NovaGold Resources Inc.
Q4 2020 Earnings Call Transcript

Published: 28 Jan 2021

[Operator:]

Thank you for standing by. This is the conference operator. Welcome to the NovaGold Fourth Quarter and Year-End Financial Results Conference Call and Webcast. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. I would now like to turn the conference over to Melanie Hennessey, Vice President, Corporate Communications. Please go ahead.

[Melanie Hennessey:]

Thank you, Ariel. Good morning, everyone. We are pleased that you have joined us for NovaGold's 2020 year-end financial results and for an update on the Donlin Gold project. On today's call, we have Dr. Thomas Kaplan, NovaGold's Chairman; 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 via text.

[Greg Lang:]

Thank you, Melanie, and good morning, everyone. Our Donlin Gold project is in the western part of the great state of Alaska, as shown on Slide 4. This project is a 50-50 partnership with Barrick Gold. Mining is an important part of the Alaskan economy and becoming even more important to state revenues and employment. As shown on the map, there are six producing mines and numerous exploration and development projects in the state. In terms of scale, quality and exploration potential, Donlin Gold's attributes far exceed any other gold development project on the horizon. When combined with the Company's excellent partnership with the native corporations and co-owner, Barrick, exponential leverage to a rising gold price, a strong cash position and key federal and state permits in hand, an experienced management team and Board as well as long-term supportive shareholders, NovaGold is in a league of its own. Slide 5 highlights our strategic focus for the year. As COVID-19 positive cases rose in Alaska over the summer, Donlin Gold's stringent safety measures and on the ground support allowed us to safely operate four drill rigs, making up for the two months of the pandemic-related shutdown sustained early in year. Careful collaboration with our native corporation partners, Calista and TKC, as well as other tribal groups in the region were key to a safe and successful drill program. In August, October and January 2021, and NovaGold and our partner, Barrick, reported updates on the assay results from the 2020 program, the largest drill program in over 12 years. The work was carried out safely and ahead of schedule despite the impacts of COVID-19 on our activities. With a long history of mining and a skilled workforce in the state, Donlin offers the opportunity of a future with good paying job and training for young people who can live close to home and continue a sustenance way of life that includes hunting, gathering and fishing. We are proud that greater than 80% of our local workforce, our Alaska natives and that we had no lost time accidents. The image on Slide 6 shows the 2020 drill program, core hole locations with reported assays in orange and remaining assays to report in black. A total of almost 17,000 meters or over 70% of the length drilled have now been reported. Final assays for the 2020 drill program are expected to be reported in the coming months. We are proud to say that the program was safely and successfully completed in September with a total of 85 holes or over 23,000 meters drilled.

[David Ottewell:]

Thank you, Greg. Slide 12 highlights our operating performance. We reported a $33.6 million net loss in 2020, an increase of $5.8 million from the prior year, primarily due to the drill program at Donlin and higher G&A expense. Lower interest rates led to lower interest income earned on cash and term deposits and lower interest expense incurred on the Barrick notes. Regarding income taxes, we have elected to file consolidated return for our U.S. subsidiaries. This allows us to use operating losses against our income, resulting in a reversal of income tax expense in 2020. Slide 13 highlights our 2020 cash flows. For the year, we spent $26.6 million, $8.1 million higher than the prior year. This was due, again, to the increased dominant funding along with higher G&A spending and lower interest income. Donlin funding was lower than our original outlook of $20 million, primarily due to better than planned drill productivity and lower permitting administrative and community engagement costs. Our corporate G&A spending was higher than our original outlook of $11 million due to higher legal and regulatory costs. On Slide 14, we note our robust treasury. We ended the year with cash in term deposits of nearly 122 million. We also have 75 million from Newmont in July, and an additional 25 million due two years later. A further contingent payment of 75 million becomes due from Newmont if the Galore Creek owners approved the project's construction. We anticipate spending 31 million to 35 million in 2021. We put 18 million to 22 million to fund our share of drilling, permitting, and community engagement of Donlin and 13 million for our corporate G&A costs. Slide 15 presents the life of mine diagram per Donlin Gold is one of the world's largest open pit mining development projects. The time invested upfront to build a solid foundation from which to grow responsibly and sustainably has been critical to the project's success to date. And as Greg discussed, in 2021, we expect Donlin report the final lasting results from the 2020 drill program and integrate them into the geologic model. Complete additional drilling focused on the continuity and structural controls of the hydrate mineralization and evaluated the timing for the next step by new Donlin Gold feasibility study and engineering, which forms the basis of an execution plan and ultimately a construction decision.

[Thomas Kaplan:]

Thank you very much, Dave. Thank you, Greg. Certain things bear repetitions. When I speak about Donlin Gold to investors, I often ask the question, what other gold development stage assets in the gold mining industry compares in its combination of the following. Number one, enormous side. Number two, we all know the greatest team, and what we're talking about here is very high grade for an open pit, large open pit mine, with the concomitant fact that you're going to have low production costs. The exploration potential is extraordinary. We're finding it simply in the insole drilling. But, when did you realize that the existing resources are only on the 3 out of an 8 kilometer mineralized belt, 3 kilometers out of 8 kilometers, and that 8 kilometers itself is less than 5% of the total land package. You realize that, the blue sky and the exploration potential at Donlin is arguably better than any other gold mining project, certainly in a safe jurisdiction. The production profile of Donlin would make it in either one or two stages either the first or second largest gold producing mine in the world. And by gold producing, I mean, purely gold without base metals. It's only comp would be -- project, and that one is being developed in Russia. A mine life measured in decade, that's the basis, that's the foundation of all great mining companies. It means that, you do not have to continue outside of your own backyard in order to be able to sustain and very possibly add to growth. Our local and industry partnerships are superb. We are on land is Greg referred to, which is already designated legally, bylaw for mining. And of course, we're partners with great native corporation organizations, plus one of the leading gold producers in the world, Barrick Gold. And last but as far as I'm concerned, really the gating factor for investing in precious metals mining today. We have the safety of being in one of the world's premier mining jurisdictions. Even if there were other gold deposits, not very many of them would be able to combine several of the attributes that I just discussed to combine all of them and yet be in a jurisdiction that is the second largest gold producer in the United States after Nevada. This to us is why we call Donlin to the benefit of our shareholders, and also those in Barrick the Holy Grail. Next slide please. Let's talk about some of the backdrop. By background, as you know, Greg is an engineer. He is one of the premier mine builders and operators in the space. He and our project manager, Richard Williams, they know how to really build great mines. That's not my forte, mine is being able to anticipate future supply demand imbalances and try to get ahead of the curve.

[Operator:]

We will now begin the question-and-answer session. Our first question comes from is David Lesinski a Private Investor. Please go ahead.

[Unidentified Analyst:]

Good morning, gentlemen. Before I start any of the questions I had, I just wanted to take note that SLV which normally trades the silver ETFs. It normally trades about 26 million shares a day, traded 53 million shares in 45 minutes this morning, which means this ready crowd obviously sees the short position with JP Morgan on silver and gold. And we all know that COMEX has been dictating the price of the GLV and the SLV for 30 years. Now, if the SLV is accumulated, this is the first time initiated, the COMAX is going to have to follow the ETF. So, we reverse roles and I find that a standing and interesting trend. Because of stuff like this that's happening and the changes that are happening, I think gold feeling a lot higher, and I also would robs to see Mark Breslow, just say, We're going to start foundation construction or anything to start getting ready because it's coming. And I'm really anxious to say this mind, at least some construction starts. Now, the other question I had was, is it windy at the Donlin goldmine? Is there a lot of wind because I was thinking about the possibility of wind those for energies? As often thought of?

[Greg Lang:]

I'll take that question. First off, thanks for joining our call this morning. Over the years, we have looked at different energy sources including wind, and we found this -- and I think the case is still true with current gas prices that natural gas is the most cost effective means of generating power at the Donlin site. But I think as we move into updating our feasibility study, it's always appropriate to revisit and challenge any of the earlier assumptions. And I think we'll do the same with wind and other energy sources as we're moving.

[David Ottewell:]

The one caveat to starting some semblance of construction as Mark Bristow was to say, to start with jump I would say, five to eight bucks in a day on that, just that simple statement. The other thing is, I want to point out, there's a lot of talk about Bretton Woods II meeting by Christine Lagarde. And if something like that was going to take place, and all the G20 leaders was sitting around the table, I think the first question I asked would be. What are the gold holdings? And I think at that time, China will finally disclose that they have 25,000 tons instead of 1900 tons like they say, and that'll be the time that they will come out. I thought just out with a Chinese for 40 years, and I know how they buy, I feel them proud, I think we're doing. It's actually what his favorite when I saw them. And they are the market when they come in and buy for a period of time to drive the price up, and they back away to drive the price down and they come back in power and they didn't think they with gold and they're not going to announce their holdings, because they were announced today that they have 20,000 tons. Gold is at $1,000 today, it's just crazy what's going on, but I'm just so anxious to see this progress, at least for some night guys, let's get going. Anyway, that's all I have to say, unless you have any comments.

[Greg Lang:]

Thank you very much, David, for your stalwart support. And I think it's fair to say that we're all on the same page about what we're going to see happening in the gold market, the silver market indeed, and also at Donlin, when the time comes and we're obviously moving in the right direction. The geology is allowing us to be able to say hand on heart to Donlin this clearly a gift that keeps on giving. And I think it will be in the right place at exactly the right time. Thank you, David. I think we should move to the next call. We really need to move on. We really need to move on. I don't want to lose people but I'm certainly happy to answer any additional questions you have, when there are no more questions, if that's okay with you.

[Operator:]

Our next question comes from Lucas Pipes of B. Riley FBR Securities.

[Lucas Pipes:]

I have a few for Greg and then one for Tom. And first, Greg, you had additional drill results out recently, can you maybe just give us your quick impressions from this latest batch? And then what can we look forward to in terms of the timeline from here to revise mine plan and such so that some of the earlier comments regarding development, that we can check those boxes? So really appreciate your thoughts and color on this.

[Greg Lang:]

The drill results, frankly, I'm very pleased with them. And whenever you embark on a drill program, you take on an element of risk. And I would say, across the board, we've encountered great sicknesses exceed that what we expected in the model. And that's always a very comforting feeling. And across the board, we're seeing slightly thinner intervals, but it's significantly higher grades, and certainly we'll take the grade any day. So we are really pleased with the results we've gotten today. As we never take those kinds of results for granted and we should have in the last few days in the next month or so, and look forward to providing an update. For the next, as a turnaround has been slow this year, because it COVID, but we'll be as we get the assays in we update the model. And once all the drill results are in we'll work with there to update our understanding of the impact on the resources and reserves, but this drill program has had. So that'll take us well into the second quarter of this year. And I think that's the time where we're, I think we're going to have a small follow up program to some of these really intriguing intercepts of 10 and 20 grams that are somewhat unexpected, we're going to do a little bit of follow-up drilling on those, and I think that should wrap up all of the drilling the owners feel we need to prepare a model that's one need to take forward with an updated version of the feasibility study. So in the second half, I think we'll be working with our partner to conclude the last of the trade-off studies we need. And I look forward to updating everybody, as those studies are completed. So, I think, yes, in spite of COVID, I think will have some pretty good news and key milestones coming out throughout the first half of this year.

[Lucas Pipes:]

Very helpful, I appreciate that additional color and look forward to, to all of that. Tom, you commented a little bit on, what we're seeing in the market more broadly. I think you called it at a global event or something along those lines. But can you -- you've seen a lot of cycles, you've seen a lot of interesting markets, made a lot of money anticipating unusual events. And clearly we're in some uncharted territory here. So I wondered, if you could maybe elaborate on what you're seeing here and what this might be a symptom of, and you touched on what this might mean for silver and gold. And I just wanted to ask you if you could share a few more thoughts on that? Thank you.

[Thomas Kaplan:]

Well, you know me. I could go on this for long time. Suffice to say that you're pretty much spot on, when you said, we're in unchartered waters. It's terra incognita, but not only in terms of obviously the health crisis, which could develop in many, many different ways, if it becomes pandemic. The social displacement, particularly in the West, the developments of January 6th, I think one day will be seen as important in terms of its implications for America's power and therefore the rising power of other countries at its expenses as December the 7th was in a different way. We have the situation where the Chinese are the only country, which have come out of 2020 actually growing. And you know, you actually heard me say once before, when you asked me to predict a scenario that wasn't on the horizon, but from a historical standpoint. And I mentioned that, people forget that, the great depression and the political and military consequences of that, actually pretty much began in 1929 with the American stock market crash. But lo and behold, a decade and a half later, America itself emerged as the global hedge as a consequence was something that started in the United States, but the Americans do this intentionally, of course not. Well, my thought was that, we were going to see an economic crisis come out of China that would have a cascade effect on the West and because the Chinese and as any great power rising are going to have multiple boom-bust cycles, which they can survive politically, the Chinese would emerge actually stronger from it, whereas the West, which as we can see has a very fragile political system at the moment, would be weaker. And I used the 1929, 1945 analogy of the United States. So, whether or not you believe the Chinese did any of this by position and I don't, not the conspiracy period. When you look at who benefits from it, they're benefiting from this displacement that was caused as a result of some really, really, really, foolish and dietary habits with regards to -- And they're emerging as the winner to the extent that you can actually use that expression in such a horrible era that we're just looking at it analytically. United States is far weaker now than it was four years ago. And so as Britain, France is muddling and sweaty fruits. But you have China stronger, you have Russia which has been pushing for periphery, Turkey, Iran. It's a very dangerous world. And normally, I like to be long accidents but I don't like to be long crises and the opportunity for a serious crisis to emerge extremely quickly, in many, many different parts of the world from the South China Sea to the Baltic. You have a war taking place in the Middle East already, between the Israelis and the Iranians. 1000s Israelis sorties against the Iranians in Syria and Iraq taking place that's a war didn't work going on in Yemen, between Saudi Arabia and is effectively in Iranian proxies. We a lot of wars going on and the prospect for escalation is there. Now, I'm not saying that that's a reason to own gold. I've never been a believer that you have to own gold as catastrophe insurance. I'm a believer in economics one on one. And the truth is that if you would superimpose the multiplicity of black swans that exists economically, geopolitically, militarily, on to the incredible distinct delivery in between supply and demand, the mining industry and the jurisdictional risk. You really are looking at an accident that's already happened. It's an implosion of the industry in certain respects, which is very bullish for gold and bullish for those companies that can profit from these factors. It's happening in plain sight. And so you really, you want to be great assets and safe places, but that's not the most important thing. We have kids, we have people that we love, and the world is a far more dangerous place now than it was before. And I do not see anything on the horizon, which is going to reverse that trend.

[Lucas Pipes:]

I really appreciate your very.

[Tom Kaplan:]

Did I answer your question fully?

[Lucas Pipes:]

Yes, I mean, I think this is such, as you said at the outset. this is something that we could discuss for over many hours, but I really appreciate your thoughts. And it's uncharted waters. And I really appreciate your, you've seen this and you have studied history, and so your perspective is invaluable.

[Greg Lang:]

Well, if I would leave you with this, I would say that, obviously, there are lots of questions about where the dollar will go, I made a number of comments about what I think the Chinese are thinking. And if I were they, I would be doing the same. The wills powers and important thing. China is not an emerging country. It's a country that's submerged for a brief period, and it's coming back. Obviously, I'm pro American. I'm not someone who's looking at the Chinese model and saying that you be emulated. But I also just have to be very objective. They have a model. They are a larger trading partner to more countries than the United States. They certainly exercise, not just because they're intelligent, hard working, but they are competent, more competent than we appear to have been in a crisis. And I think they're taking note of that I think the Russians are taking notes of all of this. And I don't see an end in sight activity now to the economic let's see here, I don't see an end in sight to money printing. I think that the concept of money itself is being reevaluated, one of our previous caller, David referred to a second Bretton Woods. People forget that John Maynard Keynes, actually, we have to include gold in Bretton Woods, because whatever I may think of it, people do see it as a store value, and it has a place in the global financial system. I do believe that the Chinese already own more gold officially, the United States, they just haven't revealed it. And I do believe that they have a vested interest in a rising gold price, as do the Russians. And both of them have designs on dollar hegemony, because dollar hegemony is crucial to America's ability to create, to be able to project powers, not simply aircraft carriers, by the way we can probably know these days we saw. But power is economic to the East is palpable. And if anything, we're seeing it accelerated. It's not just the rise, or the ascendancy of China, it's the decline in absolute terms of the United States. That's a challenge. It can be reversed requires a lot of civic virtue, which something they trigger. Unfortunately, those kinds of things are usually triggered by dire consequences. Up until December 7, 1941, the vast majority of the American public did not want to get involved in the Second World War. So the greatest generation became the greatest generation, because of Pearl Harbor. I hope that we do not see such a thing happening. But unfortunately, this is the way of the world. And if I'm right, then China is what Dean Martin used to say Frank Sinatra . He used to say, in Frank's world we're just living in. Well, unfortunately, I think that that's what's happening now on the geopolitical stage, and we should count our blessings suffice to say. By the way, you know me. You know that I'm not a pessimist by nature. I'm only someone who is optimist. And if anything irrationally exuberant, would look at 1,000 to one observe, 10,000 to one observe drove for a brand and say that's all we got. So I don't, I'm not someone who shy away from those things. I don't own goals, because of any of those factors. I own goals, because finding more effective burning through reserves than the greatest collapse. And so that's good enough for me. But as somebody who is trying to prepare for my children's future. I'm watching what's going on around the world very, very closely. And I think that people should not be complacent. And they better think about what the world is going to look like. What money is going to look like, obviously, but that's not the most important thing. The most important thing to teach your kids ethics and honor and in the world, which is Thank you. Take care and feel free to reach out anytime. If you want to continue this, you might bring a bourbon with you however by the time I'm done.

[Operator:]

This concludes the question-and-answer session. I would like to turn the conference back over to Greg Lang for any closing remarks.

[Greg Lang:]

Well, everyone for joining our call this morning, and we look forward to updating you on our progress in the coming months. Stay safe. Thank you.

[Operator:]

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.