NOVAGOLD RESOURCES INC. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended August 31, 2021. Financial amounts are in U.S. dollars; tables and figures are unaudited. NOVAGOLD is an exploration and development company with a 50% interest in the Donlin Gold project in Alaska. It reported no revenue from its planned principal business.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| General and administrative expense | $4.9 million | $4.7 million | $15.2 million | $13.8 million |
| Equity loss — Donlin Gold | $6.7 million | $6.2 million | $12.9 million | $11.4 million |
| Operating loss | $11.6 million | $10.9 million | $28.1 million | $25.3 million |
| Net loss | $11.8 million | $12.7 million | $30.3 million | $26.6 million |
| Net loss per share | $0.04 | $0.04 | $0.09 | $0.08 |
| Cash used in operating activities | $1.9 million | $1.8 million | $8.1 million | $7.2 million |
Liquidity: At August 31, 2021, cash and cash equivalents were $117.8 million and term deposits were $55.5 million, totaling $173.3 million. Current assets were $173.9 million and current liabilities were $2.8 million. Management said available working capital was sufficient for anticipated needs over the next 12 months.
Debt: The Barrick promissory note was $114.2 million, including $51.6 million principal and $62.6 million accrued interest. Interest accrues at U.S. prime plus 2%; repayment is due from 85% of NOVAGOLD’s share of future mine revenue or net proceeds from reducing its Donlin interest. A 1% change in prime would change annual accrued interest by approximately $1.1 million.
Cash flow and funding: Nine-month investing cash inflow was $65.2 million, principally reflecting the $75 million Newmont note repayment received in July, partly offset by $15.0 million of Donlin funding and term-deposit activity. Financing cash outflow was $0.7 million, related to withholding taxes on vested performance share units. No operating cash flow is generated by the business.
Profit margins are not meaningful because the company had no revenue. The filing does not provide a revenue-based margin measure.
Changes versus comparable periods
- Q3 operating loss rose to $11.6 million from $10.9 million, mainly because of higher Donlin permitting and legal costs. Net loss improved to $11.8 million from $12.7 million, mainly due to foreign exchange movements, partly offset by lower interest income and marketable-security valuation changes.
- For the first nine months, operating loss increased to $28.1 million from $25.3 million. Higher G&A, including share-based compensation and salaries, and increased Donlin permitting and legal costs contributed to the increase.
- Nine-month net loss increased to $30.3 million from $26.6 million, reflecting higher operating losses and lower interest income, partly offset by lower interest expense on the Barrick note.
- Cash and term deposits increased by $51.4 million from November 30, 2020, primarily due to the $75 million Newmont repayment, partly offset by project funding and operating costs.
Outlook, developments and risks
- Management estimated 2021 expenditures of $32 million: $19 million for Donlin Gold and $13 million for corporate G&A. The company expected its share of Donlin funding to be $19 million, including $12 million for drilling, camp improvements and studies, and $7 million for permitting, community engagement and administration.
- Donlin’s 2021 drilling program completed 79 holes totaling approximately 24,200 meters, above the original plan. Assays were expected by early 2022; results were to inform resource modeling, mine schedules and future feasibility work. A construction decision requires Donlin board approval, required permits, engineering and financing.
- Permitting remains subject to administrative appeals and court challenges. Appeals were filed concerning the Clean Water Act Section 401 certification, the state right-of-way and pipeline lease, and water rights. Management anticipated a decision on the water-rights appeal in 2022. These matters could delay development.
- Management said additional capital would be needed if Donlin advances to engineering and construction. Future funding could involve debt, equity, project-specific debt or other sources; there is no assurance financing will be available on acceptable terms or at all.
- Other key risks include the absence of operating cash flow, uncertainty of eventual production and project costs, commodity-price fluctuations, regulatory and litigation outcomes, infrastructure and development challenges, joint-venture dependence, and COVID-19 impacts on workforce, travel and project activities.
- The company reported no material changes to its previously disclosed risk factors. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether Donlin permitting appeals and litigation alter the schedule, scope or viability of the project.
- Whether drilling assays and subsequent technical work support updated resources, mine plans and a decision to proceed with feasibility or engineering.
- Whether the stated $32 million 2021 expenditure outlook and management’s 12-month liquidity assessment remain current.
- The terms, accrued interest and repayment conditions of the $114.2 million Barrick promissory note, including sensitivity to prime rates.
- Timing and conditions for the remaining $25 million Newmont note and the contingent $75 million Galore Creek payment; the contingent payment had no assigned value and construction approval was not considered probable.
- Potential dilution from outstanding options, performance share units and deferred share units; the filing reported a maximum of approximately 13.1 million shares issuable upon exercise or payout of these securities.