You should carefully consider
the following risk factors in addition to the other information included in this Annual Report on Form 10-K. Each of these
risk factors could adversely affect our business, operating results and financial condition, as well as adversely affect the value
of an investment in our common shares. The risks described below are not the only ones facing the Company. Additional risks that
we are not presently aware of, or that we currently believe are immaterial, may also adversely affect our business, operating results
and financial condition. We cannot assure you that we will successfully address these risks or that other unknown risks exist or
may arise that may affect our business.
An investment in our securities is speculative
and involves a high degree of risk due to the nature of our business and the present stage of exploration and development of our
mineral properties. The following risk factors, as well as risks not currently known to us, could materially adversely affect our
future business, operations and financial condition and could cause them to differ materially from the estimates described in the
forward-looking statements relating to us.
Risks Related to Our Business
We have no history of commercially
producing precious or base metals from our mineral exploration properties and there can be no assurance that we will successfully
establish mining operations or profitably produce precious or base metals.
None of our mineral properties are in production,
we have no history of commercially producing precious or base metals from our current portfolio of mineral properties, and we have
no ongoing mining operations or revenue from mining operations. Mineral exploration and development involves a high degree of risk
and few properties that are explored are ultimately developed into producing mines. None of our mineral properties are currently
under construction. The future development of any mineral properties found to be economically feasible will require obtaining permits
and financing and the construction and operation of mines, processing plants and related infrastructure. As a result, we are subject
to all of the risks associated with establishing new mining operations and business enterprises, including:
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the need to obtain necessary environmental and other governmental approvals and permits, and the
timing and conditions of those approvals and permits;
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the availability and cost of funds to finance construction and development activities;
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the timing and cost, which can be considerable, of the construction of mining and processing facilities
as well as related infrastructure;
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potential opposition from non-governmental organizations, environmental groups or local groups
which may delay or prevent development activities;
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potential increases in construction and operating costs due to changes in the cost of labor, fuel,
power, materials and supplies, services, and foreign exchange rates;
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the availability and cost of skilled labor and mining equipment; and
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the availability and cost of appropriate smelting and/or refining arrangements.
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The costs, timing and complexities of mine construction
and development are increased by the remote location of our mineral properties, with additional challenges related thereto, including
access, water and power supply, and other support infrastructure. Cost estimates may increase significantly as more detailed engineering
work and studies are completed on a project. New mining operations commonly experience unexpected costs, problems and delays during
development, construction, and mine start-up. In addition, delays in the commencement of mineral production often occur. Accordingly,
there are no assurances that our activities will result in profitable mining operations, or that we will successfully establish
mining operations, or profitably produce precious or base metals at any of our mineral properties.
In addition, there is no assurance that our
mineral exploration activities will result in any discoveries of new ore bodies. If further mineralization is discovered there
is also no assurance that the mineralized material would be economical for commercial production. Discovery of mineral deposits
is dependent upon a number of factors and significantly influenced by the technical skill of the exploration personnel involved.
The commercial viability of a mineral deposit is also dependent upon a number of factors which are beyond our control, including
the attributes of the deposit, commodity prices, government policies and regulation, and environmental protection requirements.
We have a history of net
losses and expect losses to continue for the foreseeable future.
We have a history of net losses and we expect
to incur net losses for the foreseeable future. None of our mineral properties have advanced to the commercial production stage
and we have no history of earnings or cash flow from operations. We expect to continue to incur net losses unless and until such
time as one or more of our projects enter into commercial production and generate sufficient revenues to fund continuing operations
or until such time as we are able to offset our expenses against the sale of one or more of our mineral properties, if applicable.
The development of our mineral properties to achieve production will require the commitment of substantial financial resources.
The amount and timing of expenditures will depend on a number of factors, including the progress of ongoing exploration and development,
the results of consultants’ analyses and recommendations, the rate at which operating losses are incurred, the process of
obtaining required government permits and approvals, the availability and cost of financing, the participation of our partners,
and the execution of any sale or joint venture agreements with strategic partners. These factors, and others, are beyond our control.
There is no assurance that we will be profitable in the future.
Our ability to continue the
exploration, permitting, development, and construction of the Donlin Gold and Galore Creek projects, and to continue as a going
concern, will depend in part on our ability to obtain suitable financing.
We have limited financial resources. We will
need external financing to develop and construct the Donlin Gold project and, if applicable, the Galore Creek project. On December 5,
2011, we announced the total capital cost estimate for the Donlin Gold project was approximately $6.7 billion including costs related
to the natural gas pipeline (100% basis). Our failure to obtain sufficient financing could result in the delay or indefinite postponement
of exploration, development, construction, or production at the Donlin Gold project or any or all of our other mineral properties.
The cost and terms of such financing may significantly reduce the expected benefits from new developments and/or render such developments
uneconomic. There can be no assurance that additional capital or other types of financing will be available when needed or that,
if available, the terms of such financing will be favorable. Our failure to obtain financing could have a material adverse effect
on our growth strategy and results of operations and financial condition. In addition, we may have to sell one or more of our mineral
properties.
We intend to fund our plan of operations from
working capital, the proceeds of financings, and the potential sale of our interest in the Galore Creek project. In the future,
our ability to continue our exploration, permitting, development, and construction activities, if any, will depend in part on our
ability to obtain suitable financing. If we raise additional funding by issuing additional equity securities or other securities
that are convertible into equity securities, such financings may substantially dilute the interest of existing or future shareholders.
Sales or issuances of a substantial number of securities, or the perception that such sales could occur, may adversely affect the
prevailing market price for our common shares. With any additional sale or issuance of equity securities, investors will suffer
dilution of their voting power and may experience dilution in our earnings per share.
There can be no assurance that we will commence
production at any of our mineral properties or generate sufficient revenues to meet our obligations as they become due or obtain
necessary financing on acceptable terms, if at all. Our failure to meet our ongoing obligations on a timely basis could result
in the loss or substantial dilution of our interests (as existing or as proposed to be acquired) in our mineral properties. In
addition, should we incur significant losses in future periods, we may be unable to continue as a going concern, and realization
of assets and settlement of liabilities in other than the normal course of business may be at amounts materially different than
our estimates.
Actual capital costs, operating
costs, production and economic returns may differ significantly from those we have anticipated and there are no assurances that
any future development activities will result in profitable mining operations.
The capital costs to take our projects into
production may be significantly higher than anticipated. Escalation of costs was a significant factor in the decision to suspend
construction at the Galore Creek project in 2007. On December 5, 2011, we announced the total capital cost estimate for the
Donlin Gold project of approximately $6.7 billion including costs related to the natural gas pipeline (100% basis). The previous
capital cost estimate for the project released in April 2009 was $4.5 billion, which did not include the cost of a natural gas
pipeline.
None of our mineral properties have an operating
history upon which we can base estimates of future operating costs. Decisions about the development of these and other mineral
properties will ultimately be based upon feasibility studies. Feasibility studies derive estimates of cash operating costs based
upon, among other things:
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anticipated tonnage, grades and metallurgical characteristics of the ore to be mined and processed;
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anticipated recovery rates of gold, copper and other metals from the ore;
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cash operating costs of comparable facilities and equipment; and
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anticipated climatic conditions.
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Capital costs, operating costs, production and
economic returns, and other estimates contained in studies or estimates prepared by or for us may differ significantly from those
anticipated by our current studies and estimates, and there can be no assurance that our actual operating costs will not be higher
than currently anticipated.
Changes in the market price
of gold, copper and other metals, which in the past have fluctuated widely, affect our financial condition.
Our profitability and long-term viability depend,
in large part, upon the market price of gold, copper and other metals and minerals produced from our mineral properties. The market
price of gold and other metals is volatile and is impacted by numerous factors beyond our control, including:
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global or regional consumption patterns;
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expectations with respect to the rate of inflation;
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the relative strength of the U.S. dollar and certain other currencies;
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global or regional political or economic conditions, including interest rates and currency values;
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supply and demand for jewelry and industrial products containing metals; and
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sales by central banks and other holders, speculators and producers of metals in response to any
of the above factors.
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We cannot predict the effect of these factors
on metal prices. A decrease in the market price of gold, copper and other metals could affect our ability to finance the development
of the Donlin Gold and Galore Creek projects, and the exploration and development of other mineral properties held by us, which
would have a material adverse effect on our financial condition and results of operations. There can be no assurance that the market
price of gold, copper and other metals will remain at current levels or that such prices will improve. In particular, an increase
in worldwide supply, and consequent downward pressure on prices, may result over the longer term from increased production from
the development of new or expansion of existing mines. There is no assurance that if commercial quantities of gold, copper and
other metals are discovered, that a profitable market may exist or continue to exist for a production decision to be made or for
the ultimate sale of the metals.
General economic conditions
may adversely affect our growth, future profitability and ability to finance.
The unprecedented events in global financial
markets in the past several years have had a profound impact on the global economy. Many industries, including the mining industry,
are impacted by these market conditions. Some of the key impacts of the recent financial market turmoil include contraction in
credit markets resulting in a widening of credit risk, devaluations, high volatility in global equity, commodity, foreign exchange
and precious metal markets and a lack of market liquidity. The price of gold and gold mining company equities have experienced
significant declines over the past few years.
Continued lower or a worsening of gold prices
or slowdown in the financial markets or other economic conditions, including but not limited to, consumer spending, employment
rates, business conditions, inflation, fuel and energy costs, consumer debt levels, lack of available credit, the state of the
financial markets, interest rates and tax rates, may adversely affect our growth and ability to finance. Specifically:
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global economic conditions could make other investment sectors more attractive, thereby affecting
the cost and availability of financing to us and our ability to achieve our business plan;
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the volatility of metal prices would impact the economic viability of our mineral properties and
any future revenues, profits, losses and cash flow;
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negative economic pressures could adversely impact demand for future production from our mineral
properties;
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construction related costs could increase and adversely affect the economics of any of our projects;
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volatile energy, commodity and consumables prices and currency exchange rates would impact our
future production costs; and
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the devaluation and volatility of global stock markets would impact the valuation of our equity
and other securities.
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We have a limited property
portfolio.
At present, our only material mineral properties
are the interests that we hold in the Donlin Gold and Galore Creek projects. Unless we acquire or develop additional mineral properties,
we will be solely dependent upon these properties. If no additional mineral properties are acquired by us, any adverse development
affecting our operations and further development at either or both of the Donlin Gold and Galore Creek projects may have a material
adverse effect on our financial condition and results of operations.
We are dependent on third
parties that participate in or are responsible for exploration and development of our properties.
Our success depends on the efforts and expertise
of third parties with whom we have contracted. With respect to each of the Donlin Gold and Galore Creek projects, we hold a 50%
interest and the remaining 50% interest is held by a third party that is not under our control or direction. We are dependent on
such third parties for accurate information relating to our mineral properties and related assets and the progress and development
of such properties and assets. Third parties may also have different priorities which could impact the timing and cost of development
of either or both of the Donlin Gold and Galore Creek projects. A third party may also be in default of its agreement with us,
without our knowledge, which may put the mineral property and related assets at risk. The existence or occurrence of one or more
of the following circumstances and events could have a material adverse impact on our ability to achieve our business plan, profitability,
or the viability of our interests held with third parties, which could have a material adverse impact on our business, future cash
flows, earnings, results of operations and financial condition: (i) disagreement with our business partners on how to develop and
operate the mineral properties efficiently; (ii) inability to exert influence over certain strategic decisions made in respect
of jointly held mineral properties; (iii) inability of our business partners to meet their obligations to the joint business or
third parties; and (iv) litigation with our business partners regarding joint business matters.
We require various permits
to conduct our current and anticipated future operations, and delays or a failure to obtain such permits, or a failure to comply
with the terms of any such permits that we have obtained, could have a material adverse impact on us.
Our current and anticipated future operations,
including further exploration and development activities and commencement of production on our mineral properties, require permits
from various United States and Canadian federal, state, provincial, territorial and local governmental authorities. There can be
no assurance that all permits that we require for the construction of mining facilities and to conduct mining operations will be
obtainable on reasonable terms, or at all. Delays or a failure to obtain such permits, or a failure to comply with the terms of
any such permits that we have obtained, could have a material adverse impact on us.
The duration and success of efforts to obtain
and renew permits are contingent upon many variables not within our control. Shortage of qualified and experienced personnel in
the various levels of government could result in delays or inefficiencies. Backlog within the permitting agencies could affect
the permitting timeline of the various projects. Other factors that could affect the permitting timeline include (i) the number
of other large-scale projects currently in a more advanced stage of development which could slow down the review process and (ii)
significant public response regarding a specific project. As well, it can be difficult to assess what specific permitting requirements
will ultimately apply to each of the projects.
The figures for our mineral
resources and mineral reserves are estimates based on interpretation and assumptions and may yield less mineral production under
actual conditions than is currently estimated.
Unless otherwise indicated, mineralization figures
presented in this Annual Report on Form 10-K and in our other filings with securities regulatory authorities, press releases
and other public statements that may be made from time to time are based upon estimates made by our personnel and independent professionals.
These estimates use mining terms as defined in accordance with Canadian NI 43-101 and CIM Definition Standards on Mineral Resources
and Mineral Reserves, adopted by the CIM Council, as amended. These definitions differ from the definitions in the SEC Industry
Guide 7. For further information, see
Cautionary Note to U.S. Investors Regarding Estimates of Measured, Indicated and Inferred
Resources and Proven and Probable Reserves
above. In addition, these estimates are imprecise and depend upon geologic interpretation
and statistical inferences drawn from drilling and sampling analysis, which may prove to be unreliable. There can be no assurance
that:
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these estimates will be accurate;
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mineral reserve, mineral resource or other mineralization figures will be accurate; or
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this mineralization could be mined or processed profitably.
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Because we have not commenced commercial production
at any of our mineral properties, mineralization estimates for our properties may require adjustments or downward revisions based
upon further exploration or development work, actual production experience, or changes in the price of gold, copper or other metals.
In addition, the grade of ore ultimately mined, if any, may differ from that indicated by drilling results. There can be no assurance
that percentage of minerals recovered in small-scale tests will be duplicated in large-scale tests under on-site conditions or
at production scale.
The SEC does not permit mining companies in
their filings with the SEC to disclose estimates other than mineral reserves. However, because we are a Canadian company, we also
prepare and file reports in accordance with Canadian disclosure requirements. These disclosures contain resource estimates, which
are required by Canada’s NI 43-101.
Mineral resource estimates for mineral properties
that have not commenced production are based, in many instances, on limited and widely spaced drill hole information, which is
not necessarily indicative of the conditions between and around drill holes. Accordingly, such mineral resource estimates may require
revision as more drilling information becomes available or as actual production experience is gained. No assurance can be given
that any part or all of our mineral resources constitute or will be converted into reserves.
The estimating of mineral reserves and mineral
resources is a subjective process that relies on the judgment and experience of the persons preparing the estimates. The process
relies on the quantity and quality of available data and is based on knowledge, mining experience, analysis of drilling results
and industry practices. Valid estimates made at a given time may significantly change when new information becomes available. By
their nature, mineral resource and reserve estimates are imprecise and depend, to a certain extent, upon analysis of drilling results
and statistical inferences that may ultimately prove to be inaccurate. There can be no assurances that actual results will meet
the estimates contained in studies.
Estimated mineral reserves or mineral resources
may have to be recalculated based on changes in metal prices, further exploration or development activity, or actual production
experience. In addition, if production costs increase, recovery rates decrease, if applicable laws and regulations are adversely
changed, there is no assurance that the anticipated level of recovery will be realized or that mineral reserves or mineral resources
as currently reported can be mined or processed profitably. This could materially and adversely affect estimates of the volume
or grade of mineralization, estimated recovery rates or other important factors that influence mineral reserve or mineral resource
estimates. The extent to which mineral resources may ultimately be reclassified as mineral reserves is dependent upon the demonstration
of their profitable recovery. Any material changes in mineral resource estimates and grades of mineralization will affect the economic
viability of placing a mineral property into production and a mineral property’s return on capital. We cannot provide assurance
that mineralization identified at our mineral properties can or will be mined or processed profitably.
The resource and reserve estimates contained
in this Annual Report on Form 10-K have been determined and valued based on assumed future prices, cut-off grades and operating
costs that may prove to be inaccurate. Extended declines in market prices for gold, silver and copper may render portions of our
mineralization uneconomic and result in reduced reported mineralization. Any material reductions in estimates of mineralization,
or of our ability to extract this mineralization, could have a material adverse effect on our ability to implement our growth strategy,
the results of operations or our financial condition.
We have established the presence of proven and
probable reserves at our Donlin Gold and Galore Creek projects under Canadian standards. There can be no assurance that any resource
estimates for our mineral projects will ultimately be reclassified as mineral reserves. There can be no assurance that subsequent
testing or future studies will establish proven and probable mineral reserves at our other mineral properties, if any. The failure
to establish proven and probable mineral reserves could restrict our ability to successfully implement our strategies for long-term
growth and could impact future cash flows, earnings, results of operation and financial condition.
Significant uncertainty exists
related to inferred mineral resources.
There is a risk that inferred mineral resources
referred to in this Annual Report on Form 10-K cannot be converted into measured or indicated mineral resources. Due to the
uncertainty relating to inferred mineral resources, there is no assurance that inferred mineral resources will be upgraded to resources
with sufficient geological and grade continuity to constitute measured and indicated resources as a result of continued exploration.
The proposed sale of our
50% interest in Galore Creek may not occur.
Part of our current business strategy is to
sell all or part of our 50% interest in the Galore Creek Partnership. Our management expects to continue to evaluate disposition
opportunities on a regular basis and intends to pursue opportunities that management believes are in our long-term best interests.
Competition in the mining business for limited sources of capital could adversely impact our ability to dispose of our interest
in the Galore Creek Partnership and as a result we may not be successful in identifying a purchaser or in obtaining an offer at
an acceptable price and on acceptable terms and conditions. As a result, there is no assurance that we will be able to dispose
of our interest in the Galore Creek Partnership; in which case we expect to continue with the joint development of the Galore Creek
project through the Galore Creek Partnership, which would result in increased capital requirements for us to fund our portion of
project development.
Lack of infrastructure could
delay or prevent us from developing advanced projects.
Completion of the development of the Donlin
Gold and Galore Creek projects is subject to various requirements, including the availability and timing of acceptable arrangements
for power, water, transportation, access and facilities. The lack of availability on acceptable terms or the delay in the availability
of any one or more of these items could prevent or delay development of these projects. There can be no assurance that adequate
infrastructure, including access and power supply, will be built, that it will be built in a timely manner or that the cost of
such infrastructure will be reasonable or that it will be sufficient to satisfy the requirements of the projects. If adequate infrastructure
is not available in a timely manner, there can be no assurance that:
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the development of our mineral properties will be commenced or completed on a timely basis, if
at all;
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the resulting operations will achieve the anticipated production volume; or
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the construction costs and ongoing operating costs associated with the development of our mineral
properties will not be higher than anticipated.
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Access to the Donlin Gold and Galore Creek projects
is limited and there is no infrastructure in the respective areas. At the Donlin Gold project, an approximately 500-kilometer long
natural gas pipeline is needed to supply fuel to the generating plant proposed to provide power for the project. The proposed pipeline
would traverse generally undeveloped areas in Alaska that are difficult to access. Terrain, geologic conditions, ground conditions,
steep slopes, weather, and other natural conditions that are beyond our control along the pipeline route present design, permitting,
construction, and operational challenges for the project. Cost and schedule estimates may increase significantly as more detailed
engineering work, geotechnical and geological studies are completed.
Title and other rights to
our mineral properties are subject to agreements with other parties.
The subsurface mineral and surface rights at
the Donlin Gold project are owned by Calista Corporation and The Kuskokwim Corporation, respectively, two Alaska Native corporations.
Donlin Gold operates on these lands pursuant to a Mining Lease with Calista Corporation and a Surface Use Agreement with The Kuskokwim
Corporation. The ability of Donlin Gold to continue to explore and develop the Donlin Gold project depends upon its continued compliance
with the terms and conditions of the Mining Lease and Surface Use Agreement. Furthermore, our ability to continue to explore and
develop other mineral properties may be subject to agreements with other third parties, including agreements with native corporations
and First Nations, for instance.
Mining is inherently risky
and subject to conditions or events some of which are beyond our control, and which could have a material adverse effect on our
business.
Mining involves various types of risks, including:
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metallurgical and other processing problems;
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unusual or unexpected geologic formations and conditions;
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structural cave-ins or slides;
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landslides and avalanches;
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mechanical equipment and facility performance problems;
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availability of materials and equipment;
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periodic interruptions due to inclement or hazardous weather conditions.
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These risks could result in damage to, or destruction
of, mineral properties, production facilities or other properties; personal injury or death, including to employees; environmental
damage; delays in construction or mining operations; increased production costs; asset write downs; monetary losses; and possible
legal liability. We may not be able to obtain insurance to cover these risks at economically feasible premiums or at all. Insurance
against certain environmental risks, including potential liability for pollution or other hazards as a result of the disposal of
waste products occurring from mineral production, is not generally available to us or to other companies within the mining industry.
We may suffer a material adverse impact on our business if we incur losses related to any significant events that are not covered
by our insurance policies.
Exploration, construction and production activities
may be limited or delayed by inclement weather and shortened exploration, construction, development and operating seasons. For
example, Donlin Gold proposes to transport the bulk of the supplies required to operate the Donlin Gold project to the site from
ports in the United States and Canada. This would require the supplies to be transported by barge on the Kuskokwim River which
is free of ice and open for barge traffic for a limited period each year. Delays in the ice breakup or early freeze-up, low flow
levels and water depths, or other conditions affecting the Kuskokwim River could delay or prevent Donlin Gold from transporting
supplies to the site. Any such interference with the delivery of needed supplies to the Donlin Gold project could adversely affect
the construction or operation of the project or the cost of constructing or operating the project which, in turn, would adversely
affect our business.
We are subject to significant
governmental regulation.
Our operations, exploration and development
activities in Canada and the United States, are subject to extensive federal, state, provincial, territorial and local laws and
regulations governing various matters, including:
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environmental protection;
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management and use of toxic substances and explosives;
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management of tailings and other wastes generated by our operations;
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management of natural resources;
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exploration and development of mines, production and post-closure reclamation;
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taxation and mining royalties;
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regulations concerning business dealings with native groups;
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availability and use of water resources;
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labor standards and occupational health and safety, including mine safety; and
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preservation of historic and cultural resources.
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Failure to comply with applicable laws and regulations
may result in civil or criminal fines or penalties or enforcement actions, including orders issued by regulatory or judicial authorities
enjoining, curtailing or closing operations or requiring corrective measures, installation of additional equipment or remedial
actions, any of which could result in us incurring significant expenditures. We may also be required to compensate private parties
suffering loss or damage by reason of a breach of such laws, regulations or permitting requirements. It is also possible that future
laws and regulations, or a more stringent enforcement of current laws and regulations by governmental authorities, could cause
additional expense, capital expenditures, restrictions on or suspensions of our operations and delays in the exploration and development
of our mineral properties.
Our activities are subject
to environmental laws and regulations that may increase our costs of doing business and restrict our operations.
All of our exploration, potential development
and production activities in Canada and the United States are subject to regulation by governmental agencies under various environmental
laws. To the extent that we conduct exploration activities or undertake new mining activities in other foreign countries, we will
also be subject to environmental laws and regulations in those jurisdictions. These laws address emissions into the air, discharges
into water, management of waste, management of hazardous substances, use of water, protection of natural resources, antiquities
and endangered species, and reclamation of lands disturbed by mining operations. Environmental legislation continues to evolve
and the trend has been toward stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent
environmental assessments of proposed projects and increasing responsibility for companies and their officers, directors and employees.
Compliance with environmental laws and regulations may require significant capital outlays on our behalf and may cause material
changes or delays in our intended activities. There can be no assurance that future changes in environmental regulations will not
adversely affect our business, and it is possible that future changes in these laws or regulations could have a significant adverse
impact on some portion of our business, causing us to re-evaluate those activities at that time.
Environmental hazards may exist on our mineral
properties that are unknown to us at the present time, and that have been caused by previous owners or operators or that may have
occurred naturally. We may be liable for remediating such damage.
Failure to comply with applicable environmental
laws, regulations and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory
or judicial authorities, causing operations to cease or to be curtailed, and may include corrective measures requiring capital
expenditures, installation of additional equipment or remedial actions.
Our largest shareholder has
significant influence on us and may also affect the market price and liquidity of our securities.
Electrum Strategic Resources L.P. (“Electrum”)
and its affiliate GRAT Holdings LLC hold in the aggregate 26.3% of our issued and outstanding common shares as of January 17, 2017.
Accordingly, Electrum and its affiliates will have significant influence in determining the outcome of any corporate transaction
or other matter submitted to the shareholders for approval, including mergers, consolidations and the sale of all or substantially
all of our assets and other significant corporate actions. Unless full participation of all shareholders takes place in such shareholder
meetings, Electrum and its affiliates may be able to approve such matters itself. The concentration of ownership of the common
shares by Electrum and its affiliates may: (i) delay or deter a change of control of the Company; (ii) deprive shareholders of
an opportunity to receive a premium for their common shares as part of a sale of the Company; and (iii) affect the market price
and liquidity of the common shares. In conjunction with the January 22, 2009 financing, we provided Electrum with the right
to designate an observer at all meetings of the board of directors (the “Board”) and any committee thereof so long
as Electrum and its affiliates hold not less than 15% of our common shares. Electrum designated Igor Levental as its observer at
our Board meetings. In July 2010, Igor Levental was appointed to our Board. In November 2011, Dr. Thomas S. Kaplan, was appointed
Chairman of our Board. Dr. Kaplan is also the Chairman and Chief Executive Officer of The Electrum Group LLC, an investment advisor
that manages Electrum’s investments. As long as Electrum and its affiliates maintain its shareholdings in the Company, Electrum
will have significant influence in determining the members of the Board. Without the consent of Electrum, we could be prevented
from entering into transactions that are otherwise beneficial to us. The interests of Electrum and its affiliates may differ from
or be adverse to the interests of our other shareholders. The effect of these rights and Electrum’s influence may impact
the price that investors are willing to pay for our shares. If Electrum or its affiliates sell a substantial number of our common
shares in the public market, the market price of the common shares could fall. The perception among the public that these sales
will occur could also contribute to a decline in the market price of our common shares.
Some of the directors and
officers have conflicts of interest as a result of their involvement with other natural resource companies.
Certain of our directors and officers also serve
as directors, or have significant shareholdings in, other companies involved in natural resource exploration and development or
mining-related activities. To the extent that such other companies may participate in ventures in which we may participate in or
in ventures which we may seek to participate in, the directors and officers may have a conflict of interest. In all cases where
the directors or officers have an interest in other companies, such other companies may also compete with us for the acquisition
of mineral property investments. Any decision made by any of these directors and officers involving the Company will be made in
accordance with their duties and obligations to deal fairly and in good faith with a view to the best interests of the Company.
In addition, each of the directors is required to declare and refrain from voting on any matter in which these directors may have
a conflict of interest in accordance with the procedures set forth in the Business Corporations Act (British Columbia) and other
applicable laws. In appropriate cases, the Company will establish a special committee of independent directors to review a matter
in which several directors, or management, may have a conflict. Nonetheless, as a result of these conflicts of interest, the Company
may not have an opportunity to participate in certain transactions, which may have a material adverse effect on the Company’s
business, profitability, financial condition, results of operation and prospects.
There is uncertainty related
to unsettled aboriginal rights and title in British Columbia and this may adversely impact our operations and profit.
Native land claims in British Columbia remain
the subject of active debate and litigation. The Galore Creek project lies within the traditional territory of the Tahltan Nation
and the Tahltan, like the majority of British Columbia’s First Nations, have not concluded a comprehensive treaty or land
claims settlement regarding their traditional territories. There can be no guarantee that the unsettled nature of land claims in
British Columbia will not create delays in project approval or unexpected interruptions in project progress, or result in additional
costs to advance the project.
Opposition to our operations
from local stakeholders or non-governmental organizations could have a material adverse effect on us.
There is an increasing level of public concern
relating to the effect of mining production on its surroundings, communities and environment. Local communities and non-governmental
organizations (NGOs), some of which oppose resource development, are often vocal critics of the mining industry. While we seek
to operate in a socially responsible manner, opposition to extractive industries or our operations specifically or adverse publicity
generated by local communities or NGOs related to extractive industries, or our operations specifically, could have an adverse
effect on our reputation and financial condition or our relationships with the communities in which we operate. As a result of
such opposition or adverse publicity, we may be unable to obtain permits necessary for our operations or to continue our operations
as planned or at all.
We have ongoing reclamation
on some of our mineral properties and may be required to fund additional work that could have a material adverse effect on our
financial position.
Land reclamation requirements are generally
imposed on mineral exploration companies (as well as companies with mining operations) in order to minimize long term effects of
land disturbance. Reclamation may include requirements to:
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treat ground and surface water to applicable water standards;
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control dispersion of potentially deleterious effluents;
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reasonably re-establish pre-disturbance land forms and vegetation; and
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provide adequate financial assurance to ensure required reclamation of land affected by our activities.
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Exploration and other activities at the Donlin
Gold and Galore Creek projects have created disturbance that must be reclaimed. The initial access road construction at the Galore
Creek project also would need to be reclaimed, if the Galore Creek project is not developed. Financial resources spent on reclamation
might otherwise be spent on further exploration and development programs. In addition, regulatory changes could increase our obligations
to perform reclamation and mine closure activities. There can be no assurance that we will not be required to fund additional reclamation
work at these sites that could have a material adverse effect on our financial position.
We are exposed to credit,
liquidity, interest rate and currency risk.
Credit risk is the risk of an unexpected loss
if a customer or third party to a financial instrument fails to meet its contractual obligations. Our cash equivalents and term
deposit investments are held through large Canadian chartered banks with high investment-grade ratings. These investments mature
at various dates over the current operating period. The carrying amount of financial assets recorded in the financial statements,
net of any allowances for losses, represents our maximum exposure to credit risk.
Liquidity risk is the risk that we will not
be able to meet our financial obligations as they come due. We manage liquidity risk through the management of our capital structure
and financial leverage. Accounts payable, accrued liabilities and coupon interest on the convertible notes are due within one year
from the balance sheet date.
Interest rate risk is the risk that the fair
value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The risk that
we will realize a loss as a result of a decline in the fair value of the term deposit investments is limited because these investments
have an original term of less than one year and are generally held to maturity. The promissory note owed to Barrick is variable
with the U.S. prime rate. Based on the amount owing on the promissory note as of November 30, 2016, and assuming that all other
variables remain constant, a 1% change in the U.S. prime rate would result in an increase/decrease of $0.8 million in the interest
accrued on the promissory note per annum. For more detail with respect to the promissory note, see section
Item 2, Donlin Gold
Project, Alaska
, below.
We are exposed to the financial risk related
to the fluctuation of foreign exchange rates. We operate in Canada and the United States and a portion of our expenses are incurred
in Canadian dollars. A significant change in the currency exchange rate between the Canadian dollar relative to the U.S. dollar
could have an effect on our results of operations, financial position or cash flows. We have not hedged our exposure to currency
fluctuations. Based on our net exposures as of November 30, 2016, and assuming that all other variables remain constant, a $0.01
depreciation or appreciation of the Canadian dollar against the U.S. dollar would result in an increase/decrease of approximately
$2.9 million in our consolidated comprehensive income (loss).
Our insurance will not cover
all of the potential risks associated with mining operations.
Our business is subject to a number of risks
and hazards generally including adverse environmental conditions, industrial accidents, labor disputes, unusual or unexpected geological
conditions, ground or slope failures, cave-ins, changes in the regulatory environment and natural phenomena, such as inclement
weather conditions, floods, hurricanes and earthquakes. Such occurrences could result in damage to mineral properties or production
facilities, personal injury or death, environmental damage to our properties or the property of others, delays in construction
or mining, monetary losses and possible legal liability.
Although we maintain insurance to protect against
certain risks in such amounts as we consider reasonable, our insurance will not cover all the potential risks associated with a
mining company’s operations. We may also be unable to maintain insurance to cover these risks at economically feasible premiums.
Insurance coverage may not continue to be available or may not be adequate to cover any resulting liability. Moreover, insurance
against risks such as loss of title to mineral property, environmental pollution, or other hazards as a result of exploration and
production is not generally available to us or to other companies in the mining industry on acceptable terms. We might also become
subject to liability for pollution or other hazards which may not be insured against or which we may elect not to insure against
because of premium costs or other reasons. Losses from these events may cause us to incur significant costs that could have a material
adverse effect on our financial performance and results of operations.
Title and other rights to
our mineral properties cannot be guaranteed and may be subject to prior unregistered agreements, transfers or claims and other
defects.
We cannot guarantee that title to our mineral
properties will not be challenged. We may not have, or may not be able to obtain, all necessary surface rights to develop a mineral
property. Title insurance is generally not available for mineral properties and our ability to ensure that we have obtained secure
claim to individual mineral properties or mining concessions may be severely constrained. Our mineral properties may be subject
to prior unregistered agreements, transfers or claims, and title may be affected by, among other things, undetected defects. We
have not conducted surveys of all of the mineral properties in which we hold direct or indirect interests. A successful challenge
to the precise area and location of these mineral properties could result in us being unable to operate on our mineral properties
as permitted or being unable to enforce our rights with respect to our mineral properties. This could result in us not being compensated
for our prior investment relating to the mineral property.
Rising metal prices encourages
mining exploration, development and construction activity, which in the past has increased demand for and cost of contract mining
services and equipment.
Increases in metal prices tend to encourage
increases in mining exploration, development and construction activities. During past expansions, demand for and the cost of contract
exploration, development and construction services and equipment have increased as well. Increased demand for and cost of services
and equipment could cause project costs to increase materially, resulting in delays if services or equipment cannot be obtained
in a timely manner due to inadequate availability, and increased potential for scheduling difficulties and cost increases due to
the need to coordinate the availability of services or equipment, any of which could materially increase project exploration, development
or construction costs, result in project delays, or both. Increased costs were a significant factor in the decision to suspend
construction at the Galore Creek project in 2007 and there can be no assurance that increased costs may not adversely affect our
development of our mineral properties in the future.
We may experience difficulty
attracting and retaining qualified management and technical personnel to meet our business objectives, and the failure to manage
our business effectively could have a material adverse effect on our business and financial condition.
We are dependent on the services of key executives
including our President and Chief Executive Officer and other highly skilled and experienced executives and personnel focused on
managing our interests and the advancement of the Donlin Gold and Galore Creek projects, in addition to the identification of new
opportunities for growth and funding. Due to our relatively small size, the loss of these persons or our inability to attract and
retain additional highly skilled employees required for the development of our activities may have a material adverse effect on
our business or future operations.
We may be subject to legal
proceedings.
Due to the nature of our business, we may be
subject to a variety of regulatory investigations, claims, lawsuits and other proceedings in the ordinary course of our business.
The results of these legal proceedings cannot be predicted with certainty due to the uncertainty inherent in litigation, including
the effects of discovery of new evidence or advancement of new legal theories, the difficulty of predicting decisions of judges
and juries and the possibility that decisions may be reversed on appeal. There can be no assurances that these matters will not
have a material adverse effect on our business.
Global climate change is
an international concern, and could impact our ability to conduct future operations.
Global climate change is an international issue
and receives an enormous amount of publicity. We would expect that the imposition of international treaties or U.S. or Canadian
federal, state, provincial or local laws or regulations pertaining to mandatory reductions in energy consumption or emissions of
greenhouse gasses could affect the feasibility of mining projects and increase operating costs.
Our projects are not directly threatened by
current predictions of sea level rise because all of them are located inland at elevations from 100 meters to 4,000 meters above
sea level. However, changes in sea levels could affect ocean and river transportation and shipping facilities, which would be used
to transport supplies, equipment and personnel to our projects and products from those projects to world markets. In particular,
the Donlin Gold project proposes to deliver the vast majority of construction and operations equipment, supplies, consumables,
and other required materials to the project site via the Kuskokwim River when it is ice free. Historically, the Kuskokwim River
has been ice-free from early June until late September and models based on historic weather and river flow records predict that
there would be sufficient flow in the river to allow the transportation of the required materials to the project site annually.
If climate changes alter the ice-free season or flow patterns of the Kuskokwim River, the current supply logistics plan for the
project may need to be modified.
Climate changes also could affect the availability
of water required to sustain operations at the Donlin Gold and Galore Creek projects. Also, management of water is an essential
component of a project’s operating plans. Climate changes could require changes to a project’s water management plan
if precipitation increases relative to historic records.
Extreme weather events (such as increased frequency
or intensity of storms, increased snow pack, prolonged drought) have the potential to disrupt operations at our projects. Where
appropriate, our projects have developed emergency plans for managing extreme weather conditions; however, extended disruptions
to supply lines due to extreme weather could result in interruption of activities at the project sites, delay or increase the cost
of construction of the projects, or otherwise adversely affect our business.
We are subject to increased
regulatory compliance costs relating to the Dodd-Frank Act.
In July 2010, the “Dodd-Frank Wall Street
Reform and Consumer Protection Act” (“Dodd-Frank Act”) was enacted, representing an overhaul of the framework
for regulation of U.S. financial markets. The Dodd-Frank Act calls for various regulatory agencies, including the SEC and the Commodities
Futures Trading Commission, to establish regulations for implementation of many of the provisions of the Dodd-Frank Act, and we
anticipate that these new regulations will provide additional clarity regarding the extent of the impact of this legislation on
us. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing
bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us and our business
may be harmed. Dodd-Frank also requires companies in the mining industry to disclose substantial additional information in their
periodic reports filed with the SEC about safety issues relating to their mining operations and will, in the future, require us
to disclose on an annual basis certain payments made by us, our subsidiaries or entities we control, to the U.S. government and
foreign governments, including sub-national governments. This heightened scrutiny could generate negative publicity for the mining
industry, increase the cost of compliance with mining regulations or result in the passage of new laws and regulations, any of
which could negatively affect our business results. We may also need to incur additional costs and invest additional resources,
including management’s time, in order to comply with the new regulations and anticipated additional reporting and disclosure
obligations. While we are not able to assess the full impact of the Dodd-Frank Act until all the implementing regulations have
been adopted, based on the information available to us at this time, we do not believe provisions of the regulations implementing
the Dodd-Frank Act will have a material adverse effect on our financial position, results of operations or cash flows.
Acquiring, holding or disposing
of our securities may have tax consequences under the laws of Canada and the United States that are not disclosed in this Annual
Report on Form 10-K and, in particular, potential investors should be aware that if we are or we become a “passive foreign
investment company” under the U.S. Internal Revenue Code, there may be adverse tax consequences for investors in the United
States.
Acquiring, holding or disposing of our securities
may have tax consequences under the laws of Canada and the United States that are not disclosed in this Annual Report on Form 10-K.
In particular, potential investors that are U.S. taxpayers should be aware that we may be considered a “passive foreign investment
company” under Section 1297(a) of the U.S. Internal Revenue Code (a PFIC). We believe that we were not a PFIC for our
tax year ended November 30, 2016, but may become a PFIC for future tax years. PFIC classification is fundamentally factual in nature,
generally cannot be determined until the close of the tax year in question, and is determined annually. Additionally, the analysis
depends, in part, on the application of complex U.S. federal income tax rules, which are subject to differing interpretations.
In any tax year in which we are a PFIC, a U.S. taxpayer will be required to file an annual report with the Internal Revenue Service
containing such information as Treasury Regulations or other tax rules may require.
Any gain recognized on the sale of common shares
of a PFIC and any excess distributions paid on the common shares of a PFIC must be ratably allocated to each day in a U.S. taxpayer’s
holding period for the common shares. The amount of any such gain or excess distribution allocated to prior years of such U.S.
taxpayer’s holding period for the common shares generally will be subject to U.S. federal income tax at the highest tax applicable
to ordinary income in each such prior year, and the U.S. taxpayer will be required to pay interest on the resulting tax liability
for each such prior year, calculated as if such tax liability had been due in each such prior year.
Alternatively, a U.S. taxpayer that makes a
timely “QEF election” generally will be subject to U.S. federal income tax on such U.S. taxpayer’s pro rata share
of our “net capital gain” and “ordinary earnings” (calculated under U.S. federal income tax rules), regardless
of whether such amounts are actually distributed by us. U.S. taxpayers should be aware that there can be no assurance that we will
satisfy record-keeping requirements or that we will supply U.S. taxpayers with required information under the QEF rules, in event
that we are a PFIC and a U.S. taxpayer wishes to make a QEF election. As a second alternative, a U.S. taxpayer may make a “mark-to-market
election” if we are a PFIC and the common shares are marketable stock. A U.S. taxpayer that makes a mark-to-market election
generally will include in gross income, for each taxable year in which we are a PFIC, an amount equal to the excess, if any, of
(a) the fair market value of the common shares as of the close of such taxable year over (b) such U.S. taxpayer’s tax basis
in such common shares.
Investors should consult their tax advisors
as to the tax consequences of an investment in our securities.
The following descriptions summarize selected
information about our 50% interest in the Donlin Gold project located in Alaska, USA and our 50% interest in the Galore Creek project
located in British Columbia, Canada. Both of these mineral projects are without known reserves, as defined under SEC Industry Guide
7. Except for subsequent events or as otherwise noted, the disclosure in this Annual Report on Form 10-K of a scientific or
technical nature for our mineral properties is based on the following technical reports prepared in accordance with NI 43-101:
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(i)
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“Donlin Creek Gold Project Alaska, USA, NI 43-101 Technical Report on Second Updated Feasibility
Study” (“Donlin Gold FS”) for the Donlin Gold project in southwestern Alaska, USA, prepared by AMEC Americas
Limited, now known as Amec Foster Wheeler Americas Limited (AMEC), effective date November 18, 2011 and amended and filed
on January 20, 2012. The Donlin Gold FS has been filed with the securities regulatory authorities in each province of Canada
and with the SEC. Portions of the following information are based on assumptions, qualifications and procedures that are not fully
described herein. References should be made to the full text of the Donlin Gold FS which is available for review on EDGAR at www.sec.gov
and on SEDAR at www.sedar.com.
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(ii)
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“Galore Creek Copper-Gold Project NI 43-101 Technical Report on Pre-Feasibility Study, British
Columbia – Canada” (the PFS) for the Galore Creek project in northwestern British Columbia, Canada, prepared by AMEC,
effective date July 27, 2011 and filed on September 12, 2011. The PFS has been filed with the securities regulatory authorities
in each province of Canada and with the SEC. Portions of the following information are based on assumptions, qualifications and
procedures which are not fully described herein. References should be made to the full text of the PFS which is available for review
on EDGAR at www.sec.gov and on SEDAR at www.sedar.com.
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Kirk Hanson, P.E., Gordon Seibel, R.M. SME.,
both of whom are independent Qualified Persons as defined in NI 43-101, have approved the mineral reserves and mineral resources,
respectively, included in this Annual Report on Form 10-K related to the Donlin Gold FS. Jay Melnyk, P.Eng., Greg Kulla, P.Geo.,
both of whom are independent Qualified Persons as defined in NI 43-101, have approved the mineral reserves and mineral resources,
respectively, included in this Annual Report on Form 10-K related to the Galore Creek PFS. Clifford Krall, P.E., Manager of Mine
Engineering for the Company and a “qualified person” under NI 43-101, has approved the scientific and technical information
included in this Annual Report on Form 10-K.
The Donlin Gold FS and the Galore Creek PFS
described herein were prepared under the November 2010 version of the CIM Definition Standards. The Qualified Persons who prepared
the PFS and the Donlin Gold FS certify that when applying the May 2014 version of the CIM Definition Standards, reserves and resources
remain unchanged.
Cautionary Note to U.S. Investors:
This
section and other sections of this Annual Report on Form 10-K contain the terms “measured mineral resources,”
“indicated mineral resources,” “inferred mineral resources,” “proven mineral reserves,” and
“probable mineral reserves” as defined in accordance with NI 43-101. Please note the following regarding these terms:
“Proven mineral reserves” and
“probable mineral reserves”
– The definitions of proven and probable mineral reserves used in NI 43-101 differ
from the definitions for “proven reserves” and “probable reserves” as found in SEC Industry Guide 7. Accordingly,
our disclosures of mineral reserves herein may not be comparable to information from U.S. companies subject to reporting and disclosure
requirements of the SEC.
“Measured mineral resources”
and “indicated mineral resources”
– we advise U.S. investors that although these terms are recognized and
required by Canadian regulations, these terms are not defined in SEC Industry Guide 7 and the SEC does not normally permit such
terms to be used in reports and registration statements filed with the SEC. U.S. investors are cautioned not to assume that any
part or all of the mineral deposits in these categories will ever be converted into reserves.
“Inferred mineral resources”
– we advise U.S. investors that although this term is recognized by Canadian regulations, the SEC does not recognize it.
“Inferred mineral resources” have a great amount of uncertainty as to their existence, and great uncertainty as to
their economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded
to a higher category. Under Canadian rules, estimates of inferred mineral resources may not form the basis of a feasibility study
or prefeasibility study, except in rare cases. The SEC normally only permits an issuer to report mineralization that does not constitute
“reserves” as in-place tonnage and grade without reference to unit measures. U.S. investors are cautioned not to assume
that any part or all of an inferred mineral resource exists or is economically or legally minable.
Donlin Gold Project, Alaska
The Donlin Gold project is an advanced-stage
gold project held by Donlin Gold, a limited liability company that is owned 50% by our wholly-owned subsidiary, NOVAGOLD Resources
Alaska Inc., and 50% by Barrick’s wholly-owned subsidiary, Barrick Gold U.S. Inc.
We entered into the limited liability company
agreement with Barrick (“LLC Agreement”) dated December 1, 2007 which provided for the creation of Donlin Gold,
which is jointly owned by us and Barrick on a 50/50 basis. Pursuant to the LLC Agreement, we agreed to reimburse Barrick out of
future mine production cash flow for a portion of Barrick’s prior expenditures in the Donlin Gold project. As of November
30, 2016, the promissory note, including accrued interest, amounted to approximately $80.3 million. Funding is currently shared
by both parties on a 50/50 basis.
Except for events subsequent to the Donlin Gold
FS, including the information contained under the heading “Item 1, Recent Developments – Donlin Gold,” or as
otherwise stated or implied, the scientific and technical information regarding the Donlin Gold project in this Annual Report on
Form 10-K is based on the Donlin Gold FS.
Property Description and Location
The Donlin Gold property is located in the Kuskokwim
region of southwestern Alaska on private, Alaska Native-owned mineral and surface land and Alaska state mining claims. The property
is under lease (the “Mining Lease”) for subsurface rights from Calista Corporation (“Calista”) and surface
rights (the “Surface Use Agreement”) from The Kuskokwim Corporation (TKC), two Alaska Native corporations. Calista
is one of 13 regional Alaska Native corporations established as part of the Alaska Native Claims Settlement Act of 1971 (ANCSA)
and under ANCSA has title to the subsurface estate in the region. TKC was formed in 1977 when the ANCSA village corporations of
Lower Kalskag, Upper Kalskag, Aniak, Chuathbaluk, Napaimute, Crooked Creek, Red Devil, Georgetown, Sleetmute and Stony River, which
are located along the middle region of the Kuskokwim River, merged. Under ANCSA, TKC has title to extensive surface estate in the
region, including most of the project lands. The property hosts a gold deposit currently estimated at 33.8 million ounces of proven
and probable reserves averaging 2.09 grams per tonne. We believe that significant exploration potential remains in the Donlin Gold
district, with prospects to increase mine life and/or justify future production expansions. See
Reserve and Resource Estimate
,
below.
Other lands required for offsite infrastructure,
such as the Jungjuk port site, the road to the port site and gas pipeline are categorized as Native, State of Alaska conveyed,
or Bureau of Land Management (BLM) lands. Rights-of-way will be required from other Alaska Native corporations, the State of Alaska
and BLM for the road and pipeline alignments that cross Native corporation, state and federal lands.
Permits
Donlin Gold obtained all of the necessary permits
and certifications that allowed for the exploration, associated feasibility study test work, environmental monitoring and EIS baseline
data collection efforts. The current status of these permits is in line with the termination of the baseline collection effort
and temporary closure of the camp in May 2015. The active permits include: Alaska Department of Natural Resources temporary use
of water; the U.S. Army Corps of Engineering (individual 404 and nationwide 26); Alaska Department of Environmental Conservation
(septic system, multisector stormwater general permit – sector G, owners requested limit [air]); Environmental Protection
Agency injection well; Federal Aviation Administration (Landing Area). Other permits were either put on hold, closed, or allowed
to expire.
On August 7, 2012, we announced that Donlin
Gold commenced permitting of the project by submitting a draft Plan of Operations and Section 404 of the U.S. Clean Water
Act draft permit application to federal and state regulators. The Section 404 permit application initiated the environmental
review process under NEPA which involves preparation of an EIS. The Corps selected AECOM, formerly URS, an independent contractor
to prepare the EIS. The Notice of Intent for the EIS was published in the Federal Register on December 14, 2012 and the NEPA
public scoping process was completed on March 29, 2013. During the remainder of 2013 and in 2014 and 2015, Donlin Gold worked
to address the remaining data needs for the draft EIS. Donlin Gold also continued to provide application materials and maintained
ongoing dialogue with the agencies that will issue the key permits and authorizations needed for the Donlin Gold project, including
the air quality, water discharge, dam safety, wetlands, water use, fish habitat, and pipeline permits. The Corps addressed the
cooperating agency comments on the preliminary draft and filed the Notice of Availability for public release of the draft EIS in
the Federal Register in November 2015. Subsequent to the filing of the draft EIS, the Corps issued a schedule for public meetings
on the Donlin Gold draft EIS in the Y-K region and Anchorage, Alaska. The Corps conducted, and at the end of May 2016 completed,
a six-month public comment period for the draft EIS, including 17 public comment meetings in communities across the Y-K region
and in Anchorage.
The Corps received received comments from federal and state agencies, local
and tribal governments, Alaska Native organizations, businesses, special interest groups/non-governmental organizations, and individuals.
The Corps is reviewing the comments on the draft EIS and will respond to all comments in a final EIS which the Corps’ current
schedule anticipates will be published in early 2018. All Donlin Gold EIS documents, including the Corps’ time table for
the Donlin Gold EIS process, can be found on their website at www.donlingoldeis.com.
An extensive list of additional federal and
state government permits and approvals must be obtained before construction can begin on the Donlin Gold project. Preparation of
the applications for some of these permits and approvals requires additional, more detailed engineering that was not part of the
Donlin Gold FS. Completion of this engineering will require a significant investment of funds, time, and other resources by Donlin
Gold and its contractors. Also, the Donlin Gold board must approve a construction program and budget before construction of the
Donlin Gold project can begin. The timing of the required engineering work and the Donlin Gold board’s approval of a construction
program and budget, the receipt of all required governmental permits and approvals, the availability of financing, as well as other
factors, will affect whether and when construction of the Donlin Gold project will begin. Among other reasons, project delays could
occur as a result of public opposition, legal challenges to permit decisions, limitations in agency staff resources during regulatory
review and permitting, and/or project changes made by Donlin Gold.
Mineral Tenure
The 2011 Restated Exploration and Lode Mining
Lease (“Calista Lease”) between Calista and Donlin Gold, includes subsurface (mineral) rights leased from Calista.
Calista also owns the corresponding surface estate on a portion of these lands, the rights to which are also included in the Calista
Lease. The Calista Lease provides Donlin Gold with rights to approximately 19,883 hectares (49,132 acres) of Calista-owned land.
The Calista Lease was restated on February 11, 2011 to reflect all assignments and amendments made between its original execution
on May 1, 1995 and February 11, 2011. The Calista Lease was amended once again effective June 6, 2014 (the “2014 Amendment”).
The 2014 Amendment did not affect the lands subject to the Calista Lease as restated on February 11, 2011.
On June 9, 2014, the Company announced that
Donlin Gold and TKC reached an updated long-term Surface Use Agreement (SUA) for the Donlin Gold Project. The SUA with TKC grants
non-exclusive surface use rights to Donlin Gold for mining activities. TKC owns and contributed to the SUA the corresponding surface
estate over most of Calista’s subsurface estate included in the Calista Lease as well as some additional surface estate.
The SUA with TKC provides Donlin Gold with rights to approximately 16,763 hectares (41,422 acres) of TKC-owned land.
In addition to the leased land, Donlin Gold
holds 493 State of Alaska mining claims comprising approximately 28,903 hectares (71,420 acres) in the Kuskokwim and Mt. McKinley
Recording Districts. The mining claims abut and largely surround northern and western boundaries of the lands subject to the Calista
Lease and TKC SUA. The mining claims are located on lands that are owned by the State of Alaska (409) and on State-selected lands
from the BLM (84). All claims are approximately either 16.2 hectares (40 acres) or 64.8 hectares (160 acres) in size.
Accessibility and Climate
The Donlin Gold property is located in southwestern
Alaska, approximately 20 kilometers north of the village of Crooked Creek on the Kuskokwim River. The Kuskokwim River is a regional
transportation route and is serviced by commercial barge lines. A 25 kilometer-long winter road, designated as an Alaska State
Highway route and transportation corridor, accesses the property from the barge landing at the village of Crooked Creek. The Donlin
Gold project currently has an all-season, soft-sided camp with facilities to house up to 150 people. An adjacent 1,500 meter long
airstrip is capable of handling aircraft as large as C-130 Hercules (42,000 pounds or 19,050 kilograms), allowing efficient shipment
of personnel, some heavy equipment, and supplies. The Donlin Gold project can be reached directly by charter air facilities out
of both Anchorage, 450 kilometers to the east and Aniak, 80 kilometers to the west.
The project area is one of low topographic relief
on the western flank of the Kuskokwim Mountains. Elevations range from 150 meters to 640 meters. Ridges are well rounded and easily
accessible by all-terrain vehicle. Hillsides are forested with black spruce, tamarack, alder, birch and larch. Soft muskeg and
discontinuous permafrost are common in poorly drained areas at lower elevations. The area has a relatively dry interior continental
climate with typically less than 50 cm (20 inches) total annual precipitation. Summer temperatures are relatively warm and may
reach nearly 30°C (83°F). Minimum temperatures may fall to well below -42°C (-45°F) during the cold winter months.
Exploration History
Year
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Company
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Work Performed
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Results
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1909 to
1956
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Various prospectors and placer miners
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Gold discovered in 1909. Placer mining by hand, underground, and hydraulic methods.
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Total placer gold production of approximately 30,000 ounces
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1970s to
2015
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Robert Lyman and heirs
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Resumed sluice mining in Donlin Gold area and placer mined Snow Gulch.
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First year of mining Snow Gulch produced best results, with 800 ounces of gold recovered. Donlin Gold has obtained an agreement with the Lyman family to consolidate the land package around the proposed mine.
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1974, 1975
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Resource Associates of Alaska (RAA)
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Regional mineral potential evaluation for Calista. Soil grid and three bulldozer trenches dug in Snow Gulch area.
|
Soil, rock, and vein samples have anomalous gold values. Trench rock sample results range from 2 to 20 grams per tonne gold.
|
1984 to
1987
|
Calista Corporation
|
Minor work. Geologists from various mining companies, including Cominco and Kennecott, visit the property.
|
|
1986
|
Lyman Resources
|
Auger drilling for placer evaluation finds abundant gray, sulfide rich clay near Quartz Gulch.
|
Assays of cuttings average over 7 grams per tonne gold. Initial discovery of Far Side (“Carolyn”) prospect.
|
1987
|
Calista Corporation
|
Rock sampling of ridge tops and auger drill sampling of Far Side prospect.
|
Anomalous gold values from auger holes: best result = 9.7 grams per tonne gold.
|
1988 to
1989
|
Western Gold Exploration and Mining Co.
|
Airborne geophysics, geological mapping, and soil sampling over most of the project area. Total of 13,525 meters of D9 Cat trenching at all prospects. Over 15,000 soil, rock chip, and auger samples collected. Drilling included 3,106 feet of AX core drilling, 404 meters in 239 auger holes, and 10,423 meters of RC drilling (125 holes). First metallurgical tests and petrographic work.
|
Initial work identified eight prospects with encouraging geology (Snow, Dome, Quartz, Carolyn, Queen, Upper Lewis, Lower Lewis, and Rochelieu). Drilling at most of these prospects led to identification of the Lewis areas as having the best bulk-mineable potential. Mineral resource estimate completed.
|
Year
|
Company
|
Work Performed
|
Results
|
1993
|
Teck Exploration Ltd.
|
D-9 Cat trenching (1,400 meters)
and two 500 meter soil lines in Lewis area. Petrographic, fluid inclusion, and metallurgical work.
|
Identified new mineralized areas, updated Mineral resource estimate.
|
1995 to
2000
|
Placer Dome
|
87,383 meters of core, 11,909 meters of RC drilling and 8,493 meters of trenching. Environmental monitoring and assessment.
|
Drilled the American Creek magnetic anomaly (ACMA), discovered the ACMA deposit. Numerous mineral resource estimation iterations.
|
2001 to
2002
|
NOVAGOLD
|
46,495 meters of core, 38,022 meters of RC drilling, 89.5 meters of geotechnical drilling, and 268 meters of water monitoring holes.
|
Filed a preliminary assessment report on the project. Updated resource estimate.
|
2003 to
2005
|
Donlin Gold Joint Venture
|
25,448 meters of core and 5,979 meters of RC drilling. Calcium carbonate exploration drilling; IP lines for facility condemnation studies.
|
Infill drilled throughout the resource area. Discovered a calcium carbonate resource. Poor quality IP data.
|
2006
|
Donlin Gold Joint Venture
|
92,804 meters of core drilling to support mineral resource classification conversion, slope stability, metallurgy, waste rock, carbonate exploration, facilities and port road studies.
|
Geological model and mineral resource update.
|
2007
|
Donlin Gold Joint Venture
|
Core drilling totaled 75,257 meters and included resource delineation, geotechnical and engineering, and carbonate exploration. 13 RC holes for monitor wells and pit pump tests totaled 1,043 meters.
|
Improved pit slope parameters, positive hydrogeological results. Carbonate exploration was negative. Updated mineral resource estimate. Completed feasibility study with positive results.
|
2008
|
Donlin Gold LLC
|
108 core holes totaling 33,425 meters for exploration and facility related geotechnical and condemnation studies. Updated resource models. Metallurgical test work: flotation variability and CN leach. 54 test pits and 37 auger holes were also completed for overburden characterization.
|
Resource expansion indicated for East ACMA. CN leach resource potential indicated for the main resource area, Snow, and Dome prospects. Facility sites successfully condemned. Updated resource estimates utilizing applicable data through 2007.
|
2009
|
Donlin Gold LLC
|
19 geotechnical core holes totaling 950 meters in facility sites and to address hydrology.
|
|
2010
|
Donlin Gold LLC
|
Six geotechnical core holes totaling 2,090 meters to evaluate slope stability of expanded pit. Also drilled 90 auger holes totaling 585 meters and dug 59 test pits to further evaluate overburden conditions and gravel supplies within tailings storage facility (TSF) area.
|
Pit slope stability of new pit design remained acceptable. Construction
suitability of surficial materials in TSF is evaluated.
|
Geology
Regional Geology
The Kuskokwim region of southwestern Alaska
is predominately underlain by rocks of the Upper Cretaceous Kuskokwim Group that filled a subsided northeast-trending strike-slip
basin between a series of amalgamated terranes. Intermediate composition volcano-plutonic complexes intrude and overlie Kuskokwim
Group rocks throughout the region.
Local Geology
The Donlin Gold deposits lie between two regional,
northeast-trending, right lateral fault systems: the Denali-Farewell fault system to the south and the Iditarod-Nixon Fork fault
system to the north. Undivided Kuskokwim Group sedimentary rocks and granite porphyry complexes are the main rock units.
Property Geology
Greywacke is dominant in the northern part of
the area (“northern resource area” comprising Lewis, Queen, Rochelieu, and Akivik), while shale-rich units are common
in the southern part of the area (“southern resource area” comprising South Lewis and ACMA).
Gold deposits are associated with an extensive
Late Cretaceous–Early Tertiary gold–arsenic–antimony–mercury hydrothermal system. Gold-bearing zones exhibit
strong structural and host rock control along north–northeast-trending fracture zones and are best developed where those
zones intersect relatively competent host rocks. Mineralized material is most abundant in intrusive dikes and sills, but sedimentary
rocks are also mineralized within strong fracture zones.
Geotechnical and Hydrology
A number of geotechnical and hydrological studies
have been completed in support of feasibility and environmental reports for Donlin Gold.
Rowland Engineering Consultants performed the
geotechnical assessments for the engineering to support design of the port site, airstrip, plant site and interconnecting roads.
BGC, Inc. performed geotechnical analyses for the design of the pit, waste rock facility, and TSF.
The site-wide hydrological model developed by
BGC, is based on extensive drill data and climatic information for the area. BGC, Inc., CEMI, Hatch Ltd., and SRK, Inc. provided
hydrologic studies, design criteria and associated test work for the water treatment plant requirements during construction, operations,
and closure. Lorax Environmental performed water quality modeling for the post closure pit lake.
Exploration Potential
The mineral resource defined in the Donlin Gold
FS is confined to a small portion of the property. We believe there is considerable potential to increase the mineral resources
at the Donlin Gold project. Numerous other targets have been identified along the 8 kilometer mineralized gold trend, and are defined
by surface sampling and various historical drill holes containing significant gold values.
Exploration potential in the vicinity of the
open pit design in the Donlin Gold FS includes extensions along strike to the East ACMA, Lewis, and Crooked Creek areas. Mineralization
remains open at depth under the current pit limits. Mineralization also remains open to the north of the planned pit and has been
tested by shallow trenching and soil sampling, with limited drilling undertaken to date.
Exploration potential at the Donlin Gold project
also exists outside the areas that have been the subject of the mine design in the Donlin Gold FS. Gold mineralization is associated
with an overall north–northeasterly-trending high level dike/sill complex that has been outlined in the regional aero-magnetics
as a magnetic low. The zone, approximately 8 kilometers long, and 4 kilometers wide, consists of a northern, dike-dominated area,
and a southern, more sill-dominated area.
Mineralization
Southeast-dipping north-northeast-oriented fracture
zones are the primary control on gold-bearing vein distribution within the north-northeast mineralized corridors. Composite vein
zones or mineralized corridors range up to 30 meters in width and extend for hundreds of meters along strike. Intrusive rocks and
to a lesser extent competent massive greywacke are the most favored host rocks, and act as a secondary control on the mineralization.
Gold distribution in the deposit closely mimics the intrusive rocks, which contain about 74% of the mineral resource identified
in the Donlin Gold FS. Structural zones in competent sedimentary units account for the remaining 26%.
Gold-bearing sulfides occur in both veins and
disseminated zones in mafic igneous bodies, rhyodacite dikes and sills, and sedimentary rocks. Quartz-carbonate-sulfide (pyrite,
stibnite, and arsenopyrite) veins are the primary mineralized features, but gold also occurs in thin, discontinuous sulfide fracture
fillings.
Minor Elements and Deleterious Materials
The most abundant minor elements associated
with gold-bearing material are iron, arsenic, antimony, and sulfur. They are contained primarily in the mineral suite associated
with hydrothermal deposition of gold, including pyrite, arsenopyrite, realgar, native arsenic, and stibnite. Minor hydrothermal
pyrrhotite, marcasite and syngenetic or sedimentary pyrite, also account for some of the iron and sulfur.
Three elements that have particular processing
significance are mercury, chlorine, and fluorine. Graphitic carbon and carbonate minerals also would negatively affect the metallurgical
process.
Metallurgy
Sufficient metallurgical testwork was completed
under the direction of Barrick personnel to support the Donlin Gold FS. Gold is mainly carried by arsenopyrite. Variation is observed
in processing behavior between intrusive rocks and sedimentary rocks, but less so between the geographical sources.
Process testing generated development of the
following conceptual flowsheet:
|
·
|
conventional crushing and grinding;
|
|
·
|
concentration by flotation;
|
|
·
|
pressure oxidation of the concentrate in an autoclave;
|
|
·
|
carbon-in-leach (“CIL”) cyanidation of the oxidized concentrate;
|
|
·
|
carbon strip and regeneration circuits;
|
|
·
|
gold electrowinning; and
|
|
·
|
refining and production of doré bars.
|
This processing concept incorporates proven
commercial unit operations.
Reserve and Resource Estimate
The mineral reserves for the Donlin Gold project
were classified using criteria appropriate under the CIM Definition Standards with an effective date of July 11, 2011. The
mineral reserves are summarized in the table below.
Proven and Probable Mineral Reserve Estimate
Reserve Category
|
|
Tonnes
(thousands)
|
|
Gold Grade
(grams/tonne)
|
|
Contained Gold
(thousands of ounces)
|
Proven
|
|
|
7,683
|
|
|
|
2.32
|
|
|
|
573
|
|
Probable
|
|
|
497,128
|
|
|
|
2.08
|
|
|
|
33,276
|
|
Proven and probable
|
|
|
504,811
|
|
|
|
2.09
|
|
|
|
33,849
|
|
Notes:
|
(1)
|
Mineral
reserves are contained within Measured and Indicated pit designs, and supported by a
mine plan, featuring variable throughput rates, stockpiling and cut-off optimization.
The pit designs and mine plan were optimized on diluted grades using the following economic
and technical parameters: Metal price for gold of $975 per ounce; reference mining cost
of $1.67 per tonne incremented $0.0031 per tonne per meter with depth from the 220 meter
elevation (equates to an average mining cost of $2.14 per tonne), variable processing
cost based on the formula 2.1874 x (S%) + 10.65 for each $ per tonne processed; general
and administrative cost of $2.27 per tonne processed; stockpile rehandle costs of $0.19
per tonne processed assuming that 45% of mill feed is rehandled; variable recoveries
by rock type, ranging from 86.66% in shale to 94.17% in intrusive rocks in the Akivik
domain; refining and freight charges of $1.78 per ounce gold; royalty considerations
of 4.5%; and variable pit slope angles, ranging from 23º to 43º. The Mineral
Reserves are reported in accordance with NI 43-101, which differs from Industry Guide
7. The project is without known reserves under SEC Industry Guide 7. See Cautionary Note
to U.S. Investors Regarding Estimates of Measured, Indicated and Inferred Resources and
Proven and Probable Reserves, above.
|
|
(2)
|
Mineral
reserves are reported using an optimized net sales return value based on the following
equation: net sales return = Gold grade * Recovery * ($975 – (1.78 + ($975 –
1.78) * 0.045)) – (10.65 + 2.1874 * (S%) + 2.27 + 0.19) and reported in $ per tonne.
|
|
(3)
|
The life
of mine strip ratio is 5.48. The assumed life-of-mine throughput rate is 53,500 tonnes
per day.
|
|
(4)
|
Rounding
as required by reporting guidelines may result in apparent summation differences between
tonnes, grade and contained metal content.
|
|
(5)
|
Mineral
reserves are reported on a 100% basis. NOVAGOLD and Barrick each own 50% of the Donlin
Gold project. Tonnage and grade measurements are in metric units. Contained gold ounces
are reported as troy ounces.
|
Mineral reserves have been estimated using a
long-term gold price assumption of $975 per ounce. Mineral resources are based on a Whittle™ pit optimized for all measured,
indicated, and inferred blocks assuming a gold selling price of $1,200 per ounce and are inclusive of reserves.
Mineral resources were classified using criteria
appropriate under the CIM Definition Standards by application of the NSR-based cut-off grade that incorporated mining and recovery
parameters, and constraint of the mineral resources to a pit shell based on commodity prices. The mineral resources have an effective
date of July 11, 2011. The mineral resources are summarized in the table below.
Measured and Indicated Resources Estimate (inclusive
of reserves)
Resource Category
|
|
Tonnes
(thousands)
|
|
Gold Grade
(grams/tonne)
|
|
Contained Gold
(thousands of ounces)
|
Measured
|
|
|
7,731
|
|
|
|
2.52
|
|
|
|
626
|
|
Indicated
|
|
|
533,607
|
|
|
|
2.24
|
|
|
|
38,380
|
|
Measured and indicated
|
|
|
541,337
|
|
|
|
2.24
|
|
|
|
39,007
|
|
Notes:
|
(1)
|
Mineral
resources are inclusive of mineral reserves. Mineral resources that are not mineral reserves
do not have demonstrated economic viability. See Cautionary Note to U.S. Investors Regarding
Estimates of Measured, Indicated and Inferred Resources and Proven and Probable Reserves,
above.
|
|
(2)
|
Mineral
resources are contained within a conceptual measured, indicated and inferred optimized
pit shell using the following assumptions: gold price of $1,200 per ounce; variable process
cost based on 2.1874 * (sulfur grade) + 10.65; administration cost of $2.29 per tonne;
refining, freight & marketing (selling costs) of $1.85 per ounce recovered;
stockpile re-handle costs of $0.20 per tonne processed assuming that 45% of mill feed
is re-handled; variable royalty rate, based on royalty of 4.5% * (Gold price –
selling cost).
|
|
(3)
|
Mineral
resources have been estimated using a constant net sales return (NSR) cut-off of $0.001
per tonne milled. The net sales return cut-off was calculated using the formula: NSR
= Gold grade * Recovery * ($1,200 – (1.85 + ($1,200 – 1.85) * 0.045)) –
(10.65 + 2.1874 * (S%) + 2.29 + 0.20) and reported in $ per tonne. The marginal gold
cut-off grade would be approximately 0.57 g/t, or the gold grade that would equate to
a $0.001 NSR cut-off at these same values.
|
|
(4)
|
Rounding
as required by reporting guidelines may result in apparent summation differences between
tonnes, grade and contained metal content.
|
|
(5)
|
Tonnage
and grade measurements are in metric units. Contained gold ounces are reported as troy
ounces. See Cautionary Note to U.S. Investors Regarding Estimates of Measured, Indicated
and Inferred Resources and Proven and Probable Reserves, above.
|
Inferred Mineral Resource Estimate
Resource Category
|
|
Tonnes
(thousands)
|
|
Gold Grade
(grams/tonne)
|
|
Contained Gold
(thousands of ounces)
|
Inferred
|
|
|
92,216
|
|
|
|
2.02
|
|
|
|
5,993
|
|
Notes:
|
(1)
|
Inferred
resources are in addition to measured and indicated resources. Inferred resources have
a great amount of uncertainty as to their existence and whether they can be mined legally
or economically. It cannot be assumed that all or any part of the inferred resources
will ever be upgraded to a higher category. See Cautionary Note to U.S. Investors Regarding
Estimates of Measured, Indicated and Inferred Resources and Proven and Probable Reserves,
above.
|
|
(2)
|
Tonnage
and grade measurements are in metric units. Contained gold ounces are reported as troy
ounces. See Cautionary Note to U.S. Investors Regarding Estimates of Measured, Indicated
and Inferred Resources and Proven and Probable Reserves, above.
|
Feasibility Study and Updates
On December 5, 2011, we announced the results
of the Donlin Gold FS which revised the previous 2009 feasibility study with updated mineral reserves and resources, capital costs
and operating cost estimates. The Donlin Gold FS also utilizes natural gas as the primary power generation fuel source for the
project rather than the original diesel option. Based on the Donlin Gold FS, the project is expected to be a conventional truck-and-shovel
open-pit operation. The mine life is estimated to be 27 years based on a nominal processing rate of 59,000 tons (53,500 tonnes)
per day. During the first five years of full operation, expected production averages 1.46 million ounces of gold annually and an
average of 1.13 million ounces of gold per year over its projected mine life. The total capital cost estimate for the Donlin Gold
project is approximately $6.7 billion including costs related to the natural gas pipeline and a contingency of $984 million. The
project’s estimated after-tax net present value at a 5% discount rate (“NPV5%”) is $547 million using the base
case gold price of $1,200 per ounce. The internal rate of return (IRR) at the same gold price is 6.0%. The NPV and IRR calculations
exclude sunk costs of $168 million assumed to be spent in Years -6 and -7.
Base Case Project Sensitivity to Gold Price
Gold
($ per ounce)
|
|
LOM Cash Flow
($ million)
(1)
|
|
Year -5 NPV
5%
($ million)
(2)
|
|
Year -5 IRR
(%)
(2)
|
$
|
1,000
|
|
|
$
|
2,143
|
|
|
$
|
(1,342
|
)
|
|
|
2.3
|
|
$
|
1,100
|
|
|
$
|
4,191
|
|
|
$
|
(385
|
)
|
|
|
4.3
|
|
$
|
1,200
|
|
|
$
|
6,197
|
|
|
$
|
547
|
|
|
|
6.0
|
|
$
|
1,300
|
|
|
$
|
8,187
|
|
|
$
|
1,465
|
|
|
|
7.5
|
|
$
|
1,400
|
|
|
$
|
10,166
|
|
|
$
|
2,375
|
|
|
|
8.9
|
|
$
|
1,500
|
|
|
$
|
11,631
|
|
|
$
|
3,147
|
|
|
|
10.2
|
|
Summary of Key Evaluation Metrics (Base Case at
$1,200 per ounce gold)
Total tonnes mined (million)
|
|
|
3,270
|
|
Ore tonnes treated (million)
|
|
|
505
|
|
Strip ratio (waste tonnes per ore tonne)
|
|
|
5.48
|
|
Gold ounces recovered (million)
|
|
|
30.4
|
|
Gold recovery (%)
|
|
|
89.8
|
%
|
|
|
|
|
|
($ million)
|
|
|
|
|
Gold, net revenue
|
|
$
|
36,445
|
|
Less:
|
|
|
|
|
Mining
|
|
|
(8,200
|
)
|
Processing
|
|
|
(7,808
|
)
|
G&A, community, refining & land
|
|
|
(3,232
|
)
|
Costs applicable to sales
(3)
|
|
|
(19,240
|
)
|
Initial capital
(1)
|
|
|
(6,511
|
)
|
Sustaining capital
|
|
|
(1,505
|
)
|
Total capital
|
|
|
(8,016
|
)
|
Income taxes
|
|
|
(2,741
|
)
|
Reclamation trust fund
|
|
|
(274
|
)
|
Salvage
|
|
|
23
|
|
Total costs
|
|
|
(30,248
|
)
|
Total cash flow
(1)
|
|
$
|
6,197
|
|
|
|
|
|
|
Payback period (years)
|
|
|
9.2
|
|
Operation life (years)
|
|
|
27
|
|
|
|
|
|
|
Year -5 NPV5%
(2)
($ million)
|
|
$
|
547
|
|
Year -5 IRR
(3)
|
|
|
6.0
|
%
|
Notes:
|
(1)
|
Cash
flow after-tax excludes sunk costs of $168 million assumed to be spent in Years -6 and
-7.
|
|
(2)
|
Reference
dates for discounted cash flow metrics are Year -5 (January 1, 2014 per the Donlin
Gold FS) and exclude sunk costs.
|
|
(3)
|
Costs
applicable to sales (US GAAP), excluding Depreciation and Reclamation costs.
|
Operating Cost Estimates
|
|
$ per ounce
|
|
$ per tonne milled
|
Mining cost
|
|
$
|
270
|
|
|
$
|
16.24
|
|
Process cost
|
|
|
257
|
|
|
|
15.47
|
|
G&A, community, refining & land
|
|
|
107
|
|
|
|
6.42
|
|
|
|
$
|
634
|
|
|
$
|
38.13
|
|
Capital Cost Estimates
($ million)
|
|
|
Mining
|
|
$
|
345
|
|
Site preparation /roads
|
|
|
236
|
|
Process facilities
|
|
|
1,326
|
|
Tailings
|
|
|
120
|
|
Utilities (including natural gas pipeline)
|
|
|
1,302
|
|
Ancillary buildings
|
|
|
304
|
|
Off-site facilities
|
|
|
243
|
|
Total direct costs
|
|
|
3,876
|
|
Owners’ costs
|
|
|
414
|
|
Indirect costs
|
|
|
1,405
|
|
Contingency
|
|
|
984
|
|
Total indirect and contingency
|
|
|
2,803
|
|
Total project cost
|
|
$
|
6,679
|
|
Sustaining capital requirements are estimated
at $1,505 million over the life of the mine.
Planned Mining Operations
The Donlin Gold project will be mined by a conventional
truck-and-shovel operation. Initial pioneering and pit development will be undertaken to remove overburden, develop mine access
roads suitable for large mining equipment, and “face-up” the initial pit for the large shovel and mining equipment.
Primary loading units for both bulk and selective
mining in ore and waste will be large electric-hydraulic shovels, with large front-end loaders as secondary units. Large 360 tonne
capacity haul trucks will be used for transporting both ore and waste out of the pit.
Blast hole drilling will be performed by medium-sized
rotary and down-the-hole hammer drills with various hole diameters depending on bench height and desired mining selectivity. Reverse
circulation (RC) drilling is planned for detailed geologic definition and grade control.
Support equipment will be used for road, bench,
and dump maintenance and miscellaneous projects.
Planned Processing Operations
The Donlin Gold project ore will be processed
by crushing and grinding, sulfide flotation concentration, concentrate treatment by pressure oxidation (POX) in an autoclave, carbon-in-leach
(CIL) cyanide leaching of the oxide concentrate, electrowinning, and refining to produce doré bars on site.
Due to gold being associated with sulfide mineralization,
primarily arsenopyrite and pyrite, the ore is considered refractory and requires POX pre-treatment to liberate the gold prior to
CIL leaching. Sulfide flotation concentration is required prior to POX to concentrate the sulfide content to a level sufficient
to fuel the POX operation.
Concentrate is recovered from the primary rougher
flotation followed by regrinding of the tailings prior to secondary rougher flotation. The secondary rougher concentrate is processed
through a cleaner scavenger circuit producing a concentrate which is combined with the primary rougher concentrate for treatment
by POX. The final tailings from the secondary rougher flotation tailings is thickened, and due to their neutralizing potential,
is then utilized to modify the pH of the POX discharge solution prior to being transported to the TSF.
The oxidized concentrate from the POX operation
would then be cyanide leached in a conventional CIL circuit to produce a pregnant (gold-bearing) solution. Gold from the solution
is adsorbed onto activated carbon, which is later stripped (gold desorbed from carbon) in an elution circuit. The pregnant solution
after elution is fed through electrowinning (EW) cells, where cathodes are plated with gold-bearing materials, which are periodically
removed, dried in retort, and melted in an induction furnace to produce doré bars.
Tailings from the CIL circuit would be treated
in a cyanide detoxification process using SO2/air technology prior to being recombined with the flotation tailings and transported
to the TSF.
Mercury naturally occurs in the Donlin Gold
project ores and mercury abatement controls will be installed in six areas of the process facilities including POX, hot cure, EW,
retort, refinery furnace, and carbon regeneration kiln. In these control systems, mercury will be collected for off-site shipment
and management. Chemicals will be added to tailings to limit the potential for mercury releases from the TSF.
Proposed Production Plan and Schedule
Based on the Donlin Gold FS, the operating mine
life is estimated to be 27 years with the nominal processing rate of 53,500 tonnes per day. Commercial gold production is proposed
in the Donlin Gold FS after a period of 3 to 4 years for project permitting and concurrent engineering and 3.5 to 4 years for construction.
The Donlin Gold FS also assumed that project engineering would proceed in parallel with project permitting. In addition, the Donlin
Gold board must approve a construction program and budget before construction of the Donlin Gold project can begin. The timing
of the initiation of the required engineering work, of the Donlin Gold board’s approval of a construction program and budget,
and receipt of all required governmental permits and approvals will determine whether and when construction of the Donlin Gold
project will begin.
Preproduction covers the first 15 months of
the mine plan, when mining activities will focus on providing sufficient ore exposure for plant start-up. Ore mined during preproduction
will be stockpiled and rehandled to the mill during operations. Average mine production increases progressively in the initial
years until the peak rate of 425,000 tonnes per day is reached in Year 6.
Waste Rock Facility
Waste rock from open pit mining will be placed
in an ex-pit waste rock facility in the American Creek Valley, east of the pit area, or in a backfill dump in the ACMA pit. The
ultimate footprint of the facility covers an area of approximately 9 square kilometers. Approximately 2,232 million tonnes of waste
rock and overburden will be placed in the facility, and 423 million tonnes will be placed in the ACMA pit backfill dump. Approximately
103 million tonnes of waste rock will be used for construction purposes, and 17 million tonnes of overburden will be stockpiled
and used later for reclamation purposes.
The potential magnitude of flow in the American
Creek drainage, as well as discharge from springs in the valley floors, warrants the construction of an engineered rock drain system
below the waste rock facility, including connecting secondary rock (finger) drains in the smaller contributing drainages.
Waste rock will be characterized by its potential
for acid generation and assigned reactivity categories. Non-acid-generating (NAG) rock will be placed directly in the waste rock
facility, along with less reactive potentially acid-generating (PAG) rock, PAG5. Some of the more reactive PAG rock, PAG6, will
be encapsulated in cells in the waste rock facility to prevent water infiltration through them. The most reactive PAG rock, PAG7,
will be backfilled in the ACMA pit beneath the ultimate pit lake water level.
Concurrent reclamation of the waste rock facility
will be undertaken during operations.
Proposed Tailings Storage
The TSF in the Anaconda Creek basin will be
a fully lined impoundment with a cross valley dam downstream (“main dam”) in the valley. The tailings dam will be constructed
of compacted rock fill using the downstream method with a composite liner on the upstream face. The tailings impoundment footprint
will be lined with a linear low density polyethylene liner over a layer of broadly graded silty sand and gravel acting as low permeability
bedding material and providing secondary containment. Material for construction will be sourced from the plant site and fuel farm
during initial construction and from the open pit for the later raises during operations.
Water Diversion Dams
Water dams are required during the construction
period and initial years of operation to protect the lined upstream face of the tailings starter dam from a significant flood event,
to provide a reliable source of fresh water during operation of the process plant, and to minimize runoff to the TSF.
Current and Planned On-Site Infrastructure
Current site infrastructure comprises an all-season,
soft-sided camp with facilities to house up to 150 people consisting of kitchen, living quarters, equipment shop, drill shack and
other buildings required for support of year-round exploration activities.
There is sufficient area within the project
area to host an open-pit mining operation, including the proposed open pit, waste rock facility, TSF and process facilities (primary
and pebble crushers, coarse ore conveyor and coarse ore stockpile, concentrator, water treatment plants, oxygen plant, boiler house,
utility corridors, and access walkways). Other planned site infrastructure comprises: access roads, airstrip, accommodation camp,
fuel tank farm, and dual-fueled power plant, truck shop, truck wash, workshops and vehicle repair facilities, assay laboratory,
administration facilities and change rooms. Donlin Gold has secured the surface rights for the areas that may host these facilities.
In the nearby villages, Crooked Creek has approximately
140 residents and Aniak has a population of approximately 570. The workforce for the project would be sourced from the local area,
from Alaskan regional centers and from other sources as required.
The project is a greenfield site. The on-site
infrastructure for the project includes three main development sites in remote locations: the mine and plant site area (including
the power plant), the permanent camp, and the airstrip. The plant site, power plant and fuel tank farm will be on a ridge above
the proposed TSF. The layout of the plant site was designed to take maximum advantage of the natural topography. The layout also
provides for efficient movement of equipment and material products around the site.
Planned Off-site Infrastructure
The off-site infrastructure for the project
includes three main development sites in remote locations: the Jungjuk Port site and mine access road; the natural gas pipeline;
and the Bethel port facilities. The Jungjuk Port site is situated upriver on the Kuskokwim River near the mouth of Jungjuk Creek.
A port-to-mine access road (Jungjuk Road) , approximately 44 kilometers long, will traverse varied terrain from the Jungjuk Port
site to the mine site. A 4.8 kilometer long spur road will serve the project airstrip. The primary purpose of the road is to transport
freight from the Jungjuk Port site to the mine mostly by conventional highway tractors and trailers. The natural gas pipeline is
described under the Power heading below. The Bethel Port will be situated near the town of Bethel, a community of approximately
6,400 residents, that is the main port on the Kuskokwim River and is an administrative and transportation hub for the 56 villages
in the Y-K region. The Port of Bethel is the northernmost medium-draft port in the United States and is served by ocean-going barges.
The proposed port would serve as a trans-shipment point from ocean barges to river barges to supply the project during the summer.
Power
Natural gas will be delivered to site by an
approximately 315-mile (500 kilometer) long 14-inch (356 millimeter) diameter pipeline to supply an on-site power generation facility.
The Donlin Gold FS contemplates that the electric power for the site will be generated from a dual-fueled (natural gas and diesel),
reciprocating engine power plant with a steam turbine utilizing waste heat recovery from the engines. The power plant consists
of two equal halves, each consisting of six reciprocating engines, and a separate steam turbine. The total generation facility
is nominally rated at 182 MW initially. This will increase to 215 MW after four years with the addition of two more generators
(one in each half) to allow for N+2 redundancy, thus allowing planned maintenance and predicted outages without cutting back production.
The natural gas pipeline is a lower-cost alternative
to the previously considered barging of diesel fuel to site to generate electricity. The Donlin Gold FS operating costs are based
on importing liquefied natural gas (LNG) by ship to Anchorage and total delivery costs to site which includes regasification of
the LNG and delivery from Anchorage to the Donlin Gold project via the pipeline.
The pipeline would commence at the west end
of the Beluga Gas Field, approximately 48 kilometers northwest of Anchorage at a tie-in near Beluga located in the Matanuska-Susitna
Borough and would run to the mine site. The pipeline would receive booster compression supplied by one compressor station. No additional
compression along the pipeline route would be required. The pipeline would have capacity to transport approximately 2 million cubic
meters per day of natural gas.
Water
Water requirements for the proposed project
have been summarized in a Water Resources Management Plan, which is subject to review by state and federal agencies. Water primarily
will be sourced from the two drainages (American and Anaconda Creeks) within the mine footprint and pit dewatering. In some years,
the water supply from these sources may not be able to meet the makeup water requirements for the plant. In these circumstances,
additional water will be obtained primarily from a reservoir in Snow Gulch.
The source of water supply for the construction
camp and, later, the plant site potable water systems is an array of eight deep wells south of Omega Gulch, near Crooked Creek.
Water supply will be pumped to freshwater storage tanks, and will be treated prior to consumption.
Markets
The marketing plan is for the owners of Donlin
Gold to take in-kind their respective shares of the gold production, which they can then sell for their own benefit. Under the
LLC Agreement, the manager shall give the members prompt notice in advance of the delivery date upon which their respective shares
of gold production will be available.
Since there are a large number of available
gold purchasers, the members should not be dependent upon the sale of gold to any one customer. Gold can be sold to various gold
bullion dealers or smelters on a competitive basis at spot prices.
It is expected that selling contracts for our
share of the gold production will be typical of, and consistent with, standard industry practice, and be similar to contracts for
the supply of doré elsewhere in the world.
Taxation
Taxes that may be levied on the project can
be summarized as follows:
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Federal income tax – the greater of the U.S. regular rax of 35% or alternative minimum tax
of 20%.
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Alaska state income tax – 9.4% of net income or alternative minimum tax of 18% of federal
alternative minimum tax.
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Alaska state mining license tax – 7% of taxable mining income, less depletion. There is a
3.5-year tax holiday on the mining license tax.
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Income tax becomes payable after deductions
for capital allowances.
Financial Analysis
The total capital cost estimate for the Donlin
Gold project is $6.7 billion including costs related to the natural gas pipeline and a contingency. The project’s estimated
after-tax net present value (NPV5%) is $547 million with an IRR after-tax at 6.0% using the base case gold price of $1,200 per
ounce. The break-even gold price is $902 per ounce. In the Donlin Gold FS, the overall economic viability of the project was evaluated
by both discounted and undiscounted cash flow analyses, based on the engineering studies and cost estimates discussed in this study.
Assumptions in the model comprised:
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For discounted cash flow (or NPV) purposes, the model is based from Year -5 (January 1, 2014
per the Donlin Gold FS). Estimates were prepared for all the individual elements of cash revenue and cash expenditures for ongoing
operations.
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Estimated cash flows from revenue are based on a gold price of $1,200 per ounce as provided by
Donlin Gold. The pit has been optimized at a gold price of $975 per ounce, which was the guidance in effect at the time the pit
optimization work was completed.
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Gold recovery is estimated to average 89.8% over the LOM based on work and testing performed for
feasibility study and feasibility study update purposes.
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Doré refining and shipping charges were estimated at $1.02 per ounce based on actual refining
charges for Barrick’s Goldstrike operations and a quotation for transportation and insurance costs from the Donlin Gold project
site to a U.S.-based refinery. An additional 0.1% of gold produced from the mine is included in refining costs. This amount represents
the refiner’s estimate of the loss of gold that will occur during the refining process.
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The current hydrometallurgical process selection renders any contained silver into a greater refractory
state, which provides less than 10% silver recovery through standard metal leaching. As a consequence, no silver credit was applied
to the project.
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Assets will be sold over the course of the mine life, when they are no longer required for project-based
work, as well as at the end of the mine life. Total recovered value from these sales is estimated at approximately $23.0 million.
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Reclamation and closure costs were estimated at $273.7 million to be funded over the construction
and operating period to fund closure and post-closure activities.
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Inventory is included in the financial model as cash outflows in the year before start-up of operations.
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Current Activities
For information on current activities, see section
Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations
, below.
Galore Creek Project, British Columbia
Galore Creek Partnership
The Galore Creek project is a large copper-gold-silver
project located in northwestern British Columbia, held by a partnership in which our wholly-owned subsidiary, NOVAGOLD Canada Inc.,
and Teck Resources Inc. each own a 50% interest and is managed by Galore Creek Mining Corporation (GCMC). The Galore Creek property,
as per the PFS, comprises 293,837 acres (118,912 hectares) and hosts a large, porphyry-related copper-gold-silver deposit. Funding
is currently shared by both parties on a 50/50 basis.
On November 16, 2011, we announced that
we were evaluating opportunities to sell all or part of our 50% interest in the Galore Creek project. As of November 30, 2016,
we had not received an acceptable offer for our 50% interest in the Galore Creek project.
Partnership History
On August 1, 2007, we entered into the
Galore Creek Partnership Agreement with Teck (as amended on November 25, 2007 and on July 28, 2008, the “Partnership
Agreement”) which formed the Galore Creek Partnership giving each of us a 50% interest in the Galore Creek project. The activities
of the Galore Creek Partnership are being conducted by GCMC, an independent entity controlled equally by us and Teck, pursuant
to the terms of the Partnership Agreement.
Under the Partnership Agreement, we contributed
our assets in the Galore Creek project to the Galore Creek Partnership and Teck agreed to fund an initial contribution after which
both partners would be equally responsible to fund the project going forward. In addition, under the terms of the Partnership Agreement,
we would receive up to $50 million of preferential distributions once Galore Creek was fully operational, if partnership revenues
exceeded certain established targets in the first year of commercial production.
On November 26, 2007, we announced that
NOVAGOLD and Teck had reached the decision to suspend construction activities at the Galore Creek project. In light of these developments,
we agreed with Teck to amend the terms of Teck’s earn-in obligations in connection with the Galore Creek project. Under the
amended arrangements, Teck’s total earn-in was approximately C$403 million and we were to receive up to $25 million of preferential
distributions once Galore Creek became fully operational, if Partnership revenues exceeded certain established targets in the first
year of commercial production. Teck’s sole funding of project costs incurred after August 1, 2007 was to total C$264
million, and Teck agreed to invest an additional C$72 million in the Galore Creek Partnership to be used over the next five years,
principally to reassess the project and evaluate alternative development strategies. NOVAGOLD and Teck were to fund the next C$100
million of project costs one-third and two-thirds respectively, and would fund costs proportionately thereafter.
On February 11, 2009, we agreed with Teck
to further amend certain provisions of the Partnership Agreement relating to the Galore Creek project. The amendment confirmed
that NOVAGOLD and Teck each continue to hold a 50% interest in the Galore Creek Partnership. Under the amended agreement, Teck
agreed to fund 100% of Galore Creek project costs until the total amount contributed by Teck after November 1, 2008, together
with approximately C$16 million previously contributed by Teck on optimization studies, equaled C$60 million. Teck would have a
casting vote on the Galore Creek Partnership’s Management Committee with respect to the timing and nature of expenses to
be solely funded by it. Following Teck’s C$60 million contribution, all further costs at the Galore Creek project would be
funded by Teck and us in accordance with our respective Galore Creek Partnership interests and there would no longer be any casting
vote for either party. The new funding arrangements replaced the funding arrangements agreed to by Teck and us in November 2007.
Teck was the sole funding partner until June 22, 2011 when it completed its C$373 million earn-in obligation. Since that date,
we have funded and will continue to fund Galore Creek project expenditures equally.
Except for the information under the headings
“Galore Creek – Current Activities”, “Galore Creek – Project History, Drilling and Exploration, 2012
Program and 2013 Program” and “Galore Creek – Mineral Tenure”, or for information related to Copper Canyon
or as otherwise stated or implied, the scientific and technical information regarding the Galore Creek project in this Annual Report
on Form 10-K is based on the PFS.
Property Description and
Location
The Galore Creek property is a large copper-gold-silver
project located in northwestern British Columbia. The main Galore Creek property, which consists of the Southwest, Central (including
Bountiful deposit), Junction, West Fork, and Middle Creek zones, contains most of the project’s known resources. Under an
option agreement originally with subsidiaries of Rio Tinto plc and Anglo American plc, the then shareholders of Stikine Copper
Limited, the owner of the core mineral claims at the Galore Creek project, we could acquire 100% of such company. On June 1,
2007, we completed the exercise of our option pursuant to the Galore Creek Option Agreement to purchase 100% of Stikine Copper
Limited by paying the final C$12.5 million of a C$20.3 million purchase price. Our financial earn-in requirements under the Galore
Creek Option Agreement were satisfied and all of Stikine Copper’s assets were purchased by us and have been transferred to
the Galore Creek Partnership.
Mineral Tenure
On May 23, 2007, we announced with Teck
a 50/50 partnership to develop the Galore Creek project. On August 1, 2007, the Galore Creek Partnership was established to
develop the Galore Creek project and GCMC, a jointly-controlled operating company, was created. In October 2007, all Galore Creek
claims held by our wholly-owned subsidiary, NOVAGOLD Canada Inc., were transferred to GCMC. GCMC currently holds 145,687 hectares
(360,001 acres) of British Columbia provincial mineral claims in 324 tenures (the acquisition of additional acres since the issuance
of the PFS has no material impact on reserves or resources stated in the PFS). Included in this total are the five Grace mineral
claims that were acquired by GCMC from Pioneer Metals Corporation on December 3, 2007. To date, BCLS legal surveys have been
recorded on 11 Galore Creek mineral claims (516158, 516161, 516163, 516165, 516459, 516177, 516335, 517480, 517481, 404921, 404922),
eight West More mineral claims (516445, 516448, 585412, 516452, 516458, 509893, 662956, 662967), and four More Creek/Bob Quinn
area mineral claims (514548, 514551, 545723, 566898). The adjoining Copper Canyon property, owned 60% by the Galore Creek Partnership
and 40% by a subsidiary of the Company, is comprised of 12 claims totaling 11,344 hectares (28,032 acres).
The Partnership has a royalty agreement entitling
the counterparty to a maximum annual net smelter royalty of 0.5% to 1.0%. The royalty is subject to positive future operating mine
cash flow and is contingent upon reaching certain agreed financial targets.
Accessibility and Climate
The Galore Creek project is located approximately
70 kilometers west of the Bob Quinn airstrip on Highway 37 and 150 kilometers northeast of the port of Stewart, and 370 kilometers
northwest of the town of Smithers, British Columbia, Canada. The town of Smithers is the nearest major supply center and has an
airport with regularly scheduled flights to and from Vancouver, British Columbia. The project is located in the Stikine area. The
nearest point on the Stikine River to the project is the mouth of the Anuk River, about 16 kilometers west of the camp. Most personnel,
supplies, and equipment are staged from the Bob Quinn airstrip, on the Stewart-Cassiar Highway (Highway 37) and transported via
helicopter to the Galore Creek camp. The Bob Quinn airstrip is serviced by contract flights from Smithers and Terrace, each of
which has daily flights from Vancouver. Flight time from Vancouver to Smithers/Terrace is about 90 minutes, then an additional
45 minutes to Bob Quinn. The helicopter flight from Bob Quinn to the Galore Creek camp is about 30 minutes.
The Galore Creek project is located in the humid
continental climate zone of coastal British Columbia and is characterized by cold winters and short, cool, summers. Within the
Galore Creek valley, mean monthly temperatures range from -8.2ºC during the winter to 12.4ºC during the summer, with
January and July typically being the coolest and warmest months, respectively. In the Upper West More Valley area, monthly average
temperatures range from -8.9ºC in the winter to 7.9ºC in the summer. Precipitation begins to fall as snow in early October
and continues until the end of May. The average annual precipitation for the whole Galore Creek valley watershed was estimated
to be in the order of 3,000 millimeters. June and July tend to receive the least amount of precipitation on an annual basis (typically
40 to 60 millimeters of rain per month).
The project lies within a regional structure
known as the Stikine Arch. Medium to steep slopes characterize the local terrain in the central and northern parts of the Galore
Creek property. The surrounding topography is mountainous. The elevation of the tree line is variable, but alpine vegetation predominates
above 1,100 meters. The forests below that elevation consist of Balsam fir, Sitka spruce and cedar. Alpine tundra is present at
higher elevations.
The Galore Creek project is currently isolated
from power and other public infrastructure and is currently not accessible by road. Because of glaciers covering the surrounding
mountain passes, a large cross-section tunnel is needed to provide long-term vehicular access into the Galore Creek valley and
for mobilization of individual component pieces of large mining equipment needed for mining the ore body using open pit methods.
The time and cost for driving a tunnel in new and unexplored underground terrain is subject to many unknowns which could change
the outcome significantly. The same surface constraints that preclude building a road into the site (i.e. severe topography, snowpack,
glaciers and weather) also limit the amount of borehole information, geologic mapping and other site specific data that can be
obtained so that subsurface conditions can be better understood before tunneling begins. Construction of the tunnel will most likely
fall on the critical path for development of the mine and thus represents a significant cost and schedule risk for development
of the Galore Creek project.
Within the land controlled by GCMC, there is
sufficient area to allow for the construction of all project infrastructures as contemplated in the PFS. Except for the access
corridor which is covered by the special use permit, all other infrastructure, including the processing plant and tailings area
in West More and the Filter Plant Area near Kilometer 8 are located within GCMC’s mineral claims. GCMC intends to file for
mining leases to secure the surface rights for these areas, which are held by the Crown. GCMC considers it a reasonable expectation
that surface use rights will be granted to the project. Ample water supply is available from surface and subsurface sources.
Geological Setting
The Galore Creek deposit lies within the Stikinia
terrane, a tectonically accreted assemblage of volcanic and sedimentary rocks that include the Stuhini, Hazelton, Bowser Lake,
and Sloko Groups. The Late Triassic Galore Creek alkalic intrusive complex is centered in the west fork of the Galore Creek, and
is hosted within volcanic rocks and sedimentary strata of the Stuhini Group. The Galore Creek intrusive suite forms a north-northeast-trending
belt five kilometers long and two kilometers wide and contains stocks, dikes and extensive sills that underlie the district and
control the known copper-gold mineralization. The spatial and temporal association of the chemically similar intrusive and extrusive
igneous rocks indicates that the Galore Creek area is probably an eroded volcanic center. The Galore Creek intrusions commonly
follow two orientations, one northeast and the other northwest. Post-intrusion and post-mineralization faulting follows these same
orientations. Regionally, the Galore Creek district is interpreted to have undergone broad open folding, followed by the development
of northerly-trending folds and thrust faults. The mineralized area is less deformed, so it is unclear whether the deformation
occurred prior to, during, or subsequent to mineralization.
Copper Canyon, a satellite copper-gold resource
located six kilometers east of the Central Zone of Galore Creek, shares a number of geological and geochemical similarities with
the main Galore Creek deposits, including the occurrence of identical dike rock types, a similar sulphide suite, and occurrence
within the same host volcanic succession. Regional stratigraphic relationships suggest that Copper Canyon represents a different
volcanic center that is of the same age or date of origin as the Galore Creek deposits.
Mineralization
Mineralization at Galore Creek occurs primarily
in volcanic and volcano-sedimentary rocks of the Stuhini Group and pipe-like breccias, adjacent to syenite stocks and dykes. Deposits
trend north to northeast, following syenite contacts and structural breaks. The largest deposit is the northerly-elongated Central
Zone, with the Bountiful zone partially superimposed. Smaller deposits peripheral to the Central Zone include: Southwest Zone,
Junction, Butte, West Rim, West Fork and the Saddle zones.
Potassic alteration associated with the introduction
of copper sulphides is the most widespread and dominant alteration type, most intense in the Central Zone. Chalcopyrite and bornite
are most closely associated with secondary biotite and magnetite of the potassic alteration phases. At the northern and southern
ends of the Central deposit, higher gold values occur, generally along with elevated concentrations of bornite and intense potassic
alteration. In general, mineralization shows a progression from bornite laterally to chalcopyrite with increasing pyrite peripheral
in the system.
Mineralization at Copper Canyon occurs primarily
in a sub-volcanic syenite intrusive complex. This host lithology defines the primary difference from the main Galore Creek deposits.
Chalcopyrite forms the primary sulfide mineralogy; bornite is rare. As at the Galore Creek project, mineralization is evenly disseminated
and shows no apparent association with veining. The periphery of known mineralization contains elevated gold/copper ratios along
with relatively higher concentrations of pyrite.
Metallurgy
The sulfide minerals at the Galore Creek project
are predominately gold- and silver-bearing chalcopyrite, bornite and pyrite. A primary grind of 80% passing 200 microns provides
sufficient rougher flotation liberation to separate the copper minerals from the pyrite and gangue. At this grind, the majority
of the gold is either free or associated with the copper sulfides. The proposed treatment process uses conventional crushing and
SAG and ball mill grinding, flotation to produce a precious-metal-bearing copper concentrate for shipment off-site.
Project History, Drilling
and Exploration
Drilling History
Since initial discovery of the Galore Creek
property in 1960 through 2013, approximately 311,181 meters were drilled in 1,212 core holes on the property. Most of this work
has focused on the Central zone, with lesser amounts of work on eleven other target areas. Some zones have received only reconnaissance
drilling. During the 1970s, drilling was principally confined to the Central zone but nine holes were also drilled on the North
Junction zone. In 1989–1990, Mingold, an Anglo American subsidiary, drilled holes on the Southwest zone (eight holes, 1,026
meters), the North Rim showing (six holes, 546 meters), the Saddle zone (two holes, 226 meters) and two reconnaissance holes. The
1991 drill program was mainly directed at areas peripheral to the Central zone as well as exploration holes located in the Southwest,
Butte, North Rim and Dry Creek zones.
The first drill program directed by us began
in September 2003, and consisted of eight core holes targeting four broad areas of the deposit: the North Gold zone, South Gold
zone, Central Replacement zone and Southwest zone. This program was responsible for the discovery of new mineralization, known
as the Bountiful zone, found at depth below the South Gold Lens.
2006 Program
The 2006 drilling program included 67 holes
and over 36,200 meters of primarily wide-spaced drilling to further define the deep Bountiful mineralization, which was discovered
in 2003.
2007 Program
The 2007 drilling program at the Galore Creek
project completed 15,000 meters of follow-up and exploration drilling. Targets concentrated on optimization of the mine schedule
by targeting shallow moderate-grade resources that could displace low-grade stockpile material in years seven to nine of operations.
Additional exploration focused on scoping potentially high-grade underground scenarios that could increase the value of the project.
2008 Program
The 2008 drilling program consisted of nine
diamond drill holes totaling 2,050 meters. The main objectives of the program were to obtain acid base accounting data in the Central,
Southwest, North Junction and Junction pits, to confirm legacy grades in the Junction pit, and to collect metallurgical data in
the Central pit for engineering design.
2009 Program
There was no exploration program during 2009.
2010 Program
There were 9 drill holes, totaling 2,803 meters
drilled into the Central zone during 2010 for resource infill and metallurgical testing purposes.
2011 Program
The 2011 drilling program included 10,000 meters
of resource infill drilling to confirm previous results as well as to test the potential for upgrading and possible extensions
of mineralization within the South Gold Lens and Bountiful areas of the Central pit.
2012 Program
The 2012 drilling program totaled 27,900 meters
of resource infill and exploration drilling. The objective of the infill drilling was to increase resources and upgrade material
in all categories. The exploration drilling resulted in the discovery of the Legacy zone adjacent to the Central reserve pit.
2013 Program
The 2013 drilling program totalled 11,649 meters
of resource in-fill and exploration drilling, 9,157-meters of which targeted the Legacy zone. An additional 2,492 meters of exploration
drilling was conducted to better understand geological features that could influence the mineralization in Legacy, identify mineralization
trends, and explore possible extensions of known mineralized zones adjacent to Legacy. The 2013 program also demonstrated that
the copper mineralization may extend beyond the initial Legacy discovery in the direction of the Bountiful mineralization. The
mineralization remains open to the south, west, and at depth.
The Galore Creek project is host to seven copper-gold-silver
prospects, five defined mineral resource areas, and numerous showings and conceptual target areas.
Sampling and Assaying
Historically from 1963 to 1991, drill core in
mineralized zones was generally sampled in 3-meter intervals. The samples were tagged then split in half using a mechanical splitter.
One half of the core was returned to the core box and the other half shipped to an outside laboratory for analysis. The core returned
to the boxes remains on site as a record of the hole. Much of the core from the Central Zone was re-assayed as part of the 1991
exploration program. No site-specific standards, blanks or field duplicate samples were used in any of the previous exploration
programs.
Sampling and assaying procedures used by us
have been overseen by qualified professional geologists. All drill core from the 2003 through 2013 programs, except intervals of
overburden and till material, were sampled. Drill core sampling occurred within a minimum of 1-meter and a maximum of 3-meter intervals.
The core was cut in half using a diamond saw. Half of the core was taken as a sample and submitted to ALS Chemex (now ALS Minerals)
Labs in Vancouver, British Columbia. The core that was returned to the box remains on site as a record of the hole. In addition
to the core, control samples were inserted into the shipments at the approximate rate of one standard, one blank and one duplicate
per 20 core samples.
Assay analysis for the 2003 through 2007 programs
was carried out by ALS Chemex Labs of Vancouver, British Columbia. Samples were logged into a tracking system on arrival at ALS
Chemex, and weighed. Samples were then crushed, dried, split, and pulverized. Gold assays were determined using fire analysis followed
by an atomic absorption spectroscopy (AAS) and a default overlimit gravimetric finish. An additional 34-element suite was assayed
by inductively coupled plasma - atomic emission spectrometry (ICP-AES) methodology, following nitric acid aqua regia digestion.
The copper analyses were completed by AAS, following an aqua regia digestion. Sampling and assaying during the drilling from 2008
through 2010 used the same sample preparation, and gold assaying protocols as described above; however a 35-element suite was assayed
using ICP-AES methodology, and copper analyses were completed by ICP-AES or AAS finish. 2011 through 2013 used the same sample
preparation and gold and copper assaying protocols as in 2008-2010; however a 51-element suite was assayed using ICP-AES and ICP-MS
(mass spectrometry) methodology.
Construction
On June 5, 2007, we announced that we had
received the necessary federal and provincial authorizations and permits to allow our Directors to approve the start of construction
at the Galore Creek project. The Directors’ approval for construction activities was contingent on receiving full provincial
and federal authorization for the project. Federal authorization was posted to the Canadian Environmental Assessment Registry on
June 4, 2007.
On July 31, 2007, the provincial government
announced the issuance of a Mines Act permit for the Galore Creek project for construction of the access tunnel. An interim permit
issued on July 4, 2007 authorized limited blasting to prepare and stabilize the rock face of the tunnel, as well as preparatory
work for the sediment ponds. Receipt of the new permit authorized completion of the access road and tunnel and authorized the start
of earthworks in the Galore Creek valley.
Construction Suspension
On November 26, 2007, we announced that
NOVAGOLD and Teck had reached the decision to suspend construction activities at the Galore Creek project. A review and completion
of the first season of construction indicated substantially higher capital costs and a longer construction schedule for the project.
This, combined with reduced operating margins as a result of the stronger Canadian dollar, would make the project, as conceived
and permitted, uneconomic at what was considered then to be industry consensus long-term metal prices. NOVAGOLD and Teck continue
to view the Galore Creek project as a substantial resource and are working to identify an alternative development strategy that
may allow for the resumption of construction.
Prior to the suspension of construction, substantial
work was completed at the Galore Creek project, including clearing 80% of the 135-kilometer road right-of-way, completing 66 kilometers
of pioneer road, installing a number of key bridges and initiating work on the road access tunnel into the Galore Creek valley.
During the construction suspension and optimization period, the partners have maintained and intend to continue to maintain the
existing infrastructure.
While permits granted for the original project
design remain in place, any alternative project design will require new or additional permits before construction can resume.
Pre-Feasibility Study
During 2010, GCMC reviewed a number of optimization
scenarios for the Galore Creek project with the objective of expanding throughput, relocating the project facilities to allow for
easier construction and future expansion, and reducing the risks associated with construction and operations. Based on these studies,
GCMC identified a preferred project design and commenced work on the PFS.
Primary changes to the project included:
|
·
|
Relocation of the tailings facility allowing for construction of a conventional tailings dam;
|
|
·
|
Relocation of the processing facilities allowing for future expansion;
|
|
·
|
Realignment of the tunnel and access road; and
|
|
·
|
Increase of daily throughput to a nominal 95,000 tonnes per day.
|
Project plans envision the ore being crushed
in the Galore Creek valley and then conveyed through the tunnel and along the access road to the processing plant. From there,
concentrate would be piped along the remainder of the access road to Hwy 37. A trade off study will identify the best alternative
for transport of concentrate to market. The project would primarily use electric power, with a power line built along the access
road to tie into the 287-kV transmission line at the Bob Quinn substation. Some components of the revised Galore Creek mine plan,
such as the mill and tailings location, would require new permits or amendments to existing permits. The majority of permits required
for road construction remain in good standing. GCMC could continue with road and bridge work as the project moves through the feasibility
stage, with the objective of shortening the construction timeline and reducing the need for helicopter support.
On July 27, 2011, we announced the results
of the PFS for the Galore Creek project. The PFS estimates the Galore Creek project has proven and probable mineral reserves of
528 million tonnes grading 0.59% copper, 0.32 grams per tonne gold and 6.02 grams per tonne silver for estimated contained metal
of 6.8 billion pounds of copper, 5.45 million ounces of gold and 102.1 million ounces of silver. In addition, the Galore Creek
project has estimated measured and indicated mineral resources (exclusive of mineral reserves) of 286.7 million tonnes grading
0.33% copper, 0.27 grams per tonne gold and 3.64 grams/tonne silver for estimated contained metal of 2.07 billion pounds of copper,
2.53 million ounces of gold and 33.54 million ounces of silver, and estimated inferred mineral resources of 346.6 million tonnes
grading 0.42% copper, 0.24 grams per tonne gold and 4.28 grams per tonne silver for estimated contained metal of 3.23 billion pounds
of copper, 2.70 million ounces of gold and 47.73 million ounces of silver. Mineral resources that are not mineral reserves do not
have demonstrated economic viability. The PFS initial capital cost estimate for the Galore Creek project was C$5.2 billion dollars.
Capital costs are estimated with an accuracy range of +25% / -20% (including contingency). The project’s estimated net present
value (NPV7%), using the PFS base case metal price assumptions set forth below, was assessed at C$137 million on a post-tax basis.
The corresponding post-tax IRR of the project was estimated at 7.4%. Base case metal prices used in the PFS were $2.65 per pound
copper, $1,100 per ounce gold and $18.50 per ounce silver with a foreign exchange rate of $0.91 = C$1.00.
Mining of the Galore Creek deposit is planned
as a conventional truck-shovel open-pit mining operation at peak rates of 370,000 tonnes per day to support a nominal processing
throughput of 95,000 tonnes per day. Life of mine throughput average is approximately 84,000 tonnes per day due to the milling
circuit constraining throughput as harder rock is encountered deeper in the open pits. The current 528 million tonne mineral reserve
estimate is expected to support a mine life of approximately 18 years. Using a conventional crushing, grinding and flotation circuit,
the project would produce a high-quality copper concentrate with significant gold and silver credits.
Reserve and Resource Estimate
The proven and probable mineral reserve estimate
for the Galore Creek project totals 528.0 million tonnes grading 0.59% copper, 0.32 grams per tonne gold and 6.02 grams per tonne
silver for a total estimated metal content of 6.8 billion pounds of copper, 5.45 million ounces of gold and 102.1 million ounces
of silver at an NSR cut-off of $10.08 per tonne.
Proven and Probable Mineral Reserve Estimate
|
Tonnes
|
|
Diluted Grade
|
|
Contained
Cu
|
|
Contained
Au
|
|
Contained
Ag
|
|
(million
tonnes)
|
|
Cu
(%)
|
|
Au
(g/t)
|
|
Ag
(g/t)
|
|
(billion
pounds)
|
|
(million
ounces)
|
|
(million
ounces)
|
Proven
|
|
69.0
|
|
|
|
0.61
|
|
|
|
0.52
|
|
|
|
4.94
|
|
|
|
0.9
|
|
|
|
1.15
|
|
|
|
11.0
|
|
Probable
|
|
459.1
|
|
|
|
0.58
|
|
|
|
0.29
|
|
|
|
6.18
|
|
|
|
5.9
|
|
|
|
4.30
|
|
|
|
91.2
|
|
Proven and probable
|
|
528.0
|
|
|
|
0.59
|
|
|
|
0.32
|
|
|
|
6.02
|
|
|
|
6.8
|
|
|
|
5.45
|
|
|
|
102.1
|
|
Effective Date July 11, 2011, Jay Melnyk,
P.Eng.
Notes:
|
(1)
|
Mineral
reserves are contained within measured and indicated pit designs, and supported by a
mine plan, featuring variable throughput rates, stockpiling and cut-off optimization.
The pit designs and mine plan were optimized on diluted grades using the following economic
and technical parameters: Metal prices for copper, gold and silver of $2.50 per pound,
$1,050 per ounce, and $16.85 per ounce, respectively. Mining and ore based costs (process,
G&A and mine general) of C$1.60 per tonne mined and C$10.08 per tonne milled respectively;
an exchange rate of $0.91 to C$1.00; variable recovery versus head grade relationships
for both oxidized and non-oxidized material; appropriate smelting, refining and transportation
costs; and inter ramp pit slope angles varying from 42º to 55º. The mineral
reserves are reported in accordance with NI 43-101, which differs from SEC Industry Guide
7. The project is without known reserves as defined under SEC Industry Guide 7. See Cautionary
Note to U.S. Investors Regarding Estimates of Measured, Indicated and Inferred Resources
and Proven and Probable Reserves, above.
|
|
(2)
|
Mineral
reserves are reported using a ‘cash flow grade’ ($NSR/SAG mill hour) cut-off
which was varied from year to year in the scheduling process to optimize NPV. The cash
flow grade is a function of the NSR ($ per tonne) and SAG mill throughput (tonnes per
hour). The net smelter return (NSR) was calculated as follows: NSR = Recoverable Revenue
– TCRC (on a per tonne basis), where: NSR = Net Smelter Return; TCRC = Transportation
and Refining Costs; Recoverable Revenue = Revenue in Canadian dollars for recoverable
copper, recoverable gold, and recoverable silver using the economic and technical parameters
mentioned above. SAG throughputs were modeled by correlation with alteration types.
|
|
(3)
|
The life
of mine strip ratio is 2.16.
|
|
(4)
|
Rounding
as required by reporting guidelines may result in apparent summation differences between
tonnes, grade and contained metal content.
|
|
(5)
|
Tonnage
and grade measurements are in metric units. Contained gold and silver ounces are reported
as troy ounces, contained copper pounds as imperial pounds. See Cautionary Note to U.S.
Investors Regarding Estimates of Measured, Indicated and Inferred Resources and Proven
and Probable Reserves, above.
|
Resource Estimate
The measured and indicated mineral resource
for the Galore Creek project (exclusive of mineral reserves) is estimated to total 286.7 million tonnes grading 0.33% copper, 0.27
grams per tonne gold and 3.64 grams per tonne silver for a total estimated metal content of 2,070 million pounds of copper, 2.53
million ounces of gold and 33.54 million ounces of silver at an NSR cut-off of C$10.08 per tonne.
The updated inferred mineral resource is estimated
to total 346.6 million tonnes grading 0.42% copper, 0.24 grams per tonne gold and 4.28 grams per tonne silver for a total estimated
metal content of 3,230 million pounds of copper, 2.7 million ounces of gold and 47.7 million ounces of silver at an NSR cut-off
of C$10.08 per tonne.
Measured and Indicated Resources Estimate (exclusive
of reserves)
|
|
Tonnes
(million
tonnes)
|
|
Cu
Grade
(%)
|
|
Au
Grade
(g/t)
|
|
Ag
Grade
(g/t)
|
|
Contained
Cu
(billion
pounds)
|
|
Contained
Au
(million
ounces)
|
|
Contained
Ag
(million
ounces)
|
Measured
|
|
|
39.5
|
|
|
|
0.25
|
|
|
|
0.39
|
|
|
|
2.58
|
|
|
|
0.22
|
|
|
|
0.50
|
|
|
|
3.27
|
|
Indicated
|
|
|
247.2
|
|
|
|
0.34
|
|
|
|
0.26
|
|
|
|
3.81
|
|
|
|
1.85
|
|
|
|
2.04
|
|
|
|
30.26
|
|
Measured and indicated
|
|
|
286.7
|
|
|
|
0.33
|
|
|
|
0.27
|
|
|
|
3.64
|
|
|
|
2.07
|
|
|
|
2.53
|
|
|
|
33.54
|
|
Effective Date July 11, 2011, G. Kulla,
P.Geo.
Notes:
|
(1)
|
Mineral
resources are exclusive of Mineral reserves. Mineral resources that are not Mineral reserves
do not have demonstrated economic viability. See Cautionary Note to U.S. Investors Regarding
Estimates of Measured, Indicated and Inferred Resources and Proven and Probable Reserves,
above.
|
|
(2)
|
Mineral
resources are contained within a conceptual measured, indicated and inferred optimized
pit shell using the same economic and technical parameters as used for Mineral reserves.
Tonnages are assigned based on proportion of the block below topography. The overburden/bedrock
boundary has been assigned on a whole block basis. Commodity prices used to constrain
the Mineral Resources are $2.50 per pound copper, $1,050 per ounce gold, and $16.85 per
ounce silver.
|
|
(3)
|
Mineral
resources have been estimated using a constant NSR cut-off of $10.08 per tonne milled.
The Net Smelter Return (NSR) was calculated as follows: NSR = Recoverable Revenue –
TCRC (on a per tonne basis), where: NSR = Diluted Net Smelter Return; TCRC = Transportation
and Refining Costs; Recoverable Revenue = Revenue in Canadian dollars for recoverable
copper, recoverable gold, and recoverable silver using silver using the economic and
technical parameters used for mineral reserves.
|
|
(4)
|
Rounding
as required by reporting guidelines may result in apparent summation differences between
tonnes, grade and contained metal content.
|
|
(5)
|
Tonnage
and grade measurements are in metric units. Contained gold and silver ounces are reported
as troy ounces, contained copper pounds as imperial pounds.
|
Inferred Mineral Resource Estimate
|
|
Tonnes
(million
tonnes)
|
|
Cu
Grade
(%)
|
|
Au
Grade
(g/t)
|
|
Ag
Grade
(g/t)
|
|
Contained
Cu
(billion
pounds)
|
|
Contained
Au
(million
ounces)
|
|
Contained
Ag
(million
ounces)
|
Inferred
|
|
|
346.6
|
|
|
|
0.42
|
|
|
|
0.24
|
|
|
|
4.28
|
|
|
|
3.23
|
|
|
|
2.70
|
|
|
|
47.73
|
|
Notes:
|
(1)
|
Inferred
resources are in addition to measured and indicated resources. Inferred resources have
a great amount of uncertainty as to their existence and whether they can be mined legally
or economically. It cannot be assumed that all or any part of the inferred resources
will ever be upgraded to a higher category. See Cautionary Note to U.S. Investors Regarding
Estimates of Measured, Indicated and Inferred Resources and Proven and Probable Reserves,
above.
|
|
(2)
|
Tonnage
and grade measurements are in metric units. Contained gold and silver ounces are reported
as troy ounces, contained copper pounds as imperial pounds.
|
A rigorous quality control and quality assurance
protocol has been used on the project, including blank and reference samples with each batch of assays. All our drill samples were
analyzed by fire assay and ICP at ALS Chemex Labs in Vancouver, British Columbia, Canada.
Environmental Assessment
and Permitting
The Galore Creek environmental assessment process
was initiated in February 2004. As part of the environmental assessment process, a series of public meetings were held in various
communities in the Galore Creek region, with the public and regulator comment periods running from July 10, 2006 to September 8,
2006 and September 22, 2006, respectively. The Tahltan Central Council, which was actively engaged in the entire assessment
process, submitted their comments to the British Columbia Environmental Assessment Office (BCEAO) on October 18, 2006, including
a letter of support from the Chair of the Tahltan Central Council. The permitting process for the Galore Creek project progressed
as expected resulting in the receipt of the Provincial Environmental Assessment Certificate in February 2007. Federal authorizations
were received during the second quarter of 2007.
Although construction at the Galore Creek project
was suspended in late 2007, the Canadian federal and provincial authorizations to proceed remain in good standing as do a majority
of the key permits required to continue construction. Specifically, since the Province has determined substantial construction
of the project was initiated, the previous environmental assessment certificate remains valid without a time limit.
The PFS project design and configuration is
different from the design that was permitted under the original environmental assessment certificate and that received federal
approval. Some of the most significant changes are:
|
·
|
Better understanding of geochemistry, resulting in a different approach to waste rock and tailings
management;
|
|
·
|
Simplified waste and water management strategy in the Galore Creek valley plant site and tailings
relocated outside of the Galore Creek valley, in a new previously unaffected watershed (West More);
|
|
·
|
Deletion of a 30-kilometer section of access road down the Sphaler Valley to Porcupine and the
Scott Simpson Valley, significantly reducing potential environmental impacts and geohazards;
|
|
·
|
Deletion of the airstrip that was to be constructed in the Porcupine Valley; and
|
|
·
|
Addition of new load-out facilities at the Port of Stewart.
|
While the PFS configuration is considered an
improvement, with reduced overall environmental impacts, it is anticipated that a new environmental assessment process will be
requested by the regulators to approve the changes. This will involve parallel and harmonized reviews by both the BCEAO and the
Canadian Environmental Assessment Agency (CEAA). A comprehensive study report will be required through CEAA. It is anticipated
that the entire environmental assessment review process would require approximately two years from submission of a project description
to issuance of a new Environmental Assessment Certificate (by the provincial government) and a decision by the Federal Minister
of Environment.
The existing Special Use Permit (SUP) for construction
of the access road remains valid as long as there are no proposed changes to the SUP, thereby permitting GCMC to resume construction
of the access road without further permitting. Changes to the current SUP will ultimately be required around the tailings storage
facility, plus a branch to the south portal of the tunnel to the Galore Creek valley. Application of an amendment to make these
changes will be needed once the environmental assessment process has been completed.
Existing permits associated with the existing
construction camps, including water use and waste discharge, will continue to be maintained. Applications for all other project
permits will be needed following completion of the environmental assessment process, although the time-critical permits, such as
those needed for starting the tunneling can be prepared concurrent with the environmental assessment such that there should be
little lag time following new environmental assessment certification before tunneling could begin.
Current Activities
On November 29, 2016, British Columbia
Environmental Assessment Office issued an Order requiring Alaska Hydro Corporation, a British Columbia based company, to prepare
an Environmental Assessment for its proposed More Creek Hydro project. Also, on January 10, 2017, the Canadian Environmental
Assessment Agency (CEAA) issued proposed guidelines for the preparation of an Environmental Impact Statement for the More Creek
Hydro project. The proposed More Creek Hydro project is a 75-megawatt hydroelectric facility with reservoir storage, which would
be located on More Creek, approximately 130 kilometers north of Stewart, in British Columbia. As proposed, the More Creek Hydroelectric
project would generate approximately 348 gigawatt hours of electricity per year, and its reservoir storage area would cover approximately
2,680 hectares of the More Creek drainage area basin. Galore Creek Mining Corporation submitted written comments to the CEAA and
to Alaska Hydro Corporation opposing the proposed More Creek Hydro project because of the adverse impacts that the proposed project
would have on Galore Creek project facilities situated within the More Creek drainage, including the Galore Creek access road,
construction camps, and a fish habitat compensation wetland that was constructed in 2011 as required by GCMC’s Fisheries
Act authorization. GCMC intends to continue to monitor the proposed More Creek Hydro project and to participate in the related
federal and provincial permitting processes to ensure that the proposed project does not adversely affect the Galore Creek project.
For additional information on current activities,
see section
Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations
, below.
Copper Canyon Acquisition
On May 20, 2011, we completed the acquisition
of Copper Canyon Resources Ltd. (“Copper Canyon”) a junior exploration company whose principal asset was its 40% joint
venture interest in the Copper Canyon copper-gold-silver property that is adjacent to the Galore Creek project. A wholly-owned
subsidiary of NOVAGOLD held the remaining 60% joint venture interest in the Copper Canyon property which it had previously agreed
to transfer to the Galore Creek Partnership. The Copper Canyon property is subject to a 2% NSR royalty which may be reduced to
0.5% by the payment of C$2.0 million to the royalty holder.