NOVAGOLD RESOURCES INC. — FY2014 Form 10-K
Reporting period: Fiscal year ended November 30, 2014. The filing also reports fourth-quarter results. Unless noted otherwise, financial amounts are in U.S. dollars.
Business context
NOVAGOLD is an exploration and development company with no producing mines, operating revenue, or operating cash flow. Its principal assets are 50% interests in the Donlin Gold project in Alaska, jointly held with Barrick, and the Galore Creek copper-gold-silver project in British Columbia, jointly held with Teck. Donlin permitting is the company’s primary focus; NOVAGOLD is evaluating a sale of all or part of its Galore Creek interest.
Financial and operating metrics
| Metric | FY2014 | FY2013 |
|---|---|---|
| Revenue from continuing operations | None | None |
| Operating loss | $38.0 million | $55.8 million |
| Net loss | $40.5 million | $62.8 million |
| Basic and diluted loss per share | $0.13 | $0.20 |
| Cash used in continuing operations | $9.8 million | $19.5 million |
| Cash and cash equivalents | $70.3 million | $81.3 million |
| Term deposits | $95.0 million | $110.0 million |
| Total assets | $524.5 million | $578.7 million |
| Total liabilities | $119.4 million | $113.0 million |
| Shareholders’ equity | $405.1 million | $465.6 million |
Cash and term deposits totaled $165.3 million at year-end. The company reported a $15.1 million carrying value for convertible notes, with $15.829 million principal due May 1, 2015, and a $76.2 million promissory note to Barrick, including accrued interest. No revenue means operating margins are not applicable. The filing does not provide a clear company-level debt-to-liquidity covenant or a conventional current ratio.
Fourth-quarter net loss was $7.1 million, versus $19.2 million in Q4 2013. The Q4 2014 operating loss was $7.7 million, versus $13.2 million in Q4 2013.
Material changes versus prior periods
- FY2014 operating loss narrowed by $17.8 million year over year, mainly from lower general and administrative costs and lower equity losses from the joint projects. Net loss also improved, reflecting lower interest expense and the absence of the prior-year investment write-down and higher tax expense.
- Cash used in continuing operations fell by $9.7 million year over year, principally due to lower corporate costs and interest payments after the 2013 note repurchases.
- Cash and term deposits declined by a combined $26.0 million during FY2014. Total equity fell by $60.5 million, including the annual net loss and a $29.7 million foreign-currency translation loss in other comprehensive income.
- The average 2014 gold price cited in the filing was $1,266 per ounce, down from $1,411 in 2013. Subsequent to year-end, management noted a significant copper-price decline and said a sustained decline could trigger impairment testing of Galore Creek and the Copper Canyon property.
Outlook, risks and unusual items
- Donlin Gold: The draft environmental impact statement was expected to be issued for public comment in 2015, with the final EIS targeted for 2016. NOVAGOLD expected to fund approximately $12.6 million of its 50% share of the 2015 work program. Further permits, engineering, board approval, and financing are required before construction; timing and approval are uncertain.
- Galore Creek: The 2015 work program was expected to cost NOVAGOLD approximately $1.6 million; no drilling was planned. The company continued to assess technical improvements and potential monetization. A changed project design may require a new environmental assessment and additional permits.
- Liquidity and financing: Management said year-end cash and deposits were sufficient to repay the remaining note principal and fund expected work through Donlin permitting. The company forecast approximately $44.8 million of 2015 spending, including note repayment. Construction would require substantial additional financing; NOVAGOLD gives no assurance that it can obtain it.
- Project economics: The Donlin feasibility study, dated 2011, estimated total project capital costs of about $6.7 billion on a 100% project basis and after-tax NPV of $547 million at $1,200 gold, with a 6.0% IRR. These are project-study estimates, not current company guidance. The filing cautions that the projects have no known reserves under SEC Industry Guide 7; Canadian reserve and resource classifications are not equivalent to SEC standards.
- Key risks: Commodity-price volatility, permitting delays or denial, public opposition, remote-site infrastructure and construction costs, joint-venture partner dependence, reclamation obligations, and the need for external financing. NOVAGOLD reported that Electrum and affiliates held 26.7% of its shares, giving them significant influence.
- Management and the independent auditor concluded that internal control over financial reporting was effective. The auditor issued an unqualified opinion on the financial statements and controls. Management reported no pending or threatened legal proceeding it believed would have a material adverse effect.
Important facts for investors to verify
- Whether the $15.829 million note principal was repaid or refinanced when due in May 2015.
- Progress and actual timing of Donlin’s draft and final EIS, remaining permits, engineering, and any construction decision.
- Current financing requirements and whether the stated cash runway and 2015 budget assumptions were achieved.
- Any sustained copper-price weakness, impairment testing, or impairment charge for Galore Creek or Copper Canyon.
- Whether a sale of all or part of NOVAGOLD’s Galore Creek interest occurred, and the resulting effect on liquidity and project exposure.
- Updated project studies, capital costs, metal-price assumptions, and resource/reserve estimates; the disclosed feasibility and pre-feasibility figures are dated and based on Canadian reporting standards.