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Executives

Greg Lang - President & CEO

Analysts

NovaGold Resources, Inc. (NG) Denver Gold Forum September 23, 2013 4:25 PM ET

Unidentified Participant

Okay, great. The next company to present is NovaGold, a company working to develop its flagship asset that 50% interest in the Donlin Gold mine in Alaska. It’s certainly an opportunity that they could deliver significant ounces for an extended period of mine life. Speaking on behalf of the company today is Greg Lang, President and CEO, a role that he’s held since January 2012. Greg has over 35 years of experience on operations and project development. So I am very pleased to introduce Greg. Thank you.

Greg Lang

Well good afternoon everyone. It’s great to be back here at the Denver Gold Forum. I’m sure everyone is aware our presentation materials this afternoon do contain some forward looking statements.

At NovaGold, we’re focused on two key assets, the Donlin Gold project in Alaska with our partner Barrick and the Galore Creek project in British Columbia, and Teck is our partner on this one.

A little bit about the company. We’re 80% institutionally held and some of our top shareholders understand the story. And we’re very fortunate that they have been with the company a long time. We’ve got great projects in safe jurisdictions. We’ve got a strong balance sheet and we’re committed to delivering shareholder value.

A little bit about where the company has come in the last few years. On the Galore Creek project, we completed the pre-feasibility study. On Donlin, we completed the feasibility study. This was endorsed by the owners and they authorized management to begin permitting. Very importantly, about 18 months ago, we raised over $300 million in one of the largest bought-deal financings in 2012. We have been going through a reorganization of the company. We’ve divested non-core assets and spun out the exploration play. We’re a simpler company focused on the Donlin project.

We’ve built the management team with expertise in permitting, building and operating large scale projects. Last year, we completed an extensive drill program at our Galore Creek project, which resulted in the discovery of Legacy Zone.

This year, early in the year, we received $54 million from the proceeds in the money warrants which further strengthens our balance sheet. And we've been providing updates on the Galore Creek drilling. Richard Williams joined us as Vice President of Engineering. Richard is a 30-year Barrick veteran. He spent the last seven years as project director of the Pueblo Viejo project in the Dominican Republic. His experience is certainly timely and relevant to the goals we have ahead of ourselves. We also significantly reduced our convertible debt by over $70 million. Throughout the balance of the year we will continue to update our shareholders on our progress at Galore as well as permitting activities on the Donlin project.

Why are we so focused on Donlin? In terms of its size, grade, production profile, exploration potential and jurisdictional safety, we view this as one of the significant undeveloped gold deposits in the industry. This slide deck just compares Donlin to some of the major undeveloped gold deposits. Several of these are located in fairly challenging jurisdictions. But by just about any measure, whether it's tons, grade, production profile, Donlin stands out ahead of its peers.

The exploration potential of Donlin. Throughout the drill seasons, every year we drill, the resource and reserves expanded. As you can see in the illustration, we only extensively drill tested about three kilometers of an eight kilometer gold bearing system. There is certainly room to substantially increase the size of this deposit.

Looking at Donlin, comparing it to the other major gold deposits that are in production today if Donlin were in production at 1.5 million ounces a year for its first five years, it would be the largest single gold deposit in the industry. When you look at many of these other assets, they have been around a long time and production rates are declining. Really to appreciate an asset like this, you look around the gold industry, there is only 150 mines that produce more than 100,000 ounces a year. Less than a half-dozen that produce over a million ounces a year.

The grade of Donlin is 2.2 grams. That’s where the gold industry was 10 years ago. And that high-grade contributes to cash costs and all-in sustaining costs that are well below industry averages. Cash costs at Donlin will be about $400 an ounce the first five years, life of mine about $600 an ounce.

Donlin provides the exceptional leverage to the gold price. When we restructured the company to focus on Donlin, we wanted to provide that leverage to our shareholders. The project is marginally economic at slightly lower gold prices. And as prices increase in the future, which we believe that they will, the project provides exceptional leverage.

If you’re looking at what's happening in the industry and this is a data that we shared with and borrowed from National Bank. Production is going to decline. It’s inevitable. There has been a lack of new discoveries. Projects have been curtailed. Any way you look at it, the gold industry will be declining in the coming years. About the time Donlin goes into production, many of the majors will have substantially depleted their reserves and will need additional projects to sustain themselves.

With this production cliff, there has been very few discoveries in the last 10 years and that’s in spite of higher exploration spending when prices were strong. With a 27-year mine life, Donlin could be a foundation asset for Nova or great stream of production for a major company. Any way you look at it, big projects are needed to sustain the business.

Circumstances are – actually they’re working in favour for NovaGold right now. When the feasibility study was completed, there was just two years ago, the main issue was, people were worried about was the shortage of people or talent to operate these mines. With many of the major companies shedding people, that risk is off the table for us. Equipment deliveries used to be measured in years. Now you can practically buy mining equipment off the lot. In our capital costs we’re prepared at near peak. Since then, steel, copper and other inputs of major projects have come down substantially.

Now as we’re working our way through permitting, we will look at opportunities that are out there to shed capital by third-party participation. Our project at $6.7 billion that includes $1 billion in contingency; in the coming years we will be evaluating the merits of leasing our mining equipment or having the third-party build and operate an oxygen plant. Same with the gas pipeline. Just these three areas alone could reduce the upfront capital requirements by about $1 billion.

The flowsheet of Donlin is -- it’s a large-scale open pit mine, about 350,000 tons a day, nothing – they’re very common throughout the space; it employs flotation and autoclave treatment of the flotation concentrates, all technologies that are commonly used throughout the industry.

Now we just heard from Gerald at Detour Gold. Detour is one of two projects that came into commercial production this year. When you compare those projects with Donlin, there are a lot of similarities between the two. Pueblo Viejo is a very complicated project in the Dominican Republic. It utilizes autoclave technology like Donlin, and four large-scale claves, Donlin has two small ones. Detour, very similar throughput in both the mine and the mill to Donlin but I think when you look at these projects and compare them to Donlin, it certainly gives us a lot of comfort that the mine can be built within capital expectations. The other aspects of these two projects is yes, they represented very substantial investments to the owners but now that they are built and operating, they’ll run for over 20 years. The industry needs projects of this scale.

Jurisdictional safety is becoming a bigger concern in the mining and natural resources sector all the time. We could spend all afternoon on what's happened just in the last few months. In some jurisdictions, we see unclear mining laws, no clear permit path or in the Kurdish Republic or the Dominican Republic we’ve seen governments overnight tell the owners of the mine, we’re going to renegotiate the deal. And investment today in the developing world has never been without greater risk but our assets are located in Alaska and British Columbia.

Alaska. It’s the second largest gold producing state in the US. There are four operating gold mines and other base metal and coal mines. The state of Alaska believes in the merits of the strong natural resources sector. It’s great to be in a place where you are welcome.

But it’s more than just location. The underlying land at Donlin is owned by two native Alaska corporations. The US government, when they settled the Alaska Native Claims Act, transferred this land to these two corporations with the Congressional mandate to develop their natural resources for the benefit of their stakeholders. We’ve seen many projects derailed because they didn’t have the support of the local people. At Donlin, not only are they supportive of our activities but they have a significant financial stake in our project going forward. They want this mine to happen for the economic benefits that will bring to their people.

Permitting in the US is a somewhat feared process. It is time-consuming. We figure it will take three to four years to permit Donlin. But this is just a small sample of some relevant comparable projects that have been permitted in recent years. It is time-consuming, but people are successfully permitting gold, coal, copper mines all the time.

Here is just a snapshot where we are at in the permitting process and some of the activities underway. We have been at the permitting a little over a year now. We’ve completed the public scoping process. We’re very pleased with the feedback we've gotten through that process, and we’re aware of no organized opposition to what we are planning.

Here the U.S. Army Corps of Engineers is the lead agency charged with overseeing the preparation of the environmental impact statement. They've got a website out there for anybody who has the curiosity to go a little bit deeper into the permitting process. But a year into it, we’re really pleased with where we're at and certainly anticipate that we will complete this process somewhere between three and four years.

Here is just a little bit of the current activities going on throughout the permitting and it's not the most exciting process to go through but it’s a very defined and rigorous process that we know well. At Galore Creek, this is the project that we own 50% with Teck. We've announced our intention to sell this asset. Certainly it's a difficult time to be selling any large-scale mining asset and we’re – we’ve got the cash to take it forward and fund it for a few years. If Galore was placed into production, it would be Canada's largest and lowest-cost copper mine.

This graph just details the new Legacy Zone, which we encountered with our 2012 drilling program. We’re following that program up with the 10,000 meter program that we’re just about wrapping up. And we will be updating our shareholders on the results of this program in the coming months.

So where is NovaGold at? We raised money at a great time before the sentiment changed. Before the downtown, we went through the process of restructuring the company. Our cash burn rate has gone from $130 million to $40 million. We’ve got a strong cash position, and I feel great about where we're at. These are turbulent times in the business. But we've got the cash to see us through what we need to in permitting for the next few years.

Finally, why would you look at NovaGold now? Jurisdictional safety is becoming more and more important when people are evaluating potential investments in the resources sector. We provide great leverage to gold price. We’ve got committed stakeholders. We’ve simplified the corporate structure. We’re a very easy story to understand now. And as I said, we’ve got certainly a very strong balance sheet.

Thank you. I think we have time for few questions.

Question-and-Answer Session

Unidentified Participant

Yes, we do. We will open the floor to see if there are any questions. One up at the front.

Unidentified Analyst

Greg, how much do you think you could save or would you think the costs would be to have a third party do your port facilities?

Greg Lang

The port facilities is something that we are looking at entertaining a third-party participation between the port at Bethel and the upper river port and the barges and everything associated with that, it would be over $200 million that we could potentially save by doing that. Like the other opportunities to bring in third-party participation, we will be reviewing those while we are working our way through the permitting.

Unidentified Participant

Are there any others on the floor? I believe there is one at the back behind you.

Unidentified Analyst

Thanks Greg. Could you talk a little bit more about the permitting process? Alaskan permitting has a bit of a bad name. Could you elaborate a little bit more on that process? Thank you.

Greg Lang

Well, I think I would not necessarily agree that permitting in Alaska has a bad name. When I look at some of the projects such as Fort Knox that have been operating there for many years, Sumitomo Pogo, I think there’s a lot more success stories in permitting in Alaska. Certainly there has been some troubled projects. I think we've all seen that unfold. But I think with the attributes that we have and certainly the other successful projects, we are in a good location and we've got strong underlying partnerships. And the state of Alaska is certainly very committed to seeing this project go forward.

I think it’s very difficult to also underestimate the importance of having native corporations and operating on land that has been already set aside by the U.S. Congress for mining. So I certainly wouldn't dispute there have been some projects that have run into trouble, but I don't -- we feel pretty good about where we are at and where we’re going.

Unidentified Participant

There are no further questions. Thank you very much, Greg. Appreciate it.

Greg Lang

Thank you very much.

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