Gold miner NovaGold Resources Inc. (NYSEMKT:NG) saw its shares advance 16% in June -- which could be viewed as somewhat odd, since most precious metals miners ended the month in negative territory. For example, industry giant Newmont Mining (NYSE: NEM) was down about 5%, roughly tracking the downtick in the price of gold. But NovaGold's stock gains largely came after June 22, when it made a joint announcement with Barrick Gold (NYSE:GOLD).
The big news was that Barrick and NovaGold's 50/50 Donlin Gold joint venture was making good progress in developing what has the potential to be one of the world's largest pure-play gold mines. There are a number of things to like about this project, which NovaGold CEO Greg Lang explained in the release: "Donlin Gold's size, grade, production profile, exploration potential, mine life, community support and jurisdictional safety render it a unique asset in the gold industry."
For the roughly $18 billion market cap Barrick, this is a nice project, to be sure. (Barrick's shares were down around 4% in June.) Joint ventures like this are a way for the giant to expand without taking on all the risks of developing new projects. But for $1.4 billion market cap NovaGold, it's a huge deal. NovaGold's primary assets are its 50% stake in Donlin Gold and a 50% stake in the Galore Creek project, which is expected to produce gold, silver, and copper. In other words, this miner isn't currently bringing any gold (or other metals) out of the ground. It needs these two projects to work if it hopes to shift from burning cash to generating it.
So the stock price advance after the release was all about investors reacting positively to the news that one of NovaGold's two key projects looks like it's getting closer to actually producing gold.
There's no question that NovaGold shareholders got some very good news in June. That said, NovaGold really remains most appropriate for aggressive gold investors since it's currently burning through cash as it works to complete the two joint venture mining projects mentioned above. Although the Donlin project appears to be making good progress, until gold starts coming out of the ground, there's always a risk that something could go wrong. If you are willing to make a wager that everything will work out well, however, NovaGold is worth a deep dive.