Vista Gold Corp. — Q3 2012 Form 10-Q
Reporting period: Three and nine months ended September 30, 2012. Vista is an exploration-stage gold company with no operating revenue; its principal focus was advancing the Mt. Todd project in Australia. Unless stated otherwise, financial amounts below are in U.S. dollars, millions.
Financial performance and position
| Metric | Q3 2012 / September 30, 2012 | Comparable period / prior year-end |
|---|---|---|
| Revenue | None | None in Q3 2011 and the first nine months of 2011 |
| Net income (loss) | Q3: $12.3; nine months: $(29.5) | Q3 2011: $10.7; nine months 2011: $54.6 |
| Basic earnings (loss) per share | Q3: $0.16; nine months: $(0.40) | Q3 2011: $0.15; nine months 2011: $0.81 |
| Cash and cash equivalents | $14.9 | $17.9 at December 31, 2011 |
| Working capital | $122.3 | $16.9 at December 31, 2011 |
| Total assets / liabilities | $162.7 / $31.7 | $180.6 / $39.4 at December 31, 2011 |
| Cash flows, nine months | Operations $(23.2); investing $3.8; financing $16.4 | 2011: operations $(16.6); investing $(3.2); financing $6.9 |
Q3 net income primarily reflected a $29.1 million unrealized gain on the Midas Gold investment, partly offset by operating expenses and a $9.9 million deferred tax expense. For the first nine months, Vista recorded a $13.2 million unrealized loss on that investment. These fair-value movements materially affected reported earnings; they were not operating revenue or cash proceeds.
Vista held 31.8 million Midas Gold shares, or 27.8%, valued at $106.7 million at September 30. The investment was reclassified to current assets because restrictions on sale were expected to expire within a year. The increase in working capital largely reflects this reclassification, not an equivalent increase in cash. No debt balance is shown at quarter-end; the company had repaid its $23.0 million convertible notes in March 2011. Other liabilities included a $29.2 million deferred tax liability and $0.6 million of other long-term liabilities.
Changes versus comparable periods
- Q3 net income rose to $12.3 million from $10.7 million, with unrealized Midas Gold gains contributing substantially in both quarters.
- The nine-month result shifted from $54.6 million income in 2011 to a $29.5 million loss in 2012. The prior-year period included a $77.8 million gain on the 2011 Midas Gold combination; 2012 included an unrealized Midas investment loss and higher project and corporate costs.
- Nine-month exploration, property evaluation and holding costs increased to $18.8 million from $13.6 million, primarily due to Mt. Todd studies, drilling, permitting and water treatment. Corporate administration and investor-relations costs increased to $5.8 million from $4.1 million.
- Operating cash use increased to $23.2 million from $16.6 million. Cash declined by $3.0 million from year-end despite $16.4 million in financing cash flow, including the July equity offering.
Outlook, projects and risks
- Management said Mt. Todd resource estimates had expanded and the company had selected a two-phase development strategy intended to reduce initial capital, shorten initial payback and preserve expansion potential. Water treatment began in the existing pit in September 2012. A pre-feasibility study was expected in January 2013 and a feasibility study in Q2 2013; these were expectations, not completed results.
- In July 2012, Vista raised $15.0 million gross through 5.0 million units, with net proceeds of $14.2 million. Proceeds were intended for Mt. Todd technical studies, engineering, exploration/resource-conversion drilling, water treatment and general corporate purposes. Units included warrants exercisable at $3.60 per share for 24 months, creating potential dilution.
- At Las Cardones, Mexico, Invecture could earn a 62.5% interest; Vista’s interest was adjusted to 37.5% after specified milestones were not completed. The earn-in depends on permits, an updated feasibility report, Invecture funding and an additional $20.0 million payment. Invecture’s right was due to expire in February 2014, subject to possible extension. It also had an option, exercisable with notice by February 2013, to have the project acquire specified mill equipment for $16.0 million plus related costs and taxes.
- Management stated that additional capital may be required and future financing is not assured. Key risks include project permitting and feasibility outcomes, gold-price and securities-price volatility, development costs, access to capital, political and regulatory uncertainty, and foreign-currency exposure; Vista does not hedge currency risk. The Amayapampa project in Bolivia was suspended by its operator amid regulatory uncertainty, and a proposed sale was under due diligence. No material litigation was reported, and management said there were no material changes to previously disclosed risk factors.
- The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. No formal earnings or production guidance was provided.
Important facts for investors to verify
- Whether Mt. Todd study milestones, permitting, water treatment and the proposed two-phase plan progress on the stated timetable and within expected costs.
- Whether Invecture satisfies Las Cardones’ earn-in conditions, obtains required permits and makes the additional payment; also verify the status and timing of the mill-equipment option.
- The market value and liquidity of Vista’s Midas Gold holding, the restrictions and sale timetable, and the resulting impact of fair-value changes and deferred taxes on reported results.
- Cash consumption, remaining financing needs and potential dilution from outstanding warrants, options and equity awards.
- Developments affecting Amayapampa and the collectability and timing of any contingent sale payments or royalty.