NovaGold Resources Inc (NG) 2013 Q2 法說會逐字稿

Good day ladies and gentlemen, and welcome to the NOVAGOLD second-quarter conference call and webcast. My name is Crystal, and I will be your operator for today. (operator instructions). As a reminder, this conference is being recorded for replay purposes. And now I would like to turn your call over to your host today, Miss Melanie Hennessey, Vice President of Corporate Communications. Please proceed.

Thank you. Hello everyone, and thank you for joining us on today's call. We have Greg Lang, NOVAGOLD's President and CEO; and also David Ottewell, NOVAGOLD's Vice President and CFO. Just a reminder that at the end of the formal part of the presentation, we will take questions both by phone and by email. But before we get started, I would like to remind our listeners that any statements made today by the management team may contain forward-looking statements. Such statements include projections and goals which are likely to involve risks detailed in our various SEDAR filings and in various forward-looking disclaimers, such as the one we see on slide 3 included -- and included in the second-quarter financials release and in this presentation.

With that, I have a great pleasure of introducing Greg, NOVAGOLD's President and CEO.

Thank you Melanie. Good morning, everyone. And thank you for joining us this morning on our quarterly call and webcast. For those of you who are less familiar with NOVAGOLD and who have joined us for the first time, the Company has two great asset in North America as featured on slide 4. Our 50%-owned flagship asset Donlin Gold has commenced permitting and is poised to be one of the largest gold producers in the industry. Galore Creek is also a valuable asset and expected to be Canada's largest and lowest-cost Coppermine. We are currently evaluating opportunities to sell all or a portion of our interest in Galore Creek, to apply the proceeds toward the development of Donlin Gold.

In less than two years and well ahead of the recent market decline, we have positioned the Company to benefit tremendously from what we anticipate will be a very bullish environment for gold in the coming years. During this time, as shown on slide 5, we completed the reorganization and divestiture of non-core assets, streamlined our expenses, reduced debt, and further strengthened the balance sheet. We also built a management team with expertise in developing and operating large-scale projects. We further de-risked Donlin Gold and Galore Creek as well as progressed our permitting and exploration activities as we had planned to. Notwithstanding our share price and the continuing challenging market for mining equities, we find ourselves in a great position as a Company.

In the second quarter, a number of key deliverables were achieved as shown on slide 6. The Company completed the Donlin Gold public scoping component of the permitting process with positive and constructive reviews in all public meetings. The Donlin Gold environmental and social baseline comprehensive data was submitted to the Corps of Engineers to facilitate the preparation of the environmental impact statement. A number of meetings were held with the Corp and cooperating agencies in Alaska to review the Donlin Gold data to facilitate the NEPA process.

Work also continued at Galore Creek to update the resource model, and we recently launched the 2013 exploration program in May. And last but not least, we reduced our convertible debt by approximately $73 million, and we have $22 million of the debt remaining. That is due in May 2015.

Slide 7 illustrates the five key attributes which make Donlin Gold unique. With proven and probable reserves of 34 million ounces, Donlin Gold is the largest gold development project in the world. And with a grade of 2.1 grams, it's an exceptionally high grade for an open pit. It's a grade that can be very forgiving in comparison to an industry average of a gram or less per ton. With production greater than 1 million ounces over the life of the mined, which is measured in decades, Donlin Gold would be the world's largest gold producing mine if it was in production today. By way of comparison, it exceeds production of Grasberg or Goldstrike. In addition to size and grade, Donlin has tremendous exploration potential and could get substantially bigger over the long term. The existing reserves and resources are situated in only 3 kilometers of an 8-kilometer mineralization belt.

At a time when world-class assets are rapidly being defined by where in the world they are located, Donlin is in Alaska, one of the safest jurisdictions, and it's a state that welcomes responsible mine development, which I will speak to in greater detail later in the permitting section. When compared to mines of any consequence in the sector, Donlin's five attributes are a testament to the quality and scarcity of an asset like this. I'll now turn it over to David Ottewell, who will take you through our second-quarter results in more detail, after which time I will provide an update on permitting and other activities.

Thank you, Greg. Turning to slide 8, during the second quarter, spending at our projects progressed as planned. At Donlin, our share of cash funding was $4.4 million in the second quarter and $6.9 million year to date; on track for a total of $15 million for the year to support permitting activities in preparation of the preliminary draft EIS by the US Army Corps of Engineers. At Galore Creek, our share of cash funding was CAD1.4 million for the quarter and CAD2.1 million year to date, on track for a total of CAD8 million for the year. Spending is expected to increase in the third quarter as we complete a drilling program to follow up on last year's discovery of the legacy zone.

Slide 9 highlights our income statement items for the second quarter. Our operating loss has decreased dramatically compared to the prior year. Excluding foreign-exchange gains, our operating loss has decreased by approximately 50%. Administrative expenses have been reduced by 40% from the prior-year period, and property-related costs have been eliminated entirely due to the spin-out of NovaCopper and the sale of Rock Creek last year.

Turning to our cash flow slide on page 10, the cash used in operating activities was CAD12.9 million in the second quarter, including a CAD2.6 million interest payment on the convertible notes. Approximately 77% of the notes were retired in May with $22.2 million remaining. At the end of May, our cash position was $215 million. We believe that we have sufficient cash to fund the advancement of Donlin Gold through permitting, support ongoing activities at Galore Creek, and repay the remaining convertible notes in 2015.

Today, NOVAGOLD is a simpler and more focused Company. As shown on slide 11, our ongoing expenditures on operations have been reduced by nearly two-thirds since last year. For 2013, we continue to expect to spend $15 million at Donlin, $8 million at Galore Creek, $15 million in administrative costs, and $3 million in interest. We also continue to evaluate opportunities to further reduce our costs. With that, Greg, I will pass it back to you.

Thank you, Dave. We thought it would be timely to provide more information on permitting in the United States and how the Donlin Gold project compares to other projects which had been previously permitted.

Slide 12 provides a snapshot of the results from our latest public comment period, which was completed early in the second quarter. The meetings were held in the villages around Donlin and in Anchorage, Alaska. They were all well attended, and the Corps of Engineers received positive and constructive reviews on Donlin Gold as part of the EIS process. This is really a testament to the great foundation which the Donlin Gold team has built and the excellent work and extensive community outreach which has taken place over the last 16 years. The public scoping summary was finalized and will be posted on the EIS website in the near future.

An illustration of the timeline is provided on slide 13. Permitting has now been underway for about a year. I'm very encouraged by the progress to date. The Corp began working on the preliminary draft environmental impact statement shortly after the completion of the public scoping period. Permitting in Alaska is a clearly defined federal and state environmental review process which involves the preparation of an EIS. The EIS is generally the most time-consuming portion of permitting. The Donlin Gold notice of intent to prepare an EIS was published in the Federal Register last December, and the public scoping process ended on March 29.

On slide 14, and as part of the draft EIS process, Donlin Gold has been working closely with the Corps of Engineers and cooperating agencies. This is in line with Donlin's commitment to best practices. We held a number of working sessions with the Corp and cooperating agencies to provide an overview of the main components in the environmental and social database, and the alternate project designs considered in preparing the project. The database is composed of studies and work compiled over the last 16 years. It's a 900-page document, further reinforcing the need to provide fulsome overviews of the materials related to permitting. A tremendous amount of work has been done to date, with the ultimate objective of successfully bringing Donlin Gold into production for the benefit of all its stakeholders. From discovery to exploration to permitting and onwards, we are adhering to best practices and are building a solid foundation.

In order to keep this in perspective, we've included a list of large projects on slide 15 which have been successfully permitted in the last five years. Red Dog, Fort Knox, and Kensington in Alaska. Rochester, Cortez, and Highcroft in Nevada. And the Climax mine in Colorado. You know, based on my past experience on similar projects, I'm very pleased with the project to date. We continue to expect permitting at Donlin will take another two or three years. We welcome the scrutiny that the permitting process brings, given the importance of a project of this size to the state and to the region. And we have sufficient funds to take us all the way through permitting and ultimately to a construction decision.

Turning to another important matter, jurisdictional safety has never been more prevalent than it is today. On slide 16, we provide a snapshot of the issues that have surfaced around the world over the last few years. Political uncertainty and confiscation risk has increased tremendously over a short period of time. With resource nationalism becoming a prominent concern for mining companies and their investors, we are fortunate to be in Alaska. The reason we hold these attributes to be true are the reasons we believe NOVAGOLD will emerge as one of only a handful of premier institutional-quality gold equities.

To appreciate the significance of Donlin, it is insightful to look at the other mines throughout the industry, as shown on the pie chart on slide 17. There are about 200 minds of any consequence, and there's only a handful of mines that produce in excess of 1 million ounces a year. Donlin is the only undeveloped gold asset in this category. And it's located in North America.

Moving to slide 18, beyond size and in an environment of declining grades, escalating costs, and limited discoveries in the gold industry, Donlin Gold at over two grams per ton is exceptionally high grade for a large bulk mining operation. It is one of the world's most valuable undeveloped gold deposits. The average grade of deposits in production today is about a gram. The average grade of the undeveloped gold discoveries is about 0.7 grams. The mine and reserve grade over the past 10 years has dropped about 50%. This has caused miners to lower their cutoff grades to chase production, ultimately leading to increased costs. The grade at Donlin is where the industry was a decade ago.

In the last few months, there has been a lot of discussion about the current downturn in the price of gold. As management of a Company which is developing an asset whose life is expected to be measured in decades, and potential value in billions of dollars, we view the current phenomena as a short-term swing in a well-established secular bull market. Great mines easily absorb these swings during their long lives of operations. They benefit from price upswings with projected life-of-mine costs of less than [$]600 an ounce. Donlin is in a unique category of assets positioned to deliver substantial value for many years to come.

We view Donlin through the prism of such multigenerational mines such as Gold Quarry and Cortez in Nevada or Red Lake or Hemlo in Ontario. For those of us who have had the privilege of either building or operating these great mines all located in safe jurisdictions, the notion of delivering significant shareholder value by developing a long life world-class mine such as Donlin Gold Israel is real and achievable.

Operator, we'd now like to open the lines for questions.

(operator instructions). John Bridges.

Morning, Greg, everybody. Congratulations on the results. Just wondered with the downturn in the industry, any new thoughts on savings that can be made to the original planned capital budget?

John, good morning, and thank you for joining the call. We continue to evaluate opportunities for third-party participation, and there's real interest in some aspects of the project and we'll continue to work through those. I think we'll be providing a more detailed update in the fourth quarter of this year. But we are -- across the board, we have seen a slowdown in activities relating to mining. Engineering firms are now soliciting work; equipment availability is dramatically changed in the last couple of years. So, it really has turned in our favor in the last year. And we look forward to updating everybody later in the year.

You were getting a few inquiries from contractors looking to see when you were going to initiate -- obviously that's quite a ways out. Are they still coming in?

Yes they are, John. And another sign of the times is we are continuing to receive a lot of interest from people wanting to come work for NOVAGOLD. Most people are aware most of the major companies are cutting back. So a lot of circumstances are working in our favor right now.

Okay. Well, good luck guys. Thanks again.

Jay Mecklinger

Yes. Hi, Greg and David. Thank you for the presentation. I have two questions. One, perhaps you could comment on what you think the value of the your 50% share of Galore Creek in terms of dollars when you think that you could realize for, and just to comment on that. I would think that if since the environment is so bad, if you couldn't get something that is reasonable, I would hope as a shareholder that you would hold it and wait for better times. That's one. Second, my other question would be -- is rather, you speak so well of Donlin Creek and the unique asset that it is. So that leads me to ask what is your share position of NOVAGOLD, and as well, perhaps you could comment on David's as well. What you guys own of the Company, because as a stakeholder I like to be -- I like -- I hope that I don't own more shares than management.

Okay. Well let me start with the Galore question first, Jay. You know, we have a couple of reference points in the value of Galore. Some years ago when copper was considerably less in price than it is now, our partner Teck completed spending a [$]400 million to earn their 50%, and NOVAGOLD has spent comparable amounts. So we would consider that to be a reference point in the value. Right now, the industry is in a lot of turbulence and uncertainty, and frankly it's not a good time to be selling assets. There is no -- and we are fortunate we're in a great position. We do not need to sell the Galore Creek asset to raise money, and we are in great shape financially. So we are content to hang on to that asset and advance it until market conditions are such that we can get fair value.

We are continuing to explore. We've updated the street on some great drill results earlier this year, and we'll be putting out an updated resource estimate in the third quarter. So I agree with you, Jay. It's a tough time to be selling that asset, and we are happy to keep it because it's a great asset. It's in British Columbia, and it will be recognized in the market when sentiment changes. To the other question on management ownership in the Company, certainly I have shares in the Company, as do all of the management. Our Chairman, Tom Kaplan, is also our largest shareholder. And through options and other programs, every employee in NOVAGOLD has a stake in the success of the Company. So I think the interest of management is fully aligned with the interest of our shareholders.

Yes. And Jay, one note. You can look up all this information in our management information circular, which is on SEDAR or on EDGAR.

Thank you.

(operator instructions). John Tumazos.

Good morning. Congratulations on all of us still standing. With Barrick having supposedly reduced their headquarters 400 to 300 and making other rationalizations across the company, have they made the decisions concerning the people who have been doing the Donlin project? Have you had any assurances from them in the last -- in the days since gold touched $1200 that they are continuing with the Donlin project? Obviously you couldn't tell us if it's included in their write-offs that might come later this month. But rooting for NOVAGOLD, it wouldn't bother me at all if you had 100% of the project, by the way. Could you tell us if the other half was a going concern at the moment?

John, these are turbulent times in the industry. And I really don't know what's happening at our partner's headquarters, but Anchorage, Alaska, is a long way from Toronto, Canada. It's business as usual at Donlin. There's been no changes to the management team. And in these turbulent times, the most important thing we can do is focus on the things we can control, and everybody at Donlin is completely focused on the permitting and advancing the project. NOVAGOLD, certainly in-house, has the expertise and the experience to complete the permitting and take the project forward on our own or with our partner.

If I could continue, Greg, on an analogous vein, the prices of copper and coal have fallen, affecting your other partner Teck. And oil sands don't look so good these days for various reasons. And all the minerals that Galore would sell have recently fallen in price. Is there anybody up at the camp this year doing any work?

Yes, John. As we mentioned in our presentation, this year's budget at Galore is about CAD16 million dollars, or CAD8 million to NOVAGOLD. Most of that will be spent on a 10,000-meter drill program in the legacy zone, which is the zone of mineralization that was discovered last year. And we'll be determining the extent of this zone and getting a better handle on the importance of it to the project economics.

So there hasn't -- and the budgets that were made at the beginning of the year were made at better metals prices or virtually any prices for the resource there?

At any prices.

So they haven't changed the budget or canceled the drilling or anything like that?

Not at all. It's carrying on as we speak.

Business as usual.

Yes. Very much so John.

Thank you.

Stephen Walker.

Greg, I'm wondering if you can could look at -- in the EIS process itself, over the next six months or between now and year-end or early 2014, what are the key elements of the EIS that have to be accomplished? And when can we expect to see feedback from either the Corps of Engineers or the regulatory agencies? And you can even take that into early 2014 if you want.

Good morning, Steve. I wouldn't say there is any one key asset or aspect of the environmental impact study that's more important than others. Some of the scoping comments are -- what we would have anticipated, such as the impacts on barge traffic on the Kuskokwim River. You know, air quality and air emissions is always scrutinized thoroughly throughout the process. And I think we were pleased with how it went. There was a lot of interest in the project. Everybody that attended the meetings had good knowledge of the project, which is a great basis to start from. And Stephen, really there was nothing unanticipated in the process.

But it's a big operation and many important issues will be studied. You know and those issues include the socioeconomic benefits and the impact of stakeholders. So we were -- the process went well. And we are moving into this -- the preparation of the draft EIS which is -- you know, it's mainly documents that's reviewed internally amongst the various agencies. And there will be milestones along the way, and we'll continue to provide updates. But so far, we are slightly ahead of -- we said it would take three to four years, and the Corps of Engineers has posted a completion date on their website of November 2015, which is right in the middle of what we anticipated when we started this process. So I think we've set a realistic timeline, and we're tracking very well with it at this stage.

Just two follow-up questions. In other permitting jurisdictions where the Corp has been involved, the Corp being, I guess, a branch of the military, there tends to be a lot of transfer of some of the individuals involved. Have you been fortunate in having the same senior officials involved from the start, or have you seen transfer of senior people within the Corp to date within the permitting process?

You know, a year into the process, it's been steady so far, Stephen. But people do come and go in the military, and I think the Corp in Alaska is very well staffed, and I don't think the movement of one or two people at the top of the organization would impact us. And there's, I think, not a lot of activity going on, so our project is able to get everyone's full attention.

Great. And then just one last question. In the feedback that you received so far in the public hearing or feedback from the core and the agencies, do you have all the baseline environmental data collected within the watershed area, within that project site, or do you -- or have you been asked or required to collect additional baseline data for the EIS?

That's a good question, Stephen. And one of the key aspects of the review we've gone through in the last year is the data adequacy. And we've -- the Corps has come back and asked us to do a couple of more shallow hydrology testing wells, which we're drilling now. But other than that -- and that's a fairly minor undertaking which we had anticipated. Other than that, we've not been requested to do any additional studies. And that's -- we believe we've done an extremely thorough job in preparing the database. And that's an important point you raised that if you're requested to collect significantly more data, that it can certainly cause delays. But the requested drilling will be over and done within a couple of months. So we feel pretty good about the depth of our database, and clearly the Corps of Engineers and the other agencies share that view.

Great, great. Thank you very much for the update.

We also have a question coming from the line of Charles Mayers. With gold prices declining due to improving economics, what is your estimate of future gold price?

Charles, you know we -- you know, gold has been in a great market for 10 years. It's had corrections up and down along the way, and we view this as a short-term phenomenon. And we think gold prices will be substantially higher in two years when we're getting close to a production decision. So day in/day out, we don't worry too much about the gold prices. We're just focused on getting this asset permitted and in a position to make a construction decision based on the economic conditions at the time.

Operator, that is all for questions online.

There are no further questions in the queue. You may now proceed to your closing remarks, Mr. Lang.

I'd just like to thank everybody for their interest in our Company and your continued support. Good day.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a good day.