NOVAGOLD RESOURCES INC. — Form 10-Q Summary
Reporting period: Three and nine months ended August 31, 2015. Amounts are in U.S. dollars; financial-statement amounts are in thousands unless otherwise stated. NOVAGOLD is an exploration and development company with 50% interests in the Donlin Gold project in Alaska and Galore Creek in British Columbia. It had no operations or realized revenue from its planned principal business.
Financial performance and position
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | None reported | |||
| Loss from operations | $(6.6) million | $(10.8) million | $(25.1) million | $(30.4) million |
| Net loss | $(6.3) million | $(12.0) million | $(24.8) million | $(33.4) million |
| Loss per share, basic and diluted | $(0.02) | $(0.04) | $(0.08) | $(0.11) |
| Cash used in operations | $(1.8) million | $(1.7) million | $(9.9) million | $(7.4) million |
- At August 31, cash and cash equivalents were $45.0 million and current term deposits were $85.0 million. Current assets totaled $133.0 million versus current liabilities of $3.0 million.
- Total assets were $442.5 million, total liabilities $103.2 million, and equity $339.3 million. Debt totaled $79.2 million, all non-current: the remaining $15.8 million principal on convertible notes was repaid in May 2015; the balance is a promissory note to Barrick.
- There are no scheduled minimum debt repayments through 2019; $79.2 million is scheduled thereafter. The Barrick note accrues interest at U.S. prime plus 2%.
- No operating margin is applicable because the company reported no revenue. The filing does not provide a revenue-based margin measure.
Changes versus the prior comparable periods
- Q3 and nine-month net losses narrowed year over year, mainly reflecting lower equity losses from Donlin Gold and Galore Creek, lower general and administrative costs, foreign-exchange gains, and lower interest expense. Q3 Galore Creek results also included a $0.6 million gain on surplus equipment sales.
- Nine-month operating cash use increased to $9.9 million from $7.4 million, primarily due to working-capital changes. Cash and cash equivalents fell $25.3 million from November 30, 2014, and term deposits fell $10.0 million; cash use included repayment of the convertible notes and project funding.
- Foreign-currency translation generated a $48.2 million other comprehensive loss for the first nine months, contributing to accumulated other comprehensive income moving from $34.8 million to a loss of $13.2 million. The Donlin/Galore affiliate investment balance declined from $284.9 million to $248.1 million, largely due to currency translation, particularly for Galore Creek.
- The company recorded a $0.4 million write-down of marketable equity investments during the first nine months.
Projects, outlook, and risks
- Donlin Gold: Permitting and preparation of the draft environmental impact statement continued. The U.S. Army Corps of Engineers was working toward draft EIS publication around year-end 2015 and anticipated a final EIS in early 2017. NOVAGOLD expected to fund about $11.0 million of Donlin activities for full-year 2015, primarily permitting and community development.
- Galore Creek: Work focused on mine planning, design, waste and water management, and site care. NOVAGOLD expected to fund about $1.0 million of 2015 activity and remained open to monetizing some or all of its interest. Management discussed copper-price pressure but reported no impairment trigger in Canadian-dollar terms at August 31.
- Management reduced its full-year 2015 spending forecast from $44.8 million to $41.3 million. The forecast included $15.8 million for convertible-note repayment, $12.0 million for project funding, $0.5 million for joint Donlin studies, and $13.0 million for G&A, interest, working capital, and other corporate purposes.
- Management believed cash and term deposits were sufficient for anticipated project funding and corporate costs through completion of Donlin permitting. Construction would require additional capital; future operations depend on obtaining financing or generating cash flows, and there is no assurance that financing will be available.
- Key risks include permitting and development uncertainty, project financing, commodity prices, joint-venture partner cooperation, currency and interest-rate exposure, and environmental, infrastructure, title, and regulatory risks. The company did not hedge currency exposure. A C$0.01 movement against the U.S. dollar was estimated to change comprehensive income or loss by about $3.0 million; a 1% change in U.S. prime was estimated to change annual accrued interest on the Barrick note by about $0.8 million.
- Operating lease commitments totaled $0.8 million through 2017. The company reported no material current, pending, or threatened litigation and no material changes to the risk factors in its most recent 10-K.
Important facts for investors to verify
- Progress against the Donlin permitting timetable, including draft and final EIS timing and remaining permit applications.
- Actual project and corporate spending versus the $41.3 million 2015 forecast, and remaining cash and term-deposit balances.
- Availability, terms, and timing of financing required if Donlin advances to construction, and the terms of the Barrick promissory note.
- Whether copper-price or other project-value changes produce impairment indicators for Galore Creek or other mineral assets.
- Exposure to Canadian-dollar movements, interest-rate changes, and any developments in project contingencies or permitting risks.