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NovaGold Resources, Inc. (NYSEMKT:NG)

Bank of America Merrill Lynch Canada Mining Conference Call

September 6, 2012 4:00 pm ET

Executives

Thomas S. Kaplan – Chairman

Unidentified Analyst

Moving along, we now go to NovaGold Resources and I think, I see the speaker right there, Dr. Thomas Kaplan, who is Chairman of NovaGold and he is also Chairman and CEO of Electrum Group, which is the – I believe the largest shareholder of NovaGold.

For those of you who don't know, NovaGold owns 50% of the Donlin Gold project, I almost said Creek sorry, the old name, and which is one of the world's largest undeveloped gold prospects and it’s currently moving ahead through permitting, but I’ll pass it on to Thomas.

Thomas S. Kaplan

Thank you. My group, the Electrum Group, has been the largest shareholder of NovaGold, at the end of 2008 the height of the financial crisis up until that time, we haven’t owned a share, but nonetheless NovaGold had an asset that I had always coveted and that was Donlin. The combination of Donlin and Galore Creek to us represented a unique opportunity to be able to acquire that which I think is the most important aspect going forward in the bull market, which is the scarcity value and the leverage that comes from great assets in jurisdictions where you will be allowed to keep the fruits of that leverage.

Let's start with Donlin itself. In our view, when you take into account the various aspects that go into making a great mine, Donlin has all of them and is indeed arguably the most important gold development project in the world today. In terms of size, 5 million ounces in all resources, 39 of which are proven and probable, but we believe that that's only a fraction of what still exist, the exploration potential along the 7 kilometers is excellent and our target is indeed to double the resources.

At 2.25 grams this is an extraordinarily high-grade. You’d really have to go to the Congo in order to be able to get it. The production profile is such that this will be one of only six mines in the world that produces over 1 million ounces a year and indeed when it goes into production at 1.5 million ounces it will be the largest single gold producing mine in the world.

Most importantly and this I do believe is going to become the existential factor going forward for investors, it’s in a jurisdiction that is safe. It's in a place that when an institutional investors says why they want to invest in the gold space, they’re going to be able to find comfort in the fact that they are not going to wake up in the morning and find out that they’ve been the subject of nationalization, accrue or other forms of sequestration.

In that respect, when you combine all of the attributes of size, grade, production profile, exploration potential, as well as jurisdictional safety, we believe that Donlin is unique. Certainly, in terms of size, it is the largest known gold project in development today, as I said at 45 million ounces and growing. It is also in term of the grade, higher than anything that you will find indeed other than in the Congo.

The exploration potential as I mentioned, the pit from which the 45 million ounces is drawn is only 3 kilometers, indeed a portion of 3 kilometers of an 8 kilometer identified trend, putting aside the fact that the reserves have doubled over the last five years. What’s very interesting about this is that if you look at the pit and then you look 7 kilometers forward, you are going from 2.25 grams to as high as 4 grams at the Donlin deposit. So the opportunity for this to become 100 million ounces is very clear.

Certainly the scarcity value is already evident. This is one of only 3 million plus producing projects or mines that are in the safe jurisdiction of North America, and there are only six in the entire world. The production at 1.5 million ounces a year, as I said will rival all of the greatest gold mines in the world including Grasberg, Cortez and Yanacocha.

Certainly in terms of the evolving developers, it leagues ahead even at a 1.1 million ounce a year production, throughout the earlier years of 1.5 million can probably be sustained with an expansion.

Very importantly, I'm often asked the question about jurisdictional safety and I would say that we are evangelical about it. Now don't get me wrong, my Group has been one of the largest investors in the emerging markets in gold. We've made money in Congo, Venezuela, Zimbabwe, South Africa until recently we’re the largest landholders in Pakistan. But I can tell you, by the end of this year, 90% of our holdings will be in North America, United States, Canada and Mexico.

It is my conceded opinion that within the next year when brokers are coming to tell you that, you might be interested in seeing companies with world-class assets, the first question that you're going to ask is where in the world are you. Because if you are not in the right place people are not going to talk to you, because they are quite simply not paid enough to make career risks on [doughy] countries and unfortunately it’s no longer just the baddies, Russia or Venezuela, every week, whether it’s Indonesia, or Peru or Ghana, it's a new country which is being added to the list of difficult jurisdictions. We see it in our own business and we’re reflecting that through our positions in companies in North America.

Alaska is a beautiful place to do business. It is the second largest gold producer in the United States after Nevada. There are seven large gold mines there and growing. Donlin is in exactly the right place that you would want to be. We are on private land already designated for mining and the native corporations that were in partnership with have a substantial stake in the project. We are not near any [fisheries] the nearest town is 12 kilometers away. We have no watershed issues and indeed the fact that we have local support means that we are in a very, very healthy position going forward.

As you can see from this quotation from the Cholestech Corporation, which is one of our stakeholders, they recognize that Donlin is the way to bring infrastructure and growth to the region and they are our biggest cheerleaders.

This is something that I as an investor love. I'm looking for leverage in a place where I can keep it. If that would be the one sentence which I would leave with you, its that the key for us as investors in the gold space and we are very bullish, we don't believe that the bull market and gold has even begun is to be able to have the maximum leverage to great assets in jurisdictions that will allow you to keep the fruits of that leverage.

If we are right, what we're going to see is a bubble in the North American assets of which there are very few. But as I said, institutional money will flow to jurisdictional safety, high-quality assets are scarce, we want to be in the right place at the right time as we've been in other aspects of resources. Certainly when it comes to cash flow, this is a project that will generate enormous amounts of it and give us exactly that kind of leverage that we're looking for.

Donlin will be amongst the lowest cost producers of gold. Now, immediately it has a high upfront cost on CapEx. However, when you're talking about a project in life and very possibly, if we're right on the exploration potential 50 year to 100 year mine life, you're talking about something which is in a completely different league. The fact that it's also a low cash cost story is very, very helpful.

We are moving ahead with the project, Barrick and we have announced that we are moving forward with the permitting process, it's a three year to four year process, it takes longer in the United States, but in the end it's worth it because you know that you actually own it. The permitting process officially commenced last month, welcomed by the State of Alaska, as well as our stakeholders and in fact the State of Alaska has said that Donlin, thus far has been the model development project of its kind in this state.

The company has been meeting all of its milestones. We raised $300 million plus, a significantly higher price, I'm sad to say in January of this year. So the company is sitting on $300 million in cash with the expectation of adding another $50 million by early January. We spun-off NovaCopper, we started the process of selling Galore Creek, and we’ve commenced the permitting process on Donlin after completing and improving the feasibility study with our partner Barrick. We are spinning-off the Rock Creek project submitting our EIS in the fourth quarter and hopefully we’ll have a sale of Galore.

In terms of CapEx, we start with $6.7 billion, but that’s a somewhat misleading number. Put aside the fact that this is a very, very fresh feasibility study and was meant to be able to withstand all kinds of scrutiny as a result of CapEx blow outs elsewhere. But we see at least $1 billion in CapEx that can be taken of the table, not by cutting anything, but simply by turning various aspects of the project over the owner operators.

The gas pipeline itself is $800 million, for the 30 year mine life we believe that, that’s eminently possible. The mining’s equipment, the oxygen plants are typically owner operated projects of these kind. When you add them up, that’s over a $1 billion. The real plant and equipment was $4 billion, on that was a $1 billion contingency plus a $1 billion on things that we think that we can hive out.

In terms of the milling and mining process, all available technology – sorry – mineral process methodology, standard off the shelf. In this chart, you see a comparison between Donlin and Pueblo Viejo, and in many respects, Donlin is actually a considerably simpler project.

Galore Creek is a very important asset, although we’ve announced that we have put it up for sale. It is also fair to say that, this is world class, it will be as envisioned by the feasibility study, the largest copper mine in Canada. And I don’t have to tell you that whether it’s Indonesia, Congo, Peru or anywhere else, the jurisdictional issues which I’ve highlighted for gold or at least as apparent in copper as well. Since we came out with the pre-feasibility study which was positive, we moved into an optimized plan, the drilling for that has thus far confirmed all of our assumptions, indeed the grades that have been returned have been higher than what we had seen in the study itself.

As I mentioned, we are sitting on a lot of cash. We do not need to raise money. We have plenty of money to take us through the permitting process into a construction decision. Our overhead is going to fall to $45 million by the end of this year, as a consequence of the divestitures, not even including any potential proceeds from the sale of Galore. We will end the year with well over $300 million with a $45 million burn rate going forward.

In terms of reserve burn, it’s very clear to see that NovaGold possesses a uniquely large suite of assets giving it exceptional reserve. So why invest in NovaGold?

Most of the time I sit on your side of the table as investors and I can just simply say that from our standpoint what we are looking for in a gold investment these days is leverage in a place where you can keep it. Everything else is editorial. I don't believe in the end that institutional investors are going to wanted to be in unusual jurisdictions. I think they are going to want to be in places that they can defend their investment community, but I do strongly believe that we’re setting up for a perfect storm in gold, which is going to be expressed through the mining companies that are in the right place to be able to deliver that leverage.

When you look at Donlin, you are looking at something which is uniquely large, which is an excellent grade, which has a production profile that will be literally second to none, an exploration profile which is extraordinary and finally it's in the jurisdiction that has welcomed us and wants to see a mine. So we are solid and we are secure and as everyone who has been our shareholder is quite aware, I mean, I can speak as the largest shareholder of the company, we are absolutely committed to maximizing the value of the story for the benefit of all shareholders equally.

And with that perhaps, I can open the floor up to any questions.

Question-and-Answer Session

Unidentified analyst

We definitely have time for some questions. And I guess I can start off kind of the elephant in the room question. Bank of America in the presentation today, which you already know, what they’ve said obviously if. And they’re still permitting Donlin Gold, but they wouldn’t build it today, basically what they’ve said, but they do concede it’s a world class asset, so just wondering four years from now, five years from now I guess probably it will take that long four years, what if Barrick sort of strangle their feet, is there a mechanism that NovaGold can move ahead?

Thomas S. Kaplan

The fact is that there is. But I think that that's an unlikely scenario. There are two possible scenarios that we can see. If gold were to collapse and that we’ve already seen the end of the gold bull market, I think very few projects will go forward.

On the other hand, as I said, we are very bullish. I don't even believe that the bull market and gold has begun and this is my own money, it’s not other people’s money, I don't have to invest in gold, I don't have to invest in NovaGold, and I certainly don't have to be Chairman.

But when we looked at the Donlin story, we do not see it in a way that is short-term. What we are looking at is where will the world be three or four years from now? If we are right, gold will be much higher and while other projects are being deferred, ours is actually not, so where as the rapt used to be, well Donlin is a story for 2018 or 2019. The truth is we’re moving forward now, at the same pace as we were moving forward a month ago or two months ago. Other projects are being deferred, so ironically we are starting to catch up in terms of the projection of where we will be three or four years from now.

Now as regards to Barrick. It’s not slight in any respect, I think it’s the elephant in the room that Barrick has issues, they have issues in South America with Pascua Lama, they have issues with Equinox. We have a lot of confidence in Jamie and the Barrick management, but we think that they are getting their hands around what needs to be done.

And as you said three, four years from now, it’s going to be a very different world. If I am right on where gold is going, Barrick will be one of the biggest beneficiaries and they won't be able build on fast enough, because if I am also right on the jurisdictional aspect, what shareholders are going to want to be clamoring for is great leverage, world class assets, but in the right place of the world. They are not going to be in Argentina. I don't think that they are going to be mining new things there. I don't think they are going to be mining new things in Africa. Quite frankly, I think they are going to be exiting Africa.

So in terms of the themes that we are looking at whether it’s higher gold or asset quality, Donlin is in the right place. To be very candid, Barrick isn't in the position of having to make a decision now. It’s convenient for them to be able to say that, if they had to build it right now, they wouldn't. But the reality is, we are dealing with a partner who is going to get through its problems, but they have issues. And I don't think that they would like to build anything new at this moment.

Three, four years from now, gold prices are higher, the debt hopefully will not be $14 billion, but a fraction of that. I think that they are going to feel about Donlin exactly as Jamie described it. It is a great asset, the optionality is unique. There is no other asset out there that gives you greater leverage and optionality to gold, at the same time being in a place where people will want that.

If you think of the investable means in North America, in the gold space, you can probably put them on one hand. If we are right and Donlin is not only the best asset in North America, but also arguably the best gold asset in the world. This is exactly what Barrick is going to want to be building. The issues which we’ve been dealing with from Barrick have been Barrick issues, not Donlin issues. But we have absolutely no doubt that Barrick will get through those issues and we are delighted to have them as our partner. Three, four years from now, I think that we will be announcing that we really are building this project exactly as we’re planning to.

Unidentified Analyst

Thank you for that answer. If there is no more questions, if you can all join me to thanks Dr. Kaplan and NovaGold for the presentation, and…

Thomas S. Kaplan

With pleasure.

Unidentified Analyst

…look forward to the mine opening in seven years.

Thomas S. Kaplan

Thank you very much.

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Source: NovaGold Resources' Management Presents at Bank of America Merrill Lynch Canada Mining Conference (Transcript)
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