NOVAGOLD RESOURCES INC. — Q1 2014 Form 10-Q
Reporting period: Three months ended February 28, 2014. Unless otherwise stated, amounts are in U.S. dollars. NOVAGOLD is an exploration-stage gold and copper 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.
Financial results and position
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Revenue | None | None |
| Operating loss | $11.3 million | $14.5 million |
| Net loss attributable to shareholders | $10.7 million | $13.8 million |
| Loss per share, basic and diluted | $0.03 | $0.05 |
| Cash used in operating activities | $5.2 million | $5.9 million |
| Cash used in investing activities | $3.6 million | $3.1 million |
- No revenue or operating margins were reported, so margin comparisons are not applicable.
- At February 28, 2014, cash and cash equivalents were $72.3 million and term deposits were $110.0 million. Total assets were $554.2 million; current liabilities were $2.5 million and total liabilities were $112.0 million.
- Total debt was $87.1 million: $13.9 million carrying value of convertible notes and a $73.2 million Barrick promissory note. Scheduled minimum repayments include $15.8 million in 2015 and $73.2 million thereafter.
- Cash declined $8.9 million during the quarter. Operating cash use was partly offset by no financing proceeds; investing cash flows included $50.0 million of term-deposit purchases and $50.0 million of maturities.
- Comprehensive loss was $27.5 million, including $16.8 million of other comprehensive loss, primarily foreign-currency translation.
Changes versus the prior comparable quarter
- Operating loss narrowed 22%, mainly because general and administrative expense fell to $7.7 million from $9.0 million and equity-method losses from Donlin Gold and Galore Creek declined to $3.6 million from $5.5 million.
- Net loss improved to $10.7 million from $13.8 million. Lower interest expense and derivative loss were partly offset by a smaller foreign-exchange gain than in 2013.
- Operating cash use decreased to $5.2 million from $5.9 million. The prior-year quarter included $54.4 million of net proceeds from warrant exercises; Q1 2014 had no financing cash inflow.
Outlook, commentary, and risks
- Management expected to spend approximately $12 million on its share of Donlin Gold activities and $2.5 million on Galore Creek in 2014. It also expected approximately $15 million for general and administrative costs, interest, working capital, and other corporate purposes.
- Donlin Gold permitting was focused on the preliminary draft Environmental Impact Statement, then expected around year-end. The permitting process began in 2012 and was anticipated to take approximately four years. Management said existing cash and term deposits should fund planned activities through completion of permitting.
- Galore Creek’s 2013 drilling identified extensions of mineralization around the Legacy zone. NOVAGOLD planned further technical studies and to evaluate monetizing some or all of its interest to strengthen its treasury and focus on Donlin Gold.
- Management stated that additional capital would be needed if Donlin Gold permits are obtained and construction is approved; future funding could involve debt, equity, project-specific debt, or other means. It cautioned that financing success is not assured.
- Key exposures include commodity prices, permitting and development uncertainty, financing and liquidity, foreign exchange, credit, and interest rates. The company did not hedge currency exposure; a 1% Canadian-dollar move was estimated to change comprehensive income or loss by $3.5 million. A 1% change in U.S. prime was estimated to affect annual accrued interest on the Barrick note by $0.7 million.
- The filing reported no material changes to previously disclosed risk factors and no known material pending or threatened litigation. Management concluded disclosure controls were effective and reported no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether Donlin Gold’s EIS and other permits remain on schedule, and whether the anticipated four-year permitting timeline is achievable.
- Whether the $182.3 million of cash and term deposits remains sufficient for projected spending, debt obligations, and the stated permitting runway.
- The terms, interest accrual, and repayment timing of the $73.2 million Barrick promissory note and the $15.8 million convertible notes due in 2015.
- Progress and costs at Galore Creek, including any resource estimate for the Legacy zone and prospects for monetizing the project.
- Potential future construction funding needs and the availability and cost of financing if Donlin Gold advances beyond permitting.