A Vancouver gold mine developer focused on Alaska is hitting back at a short seller that says it Donlin gold mine will never be built and that its executives are treating the company as a personal cash machine.
NovaGold, whose corporate head office is in Vancouver, has a partnership agreement on the Donlin project with one of the world’s biggest gold mining companies, Barrick Gold Corp. (TSX:ABX).
In a recent brief, J Capital announced it was short NovaGold, and charged the company’s senior management with misleading investors on the project’s viability.
“For the last 15 years, NovaGold’s management team has systematically misled investors with subjective presentation of information about a deposit so remote and technically challenging that the mine will never be built,” J Capital writes.
“Over those years, they’ve been treating this 12-person concept company like an ATM, awarding themselves base salaries that rival those of the CEOs at Newmont and Barrick and total compensation packages comparable with those at Rio and BHP.”
Mickey Fulp, publisher of the Mercenary Geologist, generally agrees with J Capital's assessment of NovaGold and its Donlin project.
"This J Capital Research, NovaGold's right -- they're just short-sellers," Fulp said. "But in this case, I would support their take on it."
Three of NovaGold’s executives made the 2018 Business in Vancouver Top 100 highest paid B.C. executives list in 2018.
According to NovaGold’s most recent management information circular, NovaGold CEO Gregory Lang received $4.6 million in total compensation in 2018. That included a base salary of $759,700, $935,350 in “non-equity incentive plan compensation,” and $2.8 million in stock awards and options.
Two of the company’s other executives, David Deisley and David Ottewell, made $1.6 million and $1.75 million respectively.
Lang’s compensation appears not to be out of line with another gold company with roughly the same market cap, however.
Both NovaGold and IAMGold Corp. (TSX:IMG) have had a market cap in the $3.8 billion range. IAMGold’s CEO , Stephen Letwin, received total compensation of $4.6 million in 2018, and two other executives made $1.5 and $1.9 million.
NovaGold says that its CEO’s compensation is 42% of that of Barrick’s CEO.
NovaGold's executive compensation -- on par with IAMGold -- might be legitimate if it actually had a producing mine, Fulp said.
"IAMGold is a legitimate gold mining company that generates cash flow," Fulp said. "It's not a legitimate comparison."
"The management (for NovaGold) just collects huge salaries and they don't generate cash flow," Fulp said.
J Capital said the company has underestimated the capital cost of developing the Donlin project, which includes a new natural gas pipeline being built. J Capital says NovaGold has estimated the deposit’s development costs at US$6.7 billion, but says the company’s own feasibility study suggests it is more in the US$8 billion range.
“The proposed natural gas pipeline to power the project is dead on arrival,” J Capital says. “The terrain around the Donlin deposit is among the most inhospitable on the planet.”
NovaGold counters that the US$8 billion figure cited by J Capital is not just capital costs, but includes operating costs as well.
It also says that J Capital’s claim that a proposed natural gas pipeline that would bring natural gas to the region is “dead on arrival” is “attributed to an anonymous engineer whose credentials are not provided.” The company also notes that the development plan includes barging natural gas as an alternative to a natural gas pipeline.
NovaGold’s stock dropped 8.5% May 28, the day the J Capital critique was published. It’s stock closed at $14. 65 per share on May 27, dropped to $11.69 per share on June 3, and was down another 13% today at mid-day.
In its rebuttal, NovaGold says J Capital’s report is “error-ridden” and is “assessing all of the legal options." Meanwhile, the company urges its investors to read its detailed rebuttal.
While the Donlin deposit may be massive, so are the challenges related to its remote location, as it lacks access to infrastructure like rail and roads, according to Fulp.
"I've known and followed this project since its inception, and it has never been economic," Fulp said. "It's got no infrastructure. If you could take this and put it in Nevada, it would have been a mine for 15 years now, but it's just so remote. There's no rail, there's no power, there's no road.
"This stock's undergoing a short attack, but I think for a good reason."