Item 1. Financial Statements
NOVAGOLD RESOURCES INC.
|
CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS
|
(Unaudited, US dollars in thousands)
|
|
|
At
May 31, 2020
|
|
|
At
November 30, 2019
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
53,329
|
|
|
$
|
67,549
|
|
Term deposits
|
|
|
81,000
|
|
|
|
81,000
|
|
Other assets (Note 6)
|
|
|
1,013
|
|
|
|
1,790
|
|
Current assets
|
|
|
135,342
|
|
|
|
150,339
|
|
Notes receivable (Note 4)
|
|
|
94,327
|
|
|
|
92,679
|
|
Investment in Donlin Gold (Note 5)
|
|
|
3,462
|
|
|
|
1,840
|
|
Other assets (Note 6)
|
|
|
1,900
|
|
|
|
977
|
|
Total assets
|
|
$
|
235,031
|
|
|
$
|
245,835
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
Accounts payable and accrued liabilities
|
|
$
|
532
|
|
|
$
|
880
|
|
Accrued payroll and related benefits
|
|
|
1,115
|
|
|
|
2,143
|
|
Income taxes payable
|
|
|
139
|
|
|
|
138
|
|
Lease obligations (Note 12)
|
|
|
192
|
|
|
|
—
|
|
Other liabilities
|
|
|
182
|
|
|
|
182
|
|
Current liabilities
|
|
|
2,160
|
|
|
|
3,343
|
|
Promissory note (Note 7)
|
|
|
106,947
|
|
|
|
103,787
|
|
Lease obligations (Note 12)
|
|
|
491
|
|
|
|
—
|
|
Deferred income taxes
|
|
|
1,097
|
|
|
|
751
|
|
Total liabilities
|
|
|
110,695
|
|
|
|
107,881
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Notes 7 and 12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
|
|
Common shares
|
|
|
1,970,299
|
|
|
|
1,965,573
|
|
Contributed surplus
|
|
|
79,352
|
|
|
|
82,254
|
|
Accumulated deficit
|
|
|
(1,898,893
|
)
|
|
|
(1,885,065
|
)
|
Accumulated other comprehensive loss
|
|
|
(26,422
|
)
|
|
|
(24,808
|
)
|
Total equity
|
|
|
124,336
|
|
|
|
137,954
|
|
Total liabilities and equity
|
|
$
|
235,031
|
|
|
$
|
245,835
|
|
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
These condensed consolidated interim financial statements are authorized for issue by the Board of Directors on June 24, 2020. They are signed on the Company’s behalf by:
/s/ Gregory A. Lang, Director
|
/s/ Anthony P. Walsh, Director
|
NOVAGOLD RESOURCES INC.
|
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF LOSS
AND COMPREHENSIVE LOSS
|
(Unaudited, US dollars in thousands except per share amounts)
|
|
|
Three months ended
May 31,
|
|
|
Six months ended
May 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative (Note 9)
|
|
$
|
4,387
|
|
|
$
|
4,215
|
|
|
$
|
9,101
|
|
|
$
|
8,555
|
|
Equity loss – Donlin Gold (Note 5)
|
|
|
3,700
|
|
|
|
2,198
|
|
|
|
5,268
|
|
|
|
3,521
|
|
|
|
|
8,087
|
|
|
|
6,413
|
|
|
|
14,369
|
|
|
|
12,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(8,087
|
)
|
|
|
(6,413
|
)
|
|
|
(14,369
|
)
|
|
|
(12,076
|
)
|
Interest expense on promissory note
|
|
|
(1,400
|
)
|
|
|
(1,861
|
)
|
|
|
(3,160
|
)
|
|
|
(3,659
|
)
|
Accretion of notes receivable
|
|
|
824
|
|
|
|
796
|
|
|
|
1,648
|
|
|
|
1,591
|
|
Other income, net (Note 10)
|
|
|
1,694
|
|
|
|
2,319
|
|
|
|
2,581
|
|
|
|
3,019
|
|
Loss before income taxes and other items
|
|
|
(6,969
|
)
|
|
|
(5,159
|
)
|
|
|
(13,300
|
)
|
|
|
(11,125
|
)
|
Income tax expense
|
|
|
(264
|
)
|
|
|
(356
|
)
|
|
|
(528
|
)
|
|
|
(713
|
)
|
Net loss
|
|
$
|
(7,233
|
)
|
|
$
|
(5,515
|
)
|
|
$
|
(13,828
|
)
|
|
$
|
(11,838
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(1,159
|
)
|
|
|
(1,397
|
)
|
|
|
(1,614
|
)
|
|
|
(878
|
)
|
|
|
|
(1,159
|
)
|
|
|
(1,397
|
)
|
|
|
(1,614
|
)
|
|
|
(878
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(8,392
|
)
|
|
$
|
(6,912
|
)
|
|
$
|
(15,442
|
)
|
|
$
|
(12,716
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share – basic and diluted
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted (thousands)
|
|
|
329,111
|
|
|
|
325,245
|
|
|
|
328,700
|
|
|
|
325,000
|
|
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
NOVAGOLD RESOURCES INC.
|
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
|
(Unaudited, US dollars in thousands)
|
|
|
Three months ended
May 31,
|
|
|
Six months ended
May 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,233
|
)
|
|
$
|
(5,515
|
)
|
|
$
|
(13,828
|
)
|
|
$
|
(11,838
|
)
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity loss – Donlin Gold
|
|
|
3,700
|
|
|
|
2,198
|
|
|
|
5,268
|
|
|
|
3,521
|
|
Share-based compensation
|
|
|
1,715
|
|
|
|
1,542
|
|
|
|
3,476
|
|
|
|
3,073
|
|
Interest expense on promissory note
|
|
|
1,400
|
|
|
|
1,861
|
|
|
|
3,160
|
|
|
|
3,659
|
|
Deferred income tax expense
|
|
|
173
|
|
|
|
167
|
|
|
|
346
|
|
|
|
334
|
|
Foreign exchange gain
|
|
|
(882
|
)
|
|
|
(1,209
|
)
|
|
|
(1,260
|
)
|
|
|
(823
|
)
|
Accretion of notes receivable
|
|
|
(824
|
)
|
|
|
(796
|
)
|
|
|
(1,648
|
)
|
|
|
(1,591
|
)
|
Change in fair value of marketable securities
|
|
|
(298
|
)
|
|
|
(14
|
)
|
|
|
(290
|
)
|
|
|
(58
|
)
|
Other operating adjustments
|
|
|
6
|
|
|
|
3
|
|
|
|
10
|
|
|
|
7
|
|
Net change in operating assets and liabilities (Note 13)
|
|
|
409
|
|
|
|
2
|
|
|
|
(565
|
)
|
|
|
(1,195
|
)
|
Net cash used in operating activities of continuing operations
|
|
|
(1,834
|
)
|
|
|
(1,761
|
)
|
|
|
(5,331
|
)
|
|
|
(4,911
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from term deposits
|
|
|
11,000
|
|
|
|
11,000
|
|
|
|
46,000
|
|
|
|
126,000
|
|
Purchases of term deposits
|
|
|
(11,000
|
)
|
|
|
(11,000
|
)
|
|
|
(46,000
|
)
|
|
|
(119,000
|
)
|
Funding of Donlin Gold
|
|
|
(4,290
|
)
|
|
|
(2,909
|
)
|
|
|
(6,890
|
)
|
|
|
(3,806
|
)
|
Net cash provided from (used in) investing activities
|
|
|
(4,290
|
)
|
|
|
(2,909
|
)
|
|
|
(6,890
|
)
|
|
|
3,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Withholding tax on share-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,652
|
)
|
|
|
(1,197
|
)
|
Net cash used in investing activities
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,652
|
)
|
|
|
(1,197
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
(246
|
)
|
|
|
(121
|
)
|
|
|
(347
|
)
|
|
|
(104
|
)
|
Decrease in cash and cash equivalents
|
|
|
(6,370
|
)
|
|
|
(4,791
|
)
|
|
|
(14,220
|
)
|
|
|
(3,018
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
59,699
|
|
|
|
22,777
|
|
|
|
67,549
|
|
|
|
21,004
|
|
Cash and cash equivalents at end of period
|
|
$
|
53,329
|
|
|
$
|
17,986
|
|
|
$
|
53,329
|
|
|
$
|
17,986
|
|
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
NOVAGOLD RESOURCES INC.
|
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF EQUITY
|
(Unaudited, US dollars and shares in thousands)
|
|
|
Six months ended May 31, 2020
|
|
|
|
Common shares
|
|
|
Contributed
|
|
|
Accumulated
|
|
|
|
|
|
|
Total
|
|
|
|
Shares
|
|
|
Amount
|
|
|
surplus
|
|
|
deficit
|
|
|
AOCL*
|
|
|
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, 2019
|
|
|
327,630
|
|
|
$
|
1,965,573
|
|
|
$
|
82,254
|
|
|
$
|
(1,885,065
|
)
|
|
$
|
(24,808
|
)
|
|
$
|
137,954
|
|
Share-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
1,761
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,761
|
|
Performance share units (PSUs) settled in shares
|
|
|
410
|
|
|
|
1,026
|
|
|
|
(1,026
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Stock options exercised
|
|
|
560
|
|
|
|
1,618
|
|
|
|
(1,618
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Withholding tax on PSUs
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,652
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,652
|
)
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,595
|
)
|
|
|
—
|
|
|
|
(6,595
|
)
|
Other comprehensive income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(455
|
)
|
|
|
(455
|
)
|
February 29, 2020
|
|
|
328,600
|
|
|
$
|
1,968,217
|
|
|
$
|
79,719
|
|
|
$
|
(1,891,660
|
)
|
|
$
|
(25,263
|
)
|
|
$
|
131,013
|
|
Share-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
1,715
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,715
|
|
Stock options exercised
|
|
|
998
|
|
|
|
2,082
|
|
|
|
(2,082
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(7,233
|
)
|
|
|
—
|
|
|
|
(7,233
|
)
|
Other comprehensive loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,159
|
)
|
|
|
(1,159
|
)
|
May 31, 2020
|
|
|
329,598
|
|
|
$
|
1,970,299
|
|
|
$
|
79,352
|
|
|
$
|
(1,898,893
|
)
|
|
$
|
(26,422
|
)
|
|
$
|
124,336
|
|
|
|
Six months ended May 31, 2019
|
|
|
|
Common shares
|
|
|
Contributed
|
|
|
Accumulated
|
|
|
|
|
|
|
Total
|
|
|
|
Shares
|
|
|
Amount
|
|
|
surplus
|
|
|
deficit
|
|
|
AOCL*
|
|
|
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, 2018
|
|
|
323,223
|
|
|
$
|
1,954,861
|
|
|
$
|
87,987
|
|
|
$
|
(1,857,682
|
)
|
|
$
|
(24,478
|
)
|
|
$
|
160,688
|
|
Cumulative-effect adjustment of adopting ASU No. 2016-01
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
378
|
|
|
|
(378
|
)
|
|
|
—
|
|
Share-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
1,531
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,531
|
|
PSUs settled in shares
|
|
|
438
|
|
|
|
2,737
|
|
|
|
(2,737
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Stock options exercised
|
|
|
1,443
|
|
|
|
2,867
|
|
|
|
(2,867
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Withholding tax on PSUs
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,197
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,197
|
)
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,323
|
)
|
|
|
—
|
|
|
|
(6,323
|
)
|
Other comprehensive income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
519
|
|
|
|
519
|
|
February 28, 2019
|
|
|
325,104
|
|
|
$
|
1,960,465
|
|
|
$
|
82,717
|
|
|
$
|
(1,863,627
|
)
|
|
$
|
(24,337
|
)
|
|
$
|
155,218
|
|
Share-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
1,542
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,542
|
|
Stock options exercised
|
|
|
205
|
|
|
|
468
|
|
|
|
(468
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,515
|
)
|
|
|
—
|
|
|
|
(5,515
|
)
|
Other comprehensive loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,397
|
)
|
|
|
(1,397
|
)
|
May 31, 2019
|
|
|
325,309
|
|
|
$
|
1,960,933
|
|
|
$
|
83,791
|
|
|
$
|
(1,869,142
|
)
|
|
$
|
(25,734
|
)
|
|
$
|
149,848
|
|
* Accumulated other comprehensive loss
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
NOVAGOLD RESOURCES INC.
|
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
|
(Unaudited, US dollars in thousands except per share amounts)
|
NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION
NOVAGOLD RESOURCES INC. and its affiliates and subsidiaries (collectively, “NOVAGOLD” or the “Company”) operate in the mining industry, focused on the exploration for and development of gold mineral properties. The Company has no realized revenues from its planned principal business purpose. The Company’s principal asset is a 50% interest in the Donlin Gold project in Alaska, USA. The Donlin Gold project is owned and operated by Donlin Gold LLC, a limited liability company that is owned equally by wholly owned subsidiaries of NOVAGOLD and Barrick Gold Corporation (“Barrick”).
The interim Condensed Consolidated Financial Statements (“interim statements”) of NOVAGOLD are unaudited. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these interim statements have been included. The results reported in these interim statements are not necessarily indicative of the results that may be reported for the entire year. These interim statements should be read in conjunction with NOVAGOLD’s Consolidated Financial Statements for the year ended November 30, 2019. The year-end balance sheet data was derived from the audited financial statements and certain information and footnote disclosures required by United States generally accepted accounting principles (US GAAP) have been condensed or omitted.
The functional currency for the Company’s Canadian operations is the Canadian dollar and the functional currency for the Company’s U.S. operations is the United States dollar. References in these Condensed Consolidated Financial Statements and Notes to $ refer to United States dollars and C$ to Canadian dollars. Dollar amounts are in thousands, except for per share amounts.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Recently adopted accounting pronouncements
Leases
In February 2016, Accounting Standards Update (“ASU”) No. 2016-02 was issued which, together with subsequent amendments, is included in ASC 842, Leases. The standard was issued to increase transparency and comparability among organizations by requiring the recognition of right-of-use ("ROU") assets and lease liabilities on the balance sheet for all leases with an initial term greater than one year. Certain qualitative and quantitative disclosures are also required.
On December 1, 2019, the Company adopted this standard using the modified retrospective approach with the effective date as of the date of initial application. Consequently, results for the three- and six-month periods ended May 31, 2020 are presented under ASC Topic 842. No prior period amounts were adjusted and continue to be reported in accordance with previous lease guidance, ASC Topic 840, Leases. All leases were reassessed under the new standard including lease identification, lease classification, and initial direct costs in relation to its leases in effect as of December 1, 2019. The Company also elected the practical expedients allowing: i) the use of hindsight in determining the lease term and assessing impairment of ROU assets based on all facts and circumstances through the effective date of the new standard; ii) the short-term lease recognition exemption whereby ROU assets and lease liabilities will not be recognized for leasing arrangements with terms less than one year; and iii) to combine lease and non-lease components and expense variable payments as rent/lease expense in the period incurred.
Adoption of the new standard resulted in recording an operating lease ROU asset and operating lease liability of approximately $399 on our Condensed Consolidated Balance Sheet as of December 1, 2019. Adoption of the standard did not have an impact on the Company’s beginning accumulated deficit, results from operations or cash flows. For required qualitative and quantitative disclosures related to leasing arrangements beginning in the period of adoption, see Note 12.
Changes to the Company’s accounting policy as a result of adoption are discussed below.
The Company reviews all contracts and determines if the arrangement represents or contains a lease, at inception. Operating leases are included in Other non-current assets and Other current and non-current liabilities in the Condensed Consolidated Balance Sheets. The Company does not have any finance leases.
Operating lease ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. The Company uses its estimated incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future payments. The operating lease ROU asset also includes any upfront lease payments made and excludes lease incentives and initial direct costs incurred. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Leases with a term of 12 months or less are not recorded on the balance sheet. The Company’s lease agreements do not contain any residual value guarantees.
NOVAGOLD RESOURCES INC.
|
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
|
(Unaudited, US dollars in thousands except per share amounts)
|
Recently issued accounting pronouncements
Fair Value Disclosure Requirements
In August 2018, ASU No. 2018-13 was issued to modify and enhance the disclosure requirements for fair value measurements. This update is effective in fiscal years, including interim periods, beginning after December 1, 2020, and early adoption is permitted. The Company is currently evaluating this guidance and the impact on its Consolidated Financial Statements and disclosures.
NOTE 3 – SEGMENTED INFORMATION
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Chief Executive Officer. The Chief Executive Officer considers the business as a single segment considering the performance of our investment in the Donlin Gold project in Alaska, USA (Note 5).
NOTE 4 – NOTES RECEIVABLE
The Company has notes receivable from Newmont Corp. (“Newmont”) including a $75,000 note receivable upon the earlier of the completion of a new Galore Creek project pre-feasibility study or July 27, 2021, and a $25,000 note receivable upon the earlier of the completion of a Galore Creek project feasibility study or July 27, 2023. On closing of the Galore Creek sale, the Company estimated the fair value of the $75,000 and $25,000 notes receivable at $88,398, assuming payments in three and five years, respectively, at a discount rate of 3.6% based on quoted market values for Newmont debt with a similar term. The carrying values of the notes receivable are being accreted to $75,000 and $25,000 over three and five years, respectively. At May 31, 2020, the carrying value of the notes receivable was $94,327 including $5,929 of accumulated accretion. A contingent note for $75,000 is receivable upon approval of a Galore Creek project construction plan by the owner(s). No value was assigned to the final $75,000 contingent note receivable. The Company determined that Galore Creek project construction approval was not probable as of the closing of the Galore Creek sale. The Company’s assessment did not change as of May 31, 2020.
NOTE 5 – INVESTMENT IN DONLIN GOLD
The Donlin Gold project is owned and operated by Donlin Gold LLC, a limited liability company in which wholly owned subsidiaries of Barrick and NOVAGOLD each own a 50% interest. Donlin Gold LLC has a board of four members, with two members selected by Barrick and two members selected by the Company. All significant decisions related to Donlin Gold LLC require the approval of at least a majority of the Donlin Gold LLC board members.
Changes in the Company’s investment in Donlin Gold LLC are summarized as follows:
|
|
Three months ended May 31,
|
|
|
Six months ended May 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Balance – beginning of period
|
|
$
|
2,872
|
|
|
$
|
783
|
|
|
$
|
1,840
|
|
|
$
|
1,209
|
|
Share of losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral property expenditures
|
|
|
(3,665
|
)
|
|
|
(2,194
|
)
|
|
|
(5,208
|
)
|
|
|
(3,504
|
)
|
Depreciation
|
|
|
(35
|
)
|
|
|
(4
|
)
|
|
|
(60
|
)
|
|
|
(17
|
)
|
|
|
|
(3,700
|
)
|
|
|
(2,198
|
)
|
|
|
(5,268
|
)
|
|
|
(3,521
|
)
|
Funding
|
|
|
4,290
|
|
|
|
2,909
|
|
|
|
6,890
|
|
|
|
3,806
|
|
Balance – end of period
|
|
$
|
3,462
|
|
|
$
|
1,494
|
|
|
$
|
3,462
|
|
|
$
|
1,494
|
|
NOVAGOLD RESOURCES INC.
|
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
|
(Unaudited, US dollars in thousands except per share amounts)
|
The following amounts represent the Company’s 50% share of the assets and liabilities of Donlin Gold LLC. Donlin Gold LLC capitalized the initial contribution of the Donlin Gold property as Non-current assets: Mineral property with a carrying value of $64,000, resulting in a higher carrying value of the mineral property for Donlin Gold LLC than that of the Company.
|
|
At
May 31,
|
|
|
At
November 30,
|
|
|
|
2020
|
|
|
2019
|
|
Current assets: Cash, prepaid expenses and other receivables
|
|
$
|
4,612
|
|
|
$
|
3,115
|
|
Non-current assets: Property and equipment
|
|
|
831
|
|
|
|
462
|
|
Non-current assets: Mineral property
|
|
|
32,692
|
|
|
|
32,692
|
|
Current liabilities: Accounts payable and accrued liabilities
|
|
|
(1,816
|
)
|
|
|
(1,737
|
)
|
Non-current liabilities: Reclamation and lease obligations
|
|
|
(857
|
)
|
|
|
(692
|
)
|
Net assets
|
|
$
|
35,462
|
|
|
$
|
33,840
|
|
NOTE 6 – OTHER ASSETS
|
|
At
May 31,
2020
|
|
|
At
November 30, 2019
|
|
Other current assets:
|
|
|
|
|
|
|
|
|
Accounts and interest receivable
|
|
$
|
687
|
|
|
$
|
1,100
|
|
Prepaid expenses
|
|
|
326
|
|
|
|
690
|
|
|
|
$
|
1,013
|
|
|
$
|
1,790
|
|
|
|
|
|
|
|
|
|
|
Other long-term assets:
|
|
|
|
|
|
|
|
|
Marketable equity securities
|
|
$
|
1,184
|
|
|
$
|
935
|
|
Right-of-use assets
|
|
|
678
|
|
|
|
—
|
|
Office equipment
|
|
|
38
|
|
|
|
42
|
|
|
|
$
|
1,900
|
|
|
$
|
977
|
|
NOTE 7 – PROMISSORY NOTE
The Company has a promissory note payable to Barrick of $106,947, comprised of $51,576 in principal, and $55,371 in accrued interest at U.S. prime plus 2%. The promissory note resulted from the agreement that led to the formation of Donlin Gold LLC, where the Company agreed to reimburse Barrick for a portion of their expenditures incurred from April 1, 2006 to November 30, 2007. The promissory note and accrued interest are payable from 85% of the Company’s share of revenue from future mine production or from any net proceeds resulting from a reduction of the Company’s interest in Donlin Gold LLC. The carrying value of the promissory note approximates fair value.
NOTE 8 – FAIR VALUE ACCOUNTING
Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the significance of the inputs used in making the measurement. The three levels of the fair value hierarchy are as follows:
Level 1 — Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 — Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
Level 3 — Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
The Company’s marketable equity securities are valued using quoted market prices in active markets and as such are classified within Level 1 of the fair value hierarchy. The fair value of the marketable equity securities was $1,184 at May 31, 2020 ($935 at November 30, 2019), calculated as the quoted market price of the marketable equity security multiplied by the quantity of shares held by the Company.
NOVAGOLD RESOURCES INC.
|
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
|
(Unaudited, US dollars in thousands except per share amounts)
|
NOTE 9 – GENERAL AND ADMINISTRATIVE EXPENSES
|
|
Three months ended May 31,
|
|
|
Six months ended May 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Salaries and benefits
|
|
$
|
1,605
|
|
|
$
|
1,498
|
|
|
$
|
3,239
|
|
|
$
|
3,162
|
|
Share-based compensation (Note 11)
|
|
|
1,715
|
|
|
|
1,542
|
|
|
|
3,476
|
|
|
|
3,073
|
|
Office expense
|
|
|
563
|
|
|
|
551
|
|
|
|
1,183
|
|
|
|
1,222
|
|
Professional fees
|
|
|
180
|
|
|
|
360
|
|
|
|
582
|
|
|
|
590
|
|
Corporate communications and regulatory
|
|
|
322
|
|
|
|
261
|
|
|
|
617
|
|
|
|
501
|
|
Depreciation
|
|
|
2
|
|
|
|
3
|
|
|
|
4
|
|
|
|
7
|
|
|
|
$
|
4,387
|
|
|
$
|
4,215
|
|
|
$
|
9,101
|
|
|
$
|
8,555
|
|
NOTE 10 – OTHER INCOME, NET
|
|
Three months ended May 31,
|
|
|
Six months ended May 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Interest income
|
|
$
|
514
|
|
|
$
|
1,096
|
|
|
$
|
1,031
|
|
|
$
|
2,138
|
|
Foreign exchange gain
|
|
|
882
|
|
|
|
1,209
|
|
|
|
1,260
|
|
|
|
823
|
|
Change in fair market value of marketable securities
|
|
|
298
|
|
|
|
14
|
|
|
|
290
|
|
|
|
58
|
|
|
|
$
|
1,694
|
|
|
$
|
2,319
|
|
|
$
|
2,581
|
|
|
$
|
3,019
|
|
NOTE 11 – SHARE-BASED COMPENSATION
|
|
Three months ended May 31,
|
|
|
Six months ended May 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Stock options
|
|
$
|
1,033
|
|
|
$
|
915
|
|
|
$
|
2,101
|
|
|
$
|
1,837
|
|
Performance share unit plan
|
|
|
633
|
|
|
|
583
|
|
|
|
1,277
|
|
|
|
1,153
|
|
Deferred share unit plan
|
|
|
49
|
|
|
|
44
|
|
|
|
98
|
|
|
|
83
|
|
|
|
$
|
1,715
|
|
|
$
|
1,542
|
|
|
$
|
3,476
|
|
|
$
|
3,073
|
|
Stock options
A summary of stock options outstanding as of May 31, 2020 and activity during the six months ended May 31, 2020 are as follows:
|
|
Number of stock options (thousands)
|
|
|
Weighted- average exercise price per share
|
|
|
Weighted- average
remaining
contractual term
(years)
|
|
|
Aggregate
intrinsic
value
|
|
November 30, 2019
|
|
|
12,527
|
|
|
$
|
3.98
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,747
|
|
|
|
7.20
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(2,661
|
)
|
|
|
3.85
|
|
|
|
|
|
|
|
|
|
May 31, 2020
|
|
|
11,613
|
|
|
$
|
4.44
|
|
|
|
2.57
|
|
|
$
|
91,145
|
|
Vested and exercisable as of May 31, 2020
|
|
|
6,966
|
|
|
$
|
4.05
|
|
|
|
1.83
|
|
|
$
|
55,551
|
|
NOVAGOLD RESOURCES INC.
|
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
|
(Unaudited, US dollars in thousands except per share amounts)
|
The following table summarizes other stock option-related information:
|
|
Six months ended May 31,
|
|
|
|
2020
|
|
|
2019
|
|
Weighted-average assumptions used to value stock option awards:
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
46.2
|
%
|
|
|
46.9
|
%
|
Expected term of options (years)
|
|
|
4
|
|
|
|
4
|
|
Expected dividend rate
|
|
|
—
|
|
|
|
—
|
|
Risk-free interest rate
|
|
|
1.5
|
%
|
|
|
2.7
|
%
|
Expected forfeiture rate
|
|
|
3.1
|
%
|
|
|
3.1
|
%
|
Weighted-average grant-date fair value
|
|
$
|
2.71
|
|
|
$
|
1.46
|
|
Intrinsic value of options exercised
|
|
$
|
15,198
|
|
|
$
|
3,335
|
|
Cash received from options exercised
|
|
$
|
—
|
|
|
$
|
—
|
|
As of May 31, 2020, the Company had $4,609 of unrecognized compensation cost related to 4,648,000 non-vested stock options expected to be recognized and vest over a period of approximately 2.5 years.
Performance share units
A summary of PSU awards outstanding as of May 31, 2020 and activity during the six months ended May 31, 2020 is as follows:
|
|
Number of PSU awards (thousands)
|
|
|
Weighted- average grant day fair value per award
|
|
|
Aggregate
intrinsic
value
|
|
November 30, 2019
|
|
|
1,664
|
|
|
$
|
3.76
|
|
|
|
|
|
Granted
|
|
|
452
|
|
|
|
6.92
|
|
|
|
|
|
Vested
|
|
|
(648
|
)
|
|
|
6.96
|
|
|
|
|
|
Performance adjustment
|
|
|
216
|
|
|
|
6.96
|
|
|
|
|
|
May 31, 2020
|
|
|
1,684
|
|
|
$
|
4.59
|
|
|
$
|
22,656
|
|
As of May 31, 2020, the Company had $4,215 of unrecognized compensation cost related to 1,684,000 non-vested PSU awards expected to be recognized and vest over a period of approximately 2.5 years.
The following table summarizes other PSU-related information:
|
|
Six months ended May 31,
|
|
|
|
2020
|
|
|
2019
|
|
Performance multiplier on PSUs vested
|
|
|
150
|
%
|
|
|
82
|
%
|
Common shares issued (thousands)
|
|
|
648
|
|
|
|
438
|
|
Total fair value of common shares issued
|
|
$
|
2,855
|
|
|
$
|
1,607
|
|
Withholding tax paid on PSUs vested
|
|
$
|
1,652
|
|
|
$
|
1,197
|
|
NOTE 12 – LEASES
The Company leases office space under non-cancelable operating leases with original lease terms of five years. These leases require monthly lease payments that may be subject to annual increases throughout the lease term. Certain of these leases also include renewal options at the election of the Company to renew or extend the lease for an additional five years. These optional periods have not been considered in the determination of ROU assets or lease liabilities associated with these leases as the Company did not consider it reasonably certain it would exercise the options.
NOVAGOLD RESOURCES INC.
|
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
|
(Unaudited, US dollars in thousands except per share amounts)
|
The Company performed evaluations of its contracts and determined each of its identified leases are operating leases. Additionally, short-term leases, which have an initial term of 12 months or less, are not recorded in the Condensed Consolidated Balance Sheets.
Lease expenses are included in General and administrative expense – Office expense on the Condensed Consolidated Statements of Loss and include the following components for the six-month period ended May 31, 2020:
Operating lease cost
|
|
$
|
100
|
|
Variable lease cost
|
|
|
57
|
|
Short-term lease cost
|
|
|
2
|
|
|
|
$
|
159
|
|
On February 1, 2020, the Company recorded a new operating lease obligation of $380 arising from obtaining ROU assets.
Future minimum lease payments under non-cancellable operating leases as of May 31, 2020, were as follows:
2020 (excluding the three months ended May 31, 2020)
|
|
$
|
107
|
|
2021
|
|
|
227
|
|
2022
|
|
|
232
|
|
2023
|
|
|
85
|
|
2024
|
|
|
87
|
|
Thereafter
|
|
|
7
|
|
Total future minimum lease payments
|
|
|
745
|
|
Less: imputed interest
|
|
|
(62
|
)
|
Total
|
|
$
|
683
|
|
Other information regarding leases for the six-month period ended May 31, 2020 includes the following:
Cash paid for operating leases
|
|
$
|
94
|
|
Right-of-use assets obtained in exchange for lease liabilities
|
|
$
|
380
|
|
Weighted average remaining lease term (years) – operating leases
|
|
|
3.6
|
|
Weighted average discount rate – operating leases
|
|
|
5
|
%
|
NOTE 13 – NET CHANGE IN OPERATING ASSETS AND LIABILITIES
|
|
Six months ended May 31,
|
|
|
|
2020
|
|
|
2019
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Other assets
|
|
$
|
781
|
|
|
$
|
773
|
|
Accounts payable and accrued liabilities
|
|
|
(325
|
)
|
|
|
(39
|
)
|
Accrued payroll and related benefits
|
|
|
(1,021
|
)
|
|
|
(1,929
|
)
|
|
|
$
|
(565
|
)
|
|
$
|
(1,195
|
)
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
In Management’s Discussion and Analysis of Financial Condition and Results of Operations, “NOVAGOLD”, the “Company”, “we,” “us” and “our” refer to NOVAGOLD RESOURCES INC. and its consolidated subsidiaries. The following discussion and analysis of our financial condition and results of operations constitutes management’s review of the factors that affected our financial and operating performance for the three- and six-month periods ended May 31, 2020 and May 31, 2019. This discussion should be read in conjunction with the condensed consolidated interim financial statements and notes thereto contained elsewhere in this report and our Annual Report on Form 10-K for the year ended November 30, 2019, as well as other information we file with the Securities and Exchange Commission on EDGAR at www.sec.gov and with Canadian Securities Administrators on SEDAR at www.sedar.com. References herein to $ refer to United States dollars and C$ to Canadian dollars.
Overview
Our operations primarily relate to the delivery of project milestones, including the achievement of various technical, environmental, sustainable development, external affairs/community engagement, economic, and legal objectives; obtaining necessary permits, completion of feasibility studies, preparation of engineering designs and obtaining financing to fund these milestones.
Our goals for 2020 include:
|
●
|
Advance the Donlin Gold project toward a construction/production decision.
|
|
●
|
Maintain a healthy balance sheet.
|
|
●
|
Sustain an effective corporate social responsibility program.
|
|
●
|
Promote a strong safety, sustainability and environmental culture.
|
Second quarter highlights
COVID-19
NOVAGOLD’s most important objective is to secure the health and safety of its employees, partners and contractors. The Company has implemented policies at its offices in Salt Lake City and Vancouver designed to ensure the safety and well-being of all employees and the people associated with them. In that regard, to reduce risk, our employees have been asked to work from home, avoid all non-essential travel, adhere to good hygiene practices, and engage in social distancing. Additionally, NOVAGOLD and its partner Barrick Gold through Donlin Gold LLC, have implemented a wide-ranging set of policies consistent with State of Alaska Health Department recommendations, travel restrictions and other COVID-19 measures in the region aimed at achieving the same objectives at Donlin Gold’s Anchorage office and the project site. As a precautionary measure, Donlin Gold LLC temporarily paused the drill program and placed the project site into care and maintenance in April through mid-May. The drill program and related site activities were re-started in late May and are being conducted in accordance with Donlin Gold’s coronavirus policies and procedures and all applicable State requirements.
Donlin Gold project
NOVAGOLD and Barrick continue to study ways to improve the project’s value and to reduce initial capital outlays through enhanced project design and execution, engagement of third-party operators for certain activities, and potential for future financing of some capital-intensive infrastructure. To date, these additional studies have identified key areas that have the potential to add value and maximize the future opportunity and longevity of the project. In February 2020, Donlin Gold LLC opened the camp and in March commenced a drill program in the ACMA and Lewis resource areas. The objective is to validate recent geologic and resource modeling concepts, and to test potential extensions of high-grade zones focused on early life mining that have potential to add value. The program will provide the necessary data for NOVAGOLD and Barrick to decide on the next steps to update the Donlin Gold feasibility study and initiate the engineering work necessary to advance the project design before reaching a construction decision. As discussed above, Donlin Gold LLC temporarily paused the 2020 drill program due to COVID-19. The drill program recommenced in late-May and four drills are currently operating. Assuming no further interruptions, Donlin Gold LLC expects to complete a majority of the program by year-end. The owners will advance the Donlin Gold project in a safe, efficient, financially disciplined manner with a strong focus on environmental stewardship and social responsibility.
Our share of funding for the Donlin Gold project in the first six months of 2020 was $6.9 million for the drill program, administration, permitting and community engagement efforts. Our share of the Donlin Gold 2020 work program and budget totals $20 million, including $11 million for the drilling program and $9 million for administration, permitting and community engagement to continue to advance the project. The continued spread of COVID-19 could impact employee health, workforce productivity, insurance premiums, ability to travel, the availability of industry experts and personnel, restrictions or delays to the drill program and/or the timing to process drill results and other metallurgical testing, and other factors that will depend on future developments beyond our control.
Donlin Gold LLC continues to support the State of Alaska to advance other permits and certificates needed for the project. The Alaska Department of Natural Resources’ (ADNR) issuance of the Alaska Dam Safety certificates for the tailings storage facility and water retention and diversion structures requires a thorough multi-year stepwise process to deliver a final construction package to ADNR. The program necessary for the certificates, including geotechnical core drilling, test pits, overburden drilling, packer tests, hydrogeologic test well installation and pumping tests, and geophysical surveys, commenced in 2019. The field work has been temporarily paused pending the prioritization of the ongoing drill program.
ADNR’s Division of Mining, Land, and Water (DMLW) issued the easement land leases, land use permits, and material site authorizations for the proposed transportation facilities including the access road, airstrip, and upriver Jungjuk port, as well as the easement for the fiber optic cable on State lands on January 2, 2020. ADNR’s Division of Oil and Gas (DOG), issued the final State Right-of-Way (ROW) lease for the buried natural gas pipeline on January 17, 2020. On February 6, 2020, Cook Inletkeeper, on behalf of the Orutsararmiut Native Council (ONC), Susitna River Coalition, Kasigluk Traditional Council, and Tununak IRA Council, requested that the Commissioner of ADNR reconsider the decision to issue the ROW lease for the pipeline. The ADNR Commissioner denied the request for reconsideration on February 18, 2020. On March 19, 2020, Earthjustice, representing ONC, Chevak Native Village, Chuloonawick Native Village, Native Village of Eek, and Cook Inletkeeper, filed an appeal of the denial of the ROW lease issuance reconsideration request in the Superior Court of the State of Alaska at Anchorage (the “Alaska Superior Court”). On April 30, 2020, ADNR reversed itself and agreed to reconsider the decision to issue the ROW lease in accordance with the February 6, 2020 request made by Cook Inletkeeper. The reconsideration specifically will address additional analysis of cumulative effects. In response, the appeal filed in the Alaska Superior Court was dismissed without prejudice on May 20, 2020.
In 2018, Earthjustice, on behalf of ONC, Akiak Native Community IRA Council, Organized Village of Kwethluk, Native Village of Kwigillingok, Chuloonawick Tribal Council, and the Yukon-Kuskokwim River Alliance, requested an informal review of the State of Alaska’s 401 certification (the “Certification”) by the Director of the Division of Water in the Alaska Department of Environmental Conservation (ADEC). In October 2018, the Director responded to the request by deciding to conduct the informal review and reissued the Certification on April 4, 2019. On April 24, 2019, Earthjustice requested a second informal review of the Certification and the request was granted by ADEC on May 4, 2019. On May 8, 2020, after a long and detailed technical and legal analysis including input from Donlin Gold, the Director issued his decision to uphold the April 2019 reissued Certification. On June 5, 2020, Earthjustice filed a formal appeal to the ADEC Commissioner; the appeal is in the form of a request for an Adjudicatory Hearing. The appeal specifically relates to expected compliance with the State’s water quality standards in Crooked Creek near the proposed mine site. On June 15, 2020, the ADEC Commissioner conditionally granted the request for the hearing.
The final approvals of the Donlin Gold Reclamation Plan and final Waste Management Permit were issued on January 18, 2019. On February 7, 2019, Earthjustice, on behalf of ONC, Akiak Native Community, Chefornak Traditional Council, Chevak Traditional Council, Chuloonawick Native Village, Native Village of Eek, Kasigluk Traditional Council, Kongiganak Traditional Council, Organized Village of Kwethluk, Native Village of Kwigillingok, Native Village of Nightmute, Sleetmute Traditional Council, Tuluksak Native Community, and Native Village of Tununak, filed an administrative appeal of the Reclamation Plan Approval. ADNR denied the appeal of the Donlin Gold Reclamation Plan Approval and permit on December 31, 2019 and affirmed DMLW’s original decision. Additionally, Earthjustice, representing the same tribal entities in the appeal of the Reclamation Plan Approval, requested an informal review of the Waste Management Permit, which was completed by ADEC’s Division of Water on June 25, 2019 and resulted in their original decision being upheld and no further appeals filed.
Donlin Gold LLC, with support from the project owners (NOVAGOLD and Barrick) is committed to growing strong and collaborative working relationships to preserve traditional lifestyles and support economic development for the benefit of Calista Corporation and The Kuskokwim Corporation shareholders (owners of the mineral and surface rights, respectively) and the Yukon-Kuskokwim (Y-K) region. Donlin Gold LLC and our Native Corporation partners remain actively engaged in environmental sustainability projects and extensive outreach efforts with local stakeholders through multiple traditional village council meetings, regional tribal gatherings, events and village visits across the Y-K region. Donlin Gold LLC provided extensive support and assistance in the Y-K region with COVID-19 related issues in the second quarter.
The Donlin Gold LLC board must approve a construction program and budget before the Donlin Gold project can be developed. The timing of the required engineering work and the Donlin Gold LLC board’s approval of a construction program and budget, the receipt of all required governmental permits and approvals, and the availability of financing, commodity price fluctuations, risks related to market events and general economic conditions among other factors, will affect the timing of and whether to develop the Donlin Gold project. Among other reasons, project delays could occur as a result of public opposition, litigation challenging permit decisions, requests for additional information or analysis, limitations in agency staff resources during regulatory review and permitting, project changes made by Donlin Gold LLC or any impact on operations from COVID-19.
We record our interest in the Donlin Gold project as an equity investment, which results in our 50% share of Donlin Gold’s expenses being recorded in the income statement as an operating loss. The investment amount recorded on the balance sheet primarily represents unused funds advanced to Donlin Gold.
Outlook
We do not currently generate operating cash flows. At May 31, 2020, we had cash and cash equivalents of $53.3 million and term deposits of $81.0 million. At present, we believe that these balances are sufficient to cover anticipated funding of the Donlin Gold project and NOVAGOLD’s general and administrative costs. Additional capital will be necessary if a decision to commence engineering and construction is reached for the Donlin Gold project. Future financings to fund construction are anticipated through debt, equity, project specific debt, and/or other means. Our continued operations are dependent on our ability to obtain additional financing or to generate future cash flows. However, there can be no assurance that we will be successful in our efforts to raise additional capital on terms favorable to us, or at all. For further information, see the risk factors in our Annual Report on Form 10-K for the year ended November 30, 2019, as filed with the SEC and the Canadian Securities Regulators on January 22, 2020, and Part II, Item 1A of this Form 10-Q.
For 2020, we continue to expect to spend approximately $31 million, including $20 million to fund our share of expenditures at the Donlin Gold project and $11 million for general and administrative costs. The continued spread of COVID-19 could materially and adversely impact the Company’s business including without limitation, employee health, workforce productivity, insurance premiums, ability to travel, the availability of industry experts and personnel, restrictions or delays to the Donlin Gold drill program and/or the timing to process drill and other metallurgical testing, and other factors that will depend on future developments beyond the Company’s control.
Summary of Consolidated Financial Performance
|
|
Three months ended May 31,
|
|
|
Six months ended May 31,
|
|
($ thousands, except per share)
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
General and administrative
|
|
$
|
(4,387
|
)
|
|
$
|
(4,215
|
)
|
|
$
|
(9,101
|
)
|
|
$
|
(8,555
|
)
|
Equity loss - Donlin Gold
|
|
|
(3,700
|
)
|
|
|
(2,198
|
)
|
|
|
(5,268
|
)
|
|
|
(3,521
|
)
|
Loss from operations
|
|
$
|
(8,087
|
)
|
|
$
|
(6,413
|
)
|
|
$
|
(14,369
|
)
|
|
$
|
(12,076
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,233
|
)
|
|
$
|
(5,515
|
)
|
|
$
|
(13,828
|
)
|
|
$
|
(11,838
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share – basic and diluted
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.04
|
)
|
Results of Operations
Second quarter 2020 compared to 2019
Loss from operations increased from $6.4 million in 2019 to $8.1 million in 2020 due to higher general and administrative expense and higher costs at Donlin Gold LLC. General and administrative expense increased from $4.2 million in 2019 to $4.4 million in 2020 primarily due to higher salaries and benefits and share-based compensation costs. Equity loss – Donlin Gold increased from $2.2 million in 2019 to $3.7 million in 2020 due to the 2020 drilling program.
Net loss increased from $5.5 million ($0.02 per share) in 2019 to $7.2 million ($0.02 per share) in 2020, primarily due to higher operating losses and lower interest income, partially offset by lower interest expense on the promissory note payable to Barrick and foreign exchange movements.
First six months 2020 compared to 2019
Loss from operations increased from $12.1 million in 2019 to $14.4 million in 2020 due to higher general and administrative expense and higher costs at Donlin Gold LLC. General and administrative expense increased by $0.5 million primarily due to higher share-based compensation and regulatory costs. At Donlin Gold expenses increased by $1.7 million due to the 2020 drilling program.
Net loss increased from $11.8 million ($0.04 per share) in 2019 to $13.8 million ($0.04 per share) in 2020, primarily due to higher operating losses and lower interest income, partially offset by lower interest expense on the promissory note payable to Barrick and foreign exchange movements.
Liquidity, Capital Resources and Capital Requirements
|
|
At
|
|
|
At
|
|
|
|
|
|
($ thousands)
|
|
May 31, 2020
|
|
|
November 30, 2019
|
|
|
Change
|
|
Cash and cash equivalents
|
|
$
|
53,329
|
|
|
$
|
67,549
|
|
|
$
|
(14,220
|
)
|
Term deposits
|
|
$
|
81,000
|
|
|
$
|
81,000
|
|
|
$
|
—
|
|
In the first six months of 2020, total Cash, cash equivalents and Term deposits decreased by $14.2 million of which $5.3 million was used in operating activities for administrative costs and working capital changes, $6.9 million was used to fund Donlin Gold and $1.7 million related to withholding taxes paid on vested performance share units (PSUs). Effects of exchange rate changes also decreased cash by $0.3 million. The term deposits are denominated in U.S. dollars and are held at Canadian chartered banks.
|
|
Three months ended May 31,
|
|
|
Six months ended May 31,
|
|
($ thousands)
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Net cash (used in) provided from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(1,834
|
)
|
|
$
|
(1,761
|
)
|
|
$
|
(5,331
|
)
|
|
$
|
(4,911
|
)
|
Investing activities
|
|
$
|
(4,290
|
)
|
|
$
|
(2,909
|
)
|
|
$
|
(6,890
|
)
|
|
$
|
3,194
|
|
Financing activities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1,652
|
)
|
|
$
|
(1,197
|
)
|
Second quarter 2020 compared to 2019
Net cash used in operating activities increased by $0.1 million, due to lower interest income, partially offset by changes in working capital. Net cash provided from (used in) investing activities included a $1.4 million increase in Donlin Gold funding due to the 2020 drilling program.
First six months 2020 compared to 2019
Net cash used in operating activities increased by $0.4 million, primarily due to lower interest income, partially offset by changes in working capital. Net cash provided from (used in) investing activities included a $3.1 million increase in Donlin Gold funding due to the 2020 drilling program. For the six-month period in 2019, term deposits decreased by $7.0 million, with the proceeds deposited in interest-bearing savings accounts. Net cash used in financing activities related to withholding taxes paid on vested performance share units.
Outstanding share data
As of June 17, 2020, the Company had 329,597,770 common shares issued and outstanding. Also, as of June 17, 2020, the Company had: i) a total of 11,613,663 stock options outstanding; 2,846,898 of those stock options with a weighted-average exercise price of C$5.47 and the remaining 8,766,765 with a weighted-average exercise price of $4.60; and ii) 1,684,000 PSUs and 274,990 deferred share units outstanding. Upon exercise or pay out, as applicable, of the foregoing convertible securities, the Company would be required to issue a maximum of 14,414,653 common shares.
Accounting Developments
For a discussion of Recently Issued Accounting Pronouncements, see Note 2 to the Condensed Consolidated Interim Financial Statements.