International Tower Hill Mines Ltd. — FY2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015; audited U.S. GAAP consolidated financial statements. The filing also reports fourth-quarter 2015 results. International Tower Hill Mines is an exploration-stage company focused exclusively on the Livengood Gold Project in Alaska and has not commenced commercial production.
Business Context
- The Company controls 100% of the Livengood Gold Project, approximately 70 miles northwest of Fairbanks, Alaska.
- The Project is being optimized through metallurgical testing, engineering studies, water-supply evaluation, and environmental baseline work.
- The Company reported no revenue from external customers and has no producing properties.
- Reported Canadian NI 43-101 resources include 731 million measured tonnes, 71 million indicated tonnes, and 266 million inferred tonnes. The Company cautions that these resources, particularly inferred resources, are not equivalent to economically demonstrated U.S. SEC reserves.
- The 2013 feasibility study estimated proven reserves of 9.6 million ounces and probable reserves of 454,000 ounces using a $1,500-per-ounce gold price; management states that the Project is not commercially viable at the gold price prevailing at the time of the filing without successful optimization or higher gold prices.
Financial Performance and Position
| Metric | FY2015 | FY2014 |
|---|---|---|
| Revenue | $0 | $0 |
| Net loss | $(4.81) million | $(7.77) million |
| Loss per share | $(0.04) | $(0.08) |
| Cash used in operating activities | $(5.34) million | $(6.84) million |
| Cash and cash equivalents | $6.49 million | $13.52 million |
| Working capital | $6.17 million | $12.61 million |
| Total assets | $61.92 million | $69.00 million |
| Total liabilities | $14.42 million | $15.85 million |
| Shareholders’ equity | $47.50 million | $53.16 million |
- There are no operating margins to report because the Company has no revenue or commercial production.
- Capitalized acquisition costs were $55.20 million, substantially representing the Livengood property interests. No impairment was recorded at December 31, 2015.
- The Company had no financing or investing cash flows in 2015. The decrease in cash primarily reflected operating expenditures, Project spending, severance payments, and foreign-exchange effects.
- The Company had no conventional debt disclosed, but reported a $13.90 million derivative liability payable January 12, 2017.
- Share capital consisted of 116.31 million common shares outstanding at December 31, 2015. No dividends were paid or planned.
Material Changes Versus FY2014
- Net loss improved by approximately $2.95 million, primarily because of lower operating expenses and higher other income.
- Mineral property exploration expense declined to $2.38 million from $2.63 million as field activity was limited largely to environmental baseline work while metallurgical testing continued.
- Professional fees declined to $230,227 from $389,218, and share-based compensation declined to $540,468 from $1.29 million.
- Cash declined by approximately $7.03 million, while working capital declined by approximately $6.45 million.
- Other income increased to $1.64 million from $606,192, including an $800,000 unrealized gain on the derivative liability and a $990,690 foreign-exchange gain. These are largely non-operating and non-cash items.
- The Company recorded a $219,402 other-than-temporary impairment of available-for-sale securities.
- Fourth-quarter 2015 net loss was $1.12 million, compared with $1.65 million in the fourth quarter of 2014.
Outlook, Commentary, Risks, and Unusual Items
- For 2016, management planned to complete the Throughput Rationalization Study and related metallurgical and engineering work, continue environmental baseline studies, and evaluate opportunities to reduce capital and operating costs.
- Management reported that BBA’s preliminary review suggested potential improvements from a higher cutoff grade, lower early-year stripping, lower throughput than the 90,000-tonnes-per-day feasibility-study assumption, and a more compact site layout.
- Management stated that available cash was sufficient for the anticipated 2016 work plan and general corporate costs, but significant additional financing would be required to continue operations, fund Project development, and settle the January 2017 contingent payment.
- The estimated January 2017 contingent payment was $13.90 million, substantially exceeding cash on hand. Failure to finance the payment could allow vendors to enforce security over the acquired claims and could result in loss of those interests or additional recourse against the Company.
- The Company is considering equity financing, debt, and a strategic alliance. No assurance is provided that financing will be available on acceptable terms or at all.
- The Project’s economics are highly sensitive to gold prices. The 2015 average gold price was reported as $1,159 per ounce, compared with the $1,500-per-ounce assumption used in the 2013 feasibility study.
- Metallurgical optimization, higher calculated head grades, anticipated cost savings, water-supply benefits, and any revised Project economics remain uncertain until testing and engineering are completed.
- Future development would require extensive federal and state permitting, including a National Environmental Policy Act review and an Environmental Impact Statement. The Company currently holds permits for its exploration activities.
- The financial statements were prepared on a going-concern basis and explicitly identify the need for significant additional financing.
- The Company believes it was a passive foreign investment company for U.S. federal income-tax purposes in 2015, which may create adverse tax consequences for U.S. holders.
- Management reported effective disclosure controls and internal control over financial reporting; the auditor did not provide an internal-control attestation because the Company qualifies for the applicable smaller-reporting-company exemption.
Most Important Facts for Investors to Verify
- Whether the Company secured sufficient financing for the $13.90 million contingent payment due January 12, 2017 and whether the liability was revalued after December 31, 2015.
- Whether the Throughput Rationalization Study and metallurgical testing produced economically meaningful reductions in capital costs, operating costs, throughput requirements, or improved recoveries.
- Whether gold prices and updated feasibility assumptions support commercial viability of the Livengood Project.
- The distinction between Canadian-reported measured, indicated, and inferred resources and SEC-compliant reserves.
- Current cash consumption, financing terms, potential dilution, and the Company’s ability to fund operations beyond 2016.
- Permitting progress, environmental baseline results, land and claim title, lease obligations, royalties, and the consequences of any failure to maintain property interests.
- Potential related-party implications of the contingent payment, including the Chief Operating Officer’s disclosed interest in one of the payment recipients.