VISTA GOLD CORP quarterly report, Q2 FY2013

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Vista Gold Corp. — Form 10-Q Summary

Reporting period: Quarter and six months ended June 30, 2013. Vista is an exploration-stage gold project evaluator and developer with no operating revenue. Unless stated otherwise, financial amounts below are U.S. dollars; financial-statement figures are in millions.

Financial performance and position

  • Revenue and margins: No revenue was reported for the three or six months ended June 30, 2013 or 2012; operating margins are therefore not applicable.
  • Net loss: Second-quarter loss was $21.0 million, or $0.26 per share, versus $30.5 million, or $0.42 per share, in Q2 2012. First-half loss was $48.4 million, or $0.59 per share, versus $41.7 million, or $0.58 per share, in first-half 2012.
  • Key unusual earnings item: A $47.3 million first-half unrealized loss on Midas Gold shares (including $18.5 million in Q2) drove much of the loss. The shares were valued at $22.2 million at June 30, down from $69.5 million at December 31, 2012. The loss was non-cash.
  • Cash flow: Operating activities used $16.5 million in the first half, compared with $15.2 million in 2012. Investing activities used $2.1 million, and financing provided $9.6 million, principally from the new loan. Cash and cash equivalents fell $9.0 million to $9.3 million.
  • Liquidity and balance sheet: Working capital was $12.9 million, down from $60.3 million at year-end, mainly reflecting the Midas investment value decline and operating cash use. Total assets were $75.2 million versus $133.1 million; total liabilities were $21.7 million versus $31.7 million; shareholders’ equity was $53.6 million versus $101.3 million. The balance sheet includes $7.5 million of current deferred tax liability.
  • Debt: A C$10 million (reported as $9.5 million) Sprott facility bears 8% annual interest, payable monthly, and matures March 28, 2014. It is secured by a general security agreement, with Mt. Todd and mill equipment excluded. The company reported covenant compliance. Extension to March 28, 2015 requires lender agreement and a 3.5% fee payable in shares.

Changes versus prior comparable periods

  • Q2 net loss improved by $9.5 million year over year, while the six-month net loss increased by $6.7 million. First-half exploration and holding costs rose to $13.0 million from $12.5 million; corporate administration fell to $3.1 million from $4.1 million.
  • First-half operating cash use increased by $1.3 million. Cash declined from $18.3 million at December 31, 2012 to $9.3 million at June 30, 2013.
  • The Midas Gold investment’s fair value fell substantially, reducing working capital and producing the large non-cash investment loss. The company also added the $9.5 million facility, which was absent at year-end.

Outlook, projects, and risks

  • Liquidity outlook: Management expected cash burn to decline to about $3.5–$4.5 million per quarter for the rest of 2013, with further reductions planned for 2014. It believed available resources were sufficient through the end of 2013, while emphasizing that continued operations depend on additional funding, asset monetization, or future profitable operations. Management cited staff reductions, reduced cash compensation, and deferred discretionary programs.
  • Potential funding: The company was marketing mill equipment carried at an estimated $10 million net value and anticipated a possible $20 million payment if Invecture completed its Los Cardones earn-in. Neither outcome was assured. Management prioritized non-dilutive funding and deferred material development commitments until market conditions improved.
  • Mt. Todd: The project was the principal focus. A May 2013 preliminary feasibility study (PFS) presented a 50,000-tonne-per-day base case with estimated initial capital of $1.046 billion, after-tax NPV at 5% of $591 million at $1,450/oz gold, 15.9% after-tax IRR, and life-of-mine cash costs of $773/oz. An alternate smaller case estimated $761 million initial capital, $440 million after-tax NPV, 16.9% after-tax IRR, and $684/oz life-of-mine cash costs. These are study estimates, not company guidance, and depend on assumptions including gold price, exchange rates, permitting, and construction. The company submitted an initial environmental impact statement and targeted permits around year-end 2013.
  • Other projects: The Guadalupe de los Reyes preliminary economic assessment estimated a $57.3 million after-tax NPV at an 8% discount rate using its base-case metal prices, but includes inferred resources and is preliminary. Spending there was to be limited to holding costs and community support for the remainder of 2013. Los Cardones costs were being funded by Invecture under an earn-in agreement.
  • Principal risks and contingencies: Vista had no producing operations and reported recurring losses. It warned that capital raising for junior miners was difficult and that failure to repay or extend the Sprott facility could expose assets covered by its security agreement to seizure or sale. Other risks include gold-price and foreign-exchange volatility, permitting and environmental requirements, project economics and execution, third-party performance, and asset valuations. The statements use a going-concern basis and include no adjustments that might be required if the company cannot continue as a going concern. No material pending litigation was disclosed.
  • Other disclosures: The filing reports no off-balance-sheet arrangements and no material changes to previously disclosed risk factors other than the new facility-related risk. Vista also stated it expected to remain a passive foreign investment company (PFIC) for U.S. tax purposes.

Important facts for investors to verify

  1. Cash runway and actual quarterly burn against management’s $3.5–$4.5 million estimate, including access to funding beyond 2013.
  2. Repayment or extension terms for the Sprott facility before its March 28, 2014 maturity, including collateral and covenant status.
  3. Whether the mill equipment sale or Los Cardones earn-in payment occurs, and the timing and net proceeds of either transaction.
  4. Mt. Todd permitting progress, project participation and infrastructure arrangements, and the feasibility of financing its substantial estimated capital cost.
  5. Key PFS assumptions and resource disclosures: Mt. Todd reserves and resources were estimated under Canadian NI 43-101 standards and are not SEC Industry Guide 7-compliant reserves; Guadalupe’s PEA includes inferred resources and is preliminary.