Paramount Gold Nevada Corp. — Form 10-K Summary
Period clarification: This filing covers the fiscal year ended June 30, 2018, not calendar 2017 Q4. It also reports unaudited results for fiscal Q4 2018.
Business context and reporting period
Paramount is an exploration and development company with the Sleeper Gold Project in Nevada and the Grassy Mountain Project in Oregon. It had no producing mines and generated no revenue from mining operations. Its projects have no proven or probable reserves, and the company says substantial additional funding will be needed to advance them.
Financial performance and liquidity
| Metric | FY ended June 30, 2018 | FY ended June 30, 2017 |
|---|---|---|
| Mining revenue | $0 | $0 |
| Other income | $344,632 | $280,671 |
| Total expenses | $6,429,352 | $7,992,647 |
| Net loss | $6,068,154 | $4,339,602 |
| Cash used in operating activities | $5,840,679 | $6,516,457 |
| Cash and cash equivalents at year-end | $297,389 | $1,911,170 |
FY 2018 loss per share was $0.28, versus $0.27 in FY 2017. FY 2017 net loss was reduced by a one-time $3.215 million deferred tax recovery; excluding that item, the prior-year loss before tax was $7.555 million. The company’s quarterly disclosure shows FY 2018 Q4 revenue of $236,824 and net loss of $1,507,797.
At June 30, 2018, current assets were $557,806 and current liabilities were $1,029,555, a working-capital deficit of approximately $472,000. Total liabilities were $2.001 million, principally reclamation obligations and payables; the filing reports no borrowing or debt balance. Cash used in investing was $2.4 million, including the Grassy Mountain land and royalty-rights transaction. Financing provided $6.627 million, primarily from equity issuance. Cash decreased by $1.614 million during the year.
The company reported $49.196 million in stockholders’ equity and $48.860 million in capitalized mineral properties. The $1.770 million reclamation bond is a non-current asset, not available operating cash. No operating margin is meaningful because the company had no mining sales.
Material changes versus the prior year
- Net loss increased about 40%, despite lower total expenses, mainly because FY 2017 included the deferred tax recovery. Exploration expense fell 21% to $4.223 million; Grassy Mountain accounted for $3.461 million.
- Cash used in operations declined to $5.841 million from $6.516 million, but year-end cash fell sharply after operating and investment outflows.
- In FY 2018 the company issued 5.295 million shares, reporting $6.627 million net financing proceeds. Shares outstanding rose to 23.075 million at year-end from 17.780 million.
- In February 2018, Paramount paid $2.4 million to acquire private-land rights at Grassy Mountain and reduce an existing net smelter royalty from 6% to 1.5%.
- The Grassy Mountain project advanced through drilling, permitting work and a preliminary feasibility study (PFS). The 2017 comparative period included acquisition-related costs for Calico and a $100,000 gain on sale of non-core claims.
Outlook, risks and unusual items
For FY 2019, management budgeted approximately $2.0 million for corporate administration, $0.7 million for Sleeper and $4.0 million for Grassy Mountain activities, totaling $6.7 million. Planned work includes Grassy Mountain permitting, environmental baseline studies, selective exploration and seeking proposals for a feasibility study. The company stated that further capital will be required to meet its anticipated budget; failure to obtain financing could materially restrict exploration and development.
The May 2018 Grassy Mountain PFS estimated average annual production of 47,000 ounces of gold and 50,000 ounces of silver over seven years, with estimated life-of-mine capital of $110 million and average cash operating costs of $528 per gold ounce, including silver as a credit. These estimates assume gold at $1,300/oz and silver at $16.75/oz. The PFS is not a feasibility study, and the filing cautions that economic and technical viability has not been demonstrated and results may not be realized. The older Sleeper PEA also remains preliminary, not a feasibility study.
Key risks include ongoing losses and financing dependence, uncertain mineralization and project economics, volatile precious-metal prices, permitting and environmental requirements, reclamation costs, and mining-claim title risks. Sleeper’s recorded asset-retirement obligation was $1.073 million; the company disclosed a current undiscounted reclamation estimate of $3.835 million and insurance coverage of up to $25 million through 2033. The filing reports no legal proceedings. Management assessed disclosure controls and internal control over financial reporting as effective; the auditor gave an unqualified opinion on the financial statements but did not audit internal-control effectiveness.
After year-end, the company completed a $3.0 million private placement on July 6, 2018: 2.4 million units, each including one share and a warrant for one-half share. This funding is subsequent to the reported year-end cash balance and comes with potential dilution.
Most important facts for investors to verify
- Current cash, subsequent financing proceeds and the timing and terms of any additional capital raise relative to the $6.7 million FY 2019 budget.
- Grassy Mountain permitting progress, environmental-study approvals and any changes to the PFS assumptions, costs or schedule.
- Whether either project establishes economically recoverable reserves; neither project had proven or probable reserves in this filing.
- Actual reclamation costs, bonding sufficiency and the scope and availability of insurance reimbursement.
- Share dilution from outstanding options, warrants and subsequent financing; the filing reported 1.569 million options outstanding at June 30, 2018.