ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL TOWER HILL MINES LTD.
|
(An Exploration Stage Company)
|
CONDENSED CONSOLIDATED BALANCE SHEETS
|
As at September 30, 2016 and December 31, 2015
|
(Expressed in US Dollars - Unaudited)
|
|
|
Note
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
$
|
1,759,123
|
|
|
$
|
6,493,486
|
|
Prepaid expenses and other
|
|
|
|
|
218,408
|
|
|
|
192,226
|
|
Total current assets
|
|
|
|
|
1,977,531
|
|
|
|
6,685,712
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
|
|
26,120
|
|
|
|
30,083
|
|
Capitalized acquisition costs
|
|
4
|
|
|
55,204,041
|
|
|
|
55,204,041
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
$
|
57,207,692
|
|
|
$
|
61,919,836
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
|
$
|
186,860
|
|
|
$
|
122,043
|
|
Accrued liabilities
|
|
|
|
|
357,728
|
|
|
|
394,436
|
|
Derivative liability
|
|
6
|
|
|
14,800,000
|
|
|
|
-
|
|
Total current liabilities
|
|
|
|
|
15,344,588
|
|
|
|
516,479
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
6
|
|
|
-
|
|
|
|
13,900,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
15,344,588
|
|
|
|
14,416,479
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
|
|
|
|
|
|
|
|
Share capital, no par value; authorized 500,000,000 shares; 116,313,638 shares issued and outstanding at December 31, 2015 and 116,353,638 shares issued and outstanding at September 30, 2016
|
|
7
|
|
|
243,716,531
|
|
|
|
243,692,185
|
|
Contributed surplus
|
|
|
|
|
34,063,362
|
|
|
|
33,979,717
|
|
Accumulated other comprehensive income
|
|
|
|
|
1,149,086
|
|
|
|
816,435
|
|
Deficit
|
|
|
|
|
(237,065,875
|
)
|
|
|
(230,984,980
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity
|
|
|
|
|
41,863,104
|
|
|
|
47,503,357
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
|
|
$
|
57,207,692
|
|
|
$
|
61,919,836
|
|
General Information, Nature of Operations
and Going Concern (Note 1)
Commitments (Note 9)
The accompanying notes are an integral part
of these condensed consolidated interim financial statements.
INTERNATIONAL TOWER HILL MINES LTD.
|
(An Exploration Stage Company)
|
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
|
For the Three and Nine Months Ended September 30, 2016 and 2015
|
(Expressed in US Dollars - Unaudited)
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
Note
|
|
September 30,
2016
|
|
|
September 30,
2015
|
|
|
September 30,
2016
|
|
|
September 30,
2015
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting fees
|
|
|
|
$
|
63,973
|
|
|
$
|
82,091
|
|
|
$
|
200,660
|
|
|
$
|
340,463
|
|
Depreciation
|
|
|
|
|
1,323
|
|
|
|
1,754
|
|
|
|
3,963
|
|
|
|
5,293
|
|
Insurance
|
|
|
|
|
69,326
|
|
|
|
68,137
|
|
|
|
200,532
|
|
|
|
206,222
|
|
Investor relations
|
|
|
|
|
27,119
|
|
|
|
19,209
|
|
|
|
76,506
|
|
|
|
112,289
|
|
Mineral property exploration
|
|
4
|
|
|
528,117
|
|
|
|
727,477
|
|
|
|
2,504,284
|
|
|
|
1,957,019
|
|
Office
|
|
|
|
|
9,546
|
|
|
|
6,144
|
|
|
|
30,005
|
|
|
|
24,255
|
|
Other
|
|
|
|
|
4,487
|
|
|
|
4,675
|
|
|
|
14,508
|
|
|
|
15,427
|
|
Professional fees
|
|
|
|
|
63,057
|
|
|
|
63,572
|
|
|
|
155,007
|
|
|
|
189,185
|
|
Regulatory
|
|
|
|
|
50,307
|
|
|
|
40,444
|
|
|
|
108,281
|
|
|
|
139,812
|
|
Rent
|
|
|
|
|
35,374
|
|
|
|
36,733
|
|
|
|
106,109
|
|
|
|
121,719
|
|
Travel
|
|
|
|
|
42,702
|
|
|
|
41,064
|
|
|
|
81,350
|
|
|
|
80,706
|
|
Wages and benefits
|
|
|
|
|
537,872
|
|
|
|
657,914
|
|
|
|
1,630,035
|
|
|
|
1,962,707
|
|
Total operating expenses
|
|
|
|
|
(1,433,203
|
)
|
|
|
(1,749,214
|
)
|
|
|
(5,111,240
|
)
|
|
|
(5,155,097
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain/(loss) on foreign exchange
|
|
|
|
|
(3,020
|
)
|
|
|
334,228
|
|
|
|
(124,784
|
)
|
|
|
905,123
|
|
Interest income
|
|
|
|
|
3,534
|
|
|
|
7,497
|
|
|
|
15,689
|
|
|
|
38,122
|
|
Unrealized gain/(loss) on derivative
|
|
6
|
|
|
(100,000
|
)
|
|
|
400,000
|
|
|
|
(900,000
|
)
|
|
|
500,000
|
|
Other income
|
|
|
|
|
8,100
|
|
|
|
-
|
|
|
|
39,440
|
|
|
|
19,000
|
|
Total other income (expenses)
|
|
|
|
|
(91,386
|
)
|
|
|
741,725
|
|
|
|
(969,655
|
)
|
|
|
1,462,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period
|
|
|
|
|
(1,524,589
|
)
|
|
|
(1,007,489
|
)
|
|
|
(6,080,895
|
)
|
|
|
(3,692,852
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain/(loss) on marketable securities
|
|
|
|
|
(13,210
|
)
|
|
|
5,272
|
|
|
|
(2,459
|
)
|
|
|
(8,895
|
)
|
Exchange difference on translating foreign operations
|
|
|
|
|
38,852
|
|
|
|
(583,280
|
)
|
|
|
335,110
|
|
|
|
(1,414,013
|
)
|
Total other comprehensive income (loss) for the period
|
|
|
|
|
25,642
|
|
|
|
(578,008
|
)
|
|
|
332,651
|
|
|
|
(1,422,908
|
)
|
Comprehensive loss for the period
|
|
|
|
$
|
(1,498,947
|
)
|
|
$
|
(1,585,497
|
)
|
|
$
|
(5,748,244
|
)
|
|
$
|
(5,115,760
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and fully diluted loss per share
|
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding
|
|
|
|
|
116,348,855
|
|
|
|
116,313,638
|
|
|
|
116,325,463
|
|
|
|
116,313,638
|
|
The accompanying notes are an integral part
of these condensed consolidated interim financial statements.
INTERNATIONAL TOWER HILL MINES LTD.
(An Exploration Stage Company)
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF
CHANGES IN SHAREHOLDERS’ EQUITY
For the Nine Months Ended September 30, 2016 and 2015
(Expressed in US Dollars - Unaudited)
|
|
|
Number
of
shares
|
|
|
Share
capital
|
|
|
Contributed
surplus
|
|
|
Accumulated
other
comprehensive
income/(loss)
|
|
|
Deficit
|
|
|
Total
|
|
Balance, December 31, 2014
|
|
|
116,313,638
|
|
|
$
|
243,692,185
|
|
|
$
|
33,439,249
|
|
|
$
|
2,196,252
|
|
|
$
|
(226,172,156
|
)
|
|
$
|
53,155,530
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
448,310
|
|
|
|
-
|
|
|
|
-
|
|
|
|
448,310
|
|
Unrealized loss on
available-for-sale securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(8,895
|
)
|
|
|
-
|
|
|
|
(8,895
|
)
|
Exchange difference
on translating foreign operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,414,013
|
)
|
|
|
-
|
|
|
|
(1,414,013
|
)
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,692,852
|
)
|
|
|
(3,692,852
|
)
|
Balance, September 30, 2015
|
|
|
116,313,638
|
|
|
|
243,692,185
|
|
|
|
33,887,559
|
|
|
|
773,344
|
|
|
|
(229,865,008
|
)
|
|
|
48,488,080
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
92,158
|
|
|
|
-
|
|
|
|
-
|
|
|
|
92,158
|
|
Unrealized gain on
available-for-sale securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,057
|
|
|
|
-
|
|
|
|
3,057
|
|
Impairment of available-for-sale
securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
219,402
|
|
|
|
-
|
|
|
|
219,402
|
|
Exchange difference
on translating foreign operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(179,368
|
)
|
|
|
-
|
|
|
|
(179,368
|
)
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,119,972
|
)
|
|
|
(1,119,972
|
)
|
Balance, December 31, 2015
|
|
|
116,313,638
|
|
|
|
243,692,185
|
|
|
|
33,979,717
|
|
|
|
816,435
|
|
|
|
(230,984,980
|
)
|
|
|
47,503,357
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
92,587
|
|
|
|
-
|
|
|
|
-
|
|
|
|
92,587
|
|
Unrealized loss on
available-for-sale securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,459
|
)
|
|
|
-
|
|
|
|
(2,459
|
)
|
Exchange difference
on translating foreign operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
335,110
|
|
|
|
-
|
|
|
|
335,110
|
|
Exercise of options
|
|
|
40,000
|
|
|
|
15,404
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,404
|
|
Reallocation from contributed
surplus
|
|
|
-
|
|
|
|
8,942
|
|
|
|
(8,942
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,080,895
|
)
|
|
|
(6,080,895
|
)
|
Balance, September
30, 2016
|
|
|
116,353,638
|
|
|
$
|
243,716,531
|
|
|
$
|
34,063,362
|
|
|
$
|
1,149,086
|
|
|
$
|
(237,065,875
|
)
|
|
$
|
41,863,104
|
|
The accompanying notes are an integral part
of these condensed consolidated interim financial statements.
INTERNATIONAL TOWER HILL MINES LTD.
(An Exploration Stage Company)
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2016 and 2015
(Expressed in US Dollars - Unaudited)
|
|
Nine Months Ended
|
|
|
|
September 30, 2016
|
|
|
September 30, 2015
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
Loss for the period
|
|
$
|
(6,080,895
|
)
|
|
$
|
(3,692,852
|
)
|
Add items not affecting cash:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
3,963
|
|
|
|
5,293
|
|
Stock-based compensation
|
|
|
92,587
|
|
|
|
448,310
|
|
Unrealized (gain) loss on derivative liability
|
|
|
900,000
|
|
|
|
(500,000
|
)
|
Changes in non-cash items:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
29,992
|
|
|
|
84,838
|
|
Prepaid expenses and other
|
|
|
(11,041
|
)
|
|
|
(10,994
|
)
|
Accounts payable and accrued liabilities
|
|
|
24,284
|
|
|
|
(461,699
|
)
|
Cash used in operating activities
|
|
|
(5,041,110
|
)
|
|
|
(4,127,104
|
)
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
Issuance of share capital
|
|
|
15,404
|
|
|
|
-
|
|
Cash provided by financing activities
|
|
|
15,404
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange on cash
|
|
|
291,343
|
|
|
|
(1,485,764
|
)
|
Decrease in cash and cash equivalents
|
|
|
(4,734,363
|
)
|
|
|
(5,612,868
|
)
|
Cash and cash equivalents, beginning of the period
|
|
|
6,493,486
|
|
|
|
13,521,473
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of the period
|
|
$
|
1,759,123
|
|
|
$
|
7,908,605
|
|
The accompanying notes are an integral part of these condensed consolidated
interim financial statements.
INTERNATIONAL TOWER HILL MINES LTD.
|
(An Exploration Stage Company)
|
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
|
Nine Months Ended September 30, 2016 and 2015
|
(Expressed in US dollars – Unaudited)
|
|
1.
|
GENERAL INFORMATION, NATURE OF OPERATIONS AND GOING CONCERN
|
International Tower Hill Mines Ltd. (“ITH”
or the "Company") is incorporated under the laws of British Columbia, Canada. The Company’s head office address
is 2300-1177 West Hastings Street, Vancouver, British Columbia, Canada.
International Tower Hill Mines Ltd. consists of ITH and
its wholly owned subsidiaries Tower Hill Mines, Inc. (“TH Alaska”) (an Alaska corporation), Tower Hill Mines (US) LLC
(“TH US”) (a Colorado limited liability company), Livengood Placers, Inc. (“LPI”) (a Nevada corporation),
and 813034 Alberta Ltd. (an Alberta corporation). The Company is in the business of acquiring, exploring and evaluating mineral
properties, and either joint venturing or developing these properties further or disposing of them when the evaluation is completed.
At September 30, 2016, the Company was in the exploration stage and controls a 100% interest in its Livengood Gold Project in Alaska,
U.S.A.
These unaudited condensed consolidated interim financial
statements have been prepared on a going-concern basis, which presumes the realization of assets and discharge of liabilities in
the normal course of business for the foreseeable future.
As at September 30, 2016, the Company had cash and
cash equivalents of $1,759,123 compared to $6,493,486 at December 31, 2015. The Company has no revenue generating operations from
which it can internally generate funds. As at September 30, 2016, the Company’s estimate of the amount of the Additional
Payment due on January 12, 2017 (see Note 6) is $14,800,000, which significantly exceeds the Company’s available cash resources.
The Company expects to seek to obtain significant additional financing on or before January 2017 in order to be able to make this
payment, but there is no assurance that the Company will be able to obtain the additional financing required on acceptable terms,
if at all.
Should the Company be unable to make the Additional Payment,
the Company will have 30 days to remedy the event of default. Should the default not be remedied, the Company may be required to
deliver the underlying claims, which are not part of the Project’s gold resource but are part of the 75 square mile Livengood
land package, into a trust in order for them to be sold. Should the proceeds from sale not be sufficient to satisfy the outstanding
amount of the Additional Payment, the beneficiaries will have recourse against the Company for any shortfall. The Company considers
it likely that the proceeds from any such sale, should it prove necessary, would be sufficient to satisfy the amount of the Additional
Payment.
The Company will also require significant additional financing
to continue its operations in connection with advancing activities at the Livengood Gold Project and for the development of any
mine that may be determined to be built at the Livengood Gold Project. In addition, any significant delays in the issuance of required
permits for the ongoing work at the Livengood Gold Project, or unexpected results in connection with the ongoing work, could result
in the Company being required to raise additional funds to advance permitting efforts. The Company’s review of its financing
options includes pursuing a strategic alliance to assist in further development, permitting and future construction costs.
Despite the Company’s success to date in raising
significant equity financing to fund its operations, there is significant uncertainty that the Company will be able to secure any
additional financing in the current or future equity markets. Even if the Company is able to secure some additional equity financing,
the Company may be unable to raise enough capital to both make the Additional Payment and continue its operations in connection
with advancing all activities at the Livengood Gold Project into 2017 and beyond. As a result, there is substantial doubt about
our ability to continue as a going concern. The amount of funds to be raised and the terms of any proposed equity financing that
may be undertaken will be negotiated by management as opportunities to raise funds arise. Specific plans related to the use of
proceeds will be devised once financing has been completed and management knows what funds will be available for these purposes.
Due to this uncertainty, if the Company is unable to secure sufficient additional financing, it may be unable to make the Additional
Payment when due, and the Company may be required to reduce all discretionary activities at the Project to preserve its working
capital to fund anticipated non-discretionary expenditures beyond the 2016 fiscal year.
INTERNATIONAL TOWER HILL MINES LTD.
|
(An Exploration Stage Company)
|
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
|
Nine Months Ended September 30, 2016 and 2015
|
(Expressed in US dollars – Unaudited)
|
These financial statements do not reflect the adjustments
to the carrying values of assets and liabilities and the reported expenses and balance sheet classifications that would be necessary
were the going concern adjustment appropriate. Such adjustments could be material.
These unaudited condensed consolidated interim financial
statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”)
for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X under the Securities
Exchange Act of 1934, as amended. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for
annual financial statements. These unaudited condensed consolidated interim financial statements should be read in conjunction
with the audited consolidated financial statements for the year ended December 31, 2015 as filed in our Annual Report on Form 10-K.
In the opinion of the Company’s management these financial statements reflect all adjustments, consisting of normal recurring
adjustments, necessary to present fairly the Company’s financial position at September 30, 2016 and the results of its operations
for the nine months then ended. Operating results for the nine months ended September 30, 2016 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2016. The 2015 year-end balance sheet data was derived from
audited financial statements but does not include all disclosures required by U.S. GAAP.
The preparation of financial statements in conformity
with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts
of revenues and expenses during the period. These judgments, estimates and assumptions are continuously evaluated and are based
on management’s experience and knowledge of the relevant facts and circumstances. While management believes the estimates
to be reasonable, actual results could differ from those estimates and could impact future results of operations and cash flows.
On November 14, 2016, the Board approved these condensed
consolidated interim financial statements.
Basis of consolidation
These consolidated financial statements include the accounts
of ITH and its wholly owned subsidiaries TH Alaska, TH US, LPI and 813034 Alberta Ltd. All intercompany transactions and balances
have been eliminated.
|
3.
|
FAIR VALUE OF FINANCIAL INSTRUMENTS
|
The carrying values of cash and cash equivalents, accounts
receivable and accounts payable and accrued liabilities approximate their fair values due to the short-term maturity of these financial
instruments.
Financial instruments measured at fair value are classified
into one of three levels in the fair value hierarchy according to the significance of the inputs used in making the measurement.
The three levels of the fair value hierarchy are as follows:
|
·
|
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;
|
|
·
|
Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly;
and
|
|
·
|
Level 3 – Inputs that are not based on observable market data.
|
|
|
Fair value as at September 30, 2016
|
|
|
|
Level 1
|
|
|
Level 2
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
$
|
20,318
|
|
|
$
|
-
|
|
Total
|
|
$
|
20,318
|
|
|
$
|
-
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
Derivative liability (Note 6)
|
|
$
|
-
|
|
|
$
|
14,800,000
|
|
Total
|
|
$
|
-
|
|
|
$
|
14,800,000
|
|
INTERNATIONAL TOWER HILL MINES LTD.
|
(An Exploration Stage Company)
|
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
|
Nine Months Ended September 30, 2016 and 2015
|
(Expressed in US dollars – Unaudited)
|
|
|
Fair value as at December 31, 2015
|
|
|
|
Level 1
|
|
|
Level 2
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
$
|
11,741
|
|
|
$
|
-
|
|
Total
|
|
$
|
11,741
|
|
|
$
|
-
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
Derivative liability (Note 6)
|
|
$
|
-
|
|
|
$
|
13,900,000
|
|
Total
|
|
$
|
-
|
|
|
$
|
13,900,000
|
|
|
4.
|
CAPITALIZED ACQUISITION COSTS
|
The Company had the following activity related to capitalized
acquisition costs:
Capitalized acquisition costs
|
|
Amount
|
|
|
|
|
|
Balance, December 31, 2015
|
|
$
|
55,204,041
|
|
Acquisition costs
|
|
|
-
|
|
Balance, September 30, 2016
|
|
$
|
55,204,041
|
|
The following table presents costs incurred for exploration
and evaluation activities for the nine months ended September 30, 2016 and 2015:
|
|
September 30,
2016
|
|
|
September 30,
2015
|
|
Exploration costs:
|
|
|
|
|
|
|
|
|
Aircraft services
|
|
$
|
6,511
|
|
|
$
|
4,185
|
|
Assay
|
|
|
-
|
|
|
|
9,984
|
|
Environmental
|
|
|
233,398
|
|
|
|
509,274
|
|
Equipment rental
|
|
|
33,375
|
|
|
|
33,862
|
|
Field costs
|
|
|
87,754
|
|
|
|
140,355
|
|
Geological/geophysical
|
|
|
1,613,994
|
|
|
|
717,073
|
|
Land maintenance & tenure
|
|
|
494,316
|
|
|
|
496,968
|
|
Legal
|
|
|
27,845
|
|
|
|
18,262
|
|
Transportation and travel
|
|
|
7,091
|
|
|
|
27,056
|
|
Total expenditures for the period
|
|
$
|
2,504,284
|
|
|
$
|
1,957,019
|
|
Livengood Gold Project
Property
The Livengood property is located
in the Tintina gold belt approximately 113 kilometers (70 miles) northwest of Fairbanks, Alaska. The property consists of land
leased from the Alaska Mental Health Trust, a number of smaller private mineral leases, Alaska state mining claims purchased or
located by the Company and patented ground held by the Company.
Details of the leases are as follows:
|
a)
|
a lease of the Alaska Mental Health Trust mineral rights having a term beginning July 1, 2004 and extending 19 years until
June 30, 2023, subject to further extensions beyond June 30, 2023 by either commercial production or payment of an advance minimum
royalty equal to 125% of the amount paid in year 19 and diligent pursuit of development. The lease requires minimum work expenditures
and advance minimum royalties (all of which minimum royalties are recoverable from production royalties) which escalate annually
with inflation. A net smelter return (“NSR”) production royalty of between 2.5% and 5.0% (depending upon the price
of gold) is payable to the lessor with respect to the lands subject to this lease. In addition, an NSR production royalty of l%
is payable to the lessor with respect to the unpatented federal mining claims subject to the lease described in b) below and an
NSR production royalty of between 0.5% and 1.0% (depending upon the price of gold) is payable to the lessor with respect to the
lands acquired by the Company as a result of the purchase of Livengood Placers, Inc. in December 2011. During the nine months ended
September 30, 2016 and from the inception of this lease the Company has paid $326,776 and $2,302,666, respectively.
|
INTERNATIONAL TOWER HILL MINES LTD.
|
(An Exploration Stage Company)
|
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
|
Nine Months Ended September 30, 2016 and 2015
|
(Expressed in US dollars – Unaudited)
|
|
b)
|
a lease of federal unpatented lode mining claims having an initial term of ten years commencing on April 21, 2003 and continuing
for so long thereafter as advance minimum royalties are paid and mining related activities, including exploration, continue on
the property or on adjacent properties controlled by the Company. The lease requires an advance minimum royalty of $50,000 on or
before each anniversary date (all of which minimum royalties are recoverable from production royalties). An NSR production royalty
of between 2% and 3% (depending on the price of gold) is payable to the lessors. The Company may purchase 1% of the royalty for
$1,000,000. During the nine months ended September 30, 2016 and from the inception of this lease the Company has paid $50,000 and
$630,000, respectively.
|
|
c)
|
a lease of patented lode mining claims having an initial term of ten years commencing January 18, 2007, and continuing for
so long thereafter as advance minimum royalties are paid. The lease requires an advance minimum royalty of $20,000 on or before
each anniversary date through January 18, 2017 and $25,000 on or before each subsequent anniversary (all of which minimum royalties
are recoverable from production royalties). An NSR production royalty of 3% is payable to the lessors. The Company may purchase
all interests of the lessors in the leased property (including the production royalty) for $1,000,000 (less all minimum and production
royalties paid to the date of purchase), of which $500,000 is payable in cash over four years following the closing of the purchase
and the balance of $500,000 is payable by way of the 3% NSR production royalty. During the nine months ended September 30, 2016
and from the inception of this lease the Company has paid $20,000 and $165,000, respectively.
|
|
d)
|
a lease of unpatented federal lode mining and federal unpatented placer claims having an initial term of ten years commencing
on March 28, 2007, and continuing for so long thereafter as advance minimum royalties are paid and mining related activities, including
exploration, continue on the property or on adjacent properties controlled by the Company. The lease requires an advance minimum
royalty of $15,000 on or before each anniversary date (all of which minimum royalties are recoverable from production royalties).
The Company is required to pay the lessor the sum of $250,000 upon making a positive production decision, payable $125,000 within
120 days of the decision and $125,000 within a year of the decision (all of which are recoverable from production royalties). An
NSR production royalty of 2% is payable to the lessor. The Company may purchase all of the interest of the lessor in the leased
property (including the production royalty) for $1,000,000. During the nine months ended September 30, 2016 and from the inception
of this lease the Company has paid $15,000 and $113,000, respectively.
|
Title to mineral properties
The acquisition of title to mineral properties is a
detailed and time-consuming process. The Company has taken steps to verify title to mineral properties in which it has an interest.
Although the Company has taken every reasonable precaution to ensure that legal title to its properties is properly recorded in
the name of the Company, there can be no assurance that such title will ultimately be secured.
INTERNATIONAL TOWER HILL MINES LTD.
|
(An Exploration Stage Company)
|
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
|
Nine Months Ended September 30, 2016 and 2015
|
(Expressed in US dollars – Unaudited)
|
The following table presents the accrued liabilities balances
at September 30, 2016 and December 31, 2015.
|
|
September
30,
2016
|
|
|
December 31,
2015
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
288,451
|
|
|
$
|
247,034
|
|
Accrued severance
|
|
|
-
|
|
|
|
19,900
|
|
Accrued salaries and benefits
|
|
|
69,277
|
|
|
|
127,502
|
|
Total accrued liabilities
|
|
$
|
357,728
|
|
|
$
|
394,436
|
|
Accrued liabilities at September 30, 2016 include accruals
for general corporate costs and project costs of $33,420 and $255,031, respectively. Accrued liabilities at December 31, 2015 include
accruals for general corporate costs and project costs of $27,535 and $219,499, respectively.
During 2011, the Company acquired certain mining claims
and related rights in the vicinity of the Livengood Gold Project located near Fairbanks, Alaska. The aggregate consideration for
the claims and rights was $13,500,000 in cash plus an additional payment based on the five-year average daily gold price (“Average
Gold Price”) from the date of the acquisition (“Additional Payment”). The Additional Payment will equal $23,148
for every dollar that the Average Gold Price exceeds $720 per troy ounce. If the Average Gold Price is less than $720, there will
be no additional consideration due.
At initial recognition on December 13, 2011 the derivative
liability was valued at $23,100,000. The key assumption used in the valuation of the derivative is the estimate of the future Average
Gold Price. The estimate of the future Average Gold Price was determined using a forward curve on future gold prices as published
by the CME Group. Using this forward curve, the Company estimated an Average Gold Price based on actual gold prices to September
30, 2016 and projected gold prices from September 30, 2016 to the end of the five year period on December 13, 2016 of $1,360 per
ounce of gold.
The fair value of the derivative liability and the estimated
Average Gold Price are as follows:
|
|
Total
|
|
|
Average Gold
Price ($/oz.)
|
|
Derivative value at December 31, 2015
|
|
$
|
13,900,000
|
|
|
$
|
1,320
|
|
Unrealized loss for the period
|
|
|
900,000
|
|
|
|
|
|
Derivative value at September 30, 2016
|
|
$
|
14,800,000
|
|
|
$
|
1,360
|
|
Authorized
500,000,000 common shares without par value. At December
31, 2015 there were 116,313,638 shares issued and outstanding. At September 30, 2016 there were 116,353,638 shares issued and outstanding.
Share issuances
Issued 40,000 common shares pursuant
to the exercise of stock options for total proceeds of $15,404 and transferred related contributed surplus of $8,942 during the
nine months ended September 30, 2016.
INTERNATIONAL TOWER HILL MINES LTD.
|
(An Exploration Stage Company)
|
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
|
Nine Months Ended September 30, 2016 and 2015
|
(Expressed in US dollars – Unaudited)
|
Stock options
The Company adopted an incentive
stock option plan in 2006, as amended September 19, 2012 and reapproved on May 28, 2015 at the Company’s Annual General Meeting
(the “2006 Plan”). The essential elements of the 2006 Plan provide that the aggregate number of common shares of the
Company’s capital stock that may be made issuable pursuant to options granted under the 2006 Plan may not exceed 10% of the
number of issued shares of the Company at the time of the granting of the options. Options granted under the 2006 Plan will have
a maximum term of ten years. The exercise price of options granted under the 2006 Plan shall be fixed in compliance with the applicable
provisions of the TSX Company Manual in force at the time of grant and, in any event, shall not be less than the closing price
of the Company’s common shares on the TSX on the trading day immediately preceding the day on which the option is granted,
or such other price as may be agreed to by the Company and accepted by the Toronto Stock Exchange. Options granted under the 2006
Plan vest immediately, unless otherwise determined by the directors at the date of grant.
During the nine month period ended September 30, 2016,
there were no incentive stock options granted by the Company.
A summary of the status of the stock
option plan as of September 30, 2016 and December 31, 2015 and changes is presented below:
|
|
Nine Months Ended
|
|
|
Year Ended
|
|
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price (C$)
|
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price (C$)
|
|
Balance, beginning of the period
|
|
|
6,066,200
|
|
|
$
|
1.60
|
|
|
|
5,854,000
|
|
|
$
|
2.68
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
|
|
2,135,200
|
|
|
$
|
0.80
|
|
Exercised
|
|
|
(40,000
|
)
|
|
$
|
(0.50
|
)
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
-
|
|
|
$
|
-
|
|
|
|
(1,923,000
|
)
|
|
$
|
(4.01
|
)
|
Balance, end of the period
|
|
|
6,026,200
|
|
|
$
|
1.61
|
|
|
|
6,066,200
|
|
|
$
|
1.60
|
|
The weighted average remaining life
of options outstanding at September 30, 2016 was 4.29 years.
Stock options outstanding
are as follows:
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
Expiry Date
|
|
Exercise
Price (C$)
|
|
|
Number of
Options
|
|
|
Exercisable
|
|
|
Exercise
Price (C$)
|
|
|
Number of
Options
|
|
|
Exercisable
|
|
August 24, 2017
|
|
$
|
3.17
|
|
|
|
1,675,000
|
|
|
|
1,675,000
|
|
|
$
|
3.17
|
|
|
|
1,675,000
|
|
|
|
1,675,000
|
|
March 14, 2018
|
|
$
|
2.18
|
|
|
|
319,000
|
|
|
|
319,000
|
|
|
$
|
2.18
|
|
|
|
319,000
|
|
|
|
319,000
|
|
February 25, 2022
|
|
$
|
1.11
|
|
|
|
1,030,000
|
|
|
|
1,030,000
|
|
|
$
|
1.11
|
|
|
|
1,030,000
|
|
|
|
686,666
|
|
February 25, 2022
|
|
$
|
0.73
|
|
|
|
594,000
|
|
|
|
594,000
|
|
|
$
|
0.73
|
|
|
|
594,000
|
|
|
|
396,000
|
|
March 10, 2022
|
|
$
|
1.11
|
|
|
|
430,000
|
|
|
|
430,000
|
|
|
$
|
1.11
|
|
|
|
430,000
|
|
|
|
286,666
|
|
March 16, 2023
|
|
$
|
1.00
|
|
|
|
1,260,000
|
|
|
|
839,999
|
|
|
$
|
1.00
|
|
|
|
1,260,000
|
|
|
|
419,999
|
|
March 16, 2023
|
|
$
|
0.50
|
|
|
|
688,200
|
|
|
|
445,466
|
|
|
$
|
0.50
|
|
|
|
728,200
|
|
|
|
242,733
|
|
June 9, 2023
|
|
$
|
1.00
|
|
|
|
30,000
|
|
|
|
20,000
|
|
|
$
|
1.00
|
|
|
|
30,000
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
6,026,200
|
|
|
|
5,353,465
|
|
|
|
|
|
|
|
6,066,200
|
|
|
|
4,036,064
|
|
INTERNATIONAL TOWER HILL MINES LTD.
|
(An Exploration Stage Company)
|
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
|
Nine Months Ended September 30, 2016 and 2015
|
(Expressed in US dollars – Unaudited)
|
A summary of the non-vested options
as of September 30, 2016 and changes during the nine months ended September 30, 2016 is as follows:
Non-vested options:
|
|
Number of
options
|
|
|
Weighted
average grant-
date fair value
(C$)
|
|
Outstanding at December 31, 2015
|
|
|
2,030,136
|
|
|
$
|
0.34
|
|
Vested
|
|
|
(1,357,401
|
)
|
|
$
|
0.38
|
|
Outstanding at September 30, 2016
|
|
|
672,735
|
|
|
$
|
0.25
|
|
At September 30, 2016 there was unrecognized
compensation expense of C$38,644 related to non-vested options outstanding. The cost is expected to be recognized over a weighted-average
remaining period of approximately 0.46 years.
Share-based payments
During the nine month period ended September 30, 2016,
there were no incentive stock options granted by the Company. Share-based payment charges for the nine months ended September 30,
2016 totaled $92,587.
During the nine month period ended September 30, 2015,
the Company granted 2,135,200 stock options with a fair value of $435,213, calculated using the Black-Scholes option pricing model.
Share-based payment charges for the nine months ended September 30, 2015 totaled $448,310.
The following weighted average assumptions were
used for the Black-Scholes option pricing model calculations:
|
|
YTD December 31,
2015
|
|
Expected life of options
|
|
|
6 years
|
|
Risk-free interest rate
|
|
|
0.97
|
%
|
Annualized volatility
|
|
|
80.60
|
%
|
Dividend rate
|
|
|
0.00
|
%
|
Exercise price (C$)
|
|
$
|
0.80
|
|
The expected volatility used in the Black-Scholes option
pricing model is based on the historical volatility of the Company’s shares.
|
8.
|
SEGMENT AND GEOGRAPHIC INFORMATION
|
The Company operates in a single reportable segment, being
the exploration and development of mineral properties. The following tables present selected financial information by geographic
location:
|
|
Canada
|
|
|
United States
|
|
|
Total
|
|
September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized acquisition costs
|
|
$
|
-
|
|
|
$
|
55,204,041
|
|
|
$
|
55,204,041
|
|
Property and equipment
|
|
|
9,098
|
|
|
|
17,022
|
|
|
|
26,120
|
|
Current assets
|
|
|
1,445,449
|
|
|
|
532,082
|
|
|
|
1,977,531
|
|
Total assets
|
|
$
|
1,454,547
|
|
|
$
|
55,753,145
|
|
|
$
|
57,207,692
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized acquisition costs
|
|
$
|
-
|
|
|
$
|
55,204,041
|
|
|
$
|
55,204,041
|
|
Property and equipment
|
|
|
9,563
|
|
|
|
20,520
|
|
|
|
30,083
|
|
Current assets
|
|
|
6,106,135
|
|
|
|
579,577
|
|
|
|
6,685,712
|
|
Total assets
|
|
$
|
6,115,698
|
|
|
$
|
55,804,138
|
|
|
$
|
61,919,836
|
|
INTERNATIONAL TOWER HILL MINES LTD.
|
(An Exploration Stage Company)
|
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
|
Nine Months Ended September 30, 2016 and 2015
|
(Expressed in US dollars – Unaudited)
|
Three months ended
|
|
September 30, 2016
|
|
|
September 30, 2015
|
|
Net gain/(loss) for the period – Canada
|
|
$
|
(276,954
|
)
|
|
$
|
8,703
|
|
Net loss for the period - United States
|
|
|
(1,247,635
|
)
|
|
|
(1,016,192
|
)
|
Net loss for the period
|
|
$
|
(1,524,589
|
)
|
|
$
|
(1,007,489
|
)
|
Nine months ended
|
|
September 30, 2016
|
|
|
September 30, 2015
|
|
Net loss for the period – Canada
|
|
$
|
(915,561
|
)
|
|
$
|
(303,255
|
)
|
Net loss for the period - United States
|
|
|
(5,165,334
|
)
|
|
|
(3,389,597
|
)
|
Net loss for the period
|
|
$
|
(6,080,895
|
)
|
|
$
|
(3,692,852
|
)
|
The following table discloses, as of September 30, 2016,
the Company’s contractual obligations including anticipated mineral property payments and work commitments. Under the terms
of the Company’s mineral property purchase agreements, mineral leases and the terms of the unpatented mineral claims held
by it, the Company is required to make certain scheduled acquisition payments, incur certain levels of expenditures, make lease
or advance royalty payments, make payments to government authorities and incur assessment work expenditures as summarized in the
table below in order to maintain and preserve the Company’s interests in the related mineral properties. If the Company is
unable or unwilling to make any such payments or incur any such expenditure, it is likely that the Company would lose or forfeit
its rights to acquire or hold the related mineral properties. The following table assumes that the Company retains the rights to
all of its current mineral properties, but does not exercise any lease purchase or royalty buyout options:
|
|
Payments
Due in Calendar Year
|
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021 and
beyond
|
|
|
Total
|
|
Livengood
Property Purchase
(1)
|
|
$
|
-
|
|
|
$
|
14,800,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
14,800,000
|
|
Mineral Property Leases
(2)
|
|
|
-
|
|
|
|
421,850
|
|
|
|
426,903
|
|
|
|
432,032
|
|
|
|
442,237
|
|
|
|
447,521
|
|
|
|
2,170,543
|
|
Mining Claim Government
Fees
|
|
|
-
|
|
|
|
114,925
|
|
|
|
114,925
|
|
|
|
114,925
|
|
|
|
114,925
|
|
|
|
114,925
|
|
|
|
574,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
-
|
|
|
$
|
15,336,775
|
|
|
$
|
541,828
|
|
|
$
|
546,957
|
|
|
$
|
557,162
|
|
|
$
|
562,446
|
|
|
$
|
17,545,168
|
|
|
1.
|
The amount payable on January 12, 2017 of $14,800,000 represents the fair value of the Company’s derivative liability
as at September 30, 2016 and will be revalued at each subsequent reporting period. See Note 6.
|
|
2.
|
Does not include required work expenditures, as it is assumed that the required expenditure level is significantly below the
level of work that will actually be carried out by the Company. Does not include potential royalties that may be payable (other
than annual minimum royalty payments). See Note 4.
|
|
10.
|
RELATED PARTY TRANSACTIONS
|
In December 2011, in accordance with a Stock and Asset
Purchase Agreement (the “Agreement”) between the Company, Alaska/Nevada Gold Mines, Ltd. (“AN Gold Mines”)
and the Heflinger Group, the Company acquired certain mining claims and related rights in the vicinity of the Livengood Gold Project
located near Fairbanks, Alaska. The Company’s derivative liability, as described in Note 6 above, represents the remaining
consideration for the purchase of these claims and related rights and is payable in January 2017. Under the Agreement, the payment
is due 70% to AN Gold Mines and 30% to the Heflinger Group.
Mr. Hanneman was appointed Chief Operating Officer of
the Company on March 26, 2015. Mr. Hanneman is a partner of the general partner, as well as a limited partner, of AN Gold Mines
and holds an 11.9% net interest in AN Gold Mines.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis of
Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with our Annual Report on
Form 10-K for the year ended December 31, 2015. All currency amounts are stated in US dollars unless noted otherwise.
Current Business Activities
General
During the nine months ended September 30, 2016 and to the date
of this Quarterly Report on Form 10-Q, the Company progressed on a number of opportunities identified in the September 2013 Study
and opportunities subsequently developed by the Company with the potential for optimization and reducing the costs of building
and operating a mine at the Project.
Livengood Gold Project – Pre-feasibility Study Results
The Company announced the results of a Pre-feasibility Study
(“2016 PFS”) on September 8, 2016. On October 24, 2016, the Company filed a technical report on SEDAR that summarizes
the results of the 2016 PFS on the Livengood Gold Project. The technical report is entitled “NI 43-101 Technical Report Pre-feasibility
Study of the Livengood Gold Project, Livengood, Alaska,” dated September 8, 2016 and signed October 24, 2016. The Report
is based on an updated resource estimate effective as of August 26, 2016 and has an optimized Project configuration and throughput
of 52,600 t/d (47,700 mt/d) compared to the 100,000 t/d (90,700 mt/d) Project evaluated in the September 2013 Feasibility Study.
Using the trailing three year gold price of $1,250 per ounce, the Project generates a negative project NPV of $-552M at a 5% discount
rate and an IRR of 0.5% after mining and income taxes.
As a result of the changes to the Project as evaluated in the
2016 PFS, the original project as evaluated in the September 2013 Study is no longer considered current and investors should no
longer rely upon the September 2013 Study. The Company cautions that the 2016 PFS is preliminary in nature, and is based on technical
and economic assumptions which would be further refined and evaluated in a full feasibility study. There can be no certainty that
the results estimated in the 2016 PFS will be realized.
Next Steps and Opportunities
The 2016 PFS identified additional optimization opportunities
with the potential to improve recovery or further reduce costs, either of which could result in improvement to the Project. Subject
to available financing, these opportunities will be pursued to better define overall project economics prior to initiation of a
full feasibility study. These opportunities include improvements to the project geologic models to better support metallurgical
modelling, development of a grade-shell resource model with the potential to support a mine production schedule with improved economics,
and continuing to advance metallurgical test work to optimize the flowsheet and evaluate whether recovery can be improved. Environmental
work will continue in order to support project development and maintain continuity of baseline information.
It is estimated that the optimization studies and supporting
field work would cost approximately $6.3M.
Results of Operations
Summary of Quarterly Results
Description
|
|
September 30, 2016
|
|
|
June 30, 2016
|
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
Net loss
|
|
$
|
(1,524,589
|
)
|
|
$
|
(2,068,850
|
)
|
|
$
|
(2,487,456
|
)
|
|
$
|
(1,119,972
|
)
|
Basic and diluted net loss per common share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
|
|
September 30, 2015
|
|
|
June 30, 2015
|
|
|
March 31, 2015
|
|
|
December 31, 2014
|
|
Net loss
|
|
$
|
(1,007,489
|
)
|
|
$
|
(2,048,868
|
)
|
|
$
|
(636,495
|
)
|
|
$
|
(1,654,469
|
)
|
Basic and diluted net loss per common share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
Three Months Ended September 30, 2016 compared to Three
Months Ended September 30, 2015
The Company incurred a net loss of $1,524,589 for the three
month period ended September 30, 2016, compared to a net loss of $1,007,489 for the three month period ended September 30, 2015.
Mineral property expenditures decreased $199,360 to $528,117
for the three months ended September 30, 2016 from $727,477 for the three months ended September 30, 2015 primarily due to the
Company nearing completion of the planned multi-phase metallurgical test work program and limiting field activities to continuation
of critical environmental baseline studies.
Excluding share-based payment charges of $11,757 and $61,943,
respectively, wages and benefits for the three months ended September 30, 2016 decreased to $526,115 from $595,971 for the three
months ended September 30, 2015 primarily due to a staffing reduction and severance payment related to the Colorado office closure.
Consulting fees were $63,973 for the three months ended September
30, 2016 compared to $82,091 for the three months ended September 30, 2015. The decrease of $18,118 is primarily due to lower share-based
payment charges.
Share-based payment charges
Share-based payment charges for the three month periods ended
September 30, 2016 and 2015 were allocated as follows:
Expense category:
|
|
September 30, 2016
|
|
|
September 30, 2015
|
|
Consulting
|
|
$
|
3,467
|
|
|
$
|
19,738
|
|
Investor relations
|
|
|
1,069
|
|
|
|
4,638
|
|
Wages and benefits
|
|
|
11,757
|
|
|
|
61,943
|
|
|
|
$
|
16,293
|
|
|
$
|
86,319
|
|
Share-based payment charges were $16,293 during the three months
ended September 30, 2016 compared to $86,319 during the three months ended September 30, 2015. The decrease of $70,026 in share-based
payment charges during the period was mainly the result of a reduction in the fair value of options granted in 2015 as compared
to 2014.
Most other expense categories reflected moderate decreases period
over period reflecting the Company’s efforts to reduce spending.
Other items amounted to a loss of $91,386 during the three month
period ended September 30, 2016 compared to a gain of $741,725 during the three month period ended September 30, 2015. Total other
loss resulted from the unrealized loss on the revaluation of the derivative liability of $100,000. This unrealized loss was caused
by the increase in the price per ounce of gold during the three month period ended September 30, 2016 and is compared to an unrealized
gain of $400,000 during the three month period ended September 30, 2015. The Company had a foreign exchange loss of $3,020 during
the three month period ended September 30, 2016 compared to a gain of $334,228 during the three month period ended September 30,
2015 as a result of the impact of exchange rates on certain of the Company’s U.S. dollar cash balances. The average exchange
rate during the three month period ended September 30, 2016 was C$1 to US$0.7663 compared to C$1 to US$0.7640 for the three month
period ended September 30, 2015.
Nine Months Ended September 30, 2016 compared to Nine
Months Ended September 30, 2015
The Company incurred a net loss of $6,080,895 for the nine month
period ended September 30, 2016, compared to a net loss of $3,692,852 for the nine month period ended September 30, 2015.
Mineral property expenditures increased $547,265 to $2,504,284
for the nine months ended September 30, 2016 from $1,957,019 for the nine months ended September 30, 2015 primarily due to the
Company moving forward with the planned multi-phase metallurgical test work program, partially offset by limiting field activities
to continuation of critical environmental baseline studies. Consulting and professional fees for the nine months ended September
30, 2016 decreased by $173,981 to $355,667 from the nine month period ended September 30, 2015 as the Company negotiated lower
rates in 2016 for various third party-provided professional fees such as legal and accounting fees.
Excluding share-based payment charges of $65,410 and $331,831,
respectively, wages and benefits for the nine months ended September 30, 2016 decreased to $1,564,625 from $1,630,877 for the nine
months ended September 30, 2015 primarily due to a staffing reduction and severance payment related to the Colorado office closure
Share-based payment charges
Share-based payment charges for the nine month periods ended
September 30, 2016 and 2015 were allocated as follows:
Expense category:
|
|
September 30, 2016
|
|
|
September 30, 2015
|
|
Consulting
|
|
$
|
21,621
|
|
|
$
|
93,802
|
|
Investor relations
|
|
|
5,556
|
|
|
|
22,677
|
|
Wages and benefits
|
|
|
65,410
|
|
|
|
331,831
|
|
|
|
$
|
92,587
|
|
|
$
|
448,310
|
|
Share-based payment charges were $92,587 during the nine months
ended September 30, 2016 compared to $448,310 during the nine months ended September 30, 2015. The decrease of $355,723 in share-based
payment charges during the period was primarily the result of a reduction in the fair value of options granted in 2015 as compared
to 2014. The Company granted no options during the nine months ended September 30, 2016 compared to 2,135,200 during the nine months
ended September 30, 2015.
Remaining other expense categories reflected moderate decreases
period over period reflecting the Company’s efforts to reduce spending.
Other items amounted to a loss of $969,655 during the nine month
period ended September 30, 2016 compared to a gain of $1,462,245 during the nine month period ended September 30, 2015. Total other
loss resulted from the unrealized loss on the revaluation of the derivative liability of $900,000. This unrealized loss was caused
by the increase in the price per ounce of gold during the nine month period ended September 30, 2016 and is compared to an unrealized
gain of $500,000 during the nine month period ended September 30, 2015. The Company had a foreign exchange loss of $124,784 during
the nine month period ended September 30, 2016 compared to a foreign exchange gain of $905,123 during the nine month period ended
September 30, 2015. The average exchange rate during the nine month period ended September 30, 2016 was C$1 to US$0.7565 compared
to C$1 to US$0.7936 for the nine month period ended September 30, 2015.
Liquidity Risk and Capital Resources
The Company has no revenue generating operations from which
it can internally generate funds. To date, the Company’s ongoing operations have been predominantly financed through sale
of its equity securities by way of private placements and the subsequent exercise of share purchase and broker warrants and options
issued in connection with such private placements. However, the exercise of warrants/options is dependent primarily on the market
price and overall market liquidity of the Company’s securities at or near the expiry date of such warrants/options (over
which the Company has no control) and therefore there can be no guarantee that any existing warrants/options will be exercised.
There are currently no warrants outstanding.
As at September 30, 2016, the Company had cash and cash equivalents
of $1,759,123 compared to $6,493,486 at December 31, 2015. The decrease of approximately $4.7 million resulted mainly from expenditures
on the Livengood Gold Project of approximately $5.0 million offset by a positive foreign currency translation impact of approximately
$0.3 million.
Financing activities during the nine month period ended September
30, 2016 provided $15,404 on the issuance of common shares as a result of the exercise of stock options. The Company had no cash
flows from financing activities during the nine month period ended September 30, 2015.
The Company had no cash flows from investing activities during
the nine month periods ended September 30, 2016 and 2015.
As at September 30, 2016, the Company had a working capital
deficit of $13,367,057 compared to working capital of $6,169,233 at December 31, 2015. The negative working capital is mainly the
result of the reclassification of the contingent derivative payment to a current liability. The Company expects that it will operate
at a loss for the foreseeable future, but believes the current cash and cash equivalents will be sufficient for it to complete
its anticipated 2016 work plan at the Livengood Gold Project. To advance the Livengood Gold Project towards permitting and development,
the Company anticipates maintaining certain essential development activities for the fiscal year ending December 31, 2016. These
essential activities include maintaining environmental baseline data that in its absence could materially delay future permitting
of the Livengood Gold Project.
Management’s intent is to secure additional financing
if market conditions warrant, or possibly enter into a strategic alliance to continue its operations (including general and administrative
expenses) in connection with advancing activities at the Livengood Gold Project, making the contingent payment due in January 2017,
and the development of any mine that may be determined to be built at the Livengood Gold Project. Although past performance does
not dictate future results, the Company has been successful in raising capital in the past.
There is no assurance that the Company will be able to obtain
the additional financing required on acceptable terms, if at all. As at September 30, 2016, the Company’s estimate of the
amount of the contingent payment is $14,800,000. This contingent payment, which is due in January 2017, significantly exceeds the
Company’s available cash resources, and therefore the Company will be required to secure significant additional financing
on or before January 2017 in order to be able to make this payment. See Note 1 of the notes to the unaudited condensed consolidated
interim financial statements for the period ended September 30, 2016. In addition, any significant delays in the issuance of required
permits for the ongoing work at the Livengood Gold Project, or unexpected results in connection with the ongoing work, could result
in the Company being required to raise additional funds to advance permitting efforts. The Company’s review of its financing
options includes pursuing a future strategic alliance to assist in further development, permitting and future construction costs.
Despite the Company’s success to date in raising significant
equity financing to fund its operations, there is significant uncertainty that the Company will be able to secure any additional
financing in the current or future equity markets. See “Risk Factors – We will require additional financing to fund
exploration and, if warranted, development and production. Failure to obtain additional financing could have a material adverse
effect on our financial condition and results of operation and could cast uncertainty on our ability to continue as a going concern”
in Part I, Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, 2015. Even if the Company is
able to secure some additional equity financing, the Company may be unable to raise enough capital to both make the contingent
payment and continue its operations in connection with advancing all activities at the Livengood Gold Project into 2017 and beyond.
The quantity of funds to be raised and the terms of any proposed equity financing that may be undertaken will be negotiated by
management as opportunities to raise funds arise. Specific plans related to the use of proceeds will be devised once financing
has been completed and management knows what funds will be available for these purposes. Due to this uncertainty, if the Company
is unable to secure sufficient additional financing, it may be unable to make the contingent payment when due, and the Company
may be required to reduce all discretionary activities at the Project to preserve its working capital to fund anticipated non-discretionary
expenditures for the remainder of the 2016 fiscal year.
Other than cash held by its subsidiaries for their immediate
operating needs in the United States, all of the Company’s cash reserves are on deposit with a major Canadian chartered bank.
The Company does not believe that the credit, liquidity or market risks with respect thereto have increased as a result of the
current market conditions.
Contractual Obligations
The following table discloses, as of September 30, 2016, the
Company’s contractual obligations including anticipated mineral property payments and work commitments. Under the terms of
the Company’s mineral property purchase agreements, mineral leases and the terms of the unpatented mineral claims held by
it, the Company is required to make certain scheduled acquisition payments, incur certain levels of expenditures, make lease or
advance royalty payments, make payments to government authorities and incur assessment work expenditures as summarized in the table
below in order to maintain and preserve the Company’s interests in the related mineral properties. If the Company is unable
or unwilling to make any such payments or incur any such expenditure, it is likely that the Company would lose or forfeit its rights
to acquire or hold the related mineral properties. The following table assumes that the Company retains the rights to all of its
current mineral properties, but does not exercise any lease purchase or royalty buyout options:
|
|
Payments Due in Calendar Year
|
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021 and beyond
|
|
|
Total
|
|
Livengood Property Purchase
(1)
|
|
$
|
-
|
|
|
$
|
14,800,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
14,800,000
|
|
Mineral Property Leases
(2)
|
|
|
-
|
|
|
|
421,850
|
|
|
|
426,903
|
|
|
|
432,032
|
|
|
|
442,237
|
|
|
|
447,521
|
|
|
|
2,170,543
|
|
Mining Claim Government Fees
|
|
|
-
|
|
|
|
114,925
|
|
|
|
114,925
|
|
|
|
114,925
|
|
|
|
114,925
|
|
|
|
114,925
|
|
|
|
574,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
-
|
|
|
$
|
15,336,775
|
|
|
$
|
541,828
|
|
|
$
|
546,957
|
|
|
$
|
557,162
|
|
|
$
|
562,446
|
|
|
$
|
17,545,168
|
|
|
1.
|
The amount payable on January 12, 2017 of $14,800,000 represents the fair value of the Company’s derivative liability
as at September 30, 2016 and will be revalued at each subsequent reporting period.
|
|
2.
|
Does not include required work expenditures, as it is assumed that the required expenditure level is significantly below the
level of work that will actually be carried out by the Company. Does not include potential royalties that may be payable (other
than annual minimum royalty payments).
|
Other – Related Party Transactions
In December 2011, in accordance with a Stock and Asset Purchase
Agreement (the “Agreement”) between the Company, Alaska/Nevada Gold Mines, Ltd. (“AN Gold Mines”) and the
Heflinger Group, the Company acquired certain mining claims and related rights in the vicinity of the Livengood Gold Project located
near Fairbanks, Alaska. The Company’s derivative liability, as described in Note 6 of the financial statements for the period
ended September 30, 2016, represents the remaining consideration for the purchase of these claims and related rights and is payable
in January 2017. Under the Agreement, the payment is due 70% to AN Gold Mines and 30% to the Heflinger Group.
Mr. Hanneman was appointed Chief Operating Officer of the Company
on March 26, 2015. Mr. Hanneman is a partner of the general partner, as well as a limited partner, of AN Gold Mines and holds an
11.9% net interest in AN Gold Mines.
Off-Balance Sheet Arrangements
The Company does not have any off balance sheet arrangements.
Environmental Regulations
The operations of the Company may in the future be affected
from time to time in varying degrees by changes in environmental regulations, including those for future removal and site restoration
costs. Both the likelihood of new regulations and their overall effect upon the Company vary greatly and are not predictable. The
Company’s policy is to meet or, if possible, surpass standards set by relevant legislation by application of technically
proven and economically feasible measures.
Certain U.S. Federal Income Tax Considerations for U.S. Holders
The Company has been a “passive foreign investment company” (“PFIC”) for U.S. federal income tax purposes
in recent years and expects to continue to be a PFIC in the future. Current and prospective U.S. shareholders should consult
their tax advisors as to the tax consequences of PFIC classification and the U.S. federal tax treatment of PFICs. Additional
information on this matter is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015,
under “Part II. Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities - Certain U.S. Federal Income Tax Considerations for U.S. Holders.”