Business Context and Reporting Period
Paramount Gold Nevada Corp. filed this Form 10-Q for the three months ended September 30, 2015, its fiscal first quarter of fiscal 2016. The company is an exploration-stage precious-metals company focused on Nevada properties, principally the Sleeper Gold Project. It reported no proven reserves and has not established that its mineral properties contain economically recoverable reserves. The company became independent of Paramount Gold and Silver Corp. (PGSC) in an April 17, 2015 spin-off.
Key Financial Metrics
| Metric | Quarter ended September 30, 2015 | Comparable 2014 period or prior balance-sheet date |
|---|---|---|
| Revenue | $5,202, all other income; no revenue from operations | $30,486 other income |
| Operating expenses | $808,481 | $844,169 |
| Net loss | $801,993 | $1,534,202 |
| Loss per share, basic and diluted | $0.09 | $0.19 |
| Operating cash flow | $(997,714) | $(717,859) |
| Cash and cash equivalents | $8,278,343 at September 30 | $9,282,534 at June 30, 2015 |
| Current assets / current liabilities | $8,827,928 / $118,659 | At September 30 |
| Total assets / total liabilities | $39,396,158 / $1,450,154 | At September 30 |
| Stockholders’ equity | $37,946,004 | $38,622,329 at June 30, 2015 |
Net working capital was $8,709,269. The filing reports no conventional borrowings at quarter-end; the main non-current liability was a $1,331,495 reclamation and environmental obligation. The company also held $2,506,911 in a reclamation commutation account. Operating margins are not meaningful because the company generated no operating revenue.
Material Changes Versus the Prior Comparable Period
- Net loss declined by $732,209, or about 48%, primarily because the prior-year period included approximately $753,165 of imputed interest on PGSC loans. No such interest expense was recorded in the 2015 quarter.
- Operating expenses fell 4% overall, although standalone-company costs increased: salaries and benefits rose $174,930, professional fees $33,174, and general and administrative expense $47,717. Exploration expense increased $36,515; land holding costs decreased $41,700.
- Cash declined by $1,004,191 from June 30, primarily reflecting operating expenditures. The company used $997,714 in operating activities and $6,477 in investing activities; it reported no financing cash flow.
- The 2014 comparison reflects the company’s former status as a PGSC subsidiary and includes allocated costs and imputed interest. Management cautions that those allocations may not represent costs as a standalone company.
Outlook, Commentary, Risks and Contingencies
- Management budgeted approximately $2.8 million of cash expenditures for fiscal 2016, to be funded from cash on hand. The stated budget includes $1.8 million for general and administrative expenses, $435,000 for annual mining claim fees, $225,000 for a Sleeper geophysical survey, $230,000 for general exploration, management and reclamation, and $110,000 for a new NI 43-101-compliant preliminary economic assessment (PEA).
- The company completed an August 2015 helicopter magnetic survey that identified exploration targets. It was continuing work on the PEA and considering further geophysical surveys and drilling-target evaluation. Management expects losses to continue as exploration proceeds.
- Six putative shareholder lawsuits challenge the PGSC-Coeur merger and allege fiduciary-duty and disclosure failures. The merger was completed April 17, 2015; the company and other defendants deny wrongdoing and are defending the actions. Potential damages or other outcomes are not quantified in the filing.
- Estimated undiscounted reclamation costs for existing Sleeper disturbances were $3,915,626; the recorded obligation is discounted and management notes estimates may differ from actual costs. The company’s reclamation insurance covers up to $25 million in specified circumstances.
- Key risks include failure to secure future funding, exploration results and economic feasibility, and the absence of proven reserves. The company disclosed no material change to risk factors from its 2015 Form 10-K. It reported effective disclosure controls and no material change in internal control over financial reporting.
- Cash balances of approximately $8 million exceeded federally insured limits. Marketable securities were warrants valued at $778 using Level 3 inputs; their carrying value fell during the quarter and resulted in a $13,879 unrealized loss.
Important Facts for Investors to Verify
- Whether the PEA, geophysical work and any future drilling support economically viable reserves; none had been established as of the filing.
- Whether cash and the fiscal 2016 spending plan are sufficient to advance exploration and meet corporate and reclamation obligations, and what additional financing may be required.
- Developments and potential financial consequences of the six merger-related lawsuits, which were not quantified.
- Actual standalone operating costs and future cash burn, given the limited comparability of prior-period PGSC allocations.
- Changes in the reclamation obligation, insurance coverage and related estimates, as well as the valuation of the Level 3 warrants.