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- and nine-month periods ended August 31, 2022 and
August 31, 2021. 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, 2021, 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.
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.
Donlin Gold highlights
Community engagement
Donlin Gold is fortunate to have time-tested partnerships with 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 feedback in the Yukon-Kuskokwim (Y-K) region in the areas of education,
health and safety, cultural traditions, and environmental initiatives, including
creating a subsistence committee comprised of independent regional stakeholders
with varying views on development initiatives in recent years, among other
activities.
In the third quarter, Donlin Gold signed two additional Shared Values Statements
with villages in the Y-K region for a total of 11 (Akiak, Sleetmute, Napaimute,
Crooked Creek, Napaskiak, Nikolai, Tuluksak, Upper Kalskag, Stony River, Pilot
Station, and Toksook Bay) that formalize current engagement with key local
communities. These agreements with Donlin Gold expand upon the long-term
relationships already established with these communities and address specific
community needs such as water, sewer, and solid waste projects; the ice road
that connects remote villages in the Y-K region; salmon and other aquatic life
studies; and suicide and public safety prevention programs.
Calista and Donlin Gold continued their proactive, bipartisan outreach in Alaska
and Washington DC in the third quarter to highlight the thoroughness of the
project's environmental review and permitting processes as well as the benefits
the project would deliver to Native Alaskans. Alaska's U.S. Senators have
consistently expressed their long-term support of the Donlin Gold project.
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.
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The State's Clean Water Act (CWA) Section 401 certification (the "401
Certification") of the Federal CWA Section 404 permit was formally appealed to
the Commissioner of the Alaska Department of Environmental Conservation (ADEC)
in June 2020, and the ADEC Commissioner referred the appeal to an Administrative
Law Judge for review. The appeal focused on three narrow issues related to
compliance with the State's water quality standards near the mine site. On April
12, 2021, the Administrative Law Judge issued his opinion for the Commissioner's
consideration recommending the 401 Certification be vacated. The ADEC
Commissioner issued his decision to uphold the 401 Certification on May 27,
2021. The decision was appealed on June 28, 2021 in Alaska's Superior Court by
Earthjustice on behalf of Orutsararmiut Native Corporation (ONC). On December
29, 2021, the Court issued an order dismissing the case without prejudice and
remanding the 401 Certification to ADEC for consideration of additional
technical information provided by Donlin Gold. The existing 401 Certification
remains in effect during the remand period. On May 16, 2022, ADEC's Division of
Water upheld the 401 Certification based on the record, including the additional
technical information for mercury and temperature. On June 13, 2022,
Earthjustice and ONC requested that the ADEC Commissioner conduct an additional
adjudicatory hearing on the part of the Division of Water's decision related to
potential water temperature effects in Crooked Creek. On July 14, 2022, the ADEC
Commissioner granted the request for the adjudicatory hearing review. The
briefing process is underway and we expect the hearing process to be completed
in the fourth quarter of 2022 or the first quarter of 2023.
In April 2020, the Alaska Department of Natural Resources' (ADNR) Division of
Oil and Gas agreed to reconsider its decision on the State Right-of-Way (ROW)
agreement and lease authorization for the buried natural gas pipeline. Under the
reconsideration, on September 10, 2020, the ADNR issued for additional public
comment a revised Consideration of Comments document. This document describes
how the ADNR considered public input that was solicited in the ROW review,
including how cumulative effects are addressed in the decision. The comment
period on the document ended on November 9, 2020. On July 19, 2021, the ADNR
Commissioner completed the reconsideration and upheld the ROW agreement and
lease authorization. On August 9, 2021, two parties requested that the
Commissioner conduct a further reconsideration. The first party was Earthjustice
representing ONC, Cook Inletkeeper, and three villages. The second party was an
individual who operates an outdoor guiding business around the pipeline route.
The Commissioner rejected both further reconsideration requests on August 19,
2021. On September 20, 2021, Earthjustice, representing ONC, Cook Inletkeeper,
and three villages, filed an appeal of the State ROW in Alaska Superior Court.
An appeal was also filed by the second party individual in September 2021. The
two appeals have been consolidated into a single case that is pending before the
Alaska Superior Court based in Anchorage, Alaska. Legal briefings are being
prepared by the parties and we anticipate a decision on the two appeals in the
first half of 2023.
In November 2020, the ADNR published an initial public notice for comment on
Donlin Gold's 12 applications for water rights for the mine site and
transportation facilities, which closed on December 15, 2020. Water rights are
for local surface water sources and groundwater to be used for process water,
dust control, fire protection, and potable water. In March 2021, the ADNR held a
second two-week public notice period, which closed on March 26, 2021. All the
final Water Rights were issued on June 29, 2021 by ADNR's Division of Mining
Land and Water. In July, they were administratively appealed to the ADNR
Commissioner by Earthjustice, ONC, and five villages. On April 25, 2022, the
ADNR Commissioner denied the appeal; however, Earthjustice, ONC and the five
villages appealed the Commissioner's decision in Alaska Superior Court on May
25, 2022. ADNR filed the Administrative Record with the Court on September 12,
2022, and the appellants are preparing their initial brief. A decision is
expected in 2023.
Donlin Gold, working with its Native Corporation partners, continues to support
the State of Alaska to advance other permits and certificates needed for the
project. Donlin Gold applied for a new air quality permit from ADEC, which is
expected to be in place when the current permit expires in mid-2023. The Donlin
Gold air quality permit renewal is required to update that emissions controls
reflect best technology and re-confirm that air quality standards will be met. A
draft permit is expected to be issued for public comment by the end of 2022.
Donlin Gold is also preparing an updated Alaska Pollutant Discharge Elimination
System application for regularly scheduled renewal by ADEC expected to be in
place by mid-2023. Donlin Gold is working with Calista, TKC, ADNR, and the U.S.
Bureau of Land Management on re-locating easements and public ROWs in the
project area. ADNR issued the proposed re-location plan for public comment in
summer 2022 and the final decision is expected by the end of 2022. The field
work related to the issuance of the Alaska Dam Safety certificates recommenced
during the third quarter of 2022.
Donlin Gold project
During the third quarter, the Donlin Gold board approved an increase in the 2022
drilling program from approximately 34,000 meters to 42,000 meters. In September
2022, the drilling portion of the program was completed with assays anticipated
to be completed in early 2023. A total of 141 holes were drilled for a total of
approximately 42,300 meters, including an additional 43 holes and 8,700 meters
above the original 2022 plan. The drilling program included tight spaced grid
drilling in structural domains and in-pit and below-pit drilling in sparsely
drilled areas of the open pit, platform mapping to confirm mineralization
continuity and key geological controls in representative areas of the deposit,
waste rock facility condemnation drilling, and geotechnical drilling for the
Alaska Dam Safety certificates (13 holes, 491 meters, not included in above
total).
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Project planning is also underway to advance geologic modeling and
interpretation work for an updated resource model and engineering activities for
use in an updated project feasibility study. Additionally, metallurgical
testing, hydrogeology and geochemistry works, as well as infrastructure planning
are underway. The owners of Donlin Gold LLC are also updating various
engineering studies before making a decision whether to proceed to update the
project feasibility study. Ultimately, the information should assist in
determining the next steps to update the Donlin Gold feasibility study and
initiate the 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 environmental
stewardship, engineering excellence, a strong safety culture and continued
community engagement.
Our share of funding for the Donlin Gold project in the first nine months of
2022 was $24,925. In 2022, with the additional drilling completed, we now expect
our share of Donlin Gold funding to be approximately $32,000, including $23,000
for follow-up drilling, camp improvements and studies, and $9,000 for
permitting, community engagement and administration.
The Donlin Gold 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 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 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.
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
Third quarter 2022 compared to 2021
In the third quarter of 2022, Net loss increased by $4,333 from 2021, primarily
due to the expanded Donlin Gold work program, higher interest expense on the
Barrick promissory note, a decrease in the fair market value of marketable
securities, lower accretion income due to the maturity of the $75,000 Newmont
note in July 2021, and foreign exchange movements, partially offset by increased
interest earned on cash and term deposits.
First nine months 2022 compared to 2021
In the first nine months of 2022, Net loss increased by $10,821 from 2021,
primarily due to the expanded Donlin Gold work program, higher interest expense
on the Barrick promissory note, lower accretion income, and a decrease in the
fair market value of marketable securities, partially offset by foreign exchange
movements and increased interest income.
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 until a decision to commence engineering and construction
is reached by the Donlin Gold board for the Donlin Gold project, at which point
substantial additional capital will be required. 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 our Annual
Report on Form 10-K for the year ended November 30, 2021, as filed with the SEC
and the Canadian Securities Regulators on January 26, 2022, 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 2022 are approximately $48,000,
including $32,000 to fund the Donlin Gold project, $13,000 for corporate general
and administrative costs, $2,000 for withholding taxes on share-based
compensation and $1,000 for working capital and other items.
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Our financial position includes the following as of August 31, 2022:
? Cash and cash equivalents of $61,932.
? Term deposits of $70,000 denominated in U.S. dollars and held at Canadian
chartered banks with high investment-grade ratings and maturities of one year
or less.
? 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 $121,117, 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 third quarter of 2022 cash and cash equivalents decreased by $10,360,
primarily to fund our share of Donlin Gold and for corporate administrative
expenses. The increase in cash used in the third quarter of 2022 compared to
2021 was primarily due to the expanded Donlin Gold work program in 2022. In July
2021, we received proceeds of $75,000 on the Newmont notes.
In the first nine months of 2022 cash and cash equivalents decreased by $29,192,
primarily to fund our share of Donlin Gold, for corporate administrative
expenses, and for withholding taxes on share-based payments, partially offset by
a net $8,000 received from term deposits. The increase in Net cash used in
operating activities during the first nine months of 2022 compared to 2021 was
primarily due to the timing of corporate liability insurance payments. Net cash
used in investing activities increased in 2022 due to the expanded Donlin Gold
work program, partially offset by a net increase in net proceeds received from
term deposits. In 2021, we received proceeds of $75,000 on the Newmont notes.
Net cash used in financing activities increased in 2022 due to higher
withholding tax on share-based compensation (no cash was used for CEO and CFO
withholdings in 2021).
Outstanding share data
As of September 27, 2022, the Company had 333,390,237 common shares issued and
outstanding. Also, as of September 27, 2022, the Company had: i) a total of
9,298,579 stock options outstanding; 8,161,681 with a weighted-average exercise
price of $5.79 and the remaining 1,136,898 of those stock options with a
weighted-average exercise price of C$7.67; and ii) 1,257,200 PSUs and 291,860
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 11,476,239 common shares.
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