Paramount Gold Nevada Corp. — Form 10-Q Summary
Reporting period: Quarter and nine months ended March 31, 2016 (fiscal third quarter of 2016), filed May 10, 2016. The request metadata says “2015 Q3,” but the filing itself reports 2016 Q3. Financial statements are unaudited. Paramount is an exploration-stage precious-metals company with projects in Nevada; it reported no proven reserves and no revenue from mining operations.
Financial results and liquidity
- Revenue: No operating revenue in the three- or nine-month periods. Nine-month “other income” was $130,924, mainly reimbursement of reclamation costs ($125,222); it was zero for the quarter.
- Loss: The statements report a net loss of $1,100,601 for the quarter and $2,637,561 for the nine months, or $0.13 and $0.31 per share, respectively. Nine-month total expenses were $2,704,457. Operating margins are not meaningful given the absence of operating revenue.
- Cash flow: Cash used in operations was $1,903,184 for the nine months. Investing cash use was $8,365, and financing cash use was $300,000, reflecting the advance to Calico. Cash fell $2,211,549 to $7,070,985 from June 30, 2015.
- Balance sheet: Total assets were $38,063,562, including $28,036,135 of capitalized mineral properties. Total liabilities were $1,606,475; the filing lists no outstanding borrowings. Current liabilities were $326,205. Working capital calculated from the balance sheet is $7,301,497.
- Reclamation: The recorded reclamation obligation was $1,280,270. Estimated undiscounted reclamation costs for existing Sleeper disturbances were $3,915,626. A reclamation insurance policy provides up to $25 million of coverage, subject to its terms; the commutation account held $2,386,336.
Changes versus the prior comparable period
- Statement-reported net loss improved from $1,214,312 to $1,100,601 for the quarter and from $3,775,846 to $2,637,561 for the nine months. The prior-year periods included substantial imputed interest on PGSC loans—$720,432 for the prior-year quarter and $2,117,018 for the prior-year nine months—while the current periods had no such expense.
- Nine-month expenses increased to $2,704,457 from $1,791,169. Professional fees, salaries and benefits, and general and administrative costs rose as Paramount operated independently after its April 2015 spin-off; management also attributed costs to the proposed Calico transaction. Exploration expense declined to $548,113 from $645,913.
- Cash was $7,070,985 at March 31, 2016, compared with $9,282,534 at June 30, 2015. Current assets included a $300,000 promissory note receivable from Calico.
- The company recognized a $69,850 other-than-temporary impairment on available-for-sale warrants, reducing their carrying value to zero.
Outlook, transaction, and risks
- Management budgeted approximately $1.0 million for fiscal 2016 exploration and related Sleeper work, including a new NI 43-101 preliminary economic assessment (PEA), geophysical surveying, and environmental monitoring. It increased its estimate of fiscal-year cash expenditures from approximately $2.8 million to $3.8 million, citing Calico transaction costs, and expected to fund expenditures from cash on hand.
- The October 2015 Sleeper PEA described a preliminary, unproven scenario: 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, life-of-mine average cash operating costs of $529 per equivalent gold ounce, and capital requirements of $258.8 million. The filing cautions that economic and technical viability has not been demonstrated and estimates may not be realized.
- Paramount agreed to acquire Calico Resources, whose principal asset is Oregon’s Grassy Mountain Gold Project, in a stock-for-stock arrangement. Each Calico share would convert into 0.07 Paramount shares. Closing required court, shareholder, and other approvals; management expected closing in the second calendar quarter of 2016. The agreement included reciprocal $300,000 termination fees under specified circumstances.
- Paramount had advanced Calico $300,000 and agreed to provide interim financing of up to $800,000, secured by Calico’s assets and potentially convertible into Calico shares, subject to exchange approval. The filing projected Calico shareholders would own approximately 46% of Paramount’s common stock after closing, or 43% on a fully diluted basis.
- Key risks include continued losses and the need for funding to advance projects; the absence of established economically recoverable reserves; uncertainty of exploration and PEA estimates; and the possibility the Calico transaction will not close or its expected benefits will not be achieved. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the period.
Important facts for investors to verify
- Conflicting figures in the filing: MD&A reports quarterly and nine-month net losses of $1,118,497 and $2,655,457, respectively, rather than the financial statements’ $1,100,601 and $2,637,561. MD&A also gives expense totals of $1,051,867 and $2,722,354, versus statement totals of $1,033,971 and $2,704,457. The filing text does not reconcile these differences.
- MD&A states net working capital of $7,283,601; the balance-sheet current assets less current liabilities calculate to $7,301,497. Confirm the intended figure.
- Confirm the Calico transaction’s approval and closing status, final share issuance and dilution, and the amount and terms of any additional interim loan funding.
- Assess the company’s cash runway against actual spending, planned transaction costs, exploration needs, and reclamation obligations; verify the status and assumptions behind the Sleeper PEA and its lack of demonstrated economic feasibility.