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VGZ > SEC Filings for VGZ > Form 10-Q on 2-Aug-2013All Recent SEC Filings

Show all filings for VISTA GOLD CORP

Form 10-Q for VISTA GOLD CORP


2-Aug-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 unaudited condensed consolidated financial statements for the three and six months ended June 30, 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, as of March 31, 2013, we owned approximately 28% of the common shares of Midas Gold Corp. ("Midas Gold", TSX: MAX), a company exploring for gold and developing the Golden Meadows project in the Yellow Pine-Stibnite District in Idaho.

Outlook

Our Mt. Todd gold project in the Northern Territory, Australia is currently our principal focus. Through the remainder of 2013, we plan to complete an environmental impact statement for the project, establish a mutually agreeable level of participation in the project with the Jawoyn Association Aboriginal Corporation, and advance discussions with respect to several key project issues including natural gas supply and pricing, taxation, environmental matters and labor readiness initiatives. The latter discussions will be conducted with the Government of the Northern Territory under the auspices of Major Project Status accorded to the Mt. Todd gold project in April 2013. 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 shares. 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 sufficient capital on reasonable terms, if at all.

Recent Corporate Events

On June 11, 2013, Vista Gold Corp. changed its jurisdiction of incorporation from the Yukon Territory, Canada to the Province of British Columbia, Canada under the Business Corporations Act (British Columbia) by way of a continuation (the "Continuation"). Our shareholders approved the Continuation at the annual general and special meeting of shareholders held on April 30, 2013. On June 11, 2013, we completed the filing of a continuation application with the Registrar of Companies for the Province of British Columbia and received a Certificate of Continuation from the Registrar of Companies. For further details see our Current Report on Form 8-K filed on June 12, 2013.


Results from Operations

Summary

For the three- and six-month periods ended June 30, 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 June 30, 2013 was $21,015 or $0.26 per basic share compared to consolidated net loss for the same period in 2012 of $30,504 or $0.42 per basic share. Consolidated net loss for the six months ended June 30, 2013 was $48,421 or $0.59 per basic share compared to consolidated net loss for the same period in 2012 of $41,728 or $0.58 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 $5,877 during the three-month period ended June 30, 2013 compared to $6,758 for the same period in 2012. Exploration, property evaluation and holding costs were $13,007 during the six-month period ended June 30, 2013 compared to $12,465 for the same period in 2012. During 2013 costs were primarily due to 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 environmental impact statement ("EIS") preparation/environmental permitting. 2012 costs at Mt. Todd did not include water treatment costs but included a significant development drilling program. 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 were not incurred in 2013.

Corporate administration

Corporate administration costs of $1,225 during the three-month period ended June 30, 2013 compared to $2,003 for the same period in 2012. Corporate administration costs of $3,135 during the six-month period ended June 30, 2013 compared to $4,077 for the same period in 2012. The decrease period over period was due to a decrease in legal fees and stock based compensation expense.

Depreciation and amortization

Depreciation and amortization expense was $267 and $132 for the three-month periods ended June 30, 2013 and 2012, respectively. Depreciation and amortization expense was $542 and $258 for the six-month periods ended June 30, 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 six months ended June 30, 2012.

The Company had no similar transactions during the six months ended June 30, 2013.

Non-operating income and expenses

Unrealized loss on other investments

Unrealized loss on other investments was $18,541 and $34,951 for the three months ended June 30, 2013 and 2012, respectively. Unrealized loss on other investments was $47,322 and $42,316 for the six months ended June 30, 2013 and 2012, respectively. These amounts are the result of changes in fair value of our Midas Gold common shares.

Deferred income tax benefit

The deferred income tax benefit/(expense) will fluctuate period-to-period based primarily on the change in the fair value of Vista Gold U.S., Inc.'s investment in Midas Gold. To the extent our U.S. deferred tax assets exceed our U.S. deferred tax liabilities that primarily relate to Vista Gold U.S., Inc.'s investment in Midas Gold, we establish a valuation allowance on our net U.S. deferred tax assets due to inability to determine that it is more likely than not that we will realize the benefit of the deferred tax assets. Deferred income tax benefit was $4,411 and $15,374 for the three and six months ended June 30, 2013, respectively, compared to $13,210 and $16,201 for the three and six months ended June 30, 2012, respectively.

Financial Position, Liquidity and Capital Resources

Cash used in operations

Net cash used in operating activities was $16,495 for the six-month period ended June 30, 2013, compared to $15,205 for the same period in 2012. The increase of $1,290 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 $2,124 for the six-month period ended June 30, 2013 was primarily due to capitalized water treatment facility costs at the Mt. Todd gold project. Net cash provided by investing activities of $3,002 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 $589.

Financing activities

Net cash provided by financing activities was $9,637 for the six months ended June 30, 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 and $1,100 from the exercise of compensation warrants during the six months ended June 30, 2012.

Liquidity and Capital Resources

At June 30, 2013, we had working capital of $12,888 compared with working capital of $60,342 at December 31, 2012, representing a decrease of $47,454. Our working capital decreased primarily due to the decrease in the fair value of our shares of Midas Gold, net of deferred tax benefit, the use of cash to fund operations and the addition of the 2013 Facility. Included in the $12,888 working capital amount is $9,299 of cash and cash equivalents.

Management is strongly committed to careful cash management and maintaining liquidity. We continue to advance several important value-adding initiatives, including the authorization process for the Mt. Todd project environmental impact statement, none of which are particularly capital intensive. Discretionary programs requiring material capital commitments, exploration programs and technical studies in particular, have been deferred until market conditions improve. The Company's cash burn rate is expected to be reduced to approximately $3,500 to $4,500 per quarter through the remainder of 2013, with further material reductions planned for 2014. The expected reduction in cash burn rate includes reductions in the corporate staff, voluntary reductions of up to 50% in executive, senior management and Board cash compensation and the delay or elimination of various discretionary programs. The Company believes that its current position is sufficient for the remainder of 2013.

We continue to prioritize our capital raising efforts on non-dilutive sources. 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 net value of $10,000; and the completion of the earn-in at the Los Cardones gold project in Mexico by the Invecture Group, which would result in a $20,000 payment to Vista. The Company is also considering options to monetize other non-core assets. However, there can be no assurance that any of these events will occur.

On March 28, 2013, we closed and drew a C$10,000 ($9,500) loan facility (the "2013 Facility"). The 2013 Facility matures March 28, 2014 and bears interest rate of 8% per annum. The 2013 Facility is secured by a general security agreement on our assets, with carve-outs for our Mt. Todd gold project and our mill equipment. In the event that we complete a sale of the mill equipment, we are not required to use any portion of the proceeds to repay the 2013 Facility, and may instead use the proceeds on general operating expenses and the advancement of the Mt. Todd gold project. We have the option to extend the 2013 Facility for an additional year to March 28, 2015 subject to the payment of a 3.5% fee, which is payable in our common shares, and the Lender's satisfaction in our capacity to repay the loan and that our assets are not, or are not about to become, impaired. Should we be unable to raise the cash necessary for full repayment of the 2013 Facility when it is due on March 28, 2014, we will likely seek to extend the 2013 Facility and we may also seek additional sources of financing through debt or issuance of our common shares. In the past year, capital raising has become more difficult for junior mining companies which do not have producing assets and these conditions are expected to continue in 2013 and possibly 2014. Consequently, we may not be able to raise capital in sufficient amounts on reasonable terms, if at all.

The continuing operations of the Company are dependent upon our ability to secure sufficient funding and to generate future profits from operations. The underlying value and recoverability of the amounts shown as mineral properties, plant and equipment, assets held for sale, investments and other property interests in our consolidated balance sheets are dependent on our ability to generate positive cash flow from operations and to continue to fund exploration and development activities that would lead to profitable production or proceeds from the disposition of these assets. There can be no assurance that we will be successful in generating future profitable operations, disposing of these assets or securing additional funding in the future on terms acceptable to us or at all. Our unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or liabilities which might be necessary should we not be able to continue as a going-concern.

Common shares issued and outstanding

                                                 Number of shares issued
As of December 31, 2012                                      81,563,498
Shares issued for restricted stock units                         99,539
Shares issued in connection with debt issuance                  125,798
As of June 30, 2013                                          81,788,835

During the six months ended June 30, 2013, the Company issued 99,539 common shares in connection with the vesting of restricted stock. The Company also issued 125,798 common 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 June 30, 2013, our contractual obligations consist of our 2013 Facility, discussed above, and a $635 obligation for the balance due on our acquisition of certain 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 for 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 and $60 during each of the three month periods ended June 30, 2013 and 2012.

Project Updates

Mt. Todd Gold Project, Australia

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 Northern 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 May 2013, we completed a prefeasibility study (the "PFS") at our Mt. Todd gold project in Northern Territory, Australia pursuant to Canadian National Instrument 43-101 Standards of Disclosure for Mineral Projects ("NI 43-101"). The technical report was filed on SEDAR on June 28, 2013, and is entitled "NI 43-101 Technical Report - Mt. Todd Gold Project 50,000 tpd Preliminary Feasibility Study - Northern Territory, Australia" and was issued on June 28, 2013 with an effective date of May 29, 2013.

The PFS evaluates two development scenarios including a 50,000 tonne per day
("tpd") project that develops more of the Mt. Todd resource (the "Base Case")
and generates a larger Net Present Value ("NPV") and a smaller and higher-grade 33,000 tpd project that focuses on maximizing return and operating margins (the "Alternate Case").

Highlights of the 50,000 tpd Base Case include:

a 5% increase in contained gold ounces in the measured and indicated categories (+394,361 ozs) compared to the previous resource estimate (September 2012); and estimated proven and probable reserves of 5.90 million ounces of gold (223 million tonnes at 0.82 g Au/t) at a cut-off grade of 0.40 g Au/t, an increase of 44% from the Company's January 2011 prefeasibility study(1);

average annual production of 369,850 ounces of gold per year over the mine life, including average annual production of 481,316 ounces of gold per year during the first five years of operations;

life of mine average cash costs of $773 per ounce, including average cash costs of $662 per ounce during the first five years of operations;

a 13 year operating life;

after-tax NPV5% of $591.3 million and internal rate of return of 15.9% at $1,450 per ounce gold prices, increasing to $876.6 million and 21.1%, respectively, at $1,600 per ounce gold prices; and

initial capital requirements of $1,046 million

Highlights of the 30,000 tpd Alternate Case include:

estimated proven and probable reserves of 3.56 million ounces of gold (124 million tonnes at 0.90 g Au/t) at a cut-off grade of 0.45 g Au/t(1);

average annual production of 262,826 ounces of gold per year over the mine life, including average annual production of 294,502 ounces of gold per year during the first five years of operations;

life of mine average cash costs of $684 per ounce, including average cash costs of $676 per ounce during the first five years of operations;

an 11 year operating life;

after-tax NPV5% of $440.2 million and internal rate of return of 16.9% at $1,450 per ounce gold prices, increasing to $615.6 million and 21.4%, respectively, at $1,600 per ounce gold prices; and

Initial capital requirements of $761 million.

(1) Cautionary note to U.S. investors: Proven and probable reserves are estimated in accordance with NI 43-101 and do not constitute SEC Industry Guide 7 compliant reserves see the section heading "Cautionary Note to United States Investors Regarding Estimates of Measured, Indicated and Inferred Resources and Proven and Probable Reserves" below.


Base Case Scenario Presented in PFS

Highlights of the PFS Base Case scenario are presented in the table below:




Base Case (50,000 tpd) @ $1,450/oz                                      Life of Mine ("LOM") (13
Au                                              Years 1-5                        years)
                                        Annual                         Annual
                                        Average          Total         Average            Total
Average Milled Grade (g/t)                        1.03                            0.82
Payable Gold (000's ozs)                  481            2,407            370             4,808
Gold Recovery                                     82.0%                          81.5%
Cash Costs ($/oz)                                 $662                            $773
Strip Ratio (waste:ore)                            2.5                            2.7
Initial Capital ($ millions)                                                     $1,046
Pre-tax NPV 5% ($ millions)                                                      $1,094
After-tax NPV 5% ($ millions)                                                     $591
Internal Rate of Return
(Pre-tax/After-tax)                                                          21.8% / 15.9%
After-tax Payback (Production
Years)                                                                            3.5

Note: Economics presented using $1,450/oz gold and a flat $1.00 USD : $1.00 AUD exchange rare and assumes deferral of certain Northern Territory tax obligations as well as realization of equipment salvage values at the end of the mine life.

The following table provides additional details of the Mt. Todd gold project's Base Case economics at variable gold price and Australian dollar assumptions:

   After-Tax NPV 5%, in
         Millions                                               Base Case (50,000 tpd) Gold Price per Ounce
      ForEx USD/AUD             $1,200         $1,300        $1,400        $1,450        $1,500         $1,600           $1,700        $1,800
         USD$1.10               ($51.4)        $155.9        $352.1        $448.4        $543.8         $734.5           $924.9       $1,114.1
         USD$1.00               $108.1         $304.5        $496.1        $591.3        $686.6         $876.6          $1,065.6      $1,255.1
         USD$0.90               $258.5         $448.3        $638.8        $733.6        $828.3        $1,017.2         $1,206.5      $1,395.9
         USD$0.80               $400.6         $591.0        $780.0        $874.4        $968.9        $1,157.9         $1,347.2      $1,536.1

Note: Changes in Foreign Exchange rates are only applied to operating costs and not applied to either initial or sustaining capital costs.

Base Case key capital expenditures for initial and sustaining capital requirements are identified in the following table:

Capital Expenditures ($ Millions)                                          Initial        Sustaining
     Base Case (50,000) tpd)                                               Capital         Capital
Capitalized Stripping & Dewatering                                           $57             $40
Mobile Equipment                                                            $139             $151
Process Facility                                                            $410               -
Tailings                                                                     $20             $184
Power Plant                                                                  $91               -
Water Supply & Treatment                                                     $19               -
Owners Cost                                                                 $203            ($10)
Sub-Total                                                                   $938             $366
Contingency                                                                 $107             $23
Salvage Value                                                                               ($124)
Mine Closure                                                                 $1              $94
Total Capital                                                              $1,046            $359
Total Capital per payable ounce
gold                                                                        $218             $75

Note: Amounts may not add due to rounding. The negative value in the sustaining capital category of the owners' cost line is the recapture of the cash component of the project's cash reclamation bond, which is spend as cash under the Mine Closure category.

The following table presents a breakdown of Base Case operating costs. The project includes a 76MW gas-fired power plant in the initial capital. The Base Case project consumes all power generated during the operating life. Self-generated power creates significant savings in operating costs compared to a grid-sources power solution. During the four years of reclamation and closure, the PFS assumes we will continue to generate power and will sell that power into the Northern Territory electrical grid, for which there is a known market and indicative purchase rates have been provided by the government-owned utility.

Operating Cost - Base Case (50,000
tpd)                                         First 5 Years                 LOM Cost
                                       Per tonne                    Per tonne
                                       processed      Per ounce     processed    Per ounce
Mining                                   $8.18         $302.30        $6.95       $321.88
Processing                               $8.71         $321.47        $8.78       $406.86
Site General and Administrative          $0.49         $18.27         $0.50       $22.94
Jawoyn Royalty                           $0.39         $14.50         $0.31       $14.50
Water Treatment                          $0.07          $2.60         $0.10        $3.39
Refining Costs                           $0.09          $3.19         $0.07        $3.19
Power Credit                                -             -             -            -
Total Cash Costs                         $17.93        $662.06       $16.70       $772.76

Note: Jawoyn Royalty and Refining Costs calculated at $1,450 per ounce of gold. Amounts may not add due to rounding.

The 50,000tpd Base Case mine plan contains plan contains 209.5 million tonnes of ore mined from the Batman open pit plus 13.4 million tonnes of ore from the existing heap leach pad that is processed through the mill at the end of the mine life. Together, 222.8 million tonnes of ore containing 5.901 million ounces of gold at an average grade of 0.82 g Au/t are processed over the 13 year operating life. Total gold recovered is expected to be 4.808 million ounces. Average annual gold production over the life of mine is 369,850 ounces, averaging 481,316 ounces during the first five years of operations, with 580,472 ounces produced in the first year of operations. Commercial production would begin following two years of construction and commissioning.

The following table highlights the Base Case production schedule:

. . .

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