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So character we do appear to have. For reasons that I perceive better now than in my youth, a more philosophical posture, especially when stress-tested in reality, has proven to be a key determinant of success. This approach certainly has not prevented me from being extraordinarily lucky in exploration – the riskiest part of a risky business – nor in the fortuitous timing of our more intrepid acquisitions and, perhaps especially, divestitures. Such susceptibility for lucky breaks has given my team at Electrum a comparative advantage that we’ve pressed on numerous occasions over the past 25 years. Our track record can attest to the fact that the fruits of good fortune have much, much more outweighed any limitations presumably imposed by my personal ethos, summed up by Electrum’s corporate motto: “Intelligence is a commodity; character is a currency.”
5 Why is the state of the gold industry a plus for NOVAGOLD in ways that are perhaps even distinct from most of your peers?
The answer is both qualitative and quantitative.
Over the last decade, the average grade of gold mines has collapsed – and I suspect that it will fall below a gram per tonne. Donlin represents multiples of that. So much for making the case for the quality (and thus also the concomitantly lower operating cost) side of the equation for Donlin. For a large-scale open pit located in a safe jurisdiction, this kind of grade is about as magnificent as one could ask for.
From the quantitative side, it gets even better. During the time that we’ve been invested in NOVAGOLD, there have been fewer gold discoveries of any size (by that I mean over 5 million ounces)1 than in recent memory. Just to exhibit our leverage to low-hanging fruit, Donlin Gold actually features 6 million ounces of inferred mineral resources2 –two-thirds of which are immediately within the Reserve pit! And we believe there is likely much, much more beyond that. Remember Dr. Larry Buchanan’s observation: the present resource base is drawn from only 3km of an 8km mineral belt, which in and of itself represents less than 5% of the property.
This resource upside is hugely important in today’s world. For it is exceedingly atypical. With no real discoveries of size – and the years, if not decades, it takes to put these discoveries into reserves – the majors are burning through their reserves faster than they can replace them. This phenomenon is unlikely to change. In contrast to the case with peak oil, the supply/demand dynamic of the gold industry suffers from none of the supply variables that have rocked the hydrocarbon markets. Even if this were not the case, it wouldn’t matter: there are simply no known vast, shale-like, trapped resources to be tapped with new technologies such as fracking or horizontal drilling.
The industry can barely even find the gold. Part of the reason lies in the technology it uses, which is rather primitive. The mining industry doesn’t possess exploration tools characterized by anything approaching the accuracy of 3D seismic. If a discovery is to be made, it’s still more likely to be by prospectors on donkeys (or, perhaps only slightly more probable now, 4-wheel drives). And if those 1,000:1-10,000:1 odds of navigating a prospect to a mine are successfully bucked, it could still take 20-plus years – let me repeat: 20-plus years – to take the project up the value chain from prospect to first pour. Basically, from a mine supply standpoint, the horse has already left the barn and the barn door has been firmly closed behind it.
In essence, the next bull market in gold will not be met by a tsunami of mine supply. Quite the opposite, in fact. People will be shocked by how little mine supply is available. The developing world is unlikely to fill the pipeline. For with the “go where the gold is” mentality fairly crippled, and perhaps mortally so, it’s quite possible that the risky jurisdictions shall prove to be uninvestable and unfinanceable for geopolitical and other reasons, including of course the rising trend toward resource nationalism and various degrees of political unreliability.
1) 2)
S&P Global Market Intelligence, “Growth in gold discoveries driven by older deposits”, June 25, 2019.
Represents 100% of inferred mineral resources, of which NOVAGOLD’s share is 50%. See “Cautionary Note Concerning Reserve and Resource Estimates” and “Mineral Reserves and Mineral Resources” table on page 46. Inferred resources have a great amount of uncertainty as to their existence and as to whether they can be mined legally or economically.