NioCorp Developments Ltd. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2019 (fiscal first quarter of 2020). Unless noted otherwise, financial amounts are in thousands of U.S. dollars. The company is developing the Elk Creek niobium, scandium and titanium project in Nebraska and reported no operating revenue.
Financial performance and position
- Revenue and profit: No operating revenue. Net loss was $1,005, compared with $1,731 in the prior-year quarter; basic and diluted loss per share was reported as $0.00 versus $0.01.
- Expenses: Operating expenses were $892, down from $1,258. Exploration expenditures declined to $223 from $777, mainly because the prior-year period included work on engineering design changes and the 2019 Feasibility Study. Professional fees rose to $118 from $51; employee-related costs were $354 versus $312.
- Cash flow: Operating activities used $524, versus $1,372 a year earlier. Financing provided $215, compared with $3,299. Cash declined by $311 during the quarter to $46.
- Margins: Not meaningful because the company had no operating revenue.
- Liquidity: Current assets were $66 and current liabilities were $6,057, resulting in a $5,991 working-capital deficit. The filing reported a $4.8 million deficit at June 30, 2019.
- Debt and liabilities: Related-party loans totaled $1,695, including a $1,000 secured loan from CEO Mark Smith and $695 drawn under his credit facility. Current convertible debt was $1,116; $800 of convertible notes and $316 of Lind convertible security. Total liabilities were $6,057. Accounts payable and accrued liabilities were $3,246.
- Assets and equity: Total assets were $10,720, including $10,617 in mineral interests. Shareholders’ equity was $4,663. Common shares outstanding were 234,293,107 at quarter-end and 234,839,598 as of November 8, 2019.
Changes from the prior comparable quarter
- Net loss improved by $726, while operating cash use fell by $848. Lower exploration spending was the main operating-expense change.
- Noncash fair-value expense on financial instruments fell to $7 from $493; foreign exchange shifted to a $43 loss from a $118 gain. Interest expense declined to $60 from $99.
- Cash fell from $357 at June 30, 2019, to $46 at September 30, and the working-capital deficit widened from $4.8 million to $6.0 million.
- During the quarter, $625 principal of Lind convertible security was converted into 1,796,892 common shares. The recorded conversion value was $703.
Outlook, developments and risks
- Management estimated planned operational needs of approximately $9.1 million through June 30, 2020, and anticipated needing $8.3 million to $9.5 million to fund planned operations over the next 12 months. The company said it would require additional financing and that there was no assurance financing would be available on acceptable terms, or at all.
- Management expects losses to continue. Without additional funding, the company may have to reduce planned work. Potential financing may include debt and equity; equity or securities-linked financings could dilute existing shareholders.
- After quarter-end, the company drew $115 and $125 under the CEO’s credit facility. Remaining availability was $1,065; the facility bears 10% interest and is secured by company assets. The filing also says the outstanding convertible promissory notes’ due date was extended to October 14, 2020.
- The company submitted its Nebraska air construction permit application on July 24, 2019. The regulator deemed it administratively complete on July 29 and technically complete on September 27; review and draft-permit work were expected to continue.
- The company reported successful production of an aluminum-scandium master alloy in an August 2019 test. It continued efforts to select engineering and construction firms and pursue long-term project financing.
- The financial statements identify substantial doubt about the company’s ability to continue as a going concern, citing its losses, $5.991 million working-capital deficit, accumulated deficit of $91.690 million, and dependence on future financing. The statements contain no adjustments that might be required if it cannot continue as a going concern.
- Key risks include financing availability, project development and permitting, mineral and commodity-price uncertainty, cost increases, land and surface access, environmental and water management, secured-creditor covenants, dilution, and foreign-exchange exposure. Management reported disclosure controls were effective and no material changes to internal control; it reported no material active or pending legal proceedings.
Investor verification priorities
- Confirm current cash, monthly cash use, upcoming obligations, and whether the company has secured enough financing to fund its stated plans.
- Review the terms, availability, covenants and security of the CEO credit facility, and the maturity and conversion terms of outstanding convertible instruments.
- Track the Nebraska air-permit process, other required permits, and the status and cost of land-option extensions or exercises.
- Assess potential dilution from future fundraising, Lind conversions, outstanding options and warrants, and compare share counts across reporting dates.
- Review the 2019 Feasibility Study and subsequent project updates for capital requirements, schedule, technical assumptions, resource estimates and sensitivity to commodity prices.