Novagold on Monday said it鈥檚 to a scathing report from J Capital Research that accuses managers of the Vancouver-based explorer of 鈥渟ystematically鈥澛爉isleading investors about its proposed Alaska gold mine over the last 15 years.
J Capital, a company a decade ago which usually targets overvalued media and tech companies for short-selling, says the Donlin Gold project, which is 50-50 owned by Novagold and Barrick, 鈥渨ill never be built鈥� and 鈥渋n short, this is a stock promote, not a mining plan.鈥�
Shares in Novagold (NYSE: AMERICAN, TSX: NG) are down 15% since the publication of the report and 25% from the all-time high hit little over a month ago, pushing the company鈥檚 market value to just under $3 billion.聽聽
Novagold says its formal response will be available within a week and calls the report a 鈥渃atalogue of inaccuracies and falsehoods鈥� and adds that it is 鈥渆xploring exploring all of its legal options in various jurisdictions against J Capital Research and any other parties who may be complicit in any effort to manipulate Novagold鈥檚 share price.鈥�
Novagold鈥檚 management 鈥渉as a long history of over-promising鈥� and the Galore Creek project, 鈥渙nce promoted as the company鈥檚 key asset, was quietly sold at a loss in 2018鈥�
The Pipe dream
The report, titled , pulls no punches when it comes to Novagold management鈥檚 behavior, saying they are 鈥渢reating 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.鈥�
鈥淚f the information from the company鈥檚 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.
鈥淢anagement deliberately misleads investors with custom metrics designed to deceive, directing investors to presentations which claim the deposit will require $6.7bn in capital, however, the feasibility study clearly shows this number is $8bn (already, we believe, far too low).聽
鈥淭he proposed natural gas pipeline central to powering the project is dead on arrival. The terrain around the Donlin deposit is among the most inhospitable on the planet.鈥澛�
The icing on the cake?聽
Taking advantage of renewed market enthusiasm due to higher gold prices by cashing equity to the tune of $35m, $25m of which was in the last 12 months
J Cap says 鈥渢he costs of the pipeline (if someone were even to attempt to build it) are likely in excess of $3bn, two to four times higher than management鈥檚 previous forecast,鈥� adding that Novagold鈥檚 鈥渟ilver-tongued CEO is already preparing the ground for the inevitable pipeline failure by focusing investors on the potential for a higher-grade, smaller mine鈥�:
鈥淢anagement has drilled only 16 drill holes since 2011 and not even released the modeling results of the last, meager exploratory drill assays in 2017. If the grade had improved, they would be shouting it from the rooftops.鈥�
鈥淯nenthusiastic鈥� Barrick
J Cap says Novagold鈥檚 management 鈥渉as a long history of over-promising鈥� and points out that the Galore Creek project, 鈥渙nce promoted as the company鈥檚 key asset, was quietly sold at a loss in 2018鈥� after revised capital expenditure estimates increased by five times.
Management鈥檚 narrative hasn鈥檛 convinced everyone says J Cap: Barrick 鈥渋s so unenthusiastic about the project that it hasn鈥檛 included Donlin in its new 10-year program, despite this year鈥檚 higher gold price鈥�:
鈥淢anagement鈥檚 game is clear: keep investors interested in the stock while they rake in huge salaries. Construction of the Donlin mine was originally expected to start in 2008. Now, 12 years later, management鈥檚 best guess is that construction may start in 2022 and production in 2028.聽
The icing on the cake?聽
Taking advantage of renewed market enthusiasm due to higher gold prices by cashing equity to the tune of $35m, $25m of which was in the last 12 months.
Novagold says Donlin 鈥渋s regarded to be 鈥� and once in production, is expected to produce an average of more than one million ounces per year over a 27-year mine life.