International Tower Hill Mines Ltd. — FY2018 Form 10-K Summary
Business context and reporting period
International Tower Hill Mines Ltd. is a British Columbia-based mineral exploration company focused exclusively on the 100%-controlled Livengood Gold Project in Alaska. The project remains in the exploration and optimization stage; the Company has not commenced mine construction, commercial production, or revenue-generating operations. This filing covers the fiscal year ended December 31, 2018, with comparative information for 2017. All amounts are in U.S. dollars unless otherwise stated.
The Company reported a mineral resource estimate dated August 26, 2016, and a 2017 pre-feasibility study that identified proven and probable reserves based on a $1,250-per-ounce gold price. Management cautions that Canadian resource and reserve terminology is not directly comparable with SEC standards and that inferred resources may never become economically mineable reserves.
Financial performance and key metrics
| Metric | 2018 | 2017 |
|---|---|---|
| Revenue from operations | None | None |
| Net loss | $(4.19) million | $(6.43) million |
| Basic and diluted loss per share | $(0.02) | $(0.04) |
| Operating expenses | $(4.87) million | $(6.12) million |
| Other income/(expense) | $0.68 million | $(0.31) million |
| Cash used in operating activities | $(3.49) million | $(5.83) million |
| Cash and cash equivalents | $10.23 million | $2.24 million |
| Working capital | $9.88 million | $1.99 million |
| Total assets | $65.72 million | $57.65 million |
| Total liabilities | $0.55 million | $0.43 million |
Other income in 2018 included a $522,248 foreign-exchange gain and $119,106 of interest income. The Company had no debt disclosed in the filing; liabilities consisted primarily of accounts payable and accrued liabilities. Capitalized acquisition costs totaled $55.27 million, while 2018 mineral property exploration expenditures were $1.58 million.
Fourth-quarter 2018 net loss was $901,767, compared with $1.38 million in the fourth quarter of 2017. Fourth-quarter basic and diluted loss per share was $0.01.
Material changes versus the prior comparable period
- Net loss improved by approximately $2.24 million, primarily because operating expenses declined and 2018 included foreign-exchange and interest income instead of the 2017 foreign-exchange loss.
- Operating expenses decreased by approximately $1.25 million. Mineral property expenditures declined by $870,683, consulting fees excluding share-based compensation declined by $136,976, insurance costs declined by $112,912, and wages and benefits excluding share-based compensation declined by $171,606.
- Cash increased by approximately $7.98 million, primarily due to a March 2018 equity financing, partly offset by operating and project expenditures.
- On March 13, 2018, the Company issued 24 million common shares at $0.50 per share for gross proceeds of $12.0 million. It also received $181,026 from stock-option exercises and issued shares to satisfy a prior obligation.
- Shares outstanding increased to 186,990,683 at December 31, 2018 from 162,392,996 at December 31, 2017, resulting in shareholder dilution.
- Approximately 2,000 kilograms of metallurgical samples were processed during 2018 to evaluate grind size and recovery parameters. Environmental baseline work also continued.
- Management reduced corporate overhead, including a 50% CEO salary reduction, lower board compensation, and staff reductions. Future project general and administrative costs are expected to be approximately $2.5 million annually, depending on activity levels.
Guidance, outlook, risks, contingencies, and unusual items
The Board approved a 2019 budget of $3.7 million. Planned activities include processing approximately 2,000 additional kilograms of samples, refining the project flowsheet and metallurgical assumptions, and advancing environmental baseline work required for future permitting. The Company remains open to a strategic alliance and other financing alternatives.
Management stated that available cash was sufficient, as of March 14, 2019, to maintain operations for the next twelve months and to fund the 2019 work plan and anticipated general and administrative costs through fiscal 2020. However, the Company has no operating cash flow and expects continued losses. Significant additional financing will be required for ongoing operations, permitting, and any future mine development. If financing is unavailable, discretionary project activities may need to be reduced after 2019.
- The 2017 pre-feasibility study indicated only a minimal positive return at a $1,250-per-ounce gold price; management states that the project is not commercially viable at current gold prices without successful optimization or higher gold prices.
- Development depends on successful metallurgical and engineering optimization, further studies, permitting, substantial capital, and potentially a strategic partner or significant financing.
- The Company must meet lease payments, claim fees, royalties, and work commitments to retain its mineral interests. Scheduled contractual payments total $540,214 for 2019 and $3.32 million through 2024 and beyond, excluding required work expenditures and potential production royalties.
- The Alaska Mental Health Trust lease covers significant project acreage and currently runs through June 30, 2023, subject to extension conditions.
- Future permitting will require state and federal approvals, including a National Environmental Policy Act review and an Environmental Impact Statement. The Company currently has permits for planned exploration activities.
- Key risks include gold-price volatility, inaccurate resource or reserve estimates, metallurgical and recovery uncertainty, cost escalation, financing and dilution risk, permitting delays, environmental liabilities, title and access risks, seasonal operating constraints, and potential forfeiture of claims or leases if obligations are not met.
- The Company believes it likely qualified as a passive foreign investment company for U.S. tax purposes in 2018 and expects that it may remain a PFIC, creating potentially adverse tax consequences for U.S. holders.
- The Company reported no material environmental rehabilitation provision at December 31, 2018 and no material pending legal proceeding. Management concluded that disclosure controls and internal control over financial reporting were effective.
Most important facts for investors to verify
- Whether metallurgical optimization can materially improve the Livengood project’s capital costs, operating costs, recoveries, and economic viability.
- Whether the Company can secure additional financing or a strategic alliance without substantial shareholder dilution.
- The timing, scope, and cost of required federal and state permitting, including the NEPA environmental review.
- The current gold-price assumptions and whether the 2017 resource, reserve, and economic studies remain current and applicable.
- The Company’s cash-burn rate, liquidity runway, and ability to meet annual lease, claim-fee, and work commitments.
- The treatment and potential limitations of the Company’s Canadian and U.S. tax-loss carryforwards and the implications of PFIC status for U.S. investors.