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Going for the Gold

Bob Moriarty
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October 30, 2004

NovaGold
Three years ago I began writing about gold companies. I began with an article about a tiny gold company called NovaGold. The piece was the first in a series of my writing about potential investments in gold and silver companies.

When I wrote about NovaGold the stock sold for about $1 a share and the company had a $26 million dollar market cap. Today the shares sell for about $8.50 and the company sports a $500 million market cap with twice as much money in the bank as they were worth back then.

I started by talking about the concept of vision in the gold mining business. I'd like to humbly suggest I was right, the founders of NovaGold had vision by the boat load and it reflects in their share price.

I feel quite proud of being one of the first writers to see the potential of NovaGold. Those few readers who came to visit our brand new website who invested in the company have all done quite well, it would be almost impossible not to, the stock is setting new highs on a regular basis.

We are quite proud of the companies we have written about, most of them have been winners and we know that any regular readers have done well over the past three years. It's a bull market but it always helps to have some good advice.

Eagle Plains
I've mentioned my next company before. They have vision in spades. Interestingly enough, this company's biggest to date project is a JV with NovaGold in British Columbia. Eagle Plains [EPL-V $.53 36.5 million shares; website] not only has vision, they also have about 30 different project with 7 in JVs now with some of the biggest and best companies in the business.

The star project of the stable is Copper Canyon. I was up there with Tim Termuende, President and CEO of Eagle Plains a couple of weeks ago. Copper Canyon is in the far reaches of Northern BC, currently accessible only by helicopter.

The weather was rotten the day we went to Galore Creek/Copper Canyon. We got in ok, but the ceiling dropped and we had to fly IFR (I Follow River) on the way out.

Interestingly enough, that's how the deposit was found in the first place. In 1955. In the early days of exploration by chopper, some geos looked out the door of their airplane and saw typical copper staining spread far and wide over a hillside. That was the first discovery.

The dreadful weather, however, didn't stop me getting out one of my trusty gold panning pans.

NovaGold's Galore Creek deposit is a mere 6km away and Barrick Gold's Eskay Creek mine is only 80km south.

Copper Canyon has never been developed even though all drilling to date, even back to the early days, indicated potential for a massive deposit. (read). But the deposit is in the middle of nowhere. Far more money and effort has been spent on the sister project right next door, Galore Creek. But both deposits share the same need for infrastructure development. Past work in the 60's and 70's on both projects focused solely on the copper since gold was only $35 per ounce at that time. Today with gold prices above $400 per ounce, precious metals more than double the value of the deposits and needed road and power infrastructure is now much closer.

In 2003 when Placer Dome decided to back in to the Donlin Creek JV with NovaGold, the NovaGold guys went looking for a new world class project to run. NovaGold made the decision to advance Galore Creek, and in late 2003 made the best suggestion ever regarding the two projects. Since the cost of a road into the project area was in the $100 million area, NovaGold signed a JV with Eagle Plains to fast track both Copper Canyon and Galore Creek as a consolidated mine development project.

To date, Galore Creek has a 5.2 million ounce gold resource and 5.8 billion pounds of copper. Drilling this season has been taking place at a frantic pace with five drill rigs turning on a 20,000 meter program costing well over $8 million just this year. NovaGold has 80 people working on site.

NovaGold will be releasing an updated 43-101 on Galore Creek later this year. They believe Copper Canyon has the potential for at least 1-2 million ounces of gold and a billion pounds of copper.

While Copper Canyon doesn't now appear to be as large as Galore Creek, like Galore the mineralization starts right at surface and there could be significant benefits from developing the two projects together since they could share the same mine infrastructure.

The JV between Eagle Plains and NovaGold calls for NovaGold to earn up to a 60% interest in Copper Canyon by spending $3 million Canadian in exploration on the property, and the issue of about 295,000 shares of NovaGold to Eagle Plains.

The deal is better than a free ride for Eagle Plains and that's a pretty good deal. NovaGold keeps hitting new highs and is $8.63 per share so the 295,000 shares in Eagle Plains treasury are worth well over $2.5 million dollars. Regardless of any production decision made for Galore Creek/Copper Canyon, the shareholders of Eagle Plains have a free ride on all of NovaGold's raft of major projects.

Also NovaGold can pick up an additional 20% of Copper Canyon by making an additional payment of $1 million and completing a feasibility study by 2011.

I'll interject here, just for a moment, that NovaGold has always been one of my favorite juniors and everyone should at least consider it as a core position. The stock has been undervalued for all of the last three years and you are getting gold in the ground for about $17 an ounce and that's based on $300 gold. That's what's known in Miami as "El Goodo Dealo."

Eagle Plains is a NovaGold junior, with more projects on their plate than NovaGold had three years ago and a smaller market cap. For some reason the stock just seems to fly slightly under the radar screen of most investors.

While we were in BC we also drove over to another gold property of Eagle Plains, the Kalum gold-copper project. By a perfectly-timed private placement, Eagle Plains raised $3.7 million earlier this year and earmarked some of it for grassroots exploration at Kalum just 30km Northeast of Terrace and accessible by road.

By doing at least basic drilling on their more attractive properties, Tim is improving the quality of the project. When someone comes to talk about doing a JV, he has increased the value of the property. And should they hit the motherlode on the first drill hole (anything is possible) they can develop it themselves.

You can think of having 30+ properties as sort of a gold/silver/copper lottery. The more tickets you hold, the better your chances. They have so many projects at various stages that some of them are certain to hit major discoveries.

I can't find the report but one analyst suggested Copper Canyon was worth $3 to Eagle Plains all by itself. I didn't disagree when I read it and while I can't quote it word for word, I'll suggest that at $.53 there just isn't much risk in Eagle Plains and there are a lot of nice projects and superb management. I like their vision a lot.

Tim called me the day I finished this report and we were talking about the price of his stock. Like NovaGold, I have always believed Eagle Plains was way undervalued. For no other reason than it's really hard to put a value on so many different projects. People have never understood or correctly valued NovaGold ($17 an ounce for gold, that's cheap) and they are undervaluing Eagle Plains. But that's what creates opportunity, seeing value when others won't.

But at times, even the gold share market is so absurd, so blind to value that no matter what you do, the market doesn't get it. For example, Eagle Plains/NovaGold just released results from this year's program at Copper Canyon. I quote from the report, "CC04-023 which intersected a total of 274 meters of 1.31% CuEq (2.16 g/t AuEq).

If you take that 274 meters of 2.16 gram per tonne gold equivalent and cube it, 274x274x274 and figure in the gold basis and divide by the number of grams in an ounce, you come up with a figure of 1.4 million ounces of gold equivalent in the ground. That's a giant hole, a world class hole. (read).

The market nodded and went back to sleep. The stock actually went down on the news. But that's what happens in the very early stages of a bull market. With gold very near the highest it's been in years, a company announces world class results and the stocks goes down. That's also very very good news. When stocks start going up on rotten news, it will be a good time to sell. But for now you can't do too bad buying about anything.

You could do far worse than investing in Eagle Plains. The market will wake up one of these days and you will be rewarded for your patience.

click images to see larger photos
Terrible weather Bob panning in the rain . Tim & Dorothy Galore Creek Camp
w/central heating!

I'll comment here for just a moment on some other news I think significant. The majors have finally figured out that $425 gold is a lot higher than $252 gold and have begun doing deals with juniors. One of the hottest plays in gold today is the Cortez trend.

Miranda Gold
On the 19th of October, Miranda (MAD $.70 Canadian 22.2 million shares; website) announced a JV with Newmont whereby Newmont can earn a 60% interest in Miranda's Red Canyon project by spending $2.5 million in exploration by 2009. Newmont can earn an additional 10% of the project by completing a bankable feasibility study. (read).

Miranda has acquired eight new properties in the Cortez belt and is well positioned.

Nevada Pacific
And on the 21st of October, Nevada Pacific [NPG $.96 46 million shares; website] announced a deal with Placer Dome on the same Cortez Trend. Placer Dome can earn a 60% interest in Nevada Pacific's Keystone Gold project by spending $5 million over five years and an additional 15% by completing a full feasibility study. Nevada Pacific retains 100% of the silver and base metal production.

These announcements are important because for the first time in years, the senior mining companies are doing deals with juniors. They aren't yet at the stage where they are snapping up the juniors, but since 1997, the seniors have been eating their young; mining their resources but not replacing them.

We are in the early stages of a gold bull market. Since 2001 gold has gone up only about as much as the dollar has dropped so it is hardly a roaring bull market. Silver, lead, zinc and oil have done about the same so we aren't in a commodities bull market as much as we are in a dollar bear market.

When a Director of the Dallas Fed actually tells an audience that pretty much the only direction for the dollar is down, you may rest assured that he is giving you only the good news. The bad news is probably far worse. We may be in for a collapse of the dollar and when that happens, you won't be worrying about whether your gold stock responded positively to news or not. You will be thrilled to be in something which actually is an insurance policy against disaster.

Adanac
A couple more mining stocks which are worth looking at right now, Adanac [AUA $.55 Canadian 22 million shares outstanding; website]) has been getting remarkable moly drill results. I wrote a piece on them in August after a visit to their Atlin lake property. At the time the stock was $.54 and moly was $16. The price of the stock is now $.55 and moly is $21. Buying Adanac is like stealing, but legal. Don't chase it but when the price is right, if you like stainless steel demand in the future, you should think about Adanac.

Desert Sun Mining
Another absurdly priced stock is Desert Sun Mining [DSM $1.33 Canadian 59 million shares outstanding; website]. Desert Sun is restarting the Jacobina mine in Brazil. I wrote about them in May.

The stock was $1.33 They are going into production in Q1 of 2005, with an estimated cost of production at $189 per ounce of gold, 102,000 ounces a year. The stock hasn't moved a cent in 4 months. That doesn't make a lick of sense. The two times you want to get into a stock are just as they start announcing big finds and just as they are going into production. The stock was far higher a year ago when they were 15 months from production.

These companies are advertisers on 321Gold. They have not paid to be written about, we just happen to know them a lot better than the 500 or so mining companies out there competing for bandwidth. We own shares in some of them and can be counted on to be biased. We are biased, we like them a lot.

By the time you read this I will be in the wilds of Kazakhstan with Dragon Sally to look at another mining property. It's colder than a welldigger's butt, so I'm told. There's no Harrods or gold shops 'just down the road from my hotel,' so I fear that Barb's gonna have to luck out on a Trip Treat this time around. Did I say hotel? Hmmm - the hotel name wasn't mentioned in the itinerary and Barb say I could be sleeping here and bathing here.

It's a flying visit, and I'll be back Tuesday Nov 2nd so please don't email me until then.

Written October 25, 2004
Bob Moriarty
President: 321gold Inc
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