Business Context and Reporting Period
Company: International Tower Hill Mines Ltd. (ITH)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2012
Reporting Status Change: Effective January 1, 2013, ITH ceased to be a "foreign private issuer" and became subject to U.S. domestic issuer rules. This is the first 10-K filed under U.S. GAAP; prior periods were restated from IFRS/Canadian GAAP.
Business Overview: ITH is a mineral exploration company focused exclusively on the Livengood Gold Project in Alaska. The company is in the exploration stage with no commercial production or operating revenue. It spun off other assets (Nevada and other Alaska properties) to Corvus Gold Inc. in August 2010.
Key Financial Metrics
| Metric | Year Ended Dec 31, 2012 | Seven Months Ended Dec 31, 2011 |
|---|---|---|
| Revenue | $0 | $0 |
| Net Loss | $(56,643,462) | $(43,309,957) |
| Loss Per Share (Basic & Diluted) | $(0.62) | $(0.50) |
| Cash and Cash Equivalents | $30,170,905 | $54,712,073 |
| Working Capital | $27,676,797 | $45,813,618 |
| Total Assets | $86,687,344 | $109,304,085 |
| Total Liabilities | $26,147,269 | $31,119,615 |
| Shareholders' Equity | $60,540,075 | $78,184,470 |
| Accumulated Deficit | $(208,552,580) | $(151,909,118) |
Debt and Liquidity: The company has no long-term debt. Total liabilities include a significant derivative liability of $22,400,000 related to a contingent payment on a property acquisition. Cash burn was approximately $24.5 million during the year, primarily due to exploration expenditures and property acquisitions.
Material Changes vs. Prior Period
- Net Loss Increase: Net loss increased by approximately $13.3 million compared to the seven-month period ended Dec 31, 2011. This is partly due to the full-year comparison and increased exploration costs.
- Exploration Expenses: Mineral property exploration expenses rose to $36.25 million in 2012 from $32.55 million in the prior seven-month period. Costs were driven by geotechnical drilling, environmental baseline data gathering, and engineering for the Feasibility Study.
- Share-Based Compensation: Increased to $9.21 million in 2012 from $7.65 million in the prior period, attributed to new stock option grants and vesting.
- Derivative Liability: The company recorded an unrealized loss of $1.6 million on the revaluation of its derivative liability in 2012, compared to an unrealized gain of $2.3 million in the prior period.
- Financing Activity: In Q3 2012, the company raised approximately $29.8 million through a non-brokered private placement of 11.4 million shares to fund the Feasibility Study and operations.
Guidance, Outlook, and Risks
Outlook and Guidance:
- Feasibility Study (FS): The company is advancing a definitive Feasibility Study for the Livengood Gold Project, bypassing a pre-feasibility study. Metallurgical tests indicate gold recovery rates between 77% and 88% for key rock types.
- 2013 Budget: Management anticipates spending approximately $24 million in 2013 to complete the FS and maintain permitting schedules.
- Capital Requirements: The company expects to continue incurring losses until commercial production. It will require significant additional financing beyond 2013 to fund permitting, construction, and development if a production decision is made.
Management Commentary:
- Donald C. Ewigleben was appointed President and CEO in September 2012.
- Cost rationalization was implemented in June 2012 to focus resources on the FS and permitting, postponing district-wide exploration.
Risks and Contingencies:
- Going Concern: The company has no revenue and relies on equity financing. Failure to secure additional funding could delay operations or force a reduction in activities.
- Resource Uncertainty: The Livengood project has no proven or probable reserves by SEC standards. Resources are reported under Canadian NI 43-101 standards, which differ from SEC Industry Guide 7. There is no assurance resources will be converted to reserves.
- Derivative Liability: A contingent payment of up to $22.4 million (as of Dec 31, 2012) is due in 2016 based on the five-year average gold price exceeding $720/oz.
- Permitting: Delays in obtaining federal and state permits (NEPA process) could materially impact the project timeline and economics.
- PFIC Status: The company believes it is a Passive Foreign Investment Company (PFIC) for U.S. tax purposes, which may have adverse tax consequences for U.S. holders.
Investor Verification Checklist
- Feasibility Study Timeline: Verify the expected completion date of the definitive Feasibility Study and the specific milestones required to reach a production decision.
- Capital Adequacy: Confirm if the current cash balance ($30.2M) is sufficient to cover the projected $24M 2013 budget and subsequent permitting costs without immediate dilution.
- Derivative Liability Sensitivity: Assess the impact of fluctuating gold prices on the $22.4M contingent liability payable in 2016.
- Resource vs. Reserve Conversion: Review the technical reports (NI 43-101) to understand the gap between current "inferred/indicated" resources and SEC-compliant "proven/probable" reserves.
- Permitting Status: Monitor the progress of the Environmental Impact Statement (EIS) and NEPA review process, as delays here are a primary risk to project viability.