International Tower Hill Mines Ltd. — Q3 2017 Form 10-Q Summary
Business context and reporting period
International Tower Hill Mines Ltd. is a British Columbia exploration-stage company focused on acquiring, exploring and evaluating mineral properties. It controls a 100% interest in the Livengood Gold Project in Alaska. The filing covers the three and nine months ended September 30, 2017; amounts are in U.S. dollars and the interim financial statements are unaudited.
The Company has no revenue-generating operations and is not producing gold. Its principal activities involve exploration, technical studies, permitting preparation and optimization of the Livengood Project.
Financial performance and position
| Metric | Three months ended September 30, 2017 | Three months ended September 30, 2016 | Nine months ended September 30, 2017 | Nine months ended September 30, 2016 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Operating expenses | $1.617 million | $1.433 million | $4.719 million | $5.111 million |
| Net loss | $1.746 million | $1.525 million | $5.051 million | $6.081 million |
| Comprehensive loss | $1.596 million | $1.499 million | $4.650 million | $5.748 million |
| Basic and diluted loss per share | $0.01 | $0.01 | $0.03 | $0.05 |
| Cash used in operating activities | Not separately provided | Not separately provided | $5.053 million | $5.041 million |
At September 30, 2017, cash and cash equivalents were $3.435 million, compared with $22.466 million at December 31, 2016. Working capital was $3.010 million, compared with $7.589 million at year-end 2016. Total assets were $58.887 million, including $55.204 million of capitalized acquisition costs associated with the Livengood Project.
Total liabilities were $651,793 at September 30, 2017, consisting primarily of accounts payable and accrued liabilities. The $14.694 million derivative liability outstanding at December 31, 2016 was paid in full on January 12, 2017; the Company reported no debt or derivative liability at quarter-end.
The Company spent $2.247 million on mineral property exploration during the first nine months of 2017, compared with $2.504 million in the comparable period. Principal costs included geological and geophysical work, land maintenance and tenure, assay work and environmental activities.
Material changes versus prior comparable periods
- Third-quarter net loss increased by $221,000, or approximately 14%, primarily because mineral property expenditures increased by $340,000 and foreign exchange losses increased by $131,000.
- Nine-month net loss decreased by $1.030 million, or approximately 17%, primarily because the prior-year period included a $900,000 unrealized loss on the derivative liability and 2017 had lower exploration, wage and share-based compensation costs.
- Cash declined by $19.031 million during the first nine months, mainly due to the $14.694 million final derivative payment, approximately $5.053 million of operating cash use and foreign exchange effects.
- Operating expenses were higher in the third quarter but lower for the nine-month period. Wage and benefit costs declined due primarily to staff reductions, while consulting, professional and regulatory costs increased year over year for the nine-month period.
- Shares outstanding increased from 162,186,972 at December 31, 2016 to 162,392,996 at September 30, 2017, primarily due to the issuance of 206,024 shares to the former CEO for services.
Guidance, outlook, commentary and unusual items
The Board approved a 2017 work program budget of $6.3 million. The program focused on improving the geological and resource block models, evaluating alternative production schedules and conducting metallurgical work to optimize recovery and the processing flowsheet. Management reported that the program was progressing on schedule and that the Company had sufficient funds to complete the test programs and engineering work then underway.
Management stated that preliminary work indicated potential net present value benefits of up to $280 million from block-model improvements and $100 million from metallurgical recovery improvements. These are opportunities rather than confirmed benefits; the Company cautioned that they may not be realized until the technical work is completed and incorporated into a revised financial model.
The Company expects to operate at a loss for the foreseeable future. Management believed available working capital was sufficient to complete the anticipated 2017 work plan and fund anticipated general and administrative costs through fiscal 2018, but stated that significant additional financing will be required to advance permitting, development and any future mine construction.
Potential funding sources include additional equity financing and a strategic alliance. There is no assurance that financing will be available on acceptable terms, or at all. If financing cannot be obtained, the Company may reduce discretionary Project activities.
Material contingencies and risks include permitting delays, unexpected exploration or metallurgical results, volatility in gold prices, market and currency risks, potential title or surface-rights issues, property lease and claim-maintenance obligations, environmental regulation, and the uncertainty that mineral resources or inferred resources will become economically mineable reserves. The filing states that the Company is a passive foreign investment company for U.S. federal income tax purposes and expects that status to continue.
Contractual property-related payments totaled $2.826 million through 2022 and beyond, including $2.174 million of mineral property lease payments and $651,575 of mining claim government fees. These amounts exclude required work expenditures and potential royalties other than annual minimum royalties.
Subsequent to quarter-end, the Company granted directors an aggregate of CAD $497,998 in deferred share units and granted the CEO options to purchase 250,000 common shares at CAD $1.35 per share, vesting in stages through February 2019 and expiring February 1, 2025.
The Company reported no legal proceedings, no off-balance-sheet arrangements, no defaults on senior securities and no material changes in internal control over financial reporting. Management concluded that disclosure controls and procedures were effective as of September 30, 2017.
Most important facts for investors to verify
- Whether the Company can obtain the significant additional financing needed to continue exploration, permitting and potential development.
- The adequacy of the $3.435 million cash balance and $3.010 million working capital relative to ongoing operating and Project expenditures.
- Progress and results of the 2017 geological, resource-model, metallurgical and engineering programs, including whether projected optimization benefits are supported by updated technical studies.
- The current economic assumptions, capital requirements, operating costs and recovery estimates for the Livengood Project, including the corrected reported pre-feasibility-study AISC of $976 per ounce.
- Permitting status, environmental baseline work, property title and lease obligations, and the consequences of failing to satisfy required payments or work commitments.
- Potential dilution from future equity financings, deferred share units and outstanding stock options.
- The limitations of Canadian mineral resource and inferred-resource disclosures and the absence of assurance that resources will become economically recoverable reserves.