International Tower Hill Mines Ltd. — Form 10-Q Summary
Business Context and Reporting Period
Quarterly report for the period ended September 30, 2019, filed November 7, 2019. International Tower Hill Mines Ltd. is a British Columbia mineral exploration company focused on its 100%-owned Livengood Gold Project in Alaska. The company has no revenue-generating operations and operates in a single reportable segment: exploration and development of mineral properties.
The interim financial statements are unaudited and prepared under U.S. GAAP. The company reported 187,573,671 common shares outstanding as of September 30, 2019 and is listed on NYSE American under the symbol THM.
Financial Performance, Cash Flow, and Liquidity
| Metric | Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2019 |
|---|---|---|
| Revenue | None | None |
| Operating expenses | $992,912 | $2,942,596 |
| Net loss | $858,406 | $3,066,372 |
| Basic and diluted loss per share | $0.01 | $0.01 |
| Cash used in operating activities | Not separately reported | $2,924,617 |
| Capitalized acquisition costs | Not separately reported | $101,692 |
| Cash provided by financing activities | Not separately reported | $64,254 |
Other income was $134,506 for the quarter, including an $82,426 foreign-exchange gain and $44,880 of interest income. For the nine-month period, other income and expenses resulted in a net expense of $123,776, including a $280,820 foreign-exchange loss.
Cash and cash equivalents were $7.53 million at September 30, 2019, compared with $10.23 million at December 31, 2018. Working capital was $7.45 million, versus $9.88 million at year-end 2018. Total assets were $63.13 million, including $55.38 million of capitalized acquisition costs. Current liabilities were $280,055. The filing does not report debt, and no material long-term debt is disclosed.
Cash decreased by $2.70 million during the first nine months of 2019. The company received $64,254 from the exercise of stock options and had no comparable private-placement financing in 2019. Management stated that existing cash was expected to fund the 2019 work plan and anticipated general and administrative costs through fiscal 2020, but significant additional financing will be required to continue operations and advance the project.
Material Changes Versus the Prior Comparable Period
- Nine-month net loss improved to $3.07 million from $3.29 million in 2018, while the quarterly net loss improved to $858,406 from $1.27 million.
- Nine-month operating expenses declined to $2.94 million from $3.40 million, primarily due to lower wages and benefits and reduced travel costs.
- Share-based compensation increased to $405,857 for the nine-month period from $184,356. The increase primarily reflected fully vested deferred share units issued to directors and stock options granted in August 2019.
- Consulting expense increased to $440,986 from $110,589 for the nine-month period, largely because of the director deferred share units.
- Mineral property exploration expenditures increased modestly to $1.34 million from $1.31 million.
- Cash used in operations improved to $2.92 million from $3.12 million, but the company continued to consume cash without operating revenue.
- Cash declined by approximately $2.7 million, compared with an $8.8 million increase in the prior-year period, which benefited from a $12.0 million private placement.
- Capitalized acquisition costs increased by $101,692 to $55.38 million, reflecting land acquisitions during the second and third quarters.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
The company advanced its approved 2019 work plan with a budget of $3.7 million. Activities included metallurgical studies, processing approximately 2,000 kilograms of samples, refinement of the Livengood flowsheet, and environmental baseline work supporting future permitting. Management believed it had sufficient funds to complete the current test programs and engineering work.
The company expects to operate at a loss for the foreseeable future. It is evaluating additional financing alternatives, including a potential strategic alliance, but stated that additional financing may not be available on acceptable terms or at all. Delays in permits or unexpected project results could increase funding requirements.
- Scheduled mineral-property leases and mining-claim government fees total approximately $2.86 million from 2020 onward, excluding required work expenditures and potential royalties.
- Failure to make required payments or incur required expenditures could result in the loss or forfeiture of mineral-property rights.
- The Livengood project remains at the exploration and development stage; no production decision has been made and no assurance exists that a mine will be developed.
- Resource and economic assessments involving inferred resources are preliminary and subject to substantial uncertainty. Mineral resources are not mineral reserves and do not demonstrate economic viability.
- Key risks include gold-price volatility, financing and capital-market conditions, permitting, environmental requirements, title and lease rights, technical and metallurgical assumptions, cost estimates, and the accuracy of resource estimates.
- The company disclosed that it has been a passive foreign investment company for U.S. federal tax purposes in recent years and expects to remain one.
- Management reported effective disclosure controls as of September 30, 2019, with no material changes in internal control over financial reporting during the quarter.
Important Facts for Investors to Verify
- Cash runway relative to the company’s stated expectation of funding through fiscal 2020 and the timing and terms of any required financing.
- Progress, cost, and results of Livengood metallurgical, engineering, environmental, and permitting work.
- The economic assumptions, resource classifications, and limitations underlying any future feasibility study or project update.
- Required lease payments, claim fees, work expenditures, royalties, and the consequences of failing to maintain mineral-property rights.
- Potential dilution from 2,452,049 outstanding stock options and 1,383,396 deferred share units, as well as future equity financing.
- Foreign-exchange exposure, gold-price sensitivity, and the company’s continuing losses and lack of operating revenue.