NOVAGOLD RESOURCES INC. — Q1 2015 Form 10-Q
Reporting period: Three months ended February 28, 2015. Figures are in U.S. dollars; financial statement amounts are in thousands unless noted.
Business context
NOVAGOLD is an exploration and development company with no operating revenue. Its principal assets are 50% interests in the Donlin Gold project in Alaska and the Galore Creek project in British Columbia, both held through affiliates.
Financial results and liquidity
| Metric | Q1 2015 | Q1 2014 / comparison |
|---|---|---|
| Revenue | None | None; the company has no realized revenue |
| Operating loss | $11.286 million | $11.333 million |
| Net loss | $9.299 million | $10.691 million |
| Loss per share, basic and diluted | $0.03 | $0.03 |
| Cash used in operations | $5.622 million | $5.214 million |
| Cash and cash equivalents | $66.957 million at Feb. 28 | $70.325 million at Nov. 30, 2014 |
| Term deposits | $90.000 million at Feb. 28 | $95.000 million at Nov. 30, 2014 |
| Total debt carrying value | $92.690 million | $91.265 million at Nov. 30, 2014 |
Investing activities provided $2.472 million, primarily reflecting term deposit maturities and reinvestment; financing activities used no cash. Cash declined $3.368 million during the quarter. Cash and term deposits together totaled $156.957 million at quarter-end. The $15.829 million principal on the remaining convertible notes is due May 1, 2015; the notes’ carrying value was $15.542 million. The $77.148 million promissory note to Barrick is classified as long-term.
No revenue-generating operations or meaningful operating margins were reported. The operating loss was nearly unchanged year over year: higher general and administrative expense, including share-based compensation, was offset by lower affiliate losses. Net loss improved mainly because of higher foreign exchange gains. Comprehensive loss was $41.121 million, including $31.760 million of foreign currency translation losses.
Projects, outlook, and risks
- Donlin Gold: Permitting and preparation of the draft Environmental Impact Statement continued. The draft EIS was expected by year-end 2015, with the final EIS then anticipated in early 2017. NOVAGOLD funded $2.4 million in the quarter and expected to contribute approximately $12.6 million for the full year.
- Galore Creek: Work focused on mine planning, design, environmental and water management, and care and maintenance. NOVAGOLD funded $0.2 million in the quarter and expected full-year funding of approximately $1.6 million. Management remained open to monetizing some or all of its interest.
- A sustained decline in long-term copper prices could require impairment testing of the Galore Creek investment and the Copper Canyon mineral property; no impairment charge was reported in the quarter.
- Management expected 2015 expenditures of approximately $44.8 million, including $15.8 million of convertible-note principal repayment, $14.2 million for project funding, $1.5 million for joint Donlin studies, and $13.3 million for corporate costs and other purposes.
- Management believed available cash and term deposits could cover the May 2015 note repayment and anticipated costs through completion of Donlin permitting. Construction would require additional financing; management cautioned that financing success is not assured and continued operations depend on financing or future cash flows.
- Risks include permitting and development delays, the absence of operating cash flow, the need for future financing, commodity-price and foreign-exchange exposure, and project and regulatory uncertainties. The company does not hedge currency exposure. A C$0.01 currency movement was estimated to change comprehensive income or loss by approximately $3.0 million; a 1% change in U.S. prime was estimated to change annual interest accrued on the Barrick note by approximately $0.8 million.
- No material changes to previously disclosed risk factors or material current, pending, or threatened litigation were reported. Management concluded disclosure controls were effective, with no material change to internal control over financial reporting.
Important facts for investors to verify
- Whether the $15.829 million note principal was repaid or refinanced when due on May 1, 2015.
- Progress against the Donlin EIS and permitting schedule, including subsequent agency and public-comment developments.
- Actual project and corporate spending compared with the 2015 estimates, and the resulting liquidity runway.
- Whether copper-price weakness persisted and triggered impairment testing or a charge for Galore Creek or Copper Canyon.
- Plans and availability of financing if Donlin advances to a construction decision.