NOVAGOLD RESOURCES INC. — FY2022 Form 10-K Summary
Reporting period: Fiscal year ended November 30, 2022; filed January 25, 2023. Although the request references 2022 Q4, this is an annual Form 10-K. 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 Gold Corporation. NOVAGOLD does not produce gold and has no operating revenue. Its business is advancing Donlin toward an updated feasibility study and, subject to approvals and financing, a construction decision.
Financial and operating highlights
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue from planned principal business | None | None |
| Net loss | $53.343 million | $40.536 million |
| Net loss per share, basic and diluted | $0.16 | $0.12 |
| Cash used in operating activities | $12.371 million | $9.863 million |
| Cash funding of Donlin Gold | $28.435 million | $17.587 million |
| Cash and cash equivalents at year-end | $63.882 million | $91.124 million |
| Term deposits at year-end | $62.000 million | $78.000 million |
Net loss widened by $12.807 million, principally because of increased Donlin drilling and project work and reduced accretion income after the prior-year receipt of a $75 million Newmont note payment. Higher interest expense on the Barrick note was partly offset by interest income and favorable foreign exchange. Fourth-quarter net loss was $12.255 million, versus $10.269 million in Q4 2021. Margins are not meaningful because the company has no revenue.
At November 30, 2022, total assets were $159.189 million, current assets $152.538 million, total liabilities $129.286 million, and equity $29.903 million. The $123.685 million Barrick promissory note includes $51.576 million principal and $72.109 million accrued interest, bears interest at U.S. prime plus 2%, and is payable from 85% of NOVAGOLD’s future Donlin production revenue or proceeds from a reduction in its project interest. It is not described as a conventional near-term cash repayment obligation.
Liquidity includes $125.882 million of cash and term deposits and a $24.421 million carrying value for a Newmont note, due on the earlier of completion of a Galore Creek feasibility study or July 27, 2023. A separate $75 million contingent Galore Creek note has no assigned value because construction approval was not considered probable. Management said working capital was sufficient through completion of an updated Donlin feasibility study, but substantial further financing would be required for engineering and construction. Estimated FY2023 expenditures are approximately $31 million, including $17 million for Donlin.
Project outlook and material developments
- Donlin completed 141 drill holes totaling 42,331 meters in 2022. The program supported geological modeling and strategic mine-planning work; owners expect to use updated modeling and trade-off studies in considering next steps toward an updated feasibility study.
- NOVAGOLD’s share of Donlin funding was $28.435 million in FY2022. Its expected FY2023 contribution is approximately $17 million.
- Mineral reserves and resources were reported unchanged from 2021 and current as of November 30, 2022. Proven and probable reserves total 33.849 million ounces on a 100% project basis, or 16.925 million ounces attributable to NOVAGOLD. The estimate uses a $1,200/oz gold price; the resource estimate has a 2011 effective date and uses a sample database cut-off of November 1, 2009.
- The project’s existing technical-report economics assume a $1,500/oz gold price and first-quarter 2020 cost inputs. They estimate initial capital of $7.402 billion, sustaining capital of $1.723 billion, a 27-year mine life, average annual production of 1.13 million ounces, after-tax NPV at 5% of $3.040 billion, and after-tax IRR of 9.2%. These are study estimates, not company guidance or a construction decision; the reports do not incorporate the latest optimization work.
- Construction would require approximately six years of engineering and construction after the decision to proceed. The Donlin board must approve a construction program and budget, and financing and required permits must be in place.
Risks, contingencies and other notable items
Key risks include the project’s large capital requirement and reliance on external financing; no assurance of eventual production or profitability; gold-price and cost sensitivity; dependence on Barrick as 50% co-owner; remote-site infrastructure needs, including a roughly 507-kilometer gas pipeline; and uncertainty in reserve, resource and study estimates. Permits and land-use rights also face legal and administrative challenges. Appeals concern the Clean Water Act Section 401 certification, state pipeline right-of-way and water rights; decisions were expected during 2023 or, for water rights, potentially into the first half of 2024. Tribes also requested a supplemental environmental review, revocation of the federal Section 404 permit, and an EPA veto process.
Other notable items: NOVAGOLD believes it was a passive foreign investment company (PFIC) for FY2022, potentially creating adverse U.S. tax consequences for U.S. shareholders. The $75 million contingent Galore Creek note remains unrecognized; its recognition probability was identified as a critical audit matter. The financial statements received an unqualified audit opinion, and management and the auditor concluded internal control over financial reporting was effective. The company reported no dividends.
Most important facts for investors to verify
- Current cash needs, expected financing sources, and the timing and terms of any funding required beyond the feasibility-study phase.
- Status and outcomes of Donlin’s permit appeals, water-rights litigation, Section 404 requests, and remaining dam-safety and air-permit work.
- Whether the updated resource model and feasibility work materially change project costs, schedule, reserves, production assumptions, or economics; scrutinize the age and assumptions of the existing study.
- Collection of the $25 million Newmont note and the probability, if any, of the separately contingent $75 million note.
- Accrual and repayment terms of the Barrick promissory note, including the effect of variable interest rates and future production-linked repayment.
- PFIC status and the related U.S. tax implications for individual shareholders.