NOVAGOLD RESOURCES INC. — Form 10-Q Summary
Reporting period: Quarter and six months ended May 31, 2023. Amounts below are in U.S. dollars; financial statement amounts are in thousands unless noted. NOVAGOLD is a gold exploration and development company with no revenue from its planned principal business. Its principal asset is a 50% interest in the Donlin Gold project in Alaska, jointly owned with Barrick Gold.
Financial performance and position
| Metric | Three months ended May 31, 2023 | Six months ended May 31, 2023 | Comparable 2022 period |
|---|---|---|---|
| Revenue | No realized revenue | No realized revenue | No realized revenue from planned principal business |
| Net loss | $14.649 million | $25.308 million | $14.970 million and $24.965 million, respectively |
| Net loss per share | $0.04 | $0.08 | $0.04 and $0.07, respectively |
| Operating cash used | $0.169 million | $4.662 million | $2.320 million and $8.323 million, respectively |
| Donlin Gold funding | $7.028 million | $12.772 million | $10.551 million and $16.487 million, respectively |
- At May 31, cash and cash equivalents were $46.954 million and term deposits were $62.000 million. Current assets totaled $135.180 million; current liabilities were $3.317 million.
- Total assets were $142.870 million, total liabilities $134.065 million, and equity $8.805 million. The $129.841 million Barrick promissory note comprised $51.576 million principal and $78.265 million accrued interest. It bears interest at U.S. prime plus 2% and is payable from 85% of NOVAGOLD’s share of future Donlin production revenue or certain proceeds from reducing its project interest.
- Cash and cash equivalents declined $16.928 million from November 30, 2022. The company reported no financing cash flows in the first half of 2023.
- Operating margins are not meaningful because NOVAGOLD had no realized revenue from its planned principal business.
Changes versus the prior comparable periods
- Second-quarter net loss narrowed by $0.321 million year over year. Lower Donlin field costs and higher interest income were partly offset by higher promissory-note interest expense and corporate travel and legal costs.
- First-half net loss increased by $0.343 million year over year. Higher note interest expense and corporate travel and legal costs were partly offset by increased interest income and other income, including a gain related to the San Roque mineral-property sale.
- First-half operating cash use declined from $8.323 million to $4.662 million, principally reflecting interest proceeds and the timing of insurance and share-based compensation tax payments.
Outlook, project developments, and risks
- Management expects fiscal 2023 expenditures of approximately $31 million: $17 million for Donlin Gold, $13 million for corporate general and administrative costs, and $1 million for working capital and other items. First-half Donlin funding was $12.772 million.
- Management believes available working capital can cover anticipated project and corporate costs through an updated Donlin feasibility study, and costs and expenses for at least three years. Construction would require substantial additional capital; future financing could include debt, equity, project-specific debt, or other means. Management cautions that financing may not be available on favorable terms or at all.
- Donlin’s 2023 field program was expected to finish in July. Work included geotechnical and hydrological drilling to support dam-safety documentation, mine planning, and design. Management said the work will inform whether the owners pursue an updated feasibility study; no construction decision was reported.
- Permitting and litigation remain material uncertainties. ADEC’s decision on an appeal concerning the project’s Clean Water Act Section 401 certification was expected in third-quarter 2023. Earthjustice appealed the Alaska Superior Court’s April 2023 decision affirming the pipeline right-of-way lease; a decision in a separate right-of-way appeal was anticipated by year-end 2023. Oral arguments on the water-rights appeal were scheduled for July 19, 2023, with a decision expected within 12 months. A separate federal lawsuit challenges federal project approvals, including the Clean Water Act Section 404 permit.
- The new air-quality permit was anticipated by June 30, 2023; the existing APDES permit had been extended indefinitely pending a replacement. Alaska Dam Safety certificates were expected in 2026, following additional fieldwork and design documentation.
- Key risks include project financing and whether Donlin will ever enter production; co-owner decisions; permit timing and litigation; community or other opposition; infrastructure and development costs; commodity prices; and interest-rate exposure. A 1% change in U.S. prime would change annual interest accrued on the Barrick note by approximately $1.3 million, all else equal.
- The company reported no material changes to the risk factors in its fiscal 2022 Form 10-K and no material current, pending, or threatened litigation known to it beyond the project-related proceedings described in the filing.
Important facts for investors to verify
- Whether Donlin’s updated feasibility work, project budget, and construction decision proceed, and the capital required to advance the project.
- Developments and outcomes in the 401 certification, right-of-way, water-rights, and federal-permit proceedings, as well as the status of remaining permits.
- Cash use versus management’s fiscal 2023 expenditure estimate and its stated liquidity horizon; future financing needs and availability.
- The balance and interest accumulation of the Barrick promissory note, and the July 27, 2023 due date of the $25 million Galore Creek note receivable. The separate $75 million contingent note has no assigned value and depends on approval of a Galore Creek construction plan.
- Progress and costs of the 2023 Donlin field program and any subsequent feasibility-study timetable or project changes.