Novagold Resources Eyes Full Donlin Gold Control in Paulson Deal

Key Points

• NOVAGOLD expects to acquire Paulson’s 40% interest in Donlin Gold, making it the project’s 100% owner, subject to regulatory approvals and an anticipated December closing. The stake will be exchanged for NOVAGOLD shares at an approximate 10% discount to implied value.
• Full ownership is expected to simplify governance and decision-making while giving NOVAGOLD control of a project with more than 45 million ounces of gold resources, a nearly 30-year mine life, and potential annual production exceeding 1 million ounces.
• NOVAGOLD is advancing an updated feasibility study, financing discussions, and remaining state permitting. The company reported about $370 million in cash and plans to use part of its funds to retire a discounted Barrick obligation while preserving liquidity for project evaluation.

Novagold Resources NYSEAMERICAN: NG said it expects to become the 100% owner of the Donlin Gold project following the anticipated completion of its acquisition of the Paulson companies’ 40% interest in the Alaska asset.

Management said the transaction, which remains subject to customary regulatory approvals, is expected to close in December. Under the agreement, Paulson’s interest in Donlin Gold will be converted into NOVAGOLD shares. The company said the transaction values the acquired interest at an approximate 10% discount to NOVAGOLD’s implied value.

Once completed, the deal would consolidate ownership of Donlin Gold under NOVAGOLD, eliminating the prior joint-ownership structure. The company said the project has an anticipated mine life of nearly 30 years and potential annual production above 1 million ounces of gold.

Governance and ownership changes

As part of the transaction, Paulson will have voting rights on less than 20% of its NOVAGOLD shares and will receive two board appointments. John Paulson will become chairman alongside Tom Kaplan, while Marcelo Kim will serve as Paulson’s other board representative, according to the presentation.

NOVAGOLD said the governance provisions are designed to preserve the company’s independence and follow best-practice governance standards. Management also said full ownership should streamline decision-making, improve operating efficiency and provide stakeholders in Alaska with a single point of contact.

The company characterized the transaction as immediately accretive to shareholders because of the discount applied to the acquired interest, while also increasing its gold endowment on a per-share basis. NOVAGOLD said that, on a 100% basis, Donlin contains more than 45 million ounces of gold resources.

Feasibility study and financing work underway

Earlier this year, NOVAGOLD appointed Fluor to update the Donlin feasibility study. Hatch is supporting pressure oxidation work, Worley is supporting pipeline-related work, and WSP is supporting power plant work. The company expects the study update to be completed in the middle of next year and said it plans to provide a more definitive completion schedule by year-end.

NOVAGOLD also recently appointed Endeavour and Macquarie to assist with arranging potential project financing. Management said that work is underway as the company advances toward a construction decision.

The company said it continues to build its team, including recruiting for additional roles. It highlighted the experience of its project leadership and contractors, noting that Fluor and Hatch were involved in the Pueblo Viejo project in the Dominican Republic, while project director Frank Arcese has worked on projects in Arctic and other conditions.

Permitting, land position and exploration

NOVAGOLD said Donlin has completed its federal permitting process, including a joint record of decision from two federal agencies. The remaining state permit relates to the tailings dam and water-retention structures and is proceeding as planned, management said. The company expects that permit to be completed well before a construction decision.

The project is located on private land in Alaska, where Calista owns mineral rights and The Kuskokwim Corp., or TKC, owns surface rights. NOVAGOLD said it has life-of-mine agreements with both Alaska Native corporations. Management added that Donlin has received bipartisan support and said it does not expect a change in administration to affect the project.

The company also pointed to further exploration potential. Its stated 45 million ounces of resources are located in less than 3 kilometers of an 8-kilometer gold-bearing trend, according to the presentation. However, management said exploration beyond the existing modeled resource is a longer-term opportunity because the feasibility-study models have been finalized for the current update.

Balance sheet and project outlook

NOVAGOLD said it had approximately $370 million in cash after an equity raise earlier this year, completed at about $10 per share without warrants. The company plans to use part of the proceeds to retire an obligation to Barrick Gold. NOVAGOLD said it has an option to settle a promissory note with a face value of about $170 million for $100 million within 18 months of the Barrick transaction.

After retiring that obligation, management said it expects to retain sufficient liquidity to complete the feasibility study and evaluate financing alternatives for mine construction.

The company emphasized Donlin’s reported grade of 2.25 grams per tonne, compared with an industry grade of about 1 gram per tonne, and said the grade could support lower-quartile cash operating costs. Management also cited the project’s location in the U.S. and large-scale production profile as central elements of its long-term investment case.

About Novagold Resources (NYSEAMERICAN:NG)

NovaGold Resources Inc is a Canadian-based mineral exploration and development company focused on advancing the Donlin Gold project in southwestern Alaska. The company does not currently operate producing mines; its principal asset is its 50% interest in Donlin Gold LLC, which owns the Donlin Gold project. Barrick Gold Corporation owns the remaining 50% interest and is the project operator.

Donlin Gold is one of the largest undeveloped gold deposits in the world. The project is located in the Yukon-Kuskokwim region of Alaska, approximately 145 miles northeast of the port of Bethel.

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