INTERNATIONAL TOWER HILL MINES LTD quarterly report, Q1 FY2020

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International Tower Hill Mines Ltd. — Q1 2020 Form 10-Q Summary

Business Context and Reporting Period

International Tower Hill Mines Ltd. is a British Columbia, Canada-based mineral exploration company focused on its 100%-owned Livengood Gold Project in Alaska. The project remains at the exploration and evaluation stage, and the Company has no revenue-generating operations. This unaudited Form 10-Q covers the three months ended March 31, 2020; financial statements are presented in U.S. dollars under U.S. GAAP.

Financial Condition and Key Metrics

  • Revenue: None; the Company has no internally generated operating revenue.
  • Net income: $65,085, compared with a net loss of $820,912 in Q1 2019.
  • Operating expenses: $513,426, down from $649,571 in Q1 2019. Mineral property exploration expense was $115,420, compared with $250,591.
  • Other income: $578,511, including a $541,186 foreign-exchange gain and $37,325 of interest income. The foreign-exchange gain was the principal reason for the reported net income.
  • Comprehensive loss: $488,249, reflecting a $553,334 foreign-currency translation loss.
  • Cash flow: Operating activities provided $69,040, compared with $962,760 used in Q1 2019. There were no financing or investing cash flows in Q1 2020.
  • Cash and cash equivalents: $6.47 million at March 31, 2020, down from $6.94 million at December 31, 2019 and $9.53 million at March 31, 2019.
  • Working capital: $6.35 million, compared with $6.84 million at December 31, 2019.
  • Debt and liabilities: No debt is disclosed. Total liabilities were $239,131, consisting primarily of accounts payable and accrued liabilities.
  • Assets: $61.98 million, including $55.38 million of capitalized acquisition costs related to mineral properties.
  • Shares: 187,573,671 common shares were outstanding at March 31, 2020 and April 30, 2020. No shares were issued during the quarter.

Material Changes Versus the Prior Comparable Period

  • The Company moved from a Q1 2019 net loss of $820,912 to Q1 2020 net income of $65,085, primarily because of the swing from a $203,538 foreign-exchange loss to a $541,186 foreign-exchange gain.
  • Operating expenses decreased by $136,145, or approximately 21%, principally because mineral property exploration expenditures declined by $135,171.
  • Operating cash flow improved by approximately $1.03 million, from $962,760 used to $69,040 provided.
  • Cash declined year over year by approximately $3.07 million, despite the improvement in quarterly operating cash flow.
  • There was no share-based compensation expense in Q1 2020, compared with $1,686 in Q1 2019.

Guidance, Outlook, Commentary, Risks and Unusual Items

  • Management advanced the approved 2020 work plan, budgeted at $2.6 million, including metallurgical studies, flowsheet refinement, engineering work and environmental baseline activities.
  • Management stated that existing funds were expected to cover the current test programs, engineering work and anticipated general and administrative costs through the next 12 months, but the Company expects to operate at a loss for the foreseeable future.
  • On May 7, 2020, the Board directed management to prepare an updated pre-feasibility study for the Livengood Gold Project. Timing and budget had not yet been finalized because of COVID-19-related workplace disruptions.
  • The Company expects to require significant additional financing to continue operations, advance the project and potentially develop a mine. Financing may include equity financing or a strategic alliance, but there is no assurance that funding will be available on acceptable terms.
  • COVID-19 had not produced a material adverse effect as of the filing date, but the Company identified risks of operational delays, higher costs, market disruption, reduced access to capital and delays in project advancement.
  • Contractual mineral-property lease and mining-claim government-fee commitments totaled $3.39 million through 2025 and beyond, including $526,254 due in 2020. These amounts exclude required work expenditures and potential royalties other than annual minimum royalties.
  • The Company cautions that mineral resources, particularly inferred resources, are uncertain and do not demonstrate economic viability or constitute SEC-compliant mineral reserves.
  • The Company expects to remain a passive foreign investment company for U.S. federal income tax purposes, which may create adverse tax consequences for U.S. holders.

Important Facts for Investors to Verify

  1. Verify the sustainability of the $65,085 quarterly profit, given that it was driven primarily by a non-operating foreign-exchange gain and the Company has no revenue.
  2. Assess cash runway against the $2.6 million 2020 work plan, recurring corporate costs, contractual commitments and the need for future financing.
  3. Review the scope, cost and timing of the updated Livengood pre-feasibility study and any resulting changes to project economics.
  4. Evaluate the impact of COVID-19, permitting timelines, environmental work, metallurgical results and potential project delays.
  5. Confirm the status and economic significance of Livengood resource estimates, noting the Company’s warnings regarding inferred resources and the absence of demonstrated economic viability.
  6. Review mineral-property lease terms, royalty obligations, annual minimum payments and the consequences of failing to satisfy required expenditures or payments.
  7. Consider dilution and financing risk, including the 187.6 million shares outstanding and 2.45 million outstanding stock options.