NOVAGOLD RESOURCES INC. — Q1 2022 Form 10-Q
Reporting period: Three months ended February 28, 2022. Amounts are U.S. dollars; financial statement figures below are in millions unless stated otherwise.
Business context
NOVAGOLD is an exploration and development company with no revenue from its planned principal business. Its principal asset is a 50% interest in the Donlin Gold project in Alaska, held in a 50/50 venture with Barrick Gold. Donlin Gold is not yet producing; the company’s reported project costs are reflected principally through its equity-method investment.
Financial highlights
| Metric | Q1 2022 | Q1 2021 or prior balance-sheet date |
|---|---|---|
| Revenue | None | None |
| General and administrative expense | $5.177 | $5.329 |
| Donlin Gold equity loss | $4.040 | $1.968 |
| Loss from operations | $9.217 | $7.297 |
| Net loss | $9.995 | $7.956 |
| Net loss per share, basic and diluted | $0.03 | $0.02 |
| Comprehensive loss | $9.817 | $7.178 |
| Cash used in operating activities | $6.003 | $4.286 |
| Cash and cash equivalents | $77.133 | $91.124 at November 30, 2021 |
| Term deposits | $78.000 | $78.000 at November 30, 2021 |
| Total assets | $188.411 | $198.852 at November 30, 2021 |
| Total liabilities | $119.977 | $120.570 at November 30, 2021 |
| Promissory note payable to Barrick | $117.235 | $115.723 at November 30, 2021 |
No operating margin is meaningful because the company reported no revenue. Cash and cash equivalents plus term deposits totaled $155.133 million at quarter-end. Current assets were $156.443 million and current liabilities were $2.298 million.
Changes versus the prior comparable quarter
- Net loss increased by $2.039 million. Management attributed the increase principally to earlier commencement of Donlin Gold drilling and lower accretion income following the July 2021 maturity payment of a $75 million Newmont note.
- Donlin Gold equity loss rose to $4.040 million from $1.968 million, primarily reflecting higher mineral-property expenditures.
- Cash used in operations increased to $6.003 million from $4.286 million. Total cash and cash equivalents fell by $13.991 million during the quarter, including $5.936 million of Donlin Gold funding.
- Other income was $0.524 million, compared with a $0.079 million expense in Q1 2021; the current period included a $0.500 million increase in the fair value of marketable securities.
Outlook, risks and contingencies
- Management expects NOVAGOLD’s share of Donlin Gold funding to be $30 million in fiscal 2022. Total anticipated fiscal-year expenditures are approximately $46 million, including $13 million of corporate general and administrative costs.
- Management said available working capital should cover anticipated project funding and corporate costs until a Donlin Gold decision to commence engineering and construction. Construction would require substantial additional capital; future financing may involve debt, equity, project-specific debt or other means, with no assurance financing will be available on favorable terms or at all.
- Donlin Gold’s 2022 drilling program is planned for approximately 34,000 meters. The owners may use the new drilling and modeling work to inform an updated feasibility study and project design; an updated study and construction decision are not assured.
- Permitting remains a significant project risk. The existing Clean Water Act Section 401 certification remains in effect while the state considers a court remand; a decision was expected in Q2 2022. Appeals concerning the pipeline right-of-way were pending, with a decision anticipated in H2 2022 or H1 2023. An appeal of water rights was also awaiting a decision expected in Q2 2022.
- The $117.235 million Barrick promissory note includes $51.576 million principal and $65.659 million accrued interest, at U.S. prime plus 2%. It is payable from 85% of NOVAGOLD’s share of future Donlin Gold revenue or from specified proceeds if its project interest is reduced. A 1% change in the U.S. prime rate would change annual accrued interest by approximately $1.2 million, all else equal.
- NOVAGOLD recognized $23.782 million for its Newmont note receivable. A separate $75 million contingent Galore Creek note was assigned no value because construction approval was not considered probable.
- Other cited risks include commodity-price volatility, project financing and development uncertainty, permitting delays, litigation, COVID-19 impacts, infrastructure and cost risks, and dependence on joint-venture partner cooperation. Management reported no material changes to the risk factors in its 2021 Form 10-K and no material current, pending or threatened litigation known to the company.
Important facts for investors to verify
- Current status and outcomes of the Section 401 certification remand, water-rights appeal and pipeline right-of-way appeals.
- Donlin Gold’s approved 2022 work program, actual funding needs and any decision on engineering, feasibility-study updates or construction.
- Liquidity and financing runway against planned spending, and the availability and terms of any future project financing.
- Accrued interest and repayment mechanics of the Barrick note, including exposure to changes in U.S. prime rates.
- Status and accounting treatment of the contingent $75 million Galore Creek note receivable.