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Barrick Gold Corp. and Novagold Resources Inc. have been given a key governmental green light to build a massive new gold mine in Alaska, but uncertain economics amid a weakening gold price mean it’s unclear whether the capital-intensive project will ever see the light of day.

In a joint release, Barrick and its junior joint-venture partner Novagold said that they had received a number of U.S. federal government environmental permits that would pave the way for the development of the Donlin Gold project, which the duo first teamed up on more than a decade ago.

Donlin, in southwestern Alaska, is one of the world’s biggest undeveloped gold projects with 39 million ounces of gold held in the economically uncertain “resources” category.

In an interview, Mélanie Hennessey, vice-president of corporate communications at Novagold, said getting the permits was “a very big and critical milestone,” and the culmination of a six-year effort.

The permitting process is not entirely finished with a number of Alaska state permits still needed. But the bigger challenge would appear to be making the project work on a financial basis.

According to a feasibility study last updated in 2012, Donlin would require a capital investment of US$6.7-billion – a level that isn’t economic at current gold prices.

Earlier this year, Barrick executives conceded that none of its so-called “greenfield” development projects, including Donlin, meet its investment criteria, which is a minimum 15-per-cent return on US$1,200 an ounce gold.

In the release, Barrick and Novagold said they are working on ways to “reduce the initial capital outlays and improve project economics,” and expect to provide more details in the fourth quarter, including clarity on updating the feasibility study.

When gold reached a record high of just north of US$1,800 an ounce in late 2011, the idea of spending US$6.7-billion building a gold mine wasn’t entirely out of ordinary. But when the bullion price went into a tailspin in 2012, the industry pulled back on these megaprojects. Barrick itself pull the plug on construction of a massive open pit mine in the South American Andes around this time, after sinking about US$8-billion into the project.

In a note earlier this year, analyst John Bridges of JPMorgan Chase & Co. wrote that the big challenge for Barrick is re-engineering projects such as Donlin, which “were conceived as very large greenfield projects into less capital-intensive mines that can meet the company’s return requirements and still be meaningful.”

Gold was first discovered on the Donlin property by prospectors in 1909 with about 30,000 ounces mined in the first few decades. Novagold acquired the property in 2001.

According to the 2012 feasibility study, the Donlin mine could potentially last for 27 years with production of more than one million ounces a year – a level that would put it among the world’s biggest gold mines. Barrick’s biggest mine, Cortez in Nevada, produced 1.4 million ounces last year.

Barrick and Novagold are not the only Canadian mining companies holding a large undeveloped gold project with uncertain economics.

Goldcorp Inc. and Teck Resources Ltd. co-own a large gold-copper-molybdenum project called NuevaUnion in Chile that holds about 8.9 million ounces of gold and some 17.9 billion pounds of copper. Projected development costs for the first phase of the mine are US$3.5-billion. A feasibility study due to be released next year will explore whether those economics can be improved.

Making any undeveloped gold project work is even more challenging these days considering the depressed state of the gold market. A stronger U.S. dollar, driven by rising interest rates, has put pressure on gold bullion, which has sunk about 8 per cent this year to around US$1,200 an ounce. A stronger greenback makes it more expensive for non-U.S. investors, of which there are many, to hold gold.

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