NOVAGOLD RESOURCES INC. — Form 10-Q Summary
Reporting period: Three and six months ended May 31, 2024. Unless otherwise noted, financial amounts below are U.S. dollars in millions; the filing presents them in thousands. The report was filed June 26, 2024.
Business context and reporting period
NOVAGOLD is an exploration and development company focused on the Donlin Gold project in Alaska, its principal asset. The project is owned equally by NOVAGOLD and Barrick through Donlin Gold LLC. NOVAGOLD reports no realized revenue from its planned principal business. Its results primarily reflect corporate costs, its share of Donlin Gold’s expenses, interest income, and interest on a promissory note payable to Barrick.
Financial results and position
| Metric | Three months ended May 31, 2024 | Six months ended May 31, 2024 | Comparable 2023 period |
|---|---|---|---|
| Revenue | None | None | None |
| General and administrative expense | $7.603 | $13.862 | $5.535 and $11.142 |
| Equity loss — Donlin Gold | $3.990 | $6.951 | $7.543 and $12.018 |
| Interest expense — Barrick note | $3.702 | $7.299 | $3.212 and $6.156 |
| Net loss | $13.700 | $24.018 | $14.649 and $25.308 |
| Net loss per share | $0.04 | $0.07 | $0.04 and $0.08 |
| Cash used in operating activities | $1.196 | $6.570 | $0.169 and $4.662 |
At May 31, 2024, cash and cash equivalents were $52.568 million and term deposits were $60.000 million. Current assets were $113.945 million; total assets were $121.577 million. Total liabilities were $149.049 million, including a $144.047 million promissory note payable to Barrick, and equity was in deficit by $27.472 million. The note comprises $51.576 million principal and $92.471 million accrued interest, bears interest at U.S. prime plus 2%, and is payable from 85% of NOVAGOLD’s share of future project revenue or from certain proceeds if its project interest is reduced. No revenue or operating margin is reported.
Cash and cash equivalents increased $6.819 million over the six-month period. Cash flows included $20 million net proceeds from term deposits and $7.334 million of Donlin Gold funding. The filing does not provide a clear operating cash-burn forecast beyond its stated expenditure expectations.
Material changes versus prior comparable periods
Net loss narrowed by $0.949 million for the quarter and $1.290 million for the six-month period. Management attributed the improvement mainly to lower Donlin Gold field expenses, higher interest income, and gains in the fair value of marketable securities, partly offset by higher corporate expenses and note interest. Donlin Gold’s reduced activity compared with 2023 contributed to the lower equity loss.
General and administrative expense rose to $7.603 million from $5.535 million for the quarter and to $13.862 million from $11.142 million for the six months, primarily due to higher employee compensation and professional fees. Operating cash use increased versus both comparable periods, primarily because of higher corporate costs, while Donlin Gold funding was lower. The promissory note balance increased from $136.748 million at November 30, 2023 to $144.047 million at May 31, 2024.
Outlook, commentary, risks, and unusual items
- Management expects fiscal 2024 expenditures of approximately $31.2 million, including $14.25 million for Donlin Gold and $16.95 million for general and administrative costs. $7.334 million had been funded to Donlin Gold in the first half.
- Management believes available working capital can cover anticipated project funding and corporate costs for at least three years at current spending levels. Additional capital may be needed for an updated feasibility study; substantially more financing will be required for engineering and construction. There is no assurance financing will be available on favorable terms or at all.
- Second-quarter project work included resource-model updates, metallurgical pilot-plant testing, updates to water models, and regional infrastructure and energy planning. Management described an updated feasibility study as the next critical step toward a construction decision, subject to project-board approval, permits, financing, and market conditions.
- Donlin Gold permitting challenges remain material. Appeals involving water certification, pipeline right-of-way, water rights, and federal permits were pending. Oral argument in the federal case occurred June 24, 2024, with a decision anticipated by early 2025; other oral arguments were scheduled for July and August 2024, and further water-rights arguments were expected later in 2024. These dates and events are as reported in the filing.
- A 1% change in U.S. prime would change annual interest accrued on the Barrick note by approximately $1.44 million, assuming other variables remain constant. Management characterized the company’s disclosed market risks as not material at this time.
- Income tax expense was $0.699 million for the first half, attributed to Canadian tax on certain passive income and withholding taxes related to the San Roque project sale. No material changes to previously disclosed risk factors were reported; disclosure controls were deemed effective.
Most important facts for investors to verify
- Progress, cost, timing, and Donlin Gold board approval for an updated feasibility study, and the scale and availability of any financing required to advance the project.
- Outcomes and timing of pending state and federal permit appeals, remaining permits and certifications, and potential effects of litigation or public opposition.
- Liquidity relative to the stated three-year coverage at current spending, planned fiscal 2024 expenditures, and any changes in project funding needs.
- Growth in accrued interest and total balance of the Barrick promissory note, including sensitivity to U.S. prime-rate changes and its production-linked repayment terms.
- Whether Donlin Gold’s field activity and corporate professional fees increase, and how those changes affect losses and operating cash use.