Barrick's Donlin move cuts Novagold stock off at the knees. Novagold says it's 'encouraged', Paulson not so much
NovaGold Resources (TSE/AMEX: NG) opened more than 30% lower on Thursday, after Barrick Gold (NYSE: ABX) announced that it is dropping planned investment in a $6.7 billion Alaskan JV with Novagold.
By the close the Vancouver-based miner was trading down 26.6% at $4.00 on the Toronto big board, recovering somewhat from the drop to a new 52-week low of $3.66 at the open. Barrick, world number one gold miner, was also down sharply after serving up other bad news in its quarterly results.
Around 1.15 million shares in Novagold had changed hands by 12:30 pm EST on, already three times the usual daily average. The counter is now worth $1.2 billion, half its market valuation at the start of the year.
According to Barrick Q2s the Donlin Gold project in Alaska – 50%-owned by Novagold – does not meet its investment criteria "primarily due to large initial capital investment, and under our disciplined capital allocation framework we would not make a decision to construct them at this time."
The company said Donlin does have large mineral resources and it will advance "permitting activities at reasonable costs which, in the case of Donlin Gold, will take a number of years."
Novagold responded by tweeting "Barrick announcement does not represent any change in the Donlin Project status or direction for approximately the next 4 yrs," endorsing Barrick's position:
""We are very encouraged by the position taken by Barrick Gold regarding the advancement of Donlin Gold,” said Greg Lang, NovaGold's President and Chief Executive Officer. "With the annual expenditures at Donlin Gold through the permitting process expected to be a modest $40 million on a 100% basis over several years, the co-owners of the Project have an incredible opportunity to optimize capital and operating costs and yet take full advantage of Donlin Gold's significant leverage to the price of gold in an environment of what the Company strongly believes is a secular bull market in gold.
Novagold pointed out that with some 39 million ounces of measured and indicated gold at an average grade of 2.2 grams per tonne Donlin is well within the top 1% of known global gold deposits in terms of size.
While Novagold is making the best of a bad situation legendary hedge fund manager John Paulson may take a dimmer view. Bloomberg reports Paulson, "who is seeking to reverse record declines in his $21 billion firm, may have lost $48.9 million on his hedge funds’ stake in NovaGold" today.
Paulson's Gold Fund is down 23% for the first six months of 2012.