International Tower Hill Mines Ltd. — Form 10-Q Summary
Business context and reporting period
International Tower Hill Mines Ltd. is a British Columbia mineral exploration company with a 100% interest in the exploration-stage Livengood Gold Project in Alaska. The filing covers the three and six months ended June 30, 2018. The unaudited interim financial statements are presented in U.S. dollars under U.S. GAAP.
Key financial metrics
| Metric | Three months ended June 30, 2018 | Six months ended June 30, 2018 |
|---|---|---|
| Revenue | None; the Company has no revenue-generating operations | None; the Company has no revenue-generating operations |
| Operating expenses | $1.28 million | $2.33 million |
| Net loss | $955,415 | $2.02 million |
| Loss per share | $0.01 | $0.01 |
| Cash used in operating activities | Not separately provided | $1.91 million |
| Cash and cash equivalents | Not separately provided | $12.11 million at June 30, 2018 |
Working capital was $11.93 million at June 30, 2018, compared with $1.99 million at December 31, 2017. Total assets were $67.54 million, including $55.20 million of capitalized acquisition costs. Total liabilities were $383,635. The filing does not disclose outstanding debt; the reported liabilities consist principally of accounts payable and accrued liabilities.
Six-month cash flow included $12.00 million of gross private-placement proceeds and $114,358 from option exercises, partly offset by operating cash use and $111,379 of share issuance costs. Cash increased by $9.87 million from $2.24 million at year-end 2017. Margins are not meaningful because the Company generated no revenue.
Material changes versus the prior comparable period
- Six-month net loss decreased to $2.02 million from $3.31 million, primarily because mineral property expenditures declined to $910,327 from $1.38 million and other corporate spending was reduced.
- Second-quarter net loss decreased to $955,415 from $1.63 million despite mineral property expenditures increasing to $706,115 from $668,389.
- Six-month operating cash use improved to $1.91 million from $3.46 million.
- Other income shifted to $309,493 from a $203,945 loss, largely because foreign-exchange results changed from a $244,125 loss to a $212,279 gain.
- The Company issued 24.0 million common shares in March 2018 for gross proceeds of $12.0 million and issued 294,000 shares on option exercises. Shares outstanding increased to 186,816,683 at June 30, 2018 from 162,392,996 at December 31, 2017.
- Stock-based compensation increased to $179,265 from $13,127 for the six-month period.
Guidance, outlook, risks, contingencies and unusual items
- The Board approved a 2018 budget of $5.1 million. Planned work includes metallurgical testing, flowsheet refinement, engineering and environmental baseline work to support future permitting.
- Management stated that available funds were sufficient for the current 2018 work program and anticipated general and administrative costs through fiscal 2019, but the Company expects to operate at a loss for the foreseeable future.
- Significant additional financing will be required to continue advancing Livengood and to fund any future mine development. Management is considering additional equity financing and a potential strategic alliance, with no assurance that financing or an alliance will be available on acceptable terms.
- Key risks include gold-price volatility, equity-market access, permitting delays, title and lease risks, resource-estimate uncertainty, metallurgy and recovery performance, environmental requirements, cost escalation and the possibility that mineral resources may never become economically or legally mineable.
- Required property commitments totaled $2.87 million, including $2.18 million of mineral-property lease payments and $688,950 of mining-claim government fees. The schedule excludes required work expenditures and potential royalties other than annual minimum royalties.
- The Company cautions that Canadian resource and reserve terminology, particularly inferred resources, may not be comparable with SEC standards and does not establish economic viability.
- The Company reported no legal proceedings, no off-balance-sheet arrangements and no material changes to previously disclosed risk factors. Management concluded that disclosure controls were effective as of June 30, 2018.
Facts investors should verify
- Cash burn and the duration of the stated funding runway relative to the $5.1 million 2018 program and future permitting or development costs.
- Whether additional financing or a strategic alliance can be secured without substantial dilution or unfavorable terms.
- Results of the metallurgical testing, engineering work and environmental baseline program, and their effects on project economics.
- Livengood resource estimates, recovery assumptions, permitting status and the distinction between Canadian resources and SEC-compliant reserves.
- Lease, royalty, government-fee and required-work obligations, including the risk of losing property interests if payments or expenditures are not made.
- Potential dilution from 3.93 million outstanding stock options and 648,435 deferred share units.
- The Company’s PFIC status, which it expects to continue, and related U.S. tax consequences for shareholders.