NovaGold Resources Inc. (NG) Q2 2012 Earnings Report, Transcript and Summary

Good day ladies and gentlemen and welcome to the NovaGold Second Quarter Conference Call and Webcast. My name is Laura and I will be your operator for today. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions) As a reminder this call is being recorded for replay purposes. I would now like to turn the call over to your host for today, Mélanie Hennessey, Vice President of Corporate Communications. Please proceed. Mélanie Hennessey: Thank you, Laura, and good morning and welcome to NovaGold’s second quarter financials and Donlin Gold Project update webcast. Our news release which was issued this morning before market opened and today's presentation are available on the home page of our website. On today's call we have Greg Lang, NovaGold’s President and CEO; and Elaine Sanders, NovaGold’s Vice President and Chief Financial Officer. At the end of the formal part of the presentation we will be taking questions both by telephone 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 statements. Such statements include projections and goals which are likely to involve risks detailed in our various SEDAR filings and in various forward-looking disclaimer included in the first quarter financials release, and in this presentation. With that I have the great please of introducing Greg Lang, NovaGold’s President and CEO. Greg.

Thank you, Mélanie. Welcome everyone and thank you for joining us for today's call. NovaGold successfully completed a number of milestones in the first six months of fiscal 2012. We are delivering on the reorganization plans which were announced last November. At the start of the fiscal year, we filed the Donlin Gold’s updated feasibility study. And as outlined in yesterday’s release, the Donlin Gold Board approved this study and gave Donlin authorization to file permits, which is a significant milestone for the project. The timing of our financing was fortuitous and strengthened our balance sheet. With about $300 million cash and reduced expenditures going forward, we have sufficient financial resources to advance Donlin to permitting. NovaCopper which now owns Upper Kobuk Mineral Project in the highly prospective Ambler district and being led by Rick Van Nieuwenhuyse, was successfully launched as an independent company. Recently we hosted an institution investor site tour of the Donlin Gold Project. We were quite pleased to hear from important stakeholders that Donlin was a model project for responsible development. Our stakeholders, who include the Alaska Native Corporations, Calista Corporation and The Kuskokwim Corporation, who own the Donlin Gold mineral and surface rights, they are our strong supporters. In addition we signed an important agreement with Bearing Straits Native Corporation to divest off the Rock Creek asset, which is a non-core asset at the company. This transaction represents a major step towards streamlining NovaGold’s financial and management resources to focus on the flagship Donlin Gold Project. You will note on slide six, that we provide some key highlights from yesterday’s announcement regarding the authorization to file permit applications. The commencement of permitting at Donlin is a major milestone further advancing the project up the value chain. We will be filing permit applications in the coming…

Thank you, Greg. Good morning, everyone. Well, it’s been a pretty busy quarter for the company. We held a special meeting of the shareholders at the end of March to approve the spinoff of NovaCopper to the shareholders. The vote was more than 90% in favor of the distribution by the security holders. The effective date of the distribution of NovaCopper shares was April 30, 2012. And on that day, all the shareholders received one share of NovaCopper for every share six shares of NovaGold that they held. NovaCopper has been listed on both the Toronto Stock Exchange and the NYSE-MKT, which is the old American stock exchange, under the same trading symbol NCQ on both exchanges. NovaCopper has been launched with a good starting base with supportive shareholders and $40 million of cash to get it through a couple of years of exploration. All payments prior to April 30 have been paid by NovaGold. NovaCopper will be using its own cash for expenditures starting May 1. For accounting purposes we have to fair value the spinout. We used the volume weighted average prices for NovaCopper on trading day six through ten, after the initial opening on the stock exchanges. Which results in a five-day VWAP of $3.11 per share. We excluded the first five days of trading due to amongst other things, the uncertainty of timing of shareholders receiving their in their brokerage accounts. With 46.7 million shares issued at $3.11 per share, NovaCopper was valued at approximately $145 million. With about $73 million of assets transferred off of NovaGold’s balance sheet, this includes the $40 million of cash we provided and $33 million of capital mineral property expenditures. We recorded an accounting gain of $72 million during this quarter. This also results in a $0.52 per share reduction…

Thank you, Elaine. On slide 32, we have included a timeline of the key milestones for 2012. To date we have delivered on five of these important milestones allowing us to simplify the asset structure to focus on our flagship asset, the Donlin Gold Project. Near year-end we will emerge as a pure gold play. Turning to slide 33, before we open the call for questions, why NovaGold, why now? NovaGold owns scarce, unique and institutional quality assets and we are well positioned to execute on our business strategies. Our balance sheet is strong. We have experienced management and solid partnerships. We are truly a safe, institutional quality gold developer with excellent leverage to the price of gold. With that operator, we can open the call to questions.

(Operator Instructions) Your first question comes from the line of Paolo Lostritto from National Bank Financial. Please proceed.

Just a couple of questions. First, am I right in thinking that in the latest update in the presentation, some of the cost figures that were presented for kind of the life of mine have changed a little bit in terms of operating cost.

Paolo, no, we have not updated the cost estimates and really the feasibility study is fairly current and we don’t see any need to do that at this juncture.

Okay. And then in terms of timelines and I know you provided on the slide I just don’t have it in front of me right now, but in terms of timelines, the timelines are still the same that were previously outlined, correct?

Yes, they are. You know we started the year anticipating that we would begin permitting about the middle of the year, and we have certainly met that objective.

Your next question comes from the line of Stephen Walker from RBC Capital Markets. Please proceed.

Just a question on permitting and the timeline there. I believe you made the comment that the permitting process is expected to take three to four years?

That’s correct, Stephen.

Can you give me a little more detail on the components of the permitting timeline, that is, is the pipeline itself, the rest of the plant site and surface site. My understanding is that Barrick has done a lot of the initial work on the pipeline, a lot of the study work that was required for the permitting at mine and plant site, tailings etcetera. I am just curious, my understanding was that it was probably closer to a two-year permitting timeline. I am just curious why it’s three to four years now.

Stephen, you know we have always anticipated it would be about three to four years. When you look at the other of this scale that have been permitted in the United States in recent years, some of them have come in a little under three years and certainly some have gone over four years. But I think we are well positioned to do this between three and four years. We have the virtue that the project is largely located on private land and the pipeline itself, you mentioned that -- you are correct, we have put a tremendous amount of work involved in both the pipeline and studies of the mine site that we expect to really facilitate the permitting process and we anticipate it will go smoothly.

So the three to four years is basically to take in consideration the details around the pipeline and the work required on permitting the pipeline.

That is correct. And actually we anticipate the pipeline permitting could be completed before the mine site.

(Operator Instructions) Your next question comes from the line of Eliot Glazer from Du Pasquier & Company. Please proceed.

My name is Eliot Glazer. I have been an analyst for 43 years and I follow most of the metals and mining companies. My two part question is about Galore Creek, please is, from my other companies like BHP and Rio Tinto, the sense is that given the worldwide economic situation their desire to open new mines has been somewhat diminished. And this leads to the main part question is, have you actually had any offers for Galore Creek whether they be substantially below your target or not?

Well, Eliot, you know you are raising a good point. Certainly there is a lot of uncertainty in the marketplace right now. And that may impact the price we get for Galore Creek. But we don’t need to sell Galore Creek right now. We have sufficient cash on the balance sheet to see us through the next four years of permitting. And we are not going to give this asset away if we don’t get what we consider an acceptable price. We will just hand on to it until market conditions change.

Your next question comes from the line of John Bridges from JPMorgan. Please proceed.

I am just intrigued, we have gone through a long period of painful process of rising capital costs but now with things slowing down, I am just wondering if you are beginning to see any indication that prices are stabilized or maybe even begun slip back a little bit or the component parts of building big new projects like Donlin.

You know John, you raised a good point. Certainly a lot of commodities that are involved with building Donlin such as steel, natural gas is down significantly from the feasibility study. So, you are right, a lot of components have softened in the last few months. And when we get further along with the permitting, we will revisit all of the parameters of the feasibility study and be in a position to make the appropriate decisions then. But everything is swirling right now but most of its, the changes, I think have been positive for the project.

Sir, there are no further questions at this time. I would like to turn the call over for Mr. Lang for closing remarks.

Well, we appreciate everyone joining us this morning. Thank you for your interest in NovaGold and your continued support.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation, you may now disconnect.