International Tower Hill Mines Ltd. — Fiscal 2019 Form 10-K Summary
Reporting period: Year ended December 31, 2019; filed March 10, 2020. ITH is a British Columbia exploration-stage mining company focused exclusively on the Livengood Gold Project in Alaska. The project is not in production, and the Company has no revenue-generating operations.
Business Context and Project Status
- ITH holds a 100% interest in the Livengood Gold Project, approximately 70 miles northwest of Fairbanks, Alaska.
- 2019 activities focused on metallurgical testing, engineering, environmental baseline work, permitting support, and project optimization rather than mine construction or production.
- Approximately 2,000 kilograms of metallurgical composites were processed to evaluate grind size and recovery parameters. BBA Inc. continued to guide the metallurgical program.
- The Company purchased an undivided 40% interest in patented claims subject to the Griffin lease, converting that portion from a leasehold interest to a direct ownership interest.
- The Company had three employees at December 31, 2019 and relies substantially on consultants and contractors.
Financial Results and Key Metrics
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Revenue from operations | None | None | No change |
| Net loss | $3.826 million | $4.192 million | Loss decreased $0.366 million |
| Comprehensive loss | $3.415 million | $4.715 million | Loss decreased $1.300 million |
| Operating expenses | $3.650 million | $4.868 million | Decreased $1.218 million |
| Cash used in operating activities | $3.660 million | $3.492 million | Use increased $0.168 million |
| Cash and cash equivalents | $6.938 million | $10.229 million | Decreased $3.291 million |
| Working capital | $6.840 million | $9.885 million | Decreased $3.045 million |
| Total assets | $62.567 million | $65.724 million | Decreased $3.157 million |
| Total liabilities | $0.336 million | $0.548 million | Decreased $0.212 million |
| Shareholders’ equity | $62.231 million | $65.176 million | Decreased $2.945 million |
Margins and debt: Operating and profit margins are not meaningful because the Company has no revenue. The filing does not report interest-bearing debt; liabilities consisted primarily of accounts payable and accrued liabilities.
- Mineral property exploration expense increased to $1.689 million from $1.576 million, primarily due to metallurgical studies, engineering, and higher claim rentals.
- Wages and benefits decreased to $0.778 million from $1.890 million, principally because of staff reductions and one-time severance costs in 2018.
- Share-based compensation decreased to $0.406 million from $0.604 million.
- Foreign exchange expense was $0.406 million in 2019 versus foreign exchange income of $0.522 million in 2018, materially offsetting the improvement in operating expenses.
- Financing activities generated only $0.064 million in 2019 from option exercises, compared with $12.182 million of share issuance proceeds in 2018.
- Investing activities used $0.102 million in 2019 for capitalized land acquisition costs.
Material Changes Versus the Prior Period
- Net loss improved by approximately 9%, while operating expenses declined approximately 25%.
- Cash declined approximately 32% because of operating expenditures of approximately $3.2 million, a negative foreign-currency impact of approximately $0.4 million, and limited financing proceeds.
- The 2018 comparison benefited from a $12.0 million private placement; no comparable financing occurred in 2019.
- The board decreased from nine to seven directors, and two former directors received an aggregate of 461,814 common shares under the deferred share unit plan.
- Shares outstanding increased to 187,573,671 at December 31, 2019 from 186,990,683 at December 31, 2018.
Resources, Outlook, Risks, and Unusual Items
- The project’s reported resource estimate, dated August 26, 2016, includes 497 million measured tonnes at 0.68 g/t, 28 million indicated tonnes at 0.69 g/t, and 53 million inferred tonnes at 0.66 g/t. The filing cautions that Canadian resource and reserve classifications are not directly comparable to U.S. SEC standards.
- The 2017 pre-feasibility study reported 378 million tonnes of proven reserves and 14 million tonnes of probable reserves using a $1,250-per-ounce gold price. The study indicated only a minimal positive return at that price, and management stated that sustained higher gold prices would be required for commercial viability.
- The Board approved a $2.6 million 2020 budget for continued metallurgical and flowsheet work, environmental baseline studies, permitting support, and community engagement.
- Management expects continued losses and stated that additional financing will be required for ongoing operations, permitting, and any future mine development. A strategic alliance is being considered, but none was secured as of the filing.
- Management believed available resources were sufficient for the 2020 work plan and anticipated general and administrative costs through fiscal 2021; the filing nevertheless identifies substantial uncertainty regarding future financing and going-concern requirements.
- Contractual mineral lease and mining claim payments totaled approximately $3.449 million through 2025 and beyond, excluding required work expenditures and potential production royalties.
- The Livengood project requires extensive future state and federal permitting, including a National Environmental Policy Act review and an Environmental Impact Statement.
- Principal risks include gold-price volatility, unsuccessful optimization, inaccurate resource or recovery estimates, permitting and environmental liabilities, title and access issues, seasonal Alaska operations, foreign-exchange exposure, future equity dilution, and potential forfeiture of mineral interests if required payments or work commitments are not maintained.
- The Company stated that it likely qualified as a passive foreign investment company for U.S. tax purposes in 2019, which may create adverse tax consequences for U.S. shareholders.
- The independent auditor issued an unqualified opinion on the consolidated financial statements. Management reported effective disclosure controls and internal control over financial reporting; no auditor attestation was required because of the Company’s reporting status.
Facts Investors Should Verify
- Whether metallurgical optimization produces measurable improvements in recovery, capital costs, or operating costs and is incorporated into an updated economic study.
- The Company’s cash runway, financing plans, and ability to fund activities after fiscal 2021 without substantial dilution or a strategic transaction.
- Current resource and reserve estimates, their treatment under applicable SEC mining disclosure rules, and the economic assumptions underlying any updated feasibility analysis.
- Progress, timing, cost, and potential obstacles associated with NEPA, federal, state, environmental, and social permitting.
- Status of lease extensions, minimum royalties, claim payments, work commitments, title, surface access, and the Griffin and other property interests.
- Any change in gold prices or operating-cost assumptions that could affect the project’s commercial viability.
- The Company’s actual PFIC status for 2019 and subsequent years, including potential U.S. shareholder tax elections and reporting obligations.