One of our readers wrote and asked us is NovaGold Resources (NG) is undervalued so we took a quick look and compared their performance with that of Randgold Resources Limited (GOLD), Agnico-Eagle Mines Limited (AEM) and Kinross Gold Corporation (KGC).
First up we have to say that we are not on top of NovaGold Resources Incorporated (NG) in terms of knowledge and familiarity so we would appreciate any comments/insights that you may have, if for instance, you are a big fan and know the company well enough to add your two cents worth.
We will start with some comments received from one of readers who met up with NovaGold last week at the Orlando Money Show:
I had a chance to speak with IR for NG last week at the Orlando Money show. I ran their reserves with 160 / 30 / 20 and get a value of gold as B$2.9 compared to a market cap of B$1. Note that:
- These numbers assume no value for 9 B lb of CU and 3.5 B lb of ZN.
- The properties are in Alaska and Canada, with much lower political risk.
- They have deep pocket partners, so I am thinking that financing risk is average or less than average.
- The non Gold metals should bring the cost to produce way down and make them a very very low cost producer.
The 3 to 1 difference would be reasonable to me if this was a higher risk play, but I don’t see it. Am I missing something or is this just under valued?
Comment by BC — February 7, 2010
Our thanks and gratitude go to BC for taking the time to share this information with us it is very much appreciated. This comment was added to the recent article 'What’s a Company’s Gold Worth?'
At first glance it reads well and could be well worth a punt however when we compare NovaGold's performance to other gold producers it appears to be perfoming very well over the short term but not so good over the long term.
The following two charts compare NovaGold with Randgold Resources Limited (GOLD) Agnico-Eagle Mines (AEM) and Kinross Gold (KGC) over a one period and a six year period.
Over the last year or so NG has been on a roll and outperformed the other stocks by a long way, however, over the last 6 years or so, NG has lagged behind the other stocks showing very little in the way of price performance. It is perhaps worth noting that Donlin Creek’s gold production, a flagship NovaGold project, has costs pegged at $394 an ounce in the first five years of operation.
This could be a true aberration and a wonderful opportunity to cash in as NovaGold plays catch up but the lack of performance over the longer run is worrisome. There maybe reasons for this that we are just not aware of at the moment, so please feel free to enlighten us.
Conclusion: We might be missing something too and stand to be corrected, but for now its not for us, we would need to do a lot more work to thoroughly understand these inconsistencies and ensure that NG has turned the corner and not just spent its 15 minutes in the sun.
NovaGold Resources Incorporated trades on the AMEX under the symbol of NG, has a market capitalization of $1.03 Billion, a 52 week high of $6.98 and 52 week low of $2.11 with 184.70 million shares outstanding.
All the best if you do decide to go with it.
Got a comment then please add it to this article, all opinions are welcome and appreciated.
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