NovaGold Resources Inc (NG) 2014 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the NOVAGOLD's first-quarter 2014 conference call and webcast. My name is Whitley and I will be your operator for today. (Operator Instructions). As a reminder, this call is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mrs. Melanie Hennessey, Vice President, Corporate Communication. Please proceed.

Thank you, Whitley. Good morning, everyone. We are pleased that you are with us today for NOVAGOLD's first-quarter results, and to hear an update on the development of the Donlin Gold and Galore Creek projects. On today's call we have Greg Lang, NOVAGOLD's President and CEO; and David Ottewell, NOVAGOLD's Vice President and CFO. At the end of the formal part of the presentation, we will take questions, both by phone and by email.

But before I get started, I would like to remind our listeners that any statements made today by the management team may contain forward-looking information, such as projections and goals, which are likely to involve risks detailed in our various EDGAR and SEDAR filings and in various forward-looking disclaimers included in the first-quarter release and in this presentation.

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

Thank you, Melanie. Hello, everyone, and thank you for joining us on our call this morning. Today we will be speaking about our two great assets located in North America, as featured on slide 4. Our flagship asset, Donlin Gold, one of the industry's undeveloped high-quality gems, is located in Alaska and held in a 50-50 partnership with Barrick Gold Corporation. The Galore Creek project, a copper-gold-silver deposit located in British Columbia, is expected to be the largest and lowest-cost copper mine in Canada. Galore Creek is held in a 50-50 partnership with Teck.

Our strategy is clear and simple: provide all our shareholders with the greatest and safest asset with long-term leverage to gold. Our strategy has not changed over the last three years, even through turbulent markets, industry challenges, and ever-increasing resource nationalization around the world. With this one goal in mind, we continue to make tremendous headway in the first quarter. Permitting activities at Donlin Gold are advancing as planned, and were mainly centered on the preparation of the preliminary draft EIS, which is expected to be completed around year-end.

At Galore Creek, technical studies are underway to advance the project toward next-level mine planning and design. These studies will incorporate the 2012 and 2013 drill results.

Beyond permitting activities at Donlin Gold, we are very involved in the communities. Last month, Donlin was one of the sponsors of the Iditarod Dog Sled Race in Alaska. For a number of years now, the Donlin Gold camp staff have volunteered and provided support to the incoming mushers at a checkpoint in close proximity to the Donlin Gold mine site.

The Iditarod race, in its 42nd year, keeps a tradition alive of how they historically transported goods in remote regions in Alaska, and honor mushing's greatest achievements. I would like to congratulate the three emerging leaders from the Yukon-Kuskokwim region, shown on slide 6: Richie Diehl, Pete Kaiser, and Mike Williams, who competed and finished the race. They are great ambassadors for youth in the region. The Iditarod is a true test of determination and endurance. It is a great experience to welcoming the incoming mushers at the finish line in Nome.

Without strong partnerships, from communities to governments, a project will never be a success. Mining is an integral part of the communities, and the Native corporations want to see economic development in their regions. The project is on private land that was set aside for the development of its mineral endowment. Established 40 years ago, the 13 Native corporations have an ownership interest in the development of select lands to support economic prosperity for their shareholders. With relationships spanning over 20 years, Donlin Gold enjoys excellent partnerships with the Native corporations who own the surface and the subsurface rights of the proposed mine area. These are Calista and TKC.

When looking at any project's lifecycle -- and, in particular, Donlin Gold's on slide 8 -- the current investment in time and resources for permitting is relatively small in the overall schedule, which is measured in multiple decades, with exceptional potential for future growth.

Permitting in Alaska is a clearly defined federal and state environmental review process. The National Environmental Policy Act is the procedural law that governs the permitting process in the US. The EIS is the most time-consuming endeavor as part of the permitting process; and, in large part, drives the overall permitting timeline.

On slide 9, we provide an overview of the key milestones in permitting in the US. We are almost at the halfway point in permitting Donlin. Permitting commenced in August 2012 with the submission of applications to the federal and state agencies, and it is anticipated to take four years to complete. The Notice of Intent to prepare an EIS was published in the Federal Register later in 2012. In 2013, we completed the public scoping period, which comprised of 14 meetings in various Yukon-Kuskokwim villages. These meetings returned positive and constructive feedback, which was incorporated and filed in the Donlin Gold EIS Scoping Summary Report prepared by the lead agency, the US Army Corps of Engineers. Many of these comments will be addressed in the draft EIS.

So, where are we in this process today? Our current focus is centered on the preliminary draft EIS, expected to be complete around year-end. Slide 10 gives an overview of what this involves. The preliminary draft EIS is comprised of four main sections. First, the purpose and need of the proposed mine, which Donlin Gold, Calista, and TKC materially contributed to, detailing the need and the right to develop the land for the benefit of stakeholders. Secondly, the alternatives analysis of the proposed mine -- such as power, barging, and access -- are being completed as we speak. Thirdly, the environmental analysis, which consists of the environmental baseline conditions and the effects; this is, in fact, the most extensive part of the EIS. And lastly, the potential mitigation measures.

Donlin Gold and the permitting agencies are also working on other major permits, such as air quality, water discharge and usage, gas pipeline, wetlands, and dam safety. We remain on track, and expect that the draft EIS will be filed by mid-2015.

I will now turn it over to David Ottewell, who will take you through our first-quarter results. Dave?

Thank you, Greg. Turning to slide 11, first-quarter spending on our projects was on track with our budget for the full year. Activities at Donlin Gold continued to focus primarily on permitting and community engagement in the region. Our share of cash funding in the first quarter was $2.7 million compared to a budget of $12 million for the full year. As Greg mentioned, at Galore Creek, technical studies are underway to advance the project toward next-level mine planning and design. Our share of cash funding in the first quarter was $0.9 million, as expected, compared to a budget of $2.5 million for the full year.

Slide 12 highlights our operating performance in the first quarter. Our operating loss, and net loss, decreased by 22% in comparison to the first quarter last year. The decrease resulted from reductions in project expenses and overhead.

Turning to our cash flow on slide 13, the cash used in operating activities is $5.2 million, primarily for general and administrative costs and reductions in accounts payable during the quarter. Investing activities included $3.6 million for our share of funding at Donlin Gold and Galore Creek. At the end of the quarter, we have cash and term deposits totaling $182 million, providing sufficient funds to advance Donlin Gold to permitting, support ongoing activities at Galore Creek, and repay the remaining $15.8 million of convertible notes next year.

In two years, as shown on slide 15, we have reduced our annual expenditures by approximately $100 million. Our 2014 budget, approximately $30 million, is less than one-quarter of what our expenditures were in 2012. With a healthy treasury, we are in a great position to take Donlin Gold all the way through permitting and fulfill our other obligations.

With that, I will pass it back to Greg.

Thank you, Dave. Let's take a look at the key attributes of Donlin Gold, starting with the resource and production profile. With 39 million ounces of gold in the resource category, and anticipated production of greater than 1 million ounces a year for 27 years, it's at the top of the list when compared to large, development-stage gold deposits.

Donlin Gold is one of only three gold assets in the world that are soon to be producing greater than 1 million ounces per year. To illustrate that point, slide 16 compares Donlin Gold to the largest existing gold mines, many of which have long since peaked in their production profiles.

It's also interesting to note, on slide 17, that many of the industry's top producing mines were initially criticized for their high capital requirements. The Grasberg mine, now in its 41st year of production, is the foundation of that company, and is expected to produce 1.6 million ounces in 2014. Nothing has changed. The industry still needs large-scale projects to sustain itself. And once built, these assets become the industry backbone, providing decades of significant returns.

In terms of quality, Donlin Gold is considered to be exceptionally high grade for a large-scale, bulk mining operation, and one of the most valuable undeveloped gold deposits in our industry. That grade at Donlin is, in fact, where the industry was 10 years ago. In an environment that is plagued by significant capital constraints, only the best and highest-quality projects will find funding.

Slide 19 tells an interesting story. When charting the number of new gold discoveries of any consequence against exploration spending, it's clear that discoveries are becoming increasingly rare. Gold last peaked in 2011, at $1920 per ounce. The following year, exploration budgets were at an all-time high, but discoveries were at their lowest levels in more than 20 years. If we don't find major deposits, we can't grow, let alone sustain, current production levels. Large-scale assets are vital to replace depleting reserves and to meet demand for gold.

Moving on to Galore Creek on slide 20, this year we are working with recognized consultants to incorporate two years' worth of drill results into a new resource, and conduct technical work to update the project's planning and design. We are encouraged by the work completed to date, and expect that it will further enhance the value of Galore Creek and its marketability. Although Galore Creek is a well-endowed asset that is expected to be one of the largest and highest-quality, low-cost copper producers in Canada -- one of the few safe jurisdictions for copper mining -- our strategy and steadfast focus since the reorganization has been to provide our stakeholders with the safest leverage to gold by focusing on Donlin.

We continue to evaluate opportunities to monetize our 50% interest in Galore, and to further strengthen our treasury, and focus principally on permitting Donlin.

In closing, why be interested in NOVAGOLD today? In terms of quality, scale, and upside potential, we have the best assets located in two of the top mining jurisdictions in the world. The Company is well-financed through permitting, and managed by a team of mine builders and operators with a strong track record of success. And we have a rigorous alignment with all of our stakeholders.

Our unwavering determination, combined with our conviction in gold -- and, more precisely, Donlin Gold -- will pay dividends well into the future.

Operator, we would now like to open the line for questions.

(Operator Instructions). John Tumazos, John Tumazos Very Independent Research.

The other day, Rio Tinto gave a 19% stake in another company with a prominent Alaska project, to a charity. And I know that you're almost $200 million cash position is important to NOVAGOLD, but would you consider buying new assets? It is kind of an epic time in the market, when a great deposit like Pebble -- they give 19% of it to charity.

John, when I look at it, the marketplace -- you're right; it is an interesting time in the space. But, yes, I think we've got one great asset, and we don't want to dilute our focus. And, frankly, I've never seen anything out there that compares to what we've got. And our major shareholders all typically have other investments in gold, and I think they're in Donlin Gold and in NOVAGOLD for a reason. And I think we're really true to our investment thesis, that we're going to focus our efforts on Donlin, and provide our shareholders the maximum exposure to rising gold prices.

Thank you.

Operator, I have one question that's come in via email: once you get the permitting done and are ready to mine gold, how will you get all the mining equipment at site? How will the weather affect your ability to do so?

I'll break that question into pieces. When it comes time to build the project, the first phases of the construction will focus on the establishment of a port near the mine site, and a road that would then connect that upriver port to the Donlin site. So, early on, we will be establishing access to the site; we'll build a camp at the site and an airstrip. And once the basic infrastructure is in place, we would proceed with construction of the facility.

As far as the impacts of weather, yes, Donlin is located in a fairly dry part of Alaska -- about 20 inches of precipitation a year -- and the elevations are anywhere from 100 to 600 meters. So, the climate and conditions there certainly are amenable to year-round construction and operation.

(Operator Instructions). Adam Graf, Cowen and Company.

Thanks for the call and for all the detail. Quick question for you. Maybe you could just review for us, once all the permits are in hand, what's the procedure for the joint venture to make a construction decision?

Well, the construction decision is still a couple of years away, Adam. Right now, we're not quite halfway through permitting. When we get to about a -- give or take a year towards the end of permitting, that's the time when the owners would likely update the feasibility study numbers, and based on current conditions at the time. And a construction decision could be made prior to the receipt of all permits. Just got to get a little closer to the endpoint. And then the owners at Donlin would have a formally approved proceeding with the project. So, we're a good couple of years away from that.

Maybe, Greg, you could just pontificate a little bit on the options and flexibility that the partners have, again, once all permits are in place.

The partners have -- a lot of what's going to happen with Donlin, Adam, of course depends on what the gold prices and the market conditions are at the time. And I think we'll have to get a little further along, and get two more years behind us. But the owners can make a decision to proceed at that time, and we'll see what the world is like then.

All right. Thank you, Greg.

There are no further questions in queue at this time.

Well, then, that concludes our call this morning. Thank you for your interest in NOVAGOLD.

Ladies and gentlemen, that concludes today's conference. Thank you for participation. You may now disconnect. Have a great day.