NovaGold Resources Inc (NG) 2011 Q3 法說會逐字稿

Welcome to the Q3 2011 financial results conference call. At this time, all lines are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded October 17, 2011.

I will now turn the conference over to your host, Ariadna Peretz, Investor Relations. Please go ahead.

Thank you, operator. Good morning, and welcome to NovaGold's third-quarter financials and project update webcast. On today's call, we have Rick Van Nieuwenhuyse, President and CEO, and Elaine Sanders, Vice President and CFO.

Rick and Elaine will take us through the quarter's financial and project highlights, and then we will take questions, both by phone and on the webcast. If you would like to call in a question, as the operator said, please dial 7 at the end of the formal part of this presentation when the operator instructs you to do so. Questions can also be sent via the webcast by clicking on the Ask a Question icon at the bottom right-hand corner of your browser. We will get to the phone questions first and then move on to the webcast questions. We will try to answer all questions on the air, but if we do not get to your question, we will contact you later this morning.

I would like to reminder the listeners that our comments and answers to your questions may contain forward-looking information. This information by its nature is subject to risks and uncertainties that may cause the stated outcome to differ materially from the actual outcome. Full disclosure is available on our website, SEDAR and EDGAR. I now will turn it over to Rick for his remarks.

Thank you, Ariadna, and good morning, ladies and gentlemen. As you know, our Donlin and Ambler projects are located in Alaska and our Galore Creek project is located in British Columbia; so US and Canadian jurisdictions, safe jurisdictions, that have well-established and stable regulatory and tax regimes.

Great mining assets have three main attributes -- their size, their quality and being located in safe jurisdictions. Donlin, Galore and Ambler certainly have all three of those characteristics.

In terms of size, our share of reserves include 19.5 million ounces of gold, over 3 billion pounds of copper and over 50 million ounces of silver. Again, these are reserves; there are additional resources on top of that. As well, there are tremendous exploration upside in each one of these districts.

On the quality side, Donlin is a 2.2-gram gold deposit; Galore almost 0.9% copper equivalent; and Ambler is about a 7.5% copper equivalent. So you can see on a quality side, all three of the assets score very high.

Two of our projects, Donlin and Galore, of course, are partnered with Barrick Gold and Teck Resources. These companies bring a tremendous amount of resources to our side of the table in terms of technical expertise in completing feasibility studies, and we are pleased to have them as partners.

I have already talked about the safe jurisdictions; these result in low risk to our shareholders. And as I mentioned, all three of these are districts, so there is a tremendous amount of exploration upside.

Moving to our core asset, Donlin Creek, our flagship, this is in the top 1% of all gold deposits at 33 million ounces of reserves; again, with additional resources. That 33 million ounces represents the top 1% of all gold deposits ever found in the world. We've been working on a feasibility study and we expect the update to be completed shortly. Preliminary capital cost estimates were released earlier this month at Barrick's Investor Day forum, where we identified about [$6 billion] for the project capital and an additional [$1 billion] for the gas pipeline capital.

So whereas capital costs have increased approximately 30% for the project since the original diesel-based feasibility study was completed, long-term gold prices have increased by about 50% or more.

The feasibility study update includes of course the cost of building the gas line -- the gas pipeline itself. Using gas instead of diesel for on-site power generation is expected to lower power generation costs relative to the diesel-based case option, and provides the project with environmentally sound and socially responsible long-term alternative fuel.

We look forward to providing our shareholders with the full results of the feasibility study update in short order.

On our Galore Creek project, we completed the pre-feasibility study earlier this year and filed a technical report earlier this quarter. That project includes 6.8 billion pounds of copper, over 5.5 million ounces of gold and over 100 million ounces of silver as proven and probable reserves. Construction capital came in at CAD5.2 billion. And cash cost for producing a pound of copper using base case prices was about CAD0.80 a pound; whereas at then current prices, it was about CAD0.42 a pound. So you see the effect of the gold and silver credits lowering the cash costs. Of course, having a gold and silver credit sort of builds in a natural hedge to the project.

In the quarter, Teck also (inaudible) interest by spending approximately CAD373 million. And we also saw that BC Hydro awarded the contract to start construction on what is called the NTL, or the Northern Transmission Line, along Highway 37.

At the time the pre-feasibility study was completed, the partners also announced that they were undertaking what we refer to as the Enhanced Plan to provide a basis for the partners to consider proceeding to permitting and full feasibility study. The Enhanced Plan incorporates an additional approximately 200 million tonnes of ore-grade material to the mine plan. We expect to also evaluate the addition of a second SAG mill in approximately year five of the mine plan, which would augment the overall throughput of the mine and extend the mind life by several years. We look forward to updating our shareholders on that plan before the end of the year, in the current quarter.

On our Ambler project, we completed about 1200 meters of drilling this season that was primarily directed towards geotechnical, hydrologic and metallurgical work. Of course, Ambler is a volcanogenic mass of sulfide with exceptional grades in copper. It's about 7.5% copper equivalent.

We completed a preliminary economic assessment earlier in the year. The capital costs came in at $262 million, with $134 million in additional sustaining capital. The operating costs were about -- a little under CAD100 a ton milled, and came in with a cash cost of about $0.90 a pound copper. Base case NPV at 8% discount was over $500 million, with a return on investment of 25%. Using then-current price case, the NPV was well over $1.6 billion with a return of 50% on investment. The work that we've undertaken this year will be used to work towards completing a pre-feasibility level of engineering study.

Also in the Ambler project, we have a new target we've been evaluating called the Bornite deposit. We drilled about 5900 meters of drilling this season. We also established a new camp, which will serve us well in all the work that we complete going forward.

We had two objectives with this year's drilling. First was to conduct a confirmation drilling on the historically identified resource at Bornite, or what is also sometimes referred to as the Ruby Hill target. Combined with a detailed review of the well-preserved historic core and all the assay certificates, we are planning to release a resource, a 43-101 resource estimate, in the first quarter of 2012.

The second objective we had was to conduct exploration. About half the drilling was testing new targets along strike and down dip from the historically identified resources. We had -- we did have success at expanding the known mineralization in both directions.

Ambler represents one of the most prolific and high-grade copper deposits or copper districts in the world, and is a company maker in its own right. We are very excited by the upside of this district that provides to all of our shareholders.

On this map, you see the entire district here stretches for about 100 kilometers. We continue to map and to find additional targets for further drilling along this 100-kilometer trend next year. We expect to identify at least -- identify and drill at least one target, perhaps additional, in the 2012 field season.

Additionally, on the Bornite Ruby Hill area, we've also identified a number of areas of large-scale silica dolomite alteration, which is associated with the mineralization of Bornite. We've also completed preliminary IP geophysical and a geochemical survey. We will use this information to plan an aggressive district scale exploration program in 2012.

We also, as we've indicated, been working closely with NANA Regional Corporation, which is one of the Alaska native corporations. They own the Red Dog deposit, which is the largest zinc mine in the world. This is a joint venture with Teck. They understand mining, and they believe it has added a huge amount of value to their region.

We will be completing a definitive agreement with NANA in short order. In addition, NANA and ourselves have been working closely with the state of Alaska to finance and build an access road into the Ambler district. So we look forward to updating you on our progress here next quarter.

And with that summary, I will turn over to Elaine, our CFO, to go through our third-quarter financial results. Elaine?

Thank you, Rick. Good morning, everyone. We are reporting on the financial results for the third quarter, which ended on August 31.

Three main activities happened during the quarter that impacted the financial statements. In June, in our partner, Teck, completed the funding requirements on the Galore Creek project. This meant that NovaGold had to restart funding our 50% portion of the monthly cash calls starting in July.

We were active during the quarter at our earlier stage exploration projects at Ambler's Bornite deposit in northern Alaska and the San Roque project in Rio Negro, Argentina, where we are working under an option agreement to earn in up to 70% of the project. Since we are investing exploration dollars today with the vision of finding a viable mining project for the future, we are required to expense all of these costs in the income statement until we meet the requirements under GAAP to capitalize them on the balance sheet.

A permanent closure decision was made during the quarter at the Rock Creek project in Nome, Alaska. As a result of this decision, we are required under GAAP to record an asset retirement obligation. We increased our overall reclamation estimate for the area to CAD28 million and wrote off CAD7 million worth of site inventory.

We ended the quarter with about CAD92 million of cash, which was CAD20 million lower than the previous quarter. We received cash in from land sales and used cash for exploration and development projects and administration costs. We also paid off CAD12 million owed as the last payment required on the original purchase price of the Ambler project. This is the last outstanding payment due.

Working capital was about CAD64 million, of which Rock Creek reclamation estimate of CAD28 million was accrued as a short-term liability, even though we anticipate it will be spent over a period of couple of years. This reduces the overall working capital amount.

Total assets at the end of the quarter were CAD756 million, which is a decrease from the second quarter by about CAD34 million. The reduction is caused by cash usage, accounts receivable collections and an inventory write-down.

Our net loss reported for the third quarter was CAD56.5 million. We have recorded a one-time expense of CAD20.6 million to increase the Rock Creek reclamation obligation as a result of the closure decision and the related inventory write-off of CAD7 million.

There is a negative balance of CAD1.3 million in the cash flow statement under financing activities due to the payment of the CAD12 million to Kennecott as the last installment for the original Ambler purchase price. We had previously accrued this amount as a liability.

Expenditures at our Donlin, Galore and Ambler projects have all increased during the quarter as activities ramped up over the summer months. The slide shows the expenditures by project and NovaGold's share of the funding.

Spending at the Donlin Gold project on a 100% basis has been approximately $30 million for the nine months ended August. To complete work on the feasibility study update and prepare for permitting, about $8.8 million is left in the budget for Q4 spending, and our share of 50% is $4.4 million.

Spending at the Galore Creek project on a 100% basis has been approximately CAD23 million for the nine months ended August. To complete work on the Enhanced Plan and for site care and maintenance, CAD13.4 million is budgeted for Q4, and our share of 50% is CAD6.7 million.

At Ambler, a total of $7.6 million has been spent for the year to the end of Q3, and we expect to spend about $3 million in Q4.

A modest drilling budget of CAD2 million is planned for San Roque in Q4, which would take the entire year's exploration budget for this project to a total of about CAD3 million. And about CAD4 million of expenditures are planned at Rock Creek for the rest of this year. This would get the site prepared for closure activities to begin as soon as the weather allows.

These are the highlights of our third-quarter results. I will pass the presentation back to Rick.

Thanks, Elaine. As we've talked about, our portfolio of projects, Amber, Galore and Donlin, really represent some of the best-in-class of their type of deposits. They contain the three traits of quality of projects that we've talked about -- they are large, they're good grade and they are located in safe locations.

Most gold deposits that you find and explore for in the world are 1 million ounces or less, whereas Donlin and Galore represent the top 1% and a top 3% of all deposits ever found. So there is a scarcity value here that we believe is of value to our shareholders and does represent excellent opportunity for leverage in this market.

Specifically on an enterprise value basis, NovaGold is well positioned to be a good value story right now. We are trading at about [$90] an ounce, per ounce of gold, on a -- just looking at the gold only. And if you look at it on a gold equivalent basis, adding value for the copper and the silver, we are trading at about [$50] an ounce, whereas the developers -- the average developers are about [$135] per ounce of gold, or [$115] per ounce of gold equivalent.

You can see the leverage there that we provide not only in gold but also in copper when you look at the $90 versus $50 for NovaGold, when you are looking at gold or a gold equivalent basis.

We think that this represents a significant value store for investors at low-risk opportunity. We've got low geopolitical risk because of our location in North America and low technical risk because of our first-class partners in Barrick and Teck.

If we look at -- just to wrap up here, the highlights, three world-class assets -- Donlin, Galore and Ambler; great working relationships with our partners, Teck and Barrick; low geopolitical risk; strong community relations; significant exploration upside in all three of the districts that we are operating in. We continue to have great liquidity in the market, with well over 3 million shares trading daily, and we offer our shareholders strong leverage -- superior leverage and strong metal markets.

With that, I will turn it back over to Ariadna.

Thank you. That concludes the formal part of our presentation. We will continue now with questions and answers period. And we will take as many phone questions as possible, and then we'll move on to e-mail and Twitter questions. If we don't get to your question on the air, we will contact you later this morning. Operator.

(Operator Instructions) John Morgan -- I'm sorry, John Bridges.

I've been renamed. John Bridges, JPMorgan. I just wanted to -- if you could refresh our memories with respect to the timeline with respect to decisions on the two major projects. And maybe if you could give us a bit of an idea as to what you are hoping to find down in Argentina and how you expect that to fit into the larger company.

Sure, John. Good to hear from you. Timelines with respect to Donlin, we will wrap up the feasibility study update here certainly before the end of the year. We will then make a decision to take the project to permitting, formal permitting, which we actually are already working on what they called the pre-permitting stages. We're finalizing the memorandum of understanding with the lead agency. We've selected the lead agency, which will be the Corps of Engineers. So that work will basically wrap up with formal permitting, which we expect to initiate in March or April of 2012.

The permitting timeline for the project is between three and four years. We think that's a reasonable amount of time to allocate -- to complete an environmental impact statement, or EIS. It is obviously a very large project, and Alaska is obviously a sensitive area, so we will be conducting a tremendous amount of work with not only the regulatory agencies at both the state and federal level, but also an interaction with the local community in and around the Donlin Creek project.

The project would take three to four years to construct. So that would be the complete timeline that we would anticipate for Donlin.

On our Galore Creek project, as we mentioned, we are completing the Enhanced Plan. We did complete all the fieldwork earlier this -- in fact, I think we just wrapped up the field program there this month. That will be incorporated into the Enhanced Plan, which should be completed later this -- sorry -- next month, and we will be making a decision then to go to take that project, the Enhanced Plan, with the additional 200 -- roughly 200 million tonnes of ore-grade material to the mine plan. That plan will then be approved by the partners. We expect then to be approved by the partners, to go to permitting and to advance to feasibility.

We would expect permitting in British Columbia to take roughly 2 years and for the construction of the project to take approximately 4 years.

And when would the decision on Galore be?

We expect that before the end of the year.

Okay.

And then to answer the second half of your question on San Roque, in fact, we are drilling on that project right now. It is a large-scale system. It is a disseminated stock work mineralization associated with volcanic breccias along the major structure. We see both lead-zinc and gold-silver mineralization.

So we will take the information we've gathered this year, and then make some decisions on what we do going forward. Whether it fits into NovaGold or whether we look at doing something else with it will depend on the results we get in this year's program.

Excellent. Many thanks for that color.

Imaru Casanova.

Hi, guys. This is Ima at MLV. Regarding the Rock Creek closure, I know you have increased your reclamation liability there to CAD28 million. And next quarter, you plan to spend about [CAD4 million] there. Should we expect basically NovaGold to be basically with closure activities there until the end of 2013, I guess, from Elaine's comments about taking about a couple years? Or when should we see Rock Creek sort of out of the picture?

We are undertaking to complete the reclamation plan with the state here. I would say we're about 98% there. We are just sort of tweaking some final aspects of the reclamation plan. We will undertake that in full score here later this year and then beginning of next year.

I think we will be done with the lion's share of the reclamation work by, say, third quarter of next year. And then largely, it will be a monitoring program that will continue after that, that Elaine was referring to a two-year plan that would include not only closure, but monitoring for closure. So that would -- that is what the entire CAD28 million is allocated towards.

Okay, great. Thank you.

(Operator Instructions)

Okay. Now we will take a couple of questions online. The first one is how is the Enhanced Plan coming together at Galore Creek?

Actually, quite well. We've -- as I indicated in the previous question that John had, we've completed a good part of the drilling program. With respect to geotechnical aspects of the project on that extra 200 million tonnes, we've completed some infill drilling, and we've also completed some geotechnical and hydrologic work -- drilling to support work on establishing where that pit wall can go in the southeast corner of the pit.

That work is all coming together, along with looking at the other aspects of the Enhanced Plan, which include adding that SAG mill in year five to the mine plan that would increase overall operating throughput to above 95,000 tonnes a day and extend the mine life for several years.

We expect that we are on target to complete that before the end of the year and make a decision then to go forward with permitting that Enhanced Plan and completion of a feasibility study.

Excellent. And the next one is for Elaine. Do you expect to do any financing soon?

No. We are currently quite well-financed for our current commitments. We have no plans at this point in time to do a financing.

Okay, that's it for -- I think we can wrap it up now.

Thanks, Ariadna. I'll just maybe say a few closing comments. We are pleased to see the metal markets continue to have -- to strengthen here in the fourth quarter, and we look forward to updating our shareholders again next quarter. So with that, have a good day.

Ladies and gentlemen, that does conclude the conference call for today. You can disconnect your line, and thank you very much for participating.