Paramount Gold Nevada Corp. — Form 10-Q
Reporting period: Quarter and six months ended December 31, 2015, the company’s fiscal second quarter and first half of fiscal 2016. The filing was signed February 5, 2016. Paramount is an exploration-stage precious-metals company focused on properties in Nevada; it reported no proven reserves and no revenue from operations.
Financial performance and position
| Metric | Three months ended Dec. 31, 2015 | Six months ended Dec. 31, 2015 | Comparable 2014 period |
|---|---|---|---|
| Other income / total reported revenue | $125,722 | $130,924 | $67,049 / $97,535 |
| Operating expenses | $861,999 | $1,670,482 | $452,350 / $1,296,520 |
| Net loss | $734,967 | $1,536,960 | $1,161,199 / $2,695,401 |
| Loss per share, basic and diluted | $0.09 | $0.18 | $0.14 / $0.33 |
| Cash used in operating activities | Not separately presented | $1,367,408 | $942,710 used |
- At December 31, cash and cash equivalents were $7.91 million, down $1.38 million from June 30. Current assets were $8.29 million and current liabilities $125,187, yielding reported working capital of $8.16 million.
- Total assets were $38.72 million, including $28.04 million of capitalized mineral-property acquisition costs. Total liabilities were $1.37 million, consisting principally of a $1.24 million reclamation and environmental obligation. The balance sheet reported no borrowings outstanding.
- Six-month cash used in investing activities was $8,365, entirely for equipment purchases; there was no financing cash flow. Cash declined from $9.28 million to $7.91 million.
- Operating margins are not meaningful because the company has no operating revenue. Reported other income principally reflected $125,222 of reclamation-cost reimbursements in the six-month period.
Material changes versus prior comparable periods
- Net loss decreased 37% for the quarter and 43% for the six months. Management attributed the improvement primarily to substantially lower imputed interest on former loans from Paramount Gold and Silver Corp. (PGSC), which offset higher standalone-company costs.
- Operating expenses increased 91% for the quarter and 29% for the six months. Salaries, professional fees, directors’ compensation and general and administrative costs rose as Paramount operated as an independent public company; management cautioned that the prior-year PGSC cost allocations may not represent standalone costs.
- Exploration expense decreased 32% for the quarter and 9% for the six months as the company focused on completing a new preliminary economic assessment and a geophysical survey. The prior-year six-month period included a $337,400 mineral-property write-down; there was no write-down in the current period.
- Cash used in operations increased from $942,710 to $1,367,408 for the six-month period, despite the lower net loss.
Outlook, commentary, risks and unusual items
- Management budgeted approximately $2.8 million of cash expenditures for the fiscal year ending June 30, 2016, to be funded from cash on hand. The budget included $1.8 million for general and administrative costs, $435,000 for annual mining claim fees, $225,000 for a Sleeper geophysical survey, $230,000 for exploration management and reclamation, and $110,000 for a new NI 43-101-compliant PEA.
- In October 2015, the company reported a preliminary economic assessment for the Sleeper Gold Project. The conceptual scenario described a 30,000-tonne-per-day open-pit heap-leach operation, estimated average annual production of 102,000 ounces of gold and 105,000 ounces of silver for seven years, and life-of-mine capital requirements of $258.8 million. Estimated life-of-mine cash operating cost was $529 per equivalent gold ounce. The filing stresses that the PEA is preliminary, is not a pre-feasibility or feasibility study, and does not establish technical or economic viability; its estimates may not be realized.
- An August helicopter magnetic survey identified potential exploration targets, which were under geological review. The company planned to evaluate further surveys and drilling, including in areas covered by overburden.
- The company expects continued losses while it conducts exploration and warns that it may need additional funding to advance projects. It has not established economically recoverable reserves.
- The estimated undiscounted reclamation cost for existing Sleeper disturbances was $3.92 million; the recorded obligation was $1.24 million. The company reported a reclamation insurance policy covering up to $25 million in qualifying costs if it defaults on payments.
- Six putative shareholder lawsuits concerning PGSC’s merger with Coeur remained pending. The merger was completed April 17, 2015; defendants deny wrongdoing and are defending the cases. The filing does not quantify potential exposure.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the period. It reported no material changes to the risk factors in its 2015 Form 10-K.
Important facts for investors to verify
- Whether the fiscal 2016 expenditure budget and cash runway remain adequate, given the $1.37 million of operating cash used in the first half.
- Progress and assumptions behind the Sleeper PEA, and whether subsequent technical work supports its preliminary production, cost and capital estimates.
- Exploration results, resource or reserve status, and whether any project can be shown to be economically recoverable; the filing reports no proven reserves.
- Changes in standalone operating costs compared with periods when PGSC provided administrative support, and the extent of any ongoing related-party arrangements.
- Developments in the shareholder litigation and any resulting costs or liabilities, which are not quantified in this filing.