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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 10-Q

 

     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended August 31, 2020

OR

 

     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period from                   to                 

Commission File Number: 001-31913

 

 

NOVAGOLD RESOURCES INC.

(Exact Name of Registrant as Specified in Its Charter)

 

British Columbia

N/A

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

  

201 South Main Street, Suite 400

Salt Lake City, Utah, USA

84111

(Address of Principal Executive Offices)

(Zip Code)

  

(801) 639-0511

(Registrant’s Telephone Number, Including Area Code)

 

 

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

 

Title of Each Class

Trading Symbol

Name of each exchange on which registered

Common Shares, no par value

NG

NYSE American

Toronto Stock Exchange

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

 

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company

 

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

 

As of September 23, 2020, the Company had 329,912,479 Common Shares, no par value, outstanding.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOVAGOLD RESOURCES INC.

 

TABLE OF CONTENTS

 

Page

 

PART I - FINANCIAL INFORMATION

1

Item 1.

Financial Statements

1

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

12

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

16

Item 4.

Controls and Procedures

16

PART II - OTHER INFORMATION

17

Item 1.

Legal Proceedings

17

Item 1A.

Risk Factors

17

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

17

Item 3.

Defaults Upon Senior Securities

17

Item 4.

Mine Safety Disclosures

17

Item 5.

Other Information.

17

Item 6.

Exhibits

17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

This Quarterly Report on Form 10-Q contains forward-looking statements or information within the meaning of Canadian securities laws and the United States Private Securities Litigation Reform Act of 1995 concerning anticipated results and developments in our operations in future periods, planned exploration activities, the adequacy of our financial resources and other events or conditions that may occur in the future. These forward-looking statements may include statements regarding perceived merit of properties, exploration results and budgets, mineral reserves and resource estimates, work programs, capital expenditures, operating costs, cash flow estimates, production estimates and similar statements relating to the economic viability of a project, timelines, strategic plans, including our plans and expectations relating to the Donlin Gold project, permitting and the timing thereof, market prices for precious metals, or other statements that are not statements of fact. These statements relate to analyses and other information that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management. Statements concerning mineral resource estimates may also be deemed to constitute “forward-looking statements” to the extent that they involve estimates of the mineralization that will be encountered if the property is developed.

 

Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, identified by words or phrases such as “expects”, “is expected”, “anticipates”, “believes”, “plans”, “projects”, “estimates”, “assumes”, “intends”, “strategy”, “goals”, “objectives”, “potential”, “possible” or variations thereof or stating that certain actions, events, conditions or results “may”, “could”, “would”, “should”, “might” or “will” be taken, occur or be achieved, or the negative of any of these terms and similar expressions) are not statements of historical fact and may be forward-looking statements.

 

Forward-looking statements are based on a number of material assumptions, including those listed below, which could prove to be significantly incorrect:

 

 

our ability to achieve production at any of our mineral exploration and development properties;

 

 

estimated capital costs, operating costs, production and economic returns;

 

 

estimated metal pricing, metallurgy, mineability, marketability and operating and capital costs, together with other assumptions underlying our resource and reserve estimates;

 

 

our expected ability to develop adequate infrastructure and that the cost of doing so will be reasonable;

 

 

assumptions that all necessary permits and governmental approvals will be obtained and the timing of such approvals;

 

 

assumptions made in the interpretation of drill results, the geology, grade and continuity of our mineral deposits;

 

 

our expectations regarding demand for equipment, skilled labor and services needed for exploration and development of mineral properties; and

 

 

our activities will not be adversely disrupted or impeded by development, operating or regulatory risks.

 

Forward-looking statements are subject to a variety of known and unknown risks, uncertainties and other factors that could cause actual events or results to differ from those reflected in the forward-looking statements, including, without limitation:

 

 

uncertainty of whether there will ever be production at our mineral exploration and development properties;

 

 

our history of losses and expectation of future losses;

 

 

risks related to our ability to finance the development of our mineral properties through external financing, strategic alliances, the sale of property interests or otherwise;

 

 

uncertainty of estimates of capital costs, operating costs, production and economic returns;

 

 

commodity price fluctuations;

 

 

risks related to market events and general economic conditions;

 

 

risks related to the outbreak of the coronavirus global health pandemic (COVID-19);

 

 

risks related to the third parties on which we depend for our exploration and development activities;

 

 

dependence on cooperation of joint venture partners in exploration and development of properties;

 

 

risks related to opposition to our operations at our mineral exploration and development properties from non-governmental organizations or civil society;

 

 

the risk that permits and governmental approvals necessary to develop and operate mines on our properties will not be available on a timely basis, subject to reasonable conditions, or at all;

 

 

risks and uncertainties relating to the interpretation of drill results, the geology, grade and continuity of our mineral deposits;

 

 

uncertainties relating to the assumptions underlying our resource and reserve estimates, such as metal pricing, metallurgy, mineability, marketability and operating and capital costs;

 

 

risks related to lack of infrastructure required to develop, construct, and operate our mineral properties;

 

 

uncertainty related to title to our mineral properties;

 

 

 

 

mining and development risks, including risks related to infrastructure, accidents, equipment breakdowns, labor disputes or other unanticipated difficulties with, or interruptions in, development, construction or production;

 

 

competition in the mining industry;

 

 

risks related to governmental regulation and permits, including environmental regulation;

 

 

risks related to our largest shareholder;

 

 

risks related to conflicts of interests of some of the directors and officers of the Company;

 

 

risks related to the need for reclamation activities on our properties and uncertainty of cost estimates related thereto;

 

 

credit, liquidity, interest rate and currency risks;

 

 

risks related to increases in demand for equipment, skilled labor and services needed for exploration and development of mineral properties, and related cost increases;

 

 

risks related to our need to attract and retain qualified management and technical personnel;

 

 

uncertainty as to the outcome or expense of potential litigation;

 

 

risks related to information technology systems;

 

 

risks related to the Company’s status as a “passive foreign investment company” in the United States; and

 

 

risks related to global climate change.

 

This list is not exhaustive of the factors that may affect any of our forward-looking statements. Forward-looking statements are statements about the future and are inherently uncertain, and our actual achievements or other future events or conditions may differ materially from those reflected in the forward-looking statements due to a variety of risks, uncertainties and other factors, including, without limitation, those referred to in our Annual Report on Form 10-K and this Quarterly Report on Form 10-Q under the heading “Risk Factors” and elsewhere.

 

Our forward-looking statements contained in this Quarterly Report on Form 10-Q are based on the beliefs, expectations and opinions of management as of the date of this report. We do not assume any obligation to update forward-looking statements if circumstances or management’s beliefs, expectations or opinions should change, except as required by law. For the reasons set forth above, investors should not place undue reliance on forward-looking statements.

 

 

 

 

PART I      - FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

 

NOVAGOLD RESOURCES INC.

CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS

(Unaudited, US dollars in thousands)

 

  

At

August 31,

2020

  

At

November 30,

2019

 

ASSETS

        

Cash and cash equivalents

 $45,348  $67,549 

Term deposits

  81,000   81,000 

Notes receivable (Note 4)

  72,611    

Other assets (Note 6)

  1,158   1,790 

Current assets

  200,117   150,339 

Notes receivable (Note 4)

  22,551   92,679 

Investment in Donlin Gold (Note 5)

  4,005   1,840 

Other assets (Note 6)

  2,321   977 

Total assets

 $228,994  $245,835 
         

LIABILITIES

        

Accounts payable and accrued liabilities

 $968  $880 

Accrued payroll and related benefits

  1,674   2,143 

Income taxes payable

  139   138 

Lease obligations (Note 12)

  201    

Other liabilities

  182   182 

Current liabilities

  3,164   3,343 

Promissory note (Note 7)

  108,375   103,787 

Lease obligations (Note 12)

  455    

Deferred income taxes

  1,272   751 

Total liabilities

  113,266   107,881 
         

Commitments and contingencies (Notes 7 and 12)

        
         

EQUITY

        

Common shares

  1,970,299   1,965,573 

Contributed surplus

  81,135   82,254 

Accumulated deficit

  (1,911,629)  (1,885,065)

Accumulated other comprehensive loss

  (24,077)  (24,808)

Total equity

  115,728   137,954 

Total liabilities and equity

 $228,994  $245,835 

  

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 September 30, 2020. They are signed on the Company’s behalf by:

 

     

/s/ Gregory A. Lang, Director

/s/ Anthony P. Walsh, Director

 

 

 

 

1

 

 

 

NOVAGOLD RESOURCES INC.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF LOSS 

AND COMPREHENSIVE LOSS

(Unaudited, US dollars in thousands except per share amounts)

 

   

Three months ended

August 31,

   

Nine months ended

August 31,

 
   

2020

   

2019

   

2020

   

2019

 

Operating expenses:

                               

General and administrative (Note 9)

  $ 4,745     $ 4,075     $ 13,846     $ 12,630  

Equity loss – Donlin Gold (Note 5)

    6,150       3,141       11,418       6,662  
      10,895       7,216       25,264       19,292  
                                 

Loss from operations

    (10,895 )     (7,216 )     (25,264 )     (19,292 )

Interest expense on promissory note

    (1,428 )     (1,887 )     (4,588 )     (5,546 )

Accretion of notes receivable

    835       805       2,483       2,396  

Other income (expense), net (Note 10)

    (982 )     501       1,599       3,520  

Loss before income taxes and other items

    (12,470 )     (7,797 )     (25,770 )     (18,922 )

Income tax expense

    (266 )     (259 )     (794 )     (972 )

Net loss

    (12,736 )     (8,056 )     (26,564 )     (19,894 )
                                 

Other comprehensive loss:

                               

Foreign currency translation adjustments

    2,345       900       731       22  
      2,345       900       731       22  
                                 

Comprehensive loss

  $ (10,391 )   $ (7,156 )   $ (25,833 )   $ (19,872 )
                                 
                                 

Net loss per common share – basic and diluted

  $ (0.04 )   $ (0.02 )   $ (0.08 )   $ (0.06 )
                                 

Weighted average shares outstanding

                               

Basic and diluted (thousands)

    329,598       326,050       329,001       325,280  

 

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

 

2

 

 

 

NOVAGOLD RESOURCES INC.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS

(Unaudited, US dollars in thousands)

 

   

Three months ended

August 31,

   

Nine months ended

August 31,

 
   

2020

   

2019

   

2020

   

2019

 

Operating activities:

                               

Net loss

  $ (12,736 )   $ (8,056 )   $ (26,564 )   $ (19,894 )

Adjustments:

                               

Equity loss – Donlin Gold

    6,150       3,141       11,418       6,662  

Share-based compensation

    1,783       1,552       5,259       4,625  

Interest expense on promissory note

    1,428       1,887       4,588       5,546  

Deferred income tax expense

    175       169       521       503  

Foreign exchange (gain) loss

    1,745       782       485       (41 )

Accretion of notes receivable

    (835 )     (805 )     (2,483 )     (2,396 )

Change in fair value of marketable securities

    (372 )     (190 )     (662 )     (248 )

Other operating adjustments

    4       4       14       11  

Net change in operating assets and liabilities (Note 13)

    832       1,143       267       (52 )

Net cash used in operating activities

    (1,826 )     (373 )     (7,157 )     (5,284 )
                                 

Investing activities:

                               

Proceeds from term deposits

          40,000       46,000       166,000  

Purchases of term deposits

                (46,000 )     (119,000 )

Funding of Donlin Gold

    (6,693 )     (3,840 )     (13,583 )     (7,646 )

Net cash provided from (used in) investing activities

    (6,693 )     36,160       (13,583 )     39,354  
                                 

Financing activities:

                               

Withholding tax on share-based compensation

                (1,652 )     (1,197 )

Net cash used in investing activities

                (1,652 )     (1,197 )
                                 

Effect of exchange rate changes on cash

    538       108       191       4  

Increase (Decrease) in cash and cash equivalents

    (7,981 )     35,895       (22,201 )     32,877  

Cash and cash equivalents at beginning of period

    53,329       17,986       67,549       21,004  

Cash and cash equivalents at end of period

  $ 45,348     $ 53,881     $ 45,348     $ 53,881  

 

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

 

 

3

 

 

 

NOVAGOLD RESOURCES INC.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF EQUITY

(Unaudited, US dollars and shares in thousands)

 

   

Nine months ended August 31, 2020

 
   

Common shares

   

Contributed

   

Accumulated

           

Total

 
   

Shares

   

Amount

   

surplus

   

deficit

   

AOCL*

   

equity

 
                                                 

November 30, 2019

    327,630     $ 1,965,573     $ 82,254     $ (1,885,065 )   $ (24,808 )   $ 137,954  

Share-based compensation

                1,761                   1,761  

Performance share units (PSUs) settled in shares

    410       1,026       (1,026 )                  

Stock options exercised

    560       1,618       (1,618 )                  

Withholding tax on PSUs

                (1,652 )                 (1,652 )

Net loss

                      (6,595 )           (6,595 )

Other comprehensive income

                            (455 )     (455 )

February 29, 2020

    328,600     $ 1,968,217     $ 79,719     $ (1,891,660 )   $ (25,263 )   $ 131,013  

Share-based compensation

                1,715                   1,715  

Stock options exercised

    998       2,082       (2,082 )                  

Net loss

                      (7,233 )           (7,233 )

Other comprehensive loss

                            (1,159 )     (1,159 )

May 31, 2020

    329,598     $ 1,970,299     $ 79,352     $ (1,898,893 )   $ (26,422 )   $ 124,336  

Share-based compensation

                1,783                   1,783  

Net loss

                      (12,736 )           (12,736 )

Other comprehensive loss

                            2,345       2,345  

August 31, 2020

    329,598     $ 1,970,299     $ 81,135     $ (1,911,629 )   $ (24,077 )   $ 115,728  

 

   

Nine months ended August 31, 2019

 
   

Common shares

   

Contributed

   

Accumulated

           

Total

 
   

Shares

   

Amount

   

surplus

   

deficit

   

AOCL*

   

equity

 
                                                 

November 30, 2018

    323,223     $ 1,954,861     $ 87,987     $ (1,857,682 )   $ (24,478 )   $ 160,688  

Cumulative-effect adjustment of adopting ASU No. 2016-01

                      378       (378 )      

Share-based compensation

                1,531                   1,531  

PSUs settled in shares

    438       2,737       (2,737 )                  

Stock options exercised

    1,443       2,867       (2,867 )                  

Withholding tax on PSUs

                (1,197 )                 (1,197 )

Net loss

                      (6,323 )           (6,323 )

Other comprehensive income

                            519       519  

February 28, 2019

    325,104     $ 1,960,465     $ 82,717     $ (1,863,627 )   $ (24,337 )   $ 155,218  

Share-based compensation

                1,542                   1,542  

Stock options exercised

    205       468       (468 )                  

Net loss

                      (5,515 )           (5,515 )

Other comprehensive loss

                            (1,397 )     (1,397 )

May 31, 2019

    325,309     $ 1,960,933     $ 83,791     $ (1,869,142 )   $ (25,734 )   $ 149,848  

Share-based compensation

                1,552                   1,552  

DSUs settled in shares

    32       120       (120 )                  

Stock options exercised

    1,447       3,251       (3,251 )                  

Net loss

                      (8,056 )           (8,056 )

Other comprehensive income

                            900       900  

August 31, 2019

    326,788     $ 1,964,304     $ 81,972     $ (1,877,198 )   $ (24,834 )   $ 144,244  

 

* Accumulated other comprehensive loss

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

 

4

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 mineral properties. The Company has no realized revenues from its planned principal business purpose. The Company’s principal asset is a 50% interest in the Donlin Gold project in Alaska, USA. 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 interim Condensed Consolidated Financial Statements (“interim 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, 2019. 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 United States 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

 

Leases

 

In February 2016, Accounting Standards Update (“ASU”) No. 2016-02 was issued which, together with subsequent amendments, is included in ASC 842, Leases. The standard was issued to increase transparency and comparability among organizations by requiring the recognition of right-of-use ("ROU") assets and lease liabilities on the balance sheet for all leases with an initial term greater than one year. Certain qualitative and quantitative disclosures are also required.

 

On December 1, 2019, the Company adopted this standard using the modified retrospective approach with the effective date as of the date of initial application. Consequently, results for the three- and nine-month periods ended August 31, 2020 are presented under ASC Topic 842. No prior period amounts were adjusted and continue to be reported in accordance with previous lease guidance, ASC Topic 840, Leases. All leases were reassessed under the new standard including lease identification, lease classification, and initial direct costs in relation to its leases in effect as of December 1, 2019. The Company also elected the practical expedients allowing: i) the use of hindsight in determining the lease term and assessing impairment of ROU assets based on all facts and circumstances through the effective date of the new standard; ii) the short-term lease recognition exemption whereby ROU assets and lease liabilities will not be recognized for leasing arrangements with terms less than one year; and iii) to combine lease and non-lease components and expense variable payments as rent/lease expense in the period incurred.

 

Adoption of the new standard resulted in recording an operating lease ROU asset and operating lease liability of approximately $399 on our Condensed Consolidated Balance Sheet as of December 1, 2019. Adoption of the standard did not have an impact on the Company’s beginning accumulated deficit, results from operations or cash flows. For required qualitative and quantitative disclosures related to leasing arrangements beginning in the period of adoption, see Note 12.

 

Changes to the Company’s accounting policy as a result of adoption are discussed below.

 

The Company reviews all contracts and determines if the arrangement represents or contains a lease, at inception. Operating leases are included in Other non-current assets and Other current and non-current liabilities in the Condensed Consolidated Balance Sheets. The Company does not have any finance leases.

 

Operating lease ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. The Company uses its estimated incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future payments. The operating lease ROU asset also includes any upfront lease payments made and excludes lease incentives and initial direct costs incurred. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Leases with a term of 12 months or less are not recorded on the balance sheet. The Company’s lease agreements do not contain any residual value guarantees.

 

5

NOVAGOLD RESOURCES INC.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited, US dollars in thousands except per share amounts)

 

Recently issued accounting pronouncements

 

Fair Value Disclosure Requirements

 

In August 2018, ASU No. 2018-13 was issued to modify and enhance the disclosure requirements for fair value measurements. This update is effective in fiscal years, including interim periods, beginning after December 1, 2020, and early adoption is permitted. The Company is currently evaluating this guidance and the impact on its Consolidated Financial Statements and disclosures.

 

 

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 as a single segment considering the performance of our investment in the Donlin Gold project in Alaska, USA (Note 5).

 

 

NOTE 4NOTES RECEIVABLE

 

The Company has notes receivable from Newmont Corp. (“Newmont”) including a $75,000 note receivable upon the earlier of the completion of a new Galore Creek project pre-feasibility study or July 27, 2021, and a $25,000 note receivable upon the earlier of the completion of a Galore Creek project feasibility study or July 27, 2023. On closing of the Galore Creek sale, the Company estimated the fair value of the $75,000 and $25,000 notes receivable at $88,398, assuming payments in three and five years, respectively, at a discount rate of 3.6% based on quoted market values for Newmont debt with a similar term. The carrying values of the notes receivable are being accreted to $75,000 and $25,000 over three and five years, respectively. At August 31, 2020, the carrying value of the notes receivable was $95,162 including $6,764 of accumulated accretion. A contingent note for $75,000 is receivable upon approval of a Galore Creek project construction plan by the owner(s). No value was assigned to the final $75,000 contingent note receivable. The Company determined that Galore Creek project construction approval was not probable as of the closing of the Galore Creek sale. The Company’s assessment did not change as of August 31, 2020.

 

 

NOTE 5 – 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 members, with two members selected by Barrick and two members 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 August 31,

  

Nine months ended August 31,

 
  

2020

  

2019

  

2020

  

2019

 

Balance – beginning of period

 $3,462  $1,494  $1,840  $1,209 

Share of losses:

                

Mineral property expenditures

  (6,111)  (3,125)  (11,319)  (6,629)

Depreciation

  (39)  (16)  (99)  (33)
   (6,150)  (3,141)  (11,418)  (6,662)

Funding

  6,693   3,840   13,583   7,646 

Balance – end of period

 $4,005  $2,193  $4,005  $2,193 

 

6

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 capitalized the initial contribution of the Donlin Gold property as Non-current assets: Mineral property with a carrying value of $64,000, resulting in a higher carrying value of the mineral property for Donlin Gold LLC than that of the Company.

 

  

At

August 31,

  

At

November 30,

 
  

2020

  

2019

 

Current assets: Cash, prepaid expenses and other receivables

 $5,531  $3,115 

Non-current assets: Property and equipment

  1,264   462 

Non-current assets: Mineral property

  32,692   32,692 

Current liabilities: Accounts payable and accrued liabilities

  (2,645)  (1,737)

Non-current liabilities: Reclamation and lease obligations

  (837)  (692)

Net assets

 $36,005  $33,840 

 

 

NOTE 6 – OTHER ASSETS

 

   

At

August 31,

2020

   

At

November 30, 2019

 

Other current assets:

               

Accounts and interest receivable

  $ 1,005     $ 1,100  

Prepaid expenses

    153       690  
    $ 1,158     $ 1,790  
                 

Other long-term assets:

               

Marketable equity securities

  $ 1,637     $ 935  

Right-of-use assets

    648        

Office equipment

    36       42  
    $ 2,321     $ 977  

 

 

NOTE 7PROMISSORY NOTE

 

The Company has a promissory note payable to Barrick of $108,375, comprised of $51,576 in principal, and $56,799 in accrued interest at U.S. prime plus 2%. 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.

 

 

NOTE 8 – 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 $1,637 at August 31, 2020 ($935 at November 30, 2019), calculated as the quoted market price of the marketable equity security multiplied by the quantity of shares held by the Company.

 

7

NOVAGOLD RESOURCES INC.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited, US dollars in thousands except per share amounts)

 

 

NOTE 9 – GENERAL AND ADMINISTRATIVE EXPENSES

 

  

Three months ended August 31,

  

Nine months ended August 31,

 
  

2020

  

2019

  

2020

  

2019

 

Salaries and benefits

 $1,483  $1,562  $4,722  $4,724 

Share-based compensation (Note 11)

  1,783   1,552   5,259   4,625 

Office expense

  461   526   1,644   1,748 

Professional fees

  669   193   1,251   783 

Corporate communications and regulatory

  347   238   964   739 

Depreciation

  2   4   6   11 
  $4,745  $4,075  $13,846  $12,630 

 

 

NOTE 10 – OTHER INCOME (EXPENSE), NET

 

   

Three months ended August 31,

   

Nine months ended August 31,

 
   

2020

   

2019

   

2020

   

2019

 

Interest income

  $ 391     $ 1,001     $ 1,422     $ 3,139  

Change in fair market value of marketable securities

    372       190       662       248  

Foreign exchange gain (loss)

    (1,745 )     (782 )     (485 )     41  

Other income

          92             92  
    $ (982 )   $ 501     $ 1,599     $ 3,520  

 

 

NOTE 11SHARE-BASED COMPENSATION

 

  

Three months ended August 31,

  

Nine months ended August 31,

 
  

2020

  

2019

  

2020

  

2019

 

Stock options

 $1,095  $928  $3,196  $2,765 

Performance share unit plan

  636   585   1,913   1,738 

Deferred share unit plan

  52   39   150   122 
  $1,783  $1,552  $5,259  $4,625 

 

 

 

 

 

 

 

 

8

NOVAGOLD RESOURCES INC.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited, US dollars in thousands except per share amounts)

 

Stock options

 

A summary of stock options outstanding as of August 31, 2020 and activity during the nine months ended August 31, 2020 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, 2019

  12,527  $3.98         

Granted

  1,781   7.27         

Exercised

  (2,661)  4.01         

August 31, 2020

  11,647  $4.51   2.33  $71,012 

Vested and exercisable as of August 31, 2020

  6,966  $4.05   1.58  $45,163 

 

The following table summarizes other stock option-related information:

 

  

Nine months ended August 31,

 
  

2020

  

2019

 

Weighted-average assumptions used to value stock option awards:

        

Expected volatility

  46.2%  46.9%

Expected term of options (years)

  4   4 

Expected dividend rate

      

Risk-free interest rate

  1.5%  2.7%

Expected forfeiture rate

  3.1%  3.1%

Weighted-average grant-date fair value

 $2.71  $1.46 

Intrinsic value of options exercised

 $15,198  $14,872 

Cash received from options exercised

 $  $ 

 

As of August 31, 2020, the Company had $3,810 of unrecognized compensation cost related to 4,681,000 non-vested stock options expected to be recognized and vest over a period of approximately 2.25 years.

 

Performance share units

 

A summary of PSU awards outstanding as of August 31, 2020 and activity during the nine months ended August 31, 2020 is as follows:

 

  

Number of PSU awards (thousands)

  

Weighted- average grant day fair value per award

  

Aggregate

intrinsic

value

 

November 30, 2019

  1,664  $3.76     

Granted

  452   6.92     

Vested

  (648)  6.96     

Performance adjustment

  216   6.96     

August 31, 2020

  1,684  $4.59  $23,041 

 

As of August 31, 2020, the Company had $3,779 of unrecognized compensation cost related to 1,684,000 non-vested PSU awards expected to be recognized and vest over a period of approximately 2.25 years.

 

9

NOVAGOLD RESOURCES INC.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited, US dollars in thousands except per share amounts)

 

The following table summarizes other PSU-related information:

 

  

Nine months ended August 31,

 
  

2020

  

2019

 

Performance multiplier on PSUs vested

  150%  82%

Common shares issued (thousands)

  648   438 

Total fair value of common shares issued

 $2,855  $1,607 

Withholding tax paid on PSUs vested

 $1,652  $1,197 

 

 

NOTE 12LEASES

 

The Company leases office space under non-cancelable operating leases with original lease terms of five years. These leases require monthly lease payments that may be subject to annual increases throughout the lease term. Certain of these leases also include renewal options at the election of the Company to renew or extend the lease for an additional five years. These optional periods have not been considered in the determination of ROU assets or lease liabilities associated with these leases as the Company did not consider it reasonably certain it would exercise the options.

 

The Company performed evaluations of its contracts and determined each of its identified leases are operating leases. Additionally, short-term leases, which have an initial term of 12 months or less, are not recorded in the Condensed Consolidated Balance Sheets.

 

Lease expenses are included in General and administrative expense – Office expense on the Condensed Consolidated Statements of Loss and include the following components for the nine-month period ended August 31, 2020:

 

Operating lease cost

 $157 

Variable lease cost

  82 

Short-term lease cost

  3 
  $242 

 

On February 1, 2020, the Company recorded a new operating lease obligation of $380 arising from obtaining ROU assets.

 

Future minimum lease payments under non-cancellable operating leases as of August 31, 2020, were as follows:

 

2020 (excluding the nine months ended August 31, 2020)

 $55 

2021

  231 

2022

  237 

2023

  90 

2024

  91 

Thereafter

  8 

Total future minimum lease payments

  712 

Less: imputed interest

  (56)

Total

 $656 

 

 

10


NOVAGOLD RESOURCES INC.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited, US dollars in thousands except per share amounts)

 

Other information regarding leases for the nine-month period ended August 31, 2020 includes the following:

 

Cash paid for operating leases

 $149 

Right-of-use assets obtained in exchange for lease liabilities

 $380 

Weighted average remaining lease term (years) – operating leases

  3.4 

Weighted average discount rate – operating leases

  5%

 

 

 

NOTE 13 – NET CHANGE IN OPERATING ASSETS AND LIABILITIES

 

   

Nine months ended August 31,

 
   

2020

   

2019

 

Changes in operating assets and liabilities:

               

Other assets

  $ 667     $ 603  

Accounts payable and accrued liabilities

    70       (273 )

Accrued payroll and related benefits

    (470 )     (382 )
    $ 267     $ (52 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11

 

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- and nine-month periods ended August 31, 2020 and August 31, 2019. 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, 2019, 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, external affairs/community engagement, 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 2020 include:

 

 

Advance the Donlin Gold project toward a construction/production decision.

 

 

Maintain a healthy balance sheet.

 

 

Sustain an effective corporate social responsibility program.

 

 

Promote a strong safety, sustainability and environmental culture.

 

Third quarter highlights

 

COVID-19

 

NOVAGOLD’s most important objective is to ensure the health and safety of its employees, partners and contractors. The Company has implemented policies at its offices in Salt Lake City and Vancouver designed to ensure the safety and well-being of all employees and the people associated with them. In that regard, to reduce risk, our employees have been asked to work from home, avoid all non-essential travel, adhere to good hygiene practices, and engage in social distancing.

 

Drilling activities resumed at Donlin Gold in late May, after temporarily pausing due to the COVID-19 pandemic, and following the announcement by Alaska’s Governor of the safe re-opening process for the State and easing of travel restrictions, and in consultation with employees, contractors and regional villages regarding safety measures. Donlin Gold has implemented a wide-ranging set of policies at its office in Anchorage and at the project site this year designed to prevent the spread of COVID-19, including: testing of all employees and contractors visiting the Donlin Gold project site; utilizing charters to safely deliver employees to and from camp to minimize in-region travel; screening and social distancing measures while at camp; more frequent sanitization practices; and increased communication around hygiene and sanitization practices, as well as identification of symptoms.

 

Donlin Gold LLC also responded to the COVID-19 pandemic with urgently needed community support, including delivery of food and supplies, alongside its Native Corporation partners Calista Corporation (“Calista”) and The Kuskokwim Corporation (TKC), owners of the project’s subsurface and surface rights respectively.

 

Donlin Gold project

 

NOVAGOLD and Barrick continue to study ways to improve the project’s value and to reduce initial capital outlays through enhanced project design and execution, engagement of third-party operators for certain activities, and potential for future financing of some capital-intensive infrastructure. To date, these additional studies have identified key areas that have the potential to add value and maximize the future opportunity and longevity of the project. In the third quarter, Donlin Gold LLC had four drills at the project site to advance the 2020 drill program in the ACMA and Lewis resource areas. The primary objective of the 2020 drill program, the largest such campaign at Donlin Gold since 2008, is to validate recent geological and resource modeling controls developed by the owners, Barrick and NOVAGOLD. The other objective is to test potential extensions of high-grade zones, most of which would be expected to be mined early in the life of a future mine. The newly obtained data should lead the partners to determine 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. As discussed above, drilling activities resumed at Donlin Gold in late May, after temporarily pausing due to the COVID-19 pandemic, and following the announcement by Alaska’s Governor of the safe re-opening process for the State and easing of travel restrictions, and in consultation with employees, contractors and regional villages regarding safety measures. NOVAGOLD and Barrick Gold issued a joint release on August 6, 2020 with an update on the recent drilling at Donlin Gold with significant distinct high-grade intervals intercepted in multiple areas, including good intervals near surface. Donlin Gold LLC completed the drilling in September 2020 with assays anticipated to be received by early 2021. The owners will advance the Donlin Gold project in a safe, efficient, financially disciplined manner with a strong focus on environmental stewardship and social responsibility.

 

12

 

Our share of funding for the Donlin Gold project in the first nine months of 2020 was $13.6 million for the drill program, administration, permitting and community engagement efforts. Our share of the Donlin Gold 2020 work program and budget totals $20 million, including $11 million for the drilling program and $9 million for administration, permitting and community engagement to continue to advance the project. The continued spread of COVID-19 could impact employee health, workforce productivity, insurance premiums, ability to travel, the availability of industry experts and personnel, restrictions or delays to the drill program and/or the timing to process drill results and other metallurgical testing, and other factors that will depend on future developments beyond our control.

 

Donlin Gold LLC continues to support the State of Alaska to advance other permits and certificates needed for the project. The Alaska Department of Natural Resources’ (ADNR) issuance of the Alaska Dam Safety certificates for the tailings storage facility and water retention and diversion structures requires a thorough multi-year stepwise process to deliver a final construction package to ADNR. The program necessary for the certificates, including geotechnical core drilling, test pits, overburden drilling, packer tests, hydrogeologic test well installation and pumping tests, and geophysical surveys, commenced in 2019. The field work has been temporarily paused pending the prioritization of the 2020 drill program.

 

ADNR’s Division of Mining, Land, and Water (DMLW) issued the easement land leases, land use permits, and material site authorizations for the proposed transportation facilities including the access road, airstrip, and upriver Jungjuk port, as well as the easement for the fiber optic cable on State lands on January 2, 2020. ADNR’s Division of Oil and Gas (DOG), issued the final State Right-of-Way (ROW) lease for the buried natural gas pipeline on January 17, 2020. On February 6, 2020, Cook Inletkeeper, on behalf of the Orutsararmiut Native Council (ONC), Susitna River Coalition, Kasigluk Traditional Council, and Tununak IRA Council, requested that the Commissioner of ADNR reconsider the decision to issue the ROW lease for the pipeline. The ADNR Commissioner denied the request for reconsideration on February 18, 2020. On March 19, 2020, Earthjustice, representing ONC, Chevak Native Village, Chuloonawick Native Village, Native Village of Eek, and Cook Inletkeeper, filed an appeal of the denial of the ROW lease issuance reconsideration request in the Superior Court of the State of Alaska at Anchorage (the “Alaska Superior Court”). On April 30, 2020, ADNR reversed itself and agreed to reconsider the decision to issue the ROW lease in accordance with the February 6, 2020 request made by Cook Inletkeeper. The reconsideration is specifically addressing additional analysis of cumulative effects. In response, the appeal filed in the Alaska Superior Court was dismissed without prejudice on May 20, 2020. ADNR reissued additional information on the pipeline, including an updated cumulative effects analysis, for public comment on September 10, 2020. Donlin Gold LLC supported the State’s decision to complete this work and we expect that the final ROW lease authorization offer will be reissued in early 2021 by ADNR.

 

In 2018, Earthjustice, on behalf of ONC, Akiak Native Community IRA Council, Organized Village of Kwethluk, Native Village of Kwigillingok, Chuloonawick Tribal Council, and the Yukon-Kuskokwim River Alliance, requested an informal review of the State of Alaska’s 401 certification (the “Certification”) by the Director of the Division of Water in the Alaska Department of Environmental Conservation (ADEC). In October 2018, the Director responded to the request by deciding to conduct the informal review and reissued the Certification on April 4, 2019. On April 24, 2019, Earthjustice requested a second informal review of the Certification and the request was granted by ADEC on May 4, 2019. On May 8, 2020, after a long and detailed technical and legal analysis including input from Donlin Gold, the Director issued his decision to uphold the April 2019 reissued Certification. On June 5, 2020, Earthjustice filed a formal appeal to the ADEC Commissioner; the appeal is in the form of a request for an Adjudicatory Hearing. The appeal specifically relates to compliance with the State’s water quality standards in Crooked Creek near the proposed mine site. On June 15, 2020, the ADEC Commissioner conditionally granted the request for the hearing. After completion of the hearing process, the ADEC Commissioner is expected to issue a decision on the appeal in late 2020 or early 2021.

 

Donlin Gold LLC, with support from the project owners (NOVAGOLD and Barrick) is committed to growing strong and collaborative working relationships to preserve traditional lifestyles and support economic development for the benefit of Calista, TKC and the Yukon-Kuskokwim (Y-K) region. Donlin Gold LLC and our Native Corporation partners remain actively engaged in environmental sustainability projects and extensive outreach efforts with local stakeholders through multiple traditional village council meetings, regional tribal gatherings, events and village visits across the Y-K region. Involving the local communities in all aspects of the project is core to both Barrick’s and NOVAGOLD’s philosophy as illustrated by the fact that approximately 80% of Donlin Gold direct hires are Alaska Natives.

 

13

 

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 public opposition, litigation challenging permit decisions, requests for additional information or analysis, limitations in agency staff resources during regulatory review and permitting, project changes made by Donlin Gold LLC or any impact on operations from COVID-19.

 

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 LLC.

 

Outlook

 

We do not currently generate operating cash flows. At August 31, 2020, we had cash and cash equivalents of $45.3 million and term deposits of $81.0 million. At present, we believe that these balances are sufficient to cover anticipated funding of the Donlin Gold project and NOVAGOLD’s general and administrative costs. Additional capital will be necessary if a decision to commence engineering and construction is reached 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 the risk factors in our Annual Report on Form 10-K for the year ended November 30, 2019, as filed with the SEC and the Canadian Securities Regulators on January 22, 2020, and Part II, Item 1A of this Form 10-Q.

 

For 2020, we continue to expect to spend approximately $31 million, including $20 million to fund our share of expenditures at the Donlin Gold project and $11 million for general and administrative costs. The continued spread of COVID-19 could materially and adversely impact the Company’s business including without limitation, employee health, workforce productivity, insurance premiums, ability to travel, the availability of industry experts and personnel, restrictions or delays to the Donlin Gold drill program and/or the timing to process drill and other metallurgical testing, and other factors that will depend on future developments beyond the Company’s control.

 

Summary of Consolidated Financial Performance

 

   

Three months ended August 31,

   

Nine months ended August 31,

 

($ thousands, except per share)

 

2020

   

2019

   

2020

   

2019

 

General and administrative

  $ (4,745 )   $ (4,075 )   $ (13,846 )   $ (12,630 )

Equity loss - Donlin Gold

    (6,150 )     (3,141 )     (11,418 )     (6,662 )

Loss from operations

  $ (10,895 )   $ (7,216 )   $ (25,264 )   $ (19,292 )
                                 

Net loss

  $ (12,736 )   $ (8,056 )   $ (26,564 )   $ (19,894 )
                                 

Net loss per common share – basic and diluted

  $ (0.04 )   $ (0.02 )   $ (0.08 )   $ (0.06 )

 

Results of Operations

 

Third quarter 2020 compared to 2019

 

Loss from operations increased from $7.2 million in 2019 to $10.9 million in 2020 due to higher general and administrative expense and higher costs at Donlin Gold LLC. General and administrative expense increased from $4.1 million in 2019 to $4.7 million in 2020 primarily due to higher legal and share-based compensation costs. Equity loss – Donlin Gold increased from $3.1 million in 2019 to $6.2 million in 2020 due to the 2020 drilling program.

 

Net loss increased from $8.0 million ($0.02 per share) in 2019 to $12.7 million ($0.04 per share) in 2020, primarily due to higher operating losses, foreign exchange movements and lower interest income, partially offset by lower interest expense on the promissory note payable to Barrick.

 

14

 

First nine months 2020 compared to 2019

 

Loss from operations increased from $19.3 million in 2019 to $25.3 million in 2020 due to higher general and administrative expense and higher costs at Donlin Gold LLC. General and administrative expense increased by $1.2 million primarily due to higher share-based compensation, legal and regulatory costs. Our share of Donlin Gold LLC expenses increased by $4.8 million due to the 2020 drilling program.

 

Net loss increased from $19.9 million ($0.06 per share) in 2019 to $26.6 million ($0.08 per share) in 2020, primarily due to higher operating losses, lower interest income and foreign exchange movements, partially offset by lower interest expense on the promissory note payable to Barrick.

 

Liquidity, Capital Resources and Capital Requirements

 

   

At

   

At

         

($ thousands)

 

August 31,

2020

   

November 30,

2019

   

Change

 

Cash and cash equivalents

  $ 45,348     $ 67,549     $ (22,201 )

Term deposits

  $ 81,000     $ 81,000     $  

 

In the first nine months of 2020, total Cash, cash equivalents and Term deposits decreased by $22.2 million of which $7.1 million was used in operating activities for administrative costs and working capital changes, $13.6 million was used to fund Donlin Gold and $1.7 million related to withholding taxes paid on vested performance share units (PSUs). Effects of exchange rate changes also increased cash by $0.2 million. The term deposits are denominated in U.S. dollars and are held at Canadian chartered banks.

 

   

Three months ended August 31,

   

Nine months ended August 31,

 

($ thousands)

 

2020

   

2019

   

2020

   

2019

 

Net cash (used in) provided from:

                               

Operating activities

  $ (1,826 )   $ (373 )   $ (7,157 )   $ (5,284 )

Investing activities

  $ (6,693 )   $ 36,160     $ (13,583 )   $ 39,354  

Financing activities

  $     $     $ (1,652 )   $ (1,197 )

 

Third quarter 2020 compared to 2019

 

Net cash used in operating activities increased by $1.5 million, due to lower interest income and higher general and administrative expense, partially offset by changes in working capital. Net cash provided from (used in) investing activities included a $2.9 million increase in Donlin Gold funding due to the 2020 drilling program. For the three-month period in 2019, term deposits decreased by $40.0 million, with the proceeds deposited in interest-bearing savings accounts.

 

First nine months 2020 compared to 2019

 

Net cash used in operating activities increased by $1.9 million, primarily due to lower interest income and higher general and administrative expense, partially offset by changes in working capital. Net cash provided from (used in) investing activities included a $5.9 million increase in Donlin Gold funding due to the 2020 drilling program. For the nine-month period in 2019, term deposits decreased by $47.0 million, with the proceeds deposited in interest-bearing savings accounts. Net cash used in financing activities relates to withholding taxes paid on vested performance share units.

 

Outstanding share data

 

As of September 23, 2020, the Company had 329,912,479 common shares issued and outstanding. Also, as of September 23, 2020, the Company had: i) a total of 11,157,163 stock options outstanding; 2,381,898 of those stock options with a weighted-average exercise price of C$5.62 and the remaining 8,775,265 with a weighted-average exercise price of $4.60; and ii) 1,684,000 PSUs and 280,363 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 13,963,526 common shares.

 

15

 

Accounting Developments 

 

For a discussion of Recently Issued Accounting Pronouncements, see Note 2 to the Condensed Consolidated Interim Financial Statements.

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

Our financial instruments are exposed to certain financial risks, including credit and interest rate risks.

 

Credit risk

 

Concentration of credit risk exists with respect to our cash and cash equivalents, term deposit investments and notes receivable. All term deposits are held through Canadian chartered banks with high investment-grade ratings and have maturities of one year or less. The notes are receivable from a subsidiary of Newmont. The notes are guaranteed by Newmont, a publicly traded company with investment-grade credit ratings.

 

Interest rate risk

 

The interest rate on the promissory note owed to Barrick is variable with the U.S. prime rate. Based on the amount owing on the promissory note as at August 31, 2020, and assuming all other variables remain constant, a 1% change in the U.S. prime rate would result in an increase/decrease of approximately $1.1 million in the interest accrued on the promissory note per annum.

Item 4.

Controls and Procedures

 

Management, with the participation of our President and Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of August 31, 2020. On the basis of this review, our President and Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our President and Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

 

There have not been any changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) promulgated by the SEC under the Exchange Act) during the Company’s most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting. The Company’s internal controls over financial reporting are based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

 

 

 

16

 

PART II      - OTHER INFORMATION

 

Item 1.

Legal Proceedings

 

From time to time, we are a party to routine litigation and proceedings that are considered part of the ordinary course of our business. We are not aware of any material current, pending, or threatened litigation.

 

On June 29, 2020, the Company filed a lawsuit against J Capital Research USA LLC (“J Capital”) in the U.S. District Court for the Eastern District of New York. In its Complaint, the Company alleges J Capital made defamatory and libelous statements about the Company, its assets and management in a report issued by J Capital on May 28, 2020. The Company is seeking unspecified damages from J Capital. We do not believe this litigation is material to the Company.

 

Item 1A.

Risk Factors

 

There have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for the year ended November 30, 2019, as filed with the SEC on January 22, 2020 and in our Quarterly Report on Form 10-Q for the quarter ended May 31, 2020, as filed with the SEC on June 24, 2020. The risk factors in our Annual Report on Form 10-K for the year ended November 30, 2019 and in our Quarterly Report on Form 10-Q for the quarter ended May 31, 2020, could materially affect our business, financial condition or results of operations. Additional risks and uncertainties not currently known to us or that we deem to be immaterial could also materially adversely affect our business, financial condition or results of operations.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3.

Defaults Upon Senior Securities

 

None.

 

Item 4.

Mine Safety Disclosures

 

These disclosures are not applicable to us.

 

Item 5.

Other Information.

 

None.

 

Item 6.

Exhibits

 

See Exhibit Index.

 

 

 

 

 

 

 

 

 

17

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Date: September 30, 2020

NOVAGOLD RESOURCES INC.

 

 

 

 

 

 

 

 

 

 

By:

/s/ Gregory A. Lang

 

 

Gregory A. Lang

 

 

President and Chief Executive Officer

(principal executive officer)

 

 

By:

/s/ David A. Ottewell

 

 

David A. Ottewell

 

 

Vice President and Chief Financial Officer (principal financial and accounting officer)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18

 

EXHIBIT INDEX

 

Exhibit No.

 

Description

 

 

 

31.1

 

Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a)

     

31.2

 

Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a)

     

32.1

 

Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350

     

32.2

 

Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350

     

101

 

The following materials are filed herewith: (i) Inline XBRL Instance, (ii) Inline XBRL Taxonomy Extension Schema, (iii) Inline XBRL Taxonomy Extension Calculation, (iv) XBRL Taxonomy Extension Labels, (v) XBRL Taxonomy Extension Presentation, and (vi) Inline XBRL Taxonomy Extension Definition.

     

104

 

Cover Page Interactive Data File – The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19
ex_204697.htm

Exhibit 31.1

 

CERTIFICATION PURSUANT TO
RULE 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Gregory A. Lang, certify that:

 

 

1.

I have reviewed this Quarterly Report on Form 10-Q of NOVAGOLD Resources Inc.;

 

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

 

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

 

a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

 

b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

 

c.

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

 

d.

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

 

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

 

 

 

a.

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

 

b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: September 30, 2020

 

 

By: /s/ Gregory A. Lang                                    

Gregory A. Lang

President and Chief Executive Officer

(principal executive officer)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
ex_204698.htm

Exhibit 31.2

 

CERTIFICATION PURSUANT TO
RULE 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, David A. Ottewell, certify that:

 

 

1.

I have reviewed this Quarterly Report on Form 10-Q of NOVAGOLD Resources Inc.;

 

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

 

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

 

a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

 

b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

 

c.

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

 

d.

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

 

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

 

 

 

a.

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

 

b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: September 30, 2020

 

 

By: /s/ David A. Ottewell                                  

David A. Ottewell

Vice President and Chief Financial Officer

(principal financial and accounting officer)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
ex_204699.htm

Exhibit 32.1

 

CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report on Form 10-Q of NOVAGOLD Resources Inc. (the “Registrant”) for the period ended August 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gregory A. Lang, President and Chief Executive Officer of the Registrant, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

 

1.

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

 

2.

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: September 30, 2020

 

 

By: /s/ Gregory A. Lang                                    

Gregory A. Lang

President and Chief Executive Officer

(principal executive officer)

 

 

 

 

 

 

 

 

 

 

 

 

 
ex_204700.htm

Exhibit 32.2

 

CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report on Form 10-Q of NOVAGOLD Resources Inc. (the “Registrant”) for the period ended August 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David A. Ottewell, Vice President and Chief Financial Officer of the Registrant, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

 

1.

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

 

2.

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: September 30, 2020

 

 

By: /s/ David A. Ottewell                                  

David A. Ottewell

Vice President and Chief Financial Officer

(principal financial and accounting officer)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
v3.20.2
Document And Entity Information - shares
9 Months Ended
Aug. 31, 2020
Sep. 23, 2020
Document Information [Line Items]    
Entity Central Index Key 0001173420  
Entity Registrant Name NOVAGOLD RESOURCES INC  
Amendment Flag false  
Current Fiscal Year End Date --11-30  
Document Fiscal Period Focus Q3  
Document Fiscal Year Focus 2020  
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Aug. 31, 2020  
Document Transition Report false  
Entity File Number 001-31913  
Entity Incorporation, State or Country Code A1  
Entity Address, Address Line One 201 South Main Street, Suite 400  
Entity Address, City or Town Salt Lake City  
Entity Address, State or Province UT  
Entity Address, Postal Zip Code 84111  
City Area Code 801  
Local Phone Number 639-0511  
Title of 12(b) Security Common Shares, no par value  
Trading Symbol NG  
Security Exchange Name NYSEAMER  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   329,912,479