Novagold Resources Inc Q1 FY2023 Earnings Call

Thank you for your patience. This is the conference operator. Welcome to the NovaGold 2023 First Quarter Financial Results Conference Call and Webcast. I will now hand the conference over to Melanie Hennessey, Vice President of Corporate Communications. Please proceed.

Thank you, Alicia, and good morning, everyone. We are pleased that you've joined us for NovaGold's 2023 First Quarter Financial Results and also for an update on the NovaGold project. On today's call, we have Dr. Thomas Kaplan, NovaGold's Chairman; Greg Lang, NovaGold's President and CEO; and David Ottewell, NovaGold Vice President and CFO. At the end of the webcast, we will take questions by phone and by e-mail. Additionally, we will respond to other questions received subsequent to the call by e-mail. 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 EDGAR and SEDAR filings and forward-looking disclaimers 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. All of us at NovaGold take great pride in the fact that we have been laser-focused and very successful in executing the strategy set forth by our chairman and myself over a decade ago, mainly to unlock NovaGold's high-quality assets for our shareholders and dedicate our energy to create maximum leverage from a pure role play with a unique endowment that is the Donlin Gold project. This has been a foundation of our investment thesis. As shown on Slide 5, we have been steadily advancing Donlin Gold up the value chain in various areas over the past decade. These areas include the completion of the 43-101 technical report and the update to the second feasibility study, the receipt of a Joint Record of Decision from the Army Corps of Engineers and the Bureau of Land Management, as well as other major federal permits. Most recently, we completed the largest drill program at Donlin in over 15 years. We believe that the Donlin Gold project is truly best-in-class in its combination of attributes, which are shown on Slide 6, possessing the unique combination of industry-leading science, grade and excellent exploration potential. This is something we view positively in our gold industry, and all of this in a safe and time-tested jurisdiction. Alaska is a great location to develop, build, and operate a mine for many generations to come. In my view, it really is the ultimate company maker. As currently envisioned, Donlin averages over 1 million ounces of production per year for 27 years. When comparing to other developer groups, as shown on Slide 7, Donlin is by far and away the largest gold producer continuing to decline for most of the top producers. It is clear that the industry needs projects with scale, grade, and longevity to sustain us. As shown on Slide 8, with twice the industry average grade for an open pit, once in production, Donlin would be one of the lowest cost producers in the gold industry. Turning to Slide 9, the leverage to a higher gold price is exceptional at Donlin. The after-tax NPV at today's gold price is over $7 billion at a 5% discount rate, or $22 million on discount. The great exploration potential is another remarkable attribute. ACMA and Lewis deposits, as shown on Slide 10, occupy less than half of the 8-kilometer mineralized gold belt, which itself is located on less than 5% of Donlin's land position. A testament to the excellent exploration potential were the results from last year's program. As shown on Slide 11, the top 20 intersections returned some of the best assay results seen at Donlin and among the best reporting in the entire industry last year. For example, the Divide drill returned 42 meters at over 30 grams, including a subinterval of 23 meters at 54 grams. As highlighted on Slide 11, incredible upside exists to increase ounces and extend mine life. Location is truly key, having great leverage in a place where you can reap the rewards of your investments and time. On the map included on Slide 12, we feature some of the top 3 gold producing operations in the world, and the 5 largest gold development projects. As private landowners, both Calista and TKC are dedicated to developing Donlin Gold in a way that remains consistent with the owners' vision of responsible development, creating jobs and economic benefits for the surrounding communities, as well as protecting the local culture. A few quotes are provided on Slide 13 from the leaders of both Alaska Native Corporations. Their knowledge, guidance, and engagement are extremely valuable in ensuring responsible and sustainable economic development throughout all phases of the Donlin Gold project. I'll now touch on some of the milestones that we achieved and the key activities of the first quarter. The Donlin Gold 2023 field program commenced earlier in the year to complete the necessary fieldwork and geotechnical drilling required for the Alaska Dam Safety certificates applications. Additional work included onsite hydrological drilling to further define the flow of groundwater in the areas of the planned Donlin pit and surrounding infrastructure to support mine planning and design. Donlin Gold prioritizes local hiring and invests in supporting the communities throughout the Y-K region. During the first quarter of our 2023 field program, we had a total workforce of 44 direct hire employees, most of whom are from the project region. This is a continuation of the success of Donlin's local hiring program, which was initiated very early on during the exploration phase. Our focus offsite is 4 key areas, as shown on Slide 16. First, mine optimization. We are finalizing the updated geologic and resource models with the drill results of the last 2 years, and we are incorporating those into the key project assumptions, inputs, and design components for optimization. Ultimately, this supports the decision to proceed with an updated feasibility study. Community engagement is also a very active area for us, working alongside our Alaska Native corporation partners. Permitting: We continue to advance our permits through the regulatory process and support the State in maintaining the existing permits. We're also very active with bipartisan outreach to the Biden administration, members of the U.S. Congress, and the State Administration of Dunleavy’s. Assisting and partnering with local communities has been a constant focus of Donlin. Working in concert with Calista and TKC to provide critical support. As shown on Slide 17, Donlin was the premier Sponsor of the Iron Dog Race and is part of the Alaska Safe Riders program. Additionally, in collaboration with Covenant House and Bethel Community Services, Donlin is developing an action plan to help address chronic and ongoing youth insecurity, housing and other issues, just to name a few. In partnership with the Alaska Native Tribal Health Consortium, Donlin is advancing efforts to improve the overall health and safety standards of water and sewer services in the Middle Kuskokwim regions. In collaboration with TKC and the Village of Crooked Creek, Donlin provided financial support through the construction and maintenance of ice roads to allow winter travel between remote communities. On average, a total of 300 miles of ice road is constructed and maintained, thanks to this program. Advancing educational opportunities in Alaska is another priority for the company. We recently awarded NovaGold's first scholarship at the University of Alaska to an undergraduate student studying geological engineering and also support the Alaska EXCEL program, a nonprofit providing educational support for rural youth across the region. In March of this year, we released our 2022 annual report, which features a special conversation between Dr. Kaplan and Daniela Cambone, Editor-at-Large and Host of The Daniela Cambone Show on Stansberry Research, as shown on Slide 18. Their discussion covers a broad range of topics, including geopolitics, history, markets, and opportunities in the gold space, and central banks as the largest buyers of gold, both presently and historically, and the corresponding upside for the premier development stories. The interview was recorded at the New York Stock Exchange, and a full transcript is available in our annual report. Those interested in watching the video can access the interview on our website, novagold.com. With that, I will now turn the call over to our CFO, David Ottewell. Dave?

Thank you, Greg. Slide 20 highlights our first quarter operating performance. We reported a net loss of $10.7 million in the quarter, a $0.7 million increase due to increased interest expense on the promissory note, higher Donlin permitting costs, higher corporate and legal expenses, partially offset by increased interest income and income from the 2021 sale of our interest in the San Roque mineral property. First quarter cash flows are highlighted on Slide 21. Cash decreased by $9.7 million, primarily to fund our share of Donlin and for corporate administrative expenses. The decrease in cash used in the first quarter of 2023 compared to 2022 was due to the timing of corporate liability insurance payments in 2022, withholding tax paid on share-based compensation in 2022, and proceeds received in 2023 for the sale of San Roque. No shares were issued in the first quarter of 2023 for the PSUs granted in December 2019, as the company's share performance over the 3-year period was below the minimum performance criteria relative to the Global Gold Index. On Slide 22, we note our strong treasury. Our financial position includes cash of $54 million, term deposits of $62 million, and $25 million due from Newmont in July 2023. For the full year, we continue to expect to spend $31 million, including $17 million at Donlin, $13 million for corporate G&A, and $1 million for working capital.

Thank you, Dave. Turning to Slide 23, the focus of our activities this year will be 1) updating the geologic and resource models; continuing field work; collecting geotechnical and hydrological information to support advanced safety certificates applications; reviewing key project assumptions, inputs, and design components for optimization; and mine engineering, metallurgy, and infrastructure. We will continue to advance current permits through the regulatory process and support the state in defending the existing permits. Lastly, we will continue to engage, maintain, and grow support through the project in the region. NovaGold has been blessed with modern and supportive shareholders, comprising many of the most respected names in the investment world, whose presence and counsel have been invaluable. Some of these are listed on Slide 24. We are grateful for their decision to invest in the company and for their continued interest and engagement. We affirm to all of them, as stewards of the company, that we continue to be focused on delivering on our strategy, enhancing the value of the Donlin Gold project, increasing both shareholder and state gold as well in a safe and socially responsible manner. As we position the company to enjoy the fruits of this unique leverage and what we believe is one of the best-positioned gold development stories in the marketplace, I look forward to continuing to deliver on our promises and maintaining open communication between us as we reach even more milestones in 2023. I will now turn the call over to the operator and open it up for questions.

The first question comes from Mike Parkin from National Bank.

It might be a bit early to speak upon this, but I'm just wondering about some of the higher-level trade-off studies that might be considered as you move forward in 2023. Just looking for some sense of some of the bigger delta items that you're considering for the project.

Right, Mike. I'll take that question. Thank you for your interest, Mike. So the trade-off studies have been primarily focused on infrastructure, but we're also focused on the gas pipeline and other major cash components for capital. In addition to the infrastructure, we've done some fine-tuning work looking at options on quotation and a lot of delegation work from deploy sheet and other parameters of the project. We're also looking at optimizing the mining based on the great drill results we've had this year, specifically what opportunities are available to enhance the grade by more selective smaller mining permits. Clearly, we've demonstrated that the high grades really do exist at the Donlin Gold mine. We look forward to updating everybody on the study as we reach that conclusion.

I have some questions that have come in by e-mail. The first one will be for you, Greg. When would you expect the investment decision to be made on the Donlin Gold project?

Let me give you the timeline on this study. As you know, we're wrapping up the various trade-off studies now as well as preparing to move geologic modeling. All of these studies and some models will be presented to the Donlin Gold board or the settlement in the next couple of months. I think that's – we'll be in a position then to provide a bit more specific information.

Great. Thank you. The other question was what's the all-in cost per ounce for the Donlin Gold project? That one is directed towards you, Greg.

All right. Your question was on the all-in cost, and here are our most recent figures from the 43-mine ride. Life of mine averages about $630 an ounce. We would expect it to be a little bit more competitive and lower in the first 2 years of mine life due to higher-grade life of mine early on. But the operating cost would be on the lowest end.

Before we proceed to the final question, we have Lucas Pipes on the line who wants to ask the question. Operator?

The next question comes from Lucas Pipes from B. Riley Securities.

So I wanted to ask about reserves and resources in the context of the updated feasibility study. Would you expect changes to those measures? And then would you anticipate any changes in the cutoff grade?

All right. As we operate at a couple of bases, the drilling has really delivered some great results. If anything, we will slightly enhance the grade of the overall value of the gold deposit. Most of this is really centered on our partner's due diligence. Donlin has been the company to NovaGold for many years, and we know the asset very intimately. The drilling and trade-off studies we've conducted have really empowered our partner's due diligence. I think part of the trade-off studies and the drilling have been insightful, and I would say it's more validated than changed our view of the project. Certainly, from NovaGold's standpoint, we've been a story partner. We've addressed their geographic and due diligence curiosity. A next logical step for the owners will be to receive the new feasibility study, and that would ultimately be on the way later this year.

So we have 2 more questions from the line. The first is for Greg. You mentioned outreach to government in your comments. Do you detect any changes in the attitude of Washington towards the resource sector as the world has changed since Biden was named President?

I think I'll speak to that from a Donlin perspective. Donlin has always maintained and nurtured bipartisan support, both in the State of Alaska and in our Nation's Capital. Senators Murkowski and Sullivan of the U.S. Senate are very, very supportive of the project. While the Biden Administration has not always been supportive of mining projects, they certainly have been supportive of Donlin. The Alaska Administration has also been very supportive. The Biden Administration recently approved natural resource initiatives. So I think they're cautious but support responsible mine development and resource development. Thus, I would say it has really had no significant impact on our activities, even with the change in administration.

The final question is for Dr. Kaplan. What is your view on the direction of the gold price over the next 12 to 24 months?

Hello, everyone. I hope that you can see me and hear me. Melanie, can I assume that everyone can?

You can.

Okay. Great. Well, I think it's fair to say that I have been a long-standing gold bull for over 20 years. I've seen gold prices move from $250 an ounce to $1,900 an ounce in what I called Wave 1. We saw what one might call a correction, moving gold from $1,900 back to $1,100. Now we're entering Wave 3, which I believe will be a long wave. I'm not suggesting that we won't experience corrections along the way; that's simply the nature of the market. However, I believe we are on a trajectory characterized by two aspects. First, a multiplication of the gold price. Second, a long duration. In other words, Wave 1 took place over 12 years, where gold reached new highs consistently, regardless of the circumstances typically deemed determinant to gold’s price. We had periods of interest rate fears, dollar issues, commodity concerns, geopolitical unrest—gold managed to rise each year. That constitutes a bull market. If you observe a stock climb from $2.50 to $19, with a correction back to $11, it would not come as a shock. Both waves were characterized by over a decade of duration. The next wave in gold, whether we are witnessing it now or might see one more correction, is anticipated to take gold towards my long-term target of $3,000 to $5,000. I'm indicating long term because I stated this when gold was at $250. Truthfully, if gold were to rise significantly, I would not be surprised. One thing is abundantly clear to me. This pertains to the investment rationale for NovaGold: gold is set to rise over the next 10 to 20 years. That is what we are observing in the charts, and I understand these charts like the patterns of human brain waves. You need not be a technician; as a fundamentalist by nature, my focus lies in cycles, reversals, and the inherent behaviors of markets. We may see gold prices escalate to five digits easily. For this to happen, we still have a journey from $3,000 to $5,000. I will revise my estimates as we get closer to those targets. The key message I wish to impart to our shareholders is as follows: I began tracking this story back in early January, actually December 31, 2008, when Electrum effectively took control as the dominant shareholder of NovaGold. NovaGold had previously surged from $0.50 to $20, an impressive rise in which we did not participate nor did we contribute to the eventual decrease, which saw it drop to about $1.50. Various issues afflicted the company: class action lawsuits, environmental complications on unrelated assets, and a discredited management team without investor backing. Electrum was able to turn the narrative because we are a family business along with several substantial Arab Sovereign Wealth Funds and employee capital. This collective backing enabled us to stabilize the situation, dealing with environmental challenges alongside the EPA while divesting problematic projects. By spinning off assets to Newmont, we realized tremendous shareholder value, allowing NovaGold to focus on being a pure play on what we envision as a premier asset. We appointed a new management team, culminating in hiring a remarkable leader who was well-versed in the asset—Richard Williams, who built the Pueblo Viejo mine, which remains one of Barrick's most significant investments. The stock surged back to $15 within a couple of years. Admittedly, the last decade has been tough for gold mining shares; we have not been hermetic to this situation. The ratio of gold to gold mining equities remains at historic lows. What I wish to underline is as follows: Firstly, we are in a bull market for gold; secondly, this bull market will extend well over a decade; thirdly, we anticipate a revaluation of gold assets; fourthly, I have been invested in this story now for 14 years, and rather than experience fatigue, I feel more excited about Donlin than ever before. I appreciate your understanding of the implications here—this informs my sentiment concerning why Donlin stands as the most attractive workforce in the gold sector. This new operational climate means assets that achieve premium valuations will be situated in stable jurisdictions. With that in mind, Donlin truly represents the best buy in the gold sector. I challenge stakeholders to ask their brokers, 'Can you present me with a company led with an excellent management team, featuring a fantastic asset located in a hospitable area?' The ultra-competitive locales include Nevada, and here we find Alaska. They are increasingly rare, and this often leads to high valuations. The trend to nationalize mines has increased across the globe. Gold is valued as money, recognized by central banks, which makes them significant players in the market. Other nations, noticing the risks associated with exclusive reliance on the U.S. dollar, are prioritizing investments in gold. Consequently, the era of exploring cheap mines in geopolitical landscapes has waned. I have firsthand experience in Bolivia and South Africa. Operational safety and geopolitical stability are non-negotiable. To reiterate, Donlin possesses the qualities we seek in a gold investment: substantial reserves, exceptional grade, extensive mine life, significant exploration potential, and operating stability. If you believe in gold's upward trajectory, you want to invest in safe jurisdictions. For a robust addition to your portfolio, you should consider development-stage projects. We position ourselves as the leader in this specialized segment—our project has all the essential attributes. We anticipate significant developments as we ascend the value chain, but it is crucial to acknowledge that true wealth is tied to owning quality assets. We will eventually commence production without a doubt. This project is going to be realized, but we can also achieve a top-tier valuation in the sector. With time, we observe increasing demands from investing nations for improved deals with investors. The combination of favorable jurisdictions and a rise in the gold price results in a compelling narrative for investors—Donlin is the holy grail of gold investments. I am confident we will witness a tenfold increase in this stock's value as our story grows increasingly compelling on a daily basis, partly due to the advancement of our project and partly due to shifting global landscapes. If I were not convinced of this notion, I would put my assets elsewhere, but I firmly believe there's nothing superior within this sector. Thank you.

Thank you, Tom. We have a few more questions that have come in via the webcast. I will ask— the first one is directed to Greg. What are the goals of the next feasibility study? And will there be another future feasibility study before breaking ground?

I think the goals of the feasibility study— we are intent on updating our geological understanding of the ore body, updating current trade-off studies we’re undertaking, and using that knowledge to establish the most optimal project pertaining to two new feasibility studies. Yes, I think the query of whether there will be a new feasibility study is an affirmative one. The existing study is expanding, and our thinking on the project, particularly regarding its staged development, has been crystallizing. All insights from the last couple of years are being incorporated into this new study to facilitate a sustainable project for our shareholders.

Great. Thank you. The final question, which also came from the webcast, is given our current cash burn rate, do you have sufficient funds to last for the next 24 months?

Yes, the question addresses burn rates. Absolutely, our feasibility studies would indeed be less costly than our drilling efforts. Drilling is a capital-intensive process, and last year's budget for Donlin was the highest it's been in several years, totaling $60 million. Moving forward, our budget is less than that. However, we will update our budget whenever we initiate a new feasibility study. Overall, the feasibility study and engineering will be less than we have spent on drilling in the past two years. We have not encountered any concerns regarding our financial sustainability until reaching that milestone.

Thank you, Greg. That wraps up the Q&A session. Back to you.

All right. We would like to thank you for taking the time to get an update on NovaGold. Stay safe.

This concludes the question-and-answer session. I would like to turn the conference back over to Greg for any closing remarks.

Thank you, everybody, for taking the time to join our call this time. We look forward to updating you in the coming months as our work progresses. Thank you.

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