International Tower Hill Mines Ltd. 2015 Q3 Form 10-Q Summary
Business context and reporting period
International Tower Hill Mines Ltd. is a British Columbia-based exploration-stage company focused on acquiring, exploring and evaluating mineral properties. It controls a 100% interest in the Livengood Gold Project in Alaska. The filing covers the three and nine months ended September 30, 2015; financial statements are unaudited and presented in U.S. dollars under U.S. GAAP.
The Company had no revenue-generating operations and 116,313,638 common shares outstanding as of October 27, 2015.
Key financial metrics
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Net loss | $1.0 million in 2015 versus $1.2 million in 2014 | $3.7 million in 2015 versus $6.1 million in 2014 |
| Loss per share | $0.01 in both periods | $0.03 in 2015 versus $0.06 in 2014 |
| Total operating expenses | $1.7 million in 2015 versus $1.8 million in 2014 | $5.2 million in 2015 versus $6.2 million in 2014 |
| Cash used in operating activities | Not separately provided | $4.1 million versus $5.5 million in 2014 |
| Cash and cash equivalents | $7.9 million at September 30, 2015, versus $13.5 million at December 31, 2014 | |
| Working capital | $7.5 million at September 30, 2015, versus $12.6 million at December 31, 2014 | |
| Total assets | $63.4 million at September 30, 2015, versus $69.0 million at December 31, 2014 | |
| Total liabilities | $14.9 million at September 30, 2015, versus $15.8 million at December 31, 2014 |
Capitalized acquisition costs were $55.2 million and unchanged from year-end 2014. The Company had no cash flows from investing or financing activities during the first nine months of 2015. Profit margins are not meaningful because the Company has no revenue and remains in the exploration stage.
Material changes versus the prior comparable period
- Nine-month net loss declined by $2.4 million, primarily because of lower share-based compensation, reduced professional fees and increased foreign-exchange and derivative valuation gains.
- Nine-month operating expenses declined by approximately $1.0 million. Share-based compensation decreased to $448,309 from $1.1 million, while mineral property exploration expense was essentially unchanged at approximately $2.0 million.
- Foreign-exchange gain increased to $905,123 from $301,598. The Company also recorded a $500,000 unrealized gain on its derivative liability, compared with a $300,000 unrealized loss in the prior period.
- Mineral property expenditures increased to $727,477 in the third quarter from $557,735, primarily due to multi-phase metallurgical testing.
- Cash declined by $5.6 million during the first nine months, including approximately $3.8 million of Livengood project expenditures, approximately $0.4 million of severance payments and a $1.4 million negative foreign-currency translation impact.
- No shares were issued during the first nine months of 2015. The Company granted 2,135,200 stock options, and 6,428,200 options were outstanding at September 30, 2015.
Guidance, outlook, risks and unusual items
- Management expected to spend approximately $9.0 million during fiscal 2015 on metallurgical work, project engineering, environmental baseline activities and general and administrative costs; $4.7 million had been spent by September 30, 2015. The broader work plan was expected to cost approximately $10 million, including approximately $1 million in 2016.
- The metallurgical program is intended to validate potentially higher head grades and evaluate optimization of gravity recovery, grind size, reagent consumption, leach retention time and recoveries. Potential capital and operating cost savings remain uncertain and are not assured.
- Management believed existing cash would fund the anticipated 2015 work plan and non-discretionary expenditures for at least twelve months after September 30, 2015. However, significant additional financing will be required for continued operations, the January 2017 contingent payment and any future mine development.
- A derivative liability of $14.2 million was recorded at September 30, 2015 and is payable on January 12, 2017. Its value depends primarily on projected gold prices; a $1 change in the average gold price changes the liability by $23,148.
- Contractual obligations totaled approximately $16.9 million, including the $14.2 million contingent property payment, scheduled mineral lease payments and mining claim government fees.
- If additional financing cannot be obtained on acceptable terms, the Company may need to reduce discretionary Livengood activities. Failure to make required property payments or expenditures could result in loss or forfeiture of mineral property rights.
- Key risks include gold-price volatility, financing availability, resource and metallurgical uncertainty, permitting and environmental requirements, property title, foreign exchange and the recoverability of capitalized acquisition costs.
- The Company disclosed no material changes to previously reported risk factors, no legal proceedings, no off-balance-sheet arrangements and no material changes in internal control over financial reporting. Disclosure controls were deemed effective.
- The Company expects to remain a passive foreign investment company for U.S. federal income tax purposes, which may have adverse tax consequences for U.S. shareholders.
Important facts for investors to verify
- Verify the Company’s ability to raise sufficient financing for ongoing exploration, corporate costs and the $14.2 million January 2017 contingent payment.
- Assess the results and reliability of the metallurgical testing, including whether higher head grades, improved recoveries or projected cost reductions are ultimately validated.
- Review the economic viability of the Livengood Gold Project; the filing cautions that mineral resources, particularly inferred resources, may not be economically or legally mineable and do not constitute demonstrated reserves.
- Monitor cash burn, remaining 2015 and 2016 commitments, and the reduction in working capital.
- Reassess the derivative liability at each reporting date because its fair value is sensitive to projected gold prices and could materially change.
- Review title, lease, royalty, permitting and environmental obligations required to preserve the Livengood property interests.