NOVAGOLD RESOURCES INC. — Q2 2022 Form 10-Q
Business context and reporting period: Unaudited quarter and six months ended May 31, 2022; amounts are U.S. dollars unless noted. NOVAGOLD is a gold exploration and development company with a 50% interest in the Donlin Gold project in Alaska, jointly owned with Barrick. The company reported no revenue from its planned principal business.
Financial highlights
| Metric | Three months ended May 31, 2022 | Six months ended May 31, 2022 |
|---|---|---|
| Revenue | None | None |
| Net loss | $15.0 million, or $0.04 per share | $25.0 million, or $0.07 per share |
| Cash used in operating activities | $2.3 million | $8.3 million |
| Donlin Gold funding | $10.6 million | $16.5 million |
| Cash and cash equivalents at period end | $72.3 million |
- At May 31, cash and term deposits totaled $142.3 million; current assets were $143.3 million and current liabilities were $2.8 million.
- Total assets were $178.5 million, total liabilities $122.9 million, and equity $55.7 million. The Barrick promissory note was $118.9 million, including $67.3 million accrued interest; its rate is U.S. prime plus 2%.
- Six-month general and administrative expense was $10.5 million. Donlin Gold equity loss was $12.5 million. No meaningful revenue-based margin is available because the company has no revenue.
- Six-month comprehensive loss was $24.7 million. Cash and cash equivalents declined $18.8 million from November 30, 2021.
Changes versus prior comparable period
- Quarterly net loss increased $4.4 million from Q2 2021; six-month net loss increased $6.5 million year over year. Management attributed the increases primarily to the expanded Donlin Gold work program.
- Donlin Gold equity loss rose to $8.4 million for the quarter and $12.5 million for six months, compared with $4.2 million and $6.2 million, respectively, in 2021.
- Higher interest expense on the Barrick note and lower accretion income following the July 2021 maturity payment of a $75 million Newmont note also weighed on results. Foreign exchange movements partly offset these effects.
- Operating cash use increased to $8.3 million for the first half from $6.3 million a year earlier. The company also funded $16.5 million of Donlin Gold costs, versus $8.1 million.
Outlook, management commentary and risks
- Management expects fiscal 2022 expenditures of approximately $46 million: $30 million for Donlin Gold, $13 million for corporate G&A, $2 million for share-based compensation withholding taxes, and $1 million for working capital and other items. Donlin Gold funding in the first half was $16.5 million.
- Management said current working capital should cover anticipated project funding and corporate costs until the Donlin Gold board decides whether to proceed to engineering and construction. Development would require substantial additional capital; future financing may involve debt, equity, project-specific debt, or other sources, with no assurance of availability or favorable terms.
- The 2022 Donlin Gold drill program is designed for approximately 34,000 meters. Results from 2021–2022 drilling are intended to inform resource models and potential feasibility-study updates and engineering work; no construction decision or production date is provided.
- Permits remain subject to appeals and litigation. ADEC’s Division of Water upheld the Section 401 certification in May 2022, but a further hearing was requested. Appeals concerning the pipeline right-of-way and water rights were pending in Alaska courts; management anticipated a right-of-way appeal decision in the second half of 2022 or first half of 2023. The existing 401 certification remained in effect during the remand period.
- Key risks include permitting delays or adverse outcomes, project financing and development uncertainty, cost and commodity-price uncertainty, infrastructure and operating challenges, stakeholder opposition, and reliance on Barrick and other third parties. A 1% change in U.S. prime would change annual interest accrued on the Barrick note by approximately $1.2 million, all else equal.
- The $75 million contingent Galore Creek note receivable was assigned no value because construction approval was not considered probable. The recognized $25 million note had a carrying value of $24.0 million and is due upon completion of a feasibility study or by July 2023.
Important facts for investors to verify
- Current cash, term-deposit maturities, expenditure pace, and whether available funds remain adequate for planned work.
- Donlin Gold budget, drilling results, feasibility-study and engineering plans, and any board decision on construction.
- Outcomes and timing of the Section 401, pipeline right-of-way, and water-rights proceedings, plus remaining permits and approvals.
- Potential financing requirements and terms if the project advances, and the growing Barrick note balance and variable interest exposure.
- Future status of the contingent $75 million Galore Creek note; it is not recognized as an asset in the reported balance sheet.