in mining;
increased production costs; asset write downs; monetary losses; and possible
legal liability. The Company may not be able to obtain insurance to cover these
risks at economically feasible premiums or at all. Insurance against certain
environmental risks, including potential liability for pollution or other
hazards as a result of the disposal of waste products occurring from production,
is not generally available to the Company or to other companies within the
mining industry. The Company may suffer a material adverse impact on its
business if it incurs losses related to any significant events that are not
covered by its insurance policies.
Exploration, construction and production activities may be
limited and delayed by inclement weather and shortened exploration, construction
and development seasons.
NovaGold requires various permits to conduct its current
and anticipated future operations, and delays or a failure to obtain such
permits, or a failure to comply with the terms of any such permits that NovaGold
has obtained, could have a material adverse impact on NovaGold.
The Company’s current and anticipated future operations,
including further exploration and development activities and commencement of
production on the Company’s properties, require permits from various United
States and Canadian federal, state, provincial, territorial and local
governmental authorities. There can be no assurance that all permits that the
Company requires for the construction of mining facilities and to conduct mining
operations will be obtainable on reasonable terms, or at all. Delays or a
failure to obtain such permits, or a failure to comply with the terms of any
such permits that the Company has obtained, could have a material adverse impact
on the Company. The duration and success of efforts to obtain and renew permits
are contingent upon many variables not within the Company’s control. Shortage of
qualified and experienced personnel in the various levels of government could
result in delays or inefficiencies. Backlog within the permitting agencies could
affect the permitting timeline of the various projects. Other factors that could
affect the permitting timeline include (i) the number of other large-scale
projects currently in a more advanced stage of development which could slow down
the review process and (ii) significant public response regarding a specific
project. As well, it can be difficult to assess what specific permitting
requirements will ultimately apply to all the projects.
Changes in the market price of gold, copper and other
metals, which in the past have fluctuated widely, affect the financial condition
of NovaGold.
The Company’s profitability and long-term viability depend, in
large part, upon the market price of gold, copper and other metals and minerals
produced from the Company’s mineral properties. The market price of gold and
other metals is volatile and is impacted by numerous factors beyond the
Company’s control, including:
- global or regional consumption patterns;
- expectations with respect to the rate of inflation;
- the relative strength of the U.S. dollar and certain other currencies;
- interest rates;
- global or regional political or economic conditions, including interest
rates and currency values;
- supply and demand for jewellery and industrial products containing metals;
and
- sales by central banks and other holders, speculators and producers of
metals in response to any of the above factors.
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The Company cannot predict the effect of these factors on metal
prices. A decrease in the market price of gold, copper and other metals could
affect the Company’s ability to finance the development of the Donlin Gold and
Galore Creek projects and in the event the proposed Plan is not approved by the
court or the shareholders of NovaGold and does not become effective, the Company’s ability
to finance the exploration and development of the Ambler project would also be
effected as would the exploration and development of the Company’s other mineral
properties, which would have a material adverse effect on the Company’s
financial condition and results of operations. There can be no assurance that
the market price of gold, copper and other metals will remain at current levels
or that such prices will improve. In particular, an increase in worldwide
supply, and consequent downward pressure on prices, may result over the longer
term from increased production from mines developed or expanded as a result of
current metal price levels. There is no assurance that if commercial quantities
of gold, copper and other metals are discovered, that a profitable market may
exist or continue to exist for a production decision to be made or for the
ultimate sale of the metals. As the Company is not currently in production, no
sensitivity analysis for price changes has been provided or carried out.
The Company is subject to significant governmental
regulation.
The Company’s operations and exploration and development
activities in Canada and the United Stated are subject to extensive federal,
state, provincial, territorial and local laws and regulations governing various
matters, including:
- environmental protection;
- management and use of toxic substances and explosives;
- management of tailings and other wastes generated by the Company’s
operations;
- management of natural resources;
- exploration and development of mines, production and post-closure
reclamation;
- exports;
- price controls;
- taxation and mining royalties;
- regulations concerning business dealings with native groups;
- management of tailing and other waste generated by operations;
- labor standards and occupational health and safety, including mine safety;
and
- historic and cultural preservation.
Failure to comply with applicable laws and regulations may
result in civil or criminal fines or penalties or enforcement actions, including
orders issued by regulatory or judicial authorities enjoining, curtailing or
closing operations or requiring corrective measures, installation of additional
equipment or remedial actions, any of which could result in the Company
incurring significant expenditures. The Company may also be required to
compensate private parties suffering loss or damage by reason of a breach of
such laws, regulations or permitting requirements. It is also possible
that future laws and regulations, or a more stringent enforcement of current
laws and regulations by governmental authorities, could cause additional
expense, capital expenditures, restrictions on or suspensions of the Company’s
operations and delays in the exploration and development of the Company’s
properties.
NovaGold’s activities are subject to environmental laws
and regulations that may increase the Company’s costs of doing business and
restrict its operations.
All of the Company’s exploration, potential development and
production activities in Canada and the United States are subject to regulation
by governmental agencies under various environmental laws. To the extent that
the Company conducts exploration activities or undertakes new mining activities
in other foreign countries, the Company will also be subject to environmental
laws and regulations in those jurisdictions. These laws address emissions into
the air, discharges into water, management of waste, management of hazardous
substances, protection of natural resources, antiquities and endangered species,
and reclamation of lands disturbed by mining operations. Environmental
legislation in many countries is evolving and the trend has been toward stricter
standards and enforcement, increased fines and penalties for non-compliance,
more stringent environmental assessments of proposed projects and increasing
responsibility for companies and their officers, directors and employees.
Compliance with environmental laws and regulations may require significant
capital outlays on behalf of the Company and may cause material changes or
delays in the Company’s intended activities. There can be no assurance that
future changes in environmental regulations will not adversely affect the
Company’s business, and it is possible that future changes in these laws or
regulations could have a significant adverse impact on some portion of the
Company’s business, causing the Company to re-evaluate those activities at that
time.
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Environmental hazards may exist on the Company’s properties
that are unknown to the Company at the present time, and that have been caused
by previous owners or operators or that may have occurred naturally. The Company
may be liable for remediating such damage.
Failure to comply with applicable environmental laws,
regulations and permitting requirements may result in enforcement actions
thereunder, including orders issued by regulator or judicial authorities,
causing operations to cease or to be curtailed, and may include corrective
measures requiring capital expenditures, installation of additional equipment or
remedial actions.
NovaGold has ongoing reclamation on some of its mineral
properties and may be required to fund additional work that could have a
material adverse effect on its financial position.
Land reclamation requirements are generally imposed on mineral
exploration companies (as well as companies with mining operations) in order to
minimize long term effects of land disturbance. Reclamation may include
requirements to:
- treat ground and surface water to drinking water standards;
- control dispersion of potentially deleterious effluents; and
- reasonably re-establish pre-disturbance land forms and vegetation.
The Company’s Rock Creek, Galore Creek and Ambler projects and
its lands and properties around the Nome area have been subject to either
historical mining operations or exploration activities by prior owners. AGC
carried out mining operations for many years in the Nome area before NovaGold
acquired the company. On acquisition, the Company set up a provision for
reclamation work and the Company has been actively remediating the property
against prior activities. The Company has also been carrying out certain
remediation against previous exploration activities at both its Galore Creek and
Ambler properties. Financial resources spent on reclamation might otherwise be
spent on further exploration and development programs. In addition, regulatory
changes could increase the Company’s obligations to perform reclamation and mine
closing activities. There can be no assurance that the Company will not be
required to fund additional reclamation work at these sites that could have a
material adverse effect on the Company’s financial position.
Title and other rights to NovaGold’s mineral properties
cannot be guaranteed, are subject to agreements with other parties and may be
subject to prior unregistered agreements, transfers or claims and other defects.
The Company cannot guarantee that title to its properties will
not be challenged. The Company may not have, or may not be able to obtain, all
necessary surface rights to develop a property. Title insurance is generally not
available for mineral properties and the Company’s ability to ensure that it has
obtained secure claim to individual mineral properties or mining concessions may
be severely constrained. The Company’s mineral properties may be subject to
prior unregistered agreements, transfers or claims, and title may be affected
by, among other things, undetected defects. The Company has not conducted
surveys of all of the claims in which it holds direct or indirect interests. A
successful challenge to the precise area and location of these claims could
result in the Company being unable to operate on its properties as permitted or
being unable to enforce its rights with respect to its properties. This could
result in the Company not being compensated for its prior expenditure relating
to the property.
In addition, the ability of the Company to continue to explore
and develop the property may be subject to agreements with other third parties
including agreements with native corporations and first nations groups, for
instance, the Company’s subsurface and surface rights at the Donlin Gold
property are subject to a lease from Calista and TKC, two Native Alaskan
corporations. In the case of development of the Bornite, ANCSA and Ambler
Properties, the Lands are subject to the NANA Agreement signed with NANA.
There is uncertainty related to unsettled aboriginal
rights and title in British Columbia and this may adversely impact NovaGold’s
operations and profit.
Native land claims in British Columbia remain the subject of
active debate and litigation. The Galore Creek project lies within the
traditional territory of the Tahltan Nation and the Tahltan – like the majority
of British Columbia’s First Nations – have not concluded a comprehensive treaty or
land claims settlement regarding their traditional territories. There can be no
guarantee that the unsettled nature of land claims in British Columbia will not
create delays in project approval or unexpected interruptions in project
progress, or result in additional costs to advance the project.
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NovaGold has a history of losses and expects to incur
losses for the foreseeable future.
The Company has incurred losses since its inception and the
Company expects to continue to incur losses unless and until such time as one or
more of its properties enter into commercial production and generate sufficient
revenues to fund continuing operations. The Company incurred losses of $148.0
million for the year ended November 30, 2011. The development of the Company’s
properties will require the commitment of substantial financial resources. The
amount and timing of expenditures will depend on a number of factors, including
the progress of ongoing exploration and development, the results of consultant
analysis and recommendations, the rate at which operating losses are incurred,
the execution of any joint venture agreements with strategic partners, and the
Company’s acquisition of additional properties, some of which are beyond the
Company’s control. There can be no assurance that the Company will ever achieve
profitability.
NovaGold may be subject to legal proceedings.
Due to the nature of its business, the Company may be subject
to numerous regulatory investigations, claims, lawsuits and other proceedings in
the ordinary course of its business. The results of these legal proceedings
cannot be predicted with certainty due to the uncertainty inherent in
litigation, including the effects of discovery of new evidence or advancement of
new legal theories, the difficulty of predicting decisions of judges and juries
and the possibility that decisions may be reversed on appeal. There can be no
assurances that these matters will not have a material adverse effect on the
Company’s business.
An event of default under the Company’s unsecured senior
convertible notes (the “Notes”) may significantly reduce NovaGold’s liquidity
and adversely affect NovaGold’s business.
Under the base indenture and supplemental indenture governing
the Notes, NovaGold made various covenants to the trustee on behalf of the
holders of the Notes, including to make payments of interest and principal when
due and, upon undergoing a fundamental change, to offer to purchase all of the
outstanding Notes. The indenture is available for review on SEDAR at
www.sedar.com and on EDGAR at www.sec.gov.
If there is an event of default under the Notes, the principal
amount of the Notes, plus accrued and unpaid interest, if any, may be declared
immediately due and payable. If such an event occurs, NovaGold could lose its
properties and NovaGold’s shareholders could lose their entire investment.
The Company’s majority shareholder has significant
influence on the Company and may also affect the market price and liquidity of
the Securities.
Electrum Strategic Resources LLC (“Electrum”) is the single
major shareholder of the Company, controlling approximately 19% of the
outstanding voting securities and warrants exercisable for 32,737,278 Company
common shares which, if exercised would increase its holdings a further 9% if
no other shares were issued. Electrum also has certain rights to participate in
any future equity offerings by the Company. Accordingly, Electrum will have
significant influence in determining the outcome of any corporate transaction or
other matter submitted to the shareholders for approval, including mergers,
consolidations and the sale of all or substantially all of the Company’s assets
and other significant corporate actions. Unless full participation of all
shareholders takes place in such shareholder meetings, Electrum may be able to
approve such matters itself. The concentration of ownership of the shares by
Electrum may: (i) delay or deter a change of control of the Company; (ii)
deprive shareholders of an opportunity to receive a premium for their shares as
part of a sale of the Company; and (iii) affect the market price and liquidity
of the shares. Additionally, while Electrum had agreed to vote its common shares
at the 2009 annual general meeting of the Company in favor of management’s
nominees to the Company’s Board of Directors or to abstain from voting on such
matter, in subsequent years, Electrum will have significant influence in
determining the members of the Board of Directors. Without the consent of
Electrum, the Company could be prevented from entering into transactions that
are otherwise beneficial to the Company. The interests of Electrum may differ
from or be adverse to the interests of the Company’s other
shareholders. The effect of these rights and Electrum’s influence may impact the
price that investors are willing to pay for securities. If Electrum sells a
substantial number of shares in the public market, the market price of the
shares could fall. The perception among the public that these net sales will
occur could also contribute to a decline in the market price of the shares.
- 72 -
Recent high metal prices have encouraged mining
exploration, development and construction activity, which has increased demand
for and cost of contract mining services and equipment.
Recent increases in metal prices have encouraged increases in
mining exploration, development and construction activities, which have resulted
in increased demand for and cost of contract exploration, development and
construction services and equipment. Increased demand for and cost of services
and equipment could cause project costs to increase materially, resulting in
delays if services or equipment cannot be obtained in a timely manner due to
inadequate availability, and increased potential for scheduling difficulties and
cost increases due to the need to coordinate the availability of services or
equipment, any of which could materially increase project exploration,
development or construction costs, result in project delays, or both. Increased
costs were a significant factor in the decisions to suspend commissioning at
Rock Creek and construction at Galore Creek in 2007 and there can be no
assurance that increased costs may not adversely affect the Company’s
development of its properties in the future.
Increased competition could adversely affect NovaGold’s
ability to attract necessary capital funding or acquire suitable producing
properties or prospects for mineral exploration in the future.
The mining industry is intensely competitive. Significant
competition exists for the acquisition of properties producing or capable of
producing metals. The Company may be at a competitive disadvantage in acquiring
additional mining properties because it must compete with other individuals and
companies, many of which have greater financial resources, operational
experience and technical capabilities than the Company or are further advanced
in their development or are significantly larger and have access to greater
mineral reserves, for the acquisition of mineral claims, leases and other
mineral interests. The Company may also encounter increasing competition from
other mining companies in its efforts to hire experienced mining professionals.
Competition for exploration resources at all levels is currently very intense,
particularly affecting the availability of manpower, drill rigs and helicopters.
Increased competition could adversely affect the Company’s ability to attract
necessary capital funding or acquire suitable producing properties or prospects
for mineral exploration in the future. If the Company is unsuccessful in
acquiring additional mineral properties or qualified personnel, it will not be
able to grow at the rate it desires, or at all.
NovaGold may experience difficulty attracting and
retaining qualified management and technical personnel to meet the needs of its
anticipated growth, and the failure to manage NovaGold’s growth effectively
could have a material adverse effect on the Company’s business and financial
condition.
The Company is dependent on the services of key executives
including the Company’s President and Chief Executive Officer and other highly
skilled and experienced executives and personnel focused on managing the
Company’s interests and the advancement of the Donlin Gold and Galore Creek
projects, as well as its other properties and projects in addition to the
identification of new opportunities for growth and funding. Due to the Company’s
relatively small size, the loss of these persons or the Company’s inability to
attract and retain additional highly skilled employees required for the
development of the Company’s activities may have a material adverse effect on
the Company’s business or future operations.
NovaGold does not currently intend to use forward sales
arrangements to protect against low commodity prices, therefore, NovaGold’s
operating results are exposed to the impact of any significant drop in commodity
prices.
The Company does not currently intend to enter into forward
sales arrangements to reduce the risk of exposure to volatility in commodity
prices. Accordingly, NovaGold’s future operations are exposed to the impact of
any significant decrease in commodity prices. If such prices decrease
significantly at a time when the Company is producing, the Company would realize
reduced revenues. While it is not the Company’s current intention to enter into
forward sales arrangements, the Company is not restricted from entering into
forward sales arrangements at a future date.
- 73 -
There can be no assurance that NovaGold will successfully
acquire additional mineral rights.
Most exploration projects do not result in the discovery of
commercially mineable ore deposits and no assurance can be given that any
particular level of recovery of ore reserves will be realized or that any
identified mineral deposit will ever qualify as a commercially mineable (or
viable) ore body which can be legally and economically exploited. Estimates of
reserves, mineral deposits and production costs can also be affected by such
factors as environmental permitting regulations and requirements, weather,
environmental factors, unforeseen technical difficulties, unusual or unexpected
geological formations and work interruptions. If current exploration programs do
not result in the discovery of commercial ore, the Company may need to write-off
part or all of its investment in existing exploration stage properties, and may
need to acquire additional properties. Material changes in ore reserves, grades,
stripping ratios or recovery rates may affect the economic viability of any
project.
NovaGold’s future growth and productivity will depend, in part,
on its ability to identify and acquire additional mineral rights, and on the
costs and results of continued exploration and development programs. Mineral
exploration is highly speculative in nature and is frequently non-productive.
Substantial expenditures are required to:
- establish ore reserves through drilling and metallurgical and other
testing techniques;
- determine metal content and metallurgical recovery processes to extract
metal from the ore; and
- construct, renovate or expand mining and processing facilities.
In addition, if the Company discovers a mineral deposit, it
would take several years from the initial phases of exploration until production
is possible. During this time, the economic feasibility of production may
change. As a result of these uncertainties, there can be no assurance that the
Company will successfully acquire additional mineral rights.
NovaGold may experience problems integrating new
acquisitions into existing operations, which could have a material adverse
effect on NovaGold.
The Company may make selected acquisitions in the future, with
a focus on late-stage development projects. The Company’s success at completing
any acquisitions will depend on a number of factors, including, but not limited
to:
- identifying acquisitions that fit NovaGold’s business strategy;
- accurately assessing the value, strengths, weaknesses, contingent and
other liabilities and potential profitability of acquisition candidates;
- negotiating acceptable terms with the seller of the business or property
to be acquired; and
- obtaining approval from regulatory authorities in the jurisdictions of the
business or property to be acquired.
If the Company does make further acquisitions, any positive
effect on the Company’s results will depend on a variety of factors, including,
but not limited to:
- assimilating the operations of an acquired business or property in a
timely and efficient manner;
- maintaining the Company’s financial and strategic focus while integrating
the acquired business or property;
- achieving identified and anticipated operating and financial synergies;
- unanticipated costs;
- diversion of management attention from existing business;
- potential loss of key employees or key employees of any business acquired;
- unanticipated changes in business, industry or general economic conditions
that affect the assumptions underlying the acquisition;
- decline in the value of acquired properties, companies or securities;
- implementing uniform standards, controls, procedures and policies at the
acquired business, as appropriate; and
- to the extent that the Company makes an acquisition outside of markets in
which it has previously operated, conducting and managing operations in a new
operating environment.
- 74 -
Acquiring additional businesses or properties could place
increased pressure on the Company’s cash flow if such acquisitions involve a
cash consideration. The integration of the Company’s existing operations with
any acquired business will require significant expenditures of time, attention
and funds. Achievement of the benefits expected from consolidation would require
the Company to incur significant costs in connection with, among other things,
implementing financial and planning systems. The Company may not be able to
integrate the operations of a recently acquired business or restructure the
Company’s previously existing business operations without encountering
difficulties and delays. In addition, this integration may require significant
attention from the Company’s management team, which may detract attention from
the Company’s day-to-day operations. Over the short-term, difficulties
associated with integration could have a material adverse effect on the
Company’s business, operating results, financial condition and the price of the
Company’s common shares. In addition, the acquisition of mineral properties may
subject the Company to unforeseen liabilities, including environmental
liabilities, which could have a material adverse effect on NovaGold. There can
be no assurance that any future acquisitions will be successfully integrated
into NovaGold’s existing operations and such acquisition may result in a
material adverse effect on the financial condition of the Company.
In addition, the Company anticipates that as it brings its
mineral properties into production and as the Company acquires additional
mineral rights, the Company will experience significant growth in its
operations. The Company expects this growth to create new positions and
responsibilities for management and technical personnel and to increase demands
on its operating and financial systems. There can be no assurance that the
Company will successfully meet these demands and effectively attract and retain
additional qualified personnel to manage its anticipated growth. The failure to
attract such qualified personnel to manage growth effectively could have a
material adverse effect on the Company’s business, financial condition and
results of operations.
Unknown liabilities in connection with acquisitions.
As part of the Company’s acquisitions, the Company has assumed
liabilities and risks. While the Company conducted due diligence, there may be
liabilities or risks that the Company failed, or was unable, to discover in the
course of performing the due diligence investigations or for which the Company
was not indemnified. Any such liabilities, individually or in the aggregate,
could have a material adverse effect on the Company’s financial position and
results of operations.
Some of the directors have conflicts of interest as a
result of their involvement with other natural resource companies.
Certain of the directors of the Company also serve as
directors, or have significant shareholdings in, other companies involved in
natural resource exploration and development or mining-related activities; for
example, following completion of the Plan certain directors may serve as
directors of the Company and NovaCopper. To the extent that such other companies
may participate in ventures in which the Company may participate in, or in
ventures which the Company may seek to participate in, the directors may have a
conflict of interest. In all cases where the directors have an interest in other
companies, such other companies may also compete with the Company for the
acquisition of mineral property investments. Such conflicts of the directors may
result in a material and adverse effect on the Company’s profitability, results
of operation and financial condition. As a result of these conflicts of
interest, the Company may miss the opportunity to participate in certain
transactions, which may have a material adverse effect on the Company’s
financial position.
Global climate change is an international concern, and
could impact the Company’s ability to conduct future operations.
Global climate change is an international issue and receives an
enormous amount of publicity. The Company would expect that the imposition of
international treaties or U.S. or Canadian federal, state, provincial or local
laws or regulations pertaining to mandatory reductions in energy consumption or
emissions of greenhouse gasses could affect the feasibility of mining projects
and increase operating costs.
- 75 -
Adverse publicity from non-governmental organizations
could have a material adverse effect on the Company.
There is an increasing level of public concern relating to the
effect of mining production on its surroundings, communities and environment.
Non-governmental organizations (“NGOs”), some of which oppose resource
development, are often vocal critics of the mining industry. While the Company
seeks to operate in a socially responsible manner, adverse publicity generated
by such NGOs related to extractive industries, or the Company's operations
specifically, could have an adverse effect on the reputation and financial
condition of the Company or its relationships with the communities in which it
operates.
The Company may fail to achieve and maintain the adequacy
of internal control over financial reporting as per the requirements of the
Sarbanes-Oxley Act.
The Company has documented and tested its internal control
procedures in order to satisfy the requirements of Section 404 of the
Sarbanes-Oxley Act (“SOX”). SOX requires an annual assessment by management of
the effectiveness of the Company’s internal control over financial reporting and
an attestation report by the Company’s independent auditors addressing this
assessment. At November 30, 2009, November 30, 2010, and again at November 30,
2011, management concluded that the Company’s internal control over financial
reporting was effective. The Company may in the future fail to achieve and
maintain the adequacy of its internal control over financial reporting, as such
standards are modified, supplemented or amended from time to time, and the
Company may not be able to ensure that it can conclude on an ongoing basis that
it has effective internal controls over financial reporting in accordance with
Section 404 of SOX. The Company’s failure to satisfy the requirements of Section
404 of SOX on an ongoing, timely basis could result in the loss of investor
confidence in the reliability of its financial statements, which in turn could
harm the Company’s business and negatively impact the trading price of its
common shares. In addition, any failure to implement required new or improved
controls, or difficulties encountered in their implementation, could harm the
Company’s operating results or cause it to fail to meet its reporting
obligations. Future acquisitions of companies may provide the Company with
challenges in implementing the required processes, procedures and controls in
its acquired operations. Acquired companies may not have disclosure control and
procedures or internal control over financial reporting that are as thorough or
effective as those required by securities laws currently applicable to the
Company.
No evaluation can provide complete assurance that the Company’s
internal control over financial reporting will detect or uncover all failures of
persons within the Company to disclose material information otherwise required
to be reported. The effectiveness of the Company’s control and procedures could
also be limited by simple errors or faulty judgments. In addition, should the
Company expand in the future, the challenges involved in implementing
appropriate internal controls over financial reporting will increase and will
require that the Company continue to improve its internal controls over
financial reporting. Although the Company intends to devote substantial time and
incur substantial costs, as necessary, to ensure compliance, the Company cannot
be certain that it will be successful in complying with Section 404 on an
ongoing basis.
If we complete the disposition of our Galore Creek
project, we may lose our status as a foreign private issuer under U.S. federal
securities laws, resulting in additional expenses associated with compliance
with the U.S. securities laws applicable to U.S. domestic issuers.
As a foreign private issuer, we are exempt from certain of the
provisions of the U.S. federal securities laws. For example, the U.S. proxy
rules and the Section 16 reporting and “short swing” profit rules do not apply
to foreign private issuers. However, if we complete the disposition of all or
part of our 50% interest in the Galore Creek project, we may lose our status as
a foreign private issuer. If we lose our status as a foreign private issuer the
aforementioned regulations would apply and we would also be required to commence
reporting on forms required of U.S. companies, such as Forms 10-K, 10-Q and 8-K,
rather than the forms currently available to us, such as Forms 40-F and 6-K.
Compliance with these additional disclosure and timing requirements under these
securities laws would likely result in increased expenses and would require our
management to devote substantial time and resources to comply with new
regulatory requirements following a loss of our foreign private issuer status.
Further, to the extent that we were to offer or sell our securities outside of
the United States, we would have to comply with the more restrictive Regulation
S requirements that apply to U.S. companies, and we would no longer be able to
utilize the multijurisdictional disclosure system forms for
registered offerings by Canadian companies in the United States, which could
limit our ability to access the capital markets in the future.
- 76 -
Increased Regulatory Compliance Costs Relating to the
Dodd-Frank Act.
In July 2010, the “Dodd-Frank Wall Street Reform and Consumer
Protection Act” (“Dodd-Frank Act”) was enacted, representing an overhaul of the
framework for regulation of U.S. financial markets. The Dodd-Frank Act calls for
various regulatory agencies, including the SEC and the Commodities Futures
Trading Commission, to establish regulations for implementation of many of the
provisions of the Dodd-Frank Act, and the Company anticipates that these new
regulations will provide additional clarity regarding the extent of the impact
of this legislation on the Company. If the Company’s efforts to comply with new
laws, regulations and standards differ from the activities intended by
regulatory or governing bodies due to ambiguities related to practice,
regulatory authorities may initiate legal proceedings against the Company and
its business may be harmed. Dodd-Frank also requires companies in the mining
industry to disclose in their periodic reports filed with the SEC substantial
additional information about safety issues relating to their mining operations.
This heightened scrutiny could generate negative publicity for the mining
industry, increase the cost of compliance with mining regulations or result in
the passage of new laws and regulations, any of which could negatively affect
the Company’s business results. NovaGold may also need to incur additional costs
and invest additional resources, including management’s time, in order to comply
with the new regulations and anticipated additional reporting and disclosure
obligations. While the Company is not able to assess the full impact of the
Dodd-Frank Act until all the implementing regulations have been adopted, based
on the information available to the Company at this time, the Company does not
believe provisions of the regulations implementing the Dodd-Frank Act will have
a material adverse effect on the Company’s financial position, results of
operations or cash flows.
Acquiring, holding or disposing of NovaGold’s securities
may have tax consequences under the laws of Canada and the United States that
are not disclosed in this Annual Information Form and, in particular, potential
investors should be aware that NovaGold may be a “passive foreign investment
company” under the U.S. Internal Revenue Code and if it is or becomes a passive
foreign investment company, there may be tax consequences for investors in the
United States.
Acquiring, holding or disposing of NovaGold’s securities may
have tax consequences under the laws of Canada and the United States that are
not disclosed in this Annual Information Form. In particular, potential
investors that are U.S. taxpayers should be aware that the Company may be
considered a “passive foreign investment company” under Section 1297(a) of the
U.S. Internal Revenue Code (a “PFIC”). If the Company is or becomes a PFIC, any
gain recognized on the sale of common shares and any excess distributions paid
on the common shares must be ratably allocated to each day in a U.S. taxpayer’s
holding period for the common shares. The amount of any such gain or excess
distribution allocated to prior years of such U.S. taxpayer’s holding period for
the common shares generally will be subject to U.S. federal income tax at the
highest tax applicable to ordinary income in each such prior year, and the U.S.
taxpayer will be required to pay interest on the resulting tax liability for
each such prior year, calculated as if such tax liability had been due in each
such prior year.
Alternatively, a U.S. taxpayer that makes a “QEF election”
generally will be subject to U.S. federal income tax on such U.S. taxpayer’s pro
rata share of the Company’s “net capital gain” and “ordinary earnings”
(calculated under U.S. federal income tax rules), regardless of whether such
amounts are actually distributed by the Company. U.S. taxpayers should be aware
that there can be no assurance that the Company will satisfy record-keeping
requirements or that it will supply U.S. taxpayers with required information
under the QEF rules, in event that the Company is a PFIC and a U.S. taxpayer
wishes to make a QEF election. As a second alternative, a U.S. taxpayer may make
a “mark-to-market election” if the Company is a PFIC and the common shares are
marketable stock. A U.S. taxpayer that makes a mark-to-market election generally
will include in gross income, for each taxable year in which the Company is a
PFIC, an amount equal to the excess, if any, of (a) the fair market value of the
common shares as of the close of such taxable year over (b) such U.S. taxpayer’s
tax basis in such common shares.
Investors should consult their tax advisors as to the tax
consequences of an investment in NovaGold.
- 77 -
The spin-off of NovaCopper to the Company’s shareholders
is complex and subject to various approvals, and there can be no assurance that
the Company can complete the spin-off on a timely basis or at all.
The spin-off of NovaCopper to the Company’s shareholders is
complicated and involves a substantial number of steps and transactions,
including obtaining various court, regulatory and stock exchange approvals. In
addition, future financial conditions, superior alternatives or other factors
may arise that make it inadvisable to proceed with part or all of the spin-off.
The spin-off may not occur as currently expected or within the time frames that
are currently contemplated, or at all.
If, for any reason, the spin-off is not completed or its
completion is materially delayed, the market price of the Company’s common
shares may be materially adversely affected. The Company’s business, financial
condition or results of operations could also be subject to various material
adverse consequences, including that the Company would remain liable for
significant costs relating to the spin-off including, among others, legal and
accounting expenses.
If the Company and NovaCopper do not realize the benefits that
the Company anticipates from the spin-off, their respective businesses may be
materially adversely affected.
Should the Company distribute the shares of NovaCopper to its
shareholders as is currently anticipated, the Company expects that the spin-off
should be treated as a distribution under Section 301 of the U.S. Internal
Revenue Code for purposes of U.S. federal income tax. Investors should consult
their own tax advisors as to the tax consequences of an investment in NovaGold.
The proposed sale of Galore Creek may not occur.
Part of the Company’s current business strategy is to sell our
interest in the Galore Creek Partnership. We expect to continue to evaluate
disposition opportunities on a regular basis and intend to pursue those
opportunities that we believe are in our long-term best interests. Competition
in the mining business for limited sources of capital could adversely impact our
ability to dispose of our interest and as a result we may not be successful in
identifying a purchaser or in obtaining an offer at an acceptable price. As a
result, there is no assurance that we will be able to dispose of our interest in
the Galore Creek Partnership in which case we expect to continue with the joint
development of Galore Creek through the Galore Creek Partnership, which would
result in increased capital requirements for NovaGold to fund its portion of the
project.
NovaGold is a Canadian company and U.S. investors may
have difficulty bringing actions and enforcing judgments under U.S. securities
laws.
Investors in the United States or in other jurisdictions
outside of Canada may have difficulty bringing actions and enforcing judgments
against NovaGold, its directors, its executive officers and some of the experts
named in this Prospectus based on civil liabilities provisions of the federal
securities laws or other laws of the United States or any state thereof or the
equivalent laws of other jurisdictions of residence.
ITEM 4 DIVIDENDS
The Company has not declared or paid any dividends on its
common shares since the date of its incorporation. The Company intends to retain
its earnings, if any, to finance the growth and development of its business and
does not expect to pay dividends or to make any other distributions in the near
future. The Company’s Board of Directors will review this policy from time to
time having regard to the Company’s financing requirements, financial condition
and other factors considered to be relevant.
ITEM 5 DESCRIPTION OF CAPITAL STRUCTURE
The Company’s authorized share capital consists of
1,000,000,000 common shares without par value and 10,000,000 preferred shares,
issuable in series.
- 78 -
Common Shares
All of the common shares rank equally as to voting rights,
participation in a distribution of the assets of the Company on a liquidation,
dissolution or winding-up of the Company and the entitlement to dividends. The
holders of the common shares are entitled to receive notice of all meetings of
shareholders and to attend and vote the shares at the meetings. Each common
share carries with it the right to one vote. In the event of the liquidation,
dissolution or winding-up of the Company or other distribution of its assets,
the holders of the common shares will be entitled to receive, on a pro rata
basis, all of the assets remaining after the Company has paid out its
liabilities. Distributions in the form of dividends, if any, will be set by the
Board of Directors. Provisions as to the modification, amendment or variation of
the rights attached to the common shares are contained in the Company’s articles
of association and the Companies Act (Nova Scotia). Generally speaking,
substantive changes to the share capital require the approval of the
shareholders by special resolution (at least 75% of the votes cast) and in
certain cases approval by the holders of a class or series of shares, including
in certain cases a class or series of shares not otherwise carrying voting
rights, in which event the resolution must be approved by no less than
two-thirds of the votes cast by shareholders who vote in respect of the
resolution.
Preferred Shares
The Company’s preferred shares may be issued from time to time
in one or more series, the number of shares, designation, rights and
restrictions of which will be determined by the Board of Directors of the
Company. The preferred shares rank ahead of the common shares with respect to
the payment of dividends and the payment of capital. There are no preferred
shares outstanding at the date of this Annual Information Form.
ITEM 6 MARKET FOR SECURITIES
Trading Price and Volume
The common shares of the Company are listed and posted for
trading on TSX and the NYSE Amex under the symbol “NG”. The Company traded on
the American Stock Exchange (“AMEX”) until trading transferred to the NYSE
Alternext (renamed NYSE Amex LLC) when the NYSE Euronext completed its
acquisition of AMEX. The Company believes that more than half its shares are
beneficially owned by investors in the United States. The following tables set
out the market price range and trading volumes of the Company’s common shares on
the TSX and NYSE Amex for the periods indicated.
Toronto Stock Exchange
| |
|
|
|
|
|
|
|
Volume |
|
| |
|
|
|
|
|
|
|
(no. of shares in |
|
| Fiscal
2011(1) |
|
High ($) |
|
|
Low ($) |
|
|
thousands) |
|
| |
|
|
|
|
|
|
|
|
|
| November |
|
12.00 |
|
|
8.62 |
|
|
11,534,700 |
|
| October |
|
9.41 |
|
|
6.26 |
|
|
11,196,400 |
|
| September |
|
11.44 |
|
|
6.73 |
|
|
17,112,700 |
|
| August |
|
10.33 |
|
|
8.64 |
|
|
8,713,000 |
|
| July |
|
10.29 |
|
|
8.87 |
|
|
8,535,200 |
|
| June |
|
11.28 |
|
|
8.32 |
|
|
9,371,800 |
|
| May |
|
12.08 |
|
|
9.78 |
|
|
8,287,600 |
|
| April |
|
13.49 |
|
|
11.95 |
|
|
6,218,900 |
|
| March |
|
14.25 |
|
|
11.42 |
|
|
9,060,400 |
|
| February |
|
14.96 |
|
|
12.94 |
|
|
11,701,700 |
|
| January |
|
14.32 |
|
|
12.61 |
|
|
10,720,500 |
|
| December (2010) |
|
16.92 |
|
|
13.22 |
|
|
10,994,000 |
|
- 79 -
| NYSE Amex |
|
| |
|
|
|
|
|
|
|
Volume |
|
| |
|
|
|
|
|
|
|
(no. of shares in |
|
| Fiscal
2011(1) |
|
High (US$) |
|
|
Low (US$) |
|
|
thousands) |
|
| |
|
|
|
|
|
|
|
|
|
| November |
|
11.77 |
|
|
8.46 |
|
|
77,753,700 |
|
| October |
|
9.50 |
|
|
5.93 |
|
|
54,824,100 |
|
| September |
|
11.55 |
|
|
6.45 |
|
|
93,918,200 |
|
| August |
|
10.73 |
|
|
8.76 |
|
|
72,950,500 |
|
| July |
|
10.73 |
|
|
8.93 |
|
|
67,205,000 |
|
| June |
|
11.60 |
|
|
8.40 |
|
|
71,660,100 |
|
| May |
|
12.69 |
|
|
9.99 |
|
|
84,396,300 |
|
| April |
|
14.02 |
|
|
12.51 |
|
|
70,938,600 |
|
| March |
|
14.65 |
|
|
11.54 |
|
|
89,123,500 |
|
| February |
|
15.14 |
|
|
13.13 |
|
|
80,720,300 |
|
| January |
|
14.50 |
|
|
12.61 |
|
|
114,735,100 |
|
| December (2010) |
|
16.90 |
|
|
13.15 |
|
|
124,567,600 |
|
| Note: |
| (1) The Company’s fiscal year end is November 30.
|
ITEM 7 DIRECTORS AND OFFICERS
The following directors of the Company were elected at the
annual general meeting of the Company held May 25, 2011:
Marc Faber
Tony Giardini
Igor Levental
Kalidas
Madhavpeddi
Gerald McConnell
Clynton Nauman
James Philip Rick
Van Nieuwenhuyse
Dr. Thomas Kaplan and Gillyeard Leathley were subsequently
appointed to the Board on November 15, 2011. Each of the directors holds office
until the close of the next annual meeting of the shareholders of the Company or
until their successors are duly elected or appointed.
The following table sets forth the name and municipality of
residence, office held with the Company, date on which each first became a
director (if applicable) and principal occupation during the last five years of
each of the directors and officers of the Company as of February 22, 2012.
- 80 -
The following are the directors and officers of the
Company:
Name and Municipality of
Residence |
Office(s) Held |
Principal Occupation |
Director Since |
| |
|
|
|
Gregory A. Lang(7)
British Columbia, Canada
|
President and Chief Executive
Officer |
President and Chief Executive Officer
(“CEO”) of the Company |
-
|
| |
|
|
|
Gillyeard Leathley
British Columbia, Canada
|
Senior Vice President, Chief
Operating
Officer and Director
|
Senior Vice President and Chief
Operating
Officer (“COO”) of the
Company; Consultant (2009-2010) |
2011
|
| |
|
|
|
Elaine Sanders
British Columbia, Canada
|
Vice President, Chief Financial
Officer and
Corporate Secretary
|
Vice President, Chief Financial
Officer
(“CFO”) and Corporate
Secretary of the Company; Vice
President of
the Company (2006-
2011); Controller of the Company
(2003-2006)
|
-
|
| |
|
|
|
Kevin Francis
Colorado, USA
|
Vice President, Resources
|
Vice President, Technical Services of
the
Company; Manager, Resources of
the Company (2005-2009) |
|
| |
|
|
|
Sacha Iley
British Columbia, Canada
|
Vice President, Human Resources
|
Vice President, Human Resources of
the
Company; Human Resources
Manager of the Company (2006-2007) |
-
|
| |
|
|
|
Joseph Piekenbrock
Colorado, USA |
Vice President, Exploration
|
Vice President, Exploration of the
Company;
Consultant (2002-2003) |
-
|
| |
|
|
|
Ronald Rimelman
Colorado, USA
|
Vice President, Environment,
Health,
Safety, and Sustainability
|
Vice President, Environment, Health,
Safety, and Sustainability of the
Company; Vice President,
Environmental Services, Tetra Tech
(2000-2010) |
-
|
| |
|
|
|
Heather White
British Columbia, Canada
|
Vice President, Mining
|
Vice President, Mining of the
Company
(2011); Director, Mining of
the Company (2011); Director,
Marketing, Vale S.A. (2007-2011) |
-
|
| |
|
|
|
Marc Faber(5)
Chiang Mai, Thailand |
Director
|
Managing Director, Marc Faber Ltd.
(1990-present) |
2010
|
| |
|
|
|
Tony Giardini(1)(2)(6)
British Columbia,
Canada
|
Director
|
CFO, Ivanhoe Mines Ltd. (2006-
present);
Vice President & Treasurer,
Placer Dome Inc. (2003-2006) |
2008
|
| |
|
|
|
Dr. Thomas S. Kaplan(4)
New York, USA
|
Director
|
Chairman & CEO, The Electrum
Group LLC
(2011-present);
Chairman, Tigris Financial Group Ltd.
(2007-2011);
Principal, Tigris
Financial Group Ltd. (2011-present);
Chairman,
Leor Exploration &
Production LLC (2007-present) |
2011
|
- 81 -
| Name and Municipality of |
|
|
|
| Residence |
Office(s) Held |
Principal Occupation |
Director Since |
| |
|
|
|
Igor Levental(5)(6)
Colorado, USA
|
Director
|
President, The Electrum Group LLC
(2010-present); Executive Vice
President (“EVP”), EVP, Corporate
Development, Electrum USA Ltd.
(2007-2010); Vice President,
Investor
Relations and Corporate
Development, Apex Silver Mines
Corp. (2003-2007); Vice President,
Investor Relations, Homestake
Mining
Company (1999-2002) |
2010
|
| |
|
|
|
Kalidas Madhavpeddi(1)(3)(5)
Arizona, USA
|
Director
|
President, Azteca Consulting LLC
(2006-present); CEO, Forex
Investment Group Limited (2011-
Present); CEO, Aurizon Resources
Ltd. (2008-present); Senior Vice
President, Phelps Dodge (2002-2006) |
2007
|
| |
|
|
|
Gerald McConnell(2)(5)(6)
Nova Scotia,
Canada
|
Director
|
CEO, Namibia Rare Earths Inc.
(2010-present); President and CEO,
Etruscan Resources Inc.
(1990-2010) |
1984
|
| |
|
|
|
Clynton Nauman(3)
Washington, USA
|
Director
|
CEO, Alexco Resource Corp. and
Asset
Liability Management Group
ULC (2005-present); President,
Viceroy
Gold Corporation and
Viceroy Minerals Corporate (1998-
2003);
Director, Viceroy Resource
Corporation (1998-2003) |
1999
|
| |
|
|
|
James Philip(1)(2)
British Columbia, Canada
|
Director
|
President, Clan Chatton Finance Ltd.
(2004-present); Partner, Morgan and
Co., Chartered Accountants
(1981-
2004) |
2003
|
| |
|
|
|
Rick Van Nieuwenhuyse(3)(6)(8)
British Columbia,
Canada
|
Director
|
President and CEO of NovaCopper
Inc.,
President and CEO of NovaGold
(1999-2011) |
1993
|
| (1) |
Member of the Audit Committee |
| (2) |
Member of the Compensation Committee |
| (3) |
Member of the Environment, Health, Safety, and
Sustainability (“EHSS”) & Technical Committee |
| (4) |
Chairman of the Board |
| (5) |
Member of the Corporate Governance and Nominations
Committee |
| (6) |
Member of the Corporate Communication Committee |
| (7) |
Gregory A. Lang became President and CEO of NovaGold
effective January 9, 2012 |
| (8) |
Rick Van Nieuwenhuyse resigned as President and CEO of
NovaGold effective January 9, 2012 |
As of February 22, 2012, the directors and officers of the
Company beneficially owned or controlled, directly or indirectly, 2,254,407common shares or 1% of the total issued and outstanding common
shares of the Company.
- 82 -
Corporate Governance
Audit Committee
National Instrument 52-110 – Audit Committees (“NI
52-110”) requires the Corporation to disclose annually in its AIF certain
information concerning the constitution of its Audit Committee and its
relationship with its independent auditor, as set forth below.
Audit Committee Charter
The Corporation’s Audit Committee is governed by a charter, the
text of which is available on SEDAR at www.sedar.com and is incorporated by
reference herein.
Composition of the Audit Committee
The Corporation’s Audit and Corporate Governance Committee is
comprised of Messrs. Philip (Chair), Giardini and Madhavpeddi. As defined in NI
52-110, each of the directors is considered to be “independent” and “financially
literate”. Biographies of each of the directors are included below.
Audit Committee Members’ Experience and Education
James Philip, CA (Chair)
Mr. Philip is the President
of Clan Chatton Finance Ltd., a private investment holding company. Mr. Philip
joined Morgan & Company Chartered Accountants in May 1980 and became a
partner in June 1981 and managing partner in August 1993 until 2005. Mr. Philip
is a chartered accountant and has over 25 years of public accounting experience,
servicing mainly companies listed on Canadian and United States stock exchanges.
His clients included a significant number of public companies in the mining
resource sector. The services he provided his clients included assisting them
with the financial aspects of continuous disclosure reporting requirements in
Canada and the United States.
Tony Giardini
Mr. Giardini is CFO of Ivanhoe Mines
Ltd., an international mining company listed on the TSX and the NYSE, with
operations focused in Central Asia and the Asia Pacific region. Prior to joining
Ivanhoe, Mr. Giardini spent more than 10 years with Placer Dome Inc. as
Vice-President and Treasurer, responsible for managing and overseeing the
company’s debt and capital market activities, including managing banking
relationships with US, Canadian and international banks. During his time at
Placer Dome, Mr. Giardini led the financing team that raised in excess of US$1
billion in debt and equity financings. Mr. Giardini is a CA and CPA and spent 12
years with accounting firm KPMG prior to joining Placer Dome.
Kalidas Madhavpeddi
Mr. Madhavpeddi is CEO of
Aurizon Resources Ltd. and Forex Investment Group Limited and President of
Azteca Consulting LLC, an investment and advisory company to the mining
industry. Mr. Madhavpeddi has over 30 years' experience in business development,
corporate strategy, global mergers and acquisitions, marketing, trading and
sales. He spent nearly 26 years with Phelps Dodge Corporation which at that time
the world’s largest publicly traded copper company. Mr. Madhavpeddi has held
various executive positions at Phelps Dodge Corporation including Senior Vice
President, Business Development, President, Phelps Dodge Wire and Cable Co., and
Senior Vice President, Phelps Dodge Sales Company.
Pre-Approval Policies and Procedures
Pre-approve all auditing services and permitted non-audit
services (including the fees and terms thereof) to be performed for the Company
by its independent auditor, subject to the de minimis exceptions for
non-audit services described in Section 10A(i)(1)(B) of the Exchange Act which
are approved by the Audit Committee prior to the completion of the audit. The
Audit Committee may form and delegate authority to subcommittees consisting of
one or more members when appropriate, including the authority to grant
preapprovals of audit and permitted non-audit services, provided that decisions of such subcommittee to grant
preapprovals shall be presented to the full Audit Committee at its next
scheduled meeting. All fees have been pre-approved since the adoption of this
policy.
- 83 -
External Auditor Service Fees
The Auditors of the Corporation since May 22, 2002 have been
PricewaterhouseCoopers LLP, Chartered Accountants (“PWC”), 250 Howe Street,
7th Floor, Vancouver, British Columbia.
| (a) |
Audit Fees |
| The total fees billed by PWC in each of the last
two fiscal years for audit services are as follows: |
| |
For the year ended November 30, 2011: $430,000
|
| |
For the year ended November 30, 2010: $495,000
|
| |
|
| (b) |
Audit Related Fees |
|
The total fees billed by PWC in each of the last two
fiscal years for assurance and related services by PWC that are reasonably
related to the performance of the audit or review of the Company’s
financial statements and are not reported under (a) are as follows:
|
| |
For the year ended November 30, 2011: $215,000
|
| |
For the year ended November 30, 2010: $140,000
|
| |
|
| (c) |
Tax Fees |
|
The total fees billed in each of the last two fiscal
years for professional services rendered by PWC for tax compliance, tax
advice and tax planning are as follows: |
| |
For the year ended November 30, 2011: $Nil
|
| |
For the year ended November 30, 2010: $Nil
|
| |
|
| (d) |
All Other Fees |
|
The total fees billed in each of the last two fiscal
years for products and services provided by PWC, other than the services
reported under causes (a), (b) and (c) above are as follows: |
| |
For the year ended November 30, 2011: $Nil
|
| |
For the year ended November 30, 2010: $35,000
|
Limitation of Audit Committee’s Role
While the Audit Committee has the responsibilities and powers
set forth in this Charter, it is not the duty of the Audit Committee to plan or
conduct audits or to determine that the Company’s financial statements and
disclosures are complete and accurate and are in accordance with Canadian and
U.S. GAAP applicable rules and regulations. These are the responsibilities of
management and the independent auditor.
Other Board Committees
The Board of Directors has also designated a Compensation
Committee consisting of Messrs. McConnell, Giardini and Philip, a Safety,
Environment and Sustainability Committee consisting of Messrs. Nauman, Van
Nieuwenhuyse and Madhavpeddi, Corporate Governance and Nominating Committee
consisting of Messrs. McConnell, Levental, Faber, and Madhavpeddi and a
Corporate Communication Committee consisting of Messrs. McConnell, Giardini, and
Levental.
All of the directors of the Company hold office until the close
of the next annual meeting of the shareholders of the Company or until their
successors are duly elected or appointed.
Conflicts of Interest
To the knowledge of the Company, no existing or potential
conflicts of interest exist between the Company and any of its officers or
directors other than as set forth below.
- 84 -
In 2011, the Company provided exploration and management
services totalling $0.02 million to Alexco Resource Corp. (“Alexco”), and during
2010 the Company provided exploration and management services totalling $0.02
million to Alexco. Alexco is a related party having two common directors.
In 2011, the Company provided exploration and management
services to TintinaGold Resources Inc. (“TintinaGold”) totalling $0.03 million,
and during 2010 the Company provided exploration and management services
totalling $0.1 million to TintinaGold. In March 2009, TintinaGold (formerly
Mantra Mining Inc.) purchased five early-stage Alaskan base metal properties
from the Company. In consideration for the sale of the five properties, the
Company received 3,125,000 shares of Mantra common stock worth $1.6 million at
deal closing. In October 2009, TintinaGold completed its plan of arrangement to
spin out AsiaBaseMetals, of which NovaGold’s Vice President Exploration, Mr.
Piekenbrock, is a director. At November 30, 2011, the Company held 3,125,000
shares in both companies with a combined fair value of $2.6 million. Mr. Van
Nieuwenhuyse is a significant shareholder and director on the board of
TintinaGold and AsiaBaseMetals.
ITEM 8 LEGAL PROCEEDINGS AND REGULATORY ACTIONS
Other
On July 15, 2009, two claims were filed in the United States
District Court for the District of Alaska against NovaGold, Alaska Gold Company
(“AGC”) and other parties arising out of an accident on July 19, 2007, where two
employees of a contractor were killed in a construction-related accident at the
Company’s Rock Creek project. The claims are seeking wrongful death damages in
excess of US$2.5 million. The Company and AGC filed an answer to the complaint
denying all allegations and asserting certain affirmative defenses. The Company
and AGC have disputed these claims and believe they have substantial and
meritorious legal and factual defenses, which they intend to pursue vigorously.
The claims against AGC had been dismissed during 2010 by agreement without
payment of any money.
On May 11, 2011, the claim was settled that had been filed
against NovaGold in the United States Federal District Court for the District of
Alaska. The settlement was paid through insurance and NovaGold did not pay any
funds out of its cash balance. The settlement reached on May 11, 2011 has
resolved the claim originally filed on July 15, 2009 and the plaintiffs do not
have any further recourse against the Company.
Regulatory Actions
In July 2010, December 2010, February 2011, and March 2011, the
Company’s wholly-owned subsidiary AGC received a total of 37 citations and
orders from the Mine Safety Health Administration (“MSHA”) alleging certain
violations of U.S. Federal mine safety laws under the Federal Mine Safety and
Health Act of 1977 (the “Mine Safety Act”) at the Rock Creek project. During the
fiscal year ending November 30, 2011, MSHA issued a total of 37 citations
alleging 25 violations of Section 104(a) and 12 violations of Section 104(d).
These citations spanned a period of 2010 to 2011. MSHA subsequently vacated one
of the citations after receiving further information from AGC. The total value
of the proposed assessments for these violations was US$37,658. As of November
30, 2011, 36 legal actions (MSHA citations or orders contested by AGC) remained
pending. In November 2011, MSHA and AGC developed and submitted a joint motion
for settlement covering 35 contested citations and assessments under the Mine
Safety Act. The remaining citation was separately resolved thorough payment of a
penalty by AGC in the amount of US$100. On December 12, 2011, a federal
administrative law judge issued a decision approving the settlement and
dismissing the AGC's remaining MSHA cases. The dismissal was conditioned on the
AGC's payment of a US$22,671.00 penalty within 90 days of the decision. On
January 18, 2012, the Company paid MSHA that amount, resolving all outstanding
MSHA citations and assessments at the Rock Creek Mine. On January 18, 2012, the
Company paid MSHA that amount, resolving those MSHA citations and assessments.
Due to a clerical error, one case involving a $392 penalty has not been
dismissed, but MSHA submitted a motion to dismiss that case in December 2011 and
the matter is awaiting the judge’s signature. This one case involving $392
awaiting dismissal is the only unresolved citation or assessment from MSHA for
the Rock Creek Mine.
On December 31, 2009, AGC received a renewed temporary
Certificate of Approval to Operate a Dam (“COA”) from the Alaska Department of
Natural Resources (“ADNR”). The COA authorizes AGC’s continued operation of the mine’s TSF dam. The term of the renewed COA expires on
November 24, 2011. The renewed COA contains conditions AGC must follow to ensure
dam safety including the requirement to treat, inject and apply water to manage
water levels behind the mine’s TSF dam. The renewed COA also required that AGC
notify ADNR by November 1, 2010 of AGC’s preliminary, future intentions
concerning the mine site which may include entering permanent closure or
requesting an extension of the temporary closure period. AGC complied with this
requirement by notifying ADNR of AGC’s intent to continue implementing COA water
management requirements while AGC considers the potential sale or closure of the
mine.
- 85 -
ITEM 9 TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Shares in
Canada is Computershare Investor Services Inc. at its principal offices in
Vancouver, British Columbia and Toronto, Ontario. The co-transfer agent and
registrar for the Common Shares in the United States is Computershare Trust
Company Inc. at its office in Denver, Colorado.
ITEM 10 MATERIAL CONTRACTS
The Company’s material contracts include:
- Underwriting Agreement dated February 2, 2012 between RBC Dominion
Securities Inc. and J.P. Morgan Securities LLC;
- Unit Purchase Agreement dated December 31, 2008 between Electrum and
NovaGold;
- Indenture dated as of March 26, 2008 between NovaGold and The Bank of New
York (the “Indenture”) and Supplemental Indenture No. 1 dated as of March 26,
2008 to the Indenture between NovaGold and The Bank of New York providing for
the issuance of the Notes;
- Limited Liability Company Agreement dated December 1, 2007 between Donlin
Gold LLC, Barrick Gold U.S. Inc. and NovaGold Resources Alaska, Inc., as
amended by an agreement dated January 13, 2010;
- Galore Creek Partnership General Partnership Agreement dated August 1,
2007 between NovaGold Canada Inc., Teck Cominco Metals Ltd., Galore Creek
Mining Corporation, NovaGold Resources Inc. and Teck Cominco Limited, the
amendment thereto dated November 25, 2007, the amendment thereto dated July
28, 2008 and the amendment thereto dated February 11, 2009.
ITEM 11 INTERESTS OF EXPERTS
None of AMEC Americas Limited, Lemley International Limited,
SRK Consulting, Kirk Hanson, Gordon Seibel, Tony Lipiec, Robert Gill, Jay
Melnyk, Gregory Wortman, Greg Kulla, Dana Rogers, Erin Workman, Russ White and
Neal Rigby, each being companies or persons who have prepared reports relating
to the Company’s mineral properties, or any director, officer, employee or
partner thereof, as applicable, received or has received a direct or indirect
interest in the property of the Company or of any associate or affiliate of the
Company. As at the date hereof, the aforementioned persons, and the directors,
officers, employees and partners, as applicable, of each of the aforementioned
companies and partnerships beneficially own, directly or indirectly, in total,
less than one percent of the securities of the Company.
The auditors of the Company are PricewaterhouseCoopers LLP,
Chartered Accountants, of Vancouver, British Columbia. PricewaterhouseCoopers
LLP, Chartered Accountants, report that they are independent of the Company in
accordance with the Rules of Professional Conduct in British Columbia, Canada.
PricewaterhouseCoopers LLP is registered with the Public Company Accounting
Oversight Board.
Neither the aforementioned persons, nor any director, officer,
employee or partner, as applicable, of the aforementioned companies or
partnerships, is currently expected to be elected, appointed or employed as a
director, officer or employee of the Company or of any associate or affiliate of
the Company.
- 86 -
ITEM 12 ADDITIONAL INFORMATION
Additional information, including details as to directors’ and
officers’ remuneration, principal holders of the Company’s shares, options to
purchase shares of the Company and certain other matters is contained in the
Company’s Management Information Circular for its most recent annual meeting of
shareholders that involved the election of directors. Additional financial
information is provided in the Company’s comparative financial statements and
related Management’s Discussion and Analysis for its year ended November 30,
2011. Copies of the above and other disclosure documents may be examined and/or
obtained on SEDAR at www.sedar.com.
The Company will provide to any person, upon request to the
Secretary of the Company:
| |
a) |
when securities of the Company are in the course of a
distribution pursuant to a short form prospectus, or a preliminary short
form prospectus has been filed in respect of a distribution of its
securities: |
| |
|
|
|
| |
|
i) |
one copy of the Annual Information Form of the Company,
together with one copy of any document, or the pertinent pages of any
document, incorporated by reference in the Annual Information
Form; |
| |
|
|
|
| |
|
ii) |
one copy of the comparative financial statements of the
Company for its most recently completed financial year together with the
accompanying report of the auditor and one copy of any interim financial
statements of the Company subsequent to the financial statements for its
most recently completed financial year; |
| |
|
|
|
| |
|
iii) |
one copy of the management information circular in
respect of the most recent annual meeting of shareholders that involved
the election of directors or one copy of any annual filing prepared in
lieu of that information circular, as appropriate; and |
| |
|
|
|
| |
|
iv) |
one copy of any other documents incorporated by reference
into the preliminary short form prospectus or the short form prospectus
not required to be provided under (i) to (iii) above; or |
| |
|
|
|
| |
b) |
at any other time, one copy of any other documents
referred to in (a), (i) to (iii) above, provided that the Company may
require the payment of a reasonable charge if the request is made by a
person who is not a security holder of the
Company. |
