Perpetua Resources Corp.: Form 10-Q for the period ended Sep 30, 2024

You should read the following discussion and analysis of our financial condition and results of operations for the three and nine months ended September 30, 2024 and 2023 with our consolidated financial statements and related notes and other financial information appearing in this Quarterly Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, operations, and product candidates, includes forward-looking statements that involve risks and uncertainties. You should review the sections of this Quarterly Report captioned “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” for a discussion of important factors that could cause our actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

Perpetua Resources (formerly Midas Gold Corp.) was incorporated on February 22, 2011 under the Business Corporations Act (British Columbia) (the “BCBCA”). The Corporation was organized to hold shares in wholly owned subsidiaries that locate, acquire, develop and restore mineral properties located principally in the Stibnite – Yellow Pine mining district in Valley County, Idaho, USA. The Corporation’s principal asset is 100% ownership in subsidiaries that control the Stibnite Gold Project. The Corporation currently operates in one segment, mineral exploration in the United States. The registered office of the Perpetua Resources is Suite 1008-550 Burrard St, Vancouver, BC, V6C 2B5, Canada and the corporate head office is located at 201-405 S 8th St, Boise, ID 83702, USA.

Recent Key Developments

2024 Outlook and Goals

Perpetua Resources’ vision is to provide the United States with a domestic source of the critical mineral antimony, develop one of the largest and highest-grade open pit gold mines in the country and restore an abandoned brownfield site. In 2024, Perpetua Resources will continue to focus on advancing the permitting for the Stibnite Gold Project through the National Environmental Policy Act (“NEPA”) process in addition to state ancillary permits and other federal authorization. The NEPA process is intended to ensure that federal agencies and the public are informed of the proposed action’s potential environmental impacts before a final decision is made by the agency regarding the action. The Company is also advancing construction readiness activities in parallel with the permitting process.

Third Quarter 2024 Highlights

• Zero lost time incidents or reportable environmental spills.
• United States Forest Service (“USFS”) published the Final Environmental Impact Statement (“FEIS”) and issued a Draft Record of Decision (“DROD”) for the Stibnite Gold Project.

Final Environmental Impact Statement and Draft Record of Decision

On September 6, 2024, the USFS published the FEIS and a DROD with respect to the Project. The FEIS analyzes the potential environmental effects of the mining operation of the Project as proposed by the Company through a general plan of operations. The DROD outlines the USFS’s proposed decision to authorize the proposed modifications to the mine plan analyzed in Alternative 2 in the Draft Environmental Impact Statement and to approve a special use authorization for transmission line upgrades and installation of a new power transmission line with supporting infrastructure.

The publication of the DROD commenced a 45-day pre-decisional objection period in which those parties or persons who have participated in a prior formal public comment period for the Project had an opportunity to have their unresolved concerns reviewed before USFS issues a final Record of Decision (“ROD”). Individuals must have submitted substantive formal comments related to the Project during previous comment periods to participate in this objection period unless the issue is based on new information that arose after the prior opportunities to comment. The objection period expired on October 21, 2024. The objection period will be followed by another 45-day resolution period prior to the publication of the ROD. The resolution period is expected to expire on or about December 5, 2024, which may be extended by the USFS in its sole discretion. Based on the USFS schedule published in October 2024, the ROD is anticipated to be published by the end of 2024. However, the USFS is not bound by the permitting schedule and anticipated milestones may be delayed materially or not be satisfied.

Ancillary Permitting

The Company advanced work on several ancillary permits which are being progressed in parallel with the NEPA process. Recent updates include:

• The U.S. Army Corps of Engineers continues to process the Company’s 404 permit application and Compensatory Mitigation Plan after the public comment period ended in October 2023.
• The U.S. Fish and Wildlife Service issued its Final Biological Opinion on September 6, 2024 and the National Marine Fisheries Service issued its Final Biological Opinion on October 7, 2024.
• In May 2024, the Idaho Department of Environmental Quality (“IDEQ”) issued its final 401 Water Quality Certification for the Project (the “Certification”). In the third quarter of 2024, certain parties initiated a state administrative challenge to the Certification that will require a contested case hearing on certain issues. The hearing officer issued an order scheduling the hearing for April 2025.
• IDEQ issued a Clean Air Act Permit to Construct (“PTC”) in 2022 that was followed by certain state administrative challenges. In the third quarter of 2024, the Board of IDEQ issued an order remanding the PTC for a contested case hearing on certain matters. The hearing was held in October 2024, but the hearing officer has not yet issued a decision.
• The Company submitted a Tailings Storage Facility (“TSF”) dam safety application to Idaho Department of Water Resources (“IDWR”) in July 2023. IDWR sent a letter of conditional approval for the Company’s Stage 1 TSF in October 2023.
• The Company received a completeness determination from IDEQ on November 2, 2024 for the Project’s cyanidation facility permit and a completeness determination from Idaho Department of Lands on November 6, 2024 for the Project’s cyanidation facility Permanent Closure Plan. These determinations represent legally required findings by the respective agencies that the Company’s applications for these permits are administratively complete and may proceed to the next stage of permitting for the proposed cyanidation facility.
• The Idaho Ground Water Management Final Point of Compliance determination was issued in August 2023 and the Company submitted the required groundwater sampling and well installation plans in October 2023.

Previously submitted permit applications are continuing through the administrative review process. These include applications to IDEQ for the Idaho Pollutant Discharge Elimination System discharge permits and to IDWR for water rights authorizations and a stream alteration permit.

Department of Defense Funding

In December 2022, Perpetua Resources was awarded an undefinitized TIA of up to $24.8 million under Title III of the DPA. On July 25, 2023, the TIA was definitized with the DOD, establishing the full not-to-exceed amount of $24.8 million and on May 2, 2024, the TIA was modified with an additional $34.4 million in funding, bringing the total amount of the TIA to $59.2 million. The funding objective of the TIA, issued by the Air Force Research Laboratory, is to complete environmental and engineering studies necessary to obtain a FEIS, a ROD, and other ancillary permits to sustain the domestic production of antimony trisulfide capability for defense energetic materials. The DPA funding allows the Company to advance the construction readiness of the Stibnite Gold Project while the Company continues through the ongoing permitting process, led by the USFS. Under the funding agreement, Perpetua Resources may request reimbursement for certain costs incurred through June 16, 2025 related to environmental baseline data monitoring, environmental and technical studies and other activities related to advancing Perpetua’s construction readiness and permitting process for the Stibnite Gold Project. The DPA funding does not interrupt the ongoing NEPA review process. The TIA contains customary terms and conditions for technology investment agreements, including ongoing reporting obligations. Perpetua Resources is evaluating other U.S. government funding opportunities, including programs available through the DOD. During the three and nine months ended September 30, 2024, $12,615,643 and $23,665,277, respectively, was recognized as grant income related to the TIA. The Company anticipates recognizing approximately $12,000,000 of additional grant income over the next three months. During the three and nine months ended September 30, 2024, the Company was reimbursed $11,667,011 and $16,417,506, respectively, for certain costs incurred. As of September 30, 2024, $20.0 million remained available under the TIA.

On August 18, 2023, the Company’s wholly owned subsidiary, Perpetua Resources Idaho, Inc. was awarded an Ordnance Technology Initiative Agreement (“OTIA”) of up to $15.5 million under the Prototype Other Transaction authority of the DOD through the DOD Ordnance Technology Consortium (“DOTC”). The OTIA will build on research conducted under a previously announced Small Business Innovation Research Grant. The funding objective of the OTIA is to demonstrate a fully domestic antimony trisulfide supply chain using ore from the Stibnite Gold Project site. The OTIA designates funding to the Company to conduct activities to meet this objective, including obtaining additional core samples from the Project site, conducting a pilot plant study to produce mil-spec antimony trisulfide from the samples, designing a full-scale process circuit, and delivering a modular pilot plant for the DOD to use in further investigations. Under the OTIA, the Company will be reimbursed for these activities on a cost-plus fixed fee basis over the 24-month period of performance. The current estimated amount is $15.5 million, which is subject to adjustment by the DOD based on scope, costs, budget, or other factors as the program advances. Perpetua will be entitled to reimbursement for all costs incurred under the agreement, with the negotiated fee being 12%. The OTIA contains customary terms and conditions for OTIAs, including ongoing reporting obligations. During the three and nine months ended September 30, 2024, $304,774 and $2,900,521, respectively, was recognized as grant income related to the OTIA. The Company anticipates recognizing approximately $1,100,000 of additional grant income over the next three months. During the three and nine months ended September 30, 2024, the Company received cash from this grant of $39,329 and $4,505,821 respectively, for reimbursement of certain costs incurred of $35,115 and $4,023,054 and 12% fee income of $4,214 and $482,767, respectively. During the three and nine months ended September 30, 2024, grant income includes $32,654 and $310,770, respectively, of 12% fee income earned on costs incurred.

Construction Readiness Activities

The Company is advancing construction readiness activities in parallel with the permitting process and these activities are reimbursable under the DPA funding outlined above. Recent updates include:

• Appointed mining veteran Jonathan Cherry as new President and CEO;
• Appointed Vice President of Projects to lead the Stibnite Gold Project;
• Executed construction manager general contractor contract with Ames Construction, while advancing constructability reviews, value engineering studies, and detailed engineering for the Burntlog Route, the Company’s proposed access route, with Ames and the road design consultants;
• Continued power line detailed scoping and engineering with Idaho Power, who has now engaged Kiewit, and identified long-lead items required for power line construction;
• Ausenco was awarded Basic and Value Engineering Scope for the Stibnite Gold Project;
• Hired key subject matter experts for the Owner’s Team to guide Basic Engineering and overall construction readiness; and
• Ausenco and supporting consultants progressed basic and value engineering for their respective work streams.

Liquidity and Financing

The Company’s latest liquidity forecast indicates that available cash resources are expected to be exhausted in the second quarter of 2025. Although the Company’s current capital resources and liquidity include up to $20.0 million in funding awarded under the modified TIA pursuant to Title III of the DPA as of September 30, 2024, such funding is available only for the specified costs related to permitting, environmental baseline data monitoring, environmental and technical studies, and advancing construction readiness and is not available to fund certain corporate expenses, including under the Settlement Agreement. Although we expect the DPA funding to provide the Company with sufficient liquidity to complete permitting and environmental monitoring activities on the current timeline as well as additional liquidity to begin advancing construction readiness in 2024, due to payment obligations under the Settlement Agreement and other corporate expenses, we do not expect the Company will have sufficient assets to discharge its liabilities as they become due for at least 12 months from the date hereof. Absent additional financing, the Company would no longer be able to meet its ongoing obligations or progress critical permitting efforts. The Company continues to explore various strategic and funding opportunities, which may include the issuance of additional equity, new debt, or project specific debt; government funding; and/or other financing or strategic opportunities. The Company has engaged RBC Capital Markets and Endeavour Financial to assist with the evaluation of potential strategic and financing opportunities and to support the Company’s application process in connection with the U.S. EXIM $1.8 billion Letter of Interest received in April 2024. Any such financing or strategic transaction, or any funding commitment from U.S. EXIM, will be subject to due diligence and other conditions. There can be no assurance of the amount, timing or nature of any such financing or strategic transaction, if any. See “Liquidity and Capital Resources” below for more information.

The forward‐looking information contained in this section is subject to the risk factors and assumptions contained in the “Cautionary Note Regarding Forward-Looking Statements” section.

Results of Operations

Three and nine months ended September 30, 2024 compared to three and nine months ended September 30, 2023

Net Loss

Net loss for the three months ended September 30, 2024 was $3.6 million compared with a net loss of $2.6 million for the three months ended September 30, 2023. This $1.0 million increase compared to the prior year period was primarily attributable to increases of $5.8 million in exploration expense, $0.8 million in environmental liability expense, and $0.2 million in corporate salaries and benefits in the 2024 period offset by a $6.0 million increase in grant income compared to the prior period.

Net loss for the nine months ended September 30, 2024 was $10.2 million compared with a net loss of $14.9 million for the nine months ended September 30, 2023. This $4.7 million decrease compared to the prior year period was primarily attributable to a $12.3 million increase in grant income and a decrease of $5 million in CWA settlement expense. These decreases were offset by increases of $10.9 million in exploration costs, $0.8 million in environmental liability expense, and $0.4 million in corporate salaries and benefits and a decrease in interest income of $0.3 million. As noted above, for the nine months ended September 30, 2024, the Company’s main focus was the continued evaluation and advancement of the Stibnite Gold Project.

Corporate Salaries and Benefits

This expense results from salaries and benefits of the employees that are not directly related to the exploration and evaluation of the Stibnite Gold Project, primarily corporate employees. Salaries and benefits for the three and nine months ended September 30, 2024 were 45% and 34% higher than the 2023 comparative periods primarily due to increased share-based compensation and higher salaries.

Directors’ Fees

Each of the Corporation’s non-executive directors is entitled to annual base fees paid in quarterly installments, with the independent Lead Director, Chairs of Board Committees and Members of Board Committees receiving additional fees commensurate with each role. Directors’ fees are inclusive of cash fees and share-based compensation (deferred share units). This expense for the three and nine months ended September 30, 2024 was 81% and 20% higher than the 2023 comparative periods due to higher share-based compensation.

Exploration

This expense relates to all exploration and evaluation expenditures related to the Stibnite Gold Project, including labor, drilling, field operations, engineering, permitting, environmental, legal and sustainability costs. The Company’s exploration expenses of $14.5 million during the three months ended September 30, 2024 were $5.8 million, or 67%, higher than the three months ended September 30, 2023 primarily due to a $4.9 million increase in engineering and a $0.4 million increase in permitting.

The Company’s exploration expenses of $31.5 million during the nine months ended September 30, 2024 were $10.8 million, or 52%, higher than the nine months ended September 30, 2023 primarily due to increases of $11.4 million in engineering, $0.8 million in consulting and labor costs, and $0.6 million in field operations and drilling support. These increases were offset by decreases of $1.7 million in permitting costs and $0.4 million of legal and sustainability costs. Additional details of expenditures incurred are as follows:

Environmental Liability Expense

This expense relates to the ASAOC signed in January 2021 to voluntarily address environmental conditions at the abandoned mine site. Cost estimates were developed with the use of engineering consultants, independent contractor quotes and the Company’s internal development team, and the timing of cash flows is based on the current schedule for early action items. In the three and nine months ended September 30, 2024, the total cost estimate to complete Phase 1 early cleanup actions increased $0.8 million and $0.8 million, respectively, compared to the same period in 2023 driven by an increase in estimated costs for a required lake tank storage solution and EPA agency cost recovery and monitoring costs coupled with a negative $0.2 million recognized in the comparable period ended September 30, 2023 that resulted from a decrease in total estimated costs. As of September 30, 2024, the estimate for the remaining environmental liability was $0.2 million, all of which is expected to be incurred in 2024.

CWA Settlement Expense

This expense relates to the settlement with the Nez Perce Tribe to resolve the CWA litigation. The Settlement Agreement provides for total payments of $5.0 million by Perpetua over a four-year period. The Company recognized $5.0 million in the second quarter of 2023 for this settlement. No amount was recognized during the three and nine month periods ended September 30, 2024.

General and Administrative

This expense is predominantly insurance policies for the U.S. offices. This expense for the three and nine months ended September 30, 2024 was 12% and 11% lower than the 2023 comparative periods primarily due to lower insurance premiums.

Professional Fees

This expense relates to the legal, accounting and consulting costs of the Corporation. This expense for the three and nine months ended September 30, 2024 was 10% and 20% higher, respectively, than the 2023 comparative periods primarily due to an increase in legal fees and consulting costs.

Shareholder and Regulatory

This expense relates to marketing, licenses and fees, and shareholder communications. This expense for the three months ended September 30, 2024 was 29% higher than the 2023 comparative period primarily due an increase in marketing, licensing and other fees. This expense for the nine months ended September 30, 2024 was 2% lower than the 2023 comparative period primarily due to lower marketing costs.

Grant Income

This income results from funding grants awarded to the Company from the DOD to study the domestic production of military-grade antimony trisulfide and to complete environmental and engineering studies necessary to obtain a FEIS, a ROD, and other ancillary permits to sustain the domestic production of antimony trisulfide capability for defense energetic materials. Grant income increased $6.0 million and $12.3 million for the three and nine months ended September 30, 2024, compared to the comparable periods in 2023 due to the modified scope of the DPA grant in 2024.

Interest Income

This income results from interest received on the Company’s cash balances. Interest income decreased $50,810 and $317,502 in the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023 as a result of lower cash balances in 2024 compared to 2023.

Liquidity and Capital Resources

Capital resources of Perpetua Resources consist primarily of cash and liquid short-term investments. As of September 30, 2024, Perpetua Resources had cash and cash equivalents totaling approximately $11.2 million, approximately $8.8 million in receivables, principally from DOD grants, $0.9 million in prepaid assets, and $7.3 million in trade and other payables.

In December 2022, the Company was awarded an undefinitized TIA of up to $24.8 million under Title III of the DPA. On July 25, 2023, the TIA was definitized with the DOD, establishing the full not-to-exceed amount of $24.8 million and on May 2, 2024, the TIA was modified with an additional $34.4 million in funding, bringing the total amount of the TIA to $59.2 million. Under the funding agreement, Perpetua Resources may request reimbursement for certain costs incurred through June 16, 2025 related to environmental baseline data monitoring, environmental and technical studies and other activities related to advancing Perpetua’s construction readiness and permitting process for the Stibnite Gold Project, which includes reimbursement of employee wages for activities included in the scope of the TIA. During the three and nine months ended September 30, 2024, $12.6 million and $23.7 million, respectively, was recognized as grant income related to the TIA. During the nine months ended September 30, 2024, the Company was reimbursed $16.4 million for certain costs incurred, and received reimbursement of an additional $4.6 million in October 2024 and anticipates receipt of $3.8 million in November 2024, under the TIA with respect to expenses incurred in the three months ended September 30, 2024. As of September 30, 2024, $20.0 million remained available under the TIA.

Perpetua Resources’ current liquidity needs relate to its plans to:

• Continue to advance the regulatory process for the restoration and redevelopment of the Project;
• Continue engaging with Project stakeholders to provide those stakeholders with the opportunity for a better understanding of the Project concepts and to provide a forum for such stakeholders to provide further input into the Project;
• Continue to collect environmental baseline data in support of the ongoing regulatory processes related to permitting for site restoration and redevelopment of the Project; and
• Advance construction readiness for the Project.

Although the Company’s current capital resources and liquidity include up to $20.0 million in funding awarded under the modified TIA pursuant to Title III of the DPA as of September 30, 2024, such funding is available only for the specified costs described above and is not available to fund certain corporate expenses, including payments under the Settlement Agreement. Although we expect the DPA funding to provide the Company with sufficient liquidity to complete permitting on the current timeline as well as additional liquidity to begin advancing construction readiness in 2024, due to payments under the Settlement Agreement and other corporate expenses, we do not expect the Company will have sufficient assets to discharge its liabilities as they become due for at least 12 months from the date hereof.

The Company’s latest liquidity forecast indicates that available cash resources for expenses not eligible for reimbursement under the DPA funding are expected to be exhausted in the second quarter of 2025. Absent additional financing, the Company would no longer be able to meet its ongoing obligations or progress critical permitting efforts. The Company continues to explore various strategic and funding opportunities, which may include the issuance of additional equity, new debt, or project specific debt; government funding; and/or other financing or strategic opportunities. The Company has engaged RBC Capital Markets and Endeavour Financial to assist with the evaluation of potential strategic and financing opportunities and to support the Company’s application process in connection with the U.S. EXIM $1.8 billion Letter of Interest received in April 2024. Any such financing or strategic transaction, or any funding commitment from U.S. EXIM, will be subject to due diligence and other conditions. There can be no assurance of the amount, timing or nature of any such financing or strategic transaction, if any. On May 12, 2023, the Company entered into a Controlled Equity OfferingSM Sales Agreement (the “Sales Agreement”) providing for the sale by the Company, from time to time, of its common shares having an aggregate gross offering price of up to $20.0 million. As of September 30, 2024, $6.2 million remained available under the program. Future sales under the program are subject to certain conditions, including market conditions, and there is no assurance that the Company will be able to raise additional funds under the program, at acceptable share prices or at all.

We believe our plans outlined above to obtain sufficient funding will be successful although there is no certainty that these plans will result in needed liquidity for a reasonable period of time. However, contributions due under the Settlement Agreement and our expectation of incurring other costs in the foreseeable future that are not eligible for DPA funding reimbursement and the need for additional funding to further support the development of our planned operations, raise substantial doubt regarding our ability to continue as a going concern for a period of one year after the date that the unaudited condensed consolidated financial statements are issued. The future receipt of potential funding from equity, debt, pursuit of additional government funding opportunities and/or other means cannot be considered probable at this time because these plans are not entirely within our control as of the date hereof.

These unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business and do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described above.

Our anticipated expenditures for the fiscal year 2024 are approximately $48.1 million, of which approximately $35.8 million are expected to be funded from the DPA reimbursements and the remainder from cash on hand. These expenditures include an estimated $12.1 million to fund permitting of the Stibnite Gold Project, $12.6 million for general corporate purposes, project financing and administrative costs, $17.8 million for engineering and design work, $3.3 million for field operations and approximately $2.3 million to complete early restoration under the ASAOC. These costs are subject to change due to cost over-runs, delays or other unbudgeted events, such as effects of inflation. Our long-term liquidity requirements will require project financing to fund the capital costs to develop the Project, which was estimated to be approximately $1,263 million as of the third quarter of 2020 according to the TRS.

Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of September 30, 2024 (the “Evaluation Date”). Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the Evaluation Date.

Changes in Internal Control Over Financial Reporting.

As of the Evaluation Date, there were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2024 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

In addition to other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors and other cautionary statements described under the heading “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2023 which could materially affect our businesses, financial condition, or future results. Additional risks and uncertainties currently unknown to us, or that we currently deem to be immaterial, also may materially adversely affect our business, financial condition, or future results.