NioCorp Developments Ltd. — Form 10-Q Summary
Business context and period. This report covers the quarter and six months ended December 31, 2018, NioCorp’s fiscal second quarter and first half of fiscal 2019. The company is an exploration-stage developer of the Elk Creek niobium, scandium and titanium project in Nebraska; it reported no operating revenue.
Unless stated otherwise, amounts below are in thousands of U.S. dollars. The interim financial statements are unaudited.
Financial results and position
| Metric | Three months ended Dec. 31, 2018 | Six months ended Dec. 31, 2018 |
|---|---|---|
| Revenue | None | None |
| Operating expenses | $1,958 | $3,216 |
| Net loss | $2,473 | $4,204 |
| Basic and diluted loss per share | $0.01 | $0.02 |
| Cash used in operating activities | Not presented by quarter | $2,495 |
| Cash provided by financing activities | Not presented by quarter | $3,294 |
- At December 31, cash was $813, total assets $12,184, total liabilities $8,019 and shareholders’ equity $4,165.
- Working capital was a deficit of $3,158: current assets of $1,522 compared with current liabilities of $4,680. Accumulated deficit was $87,553.
- Balance-sheet debt included $800 of current convertible notes, $3,339 of noncurrent convertible security and $1,480 in related-party loans. The related-party loans were owed to the CEO, bore 10% interest and were secured by company assets.
- Operating margins are not meaningful because the company has no operating revenue. The filing does not provide a clear positive operating cash flow or earnings outlook.
Changes versus comparable periods
- Second-quarter net loss increased to $2,473 from $1,960 a year earlier; first-half net loss increased to $4,204 from $3,773.
- First-half operating expenses declined to $3,216 from $3,495. Exploration expenditures rose to $2,005 from $1,016, mainly reflecting engineering and permitting work; employee-related costs and professional fees decreased.
- First-half cash used in operations was broadly unchanged year over year ($2,495 versus $2,566). Cash increased to $813 from $73 at June 30, 2018, principally because of financing activity.
- Shares outstanding rose to 223.9 million from 213.4 million at June 30, 2018. The company completed a September private placement and converted $2,050 of convertible-security principal into shares during the six months.
- Noncash fair-value changes on financial instruments and foreign-exchange movements affected reported losses. First-half foreign exchange was a $198 loss, compared with a $201 gain in the prior-year period.
Outlook, commentary and risks
- Management stated that the company expects to operate at a loss for the foreseeable future. It estimated approximately $7 million of planned operational needs through June 30, 2019 and anticipated needing $7 million–$8 million to fund planned operations over the next 12 months, primarily financing and detailed engineering work.
- There was no committed financing beyond potential option and warrant exercises. Management was pursuing debt and equity financing, but gave no assurance it could obtain funds on acceptable terms. The filing warns that a failure to raise capital could require reduced activities and prevent completion of planned work; future equity or derivative financings may dilute shareholders.
- The financial statements disclose material uncertainty raising substantial doubt about the company’s ability to continue as a going concern. Management said available cash was insufficient to fund normal operations and debt obligations for the next 12 months without deferring some current liabilities and raising additional funds.
- Nordmin engineering indicated the proposed 33-mile waterline to the Missouri River may not be needed, potentially avoiding additional federal permits and a Nebraska discharge permit. Recommendations, including artificial ground freezing, remained under company review; project economic effects had not yet been assessed. The company was developing an air-permit application, which it expected to file in calendar 2019.
- A commercial sales agreement with Traxys provides for purchases of 12 tonnes of scandium trioxide annually for the first 10 production years, subject to financing, approvals, construction and other conditions. The agreement is contingent on the Elk Creek Project reaching production.
- Risks include financing and going-concern uncertainty, project development and permitting, mineral and commodity risks, foreign-exchange exposure, debt and dilution. The filing reported no material changes to the risk factors in the prior annual report, no material pending legal proceedings and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether the company secured sufficient financing after the reporting date to meet its stated funding needs and debt obligations.
- Current cash, working-capital deficit, debt terms and status of the related-party loans and convertible instruments.
- Whether Nordmin’s mine-design recommendations were adopted, and their verified effects on project costs, economics and permitting.
- Status of the air-permit application and other required approvals, and whether the Traxys agreement’s conditions can be satisfied.
- Subsequent share-count changes and potential dilution, including the filing’s report that 9,035,285 warrants expired unexercised on January 15, 2019.