allenbow wrote:  Greg Johnson is going to put NKL on the map!  Remember he was the guy that took NovaGold from a $50-million market cap to more than $2-billion...

 

 

What the heck, lets compare Greg's old company and his new company.  NovaGold  (NG)   
Perhaps we can discover why there may be more potential upside in NKL than in NG.
 
 
NovaGold are 50/50 partners on two huge deposits.
Donlin, in Alaska, is a 50/50 venture between NG and ABX.  It contains roughly the following:
39M oz, 2.24 g/t Au grade = $1750/31.2=$56.09 $/g x 2.24 = $125/t rock$6.7B CapEx$68 Billion worth of gold.  Assume a high percentage of it is recoverable.  It dwarfs the $30 billion of recoverable metals that Prophecy Platinum has at Wellgreen.  Donlin's NPV5 with $1700 Au is about $4.5B, so if we were to compare with NPV8 numbers and slightly higher current gold prices, I'd guess Donlin would be about $3.8B NPV8.  Donlin also has an after tax IRR of 12.3%.
 
 
NovaGold also has half of the Galore Creek Deposit.  The other 50% is owned by Teck.  Galore Creek has over 5M oz Au and close to 7B lbs Cu.  I don't remember the numbers, but I think it was around 0.3% Cu and a sprinkling of gold per tonne of rock.  Maybe $40/tonne rock?  In their PFS, they had a (then) current price case NPV7 of about $4.7B with a pre-tax IRR of 14%.  Bump it to an 8% discount, use current copper/gold/silver prices instead of the $4.44/lb Cu and $16.30/oz Au and $40.34/oz Ag and you are probably around $4.2B NPV8.  
 
 
$1.9B from Donlin and $2.1B from Galore Creek for NG's 50% share of each project gives them a rough $4 billion NPV8 on the two projects combined.  This equals about $1.05 billion in market cap (stripping out the $200ish million in net cash), according to the market.    Hey, 25% of NPV when your resource is in the M&I category is quite reasonable in this economic climate.  9 months ago, NG shares were in the $10.60 range.  That would have meant their shares were roughly trading at about 62% of their NPV back then, in the different economic climate that existed in February - when everyone had a rosier outlook.
 
9 months ago when NKL was at $4.25 per share, we were at roughly 11% of our current $2.4B NPV.  11% vs. 62% was probably fair, considering most of our resource is still inferred.  However, Prophecy Platinum's < 3% of NPV that NKL is currently trading at is waaay oversold in my opinion
 
 
$2.4B NPV8 for Prophecy Platinum (Wellgreen alone) apparently only gives NKL a paltry $72 million in market cap in comparison.
 
 
Hmmm, NovaGold's market cap is $1.25 Billion vs. $72 million for NKL.  More than 17 times higher.  Strip out the cash on hand and it is more like a 14 times market cap multiple.
 
 
Of course, NovaGold has rich partners for both deposits, and most of the resources are in the M&I or above categories.  It does make a huge difference, and also gives you some perspective on where the share price could be in a few years.  We have the goods.  Now we need to prove them up, find the source (Wellgreen East?), and then either JV or find financing for building a mine.  The goal for 2013 should be to get as much of the inferred material moved into the M&I category as possible.  Clearly the market rates you much higher with M&I rock.
 
 
I took a very quick look at NovaGold today.  These were the numbers that stood out to me.  They could be off.  Could have changed recently.  I could have missed something.  They are rough, but I think fairly accurate as well.  Please correct me if I'm wrong.  It is just a rough example to demonstrate where we could be in a relatively short while.
 
 
Should I even bother explaining why I think Wellgreen goes into production before either of these two NG deposits?  The discussion starts with the massive CapEx required for each NovaGold project.  If you think raising $850 million for Wellgreen will be difficult, try to imagine raising 7 or 8 times as much for Donlin or the many billions Galore Creek will require.  IRR 32% for Wellgreen vs. an IRR 14% for Galore Creek.  Think about it.  And of course, the discussion would have to end with the Army Corps of Engineers for Donlin, and the years they tend to add to the approval process (in my experience).
 
 
You could also look at the valuation on a dollars per ounce of gold valuation.  NG has roughly 23M oz Au from their 50% share of the two projects.  Net of cash, they have around $1.05B in market cap.  This equates to $45.6/oz Au.  It isn't quite that high, because they have some copper and silver as well, but you get the idea.  PDG was recently taken over for around $48/oz Au.  QMI has an offer in the $95/oz Au range.  
 
 
In comparison, NKL's 12M PGMs+Au is gold dollar equivalent to 9 million ounces of gold.  This gives NKL a $/oz AuEq number of 8!    Not $45, not $48, not $95, but $8/oz AuEq!  However, we also know from our PEA that something like 78% of the projects revenue will come from the base metals.  The 5 billion pounds of Ni+Cu+Co that is mixed in with the Platinum, Palladium and Gold.  So I don't know what that would cut the $/oz AuEq number to.  $3?  $4?  Whatever the number is, it makes this company super cheap right now.  It is why I was a happy buyer today.
 
 
Cheers and good luck to all NKL longs.