NovaGold Resources Inc.
Q1 2017 Earnings Call Transcript

Published: 4 Apr 2017

[Operator:]

Good day, ladies and gentlemen. And welcome to the NOVAGOLD First Quarter 2017 Conference Call and Webcast. 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 introduce your host for today’s conference call Miss Melanie Hennessey. You may begin Ma'am.

[Melanie Hennessey:]

Thank you, Kevin. Good morning, and thank you everyone for joining us for NOVAGOLD's first quarter financial results to hear an update on the development of the Donlin Gold and Galore Creek project. On today’s call, we have Greg Lang, NOVAGOLD's President and CEO; and David Ottewell, NOVAGOLD's Vice President and CFO. Just a reminder that at the end of the formal part of the presentation, we will be taking questions both by phone and by e-mail. I would like to remind our listeners that our materials do contain forward-looking information and projections that may differ from actual results. Please refer to the risks and uncertainties disclosed in our quarterly report filed on Form 10-Q and other NOVAGOLD reports and documents filed on SEDAR and EDGAR. With that, I have the pleasure of turning the call over to Mr. Lang. Greg?

[Greg Lang:]

Thank you, Melanie, and good morning everyone. We will be reviewing our first quarter results and providing an update on our two projects. Our 50% owned flagship asset Donlin Gold continues to progress through permitting and is poised to become one of the largest producers in the gold industry. Galore Creek, which is held in 50

[David Ottewell:]

Thanks, Greg. Turning to slide seven, our share of Donlin Gold and Galore Creek funding totalled $2.6 million for the quarter as expected. For the full year, we continue to expect to spend approximately $10 million to fund Donlin Gold and $2 million for Galore Creek. Slide eight highlights our first quarter operating performance. For the first quarter, we had $9 million in operating loss, $0.5 million lower than the prior year quarter. General and administrative expense was lower due to lower share based compensation costs. Stock options granted to directors in the prior year quarter vested immediately. Stock options granted to directors in the first quarter this year vested over a two year period resulting in lower expense recognized in the current year quarter. Our share of Donlin Gold and Galore Creek expenses were consistent with prior year quarter and other expenses were higher in the current quarter due to foreign exchange losses resulting from a stronger Canadian dollar in relation to the U.S. dollar. The prior year quarter had a foreign exchange gain. Our cash flow highlights are outlined on slide nine. During the first quarter, our cash and term deposits decreased by $9.8 million as planned and similar to the prior year quarter. Cash spending is higher in first quarter each year, to settle our year-end account including professional fees and annual employee incentive programs. We ended the quarter with cash and term deposits totaling $98 million and continue to expect to end the year with approximately $82 million. Greg, back to you.

[Greg Lang:]

Thank you, Dave. Yes, I worked on many great assets over my career, but yet the distinctive qualities of Donlin Gold continued to amaze me. With the resource containing 39 million ounces of gold, it’s almost four times the size of the average development stage project. Slide 10 provides an updated peer comparison which includes 17 gold development focused projects greater than 2 million ounces of size in the Americas. Turning to slide 11, we are comparing the grade of Donlin versus the other two next largest gold deposits. It clearly illustrates that beyond scale, Donlin grade of 2.25 grams is in a league of its own. Our comparison is taken a step further on slide 12 where Donlin Gold has doubled the worldwide average grade. This is a very important quality in the context of the many challenges facing the precious metals industry as reserves grades continued to decline in sources for emerging production becomes increasingly scarce. Slide 14 is an illustration of the exploration potential at Donlin. We’ve drilled less than half of the gold bearing system, and there is certainly room to add to reserves when the time is right. Slide 15 illustrates the leverage that Donlin provides both on the project level and the company level. Moving to slide 16, Barrick and NOVAGOLD recognize what a unique asset we have and we’re working diligently to realize the full potential. We are progressing on studies and identifying optimized scenarios that would maximize the projects value and reduce additional initial capital outlay. This included reviewing the geology and resource model, mine design, and the use of selective mining methods. Additionally, we are also looking at employing modular construction, automating certain mine functions and other innovative ideas for infrastructure and logistics. We continue to evaluate third-party opportunities to reduce upfront capital particularly related to the infrastructure items. Our findings will be reflected in an updated study. The owners will take all of this information into account before reaching a construction decision. Time is on our side. We have a healthy balance sheet supporting us the flexibility and strength to do things properly and make sound decisions at the right time. We continue to make tangible progress in permitting Donlin. As illustrated on slide 17, we are in the enviable position of advancing one of the industry's most valuable assets of the value chain when the availability of major high-grade gold projects with great upside potential is virtually nonexistent. This situation is not likely to change particularly at a time when global exploration spending is at a 10-year low and there are no signs of any new discoveries of this magnitude or quality on the horizon. Moving to Galore Creek on slide 18, this is also a very significant large-scale project in a great jurisdiction. When the time is right, we will monetize this asset, help fund our future obligations on Donlin. Our major shareholders share our understanding of the gold industry and confirm our belief that NOVAGOLD offers a unique opportunity. One word, it is only a matter of time before its true value is realized. To sum it all up, NOVAGOLD has projects in safe jurisdictions. We’ve got the people with the experience necessary to advance projects like these. We’ll be a large-scale producer. We’ve got supportive shareholders and supportive local communities, and we’ve maintained a strong balance sheet as we progressed our way through the permitting. Thank you, operator. We’ll now open the lines for any questions.

[Operator:]

[Operator Instructions]. Our first question comes from John Bridges with JPMorgan.

[John Bridges:]

Good morning everybody. Congratulations on the progress. Just wondered, there’s a comment in the 10-Q about timeline and other permits and things that still need to be done. Presumably working on those concurrently, you know what sort of timeline do you expect in other requirements after the permits are given to you hopefully, early in 2018, would be ready to press the button within months of that or are there still things that need to be done maybe contingents on having the permits in hand?

[Greg Lang:]

Good morning, John and thank you for joining our call. The army corp of engineers has published on their website that they will complete the final EIS and publish it in March of next year, so more or less a year from now. And then it will take them probably three to four months to write the record of decision. During that time period, we’ll be wrapping up all the various other major permits, and write aways that we need. So, if you're looking for the earliest that we could say okay it's time to get started would be in the second half of 2018.

[John Bridges:]

Okay. And the other permits and things that you need would be done in months rather than a longer period?

[Greg Lang:]

Yes, they would, John and we’re working on those. We’re working on largely all of the permit applications concurrently, but some major one of course being the EIS, and the minor ones being the state permits. You don't need every permit approval in hand to begin construction activities. So we’re focused on the ones primarily that you need to start working at the site and establishing the upriver ports and the access roads.

[John Bridges:]

Okay. Okay, great. You mentioned the responses that the corp is working on. Could you characterize them into certain packages? What were the issues which were raised and what mitigation you’ll be able to be putting in place?

[Greg Lang:]

John, there were probably a little over 100 requests for additional information. Barging was probably the largest request for additional information and we’ve wrapped that up. And the other one, there is the last one that we’re completing really is the issue of Mercury transport, and Mercury in the environment, and there was request for additional information there. And we expect to have all the information that was requested in the hands of the Corps really in the next couple weeks. We’re just about wrapped up now.

[John Bridges:]

Okay, cool. Just finally, there’s a lot of interest in copper at the moment. Have you been seeing people making, giving you goals on Galore on the back of expectations for a much stronger copper price?

[Greg Lang:]

We certainly have, John. We – I think interest in the copper space really picked up toward the end of last year and it’s persisted into this year as copper has moved from 2 to 2.60 a pound. And we’re not motivated sellers, but we are paying attention and talking to people about the assets.

[John Bridges:]

Okay, cool. Well done guys, thanks a lot.

[Greg Lang:]

Thank you, John.

[Operator:]

Our next question comes from Alexandra Foty with National Bank Financial.

[Alexandra Foty:]

Hi, Greg and David how are you?

[Greg Lang:]

Good, good morning.

[Alexandra Foty:]

Good morning. I just had a question about the docket that you recently opened with the pipeline and hazardous material safety administration. So you are looking to receive a special permit to allow you for the proposed streamed based design for the natural gas pipeline. Wondering if given that the two months common period that’s required, do you see any changes to the timeline to submit the final EIS? And also does the request for the special permit have any effect on the NEPA process?

[Greg Lang:]

We are advancing the permits for the natural gas pipeline concurrently with the EIS, and you know the gas pipeline is not on the critical path in our activities. We are really trying to get everything to get wrapped up right about the time of the final EIS in recorded decision. Some of the permits such as the gas pipeline right away do have annual holding fees. So we want to make sure that we have them when we need them but not prematurely because of the fees.

[Alexandra Foty:]

Sure. That makes sense. Okay, thank you.

[Greg Lang:]

Okay, thank you to you for joining the call.

[Operator:]

[Operator Instructions] And I’m not showing any further questions at this time.

[Greg Lang:]

All right everyone. Thank you for joining our call this morning. We’ll continue to update everyone at our next quarter.

[Operator:]

Ladies and gentlemen, this does conclude today’s presentation. You may now disconnect and have a wonderful day.