NovaGold Resources Inc (NG) 2008 Q4 法說會逐字稿

Ladies and gentlemen, welcome to the NovaGold Resources Incorporated 2008 year end conference call.

Your guest for today is Mr. Rick Van Nieuwenhuyse. Please go ahead, Mr. Van Nieuwenhuyse.

Thank you, operator. Thank you, everybody for joining us for our quarterly update or year end call here. We were actually live from the BMO Conference in Fort Lauderdale, Florida or Hollywood, Florida. We wanted to take the time out to update you on our year end financials and which were just released yesterday. Obviously 2008 was very tough year for the Company. Also, for our partners for the whole sector and probably frankly for the whole world. With a debt credit issues facing the world, the commodity selloff, banking crisis and just a general lack of market confidence has resulted in obviously a very difficult place for us to operate.

I'm joined today by Don McDonald, our Chief Financial Officer, who I will ask to give everyone an update on our financial situation for 2008. I will start off by giving a broad overview of each of our projects, starting with Rock Creek, onto Galore and wrapping up with Donlin Creek and then ask Don to review the financials for 2008 and then we will open it up for questions and answers.

So I will start by talking about Rock Creek project. Of course, on top of the back drop of the difficult financial markets in 2008, NovaGold had its own issues in bringing our first mine, the Rock Creek project in Nome, Alaska, into production. With the lays in obtaining our operating permit which we had expected to get in June of 2008 delayed until late September, these -- this delay combined with start up issues which initially were electrical issues with the failure in the mill which took about six weeks to correct and then that followed up by issues with the feed system on the crusher specifically under winter operating conditions. These permitting and technical delays combined with a lack of availability of financing in the September, October market due to the overriding market conditions led NovaGold to make a very difficult decision to suspend operations at the mine in late November. I am pleased to report now that the site has stabilized. We are in a care and maintenance mode with the operation in working well with the state of Alaska agencies to meet all of our permit requirements for suspension or during the suspension of the mine.

Besides care and maintenance activities occuring at Rock Creek we are working on developing a plan to restart operations. The electrical problems with the mill had been repaired. And we are evaluating -- or we have evaluated the issues with the feed system on the crusher and have determined an apron fear or pan style feeder system will eliminate the problems we were having with the frozen ore sticking to the plate on the vibratory feeder. We feel that the pan feeder or apron feeder will be avoiding those kind of issues. We are currently estimating or evaluating potential restart of the mine to restart operations there. We are looking at the make up of the cost to restart as well as make up of the operating team itself. We expect it to be in a position to make a decision to go forward in the second quarter and just to be clear that's not that we are restarting operations in Q2 but that we will make a decision in the second quarter of 2009.

Moving on to our Galore Creek project, we recently announced that we renegotiated the agreement with Teck Cominco making a slide modification to the agreement, I think really simplifying our agreement there. Tech's stand about CAD 355 million on the project to date and changed their total earning number to about CAD 390 which is down about CAD 12 million from what it was before. So they will spend CAD 390 million to earn their 50% interest in the project. What this will do for NovaGold is, NovaGold will no longer have any further obligations until the CAD 390 million earning has been expended and we will retain or maintain our 50% interest in the project. As you might have been aware, we last November and December when we were having financial difficulties we elected not to participate in the cash calls for the Galore Creek project and so we are in arrears to making those cash calls. This renegotiated agreement with Teck Cominco retains our 50% interest in the project and for likely, for the next two years we would not be in position to be required to contribute any further funds during the time that Teck Cominco is earning its project or earning its interest in the project.

In 2008, optimization studies were completed by the Galore Creek Mining Corporation. We are looking at a new development plan for the project. It has a shorter road and longer tunnel access option and we have also moved the mill facility and the tailing facility out of Galore Valley and into the other side of the mountain,so to speak on the main access road which will allow us to be -- when in construction allow us to construct a mill and tailing facility before actually having to enter the valley and this will actually save us about a years worth of overall construction time. We feel this is more stronger and more robust construction approach to the project and we also increased a through put of the overall project, one of the issues facing the project at Galore with the limited room in the valley we were confining ourselves in terms of availability of space for tailing facilities and the mill facility. In their new location, on the other side of the mountain, so to speak, we have lots of room for expansion.

We will be looking at expanded scenario, of mill through put which will be 95,000 tons today and looking at producing 350 and 700 million pounds of copper a year and 250 to 500,000 ounces of gold plus 3 to 5 million ounces of silver over that initial five to ten year operating period. Current resources will likely have a mine life, in the neighborhood of 20 years. So that project will continue that evaluation will be continue to be worked on by Teck Cominco over the course of the next two years as they continue to earn their interest in this very substantial copper, gold, silver resource in British Columbia.

Obviously, the Tall Tan First Nations continue to strongly support the project and we have seen good movement and good support from the British Columbia government who have dedicated about $10 million to evaluate and permit the Highway 37 power line which will bring power up into the region so we are continuing to see good support from the British Columbia government and the Tall Tan First Nation.

Last, but certainly not least our Donlin Creek project, we have been working with our partner Barrick Gold Corporation on a feasibility study and we were pleased to announce that we will be wrapping that up in by the end of the first quarter of 2009. We expect then to -- within a 45 day period have a full-blown 43101 study completed on that. We will expect to do a report on the results of the feasibility study by the end of March or perhaps early April.

We are looking at a project that will have a through put of about 50 to 55,000 tons per day. This is a classic open pit truck and shovel operation with crushing, grinding flotation and then press rock sedation followed by carbon and leech extraction of the gold. We have gone with on-site diesel power with wind cogeneration about 80% of the power will be generated by diesel and about 20% by wind. We will be looking over time at up side scenarios of perhaps bringing gas in which will reduce the operating cost, the power generation cost on-site if that opportunity were to be available. At this time, the current resource base has more than a 20 year mine life.

Barrick Gold in their recent announcement this last week announced a slight increase, modest increase 10%, 15% increase in the overall measured indicated and inferred resources at the project. Obviously this project continues to demonstrate that there is substantial more gold in the district and over time, of course that will be explored and the resource expanded. Currently with 50, 55,000 ton per day through put we would be producing the -- ahead of potential produced between 1 and 1.5 million ounces of gold annually making it certainly, one of the larger gold deposits or gold mines in the world. We were on track as I said to complete the feasibility study by the end of Q1 and expect it complete the 43101 in April.

Following that, the feasibility study will basically be used to as a base study or a base of project description for initiating the feasibility or, excuse me, initiating the permitting process for the project which we fully expect to take two to three years. Expected construction time line is also three season -- three field seasons that will put a target date of 2015, to look at starting up operations. We have outlined a CAD 28 million budget for 2009 expenditures. That's split 50/50 on a basis between the ownership of the partners so for NovaGold roughly CAD 14 million budget for this year.

I would like to invite Don McDonald to go through the financials of the Company and we will open it up to question and answers.

Thanks, Rick.

I'd like to first discuss the year end results and then the transaction since the year end and finally then the outlook for the remainder of 2009. All amounts will be in Canadian Dollars unless otherwise stated.

This year we changed our accounting policies to conform more closely to US Accounting Rules and conform exactly with the policies of producing mining companies by expensing exploration costs at our projects. This policy was applied retroactively and as a result of the change in policy we expense CAD 50 million of exploration cost in 2008, mainly related to the Donlin Creek project and CAD 66 million in 2007. Also you will note that many companies have taken impairment charges this year and report their results before and after these charges. We have followed this format and similar to measures such as Barrick and (inaudible) will provide the loss and the adjusted loss.

For the year end November 30, 2008 we had a loss of CAD 195 million compared with a loss last year of CAD 109 million. The result for 2008 was after a non-cash impairment charge relate to the Rock Creek mine of CAD 161 million with no comparable amount in 2007. The loss before impairment charges for 2008 was an adjusted loss of CAD 34 million compared with a CAD 109 million loss for 2007. As stated previously in arriving to this adjusted loss of CAD 34 million we expensed cost of CAD 50 million related to our exploration development activities. Almost all of which would have been capitalized under our previous accounting policy. So before impairment and expensed exploration cost we would of had an income for the year of CAD 16 million.

Some of the major positive financial income items in 2008 were that we had a gain of CAD 32 million on disposal of our NovaGreenPower assets. A gain of CAD 15 million on the sale of our investments in US gold and a recovery of project suspension costs of CAD 36 million. We also incurred this year care and maintenance costs of Donlin Creek of CAD 13 million, and unrealized foreign exchange loss of CAD 28 million. This foreign exchange loss mainly related to the US denominated convertible notes due in 2015 and approximately US $50 million that is payable for future cash flows from Donlin Creek project when it goes into production. The Canadian Dollar was extremely strong at the end of fiscal 2007 being almost part of the US of the US dollar and depreciated 25% since then but, because of the nature of these US dollar denominated liabilities NovaGold would not hedge against that currency risk.

On the financing side during the year, in addition to CAD 37 million of sale proceeds from GreenPower and the CAD 18 million from the sale of our shares in US gold we issued CAD 95 million of 5% convertible notes and that netted us CAD 93 million Canadian and CAD 15 million was received from the exercise of warrants at CAD 7 per share and the initial CAD 20 million line of credit -- US $20 million which netted us CAD 19 million, Canadian, also came in during the year.

As you are aware, we suspended commissioning and start up at Rock Creek mine just before the year end, and because of difficulties in the credit and capital markets we ended the year with CAD 19 million working capital deficit. However, since the year end, we extended our US $20 million bridge loan to March 2009 and completed a CAD 75 million private placement. As a result, improvements in shared -- technical difficulties here. My phone crashed. As relative improvement in share prices following the completion of the private placement of the US $20 million loan was fully converted to shares of NovaGold and the lender exercise 750,000 warrants providing a further CAD 1.1 million to the Company. Since completing these transactions we have settled most of our startup and commissioning liabilities and currently have a cash balance excluding funds held by the Galore Creek partnership and Donlin Creek LLC of approximately CAD 18 million.

Looking forward to fiscal 2009, our share of the -- as Rick mentioned our share of the Donlin Creek project is approximately CAD 14 million. Part to be spent on completion of the feasibility study and the remainder planned to be use for permitting activities and the project. The Rock Creek project is on care and maintenance pending a review as Rick mentioned, of whether to recommence start up and commissioning and the current care and maintenance budget for 2009 is approximately $7 million US. This month, as Rick also mentioned, we signed a revised agreement with our partner Teck, in the Galore Creek project, whereby NovaGold retained a 50% interest in the project but NovaGold will not be required to fund any of the CAD 15.7 million 2009 budget for the Galore Creek project. This had been a very difficult year for the industry; however, Gold is fortunate -- sorry, NovaGold is fortunate in having a major interest in one of the largest undeveloped gold projects in the world at a time when gold is one of the few commodities trading at levels higher than it was a year ago. The worldwide recession with the corresponding reduction in construction activities and input costs as well as reduced lead time for mining equipment will all benefit the capital and operating cost for our projects. Although, we may not see deflation in the global sense, everyone in the industry is expecting that there will be a significant deescalation of costs from the boom levels we saw in the last few years. Since the major capital cost for our projects are not expected to be incurred for several years they should all boyd well for NovaGold and our projects.

I would like to past it back to Rick.

Thank you and operator we will go ahead and open that up to questions.

(Operator Instructions). And the first question is from Palo [LosTreto] at Wellington West.

Good afternoon, a quick question. I missed the update from Barrick, can you tell me where that resource growth was coming from at Donlin?

We did some infield drilling and wasn't obviously the most important part of the program this year. We had some in-fill drilling to do in specific areas. A lot of it was drilling some the high wall areas for geotechnical studies and doing that in-fill drilling converted a number of the inferred resources into measured indicated but then continued to expand the resource as well. So relatively minor part of the program. I think it demonstrates the robustness of this deposit. I'm not sure what the total footage was but somewhere around 8000 meters and we will convert that additional ounces on a per meter basis it is pretty significant.

And what about the exploration in the oxide portion of the deposit?

We were continuing to work on and evaluate that. We did not do any drilling up at the dome target which is the target to the north which is oxide or non-retract mineralization. And this resource update does not include anything for the dome area. Certainly see potential there nor does it include anything from the east Acma target area where we did drilling on the deposit as well. Not a sufficient amount to determine our resource estimate.

Thank you.

Ladies and gentlemen, once again, if you have a question please press star-one on your telephone key pad. And the next question is from Glen Cone. Private investor. Please go ahead.

I was curious if you had a profit and loss estimate for '09 and what your reserve values were on your balance sheet, if you estimate those.

We don't give out profit estimates. We don't have operations and we don't expect to have operations during 2009. So it will all be expensed items on interest income and any income we get from the sale of land, as I mentioned, we expensed our exploration costs and so those cost will be expensed and will obviously have G&A and some other costs. Second question was to do with reserves. We obviously are releasing before the end of this calendar quarter the results from the feasibility study which will provide reserves for the Company. Existing reserves are about 0.5 million ounces but we are expected to see a significant increase in that number this year.

Thank you.

Thank you. The next question is from Mike [Nyhauser] at Beacon Rock Research. Please go ahead.

Hi. Just wondered if you could give a sense of what might be entailed with the project in Nome as far as potential cost of some the items you know that you are going to have to work on or a sense of optimism for pessimism for the project, just whatever additional color will be appreciated.

Certainly, Mike. We were working on a cost estimate. So I don't have a specific number I think within a month or so we will. But it's not a big number. It's a 10 to CAD 20 million number I think will be a reasonable range to expect. Obviously the site facilities have been -- are completely constructed. We completed all of the major components. We actually tested all of the major components now. As I mentioned, we run into issues with the crusher we addressed what those issues are. They are with the feed system. The apron or pan feeder is a large heavy piece of equipment. So not something to fix on site. It had to be shipped in, it would be a 20 ton piece of equipment.. We believe that will address the issues with the crusher. The other major aspect of the operation is always people and this is the other area that we will be spending a fair bit of time evaluating and in addition to the cost and financial aspects of the project. We will be evaluating the people side of this. And some ways that's the more challenging of the two issues facing Rock Creek. We will be spending a fair bit of time in the next two or three months here looking at the opportunities to develop this project.

Thank you. And on the subject of the feasibility with Donlin Creek, I was hoping it would be out sometime around now, but certainly understand with it being delayed with the potential of the feasibility be completed in November of 2007 it seems like forever ago. Do you have a good confidence that Barrick will be able to complete the feasibility within that time frame?

Yes. The LLC, Donlin Creek LLC, 50/50 partnership with ourselves and Barrick have been working aggressively on that for a period of time here. I think we put out guidance earlier in the year that -- or late last year that we have this thing finished by the first quarter Q1 this year and we were on target to do that. We always said for us and our reporting requirements, we have to do a 43101. Basically after releasing the results we have a 45 day period of time to complete that work. We are coordinating that part of the effort with [Ameck] who is the author of the report. And it's a big project. A lot of components to work with. We want to give a good quality report when we issue this.

And also with the amount of cash that you have now in the treasury and what you are required to spend this year and maybe don't have to spend, it looks like you have enough cash to last a couple of years without any additional cash, although I'm sure that's still a long ways away but looks like you have enough cash to make the end of the year and have tens of millions left over. Is that roughly correct?

I believe our spend this year is about 14 million. And it's a 14, 15 million for Rock Creek and our G&A, that includes the interest on the convertible note that we have outstanding. Roughly CAD 30 million for our expenditures expected for this year. And as far as Donlin Creek goes, we don't have a budget for next year, we will be the next two to three years are all about permitting the Donlin Creek project and permitting is a tedious process and we have a good handle on what the cost will be. We think it will be somewhere in the neighborhood of CAD 30 million on 100% basis next year as well.

And you mentioned that there is the BC government is putting CAD 10 million toward the study of the BC power line.

That's correct. Earlier this year I believe they approved a budget of CAD10 million to do the study on the power line and probably more importantly to work with the First Nation to obtain the permits to be able to build that and construction that power line.

How long a time line is that? Is that going to extend the process of eventually developing Galore Creek or will that accelerate it?

The fact that they are working on it now will accelerate it. As you may recall, we have a fully permitted corridor to build 137KB line through there. The 238KB line that the province is looking at building is slightly different corridor so it requires slight modifications to the existing permits and we obviously continue to work hand in hand with the government and with the First Nation to accomplish bringing power into northern British Columbia. I think short answer is, yes, this will help accelerate the overall development of the project.

To answer your question on the cash position, we also have CAD 90 million in the money warrants as part of our financing we did the beginning of the year. And the money we told you about, the cash in the bank, we obviously were into completing our first quarter of the year. We spent some the money. The year's budget.

Thanks, Don. And one more way on Galore, with the road, with the shorter road and the longer tunnel, are you able to utilize any of the road that has been constructed there?

Absolutely. If you looked at a map of the access into the project site, the new tunnel alignment starts at kilometer 90, that's 90-kilometers in from the Highway 37, you drive now on the first 40-kilometers of that road. So kilometer 40 to kilometer 90 or that last 50-kilometers there are parts of that road that are completed. We have previously built a number of construction camps and worked out in both directions from either side of the camp and essentially over the course of this year and next year we expect to continue to advance to road construction as we care and maintain the property basically connecting all those bits and pieces of road. I think inside of a couple of years I won't be able to say the road is completed, you will see substantial amount of that 90-kilometer road completed over the course of the next two years.

Last question, if I know this is a little old news but can you comment on your new partner [Electrum] or new share holder and whether that adds some strength moving forward financially. Thank you very much.

That's a good question and thanks for bringing it up. The [Electrum] is a private equity group out of New York. They are very familiar with the sector. They have a lot of experience in their overall management team with resource development. They are strategic shareholder. They take a long-term view they like the site and quality of the assets that NovaGold has in its portfolio. They realize that this asset take a lot of work and effort and time to develop because of their size it's different developing a 40 million ounce deposits than it is in developing a 1 million ounce deposit. It takes a different time frame to do that and they are well aware of that and recognize the value that will obtain out of these assets. They have made number investments in our sector. They are a private group so I won't share with you what those are. We really welcomed them to the team and we had a lot of interaction with them as management team and will be a great long-term partner and not only for the investment they made but probably more importantly in opening avenues for additional equity that we know we will need when time comes time to build these big projects. The people behind electrum have deep pockets and access to other people with deep pockets and the kind of friends that we like to have.

Thank you.

Thank you. And the next question is from Robert [Pune] at Golden City Financial. Please go ahead.

Could you elaborate, again, what's the outlook for Rock Creek? Participate and start the project to produce gold soon.

Robert, yes, we were reviewed in the update we are evaluating looking at the opportunities to restart the operation. We believe we addressed the issues crusher feed system that we were having issues with during winter operations. We are evaluating the cost to restart operations and probably more importantly our ability to put together the operating team to be able to restart our operations. One of the challenges in working working in Nome, Alaska, is getting enough people and the right people to be able to operate a modern open pit mine like Rock Creek. That's something that we were putting a development plan together on and as I mentioned earlier we will make a decision on the plan to go forward over in the second quarter of this year.

Second quarter. Alaska is two month, three month, a year. It's not that cold. Does it mean operating -- (inaudible - highly accented)

I'm sorry, I didn't quite understand the question.

Most of the time Alaska is very cold. We understand that. Sometimes not that cold. We initially go into development on that project. Probably won't see it so cold or so difficult. What is the prospect on how much -- how many day per year we will be offering that.

Once the mine is up and running and we have the team, into place the team to be able to operate it, it is expected and anticipated to be a year-round operation. The next step is to evaluate the cost of putting it back into production and put the team together to put it back into production. Thank you for the question. Thank you. I think operator told us our time is up. So we will like to thank everybody for participating in today's annual and quarterly update call. We will expect to be doing this again in the second quarter or update you in the first quarter of our results in the first quarter of 2009 and hope that 2009 is a better year than 2008 and happy investing to you all. Thank you.

Thank you, Mr. Van Nieuwenhuyse. Ladies and gentlemen, your conference has now ended. All participants are asked to hang up their lines at his time and thank you for your participation.