In Management's Discussion and Analysis of Financial Condition and Results of
Operations, "NOVAGOLD", the "Company", "we," "us" and "our" refer to NOVAGOLD
RESOURCES INC. and its consolidated subsidiaries. The following discussion and
analysis of our financial condition and results of operations constitutes
management's review of the factors that affected our financial and operating
performance for the three-month periods ended February 28, 2023 and 2022. This
discussion should be read in conjunction with the condensed consolidated
financial statements and notes thereto contained elsewhere in this report and
our Annual Report on Form 10-K for the year ended November 30, 2022, as well as
other information we file with the Securities and Exchange Commission on EDGAR
at www.sec.gov and with Canadian Securities Administrators on SEDAR at
www.sedar.com. References herein to $ refer to United States dollars and C$ to
Canadian dollars, in thousands, except for per share amounts.
Overview
We operate in the gold mining industry, primarily focused on advancing the
Donlin Gold project in Alaska. The Donlin Gold project is held by Donlin Gold
LLC ("Donlin Gold"), a limited liability company owned equally by wholly-owned
subsidiaries of NOVAGOLD and Barrick.
Our corporate goals include continuing to advance the Donlin Gold project toward
a construction decision; maintaining support for Donlin Gold among the project's
stakeholders; promoting a strong safety, sustainability, and environmental
culture; maintaining a favorable reputation of NOVAGOLD; and preserving a
healthy balance sheet. Our operations primarily relate to the delivery of
project milestones, including the achievement of various technical,
environmental, sustainable development, economic and legal objectives, obtaining
necessary permits, completion of pre-feasibility and feasibility studies,
preparation of engineering designs and the financing to fund these objectives.
First quarter highlights
Stakeholder and government engagement
Donlin Gold is fortunate to have time-tested partnerships with Calista
Corporation ("Calista") and The Kuskokwim Corporation (TKC), owners of the
mineral and surface rights, respectively. The project's location on private
lands specially selected for mineral development potential pursuant to the 1971
Alaska Native Claims Settlement Act is a key attribute that distinguishes it
from most other mining assets in Alaska. Donlin Gold's commitment to meaningful
tribal engagement throughout project development and permitting has been
reinforced by decades of reliable and dependable engagement with the community.
Donlin Gold continues to work with Calista and TKC in all aspects of outreach
and engagement throughout the Yukon-Kuskokwim ("Y-K") region. Crooked Creek, the
closest community to the project site in the Y-K region, recently struggled with
access to reliable power and water, which shut down the school, health clinic,
and post office. In response, Donlin Gold, Calista and TKC provided support to
Crooked Creek by purchasing and delivering a generator, alerting the State of
Alaska's emergency response team for additional assistance, and helping the
local authorities to identify a longer-term solution for their infrastructure
needs as well as assisting with access to available government funding.
Environment and social investments
Environmental stewardship, education, community wellness, and cultural
preservation constitute key focus investments for Donlin Gold in the Y-K region.
The project supports these initiatives through fisheries studies and other
environmental activities, subsistence and cultural preservation efforts, and
educational grants. A wide range of activities and projects were carried out in
the first quarter with Calista and TKC.
Donlin Gold was the premier sponsor for the McGrath Iron Dog community safety
presentation as part of the Alaska Safe Riders program, promoting safety for
snowmachines, all-terrain vehicles and recreational off-road vehicles. The
non-profit organization is dedicated to reducing deaths and injuries from tragic
accidents.
In partnership with Covenant House Alaska and Bethel Community Services, Donlin
Gold is working on an action plan to address the chronic and ongoing youth food
security issues within the Y-K region. To date, the three entities have
successfully leased space from Bethel Winter House with the goal of developing a
housing and service hub for 18 to 24 year-olds.
Donlin Gold in partnership with Bethel Community Services Foundation and the
Aruqutet Project, a regional program to address food insecurity, throughout the
Bethel community. Over 550 local households are enrolled in the program to date,
with approximately 200 of them receiving food on any given month. Employing
local staff and committed volunteers has proven critical for the program's
success.
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In partnership with TKC, the village of Crooked Creek, the Akiak Native
Community and the Napaimute Tribe, Donlin Gold sponsored a program to construct
and maintain the ice roads to allow for winter travel between the remote
Kuskokwim River communities. The ongoing development and maintenance of these
roads allow for increased participation in community events, cultural
activities, sports, and provided access for emergency services, law enforcement
and travel. On average a total of 300 miles of ice road is constructed and
maintained annually.
Advancing education opportunities in Alaska is another high priority for the
Company. NOVAGOLD recently awarded the first University of Alaska scholarship to
an undergraduate student in mining or geological engineering. Donlin Gold
supports the Excel Alaska program which is a non-profit providing supplemental
academic, career and technical education intensives for rural youth and young
adults across the Y-K region. Student interview preparation sessions took place
in the first quarter with four more planned over the next two quarters. Through
this preparation, the students receive high school credit towards graduation and
concurrent college credits.
Permitting
Permitting in Alaska has been a tremendous achievement to date and a substantial
undertaking over many years to ensure a diligent, thorough, transparent, and
inclusive process for all involved, including stakeholders from the Y-K region.
Donlin Gold, its owners, and its partners Calista and TKC are intimately
familiar with the permitting and regulatory processes applicable to the project
and will continue to support the State in its defense of the thorough and
diligent permitting process. Together, they will also continue working to secure
the various remaining state-level permits and certificates required for the
project. Calista and Donlin Gold continued their proactive, bipartisan outreach
to the State Administration and new legislature in Alaska and with the Federal
Administration and U.S. Congress in Washington, D.C. to highlight the
thoroughness of the project's environmental review and permitting processes as
well as the benefits the project would deliver to all Native Alaskans. Alaska's
U.S. Senators and Governor have consistently expressed their long-term support
of the Donlin Gold project.
The Donlin Gold camp re-opened in the first quarter of 2023 to continue
fieldwork to collect geotechnical and hydrological information toward finalizing
the next step in the design documentation required for the Alaska Dam Safety
certificates, with anticipated field completion in 2023 and issuance of the
certificates expected in 2026. In 2022, Donlin Gold applied for a new air
quality permit based on updated air quality modeling and emissions controls
information, and the regularly scheduled re-issuance of its Alaska Pollutant
Discharge Elimination System (APDES) permit from the Alaska Department of
Environmental Conservation (ADEC). The new air quality permit is expected to be
issued by June 30, 2023, which corresponds to the expiration date of the current
permit. ADEC has extended the existing APDES permit indefinitely until a new
permit is finalized.
On June 3, 2020, Earthjustice joined by Orutsararmiut Native Council (ONC),
Chevak, Kasigluk, Eek, Kwinhagak, Marshall, Nightmute, Tununak, Kwethluk,
Kotlik, SalmonState, and the Alaska Community Action on Toxics filed a formal
appeal with the ADEC Commissioner of the State's water quality certification
under Section 401 of the Clean Water Act. The appeal process consists of an
Administrative Hearing in front of an Administrative Law Judge (ALJ) appointed
by the ADEC Commissioner. The ALJ was subsequently appointed. On April 12, 2021,
the ALJ issued his opinion for the Commissioner's consideration recommending the
401 Certification be vacated. The Commissioner issued his decision to uphold the
401 Certification on May 27, 2021. The decision was appealed on June 28, 2021 in
Alaska Superior Court by Earthjustice, on behalf of ONC. On September 27, 2021,
Donlin Gold filed a motion requesting a short term stay in the case to allow the
State to fully consider additional technical materials on mercury and
temperature; the State indicated to the Court that they do not oppose the
motion. On October 22, 2021, Donlin Gold submitted to ADEC expert technical
reports on mercury and temperature. On November 22, 2021, ADEC filed an
additional motion asking to remand the 401 certification back to ADEC to
determine how the additional information affects the certification. Earthjustice
did not oppose the motion although had comments on the remand process. On
December 29, 2021, the Court granted the remand request, dismissed the case
without prejudice, and left in place existing certification. On May 13, 2022,
the ADEC Water Division Director reaffirmed the 401 certification. On June 13,
2022, Earthjustice appealed the elements of the decision related to temperature
to the Commissioner and requested an adjudicatory hearing with an ALJ. On July
14, 2022, the Commissioner granted the request for the hearing and a new ALJ was
assigned. On September 14, 2022, Earthjustice filed their initial brief. Donlin
Gold and ADEC filed response briefs on October 14, 2022. Earthjustice filed
their final reply brief on October 21, 2022. The Commissioner's decision, which
he will make in collaboration with the ALJ, is expected in the first half of
2023. It is then subject to further review in Alaska Superior Court.
On September 20, 2021, Earthjustice, representing ONC, Cook Inletkeeper, and
three villages, filed an appeal of the State pipeline ROW authorization in
Alaska Superior Court. An appeal was also filed by a second party, the owner of
an outdoor guiding business located near the pipeline route, on September 20,
2021. On April 5, 2022, Earthjustice filed its opening brief, which related to
the scope of the cumulative effects analysis required by the Alaska
Constitutional, statutory, and regulatory provisions, and related previous
litigation. Alaska Department of Natural Resources (ADNR), Donlin Gold, and
Calista filed response briefs on June 15-16, 2022. Earthjustice filed its reply
on July 18, 2022, and requested oral arguments. The second appellant filed his
initial brief on June 8, 2022. ADNR's and Donlin Gold's response briefs were
submitted on August 22, 2022, and the second appellant filed their reply brief
on November 9, 2022. The request for oral arguments was granted by the Court and
they were held on January 11, 2023. Decisions in both cases are expected in
2023.
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On May 25, 2022, Earthjustice, on behalf of ONC and five villages, filed an
appeal of the final Water Rights in Alaska Superior Court. The appellants filed
their initial brief on November 21, 2022. ADNR and Donlin Gold submitted their
response briefs on March 8, 2023 and the appellants are preparing their final
brief. A decision is expected within the next year.
In September 2022, 13 tribes sent a letter to the U.S. Army Corps of Engineers
("Corps") and the Environmental Protection Agency (EPA) requesting that the
Corps consider requiring a supplemental environmental impact statement (EIS) on
the Donlin Gold project and revoking the Clean Water Act Section 404 permit in
light of what the tribes consider "new information" since the final EIS was
issued in 2018. Also in September 2022, the same tribes submitted a separate
letter to EPA requesting that they initiate a Clean Water Act Section 404(c)
veto process for the Donlin Gold project. A Section 404(c) veto has recently
been applied to the Pebble Project in Alaska but is rarely used by EPA. In early
January 2023, Donlin Gold and Calista both submitted responses to the Corps on
why the requests to prepare a supplemental EIS or revoke the 404 permit should
not be granted. In mid-January 2023, Donlin Gold also provided a response to EPA
describing why the agency should not initiate a 404(c) process.
Donlin Gold project
The focus at Donlin Gold is to update the geologic and resource models with the
data derived from the extensive drill program that took place over the last
three years; reviewing key project assumptions, inputs, and design components
for optimization (mine engineering, metallurgy, hydrology, and infrastructure);
advancing remaining permits through the regulatory process and supporting the
State in maintaining the existing permits; and, through continued engagement,
sustaining and expanding project support in the Y-K region.
Ultimately, subject to a formal decision by the Donlin Gold LLC board the
comprehensive work we are completing should lead to the commencement of a new
Donlin Gold feasibility study which, in turn, would initiate the detailed
engineering work necessary to advance the project design before reaching a
construction decision. The owners will advance the Donlin Gold project in a
financially disciplined manner with a strong focus on engineering excellence,
environmental stewardship, a strong safety culture and continued community
engagement.
Our share of funding for the Donlin Gold project in the first quarter of 2023
was $5,744. In 2023, we continue to expect our share of Donlin Gold LLC funding
to be $17,000, including $8,000 for external affairs, permitting, environmental,
land, and legal activities and $9,000 for project planning and fieldwork.
The Donlin Gold LLC board must approve a construction program and budget before
the Donlin Gold project can be developed. The timing of the required engineering
work and the Donlin Gold LLC board's approval of a construction program and
budget, the receipt of all required governmental permits and approvals, and the
availability of financing, commodity price fluctuations, risks related to market
events and general economic conditions among other factors, will affect the
timing of and whether to develop the Donlin Gold project. Among other reasons,
project delays could occur as a result of co-owner disagreements, public
opposition, litigation challenging permit decisions, requests for additional
information or analysis, limitations in agency staff resources during regulatory
review and permitting, or project changes made by Donlin Gold LLC.
We record our interest in the Donlin Gold project as an equity investment, which
results in our 50% share of Donlin Gold's expenses being recorded in the income
statement as an operating loss. The investment amount recorded on the balance
sheet primarily represents unused funds advanced to Donlin Gold.
Consolidated Financial Results
Three months ended
February 28,
2023 2022 Change
Net loss $ (10,659 ) $ (9,995 ) $ (664 )
Net loss per common share, basic and diluted $ (0.03 ) $ (0.03 ) -
Net loss increased by $664 from 2022 to 2023, primarily due to an increase in
interest expense on the promissory note, increased permitting costs at Donlin
Gold and higher corporate legal expenses, partially offset by increased interest
income and other income related the 2021 sale of the Company's interest in the
San Roque mineral property.
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Liquidity and Capital Resources
Liquidity overview
At present, we believe we have sufficient working capital available to cover
anticipated funding of the Donlin Gold project and corporate general and
administrative costs through completion of an updated Donlin Gold feasibility
study. Further, we believe we have sufficient working capital available to cover
anticipated costs and expenses for at least the next three years. Substantial
additional capital will be required once a decision to commence engineering and
construction is reached by the Donlin Gold board for the Donlin Gold project.
Future financings to fund construction are anticipated through debt, equity,
project specific debt, and/or other means. Our continued operations are
dependent on our ability to obtain additional financing or to generate future
cash flows. However, there can be no assurance that we will be successful in our
efforts to raise additional capital on terms favorable to us, or at all. For
further information, see section Item 1A, Risk Factors - Our ability to continue
the exploration, permitting, development, and construction of the Donlin Gold
project, and to continue as a going concern, will depend in part on our ability
to obtain suitable financing.
Our anticipated expenditures in fiscal year 2023 are approximately $31,000,
including $17,000 to fund the Donlin Gold project, $13,000 for corporate general
and administrative costs, and $1,000 for working capital and other items.
Our financial position includes the following as of February 28, 2023:
? Cash and cash equivalents of $54,161, primarily held at three large Canadian
domestic chartered banks with high credit ratings.
? Term deposits of $62,000 denominated in U.S. dollars and held at two large
Canadian domestic chartered banks with high credit ratings and maturities of
less than one year.
? Notes receivable of $25,000 due on the earlier of the completion of a Galore
Creek feasibility study or July 27, 2023, and a note for $75,000 fully
contingent upon approval of a Galore Creek project construction plan by the
owner(s).
? Promissory note payable to Barrick of $126,629, including accrued interest at
U.S. prime plus 2%. The promissory note and accrued interest are payable from
85% of the Company's share of revenue from future Donlin Gold project
production or from any net proceeds resulting from a reduction of the
Company's interest in Donlin Gold.
Cash flows
In the first quarter of 2023 cash and cash equivalents decreased by $9,721,
primarily to fund our share of Donlin Gold 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 (no PSUs vested in
2023) and proceeds received from the sale of the San Roque mineral property.
Outstanding share data
As of March 28, 2023, the Company had 333,982,678 common shares issued and
outstanding. Also, as of March 28, 2023, the Company had: i) a total of
9,161,465 stock options outstanding; 7,930,333 with a weighted-average exercise
price of $6.26 and the remaining 1,231,132 of those stock options with a
weighted-average exercise price of C$8.10; and ii) 1,605,500 PSUs and 310,957
deferred share units outstanding. Upon exercise or pay out, as applicable, of
the foregoing convertible securities, the Company would be required to issue a
maximum of 11,880,672 common shares.
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