NioCorp Developments Ltd. — Form 10-Q Summary
Reporting period: Quarter and nine months ended March 31, 2017; financial statements are unaudited and in thousands of U.S. dollars unless otherwise noted. The request metadata says “2016 Q3,” but the filing itself reports the quarter ended March 31, 2017.
Business context and financial results
NioCorp is an exploration-stage company developing the Elk Creek niobium, scandium and titanium project in Nebraska. It has no operating revenue and expects to incur losses while advancing the project and completing its feasibility study.
| Metric | Three months ended March 31, 2017 | Three months ended March 31, 2016 | Nine months ended March 31, 2017 | Nine months ended March 31, 2016 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Operating expenses | $4,075 | $1,883 | $10,405 | $5,825 |
| Net loss | $4,609 | $2,410 | $10,931 | $8,053 |
| Basic loss per share | $0.02 | $0.01 | $0.06 | $0.05 |
Margins are not meaningful because the company has no revenue. Quarterly operating expenses rose primarily with increased Elk Creek feasibility-study and metallurgical work. Nine-month exploration expense increased to $7,128 from $2,962, mainly due to engineering and metallurgical testing. Nine-month net loss also reflects non-cash fair-value changes and foreign-exchange effects.
Financial position, cash flow and funding
- At March 31, 2017, cash was $1,870 and restricted cash was $265; current assets were $2,203 and current liabilities were $1,904, leaving working capital of approximately $299. At June 30, 2016, cash was $4,412 and working capital was approximately $2,262.
- Total assets were $12,918, total liabilities $8,696 and shareholders’ equity $4,222. Liabilities included $5,502 of convertible debt, a $115 convertible-debt derivative liability and $1,175 of related-party loans. No separate conventional long-term borrowing balance is reported.
- For the nine months, operating cash use was $9,017; investing cash use was $265; financing provided $6,782. Cash declined $2,542 to $1,870.
- Financing included $5,673 of stock issuance proceeds and $1,000 net proceeds from additional Lind convertible-security funding, partly offset by share issuance costs. The company also raised approximately C$5.2 million gross in its February 2017 unit offering.
Management said planned operating needs through June 30, 2017 were approximately $1.6 million and estimated an ongoing monthly burn of about $400, including approximately $320 for administration and $84 for planned exploration-related work. It anticipated needing another $5 million to $6 million to continue planned work after the feasibility study. Management stated it lacked sufficient cash for normal operations and debt obligations for the next 12 months without deferring some current liabilities and raising additional funds.
Material changes, outlook and risks
- Going concern: The filing identifies substantial doubt about the company’s ability to continue as a going concern, citing its $10,931 nine-month loss, $71,153 accumulated deficit and dependence on additional financing. Financing availability and terms are uncertain; future equity or equity-linked financing may dilute shareholders.
- Debt and related parties: Lind funded an additional $1,000 under its convertible security on March 31, 2017; the face amount increased by $1,200, including $200 of implied interest. The security is convertible at 85% of the applicable five-day VWAP and matures June 17, 2018. The company also drew $175 under a $2,000 credit facility from CEO Mark Smith, bearing 10% interest and secured by company assets. Related-party loan due dates were extended to June 2018.
- Project progress: Management reported process-design advances that it said may lower certain capital and operating costs, and eliminate a planned railroad spur. It reported production of 99.9% commercial-grade scandium and progress toward reducing environmental impacts; USACE permit eligibility remained subject to agency review and final determination.
- Feasibility study: Management expected to release results by June 30, 2017, with the technical report to follow within 45 days of announcement. It estimated $0.2–$0.3 million of study work remained as of March 31, 2017; final project capital and operating cost estimates were not yet available.
- Subsequent financing: After quarter-end, the company agreed, subject to regulatory approval, to a bought-deal offering of 3,077,000 units at C$0.65 each for gross proceeds of up to C$2,000,050, with a potential 15% increase option. Proceeds were intended for working capital.
- Other risks: The filing highlights exploration and permitting uncertainty, commodity-price exposure, foreign-exchange risk, dependence on equity markets and potential dilution. No material pending legal proceedings or off-balance-sheet arrangements were reported.
Most important facts for investors to verify
- Whether the post-quarter May 2017 offering closed, and the net proceeds and resulting dilution.
- Cash needs, financing availability and debt or payable obligations relative to the going-concern warning.
- Whether the feasibility study was completed and released on the expected schedule, and its final capital, operating-cost and production assumptions.
- USACE and other permit decisions, land access, and whether anticipated environmental and cost benefits are confirmed.
- Convertible-security conversion terms, related-party loan terms and the potential dilution from outstanding warrants and options.