NovaGold Resources' (NG) CEO Greg Lang on Q1 2016 Results - Earnings Call Transcript

| About: NovaGold Resources, (NG)

NovaGold Resources, Inc. (NYSEMKT:NG)

Q1 2016 Earnings Conference Call

April 05, 2016, 11:00 AM ET

Executives

Melanie Hennessey - VP, Corporate Communications

Greg Lang - President and CEO

David Ottewell - Vice President and CFO

Analysts

John Bridges - JPMorgan

Operator

Good day, ladies and gentlemen and welcome to the NOVAGOLD First Quarter 2016 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 follow at that time. [Operator Instructions].

I would now like to turn the conference over to your host, Melanie Hennessey, you may begin.

Melanie Hennessey

Thank you, Melissa [ph] and good morning everyone. Thanks for joining us to get an update on NOVAGOLD’s first quarter results and also to hear about the Donlin Gold and Galore Creek project update. Today on the call we have Mr. Lang, NOVAGOLD’s President and CEO; and David Ottewell, NOVAGOLD’s Vice President and CFO.

At the end of the presentation, we will have time for Q&A by phone and by e-mail, but before we get started, we would like to remind all of you that some of the statements may contain forward-looking information for which the risks are detailed in our various EDGAR and SEDAR filings, and also in our forward disclaimers that are included in this presentation.

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

Greg Lang

Thank you, Melanie and good morning everyone. For those who are less familiar, NOVAGOLD is a development stage company with two great assets in North America. Our flagship Donlin Gold project, which we co-own with Barrick, is well into permitting and poised to become one of the largest producers in the industry. Galore Creek, which is held in 50% partnership with Teck is expected to be one of the largest and lowest cost copper mines in Canada.

In the first quarter, meetings were held with the Corps of Engineers across the Y-K region as part of the Donlin Gold draft EIS public comment period. This is no small feat considering that the Y-K region is comparable in size to the State of Utah. At each meeting, the Corps presented an overview of the draft EIS, which evaluates the potential environmental, social, and economic impacts of the proposed projects, and the Corps encourages local residents to communicate what the project means to them and their families.

The meetings are expected to conclude in the second quarter, and all the comments will be reviewed and responded to by the Corp in the final EIS, which is anticipated to be published in 2017. While actively participating in the EIS, Donlin Gold has also advanced other major permits, applications, and approvals.

At Galore Creek, we continue to work with Teck on technical studies, mine planning, and design. Phase 1 of the tunnelling practise study is also underway to evaluate alternatives for this undertaking. Through our investments in Donlin Gold and Galore Creek, NOVAGOLD remains an active member of the local communities where we operate. For the sixth consecutive year, Donlin was the principal sponsor of the Iditarod Sled Dog Race completed in Nome, Alaska.

We’d like to take this opportunity to recognize Pete Kaiser, a resident of the Y-K region that we sponsor, who placed fifth in the race this year. This race is truly a test of endurance and determination. Additionally, Donlin Gold continued as the premier sponsor of the Iron Dog 2016, a 2000 mile long snow mobile race.

In Northern British Columbia, Galore Creek continues to sponsor and participate in a number of Tahltan community activities. At this stage, I’ll turn it over to Dave to cover our financials.

David Ottewell

Thank you Greg and good morning everyone. Turning to slide six, our share of Donlin Gold and Galore Creek funding totaled $2.0 million [ph] for the quarter as we expected. For the full year, we continue to expect to expand approximately $10 million to fund Donlin Gold and Galore Creek.

Slide seven highlights our first quarter operating performance. For the quarter, we reported a $1.8 million decrease in operating loss, approximately 16% lower than the prior year quarter. General and administrative expense was lower, primarily due to lower corporate communication and share based compensation costs and the stronger U.S. dollar in relation to the Canadian dollar.

Also, our share of expenses at Donlin Gold and Galore Creek was $400,000 lower than in the prior year quarter.

NOVAGOLD's cash flow highlights are outlined on slide eight. During the first quarter, our cash and term deposits decreased by $9.8 million as planned and similar to the prior year quarter. Cash spending is higher in the first quarter each year to settle our year end accounts including professional fees and annual employee incentive programs.

We ended the quarter with cash and term deposits totaling $117 million and continue to expect to end the year with over $100 million. Greg, back to you.

Greg Lang

Thank you, Dave. Our Donlin Gold project has all the key attributes that are required of the modern cost effective mine. Starting with size, Donlin is one of the largest undeveloped Gold deposits in the industry, and our shareholders look at this thing as an unexpiring warrant on an ounce of gold. Its size and scale are without equal in the gold industry.

When you compare Donlin to the other undeveloped gold deposits, it’s far and away the largest, and many of the other development stage projects are located in some very challenging jurisdictions. At a million and a half ounces a year, its production profile would make it the largest gold mine in the industry if it was built today.

The other attribute that really separates Donlin from other undeveloped deposits is its grade. At two and a quarter grams, Donlin is one of the highest large scale open pit deposits in the industry. It’s this quality that really distinguishes Donlin from other recently developed gold mines.

Yes, it’s a big deposit but it’s still got a lot of room to grow. You know looking at this illustration, we’ve only extensively explored less than half of the gold bearing system. When the time is right, we’ll resume exploration and have the potential to significantly add to our reserves and resources.

Donlin also brings the project and our shareholders tremendous leverage to rising gold prices. You know the project has modest marginal returns of today’s prices that go up substantially in a rising price environment, and we think that that rising price environment is just resuming its upward path.

You know we’ve got great partners on Donlin. We’ve been working hand in hand with Barrick as we’ve advanced the permitting of this asset and conducting ongoing technical studies to enhance the value of the asset. Neither of us had to build it at any price mentality. When the time when the markets are right, we’ll make a construction decision.

Slide 15 provides an overview of the development schedule as well as outlining our key permitting milestones. You were about past the halfway point in the public comment period and when you look at the investment in time it takes to get a project of this stage, we think the four years in permitting is just a minor part of the timeline.

Permitting in the United States is a very public process. We welcome the input from local stakeholders. We’re out there actively in the villages, encouraging people to participate in the process. This project will be a core economic force in the Y-K regions, and it will fulfil the promise of the Alaska native’s claims settlement act to provide economic prosperity for Alaska natives through responsible development of their land. Their voice is an essential factor in determining the future of this project.

Our other grade asset, Galore Creek on slide 17, I mean it’s a tremendous copper, gold, silver deposit, it’s somewhat lost in the shadow of Donlin, but it’s a great asset. We are working on advancing this at a fairly measured pace with our partner and when the time is right, we’ll monetize this asset to further strengthen our balance sheet.

On slide 18, NOVAGOLD it’s an institutional quality gold stock. Over half of our outstanding shares are with our major shareholders, many of them whom have been in the company for a long time. Yes, so why would you look at this company now?

We are in great shape financially. We’ve got top tier assets in safe jurisdictions, and we’ll be a significant gold producer in a few years time. Thank you. We’ll now open the line for questions.

Question-and-Answer Session

Operator

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

John Bridges

Good morning, Greg everybody. Just wondered what sort of topics were coming up in the meetings and how those meetings were going in general?

Greg Lang

John, the topics that have come up in the public meetings were near largely as we expected. Barging remains a significant issue as people are concerned about the potential impacts on the substinence [ph] fishing on the river, and you know we’ve worked with the Corps of Engineers to address those issues. But I think that other issues that have come up are pretty typical of large scale industrial activity like this that people want to know about mercury controls and other means that the project will take to protect the environment, but nothing really surprising, John.

John Bridges

There are no surprises is good, right. And just wondered also your partner has been talking about the sort of Phase I scale of operations. I know you are working on it, I just wonder if there is any new development there that you could talk about?

Greg Lang

John, now we are working actively with Barrick on different development scenarios, nothing that we’re really ready to bring out and do the full light of day yet, but it’s very co-operative spirit with Barrick and I think you know stage development is really nothing new. I mean, when people look back at other large scale operations, Goldstrike among them, you know that was built in a series of phases over many years and you know the staged approach on Donlin may make sense, you know a year and a half from now. A lot of it of course will depend on gold prices and market conditions. But it’s -- we’re focussed on getting our big projects approved and when we’ve got that behind us we’ll look at what makes the most sense to take forward.

John Bridges

Okay. Interesting. Best of luck, Greg everybody, and I’ll get out of the way. Thank you.

Greg Lang

Thank you, John. Appreciate you participating in the call today.

John Bridges

You’re welcome.

Operator

[Operator Instructions]

Greg Lang

All right everyone. Thank you for participating in our call this morning. There being no

further questions, we’ll close the lines

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This concludes today's program. You may all disconnect. Everyone have a great day.

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