Simon Constable
He also points to a clause in the agreement that states the feasibility study needs to include details of "permitting requirements, and the estimated costs thereof," rather than actual permits.
But NovaGold isn't impressed. "How can they say the study will be final if they haven't started the permitting process?" says Rhylin Bailie, a NovaGold representative. "When you move through the permitting process you end up making changes to the mine design and the mine costs, therefore it won't be final." Whenever it comes, a final feasibility study should provide sufficient detail to designate the metals reserves as "proven" and "probable," which means the deposit is economically mineable. More importantly, such studies can be used to obtain financing from a lending institution. And it's that attribute that's the real prize for NovaGold. Kjeld Thygesen, portfolio manager at Gold Arrow Capital Management in London, believes the squabble will likely end with some form of compromise between the two companies, with each firm probably taking a 50% stake in the operation. Gold Arrow holds shares of both firms. For now, the gulf between the two parties and the uncertainty it's producing is clouding sentiment about NovaGold's stock, but Thygesen thinks it could rise fairly quickly once the disagreement is settled. "I think that once this is resolved you'll see the price move up," he says. "I don't see why the stock doesn't go to the upper-$20s, but I am not saying that it is the peak price." Maybe he's right. NovaGold's market cap is slightly less than $2 billion. A simple back-of-the-envelope calculation shows the addition of the Donlin Creek mine alone would add roughly $713 million in annual revenue to NovaGold, assuming the spot price for gold stays around $750 an ounce and the company gets a 50% interest in the mine. That's based on a 2006 preliminary economic assessment of the mine the company conducted, which suggests the site could produce 1.9 million ounces of gold a year in the first seven years of a 22-year mine life. While Donlin Creek is its biggest bet, NovaGold is involved in other projects, such as Rock Creek in western Alaska, which is expected to start production in the fourth quarter, and Galore Creek, a 50-50 copper and gold partnership in British Columbia with Canada's Teck Cominco(TCK Quote - Cramer on TCK - Stock Picks), which is due to produce in 2012.
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