Searching for Gold, Finding the Mother Lode

January 2, 2002

Napoleon once remarked that he would prefer that his generals have luck rather than skill under the theory that you can sometimes beat skill but you can never beat luck.

Has NovaGold stumbled onto a Carlin Trend at Donlin Creek, in Alaska?

It sure looks like it.

Finding gold used to be mostly luck, back 150 years ago in California or 100 years ago in Alaska and the Yukon. What most people think of as gold mining is really placer mining. That's the sort of mining where you take a pan filled with gravel from a stream and slosh it around until only the gold remains in the pan. The gold comes from rock worn down by the eons and redistributed in the sand and gravel by the streams and rivers.

In the early days, most mining was placer mining, it required a minimum of equipment and capital. But even the placer miners hoped to find the MotherLode; the source of all the weathered gold which ended up in the stream beds. Because there would be so much gold in the Motherlode they surely would make their fortunes. Placer mining may be inexpensive but lode gold mining is where the fortunes are made.

For 50 miles in any direction around Donlin Creek in the Southwest part of Alaska, placer mining and prospecting took place for most of the last 100 years in nearly every stream. Some streams had but a dribble of gold, some could keep a miner tolling hard at work separating gold from the gravel for decades. But no one ever found the Motherlode, the source of all the alluvial gold, even though they all searched for it in vain. They may have even been standing on it and not even known.

In the late 1970's, the US Geological Survey ran a broad sampling program to identify areas that might be prospective for mineral deposits in some of the vast and under-explored reaches of Alaska. This program consisted of systematic testing of stream silt materials for traces of gold and other metals looking for unusual concentrations. The theory was that if there were gold or other valuable metal deposits to be found in the hills above, that there should be signs of those metals within the silts of the creeks that drain those hills.

To that end, teams of geologists were sent out to sample the major streams in the region. Finding gold hadn't changed all that much in last 80 years until the advent of fast and inexpensive assay techniques developed for the space program made it possible to easily test for minute quantities of gold and other metals. These metals are so fine that not only are they not visible to the naked eye but they are measured levels of 1 part-per-million and even down to parts-per-billion.

Just such traces of gold and related minerals were found around Donlin Creek. This indicated potential for hard rock gold deposits somewhere in the area. Following up on this lead, a team of geologists working with Calista Native Corporation became encouraged when soil and rock sampling showed the presence of even more gold. In 1987, West Gold, a subsidiary of Anglo, picked up rights to two major gold prospects in Alaska, Donlin Creek and the offshore placer gold deposits in Nome.

Over the next three years, West Gold's work at Donlin showed the presence of gold over a nearly 10 kilometer long belt. Initial shallow drill holes showed potentially economic gold grades. But problems on the Nome dredging project caused the company to fold and they had to walk away from both projects.

During the early nineties, several more companies came onto the scene at Donlin, a few more samples were collected, a few more trenches dug, but the big deposit wasn't apparent.

In 1995, Placer Dome took a look at Donlin Creek. The company's geologists built on what the previous companies had done before them. Their first program kicked off at the south end of the property where encouraging surface samples had not yet been extensively tested. Placer Dome drilled far deeper than anyone had drilled before. Even the first few holes showed the system extended much deeper than anyone suspected. By the end of the first season Placer defined a new multi-million ounce gold resource.

Placer continued work on the project for another five years spending a total of $30 million dollars and expanding the now giant gold deposit to 13 million ounces of resources grading 3 grams per ton or higher.

As the price of gold continued to decline and cash-flow was correspondingly squeezed, Placer Dome determined they should refocus their exploration efforts in and around their existing mines where new deposits could rapidly be put into production. With this shift in emphasis, Placer Dome decided to sell or joint venture a number of deposits which did not appear ready to fast track to large scale production.

Donlin Creek was one of those deposits. Since they had a focus in Alaska and direct experience at Donlin, NovaGold was invited to participate in a review of the latest information on the project. Some members of the NovaGold management team had actually participated in the 1995 discovery efforts by Placer Dome, they held an inside edge in spite of being the only junior miner invited to bid on the project. Their bid won and in May of 2001, Placer Dome and NovaGold announced a joint venture whereby NovaGold could earn a 70% interest in the project by expending $10 million in further exploration and development.

Success shown upon NovaGold in the 2001 drilling program. Either through great skill or great luck, they struck significant amounts of gold in 41 of 42 drill holes. In fact, most of the holes showed ore grades which would be considered extraordinary all by themselves much less as part of a 41 hole string of extraordinary holes.

Over the weekend after Thanksgiving I went to a gold conference in San Francisco where NovaGold had a booth. They had sample cores of some of their high-grade intercepts on display. I reached into my pocket to pull out my ever handy 10X loop to study their high grade gold. To the untrained eye, the core sample looked like a fairly ordinary piece of rock, nothing special.

I peered at the core through the loop. It still looked like fairly common granite with some fine silvery minerals. If there was any gold in the sample, it wasn't apparent. I motioned to Greg Johnson, Vice President of NovaGold, "I don't see any visible gold."

He nodded, "You won't, it's microscopic, they call it no-see-um gold; just like in the Carlin trend."

I responded, "But this is an over 10 grams of gold per ton piece!"

He answered, "That's right, just like in the Carlin deposits, the gold is only about 5 to 10 microns in size."

There's that word again, the Carlin Trend, home to some of the richest gold mines in North America, and accounting for over 35% of all US gold mined.

I hefted the piece of drill core in my hands. It was the sort of rock a Yukon miner would have used to build up a circle around his fire. An old time prospector would have chucked the rock away in disgust, thinking "no veins here." The stone looked like . . . well, it looked a ordinary lump of rock and nothing more. Even under magnification.

I spent some time looking more closely at the results from NovaGold's drill program at Donlin Creek this year. As is usual in a big drill program, they released the results several drill holes at a time as the assays completed. But the impact of the drilling results is most meaningful only when considered as a whole. In bits, you miss the big picture.

When the season began, NovaGold believed they had 5 million ounces of high-grade gold resources in measured, indicated and inferred categories. Their intent in drilling was to demonstrate that the higher grade resources held together and to determine the limits of the higher grade deposit.

Certainly they showed that the high-grade gold held together and clearly, the quality of the resources will go way up. And since 41 out of 42 holes showed significant intercepts of gold, the resources are not only going way up in quality, they are going way up in quantity. Where they expected they might find the edge of the deposit, they instead, discovered some of the richest portions so far. So they still haven't yet found the limits of the deposit.

Gold deposits almost never occur in isolation; instead they tend to occur in groups or clusters of deposits called camps or districts. It's not unusual when you visit a gold mine to be able to look from the head frame of one mine to the head frame of the next. When you fly over the Carlin trend, you see one huge open pit after another like "pearls on a string".

Depending on how you define it, the Carlin Trend is more than 20 miles long, and like Donlin Creek was never discovered by the old-time prospectors because the no-see-um gold is too fine to be visible with the naked eye. While the rock generally only contains a few grams of gold per ton, the large volume of gold rich rock makes for very efficient and low cost mining. And new deposits of gold have been continued to be discovered on that trend year after year.

The largest gold mine in North America, Barrick's Goldstrike mine, is on the Carlin Trend. It runs about 5 grams of gold per ton and contains 18 million ounces in gold reserves. Newmont's Carlin open-pit mines run 1-2 g/t and contain about 6 million ounces in gold reserves. NovaGold's finds at Donlin Creek run better than 5 grams gold per ton and contain over 5 million ounces in resources so far. Already gold has been found on 7 different prospects over a 6 mile long stretch.

Of course there will be challenges ahead for Donlin Creek. Like most of the big deposits in the Carlin Trend, the Donlin Creek ores are tied up with other minerals that require some additional processing to recover the gold. Power and infrastructure are pretty basic in that part of Alaska and the company will have to work with the state and local governments to upgrade the road and power network. But the company is determined and the local Yupik Eskimo people who make up 75% of the Donlin work force support the project and the years of sustained economic benefits likely to follow its development.

The new Donlin Creek independent resource estimate should be available by late-January. Though I have no more information available to me than anyone else, NovaGold's drill results from this year indicate there is a lot more economic gold at Donlin Creek than the present resource estimate shows.

And by mid-February NovaGold will also release the results of their in-progress engineering study. This economic scoping study provides a framework for defining the information they need to collect for the even more rigorous preliminary and later final feasibility study. Without even seeing it, I can predict they have a giant and economic gold mine on their hands, even at $275 gold.

Mark my words, it may not be exactly the same geology, but NovaGold has found a Carlin Trend in Alaska. It's no-see-um gold and there's a lot of it.

NovaGold Resources Inc (Trading under the symbol NRI on the Toronto Stock Exchange and NVGLF on the US over-the-counter exchange) actually makes money today and we all know how unusual that is for a gold company. There are 36 million shares on a fully diluted basis. The stock has ranged from $.13 to $2.25 Canadian in the past year. It isn't as high as it's gonna be.

For more information, visit NovaGold at www.novagold.net

In 1934 President Franklin Delano Roosevelt devalued the dollar by raising the price of gold to $35 per ounce.