NOVAGOLD RESOURCES INC. — FY2015 Form 10-K
Reporting period: Fiscal year ended November 30, 2015; filed January 27, 2016. Amounts are U.S. dollars unless noted. NOVAGOLD is an exploration and development company with no producing mines or operating revenue. It owns 50% of the Donlin Gold project in Alaska with Barrick and 50% of the Galore Creek project in British Columbia with Teck.
Financial performance and position
| Metric | FY2015 | FY2014 |
|---|---|---|
| Revenue from continuing operations | None | None |
| Operating loss | $31.7 million | $38.0 million |
| Net loss | $32.0 million | $40.5 million |
| Net loss per share, basic and diluted | $0.10 | $0.13 |
| Cash used in operations | $11.4 million | $9.8 million |
| Cash and cash equivalents | $41.7 million | $70.3 million |
| Term deposits | $85.0 million | $95.0 million |
| Total assets | $433.6 million | $524.5 million |
| Total liabilities | $104.3 million | $119.4 million |
| Shareholders’ equity | $329.3 million | $405.1 million |
Cash and term deposits totaled $126.7 million at year-end, down $38.6 million. The decline primarily reflected repayment of the remaining $15.8 million convertible notes, $11.4 million of operating cash use, and $11.0 million of project funding. The convertible notes were fully repaid in May 2015. A separate $80.3 million promissory note to Barrick, including accrued interest, remains; it accrues at U.S. prime plus 2% and is payable from 85% of NOVAGOLD’s future Donlin production revenue or proceeds from reducing its Donlin interest. The filing reports $3.5 million in current liabilities.
Comprehensive loss was $84.5 million, including $52.5 million of other comprehensive loss, mainly foreign-currency translation. The Canadian-dollar strengthening/weakening sensitivity disclosed by the company was approximately $3.1 million per one-cent exchange-rate movement, all else equal. No dividends were paid.
Changes versus prior periods and fourth quarter
- FY2015 operating loss improved by $6.3 million from FY2014, reflecting lower corporate costs and lower equity-method losses at Donlin and Galore. Net loss improved by $8.5 million, also benefiting from lower interest expense after debt repayment.
- Cash used in operations increased by $1.6 million year over year; cash funding of affiliates decreased by $5.0 million, partly due to project-funding timing and Galore’s sale of surplus equipment.
- Fourth-quarter 2015 net loss was $7.2 million versus $7.1 million in fourth-quarter 2014. Quarterly loss per share was $0.02 in both periods.
- The Galore Creek investment declined $40.6 million in 2015, principally from foreign-currency translation. Management stated the copper-price decline in U.S.-dollar terms had not created a current impairment indicator when assessed in Canadian-dollar terms.
Projects, outlook, and key risks
- Donlin Gold: Permitting advanced with publication of the draft Environmental Impact Statement (EIS) in November 2015. The comment period was scheduled to close at the end of April 2016; the Corps anticipated a final EIS in 2017. Further permits, engineering, financing, and approval of a construction program and budget remain necessary. NOVAGOLD’s 2015 funding share was $10.5 million; its expected 2016 share was approximately $9 million.
- Galore Creek: Work focused on mine planning, waste and water management, care and maintenance, and community commitments; there was no drilling in 2014 or 2015. NOVAGOLD continued to consider selling all or part of its interest, but had received no offer by November 30, 2015. Its expected 2016 funding share was approximately $1 million.
- Company outlook: Management expected approximately $25 million of 2016 spending, including project funding, $12 million of general and administrative costs, and $2 million for working capital and other corporate purposes. Management believed available cash and term deposits could fund planned activities through completion of Donlin permitting. Further capital would be needed if Donlin proceeds to engineering and construction; no assurance was given that financing would be available on acceptable terms.
- Donlin feasibility economics: The 2011 feasibility study estimated total project capital of approximately $6.7 billion, after-tax NPV at 5% of $547 million and IRR of 6.0% at a $1,200/oz gold price. These are study estimates, not current project guidance; the study also estimated a 27-year mine life. The project is not in construction, and the filing identifies substantial permitting, infrastructure, cost, financing, and schedule risks.
- Mineral estimates: The filing reports Donlin and Galore reserves and resources under Canadian NI 43-101 standards, based on technical studies with 2011 effective dates. It states both projects have no known reserves under SEC Industry Guide 7. Resource and reserve estimates are uncertain and are not assurance of economic extraction.
- Other risks: NOVAGOLD has a history of losses, depends on external financing and equal joint-venture partners, and has concentrated exposure to two projects. Risks include metal-price volatility, permits and environmental review, remote-area infrastructure, reclamation obligations, title and Indigenous rights, and foreign-exchange movements. Electrum and affiliates held 26.7% of shares and could significantly influence shareholder matters.
Management and the independent auditor reported effective internal control over financial reporting as of November 30, 2015. The financial statements received an unqualified audit opinion. Management reported no pending or threatened legal proceeding expected to have a material adverse effect.
Most important facts for investors to verify
- Progress and timing of Donlin’s final EIS, remaining permits, engineering, joint-venture approvals, and any construction decision.
- Current cash burn, project budgets, and financing plans if Donlin advances beyond permitting; reconcile management’s runway assessment with subsequent spending.
- Whether Galore Creek can be sold, and the valuation and potential impairment implications if no transaction occurs.
- Current status and terms of the $80.3 million Barrick promissory note and its future-production repayment mechanism.
- Whether the 2011 project studies, capital estimates, metal-price assumptions, and Canadian-standard reserve/resource estimates remain representative; do not treat them as SEC Industry Guide 7 reserves.