International Tower Hill Mines Ltd. — FY2020 Form 10-K Summary
Business context and reporting period
International Tower Hill Mines Ltd. is a British Columbia, Canada exploration-stage mining company focused exclusively on the 100%-owned Livengood Gold Project in Alaska. The Company has not commenced mining or commercial production and has no operating revenue. This report covers the fiscal year ended December 31, 2020, with comparative information for 2019. The audited financial statements were prepared under U.S. GAAP and approved on March 9, 2021.
The Livengood resource estimate, last measured August 26, 2016, included 497 million measured tonnes, 28 million indicated tonnes and 53 million inferred tonnes. The 2017 pre-feasibility study reported proven reserves of 378 million tonnes and probable reserves of 14 million tonnes at a $1,250-per-ounce gold price. These estimates are historical, and investors are cautioned that Canadian resource and reserve definitions may not be directly comparable with U.S. SEC standards.
Financial condition and key metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Revenue | $0 | $0 | No operating revenue |
| Net loss | $(4.52) million | $(3.83) million | Loss increased $0.69 million |
| Comprehensive loss | $(4.33) million | $(3.42) million | Loss increased $0.92 million |
| Basic and diluted loss per share | $(0.02) | $(0.02) | Unchanged as reported |
| Cash used in operating activities | $(3.89) million | $(3.66) million | Use increased $0.23 million |
| Cash and cash equivalents | $13.05 million | $6.94 million | Increased $6.11 million |
| Working capital | $12.72 million | $6.84 million | Increased $5.88 million |
| Mineral property carrying value | $55.38 million | $55.38 million | Unchanged |
| Total liabilities | $0.49 million | $0.34 million | Increased $0.16 million |
| Total shareholders’ equity | $68.10 million | $62.23 million | Increased $5.87 million |
Mineral property exploration expenditures were $2.36 million in 2020 versus $1.69 million in 2019, primarily reflecting metallurgical studies and engineering for the updated pre-feasibility study. Operating expenses totaled $4.41 million, compared with $3.65 million in 2019. The Company had no debt reported; liabilities consisted primarily of accounts payable and accrued liabilities.
Financing activities provided $9.82 million in 2020 through the issuance of 7,334,513 common shares under an at-the-market offering. Gross proceeds were $10.30 million, reduced by $0.48 million of share issuance costs. There were no investing cash flows in 2020. Shares outstanding increased to 194,908,184 at December 31, 2020 from 187,573,671 at December 31, 2019.
Material changes versus the prior comparable period
- The Company approved a new work plan to prepare an updated Livengood pre-feasibility study and finalized key consultant contracts during 2020.
- Exploration expenditures increased by approximately 40%, while the annual net loss increased approximately 18%.
- Cash increased primarily because of the $9.82 million of net ATM offering proceeds, partially offset by $3.89 million of operating cash use.
- The Company issued approximately 3.9% more shares year over year, resulting in dilution to existing shareholders.
- Foreign exchange loss declined to $0.19 million from $0.41 million in 2019, while interest income declined to $0.08 million from $0.16 million.
- The Company continued to maintain the mineral property at $55.38 million and reported no impairment charge for 2020.
Guidance, outlook, commentary and risks
Management approved a 2021 budget of $5.6 million. The principal objective is to complete the updated pre-feasibility study and associated NI 43-101 technical report, targeted for release in October 2021. The work program also includes hydrology and waste-rock geochemical baseline studies, future permitting support and community engagement.
Management stated that, as of March 9, 2021, existing resources were sufficient to maintain operations for the next twelve months and expected current cash to fund the 2021 work plan and anticipated general and administrative costs through fiscal 2022. However, the Company expects continuing losses and requires significant additional financing for ongoing exploration, permitting and any future mine development. It is considering additional equity financing, debt, strategic alliances and other alternatives.
- The Company is dependent on a single exploration-stage project and may never generate operating revenue.
- The 2017 study indicated only a minimal positive return at a $1,250 gold price; sustained higher gold prices and successful cost or design optimization may be required for commercial viability.
- Project advancement depends on completion of engineering studies, financing, permitting, environmental review and community engagement. A future mine would require substantial additional capital.
- Resource and reserve estimates, metallurgical recoveries, capital costs, operating costs and project schedules may change materially as additional work is completed.
- COVID-19, gold-price volatility, foreign-exchange movements, permitting delays, environmental obligations, title and access issues, supply constraints and competition for capital and personnel could adversely affect results.
- The Company stated that COVID-19 had not caused a material adverse effect through the filing date, but it could affect operations, costs, financing access and project timing.
- The Company believes it was likely a passive foreign investment company for U.S. tax purposes in 2020, which may create adverse tax consequences for U.S. shareholders.
- The consolidated financial statements were prepared on a going-concern basis, while management disclosed substantial future financing requirements and uncertainty regarding the availability and terms of such financing.
Most important facts for investors to verify
- Whether the updated pre-feasibility study was completed and how its economics, reserves, capital costs, operating costs and mine plan compare with the 2017 study.
- Current cash burn, remaining liquidity and the timing, size and terms of any future financing or strategic alliance.
- Whether the Livengood resource and reserve estimates remain current under applicable SEC disclosure requirements and updated technical standards.
- Gold-price assumptions and sensitivity of project economics to gold prices, recoveries, costs, exchange rates and permitting delays.
- Status of environmental baseline work, NEPA review, required permits, community engagement and lease or claim obligations.
- Potential dilution from future equity issuance, outstanding options and deferred share units.
- The Company’s actual PFIC status and related U.S. shareholder tax reporting requirements.