Gold's Plunge Won't Help NovaGold Earnings

NovaGold Resources (NG 4.80%) will release its quarterly report on Wednesday, and the long wait for the exploration-stage mining company to produce revenue is almost certain to continue. With NovaGold relying on two key projects on which it partners with Barrick Gold (GOLD 1.58%) and Teck Resources (TECK -0.92%) for potential future sales and profits, earnings will probably stay stuck in the red unless the company manages to move forward with production activity.

At first glance, the fall in gold prices would seem to have little impact on NovaGold, given that it hasn't actually extracted any bullion from its mines. Yet as NovaGold and its partners explore the viability of moving forward with plans to develop those mines, gold prices have a key role in guiding strategy, especially given some of the high costs that the Donlin Gold project in Alaska could incur in production. Let's take an early look at what's been happening with NovaGold Resources over the past quarter and what we're likely to see in its report.

Stats on NovaGold Resources

Source: Yahoo! Finance.

Will NovaGold earnings ever go positive?
Analysts have actually been somewhat more optimistic about NovaGold earnings prospects in recent months, keeping their estimates stable for the quarter that ended in August but cutting a dime per share from loss estimates for the 2014 fiscal year. Nevertheless, the stock hasn't recovered much from its sharp declines earlier this year, bouncing just 7% since early July.

Despite the slow pace of NovaGold's progress, the company has continued to push ahead with permitting for its Donlin Gold project, in which Barrick Gold is a partner. NovaGold said in July it had completed the public scoping component of the Environmental Protection Agency process, earning positive reviews and getting constructive comments at public meetings. Having submitted baseline data to the Army Corps of Engineers, the next step will be to prepare and submit a formal environmental impact statement for the mine. NovaGold expects the permitting process to take two to three more years to complete.

Meanwhile, NovaGold has continued to update its models on the resource potential of the Galore Creek project in Canada. Prefeasibility numbers pegged the mine as potentially the largest and lowest-cost copper area in Canada, and the company has noted that with political and labor unrest in many areas of the world that today produce the bulk of available copper, Galore Creek could benefit from Canada's stability. Still, NovaGold reaffirmed its hope to sell its 50% interest in the joint venture with Teck Resources to raise capital and concentrate on Donlin.

The challenge for investors, though, is whether they'll reap the rewards when and if NovaGold's projects pan out. The company has reduced its convertible debt by more than $70 million this year, in part by issuing $54 million in warrants that had the impact of diluting growth prospects for existing shareholders. Given the length of time that investors could have to wait before seeing any production from its mines, further action to cover expenses could sap more of the potential from NovaGold shares in the years to come.

In the NovaGold earnings report, watch for the company to provide the latest information on its ongoing permitting and development activities. Even in the best of worlds, though, NovaGold is likely to require a lot more patience before you'll see concrete signs of potential success.

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