Business Context and Reporting Period
International Tower Hill Mines Ltd. filed an unaudited Form 10-Q for the quarter and nine months ended September 30, 2020. The company is an exploration-stage mineral company focused on its 100%-owned Livengood Gold Project in Alaska and has no revenue-generating operations.
Management directed preparation of an updated pre-feasibility study for Livengood. The study was expected to be released with an associated NI 43-101 technical report in October 2021, at an estimated cost of $3.8 million through that date.
Financial Results and Liquidity
| Metric | Q3 2020 | Q3 2019 | Nine Months 2020 | Nine Months 2019 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Net loss | $1.10 million | $0.86 million | $2.52 million | $3.07 million |
| Comprehensive loss | $1.18 million | $0.96 million | $2.92 million | $2.80 million |
| Operating expenses | $1.19 million | $0.99 million | $2.98 million | $2.94 million |
| Cash used in operations | Not separately disclosed | Not separately disclosed | $1.74 million | $2.92 million |
| Cash and cash equivalents | $13.77 million at September 30 | $7.53 million at September 30, 2019 | ||
| Working capital | $13.12 million at September 30 | $6.84 million at December 31, 2019 |
Basic and diluted loss per share was $0.01 for both the quarter and nine-month period. Operating margins are not meaningful because the company had no revenue. No material debt was reported; liabilities totaled $804,115 at September 30, 2020, consisting primarily of accounts payable and accrued liabilities.
Cash increased by $6.83 million during the first nine months, primarily from $8.97 million of net equity financing, partly offset by operating cash use of $1.74 million and a $395,571 foreign-exchange impact. Capitalized acquisition costs remained $55.38 million.
Material Changes Versus Prior Comparable Period
- Third-quarter net loss increased to $1.10 million from $858,406, mainly because mineral property expenditures increased to $718,541 from $179,692.
- Nine-month net loss improved to $2.52 million from $3.07 million, primarily because the prior-year period included a $280,820 foreign-exchange loss versus a $389,633 gain in 2020.
- Nine-month operating expenses were broadly stable at $2.98 million versus $2.94 million, while exploration expenditures increased to $1.37 million from $1.34 million.
- The company issued 6.53 million common shares during the quarter for approximately $9.2 million of gross proceeds under its at-the-market agreement. Shares outstanding increased to 194.10 million at September 30 from 187.57 million at December 31, 2019.
- Subsequent to quarter-end, the company issued an additional 803,240 shares and completed the full $10.3 million at-the-market offering by October 16, 2020.
- Share-based compensation declined to $18,433 in the third quarter from $404,171, and to $366,685 for the nine months from $405,857.
Guidance, Outlook, Risks and Unusual Items
Management expects the company to operate at a loss for the foreseeable future. It believes cash on hand at September 30, 2020 was sufficient to fund the anticipated 2020 work plan and general and administrative costs for at least the next 12 months, but significant additional financing will be required to advance the Livengood Project and any future mine development.
- Key funding sources remain equity financing and potentially a strategic alliance; the filing states there is no assurance that additional financing will be available on acceptable terms.
- Scheduled property lease payments and mining claim government fees total $2.95 million through 2025 and beyond, excluding required work expenditures and potential royalties.
- Failure to make required lease, royalty, government-fee or work payments could result in loss or forfeiture of mineral property interests.
- COVID-19 had not caused a material adverse effect as of the filing date, but could disrupt operations, increase costs, delay the pre-feasibility study and impair access to capital.
- Project risks include permitting delays, uncertain resource estimates, metallurgical and recovery assumptions, gold-price volatility, title and surface-rights issues, environmental requirements and the need to convert mineral resources into economically viable reserves.
- The company cautions that inferred resources and preliminary economic assessments are highly uncertain and do not demonstrate economic viability.
- The company expects to remain a passive foreign investment company for U.S. federal income tax purposes, which may have significant tax consequences for U.S. holders.
Most Important Facts to Verify
- Whether the updated Livengood pre-feasibility study and NI 43-101 technical report were completed on the planned timetable and within the estimated $3.8 million budget.
- Current cash burn, remaining liquidity and the timing and terms of any additional financing.
- Whether the company can satisfy property-maintenance commitments, including the Alaska Mental Health Trust lease expiring in June 2023 and related extension requirements.
- The effect of the completed $10.3 million equity offering and subsequent share issuance on dilution and available capital.
- Updated permitting, environmental baseline, engineering, resource, recovery and capital-cost assumptions for the Livengood Project.
- The impact of COVID-19, gold prices, foreign-exchange movements and capital-market conditions on the project and financing prospects.