NovaGold Resources Inc. (USA) (NYSE:NG)
Q3 2013 Earnings Conference Call Transcript
Event Held on October 10, 2013, 11:00 AM Eastern Time
Section I: Management Presentation
Operator
Good day ladies and gentlemen, and welcome to the NovaGold third quarter conference call and webcast. My name is Whitley and I will be your operator for today. At this time all participants are in listen-only mode. Later we will conduct a question-and-answer session. As a reminder, this conference is being recorded for replay purposes.
I would like to turn the conference over to your host for today, Ms. Melanie Hennessey, Vice President, Corporate Communications. Please proceed.
Melanie Hennessey – Vice President, Corporate Communications, NovaGold
Thank you, Whitley. Good morning everyone, and thank you for joining us today. On today’s call we have Greg Lang, NovaGold’s president and CEO; and also David Ottewell, NovaGold’s vice president and CFO. At the end of the formal part of the presentation, we will take questions both by phone and by email.
Before we get started, I would like to remind our listeners that any statements made today by the management team may contain forward-looking information, such as projections and goals which are likely to involve risks detailed in our various SEDAR filings and in various forward-looking disclaimers included in the third quarter financial release and in this presentation.
With that, I have the pleasure of introducing Greg Lang, NovaGold’s president and CEO. Greg?
Greg Lang – President and CEO, NovaGold
Thank you, Melanie. Hello everyone and thank you for joining us this morning on our quarterly webcast. For those of you who are less familiar with NovaGold, or who have joined us for the first time, the company has two great assets located in North America as shown on slide four. Our 50% owned flagship asset, Donlin Gold, is a year into the permitting and is poised to become one of the largest producers in the gold industry. Galore Creek is also a valuable asset, expected to be one of the largest and lowest cost copper mines in Canada. We intend to sell all or a portion of our interest in Galore Creek and apply the proceeds to the development of Donlin Gold.
In the third quarter, we continued to achieve a number of key deliverables. More technical workshops were held in Alaska with the Corps of Engineers and other agencies to review the main components of the Donlin Gold environmental and social baseline data. Donlin Gold permitting advanced over the quarter with the review of the project alternatives by the Corps and applicable agencies. Galore Creek completed its 2013 drilling program on time and under budget. And last and certainly not least, we maintained our strong financial position.
I will now hand it over to David Ottewell who will take you through our third quarter results in more detail, after which time I will provide an overview of our third quarter activities at Donlin Gold and Galore Creek. Dave?
Dave Ottewell – Vice President and CFO, NovaGold
Thank you, Greg. Turning to slide six. During the quarter spending at our projects progressed as planned. At Donlin, our share cash funding was US$3.3 million in the third quarter and $10.2 million year-to-date, on track for a total of $15 million for the year to support permitting activities and preparation of the Preliminary Draft EIS by the Corps.
At Galore Creek, our share of cash funding was CAD$3.8 million for the quarter and $5.9 million year-to-date, on track for a total of $8 million for the year. Spending increased during the third quarter as we completed drilling to follow up on last year’s discovery of the Legacy Zone. Expenditures will be lower in the fourth quarter.
Slide seven highlights our income statement items for the third quarter. Our operating loss has decreased dramatically compared to the prior year. Excluding foreign exchange gains, our year-to-date operating loss has decreased by 43%. Administrative expenses have been reduced by 44% from the prior year and property-related costs have been eliminated entirely due to the spin-out of NovaCopper and the sale of Rock Creek last year.
Turning to our cash flow on slide eight. We spent $9.5 million for our operating activities in the third quarter, primarily for our share of funding to Donlin Gold and Galore Creek. At the end of August, we had cash and term deposits totaling US$205.7 million.
In September, we accepted offers from noteholders to repurchase another US$6.4 million of the convertible notes. We believe that we have sufficient funds to advance Donlin Gold through permitting, support ongoing activities at Galore Creek and repay the remaining $15.8 million of convertible notes in 2015.
NovaGold expenditures have been reduced by nearly two-thirds since last year, as shown on slide nine. For 2013, we continue to expect to spend $15 million at Donlin, $8 million at Galore Creek, $15 million in administrative costs and $3 million in interests. We are continuing to pursue opportunities to further reduce our costs.
We have determined that NovaGold will become a U.S domestic filer commencing December 1, 2013. Therefore our future filings will be under U.S. GAAP and we have elected to change our reporting currency from Canadian dollars to U.S. dollars. You will see these changes in our 2013 year-end filings.
Greg, I’ll pass it back to you.
Greg Lang – President and CEO, NovaGold
Thank you, Dave. Starting with an update on Galore Creek. On slide 10, at the end of the third quarter, Galore Creek safely and successfully executed the 2013 exploration program, completing more than 11,000 meters of drilling under budget. The 2013 program was a follow-up on the success of the 2012 drill program and was aimed to define the extent of the legacy mineralization and assess its impact on future mine design.
The additional drilling completed over the last two years improves our understanding of the deposit and increases our confidence in the models. NovaGold and its joint venture partner Teck will be incorporating the 2012 and 2013 results into a capital efficient work plan for 2014 that will advance the project toward a new resource and reserve estimate for ultimate feasibility level mine planning and design. We will continue to enhance the value of this asset while we consider a sale.
Moving on to Donlin Gold. Slide 11 illustrates the five key attributes which make the project unique. With proven and probable reserves of 34 million ounces at an average grade of 2 grams per ton, Donlin Gold is exceptionally high grade for a large scale bulk mining operation. With production greater than 1 million ounces a year over the life of mine that is already measured in decades, Donlin will be the largest gold producing mine today.
In addition to size and grade, Donlin has great exploration potential and could get bigger over the long term. The existing reserves and resources are located in the Acma and Lewis pits, which represent only 3 kilometers of an 8 kilometer strike length.
In light of the political, social and economic instability of many gold producing countries, we feel very fortunate that our world-class assets are located in two of the safest geopolitical jurisdictions. Jurisdictional safety and stability have become very important investment criteria for many fund managers. With very few high quality and significant gold development assets in the world and even fewer in safe jurisdictions, NovaGold is unique.
To elaborate a little bit on the first attribute, Donlin Gold has one of the largest resources in comparison to the other major development-stage gold deposits that are at pre-feasibility study level or higher, as shown on slide 12. Donlin is exceptionally high grade for a large-scale operation and one of the most valuable undeveloped gold deposits in the world. In fact, it’s among the top 1% of all known gold deposits and one of only six gold assets in the world, producing or soon to be producing greater than 1 million ounces per year.
When compared on a cost basis to its peers, Donlin Gold measures favorably, as shown on slide 13. The life of mine all-in sustaining cash costs at Donlin are approximately $500 less than the industry average of $1,223. The low cash costs contribute to the significant cash flow generation and accelerates the project’s payback.
In light of the political, social and economic instability in many gold-producing countries, particularly in many parts of Africa, South America and Asia, we are very fortunate that our assets are in two of the safest geopolitical jurisdictions. With very few high quality and significant gold development assets in the world and even fewer in safe jurisdictions, NovaGold has tremendous attributes.
It’s important to note that Donlin Gold is located in a state that welcomes responsible mine development. As shown on slide 15, Alaska has an important mining industry with many well established operations. It’s the second largest gold producing state in the U.S. and its gold production has increased in recent years. The state appreciates the value of the natural resources sector.
Moving to slide 16. We were particularly pleased that Calista and TKC, the Native Corporations that own the mineral and surface rights to Donlin, are actively involved in the environmental impact study and permitting meetings. They’re both committed to seeing the project to fruition for the benefit of their shareholders. With excellent stakeholders in a pro-resources state, we have a lot going for us.