A stock of gold to be excited about
January 22, NOVAGOLD RESOURCES (NYSEMKT: NG) released its full year 2019 results and held a conference call the next day. Since the company last released its quarterly results, the stock price has fallen from $ 6.34 to around $ 8.87, or around 40%. While not much has changed since we last reviewed NOVAGOLD, here are some updates from the new 10-K, a press release, and a conference call.
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2019 financial performance
From a financial standpoint, NOVAGOLD’s results for 2019 are in line with previous years. The company ended the year with a net loss of $ 27.8 million compared to a net loss from continuing operations of $ 31.5 million and $ 36.9 million in 2018 and 2017, respectively. Total cash used for the year was approximately $ 18.5 million. This was also comparable to 2018 and 2017 which saw cash used of around $ 20 million and $ 19.6 million, respectively. The cash used goes mainly to the operating activities of the company and to NOVAGOLD’s share of the financing of Donlin Gold.
The Company’s cash and term deposit position of $ 148.5 million as at November 30, 2019 remains large relative to its expected cash outflows. In addition to these assets, the company owes $ 100 million in Newmont mining (NYSE: NEM) from the sale of Galore Creek in 2018. The company expects $ 75 million no later than July 2021 and the remaining $ 25 million no later than July 2023. There is an additional $ 75 million that the company could receive ” on the approval of a Construction Plan for the Galore Creek Project by the owner (s) â€; however, no value is attributed to the latter $ 75 million on the company’s balance sheet.
Looking forward
In 2020, the company plans to spend $ 20 million to fund Donlin Gold and an additional $ 11 million for administrative expenses. That’s about $ 10 million more than normal and will pay for an “80-hole, 22,000-meter drill program to test the extension of high-grade gold zones and validate geological modeling concepts.”
Although management gave no timeline as to when the company plans to start mining, CEO Greg Lang said the federal clearance process has been completed and “the development timeline is now under government control. owners “.
On the conference call, NOVAGOLD Chairman Thomas Kaplan gave his opinion on the future trajectory of the price of gold. He thinks it’s set up to perform the same as it did in the late 1970s. However, given the supply and demand factors he sees in the market, it could perform even better.
Image source: NOVAGOLD
Additionally, Lang said, “with scale and grade, if built today, Donlin would be the largest producing gold mine in the industry.” The company forecasts an average annual production of 1.5 million ounces of gold in the first five years and 1.1 million ounces over its life.
Kaplan said, “We believe the Donlin Project represents the greatest option or the best bullish gold warrant that exists in the market.” Assuming management’s views come to fruition, he may not be exaggerating. The combination of expected production with rising gold prices and improved margins resulting from these price increases would result in substantial returns for NOVAGOLD owners. Using a 5% discount rate, the net present value (“NPV”) of the project is over $ 3 billion at the current price of gold, of which the owners of the company are entitled to account for half. given the company’s 50% stake in the project. And as the price of gold rises, the NPV rises further to $ 6.7 billion, gold at $ 2,000 per ounce and $ 10.2 billion at $ 2,500 per ounce.
Image source: NOVAGOLD
Overall, NOVAGOLD remains an attractive long-term investment option in the gold space.
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