PERPETUA RESOURCES CORP. annual report, FY2021

Perpetua Resources Corp. — Form 10-K Summary

Reporting period: Fiscal year ended December 31, 2021. The filing is an annual report, not a standalone fourth-quarter report. Perpetua is a development-stage mining company focused on permitting, restoration and potential redevelopment of the Stibnite Gold Project in Idaho. The Company had no commercial mining operations or mining revenue.

Business Context and Project Status

The Stibnite Gold Project contains gold, silver and antimony deposits and is planned as a conventional open-pit mining and processing operation with an extensive reclamation and restoration program.
Perpetua continued the NEPA permitting process and anticipated public release of a Supplemental Draft Environmental Impact Statement in the third quarter of 2022.
No drilling was completed during 2021; activities focused on permitting, engineering, environmental studies and early cleanup actions under the Administrative Settlement Agreement and Order on Consent.
The Company held approximately 11,548 hectares of Project claims and other land interests as of December 31, 2021.

Financial Performance and Position

Metric	2021	2020
Revenue	No operating revenue	No operating revenue
Operating loss	$41.3 million	$30.0 million
Net loss	$36.0 million	$220.6 million
Net loss per share	$0.66	$6.45
Exploration expense	$22.7 million	$26.4 million
Net cash used in operating activities	$28.6 million	$28.8 million
Cash and cash equivalents at year-end	$47.9 million	$25.0 million
Total assets	$124.5 million	$98.1 million
Total liabilities	$12.9 million	$40.5 million
Shareholders’ equity	$111.6 million	$57.6 million

The 2021 net loss declined substantially because 2020 included a $179.1 million non-cash loss from the change in fair value of the convertible note derivative. In 2021, the corresponding item was a $5.7 million non-cash gain.
Operating loss increased primarily because the Company recorded $12.2 million of environmental liability expense related to the ASAOC. Office and administrative, corporate compensation, directors’ fees and professional fees also increased.
Environmental reclamation liabilities totaled $9.9 million at year-end, including $2.8 million classified as current and $7.1 million as non-current. A $3.0 million cash collateral payment supported a surety bond.
The Company had no outstanding convertible notes at December 31, 2021. The remaining 2016 notes were converted into 4.35 million common shares during the year.
In August 2021, Perpetua issued 10.95 million shares for gross proceeds of $57.5 million and net proceeds of $54.3 million.

Cash Flow, Liquidity and Capital Requirements

Cash increased by $22.8 million during 2021, primarily due to $54.8 million of net financing proceeds, partly offset by $28.6 million of operating cash use and $3.3 million of investing cash use.
At December 31, 2021, cash and cash equivalents were $47.9 million, current assets were $49.1 million and current liabilities were $5.7 million. Reported net working capital was approximately $43.3 million.
Management stated that existing resources were sufficient to advance the regulatory process beyond 2022 and meet administrative obligations for more than one year.
Estimated 2022 expenditures were approximately $27.5 million, comprising $12.2 million for permitting, $10.5 million for general corporate and administrative costs, $4.1 million for early restoration and field operations, and $0.7 million for engineering and design.
Future construction financing is expected to require additional debt, equity, project-specific debt or other financing. The Company cautioned that financing may not be available on favorable terms, or at all.

Material Changes Versus 2020

Net loss fell by $184.7 million, largely because of the reversal of the significant 2020 non-cash convertible note derivative loss and the conversion of the remaining convertible notes.
Exploration expense decreased 14% to $22.7 million, mainly due to lower permitting, legal and sustainability, and engineering costs.
Environmental costs increased from zero in 2020 to $12.2 million in 2021 due to the ASAOC and early cleanup obligations.
Cash more than doubled to $47.9 million following the August 2021 equity offering, while total liabilities declined substantially after the convertible notes were converted.
Shares outstanding increased from 47.5 million at December 31, 2020 to 63.0 million at December 31, 2021, reflecting the equity offering, note conversions and other equity issuances.

Project Economics and Outlook

The Technical Report Summary presents a 15-year life-of-mine plan with 4.238 million ounces of recovered gold and 115 million pounds of recovered antimony. These are project estimates, not historical results or current production.
Estimated initial capital, including contingency, was approximately $1.263 billion. Total capital costs including sustaining and closure capital were estimated at approximately $1.658 billion.
At the base case of $1,600 per ounce gold, the study estimated an after-tax 5% NPV of $1.320 billion, after-tax IRR of 22.3% and payback period of 2.9 production years. The economic model assumes 100% equity financing.
Life-of-mine cash costs after by-product credits were estimated at $538 per ounce of gold and life-of-mine AISC at $636 per ounce. These are projected non-GAAP measures and are not historical operating metrics.
At December 31, 2021, reported Probable Mineral Reserves totaled 104.6 million tonnes containing approximately 149.9 tonnes of gold, 67.4 thousand tonnes of antimony and 200.0 tonnes of silver.
Mineral reserve and economic estimates depend on permitting, financing, construction, commodity prices, recovery assumptions, operating costs and other factors. The S-K 1300 report is classified as a Preliminary Feasibility level study.

Risks, Contingencies and Unusual Items

The Project is not in production or under construction and has no history of commercially producing metals. Continued losses and operating cash use are expected until potential production begins.
Development depends on successful completion of NEPA review, ancillary permits, financing and resolution of legal and environmental matters.
The Company remains involved in Clean Water Act litigation with the Nez Perce Tribe. The litigation was stayed while the parties pursue alternative dispute resolution.
The ASAOC requires multiple early cleanup actions over several years. Cost estimates increased from approximately $7.5 million at signing to $12.2 million during 2021, with a recorded liability of $9.9 million at year-end.
Key risks include permitting delays or denial, litigation, legacy contamination and CERCLA liability, construction cost inflation, commodity-price volatility, resource and reserve uncertainty, access and infrastructure challenges, labor and equipment availability, COVID-19 effects and the need for substantial additional capital.
Paulson & Co. held approximately 39.3% of outstanding shares as of March 11, 2022 and had significant influence over shareholder matters and board composition.
Perpetua ceased to qualify as a foreign private issuer effective January 1, 2022 and became subject to U.S. domestic issuer reporting and proxy requirements.
Management concluded that disclosure controls and internal control over financial reporting were effective at year-end. The independent auditor was not required to provide an internal-control attestation because the Company remained an emerging growth company.

Important Facts for Investors to Verify

Confirm the timing and substance of the SDEIS, subsequent NEPA milestones, ancillary permits and any final Record of Decision.
Reconcile the $27.5 million 2022 spending plan with year-end cash and the Company’s expected financing needs.
Review updates to the $1.263 billion initial capital estimate and the assumptions supporting the Preliminary Feasibility Study economics.
Monitor changes in the ASAOC liability, cleanup expenditures, environmental bonding requirements and Nez Perce Tribe litigation.
Assess potential dilution from future equity financing, options, warrants and other equity awards.
Evaluate the sensitivity of Project economics to gold, silver and antimony prices, recovery rates, operating costs, permitting delays and construction cost escalation.