NovaGold Resources Inc. (NG) Q2 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the NOVAGOLD Second Quarter 2018 Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] I would now like to turn the conference over to Melanie Hennessey, Vice President of Corporate Communications. You may begin.

Thank you, Bruce, and good morning everyone. We appreciate you joining us for NOVAGOLD's second quarter results and to take a look at the key milestones achieved during the quarter and also for an updated on 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 webcast, we will take questions both by phone and by email. But before we get started, I would just like to remind all of you that, as some of the statements today and in the presentation do contain forward-looking information such as projections and goals which are likely to involve risks that are detailed in our various EDGAR and SEDAR filings and in various forward-looking disclaimers included in this presentation. And with that, I have the pleasure of introducing Greg Lang, NOVAGOLD’s President and CEO. Greg?

Thank you, Melanie, and good morning everyone. Today, we will be reviewing our second quarter results and providing an update on our two projects. Our flagship asset in Alaska, Donlin Gold is in the final throes of permitting. The project is poised to become one of the largest producers in the gold industry. Galore Creek got 50% partnership with Teck is located near Stuart in British Columbia and has the potential to be one of the largest and lowest cost copper mines in Canada. During the second quarter, we’ve provided support to the Army Corps of Engineers as they completed the Donlin Gold final EIS and filed the Notice of Availability in the Federal Register on April 30th. As per slide five, the next step in the federal process is the issuance of the Record of Decision for which The Corps and Bureau of Land Management are working on a single Federal Record of Decision along with Clean Water Act Section 404 and Harbors Act Section 10 permits in the second half of the year. Progress has been made on other federal permits with the issuance of the special permit for the natural gas pipeline on June 5th. Likewise for major state permits, we have made significant progress with the completion of the state air quality permit and the water discharge permit that were issued on May 24th. Other key state and federal permits and approvals are scheduled to be finalized concurrently with or shortly after the Record of Decision. We were also delighted to see the press release by the State of Alaska last April and the governor’s quote and support for Donlin is highlighted on Slide 6. We are fortunate to have a broad base of support from this state. Support from our native corporation partners Calista and TKC has been a key factor in the success of this project. Slide 7 highlights excerpts from Calista and TKCs final EIS letters to the Corps of Engineers. NOVAGOLD and Barrick’s technical teams along with third-party engineering firms are optimizing the project as planned, studying opportunities to improve capital efficiencies and integrating the results from the 2017 drill program into Donlin Gold’s geologic and resource model. We’re also evaluating enhancements to the project execution plan while maintaining the project's upside potential as highlighted on Slide 8. One of the opportunities being studied is the ability to mine more selectively, which could improve feed grade. They have also identified innovative technologies in logistics and automation and modular construction techniques to improve efficiencies. Another component to reduce the upfront capital cost will be evaluating third-party participation in certain infrastructure. These technical studies and cost savings opportunities have the potential to benefit the project when the owners proceed to update the feasibility study and initiate engineering work necessary to advance the design. We expect to provide an update on our progress and the next step in this program later in the year. Barrick and NOVAGOLD remain committed to advancing Donlin Gold Project in a financially disciplined manner with the strong focus on environment stewardship and social responsibility. On Slide 9, we have included a quote from Kelvin Dushnisky, Barrick's President, addressing NOVAGOLD's press release that was issued on April 30th in regards to the publication of the Donlin Gold final CIS. Our engagement efforts with the broad stakeholder base are the foundation of all our activities. The outreach efforts in the broader Y-K region is an important and essential element of our day-to-day activities, taking part in frequent engagements with the local communities by hosting and participating in advanced presentations and workshops. We appreciate the level of commitment and interaction with our partners TKC and Calista, the residents and the organizations located in the projects region. In the second quarter, some of the highlights included the best gold job center career fair, presentations at the gatherings and conferences throughout the state, village and stakeholder meetings throughout the Y-K region and a comprehensive economic development strategy. And with that, I'll turn the call over to our CFO, David Ottewell.

Thanks Greg. Slide 11 highlights our second quarter operating performance. We reported an $8.2 million operating loss and $9.6 million net loss for the second quarter. For the quarter and the first six months, an increase in Donlin Gold optimization costs were offset by lower permitting costs while other expense increased due to higher expense on the Barrick promissory note. For the first six months, general and administrative costs were $1.9 million lower than the prior year as a result of the lower share-based compensation costs for stock options and PSUs, due to changes implemented in our share-based compensation program in the first quarter. NOVAGOLD's cash flow highlights are outlined on slide 12. During the second quarter of 2017, we spent $6.5 million, of which $4.6 million was to fund our share of the Donlin Gold and Galore Creek projects and $1.9 million was used for administrative costs, net of working capital and interest. We ended the quarter with cash and term deposit of 70.5 million. We continue to expect to spend the total of 28 million for the full year. Greg?

Thank you, Dave. Turning to our flagship asset on Slide 13. Donlin Gold has all the key attributes that are required to build a modern cost effective mine. Donlin Gold has size and grade and also league-leading output, a low-cost structure. This is a company making mine with excellent exploration upside, strong local partnerships, and importantly jurisdictional safety. Donlin Gold represents tremendous value for our broad stakeholder base. Our largest shareholders view NOVAGOLD as the best way to gain exposure to one of the richest gold deposits in the industry with 39 million ounces of gold, nearly four times the average of its peer group. Donlin is in the league on its own when compared to the other development gold projects presented on Slide 14 with greater than 2.5 million ounces in reserves located in North America. Another key attribute shown on Slide 15 is the excellent quality of the deposit. With measured and indicated resource grade of 2.25 grams per ton, it’s double the industry average. Donlin Gold is one of the highest grade known open pit gold deposits. Its grade makes the asset more attractive in precious metals industries where reserve grades are declining and sources of emerging production are becoming increasingly scarce. Beyond the size and the quality, Donlin Gold has longevity with an anticipated production profile averaging more than a 1 million ounces a year over approximately a 27-year mine life. Clearly at the top of the list as shown on Slide 16, when compared to the same gold focused development peer group as presented earlier. Once in production, the project will contribute great economic benefits to all of our stakeholders for decades to come. Slide 17 depicts Donlin’s 8 kilometer mineralized belt and the ACMA and Lewis pits, which are delineated in a white border, contain the 30 million ounce resource. During the years of active exploration between 2006 and 2011, Donlin’s Gold resource grew by 135%. As you can see the trend has multiple targets that warrant exploration in the future. Donlin Gold is located in Alaska, the second largest gold-producing state after Nevada that offers jurisdictional stability and a time on a tradition of respect for the rule of law and responsible mining. As highlighted on Slide 18, jurisdiction is an important issue today in the resources sector. Mine development in many countries from Africa to Asia is getting increasingly more challenging. Investing in the wrong region carries risks well beyond what you experience in North America. We have come a long ways in recent years as shown on Slide 19 when we embarked on the complex path of securing the state and federal permits, which we need to proceed with site activities. The time invested upfront to build a solid foundation from which to grow responsibly and sustainably has been critical to our success today. When considering the longevity of the future mine, it's worth investing the time needed to develop what is expected to be a very important and long-live operation. It's very gratifying to be able to final stretch of Donlin Gold's permitting process. With the core publishing the final EIS and the balance of the permitting activities winding down, looking ahead, we’ve outlined the next steps in Donlin Gold’s development on slide 20. The optimization efforts focused on lower upfront capital and enhancing the project execution plan will be reflected in the updated study. We expect to provide additional information on our progress and the next steps for this program after receipt of the Record of Decision. Barrick & NOVAGOLD will take all this work into account before reaching a construction decision. We remain very methodical in our approach to attain optimum and sustainable value. Moving to Galore Creek on Slide 21, the resource data base and optimization work was completed in the second quarter. Mobilization of the camp for the summer care and maintenance program and asset preservation work began with a week-long safety orientation program. In many respects, Galore Creek is similar to the Donlin Gold project with size, scale, quality, longevity, exploration potential and jurisdictional appeal and equal ownership by NOVAGOLD and Teck, a major mining company. However, since our focus is advancing our Donlin Gold project, we are committed to objective -- our objective to sell all for part of our interest in Galore to strengthen our balance sheet and to support the continued development of the Donlin Gold Project. As shown on Slide 22, we are fortunate to have an excellent shareholder base, who are true believers in the opportunity and the leverage which NOVAGOLD presents. Over half of our shares are held by our top six investors. Ahead of our Annual General Meeting of Shareholders in early May, we engaged with shareholders representing 82% of the Company’s issued and outstanding shares. Our active shareholder engagement program continues to be a high priority and is an integral part of our corporate governance practices. Regardless of financial need, market trends or economic conditions, we are committed to investor engagement to update and listen to our existing shareholders as well as attract new investors who we believe have an opportunity to invest in a high-quality vehicle that has the best and substantially de-risked large-scale project in North America. To conclude, we remain steadfast in our commitment to develop what will be one of the most coveted precious metal assets in the world. Thank you. Operator, we are now open the line for questions.

[Operator Instructions] And our first question comes from the line of Lucas Pipes from B. Riley. Your line is now open.

Ted Beachley here for Lucas, thank you for taking my questions and Greg and team, first, I want to say congratulations on [indiscernible] once again this quarter. So my first question is, after the Record of Decision is complete and optimization project wraps up, how soon after can we expect the construction decisions for Donlin? Do you have any rough idea right now?

No, I think we're working with Barrick to conclude the optimization studies after the Record of Decision is released. And then, we'll assess where the markets are and go from there.

And then just secondly, how is interest been for Galore Creek? And do you see it picking up at all in the current copper environment?

Interest in our Galore Creek project which were known to be interested in selling, has picked up in the last year as copper prices have moved higher. So, we're evaluating that and we'll take it as it comes in the second half of the year.

And our next question comes from the line of John Bridges from JP Morgan. Your line is now open.

Good morning Greg, everybody. Again congratulations on the progress. We're looking forward to that Record of Decision. Interesting detail on the new outlook for the Phase 1 scale of development and third-party participation, where would you think that could be helpful?

Well, good morning, John. The opportunities we're looking at for third-party participation. Some of them are pretty standard such as leasing the mining equipment or entering into agreement for the oxygen plant. But we're also looking at maybe it make sense to bringing a partner on the gas pipeline and other aspects of the infrastructure. Those are the major ones. But there is also opportunities in the ownership and operation of the ports that will supply the mine. So, all of those things are being contemplated as we wrap up the optimization work.

I was just wondering. All this with favorable funding arrangements for First Nation's companies that set up to help you with some of the developments?

John, there are opportunities along those lines that we're looking at and there has been some interest there. So, we'll continue to look at those and all other opportunities to reduce the upfront capital.

And you've mentioned the gas pipeline. You’ve got the permit now. How long is that permit open for? Do you have to start building it by any particular date?

No, John. Most of the permits, when you think about it we’re requesting approval for a mine that will have a mine life in decades. So most of the permits are for the life of mine and don’t really have a sunset. Some of the permits, such as air quality need to be renewed periodically, generally on a two to three year horizon.

And then there has been some talk about third parties coming in, maybe too early, but I just wonder. Are there any CAs in place at the moment with other parties who might be sort of thinking about coming in to join you?

Nothing that we would comment on John, but thank you.

And our next question comes from the line of Stephen Walker from RBC Capital Markets. Your line is now open.

Just a couple of follow-up questions on Galore Creek. Last technical study was published in September of 2011 and I know Teck has been talking about optimizing the value on some of, it’s assets including or at least getting recognition for the value in some of its asset and its asset undeveloped assets including Galore Creek. Is there any plan or are there any plans to update that technical study or provide a broader update given the work that’s been done over the last several years on the property?

Steven, well, thank you for listening in on our call today. We’ve been very methodical in our approach to Galore. Certainly, as copper prices have moved up, we’ve seen -- it’s a much more visible asset with our partner, which we think is certainly very helpful for what we want to do. But we’re not really planning on any updated studies in the near-term.

And then just as a follow-on presumably two things. Is there a formal process going on for Galore at this point? And secondly, is there, presumably Teck has a right of first refusal should something happen and somebody look to buy a portion or all of your share in Galore Creek?

Steven, there is no formal process underway at this time. But to your question on the right of first refusal, yes, if we present an offer to Teck, they have 90 days to exercise their right of first refusal and match any offer that we would present them.

And at this time, I’m showing no further questions. I would like to turn the call back over to Greg Lang for any closing remarks.

All right, well, everyone, thank you for joining our call today, and we look forward to updating everybody in a couple of months when we receive the Record of Decision.

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program and you may all disconnect. Everyone have a great day.