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Earnings call: NOVAGOLD reports on Donlin Gold's progress and Q2 results

EditorAhmed Abdulazez Abdulkadir
Published 06/28/2024, 06:06 PM
© Reuters.
NG
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NOVAGOLD (ticker: NG) has provided an update on the progress of its Donlin Gold project during its second quarter financial results conference call. The company reported a net loss of $13.7 million for the quarter and a strong financial position with cash and cash equivalents of nearly $53 million and term deposits of $60 million.

The Donlin Gold project, located in Alaska, is a significant gold mining venture with a projected mine life of nearly three decades, expected to produce around 1 million ounces of gold annually at low costs. The project has secured most federal and state permits necessary for development. The company also announced the upcoming retirement of CFO David Ottewell, with Peter Adamek set to take over the role in July.

Key Takeaways

  • Donlin Gold project anticipated to produce approximately 1 million ounces of gold per year.
  • Projected mine life of nearly 30 years with significant exploration potential.
  • Secured all federal permits and the majority of state permits required for development.
  • NOVAGOLD reported a net loss of $13.7 million in the second quarter.
  • Financial position includes nearly $53 million in cash and $60 million in term deposits.
  • Approximately $31 million expected to be spent in the full year, with $14 million allocated to Donlin Gold.
  • CFO David Ottewell to retire, succeeded by Peter Adamek in July.
  • Decision on commencement of operations contingent on market conditions and gold prices.

Company Outlook

  • Updating feasibility study for Donlin Gold to position for a construction decision.
  • Discussions with Barrick to advance the project further.
  • Expecting a decision in early 2025 regarding the remaining key state permit for dam safety.

Bearish Highlights

  • Net loss of $13.7 million in the second quarter.
  • Cash and term deposits decreased by $4.9 million in the quarter.

Bullish Highlights

  • Donlin Gold's grade is over 2 grams per tonne, double the industry average.
  • Stable regulatory environment for mining in Alaska.
  • Partnerships with Calista and The Kuskokwim Corporation strengthen social license to operate.
  • Significant exploration potential for future growth.

Misses

  • The company did not provide guidance for 2025 capital expenditure.
  • The decision to proceed with operations is pending, based on market conditions and gold prices.

Q&A Highlights

  • CEO Greg Lang emphasized high gold prices as a significant factor for commencing operations.
  • Optimism expressed for rising gold prices in the coming years.
  • The tailings dam approval permits are not considered a critical path item for the project.

During the call, NOVAGOLD highlighted the strength of the Donlin Gold project, which boasts nearly 40 million ounces of gold reserves. The company remains committed to advancing the project with its partners and is carefully navigating the permitting process. With the retirement of CFO David Ottewell and the appointment of Peter Adamek, NOVAGOLD is poised to continue its strategic planning for the future of Donlin Gold, with an eye on market conditions and the price of gold to determine the optimal time to commence operations.

InvestingPro Insights

As NOVAGOLD (ticker: NG) navigates the financial and operational steps toward advancing the Donlin Gold project, real-time data and insights from InvestingPro provide a deeper understanding of the company's current market position.

InvestingPro Data metrics highlight some challenges and strengths for NOVAGOLD. The company's P/E Ratio (Adjusted) as of the last twelve months is at -24.1, reflecting the market's concerns about profitability in the near term. Additionally, with an Operating Income (Adjusted) of -$22.43M USD, it's clear that the company is facing some financial pressure. However, a 3 Month Price Total Return of 21.0% indicates that investors have recently seen substantial gains, which may be linked to optimistic views on the project's progress and gold market dynamics.

Two InvestingPro Tips particularly relevant to NOVAGOLD's situation are that analysts do not anticipate the company will be profitable this year and that it operates with a moderate level of debt. These insights suggest that while the company is not expected to generate a profit in the immediate future, its debt levels are not alarming, which is crucial for its long-term strategy.

For investors and industry analysts looking for additional insights, InvestingPro offers more tips on NOVAGOLD, which can be found at https://www.investing.com/pro/NG. Using the coupon code PRONEWS24, readers can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking access to a total of 7 InvestingPro Tips that could further inform investment decisions.

Full transcript - NovaGold Resources BATS (NG) Q2 2024:

Operator: Thank you for standing by. This is the conference operator. Welcome to the NOVAGOLD 2024 Second Quarter Financial Results Conference Call and Webcast. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Melanie Hennessey, Vice President, Corporate Communications. Please go ahead.

Melanie Hennessey: Good morning, Ashia. We are pleased that you have joined us for NOVAGOLD's second quarter financial results and also for an update on the Donlin Gold project. On today's call, we have NOVAGOLD's President and CEO, Greg Lang; and David Ottewell, NOVAGOLD's Vice President and CFO. At the end of the webcast, we will take questions by phone. Additionally, we will respond to questions received by e-mail. I would like to remind you, 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 will now turn the presentation over to our President and CEO, Greg Lang. Greg?

Greg Lang: Thank you, Melanie, and good morning, everyone. Let's begin today's call by highlighting why both we and our shareholders regard Donlin Gold as a Tier 1 asset. I want to emphasize our investment thesis and why assets, such as Donlin, are increasingly vital to the industry. Let's discuss the impressive attributes of the Donlin Gold project, as shown on Slide 5. First, the project boasts almost 40 million ounces of gold and a grade of over 2 grams per tonne, which is more than double the industry average. The projected mine life is almost three decades based on -- only on our current resources. This ensures a long-term, stable operation. Moreover, Donlin Gold is set to produce around 1 million ounces a year at a low cost, solidifying its position as one of the top producers in the industry with landholdings that offer significant exploration potential for future growth. Supported by an experienced management team with a strong track record in mine development across the Americas, Donlin Gold has secured all federal permits required for the development and the majority of the state permits, demonstrating our readiness for successful advancement. Situated on privately designated land in Alaska, the project benefits from the state's supportive mining regulations provide a stable regulatory environment. Our long-standing partnerships with Calista and The Kuskokwim Corporation further strengthened our social license to operate. These factors collectively position Donlin Gold as a cornerstone project with robust potential and significant long-term value. It's essential to outline Donlin Gold's journey from the early 1900s as it origins, as shown on Slide 6, to the strategic reorganization initiated over a decade ago under the leadership of Dr. Thomas Kaplan, our Chairman, and myself. Since NOVAGOLD's restructuring, our primary objective has been crystal clear: to advance Donlin's development, our prized asset in Alaska, to its fullest potential. We have maintained a steadfast commitment to the pursuit of this mission. The next logical and critical step for the project is to update the feasibility study with the goal of positioning Donlin favorably for a construction decision when the market conditions align. Our dedication to advancing this flagship project underscores our unwavering loyalty to our stakeholders, long-term shareholders, ensuring their trust and investment are met with tangible progress and value creation. On Slide 7, we emphasized the crucial role of Calista and TKC as private landowners in the development of Donlin Gold. Their commitment aligns closely with the elders' vision of responsible growth contributing to job creation and economic prosperity and the preservation of cultural heritage within the local communities. With land designated for mining activities over 50 years ago, their stewardship demonstrates a steadfast dedication to sustainable development. Throughout the permitting process, sustainability initiatives, community engagements and Calista and TKC have offered invaluable expertise and guidance, leveraging their deep understanding of the land and its economic significance to bolster community well-being. Their enduring partnerships and steadfast support are critical to ensuring the responsible and progressive development of Donlin Gold across all phases. These collaborative efforts underscore Donlin Gold's potential to become a cornerstone of lasting and responsible economic development in the Yukon-Kuskokwim region to serve future generations. Looking at Slide 8, Alaska is established as a world-leading mining jurisdiction, ranked third out of 120 global jurisdictions and only one of 12 to achieve an AA rating in the World Risk Report by Mining Journal Intelligence. It is renowned for its robust and secure environment, particularly in mining and stands out globally for its safety and its well-defined permitting processes. As the second largest gold producer in the United States, Alaska has facilitated the success of numerous companies underpinned by a government that actively supports and recognizes the importance of responsible natural resource development. Turning to one of Donlin Gold's distinctive qualities as currently envisioned, it ranks among the world's largest and highest grade undeveloped open pit gold reserves when compared with other development projects in the Americas, as shown on Slide 9. As global gold production trends downward, the industry faces a scarcity of high-quality development stage projects. Demands for projects characterized by scale, grade and longevity becomes increasingly critical for navigating multiple gold cycles effectively. Moreover, with the grade of almost 2.25 grams per tonne, easily exceeding the industry average for open pit projects, as indicated on Slide 10, Donlin is positioned to emerge as one of the most cost-effective producers in the industry. Turning to Slide 11. The bar chart illustrates Donlin Gold's post-tax net present value across various gold price scenarios. Today's gold price is positioning toward the higher end of the chart, indicating a potential value exceeding $25 billion with no discount rate applied or approximately $15 billion at a 5% discount rate. Significant exploration opportunities exist beyond the defined resources in the ACMA and Lewis deposits, as shown on the graphic in the upper right-hand corner of Slide 12. With the current resources covering only three kilometers of an eight-kilometer belt, there is substantial potential to expand the reserves and extend the mine life through further exploration of the land. Slide 13 highlights NOVAGOLD's 2023 achievements across environmental stewardship, health and safety, social engagement and corporate governance. Our latest sustainability report published in April thoroughly assesses NOVAGOLD's ESG performance in all of these critical areas. We extend our sincere appreciation to Donlin Gold, our Alaska Native Corporation partners and local community stakeholders for their excellent collaboration in shaping and achieving our ESG objectives. Their invaluable contributions have been pivotal in the planning, execution and success of these initiatives. The safety and well-being of our workforce remain of the utmost importance, exemplified by our decade-long record without a lost time incidents at the Donlin Gold site, where a significant proportion of our team comprises of local hires. Together, these efforts reinforce our pledge to uphold the highest standards of sustainability and responsibility as we advance toward our future goals. I will now discuss some of the milestones achieved at the Donlin Gold project in the second quarter as well as our ongoing activities. Moving to Slide 13. The significant progress we've made in the Donlin Gold project is easily demonstrated. With the strong backing from the owners and the Donlin Gold Board, we've made notable advancements. Our resource model is being actively enhanced and updated through efforts led by an independent third-party. Significant progress has also been made in our metallurgical test work at a pilot plant in Ontario, Canada. This work aims to validate optimizations to the flow sheet, which we expect to complete later this year. We have been updating our groundwater and surface water models, incorporating the latest field data from geoscience hydrology and continuing to collect data to update the geochemical characteristics for future mine closure planning. Moreover, our efforts to support regional infrastructure have continued, focusing on narrowing the scope of work and advancing regional energy opportunities. These ongoing technical endeavors are all geared towards positioning Donlin Gold favorably for future development. Turning to Slide 16, our ongoing collaboration with Calista, TKC and local leaders in education, health, cultural preservation and environmental stewardship continued in the second quarter across 62 Y-K communities with the goal to build strong relationships. Donlin Gold signed its 17th Shared Value Statement, emphasizing our agreement and engagement with local communities to address their specific needs. The third Subsistence Community Advisory Committee meeting was held in Aniak in the second quarter, fostering a structural platform for communication, dialogue, problem-solving and gathering community input on substantive issues. The project team has been actively monitoring the salmon fisheries in the Kuskokwim and Yukon River watersheds and with local tribes have identified opportunities to enhance salmon population's health with Alaska Native Corporation's to plan and launch a juvenile salmon monitoring initiative in the George River, a significant tributary to the Kuskokwim River. Additionally, educational initiatives, including sponsoring the Lower Kuskokwim School District's annual college and career fair, remain key for the project. Furthermore, Donlin Gold traveled with the Crooked Creek Traditional Council to Washington, D.C. to advocate for the Donlin Gold project, directly engaging with the U.S. Department of Justice and the Alaska Congressional Delegation. In April, U.S. Senators, Lisa Murkowski and Dan Sullivan, along with U.S. Representative, Mary Peltola, submitted a joint amicus brief in the Federal Court, referring to Donlin as one of Alaska's most important and necessary economic development projects in one of the most impoverished regions in the state. These efforts underscore the importance of engagement and preparedness throughout the rigorous permitting process, supported by a bipartisan outreach and the U.S. Department of Justice. Donlin Gold is a federally permitted project situated on private land designated for mining activities under the Alaska Native Claims Settlement Act over 40 years ago. This is a distinct feature setting Donlin apart from many other mining ventures in Alaska. Slide 17 details all the federal and state permits and certificates obtained to-date. We recognize the critical importance of jurisdictional safety, particularly amongst global variations in permitting standards. Alaska stands as one of the world's safest environments for free enterprise, both politically and socially stable, offering investors peace of mind. This eventually underscores our commitment to navigating the complexity of today's world with diligence and foresight. Looking at Slide 18, in the second quarter, the Dam Safety Certification preliminary design packages were submitted to the Alaska Department of Natural Resources on June 17. In federal litigation on the Joint Record of Decision, including the 404 permit, opening briefs were submitted in February. Donlin Gold, Calista and the State of Alaska filed their intervenors' briefs on April 16. Amicus (NASDAQ:FOLD) briefs supporting the project were filed by the village of Crooked Creek and the Alaska Congressional delegation. Oral arguments were held on June 24, and a decision is anticipated in early 2025. We recognize the importance of meticulous preparation and organization in navigating the rigorous permitting processes in both the United States and in Alaska. Our dedication remains steadfast as we continue to collaborate closely with federal and state agencies to navigate this comprehensive project. We highly value the bipartisan support and engagement for the Donlin Gold project, both in Alaska and in Washington, D.C. With that, I will turn the call over to David Ottewell to review our second quarter financial results. Dave?

David Ottewell: Thank you, Greg. Slide 20 highlights our operating performance. We reported a net loss of $13.7 million in the second quarter, a $0.9 million decrease from the prior-year quarter, primarily due to lower Donlin Gold project costs with no field program this year, partially offset by increased interest expense on the promissory note and increased general and administrative costs due to promotions and hiring additional staff along with professional and consulting fees related to our evaluation of options to advance the Donlin Gold project. Cash flows are highlighted on Slide 21. In the second quarter, cash and term deposits decreased by $4.9 million, primarily for corporate administrative expenses and our share in Donlin Gold funding, partially offset by interest income and working capital changes. Our net use of cash and term deposits was $2.3 million lower than the prior-year quarter due to lower Donlin Gold funding requirements, partially offset by increased administrative costs. On Slide 22, we note our strong treasury. Our financial position includes cash and cash equivalents of nearly $53 million and term deposits of $60 million. For the year-to-date, Donlin Gold funding and corporate G&A are in line with our budget. For the full year, we expect to spend approximately $31 million, including $17 million for corporate G&A and $14 million for Donlin Gold. I will now turn the presentation back over to Greg.

Greg Lang: Thank you, Dave. And I'm sure as most people saw the announcement, Dave has been our CFO for 12 years, and he's moving on to the next stage in life and retiring. And we want to thank Dave for being a valued member of the team at NOVAGOLD for over 12 years, and we are deeply grateful for his many contributions to NOVAGOLD during his tenure. Last December, the Donlin Gold Board approved a $28 million budget for the year, as shown on Slide 23. This budget includes ongoing resource modeling, mine planning, metallurgical test work, regional infrastructure support, hydrology work, closure planning, and importantly, the advancement of dam safety certificate applications, as well as ongoing support for pending litigation, government affairs, community engagements and our various sponsorships. Discussions with Barrick are ongoing to continue advancing Donlin Gold up the value chain as we remain fully committed to its development. Additionally, on behalf of the NOVAGOLD team, I would like to extend again our sincere appreciation to Dave Ottewell as he moves on to retirement. We would also like to welcome and congratulate Peter Adamek, who will assume the role of CFO in July. With resolute confidence, NOVAGOLD views the Donlin Gold project as a prime investment in the gold market that epitomizes an exceptional opportunity for leveraging scarce and high-quality assets in safe jurisdictions. Appreciative of our shareholders' staunch support and valuable guidance, we remain committed to enhancing shareholder and stakeholder value, responsibly acknowledging their crucial presence and long-term interests. Their decision to invest in our company and their continued solidarity and engagement are deeply valued. As custodians of the company, we are focused on executing our strategy and advancing the value of the Donlin Gold project in a safe and responsible manner to yield substantial progress and create value. Operator, we are now prepared to take questions.

Operator: Thank you. [Operator Instructions] The first question comes from Lucas Pipes with B. Riley Securities.

Fedor Shabalin: Thank you very much, operator, and good morning, everyone. This is actually Fedor Shabalin asking question on behalf of Lucas Pipes. And just I want to touch on permitting. So, where state-level permitting stage now and when you would expect to receive a decision? And when do you expect the decision regarding dam safety certification, which you submitted just 10 days ago? Thank you.

Greg Lang: All right. Well, thank you for the question. As noted in our materials, the only significant state permit that we do not have in hand is the dam safety certificates. This is for the tailings dam as well as several water retention structures. And to be clear, the federal permits and the 404 certificate authorizes Donlin to disturb work at the site, and that includes the tailings dam. But in Alaska, the structures such as the tailings dam and water retention study structures are -- they're administered by the state. And one of the aspects of the permit application is that you have to have a fully designed and engineered drawing to support your applications. And we started the geotechnical work necessary to do that last season. And this year, we've been finalizing our dam design and that, as we noted, the preliminary package has been submitted to the state. I think the process is pretty well defined, and it's moving along fine. And we would anticipate the roughly two, two-and-a-half year approval process, which would be done concurrently when the owners make the decision to move forward with the feasibility study. So, at any rate, the tailings dam approval permits are not on a critical path item, but we are steadily advancing them.

Fedor Shabalin: Thank you very much. And my second one is on CapEx. So, $14 million is the remaining CapEx in 2024. But maybe can you provide what level of capital spending you would expect in 2025? Thank you.

Greg Lang: Well, at this stage, we have not guided on our expenditures plan for the new year. And of course, a lot of that will depend on when we make the decision to initiate the new feasibility study. We typically prepare our budgets later in the third quarter and fourth quarter, and we'll, at that time, be in a position to guide the marketplace on our future expenditures.

Fedor Shabalin: Thank you very much. This is helpful, and wish you best of luck. Thank you.

Greg Lang: Thank you for your questions.

Melanie Hennessey: We have a shareholder question coming from the web from [Joe Primamore] (ph). With gold at an all-time high, what are the other key market conditions required to commence operations?

Greg Lang: Well, I think, as you noted, gold is at an all-time high. And I think that is, certainly, one of the key factors that will drive the -- ultimately the investment decision at Donlin. Other factors include market conditions, how the equities are viewed, how the debt markets are and how we would finance the project. But certainly, the key driver in the value of Donlin Gold and really any gold mining project is the price of gold. And we have the view that gold prices are pretty good right now, but we think there's substantial room to see them run higher in the coming years. So that -- yes, I would anticipate that when we finish our feasibility study, gold prices will be significantly higher than what we see today, positioning the owners to make a construction decision.

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

Greg Lang: Well, everyone, thank you for taking the time to get an update on NOVAGOLD. And we look forward to updating you as we continue to advance the Donlin project. Good day.

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

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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