NovaGold Resources Inc (NG) 2014 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the NOVAGOLD second-quarter 2014 conference call and webcast. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to your host, Mrs. Melanie Hennessey, Vice President, Corporate Communications. Please proceed.

Thank you, Tony. Hello, everyone. Glad you could all join in. We are pleased that you have joined us today for the second-quarter results and to also 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 we get started I would like to remind our listeners that any statements made today by management 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 second-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. Good morning, everyone. I appreciate you joining us today. As featured on the map on slide 4, we will be speaking about our two great assets located in North America.

Our flagship Donlin Gold project, one of the industry's undeveloped high-quality gems, is located in Alaska and held in a 50-50 partnership with Barrick. The Galore Creek project, a copper-silver-gold deposit in British Columbia, is expected to be Canada's largest and lowest-cost copper mine. Galore Creek is held in a 50-50 partnership with Teck.

Turning to slide 5, I am pleased to report the progress made in the second quarter brings us a step closer toward executing our long-standing strategy in providing all of our stakeholders with the greatest and safest asset with long-term leverage to gold.

We are approaching the halfway point in Donlin Gold's permitting timeline. Progress on the preliminary draft EIS is continuing as expected and on budget. It is anticipated to be completed around year-end.

In early June we announced that Donlin Gold and the Kuskokwim Corporation reached an updated long-term agreement extending Donlin Gold's right to use the surface lands owned by TKC. This agreement represents an important milestone in the advancement of Donlin Gold towards development and future production.

At Galore Creek we continued the technical work to advance the project's next level mine planning and design. These studies will incorporate the successful 2012 and 2013 pure results.

Turning to slide 6, we continue to meet our objectives and take the necessary steps toward developing the single most important asset of the next generation of gold mines. When a project is finalized it is measured in multiple decades with exceptional potential for growth. As in the case of Donlin Gold, the current investment in time and resources required for permitting is relatively small.

We are now nearing the halfway point in permitting Donlin Gold, as depicted on slide 7. Permitting began in August 2012 with the submission of permit applications to the federal and state agencies and it is expected to take about four years to complete. Our current focus is centered on the preliminary draft EIS, which is the most time-consuming portion of the permitting process.

During the quarter, the Corps of Engineers and the other cooperating agencies, successfully completed the alternatives identification process, establishing a reasonable range of alternatives to be evaluated in the EIS. The alternatives comprised of variations on certain mine facility designs, local transportation options and power supply options.

The remaining EIS components, expected to be completed over the next two quarters, include the analysis of the potential environmental impacts. The Corps anticipates that all outstanding environmental baseline data required to complete the EIS, will be compiled by the end of the third quarter.

Throughout permitting Donlin Gold works hand-in-hand with its community partners on a number of local programs, as illustrated in the photographs on slide 8. In partnership with the Kuspuk School District, Alaskan Construction Academies and EXCEL Alaska, Donlin Gold was pleased to sponsor a youth Academic & Trades Decathlon in Aniak.

Together with the state of Alaska and the Yukon Kuskokwim Health Corporation, Donlin Gold participated in the Kids Don't Float campaign, distributing personal flotation devices and safety messages to kids all along the Yukon Kuskokwim River.

The Donlin Gold team also continued its long-standing tradition of community outreach in the second quarter by visiting 10 villages. Town hall meetings were held in each village with a viewing of the Donlin Gold project narrated in Yupik, the local language and also in English.

With relationships spanning over 20 years, Donlin Gold enjoys excellent partnerships with the native corporations who hold the surface and subsurface rights of the proposed mine area Calista and TKC.

Our strong partnerships were further reinforced by the updated long-term surface use agreement between Donlin Gold and TKC, which is now in alignment with the duration of the existing mining lease with Calista and continues so long as production or mining activities continue at the project.

It is a mutually beneficial undertaking that will have far-reaching impacts on both the local communities and all of our stakeholders. We truly appreciate our partnership with the Alaska Native Corporations and look forward to a prosperous future with them.

I will now pass it over to David Ottewell who will take you through the second-quarter results. Dave?

Thank you, Greg. Turning to slide 10, during the second quarter spending at our projects remain on track with our budget for the full-year. In 2014 activities at Donlin Gold are focused on permitting and community engagement in the region. Our share of cash funding year to date was $6 million compared to a budget of $12 million for the year.

At Galore Creek technical studies to advance this copper-gold-silver deposit toward next level mine planning and project design are underway. Our share of cash funding year to date was $1.4 million as expected compared to a budget of $2.5 million for the year.

Slide 11 highlights our operating performance in the second quarter. Our operating expenses continue to decline. Given our current stage of development we are focused on reducing general and administrative expenses as well as project costs at Donlin Gold and Galore Creek. Our second-quarter operating loss of $8.3 million was 32% lower and the first half loss of $19.6 million was 27% lower than the prior year period.

Looking at our cash flow on slide 12, cash decreased by $1 million in the second quarter and $9.9 million for the first six months. Term deposits also decreased by $5 million. So far this year $5.7 million was used in operating activities primarily for administrative costs, interest and other working capital changes and $9.2 million was used to fund Donlin Gold and Galore Creek, partially offset by $5 million from term deposits.

At May 31, 2014 we had cash and term deposits totaling $176.3 million, a reduction of $15 million from the beginning of the year, and right on track for our full-year estimate of $30 million in spending.

Turning to slide 13, we have been focusing on carefully managing our financial resources and ensuring that we have sufficient cash to execute on our objective to permit the Donlin Gold project.

Due to this prudent financial management over the last few years our 2014 budget at $30 million is almost $100 million less than what our expenditures were in 2012. That puts us in a great position to advance Donlin Gold through permitting, support ongoing activities at Galore Creek and repay the remaining $15.8 million of convertible notes due in May, 2015.

Greg, I will now pass it back to you.

Thanks, Dave. Large gold deposits like Donlin are rare and exceptional assets. Donlin has size, it has grade, a league leading projected output, a low operating cost structure. This is a Company-making mine with excellent exploration potential. We have strong local partnerships and it is located in one of the best mining jurisdictions, Alaska. It is a truly unique and attractive asset. Donlin Gold has all the key ingredients of scale and quality that are required to build a modern, cost-effective gold mine.

On slide 15, when you look around the world among the key attributes for Donlin Gold is the size of the resource. With 39 million ounces in the measured and indicated category it's at the top of the list when compared to large-scale gold deposits.

In addition to size and scale, Donlin Gold has longevity with an anticipated production profile of greater than 1 million ounces a year over a 27-year mine life, placing the project among the top 1% of all known gold deposits and only one of two gold assets in the world producing or soon to be producing more than 1 million ounces a year.

Now looking at grade, when compared to the largest gold producers, on slide 17, Donlin's grade is near the top of the list. This is very important in the context of the challenges facing the precious metals industry as reserve grades continue to decline and sources for emerging production to replace mined out capacity are becoming increasingly scarce.

Beyond size, scale, longevity, excellent grade and geopolitical stability, Donlin has tremendous exploration potential, particularly along the 8 kilometer gold bearing trend which we see north of the pit on the illustration.

The future mine, shown on slide 18 will be only 2 kilometers by 3 kilometers within a district measuring 3 by 8 kilometers. There is no doubt the Donlin Gold's mine life will be extended beyond the three decades of production anticipated from its reserve base.

Slide 19 is an interesting illustration displaying the permitting. Historically the orphan period provides great upside potential as the project progresses through development and toward production. It's a compelling investment opportunity on a backdrop of significant challenges in the mining industry.

Moving on to Galore Creek, it is expected to be one of the largest and highest quality low-cost copper producers in Canada, also one of the few safe mining jurisdictions remaining for copper miners.

During the quarter we progressed studies to evaluate an integrated plan for mining, waste disposal and water management to enhance the economics of the project. We expect this effort to further improve the value and marketability of Galore, which we continue to look at monetizing to further strengthen our balance sheet and focus our efforts primarily on the permitting of Donlin.

We support and are actively engaged in community-led sponsorships in the regions where our projects are located. We have highlighted three community initiatives on slide 21

The first is a bursary program that is offered to Tahltan members pursuing secondary education. The last two involve sponsoring local youth sporting events such as the Yukon Native Hockey Tournament and the Dease Lake Badminton Tournament.

In closing, why would you be interested in NOVAGOLD today? We are in a macroeconomic environment supportive of higher gold prices. It is a time of declining grades and few new discoveries, not to mention escalating geopolitical risk. NOVAGOLD offers top-tier assets in terms of their quality, scale and upside potential 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 both an exceptionally strong track record of success and a rigorous alignment with all of our stakeholders. We are very proud of what we achieved and are looking forward to an exciting future.

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

(Operator Instructions). John Bridges, JPMorgan.

Good morning, Greg, everybody. Congratulations on the progress. I was just wondering, you've pulled down your spending quite a lot. And I just wondered if the process did happen to go on longer than you expected, how much more could you pull it back just to give yourself more comfort in terms of the cash resources you have got available?

Well John, I appreciate you joining us this morning. At this stage we don't anticipate the type of delay that would cause us any undue financial stress at this stage. But to answer your question, the permitting activities in terms of the EIS and related work really peak this year. So you could expect some modest reductions there as we progress forward.

And at Galore, at somewhat discretionary spending to us, but that is an area we could cut back if we absolutely have to. But again, we think we are in pretty good shape. And sitting right now with about five years of cash in the bank, I can't foresee a delay that would pressure our balance sheet at this stage.

Okay, great. That is what I wanted to hear. Thanks a lot. Good luck.

Thank you, John.

Operator, we have two questions that have come in by email. I will go ahead and read the first.

A few years ago American Barrick indicated they had no interest in developing the Donlin Gold project when gold was at $1,500 per ounce. Has Barrick changed its position on this since? And does Barrick have the right to sell its interest to a third-party?

Well, that's two questions and I will try and break them in half. Thank you, Melanie. The first question regarding Barrick's position on projects, I don't know that they've changed any. But what I can tell you is they are supportive of the permitting effort and are involved in this process and, of course, contributing their 50% share to the undertaking.

And the second question, either -- if one party wanted to sell their interest in the project the other party would have a right of first refusal.

Great, thank you Greg. The next question also -- how does NOVAGOLD intend to finance the project, via loans, issuance of debt or dilution of NG equity?

David, would you like to take that for me please?

Sure. When we get to that point we believe that we will have several options including equity debt and third-party financing.

Operator, any further questions from the lines?

There are no further questions at the moment.

Greg?

Everyone, thank you for joining us today. We appreciate your interest in NOVAGOLD and we look forward to continuing to update you on our progress. Thank you.

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