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Executives

Melanie Hennessey - Vice President, Corporate Communications

Gregory A Lang - President and Chief Executive Officer

David Ottewell - Vice President and Chief Financial Officer

Analysts

John Bridges - JPMorgan

Paolo Lostritto - National Bank Financial

NOVAGOLD Resources, Inc. (NG) Q3 2013 Results Earnings Call October 10, 2013 11:00 AM ET

Operator

Good day, ladies and gentleman, and welcome to the NOVAGOLD Third Quarter Conference Call and Webcast. My name is [Whitney] and I will be your operator for today.

At this time all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operator instructions).

Now I would like to turn the conference over to your host for today, Ms. Melanie Hennessey, Vice President, Corporate Communications. Please proceed.

Melanie Hennessey

Thank you, [Whitney]. Good morning, everyone, and thank you for joining us today. On today's call we have Greg Lang, NOVAGOLD's President and CEO; and also David Ottewell, NOVAGOLD's Vice President and CFO. At the end of the formal part of the presentation we will take questions, both by phone and by email.

Before we get started I would like to remind our listeners that any statements made today by the management team may contain forward-looking information such as projections and goals, which are likely to involve risks detailed in our various SEDAR filings and in various forward-looking disclaimers included in the third quarter financial release and in this presentation.

With that I have the great pleasure of introducing Greg Lang, NOVAGOLD's President and CEO, Greg?

Gregory A Lang

Thank you, Melanie. Hello everyone and thank you for joining us this morning on our quarterly webcast. For those of you who are less familiar with NOVAGOLD or who have joined us for the first time the company has two great assets located in North America as shown on slide four. Our 50% owned flagship asset, Donlin Gold is a year in to the permitting and is poised to become one of the largest producers in the gold industry.

Galore Creek is also a valuable asset expected to be one of the largest and lowest cost copper mines in Canada. We intend to sell all or a portion of our interest in Galore Creek and apply the proceeds to development of Donlin Gold.

In the third quarter, we continued to achieve a number of key deliverables. Four technical workshops were held in Alaska with a core of engineers and other agencies to review the main components of the Donlin Gold environmental and social baseline data. Donlin Gold permitting advanced over the quarter with the review of the project alternatives by the core and applicable agencies.

Galore Creek completed its 2013 drilling program on time and under budget. And last and certainly not least we maintained our strong financial position.

I will now hand it over to David Ottewell who will take you through our third quarter results in more detail. After which time I will provide an overview of our third quarter activities at Donlin Gold and Galore Creek. Dave?

David Ottewell

Thank you, Greg. Turning to slide six; during the quarter spending at our projects progressed as planned. At Donlin our share of cash funding was U.S.$2.3 million in the third quarter and $10.2 million year-to-date, on track for a total of $15 million for the year to support permitting activities and preparation of the preliminary draft EIS by the Corp.

At Galore Creek our share of cash funding was Canadian $3.8 million for the quarter and Canadian $5.9 million year-to-date, on track for a total of Canadian $8 million for the year. Spending increased during the third quarter as we completed drilling to follow up on last year’s discovery of the Legacy zone. Expenditures will be lower in the fourth quarter.

Slide seven highlights our income statement items for the third quarter. Our operating loss has decreased dramatically compared to the prior year. Excluding foreign exchange gains our year-to-date operating loss has decreased by 43%. Administrative expenses have been reduced by 44% from the prior year and property related costs have been eliminated entirely due to the spin-out of NovaCopper and the sale of Rock Creek last year.

Turning to our cash flow on slide eight, we spent $9.5 million for our operating activities in the third quarter, primarily for our share of funding at Donlin Gold and Galore Creek. At the end of August we had cash and term deposits totaling US$205.7 million. In September, we accepted offers from note holders to repurchase another $6.4 million of the convertible notes.

We believe that we have sufficient funds to advance Donlin Gold through permitting, support ongoing activities at Galore Creek and repay the remaining $15.8 million of convertible notes in 2015.

NOVAGOLD expenditures have been reduced by nearly two-third since last year as shown on slide nine. For 2013, we continue to expect to spend $15 million at Donlin, $8 million at Galore Creek, $15 million in administrative cost and $3 million in interest. We are continuing to pursue opportunities to further reduce our cost.

We have determined that NOVAGOLD will become a U.S. domestic filer commencing December 1, 2013. Therefore our future filings would be under U.S. GAAP. And we have elected to change our reporting currency from Canadian dollars to U.S. dollars. You will see these changes in our 2013 year-end filings.

Greg, I’ll pass it back to you.

Gregory A Lang

Thank you, Dave.

Starting with an update on Galore Creek; on slide 10 at the end of the third quarter Galore Creek safely and successfully executed the 2013 exploration program, completing more than 11,000 meters of drilling under budget. The 2013 program was a follow-up on the success of the 2012 drill program and was aimed to define the extent of the Legacy mineralization and assess its impact on future mine design.

The additional drilling completed over the last two years improves our understanding of the deposit and increases our confidence in the models. NOVAGOLD and its joint venture partner, Teck will be incorporating the 2012, 2013 results into a capital efficient work plan for 2014 that will advance the project toward the new resource and reserve estimate for ultimate feasibility-level mine planning and design. We will continue to enhance the value of this asset while we consider a sale.

Moving on to Donlin Gold, slide 11 illustrates the five key attributes which make the project unique. With proven and probable reserves of 34 million ounces at an average grade of two grams per tonne, Donlin Gold is exceptionally high grade for a large scale bulk mining operation. With production greater than 1 million ounces a year over the life of mine that is already measured in decades Donlin will be the largest gold producing mine today.

In addition to size and grade Donlin has great exploration potential and could get bigger over the long term. The existing reserves and resources are located in the Acma and Lewis pits, which represent only three kilometers of an eight kilometer strike length.

In light of the political, social and economic instability of many gold producing countries we feel very fortunate that our world-class assets are located in two of the safest geopolitical jurisdictions. Jurisdictional safety and stability have become very important investment criteria for many fund managers. With very few high quality and significant gold development assets in the world and even fewer in safe jurisdictions, NOVAGOLD is unique.

To elaborate a little bit on the first attribute, Donlin Gold has one of the largest resources in comparison to the other major development stage gold deposits that are at prefeasibility study level or higher, as shown on slide 12. Donlin is exceptionally high grade for a large scale operation and one of the most valuable undeveloped gold deposits in the world. In fact, it’s among the top 1% of all known gold deposits and one of only six gold assets in the world, producing or soon to be producing greater than 1 million ounces per year.

When compared on a cost basis to its peers Donlin Gold measures favorably, as shown on slide 13. The life of mine all-in sustaining cash cost at Donlin are approximately $500 less than the industry average of $1,223. The low cash cost contribute to the significant cash flow generation and accelerates the project’s payback.

In light of the political, social and economic instability in many gold producing countries, particularly in many parts of Africa, South America and Asia, we are very fortunate that our assets are in two of the safest geopolitical jurisdictions. With very few high quality and significant gold development assets in the world and even fewer in safe jurisdictions, NOVAGOLD has tremendous attributes.

It’s important to note that Donlin Gold is located in a state that welcomes responsible mine development as shown on slide 15. Alaska has an important mining industry with many well established operations; the second largest gold producing state in the U.S. and its gold production has increased in recent years. The state appreciates the value of the natural resources sector.

Moving to slide 16, we were particularly pleased Calista and TKC, the native corporation that own the mineral and surface rights to Donlin are actively involved in the environmental impact, study and permitting meetings. They are both committed to seeing the project to fruition for the benefit of their shareholders. With excellent stakeholders in a pro-resources state we have a lot going for us.

Moving to slide 17, we extend our congratulations to the Donlin Gold team for being named 2013 Employer of the Year by the National Association of State Workforce Agencies. This award recognizes the Donlin Gold team for their workforce development efforts in creating jobs, recruiting and training residents of the Yukon-Kuskokwim region as well as engaging with community leaders.

Donlin Gold has a consistent local hire record exceeding 90%. The project's effort to hire locally has become an integral part of the region and illustrates a new model of successful development in rural Alaska. Being named Employer of the Year is a great honor as we believe that offering employment opportunities and skill development encourages young people to stay in their communities, strengthening the fabric of these communities and offering increased stability and pride.

Bringing an economic driver to the region will provide jobs, stimulate economic development and improve infrastructure and access. This really strengthens our already strong ties to our major stakeholders.

We are now a year into the permitting at Donlin. In order to put this process in perspective, slide 18 shows a list of projects and operations which have been successfully permitted in recent years. Red Dog, Fort Knox and Kensington in Alaska; Rochester, Cortez and Hycroft in Nevada and Climax Molybdenum in Colorado. The permitting is a rigorous defined process.

As illustrated on slide 19 is the timeline for our permitting. It’s clearly defined federal and environmental review process involves the preparation of the EIS and this is the most time consuming portion of the permitting.

In the third quarter the core of engineers filed the Donlin Gold EIS scoping summary report reflecting the comments which have been raised during the public scoping meetings held in the first quarter. Technical workshops were held with the applicable agencies to review the core areas of baseline, environmental and social data related to the Donlin Gold EIS. Donlin Gold engaged with the native corporations and other stakeholders in conjunction with community initiatives related to the EIS.

Slide 20 gives a snapshot of the current and ongoing permitting activities. Donlin Gold continues to review project alternatives with the core of engineers and other applicable agencies. In addition the preparation of the preliminary draft EIS is well underway. The next steps will be to receive comments from the federal and state agencies in preparation of the draft EIS, which is expected to be filed next year.

Having completed several large permitting undertakings of major projects in the U.S. I am encouraged by the constructive atmosphere of the permitting process at Donlin. We are certainly on the right track.

In closing with two well established world class assets and a strong balance sheet NOVAGOLD is well positioned, even in the current challenging market environments to execute on its stated objective of maximizing shareholder value. With a treasury exceeding $200 million NOVAGOLD is advancing Donlin Gold through the permitting process and enhancing the value of Galore Creek through the implementation of a modest drilling and evaluation campaign. Both programs are being executed with a great deal of financial discipline and quality control.

Our team is truly fortunate to have a loyal, engaged and tremendously supportive group of shareholders. We all share the vision that NOVAGOLD is unique in providing the best and safest leveraged gold in the world. Thank you.

Operator we would now like to open the line for questions.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of John Bridges of JPMorgan. You may proceed.

John Bridges - JPMorgan

Good morning, Greg, everybody. Congratulations on the progress. I just wondered in hindsight you price the thing at pretty much the top of the market in terms of the cost of building. Just wondered, what the latest was in terms of, obviously your desktop estimate as to how much saving you could make on equipment given that the equipment makers didn't have quite the pressure on their build timelines that they had a couple of years ago?

Gregory A Lang

Good morning, John. You raised a very good point. The feasibility study was completed right at the time the industry was peaking. And with that in mind we also put about a $1 billion contingency into our capital estimate. We’ve seen a lot of signs that whether it’s mining equipment, steel, copper prices, availability of labor, now those have all really moved in our favor since the feasibility study was prepared.

But we are still a couple of years out from a construction decision and I think at that time it's appropriate to update all of the inputs into the capital and operating cost. We know they are going in our favor but we haven’t addressed it in any detail at this juncture.

John Bridges – JPMorgan

Yes, now I appreciate your conservatism and respect that. I am just thinking that the price of equipment relative to the price of gold was probably pretty high at the time you did the devaluation.

Gregory A Lang

I think it -- that's certainly correct, John.

John Bridges – JPMorgan

So you are not seeing any two for one offer yet on [structures] and all?

Gregory A Lang

No blue light specials but we are getting a lot of even signs the engineering companies are looking for work now whereas two years ago you could hardly get your foot in the door.

David Ottewell

So it’s a good time for us to be taking the project through permitting and through a construction decision.

John Bridges – JPMorgan

Okay, great. I am just curious what has forced you to go from IFRS to GAAP accounting?

David Ottewell

Hi, John this is Dave. There are several factors that we have to look at. One is the number of U.S. shareholders that we have. Our main asset is in the U.S. and we’ve moved management to the U.S. So for SEC reporting now we've become a domestic filer.

John Bridges – JPMorgan

Okay. So it's technicality, okay, thanks, guys, good luck.

Gregory A Lang

Thanks, John.

Operator

(Operator Instructions). Your next question comes from the line of Paolo Lostritto of National Bank. Please proceed.

Paolo Lostritto - National Bank Financial

I am glad I stopped laughing after John's two for one comment.

Gregory A Lang

Good morning, Paolo.

Paolo Lostritto - National Bank Financial

Good morning. My question is with regards to the pipeline. Are you seeing any movement in that regard in terms of people being interested from a technical aspect, from a permitting standpoint. I mean energy is the key component to what you guys are doing up there and so just to have -- wanted to get little bit more specifics on how things are going on that front?

Gregory A Lang

We are advancing discussions aimed at potentially bringing in a third party to build and operate the pipeline, nothing definitive that we can comment on at this stage though Paolo.

Paolo Lostritto - National Bank Financial

Okay. When could we expect may be an update in that regard?

Gregory A Lang

Certainly not until probably sometime middle of next year.

Paolo Lostritto - National Bank Financial

Okay. Thank you.

Operator

There are no further questions in the queue at this time.

Gregory A Lang

Everyone, thank you for joining us on our call this morning.

Operator

Ladies and gentlemen, that concludes today’s conference call. Thank you for your participation. You may now disconnect. Have a great day.

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