VANCOUVER Jan 28, 2016 (Thomson StreetEvents) -- Edited Transcript of NovaGold Resources Inc earnings conference call or presentation Thursday, January 28, 2016 at 4:00:00pm 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 ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good day, ladies and gentlemen, and welcome to the NOVAGOLD fourth quarter 2015 conference call and webcast. (Operator Instructions). As a reminder, this conference may be recorded. I would now like to introduce your host for today's conference, Ms. Melanie Hennessey, Vice President, Corporate Communications. Ms. Hennessey, you may begin. -------------------------------------------------------------------------------- Melanie Hennessey, NOVAGOLD RESOURCES INC. - VP, Corporate Communications [2] -------------------------------------------------------------------------------- Thank you, Andrea, and good morning, everyone. And we appreciate you joining us for our year-end 2015 results. And also for an update on the Donlin Gold and Galore Creek projects. But before we get started, just like to remind everyone that some of the statements made today may contain forward-looking information, such as projections and risks, that are detailed in our various EDGAR and SEDAR filings and disclaimers that's included in our presentation. With that, I have the pleasure of introducing Greg Lang, NOVAGOLD's President and CEO. Greg? -------------------------------------------------------------------------------- Greg Lang, NOVAGOLD RESOURCES INC. - President and CEO [3] -------------------------------------------------------------------------------- Thank you, Melanie. Good morning, everyone. NOVAGOLD is a development stage company with two great assets in North America. Our flagship Donlin Gold asset is well into permitting and is poised to become one of the largest producers in the gold industry. Galore Creek is co-owned with Teck, and is a large-scale copper-gold-silver deposit in British Columbia. Turning to slide 5, 2015 was marked by a number of achievements that required tremendous effort by multiple parties, from the Donlin Gold staff to state and federal agencies, and our stakeholders of the native corporations in Alaska. Our most important achievement last year was the publication of the draft environmental impact statement. This is the major milestone in the permitting process. It's been very gratifying to see the engagement at all levels. Other major permit applications have also been advanced, such as the Section 404 permit, integrated waste and water management permits, air quality reclamation and others. With the Draft EIS published, activities this year will entail progressing our permitting efforts at Donlin and supporting the agencies during the public comment throughout the regions in Anchorage. At these public meetings, the Corps will prevent an overview of the Draft EIS, which considers the potential environmental, social, and economic impacts of the proposed project. We will also support the Corps by providing input and information as they finalize the EIS. All of these comments and other information will be taken into consideration when the final EIS is published in 2017. At Galore Creek, we've advanced project design with our partner, Teck, by gathering additional information to complement the integrated mining and water management designs. Additionally, we completed phase 1 of an access tunnel study. On slide 6, community investment and relationship building with our local partners is very important to us. The photos are from recent events in which we participated with both Donlin and Galore Creek communities. Workforce development is a key element of our outreach initiative. We are increasing the awareness of potential job opportunities for residents and stimulating career development efforts. Through our outreach, we've maintained a high level of engagement with the communities through youth initiatives, safety messages, and their local events. We've provided more than 60 updates to the villages and trade organizations as well as state and federal officials. Local outreach in Northern British Columbia continued with Galore Creek sponsoring numerous local events and supporting literacy camps in three villages in Northern BC. Galore has also awarded scholarships to Tahltan members pursuing secondary education in Canada. We continue to be active and engaged in the communities where we operate. I will now turn it over to Dave Ottewell to review NOVAGOLD's year-end financial results. -------------------------------------------------------------------------------- Dave Ottewell, NOVAGOLD RESOURCES INC. - VP and CFO [4] -------------------------------------------------------------------------------- Thank you, Greg. Turning to slide 7, our share of Donlin Gold and Galore Creek funding totaled $11 million for the year. Activities at Donlin were focused on permitting and community engagement. While at Galore, technical studies continue to focus on optimizing project design. Our project funding is expected to decreased to $10 million in 2016 as we continue to support Donlin Gold's permitting activities and Galore Creek technical studies. Slide 8 highlights our 2015 operating performance. For the year ended November 30, 2015, we reported a $6.3 million decrease in operating loss, approximately 20% lower than the prior year period. General and administrative expenses decreased, primarily due to lower professional fees and favorable foreign exchange translation of expenses incurred in Canadian dollars. Our share of expenses at the Donlin Gold project decreased by $3 million, while at the Galore project, our share of expenses decreased by $1.5 million due to reduced activity and a gain on the sale of surplus equipment. NOVAGOLD's cash flow highlights are outlined on slide 9. During 2015, our cash and term deposits decreased by $38.6 million, $6 million lower than originally planned. Cash was used to repay the $15.8 million due on the remaining convertible notes, $11.4 million for administrative costs and interest payments, $11 million to fund our share at Donlin Gold and Galore Creek. We ended the year with cash and term deposits totaling approximately $127 million. On slide 10, we provide a breakdown of our 2016 budget. Given NOVAGOLD's current cash and term deposits of $127 million, and anticipated spending of approximately $25 million in 2016, we expect to end the year with sufficient financial resources for NOVAGOLD to complete permitting of Donlin Gold and conduct necessary activities at Galore Creek. We are thankful for the capital that has been entrusted to us by our shareholders and continue to carefully manage our balance sheet. Greg, back to you. -------------------------------------------------------------------------------- Greg Lang, NOVAGOLD RESOURCES INC. - President and CEO [5] -------------------------------------------------------------------------------- Thank you, Dave. We focused this Company on the Donlin Gold project because it has all the key ingredients required to build a successful gold mine. Starting with size, at almost 40 million ounces, it's one of the largest undeveloped gold deposits in the industry and provides us an expiring warrant on 39 million ounces of gold. Beyond the current resource, Donlin has a longevity that's measured in decades. Once in production, the project will contribute great economic benefits to our stakeholders and owners and shareholders for many years to come. On slide 13, another key attribute of the Donlin Gold project is its grade. At 2.25 grams, it's one of the highest grade undeveloped open pit gold deposits around. This is a very important quality in the context of an industry facing challenges of declining grades, higher costs, and lower production. Beyond size and scale, Donlin also has tremendous exploration potential, with multiple unexplored targets, as shown on slide 14. The future mine occupies a very small portion of the gold-bearing system at Donlin. It's important to look at the fundamental drivers for gold. They remain unchanged. If you look at slide 15, you'll see that there's been a significant drop-off in discovery rates. And in spite of extreme cost-cutting in the industry, there is limited exploration activities and gold is getting harder and harder to find. At the same time, production is going to be dropping. We anticipate it could jump as much as 15% in the coming years. Jurisdictional risk is another issue that [exasperates] this problem. But the gold demand remains strong, especially in the emerging markets. Central banks are net buyers and these supply and demand pressures support higher gold prices. Slide 16 illustrates the significant leverage that the Donlin Gold project has to rising gold prices. The long mine life offers very high likelihood that it will be around for multiple gold market cycles, beyond which is captured in the NPV and traditional financial calculations. In addition to our permitting activities, we're working with our partner to identify ways to reduce capital and optimize the development scenarios for this project. Capital costs matter to both partners and our priority is to ensure that this project provides its owners an attractive rate of return, which is very highly dependent on the gold price. As we've outlined on slide 15, we are bullish on the gold price because of declining supply and demand. The feasibility study is now four years old, and prior to making a construction decision, we will be updating the capital and operating costs and other inputs that drive the returns on this project. Projects like Donlin need strong partnerships. From communities to operations, the partnerships are what bring success. Mining is an integral part of the communities and the native Alaskan corporations who are our partners need economic development in their regions. Slide 18 highlights some quotes from executives that are native partners. They really demonstrate the strong and time-honored relationships we've had with them. TKC and Calista are important, supportive, and active participants in the permitting process. This mine will bring great economic benefits to their people and their companies for many years to come. Slide 19 is an overview of the timelines that we are operating under as well as our key permitting milestones. When you look at any project's lifecycle -- and in particular, Donlin's -- we think the current investment in time and resources for permitting is insignificant in the context of a 30-year mine life. The permitting is progressing as we expected it would and we anticipate completion in about two years in a rising price environment. On slide 20, we highlight the attributes of our Galore project. It's a large-scale deposit in a safe jurisdiction, and although we continue to evaluate opportunities to monetize our interest, we are fortunate to have the financial flexibility to enhance the value of this asset with minimal spending as we wait for markets for base metal projects to improve. Why would you invest in NOVAGOLD now? We're fortunate to have an excellent shareholder base. Over half our shares are held by our top shareholders who have been in the Company a long time and are steadfast in their commitment to see us advance a great undeveloped gold asset. Looking ahead for this year, the focus of this Company is very simple. We will advanced Donlin Gold project toward a construction decision. We'll keep our relationships strong with all shareholders. We will move Galore Creek forward with a minimal level of expenditure. We'll keep our balance sheet strong and we will look at opportunities to monetize Galore when the time is right. In closing, the Company is well-financed to continue our permitting activities at Donlin. I'm confident that the hard work, determination, and conviction and patience of our team will be rewarded. We are truly an institutional quality investment in the gold space. Operator, we would now like to open the line for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions). John Bridges, JPMorgan. -------------------------------------------------------------------------------- John Bridges, JPMorgan - Analyst [2] -------------------------------------------------------------------------------- Congratulations on the progress. And I was just wondering, you mentioned in your release the interest in the pipelines. Just wondered if you could fill out -- give us a little bit more information on that, and whether that will help you lay off some of the capital expense into that provider or some other entity? -------------------------------------------------------------------------------- Greg Lang, NOVAGOLD RESOURCES INC. - President and CEO [3] -------------------------------------------------------------------------------- Well good morning, John, and thank you for calling in this morning. We sent out expressions of interest to some of the major pipeline companies that are active in that part of the world, and we were pleased with the response. Locally, there's a lot of interest in the gas pipeline in the state and the communities, just because it's a part of the world that pays a lot of money for energy. So we are contemplating what's next with these groups that have expressed interest. We are fortunate we still have a couple of years of permitting ahead of us to make the decision. And we are -- we will continue a dialogue with them throughout the coming year. And we are also closely monitoring energy prices, John, with -- when you look at what's happened with the price of oil. You've got to be very careful whether you really feel you need an investment of $1 billion into a gas pipeline. So we're pleased with the progress and we will continue to update everyone as we go forward. -------------------------------------------------------------------------------- John Bridges, JPMorgan - Analyst [4] -------------------------------------------------------------------------------- Great. Is there any change in the attitude of the state to your project, given the weaker oil prices and reduced revenue from that part of the state economy? -------------------------------------------------------------------------------- Greg Lang, NOVAGOLD RESOURCES INC. - President and CEO [5] -------------------------------------------------------------------------------- Well, John, I think the state is always been a supporter of responsible research development, and they continue to be a strong advocate for the project. I wouldn't say that the support has changed but with the significant budget pressure they are feeling with the collapse in oil prices, they're certainly doing everything they can to encourage our activities and future investment. -------------------------------------------------------------------------------- John Bridges, JPMorgan - Analyst [6] -------------------------------------------------------------------------------- That's nice to hear. And then finally perhaps, your partner is going to have an investor day here in February. I just wondered if there had been any change in their attitude towards the project from their side? -------------------------------------------------------------------------------- Greg Lang, NOVAGOLD RESOURCES INC. - President and CEO [7] -------------------------------------------------------------------------------- I think they are feeling pretty good about the project, John. We really like what they've been doing as far as strengthening their balance sheet, and I think they are in a much better spot than they were for several years to really look at the future again. The industry has been in so much of a hunker-down mode the last couple of years, and I think the cost-cutting measures they've undertaken as well as others will ultimately strengthen them. And it won't be long before everybody will start to focus their attention on growth and sustaining the business. -------------------------------------------------------------------------------- John Bridges, JPMorgan - Analyst [8] -------------------------------------------------------------------------------- It can't happen too fast for us. Congratulations. Talk to you later, thank you. -------------------------------------------------------------------------------- Operator [9] -------------------------------------------------------------------------------- (Operator Instructions). Raj Ray, National Bank Financial. -------------------------------------------------------------------------------- Raj Ray, National Bank Financial - Analyst [10] -------------------------------------------------------------------------------- Just a quick question, Greg. Have you got any major concerns during the comment period, following the filing of the Draft EIS? -------------------------------------------------------------------------------- Greg Lang, NOVAGOLD RESOURCES INC. - President and CEO [11] -------------------------------------------------------------------------------- Raj, I would say no major concerns. We've got a couple of public meetings behind us now and there's another one in Anchorage tonight. And the issues raised have been very similar to what was raised in the scoping meetings, and that's what are the impacts of barge traffic on the Kuskokwim River. And that's -- the river is the lifeline and transportation corridor in that part of Alaska, and a lot of the residents there practice substantives lifestyles. So they are understandably concerned about barge traffic on the river. I think a lot of it is really a question of educating people. When they realized that at normal operations, there will only be three barges a day going up and down the river, that's one every eight hours on a couple -- so I think it's -- once they understand that it's not going to have a huge impact, it alleviates a lot of their concerns. -------------------------------------------------------------------------------- Raj Ray, National Bank Financial - Analyst [12] -------------------------------------------------------------------------------- Okay, thank you. One more question, Greg. So, the approval for the natural gas pipeline -- now, the timeline for that, is it the same as the EIS? -------------------------------------------------------------------------------- Greg Lang, NOVAGOLD RESOURCES INC. - President and CEO [13] -------------------------------------------------------------------------------- Yes, it is, Raj. It's done as part of the EIS. -------------------------------------------------------------------------------- Raj Ray, National Bank Financial - Analyst [14] -------------------------------------------------------------------------------- Okay. -------------------------------------------------------------------------------- Greg Lang, NOVAGOLD RESOURCES INC. - President and CEO [15] -------------------------------------------------------------------------------- It's a separate agency, but it's still part of and included in the environmental analysis of the project. -------------------------------------------------------------------------------- Raj Ray, National Bank Financial - Analyst [16] -------------------------------------------------------------------------------- Okay, thank you. That's it for me. -------------------------------------------------------------------------------- Operator [17] -------------------------------------------------------------------------------- Thank you, and I'm not showing any further questions at this time. I would now like to turn the call back over to Mr. Greg Lang, CEO, for closing remarks. -------------------------------------------------------------------------------- Greg Lang, NOVAGOLD RESOURCES INC. - President and CEO [18] -------------------------------------------------------------------------------- Well, everyone, thank you for joining our call this morning and we will continue to update our shareholders and stakeholders with our continue progress. Have a good day. -------------------------------------------------------------------------------- Operator [19] -------------------------------------------------------------------------------- Ladies and gentlemen, this concludes today's conference. You may now disconnect. Everyone, have a great day.
|