NG (2023 - Q1)

Thank you for standing by. This is the conference operator. Welcome to the NovaGold 2023 First Quarter Financial Results Conference Call and Webcast. [Operator Instructions]. I would now like to turn the conference over to Melanie Hennessey, Vice President, Corporate Communications. Please go ahead. Melanie

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 on 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 the maximum leverage from a pure role play and 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. And 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, which we move viewing 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, we averaged over 1 million ounces per year of production in 27 years. When looking at the other developer groups, as shown on Slide 7, Donlin is by far and away, the largest gold production continuing to decline for most of the top producers. It is clear the industry needs projects with scale, grade and longevity to sustain us. As shown on Slide 8, the twice the industry average grate 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 and 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 intersects, returning some of the best assay results seem to be at Donlin and among the best reporting in the entire industry last year. For example, for 2068, in 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 compete the fruits of your leverage is worth the investment and time any resources. On the map included on Slide 12, we feature some of the top 3 gold producing operations in the world, and 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 owner's vision of responsible development of creating jobs and economic benefits for the surrounding communities as well as protecting the local culture. A few of the 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 Donlin Gold project. I'll now touch on some of the milestones that were achieving and the key activities of the first quarter. The Donlin Gold 2023 field program commenced earlier in the year to complete the necessary field work and geotechnical drilling required for the Alaska Dam Safety certificates applications. Additional work included on site 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 which 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 through 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 very active area of ours, working alongside with our Alaska native corporation partners. Permitting. We continue to advance our permits through the regulatory process and supporting 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 and region 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 premier Sponsor of the Iron Dog Race and is part of the Alaska Safe Riders program. Also, 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 Village of Crooked Creek, Donlin provided financial support through the construction and maintenance and 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 opportunity in Alaska is another priority for the company. We recently awarded the first NovaGold's 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. I'll now turn the presentation back over to Greg. Greg?

Thank you, Dave. Turning to Slide 23. The focus of our activities this year will be, one, updating the geologic and resource models, continuing field work, collecting geotechnical and hydrological information to support advanced safety certificates applications, reviewing key project assumptions and inputs and design components for optimization and mine engineering, metallurgy and infrastructure. We will continue to advance current permits through regulatory process and support the state in defending the existing permits. Lastly, we will continue to engage, maintain and grow support through project in the region. NovaGold has been blessed with modern and supportive shareholders, comprising many of the most respected names in the investment world, who's presence and counsel have been invaluable. Some of these are listed on Slide 24. We are grateful for their decision to invest with the company and for their continued interest and engagement. We affirm to all of them and as stewards of the company, we continue to be focused on delivering on our strategy in 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 positioned 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 keeping an open eye of 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.

[Operator Instructions]. 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 like what some of the higher-level trade-off studies might be considering if you're -- as you move forward in 2023, just looking for some sense of some of the bigger kind of delta items that you're looking at 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 just other of the big key cash components for capital. But 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 end other parameters of the project. But we're also looking at the optimizing the mining based on the great drill results we've had this year, specifically what opportunities are out there to enhance the grade by more selective smaller mining permit. Clearly, we've demonstrated that the high grades really do exist at the Donlin Gold mine. And we look forward to updating everybody on the study since we reached 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 will 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 out studies now as well as preparing to move geologic model. All of these studies and some models will be presented to the Donlin Gold board or the -- on the settlement in the next couple of months. I think that's -- we'll be in a position then to [indiscernible] bit more specifically on the [indiscernible].

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

All right. Your question was on the all-in cost and here are most recent refresh in the 43 mile ride. Life of mine in there average about $630 an ounce. We would expect them to be a little bit more competitive and lower in the first 2 years of the mine life into higher-grade life of mine early. But [indiscernible] cost would be on the lowest [indiscernible].

Before we proceed to the final question, we have Lucas Pipes on the line who is wanting 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. With the -- we operate at a couple of basis that is -- the drilling has really delivered some really nice rates. I think if anything, we will slightly enhance the grade of the overall value and gold deposit. Most of this is really dealing our partner's due diligence. Donlin has been the company to NovaGold for many years. We know the asset very intimately, and the drilling and trade-off studies that we've been conducting, and they've really empowered our partner's due diligence. And I think part of the trade-off studies and the drilling have been insightful, I would say it's more validated than changed our view of the project. And I think certainly from the NovaGold's point of view, we've been a story partner. We've answered their geographic and due diligence curiosity. I think certainly from my perspective, 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 to the attitude of Washington to the resource sector as the world has changed since Biden was named President?

I think I'll speak -- I'll answer that. Maybe from a Donlin's 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 U.S. Senate is very, very supportive of the project. And the Biden Administration has not always been supportive of mining projects, they certainly have been supportive of Donlin. And I think certainly Alaska Administration was very supportive. And Biden Administration recently approved the natural resource [indiscernible]. So I think they're cautious, but I think they support responsible mine development and responsible resource development. So I would say it has really had no impact on our activity, the change in the 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 pole for over 20 years. I've seen gold go from $250 an ounce to $1,900 an ounce in what I called Wave 1. We saw who want to have a better word, Wave 2 as a correction that took gold from $1,900 back to $1,100. And now we're seeing Wave 3, which I believe is going to be a long wave. I'm not saying that we're not going to have knuckle-whitening corrections along the way. That's the nature of the market. But I do believe that we're headed for a trajectory that would be marked by 2 aspects. First, a multiplication of the gold price. Second, a long, long duration. In other words, Wave 1 in gold, for 12 years took gold to higher closes every year. Regardless of the circumstances that we normally think are so determinative to gold. There were times of interest rate fears, dollar fears, commodities fears, geopolitical stories regardless of which way you were leaning in terms of the macros, gold was up every year, year-on-year for 12 years. That's a bull market. If you see a stock go from $2.50 to $19 and it corrects down to 11%, you're not really shocked. But both of those waves are characterized by more than a decade in the duration. The next wave in gold, maybe we're seeing it, maybe we need one more head fake, I don't know. But the next wave in gold, I think, takes it to my long-term target of $3,000 to $5,000. And I say long term because I said that the gold is at $250. The truth is that if gold were to go much higher, I would not be at all surprised. One thing is very clear to me. And this pertains to the investment pieces for NovaGold, gold is going to go up for the next 10 to 20 years. That's what the charts are telling us and the charts for a historian are like looking at human brain waves. You don't have to be a technician, I'm a fundamentalist, obviously, by definition, but being a historian, it's all about cycles, reversals and the way that markets will carry on from the depths of despair to the heights of irrational exuberance. We could see gold with 5 digits easily. But in order to do that, we still have to get through 3,000 to 5,000. So I'll update my estimates when we get there. But the point that I would want to mention to our shareholders is as follows. I came into this story the beginning the first week in January, actually December 31, 2008, when Electrum effectively took control as the dominant shareholder of NovaGold. NovaGold had been a company that had gone through $0.50 per share to $20, and we had not participated in it nor did we participate in shortening the stock. It's not something that we do when it went from '20 back to about $1, $0.50 actually. The asset or the company had multiple issues, class action lawsuits, environmental issues on assets not relating to Donlin. It had several different assets. So there was a -- as it were a diversified aspect to the story, the management was discredited, there was no following. The balance sheet was terrible, institutions wouldn't budge. Electrum was able to do that because we're a family business in essence, our family plus several large Arab Sovereign Wealth Funds and employee capital. And so we could catch the falling knife, and we turned that story around. We dealt with the environmental issues with the EPA by selling off a project. We spun off the lore to Newmont realizing great value for the shareholders, making NovaGold a pure play on what we call the new Carlin or the new Nevada. We settled the class action lawsuits. We changed the entire management team, culminating in being able to get the President of Barrick North America who knew the asset better than anyone else because we've been on the other side of the table when Barrick made a failed hostile takeover here. We've brought in Richard Williams, who had built the Pueblo Viejo mine, the largest investment ever made by Barrick and something that Barrick talks about even expanding now in the Dominican Republic. And the stock went back to $15 within the space of a couple of years. Obviously, the last decade has been very, very tough for the gold mining shares. We haven't been immune to that. We are not unusual in that respect. The ratio of gold to gold mining equity is pretty much as low as it's ever been. So what I would say is this. Several things. Number one, we're in a bull market in gold; number two, it's going to last for a very long time, well over a decade; number three, we will see a revaluation of gold assets; number four, I've been in the story for 14 years. And contrary to suffering from any form of deal fatigue, I'm more excited about Donlin than ever before. And I'd like to explain why because it ties into a bow some of the other 4 aspects, which I just mentioned. We're in a very, very different world. My friends, shareholders and my colleagues, those who follow NovaGold let me be very, very blunt. The era of the frontier mentality, the era where geology Trump's geopolitics is over, over. The assets that will achieve the premium valuations, which will be valued like they were before the frontier spirits to hold when Newmont and Yanacocha and the go where the gold is and how the gold is made became prevalent. At that time, people forget U.S. assets were valued using the 0% discount rate because they were the hype of political safety. They were arbitraged with the less politically safe jurisdictions, Canada, Australia and South Africa. The world is very, very different now. I happen to believe that in almost everywhere other than in North America, Australia, in a few jurisdictions the gold mines will be nationalized. Gold is money. You don't have to be a gold bug to believe that. Its money because the central banks say its money, and they are the ultimate insider traders. The fact that central banks no longer sell gold but are massive net buyers. And I'm talking smart money, the Chinese, Singapore, not to mention other countries that fear being part of the U.S. dollar system only, and they've seen that, that has its own hazards. The era when people could go all over the world and think that they're going to mine gold and not have it gone up to their head to change those agreements. They're over. I made my bones in Bolivia. I made my bones in Zimbabwe, South Africa, I sold Kibali [indiscernible]. I know what it's like operating in these areas, and I admire those who still do it. But there's no way that one can go to sleep at night, feeling comfortable when you wake up in the morning, you're going to own the same thing that you owned the night before. Gold this money, gold will be nationalized and jurisdiction will be everything. So that brings us back to Donlin. Let's understand what Donlin is. Let's understand why it's the best buy in the gold source. Let's understand why when people really caught on to the fact that gold has embarked on another long way, they're going to be asking their brokers, "Hey, can you give me a company which has an excellent management team and a fantastic asset, and it's located in a part of the world where I would be willing to take a vacation." There aren't that many places left. There's Nevada. Here's Alaska. There's Australia. There are a few other places, you might want to go to Finland. But the reality is that the rule of law is going to be sacred saint. Institutional investors are going to gravitate towards those very few go-to stocks which are in places where the rule of law is not a novelty and where they don't eat you literally or figuratively. By that standard, in addition to the fact that in terms of the size, the grade, the mine life, the exploration potential, the low operating costs, which come from higher grade, the safety of Alaska is determinative. If you believe and you're a bull in gold, you want to be in safe places. If you want octane in your portfolio, you want to have a development stage story. We believe we are the go-to stock in that space. We believe that we are on the cusp of being able to go to the next level. We've got a project which has got all the right attributes. We've positioned it as a pure play on a district that is a gift that keeps on giving. Those exploration results were amongst the very best in the entire gold industry. I don't believe that there's any major mining company in the world that wouldn't want to own the Donlin. And in fact, I'm pretty sure that in the gold space, everyone understands that it is the best in breed project. We will be advancing this up the value chain, but there's something that you also have to remember. The real money is made in the space, and I've now been doing it for 30 years by the quality of the asset that you own. We will one day be in production. There's no question about that. This is going to be built, but that doesn't mean that we can't also be the highest-rated stock in the space. Every month that goes by, more and more countries are asking the companies that are invested there to give more money, to rework their sovereign agreements. The jurisdictional aspect combined with a bull market in gold, means that for us, as investors, Donlin is truly the holy grail. I have no doubt that we can see a 10x on this stock as every day, every week, the story gets better and better and better, partly because we're moving the project forward and partly because, as I started by saying, we live in an entirely different world, and it's all about being able to have the greatest leverage to gold in a jurisdiction that will allow you to keep the fruits of the leverage. If you can't combine those 2 attributes, you're a dead man walking. If you can combine those attributes, you're going to make a killing in the market. And for me, if I didn't think that, that was the case with NovaGold and Donlin, I put it in play and we'd sell it to pivot to something better, but I genuinely don't believe that there is anything better out there in this space. Thank you.

Thank you, Tom. We have a few more questions that have come on via the webcast, and 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're pretty, pretty intent to update our geologic understanding of ore body, update current trade-out studies we're doing and use that knowledge to define the most optimal project pertaining to 2 new feasibility studies. But yes, I think the question, will there be a new feasibility study? Absolutely. The existing study is scale and our thinking on the project primarily building it in stages is crystallizing. And all of the learnings in the last couple of years have been growing or we incorporated into the new study to deliver the sensible project to the shareholders.

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

Yes, the question is about burn rates. Absolutely, we -- the feasibility or actually will be less dollars to owners to do drilling. Drilling is a costly activity. Our budget last year, Donlin was the highest in many years, and that was $60 million in total [indiscernible] to each partner. Going forward, our budget this year is less than that. But when we embark on a new feasibility study, we'll, of course, update the budget. But in total, the feasibility study and engineering would be less than the burn rate we had on our drilling programs in the last 2 years. Yes, clearly, we've got our gross burn rates. We have sufficient cash to see us through a completion of new feasibility study, move on to a construction stage. So no [indiscernible] until then. All right.

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.