Searching For Gold, Finding The Motherlode
Napoleon once remarked that he would prefer that his generals have luck rather than skill under the theory that you can sometimes beat skill but you can never beat luck.
Has NovaGold stumbled onto another Carlin trend at Donlin Creek? It sure looks like it.
Finding gold used to be all luck, back 150 years ago in California or 100 years ago in Alaska and the Yukon. What most people think of as gold mining is really placer mining. That's the sort of mining where you take a pan filled with gravel from a stream and slosh it around until only the gold remains in the pan. The gold comes from rock which has worn down by the action of water and streams/rivers have redistributed the gold in gravel beds associated with water. (alluvial)
In the early days, most mining was placer mining, it required a minimum of equipment and capital. But even the placer miners hoped to find the Motherlode; the source of all the weathered gold which ended up in the stream beds. Because there would be so much gold in the motherlode they surely would make their fortunes.
For 50 miles in any direction around Donlin Creek in the southwest of Alaska, placer mining has taken place for most of the last 100 years in nearly every stream. Some streams had but a dribble of gold, some could keep a miner tolling hard at work separating gold from the gravel during even the worst times for gold. But no one ever found the Motherlode, the source of all that gold, even though they all searched in vain. They may have been standing on the Motherlode and not even known it.
In 1977, government employees began a systematic program to test stream silt for trace elements in an effort to reduce the cost of gold exploration. Finding gold hadn't changed all that much in 80 years of mining in Alaska and it was at best a hit or miss proposition. The government sent out teams of men to sample every stream in known gold bearing areas. The theory was that if there was gold or other valuable minerals to be found, there should be signs in the silt and water from the creeks in the area.
High readings of gold and related trace minerals indicated a high potential for a large gold formation somewhere in the Donlin Creek area. A team of geologists working for the Calista Native Corporation carried out additional soil and rock sampling which continued to show great potential. In 1987, West Gold, a subsidiary of Anglo Gold picked up rights to two major gold properties in Alaska, Donlin Creek and the offshore placer rights for Nome.
It was a disaster for West Gold. Their work at Donlin showed the potential for a 10 kilometer long belt of high grade gold with potentially economic grades. But due to a lack of experience with shallow water dredging techniques in the harsh and treacherous Bering Sea, they busted their pick in Nome and walked away from both projects. Even though Donlin Creek would have been considered a brilliant success without the millstone of dredging at Nome.
Yet another company came onto the scene in 1993, the Teck Corporation. They ran some trenches in the southern end of the property which had not been tested and confirmed several zones over 100 feet containing in excess of three grams per ton but still walked away from the property.
In 1995, Placer Dome realized Donlin Creek contained a major system of gold which had only begun to be defined. Their first program kicked off in the same area identified by Teck as having potential. But Placer drilled far deeper than anyone had drilled before. Even the first few holes showed the system extended much deeper than anyone suspected and at the end of the first season, Placer had defined a 3 million ounce resource.
Placer continued work on the project for another five years spending a total of $30 million dollars defining the extent of a now hummongous gold deposit with 13 million ounces of resources in all categories.
As the price of gold continued to decline, the management team at Placer Dome determined they should redirect their exploration efforts to deposits in the vicinity of existing mines which could rapidly could be put into production rather than spending non-productive dollars on greenfields exploration. Placer entered joint venture agreements on a number of deposits which did not appear as if they could be fast tracked to production at a large scale.
NovaGold was invited to participate in a bid on the Donlin Creek project. Since the management of NovaGold had actually participated in the 1995 discovery efforts by Placer Dome, they held an inside edge in spite of being the only junior miner allowed to bid on the project. Their bid won and in May of 2001, Placer Dome and NovaGold announced a joint venture whereby NovaGold could earn a 70% interest in the project by expending $10 million over a 10 year project.
But NovaGold either showed great skill or great luck. Their 2001 drill schedule called for 42 holes to be drilled and they struck significant amounts of gold on 41 of the holes. In fact, most of the holes showed ore grades which would be considered extraordinary all by themselves much less as part of a 41 hole string of extraordinary holes.
Over the weekend after Thanksgiving I went to a gold conference in San Francisco where NovaGold had a booth. They had sample cores of some of their high grade intercepts on display. I reached into my pocket to pull out my ever handy 10X loop to study their high grade gold. To the untrained eye, the core sample looked like a rock. Nothing more than a piece of boring old rock. But I've been a miner (sort of) and carrying a 10X loop is just part of the game. It also gives me more credibility. I peered at the core through the loop.
It still looked just like a chunk of rock. If there was any gold in the sample, it wasn't apparent. I motioned to Greg Johnson, Vice President of NovaGold, "I don't see any visible gold," I said. He nodded, "You won't, it's all no-see-em gold. (just like the Carlin trend)"
I responded, "But this is an over-10-gram-per-ton sample!"
He answered, "It's all no-see-em gold; just like the Carlin trend, about 5 micron." (There's that word again, Carlin trend, home of the richest gold mines in the United States).
The Carlin Trend consists of a 40 mile line of low-grade deposits of disseminated gold (just like Donlin Creek) located in Nevada which accounts for over 35% of all US gold mined.
I hefted the piece of pretty boring drill core in my hands. It was the sort of rock a real Yukon miner would have used to make a shelter for his fire. The rock looked like. . . well, it looked just like a rock and nothing more.
I spent some time looking more closely at the drill results from NovaGold for their work at Donlin Creek this year. As is usual in the mining business, they released the results a little at a time in the hopes of keeping up the interest of prospective investors. But after careful consideration, I realized the impact of the drilling results are most meaningful only if considered as a whole.
When the season began, NovaGold believed they had 13.3 million ounces of resources in measured, indicated and inferred categories. Their intent in drilling was to (1) move the resources from inferred up the line to indicated or better yet, measured and (2) to define the limits of the Donlin Creek deposit.
Certainly they accomplished (1), the quality of the resources will go way up. And since 41 out of 42 holes showed significant intercepts of gold, the resources are not only going way up in quality, they are going way up in quantity. (Just like the Carlin Trend)
But their drill results from this year are like a good news, bad news joke. They totally failed to determine the limits of the deposit. On their last holes drilled, where they expected to find barren holes, they had some of the best intercepts of the entire drill program going back to 1987. They expected to find the edge of the deposit and instead, they discovered the richest portion to date.
The key to Carlin Trend type deposits is (1) they contain large amounts of disseminated gold (no-see-em) over a large area. The Carlin Trend is 40 miles long, the Donlin Creek deposit is at least 10 miles long. (2) While the gold is generally low grade, the large volume of the gold makes for very efficient and low cost mining.
Barrick's Goldstrike mine runs about 5 GPT, Newmont's Carlin mine runs 2-3 GPT, their Lone Tree mine runs about 2 GPT, Placer Dome's Cortez Complex runs 2-3 GPT. NovaGold's finds at Donlin Creek are as good or better than most of the existing mines in the Carlin Trend.
But NovaGold controls the entire trend at Donlin Creek. So instead of having multiple facilities for gold recovery, one company will develop the entire area. Of course there are negatives, every business has negatives.
Donlin Creek is 18 miles from water transportation, there is no existing power supply and labor is both in short supply and expensive. The no-see-em ore is a sulfide, refractory ore which will require a separate heating step in the recovery process. So what? They have far more ore than they ever believed before.
Remember you heard it here first; NovaGold has found a Carlin Trend deposit in Alaska. It's no-see-em gold but there is a lot of it.
Their independent resource estimate will not be released until mid-February. And even though NovaGold is an advertiser on our site, I have no more information available to me than anyone else who wants to pick up the phone to call them and ask pertinent questions. NovaGold drill results from this year indicate there is a lot more economic gold at Donlin Creek than the present resource estimate shows.
And in mid-February NovaGold will also release their scoping study. A scoping study provides a loose framework for defining the information they need to collect for an even more rigorous preliminary and later final feasibility study. Without even seeing it, I can predict they have a giant and economic gold mine on their hands, even at $275 gold.
Fully diluted there are about 36,000 million shares. The stock trades about $1.25 a share US as of now but we see it far higher with either a higher price for gold or when the scoping/resource estimate is released in mid-February.