International Tower Hill Mines Ltd. — Q1 2018 Form 10-Q Summary
Business Context and Reporting Period
International Tower Hill Mines Ltd. is a British Columbia mineral exploration company focused on the 100%-owned Livengood Gold Project in Alaska. The filing covers the three months ended March 31, 2018. The company has no revenue-generating operations and remains in the exploration and development stage.
The unaudited interim financial statements are presented in U.S. dollars under U.S. GAAP. The company had 186,522,683 common shares outstanding as of March 31, 2018.
Financial Position and Key Metrics
| Metric | Q1 2018 | Comparable period or date |
|---|---|---|
| Revenue | None | No revenue-generating operations |
| Net loss | $1.065 million | $1.678 million in Q1 2017 |
| Comprehensive loss | $1.043 million | $1.511 million in Q1 2017 |
| Loss per share, basic and diluted | $0.01 | $0.01 in Q1 2017 |
| Cash used in operating activities | $1.058 million | $1.378 million in Q1 2017 |
| Cash and cash equivalents | $13.174 million | $2.244 million at December 31, 2017 |
| Working capital | $13.041 million | $1.993 million at December 31, 2017 |
| Total assets | $68.547 million | $57.647 million at December 31, 2017 |
| Total liabilities | $0.282 million | $0.429 million at December 31, 2017 |
| Capitalized acquisition costs | $55.204 million | Unchanged from December 31, 2017 |
The filing does not present operating revenue or operating margins. The company reported no debt or long-term borrowings; its liabilities consisted primarily of accounts payable and accrued liabilities. Marketable securities were $12,099 at March 31, 2018.
Material Changes Versus the Prior Comparable Period
- Net loss improved by approximately $0.613 million, primarily because mineral property exploration expenditures declined by $0.507 million to $0.204 million.
- Wages and benefits, excluding share-based compensation, declined to $0.359 million from $0.447 million, reflecting staffing changes.
- Share-based compensation increased to $0.174 million from $0.013 million because newly granted options became fully expensed.
- Foreign exchange loss declined to $0.027 million from $0.166 million.
- Operating cash usage declined to $1.058 million from $1.378 million.
- On March 13, 2018, the company issued 24 million common shares at $0.50 per share in a non-brokered private placement, generating gross proceeds of $12.0 million and net cash proceeds of approximately $11.963 million after reported issuance costs and related financing activity.
- Shares outstanding increased from 162.393 million at December 31, 2017 to 186.523 million at March 31, 2018.
Guidance, Outlook, Management Commentary, Risks and Unusual Items
The Board approved a 2018 budget of $5.1 million. Planned work includes metallurgical testing, refinement of the Livengood project flowsheet, engineering work, and environmental baseline activities supporting future permitting. Approximately 4,000 kilograms of metallurgical composites were selected and shipped to SGS Vancouver for testing.
Management stated that current funds are sufficient to complete the anticipated 2018 work plan and satisfy currently anticipated general and administrative costs through fiscal 2019. The company expects to operate at a loss for the foreseeable future and will require significant additional financing to continue operations, advance the project, and potentially develop a mine.
Management approved overhead reductions, including a 50% reduction in the CEO’s salary, reduced board compensation and expenses, and potential staff reductions. Management expects these measures could reduce project general and administrative costs to approximately $2.5 million per year, depending on future technical and permitting activity.
- There is substantial uncertainty regarding the company’s ability to obtain additional financing on acceptable terms, or at all.
- Delays in permits or unexpected technical results could require additional funding and delay project advancement.
- Project economics remain uncertain; the company cautions that mineral resources, particularly inferred resources, may not be converted into reserves or prove economically or legally mineable.
- Key risks include gold-price volatility, capital-market conditions, resource-estimate uncertainty, metallurgy and recovery results, permitting, environmental regulation, property title, lease obligations and access to services and supplies.
- Contractual mineral-property and government-fee commitments total $3.274 million through 2023 and beyond, excluding required work expenditures and potential royalties. Failure to meet obligations could result in loss of property rights.
- The Livengood project includes leases with advance minimum royalties and potential net smelter return royalties ranging generally from 0.5% to 5%, depending on the lease and gold price.
- 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.
- No material changes to previously disclosed risk factors, no legal proceedings requiring disclosure, and no off-balance-sheet arrangements were reported.
Most Important Facts for Investors to Verify
- Cash runway relative to the $5.1 million 2018 budget, recurring operating losses and the company’s stated need for additional financing.
- Use and remaining balance of the $12.0 million March 2018 private-placement proceeds.
- Progress and results of metallurgical testing, engineering work, environmental baseline studies and future permitting for Livengood.
- Whether resource estimates and any future economic assessments rely on inferred resources or assumptions that do not meet SEC reserve standards.
- Required lease payments, government fees, work commitments and potential royalties necessary to preserve project rights.
- Potential dilution from the increased share count, 4.228 million outstanding stock options and 648,435 deferred share units.
- Management’s cost-reduction plans and whether general and administrative costs can be sustained near the stated $2.5 million annual range.