A rich moose pasture for a Canadian gold stock
This U.S. advisory is high on a junior Canadian gold stock as it takes control of a northern Alaskan property that’s rich in more than gold.
Gold got a bit tarnished yesterday.
The April gold contract on the New York Stock Exchange fell $6, pulling the price of gold below $1,100.
Gold bugs would probably say it’s a good time to buy gold stocks.
Get ‘em when the price goes down might be the rallying cry of those who believe gold will not lose its lustre in the unpredictable times ahead.
Of course it might be an even better deal if you were getting a big load of copper, zinc and silver into the bargain.
And that’s what you’d find if you travelled to the “moose pasture and mosquito breeding ground” north of the Arctic Circle with one Canadian junior gold miner.
Our guide is a U.S. advisory that has had NovaGold (TSX/NYSE-NG) in its Small Cap Value Portfolio for the past year.
This is the story of what may be one of the richest mines in the world.
Worth a fortune
“The story just keeps getting better for our junior gold mining companies,” writes Mr. Gregory Dorsey in The Complete Investor.
Last month, NovaGold announced that is was taking full control of the Ambler property in northern Alaska by purchasing the 49 per cent it did not already own.
It bought the property on very good terms from London’s Rio Tinto (NYSE-RTP). The total cost in stock and cash will be $29 million, with $5 million cash up front.
But it’s what’s on this 90,614-acre property that makes it such a good deal. It contains “vast deposits of copper, zinc, gold and silver that are worth a fortune,” says Mr. Dorsey.
“A 2008 estimate indicates that Ambler contains among the largest and richest known copper-zinc volcanogenic massive sulfide deposits in the world in terms of both total contained metal and value per ton of ore.”
The Geological Survey of Canada, by the way, describes volcanogenic massive sulphide, or VMS, deposits as “one of the most desirable deposit types for security against fluctuating prices of different metals.”
Adds the author: “At current prices, the street value of the indicated copper alone is worth more than $5 billion.” Add the other metals, and the value climbs to some $8.5 billion, which makes the $29 million purchase price a bargain.
A history of success
There may, in fact, be even more metal to be found in the deposits, Mr. Dorsey reports. “And given the company’s history of exploration successes at its other properties, it won’t surprise us in the least if the current estimate is revised upward.”
It won’t happen overnight. It will require “a great deal of work bringing those metals to market,” the author says.
You can’t amble to Ambler. It is in a very remote area 225 miles from the sea with no infrastructure to speak of. “Even after roads are built, a power source installed, and facilities erected, operating conditions will be difficult,” states Mr. Dorsey.
180 miles to the northeast is the world’s largest zinc mine, the Red Dog, owned by Teck Resources (TSX-TCK.B). There, weather conditions allow shipments only from July to October.
It will cost a great deal of money to get things going, and NovaGold will undoubtedly have to issue more stock. But don’t let that discourage you, the author tells investors.
While all this is going on, “the value of its in-situ assets should increase considerably,” he says. “And shareholders will likely be rewarded with sharply appreciating stock long before the first ounce of metal is smelted.”
Large reserves and resources
Investors will not be relying solely on the prospects at Ambler, the author points out. NovaGold already has one of the largest reserve and resource bases of any junior or mid-tier firm.
It has a 50-50 arrangement with Barrick Gold (TSX-ABX) on the Donlin Creek gold mine in Alaska.
It is also a partner with Teck on the well-known Galore Creek copper-gold project in B.C. Over two years ago, the closing of this project brought grief to both companies. But some legal issues were recently cleared up, and the fact is that this property is simply too rich not to be exploited.
NovaGold also is the 100 per cent owner of the Rock Creek, Big Hurrah and Nome Gold deposits in Nome, Alaska.
“The stock was an outstanding performer last year but remains far below where we expect it to trade in the years ahead,” concludes Mr. Dorsey. It rose as high as $7.20 last year and is now trading at $5.87. There is no dividend.
Canadians have always been good at making a mountain of wealth out of a moose pasture. If the prospect attracts a sizeable group of American investors, then so much the better.
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