Tuesday, July 13, 2010

A Gold Stock Insiders Like

Marc Faber, George Soros and John Paulson have one thing in common: they're all involved in a gold stock that has an exciting property in Alaska. It's NovaGold, and its Donlin Creek deposit is huge: an estimated 34 million ounces in the ground. Estimated costs are $500-$550 per ounce.

Unfortunately, there are drawbacks. The total capital costs to bring Donlin into development are estimated at $4.5 billion. NovaGold will be responsible for about half of the total. Production is slated to begin at the end of 2017. However, estimated proceeds for the company (absent dilution) are estimated to be at about $40/share. Right now, it's around $6.50.

This is the kind of company that will end up being put at serious risk if gold flies up and then crashes - even if the metal is left at $1,000 at the end of the crash. [A bubble top of around $3,000 would lead to that bottom if the crash follows the 1980-82 bear market.] Even if the project remains profitable, financing will be really scarce even for good projects as the banks and gold investment markets lick their wounds. The best scenario for Nova would be a continued measured rise in gold with pulbacks that are relatively mild. It could survive a multi-year trading range at these levels.

Should gold enter a mild bear market, like 2008's, this stock would be one to look at.


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