NovaGold Resources' (NG) CEO Greg Lang on Q4 2015 Results - Earnings Call Transcript

| About: NovaGold Resources, (NG)

NovaGold Resources Incorporated (NYSEMKT:NG)

Q4 2015 Earnings Conference Call

January 28, 2016 11:00 AM ET

Executives

Melanie Hennessey - VP, Corporate Communications

Greg Lang - President, CEO and Director

Dave Ottewell - VP and CFO

Analysts

John Bridges - JPMorgan

Raj Ray - National Bank Financial

Operator

Good day, ladies and gentlemen and welcome to the NovaGold Fourth Quarter 2015 Conference Call and Webcast. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference maybe recorded.

I would now like to introduce your host for today's conference, Ms. Melanie Hennessey, Vice President Corporate Communications. Ms. Hennessey, you may begin.

Melanie Hennessey

Thank you, Andrea and good morning everyone and we appreciate you joining us for our yearend 2015 results and also for an update on the Donlin Gold and Galore Creek projects. But before we get started, I’d just like to remind everyone that some of the statements made today may contain forward-looking information such as projections and risks that are detailed in our various EDGAR and SEDAR filings and disclaimers that's included in our presentation.

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

Greg Lang

Thank you, Melanie. Good morning everyone. NovaGold is a development stage company with two great assets in North America. Our flagship Donlin Gold asset is well into permitting and is poised to become one of the largest producers in the gold industry. Galore Creek is co-owned with Teck and is a large scale copper, gold silver deposit in British Columbia.

Turning to Slide 5, 2015 was marked by a number of achievements that required tremendous effort by multiple parties from the Donlin Gold staff to state and federal agencies and our stakeholders of the native corporations in Alaska. Our most important achievement last year was the publication of the draft environmental impact statement. This is a major milestone in the permitting process. It's been very gratifying to see the engagement at all levels.

Other major permit applications have also been advanced such as the Section 404 permit, integrated waste and water management permits, air quality, reclamation and others. With the draft EIS published activities this year will entail progressing our permitted efforts at Donlin and supporting the agencies during the public comment period throughout the region and anchorage. At these public meetings the core will present an overview of the draft EIS which considers the potential environmental, social and economic impact of the proposed project. We will also support the core by the providing input and information as they finalize the EIS. All of these comments and other information would be taken into consideration when the final EIS is published in 2017.

At Galore Creek we've advanced project design with our partner Teck by gathering additional information to complement the integrated mining and water management designs. Additionally, we completed Phase 1 of an access tunnel study. On Slide 6, community investment and relationship building with our local partners is very important to us. We followed it from recent events in which we participated with both Donlin and Galore Creek communities.

Workforce development is a key element of our outreach initiative. We're increasing the awareness of potential job opportunities for residents and stimulating carrier development efforts. Through our outreach we've maintained the high level of engagement with the communities through youth initiatives, safe domestic use and their local events.

We provided more than 60 updates to the villagers and trade organizations, as well as state and federal officials. Local outreach in Northern British Columbia continued with the Galore Creek sponsoring numerous local events and supporting various accounts in three villages in Northern BC. Galore has awarded scholarships to top-10 members pursuing secondary education in Canada. We continue to be active and engaged in the communities where we operate.

I'll now turn it over to Dave Ottewell to review NovaGold’s yearend financial results.

Dave Ottewell

Thank you, Greg. Turning to slide 7, our share of Donlin Gold and Galore Creek funding totaled 11 million for the year. Activities at Donlin were focused on permitting and community engagement, while at Galore technical studies continue to focus on optimizing project design. Our project funding is expected to decrease to 10 million in 2016 as we continue to support Donlin Gold’s permitting activities and Galore Creek technical sales.

Slide 8 highlights our 2015 operating performance. For the year ended November 30, 2015 we reported a 6.3 million decrease in operating loss approximately 20% lower than the prior year period. General and administrative expenses decreased primarily due to lower professional fees and favorable foreign exchange translations of expenses incurred in Canadian dollars. Our share of expenses at the Donlin Gold project decreased by 3 million, while at the Galore project our share of expenses decreased by 1.5 million due to reduced activity and a gain on the sale of surplus equipment.

NovaGold's cash flow highlights are outlined on Slide 9. During 2015, our cash and term deposits decreased by $38.6 million, $6 million lower than originally planned. Cash was used to repay the 15.8 million due on the remaining convertible notes, 11.4 million for administrative cost and interest payments, 11 million to fund our share of Donlin Gold and Galore Creek. We ended the year with cash and term deposits totaling approximately 127 million.

On Slide 10, we provide a breakdown of our 2016 budget. Given NovaGold's current cash and term deposits of 127 million and anticipated spending of approximately 25 million in 2016. We expect to end the year with sufficient financial resources for NovaGold to complete permitting of Donlin Gold and conduct necessary activities at Galore Creek. We are thankful for the capital that has been entrusted to us by our shareholders and continue to carefully manage our balance sheet.

Greg, back to you.

Greg Lang

Thank you, Dave. We focused this company on the Donlin Gold project because it has all the key ingredients required to build a successful gold mine. Staring with size with almost 40 million ounces it’s one of the largest undeveloped gold deposits in the industry and provides us an un-expiring warrant on 39 million ounces of gold. Beyond the current resource, Donlin has the longevity that is measured in decades. Once in production, the project will contribute great economic benefits to our stakeholders and owners and shareholders for many years to come.

On Slide 13, another key attributor to the Donlin Gold project is its grade, at 2.25 grams it's one of the highest grade undeveloped open pit gold deposits around. This is a very important quality in the context of an industry facing challenges of declining grades, higher cost and lower production. Beyond size and scale Donlin also has tremendous exploration potential with multiple unexplored targets that is shown on Slide 14. The future mine occupies a very small portion of the gold bearing system at Donlin.

It’s important to look at the fundamental drivers for gold, they remain unchanged. If you look at Slide 15, you will see that there has been a significant drop off in discovery rates and in spite of extreme cost cutting in the industry there is limited exploration activities and gold is getting harder and harder to find. At the same time, production is going to be dropping. We anticipate it could drop as much as much 15% in the coming years. Jurisdictional risk is another issue to exasperate this problem. But the gold demand remains strong especially in the emerging markets. Central banks are net buyers and new supply and demand pressures support higher gold prices.

Slide 16 illustrates the significant leverage that the Donlin Gold project has to rising gold prices. The long mine life offers very high likelihood that it will be around for multiple gold market cycles, beyond which is captured in the NPV and traditional financial calculations. In addition to our permitting activities, we're working with our partner to identity ways to reduce capital and optimize the development scenarios for this project. Capital cost matter to both partners and our priority is to ensure that this project provide its owners an attractive rate of return, which is very highly dependent on the gold price.

As we've outlined on Slide 15, we're bullish on the gold price because of declining supply and demand. The feasibility study is now four years old and prior to making a construction decision, we will be updating the capital and operating costs and other inputs that drive the returns on this project. Projects like Donlin needs strong partnerships from communities to operations to partnerships are what bring success. Mining is an integral part of the communities and the native Alaskan corporations who are partners need economic development in their regions.

Slide 18 highlights some quotes from executives at our native partners. They really demonstrate the strong and time-honored relationships we've had with them. TKC and Calista are important, supportive and active participants in the permitting process, trying to bring great economic benefits to their people and their companies for many years to come.

Slide 19 is overview of the timelines we're operating under, as well as key permitting milestones. When you look at any projects' lifecycle and in particular Donlin’s, we think the current investment in time and resources for permitting, is insignificant in the context of a 30 year mine life. The permitting is progressing as we expected it would and we anticipate completion in about two years in a rising price environment.

On Slide 20, we highlight the attributes of our Galore project. It is a large scale deposit in the state jurisdiction and although we continue to evaluate opportunities to monetize our interest, we are fortunate to have the financial flexibility to enhance the value of this asset with minimal spending as we wait for markets for base metal projects to improve.

Why would you invest in NovaGold now, we're fortunate to have an excellent shareholder base, over half of our shares are held by our top shareholders who have been in the Company a long time and are steadfast in their commitment to see us advance a great undeveloped gold asset.

Looking ahead for this year, the focus of this company is very simple. We are advanced Donlin Gold project toward a construction decision. We'll keep our relationship strong with all shareholders. We'll move Galore Creek forward with a minimal level of expenditure. We will keep our balance sheet strong and we'll look at opportunities to monetize Galore when the time is right.

In closing, the Company is well-financed to continue our permitting activities at Donlin. And I am confident that the hard work, determination and conviction and patience of our team will be rewarded. We are truly an institutional quality investment in the gold space.

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

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And our first question comes from the line of John Bridges with JPMorgan. Your line is open.

John Bridges

And I was just wondering you mentioned in your release the interest in the pipelines just wondered if you could spell it out and I think give us a little bit more information on that and whether that will help you layoff some of the capital expense into that provider or some other entity?

Greg Lang

We sent out expressions of interest to some of the major pipeline companies that are active in that part of the world and we were pleased with the response. Locally, there is a lot of interest in the gas pipeline in the state, in the communities just because it's a part of the world that pays a lot of money for energy. So we're contemplating what's next with these groups that have expressed interest, we are fortunate we still have a couple of years of permitting ahead of us to make the decision and we will continue a dialogue with them throughout the coming year. And we are also closely monitoring energy prices John with when you look at what's happened with the price of oil you got to be very careful whether you really need an investment of $1 billion into a gas pipeline. So we are pleased with the progress and we will continue to update everyone as we go forward.

John Bridges

And is there any change in the attitude of the state to your project given the weaker oil prices and reduced revenue from that probably as the state economy?

Greg Lang

Well John I think the state has always been a supporter of responsible of resource development and they continue to be a strong advocate for the project. I wouldn’t say that the support has changed, but with the significant budget pressure they are feeling with the collapse in oil prices they are certainly doing everything they can to encourage our activities and future investment.

John Bridges

And then finally your partner is going to have an Investor Day here in February I just wondered if there have been any change in their attitude towards the project from their side?

Greg Lang

I think they are feeling pretty good about the project John we really like what they have been doing as far as strengthening their balance sheet and I think they are in a much better spot than they were for several years to really look at the future again. The industry has been in so much of the hunker down mode the last couple of years and I think the cost cutting measure they've undertaken as well as others will ultimately strengthen them and it won't be long before everybody are set to focus their attention on growth in sustaining the business.

John Bridges

It can't happen too fast for us and congratulations, talk to you later. Thank you.

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Raj Ray with National Bank Financial. Your line is open.

Raj Ray

So actually a question Greg, have you got any major concerns during the common period following the filing of the draft EIS?

Greg Lang

Raj no, I would say no major concerns. We've got a couple of public meetings behind us now and there is another one in anchorage tonight and the issues raised have been very similar to what was raised in the sculpting meetings and that's what are the impacts of large traffic on the Kuskokwim River and that is -- the river is the life line and transportation corridor in that part of Alaska and a lot of the residents there practice subsequent life style so they are understandably concerned about large traffic on the river. And I think a lot of it's really a question of educating people when they realize that as normal operation there will only be three barges a day going up and down the river that's one every eight hours on a couple of, so I think it's -- once they understand that it's not going to have a huge impact it levitates a lot of their concerns.

Raj Ray

One more question Greg. So the approval for the natural gas pipeline now the timeline for that is it the same as the EIS?

Greg Lang

Yes. It is Raj it is done as part of the EIS.

Raj Ray

Okay.

Greg Lang

No it's a separate agency but it is still part of and included in the environmental analysis of the project.

Operator

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Mr. Greg Lang, CEO for closing remarks.

Greg Lang

Well, everyone. Thank you for joining our call this morning. And we will continue to update our shareholders and stakeholders with our continued progress. Have a good day.

Operator

Ladies and gentlemen, this concludes today's conference. You may now disconnect. Everyone have a great day.

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