NovaGold selling 50% stake in Galore Creek to Newmont

NovaGold Resources Inc., [NG-TSX, NYSE American] a partner with Teck Resources Ltd. [TECK.B-TSX, TECK-NYSE] in the Galore Creek Creek Project in northwestern British Columbia has agreed to sell its 50% stake in the project to Newmont Mining Corp. [NEM-NYSE] for US$275 million in staged and contingent payments.

Galore Creek is a large tonnage, copper-gold-silver resource approximately 160 km northwest of Stewart. It is managed by the Galore Creek Mining Corp. (GCMC)

Teck and Newmont have agreed to a work plan at Galore Creek with the objective of completing an updated prefeasibility study over the next three to four years to improve overall project understanding and economics. Teck will invest approximately $12 million to $20 million (US$10 million-US$15 million) annually to complete this work.

Teck and Newmont have also agreed to certain modifications to the existing shareholders agreement. Teck has held a 50% interest in the Galore Creek Project since May 2007. It is now part of Project Satellite, an initiative focused on surfacing value from Teck’s substantial base metal assets located in low-risk jurisdictions.

Galore Creek was once touted as one of the world’s largest undeveloped gold and copper deposits. It was also one of British Columbia’s flagship mining projects. However, development was stalled in 2007 following an evaluation by an independent engineering firm, along with a review by Teck and NovaGold, concluded that the capital cost of the project “could approach as much as $5 billion,” while adding 18 to 12 months to the construction schedule.

This was $3 billion above the estimate in an initial feasibility study completed just over a year earlier.

At the time, this truly stunning announcement knocked the stuffing out of NovaGold as Galore Creek was one of the company’s key assets. The other was the Donlin Creek Project in Alaska. Just prior to the announcement, NovaGold had been the target of a takeover bid by Barrick Gold Corp. [ABX-TSX, NYSE].

It had been previously thought that Galore Creek would begin production in 2012, and within five years ramp up to producing about 340,000 ounces of gold annually, along with 430 million pounds of copper and 4 million ounces of silver.

The feasibility study for Galore Creek was conducted by the Hatch Group, an international mining and engineering consulting firm. It “clearly underestimated” the amount of time and labour needed to build a tailings dam and various water management structures, said NovaGold’s former Chief Executive Officer Rick Van Nieuwenhuyse.

“Very few copper-gold deposits of this quality have been discovered over the last few years even though the industry has invested billions of dollars in exploration world-wide,” said Teck CEO Don Lindsay at the time.

Before Teck pulled the plug, Galore Creek was among a basket of mining projects that was expected to benefit from the construction of new hydro power lines in northwestern B.C.

The transaction announced on Thursday July 26 is expected to close on or about July 27, 2018.