NovaGold Earnings: An Early Look

Spring is finally here, and a new earnings season is right around the corner. On Wednesday, NovaGold Resources (NYSEMKT: NG  ) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

Gold mining stocks have gotten crushed over the past year, as a combination of weak bullion prices and cost-related struggles have led to intense pressure throughout the industry. Yet NovaGold has gotten the attention of hedge-fund investors John Paulson and Seth Klarman, who have taken sizable stakes in the company. Let's take an early look at what's been happening with NovaGold over the past quarter and what we're likely to see in its quarterly report.

Stats on NovaGold Resources

Analyst EPS Estimate

($0.03)

Year-Ago EPS

$0.07

Revenue Estimate

$0

Year-Ago Revenue

$0

Earnings Beats in Past 4 Quarters

2

Source: S&P Capital IQ.

Will NovaGold Resources shine brighter this quarter?
It's hard for analysts to get too excited about NovaGold because it hasn't reported even minimal revenue since 2010. The single price target on the stock of $17.10 is wildly out of line with its current price, and shareholders have taken a substantial hit lately, with the stock having lost a quarter of its value since the beginning of the year.

NovaGold has several promising development-stage mining properties in its portfolio, although none of them has gotten to the production stage at this point. The company claims its Donlin Gold joint venture with Barrick Gold (NYSE: ABX  ) in Alaska is the world's largest known undeveloped gold deposit, with project permitting having begun last August. Moreover, its Galore Creek venture with Teck Resources (NYSE: TCK  ) in British Columbia has promising prospects for copper, silver, and gold.

But the big problem that NovaGold has faced is that high production costs have made those projects less economically viable. Last summer, Barrick said that Donlin no longer met its goals for suitable investments because of substantial needs for capital, and although the permitting process has continued, it's far from certain whether Barrick would be willing to go forward even if the project is approved. Meanwhile, NovaGold has said it would try to sell its 50% interest in Galore Creek, but the company has only been willing to enhance the project's value on a reduced budget.

Meanwhile, NovaGold's capital structure is becoming more precarious. Earlier this month, the company sent notice to its convertible bond holders that they could exercise their rights to sell the bonds back to NovaGold at par. NovaGold has enough cash to cover its repurchase of any bonds that investors offer, but with no revenue, it definitely needs to conserve its financial resources.

In its earnings report, NovaGold needs to demonstrate a viable future strategy for its mining properties. Until conditions in the industry change, however, NovaGold appears likely to continue hibernating for the foreseeable future.

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