International Tower Hill Mines Ltd. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2015. The unaudited financial statements are presented in U.S. dollars under U.S. GAAP. The Company is an exploration-stage mineral company with a 100% interest in the Livengood Gold Project in Alaska and had no revenue-generating operations.
Business Context and Reporting Period
- The Company is advancing metallurgical, environmental, field and engineering work at the Livengood Gold Project.
- A multi-phase metallurgical program is intended to validate potentially higher head grades and evaluate reductions in capital and operating costs, including optimization of gravity recovery, grind size, reagent consumption, leach retention time and recoveries by rock type.
- As of August 3, 2015, 116,313,638 common shares were outstanding. No shares were issued during the six months ended June 30, 2015.
Financial Metrics
| Metric | Three months ended June 30, 2015 | Six months ended June 30, 2015 |
|---|---|---|
| Revenue | $0 | $0 |
| Total operating expenses | $1.85 million | $3.41 million |
| Net loss | $2.05 million | $2.69 million |
| Comprehensive loss | $1.86 million | $3.53 million |
| Loss per share | $0.02 | $0.03 |
| Cash used in operating activities | Not separately provided | $3.12 million |
| Cash and cash equivalents at period end | Not separately provided | $9.53 million |
Balance sheet at June 30, 2015: Total assets were $65.15 million, including $55.20 million of capitalized acquisition costs. Current liabilities were $0.56 million, working capital was $9.35 million, and total liabilities were $15.16 million. The principal liability was a $14.60 million derivative liability related to a contingent Livengood property purchase payment due in January 2017.
Margins and debt: Traditional operating margins are not meaningful because the Company has no revenue. The filing does not report conventional interest-bearing debt; the material financing obligation is the derivative liability described above.
Material Changes Versus Comparable Period
- Six-month net loss improved to $2.69 million from $4.94 million in 2014, primarily due to lower operating expenses, reduced share-based compensation and favorable foreign exchange results.
- Three-month net loss increased to $2.05 million from $1.43 million in 2014, mainly because the prior-year period included a $0.8 million unrealized derivative gain, while the current period included a $0.1 million unrealized derivative loss.
- Six-month operating expenses declined to $3.41 million from $4.39 million. Mineral property exploration costs declined to $1.23 million from $1.40 million, while share-based compensation declined to $0.36 million from $0.91 million.
- Six-month foreign exchange results improved to a $0.57 million gain from a $0.12 million gain in 2014. The current-period derivative revaluation produced a $0.10 million gain versus a $0.70 million loss in 2014.
- Cash decreased by $3.99 million during the first six months, from $13.52 million at December 31, 2014 to $9.53 million at June 30, 2015. The decrease reflected project spending, severance payments and an unfavorable foreign-exchange effect.
- Shareholders’ equity declined to $49.99 million from $53.16 million at year-end 2014, principally due to the six-month net loss and other comprehensive losses.
Guidance, Outlook, Risks and Unusual Items
- Management anticipated approximately $10 million of fiscal 2015 spending, including metallurgical work, project engineering, environmental baseline activities and general and administrative costs. Approximately $3.1 million had been spent by June 30, 2015.
- Management believed existing cash would fund the anticipated 2015 work plan and general and administrative costs through 2015 and into the second quarter of 2016. The Company expects to operate at a loss for the foreseeable future.
- Significant additional financing will be required for continued operations, the $14.6 million contingent payment due in January 2017, and any future mine development. Management stated that additional financing may not be available on acceptable terms, or at all.
- If financing is unavailable, the Company may reduce discretionary project activities and defer planned work. Failure to maintain required mineral-property payments, royalties or work commitments could result in loss or forfeiture of property rights.
- The potential higher head grades, process improvements and cost savings remain unvalidated. The Company cautioned that they may not be realized and may not support a revised feasibility study or production decision.
- The derivative liability is sensitive to gold prices. It was valued at $14.60 million at June 30, 2015, based on an estimated average gold price of $1,350 per ounce; each $1 change in the average daily gold price changes the liability by approximately $23,148.
- Contractual obligations totaled $17.48 million, including the $14.60 million contingent property payment, $2.14 million of mineral-property lease obligations, $0.66 million of mining-claim government fees and $0.07 million of office and equipment leases.
- Management disclosed no material changes to previously reported risk factors, no legal proceedings requiring disclosure and no off-balance-sheet arrangements. The Company expects to remain a passive foreign investment company for U.S. federal tax purposes.
- David Cross became Chief Financial Officer in May 2015, and Karl Hanneman became Chief Operating Officer in March 2015. Hanneman has an interest in the entity entitled to 70% of the contingent payment; the Company stated that he is excluded from related discussions and that the Audit Committee will review related arrangements.
Investor Verification Checklist
- Verify the valuation, payment mechanics and January 2017 maturity of the $14.60 million derivative liability, including its sensitivity to gold prices.
- Assess whether the $9.53 million cash balance and projected spending are sufficient beyond the stated second-quarter 2016 liquidity horizon.
- Review the status and results of the metallurgical program, environmental baseline work and any updated engineering or feasibility analysis.
- Evaluate the Company’s ability to obtain additional financing for operations, the contingent payment and potential project development.
- Confirm mineral-property title, lease-renewal requirements, minimum royalties, work commitments and potential royalty obligations.
- Consider the uncertainty of Canadian mineral-resource classifications, particularly inferred resources, and their lack of demonstrated economic viability under SEC standards.
- Review related-party safeguards concerning the contingent payment and the Chief Operating Officer’s interest in one payment recipient.