Chesapeake Gold measures up to Novagold in peer-to-peer comparison
We reported previously that Chesapeake Gold Corp. (TSXV: CKG | OTCQX: CHPGF) offers an attractive opportunity to investors with its Metates project in Mexico. A comparable peer, Novagold Resources Inc. (TSX: NG | NYSE MKT: NG), offers a similar opportunity to investors with its 50% owned Donlin project in Alaska. But with market capitalizations of $64 MM for Chesapeake vs $1.59 B for Novagold, we conclude that markets are undervaluing Chesapeake’s potential.
According to Novagold’s website, it offers an unrivalled opportunity for investors seeking leverage to gold. Its 50 percent-owned flagship Donlin Gold project is a uniquely attractive asset which – in terms of size, grade, exploration potential, production profile, mine life, and jurisdictional safety – is one of the most important gold projects in the world today. Novagold is in the enviable position of being well funded with a cash balance of $175 million as of May 31, 2015, sufficient to take the Donlin Gold project through the permitting process and fulfill all of its current financial obligations.
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To further support our analysis we are reporting key financial metrics in table 1 below which we consolidated from company disclosures. Both the Metates and the Donlin projects have similar gold reserves, the grade is higher in Donlin, but the capital and production costs are lower in Metates which result in a NPV of $4.2 billion in Metates as compared to a NPV of $1.5 billion in Donlin at $1,300/oz. In essence these are very similar projects that should deserve the same type of attention by investors.
There is a ratio of 24.8 to between the companies’ market capitalizations (Novagold: Chesapeake). But we should also note that Novagold has a second project, the Galore Creek also at the prefeasibility stage. Galore Creek is located in the traditional territory of the Tahltan Nation in northwestern British Columbia, Canada, approximately 150 kilometers northwest of Stewart.The project is owned by the Galore Creek Partnership in which a wholly-owned subsidiary of Novagold and Teck Resources Ltd. are equal partners. Therefore we have to create a discount factor in the Donlin: Metates comparison. For argument’s safe let’s assume that half the market cap of Novagold can be attributed to the Galore Creek project.
But even if the Galore Creek project accounted for half the market cap of Donlin, the market cap ratio would shift to 14.4:1 (Novagold: Chesapeake), which is still quite extraordinary.
Dr. Luc C. Duchesne is a Speaker and Author with a PhD in Biochemistry. With three decades of scientific and business experience, he has published ... <Read more about Dr. Luc Duchesne>