VANCOUVER Jul 8, 2015 (Thomson StreetEvents) -- Edited Transcript of NovaGold Resources Inc earnings conference call or presentation Wednesday, July 8, 2015 at 3:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Melanie Hennessey NOVAGOLD Resources Inc. - VP, Corporate Communications * Greg Lang NOVAGOLD Resources Inc. - President and CEO * Dave Ottewell NOVAGOLD Resources Inc. - VP and CFO ================================================================================ Conference Call Participants ================================================================================ * John Bridges JPMorgan - Analyst * Raj Ray National Bank Financial - Analyst * John Tumazos John Tumazos Very Independent Research - Analyst * Eliot Glazer Wm Smith & Co. - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good day, ladies and gentlemen. Welcome to the NOVAGOLD second-quarter 2015 conference call and webcast. My name is Ashley and I will be the operator for today. (Operator Instructions). I would now like to turn the call over to your host, Mrs. Melanie Hennessey, Vice President Corporate Communications. Please proceed. -------------------------------------------------------------------------------- Melanie Hennessey, NOVAGOLD Resources Inc. - VP, Corporate Communications [2] -------------------------------------------------------------------------------- Thank you, Ashley. Good morning, everyone. We are pleased that you have joined us today for NOVAGOLD second-quarter results and also to hear the latest updates on the permitting of the Donlin Gold project and also an update on Galore Creek. 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 this 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 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 this presentation. With that I have the great pleasure of introducing Greg Lang, our President and CEO. Greg? -------------------------------------------------------------------------------- Greg Lang, NOVAGOLD Resources Inc. - President and CEO [3] -------------------------------------------------------------------------------- Thank you, Melanie. Good morning. We appreciate you joining us on today's call. NOVAGOLD is a development stage company with two great assets in North America as highlighted on slide four. Our 50% owned flagship asset, Donlin Gold, is well in permitting and poised to become one of the largest producers in the gold industry. Galore Creek which is held in 50% partnership with Teck, will someday be the largest and lowest-cost copper mine in Canada. As outlined on slide five, the Donlin Gold project has made steady progress on permitting. In the United States permitting is a serious undertaking that takes time. Although it may seem lengthy, a permitting timeline of about five years is reasonable for an asset that will produce for over three decades in one of the world's safest jurisdictions. The reality of today's environment is that mining projects now take an average of 18 years to reach production after discovery. We have invested time and resources into this process which will pay dividends as we near the home stretch in the permitting of Donlin Gold. Moving on to slide six, many pieces of the puzzle in permitting Donlin have come together in the last quarter. The Corps of Engineers will primarily focus on the preliminary draft EIS which is a key driver in the permitting schedule. The Corps has addressed comments from the cooperating agencies, the state of Alaska and the native corporations and issued a preliminary draft EIS for inter-agency review. The release of the preliminary draft EIS is a major step in the process leading to the publication of the draft EIS for public comment. Agency comments received to date have been constructive and focus primarily on clarifying certain aspects of the EIS to efficiently communicate the potential benefits of the project. This input into the EIS is very important as it ensures the draft EIS meets the expectations and the needs of all agencies involved in permitting and reviewing the project. The Corps is working toward a publication of the draft EIS around year-end 2015. We also continue to work simultaneously with other agencies on major permit application such as air quality, water discharge and use permits, rights-of-ways for the gas pipeline and the engineering and evaluation of tailings dams and also the Clean Water Section 404 Permit. At Galore Creek, technical studies continued during the second quarter including a request for expression of interest on the proposed access tunnel into Galore Valley. We have no doubt that when copper markets turn, Galore Creek will be one of the more valuable assets with many key attributes that we find with Donlin Gold. It's got good grade, it is low cost and we have partnerships in place with Teck and the Tahltan Nations. It is in British Columbia, a safe mining district. Local outreach remains a key priority for NOVAGOLD as shown on slide seven. Through our investments in Donlin Gold and Galore Creek, we continue to be actively engaged in the communities where our assets are located. Year to date Donlin has completed many site village visits throughout the Y-K region and are focused on community outreach and workforce development. The annual Clean Up Green Up initiative had another successful year with 52 villages working together to remove waste that has accumulated over the winter. Additionally, Donlin Gold hosted the Second Annual four-day Academic and Trades Decathlon in Antioch where 145 students participated. Donlin Gold also accompanied representatives from Calista Corporation, one of our key stakeholders on a site tour of the Gold Strike mine in Nevada. Gold Strike is one of Barrick's core operations with mining and processing equipment similar to that proposed for Donlin. The visit provided an opportunity for the Calista team to see firsthand a large-scale gold operation and meet with local stakeholders including representatives of the Western Shoshone tribe to get a better understanding of the economic benefits, opportunities and challenges that mining offers local communities and businesses. Lastly, in the second quarter, NOVAGOLD released part two of the Alaska video series titled Subsidence Way of Life. This is a four-part series that explores the importance of preserving the long cultural history and traditional lifestyles of those living in remote communities in the Y-K region where Donlin Gold is located. I will now pass it over to Dave to review the second-quarter financial results. -------------------------------------------------------------------------------- Dave Ottewell, NOVAGOLD Resources Inc. - VP and CFO [4] -------------------------------------------------------------------------------- Thank you, Greg. Turning to slide eight, during the second quarter activities and spending at our projects continued as planned as we support Donlin Gold permitting activities and Galore Creek technical studies. We spent $3.9 million to fund our share of Donlin Gold and Galore Creek in the second quarter. For the full-year we expect to spend a total of $14.2 million on our projects. Slide nine highlights our operating performance. In the second quarter, our loss from operations was in line with expectations at $7.3 million. General and administrative expenses were lower in the second quarter due to favorable exchange translation of expenses incurred in Canadian dollars and an adjustment to first-quarter stock option expense. Other expense includes a $400,000 write-down of investments in junior mining companies. Looking at our cash flow on slide 10, total cash and term deposits decreased by $22.3 million in the second quarter. The decrease resulted from $15.8 million used to repay the remaining convertible notes, $2.5 billion used for administration and interest payments, and $3.9 million to fund our share of our Donlin Gold and Galore Creek projects. We ended the quarter with cash and term deposits totaling $135 million. We continue to expect to spend $45 million for the full year and should end the year with approximately $120 million in cash and term deposits. Greg, back to you. -------------------------------------------------------------------------------- Greg Lang, NOVAGOLD Resources Inc. - President and CEO [5] -------------------------------------------------------------------------------- Thank you, Dave. Donlin Gold represents tremendous value for a broad stakeholder base as illustrated on slide 11. Our largest shareholders view NOVAGOLD as one of the best ways to get exposure to the richest gold deposit in the industry, an unexpiring option on 39 million ounces of gold. Donlin has the key ingredients of scale and quality that are required to build a modern cost-effective mine. As builders and operators with our partner, Barrick, our aim is not to give gold away at a low price. Donlin Gold has exceptional leverage in a higher price environment and we intend to extract the best value out of this unique asset for the benefit of our shareholders and stakeholders alike. Moving to slide 12, Donlin Gold has longevity with an anticipated production profile of greater than 1 million ounces a year over a 27-year mine life, clearly it is that top of the list when compared to its peer group of development stage open pit gold deposits. Once in production, the project will contribute great economic benefits to the region, the state and our stakeholders for decades to come. With a measured and indicated resource of 2.2 g per ton, it is one of the highest grade large open pit gold deposits as shown on slide 13. This is a very important quality 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 and great grade, Donlin Gold has tremendous exploration potential with multiple targets they are under explored. As shown on slide 14, the mineral endowment is found on a small percentage of the total land package. The future mine occupies less than half of an 8 km gold bearing system. Previously mentioned, one of the key qualities most sought out is Donlin's leverage to gold as seen on the bar chart on slide 15. Even in a low price environment, this project has positive returns. Donlin Gold's uniquely long mine life offers a high likelihood that it will enjoy multiple bull markets over its mine life. Donlin Gold is located in the US and this is a key competitive advantage that cannot be overstated. On slide 16, we highlight that the US has defined and rigorous permitting process where the rule of law is not a novelty. Once you get through the permitting, you get to keep the fruits of your labor. Jurisdiction is an important issue today in the resources sector. One of the key questions investors will be asking a mining company is where in the world your assets are located. Investing in the wrong region carries risks well beyond that in North America. Slide 17 shows Donlin Gold's project funding on 100% basis since the formation of the LLC in late 2007 where Barrick Gold and NOVAGOLD each own 50%. The industry has seen significant change which has been further strained by projects being shelved or outright canceled or companies becoming insolvent. Reminiscent of the tortoise and the hare, we and our partners have been advancing Donlin Gold steadily and without interruption. In less than two year's time, market and gold price dependent, the owners will be in a position to make a decision on one of the gold industry's most vital assets in the next generation of mines. In summary, NOVAGOLD continues to be focused on five key areas, advancing the Donlin project toward a construction decision, upholding strong relationships with all of our stakeholders, advancing Galore, and when the market and timing is right, monetizing the value of this asset. We will also maintain a strong balance sheet. NOVAGOLD is truly an institutional quality stock. Thank you for your time this morning. Operator, we are now ready to open the line for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions). John Bridges, JPMorgan. -------------------------------------------------------------------------------- John Bridges, JPMorgan - Analyst [2] -------------------------------------------------------------------------------- Good morning. Just wondered, you were looking at optimization studies and looking at the potential for lower cost and that sort of thing. Have you made any progress with that? -------------------------------------------------------------------------------- Greg Lang, NOVAGOLD Resources Inc. - President and CEO [3] -------------------------------------------------------------------------------- Good morning, John. Thank you for joining the call. We continue to work with Barrick on different ways frankly to reduce the upfront capital and we are making progress in a lot of the areas focused on third-party participation or in aspects of the projects such as the gas pipeline and farming out simple things from aviation to power generation. But while we are looking at that, John, we have still got two years left in permitting so we are really not in a position to make any adjustments to the current project if we are working so hard to get over the line. -------------------------------------------------------------------------------- John Bridges, JPMorgan - Analyst [4] -------------------------------------------------------------------------------- Okay. But you see there are some opportunities? -------------------------------------------------------------------------------- Greg Lang, NOVAGOLD Resources Inc. - President and CEO [5] -------------------------------------------------------------------------------- Very much so, John. Also we are looking at many concepts from starting with a smaller project to expanding over time to just about any means of optimizing and de-risking the investment decision that will be ahead of us in two year's time. -------------------------------------------------------------------------------- John Bridges, JPMorgan - Analyst [6] -------------------------------------------------------------------------------- Okay, good to hear it. And then I read here that you took some of your Calista partners down into Gold Strike to your old stomping ground. How was the feedback from that? What do they think of that great big hole you helped dig? -------------------------------------------------------------------------------- Greg Lang, NOVAGOLD Resources Inc. - President and CEO [7] -------------------------------------------------------------------------------- John, I think they were really pretty impressed by Gold Strike. They have a lot of programs in place to protect the environment, concurrent reclamation and so on. It is really a very impressive operation. But I think the other thing that they took away from it was just the sheer scale of an open pit like Gold Strike. It is one thing to see it on a piece of paper, it is another to walk the open pit and look over the edge work or go through the autoclave plant. It was really a very insightful visit for everyone. -------------------------------------------------------------------------------- John Bridges, JPMorgan - Analyst [8] -------------------------------------------------------------------------------- Okay and they met with the Western Shoshone as well, how did that go? -------------------------------------------------------------------------------- Greg Lang, NOVAGOLD Resources Inc. - President and CEO [9] -------------------------------------------------------------------------------- Good, John. The Western Shoshone, the circumstances are different in Nevada than Alaska because in Alaska, the native corporations actually own the land and it was transferred to them by the Federal Government. Where in Nevada, the Western Shoshone are more the traditional inhabitants of the land. But there is still a lot of similarities in the benefits that large scale operations bring to remote areas particularly I think they really got a better sense of the economic potential and spinoff benefits from a large-scale investment like Donlin. It was really great of our partners to host the visit. -------------------------------------------------------------------------------- John Bridges, JPMorgan - Analyst [10] -------------------------------------------------------------------------------- Yes, it must have been fun for you to go visit as well. Many thanks and congratulations and keep up the good work. -------------------------------------------------------------------------------- Greg Lang, NOVAGOLD Resources Inc. - President and CEO [11] -------------------------------------------------------------------------------- Thank you, John. -------------------------------------------------------------------------------- Operator [12] -------------------------------------------------------------------------------- Raj Ray, National Bank Financial. -------------------------------------------------------------------------------- Raj Ray, National Bank Financial - Analyst [13] -------------------------------------------------------------------------------- Greg, good morning. A couple of questions on the permitting. Are there any additional studies to be completed before the draft EIS is published? The second is, do you see any potential for delays in the publication of the draft EIS? -------------------------------------------------------------------------------- Greg Lang, NOVAGOLD Resources Inc. - President and CEO [14] -------------------------------------------------------------------------------- I will break that into two pieces, Raj. The EIS is approaching 3000 pages now. We are permitting a mine, two ports, a gas pipeline and a power plant so it is really a massive undertaking. There have been numerous in-depth studies along the way on every aspect of the impacts of the project from barging on the river, air quality and so on. So it is a very well scrutinized project which is what we want. We want the project to be fully understood by all of our stakeholders and I think with an undertaking like this, yes, it does take time. To your question on delays, sure, there is always the potential for a delay but at this stage once the draft EIS is published, you then go into a pretty prescribed clock and the Corps of Engineers has set aside five months for public comment and there is a set period to review those comments and then incorporate those into the final EIS and ultimately the record of decision. And we have been pretty realistic about our timelines all along and working with the Corps of Engineers so the big milestone will be the draft EIS later this year. And nothing on the horizon says that won't get completed. -------------------------------------------------------------------------------- Raj Ray, National Bank Financial - Analyst [15] -------------------------------------------------------------------------------- So all of these studies for the baseline data has been completed you are saying? -------------------------------------------------------------------------------- Greg Lang, NOVAGOLD Resources Inc. - President and CEO [16] -------------------------------------------------------------------------------- Yes. We have been collecting baseline environmental data at the site for almost since we went out to the site over 20 years ago. -------------------------------------------------------------------------------- Raj Ray, National Bank Financial - Analyst [17] -------------------------------------------------------------------------------- Okay, thank you. That is it for me. -------------------------------------------------------------------------------- Operator [18] -------------------------------------------------------------------------------- John Tumazos, John Tumazos Very Independent Research. -------------------------------------------------------------------------------- John Tumazos, John Tumazos Very Independent Research - Analyst [19] -------------------------------------------------------------------------------- Thank you, Greg, for the call and presentation. Have your larger partners, Barrick or Teck, cut personnel or dollars on your projects with the declines in their revenues and cash flow this year? -------------------------------------------------------------------------------- Greg Lang, NOVAGOLD Resources Inc. - President and CEO [20] -------------------------------------------------------------------------------- Let me break that into two pieces, John. On the Donlin project as illustrated on the chart that we put forward, the spending on Donlin has been relatively steady over the last few years and that is about the rate we anticipate spending to wrap up the permitting in two year's time. So it has fluctuated a little bit depending on the activities but it has been relatively constant. On the Galore project, we've got a great relationship with Teck. We were actively drilling this project a couple of years ago and this is not a market that is really interested in drill results so we made the collective decision not to continue adding to resources at Galore and to move it forward at a more measured pace. We don't want to spend a great deal of money on an asset that we ultimately plan on selling so we are just working and moving it forward at a pretty measured pace. But to answer your question specifically, the level of expenditures on Galore is down substantially from a few years ago when we were actively drilling. -------------------------------------------------------------------------------- John Tumazos, John Tumazos Very Independent Research - Analyst [21] -------------------------------------------------------------------------------- I got an email from one of my contacts, one of your partners yesterday that they moved on to another job. Have the JVs been able to maintain their personnel? Some of my friends in the mining business are moving to other businesses? -------------------------------------------------------------------------------- Greg Lang, NOVAGOLD Resources Inc. - President and CEO [22] -------------------------------------------------------------------------------- We are focused really on the Donlin Gold asset and the senior management team at Donlin has been very constant over the last few years. And yes, there is a lot of churn at the headquarters of mining companies these days but it hasn't slowed down to the project level in our cases. -------------------------------------------------------------------------------- John Tumazos, John Tumazos Very Independent Research - Analyst [23] -------------------------------------------------------------------------------- Super. Thank you. -------------------------------------------------------------------------------- Operator [24] -------------------------------------------------------------------------------- You have no more questions at this time. (Operator Instructions). Eliot Glazer, Wm Smith & Co. -------------------------------------------------------------------------------- Eliot Glazer, Wm Smith & Co. - Analyst [25] -------------------------------------------------------------------------------- Yes, gentlemen. I am an analyst, been following your story for many, many years. As you know, this is a difficult time for all gold-mining companies. In fact there was an article in mining.com dated July 6, the latest futures data show hedge funds cutting bullish positions on gold 55% to lowest since October 2006. Gold worth less than $600 an ounce. Last week gold futures investors (inaudible) hedge funds slashed these positions to a point where (inaudible) prices will rise only amounted to 21,480 lots of 2,150,000 ounces the week of June 30. In other words, the bearish level on gold is now the highest anyone can remember. Using the contrary opinion this sounds like a pretty good time to buy gold. My question is is it your sense as it is mine that there has been a shift in the last four months of investors' attitudes away from exploration companies and towards conventional gold mining companies with earnings and dividends? -------------------------------------------------------------------------------- Greg Lang, NOVAGOLD Resources Inc. - President and CEO [26] -------------------------------------------------------------------------------- Eliot, I'm not entirely sure I understand the question. I mean very clearly the last few months have been very difficult in the gold space and we have seen a lot of projects cut back or canceled. -------------------------------------------------------------------------------- Eliot Glazer, Wm Smith & Co. - Analyst [27] -------------------------------------------------------------------------------- Let me be specific. I think I got off on the wrong tangent here. What I am trying to say is up until four months ago, your stock and some other outstanding exploration plays were outperforming gold stocks in general. Now these last two months your stock and a few other exploration plays are underperforming gold stocks in general. So I am asking you if you perceive that there is temporarily less enthusiasm for exploration plays such as NOVAGOLD? -------------------------------------------------------------------------------- Greg Lang, NOVAGOLD Resources Inc. - President and CEO [28] -------------------------------------------------------------------------------- You raise a point that clearly the market has seen it that way and we are not -- nobody likes to see their share price drop but we are not really concerned by that. The main decision for NOVAGOLD is two years out into the future. That is a lifetime in the gold industry particularly as tumultuous as it has been the last four months. We are very clean simple story. We are going to permit a great asset in North America and if market conditions are right, we will build one of the finest of the next generation of gold mines. With what has been happening in the space we think our timing will be impeccable. The market will have come out of this slump. There is very few high-quality gold development projects out there and all of that will pressure the supply side which I think ultimately will increase gold prices and turn the focus back on the explorers and developers. -------------------------------------------------------------------------------- Eliot Glazer, Wm Smith & Co. - Analyst [29] -------------------------------------------------------------------------------- Okay, that is great. Thanks an awful lot. -------------------------------------------------------------------------------- Operator [30] -------------------------------------------------------------------------------- I would now like to turn the call over to Greg Lang, President and CEO, for closing remarks. -------------------------------------------------------------------------------- Greg Lang, NOVAGOLD Resources Inc. - President and CEO [31] -------------------------------------------------------------------------------- Just want to thank everyone for participating in this morning's call. Good day. -------------------------------------------------------------------------------- Operator [32] -------------------------------------------------------------------------------- Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.
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