News:
NovaGold Resources Inc (2) NRI
Shares issued 27,201,258 Mar 14 2002 close $3.800
Friday Mar 15 2002 News Release
Mr. Rick Van Nieuwenhuyse reports
DONLIN STUDY INDICATES ONE MILLION OUNCES PER YEAR GOLD PRODU ...
Following an independent geological analysis in January that doubled the contained gold estimates at the Donlin Creek gold project in Alaska, a new preliminary independent economic assessment confirms the NovaGold Resources project may be developed into a major new gold producer that, with additional exploration and engineering work, would produce one million ounces of gold per year.
Written by independent engineering firm MRDI Canada, a division of AMEC E&C Services Limited of Vancouver, B.C., the preliminary economic assessment of the Donlin project -- the first in a series of development studies -- forecasts the viable economics of a conventional open-pit mining operation. AMEC, a 40-year veteran of mine development in Alaska and the Canadian North, based its estimates on the operating and capital costs of similar projects.
A sensitivity analysis was also completed to determine the economic effects of changes to capital and operating costs, and gold price. The Donlin Creek study is intended to define the operating cost parameters and scale of the operation, and thereby direct the future preliminary feasibility detailed engineering work and exploration drilling.
"As a result of the 2001 exploration efforts by NovaGold that significantly increased the near-surface high-grade gold mineralization at Donlin, this report shows a dramatic improvement in the project economics over previous studies," says Stephen Hodgson, PEng, technical director of mining for AMEC. "There remain significant opportunities to further enhance the economics of the project with additional improvement in overall gold recovery, further expansion of near-surface high-grade mineralization, pit slope optimization, and possible use of bio-oxidation heap leaching of in-pit below cutoff low-grade mineralization."
"With the initiation in April of the first phase of the preliminary feasibility study and exploration drilling, we are confident we will continue to increase the overall grade and define additional near-surface high-grade gold mineralization that will further improve the project's economics," says Rick Van Nieuwenhuyse, president of NovaGold. "This study shows that Donlin Creek has the potential to join the ranks of only a handful of one-million-ounce-a-year producing mines worldwide."
NovaGold is finalizing plans to begin a preliminary feasibility program in April. The program will include infill delineation drilling to upgrade the inferred resources to the measured and indicated categories. The program will also expand the current resource with particular focus on developing near-surface high-grade five+ grams per tonne gold resources and continuing engineering and environmental studies as part of the permitting process.
NovaGold plans to spend $8-million on the upcoming program to complete the preliminary feasibility and to earn its 70-per-cent interest in the project from Placer Dome by the end of 2002. NovaGold projects revenues of $10-million this year from its construction aggregate, gold royalties and land development operations in Nome, Alaska.
Preliminary economic assessment summary results
In evaluating the Donlin Creek project, AMEC engineers used a base case scenario with the current measured, indicated and inferred resource using a two g/t gold cutoff grade from a 20,000-tonne-per-day conventional open-pit mine operation.
Also assessed were two target scenarios that include the identification of an additional 21.5 million tonnes of near-surface mineralization grading greater than five g/t gold. The first target scenario used the same 20,000-tonne-per-day production level as the base case. The second target scenario used a reduced initial capital investment through a scaled production rate that starts at 8,000 tonnes per day and expands to 20,000 tonnes per day by the end of the third year of production.
PROJECT ECONOMIC PARAMETER SUMMARY
Base Scenario Scenario
case 1 2
Plant
throughput
(t/d) 20k 20k 8k to 20k
Mine life
(years) 14 17 18
Ore tonnage
(Mt) 95.9 117.4 117.5
Initial 5
years average
grade (g/t) 4.90 5.20 5.29
Grade (life
of mine) (g/t) 3.78 3.83 3.83
Initial 5
years average
annual gold
production
(ounces in
thousands/
year) 1,056 1,133 743
Total
recovered
gold (in
thousands
of ounces) 10,368 13,150 13,306
Initial 5
years gold
recovery (%) 91.8 92.9 93.6
Gold
recovery
(life of
mine) (%) 89.0 90.8 91.9
Strip ratio 5.9 5.7 5.0
Cutoff grade
(g/t) 2.0 2.0 2.0
Initial
capital cost
(in millions
of dollars) $522.5 $525.0 $328.3
15%
contingency
(in millions
of dollars) 79.6 80.0 49.8
Total
(in millions
of dollars) 602.1 604.9 378.2
Operating
cost ($/t
milled)
Mining 3.88 3.99 3.98
Processing 9.37 9.37 9.56
G&A 4.19 4.19 4.40
----- ----- -----
Total 17.44 17.55 17.94
===== ===== =====
Cash
operating
cost ($/
ounce) $166.57 $161.90 $163.63
Total cash
cost ($/
ounce) 175.48 172.87 177.52
------- ------- -------
Total
production
cost ($/
ounce) $241.87 $226.00 $230.28
======= ======= =======
Note: The Scenario 2 expansion case requires an additional $177-million capital expenditure over years 2 and 3 to expand the mill rate from 8,000 tonnes per day to 20,000 tonnes per day. Source: AMEC.
Financial analysis
The analysis indicates that Donlin Creek could generate a pretax rate of return in the range of 15.6 per cent to 25.3 per cent, according to the preliminary economic assessment that evaluated the capital costs, operating and processing costs, taxes, and royalties for the project. This dramatic improvement in the project economics over previous studies is primarily due to the increased overall size and grade of the gold resource outlined by NovaGold's 2001 exploration program. A sensitivity analysis on the project shows that the rate of return is most sensitive to changes in the gold price followed by changes to the operating costs and then to changes in capital costs.
Conclusion and recommendations from the preliminary economic assessment
Conclusions of the AMEC preliminary assessment report for the Donlin Creek project confirm that the Donlin Creek property contains a substantial resource that, with additional exploration and concept development, may be developed into a major new gold producer.
The drilling completed by NovaGold and the reinterpretation of the geology of the deposits has improved the size and grade, and thus the value of the project from previous assessments. The study demonstrates the positive impact of the near-surface, high-grade deposits. Continued exploration success should add additional value to the project.
While significant metallurgical testwork has been completed, there are a number of opportunities to enhance the operation of the process plant. These include evaluating means of enhancing gold recovery from sediment-hosted mineralization and optimizing the grind size, flotation recovery, leaching recovering continuum. The report also recommends further examination of shipping a high-grade gold concentrate for off-site treatment. This would dramatically reduce capital costs and may reduce total operating costs.
Further work should investigate the use of low-cost bio-oxidation heap leaching that could result in recovery of gold from in-pit below cutoff low-grade resources (0.5 to two g/t), potentially increasing the overall recoverable in-pit resources by several million ounces.
This preliminary assessment includes the use of inferred resources that are considered too speculative geologically to have economic considerations applied to them that would enable them to be categorized as mineral reserves. Inferred gold resources will require further exploration to upgrade them to the higher measured and indicated categories. Currently, the grade of the measured category resource is as much as 10 per cent higher than the grade of the indicated and inferred resource categories. The upcoming 25-metre-by-25-metre in-fill drill program is expected to increase the overall definition and grade of the deposit through upgrading additional resources to the measured category.
The preliminary assessment was completed under the direction of Stephen Hodgson, PEng, technical director of mining for AMEC, an independent qualified person as defined by National Instrument 43-101. AMEC has completed a detailed technical report for this study which is available for review at www.sedar.com.
2002 Donlin Creek gold resource estimates
The updated resource estimate for the Donlin Creek gold deposit was prepared in January, 2002, by MRDI of Vancouver. This updated estimate incorporates all data obtained from the sampling and drilling programs on the project through November, 2001. The new resource estimates use a reinterpreted 3-D geologic and mineralization model. The reinterpretation is based on extensive relogging and 3-D modelling. The resources are estimated using a probability-assisted method with a total of 122,231 metres (401,020 feet) of sampling. The sampling consists of 87,571 metres (287,306 feet) of core samples in 361 drill holes, 13,323 metres (43,711 feet) of reverse circulation samples in 117 drill holes and 21,337 metres (70,000 feet) of surface trench samples. Consistent sample protocols using standards, duplicates, blanks and check assays have been used on the project since 1995.
Dr. Stephen Juras, PGeo, MRDI's chief geologist in Vancouver, supervised the data verification and resource estimate updates. Dr. Juras is a qualified person as defined by National Instrument 43-101. MRDI has completed a technical report detailing the resource estimate parameters which is available for review at www.sedar.com. The Donlin Creek updated resource estimates are as follows:
Resource Grade
category Tonnes gold Contained
(millions) (g/t) (ounces)
3.5 g/t cutoff grade
Measured 2.225 5.36 383,000
Indicated 24.705 5.04 4,002,000
------ ---- ---------
Total M&I: 26.930 5.06 4,385,000
Inferred 36.806 5.22 6,183,000
Two g/t cutoff grade
Measured 5.054 3.84 623,000
Indicated 68.917 3.49 7,732,000
------ ---- ---------
Total M&I: 73.971 3.51 8,347,000
Inferred 92.433 3.66 10,877,000
Tonnes and contained ounces are rounded to the nearest 1,000.
Gold metallurgy and processing summary
Comprehensive metallurgical testwork including bench-scale grinding, flotation, pressure oxidation, bio-oxidation and carbon-in-leach (CIL) cyanidation recovery has been completed by several independent labs and reviewed by AMEC. Results from metallurgical testwork and mineralogical examination demonstrate that 95 per cent to 98 per cent of the gold is contained in the finer-grained arsenopyrite mineralization at Donlin Creek. Gold recoveries in excess of 90 per cent to 95 per cent are achievable by using a grind size of P80 60 micron followed by conventional sulphide flotation concentration, pressure oxidation of the concentrate and CIL cyanidation for gold recovery. Potential remains to further improve the overall gold recoveries through process optimization, which will be the focus of additional future metallurgical work.
Donlin Creek project summary
Donlin Creek is one of the largest undeveloped gold deposits in the world. The deposit is located in Southwestern Alaska on 109 square kilometres (42 square miles) of private patented land. The project is 19 kilometres (12 miles) north of a commercial barge site on the Kuskokwim River at the village of Crooked Creek, Alaska. A state of Alaska designated winter road connects the project to the barge site. The project has an all-season exploration camp for up to 75 people with an adjacent 1,500-metre (5,000-foot) runway that is directly serviced by commercial aircraft as large as the C-130 Hercules freighter.
NovaGold will earn a 70-per-cent interest in the deposit by spending $10-million (U.S.) on exploration and development within 10 years. NovaGold intends to complete its earn-in expenditures by the end of 2002 as part of the preliminary feasibility and project development work. Upon vesting by NovaGold, a joint venture between NovaGold and Placer Dome would be established, and Placer Dome would have 90 days to decide on one of three options: a) to remain at 30-per-cent interest and participate as a minority partner; or b) to convert to a 5-per-cent net profits interest (NPI); or c) to exercise a back-in right to reacquire a majority interest in the project (Placer Dome, 70 per cent/NovaGold, 30 per cent) by expending three times that expended by NovaGold at the time the back-in is exercised, conducting a feasibility study, and making a decision to mine at a production rate of not less than 600,000 ounces of gold per year within a five-year period from the exercise of the back-in. |
