International Tower Hill Mines Ltd. — Q1 2016 Form 10-Q Summary
Business Context and Reporting Period
Unaudited quarterly report for the three months ended March 31, 2016. International Tower Hill Mines is an exploration-stage mineral company with a 100% interest in the Livengood Gold Project in Alaska. The Company has no revenue-generating operations and is focused on exploration, environmental baseline work, metallurgical testing, engineering optimization and permitting preparation.
Financial Position and Key Metrics
| Metric | Q1 2016 | Comparable / Prior Period |
|---|---|---|
| Revenue | None | None |
| Operating expenses | $1.67 million | $1.56 million in Q1 2015 |
| Net loss | $2.49 million | $636,495 loss in Q1 2015 |
| Comprehensive loss | $2.19 million | $1.67 million in Q1 2015 |
| Basic and diluted loss per share | $0.02 loss | $0.01 loss in Q1 2015 |
| Cash and cash equivalents | $5.09 million | $6.49 million at December 31, 2015; $11.29 million at March 31, 2015 |
| Cash used in operating activities | $1.71 million | $1.15 million in Q1 2015 |
| Working capital | $9.86 million deficit | $6.17 million positive at December 31, 2015 |
| Total assets | $60.50 million | $61.92 million at December 31, 2015 |
| Total liabilities | $15.13 million | $14.42 million at December 31, 2015 |
Margins are not meaningful because the Company has no revenue. The Company reported no conventional debt in the filing, but had a $14.60 million derivative liability payable January 12, 2017. Capitalized acquisition costs were $55.20 million, unchanged from year-end 2015. No shares were issued during the quarter; 116,313,638 common shares were outstanding.
Material Changes Versus the Prior Comparable Period
- Net loss increased to $2.49 million from $636,495, primarily due to a $700,000 unrealized loss from revaluation of the derivative liability, compared with a $200,000 unrealized gain in Q1 2015.
- Mineral property exploration expenditures increased 99% to $796,505 from $401,330, principally because of continuing metallurgical testing.
- Foreign exchange results changed from a $702,255 gain to a $123,862 loss.
- Consulting and professional fees declined to $116,024 from $197,516, and share-based compensation declined to $60,651 from $269,712.
- Cash declined by $1.40 million during the quarter. Operating cash use increased by approximately $559,000 from Q1 2015.
- The derivative liability was reclassified as current, producing a working-capital deficit despite $5.09 million of cash.
Guidance, Outlook, Risks and Unusual Items
Management stated that existing cash was expected to fund the anticipated 2016 work plan and general corporate costs through the 2016 fiscal year. BBA Inc. was conducting a Throughput Rationalization Study scheduled for completion in 2016, with the objective of evaluating engineering, metallurgical and project-scale opportunities that could reduce capital and operating costs. No production guidance was provided.
The Company requires significant additional financing to continue operations, advance the Livengood Project, fund potential future development and satisfy the $14.60 million contingent payment due January 12, 2017. Management is considering equity financing and a strategic alliance, but disclosed no assurance that financing will be available on acceptable terms, or at all.
- If the January 2017 payment is not made and the default is not remedied within 30 days, the Company may be required to place related claims into a trust for sale. The Company could remain liable for any shortfall.
- The derivative payment varies with the five-year average gold price and was valued using an estimated average gold price of $1,352 per ounce at March 31, 2016.
- Failure to obtain financing could require reductions in discretionary project activities and creates uncertainty regarding the Company’s ability to continue as a going concern.
- Key operating risks include gold-price volatility, permitting delays, resource and metallurgical uncertainty, title and lease risks, environmental requirements, access to supplies and services, and future equity-market conditions.
- The Company was a passive foreign investment company for U.S. federal income tax purposes in recent years and expects to remain one; U.S. investors should consult tax advisers.
- The filing reports no material changes to previously disclosed risk factors, no legal proceedings, and no off-balance-sheet arrangements.
Important Facts for Investors to Verify
- Availability and terms of financing sufficient to cover the $14.60 million January 2017 payment and ongoing operations.
- Subsequent revaluations of the derivative liability, which may change with gold prices and other valuation assumptions.
- Results of the 2016 Throughput Rationalization Study and whether optimization work improves the Livengood Project’s economics.
- Cash-burn rate, exploration commitments and the Company’s ability to preserve required environmental and mineral-property rights.
- Permitting progress, resource and metallurgical assumptions, and the distinction between Canadian mineral-resource disclosures and SEC reserve standards.
- Potential dilution and financing terms if additional equity is issued.