NOVAGOLD RESOURCES INC. 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
The following MD&A generally discusses our consolidated financial condition and
results of operations for 2021 and 2020 and year-to-year comparisons between
2021 and 2020. Discussions of our consolidated financial condition and results
of operations for 2019 and year-to-year comparisons between 2020 and 2019 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
Overview
We operate in the gold mining industry, primarily focused on advancing the
Donlin Gold project in
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.
COVID-19 response
The Company has implemented policies at its offices in
At Donlin Gold, with dedicated community partners in
The plan includes:
? testing of all personnel prior to visiting the Donlin Gold project site;
? testing on the third day after their arrival at camp;
? additional testing for direct local hires ahead of returning to their villages
to reduce the spread of the virus where minimal health services are available;
? utilizing charters to safely deliver employees to and from camp to minimize
in-region travel;
? screening and physical distancing measures while at camp;
? more frequent sanitization practices; and
? increased communication around hygiene and sanitization practices, as well as
identification of symptoms.
The first positive cases at the Donlin Gold project site occurred in early
October, 2021, just prior to the planned end-of-season closure. One individual
after arrival to camp tested positive for COVID. The individual was immediately
isolated and removed from site (by private charter flight) and quarantined in
47--------------------------------------------------------------------------------
NOVAGOLD RESOURCES INC. Donlin Gold Community engagement
As a neighbor to others in the Y-K region and as a team largely made up of
people from the area, Donlin Gold strives to aid communities with support and
resources, particularly when health and safety are of concern. Donlin Gold is
committed to support the needs of its community partners. Donlin Gold continues
to make progress in formalizing its community relationships and finding common
ground with Shared Value Statements with eight villages from the Y-K region
(
For the 2021 season, Donlin Gold hired employees from 20 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 70% of Donlin Gold direct hires for this year's drill program were Alaska Natives.
Despite the challenges over the last two years, Donlin Gold has expanded
community engagement programs and support related to environmental management,
safety, training, educational, health and cultural initiatives. In August,
Donlin Gold held the fourth annual "In it for the Long Haul" backhaul project
with approximately 180,000 pounds of hazardous and electronic waste removed from
26 villages throughout the Y-K region. Multiple entities and tribes came
together to assist
Donlin Gold also responded to the COVID-19 pandemic by providing aid to local
communities with support and resources, particularly when health and safety are
of concern. The
Environmental
During the 2021 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. In 2021, Donlin Gold received two administrative Notices of Violation (NOVs): one related to stormwater for failure to file an administrative report in 2019 and failure to train all staff in 2018 even though there was no field program that year, and one under the site's air permit for failure to submit one operating report in 2020. No penalties were issued for either NOV. Also in 2021, ADEC conducted a permit compliance inspection at the site, which yielded no instances of non-compliance for the 2021 field program. Donlin Gold further continued updating its site baseline data, including monitoring water quality and fisheries.
Permitting
The State's Clean Water Act (CWA) Section 401 certification (the "401
Certification") of the Federal CWA Section 404 permit was formally appealed to
the Commissioner of the
48--------------------------------------------------------------------------------
NOVAGOLD RESOURCES INC.
In
In
Donlin Gold, working with its
Donlin Gold is fortunate to have strong partnerships with Calista and TKC, owners of the mineral and surface rights, respectively. The project's location on private land specially designated for mining activities through the 1971 Alaska Native Claims Settlement Act. Donlin Gold's commitment to meaningful tribal consultation throughout project development and permitting has been proven over decades of reliable and dependable engagement with the community.
Donlin Gold project
The 2021 drilling program included additional confirmation and extension
drilling, focusing on further testing, orebody continuity, structural control,
and geotechnical and geometallurgical data collection and analysis. In
The newly obtained data will be incorporated into the geologic and resource model and should lead the owners to determine updated mining schedules and life of mine business plans. The focus will then shift to feasibility study work, subject to a formal decision by the Donlin Gold Board, and ultimately, to initiate the engineering work necessary to advance the project design before reaching a construction decision. The owners will advance the Donlin Gold project in a financially disciplined manner with a strong focus on engineering excellence, environmental stewardship, a strong safety culture and continued community engagement.
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, project changes made by Donlin Gold, or any impact on operations from COVID-19.
Our share of funding for the Donlin Gold project in 2021 was
49--------------------------------------------------------------------------------
NOVAGOLD RESOURCES INC.
We record our interest in the Donlin Gold project as an equity investment, which results in our 50% share of Donlin Gold's expenses being recorded in the income statement as an operating loss. The investment amount recorded on the balance sheet primarily represents unused funds advanced to Donlin Gold.
Consolidated Financial Results
The details of our Net loss are set forth below:
Years ended November 30,
2021 2020 Change
Net loss $ (40,536 ) $ (33,564 ) $ (6,972 )
Net loss per common share, basic and diluted
Net loss increased by
? Donlin Gold expenses increased by$2,123 , primarily due to higher permitting and legal costs related to appeals filed on variousState of Alaska permits and completion of assays from the 2020 drill program in 2021. ? The$1,475 increase in corporate general and administrative expense is primarily due to$1,178 higher share-based compensation expense resulting from higher amortization of stock options and performance share units (PSUs). In 2018, the vesting period for stock options and PSUs was increased from two to three years and amortization was adjusted to match the vesting period, deferring a portion of the costs to future periods. Amortization in 2021 and in future periods, includes one third of the cost of each of the previous three years of stock option and PSU grants. Salaries and benefits were$325 higher due to annual wage increases and payroll taxes on stock option exercises. ? Interest income decreased by$1,286 due to lower interest rates earned on cash and term deposits, partially offset by higher cash balances due to the receipt of$75,000 from Newmont onJuly 27, 2021 . ? A$938 remediation provision expense adjustment for the historic former New Gold House property inNome, Alaska . ? Accretion on notes receivable was$781 lower due to the maturity of the$75,000 note receivable. ? The$751 recovery of deferred income taxes in 2020 resulted from the Company's decision to file a consolidatedU.S. income tax return for itsU.S. subsidiaries commencing with the fiscal year endedNovember 30, 2020 .
The increase in expenses was partially offset by favorable foreign exchange
movements of
Liquidity and Capital Resources
Liquidity overview
At present, we believe we have sufficient working capital available to cover anticipated funding of the Donlin Gold project and corporate general and administrative costs until a decision to commence engineering and construction is reached by the Donlin Gold board for the Donlin Gold project, at which point substantial additional capital will be required. Future financings to fund construction are anticipated through debt, equity, project specific debt, and/or other means. Our continued operations are dependent on our ability to obtain additional financing or to generate future cash flows. However, there can be no assurance that we will be successful in our efforts to raise additional capital on terms favorable to us, or at all. For further information, see section Item 1A, Risk Factors - Our ability to continue the exploration, permitting, development, and construction of the Donlin Gold project, and to continue as a going concern, will depend in part on our ability to obtain suitable financing.
Our anticipated expenditures in fiscal year 2022 are approximately
Our financial position includes the following as of
? Cash and cash equivalents of$91,124 . ? Term deposits of$78,000 denominated inU.S. dollars and held at Canadian chartered banks with high investment-grade ratings and have maturities of one year or less. ? Notes receivable of$25,000 due on the earlier of the completion of aGalore Creek feasibility study orJuly 27, 2023 , and a note for$75,000 fully contingent upon approval of aGalore Creek project construction plan by the owner(s). 50
--------------------------------------------------------------------------------
NOVAGOLD RESOURCES INC. ? Promissory note payable to Barrick of$115,723 , including accrued interest atU.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,
2021 2020 Change
Operating activities $ (9,863 ) $ (10,020 ) $ 157
Funding of Donlin Gold (17,587 ) (15,276 ) (2,311 )
Proceeds from note receivable 75,000 - 75,000
Net (purchases of) proceeds from term deposits (17,221 ) 20,000 (37,221 ) Proceeds from sale of mineral property
200 - 200
Withholding tax on share-based compensation (731 ) (1,652 ) 921
Effect of exchange rate changes on cash and other 420 305 115
Net change in cash and cash equivalents $ 30,218 $ (6,643 ) $ 36,861 In 2021, the net increase in Cash and cash equivalents of
Net spending on operating activities decreased by
Donlin Gold funding increased by
Outstanding share data
As of
Related party transactions
As of
Fourth quarter results
During the fourth quarter of 2021, we incurred a net loss of
51--------------------------------------------------------------------------------
NOVAGOLD RESOURCES INC. 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
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.
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
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
52--------------------------------------------------------------------------------
NOVAGOLD RESOURCES INC.
© Edgar Online, source
