The following Management's Discussion and Analysis ("MD&A") provides information
that management believes is relevant to an assessment and understanding of the
consolidated financial condition and results of operations of NOVAGOLD RESOURCES
INC., incorporated in British Columbia, Canada, and its subsidiaries
(collectively, "NOVAGOLD," the "Company," "our" and "we"). This item should be
read in conjunction with our Consolidated Financial Statements and the notes
thereto included in this annual report.
The following MD&A generally discusses our consolidated financial condition and
results of operations for 2022 and 2021 and year-to-year comparisons between
2022 and 2021. Discussions of our consolidated financial condition and results
of operations for 2020 and year-to-year comparisons between 2021 and 2020 are
included in Item 7, Management's Discussion and Analysis of Financial Condition
and Results of Operations, in the Company's Annual Report on Form 10-K for the
fiscal year ended November 30, 2021, filed with the Securities and Exchange
Commission on January 26, 2022, are incorporated by reference into this MD&A.
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 Gold Corporation ("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
Stakeholder and government engagement
Donlin Gold is fortunate to have time-tested partnerships with Calista and 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 Y-K region. Crooked Creek, the closest community
to the project site in the Y-K region submitted a letter in support of Donlin
Gold. Three additional Shared Value Statements were also signed with villages in
the Y-K region in the last three months for a total of 11. These formalize
current engagement with key local communities, expand upon the long-term
relationships already established with them, and address specific community
needs including: 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. Various local hires
from the 2022 drill program will continue to support Donlin Gold's engagement
efforts through the Community Liaison program in five Y-K villages.
For the 2022 season, Donlin Gold hired employees from 24 Y-K communities. In an
area with high unemployment and fewer job choices than in urban environments,
the work experience and skills training that Donlin Gold provides is attractive
and employees are encouraged to bring their safety knowledge into their home
village. Local community involvement in the project is core to both Barrick's
and NOVAGOLD's philosophy, and approximately 83% of Donlin Gold direct hires for
this year's work program were Alaska Natives.
Calista and Donlin Gold continued their proactive, bipartisan outreach in Alaska
and with the Administration and Congress in Washington, D.C. to highlight the
thoroughness of the project's environmental review and permitting processes, in
addition to the considerable benefits that the project would deliver to all
Native Alaskans. The 2022 United States elections were held on November 8, 2022.
Alaska U.S. Senator Lisa Murkowski and Governor Michael Dunleavy were
re-elected. Both, along with U.S Senator Dan Sullivan, have been long-term
supporters of the Donlin Gold project. We also recognize the historic
re-election of U.S. Congresswomen Mary Peltola for a full term as an Alaska
Native from the Y-K region and look forward to our continued outreach to her
regarding Donlin Gold in the upcoming year.
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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
collaboration with Calista and TKC during the fiscal year 2022.
Some of these activities included the Backhaul Project, "In It for the Long
Haul". This was the fifth annual backhaul project to collect, remove, and safely
dispose of household hazardous and electronic waste from 30 remote villages
throughout the Y-K region, removing nearly 400,000 pounds of waste during the
last five years that would otherwise have ended up in landfills and waterways.
Donlin Gold supported various search and rescue teams in the region, provided
funding to the Healthy Alaska Natives Foundation and Bethel Community Services
Foundation, as well as sponsored and participated in the Alaska Safe Riders
initiative, which promotes safety for year-round outdoor sports. Donlin Gold
fostered education, community wellness and cultural preservation through a
variety of interventions including several river studies, supporting the local
school district and educational organizations, funding and participating in
youth sporting activities, and backing initiatives led by Traditional Councils
and Native communities.
During the 2022 field season at the Donlin Gold project site, there were no
spills to water and no spills of greater than 10 gallons to land. There were no
spills that required reporting to government agencies. Donlin Gold was not cited
for any permit non-compliance during 2022. Donlin Gold further continued
updating its site baseline data, including monitoring water quality and
fisheries.
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
in Alaska and with the Administration and 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 APDES water discharge permit was issued by ADEC on May 24, 2018 and became
effective on July 1, 2018. Donlin Gold submitted its application to ADEC for the
regularly scheduled re-issuance of its APDES permit and in December 2022, Donlin
Gold received a letter from ADEC indicating that the application is complete and
the permit will remain in effect until ADEC completes the reissuances process.
ADFG issued Title 16 Fish Habitat permits for the mine area and transportation
corridor on August 30, 2018. 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, which modeling demonstrates they will be. A draft permit
was issued for public comment in December 2022. The final approvals of the
Donlin Gold Reclamation Plan and the Waste Management Permit were issued on
January 18, 2019. ADNR issued the easement, land leases, land use permits, and
material site authorizations for the proposed transportation facilities, and
easement for the fiber optic cable on State lands on January 2, 2020. On January
17, 2020, SPCS issued the final State ROW authorization for the natural gas
pipeline. On June 29, 2021, ADNR's Division of Mining Land and Water issued 12
final Water Rights for the mine site and transportation corridor. On November 1,
2021, ADFG issued two Special Area Permits required for pipeline facilities
located within the Refuge. One permit authorizes the compressor station, and the
other permit authorizes the section of the pipeline ROW in the Refuge. On
November 1, 2022, ADNR finalized approval of the proposed re-location plan for
public easements in the mine site and transportation facility areas.
The field work related to the issuance of the Alaska Dam Safety certificates
re-commenced during the third quarter of 2022 and is planned to be completed in
2023.
In September 2022, 13 Tribes sent a letter to the Corps and the EPA requesting
that the Corps consider requiring a supplemental 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 Donlin. A
Section 404(c) veto has recently been applied to the Pebble Project in Alaska
but is rarely used by EPA. Donlin Gold and Calista are preparing responses to
submit to the Corps and EPA arguing that the Tribes' requests should be denied.
On June 3, 2020, Earthjustice joined by 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 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 response brief on October 21, 2022. The
Commissioner's decision, which he will make in collaboration with the ALJ, is
expected in early 2023. It is then subject to further review in Alaska Superior
Court.
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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 around 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. ADNR,
Donlin Gold, and Calista filed response briefs on June 15-16, 2022. Earthjustice
filed responses on July 18, 2022, and then requested oral arguments. The second
appellant filed his initial brief on June 8, 2022. ANDR's and Donlin Gold's
response briefs were submitted on August 22, 2022, and the second appellant
filed their response brief on November 9, 2022. The request for oral arguments
was granted by the Court and they were held on January 11, 2023. Decisions are
expected in 2023.
On May 25, 2022, Earthjustice, on behalf of ONC and five villages, filed an
appeal of the final Water Rights in Alaska Superior Court. Earthjustice filed
its initial brief on November 21, 2022. ADNR's and Donlin Gold's response briefs
are due by January 30, 2023. A decision is expected in 2023 or the first half of
2024.
In September 2022, 13 tribes sent a letter to the Corps and the EPA requesting
that the Corps consider requiring a supplemental 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
In 2022, Donlin Gold completed a 141-hole drilling program totaling 42,331
meters. As part of a key focus area for the drill program, the tight-spaced grid
drilling in structural domains in the Lewis (further infilled to 10m x 10m),
West ACMA and Divide areas confirmed recent geological modelling at wider
drill-spacing in the immediate area surrounding the grids. It also identified
additional short-scale controls that will be incorporated in an update to
improve the geological domains used for global resource estimation which will be
utilized for strategic mine planning work. In addition, the 14 geotechnical
drill holes provided results for advancing efforts in completing the issuance of
the Alaska Dam Safety Certifications.
With the receipt of the final assay results for the 2022 drill program (that
returned significant high-grade intercepts and continued to demonstrate
important grade continuity), an update of the resource model, and completion of
trade-off studies, the owners expect to take the next steps in moving the Donlin
Gold project up the value chain and leading toward an updated feasibility study
decision.
Our share of funding for the Donlin Gold project in 2022 was $28,435. In 2023,
we expect our share of Donlin Gold funding to be approximately $17,000 to update
geologic modelling and interpretation work for an updated resource model and
includes engineering activities for use in an updated project feasibility study,
the advancement of current permits, fieldwork for the Alaska Dam Safety
certificates, environmental studies, community relations, and government affairs
activities.
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.
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NOVAGOLD RESOURCES INC.
Consolidated Financial Results
The details of our Net loss are set forth below:
Years ended November 30,
2022 2021 Change
Net loss $ (53,343 ) $ (40,536 ) $ (12,807 )
Net loss per common share, basic and diluted $ (0.16 ) $ (0.12 ) $ (0.04 )
Net loss increased by $12,807 from 2021 to 2022, primarily due to the expanded
Donlin Gold drilling and work program, and lower accretion income in 2022
resulting from the receipt of the $75,000 note from Newmont in July 2021.
Increasing interest rates resulted in higher Barrick promissory note interest
expense and was offset by income earned on cash and term deposits and favorable
foreign exchange movements.
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. 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 November 30, 2022:
? Cash and cash equivalents of $63,882.
? Term deposits of $62,000 denominated in U.S. dollars and held at Canadian
chartered banks with high investment-grade ratings and maturities of one year
or less.
? Note receivable for $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 $123,685, 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
Our Consolidated Statements of Cash Flows are summarized as follows:
Years ended November 30,
2022 2021 Change
Operating activities $ (12,371 ) $ (9,863 ) $ (2,508 )
Funding of Donlin Gold (28,435 ) (17,587 ) (10,848 )
Proceeds from note receivable - 75,000 (75,000 )
Net proceeds from (purchases of) term deposits 16,000 (17,221 ) 33,221
Proceeds from sale of assets
73 200 (127 )
Withholding tax on share-based compensation (2,122 ) (731 ) (1,391 )
Effect of exchange rate changes on cash and other (387 ) 420 (807 )
Net change in cash and cash equivalents
$ (27,242 ) $ 30,218 $ (57,460 )
In 2022, the net decrease in Cash and cash equivalents of $27,242 primarily
resulted from Donlin Gold funding of $28,435, corporate operating activities of
$12,371 and withholding tax on share-based compensation of $2,122, partially
offset by cash received from term deposits of $16,000.
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NOVAGOLD RESOURCES INC.
Net spending on operating activities increased in 2022 from 2021 primarily due
to the timing of corporate liability insurance payments, partially offset by
higher interest received on cash and term deposits due to higher interest rates.
Donlin Gold funding increased due to the expanded drilling and work program. In
2021, a $75,000 payment was received from Newmont related to the 2018 sale of
Galore Creek.
Outstanding share data
As of January 17, 2023, the Company had 333,965,718 common shares issued and
outstanding. Also, as of January 17, 2023, the Company had: i) a total of
9,229,233 stock options outstanding; 7,968,101 of those stock options with a
weighted-average exercise price of $6.26 and the remaining 1,261,132 with a
weighted-average exercise price of C$8.02; and ii) 1,605,500 performance shares
units (PSUs) and 301,359 deferred share units (DSUs) outstanding. Upon exercise
of the foregoing convertible securities, the Company would be required to issue
a maximum of 11,938,842 common shares.
Related party transactions
As of November 30, 2022, the Company has accounts receivable from Donlin Gold of
$574 (November 30, 2021: $nil) included in Other current assets for third party
study costs contracted for by the Company on behalf of Donlin Gold.
Fourth quarter results
During the fourth quarter of 2022 we incurred a net loss of $12,255 compared to
a net loss of $10,269 in 2021. The increase in net loss primarily resulted from
the expanded activity at Donlin Gold and increased interest on the promissory
note, partially offset by higher interest income and lower remediation expense
for the former New Gold House mineral property.
Critical Accounting Policies
We believe the following accounting policies are critical to our financial
statements due to the degree of uncertainty regarding the judgements or
assumptions involved and/or the magnitude of the asset, liability, or expense
being reported.
Contingent note receivable
A portion of the proceeds on the sale of the Company's 50% interest in the
Galore Creek project to Newmont, included a contingent note for $75,000
receivable upon the approval of a Galore Creek project construction plan by the
owner(s). The Company has assigned no value to the contingent note receivable as
management determined that approval of Galore Creek project construction was not
probable as of the closing of the Galore Creek sale, and management's assessment
did not change as of November 30, 2022. The contingent note will be recognized
only when, in management's judgement, payment is probable, and the amount
recorded will not reverse in future periods.
Investment in affiliates
Investments in unconsolidated ventures over which the Company has the ability to
exercise significant influence, but does not control, are accounted for under
the equity method and include the Company's investment in the Donlin Gold
project. We identified Donlin Gold as a Variable Interest Entity (VIE) as the
entity is dependent on funding from its owners. All funding, ownership, voting
rights and power to exercise control is shared equally on a 50/50 basis between
the owners of the VIE. Therefore, the Company has determined that it is not the
primary beneficiary of the VIE. The Company's maximum exposure to loss is its
investment in Donlin Gold. Donlin Gold is a non-publicly traded equity investee
holding exploration and development projects. The Company reviews and evaluates
its investment in affiliates for other than temporary impairment when events or
changes in circumstances indicate that the related carrying amounts may not be
recoverable. Events that could indicate impairment of an investment in
affiliates include a significant decrease in long-term expected gold price, a
significant increase in expected operating or capital costs, unfavorable
exploration results or technical studies, a significant decrease in reserves, a
loss of significant mineral claims, or a change in the development plan or
strategy for the project. Asset impairment is considered to exist if the total
estimated future cash flows on an undiscounted basis are less than the carrying
amount of the asset. If the underlying assets are not recoverable, an impairment
loss is measured and recorded based on the difference between the carrying
amount of the investee and its estimated fair value which may be determined
using a discounted cash flow model.
Income taxes
We account for income taxes under the asset and liability method. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under the asset and liability method, the effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. A valuation allowance is
recognized if it is more likely than not that some portion or the entire
deferred tax asset will not be recognized.
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Share-based compensation
We grant share-based compensation awards in exchange for employee services,
including a stock option plan and a PSU plan. The fair value of awards granted
under the plans are recognized in the Consolidated Statements of Loss over the
related service period. The fair values of stock options are estimated at the
time of each grant using a BlackScholes option pricing model, and the fair
values of PSUs are measured at each grant date using a Monte Carlo valuation
model. The fair value estimates may be impacted by certain variables including,
but not limited to, stock price volatility, employee stock option exercise
behaviors, additional stock option grants, estimates of forfeitures, the
Company's performance, and the Company's performance in relation to its peers.
We grant members of our board of directors DSUs whereby each DSU entitles the
directors to receive one common share of the Company when they retire from
service with the Company. The fair value of the DSUs is measured at the date of
the grant in amounts ranging from 50% to 100% of directors' annual retainers at
the election of the directors. The fair value is recognized in the Consolidated
Statements of Loss over the related service period.
As of November 30, 2022, we had $2,303 of unrecognized compensation cost related
to 3,231,000 non-vested stock options expected to be expensed and vest over a
period of approximately two years. Also, as of November 30, 2022, we had
1,257,200 non-vested PSU awards outstanding of which 438,900 were fully
expensed. On December 1, 2022, it was determined that those expensed PSU awards
matured and did not meet the performance criteria; therefore, no common shares
were issued. The remaining 818,300 non-vested PSU awards with $3,184 of
unrecognized compensation cost will be expensed over a period of approximately
two years.
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