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VGZ > SEC Filings for VGZ > Form 10-Q on 7-May-2013All Recent SEC Filings

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Form 10-Q for VISTA GOLD CORP


7-May-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis ("MD&A") should be read in conjunction with our interim consolidated financial statements for the three months ended March 31, 2013 and the related notes thereto, which have been prepared in accordance with generally accepted accounting principles in the United States ("U.S. GAAP"). This MD&A contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors. See "Note Regarding Forward-Looking Statements" below.

All dollar amounts stated herein are in thousands of U.S. dollars, except per share amounts and per ounce amounts. References to C$ refer to Canadian currency, A$ to Australian currency and $ to United States currency.

Overview

Vista Gold Corp. and its subsidiaries (collectively, "Vista," the "Company," the "Corporation," "we," "our" or "us") operate in the gold mining industry. We are focused on the evaluation, acquisition, exploration and advancement of gold exploration and potential development projects, which may lead to gold production or value adding strategic transactions such as earn-in right agreements or leases to third parties, joint venture arrangements with other mining companies, or outright sales of assets for cash and/or other consideration. As such, we are considered an Exploration Stage Enterprise. Our approach to acquisitions of gold projects has generally been to seek projects within political jurisdictions with well-established mining, land ownership and tax laws, which have adequate drilling and geological data to support the completion of a third-party review of the geological data and to complete an estimate of the gold mineralization. In addition, we look for opportunities to improve the value of our gold projects through exploration drilling and/or technical studies resulting in changes to the operating assumptions underlying previous engineering work.

Our holdings include the Mt. Todd gold project in Australia, the Guadalupe de los Reyes gold/silver project in Mexico, the Los Cardones gold project in Mexico, the Long Valley gold project in California, the Awak Mas gold project in Indonesia, and mining claims in Utah. In addition, we own approximately 28% of the shares of Midas Gold Corp. ("Midas Gold"), a company exploring for gold and developing the Golden Meadows project in the Yellow Pine-Stibnite District in Idaho. Midas Gold is listed on the Toronto Stock Exchange under the trading symbol "MAX".

Outlook

Our Mt. Todd gold project in the Northern Territory, Australia will be our principal focus in 2013. Our 2013 plans for Mt. Todd include completing a final resource estimate, initiating the process to permit development of the project including an environmental impact statement, and completing a pre-feasibility study. Other programs, particularly significant development commitments, will be deferred until market conditions improve.

We do not currently generate operating cash flows. Our principal source of financing in the past has been the issuance of our common stock. The prices for gold equities, particularly those with early stage projects, have decreased steadily during the past six months, and capital raising has become more difficult for junior mining companies which do not have producing assets. Consequently, raising sufficient amounts of equity capital on reasonable terms has become increasingly difficult. These conditions are expected to continue in 2013, and could affect our ability to raise the necessary capital on reasonable terms, if at all.

Results from Operations

Summary

For the three-month period ended March 31, 2013, we continued to advance our Mt. Todd gold project in Northern Territory, Australia with a view towards potential development. Consolidated net loss for the three months ended March 31, 2013 was $27,406 or $0.34 per basic share compared to consolidated net loss for the same period in 2012 of $11,226 or $0.16 per basic share. The principal components of these period-over-period changes are discussed below.

Exploration, property evaluation and holding costs

Exploration, property evaluation and holding costs were $7,130 during the three-month period ended March 31, 2013 compared to $5,707 for the same period in 2012. The higher 2013 costs were primarily due to increased expenses at our Mt. Todd gold project


associated with the significant water treatment program completed in the existing open pit, the pre-feasibility study and related activities, and permitting. At our Los Cardones gold project, costs decreased substantially in 2013 from 2012 since as of February 2012, Invecture Group, S.A. de C.V. ("Invecture") has incurred all costs associated with the progression of this project under an earn-in right agreement ("Earn-in Right Agreement"). At our Guadalupe de los Reyes gold/silver project, costs decreased significantly in 2013 from 2012 as we incurred drilling costs in 2012 that did not occur in 2013.

Corporate administration and investor relations

Corporate administration and investor relations costs of $1,910 during the three-month periods ended March 31, 2013 approximated those of $2,074 for the same period in 2012.

Depreciation and amortization

Depreciation and amortization expense was $275 and $126 for the three-month periods ended March 31, 2013 and 2012, respectively. The increase period-to-period was primarily attributable to increased capital expenditures at the Mt. Todd gold project.

Gain on disposal of mineral property

Pursuant to a joint venture agreement with Awak Mas Holdings Pty. Ltd. ("AM Holdings"), whereby AM Holdings may earn an 80% interest in our Awak Mas gold project in Indonesia, we received certain cash payments in excess of the carrying value of the project, which resulted in a realized gain of $934 during the three months ended March 31, 2012.

The Company had no similar transactions during the three months ended March 31, 2013.

Non-operating income and expenses

Unrealized loss on other investments

Unrealized loss on other investments was $28,781 and $7,365 for the three months ended March 31, 2013 and 2012, respectively. These amounts are the result of changes in fair value of our Midas Gold shares.

Deferred income tax benefit/(expense)

The deferred income tax benefit/(expense) will fluctuate period-to-period based primarily on the change in the fair value of Vista US's investment in Midas Gold. Deferred income tax benefit was $10,963 and $2,991 for the three months ended March 31, 2013 and 2012, respectively.

Financial Position, Liquidity and Capital Resources

Cash used in operations

Net cash used in operating activities was $9,546 for the three-month period ended March 31, 2013, compared to $7,049 for the same period in 2012. The increase of $2,497 was primarily the result of increases in exploration, property evaluation and holding costs as discussed above.

Investing activities

Net cash used in investing activities was $2,078 for the three-month period ended March 31, 2013 was primarily due to capitalized water treatment facility costs at the Mt. Todd gold project. Net cash provided by investing activities of $3,276 for the same period in 2012 was primarily due to receipt of $3,500 in accordance with option and earn-in agreements associated with certain mineral properties, which was partially offset by additions to plant and equipment of $342.

Financing activities

Net cash provided by financing activities was $9,637 for the three months ended March 31, 2013 due to the completion of a loan facility in March 2013, as discussed below.


We received cash of $733 from the exercise of compensation options during the three months ended March 31, 2012.

Liquidity and Capital Resources

At March 31, 2013, we had working capital of $31,685 compared with working capital of $60,342 at December 31, 2012, representing a decrease of $28,657. Our working capital decreased primarily due to the decrease in the fair value of other investments. Included in the $31,727 working capital amount is $16,294 of cash and cash equivalents.

On March 28, 2013, we closed and drew a $9,764 (C$10,000) loan facility (the "2013 Facility"). The 2013 Facility matures March 28, 2014 and bears interest rate of 8% per annum. In addition, the Company paid the lender fees of $99 (C$100) in cash and 125,798 common shares of the Company. The Company has the option to extend the 2013 Facility, as discussed in Note 7 of the Company's March 31, 2013 Condensed Consolidated Financial Statements.

The 2013 Facility provides us with a non-dilutive source of liquidity during a very difficult equity market, and gives us the ability to continue our evaluation of the Mt. Todd gold project where we expect to complete a prefeasibility study and significantly advance the project permitting process, neither of which are particularly capital intensive. Other programs, in particular significant development commitments, will be deferred until market conditions improve. With these changes we believe that our current cash position will be sufficient for the remainder of 2013.

Potential near-term sources of additional cash include the proceeds from the sale of the mill equipment, which is currently being actively marketed, and has an estimated sale value of $10 million; and the completion of the earn-in at the Los Cardones gold project in Mexico by the Invecture Group, which would result in a $20 million payment to Vista. However, there can be no assurance that either of these events will occur.

Common shares issued and outstanding

                                                     Number of shares issued
As of December 31, 2012                                          81,563,498
Shares issued for restricted stock                                   32,664
Shares issued in connection with the 2013 Facility                  125,798
As of March 31, 2013                                             81,721,960

In January 2013, the Company issued 32,664 shares in connection with the vesting of restricted stock. The Company also issued 125,798 shares as part of the 2013 Facility, which had a fair value of $272 at the time of the debt issuance.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements required to be disclosed in this Quarterly Report on Form 10-Q.

Contractual Obligations

At March 31, 2013, our contractual obligations consist of our 2013 Facility, discussed above, and a $635 obligation for the balance due on our acquisition of some land for our Los Cardones gold project, which is due upon the achievement of certain milestones and is recorded in other long-term liabilities in our Consolidated Balance Sheets.

Transactions with Related Parties

Agreement with Sierra Partners LLC

On April 1, 2009, we entered into an agreement with Sierra Partners LLC ("Sierra") pursuant to which Sierra agreed to provide us with support and analysis of our general corporate finance and strategy efforts. A founder and partner of Sierra is also one of our directors. As compensation for these services, we have agreed to pay Sierra a monthly retainer fee of $10 for the duration of the agreement. We paid


to Sierra $30 during each of the three month periods March 31, 2013 and 2012.

Project Updates

Mt. Todd Gold Project, Australia

In March 2013, we completed an updated mineral resource estimate for the Batman deposit at our Mt. Todd gold project in Northern Territory, Australia pursuant to Canadian National Instrument 43-101 Standards of Disclosure for Mineral Projects. Previous technical reports contain extensive geologic and technical information related to the deposit for which the estimate is prepared. The last technical report was filed on SEDAR on October 5, 2012, and is entitled "NI 43-101 Technical Report - Resource Update - Mt. Todd Gold Project - Northern Territory, Australia" and was issued on October 4, 2012 with an effective date of September 4, 2012. Because the Company does not view this change in the Mt. Todd resource estimate as a material change, it will not be completing and filing a separate technical report for this resource update.

The updated mineral resource estimate includes the final 14 drill holes (7,701 total meters) from our resource conversion drilling program at the Mt. Todd gold project. The Batman deposit is now estimated to contain 7.40 million ounces of gold in the measured and indicated categories and 1.73 million ounces in the Inferred category. This resource estimate will be the basis for the feasibility study, which has been deferred until market conditions improve.

Highlights of the updated mineral resource estimate include:

ˇ A 5% increase in contained gold ounces in the M&I categories (+394,361 ozs) compared to the previous resource estimate (September 2012); and

ˇ A 44% increase in contained gold ounces in the M&I categories (+2,276,000 ozs) compared to the January 2011 preliminary feasibility study.

The new mineral resource estimate for the Batman deposit, as of March 12, 2013, is presented in the table below. The mineral resource estimate is reported at a cutoff grade of 0.40 grams of gold per tonne (0.015 ounces gold per ton), the same cut-off grade as the Company's previous estimates. The estimate was prepared using MicroMineŽ software and used whole block kriging to estimate block values.

March 2013 Mt. Todd Resource Estimate - Batman Deposit




                                               Gold
                                Metric        Grade       Short       Average       Contained Gold
                             Tonnes     (x    (grams    Tons   (x      Grade       Ounces        (x
Resource Classification         1,000)        Au/t)      1,000)     (ounces/ton)        1,000)
Measured (1)                    77,793        0.877      85,751        0.026            2,193
Indicated (1)                   201,792       0.803      222,435       0.023            5,209
Measured and Indicated (1)      279,585       0.823      308,187       0.024            7,401
Inferred (1)                    72,458        0.742      79,870        0.022            1,729

(1) Cautionary note to U.S. investors: see the section heading "Cautionary Note to United States Investors Regarding Estimates of Measured, Indicated and Inferred Resources and Proven and Probable Reserves" below.

In April 2013, the Northern Territory ("NT") Government awarded our Mt. Todd gold project Major Project Status, signifying the NT Government's support for the timely and responsible development of the Mt. Todd gold project. Major Project Status is awarded by the NT Government to projects that have the potential to provide significant economic opportunities for the Territory and its citizens. Major Project Status prospectively provides a process and structure for decisions regarding matters of importance to the project to be made in an efficient and timely manner. Major Project Status is coordinated by a Cabinet-level committee and implementation is supervised by the office of the Chief Minister, thereby hopefully minimizing potential for delays in obtaining critical decisions.

In April 2013, we also completed and submitted a draft environmental impact statement ("EIS") to the Environmental Protection Agency of the NT Government ("NTEPA") for review. The NTEPA has proposed this review as a way to identify any items that may require


additional study early in the process and to avoid untimely delays later in the approval process. We anticipate submitting the final EIS later in the second quarter of 2013 and believe that we remain on track to receive permits around the end 2013.

Guadalupe de los Reyes Gold/Silver Project, Mexico

Preliminary Economic Assessment

In March 2013, we completed of a preliminary economic assessment ("PEA") for the Guadalupe de los Reyes gold/silver project in Sinaloa, Mexico which evaluated the viability of a 1,500 tonne per day (540,000 tonne per annum) processing facility with positive results. The PEA was completed pursuant to Canadian National Instrument 43-101 Standards of Disclosure for Mineral Projects. The last technical report was filed on SEDAR on November 29, 2012 and is entitled "Technical Report Resource of Guadalupe de los Reyes Gold/Siler Project - Sinaloa, Mexico" and was issued on November 5, 2012.

The PEA is intended to provide only an initial review of the Guadalupe de los Reyes gold/silver project's potential and is preliminary in nature. The PEA includes inferred resources that are considered to be too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves, and there is no certainty that the economic results described in the PEA will be realized.

Project Economics

The following table provides details on the Project's economics at variable gold price assumptions.

  Financials @ 8% discount rate                    Gold/Silver Price Assumptions
                                                           $1,480/
                                    $1,184/   $1,332/    $28    (Base                    $1,776/
                           Units    $22.40     $25.20       Case)       $1,628/ $30.80   $33.60
Average Gold Cash Costs   US$/oz      631       631          631             631           631
After-Tax NPV              US$M      10.9       34.1         57.3            80.3         103.3
IRR (After-Tax)              %        11         16           21              25           29
Payback (After-Tax)        Years      6.0       4.0          3.6             3.4           3.2

Project Concept

The Guadalupe de los Reyes gold/silver project, as currently envisioned, consists of five small open pits within the Guadalupe de los Reyes system, all located within approximately 2.5km of each other. Conventional open pit methods are recommended for mining the five deposits.

The deposits are typical of a low sulfidation epithermal system with mineralization occurring in westward dipping structural zones that range from a few meters to tens of meters in thickness. The gold occurs as microscopic-sized, free to quartz-encapsulated electrum associated with silver sulfides. Historic metallurgic testwork focused on heap leach recovery methods; however Vista believes that finer grind size through milling could lead to better recoveries. Vista's testwork has focused on gold extraction under a conventional mill and CIL circuit and has resulted in an estimated average gold recovery of 93% and a range of silver recoveries, dependent on the specific deposit tested.

Mill throughput is assumed to be 1,500 tonnes per day or 540,000 tonnes per year. With this assumed production rate, the mine life would be approximately 11 years, with 5.5 million tonnes of material processed. The mine would have an overall strip ratio of 11.7 tonnes of waste rock per tonne of economic mineralized rock. Gold accounts for approximately 80% of the value of the payable metals with silver accounting for the balance.

Mineral Resources

The mineral resources utilized in this PEA are summarized in the table below.


                                            Gold      Silver
                                           Grade       Grade     Contained   Contained
                                           (grams     (grams       Gold        Silver
Resource Classification   Metric Tonnes    Au/t)       Ag/t)      Ounces       Ounces
Indicated (1)               6,842,238       1.73       28.71      380,323    6,315,407
Inferred (1)                3,246,320       1.49       34.87      155,209    3,639,163

(1) Cautionary note to U.S. investors: see the section heading "Cautionary Note to United States Investors Regarding Estimates of Measured, Indicated and Inferred Resources and Proven and Probable Reserves" below.

Capital Costs

Capital costs estimates were done based on fourth quarter 2012, un-escalated U.S. dollars and are summarized in the table below. Minor rounding errors may occur.

Area                            Detail            Pre-Production    Sustaining       Total
                                                           (in millions of dollars)
Direct Costs                    Mine                        8.2            6.7          14.8
                                Mill                       36.7               -         36.7
                                Tailings                    6.5           15.5          22.0
                                Infrastructure             12.3               -         12.3
Mine Closure                                                   -           5.0           5.0
Owner Costs                                                 4.8               -          4.8
Contingency (30% applied to
all)                                                       20.5            8.2          28.7
Total Capex Estimate with
Contingency                                                88.9           35.4         124.3

Capex Without Contingency                                  68.4           27.2          95.6
   Minor rounding
differences may exist

Operating Costs

Operating cost estimates were based on fourth quarter of 2012 un-escalated U.S. dollars and are summarized in the table below. Minor rounding errors may occur.

                                                  Unit Cost Estimate
                                                                      Cash Costs
                                                                      $/Au Ounce
Item                                  $/t Mined       $/t Milled        Payable
Mining                                      1.31           16.61              223
Processing                                                 23.48              315
General and Administrative                                  1.50               20
Environmental                                               0.50                7
Total (without silver credits)                             42.06              564
   Minor rounding differences may
exist


Annual Production








                                                                               Contained
Year                  Ore Mined   Gold Grade   Contained Gold   Silver Grade    Silver      Waste    Strip Ratio
                        (kt)        (g/t)          (kozs)          (g/t)        (kozs)      (kt)
(1)                          2         1.69             0.11          16.79        1.08       895         447.5
1                          540         1.89            32.79          12.35      214.42     2,698           5.0
2                          540         1.89            32.79          12.35      214.42     2,698           5.0
3                          540         1.89            32.79          12.35      214.42     2,698           5.0
4                          540         3.51            60.93          34.20      593.84     3,592           6.7
5                          540         1.69            29.35          16.79      291.51     4,058           7.5
6                          540         1.69            29.35          16.79      291.51     4,058           7.5
7                          540         1.69            29.35          16.79      291.51     4,058           7.5
8                          540         1.48            25.67          26.31      456.83    46,935           8.6
9                          540         1.57            27.22          38.43      667.19     7,479          13.9
10                         540         2.54            44.08          99.51    1,727.57    15,444          28.6
11                         104         2.54             8.49          99.51      332.72    12,215         117.5
Total/Avg                5,506         1.99           352.92          29.92    5,297.02    64,561          11.7

Exploration Upside

Vista's 2011-2012 exploration program was designed to confirm the existing resource and test the potential for higher gold and silver grades at depth. The minimal amount of deep drilling conducted by the Company together with historical records indicate that the stockwork of the low sulfidation epithermal vein system that is the host for the deposits evaluated in the PEA consolidate into high-grade vein systems with widths that could be mined by underground mining methods. We believe there is a possibility that with time and the appropriate exploration expenditures, a high-grade underground-mineable resource could potentially be developed.

The Guadalupe de los Reyes project is without known mineral reserves under SEC Industry Guide 7 and the proposed program at Guadalupe de los Reyes is exploratory in nature.

For the remainder of 2013, our expenditures on Guadalupe de los Reyes will be restricted to property holding costs and community support initiatives as the Company is primarily focused on the continued evaluation of the Mt. Todd project.

These Project Updates have been reviewed and approved by Mr. John W. Rozelle, Senior Vice President of Vista, under whose direction the Company's technical reports are being carried out. Mr. Rozelle is a qualified person as defined by National Instrument 43-101.

Cautionary Note to U.S. Investors Regarding Estimates of Measured, Indicated and Inferred Resources and Proven and Probable Reserves

The terms "mineral resource", "measured mineral resource", "indicated mineral resource" and "inferred mineral resource" are Canadian mining terms as defined in accordance with Canadian National Instrument 43-101 - Standards of Disclosure for Mineral Projects ("NI 43-101") and the Canadian Institute of Mining, Metallurgy and Petroleum (the "CIM") - CIM Definition Standards on Mineral Resources and Mineral Reserves, adopted by the CIM Council, as amended (the "CIM Definition Standards"). These definitions differ from the definitions in the United States Securities and Exchange Commission ("SEC") Industry Guide 7 ("SEC Industry Guide 7") under the United States Securities Act of 1933, as amended (the "Securities Act") and are normally not permitted to be used in reports and registration statements filed with the SEC. Investors are cautioned not to assume that all or any part of a mineral deposit in these categories will ever be converted into reserves. "Inferred mineral resources" have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all, or any part, of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred mineral resources may not form the basis . . .

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