NOVAGOLD Resources, Inc. (NYSEMKT:NG)
Precious Metals Summit Conference Call
September 19, 2013 1:15 p.m. ET
Greg Lang - President & CEO
The next presentation this morning is by NOVAGOLD Resources. Here to give us an update is Greg Lang, Presient and CEO.
Thanks John. Great to be back at the Precious Metals Summit here. I am sure everyone is aware our presentation does contain some forward looking materials. NOVAGOLD has two key assets, both of exceptional scale and quality and safe mining jurisdictions, the Donlin Gold project in Alaska and the Galore Creek project in British Columbia.
A little bit about NOVAGOLD. We’re 80% institutionally held. We’ve got some major shareholders that have been with the story a long time. And we’ve got great projects. Our balance sheet is strong. We’re committed to delivering shareholder value.
A little bit about where the company’s come in the last few years. In less than two years, we completed the pre-feasibility study on Galore with our partner Teck. We completed the Donlin Gold final feasibility study with Barrick. We raised over $300 million in a bought financing, not quite two years ago. And we've reorganized and simplified the company. We spun out some copper assets and sold other non-core assets. And we built up a management team with experience in building and operating large scale projects. We also continued to advance our Galore Creek project with Teck.
Where have we been this year? We received little over $50 million in proceeds from the exercise of some in-the-money warrants. We released some exceptional drill results on the Galore Creek project. Richard Williams joined the management team at NOVAGOLD. He was a 30-year Barrick veteran. He has been the last seven years as project director of the Pueblo Viejo project in the Dominican Republic. He certainly brings some very timely and relevant experience to the company. We’ve also reduced our convertible debt. Throughout the balance of the year, we will be updating our stakeholders on the Galore Creek project and the continued progress of permitting Donlin.
Why are we so focused on Donlin? In terms of size, great exploration potential, and jurisdictional safety, it is one of the most significant undeveloped gold deposits in the space. And when you look at the population of major gold projects out there, it’s surprising and striking how really very few major development-stage projects are out there, and Donlin, by many measures, is in great scale or location, we think is among the most important of these projects.
If you look at the upside at Donlin, we’ve got 40 million ounce reserve and resource as it stands. We've explored less than 3km of the 8km gold-bearing structure, you know over time this project certainly has the room to get substantially bigger.
If Donlin were in production today, its output for the first five years is a little over 1.5 million ounces a year, life of mine over a million ounces a year, in production now would be the largest gold mine, and many of these other projects have been around a while and production steadily declining.
If you appreciate assets like Donlin, there are about 150 mines of any consequence in the gold industry right now. There's only six that have an output over million ounces a year, either mines or projects. And Donlin will be a low cost producer. The grade of 2.2 grams is about where the industry was 10 years ago. That grade, a fairly new asset would give the mine extremely competitive cost. Whether you look at it on a cash cost or an all-in cash cost basis, Donlin will be a low cost producer. Donlin also provides and we’ve positioned the company to provide the maximum leverage to what we think will be rising gold prices in the coming years.
What’s happened in the industry? There has been a lack of new discoveries in recent years. Many projects have been canceled or put on the back burner. That will inevitably lead to a very significant decline in production. This data is about a year-old now, and with what's happened in this space in the last six months, I would expect the production decline to be even steeper than as depicted here.
We completed our feasibility study at Donlin when the industry was nearing a peak in terms of activity out there, mining equipment sales, and since then a lot of things have moved in our favor. Steel has come down. Copper --engineering companies need work now. On mining equipment a year ago was – you were looking lead times measured in almost years. Now you can just about [buying awful lot]. So, a lot has moved in our favour. During the permitting process, we will be exploring opportunities to bring in third parties to lower the upfront capital cost.
Big projects – big projects are a little bit out of favour right now. And when you look at Donlin and compare it to two mines that went into commercial production this year, the Pueblo Viejo project in the Dominican Republic and Detour Gold in Canada. Lot of similarities in scale between the projects. These projects were well executed. They came in with reasonable amounts of money as expected. Now that they are built, they've got lives measured north of 20 years, so the industry needs projects like this to sustain itself.
As I listened to many of the presentations this morning, one common theme I heard frequently was jurisdictional safety and issues like that, and it’s understandable why this is such an important issue right now. If you look at many of the promising exploration areas out in the frontier, in areas with uncertain permitting processes or immature mining laws, you look at North America, it’s very mature. You look at what's happened in the Kurdish Republic or the Dominican Republic where governments have renegotiated deals, there are very few safe jurisdictions right now and we are fortunate that our assets are in Canada and Alaska.
Alaska is the second largest gold producing state in the US. There’s four gold mines operating as well as numerous base metal and coal operations. It’s a state that really appreciates the contribution of the natural resources sector. And they're very supportive of the Donlin Gold project.
If it’s more about – it’s not just being in the right jurisdictions, it’s being in the right place. The Donlin Gold project is located on land with U.S. Congress designated for mining and transferred ownership of this land to native corporations. These corporations are strong supporters of the project and the economic opportunities that it will bring to their people. This is a very depressed part of the United States with very little opportunity for the people that live there.
Permitting in the U.S. is – it’s a very feared process by many, but the reality is a lot of mines have been permitted in recent years and in recent periods of time. This is just a handful of them. Coal mines and copper mines were also routinely permitted. It’s a process that takes about – we take 3 to 4 years, we were well along our way, we started about a year ago. We’re pleased with the progress that we’re making. It is time-consuming, but it's a very rigorous process. It demands a lot of scrutiny of assets, and we welcome that scrutiny. We are experienced in permitting and we’re very pleased with how it’s going so far.
This is just a little bit about what's happening on the permitting now. We've been through the public scoping phase. The project was well-publicized. The audience at these public meetings were supportive of what we’re doing and we’re not aware of any opposition to the project.
A little bit about the Galore Creek asset. We’re 50:50 partner in this project with Teck. If this mine were placed into production, it would be Canada's largest copper mine, and we've announced our intention to sell this asset when the market conditions are favorable to do so. In the meantime, we are happy to advance this project with Teck and continue to enhance the value.
Earlier this year, we announced the results of the 2012 drilling program at Galore. This program encountered a new zone that we call the Legacy Zone, which is a very close to existing open pit resources. It really demonstrates there’s still significant upside exploration potential at this asset. When market conditions are such, we’ll sell this to further strengthen our balance sheet and fund our activities at Donlin.
Now we’re a much simpler company than we were two years ago. Now our can burn rate has gone from about $130 million this year to about a little over $40 million, and it will continue to decline as we simplify the company. We’re in great shape financially. We’ve got over $200 million in the bank, which is more than adequate to see the Donlin Gold project through permitting and ultimately to a construction decision.
So, why would you look at us now? You know our assets are in safe jurisdictions, and this is becoming more and more of an investment criteria. We provide great leverage to gold price, and we’ve got committed stakeholders, both in Alaska and the company shareholders. We’re a simple, clean story now. We’ve got a strong balance sheet. Thank you. I think we’ve got a few minutes for any questions if there are out there.
No, no real perspective I think it's common in the industry that big projects are somewhat out of favor right now. Now we saw a tough deal for Anglo. So it's – I hate to see that happen but it really doesn't have a great deal of impact on the activities we've got planned. All right. Thank you.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: email@example.com. Thank you!