International Tower Hill Mines Ltd. — Form 10-K Summary
Business context and reporting period
This Form 10-K covers the fiscal year ended December 31, 2021, with quarterly information for the fourth quarter. International Tower Hill Mines Ltd. is a development-stage mineral exploration and development company focused exclusively on its 100%-owned Livengood Gold Project in Alaska. The Company has not commenced commercial production and generated no operating revenue.
As of December 31, 2021, the Project had measured and indicated resources of 704.5 million tonnes grading 0.60 g/t, containing 13.62 million ounces of gold. Proven and probable reserves totaled 430.1 million tonnes grading 0.65 g/t, containing approximately 9.0 million ounces, based on a gold price of $1,680 per ounce.
Financial performance and financial position
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue from operations | $0 | $0 | No change |
| Net loss | $5.98 million | $4.52 million | Loss increased $1.46 million |
| Basic and diluted loss per share | $0.03 | $0.02 | Increased loss per share |
| Cash used in operating activities | $5.34 million | $3.89 million | Use increased $1.45 million |
| Cash and cash equivalents | $7.78 million | $13.05 million | Decreased $5.27 million |
| Working capital | $7.34 million | $12.72 million | Decreased $5.38 million |
| Total assets | $63.30 million | $68.59 million | Decreased $5.29 million |
| Total liabilities | $0.58 million | $0.49 million | Increased $0.09 million |
Operating expenses were $5.92 million, including $3.52 million of mineral property exploration expenditures, $0.94 million of wages and benefits, $0.61 million of consulting fees and $0.54 million of share-based compensation. The filing does not report a meaningful operating margin because the Company has no operating revenue. No debt balance is disclosed; reported liabilities consisted primarily of accounts payable and accrued liabilities.
The fourth-quarter 2021 net loss was $1.02 million, compared with a $2.18 million loss in the third quarter and a $2.00 million loss in the fourth quarter of 2020.
Material changes versus the prior comparable period
- Mineral property exploration expenditures increased to $3.52 million from $2.36 million, primarily reflecting metallurgical studies and engineering work for the updated pre-feasibility study.
- Net loss increased to $5.98 million from $4.52 million, mainly due to higher Project expenditures and increased share-based compensation.
- Cash declined by $5.27 million, principally because operating expenditures consumed approximately $5.3 million. There were no financing or investing cash flows in 2021.
- Share-based compensation increased to $535,117 from $385,531. The Company granted 240,000 stock options and 316,795 deferred share units during 2021.
- The updated 2021 resource and reserve estimates were reported under SEC Regulation S-K Subpart 1300 for the first time. Total proven and probable reserves increased modestly to 9.004 million ounces from 8.973 million ounces, while inferred resources declined to 207,000 ounces from 1.127 million ounces under the prior comparison.
Project economics, outlook and management commentary
The 2021 pre-feasibility study describes a potential 65,000-ton-per-day conventional open-pit operation producing approximately 6.4 million ounces of gold over 21 years. Estimated initial capital costs are $1.93 billion, all-in sustaining costs are $1,171 per ounce, and estimated net present value at a 5% discount rate and $1,800 per ounce gold is $400 million. The study is preliminary and requires further refinement through a future feasibility study.
The Technical Report Summary indicates that the Project generates only a minimal positive return at a $1,680 per ounce gold price. Management states that sustained higher gold prices may be required for commercial viability and is evaluating optimization opportunities and potential strategic alliances.
For 2022, the Board approved a $3.2 million budget focused on environmental baseline studies, hydrology, waste-rock geochemical characterization, permitting support and community engagement. Management stated that cash on hand was sufficient to fund the 2022 work plan and anticipated general and administrative costs through fiscal 2023, but significant additional financing will be required for continued operations, permitting and any mine construction.
Risks, contingencies and unusual items
- Financing and going concern: The Company has no revenue-generating operations and expects continuing losses. Additional financing, a strategic alliance, joint venture or other funding will be required; financing may be unavailable or obtainable only on unfavorable terms.
- Project economics: The Project is highly sensitive to gold prices, capital costs, operating costs, recovery rates and other assumptions. The PFS is preliminary and does not establish commercial viability.
- Permitting and environmental matters: Future development requires extensive state and federal approvals, including a National Environmental Policy Act process and an Environmental Impact Statement. The Company currently holds permits for planned exploration activities, but future permitting timelines and outcomes are uncertain.
- Mineral estimates: Resource and reserve estimates are subject to geological, metallurgical, engineering and economic uncertainty. Mineral resources that are not reserves do not have demonstrated economic viability.
- Property commitments: Contractual lease payments and mining claim government fees total $4.28 million through 2027 and beyond, including $632,692 due in 2022. Failure to satisfy required payments or work commitments could result in loss of property interests.
- Lease timing: The Alaska Mental Health Trust lease extends through June 30, 2023, subject to extension conditions involving production, minimum royalties and diligent development.
- Commodity and currency exposure: Gold prices were volatile, and the Company does not hedge foreign exchange exposure despite operating costs being substantially U.S.-dollar based.
- COVID-19: Management reported no material adverse effect on the Company as of the filing date, but continued pandemic-related disruptions could affect operations, costs and access to capital.
- Tax and shareholder risks: The Company believes it likely was a passive foreign investment company for U.S. tax purposes in 2021 and expects possible PFIC status in future years. Future equity issuance could dilute existing shareholders, and no dividends are currently planned.
Important facts for investors to verify
- Review the full Technical Report Summary, including sensitivity analyses, because the Project’s stated positive return is minimal at the assumed $1,680 per ounce gold price.
- Verify the assumptions supporting the $1.93 billion capital requirement, $1,171 per ounce all-in sustaining cost and $400 million NPV.
- Assess the Company’s ability to obtain substantial additional financing or a strategic partner before cash resources are depleted.
- Reconcile the reported resource and reserve changes under SEC Regulation S-K Subpart 1300 with prior Canadian NI 43-101 disclosures.
- Monitor permitting progress, environmental baseline results, community engagement and the required federal and state approvals.
- Review lease renewals, royalty obligations, minimum payments and claim-maintenance commitments, particularly those due before and after 2023.
- Consider the potential effects of PFIC status, future equity dilution and gold-price volatility on shareholder returns.