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VGZ > SEC Filings for VGZ > Form 10-Q on 30-Oct-2013All Recent SEC Filings

Show all filings for VISTA GOLD CORP

Form 10-Q for VISTA GOLD CORP


30-Oct-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 nine months ended September 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.

We are currently conducting a strategic review of our portfolio of gold assets, focused on our Mt. Todd gold project in Northern Territory, Australia. Vista's portfolio of assets also includes approximately 24.9% of the common shares of Midas Gold Corp. (TSX: MAX), a company exploring for gold and developing the Golden Meadows project in the Yellow Pine-Stibnite District in Idaho; the Guadalupe de los Reyes gold/silver project in Mexico (a preliminary economic assessment on this project was completed in March 2013); the Awak Mas gold project in Indonesia (One Asia Resources Ltd. working to earn an 80% interest on this project); the Long Valley gold project in California and a royalty on the Amayapampa gold project in Bolivia (project being advanced by LionGold Corp Ltd).

Outlook

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 nine months, and capital raising has become more difficult for mining companies which do not have producing assets. Consequently, raising sufficient amounts of capital on reasonable terms has become increasingly difficult. These conditions are expected to continue for the foreseeable future, and could affect our ability to raise sufficient capital on reasonable terms, if at all. We are committed to ensuring that the Company remains liquid and we will continue to identify and to execute meaningful cost cutting initiatives, and when opportune, monetize non-core assets. In addition, the Company will continue to seek other financing sources with priority given to non-dilutive sources such as sale of our used mill equipment and monetization of other non-core assets. However, there can be no assurance that we will be able to timely monetize the non-core assets at a value acceptable to us or at all. The Company also believes that given its ability to liquidate all or a portion of its Other Investments (Note 5 to the unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2013), if necessary, it will have access to sufficient financing to fully repay its debt, and to fund operations well into 2015.

We have engaged Endeavour Financial to evaluate the intrinsic value of our assets and to assist us in the development of strategies to preserve liquidity and enhance shareholder value.

Recent Corporate Events

On June 11, 2013, Vista Gold Corp. changed its jurisdiction of incorporation by continuing from the Yukon Territory, Canada to the Province of British Columbia, Canada (the "Continuation"). Our shareholders approved the Continuation at the annual general and special meeting of shareholders held on April 30, 2013. For further details on the Continuation see our Current Report on Form 8-K filed with the United States Securities and Exchange Commission (the "SEC") on June 12, 2013.


Results from Operations

Summary

For the three- and nine-month periods ended September 30, 2013, our principal focus has been our Mt. Todd gold project in Northern Territory, Australia. Consolidated net loss for the three months ended September 30, 2013 was $3,027 or $0.04 per basic share compared to consolidated net income for the same period in 2012 of $12,269 or $0.16 per basic share. Consolidated net loss for the nine months ended September 30, 2013 was $51,448 or $0.63 per basic share compared to consolidated net loss for the same period in 2012 of $29,459 or $0.40 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 $2,213 during the three-month period ended September 30, 2013 compared to $6,294 for the same period in 2012. Exploration, property evaluation and holding costs were $15,220 during the nine-month period ended September 30, 2013 compared to $18,759 for the same period in 2012. During the first several months of 2013, costs were primarily 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 at the Mt. Todd gold project. 2012 costs at Mt. Todd did not include water treatment costs but included a significant development drilling program. During the three months ended September 30, 2013, costs were focused on the completion of the EIS and normal dry season activities at the Mt. Todd gold project.

At the 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 $1,060 during the three-month period ended September 30, 2013 compared to $1,739 for the same period in 2012. Corporate administration costs of $4,195 during the nine-month period ended September 30, 2013 compared to $5,816 for the same period in 2012. The decrease period over period was due to a decrease in stock-based compensation and a decrease in audit and other professional service fees.

Depreciation and amortization

Depreciation and amortization expense was $250 and $132 for the three-month periods ended September 30, 2013 and 2012, respectively. Depreciation and amortization expense was $792 and $391 for the nine-month periods ended September 30, 2013 and 2012, respectively. The increase period-to-period was primarily attributable to increased capital expenditures at the Mt. Todd gold project during late 2012 and early 2013.

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 $1,000 and $1,934 during the three and nine months ended September 30, 2012, respectively.

The Company had no similar transactions during the three and nine months ended September 30, 2013.

Non-operating income and expenses

Unrealized loss on other investments

Unrealized gain on other investments was $4,547 and $29,132 for the three months ended September 30, 2013 and 2012, respectively. Unrealized loss on other investments was $42,775 and $13,184 for the nine months ended September 30, 2013 and 2012, respectively. These amounts are the result of changes in fair value of our Midas Gold Shares.


Write-down of property, plant and equipment

During the three months ended September 30, 2013, based on an independent assessment from a third party, the Company recorded an impairment charge of $3,500 to write down the value of our mill equipment held for sale. The impairment is based on an estimated sale value of approximately $7,300, net of commissions and other costs to sell of approximately $800 and is included in our Consolidated Statements of Income/(Loss) and Comprehensive Income/(Loss) for the three and nine months ended September 30, 2013. There were no such charges during the three and nine months ended September 30, 2012.

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 Shares. 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 Shares, 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 expense was $1 and deferred tax benefit was $15,373 for the three and nine months ended September 30, 2013, respectively, compared to deferred income tax expense of $9,925 and deferred tax benefit of $6,276 for the three and nine months ended September 30, 2012, respectively.

Financial Position, Liquidity and Capital Resources

Cash used in operations

Net cash used in operating activities was $21,476 for the nine-month period ended September 30, 2013, compared to $23,195 for the same period in 2012. The decrease of was primarily the result of decrease in operating expenses as discussed above.

Investing activities

Net cash used in investing activities was $2,113 for the nine-month period ended September 30, 2013 was primarily due to capitalized water treatment facility costs at the Mt. Todd gold project. Net cash provided by investing activities of $3,824 for the same period in 2012 was primarily due to receipt of $4,500 in accordance with option and earn-in agreements associated with certain mineral properties, which was partially offset by additions to plant and equipment of $861.

Financing activities

Net cash provided by financing activities was $9,637 for the nine months ended September 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, $14,231 from an equity financing, and $1,365 from the exercise of warrants during the nine months ended September 30, 2012.

Liquidity and Capital Resources

At September 30, 2013, we had working capital of $12,373 compared with working capital of $60,342 at December 31, 2012, representing a decrease of $47,969. 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 $12,373 working capital amount is $4,329 of cash and cash equivalents.

During March 2013, we closed and drew a C$10,000 ($9,698) loan facility (the "2013 Facility. The 2013 Facility originally matured March 2014, with early repayment of the 2013 Facility allowed, at the Company's option, provided that at least four months interest has been paid. The 2013 Facility bears an interest rate of 8% per annum, payable monthly. The 2013 Facility is secured by a general security agreement ("GSA") with certain exclusions. If the Company completes an asset disposition or other financing, subject to certain conditions the Company is required to utilize 50% of the net proceeds exceeding $1,000 to repay the 2013 Facility up to the full amount outstanding. The Company and the Lender have reached an agreement, subject to certain conditions, to extend the maturity date of the 2013 Facility to March 2015. The Company has agreed to pledge all the Company's Midas Gold Shares (Note 5) as security and to pay the Lender an extension fee comprised of 486,382 Vista common shares.


During October 2013, Vista and Invecture Group S.A. de C.V. ("Invecture") terminated the 2012 Earn-in Right Agreement whereby Invecture could earn a 62.5% interest in the Los Cardones gold project located in Baja California Sur, Mexico, and entered into new agreements whereby Vista sold 100% of its debt and equity interests in the Los Cardones gold project (the Los Cardones Sale") to Invecture and RPG Structured Finance S.a.R.L. (the "Purchasers"), for a total of $13,000 ($7,000 of which was paid in October 2013 and $6,000 is payable in January 2014), subject to the Purchaser's option to elect to not make this payment. If the Purchaser does not make the $6,000 payment, Vista will retain the $7,000 already received and 100% of the Los Cardones gold project will be returned to Vista.

Per the terms of Vista's 2013 Facility, Vista repaid $3,000 of the 2013 Facility using proceeds from the Los Cardones Sale.

After giving effect to the extended maturity date of the 2013 Facility, the Los Cardones Sale, and the partial payment of the 2013 Facility, working capital increases to approximately $26,071 including cash and cash equivalents of $8,329 (all other items remaining constant), and the balance of the 2013 Facility reduces to approximately $6,700.

Management is strongly committed to careful cash management and maintaining liquidity. The Company's cash burn rate has been dramatically reduced since the first half of the year as several cash intensive programs such as water treatment and preparation of the preliminary feasibility have been completed. In addition, several significant cost cutting measures have been introduced including a reduction of management positions, significant reductions in cash compensation for executives, senior management and the Company's Board of Directors, and the delay or elimination of all discretionary programs, including exploration activities. Other aggressive cost cutting measures, particularly at Mt. Todd, are being pursued. 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 capital intensive. The Company's cash burn rate is expected to be reduced to approximately $3,250 for the fourth quarter of 2013, with further reductions to $2,500 to $3,000 per quarter planned for 2014, assuming a normal wet season in the Northern Territory.

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 for the foreseeable future. Consequently, we may not be able to raise capital in sufficient amounts on reasonable terms, if at all.

The Company believes that its current cash position, together with the proceeds from the Los Cardones Sale (Note 16 of the unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2013) will be sufficient to fund the Company through the third quarter of 2014, subject to a $6,000 final payment to be made to us at the Purchaser's option. In addition, the Company will continue to seek other financing sources with priority given to non-dilutive sources such as sale of our used mill equipment and monetization of other non-core assets. However, there can be no assurance that we will be able to timely monetize the non-core assets at a value acceptable to us or at all. The Company also believes that given its ability to liquidate all or a portion of its Other Investments (Note 5 to the unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2013), if necessary, it will have access to sufficient financing to fully repay its debt, and to fund operations well into 2015.

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 September 30, 2013                                     81,788,835


During the nine months ended September 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.

Fair Value Accounting


                                                       Fair value at September 30, 2013
                                                      Total        Level 1        Level 3
Assets:
        Cash equivalents                          $     1,351   $     1,351    $          -
        Marketable securities                             231           231               -
        Other investments (Midas Gold Shares)          26,714        26,714               -
        Amayapampa interest                             4,813              -         4,813
        Mill equipment                                  6,500              -         6,500

Our cash equivalent instruments, marketable securities and investment in Midas Gold Shares are classified as Level 1 of the fair value hierarchy as they are valued at quoted market prices in an active market.

The estimated fair value of the Amayapampa interest is based on probability-weighted cash flow scenarios discounted using a risk-adjusted discount rate (15%) and assumptions including future gold prices (average gold prices realized range from $1,038 to $1,247 per ounce, depending on timing of assumed start-up), estimated life-of-mine gold production (ranging from 350,000 to 650,000 ounces) and the expected timing of commercial production (periods ranging from 3 to 6 years or never), which are management's best estimates based on currently available information. Significant changes in any of the unobservable inputs in isolation would result in a significant change in fair value measurement. As a result of our analysis no change in fair value was deemed necessary as of September 30, 2013.

The Company incurred an impairment loss on certain mill equipment in 2013. This equipment was valued at $6,500 and $10,000 based on a third party assessment of the projected sale value, net of costs to sell and commissions, at September 30, 2013 and December 31, 2012, respectively. The mill equipment is categorized as assets held for sale on the Consolidated Balance Sheets.

At September 30, 2013, the assets classified within Level 3 of the fair value hierarchy represent 29% of the total assets measured at fair value. There were no transfers between levels in 2013.

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 September 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. However, the obligation associated with the Los Cardones gold project transferred to the Purchasers pursuant to the Los Cardones Sale, which is discussed above.

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 provided 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 paid Sierra a monthly retainer fee of $10 for the duration of the agreement, which was terminated on August 31, 2013. We paid to Sierra $20 and $80 during the three- and nine-month periods ended September 30, 2013 and $30 and $90 during the three- and nine-month periods ended September 30, 2012, respectively.


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