NovaGold Resources Inc. (NG) Q3 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the NovaGold third quarter conference call and webcast. My name is Deanna and I will be the 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 conference is being recorded for replay purposes. I would like to now turn the call over to your host, Ms. Erin O'Toole, Vice President, Corporate Communications. Please proceed. Mélanie Hennessey: Thank you, Deanna. On today's call we have Greg Lang, NovaGold's President and CEO; and Elaine Sanders, 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 e-mail. 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 disclaimers included in the third quarter financials release and in the presentation. With that, I have the great pleasure of introducing Greg Lang, NovaGold's President and CEO. Greg?

Thank you, Mélanie and welcome everyone to this morning's call. NovaGold has achieved important milestones since the start of the year and we are delivering on the organization plan that was announced last November. Despite achieving all of our objectives since the start of the year, Barrick's second quarter comments, as they related to Donlin, were misinterpreted and have led to an extraordinary disconnect between NovaGold and its historical ratios and hence the share price performance. Now, let's look at the facts. We are moving ahead with permitting as we always planned to do and this misunderstanding has led to an aberrational opportunity for investors that management intends to rectify. Among our list of achievements, the first was the filing of the Donlin Gold Updated Feasibility Study which was subsequently approved by the Donlin Gold board, and most importantly, the commencement of permitting occurred in the third quarter. This was by far most significant milestone for NovaGold. At Galore Creek, this year's drill program is now complete and we look forward to updating the market on the results. In the third quarter and more recently, we announced the appointment of David Deisley as Executive Vice President and General Counsel and David Ottewell as Vice President and Chief Financial Officer. Both individuals are leaders in their respective fields and we are pleased that they will be joining us in a few weeks. Additionally, we continued to advance the closure and divestiture of the Rock Creek property during the quarter and expect it will be finalized by year-end. We have sufficient cash on hand with $267 million. This will take Donlin all the way through permitting and ultimately a construction decision. NovaGold is an institutional quality investment with tremendous shareholder support from our largest shareholders as listed on the table on slide…

Thank you, Greg. Good morning, everyone. In our third quarter MD&A, we provided an update on our corporate governance activities, announcing the appointment of our new General Counsel and CFO. Our third quarter was also focused on advancing our projects. At the Donlin Gold Project, Greg has previously discussed the submission of formal permitting application. Permitting is the focus of this year's annual budget at the project of $37.2 million. $22.8 million has been spent for the nine months ended August 31, of which $9.9 million was spent at Donlin in the third quarter, 50% of which is funded directly by NovaGold. We are anticipating the project to be on budget at the year-end. At the Galore Project, the 2012 annual budget is $35.4 million, of which $23.3 million has been spent to date as of the end of Q3. $15.8 million was spent during the quarter on drilling activities related to the enhanced engineering plan. NovaGold is funding 50% of these amounts. The budget was based on 20,000 meters of exploration drilling and 5,000 meters of geotechnical drilling at the Galore site, which most of this activity occurred over the summer months. The Galore project is expected to be on budget at the year-end. At the Rock Creek Project, Phase 1 of the reclamation plan is progressing smoothly. We anticipate finishing Phase 1 activities this month and expect to transfer the Rock Creek asset to the local Alaskan native corporation before the end of the year. The last item to note is that the strengthening of the Canadian dollar against the U.S. Dollar in the quarter has continued to create accounting gains for the company. I will describe this in more detail in the next few slides. This takes us to the balance sheet itself. We do have a…

Thank you, Elaine. NovaGold has successfully completed a number of milestones in the first nine months of the fiscal year, delivering on the reorganization plan announced last November. The timing of our financing was fortuitous and it strengthened our balance sheet. With $267 million in cash and reduced expenditures going forward, we have sufficient finance for resources to advance Donlin through permitting. NovaCopper which now owns the Upper Kobuk Mineral Projects in the highly prospective Ambler District is being led by Rick Van Nieuwenhuyse. NovaCopper was successfully launched as an independent company. The approval of the updated feasibility study is behind us and the commencement of permitting were a noteworthy milestones. As we look forward, in the fourth quarter, we would expect the Notice of Intent to be filed by the U.S. Army Corps of Engineers, followed by public scoping and the filing of the draft EIS. In addition, we are currently finalizing the divestiture of Rock Creek. If we decide to keep Galore, we will significantly reduce our activity on it to focus our resources on Donlin. In a time of economic and jurisdictional instability, NovaGold is an excellent way to get leverage to the price of gold. There are a number of catalysts which support our thesis. On a micro level, de-risking Donlin Gold, as we continue permitting with excellent stakeholders will trigger a re-rating. Financial optimizations, bringing in third parties to participate in building or operating the gas pipeline, oxygen plant or leasing mining equipment are all options available to reduce the capital costs. We have strong shareholder support and no need to raise capital for many years. On a macro level, Alaska is showing tremendous support for environmentally and socially responsible mining projects. Today, few assets truly are world class. This is now being defined by their longevity and stable jurisdictions, which should yield sustainable returns for investors in the secular gold market. We are long term option on gold and Donlin is projected to be one of the largest gold mines in the world with excellent exploration potential. Finally, Barrick's second quarter comments on Donlin were misinterpreted by many that the project has been canceled. It has not. We are proceeding as planned but this misinterpretation cause an extraordinary disconnect between our share price and the historical ratios creating an unprecedented investment opportunity. Thank you. We will now open the floor for questions.

(Operator Instructions). We have question on the line from John Bridges, J.P. Morgan.

I am intrigued by the potential for the gas pipeline to become an attractive incentive for some of the local communities to have a better way of life. Could you talk a little bit about the level of interest in that pipeline and the interest from the communities along the way?

The Donlin Project is located in a part of Alaska that pays exceptionally high prices for energy. So as you would expect, there is a lot of interest by the communities in that part of the state to see the gas pipeline built and obviously, in form or another, deliver energy to these communities. That support bodes well for the permitting of the gas pipeline and as we mentioned earlier, both owners will be exploring ways to optimize the project and bringing in third parties to participate in that. The third parties are certainly cognizant of the broad support and interest in cheap energy in that part of the state.

Yes, I see, already you have taken that from a 12 inch to a 14 inch pipeline. Was that related to interest from the communities?

John, the pipeline, you are correct. The diameter, we have looked at diameters between 12 inches and 14 inches. 12 inches is certainly sufficient for the project as it's currently envisioned. 14 does a couple of things. It allows additional gas to be transported and it gives the mine a potential to expand without replacing the pipeline. When you look at the cost of a pipeline, whether it’s a 12 inch or 14 inch, that does not substantially change the total cost. So it was an easy decision to make to upsize that a little bit.

Okay, I will be tracking that diameter of the progress through to the rest.

(Operator Instructions)

All right. Well, there are no further questions. Thank you very much for joining us this morning.

Thank you, ladies and gentlemen, for your participation. This concludes today's conference call. You may now disconnect and have a great day.