International Tower Hill Mines Ltd. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2018; unaudited U.S. GAAP interim financial statements. The company is a British Columbia mineral exploration company focused on its 100%-owned Livengood Gold Project in Alaska. It has no revenue-generating operations.
Key Financial Metrics
| Metric | Three Months Ended September 30, 2018 | Nine Months Ended September 30, 2018 | Comparable Period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Operating expenses | $1.07 million | $3.40 million | $1.62 million and $4.72 million, respectively |
| Net loss | $1.27 million | $3.29 million | $1.75 million and $5.05 million, respectively |
| Basic and diluted loss per share | $0.01 | $0.02 | $0.01 and $0.03, respectively |
| Cash used in operating activities | Not provided | $3.12 million | $5.05 million |
| Cash and cash equivalents | $11.07 million at September 30, 2018 | $2.24 million at December 31, 2017 | |
| Working capital | $10.84 million at September 30, 2018 | $1.99 million at December 31, 2017 | |
| Total liabilities | $414,868 | $428,838 at December 31, 2017 | |
| Total assets | $66.54 million | $57.65 million at December 31, 2017 |
Capitalized acquisition costs were $55.27 million at September 30, 2018, including $69,391 of additions during the nine-month period. The company had no debt or senior securities reported. Financing activities generated $12.00 million during the first nine months, primarily from the March 2018 private placement and option exercises.
Material Changes Versus Prior Comparable Period
- Net loss decreased by $475,877, or approximately 27%, in the third quarter and by $1.76 million, or approximately 35%, for the first nine months.
- Mineral property exploration expense decreased to $394,736 from $867,900 in the quarter and to $1.31 million from $2.25 million year to date, primarily because of differences in technical and environmental work.
- Cash increased by approximately $8.82 million from year-end, principally because of the $12.0 million equity financing, partially offset by operating expenditures.
- The company issued 24.0 million common shares at $0.50 per share in a March 2018 private placement and issued 294,000 shares upon exercise of options. Shares outstanding increased to 186,816,683 from 162,392,996 at December 31, 2017.
- Stock-based compensation increased to $184,356 from $13,127 for the comparable nine-month period, primarily due to options granted in 2018.
- Foreign exchange loss declined to $7,048 from $377,940 for the first nine months, while third-quarter foreign exchange loss increased to $219,327 from $133,815.
Guidance, Outlook, Risks and Unusual Items
- Management approved a 2018 budget of $5.1 million. The program includes metallurgical testing, refinement of the Livengood flowsheet, engineering work, and environmental baseline activities supporting potential future permitting.
- Management stated that available funds were expected to fund the current 2018 work plan and anticipated general and administrative costs through fiscal 2019. The company nevertheless expects to operate at a loss and requires significant additional financing for continued exploration, permitting, and any potential mine development.
- Management is considering financing alternatives, including a potential strategic alliance, but stated that additional financing may not be available on acceptable terms, or at all. The financial statements are prepared on a going-concern basis.
- Required property-related payments total $2.83 million through 2023 and beyond, including $2.18 million of mineral property lease payments and $650,975 of mining claim government fees. These amounts exclude required work expenditures and potential royalties.
- Failure to make required payments or expenditures could result in the loss or forfeiture of mineral property rights. The company also identifies risks related to gold prices, resource estimates, metallurgy and recoveries, permits, environmental requirements, title, market conditions, and access to capital.
- The company cautions that its Canadian resource classifications, including inferred resources, may not constitute SEC-compliant reserves and do not demonstrate economic viability. Preliminary assessments incorporating inferred resources are inherently uncertain.
- On October 17, 2018, the company granted board members an aggregate of 101,220 deferred share units with an aggregate grant-date fair value of approximately CAD 581,000.
- The company expects to remain a passive foreign investment company for U.S. federal income tax purposes; U.S. investors should assess the related tax consequences.
- Management reported effective disclosure controls as of September 30, 2018 and no material changes in internal control over financial reporting. No material changes to previously disclosed risk factors were reported.
Investor Verification Points
- Verify the company’s cash-burn rate and whether the $11.07 million cash balance is sufficient for the stated 2019 operating horizon.
- Assess the likelihood, timing, dilution, and terms of future equity financing or a strategic alliance.
- Review the Livengood metallurgical test results, recovery assumptions, engineering work, permitting status, and any updated economic study.
- Reconcile the contractual property payments, required work expenditures, royalties, and potential property-right forfeiture risks.
- Evaluate the economic significance and SEC comparability of disclosed Canadian mineral resources, particularly inferred resources.
- Monitor gold prices, foreign exchange exposure, share dilution from outstanding options and deferred share units, and the company’s continuing operating losses.