|
Item 1.
|
Financial Statements
|
NOVAGOLD RESOURCES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited,
US dollars in thousands)
|
|
At
February 28,
2018
|
|
At
November 30,
2017
|
ASSETS
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
20,931
|
|
|
$
|
27,954
|
|
Term deposits
|
|
|
56,000
|
|
|
|
56,000
|
|
Other assets
|
|
|
898
|
|
|
|
883
|
|
Current assets
|
|
|
77,829
|
|
|
|
84,837
|
|
Investment in Donlin Gold (note 4)
|
|
|
993
|
|
|
|
1,100
|
|
Investment in Galore Creek (note 5)
|
|
|
253,395
|
|
|
|
251,461
|
|
Mineral property
|
|
|
45,458
|
|
|
|
45,179
|
|
Deferred income taxes
|
|
|
9,821
|
|
|
|
9,761
|
|
Other assets
|
|
|
6,465
|
|
|
|
6,531
|
|
Total assets
|
|
$
|
393,961
|
|
|
$
|
398,869
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
538
|
|
|
$
|
727
|
|
Accrued payroll and related benefits
|
|
|
663
|
|
|
|
2,513
|
|
Other liabilities
|
|
|
182
|
|
|
|
182
|
|
Current liabilities
|
|
|
1,383
|
|
|
|
3,422
|
|
Promissory note (note 6)
|
|
|
91,534
|
|
|
|
90,040
|
|
Deferred income taxes
|
|
|
21,507
|
|
|
|
21,378
|
|
Total liabilities
|
|
|
114,424
|
|
|
|
114,840
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (note 12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
|
|
Common shares
|
|
|
1,952,564
|
|
|
|
1,951,587
|
|
Contributed surplus
|
|
|
84,506
|
|
|
|
83,534
|
|
Accumulated deficit
|
|
|
(1,753,132
|
)
|
|
|
(1,744,917
|
)
|
Accumulated other comprehensive gain (loss)
|
|
|
(4,401
|
)
|
|
|
(6,175
|
)
|
Total equity
|
|
|
279,537
|
|
|
|
284,029
|
|
Total liabilities and equity
|
|
$
|
393,961
|
|
|
$
|
398,869
|
|
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
These condensed consolidated interim financial statements are authorized for issue by the Board of Directors on April 4, 2018. They are signed on the Company’s behalf by:
/s/ Gregory A. Lang, Director
|
|
/s/ Anthony P. Walsh, Director
|
NOVAGOLD RESOURCES INC.
CONDENSED CONSOLIDATED
INTERIM STATEMENTS OF LOSS
AND COMPREHENSIVE LOSS
(Unaudited, US dollars in thousands except per share amounts)
|
|
Three months ended
|
|
|
February 28,
2018
|
|
February 28,
2017
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Equity loss – Donlin Gold (note 4)
|
|
$
|
1,841
|
|
|
$
|
2,082
|
|
Equity loss – Galore Creek (note 5)
|
|
|
253
|
|
|
|
150
|
|
General and administrative (note 8)
|
|
|
4,685
|
|
|
|
6,731
|
|
|
|
|
6,779
|
|
|
|
8,963
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(6,779
|
)
|
|
|
(8,963
|
)
|
Other income (expense) (note 10)
|
|
|
(1,370
|
)
|
|
|
(1,127
|
)
|
Loss before income taxes
|
|
|
(8,149
|
)
|
|
|
(10,090
|
)
|
Income tax expense
|
|
|
(66
|
)
|
|
|
(53
|
)
|
Net loss
|
|
$
|
(8,215
|
)
|
|
$
|
(10,143
|
)
|
|
|
|
|
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on marketable securities, net of $11 and $(33) tax recovery (expense), respectively
|
|
|
(94
|
)
|
|
|
214
|
|
Foreign currency translation adjustments
|
|
|
1,868
|
|
|
|
3,325
|
|
Other comprehensive income
|
|
|
1,774
|
|
|
|
3,539
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(6,441
|
)
|
|
$
|
(6,604
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per common share
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.03
|
)
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
Basic and diluted (thousands)
|
|
|
322,291
|
|
|
|
321,428
|
|
The accompanying notes are an integral
part of these condensed consolidated interim financial statements.
NOVAGOLD RESOURCES INC.
CONDENSED CONSOLIDATED
INTERIM STATEMENTS OF CASH FLOWS
(Unaudited, US dollars in thousands)
|
|
Three months ended
|
|
|
February 28,
2018
|
|
February 28,
2017
|
|
|
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(8,215
|
)
|
|
$
|
(10,143
|
)
|
Adjustments:
|
|
|
|
|
|
|
|
|
Equity losses of affiliates
|
|
|
2,094
|
|
|
|
2,232
|
|
Share-based compensation
|
|
|
1,949
|
|
|
|
3,925
|
|
Interest on promissory note
|
|
|
1,494
|
|
|
|
1,213
|
|
Other
|
|
|
95
|
|
|
|
133
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
(11
|
)
|
|
|
(27
|
)
|
Accounts payable and accrued liabilities
|
|
|
(194
|
)
|
|
|
(17
|
)
|
Accrued payroll and related benefits
|
|
|
(1,854
|
)
|
|
|
(1,537
|
)
|
Net cash used in operating activities
|
|
|
(4,642
|
)
|
|
|
(4,221
|
)
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Proceeds from term deposits
|
|
|
15,000
|
|
|
|
40,000
|
|
Purchases of term deposits
|
|
|
(15,000
|
)
|
|
|
(45,000
|
)
|
Funding of affiliates
|
|
|
(2,377
|
)
|
|
|
(2,640
|
)
|
Other
|
|
|
(13
|
)
|
|
|
(28
|
)
|
Net cash used in investing activities
|
|
|
(2,390
|
)
|
|
|
(7,668
|
)
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
Withholding tax on share-based compensation
|
|
|
—
|
|
|
|
(196
|
)
|
Net cash used in investing activities
|
|
|
—
|
|
|
|
(196
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
9
|
|
|
|
50
|
|
Decrease in cash and cash equivalents
|
|
|
(7,023
|
)
|
|
|
(12,035
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
27,954
|
|
|
|
30,274
|
|
Cash and cash equivalents at end of period
|
|
$
|
20,931
|
|
|
$
|
18,239
|
|
The accompanying notes are an integral
part of these condensed consolidated interim financial statements.
NOVAGOLD RESOURCES INC.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF EQUITY
(Unaudited, US dollars and shares in thousands)
|
|
Common shares
|
|
Contributed
|
|
Accumulated
|
|
Accumulated
other
comprehensive
|
|
Total
|
|
|
Shares
|
|
Amount
|
|
surplus
|
|
deficit
|
|
income (loss)
|
|
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, 2016
|
|
|
320,016
|
|
|
$
|
1,942,451
|
|
|
$
|
82,573
|
|
|
$
|
(1,705,901
|
)
|
|
$
|
(18,860
|
)
|
|
$
|
300,263
|
|
Share-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
10,293
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,293
|
|
PSUs settled in shares
|
|
|
1,513
|
|
|
|
4,000
|
|
|
|
(4,000
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
DSUs settled in shares
|
|
|
28
|
|
|
|
122
|
|
|
|
(122
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Stock options exercised
|
|
|
662
|
|
|
|
5,014
|
|
|
|
(5,014
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Withholding tax on PSUs
|
|
|
—
|
|
|
|
—
|
|
|
|
(196
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(196
|
)
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(39,016
|
)
|
|
|
—
|
|
|
|
(39,016
|
)
|
Other comprehensive income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,685
|
|
|
|
12,685
|
|
November 30, 2017
|
|
|
322,219
|
|
|
$
|
1,951,587
|
|
|
$
|
83,534
|
|
|
$
|
(1,744,917
|
)
|
|
$
|
(6,175
|
)
|
|
$
|
284,029
|
|
Share-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
1,949
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,949
|
|
Stock options exercised
|
|
|
83
|
|
|
|
977
|
|
|
|
(977
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(8,215
|
)
|
|
|
—
|
|
|
|
(8,215
|
)
|
Other comprehensive income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,774
|
|
|
|
1,774
|
|
February 28, 2018
|
|
|
322,302
|
|
|
$
|
1,952,564
|
|
|
$
|
84,506
|
|
|
$
|
(1,753,132
|
)
|
|
$
|
(4,401
|
)
|
|
$
|
279,537
|
|
The accompanying notes are an integral
part of these condensed consolidated interim financial statements.
NOVAGOLD RESOURCES INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited, US dollars in thousands except per share amounts)
NOTE 1 – NATURE OF OPERATIONS
AND BASIS OF PRESENTATION
NOVAGOLD RESOURCES
INC. and its affiliates and subsidiaries (collectively, “NOVAGOLD” or the “Company”) operate in the mining
industry, focused on the exploration for and development of gold and copper mineral properties. The Company has no realized revenues
from its planned principal business purpose. The Company’s principal assets include a 50% interest in the Donlin Gold project
in Alaska, U.S.A. and a 50% interest in the Galore Creek project in British Columbia, Canada. The Donlin Gold project is owned
and operated by Donlin Gold LLC, a limited liability company that is owned equally by wholly-owned subsidiaries of NOVAGOLD and
Barrick Gold Corporation (“Barrick”). The Galore Creek project is owned by the Galore Creek Partnership a partnership
in which Teck Resources Limited (“Teck”) and a wholly-owned subsidiary of NOVAGOLD each own a 50% interest.
The Condensed Consolidated
Interim Financial Statements of NOVAGOLD are unaudited. In the opinion of management, all adjustments and disclosures necessary
for a fair presentation of these interim statements have been included. The results reported in these interim statements are not
necessarily indicative of the results that may be reported for the entire year. These interim statements should be read in conjunction
with NOVAGOLD’s Consolidated Financial Statements for the year ended November 30, 2017. The year-end balance sheet data was
derived from the audited financial statements and certain information and footnote disclosures required by United States generally
accepted accounting principles (US GAAP) have been condensed or omitted.
The functional currency
for the Company’s Canadian operations is the Canadian dollar and the functional currency for the Company’s U.S. operations
is the U.S. dollar. References in these Condensed Consolidated Financial Statements and Notes to $ refer to United States dollars
and C$ to Canadian dollars. Dollar amounts are in thousands, except for per share amounts.
NOTE 2 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Recently
adopted accounting pronouncements
Compensation—Stock Compensation
In May 2017, Accounting
Standard Update (ASU) No. 2017-09 was issued to provide guidance about which changes to the terms or conditions of a share-based
payment award require an entity to apply modification accounting. The adoption of this guidance, effective December 1, 2017, had
no impact on the Consolidated Financial Statements or disclosures.
Recently
issued accounting pronouncements
Restricted Cash
In November 2016, ASU
No. 2016-18 was issued related to the inclusion of restricted cash in the statement of cash flows. This new guidance requires that
a statement of cash flows explain the change during the period in the total of cash, cash equivalents and restricted cash. This
update is effective in fiscal years, including interim periods, beginning after December 15, 2017 and early adoption is permitted.
The adoption of this guidance will result in the inclusion of the restricted cash balances within the overall cash balance and
removal of the changes in restricted cash activity. Furthermore, the Company will be required to reconcile cash and cash equivalents and
restricted cash reported within the consolidated balance sheets to the total shown in the Consolidated Statements of Cash Flows.
The Company anticipates adopting this new guidance effective December 1, 2018, and does not expect it to have a material impact
on the Consolidated Financial Statements or disclosures.
Classification of Certain Cash Receipts
and Cash Payments
In August 2016, ASU
No. 2016-15 was issued related to the statement of cash flows. The new guidance will require the Company to make an accounting
policy election to classify distributions received from equity method investees (Donlin Gold LLC and Galore Creek Partnership)
using a cumulative earnings approach or a nature of the distribution approach. The election will affect the classification of future
distributions on the statement of cash flows as cash inflows from operating activities or investing activities. The new guidance
is effective for the Company’s fiscal year and interim periods beginning December 1, 2018, and early adoption is permitted.
The Company has evaluated this guidance and does not expect it to have a material impact on the Consolidated Financial Statements
or disclosures. The Company anticipates retrospectively adopting the new guidance effective December 1, 2018.
NOVAGOLD RESOURCES INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited, US dollars in thousands except per share amounts)
Leases
In February 2016,
ASU No. 2016-02 was issued related to leases, which was further amended in September 2017 by ASU No. 2017-13 and in January 2018
by ASU No. 2018-01. The new guidance modifies the classification criteria and requires lessees to recognize the assets and liabilities
arising from most leases on the balance sheet. The new guidance is effective for the Company’s fiscal year beginning December
1, 2019 and early adoption is permitted. The Company anticipates adopting the new guidance effective December 1, 2019. Adoption
of this guidance is not expected to materially increase the Company’s assets and liabilities.
Classification and Measurement of Financial
Instruments
In January 2016, ASU
No. 2016-01 was issued to amend the guidance on the classification and measurement of financial instruments, which was further
amended in February 2018 by ASU No. 2018-03. The new guidance requires entities to measure equity investments that do not result
in consolidation and are not accounted for under the equity method at fair value and recognize any changes in fair value in net
income. The new guidance also amends certain disclosure requirements associated with the fair value of financial instruments. The
new guidance is effective for the Company’s fiscal year beginning December 1, 2018 and early adoption is not permitted. The
Company expects the updated guidance to result in a reclassification of unrealized holding gains and losses and deferred income
taxes related to investments in marketable equity securities from Accumulated other comprehensive loss to Accumulated deficit in
the Consolidated Balance Sheets upon adoption. Accumulated other comprehensive loss at February 28, 2018 included $737 of net unrealized
holding gains and deferred income taxes related to marketable equity securities that will be reclassified to Accumulated deficit
upon adoption.
NOTE 3 – SEGMENTED INFORMATION
Operating segments
are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating
decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified
as the Chief Executive Officer. The Chief Executive Officer considers the business from a geographic perspective considering the
performance of our investments in the Donlin Gold project in Alaska, U.S.A. and the Galore Creek project in British Columbia, Canada.
Segment information is provided on each of the material projects individually in notes 4 and 5.
NOTE 4 – INVESTMENT IN DONLIN GOLD
The Donlin Gold project
is owned and operated by Donlin Gold LLC, a limited liability company in which wholly-owned subsidiaries of Barrick and NOVAGOLD
each own a 50% interest. Donlin Gold LLC has a board of four directors, with two directors selected by Barrick and two directors
selected by the Company. All significant decisions related to Donlin Gold LLC require the approval of at least a majority of the
Donlin Gold LLC board members.
Changes in the Company’s
investment in Donlin Gold LLC are summarized as follows:
|
|
Three months ended
|
|
|
|
February 28,
2018
|
|
February 28,
2017
|
|
Balance – beginning of period
|
|
$
|
1,100
|
|
|
$
|
951
|
|
|
Share of losses
|
|
|
|
|
|
|
|
|
|
Mineral property expenditures
|
|
|
(1,835
|
)
|
|
|
(2,059
|
)
|
|
Depreciation
|
|
|
(6
|
)
|
|
|
(23
|
)
|
|
|
|
|
(1,841
|
)
|
|
|
(2,082
|
)
|
|
Funding
|
|
|
1,734
|
|
|
|
2,410
|
|
|
Balance – end of period
|
|
$
|
993
|
|
|
$
|
1,279
|
|
|
NOVAGOLD RESOURCES INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited, US dollars in thousands except per share amounts)
The following amounts
represent the Company’s 50% share of the assets and liabilities of Donlin Gold LLC. Donlin Gold LLC has capitalized as Mineral
property the initial contribution of the Donlin Gold property with a carrying value of $64,000 resulting in a higher carrying value
of the Mineral property than the Company.
|
|
At
February 28,
2018
|
|
At
November 30,
2017
|
|
Current assets: Cash, prepaid expenses and other receivables
|
|
$
|
1,689
|
|
|
$
|
2,075
|
|
|
Non-current assets: Property and equipment
|
|
|
17
|
|
|
|
23
|
|
|
Non-current assets: Mineral property
|
|
|
32,692
|
|
|
|
32,692
|
|
|
Current liabilities: Accounts payable and accrued liabilities
|
|
|
(713
|
)
|
|
|
(998
|
)
|
|
Non-current liabilities: Reclamation obligation
|
|
|
(692
|
)
|
|
|
(692
|
)
|
|
Net assets
|
|
$
|
32,993
|
|
|
$
|
33,100
|
|
|
NOTE 5 – INVESTMENT IN GALORE
CREEK
The Galore Creek project
is owned by the Galore Creek Partnership (GCP), a partnership in which Teck and a wholly owned subsidiary of NOVAGOLD each own
a 50% interest. GCP has a management committee comprised of four representatives, with two representatives selected by Teck and
two representatives appointed by the Company. All significant decisions related to GCP require the approval of at least a majority
of the GCP management committee representatives.
GCP prepares its financial
statements under International Financial Reporting Standards, as issued by the IASB, and presents its financial statements in Canadian
dollars. In accounting for its investment in GCP, the Company converts and presents reported amounts in accordance with US GAAP
and in U.S. dollars.
Changes in the Company’s
investment in GCP are summarized as follows:
|
|
Three months ended
|
|
|
|
February 28,
2018
|
|
February 28,
2017
|
|
Balance – beginning of period
|
|
$
|
251,461
|
|
|
$
|
241,404
|
|
|
Share of losses
|
|
|
|
|
|
|
|
|
|
Mineral property expenditures
|
|
|
(1
|
)
|
|
|
(11
|
)
|
|
Care and maintenance expense
|
|
|
(252
|
)
|
|
|
(139
|
)
|
|
|
|
|
(253
|
)
|
|
|
(150
|
)
|
|
Funding
|
|
|
643
|
|
|
|
230
|
|
|
Foreign currency translation
|
|
|
1,544
|
|
|
|
2,690
|
|
|
Balance – end of period
|
|
$
|
253,395
|
|
|
$
|
244,174
|
|
|
The following amounts
represent the Company’s 50% share of the assets and liabilities of GCP presented in U.S. dollars and in accordance with US
GAAP. As a result of recording the Company’s investment at fair value in June 2011, the carrying value of the Company’s
50% interest is higher than 50% of the book value of GCP. Therefore, the Company’s investment does not equal 50% of the net
assets recorded by GCP:
|
|
At
February 28,
2018
|
|
At
November 30,
2017
|
|
Current assets: Cash, prepaid expenses and other receivables
|
|
$
|
450
|
|
|
$
|
197
|
|
|
Non-current assets: Mineral property
|
|
|
227,958
|
|
|
|
226,561
|
|
|
Current liabilities: Accounts payable and accrued liabilities
|
|
|
(109
|
)
|
|
|
(237
|
)
|
|
Non-current liabilities: Reclamation obligation
|
|
|
(7,692
|
)
|
|
|
(7,645
|
)
|
|
Net assets
|
|
$
|
220,607
|
|
|
$
|
218,876
|
|
|
NOTE 6 – PROMISSORY NOTE
The Company has a promissory
note payable to Barrick of $51,576, plus interest at a rate of U.S. prime plus 2%, amounting to $39,958 in accrued interest. The
promissory note resulted from the agreement that led to the formation of Donlin Gold LLC, where the Company agreed to reimburse
Barrick for a portion of their expenditures incurred from April 1, 2006 to November 30, 2007. The promissory note and accrued interest
are payable from 85% of the Company’s share of revenue from future mine production or from any net proceeds resulting from
a reduction of the Company’s interest in Donlin Gold LLC. The carrying value of the promissory note approximates fair value.
NOVAGOLD RESOURCES INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited, US dollars in thousands except per share amounts)
NOTE 7 – FAIR VALUE ACCOUNTING
Financial instruments
measured at fair value are classified into one of three levels in the fair value hierarchy according to the significance of the
inputs used in making the measurement. The three levels of the fair value hierarchy are as follows:
Level 1
— Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets
or liabilities;
Level 2
— Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially
the full term of the asset or liability; and
Level 3
— Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable
(supported by little or no market activity).
The Company’s
marketable equity securities are valued using quoted market prices in active markets and as such are classified within Level 1
of the fair value hierarchy. The fair value of the marketable equity securities was $1,343 at February 28, 2018 ($1,448 at November
30, 2017), calculated as the quoted market price of the marketable equity security multiplied by the quantity of shares held by
the Company.
NOTE 8 – GENERAL AND ADMINISTRATIVE
EXPENSES
|
|
Three months ended
|
|
|
|
February 28,
2018
|
|
February 28,
2017
|
|
Share-based compensation
|
|
$
|
1,949
|
|
|
$
|
3,925
|
|
|
Salaries and benefits
|
|
|
1,679
|
|
|
|
1,719
|
|
|
Office expense
|
|
|
566
|
|
|
|
545
|
|
|
Professional fees
|
|
|
199
|
|
|
|
303
|
|
|
Corporate communications and regulatory
|
|
|
286
|
|
|
|
229
|
|
|
Depreciation
|
|
|
6
|
|
|
|
10
|
|
|
|
|
$
|
4,685
|
|
|
$
|
6,731
|
|
|
NOTE 9 – SHARE-BASED COMPENSATION
|
|
Three months ended
|
|
|
|
February 28,
2018
|
|
February 28,
2017
|
|
Stock options
|
|
$
|
948
|
|
|
$
|
2,758
|
|
|
Performance share unit plan
|
|
|
952
|
|
|
|
1,110
|
|
|
Deferred share unit plan
|
|
|
49
|
|
|
|
57
|
|
|
|
|
$
|
1,949
|
|
|
$
|
3,925
|
|
|
NOVAGOLD RESOURCES INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited, US dollars in thousands except per share amounts)
A summary of stock
options outstanding as of February 28, 2018 and activity during the three months ended February 28, 2018 are as follows:
|
|
Number of
stock
options
(thousands)
|
|
Weighted-
average
exercise
price per
share
|
|
Weighted-
average
remaining
contractual
term
(years)
|
|
Aggregate
intrinsic
value
|
November 30, 2017
|
|
|
17,551
|
|
|
$
|
3.24
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
3,402
|
|
|
|
3.86
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(725
|
)
|
|
|
3.43
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(130
|
)
|
|
|
3.41
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(5
|
)
|
|
|
4.18
|
|
|
|
|
|
|
|
|
|
February 28, 2018
|
|
|
20,093
|
|
|
$
|
3.35
|
|
|
|
2.61
|
|
|
$
|
14,720
|
|
Vested and exercisable as of February 28, 2018
|
|
|
15,542
|
|
|
$
|
3.02
|
|
|
|
1.60
|
|
|
$
|
14,484
|
|
The following table
summarizes other stock option-related information:
|
|
Three months ended
|
|
|
|
February 28,
2018
|
|
February 28,
2017
|
|
Weighted-average assumptions used to value stock option awards:
|
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
50
|
%
|
|
|
50
|
%
|
|
Expected term of options (years)
|
|
|
3
|
|
|
|
3
|
|
|
Expected dividend rate
|
|
|
—
|
|
|
|
—
|
|
|
Risk-free interest rate
|
|
|
1.8
|
%
|
|
|
1.2
|
%
|
|
Expected forfeiture rate
|
|
|
2.3
|
%
|
|
|
2.5
|
%
|
|
Weighted-average grant-date fair value
|
|
$
|
1.35
|
|
|
$
|
2.14
|
|
|
As of February 28, 2018, the Company had $4,653 of unrecognized compensation cost related to 4,550,642 non-vested
stock options expected to be recognized and vest over a period of approximately 2.75 years. During the three months ended February
28, 2018, the intrinsic value of stock options exercised was $320 and no cash was received.
Performance share units
A summary of PSU awards
outstanding as of February 28, 2018 and activity during the three months ended February 28, 2018 are as follows:
|
|
Number of
PSU awards
(thousands)
|
|
Weighted-
average
grant day
fair value
per award
|
|
Aggregate
intrinsic
value
|
|
November 30, 2017
|
|
|
2,176
|
|
|
$
|
4.10
|
|
|
|
|
|
|
Granted
|
|
|
873
|
|
|
|
3.82
|
|
|
|
|
|
|
Vested
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
Performance adjustment
|
|
|
(1,240
|
)
|
|
|
3.48
|
|
|
|
|
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
February 28, 2018
|
|
|
1,809
|
|
|
$
|
4.38
|
|
|
$
|
6,800
|
|
|
NOVAGOLD RESOURCES INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited, US dollars in thousands except per share amounts)
As of February 28,
2018, the Company had $4,839 of unrecognized compensation cost related to non-vested PSU awards expected to be recognized and vest
over a period of approximately 2.75 years.
The following table
summarizes other PSU-related information:
|
|
Three months ended
|
|
|
|
February 28,
2018
|
|
February 28,
2017
|
|
Performance multiplier on PSUs vested
|
|
|
—
|
%
|
|
|
113
|
%
|
|
Common shares issued (thousands)
|
|
|
—
|
|
|
|
1,513
|
|
|
Total fair value of common shares issued
|
|
$
|
—
|
|
|
$
|
6,932
|
|
|
Withholding tax paid on PSUs vested
|
|
$
|
—
|
|
|
$
|
196
|
|
|
NOTE 10 – OTHER EXPENSE
|
|
Three months ended
|
|
|
|
February 28,
2018
|
|
February 28,
2017
|
|
Interest income
|
|
$
|
240
|
|
|
$
|
247
|
|
|
Interest expense
|
|
|
(1,494
|
)
|
|
|
(1,213
|
)
|
|
Foreign exchange loss
|
|
|
(116
|
)
|
|
|
(161
|
)
|
|
|
|
$
|
(1,370
|
)
|
|
$
|
(1,127
|
)
|
|
NOTE 11 – RELATED PARTY TRANSACTIONS
The Company provided
technical services to Donlin Gold LLC for $181 during the three months ended February 28, 2018 ($nil in 2017).
As of February 28,
2018, the Company has accounts receivable from Donlin Gold LLC of $181 (November 30, 2017: $nil) and a receivable of $3,697 (November
30, 2017: $3,674) from GCP included in other long-term assets.
NOTE 12 – COMMITMENTS AND CONTINGENCIES
General
Estimated losses from loss contingencies are
accrued by a charge to income when information available prior to issuance of the financial statements indicates that it is probable
that a liability could be incurred and the amount of the loss can be reasonably estimated. Legal expenses associated with the contingency
are expensed as incurred. If a loss contingency is not probable or reasonably estimable, disclosure of the loss contingency is
made in the financial statements when it is at least reasonably possible that a material loss could be incurred.
Obligations
under operating leases
The Company leases
certain assets, such as office equipment and office facilities, under operating leases expiring at various dates through 2023.
Future minimum annual lease payments are $179 in 2018, $227 in 2019, $199 in 2020, $204 in 2021, $210 in 2022, and $18 in 2023,
totaling $1,037.
|
Item 2.
|
Management’s Discussion
and Analysis of Financial Condition and Results of Operations
|
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, 2018 and February
28, 2017. This discussion should be read in conjunction with the condensed consolidated interim financial statements and notes
thereto contained elsewhere in this report and our Annual Report on Form 10-K for the year ended November 30, 2017, 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
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 feasibility studies, preparation
of engineering designs and obtaining financing to fund these milestones.
Our
goals for 2018 include:
|
·
|
Advance the Donlin Gold project toward a construction/production decision.
|
|
·
|
Maintain an effective corporate social responsibility program.
|
|
·
|
Promote a strong safety culture; maintain a zero lost time accident record.
|
|
·
|
Safeguard the Company’s treasury.
|
First
quarter highlights
Donlin Gold project
Permitting activities continued at the Donlin Gold project in the first quarter of 2018
and
were
focused on advancing major permits and approvals with state and federal agencies. The
U.S. Army Corps of Engineers (the “Corps”), the lead federal agency for the Donlin Gold Environmental Impact Statement
(EIS), has completed the final EIS and anticipates publishing the document, along with a Notice of Availability in the Federal
Register in the second quarter. The final EIS also will be made available on the Donlin Gold EIS website at www.donlingoldeis.com.
A Record of Decision (ROD) is expected to follow in the second half of the year. The final EIS presents a comprehensive environmental
impact analysis that the Corps will use in making its decision on whether to issue the Clean Water Act Section 404 and Rivers and
Harbors Act Section 10 permits, the key Federal authorizations for the project. The ROD will describe both the legal and technical
basis for the Corps’ permitting decision. The permits that authorize project construction should be issued shortly after
the ROD. Between publishing the final EIS and the issuance of the ROD, the Corps must complete several activities, including preparation
of both the ROD and Section 404 permit which would then be sent to the State to ensure that the decision complies with Alaska’s
water quality standards. The Corps will also document its compliance with Section 404(b)(1) of the Clean Water Act; the detailed
evaluation showing why the permitted project represents the least environmentally damaging practicable alternative compared to
other project options reviewed. In addition, other consultations that had been commenced earlier in the EIS process would be finalized,
including compliance with the National Historic Preservation Act, Endangered Species Act, and Magnuson-Stevens Fishery Conservation
and Management Act which protects essential fish habitat.
The EIS
is
required by the National Environmental Policy Act (NEPA), the act that governs the process by which most major projects in the
United States are evaluated. The EIS is also, in large part, a determining factor in the overall permitting timeline which commenced
in 2012 for the Donlin Gold project. The EIS is comprised of four main sections which
:
|
·
|
Outline the purpose and need for the development of the proposed mine and the benefit it would
bring to the stakeholders of Donlin Gold LLC’s Alaska Native Corporation partners, Calista Corporation (“Calista”)
and The Kuskokwim Corporation (TKC).
|
|
·
|
Identify and analyze a reasonable range of alternatives to the mine development proposed by Donlin
Gold LLC which comprise variations on certain mine site facility designs, as well as local transportation and power supply options.
|
|
·
|
Prepare an environmental analysis of the proposed action and reasonable alternatives (including
a no action alternative), which identifies and characterizes the potential physical, biological, social, and cultural impacts relative
to the existing baseline conditions. This portion constitutes the most extensive part of the EIS.
|
|
·
|
Describe potential mitigation measures intended to reduce or eliminate the environmental impacts
described in the impact analysis section.
|
Donlin
Gold LLC continues to advance other major permits and approvals, including:
|
·
|
The close of the public comment period for the State of Alaska’s draft water discharge and integrated
waste management permits on February 13, 2018; and
|
|
·
|
The majority of key State and Federal permits and approvals are scheduled to be finalized concurrent
with or shortly after the Corps’ ROD in 2018.
|
An
extensive
list of additional federal and state government permits and approvals must be obtained before construction can begin on
the Donlin Gold project. Preparation of the applications for some of these permits and approvals requires additional,
more detailed engineering that was not part of the Donlin Gold feasibility study and completion of this engineering work
will require a significant investment of funds, time, and other resources by Donlin Gold LLC and its contractors. Also, the
Donlin Gold LLC board must approve a construction program and budget before proceeding with the development of the Donlin
Gold project. 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, among
other factors, will affect the decision and timing to develop the Donlin Gold project. Among other reasons, project delays
could occur as a result of economic conditions, 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.
Donlin
Gold LLC remains actively engaged in extensive outreach efforts with local stakeholders, through multiple traditional village council
meetings, regional tribal gatherings, and village visits across the Yukon-Kuskokwim (Y-K) region. Donlin Gold LLC collaborated
with Calista and TKC (owners of the mineral and surface rights, respectively) on grants, scholarships and community outreach efforts.
As
the
Donlin Gold EIS is completed, the owners (Barrick and NOVAGOLD) continue to study ways to further enhance the project’s value
and the prospect to reduce initial capital through enhanced project design and execution, engagement of third-party operators for
certain activities, and potential for financing of some capital intensive infrastructure. A drill program was conducted in 2017,
which included drilling and assaying of 16 core holes (7,040 meters), in support of ongoing optimization efforts. To date, these
additional studies have identified opportunities that have the potential to benefit the project when the owners decide to update
the Donlin Gold feasibility study and to initiate the engineering work necessary to advance the project design from feasibility
level to basic and then detailed engineering. Barrick and NOVAGOLD will take all of this work into account before reaching a construction
decision.
Our
share
of funding for the Donlin Gold project in the first quarter of 2018 was $1.7 million, including $0.9 million for permitting and
community engagement, and $0.8 million for ongoing optimization efforts. Our share of the 2018 work program and budget includes
$9 million to continue to advance the permitting process through issuance of the final EIS and ROD, and $5 million to continue
optimization efforts. In addition, Donlin Gold LLC will continue to maintain its engagement with communities in the Y-K region.
We
record
our interest in Donlin Gold LLC as an equity investment, which results in our 50% share of Donlin Gold LLC’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 LLC.
Galore Creek project
In
the
first quarter of 2018, efforts were focused on site care and maintenance. We continue to be open to monetizing, in whole or in
part, our 50% share of the Galore Creek project to strengthen our balance sheet and to contribute toward the development of the
Donlin Gold project.
Our
share
of cash funding for the Galore Creek Partnership was $0.6 million in the first quarter of 2018, primarily for care and maintenance,
and supporting community initiatives. In 2018, our 50% share of the work program is expected to be $3 million, primarily for site
care and maintenance and to support community initiatives.
We
record
our interest in the Galore Creek Partnership as an equity investment, which results in our 50% share of expenses being recorded
in the income statement as an operating loss. The investment amount recorded on the balance sheet primarily represents the fair
value of our investment in the Galore Creek Partnership in 2011, recorded upon Teck’s completion of their earn-in, as well
as unused funds advanced to the Partnership, all in Canadian dollars, and translated to U.S. dollars at the current exchange rate.
Outlook
We
do not
currently generate operating cash flows. At February 28, 2018, we had cash and cash equivalents of $20.9 million
and term deposits of $56.0 million. At present, we believe that these balances are sufficient to cover the anticipated funding
at the Donlin Gold and Galore Creek projects in addition to general and administrative costs through completion of permitting of
the Donlin Gold project. Additional capital will be necessary if permits are received for the Donlin Gold project and a decision
to commence engineering and construction is reached. 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 the r
isk
factors in our Annual Report on Form 10-K for the year ended November 30, 2017,
as filed
with the SEC and the Canadian Securities Regulators on January 24, 2018.
For the
full
year, we expect to spend approximately $28 million, including $11 million for general and administrative costs, $14 million to
fund our share of expenditures at the Donlin Gold project and $3 million at the Galore Creek project.
Summary of Consolidated Financial
Performance
|
|
Three months ended
|
|
|
|
February 28,
|
|
February 28,
|
|
($ thousands, except per share)
|
|
2018
|
|
2017
|
|
Loss from operations
|
|
$
|
(6,779
|
)
|
|
$
|
(8,963
|
)
|
|
Net loss
|
|
$
|
(8,215
|
)
|
|
$
|
(10,143
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.03
|
)
|
|
$
|
(0.03
|
)
|
|
Results of Operations
First quarter 2018 compared to 2017
Loss
from
operations decreased from $9.0 million in 2017 to $6.8 million in 2018 due to lower general and administrative expense and lower
costs at Donlin Gold LLC. General and administrative expense decreased by $2.0 million due to lower share-based compensation costs
for stock options and PSUs compared to the prior year. The Company extended the vesting period for new stock option and PSU grants
issued in the first quarter of 2018 to three years and eliminated the individual performance multiplier in the formula for long-term
equity compensation, which had the potential to increase long-term equity incentive grants above the target amount.
Net loss
decreased
from $10.1 million ($0.03 per share) in 2017 to $8.2 million ($0.03 per share) in 2018, primarily due to the reduction in share-based
compensation. Lower operating costs in the current period were partially offset by a $0.3 million increase in interest expense
on the promissory note payable to Barrick.
Liquidity, Capital Resources and Capital
Requirements
|
|
Three months ended
|
|
|
|
February 28,
|
|
February 28,
|
|
($ thousands)
|
|
2018
|
|
2017
|
|
Cash provided from (used in):
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(4,642
|
)
|
|
$
|
(4,221
|
)
|
|
Investing activities
|
|
$
|
(2,390
|
)
|
|
$
|
(7,668
|
)
|
|
Financing activities
|
|
$
|
—
|
|
|
$
|
(196
|
)
|
|
|
|
At
|
|
At
|
|
|
|
($ thousands)
|
|
February 28,
2018
|
|
November 30,
2017
|
|
Change
|
|
Cash and cash equivalents
|
|
$
|
20,931
|
|
|
$
|
27,954
|
|
|
$
|
(7,023
|
)
|
|
Term deposits
|
|
$
|
56,000
|
|
|
$
|
56,000
|
|
|
$
|
—
|
|
|
In the first
quarter
of 2018, cash, cash equivalents and term deposits decreased by $7.0 million. The decrease was primarily related to $4.6 million
used in operating activities for administrative costs and working capital changes, $1.7 million to fund Donlin Gold LLC and $0.6
million to fund Galore Creek Partnership. The term deposits are denominated in U.S. dollars and are held at Canadian chartered
banks.
First quarter 2018 compared to 2017
Cash used in operating
activities increased by $0.4 million, due to higher annual employee incentive payments. Cash used to fund affiliates decreased
by $0.3 million due to lower permitting costs for Donlin Gold LLC, partially offset by higher optimization costs for Donlin Gold
LLC and higher care and maintenance costs for Galore Creek Partnership. In the first quarter of 2017, an additional $5.0 million
was invested in term deposits and $0.2 million of withholding taxes were paid on performance share units vested. No cash was used
in financing activities in the first quarter of 2018.
Outstanding share data
As of March 28, 2018, the Company had 322,303,842 common shares issued and outstanding. Also as of March
28, 2018, the Company had: i) a total of 20,077,650 stock options outstanding; 14,543,784 of those stock options with a weighted-average
exercise price of C$3.86 and the remaining 5,533,866 with a weighted-average exercise price of $4.23; and ii) 1,809,000 performance
share units and 332,074 deferred share units outstanding. Upon exercise of the foregoing convertible securities, the Company would
be required to issue a maximum of 23,123,224 common shares.
Accounting Developments
For a discussion of
Recently Issued Accounting Pronouncements, see Note 2 to the Condensed Consolidated Interim Financial Statements.