NOVAGOLD(NG) - 2021 Q2 - Quarterly Report

FORM 10-Q Form 10-Q Filing Information This Quarterly Report on Form 10-Q for NOVAGOLD RESOURCES INC. for the period ended May 31, 2021, confirms compliance with filing requirements as a non-accelerated filer - Filing Type: Quarterly Report on Form 10-Q for the period ended May 31, 2021[2] - Registrant: NOVAGOLD RESOURCES INC[2] - 331,651,314 common shares outstanding as of June 22, 2021[4] Forward-Looking Statements Forward-Looking Statements Disclaimer This section outlines forward-looking statements based on management's assumptions, subject to known and unknown risks, cautioning investors against undue reliance - Forward-looking statements cover future operations, exploration, financial resources, and the Donlin Gold project, including cost, production, and timeline estimates[7] - Key risks include achieving production, estimated costs and returns, commodity price fluctuations, market events, COVID-19, third-party dependence, permitting delays, and NGO opposition[9][10] - The company does not assume any obligation to update forward-looking statements unless legally required[12] PART I - FINANCIAL INFORMATION Item 1. Financial Statements This section presents NOVAGOLD RESOURCES INC.'s unaudited condensed consolidated interim financial statements, including balance sheets, statements of loss, cash flows, and equity, with accompanying notes - Financial statements are unaudited and prepared in accordance with US GAAP[25] - The company's functional currency is CAD for Canadian operations and USD for U.S. operations[26] Condensed Consolidated Interim Balance Sheets Condensed Consolidated Interim Balance Sheets (thousands) | Metric | May 31, 2021 (thousands) | Nov 30, 2020 (thousands) | Change (thousands) | | :------------------------- | :----------------------- | :----------------------- | :----------------- | | Total Assets | $213,296 | $224,441 | $(11,145) | | Cash and cash equivalents | $51,788 | $60,906 | $(9,118) | | Term deposits | $55,799 | $61,000 | $(5,201) | | Total Liabilities | $115,168 | $113,714 | $1,454 | | Total Equity | $98,128 | $110,727 | $(12,599) | Condensed Consolidated Interim Statements of Loss and Comprehensive Loss Condensed Consolidated Interim Statements of Loss and Comprehensive Loss (thousands) | Metric | Three months ended May 31, 2021 (thousands) | Three months ended May 31, 2020 (thousands) | Six months ended May 31, 2021 (thousands) | Six months ended May 31, 2020 (thousands) | | :---------------------------------- | :------------------------------------------ | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Net Loss | $(10,521) | $(7,233) | $(18,477) | $(13,828) | | Net Loss per Common Share (Basic & Diluted) | $(0.03) | $(0.02) | $(0.06) | $(0.04) | | General and administrative | $4,992 | $4,387 | $10,321 | $9,101 | | Equity loss – Donlin Gold | $4,198 | $3,700 | $6,166 | $5,268 | Condensed Consolidated Interim Statements of Cash Flows Condensed Consolidated Interim Statements of Cash Flows (thousands) | Metric | Six months ended May 31, 2021 (thousands) | Six months ended May 31, 2020 (thousands) | | :--------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Net cash used in operating activities | $(6,262) | $(5,331) | | Net cash provided from (used in) investing activities | $(2,923) | $(6,890) | | Cash and cash equivalents at end of period | $51,788 | $53,329 | Condensed Consolidated Interim Statements of Equity Condensed Consolidated Interim Statements of Equity (thousands) | Metric | November 30, 2020 (thousands) | May 31, 2021 (thousands) | | :----------- | :---------------------------- | :----------------------- | | Total Equity | $110,727 | $98,128 | - Net Loss for the six months ended May 31, 2021, was $(7,956) thousand[22] - Share-based compensation for the six months ended May 31, 2021, was $2,042 thousand[22] Notes to Condensed Consolidated Interim Financial Statements NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION This note details the company's primary business of gold mineral property exploration and development, highlighting its 50% interest in the Donlin Gold project and lack of realized revenues - Principal business involves exploration and development of gold mineral properties[24] - Main asset is a 50% interest in the Donlin Gold project, a joint venture with Barrick Gold Corporation[24] - No realized revenues from the principal business purpose[24] NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the adoption of ASU No. 2018-13 (Fair Value Disclosure Requirements) on December 1, 2020, noting no impact on note disclosures - Adoption of ASU No. 2018-13 (Fair Value Disclosure Requirements) on December 1, 2020[27] - No impact on note disclosures resulted from the adoption[27] NOTE 3 – SEGMENTED INFORMATION This note clarifies that the company operates as a single segment, with a primary focus on the performance of its investment in the Donlin Gold project - The company operates as a single segment[28] - Focus is on the performance of the Donlin Gold project investment[28] NOTE 4 – NOTES RECEIVABLE This note details the carrying value of notes receivable from Newmont, including a $75 million note due July 2021 and a $25 million note due July 2023, with a contingent note not valued - Carrying value of notes receivable from Newmont was $97,724 thousand as of May 31, 2021[29] - Includes a $75,000 thousand note due by July 27, 2021, and a $25,000 thousand note due by July 27, 2023[29] - A contingent $75,000 thousand note is not valued due to the improbability of Galore Creek project construction approval[29] NOTE 5 – INVESTMENT IN DONLIN GOLD This note describes the company's 50% joint venture interest in Donlin Gold LLC with Barrick Gold Corporation, where significant decisions require majority board approval - 50% interest in Donlin Gold LLC, a joint venture with Barrick Gold Corporation[30] - Significant decisions require majority board approval[31] Investment in Donlin Gold (thousands) | Metric | May 31, 2021 (thousands) | May 31, 2020 (thousands) | | :-------------------------------- | :----------------------- | :----------------------- | | Investment balance – end of period | $4,572 | $3,462 | | Share of losses (six months) | $(6,166) | $(5,268) | | Funding (six months) | $8,124 | $6,890 | NOTE 6 – OTHER ASSETS This note provides a breakdown of other assets, including current assets and marketable equity securities, for May 31, 2021, and November 30, 2020 Other Assets (thousands) | Metric | May 31, 2021 (thousands) | Nov 30, 2020 (thousands) | | :------------------------ | :----------------------- | :----------------------- | | Other current assets | $854 | $1,869 | | Marketable equity securities | $2,010 | $1,402 | NOTE 7 – PROMISSORY NOTE This note details the promissory note payable to Barrick, totaling $112,715 thousand as of May 31, 2021, comprising principal and accrued interest at U.S. prime plus 2% - Promissory note payable to Barrick totaled $112,715 thousand as of May 31, 2021[35] - Composed of $51,576 thousand principal and $61,139 thousand accrued interest[35] - Interest rate is U.S. prime plus 2%[35] NOTE 8 – FAIR VALUE ACCOUNTING This note explains that marketable equity securities are classified as Level 1 in the fair value hierarchy, with their fair value increasing to $2,010 thousand at May 31, 2021 - Marketable equity securities are classified as Level 1 in the fair value hierarchy[36] - Fair value of marketable equity securities was $2,010 thousand at May 31, 2021, up from $1,402 thousand at November 30, 2020[36] NOTE 9 – GENERAL AND ADMINISTRATIVE EXPENSES This note provides a detailed breakdown of general and administrative expenses, including share-based compensation and professional fees, for the three and six months ended May 31, 2021 and 2020 General and Administrative Expenses (thousands) | Expense Category | Three months ended May 31, 2021 (thousands) | Three months ended May 31, 2020 (thousands) | Six months ended May 31, 2021 (thousands) | Six months ended May 31, 2020 (thousands) | | :----------------------- | :------------------------------------------ | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Total G&A | $4,992 | $4,387 | $10,321 | $9,101 | | Share-based compensation | $2,095 | $1,715 | $4,137 | $3,476 | | Professional fees | $388 | $180 | $1,007 | $582 | NOTE 10 – OTHER INCOME (EXPENSE), NET This note details the components of other income (expense), net, including foreign exchange gains or losses and interest income, for the three months ended May 31, 2021 and 2020 Other Income (Expense), Net (thousands) | Metric | Three months ended May 31, 2021 (thousands) | Three months ended May 31, 2020 (thousands) | | :-------------------------- | :------------------------------------------ | :------------------------------------------ | | Other income (expense), net | $(705) | $1,694 | | Foreign exchange gain (loss) | $(1,043) | $882 | | Interest income | $80 | $514 | NOTE 11 – SHARE-BASED COMPENSATION This note details share-based compensation expenses for stock options, performance share units, and deferred share units, along with unrecognized compensation costs, for the six months ended May 31, 2021 and 2020 Share-Based Compensation (thousands) | Compensation Type | Six months ended May 31, 2021 (thousands) | Six months ended May 31, 2020 (thousands) | | :------------------ | :---------------------------------------- | :---------------------------------------- | | Stock options | $2,400 | $2,101 | | Performance share unit plan | $1,625 | $1,277 | | Deferred share unit plan | $112 | $98 | | Total | $4,137 | $3,476 | - Unrecognized compensation cost for stock options was $5,031 thousand as of May 31, 2021, to be recognized over approximately 2.5 years[40] - Unrecognized compensation cost for PSU awards was $5,253 thousand as of May 31, 2021, to be recognized over approximately 2.5 years[41] NOTE 12 – NET CHANGE IN OPERATING ASSETS AND LIABILITIES This note presents the net change in operating assets and liabilities for the six months ended May 31, 2021 and 2020 Net Change in Operating Assets and Liabilities (thousands) | Metric | Six months ended May 31, 2021 (thousands) | Six months ended May 31, 2020 (thousands) | | :--------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Net change in operating assets and liabilities | $(340) | $(565) | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion and analysis covers financial condition and operational performance for the three and six months ended May 31, 2021, focusing on project milestones, Donlin Gold, liquidity, and financial results - Discussion covers financial and operating performance for Q2 and H1 2021 versus 2020[44] Overview This overview details the company's operational focus on achieving gold mineral property milestones, including technical, environmental, economic, legal, permitting, and financing objectives - Operations focus on project milestones for gold mineral properties, encompassing technical, environmental, economic, legal, permitting, feasibility, engineering, and financing objectives[45] - 2021 goals include advancing the Donlin Gold project, maintaining stakeholder support, promoting safety and sustainability, enhancing reputation, and effective treasury management[51] Second quarter highlights This section highlights key developments in the second quarter, including COVID-19 response, community engagement, permitting updates, and progress on the Donlin Gold project and its funding - COVID-19 Response included remote work, non-essential travel avoidance, hygiene practices, and Donlin Gold's continued relief support and mandatory employee testing[47][48] - Community Engagement involved signing seven Friendship Agreements with Y-K region villages, with approximately 70% of Donlin Gold's direct drill program hires being Alaska Natives[50][51] - Permitting updates include the State's Clean Water Act Section 401 certification upheld but appealed, ADNR reconsidering the State Right-of-Way and lease for the natural gas pipeline, and ADNR's expected final decisions on water rights in 2021[53][54][55] - Donlin Gold Project is undergoing additional confirmation and extension drilling with four rigs, completing 28 of 64 planned holes to inform updated mining schedules and business plans[58] - NOVAGOLD's share of Donlin Gold Project funding for H1 2021 was $8.1 million, with the total 2021 share expected to be $18-$22 million[59] Outlook This outlook provides financial projections, including current cash and term deposits, expected receipt from a Newmont note, anticipated 2021 expenditures, and the need for additional capital for Donlin Gold construction - No current operating cash flows[62] Cash and Term Deposits (thousands) | Metric | As of May 31, 2021 (thousands) | | :------------------------ | :----------------------------- | | Cash and cash equivalents | $51,800 | | Term deposits | $55,800 | - Expected receipt of $75 million from Newmont note in July 2021[62] - Anticipated 2021 expenditures are $31-$35 million, comprising $18-$22 million for Donlin Gold and $13 million for G&A[62] - Additional capital is required for Donlin Gold construction, with no assurance of successful financing[63] Summary of Consolidated Financial Performance This section summarizes the consolidated financial performance, presenting key metrics such as loss from operations and net loss for the three and six months ended May 31, 2021 and 2020 Summary of Consolidated Financial Performance (thousands) | Metric | Three months ended May 31, 2021 (thousands) | Three months ended May 31, 2020 (thousands) | Six months ended May 31, 2021 (thousands) | Six months ended May 31, 2020 (thousands) | | :---------------------------------- | :------------------------------------------ | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Loss from operations | $(9,190) | $(8,087) | $(16,487) | $(14,369) | | Net loss | $(10,521) | $(7,233) | $(18,477) | $(13,828) | Results of Operations This section analyzes the company's operational results, comparing performance for the second quarter and first six months of 2021 against the corresponding periods in 2020 Second quarter 2021 compared to 2020 This subsection compares the second quarter 2021 financial results to 2020, highlighting increases in loss from operations and net loss, driven by higher G&A, Donlin Gold costs, lower interest income, and foreign exchange movements - Loss from operations increased by $1.1 million to $9.2 million[65] - Net loss increased by $3.3 million to $10.5 million ($0.03 per share)[66] - Drivers include higher G&A (share-based compensation, legal costs), increased Donlin Gold costs, lower interest income, and foreign exchange movements[65][66] First six months 2021 compared to 2020 This subsection compares the first six months of 2021 financial results to 2020, showing increases in loss from operations and net loss, primarily due to higher G&A, Donlin Gold expenses, lower interest income, and foreign exchange movements - Loss from operations increased by $2.1 million to $16.5 million[67] - Net loss increased by $4.6 million to $18.5 million ($0.06 per share)[68] - Drivers include higher G&A ($1.2 million increase), increased Donlin Gold expenses ($0.9 million increase), lower interest income, and foreign exchange movements[67][68] Liquidity, Capital Resources and Capital Requirements This section analyzes the company's liquidity, capital resources, and capital requirements, detailing changes in cash, term deposits, and funding for the Donlin Gold project - Cash, cash equivalents, and term deposits totaled $107,587 thousand as of May 31, 2021, a $14,319 thousand decrease from November 30, 2020[69] - $6.3 million cash used in operating activities for the first six months of 2021[69] - $8.1 million funding for Donlin Gold for the first six months of 2021[69] Second quarter 2021 compared to 2020 (Liquidity) This subsection compares liquidity for the second quarter of 2021 to 2020, noting changes in net cash used in operating and investing activities, Donlin Gold funding, and term deposits Liquidity (thousands) | Metric | Three months ended May 31, 2021 (thousands) | Three months ended May 31, 2020 (thousands) | | :-------------------------- | :------------------------------------------ | :------------------------------------------ | | Net cash used in operating activities | $(1,976) | $(1,834) | | Net cash used in investing activities | $(9,977) | $(4,290) | - Donlin Gold funding increased by $0.9 million[71] - Term deposits increased by $4.8 million[71] First six months 2021 compared to 2020 (Liquidity) This subsection compares liquidity for the first six months of 2021 to 2020, detailing net cash used in operating, investing, and financing activities, along with changes in Donlin Gold funding and term deposits Liquidity (thousands) | Metric | Six months ended May 31, 2021 (thousands) | Six months ended May 31, 2020 (thousands) | | :--------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Net cash used in operating activities | $(6,262) | $(5,331) | | Net cash used in investing activities | $(2,923) | $(6,890) | | Net cash used in financing activities | $(731) | $(1,652) | - Donlin Gold funding increased by $1.2 million[72] - Term deposits decreased by $5.2 million[72] Outstanding share data This section provides details on the company's outstanding share data as of June 22, 2021, including common shares, stock options, performance share units, and maximum shares issuable from convertible securities - 331,651,314 common shares outstanding as of June 22, 2021[73] - Total 10,460,803 stock options outstanding[73] - 1,583,100 Performance Share Units (PSUs) outstanding[73] - Maximum 13,133,139 common shares issuable from convertible securities[73] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's financial instruments face credit and interest rate risks, managed through high-grade deposits and Newmont's rating, with interest rate risk tied to Barrick's variable promissory note - Financial instruments are exposed to credit and interest rate risks[74] Credit risk This section details how credit risk is managed through term deposits in high investment-grade Canadian banks and notes receivable from investment-grade rated Newmont - Term deposits are held in high investment-grade Canadian chartered banks[75] - Notes receivable are from Newmont, a publicly traded company with investment-grade credit ratings, and are guaranteed by Newmont[75] Interest rate risk This section explains that the promissory note to Barrick carries a variable interest rate (U.S. prime plus 2%), with a 1% change impacting accrued interest by approximately $1.1 million annually - The promissory note to Barrick has a variable interest rate (U.S. prime plus 2%)[76] - A 1% change in the U.S. prime rate impacts accrued interest by approximately $1.1 million annually[76] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of May 31, 2021, with no material changes to internal control over financial reporting - Disclosure controls and procedures were deemed effective as of May 31, 2021[77] - No material changes to internal control over financial reporting occurred during the quarter[78] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is unaware of any material current, pending, or threatened litigation beyond routine business matters - No awareness of material current, pending, or threatened litigation[80] Item 1A. Risk Factors No material changes have occurred to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended November 30, 2020 - No material changes to risk factors from the Annual Report on Form 10-K[81] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds occurred during the reporting period - None Item 3. Defaults Upon Senior Securities No defaults upon senior securities occurred during the reporting period - None Item 4. Mine Safety Disclosures Mine safety disclosures are not applicable to the company's operations - Not applicable Item 5. Other Information. No other information is required for disclosure under this item - None Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including corporate articles, CEO/CFO certifications, and XBRL interactive data files - Includes Amended and Restated Articles, CEO/CFO certifications (Rule 13a-14(a) and 18 U.S.C. Section 1350), and Inline XBRL data files[92] SIGNATURES Signatures The report is signed by Gregory A. Lang, President and CEO, and David A. Ottewell, VP and CFO, on behalf of NOVAGOLD RESOURCES INC - Signed by President and CEO Gregory A. Lang and VP and CFO David A. Ottewell[90] EXHIBIT INDEX Exhibit Index Details This section provides a detailed list of all exhibits accompanying the Form 10-Q filing, including corporate governance documents, certifications, and XBRL data - Lists specific exhibits such as Amended and Restated Articles, CEO/CFO certifications, and various Inline XBRL files[92]