NOVAGOLD RESOURCES INC. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended August 31, 2023. Amounts are in U.S. dollars; financial statement amounts are in thousands unless otherwise noted. NOVAGOLD is an exploration and development company with a 50% interest in the Donlin Gold project in Alaska. It reported no realized revenue from its principal business.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| General and administrative expense | $5,243 | $4,872 | $16,385 | $15,420 |
| Donlin Gold equity loss | $3,978 | $9,412 | $15,996 | $21,893 |
| Interest expense on Barrick promissory note | $3,433 | $2,198 | $9,589 | $5,394 |
| Net loss | $11,074 | $16,123 | $36,382 | $41,088 |
| Net loss per share | $0.03 | $0.05 | $0.11 | $0.12 |
| Net cash used in operating activities | $1,303 | $1,644 | $5,965 | $9,967 |
- Liquidity at August 31: Cash and cash equivalents were $44.1 million and term deposits were $86.0 million. Current assets totaled $131.9 million against current liabilities of $4.0 million.
- Debt and equity: The Barrick promissory note was $133.3 million, comprising $51.6 million principal and $81.7 million accrued interest. It accrues interest at U.S. prime plus 2% and is payable from 85% of NOVAGOLD’s share of future Donlin production revenue or certain proceeds from reducing its project interest. Total liabilities were $138.1 million, total assets $138.1 million, and reported equity $41,000.
- Cash movement: Cash declined $19.8 million over the first nine months. NOVAGOLD received $25.0 million from Newmont in July on a Galore Creek note receivable; $24.0 million was placed in term deposits. The remaining $75.0 million Galore Creek construction-contingent note has no assigned value because construction approval was not considered probable.
- Margins: Not meaningful because the company has no realized operating revenue.
Changes versus the prior comparable period
Net loss narrowed by $5.0 million in Q3 and $4.7 million for the first nine months. Management attributed the improvement mainly to lower Donlin Gold field expenses and higher interest income on cash and term deposits. Donlin costs were lower than in 2022, when a large exploration drilling program was underway. Higher promissory-note interest expense partly offset the improvement; nine-month results also benefited from $556,000 of other income related to the San Roque property sale. G&A rose to $16.4 million for the nine-month period from $15.4 million, including higher corporate travel and legal expenses.
Project outlook, risks and unusual items
- Donlin program: The 2023 field program was completed safely and on schedule in July, including geotechnical and hydrogeological drilling and work supporting Alaska Dam Safety certificates. Issuance of those certificates is expected in 2026. The new air quality permit was issued in July 2023 and was not appealed; APDES permit reissuance is expected in 2024.
- Spending outlook: NOVAGOLD expected approximately $32 million of fiscal 2023 expenditures: $18 million for its Donlin share, $13 million for corporate G&A, and $1 million for working capital and other items. Through August, its Donlin funding was $15.2 million. Full-year Donlin funding includes $8 million for external affairs, permitting, environmental, land and legal work, and $10 million for planning and fieldwork, including additional mining studies.
- Financing: Management said available working capital should cover anticipated costs for at least three years and through completion of an updated Donlin feasibility study. Construction would require substantial additional capital, anticipated through debt, equity, project-specific debt and/or other means. Continued operations and project advancement depend partly on obtaining financing; success or favorable terms are not assured.
- Permitting and litigation: On August 18, 2023, Alaska’s ADEC Commissioner reaffirmed the Clean Water Act 401 certification. The Alaska Superior Court affirmed Donlin’s water-rights permits on September 1. The Earthjustice appeal of the state pipeline right-of-way decision is before the Alaska Supreme Court. A separate federal suit seeks to invalidate the project’s Joint Record of Decision and federal 404 permit; briefing was expected to be scheduled in early 2024. These proceedings and possible permit delays could affect project timing.
- Other exposures: The Barrick note’s variable rate creates interest-rate exposure; management estimated a 1% prime-rate change would change annual accrued interest by approximately $1.3 million. The company also cited funding, commodity-price, permitting, infrastructure, co-owner, regulatory and development risks. It reported no material changes to its previously disclosed risk factors.
- Unusual expense: NOVAGOLD incurred $955,000 of remediation costs during Q3 for fieldwork at the former New Gold House property in Nome; final work, including seeding, was planned for 2024.
Important facts for investors to verify
- Donlin Gold’s permitting and litigation status, particularly the state pipeline right-of-way appeal and federal challenge to the project decision and 404 permit.
- Whether the stated liquidity runway and 2023 spending expectations remain adequate as project work and costs evolve.
- The growth in accrued interest and total balance of the Barrick promissory note, and its repayment terms.
- Timing and cost of the updated feasibility work, remaining permits, Dam Safety certificates, and any eventual construction decision and financing plan.
- Cash, term-deposit maturities and yields, and the absence of operating revenue to fund ongoing losses.