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Introduction

NovaGold Resources (NYSE: NYSE: NG) owns 50% of a gold project in western Alaska called the Donlin Gold Project. The joint venture is shared with Barrick Gold. Here is an excerpt from the latest 10-Q filing.

The Donlin Gold Project is owned and operated by Donlin Gold LLC (“Donlin Gold”), a limited liability company owned equally by wholly-owned subsidiaries of NOVAGOLD and Barrick Gold Corporation (“Barrick”).

The company released its second quarter results on June 29, 2022, ending on 02/28/2022.

Note: This article is an update of my article published on May 3, 2022. I have been following NovaGold Resources since 2019.

1 – Presentation and overview of 2Q22 results

Reminder: NovaGold Resources and Barrick Gold USA – a subsidiary of Barrick Gold (GOLD) – are developing the Donlin Creek open pit gold project in Alaska in a 50-50 joint venture (“JV”) called Donlin Gold (2007).

The company filed its 10-Q for the second quarter of 2022 on June 29, 2022.

With 39 Moz of gold resource, it is an impressive project. Plus, it’s located in Alaska, providing extra security, which is extremely important now. We have a project with a cut-off grade of 0.58 G/T on the not-so-remarkable side.

The only problem is the cost needed to put this project into production. Inflationary pressure is here to stay and will significantly inflate an already booming CapEx, threatening the feasibility of the project, one of the largest in the world.

Map of NG Donlin

NG Donlin Map (NovaGold Resources)

2 – Stock market performance and commentary

NG fell 46% year-on-year from near $8.45 to $4.62. If we compare NG to GOLD, we can see that NG has significantly underperformed GOLD.

Chart
Data by YCharts

3 – Investment thesis

I see the Donlin project as an opportunity to invest long term at a fair price given the mineral reserve. But it is crucial to be careful and cautious with gold projects which are becoming increasingly expensive to build and could become too expensive. The Donlin project is an exceptional prospect, and the fact that Barrick Gold owns 50% of it makes it more valuable.

However, we are years away from a final investment decision, and inflationary pressures and a weakening gold price due to Fed action are eroding feasibility.

Therefore, as I regularly recommend to my followers on my market, “The Gold and Oil Corner”, I strongly recommend trading LIFO short term using around 70% of your NG position. I also recommend building a long-term investment base that you keep and grow through to the final investment decision for the project.

Note: LIFO trading is only allowed in the United States, but not in Europe or Canada. However, it is possible to trade NG and hold a long-term position while trading short-term using two separate accounts. Please read my final note on this at the end of my article.

NovaGold Resources 2Q22 (November 31, 2021) – The raw numbers:

Note: The business does not generate revenue and is in development.

NovaGold Resources 2Q21 3Q21 4Q21 1Q22 2Q22
Net income in millions of dollars -10.52 -11.79 -10.27 -10.00 -14.97
EBITDA in millions of dollars -9.04 -10.17 -8.74 -8.48 -13.29
Diluted EPS in $/share -0.03 -0.04 -0.03 -0.03 -0.04
Cash flow from operations in millions of dollars -1.98 -1.88 -1.72 -6.00 -2.32
Total cash in millions of dollars 107.6 173.34 169.12 155.13 142.29
Long-term debt in millions of dollars 107.59 114.22 115.72 117.24 118.92
Shares outstanding (diluted) in millions 332.50 331.64 331.86 332.94 333.23

Source: NovaGold 10-Q Resources

* In 10-Q: As of June 29, 2022, the Company had 333,337,307 common shares, without par value, outstanding.

As shown in the table above, diluted outstanding and long-term debt are maintained at the same level, and total cash is $142.29 million at the end of 2Q22.

An additional payment from Newmont Corporation (NEM) of $25 million is due in 2023 in connection with the sale of NovaGold’s 50% interest in the Galore Creek project in 2018.

Quarterly balance sheet NG selected data History

Quarterly balance sheet NG selected data History (Fun Trading)

The financial situation is solid, supporting the 2022 CapEx estimated at $60 million. Also, on an optimistic note, the company expects the cash position to be sufficient to cover the planned financing of the Donlin gold project.

At this time, we believe we have sufficient working capital to cover the anticipated financing of the Donlin Gold Project and corporate general and administrative expenses until a decision to commence engineering and construction be taken by the Donlin Gold Board of Directors for the Donlin Gold Project, in which case substantial additional capital will be required.

Donlin Gold – An impressive open pit project

1 – Mineral reserves and mineral resources are shown in the table below. Unchanged from the previous quarter.

NovaGold Resources’ share of the proven and probable mineral reserve is 16.925 Moz, with an additional 2.997 Moz in M&I and inferred. The basics have not changed since the previous article.

NG Reserves Attributable to NovaGold Overview

NG Reserves Attributable to NovaGold Presentation (NovaGold Resources)

  • The mineral reserves, P1 and P2, are 33,849K Au Oz with a cut-off grade of 0.57g/t gold related to the reserves, and the total grade is 2.09 g/t with a LOM of 27 years and over. The company expects to produce 1.5 M Au Oz per year for the first five years.
  • The initial CapEx for Donlin Gold is $7,402 million. Due to the location, the barge will be used as the main means of transportation for the goods.
  • The proposed overall CapEx for 2022 is expected to be $60 million, shared equally with Barrick. The Donlin 2022 gold drilling program is the largest in over a decade, focused on advancing feasibility work preparation.
  • The long-term debt represents a promissory note payable to Barrick Gold of $118.92 million.

2 – Donlin Gold: The 2022 budget is still $60 million.

NovaGold Resources expects to spend approximately $46 million in 2022, including $13 million for corporate general and administrative expenses; $3 million for withholding taxes on PSUs and other working capital; and $30 million to fund our share of expenses at the Donlin Gold project.

Approximately $17 million of the $30 million Donlin project investment will go towards the 2022 drilling program. In addition, $9 million will be spent on external affairs, permits, environment, lands and legal activities, and finally, $4 million is reserved for project planning and field work.

NovaGold’s main objective is to advance the Donlin project towards a construction decision. However, NovaGold Resources is far from reaching project milestones, including meeting various technical, environmental, sustainability, economic and legal objectives, obtaining necessary permits, starting feasibility studies, preparing technical designs and financing to finance these objectives.

Technical analysis and commentary

NG TA Short Term Chart

Short Term NG TA Chart (Fun Trading)

NG is forming a descending channel pattern with resistance at $5.8 and support at $4.6. Descending channel patterns are generally bearish in the short term, but often initiate in longer term uptrends.

As I recommended in my previous article, the trading strategy I suggest is to sell LIFO 50% between $5.7 and $6.15 and wait for a retracement to buy back at or below the support at $4.60 with potential support below $3.85.

I view this buying range as a good long-term opportunity.

Note: The RSI is now considered oversold at 32, and any downside from here is a definite buy signal.

The stock has seen a strong sell-off in recent days on weaker gold prices and high inflation, which has prompted the Fed to become increasingly hawkish, which could drag the economy world in a damaging recession.

The price of gold is now trading below $1,800 an ounce, and the NG is falling to multi-year lows as the feasibility of the project becomes uncertain due to inflationary pressure. So investing only a tiny fraction of your free cash is crucial until the company can make a construction decision.

To note: The LIFO method is prohibited by International Financial Reporting Standards (IFRS). However, it is permissible in the United States to adhere to generally accepted accounting principles (GAAP). Therefore, only US traders can apply this method. Those who cannot trade LIFO can use an alternative by creating two different accounts for the same stocks, one for long term and one for short term.

Warning: The TA table must be updated frequently to be relevant. This is what I do in my stock tracker. The table above has a possible validity of approximately one week. Remember that the TA chart is a tool only to help you adopt the right strategy. This is no way to predict the future. Nobody and nothing can.

Author’s Note: If you find value in this article and would like to encourage such continued efforts, please click the “Like” button below as a vote of support. Thanks.

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