We have audited the accompanying consolidated financial
statements of NovaCopper Inc., which comprise the consolidated balance sheets as
at November 30, 2011 and 2010, the consolidated statements of loss,
comprehensive loss and deficit, the consolidated statements of changes in
shareholder’s equity, and the consolidated statements of cash flows for the
years then ended, and the related notes, which comprise a summary of significant
accounting policies and other explanatory information.
An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditor’s judgment, including
the assessment of the risks of material misstatement of the consolidated
financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity’s
preparation and fair presentation of the consolidated financial statements in
order to design audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
entity’s internal control. An audit also includes evaluating the appropriateness
of accounting policies used and the reasonableness of accounting estimates made
by management, as well as evaluating the overall presentation of the
consolidated financial statements.
We believe that the audit evidence we have obtained in our
audits is sufficient and appropriate to provide a basis for our audit
opinion.
The Ambler Project (the “Project”) comprises a
copper-zinc-lead-gold-silver exploration property located in the United States
of America (“US”) within the state of Alaska. On January 11, 2010, Alaska Gold
Company (“AGC”) purchased 100% of the Ambler property (note 4). The Project was
acquired on October 17, 2011 by NovaCopper US Inc. (“NovaCopper US”) through a
purchase and sale agreement with AGC, both wholly owned subsidiaries of NovaGold
Resources Inc. (“NovaGold”). NovaGold is a precious metals company engaged in
the exploration and development of mineral properties in North America with a
portfolio of mineral properties located principally in Alaska and British
Columbia. On October 24, 2011, NovaGold transferred its ownership of NovaCopper
US to NovaCopper Inc. (“NovaCopper”), a wholly owned subsidiary of NovaGold
incorporated on April 27, 2011 in exchange for shares of NovaCopper.
On November 16, 2011, NovaGold announced its intention to
distribute the shares of NovaCopper, to the shareholders of NovaGold, as a
return of capital by way of a Plan of Arrangement. The Plan of Arrangement is
subject to court and shareholder approval, and various other conditions
including initial listing on the TSX and NYSE-AMEX. NovaCopper, through its
wholly owned subsidiary, NovaCopper US, now owns a 100% interest in the
Project.
The financial statements reflect the balance sheets, statements
of loss, comprehensive loss and deficit and cash flows of the Project as if it
had been an independent operation from the inception of the Project. The
carve-out statements of loss and comprehensive loss for the years ended November
30, 2010, 2009 and 2008 include direct general and administrative and
exploration costs of the Project and an allocation of NovaGold’s general and
administrative costs incurred in each of these periods. NovaGold has
historically provided corporate services to the Project, including executive
oversight, information technology, technical expertise, accounting, tax,
treasury, human resources and other services. The allocation of general and
administrative costs to the Project was calculated on the basis of time
committed by NovaGold staff to AGC and the ratio of expenses incurred on the
Project in each period presented as compared to all costs incurred by AGC in
these periods.
The Project’s opening deficit at December 1, 2007 has been
calculated by applying the same allocation principles described above to the
cumulative transactions relating to the project from the date of its acquisition
in 2004 to November 30, 2007 and includes an allocation of NovaGold’s general
and administrative expenses from the date of acquisition until November 30,
2007. All historical spending to November 30, 2010 has been funded by NovaGold
and is reflected as contributed surplus (note 9).
The continued exploration and development of the Project and
the recoverability of mineral property expenses is dependent upon the ability to
obtain continued financing necessary to complete exploration and development of
its property, the existence of economically recoverable mineral reserves, and
upon future profitable production or profitable disposal of the Project. The
amounts shown as mineral properties represents costs to date and do not
necessarily represent present or future values.
These carve-out financial statements have been prepared using
accounting principles generally accepted in Canada (“Canadian GAAP”). These
financial statements include the historical assets, liabilities and expenses
directly related to the Project and allocations of NovaGold’s general and
administrative expenses, as described in note 1, to present the financial
position, results of operations and changes in cash flows of the Project on a
standalone basis. The financial statements have been presented under the
continuity of interest basis of accounting whereby the amounts are based on the
amounts recorded by NovaGold. As described in note 10, Canadian GAAP differs in
certain respects from accounting principles generally accepted in the United
States.
The financial statements may not necessarily reflect the
financial position, results of operations and changes in cash flows of the
Project in the future or what they would have been had the Project been a
separate, stand-alone entity for the years presented.
Property, plant and equipment are recorded at cost and
amortization begins when the asset is substantially put into service.
Amortization is calculated on a straight-line basis over the respective asset’s
estimated useful lives. All property, plant and equipment are fully depreciated
for the years presented. Amortization periods by asset class are:
All direct costs related to the acquisition of mineral property
interests are capitalized. Mineral property exploration expenditures are
expensed when incurred. When it has been established that a mineral deposit is
commercially mineable and an economic analysis has been completed, the costs
subsequently incurred to develop a mine on the property prior to the start of
mining operations are capitalized and will be amortized against production
following commencement of commercial production using the unit of production
method.
The acquisition of title to mineral properties is a complicated
and uncertain process. The Project has relied on management of NovaGold
(“Management”) to take steps, in accordance with industry standards, to verify
the mineral property in which it has an interest. Although Management has made
efforts to ensure that legal title to its property is properly recorded, there
can be no assurance that such title will ultimately be secured.
Management assesses the possibility of impairment in the
carrying value of its long-lived assets whenever events or circumstances
indicate that the carrying amounts of the asset or asset group may not be
recoverable. Management calculates the estimated undiscounted future net cash
flows relating to the asset or asset group using estimated future prices, proven
and probable mineral reserves and other mineral resources, and operating,
capital and reclamation costs. When the carrying value of an asset exceeds the
related undiscounted cash flows, the asset is written down to its estimated fair
value, which is usually determined using discounted future cash flows.
Management’s estimates of mineral prices, mineral resources, foreign exchange,
production levels and operating capital and reclamation costs are subject to
risk and uncertainties that may affect the determination of the recoverability
of the long-lived asset. It is possible that material changes could occur that
may adversely affect Management’s estimates.
The liability method of accounting for income taxes is used and
is based on differences between the accounting and tax bases of assets. Future
income tax assets and liabilities are recognized for temporary differences
between the tax and accounting bases of assets and liabilities as well as for
the benefit of losses available to be carried forward to future years for tax
purposes. Future income tax assets are evaluated and, if realization is not
considered more likely than not, a valuation allowance is provided.
Compensation expense for stock options and performance share
units (“PSUs”) is measured at fair value pursuant to CICA Handbook section 3870,
which established standards for the recognition, measurement and disclosure of
stock-based compensation and other stock-based payments. The expense relating to
the fair value of stock options and PSUs are included in mineral property
expense and are credited to contributed surplus as each are contracted to be
satisfied by NovaGold with NovaGold common stock.
Compensation expense for options granted to employees is
determined based on estimated fair values of the options at the time of grant
using the Black-Scholes option pricing model. The cost is recognized over the
vesting period of the respective options.
Certain employees of the Project were granted PSUs, wherein
each PSU entitled the participant to receive one common share of NovaGold at the
end of a two-year period if certain market performance and service vesting
criteria had been met. The performance and vesting criteria were based on
NovaGold’s performance relative to a representative group of other mining
companies and the TSX index. The number of units that ultimately vest will be in
the range of 0% to 150% of the original grant. The fair value of the PSUs is
measured at the grant date using Monte Carlo simulation, which takes into
account, as of the grant date, the fair market value of the shares, expected
volatility, expected dividend yield and the risk-free interest rate over the
life of the PSU to generate potential outcomes for stock prices which are used
to estimate the probability of the PSUs vesting at the end of the performance
measurement period. The fair value is recognized over the related service
period.
Compensation expense for employees of the Project is recognized
in mineral property expense to the extent the employees are working directly on
the Project.
Held-for-trading financial assets and liabilities are recorded
at fair value as determined by active market prices and valuation models, as
appropriate. Valuation models require the use of assumptions concerning the
amount and timing of estimated future cash flows and discount rates. In
determining these assumptions, Management uses readily observable market inputs
where available or, where not available, inputs generated by Management. Changes
in fair value of held-for-trading financial instruments are recorded in net
earnings. The Project had no held-for-trading financial assets or liabilities as
at November 30, 2010 and 2009.
Available-for-sale financial assets are recorded at fair value
as determined by active market prices. Unrealized gains and losses on
available-for-sale investments are recognized in other comprehensive income. If
a decline in fair value is deemed to be other than temporary, the unrealized
loss is recognized in net earnings. Investments in equity instruments that do
not have an active quoted market price are measured at cost. The Project had no
available-for-sale financial assets as at November 30, 2010 and 2009.
Loans and receivables are recorded initially at fair value, net
of transaction costs incurred, and subsequently at amortized cost using the
effective interest rate method. The Project had no loans or receivables as at
November 30, 2010 and 2009.
Other financial liabilities are recorded initially at fair
value and subsequently at amortized cost using the effective interest rate
method. Other financial liabilities include accounts payable and accrued
liabilities and Ambler acquisition liability.
Monetary assets and liabilities are translated at the exchange
rate in effect at the balance sheet date, and non-monetary assets and
liabilities at the exchange rate in effect at the time of acquisition or issue.
Expenses are translated at rates approximating the exchange rate in effect at
the time of transactions. Exchange gains or losses arising on translation are
included in income or loss for the year.
The preparation of financial statements in conformity with
Canadian GAAP requires management to make estimates and assumptions of future
events that affect the reported amount of assets and liabilities and disclosure
of contingent liabilities at the date of the financial statements, and the
reported amounts of expenditures during the reported period. Significant
estimates include the basis of impairment of mineral properties, fair value of
stock based compensation, income taxes and the allocation of general and
administrative costs from NovaGold (note 1). Actual results could differ
materially from those reported.
In January 2009, the CICA issued CICA Handbook Section 1582,
“Business Combinations”, which replaces former guidance on business
combinations. Section 1582 establishes principles and requirements of the
acquisition method and related disclosures. In addition, the CICA issued Section
1601, “Consolidated Financial Statements”, and Section 1602, “Non-controlling
Interests”, which replaces the existing guidance. Section 1601 establishes
standards for the preparation of consolidated financial statements and Section
1602 provides guidance on accounting for non-controlling interest in a
subsidiary in consolidated financial statements subsequent to a business
combination. These standards apply prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after January 1, 2011, with earlier application
permitted. The Project will adopt these pronouncements at December 1, 2010 and
has assessed there will be no impact of adopting these sections on its financial
statements.
As at November 30, 2010, the Project has purchase commitments
outstanding in the amount of $0.4 million for the initial scoping study of an
access road to the property site (note 6(c)).
The Project has relied upon NovaGold to manage capital in order
to accomplish the objectives of safeguarding the Project’s ability to continue
as a going concern in order to pursue the development of its mineral property
and maintaining a flexible capital structure which optimizes the costs of
capital at an acceptable risk. In the management of capital, the Project
includes contributed surplus from NovaGold.
The Project’s parent company manages the capital structure and
makes adjustments to it in light of changes in economic conditions and the risk
characteristics of the underlying assets. To maintain or adjust the capital
structure, the Project’s parent company may issue new shares, issue new debt or
acquire or dispose of assets.
To facilitate the management of its capital requirements, the
Project prepares annual expenditure budgets that are updated as necessary
depending on various factors, including successful capital deployment and
general industry conditions. The annual budget is approved by the Board of
Directors of NovaGold.
The Project’s activities expose it to a variety of risks
arising from financial instruments. These risks and management’s objectives,
policies and procedures for managing these risks are disclosed as follows.
The following provides a comparison of carrying and fair values
of each classification of financial instrument as at November 30, 2010 and
November 30, 2009.
The fair value of accounts payable and accrued liabilities
approximates their carrying value due to the short-term nature of their
maturity. At November 30, 2009, the Project had nominal accounts payable and
accrued liabilities. The Project uses the fair value hierarchy that classifies
financial instruments measured at fair value at one of three levels according to
the relative reliability of the inputs used to estimate the fair value. All of
the Project’s financial instruments are other financial liabilities held at
amortized cost and as such, are not classified on the fair value hierarchy.
The Project’s activities expose them to certain financial
risks, including currency risk, credit risk, liquidity risk, interest risk and
price risk.
Currency risk is the risk of a fluctuation in financial asset
and liability settlement amounts due to a change in foreign exchange rates. The
Project operates in the United States and the majority of its expenses are
incurred in US dollars. As at November 30, 2010, the Project did not have
significant exposure to currency risk.
Credit risk is the risk of an unexpected loss if a customer or
third party to a financial instrument fails to meet its contractual obligations.
The Project does hold any financial assets and therefore is not exposed to
credit risk.
Liquidity risk is the risk that the Project will encounter
difficulties raising funds to meet its financial obligations as they fall due.
The Project is in the exploration stage and does not have cash inflows from
operations; therefore, the Project manages liquidity risk through the management
of its capital structure and financial leverage as outlined in note 5 to the
carve-out financial statements. The Project expects to meet its financial
obligations through funding from its parent as described in note 1.
Contractual obligated cash flow requirements as at November 30,
2010 are as follows.
Interest rate risk is the risk that the fair value or future
cash flows of a financial instrument will fluctuate because of changes in market
interest rates. In respect of financial liabilities, the Project has no interest
bearing liabilities. As a result, the Project is not exposed to interest rate
risk.
The Project is exposed to price risk with respect to commodity
prices as future profitability and long-term viability will depend, in large,
part on the price of copper, zinc, lead, gold and silver. The market prices for
such metals are volatile and subject to numerous factors beyond the Project’s
control. The Project closely monitors commodity prices to determine the
appropriate course of action to be taken. The Project does not have any hedging
or other commodity-based risks respecting its operations.
As the Project is currently in the exploration phase none of
its financial instruments are exposed to commodity price risk; however, the
Project’s economic viability could be affected by commodity price
volatility.
Future income taxes arise from temporary differences in the
recognition of income and expenses for financial reporting and tax purposes. The
significant components of future income tax assets and liabilities of the
Project at November 30, 2010 and 2009 are as follows.
Future tax assets have been recognized to the extent of future
taxable income and the future taxable amounts related to taxable temporary
differences for which a future tax liability is recognized can be offset. A
valuation allowance has been provided against future income tax assets where it
is not more likely than not that the Project will realize those benefits.
The Project operates in one business segment being the
exploration and development of mineral properties in the United States. All of
the Project’s mineral property and development costs and property, plant and
equipment are located in one geographical region, being the United States.
Details of funding and other payments by NovaGold on behalf of
the Project are as follows:
Under the Plan of Arrangement, NovaCopper expects to qualify as
a domestic registrant under the United States Securities Exchange Commission
within its first year as a listed entity. As a domestic registrant, NovaCopper
expects to report its financial statements under accounting principles generally
accepted in the United States (“U.S. GAAP”).
Canadian GAAP differs in certain respects from the principles
and practices generally accepted in the United States. There are no material
differences between Canadian GAAP and U.S. GAAP in accounting for the Project.
In January 2011, the $12 million payment due in 2011 to acquire
the Ambler property was made by NovaGold. In August 2011, the $12 million
payment due in 2012 to acquire the Ambler property was made by NovaGold (note
3(a)).
On October 17, 2011, NovaCopper US acquired the Ambler Project
from AGC through a purchase and sale agreement. On October 24, 2011, NovaGold
transferred its ownership of NovaCopper US to NovaCopper in exchange for shares
of NovaCopper.
(See accompanying notes to the unaudited pro-forma consolidated
financial statements)
(See accompanying notes to the unaudited pro-forma consolidated
financial statements)
The accompanying unaudited pro-forma consolidated financial
statements have been compiled for the purposes of inclusion in the Information
Circular of NovaCopper Inc. (“NovaCopper”), which at the closing of the Plan of
Arrangement (the “Plan”), gives effect to a distribution by NovaGold Resources
Inc. of all of the issued and outstanding shares of NovaCopper as a return of
capital.
NovaCopper Inc. was incorporated on April 27, 2011 under the
Business Corporations Act (
British Columbia
).
The Ambler Project (the “Project”) comprises a
copper-zinc-lead-gold-silver exploration property located in Alaska. On January
11, 2010, Alaska Gold Company (“AGC”) purchased 100% of the Ambler property for
consideration of $26.5 million. The Project was acquired on October 17, 2011 by
NovaCopper US Inc. (“NovaCopper US”) through a purchase and sale agreement with
AGC, both wholly owned subsidiaries of NovaGold Resources Inc. (“NovaGold”).
NovaGold is a precious metals company engaged in the exploration and development
of mineral properties in North America with a portfolio of mineral properties
located principally in Alaska and British Columbia. On October 24, 2011,
NovaGold transferred its ownership of NovaCopper US to NovaCopper Inc.
(“NovaCopper”), a wholly owned subsidiary of NovaGold in exchange for shares of
NovaCopper.
The unaudited pro-forma consolidated financial statements have
been prepared in accordance with Canadian generally accepted accounting
principles (“Canadian GAAP”) and the accounting policies as disclosed in the
consolidated financial statements of NovaCopper Inc. In the opinion of
management, the unaudited pro-forma consolidated balance sheet as at November
30, 2011, and the unaudited pro-forma consolidated statement of loss and
comprehensive loss for the year ended November 30, 2011 include the adjustments
necessary for the fair presentation of the proposed transaction in accordance
with Canadian GAAP.
The unaudited pro-forma consolidated financial statements are
not necessarily indicative of NovaCopper as at the time of the closing of the
Plan. The unaudited pro-forma consolidated financial statements should be read
in conjunction with the audited consolidated financial statements of NovaCopper
for the years ended November 30, 2011 and 2010 which are contained within the
Information Circular.
The unaudited pro-forma consolidated financial statements give
effect to the accounting continuation of NovaCopper Inc. as described in the
Information Circular, as if it had occurred as at November 30, 2011 for the
purposes of the unaudited pro-forma consolidated balance sheet and as of
December 1, 2010 for the purposes of the unaudited pro-forma consolidated
statements of loss and comprehensive loss and the following assumptions.
The following summarizes the changes in share capital that will
occur pursuant to the Plan.
Pursuant to the Plan, certain securityholders, including
option, warrant, performance share unit, and deferred share unit holders of
NovaGold have rights to receive shares in NovaCopper. It is assumed that in-the-money securities would be
exercised as if it had occurred at November 30, 2011. It is expected that
8,728,827 NovaGold stock options with exercise prices ranging between CDN$0.62
and CDN$11.83, 40,421,186 NovaGold warrants with exercise prices of CDN$1.48 and
$1.50, 335,800 performance share units, and 23,991 deferred shares units will
receive one NovaCopper Share for every 6 Common Shares of NovaGold the holder is
entitled to upon their exercise or vesting.
Pro-forma basic and diluted loss per share for the year ended
November 30, 2011 have been calculated as if the common shares to be issued
pursuant to the Plan had been outstanding as of December 1, 2010.
Under the Plan of Arrangement, NovaCopper expects to qualify as
a domestic registrant under the United States Securities and Exchange Commission
within its first year as a listed entity. As a domestic registrant, NovaCopper
expects to report its financial statements under accounting principles generally
accepted in the United States (“U.S. GAAP”).
Canadian GAAP differs in certain respects from the principles
and practices generally accepted in the United States. There are no material
measurement differences between Canadian GAAP and U.S. GAAP in accounting for
the unaudited pro-forma consolidated financial statements.
will be proportionately adjusted, subject to any required
action by the Board or the shareholders of the Company and in compliance with
applicable securities laws; provided, however, that fractions of a Share will
not be issuable under any Options and any such fractions will be rounded down to
the nearest Share.
No fractional Shares shall be
issuable upon the Net Exercise of Options, such Shares to be rounded down to the
nearest whole number.
The Board, on the recommendation of the Committee, in its
absolute discretion, shall have the right to reallocate any of the Shares
reserved for issuance under the Share Bonus Plan for future issuance pursuant to
a grant of Options and, in the event that any Shares specifically reserved under
the Share Bonus Plan are reallocated to Options, the aggregate maximum number of
Shares reserved under the Share Bonus Plan will be reduced to that extent. In no
event will the number of Shares allocated for issuance under the Share Bonus
Plan exceed 1,000,000 Shares.
any or all outstanding Options will expire at such time and on
such conditions as the Committee will determine (including, without limitation,
the Committee may, in the exercise of its sole discretion in such instances,
give each Participant the right to exercise his or her Option as to all or a
part of the Shares that may be acquired upon exercise of the Options, including
Shares as to which the Option would not otherwise be exercisable).
The Company hereby grants to the Participant named below the
following Options to acquire common shares (“
Shares
”) of the Company on
the terms of the Company’s Equity Incentive Plan (the “
Plan
”) and the
terms outlined below:
Participant agrees that he/she may suffer tax consequences as a
result of the grant of these Options, the exercise of the Options and the
disposition of Shares. Participant acknowledges that he/she is not relying on
the Company for any tax advice. To the extent that the Option is potentially
subject to taxation under either Canada or the U.S. or both jurisdictions, the
Participant acknowledges that the Participant has had adequate opportunity to
obtain advice of independent tax counsel with respect to the tax treatment of
the Option (including federal, state and provincial, as applicable).
Furthermore, non-U.S. Participants who are granted Options that are not subject
to the restrictions applicable to U.S. Participants but who subsequently become
subject to U.S. federal income tax on compensatory income are encouraged to seek
advice of independent tax counsel to determine the applicability of U.S. tax law
to such Options.
This Stock Option Certificate is subject to the terms and
conditions of the Plan and, in the event of any inconsistency or contradiction
between the terms of the Stock Option Certificate and the Plan, the terms of the
Plan shall govern.
If you agree to accept the Options described above, subject to
all of the terms and conditions of the Plan, please sign one copy of this letter
and return it to ______________ by ______________.
I have received a copy of the Plan and agree to comply with,
and agree that my participation is subject in all respects to, its terms and
conditions.
I hereby exercise my Options to
purchase __________ Shares for an Exercise Price of $__________ per Share (total
aggregate Exercise Price of $___________), effective today’s date, in accordance
with the terms of my attached Stock Option Certificate.
[ ] (a) enclose a certified
cheque payable to NovaCopper Inc. for the aggregate Exercise Price plus the
amount of the estimated Withholding Obligation and agree that I will reimburse
the Company for any amount by which the actual Withholding Obligations exceed
the estimated Withholding Obligations; or
[ ] (b) advise the Company that
________________________ [Name of Brokerage Firm] (the “Broker”) will provide
the Company with the Exercise Price and estimated Withholding Obligation in
respect of the above Options in exchange for certificates representing such
number of Shares to be issued upon due exercise of the above Options that have
been sold by the Broker for my account. Upon confirmation of the number of
Shares sold by the Broker, I hereby direct you to deliver the applicable share
certificates to the Broker. I agree that I will reimburse the Company for any
amount by which the actual Withholding Obligation exceed the estimated
Withholding Obligation.
Please prepare the Shares
certificates, if any, issuable in connection with this exercise in the following
name(s):
The following describes the proposed business of NovaGold, post-Arrangement,
and should be read together with the consolidated financial statements of the
Company available on SEDAR at
www.sedar.com
. Except where the context otherwise requires,
all of the information contained in this Schedule is made on the basis that
the Arrangement has been completed as described in the Management Proxy Circular.
Unless the context otherwise requires, all references in this
Schedule to the “
Company
”, “
us
”, “
our
”,
“
we
”, or similar terms means NovaGold and any subsidiaries
of NovaGold post-Arrangement. Certain other terms used in this Schedule are
defined under “
Glossary of Terms
” in the Management Proxy Circular
to which this Schedule is attached.
All capitalized terms not defined herein have the same meanings
ascribed to them in the Management Proxy Circular.
NovaGold Resources Inc. was incorporated by memorandum of association
on December 5, 1984, under the Companies Act (Nova Scotia) as 1562756 Nova Scotia
Limited. On January 14, 1985, the Company changed its name to NovaCan Mining
Resources (1985) Limited and on March 20, 1987, the Company changed its name
to NovaGold Resources Inc. The Company is in good standing under the laws of
the Province of Nova Scotia. The registered office of the Company is located
at Suite 1300 - 1969 Upper Water Street, Halifax, Nova Scotia, Canada, B3J 3R7.
The Company’s principal office is located at Suite 2300, 200 Granville
Street, Vancouver, BC, Canada, V6C 1S4.
The Company has the following material, direct and indirect,
wholly-owned subsidiaries: NovaGold Resources (Bermuda) Limited, NovaGold (Bermuda)
Alaska Limited, NovaGold Resources Alaska, Inc. and NovaGold Canada Inc.
The following chart depicts the corporate structure of the Company
together with the jurisdiction of incorporation of the Company’s subsidiaries
and related holding companies post-arrangement. All ownership is 100%. Certain
immaterial subsidiaries have not been included.
NovaGold is engaged in the exploration and development of mineral
properties situated principally in Alaska, USA and British Columbia, Canada.
NovaGold is focused on advancing its flagship property, Donlin Gold. NovaGold
has one of the largest mineral reserve/resource bases among junior and mid-tier
gold exploration companies. The Company is also committed to maximizing the
value of its non-core assets, including its interest in the Galore Creek copper-gold-silver
project, which it is currently exploring opportunities to sell, in whole or
in part. NovaGold has an established track record of expanding deposits through
exploration and of forging collaborative partnerships, both with local communities
and with major mining companies. The Donlin Gold project in Alaska, one of the
world’s largest known undeveloped gold deposits, is held by a limited liability
company owned equally by wholly-owned subsidiaries of NovaGold and Barrick Gold
Corporation (“
Barrick
”). The Galore Creek project in British
Columbia, a large copper-gold-silver deposit, is held by a partnership owned
equally by wholly-owned subsidiaries of NovaGold and Teck Resources Limited
(“
Teck
”). NovaGold also has other earlier-stage exploration
properties. The Company’s portfolio of properties includes:
NovaGold also holds earlier-stage exploration projects that have
not advanced to the resource definition stage and the Rock Creek project which
is in the closure planning stage.
On February 7, 2012, the Company completed a bought deal equity
offering of 35 million Company Shares at a price of US$9.50 per Company Share
for net proceeds of, after deducting underwriter commission and expenses, approximately
US$318.9 million (the “
Offering
”). The Offering was conducted
by a syndicate of underwriters, led by RBC Capital Markets and J.P. Morgan Securities
LLC, which syndicate included BMO Capital Markets, Dahlman Rose & Company,
National Bank Financial Inc. and TD Securities (collectively, the “
Underwriters
”).
Under the Offering, the Underwriters were granted an over-allotment option to
purchase up to an additional 5,250,000 Company Shares at the same price, exercisable
in whole or in part. The over-allotment option expires on March 8, 2012 and
as of the date hereof, the over-allotment option remains unexercised.
On November 16, 2011, the Company announced that Mr. Gregory
A. Lang had accepted the position of President and Chief Executive Officer of
the Company effective January 9, 2012. Mr. Lang was previously the President
of Barrick Gold North America, a wholly-owned subsidiary of Barrick. As the
President of Barrick Gold North America, Mr. Lang had executive responsibility
for Barrick’s nine operations in the United States, Canada and the Dominican
Republic, including the Donlin Gold project, equally owned by wholly-owned subsidiaries
of NovaGold and Barrick. See “
Management – Executive Officers,
Senior Management and Directors
” for further information regarding
Mr. Lang’s background.
Effective January 9, 2012, Mr. Rick Van Nieuwenhuyse resigned
from the position of President and Chief Executive Officer of the Company and
assumed the position of President and Chief Executive Officer of NovaCopper.
Mr. Van Nieuwenhuyse continues to serve as a member of the Board of Directors
of NovaGold and serves, and will continue to serve as senior advisor to Mr.
Lang until January 2013.
Donlin Gold is located in southwestern Alaska on private Alaskan
native-owned lands and Alaska state mining claims totalling 81,361 acres (32,926
hectares). The property has estimated proven and probable mineral reserves of
505 million tonnes grading 2.09 grams per tonne gold for 33.8 million ounces
of gold. This represents an approximate 16% increase from the mineral reserve
estimate outlined in the 2009 Feasibility Study and is broadly comparable to
the March 2010 mineral reserve and resource update released by NovaGold. The
property hosts estimated measured and indicated mineral resources (inclusive
of mineral reserves) of 541 million tonnes grading 2.24 grams per tonne gold
for 39 million ounces of gold and inferred mineral resources of 92 million tonnes
grading 2.02 grams per tonne gold for 6.0 million ounces of gold.
The total capital cost estimate for Donlin Gold is US$6.7 billion
including costs related to the natural gas pipeline and a contingency of US$984
million. The project’s estimated after-tax net present value (NPV5%) is
US$547 million using the base case gold price of US$1,200 per ounce, $4.58 billion
using a gold price of US$1,700 per ounce and US$6.72 billion using a gold price
of US$2,000 per ounce. The corresponding IRR after-tax were estimated at 6.0%,
12.3% and 15.1%, respectively. Donlin Gold, if put into production in accordance
with the Donlin Gold FS, would average 1.46 million ounces of gold production
in each of its first five years of operation at an average cash cost of US$409/oz
and would average 1.13 million ounces of gold per year over its projected 27
year mine life with an average cash cost of US$585 per ounce.
The project is expected to be a conventional truck and shovel
open-pit operation. The mine life is estimated to be 27 years based on a nominal
processing rate of 53,500 tonnes per day.
NovaGold believes that significant exploration potential remains
in the Donlin Gold district, with prospects to increase mine life and/or justify
future production expansions.
Mining of the Galore Creek deposit is planned as a conventional
truck-shovel open-pit mining operation with a nominal 95,000 tonne-per-day throughput.
Life of mine throughput average is approximately 84,000 tonnes per day due to
the milling circuit constraining throughput as harder rock is encountered deeper
in the open pits. The current 528 million tonne mineral reserve estimate is expected to support
a mine life of approximately 18 years. NovaGold believes there is potential
to extend the mine life with additional infill drilling and exploration. Using
a conventional grinding and flotation circuit, the project would produce a high-quality
copper concentrate with significant gold and silver credits.
On May 20, 2011, NovaGold completed the acquisition of Copper
Canyon Resources Ltd. (“
Copper Canyon
”) a junior exploration
company whose principal asset was its 40% joint venture interest in the Copper
Canyon copper-gold-silver property that is adjacent to the Galore Creek project.
A wholly-owned subsidiary of NovaGold holds the remaining 60% joint venture
interest in the Copper Canyon property which it has agreed to transfer to the
Galore Creek Partnership. Under the acquisition arrangement, NovaGold acquired
all of the issued and outstanding common shares of Copper Canyon which it did
not already hold. As a result, Copper Canyon is now a wholly-owned subsidiary
of NovaGold. NovaGold issued a total of 4,171,303 common shares under the arrangement,
representing approximately 1.7% of the number of NovaGold common shares then
outstanding and paid cash of $2,557,000. Under the arrangement, Copper Canyon
transferred to a new company, Omineca Mining and Metals Ltd. (“
Omineca
”),
substantially all of its assets other than certain cash and its 40% interest
in the Copper Canyon property. NovaGold holds and exercises control over an
aggregate of 1,725,858 common shares of Omineca, representing approximately
10.8% of Omineca’s outstanding common shares. The Omineca shares are being
held by NovaGold as a portfolio investment.
The Company has initiated closure activities at the Rock Creek
project with anticipated costs of approximately US$25 - $30 million. These costs
are expected to be incurred over two years starting in late 2011, with the majority
of the costs incurred in 2012.
The following description summarizes selected information about
the Company’s Donlin Gold and Galore Creek projects. Please refer
to the Company’s Annual Information Form for the fiscal year ended November
30, 2011, and the various NI 43-101 compliant reports referenced below for a
further description of these properties, including their location, accessibility,
climate, local resources, infrastructure, physiography, geological setting,
mineralization, past drilling programs and history.
Donlin Gold is an advanced-stage gold project held by Donlin
Gold LLC, a limited liability company that is owned 50% by the Company’s
wholly-owned subsidiary, NovaGold Resources Alaska, Inc. and 50% by Barrick’s
wholly-owned subsidiary, Barrick.
Certain scientific and technical information regarding Donlin Gold incorporated by reference in this Management
Proxy Circular is based on the technical report titled “Donlin Creek Gold Project Alaska, USA, NI 43-101 Technical
Report on Second Updated Feasibility Study” dated effective date of November 18, 2011, as amended January 20,
2012 (the “Donlin Gold FS”) prepared by Tony Lipiec, P.Eng., Gordon Seibel R.M. SME, and Kirk
Hanson P.E., and, all of whom are Qualified Persons as defined in NI 43-101. The Donlin Gold FS has
been filed with the securities regulatory authorities in each province of Canada and with the SEC. Portions of the
following information are based on assumptions, qualifications and procedures that are not fully described herein.
References should be made to the full text of the Donlin Gold FS which is available for review on
SEDAR located at
www.sedar.com
and on EDGAR at
www.sec.gov.
Donlin Gold is situated approximately 450 kilometers west of
Anchorage and 250 kilometers northeast of Bethel up the Kuskokwim River. The
Donlin Gold deposits lie in the central Kuskokwim basin of southwestern Alaska.
The Donlin Gold FS estimates Proven and Probable Mineral Reserves
for the Donlin Gold project shown in the table below.
Mineral Reserves have been estimated using a long-term gold price
assumption of US$975/oz. Mineral resources are based on a Whittle™ pit
optimized for all Measured, Indicated, and Inferred blocks assuming a gold selling
price of US$1,200/oz and are inclusive of reserves.
The Donlin Gold project retains significant exploration potential.
The mineral reserves are based on measured and indicated mineral resources.
The inferred mineral resource containing an estimated 6.0 million ounces of
gold within the resource pit shell is treated as waste but is available for
conversion to a higher confidence category during mining and represents upside
potential to the project economics.
There is also moderate-to-high potential for the known gold zones
to extend outside the pit shell. Many of these targets are close to the pit
floor in areas that could be mined without significantly increasing the strip
ratio or enlarging the pit footprint. Good potential exists for discovery of
significant deposits outside the current mine footprint. Several drilled prospects
and other exploration targets along the 6-km trend north of the resource area
remain under-explored. The future impact on the Donlin project of these exploration
targets depends on the location, geological complexity and capital cost. One
of the larger exploration targets, named Dome, may support a stand-alone operation.
The Project is expected to be a conventional truck-and-shovel
open-pit operation. The mine life is estimated to be 27 years based on a nominal
processing rate of 53,500 tonnes per day.
The infrastructure for the Project includes four main development
sites in remote locations: the Jungjuk port site, the mine and plant site area,
the permanent camp, and the airstrip. The plant site and fuel tank farm will
be on a ridge above the proposed tailings storage facility. The layout of the
plant site was designed to take maximum advantage of the natural topography.
The layout also provides for efficient movement of equipment and material products
around the site..
Natural gas will be delivered to site by a 500-kilometer long
12-inch diameter pipeline. It will serve as the energy source for on-site power
generation. This natural gas pipeline is a lower-cost alternative to the previously
considered barging of diesel fuel. Operating costs include importing liquefied
natural gas (“
LNG
”) by ship to Anchorage and total delivery
costs to site which includes ship based regasification of the LNG and delivery
from Anchorage to the Donlin Gold project via the pipeline. There may be an
opportunity in the future to source natural gas from within Alaska.
The ore from the Donlin Gold deposit will be crushed and then
milled using semi-autogenous grinding (“
SAG
”) and two-stage
ball mills. The gold-bearing sulphides will be recovered by flotation to produce
a concentrate representing 15.2% of the mass with an average gold grade of 12.7
g/t. The concentrate is refractory and will be treated in an autoclave prior
to cyanidation. Overall gold recovery from flotation, pressure oxidation and
Carbon-in-Leach is estimated at 89.8% . Excess acid from the autoclave circuit
will be neutralized with flotation tailings and slaked lime. Tailings from the process will be impounded in the tailings
storage facility, which will have zero-discharge during operations with water
reclaimed for re-use in the process plant.
The total capital cost estimate for Donlin Gold is US$6.7 billion
including costs related to the natural gas pipeline and a contingency of US$984
million. The project’s estimated after-tax net present value (NPV5%) is
US$547 million using the base case gold price of US$1,200 per ounce, $4.58 billion
using a gold price of US$1,700 per ounce and US$6.72 billion using a gold price
of US$2,000 per ounce. The corresponding IRR after-tax were estimated at 6.0%,
12.3% and 15.1% respectively. Donlin Gold, if put into production in accordance
with the Donlin Gold FS, would average 1.36 million ounces of gold production
in each of its first five years of operations at an average cash cost of US$409/oz
and would average 1.13 million ounces of gold per year over its projected 27
year mine life with an average cash cost of US$585 per ounce.
The mine operating cost estimates incorporate costs for operating
and maintenance labour, staff, and supplies for each year. Operating costs were
prepared based on conditions prevailing in second quarter 2011. Pre-production
costs have been capitalized and included in the capital cost estimate. A portion
of mine operating costs related to waste stripping will be deferred and, therefore,
are excluded from the calculation of cash costs in accordance with industry
standards.
The total estimated cost to design and build the Donlin Gold
project is estimated at US$6.7 billion, including an Owner-provided mining fleet
and Owner performed pre-development. The Donlin Gold FS capital cost estimate
was developed in accordance with Association for the Advancement of Cost Engineering
(AACE) Class 3 requirements, consisting of semi-detailed unit costs and assembly
line items. The level of accuracy for the estimate is -15% / +30% of estimated
final costs, per AACE Class 3 definition.
The contingency provided in the capital cost estimate is significant
at US$984 million representing 25% of direct costs. The contingency was selected
to provide an 85% probability of the capital cost being at or below the provided
estimate. This is an increase in confidence limit from the 2009 Feasibility
Study which utilized a 50% probability factor. The anticipated timeline for
mine construction is four years with the capital investment peaking in the third
year of the construction schedule. This estimate includes all costs, including
Owner’s costs and permitting, from January 1, 2012.
Sustaining capital requirements total US$1.5 billion over the
life of mine. Significant areas include US$649 million to replace and supplement
mobile mining and support equipment and US$631 million for periodic tailings
storage facility capacity expansions.
Other lands required for offsite infrastructure, such as required
for the Jungjuk port site, road to the port site and gas pipeline are categorized
as Native, State of Alaska conveyed, or Bureau of Land Management (“
BLM
”)
lands. Rights-of-way will be required from the State and BLM for the road and
pipeline alignments where they cross state and federal lands, respectively.
Since the beginning of NovaGold’s work at Donlin Gold, baseline
environmental studies have occurred. At the same time, a comprehensive program
of coordinating with the Federal and State permitting agencies as well as meeting
with village representatives has been conducted. This work has allowed Donlin
Gold to anticipate and plan for many of the potential issues that could arise
in the permitting process. Overall, the proposed project has been designed to
address these issues and minimize environmental impacts from construction through
closure. In October 2011, a Memorandum of Understanding (“
MOU
”)
was signed with the U.S Army Corps of Engineers, which will be the lead agency
for compliance with the National Environmental Policy Act (“
NEPA
”).
This MOU provides the framework for preparation of the environmental impact
statement (“
EIS
”). NovaGold believes that the EIS and permitting
processes for the Donlin Gold Project can be completed over a three-to-four-year
period.
Both Barrick and NovaGold have considerable experience in permitting
projects within Alaska and throughout the United States, and, it is proposed,
Donlin Gold will draw on their experience in order to efficiently manage the
permitting process. The permitting of the proposed mine, natural gas pipeline,
and port facilities will be fully integrated. Donlin Gold will continue to focus
on community and stakeholder relations as it advances through the permitting
process toward a construction decision on the project.
Reclamation plans for the project include land reclamation, construction
of the water treatment plant, long-term monitoring; and an associated facility
and access maintenance. All associated reclamation costs are included in the
financial analysis.
The Donlin Gold FS was compiled by AMEC. The independent Technical
Report and resource/reserve estimates, have been prepared in accordance with
the Standards of Disclosure for Mineral Projects as defined by National Instrument
43-101 of the Canadian Securities Administrators. Kirk Hanson, P.E., Technical
Director, Open Pit Mining, North America, (AMEC, Reno), Gordon Seibel, R.M.
SME., Principal Geologist, (AMEC, Reno), Tony Lipiec, P.Eng. Manager Process
Engineering (AMEC, Vancouver) are the Qualified Persons responsible for preparation
of the independent technical report, and have verified that the data from their
technical report is fairly and accurately disclosed herein.
Except for the information under the headings “Galore Creek
– Current Activities” or as otherwise stated, the scientific and technical
information in this Management Proxy Circular regarding the Galore Creek project
is based on the technical report titled “Galore Creek Copper-Gold Project
NI 43-101 Technical Report on Pre-Feasibility Study, British Columbia –
Canada” dated September 12, 2011 (the “
PFS
”) prepared
by Robert Gill, P.Eng., Jay Melnyk, P.Eng., Greg Wortman, P.Eng., Greg Kulla,
P.Geo., and Dana Rogers, P.E., all of whom are Qualified Persons as defined
in NI 43-101. The PFS has been filed with the securities regulatory authorities
in each province of Canada. Portions of the following information are based
on assumptions, qualifications and procedures which are not fully described
herein. Reference should be made to the full text of the PFS which is available
for review on SEDAR at www.sedar.com and on EDGAR at
www.sec.gov
.
All scientific and technical information regarding Copper Canyon has been prepared by, or under the supervision of
Erin Workman, a qualified person.
On August 1, 2007, the Company formed the Galore Creek Partnership
with Teck giving each of NovaGold and Teck a 50% interest in the Galore Creek
project. Teck was the sole funding partner until June 22, 2011 when it completed
its $373.3 million earn-in obligation. The activities of the Galore Creek Partnership
are being conducted by GCMC, an independent entity controlled equally by NovaGold
and Teck.
On February 11, 2009, NovaGold and Teck agreed to amend certain
provisions of the Partnership Agreement relating to the Galore Creek project.
The agreement confirms that NovaGold and Teck each continue to hold a 50% interest in the Galore Creek Partnership. Under the amended agreement,
Teck agreed to fund 100% of Galore Creek costs until the total amount contributed
by Teck after November 1, 2008, together with approximately $15.8 million previously
contributed by Teck on optimization studies, equalled $60.0 million. Teck would
have a casting vote on the Galore Creek Partnership’s Management Committee
with respect to the timing and nature of expenses to be solely funded by it.
Following Teck’s $60.0 million contribution, all further costs at Galore
Creek will be funded by Teck and NovaGold in accordance with their respective
Galore Creek Partnership interests and there will no longer be any casting vote
for either party. The new funding arrangements replace the funding arrangements
agreed by Teck and NovaGold in November 2007. In June 2011, Teck completed its
funding requirements of $373.3 million to earn its 50% interest in the Galore
Creek project.
The PFS estimates that the Galore Creek property has proven and
probable mineral reserves of 528 million tonnes grading 0.59% copper, 0.32 grams/tonne
gold and 6.02 grams/tonne silver for estimated contained metal of 6.8 billion
pounds of copper, 5.45 million ounces of gold and 102.1 million ounces of silver.
In addition, the property has estimated measured and indicated mineral resources
(exclusive of mineral reserves) of 286.7 million tonnes grading 0.33% copper,
0.27 grams/tonne gold and 3.64 grams/tonne silver for estimated contained metal
of 2.07 billion pounds of copper, 2.53 million ounces of gold and 33.54 million
ounces of silver, and estimated inferred mineral resources (exclusive of mineral
reserves) of 346.6 million tonnes grading 0.42% copper, 0.24 grams/tonne gold
and 4.28 grams/tonne silver for estimated contained metal of 3.23 billion pounds
of copper, 2.70 millions ounces of gold and 47.73 million ounces of silver.
The PFS estimates production of 5.95 billion pounds of copper, 3.85 million
ounces of gold and 56.1 million ounces of silver over an approximate 18 year
mine life with cash costs net of credits averaging $0.79 per pound copper at
base case prices. The total capital cost estimate for the Galore Creek project
came in at $5.2 billion dollars. Capital costs are estimated with an accuracy
range of +25% / -20% (including contingency). Closure costs of $88.7 million
have been included in the life of mine capital costs. The project’s estimated
net present value (NPV7%), using the PFS base case metal price assumptions set
forth below, was assessed at $837 million and $137 million on a pre-tax and
post-tax basis, respectively. The corresponding post-tax IRR of the project
was estimated at 7.4% . Using the July 27, 2011 current price case set forth
below, the pre-tax and post-tax NPV7% of the project were estimated at $4.7
billion and $2.7 billion, respectively, with a post-tax IRR estimated at 14%.
Base case metal prices used in the PFS were US$2.65/lb copper, US$1,100/oz gold
and US$18.50/oz silver with a foreign exchange rate of US$0.91 = Cdn$1.00. The
current metal prices used were closing prices on July 27, 2011 of US$4.44/lb
copper, US$1,613/oz gold and US$40.34/oz silver with a foreign exchange rate
of US$1.05 = Cdn$1.00. Mineral resources that are not mineral reserves do not
have demonstrated economic viability.
Mining of the Galore Creek deposit is planned as a conventional
truck-shovel open-pit mining operation with a nominal 95,000 tonne-per-day throughput.
Life of mine throughput average is estimated to be approximately 84,000 tonnes
per day due to the milling circuit constraining throughput as harder rocks are
encountered deeper in the open pits. The current 528 million tonne mineral reserve
estimate is expected to support a mine life of approximately 18 years. NovaGold
believes there is potential to extend the mine life with additional infill drilling
and exploration. Using a conventional grinding and flotation circuit, the mine
would produce a high-quality copper concentrate with significant gold and silver
credits.
On November 16, 2011, subsequent to the date of the PFS, NovaGold
announced that it is exploring opportunities to sell all or a part of its interest
in the Galore Creek Partnership.
The Galore Creek property is a large copper-gold-silver project
located in northwestern British Columbia. The main Galore Creek property, which
consists of the Southwest, Central, Junction and West Fork deposits, contains
most of the project’s known resources. The project consists of 264 mineral
claims, totalling 118,911.88 ha, held in the name of GCMC. Under an option agreement
(the “
Galore Creek Option Agreement
”) originally with subsidiaries
of Rio Tinto plc and Anglo American plc, the then shareholders of Stikine Copper
Limited, the owner of the core mineral claims at the Galore Creek project, NovaGold
could acquire 100% of such company. On June 1, 2007, the Company completed the
exercise of its option pursuant to the Galore Creek Option Agreement to purchase
100% of Stikine Copper Limited by paying the final US$12.5 million of a US$20.3
million purchase. NovaGold’s financial earn-in requirements under the Galore
Creek Option Agreement were satisfied and all of Stikine Copper’s assets
were purchased by NovaGold and have been transferred to the Galore Creek Partnership.
On February 13, 2006, the Company announced that it had entered
into a comprehensive agreement with the Tahltan Nation for their participation
in, and support of, the development of the Galore Creek project. Financial contributions
will be made by GCMC to the Tahltan Heritage Trust Fund which will be used to
mitigate any adverse social and cultural impacts of mine development. During
mine operations, Trust Fund payments are guaranteed to be no less than $1.0
million annually. Upon reaching certain agreed financial targets, and subject
to positive mine operating cash flow, the trust will receive the greater of
$1.0 million or a 0.5% to 1.0% NSR royalty each year. The agreement will remain
in effect throughout the life of the Galore Creek project and will be binding
on any future operator of the mine.
On May 23, 2007, NovaGold and Teck announced a 50/50 partnership
to develop the Galore Creek property. On August 1, 2007 the Galore Creek Partnership
was established to develop the Galore Creek mine and created GCMC, a jointly
controlled operating company. In October 2007, all Galore Creek claims held
by NovaGold Canada Inc. were transferred to GCMC. The project consists of 264
mineral claims, totalling 118,911.88 ha, held in the name of GCMC. Included
in this total are the five Grace claims that were acquired by GCMC from Barrick
as the successor company to Pioneer Metals Corporation on December 3, 2007.
At the adjoining Copper Canyon property, a wholly owned subsidiary of NovaGold,
holds 12 claims totalling 11,344 hectares (28,032 acres).
The Galore Creek project is located approximately 70 km west
of the Bob Quinn airstrip on Highway 37 and 150 km northeast of the port of
Stewart, and 370 km northwest of the town of Smithers, British Columbia, Canada.
The town of Smithers, is the nearest major supply centre and has an airport
with regularly scheduled flights to and from Vancouver, BC. The project is located
in the Stikine area, the nearest point on the Stikine River to the project is
the mouth of the Anuk River, about 16 km west of the camp. Most personnel, supplies,
and equipment are staged from the Bob Quinn airstrip, on the Stewart-Cassiar
Highway (Highway 37) and transported via helicopter to the Galore Creek camp.
Bob Quinn is serviced by contract flights from Smithers and Terrace, each of
which has daily flights from Vancouver. Flight time from Vancouver to Smithers/Terrace
is about 90 minutes, then an additional 45 minutes to Bob Quinn. The helicopter
flight from Bob Quinn to the Galore Creek camp is about 30 minutes.
Galore Creek is located in the humid continental climate zone
of coastal British Columbia and is characterized by cold winters and short,
cool, summers. Within the Galore Creek Valley, mean monthly temperatures range
from -8.2ºC during the winter to 12.4ºC during the summer, with January
and July typically being the coolest and warmest months, respectively. In the
Upper West More Valley area, monthly average temperatures range from -8.9ºC
in the winter to 7.9ºC in the summer. Precipitation begins to fall as snow
in early October and continues until the end of May. A basinal average precipitation
for the whole Galore Creek Valley watershed was estimated to be in the order
of 3,000 mm. June and July tend to receive the least amount of precipitation
on an annual basis (typically 40 to 60 mm of rain per month).
The project lies within a regional structure known as the Stikine
Arch. Medium to steep slopes characterize the local terrain in the central and
northern parts of the Galore Creek property. The surrounding topography is mountainous.
The elevation of the tree line is variable, but alpine vegetation predominates
above 1,100 m. The forests below consist of Balsam fir, Sitka spruce and cedar.
Alpine tundra is present at higher elevations.
The project is currently isolated from power and other public
infrastructure and is currently not accessible by road. Because of glaciers
covering the surrounding mountain passes, a large cross-section tunnel is needed
to provide long-term vehicular access into the Galore Creek valley and for mobilization
of individual component pieces of large mining equipment needed for mining the
ore body using open pit methods. The time and cost for driving a tunnel in new
and unexplored underground terrain is subject to many unknowns which could change
the outcome significantly. The same surface constraints that preclude building
a road into the site (i.e. severe topography, snowpack, glaciers and weather)
also limit the amount of borehole information, geologic mapping and other site
specific data that can be obtained so that subsurface conditions can be better
understood before tunnelling begins. Construction of the tunnel will most likely
fall on the critical path for development of the mine and thus represents a
significant cost and schedule risk for development of the Galore Creek property.
Within the ground holdings of GCMC, there is sufficient area
to allow construction of all required project infrastructure. Except for the
access corridor which is covered by the special use permit, all other infrastructure,
including the processing plant and tailings area in West More and for the Filter
Plant Area near Km 8 are located within GCMC’s mineral claims. GCMC intends
to file for mining leases to secure the surface rights for these areas, which
are held by the Crown. GCMC considers it a reasonable expectation that surface
rights usages will be granted to the project. Ample water supply is available
from surface and subsurface sources.
The main Galore Creek deposits lie in Stikinia, an accreted terrain
composed of tectonically juxtaposed Mesozoic volcano-stratigraphic successions.
The eastern boundary of the Coast Plutonic Complex lies about 7 km west of the
claim block. A suite of multiphase syenite intrusions cuts a section of flysch-basin
sedimentary strata and alkaline volcanic rocks of the middle to upper Triassic
Stuhini Group. The intrusive suite, centered in the West Fork area, forms a
north-northeast-trending belt 5 km long and 2 km wide and contains stocks, dikes
and extensive sills. The presence of numerous sub-volcanic syenite sills indicates
that the intrusions formed at a structurally high level. The spatial and temporal
association of the chemically similar intrusive and extrusive igneous rocks
indicates that the Galore Creek area is probably an eroded volcanic center.
The Galore Creek intrusions commonly follow two orientations, one northwest and the other northeast. Post-intrusion
and post-ore faulting follows these same orientations. Regionally, the Stuhini
section shows broad open folding. The mineralized section is less deformed,
so it is unclear whether the deformation occurred prior to, during, or subsequent
to mineralization.
Mineralization at Galore Creek occurs primarily in altered Triassic
alkalic lavas, volcano-sedimentary strata and, to a lesser degree, in alkalic
intrusions. Twelve copper-gold-silver mineralized zones have been identified
on the property. Alteration mineral assemblages at Galore Creek are somewhat
unique due to the near total lack of quartz in the volcanic and intrusive host
rocks. In general, the center of the district shows potassic alteration, including
potassium-feldspar, biotite and magnetite, with local concentrations of garnet.
Copper-sulfides are most closely associated with secondary biotite and magnetite.
A propylitic assemblage, including epidote, chlorite and pyrite occurs outboard
of the potassic assemblage.
Most of the mineralized zones contain evenly disseminated copper-sulfide
with little apparent control by stockwork or larger scale veining. The sulfide
assemblage generally includes chalcopyrite, bornite and pyrite. Uncertainty
exists whether the pyrite is auriferous, but strong magnetite commonly occurs
within gold-enriched zones. Higher gold values occur at the northern and southern
ends of the Central deposit. These higher gold values generally occur along
with elevated concentrations of bornite. Locally, as in the West Fork area,
massive magnetite-bornite-chalcopyrite mineralization contains bonanza grades
(>20% copper with significant precious metal values).
The sulfide minerals at Galore Creek are predominately gold-
and silver-bearing chalcopyrite, bornite and pyrite. A primary grind of 80%
passing 150 microns provides sufficient rougher flotation liberation to separate
the copper minerals from the pyrite and gangue. At this grind, the majority
of the gold is either free or associated with the copper sulfides. The proposed
treatment process uses conventional flotation to produce a precious-metal-bearing
copper concentrate.
Prior to 1964, drill core was halved and then split in 10 ft
(3 m) lengths. Samples were despatched to the now closed Coast Eldridge laboratory
in Vancouver for copper analysis. Gold analysis was completed on some intervals.
In 1964, a small assay laboratory was constructed on site and during the first
season of operation, processed 3,747 samples. Half of the split core was crushed
on site to ¼ inch (6.3 mm) then a 0.75 lb (340 g) split was separated using
a Jones splitter.
During the 1970s, the onsite laboratory at Galore Creek was still
in use. Half core samples were crushed to ½ inch (12.7 mm) and split to
obtain a 0.75 lb (340 g) sample. This was further crushed in a cone crusher
then placed in Kraft paper bags and shipped by air in locked metal boxes to
either the Kennco Exploration Laboratory in North Vancouver or Chemex Laboratory,
also in North Vancouver, for assay. Kennco Exploration Laboratory was used during
1972–1973, whereas the Chemex laboratory was used in 1974.
During the 1990 Mingold program, half of the split core was crushed
on site at the Galore Creek Laboratory to ¼ inch (6.35 mm) and a 300–325
g split was taken and shipped to the former Mineral Environments Laboratories
(Min-en Laboratories) in Smithers, BC for further processing and assaying.
All drill core from the 2003 through 2010 programs, except intervals
of overburden and till material, were sampled. Sample intervals were determined
by the geological relationships observed in the core and limited to a 3 m maximum
length and 1 m minimum length. An attempt was made to terminate sample intervals
at lithological and mineralization boundaries. Sampling was generally continuous
from the top to the bottom of the drill hole. When the hole was in unmineralized
rock, the sample length was generally 3 m, whereas in mineralized units, the
sample length was shortened to 2 m. All the drill core samples were split using
a rock saw. One half of the core was returned to its original box (5 ft or 1.5
m long wooden box) for long-term storage. The remaining half was sealed in a
polyethylene bag for direct shipment to the ALS Chemex laboratory in Vancouver,
BC for analysis.
In addition to the core, control samples were inserted into the
shipments at the approximate rate of one standard, one blank and one duplicate
per 20 core samples:
All assay analysis for the 2003 through 2007 programs was carried
out by ALS Chemex Labs of Vancouver, BC. Samples were logged into a tracking
system on arrival at ALS Chemex, and weighed. Samples were then crushed, dried,
and a 250 g split pulverized to greater than 85% passing 75 microns. Gold assays
were determined using fire analysis followed by an AAS finish. The lower detection
limit was 0.005 ppm Au; the upper limit was 1,000 ppm Au. An additional 34-element
suite was assayed by ICP_AES methodology, following nitric acid aqua regia digestion.
The copper analyses were completed by atomic absorption (AA), following a triple
acid digest.
Approximately 255,601 m has been drilled in 1,078 core holes
on the project since 1961. The drilling between 1961 and 1976 was for early-stage,
exploration-focused programs and for initial resource estimates. From 1990,
drilling was designed primarily to support Mineral Resource estimation, and
define deposit limits. In 2006, a minor amount of prospect and exploration drilling
occurred. Drilling at the Grace Claims has either been for exploration or condemnation
purposes; to date, no mineralization of significance has been outlined in drilling
on the claims. Below is a summary of the drill history of the project:
Most of this work has focused on the Central Zone, with lesser
amounts of work on eleven other target areas. Some zones have received only
reconnaissance drilling. During the 1970s, drilling was principally confined
to the Central Zone but nine holes were also drilled on the North Junction Zone.
Average core recovery in the Central Zone was between 75 and 85% with the poorest
recovery at depths between 60 and 90 meters where abundant open sheet fractures
were encountered. At depths below 90 meters core recovery approached 100%. In
the North Junction Zone recovery averaged around 60% due to shattered and sheared
sections encountered both near surface and at intervals throughout the holes.
In 1989-1990, Mingold, an Anglo American subsidiary, drilled holes on the Southwest
Zone (eight holes, 1,026 meters), the North Rim showing (six holes, 546 meters),
the Saddle Zone (two holes, 226 meters) and two reconnaissance holes. The 1991
drill program was mainly directed at areas peripheral to the Central Zone as
well as exploration holes located in the Southwest, Butte, North Rim and Dry
Creek Zones. Only six holes were drilled within the Central Zone itself.
The first drill program directed by NovaGold began in September
of 2003, and consisted of eight core holes targeting four broad areas of the
deposit: the North Gold Zone, South Gold Zone, Central Replacement Zone and
Southwest Zone. Drilling was focused on understanding the zonation and gold
variability of the deposit. This program was responsible for the discovery of
new mineralization, known as the Bountiful Zone, found at depth below the South
Gold Lens.
The 2006 drill program focused primarily on further definition
of the deep Bountiful mineralization discovered in 2003, further resource definition
along the western margin of the Central deposit and completion of condemnation
drilling on the Grace claims in the planned tailings disposal site. The program
drilled in excess of 36,200 meters in 67 drill holes and encountered significant
new mineralization in the Bountiful Zone, in the high-wall of the Central deposit
and down dip in the West Fork deposit. Additional geotechnical drilling in support
of mine development was also completed.
Wide-spaced drilling in the Bountiful Zone defined a sub-horizontal
zone occurring at roughly 300 meters depth and extending nearly 1,000 meters
in the north-south direction and 700 meters in the east-west direction. Drilling
indicates that typical widths in the Bountiful Zone are greater than 200 meters
on average and up to 500 meters in a few exceptional intervals. Drilling at
depth in the high-wall of the Central Zone extended mineralization from the
North Gold lens approximately 250 meters to the west. Additional drilling in
the Dendritic Creek area about 750 meters south of the North Gold lens shows
limited mineralization to the west and likely the limited loss of some previously
inferred mineralization. Drilling down dip along the north-dipping West Fork
deposit continued to expand mineralization to depth and toward the Bountiful
and Southwest deposits.
The 2007 drilling program for Galore Creek completed 15,000 meters
of follow-up and exploration drilling. Targets concentrated on optimization
of the mine schedule by targeting shallow moderate-grade resources that could displace low-grade stockpile material in years seven to nine
of operations. Additional exploration focused on scoping potentially high-grade
underground scenarios that could heighten the value of the project.
Drilling was carried out at three primary locations: Copper Canyon,
the Grace Claims and the Lower Butte Zone. Drilling at the Lower Butte Zone
suggests potential for resource additions. At the Copper Canyon deposit, drilling
focused on testing up-slope historical soil anomalies, testing higher-grade
targets discovered in 2006 and expanding on depth and lateral extensions of
the current resource. As a result of the drilling at Copper Canyon, NovaGold
has earned a 60% interest in the neighboring project. Significant additional
drilling was completed to test the geotechnical characteristics of planned pit
slopes, waste and tailings storage and water diversion facilities.
The 2008 diamond drilling program at Galore Creek was carried
out between June 25, 2008 and September 17, 2008. The program consisted of nine
diamond drill holes totalling 2,050 meters. The main objectives of the program
were to obtain important acid base accounting (“
ABA
”) data
in the Central, Southwest, North Junction and Junction pits, to confirm legacy
grades in the Junction pit, and to collect metallurgical data in the Central
pit for engineering design. Seven drill holes totalling 1,297 meters targeted
gaps in the ABA model, specifically along the pit boundaries of the Central
(South Gold Lens), Southwest and North Junction pits and within the core of
the Junction pit. Two drill holes totalling 752 meters were drilled for the
purpose of collecting metallurgical data in the chalcopyrite-rich Central Replacement
Zone and the chalcopyrite-bornite-rich North Gold Lens.
There were 9 drill holes, totaling 2,803 metres drilled into
the Central Zone during 2010 for resource infill and metallurgical testing purposes.
The Galore Creek project is host to seven under-explored copper-gold
prospects, five defined Mineral Resource areas, and numerous showings and conceptual
target areas.
The measured and indicated mineral resource for the Galore Creek
project (exclusive of mineral reserves) is estimated to total 286.7 million
tonnes grading 0.33% copper, 0.27 g/t gold and 3.64 g/t silver for a total estimated
metal content of 2,070 million pounds of copper, 2.53 million ounces of gold
and 33.54 million ounces of silver at an NSR cut-off grade of $10.08/t.
The updated inferred mineral resource (exclusive of mineral reserves),
excluding NovaGold’s 100% interest in the Copper Canyon project, is estimated
to total 346.6 million tonnes grading 0.42% copper, 0.24 g/t gold and 4.28 g/t
silver for a total estimated metal content of 3,230 million pounds of copper,
2.7 million ounces of gold and 47.7 million ounces of silver at an NSR cut-off
grade of $10.08/t.
The proven and probable reserve estimate for the Galore Creek
project totals 528.0 million tonnes grading 0.59% copper, 0.32 g/t gold and
6.02 g/t silver for a total estimated metal content of 6.8 billion pounds of
copper, 5.45 million ounces of gold and 102.1 million ounces of silver at an
NSR cut-off of $10.08/t.
Mineral Reserve Statement, Effective Date July 11, 2011
|
|
Tonnes
|
Diluted
Grade
|
Contained
|
|
|
(Mt)
|
Cu
(%)
|
Au
(g/t)
|
Ag
(g/t)
|
Cu
(Billion
pounds)
|
Au
(Million
ounces)
|
Ag
(Million
ounces)
|
|
Proven
|
69.0
|
0.61
|
0.52
|
4.94
|
0.9
|
1.15
|
11.0
|
|
Probable
|
459.1
|
0.58
|
0.29
|
6.18
|
5.9
|
4.30
|
91.2
|
|
Proven and Probable
|
528.0
|
0.59
|
0.32
|
6.02
|
6.8
|
5.45
|
102.1
|
Notes to Accompany Mineral Reserves Table
|
1.
|
Mineral Reserves are contained within Measured and Indicated
pit designs, and supported by a mine plan, featuring variable throughput
rates, stockpiling and cut-off optimization. The pit designs and mine
plan were optimized on diluted grades using the following economic and
technical parameters: Metal prices for copper, gold and silver of US$2.50/lb,
US$1,050/oz, and US$16.85/oz, respectively. Mining and ore based costs
(process, G&A and mine general) of $1.60/t mined and $10.08/t milled
respectively; an exchange rate of US$0.91 to Cdn$1.00; variable recovery
versus head grade relationships for both oxidized and non- oxidized material;
appropriate smelting, refining and transportation costs; and inter ramp
pit slope angles varying from 42º to 55º. See “
Cautionary
Note to United States Investors
”.
|
|
2.
|
Mineral Reserves are reported using a ‘cash flow
grade’ ($NSR/SAG mill hr) cut-off which was varied from year to year
in the scheduling process to optimize NPV. The cash flow grade is a function
of the NSR ($/t) and SAG mill throughput (t/hr). The net smelter return
(NSR) was calculated as follows: NSR = Recoverable Revenue – TCRC
(on a per tonne basis), where: NSR = Net Smelter Return; TCRC = Transportation
and Refining Costs; Recoverable Revenue = Revenue in Canadian dollars
for recoverable copper, recoverable gold, and recoverable silver using
the economic and technical parameters mentioned above. SAG throughputs
were modeled by correlation with alteration types.
|
|
3.
|
The life of mine strip ratio is 2.16.
|
|
4.
|
Rounding as required by reporting guidelines may result
in apparent summation differences between tonnes, grade and contained
metal content.
|
|
5.
|
Tonnage and grade measurements are in metric units.
Contained gold and silver ounces are reported as troy ounces, contained
copper pounds as imperial pounds. See “
Cautionary Note to United
States Investors
”.
|
H-18
Galore Creek – Construction
On June 5, 2007, NovaGold announced that it had received the
necessary Federal and Provincial authorizations and permits to allow NovaGold’s
Board of Directors to approve the start of construction at Galore Creek. Board
approval for construction activities was contingent on receiving full Provincial
and Federal authorization for the project. Federal authorization was posted
to the Canadian Environmental Assessment Registry on June 4, 2007.
On July 31, 2007, the Provincial Government announced the issuance
of a Mines Act permit for the Galore Creek project for construction of the access
tunnel. An interim permit issued on July 4, 2007 authorized limited blasting
to prepare and stabilize the rock face of the tunnel, as well as preparatory
work for the sediment ponds. Receipt of the new permit authorized completion
of the access road and tunnel and allowed for the start of earthworks in the
Galore Creek Valley.
Galore Creek – Construction Suspension
On November 26, 2007, the Company announced that NovaGold and
Teck had reached the decision to suspend construction activities at the Galore
Creek project. A review and completion of the first season of construction indicated
substantially higher capital costs and a longer construction schedule for the
project. This, combined with reduced operating margins as a result of the stronger
Canadian dollar, would make the project, as conceived and permitted, uneconomic
at then consensus long-term metal prices. NovaGold and Teck continue to view
the property as a substantial resource and are working to identify an alternative
development strategy that may allow for the resumption of construction.
Prior to the suspension of construction, substantial work was
completed at Galore Creek, including clearing 80% of the 135-kilometer road
right-of-way, completing 66 kilometers of pioneer road, installing a number
of key bridges and initiating work on the road access tunnel into the Galore
Creek Valley. During the construction suspension and optimization period, the
partners have maintained and intend to continue to maintain the existing infrastructure.
While permits granted for the original project design remain
in place, the alternative project design will require new or additional permits
before construction can resume.
Galore Creek – Environmental Assessment and Permitting
The Galore Creek Project received its Environmental Assessment
(“
EA
”) approval in February 2007. The project’s first
permits were obtained in May 2007, and in June 2007, GCMC received final Federal
approval.
The new project design and configuration is different from the
design that was permitted under the original EA Certificate and that received
Federal approval. Some of the most significant changes are:
-
Better understanding of geochemistry, resulting in a different approach
to waste rock and tailings management;
-
Simplified waste and water management strategy in the Galore Creek Valley
plant site and tailings relocated outside of the Galore Creek Valley, in
a new previously unaffected watershed (West More);
-
Deletion of 30 km section of access road down the Sphaler Valley to Porcupine
and the Scott Simpson Valley, significantly reducing potential environmental
impacts and geohazards;
-
Deletion of the airstrip that was to be constructed in the Porcupine Valley;
and
-
Addition of new loadout facilities at the Port of Stewart.
While the new configuration is considered an improvement, with
reduced overall environmental impacts, it is anticipated that a new EA process
will be requested by the regulators. This will involve parallel and harmonized
reviews by both the BC Environmental Assessment Office (BCEAO) and the Canadian
Environmental Assessment Agency (“
CEAA
”). A comprehensive study
report will be required through CEAA. It is anticipated that the entire EA review
process will require two full years from submission of a project description
to issuance of a new EA Certificate (by the BC government) and a decision by
the federal Minister of Environment.
H-19
The existing Special Use Permit (SUP) for construction of the
access road remains valid as long as there are no proposed changes to the SUP,
thereby permitting GCMC to continue to build the access road. While there will
eventually be changes to the SUP to accommodate the new mine design configuration,
that relevant portion of the access road can be excluded from a new EA as long
as any SUP mitigation plan measures (e.g., fish compensation and PAG rock management
plans) are implemented. Changes to the current SUP will ultimately be required
around the new tailings storage facility, plus a branch to the south portal
of the tunnel to the Galore Creek Valley. An amendment to make these changes
will be applied for once the EA process has been completed.
Existing permits associated with the existing construction camps,
including water use and waste discharge, will continue to be maintained. All
other project permits will have to be applied for following completion of the
EA process, although the time-critical permits, such as those needed for starting
the tunnelling can be prepared concurrent with the EA such that there should
be little lag time following EA certification before tunnelling could begin.
Galore Creek – Current Activities
The PFS identified opportunities to extend the mine life, improve
the production profile, and potentially reduce the capital requirements of the
Galore Creek base case scenario. Further work has subsequently been completed
to move forward with an enhanced project plan for the project description required
for permitting and to support a feasibility decision (the “
Enhanced
Plan
”). The Enhanced Plan includes an assessment of an increased production
profile and potential extension of the mine life as well as a possible reduction
of initial capital cost. The Enhanced Plan will provide the basis for the Company
and Teck to consider proceeding to a feasibility study and permitting.
NovaGold announced on November 16, 2011, that it is exploring opportunities to sell all or a part of its interest in
the Galore Creek Partnership.
RISK FACTORS
The following risk factors, as well as risks not currently
known to the Company, could materially adversely affect the Company’s future
business, operations and financial condition and could cause them to differ
materially from the estimates described in forward-looking statements relating
to the Company, or its business, property or financial results.
NovaGold has no history of commercially producing precious
or base metals from its mineral exploration properties and there can be no assurance
that it will successfully establish mining operations or profitably produce
precious or base metals.
None of NovaGold’s mineral properties are in production,
NovaGold has no history of commercially producing precious or base metals from
its current portfolio of mineral exploration properties, and the Company has
no ongoing mining operations or revenue from mining operations. Mineral exploration
and development involves a high degree of risk and few properties that are explored
are ultimately developed into producing mines. None of the Company’s properties
are currently under construction. The future development of any properties found
to be economically feasible will require obtaining permits and financing and
the construction and operation of mines, processing plants and related infrastructure,
including road access. As a result, NovaGold is subject to all of the risks
associated with establishing new mining operations and business enterprises,
including:
-
the timing and cost, which can be considerable, of the construction of mining
and processing facilities and related infrastructure;
-
the availability and cost of skilled labor and mining equipment;
-
the availability and cost of appropriate smelting and/or refining arrangements;
-
the need to obtain necessary environmental and other governmental approvals
and permits, and the timing of those approvals and permits;
-
the availability of funds to finance construction and development activities;
-
potential opposition from non-governmental organizations, environmental
groups or local groups which may delay or prevent development activities;
and
-
potential increases in construction and operating costs due to changes in
the cost of fuel, power, materials and supplies and foreign exchange rates.
H-20
The costs, timing and complexities of mine construction and development
are increased by the remote location of the Company’s mining properties,
with additional challenges related thereto, including road access, water and
power supply and other support infrastructure. Cost estimates may increase significantly
as more detailed engineering work and studies are completed on a project. It
is common in new mining operations to experience unexpected costs, problems
and delays during development, construction and mine start-up. In addition,
delays in the commencement of mineral production often occur. Accordingly, there
are no assurances that the Company’s activities will result in profitable
mining operations or that the Company will successfully establish mining operations
or profitably produce precious or base metals at any of its properties.
In addition, there is no assurance that the Company’s mineral
exploration activities will result in any discoveries of new bodies of ore.
If further mineralization is discovered there is also no assurance that the
ore body would be economical for commercial production. Discovery of mineral
deposits is dependent upon a number of factors and significantly influenced
by the technical skill of the exploration personnel involved. The commercial
viability of a mineral deposit is also dependent upon a number of factors which
are beyond the Company’s control, including the attributes of the deposit,
commodity prices, government policies and regulation and environmental protection.
Actual capital costs, operating costs, production and economic
returns may differ significantly from those NovaGold has anticipated and there
are no assurances that any future development activities will result in profitable
mining operations.
The capital costs to take the Company’s projects into production
may be significantly higher than anticipated. Escalation of costs was a significant
factor in the decisions to suspend construction at Galore Creek in 2007 and
commissioning at Rock Creek. On December 5, 2011, the Company announced total
capital cost estimates for the Donlin Gold project of approximately US$6.7 billion
including costs related to the natural gas pipeline. The previous capital cost
estimate for the project released in April 2009 was US$4.5 billion and did not
include a natural gas pipeline.
None of the Company’s mineral properties have an operating
history upon which the Company can base estimates of future operating costs.
Decisions about the development of these and other mineral properties will ultimately
be based upon feasibility studies. Feasibility studies derive estimates of cash
operating costs based upon, among other things:
-
anticipated tonnage, grades and metallurgical characteristics of the ore
to be mined and processed;
-
anticipated recovery rates of gold, copper and other metals from the ore;
-
cash operating costs of comparable facilities and equipment; and
-
anticipated climatic conditions.
Capital costs, operating costs, production and economic returns,
and other estimates contained in studies or estimates prepared by or for the
Company may differ significantly from those anticipated by NovaGold’s current
studies and estimates, and there can be no assurance that the Company’s
actual operating costs will not be higher than currently anticipated.
The figures for NovaGold’s resources and reserves
are estimates based on interpretation and assumptions and may yield less mineral
production under actual conditions than is currently estimated.
Unless otherwise indicated, mineralization figures presented
in this Management Proxy Circular and in the Company’s other filings with
securities regulatory authorities, press releases and other public statements
that may be made from time to time are based upon estimates made by Company
personnel and independent geologists. These estimates are imprecise and depend
upon geologic interpretation and statistical inferences drawn from drilling
and sampling analysis, which may prove to be unreliable. There can be no assurance
that:
-
these estimates will be accurate;
-
reserve, resource or other mineralization figures will be accurate; or
-
this mineralization could be mined or processed profitably.
H-21
Because the Company has not commenced commercial production at
any of its properties, mineralization estimates for the Company’s properties
may require adjustments or downward revisions based upon further exploration
or development work or actual production experience. In addition, the grade
of ore ultimately mined, if any, may differ from that indicated by drilling
results. There can be no assurance that minerals recovered in small-scale tests
will be duplicated in large-scale tests under on-site conditions or in production
scale.
The estimating of mineral reserves and mineral resources is a
subjective process that relies on the judgment of the persons preparing the
estimates. The process relies on the quantity and quality of available data
and is based on knowledge, mining experience, analysis of drilling results and
industry practices. Valid estimates made at a given time may significantly change
when new information becomes available. By their nature, mineral resource and
reserve estimates are imprecise and depend, to a certain extent, upon analysis
of drilling results and statistical inferences that may ultimately prove to
be inaccurate. There can be no assurances that actual results will meet the
estimates contained in studies. As well, further studies are required.
Estimated mineral reserves or mineral resources may have to be
recalculated based on changes in metal prices, further exploration or development
activity or actual production experience. This could materially and adversely
affect estimates of the volume or grade of mineralization, estimated recovery
rates or other important factors that influence mineral reserve or mineral resource
estimates. The extent to which mineral resources may ultimately be reclassified
as mineral reserves is dependent upon the demonstration of their profitable
recovery. Any material changes in mineral resource estimates and grades of mineralization
will affect the economic viability of placing a property into production and
a property’s return on capital. The Company cannot provide assurance that
mineralization can be mined or processed profitably.
The resource and reserve estimates contained in this Management
Proxy Circular have been determined and valued based on assumed future prices,
cut-off grades and operating costs that may prove to be inaccurate. Extended
declines in market prices for gold, silver and copper may render portions of
the Company’s mineralization uneconomic and result in reduced reported
mineralization. Any material reductions in estimates of mineralization, or of
the Company’s ability to extract this mineralization, could have a material
adverse effect on NovaGold’s results of operations or financial condition.
The Company has established the presence of proven and probable
reserves only at its Donlin Gold and Galore Creek properties. There can be no
assurance that any resource estimates for the Company’s mineral projects
will ultimately be reclassified as mineral reserves. There can be no assurance
that subsequent testing or future studies will establish proven and probable
reserves at the Company’s other properties. The failure to establish proven
and probable reserves could restrict the Company’s ability to successfully
implement its strategies for long-term growth and could impact future cash flows,
earnings, results of operation and financial condition.
NovaGold’s ability to continue its exploration activities
and any future development activities, and to continue as a going concern, will
depend in part on its ability to commence production and generate material revenues
or to obtain suitable financing.
NovaGold has limited financial resources. The Company intends
to fund its plan of operations from working capital, the proceeds of financings
and revenue from land and gravel sales. In the future, the Company’s ability
to continue its exploration and development activities, if any, will depend
in part on the Company’s ability to obtain suitable financing. Any unexpected
costs, problems or delays could severely impact the Company’s ability to
continue exploration and development activities.
There can be no assurance that the Company will commence production
at any of its mineral properties or generate sufficient revenues to meet its
obligations as they become due or obtain necessary financing on acceptable terms,
if at all. The Company’s failure to meet its ongoing obligations on a timely
basis could result in the loss or substantial dilution of the Company’s
interests (as existing or as proposed to be acquired) in its properties. In
addition, should the Company incur significant losses in future periods, it
may be unable to continue as a going concern, and realization of assets and
settlement of liabilities in other than the normal course of business may be
at amounts materially different than the Company’s estimates.
H-22
NovaGold will require external financing or may need to
enter into a strategic alliance or sell property interests to develop its mineral
properties.
The Company will need external financing to develop and construct
the Donlin Gold project and, if applicable, the Galore Creek project, and to fund the exploration and development
of the Company’s other mineral properties. The mineral properties that
the Company is likely to develop are expected to require significant capital
expenditures. The sources of external financing that the Company may use for
these purposes include project or bank financing, or public or private offerings
of equity or debt. In addition, the Company may enter into a strategic alliance,
decide to sell certain property interests, and may utilize one or a combination
of all these alternatives. There can be no assurance that the financing alternative
chosen by the Company will be available on acceptable terms, or at all. The
failure to obtain financing could have a material adverse effect on the Company’s
growth strategy and results of operations and financial condition. In addition,
the Company may have to postpone further exploration or development of, or sell,
one or more of its properties.
NovaGold is dependent on third parties that participate
in or are responsible for exploration and development on its properties.
NovaGold’s success may be dependent on the efforts and expertise
of third parties with whom the Company has contracted. Most of the properties
in which NovaGold holds interests are subject to third party contracts. With
respect to each of Donlin Gold and Galore Creek, the Company holds a 50% interest
and the remaining 50% interest is held by a third party that is not under NovaGold’s
control or direction. The Company is dependent on such third parties for accurate
information relating to its mining properties and related assets and the progress
and development of such properties and assets. A third party may also be in
default of its agreement with NovaGold, without the Company’s knowledge,
which may put the property and related assets at risk. Third parties may also
have different priorities which could impact the timing of development of Donlin
Gold and Galore Creek.
NovaGold is exposed to credit, liquidity, interest rate
and currency risk.
Credit risk is the risk of an unexpected loss if a customer or
third party to a financial instrument fails to meet its contractual obligations.
The Company’s cash equivalents and short-term investments are held through
large Canadian financial institutions. Short-term and long-term investments
(including those presented as part of cash and cash equivalents) are composed
of financial instruments issued by Canadian banks and companies with high investment-grade
ratings. These investments mature at various dates over the current operating
period. The Company’s HST and other receivables consist of general sales
tax due from the Federal Government of Canada and amounts due from related parties.
The carrying amount of financial assets recorded in the financial statements,
net of any allowances for losses, represents the Company’s maximum exposure
to credit risk.
Liquidity risk is the risk that the Company will not be able
to meet its financial obligations as they come due. The Company manages liquidity
risk through the management of its capital structure and financial leverage.
Accounts payable, accrued liabilities and coupon interest on the convertible
notes are due within one year from the balance sheet date.
Interest rate risk is the risk that the fair value or future
cash flows of a financial instrument will fluctuate because of changes in market
interest rates. The risk that the Company will realize a loss as a result of
a decline in the fair value of the short-term investments included in cash and
cash equivalents is limited because these investments, although available-for-sale,
are generally held to maturity. In respect of financial liabilities, the bridge
loan, convertible notes and capital leases are not subject to interest rate
risk because they are at fixed rates. 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 November 30, 2011, and assuming that all other variables remain constant,
a 1% change in the U.S. prime rate would result in an increase/decrease of $0.6
million in the interest accrued by the Company per annum.
The Company is exposed to the financial risk related to the fluctuation
of foreign exchange rates. The Company operates in Canada and the United States
and a portion of its expenses are incurred in U.S. dollars. A significant change
in the currency exchange rates between the Canadian dollar relative to the U.S.
dollar could have an effect on the Company’s results of operations, financial
position or cash flows. The Company has not hedged its exposure to currency
fluctuations. Based on the Company’s net exposures as at November 30, 2011,
and assuming that all other variables remain constant, a 10% depreciation or appreciation
of the Canadian dollar against the U.S. dollar would result in an increase/decrease
of $6.5 million in the Company’s net earnings before tax.
H-23
General economic conditions may adversely affect the Company’s
growth, future profitability and ability to finance.
The unprecedented events in global financial markets in the past
several years have had a profound impact on the global economy. Many industries,
including the mining industry, are impacted by these market conditions. Some
of the key impacts of the current financial market turmoil include contraction
in credit markets resulting in a widening of credit risk, devaluations, high
volatility in global equity, commodity, foreign exchange and precious metal
markets and a lack of market liquidity. A worsening or slowdown in the financial
markets or other economic conditions, including but not limited to, consumer
spending, employment rates, business conditions, inflation, fuel and energy
costs, consumer debt levels, lack of available credit, the state of the financial
markets, interest rates and tax rates, may adversely affect the Company’s
growth and ability to finance. Specifically:
-
the global credit/liquidity crisis could impact the cost and availability
of financing and the Company’s overall liquidity;
-
the volatility of metal prices would impact the Company’s revenues,
profits, losses and cash flow;
-
negative economic pressures could adversely impact demand for the Company’s
production;
-
construction related costs could increase and adversely affect the economics
of any of the Company’s projects;
-
volatile energy, commodity and consumables prices and currency exchange
rates would impact the Company’s production costs; and
-
the devaluation and volatility of global stock markets would impact the
valuation of the Company’s equity and other securities.
Significant uncertainty exists related to inferred mineral
resources.
There is a risk that inferred mineral resources referred to in
this Management Proxy Circular cannot be converted into measured or indicated
mineral resources as there may be limited ability to assess geological continuity.
Due to the uncertainty relating to inferred mineral resources, there is no assurance
that inferred mineral resources will be upgraded to resources with sufficient
geological continuity to constitute measured and indicated resources as a result
of continued exploration. See
“Cautionary Note to United States Investors”
.
Lack of infrastructure could delay or prevent NovaGold
from developing advanced projects.
Completion of the development of the Company’s advanced
projects is subject to various requirements, including the availability and
timing of acceptable arrangements for power, water, transportation, access and
facilities. The lack of availability on acceptable terms or the delay in the
availability of any one or more of these items could prevent or delay development
of the Company’s advanced projects. There can be no assurance that adequate
infrastructure, including road access, will be built, that it will be built
in a timely manner or that the cost of such infrastructure will be reasonable
or that it will sufficiently satisfy the requirements of the advanced projects.
If adequate infrastructure is not available in a timely manner, there can be
no assurance that:
-
the development of the Company’s projects will be commenced or completed
on a timely basis, if at all;
-
the resulting operations will achieve the anticipated production volume;
or
-
the construction costs and ongoing operating costs associated with the development
of the Company’s advanced projects will not be higher than anticipated.
Access to Donlin Gold and Galore Creek is limited and there is
no infrastructure in the respective areas.
Furthermore, at Galore Creek, a minimum 13.6 km long, 9.5 m diameter
tunnel is needed for vehicular access into the Galore Creek valley. Tunnels
are high risk undertakings and in the case of Galore Creek, tunnelling risks
are further exacerbated by deep cover and restricted access for gathering necessary
geotechnical data. Cost and schedule estimates may increase significantly as more detailed
engineering work and geotechnical studies are completed.
H-24
Mining is inherently dangerous and subject to conditions
or events beyond NovaGold’s control, which could have a material adverse
effect on NovaGold’s business.
Mining involves various types of risks and hazards, including:
-
environmental hazards;
-
industrial accidents;
-
metallurgical and other processing problems;
-
unusual or unexpected rock formations;
-
structural cave-ins or slides;
-
flooding;
-
fires;
-
power outages;
-
labour disruptions;
-
explosions;
-
landslides and avalanches;
-
mechanical equipment and facility performance problems;
-
availability of materials and equipment;
-
metals losses; and
-
periodic interruptions due to inclement or hazardous weather conditions.
These risks could result in damage to, or destruction of, mineral
properties, production facilities or other properties; personal injury or death,
including to employees; environmental damage; delays in mining; increased production
costs; asset write downs; monetary losses; and possible legal liability. The
Company may not be able to obtain insurance to cover these risks at economically
feasible premiums or at all. Insurance against certain environmental risks,
including potential liability for pollution or other hazards as a result of
the disposal of waste products occurring from production, is not generally available
to the Company or to other companies within the mining industry. The Company
may suffer a material adverse impact on its business if it incurs losses related
to any significant events that are not covered by its insurance policies.
Exploration, construction and production activities may be limited
and delayed by inclement weather and shortened exploration, construction and
development seasons.
NovaGold requires various permits to conduct its current
and anticipated future operations, and delays or a failure to obtain such permits,
or a failure to comply with the terms of any such permits that NovaGold has
obtained, could have a material adverse impact on NovaGold.
The Company’s current and anticipated future operations,
including further exploration and development activities and commencement of
production on the Company’s properties, require permits from various United
States and Canadian federal, state, provincial, territorial and local governmental
authorities. There can be no assurance that all permits that the Company requires
for the construction of mining facilities and to conduct mining operations will
be obtainable on reasonable terms, or at all. Delays or a failure to obtain
such permits, or a failure to comply with the terms of any such permits that
the Company has obtained, could have a material adverse impact on the Company.
The duration and success of efforts to obtain and renew permits
are contingent upon many variables not within the Company’s control. Shortage
of qualified and experienced personnel in the various levels of government could
result in delays or inefficiencies. Backlog within the permitting agencies could
affect the permitting timeline of the various projects. Other factors that could
affect the permitting timeline include (i) the number of other large-scale projects
currently in a more advanced stage of development which could slow down the
review process and (ii) significant public response regarding a specific project.
As well, it can be difficult to assess what specific permitting requirements
will ultimately apply to all the projects.
H-25
Changes in the market price of gold, copper and other metals,
which in the past have fluctuated widely, affect the financial condition of
NovaGold.
The Company’s profitability and long-term viability depend,
in large part, upon the market price of gold, copper and other metals and minerals
produced from the Company’s mineral properties. The market price of gold
and other metals is volatile and is impacted by numerous factors beyond the
Company’s control, including:
-
global or regional consumption patterns;
-
expectations with respect to the rate of inflation;
-
the relative strength of the U.S. dollar and certain other currencies;
-
interest rates;
-
global or regional political or economic conditions, including interest
rates and currency values;
-
supply and demand for jewellery and industrial products containing metals;
and
-
sales by central banks and other holders, speculators and producers of metals
in response to any of the above factors.
The Company cannot predict the effect of these factors on metal
prices. A decrease in the market price of gold, copper and other metals could
affect the Company’s ability to finance the development of the Donlin Gold
and Galore Creek projects and the exploration and development of the Company’s
other mineral properties, which would have a material adverse effect on the
Company’s financial condition and results of operations. There can be no
assurance that the market price of gold, copper and other metals will remain
at current levels or that such prices will improve. In particular, an increase
in worldwide supply, and consequent downward pressure on prices, may result
over the longer term from increased production from mines developed or expanded
as a result of current metal price levels. There is no assurance that if commercial
quantities of gold, copper and other metals are discovered, that a profitable
market may exist or continue to exist for a production decision to be made or
for the ultimate sale of the metals. As the Company is not currently in production,
no sensitivity analysis for price changes has been provided or carried out.
The Company is subject to significant governmental regulation.
The Company’s operations and exploration and development
activities in Canada and the United Stated are subject to extensive federal,
state, provincial, territorial and local laws and regulations governing various
matters, including:
-
environmental protection;
-
management and use of toxic substances and explosives;
-
management of tailings and other wastes generated by the Company’s
operations;
-
management of natural resources;
-
exploration and development of mines, production and post-closure reclamation;
-
exports;
-
price controls;
-
taxation and mining royalties;
-
regulations concerning business dealings with native groups;
-
management of tailing and other waste generated by operations;
-
labor standards and occupational health and safety, including mine safety;
and
-
historic and cultural preservation.
Failure to comply with applicable laws and regulations may result
in civil or criminal fines or penalties or enforcement actions, including orders
issued by regulatory or judicial authorities enjoining, curtailing or closing
operations or requiring corrective measures, installation of additional equipment
or remedial actions, any of which could result in the Company incurring significant
expenditures. The Company may also be required to compensate private parties
suffering loss or damage by reason of a breach of such laws, regulations or
permitting requirements. It is also possible that future laws and regulations,
or a more stringent enforcement of current laws and regulations by governmental
authorities, could cause additional expense, capital expenditures, restrictions
on or suspensions of the Company’s operations and delays in the exploration
and development of the Company’s properties.
H-26
NovaGold’s activities are subject to environmental
laws and regulations that may increase the Company’s costs of doing business
and restrict its operations.
All of the Company’s exploration, potential development
and production activities in Canada and the United States are subject to regulation
by governmental agencies under various environmental laws. To the extent that
the Company conducts exploration activities or undertakes new mining activities
in other foreign countries, the Company will also be subject to environmental
laws and regulations in those jurisdictions. These laws address emissions into
the air, discharges into water, management of waste, management of hazardous
substances, protection of natural resources, antiquities and endangered species,
and reclamation of lands disturbed by mining operations. Environmental legislation
in many countries is evolving and the trend has been toward stricter standards
and enforcement, increased fines and penalties for non-compliance, more stringent
environmental assessments of proposed projects and increasing responsibility
for companies and their officers, directors and employees. Compliance with environmental
laws and regulations may require significant capital outlays on behalf of the
Company and may cause material changes or delays in the Company’s intended
activities. There can be no assurance that future changes in environmental regulations
will not adversely affect the Company’s business, and it is possible that
future changes in these laws or regulations could have a significant adverse
impact on some portion of the Company’s business, causing the Company to
re-evaluate those activities at that time.
Environmental hazards may exist on the Company’s properties
that are unknown to the Company at the present time, and that have been caused
by previous owners or operators or that may have occurred naturally. The Company
may be liable for remediating such damage.
Failure to comply with applicable environmental laws, regulations
and permitting requirements may result in enforcement actions thereunder, including
orders issued by regulator or judicial authorities, causing operations to cease
or to be curtailed, and may include corrective measures requiring capital expenditures,
installation of additional equipment or remedial actions.
NovaGold has ongoing reclamation on some of its mineral
properties and may be required to fund additional work that could have a material
adverse effect on its financial position.
Land reclamation requirements are generally imposed on mineral
exploration companies (as well as companies with mining operations) in order
to minimize long term effects of land disturbance. Reclamation may include requirements
to:
-
treat ground and surface water to drinking water standards;
-
control dispersion of potentially deleterious effluents; and
-
reasonably re-establish pre-disturbance land forms and vegetation.
The Company’s Rock Creek and Galore Creek projects and its
lands and properties around the Nome area have been subject to either historical
mining operations or exploration activities by prior owners. AGC carried out
mining operations for many years in the Nome area before NovaGold acquired the
company. On acquisition, the Company set up a provision for reclamation work
and the Company has been actively remediating the property against prior activities.
The Company has also been carrying out certain remediation against previous
exploration activities at its Galore Creek property. Financial resources spent
on reclamation might otherwise be spent on further exploration and development
programs. In addition, regulatory changes could increase the Company’s
obligations to perform reclamation and mine closing activities. There can be
no assurance that the Company will not be required to fund additional reclamation
work at these sites that could have a material adverse effect on the Company’s
financial position.
Title and other rights to NovaGold’s mineral properties
cannot be guaranteed, are subject to agreements with other parties and may be
subject to prior unregistered agreements, transfers or claims and other defects.
The Company cannot guarantee that title to its properties will
not be challenged. The Company may not have, or may not be able to obtain, all
necessary surface rights to develop a property. Title insurance is generally
not available for mineral properties and the Company’s ability to ensure
that it has obtained secure claim to individual mineral properties or mining concessions may be severely constrained.
The Company’s mineral properties may be subject to prior unregistered agreements,
transfers or claims, and title may be affected by, among other things, undetected
defects. The Company has not conducted surveys of all of the claims in which
it holds direct or indirect interests. A successful challenge to the precise
area and location of these claims could result in the Company being unable to
operate on its properties as permitted or being unable to enforce its rights
with respect to its properties. This could result in the Company not being compensated
for its prior expenditure relating to the property.
H-27
In addition, the ability of the Company to continue to explore
and develop the property may be subject to agreements with other third parties
including agreements with native corporations and first nations groups, for
instance, the Company’s subsurface and surface rights at the Donlin Gold
property are subject to a lease from Calista and TKC, two Native Alaskan corporations.
There is uncertainty related to unsettled aboriginal rights
and title in British Columbia and this may adversely impact NovaGold’s
operations and profit.
Native land claims in British Columbia remain the subject of
active debate and litigation. The Galore Creek project lies within the traditional
territory of the Tahltan Nation and the Tahltan – like the majority of
British Columbia’s First Nations – have not concluded a comprehensive
treaty or land claims settlement regarding their traditional territories. There
can be no guarantee that the unsettled nature of land claims in British Columbia
will not create delays in project approval or unexpected interruptions in project
progress, or result in additional costs to advance the project.
NovaGold has a history of losses and expects to incur losses
for the foreseeable future.
The Company has incurred losses since its inception and the Company
expects to continue to incur losses unless and until such time as one or more
of its properties enter into commercial production and generate sufficient revenues
to fund continuing operations. The Company incurred losses attributable to shareholders
of $153.2 million for the year ended November 30, 2011.
The development of the Company’s properties will require
the commitment of substantial financial resources. The amount and timing of
expenditures will depend on a number of factors, including the progress of ongoing
exploration and development, the results of consultant analysis and recommendations,
the rate at which operating losses are incurred, the execution of any joint
venture agreements with strategic partners, and the Company’s acquisition
of additional properties, some of which are beyond the Company’s control.
There can be no assurance that the Company will ever achieve profitability.
NovaGold may be subject to legal proceedings.
Due to the nature of its business, the Company may be subject
to numerous regulatory investigations, claims, lawsuits and other proceedings
in the ordinary course of its business. The results of these legal proceedings
cannot be predicted with certainty due to the uncertainty inherent in litigation,
including the effects of discovery of new evidence or advancement of new legal
theories, the difficulty of predicting decisions of judges and juries and the
possibility that decisions may be reversed on appeal. There can be no assurances
that these matters will not have a material adverse effect on the Company’s
business.
An event of default under the Company’s unsecured
senior convertible notes (the “Notes”) may significantly reduce NovaGold’s
liquidity and adversely affect NovaGold’s business.
Under the base indenture and supplemental indenture governing
the Notes, NovaGold made various covenants to the trustee on behalf of the holders
of the Notes, including to make payments of interest and principal when due
and, upon undergoing a fundamental change, to offer to purchase all of the outstanding
Notes. The indenture is available for review on SEDAR at www.sedar.com and on
EDGAR at www.sec.gov.
H-28
If there is an event of default under the Notes, the principal
amount of the Notes, plus accrued and unpaid interest, if any, may be declared
immediately due and payable. If such an event occurs, NovaGold could lose its
properties and NovaGold’s shareholders could lose their entire investment.
The Company’s majority shareholder has significant
influence on the Company and may also effect the market price and liquidity
of the Securities.
Electrum Strategic Resources LLC (“
Electrum
”)
is the single major shareholder of the Company, controlling approximately 19%
of the outstanding voting securities and warrants exercisable for 32,737,278
Company common shares which, if exercised would increase its holdings a
further 9% if no other shares were issued. Electrum also has certain
rights to participate in any future equity offerings by the Company. Accordingly,
Electrum will have significant influence in determining the outcome of any corporate
transaction or other matter submitted to the shareholders for approval, including
mergers, consolidations and the sale of all or substantially all of the Company’s
assets and other significant corporate actions. Unless full participation of
all shareholders takes place in such shareholder meetings, Electrum may be able
to approve such matters itself. The concentration of ownership of the shares
by Electrum may: (i) delay or deter a change of control of the Company; (ii)
deprive shareholders of an opportunity to receive a premium for their shares
as part of a sale of the Company; and (iii) affect the market price and liquidity
of the shares. Additionally, while Electrum had agreed to vote its common shares
at the 2012 annual general meeting of the Company in favor of management’s
nominees to the Company’s Board of Directors or to abstain from voting
on such matter, in subsequent years, Electrum will have significant influence
in determining the members of the Board of Directors. Without the consent of
Electrum, the Company could be prevented from entering into transactions that
are otherwise beneficial to the Company. The interests of Electrum may differ
from or be adverse to the interests of the Company’s other shareholders.
The effect of these rights and Electrum’s influence may impact the price
that investors are willing to pay for securities. If Electrum sells a substantial
number of shares in the public market, the market price of the shares could
fall. The perception among the public that these net sales will occur could
also contribute to a decline in the market price of the shares.
Recent high metal prices have encouraged mining exploration,
development and construction activity, which has increased demand for and cost
of contract mining services and equipment.
Recent increases in metal prices have encouraged increases in
mining exploration, development and construction activities, which have resulted
in increased demand for and cost of contract exploration, development and construction
services and equipment. Increased demand for and cost of services and equipment
could cause project costs to increase materially, resulting in delays if services
or equipment cannot be obtained in a timely manner due to inadequate availability,
and increased potential for scheduling difficulties and cost increases due to
the need to coordinate the availability of services or equipment, any of which
could materially increase project exploration, development or construction costs,
result in project delays, or both. Increased costs were a significant factor
in the decisions to suspend commissioning at Rock Creek and construction at
Galore Creek in 2007 and there can be no assurance that increased costs may
not adversely affect the Company’s development of its properties in the
future.
Increased competition could adversely affect NovaGold’s
ability to attract necessary capital funding or acquire suitable producing properties
or prospects for mineral exploration in the future.
The mining industry is intensely competitive. Significant competition
exists for the acquisition of properties producing or capable of producing metals.
The Company may be at a competitive disadvantage in acquiring additional mining
properties because it must compete with other individuals and companies, many
of which have greater financial resources, operational experience and technical
capabilities than the Company or are further advanced in their development or
are significantly larger and have access to greater mineral reserves, for the
acquisition of mineral claims, leases and other mineral interests. The Company
may also encounter increasing competition from other mining companies in its
efforts to hire experienced mining professionals. Competition for exploration
resources at all levels is currently very intense, particularly affecting the
availability of manpower, drill rigs and helicopters. Increased competition could adversely affect
the Company’s ability to attract necessary capital funding or acquire suitable
producing properties or prospects for mineral exploration in the future. If
the Company is unsuccessful in acquiring additional mineral properties or qualified
personnel, it will not be able to grow at the rate it desires, or at all.
H-29
NovaGold may experience difficulty attracting and retaining
qualified management and technical personnel to meet the needs of its anticipated
growth, and the failure to manage NovaGold’s growth effectively could have
a material adverse effect on the Company’s business and financial condition.
The Company is dependent on the services of key executives including
the Company’s President and Chief Executive Officer and other highly skilled
and experienced executives and personnel focused on managing the Company’s
interests and the advancement of the Donlin Gold and Galore Creek projects,
as well as its other properties and projects in addition to the identification
of new opportunities for growth and funding. Due to the Company’s relatively
small size, the loss of these persons or the Company’s inability to attract
and retain additional highly skilled employees required for the development
of the Company’s activities may have a material adverse effect on the Company’s
business or future operations.
NovaGold does not currently intend to use forward sales
arrangements to protect against low commodity prices, therefore, NovaGold’s
operating results are exposed to the impact of any significant drop in commodity
prices.
The Company does not currently intend to enter into forward sales
arrangements to reduce the risk of exposure to volatility in commodity prices.
Accordingly, NovaGold’s future operations are exposed to the impact of
any significant decrease in commodity prices. If such prices decrease significantly
at a time when the Company is producing, the Company would realize reduced revenues.
While it is not the Company’s current intention to enter into forward sales
arrangements, the Company is not restricted from entering into forward sales
arrangements at a future date.
There can be no assurance that NovaGold will successfully
acquire additional mineral rights.
Most exploration projects do not result in the discovery of commercially
mineable ore deposits and no assurance can be given that any particular level
of recovery of ore reserves will be realized or that any identified mineral
deposit will ever qualify as a commercially mineable (or viable) ore body which
can be legally and economically exploited. Estimates of reserves, mineral deposits
and production costs can also be affected by such factors as environmental permitting
regulations and requirements, weather, environmental factors, unforeseen technical
difficulties, unusual or unexpected geological formations and work interruptions.
If current exploration programs do not result in the discovery of commercial
ore, the Company may need to write-off part or all of its investment in existing
exploration stage properties, and may need to acquire additional properties.
Material changes in ore reserves, grades, stripping ratios or recovery rates
may affect the economic viability of any project.
NovaGold’s future growth and productivity will depend, in
part, on its ability to identify and acquire additional mineral rights, and
on the costs and results of continued exploration and development programs.
Mineral exploration is highly speculative in nature and is frequently non-productive.
Substantial expenditures are required to:
-
establish ore reserves through drilling and metallurgical and other testing
techniques;
-
determine metal content and metallurgical recovery processes to extract
metal from the ore; and
-
construct, renovate or expand mining and processing facilities.
In addition, if the Company discovers a mineral deposit, it would
take several years from the initial phases of exploration until production is
possible. During this time, the economic feasibility of production may change.
As a result of these uncertainties, there can be no assurance that the Company
will successfully acquire additional mineral rights.
H-30
NovaGold may experience problems integrating new acquisitions
into existing operations, which could have a material adverse effect on NovaGold.
The Company may make selected acquisitions in the future, with
a focus on late-stage development projects. The Company’s success at completing
any acquisitions will depend on a number of factors, including, but not limited
to:
-
identifying acquisitions that fit NovaGold’s business strategy;
-
accurately assessing the value, strengths, weaknesses, contingent and other
liabilities and potential profitability of acquisition candidates;
-
negotiating acceptable terms with the seller of the business or property
to be acquired; and
-
obtaining approval from regulatory authorities in the jurisdictions of the
business or property to be acquired.
If the Company does make further acquisitions, any positive effect
on the Company’s results will depend on a variety of factors, including,
but not limited to:
-
assimilating the operations of an acquired business or property in a timely
and efficient manner;
-
maintaining the Company’s financial and strategic focus while integrating
the acquired business or property;
-
achieving identified and anticipated operating and financial synergies;
-
unanticipated costs;
-
diversion of management attention from existing business;
-
potential loss of key employees or key employees of any business acquired;
-
unanticipated changes in business, industry or general economic conditions
that affect the assumptions underlying the acquisition;
-
decline in the value of acquired properties, companies or securities;
-
implementing uniform standards, controls, procedures and policies at the
acquired business, as appropriate; and
-
to the extent that the Company makes an acquisition outside of markets in
which it has previously operated, conducting and managing operations in a
new operating environment.
Acquiring additional businesses or properties could place increased
pressure on the Company’s cash flow if such acquisitions involve a cash
consideration. The integration of the Company’s existing operations with
any acquired business will require significant expenditures of time, attention
and funds. Achievement of the benefits expected from consolidation would require
the Company to incur significant costs in connection with, among other things,
implementing financial and planning systems. The Company may not be able to
integrate the operations of a recently acquired business or restructure the
Company’s previously existing business operations without encountering
difficulties and delays. In addition, this integration may require significant
attention from the Company’s management team, which may detract attention
from the Company’s day-to-day operations. Over the short-term, difficulties
associated with integration could have a material adverse effect on the Company’s
business, operating results, financial condition and the price of the Company’s
common shares. In addition, the acquisition of mineral properties may subject
the Company to unforeseen liabilities, including environmental liabilities,
which could have a material adverse effect on NovaGold. There can be no assurance
that any future acquisitions will be successfully integrated into NovaGold’s
existing operations and such acquisition may result in a material adverse effect
on the financial condition of the Company.
In addition, the Company anticipates that as it brings its mineral
properties into production and as the Company acquires additional mineral rights,
the Company will experience significant growth in its operations. The Company
expects this growth to create new positions and responsibilities for management
and technical personnel and to increase demands on its operating and financial
systems. There can be no assurance that the Company will successfully meet these
demands and effectively attract and retain additional qualified personnel to
manage its anticipated growth. The failure to attract such qualified personnel
to manage growth effectively could have a material adverse effect on the Company’s
business, financial condition and results of operations.
H-31
Unknown liabilities in connection with acquisitions.
As part of the Company’s acquisitions, the Company has assumed
liabilities and risks. While the Company conducted due diligence, there may
be liabilities or risks that the Company failed, or was unable, to discover
in the course of performing the due diligence investigations or for which the
Company was not indemnified. Any such liabilities, individually or in the aggregate,
could have a material adverse effect on the Company’s financial position
and results of operations.
Some of the directors have conflicts of interest as a result
of their involvement with other natural resource companies.
Certain of the directors of the Company also serve as directors,
or have significant shareholdings in, other companies involved in natural resource
exploration and development or mining-related activities. To the extent that
such other companies may participate in ventures in which the Company may participate
in, or in ventures which the Company may seek to participate in, the directors
may have a conflict of interest. In all cases where the directors have an interest
in other companies, such other companies may also compete with the Company for
the acquisition of mineral property investments. Such conflicts of the directors
may result in a material and adverse effect on the Company’s profitability,
results of operation and financial condition. As a result of these conflicts
of interest, the Company may miss the opportunity to participate in certain
transactions, which may have a material adverse effect on the Company’s
financial position.
Global climate change is an international concern, and
could impact the Company’s ability to conduct future operations.
Global climate change is an international issue and receives
an enormous amount of publicity. The Company would expect that the imposition
of international treaties or U.S. or Canadian federal, state, provincial or
local laws or regulations pertaining to mandatory reductions in energy consumption
or emissions of greenhouse gasses could affect the feasibility of mining projects
and increase operating costs.
Adverse publicity from non-governmental organizations could
have a material adverse effect on the Company.
There is an increasing level of public concern relating to the
effect of mining production on its surroundings, communities and environment.
Non-governmental organizations (“
NGOs
”), some of which oppose
resource development, are often vocal critics of the mining industry. While
the Company seeks to operate in a socially responsible manner, adverse publicity
generated by such NGOs related to extractive industries, or the Company’s operations
specifically, could have an adverse effect on the reputation and financial condition
of the Company or its relationships with the communities in which it operates.
The Company may fail to achieve and maintain the adequacy
of internal control over financial reporting as per the requirements of the
Sarbanes-Oxley Act.
The Company has documented and tested its internal control procedures
in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act
(“
SOX
”). SOX requires an annual assessment by management of
the effectiveness of the Company’s internal control over financial reporting
and an attestation report by the Company’s independent auditors addressing
this assessment. At November 30, 2009, November 30, 2010, and again at November
30, 2011, management concluded that the Company’s internal control over
financial reporting was effective. The Company may in the future fail to achieve
and maintain the adequacy of its internal control over financial reporting,
as such standards are modified, supplemented or amended from time to time, and
the Company may not be able to ensure that it can conclude on an ongoing basis
that it has effective internal controls over financial reporting in accordance
with Section 404 of SOX. The Company’s failure to satisfy the requirements
of Section 404 of SOX on an ongoing, timely basis could result in the loss of
investor confidence in the reliability of its financial statements, which in
turn could harm the Company’s business and negatively impact the trading
price of its common shares. In addition, any failure to implement required new
or improved controls, or difficulties encountered in their implementation, could
harm the Company’s operating results or cause it to fail to meet its reporting
obligations. Future acquisitions of companies may provide the Company with challenges
in implementing the required processes, procedures and controls in its acquired operations.
Acquired companies may not have disclosure control and procedures or internal
control over financial reporting that are as thorough or effective as those
required by securities laws currently applicable to the Company.
H-32
No evaluation can provide complete assurance that the Company’s
internal control over financial reporting will detect or uncover all failures
of persons within the Company to disclose material information otherwise required
to be reported. The effectiveness of the Company’s control and procedures
could also be limited by simple errors or faulty judgments. In addition, should
the Company expand in the future, the challenges involved in implementing appropriate
internal controls over financial reporting will increase and will require that
the Company continue to improve its internal controls over financial reporting.
Although the Company intends to devote substantial time and incur substantial
costs, as necessary, to ensure compliance, the Company cannot be certain that
it will be successful in complying with Section 404 on an ongoing basis.
If we complete the disposition of our Galore Creek project,
we may lose our status as a foreign private issuer under U.S. federal securities
laws, resulting in additional expenses associated with compliance with the U.S.
securities laws applicable to U.S. domestic issuers.
As a foreign private issuer, we are exempt from certain of the
provisions of the U.S. federal securities laws. For example, the U.S. proxy
rules and the Section 16 reporting and “short swing” profit rules
do not apply to foreign private issuers. However, if we complete the disposition
of all or part of our 50% interest in the Galore Creek project, we may lose
our status as a foreign private issuer. If we lose our status as a foreign private
issuer the aforementioned regulations would apply and we would also be required
to commence reporting on forms required of U.S. companies, such as Forms 10-K,
10-Q and 8-K, rather than the forms currently available to us, such as Forms
40-F and 6-K. Compliance with these additional disclosure and timing requirements
under these securities laws would likely result in increased expenses and would
require our management to devote substantial time and resources to comply with
new regulatory requirements following a loss of our foreign private issuer status.
Further, to the extent that we were to offer or sell our securities outside
of the United States, we would have to comply with the more restrictive Regulation
S requirements that apply to U.S. companies, and we would no longer be able
to utilize the multijurisdictional disclosure system forms for registered offerings
by Canadian companies in the United States, which could limit our ability to
access the capital markets in the future. See “
The Company – Recent
Developments – Galore Creek Project
”
.
Increased Regulatory Compliance Costs Relating to Dodd-Frank
In July 2010, the “Dodd-Frank Wall Street Reform and Consumer
Protection Act” (“
Dodd-Frank Act
”) was enacted, representing
an overhaul of the framework for regulation of U.S. financial markets. The Dodd-Frank
Act calls for various regulatory agencies, including the SEC and the Commodities
Futures Trading Commission, to establish regulations for implementation of many
of the provisions of the Dodd-Frank Act, and the Company anticipates that these
new regulations will provide additional clarity regarding the extent of the
impact of this legislation on the Company. If the Company’s efforts to
comply with new laws, regulations and standards differ from the activities intended
by regulatory or governing bodies due to ambiguities related to practice, regulatory
authorities may initiate legal proceedings against the Company and its business
may be harmed. Dodd-Frank also requires companies in the mining industry to
disclose in their periodic reports filed with the SEC substantial additional
information about safety issues relating to their mining operations. This heightened
scrutiny could generate negative publicity for the mining industry, increase
the cost of compliance with mining regulations or result in the passage of new
laws and regulations, any of which could negatively affect the Company’s
business results. NovaGold may also need to incur additional costs and invest
additional resources, including management’s time, in order to comply with
the new regulations and anticipated additional reporting and disclosure obligations.
While the Company is not able to assess the full impact of the Dodd-Frank Act
until all the implementing regulations have been adopted, based on the information
available to the Company at this time, the Company does not believe provisions
of the regulations implementing the Dodd-Frank Act will have a material adverse
effect on the Company’s financial position, results of operations or cash
flows.
H-33
NovaGold may be a “passive foreign investment company”
under the U.S. Internal Revenue Code, which could result in adverse tax consequences
for investors in the United States.
Acquiring, holding or disposing of NovaGold’s securities
may have tax consequences under the laws of Canada and the United States that
are not disclosed in this Management Proxy Circular. In particular, potential
investors that are U.S. taxpayers should be aware that the Company may be considered
a “passive foreign investment company” under Section 1297(a) of the
U.S. Internal Revenue Code (a “
PFIC
”). If the Company is or
becomes a PFIC, any gain recognized on the sale of Equity Securities and/or
rights to acquire Equity Securities and any excess distributions paid on the
Equity Securities and/or rights to acquire Equity Securities must be ratably
allocated to each day in a U.S. taxpayer’s holding period for the Equity
Securities and/or rights to acquire Equity Securities and any excess distributions
paid on the Equity Securities and/or rights to acquire Equity Securities must
be ratably allocated to each day in a U.S. taxpayer’s holding period for the
Equity Securities and/or rights to acquire Equity Securities. The amounts allocated
to the taxable year of disposition and to years before the Company became a
PFIC would be taxed as ordinary income. The amount allocated to each other taxable
year would be subject to tax at the highest rate applicable to ordinary income
in effect for that taxable year for individuals or corporations, as appropriate,
and an interest charge would be imposed on the tax attributable to the allocated
amount, calculated as if such tax liability had been due in each such prior
year.
Alternatively, a U.S. taxpayer that makes a “QEF election”
generally will be subject to U.S. federal income tax on such U.S. taxpayer’s
pro rata share of the Company’s “net capital gain” and “ordinary
earnings” (calculated under U.S. federal income tax rules), regardless
of whether such amounts are actually distributed by the Company. As a second
alternative, a U.S. taxpayer may make a “mark-to-market election”
if the Company is a PFIC and the common shares are marketable stock. A U.S.
taxpayer that makes a mark-to-market election generally will include in gross
income, for each taxable year in which the Company is a PFIC, an amount equal
to the excess, if any, of (a) the fair market value of the common shares as
of the close of such taxable year over (b) such U.S. taxpayer’s tax basis
in such common shares.
This risk factor is qualified in its entirety by the discussion
set forth under the heading, “Certain Material U.S. Federal Income Tax
Consequences.”
Investors should consult their own tax advisors as to the tax
consequences of an investment in NovaGold.
NovaGold is a Canadian company and U.S. investors may have
difficulty bringing actions and enforcing judgments under U.S. securities laws.
Investors in the United States or in other jurisdictions outside
of Canada may have difficulty bringing actions and enforcing judgments against
NovaGold, its directors, its executive officers and some of the experts named
in this Management Proxy Circular based on civil liabilities provisions of the
federal securities laws or other laws of the United States or any state thereof
or the equivalent laws of other jurisdictions of residence.
Future sales or issuances of equity securities could decrease
the value of any existing equity securities and warrants, dilute investors’
voting power and reduce the Company’s earnings per share.
The Company may sell additional equity securities (including
through the sale of securities convertible into equity securities) and may issue
additional equity securities to finance operations, exploration, development,
acquisitions or other projects. The Company has a large number of authorized
but unissued equity securities. The Company cannot predict the size of future
sales and issuances of equity securities or the effect, if any, that future
sales and issuances of equity securities will have on the market price of the
equity securities and warrants. Sales or issuances of a substantial number of
equity securities, or the perception that such sales could occur, may adversely
affect prevailing market prices for the equity securities and warrants. With
any additional sale or issuance of equity securities, investors will suffer
dilution of their voting power and may experience dilution in the Company’s
earnings per share.
H-34
The Company’s common shares are subject to various
factors that have historically made share prices volatile.
The market price of the Company’s common shares may increase
or decrease in response to a number of events and factors, including: the Company’s
operating performance and the performance of competitors and other similar companies;
volatility in metal prices; the public’s reaction to press releases, material
change reports, other public announcements and filings with the various securities
regulatory authorities; changes in earnings estimates or recommendations by
research analysts who track shares or the shares of other companies in the resource
sector; changes in general economic and/or political conditions; the number
of shares to be publicly traded after any equity offering; the arrival or departure
of key personnel; acquisitions, strategic alliances or joint ventures involving
the Company or its competitors; and the factors listed under the heading “
Cautionary
Statement Regarding Forward-Looking Information
”.
The market price of the common shares may be affected by many
other variables which are not directly related to the Company’s success
and are, therefore, not within the Company’s control, including other developments
that affect the market for all resource sector securities, the breadth of the
public market for the Company’s common shares and the attractiveness of
alternative investments.
The board of directors may issue, without shareholder approval,
preferred shares that have rights and preferences potentially superior to those
of the common shares. Such an issuance may delay or prevent a change of control.
While there are no preferred shares currently outstanding, the
Company’s articles allow the issuance of preferred shares in one or more
series. Subject to the TSX, AMEX and any applicable regulatory approvals, the
board of directors may set the rights and preferences of any series of preferred
shares in its sole discretion without shareholder approval. The rights and preferences
of those preferred shares may be superior to those of the common shares. Accordingly,
the issuance of preferred shares may adversely affect the rights of holders
of common shares and could have the effect of delaying or preventing a change
of control, which may deprive the Company’s shareholders of a control premium
that might otherwise have been realized in connection with an acquisition of
the Company.
The Company does not intend to pay any cash dividends in
the foreseeable future.
The Company has not declared or paid any dividends on its common
shares. It intends to retain future earnings, if any, to finance the growth
and development of the business and does not intend to pay cash dividends on
the common shares in the foreseeable future. Any return on an investment in
the common shares will come from the appreciation, if any, in the value of the
common shares. The payment of future cash dividends, if any, will be reviewed
periodically by the Board of Directors and will depend upon, among other things,
conditions then existing including earnings, financial condition and capital
requirements, restrictions in financing agreements, business opportunities and
conditions and other factors. See “
Dividend Policy
”.
DESCRIPTION OF SHARE CAPITAL
The Company’s authorized share capital consists of 1,000,000,000
common shares without par value and 10,000,000 preferred shares, issuable in
series. As at February 27, 2012, the Company had 278,035,356 common
shares and no preferred shares issued and outstanding.
Electrum Strategic Resources LLC (“Electrum”) acquired
its interest in the Company pursuant to a Unit Purchase Agreement dated as of
December 31, 2008 between the Company and Electrum (the “Unit Purchase
Agreement”). Pursuant to the terms and conditions of the Unit Purchase
Agreement, Electrum has been given the right until January 21, 2013, subject
to certain exceptions and so long as Electrum owns not less than 15,000,000
of the issued and outstanding common shares of the Company, to participate on
a
pro rata
basis (determined on a fully diluted basis, assuming full
exercise of any warrants held by Electrum or its affiliates) in any offering
of equity securities of the Company, including any securities which are exercisable,
exchangeable or convertible into equity securities (the “Participation
Right”). The Board of Directors of the Company have determined that the
Participation Right shall apply in respect of any offering of equity securities of NovaCopper,
including any securities which are exercisable, exchangeable or convertible
into equity securities of NovaCopper.
H-35
Common Shares
All of the common shares rank equally as to voting rights, participation
in a distribution of the assets of the Company on a liquidation, dissolution
or winding-up of the Company and the entitlement to dividends. The holders of
the common shares are entitled to receive notice of all meetings of shareholders
and to attend and vote the shares at the meetings. Each common share carries
with it the right to one vote.
In the event of the liquidation, dissolution or winding-up of
the Company or other distribution of its assets, the holders of the common shares
will be entitled to receive, on a pro rata basis, all of the assets remaining
after the Company has paid out its liabilities. Distributions in the form of
dividends, if any, will be set by the Board of Directors. See “
Dividend
Policy
”.
Provisions as to the modification, amendment or variation of
the rights attached to the common shares are contained in the Company’s
articles of association and the
Companies Act
(Nova Scotia). Generally
speaking, substantive changes to the share capital require the approval of the
shareholders by special resolution (at least 75% of the votes cast) and in certain
cases approval by the holders of a class or series of shares, including in certain
cases a class or series of shares not otherwise carrying voting rights, in which
event the resolution must be approved by no less than two-thirds of the votes
cast by shareholders who vote in respect of the resolution.
Preferred Shares
The Company’s preferred shares may be issued from time to
time in one or more series, the number of shares, designation, rights and restrictions
of which will be determined by the Board of Directors of the Company. The preferred
shares rank ahead of the common shares with respect to the payment of dividends
and the payment of capital. There are no preferred shares outstanding at the
date of this Management Proxy Circular.
DIVIDEND POLICY
The Company has not declared or paid any dividends on its common
shares since the date of its incorporation. The Company intends to retain its
earnings, if any, to finance the growth and development of its business and
does not expect to pay dividends or to make any other distributions in the near
future. The Company’s Board of Directors will review this policy from time
to time having regard to the Company’s financing requirements, financial
condition and other factors considered to be relevant.
CONSOLIDATED CAPITALIZATION
Other than the issuance of shares pursuant to the exercise of
stock options, inducement shares, performance share units and warrants, there
have been no material changes in the capital structure of the Company since
November 30, 2011.
PRIOR SALES
NovaGold issued the following securities during the 12-month
period prior to the date hereof:
Prior Sales
Company Shares
|
|
|
Number of Company
|
|
Price per Company
|
|
|
|
Date of Issuance
|
|
Shares Issued
|
|
Share (CDN$)
|
|
Reason for Issuance
|
|
February 18, 2011
|
|
3,893
|
|
8.86
|
|
SAR Exercise
|
H-36
|
|
|
Number of Company
|
|
Price per Company
|
|
|
|
Date of
Issuance
|
|
Shares Issued
|
|
Share (CDN$)
|
|
Reason for Issuance
|
|
February 24, 2011
|
|
390
|
|
6.40
|
|
SAR Exercise
|
|
March 7, 2011
|
|
7,342
|
|
8.86
|
|
SAR Exercise
|
|
March 7, 2011
|
|
3,760
|
|
8.86
|
|
SAR Exercise
|
|
March 9, 2011
|
|
574
|
|
2.45
|
|
SAR Exercise
|
|
March 11, 2011
|
|
45,000
|
|
6.60
|
|
SAR Exercise
|
|
March 11, 2011
|
|
10,000
|
|
5.25
|
|
SAR Exercise
|
|
March 18, 2011
|
|
414
|
|
6.40
|
|
SAR Exercise
|
|
March 28, 2011
|
|
3,110
|
|
8.86
|
|
SAR Exercise
|
|
March 28, 2011
|
|
5,380
|
|
2.45
|
|
SAR Exercise
|
|
March 31, 2011
|
|
2,825
|
|
8.86
|
|
SAR Exercise
|
|
April 1, 2011
|
|
1,427
|
|
8.86
|
|
SAR Exercise
|
|
April 4, 2011
|
|
1,484
|
|
8.86
|
|
SAR Exercise
|
|
April 4, 2011
|
|
1,191
|
|
8.86
|
|
SAR Exercise
|
|
April 5, 2011
|
|
900
|
|
8.86
|
|
SAR Exercise
|
|
April 5, 2011
|
|
887
|
|
8.86
|
|
SAR Exercise
|
|
April 8, 2011
|
|
810
|
|
6.40
|
|
SAR Exercise
|
|
April 8, 2011
|
|
2,705
|
|
2.45
|
|
SAR Exercise
|
|
April 19, 2011
|
|
363
|
|
2.45
|
|
SAR Exercise
|
|
April 21, 2011
|
|
2,393
|
|
6.40
|
|
SAR Exercise
|
|
April 21, 2011
|
|
163
|
|
6.40
|
|
SAR Exercise
|
|
April 27, 2011
|
|
828
|
|
6.40
|
|
SAR Exercise
|
|
April 28, 2011
|
|
200,000
|
|
1.48
|
|
Warrant Exercise
|
|
May 9, 2011
|
|
7,796
|
|
2.45
|
|
SAR Exercise
|
|
May 16, 2011
|
|
248
|
|
8.86
|
|
SAR Exercise
|
|
May 20, 2011
|
|
4,171,303
|
|
10.15
|
|
Consideration for Acquisition
|
|
May 26, 2011
|
|
250,000
|
|
1.48
|
|
Warrant Exercise
|
|
May 26, 2011
|
|
1,873
|
|
8.86
|
|
SAR Exercise
|
|
June 8, 2011
|
|
272
|
|
2.45
|
|
SAR Exercise
|
|
June 30, 2011
|
|
883
|
|
2.45
|
|
SAR Exercise
|
|
June 30, 2011
|
|
335,000
|
|
1.48
|
|
Warrant Exercise
|
|
July 5, 2011
|
|
2,329
|
|
5.25
|
|
SAR Exercise
|
|
July 5, 2011
|
|
434
|
|
6.40
|
|
SAR Exercise
|
|
July 11, 2011
|
|
7,517
|
|
2.45
|
|
SAR Exercise
|
|
July 21, 2011
|
|
378
|
|
2.45
|
|
SAR Exercise
|
|
July 26, 2011
|
|
371
|
|
2.45
|
|
SAR Exercise
|
|
August 2, 2011
|
|
9,427
|
|
5.25
|
|
SAR Exercise
|
|
August 4, 2011
|
|
55,799
|
|
2.45
|
|
SAR Exercise
|
|
August 5, 2011
|
|
446
|
|
2.45
|
|
SAR Exercise
|
|
August 5, 2011
|
|
32,230
|
|
3.60
|
|
SAR Exercise
|
|
August 8, 2011
|
|
161,097
|
|
0.80
|
|
SAR Exercise
|
|
August 10, 2011
|
|
400,000
|
|
1.48
|
|
Warrant Exercise
|
H-37
|
|
|
Number of Company
|
|
Price per Company
|
|
|
|
Date of
Issuance
|
|
Shares Issued
|
|
Share (CDN$)
|
|
Reason for Issuance
|
|
August 11, 2011
|
|
500,000
|
|
1.48
|
|
Warrant Exercise
|
|
August 11, 2011
|
|
724
|
|
2.45
|
|
SAR Exercise
|
|
August 15, 2011
|
|
14,306
|
|
4.35
|
|
SAR Exercise
|
|
August 16, 2011
|
|
9,255
|
|
5.25
|
|
SAR Exercise
|
|
August 17, 2011
|
|
755
|
|
2.45
|
|
SAR Exercise
|
|
August 18, 2011
|
|
39,759
|
|
5.25
|
|
SAR Exercise
|
|
August 24, 2011
|
|
21,813
|
|
5.25
|
|
SAR Exercise
|
|
August 25, 2011
|
|
6,117
|
|
6.40
|
|
SAR Exercise
|
|
August 25, 2011
|
|
13,333
|
|
6.60
|
|
SAR Exercise
|
|
August 26, 2011
|
|
3,334
|
|
8.86
|
|
SAR Exercise
|
|
August 26, 2011
|
|
7,958
|
|
7.98
|
|
SAR Exercise
|
|
August 31, 2011
|
|
1,952
|
|
7.98
|
|
SAR Exercise
|
|
August 31, 2011
|
|
7,410
|
|
2.45
|
|
SAR Exercise
|
|
August 31, 2011
|
|
4,992
|
|
5.25
|
|
SAR Exercise
|
|
August 31, 2011
|
|
1,739
|
|
6.40
|
|
SAR Exercise
|
|
September 2, 2011
|
|
3,499
|
|
5.25
|
|
SAR Exercise
|
|
September 2, 2011
|
|
13,655
|
|
2.45
|
|
SAR Exercise
|
|
September 8, 2011
|
|
683
|
|
9.28
|
|
SAR Exercise
|
|
September 9, 2011
|
|
12,530
|
|
2.45
|
|
SAR Exercise
|
|
September 19, 2011
|
|
426
|
|
2.45
|
|
SAR Exercise
|
|
September 23, 2011
|
|
2,341
|
|
2.45
|
|
SAR Exercise
|
|
September 27, 2011
|
|
75,978
|
|
1.78
|
|
SAR Exercise
|
|
September 28, 2011
|
|
9,902
|
|
2.45
|
|
SAR Exercise
|
|
September 28, 2011
|
|
5,300
|
|
5.25
|
|
SAR Exercise
|
|
September 28, 2011
|
|
752
|
|
6.40
|
|
SAR Exercise
|
|
November 21, 2011
|
|
1,920
|
|
7.98
|
|
SAR Exercise
|
|
November 21, 2011
|
|
1,825
|
|
2.45
|
|
SAR Exercise
|
|
November 21, 2011
|
|
547
|
|
7.62
|
|
SAR Exercise
|
|
November 21, 2011
|
|
3,686
|
|
5.25
|
|
SAR Exercise
|
|
November 22, 2011
|
|
566
|
|
7.98
|
|
SAR Exercise
|
|
November 22, 2011
|
|
2,574
|
|
2.45
|
|
SAR Exercise
|
|
November 22, 2011
|
|
1,413
|
|
5.25
|
|
SAR Exercise
|
|
November 22, 2011
|
|
1,042
|
|
6.40
|
|
SAR Exercise
|
|
November 25, 2011
|
|
316
|
|
6.40
|
|
SAR Exercise
|
|
November 30, 2011
|
|
140,000
|
|
1.48
|
|
Warrant Exercise
|
|
December 1, 2011
|
|
1,378
|
|
2.45
|
|
SAR Exercise
|
|
December 1, 2011
|
|
256,300
|
|
1.48
|
|
Warrant Exercise
|
|
December 2, 2011
|
|
73,800
|
|
1.48
|
|
Warrant Exercise
|
|
December 5, 2011
|
|
1,192
|
|
2.45
|
|
SAR Exercise
|
|
December 5, 2011
|
|
49,400
|
|
1.48
|
|
Warrant Exercise
|
|
December 6, 2011
|
|
108,100
|
|
1.48
|
|
Warrant Exercise
|
H-38
|
|
|
Number of Company
|
|
Price per Company
|
|
|
|
Date of
Issuance
|
|
Shares Issued
|
|
Share (CDN$)
|
|
Reason for Issuance
|
|
December 7, 2011
|
|
4,000
|
|
1.48
|
|
Warrant Exercise
|
|
December 12, 2011
|
|
1,038
|
|
9.28
|
|
SAR Exercise
|
|
December 12, 2011
|
|
1,260
|
|
9.28
|
|
SAR Exercise
|
|
December 15, 2011
|
|
2,285
|
|
2.45
|
|
SAR Exercise
|
|
December 16, 2011
|
|
35,918
|
|
3.05
|
|
SAR Exercise
|
|
December 19, 2011
|
|
33,776
|
|
3.05
|
|
SAR Exercise
|
|
December 21, 2011
|
|
7,358
|
|
5.25
|
|
SAR Exercise
|
|
January 6, 2012
|
|
182
|
|
2.45
|
|
SAR Exercise
|
|
January 6, 2012
|
|
1,775
|
|
5.25
|
|
SAR Exercise
|
|
January 6, 2012
|
|
647
|
|
6.40
|
|
SAR Exercise
|
|
January 9, 2012
|
|
197,076
|
|
9.15
|
|
Performance Share Units
|
|
January 10, 2012
|
|
116,599
|
|
9.45
(1)
|
|
Inducement Shares
|
|
January 13, 2012
|
|
86,949
|
|
9.29
|
|
Performance Share Units
|
|
January 16, 2012
|
|
1,722
|
|
2.45
|
|
SAR Exercise
|
|
January 17, 2012
|
|
22,641
|
|
5.25
|
|
SAR Exercise
|
|
January 25, 2012
|
|
2,000,000
|
|
1.48
|
|
Warrant Exercise
|
|
January 30, 2012
|
|
486
|
|
2.45
|
|
SAR Exercise
|
|
February 7, 2012
|
|
35,000,000
|
|
9.45
(2)
|
|
Offering
|
Notes:
|
(1)
|
The Inducement Shares were issued to Gregory Lang in
connection with his appointment as President and Chief Executive Officer
of NovaGold and pursuant to the terms of the Employment Agreement he entered
into with NovaGold, effective January 9, 2012.
|
|
(2)
|
The Company Shares were sold under the Offering were
sold at US$9.50 per Company Share. On February 7, 2012, the exchange rate
for the Canadian dollar, as expressed in U.S. dollars based on the Bank
of Canada noon rate, was $0.9948 per US$1.00.
|
Stock Award Grants
|
Date of
Issuance
|
|
Number of Securities Issued
|
|
Exercise Price (CDN$)
|
|
Reason for Issuance
|
|
January 10, 2011
|
|
75,000
|
|
13.10
|
|
Stock Award Grant
|
|
February 1, 2011
|
|
85,000
|
|
13.34
|
|
Stock Award Grant
|
|
February 2, 2011
|
|
5,000
|
|
13.62
|
|
Stock Award Grant
|
|
April 11, 2011
|
|
100,000
|
|
13.22
|
|
Stock Award Grant
|
|
April 18, 2011
|
|
50,000
|
|
12.72
|
|
Stock Award Grant
|
|
May 27, 2011
|
|
20,000
|
|
11.10
|
|
Stock Award Grant
|
|
July 1, 2011
|
|
10,000
|
|
8.89
|
|
Stock Award Grant
|
|
September 20, 2011
|
|
35,000
|
|
7.80
|
|
Stock Award Grant
|
|
December 7, 2011
|
|
2,557,150
|
|
11.11
|
|
Stock Award Grant
|
TRADING PRICE AND VOLUME
The Company Shares are listed and posted for trading on the TSX
and the AMEX under the symbol “NG”. The following tables set out the
market price range and trading volumes of the Company Shares on the TSX and
AMEX for the 12 months prior to the date hereof.
H-39
Toronto Stock Exchange
|
Month
|
|
High
|
|
Low
|
|
Close
|
|
Volume
|
|
February 2011
|
|
14.96
|
|
12.94
|
|
13.30
|
|
11,701,700
|
|
March 2011
|
|
14.25
|
|
11.42
|
|
12.57
|
|
9,060,400
|
|
April 2011
|
|
13.49
|
|
11.95
|
|
12.18
|
|
6,218,900
|
|
May 2011
|
|
12.08
|
|
9.78
|
|
11.20
|
|
8,287,600
|
|
June 2011
|
|
11.28
|
|
8.32
|
|
8.89
|
|
9,371,800
|
|
July 2011
|
|
10.29
|
|
8.87
|
|
9.55
|
|
8,535,200
|
|
August 2011
|
|
10.33
|
|
8.64
|
|
10.03
|
|
8,713,000
|
|
September 2011
|
|
11.44
|
|
6.73
|
|
6.81
|
|
17,112,700
|
|
October 2011
|
|
9.41
|
|
6.26
|
|
9.15
|
|
11,196,400
|
|
November 2011
|
|
12.00
|
|
8.62
|
|
11.83
|
|
11,534,700
|
|
December 2011
|
|
11.72
|
|
7.96
|
|
8.68
|
|
6,875,500
|
|
January 2012
|
|
10.83
|
|
8.76
|
|
9.15
|
|
9,749,087
|
|
February 1 – 27
|
|
10.44
|
|
8.24
|
|
8.47
|
|
17,607,982
|
AMEX
|
Month
|
|
High
|
|
Low
|
|
Close
|
|
Volume
|
|
February 2011
|
|
15.14
|
|
13.13
|
|
13.69
|
|
80,720,300
|
|
March 2011
|
|
14.65
|
|
11.54
|
|
13.00
|
|
89,123,500
|
|
April 2011
|
|
14.02
|
|
12.51
|
|
12.85
|
|
70,938,600
|
|
May 2011
|
|
12.69
|
|
9.99
|
|
11.46
|
|
84,396,300
|
|
June 2011
|
|
11.60
|
|
8.40
|
|
9.20
|
|
71,660,100
|
|
July 2011
|
|
10.73
|
|
8.93
|
|
10.02
|
|
67,205,000
|
|
August 2011
|
|
10.73
|
|
8.76
|
|
10.30
|
|
72,950,500
|
|
September 2011
|
|
11.55
|
|
6.45
|
|
6.45
|
|
93,918,200
|
|
October 2011
|
|
9.50
|
|
5.93
|
|
9.23
|
|
54,824,100
|
|
November 2011
|
|
11.77
|
|
8.46
|
|
11.49
|
|
77,753,700
|
|
December 2011
|
|
11.57
|
|
7.77
|
|
8.48
|
|
57,998,400
|
|
January 2012
|
|
10.72
|
|
8.72
|
|
10.35
|
|
61,932,759
|
|
February 1 – 27
|
|
10.49
|
|
8.22
|
|
8.49
|
|
89,406,649
|
On February 27, 2012, the closing price of the Company Shares
on the TSX was CDN$8.47 per Company Share and on the AMEX was US$8.49 per
Company Share.
MANAGEMENT
Executive Officers, Senior Management and Directors
The following table sets forth information about the Company’s
directors, executive officers and certain key employees, and their respective
positions as of the date of this Management Proxy Circular.
H-40
|
Name
|
|
Title
|
|
Executive Officers and Directors
|
|
|
|
Gregory A. Lang
|
|
President and Chief Executive Officer
|
|
Gillyeard Leathley
|
|
Senior Vice President, Chief Operating Officer
and Director
|
|
Elaine M. Sanders
|
|
Vice President, Chief Financial Officer and Corporate
Secretary
|
|
Dr. Thomas S. Kaplan
|
|
Chairman of the Board of Directors
|
|
Gerald J. McConnell
|
|
Director
|
|
Marc Faber
|
|
Director
|
|
Tony S. Giardini
|
|
Director
|
|
Igor Levental
|
|
Director
|
|
Kalidas V. Madhavpeddi
|
|
Director
|
|
Clynton R. Nauman
|
|
Director
|
|
James L. Philip
|
|
Director
|
|
Rick Van Nieuwenhuyse
|
|
Director
|
|
Other Senior Management
|
|
|
|
Kevin A. Francis
|
|
Vice President, Resources
|
|
Sacha A. Iley
|
|
Vice President, Human Resources
|
|
Joseph R. Piekenbrock
|
|
Vice President, Exploration
|
|
Ronald Rimelman
|
|
Vice President, Environment, Health, Safety &
Sustainability
|
|
Heather E. White
|
|
Vice President, Mining
|
Gregory A. Lang
became President and Chief Executive
Officer of the Company in January 2012. Mr. Lang has over 30 years of diverse
experience in mine operations, project development and evaluations, including
time as President of Barrick Gold North America, a wholly-owned subsidiary of
Barrick. Mr. Lang has held progressively responsible operating and project development
positions over his 10-year tenure with Barrick and, prior to that, with Homestake
Mining Company and International Corona Corporation, both of which are now part
of Barrick. He holds a Bachelor of Science in Mining Engineering from University
of Missouri-Rolla and is a Graduate of the Stanford University Executive Program.
Gillyeard Leathley
is Senior Vice President and
Chief Operating Officer of the Company and a Director. Mr. Leathley joined the
Company in January 2010 as Senior Advisor to the President, was instrumental
in advancing the Company’s two core projects and was subsequently appointed
to his current position in November 2010. He trained as a nine surveyor and
industrial engineer with the Scottish National Coal Board, working in coal,
bauxite, gold and copper mines. Mr. Leathley has over 25 years of experience
overseeing the development of several major operating mines. Mr. Leathley is
responsible for all technical and operating aspects of the Company’s portfolio
of projects.
Elaine M. Sanders
joined the Company in 2003 and
was appointed Chief Financial Officer in 2011 and has more than 15 years of
experience in audit, finance and accounting with public and private companies.
Ms. Sanders is currently Vice President, Chief Financial Officer and Corporate
Secretary of the Company. She has been involved with numerous financings and
acquisitions, and has listed companies on both the TSX and AMEX. Ms. Sanders
is responsible for all aspects of financial services, financial reporting and
corporate governance. She holds a Bachelor of Commerce degree from the University
of Alberta and is a chartered accountant.
Dr. Thomas S. Kaplan
is Chairman of the Board of
Directors of the Company as well as of NovaCopper. He is also Chairman and Chief Executive Officer of
The Electrum Group LLC (“
Electrum Group
”), a privately-held
global natural resources investment management company which manages the portfolio
of Electrum, the single largest shareholder of the Company. Dr. Kaplan is an
entrepreneur and investor with a track record of both creating and unlocking
shareholder value in public and private companies. Most recently, Dr. Kaplan
served as Chairman of Leor Exploration & Production LLC, a natural gas exploration
and development company founded by Dr. Kaplan in 2003. In 2007, Leor’s
natural gas assets were sold to EnCana Oil & Gas USA Inc., a subsidiary
of Encana Corporation, for $2.55 billion. Dr. Kaplan holds Bachelor’s, Master’s
and Doctoral Degrees in History from Oxford University.
H-41
Gerald J. McConnell
is a Director and has over
25 years of experience in the resource sector. Mr. McConnell is a director and
Chief Executive Officer of Namibia Rare Earths Inc., a public Canadian company
focused on the development of rare earth opportunities in Namibia. From 1990
to 2010, he was President and Chief Executive Officer of Etruscan Resources
Inc., a West African junior gold producer. From December 1984 to January 1998,
Mr. McConnell was the President of the Company and from January 1998 to May
1999 he was the Chairman and Chief Executive Officer of the Company. Mr. McConnell,
a graduate of Dalhousie Law School, was called to the bar of Nova Scotia in
1971 and received his Queen’s Counsel designation in 1986.
Marc Faber
is Managing Director of Marc Faber Ltd.,
an investment advisory and fund management firm. He is an advisor to a number
of private investment funds and serves as a Director of Ivanhoe Mines Ltd. and
Sprott Inc. Dr. Faber publishes a monthly investment newsletter entitled
The
Gloom, Boom & Doom Report
and is the author of several books including
Tomorrow’s Gold – Asia’s Age of Discovery
. Dr. Faber is
a commentator on global market trends and developments, and is also a regular
contributor to several leading financial publications around the world, including
Barron’s
, where he is a member of the
Barron’s
Roundtable.
Dr. Faber received his PhD in Economics
magna cum laude
from the University
of Zurich.
Tony S. Giardini
is Chief Financial Officer of
Ivanhoe Mines Ltd., an international mining company listed on the TSX and NYSE,
with operations focused in Central Asia and the Asia Pacific region. Prior to
joining Ivanhoe Mines Ltd., Mr. Giardini spent more than 10 years with Placer
Dome Inc. as Vice President and Treasurer, responsible for managing and overseeing
the company’s debt and capital market activities, including managing banking
relationships with U.S., Canadian and international banks. During his time at
Placer Dome, Mr. Giardini led the financing team that raised in excess of U.S.$1
billion in debt and equity financings. Mr. Giardini is a Chartered Accountant
and a Certified Public Accountant and spent 12 years with accounting firm KPMG
prior to joining Placer Dome Inc.
Igor Levental
is President of Electrum Group, a
privately-held global natural resources investment management company. Electrum,
an affiliate of Electrum Group, is currently the largest shareholder of NovaGold.
Mr. Levental is a director of Gabriel Resources Ltd., which is engaged in the
development of major precious metals deposits in Romania; he is also a director
of Sunward Resources Ltd., a TSX-V-listed company engaged in the exploration
and development of a large porphyry gold-copper project in Colombia. With more
than 30 years of experience across a broad cross-section of the international
mining industry, Mr. Levental has held senior positions with major mining companies
including Homestake Mining Company and International Corona Corporation. Mr.
Levental is a Professional Engineer with a BSc in Chemical Engineering and an
MBA from the University of Alberta.
Kalidas V. Madhavpeddi
is and has been since November 2006, President of Azteca Consulting LLC, an advisory
firm to the metals and mining sector. He is also CEO of Aurizon Resources Ltd and Forex Investment Group, a
private Hong Kong based equity fund. His extensive career in the mining industry spans over 30 years including
Phelps Dodge Corp. from 1980 to 2006, starting as a Systems Engineer and ultimately becoming Senior Vice
President for Phelps Dodge Corporation, a Fortune 500 company, responsible for the company’s global business
development, acquisitions and divestments, including joint ventures, as well as its global exploration programs. He
was contemporaneously President of Phelps Dodge Wire and Cable, a copper and aluminum cable manufacturer
with international operations in over ten countries, including Brazil and China. Mr. Madhavpeddi is an alumnus of
the Indian Institute of Technology, Madras, India the University of Iowa and the Harvard Business School.
Clynton R. Nauman
is, and has been since February 2005, the Chief Executive Officer of Alexco Resource Corp.
and is a director of NovaCopper Inc. Between January 2002 and January 2005, Mr. Nauman was the President of
Asset Liability Management Group ULC. Mr. Nauman was formerly President of Viceroy Gold Corporation and
Viceroy Minerals Corporation, and a director of Viceroy Resource Corporation, positions he held from February
1998 until February 2003. From 1993 to 1998, Mr. Nauman was the General Manager of Kennecott Minerals. Mr.
Nauman has 25 years of diversified experience in the mining industry ranging from exploration and business
development to operations and business management in the precious metals, base metals and coal sectors.
James L. Philip
is President of Clan Chatton Finance
Ltd., a private investment holding company. Mr. Philip joined Morgan & Company
Chartered Accountants in May 1980, became a partner in June 1981 and was managing
partner from August 1993 until December 2004. Mr. Philip is a chartered accountant
and has over 25 years of public accounting experience, servicing mainly companies
listed on Canadian and United States stock exchanges. His clients include a
significant number of public companies in the mining resource sector. The services
he provides his clients include assisting them with the financial aspects of
continuous disclosure reporting requirements in Canada and the United States.
H-42
Rick Van Nieuwenhuyse
is President and Chief Executive Officer of NovaCopper and a director of NovaGold. Mr.
Van Nieuwenhuyse has more than 30 years of experience in the natural resource sector, including his role as
Founder, President and CEO of NovaGold Resources Inc. since 1997 and his role as Vice President of Exploration
for Placer Dome Inc. from 1990 to 1997. In addition to his international exploration perspective, Mr. Van
Nieuwenhuyse brings years of working experience in and knowledge of Alaska to NovaCopper. Mr. Van
Nieuwenhuyse has managed projects from grassroots discovery through to advanced feasibility studies, production
and closure. Mr. Van Nieuwenhuyse holds a Candidature degree in Science from the Université de Louvain,
Belgium, and a Masters of Science degree in Geology from the University of Arizona. He received the Thayer
Lindsley award in 2009 for his role in the Donlin Gold discovery.
Kevin A. Francis
is Vice President, Resources. He
joined the Company in October
2005 and manages all aspects of resource estimation, direct resource estimate
activities, supervision of mining professionals, corporate development activities
and the development of internal audit standards. He has more than 20 years of
experience in integrating computerized geology and other mining disciplines
used to improve resource estimation and mine reconciliation. Before joining
the Company he was the principal geologist at AMEC and also spent eight years
working at two operating mines. Mr. Francis’ formal education includes
a Bachelors degree in Geology and a Masters in Geology, both from the University
of Colorado.
Sacha A. Iley
is the Vice President, Human Resources of the Company. Ms. Iley brings over 13 years of human
resources experience all within the mining industry. Prior to joining NovaGold in 2006, she was at Placer Dome and
held a number of roles, including the HR Manager at Musselwhite Mine in Northern Ontario. Assignments in
Australia, Tanzania and South Africa provided Md. Iley with on-site experience in exploration, construction and
operations. She holds a Bachelor of Arts degree from the University of British Columbia.
Joseph R. Piekenbrock
is Vice President, Exploration of the Company and brings over 30 years of experience
working in the minerals exploration and development sector. Prior to joining NovaGold in 2002 he worked
extensively in northern climates through years of exploration for both Teck Cominco Ltd. and Placer Dome Inc. in
Alaska. Mr. Piekenbrock holds a B.A. in Geology from the University of Colorado and an M.Sc. in Geology from
the University of Arizona.
Ronald Rimelman
worked as a consultant to the Company
for 18 months prior to joining the Company in 2011. He is the Vice President,
Environment, Health, Safety & Sustainability. With nearly 25 years of environmental
experience, Mr. Rimelman has managed environmental impact assessments and permitting
activities for mines around the world, with a focus in Alaska and other northern
climates. His most recent position was Vice President Environmental Services
for Tetra Tech Inc., where he coordinated the natural resources group and took
the lead on a range of projects, including preparing environmental impact statements
for the Kensington and Red Dog Mines in Alaska. Mr. Rimelman also has extensive
experience with mine permitting and water resource analysis, as well as financial
and personnel management.
Heather E. White
joined the Company as Director,
Mining in April 2011 and was promoted to Vice President, Mining in December
2011. Prior to joining the Company, Ms. White held the role of Director Marketing,
Supply Chain at Vale Canada Limited in Toronto where she was responsible for
planning and managing the worldwide nickel supply chain for Vale Canada Limited,
including alignment of production of all products at all finished nickel smelting
and refining facilities with market demand. Before her role at Vale Canada Limited,
Ms. White was the Mine Manager at Voisey’s Bay Nickel Company Ltd. in Labrador.
Ms. White holds a Bachelor of Mining Engineering from Queens University.
Conflicts of Interest
To the knowledge of the Company as of the date of this Management
Proxy Circular, no existing or potential conflicts of interest exist between
the Company and any of its officers or directors other than as set forth below.
In 2011, the Company provided exploration and management services
totaling $0.2 million to Alexco Resource Corp. (“
Alexco
”).
Alexco is a related party having two common directors.
H-43
In 2011, the Company provided exploration and management services
to Tintina Resources Inc. (“
Tintina
”) totaling $0.05 million,
and during 2011 the Company provided exploration and management services totaling
$0.3 million to TintinaGold. In March 2009, Tintina (formerly TintinaGold Resources
Inc., formerly Mantra Mining Inc.) purchased five early-stage Alaskan base metal
properties from the Company. In consideration for the sale of the five properties,
the Company received 3,125,000 shares of Mantra common stock worth $1.6 million
at deal closing. In October 2009, Tintina completed its plan of arrangement
to spin out AsiaBaseMetals, of which NovaGold’s Vice President Exploration,
Mr. Piekenbrock, is a director. At August 31, 2011, the Company held 3,125,000
shares with a fair value of $2.0 million in both companies. Mr. Van Nieuwenhuyse
is a significant shareholder and director on the board of Tintina.
Thomas S. Kaplan is Chairman of the Board of Directors of NovaGold
and is also Chairman and Chief Executive officer of Electrum Group. Electrum,
an affiliate of Electrum Group, is the single largest shareholder of the Company,
controlling approximately 19% of the outstanding voting securities
and warrants exercisable for an additional 32,737,278 Company common
shares. Electrum has certain rights under its subscription arrangements with
the Company including the right to participate in certain future equity offerings
by the Company.
AUDITORS, TRANSFER AGENT AND REGISTRAR
The auditors of the Company are PricewaterhouseCoopers LLP, Chartered
Accountants, of Vancouver, British Columbia. The transfer agent and registrar
for the Company’s common shares in Canada is Computershare Investor Services
Inc. at its principal offices in Vancouver, British Columbia and Toronto, Ontario.
The co-transfer agent and registrar for the Company’s common shares in
the United States is Computershare Trust Company Inc. at its office in Denver,
Colorado.
INTEREST OF EXPERTS
Information relating to the Company’s mineral properties
in this Management Proxy Circular and the documents incorporated by reference
herein has been derived from reports prepared by the experts listed below and
has been included in reliance on such person’s expertise.
None of Blake, Cassels & Graydon LLP, Canadian counsel to the Company, or Kirk Hanson P.E., Gordon Seibel,
R.M. SME, Gregory Wortman, P.Eng.,
Robert Gill, P.Eng., Jay Melnyk, P.Eng., Greg Kulla, P.Geo., and Dana Rogers, P.E., Erin Workman, P. Geo.,
Tony Lipiec, P.Eng., AMEC Americas Limited, or Lemley International Limited
each being companies or persons who have prepared reports relating to the Company’s mineral properties, or any
director, officer, employee or partner thereof, as applicable, received or has received a direct or indirect interest in
the property of the Company or of any associate or affiliate of the Company. As at the date hereof, the
aforementioned persons, and the directors, officers, employees and partners, as applicable, of each of the
aforementioned companies and partnerships beneficially own, directly or indirectly, in the aggregate, less than one
percent of the securities of the Company.
None of the aforementioned persons, nor any director, officer,
employee or partner, as applicable, of the aforementioned companies or partnerships
is currently expected to be elected, appointed or employed as a director, officer
or employee of the Company or of an associate or affiliate of the Company, other
than Mr. Kevin Francis, who is Vice President, Technical Services, and Erin
Workman, who is a Geologist, of the Company.
PricewaterhouseCoopers LLP, Chartered Accountants, report that
they are independent of the Company in accordance with the rules of professional
conduct in British Columbia, Canada. PricewaterhouseCoopers LLP is registered
with the Public Company Accounting Oversight Board.
DOCUMENTS INCORPORATED BY REFERENCE
Information has been incorporated by reference in this Management
Proxy Circular from documents filed with securities commissions or similar authorities
in Canada
. Copies of the documents incorporated herein by reference may
be obtained on request without charge from the Secretary of the Company at Suite
2300, 200 Granville Street, Vancouver, British Columbia, Canada, V6C 1S4,
telephone: 604-669-6227. These documents are also available through the internet
on SEDAR, which can be accessed on line at www.sedar.com, and on EDGAR, which
can be accessed at www.sec.gov. The following documents filed with the securities
commissions or similar authorities in Canada are specifically incorporated by
reference into, and form an integral part of this Management Proxy Circular:
H-44
|
(a)
|
annual information form of the Company for the year
ended November 30, 2011, dated February 22, 2012;
|
|
|
|
|
(b)
|
audited comparative consolidated financial statements
of the Company for the years ended November 30, 2011 and 2010 together
with the notes thereto and the auditors’ report thereon, including
management’s discussion and analysis for the year ended November
30, 2011;
|
|
|
|
|
(c)
|
management information circular of the Company dated
April 5, 2011 prepared in connection with the Company’s annual meeting
of shareholders held on May 25, 2011;
|
|
|
|
|
(d)
|
material change report dated February 6, 2012 announcing
the Company entering into an Underwriting Agreement in connection with
the Offering and the subsequent upsizing of the Offering from the sale
of 26,400,000 Company Shares to 35,000,000 Company Shares;
|
|
|
|
|
(e)
|
material change report, dated December 12, 2011, announcing
the completion of the Donlin Gold FS.
|
Any material change reports (excluding confidential material
change reports), any interim and annual consolidated financial statements and
related management discussion and analysis, information circulars (excluding
those portions that, pursuant to National Instrument 44-101 of the Canadian
Securities Administrators, are not required to be incorporated by reference
herein), any business acquisition reports, any news releases or public communications
containing financial information about the Company for a financial period more
recent than the periods for which financial statements are incorporated herein
by reference, and any other disclosure documents required to be filed pursuant
to an undertaking to a provincial or territorial securities regulatory authority
that are filed by the Company with various securities commissions or similar
authorities in Canada after the date of this Management Proxy Circular shall
be deemed to be incorporated by reference in this Management Proxy Circular.
Any statement contained in this Management Proxy Circular
or in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Management
Proxy Circular to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. The modifying or superseding
statement need not state that it has modified or superseded a prior statement
or include any other information set forth in the document it modifies or supersedes.
The making of a modifying or superseding statement shall not be deemed an admission
for any purposes that the modified or superseded statement, when made, constituted
a misrepresentation, an untrue statement of a material fact or an omission to
state a material fact that is required to be stated or that is necessary to
make a statement not misleading in light of the circumstances in which it was
made. Any statement so modified or superseded shall not constitute a part of
this Management Proxy Circular, except as so modified or superseded.
H-45
SCHEDULE “I”
Information Concerning NovaCopper Post-Arrangement
The following describes the proposed business of NovaCopper,
post-Arrangement, and should be read together with the unaudited pro forma consolidated
financial statements of NovaCopper contained in Schedule “F” to the
Management Proxy Circular. Except where the context otherwise requires, all
of the information contained in this Schedule is made on the basis that the
Arrangement has been completed as described in the Management Proxy Circular.
Unless the context otherwise requires, all references in this
Schedule to “
NovaCopper
”, “
us
”, “
our
”,
“
we
”, or similar terms means NovaCopper and any subsidiaries
of NovaCopper. Certain other terms used in this Schedule are defined under “
Glossary
of Terms
” in the Management Proxy Circular to which this Schedule is
attached.
Unless otherwise indicated, all currency amounts in this Schedule
“I” are stated in United States dollars.
CORPORATE STRUCTURE AND OVERVIEW
Name, Address and Incorporation
NovaCopper
Inc. was incorporated under the BCBCA on April 27, 2011. NovaCopper’s registered
office is located at Suite 2600, Three Bentall Centre, 595 Burrard Street, Vancouver,
British Columbia, and its head office is located at Suite 2300, 200 Granville
Street, Vancouver, British Columbia.
Intercorporate Relationships
Set
out below is the corporate structure of NovaCopper immediately prior to the
Effective Date.
I-1
Set
out below is the corporate structure of NovaCopper immediately after the Effective
Date.
BUSINESS OF NOVACOPPER
General
NovaCopper
is not currently a reporting issuer and the NovaCopper Shares are not listed
on any stock exchange. If the Arrangement is completed, NovaCopper expects that
it will be a reporting issuer in each of the Provinces of Canada and pursuant
to the U.S. Securities Exchange Act of 1934, as amended. Application has been
made for the listing of the NovaCopper Shares on the TSX. NovaCopper anticipates
applying for a listing of the NovaCopper shares on the AMEX. Any listing of
the NovaCopper Shares will be subject to meeting the TSX and AMEX original listing
requirements and there is no assurance such a listing will be obtained. Completion
of the Arrangement is subject to the TSX conditionally approving the listing
of the NovaCopper Shares on the TSX and the AMEX conditionally approving the
listing of the NovaCopper Shares on the AMEX. After the Effective Date, NovaCopper
is expected to have approximately US$40 million in cash.
The
principal business of NovaCopper is the exploration and development of the Ambler
Project, which contains the high-grade polymetalic Arctic deposit and surrounding
mineral occurrences. Our goals include expanding mineral resources, completing
technical studies on the Ambler Project feasibility and becoming a producer
of copper and other base and precious metals by developing a mine at the Arctic
deposit. The Ambler Project comprises 36,549 hectares (90,315 acres) of State
of Alaska mining claims and Federal patented mining claims and hosts a number
of prospects, including the high-grade copper-zinc-lead-gold-silver Arctic deposit,
which is the focus of the Preliminary Economic Assessment. See “
Details
of the Ambler Project
”.
On
October 19, 2011 NANA Regional Corporation, Inc. (“
NANA
”),
an Alaska Native Corporation headquartered in Kotzebue, Alaska, and NovaCopper
US Inc. (“
NovaCopper US
”), a wholly-owned subsidiary of NovaCopper,
entered into an Exploration Agreement and Option to Lease (the “
NANA
Agreement
”) for the cooperative development of their respective resource
interests in the Ambler mining district of Northwest Alaska (as more particularly
described under “
Business of NovaCopper – Recent Developments –
Agreement with NANA Regional Corporation
”). The NANA Agreement consolidates
NovaCopper’s and NANA’s land holdings into an approximately 146,500-hectare
land package and provides a framework for the exploration and development of
this high-grade and prospective poly-metallic belt.
I-2
NovaCopper’s Strategy
NovaCopper’s
business strategy is focused on creating value for stakeholders through its
ownership and advancement of the Ambler Project and through the pursuit of similarly
attractive base metal development projects. NovaCopper plans to:
-
advance the Arctic deposit towards development with key activities including
increased definition of the mineral resources, technical studies to support
completion of a pre-feasibility study, and the initiation of baseline environmental
studies;
-
accelerate exploration on the Ambler Project and, through the NANA Agreement
(as more particularly described under “
Business of NovaCopper –
Recent Developments – Agreement
with NANA Regional Corporation
”),
the neighbouring NANA lands; and
-
pursue project level or corporate transactions that are value accretive.
Prior
to commencing production, further studies that demonstrate the economic viability
of the Ambler Project must be completed, all necessary permits must be obtained,
a production decision must be made by NovaCopper’s board of directors (“
Board
”),
financing for construction and development must be arranged and construction
must be completed. In addition, NovaCopper will be required to address certain
infrastructure challenges, including road access, and obtain additional rights,
including surface use rights and access rights. See “
Risk Factors
”.
Principal Markets
Our
principal objective is to become a producer of copper.
Specialized Skill and Knowledge
All
aspects of our business require specialized skills and knowledge. Such skills
and knowledge include the areas of geology, mining and accounting. See “
Directors
and Officers
” for details as to the specific skills and knowledge of
our directors and management.
Business Cycle
Our
business, at its current exploration and development phase, is not cyclical.
Exploration activities are conducted primarily during snow-free months. The
optimum field season at the Ambler Project is from late May to late September.
The length of the snow-free season at the Ambler Project varies from about May
through November at lower elevations and from July through September at higher
elevations.
Environmental Protection
Mining
is an extractive industry that impacts the environment. NovaCopper’s goal
is to constantly evaluate ways to minimize that impact. NovaCopper strives to
meet or exceed environmental standards at its project. One way we do this is
through effective collaborations with local communities, including Native Alaskan
groups. NovaCopper is currently active only in Alaska, which has established
environmental standards and regulations that we intend to strive to exceed.
NovaCopper’s environmental performance will be overseen at the Board level
and environmental performance is the responsibility of the project manager.
NovaCopper
recognizes environmental management as a corporate priority. NovaCopper cares
about preserving the environment for future generations, while also providing
for safe, responsible and profitable operations by developing natural resources
for the benefit of its employees, shareholders and communities. NovaCopper intends
to maintain standards of excellence for environmental performance at its project.
I-3
-
NovaCopper will communicate its commitment to excellence in environmental
performance to its subsidiary, employees, contractors, other agents and
the communities in which it operates.
-
All new activities and operations will be managed to ensure compliance
with applicable laws and regulations. In the absence of regulation, best
management practices will be applied to minimize environmental risk.
-
NovaCopper will strive to minimize releases to the air, land or water and
ensures appropriate treatment and disposal of waste.
-
NovaCopper will allocate the necessary resources to meet its reclamation
and environmental obligations.
-
NovaCopper will continuously seek opportunities to improve its environmental
performance through adherence to these principles.
-
NovaCopper will regularly report progress to its employees, shareholders
and the communities in which it operates.
See “
Ambler Project – Environmental Considerations
”.
Employees
On
the Effective Date, NovaCopper expects to have one employee in Canada and individuals
providing services to NovaCopper through the Services Agreement, see “
Business
of NovaCopper – Recent Developments –Services Agreement
”.
The employees will split their time between NovaCopper and NovaGold on an as
needed basis. On an ongoing basis, the Board will evaluate the required expertise
and skills to execute the strategy of NovaCopper, and will seek to attract and
retain individuals required to meet NovaCopper’s goals.
It
is intended that the parties will terminate the Services Agreement as NovaCopper
develops its internal capabilities. Accordingly, to the extent that employees
of NovaGold are providing their services primarily to NovaCopper pursuant to
the terms of the Services Agreement and not to NovaGold, their employment with
NovaGold will terminate and they will enter into contracts of employment with
NovaCopper on terms substantially the same as the terms of their employment
with NovaGold.
NovaCopper
believes its success is dependent on the performance of its management and key
individuals, many of whom have specialized skills in exploration in Alaska and
the base metals industry. Substantially all of our exploration site individuals
have been active on the Ambler project for the last five years and are knowledgeable
as to the geology, metallurgy and infrastructure related to mining development.
Through the Services Agreement with NovaGold, NovaCopper will have access to
technical and support resources. NovaCopper believes it has adequate personnel
with the specialized skills required to carry out its operations through the
Services Agreement. See “
Risk Factors
”.
Competitive Conditions
The
mineral exploration and development industry is competitive in all phases of
exploration, development and production. There is a high degree of competition
faced by NovaCopper in Alaska and elsewhere for skilled management employees,
suitable contractors for drilling operations, technical and engineering resources,
and necessary exploration and mining equipment, and many of these competitor
companies have greater financial resources, operational expertise, and/or more
advanced properties than NovaCopper. Additionally, NovaCopper’s operations
are in a remote location where skilled resources and support services are limited.
NovaCopper has in place experienced management personnel and continues to evaluate
the required expertise and skills to carry out its operations. As a result of
this competition, NovaCopper may be unable to achieve its exploration and development
in the future on terms it considers acceptable or at all. See “
Risk
Factors
”.
I-4
Recent Developments
The
following is a summary of certain provisions of the Services Agreement and the
NANA Agreement. This summary is not intended to be complete. Reference is made
to such agreements, a copy of which will be made available under NovaCopper’s
profile on SEDAR at
www.sedar.com
.
Services Agreement
NovaGold
and NovaCopper will enter into a Services Agreement for the provision of, office
facilities and management services by NovaGold to NovaCopper and its affiliates.
The
following are significant terms of the Services Agreement:
-
The term of the Services Agreement will commence on the Effective Date
and will continue in force for a period of 12 months thereafter (the “
Initial
Termination Date
”). Upon written notice to NovaGold, NovaCopper
may extend the Services Agreement on a monthly basis for up to one year
after the Initial Termination Date, at its option.
-
The services to be provided by NovaGold to NovaCopper (the “
Services
”),
pursuant to the terms of the Services Agreement include general corporate
management, including the provision of individuals to serve as executive
officers and/or senior management, reception and secretarial services, human-resource
related services to the employees of NovaCopper, information technology
support services, community outreach, assistance with fostering NovaCopper’s
relationship with NANA, accounting, regulatory filings, support services
in relation to managing resource estimates, engineering studies, project
management, environmental permitting, and preparation of exploration programs
and budgets.
-
NovaGold will provide to NovaCopper the use of office space, including
the use of general office equipment and supplies, information technology
hardware, and software and related systems as may be required by NovaCopper
(the “
Office Facilities
”).
NovaCopper
shall pay NovaGold for the Services and Office Facilities provided, an amount
equal to the actual cost of such Services and Office Facilities, including any
applicable federal or provincial taxes in addition to an initial one-time set-up
fee. Additionally, NovaCopper may from time to time, in accordance with its
compensation policies, grant stock options or other equity based compensation
to those employees of NovaGold in the course of providing their services to
NovaCopper. NovaCopper will only make such grants in consultation with NovaGold
and the individual allocation of such compensation amongst employees of NovaGold
providing services to NovaCopper will be at the discretion of NovaGold.
It
is intended that the parties will terminate the Services Agreement as NovaCopper
develops its internal capabilities. Accordingly, to the extent that employees
of NovaGold are providing their services primarily to NovaCopper pursuant to
the terms of the Services Agreement and not to NovaGold, their employment with
NovaGold will terminate and they will enter into contracts of employment with
NovaCopper on terms substantially the same as the terms of their employment
with NovaGold.
I-5
Agreement with NANA Regional Corporation
The
NANA Agreement provides that NANA will grant NovaCopper US the nonexclusive
right to enter on, and the exclusive right to explore, the Bornite Lands and
the ANSCA Lands (as defined in the NANA Agreement) and in connection therewith,
to construct and utilize temporary access roads, camps, airstrips and other
incidental works. In consideration for this right, NovaCopper US paid to NANA
$4 million in cash. NovaCopper US will also be required to make payments to
NANA for scholarship purposes in accordance with the terms of the NANA Agreement.
NovaCopper US has further agreed to use reasonable commercial efforts to train
and employ NANA shareholders to perform work for NovaCopper US in connection
with its operations on the Bornite Lands, ANCSA Lands and Ambler Lands (as defined
in the NANA Agreement) (collectively, the “
Lands
”).
The
NANA Agreement has a term of 20 years, with an option in favour of NovaCopper
to extend the term for an additional 10 years. The NANA Agreement may be terminated
by mutual agreement of the parties or by NANA if NovaCopper does not meet certain
expenditure requirements on the Bornite Lands and ANCSA Lands.
If,
following receipt of a feasibility study and the release for public comment
of a draft environmental impact statement relating thereto, NovaCopper decides
to proceed with construction of a mine on the Lands, NovaCopper us will notify
NANA in writing and NANA will have 120 days to elect to either (a) exercise
a non-transferrable back-in-right to acquire between 16% and 25% (as specified
by NANA) of that specific project; or (b) not exercise its back-in-rights, and
instead receive a net proceeds royalty equal to 15% of the net proceeds realized
by NovaCopper US from such project. The cost to exercise such back-in-right
is equal to the percentage interest in the project multiplied by the difference
between (i) all costs incurred by NovaCopper US or its affiliates on the project,
including historical costs incurred prior to the date of the NANA Agreement
together with interest on the historical costs; and (ii) $40 million (subject
to exceptions). This amount will be payable by NANA to NovaCopper in cash at
the time the parties enter into a joint venture agreement and in no event will
the amount be less than zero.
In
the event that NANA elects to exercise its back-in-right, the parties will as
soon as reasonably practicable form a joint venture, with NANA’s interest
being between 16% to 25% and NovaCopper US owning the balance of the interest
in the joint venture. Upon formation of the joint venture, the joint venture
will assume all of the obligations of NovaCopper US and be entitled to all the
benefits of NovaCopper US under the NANA Agreement in connection with the mine
to be developed and the related Lands. A party’s failure to pay its proportionate
share of costs in connection with the joint venture will result in dilution
of its interest. Each party will have a right of first refusal over any proposed
transfer of the other party’s interest in the joint venture other than
to an affiliate or for the purposes of granting security. A transfer by either
party of a net smelter royalty return on the Lands or any net proceeds royalty
interest in a project other than for financing purposes will also be subject
to a first right of refusal.
In
connection with possible development on the Bornite Lands or ANCSA Lands, NovaCopper
US and NANA will execute a mining lease to allow NovaCopper US or the joint
venture to construct and operate a mine on the Bornite Lands or ANCSA Lands.
These leases will provide NANA a 2% net smelter royalty as to production from
the Bornite Lands and a 2.5% net smelter royalty as to production from the ANCSA
Lands. If NovaCopper US decides to proceed with construction of a mine on the
Ambler Lands, NANA will enter into a surface use agreement with NovaCopper US
which will afford NovaCopper US access to the Ambler Lands along routes approved
by NANA. In consideration for the grant of such surface use rights, NovaCopper
US will grant NANA a 1% net smelter royalty on production and an annual payment
of $755 per acre (as adjusted for inflation each year beginning with the second
anniversary of the effective date of the NANA Agreement and for each of the
first 400 acres (and $100 for each additional acre) of the lands owned by NANA
and used for access which are disturbed and not reclaimed.
NovaCopper
US and NANA have formed an oversight committee, which consists of four representatives
from each of NovaCopper US and NANA (the “
Oversight Committee
”).
The Oversight Committee is responsible for certain planning and oversight matters
carried out by NovaCopper US under the NANA Agreement. The planning and oversight
matters that are the subject of the NANA Agreement will be determined by majority
vote. The representatives of each of NovaCopper US and NANA attending a meeting
will have one vote in the aggregate and in the event of a tie, the NovaCopper
US representatives jointly shall have a casting vote on all matters other than
Sustainability Matters, as that term is defined in the NANA Agreement. There
shall be no casting vote on Sustainability Matters and NovaCopper US may not proceed with
such matters unless approved by majority vote of the Oversight Committee or
with the consent of NANA, such consent not to be unreasonably withheld or delayed.
I-6
Properties
Ambler Project, Alaska
Except
for the information under the heading “
Ambler Project – Current
Activities
” or as otherwise stated, the scientific and technical information
relating to the Ambler Project contained in this Circular is derived from, and
in some instances is an extract from, the technical report titled “NI 43-101
Preliminary Economic Assessment, Ambler Project, Kobuk, AK” dated May 9,
2011 (the “
Preliminary Economic Assessment
” or “
PEA
”)
prepared by Neil Rigby, PhD, CEng, MIMM and Russ White, P. Geo, SRK Consulting
(“
SRK
”), both of whom are Qualified Persons as defined in NI
43-101. The PEA was originally prepared for NovaGold and filed in May 2011.
The information regarding the Ambler Project is based on assumptions, qualifications
and procedures which are not fully described herein. Reference should be made
to the full text of the PEA which has been filed with certain Canadian securities
regulatory authorities pursuant to NI 43-101 and is available for review on
SEDAR at www.sedar.com and on EDGAR at www.sec.gov.
Ambler Project Overview
The
Ambler Project comprises 90,315 acres (36,549 hectares) of State of Alaska mining
claims and Federal patented mining claims located in the Ambler District, in
the southern Brooks Range of northwestern Alaska at geographic coordinates N67.17º
latitude and W156.38º longitude, within which VMS mineralization can be
found. The current size of the Ambler Project is approximately 65km long x 8km
wide and comprises a total of 36,549 ha.
Exploration
on the Ambler Project was intermittent between discovery in 1965 and 1998. From
1998 until 2003, there was no work performed on the Ambler Project. An exploration
agreement was signed on March 22, 2004, as amended, between Kennecott Arctic
Company and NovaGold under which NovaGold had the ability to earn a 51% interest
in the Ambler Project. Since 2004, NovaGold has been performing project level
and regional mapping, drilling, geophysics and geochemical surveys.
Under
a purchase agreement dated December 18, 2009 between NovaGold, its wholly-owned
subsidiary Alaska Gold Company and Kennecott Exploration Company and Kennecott
Arctic Company (collectively, “
Kennecott
”) NovaGold agreed
to pay Kennecott a total purchase price of $29 million for a 100% interest in
the Ambler Project, to be paid as to: $5 million by the issuance of 931,098
NovaGold shares and two instalments of $12 million in cash each, due 12 months
and 24 months, respectively, from the closing date on January 7, 2010. Kennecott
retained a security interest in the Ambler Project to secure these cash payments.
The NovaGold shares were issued in January 2010, the first $12 million payment
was made on January 7, 2011 and the second $12 million payment was made early
on August 5, 2011. Kennecott retains a 1% NSR royalty that is purchasable at
any time for a one-time payment of $10 million.
The
Ambler property hosts a number of deposits, including the high-grade copper-zinc-lead-gold-silver
Arctic deposit, which was the focus of the PEA. The Arctic deposit is currently
estimated at 16.8 million tonnes of indicated mineral resources and 12.1 million
tonnes of inferred mineral resources.
Based
on the PEA, mining of the Arctic deposit is envisioned as an underground operation
processing up to 4,000 tonnes of material per day. The current estimated resource
base of 16.8 million tonnes of indicated mineral resources and 12.1 million
tonnes of inferred mineral resources support a 25-year mine life. The mine is
anticipated to produce three concentrates: a copper concentrate with gold byproduct,
a lead concentrate with silver and gold byproducts and a zinc concentrate with
silver byproduct, with copper cash costs, net of byproducts at long-term metal
prices estimated at $0.89/lb copper. Average annual payable metal production
is forecast at 67 million pounds of copper, 80 million pounds of zinc, 12 million
pounds of lead, 11,000 ounces of gold and 866,000 ounces of silver. Life-of-mine
(“
LOM
”) payable metal production is estimated at approximately
1.7 billion pounds of copper, 2.0 billion pounds of zinc, 291 million pounds
of lead, 266,000 ounces of gold and 22 million ounces of silver. The production schedule is based on processing average-grade material
through the life of the operation of a total of 29.2 million tonnes, with potential
upside to be obtained by mining higher-grade ore during the early years of the
project.
I-7
Using
base case metal prices of $2.50/lb copper, $1.05/lb zinc, $1.00/lb lead, $1,100/oz
gold and $20/oz silver, project value on a post-tax basis (NPV
7%
)
is $505 million with an IRR of 25%. Post-tax cash flow is estimated at $1.7
billion, with full payback occurring in year four of operations using base case
metal prices. A one percent change of discount rate was evaluated.
Start-up
capital is estimated at $262 million including a 25% contingency of $52 million
which is envisioned as a three year construction period. Sustaining capital
of $134 million comprises primarily underground development, equipment and tailings
dam expansion throughout the mine life and includes a contingency of $34 million.
The total LOM capital cost estimate is $429 million, which is considered accurate
to ±30%.
Project
cash costs, defined as the sum of total operating, freight, marketing, and royalty
costs, are estimated at $132/t milled. Operating costs include mining and processing
costs estimated at $48.6/t milled and $29.7/t milled, respectively.
Because
of the remote location of the Ambler Project, infrastructure, specifically transport
of material and personnel to and from the Ambler Project and power, are the
largest cost items. There is no developed surface access to the Ambler Project
area and no power infrastructure near the Ambler Project area.
Infrastructure
required for the project includes building and upgrading an access road connecting
the mine site to the village of Kobuk, camp accommodations, administration and
maintenance facilities, the mine and plant site area, the tailings facility
and diesel power generation. Due to the remote location of the project, primary
access is currently by air using both fixed wing aircraft and helicopters. SRK
examined various alternatives for improved access to the project area and transport
of materials. Of these alternatives, access to the project is proposed to be
via a road approximately 340 kilometers (211 miles) long extending west from
the Dalton Highway along generally level terrain to the village of Kobuk, where
it would connect with existing roads to the proposed project area. NovaGold
has had constructive discussions with the State of Alaska regarding the concept
of a public/private partnership for construction and operation of the road.
For the PEA, SRK has assumed that the road would be designed and constructed
by the State of Alaska. NovaGold would then reimburse the State on an agreed-upon
basis over the operating life of the mine. A similar arrangement exists between
the State and the Red Dog mine in northwest Alaska for its road and port facility.
For the purposes of the PEA, SRK assumed that NovaGold would pay to the State
of Alaska an annual fee of $15 million for 20 years beginning in the sixth year
of mine operations.
Ambler Project - Property Description and Location
The
Ambler Project is located in the Ambler District (Figure 1), in the southern
Brooks Range of northwestern Alaska at geographic coordinates N67.17º latitude
and W156.38º longitude. Work is performed at the site using Universal Transverse
Mercator (“
UTM
”) North American Datum (“
NAD
”)
1927 Zone 4. The center of the Ambler Project area is 263km east of the town
of Kotzebue, 29km north of the village of Kobuk, 260km west of the Dalton Highway
and 480km northwest of Fairbanks. The current size of the Ambler Project is
approximately 65km long x 8km wide and comprises a total of 36,549 ha.
I-8
Figure 1: Regional Location Map
The
Ambler Project comprises 36,549 ha (90,315 acres) of State of Alaska mining
claims and Federal patented and unpatented mining claims in the Kotzebue Recording
District. The Ambler Project land tenure consists of 1,230 contiguous claims,
including 868 40-acre State claims, 347 160-acre State claims, and 272 acres
of Federal patented land. The Federal patented claim corners at the Ambler Project
were located by U.S. Government Surveys (“
USGS
”). Rent for
each State claim is paid annually to the Alaska Department of Natural Resources.
The Arctic deposit is located near the southern edge of the center of the claim
block. Mineralization is interpreted to extend west and east and potentially
north of the Arctic deposit and is covered by NovaCopper claims in these directions.
In
1971, the United States Congress passed the Alaska Native Claims Settlement
Act (“
ANCSA
”) which settled land and financial claims made
by the Alaska Natives and provided for the establishment of 13 regional corporations
to administer those claims. These are known as the Alaska Native Regional Corporations
(“
ANCSA Corporations
”). One of these 13 regional corporations
is NANA. Lands controlled by NANA bound the southern border of the claim block.
In addition, the northern property border is within 25km of national park lands.
I-9
Figure 2: Prospect Location Map
To
date, the Ambler District has been the subject of various early stage exploration
programs. However, there has been no actual mine development or production within
the Ambler Project area boundaries, and therefore no known mine workings or
mill tailings are present on the property. In addition, there are no indications
of any known environmental impairment or enforcement actions associated with
NovaGold’s activities on the Ambler Project to date. Prior to approximately
1987, BCMC was the exploration subsidiary of Kennecott.
Various
permits are required during the exploration phase of the Ambler Project. The
permit for exploration on the property, the State of Alaska Annual Hardrock
Exploration Permit, is initially obtained and thereafter renewed annually through
the Alaska Department of Natural Resources – State Division of Mining,
Land and Water (“
Alaska DNR
”). NovaGold holds a current exploration
permit in good standing with the Alaska DNR, and has done so each year since
2004. In addition, since the property is situated within the Northwest Arctic
Borough, a Title 9 permit is required for transportation of personnel by air
over Borough lands.
A
number of statutory reports and payments are required to maintain the claims
in good standing on annual basis. Additional permits will be necessary to carry
out environmental baseline studies and detailed engineering studies as the Arctic
deposit moves closer to development.
The
Ambler Project will require multiple permits from regulatory agencies and other
entities at the Federal, State and local (Borough) levels. As a result of the
remoteness of the Ambler Project and the lack of existing infrastructure, it
is likely that a significant permitting effort will also be a part of the development
of support infrastructure. Due to the preliminary stages of the Ambler Project,
it is difficult to assess what specific permitting requirements will ultimately
apply to the Ambler Project.
I-10
Ambler Project - Accessibility, Climate, Local Resources,
Infrastructure and Physiography
Accessibility
is one of the most significant challenges of developing the Ambler Project.
Currently the project has no access infrastructure. Numerous past studies have
demonstrated that access infrastructure will be required to make this a viable
project.
There
is no developed surface access to the Ambler District. Primary access is by
air using both fixed wing aircraft and helicopters. There are four well maintained,
1,524m-long gravel airstrips capable of accommodating charter aircraft. From
the Arctic deposit, these airstrips are located 66km west at Ambler, 46km southwest
at Shungnak, 36km southwest at Kobuk and 32km southwest at Dahl Creek. Additionally,
there is a smaller and lesser-maintained dirt airstrip near the Bornite deposit.
From these points of fixed wing access, helicopter use is required to access
the Ambler Project site and transport personnel, equipment and supplies. A one-lane
dirt track suitable for high-clearance vehicles or construction equipment links
the project site to the Dahl Creek Camp. River access to Ambler, Shungnak and
Kobuk by barge is occasionally possible via the Kobuk River from Kotzebue Sound
via Hotham Inlet. High water during seasonal runoff is necessary for successful
navigation of this route since the Kobuk River is commonly shallow and impassible
upstream of the village of Ambler. The village of Kobuk is located 36km away
and is accessible by fixed wing aircraft.
The
climate in the Ambler District is typical of a sub-arctic environment. The exploration
season for the Ambler Project is from late May until late September. Weather
conditions change suddenly during the field season and can be vary significantly
from year to year. During this time period average high temperatures range from
4 to 18°C, while average lows range from -2 to 10°C. Record high and
low temperatures during these months are 29 and -17°C, respectively. Extended
sunlight in late May and early June accelerates melting of the winter snow pack
on the property. By late September or early October, poor weather prohibits
safe helicopter travel to the property. Heavy rains and snow are also possible
in August. The winter is long and cold and the property is typically blanketed
by snow and ice. During this time, snow cover allows for increased access to
the property by snow machine, track vehicle or by fixed wing aircraft. Winter
temperatures are routinely below -28°C and can exceed -51°C. Annual
precipitation in the region is roughly 546.1mm with the most rainfall occurring
from July through October and the most snowfall occurring from December through
April.
The
Ambler Project is located along the south side of the Brooks Range, one of the
longest mountain ranges in Alaska. The Brooks Range separates the arctic region
from the Alaskan interior. The Ambler Project is located on the east side of
Subarctic Creek straddling a 970m ridge between Subarctic Creek and the Kogoluktuk
River Valley. Subarctic Creek is a tributary of the Shungnak River. The Ambler
Project area is marked by steep and rugged terrain with extreme topographic
relief. Elevations range from 30m above mean sea level (“
amsl
”)
at Ambler along the Kobuk River to 1,180mamsl on the peak immediately north
of the Ambler Project area. The divide between the Shungnak and Kogoluktuk Rivers
in the Ambler Lowlands is just 220mamsl. Nearby surface water includes Subarctic
Creek, the Shungnak and Kogoluktuk Rivers, the Kobuk River, and numerous small
lakes. The Kobuk Valley marks the transition zone between boreal forest and
arctic tundra. Spruce, birch and poplar are found in better-drained portions
of the valley, with lichen and moss covering the ground. Willow and alder thickets
as well as isolated cottonwoods follow drainages, and alpine tundra are found
on the higher slopes and ridges. Tussock tundra and low, heath-type vegetation
covers most of the flat floor of the valley. Permafrost is a layer of soil at
variable depths beneath the surface where the temperature has been below freezing
continuously from a few to several thousands of years. Permafrost exists where
summer heating fails to penetrate to the base of the layer of frozen ground
and occurs in most of the northern third of Alaska as well as in discontinuous
or isolated patches in the central portion of the State.
Because
of the remote location of the Ambler Project, infrastructure, specifically transport
of material and personnel to and from the Ambler Project and power, are the
largest cost items. There is no developed surface access to the Ambler Project
area and no power infrastructure near the Ambler Project area. SRK examined
various methods for accessing the Ambler Project and transporting materials.
Of these various methods, the PEA focuses on the use of a new road to the Dalton
Highway.
I-11
The
proposed access road alignment is shown in Figure 3. The length of the proposed
road is approximately 340km (211 miles). It extends west from the Dalton Highway
along generally level terrain to the village of Kobuk where it would connect
with existing roads to Bornite and the proposed mine area. The road alignment is consistent with alignments that the Alaska Department
of Transportation (“
ADOT
”) has previously considered to access
the Ambler District as well as all of the western coast of Alaska. ADOT is currently
undertaking a major planning study to further define access options, including
detailed road alignment and engineering evaluations, for the Ambler District.
Figure 3: Proposed Ambler Road
The
PEA assumes the use of two existing airports versus constructing and maintaining
a dedicated airstrip. These are the Dahl Creek airport and the Kobuk airport,
both are located southwest of the Ambler Project at 32km and 36km, respectively.
Each has a maintained gravel runway suitable for personnel and cargo charter
aircraft.
Currently,
electrical power in the region is produced by local diesel generators as well
as small wind generators in communities where wind power can be economically
harnessed. There are no interconnections with other power grids in the State
of Alaska. SRK estimates that a mine complex at the Arctic deposit will require
10.2MW capacity for a nominal 4,000t/d operation. This capacity estimate is
sufficient to meet the combined demand from the mine and process facilities,
the support infrastructure, and the man-camp. The PEA assumes the site will
generate all its power needs by using diesel generators.
Water
supply for consumptive uses is assumed to be available both from groundwater
and surface water and that its quality is acceptable.
The
transport of mine concentrates is to occur direct from the Arctic deposit site
in bulk form using container boxes hauled on tractor-trailers; therefore the
infrastructure requirements set out in the PEA incorporates a container loading
facility as well as a truck staging and maintenance facility in a single structure.
From here, the over-the-highway trucks will be loaded with filled containers,
weighed and then driven to a rail site at Fairbanks using the proposed Ambler
road and the existing Dalton Highway. An off-site support facility is planned
at the Pump Station 5 intersect which includes a dormitory for rest and a light
maintenance facility to handle unforeseen issues with the tractor-trailers. Once in Fairbanks the concentrate-laden
containers will be off-loaded from the trucks and loaded onto rail for transport
to the nearest shipping port and subsequently to the contracted smelter.
I-12
In
addition to the previously mentioned truck staging facility, the preliminary
mine design for the Arctic deposit in the PEA includes: the full assortment
of support facilities including an administration building/offices, dry, laboratory,
first aid clinic, lunch room, training room, process plant maintenance shop,
warehouse and the mill building; a power station in its own dedicated facility
located in close proximity to the fuel depot area; an underground main mine
shop; a mill and tailings disposal at the head of Subarctic Creek; and underground
waste disposal facilities will be adjacent to the camp. Camp facilities will
accommodate at least 200 people at one time, including sleeping quarters, lavatories,
a dining facility and recreational facilities are also included in the preliminary
design. Additionally, Pump Station 5 facilities include a dormitory to facilitate
the personnel located at this off-site location along with the passing truck
drivers.
The
total personnel requirements are estimated to be 420 workers. These labor requirements
are comprised of approximately 250 mineworkers, 110 process staff and 60 infrastructure
related workers. This figure includes the off-site personnel at Pump Station
5, but excludes any contract workers such as truck drivers or campsite support
labor. Typically, the mine site crews will change on a standard fly-in-fly-out
(“
FIFO
”) work schedule unless they normally live in the regional
villages and towns.
Ambler Project - History
BCMC
conducted regional exploration of the Cosmos Hills and the southern Brooks Range
while drilling extensively at Bornite. Stream silts sampling in 1963 revealed
a 1,400ppm Cu anomaly in Arctic Creek. This anomaly contributed to discoveries
of massive sulfide at Arctic and Dead Creeks in 1965. In 1966 and 1967, BCMC
drilled eight core holes at Dead Creek, also intercepting massive sulfide. Structural
complexities at Dead Creek hindered progress and BCMC focused on the Arctic
Creek area. In 1967, eight core holes were drilled at Arctic Creek yielding
impressive massive sulfide intercepts over a strike length of 460m. This successful
program resulted in the continuation of drilling over the next several seasons
at the Ambler Project. BCMC intermittently conducted exploration programs on
the Ambler Project from August 1967 to 1998. Over that span, 92 holes were drilled
at the Ambler Project, including 14 large diameter metallurgical holes, totaling
17,572m. No drilling or additional exploration on the Ambler Project was conducted
between 1998 and 2004.
In
addition to drilling on the Ambler Project, BCMC continued their exploration
of other prospects in the Ambler District. Competing companies, including Sunshine
Mining Company, Anaconda, Noranda, Teck Cominco, Resource Associates of Alaska
(“
RAA
”), Watts, Griffis and McOuat Ltd. (“
WGM
”),
and Houston Oil and Minerals Company, entered into a claim staking war in the
Ambler District in the early 1970’s. District exploration by Sunshine Mining
Company and others resulted in two substantial discoveries, the Sun deposit
located 60km east of the Arctic deposit and the Smucker deposit located 40km
west of the Arctic deposit. District exploration continued until the early 1980s
on the four larger deposits (Arctic, Bornite, Smucker and Sun) as well as many
lesser-defined prospects within the district, including Sunshine Creek, CS,
Bud, Horse Creek, Cliff, Dead Creek, Kogo, Red, BT and Tom Tom.
In
the 1990s, Kennecott Minerals, the successor of BCMC, began to re-evaluate the
Arctic deposit. This included a review of the deposit geology and the assembly
of a computer database. A new computer-generated block model was constructed
and an updated resource was estimated from the block model. The result is outlined
in Table 3
Historical Resource Estimate – 1990,
below. Although
believed by NovaCopper management to have been relevant and reliable, this historical
resource estimate predates the development of NI 43-101 reporting guidelines,
was not estimated in compliance with NI 43-101 procedures and should not be
relied on.
Ambler Project - Historical Metallurgical Testwork
The
first three metallurgical test campaigns performed on the Arctic deposit mineralized
material were conducted at the Kennecott Research Center between 1968 and 1976.
The focus was on selective flotation to provide separate copper, lead and zinc
concentrates for conventional smelting.
I-13
The
initial amenability testing was carried out in 1968 on individual samples and
their composites made from cores from eight diamond drillholes. Core drilled
prior to 1998 was drilled using NQ- and BQ-sized strings. An additional four
samples were obtained from three holes and tested in 1972. Laboratory scale
bench tests included a conventional selective flotation approach to produce
three separate (copper, lead and zinc) concentrates. The major problems encountered
were:
The
highest-grade copper concentrate contained over 30% Cu, 2 to 3% Zn and less
than 1% Pb, but at a low copper recovery of less than 80%. The lead concentrate
was low-grade 17 to 36% Pb and assayed 5 to 25% Cu. The subsequent sphalerite
flotation was generally efficient. The zinc concentrate grade was 55% and the
zinc recovery up to 70%, depending on how much zinc floated in the preceding
copper and lead flotation. Silver generally followed galena.
During
1975, large diameter cores from 14 drillholes were used for more detailed testing
to develop the concentrator flowsheet and process parameters. Two composites
were prepared: No.1 (Eastern zone) and No.2 (Western zone). Most of the test
work was conducted on the composite No.1, which represented 75% of the resources.
The test program included mineralogical examinations, bench scale testing of
various process parameters for each selective flotation step and locked cycle
tests. Complete analyses were done on a number of concentrates to identify potential
impurities. Preliminary tests for bulk flotation of all sulfides were also carried
out.
A
1976 conceptual study for the selection of the metallurgical process for the
Arctic deposit established that the Kennecott Sulfite Process could be developed
as an economic hydro metallurgical alternative to smelting. Bulk concentrate
could be amenable for processing with this novel technology.
Historical
testing showed that a clear separation of various sulfide minerals is difficult
because of fine interlocking of mineral grains. It showed that the economically
most important minerals, chalcopyrite and sphalerite, could be recovered into
selective copper and zinc concentrates with commercial concentrate grades and
good recoveries. Lead and precious metals easily reported to the copper concentrate.
The production of a selective high-grade lead concentrate was not successful.
Only a low-grade, silver-bearing lead concentrate (17 to 36% Pb) was obtained,
containing high amounts of iron, copper and zinc. Generally, the copper concentrate
grade and recovery depended on the amounts of lead and zinc prevented from floating
during copper flotation and cleaning. Production of two selective copper and
zinc concentrates could be confidently projected, although additional testing
would be required to optimize the flow sheet and all process parameters.
Silver
was mainly associated with galena. The highest silver recovery to copper concentrate
was achieved when lead was recovered as well. If galena was rejected from the
copper concentrate, 20 to 40% of the silver, associated with tetrahedrite and
tennantite, remained in the copper concentrate.
Gold
assaying was very sporadic during the three test campaigns and was not provided.
It was noted, however, that at least 70% of the gold reported to the copper
concentrate, although not enough testing was performed to predict gold recovery.
Ambler Project - Historical Drilling
Between
1967 to July 1985, 86 holes were drilled (including 14 large diameter metallurgical
test holes) totaling 16,080m. In 1998, Kennecott drilled six core holes totaling
1,492m in the Arctic deposit to test for extensions of the known resource, and
to test for grade and thickness continuity. Drilling for all BCMC/Kennecott
campaigns in the Arctic deposit area (1966–1998) totals 92 core holes for
a combined 17,572m.
No
drilling was performed on the project between 1998 and 2003. NovaGold took control
of the project in 2004. The 2004–2006 and 2008 drill programs conducted
by NovaGold are described under the heading “
Ambler Project – Drilling
”.
I-14
Ambler Project - Historical Geophysics
In
1998, an airborne geophysical survey of the entire claim block generated numerous
electromagnetic anomalies. Additional geophysical surveys have been performed
by NovaGold and are discussed under the heading “
Ambler Project –
Exploration
”.
Ambler Project - Historical Resource Estimates
A
resource estimate was performed on the Arctic deposit by Kennecott based on
70 holes. This resource estimate was performed in 1990 and is summarized in
Table 3. This estimate is considered to be that of an inferred resource. Although
believed by NovaGold management to be relevant and reliable, this historical
resource estimate predates the development of NI 43-101 reporting guidelines,
was not estimated in compliance with NI 43-101 procedures and should not be
relied on.
Table 1: Historical Resource Estimate - 1990
|
Classification
|
Tonnes (kt)
|
Cu%
|
Zn%
|
Pb%
|
Ag g/t
|
Au s/t
|
|
Inferred
|
36,300
|
4.0
|
5.5
|
0.8
|
54.9
|
0.7
|
Ambler Project - Geologic Setting
Regional Geology
The
Ambler District occurs within an east–west trending zone of Devonian to
Jurassic age submarine volcanic and sedimentary rocks. VMS deposits and prospects
are hosted in the Middle Devonian to Early Mississippian age Ambler Sequence,
a group of metamorphosed bimodal volcanic rocks with interbedded tuffaceous,
graphitic and calcareous volcanoclastic metasediments. The Ambler Sequence occurs
in the upper part of the Anirak Schist, the thickest member of the Coldfoot
subterrane. VMS mineralization can be found along the entire 110km strike length
of the district. Hitzman notes that the 1,980m-thick Devonian age section of
the Cosmos Hills, which includes the 915m-thick Bornite Carbonate Sequence,
is equivalent in age to the Anirak Schist and was mineralized during the Ambler
mineralizing event.
The
Ambler District is characterized by a series of east–west trending belts
of rocks of increasing metamorphic grade northward across the strike of the
units. The structure of the district is isoclinally folded in the northern area
and thrust faulted in the southern half. The Devonian to Mississippian age Angayucham
basalt and the Triassic to Jurassic age mafic volcanic rocks are in low-angle
thrust contact with various units of the Coldfoot subterrane along the northern
edge of the Ambler Lowlands.
District/Property Geology
Rocks
that form the Ambler schist belt consist of a lithologically diverse sequence
of lower Paleozoic possibly Devonian age carbonate and siliciclastic strata
with interlayered mafic lava flows and sills. The clastic strata, derived from
terrigenous continental and volcanic sources, were deposited primarily by mass-gravity
flow into the sub-wavebase environment of an extending marginal basin.
NovaGold’s
work shows that the Ambler sequence underwent two periods of intense, penetrative
deformation. Sustained upper greenschist-facies metamorphism with coincident
formation of a penetrative schistosity and isoclinal transposition of bedding
marks the first deformation period. Pervasive similar-style folds on all scales
deform the transposed bedding and schistosity, defining the subsequent event.
At least two later non-penetrative compressional events deform these earlier
fabrics. NovaGold’s observations of the structural and metamorphic history
of the Ambler District are consistent with current tectonic evolution models
for the schist belt, based on the work of others elsewhere in southern Brooks
Range.
I-15
The
local base of the Ambler section consists of variably metamorphosed carbonates
historically referred to as the Gnurgle Gneiss. NovaCopper interprets these
strata as calc-turbidites, perhaps deposited in a sub-wavebase environment adjacent
to a carbonate bank. Calcareous schists overlie the Gnurgle Gneiss and host
sporadically distributed mafic sills and pillowed lavas. These fine-grained
clastic strata indicate a progressively quieter depositional environment up
section, and the presence of pillowed lavas indicates a rifting, basinal environment.
The overlying Arctic-sulfide host section consists mostly of fine-grained carbonaceous
siliciclastics and indicates further isolation from a terrigenous source terrain.
The section above the Arctic host contains voluminous reworked silicic volcanic
strata with the Button Schist at its base. The paucity of volcanically derived
strata below the Arctic host section and abundance above indicates that the
basin and surrounding hinterlands underwent major tectonic reorganization during
deposition of the Arctic section. Greywacke sands that NovaGold interpret as
channeled high-energy turbidites occur throughout the section but concentrate
high in the local stratigraphy.
Three
mineralized horizons comprise the Arctic deposit: the Main Sulfide Horizon,
the Upper South Horizon and the Warm Springs Horizon. The Main Sulfide Horizon
is further subdivided into three zones: the southeast zone, the central zone
and the northwest zone. Previous deposit modeling was grade-based resulting
in numerous individual mineralized zones representing relatively thin sulfide
horizons.
Work
from the 2004 campaign suggests that mineralization at the Arctic Project can
be explained using two locally folded and refolded mineralized horizons. The
primary exception is in the area of Warm Springs and east of Warm Springs where
mineralization occurs stratigraphically higher than anticipated using this model.
Thrust faulting may have an effect on massive sulfide horizon geometry in this
area.
Five
lithologic groups and/or types found within the Ambler Project area include:
-
Metarhyolite: Includes the Button Schist, which is described as a porphyroblastic
quartz feldspar porphyry. It also includes a variety of less porphyroblastic
felsic schists considered as metamorphosed rhyolitic volcaniclastic and
tuffaceous rocks. Members of this group occur both stratigraphically above
and below the main mineralized sequence at the Ambler Project. These units
have been interpreted as separate metavolcanics, though similarities occur
between the basal Button Schist and the uppermost units;
-
Quartz Mica Schist: Locally contains varying proportions of carbonate,
chlorite, graphite and feldspar. Protolith for these rocks may have been
tuffaceous sediments, volcaniclastics and dirty carbonates;
-
Talc Schist: Highly talc chlorite altered products of metavolcanic or graphitic
schist units with talc in excess of 30%. Original texture often destroyed
by alteration;
-
Graphitic Schist: Dark grey to black, fissile, well-foliated quartz-banded
schist found throughout the deposit; and
-
Base-Metal, Sulfide-Bearing Schist: This is the mineralized lithology at
the Ambler Project. These contain highly-altered schists containing varying
amounts of talc, chlorite, barite, quartz, muscovite, carbonate and massive,
relatively non-schistose zones.
Studies
in 2004 suggest the base-metal, sulfide-bearing schist is more a product of
alteration than primary lithology and, as a result, should be included in the
quartz mica schist group.
The
three main zones of hydrothermal alteration occurring at the Ambler Project
have been defined as:
-
A main chloritic zone occurring within the footwall of the deposit consisting
of phengite and magnesium-chlorite;
-
A mixed alteration zone occurring below and lateral to sulfide mineralization
consisting of phengite and phlogopite along with talc, calcite, dolomite
and quartz; and
I-16
-
A pyritic zone overlying the sulfide mineralization.
Talc
has been recognized as a significant component of the mineralized assemblage
at the Arctic deposit. Distribution is poorly understood at present though logging
observations would suggest that the core of the antiform opening to the east
or the footwall of the mineralized horizon has increased quantities. Along the
mineralized horizon itself the upper limb of the antiform to the east appears
to have the greatest quantity of talc and might in part be a guide to the fluid
feeder of the system. Quantitative determinations of talc based on visual logging
are extremely difficult due to the light green foliated texture of the talc
which is difficult to discern from chlorite and muscovite species. Logging estimates
are often based more on tactile characteristics of the core than visual characteristics.
Based
on this discussion, talc has been very conservatively estimated at 20% throughout
the deposit. With some detailed work further defining mineral assemblages specifically
solid solution relationships in chlorites and carbonates, CO2 analyses to define
total amounts of Mg bearing carbonates and added ICP analyses throughout the
deposit to further define the overall distribution of Mg, a strongly quantitative
estimate of talc can be made in the future. An added point to grasp from the
ICP analysis of talc is that high-grade copper intervals contain less talc than
low grade intervals.
Ambler Project - Deposit Type
The
mineralization at the Ambler Project and within the Ambler District consists
of Devonian age, polymetallic (Zn-Cu-Pb-Ag) VMS occurrences. VMS deposits are
formed by and associated with sub-marine volcanic-related hydrothermal events.
These events are related to spreading centers such as fore arc, back arc or
mid-ocean ridges. VMS deposits are often stratiform accumulations of sulfide
minerals that precipitate from hydrothermal fluids on or below the seafloor.
These deposits are found in association with volcanic, volcaniclastic and/or
siliciclastic rocks. They are classified by their depositional environment and
associated proportions of mafic and/or felsic igneous rocks to sedimentary rocks.
There are five general classifications based on rock type and depositional environment:
-
Mafic rock dominated often with ophiolite sequences, often called Cyprus
type;
-
Bimodal-mafic type with up to 25% felsic volcanic rocks;
-
Mafic-siliciclastic type with approximately equal parts mafic and siliclastic
rocks, which can have minor felsic rocks and are often called Beshi type;
-
Felsic-siliclastic type with abundant felsic rocks, less than 10% mafic
rocks and shale rich; and
-
Bimodal-felsic type where felsic rocks are more abundant than mafic rocks
with minor sedimentary rocks, also termed Kuroko type.
Prior
to any subsequent deformation and/or metamorphism, these deposits are often
bowl- or mound-shaped with stockworks and stringers of sulfide minerals found
near vent zones. These types of deposit exhibit an idealized zoning pattern
as follows:
-
Pyrite and chalcopyrite near vents;
-
A halo around the vents consisting of chalcopyrite, sphalerite and pyrite;
-
A more distal zone of sphalerite and galena and metals such as manganese;
and
-
Increasing manganese with oxides such as hematite and chert.
Alteration
halos associated with VMS deposits often contain sericite, ankerite, chlorite,
hematite and magnetite close to the VMS with weak sericite, carbonate, zeolite,
prehnite and chert more distal. These alteration assemblages and relationships are dependent on degree of post
deposition deformation and metamorphism. A modern analog of this type of deposit
is found around fumeroles or black smokers in association with rift zones.
I-17
At
the Arctic deposit, sulfides occur as semi-massive (10 to 30% sulfide) to massive
(>30% sulfide) layers, typically dominated by pyrite with substantial disseminated
sphalerite and chalcopyrite and trace amounts of galena
Ambler Project - Exploration
Exploration
on the Ambler Project was intermittent between discovery in 1965 and 1998. From
1998 until 2003, there was no work performed on the Ambler Project. NovaGold
entered into negotiations with Kennecott to explore the Ambler Project in mid-2003.
Negotiations were completed and an exploration agreement signed on March 23,
2004. Since 2004, NovaGold has been performing project level and regional mapping,
drilling, geophysics and geochemical surveys. NovaGold purchased Kennecott’s
ownership in January, 2010 and continues exploration activities at the Ambler
Project.
The
2004 drilling focused on the Arctic deposit area and was principally designed
to verify the grade and continuity of the mineralized intercepts encountered
in the previous drill campaigns. Eleven holes totaling 2,996m were drilled in
potential extensions of mineralization and on an adjacent geophysical anomaly.
During 2005, approximately 3,030m of core drilling was completed, and in the
2006 field season an additional 3,010m of drilling in 12 drill holes was completed.
The 2006 program focused on regional extensions and included drilling at the
Dead Creek, Sunshine Creek, COU and Red prospects. NovaGold completed a 14 hole
drill program totaling 3,306m in 2008. All holes were designed to infill within
the then defined resource area, and three holes were drilled for metallurgical
testing purposes. None of the assay results were available at the time of construction
of the original 2008 resource model.
Local
and regional mapping performed during the 2005–2006 mapping program enabled
Paul Lindberg, contracted to NovaGold, to complete a model of an unfolded view
of the Arctic deposit geology. These results provide a good platform on which
to build subsequent models of original zoning patterns, changing thicknesses
and other laterally variable characteristics of the deposit.
A
total of 2,106 stream silt and soil samples were collected during the 2004 mapping
program as part of an effort to develop a regional geochemistry model for future
district exploration. This program was carried out by NovaGold personnel and
the model is still being developed.
During
2005, two Time Domain Electro-Magnetic (“
TDEM
”) induction ground
surveys were performed at the Arctic deposit and COU. COU is within the claim
block and is a significant anomaly of similar size and tenor a few kilometers
to the northwest of the town of Ambler. The 2006 exploration program focused
on a regional basis to extend existing mineralization and to identify new mineralized
targets within the claim block, and included 13 TDEM surveys performed to enhance
previous work performed by Kennecott in 1998. Data evaluation is ongoing.
Oriented
data were collected from select angle drillholes. The clay impression method
was used to orient the core with data capture done using a circular protractor
for beta values and a standard protractor for alpha values. The majority of
oriented measurements were of foliation with a NW strike and a SW dip, similar
to those observed on the surface.
Exploration
activities at the Ambler Project have been performed within industry standards
using appropriate models and techniques for a VMS target. SRK agrees with the
techniques used at this project.
Ambler Project - Mineralization
Mineralization
at the Arctic deposit occurs as stratiform semi-massive to massive sulfide beds.
The sulfide beds average 4m thick but vary from less than 1m up to 18m thick.
The bulk of the mineralization is within four zones located between two thrust
faults, the upper Warm Springs Thrust and the Lower Thrust. A smaller fifth
zone is located below the Lower Thrust. All of these zones are within an area
of roughly 1km, with average zone length ranging from 850m to 600m and width
ranging from 700m to 350m. Mineralization has been defined to a depth of approximately 250m below the surface and is open in several areas.
Host rocks are primarily graphitic chlorite schists and fine-grained quartz
sandstones.
I-18
Marginal
to the Arctic deposit, mineralization is locally present as discontinuous thin,
“wispy” sulfide bands. No stockworks or stringers in association with
the mineralization have been observed. These features are common in near-vent
VMS deposits. Much of the core from the 2004 and 2005 programs within the deposit
exhibits characteristics and textures common to replacement-style mineralization.
Mineralization
is predominately coarse-grained sulfides consisting mainly of chalcopyrite,
sphalerite, galena, pyrite and pyrrhotite, and may or may not include tetrahedrite.
Tetrahedrite-tennantite, electrum and enargite are also present in minor amounts.
Pyrite is commonly associated with the massive sulfide horizons, and pyrrhotite
and arsenopyrite are present in lesser amounts. Gangue minerals associated with
the mineralized horizons include quartz, barite, white mica, black chlorite,
calcite, dolomite and cymrite, while talc is common in the footwall.
Ambler Project - Drilling
Between
1967 to July 1985, 86 holes were drilled (including 14 large diameter metallurgical
test holes) totaling 16,080m. In 1998, Kennecott drilled six core holes totaling
1,492m in the Arctic deposit to test for extensions of the known resource, and
to test for grade and thickness continuity. Drilling for all BCMC/Kennecott
campaigns in the Arctic deposit area (1966–1998) totals 92 core holes for
a combined 17,572m.
Ambler Project - Drill Program and Objectives
The
2004 drilling focused on the Arctic deposit area and was principally designed
to verify the grade and continuity of the mineralized intercepts encountered
in the previous drill campaigns. Alternate geologic models for the Arctic deposit
were investigated through surface mapping, drill core re-logging and re-interpretation
of previous drill results. Eleven holes totaling 2,996m were drilled. Significant
mineralized intervals were encountered in eight of the eleven holes drilled
in the program. The twin and infill drilling confirmed previously drilled intervals
of base-metal mineralization.
Drilling
in 2005 again focused on extending and confirming mineralization, particularly
in the lower limb of the Arctic Antiform. Approximately 3,030m of core drilling
was completed and, although good mineralization was encountered in several holes,
structural discontinuities appear to limit expansion of mineralization to the
south and east. Results suggest that the model remains open to the northeast
and that the faulted off-root zone has yet to be identified. Drill spacing for
all programs is dependent on the steep, rugged terrain for locating drill rigs;
however, it varies from 90 to 120m. Sections have been drawn at 61m intervals.
During
the 2006 field season, an additional 3,010m of drilling in 12 drillholes was
completed. This drill program was focused on a more regional basis to extend
existing mineralization and to identify new mineralized targets within the Ambler
Project. These holes were drilled at the Dead Creek, Sunshine Creek, COU and
Red prospects.
NovaGold
completed a 14 hole drill program totaling 3,306m in 2008. All holes were designed
to infill within the Arctic deposit, and three holes were drilled for metallurgical
testing purposes.
All
NovaGold drill core was logged, photographed and sawn, with half sent to the
lab for analyses and half stored near the property. Core logging was done using
metric measurements. Lithology and visual alteration features were captured
on observed interval breaks. Mineralization data, including total sulfide (recorded
as percent), sulfide type (recorded as a relative amount), gangue and vein mineralogy
were collected for each sample interval with an average interval of approximately
2m. Structure data were collected as point data. Geotechnical data (core recovery,
RQD) were collected along drill run intervals. Using the 2004 logging procedure
as a guide, data from the earlier campaigns were taken from those drill logs
and entered into the database, with a focus on mineralization information.
I-19
The
overall objectives of the three drill programs were:
-
Verification of mineralized intercepts from previous drill campaigns (twin
holes);
-
Continuity of higher grade intercepts in the central part of the resource
area (infill holes);
-
Exploring possible extensions of mineralized zones; and
-
Recording data electronically and building a 3-D model of the Arctic deposit.
Ambler Project - Drill Results
Significant
mineralized intervals were encountered in eight of the 11 holes drilled in 2004.
Twin and infill drilling confirmed previously drilled intervals of high-grade
base-metal mineralization. The results of the 2004 drilling program show a high
degree of variability in thickness and grade within areas of the deposit.
Drillholes
designed to test extension of the Arctic deposit failed to extend significant
mineralization. Some holes encountered locally anomalous or lower grade material,
possibly representing distal mineralization. An abrupt decrease in grade occurred
in AR04-81 below a fault zone, suggesting that the mineralized zones may be
offset or folded south of the known deposit. AR04-87 was abandoned due to an
inability to penetrate a major fault zone, and was subsequently re-drilled as
AR04-88. This hole ended at 387.6m in altered quartz muscovite schist, short
of the targeted Button Schist.
In
April 2005, NovaGold made plans to drill 3,000m on the south and east fringe
of the Arctic deposit through the projected elevation of the lower sulfide limb,
completing a downhole TDEM geophysical survey and extending the geologic mapping
from the Arctic deposit area northwest toward Dead Creek. Work completed toward
extending the lower sulfide limb included nine holes totaling 3,030m. Of these,
two failed to achieve their targeted depth.
Frontier
Geosciences, Inc. (“
Frontier
”) was contracted to complete downhole
probing of selected holes at the Ambler Project. They also completed a large
loop TDEM survey over the Ambler Project area. Because mapping indicated permissive
stratigraphy coincident with the airborne anomaly west of Riley Ridge, Frontier
completed an additional TDEM loop survey over the anomaly core.
NovaGold
geologists completed geochemical sampling of all NovaGold core and spot sampling
of much of the historical BCMC/Kennecott Minerals Arctic core. This work is
ongoing and will allow NovaGold to build a reasonably comprehensive lithogeochemical
model of the Arctic deposit.
The
2006 drilling program completed 3,010m in 12 holes. This program was performed
to test mineralization extensions and geophysical anomalies outside the immediate
Arctic deposit area, but within the claim block. These holes were drilled at
the Dead Creek, Sunshine Creek, COU and Red prospects.
NovaGold
completed a 14 hole drill program totaling 3,306m in 2008. All holes were designed
to infill within the currently defined resource area, and three holes were drilled
for metallurgical testing purposes.
At
Dead Creek, the holes were located based on a combination of geophysics and
geology. Each hole penetrated the targeted stratigraphy, and showed that the
sulfide system diminishes to the north and east but remains open to the south
and west. One of the Back-Door Creek holes penetrated an 8m zone that contained
several 2 to 7cm-thick pyrrhotite bands, but with only a trace of chalcopyrite.
This zone correlates stratigraphically with a mineralized interval in a nearby
historical hole, suggesting metallic mineral zonation from pyrite and base-metal
sulfide to pyrrhotite.
Drilling
in the Sunshine Creek area tested the western extent of mineralization observed
in historical drill holes, which is interpreted to be two sulfide-bearing horizons
that lie sub-parallel to the stratigraphy, above a carbonate package. NovaCopper
interprets the two mineralized horizons as limbs of an F2 anticline. Drill intercepts from 2006 that correlate with these two horizons had significantly
lower grade and were thinner than historical intercepts. Preliminary results
indicate that the sulfide horizon becomes dominated by pyrrhotite to the west.
NovaCopper currently interprets this compositional change to represent a more
distal portion of the mineralized system.
I-20
Drilling
at COU was performed to investigate an electromagnetic anomaly and consisted
of one hole. The source of this anomaly was a thick sequence of graphitic black
schist that contained abundant continuous pyrrhotite bands. Downhole a few hundred
meters it was recognized that the hole was still in the hanging wall to the
stratigraphic package that hosts the Ambler Project. This resulted in extending
the hole. The hole was stopped slightly above its target because of safety considerations.
This hole has proven vital to NovaCopper’s understanding of the regional
F2 folds and to the stratigraphic stacking order in this area.
NovaGold
drilled four holes into the Red prospect, located in the lowlands of the Kogoluktuk
Valley, about 5km east of the Ambler Project. These holes tested an electromagnetic
anomaly and intersected a sulfide vein system hosted by siltstone believed to
underlie the Gnurgle Gneiss. The veins have a quartz-calcite-fluorite gangue,
and their margins commonly contain concentrations of secondary brown biotite,
suggesting an affinity to relatively high-temperature potassic alteration. The
F1 structural fabric deforms the veins, suggesting that they are relatively
old. The vein style of mineralization makes this occurrence unique in the district.
An
ongoing effort to gather and compile data for a new resource model for the Arctic
deposit includes re-logging of historical drill core, detailed logging of individual
mineralized intersections at 1:50 scale and work with hole-to-hole correlations.
Multiple
drillhole intersections have resulted in a reasonably accurate knowledge of
the orientation of the mineralization. Mineralization follows enclosing stratigraphic
layering and is further defined, except where tightly folded, by bedding parallel
to bedding subparallel foliation.
Most
holes intersect the mineral zone nearly perpendicular to foliation and to the
mineralization, so the intersections represent near true thickness. Exceptions
are where mineralized zones wrap around tight fold hinges, but these instances
are rare.
Ambler Project - Sampling Method and Approach
The
sampling protocol for all the NovaGold drill programs at the Ambler deposit
from 2004–2008 was the same. Core logging geologists mark the sample intervals,
which range from 1 to 3m in length. Varying rock types, lithologic contacts
and mineralized zones influence sample interval selection. Sample boundaries
are placed at lithologic contacts. Each hole was sampled in its entirety, even
in areas that encountered significant intervals of unmineralized core. Sample
intervals of 2 to 3m are most common in weakly to unmineralized core, and sample
intervals of 1 to 2m are more common in mineralized zones or areas of varying
lithology. Sample intervals used are well within the width of the average mineralized
zone in the resource area. This sampling approach is considered sound and appropriate
for this style of mineralization and alteration. Core recovery was good to excellent,
resulting in quality samples with little to no bias. There are no known drilling
and/or recovery factors that could materially impact accuracy.
Sampling
of drill core prior to 2004 by Kennecott and BCMC focused primarily on the mineralized
zones. During the 1998 campaign, Kennecott did sample some broad zones of alteration
and weak mineralization, but much of the unaltered and unmineralized rock remains
unsampled. ALS Chemex was also used for analyses conducted by Kennecott.
Earlier
BCMC sampling was even more restricted to mineralized zones of core. Intervals
of visible sulfide mineralization were selected for sampling and analyses were
conducted by Union Assay Office Inc. of Salt Lake City, Utah. Numerous intervals
of weak to moderate mineralization remain unsampled in the historic drill care.
NovaGold conducted some limited sampling of this historical drill core to gain
a better understanding of trace element distribution around the Arctic deposit.
During the relogging of much of this historical core, 1m intervals were selected
over each 10m of unmineralized core. These 1m intervals were sawn in half, with
one-half returned to the box and the other half placed in a bag, labeled and sent
to the laboratory for analysis. This type of sampling was used to determine
trace element distribution about the deposit; none of the mineralized zones
were sampled in this way.
I-21
With
the lack of outcrop in a folded metamorphic terrane, it is necessary to have
a good understanding of the geologic model to predict positioning of the drill
to get a sample of true thickness in the mineralized zone. NovaGold has been
diligently relogging core and mapping the project to gain this understanding.
The use of oriented core is very important to this interpretation. SRK has confidence
that the samples collected at the Ambler Project are representative of the geometry
of the mineralized zone.
Ambler Project - Sample Preparation, Analyses and Security
The
core from the NovaGold programs was sawn in half, with half sent to labs in
Fairbanks, AK for sample preparation and the other half returned to the core
box for storage. Samples were crushed to 70% <2mm and a nominal 250g split
was sent to Vancouver, B.C. for analysis by ALS Chemex. There the splits were
pulverized to 85% <75um. Initial gold analysis was done by FA-AAA on a nominal
30g split of the pulp. Samples returning over limit gold values (>10ppm)
were rerun using fire assay techniques. Initial results for all other elements
(27) were done via four acid digestion ICP analysis on a nominal 25g split of
the pulp. Samples with over limit values for copper (>10,000ppm), lead (>10,000ppm),
zinc (>10,000ppm) or silver (>100ppm) were rerun using AA techniques.
Gold
values for duplicate samples (both blind and laboratory) from 2004 and for those
samples re-assayed from earlier programs locally showed high variability, indicating
a possible nugget effect. As a result, a series of samples was selected for
MSA analysis. Results are pending.
A
QA/QC program was instituted for the 2004 drill program and utilized for subsequent
programs. Samples were broken into 20 sample batches that included three QA/QC
samples. The QA/QC samples included one duplicate, one blank and one standard.
Duplicate samples were prepared at the prep facility by taking a second split
from the entire prepped sample. A local limestone source was used as the blank
material. A series of samples taken from the source area and assayed confirm
that the limestone is a suitable blank material. The standard material was obtained
from WCM Minerals of Burnaby, B.C. A base-metal standard was selected that best
represented the grade of the Arctic deposit mineralization. Samples were either
in the custody of NovaGold personnel or the assay labs at all times.
A
search was made through Kennecott’s Reno, NV warehouse for sample pulps
from pre-1998 drill campaigns. A total of 290 pulps were located, mainly from
the earliest drill programs, and sent to ALS Chemex Labs in Vancouver, B.C.
for analysis. The samples were analyzed for gold by FA-AAA as well as 27 additional
elements by ICP analysis (see analytical description). Samples were arranged
in batches of approximately 20, each with inserted QA/QC samples. Of the 290
total pulps, 11 contained insufficient volume for any analysis. The variable
number of sample pairs is the result of either insufficient sample size for
analysis of select elements in 2004 (mainly over limits) or because some elements
were not selected for assay in earlier campaigns. Zinc, silver and gold analyses
all compared favorably. While lead showed the largest variability, the average
grades are relatively low, thereby having little effect on the tonnage value.
Copper values also had high variability and averaged 10% lower than the original
values. ALS Chemex has attained ISO 9001:2000 registration. In addition, the
ALS Chemex Vancouver laboratory is accredited to ISO 17025 by Standards Council
of Canada for a number of specific test procedures including fire assay Au by
AA, ICP and gravimetric finish, multi-element ICP and AA Assays for Ag, Cu,
Pb and Zn.
The
apparently poor reproducibility of historic assay values is likely a sign of
a highly variable deposit, and not an assaying issue. While sample assays are
suitable for this PEA, further analysis and comparisons are recommended for
prefeasibility.
The
QA/QC data appears to be reasonable for a program of this scope, a few discrepancies
exist which are normal. A formal assessment should also be done before prefeasibility,
and any significant problems addressed by re-assaying samples which had issues.
I-22
Ambler Project - Data Verification
NovaGold
performed a review of existing Ambler Project data at the Kennecott offices
in Salt Lake City, Utah with a focus on data relating to the Arctic deposit.
Numerous reports and studies were scanned. All available assay certificates
as well as the current database were copied and/or scanned. All pre-2004 drill
assay values in the database provided by Kennecott were compared to assay values
from the original assay certificates. Local discrepancies, mainly associated
with precious metal results, were identified and corrected.
SRK
was supplied with paper and scanned electronic certificates for the pre-2004
programs. Assay certificates for 472 samples out of 1,854 of these samples were
unavailable for review. SRK checked 10% of pre-2004 assay certificates against
the database. Only minor typographical discrepancies were found and corrected.
All of the highest 5% grades of all five elements were checked where available.
SRK also received electronic certificates (CSV text files) for 2,612 assays
(88% of the NovaGold Ambler samples) from the 2004–2005 drilling/sampling
program, which also included numerous samples selected from previously drilled
core. All of these assays were verified successfully with the provided database.
QA/QC data was also made available for the 2005 sampling program, consisting
of 166 duplicate samples, 282 standards and 293 blanks. These samples were well
within acceptable limits. Although a few of the paper certificates were unavailable,
the available certificates provided reasonable assurance that the database is
accurate.
Ambler Project - Mineral Resource Estimate
The
mineral resource estimate was prepared by Russ White, P.Geo, Associate Resource
Geologist at SRK Denver. Grade estimations were made using Ordinary Kriging
based on a three-dimensional block model constructed using Vulcan® commercial
mine planning software. The project limits are based on a UTM coordinate system
(NAD 1927, Zone 24), and the block model is based on a parent block size of
5m X x 5m Y x 5m Z, with a sub-cell size of 5m X x 5m Y x 0.2m Z. Five mineralized
massive sulfide zones have been defined along a northeasterly striking corridor,
with all zones tending to dip moderately to the southwest. The mineralization
at the Arctic deposit occurs as massive sulfide lenses hosted within weakly
to unmineralized schistose country rocks. Potentially economic mineralization
is associated with coarse-grained sulfides, For the resource estimation work,
all of the massive sulfide zones are collectively referred to as the Arctic
deposit.
The
resource estimate has been generated from composites derived from drill hole
sample assay results, and is constrained by manually interpreted sulfide bed
boundaries constructed by SRK. No three dimensional geologic model was utilized
to constrain the resource estimate. Grade interpolation parameters have been
defined based largely on the geologic understanding of controls on mineralization,
drillhole spacing and geostatistical analysis of the data. The resources have
been classified by their proximity to the sample locations and number of drill
holes used to inform the blocks. SRK finds the resource model and resource classification
to be acceptable for resource reporting under CIM guidelines.
The
drillhole database used for resource estimation consists of 119 core holes,
96 of which intercepted significant mineralization. Of the approximately 25,000m
drilled within the resource, 4,808 intervals were sampled representing 9,128m
of sampled drilling. Sample lengths vary from 0.1 to 12m, and average about
1.9m. Each interval contains assays for copper, zinc, lead, gold and silver,
as well as codes for lithology and mineralized zone. In 2008, NovaGold completed
an additional 14 hole drill program totaling 3,306m. All holes were designed
to infill within the currently defined resource area, and three holes were drilled
for metallurgical testing purposes. None of the assay results were available
at the time of constructing the original 2008 resource model and are not included
in the current resource. SRK recommends that the results of this program be
incorporated into the next resource model update.
A
separate database table includes specific gravity (“
SG
”) measurements
for 404 samples taken from 47 drillholes.
I-23
Ambler Project - Resource Classification and Mineral Resource
Statement
The
mineral resources have been classified according to the “CIM Standards
on Mineral Resources and Reserves: Definitions and Guidelines” (November
2005). The PEA contained herein includes inferred mineral resources that are
considered too speculative geologically to have the economic considerations
applied to them that would enable them to be categorized as mineral reserves.
There is no certainty that the PEA will ever be realized. Mineral resources
that are not mineral reserves do not have demonstrated economic viability.
Resources
in the MS zones, which were estimated by the first (50m) search, were classified
as indicated. This is roughly based on a distance that is twice the variogram
range and within one cross section distance inside a modeled shape, which is
based on correlated intervals. All blocks outside of the MS zones, and all other
estimated blocks too distant from the samples for the first pass, were classified
as inferred. No resources were classified as measured. Inferred resources have
a great amount of uncertainty as to their existence and as to whether they can
be mined legally or economically. It cannot be assumed that all or any part
of inferred resources will ever be upgraded to a higher category.
Table 2: Mineral Resource Statement (as of May 9, 2011)
|
Resource
Category
|
Zone
|
Tonnage
(kt)
|
Metal Grades
|
Contained Metal
|
Cu
(%)
|
Zn
(%)
|
Pb
(%)
|
Au
(g/t)
|
Ag
(g/t)
|
Cu
(klb)
|
Zn
(klb)
|
Pb
(klb)
|
Au
(koz)
|
Ag
(koz)
|
Indicated
|
1
2
3
4
11
|
5,293
2,982
1,964
6,089
517
|
4.56
4.36
3.66
3.82
4.16
|
6.45
5.82
5.98
6.00
3.32
|
1.05
0.80
0.93
0.98
0.34
|
0.96
0.52
0.52
1.01
0.25
|
62.77
45.76
51.02
68.71
32.86
|
532,571
286,906
158,357
513,088
47,400
|
752,305
382,593
259,080
805,142
37,854
|
122,428
52,831
40,173
130,965
3,859
|
163
50
33
197
4
|
10,683
4,387
3,222
13,451
546
|
|
All Zones
|
16,845
|
4.14
|
6.02
|
0.94
|
0.83
|
59.62
|
1,538,322
|
2,236,974
|
350,255
|
447
|
32,289
|
Inferred
|
0
1
2
3
4
11
|
1,191
3,166
1,559
1,307
4,492
373
|
2.18
3.91
4.06
3.83
3.28
4.25
|
2.24
5.74
5.60
5.13
4.95
3.30
|
0.70
0.93
0.74
0.63
0.83
0.35
|
0.34
0.76
0.43
0.44
0.87
0.29
|
4.17
54.98
43.40
48.08
57.56
33.65
|
57,114
273,161
139,424
110,404
324,875
34,945
|
58,716
400,765
192,610
147,864
489,789
27,137
|
18,474
64,808
25,317
18,292
81,815
2,905
|
13
77
22
18
126
3
|
159
5,596
2,175
2,020
8,312
404
|
|
All Zones
|
12,087
|
3.53
|
4.94
|
0.79
|
0.67
|
48.04
|
939,923
|
1,316,882
|
211,610
|
260
|
18,667
|
Notes:
|
(1)
|
Mineral Resources have been classified according to
the “CIM Standards on Mineral Resources and Reserves: Definitions
and Guidelines” (November 2005). The PEA contained herein includes
inferred Mineral Resources that are considered too speculative geologically
to have the economic considerations applied to them that would enable
them to be categorized as Mineral Reserves.
|
|
(2)
|
Mineral Resources are not Mineral Reserves and do not
have demonstrated economic viability. There is no certainty that all or
any part of the Mineral Resources will be converted into Mineral Reserves.
|
|
(3)
|
Resources stated as contained within potentially economically
minable underground shapes above a $75.00/t NSR cut-off.
|
I-24
|
(4)
|
NSR calculation is based on assumed metal prices of
$2.50/lb for copper, $1.00/lb for zinc, $1.00/lb for lead, $1,000/oz for
gold and $16/oz for silver. A mining cost of $45.00/t and combined processing
and G&A costs of $31.00 were assumed to form the basis for the resource
NSR cut-off determination. Note: these metal prices and operating costs
differ from those used for the cash flow model.
|
|
(5)
|
Mineral resource tonnage and contained metal have been
rounded to reflect the accuracy of the estimate, and numbers may not sum
due to rounding.
|
|
(6)
|
The above table refers to “indicated resources”
and “inferred resources” which have been determined in accordance
with Canadian securities regulations (under NI 43-101), which differ from
the SEC’s standards for resource classification. See “
Risk
Factors
”.
|
Ambler Project - Environmental Considerations
Development
of the Ambler Project will be subject to extensive environmental baseline analyses,
environmental impact assessment and evaluation, and associated permitting requirements
reflective of the direct, indirect and cumulative impacts associated with full
project build-out, and the sensitive environment in which it is to be constructed.
Development of the Ambler Project will include significant infrastructure development
including the mine, mill, tailings impoundment and ancillary facilities, including
on-site employee housing, as well as off-site infrastructure such as power generation
and communications, and surface access. An existing year-round airstrip near
the site capable of accommodating charter aircraft for a complete fly-in/fly
out year-round operation will be used. The complexity of the environmental impact
review and permitting the various facilities will be dependent on siting of
facilities in relationship to the various river basins and valleys surrounding
the Ambler Project development target areas. Further, the Ambler Project will
be situated near a number of parks and protected areas, including Kobuk National
Park located 80km west, the Great Kobuk Sand Dunes and the Kobuk Valley and
Selawik Wilderness areas 30 to 40km west, Selawik National Wildlife Refuge 20
to 25km southwest and the Gates of the Ambler National Park and Preserve approximately
80km northeast.
Due
to the preliminary stages of this Project, it is difficult to assess what specific
permitting requirements will ultimately apply to the Ambler Project. Therefore,
it is equally difficult to fully assess the proper content of specific baseline
data gathering programs and/or the scope of the environmental review and project
alternatives. Until all aspects of the Ambler Project are defined and further
refined, it is difficult to list what required permits are anticipated and what
timelines might be involved to complete environmental reviews and permitting
processes. While it is envisioned that the Ambler Project will operate as a
“zero-discharge” facility, significant baseline conditions assessment
and facilities design and engineering will be required to establish the viability
of such. The duration of time required for full project refinement may evolve
during the environmental review and permitting processes and will directly correlate
with the overall permitting timeline which is unknown at this time. There can
be no assurance that the Ambler Project will be able to obtain or maintain all
necessary licenses or permits or that the Ambler Project will obtain and maintain
such licenses or permits on terms that enable operations to be conducted at
economically justifiable costs.
Key
subjects requiring further study include:
-
Project definition - substantial scientific and technical data still must
be collected prior to the finalization of the Ambler Project definition.
-
Alternatives – what alternatives to the Ambler Project definition
are feasible.
-
Socio-environmental studies - Archaeological, cultural resources, biological
environmental (including wildlife migration and special status plants and
wildlife species) studies must be completed for the Ambler Project site,
service and/or access road rights of way and any other facilities that may
be located outside the immediate vicinity of the mine. As required by the
National Environmental Policy Act (“
NEPA
”), a direct, indirect
and cumulative affects assessment would need to be conducted. It is anticipated
that the project will require preparation of an Environmental Impact Statement.
Additional studies will be required to review project alternatives on minimization
of impacts to reduce the potential mitigation required.
-
Acid generating potential - preliminary data obtained from historic reports
indicate that the waste rock and tailings could potentially exhibit AGP
concerns.
-
Effluent management – viability of “zero discharge” facility
to be studied.
I-25
-
Stream impact - there is a potential that Subarctic Creek and/or the associated
riparian zone along with various other additional streams and/or surface
water features will be impacted by encroachment of Project facilities.
-
Hydrogeology - additional technical analyses will be required to assess
hydrogeological conditions, including groundwater flow and potential fate
and transport analyses.
-
Community engagement and perceptions - the potential for impacts real or
perceived to the subsistence hunting and fishing opportunities for the local
population could result in public opposition to the Ambler Project. Early
and expanded community engagement and governmental affairs programs will
aid in minimizing these anticipated risks. As part of the NEPA process,
it is anticipated that there will be public involvement through the scoping
process.
-
Subsistence hunting/fishing - the perceived impacts to the subsistence
hunting and fishing opportunities for the local population could result
in public opposition to the Ambler Project, resulting in additional environmental
review, permitting requirements and/or delays. Alternative studies may be
required to determine preferred options.
-
Affected Environment- technical analyses on air quality and climate, topography,
geology, geotechnical considerations, surface water quality and hydrology,
ground water quality and hydrology, aquatic resources, soils, vegetation
and wetland, wildlife, recreation, visual resources, land use and noise.
In
2010, the Ambler Project initiated an assessment of baseline hydrology, water
quality and aquatic life. Additional studies will be needed on the environmental
resources of the Ambler Project area in order to adequately define and establish
baseline conditions at the site. The studies that have been performed are largely
based on historical geological and geochemical data in order to characterize
the rock mass. However, based on the rock mass characterization performed and
summarized in these reports, ARD will likely be an issue addressed during Project
design in order to get operating permits. There is no assurance all approvals
or required license and permits will be obtained.
The
Ambler Project will require multiple permits from regulatory agencies and other
entities at the Federal, State and local (Borough) levels. Due to the remoteness
of the Ambler Project and lack of existing infrastructure, it is likely that
a substantial environmental review and significant permitting effort will also
be a part of the development of support infrastructure. Both mine and infrastructure-related
environmental review and permitting efforts will be heavily focused toward water
and air quality permits, specifically, how those permits could administer discharges,
emissions and other waste management aspects associated with the operational
facilities. Given the remoteness and environmentally sensitive location of the
Ambler Project, the environmental review and permitting process may be protracted
over that which would be expected at a similar facility in or near a more developed
area. It is possible that a legal challenge could be brought through one or
more of these requirements or processes that could delay, increase costs or
require the suspension of one or more permits.
The
NEPA and the Council of Environmental Quality (“
CEQ
”) Regulations
40 CFR parts 1500–1508 will govern the Federal environmental permitting
process for the Ambler Project. Issuance of permit(s) by a Federal agency constitutes
a Federal action, which by law requires review through the NEPA process. Since
development of the Ambler Project would require a number of Federal level permits,
the Ambler Project will most likely be required to complete the NEPA process.
The
NEPA process requires that all elements of a project and their direct, indirect
and cumulative impacts be considered. A reasonable range of project alternatives
are evaluated to assess their comparative environmental impacts, including consideration
of feasibility and practicability. Typically, mining projects of this magnitude
require the preparation of an Environmental Impact Statement (“
EIS
”).
The Alaska Division of Environmental Conservation (“
ADEC
”)
could act as the lead state agency with responsibility to coordinate the state
permitting process. Upon completion of the NEPA process, it is anticipated that
a Record of Decision (“
ROD
”) will be prepared by one or more
agencies that presents the preferred alternative for the Ambler Project and
the basis for the decision. Federal, state and local agencies needing to issue
permits for the operation of the Ambler Project will then be able to take whatever
steps are needed to complete the applicable permitting process and impose whatever
restrictions or covenants may apply.
I-26
No
assurance can be given that new laws and regulations will not be enacted or
that exiting laws and regulations will not be applied in a manner that could
limit or curtail the Ambler Project. Amendments to current laws, regulations,
licenses and permits governing operations and activities of mining companies,
or more stringent implementation thereof, could have a material adverse impact
on the Ambler Project and cause increases in capital expenditures or production
costs, or reduction in levels of production, or abandonment, or delays in the
development of the business.
Ambler Project - Current Activities
Field
work at the Ambler project during 2011 included approximately 7,100 metres of
exploration and geotechnical drilling. Exploration drilling focused on the Bornite
target and geotechnical drilling to provide structural information on the Arctic
deposit for a greater understanding of the deposit as well as subsurface hydrologic
information. In addition, significant progress was made in establishing camp
infrastructure to support larger field programs including the building of a
40-man camp near the Bornite deposit. The 2012 work program will focus on advancing
the environmental and engineering studies required to initiate a pre-feasibility
study for the project, with geotechnical, metallurgical and hydrological studies
as well as environmental baseline data collection. Significant exploration drilling
is planned for 2012 on the Bornite target as well as additional prospects in
the area. Exploration drilling is planned for prospects in the Ambler belt which
have been identified through further analysis and mapping during 2011.
Bornite Deposit
The
Bornite Deposit is located on the recently consolidated approximately 146,500-hectare
Upper Kobuk Mineral Project located in the Ambler mining district of Northwest
Alaska which is approximately 26 kilometers southwest of the Arctic deposit
and hosts a high-grade copper and zinc mineral resource.
In
2011, initial drilling (the “2011 Initial Drill Program”) was focussed
on verifying historical mineralized zones with a series of diamond drill holes
(“DDHs”), designated as RC11-181 to 186. NovaGold, completed a series
of exploration holes, designated as RC11-187 to 194, to test possible extensions
of mineralization and carried out an initial deep dipole/dipole Induced Polarization
(“IP”) survey which showed highly promising results in defining stratigraphy
and mineralization.
Highlights
of the 2011 Initial Drill Program are as follows:
|
|
•
|
RC11-181 intersected 17.6 metres grading 8.4% copper.
Overall the hole intersected four mineralized intervals totaling 122.3
metres averaging 2.3% copper;
|
|
|
|
|
|
|
•
|
RC11-182 intersected two mineralized intervals totaling
93.2 metres averaging 2.1% copper including 18.9 metres grading 3.4% copper
and 15.9 metres of 3.6% copper;
|
|
|
|
|
|
|
•
|
RC11-183 intersected 6.8 metres grading 24.5%
copper within a mineralized interval totaling 26.3 metres grading 6.7%
copper; and
|
|
|
|
|
|
|
•
|
RC11-184 intersected 5.5 metres grading 28.5%
copper within a mineralized interval totaling 31.9 metres grading 5.4%
copper.
|
Initial
exploration drilling was equally successful. Most importantly, exploration drilling
on the east and northeast sides of the deposit encountered significant mineralization
in DDH RC11-187 which drilled a continuous interval of 178 metres grading 3.9%
copper included a very significant high-grade intersection of 34.7 metres grading
11.4% copper.
I-27
Significant
intercepts are shown in the table below. A total of 11 drill holes were completed
and NovaCopper has received assays from the first five holes. The total metres
drilled at Bornite are approximately 6,000 meters and NovaCopper expects results
from an additional six holes by the end of the year.
Following
the release of the results of the 2011 Initial Drill Program further drilling
occurred on the Bornite target which produced significant new drill results
(the “2011 Subsequent Drill Program). The results of the 2011 Subsequent
Drill Program complement major intersections achieved in the 2011 Initial Drill
Program.
Highlights
of the 2011 Subsequent Drill Program are as follows:
-
RC11-194 intersected two mineralized intervals totalling 110.6 meters averaging
2.6% copper including 11.8 meters grading 7.5% copper;
-
RC11-185 intersected 18.1 meters grading 3.8% copper. Overall the hole
intersected two mineralized intervals totalling 121.3 meters averaging 1.4%
copper;
-
RC-186 intersected three mineralized intervals totalling 153.1 meters averaging
1.2% copper including 67.8 meters grading 1.4% copper and 59.2 meters of
1.0% copper; and
-
receipt of assay over-limits on Hole RC11-187 results in revised mineralization
intervals of 178 meters grading 4.0% copper and a high-grade intersection
of 34.7 meters of 12.0% copper.
In
addition to successful confirmation of the 2011 Initial Drill Program, exploration
drilling to the northeast of the Bornite deposit encountered significant mineralization
in a new area identified as the South Reef. Specifically, RC11-194 which drilled
110.6 meters of 2.6% copper, including 11.8 meters grading 7.5% copper, intersected
the South Reef 700 meters along strike from RC11-187 which, as previously announced
in the news release on November 10, 2011, exhibited a continuous interval of
178 meters grading 4.0% copper and a very high-grade intersection of 34.7 meters
grading 12.0% copper. The South Reef which remains open is demonstrated in section
‘C-C’ attached and will be a focus of Bornite exploration drilling
in 2012 to enable a resource estimate to be completed on this highly prospective
zone. Details of the 2011 Subsequent Drill Program are included in the table
below.
Table 3: Bornite Significant Drill Intervals
|
Depth
from
|
To
|
Core
interval
metres
|
core
interval
feet
|
Cu
%
|
Co
%
|
Au gpt
|
Ag
gpt
|
|
DDH
RC11-181
|
264.3
|
300.6
|
36.3
|
119.1
|
4.36
|
-
|
-
|
-
|
|
including
|
*283.0
|
300.6
|
17.6
|
57.7
|
8.35
|
0.09
|
0.09
|
8.8
|
|
|
372.8
|
388.0
|
15.2
|
50.0
|
1.58
|
-
|
-
|
-
|
|
|
410.4
|
454.0
|
43.6
|
143.0
|
1.01
|
-
|
-
|
-
|
|
|
536.1
|
563.3
|
27.2
|
89.1
|
1.87
|
-
|
-
|
-
|
|
4 intervals
|
|
|
122.3
|
401.2
|
2.27
|
-
|
-
|
-
|
|
DDH
RC11-182
|
168.6
|
245.9
|
77.3
|
253.6
|
1.85
|
-
|
-
|
-
|
|
including
|
*212.0
|
230.9
|
18.9
|
62.0
|
3.43
|
-
|
-
|
-
|
|
|
270.7
|
286.5
|
15.9
|
52.0
|
3.57
|
-
|
-
|
-
|
|
2 intervals
|
|
|
93.2
|
305.6
|
2.14
|
-
|
-
|
-
|
|
DDH
RC11-183
|
304.2
|
330.5
|
26.3
|
86.3
|
6.73
|
-
|
-
|
-
|
|
including
|
*323.7
|
330.5
|
6.8
|
22.1
|
24.47
|
0.14
|
0.57
|
21.0
|
|
1 interval
|
|
|
26.3
|
86.3
|
6.73
|
-
|
-
|
-
|
|
DDH
RC11-184
|
302.3
|
334.2
|
31.9
|
104.7
|
5.41
|
-
|
-
|
-
|
|
including
|
*328.7
|
334.2
|
5.5
|
18.0
|
28.50
|
0.44
|
0.44
|
30.9
|
|
1 interval
|
|
|
31.9
|
104.7
|
5.41
|
-
|
-
|
-
|
|
DDH
RC11-185
|
122.7
|
204.2
|
81.5
|
267.3
|
1.64
|
-
|
-
|
-
|
|
including
|
*
173.74
|
191.8
|
18.1
|
59.4
|
3.78
|
-
|
-
|
-
|
|
|
280.2
|
320.0
|
39.8
|
130.6
|
0.89
|
-
|
-
|
-
|
|
2 intervals totaling
|
|
|
121.3
|
398.0
|
1.39
|
-
|
-
|
-
|
|
DDH
RC11-186
|
12.9
|
38.9
|
26.1
|
85.6
|
1.20
|
-
|
-
|
-
|
|
|
148.1
|
207.3
|
59.2
|
194.2
|
1.05
|
-
|
-
|
-
|
I-28
|
|
279.4
|
347.2
|
67.8
|
222.6
|
1.43
|
-
|
-
|
-
|
|
3 intervals totaling
|
|
|
153.1
|
502.3
|
1.24
|
-
|
-
|
-
|
|
DDH
RC11-187**
|
408.0
|
586.0
|
178.0
|
584.1
|
4.01
|
-
|
-
|
-
|
|
including
|
*458.7
|
493.4
|
34.7
|
113.8
|
12.03
|
0.10
|
0.16
|
5.4
|
|
1 interval totaling
|
|
|
178.0
|
584.1
|
4.01
|
|
|
|
|
DDH
RC11-192
|
396.1
|
480.7
|
84.6
|
277.4
|
1.54
|
-
|
-
|
-
|
|
1 interval totaling
|
|
|
84.6
|
377.4
|
1.54
|
-
|
-
|
-
|
|
DDH 11-194
|
629.6
|
639.2
|
9.6
|
31.5
|
3.53
|
-
|
-
|
-
|
|
|
661.1
|
762.1
|
101.0
|
331.4
|
2.56
|
-
|
-
|
-
|
|
including
|
*750.33
|
762.1
|
11.8
|
38.7
|
7.51
|
0.05
|
0.36
|
-
|
|
2 intervals totaling
|
|
|
110.6
|
362.9
|
2.64
|
-
|
-
|
-
|
Footnotes to Drill Interval Table:
|
|
1.
|
Results are core intervals and not true thickness.
Mineralization is believed to be generally tabular and shallow dipping.
|
|
|
2.
|
Significant interval defined as a minimum 20.0% x-metre
Cu interval.
|
|
|
3.
|
Cutoff grade of 0.5% Cu.
|
|
|
4.
|
Internal dilution up to six continuous metres of
<0.5% Cu.
|
|
|
5.
|
Intervals of <0.1g/t Au, <0.05% Co and <5.0
g/t Ag not reported.
|
|
|
6.
|
Significant quantities of Au, Ag, and Co are reported
in high-grade intervals.
|
|
|
7.
|
Some rounding errors may occur.
|
|
|
8.
|
Intervals >3.0% Cu are highlighted.
|
Bornite Deposit - Quality Control
The
drill program and sampling protocol were managed by qualified persons employed
by NovaGold. The diamond drill holes were typically collared at HQ diameter
drill core and reduce to NQ diameter during the drilling process. Samples were
collected using a 0.5 -metre minimum length, three-metre maximum length and
1.5 -metre average sample length. Drill core recovery averaged 95%. Three quality
control samples (one blank, one standard and one duplicate) were inserted into
each batch of 20 samples. The drill core was sawn, with half sent to ALS Chemex
in Fairbanks for sample preparation and the sample pulps forwarded to ALS’s
North Vancouver facility for analysis. ALS Minerals in North Vancouver, B.C.,
Canada, is a facility certified as ISO 9001:2008 and accredited to ISO / IEC
17025:2005 from the Standards Council of Canada. The drill program was commissioned
by NovaGold and the results were prepared for NovaGold by Heather Brown, P.Geo,
GIS Database Geologist for NovaGold and a Qualified Person as defined by NI
43-101. To the best of NovaGold’s knowledge, information and belief, there
is no material scientific or technical information that would make the disclosure
therein inaccurate or misleading.
Bornite Deposit - Current Activities
The 2012 work program at the Bornite deposit will focus on developing
a resource estimate at the property and completing approximately 10,000 –
15,000 metres of exploration drilling to investigate areas of interest from
the 2011 work and further define the deposit. Additionally, a soil geochemistry
program and a geophysical program is also planned to provide further information
in defining stratigraphy and mineralization.
RISK FACTORS
The
following risk factors, as well as risks currently unknown to us, could materially
adversely affect our future business, operations and financial condition and
could cause them to differ materially from the estimates described in forward-looking
information relating to NovaCopper, or its business, property or financial results.
Risks Related to the Business of NovaCopper
We
have not defined any proven or probable reserves and none of our mineral properties
are in production or under development.
We
are an exploration and development company and all of our properties are in
the exploration stage. We have not defined or delineated any measured resources
or proven or probable reserves on any of our properties. Mineral exploration
involves significant risk, since few properties that are explored contain bodies
of ore that would be commercially economic to develop into producing mines.
We cannot assure you that we will establish the presence of any measured resources,
or proven or probable reserves at the Ambler Project or any other properties.
I-29
The failure to establish measured resources, or proven or probable
reserves would severely restrict our ability to implement our strategies for
long-term growth.
Even
if one of our mineral properties is determined to be economically viable to
develop into a mine, such development may not be successful.
If
the development of one of our properties is found to be economically feasible
and approved by the Board such development will require obtaining permits and
financing, the construction and operation of mines, processing plants and related
infrastructure, including road access. As a result, we are and will continue
to be subject to all of the risks associated with establishing new mining operations,
including:
-
the timing and cost, which can be considerable, of the construction of
mining and processing facilities and related infrastructure;
-
the availability and cost of skilled labour and mining equipment;
-
the availability and cost of appropriate smelting and refining arrangements;
-
the need to obtain necessary environmental and other governmental approvals
and permits and the timing of the receipt of those approvals and permits;
-
the availability of funds to finance construction and development activities;
-
potential opposition from non-governmental organizations, environmental
groups or local groups which may delay or prevent development activities;
and
-
potential increases in construction and operating costs due to changes
in the cost of fuel, power, materials and supplies.
The
costs, timing and complexities of developing our projects may be greater than
anticipated because such property interests are not located in developed areas,
and, as a result, our property interests are not currently served by appropriate
road access, water and power supply and other support infrastructure. Cost estimates
may increase significantly as more detailed engineering work is completed on
a project. It is common in new mining operations to experience unexpected costs,
problems and delays during construction, development and mine start-up. In addition,
delays in the early stages of mineral production often occur. Accordingly, we
cannot provide assurance that our activities will result in profitable mining
operations at our mineral properties.
We
cannot assure you that we will achieve production or that we will ever be profitable
if production is achieved. We do not expect to receive revenue for the foreseeable
future.
We
have no history of production and no revenue from operations.
We
have a very limited history of operations and to date have generated no revenue
from operations. As such, we are subject to many risks common to such enterprises,
including under-capitalization, cash shortages, limitations with respect to
personnel, financial and other resources and lack of revenues. Because there
is no assurance that the Arctic deposit or any other ore bodies will be commercially
mineable, we may never generate revenues from our operations.
We
may not have sufficient funds to develop our mineral properties or to complete
further exploration programs.
We
have limited financial resources. Following completion of the Arrangement we
will have estimated cash and cash equivalents of $40 million. We currently generate
no operating revenue, and must primarily finance exploration activity and the
development of mineral properties by other means. In the future, our ability
to continue exploration, and development and production activities, if any,
will depend on our ability to obtain additional external financing. Any unexpected costs, problems or delays
could severely impact our ability to continue exploration and development activities.
The failure to meet ongoing obligations on a timely basis could result in a
loss or a substantial dilution of NovaCopper’s interests in its properties.
I-30
The
sources of external financing that we may use for these purposes include project
or bank financing, or public or private offerings of equity and debt. In addition,
we may enter into one or more strategic alliances or joint ventures, decide
to sell certain property interests, or utilize one or a combination of all of
these alternatives. The financing alternative we chose may not be available
on acceptable terms, or at all. If additional financing is not available, we
may have to postpone further exploration or development of, or sell, one or
more of our principal properties.
Changes
in the market price of copper and other metals, which in the past have fluctuated
widely, will affect profitability of NovaCopper’s operation and financial
condition and ability to finance operations.
Our
profitability and long-term viability will depend, in large part, on the market
price of copper and other metals. The market prices for these metals are volatile
and are affected by numerous factors beyond our control, including:
-
global or regional consumption patterns;
-
the supply of, and demand for, these metals;
-
speculative activities;
-
the availability and costs of metal substitutes;
-
expectations for inflation; and
-
political and economic conditions, including interest rates and currency
values.
We
cannot predict the effect of these factors on metal prices. A decrease in the
market price of copper and other metals could affect our ability to finance
the exploration and development of any of our mineral properties, which would
have a material adverse effect on NovaCopper’s financial condition and
results of operations. The market price of copper and other metals may not remain
at current levels. In particular, an increase in worldwide supply, and consequent
downward pressure on prices, may result over the longer term from increased
copper production from mines developed or expanded as a result of current metal
price levels. There is no assurance that a profitable market may exist or continue
to exist.
Actual
capital costs, operating costs, production and economic returns may differ significantly
from those described in the PEA.
The
PEA is an early stage study that is preliminary in nature. There can be no assurance
that the results described in the PEA will be realized. The capital costs to
take NovaCopper’s projects into production may be significantly higher
than anticipated.
Decisions
about the development the Ambler Property will ultimately be based upon feasibility
studies. Feasibility studies derive estimates of cash operating costs based
upon, among other things:
-
anticipated tonnage, grades and metallurgical characteristics of the ore
to be mined and processed;
-
anticipated recovery rates of metals from the ore;
-
cash operating costs of comparable facilities and equipment; and
I-31
-
anticipated climatic conditions.
Cash
operating costs, production and economic returns, and other estimates contained
in studies or estimates prepared by or for NovaCopper may differ significantly
from those anticipated by the PEA and there can be no assurance that NovaCopper’s
actual operating costs will not be higher than currently anticipated.
As
the Ambler Project is in a remote area of Alaska, and access to the Ambler Project
is limited and exploration and production activities may be limited and delayed
by inclement weather and a shortened exploration season.
The
Ambler Project is in a remote area of Alaska. Access to the Ambler project is
limited and there is currently no infrastructure in the area. We cannot provide
assurances that the proposed road that would provide access to the Ambler Project
will be built, that it will be built in a timely manner or that the cost of
accessing the proposed road will be reasonable, or that it will sufficiently
satisfy the requirements of the Ambler Project. In addition, successful development
of the Ambler Project will require the development of the necessary infrastructure.
If adequate infrastructure is not available in a timely manner, there can be
no assurance that:
-
the development of the Ambler Project will be commenced or completed on
a timely basis, if at all;
-
the resulting operations will achieve the anticipated production volume;
or
-
the construction costs and operating costs associated with the development
of the Ambler Project will not be higher than anticipated.
As
the Ambler Project is located in a remote area of Alaska, exploration and production
activities may be limited and delayed by inclement weather and a shortened exploration
season.
We
will incur losses for the foreseeable future.
We
expect to incur losses unless and until such time as our mineral projects generate
sufficient revenues to fund continuing operations. The exploration and development
of our mineral properties will require the commitment of substantial financial
resources that may not be available.
The
amount and timing of expenditures will depend on a number of factors, including
the progress of ongoing exploration and development, the results of consultants’
analyses and recommendations, the rate at which operating losses are incurred,
the execution of any joint venture agreements with strategic partners and the
acquisition of additional property interests, some of which are beyond our control.
We cannot provide assurance that we will ever achieve profitability.
Mineral
resource and reserve calculations are only estimates.
Any
figures presented for mineral resources in this Management Proxy Circular and
those which may be presented in the future or any figures for mineral reserves
that may be presented by us in the future are and will only be estimates. There
is a degree of uncertainty attributable to the calculation of mineral reserves
and mineral resources. Until mineral reserves or mineral resources are actually
mined and processed, the quantity of metal and grades must be considered as
estimates only and no assurances can be given that the indicated levels of metals
will be produced. In making determinations about whether to advance any of our
projects to development, we must rely upon estimated calculations as to the
mineral resources and grades of mineralization on our properties.
The
estimating of mineral reserves and mineral resources is a subjective process
that relies on the judgment of the persons preparing the estimates. The process
relies on the quantity and quality of available data and is based on knowledge,
mining experience, analysis of drilling results and industry practices. Valid
estimates made at a given time may significantly change when new information
becomes available. While we believe that the mineral resource estimates included
in this Management Proxy Circular for the Ambler Project are well established
and reflect management’s best estimates, by their nature mineral resource
estimates are imprecise and depend, to a certain extent, upon analysis of drilling results and statistical inferences
that may ultimately prove to be inaccurate. There can be no assurances that
actual results will meet the estimates contained in feasibility studies. As
well, further studies are required.
I-32
Estimated
mineral reserves or mineral resources may have to be recalculated based on changes
in metal prices, further exploration or development activity or actual production
experience. This could materially and adversely affect estimates of the volume
or grade of mineralization, estimated recovery rates or other important factors
that influence mineral reserve or mineral resource estimates. The extent to
which mineral resources may ultimately be reclassified as mineral reserves is
dependent upon the demonstration of their profitable recovery. Any material
changes in mineral resource estimates and grades of mineralization will affect
the economic viability of placing a property into production and a property’s
return on capital. We cannot provide assurance that mineralization can be mined
or processed profitably.
Our
mineral resource estimates have been determined and valued based on assumed
future metal prices, cut-off grades and operating costs that may prove to be
inaccurate. Extended declines in market prices for copper, zinc, lead, gold
and silver may render portions of our mineralization uneconomic and result in
reduced reported mineral resources, which in turn could have a material adverse
effect on our results of operations or financial condition. We cannot provide
assurance that mineral recovery rates achieved in small scale tests will be
duplicated in large scale tests under on-site conditions or in production scale.
A
reduction in any mineral reserves that may be estimated by us in the future
could have an adverse impact on our future cash flows, earnings, results of
operations and financial condition. No assurances can be given that any mineral
resource estimates for the Ambler Project will ultimately be reclassified as
mineral reserves.
Uncertainty
exists related to inferred mineral resources.
There
is a risk that inferred mineral resources referred to in this Management Proxy
Circular cannot be converted into measured or indicated mineral resources as
there may be limited ability to assess geological continuity. Due to the uncertainty
that may attach to inferred mineral resources, there is no assurance that inferred
mineral resources will be upgraded to resources with sufficient geological continuity
to constitute proven and probable mineral reserves as a result of continued
exploration.
Mining
is inherently risky and subject to conditions or events beyond our control.
The
development and operation of a mine is inherently dangerous and involves many
risks that even a combination of experience, knowledge and careful evaluation
may not be able to overcome, including:
-
unusual or unexpected geological formations;
-
metallurgical and other processing problems;
-
metal losses;
-
environmental hazards;
-
power outages;
-
labour disruptions;
-
industrial accidents;
-
periodic interruptions due to inclement or hazardous weather conditions;
-
flooding, explosions, fire, rockbursts, cave-ins and landslides;
I-33
These
risks could result in damage to, or destruction of, mineral properties, production
facilities or other properties, personal injury or death, including to our employees,
environmental damage, delays in mining, increased production costs, asset write
downs, monetary losses and possible legal liability. We may not be able to obtain
insurance to cover these risks at economically feasible premiums, or at all.
Insurance against certain environmental risks, including potential liability
for pollution and other hazards associated with mineral exploration and production,
is not generally available to companies within the mining industry. We may suffer
a material adverse effect on our business if we incur losses related to any
significant events that are not covered by our insurance policies.
General
economic conditions may adversely affect our growth, future profitability and
ability to finance.
The
unprecedented events in global financial markets in the past several years have
had a profound impact on the global economy. Many industries, including the
copper mining industry, are impacted by these market conditions. Some of the
key impacts of the current financial market turmoil include contraction in credit
markets resulting in a widening of credit risk, devaluations, high volatility
in global equity, commodity, foreign exchange and precious metal markets and
a lack of market liquidity. A worsening or slowdown in the financial markets
or other economic conditions, including but not limited to, consumer spending,
employment rates, business conditions, inflation, fuel and energy costs, consumer
debt levels, lack of available credit, the state of the financial markets, interest
rates and tax rates, may adversely affect our growth and ability to finance.
Specifically:
-
the global credit/liquidity crisis could impact the cost and availability
of financing and our overall liquidity;
-
the volatility of copper and other metal prices would impact our revenues,
profits, losses and cash flow;
-
negative economic pressures could adversely impact demand for NovaCopper’s
production;
-
construction related costs could increase and adversely affect the economics
of the Ambler Project;
-
volatile energy, commodity and consumables prices and currency exchange
rates would impact our production costs; and
-
the devaluation and volatility of global stock markets would impact the
valuation of our equity and other securities.
We
cannot provide assurance that we will successfully acquire commercially mineable
mineral rights.
Exploration
for and development of copper properties involves significant financial risks
which even a combination of careful evaluation, experience and knowledge may
not eliminate. While the discovery of an ore body may result in substantial
rewards, few properties which are explored are ultimately developed into producing
mines. Major expenses may be required to establish reserves by drilling, constructing
mining and processing facilities at a site, developing metallurgical processes
and extracting metals from ore. We cannot ensure that our current exploration
and development programs will result in profitable commercial mining operations.
The
economic feasibility of development projects is based upon many factors, including
the accuracy of mineral resource estimates; metallurgical recoveries; capital
and operating costs; government regulations relating to prices, taxes, royalties,
land tenure, land use, importing and exporting and environmental protection;
and metal prices, which are highly volatile. Development projects are also subject
to the successful completion of feasibility studies, issuance of necessary governmental
permits and availability of adequate financing.
I-34
Most
exploration projects do not result in the discovery of commercially mineable
ore deposits, and no assurance can be given that any anticipated level of recovery
of ore reserves, if any, will be realized or that any identified mineral deposit
will ever qualify as a commercially mineable (or viable) ore body which can
be legally and economically exploited. Estimates of mineral reserves, mineral
resources, mineral deposits and production costs can also be affected by such
factors as environmental permitting regulations and requirements, weather, environmental
factors, unforeseen technical difficulties, the metallurgy of the mineralization
forming the mineral deposit, unusual or unexpected geological formations and
work interruptions. If current exploration programs do not result in the discovery
of commercial ore, we may need to write-off part or all of our investment in
existing exploration stage properties, and may need to acquire additional properties.
Material
changes in mineral reserves, if any, grades, stripping ratios or recovery rates
may affect the economic viability of any project. Our future growth and productivity
will depend, in part, on our ability to develop commercially mineable mineral
rights at our existing properties or identify and acquire other commercially
mineable mineral rights, and on the costs and results of continued exploration
and potential development programs. Mineral exploration is highly speculative
in nature and is frequently non-productive. Substantial expenditures are required
to:
-
establish mineral reserves through drilling and metallurgical and other
testing techniques;
-
determine metal content and metallurgical recovery processes to extract
metal from the ore; and
-
construct, renovate or expand mining and processing facilities.
In
addition, if we discover ore, it would take several years from the initial phases
of exploration until production is possible. During this time, the economic
feasibility of production may change. As a result of these uncertainties, there
can be no assurance that we will successfully acquire commercially mineable
(or viable) mineral rights.
We
are subject to significant governmental regulations.
Our
exploration activities are subject to extensive federal, state, provincial and
local laws and regulations governing various matters, including:
-
environmental protection;
-
the management and use of toxic substances and explosives;
-
the management of natural resources;
-
the exploration and development of mineral properties, including reclamation;
-
exports;
-
price controls;
-
taxation and mining royalties;
-
management of tailing and other waste generated by operations;
-
labour standards and occupational health and safety, including mine safety;
and
-
historic and cultural preservation.
Failure
to comply with applicable laws and regulations may result in civil or criminal
fines or penalties or enforcement actions, including orders issued by regulatory
or judicial authorities enjoining, curtailing or closing operations or requiring corrective measures, installation of
additional equipment or remedial actions, any of which could result in significant
expenditures. We may also be required to compensate private parties suffering
loss or damage by reason of a breach of such laws, regulations or permitting
requirements. It is also possible that future laws and regulations, or more
stringent enforcement of current laws and regulations by governmental authorities,
could cause us to incur additional expense or capital expenditure restrictions,
suspensions or closing of our activities and delays in the exploration and development
of our properties.
I-35
We
require further permits in order to conduct current and anticipated future operations,
and delays in obtaining or failure to obtain such permits, or a failure to comply
with the terms of any such permits that we have obtained, would adversely affect
our business.
Our
current and anticipated future operations, including further exploration, development
and commencement of production on our mineral properties, require permits from
various governmental authorities. Obtaining or renewing governmental permits
is a complex and time-consuming process. The duration and success of efforts
to obtain and renew permits are contingent upon many variables not within our
control. Due to the preliminary stages of the Ambler Project, it is difficult
to assess what specific permitting requirements will ultimately apply to such
projects.
Shortage
of qualified and experienced personnel in the U.S. federal and Alaskan State
agencies to coordinate a federally led joint environmental impact statement
process could result in delays or inefficiencies. Backlog within the permitting
agencies could affect the permitting timeline of the Ambler Project. Other factors
that could affect the permitting timeline include (i) the number of other large-scale
projects currently in a more advanced stage of development which could slow
down the review process for the Ambler Project and (ii) significant public response
regarding the Ambler Project.
We
cannot provide assurance that all permits that we require for our operations,
including any for construction of mining facilities or conduct of mining, will
be obtainable or renewable on reasonable terms, or at all. Delays or a failure
to obtain such required permits, or the expiry, revocation or failure to comply
with the terms of any such permits that we have obtained, would adversely affect
our business.
Our
activities are subject to environmental laws and regulations that may increase
our costs and restrict our operations.
All
of our exploration, potential development and production activities are subject
to regulation by governmental agencies under various environmental laws. These
laws address emissions into the air, discharges into water, management of waste,
management of hazardous substances, protection of natural resources, antiquities
and endangered species and reclamation of lands disturbed by mining operations.
Environmental legislation is evolving and the general trend has been towards
stricter standards and enforcement, increased fines and penalties for noncompliance,
more stringent environmental assessments of proposed projects and increasing
responsibility for companies and their officers, directors and employees. Compliance
with environmental laws and regulations may require significant capital outlays
on our behalf and may cause material changes or delays in NovaCopper’s
intended activities. Several regulatory initiatives are currently ongoing within
the State of Alaska that have the potential to influence the permitting process
for the Ambler Project. These include a revision of the Alaska Mixing Zone Regulations
which may be required in order to permit a mixing zone for discharge in Subarctic
Creek. Future changes in these laws or regulations could have a significant
adverse impact on some portion of our business, requiring us to re-evaluate
those activities at that time.
Environmental
hazards may exist on our properties that are unknown to us at the present and
that have been caused by previous owners or operators or that may have occurred
naturally. We may be liable for remediating such damage.
Failure
to comply with applicable environmental laws, regulations and permitting requirements
may result in enforcement actions thereunder, including orders issued by regulator
or judicial authorities, causing operations to cease or to be curtailed, and
may include corrective measures requiring capital expenditures, installation
of additional equipment or remedial actions.
I-36
Land
reclamation requirements for our exploration properties may be burdensome.
Land
reclamation requirements are generally imposed on mineral exploration companies
(as well as companies with mining operations) in order to minimize long term
effects of land disturbance. Reclamation may include requirements to:
-
treat ground and surface water to drinking water standards;
-
control dispersion of potentially deleterious effluents; and
-
reasonably re-establish pre-disturbance land forms and vegetation.
In
order to carry out reclamation obligations imposed on us in connection with
exploration, potential development and production activities, we must allocate
financial resources that might otherwise be spent on further exploration and
development programs. In addition, regulatory changes could increase our obligations
to perform reclamation and mine closing activities. If we are required to carry
out unanticipated reclamation work, our financial position could be adversely
affected.
Title
to our properties may be subject to challenge.
We
cannot provide assurance that title to our properties will not be challenged.
We own mineral claims which constitute our property holdings. We may not have,
or may not be able to obtain, all necessary surface rights to develop a property.
Title insurance is generally not available for mineral properties and our ability
to ensure that we have obtained a secure claim to individual mining properties
may be severely constrained. We have not conducted surveys of all of the claims
in which we hold direct or indirect interests. A successful claim contesting
our title to a property will cause us to lose our rights to explore and, if
warranted, develop that property or undertake or continue production thereon.
This could result in our not being compensated for our prior expenditures relating
to the property.
Risks
inherent in acquisitions of new properties.
We
may actively pursue the acquisition of exploration, development and production
assets consistent with our acquisition and growth strategy. From time to time,
we may also acquire securities of or other interests in companies with respect
to which we may enter into acquisitions or other transactions. Acquisition transactions
involve inherent risks, including but not limited to:
-
accurately assessing the value, strengths, weaknesses, contingent and other
liabilities and potential profitability of acquisition candidates;
-
ability to achieve identified and anticipated operating and financial synergies;
-
unanticipated costs;
-
diversion of management attention from existing business;
-
potential loss of our key employees or key employees of any business acquired;
-
unanticipated changes in business, industry or general economic conditions
that affect the assumptions underlying the acquisition;
-
decline in the value of acquired properties, companies or securities;
-
assimilating the operations of an acquired business or property in a timely
and efficient manner;
I-37
-
maintaining NovaCopper’s financial and strategic focus while integrating
the acquired business or property;
-
implementing uniform standards, controls, procedures and policies at the
acquired business, as appropriate; and
-
to the extent that NovaCopper makes an acquisition outside of markets in
which it has previously operated, conducting and managing operations in
a new operating environment.
Acquiring
additional businesses or properties could place increased pressure on NovaCopper’s
cash flow if such acquisitions involve a cash consideration. The integration
of NovaCopper’s existing operations with any acquired business will require
significant expenditures of time, attention and funds. Achievement of the benefits
expected from consolidation would require NovaCopper to incur significant costs
in connection with, among other things, implementing financial and planning
systems. NovaCopper may not be able to integrate the operations of a recently
acquired business or restructure NovaCopper’s previously existing business
operations without encountering difficulties and delays. In addition, this integration
may require significant attention from NovaCopper’s management team, which
may detract attention from NovaCopper’s day-to-day operations. Over the
short-term, difficulties associated with integration could have a material adverse
effect on NovaCopper’s business, operating results, financial condition
and the price of NovaCopper’s common shares. In addition, the acquisition
of mineral properties may subject NovaCopper to unforeseen liabilities, including
environmental liabilities, which could have a material adverse effect on NovaCopper.
There can be no assurance that any future acquisitions will be successfully
integrated into NovaCopper’s existing operations.
Any
one or more of these factors or other risks could cause us not to realize the
anticipated benefits of an acquisition of properties or companies, and could
have a material adverse effect on our financial condition.
High
metal prices in recent years have encouraged increased mining exploration, development
and construction activity, which has increased demand for, and cost of, exploration,
development and construction services and equipment.
The
relative strength of metal prices over the past five years has encouraged increases
in mining exploration, development and construction activities around the world,
which has resulted in increased demand for, and cost of, exploration, development
and construction services and equipment. While recent market conditions have
had a moderating effect on the costs of such services and equipment, increases
in such costs may continue with the resumption of an upward trend in metal prices.
Increased demand for and cost of services and equipment could result in delays
if services or equipment cannot be obtained in a timely manner due to inadequate
availability, and may cause scheduling difficulties due to the need to coordinate
the availability of services or equipment, any of which could materially increase
project exploration, development and/or construction costs.
We
face industry competition in the acquisition of exploration properties and the
recruitment and retention of qualified personnel.
We
compete with other exploration and producing companies, many of which are better
capitalized, have greater financial resources, operational experience and technical
capabilities or are further advanced in their development or are significantly
larger and have access to greater mineral reserves, for the acquisition of mineral
claims, leases and other mineral interests as well as for the recruitment and
retention of qualified employees and other personnel. If we require and are
unsuccessful in acquiring additional mineral properties or qualified personnel,
we will not be able to grow at the rate we desire, or at all.
Some
of our directors and officers have conflicts of interest as a result of their
involvement with other natural resource companies.
Certain
of our directors and officers also serve as directors or officers, or have significant
shareholdings in, other companies involved in natural resource exploration and
development or mining-related activities, including, in particular, NovaGold.
To the extent that such other companies may participate in ventures in which
we may participate in, or in ventures which we may seek to participate
in, our directors and officers may have a conflict of interest in negotiating
and concluding terms respecting the extent of such participation. In all cases
where our directors and officers have an interest in other companies, such other
companies may also compete with us for the acquisition of mineral property investments.
Such conflicts of our directors and officers may result in a material and adverse
effect on our profitability, results of operation and financial condition. As
a result of these conflicts of interest, we may miss the opportunity to participate
in certain transactions, which may have a material adverse effect on our financial
position.
I-38
Some
of our current officers split their time between NovaGold and NovaCopper and
their attention may be diverted from our business.
Some
of our current officers split their time between NovaGold and NovaCopper on
an as-needed basis. Business circumstances may result in one or more of these
officers spending more of his time with NovaGold than anticipated. To the extent
any of these or other employees are not available to us at important times or
their attention is diverted from our business, our business may suffer.
We
may experience difficulty attracting and retaining qualified management to grow
our business.
We
are dependent on the services of key executives to advance our corporate objectives
as well as the identification of new opportunities for growth and funding. Ms.
Sanders, Ms. Iley, Mr. Martin, Mr. Piekenbrock, Mr. Rimelman and Ms. White are
currently our only executives. It will be necessary for us to recruit additional
skilled and experienced executives. Our inability to do so, or the loss of any
of these persons or our inability to attract and retain suitable replacements
for them, or additional highly skilled employees required for our activities,
would have a material adverse effect on our business and financial condition.
The
term of the Services Agreement is limited.
Until
we recruit employees to perform the functions covered by the Services Agreement,
we are dependent on NovaGold to provide the services contemplated by the Services
Agreement. The term of the Services Agreement is two years and NovaCopper may
extend the term for up to two additional years. Our inability to recruit required
employees prior to the expiration of the term of the Services Agreement may
have a material adverse effect on our business and financial condition.
NovaCopper
in the future may be subject to legal proceedings.
Due
to the nature of its business, NovaCopper may be subject to numerous regulatory
investigations, claims, lawsuits and other proceedings in the ordinary course
of its business. The results of these legal proceedings cannot be predicted
with certainty due to the uncertainty inherent in litigation, including the
effects of discovery of new evidence or advancement of new legal theories, the
difficulty of predicting decisions of judges and juries and the possibility
that decisions may be reversed on appeal. There can be no assurances that these
matters will not have a material adverse effect on NovaCopper’s business.
Global
climate change is an international concern, and could impact our ability to
conduct future operations.
Global
climate change is an international issue and receives an enormous amount of
publicity. We would expect that the imposition of international treaties or
U.S. or Canadian federal, state, provincial or local laws or regulations pertaining
to mandatory reductions in energy consumption or emissions of greenhouse gasses
could affect the feasibility of our mining projects and increase our operating
costs.
Adverse
publicity from non-governmental organizations could have a material adverse
effect on NovaCopper.
There
is an increasing level of public concern relating to the effect of mining production
on its surroundings, communities and environment. Non-governmental organizations
(“
NGOs
”), some of which oppose resource development, are often vocal critics of the mining industry.
Whilst NovaCopper seeks to operate in a socially responsible manner, adverse
publicity generated by such NGOs related to extractive industries, or NovaCopper’s
operations specifically, could have an adverse effect on the reputation and
financial condition of NovaCopper or its relationships with the communities
in which it operates.
I-39
Market
for securities.
There
is currently no market through which the NovaCopper Shares may be sold and Shareholders
may not be able to resell the NovaCopper Shares acquired under the Arrangement.
There can be no assurance that an active trading market will develop for the
NovaCopper Shares following the completion of the Arrangement, or if developed,
that such a market will be sustained at the trading price of the NovaCopper
Shares immediately after the Effective Date.
There
can be no assurance that fluctuations in the trading price will not materially
adversely impact on NovaCopper’s ability to raise equity funding without
significant dilution to its existing shareholders, or at all.
Future
sales or issuances of equity securities could decrease the value of any existing
common shares, dilute investors’ voting power and reduce our earnings per
share.
We
may sell additional equity securities (including through the sale of securities
convertible into NovaCopper Shares) and may issue additional equity securities
to finance our operations, exploration, development, acquisitions or other projects.
We have a large number of authorized but unissued NovaCopper Shares. We cannot
predict the size of future sales and issuances of equity securities or the effect,
if any, that future sales and issuances of equity securities will have on the
market price of the NovaCopper Shares. Sales or issuances of a substantial number
of equity securities, or the perception that such sales could occur, may adversely
affect prevailing market prices for the NovaCopper Shares. With any additional
sale or issuance of equity securities, investors will suffer dilution of their
voting power and may experience dilution in NovaCopper’s earnings per share.
Our
NovaCopper Shares are subject to various factors that have historically made
share prices volatile.
If
a market for the Common Shares does develop, the market price of Common Shares
may be subject to large fluctuations, which may result in losses to investors.
The market price of the Common Shares may increase or decrease in response to
a number of events and factors, including: our operating performance and the
performance of competitors and other similar companies; volatility in metal
prices; the public’s reaction to our press releases, material change reports,
other public announcements and our filings with the various securities regulatory
authorities; changes in earnings estimates or recommendations by research analysts
who track the Common Shares or the shares of other companies in the resource
sector; changes in general economic and/or political conditions; the number
of Common Shares to be publicly traded after any equity offering; the arrival
or departure of key personnel; acquisitions, strategic alliances or joint ventures
involving us or our competitors; and the factors listed under the heading “
Cautionary
Statement Regarding Forward-Looking Information
”.
The
market price of the NovaCopper Shares may be affected by many other variables
which are not directly related to our success and are, therefore, not within
our control, including other developments that affect the market for all resource
sector securities, the breadth of the public market for the NovaCopper Shares
and the attractiveness of alternative investments.
We
do not intend to pay any cash dividends in the foreseeable future.
We
have not declared or paid any dividends on our NovaCopper Shares. We intend
to retain future earnings, if any, to finance the growth and development of
our business and do not intend to pay cash dividends on the NovaCopper Shares
in the foreseeable future. Any return on an investment in the NovaCopper Shares
will come from the appreciation, if any, in the value of the NovaCopper Shares.
The payment of future cash dividends, if any, will be reviewed periodically
by the Board and will depend upon, among other things, conditions then existing
including earnings, financial condition and capital requirements, restrictions
in financing agreements, business opportunities and conditions and other factors.
See “
Dividend Policy
”.
I-40
NovaCopper
expects to be a “passive foreign investment company” which will likely
have adverse U.S. federal income tax consequences for U.S. shareholders
U.S.
investors in the Offered Shares should be aware that based on current business
plans and financial expectations, NovaCopper expects that it will be a passive
foreign investment company (“
PFIC
”) for the current tax year
and may be a PFIC in future tax years. If NovaCopper is a PFIC for any year
during a U.S. shareholder’s holding period, then such U.S. shareholder
generally will be required to treat any gain realized upon a disposition of
Offered Shares, or any so-called “excess distribution” received on
its Offered Shares, as ordinary income, and to pay an interest charge on a portion
of such gain or distributions, unless the shareholder makes a timely and effective
“qualified electing fund” election (“
QEF Election
”)
or a “mark-to-market” election with respect to the Offered Shares.
A U.S. shareholder who makes a QEF Election generally must report on a current
basis its share of NovaCopper’s net capital gain and ordinary earnings
for any year in which NovaCopper is a PFIC, whether or not NovaCopper distributes
any amounts to its shareholders. For each tax year that NovaCopper qualifies
as a PFIC, NovaCopper intends to: (a) make available to U.S. shareholders, upon
their written request, a “PFIC Annual Information Statement” as described
in Treasury Regulation Section 1.1295 -1(g) (or any successor Treasury Regulation)
and (b) upon written request, use commercially reasonable efforts to provide
all additional information that such U.S. shareholder is required to obtain
in connection with maintaining such QEF Election with regard to NovaCopper.
NovaCopper may elect to provide such information on its website
www.novacopper.com
.
A U.S. shareholder who makes the mark-to-market election generally must include
as ordinary income each year the excess of the fair market value of the Offered
Shares over the taxpayer’s basis therein. Each U.S. shareholder should
consult its own tax advisor regarding the PFIC rules and the U.S. federal income
tax consequences of the acquisition, ownership, and disposition of Offered Shares.
We
anticipate losing our status as a foreign private issuer under U.S. federal securities
laws, resulting in additional expenses associated with compliance with the U.S.
securities laws applicable to U.S. domestic issuers.
As
a foreign private issuer, we are exempt from certain of the provisions of the
U.S. federal securities laws. For example, the U.S. proxy rules and the Section
16 reporting and “short swing” profit rules do not apply to foreign
private issuers. However, we currently anticipate losing our status as a foreign
private issuer. If we lose our status as a foreign private issuer the aforementioned
regulations would apply and we would also be required to commence reporting
on forms required of U.S. companies, such as Forms 10-K, 10-Q and 8-K, rather
than the forms currently available to us, such as Forms 40-F and 6-K. Compliance
with these additional disclosure and timing requirements under these securities
laws would likely result in increased expenses and would require our management
to devote substantial time and resources to comply with new regulatory requirements
following a loss of our foreign private issuer status. Further, to the extent
that we were to offer or sell our securities outside of the United States, we
would have to comply with the more restrictive Regulation S requirements that
apply to U.S. companies, and we would no longer be able to utilize the multijurisdictional
disclosure system forms for registered offerings by Canadian companies in the
United States, which could limit our ability to access the capital markets in
the future.
SELECTED PRO FORMA FINANCIAL INFORMATION
NovaCopper
has not completed a financial year and has not yet conducted any business. The
following is a summary of certain financial information on a
pro forma
basis
for NovaCopper as at November 30, 2011 assuming completion of the Arrangement
as of such date, and should be read in conjunction with the unaudited
pro
forma
consolidated financial statements of NovaCopper attached as Schedule
“F” to this Management Proxy Circular.
I-41
|
|
|
As at November
30, 2011
|
|
|
|
|
|
|
|
Pro Forma As
|
|
|
|
|
Actual
|
|
|
Adjusted
(1)
|
|
|
|
|
(in thousands of $)
|
|
|
Cash and cash equivalents
|
|
1
|
|
|
40,001
|
|
|
Long-term debt
|
|
Nil
|
|
|
Nil
|
|
|
Shareholders’ equity
|
|
|
|
|
|
|
|
NovaCopper Shares
(unlimited authorized, Actual: 200, Pro forma as
|
|
27,280
|
|
|
102,715
|
|
|
Adjusted: 48,412,244)
|
|
|
|
|
|
|
|
Preferred Shares
(unlimited authorized; Actual: Nil; Pro forma as
|
|
Nil
|
|
|
Nil
|
|
|
Adjusted: Nil)
|
|
|
|
|
|
|
|
Deficit
|
|
(32,310
|
)
|
|
(33,802
|
)
|
|
Contributed surplus
|
|
36,281
|
|
|
2,338
|
|
|
Total shareholders’
equity
|
|
31,251
|
|
|
71,251
|
|
|
Total capitalization
|
|
31,252
|
|
|
111,252
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
This
Management’s Discussion and Analysis (“
MD&A
”) of the
Ambler Project is dated the date of this Management Proxy Circular and provides
an analysis of NovaCopper and the Ambler Project’s carve-out financial
results and operations contained elsewhere within this Management Proxy Circular
(the “
Financial Statements
”).
The
following information should be read in conjunction with the audited NovaCopper
consolidated financial statements and related notes for the years ended November
30, 2011 and 2010 (the “
annual consolidated financial statements
”);
and the audited Ambler Project carve-out financial statements and related notes
for the years ended November 30, 2010, 2009 and 2008 (the “
annual carve-out
financial statements
”), which are prepared in accordance with Canadian
GAAP. Canadian GAAP differs in certain material respects from accounting principles
generally accepted in the United States. These differences are outlined in Note
10 to the annual carve-out financial statements. The accounting policies are
outlined in Note 2 to the annual financial statements and have been consistently
followed in preparation of these financial statements. All amounts are in thousands
of United States dollars unless otherwise stated. The results for the periods
presented are not necessarily indicative of the results that may be expected
for any future period. As at the date of this Circular, NovaCopper has 200 common
shares issued and outstanding.
The
financial condition and results of operation of the Ambler Project under the
ownership and management of NovaGold will not necessarily be indicative of the
future performance under NovaCopper, since, among other things, NovaCopper will
have a different capital structure and our access to and cost of capital may
be different. See “
Risk Factors
”.
This
MD&A contains forward-looking information, such as statements regarding
potential mineralization, exploration results and future plans and objectives
of NovaCopper that are subject to various risks and uncertainties, including
those set forth in “
Cautionary Statement Regarding Forward-Looking Information
”
and “
Risk Factors
”. There can be no assurance that such information
will prove to be accurate, and actual results and future events could differ
materially from those anticipated in such information. Readers are cautioned
not to place undue reliance on this forward-looking information.
NovaCopper
is defined as a “Development Stage” company under the Canadian Institute
of Chartered Accountants (“
CICA
”) Handbook. NovaCopper has
no history of earnings, is in the exploration stage, and has no operating revenue
because it has not yet determined whether the project contains reserves that
are economically recoverable. The recoverability of the amounts shown for the
deferred exploration costs are dependent on the discovery of economically recoverable
reserves, the ability to obtain the necessary financing and permits to complete
the development and future profitable production or proceeds from the disposition
thereof. Further, there can be no assurance that the Ambler Project will either
achieve or maintain profitability in the future. Additional financing is required
to fund the continuing exploration and development efforts. Additional financing
by way of private placement or through other equity offerings may also be required
in the future. NovaCopper’s ability to continue as a going concern is dependent on raising additional
financing, the outcome of which cannot be predicted at this time.
I-42
Description of business
NovaCopper
is a mining exploration and development company that was formed to acquire the
Ambler Project in Alaska from NovaGold. NovaCopper will conduct its operations
through its wholly-owned subsidiary, NovaCopper US Inc. NovaCopper US owns 100%
of the Ambler Project.
Approach to business
The
Ambler mining district, including the Arctic deposit and Bornite property, are
expected to be NovaCopper’s initial area of focus for exploration and development.
NovaCopper’s business model focuses on developing local partnerships through
engagement, open and honest communication, and participation to assure the projects’
sustainability; using exploration expertise to expand existing deposits; and
advancing its project to a feasibility level to bring reserves to NovaCopper
and value to shareholders. NovaCopper will leverage its experienced management
to bring value to shareholders.
Overall performance
Below
is a discussion of overall performance, results of operations, financial condition
and cash flows. See also “
Business of NovaCopper
”.
Recent Developments
During
the period ended November 30, 2011, exploration work on the Ambler Project has
been conducted and funded by NovaGold. NovaGold acquired the Ambler Project
through a purchase and sale agreement with Kennecott Exploration Company and
Kennecott Arctic Company (collectively “
Kennecott
”) on January
11, 2010. As consideration, NovaGold issued 931,098 shares with a fair value
of $5 million and agreed to make cash payments of $12 million in each of January
2011 and January 2012. The payments were completed in January 2011 and August
2011, respectively, completing NovaGold’s payment obligations under the
agreement. Kennecott retained a 1% net smelter return royalty that NovaCopper
can purchase at any time for a one-time payment of $10 million. The annual MD&As
that follow relate to the results and operations of the Ambler Project as it
is included in the carve-out financial statements.
The Project was acquired on October 17, 2011 by NovaCopper US
Inc. (“
NovaCopper US
”) through a purchase and sale agreement
with AGC, both wholly owned subsidiaries of NovaGold Resources Inc. (“
NovaGold
”).
NovaGold is a precious metals company engaged in the exploration and development
of mineral properties in North America with a portfolio of mineral properties
located principally in Alaska and British Columbia. On October 24, 2011, NovaGold
transferred its ownership of NovaCopper US to NovaCopper Inc. (“
NovaCopper
”),
a wholly owned subsidiary of NovaGold incorporated on April 27, 2011 in exchange
for shares of NovaCopper.
On October 19, 2011, NovaCopper US and NANA entered into an Exploration
Agreement and Option to Lease the Bornite property and lands deeded to NANA
through the Alaska Native Claims Settlement Act (“
ANSCA
”) located
in the Ambler mining district of Northwest Alaska. As consideration, NovaCopper
US paid $4 million upon signing to acquire the right to explore and develop
the combined Ambler district including NovaCopper US’ Ambler property.
Upon the decision to proceed with development of a mine on the lands, NANA maintains
the right to purchase between a 16%-25% interest in the mine or retain a 15%
net proceeds royalty. Should NANA elect to purchase an interest, consideration
will be payable equal to the historical costs incurred on the properties at
the elected percentage purchased less $40 million. The parties would form a
joint venture and be responsible for all future costs based on their pro-rata
share. NANA would also be granted a net smelter return royalty between 1% and
2.5%, the amount being determined by the land production originates from, upon
the execution of a mining lease or a surface use agreement.
I-43
On November 16, 2011, NovaGold announced its intention to distribute
the shares of NovaCopper, to the shareholders of NovaGold, as a return of capital
by way of a Plan of Arrangement. The Plan of Arrangement is subject to court
and shareholder approval, and various other conditions including initial listing
on the TSX and AMEX. NovaCopper, through its wholly owned subsidiary, NovaCopper
US, now owns a 100% interest in the Project.
Annual MD&A
Selected financial data
The
following selected information has been extracted from the annual consolidated
financial statements of NovaCopper.
Where
applicable, the consolidated financial statements reflect the balance sheet,
statements of loss, comprehensive loss and deficit and cash flows of the Project
as if NovaCopper had been an independent operation from the inception of the
Project. The statements of loss and comprehensive loss for the year ended November
30, 2010, and the period to October 17, 2011, which is included in the year
results to November 30, 2011, include direct general and administrative and
exploration costs of the Project and an allocation of NovaGold’s general
and administrative costs incurred in each of these periods.
The
consolidated statements of loss and comprehensive loss for the year ended November
30, 2011 and 2010 include direct general and administrative and exploration
costs of the Ambler Project and an allocation of NovaGold’s general and
administrative costs incurred in each of these periods. NovaGold has historically
provided corporate services to the Ambler Project, including executive oversight,
information technology, technical expertise, accounting, tax, treasury, human
resources and other services. The allocation of general and administrative costs
to the Ambler Project was calculated on the basis of time committed by NovaGold
staff to AGC and the ratio of expenses incurred on the Ambler Project in each
period presented as compared to all costs incurred by AGC in these periods.
|
|
|
(in thousands of dollars, except per share amounts)
|
|
|
For the year ended, and as at:
|
|
November 30, 2011
|
|
|
November 30, 2010
|
|
|
Total revenues
|
|
-
|
|
|
-
|
|
|
General and administrative expense
|
|
1,338
|
|
|
149
|
|
|
Mineral property expense
|
|
8,492
|
|
|
1,591
|
|
|
Accretion and interest expense
|
|
974
|
|
|
1,556
|
|
|
Total expenses and other items
|
|
11,336
|
|
|
3,340
|
|
|
Loss for the period
|
|
11,336
|
|
|
3,340
|
|
|
Loss per common share – basic and diluted
|
|
97
|
|
|
-
|
|
|
|
|
(in thousands of dollars)
|
|
|
As at:
|
|
November 30, 2011
|
|
|
November 30, 2010
|
|
|
Total assets
|
|
31,772
|
|
|
26,607
|
|
|
Total long term liabilities
|
|
-
|
|
|
23,311
|
|
Results of operations
For
the year ended November 30, 2011, NovaCopper incurred a net loss of $11,336
compared to a net loss of $3,340 for the year ended November, 2010. The significant
increase in net loss relates to mineral property expenditures reflecting a substantial
increase in Ambler Project activities during the 2011 field season. During the
2011 field season, approximately 7,100 metres of drilling was completed, including
approximately 1,200 metres of infill and geotechnical drilling at the Arctic
deposit and approximately 5,900 metres of exploration drilling on the Bornite
property. The results for the year reflect mineral property expenditures of
$8,492, consisting of work performed on the Ambler Project. The significant portion of the
expense for the period relates to project support expense of $2,796, wages and
benefits expense of $2,328, direct drilling expense of $1,759, and engineering
expense of $1,140. For the year ended November 30, 2010, mineral property expense
was $1,591, consisting of project support expense of $543, environmental expense
of $248, and engineering expense of $190. Wages and benefits expense for the
year ended November 30, 2010 was $238. The increases in project support, drilling
and engineering expenses for the year ended November 30, 2011 relates to the
significant increase in activity at the Ambler Project. As discussed above,
a significant drill program was conducted during 2011. During the comparable
period in 2010, there was no drill program conducted. Other activities completed
during the 2011 field season consisted of a geophysical program, mapping, and
validation of historical information. The increase of $2,090 in wages and benefits
relates to a significant increase in personnel during the year for the 2011
field season and support for the Ambler Project. Project support expenses increased
$2,253 from 2010 to 2011 representing the increase in the size of the program.
Significant improvements were made in the camp to support the 2011 two drill
program and future programs. Spending on capital equipment was $1,411 during
the year ended November 30, 2011.
I-44
During
the year ended November 30, 2011, the Ambler Project incurred accretion expense
relating to the Ambler acquisition liability of $974 compared to $1,556 during
the year ended November 30, 2010.
Annual carve-out MD&A
Selected financial data
The
following selected information has been extracted from the annual carve-out
financial statements of the Ambler Project.
The
annual carve-out financial statements reflect the balance sheets, statements
of loss, comprehensive loss and deficit and cash flows of the Ambler Project
as if it had been an independent operation from the inception of the Ambler
Project by NovaGold. The carve-out statements of loss and comprehensive loss
for the years ended November 30, 2010, 2009 and 2008 include direct general
and administrative and exploration costs of the Ambler Project and an allocation
of NovaGold’s general and administrative costs incurred in each of these
periods. NovaGold has historically provided corporate services to the Ambler
Project, including executive oversight, information technology, technical expertise,
accounting, tax, treasury, human resources and other services. The allocation
of general and administrative costs to the Ambler Project was calculated on
the basis of time committed by NovaGold staff to AGC and the ratio of expenses
incurred on the Ambler Project in each period presented as compared to all costs
incurred by AGC in these periods.
|
|
|
(in thousands of dollars)
|
|
|
|
|
November 30, 2010
|
|
|
November 30, 2009
|
|
|
November 20, 2008
|
|
|
For the year ended,
and as at:
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
Total revenues
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Mineral property expense
|
|
1,591
|
|
|
596
|
|
|
3,780
|
|
|
Accretion and interest expense
|
|
1,556
|
|
|
-
|
|
|
-
|
|
|
Total expenses and other items
|
|
3,340
|
|
|
646
|
|
|
4,013
|
|
|
Loss for the period
|
|
3,340
|
|
|
646
|
|
|
4,013
|
|
|
|
|
(in thousands of dollars)
|
|
|
|
|
November 30, 2010
|
|
|
November 30, 2009
|
|
|
As at:
|
|
($)
|
|
|
($)
|
|
|
Total assets
|
|
26,607
|
|
|
10
|
|
|
Total long term liabilities
|
|
23,311
|
|
|
-
|
|
The
Ambler Project’s opening deficit at December 1, 2008 has been calculated
by applying the same allocation principals described above to the cumulative
transactions on the Ambler Project and includes an allocation of NovaGold’s
general and administrative expenses. Prior to the 100% acquisition by NovaGold
in January 2010 described below, the Ambler Project had been explored through
an exploration agreement between NovaGold and Kennecott dated March 22, 2004, as amended, under
which NovaGold had the ability to earn a 51% interest in the Ambler property.
I-45
The
following annual information shows the expenses on the Ambler Project prior
to December 1, 2008.
|
|
|
(in thousands of dollars)
|
|
|
For the year ended
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
November 30:
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Total revenues
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Mineral property expense
|
|
(3,780
|
)
|
|
(3,583
|
)
|
|
(4,102
|
)
|
|
(2,905
|
)
|
|
(1,878
|
)
|
|
Accretion and interest expense
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Total expenses and other items
|
|
(4,013
|
)
|
|
(3,695
|
)
|
|
(4,214
|
)
|
|
(3,013
|
)
|
|
(2,053
|
)
|
|
Loss for the year
|
|
(4,013
|
)
|
|
(3,695
|
)
|
|
(4,214
|
)
|
|
(3,013
|
)
|
|
(2,053
|
)
|
Results of operations
On
December 18, 2009, the Ambler Project’s parent company AGC, entered into
an agreement with Kennecott to purchase a 100% interest in the Ambler property
in northern Alaska, which hosts the high-grade copper-zinc-gold-silver Arctic
deposit. Upon completion of the purchase on January 11, 2010, NovaGold issued
to Kennecott 931,098 common shares valued at $5 million, and agreed to make
cash payments to Kennecott of $12 million each in January 2011 and January 2012.
The January 2011 payment was made on January 7, 2011, and the January 2012 payment
was made early on August 5, 2011. Kennecott retained a 1% net smelter return
royalty that NovaGold can purchase at any time for a one-time payment of $10
million. The purchase agreement terminated the exploration agreement between
NovaGold and Kennecott dated March 22, 2004, as amended, under which NovaGold
had the ability to earn a 51% interest in the Ambler Project.
For
the year ended November 30, 2010, the Ambler Project incurred a net loss of
$3,340 compared to a net loss of $646 for the year ended November 30, 2009.
The results for the year reflect mineral property expenses of $1,591, a significant
increase in the exploration on the Ambler Project over the prior year. A significant
portion of the mineral property expense for the year relates to project support
of $543, legal and title expense of $261, environmental expense of $248, and
wages and benefits expense of $238. For the year ended November 30, 2009, mineral
property expense was $596, consisting mainly of legal and title expense of $187
and stock based compensation expense of $194.
The
increase of $506 in project support in 2010 relative to the $36 in project support
in 2009 relates to an increase in operations at the Ambler Project and the related
support required for exploration. There was minimal activity at the Ambler Project
site in 2009. Similarly, the increase in wages and benefits from $98 in 2009
to $238 in 2010 reflects increased activity at the site and related personnel.
The
Ambler Project also recognized accretion expense of $1,556 in 2010 with no comparative
in 2009. As a result of the acquisition of the Ambler Project, the future payments
owing to Kennecott were discounted using NovaGold’s weighted average cost
of capital of approximately 8%. The accretion expense relates to accreting the
liability to its contractual amount due at the date of payment.
All
historical spending to November 30, 2010 has been funded by NovaGold and is
reflected as such in the annual carve-out financial statements.
Liquidity and capital resources
At
November 30, 2011, NovaCopper had one thousand dollars in cash and cash equivalents
and negative working capital of $424. NovaCopper expended $9,671 on operating
activities during the year compared to $1,442 in the prior year. All amounts
to date have been funded by NovaGold.
I-46
Funding
provided during the year by NovaGold was $39,083 compared to $1,518. NovaCopper
expended $24,000 to complete the payments due to Kennecott under the Ambler
acquisition agreement. NovaCopper did not raise any other funds. Presently,
NovaCopper is economically dependent upon related parties for financial support.
At the completion of the arrangement, NovaCopper will hold approximately $40
million cash.
NovaCopper
has no material off-balance sheet arrangements and no material capital lease
agreements.
NovaCopper’s
contractually obligated cash flow as at November 30, 2011 is as follows:
|
|
|
(in thousands of dollars)
|
|
|
|
|
< 1 year
|
|
|
|
|
$
|
|
|
Accounts payable and accrued liabilities
|
|
126
|
|
|
Due to related parties
|
|
395
|
|
|
|
|
|
|
|
Share capital
|
|
|
|
During
the period from incorporation to November 30, 2011, NovaCopper issued 200 common
shares to raise proceeds of a dollar and to acquire NovaCopper US, which owns
the Ambler Property. All shares issued and outstanding are held by NovaGold.
We have not yet issued any stock options or awards under our equity incentive
plan (the “
NovaCopper Equity Incentive Plan
”); however, we
intend to issue 1,875,000 stock options to Rick Van Nieuwenhuyse following the
Effective Date pursuant to the terms of his Employment Agreement, and we will
have obligations to issue up to 2,196,104 NovaCopper Shares upon exercise of the
NovaCopper Arrangement Options issued pursuant to the Arrangement or vesting
of NovaGold PSUs or New DSUs, as applicable. See “
Consolidated Capitalization
”
.
Related party transactions
NovaCopper
has an amount owing to an affiliate of NovaGold of $395 at November 30, 2011
relating to expenses paid on its behalf. All historical spending to date has
been funded by NovaGold, its shareholder.
Upon
completion of the Arrangement, we will enter into a services agreement with
NovaGold. See “
Business of NovaCopper – Recent Developments –
Services Agreement
”.
Financial instruments
We
have not entered into any hedging or other financial instruments, and are not
exposed to significant interest rate or credit risks.
Critical accounting estimates
The
critical accounting estimates upon which NovaCopper’s financial status
depends are those requiring estimates of the recoverability of its capitalized
mineral property and development costs. Management reviews its accounting estimates
on a regular basis.
Mineral property and development costs
NovaCopper
expenses mineral property exploration expenditures when incurred. When it has
been established that a mineral deposit is commercially mineable and an economic
analysis has been completed, the costs subsequently incurred to develop a mine
on the property prior to the start of mining operations are capitalized and
will be amortized against future production following commencement of commercial
production, or written off if the property is sold, allowed to lapse or abandoned.
The
acquisition of title to mineral properties is a complicated and uncertain process.
NovaCopper, through NovaGold, has taken steps, in accordance with industry standards,
to verify title to the mineral property in which it has an interest. Although NovaCopper has made efforts to ensure
that legal title to its property is properly recorded, there can be no assurance
that such title will ultimately be secured. See “
Risk Factors
”.
I-47
International Financial Reporting Standards (“IFRS”)
and United States accounting principles
In
2006, the Canadian Accounting Standards Board (“
AcSB
”) published
a new strategic plan that will significantly affect financial reporting requirements
for Canadian companies. The AcSB strategic plan outlines the convergence of
Canadian GAAP with IFRS over an expected five-year transitional period. In February
2008, the AcSB announced that 2011 is the changeover date for publicly-listed
companies to use IFRS, replacing Canadian GAAP. The changeover date is for interim
and annual financial statements relating to fiscal years beginning on or after
January 1, 2011. NovaGold’s transition date of incorporation will require
the restatement for comparative purposes of amounts reported for the fiscal
year ending November 30, 2011.
Within
18 months following the Arrangement, NovaCopper expects it will cease to qualify
as a foreign private issuer under the United States Securities Exchange Commission.
As a domestic registrant, NovaCopper expects to reports its financial statements
under accounting principles generally accepted in the United States (“
U.S.
GAAP
”). As the TSX accepts financial statements prepared under U.S.
GAAP, NovaCopper does not expect to transition to IFRS.
Canadian
GAAP differs in certain respects from the principles and practices generally
accepted in the United States. There are no material measurement differences
between Canadian GAAP and U.S. GAAP in accounting for the Project.
DESCRIPTION OF CAPITAL STRUCTURE
NovaCopper
is authorized to issue an unlimited number of common shares, without par value,
and an unlimited number of preferred shares, without par value, issuable in
series (the “
Preferred Shares
”). As at the date of this Management
Proxy Circular, 200 Common Shares and no Preferred Shares were issued and outstanding.
All NovaCopper Shares issued and outstanding are held by NovaGold.
Pursuant
to the terms and conditions of a Unit Purchase Agreement dated as of December
31, 2008 between NovaGold and Electrum Strategic Resources LLC (“
Electrum
”),
Electrum has been given the right until January 21, 2013, subject to certain
exceptions and so long as Electrum owns not less than 15,000,000 of the issued
and outstanding common shares of NovaGold, to participate on a
pro rata
basis
(determined on a fully diluted basis, assuming full exercise of any warrants
held by Electrum or its affiliates) in any offering of equity securities of
NovaGold, including any securities which are exercisable, exchangeable or convertible
into such equity securities. In connection with the Arrangement, it has been
agreed among NovaGold, Electrum and NovaCopper that the Participation Right
will also apply, on the same terms and conditions, to any offering of equity
securities of NovaCopper, including any securities which are exercisable, exchangeable
or convertible into such equity securities.
NovaCopper Shares
All
of the NovaCopper Shares rank equally as to voting rights, participation in
a distribution of the assets of NovaCopper on a liquidation, dissolution or
winding-up of NovaCopper and entitlement to any dividends declared by NovaCopper.
The holders of the NovaCopper Shares are entitled to receive notice of, and
to attend and vote at, all meetings of shareholders (other than meetings at
which only holders of another class or series of shares are entitled to vote).
Each Common Share carries with it the right to one vote. In the event of the
liquidation, dissolution or winding-up of NovaCopper, the holders of the NovaCopper
Shares will be entitled to receive, on a pro rata basis, all of the assets remaining
after the payment by NovaCopper of all of its liabilities, subject to the rights
of the holders of other classes of shares. The holders of NovaCopper Shares
are entitled to receive any dividends declared by NovaCopper in respect of the
NovaCopper Shares, subject to the rights of holders of other classes ranking
in priority to the NovaCopper Shares with respect to the payment of dividends,
on a pro rata basis. There are no preemptive, redemption or conversion rights
attaching to the NovaCopper Shares, other than the contractual rights with NovaGold
as described below. All NovaCopper Shares, when issued, are and will be issued
as fully-paid and non-assessable shares without liability for further calls
or assessment.
I-48
Any
alteration of the rights attached to the NovaCopper Shares must be approved
by at least two-thirds of the NovaCopper Shares voted at a meeting of our shareholders.
Preferred Shares
The
Preferred Shares of NovaCopper may be issued in one or more series and the Board
is authorized to fix the number of shares in each series and to determine the
designation, rights, privileges, restrictions and conditions attached to the
shares of each series. The Preferred Shares rank in parity with the Preferred
Shares of every other series and are entitled to a priority over the NovaCopper
Shares, and any other class of shares ranking junior to the Preferred Shares
of NovaCopper, with respect to the payment of dividends and the distribution
of assets upon the liquidation of NovaCopper.
DIVIDENDS
We
have not, since the date of incorporation, declared or paid any dividends on
our NovaCopper Shares, and do not currently have a policy with respect to the
payment of dividends. For the foreseeable future, we anticipate that we will
retain future earnings and other cash resources for the operation and development
of our business. The payment of dividends in the future will depend on the earnings,
if any, and our financial condition and such other factors as our Board considers
appropriate.
CONSOLIDATED CAPITALIZATION
The
following table sets forth our cash and cash equivalents, and consolidated capitalization,
as at the date of this Management Proxy Circular. The following table should
be read in conjunction with the annual consolidated financial statements of
NovaCopper Inc. and the pro forma consolidated financial statements, including
the notes thereto, contained elsewhere in this Management Proxy Circular.
|
|
|
As at November
30, 2011
|
|
|
|
|
|
|
|
Pro Forma As
|
|
|
|
|
Actual
|
|
|
Adjusted
(1)
|
|
|
|
|
(in thousands of $)
|
|
|
Cash and cash equivalents
|
|
1
|
|
|
40,001
|
|
|
Long-term debt
|
|
Nil
|
|
|
Nil
|
|
|
Shareholders’ equity
|
|
|
|
|
|
|
|
NovaCopper Shares
(unlimited authorized, Actual: 200, Pro forma as
|
|
27,280
|
|
|
102,715
|
|
|
Adjusted: 48,412,244)
|
|
|
|
|
|
|
|
Preferred Shares
(unlimited authorized; Actual: Nil; Pro forma as
|
|
Nil
|
|
|
Nil
|
|
|
Adjusted: Nil)
|
|
|
|
|
|
|
|
Deficit
|
|
(32,310
|
)
|
|
(33,802
|
)
|
|
Contributed surplus
|
|
36,281
|
|
|
2,338
|
|
|
Total shareholders’
equity
|
|
31,251
|
|
|
71,251
|
|
|
Total capitalization
|
|
31,252
|
|
|
111,252
|
|
The
pro forma fully diluted share capital of NovaCopper, upon completion of the
Arrangement and the exercise of all options and warrants to acquire NovaCopper
Shares is set out below:
I-49
|
|
NUMBER OF NOVACOPPER
|
|
|
DESIGNATION OF NOVACOPPER SECURITY
|
SHARES
|
PERCENTAGE
|
|
NovaCopper Shares issued to Shareholders in accordance with the Arrangement
|
46,339,226
|
84%
|
|
NovaCopper Shares that may be issued pursuant to the exercise of NovaCopper
Arrangement Options
(1)
|
2,153,606
(1)
|
4%
|
|
NovaCopper Shares that may be issued pursuant to the exercise of NovaGold
Warrants
|
6,321,597
|
12%
|
|
NovaCopper Shares that may be issued pursuant to the vesting of NovaGold
PSUs
|
57,750
|
-%
|
|
NovaCopper Shares that may be issued pursuant to the vesting of NovaGold
DSUs
|
3,999
|
-%
|
|
Total:
|
54,876,178
|
100%
|
|
Notes:
|
|
(1)
|
Does not include the 1,875,000 NovaCopper Options to
be issued to Rick Van Niewenhuyse following the Effective Date pursuant
to the terms of his Employment Agreement.
|
OPTIONS TO PURCHASE SECURITIES
We
have an equity incentive plan that was adopted on February 27, 2012 (the “
Equity
Incentive Plan
”) for the benefit of the officers, directors, employees
and consultants (which includes individuals provided to us under the terms of
the Services Agreement) of NovaCopper or any subsidiary company. The purpose
of the Equity Incentive Plan is to attract, retain and motivate eligible persons
and to align the interests of such persons with those of shareholders of the
Company through the incentive inherent in share ownership and by providing them
an opportunity to participate in the Company’s future performance through
awards of options and bonus shares.
We
believe the Equity Incentive Plan will increase our ability to attract skilled
individuals by providing them with the opportunity, through the exercise of
stock options and the issuance of bonus shares to benefit from the anticipated
growth of NovaCopper. The Board has the authority to determine the directors,
officers, employees and consultants to whom options or bonus shares will be
granted, the number of options or bonus shares to be granted to each person
and the price at which NovaCopper Shares may be purchased, subject to the terms
and conditions set forth in the Equity Incentive Plan.
Material
provisions of the Equity Incentive Plan include:
-
that the eligible persons are any outside director, officer, employee,
or consultant of NovaCopper or any subsidiary companies (which includes
individuals provided to us under the terms of the Services Agreement). Options
granted may be either “incentive stock options” within the meaning
of Section 422 of the U.S. Internal Revenue Code of 1986, as amended, or
options that are non-qualified for United States federal income tax purposes;
-
the maximum number of NovaCopper Shares issuable pursuant to the Equity
Incentive Plan shall not exceed 10% of the issued and outstanding NovaCopper
Shares on the date of grant.
-
any issuance of NovaCopper Shares from treasury, including issuances pursuant
to the exercise of options or pursuant to the Share Bonus Plan (as defined
herein) shall automatically replenish the number of NovaCopper Shares issuable
under the Equity Incentive Plan. Options that have been cancelled or that
have expired without being exercised continue to be issuable under the Equity
Incentive Plan;
I-50
-
the number of NovaCopper Shares issuable to insiders under the Equity Incentive
Plan (together with those NovaCopper Shares issuable pursuant to any other security
based compensation arrangements of NovaCopper or its subsidiaries) shall
not, at any time, exceed 10% of the NovaCopper Shares outstanding on the
date of grant;
-
no Eligible Person may be granted Options under the Plan for more than 15,000,000 NovaCopper
Shares (subject to adjustment as provided for in the Equity Incentive Plan), in the aggregate in any calendar year;
-
the number of NovaCopper Shares which may be issued under the Equity Incentive Plan
to insiders within a one- year period (together with NovaCopper Shares issuable
pursuant to any other security based compensation arrangements of the Company
or its subsidiaries) shall not, at any time, exceed 10% of the NovaCopper
Shares outstanding;
-
the vesting period of all options shall be determined by the committee
appointed by the Board to administer the Equity Incentive Plan;
-
options may be exercisable for a period of up to a maximum term of ten
years (five years for incentive stock options issued to shareholders owning
more than 10% of the combined voting power of all classes of shares), such
period to be determined by the Committee and the options are non-transferable
and non-assignable;
-
options are not exercisable while a blackout period is in effect and, with
the exception of Incentive Stock Options with a 10 year term if an option
would otherwise expire during a blackout, the term of the option is extended
to ten days following expiry of the blackout;
-
the exercise price of the options, assuming the NovaCopper Shares are listed
on the TSX, will be no less than the greater of: (i) the market price, which
means the volume weighted average price of the NovaCopper Shares on the
TSX for the five trading days prior to the date of grant of the option;
and (ii) the fair market value, which means the closing price of the NovaCopper
Shares on the TSX on the last trading day prior to the date of grant of
the option;
-
a “net exercise” feature which allows for optionees to receive,
at the discretion of the Board, the number of NovaCopper Shares having a
value equal to the number of NovaCopper Shares issuable if such options
were exercised multiplied by a quotient, the numerator of which is the result
of the market price of one Common Share less the exercise price of one Common
Share, and the denominator of which is the market price of one Common Share,
without having to pay cash at the time of exercise;
-
options held by optionees who are terminated without cause shall be exercisable
until the date which is the earlier of six months after the date of termination
and the expiry date of the options, provided that the Committee retains
the discretion to accelerate vesting;
-
options held by optionees who are terminated for cause shall be void and
of no further force or effect on the date of termination;
-
in the event of death of an optionee, any vested option held as at the
date of death is exercisable until the date which is the earlier of six
months after the date of death and the expiry date of the options;
-
upon a change of control (as defined in the Equity Incentive Plan), all
options shall vest;
-
except in certain cases with respect to incentive stock options, the expiry
date of outstanding options is extended where such expiry date falls within
a Company imposed blackout period;
-
pursuant to the share bonus plan (the “Share Bonus Plan”), which
forms a part of the Equity Incentive Plan, the Board, on the recommendation
of the Compensation Committee, shall have the right, subject to the limitations
set forth in the Equity Incentive Plan, to issue or reserve for issuance,
for no cash consideration, to any eligible person, any number of NovaCopper
Shares as a discretionary bonus of NovaCopper Shares subject to such provisos
and restrictions as the Board may determine. The aggregate number of NovaCopper Shares that may be issued under
the Share Bonus Plan is 1,000,000;
I-51
-
the Board may, from time to time, subject to applicable law and the rules
of the TSX, but without shareholder approval, suspend, terminate, or amend
the Equity Incentive Plan for the purposes of making minor or technical modifications,
to correct any ambiguity or defective provisions or to change any vesting
provisions of the options issuable under the Equity Incentive Plan or; and
-
the Board, absent prior approval of the shareholders of NovaCopper and the
TSX or any regulatory body having authority over NovaCopper, will not be entitled
to: (i) increase the maximum number of NovaCopper Shares issuable by NovaCopper
pursuant to the Equity Incentive Plan; (ii) amend an option grant for an option
held by an insider to effectively reduce the exercise price or extend the
expiry date of such options; (iii) permit options granted under the Equity
Incentive Plan to be transferable or assignable other than for normal estate
settlement purposes; (iv) to reduce the allocation of NovaCopper Shares to
the Share Bonus Plan; and (v) make any change to the amendment provisions
of the Equity Incentive Plan.
Please
see the section entitled “
Consolidated Capitalization
” in this
Schedule “I” for a
pro forma
breakdown of the number of NovaCopper
Shares issuable upon exercise of options to acquire NovaCopper Shares upon completion
of the Arrangement.
PRIOR SALES
The
following table summarizes the sales of NovaCopper Shares within the 12 months
prior to the date of this Management Proxy Circular. On the Effective Date,
it is expected that a total of 46,339,226 NovaCopper Shares will become
outstanding pursuant to the Arrangement. As set forth in the section entitled
“
Consolidated Capitalization
” to this Schedule “I”,
NovaCopper will have the obligation to issue up to 8,536,952 NovaCopper
Shares upon exercise of NovaCopper Arrangement Options, NovaGold Warrants, NovaGold
PSUs, and NovaGold DSUs received pursuant to terms of the Arrangement.
|
Date
|
|
Number of NovaCopper Shares
|
|
Proceeds
|
|
$
per Common Share
|
|
April 27, 2011
|
|
100
|
|
$1
|
|
0.01
|
|
|
|
|
|
|
|
|
|
October 24, 2011
|
|
100
|
|
$nil
|
|
$nil
|
MARKET FOR SECURITIES
Currently,
there is no market for the NovaCopper Shares. It is a condition precedent to
the completion of the Arrangement that the NovaCopper Shares be conditionally
approved for listing on the TSX. An application has been made to have the NovaCopper
Shares listed on the TSX. NovaCopper anticipates applying for a listing of the
NovaCopper Shares on the AMEX. Listing will be subject to NovaCopper meeting
the original listing requirements of the TSX and AMEX, receiving approval of
the TSX and AMEX and meeting all conditions of listing imposed by the TSX and
AMEX. There can however, be no assurance as to if, or when, the NovaCopper Shares
will be listed for trading on the TSX or AMEX.
CONTRACTUAL RESTRICTION ON TRANSFER
Under the offering completed by NovaGold in February 2012, NovaGold, its executive officers, directors
and certain members of its senior management, and Electrum agreed that, among
other things, for a period of 90 days from February 2, 2012 (the “
Restricted
Period
”), it and they will not, without the prior written consent of
the Underwriters, directly or indirectly, offer, sell or otherwise dispose of,
or enter into any agreement to offer, sell or otherwise dispose of, any securities
of NovaCopper other than grants of options or rights or issuances of NovaCopper
Shares (i) pursuant to existing director or employee stock option, security-based
compensation plans or stock purchase plans; or (ii) under such director or employee stock options granted subsequently in accordance with
regulatory approval; provided that, subject to applicable laws, certain executive
officers and directors may, without the consent of the Underwriters, offer,
sell or contract to sell during the Restricted Period a combined total of 600,000
of such executive officers’ or directors’ NovaCopper Shares; and provided
further that, subject to applicable laws, Electrum may, without the consent
of the Underwriters, sell up to 6,000,000 NovaCopper Shares during the Restricted
Period together with certain NovaCopper Shares acquired after the date of such
lock-up. The restrictions on executive officers, directors and Electrum shall
also apply to common shares of NovaGold. The Underwriters at their discretion
may release any of the securities subject to these lock-ups.
I-52
In aggregate, 367,062 NovaCopper Shares held by directors and
officers of NovaCopper are subject to the above-described lock-up.
PRINCIPAL HOLDER OF SECURITIES
As
at the date of this Management Proxy Circular, to the knowledge of our directors
and executive officers, no person will beneficially own, directly or indirectly,
or exercise control or direction over, NovaCopper Shares carrying 10% or more
of the voting rights attaching to all issued and outstanding NovaCopper Shares,
following completion of the Arrangement except as follows:
Name of Shareholder
|
Number of Common Shares
|
Percentage of Outstanding
Voting Securities
|
|
Electrum Strategic Resources LLC
|
8,872,033
|
19.15%
|
|
M&G Investment Management, Ltd.
|
6,074,733
|
13.11
%
|
DIRECTORS AND OFFICERS
NovaCopper’s
management team and Board, made up of a majority of independent directors, includes
individuals with extensive experience in mining, geology, exploration and development
of precious and base metal deposits around the world. A number of the executives,
and substantially all of our full-time staff, have been active on the Ambler
Project for the last five years and are knowledgeable as to the geology, metallurgy
and infrastructure related to mining development. NovaCopper will continue to
seek to recruit additional dedicated management individuals, including a full-time
President, to complement the skill sets already in place. The directors of NovaCopper
are elected at each annual general meeting and hold office until the next annual
meeting or until their successor is elected or appointed.
Name and Occupation
The
names and location of residence, offices held and principal occupations during
the past five years of the directors and executive officers of NovaCopper (the
information concerning the respective directors and executive officers has been
furnished by each of them), upon completion of the Arrangement, are as follows:
|
|
|
|
|
|
|
NovaCopper Shares
|
|
|
|
|
|
|
|
beneficially
|
|
|
|
Principal Occupation During
|
|
|
|
owned or over which control
|
|
Name and
Residence
|
|
Past Five Years
|
|
Director Since
(5)
|
|
or direction is exercised
(6)
|
|
Rick Van Nieuwenhuyse
|
|
Former President and
Chief
|
|
April 27, 2011
|
|
438,223
|
|
British Columbia, Canada
|
|
Executive Officer of
NovaGold
|
|
|
|
|
|
Director, President and Chief
|
|
Resources Inc.
|
|
|
|
|
|
Executive Officer
|
|
|
|
|
|
|
I-53
|
|
|
|
|
|
|
NovaCopper Shares
|
|
|
|
|
|
|
|
beneficially
|
|
|
|
Principal Occupation During
|
|
|
|
owned or over which control
|
|
Name and
Residence
|
|
Past Five Years
|
|
Director Since
(5)
|
|
or direction is exercised
(6)
|
|
Dr. Thomas S. Kaplan
|
|
Chairman and Chief
Executive
|
|
January 24, 2012
|
|
-
|
|
New York, USA
|
|
Officer of The Electrum
Group
|
|
|
|
|
|
Chair
|
|
LLC (2011 – present);
Chairman
|
|
|
|
|
|
|
|
of Tigris Financial
Group Ltd.
|
|
|
|
|
|
|
|
(2007 – 2011); Principal
of Tigris
|
|
|
|
|
|
|
|
Financial Group (2011 –
present);
|
|
|
|
|
|
|
|
Chairman, Leor
Exploration and
|
|
|
|
|
|
|
|
Production LLC (2007 –
present).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clynton R. Nauman
(4)
|
|
Chief Executive Officer
of Alexco
|
|
April 27, 2011
|
|
21,573
|
|
Washington, USA
|
|
Resource Corp. and Asset
|
|
|
|
|
|
Lead Director
|
|
Liability Management
Group
|
|
|
|
|
|
|
|
ULC (2005 – present).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terry Krepiakevich
(1)
|
|
Chief Financial Officer
of
|
|
April 27, 2011
|
|
-
|
|
British Columbia, Canada
|
|
SouthGobi Resources Ltd.
(2006 –
|
|
|
|
|
|
Director
|
|
2011); Chief Financial
Officer of
|
|
|
|
|
|
|
|
Extreme CCTV Inc.,
former TSX
|
|
|
|
|
|
|
|
listed company (since
|
|
|
|
|
|
|
|
acquired)(2000 – 2006).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Janice Stairs
(2)(3)
|
|
General Counsel to
Namibia Rare
|
|
April 27, 2011
|
|
-
|
|
Nova Scotia, Canada
|
|
Earths (2011); General
Counsel
|
|
|
|
|
|
Director
|
|
to Endeavour Mining
Corporation
|
|
|
|
|
|
|
|
(2010-2011); Vice
President and
|
|
|
|
|
|
|
|
General Counsel of
Etruscan
|
|
|
|
|
|
|
|
Resources Inc. (2004 –
2010).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tony Giardini
(1)(3)
|
|
Chief Financial Officer
of Ivanhoe
|
|
January 24, 2012
|
|
-
|
|
British Columbia, Canada
|
|
Mines Ltd. from (2006 –
present);
|
|
|
|
|
|
Director
|
|
Vice President and
Treasurer of
|
|
|
|
|
|
|
|
Placer Dome Inc. (2003 –
|
|
|
|
|
|
|
|
present).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gregory A. Lang
(4)
|
|
President and Chief
Executive
|
|
January 24, 2012
|
|
19,481
|
|
Utah, USA
|
|
Officer of NovaGold
Resources
|
|
|
|
|
|
Director
|
|
Inc. from January 2012
to present;
|
|
|
|
|
|
|
|
President of Barrick
Gold North
|
|
|
|
|
|
|
|
America (2004 – 2011).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Igor Levental
(2)
|
|
President of The
Electrum Group
|
|
January 24, 2012
|
|
167
|
|
Colorado, USA
|
|
LLC (2010 – present);
Executive
|
|
|
|
|
|
Director
|
|
Vice President,
Corporate
|
|
|
|
|
|
|
|
Development, Electrum
USA Ltd.
|
|
|
|
|
|
|
|
(2007 – 2010); and Vice
|
|
|
|
|
|
|
|
President, Investor
Relations and
|
|
|
|
|
|
|
|
Corporate Development,
Apex
|
|
|
|
|
|
|
|
Silver Mines Corp. (2003
– 2007);
|
|
|
|
|
|
|
|
Vice President, Investor
Relations,
|
|
|
|
|
|
|
|
Homestake Mining Company
|
|
|
|
|
|
|
|
(1999 – 2002).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kalidas Madhavpeddi
(1)(3)
|
|
President of Azteca
Consulting
|
|
January 24, 2012
|
|
1,011
|
|
Arizona, USA
|
|
LLC (2006 – present);
Chief
|
|
|
|
|
|
Director
|
|
Executive Officer, Forex
|
|
|
|
|
|
|
|
Investment Group Limited
(2011
|
|
|
|
|
|
|
|
– present); Chief
Executive
|
|
|
|
|
|
|
|
Officer, Aurizon
Resources Ltd.
|
|
|
|
|
|
|
|
(2008 – present); and
Senior Vice
|
|
|
|
|
|
|
|
President, Phelps Dodge
(2002 –
|
|
|
|
|
|
|
|
2006).
|
|
|
|
|
I-54
|
|
|
|
|
|
|
NovaCopper Shares
|
|
|
|
|
|
|
|
beneficially
|
|
|
|
Principal Occupation During
|
|
|
|
owned or over which control
|
|
Name and
Residence
|
|
Past Five Years
|
|
Director Since
(5)
|
|
or direction is exercised
(6)
|
|
Gerald McConnell
(2)
|
|
Director and Chief
Executive
|
|
January 24, 2012
|
|
1,666
|
|
Nova Scotia, Canada
|
|
Officer, Namibia Rare
Earths Inc.
|
|
|
|
|
|
Director
|
|
(2010 – present);
President and
|
|
|
|
|
|
|
|
Chief Executive Officer,
Etruscan
|
|
|
|
|
|
|
|
Resources Inc. (1990 –
2010).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Walter Segsworth
(4)
|
|
Corporate Director
|
|
January 24, 2012
|
|
-
|
|
British Columbia, Canada
|
|
|
|
|
|
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elaine Sanders
|
|
Vice President, Chief
Financial
|
|
|
|
7,722
|
|
British Columbia, Canada
|
|
Officer and Corporate
Secretary,
|
|
|
|
|
|
Chief Financial Officer and
|
|
NovaGold (2011 –
present); Vice
|
|
|
|
|
|
Corporate Secretary
|
|
President Finance of
NovaGold
|
|
|
|
|
|
|
|
(2006 – 2011);
Controller of
|
|
|
|
|
|
|
|
NovaGold (2003 – 2006).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sacha Iley
|
|
Vice President, Human
Resources
|
|
|
|
2,579
|
|
British Columbia, Canada
|
|
of NovaGold (2006 –
present);
|
|
|
|
|
|
Vice President, Human
|
|
Human Resources
Superintendent
|
|
|
|
|
|
Resources
|
|
of Placer Dome Inc.
(1999 –
|
|
|
|
|
|
|
|
2006)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph R. Piekenbrock
|
|
Vice President,
Exploration of
|
|
|
|
9,638
|
|
Colorado, USA
|
|
NovaGold Resources Inc.
|
|
|
|
|
|
Vice President, Exploration
|
|
|
|
|
|
|
|
___________________________________
Notes:
|
|
(1)
|
Member of the Audit Committee. Mr. Krepiakevich is the
Chair of the Audit Committee.
|
|
(2)
|
Member of the Corporate Governance and Nominations Committee.
Mr. McConnell is the Chair of the Corporate Governance and Nominations
Committee.
|
|
(3)
|
Member of the Compensation Committee. Mr. Giardini is
the Chair of the Compensation Committee.
|
|
(4)
|
Member of the Environment, Health and Safety Committee
(the “EHS Committee”). Mr. Segsworth is the Chair of the EHS
Committee.
|
|
(5)
|
All directors have been elected to serve until the next
annual meeting of shareholders of NovaCopper, subject to earlier resignation
or removal.
|
|
(6)
|
Assuming completion of the Arrangement.
|
On
the Effective Date, each of the directors and officers of NovaCopper will beneficially
own, directly or indirectly, or control or direct one Common Share for every
six NovaGold Shares previously held. Following completion of the Arrangement,
our directors and executive officers, as a group, will beneficially own, control
or direct, directly or indirectly, 502,060 NovaCopper Shares representing
approximately 1% of the issued and outstanding NovaCopper Shares, and
will hold options to acquire an additional 3,839,754 NovaCopper Shares,
will hold PSUs to acquire an additional 35,308 NovaCopper Shares, and
will hold DSUs to acquire an additional 3,999 NovaCopper Shares representing
approximately 7.7% of the NovaCopper Shares on a fully-diluted basis.
Messrs.
Piekenbrock and Mesdames Sanders and Iley, who serve as Vice President, Exploration,
Chief Financial Officer and Corporate Secretary and Vice President, Human Resources
of NovaCopper, respectively, will be providing their services to NovaCopper
pursuant to the Services Agreement. These officers are also employees of NovaGold
and will split their time between NovaCopper and NovaGold on an as needed basis.
See "
Business of NovaCopper – Recent Developments - Services Agreement
".
Pursuant
to the terms of the NANA Agreement, NANA may at its option nominate one member
of the Board of NovaCopper for the five year period following the date NANA
first acquires shares or the date NovaCopper first becomes a public company.
See “
Business of NovaCopper – Recent Developments – Arrangement
with NANA Regional Corporation
”.
I-55
Rick Van Nieuwenhuyse, President, Chief Executive Officer
and Director
Mr.
Van Nieuwenhuyse has more than 30 years of experience in the natural resource
sector, including in his role as Founder, President and CEO of NovaGold since 1997 and his role as Vice President of Exploration for Placer Dome Inc. from
1990 to 1997. In addition to his international exploration perspective, Mr.
Van Nieuwenhuyse brings years of working experience in and knowledge of Alaska
to NovaCopper. Mr. Van Nieuwenhuyse has managed projects from grassroots discovery
through to advanced feasibility studies, production and closure. Mr. Van Nieuwenhuyse
holds a Candidature degree in Science from the Université de Louvain, Belgium,
and a Masters of Science degree in Geology from the University of Arizona. He received the Thayler Lindsley award in 2009 for his role in the Donlin Gold discovery
Dr. Thomas S. Kaplan, Chair
Dr.
Kaplan is Chairman of the Board of Directors of the Company as well as of NovaGold. He is also Chairman
and Chief Executive Officer of The Electrum Group LLC (“Electrum Group”),
a privately-held global natural resources investment management company which
manages the portfolio of Electrum. Dr. Kaplan is an entrepreneur and investor
with a track record of both creating and unlocking shareholder value in public
and private companies. Most recently, Dr. Kaplan served as Chairman of Leor
Exploration & Production LLC, a natural gas exploration and development
company founded by Dr. Kaplan in 2003. In 2007, Leor’s natural gas assets
were sold to EnCana Oil & Gas USA Inc., a subsidiary of Encana Corporation,
for $2.55 billion. Dr. Kaplan holds Bachelor’s, Master’s and Doctoral Degrees
in History from Oxford University.
Clynton R. Nauman, Lead Director
Mr.
Nauman is and has been since February 2005, the President and Chief Executive Officer of Alexco Resource Corp.
and is a director of NovaGold Resources Inc. From January 2002 to January 2005,
Mr. Nauman was the President of Asset Liability Management Group ULC and from February 1998 until February 2003
Mr. Nauman was President of Viceroy Gold Corporation and Viceroy Minerals Corporation, and a director of Viceroy Resource Corporation.
From 1993 to 1998, Mr. Nauman was the General Manager of Kennecott Minerals. Mr. Nauman
has 25 years of diversified experience in the mining industry ranging from exploration
and business development to operations and business management in the precious
metals, base metals and coal sectors.
Terry Krepiakevich, Director
Mr.
Krepiakevich most recently was Chief Financial Officer of SouthGobi Resources Ltd. from
July 2006 to 2011, a TSX and Hong Kong-listed company, and is a Director of
Western Lithium USA Corp., Concordia Resource Corp., and St. Augustine Gold & Copper Ltd, TSX-listed companies.
He has been a Director of Alexco Resource Corp., a TSX and NYSE-listed
mineral resources company, since July 2009. Mr Krepiakevich serves as Chair of the Audit Committee for the above noted
companies where he is a director, and has previously served as a member of Compensation, Nomination and Corporate Governance Committees.
From November 2000 to July 2006 Mr. Krepiakevich was the Chief Financial
Officer of Extreme CCTV Inc., which was formerly listed on the TSX, and was also served as a Director from June 2001 to July
2006. Mr. Krepiakevich was the Chief Executive Officer and a Director of First
Industrial Capital Corp. from September 1997 to March 2004. He was the Vice
President of Finance and Chief Financial Officer of Maynards Industries from
July 1988 to June 2000. Mr. Krepiakevich is a Chartered Accountant, certified
by the Institute of Chartered Accountants of British Columbia.
Janice Stairs, Director
Ms. Stairs has over 25 years experience working with companies involved in the resource sector. Ms. Stairs is currently General Counsel to Namibia Rare Earths Inc., a TSX-listed explorer focused on rare earths in Namibia.
Prior to joining Namibia Rare Earths in September 2011, Ms. Stairs was General Counsel to Endeavour Mining
Corporation, a position she assumed in September 2010 after Endeavour acquired Etruscan Resources Inc. where
Ms. Stairs had held the positions of Vice President and General Counsel since 2004. Prior to 2004, Ms. Stairs was a
partner with the law firm of McInnesCooper (formerly Patterson Palmer) located in Halifax, Nova Scotia and she
continues to act as counsel to the firm. Ms. Stairs practiced law in private practice for 19 years specializing in
corporate finance, securities and resource-related issues for private and public companies. Ms. Stairs is a director
and Vice Chair of Nova Scotia Business Inc., a Nova Scotia crown corporation established to promote economic
development in Nova Scotia. Ms. Stairs graduated from Dalhousie Law School and holds a Masters of Business
Administration degree from Queen’s University.
Tony Giardini, Director
Mr.
Giardini is Chief Financial Officer of Ivanhoe Mines Ltd., an international
mining company listed on the TSX and NYSE, with operations focused in Central
Asia and the Asia Pacific region. Prior to joining Ivanhoe Mines Ltd., Mr. Giardini spent more than 10 years with Placer
Dome Inc. as Vice President and Treasurer, responsible for managing and overseeing
the company’s debt and capital market activities, including managing banking
relationships with U.S., Canadian and international banks. During his time at
Placer Dome, Mr. Giardini led the financing team that raised in excess of U.S.$1
billion in debt and equity financings. Mr. Giardini is a Chartered Accountant
and a Certified Public Accountant and spent 12 years with accounting firm KPMG
prior to joining Placer Dome Inc.
I-56
Gregory A. Lang, Director
Mr.
Lang is President and Chief Executive Officer of NovaGold Resources Inc. Mr.
Lang has over 30 years of diverse experience in mine operations, project development
and evaluations, including time as President of Barrick Gold North America,
a wholly-owned subsidiary of Barrick. Mr. Lang has held progressively responsible
operating and project development positions over his 10-year tenure with Barrick
and, prior to that, with Homestake Mining Company and International Corona Corporation,
both of which are now part of Barrick. He holds a Bachelor of Science in Mining
Engineering from University of Missouri-Rolla and is a Graduate of the Stanford
University Executive Program.
Igor Levental, Director
Mr.
Levental is President of Electrum Group, a privately-held global natural resources
investment management company. Electrum, an affiliate of Electrum Group, is
currently the largest shareholder of NovaGold. Mr. Levental is a director of
Gabriel Resources Ltd., which is engaged in the development of major precious
metals deposits in Romania; he is also a director of Sunward Resources Ltd.,
a TSX-V-listed company engaged in the exploration and development of a large
porphyry gold-copper project in Colombia. With more than 30 years of experience
across a broad cross-section of the international mining industry, Mr. Levental
has held senior positions with major mining companies including Homestake Mining
Company and International Corona Corporation. Mr. Levental is a Professional
Engineer with a BSc in Chemical Engineering and an MBA from the University of
Alberta.
Kalidas V. Madhavpeddi, Director
Mr. Madhavpeddi has been President of Azteca Consulting LLC, an advisory firm to the metals and mining
sector, since November 2006. He is also CEO of Aurizon Resources Ltd and Forex Investment Group, a private
Hong Kong based equity fund. His extensive career in the mining industry spans over 30 years including Phelps
Dodge Corp. from 1980 to 2006, starting as a Systems Engineer and ultimately becoming Senior Vice President for
Phelps Dodge Corporation, a Fortune 500 company, responsible for the company’s global business development,
acquisitions and divestments, including joint ventures, as well as its global exploration programs. He was
contemporaneously President of Phelps Dodge Wire and Cable, a copper and aluminum cable manufacturer with
international operations in over ten countries, including Brazil and China. Mr. Madhavpeddi is an alumnus of the
Indian Institute of Technology, Madras, India the University of Iowa and the Harvard Business School.
Gerald J. McConnell, Director
Mr.
McConnell is a Director and has over 25 years of experience in the resource
sector. Mr. McConnell is a director and Chief Executive Officer of Namibia Rare
Earths Inc., a public Canadian company focused on the development of rare earth
opportunities in Namibia. From 1990 to 2010, he was President and Chief Executive
Officer of Etruscan Resources Inc., a West African junior gold producer. From
December 1984 to January 1998, Mr. McConnell was the President of the Company
and from January 1998 to May 1999 he was the Chairman and Chief Executive Officer
of the Company. Mr. McConnell, a graduate of Dalhousie Law School, was called
to the bar of Nova Scotia in 1971 and received his Queen’s Counsel designation
in 1986.
Walter Segsworth, Director
Mr. Segsworth is a Director of Gabriel Resources Ltd., Heatherdale Resources,
Telus World of Science, and is lead independent Director of Pan American Silver. Mr. Segsworth has 40 years of experience
in mining in Canada and overseas. Mr. Segsworth has served as a senior officer
of several mining companies including Westmin Resources, where he was President
and CEO and Homestake Mining Company, where he was President and COO. He is
also currently lead independent director of Alterra Power Corp. Mr. Segsworth is
past Chairman of both the Mining Associations of British Columbia (BC) and Canada
and was named BC’s Mining Person of the year in 1996. He
received his bachelor of science in mining engineering from Michigan Technological
University.
I-57
Elaine Sanders, Chief Financial Officer and Corporate Secretary
Ms.
Sanders is the Chief Financial Officer and Corporate Secretary of NovaGold Resources
Inc. She brings over 15 years of experience in audit, finance and accounting
with public and private companies. She has been involved with numerous financings
and acquisitions, and has listed companies on both the TSX and AMEX. Elaine
is responsible for all aspects of financial services, financing reporting and
corporate governance of NovaGold. She holds a Bachelor of Commerce degree from
the University of Alberta and is a Chartered Accountant.
Sacha Iley, Vice President, Human Resources
Ms. Iley is the Vice President, Human Resources of NovaGold Resources Inc. Ms. Iley brings over 13 years of human resources experience all within the mining industry. Prior to joining NovaGold in 2006, she was at
Placer Dome and held a number of roles, including the HR Manager at Musselwhite Mine, in Northern Ontario.
Assignments in Australia, Tanzania and South Africa provided Ms. Iley with on-site experience in exploration,
construction and operations. She holds a Bachelor of Arts degree from the University of British Columbia.
Joseph R. Piekenbrock, Vice President, Exploration
Mr.
Piekenbrock is the Vice President, Exploration of NovaGold Resources Inc. He
brings over 25 years of experience working in the minerals exploration and development
sector. Prior to joining NovaGold in 2002, he worked extensively in northern
climates through years of exploration for both Teck Cominco Ltd. and Placer
Dome Inc. in Alaska. Mr. Piekenbrock holds a B.A. in Geology from the University
of Colorado and an M.Sc. in Geology from the University of Arizona.
As
noted above, the services of Mr. Piekenbrock, Ms. Sanders and Ms. Iley are being
provided to NovaCopper under the Services Agreement. Certain officers and employees
of NovaGold who are devoting all or substantially all of their time to NovaCopper
may be transitioned to NovaCopper on a full-time basis. It is intended that
the parties will terminate the Services Agreement as NovaCopper develops its
internal capabilities.
Cease Trade Orders, Bankruptcies, Penalties or Sanctions
To
the best of our knowledge, no current director or executive officer of NovaCopper
is, as at the date hereof, or was within 10 years before the date hereof, a
director, chief executive officer or chief financial officer of any company
(including NovaCopper) that (a) was subject to a cease trade order, an order
similar to a cease trade order or an order that denied the relevant issuer access
to any exemption under securities legislation, that was in effect for a period
of more than 30 consecutive days (a “
Cease Trade Order
”) that
was issued while the director or executive officer was acting in the capacity
as director, chief executive officer or chief financial officer of such issuer,
or (b) was subject to a Cease Trade Order that was issued after the director
or executive officer ceased to be a director, chief executive officer or chief
financial officer and which resulted from an event that occurred while that
person was acting in the capacity as director, chief executive officer or chief
financial officer.
To
the best of our knowledge, no current director or executive officer of NovaCopper,
nor, to our knowledge, any shareholder holding a sufficient number of our securities
to affect materially the control of NovaCopper (a) is, as at the date hereof,
or has been within the 10 years before the date hereof, a director or executive
officer of any company (including ours) that, while that person was acting in
that capacity, or within a year of that person ceasing to act in that capacity,
became bankrupt, made a proposal under any legislation relating to bankruptcy
or insolvency or was subject to or instituted any proceedings, arrangement or
compromise with creditors or had a receiver, receiver manager or trustee appointed
to hold its assets, or (b) has, within the 10 years before the date hereof,
become bankrupt, made a proposal under any legislation relating to bankruptcy
or insolvency, or become subject to or instituted any proceedings,
arrangement or compromise with creditors, or had a receiver, receiver manager
or trustee appointed to hold the assets of such director, executive officer
or shareholder.
I-58
To
the best of our knowledge, no current director or executive officer of NovaCopper,
nor, to our knowledge, any shareholder holding a sufficient number of our securities
to affect materially the control of NovaCopper, has been subject to (a) any
penalties or sanctions imposed by a court relating to securities legislation
or by a securities regulatory authority or has entered into a settlement agreement
with a securities regulatory authority, or (b) any other penalties or sanctions
imposed by a court or regulatory body that would likely be considered important
to a reasonable investor in making an investment decision.
Conflicts of Interest
To
the best of our knowledge, there are no known existing or potential conflicts
of interest between NovaCopper and any of our director, officer, or other members
of management, as a result of such individual’s outside business interests
at the date hereof. However, certain of our directors and officers are, or may
become, directors or officers of other companies, including in particular NovaGold,
with businesses which may conflict with the our business. Accordingly, conflicts
of interest may arise which could influence these individuals in evaluating
possible acquisitions or in generally acting on behalf of NovaCopper. Pursuant
to the BCBCA, directors are required to act honestly and in good faith with
a view to the best interests of NovaCopper.
As
required under the BCBCA and our Articles, as well as the Conflicts of Interest
Policy adopted by the Board:
-
a director or executive officer who holds any office or possesses any property,
right or interest that could result, directly or indirectly, in the creation
of a duty or interest that materially conflicts with that individual’s
duty or interest as a director or executive officer of NovaCopper, must
promptly disclose the nature and extent of that conflict; and
-
a director who holds a disclosable interest (as that term is used in the
BCBCA) in a contract or transaction into which NovaCopper has entered or
proposes to enter may not vote on any directors’ resolution to approve
the contract or transaction.
Generally,
as a matter of practice, directors or executive officers who have disclosed
a material interest in any transaction or agreement that our Board is considering
will not take part in any Board discussion respecting that contract or transaction.
If on occasion such directors do participate in the discussions, they will abstain
from voting on any matters relating to matters in which they have disclosed
a material interest. In appropriate cases, we will establish a special committee
of independent directors to review a matter in which directors, or management,
may have a conflict. See “
Risk Factors — Certain Directors Are
Involved In Other Mining Interests
”.
Thomas
S. Kaplan is Chairman of the Board of Directors of NovaGold and is also Chairman
and Chief Executive officer of Electrum Group. Electrum, an affiliate of Electrum
Group, is the single largest shareholder of the Company, controlling approximately
19% of the outstanding voting securities and warrants exercisable for
an additional 32,737,278 Company common shares. Electrum has certain
rights under its subscription arrangements with the Company including the right
to participate in certain future equity offerings by the Company.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Our
approach to executive compensation is to provide suitable compensation for executives
that is equitable and competitive and reflects individual achievement. Our compensation
arrangements will be designed to attract and retain highly qualified individuals
who are able to carry out our business objectives.
The
compensation to be paid or awarded to NovaCopper’s CEO and CFO (the “
Named
Executive Officers
” is expected to be as follows: (a) upon completion
of the Arrangement, the CEO of NovaCopper shall receive an annual salary of $400,000 payable by NovaCopper and
a one time incentive grant of 135,000 NovaGold Shares; and (b) upon completion
of the Arrangement, the CFO of NovaCopper shall receive an annual salary of
$nil payable by NovaCopper. Mr. Van Nieuwenhuyse’s salary is subject to
annual review by the Board of Directors; however, in no event will the salary
payable in respect of a fiscal year be less than the salary payable in the previous
fiscal year. Ms. Sanders’ services are provided under the Services Agreement.
I-59
Mr.
Van Nieuwenhuyse has entered into an Employment Agreement with NovaCopper, the
terms of which are disclosed below.
With
respect to significant elements of compensation to be paid to executive officers
other than Mr. Van Nieuwenhuyse and who are not compensated by NovaGold pursuant
to the Services Agreement, our compensation arrangements for executive officers
may, in addition to salary, include compensation in the form of bonuses and
benefits arising from the grant of share options and share awards. Given the
stage of NovaCopper’s development and as a cash-preserving measure, we
may emphasize stock options. Depending on the future development of NovaCopper
and other factors that may be considered relevant by the Compensation Committee
and the Board from time to time, we may determine in the future to emphasize
increased base salaries and rely to a lesser extent on share options or other
incentives.
Under
the Services Agreement, NovaCopper will pay for the services provided by NovaGold
employees in an amount equal to the actual cost incurred by NovaGold plus 10%.
For employees of NovaGold providing services, the cost billed to NovaCopper
will be based upon the time actually spent by such employees in performing services
for NovaCopper. To the extent that employees of NovaGold are providing their
services primarily to NovaCopper pursuant to the terms of the Services Agreement
and not NovaGold, their employment with NovaGold will terminate and they will
enter into contracts of employment with NovaCopper on terms substantially the
same as the terms of their employment with NovaGold. At such time as former
employees of NovaGold enter into contracts of employment with NovaCopper, they
will be remunerated pursuant to the terms of their NovaCopper employment contract
and NovaGold will no longer be compensated for the services provided by such
employees to NovaCopper.
The
Compensation Committee is responsible for recommending a compensation policy
to the Board, and we expect the Compensation Committee to make such recommendations
after the Closing. See “
Audit Committee and Corporate Governance —
Committees of the Board of Directors
”.
Termination of Employment, Changes in Responsibility and Employment
Contracts
Mr.
Van Nieuwenhuyse has entered into an Employment Agreement with NovaCopper dated
effective January 9, 2012 . Mr. Van Nieuwenhuyse’s employment will continue
indefinitely unless and until terminated in accordance with the terms of his
Employment Agreement.
In
the event of a change of control of the Company, the Company shall continue
to employ Mr. Van Nieuwenhuyse, Mr. Van Nieuwenhuyse shall continue to serve
the Company in the same capacity and Mr. Van Nieuwenhuyse shall have the same
authority, responsibilities and status that he had immediately prior to the
change of control, subject to the Company’s right to terminate Mr. Van
Nieuwenhuyse’s employment upon payment of severance.
Notwithstanding
the foregoing, Mr. Van Nieuwenhuyse’s employment with the Company will
be deemed to be terminated at any time within the twelve month period immediately
following a change of control if (i) there is a material change (other than
a promotion) in Mr. Van Nieuwenhuyse’s position, duties, responsibilities,
title or effect immediately prior to any change of control; (ii) a material
reduction in Mr. Van Nieuwenhuuyse’s base salary in effect immediately
prior to any change of control; or (iii) any material breach by NovaCopper of
any material provision of the Employment Agreement and the Company has failed
to cure the condition within 30 days from receipt of written notice of such
condition.
If
Mr. Van Nieuwenhuyse’s employment with the Company is deemed to be terminated,
the Company is required to pay to Mr. Van Nieuwenhuyse (i) a lump sum payment
equal to his annual base salary plus his annual incentive target for the fiscal
year pursuant to the Company’s annual incentive program, multiplied by
two, if such termination occurs prior to January 9, 2013; or (ii) a lump sum
payment equal to his annual base salary plus his annual incentive earned in
the previous fiscal year pursuant to the Company’s annual incentive program,
multiplied by two, if such termination occurs after January 9, 2013 (the “Severance
Payment”).
I-60
If
the employment contract is terminated by Mr. Van Nieuwenhuyse upon a material
breach by the Company, the Company is obliged to pay to Mr. Van Nieuwenhuyse,
the Severance Payment
Other
than as set out above, there are no termination clauses or change of control
benefits in employment agreements, or any other contract, agreement, plan or
arrangement with named executive officers
.
Option-Based Awards
NovaCopper’s
Equity Incentive Plan will be administered by the Compensation Committee of
the Board, which will designate, in each year, the recipients of options and
the terms and conditions of each grant, in each case in accordance with applicable
securities laws and stock exchange requirements. The options and shares available
to be issued under the NovaCopper Equity Incentive Plan will be used to retain
and motivate current directors, officers, employees, consultants and attract
new directors, officers, employees and consultants. See “
Options to
Purchase Securities
”.
NovaCopper
also anticipates issuing 1,875,000 Options to Rick Van Nieuwenhuyse pursuant
to the terms of his Employment Agreement. These options are being issued outside
of NovaCopper’s Equity Incentive Plan. NovaCopper will also issue options
to NovaGold Optionholders on the Effective Date as a result of the Arrangement,
which options will fall outside of the rolling 10% Equity Incentive Plan.
Compensation of Directors
No
compensation is currently being paid to our directors or our named executive
officers. Each director and officer will be entitled to participate in any security-based
compensation arrangement or other plan adopted by us from time to time with
the approval of our Board. The directors and officers will be reimbursed for
expenses incurred on our behalf. We currently anticipate that, after Closing,
independent directors will each receive an annual retainer of $24,000 in cash.
The cash retainer will be paid quarterly in advance. In addition, the Chair
of the Audit Committee will receive $10,000 and the Chairs of the Compensation
and Governance and Environment Health and Safety Committees of the Board will
receive $5,000 annually and the Board Chair will receive $16,000 annually, all
to be paid on a quarterly basis in advance. Director compensation remains subject
to review and approval by our Board. Executive Officers who are also Directors
will not collect Board fees. Board members will be eligible to participate in
the Equity Incentive Plan. See “
Options to Purchase Securities
”
for further details on the Equity Incentive Plan. No additional fees, will be paid to directors. Director compensation will be subject
to review and possible change on an annual basis.
The
Compensation Committee will periodically review the adequacy and form of the
compensation of directors and ensure that the compensation realistically reflects
the responsibilities and risks involved in being an effective director, and
to report and make recommendations to the Board accordingly.
INDEBTEDNESS OF DIRECTORS AND OFFICERS
There
is no indebtedness owing to NovaCopper from any of our executive officers or
directors or any former director or executive officer or any subsidiary of ours
or any associate of such person, including indebtedness that is the subject
of a guarantee, support agreement, letter of credit or other similar arrangement
or understanding provided by us or a subsidiary of ours.
I-61
AUDIT COMMITTEE AND CORPORATE GOVERNANCE
The Board
The
Board is currently comprised of 11 directors. Messrs. Kaplan, Krepiakevich,
Lang
,
Giardini, Levental, Madhavpeddi, McConnell, Segsworth, Nauman,
and Ms. Stairs are considered to be “independent” directors for the
purposes of National Instrument 58-101 —
Disclosure of Corporate Governance
Practices
. Mr. Van Nieuwenhuyse is not independent as Mr. Van Nieuwenhuyse
is an executive officer of NovaCopper. As such, a majority (10 of 11) of the
directors are independent.
Certain
of our directors are directors of other reporting issuers (or the equivalent)
in Canada or foreign jurisdictions, as set out below.
|
Director
|
|
Name of Issuer(s)
|
|
Dr. Thomas S. Kaplan
|
|
NovaGold Resources Inc.
|
|
Tony Giardini
|
|
NovaGold Resources Inc.
|
|
Terry Krepiakevich
|
|
Alexco Resource Corp., Concordia
Resource Corp., SouthGobi Resources Ltd., Western Lithium USA Corporation,
St. Augustine Gold and Copper Limited.
|
|
Igor Levental
|
|
Sunward Resources Ltd., NovaGold
Resources Inc., Gabriel Resources Ltd.
|
|
Kalidas Madhavpeddi
|
|
NovaGold Resources Inc.
|
|
Gerald J. McConnell
|
|
Namibia Rare Earths Inc., NovaGold
Resources Inc.
|
|
Clynton R. Nauman
|
|
Alexco Resource Corp., NovaGold
Resources Inc.
|
|
Rick Van Nieuwenhuyse
|
|
Alexco Resource Corp., AsiaBase
Metals Inc., NovaGold Resources Inc., Tintina Resources Inc.
|
|
Walter Segsworth
|
|
Heatherdale Resources Ltd., Pan
American Silver Corp., Alterra Power Corp., Gabriel Resources Ltd.
|
Our
independent directors are not expected to hold regularly scheduled meetings
at which non-independent directors and members of management are not in attendance.
In order to facilitate open and candid discussion among independent directors,
from time to time as circumstances dictate, the non-independent directors and
any representatives of management in attendance at meetings of the Board are
expected to be excused.
Dr. Kaplan currently serves as Chairman of the Board and Clynton Nauman
currently serves as Lead Director. The Board is of the view that appropriate
structures and procedures are in place to allow the Board to function independently
of management while continuing to provide NovaCopper with the benefit of having
a chairman with extensive experience and knowledge of NovaCopper’s business.
The Board has created the position of lead director, with specific responsibility
for maintaining the independence of the Board and ensuring that the Board carries
out its responsibilities.
Mandate
of the Board
The
Board has adopted a written mandate, a copy of which is attached to this Management
Proxy Circular as Exhibit “I” to this Schedule “I” of the
Management Proxy Circular. The mandate of the Board is to enhance and preserve
long-term shareholder value, to ensure NovaCopper meets its obligations on an
ongoing basis and that NovaCopper operates in a reliable and safe manner. In
accordance with its mandate, the Board is expected to, among other things:
I-62
|
|
•
|
review and approve strategic
plans on an annual basis and monitor annual programs in relation to strategic
plans;
|
|
|
|
|
|
|
•
|
review operating and financial
performance relative to budgets and objectives;
|
|
|
|
|
|
|
•
|
ensure the integrity and effectiveness
of NovaCopper’s internal control and management information systems;
|
|
|
|
|
|
|
•
|
understand the principal risks
of the business of NovaCopper and ensure that there are systems in place
which effectively monitor and manage those risks with a view to the long-term
viability of NovaCopper;
|
|
|
|
|
|
|
•
|
monitor and evaluate the performance
of the CEO, establish compensation programs and succession planning and
determine compensation of the CEO and senior management;
|
|
|
|
|
|
|
•
|
ensure NovaCopper operates at
all times within applicable laws and regulations and to the highest ethical
and moral standards;
|
|
|
|
|
|
|
•
|
appoint Board committees, including
the Audit Committee, and delegate to those committees any appropriate
powers of the Board; and
|
|
|
|
|
|
|
•
|
adopt a communication and disclosure
policy for NovaCopper and ensure NovaCopper has in place effective communication
processes with shareholders and other stakeholders and with financial,
regulatory and other institutions and agencies.
|
Position
Descriptions
The
Board has approved written position descriptions for our Chair of the Board,
our Chief Executive Officer, the Chair of each of the Board committees and our
Lead Director. These position descriptions outline the duties, responsibilities
and objectives of each of the respective positions.
Orientation
and Continuing Education
New
directors are expected to participate in a formal orientation program regarding
the role of the Board, its committees and directors, and the nature and operations
of our business. Members of the Board are encouraged to communicate with our
management, external legal counsel and auditors, and other external consultants
to educate themselves about our business, the industry, and applicable legal
and regulatory developments. Members of the Board are encouraged to take continuing
education programs at our expense in order to keep themselves informed about
current trends in corporate governance and to assist them in fulfilling their
duty of stewardship of NovaCopper.
Ethical
Business Conduct
We
have adopted a Code of Business Conduct and Ethics that applies to our directors,
officers and employees. Our Code of Business Conduct and Ethics will be available
on our website at
www.novacopper.com
after the Effective Date of the
Arrangement.
We
have appointed NovaCopper’s Chief Financial Officer to serve as NovaCopper
Ethics Officer to ensure adherence to the Code of Business Conduct and Ethics
(the “
Code
”). Under the Code, directors, officers and employees
will be required to disclose any actual or potential conflict of interest to
NovaCopper Ethics Officer or the Chair of the Audit Committee. Under the Code
of Business Conduct and Ethics, no director, officer or employee shall:
|
|
•
|
be a consultant to, or a director, officer or employee
of, or otherwise operate an outside business that:
|
|
|
|
|
|
|
|
|
o
|
competes with NovaCopper;
|
I-63
|
|
|
o
|
supplies products or services
to NovaCopper; or
|
|
|
|
|
|
|
|
|
o
|
purchases products or services
from NovaCopper;
|
|
|
|
|
|
|
•
|
have any financial interest,
including significant stock ownership, which means 10% or more of the
common stock, in any entity with which NovaCopper does business that might
create or give the appearance of a conflict of interest;
|
|
|
|
|
|
|
•
|
seek or accept any personal
loan or services from any entity with which NovaCopper does business,
except from financial institutions or service providers offering similar
loans or services to third parties under similar terms in the ordinary
course of their respective businesses;
|
|
|
|
|
|
|
•
|
be a consultant to, or a director,
officer or employee of, or otherwise operate an outside business, if the
demands of the outside business would interfere with the director’s,
officer’s or employee’s responsibilities to NovaCopper;
|
|
|
|
|
|
|
•
|
accept any personal loan or
guarantee of obligations from NovaCopper, except to the extent such arrangements
are legally permissible; or
|
|
|
|
|
|
|
•
|
conduct business on behalf of
NovaCopper with immediate family, which includes spouses, children, parents,
siblings and persons sharing the same home, whether or not legal relatives.
|
The
Code also describes how NovaCopper is committed to honest and ethical conduct
by all directors, officers, employees and other representatives, providing full,
accurate, timely and understandable disclosure and compliance with all laws,
rules and regulations.
Board
Nomination
The
Board is responsible for approving directors for nomination and election and
filling vacancies among the directors. In connection with the nomination or
appointment of individuals as directors, the Board will consider the competencies
and skills required by the Board, the competencies and skills of the existing
directors and the appropriate size of the Board. In all cases the Board will
consider the recommendations of the Corporate Governance, Nominating and Compensation
Committee. The Corporate Governance, Nominating and Compensation Committee is
composed entirely of independent directors.
Assessments
Pursuant
to its mandate, the Corporate Governance, Nominating and Compensation Committee
will establish and administer a process for assessing the effectiveness of the
Board as a whole, the committees of the Board, the Chair of the Board, the committee
chairs and individual directors. The committee will report regularly to the
Board on all of its activities and findings.
Audit Committee
Audit
Committee Charter
The
full text of the charter of our Audit Committee is attached to this Management
Proxy Circular as Exhibit “II” to this Schedule “I” of the
Management Proxy Circular.
Summary
The
primary function of the Audit Committee is to assist the Board in fulfilling
its oversight responsibilities, primarily through overseeing management’s
conduct of NovaCopper’s accounting and financial reporting process and
systems of internal accounting and financial controls; selecting, retaining
and monitoring the independence and performance of NovaCopper’s external auditor,
including overseeing the audits of NovaCopper’s financial statements, and
approving any non-audit services; and providing an avenue of communication among
the external auditor, management and the Board.
I-64
Composition
of the Audit Committee
The
Audit Committee is comprised of Terry Krepiakevich (Chair), Tony Giardini and
Kalidas Madhavpeddi, each of whom is financially literate and independent within
the meaning of National Instrument 52-110 —
Audit Committees
(“
NI
52-110
”).
The
Chair of the Audit Committee is expected to generally be responsible for overseeing
the Audit Committee in its responsibilities as outlined in the Audit Committee
Charter. The Chair’s duties and responsibilities includes developing the
Audit Committee’s agenda, in consultation with management, and serve as
a direct line of communication for NovaCopper’s external auditors.
Relevant
Education and Experience
Terry
Krepiakevich is a Chartered Accountant with over thirty years of experience
holding senior financial positions. He was the Chief Financial Officer of SouthGobi
Resources Inc. from 2006 – 2011. He has led the listing of several companies
on the TSX and completed the first mining dual listing on the Hong Kong stock
exchange. He is a director of Alexco Resource Corp., a TSX and NYSE-listed mineral
resource company since July 2009.
Tony
Giardini is a Chartered Accountant and Certified Professional Accountant and
spent 12 years with the accounting firm KPMG prior to his ten year tenure as
Vice-President and Treasurer of Placer Dome Inc. While at Placer Dome Inc. Mr.
Giardini was responsible for managing and overseeing the company’s debt
and capital market activities, including managing banking relationships with
US, Canadian and international banks. Mr. Giardini is currently the Chief Financial
Officer of Ivanhoe Mines Ltd., an international mining company listed on the
TSX and the NYSE.
Kalidas
Madhavpeddi has over 30 years’ experience in business development, corporate
strategy, global mergers and acquisitions, marketing, trading and sales. Mr.
Madhavpeddi is CEO of Aurizon Resources Ltd. and Forex Investment Group Limited
and President of Azteca Consulting LLC, an investment and advisory company to
the mining industry. Mr. Madhavpeddi has held various executive positions at
Phelps Dodge including Senior Vice President, Business Development, President
of Phelps Dodge Wire and Cable Co., and Senior Vice President of Phelps Dodge
Sales Company.
External
Auditor Service Fees
We
have not paid any fees to PricewaterhouseCoopers LLP in respect of audit fees,
audit-related fees, tax fees or other fees for the period from incorporation
to November 30, 2011.
Corporate Governance and Nominations Committee
We
have formed a Corporate Governance and Nominations Committee comprised of Gerald
McConnell (Chair), Igor Levental and Janice Stairs, each of whom are independent
within the meaning of National Instrument 58-101 –
Disclosure of Corporate Governance Practices
(“
NI 58-101
”).
In accordance with its mandate, the Corporate Governance and Nominations Committee
is expected to:
-
develop and monitor NovaCopper’s overall approach to corporate governance
issues and, subject to approval by the Board, implement and administer a
corporate governance system with emphasis on superior corporate governance
practices;
-
recommend to the Board annually the members proposed for re-election to
the Board and identify and recommend new nominees for the Board;
I-65
-
establish and administer a process to assess the performance of the Board,
each of the committees and individual directors against their position descriptions
on an ongoing basis;
-
review and make recommendations to our Board concerning the appointment
of officers to NovaCopper; and
Compensation Committee
We
have formed a Compensation Committee comprised of Tony Giardini (Chair), Janice
Stairs and Kalidas Madhavpeddi, each of whom are independent within the meaning
of NI 58-101. In accordance with its mandate, the Compensation Committee is
expected to:
-
evaluate the CEO’s performance and set the CEO’s compensation
level based on that performance;
-
approve compensation, incentive plans and equity-based plans for all key
executive officers of NovaCopper after considering the recommendations of
the CEO, all within the compensation policies and guidelines approved by
the Board.
Environmental Health and Safety Committee
The
role of the Environment, Health and Safety Committee (“EHS Committee”)
is to review, monitor and assess the effectiveness of the environmental policies
and activities of NovaCopper and the activities of NovaCopper as they relate
to health and safety issues. The EHS Committee will be comprised of Walter Segsworth
(Chair), Clynton R. Nauman and Gregory A. Lang.
LEGAL PROCEEDINGS AND REGULATORY ACTIONS
To
the best of our knowledge, following due enquiry there are no legal proceedings
or regulatory actions material to us to which the we are a party, or have been
a party since our incorporation, or of which the Ambler Project or any property
of NovaCopper is the subject of, or was the subject matter of since incorporation,
and no such proceedings are contemplated.
To the
best of our knowledge, following due enquiry there have been no penalties or
sanctions imposed against us by a court relating to federal, state, provincial
and territorial securities legislation or by a securities regulatory authority
since our incorporation, nor have there been any other penalties or sanctions
imposed by a court or regulatory body against NovaCopper and we have not entered
into any settlement agreements before a court relating to provincial and territorial
securities legislation or with a securities regulatory authority.
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
Other
than disclosed elsewhere in this Management Proxy Circular, no director, executive
officer or shareholder that beneficially owns, or controls or directs, directly
or indirectly, more than 10% of the issued Offered Shares, or any of their respective
associates or affiliates, has any material interest, direct or indirect, in
any transaction which has materially affected or is reasonably expected to materially
affect NovaCopper within the three years preceding the date of this Management
Proxy Circular.
AUDITORS, TRANSFER AGENT AND REGISTRAR
Our
auditors are PricewaterhouseCoopers LLP, having an address at Suite 700, 250
Howe Street, Vancouver, BC, Canada, V6C 3S7.
NovaCopper’s
auditors, PricewaterhouseCoopers LLP, report that they are independent of NovaCopper
in accordance with the rules of professional conduct of the Institute of Chartered
Accountants of British Columbia.
The
transfer agent and registrar for the Common Shares in Canada is Computershare
Investor Services Inc. at its principal office in Vancouver, British Columbia.
I-66
MATERIAL CONTRACTS
Except
for contracts entered into in the ordinary course of business, the only material
contracts which NovaCopper has entered into since its incorporation, or to which
we are or will become a party to, on or prior to the Effective Date of the Arrangement
are as follows:
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1.
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the NANA Agreement referred to under
“Business
of NovaCopper –General”
;
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2.
|
the Services Agreement, referred to under
“Business
of NovaCopper – Other NovaGold Agreements”
; and
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3.
|
the Net Smelter Return Royalty Agreement between Kennecott
Exploration Company, Kennecott Arctic Company, NovaGold Resources Inc.
and Alaska Gold Company Kennecott Acquisition Agreement dated effective
January 7, 2010.
|
Copies
of the above material contracts will be available under NovaCopper’s profile
on SEDAR at
www.sedar.com
.
EXPERTS
None
of Blake, Cassels & Graydon LLP, our Canadian counsel, or Neal Rigby, C. Eng., MIMMM, Ph.D.,
Russ White, P.Geo., SRK Consulting
(US), Inc., each being companies, partnerships or persons who have prepared
reports or who have been responsible for reporting exploration results relating
to our mineral properties, or any director, officer, partner, or employee thereof,
as applicable, received or has received a direct or indirect interest in our
property or of any of our associates or affiliates. As at the date hereof, the
aforementioned persons, and the directors, officers, partners, associates and
employees, as applicable, of each of the aforementioned companies and partnerships
beneficially own, directly or indirectly, in the aggregate, less than one percent
of the securities of NovaCopper.
None
of such persons, or any director, officer or employee, as applicable, of any
such companies or partnerships, is currently expected to be elected, appointed
or employed as a director, officer or employee of NovaCopper or of any associate
or affiliate of NovaCopper.
PricewaterhouseCoopers
LLP, Chartered Accountants, report that they are independent of the Company
in accordance with the rules of professional conduct in British Columbia, Canada.
PricewaterhouseCoopers LLP is registered with the Public Company Accounting
Oversight Board.
I-67
EXHIBIT “I” TO SCHEDULE “I”
NOVACOPPER INC.
(the “Company”)
BOARD MANDATE
A.
PURPOSE
The Board of Directors (the "Board") has the responsibility for
the stewardship of the Company and to oversee the conduct of the business of
the Company. The Board’s fundamental objectives are to enhance and preserve
long-term shareholder value, to ensure the Company meets its obligations on
an ongoing basis and that the Company operates in a reliable and safe manner.
In performing its functions, the Board should also consider the legitimate interests
its other stakeholders such as employees, customers and communities may have
in the Company. In overseeing the conduct of the business, the Board, through
the Chief Executive Officer, shall set the standards of conduct for the enterprise.
B.
COMPOSITION,
PROCEDURES AND ORGANIZATION
The Board operates by delegating certain of its authorities to
management and by reserving certain powers to itself. The Board retains the
responsibility for managing its own affairs including selecting its Chair, nominating
candidates for election to the Board, constituting committees of the full Board
and determining Director compensation. Subject to the Company’s constating
documents and the
Business Corporations Act
(British Columbia) (the “BCBCA”),
the Board may constitute, seek the advice of and delegate powers, duties and
responsibilities to committees of the Board.
The Board shall determine the number of directors, which shall
not be less than 3, required to effectively manage the Company’s affairs
and shall recommend the slate of nominees for election by shareholders at the
annual meeting. The directors are elected annually at the Company’s annual
meeting of shareholders and must meet the requirements of applicable corporate
and securities laws, rules and regulations, including those of applicable stock
exchanges on which the Company’s shares are listed (“Applicable Laws”).
The majority of the directors and the Chair shall be independent
as determined by Applicable Laws.
The Board shall meet at least 4 times per year and may also hold
additional meetings as considered necessary. The independent directors shall
meet, without members of management, as appropriate.
The Board has developed a calendar of the activities to be undertaken
by the Board for each meeting, attached as Appendix A.
C.
DUTIES
AND RESPONSIBILITIES
The Board’s principal duties and responsibilities fall into a
number of categories which are outlined below.
1.
Legal Requirements
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(a)
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The Board has the responsibility to ensure
that legal requirements have been met and documents and records have been
properly prepared, approved and maintained;
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(b)
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The Board has the statutory responsibility
to:
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(i)
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supervise the management of the business and affairs
of the Company;
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(ii)
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act honestly and in good faith with a view to the best
interests of the Company;
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I-68
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(iii)
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exercise the care, diligence and skill that reasonable,
prudent people would exercise in comparable circumstances; and
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(iv)
|
act in accordance with its obligations contained in
the BCBCA and the regulations thereto, the Company’s constating documents,
the Securities Act of each province and territory of Canada, the rules
and regulations of stock exchanges on which is securities are listed,
including without limitation the Toronto Stock Exchange, and other relevant
and applicable legislation and regulations.
|
2.
Independence
The Board has the responsibility to ensure that appropriate structures
and procedures are in place to permit the Board to function independently of
management.
3.
Strategy Determination
The Board has the responsibility to:
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(a)
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at least annually, participate with management, in the
development of, and ultimately approve, the Company’s strategic plan,
taking into account, among other things, the opportunities and risks of
the Company’s business;
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(b)
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approve annual capital and operating budgets that support
the Company’s ability to meet its strategic objectives;
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(c)
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approve the entering into, or withdrawing from, lines
of business that are, or are likely to be, material to the Company;
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(d)
|
approve financial and operating objectives used in determining
compensation if they are different from the strategic, capital or operating
plans referred to above;
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(e)
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approve material divestitures and acquisitions;
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(f)
|
monitor the Company’s progress towards its strategic
objectives, and revise and alter its direction through management in light
of changing circumstances;
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(g)
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conduct periodic reviews of human, technological and
capital resources required to implement the Company’s strategy and
the regulatory, cultural or governmental constraints on the business;
and
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(h)
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review, at every regularly scheduled Board meeting if
feasible, recent developments that may affect the Company’s strategy,
and advise management on emerging trends and issues.
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4.
Financial and Corporate Issues
The Board has the responsibility:
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(a)
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to take reasonable steps to ensure the integrity and
effectiveness of the Company’s internal control and management information
systems, including the evaluation and assessment of information provided
by management and others (e.g., internal and external auditors) about
the integrity and effectiveness of the Company’s internal control
and management information systems;
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(b)
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to review operating and financial performance relative
to budgets and objectives;
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(c)
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to approve the annual financial statements and notes
thereto, management’s discussion & analysis of financial condition
and results of operations contained in the annual report, the annual information
form and the management information circular;
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I-69
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(d)
|
to submit the Audit Committee’s appointment of
the external auditors for the Company to the shareholders of the Company
for ratification; and
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(e)
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to approve significant contracts, transactions, and
other arrangements or commitments that may be expected to have a material
impact on the Company.
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5.
Managing Risk
The Board has the responsibility to understand the principal
risks of the business in which the Company is engaged, to achieve a proper balance
between risks incurred and the potential return to shareholders, and to ensure
that there are systems in place which effectively monitor and manage those risks
with a view to the long-term viability of the Company.
6.
Appointment, Training and Monitoring Senior Management
The Board has the responsibility:
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(a)
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to appoint the Chief Executive Officer (the
"CEO"), to monitor and assess CEO performance against corporate goals
and objectives, to determine CEO compensation, considering the recommendations
of the Compensation Committee, and to provide advice and counsel in the
execution of the CEO’s duties;
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(b)
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to approve the appointment and remuneration
of all executive officers, acting upon the advice of the CEO;
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(c)
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to the extent possible, to satisfy itself
as to the integrity of the CEO and other executive officers and satisfy
itself that the CEO and other executive officers are creating a culture
of integrity throughout the Company;
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(d)
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to approve certain decisions relating to executive
management, including the:
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(i)
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appointment and discharge of executive officers;
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(ii)
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compensation and benefits for executive officers;
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(iii)
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acceptance by the CEO of any outside directorships on
public companies or any significant public service commitments; and
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(iv)
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employment, consulting, retirement and severance agreements,
and other special arrangements proposed for senior officers; and
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(e)
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to ensure that adequate provision has been
made to train and develop management and for the orderly succession of
the CEO and the other senior officers.
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7.
Policies,
Procedures and Compliance
The Board has the responsibility:
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(a)
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to ensure that the Company operates at all times within
applicable laws and regulations and to the highest ethical and moral standards;
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(b)
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to approve and monitor compliance with significant policies
and procedures by which the Company is operated;
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(c)
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to ensure the Company sets high environmental standards
in its operations and is in compliance with environmental laws and legislation;
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I-70
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(d)
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to ensure the Company has in place appropriate programs
and policies for the health and safety of its employees in the workplace;
and
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(e)
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to review significant new corporate policies or material
amendments to existing policies (including, for example, policies regarding
business conduct, conflict of interest and the environment).
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8.
Governance
The Board has the responsibility:
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(a)
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to appoint Board committees, including an Audit Committee,
and delegate to those committees any appropriate powers of the Board;
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(b)
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to review the size and composition required of the Board
and approve nominations for candidates for election to the Board, with
a view to ensuring that the Board is comprised of directors with the necessary
skills and experience to facilitate effective decision-making;
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(c)
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to develop the Company’s approach to corporate
governance; and
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(d)
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to review annually its terms of reference and its performance
and the performance of the Board committees, the Chair of the Board and
the Chair of the committees to ensure that the Board and the committees
are operating effectively.
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9.
Reporting and Communication
The Board has the responsibility:
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(a)
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to adopt a communication or disclosure policy for the
Company and ensure that the Company has in place effective communication
processes with shareholders and other stakeholders (including measures
to enable stakeholders to communicate with the independent directors of
the Board) and with financial, regulatory and other institutions and agencies;
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(b)
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to ensure that the financial performance of the Company
is accurately reported to shareholders, other security holders and regulators
on a timely and regular basis in accordance with all applicable securities
laws, rules and regulations;
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to ensure that the financial results are reported fairly
and in accordance with generally accepted accounting principles in effect
at the time and all applicable securities laws, rules and regulations;
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to ensure the timely reporting of any other developments
that have a significant and material impact on the value of the Company;
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to approve the content of the Company’s major communications
to shareholders and the investing public, including the Interim/Annual
Reports (including the financial statements and Management, Discussion
and Analysis), the Management Information Circular (including the Compensation,
Discussion and Analysis and disclosure of corporate governance practices),
the Annual Information Form, any prospectuses that may be issued, and
any significant information respecting the Company contained in any documents
incorporated by reference in any such prospectuses; and
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to report annually to shareholders on its stewardship
of the affairs of the Company for the preceding year.
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D.
THE
CHAIR OF THE BOARD
The Chair is accountable to the Board and shall have the duties
of a member of the Board as set out in applicable corporate law and in the Company’s
constating documents and as otherwise determined by the Board. The Chair is responsible for the management, development and effective performance
of the Board and leads the Board to ensure that it fulfills its duties as required
by law and as set out in the Board Terms of Reference.
I-71
1.
Appointment
The Chair shall be appointed annually by the Board of Directors
of the Company (the “Board”) and shall have such skills and abilities
appropriate to the appointment of Chair as shall be determined necessary and
desirable by the Board.
2.
Qualifications
of the Board Chair
The Chair shall be a duly elected member of the Board and shall
be independent as defined under applicable securities laws, rules and regulations
and the requirements of any applicable stock exchange.
3.
Vacancy
Where a vacancy occurs at any time in the position of Chair,
it shall be filled by the Board. The Board may remove and replace the Chair
at any time.
4.
Duties
The Chair is responsible to:
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organize the Board to function independently of management;
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promote ethical and responsible decision making
,
appropriate oversight of management and best practices in corporate
governance;
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ensure that the Board works as a cohesive team and provide
the leadership essential for this purpose;
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ensure that the responsibilities of the Board are well
understood by both the Board and management, and that the boundaries between
Board and management responsibilities are clearly understood and respected;
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manage the affairs of the Board, including ensuring
that the Board is organized properly, functions effectively and meets
its obligations and responsibilities;
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act as a liaison between the Board and senior management
to ensure that relationships between the Board and senior management are
conducted in a professional and constructive manner;
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provide advice, counsel and mentorship to other members
of the Board, the President and Chief Executive Officer and other senior
members of management;
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lead the Board in establishing, reviewing and monitoring
the strategy, goals, objectives and policies of the Company;
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communicate all major developments and issues to the
Board in a timely manner, initiate opportune discussion of such matters
and ensure provision to the Board of sufficient information to permit
the Board to fulfill its oversight responsibilities;
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communicate with all members of the Board to co-ordinate
their input, ensure their accountability and provide for the effectiveness
of the Board and its committees;
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adopt procedures to ensure that the Board can conduct
its work effectively and efficiently, including committee structure and
composition, scheduling, and management of meetings;
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I-72
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ensure that, where functions are delegated to appropriate
committees, the functions are carried out and results are reported to
the Board;
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as necessary and in consultation with the President
and/or Chief Executive Officer, ensure the Company, and where appropriate
the Board, is adequately represented at official functions and meetings
with major shareholders, other stakeholders, financial analysts, media
and the investment community;
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determine, in consultation with the Board and management,
the time and places of the meetings of the Board and of the annual general
meeting;
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co-ordinate with management and the Secretary to ensure
that matters to be considered by the Board are properly presented and
given the appropriate opportunity for discussion;
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ensure the Board has the opportunity to meet without
members of management present on a regular basis;
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assist in the preparation of the agenda of the Board
meetings;
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preside as chair of each meeting of the Board and as
chair of each meeting of the shareholders of the Company; and
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carry out other duties as requested by the Board as
a whole, depending on need and circumstance.
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E.
COMMITTEE
CHAIRS
1.
Appointment
The Chair of each Committee shall be appointed annually by the
Board.
2.
Qualifications
of a Committee Chair
Each Committee Chair shall be a duly elected member of the Board
and independent as determined pursuant to applicable securities law, rules and
the requirements of any applicable stock exchange.
3.
Vacancy
Where a vacancy occurs at any time in the position of a Committee
Chair, it shall be filled by the Board. The Board may remove and replace a Committee
Chair at any time.
4.
Duties
The Chair of a Committee shall lead and oversee the applicable
Committee to ensure it fulfills its mandate as set out in its terms of reference.
In particular, the Chair shall:
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organize the Committee to function independently of
management, including organizing in-camera sessions and other meetings
without management;
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foster ethical and responsible decision-making by the
Committee and its members;
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deal effectively with dissent and work constructively
towards arriving at decisions and achieving consensus;
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ensure that the Committee has an opportunity to meet
without members of management present at regular intervals;
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determine, in consultation with the Committee and management,
the time and places of the meetings of the Committee;
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I-73
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manage the affairs of the Committee, including ensuring
that the Committee is organized properly, functions effectively and meets
its obligations and responsibilities;
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co-ordinate with management and the secretary to the
Committee to ensure that matters to be considered by the Committee are
properly presented and given the appropriate opportunity for discussion;
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provide advice and counsel to the President and/or Chief
Executive Officer and other senior members of management in the areas
covered by the Committee’s mandate;
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preside as chair of each meeting of the Committee; and
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communicate with all members of the Committee to co-ordinate
their input, ensure their accountability and provide for the effectiveness
of the Committee.
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F.
INDIVIDUAL DIRECTORS
Each Director (i) shall act honestly and in good faith in the
best interests of the Company and its shareholders and (ii) must exercise the
degree of care, diligence and skill that a reasonably prudent person would exercise
incomparable circumstances. In addition, each Director shall have the following
responsibilities:
1.
Responsibilities of Corporate Stewardship
Each Director has the responsibility to:
|
(a)
|
represent the best interests of the Company and its
shareholders, assist in the maximization of shareholder value and work
towards the long-term success of the Company;
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(b)
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advance the interests of the Company and the effectiveness
of the Board by bringing his or her knowledge and experience to bear on
the strategic and operational issues facing the Company;
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(c)
|
provide constructive counsel to and oversight of management;
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(d)
|
respect the confidentiality of information and matters
pertaining to the Company;
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(e)
|
maintain his or her independence, generally and as defined
under applicable securities laws, and objectivity;
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(f)
|
be available as a resource to the Board; and
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(g)
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fulfill the legal requirements and obligations of a
director and shall develop a comprehensive understanding of the statutory
and fiduciary roles of a director.
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2.
Responsibilities of Integrity and Loyalty
Each Director has the responsibility to:
|
(a)
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comply with the Company’s Code of Business Ethics;
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(b)
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disclose to the Secretary, prior to the beginning of
his or her service on the Board, and thereafter as they arise, all actual
and potential conflicts of interest; and
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(c)
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disclose to the Chair of the Board, in advance of any
Board vote or discussion, if the Board or a committee of the Board is
deliberating on a matter that may affect the Director’s interests
or relationships outside the Company and abstain from discussion and/or
voting on such matter as determined to be appropriate.
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I-74
3.
Responsibilities
of Diligence
Each Director has the responsibility to:
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(a)
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prepare for each Board and committee meeting by reading
the reports, minutes and background materials provided for the meeting;
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(b)
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attend in person the annual meeting of the Company and
attend all meetings of the Board and all meetings of committees of the
Board of which the Director is a member, in person or by telephone, video
conference, or other communication facilities that permit all persons
participating in the meeting to communicate with each other; and
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(c)
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as necessary and appropriate, communicate with the Chair
and with the President and/or CEO between meetings, including to provide
advance notice of the Director’s intention to introduce significant
and previously unknown information at a Board meeting.
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4.
Responsibilities of Effective Communication
Each Director has the responsibility to:
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(a)
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participate fully and frankly in the deliberations and
discussions of the Board;
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(b)
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encourage free and open discussion of the Company’s
affairs by the Board;
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(c)
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establish an effective, independent and respected presence
and a collegial relationship with other Directors;
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(d)
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focus inquiries on issues related to strategy, policy,
and results;
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(e)
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respect the President and CEO’s role as the chief
spokesperson for the Company and participate in external communications
only at the request of, with the approval of, and in coordination with,
the Chair and the President and CEO;
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(f)
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communicate with the Chair and other Directors between
meetings when appropriate;
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(g)
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maintain an inquisitive attitude and strive to raise
questions in an appropriate manner and at proper times; and
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(h)
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think, speak and act in a reasoned, independent manner.
|
5.
Responsibilities
of Committee Work
Each Director has the responsibility to:
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(a)
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participate on committees and become knowledgeable about
the purpose and goals of each committee; and
|
|
|
|
|
(b)
|
understand the process of committee work and the role
of management and staff supporting the committee.
|
6.
Responsibilities of Knowledge Acquisition
Each Director has the responsibility to:
|
(a)
|
become generally knowledgeable about the Company’s
business and its industry;
|
|
|
|
|
(b)
|
participate in Director orientation and education programs
developed by the Company from time to time;
|
I-75
|
(c)
|
maintain an understanding of the regulatory, legislative,
business, social and political environments within which the Company operates;
|
|
|
|
|
(d)
|
become acquainted with the senior officers and key management
personnel; and
|
|
|
|
|
(e)
|
gain and update his or her knowledge about the Company’s
facilities and visit these facilities when appropriate.
|
G
.
Outside Consultants or Advisors
At the Company’s expense, the Board may retain, when it
considers it necessary or desirable, outside consultants or advisors to advise
the Board independently on any matter. The Board shall have the sole authority
to retain and terminate any such consultants or advisors, including sole authority
to review a consultant’s or advisor’s fees and other retention terms.
Dated:
February 27, 2012
I-76
BOARD OF DIRECTORS
CALENDAR OF ACTIVITIES
|
|
Year
|
|
|
|
Budget/
|
|
Matter
|
end
|
Q1
|
Q2
|
Q3
|
strategy
|
|
Business to be conducted at each meeting:
|
X
|
X
|
X
|
X
|
X
|
|
• Approve minutes of previous meetings
|
|
|
|
|
|
|
• Review Action Items
|
|
|
|
|
|
• President’s Report: Operations,
Corporate Development
& Strategic Update
|
|
|
|
|
|
• Review of Financial Results Year
to Date & Annual
Forecast
|
|
|
|
|
|
• Approval of Audit Committee Report,
Approval of
Annual/Interim Financial Statements,
MD&A and
Press Release
|
|
|
|
|
|
|
• Investor Relations Report
|
|
|
|
|
|
|
• Approval of Stock Option Grants
(as necessary)
|
|
|
|
|
|
|
• In-Camera Meeting of Independent
Directors
|
|
|
|
|
|
|
Approve Reports and Recommendations from:
|
X
|
X
|
X
|
X
|
X
|
|
• Corporate Governance & Compensation
Committee
|
|
|
|
|
|
|
• EHS Committee
|
|
|
|
|
|
|
Review of CEO Performance and Approval of Compensation for CEO
and Senior Officers
|
X
|
|
|
|
|
|
43-101 Report (as necessary for material projects)
|
X
|
X
|
X
|
X
|
X
|
|
Approval of Annual Information Form
|
X
|
|
|
|
|
|
Approve Record Date and Date for Annual Meeting
|
X
|
|
|
|
|
|
Approval of Management Information Circular
|
|
X
|
|
|
|
• Approve Nominees for Directors
and Appointment
of Auditors
|
|
|
|
|
|
|
Appointment of Committees
|
|
X
|
|
|
|
|
Appointment of Officers
|
|
X
|
|
|
|
|
Director Education Sessions, as needed
|
X
|
X
|
X
|
X
|
X
|
|
Review Terms of Reference and Calendar of Activities
|
|
|
|
X
|
|
I-77
|
|
Year
|
|
|
|
Budget/
|
|
Matter
|
end
|
Q1
|
Q2
|
Q3
|
strategy
|
|
Approve Strategic Plan
|
|
|
|
|
X
|
|
Approve Capital and Operating Budgets and Financial Plan
|
|
|
|
|
X
|
|
Risk Management Review
|
|
|
|
|
X
|
|
• Review of Delegation of
Authority
|
|
|
|
|
|
I-78
EXHIBIT “II” TO SCHEDULE “I”
NOVACOPPER INC.
(the “Company”)
AUDIT COMMITTEE TERMS OF REFERENCE
A. PURPOSE
The primary function of the Committee is to assist the Board
in fulfilling its oversight responsibilities, primarily through overseeing management’s
conduct of the Company’s accounting and financial reporting process and
systems of internal accounting and financial controls; selecting, retaining
and monitoring the independence and performance of the Company’s external
auditor, including overseeing the audits of the Company’s financial statements,
and approving any non-audit services; and providing an avenue of communication
among the external auditor, management and the Board.
B. COMPOSITION,
PROCEDURES AND ORGANIZATION
|
1.
|
The Board of Directors of the Company (the “Board”),
at its organizational meeting held in conjunction with each annual general
meeting of the shareholders, shall appoint the members and the Chair of
the Committee for the ensuing year. The Board may at any time remove or
replace any member of the Committee and may fill any vacancy in the Committee.
|
|
|
|
|
2.
|
The Committee shall consist of at least three members
of the Board all of whom shall be independent as determined in accordance
with applicable securities laws, rules, regulations and guidelines (“Securities
Laws”).
|
|
|
|
|
3.
|
No member of the Committee may, other than in his or
her capacity as a member of the Committee, the Board, or any other committee
of the Board, accept directly or indirectly any consulting, advisory,
or other “compensatory fee” (as such term is defined under applicable
United States securities laws and stock exchange rules (collectively,
the “U.S. Rules”)) from, or be an “affiliated person”
(as such term is defined under applicable U.S. Rules) of, the Company
or any subsidiary of the Company unless an exemption or exception under
applicable U.S. Rules is available.
|
|
|
|
|
4.
|
No member of the Committee shall have participated in
the preparation of the financial statements of the Company or any current
subsidiary of the Company at any time during the past three years unless
an exemption or exception under applicable U.S. Rules is available.
|
|
|
|
|
5.
|
All Committee members shall be financially literate.
For this purpose, financial literacy shall mean the ability of a member
to read and understand a set of financial statements that present a breadth
and level of accounting issues that are generally comparable to the breadth
and complexity of the issues that can reasonably be expected to be raised
by the Company’s financial statements. At least one member should
have accounting or related financial expertise such that the member satisfies
the definition of an “audit committee financial expert” under
applicable U.S. Rules.
|
|
|
|
|
6.
|
If the Chair is not present at any meeting of the Committee,
one of the other members of the Committee present at the meeting shall
be chosen by the Committee to preside at the meeting.
|
|
|
|
|
7.
|
The Secretary of the Company shall be the secretary
of the Committee, unless otherwise determined by the Committee.
|
|
|
|
|
8.
|
The Committee shall meet at least quarterly on such
dates and at such locations as may be determined by the Chair of the Committee
and may also meet at any other time or times on the call of the Chair
of the Committee, the external auditors or any two of the other members.
|
I-79
|
9.
|
The quorum for meetings shall be a majority of the members
of the Committee, present in person or by telephone or other telecommunication
device that permits all persons participating in the meeting to speak
and to hear each other. The Committee may also act by unanimous written
consent of its members.
|
|
|
|
|
10.
|
The external auditors or any two Directors may request
the Chair to call a meeting of the Committee and may attend at such meeting
or inform the Committee of a specific matter of concern to such Directors,
and may participate in such meeting.
|
|
|
|
|
11.
|
Notice of the time and place of every meeting shall
be given in writing or by e-mail or facsimile communication to each member
of the Committee at least 48 hours prior to the time fixed for such meeting;
provided, however, that a member may in any manner waive a notice of a
meeting and attendance of a member at a meeting is a waiver of notice
of the meeting, except where a member attends a meeting for the express
purpose of objecting to the transaction of any business on the grounds
that the meeting is not lawfully called.
|
|
|
|
|
12.
|
The Chair shall develop the Committee’s agenda, in consultation
with the Chief Financial Officer and other members of management. The
agenda and information concerning the business to be conducted at each
Committee meeting shall, to the extent practical, be communicated to the
members of the Committee sufficiently in advance of each meeting to permit
meaningful review.
|
|
|
|
|
13.
|
At the invitation of the Chair, one or more officers
or employees of the Company may, and if required by the Committee shall,
attend a meeting of the Committee. The external auditors shall receive
notice of and have the right to attend all meetings of the Committee.
|
|
|
|
|
14.
|
The Committee shall fix its own procedure at meetings,
keep records of its proceedings and report to the Board when the Committee
may deem appropriate (but not later than the next meeting of the Board).
|
|
|
|
|
15.
|
The Committee, when it considers it necessary or advisable,
may retain, at the Company’s expense, independent counsel or other
advisors to assist or advise the Committee independently on any matter
within its mandate. The Committee shall have the sole authority to retain
and terminate any such independent counsel or other advisors, including
sole authority to approve the fees and other retention terms for such
persons.
|
|
|
|
|
16.
|
The external auditors shall have a direct line of communication
to the Committee through the Chair and may bypass management if deemed
necessary. The external auditors shall report to the Committee and are
ultimately accountable to the Board and the Committee.
|
|
|
|
|
17.
|
The Committee, through its Chair, may contact directly
the external auditors, the internal auditors, if any, and any employee
of the Company as it deems necessary.
|
|
|
|
|
18.
|
The Company must provide appropriate funding, as determined
by the Committee, for payment of (i) compensation to any registered public
accounting firm engaged for the purpose of preparing or issuing an audit
report or performing other audit, review or attest services for the Company,
and (ii) ordinary administrative expenses of the Committee that are necessary
or appropriate in carrying out the Committee’s duties.
|
|
|
|
|
19.
|
In discharging its responsibilities, the Committee shall
have full access to all books, records, facilities and personnel of the
Company, to the Company’s legal counsel and to such other information
respecting the Company as it considers necessary or advisable in order
to perform its duties and responsibilities.
|
C. ROLES
AND RESPONSIBILITIES
The Committee’s principal responsibility is one of oversight.
The Company’s management is responsible for preparing the Company’s
financial statements and ensuring their accuracy and completeness and the Company’s
external auditor is responsible for auditing and/or reviewing those financial
statements. In carrying out its oversight responsibilities, the Committee is not required to provide any
expert or special assurance as to the Company’s financial statements or
any professional certification as to the external auditor’s work.
I-80
1.
Overall
Duties and Responsibilities
The overall duties and responsibilities of the Committee shall
be as follows:
|
a)
|
to assist the Board in the discharge of its responsibilities
relating to the quality, acceptability and integrity of the Company’s
accounting principles, reporting practices and internal controls;
|
|
|
|
|
b)
|
to assist the Board in the discharge of its responsibilities
relating to compliance with disclosure requirements under applicable Securities
Laws, including approval of the Company’s annual and quarterly consolidated
financial statements together with the Management’s Discussion and
Analysis;
|
|
|
|
|
c)
|
to establish and maintain a direct line of communication
with the Company’s external auditors and internal auditors (if any)
and assess their performance;
|
|
|
|
|
d)
|
to ensure that the management of the Company has designed,
implemented and is maintaining an effective system of internal controls;
and
|
|
|
|
|
e)
|
to report regularly to the Board on the fulfillment
of its duties and responsibilities.
|
2.
Public
Filings, Policies and Procedures
The Committee is charged with the responsibility to:
|
a)
|
review and approve for recommendation to the
Board:
|
|
|
|
|
|
|
i)
|
the annual audited financial statements, with the report
of the external auditors, the Management’s Discussion and Analysis
and the impact of unusual items and changes in accounting policies and
estimates;
|
|
|
|
|
|
|
ii)
|
the unaudited interim financial statements, the Management’s
Discussion and Analysis and the impact of unusual items and changes in
accounting policies and estimates;
|
|
|
|
|
|
|
iii)
|
financial information in earnings press releases;
|
|
|
|
|
|
|
iv)
|
the annual information form;
|
|
|
|
|
|
|
v)
|
prospectuses; and
|
|
|
|
|
|
|
vi)
|
financial information in other public reports and public
filings requiring approval by the Board;
|
|
|
|
|
|
|
|
and report to the Board with respect thereto;
|
|
|
|
|
|
b)
|
ensure adequate procedures are in place for
the review of the Company’s disclosure of financial information extracted
or derived from the Company’s financial statements and periodically
assess those procedures;
|
|
|
|
|
|
c)
|
review with management and the external auditors:
|
|
|
|
|
|
|
i)
|
significant variances in actual financial results for
the interim period from budgeted or projected results;
|
|
|
|
|
|
|
ii)
|
any actual or proposed changes in accounting or financial
reporting practices;
|
I-81
|
|
iii)
|
any significant or unusual events or transactions and
the methods used to account for significant or unusual transactions where
different approaches are possible;
|
|
|
|
|
|
|
iv)
|
any actual or potential breaches of debt covenants;
|
|
|
|
|
|
|
v)
|
the consistency of, and any changes to, accounting policies;
|
|
|
|
|
|
|
vi)
|
whether the Company has followed appropriate accounting
standards and made appropriate estimates and judgments;
|
|
|
|
|
|
|
vii)
|
the presentation and impact of significant risks and
uncertainties
|
|
|
|
|
|
|
viii)
|
the accuracy, completeness and clarity of disclosure
in the Company’s financial reports and the context in which statements
are made;
|
|
|
|
|
|
|
ix)
|
any tax assessments, changes in tax legislation or any
other tax matters that could have a material effect upon the financial
position or operating results of the Company and the manner in which such
matters have been disclosed in the consolidated financial statements;
|
|
|
|
|
|
|
x)
|
any litigation, claim or other contingency that could
have a material effect upon the financial position or operating results
of the Company and the manner in which such matters have been disclosed
in the consolidated financial statements;
|
|
|
|
|
|
|
xi)
|
all material information presented in the Management’s
Discussion and Analysis;
|
|
|
|
|
|
|
xii)
|
material communications between the external auditor
and management, such as any management letter or schedule of unadjusted
differences;
|
|
|
|
|
|
|
xiii)
|
with the external auditors any fraud, illegal acts,
deficiencies in internal control or other similar issues; and
|
|
|
|
|
|
|
xiv)
|
general accounting trends and issues of auditing policy,
standards and practices which affect or may affect the Company;
|
|
d)
|
review with management and the external auditors any
correspondence with securities regulators or other regulatory or government
agencies which raise material issues regarding the Company’s financial
reporting or accounting policies.
|
3.
Internal
Controls, Risk Management and Compliance
The duties and responsibilities of the Committee as they relate
to the internal control, risk management and compliance are to:
|
a)
|
evaluate whether management is setting the appropriate
“control culture” by communicating the importance of internal
controls and the management of risk and ensuring that all employees have
an understanding of their roles and responsibilities;
|
|
|
|
|
b)
|
review the adequacy, appropriateness and effectiveness
of the Company’s policies and business practices which impact on
the integrity, financial and otherwise, of the Company, including those
relating to insurance, accounting, information services and systems and
financial controls, management reporting, Code of Business Ethics and
risk management;
|
|
|
|
|
c)
|
review compliance under the Company’s Code of Business
Ethics;
|
I-82
|
d)
|
review any issues between management and the
external auditors that could affect the financial reporting or internal
controls of the Company;
|
|
|
|
|
|
e)
|
periodically review the Company’s accounting
and auditing policies, practices and procedures and the extent to which
recommendations made by the external auditors have been implemented;
|
|
|
|
|
|
f)
|
review annually the adequacy and quality of
the Company’s financial and accounting staff, including the need
for and scope of internal audit reviews;
|
|
|
|
|
|
g)
|
review annually with the external auditor
any significant matters regarding the Company’s internal controls
and procedures over financial reporting, including any significant deficiencies
or material weaknesses in their design or operation, that have come to
their attention during the conduct of their annual audit, and review whether
internal control recommendations made by the auditor have been implemented
by management;
|
|
|
|
|
|
h)
|
receive reports from management on assessment
and management of financial risks and review major financial risk exposures
and the guidelines and policies that management has put in place to govern
the process of monitoring, controlling and reporting such exposures;
|
|
|
|
|
|
i)
|
review and recommend for approval by the Board
the appointment of the Chief Financial Officer and review the appointment
of any other key financial executives involved in the financial reporting
process;
|
|
|
|
|
|
j)
|
establish procedures for:
|
|
|
|
|
|
|
i)
|
the receipt, retention and treatment of complaints received
by the Company regarding accounting, internal controls, or auditing matters;
and
|
|
|
|
|
|
|
ii)
|
the confidential, anonymous submission by employees
of the Company of concerns regarding questionable accounting or auditing
matters;
|
|
|
|
|
|
|
|
including, without limitation, a Whistleblower Policy;
|
|
|
|
|
|
k)
|
review any correspondence from regulators
or government entities or other issues relating to compliance with laws
or regulations that could have an impact on the Company’s financial
condition;
|
|
|
|
|
|
l)
|
receive a report from management on the Company’s
source deductions and other remittances under applicable tax or other
legislation;
|
|
|
|
|
|
m)
|
review and approve related party transactions.
|
4.
External
Auditors
The duties and responsibilities of the Committee as they relate
to the external auditors shall be as follows:
|
a)
|
to be directly responsible for the appointment (subject
to ratification by the shareholders of the Company), compensation, retention
and oversight of the work of the external auditor and any other registered
public accounting firm engaged (including resolution of disagreements
between management and the external auditor or such public accounting
firm regarding financial reporting) for the purpose of preparing or issuing
an audit report or performing other audit, review or attest services for
the Company.
|
|
|
|
|
b)
|
the Committee shall oversee the selection process for
new auditors and if an auditor resigns the Committee shall investigate
the issues leading to this and decide whether any action is required;
|
|
|
|
|
c)
|
to oversee the relationship with the external auditor,
including, without limitation:
|
I-83
|
|
i)
|
to (i) approve their terms of engagement for the annual
audit and related fees, (ii) review any engagement letter issued at the
start of each audit and review the scope of the audit; and (iii) and to
assess fees for audit or non-audit services and ensure that the level
of fees is appropriate to enable an adequate audit to be conducted;
|
|
|
|
|
|
|
ii)
|
to approve the engagement of the external auditors for
interim reviews and their remuneration for the interim reviews;
|
|
|
|
|
|
|
iii)
|
to assess annually their independence and objectivity
taking into account relevant professional and regulatory requirements
and the relationship with the auditor as a whole, including the provision
of any non-audit services;
|
|
|
|
|
|
|
iv)
|
to satisfy itself that there are no relationships (such
as family, employment, investment, financial or business) between the
auditor and the Company (other than in the ordinary course of business);
|
|
|
|
|
|
|
v)
|
to review and approve the Company’s hiring policies
regarding partners, employees and former partners and employees of the
present and any former external auditor of the Company;
|
|
|
|
|
|
|
vi)
|
to monitor the auditor’s compliance with relevant
ethical and professional guidance on the rotation of audit partners, the
level of fees paid by the Company compared to the overall fee income of
the firm, office and partner and other related requirements; and
|
|
|
|
|
|
|
vii)
|
to assess annually their qualifications, expertise and
resources and the effectiveness of the audit process which shall include
a report from the external auditor on their own internal quality procedures.
|
|
|
|
|
|
d)
|
to review with the external auditors, upon
completion of their audit and interim reviews:
|
|
|
|
|
|
|
i)
|
the contents of their report;
|
|
|
|
|
|
|
ii)
|
the scope and quality of the audit work performed;
|
|
|
|
|
|
|
iii)
|
the adequacy of the Company’s financial and auditing
personnel;
|
|
|
|
|
|
|
iv)
|
the co-operation received from the Company’s personnel
during the audit;
|
|
|
|
|
|
|
v)
|
the internal resources used;
|
|
|
|
|
|
|
vi)
|
any significant transactions outside of the normal business
of the Company;
|
|
|
|
|
|
|
vii)
|
any significant proposed adjustments and recommendations
for improving internal accounting controls, accounting principles and
management systems;
|
|
|
|
|
|
|
viii)
|
the quality, acceptability and integrity of the Company’s
accounting policies and principles;
|
|
|
|
|
|
|
ix)
|
the non-audit services provided by the external auditors;
|
|
|
|
|
|
|
x)
|
the effect of regulatory and accounting initiatives
as well as off-balance sheet structures on the Company’s financial
statements;
|
|
|
|
|
|
|
xi)
|
the management letter and management’s response
to the external auditor’s findings and recommendations.
|
|
|
|
|
|
|
and report to the Board in respect of the
foregoing and on such other matters as they consider necessary;
|
I-84
|
e)
|
to implement structures and procedures to ensure that
the Committee meets with the external auditors on a regular basis in the
absence of management in order to review any difficulties encountered
by the external auditors in carrying out the audit and to resolve disagreements
between the external auditors and management; and
|
|
|
|
|
f)
|
to pre-approve the retention of the external auditor
for any non-audit service and the fee for such service.
|
The Committee may satisfy the pre-approval requirement in subsection
(f) if:
|
|
i)
|
the aggregate amount of all the non-audit services that
were not pre-approved constitutes no more than five per cent of the total
amount of revenues paid by the Company to its external auditors during
the fiscal year in which the services are provided;
|
|
|
|
|
|
|
ii)
|
the services were not recognized by the Company at the
time of the engagement to be non-audit services; and
|
|
|
|
|
|
|
iii)
|
the services are promptly brought to the attention of
the Committee and are approved, prior to the completion of the audit,
by the Committee or by one or more members of the Committee to whom authority
to grant such approvals has been delegated by the Committee.
|
The Committee may delegate to one or more independent members
the authority to pre-approve non-audit services provided that the pre-approval
of non-audit services by any member to whom authority has been delegated must
be presented to the full Committee at its first scheduled meeting following
such pre-approval.
Approved: February 27, 2012
I-85
APPENDIX A
AUDIT COMMITTEE CALENDAR OF ACTIVITIES
|
Agenda Item
|
Q1
|
Q2
|
Q3
|
Q4
|
|
Approve minutes of last meeting
|
X
|
X
|
X
|
X
|
|
Public Filings, Policies and Procedures
|
|
Receive a report on:
|
X
|
X
|
X
|
X
|
• results for the applicable
period with variances
from budget and projections
|
|
|
|
|
• critical accounting policies,
significant estimates,
alternative treatments of financial information and
material communication between management and
external auditor
|
|
|
|
|
• any changes in accounting
policies, trends or
practises or financial reporting requirements that
may affect the financial statements
|
|
|
|
|
• the (i) tax assessments,
changes or other tax issues;
and (ii) any material pending or threatened litigation,
claims and assessments that could have a material
impact on the Company’s financial position
|
|
|
|
|
• presentation, impact of or
changes to significant
risks and uncertainties
|
|
|
|
|
|
• any actual or potential breaches
of debt covenants
|
|
|
|
|
|
Review issues relating to and accounting for:
|
X
|
X
|
X
|
X
|
|
• asset retirement obligations
|
|
|
|
|
|
• derivatives (including options)
|
|
|
|
|
|
• inventory valuation
|
|
|
|
|
|
• impairments
|
|
|
|
|
|
Review any correspondence from securities regulators or other agencies
regarding financial reporting or accounting policies
|
X
|
X
|
X
|
X
|
|
Review financial statement certification process and disclosure
controls and procedures.
|
X
|
X
|
X
|
X
|
|
Review the annual financial statements and the auditor’s report
thereon and related MD&A and press release and recommend approval
of such documents to the Board.
|
X
|
|
|
|
I-86
|
Agenda Item
|
Q1
|
Q2
|
Q3
|
Q4
|
|
Review the annual information form and other annual public
information documents
|
X
|
|
|
|
|
Review interim financial statements and MD&A and the
auditor’s report thereon and recommend approval of the interim financial
statements and MD&A to the Board.
|
|
X
|
X
|
X
|
|
Internal Controls
and Risk Management Systems
|
|
Review any reports
under the Whistleblowing Policy
|
X
|
X
|
X
|
X
|
|
Review any new appointments to senior positions with financial
reporting responsibilities.
|
X
|
X
|
X
|
X
|
|
Review adequacy
of financial and accounting staff
|
X
|
X
|
X
|
X
|
|
Review hedging and
credit programs and policies
|
X
|
X
|
X
|
X
|
|
Review external auditor’s significant audit findings
and management’s responses to suggestions made
|
X
|
|
|
|
|
Obtain assurance from the external auditor regarding the
overall control environment and the adequacy of accounting system controls.
|
X
|
|
|
|
|
Receive report on
risk assessment and risk management
|
|
|
|
X
|
|
Review insurance
programs
|
|
|
|
X
|
|
Review compliance
under the Code of Business Ethics
|
|
|
|
X
|
|
External Auditors
|
|
Receive report on audit/interim reviews from external auditor
|
X
|
X
|
X
|
X
|
|
Discuss in private with the external auditor matters affecting
the conduct of their audit, interim reviews and other corporate matters.
|
X
|
X
|
X
|
X
|
|
Review and approve engagement of the external auditor for
non-audit services.
|
X
|
X
|
X
|
X
|
|
Approve the engagement of the external auditor for the interim
reviews and related fees
|
X
|
|
|
|
|
Approve the appointment of the external auditor for approval
by the shareholders (subject to ratification by the shareholders of the
Company)
|
X
|
|
|
|
I-87
|
Agenda Item
|
Q1
|
Q2
|
Q3
|
Q4
|
|
Assess independence of external auditor. Ensure rotation
of lead or coordinating audit partner having primary responsibility for
the audit as required by law.
|
|
|
|
X
|
|
Review the audit plan with the external auditor and recommend
the audit fees for approval by the Board
|
|
|
|
X
|
|
Governance Matters
|
|
Review key finance polices, as required.
|
X
|
X
|
X
|
X
|
|
Review Audit Committee Terms of Reference.
|
|
|
X
|
|
|
Compliance with Laws and Regulations
|
|
Review any instances of fraud or illegal activities
|
X
|
X
|
X
|
X
|
|
Receive report on source deductions and other remittances
|
X
|
X
|
X
|
X
|
|
Review any compliance issues that could impact financial
statements
|
X
|
X
|
X
|
X
|
I-88
