International Tower Hill Mines Ltd. — Q2 2017 Form 10-Q Summary
Business Context and Reporting Period
International Tower Hill Mines Ltd. is a British Columbia-incorporated exploration-stage mining company focused on the 100%-owned Livengood Gold Project in Alaska. The filing covers the three and six months ended June 30, 2017; financial statements are unaudited and presented in U.S. dollars under U.S. GAAP.
The Company has no revenue-generating operations and remains dependent on equity financing and other external funding.
Financial Performance and Position
| Metric | Q2 2017 | Q2 2016 | Six Months 2017 | Six Months 2016 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Operating expenses | $1.579 million | $2.008 million | $3.102 million | $3.678 million |
| Net loss | $1.628 million | $2.069 million | $3.306 million | $4.556 million |
| Loss per share | $0.01 | $0.02 | $0.02 | $0.04 |
| Cash used in operating activities | Not separately provided | Not separately provided | $3.464 million | $3.896 million |
- Cash and cash equivalents were $4.522 million at June 30, 2017, down from $22.466 million at December 31, 2016.
- Working capital was $4.605 million, compared with $7.589 million at year-end 2016.
- Total assets were $60.099 million, including $55.204 million of capitalized acquisition costs for the Livengood Project.
- Total liabilities were $267,258. The filing does not disclose outstanding debt; liabilities consisted primarily of accounts payable and accrued liabilities.
- Shareholders’ equity was $59.832 million, with an accumulated deficit of $241.481 million.
- No meaningful revenue or operating margin exists because the Company is not producing or selling minerals.
Material Changes Versus Prior Comparable Period
- Q2 net loss decreased by $441,204, or approximately 21%, primarily because mineral property exploration expense declined by $511,273 to $668,389.
- Six-month net loss decreased by $1.251 million, or approximately 27%, mainly due to lower exploration spending and the absence of the prior-year $800,000 unrealized derivative loss.
- Six-month exploration expenditures declined to $1.380 million from $1.976 million. Lower geological and geophysical spending was partly offset by higher assay costs.
- Cash declined by $17.945 million during the first six months, principally because the Company paid the final $14.694 million derivative obligation related to the Livengood property acquisition and used $3.464 million in operating activities.
- The derivative liability was fully settled on January 12, 2017, eliminating the related liability and releasing the deed of trust over the acquired claims.
- Shares outstanding remained 162,186,972 through June 30, 2017. The Company recorded a $99,492 obligation to issue 206,024 shares to former CEO Thomas Irwin; the shares were issued on July 13, 2017.
Outlook, Management Commentary, Risks and Unusual Items
- The Board approved a 2017 work-program budget of $6.3 million focused on improving the resource block model, production schedule opportunities, metallurgical recovery and project economics.
- Management stated that work was progressing on schedule and that existing funds were sufficient to complete the test programs and engineering work underway during 2017.
- Management expects continuing losses and states that significant additional financing will be required to advance permitting, development and any future mine construction.
- If additional financing is unavailable, the Company may reduce discretionary project activities after 2017. Management is considering equity financing and a potential strategic alliance, but neither is assured.
- Potential project improvements were estimated to offer up to $280 million of possible NPV benefit from block-model changes and up to $100 million from metallurgical recovery improvements. These are preliminary opportunities, not established economic results.
- The 2016 Livengood pre-feasibility study was updated to correct the All-in Sustaining Costs calculation. Corrected projected AISC was $976 per ounce.
- Key risks include gold-price volatility, financing and liquidity constraints, permitting delays, resource and metallurgical uncertainty, property-title issues, environmental regulations, lease and claim obligations, and possible dilution from future equity financing.
- Contractual mineral-property and government-fee commitments totaled $2.864 million through 2022 and beyond, excluding required work expenditures and potential royalties.
- The Company states that it has been a passive foreign investment company for U.S. federal income tax purposes in recent years and expects to remain one.
Most Important Facts for Investors to Verify
- Whether the $4.522 million cash balance and $4.605 million working capital were sufficient beyond 2017 without new financing.
- Progress and results of the 2017 resource-model, metallurgical and engineering programs, including whether projected NPV improvements were realized.
- Current financing plans, potential strategic alliances, dilution terms and the Company’s ability to fund permitting and development.
- The assumptions, economic viability and treatment of inferred resources in the Livengood pre-feasibility study; the filing cautions that inferred resources are highly uncertain and are not mineral reserves under SEC standards.
- Permitting status, environmental baseline work, mineral-title matters, lease obligations and the risk of forfeiting property rights if required payments or expenditures are not made.
- The corrected $976-per-ounce AISC calculation and the underlying gold-price, recovery, capital-cost and operating-cost assumptions.