These condensed consolidated interim financial statements are authorized for issue by the Board of Directors on June 27, 2016. They are signed on the Company’s behalf by:
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
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”) operates in the mining industry, focused on the exploration for and development of gold and copper mineral properties. The Company has no operations or realized revenues from its planned principal business purpose. The Company’s principal assets include a 50% interest in the Donlin Gold project in Alaska, U.S.A. and a 50% interest in the Galore Creek project in British Columbia, Canada.
The Condensed Consolidated Interim Financial Statements of NOVAGOLD are unaudited. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these interim statements have been included. The results reported in these interim statements are not necessarily indicative of the results that may be reported for the entire year. These interim statements should be read in conjunction with NOVAGOLD’s Consolidated Financial Statements for the year ended November 30, 2015. The year-end balance sheet data was derived from the audited financial statements and certain information and footnote disclosures required by United States generally accepted accounting principles (US GAAP) have been condensed or omitted.
The functional currency for the Company’s Canadian operations is the Canadian dollar and the functional currency for the Company’s U.S. operations is the U.S. dollar. References to “$” refer to United States currency and “C$” to Canadian currency. Dollar amounts are in thousands, except for per share amounts.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Recently adopted accounting pronouncements
Consolidation – Amendments to the Consolidation Analysis
In February 2015, Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) guidance was issued to amend current consolidation guidance. The amendments affect both the variable interest entity and voting interest entity consolidation models and primarily relate to: limited partnerships and similar legal entities; evaluating fees paid to a decision maker or a service provider as a variable interest; the effect of fee arrangements on the primary beneficiary determination; the effect of related parties on the primary beneficiary determination; and certain investment funds. The Company determined that these changes did not have an impact on its previous consolidation analysis and elected early adoption of the new standard effective for the Company’s fiscal year beginning December 1, 2016. Application of the new guidance had no impact on the consolidated financial position, results of operations or cash flows.
Recently issued accounting pronouncements
Compensation—Stock Compensation
In March 2016, ASC guidance was issued to amend employee share-based payment accounting. The new guidance amends several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The new guidance is effective for the Company’s fiscal year and interim periods beginning December 1, 2017. Early adoption is permitted in any interim or annual period. If adopted in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. All of the amendments must be adopted in the same period. The Company is currently evaluating this guidance and the impact on its consolidated financial statements.
Leases
In February 2016, ASC guidance was issued to amend lease accounting guidance. The new guidance amends the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases and amends disclosure requirements associated with leasing arrangements. The new guidance is effective for the Company’s fiscal year beginning December 1, 2019. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition, and provides for certain practical expedients. Transition will require application of the new guidance at the beginning of the earliest comparative period presented. The Company is currently evaluating this guidance and the impact on its consolidated financial statements.
Classification and Measurement of Financial Instruments
In January 2016, ASC guidance was issued to amend the guidance on the classification and measurement of financial instruments. The new guidance significantly revises an entity’s accounting related to the classification and measurement of investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value. The new guidance also amends certain disclosure requirements associated with the fair value of financial instruments. The new guidance is effective for the Company’s fiscal year beginning December 1, 2018. Early adoption for most of the provisions is not allowed. The Company is currently evaluating this guidance and the impact on its consolidated financial statements.
NOTE 3 – SEGMENTED INFORMATION
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Chief Executive Officer. The Chief Executive Officer considers the business from a geographic perspective considering the performance of our investments in the Donlin Gold project in Alaska, U.S.A. and the Galore Creek project in British Columbia, Canada. Segment information is provided on each of the material projects individually in notes 4 and 5.
NOTE 4 – INVESTMENT IN DONLIN GOLD
The Donlin Gold project is owned and operated by Donlin Gold LLC, a limited liability company in which wholly owned subsidiaries of Barrick Gold Corporation (“Barrick”) and NOVAGOLD each own a 50% interest. Donlin Gold LLC has a board of four directors, with two directors selected by Barrick and two directors selected by the Company. All significant decisions related to Donlin Gold LLC require the approval of both Barrick and the Company.
Changes in the Company’s 50% investment in Donlin Gold LLC are summarized as follows:
|
|
Three months ended May 31,
|
|
|
Six months ended May 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Balance – beginning of period
|
|
$
|
903
|
|
|
$
|
1,474
|
|
|
$
|
1,058
|
|
|
$
|
1,618
|
|
Share of losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral property expenditures
|
|
|
(2,466
|
)
|
|
|
(3,612
|
)
|
|
|
(4,430
|
)
|
|
|
(6,065
|
)
|
Depreciation
|
|
|
(36
|
)
|
|
|
(42
|
)
|
|
|
(75
|
)
|
|
|
(85
|
)
|
|
|
|
(2,502
|
)
|
|
|
(3,654
|
)
|
|
|
(4,505
|
)
|
|
|
(6,150
|
)
|
Funding
|
|
|
2,886
|
|
|
|
3,666
|
|
|
|
4,734
|
|
|
|
6,018
|
|
Balance – end of period
|
|
$
|
1,287
|
|
|
$
|
1,486
|
|
|
$
|
1,287
|
|
|
$
|
1,486
|
|
The following amounts represent the Company’s 50% share of the assets and liabilities of Donlin Gold LLC. Donlin Gold LLC has capitalized as Mineral property the initial contribution of the Donlin Gold property with a carrying value of $64,000 resulting in a higher carrying value of the Mineral property than the Company.
|
|
At
May 31,
2016
|
|
|
At
November 30,
2015
|
|
Current assets: Cash, prepaid expenses and other receivables
|
|
$
|
1,680
|
|
|
$
|
1,762
|
|
Non-current assets: Property and equipment
|
|
|
156
|
|
|
|
232
|
|
Non-current assets: Mineral property
|
|
|
32,692
|
|
|
|
32,692
|
|
Current liabilities: Accounts payable and accrued liabilities
|
|
|
(549
|
)
|
|
|
(936
|
)
|
Non-current liabilities: Reclamation obligation
|
|
|
(692
|
)
|
|
|
(692
|
)
|
Net assets
|
|
$
|
33,287
|
|
|
$
|
33,058
|
|
NOTE 5 – INVESTMENT IN GALORE CREEK
The Galore Creek project is owned by Galore Creek Partnership (GCP), a partnership in which Teck Resources Limited (“Teck”) and a wholly owned subsidiary of NOVAGOLD each own a 50% interest. GCP has a board of four directors, with two members selected by Teck and two members selected by the Company. All significant decisions related to GCP require the approval of both Teck and the Company.
GCP prepares its financial statements under International Financial Reporting Standards, as issued by the IASB, and presents its financial statements in Canadian dollars. In accounting for its investment in GCP, the Company converts and presents reported amounts in accordance with US GAAP and in U.S. dollars.
Changes in the Company’s investment in GCP are summarized as follows:
|
|
Three months ended May 31,
|
|
|
Six months ended May 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Balance – beginning of period
|
|
$
|
239,732
|
|
|
$
|
259,245
|
|
|
$
|
242,906
|
|
|
$
|
283,247
|
|
Share of losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral property expenditures
|
|
|
(74
|
)
|
|
|
(12
|
)
|
|
|
(133
|
)
|
|
|
(25
|
)
|
Care and maintenance expense
|
|
|
(246
|
)
|
|
|
(273
|
)
|
|
|
(381
|
)
|
|
|
(386
|
)
|
|
|
|
(320
|
)
|
|
|
(285
|
)
|
|
|
(514
|
)
|
|
|
(411
|
)
|
Funding
|
|
|
244
|
|
|
|
268
|
|
|
|
459
|
|
|
|
444
|
|
Foreign currency translation
|
|
|
7,696
|
|
|
|
1,378
|
|
|
|
4,501
|
|
|
|
(22,674
|
)
|
Balance – end of period
|
|
$
|
247,352
|
|
|
$
|
260,606
|
|
|
$
|
247,352
|
|
|
$
|
260,606
|
|
The following amounts represent the Company’s 50% share of the assets and liabilities of GCP presented in U.S. dollars and in accordance with US GAAP. As a result of recording the Company’s investment at fair value in June 2011, the carrying value of the Company’s 50% interest is higher than 50% of the book value of GCP. Therefore, the Company’s investment does not equal 50% of the net assets recorded by GCP:
|
|
At
May 31,
2016
|
|
|
At
November 30,
2015
|
|
Current assets: Cash, prepaid expenses and other receivables
|
|
$
|
323
|
|
|
$
|
497
|
|
Non-current assets: Mineral property
|
|
|
222,583
|
|
|
|
218,532
|
|
Current liabilities: Accounts payable and accrued liabilities
|
|
|
(190
|
)
|
|
|
(365
|
)
|
Non-current liabilities: Payables and decommissioning liabilities
|
|
|
(7,295
|
)
|
|
|
(7,162
|
)
|
Net assets
|
|
$
|
215,421
|
|
|
$
|
211,502
|
|
NOTE 6 – PROMISSORY NOTE
The Company has a promissory note payable to Barrick for $51,576, plus interest at a rate of U.S. prime plus 2%, amounting to $30,929 in accrued interest. The promissory note resulted from the agreement that led to the formation of Donlin Gold LLC, where the Company agreed to reimburse Barrick for a portion of their expenditures incurred from April 1, 2006 to November 30, 2007. The promissory note and accrued interest are payable from 85% of the Company’s share of revenue from future mine production or from any net proceeds resulting from a reduction of the Company’s interest in Donlin Gold LLC. The carrying value of the promissory note approximates fair value.
NOTE 7 – FAIR VALUE ACCOUNTING
Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the significance of the inputs used in making the measurement. The three levels of the fair value hierarchy are as follows:
Level 1
— Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2
— Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
Level 3
— Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
The Company’s marketable equity securities are valued using quoted market prices in active markets and as such are classified within Level 1 of the fair value hierarchy. The fair value of the marketable equity securities was $1,262 at May 31, 2016 ($571 at November 30, 2015), calculated as the quoted market price of the marketable equity security multiplied by the quantity of shares held by the Company.
NOTE 8 – GENERAL AND ADMINISTRATIVE EXPENSES
|
|
Three months ended May 31,
|
|
|
Six months ended May 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Salaries
|
|
$
|
1,624
|
|
|
$
|
1,532
|
|
|
$
|
3,316
|
|
|
$
|
3,050
|
|
Share-based compensation
|
|
|
1,869
|
|
|
|
728
|
|
|
|
6,577
|
|
|
|
6,057
|
|
Office expense
|
|
|
551
|
|
|
|
575
|
|
|
|
1,055
|
|
|
|
1,068
|
|
Professional fees
|
|
|
142
|
|
|
|
136
|
|
|
|
268
|
|
|
|
378
|
|
Corporate development and communications
|
|
|
375
|
|
|
|
179
|
|
|
|
669
|
|
|
|
1,099
|
|
|
|
$
|
4,561
|
|
|
$
|
3,150
|
|
|
$
|
11,885
|
|
|
$
|
11,652
|
|
NOTE 9 – SHARE-BASED COMPENSATION
|
|
Three months ended May 31,
|
|
|
Six months ended May 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Stock options
|
|
$
|
736
|
|
|
$
|
(488
|
)
|
|
$
|
4,404
|
|
|
$
|
3,616
|
|
Performance share unit plan
|
|
|
1,076
|
|
|
|
1,163
|
|
|
|
2,065
|
|
|
|
2,333
|
|
Deferred share unit plan
|
|
|
57
|
|
|
|
53
|
|
|
|
108
|
|
|
|
108
|
|
|
|
$
|
1,869
|
|
|
$
|
728
|
|
|
$
|
6,577
|
|
|
$
|
6,057
|
|
In the first six months of 2016, the Company granted 4,586,700 share options to employees and directors with an exercise price of C$5.02 per share and a fair value of C$1.83 per share. The Company also granted 1,241,900 performance share units (PSUs) to employees with a fair value of C$4.65 per unit. PSU grants made on January 4, 2014 vested and were paid out on December 1, 2015 in common shares of the Company at 140% of the PSU grant amount. The Company elected to remit PSU withholding taxes of $4,275 using cash and issued the net amount of 1,377,364 shares to holders.
In the first six months of 2015, the Company granted 4,359,450 share options to employees and directors with an exercise price of C$3.18 per share and a fair value of C$1.28 per share. The Company also granted 1,377,250 PSUs to employees with a fair value of C$3.86 per unit. PSU grants made on December 5, 2012 vested and were paid out on December 5, 2014 in common shares of the Company at 137% of the PSU grant amount. The Company elected to remit PSU withholding taxes of $827 using cash and issued the net amount of 506,175 shares to holders.
In the second quarter of 2015, stock option expense was decreased by a non-cash out-of-period adjustment of $1,048 in respect of an overstatement of stock option expense in the first quarter of 2015.
NOTE 10 – OTHER INCOME (EXPENSE)
|
|
Three months ended May 31,
|
|
|
Six months ended May 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Interest income
|
|
$
|
220
|
|
|
$
|
187
|
|
|
$
|
401
|
|
|
$
|
365
|
|
Interest expense
|
|
|
(1,153
|
)
|
|
|
(1,458
|
)
|
|
|
(2,244
|
)
|
|
|
(3,101
|
)
|
Foreign exchange gain (loss)
|
|
|
(797
|
)
|
|
|
(247
|
)
|
|
|
(272
|
)
|
|
|
3,215
|
|
Write-down of investments
|
|
|
—
|
|
|
|
(426
|
)
|
|
|
—
|
|
|
|
(426
|
)
|
|
|
$
|
(1,730
|
)
|
|
$
|
(1,944
|
)
|
|
$
|
(2,115
|
)
|
|
$
|
53
|
|
NOTE 11 – CHANGE IN OPERATING ASSETS AND LIABILITIES
|
|
Three months ended May 31,
|
|
Six months ended May 31,
|
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in receivables, deposits and prepaid amounts
|
|
$
|
306
|
|
|
$
|
173
|
|
|
$
|
940
|
|
|
$
|
505
|
|
Increase (decrease) in accounts payable and accrued liabilities
|
|
|
365
|
|
|
|
(154
|
)
|
|
|
(1,386
|
)
|
|
|
(1,813
|
)
|
Decrease in other liabilities
|
|
|
(101
|
)
|
|
|
(1
|
)
|
|
|
(156
|
)
|
|
|
(77
|
)
|
|
|
$
|
570
|
|
|
$
|
18
|
|
|
$
|
(602
|
)
|
|
$
|
(1,385
|
)
|
NOTE 12 – RELATED PARTY TRANSACTIONS
During the first six months of 2016, the Company provided office rental and services to GCP for $165 ($180 in the first six months of 2015).
As of May 31, 2016, the Company has accounts receivable from GCP of $28 (November 30, 2015: $28) included in other current assets and a receivable of $3,612 (November 30, 2015: $3,546) from GCP included in other long-term assets.
NOTE 13 – COMMITMENTS AND CONTINGENCIES
General
The Company follows ASC guidance in determining its accruals and disclosures with respect to loss contingencies. Accordingly, estimated losses from loss contingencies are accrued by a charge to income when information available prior to issuance of the financial statements indicates that it is probable that a liability could be incurred and the amount of the loss can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred. If a loss contingency is not probable or reasonably estimable, disclosure of the loss contingency is made in the financial statements when it is at least reasonably possible that a material loss could be incurred.
Obligations under operating leases
The Company leases certain assets, such as office equipment and office facilities, under operating leases expiring at various dates through 2017. Future minimum annual lease payments are $219 in the remainder of 2016, $328 in 2017 and $40 in 2018, totaling $587.