Shares of NovaGold Resources Inc. plummeted to the lowest price in three years on Thursday after Barrick Gold said it will not immediately decide whether to build an Alaskan mine project owned by the two companies.
THE SPARK: Barrick Gold, the world's largest gold producer, said Alaska's Donlin Gold project and the Cerro Casale mine project in Chile fail to meet its investment criteria because both would require large, initial capital investments.
Later Thursday, NovaGold said it also hadn't decided whether to move forward at Donline but emphasized that it believes the asset is valuable and would generate income for many years.
NovaGold said that they have about four years to make a major decision about the project and stressed that Barrick's statement doesn't change the project's status.
THE ANALYSIS: Barrick Gold ousted Aaron Regent as CEO last month, citing its disappointing share price performance. New CEO Jamie Sokalsky said Thursday that he is evaluating all mines and mine projects, looking at their rate of return and ability to generate free cash flow.
He told analysts on a conference call that Barrick will proceed with the permitting processes for both projects. He estimates that Barrick will spend between $30 million and $40 million a year on the permitting process for the Donlin project.
"But my message — what I want to make clear in my messaging — is that we aren't embarking on a process now to build those projects," he said. "We are actually being more conservative."
Separately Thursday, Barrick said the Pascua-Lama project straddling the Chile-Argentina border will cost up to 60 percent more than previously estimated, raising the cost of the mine to as much as $8 billion, and that the first gold won't be produced until mid-2014. Sokalsky blamed Argentine inflation and labor issues for much of the delay.
However, Sokalsky said production will start in August at Barrick's huge Pueblo Viejo gold mine in the Dominican Republic. The mine, which is jointly owned with Goldcorp Inc., cost $3.8 billion. It's expected to produce up to 125,000 ounces of gold this year and to reach full production in 2013.
SHARE ACTION: Shares of NovaGold fell $1.36, or 25.3 percent, to close at $4.02. The stock earlier in the session hit a trough of $3.61, its lowest price since 2009.
Barrick Gold dropped $1.07, or 3.2 percent, to finish at $32.73 after dropping as low as $31 earlier in the day — also its lowest level since 2009.