NovaGold (NG US): The Pipe Dream
Initiation Report: May 28, 2020
J Capital Research ("J Cap") is a stock-research company. J Cap has analyzed the U.S.-listed company NovaGold Resources Inc. (“NG”) and is hereby publishing the outcome and the conclusions of our analysis, based on publicly available information. We may be short shares of NG, and, for this reason, there might be a conflict of interest.
For the last 15 years, NovaGold’s management team has systematically misled investors with subjective presentation of information about a deposit so remote and technically challenging that the mine will never be built. Over those years, they’ve been treating this 12-person concept company like an ATM, awarding themselves base salaries that rival those of the CEOs at Newmont and Barrick and total compensation packages comparable with those at Rio and BHP. If the information from the company’s feasibility studies were presented in a more honest light, investors would understand that the Donlin deposit, of which they own 50%, is not feasible to put into production at any gold price.
Management deliberately misleads investors with custom metrics designed to deceive, offering presentations claiming that the deposit will require $6.7 bln in capital, while the feasibility study clearly shows this number is $8 bln (already, we believe, far too low). The proposed natural gas pipeline to power the project is dead on arrival. The terrain around the Donlin deposit is among the most inhospitable on the planet. Based on recent cost-per-inch/mile data we obtained from ICF,1 we show the costs of the pipeline (if someone were even to attempt to build it) are likely in excess of $3 bln, two to four times higher than management’s previous forecast. One engineer we spoke with who worked on costing the project told us he doesn’t know of any engineering company that has the experience to build such a complex pipeline.
Management has a long history of misrepresentation. The Galore Creek project, once promoted as the company’s key asset, was quietly sold at a loss in 2018. In short, this is a stock promote, not a mining plan.
Some relevant documents: