International Tower Hill Mines Ltd. — Q2 2020 Form 10-Q Summary
Business context and reporting period
International Tower Hill Mines Ltd. is a British Columbia corporation focused on acquiring, exploring and evaluating mineral properties. The Company holds a 100% interest in the exploration-stage Livengood Gold Project in Alaska. This unaudited Form 10-Q covers the three and six months ended June 30, 2020; amounts are in U.S. dollars unless otherwise noted.
The Company has no revenue-generating operations and is not producing gold. Its ability to continue operations depends on additional financing and advancing the Livengood project.
Financial results and key metrics
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Operating expenses | $1.280 million | $1.300 million | $1.793 million | $1.950 million |
| Net loss | $1.486 million | $1.387 million | $1.421 million | $2.208 million |
| Basic and diluted loss per share | $0.01 | $0.01 | $0.01 | $0.01 |
| Cash used in operating activities | Not separately provided | Not separately provided | $1.132 million | $2.321 million |
| Cash and cash equivalents | June 30, 2020: $5.490 million | December 31, 2019: $6.938 million |
- Q2 operating expenses included $536,603 of mineral property exploration costs, $340,576 of consulting fees and $230,203 of wages and benefits.
- Six-month exploration expenditures were $652,023, down from $1.163 million in the prior-year period.
- Q2 included $348,252 of share-based compensation, primarily $294,617 for deferred share units and $53,635 for stock options.
- Q2 other expenses were $206,462, including a $225,095 foreign-exchange loss. For the six months, other income was $372,049, primarily because of a $316,091 foreign-exchange gain.
- Total assets were $61.081 million, including $55.375 million of capitalized acquisition costs related to the project. Total liabilities were $246,235, and shareholders’ equity was $60.835 million.
- Working capital was $5.445 million at June 30, 2020, compared with $6.840 million at December 31, 2019. The Company had no debt disclosed in the filing.
- There were 187,573,671 common shares outstanding at June 30, 2020 and July 31, 2020. No shares were issued during the first six months of 2020.
Material changes versus comparable periods
- Q2 net loss increased 7.2% from $1.387 million to $1.486 million, despite a 1.5% decrease in operating expenses. The increase was principally attributable to higher share-based compensation and a larger foreign-exchange loss.
- Six-month net loss improved 35.6% from $2.208 million to $1.421 million. The improvement reflected lower exploration costs and a favorable foreign-exchange swing from a $363,246 loss in 2019 to a $316,091 gain in 2020.
- Six-month operating cash usage declined by approximately $1.190 million, or 51%, from the prior-year period.
- Cash declined by approximately $1.447 million during the first six months, primarily from $1.132 million of operating cash use and a $315,828 foreign-exchange impact.
- Share-based compensation increased materially from $1,686 in the first six months of 2019 to $348,252 in 2020 due to new options and deferred share units granted in May 2020.
Guidance, outlook, risks and unusual items
- On May 7, 2020, the Board directed management to prepare an updated pre-feasibility study for the Livengood Gold Project. The Company later announced that the study was expected to be released, together with an associated NI 43-101 technical report, in October 2021. Estimated cost through October 2021 was $3.8 million.
- Management expected existing cash to fund the anticipated 2020 work plan and general and administrative costs through the next 12 months, but stated that significant additional financing will be required to continue operations and advance or develop the project.
- Potential financing sources include equity financing and a strategic alliance; there is no assurance that financing will be available on acceptable terms or at all.
- Contractual mineral-property and government-fee commitments totaled approximately $2.993 million through 2025 and beyond, excluding required work expenditures and potential royalties. Failure to meet obligations could result in loss of property rights.
- The Company reported no material adverse COVID-19 impact as of the filing date, but identified risks to operations, project timing, costs, capital-market access and future financing.
- The project remains exploration-stage. Mineral resources that are not mineral reserves, particularly inferred resources, do not demonstrate economic viability and may never be converted into economically mineable reserves.
- Additional risks include gold-price volatility, permitting and regulatory delays, title and lease issues, environmental requirements, metallurgy and recovery uncertainty, access to services and supplies, and the accuracy of resource estimates.
- The Company expects to remain loss-making for the foreseeable future. It has been, and expects to continue to be, a passive foreign investment company for U.S. federal income-tax purposes.
Most important facts for investors to verify
- Whether the Company can secure the substantial additional financing needed after its $5.490 million cash balance is used for exploration and corporate costs.
- The scope, timing, cost and conclusions of the updated Livengood pre-feasibility study and related technical report.
- Whether project permitting, environmental work and required lease or government payments remain on schedule.
- The effect of gold prices, foreign-exchange movements and capital-market conditions on project economics and liquidity.
- Whether the Livengood resource estimates can ultimately support economically and legally mineable reserves; the filing cautions that inferred resources may never be upgraded or realized.
- The potential dilution from 2,707,049 outstanding stock options and 1,834,481 deferred share units as of June 30, 2020.