Perpetua Resources Corp. — Q1 2022 Form 10-Q Summary
Reporting period: Three months ended March 31, 2022; comparison period was March 31, 2021. Perpetua is a British Columbia corporation focused on mineral exploration and development in the United States. Its principal asset is the Stibnite Gold Project in Idaho, which is not in commercial production. The financial statements are unaudited and prepared under U.S. GAAP.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | No revenue reported | No revenue reported |
| Exploration expense | $4.6 million | $6.6 million |
| Operating loss | $6.3 million | $16.3 million |
| Net loss | $6.2 million | $4.7 million |
| Basic and diluted loss per share | $0.10 | $0.10 |
| Cash used in operating activities | $6.7 million | $7.6 million |
| Cash and cash equivalents, period-end | $41.2 million | $14.8 million |
Liquidity and capital structure: Total assets were $117.7 million at March 31, 2022, including $72.2 million of mineral properties and interests and a $3.0 million environmental reclamation bond. Total liabilities were $11.6 million, including $9.4 million of environmental reclamation liabilities. Shareholders’ equity was $106.0 million. The company reported no outstanding convertible notes; its remaining derivative liability was an $85,522 warrant derivative. Approximately 63.0 million common shares were outstanding as of May 6, 2022.
Margins and cash generation: The company had no operating revenue and therefore no meaningful gross or operating margin. It remains cash-flow negative and dependent on financing and existing cash resources.
Material changes versus the prior comparable period
- Net loss increased by $1.5 million, primarily because Q1 2021 included an $11.6 million gain from the change in fair value of the convertible note derivative and a $0.5 million larger warrant-derivative gain.
- The increase in net loss was partly offset by the absence of the $7.5 million environmental liability expense recorded in Q1 2021 and lower exploration, corporate salary and benefit expenses.
- Exploration expense declined 31% to $4.6 million, mainly due to lower consulting and labor, permitting, and engineering costs, partly offset by higher legal and sustainability spending.
- Professional fees increased to $734,529 from $167,336, primarily due to legal work associated with the transition to a U.S. domestic issuer and higher accounting costs related to U.S. GAAP reporting.
- Cash declined by $6.7 million during the quarter, from $47.9 million to $41.2 million. The company had no investing or financing cash flows in Q1 2022.
- Environmental reclamation liabilities declined from $9.9 million at December 31, 2021 to $9.4 million at March 31, 2022 after $499,903 of early-action work was performed.
- The company issued no common shares for cash during Q1 2022. Share-based compensation was $676,249, and additional unrecognized compensation expense remained for options, restricted share units and performance-based awards.
Guidance, outlook, commentary and risks
Management expects to continue advancing the Stibnite Gold Project through the National Environmental Policy Act permitting process, collecting environmental baseline data, engaging stakeholders, and performing voluntary early cleanup actions under the Administrative Settlement and Order on Consent. A Supplemental Draft Environmental Impact Statement was expected to be released for public review and comment in early third quarter 2022, subject to agency timing.
Management estimated 2022 expenditures of approximately $27.5 million, including $12.2 million for permitting, $10.5 million for general corporate and administrative costs, $0.7 million for engineering and design, and $4.1 million for early restoration and field operations. The company stated that its cash resources were sufficient to fund planned activities beyond 2022 and to meet liabilities and administrative requirements for at least 12 months from issuance of the financial statements. Future construction financing is expected to require additional debt, equity, project-specific debt or other financing.
- The project remains subject to permitting, environmental review, regulatory approvals, litigation and potential additional capital requirements. The company has not determined that the mineral deposits meet the SEC definition of proven reserves.
- The company is involved in ongoing litigation with the Nez Perce Tribe concerning alleged Clean Water Act violations related to historical mining activities. The proceedings were stayed through July 31, 2022 to allow alternative dispute resolution discussions.
- The environmental reclamation liability is based on estimates and may change as costs, work plans and schedules develop. Phase 1 cleanup actions require financial assurance of approximately $7.5 million.
- Operations may be affected by COVID-19, labor and supply disruptions, permitting delays, commodity prices, foreign exchange rates, litigation, environmental obligations and access to capital.
- The company expects to make $180,000 of 2022 option payments on other mineral properties and has ongoing annual mining-claim assessment obligations of approximately $250,470.
Investor verification checklist
- Verify the timing and outcome of the Supplemental Draft Environmental Impact Statement and subsequent NEPA milestones.
- Assess whether the $41.2 million cash balance and estimated $27.5 million 2022 spending remain adequate given permitting, cleanup and corporate costs.
- Review changes in the $9.4 million environmental reclamation liability, related financial assurance and actual Phase 1 cleanup expenditures.
- Monitor the Nez Perce Tribe litigation, alternative dispute resolution process and potential environmental liabilities.
- Confirm the company’s future financing requirements and the potential dilution or leverage associated with construction funding.
- Evaluate the assumptions underlying the Stibnite Gold Project’s mineral resources, reserves, economics, permitting schedule and eventual production decision.