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NovaGold Resources, Inc (NYSEMKT:NG)

Q2 2014 Earnings Conference Call

July 10, 2014 11:00 ET

Executives

Mélanie Hennessey - VP, Corporate Communications

Greg Lang - President & CEO

David Ottewell - VP & CFO

Analysts

John Bridges - JPMorgan

Operator

Welcome to the NovaGold’s Second Quarter 2014 Conference Call and webcast. My name is Tony and I will be the operator for today. (Operator Instructions). I would now like to turn the call over to your host Mrs. Mélanie Hennessey, Vice President, Corporate Communications. Please proceed.

Mélanie Hennessey

Thank you Tony. Hello everyone, glad you could all join in. We’re pleased that you have joined us today for the second quarter results and to also hear an update on the development of the Donlin Gold and Galore Creek projects.

On today’s call, we have Greg Lang, NovaGold’s President and CEO and 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 e-mail.

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

With that, I have the great pleasure of introducing Greg Lang, NovaGold’s President and CEO. Greg?

Greg Lang

Thank you Mélanie. Good morning everyone. I appreciate you joining us today. As featured on the map on slide four, we will be speaking about our two great assets located in North America. Our flagship Donlin Gold project one of the industries undeveloped high quality gems is located in Alaska and held in a 50:50 partnership with Barrick. The Galore Creek project, a copper-silver-gold deposit in British Columbia is expected to be Canada’s largest and lowest cost copper mine. Galore Creek is held in a 50:50 partnership with Teck.

Turning to slide 5, I’m pleased to report the progress made in the second quarter brings us a step closer toward executing our long standing strategy in providing all of our stakeholders with the greatest and safest asset with long term leverage to gold. We’re approaching the half point in Donlin Gold’s permitting timeline. Progress on the preliminary draft EIS is continuing as expected and on budget. It is anticipated to be completed around year-end.

In early June, we announced that Donlin Gold and the Kuskokwim Corporation reached an updated long term agreement extending Donlin Gold’s right to use the surface lands owned by TKC. This agreement represents an important milestone in the advancement of Donlin Gold towards development and future production.

At Galore Creek we continued the technical work to advance the projects next level mine planning and design. These studies will incorporate the successful 2012 and 2013 pure [ph] results.

Turning to slide six, we continue to meet our objectives and take the necessary steps toward developing the single most important asset of the next generation of gold mines. When a project is finalized it's measured in multiple decades with exceptional potential for growth as in the case of Donlin Gold, the current investment in time and resources required for permitting is relatively small.

We’re now nearing the halfway point in permitting Donlin Gold as depicted on slide seven. Permitting began in August 2012 with a submission of permit applications to the federal and state agencies and it is expected to take about four years to complete.

Our current focus is centered on the preliminary draft EIS which is the most time consuming portion of the permitting process. During the quarter the core of engineers and the other cooperating agencies successfully completed the alternatives identification process establishing a reasonable range of alternatives to be evaluated in the EIS. The alternatives comprised a variations on certain mine facility designs, local transportation options and power supply options.

The remaining EIS components expected to be completed over the next two quarters include the analysis of the potential environmental impacts. The Corps anticipates that all outstanding environmental baseline data required to complete the EIS will be compiled by the end of the third quarter.

Throughout permitting Donlin Gold was hand in hand with it's community partners on a number of local programs as illustrated in the photographs in slide eight. In partnership with the Kuspuk School District, Alaskan Construction Academies and EXCEL Alaska, Donlin Gold was pleased to sponsor a youth Academic & Trades Decathlon in Aniak. Together with the state of Alaska and the Yukon Kuskokwim Health Corporation, Donlin Gold participated in the Kids Don't Float campaign, distributing personal flotation devices and safety message to kids all along the Yukon Kuskokwim River. The Donlin Gold team also continued it's long standing tradition of community outreach in the second quarter by visiting 10 villages.

Town Hall meetings were held in each village with the viewing of the Donlin Gold project narrated in Yupik, the local language and also in English. With relationships spanning over 20 years Donlin Gold enjoys excellent partnerships with the native corporations who hold the surface and sub-surface rights of the proposed mine area Calista and TKC. Our strong partnerships were further reinforced by the updated long term surface use agreement between Donlin Gold and TKC which is now in alignment with the duration of the existing mining lease with Calista and continues so long as production or mining activities continue at the project.

It's a mutually beneficial undertaking that will have far reaching impacts on both local communities and all of our stakeholders. We truly appreciate our partnership with the Alaska Native Corporations and look forward to a prosperous future with them.

I will now pass it over to David Ottewell who will take you through the second quarter results. Dave?

David Ottewell

Thank you Greg. Turning to slide 10, during the second quarter spending at our projects remain on track with our budget for the full year. In 2014 activities at Donlin Gold are focused on permitting and community engagement in the region. Our share of cash funding year to date was 6 million compared to a budget of 12 million for the year. At Galore Creek technical studies to advance this copper-gold-silver deposits toward next level mine planning and project design are underway.

Our share of cash funding year-to-date was 1.4 million as expected compared to a budget of 2.5 million for the year. Slide 11, highlights our operating performance in the second quarter. Our operating expenses continued to decline. Given our current stage of development we’re focused on reducing general and administrative expenses as well as project cost at Donlin Gold and Galore Creek.

Our second quarter operating loss of 8.3 million was 32% lower and the first half loss of 19.6 million was 27% lower than the prior year period. Looking at our cash flow on slide 12, cash decreased by 1 million in the second quarter and 9.9 million for the first six months. Term deposits also decreased by 5 million.

So far this year, 5.7 million was used in operating activities primarily for administrative cost, interest and other working capital changes and 9.2 million was used to fund Donlin Gold and Galore Creek, partially offset by 5 million from term deposits.

At May 31, 2014 we had cash and term deposit totaling a 176.3 million a reduction of 15 million from the beginning of the year and right on track for our full year estimate of 30 million in spending.

Turning to slide 13, we have been focusing on carefully managing our financial resources and ensuring that we have sufficient cash to execute on our objective to permit the Donlin Gold project. Due to this prudent financial management over the last few years, our 2014 budget at 30 million is almost $100 million less in what our expenditures were in 2012. This puts us in a great position to advance Donlin Gold through permitting, support ongoing activities at Galore Creek and repay the remaining 15.8 million of convertible notes due in May 2015.

Greg I will now pass it back to you.

Greg Lang

Thanks Dave. Large gold deposits like Donlin are rare and exceptional assets. Donlin has size, it has grade, a league leading projected output, a low operating cost structure, this is a company making mine with excellent exploration potential. We have strong local partnerships and it is located in one of the best mining jurisdictions Alaska. It's truly unique and attractive asset. Donlin Gold has all the key ingredients of scale and quality that are required to build a modern cost effective gold mine.

On slide 15, when you look around the world among the key attributes for Donlin Gold is the size of the resource with 39 million ounces in the measured and indicated category it's at the top of the list when compared to large scale gold deposits.

In addition to size and scale Donlin Gold has longevity with an anticipated production profile of greater than 1 million ounces a year over a 27 year mine life placing the project among the top 1% of all known gold deposits. In only one of two gold assets in the world producing or soon to be producing more than a million ounces a year.

Now looking at grade when compared to the largest gold producers on slide 17, Donlin’s grade is near the top of the list. This is very important in the context of the challenges facing the precious metals industry. As reserve grades continue to decline and sources for emerging production to replace mined out capacity are becoming increasingly scarce.

Beyond size, scale, longevity, excellent grade and geopolitical stability Donlin has tremendous exploration potential particularly along the 8 kilometer gold bearing trend which we see north of the pit on the illustration. The future mine shown on slide 17 will be only 2 kilometers by 3 kilometers within a district measuring 3 by 8 kilometers. There is no doubt that Donlin Gold’s mine life will be extended beyond the three decades of production anticipated from its reserve base.

Slide 19 is an interesting illustration displaying the permitting historically the orphan period provides great upside potential as the project progresses through development and towards production. It's a compelling investment opportunity on a backdrop of significant challenges in the mining industry. Moving on to Galore Creek, it's expected to be one of the largest and highest quality, low cost copper producers in Canada also one of the few safe mining jurisdictions remaining for copper miners.

During the quarter we progressed studies to evaluate an integrated plan for mining, waste disposal and water management to enhance the economics of the project. We expect this effort to further improve the value and marketability of Galore which we continue to look at monetizing to further strengthen our balance sheet and focus our efforts primarily on the permitting of Donlin.

We support and are actively engaged in community led sponsorships in the regions where our projects are located. We have highlighted three community initiatives on slide 22, the first is a bursary program that is offered to Tahltan members pursuing secondary education.

The last two involves sponsoring local youth sporting events such as the Yukon Native Hockey Tournament and the Dease Badminton Tournament.

In closing, why would you be interested in NovaGold today? We’re in a macroeconomic environment supportive of higher gold prices to time of declining grades and few new discoveries not to mention escalating geopolitical risk.

NovaGold offers top tier assets in terms of their quality, scale and upside potential in two of the top mine jurisdictions in the world. The company is well financed through permitting and managed by a team of mine builders and operators with both an exceptionally strong track record of success and a rigorous alignment with all of our stakeholders. We’re very proud of what we achieved and are looking forward to an exciting future.

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. Please proceed.

John Bridges - JPMorgan

I was just wondering, you've pulled down your spending quite a lot. And I just wondered if the process did happen to go on longer than you expected, how much more could you pull it back just to give yourself more comfort in terms of the cash resources you have got available?

Greg Lang

At this stage we don’t anticipate the type of delay that would cause us any undue financial stress at this stage but to answer your question, the permitting activities in terms of the EIS and related work really peaked this year. So you could expect some modest reductions there as we progress forward and at Galore that’s somewhat discretionary spending to us but that’s an area we could cut back if we absolutely have to but again we think we are in pretty good shape and sitting right now with about five years of cash in the bank. I can’t foresee a delay that would pressure our balance sheet at this stage.

Mélanie Hennessey

Operator we have two questions that have come in from -- by email. I will go ahead and read the first. A few years ago American Barrick indicated they had no interest in developing the Donlin Gold project when gold was at 1500 per ounce. Has Barrick changed it's position on this since? And does Barrick have the right to sell it's interest to a third party?

Greg Lang

Well that’s a two questions and I will try and break them in half. Thank you Mélanie. Yes the first question regarding Barrick’s position on projects I don’t know that they have -- they have changed any but what I can tell you is they are supportive of the permitting effort and are involved in this process and of course contributing their 50% share to the undertaking.

And the second question, either if one party wanted to sell their interest in the project the other party would have a right of first refusal.

Mélanie Hennessey

The next question also how does NovaGold intend to finance the project, via loans, issuance of debt or dilution of NG equity?

David Ottewell

Sure. When we get to that point we believe that we will have several options including equity, debt and third party financing.

Mélanie Hennessey

Operator any further questions from the line?

Operator

There are no further questions at the moment.

Mélanie Hennessey

Greg?

Greg Lang

Well everyone thank you for joining us today. We appreciate your interest in NovaGold and we look forward to continuing to update you on our progress. Thank you.

Operator

Ladies and gentlemen that concludes today’s conference. Thank you so much for your participation. You may now disconnect and have a great day.

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Source: NovaGold Resources's (NG) CEO Greg Lang on Q2 2014 Results - Earnings Call

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