10-Q 1 form10q.htm FORM 10-Q NovaCopper Inc.: Form 10-Q - Filed by newsfilecorp.com

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

FORM 10-Q

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

For the Quarterly Period Ended August 31, 2013

OR

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

For the Transition Period from                          to

Commission File Number: 1-35447

NOVACOPPER INC.
(Exact Name of Registrant as Specified in Its Charter)

British Columbia
98-1006991
(State or Other Jurisdiction of
(I.R.S. Employer
Incorporation or Organization)
Identification No.)
Suite 1950, 777 Dunsmuir Street
Vancouver, British Columbia
Canada
V7Y 1K4
(Address of Principal Executive Offices)
(Zip Code)

(604) 638-8088
(Registrant’s Telephone Number, Including Area Code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [X]     No [   ]

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

Large accelerated filer [   ] Accelerated filer [X] Non-accelerated filer [   ] Smaller reporting company [   ]
    (Do not check if a smaller reporting  
    company)  

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

As of October 7, 2013, the registrant had 53,066,656 Common Shares, no par value, outstanding.


NOVACOPPER INC.

TABLE OF CONTENTS

    Page
     
PART I - FINANCIAL INFORMATION 2
     
                 Item 1. Financial Statements 2
                 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 17
                 Item 3. Quantitative and Qualitative Disclosures about Market Risk 25
                 Item 4. Controls and Procedures 26
     
PART II - OTHER INFORMATION 27
     
                 Item 1. Legal Proceedings 27
                 Item 1A. Risk Factors 27
                 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 27
                 Item 3. Defaults Upon Senior Securities 27
                 Item 4. Mine Safety Disclosures 27
                 Item 5. Other Information 27
                 Item 6. Exhibits 27

ii


PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

NovaCopper Inc.
(An Exploration-Stage Company)
Consolidated Balance Sheets
(unaudited)

          in thousands of dollars  
             
    August 31, 2013     November 30, 2012  
    $     $  
Assets            
Current assets            
Cash and cash equivalents   9,440     22,244  
Accounts receivable   312     365  
Deposits and prepaid amounts   554     554  
    10,306     23,163  
             
Plant and equipment (note 3)   1,410     1,947  
Mineral properties and development costs (note 4)   30,586     30,586  
    42,302     55,696  
Liabilities            
Current liabilities            
Accounts payable and accrued liabilities (note 5)   1,578     1,846  
Due to related parties (note 6)   -     127  
Other liabilities (note 7)   479     -  
    2,057     1,973  
             
Other liabilities (note 7)   235     -  
    2,292     1,973  
Shareholders’ equity            
Share capital (note 8) – unlimited common shares authorized, no par value            
Issued – 53,015,597 (2012 – 46,665,069)   104,651     92,168  
Contributed surplus (note 8)   152     12,180  
Contributed surplus – stock-based compensation (note 8(a,b))   16,426     12,703  
Contributed surplus – units (note 8(c))   1,571     -  
Deficit accumulated during the exploration stage   (82,790 )   (63,328 )
    40,010     53,723  
    42,302     55,696  

Nature of operations, liquidity, structure and plan of arrangement (note 1)
Commitments (note 8, 11)

/s/ Rick Van Nieuwenhuyse, Director   /s/ Terry Krepiakevich, Director

(See accompanying notes to the interim consolidated financial statements)

Approved on behalf of the Board of Directors

2


NovaCopper Inc.
(An Exploration-Stage Company)
Consolidated Statements of Loss and Comprehensive Loss
(unaudited)

    in thousands of dollars, except share and per share amounts  
    For the three months ended     For the nine months ended     Cumulative  
                            during  
    August 31,     August 31,     August 31,     August 31,     exploration  
    2013     2012     2013     2012     stage  
    $     $     $     $     $  
Expenses                              
Amortization   266     235     770     521     1,822  
Corporate development   55     93     195     150     574  
Foreign exchange loss (gain)   38     (16 )   20     (2 )   30  
General and administrative   290     778     1,454     1,530     5,859  
Mineral properties expense   4,727     9,139     7,760     12,197     50,123  
   (note 4(c))                              
Professional fees   109     46     619     190     1,375  
Salaries   663     316     1,813     1,139     4,273  
Salaries – stock-based compensation (note 8(a,b,c))   755     1,987     6,868     7,481     16,279  
Total expenses   6,903     12,578     19,499     23,206     80,335  
Other items                              
Accretion expense   -     -     -     -     2,530  
Loss on disposal of equipment   -     -     -     -     7  
Interest and other income   (13 )   (19 )   (37 )   (29 )   (82 )
Loss and comprehensive loss for the period   6,890     12,559     19,462     23,177     82,790  
Basic and diluted loss per common share   $0.13     $0.27     $0.37     $0.50      
Weighted average number of common shares outstanding   53,002,309     46,663,290     52,132,313     46,627,235      

Nature of operations, liquidity, structure and plan of arrangement (note 1)

(See accompanying notes to the interim consolidated financial statements)

3


NovaCopper Inc.
(An Exploration-Stage Company)
Consolidated Statements of Changes in Shareholders’ Equity
For the Nine Months Ended
(unaudited)

    in thousands of dollars, except share amounts  
          August 31, 2013  
    Number of shares     Ascribed value  
          $  
Share capital            
Balance – beginning of period   46,665,069     92,168  
Issued on vesting of Restricted Share Units   244,496     444  
Issued on vesting of NovaGold Performance and Deferred Share Units   16,586     32  
Issued on exercise of NovaGold Warrants   6,088,262     11,996  
Issued on exercise of NovaGold Arrangement Options   1,184     11  
Balance – end of period   53,015,597     104,651  
Contributed surplus            
Balance – beginning of period         12,180  
Vesting of NovaGold Performance and Deferred Share Units         (32 )
Exercise of NovaGold Warrants         (11,996 )
Balance – end of period         152  
Contributed surplus – stock-based compensation            
Balance – beginning of period         12,703  
Stock-based compensation         3,734  
Exercise of NovaGold Arrangement Options         (11 )
Balance – end of period         16,426  
Contributed surplus – units            
Balance – beginning of period         -  
Restricted Share Units reclassified from liability         1,683  
Stock-based compensation         61  
Vesting of Restricted Share Units         (173 )
Balance – end of period         1,571  
Deficit            
Balance – beginning of period         (63,328 )
Loss for the period         (19,462 )
Balance – end of period         (82,790 )
Total shareholders’ equity         40,010  

4


NovaCopper Inc.
(An Exploration-Stage Company)
Consolidated Statements of Changes in Shareholders’ Equity
For the Nine Months Ended
(unaudited)

    in thousands of dollars, except share amounts  
          August 31, 2012  
    Number of shares     Ascribed value  
          $  
Share capital            
Balance – beginning of period   200     27,280  
Issued pursuant to Plan of Arrangement   46,577,878     64,496  
Issued pursuant to an employment agreement   76,005     316  
Issued on exercise of NovaGold Arrangement Options   9,485     65  
Balance – end of period   46,663,568     92,157  
Contributed surplus            
Balance – beginning of period         36,281  
Funding provided and expenses paid by NovaGold Resources Inc.         43,763  
Transfer to share capital on completion of Plan of Arrangement         (64,496 )
Transfer to contributed surplus – stock-based compensation         (3,368 )
Balance – end of period         12,180  
Contributed surplus – stock-based compensation            
Balance – beginning of period         -  
Transfer from contributed surplus on completion of Plan of Arrangement         3,368  
Stock-based compensation         7,482  
Exercise of NovaGold Arrangement Options         (65 )
Balance – end of period         10,785  
Deficit            
Balance – beginning of period         (32,310 )
Loss for the period         (23,177 )
Balance – end of period         (55,487 )
Total shareholders’ equity         59,635  

(See accompanying notes to the interim consolidated financial statements)

5


NovaCopper Inc.
(An Exploration-Stage Company)
Consolidated Statements of Cash Flows
(unaudited)

                      in thousands of dollars  
    For the three months ended     For the nine months ended     Cumulative  
                            during  
                            exploration  
    August 31,     August 31,     August 31,     August 31,     stage  
    2013     2012      2013     2012     $  
    $     $       $     $        
Cash flows used in operating activities                    
Loss for the period   (6,890 )   (12,559 )   (19,462 )   (23,177 )   (82,790 )
Items not affecting cash                              
   Amortization   266     235     770     521     1,842  
   Accretion   -     -     -     -     2,530  
   Loss on disposal of equipment   -     -     -     -     7  
   Issuance of shares as compensation   -     -     -     316     316  
   Stock-based compensation   755     1,987     6,868     7,481     17,393  
   Unrealized foreign exchange   1     -     (76 )   -     (77 )
Net change in non-cash working capital                    
   Decrease (increase) in accounts receivable   67     (62 )   53     (184 )   (312 )
   Decrease (increase) in deposits and prepaid amounts   228     154     -     (449 )   (540 )
   Increase (decrease) in accounts payable, accrued 
   liabilities and due to related parties
  (284 )   947     (395 )   2,321     1,500  
    (5,857 )   (9,298 )   (12,242 )   (13,171 )   (60,131 )
Cash flows from financing activities                    
Funding provided by NovaGold on the completion 
   of the Plan of Arrangement
  -     -     -     40,000     40,000  
Funding provided and expenses paid by NovaGold   -     -     -     3,763     61,256  
Repayment of notes payable   -     -     -     -     (24,000 )
Settlement of Restricted Share Units   (329 )   -     (329 )   -     (329 )
    (329 )   -     (329 )   43,763     76,927  
Cash flows used in investing activities                    
Acquisition of plant & equipment   (61 )   (297 )   (233 )   (1,492 )   (3,240 )
Expenditures on mineral properties   -     -     -     -     (4,116 )
    (61 )   (297 )   (233 )   (1,492 )   (7,356 )
Increase (decrease) in cash and cash equivalents   (6,247 )   (9,595 )   (12,804 )   29,100     9,440  
Cash and cash equivalents – beginning of period   15,687     38,696     22,244     1     -  
Cash and cash equivalents – end of period   9,440     29,101     9,440     29,101     9,440  

Nature of operations, liquidity, structure and plan of arrangement (note 1)

(See accompanying notes to the interim consolidated financial statements)

6


NovaCopper Inc.
(An Exploration-Stage Company)
Notes to the Consolidated Financial Statements

1     Nature of operations, liquidity, structure and plan of arrangement

NovaCopper Inc. (“NovaCopper” or the “Company”) was incorporated in British Columbia under the Business Corporations Act (BC) on April 27, 2011. The Company is engaged in the exploration and development of mineral properties including the Arctic and Bornite Projects located in Northwest Alaska in the United States of America.

Structure and plan of arrangement

The Ambler lands are comprised of the copper-zinc-lead-gold-silver Arctic Project and other mineralized targets within a 65 kilometer long volcanogenic massive sulfide belt. On January 11, 2010, Alaska Gold Company (“AGC”), at the time a wholly owned subsidiary of NovaGold Resources Inc. (“NovaGold”), purchased 100% of the Ambler lands for consideration of $29 million. The Ambler lands were acquired on October 17, 2011 by NovaCopper US Inc. (“NovaCopper US”) through a purchase and sale agreement with AGC. On October 24, 2011, NovaGold transferred its ownership of NovaCopper US to NovaCopper, then a wholly owned subsidiary of NovaGold, in exchange for 100 shares of NovaCopper, with an ascribed value of $27.3 million (note 8).

On October 19, 2011, NovaCopper US acquired the exclusive right to explore the Bornite lands and lands deeded to NANA Regional Corporation, Inc. (“NANA”) through the Alaska Native Claims Settlement Act (“ANCSA”) located adjacent to the Ambler lands to create the Upper Kobuk Mineral Projects (“UKMP Projects”).

Where applicable, these consolidated financial statements reflect the balance sheets, statements of loss, comprehensive loss and deficit and cash flows of the Arctic Project as if NovaCopper had been an independent operation from inception. The statements of loss, comprehensive loss and deficit for the three and nine months ended August 31, 2012 include direct general and administrative and exploration costs of the Arctic Project and an allocation of NovaGold’s general and administrative costs incurred. NovaGold has historically provided corporate services to the Arctic 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 Arctic Project was calculated on the basis of time committed by NovaGold staff to AGC and the ratio of expenses incurred on the Arctic Project in the period presented as compared to all costs incurred by AGC in the respective period.

The Arctic Project’s opening deficit has been calculated by applying the same allocation principles described above to the cumulative transactions relating to the project from the date of its initial option in 2004 and includes an allocation of NovaGold’s general and administrative expenses from the date of acquisition. Prior to the acquisition in 2010, NovaGold held an option to earn a 51% interest in the property which was terminated upon entering into the purchase and sale agreement. All historical spending prior to April 30, 2012 was funded by NovaGold.

In April 2012, NovaCopper Inc. was listed on the Toronto Stock Exchange and the NYSE-MKT (previously NYSE-AMEX) under the symbol “NCQ” following a positive vote from the shareholders of NovaGold to distribute the shares of NovaCopper, a wholly owned subsidiary, to the shareholders of NovaGold as a return of capital by way of a Plan of Arrangement (the “Plan of Arrangement”).

Liquidity

These financial statements have been prepared on a going concern basis, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. As at August 31, 2013, the Company had consolidated cash of $9.4 million and working capital of $8.2 million. Based on anticipated but not committed expenditures on its projects, the Company is likely to require financing within the next twelve months. Future financings are anticipated by way of debt financing, equity financing, convertible debt financing, exercise of options, or other means. The continued operations of the Company are dependent on its ability to obtain additional financing or to generate future cash flows.

7


2     Summary of significant accounting policies

Basis of presentation

These consolidated financial statements have been prepared using accounting principles generally accepted in the United States (“U.S. GAAP”) and include the accounts of NovaCopper Inc. and its wholly-owned subsidiary, NovaCopper US Inc. All significant intercompany transactions are eliminated on consolidation. These financial statements were approved by the Company’s Audit Committee on behalf of the Board of Directors for issue on October 7, 2013.

The unaudited interim consolidated financial statements include all adjustments of a normal recurring nature necessary for the fair presentation of our financial position as of August 31, 2013, our results of operations for the three and nine months ended August 31, 2013 and August 31, 2012, and our cash flows for the three and nine months ended August 31, 2013 and August 31, 2012. The results of operations for the three and nine months ended August 31, 2013 are not necessarily indicative of the results to be expected for the year ending November 30, 2013.

As these interim consolidated financial statements do not contain all of the disclosures required by U.S. GAAP for annual financial statements, these unaudited interim consolidated financial statements should be read in conjunction with the annual financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended November 30, 2012 filed with the U.S. Securities and Exchange Commission (“SEC”) on February 12, 2013. Accounting policies are followed consistently with the accounting policies disclosed in our Annual Report on Form 10-K with the exception of the following additions or changes noted.

All figures are in United States dollars unless otherwise noted.

Financial instruments

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 income or loss for the period. Held-for-trading financial liabilities consist of other liabilities. The Company has no held-for-trading financial assets.

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 Company has no available-for-sale financial assets.

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. Loans and receivables consist of cash and cash equivalents, accounts receivable, and deposits.

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 due to related parties.

Stock-based compensation

Compensation expense for options granted to employees, directors and certain service providers is determined based on estimated fair values of the options at the time of grant using the Black-Scholes option pricing model, 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 expected life of the option. The cost is recognized using the graded attribution method over the vesting period of the respective options. The expense relating to the fair value of stock options is included in expenses and is credited to contributed surplus. Shares are issued from treasury in settlement of options exercised.

Compensation expense for restricted share units and deferred share units granted to employees and directors, respectively, is determined based on estimated fair values of the units at the time of grant using quoted market prices or at the time the units qualify for equity classification under ASC 718. The cost is recognized using the graded attribution method over the vesting period of the respective units. The expense relating to the fair value of the units is included in expenses and is credited to other liabilities or contributed surplus based on the unit plan’s classification. Units may be settled in either i) cash and/or ii) shares issued from treasury, at the Company’s election at the time of vesting.

8


Recent accounting pronouncements

  i.

Offsetting assets and liabilities

     
 

In January 2013, the FASB issued “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” (“ASU 2013-01”). ASU 2013-01 clarifies Accounting Standards Update No. 2011-11: “Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”) to restrict the scope of implementation to derivatives accounted for under Topic 815, Derivatives and Hedging, which includes bifurcated embedded derivatives repurchase agreements and reverse repurchase agreements, and securities borrowing and lending transactions that require an offset or are subject to an enforceable master netting arrangement. ASU 2013-01 is effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013 (year ending November 30, 2014 for the Company). We do not expect the adoption of ASU 2013-01 to have a material impact on our results of operations, financial condition, or cash flows.

     
  ii.

Comprehensive income

     
 

In December 2011, the FASB issued “Comprehensive Income – Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05” (“ASU 2011-12”). ASU 2011-12 defers changes in Update 2011-05 that relate to the presentation of reclassification adjustments. ASU 2011-12 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 (year ending November 30, 2013 for the Company). The adoption of ASU 2011-12 did not have a material impact on our results of operations, financial condition, or cash flows.

3     Plant and equipment

         
in thousands of dollars
 
                August 31, 2013  
          Accumulated        
    Cost     amortization     Net  
    $     $     $  
British Columbia, Canada                  
Furniture and equipment   46     (3 )   43  
Leasehold improvements   32     (3 )   29  
Computer hardware and software   79     (10 )   69  
Alaska, USA                  
Machinery and equipment   2,832     (1,716 )   1,116  
Vehicles   276     (125 )   151  
Computer hardware and software   31     (29 )   2  
    3,296     (1,886 )   1,410  

         
in thousands of dollars
 
                November 30, 2012  
          Accumulated        
    Cost     amortization     Net  
Alaska, USA   $     $     $  
                   
Machinery and equipment   2,831     (1,007 )   1,824  
Vehicles   201     (81 )   120  
Computer hardware and software   31     (28 )   3  
    3,063     (1,116 )   1,947  

9


4     Mineral properties and development costs

                in thousands of dollars  
    November 30, 2012     Acquisition costs     August 31, 2013  
Alaska, USA   $     $     $  
Ambler (a)   26,586     -     26,586  
Bornite (b)   4,000     -     4,000  
    30,586     -     30,586  

                in thousands of dollars  
    November 30, 2011     Acquisition costs     November 30, 2012  
Alaska, USA   $     $     $  
Ambler (a)   26,547     39     26,586  
Bornite (b)   4,000     -     4,000  
    30,547     39     30,586  

(a)

Ambler lands

   

On January 11, 2010, NovaGold, through a wholly-owned subsidiary, purchased 100% of the Ambler lands in Northwest Alaska, which contains the copper-zinc-lead-gold-silver Arctic Project and other mineralized targets within the volcanogenic massive sulfide belt. As consideration, NovaGold, issued 931,098 shares with a fair value of $5.0 million and agreed to make cash payments to the vendor of $12.0 million each in January 2011 and January 2012, respectively, for total consideration of $29.0 million. The fair value of these cash payments were $11.1 million and $10.3 million, respectively, at the transaction date valued using a discount rate of approximately 8%. The January 2011 payment was made by NovaGold on January 7, 2011 and the January 2012 payment was made by NovaGold in advance on August 5, 2011. Total fair value of the consideration was $26.5 million, including transaction costs associated with the acquisition of $0.1 million. The vendor retained a 1% net smelter return royalty that the owner of the property can purchase at any time for a one-time payment of $10.0 million.

   

Prior to the acquisition in 2010, NovaGold held an option to earn a 51% interest in the property which was terminated upon entering into the purchase and sale agreement.

   

As discussed in note 1, the property was acquired on October 17, 2011 by NovaCopper US through a reorganization by NovaGold.

   
(b)

Bornite lands

   

On October 19, 2011, NovaCopper US acquired the exclusive right to explore and the non-exclusive right to access and entry on the Bornite lands and lands deeded to NANA through the ANCSA, located adjacent to the Ambler lands in Northwest Alaska. As consideration, NovaCopper US paid $4 million to acquire the right to explore and develop the combined Upper Kobuk Mineral Projects through an Exploration Agreement and Option to Lease with NANA. Upon the decision to proceed with construction of a mine on the lands, NANA maintains the right to purchase between a 16%-25% ownership interest in the mine or retain a 15% net proceeds royalty which is payable after NovaCopper has recovered certain historical costs, capital and cost of capital. Should NANA elect to purchase an ownership interest, consideration will be payable equal to all historical costs incurred on the properties at the elected percentage purchased less $40 million, not to be less than zero. The parties would form a joint venture and be responsible for all future costs, including capital costs of the mine based on their pro-rata share.

   

NANA would also be granted a net smelter return royalty of between 1% and 2.5% upon the execution of a mining lease or a surface use agreement, the percent which is determined by the classification of land from which production originates.

   
(c)

Mineral properties expense

   

The following table summarizes mineral properties expense for the three months and nine months ended August 31, 2013 and 2012.

10



                      in thousands of dollars  
    Three months     Three months     Nine months     Nine months  
    ended     ended     ended     ended  
    August 31, 2013     August 31, 2012     August 31, 2013     August 31, 2012  
        $     $     $  
Community   69     8     112     101  
Drilling   1,557     3,532     1,957     3,910  
Engineering   369     34     1,119     316  
Environmental   63     174     90     242  
Geochemistry and geophysics   100     775     167     822  
Land and permitting   88     -     280     18  
Other income   (95 )   (33 )   (95 )   (93 )
Project support   1,255     2,921     1,935     4,107  
Wages and benefits   1,321     1,728     2,195     2,774  
Mineral property expense   4,727     9,139     7,760     12,197  

Project support costs consist of indirect expenses such as fixed wing charters, helicopter support, fuel, and other camp operation costs. Cumulative mineral properties expense from the initial earn-in agreement on the property in 2004 to August 31, 2013 is $50.1 million.

5     Accounts payable and accrued liabilities

          in thousands of dollars  
    August 31, 2013     November 30, 2012  
        $  
Trade accounts payable   798     207  
Accrued liabilities   642     659  
Accrued salaries and vacation   138     980  
Accounts payable and accrued liabilities   1,578     1,846  

Accrued liabilities include $79,000 of accrued and unpaid directors’ meeting fees relating to services provided during the nine months ended August 31, 2013.

6     Related parties

Expenses to April 30, 2012 were funded by NovaGold and its subsidiaries. NovaGold and NovaCopper have a number of directors in common. During the nine months ended August 31, 2013, NovaGold and its subsidiaries provided management and office services totaling $151,000 to the Company, including rent and office expenses pursuant to a Services Agreement. The Services Agreement terminated on May 1, 2013. No services were provided for the three months ended August 31, 2013.

During the nine months ended August 31, 2013, the Company provided exploration and management services in the amount of $82,000 to NovaGold under the Services Agreement. No services were provided for the three months ended August 31, 2013.

The Company had no balances owing to or due from related parties at August 31, 2013. The Company had payables of $127,000 at November 30, 2012 due to NovaGold.

7     Other liabilities

The Company has adopted a Restricted Share Unit Plan (“RSU Plan”) to provide long-term incentives to employees. The RSU Plan may be settled in cash and/or common shares, at the Company’s election, with each Restricted Share Unit (“RSU”) entitling the holder to receive one common share.

Under Accounting Standards Codification (“ASC”) 718, the units are measured at fair value at the time of grant and recognized over the service period as stock-based compensation expense using the graded attribution method. The RSU Plan allows for the units to be settled in cash or common shares, at the Company’s election. At the current time, the Company is restricted from delivering common shares in full to officers as a result of the insider participation limit under the RSU Plan and therefore may settle with a combination of cash and shares. As such, the Company recognizes units granted to officers under the RSU plans as a liability, marked-to-market at each period end until the time of vesting.

11


On December 5, 2012, 1,000,000 RSUs were granted to officers vesting equally in thirds on June 5, 2013, December 5, 2013, and December 5, 2014.

A summary of the Company’s RSUs granted to officers and changes during the period ended is as follows:

    August 31, 2013  
    Number of RSUs  
Balance – beginning of period   -  
Granted   1,000,000  
Vested   (333,331 )
Balance – end of period   666,669  

The fair value of the units recognized in the period has been estimated using the quoted market price of the Company’s shares at period end.

For the nine months ended August 31, 2013, NovaCopper recognized a stock-based compensation charge of $1.3 million for RSUs granted to officers. On June 5, 2013, 333,333 RSUs vested to officers and were settled through the issuance of 150,000 common shares and $0.3 million in cash. The RSUs vesting on December 5, 2013 are classified as a current liability of $0.5 million and the RSUs vesting on December 5, 2014 are classified as a long-term liability of $0.2 million.

8     Share capital

Authorized: 
      unlimited common shares, no par value

    in thousands of dollars, except share amounts  
    Number of shares     Ascribed value  
          $  
November 30, 2011   200     27,280  
Issued pursuant to Plan of Arrangement   46,577,878     64,496  
Issued pursuant to employment agreement   76,005     316  
Issued on exercise of NovaGold Arrangement Options   10,986     76  
November 30, 2012   46,665,069     92,168  
Issued on vesting of Restricted Share Units   244,496     444  
Issued on vesting of NovaGold Performance and Deferred Share Units   16,586     32  
Issued on exercise of NovaGold Warrants   6,088,262     11,996  
Issued on exercise of NovaGold Arrangement Options   1,184     11  
August 31, 2013 – issued and outstanding   53,015,597     104,651  

On March 28, 2012, the shareholders of NovaGold approved the Plan of Arrangement under which NovaGold would distribute its interest in NovaCopper to its shareholders on the basis that each shareholder would receive one share in NovaCopper for every six shares of NovaGold held on the record date. As part of the Plan of Arrangement, the Company split its then issued and outstanding shares into 46,578,078 common shares. On April 30, 2012 (the “Effective Date”), the Plan of Arrangement became effective and the Company distributed a total of 46,578,078 common shares to shareholders of record of NovaGold as at the close of business on April 27, 2012. The value of $64.5 million attributed to the common shares distributed on the spin-out is the historical value expended by NovaGold on the Upper Kobuk Mineral Projects.

Under the Plan of Arrangement, NovaCopper committed to issue up to 6,181,352 common shares to satisfy holders of NovaGold warrants (“NovaGold Warrants”), performance share units (“NovaGold PSUs”) and deferred share units (“NovaGold DSUs”) on record as of the close of business April 27, 2012 on the same basis as NovaGold shareholders under the Plan of Arrangement. When a warrant is exercised or a unit becomes vested, NovaCopper has committed to deliver one common share to the holder for every six shares of NovaGold the holder is entitled to receive, rounded down to the nearest whole number. An amount of $12.2 million was recorded in contributed surplus representing a pro-rated amount of the historical NovaGold investment based on the fully diluted number of common shares at the time the Arrangement became effective.

The Company issued 16,586 common shares in settlement of NovaGold PSUs and NovaGold DSUs which vested during the period ended August 31, 2013. The Company issued 6,088,262 common shares upon the exercise of NovaGold warrants by various holders during the period. The Company received no proceeds from the vesting and exercise of these instruments. $12.0 million was reclassified to share capital to reflect the issuance of common shares for these instruments.

12


As of August 31, 2013, 100,000 NovaGold PSUs of which the NovaGold shares that may be issued vary between 0% and 150% of the number of NovaGold PSUs granted, and 20,685 NovaGold DSUs are outstanding.

(a)   Stock options

During the nine month period ended August 31, 2013, 35,000 options at a weighted average fair value of $0.72 were granted to new employees exercisable for a period of five years with various vesting terms between one and two years.

The fair value of the stock options recognized in the period has been estimated using an option pricing model. Assumptions used in the pricing model for the period are as provided below.

    Nine months ended  
    August 31, 2013  
Average risk-free interest rate   1.1-1.2%  
Exercise price   CDN$1.97-2.00  
Expected life   3.0 years  
Expected volatility   56.2-57.7%  
Expected dividends   Nil  

The Black-Scholes and other option pricing models require the input of highly subjective assumptions. As NovaCopper has no history of granting stock options prior to April 30, 2012, the Company considered historical information from NovaGold in estimating the expected life of the options granted during the period. Further, volatility was estimated based upon historical price observations of NovaGold over the expected term of the options.

For the nine month period ended August 31, 2013, NovaCopper recognized a stock-based compensation charge of $3.6 million for options granted to directors, employees and services providers, net of forfeitures, which is mostly attributed to expensing of previously granted options over their vesting period.

A summary of the Company’s stock option plan and changes during the period ended is as follows:

          August 31, 2013  
          Weighted average  
          exercise price  
    Number of options     $  
Balance – beginning of period   6,064,994     2.93  
Granted   35,000     1.88  
Forfeited   (193,330 )   2.93  
Balance – end of period   5,906,664     2.92  

The following table summarizes information about the stock options outstanding at August 31, 2013.

          Stock options - outstanding         Stock options - exercisable      
                Weighted           Weighted  
    Number of     Weighted     average     Number of     average  
    outstanding     average years     exercise price     exercisable     exercise price  
Range of price   options     to expiry     $     options     $  
$ 1.68 to $ 1.99   131,666     4.02     1.73     48,332     1.74  
$ 2.00 to $ 2.99   5,774,998     3.67     2.95     4,538,324     2.95  
    5,906,664     3.68     2.92     4,586,656     2.94  

(b)   NovaGold Arrangement Options

Under the Plan of Arrangement, holders of NovaGold stock options received one option in NovaCopper for every six options held in NovaGold (“NovaGold Arrangement Options”). The exercise price of the options in NovaCopper was determined based on the relative fair values of NovaCopper and NovaGold based on the volume weighted-average trading prices on the Toronto Stock Exchange for the five trading days commencing on the sixth trading day following the Effective Date. All other terms of the options remained the same. A total of 2,189,040 options to acquire NovaCopper shares were granted under the Plan of Arrangement on April 30, 2012. No future stock options granted by NovaGold are subject to the Plan of Arrangement.

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For the nine month period ended August 31, 2013, NovaCopper recognized a stock-based compensation charge of $0.07 million for NovaGold Arrangement Options, net of forfeitures.

A summary of the NovaGold Arrangement Options and changes during the period ended is as follows:

          August 31, 2013  
          Weighted average  
          exercise price  
    Number of options     $  
Balance – beginning of period   2,076,541     3.98  
Exercised   (3,822 )   1.24  
Expired   (67,582 )   1.82  
Forfeited   (70,023 )   4.73  
Balance – end of period   1,935,114     4.04  

The following table summarizes information about the NovaGold Arrangement Options outstanding at August 31, 2013.

          Stock options - outstanding         Stock options - exercisable      
                Weighted           Weighted  
    Number of     Weighted     average     Number of     average  
    outstanding     average years     exercise price     exercisable     exercise price  
Range of price   options     to expiry     $     options     $  
$ 0.51 to $ 1.99   277,827     0.31     1.11     277,827     1.11  
$ 2.00 to $ 3.99   766,949     1.04     2.96     755,838     2.94  
$ 4.00 to $ 5.99   582,761     3.15     5.14     446,224     5.19  
$ 6.00 to $ 7.99   282,578     2.37     7.19     279,799     7.20  
$ 8.00 to $ 8.34   24,999     3.79     8.26     24,999     8.26  
    1,935,114     1.80     4.04     1,784,687     3.96  

(c)    Restricted Share Units and Deferred Share Units

On November 29, 2012, the Board of Directors approved a Restricted Share Unit Plan (“RSU Plan”) and a Non-Executive Director Deferred Share Unit Plan (“DSU Plan”) to provide long-term incentives to employees, officers and directors. The RSU and DSU Plans may be settled in cash and/or common shares at the Company’s election with each Restricted Share Unit (“RSU”) and Deferred Share Unit (“DSU”) entitling the holder to receive one common share.

Under Accounting Standards Codification (“ASC”) 718, the units are measured at fair value at the time of grant and recognized over the service period as stock-based compensation expense using the graded attribution method. The RSU and DSU Plans allow for the units to be settled in cash or common shares at the Company’s election. Prior to the Company’s Annual General Meeting on May 21, 2013, the Company did not have the ability to deliver common shares under the plans. Accordingly, the RSU and DSU plans were initially recognized as a liability and marked-to-market at each period end until the time of vesting. On May 21, 2013, the Company received shareholder approval to deliver common shares from treasury under the plans. As described in Note 7, due to the RSU Plan’s insider participation limits, the Company does not have the ability to deliver shares to officers to fully satisfy its obligations and therefore, the RSUs granted to officers are classified as a liability until the Company has the unrestricted ability to deliver shares. It has been determined that the units granted to employees under the RSU plan and directors under the DSU plan are equity-classified share compensation arrangement. The plans were reclassified based on the fair value at May 21, 2013.

On December 5, 2012, 295,500 RSUs were granted to employees, in addition to the 1,000,000 RSUs granted to officers as described in Note 7, vesting equally in thirds on June 5, 2013, December 5, 2013, and December 5, 2014. 750,000 DSUs were granted to directors vested immediately to be paid out at the time of retirement from NovaCopper.

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A summary of the Company’s unit plans and changes during the period ended is as follows:

          August 31, 2013  
    Number of RSUs     Number of DSUs  
Balance – beginning of period   -     -  
Granted   295,500     750,000  
Vested   (94,496 )   -  
Forfeited   (16,000 )   -  
Balance – end of period   185,004     750,000  

The fair value of the units recognized in the period had been estimated using the quoted market price of the Company’s shares at each period end up to May 21, 2013. The amount recorded to contributed surplus was the fair value at the date of reclassification.

For the nine month period ended August 31, 2013, NovaCopper recognized a stock-based compensation charge of $1.7 million for units granted to directors ($1.4 million) and employees ($0.3 million), net of forfeitures. On June 5, 2013, 94,496 RSUs vested to employees and were settled through issuance of 94,496 common shares.

9     Management of capital risk

The Company relies upon management to manage capital in order to accomplish the objectives of safeguarding the Company’s ability to continue as a going concern in order to pursue the development of its mineral properties and maintain a capital structure which optimizes the costs of capital at an acceptable risk (note 1 - liquidity). The Company’s current capital consists of equity funding through capital markets and funding received from its prior owner, NovaGold, prior to its public listing.

As the Company is currently in the exploration phase none of its financial instruments are exposed to commodity price risk; however, the Company’s ability to obtain long-term financing and its economic viability may be affected by commodity price volatility.

To facilitate the management of its capital requirements, the Company prepares annual expenditure budgets that are updated as necessary depending on various factors, including successful capital deployment and general industry conditions.

10    Financial instruments

The Company is exposed 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 Company’s financial instruments consist of cash and cash equivalents, accounts receivable, deposits, accounts payable and accrued liabilities, due to related parties, and other liabilities. The fair value of accounts payable and accrued liabilities and due to related parties approximates their carrying value due to the short-term nature of their maturity.

The Company’s other liabilities are held at fair value and are a Level 1 financial instrument valued using quoted market prices. All of the Company’s other financial instruments are initially measured at fair value and then held at amortized cost.

Financial risk management

The Company’s activities expose them to certain financial risks, including currency risk, credit risk, liquidity risk, interest risk and price risk.

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(a)      Currency 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 Company operates in the United States and Canada with some expenses incurred in Canadian dollars. The Company’s exposure is limited to cash of CDN$591,000, accounts receivable of CDN$26,000 and accounts payable of CDN$385,000. Based on a 10% change in the US-Canadian exchange rate, assuming all other variables remain constant, the Company’s net loss would change by approximately $20,000.

(b)      Credit 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 holds cash and cash equivalents with Canadian Chartered financial institutions which are composed of financial instruments issued by Canadian banks. The Company’s accounts receivable consist of HST receivable from the Federal Government of Canada, amounts due from related parties and receivables due for camp and management services provided to other parties. The Company’s exposure to credit risk is equal to the balance of cash and cash equivalents and accounts receivable as recorded in the financial statements.

(c)      Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulties raising funds to meet its financial obligations as they fall due. The Company is in the exploration stage and does not have cash inflows from operations; therefore, the Company manages liquidity risk through the management of its capital structure and financial leverage as outlined in notes 1 and 9 to the consolidated financial statements.

Contractually obligated undiscounted cash flow requirements as at August 31, 2013 are as follows.

                      in thousands of dollars  
    Total     < 1 Year     1–2 Years     3–5 Years     Thereafter  
        $     $     $     $  
Accounts payable and accrued liabilities   1,578     1,578     -     -     -  
Office lease   683     42     361     280        
    2,261     1,620     361     280     -  

(d)      Interest rate risk

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 Company holds excess cash balances in money market funds which limits the risk of loss due to interest rate changes to $nil.

11    Commitments

On January 25, 2013, the Company entered into a commitment to lease office space effective May 1, 2013 for a period of four years. The future minimum lease payments as at August 31, 2013 are approximately as follows.

    in thousands of dollars  
    August 31, 2013  
  $  
2013   42  
2014   175  
2015   186  
2016   196  
2017   84  
Total   683  

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Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary notes

Forward-looking statements

The information discussed in this quarterly report on Form 10-Q contains “forward-looking information” and “forward-looking statements” within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), and other applicable securities laws. These forward-looking statements may include statements regarding perceived merit of properties, exploration results and budgets, mineral reserves and resource estimates, work programs, capital expenditures, operating costs, cash flow estimates, production estimates and similar statements relating to the economic viability of a project, timelines, strategic plans, including the Company’s plans and expectations relating to its Upper Kobuk Mineral Projects, completion of transactions, market prices for precious and base metals, or other statements that are not statements of fact. These statements relate to analyses and other information that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management. Statements concerning mineral resource estimates may also be deemed to constitute “forward-looking statements” to the extent that they involve estimates of the mineralization that will be encountered if the property is developed.

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

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

  • assumptions made in the interpretation of drill results, the geology, grade and continuity of the Company’s mineral deposits;
  • our ability to achieve production at any of the Company’s mineral exploration and development properties;
  • estimated capital costs, operating costs, production and economic returns;
  • estimated metal pricing, metallurgy, mineability, marketability and operating and capital costs, together with other assumptions underlying the Company’s resource and reserve estimates;
  • our expected ability to develop adequate infrastructure and that the cost of doing so will be reasonable;
  • assumptions that all necessary permits and governmental approvals will be obtained;
  • continued good relationship with local communities and other stakeholders
  • our expectations regarding demand for equipment, skilled labour and services needed for exploration and development of mineral properties; and
  • our activities will not be adversely disrupted or impeded by development, operating or regulatory risks.

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

  • risks related to inability to define proven and probable reserves and none of the Company’s mineral properties are in production or under development;
  • uncertainties relating to the assumptions underlying the Company’s resource estimates, such as metal pricing, metallurgy, mineability, marketability and operating and capital costs;
  • risks related to uncertainty of whether there will ever be production at the Company’s mineral exploration and development properties;
  • risks related to the Company’s ability to commence production and generate material revenues or obtain adequate financing for its planned exploration and development activities;
  • risks related to the Company’s ability to finance its planned exploration activities at its mineral properties or to complete further exploration programs;
  • risks related to the Company’s ability to finance the development of its mineral properties through external financing, strategic alliances, the sale of property interests or otherwise;
  • increased regulatory compliance costs related to the Company’s loss of its foreign private issuer status as of December 1, 2012;
  • commodity price fluctuations;
  • risks related to market events and general economic conditions;
  • uncertainty of estimates of capital costs, operating costs, production and economic returns;

17


  • risks related to lack of infrastructure;
  • risks related to inclement weather which may delay or hinder exploration activities at its mineral properties;
  • the Company’s history of losses and expectation of future losses;
  • risks and uncertainties relating to the interpretation of drill results, the geology, grade and continuity of the Company’s mineral deposits;
  • uncertainty related to inferred mineral resources;
  • uncertainty related to the economic projections contained herein derived from the PEA;
  • risks related to the third parties on which the Company depends for its exploration and development activities;
  • dependence on cooperation of joint venture partners in exploration and development of properties;
  • mining and development risks, including risks related to infrastructure, accidents, equipment breakdowns, labor disputes or other unanticipated difficulties with or interruptions in development, construction or production;
  • credit, liquidity, interest rate and currency risks;
  • uncertainty as to the Company’s ability to acquire additional commercially mineable mineral rights;
  • risks related to increases in demand for equipment, skilled labor and services needed for exploration and development of mineral properties, and related cost increases;
  • the risk that permits and governmental approvals necessary to develop and operate mines on the Company’s properties will not be available on a timely basis or at all;
  • risks related to governmental regulation and permits, including environmental regulation;
  • risks related to the need for reclamation activities on the Company’s properties and uncertainty of cost estimates related thereto;
  • uncertainty related to title to the Company’s mineral properties;
  • risks related to competition in the acquisition of mineral properties;
  • risks related to unknown liabilities in connection with acquisitions;
  • the Company’s need to attract and retain qualified management and technical personnel;
  • risks related to conflicts of interests of some of the directors of the Company;
  • uncertainty as to potential future litigation;
  • risks related to global climate change;
  • risks related to adverse publicity from non-governmental organizations;
  • risks related to future sales or issuances of equity securities decreasing the value of existing common shares, diluting voting power and reducing future earnings per share;
  • uncertainty as to the volatility in the price of the Company’s shares;
  • the Company’s expectation of not paying cash dividends;
  • adverse federal income tax consequences for U.S. shareholders should the Company be a passive foreign investment company;
  • risks related to the Company’s majority shareholder;
  • uncertainty as to the Company’s ability to maintain the adequacy of internal control over financial reporting as per the requirements of the Sarbanes-Oxley Act; and
  • increased regulatory compliance costs relating to the Dodd-Frank Act.

This list is not exhaustive of the factors that may affect any of the Company’s forward-looking statements. Forward-looking statements are statements about the future and are inherently uncertain, and actual achievements of the Company or other future events or conditions may differ materially from those reflected in the forward-looking statements due to a variety of risks, uncertainties and other factors, including, without limitation, those referred to in NovaCopper’s Form 10-K dated February 12, 2013, filed with the Canadian securities regulatory authorities and the United States Securities and Exchange Commission (the “SEC”), and other information released by NovaCopper and filed with the appropriate regulatory agencies.

The Company’s forward-looking statements are based on the beliefs, expectations and opinions of management on the date the statements are made, and the Company does not assume any obligation to update forward-looking statements if circumstances or management’s beliefs, expectations or opinions should change, except as required by law. For the reasons set forth above, investors should not place undue reliance on forward-looking statements.

Reserve and resource estimates

The information discussed in this quarterly report on Form 10-Q has been prepared in accordance with the requirements of the securities laws in effect in Canada, which differ from the requirements of U.S. securities laws. Unless otherwise indicated, all resource and reserve estimates included in this quarterly report on Form 10-Q have been prepared in accordance with National Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”) and the Canadian Institute of Mining, Metallurgy, and Petroleum Definition Standards on Mineral Resources and Mineral Reserves. NI 43-101 is a rule developed by the Canadian Securities Administrators which establishes standards for all public disclosure an issuer makes of scientific and technical information concerning mineral projects. Canadian standards, including NI 43-101, differ significantly from the requirements of the SEC, and resource and reserve information contained herein may not be comparable to similar information disclosed by U.S. companies. In particular, and without limiting the generality of the foregoing, the term “resource” does not equate to the term “reserves”. Under U.S. standards, mineralization may not be classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. The SEC’s disclosure standards normally do not permit the inclusion of information concerning “measured mineral resources”, “indicated mineral resources” or “inferred mineral resources” or other descriptions of the amount of mineralization in mineral deposits that do not constitute “reserves” by U.S. standards in documents filed with the SEC. Investors are cautioned not to assume that any part or all of mineral deposits in these categories will ever be converted into reserves. U.S. investors should also understand that “inferred mineral resources” have a great amount of uncertainty as to their existence and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an “inferred mineral resource” will ever be upgraded to a higher category. Under Canadian rules, estimated “inferred mineral resources” may not form the basis of feasibility or pre-feasibility studies except in rare cases. Investors are cautioned not to assume that all or any part of an “inferred mineral resource” exists or is economically or legally mineable. Disclosure of “contained ounces” in a resource is permitted disclosure under Canadian regulations; however, the SEC normally only permits issuers to report mineralization that does not constitute “reserves” by SEC standards as in-place tonnage and grade without reference to unit measures. The requirements of NI 43-101 for identification of “reserves” are also not the same as those of the SEC, and reserves reported by the Company in compliance with NI 43-101 may not qualify as “reserves” under SEC standards. Accordingly, information concerning mineral deposits set forth herein may not be comparable with information made public by companies that report in accordance with U.S. standards.

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General

This Management’s Discussion and Analysis (“MD&A”) of NovaCopper Inc. (“NovaCopper” or “the Company”) is dated October 7, 2013 and provides an analysis of NovaCopper’s unaudited interim consolidated financial results for the three and nine month periods ended August 31, 2013 compared to the three and nine month periods ended August 31, 2012.

The following information should be read in conjunction with our August 31, 2013 unaudited interim consolidated financial statements and related notes which were prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The MD&A should also be read in conjunction with the Company’s audited consolidated financial statements and related notes for the year ended November 30, 2012. A summary of our accounting policies are outlined in note 2 of the audited consolidated financial statements and the unaudited interim consolidated financial statements. All amounts are in United States dollars unless otherwise stated.

Scott Petsel, P.Geo., an employee, Upper Kobuk Mineral Projects Manager, and a qualified person under National Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”), has approved the scientific and technical information in this MD&A.

NovaCopper’s shares are listed on the Toronto Stock Exchange (“TSX”) and the NYSE-MKT under the symbol “NCQ”. Additional information related to NovaCopper, including NovaCopper’s Annual Report filed on Form 10-K, is available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.

Description of business

We are a base metals exploration company focused on exploring and developing the Ambler mining district located in Alaska, U.S.A. We conduct our operations through a wholly-owned subsidiary, NovaCopper US Inc. (“NovaCopper US”). Our Upper Kobuk Mineral Projects or UKMP Projects consist of the 100% owned Ambler lands which hosts the Arctic copper-zinc-lead-gold-silver Project and the Bornite carbonate-hosted copper Project located on the Bornite lands being explored under a collaborative long-term agreement with NANA Regional Corporation, Inc. (“NANA”), a regional Alaska Native Corporation.

We were formed in 2011 by NovaGold Resources Inc. (“NovaGold”) to hold the UKMP Projects, and was spun-out to shareholders by NovaGold through a Plan of Arrangement effective April 30, 2012. NovaGold shareholders received one NovaCopper common share for every six common shares of NovaGold held on the effective date.

19


Current activities

NovaCopper has successfully completed its 2013 exploration field season program in mid-August accomplishing 8,142 meters or 109% of planned drilling. We completed drilling 4,684 meters at the Ruby Creek zone (a potential open pit target) and 3,458 meters at the South Reef zone (a potential underground target) of the Bornite Project. The 2013 exploration program was focused on expansion of the resources identified in the 2013 Bornite resource technical report released in February 2013. Results from the drill program will be released during the fourth quarter as they become available. We also completed the installation of an additional stream gauge to allow us to continue to improve our environmental baseline data collection in the region.

We are also continuing to focus efforts on community relations and workforce development strategies, working closely with NANA on these efforts. Our NANA shareholder hire percentage for project staff was 58% for the 2013 field season. Our community engagement during the summer was in high gear including several visits from the surrounding local communities, summer picnics held in local villages, visits from elders in the region for a legacy day celebrating historic workers, as well as school tours. The field season was capped off with a successful tour for Alaskan State legislators and regulators and various representatives of the NANA region in early August.

On July 30, 2013, we announced the results of our preliminary economic assessment (“PEA”) study for an open pit scenario at the Arctic deposit. The PEA outlines an open pit scenario of a 12-year mine life supporting a 10,000 tonne-per-day conventional grinding mill-and-flotation circuit at the Arctic deposit with a pre-tax net present value (“NPV”) of $927.7 million or 22.8% internal rate of return (“IRR”) and after-tax NPV of $537.2 million or 17.9% IRR at an 8% discount rate. Initial capital expenditures are estimated at $717.7 million with sustaining capital expenditures of $164.4 million. The PEA is preliminary in nature and 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 be realized. The technical report entitled “Preliminary Economic Assessment Report on the Arctic Project, Ambler Mining District, Northwest Alaska” dated effective September 12, 2013 is available on SEDAR, EDGAR, and our website.

On April 30, 2013, we announced the signing of a Memorandum of Understanding ("MOU") with the Alaska Industrial Development Export Authority ("AIDEA") to investigate the viability of permitting and constructing an industrial access road to the Ambler mining district and the UKMP Projects. The MOU formalizes the roles of each party as they relate to advancing the Ambler Mining District Industrial Access Road ("AMDIAR"), which AIDEA is expected to commence permitting in late 2013. The MOU also allows AIDEA to investigate various ways to fund the construction and maintenance of the AMDIAR. Although no specific terms have yet been discussed on payment for usage of the AMDIAR, the arrangement that AIDEA entered into with Cominco Ltd. (now Teck Resources Ltd.) in 1986 for construction of the Red Dog Road and Port Facility may serve as a general template for a final financing agreement. This MOU is non-exclusive, meaning that other mining and exploration companies or other industrial users may also work in cooperation with AIDEA to support development of the AMDIAR by signing their own MOUs.

Property review

NovaCopper’s principal assets, the UKMP Projects, are located in the Ambler mining district in Northwest Alaska. Our UKMP Projects comprise a total of approximately 352,900 acres (142,831 hectares) consisting of the Ambler and Bornite lands.

Arctic Project

The Ambler lands, which host a number of deposits, includes the high-grade copper-zinc-lead-gold-silver Arctic Project, and other mineralized targets within a 65 kilometer long volcanogenic massive sulfide (“VMS”) belt, are owned by NovaCopper US. The Ambler lands are located in Northwestern Alaska. and consist of 112,058 acres (45,348 hectares) of Federal patented mining claims and State of Alaska mining claims, within which VMS mineralization has been found.

On January 11, 2010, NovaGold purchased 100% of the Ambler lands. As consideration, NovaGold issued 931,098 common shares with a fair value of $5.0 million and agreed to make cash payments to the vendor of $12.0 million each in January 2011 and January 2012, respectively, for total consideration of $29.0 million. The January 2011 payment was made by NovaGold on January 7, 2011 and the January 2012 payment was made in advance by NovaGold on August 5, 2011. Total fair value of the consideration was $26.5 million, including transaction costs associated with the acquisition of $0.1 million. The vendor retained a 1% net smelter return royalty that the owner of the property can purchase at any time for a one-time payment of $10.0 million.

We have recorded the Ambler lands as a mineral property with acquisition costs capitalized and exploration costs expensed in accordance with our accounting policies. As a result of the spin-out of NovaCopper from NovaGold, the interim consolidated financial statements have been presented under the continuity of interest basis of accounting whereby the amounts are based on the amounts originally recorded by NovaGold as if the Company had held the property from inception.

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Bornite Project

On October 19, 2011, NovaCopper US and NANA signed a collaborative agreement to explore and develop the Ambler mining district. Under the Exploration Agreement and Option to Lease (the “NANA Agreement”), NovaCopper US acquired the exclusive right to explore the Bornite property and lands deeded to NANA through the Alaska Native Claims Settlement Act (“ANCSA”), located adjacent to the Arctic Project, and the non-exclusive right to access and entry onto NANA’s lands. The agreement establishes a framework for any future development of either the Bornite Project or the Arctic Project. Both projects are included as part of a larger area of interest set forth in the NANA agreement.

As consideration, NovaCopper paid $4.0 million upon signing the agreement and gave NANA the right to appoint a member to NovaCopper’s Board of Directors within a five year period following our public listing on a stock exchange. Upon the decision to proceed with development of a mine within the area of interest, NANA maintains the right to purchase between a 16%-25% ownership interest in the mine or retain a 15% net proceeds royalty which is payable after NovaCopper has recovered certain historical costs, capital and cost of capital. Should NANA elect to purchase an ownership interest, consideration will be payable based on the elected percentage purchased and the costs incurred on the properties less $40.0 million, not to be less than zero. The parties would form a joint venture and be responsible for all future costs, including capital costs of the mine based on their pro-rata share. The completion of the agreement with NANA creates a total land package incorporating our Ambler lands with the adjacent Bornite and ANCSA lands for a total of approximately 352,900 acres (142,831 hectares).

NANA would also be granted a net smelter return royalty between 1% and 2.5% upon the execution of a mining lease or a surface use agreement, the amount which is determined by the particular area of land from which production originates.

We have accounted for the Bornite property as a mineral property with acquisition costs capitalized and exploration costs expensed.

Summary of results

                in thousands of dollars,  
                except for per share amounts  
Selected financial results   Three months     Three months     Nine months     Nine months  
    ended     ended     ended     ended  
    August 31, 2013     August 31, 2012     August 31, 2013     August 31, 2012  
    $     $     $     $  
Amortization   266     235     770     521  
General and administrative   290     778     1,454     1,530  
Mineral properties expense   4,727     9,139     7,760     12,197  
Professional fees   109     46     619     190  
Salaries   663     316     1,813     1,139  
Salaries – stock-based compensation   755     1,987     6,868     7,481  
Loss and comprehensive loss for the period   6,890     12,559     19,462     23,177  
Basic and diluted loss per common share $0.13   $0.27   $0.37   $0.50  

For the nine month period ended August 31, 2013, we reported a net loss of $19.5 million (or $0.37 basic and diluted loss per common share) compared to a net loss of $23.2 million (or $0.50 basic and diluted loss per common share) for the corresponding period in 2012. This variance was primarily due to a decrease in mineral property expenses to $7.8 million in the nine months ended August 31, 2013 from $12.2 million in the corresponding period of 2012. The decreased expenditures were as a result of a shorter planned field season in the current year which was completed in mid-August. Drilling expenses were $2.0 million in 2013 compared to $3.9 million in 2012 reflecting a shorter program focused on expanding resources at the Bornite project. As a result of the shortened season, project support costs incurred were $2.0 million in 2013 compared to $4.1 million, and project salaries were also lower at $2.2 million down from $2.8 million in 2012. These decreases were offset slightly by an increase in engineering costs in 2013 of $1.1 million up from $0.3 million in 2012 incurred in Arctic deposit preliminary economic assessment released in July 2013 as well as internal studies.

The remainder of the variance resulted from increases in professional fees, amortization, and salaries all related to operating as a separate entity from NovaGold in 2013. In 2012, a significant portion of these expenses were shared with or borne by NovaGold prior to the completion of the spin-out on April 30, 2012.

Total stock-based compensation expense recognized for the period was $6.9 million which included $3.6 million for options granted under the NovaCopper stock option plan, $0.07 million for NovaGold arrangement options from the spin-out, and $3.1 million for RSUs and DSUs granted to employees and directors. As we did not grant stock options prior to our public listing on April 30, 2012, the stock-based compensation charge only related to four months in the comparable period in 2012. The prior year expense was higher at $7.5 million due to the expense incurred as a result of the initial grant of options to Company directors, officers and employees which vest over various periods of time between one and three years.

21


For the three month period ended August 31, 2013, we reported a net loss of $6.9 million (or $0.13 basic and diluted loss per common share), a reduction from the net loss of $12.6 million (or $0.27 based and diluted loss per common share) for the corresponding period in 2012. The principal reason for the significant reduction in expenses from 2012 is the reduction of mineral property expenses incurred of $4.7 million in the three month period ended August 31, 2013 compared to $9.1 million in the comparable period. As discussed above, the field season in 2013 was completed in mid-August, with drill production completed in July, resulting in a significant reduction in costs incurred. Drill efficiencies in the field also resulted in a shorter field season than expected and allowed for camp shutdown to occur using a staged approach. This resulted in several areas of cost savings including less helicopter flying time, fuel usage and personnel costs. Project support expenses were $1.3 million for the three months ended August 31, 2013 (2012 - $2.9 million), personnel costs were $1.3 million (2012 - $1.7 million) and direct drilling expenses were $1.6 million (2012 - $3.5 million).

Other reductions for the three month period ending August 31, 2013 consisted of a lower stock-based compensation charge of $0.8 million in 2013 compared to $1.9 million in 2012. The first vesting of officer options occurred on the first anniversary of the spin-out, April 30, 2013. As the Company records expense using the graded attribution method over the vesting period, the expense relating to these options has been reduced in the three month period ended August 31, 2013.

Selected financial data

Quarterly information

The following unaudited quarterly information is prepared in accordance with U.S. GAAP.

                                        in thousands of dollars,  
                                        except per share amounts  
    Q3 2013     Q2 2013     Q1 2013     Q4 2012     Q3 2012     Q2 2012     Q1 2012     Q4 2011  
    08/31/13     05/31/13     02/28/13     11/30/12     08/31/12     05/31/12     02/29/12     11/30/11  
    $     $     $     $     $     $     $     $  
Interest and other income   13     9     14     16     19     10     -     -  
Mineral property expenses   4,727     2,231     802     3,130     9,139     2,421     637     233  
Loss for the period   (6,890 )   (5,947 )   (6,626 )   (7,841 )   (12,559 )   (9,753 )   (865 )   (1,653 )
Loss per common share – basic and diluted   (0.13 )   (0.11 )   (0.13 )   (0.17 )   (0.27 )   (0.21 )   (0.02 )   (0.05 )

Factors that can cause fluctuations in our quarterly results include the size and nature of the exploration field season undertaken, the length of the exploration field season, timing of property acquisition payments, stock option vesting, and issuance of shares. Other factors that have caused fluctuations in the quarterly results that would not be expected to re-occur include the incorporation of NovaCopper and completion of the spin-out in April 2012. Prior to April 2011, NovaCopper had no shares outstanding as it was not yet incorporated. As a result of the spin-out, the loss per common share has been restated as if the distribution of common shares occurred at inception.

During the fourth quarter of 2011, we incurred $1.3 million in general and administrative expenses related to the general administrative services provided by NovaGold. During the first quarter of 2012, we recorded mineral property expenses of $0.6 million in preparation activities for the 2012 field season and ongoing engineering studies. During the second quarter of 2012, we had stock-based compensation expense of $5.5 million, $0.7 million for general and administrative and $0.7 million for salaries expense recorded as a result of the completion of the spin-out from NovaGold. During the third quarter of 2012, mineral property expenses of $9.1 million were recorded as a larger exploration program was conducted than in previous years with the third quarter encompassing the majority of the field season. Additionally, stock-based compensation expense of $2.0 million was recognized due to the vesting of previously granted stock options. During the fourth quarter of 2012, mineral property expenses of $3.1 million were recorded for the end of the 2012 field season. Stock-based compensation expense of $1.9 million was also recognized due to the vesting of previously granted stock options. During the first quarter of 2013, we incurred expenses of $4.1 million in stock-based compensation expense due to the vesting of previously granted stock options and the granting of RSUs and DSUs. We also recognized mineral property expenses of $0.8 million related to preparation activities for the 2013 field season and ongoing engineering studies. During the second quarter of 2013, we incurred mineral property expenses of $2.2 million consisting of the start-up of the field season in May and continuation of engineering studies. We also incurred expenses of $2.0 million in stock-based compensation expense due to the expense being recorded evenly over the vesting period of previously granted stock options and RSUs. During the third quarter of 2013, mineral property expenses of $4.7 million were recorded as the majority of the exploration program was conducted during the quarter.

Our properties are not yet in production; consequently, we believe that our losses (and consequent losses per common share) should not be a primary concern to investors in NovaCopper.

22


Liquidity and capital resources

At August 31, 2013, we had $9.4 million in cash and cash equivalents. We were on budget for the first nine months ending August 31, 2013 expending $12.2 million on operating activities, compared with expenditures of $13.2 million for operating activities for the same period in 2012. Cash spent on operating activities in 2013 was mainly expended on mineral property expenses, general and administrative expenses, and salaries. A majority of cash spent on operating activities in the nine month period ended August 31, 2012 was expended on the same items of mineral property and general and administrative expenses. As our exploration program is seasonal in nature, we do not anticipate significant exploration expenditures in the fall and winter. We currently expect to be under budget for the fiscal year ending November 30, 2013.

During the nine month period ended August 31, 2013, no cash from financing activities was generated compared with $43.8 million in the same period in 2012. As part of the spin-out of the Company by NovaGold on April 30, 2012 under the Plan of Arrangement, we received funding from NovaGold of $40.0 million. Funding of $3.8 million was also received from NovaGold for operating expenses incurred for the period ended August 31, 2012. There are no comparative amounts of funding for the 2013 period. We did expend $0.3 million during the period ended August 31, 2013 to settle restricted share units vested during the third quarter which we were unable to be settle in common shares due to the insider participation limits in the Company’s share-based compensation arrangements.

During the nine month period ended August 31, 2013, we expended $0.2 million on investing activities including the purchase of a truck and equipment for camp operations, leasehold improvements, furniture and equipment, and computer hardware and software associated with the set-up of the Vancouver office in May 2013. In the comparable 2012 period, we expended $1.5 million on equipment for camp operations including a significant capital purchase program to facilitate road work.

We do not currently generate operating cash flows. At August 31, 2013, we had cash and cash equivalents of $9.4 million and working capital of $8.2 million. Our current liabilities of $2.1 million consist of $1.6 million of accounts payable and accrued liabilities, including approximately $0.08 million of directors meeting fees accrued and unpaid, and $0.5 million of other liabilities which is anticipated to be settled in common shares subject to insider participation limits. We believe that the current cash and cash equivalent balances as of August 31, 2013 are sufficient to cover the anticipated expenditures on exploration activities and general and administrative costs for fiscal 2013. Additional capital will be necessary to conduct additional exploration drilling and engineering studies on our properties to advance our projects to a positive production decision. To continue to advance our projects, we are likely to require financing within the next twelve months. Future financings are anticipated through equity financing, debt financing, convertible debt financing, exercise of options, or other means. Our continued operations are dependent on our ability to obtain additional financing or, in the longer term, to generate future cash flows. However, there can be no assurance that we will be successful in our efforts to raise additional capital on terms favourable to the Company, or at all, or to generate cash flows.

Contractual obligations

Contractually obligated undiscounted cash flow requirements as at August 31, 2013 are as follows.

                      in thousands of dollars,  
                      unless otherwise specified  
    Total     < 1 Year     1–2 Years     3–5 Years     Thereafter  
    $     $     $     $     $  
Accounts payable and accrued liabilities   1,578     1,578     -     -     -  
Office lease   683     42     361     280     -  
Total   2,261     1,620     361     280     -  

On January 25, 2013, the Company entered into a commitment to lease office space effective May 1, 2013 for a period of four years. The future minimum lease payments as at August 31, 2013 are approximately as follows.

    in thousands of dollars  
    August 31, 2013  
     
2013   42  
2014   175  
2015   186  
2016   196  
2017   84  
Total   683  

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Off-balance sheet arrangements

The Company has no material off-balance sheet arrangements.

Outstanding share data

At October 7, 2013, NovaCopper had 53,066,656 common shares issued and outstanding. At October 7, 2013, NovaCopper had 5,931,665 stock options with a weighted-average exercise price of $2.99, 1,769,185 NovaGold arrangement options with a weighted-average exercise price of $4.24, and 851,673 RSUs and 750,000 DSUs outstanding.

Related party transactions

Expenses to April 30, 2012 were funded by NovaGold and its subsidiaries. NovaGold and NovaCopper have a number of directors in common. During the nine months ended August 31, 2013, NovaGold and its subsidiaries provided management and office services totaling $151,000 to NovaCopper, including rental of office space pursuant to a Services Agreement.

During the nine months ended August 31, 2013, we provided exploration and management services in the amount of $82,000 to NovaGold under the Services Agreement. The Services Agreement terminated on May 1, 2013. No services were provided by either party for the three months ended August 31, 2013.

The Company had no balances owing or due from related parties at August 31, 2013. The Company had payables of $127,000 at November 30, 2012 due to NovaGold.

New accounting pronouncements

Unless otherwise noted, the following revised standards and amendments are effective for annual periods beginning on or after December 1, 2012 or as noted. The Company is continuing to assess the impact of these standards and amendments or has determined whether it will early adopt them as noted.

  i.

Comprehensive income

     
 

In December 2011, the Financial Accounting Standards Board issued “Comprehensive Income – Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05” (“ASU 2011-12”). ASU 2011-12 defers changes in Update 2011-05 that relate to the presentation of reclassification adjustments. ASU 2011-12 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 (year ending November 30, 2013 for the Company). The adoption of ASU 2011-12 did not have a material impact on our results of operations, financial condition, or cash flows.

     
  ii.

Offsetting assets and liabilities

     
 

In January 2013, the FASB issued “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities” (“ASU 2013-01”). ASU 2013-01 clarifies Accounting Standards Update No. 2011-11: “Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”) to restrict the scope of implementation to derivatives accounted for under Topic 815, Derivatives and Hedging, which includes bifurcated embedded derivatives repurchase agreements and reverse repurchase agreements, and securities borrowing and lending transactions that require an offset or are subject to an enforceable master netting arrangement. ASU 2013-01 is effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013 (year ending November 30, 2014 for the Company). We do not expect the adoption of ASU 2013-01 to have a material impact on our results of operations, financial condition, or cash flows.

Critical accounting estimates

The most critical accounting estimates upon which NovaCopper’s financial status depends are those requiring estimates of the recoverability of its capitalized mineral properties, impairment of long-lived assets and valuation of stock-based compensation.

Mineral properties and development costs

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 in accordance with Industry Guide 7, 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 over the estimated life of proven and probable reserves.

24


The acquisition of title to mineral properties is a complicated and uncertain process. NovaCopper has taken steps, in accordance with industry standards, to verify the mineral property in which it has an interest. Although we have 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.

Impairment of long-lived assets

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 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.

Stock-based compensation

Compensation expense for options granted to employees, directors and certain service providers is determined based on estimated fair values of the options at the time of grant using the Black-Scholes option pricing model, 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 expected life of the option. The cost is recognized using the graded attribution method over the vesting period of the respective options. The expense relating to the fair value of stock options is included in expenses and is credited to contributed surplus.

Compensation expense for restricted share units and deferred share units granted to employees and directors, respectively, is determined based on estimated fair values of the units at the time of grant using quoted market prices or at the time the units qualify for equity classification under ASC 718. The cost is recognized using the graded attribution method over the vesting period of the respective units. The expense relating to the fair value of the units is included in expenses and is credited to other liabilities or contributed surplus based on the unit plan’s classification. Units may be settled in either i) cash or ii) shares issued from treasury, at the Company’s election at the time of vesting.

Item 3.   Quantitative and Qualitative Disclosures about Market Risk

Our financial instruments are exposed to certain financial risks, including currency risk, credit risk, liquidity risk, interest risk and price risk. Our financial instruments consist of cash and cash equivalents, accounts receivable, deposits, accounts payable and accrued liabilities, and due to related parties. Our instruments are held in the normal course to meet daily operating and cash flow needs of the business. The fair value of accounts payable and accrued liabilities and due to related parties approximates their carrying value due to the short-term nature of their maturity. Our other liabilities are held at fair value and are a Level 1 financial instrument valued using quoted market prices. All of our other financial instruments are initially measured at fair value and then held at amortized cost.

(a)    Currency risk

Currency risk is the risk of a fluctuation in financial asset and liability settlement amounts due to a change in foreign exchange rates. We operate in the United States and Canada with some expenses incurred in Canadian dollars. Our exposure is limited to cash of CDN$591,000, accounts receivable of CDN$26,000 and accounts payable of CDN$385,000. Based on a 10% change in the US-Canadian exchange rate, assuming all other variables remain constant, our net loss would change by approximately $20,000.

(b)    Credit 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. Our cash and cash equivalents are all held with Canadian Chartered financial institutions and are composed of financial instruments issued by Canadian banks. Our accounts receivable consist of HST receivable from the Federal Government of Canada, amounts due from related parties and receivables due for camp and management services provided to other parties. Our exposure to credit risk is equal to the balance of cash and cash equivalents and accounts receivable as recorded in the financial statements.

25


(c)    Liquidity risk

Liquidity risk is the risk that we will encounter difficulties raising funds to meet its financial obligations as they fall due. We are in the exploration stage and do not have cash inflows from operations; therefore, we manage our liquidity risk through the management of our capital structure and financial leverage. We do expect, based on anticipated but not committed expenditures on its projects, we are likely to require financing within the next twelve to eighteen months. Future financings are expected to be obtained through debt financing, equity financing, convertible debt, exercise of options, or other means. Continued operations are dependent on our ability to obtain additional financing or to generate future cash flows. Our contractually obligated cash flow is disclosed under the section titled “Liquidity and capital resources”.

(d)    Interest rate risk

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 Company holds excess cash balances in money market funds which are highly liquid which limits the risk of loss due to interest rate changes to $nil.

(e)    Price risk

We are exposed to price risk with respect to commodity prices as future profitability and long-term viability will depend, in large parts, on the price of copper, zinc, lead, gold and silver. The market prices for such metals are volatile and subject to numerous factors beyond Management’s control. Management closely monitors commodity prices to determine the appropriate course of action to be taken. We do not have any hedging or other commodity-based risks respecting its operations.

As we are currently in the exploration phase none of our financial instruments are exposed to commodity price risk; however, our ability to obtain long-term financing and our economic viability could be affected by commodity price volatility.

Item 4.   Controls and Procedures

Management, with the participation of our President and Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of August 31, 2013. On the basis of this review, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our President and Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There have not been any changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) promulgated by the SEC under the Exchange Act) during the Company’s most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.

26


PART II - OTHER INFORMATION

Item 1.   Legal Proceedings

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

Item 1A. Risk Factors

The following risk factor should be read together with and in addition to the risk factors set forth in our Annual Report on Form 10-K for the year ended November 30, 2012. The risk factors in our Annual Report on Form 10-K for the year ended November 30, 2012, in addition to the other information set forth in this quarterly report, could materially affect our business, financial condition or results of operations. Additional risks and uncertainties not currently known to us or that we deem to be immaterial could also materially adversely affect our business, financial condition or results of operations.

Actual capital costs, operating costs, production and economic returns may differ significantly from those described in the technical report for the Arctic Project.

The technical report titled “Preliminary Economic Assessment Report on the Arctic Project, Ambler Mining District, Northwest Alaska” dated September 12, 2013 (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 our projects into production may be significantly higher than anticipated.

None of our mineral properties have an operating history upon which we can base estimates of future operating costs. Decisions about the development of the Arctic Project (or the Bornite Project) 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
     
  • anticipated climatic conditions.

Cash operating costs, production and economic returns, and other estimates contained in studies or estimates prepared by or for us may differ significantly from those anticipated by the PEA and there can be no assurance that our actual operating costs will not be higher than currently anticipated.

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.   Defaults Upon Senior Securities

None.

Item 4.   Mine Safety Disclosures

These disclosures are not applicable to us.

Item 5.   Other Information.

None.

Item 6.   Exhibits

Exhibits

See Exhibit Index.

27


SIGNATURES

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

Date: October 9, 2013 NOVACOPPER INC.
     
     
     
  By: /s/ Rick Van Nieuwenhuyse
    Rick Van Nieuwenhuyse
    President and Chief Executive Officer
     
  By: /s/ Elaine M. Sanders
    Elaine M. Sanders
    Vice President and Chief Financial Officer

28


EXHIBIT INDEX

 Exhibit No.   Description
     
31.1   Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a)
     
31.2   Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a)
     
32.1   Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350
     
32.2   Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350
     
101**   Interactive Data Files
     
101.INS   XBRL Instance Document
     
101.SCH   XBRL Taxonomy Extension Schema Document
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
     
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document

**

Furnished herewith. Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of any registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, and otherwise are not subject to liability under those sections.

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