Shares of NovaGold Resources (NYSEMKT: NG), a developmental-stage gold and silver miner with assets in North America, tumbled as much as 12% Thursday after the company reported its full-year operating results and updated its ongoing projects.
Given that NovaGold is in the process of developing its mines for commercial production, it had no revenue to speak of in fiscal 2017. However, it wound up losing $39 million, or $0.12 per share, as a result of general and administrative expenses, and costs tied to its two properties, Donlin Gold and Galore Creek.
Image source: Getty Images.
In fiscal 2018, the company anticipates budgeting about $28 million, a significant drop-off from the previous year. This is primarily attributable to a roughly $9 million expected decline in general and administrative costs.
Despite generating a loss and burning through its existing cash, it's not the fundamentals that likely concerned investors on Thursday. First, it was the announcement that NovaGold plans to sell part or all of its 50% stake in the Galore Creek project (which is owned with Teck Resources) and redeploy that capital on the Donlin Gold project. One of the allures of NovaGold is that it would have two producing assets with established partners. This commentary suggests that NovaGold is going to roll the dice on a single producing asset, which is a bit riskier.
The other possible reason NovaGold is taking a hit is simply its description of how cumbersome the permitting process has been for its soon-to-be flagship Donlin Gold mine, which is co-owned with Barrick Gold. The company is in the process of finishing its Environmental Impact Statement, but development has been ongoing for the better part of six years now. Investors are clearly getting antsy and want confirmation that there's an end to this long process.
As an addendum, gold prices are taking it on the chin, down 1%, after recently hitting highs not seen since August 2016. Since NovaGold isn't producing at the moment, some investors might be concerned that it'll miss the boat on the highest gold prices we've seen in some time.
At this point, NovaGold is more or less tied to the spot price of gold and investors' emotions. This makes it incredibly difficult to surmise a fair valuation for the stock. Considering that there are dozens of gold miners currently producing and able to take advantage of gold's recent highs, I'd suggest looking elsewhere and waiting until NovaGold is a producing company before considering it as a viable investment.
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