NovaGold Resources Inc. (AMEX: NG)may have struck it rich.  Last month when we looked at value in gold mining stocks, NovaGold was among the group.  We noted at the time that NovaGold had pinned its hopes on a pre-feasibility study of its Galore Creek property in British Columbia. The study, called a PFS, is pretty good news for NovaGold and its 50-50 partner in Galore Creek, Teck Resources Inc. (NYSE: TCK).

The project was slowed to a near-stop several years ago due to the high cost of developing the mine. The new PFS shows that over an 18-year life, Galore Creek will produce 4 million ounces of gold, nearly 66 million ounces of silver, and more than 6 billion pounds of copper. It still won’t be cheap, but the scale is now so large and higher prices for all three metals make the project worth doing.

That is if NovaGold and Teck can figure out a way to come up with the estimated $5.2 billion development cost to get the project into full production. The massive project could get even bigger as it moves next to the feasibility study stage, where new tests may indicate new opportunities for recovery.

Interestingly, NovaGold’s stock didn’t get much of a charge from the PFS. On July 25th, the first trading day following the company’s release of the PFS, shares actually closed down a bit. The news is finally filtering down to investors this week, and NovaGold’s share price has risen more than 4.5% at around mid-day, to $10.48, in a 52-week range of $5.98-$16.90.

As we noted last month, the company has no profits to show in the past 12 months and none are expected in the next 12 months. At that time the stock’s price/book ratio was 8.5, which has now fallen to 8.02.

NovaGold is not a value pick, and given the reaction to its Galore Creek PFS it may not even be a growth pick. The good news on Galore Creek had already been priced into the stock. Alternatively, there’s caution on the accuracy of this PFS because the last one NovaGold issued was believed by many investors to be too good to be true.

But even if the PFS is accurate, $5.2 billion is a lot of money and while Teck may have the resources to push development at Galore Creek, NovaGold will likely have to strike a deal with Teck or get financing from another source. Provided, of course, that the feasibility study turns out as well as the PFS.

The Market Vectors Junior Gold Miners ETF (NYSE: GDXJ) is up about 0.5% at mid-day, to $36.21, in a 52-week range of $26.05-$44.86. The SPDR Gold Trust (NYSE: GLD) is up about 0.25%, and the Comex gold quote is up less than 1%, at around $1,633/ounce.

Paul Ausick

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