NIOCORP DEVELOPMENTS LTD quarterly report, Q2 FY2017

NioCorp Developments Ltd. — Form 10-Q Summary

Reporting period: Three and six months ended December 31, 2016 (fiscal second quarter and first half of fiscal 2017). Financial statement amounts are in thousands of U.S. dollars, except per-share and share data. The company is an exploration-stage developer of the Elk Creek niobium, scandium and titanium project in Nebraska; it reported no operating revenue.

Financial results and liquidity

Metric	Three months ended Dec. 31, 2016	Six months ended Dec. 31, 2016	Comparable 2015 period
Operating expenses	$3,350	$6,330	$1,303 quarter; $3,942 six months
Net loss	$3,547	$6,322	$2,836 quarter; $5,643 six months
Basic loss per share	$0.02	$0.03	$0.02 quarter; $0.04 six months
Cash used in operating activities	—	$5,073	$6,975 six months

• Exploration-stage operations generated no revenue, so operating margins are not meaningful. First-half exploration expense was $4,367, versus $2,396 in 2015, largely reflecting engineering and metallurgical work for the feasibility study.
• At December 31, cash was $729, restricted cash was $265, and current assets totaled $1,030. Working capital was deficient by $6,870, compared with positive working capital of $2,300 at June 30, 2016.
• Total liabilities were $8,603, including $4,827 of current convertible security, $530 of long-term convertible notes, a $173 convertible-debt derivative liability, and a $1,000 related-party loan. Accounts payable and accrued liabilities were $2,073. The CEO’s loan bears 10% interest and is secured by company assets; $107 of interest payable to him was included in payables.
• Total assets were $11,758, including $10,617 of mineral interests; shareholders’ equity was $3,155. The accumulated deficit was $66,544.
• Financing provided $1,675 during the first half, from warrant exercises; operating and investing activities used $5,073 and $265, respectively. Cash declined by $3,683 from June 30.

Changes versus the prior comparable periods

• Quarterly net loss increased to $3,547 from $2,836; six-month net loss rose to $6,322 from $5,643. The higher losses principally reflected increased exploration spending, employee-related costs and professional fees. Professional fees also rose with SEC reporting and registration work.
• Six-month operating cash use decreased from $6,975 to $5,073, mainly due to the timing of vendor payments and working-capital movements; this does not remove the need for additional financing.
• Cash fell from $4,412 at June 30 to $729 at December 31. The Lind convertible security was reclassified from long-term to current based on its maturity, contributing to the working-capital shift.
• Non-cash changes in financial-instrument fair value were a $335 gain for the six-month period, compared with a $1,369 loss in 2015, partially offsetting the increased operating loss.

Outlook, project developments and risks

• Management said planned operational needs were approximately $5.0 million through June 30, 2017, with an average ongoing burn rate of about $695 per month. It estimated that $2.0 million to $8.2 million of additional funding might be required over the following 12 months, depending in part on further conversions of the Lind security.
• Management was targeting completion of the Elk Creek feasibility study in 2017 and estimated approximately $2.1 million of work remained. The filing reported about $9.0 million of exploration-related expenditures over the 15 months since the preliminary economic assessment.
• Management reported successful completion of acid-regeneration, calcination and niobium-optimization pilot testing. The acid pilot demonstrated 99.94% hydrochloric-acid regeneration; niobium recoveries averaged 97% during a 36-hour period within the first 48 hours of pilot operation. These are pilot results, not operating results from a producing mine.
• Subsequent to quarter-end, the company entered a $2.0 million non-revolving credit facility with CEO Mark Smith, at 10% interest and secured by company assets; it drew $175,000 on January 18, 2017. The company also announced a private placement, increased to a maximum C$2.5 million, of units comprising shares and warrants. The filing does not establish that the placement had closed.
• Management said process changes may reduce capital and operating costs and allow removal of a planned rail spur. The preliminary economic assessment included $21.3 million for the rail and related infrastructure, which management expected to exclude from feasibility-study estimates. Final project capital and operating cost estimates remained subject to completion of the study; other costs could be higher than assumed in the preliminary assessment.
• The filing states there is substantial doubt about the company’s ability to continue as a going concern: it has no operating revenue, a $6,870 working-capital deficiency and depends on obtaining more capital. Management warned that financing may not be available on acceptable terms and that failure to raise funds could require reduced project activity. Future equity or derivative financings may dilute shareholders.
• Other stated risks include exploration and permitting uncertainty, resource-estimate changes, cost escalation, commodity demand and foreign-exchange movements, debt obligations, and the company’s expected PFIC status for U.S. tax purposes. No material legal proceedings or off-balance-sheet arrangements were reported.

Important facts for investors to verify

• Whether the post-quarter-end private placement closed, its final proceeds and terms, and the actual amount drawn and outstanding under the related-party credit facility.
• The maturity, conversion status and repayment or refinancing plan for the $4,827 current Lind convertible security, including any additional conversions and resulting dilution.
• Whether the company secured sufficient financing to fund operations and complete the feasibility study, and how funding needs compare with management’s $2.0–$8.2 million estimate.
• The completed feasibility study’s final capital and operating cost estimates, schedule, permitting assumptions and remaining work; pilot results alone do not demonstrate commercial-scale performance.
• The filing reports 185,598,129 shares outstanding at December 31, 2016 and 186,366,100 as of February 3, 2017; verify subsequent dilution from placements, debt conversions, options and warrants.