Summer mining exploration stable: despite continued low gold prices, exploration for minerals is going well throughout the state.

• Author: Jones, Patricia
• Position: Novagold Resources Inc. mines success at Donlin Creek project

A little more than a year ago, Placer Dome faced a tough decision regarding the company's large exploration project located in a remote, mountainous region of Southwest Alaska, near the Kuskokwim River.

Record low gold prices, coupled with anticipated high costs to develop the remote property, created a dim outlook for the Donlin Creek property, despite geologists' estimates then that the deposit contained about 13 million ounces of gold.

Placer Dome, one of the world's largest mining companies, was looking for such a large mineral resource to develop. But the economics at Donlin Creek were not panning out, even after Placer Dome had spent millions of dollars and, a number of years in the field, increasing knowledge about the deposit located on Calista Corp. land, the Native regional corporation in Southwest Alaska.

"Across the industry, the major mining companies were seeing their cash flows really impacted by low gold prices. Placer Dome made a strategic decision to focus on exploration around existing mines, resources that could be moved to a mineable project in a couple years," said Greg Johnson, a former exploration geologist for Placer Dome who first worked on the project in 1995.

With no production infrastructure near the remote property and a $1 million annual exploration commitment to the property's landholder--the Calista Native Corp.--Donlin Creek went to the top of Placer Dome's list of projects to bid out.

"At $255 per ounce gold, what was then currently understood at Donlin was that it was not economic at all," Johnson said.

Among the proposals came a rather unique offer from a recently created, aggressive junior exploration company made up of former Placer Dome employees.

NovaGold Resources Inc. offered Placer Dome an alternative--let the junior company run an exploration program on the property for a share of the project. If exploration proved successful, Placer Dome could buy back into the project as a mine developer.

With more than $37 million spent on Donlin Creek since 1987, it made sense to keep the project alive.

"At the time of the agreement, we were at the bottom of the market, and were able to negotiate a good deal, but it's a win-win situation," said Johnson, now a vice president at NovaGold. "Basically, we said, 'let us run with this through the high risk exploration. If we have success, you have opportunity through a series of steps to come back in.'"

The agreement inked by the two companies and the Native corporation included an earn-in provision, giving NovaGold a 70 percent interest in the deposit if the exploration company spends $10 million on the property by 2011.

Fast-forward a year-Donlin Creek shines like a pure, sparkling diamond, thanks to additional exploration work that nearly doubled in size the estimated recoverable gold resource, bumping it to nearly 23 million ounces.

NovaGold is well on its way to earning a majority share of the project, as the company is...