International Tower Hill Mines Ltd. — 2013 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2013, including fourth-quarter results. International Tower Hill Mines Ltd. is a British Columbia exploration-stage mining company focused exclusively on the 100%-controlled Livengood Gold Project in Alaska. The project was not in production, and the Company had no operating revenue.
The Company completed and filed a feasibility study in 2013 for a proposed 100,000-ton-per-day open-pit operation with a 14-year mine life and approximately 8.1 million ounces of projected gold production. Mineral resources and reserves are reported under Canadian NI 43-101 standards and are not directly comparable to SEC Industry Guide 7 disclosures.
Financial performance, liquidity and key metrics
| Metric | 2013 | 2012 |
|---|---|---|
| Revenue | No operating revenue | No operating revenue |
| Net loss | $9.9 million | $56.6 million |
| Basic and diluted loss per share | $0.10 | $0.62 |
| Cash and cash equivalents | $13.9 million | $30.2 million |
| Working capital | $12.7 million | $27.7 million |
| Total assets | $69.5 million | $86.7 million |
| Total liabilities | $16.3 million | $26.1 million |
| Shareholders’ equity | $53.2 million | $60.5 million |
- Operating expenses were $18.2 million, including $8.2 million of mineral property exploration expense and $6.9 million of wages and benefits.
- Cash used in operating activities was $14.8 million in 2013, compared with $52.4 million in 2012. Investing cash use was $0.03 million, and there was no financing cash flow in 2013.
- The $16.2 million decrease in cash primarily reflected spending on the feasibility study and Livengood project activities.
- The Company had no conventional interest-bearing debt reported. It had a $14.8 million non-current derivative liability related to a contingent payment due in December 2016 under a 2011 property acquisition agreement.
- The derivative liability generated a $7.6 million unrealized gain in 2013 as gold-price assumptions declined, materially reducing the reported net loss. This was a non-cash item.
- At year-end, capitalized acquisition costs were $55.2 million, with no impairment recorded. The Company also held $55,002 of marketable securities and $30,477 of restricted cash.
Material changes versus the prior comparable period
- Net loss declined by approximately $46.8 million, primarily because 2012 included substantially higher exploration costs, share-based compensation and an unrealized derivative loss.
- Mineral property exploration expense fell from $36.3 million to $8.2 million as the Company completed the feasibility study and reduced drilling and field activity.
- Share-based compensation declined from $9.2 million to $3.6 million; options granted decreased from 6.38 million to 613,000.
- Cash and working capital fell by approximately $16.2 million and $15.0 million, respectively. No equity financing was completed in 2013, compared with approximately $29.2 million of financing cash inflow in 2012.
- The derivative liability decreased from $22.4 million to $14.8 million, producing the $7.6 million unrealized gain.
- The Company issued no new shares in 2013; 98,068,638 common shares were outstanding at December 31, 2013 and March 10, 2014.
- Management reorganized the Company effective January 1, 2014, appointed Thomas E. Irwin as CEO, changed the Board composition and reduced full-time staff by approximately 30%.
Project economics, outlook and risks
- At a $1,500 per ounce gold price, the feasibility study indicated a 1.7% after-tax IRR, negative $440 million after-tax NPV at a 5% discount rate and a 10.8-year payback period. The study’s after-tax all-in cost was estimated at $1,474 per ounce.
- Estimated initial capital was $2.79 billion, sustaining capital was $893 million and total reclamation costs were approximately $353 million.
- The Company stated that the project was not commercially viable at the gold price prevailing when the filing was prepared. Management is pursuing throughput, production scheduling, metallurgical, recovery, reagent, energy and stockpile-management improvements.
- 2014 spending was expected to be approximately $8 million, focused on essential environmental baseline work, land-lease obligations, project optimization, corporate compliance and evaluation of strategic alternatives.
- Management was seeking a strategic alliance and other financing options to support future permitting and development. The Company acknowledged that significant additional financing would be required for continued operations and any mine construction.
- Management believed available cash would fund non-discretionary activities and anticipated general and administrative costs through 2014 and well into 2015, but warned that failure to obtain financing could require further reductions in discretionary activities.
- Material risks include gold-price volatility, project economics, permitting and NEPA review, financing availability, resource and reserve uncertainty, construction and infrastructure execution, environmental obligations, title and access issues, lease and claim-maintenance requirements, foreign exchange exposure and potential shareholder dilution.
- The Company believes it was a passive foreign investment company for U.S. federal income tax purposes in 2013, which may create adverse tax consequences for U.S. shareholders.
- The Company reported no material pending legal proceeding and stated that all necessary permits for current exploration activities were in place. Future development would require substantial additional state and federal permits, including an Environmental Impact Statement.
Important facts investors should verify
- Whether project optimization can materially improve the feasibility study’s marginal economics and at what gold price the project becomes commercially viable.
- The Company’s ability to fund approximately $8 million of 2014 spending and secure financing or a strategic partner for future permitting and development.
- The valuation and December 2016 payment exposure associated with the gold-price-linked derivative liability.
- The feasibility study assumptions, including the $2.79 billion initial capital estimate, $893 million sustaining capital, $1,474 per ounce after-tax all-in cost and 8.1 million ounces of projected production.
- The distinction between Canadian-reported resources and reserves and SEC-compliant reserve disclosures, particularly for inferred resources.
- Permitting timelines, environmental baseline requirements, land and lease obligations, and potential royalties or reclamation costs not included in the contractual-obligations table.
- The effect of future equity issuance, option exercises or strategic transactions on dilution and shareholder value.