Paramount Gold Nevada Corp. annual report, FY2021

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Paramount Gold Nevada Corp. — FY2021 Form 10-K

Period note: The filing covers the fiscal year ended June 30, 2021, not calendar 2020 Q4. Comparisons are with the year ended June 30, 2020.

Business context and reporting period

Paramount is a pre-production precious-metals exploration and development company with projects in Nevada and Oregon. Its principal projects are the Sleeper Gold Project in Nevada and Grassy Mountain in Oregon. It reported no revenue from mining operations in either year.

Financial results, cash flow and liquidity

  • Net loss: $5.90 million in FY2021 versus $6.43 million in FY2020; basic and diluted loss per share were $0.17 and $0.23, respectively.
  • Income: Other income was $330,259, primarily reimbursement of Sleeper reclamation costs ($324,516). This is not operating revenue from mining.
  • Expenses: Total expenses were $5.83 million, down from $6.79 million. Exploration expense was $2.82 million; salaries and benefits were $1.37 million; land-holding costs were $540,401.
  • Cash flow: Cash used in operating activities was $5.96 million, compared with $5.15 million in FY2020. Financing provided $3.72 million, principally from at-the-market (ATM) share sales. Cash declined by $2.32 million during FY2021.
  • Liquidity: Cash and equivalents were $3.11 million at year-end, down from $5.43 million. Current assets were $4.27 million and current liabilities $948,972, implying working capital of approximately $3.32 million. Management said available cash, considering subsequent events, was sufficient for at least 12 months after issuance of the financial statements; ongoing plans also depend on future capital access.
  • Debt: Convertible notes had a $4.28 million principal balance and $4.16 million net carrying value at June 30, 2021. The secured notes bear 7.5% interest, mature in September 2023, and are convertible at $1.00 per share. The company issued 1.2 million shares upon conversion during the year. A $35,628 PPP loan and accrued interest were forgiven, producing a $35,947 gain.
  • Reclamation obligations: The recorded obligation rose to $1.85 million from $615,170, including $1.50 million of additions and estimate changes. The auditor identified its valuation as a critical audit matter. A $4.01 million Sleeper surety bond is reported separately in the property discussion.
  • Margins: Operating margins are not meaningful because the company had no mining revenue and remains pre-production.

Material changes versus FY2020

  • Net loss narrowed about 8%, while exploration expense fell 33%, mainly because comparable Grassy Mountain feasibility-study costs were lower after the study was completed.
  • Salaries and benefits increased 39% to $1.37 million, reflecting higher stock-based compensation and employee bonuses. General and administrative expense was broadly stable.
  • Cash used in operations increased despite the smaller net loss, while cash fell by $2.32 million. The company raised $3.72 million net through its ATM program and issued additional shares for interest, services, property acquisition and note conversion.
  • Mineral-property carrying values increased to $49.20 million from $47.33 million. The company acquired 152 South Sleeper claims for $365,441 in cash and shares.

Outlook, projects and principal risks

  • FY2022 budget: The company estimated $2.3 million for corporate and general expenses, plus discretionary budgets of $2.0 million for Grassy Mountain permitting, $0.7 million for Frost exploration and $1.25 million for Sleeper exploration. Programs are subject to available cash and additional share issuance.
  • Grassy Mountain: The September 2020 feasibility study estimated average annual production of 47,000 ounces of gold and 55,000 ounces of silver over eight years, initial capital of $97.5 million, average cash operating costs of $583 per gold ounce (including silver by-product credits), and an NPV of $105 million at a 5% discount rate. These are study estimates, not realized results; permitting remains ongoing. The filing reported 20 of 22 state baseline reports accepted and described further state and federal application work needed to advance permitting.
  • Other projects: Sleeper exploration drilling and metallurgical testing were planned subject to funding; an initial reverse-circulation drill program was planned for Frost. The filing gives no assurance that these programs will identify economically mineable deposits.
  • Key risks: No mining operations or mining revenue; substantial further financing needs; uncertain project economics and exploration outcomes; permitting and environmental requirements; reclamation costs and bonding; mineral-title risks; volatile metal prices; and possible COVID-19-related delays. Grassy Mountain also carries a Seabridge net-profits-interest put option that could require a CDN$10 million payment after a positive production decision and construction financing.
  • Funding and dilution: Subsequent to year-end, the company reported approximately $1.88 million of gross ATM proceeds and issued shares for accrued note interest. Future exploration and development therefore depend in part on continued equity or other financing.
  • Controls and audit: Management concluded disclosure controls and internal control over financial reporting were effective. The auditor gave an unqualified opinion on the financial statements but did not attest to internal-control effectiveness.

Investor verification priorities

  • Verify the latest cash balance, ATM proceeds, share count and expected cash runway; the filing reports 38.15 million shares at June 30 and 40.51 million outstanding as of September 15, 2021.
  • Review the full Grassy Mountain feasibility study, reserve disclosures, permitting status, financing requirements and the assumptions behind its NPV and capital estimate. The filing’s risk discussion says no projects currently have proven or probable reserves, making the precise reserve status important to confirm.
  • Check the convertible-note principal, interest and maturity terms, including potential dilution from conversion.
  • Examine updated reclamation-cost estimates, the adequacy and terms of financial assurance, and the significant increase in the recorded obligation.
  • Confirm the timing, funding and scope of the proposed FY2022 permitting and exploration programs, which are expressly conditional on available capital.