Vista Gold Corp. — Q3 2011 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2011. Vista is an exploration-stage gold project evaluator and developer, with no reported revenue in either nine-month period. Amounts below are U.S. dollars in thousands unless stated otherwise.
Financial results and position
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Revenue | None reported | None reported | None reported | None reported |
| Net income/(loss) | $10,733 | $(4,145) | $54,620 | $(14,844) |
| Basic earnings/(loss) per share | $0.15 | $(0.09) | $0.81 | $(0.32) |
| Cash used in operating activities | $6,624 | $3,529 | $16,625 | $13,460 |
- Earnings quality: Q3 2011 included a $27,762 unrealized gain on the Midas Gold investment, partly offset by $9,957 deferred tax expense. Nine-month results also included a $77,802 gain on disposal of the Yellow Pine assets and $33,546 deferred tax expense. These gains are not operating revenue or cash generation.
- Expenses: Exploration, property evaluation and holding costs were $5,803 in Q3 and $13,606 year to date, up from $3,324 and $9,860, respectively. Corporate administration and investor relations were $1,312 in Q3 and $4,069 year to date, also higher than the comparable 2010 periods. No operating margin is presented; the company reported no revenue.
- Cash and liquidity: Cash and equivalents were $26,946 at September 30, down from $39,838 at year-end 2010. Working capital was $26,574, versus $17,995 at year-end. Nine-month operating cash use was $16,625; cash decreased by $12,892.
- Debt and equity: Vista repaid the $23,000 principal of its 10% senior secured convertible notes in March 2011; no convertible notes remained at September 30. The company raised $28,984 net in an April equity offering. Shares outstanding were 71,435,883 at quarter-end.
- Assets: Total assets were $179,301, including a $110,267 long-term investment in Midas Gold, $16,401 of mineral properties and $18,817 of plant and equipment. Total liabilities were $35,975, including a $33,546 deferred tax liability.
Material changes versus comparable periods
- Net income improved from losses in 2010, primarily due to the Midas Gold investment revaluation and the Yellow Pine asset contribution. Without those unusual gains, reported earnings would present a materially different picture; the filing does not provide an adjusted earnings measure.
- Vista contributed its Yellow Pine-Stibnite interests to Midas Gold in April 2011 and received 30,402,615 shares. After Midas Gold’s July IPO, Vista held approximately 30.2% of its outstanding shares. The investment is recorded at fair value, with subsequent changes recognized in earnings; transfer restrictions apply.
- The company’s cash balance fell despite the April financing, reflecting operating cash use, repayment of notes and investment in Midas Gold shares. Working capital nevertheless increased from year-end, primarily because the notes were repaid and equity was raised.
- Vista retrospectively adopted U.S. GAAP effective January 1, 2011 for U.S. and Canadian filings. It notes that U.S. GAAP generally expenses exploration costs as incurred, unlike its prior Canadian GAAP treatment.
Outlook, commentary and risks
- Management stated it believed available working capital was sufficient to fund the planned operations for the next 12 months. Its revised 2011 plan prioritizes Concordia development work, Mt. Todd feasibility and permitting, and exploration at Guadalupe de los Reyes; planned Concordia development spending depends on permits and project financing. Additional financing was contemplated in the budget assumptions.
- Concordia’s Change of Forest Land Use permit was delayed, and the application was to be amended and re-filed. Permit timing and approval remain uncertain; the company warns that failure to obtain permits could delay development or lead to impairment.
- Mt. Todd feasibility-study and permitting work increased exploration costs. The filing gives no quantified production, revenue, earnings or project-development guidance.
- Key risks include permitting and political uncertainty, feasibility and resource-estimate risk, gold-price volatility, project financing needs, possible mineral-property impairment, reclamation and environmental obligations, foreign-currency exposure, and the uncertain timing or value of Amayapampa disposal payments. Vista reported no material pending or threatened litigation and no material change to the risk factors in its 2010 Form 10-K.
- Management reported disclosure controls and procedures were effective at period-end and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How much of reported income depends on the Midas Gold fair-value gain and Yellow Pine disposal gain, and how sensitive is the Midas valuation to share price and transfer restrictions?
- Current status, timing and requirements for the Concordia permit, and whether required permits and project financing can be secured.
- Whether cash and working capital remain adequate for planned operations, given ongoing operating cash use and management’s stated financing assumptions.
- Progress, cost and timing of the Mt. Todd feasibility and permitting work, and the status of Guadalupe de los Reyes exploration.
- Assumptions underlying the $4,813 Amayapampa disposal consideration, which is based on probability-weighted estimates, and the conditions for future payments and royalties.