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NovaGold Resources Inc. (NYSEMKT:NG)

Wall Street Analyst Forum

March 26, 2008 10:30 am ET

Executives

Greg Johnson - VP of Corporate Communications and Strategic Development

Moderator

All right. The next company this morning that is presenting is NovaGold, and NovaGold is one of the fastest growing gold and copper companies in the industry, with a diversification of four separate multi-million ounce quality projects advancing towards production. NovaGold has one of the production growth profiles in the sector.

With a target to achieve commercial production of the Rock Creek Mine in the second quarter of 2008, NovaGold anticipates producing 100,000 ounces of gold annually in 2008, increasing to potentially over 1 million ounces of gold, 4 million ounces of silver, and 200 million pounds of copper annually with Nome operations at Galore Creek and Donlin Creek fully producing at one of the lowest cash costs in the industry.

Presenting today is Greg Johnson, Vice President of Corporate Communications and Strategic Development. Thank you.

Greg Johnson

Great. Thank you. Thanks for the opportunity to present today to the forum, and I think this is our second or third time here. I see some new faces in the audience. What I'd like to do is give kind of an overview of the company through the presentation, and if we could hold the questions to the end, we'll have the question-and-answer period towards the end.

For those of you that are new to the sector, maybe new to NovaGold, one of the things I'd point out here on the first slide is the location of our projects. All of our projects are located in North America. In the mining industry, we don't have the opportunity to move our factories, if you will, where we want to, so we are limited by where they are located. And often times what you find in our business is that the area that still has large undeveloped resources are in very politically challenged areas.

So when you are looking at investments in this sector, it's something of note. That's one of the things that NovaGold with our projects in Alaska and Western Canada are quite low on the geopolitical risk, and of things, and this is an area that the businesses in this region are really resourced development businesses; so oil and gas, mining, timber, fish. So our type of business is welcome. We're working on native-owned lands, private lands and lands owned by the state of Alaska.

So as we go through each of the projects, you will get a feel for the way we work in those regions, those are relatively remote regions, many of the people in those regions are native people that we work closely with, as a core part of our business practices.

So starting out, kind of the key highlights for someone first looking at NovaGold. NovaGold has a portfolio. If you look at gold only, our attributable global resource is 26.5 million ounces of gold, well over 100 million ounces of sliver, and nearly 8 billion pounds of copper to our credit.

We have a portfolio of world-class assets. Many companies in the sector really have just a single asset; with NovaGold you are looking actually at three world-class projects in our portfolio. As we'll go through them in the presentation, I believe you'll see that we are relatively undervalued, even for development staged companies, and as we make the transition to production this year, I think we look quite attractive on a valuation basis as we go through.

Our Donlin Creek projects, with Barrick Gold, one of the world's largest undeveloped gold resources, over 30 million ounces of gold with 29 million ounces in the measured and indicated category. This is an in-pit resource; we just recently updated this resource adding some 12.8 million ounces of gold to the M&I category.

We are working closely with Barrick on this project, and this project is located in Alaska. We're moving to complete updated economics in the second half of this year, and start the permitting process. At our Nome operations, in Nome, Alaska is the Rock Creek mine. We're on the very last stage of construction; we hope to start early production here next quarter. That will be about a three-month ramp up as we start to bring the system online and hopefully by the end of the quarter, we'll be at commercial levels of production, producing about a 100,000 ounces a year on an annualized basis with a potential to grow about 25% to 50% in future years.

At our Galore Creek copper gold project; this is the project that’s partnered with Teck Cominco. We had a major announcement last year that we were suspending construction due to rising capital cost. We have a new engineering management team in place, and we are looking at several scenarios to basically reduce capital and reduce risk on construction, and I will be giving you some more details on that. And you will be getting quarterly updates as we move forward.

Our objective within the next 12 to 18 months is to have new feasibility and a new construction plan in place with Teck Cominco. Teck is spending the majority of the funds here, nevertheless relatively minor expenditures until Teck has completed its earn-in. So, we will talk more about that in a bit. But it is a world calls resource at the nearly 9 billion tons of copper and 7.3 million ounces of gold. It's one of the better grade, better quality deposits of its kind worldwide for copper-gold.

We have very strong partners Barrick, Teck Cominco, Rio Tinto; excellent development partners on these projects. We are either 50-50 or even the controlling partner on these projects. So we are moving them ahead. We've got a team that's demonstrated its ability to once we found good deposits to continue to drill them, and I think you are going to continue to see that type of growth going forward.

Taking a look at the map of the locations of the projects, just to give you a feel, our Nome operation is located in Western Alaska, the first project to come on stream. This is an area of historic gold production, over 10 million ounces in the district. Donlin Creek in the lower left corner of the image in South Western Alaska, again an area that's had historic gold production, but this will be the first modern open pit mine in that region.

The Ambler project in Northern Alaska, it's in the belts of rocks with very, very rich base metal deposits, base metals plus precious metals. The Red Dog mine located in this region is operated by Teck Cominco, the world's largest zinc deposit. We are excited about this Ambler project; we will talk a bit more about this in the presentation. And in the lower right hand corner of the image, the Galore Creek project in North Western B.C. Again, a region that’s seen historic production, operating mines, and the project that we are in partnership with Teck Cominco.

If you take a look at the resource base for NovaGold, it's comparable with other projects out there. For the developers there's only a couple of projects that are of the size of NovaGold resources. Crystallex, which is located in Venezuela, and Aurelian in Ecuador are really the only projects that start to approach the scale of Donlin Creek and the other assets in NovaGold’s portfolio.

It's not really until you start to look at the mid-tier level producers like Agnico-Eagle and Yamana that you start to see resource bases on par with NovaGold, and yet our assets are all in North America. So from a geopolitical risk, actually less risky, but market caps of Agnico and Yamana as you realize, are multi-billion market caps. So we’ve got a lot of potential value.

If we take a look at some recent, the last two most recent acquisitions in the sector; Newmont paid $1.4 billion to acquire Miramar, which is an asset located in far northern Canada, as infrastructurally challenged as Donlin Creek certainly. So, about a $140 per ounce, and [JV] Arizona Star acquisition $805 million by Barrick’s. So, these assets of large scale have real value, real scarcity value in particular. I mean the types of assets that the major mining companies are going to need to acquire and to develop in order to keep their production profiles and provide any hope for growth.

Taking a look at Donlin Creek specifically, it is one of the world’s largest undeveloped gold resources and it is the largest in the North and South America region, only Las Cristinas in Venezuela approaches the size. The majority of the ounces are in the measured and indicated category, and all of the resources here are in in-pit resources at Donlin Creek. So we are not counting ounces outside of the model pit using $650 an ounce of gold.

We anticipate the project to continue to grow. The project is opened in really all directions and we have a series of satellite or deposits that we're going to be looking at here in developing the work this year.

At Donlin Creek the big recent events here were the significant expansion of the measured and indicated resources adding 12.8 million ounces last year based on the 2006-2007 drilling. That's larger than many other companies' single increase in resource growth. Last year's major accomplishment was the settlement of the legal issues with Barrick Gold, effectively going from an uncertain 30% ownership or potentially 70%, and resolving that out of court for 50-50 where it is a jointly owned, limited liability corporation. NovaGold is the general manager on the project for the first two years, giving us tie casting vote, and at the end of the two-year period it’s a rotating management and Barrick has the option though not the obligation to replace the general manager.

So it's really a combination of what both companies will do. Barrick Gold has got a tremendous team on the feasibility study, some 40 individuals and specialists that are overseeing much of the feasibility level work that's happening currently. And NovaGold really bringing its team, which many of them were the original team to significantly expand Donlin Creek when we were operating on the project last, that team going to Galore Creek where we nearly tripled the resource in a matter of three or four years, and then coming back to Donlin Creek. With activities slowing down temporarily at Galore, we have been able to bring that team back and focus them at Donlin Creek.

As we'll talk about in a few minutes, we think the exploration potential here not just for ounces beyond 20 years in a mine [life] but near-term ounces is exceptional here, and that team is truly focused on that. In addition, our relationships with the individuals of the State of Alaska and the native corporations here make it a really good fit for NovaGold to focus on the exploration, development, permitting aspects and Barrick to really bring the strength on the economic side.

The last released public study on the project was completed by SRK Engineering last fall. Some of the capital numbers, we believe are outdated now due to escalation in cost, but on an operating basis we think they are indicative of the type of deposit we're looking at. That showed that a 60,000 ton per day operation, you had a mine potentially producing nearly 2 million ounces of gold per year for the first seven years, and averaging 1.4 million ounces of gold over the mine life. In that study, we looked at using a power line to deliver lower cost power for the project, and that's one of the things we're focusing on in our current work with Barrick Gold.

Depending on the big real key to Donlin Creek is power. There is good infrastructure in terms of getting parts, pieces, supplies and materials in the projects where only 12 miles from the second largest [bargable] river in Alaska, but it's really powered. There isn't a power grid in the region. So whether you use on-site diesel which is a pretty conventional solution, that's the base case that Barrick Gold used was on-site diesel with wind cogeneration to reduce power cost or to take a look at permitting the power line to bring it into the project, which might allow you to significantly expand production on this mine and really run it at the peak optimal levels for this project, which may be approaching 2 million to 3 million ounces of gold production per year, making it one of the world's largest undeveloped projects.

So we're looking at those things jointly with Barrick, it really is a team effort I would say that the activities on the ground, it's really fully focused on how we maximize this project, how do we develop the most optimal approach to power and moving forward on this.

We're completing studies to take, which we should have an updated economic estimate out on the project in the second half of the year. As I mentioned, we had a 77% expansion of the resource base on the drilling from last year, we've already begun drilling again on the project in February, we have three drills turning on our discovery area called East Acma that we'll talk about in just a second, and we are also looking at some other deposits on the property that had previous drilling but really have not had follow-up work. That might lay out the potential for a scaled operation, potentially starting with a CIO only, non-refractory ore and building up over time and adding as the power line came in a larger scale, autoclave operation at Donlin Creek.

So, we'll talk about that as we take a look at the maps. This figure shows a great thickness. In the industry, we commonly use this as an indication of kind of the total contained metal. This is the width of the mineralized interval time grades. So it kind of gives you an indication for concentration. The two main deposits here are the Acma deposit at the left and the Lewis deposits up in the right, and those host about 30 million ounces of gold. Outside of that pit is this new discovery area circled here as East Acma. So these drill results are outside of the current pit model.

As you can see from the grade thickness scale, the purple colors are in excess of 700 gram meters. So these are exceptionally wide and well mineralized intercepts, and they are some of the best intercepts we've had on the property. So the drilling that we are doing currently, this is a plan map that you are looking at. So it's not a cross section, it's not getting deeper. It is basically a lateral extension of the Acma deposit in some of the best grade mineralization that we've have seen on the properties. So we are quite excited about the potential for this deposit.

This next figure shows a three-dimensional snapshot of a three-dimensional ore body for the project. So what you are looking at here in red is the outline of the ore grade bodies. You can see the Acma deposit with some 15 million ounces of gold and the Lewis deposits on the upper right hand corner of the photo showing another 15 million ounces. The best grade on the property is in the Acma zone, and that zone is continuing down this geologic structure that you can see shown in gold here in the East Acma target area. That area, we can see another kilometer or a kilometer and half of continuation. And this is where these new drill results in the East Acma have hit this high grade mineralization.

So we are currently drilling out that panel with some 21,000 meters, we are going to add a couple more drills here later in the season. If you look geologically, the Acma deposit is about a kilometer in strike length, Lewis is a similar length. So we see potential here for some 10 million ounces to 15 million ounces, if that zone continues at the type of intensity that we see currently. So the objective of the current program is to define the overall extent of this new discovery at East Acma, and then to come back in, after we’ve determined the [spend], and drill that into a measured and indicated category. As you can see it's a lateral extension, so we are not drilling to depth. In fact the overall pit model here is only going to some 350 meters in depth.

One of the closest analogs to the Donlin Creek project in terms of an operating mine is Barrick's Goldstrike mine in Nevada. Same type of processing, similar grades, that’s actually a whole or autoclave, but we are actually looking at just the floatation of the concentrate here. But they are mining to a depth of some 800 meters in their open pit. So, the model here is really defined by the depth of drilling that we’ve done to date, and it's certainly going to get deeper, as the deposit you can see has read bodies, they are extending out beyond the current pit model.

So as we continue to drill laterally and continue to drill at depth, this will certainly get much, much larger. We believe there is potential to go from the current 32 million ounces in pit resource to something that could be approaching 40 million ounces to 50 million ounces right here at the Acma-Lewis area, and then as we look at other parts of the property, a considerable expansion potential beyond that.

If we take a look at this next map, the white outline in the lower left hand corner shows that pit outlined for the current resource. What you are seeing here in the colored map, is we have draped the concentration of gold and soils on top of topography. You can see that it's rolling hills here in this area. So it's actually quite favorable from a mining point of view. And areas that light up in the brighter colors are higher concentrations of gold. As explorationist, we use this as one of our primary targeting tools where we have good soil development. Because where you have gold in soil, its an indication you are going to have gold in the underlying dead rock.

You can see that the area where the Lewis-Acma resources has these bright colors, the very elevated golden soil and it was one of the original targeting tools that we used on the property. And you can see that those zones continued well beyond the current pit model. And in particular if you look to the very northern part of this upper right hand corner of the map, the dome target is an area of particularly note, very strong, very large anomaly which has half dozen holes or so that indicate zones of 100 meters plus in width and 2 grams to 3 grams per ton of gold. But the gold appears to have come in later in the systems, and so it's on the outside of the green, so it doesn’t require pressure observation to liberate the gold.

So we are looking in a system here that potentially could be developed. Looking at the three dimensional modeling, we think there is room for two or three million ounces of gold in this region that we'll be drilling on later this year, and potentially it leaves out the possibility that you could start a more modest operation here at the dome using with a requirement for a less power as a CIL only process and then use the cash flow from that operation to build the much larger scale mine to the south.

So that's something that's very interesting to the partnership and we are going to explore to see if we can develop a resource that would sustain that concept. That would help reduce the concerns about the capital cost for the overall project if we can do a more modest start-up project and then basically leverage the cash flow for NovaGold into the larger project long-term. Already we've got a 20 year mine life here at some 60,000 tons per day.

With the type of potential expansion we see here, we may be able to scale us up to 75,000 tons or 100,000 tons per day, approaching 2.5 million ounces to 3 million ounces of gold production per year. So it really would make this one of the world's largest producing gold mines. There are only about five mines in the world outside of South Africa that produce more than a million ounces of gold, so this is really a world-class asset.

At our Nome Operations, we are in very final phases of construction commissioning. We are working on our tailings facility and looking for the state of Alaska, our regulatory body to come up basically once we are completed and checked off the final inspections. We're hoping to start our initial production here in the first part of next quarter, and ramp up over about a three-month period. This is a district that's produced in excess of 5 million ounces of gold right in the Nome area, and we are currently undertaking a program of about $5 million exploration program to look in the region at other potential deposits.

Again, looking at the map of Nome area, you can see the deposits are just north of the town here, about 7 kilometers to 8 kilometers. You can see the areas in orange again, representing gold and soil concentrations. The Rock Creek mine is shown as that black dot, some roughly 0.5 million ounces in the resources there at Saddle, another 300,000 ounces. And just up the map to the right is the Big Hurrah deposit on the highway with another 250,000 ounces. So we will be looking to explore these areas to find additional resources that can extend the mine life beyond the current mine plan, and we believe that there is excellent potential in this district to find further resources and reserves, and to continue the expand this and add value here.

Going on to Galore Creek; Galore Creek is really one of the world's largest undeveloped copper gold systems, third or fourth in the world. It has tremendous potential, the deposits are open again, on all sides. And in fact in the feasibility study that was completed last fall, we only had about one-third of the resource in the reserve plan. So there is a lot of room here to continue to expand this and look at this as a scaled up operation with considerable potential beyond what is currently shown.

At Galore Creek, many of you who've been following the story will be aware that our partner, we share a 50-50 partnership with Teck Cominco. Last fall we made the decision based on revised engineering on the second phase of construction here on the project that capital costs were increasing significantly, especially on the earth works related to water containment and water diversion. Effectively our two engineering firms identified an area of engineering risk, if you will, construction risk, where it was uncertain as to the cost to construct, especially the water retainment structure.

So having had a few months to really look at this further, we recognize that to make this a better project, what we need to do is look at ways to reduce the need for either a water retention structure, reduce the scale of that water retention structure, or potentially take our processing out of the Galore Creek valley into an area that doesn’t have the water issues that we have at Galore Creek.

Surrounding the project at Galore Creek, we have large mountain glaciers, those glaciers shed up a lot of melted water in the summertime. Any water that goes through your mine has to be treated and processed. So if we can come up with solutions that basically prevent that water from coming into the mine facility or remove the mine processing to another valley that doesn’t have that water, we can make this a better project, we'll use capital and get this back on track. And that is what the new engineering management team is doing at this point.

They've got a team of engineers that are working closely. We are looking at several scenarios. One would be a permanent water diversion tunnel that would effectively capture the water before it comes through the mine, take it through a tunnel and dropping it back out into the river system beyond the mine and potentially put a water turbine, hydro turbine at the end of that, so generating power. As one potential solution to remove the water and keep it from going to the mine facility, and eliminate the need for such a large water retainment structure.

A second solution that also could do the same thing is to look at only doing the mining and crushing in the Galore Creek valley, and then using either a slurry concentrate pipeline or a slurry pipeline for ore or a conveyor system to move the ore out of the valley and process it nearer to the road or a highway system itself, which could have the added benefits of allowing us to construct those elements at the same time.

The original mine plan was a sequentially mine plan where we built the road and the tunnel and then the mine. If we are able to move the processing facilities out of the Galore Creek Valley, we potentially could do them simultaneously. So, the team is basically working on those two concepts among others, looking to reduce capital, to reduce construction risk. Our target is within the next 12 months to 18 months or sometime in 2009, to have an updated go-forward plan, a new feasibility study that lays out the new capital operating costs on this project.

The market has affectively taken the value of Galore Creek to zero in our portfolio. It represented about 25% of the NAV, by most analysts' estimate put forward. So certainly by taking us in half of or more, we’ve lost more than just the value of this asset. And we believe that with an asset of this level of gold and copper, and with a go-forward plan, that over the coming quarters, we will be updating our progress, and you’ll start to see this value come back in as the market starts to see clarity and realize that Galore Creek is still potentially a viable mine.

Teck Cominco has another $140 million remaining to retain their 50% interest on the project, and we anticipate they are going to spend at least $100 million this year. So there is significant activity happening at Galore Creek. Neither company took any type of write-down, in fact when we did the impairment test using the three year backward looking average we are using, that’s approaching $2 to $2.50 pound copper, and there was no way or close to any kind of impairment to the overall value when you plug that into the model. So, the combined partnership carrying the book value on this project is some $600 million, and we do not anticipate at this time a need for any type of write-down for the value of the assets, and you are going to see considerable updates as I said, in coming quarters as we make progress towards an updated feasibility.

I’d like to take couple of your minutes here to talk about some other assets that are in the company that currently we believe do not really see value in NovaGold. Our Ambler project which is our joint venture with Rio Tinto is a very high-grade copper, zinc, silver and gold ore body. It's one of the highest grade ore deposits of its kind and one of the largest undeveloped ore bodies of its kind. We look at this as potentially a high-grade underground scenario in terms of mining this, and we are currently considering and taking steps to potentially package the Ambler assets along with some other assets that are based metal focused assets into a new company to do a spin out possibly as an IPO on this, so that NovaGold - we get the benefits and NovaGold shareholders will get the benefit of that.

We believe that this asset is probably best to raise capital for this outside of NovaGold. So NovaGold to remain focused on its gold assets, that's particularly at Donlin Creek and we believe that is a effective strategy to maximize the value of this asset which we believe currently is really undervalued in NovaGold's portfolio.

A second asset, NovaGold acquired a company called Coast Mountain Hydro, while we were in the development stages at Galore Creek. This company had to credit a permitted power line easement, which we needed for Galore Creek and a portfolio of run-of-river hydro projects. These are projects in which rather than building a dam to retain the water, you basically use the natural topographic drop for the river. You use a tunnel to drop the water through the tunnel, through the turbine and right back into the river. So it has very minimal environmental impact.

Since acquiring the assets we've continued to build the management team, and because of the expansion of power line in conjunction with BC Hydroelectric, the utility in British Columbia, we are now looking at the main project called Forrest Kerr, potentially taking that from a 115 megawatt capacity to close to 200 megawatt generation capacity. The portfolio potentially could generate up to 1.2 gigawatt-hours per year power.

So looking at comparables in the marketplace in the Green Power area, we see market caps in the 400 million plus for assets in the development stage of this nature. So again this is a company that we think deserves to be out on its own, and we're going to be looking to strategically take this out probably as a restructuring, as an IPO again. We have a build-in management team that we've been building, NovaGold will probably retain shares in that and get the monetary value from the IPO.

We see a lot of synergies in continuing to work with NovaGreenPower. In mining infrastructure is really a key to development, but we think the way to properly maximize the value of this asset is spinning it out. So you should expect to see on both of these assets that type of structuring to come out this year, and we are already in the initial stages of looking at structures on a go-forward basis.

So if you really look at the history of the company, really starting in 1998 as a restructured vehicle under the current management team, our history has been one of continued resource growth, we've been able to acquire assets and then through our exploration expertise, expand those assets significantly. On the lower parts of the bar are the measured indicated components of the resources, and you can see those are consistently growing especially with the Donlin Creek expansion earlier this year.

You know, you are not going to see this go exponential, but you are going to continue to see these resources grow. This is an important way to create shareholder value. When you can invest monies each year into the ground and continue to grow your resource base, it's one of the best ways to create new shareholder value, and it's an area that the company will continue to focus. It's an area of expertise for us.

As we go forward, however, I think one of the ways that we are going to really maximize the value is by demonstrating that we can move these assets into production. So this chart here, it's really a value chart, it shows NovaGold on the far left-hand side, on a gold-only basis, not including value for copper, on an enterprise value per ounce of gold, we're starting at about $43 per ounce. This is maybe even a little lower now with the recent correction. As you look at a group of development stage companies in North America and South America, you can see they are averaging around $95 an ounce. Prior to the Teck Cominco announcement last fall, on Galore Creek, we were trading at about $75, so we have had a considerable reduction in value.

If you included value for our copper, however, this number drops to around $20 per ounce. So, we see as a target, really needing to get out and communicate that the value of really Donlin Creek and Nome alone, on a development stage value, if you took the ounces for Galore off the table, we should be trading at least in this $95 an ounce range. We have much lower geopolitical risk and much higher potential for resource expansion for those assets.

And if you look at the producers, as we achieve production this year with Nome, Alaska, you can see that Gammon Lake and Alamos and Aurizon, which are all junior level producers are trading north at $100 an ounce, and when you look at the mid-tier, like Yamana and Agnico, as you start to get into that greater than 250,000 ounce to 300,000 ounce a year production, they really receive the premiums in the market place and Donlin Creek or Galore Creek along with Nome would certainly take us into the highest levels of the mid-tier producer space.

So, really our track forward is to get out to communicate to the market the value these assets, in particularly the focus at Donlin Creek, the potential for expansion of that asset, and to re-achieve really a development stage valuation as our first target, and then as production comes on stream at Nome, in talking with many of our analysts, they have effectively said, not that we can see a quarter or two of production, we can see how things are running. We are likely to start adjusting your multiple to your NAV as you are a lower risk story.

Once you have cash flow, which will be operational cash flow positive at Nome, they are less risky than a company that is a development stage company. So we will probably start to see that NAV multiple, which would give us a multiplier on Donlin Creek as well, start to increase as the market sees successful production coming out of Nome and cash flow. So with that, kind of in summary, perhaps we can go ahead and open it up to any questions there might be in the audience. I’ll go ahead and take this first question here.

Question-and-Answer Session

Unidentified Audience Member

You were going to have an offering to [create] the money for this, and then that was cancelled. And then you did another offering, could you explain to me how that went and also what your cash needs are going to be through the rest of this year?

Greg Johnson

Yeah, the question was in regards to the recent offerings. The market condition is such that, all of you are aware have been very volatile as of lately. Initially we had indications from the banks that we were working with that an equity offering, that there was a lot of demand. I mean gold was near highs, at a $1000 an ounce. But with the market turbulence, when we got into the market to price that, we were looking to do an overnight marketed deal, we just didn’t see the pricing that we felt was fair. Even during any financing, at the current share price is tough for us to do as major shareholders ourselves. And we did not want to do a financing that was going to be a sub $10 financing on an equity basis, even a modest financing.

We basically had other alternatives to take a look at. We’ve been speaking with a couple of other groups about doing basically debt financing, which we really hadn’t been able to do, until we had production very near term at Rock Creek. So with that we decided the equity just really didn’t look favorable, market conditions are much tougher than I think was generally perceived even for the metal space, and we decided to go with JP Morgan on this convertible note.

It was successful, even when we announced, to make the decision to go at 6 O'clock in morning East Coast Time. Gold was up $4; little did we know that some day was going to be one of the biggest drop in gold. Six hours later gold was down 50, but we were still able to complete the deal. We do not know whether the greenshoe will be exercised, but we are bringing in about $95 million for the note issue, the convertible note, it has a coupon of about 5.5%, and it is potentially repayable either in cash or shares, and the shares which I think [1071] Canadian I think was the conversion.

Unidentified Audience Member

(Question Inaudible)

Greg Johnson

That effectively will take us at least through the next 12 months and allow us to do the aggressive program that we planned for Donlin Creek, it will allow us to meet any needs which we think will be modest at Galore Creek, and to be able to invest into exploration around Nome for the Rock Creek line.

As General Manger for Donlin Creek, we have an agreement already in place with Barrick in terms of the levels of expenditures that we anticipate at Donlin Creek, which have been agreed to be $100 million over three years. But as manager, we basically have the ability to go to them and propose a larger budget than that. And this year we believe that it would be advantageous for the company to do a more aggressive program, to really delineate this new discovery and potentially look at the Dome target. So we are looking to probably spend on 100% basis, something in the order of $75 million out there. So NovaGold's share of that might be kind of $35 million to $40 million.

Rock Creek should start producing cash flow in the second half of the year. So with the funds we have in place, if we take up the Galore Creek cash, we should be in a good position here going forward. And then as we get into next year and we look at the program there, we'll have to determine whether or not there will be a need for financing or whether or not we've got sufficient funds for another year or two based on this debt financing that we've just completed?

Unidentified Audience Member

Well one more question. At Galore Creek, do you believe that by approaching it in a different way you are going to be able to go into production given [mill] prices where they are now?

Greg Johnson

Yeah the question was in regards to Galore Creek. Do we think there is a kind of a viable go-forward approach? And I guess taking it back to Rick Van Nieuwenhuyse, the President of NovaGold and the President of Teck Cominco, both said on the conference call right after the announcement. They both believe in the asset, they both believe this will be minus, it's not a matter of if but really when.

We believe the team we have in place is going to be able to come together with a new development strategy that reduces construction risk, and when we look at the copper price that was used to evaluate that standstill, basically to put the project on constructions hold, we were using $1.40 copper, Teck Cominco was using as a funding partner at $1.40 copper price.

If you look at the three-year backward looking average which is the SEC standard, you're looking at something north of $2 copper, and certainly we would be going forward with that type of perspective. So I think as the copper base case that you used to look at this project, it continues to rise. And as we come up with engineering solutions that reduce the construction risk particularly the earthworks and the water retention. So if we can come up with alternatives to that original plan, I believe, we have excellent potential to have a go-forward project here, and the objective would be to have that completed within the next 12 months to 18 months.

Unidentified Audience Member

Thanks.

Unidentified Audience Member

(Question Inaudible)

Greg Johnson

Well the initial issue was $95 million and the conversion price was $10.71 Canadian, or $10.66, I believe US.

Unidentified Audience Member

(Question Inaudible)

Greg Johnson

I believe that's a seven-year note that can be repaid in cash or shares at the conversion.

Unidentified Audience Member

(Question Inaudible)

Greg Johnson

You know, you contact JPMorgan in terms of whether or not it's public or not. I don't believe it can be listed.

Unidentified Audience Member

It was a private placement, is that right?

Greg Johnson

It was a private placement, yeah.

Unidentified Audience Member

The underlying shares will that be registered?

Greg Johnson

Correct, yes. They will be fully registered shares if it was converted in shares.

Unidentified Audience Member

But they are not now?

Greg Johnson

They are no shares reissued on this.

Unidentified Audience Member

So I mean if someone wanted to convert the shares [tomorrow], they could, they would not be able to sell it unless you went through some kind of registration process. Is that a true statement?

Greg Johnson

There isn’t early conversion except in certain conditions. For instance, change of control and other things which certainly would cause early conversion, at which point they would be repaid due interest and full - make whole payments.

Unidentified Audience Member

If they [come] and convert at the end of the tenure.

Greg Johnson

Correct.

Unidentified Audience Member

And if you paid it in cash, there will be

Greg Johnson

There will be no shares issued. So for instance, if Rock Creek is doing very well, if we've added any other assets that are generating cash flow, potentially there may be no dilution at an equity basis that comes from this debt issue.

Unidentified Audience Member

Okay. All right.

Greg Johnson

Our intent is to be remained hedge free. So even in our discussions on financing of Galore Creek, Citigroup was our project finance group that we were looking at. And we were looking at ways to approach project loans that did not require hedging. One way, if you look at Galore Creek as an example, we may consider some kind of copper note or something like that, short term, if that was advantageous. But as a gold focused, precious metal focused company, we are going to do everything we can to avoid hedging, certainly on the long-term basis.

Sometimes, some projects are required to have short-term hedges, in terms of, if you look at a larger project like the Donlin Creek, they may be required to have short-term hedges in place to assist payback of capital, but our objective is to avoid those if at all possible. And one thing to point out when you look at a project like Galore Creek, we really don’t have any significant capital expenditures on that project until we get through the permitting phase which is at least two or three years.

So we are looking at two or three years before there will be any significant capital needs on the company's part. And as we went forward, it is very important for the company to structure the deals both at Donlin Creek and Galore Creek, such that we had 50%, so we could maintain control.

We did not want to see a situation where the large company could just sit on the assets. But we are not opposed, when we get down to the point where we start to look at raising significant capital for either Donlin Creek or Galore Creek, to look at reducing our equity ownership in the project to reduce the need for equity financing by the company. And we can basically sit down and take a look at the numbers in that kind of case and say, does it make sense to reduce your ownership and have the large company basically carry the project through the production phase and reduce the risk for NovaGold.

And we’ll be open to looking at those types of consideration when we get out there. But those are two or three years out before at Donlin Creek we need to consider that.

I think we’ve run out of time. So, thank you very much for your attentiveness and for your questions. And I’ll be around.

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