International Tower Hill Mines Ltd. — Q3 2016 Form 10-Q Summary
Business context and reporting period
International Tower Hill Mines Ltd. is an exploration-stage mineral company focused on acquiring, exploring and evaluating mineral properties. The company controls a 100% interest in the Livengood Gold Project in Alaska. This unaudited Form 10-Q covers the three and nine months ended September 30, 2016, with U.S. dollar reporting.
The company has no revenue-generating operations and is not producing gold. Its common shares outstanding were 116,353,638 as of September 30, 2016 and November 4, 2016.
Key financial metrics
| Metric | Q3 2016 | Q3 2015 | First nine months 2016 | First nine months 2015 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Net loss | $1.525 million | $1.007 million | $6.081 million | $3.693 million |
| Loss per share | $0.01 | $0.01 | $0.05 | $0.03 |
| Operating expenses | $1.433 million | $1.749 million | $5.111 million | $5.155 million |
| Cash used in operating activities | Not separately provided | Not separately provided | $5.041 million | $4.127 million |
| Cash and cash equivalents | At September 30, 2016: $1.759 million | At December 31, 2015: $6.493 million | ||
| Working capital | Deficit of $13.367 million at September 30, 2016 | $6.169 million at December 31, 2015 | ||
| Total assets | $57.208 million at September 30, 2016 | $61.920 million at December 31, 2015 | ||
| Total liabilities | $15.345 million at September 30, 2016 | $14.416 million at December 31, 2015 |
Margins are not meaningful because the company has no revenue. The company had no conventional interest-bearing debt reported, but had a derivative liability of $14.800 million classified as current at September 30, 2016.
Material changes versus the prior comparable period
- Q3 net loss increased by $517,100, or approximately 51%, primarily because Q3 2015 included a $400,000 derivative revaluation gain and a $334,228 foreign-exchange gain, while Q3 2016 included a $100,000 derivative revaluation loss and a $3,020 foreign-exchange loss.
- Nine-month net loss increased by $2.388 million, or approximately 65%, primarily due to the $900,000 derivative revaluation loss in 2016 versus a $500,000 gain in 2015, and a $124,784 foreign-exchange loss versus a $905,123 gain.
- Nine-month mineral property exploration expenditures increased to $2.504 million from $1.957 million, driven primarily by metallurgical test work and geological/geophysical activities.
- Q3 mineral property expenditures declined to $528,117 from $727,477 as planned metallurgical testing neared completion and field work was limited largely to critical environmental baseline studies.
- Share-based compensation declined to $92,587 for the first nine months from $448,310, and no stock options were granted in 2016.
- Cash declined by $4.734 million during the first nine months, principally from operating and Livengood project expenditures, partially offset by a $291,343 foreign-exchange effect and $15,404 from option exercises.
Outlook, liquidity, risks and unusual items
The company announced a 2016 preliminary feasibility study for Livengood on September 8, 2016. The study evaluated an optimized throughput of 52,600 tonnes per day, compared with 100,000 tonnes per day in the 2013 feasibility study. At a trailing three-year gold price of $1,250 per ounce, the study indicated a negative project NPV of $552 million at a 5% discount rate and an after-tax IRR of 0.5%. Management stated that the 2013 study should no longer be relied upon.
Management identified optimization opportunities involving geological modeling, resource modeling, mine scheduling, metallurgical testing and recovery improvements. Estimated optimization studies and supporting field work would cost approximately $6.3 million, subject to financing.
The company recorded substantial doubt about its ability to continue as a going concern. Cash of $1.759 million was significantly below the estimated $14.800 million additional payment due January 12, 2017 under the Livengood property acquisition agreement. Management expects to seek significant additional financing and is also evaluating a strategic alliance, but stated that financing may not be available on acceptable terms, or at all.
If the payment is not made, the company has 30 days to remedy the default. If the default is not remedied, the underlying claims may be transferred to a trust for sale. Those claims are outside the project’s gold resource but are part of the broader Livengood land package. The payment beneficiaries may have recourse against the company for any shortfall if claim-sale proceeds are insufficient.
Other principal risks include gold-price volatility, financing and market conditions, permitting delays, environmental and reclamation requirements, title and lease risks, resource and metallurgical uncertainty, project economics, and the possibility that mineral resources or inferred resources will not become economically mineable reserves. The company also 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.
Disclosure controls and procedures were assessed as effective as of September 30, 2016, and no material changes in internal control over financial reporting were reported during the quarter.
Most important facts for investors to verify
- Whether the company obtained financing or another funding solution for the $14.800 million payment due January 12, 2017.
- Whether the payment amount changed upon subsequent revaluation of the derivative liability.
- The company’s ability to continue operations given the $13.367 million working-capital deficit and going-concern uncertainty.
- Updated economics, resource estimates, metallurgy, recovery assumptions and capital requirements for the Livengood Gold Project.
- Whether the estimated $6.3 million optimization program was funded, completed and reflected in a later technical or feasibility study.
- Permitting status, environmental baseline work, mineral tenure obligations and potential consequences of missed lease, royalty or government-fee payments.
- The distinction between Canadian mineral-resource terminology and SEC reserve standards, particularly for inferred resources and mineralized material.