Rock Creek nears completion
Contractors working for Vancouver-based NovaGold Resources Inc. are pressing hard to complete construction of the company’s first gold mine, the Rock Creek facility 11 km north of Nome–an historical mining community on the western coast of Alaska.
More than 150 construction workers were on-site in late August, many working for the project’s primary contractor, Alaska Mechanical, Inc. NovaGold has also hired 70 people, about half the total needed for the permanent, full-time workforce who will operate the open pit and mill facility.
NovaGold plans to commission the facility before the end of 2007, according to Warren Woods, the company’s general manager of Nome operations. The first gold pour is also expected by year’s end.
Once operational, Rock Creek is expected to produce 100,000 oz of gold annually, transforming the junior exploration company, which was resurrected in 1998 by a handful of young geologists who believed in Alaska’s gold potential. “Rock Creek makes us a producer, which is a major accomplishment for a company founded 10 years ago,” said president and CEO Rick Van Nieuwenhuyse. “We always wanted to move the company up towards production but I would have not anticipated it would be like this.”
Low-grade, low-cost producer
NovaGold owns 100% interest in Rock Creek and has financed its development and construction costs, which currently total about US$115 million, through equity offerings instead of bank-backed debt financing. “Most companies do not have the luxury to do it that way, but we raised over $200 million earlier this year in the markets,” Van Nieuwenhuyse said. “I’m a firm believer in limiting the amount of debt held, both corporately and personally.”
With cash costs to produce gold at Rock Creek nearing US$300/oz, Van Nieuwenhuyse anticipates the project providing NovaGold with about US$30 million annually in cash flow, enabling the company to finance other exploration projects in Alaska, including the Ambler polymetallic deposit in the Brooks Range of northwestern Alaska.
Rock Creek production will also help NovaGold finance its share in the development costs of Galore Creek, a large copper-gold-silver project in northwest British Columbia being built in partnership with Teck Cominco, and Donlin Creek, a large gold project in southwest Alaska currently in development, with Barrick Gold working to increase its interest from 30% to 70%.
“We’ve not hedged any gold so our company is exposed to the upside of the gold market,” Van Nieuwenhuyse said. “Largely the success we’ve had in our corporation is delivering shareholder value that has increased an average of 70% every year.”
That value growth has come from exploration successes, primarily at Donlin Creek, which has doubled its gold resource under NovaGold’s control. “It’s finding orebodies and finding the right properties to explore,” Van Nieuwenhuyse said. “We’ve had good exploration and good execution of the business plan we formed.”
NovaGold came about due to Van Nieuwenhuyse’s dissatisfaction in working for a large mining company and his lack of enthusiasm for an undesired overseas assignment, he said. Placer Dome Inc.’s work in Alaska had slowed during the mid-1990s, including activity at its Donlin Creek project, where Van Nieuwenhuyse was working. Rather than take a job overseeing exploration in Africa and Asia, Van Nieuwenhuyse took over management of NovaGold, a former Halifax-based mining company that was bankrupt. Van Nieuwenhuyse rolled back the stock 10:1, recapitalized the company and started fresh, all while convincing two other Placer Dome geologists, Greg Johnson and Joe Piekenbrock, to join him.
“ was the worst time to do it–no one was interested in gold or junior exploration companies,” he said. “The first three or four years were tough, but the wind has been at our back for the last five years or so.”
The group initially acquired assets from the inactive Alaska Gold Company in 1999, which included about 12,000 ha of patented mining claims in western and Interior Alaska, some old dredging equipment and a sand and gravel operation in Nome. Both the real estate and the sand and gravel operation provided key cash flow during the company’s early days.
Patented mining claims at Rock Creek were part of that initial acquisition, and NovaGold seized upon the opportunity to advance that project to production.
Potential growth in Nome area
Drilling to date has identified an indicated resource at Rock Creek and at a satellite deposit called Big Hurrah 80 km away, that total 677,000 oz of gold. Inferred resources from the two are estimated to contain an additional 100,000 oz of gold.
Resources are based on a cut-off grade at Rock Creek of 0.6 gram per ton (g/t) Au, and 1.0 g/t at Big Hurrah. The higher grade at Big Hurrah reflects the need to haul ore to the Rock Creek mill.
The current mine life is projected at four to five years, although the potential exists to extend that. “I’m highly confident that our exploration will convert additional resources into reserves,” Van Nieuwenhuyse said. “I can easily see a mine life up to 10 years.”
NovaGold continues to explore the Nome area, focusing attention this summer on the Saddle deposit, 3 km southeast of the Rock Creek mine, which contains an historical (non-NI43-101-compliant) resource of 260,000 oz of gold. The company is also looking at a mineralized target, called Mount Distin, just west of the mill complex.
Also, the company’s Nome Gold property has an alluvial measured and indicated gold resource containing 1.6 million oz of gold, with an additional inferred resource of 250,000 oz of gold, within a 194-million-tonne sand-and-gravel aggregate resource. NovaGold is evaluating the economics of restarting alluvial gold production, combined with sand and gravel co-product production.
Mining at both Rock Creek and Big Hurrah will be conventional open pit operations, with crews moving some of the fleet’s five 90-tonne haul trucks and two 10.6-m3 loaders between locations. Initial ore will come from Rock Creek this fall and winter, where the waste:ore strip ratio will be 2:1. Mining and trucking ore is planned for next summer at Big Hurrah, which will have a 5.4:1 strip ratio.
Ore from both deposits will be crushed and processed in batches through the same facility, according to Woods. Up to 75% of the gold will be recovered through a simple gravity circuit. The remaining ore will be ground in a ball mill and run through flotation followed by cyanide leaching in tanks beside the mill. Total gold recovery is expected at nearly 90%.
Any remaining cyanide solution will be removed from tailings, which will then be dewatered and stacked in a storage facility located between the Rock Creek pit and the mill facility. Upon closure, the dry tailings will be contoured and covered with topsoil to promote revegetation.
Lengthy permitting process appealed
State and federal permits for Rock Creek were issued in late August 2006, several months later than expected. Crews began construction immediately, as NovaGold had already shipped equipment, supplies and construction materials to the Nome area during the short summer delivery seasons in 2005 and 2006. The first concrete pour was on Dec. 22 in -30C temperatures, Woods said. “That’s what got expensive and caused cost overruns: the winter construction work,” he said.
In December 2006, the federal agency regulating wetlands withdrew its authorizing permit, after a citizen’s group filed an appeal of that permit.
NovaGold was not named in the lawsuit, and the company was authorized to continue work on land that was not wetlands-designated, which included the Native-owned land on which the mill facility is being built.
The wetlands permit was reissued by the U.S. Army Corps of Engineers in March 2007, and NovaGold crews resumed work on that area of the project. But the environmental challenges continued, as two groups refiled their
lawsuit against the federal agency, challenging the wetlands permit.
In a June 2007 ruling, the U.S. District Court of Alaska denied a request for a temporary restraining order and sided with the Corps’ original decision, noting that NovaGold had spent considerable time, effort and expense to minimize environmental impacts. “If the project proceeds as planned, it is likely that much of the land involved will be in far better condition than it was when the project began,” the court said in its ruling.
Van Nieuwenhuyse said the company was surprised by the challenges from the small group of locals, as well as an Anchorage-based environmental organization. “We’re very discouraged to complete a very open and interactive process, then for individuals and groups that didn’t participate to challenge the permit,” he said.
Support for the project has remained strong from the company’s Alaska Native partners, Woods noted. NovaGold has a mining lease with the Bering Straits Native Corporation, the regional for-profit business entity for Natives in the Seward Peninsula area; and a surface use agreement with the Sitnasuak Native Corporation, the local village corporation.
The Native corporations also own land just west of the Rock Creek deposit, and exploration is being conducted on their holdings.
“It’s been positive for us in general, in the number of shareholders that have gone to work,” said Tim Towarak, president and CEO of Bering Straits Native Corporation. “We’re hoping to improve the quality of our life by providing employment and ultimately, income direct to the shareholders.”