Novagold Resources Inc Q3 FY2021 Earnings Call

Thank you for standing by. This is the conference operator. Welcome to the NOVAGOLD Third Quarter 2021 Financial Results Conference Call. As a reminder, all participants are in a 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.

Thank you, Claudia. Good morning, everyone. We are pleased that you have joined us for NOVAGOLD's 2021 third quarter 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 by text. Additionally, we will respond to questions received by email. Before we begin the presentation, NOVAGOLD would like to recognize that today is the inaugural National Day for Truth and Reconciliation in Canada. As a long-term partner with indigenous communities in North America, we acknowledge the history of the land we operate on and reiterate our support of partnerships among all peoples to build a better, stronger and more inclusive society where all people achieve their full potential and share prosperity. Thank you. I would like to remind our webcast and call participants that as stated on Slide 3, any statements made today may contain forward-looking information such as projections and goals which are likely to involve risks detailed in our various filings and forward-looking disclaimers that are included in this presentation. I now have the pleasure of turning the presentation over to our President and CEO, Greg Lang. Greg?

Thank you, Melanie, and good morning, everyone. For those of you new to the NOVAGOLD story, the Donlin Gold project is located in the western part of Alaska, and is a 50-50 partnership with Barrick Gold. Mining is an important part of the Alaska economy. A special note this quarter is the receipt of $75 million as a second payment from Newmont from the sale of our Galore Creek project in 2018. This has boosted our cash position to $173 million at the end of this quarter. In terms of scale, quality, and exploration potential, and jurisdictional stability, Donlin Gold's attributes far exceed any other global development stage project. When combined with our long-standing native corporation partnerships, the exponential leverage to rising gold prices, an experienced management team and Board, long-term supportive shareholders, and key state and federal permits in hand, NOVAGOLD is not just rare; it is unrivaled. In September, I had the pleasure of visiting Anchorage and the Donlin Gold site with members of Barrick's senior leadership team, including CEO Dr. Mark Bristow. We had an intensive technical review session and a site visit, as well as meetings with key stakeholders. As a result of the visit, the Donlin Gold Board approved additional funding to lay the foundation for a new feasibility study. With Donlin steadily moving up the value chain and becoming a late-stage project, Barrick, NOVAGOLD, Donlin Gold, Calista, and TKC have closely collaborated in all government affairs activities. One key distinction about the Donlin Gold project is that it is on private land where the minerals are owned by Alaska Native Corporations who have the mandate to provide economic and social benefits for their stakeholders. During our recent trip to Alaska, we met with Senator Murkowski. We have been fortunate to have zero COVID cases at the Donlin camp during this latest field season. When cases started to rise in Alaska again this summer, we enhanced our community and workforce protection plan. Careful collaboration with Calista and TKC, as well as other tribal groups to the Y-K region has been key to this success. Restrictions are in place for the Donlin Gold Anchorage office following two positive cases and all Donlin Gold players who may have been exposed are tested and quarantining in accordance with our COVID mitigation protocols. We reported impressive numbers for an open pit project. Great initial assay results from the 2021 drill program were achieved and some of the best of these intercepts are highlighted. We reported assays from 29 holes for a total of approximately 7,500 meters of drilling. To date, the program revealed significant high-grade drill hole intercepts, particularly in the ACMA area and the Divide zone. We believe the project is in a strong position to defend any legal actions, as litigation is part of the permitting process. Many NGOs oppose resource development of any kind, and this has been a regular course of business. Donlin Gold is committed to support the needs of its community partners, as seen in our third quarter community engagement highlights. In August, Donlin Gold sponsored a project to remove hazards and electronic waste from 26 villages in the Y-K region. We have signed 8 Shared Value Statements with local communities that address specific local needs, such as water, sewer, landfill projects, etc. Donlin Gold is their only greenfield project located in North America. This is a key distinguishing factor from other mining assets in Alaska and the U.S. We have approached the disclosure of our environment, social, and governance performance pragmatically as a development stage company. As one of the largest gold development projects, we recognize that Donlin's scale is remarkable, with approximately 39 million ounces of gold in the measured and indicated categories. As currently envisioned, Donlin Gold will average over 1 million ounces a year throughout the life of the mine. Looking globally, there's only one development project that has both scale and a desirable mining location, and that's the Donlin Gold project. We have several catalysts in the coming months with the approval of Donlin's budget increase. This is a solid foundation on which to advance this rare and unique project. I will now turn the call over to David Ottewell, our CFO, to review the third quarter financial results. Dave?

Thank you, Greg. Our third quarter operating performance is highlighted. We reported a net loss of $11.8 million in the quarter, a decrease of $0.9 million from the prior year quarter, primarily due to foreign exchange movement, partially offset by higher permitting and legal costs in Donlin, lower interest income, and changes in the fair market value of marketable securities. Third quarter cash flows showed that we ended the quarter with cash and term deposits of $173 million. I will now turn the call back to our Chairman, Thomas Kaplan.

Thank you very much, Dave, and thank you very much, Greg. On Slide 25, we talk about NOVAGOLD as having been a company that keeps its promises and enjoys excellent partnerships. When Greg Lang and I became the CEO and Chairman of NOVAGOLD 10 years ago, we promised investors that we would become a pure-play on what we consider to be the premier gold development project in the world today. We also promised that as part of our program to become a pure-play, we would monetize the Galore Creek project, and we did this in 2018 with the sale of our 50% interest to Newmont for up to $275 million. The combination of the capital rising, which we did in 2012, and the sale to Newmont, we've kept our promises and put ourselves in a position where we have one of the strongest balance sheets in this space. Our attitude has always been that we respect our partners and work to create mutual benefits. We consider our project to be the new Nevada, and we’ve been aligned with Barrick Gold on our project strategy and timeline. The leverage speaks for itself; our balance sheet is strong, and we are thankful for the long-term support and commitment to the project. We believe we are in a bull market in gold and the underlying fundamentals for gold are strong. If you're not in a location where you can reasonably expect to keep what you have, it doesn't matter what you found. Location, location, location is the name of the game. If you're in the right place, you will get the maximum fruits of the leverage that you seek from a gold bull market. We believe that Donlin Gold meets all the challenges that the industry is facing and is poised for growth.

We will now open the line for questions.

Hi. Good morning, everyone. This is actually Matt Key asking the question for Lucas today. Given the excellent supply-demand dynamics at play, the price action today feels puzzling. I would think this would be an ideal environment where gold can make new highs. Why is gold pricing lagging behind the fundamentals?

Well, first of all, it's the nature of gold that it will befuddle you. It will do what you least expect it to do. The good news is that one day, I do believe that we will wake up and see gold up $50, $75, or $100, probably on no news. That’s the way gold behaves. What you are seeing today is a correction within what we view to be a new wave of the global market. We are within a correction. The next time it goes through $2,000, I believe that it will slice right through it. All the fundamentals are there for gold to begin the next leg of this long wave bull market, and I believe that it will take us to the $3,000 to $5,000 range. I'm not saying this because I'm playing to my audience; I'm saying this based on a strong belief that the place to be is with gold and silver.

Sure, I'm happy to speak to that. We've approved additional funding to advance the project at our last board meeting. Our focus has been twofold, and we plan to add staff to our project team, including geologists and engineers, as we gear up for advancing the project. We'll be developing our work programs for the new year as we move forward.

Greg, I wanted to follow up on the potential to do a new study. I wondered what types of ESG initiatives you may incorporate into the new feasibility study, particularly around water management and minimizing the project's environmental impacts.

We're reviewing all aspects of the project, including water management, air quality, and tailings deposition. Barrick has extensive knowledge and experience that we are incorporating as we work through these important issues. Best practices and minimizing environmental impacts will remain a priority in the project development.

Congratulations on all the progress. As we get closer to the project being permitted and ready for financing, could you rank which financing routes you prefer? Are there any that you wouldn't consider?

We have no intention of selling even a fractional percentage of the project. If it's advantageous to consider royalties or streaming, we will look into it, but we want to maintain our full exposure to the asset. Our project has a long life, and with a resource that we believe could be significantly bigger, we anticipate potential project financing rather than dilution. We are confident that we will have encouraging partners interested in financing when the time comes.

I just wanted to reflect back to the first caller about the gold price and the underlying issues that might be affecting it.

Thank you for your feedback. We appreciate your passion for the way you view gold's future. Hello, everyone. Thank you for joining our call this morning. We look forward to updating everyone with the releases on the ongoing drill program. Thank you.

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