VISTA GOLD CORP quarterly report, Q2 FY2016

Vista Gold Corp. — Q2 2016 Form 10-Q

Reporting period: Three and six months ended June 30, 2016. Dollar amounts are U.S. dollars in thousands, except per-share data. Vista is an exploration-stage gold company with no mining revenue. Its principal asset is the Mt Todd project in Australia; it also holds a 4.4% interest in Midas Gold Corp. and other mineral interests.

Financial performance and position

Metric	Q2 2016	Q2 2015	Six months 2016	Six months 2015
Revenue	None	None	None	None
Net income	$1,637	$3,589	$923	$2,642
Net income per share, basic	$0.02	$0.04	$0.01	$0.03
Exploration, evaluation and holding costs	$824	$984	$1,811	$1,959
Corporate administration	$650	$798	$1,738	$1,842

Net income depended substantially on non-operating and non-recurring items, rather than sales. Q2 and six-month results included Midas Gold share fair-value gains of $3,277 and $3,820, respectively. The 2016 six-month period also included a $744 Australian R&D tax incentive refund and a $150 gain on sale of Utah claims.
In the comparable 2015 periods, Vista recognized a $5,863 R&D grant and a $1,958 gain on disposal of a mineral property; the six-month period also had a $1,050 loss on other investments. These items make year-over-year net income comparisons less indicative of underlying spending or project economics.
Operating cash flow for the six months was negative $2,709, versus positive $2,594 in 2015. Investing cash flow was positive $3,161, primarily from net disposition of short-term investments; financing cash flow was zero. Cash and cash equivalents ended at $1,354, up from $902 at year-end.
At June 30, cash plus short-term investments totaled $10,309, down from $12,892 at December 31, 2015. Working capital was $15,957, compared with $14,399. Total current assets were $16,488; these included $5,618 of Midas Gold shares carried at fair value.
Total assets were $28,891 and shareholders’ equity was $28,360. Total liabilities were $531, consisting of current accounts payable and accrued liabilities; no debt is reported. No operating margin is meaningful because the company had no revenue.
Plant and equipment was $8,529 net, including $6,500 of used mill equipment. Mineral properties were $3,874. The filing reported no indication that the mill equipment’s carrying value was unrecoverable at June 30.

Material changes and operating developments

Net income fell year over year in both the quarter and six-month period, despite the 2016 Midas Gold fair-value gain. The 2015 periods benefited from a much larger R&D refund and, for the six months, a larger mineral-property disposal gain.
Great Panther terminated its option agreement for the Guadalupe de los Reyes project in February 2016. Vista retained the $996 previously paid and regained 100% of the project; management said it intends to seek partners and does not consider the project material.
Vista sold Utah unpatented mining claims for $150 and a 2% net smelter return royalty, recognizing a $150 gain.
Vista held 7,802,615 Midas Gold shares, valued at $5,618 at June 30, compared with $1,798 at year-end. The increase in value was recognized in earnings and is subject to market-price volatility.
Common shares outstanding were 82,904,132 at June 30, compared with 82,883,562 at year-end.

Outlook, risks and contingencies

Management expected 2016 fixed cash costs to average $1,400–$1,600 per quarter and said existing cash and short-term investments were sufficient to fund currently planned programs into 2018. This outlook is conditional on assumptions and does not represent operating cash generation; Vista said it did not intend to change forecast spending immediately.
Management was cautiously optimistic that gold-sector conditions might be improving, but planned only selected discretionary Mt Todd technical and exploration work, subject to funding. A technical review covered metallurgy, process engineering and plant design, pit slopes, mine planning and power.
Mt Todd’s environmental authorization review required additional modeling and testing concerning the Gouldian Finch. Permitting, financing, project economics, water supply, reclamation obligations and the ability to advance development remain important uncertainties.
The Australian R&D incentive is subject to government review of qualifying programs and expenditures for four years. Vista cautioned that future grants, if any, were expected to be significantly lower; continued eligibility is not assured.
Vista stated that its long-term viability depends on securing sufficient funding and ultimately generating profits or proceeds from asset dispositions. It also cited gold-price, foreign-exchange, marketable-security valuation, financing, environmental and permitting risks. It does not hedge foreign-currency exposure and expects to remain a PFIC for U.S. tax purposes.
The filing reported no material pending or threatened litigation, no off-balance-sheet arrangements, and no material change in internal control over financial reporting. Management concluded disclosure controls were effective.

Important facts for investors to verify

Whether the stated funding runway into 2018 remains supportable given operating cash use, expected spending, and the value and liquidity of investments.
The market value and potential monetization of the Midas Gold shareholding, and the effect of future valuation changes on reported earnings.
The status of Mt Todd environmental authorization, including the requested Gouldian Finch work, and the project’s remaining permitting, technical and funding requirements.
Whether the Australian government accepts the R&D claims and whether future refunds are available; the current-period refund relates to 2014 qualifying expenditures.
The recoverability and sale prospects of the used mill equipment and other assets, and the terms or timing of any partner transaction for Guadalupe de los Reyes.
Underlying cash spending and project progress apart from fair-value gains, R&D refunds, and asset-sale gains, since Vista reported no revenue from operations.