International Tower Hill Mines Ltd. — Q1 2017 Form 10-Q Summary
Business Context and Reporting Period
International Tower Hill Mines Ltd. is an exploration-stage mineral company focused on acquiring, exploring, and evaluating mineral properties. It controls a 100% interest in the Livengood Gold Project in Alaska. The filing covers the three months ended March 31, 2017; financial statements are unaudited and presented in U.S. dollars under U.S. GAAP.
The Company had 162,186,972 common shares outstanding as of March 31, 2017 and May 1, 2017. It has no revenue-generating operations and is dependent on external financing.
Key Financial Metrics
| Metric | Q1 2017 | Q1 2016 / Prior Period |
|---|---|---|
| Revenue | None | None |
| Operating expenses | $1.523 million | $1.670 million |
| Net loss | $1.678 million | $2.487 million |
| Comprehensive loss | $1.511 million | $2.188 million |
| Basic and diluted loss per share | $0.01 loss | $0.02 loss |
| Cash used in operating activities | $1.378 million | $1.709 million |
| Cash and cash equivalents, March 31 / December 31 | $6.631 million | $22.466 million at December 31, 2016 |
| Working capital | $6.047 million | $7.589 million at December 31, 2016 |
| Total assets | $62.023 million | $77.902 million at December 31, 2016 |
| Total liabilities | $0.749 million | $15.084 million at December 31, 2016 |
| Capitalized acquisition costs | $55.204 million | $55.204 million at December 31, 2016 |
There is no meaningful revenue or operating margin because the Company remains pre-production. Mineral property exploration expense was $711,116, compared with $796,505 in Q1 2016.
Cash Flow, Debt, and Liquidity
- Cash declined by $15.836 million during the quarter, from $22.466 million to $6.631 million.
- The principal cash use was the $14.694 million payment on January 12, 2017, which fully settled the final contingent derivative payment related to the acquisition of Livengood-area mining claims.
- Operating activities used $1.378 million; there were no investing cash flows. Financing cash outflows also included $45,000 of share issuance costs.
- The Company reported no conventional debt and no remaining derivative liability at March 31, 2017.
- Management believes existing working capital is sufficient to complete the anticipated 2017 work program and general and administrative costs through 2017, but significant additional financing will be required for continued advancement, permitting, and any future mine development.
Material Changes Versus the Prior Comparable Period
- Net loss improved by $809,479, primarily because Q1 2016 included a $700,000 unrealized loss from revaluing the derivative liability.
- Operating expenses decreased by $147,700. Exploration expense declined by $85,389, and wages and benefits decreased mainly because of reduced staffing. Share-based compensation fell to $12,959 from $60,651.
- Foreign exchange loss increased to $166,124 from $123,862.
- Cash decreased substantially because the final $14.694 million derivative payment was made. The derivative liability was $14.694 million at December 31, 2016 and was eliminated during Q1 2017.
- No shares were issued during Q1 2017. The December 2016 private placement had issued 45,833,334 shares for gross proceeds of $22.0 million.
- Karl Hanneman became CEO effective January 31, 2017, while former CEO Tom Irwin transitioned to a part-time Senior Advisor role.
Guidance, Outlook, Risks, and Unusual Items
- The Board approved a $6.3 million 2017 work program focused on refining the resource block model, evaluating production schedule alternatives, and conducting metallurgical work to improve recovery and process design.
- Management stated that preliminary work suggested potential net present value benefits of up to $280 million from block model improvements and $100 million from metallurgical recovery improvements. These are estimates and are not assured until the work is completed and incorporated into a revised financial model.
- Approximately 20,000 historical pulps were analyzed during the quarter, updated variography was prepared, and metallurgical testing continued. The Company stated that it had sufficient funds for the test programs and engineering work underway.
- The Company corrected the Livengood Project pre-feasibility study’s all-in sustaining cost calculation. The restated projected AISC is $976 per ounce.
- Going-concern risk remains significant because the Company has no operating revenue and will require additional financing. If financing is unavailable, discretionary Project activities may need to be reduced after 2017.
- Key risks include gold-price volatility, financing and equity-market conditions, permitting delays, resource and metallurgical uncertainty, title and lease risks, environmental regulation, and the ability to obtain services and supplies.
- Contractual property lease and mining claim government-fee payments total $3.256 million through 2022 and beyond, excluding required work expenditures and potential royalties.
- The Company disclosed related-party considerations: CEO Karl Hanneman holds an 11.9% net interest in AN Gold Mines, which received 70% of the final derivative payment. Shareholder approval was also sought for a proposed $175,000 share-based payment to former CEO Tom Irwin.
- The Company expects to remain a passive foreign investment company for U.S. federal income tax purposes.
Important Facts for Investors to Verify
- Whether the $6.631 million cash balance and stated working capital are sufficient for the remaining 2017 program and corporate expenses.
- The timing, amount, and terms of required future financing or any strategic alliance.
- Results of the updated block model, metallurgical testing, engineering work, and any revised economic study for Livengood.
- The assumptions supporting the projected $976 per ounce AISC and the preliminary potential NPV benefits.
- Permitting status, environmental baseline work, mineral-title and lease obligations, and the effect of any delays.
- Approval and issuance status of the proposed 265,454 common shares for Mr. Irwin and the terms of the CEO employment agreement.
- Whether future exploration results support conversion of reported mineral resources into economically mineable reserves; the filing cautions that inferred resources and mineralized material may never become reserves.