NovaGold Resources Inc (NG) 2006 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to the NovaGold Resources year-end 2006 results and project update conference call. I would now like to turn the meeting over to Rick Van Nieuwenhuyse, President and CEO of NovaGold Resources, Inc. Please go ahead, Mr. Van Nieuwenhuyse.

Thank you, Chris. Good morning and good afternoon, ladies and gentlemen. Welcome to our call. We're very pleased to be able to update our shareholders on our year end results and on our projects as well. We will be making forward-looking statements and there is a appropriate slide in the second spot there.

Going on to investor highlights -- investment highlights. NovaGold, as you know, is one of North America's fastest growing precious metals company. We will have production later this year from our Rock Creek operation, about 100,000 ounces of production of gold per year. Following on that, the development of our Galore Creek and Donlin Creek projects. Our objective is to become a mid-tier gold producer, within 5 years, with production approaching over 1 million ounces of gold annually along with substantial copper and silver. We have delivered, on average, about 70% compound annual shareholder price appreciation for seven years running.

We're one of the largest reserve and resource bases of any exploration and development stage company in North America, and our assets are in North America. And we're particularly proud of the team we've built here and specifically our project development team with well over 20 to 30 years of experience each. That gives NovaGold the ability to not only explore for these projects but to construct them, operate them, and finance them. So with that introduction, I would like to turn the meeting over to our Chief Financial Officer, Don MacDonald, to give an update on the year end results for 2006. Don, the numbers?

Thanks, Rick. I plan to just present a short overview of our 2006 results. All amounts on this slide will be in Canadian dollars, but all other amounts we will discuss will be in U.S. dollars, unless we otherwise state.

We started this year with just C$33 million in cash plus temporary and long-term investments of C$25 million. Earlier in the year, we began work with Citigroup, RBC, and Bear Stearns on initially what was C$100 million financing, but as we marketed the company through January, we were pleased to see our share price increase as more and more investors became aware of the unrecognized value of our asset, and we completed the financing at a 20% premium to the price we began the year, and we were successful in obtaining not C$100 million, but C$200 million, which netted the company C$188 million in February. This finance was focused to fully fund the construction of Rock Creek and fund the completion of the Galore Creek feasibility study.

Subsequent to this, though, we carried out a number of other factors or transactions during the year. We increased our investment in Alexco to $5.5 million and our investment now has a market value of $28 million. We commenced road and tower preconstruction activities also in the second half of 2006 at the Galore Creek project, not in the original plan. And we were somewhat disrupted by the unanticipated four-month invitation that Barrick made to our shareholders to take their cash, an invitation that was soundly rejected, but did cost us $21 million. Although, from the time Barrick made the invitation to today, even after the major correction over this past week, our undiluted market value to our shareholders has increased by $600 million from $1.2 billion to $1.8 billion. Despite all these new expenditures, we still successfully completed the year with $106 million in the bank plus $30 million of investments available for sale and $32 million of long-term investments. Back to you, Rick.

Thank you, Don. NovaGold has really been always been focused on driving the value of our stock, and over the next nine months, we continue to see the following value drivers for NovaGold and the share price. The start-up production of Rock Creek will be a significant milestone. We will have a fully permitted operation for construction at our Galore Creek project up in northern British Columbia. We see the feasibility and start of permitting towards the end of the year on our Donlin Creek project. We will also be in court with Barrick over the ownership of the Donlin Creek project, and that's the 70/30 split that, of course, was such a central piece of the takeover bid. We also will be advancing our earlier stage Ambler project, completing a preliminary economic assessment and a resource of 43-101 compliant resource on that spectacular copper project in northern Alaska. And of course, we will continue to increase resources and reserves with our ongoing exploration.

These value drivers are what have -- these value drivers over the years are what have driven our share price. And largely it's been driven by the expansion of our resource space. NovaGold has delivered well over 70% compound annual growth rate to its shareholders, that's an average of a doubling of share price every year for seven years running. We plan to try and continue that track record. That growth in resource and reserves is, again, is what's driven that share price performance. We've identified inferred resources, we've moved them to measured indicated category, and then moved them to proven and probable reserves for the completion of a feasibility study. Last year we had our first reserves at Galore Creek, almost 5 million ounces of gold, almost 100 ounces of silver, and over 6 billion pounds of copper. By the end of this year, with Donlin Creek, Rock Creek, and increases in Galore Creek, my expectation is that our reserve base will more than triple. I think that's a very exciting objective for the company.

Just looking at our four projects, just a brief overview of their location, our normal operations, which includes Rock Creek, Big Hurrah, and the Nome Gold Project, located in Nome, Alaska, 100% owned by NovaGold. Our Donlin Creek project, in which we own 70% interest, joint ventured with Barrick in southwestern Alaska, our Galore Creek project, which we currently own 100% interest in, or option to own 100% interest in, located in northwestern British Columbia, and then last our, joint venture with Rio Tinto on the Ambler project with NovaGold retaining 51% of that project, located in northern Alaska.

Let's just outline the major milestones over the next six to twelve months, starting with what we accomplished the last quarter 2006. Rock Creek started construction, we did an updated economic evaluation of our Donlin Creek project, we completed the Galore Creek feasibility study, and gave the Company its first proven and probable reserves. And then of course, at the end of the year, the 82,000 meter infield drill program at Donlin Creek was completed. This year, we started out the year on very good footing by receiving the Galore Creek environmental assessment certificate. For those of you in the United States, that's equivalent to the EIS document. Obviously, a very significant milestone for the company. Barrick has initiated a 70,000 meter infield drill program, which they actually got underway about a month ago.

Now for the milestones yet to come, we will be updating our Galore Creek resource based on last year's drill results. We have yet to completely update the Donlin resource based on all the drilling. When all the drill results are in and analyzed from the 2006 drill program, we will be updating our shareholders on that. That's expected later in March. We do expect the Galore permits to come in in April of this year and start construction. We'll be obviously talking more about that.

Rock Creek, in the third and fourth quarter, we expect start-up of production at Rock Creek in the late summer and then for it to be commercial later by the end of the year. Donlin Creek feasibility study, albeit not bankable, will be provided by Barrick, I think in October, is what they're expecting. That will obviously bring proven and probable reserves to the Company for that project. And as I mentioned earlier, we'll have an preliminary economic assessment on the Ambler project and we will bypass in the middle of November the back-in deadline for Donlin and expect that situation to be resolved or begin to be resolved.

I would like to invite our Chief Operating Officer, Peter, to update our shareholders on progress at the Rock Creek project. Peter?

Thanks, Rick. I was the lucky guy to talk to the photograph. As you can see in front of you, construction has been progressing on the plant site facilities. Activities are well underway. In terms of silver and steel erection are complete. Our picture of maintenance facility is now complete and in use. Our reagent storage facility is also complete and available for use.

With respect to civil work and the progress on the civil work, the reclaim [corso] tunnel site prep is underway. All mill foundations incoming major concrete pours have been virtually completed. We're very fortunate here in that although this property is very close to the arctic circle, temperatures during the major concrete pours include 300 year bore mill formations were around the 0 degree Celsius. We were very fortunate at that point in time. The [CIL] circuit site prep is underway and retaining [circanet] site prep is underway. Access roads into the open pit and dump areas are in progress and recruitment of operating personnel is on schedule.

Just briefly touching on the Corps permit, the Corps 404 permit and decision document, which were suspended late last year, has been reissued by the Corps and will become effective on March 13. Changes include increased reporting with respect to filing of an annual disturbance report, and additional mitigation work, which would include working with the Corps of Engineers, Fish and Game, and Wildlife to establish appropriate mitigation. This reissuance of permit, and when it becomes effective, will allow us to reenter remaining tailings and low land areas and complete tailing storage facility construction. Over to you, Rick.

Thanks, Peter. So clearly the construction is well underway at Rock Creek. We do expect production mid- to late this year with production at an annual rate of about 100,000 ounces of gold per year. We will be doing a new mine plan using a higher gold price, likely $550. That will result in an increase in the resource and reserves there. And of course, we will be doing more exploration work in the district. We see a tremendous amount of exploration potential in this district that's produced about 5 million ounces of alluvial gold and Rock Creek, of course, being the first hard rock mine in the district. We plan about 10,000 meters of drilling on the project.

Next up is our Galore Creek project, where we will obviously have a very, very busy year with the construction about ready to begin. As I mentioned earlier, we did receive the environmental certificate. I would really like to acknowledge and thank the BC regulators. They have worked very hard and diligently over the last three years to achieve this objective, and I have to point out that they did so in a very professional manner, and most importantly to us, on the schedule that was originally outlined. So we're very appreciative of their support for this project.

We expect to have the construction permits lined up later in April and be well underway to construction, start-up of construction in May/June of this year. Don is going to talk a little bit more about the financing here in just a second. We do have a lot of equipment camps and equipment being mobilized up to camp now -- or up towards the site now, and so really the train's already left the station, if you will. We're really excited about this. We will be updating our resource and reserve statements for the project later this year based on the 2006 drilling, and of course this year we are planning to do more drilling on the project, looking specifically for near surface and underground high grade potential copper gold deposits that can obviously include the economics. This year, we've got about a 15,000 meter program outlined.

With the construction underway in 2007, we expect to be producing metal by 2012. We have a 22-year mine life with the current reserve base of over 5 million ounces of gold, 100 million ounces of silver and the 6 billion pounds of copper. This is the result of the feasibility study completed by Hatch in October of last year. We see the initial five years of production with an expected production of about 432 million pounds of copper and 340,000 ounces of gold and 4 million ounces of silver on an annual basis for that five-year period.

Using the base case economics, which is using $1.50 copper, $8 silver, and $5.25 gold, we get an annual aftertax cash flow of over $414 million U.S. On a by-product basis, we're obviously producing gold for a very, very low cash cost, a negative $600 per ounce in gold equivalent, or looking at it the other way, netting the precious metals against the price to produce a pound of copper, about $0.38 a pound copper. On a co-product basis, another way of looking at the economics of the project would be about $150 for the gold and about $0.67 for the copper. Either way you cut it, it's a very low-cost copper and gold producer.

I would like to invite Don back to talk about our plans for financing the Galore Creek project. Don?

Thanks, Rick. As Rick said, I will briefly go through the overall financing of Galore Creek and then outline the plan for 2007. On the first slide, you see the total capital for Galore Creek at approximately $1.8 billion or C$2.2 billion. When you include costs related to project financing, including interest during construction, the total will probably be approximately $2 billion. From our discussions of Citigroup, the project will support at least $1 billion of conventional project financing, which leaves $1 billion to be financed by NovaGold and its partners. We've said for a long time that we're seeking a 40% joint venture partner or partners, as it is very common for large products like Galore Creek to be financed through joint ventures: Escondida, Antamina, Alambara, and three of Barrick Gold's four new development projects are all held through joint venture. As you'll appreciate from my later comments, the actual percentages and amounts are still being discussed, but on a 40% basis, NovaGold's equity funding would be $600 million, less the amounts received from the joint venture partner to purchase its interest in the joint venture. Assuming the purchase amount was $250 million, NovaGold's equity would be $350 million.

Now moving on to plans for 2007, just over four months ago, NovaGold completed the feasibility study for Galore Creek. It's difficult to imagine, but it's only been four months now. Unfortunately at the time, we are still in our process with Barrick and only became free of that in December 2006. Then just over a week ago, we obtained our EA certificate. All of these factors are recognized by people potentially financing the project, and by our joint venture.

The next thing I've highlighted is obviously to receive the construction permits and these may arrive as early as April. And depending upon that, we plan to spend $225 million on construction in 2007. And as Peter, will discuss a new schedule has reduced our 2007 expenditure amount in the feasibility study from $303 million down to $225 million, which will provide us with more flexibility with our financing plans. Since December 2006, we have seen significant additional interest in all areas of our financing plans for Galore Creek. This has created somewhat of a quandary, because frankly, we have many different opportunities, and we have to balance the interest between trying to achieve getting the best joint venture terms for the company and the best initial and long-term financing terms, a somewhat exciting position for us.

Over the next 12 months, therefore you can expect to hear from NovaGold, but it has entered into a joint venture agreement on Galore Creek, with either an industry partner or smelting group, that we have entered into an initial financing for the projects either from a private equity strategic investor, or through a public equity and/or debt financing. We do not currently expect the needs to complete the long-term debt financing for the project, until at least 2008. So as you can see, there are significant opportunities for NovaGold, and these reflect the fact that there are so few large copper gold projects available in the world at the moment to meet the long-term demand.

Now over to you, Peter. You get to talk about the fun stuff, including the big trucks.

Thanks, Don. Well, as you can see, the next two slides show equipment that's already been shipped into the underground portal areas of the project. In terms of the current status of the project, senior project and construction management disciplines are fully staffed.

Ongoing recruitment of area supervision is on schedule. Some mobile equipment has been moved to the portal areas and work achieved in 2006 on the portal areas, ready for the construction process in 2007. 30% of camps and ancillary equipment required to support all ongoing construction start up activities have been shipped to site, laydown areas ready for construction activities to commence. The remaining equipment is either en route or in manufacturing.

Major contracts have been awarded to allow a prepositioning of contract equipment, ready for transportation into construction areas, including access road tunnel contracts, access road contracts, bridges, camp catering and electrical, and avalanche control. All of these contracts have been inked and are ready to go. Major contracts and final negotiation include helicopter support, fuel, explosives, and others. The construction team office is now complete in Smithers and ready for the construction team to implement. Base station satellite communications facilities have been installed in BC to our mainland, ready for field communications facilities to support construction and ongoing operations.

As Don mentioned, since the completion of the feasibility study in late 2006, our new project and construction and management teams and our operators have reviewed all construction plans and modified specific plans and activities to minimize construction risk, especially during Phase 1 of the project, which is supported entirely by helicopter through to mid-2009. On completion at that point of the access road and tunnel breakthrough to the Galore Valley. This has allowed the team to reduce activities and difficult access road terrain during winter conditions, and also reduced dependence on helicopter support during inclement weather. These changes have extended our construction program by an additional summer construction period. By in doing so, we have considerably reduced construction risk in Phase 1 and reduced initial construction costs in 2007.

One of the things I would like to point out is what I consider a phenomenal construction and operating theme we have ready to go on this project. Both employees, consultant, contractors, and also suppliers who are working through the various issues in consideration of the starting gate is becoming very close. Rick?

Thanks, Peter. Very tight time for the company in getting -- not only having Rock Creek under construction, but getting Galore up and running as well.

Moving over to Donlin Creek, you've seen the photo we've shown many, many times of our Acma and Lewis deposits. They are advancing towards production, albeit a little bit later than we'd originally contemplated under our agreement with Placer Dome. The value drivers here, there has been interim resource updates that Barrick put out a week in combination with their year-end results, we'll discuss that in a little bit here. They have initiated a 70,000 meter infield drill program that they just got started a month or so ago here this year. That drilling will, of course, continue to transfer ounces into the category and then with the completion of the feasibility study later this year, proven and probable reserves. Barrick has indicated they plan to start the EIS permitting process later in the year towards the end of Q3, and of course with the feasibility studies, as I mentioned, we'll increase the reserve base or get the first reserve base for Donlin.

By the end of -- by the middle of November, the deadline for Barrick comes along and they will fail to meet their obligations for backing in, and NovaGold expects to resume management of the projects. Just touching on this interim resource update that Barrick put out last week or so, this is a 2006 infill drilling program, it was about 82,000 meters of infill drilling. Roughly half of the drill results had been incorporated into that interim update. That did result in a 34% increase in the measured and indicated resources based on about 39,000 meters of the drilling. The lion's share of that drilling was all on the Acma deposit or in the Acma area, where previously there had been 7 million ounces of inferred resources that came up with -- or transferred into the new 5 million ounce -- or additional 5 million ounces or measured indicated resources. Now to conversion rate of about 70%.

Meanwhile, the other half of the results, roughly 42,000 meters of drilling over on the Lewis area will -- we are expected to have those results by the end of March, end of this month. Of course, at Lewis, there's an additional 7 million ounces of inferred resource in the old model and we expect that the additional drilling -- additional drill results will be transferring at least part of that over into the measured indicated resources. Of course, this year's drilling, the 70,000 meters of infill drilling will of course move an additional amount of inferred resources into measured indicated categories. So again, a lot more drilling planned for Donlin this year and that's of course what needed to be done with the Donlin Creek deposit all along. So we're very pleased to see at least that work progressing.

The Donlin Creek feasibility study, Barrick has indicated will be done by September of this year, September or October. The outline of our economic analysis of the property suggested a start-up date of 2009, 2010 of construction, and then production in 2012, 2013. Given -- that's actually consistent with Barrick's guidance as well. Looking at our SRK, preliminary economic assessment that we released last September during the takeover battle, which we do plan to update, by the way. But looking at that as a reference point, we had a 60,000 ton per day operation, which in the first seven years produced about 1.9 million ounces of gold on average for the seven years of annual gold production. The annual pretax cash flow was about $480 million, a $500 gold price. Total cash costs were about $223 per ounce of gold.

Over the life of the mine, the 22-year life of the mine, the gold production averaged about 1.4 million ounces of gold per year. Barrick is looking at a 50,000 ton per day throughput operation so their production might actually be somewhat smaller, but their average grades are a little bit higher. So we'll look at the prefeasibility study results when they come out. This year, Barrick has outlined an $87 million program to complete the feasibility study, and of course, the 70,000 meters of drilling and also start the EIS process later this fall. Again, we point out that the feasibility study will not be bankable and will not meet the terms of the money venture agreement for their back-in rights.

Just wrapping up here on Ambler, very quickly, early stage project, but we are making very good progress on advancing that project towards development. We will complete a 43-101 resource estimate later this year, along with an independent economic assessment, and we will continue our working -- we will continue our exploration program there, as well as working with our native partners, the NANA Regional Corporation, who of course, own the giant Red Dog mine, the largest zinc mine in the world, that's operated by Teck Cominco. Also, we'll be working with Northwest Arctic Bureau and the village governments to look at a workable plan for bringing infrastructure and access to this exciting project. Just to remind you, the arctic deposit contains about 40 million tons of 4% copper, 5% zinc, with precious metal credits. That, of course, is a historic resource estimate that we'll be updating.

The value again, getting back to value for NovaGold and its shareholders, large resource base now transferring is a reserve base. Location, very low geopolitical risk areas, Alaska, British Columbia, gives our shareholders huge leverage to the bull market in gold, silver and copper. Our consistent track record of growing our resource and that which has translated into superior shareholder returns will continue. We will continue to advance our projects towards development and production and eventually realize the huge value that is part of our world-class asset base. And with that, Chris, I'll turn it back over to you to take a few questions from our audience. I think we've got a few minutes left, so we'd like to take a few questions.

Thank you. [OPERATOR INSTRUCTIONS] The first question is from [Mike Niehuser from Beckenrock Research]. Please go ahead.

Hi, Rick. Mike Niehuser. Congratulations on the permits. I think just a few short years ago, people were really questioning whether you could get that from the BC government and work with the Tahltans is really first class.

Had a question about the little green dots on the Donlin map. There's not a lot discussed about exploration potential at Donlin. My only question is, can you just mention a few things about the potential for expanding beyond the known resource? Thank you.

Thanks, Mike. And you're quite right. We're really pleased with the permits or the EA certificate at Galore and obviously the Tahltan played a very, very important role for keeping the whole project on schedule as well. But to answer your question on Donlin Creek, and the little green dots, the little green dots were all results that were not back in time when Barrick released its interim resource update. So you can see there are a lot of little green dots. To answer your question on additional exploration potential, basically the current pit you see outlined here goes down about 300 meters. It goes down to basically the depth of what the deposit is drilled off. If the holes went down 500 meters, we expect that the pit would be significantly bigger. To say another way, the resources are currently open in depth.

The Aurora deposit is open off to the west. The south Lewis area in particular has some very, very good results, indicating that it continues to be opened off to the southeast there. And then one of the targets that we're most excited about is the East Acma target, which is of course sort of a duplicate intersection of structures that we see at Acma. We see once again at East Acma. We have an excellent drill hole here of 3.7 grams per ton. That's almost all below the current pit outline. So a lot of room left to continue to expand the resource at Donlin Creek.

Next question?

Thank you. The next question is from John Hill from Citigroup. Please go ahead.

Great. Thanks, good morning, everyone. And thank you for such a detailed presentation. Just wondering if you could update us a little bit on any recent developments with the Galore Creek power supply? Obviously a number of different players and constituencies there. Just interested in the thought process as we sit here?

Yes, thanks, John. On Galore Creek, we have an existing permit to build a 138 kV line from Meziadin up to the Bob Quinn area. The power line from Bob Quinn into the project site is the part of the overall Galore Creek project permits. The government of British Columbia has indicated that they would like to build a 287 line. We have indicated to the government that should they be in a position to be able to build that line, i.e., have their permits to do so, and have the first nations on side of being able to build a 287 line up through their traditional territories, that we would participate in that 287 line. Now it has to be done in such a fashion that it fits our time line. Our current base case plan is to use our existing permits to build the 138KV line from Meziadin up to the Bob Quinn side. So we are very confident that there's no issue with being able to provide power to Donlin Creek -- excuse me, to Galore Creek, but clearly, if the government is successful with 287 we'll certainly participate with them in that.

Great answer, great answer. And then just, if you can give us a bit more color on the partnership negotiations, potential smelter offtakes. You referenced that. Some competing long-term versus a short-term dynamics in there. Do you feel that you'll be able to get a buy-in in a situation -- a cash buy-in within a framework that allows NovaGold to be majority owner and operator, or what are potential partners really asking for?

As Don outlined a little earlier, I think I'll invite Don to provide some comments as well, but as Don indicated, we're kind of in a nice position, because we have a number of choices. We have a number of potential joint venture partners that we're in discussions with. Some of them are quite advanced discussions. We sort of break the group down into the various smelting groups, categorize them as Asian, Japanese, Korean, Chinese. They have particularly a lot of interest in this product, it's a very high quality concentrate, and it has no deleterious materials. It's the kind of concentrate they would very much like to have. As well as more traditional mining companies. Clearly both have their advantages and disadvantages as partners for NovaGold, but because of having choices, we're able to be in a fairly strong position here. Of course, we've got a great metals market. A bit of a hiccup this week, but in general I think people are still enthusiastic about the metals market. Don, do you want to maybe supplement the answer a bit?

Sure. As Rick said, it's really the balance between the smelters and the industry partners. The industry partners would obviously love to have more than 50% of the project, but we're staunchly sitting with the 40%. There's a possibility that we'll maybe come to a 50/50. Everybody we've talked to understands and recognizes the incredible construction team that we have and that the best development of the project is using that construction team. The smelters bring more of the end situation, bringing more of the concentrate production they're interested, but also interested in participating in projects as a minority position in very stable parts of the world. It's that balance between the two different groups that we're just working with. If we go with an industry partner on the debt to financing side, we no doubt would be -- they don't like -- need to do the debt as soon as the smelters do. As we mentioned earlier, we're looking at the debt package being put together in 2008. If it was an industry partner, it probably would later in 2008 or maybe even in 2009. In the smelters it would like to be more early.

Great color. Appreciate it.

Thank you. The next question is from Stephen Walker from RBC Capital Markets. Please go ahead.

It's actually Ryan Dolan on behalf of Stephen. Just wondering if you could give a sense of your current cash burn rate not including Galore development later this year?

Don?

Sure. As you'll see in our financial, as of right now we have about $56 million in the bank and we have about $30 million of marketable securities that are up for sale right now. So that's about $86 million. We also have about another $30 odd million of other securities, but we have no plans to dispose of those. With the $86 million, we're actually not burning a tremendous amount of money at this point in time. We have inked a number of contracts for Galore Creek, but they don't really kick in in a big way until we get the permits and can start construction that means our burn is very minimal on a month by month basis on that, and the only other big activity, obviously we're working on is Rock Creek. Most of, I'd say, 70 plus percent of the Rock Creek construction costs have actually been paid for right now, and the other work is being spread over the period from now we're producing the first gold bars in August and big commercial production by November. The remaining 30% is going to be spread over the next six months or so.

Okay, thank you.

Thank you. The next question is from Kim Stevens from Snyder Capital Management. Please go ahead.

Hi, Don and Rick. I have a couple more questions on Rock Creek. Can you specify exactly how much more -- what that 30% cost is that you still have to spend in 2007?

Sure. It's about $20 million left and it includes contingencies in this, so we may not spend those, it's mainly the earth work, so I should let Peter jump in, it's mainly the earth work on the tailings, and it's the preproduction costs, start-up costs.

Okay.

There are some additional costs there, Kim. Alaska mechanical is essentially the prime contractor, building the plant. There'll also be some cost there is.

Okay. And then I have another follow-up question on Rock Creek. You guys had some legal issues there, and you finally just got that resolved, but there's some potential you might be back wrangling around with legal issues. What's your best expectation of what might happen there at Rock Creek? Anything that might throw you off on when protection would start?

You're quite right, Kim. We're not quite over the hump here, if you will. The core, as Peter outlined, has reinstated the permit and it becomes effective March 13. We do expect the same people, the trustees for Alaska to refile their lawsuit. That is our expectation. We'll be very pleased if they don't, but we are expecting it. I believe -- I would characterize their position as one over not really the result of the issuing the permit but the process by which it was obtained. And that is we did an EA, environmental assessment document, rather than a full-blown EIS. I think they would -- on the basis of their lawsuit filed previously, they would like all 404 permits, wetlands permits, to have to go through an EIS process so we do expect it. I think the biggest question is whether or not the court would grant an injunction, which they have requested, obviously.

At least they did the last time we went through this. If the court were to grant an injunction or a temporary restraining order, that would slow progress down at the mines and we would not then meet our targets. We'll have to wait and see, number one, whether the trustees refile the lawsuit, and two, whether the court grants an injunction. We hope -- we hope they do not. We certainly had a lot of support from the greater community of Nome, support from the city council, also from the Bering Straits Native Corporation and the Sitnasuak Native corporation. So we hope the court pays due respects to the vast majority of the wishes of the community of Nome.

Okay. Thank you for that. And I have one follow-up question. I'm wondering, Don, how much are you allocating in 2007 for potential legal expenses? Because not only do we have this issue here at Rock Creek, but you also have potential Barrick still out there, what are you guys budgeting, or what are you thinking you're going to spend?

It's not very large -- sorry, Barrick is not very large. Yes, it's probably a couple of million dollars. We have not a huge team with regards to each of these projects. They're very distinct and discrete areas of litigation. Clearly a great understanding already of our lawyers and the pros and cons. That's the amount we're allocating, a couple million of dollars. If it really, really hots up these cases, it's usually management time, that's the nuisance factor. Which is of priceless value.

No more vacations for Rick, anymore, huh? Thanks a lot for your answers.

I'm not going to Italy, by the way.

No, don't do that again.

Thank you. The next question is from Paolo Lostritto from MGI Securities. Please go ahead.

Good morning, guys. Earlier in the presentation, Rick, you had alluded to further exploration growth. Can you kind of identify where the current thinking is in terms of where you see that growth?

Certainly, Palo. That's an easy one for me. Basically, all of our projects have a tremendous amount of exploration upside. I think I spent a bit of time with Mike Niehuser's question on Donlin Creek, so I won't go back over that.

But at Rock Creek, this is a district that's produced 5 million ounces of alluvial gold that's in the sands and gravels literally at the surface, and Rock Creek is the first hard rock mine to be developed there. We see many, many other targets in the district. We have the Saddle deposit, which is essentially within a kilometer of the main Rock Creek deposit. We see the potential for an additional 100,000-plus ounces there. As well as many many other targets in the district. Similarly, at Big Hurrah, we have a whole land package that we're working on there that we see other upside. Again, the Big Hurrah area is called the Solomon district. That's produced about 2 million ounces of alluvial gold as well. Big Hurrah being the first hard rock mine there.

At Galore, we've outlined a huge resource in the Bountiful area. That seems to be moving towards the south and appears to be continuous with the deposit, the reserve at Westwork and then Westwork seems to be continuous with Southwest, the Southwest deposit. Interestingly enough there, they're dipping in oppose directions and where the dips run into each other, geologists love to have intersecting structures, that generally means the potential for the grade to be improved exists. We have the Saddle deposit. Similar name as at Rock Creek, but we have a saddle over at Galore as well, where we have some very near surface high grade copper/gold mineralization associated with the magnetite ratchet body. We'll be drilling on that later this summer.

Of course, we have the resource over at Copper Canyon, which we didn't do a lot of drilling on last year, because we diverted the drills over to do the additional condemnation work on the Gray's property to get that part of the story wrapped up. We do plan to do more drilling on the Copper Canyon area, particularly at some of the high grade results there that we think have the potential to add grade -- multiple percent copper, multiple gram gold-type grades, good with an underground scenario. Our main objective at Galore is to find higher grade plus 1%, plus one gram material that would supplement the first five, six years of relatively high copper-gold production at Galore. That's our main focus is to continue the number of years of high grade mill feed of that facility.

Okay. One other thing, Don. I know it's still early. Can you go into the debt and hedges accordingly?

We're pretty early stages in that. We've talked with Citigroup in terms of structure. They gave us -- the $1 billion number came out without hedging on it. We would expect to get a bigger number if there was hedging on it and we're obviously looking at hedging copper rather than any gold hedging. Copper is the big driver economically with the current prices, because obviously copper is pushing $3 and all their numbers are done on $1.50 copper.

Right, right. Okay. Well, thanks, guys.

thanks, Paul.

Thank you. Our last question is from [Nia Judea from Scotia Capital.]

I was wondering if you could provide an update on the BC Supreme Court hearing?

Sorry, but wanted to make sure I understand the hearing. The BC court hearing?

Yes, the one where you claimed that Barrick used confidential information in making its bid for Pioneer?

That is -- that is basically with our lawyers. It's not been a real focus for us, but that will be proceeding probably in tangent or along the same path as the Pioneer litigation.

Okay. So is there a court date set at all?

No.

No, okay.

There is for the Pioneer litigation. That will be heard September of this year.

September. Great. Great, thank you very much.

You bet.

Thank you. I'd now like to turn the meeting back over to Mr. Van Nieuwenhuyse.

Thanks, Chris. I would like to thank our shareholders for participating in the call, and we will again plan to update you the next quarter, and we've got a lot of work to do, so without further adieu, we'll get at it. Thanks very much. Bye-bye.

Thank you. The conference is now ended. Please disconnect your lines at this time. We thank you for your participation, and have a nice day.