NOVAGOLD RESOURCES INC. — FY2021 Form 10-K
Reporting period: Fiscal year ended November 30, 2021. The filing also reports fourth-quarter results. Amounts are in U.S. dollars unless stated otherwise; financial statement amounts are generally in thousands.
Business context
NOVAGOLD is a development-stage gold company with a 50% interest in the Donlin Gold project in Alaska, jointly owned with Barrick. The company is not producing minerals and has no operating revenue. Donlin Gold is not under construction; development depends on further engineering, board approval, permits, and financing.
Financial results and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net loss | $40.5 million | $33.6 million |
| Loss per share, basic and diluted | $0.12 | $0.10 |
| Cash used in operating activities | $9.9 million | $10.0 million |
| Donlin Gold funding | $17.6 million | $15.3 million |
- Fourth-quarter net loss was $10.3 million, compared with $7.0 million in the prior-year quarter.
- At November 30, 2021, cash and cash equivalents were $91.1 million and term deposits were $78.0 million. Current assets totaled $169.5 million; current liabilities were $4.4 million.
- Long-term promissory note payable to Barrick was $115.7 million, including 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 a reduction of its interest.
- A $25 million Newmont note related to the Galore Creek sale was carried at $23.6 million and is due upon the earlier of completion of a feasibility study or July 27, 2023. A further $75 million contingent note was assigned no value because construction approval was not considered probable.
- Management expects approximately $46 million of FY2022 expenditures, including $30 million for Donlin Gold. It stated existing working capital should fund planned activities until a construction decision, but construction would require substantial additional financing.
Donlin Gold project and changes versus prior period
- FY2021 net loss increased $7.0 million year over year. The filing attributes the increase principally to higher Donlin Gold expenses, higher corporate general and administrative costs (including share-based compensation), a $0.9 million remediation provision, lower interest income, and lower accretion on notes receivable. Favorable foreign exchange and a $0.2 million gain on a mineral property sale partially offset the increase.
- Donlin Gold completed 79 drill holes totaling approximately 24,264 meters in 2021. Assay results were being finalized; data were not included in the existing resource model.
- Mineral reserves were unchanged from 2020: 33.849 million ounces proven and probable on a 100% project basis, or 16.925 million ounces attributable to NOVAGOLD. The estimate uses a $1,200/oz gold price. Resources were also reported unchanged; the resource database has a 2009 sample cutoff and the estimate retains a 2011 effective date.
- The updated project study estimates initial capital of $7.402 billion, up 10.8% ($723 million) from the 2011 study, and sustaining capital of $1.723 billion, up 14.6% ($219 million). Estimated life-of-mine operating costs are $19.289 billion, or $635 per ounce sold.
- At an assumed $1,500/oz gold price, the project model estimates a 27-year mine life, average annual production of 1.13 million ounces (1.46 million ounces annually during the first five full years), after-tax cash flow of $13.145 billion, after-tax NPV at 5% of $3.040 billion, IRR of 9.2%, and payback 7.3 years after production begins. These are project-study estimates, not company operating results or guidance; the model assumes all-equity financing, excludes inflation, and assumes no salvage value.
Outlook, contingencies and key risks
- The company expects to continue funding exploration, permitting, and studies; its share of Donlin funding for 2022 was estimated at approximately $30 million. Donlin’s board must approve a construction program and budget, and project construction and production timing remain undetermined.
- Key permits have been issued, but material challenges remain. The Alaska Section 401 water-quality certification was remanded to the agency for consideration of additional technical information; the certification remained in effect during remand, with an agency decision expected in Q2 2022. Appeals of the state pipeline right-of-way were pending in Alaska Superior Court, with a decision expected in 2H 2022 or 1H 2023. Water-rights appeals were also pending.
- Major risks include securing the substantial capital required, cost and schedule escalation, gold-price volatility, permit appeals and community opposition, dependence on Barrick as 50% joint-venture partner, remote-site infrastructure needs (including a roughly 507-kilometer gas pipeline), COVID-19 impacts, and uncertainty in resource, reserve, and economic estimates.
- The company reported a $0.9 million remediation provision related to a former property in Nome. Donlin Gold reported two administrative notices of violation in 2021, with no penalties; the filing said its 2021 site inspection found no non-compliance for that field program.
- NOVAGOLD stated it believed it was a passive foreign investment company (PFIC) for FY2021 and may remain one. U.S. investors may face adverse tax consequences and should consult tax advisers.
- The independent auditor gave unqualified opinions on the financial statements and internal control over financial reporting. Management and the auditor concluded controls were effective as of November 30, 2021.
Important facts for investors to verify
- Cash runway against planned FY2022 spending, and the amount and terms of any financing needed before a construction decision.
- Progress and outcomes of the Section 401, water-rights, and pipeline right-of-way proceedings, plus remaining permit and Dam Safety certification requirements.
- Final 2021 drilling assays and how new data affect the resource model, mine plan, feasibility work, and project economics.
- Sensitivity of project returns to gold price, updated capital and operating costs, inflation, financing assumptions, and schedule changes.
- Accrued Barrick note balance and interest growth, and the timing and collectability of Newmont notes, including the unrecognized contingent $75 million note.