PERPETUA RESOURCES CORP. quarterly report, Q3 FY2023

Perpetua Resources Corp. — Q3 2023 Form 10-Q Summary

Business context and reporting period

Perpetua Resources is a British Columbia corporation focused on mineral exploration, restoration and permitting of the Stibnite Gold Project in Idaho. The Company also seeks to establish a domestic source of antimony trisulfide for defense applications. The filing covers the three and nine months ended September 30, 2023, with comparisons to the corresponding 2022 periods. The Company has no commercial mining operations or operating revenue reported.

Financial performance and condition

Metric	Three months ended Sept. 30, 2023	Three months ended Sept. 30, 2022	Nine months ended Sept. 30, 2023	Nine months ended Sept. 30, 2022
Exploration expense	$8.7 million	$4.6 million	$20.7 million	$13.5 million
Operating loss	$9.6 million	$5.9 million	$29.6 million	$18.6 million
Grant income	$6.9 million	None	$14.3 million	None
Net loss	$2.6 million	$5.8 million	$14.9 million	$18.3 million
Basic and diluted loss per share	$0.04	$0.09	$0.24	$0.29
Net cash used in operating activities	Not separately provided	Not separately provided	$15.2 million	$18.1 million

Grant income primarily reflected Department of Defense funding, including $4.7 million in the third quarter and $11.9 million year to date under the Technology Investment Agreement, and $2.2 million in the third quarter under the Ordnance Technology Initiative Agreement. These grants reimburse specified project-related costs and are not equivalent to commercial revenue.

Cash and cash equivalents were $7.1 million at September 30, 2023, down from $22.7 million at December 31, 2022.
Cash and cash equivalents were approximately $2.7 million as of October 31, 2023, according to management.
Total assets were $86.7 million and shareholders’ equity was $73.3 million at September 30, 2023.
Total liabilities were $13.3 million, including $5.0 million payable under the Clean Water Act settlement and $2.8 million of environmental reclamation liabilities.
Trade and other payables were $5.5 million at September 30, 2023; the MD&A separately states approximately $6.0 million of trade and other payables in its liquidity discussion.
The Company reported no traditional debt balances; lease liabilities were $55,279 current at September 30, 2023.
Mineral properties and interests totaled $72.8 million and are primarily related to the Stibnite Gold Project.
The Company estimates a 0% effective tax rate for 2023 because of cumulative losses and historical net operating losses.

Material changes versus the prior comparable period

Third-quarter net loss decreased by $3.2 million, primarily because of $6.9 million of grant income, partly offset by a $4.1 million increase in exploration expense.
Nine-month net loss decreased by $3.4 million, primarily due to $14.3 million of grant income and lower professional and environmental liability expenses. These benefits were partly offset by a $5.0 million CWA settlement expense and a $7.2 million increase in exploration expense.
Exploration expense increased 89% in the third quarter and 54% for the nine-month period, driven mainly by higher engineering, permitting, field operations and related costs.
Cash declined by $15.6 million during the first nine months of 2023, compared with a $18.5 million decline in the prior-year period.
The Company spent $8.7 million on early environmental restoration actions during the first nine months, including relocation of more than 300,000 tons of legacy mine waste and tailings.
The environmental reclamation liability declined to $2.8 million from $7.9 million at September 30, 2022, primarily because of restoration work performed.
On July 25, 2023, the DPA Technology Investment Agreement was definitized at a not-to-exceed amount of $24.8 million. On August 18, 2023, the Company received an additional DOD award of up to $15.5 million under the OTIA.
The Company’s 200,000 outstanding warrants expired in May 2023, leaving no warrant derivative liability at September 30, 2023.

Guidance, outlook, commentary and risks

Management expected a Final Environmental Impact Statement and draft Record of Decision by the end of 2023 and a Final Record of Decision in early 2024. The filing cautions that these dates are not commitments by the U.S. Forest Service and may be materially delayed or not achieved.
The Company continued work on ancillary permits, including wetlands, water quality, tailings storage, cyanidation, air and discharge permits, and water rights. The cyanidation permit application was deemed incomplete and was expected to be resubmitted in the fourth quarter of 2023.
The Company’s 2023 expenditure forecast was approximately $37.7 million, including $10.5 million for permitting, $9.3 million for general corporate purposes, $5.4 million for engineering and design, and $12.5 million for early restoration and field operations. Approximately $16.3 million was expected to be funded by DPA reimbursements.
Management expected to recognize approximately $4.4 million of additional TIA grant income and approximately $3.45 million of additional OTIA grant income in the fourth quarter of 2023.
The CWA settlement requires total payments of $5.0 million over four years, comprising $4.0 million for a South Fork Salmon Water Quality Enhancement Fund and $1.0 million for legal expense reimbursement. The lawsuit was dismissed without prejudice on October 2, 2023; dismissal with prejudice is expected only after all payments are made.
The Company stated that unrestricted cash resources are expected to be exhausted in the first quarter of 2024. Settlement payments are expected to begin in the first half of 2024.
The filing raises substantial doubt about the Company’s ability to continue as a going concern for at least one year after issuance of the interim financial statements. Management is pursuing equity, debt, project-specific debt, government funding and other financing alternatives, but there is no assurance that funding will be obtained on acceptable terms or at all.
The $24.8 million DPA funding is restricted to specified permitting, environmental, technical and construction-readiness activities and cannot fund certain corporate expenses, ASAOC obligations or CWA settlement payments.
The Company had $20 million of capacity remaining under its May 2023 controlled equity offering as of September 30, 2023. After quarter-end, it sold 65,375 shares for net proceeds of approximately $235,234 through October 27, 2023.
Long-term development of the Project is expected to require project financing. The filing cites estimated Project capital costs of approximately $1.263 billion according to the technical report summary.
Key risks include permitting and litigation outcomes, environmental liabilities, access to capital, inflation and interest rates, commodity prices, execution of the Project plan, dependence on government funding, and the ability to satisfy obligations as they become due.

Most important facts for investors to verify

Whether the Company obtains sufficient unrestricted financing before projected cash exhaustion in the first quarter of 2024.
The timing and outcome of the Final Environmental Impact Statement, draft and final Records of Decision, and related ancillary permits.
The amount and timing of DPA and OTIA reimbursements, including whether eligible costs are reimbursed promptly and whether award amounts or scopes change.
The remaining cost and completion status of ASAOC environmental restoration activities, particularly the estimated $2.8 million liability expected to be incurred largely in the fourth quarter of 2023.
The schedule and funding sources for the $5.0 million CWA settlement payments and the conditions for dismissal with prejudice.
Potential dilution or financing terms associated with future equity sales, debt, project financing or other capital raises.
Whether the Stibnite Gold Project ultimately receives the required permits and can secure the estimated capital needed for construction; the filing does not establish commercial production or proven reserves.