NEW YORK ( TheStreet ) -- NovaGold ( NG) is the sexy, high profile junior gold miner in Alaska, but investors shouldn't forget about its nearby competitor International Tower Hill ( THM). As the below chart shows, NovaGold and International Tower mirrored each other last year until September, when NovaGold broke out on takeover rumors that helped push the company to a 125% return for 2010. International Tower Hill, on the other hand, returned only 38%, but if it follows its peer, it should be ready for a breakout. Jeb Handwerger, editor of GoldStockTrades.com, thinks that THM is ready to make a move and that at "under $8 it's a steal." If NovaGold is the sophisticated adult commanding investors' attention, it's fair to say that International Tower is the gangly teenager that has yet to be taken seriously. NovaGold has two of the largest gold and copper deposits in the world -- Donlin Creek and Galore Creek -- where it has 50/50 partnerships with Barrick Gold ( ABX) and Teck Resources ( TCK), respectively. While NovaGold is four to seven years away from production, its net interest in the two projects is staggering at 30 million ounces of gold, 157 million ounces of silver and 9.1 billion pounds of copper.
International Tower has 100% ownership of the Livengood gold project, which has 13 million ounces of resource, one of the biggest discoveries in the past 20 years, but still not as big as NovaGold's. International Tower doesn't have to share the gold with anyone, though, but it doesn't have big early stage funding either.NovaGold also has another thing going for it -- the quality of its gold. NovaGold's Donlin Creek near Port of Bethel in Western Alaska is a 33.6 million an ounce gold deposit, according to reserve estimates, averaging 2.2 grams. The miner will be able to produce the gold for around $400 an ounce. International Tower's grade is about 0.5 grams with rough cash costs of $490-$530 an ounce. The higher the grade of gold the more you can sell it for, but the more money it takes to refine, and vice versa for a lower grade. The only way a miner can compensate for low grade gold is by mining a lot of it as cheaply as possible. International Tower Hill is lucky in that its deposit is so big, but it needs gold to stay above $950 an ounce for its deposit to make sense. Luckily, "no one in the
business thinks gold will fall below $1,000," says John Doody, editor of GoldStockAnalyst.com.
International Tower has 100% ownership of the Livengood gold project, which has 13 million ounces of resource, one of the biggest discoveries in the past 20 years, but still not as big as NovaGold's. International Tower doesn't have to share the gold with anyone, though, but it doesn't have big early stage funding either.
So NovaGold has size, popularity and grade, but International Tower Hill has some hidden secrets. "When you see the leverage to the price of gold," says Handwerger, who owns this stock, "the higher the price of gold goes the rate of return significantly increases." International Tower also has cash flow per share of -0.09 while NovaGold has -0.35, putting International Tower in the superior cash position. International Tower has $120 million in cash after doing a capital raise in the fall of 2010, which should last the company until late 2013, at which point it would be looking for financing options to bring the property to the next level. The company's total capex is $1.3 billion. Adam Graf, director of emerging miners for Dahlman Rose & Co. has a buy rating on the stock and says "we continue to assume greater resource growth at Livengood." NovaGold has $172.8 million in cash, $75 million in warrants and has enough money for the next two years. However, its total price tag to bring its two projects into production is $4 billion. NovaGold is also currently trying to buy the remaining 40% of Copper Canyon Resources, which owns a property right next to Galore. It is unknown yet how this purchase will affect the company's cash reserves. International Tower Hill also has the superior location position in Alaska.
Although NovaGold and International Tower operate in the same state, it's the "where" that counts. For all intents and purposes, Alaska is still a frontier place where the cost of energy and labor is high, and infrastructure is key. The Livengood project is located right on the eastern infrastructure corridor just 60 miles north of the active Fort Knox mine, owned by Kinross Gold ( KGC). The project is near a highway that runs all the way up to Prudhoe Bay and its nearby oilfields. According to Carl Brechtel, COO of International Tower, Alaska has a lot of natural gas on the north slope, and "the state's currently looking at projects and ways to bring nat gas from the north slope down into the Alaskan population center, so that would be an opportunity for us."
International Tower's proximity to Kinross' Fort Knox mine is also a big plus because one can see what Tower Hill can grow into. Kinross has been successful at producing low grade profitable gold. In the third quarter, Fort Knox produced 108,680 ounces of gold and gold equivalents with a grade of 0.96 for $501 cash costs. After expanding the project, Kinross is expecting to produce an average of 370,000 ounces of gold per year from 2010-2015. It has proven and probable reserves of 3.7 million ounces. NovaGold, on the flip side, has limited infrastructure and, according to the company's Web site, needs a river port; an access road connecting the port and Donlin; an airstrip, mine and plant site area; and gas and power facilities. The company is planning to build a natural gas pipeline to save on future costs and is in the process of updating its feasibility study with revised capital and operating costs factoring in the pipeline. The new energy input should shave off $50 from its cash costs. NovaGold must also contend with local communities and has had to work hard at maintaining good relationships with them. Donlin still has to go through the permitting process, full Environmental Protection Agency process and a full blown environmental impact statement. International Tower has the same permitting process ahead of it, but its nearest community is 40 miles away, making it less susceptible to environmental issues. Handwerger says for someone wanting to invest in Alaska, International Tower Hill makes the most sense. "The problem with the two other major projects
is that they are in western Alaska ... what's around the mine is just as important as what's in the mine." Handwerger was referring to Donlin Creek and the Pebble Project, also in Western Alaska, owned by Northern Dynasty ( NAK). Investing in gold miners in Alaska is a hot trend. John Paulson's fund owns 9% of NovaGold and is the second-largest shareholder. George Soros' fund is the fourth-largest investor. Paulson also owns 6% of International Tower and is the third-largest shareholder following AngloGold ( AU), which owns 11.3% of the company. As institutional investors pile in, its temping for retail investors to follow suit just know there are multiple options out there before you pull the trigger.
-- Written by Alix Steel in New York. >To contact the writer of this article, click here: Alix Steel. >To follow the writer on Twitter, go to http://twitter.com/adsteel. >To submit a news tip, send an email to: firstname.lastname@example.org.
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