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, 2014. The British Columbia, Canada-based exploration-stage company controls a 100% interest in the Livengood Gold Project in Alaska and had no revenue-generating operations.
Management limited 2014 activities to essential environmental baseline work, land and lease obligations, corporate compliance, and evaluation of opportunities to improve the 2013 feasibility study. Full-time staff was reduced by approximately 30% effective January 1, 2014.
Financial Highlights
| Metric | Three Months Ended September 30, 2014 | Nine Months Ended September 30, 2014 |
|---|---|---|
| Revenue | No revenue | No revenue |
| Net loss | $1.17 million | $6.11 million |
| Comprehensive loss | $1.56 million | $6.65 million |
| Loss per share | $0.01 | $0.06 |
| Cash used in operating activities | Not separately provided | $5.52 million |
- Total operating expenses were $1.77 million for the quarter and $6.16 million for the nine-month period. The filing does not provide a meaningful revenue-based margin because the Company has no revenue.
- Mineral property exploration expenditures were $557,735 for the quarter and $1.96 million for the nine months. Capitalized acquisition costs totaled $55.20 million at September 30, 2014.
- Cash and cash equivalents were $7.86 million at September 30, 2014, down from $13.93 million at December 31, 2013. Working capital was $7.50 million, compared with $12.70 million at year-end.
- Total liabilities were $15.76 million, including a $15.10 million derivative liability. The filing does not identify conventional interest-bearing debt.
- Shareholders’ equity was $47.66 million. There were 98,068,638 common shares outstanding, unchanged from December 31, 2013.
Material Changes Versus Prior Comparable Period
- Third-quarter net loss improved to $1.17 million from $4.12 million, while nine-month net loss improved to $6.11 million from $8.83 million.
- Mineral property expenditures declined to $1.96 million for the nine months from $6.87 million, primarily because the feasibility study was completed in 2013 and project activity was reduced.
- Share-based compensation declined to $1.14 million from $3.65 million for the nine months, despite the grant of 2.48 million options in 2014 versus 613,000 in 2013.
- The prior-year nine-month results included a $5.7 million unrealized gain from revaluation of the derivative liability and a $298,769 impairment of available-for-sale securities. The 2014 period included a $300,000 unrealized derivative loss.
- Operating cash use improved to $5.52 million from $12.69 million. No financing cash flows occurred in either comparable period.
- Cash declined by approximately $6.1 million during the first nine months, reflecting project and corporate spending, severance payments, and foreign-exchange effects.
Outlook, Risks, Contingencies and Unusual Items
- Management expected to spend approximately $8 million during fiscal 2014 on environmental baseline activities, project optimization reviews, and general and administrative requirements; approximately $4.9 million had been spent by September 30, 2014.
- The Company expects continuing losses and stated that significant additional financing will be required to fund operations, further Livengood activities, and any potential mine development. Management noted substantial uncertainty regarding its ability to obtain financing on acceptable terms.
- The Company remained open to a strategic alliance or other financing options to support future development. No production decision had been made.
- The Livengood Project feasibility study and related economic assessments are preliminary in nature and include inferred resources. The filing cautions that such resources may not be economically or legally mineable and should not be treated as reserves.
- The derivative liability relates to a contingent payment due in December 2016 based on the five-year average gold price. Its fair value increased from $14.80 million at year-end to $15.10 million at September 30, 2014, based on an estimated average gold price of $1,374 per ounce. For every $1 change in the average gold price, the liability is expected to change by $23,148.
- Contractual obligations totaled $17.99 million, including the $15.10 million contingent Livengood property payment, mineral property leases, government claim fees, and office and equipment leases. Required work expenditures and potential royalties were excluded from the table.
- Key risks include gold-price volatility, financing availability, permitting and environmental requirements, title and lease rights, resource-estimate uncertainty, metallurgy and recovery assumptions, foreign exchange, and the potential loss of mineral property interests if required payments or expenditures are not made.
- The Company disclosed that it expects to remain a passive foreign investment company for U.S. federal income tax purposes. Disclosure controls were assessed as effective, with no material changes in internal control over financial reporting.
Investor Verification Checklist
- Verify the Company’s cash runway against planned spending, continuing operating losses, and the stated need for additional financing.
- Review the valuation, payment terms, and gold-price sensitivity of the $15.10 million derivative liability due in December 2016.
- Assess whether the Livengood Project’s revised mine plan, metallurgical optimization opportunities, permitting work, and feasibility-study economics support a future development decision.
- Distinguish Canadian mineral-resource disclosures and inferred resources from SEC-compliant mineral reserves and confirm the economic viability assumptions.
- Review all lease, claim-maintenance, work-commitment, royalty, and title requirements that could affect the Company’s mineral interests.
- Monitor gold prices, capital-market access, strategic-partner discussions, and the timing and terms of any future equity or other financing.