NOVAGOLD Resources Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended February 29, 2024. Financial amounts below are in U.S. dollars; figures are shown in millions unless otherwise stated. NOVAGOLD is a pre-revenue gold exploration and development company whose principal asset is a 50% interest in the Donlin Gold project in Alaska, jointly owned with Barrick Gold.
Financial results and liquidity
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Revenue | None from its planned principal business | None |
| General and administrative expense | $6.259 | $5.607 |
| Equity loss from Donlin Gold | $2.961 | $4.475 |
| Net loss | $10.318; $0.03 per share | $10.659; $0.03 per share |
| Cash used in operating activities | $5.374 | $4.493 |
| Donlin Gold funding | $3.623 | $5.744 |
| Cash and cash equivalents | $37.503 at period-end | $45.749 at November 30, 2023 |
| Term deposits | $80.000 | $80.000 at November 30, 2023 |
- Cash and cash equivalents decreased by $8.246 million during the quarter. Cash plus term deposits totaled $117.503 million at February 29, 2024.
- Current assets were $119.892 million and current liabilities were $1.833 million. Total liabilities were $143.001 million, including a $140.345 million promissory note payable to Barrick; shareholders’ equity was a deficit of $16.117 million.
- The Barrick note comprises $51.576 million principal and $88.769 million accrued interest, bears interest at U.S. prime plus 2%, and is payable from 85% of NOVAGOLD’s share of future Donlin production revenue or proceeds from reducing its project interest.
- No revenue-based margin is applicable. The filing reports no production or operating revenue.
Changes and management commentary
- Net loss improved by $0.341 million year over year, primarily due to lower Donlin Gold costs and higher interest income, partly offset by higher note interest expense and G&A. Donlin costs in the prior-year quarter included geotechnical drilling for dam safety certificates.
- G&A increased, principally reflecting additional corporate staff, including a new General Counsel. Donlin Gold’s equity loss declined from $4.475 million to $2.961 million.
- Q1 project work included completion of the scope for an updated resource model, ongoing metallurgical pilot-plant testing, infrastructure planning, hydrology and closure-planning work, and permitting support. Pilot-plant work is expected to be completed in 2024.
- The Donlin Gold board approved a 2024 budget of $28.5 million on a 100% project basis. NOVAGOLD expects to fund $14.25 million, compared with $3.623 million contributed in Q1.
Outlook, risks and contingencies
- Management expects fiscal 2024 expenditures of approximately $31.2 million, comprising $14.25 million for Donlin Gold and $16.95 million for corporate G&A. It believes available working capital can cover anticipated project funding and corporate costs for at least three years at current spending levels.
- Management says additional capital may be needed to complete an updated feasibility study, and substantial additional financing will be required if the project advances to engineering and construction. Financing could involve debt, equity, project-specific debt or other means; there is no assurance it will be available on favorable terms or at all.
- Development requires Donlin Gold board approval of an updated feasibility study, construction program and budget, as well as permits, financing and other conditions. NOVAGOLD depends on Barrick’s cooperation as 50% co-owner.
- Several permit-related appeals remain active. These include challenges to the state water-quality certification, pipeline right-of-way and water-rights permits, and a federal case seeking to invalidate the joint record of decision. Briefing and decisions remain pending in certain matters. The company reports prior permit appeals have been unsuccessful to date.
- Some Alaska permits are administratively extended while renewals are pending; the reclamation plan approval is extended to January 2025. Dam Safety Certification applications are expected to be submitted in 2024 following independent technical review.
- Interest-rate exposure is material: a 1% change in U.S. prime would change annual interest accrued on the Barrick note by approximately $1.4 million, assuming other factors remain constant. Other key risks include permitting delays, litigation, project cost uncertainty, commodity prices, infrastructure, and the ability to obtain financing.
Important facts for investors to verify
- Whether Donlin’s updated resource model, feasibility work and pilot-plant testing progress on schedule, and what the resulting project economics and capital needs are.
- Updates and outcomes in the active permit appeals, permit renewals, and planned dam-safety applications.
- Whether NOVAGOLD’s cash and term deposits remain sufficient against actual spending, and whether additional financing is needed.
- Growth in accrued interest on the Barrick promissory note and the terms governing its repayment from future project proceeds.
- Potential dilution: as of March 27, 2024, 334,371,223 common shares were outstanding; outstanding options, PSUs and deferred share units could require issuance of up to 13,299,599 additional shares.