NioCorp Developments Ltd. — Form 10-Q summary
Reporting period: Fiscal quarter and six months ended December 31, 2019 (fiscal Q2 2020); filed February 7, 2020. Amounts below are U.S. dollars in thousands unless stated otherwise.
Business context
NioCorp is an exploration-stage company developing the Elk Creek niobium, scandium and titanium project in Nebraska. It reported no operating revenue and had no mineral production. Advancing the project and reaching construction depend on raising substantial additional capital.
Financial performance and position
| Metric | Period or date | Reported result |
|---|---|---|
| Revenue | Three and six months ended December 31, 2019 | None |
| Operating expenses | Three months / six months ended December 31, 2019 | $1,001 / $1,893 |
| Net loss | Three months / six months ended December 31, 2019 | $1,076 / $2,081 |
| Net loss, comparable 2018 periods | Three months / six months | $2,473 / $4,204 |
| Operating cash used | Six months ended December 31, 2019 | $1,380; prior-year period $2,495 |
| Financing cash provided | Six months ended December 31, 2019 | $1,080; prior-year period $3,294 |
| Cash | December 31, 2019 | $56; June 30, 2019: $357 |
| Working capital deficit | December 31, 2019 | $6,876; June 30, 2019: $4,793 |
| Total liabilities | December 31, 2019 | $6,940 |
| Equity | December 31, 2019 | $3,778 |
The filing reports no revenue, so operating margins are not meaningful. The quarterly and half-year net losses were lower than in the comparable 2018 periods. Lower exploration spending was a key factor: six-month exploration expenditures were $677 versus $2,005. Six-month results also included $88 of fair-value losses and a $36 foreign-exchange gain. The filing attributes the lower operating cash use mainly to the timing of project expenditures.
At December 31, 2019, current liabilities included $2,560 of related-party loans, $886 of current convertible debt and an $82 convertible-debt derivative liability. The related-party borrowing consisted of a $1,000 loan and $1,560 outstanding under the CEO’s credit facility. The loans bear 10% interest and are secured by company assets. Debt conversions during the six months resulted in 2,343,383 shares being issued; shares outstanding were 234,839,598 at December 31.
Liquidity, outlook and project developments
- Management said the company expects to operate at a loss for the foreseeable future and requires additional financing to continue operations and advance Elk Creek. It estimated a need to raise $8.7–$9.1 million for the next 12 months; planned operational needs through June 30, 2020 were approximately $8.7 million.
- The company reported a material uncertainty raising substantial doubt about its ability to continue as a going concern. Management said it was pursuing debt and equity financing, but gave no assurance financing would be available on acceptable terms. Without financing, it may have to reduce planned activities.
- On January 17, 2020, the CEO credit-facility limit was increased from $2.0 million to $2.5 million. The company subsequently drew $250 and $170; it reported $400 of remaining availability after those drawdowns.
- The company’s Nebraska Advantage agreements could reduce state and local taxes by up to $200 million over 10 years, conditional on meeting job-creation and investment requirements. The amount is an estimate, not a guaranteed benefit.
- The Nebraska air-permit application was technically complete and under review; the county approved a Special Use Permit in December 2019. NioCorp selected potential EPC and other project contractors, but significant work under contemplated agreements depended on obtaining project financing.
- Management identified permitting, land-option extensions or purchases, detailed engineering, infrastructure, water arrangements and long-lead equipment procurement as planned activities subject to funding. There was no formal production or project-construction funding guidance.
Risks, contingencies and other items
- Key risks include financing availability and dilution from future equity issuance; project development, permitting, cost and schedule uncertainty; commodity-price volatility; and the absence of operating revenue.
- Land purchase options covered 1,232 acres after extensions announced through January 9, 2020. The company also agreed to upgrade a county road and reimburse certain additional law-enforcement costs during construction.
- The company reported no material active or pending legal proceedings and no off-balance-sheet arrangements. Management concluded disclosure controls and procedures were effective; no material changes in internal control over financial reporting were reported.
- The company stated that it had been a passive foreign investment company (PFIC) in recent years and expected to remain one; U.S. investors were directed to consult tax advisers.
Important facts for investors to verify
- Whether NioCorp secured sufficient financing to meet its stated $8.7–$9.1 million 12-month need, and the terms, dilution and security associated with any new funding.
- Cash runway, current-liability settlement timing and the status and remaining availability of the CEO-secured credit facility.
- Progress and final requirements for the air permit, land options, EPC contracts and other project permits and agreements.
- Whether the conditional Nebraska tax incentives can be realized, and how actual project economics compare with the assumptions underlying the estimate.
- Changes in project costs, schedule, commodity assumptions and financing needs relative to the 2019 feasibility study.