Indicate by check mark
if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark
if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes
x
No
¨
Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
x
No
¨
Indicate by check mark
if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
x
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act.
Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
o
No
x
Based on the last sale
price on the NYSE MKT of the registrant’s Common Shares on June 30, 2016 (the last business day of the registrant’s
most recently completed second fiscal quarter) of $0.88 per share, the aggregate market value of the voting stock held by non-affiliates
of the registrant was approximately $61,282,537.
As of March 9, 2017, the
registrant had 162,186,972 Common Shares outstanding.
To the extent specifically
referenced in Part III, portions of the registrant’s definitive Proxy Statement on Schedule 14A to be filed with the Securities
and Exchange Commission in connection with the registrant’s 2017 Annual Meeting of Shareholders are incorporated by reference
into this report.
International Tower Hill Mines Ltd. (“we”,
“us”, “our,” “ITH” or the “Company”) is a mineral exploration company engaged
in the acquisition and exploration of mineral properties. As used in this Annual Report on Form 10-K, the terms “mineral
reserve”, “proven mineral reserve” and “probable mineral reserve” are Canadian mining terms as defined
in accordance with Canadian National Instrument 43-101—Standards of Disclosure for Mineral Projects (“NI 43-101”)
and the Canadian Institute of Mining, Metallurgy and Petroleum (the “CIM”)—CIM Definition Standards on Mineral
Resources and Mineral Reserves, adopted by the CIM Council, as amended. These definitions differ from the definitions in the United
States Securities and Exchange Commission (“SEC”) Industry Guide 7 (“SEC Industry Guide 7”). Under SEC
Industry Guide 7 standards, a “final” or “bankable” feasibility study is required to report reserves,
the three-year historical average price is used in any reserve or cash flow analysis to designate reserves, and the primary environmental
analysis or report must be filed with the appropriate governmental authority. In addition, the terms “mineral resource”,
“measured mineral resource”, “indicated mineral resource” and “inferred mineral resource”
are defined in and required to be disclosed by NI 43-101; however, these terms are not defined terms under SEC Industry Guide
7 and are normally not permitted to be used in reports and registration statements filed with the SEC. Investors are cautioned
not to assume that all or any part of a mineral deposit in these categories will ever be converted into reserves.
“Inferred mineral resources”
have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It
cannot be assumed that all, or any part, of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian
rules, estimates of inferred mineral resources may not form the basis of feasibility or pre-feasibility studies, except in rare
cases. Investors are cautioned not to assume that all or any part of an inferred mineral resource exists or is economically or
legally mineable.
Disclosure of “contained ounces”
in a resource is permitted disclosure under Canadian regulations; however, the SEC normally only permits issuers to report mineralization
that does not constitute “reserves” by SEC standards as in place tonnage and grade without reference to unit measures.
Accordingly, information contained in this report and the documents incorporated by reference herein contain descriptions of our
mineral deposits that may not be comparable to similar information made public by U.S. companies subject to the reporting and
disclosure requirements under the United States federal securities laws and the rules and regulations thereunder.
The term “mineralized material”
as used in this Annual Report on Form 10-K, although permissible under SEC Industry Guide 7, does not indicate “reserves”
by SEC Industry Guide 7 standards. We cannot be certain that any part of the mineralized material will ever be confirmed or converted
into SEC Industry Guide 7 compliant “reserves”. Investors are cautioned not to assume that all or any part of the
mineralized material will ever be confirmed or converted into reserves or that mineralized material can be economically or legally
extracted.
The Company currently holds or has the
right to acquire interests in an advanced stage exploration project in Alaska referred to as the Livengood Gold Project (the “Livengood
Gold Project” or the “Project”). Mineral resources that are not mineral reserves have no demonstrated economic
viability. The preliminary assessments on the Project are preliminary in nature and include “inferred mineral resources”
that have a great amount of uncertainty as to their existence, and are considered too speculative geologically to have economic
considerations applied to them that would enable them to be categorized as mineral reserves. It cannot be assumed that all, or
any part, of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred
mineral resources may not form the basis of feasibility or pre-feasibility studies. There is no certainty that such inferred mineral
resources at the Project will ever be realized. Investors are cautioned not to assume that all or any part of an inferred mineral
resource exists or is economically or legally mineable.
This Annual Report on Form 10-K contains
forward-looking statements or information within the meaning of the United States Private Securities Litigation Reform Act of
1995 concerning anticipated results and developments in the operations of the Company in future periods, planned exploration activities,
the adequacy of the Company’s financial resources and other events or conditions that may occur in the future. Forward-looking
statements are frequently, but not always, identified by words such as “expects,” “anticipates,” “believes,”
“intends,” “estimates,” “potential,” “possible” and similar expressions, or statements
that events, conditions or results “will,” “may,” “could” or “should” (or the
negative and grammatical variations of any of these terms) occur or be achieved. These forward looking statements may include,
but are not limited to, statements concerning:
Such forward-looking statements reflect
the Company’s current views with respect to future events and are subject to certain known and unknown risks, uncertainties
and assumptions. Many factors could cause actual results, performance or achievements to be materially different from any future
results, performance or achievements that may be expressed or implied by such forward-looking statements, including, among others:
Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein.
This list is not exhaustive of the factors that may affect any of the Company’s forward-looking statements. Forward-looking
statements are statements about the future and are inherently uncertain, and actual achievements of the Company or other future
events or conditions may differ materially from those reflected in the forward-looking statements due to a variety of risks, uncertainties
and other factors, including without limitation those discussed in Part I, Item 1A, Risk Factors, of this Annual Report on Form
10-K, which are incorporated herein by reference, as well as other factors described elsewhere in this report and the Company’s
other reports filed with the SEC.
The Company’s forward-looking statements
contained in this Annual Report on Form 10-K are based on the beliefs, expectations and opinions of management as of the date
of this report. The Company does not assume any obligation to update forward-looking statements if circumstances or management’s
beliefs, expectations or opinions should change, except as required by law. For the reasons set forth above, investors should
not attribute undue certainty to or place undue reliance on forward-looking statements.
This Annual Report on Form 10-K contains
information with respect to adjacent or similar mineral properties in respect of which the Company has no interest or rights to
explore or mine. Readers are cautioned that the Company has no interest in or right to acquire any interest in any such properties,
and that mineral deposits on adjacent or similar properties, and any results of the mining or exploitation thereof, are not indicative
of mineral deposits on the Company’s properties, or any potential results of the mining or exploitation thereof.
In this Annual Report on Form 10-K,
unless the context otherwise requires, the terms "we", "us", "our", "ITH", "International
Tower Hill", the "Company" or the "Corporation" refer to International Tower Hill Mines Ltd. and its
subsidiaries.
All dollar amounts in this Annual Report
on Form 10-K are presented in United States dollars unless otherwise stated. References to C$ refer to Canadian currency.
PART I
ITEM 1. BUSINESS
Overview
ITH is a mineral exploration company engaged
in the acquisition and exploration of mineral properties. The Company currently holds or has the right to acquire interests in
an advanced stage exploration project in Alaska referred to as the “Livengood Gold Project” or the “Project”.
The Company is in the process of optimizing the Livengood Gold Project as discussed below. The Company has not yet begun preparation
for the extraction of mineralization from the deposit or reached commercial production. The Company controls 100% of the Livengood
Gold Project, which has a current (as at August 26, 2016) mineral resource of 497 million measured tonnes at an average grade
of 0.68 g/tonne (10.84 million ounces), 28 million indicated tonnes at an average grade of 0.69 g/tonne (0.62 million ounces)
and 53 million inferred tonnes at an average grade of 0.66 g/tonne (1.1 million ounces). In 2016 the Company issued the results
of a pre-feasibility study that was summarized in the October 2016 Study which converted a portion of the mineral resources at
the Project into proven reserves of 378 million tonnes at an average grade of 0.71 g/tonne (8.62 million ounces) and probable
reserves of 14 million tonnes at an average grade of 0.72 g/tonne (353,000 ounces) based on a gold price of $1,250 per ounce.
All work presently planned by the Company is directed at maintaining necessary environmental baseline activities at the Livengood
Gold Project and focusing efforts on Project optimization opportunities, including those identified in the October 2016 Study.
A more complete description of the Livengood Gold Project and the current activities is set forth in Part II, Item 7, Management’s
Discussion and Analysis of Financial Condition and Results of Operations, of this Annual Report on Form 10-K.
Since 2006, the Company has focused primarily
on the acquisition and exploration of mineral properties in Alaska and Nevada by acquiring through staking, purchase, lease or
option (primarily from AngloGold Ashanti (U.S.A.) Exploration Inc. (“AngloGold”) in a transaction which closed on
August 4, 2006) interests in a number of mineral properties in Alaska (Livengood Gold Project, Terra, LMS, BMP, Chisna, Coffee
Dome, West Tanana, Gilles, West Pogo, Caribou, Blackshell and South Estelle) and Nevada (North Bullfrog and Painted Hills) that
it believed had the potential to host large precious or base metal deposits. Some of these, such as the Painted Hills, Gilles,
West Tanana, Caribou and Blackshell properties, were, in light of disappointing exploration results, dropped or returned to the
respective optionors or lessors, and the associated costs written off while others, such as the South Estelle property, have been
sold. Since early 2008, the Company’s primary focus has been the exploration and advancement of the Livengood Gold Project
and the majority of its resources have been directed to that end. In August 2010, ITH undertook a corporate spin-out arrangement
transaction whereby all of its mineral property interests other than the Project were transferred to Corvus and Corvus was spun
out as an independent and separate public company. Following the completion of that transaction, the sole mineral property held
by the Company is the Livengood Gold Project. Since the completion of such transaction, the Company has focused exclusively on
the ongoing exploration and potential development of the Livengood Gold Project.
The head office and principal administrative
address of ITH is located at Suite 2300 – 1177 West Hastings Street, Vancouver, British Columbia, Canada V6E 2K3, and its
registered and records office is located at 1300 – 777 Dunsmuir Street, Vancouver, BC V7Y 1K2.
Recent Developments
Livengood Gold Project
Developments
During the year ended December 31, 2016
and to the date of this Annual Report on Form 10-K, the Company progressed on a number of opportunities for optimization and reducing
the estimated costs of building and operating a mine at the Project. Outside consultants were retained to conduct additional metallurgical
tests and engineering, including confirmation of the flow sheet and optimizing the operating costs. These inputs were used to
prepare the October 2016 Study, which evaluated several scenarios, ultimately selecting a project that will process 52,600 tons
per day and produce 6.8 million ounces of gold over 23 years. This improved configuration has reduced the capital costs (“CAPEX”)
by 34% or $950 million to $1.84 billion, the process operating cost (“process OPEX”) by 28% or $2.97 per ton to $7.48
per ton, and the all-in costs to $1,247 per ounce, all as compared to the 100,000 tons per day project evaluated in the September
2013 Feasibility Study.
Financing
On December 28, 2016, the Company closed
a non-brokered private placement financing through the issuance of 45,833,334 common shares issued at $0.48 per share for gross
proceeds of $22.0 million. Total share issuance costs for this non-brokered private placement financing amounted to $146,735.
The Company has used $14.7 million of the net proceeds for the final payment with respect to acquisition of certain mining claims
and related rights in the vicinity of the Livengood Gold Project, with the balance to be used for continuation of optimization
studies to further improve and de-risk the Project, required environmental baseline studies, and for general working capital purposes.
Management Changes
On January 23, 2017, the ITH Board approved a management transition plan, which was implemented on January 31, 2017, in which
Karl Hanneman, currently the Chief Operating Officer (COO), became the Chief Executive Officer (CEO), managing both the CEO
and COO responsibilities, and Tom Irwin, the previous CEO, transitioned into a part-time position of Senior Advisor prior
to his being considered for nomination to the Board at the Company's May 2017 Annual General Meeting (AGM).
Appointment of Directors
On December 28, 2016, Marcelo Kim was
appointed as an additional director of ITH, and as the Chair of the Board. Mr. Kim is a Partner at Paulson & Co. Inc., the
Company’s major shareholder, where he oversees global natural resource investments. Commencing from the 2017 AGM of the
Company’s shareholders, Paulson & Co. Inc. will have the right to nominate Mr. Kim and one other individual to stand
for election to the Board. Steve Lang, who has served as the Board Chair since January 2014, was appointed as the lead independent
director for the Company upon the appointment of Mr. Kim as Chair.
Other Developments
On January 12, 2017, the Company paid
$14.7 million for the timely and full satisfaction of the final derivative payment due with respect to acquisition of certain
mining claims and related rights in the vicinity of the Livengood Gold Project. On January 17, 2017, the Full Deed of Reconveyance
releasing the Deed of Trust on the acquired property was recorded and the Company now fully owns this property and has no further
liability with respect to this acquisition.
2017 Outlook
On January 23, 2017 the Board approved
a 2017 budget of $6.3 million. The work program incorporated in this budget will seek to build upon the Project improvements announced
with the October 2016 Study, focusing on improving the mineralization and alteration models used to support the resource block
model, evaluating alternative block models for production schedule opportunities, and completion of several phases of metallurgical
work to better define and optimize the flowsheet and recovery parameters. The 2017 work program has been specifically designed
to target those aspects of the Project that could deliver the highest NPV increase for the least expenditure. Preliminary work
on the block model and metallurgical recovery variability indicates a potential NPV benefit of up to $280 million and $100 million
respectively (see section below 2017 Work Program Details). The engineering firm of BBA Inc. (BBA), who provided support for the
2016 Pre-feasibility Study (the “2016 PFS”), will be retained to continue work in the 2017 program. Work is also planned
to advance the environmental baseline efforts needed to support future permitting.
However, the Company cautions that,
until this multi-phase metallurgical program and the updated block model are completed and the results thereof are incorporated
into a revised financial model, there can be no assurance that the overall recovery increases, potential process optimizations,
or block model improvements, will, in fact, be realized, or that any such increases, optimizations or improvements will have the
overall effect suggested above
.
The Company remains open to a strategic
alliance to help support the future development of the Project while considering all other appropriate financing options. The
size of the gold resource, the favorable location, and the proven team are some of the reasons the Company would potentially attract
a strategic partner with a long term development horizon who understands the Project is highly leveraged to gold prices.
Regulatory, Environmental
and Social Matters
All of the Company’s currently proposed
exploration is under the jurisdiction of the State of Alaska. In Alaska, low impact, initial stage surface exploration such as
stream sediment, soil and rock chip sampling does not require any permits. The State of Alaska requires an APMA (Alaska Placer
Mining Application) exploration permit for all substantial surface disturbances such as trenching, road building and drilling.
These permits are also reviewed by related state and federal agencies that can comment and require specific changes to the proposed
work plans to minimize impacts on the environment. The permitting process for significant disturbances generally requires 30 days
for processing and all work must be bonded. The Company currently has all necessary permits with respect to its currently planned
exploration activities in Alaska. Although the Company has never had an issue with the timely processing of APMA permits, there
can be no assurances that delays in permit approval will not occur.
ITH has created a Technical Committee,
which has adopted a formal, written charter. As set out in its charter, the overall purpose of the Technical Committee is to assist
the Board in fulfilling its oversight responsibilities with respect to the Company’s continuing commitment to improving
the environment and ensuring that activities are carried out and facilities are operated and maintained in a safe and environmentally
sound manner that reflects the ideals and principles of sustainable development. The primary function of the Technical Committee
is to monitor, review and provide oversight with respect to the technical aspects of the Company’s projects as well as monitor
policies, standards, accountabilities and programs relative to health, safety, community relations and environmental-related matters.
The Technical Committee also advises the Board and makes recommendations for the Board’s consideration regarding health,
safety, community relations and environmental-related issues.
Although not set out in a specific policy,
the Company strives to be a positive influence in the local communities where its mineral projects are located, not only by contributing
to the welfare of such communities through donations of money and supplies, as appropriate, but also through hiring, when appropriate,
local workers to assist in ongoing exploration programs. The Company considers building and maintaining strong relationships with
such communities to be fundamental to its ability to continue to operate in such regions and to assist in the eventual development
(if any) of mining operations in such regions, and it attaches considerable importance to commencing and fostering such relationships
from the beginning of its involvement in any particular area.
Corporate Structure
ITH was incorporated under the
Company
Act
(British Columbia) under the name “Ashnola Mining Company Ltd.” on May 26, 1978. ITH’s name was changed
to “Tower Hill Mines Ltd.” on June 1, 1988, and subsequently changed to “International Tower Hill Mines Ltd.”
on March 15, 1991. ITH has been transitioned under, and is now governed by, the
Business Corporations Act
(British Columbia).
On November 15, 2005, the shareholders resolved to amend the Company’s Articles to increase its authorized capital from
20,000,000 common shares without par value to 500,000,000 common shares without par value. This increase became effective on April
20, 2006.
ITH has three material subsidiaries:
|
·
|
Tower
Hill Mines, Inc. (“TH Alaska”), a corporation incorporated in Alaska on June
27, 2006, which holds most of the Company’s Alaskan mineral properties and is 100%
owned by ITH;
|
|
·
|
Tower
Hill Mines (US) LLC, a limited liability company formed in Colorado on June 27, 2006,
which carries on the Company’s administrative and personnel functions and is wholly
owned by TH Alaska; and
|
|
·
|
Livengood
Placers, Inc., a corporation incorporated in Nevada on June 11, 1998, which holds certain
Alaskan properties and is 100% owned by TH Alaska.
|
The following corporate chart sets forth
all of ITH’s material subsidiaries:
Segment and Geographical
Information
The Company operates in a single reportable
operating segment, being the exploration and development of mineral properties. The Company’s long-lived assets are geographically
distributed as shown in the following table. The Company did not have revenues from external customers in any of the years shown
below.
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
Canada:
|
|
$
|
8,944
|
|
|
$
|
9,563
|
|
|
$
|
10,477
|
|
United States:
|
|
|
55,219,897
|
|
|
|
55,224,561
|
|
|
|
55,230,692
|
|
Total:
|
|
$
|
55,228,841
|
|
|
$
|
55,234,124
|
|
|
$
|
55,241,169
|
|
Competition
ITH is an exploration stage company. The
Company competes with other mineral resource exploration and development companies for financing, technical expertise and the
acquisition of mineral properties. Many of the companies with whom the Company competes have greater financial and technical resources.
Accordingly, these competitors may be able to spend greater amounts on the acquisition, exploration and development of mineral
properties. This competition could adversely impact the Company’s ability to finance further exploration and to achieve
the financing necessary for the Company to develop its mineral properties.
Availability of Raw
Materials and Skilled Employees
All aspects of the Company’s business
require specialized skills and knowledge. Such skills and knowledge include the areas of geology, drilling, logistical planning,
preparation of feasibility studies, permitting, construction and operation of a mine, financing and accounting. Since commencing
its current operations in mid-2006, the Company has found and retained appropriate employees and consultants and believes it will
continue to be able to do so.
All of the raw materials the Company requires
to carry on its business are readily available through normal supply or business contracting channels in Canada and the United
States. Since commencing exploration activities at the Livengood Gold Project in mid-2006, the Company has been able to secure
the appropriate personnel, equipment and supplies required to conduct its contemplated programs. While it has experienced difficulty
in procuring some equipment, such as drill equipment or services, experienced drillers and timely assay laboratory services in
previous years, the recent overall slowdown in the mineral exploration business has resulted in more equipment and services being
made available on a timely basis. As a result, the Company does not believe that it will experience any shortages of required
personnel, equipment or supplies in the foreseeable future.
Employees
At December 31, 2016, the Company had
10 full-time employees. The Company also uses consultants with specific skills to assist with various aspects of project evaluation,
engineering and corporate governance.
Seasonality
As the Company’s mineral exploration
activity takes place in Alaska, its business is seasonal. Due to the northern climate, exploration work on the Livengood Gold
Project can be limited due to excessive snow cover and cold temperatures. In general, surface sampling work is limited to May
through September and surface drilling from March through November, although some locations afford opportunities for year-round
exploration operations and others, such as road-accessible wetland areas, may only be explored while frozen in the winter.
Available Information
ITH maintains an internet website at www.ithmines.com.
The Company makes available, free of charge, through the Investors section of its website, its Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports filed or furnished pursuant to Section
13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after such material is electronically filed with, or furnished
to, the SEC and its Annual Information Form, press releases and material change reports and other reports filed on the System
for Electronic Document Analysis and Retrieval (SEDAR). The Company’s SEC filings are available from the SEC’s internet
website at www.sec.gov which contains reports, proxy and information statements and other information regarding issuers that file
electronically. These reports, proxy statements and other information may also be inspected and copied at the SEC’s Public
Reference Room at 100 F Street, NE, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the Public Reference Room. The Company’s SEDAR filings are available from SEDAR’s internet website at
www.sedar.com under the Company’s profile. The contents of these websites are not incorporated into this report and the
references to the URLs for these websites are intended to be inactive textual references only.
ITEM 1A. RISK FACTORS
You should carefully consider the following
risk factors in addition to the other information included in this Annual Report on Form 10-K. Each of these risk factors could
materially and adversely affect our business, operating results and financial condition, as well as materially and adversely affect
the value of an investment in our common shares. The risks described below are not the only ones facing the Company. Additional
risks that we are not presently aware of, or that we currently believe are immaterial, may also adversely affect our business,
operating results and financial condition. We cannot assure you that we will successfully address these risks or that other unknown
risks exist that may affect our business.
Risks Related to Our Business
Our success depends on the development
and operation of the Livengood Gold Project, which is our only project and which, as contemplated in the October 2016 Study, is
not commercially viable at current gold prices.
Our only property at this time is our
Livengood Gold Project, which is in the exploration stage. We have issued the October 2016 Study on the Livengood Gold Project
which indicates that the Project generates a minimal positive return at a gold price of $1,250 per ounce. The price of gold is
$1,204 per ounce as of March 13, 2017, and the Project as contemplated in the October 2016 Study is not commercially viable at
current gold prices. While management is exploring opportunities identified in the October 2016 Study, for optimization and reducing
Project costs, there can be no assurance that any such efforts will be successful, that any of the optimization opportunities
or cost savings will in fact be realized or that the price of gold will increase sufficiently to warrant a decision to develop
the Project. If the Project is not developed, or if the Project is otherwise subject to deterioration, destruction or significant
delay, we may never generate revenues and our shareholders may lose most or all of their investment in our common shares.
While we may be successful in outlining
potential optimizations that might improve the economics of the Project, there can be no assurance that any such optimizations
can actually be incorporated into the Project.
While a review of the pre-feasibility
test work to date on the Project indicates that there is the potential to further optimize the specific parameters of the Project,
and that such optimizations may result in lower capital costs and operating costs for the Project, there can be no assurance that,
even if such optimizations can be achieved and shown to have such effect, it will be possible to actually change the scope, size,
scale and parameters of any revised Project configuration to actually incorporate the optimized results. Even if such optimization
testwork shows that optimization will improve capital or operating costs for the Project, it may not be possible to re-scale the
Project so as to take advantage of all or any part of the optimized processes and therefore it may not be possible, in fact, to
derive any benefit from the optimization work or studies carried out.
We have a history of losses and
expect to continue to incur losses in the future.
We have incurred losses and have had no
revenue from operations since inception, and we expect to continue to incur losses in the future. We have not commenced commercial
production on the Livengood Gold Project and we have no other mineral properties. We have no revenues from operations, and we
anticipate we will have no operating revenues and will continue to incur operating losses until such time, if ever, as we place
the Livengood Gold Project into production and such project generates sufficient revenues to fund continuing operations. The Project
is currently in the exploration stage and, as contemplated in the October 2016 Study, is not commercially viable at current gold
prices. Our activities may not result in profitable mining operations and we may not succeed in establishing mining operations
or profitably producing metals at the Livengood Gold Project.
We are an exploration stage company
and have no history producing metals from our properties. Any future revenues and profits are uncertain.
We have no history of mining or refining
any mineral products or metals and the Livengood Gold Project is not currently producing. There can be no assurance that the Livengood
Gold Project will be successfully placed into production, produce minerals in commercial quantities or otherwise generate operating
earnings. Advancing properties from the exploration stage into development and commercial production requires significant capital
and time and will be subject to further feasibility studies, permitting requirements and construction of the mine, processing
plants, roads and related works and infrastructure. We will continue to incur losses until such time, if ever, as our mining activities
successfully reach commercial production levels and generate sufficient revenue to fund continuing operations. There is no certainty
that we will produce revenue from any source, operate profitably or provide a return on investment in the future. If we are unable
to generate revenues or profits, our shareholders might not be able to realize returns on their investment in our common shares.
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.
Advancing properties from exploration
into the development stage requires significant capital and time, and successful commercial production from a property, if any,
will be subject to completing feasibility studies, permitting and construction of the mine, processing plants, roads, and other
related works and infrastructure. The Company does not presently have sufficient financial resources or a source of operating
cash flow to undertake by itself to complete the permitting process and, if a production decision is made, the construction of
a mine at the Livengood Gold Project. The completion of the permitting process, and any construction of a mine at the Livengood
Gold Project following the making of a production decision, will therefore depend upon the Company’s ability to obtain financing
through the sale of its equity securities, enter into a joint venture or strategic alliance relationship, secure significant debt
financing or find alternative means of financing. There is no assurance that the Company will be successful in obtaining the required
financing on favorable terms or at all. Even if the results of exploration are encouraging, the Company may not be able to obtain
sufficient financing to conduct the further exploration that may be necessary to determine whether or not a commercially mineable
deposit exists.
Our ability to obtain additional financing
in the future will depend upon a number of factors, including prevailing capital market conditions, the status of the national
and worldwide economy, our business performance and the price of gold and other precious metals. Capital markets worldwide have
been adversely affected in recent years by substantial losses by financial institutions. Failure to obtain such additional financing
on favorable terms or at all could result in delay or indefinite postponement of further mining operations or exploration and
development and the possible partial or total loss of our interests in the Livengood Gold Project.
We have not yet identified, and
may never identify, commercially viable reserves that would generate revenues.
We are considered an exploration stage
company and will continue to be such until we identify commercially viable reserves on our properties and develop our properties.
We have no producing properties and have never generated any revenue from our operations. We have issued the October 2016 Study
using a gold price of $1,250 per ounce. Based on the October 2016 Study, the Project generates a minimal positive return; however,
the Project is not commercially viable at current gold prices. The majority of exploration projects do not result in the discovery
of commercially mineable deposits of ore. Further exploration and substantial expenditures are required to establish ore reserves
through drilling and metallurgical and other testing techniques, determine metal content and metallurgical recovery processes
to extract metal from the ore, and construct, renovate or expand mining and processing facilities. No assurance can be given that
any level of recovery of ore reserves will be realized or that any identified mineral deposit will ever qualify as a commercial
mineable ore body which can be legally and economically exploited. If we are not able to identify commercially viable mineral
deposits or profitably extract minerals from such deposits, our business would be materially adversely affected and our shareholders
could lose all or a substantial portion of their investment.
Resource exploration is a highly
speculative business, and certain inherent exploration risks could have a negative effect on our business.
Our long-term success depends on our ability
to identify mineral deposits on the Livengood Gold Project and other properties we may acquire, if any, that can then be developed
into commercially viable mining operations. Resource exploration is a highly speculative business and involves a high degree of
risk, including, among other things, unprofitable efforts resulting both from the failure to discover mineral deposits and from
finding mineral deposits which, though present, are insufficient in size and grade at the then prevailing market conditions to
return a profit from production. Substantial expenditures are required to establish proven and probable mineral reserves through
drilling and analysis, to develop metallurgical processes to extract metal, and to develop the mining and processing facilities
and infrastructure at any site chosen for mining. Although substantial benefits may be derived from the discovery of a major mineralized
deposit, no assurance can be given that minerals will be discovered in sufficient quantities to justify commercial operations
or that funds required for development can be obtained on a timely basis. The marketability of minerals which may be acquired
or discovered by the Company will be affected by numerous factors beyond the control of the Company and cannot be accurately predicted.
These factors include market fluctuations, the proximity and capacity of milling facilities, mineral markets and processing equipment,
and government regulations, including regulations relating to prices, taxes, royalties, land use, importing and exporting of minerals
and environmental protection. The exact effect of these factors cannot be accurately predicted, but the combination of these factors
may result in the Company not receiving an adequate return on invested capital.
Mineral resource estimates are based
on interpretation and assumptions and could be inaccurate or yield less mineral production under actual conditions than is currently
estimated. Any material changes in these estimates will affect the economic viability of placing a property into production.
The mineral resource estimates included
in our reports are estimates only and no assurance can be given that any particular level of recovery of minerals will in fact
be realized or that an identified reserve or resource will ever qualify as a commercially mineable (or viable) deposit which can
be legally and economically exploited. The estimating of mineral resources and mineral reserves is a subjective process and the
accuracy of mineral resource and mineral reserve estimates is a function of the quantity and quality of available data, the accuracy
of statistical computations, and the assumptions used and judgments made in interpreting available engineering and geological
information. There is significant uncertainty in any mineral resource or mineral reserve estimate and the actual deposits encountered
and the economic viability of a deposit may differ materially from the Company’s estimates. In addition, the grade of mineralization
ultimately mined may differ from that indicated by drilling results and such differences could be material. Because we have not
commenced actual production, mineralization estimates, including mineral resource estimates, for the Livengood Gold Project may
require adjustments or downward revisions, and such adjustments or revisions may be material.
Until ore is actually mined and processed,
mineral resources, mineral reserves and grades of mineralization must be considered as estimates only. The grade of ore ultimately
mined, if any, may differ from that indicated by any pre-feasibility or definitive feasibility studies and drill results. There
can be no assurance that minerals recovered in small scale laboratory tests will be duplicated in large scale tests under on-site
conditions or in production scale operations. Extended declines in market prices for gold may render portions or all of our mineral
resources uneconomic and result in reduced reported mineralization or adversely affect the commercial viability determinations
reached by us. Material changes in estimates of mineralization, grades, stripping ratios, recovery rates or of our ability to
extract such mineralization may affect the economic viability of projects and the value of our Livengood Gold Project. The estimated
resources described in our reports should not be interpreted as assurances of mine life or of the profitability of future operations.
Estimated mineral resources and mineral reserves may have to be re-estimated based on changes in applicable commodity prices,
further exploration or development activity or actual production experience. This could materially and adversely affect estimates
of the volume or grade of mineralization, estimated recovery rates or other important factors that influence mineral resource
or mineral reserve estimates. Market price fluctuations for gold, silver or base metals, increased production costs or reduced
recovery rates or other factors may render any particular reserves uneconomical or unprofitable to develop at a particular site
or sites. A reduction in estimated reserves could require material write downs in investment in the affected mining property and
increased amortization, reclamation and closure charges.
Mineral resources are not mineral reserves and there is no assurance
that any mineral resources will ultimately be reclassified as proven or probable reserves. Mineral resources which are not mineral
reserves do not have demonstrated economic viability.
There are differences in U.S. and
Canadian practices for reporting reserves and resources.
Our reserve and resource estimates are
not directly comparable to those made in filings subject to SEC reporting and disclosure requirements, as we report reserves and
resources in accordance with Canadian practices. These practices are different from the practices used to report reserve and resource
estimates in reports and other materials filed with the SEC. It is Canadian practice to report measured, indicated and inferred
mineral resources (and in certain circumstances, deposits that are not measured, indicated or inferred mineral resources but that
are targeted for further exploration), which are generally not permitted in disclosure filed with the SEC by U.S. issuers. In
the United States and in Canada, mineralization may not be classified as a “reserve” unless the determination has
been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination
is made. U.S. investors are cautioned not to assume that all or any part of measured, indicated or inferred mineral resources
will ever be converted into reserves.
Further, “inferred mineral resources”
have a great amount of uncertainty as to their existence and as to whether they can be mined legally or economically. Disclosure
of “contained ounces” is permitted disclosure under Canadian regulations; however, the SEC only permits issuers to
report “resources” as in place, tonnage and grade without reference to unit measures.
Accordingly, information concerning descriptions
of mineralization, reserves and resources contained in our reports may not be comparable to information made public by U.S. companies
subject to the reporting and disclosure requirements of the SEC.
Increased costs could affect our
ability to bring our projects into production and, once in production, our financial condition and ability to be profitable.
Management anticipates that costs at the
Livengood Gold Project will frequently be subject to variation from one year to the next due to a number of factors, such as changing
ore grade, metallurgy and revisions to mine plans, if any, in response to the physical shape and location of the ore body. In
addition, costs are affected by the price of commodities such as fuel, rubber and electricity. Such commodities are at times subject
to volatile price movements, including increases that could make production less profitable or not profitable at all. A material
increase in costs could also impact our ability to maintain operations and have a significant effect on the Company’s profitability.
The volatility of the price of gold
could adversely affect our future operations and, if warranted, our ability to develop our properties
.
Even if commercial quantities of mineral
deposits are discovered by the Company, there is no guarantee that a profitable market will exist for the sale of the metals produced,
if any. The Company’s long-term viability and profitability, the value of the Company’s properties, the market price
of its common shares and the Company’s ability to raise funding to conduct continued exploration and development, if warranted,
depend, in large part, upon the market price of gold. The decision to put a mine into production and to commit the funds necessary
for that purpose must be made long before the first revenue from production would be received. A decrease in the price of gold
may prevent the Company’s property from being economically mined or result in the write-off of assets whose value is impaired
as a result of lower gold prices.
The price of gold has experienced significant
movement over short periods of time, and is affected by numerous factors beyond the control of the Company, including economic
and political conditions, expectations of inflation, currency exchange fluctuations, interest rates, global or regional demand,
sale or purchase of gold by various central banks and financial institutions, speculative activities and increased production
due to improved mining and production methods. The volatility of mineral prices represents a substantial risk which no amount
of planning or technical expertise can fully eliminate. There can be no assurance that the price of gold will be such that any
such deposits can be mined at a profit. The volatility in gold prices is illustrated by the following table, which presents the
high, low and average fixed price in U.S. dollars for an ounce of gold, based on the London Bullion Market Association P.M.
fix, over the past five years:
|
|
High
|
|
|
Low
|
|
|
Average
|
|
2012
|
|
$
|
1,792
|
|
|
$
|
1,540
|
|
|
$
|
1,669
|
|
2013
|
|
$
|
1,694
|
|
|
$
|
1,192
|
|
|
$
|
1,410
|
|
2014
|
|
$
|
1,385
|
|
|
$
|
1,142
|
|
|
$
|
1,266
|
|
2015
|
|
$
|
1,296
|
|
|
$
|
1,049
|
|
|
$
|
1,159
|
|
2016
|
|
$
|
1,366
|
|
|
$
|
1,077
|
|
|
$
|
1,250
|
|
January 1, 2017 to March 13, 2017
|
|
$
|
1,257
|
|
|
$
|
1,151
|
|
|
$
|
1,214
|
|
Our results of operations could
be affected by currency fluctuations.
The Livengood Gold Project is located
in the United States, with most costs associated with the Project paid in U.S. dollars, and the Company maintains its accounts
in Canadian and U.S. dollars, making it subject to foreign currency fluctuations. There can be significant swings in the exchange
rate between the U.S. and Canadian dollar. There are no plans at this time to hedge against any exchange rate fluctuations in
currencies. Adverse foreign currency fluctuations may cause losses and materially affect the Company’s financial position
and results.
Resource exploration, development
and production involve a high degree of risk and we do not maintain insurance with respect to certain of these risks, which exposes
us to significant risk of loss.
Resource exploration, development and
production involve a high degree of risk. Our operations are, and any future development or mining operations we may conduct will
be, subject to all of the operating hazards and risks normally incident to exploring for and development of mineral properties,
such as, but not limited to:
|
·
|
economically
insufficient mineralized material;
|
|
·
|
fluctuation
in exploration, development and production costs;
|
|
·
|
unanticipated
variations in grade and other geologic problems;
|
|
·
|
difficult
surface or underground conditions;
|
|
·
|
mechanical
and equipment failure;
|
|
·
|
failure
of pit walls or dams;
|
|
·
|
metallurgical
and other processing problems;
|
|
·
|
unusual
or unexpected rock formations;
|
|
·
|
personal
injury, cave-ins, landslides, flooding, fire, explosions, and rock-bursts;
|
|
·
|
periodic
interruptions due to inclement or hazardous weather conditions; and
|
|
·
|
decrease
in the value of mineralized material due to lower gold prices.
|
These risks could result in damage to,
or destruction of, mineral properties, facilities or other property, personal injury, environmental damage, delays in operations,
increased cost of operations, monetary losses and possible legal liability. Although the Company maintains or can be expected
to maintain insurance within ranges of coverage consistent with industry practice, no assurance can be given that the Company
will be able to obtain insurance to cover all of these risks at economically feasible premiums or at all. The Company may elect
not to insure where premium costs are disproportionate to the Company’s perception of the relevant risks. The payment of
such insurance premiums and of such liabilities would reduce the funds available for exploration and production activities, if
warranted. Should events such as these that are not covered by insurance arise, they could reduce or eliminate our assets and
shareholder equity as well as result in increased costs and a decline in the value of our assets or common shares.
We may not be able to obtain all
required permits and licenses to place any of our properties into production.
The current and future operations of the
Company require licenses and permits from various governmental authorities. There can be no assurance that the Company will be
able to obtain all necessary licenses and permits that may be required to carry out exploration, development and mining operations
at its projects, on reasonable terms or at all. Costs related to applying for and obtaining permits and licenses may be prohibitive
and could delay our planned exploration and development activities. Failure to comply with permitting requirements may result
in enforcement actions, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed,
and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions.
Delays in obtaining, or a failure to obtain, any such licenses and permits, or a failure to comply with the terms of any such
licenses and permits that the Company does obtain, could delay or prevent production of the Livengood Gold Project and have a
material adverse effect on the Company.
Title to the Livengood Gold Project
may be subject to defects in title or other claims, which could affect our property rights and claims.
There are risks that title to the Livengood
Gold Project may be challenged or impugned. The Livengood Gold Project is located in the State of Alaska and may be subject to
prior unrecorded agreements or transfers or native land claims, and title may be affected by undetected defects. There may be
valid challenges to the title of the Livengood Gold Project which, if successful, could impair development or operations. This
is particularly the case in respect of those portions of our properties in which we hold our interest solely through a lease with
the claim holders, as such interest is substantially based on contract and has been subject to a number of assignments (as opposed
to a direct interest in the property).
Some of the mining claims at the Livengood
Gold Project are U.S. federal or Alaska state “unpatented” mining claims. There is a risk that a portion of such unpatented
mining claims could be determined to be invalid, in which case the Company could lose the right to mine any minerals contained
within those mining claims. Unpatented mining claims are created and maintained in accordance with the applicable U.S. federal
and Alaska state mining laws. Unpatented mining claims are unique property interests and are generally considered to be subject
to greater title risk than other real property interests due to the validity of unpatented mining claims often being uncertain.
This uncertainty arises, in part, out of the complex federal and state laws and regulations under the provisions of the U.S.
General
Mining Law of 1872
(the “Mining Law”). Unpatented mining claims are always subject to possible challenges of third
parties or validity contests by the United States federal government or the Alaska state government, as applicable. The validity
of an unpatented mining claim, in terms of both its location and its maintenance, is dependent on strict compliance with a complex
body of federal and state statutory and decisional law. Title to the unpatented mining claims may also be affected by undetected
defects such as unregistered agreements or transfers and there are few public records that definitively determine the issues of
validity and ownership of unpatented mining claims. The Company has not obtained full title opinions for the majority of its mineral
properties. Not all the mineral properties in which the Company has an interest have been surveyed, and their actual extent and
location may be in doubt. Should the federal government impose a royalty or additional tax burdens on the properties that lie
within public lands, the resulting mining operations could be seriously impacted, depending upon the type and amount of the burden.
The leases and agreements pursuant to
which the Company has interests, or the right to acquire interests, in a significant portion of the Livengood Gold Project provide
that the Company must make a series of cash payments over certain time periods or expend certain minimum amounts on the exploration
of the properties. Failure by the Company to make such payments or make such expenditures in a timely fashion may result in the
Company losing its interest in such properties. There can be no assurance that the Company will have, or be able to obtain, the
necessary financial resources to be able to maintain all of its property agreements in good standing, or to be able to comply
with all of its obligations thereunder, which could result in the Company forfeiting its interest in one or more of its mineral
properties.
The Company may not have and may
not be able to obtain surface or access rights to all or a portion of the Livengood Gold Project.
Although the Company acquires the rights
to some or all of the minerals in the ground subject to the mineral tenures that it acquires, or has a right to acquire, in most
cases it does not thereby acquire any rights to, or ownership of, the surface to the areas covered by its mineral tenures. In
such cases, applicable mining laws usually provide for rights of access to the surface for the purpose of carrying on mining activities,
however, the enforcement of such rights through the courts can be costly and time consuming. It is necessary to negotiate surface
access or to purchase the surface rights if long-term access is required. There can be no guarantee that, despite having the right
at law to access the surface and carry on mining activities, the Company will be able to negotiate satisfactory agreements with
any such existing landowners/occupiers for such access or purchase such surface rights, and therefore it may be unable to carry
out planned exploration or mining activities. In addition, in circumstances where such access is denied, or no agreement can be
reached, the Company may need to rely on the assistance of local officials or the courts in such jurisdiction the outcomes of
which cannot be predicted with any certainty. The inability of the Company to secure surface access or purchase required surface
rights could materially and adversely affect the timing, cost or overall ability of the Company to develop any mineral deposits
it may locate.
Our properties and operations may
be subject to litigation or other claims.
From time to time our properties or operations
may be subject to disputes which may result in litigation or other legal claims. We may be required to assert or defend against
these claims which will divert resources and management time from operations. The costs of these claims or adverse filings may
have a material effect on our business and results of operations.
We are subject to significant governmental
regulations which affect our operations and costs of conducting our business.
Any exploration activities carried on
by the Company are, and any future development or mining operations we may conduct will be, subject to extensive laws and regulations
governing various matters, including:
|
·
|
mineral
concession acquisition, exploration, development, mining and production;
|
|
·
|
management
of natural resources;
|
|
·
|
exports,
price controls, taxes and fees;
|
|
·
|
labor
standards on occupational health and safety, including mine safety;
|
|
·
|
post-closure
reclamation;
|
|
·
|
environmental
standards, waste disposal, toxic substances, explosives, land use and environmental protection;
and
|
|
·
|
dealings
with indigenous peoples and historic and cultural preservation.
|
Companies engaged in exploration activities
often experience increased costs and delays in production and other schedules as a result of the need to comply with applicable
laws, regulations and permits. Failure to comply with applicable laws, regulations and permits may result in civil or criminal
fines or penalties, enforcement actions thereunder, including the forfeiture of claims, orders issued by regulatory or judicial
authorities requiring operations to cease or be curtailed, and may include corrective measures requiring capital expenditures,
installation of additional equipment or costly remedial actions, any of which could result in the Company incurring significant
expenditures. The Company may also be required to compensate third parties suffering loss or damage as a result of our mineral
exploration activities and may have civil or criminal fines or penalties imposed for violations of such laws, regulations and
permits.
It is also possible that future laws and
regulations could cause additional expense, capital expenditures, restrictions on or suspension of the Company’s operations
and delays in the exploration and development of the Company’s properties.
Legislation has been proposed that
would significantly affect the mining industry and our business.
In recent years, members of the United
States Congress have repeatedly introduced bills which would supplant or alter the provisions of the Mining Law. If adopted, such
legislation, among other things, could eliminate or greatly limit the right to a mineral patent, impose federal royalties on mineral
production from unpatented mining claims located on United States federal lands (which includes certain of the mining claims at
the Livengood Gold Project), result in the denial of permits to mine after the expenditure of significant funds for exploration
and development, reduce estimates of mineral reserves and reduce the amount of future exploration and development activity on
U.S. federal lands, all of which could have a material and adverse effect on the Company’s ability to operate and its cash
flow, results of operations and financial condition.
Our activities are subject to environmental
laws and regulations that may increase our costs of doing business and restrict our operations.
The activities of the Company are subject
to environmental regulations in the jurisdictions in which we operate. Environmental legislation generally provides for restrictions
and prohibitions on spills, releases or emissions into the air, discharges into water, management of waste, management of hazardous
substances, protection of natural resources, antiquities and endangered species and reclamation of lands disturbed by mining operations.
Certain types of operations require the submission and approval of environmental impact assessments. Environmental legislation
is evolving in a manner involving stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent
environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors
and employees. Compliance with environmental laws and regulations and future changes in these laws and regulations may require
significant capital outlays, cause material changes or delays in our current and planned operations and future activities and
reduce the profitability of operations. It is possible that future changes in these laws or regulations could have a significant
adverse impact on the Livengood Gold Project or some portion of our business, causing us to re-evaluate those activities at that
time.
Examples of current U.S. federal laws
which may affect our current operations and may impact future business and operations include, but are not limited to, the following:
The Comprehensive Environmental, Response,
Compensation, and Liability Act (“CERCLA”), and comparable state statutes, impose strict, joint and several liability
on current and former owners and operators of sites and on persons who disposed of or arranged for the disposal of hazardous substances
found at such sites. It is not uncommon for the government to file claims requiring cleanup actions, demands for reimbursement
for government-incurred cleanup costs, or natural resource damages, or for neighboring landowners and other third parties to file
claims for personal injury and property damage allegedly caused by hazardous substances released into the environment. The Federal
Resource Conservation and Recovery Act (“RCRA”), and comparable state statutes, govern the disposal of solid waste
and hazardous waste and authorize the imposition of substantial fines and penalties for noncompliance, as well as requirements
for corrective actions. CERCLA, RCRA and comparable state statutes can impose liability for clean-up of sites and disposal of
substances found on exploration, mining and processing sites long after activities on such sites have been completed.
The Clean Air Act (“CAA”)
restricts the emission of air pollutants from many sources, including mining and processing activities. Our mining operations
may produce air emissions, including fugitive dust and other air pollutants from stationary equipment, storage facilities and
the use of mobile sources such as trucks and heavy construction equipment, which are subject to review, monitoring or control
requirements under the CAA and state air quality laws. New facilities may be required to obtain permits before work can begin,
and existing facilities may be required to incur capital costs in order to remain in compliance. In addition, permitting rules
may impose limitations on our production levels or result in additional capital expenditures in order to comply with the regulations.
The National Environmental Policy Act
(“NEPA”) requires federal agencies to integrate environmental considerations into their decision-making processes
by evaluating the environmental impacts of their proposed actions, including issuance of permits to mining facilities, and assessing
alternatives to those actions. If a proposed action could significantly affect the environment, the agency must prepare a detailed
statement known as an Environmental Impact Statement (“EIS”). The U.S. Environmental Protection Agency (“EPA”),
other federal agencies, and any interested third parties will review and comment on the scoping of the EIS and the adequacy of
and findings set forth in the draft and final EIS. We are required to undertake the NEPA process for the Livengood Gold Project
permitting. The NEPA process can cause delays in issuance of required permits or result in changes to a project to mitigate its
potential environmental impacts, which can in turn impact the economic feasibility of a proposed project or the ability to construct
or operate the Livengood Gold Project or other properties and may make them entirely uneconomic.
The Clean Water Act (“CWA”),
and comparable state statutes, impose restrictions and controls on the discharge of pollutants into waters of the United States.
The discharge of pollutants into regulated waters is prohibited, except in accordance with the terms of a permit issued by the
EPA or an analogous state agency. The CWA regulates storm water mining facilities and requires a storm water discharge permit
for certain activities. Such a permit requires the regulated facility to monitor and sample storm water run-off from its operations.
The CWA and regulations implemented thereunder also prohibit discharges of dredged and fill material in wetlands and other waters
of the United States unless authorized by an appropriately issued permit. The CWA and comparable state statutes provide for civil,
criminal and administrative penalties for unauthorized discharges of pollutants and impose liability on parties responsible for
those discharges for the costs of cleaning up any environmental damage caused by the release and for natural resource damages
resulting from the release.
The Safe Drinking Water Act (“SDWA”)
and the Underground Injection Control (“UIC”) program promulgated thereunder, regulate the drilling and operation
of subsurface injection wells. The EPA directly administers the UIC program in some states and in others the responsibility for
the program has been delegated to the state. The program requires that a permit be obtained before drilling a disposal or injection
well. Violation of these regulations or contamination of groundwater by mining related activities may result in fines, penalties,
and remediation costs, among other sanctions and liabilities under the SDWA and state laws. In addition, third party claims may
be filed by landowners and other parties claiming damages for alternative water supplies, property damages, and bodily injury.
Regulations and pending legislation
governing issues involving climate change could result in increased operating costs, which could have a material adverse effect
on our business.
A number of governments or governmental
bodies have introduced or are contemplating regulatory changes in response to various climate change interest groups and the potential
impact of climate change. Legislation and increased regulation regarding climate change could impose significant costs on us,
our future partners and our suppliers, including costs related to increased energy requirements, capital equipment, environmental
monitoring and reporting and other costs to comply with such regulations. Any adopted future climate change regulations could
also negatively impact our ability to compete with companies situated in areas not subject to such limitations. Given the emotion,
political significance and uncertainty around the impact of climate change and how it should be dealt with, we cannot predict
how legislation and regulation will affect our financial condition, operating performance and ability to compete. Furthermore,
even without such regulation, increased awareness and any adverse publicity in the global marketplace about potential impacts
on climate change by us or other companies in our industry could harm our reputation. The potential physical impacts of climate
change on our operations are highly uncertain and would be particular to the geographic circumstances in areas in which we operate.
These may include changes in rainfall and storm patterns and intensities, water shortages, changing sea levels and changing temperatures.
These impacts may adversely impact the cost, production and financial performance of our operations.
Land reclamation requirements for
our properties may be burdensome and expensive in the future.
Land reclamation requirements are generally
imposed on mineral exploration companies (as well as companies with mining operations) in order to minimize long term effects
of land disturbance. Reclamation may include requirements to:
|
·
|
control
dispersion of potentially deleterious effluents;
|
|
·
|
treat
ground and surface water to drinking water standards; and
|
|
·
|
reasonably
re-establish pre-disturbance land forms and vegetation.
|
In order to carry out reclamation obligations
imposed on us in connection with the potential development activities at the Livengood Gold Project, we must allocate financial
resources that might otherwise be spent on further exploration and development programs. We plan to set up a provision for reclamation
obligations on the Livengood Gold Project, as appropriate, but this provision may not be adequate. If we are required to carry
out unanticipated reclamation work, our financial position could be adversely affected.
The mining industry is intensely
competitive, and we have limited financial and personnel resources with which to compete
.
The Company’s business of the acquisition,
exploration and development, if warranted, of mineral properties is intensely competitive. The Company may be at a competitive
disadvantage in acquiring additional mining properties because it must compete with other individuals and companies, many of which
may have greater financial resources, operational experience and technical capabilities than the Company. The Company may also
encounter increasing competition from other mining companies in efforts to hire experienced mining professionals. Increased competition
could adversely affect the Company’s ability to attract necessary capital funding, acquire suitable producing properties
or prospects for mineral exploration in the future, or attract or retain key personnel or outside technical resources.
A shortage of equipment and supplies
could adversely affect our ability to operate our business
.
We are dependent on various supplies and
equipment to carry out our exploration and, if warranted, development and mining operations. The shortage of such supplies, equipment
and parts could have a material adverse effect on our ability to carry out our operations and therefore limit or increase the
cost of production.
We are dependent on key personnel
and the absence of any of these individuals could adversely affect our business. We may experience difficulty attracting and retaining
qualified personnel.
Our success is largely dependent on the
performance and abilities of our directors, officers, employees and management and on our ability to attract and retain additional
key personnel in exploration, mine development, sales, marketing, technical support and finance. In addition, the Company has
relied and may continue to rely upon consultants and others for operating expertise. There is no assurance that we will be able
to maintain the services of our directors, officers, employees or other qualified personnel required to operate our business.
The loss of the services of these persons could have a material adverse effect on our business and prospects. Recruiting and retaining
qualified personnel is critical to our success and there can be no assurance we will be able to recruit and retain such personnel.
The number of persons skilled in the acquisition, exploration and development of mineral properties is limited and competition
for such persons is intense. If we are not successful in attracting and retaining qualified personnel, our ability to develop
our properties could be affected, which could have a material adverse effect on our business, results of operations, cash flows
and financial condition. We do not maintain “key man” life insurance policies on any of our officers or employees.
Canadian investors may not be able
to enforce their civil liabilities against us.
It may be difficult for Canadian investors
to bring and enforce suits against us. As substantially all of the assets of the Company and its subsidiaries are located outside
of Canada, and certain of the directors and officers of the Company are resident outside of Canada, it may be difficult or impossible
for Canadian investors to enforce judgments granted by a court in Canada against the assets of the Company or the directors and
officers of the Company residing outside of Canada. A shareholder should not assume that the courts of the United States (i) would
enforce judgments of Canadian courts obtained in actions against us or such persons predicated upon the civil liability provisions
of the Canadian securities laws or other laws of Canada, or (ii) would enforce, in original actions, liabilities against us or
such persons predicated upon Canadian securities laws or other laws of Canada.
Risks Related to Our Common Shares
Our share price may be volatile
and as a result you could lose all or part of your investment
.
In recent years, the securities markets
in the United States and Canada have experienced a high level of price and volume volatility, and the market price of securities
of many companies, particularly those considered exploration or development stage companies, have experienced wide fluctuations
in price which have not necessarily been related to the operating performance, underlying asset values or prospects of such companies.
It may be anticipated that any quoted market for our common shares will be subject to market trends and conditions generally,
notwithstanding any potential success we have in creating revenues, cash flows or earnings. The price of our common shares has
been subject to price and volume volatility in the past. In 2016, the price of our common shares on the Toronto Stock Exchange
ranged from a low of C$0.27 to a high of C$1.76, and on the NYSE MKT ranged from a low of $0.19 to a high of $1.35. From January
1, 2017 to March 13, 2017, the price of our common shares on the TSX ranged from a low of C$0.63 to a high of $0.98, and on the
NYSE MKT ranged from a low of $0.49 to a high of $0.74. There can be no assurance that significant fluctuations in the trading
price of the Company’s common shares will not continue to occur, or that such fluctuations will not materially adversely
impact the Company’s ability to raise equity funding without significant dilution to its existing shareholders, or at all.
As a result, our shareholders may be unable to resell their shares at a desired price.
The Toronto Stock Exchange has commenced
a delisting review of the Company’s common shares.
In connection with the non-brokered private
placement (“Placement”) completed by the Company in December 2016, the Company would, under the rules of the Toronto
Stock Exchange (“TSX”), normally have been required to obtain shareholder approval to the Placement as the aggregate
number of common shares issued pursuant to the Placement exceeded 25% of the then issued and outstanding common shares of the
Company, the number of common shares issued to insiders pursuant to the Placement exceeded 10% of the then issued and outstanding
common shares of the Company and the Placement materially affected control of the Company. However, the Company applied to the
TSX for a “financial hardship” exemption from the requirement to obtain shareholder approval for the Placement, which
exemption was granted by the TSX.
However, as a consequence of the Company
relying upon the financial hardship exemption, the TSX has commenced a remedial de-listing review, which is normal practice when
a listed issuer seeks to rely on this exemption. This review is ongoing but is likely to be completed before the end of April,
2017. Although the Company believes that it will be determined to be in compliance with all of the TSX listing requirements, no
assurance can be provided as to the outcome of such review and, therefore, the Company’s continued qualification for listing
on the TSX. If the Company is not qualified for listing on the TSX, the Company’s common shares will be delisted and no
longer trade on the TSX.
Future sales of our securities in
the public or private markets will dilute our current shareholders and could adversely affect the trading price of our common
shares and our ability to continue to raise funds in new stock offerings.
It is likely that the Company will sell
common shares or securities exercisable or convertible into common shares in the future. The Company may issue securities on less
than favorable terms to raise sufficient capital to fund its business plan. Any transaction involving the issuance of equity securities
or securities convertible into common shares would result in dilution, possibly substantial, to present and prospective holders
of common shares, could adversely affect the trading prices of our common shares, and could impair our ability to raise capital
through future offerings of securities.
We have never paid dividends on our
common shares
.
We have not paid dividends on our common
shares to date, and we may not be in a position to pay dividends for the foreseeable future. Our ability to pay dividends will
depend on our ability to successfully develop the Livengood Gold Project and generate earnings from operations. Further, our initial
earnings, if any, will likely be retained to finance our operations. Any future dividends will depend upon our earnings, our then-existing
financial requirements and other factors, and will be at the discretion of the Board.
Our business is subject to evolving
corporate governance and public disclosure regulations that have increased both our compliance costs and the risk of noncompliance,
which could have an adverse effect on our stock price.
We are subject to changing rules and regulations
promulgated by a number of governmental and self-regulated organizations, including the British Columbia Securities Commission,
the SEC, the TSX, the NYSE MKT, and the Financial Accounting Standards Board. These rules and regulations continue to evolve in
scope and complexity and many new requirements have been created in response to laws enacted by the United States Congress, making
compliance more difficult and uncertain. For example, on July 21, 2010, the United States Congress passed the Dodd-Frank
Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) with increased disclosure obligations for public
companies and mining companies in the United States. Our efforts to comply with the Dodd-Frank Act and other new regulations have
resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of management
time and attention from operating activities to compliance activities.
We likely constituted a passive
foreign investment company (“PFIC”) during the fiscal year ended December 31, 2016, which may result in adverse U.S.
federal income tax consequences to U.S. holders.
We believe that we were a PFIC for U.S.
federal income tax purposes during the fiscal year ended December 31, 2016, and we expect that we will be a PFIC in the current
year and that we may continue to be classified as a PFIC in future years. The determination of whether or not the Company is a
PFIC is a factual determination dependent on a number of factors and cannot be made until the close of the applicable tax year
and accordingly no assurances can be given regarding the Company’s PFIC status for the current year or any future year.
If ITH is a PFIC at any time during a U.S. holder’s holding period, then certain potentially adverse tax consequences could
apply to such U.S. holder’s acquisition, ownership, and disposition of common shares. For more information, please see the
discussion in “Certain U.S. Federal Income Tax Considerations for U.S. Holders” below.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM
2. PROPERTIES
LIVENGOOD
GOLD PROJECT, Alaska
The Company currently holds, or has rights
to acquire, ownership or leasehold interests in a group of adjacent mineral properties in Alaska which are collectively referred
to as the “Livengood Gold Project.” The Livengood Gold Project is located approximately 113 km (70 miles) by road
northwest of Fairbanks, Alaska and approximately 65 km (40 miles) north of the boundary of the Fairbanks North Star Borough as
shown in Figure 1 below. The project lies within the Tolovana Mining District in the northern part of the Tintina Gold Belt. The
Company’s primary focus is to continue to advance the Livengood Gold Project with the objective of assessing its viability
for commercial gold mining.
The Company is in the process of optimizing
the Livengood Gold Project and does not mine, produce or sell any mineral products at this time. The Company controls 100% of
the Livengood Gold Project, which has a current (as at August 26, 2016) mineral resource of 497 million measured tonnes at an
average grade of 0.68 g/tonne (10.84 million ounces), 28 million indicated tonnes at an average grade of 0.69 g/tonne (0.62 million
ounces) and 53 million inferred tonnes at an average grade of 0.66 g/tonne (1.1 million ounces). In 2016 the Company issued the
results of a pre-feasibility study that was summarized in the October 2016 Study which converted a portion of the mineral resources
at the Project into proven reserves of 378 million tonnes at an average grade of 0.71 g/tonne (8.62 million ounces) and probable
reserves of 14 million tonnes at an average grade of 0.72 g/tonne (353,000 ounces) based on a gold price of $1,250 per ounce.
All work presently planned by the Company is directed at maintaining necessary environmental baseline activities at the Livengood
Gold Project and focusing efforts on Project optimization opportunities, including those identified in the October 2016 Study.
The Company relies upon consultants and
contractors to carry on many of its activities and, in particular, to carry out drilling programs at the Livengood Gold Project
and in connection with metallurgical test work, engineering and the preparation of technical reports on the Project. However,
as ITH expands its activities, it may choose to hire additional employees rather than relying on consultants.
Figure 1: Location
of the Livengood Gold Project
Accessibility, Climate, Local Resources,
Infrastructure and Physiography
The Livengood Gold Project is located
approximately 113 km (70 miles) by road northwest of Fairbanks, Alaska in the Tolovana Mining District within the Tintina Gold
Belt. The Project area is centered on Money Knob, a local topographic high point. This feature and the adjoining ridgelines are
the probable lode gold source for the Livengood placer deposits which lie in the adjacent valleys which have been actively mined
since 1914 and have produced more than 500,000 ounces of gold.
The Livengood Gold Project straddles and
is accessed via the Elliot Highway, a paved, all weather road linking the north slope oil fields at Prudhoe Bay to central and
southern Alaska through Fairbanks. At present there are no full time residents in the former mining town of Livengood. A number
of unpaved roads have been developed in the area providing excellent access. A 427m (1400-foot) runway is located 6 km (3.7 miles)
to the southwest near the former Alyeska Pipeline Company Livengood Camp and is suitable for light aircraft. The Livengood Gold
Project is also adjacent to the Alyeska Pipeline corridor, which transports crude oil from Prudhoe Bay south. This corridor contains
a fiber optic communications cable utilized at the Livengood Gold Project.
Topography at the site is eroded hills
and valleys with a general elevation difference of 200m (656 feet). The valleys generally contain active streams draining into
the Tolovana River system to the west.
The site is approximately 65 km (40 miles)
south of the Arctic Circle, and has a subarctic climate with long, cold winters and short, warm summers. Annual precipitation
is approximately 40 cm (16 inches). Average low temperatures in winter are -21° to -28° Celsius (-6° to -18° Fahrenheit),
with records reaching as low as -55° Celsius (-67° Fahrenheit). Exploration work on the Livengood Gold Project can be
limited due to excessive snow cover and cold temperatures. In general, surface sampling work is limited to May through September
and surface drilling from March through November. Road-accessible wetland areas may only be explored while frozen in the winter.
Work to date on the site has been limited to exploration and geotechnical drilling and environmental baseline activities. The
Company does not have any plant or equipment at the site, relying on contractors to perform the work.
The nearest community to Livengood Gold
Project is the village of Minto, a town with a population of approximately 258 located approximately 65 km (40 miles) southwest
by road. The Fairbanks metropolitan area has a population of approximately 100,000 people, and comprises the regional center with
hospitals, government offices, businesses and the University of Alaska, Fairbanks. The city is linked to southern Alaska along
a north-south transportation and utility corridor that includes two paved highways, a railroad to tide water, an interlinked electrical
grid, and communications infrastructure. Fairbanks has an international airport serviced daily by up to three major airlines.
In preliminary, nonbinding discussions,
the local utility in Fairbanks (Golden Valley Electrical Association) has indicated that 80-100 Megawatts of power could be available
to the Livengood Gold Project. Livengood would be connected to the local grid by building a 82 km (50 miles) 230-kVA line along
the pipeline corridor. Environmental baseline studies required for the electrical line construction started in 2011.
The October 2016 Study developed site
layout plans for the infrastructure required at the Livengood Gold Project. This included evaluating mine shops; process, water
and tailing management facilities; power; access roads; administration offices; and camp facilities.
Livengood Gold Project Lands
The Livengood Gold Project covers approximately
19,546 hectares (48,300 acres), all of which is controlled by the Company through TH Alaska. The Livengood Gold Project is comprised
of multiple land parcels: 100% owned patented mining claims, 100% owned State of Alaska mining claims, 100% owned federal unpatented
placer claims; land leased from the Alaska Mental Health Trust (“AMHT”); land leased from holders of state and federal
patented and unpatented mining and placer claims, and undivided interests in patented mining claims. The property and claims controlled
through ownership, leases or agreements are summarized below.
100% owned
patented mining claims
|
·
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U.S.
Mineral Survey 2447, located on lower Livengood Creek, subject to the December 2011 land
purchase agreement described below and further subject to an agreement to allow Larry
Nelson, as agent for Nelson Mining Company, to operate a placer mine on MS 2447 through
May 11, 2018.
|
|
·
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U.S.
Mineral Survey 1956, located on lower Gertrude Creek, subject to a reserved royalty of
5% of gross value held by Key Trust Company on behalf of the Luther Hess Trust, and further
subject to an agreement to allow Samuel Eaves and Patricia Eaves to operate a placer
mine on MS 1956 through June 1, 2017.
|
|
·
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With
respect to portions of U.S. Mineral Survey 1626, located on lower Amy Creek:
|
100% of No. 2 Above Discovery
Any Creek,
100% of No. 3 Above Discovery
Amy Creek, and
100% of Up Grade Association Bench
100% owned State of Alaska
mining claims
|
·
|
169
state claims acquired by purchase.
|
|
·
|
153
state claims acquired by location.
|
100% owned federal unpatented
placer claims
|
·
|
29
federal unpatented placer claims, subject to the December 2011 land purchase agreement
described below.
|
100% owned Livengood Placers,
Inc.,
a private Nevada corporation that is 100% owned by TH Alaska. Livengood Placers, Inc. is the record owner of the following:
|
·
|
29
patented claims, subject to the December 2011 land purchase agreement described below.
|
|
·
|
108
federal unpatented placer claims, subject to the December 2011 land purchase agreement
described below.
|
|
·
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24
State of Alaska mining claims, subject to the December 2011 land purchase agreement described
below.
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Leased property
|
·
|
Alaska
Mental Health Trust Lease.
A lease of the AMHT mineral rights having a term commencing
July l, 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 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 the Hudson/Geraghty Lease 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. As of December 31, 2016, there were 9,970 acres included
in the AMHT lease.
|
|
·
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Hudson/Geraghty
Lease.
A lease of 20 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.
|
|
·
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Griffin
Lease.
A lease of three patented lode 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.
|
|
·
|
Tucker
Lease.
A lease of two unpatented federal lode mining claims and four 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.
|
Patented claims (undivided
interests less than 100%)
|
·
|
An
undivided 5/6th interest in that certain patented placer mining claim known as the “Kinney
Bench” claim, included within U.S. Mineral Survey No. 1626 on lower Amy Creek.
|
|
·
|
An
undivided 5/9th interest in that certain patented placer mining claim known as the “Union
Bench Association” claim, included within U.S. Mineral Survey No. 1626
on lower Amy Creek.
|
|
·
|
An
undivided 1/6th interest in that certain patented placer mining claim known as the “Bessie
Bench” claim, included within U.S. Mineral Survey No. 1626 on lower Amy
Creek.
|
|
·
|
An
undivided 1/3rd interest in those certain patented placer mining claims known as the
“War Association” claim; the “Mutual Association” claim; and
the “O.K. Fraction” claim, all included within U.S. Mineral Survey
No. 2033 on lower Amy Creek.
|
On State of Alaska lands, the state holds
both the surface and the subsurface rights. State of Alaska 40-acre mining claims require an annual rental payment of $35/claim
to be paid to the state (by November 30
th
of each year), for the first five years, $70 per year for the second five
years, and $170 per year thereafter. These rental rates are multiplied by 4 for each 160 acre claim. As a consequence of the annual
rentals due, all Alaska State Mining Claims have an expiry date of November 30th each year. In addition, there is a minimum annual
work expenditure requirement of $100 per 40-acre claim (due on or before noon on September 1 in each year) or cash-in-lieu thereof,
and an affidavit evidencing that such work has been performed is required to be filed on or before November 30th in each year.
Excess work can be carried forward for up to four years. If the rental is paid and the work requirements are met, the claims can
be held indefinitely. The work completed by the Company during the 2016 field season was filed as assessment work, and the value
of that work is sufficient to meet the assessment work requirements through September 1, 2020 on all State of Alaska mining claims.
Holders of State of Alaska mining claims
are also required to pay a production royalty on all revenue received from minerals produced on state land during each calendar
year. The production royalty rate is 3% of net income.
Holders of federal unpatented mining claims
are required to pay an annual rental of $140 per 20 acres.
All of the foregoing agreements are in
good standing and are transferable. The Company has taken reasonable steps to verify title to mineral properties in which it has
an interest. Except for the patented claims, none of the properties have been surveyed.
Holders of Federal and Alaska State unpatented
mining claims have the right to use the land or water included within mining claims only when necessary for mineral prospecting,
development, extraction, or basic processing, or for storage of mining equipment. However, the exercise of such rights is subject
to the appropriate permits being obtained.
December 2011 Land Purchase Agreement
In December 2011, the Company completed
a transaction to acquire certain mining claims and related rights in the vicinity of the Livengood Gold Project. This acquisition
included both mining claims and all of the shares of Livengood Placers, Inc. These assets were purchased on December 13, 2011
for aggregate consideration of $36,600,000 allocated between cash consideration of $13,500,000 and a derivative liability of $23,100,000.
The derivative liability was a contingent payment based on the five-year average daily gold price (“Average Gold Price”)
from the date of the acquisition. The derivative liability equals $23,148 for every dollar that the Average Gold Price exceeds
$720 per troy ounce. The obligation to make the contingent payment was secured by a Deed of Trust over the rights of the Company
in the purchased claims in favor of the vendors. On January 12, 2017, the Company paid $14,694,169 for the timely and full satisfaction
of the final derivative payment, and on January 17, 2017, the Full Deed of Reconveyance releasing the Deed of Trust on the acquired
property was recorded. As a consequence, the Company now fully owns the subject properties and the shares of Livengood Placer,
Inc. and has no further liability to the vendors with respect to this acquisition.
The subject ground was previously vacant
or was used for placer gold mining. No placer mineral reserves or mineral resources have been established on the ground subject
to this agreement. However, records exist for 2,370 placer drill holes that have been completed on the subject ground between
1933 and 2011. Of these, the 945 holes completed between 1933 and 1984 were primarily 6” churn drill holes. The 1,425 drill
holes completed between 1984 and 2000 were 8” RC rotary drill holes utilizing a center return tri-cone bit. All lands controlled
by the Company, including the lands acquired pursuant to this agreement, were evaluated as appropriate for integration into the
October 2016 Study for the Livengood Gold Project.
Geology and Mineralization
The rocks at the Livengood Gold Project
are part of the Livengood Terrane, an east–west belt, approximately 240 km (149 miles) long, consisting of tectonically
interleaved assemblages of various ages. These assemblages include the Amy Creek Assemblage, a sequence of latest Proterozoic
and/or early Paleozoic basalt, mudstone, chert, dolomite, and limestone. An early Cambrian ophiolite sequence of mafic and ultramafic
sea floor rocks was thrust over the Amy Creek Assemblage and was, in turn, overthrust by a sequence of Devonian shale, siltstone,
conglomerate, volcanic, and volcaniclastic rocks, which are the dominant host to the mineralization currently under exploration
at the Livengood Gold Project. The Devonian assemblage was overthrust by a second klippe of Cambrian ophiolite rocks. All of these
rocks are intruded by Cretaceous multiphase monzonitic and syenitic dikes and sills. Gold mineralization is spatially and temporally
associated with these intrusive rocks.
Gold mineralization occurs in association
with disseminated arsenopyrite and pyrite in volcanic, sedimentary, and intrusive rocks, and in quartz veins cutting the more
competent lithologies, primarily volcanic rocks, sandstones, and, to a lesser degree, ultramafic rocks. Three principal stages
of alteration are currently recognized, an early biotite stage, followed by albite-quartz, and a late sericite-quartz assemblage.
Carbonate appears to have been introduced with and subsequent to these stages. Arsenopyrite and pyrite were introduced primarily
during the albite-quartz and sericite-quartz stages. Gold correlates strongly with arsenic and occurs primarily within and on
the margins of arsenopyrite and pyrite.
Mineralization is interpreted as intrusion-related,
consistent with other gold deposits of the Tintina Gold Belt, and has a similar As-Sb geochemical association. Mineralization
is controlled partly by lithologic units, but thrust-fold architecture was key to providing pathways for intrusive and associated
hydrothermal fluids.
Local fault and contact limits to mineralization
have been identified, but overall the deposit has not been closed off in any direction. The current resource and area drilled
covers the most significant portion of the area with anomalous gold in surface soil samples, but still represents only about 25%
of the total gold-anomalous area.
Among deposits of the Tintina Gold Belt,
mineralization at the Livengood Gold Project is most similar to the dike and sill-hosted mineralization at the Donlin Creek deposit,
where gold occurs in narrow quartz veins associated with dikes and sills of similar composition. The age of the intrusions and
the genetic link between the mineralization and intrusive rocks are typical of those of other nearby gold deposits of the Tintina
Gold Belt, which have been characterized as intrusion-related gold systems and for these reasons the Livengood Gold Project is
best classified with them.
History and Exploration
Gold was first discovered in the gravels
of Livengood Creek in 1914. Subsequently, over 500,000 ounces of placer gold were produced and the small town of Livengood was
established. From 1914 through the 1970’s, the primary focus of prospecting activity was placer deposits. Historically,
prospectors considered Money Knob and the associated ridgeline the source of the placer gold. Prospecting, in the form of dozer
trenches, was carried out for lode type mineralization in the vicinity of Money Knob primarily in the 1950’s. However, to
date no significant production has been derived from lode gold sources.
The geology and mineral potential of the
Livengood District have been investigated by state and federal agencies and explored by several companies over the past 40-plus
years. Modern mapping and sampling investigations were initially carried out by the U.S. Geological Survey in 1967 as part of
a heavy metal assessment program. Mapping completed in the course of this program recognized the essential rock relations, thrust
faulting, and mineralization associated with Devonian clastic rocks, the thrust system and intrusive rocks. Since then, the Livengood
placer deposits and the surrounding geology have featured in numerous investigations and mapping programs at various scales by
the U.S. Geological Survey and the Alaska State Division of Geological and Geophysical Surveys.
In addition to individuals prospecting
the area, since the 1970’s several mining companies, including Homestake, AMAX, Placer Dome, Cambior and AngloGold, have
investigated the potential for lode gold mineralization beneath the Livengood placers and on the adjacent hillsides, including
at Money Knob. Placer Dome’s work appears to have been the most extensive, but it was focused largely on the northern flank
of Money Knob and the valley of Livengood Creek.
The most recent round of exploration of
the Money Knob area began when AngloGold acquired the property in 2003 and undertook an 8-hole reverse circulation (RC) program
on the Hudson-Geraghty lease. The results from this program were encouraging and were followed up with an expanded soil geochemical
survey which identified gold-anomalous zones over Money Knob and to the east. Based on the results of this and prior (Cambior)
soil surveys, 4 diamond core holes were drilled in late 2004. Results from these two AngloGold drill programs were deemed favorable
but no further work was executed due to financial constraints and a shift in corporate strategy.
The Company acquired the Livengood Gold
Project in 2006 from AngloGold and has advanced the soil sampling coverage, undertook to drill surface geochemical anomalies and
conducted drilling campaigns on the Livengood Gold Project since that time.
In 2006, the Company conducted a 1,227m,
seven-hole program and continued to demonstrate the presence of mineralization over a broader area. The 2007 campaign consisted
of 15 diamond drill holes for a total of 4,411m. These holes focused on extending and defining the volcanic-hosted mineralization
first recognized by AngloGold in 2003. However, as drilling progressed, it became clear that although mineralization is strongest
in the volcanic rocks, it occurs in all rock types at Money Knob.
Based on favorable results in 2007, the
2008 program consisted of 29,150m of RC and 2,187m core drilling in 109 and 9 holes, respectively. The drill program was designed
to improve definition and expand the resource calculated early in 2008 based on 2007 drill data. The 2008 drill program did not
identify limits to mineralization in any direction. Instead, a thicker mineralized zone (up to 200m) was identified. In addition,
this campaign highlighted the fact that mineralization occurs in all rock types, not just in Devonian volcanic rocks, indicating
potential more widespread mineralization than envisioned prior to the 2008 drill program.
In 2009, the Company completed 12 diamond
drill holes totaling 4,572m and 195 RC holes totaling 59,757m. Six of the diamond drill holes were drilled across the NNW-trending
Core Zone in order to better understand the structural controls and to test the depth continuity of the mineralization. This drilling
confirmed that the Core Zone is the locus of a swarm of 0.2 - 1.0m thick southerly dipping dikes. In addition, a number of larger
(+10m thick) steeply dipping NNW-trending dikes were observed, suggesting that ENE extension may have occurred at about the time
of dike magmatism. The RC holes were primarily targeted at grid infill drilling to improve resource estimation of the Core Zone
and a step-out program that led to discovery and delineation of the Sunshine and Tower Zones.
In 2010, the Company completed 40 diamond
drill holes totaling 13,631m and 198 RC holes totaling 56,550m. These holes, filled in between the Core and Sunshine Zones, expanded
the SW Zone and infilled to 50m spacing in the Core and Sunshine Zones.
Nearly all drill holes at Money Knob have
been drilled in a northerly direction at an inclination of -50 degrees (RC) and -60 degrees (core) in order to best intercept
the south dipping structures and mineralized zones as close to perpendicular as possible. A few holes have been drilled in other
directions to test other features and aspects of mineralization. Most exploration holes have been spaced at 75m apart along lines
75m apart, subsequent infill drilling in the center of 75m squares brings the nominal drill spacing to 50m for a significant portion
of the deposit. Core is recovered using triple tube techniques to ensure good recovery (>95%) and confidence in core orientation.
RC holes are bored and cased for the upper 0-30m to prevent down hole contamination and to help keep the hole open for ease of
drilling at greater depths.
In 2011, the Company continued with resource
definition drilling, completing 26,163m of RC drilling and 11,468m of diamond drilling. Two areas of the deposit, the Core and
Sunshine crosses, were selected for 15m-spaced RC in-fill drilling on crosses with north-south and east-west legs 150m in length.
A third area, Area 50 in the Sunshine Zone, measuring 195m by 240m, was drilled on a 37.5m grid with alternating core and RC drilling.
Two resources were generated for each volume using ordinary kriging on samples composited to 10m lengths: the first including
those portions of the 50m grid drilling within the volume; and a second using both the grid and close-spaced drilling within the
same volume. On average, the effect of the increased drilling density on tonnage, grade, and contained ounces of gold was less
than 1% and confirmed the integrity of the previously reported resource estimate. In 2011, the Company broadened the scope of
the field program to include 2,240m of exploration drilling outside the resource area, as well as 8,932m of geotechnical drilling
and 1,192m of large diameter groundwater test wells.
In May 2012, the Company commenced an
18-hole program of condemnation drilling to either sterilize or establish the presence of significant mineralization in the area
surrounding the Money Knob deposit. The purpose of the condemnation drilling program was to determine appropriate areas for infrastructure
development. Additionally, four of these holes are also being used for hydrological studies. The program was completed in July
with 3,065m in 19 holes.
Also in May 2012, the Company commenced
multi-faceted drill programs consisting of hydraulic gradient, infrastructure, borrow source identification, and large-diameter
wells for pump tests. The hydraulic gradient and infrastructure drilling consisted of 5,826m in 49 holes utilizing core drilling.
The geotechnical and borrow source information was obtained from 2,695m drilled in 73 holes, utilizing core, sonic, and auger
drilling methods. Seven large diameter wells have been drilled for a total of 1,031m.
The drill program from February through
October 2012 totaled 15,731m in 199 holes.
No drill programs were completed during
2013.
The Company did not complete any material
exploration at the Project in 2014, 2015 and 2016.
Sample Preparation, Analyses and Security
The Company samples all holes from surface
to total depth, using defined procedures. For RC samples, pulverized material is passed through a cyclone to separate solids from
drilling fluids, then over a spinning conical splitter. The splitter is set to collect two identical splits of sample weighing
2-5 kg (4.4-11.0 pounds) each. Representative coarse material is collected and saved in chip trays for geological description.
Samples are put in pre-numbered, bar-coded bags by the drill site crew. One sample is submitted for analysis, and one sample is
kept for reference. Samples are secured on site and transported to a sample preparation facility operated by ALS Chemex in Fairbanks.
Core materials are collected at the drill
site and placed in core boxes. Run blocks, orientation blocks and depths are placed in the boxes at site. The core is transported
to a sample management facility at the Project, where it is described, then sawn in half. Half of the core is collected for assaying
and half remains for reference. Core samples are weighed before shipping.
The Company’s geologic work program
at Livengood was designed and is supervised by Chris Puchner, Chief Geologist of the Company, who is a qualified person as defined
by NI 43-101. Mr. Puchner is responsible for all aspects of the work, including the quality control/quality assurance program.
The quality assurance/quality control program implemented by the Company meets or exceeds industry standards. A quality assurance/quality
control program includes insertion of blanks and standards (1/10 samples) and duplicates (1/20 samples). Blanks help assess the
presence of any contamination introduced during sample preparation and help calibrate the low end of the assay detection limits.
Commercial standards are used to assess the accuracy of the analyses. Duplicates help assess the homogeneity of the sample material
and the overall sample variance. The Company has undertaken rigorous protocols to assure accurate and precise results. Among other
methods, weights are tracked throughout the various steps performed in the laboratory to minimize and track errors. A group of
2,096 metallic screen fire assays performed in 2011 did not indicate any bias in the matching fire assays.
On-site Project personnel photograph the
core from each individual borehole prior to preparing the split core. Duplicate RC drill samples are collected with one split
sent for analysis. Representative chips are retained for geological logging. On-site personnel at the Project log and track all
samples prior to sealing and shipping. All sample shipments are sealed and shipped to ALS Chemex in Fairbanks, Alaska, for preparation
and then on to ALS Chemex in Reno, Nevada, or Vancouver, B.C., for assay. ALS Chemex’s quality system complies with the
requirements for the International Standards ISO 9001:2000 and ISO 17025:1999. Analytical accuracy and precision are monitored
by the analysis of reagent blanks, reference material and replicate samples. Quality control is further assured by the use of
international and in-house standards. Finally, representative blind duplicate samples are forwarded to ALS Chemex and an ISO compliant
third party laboratory for additional quality control.
Data entry and database validation procedures
have been checked and found to conform to industry practices. Procedures are in place to minimize data entry errors. These include
pre-numbered, pre-tagged, bar-coded bags, and bar-coded data entry methods which relate all information to sample and drill interval
information. Likewise, data validation checks are run on all information used in the geologic modeling and resource estimation
process. Database entries for a random sample (10%) of drill holes used for the resource estimate were checked against the original
assay certificates by one of the independent authors of the October 2016 Study and the error rate was found to be within acceptable
limits.
Analysis of assay data from core and RC
sampling has been performed to check for downhole contamination of RC and to compare the data distributions produced by the two
methods. Analysis of RC data has not indicated cyclic down hole contamination. Decay analysis conducted on both core drilling
and RC drilling indicates similar patterns of monotonic grade increase or decrease. Comparison of the grade distributions between
core and RC data were conducted using Quantile-Quantile plots, and simulation of population means for different numbers of samples.
The comparison indicated that the mean of all core data was 4% lower than RC data. Comparison of core and RC data below the water
table showed similar population means, suggesting that down hole contamination was not occurring.
Core and RC check samples have been collected
during each drilling campaign by independent third parties. Results from these samples, as well as blanks and standards included,
are consistent with the Company’s initial results. This includes a similar increase in variance for samples at higher grades,
a pattern consistent with nugget effect. No systematic high or low bias has been observed.
October 2016 Study
In October, 2016, the Company filed the
October 2016 Study with respect to the Livengood Gold Project, which indicates that the Project generates a minimal positive return
at a gold price of $1,250 per ounce. At the current gold price, the Project as contemplated in the October 2016 Study is not commercially
viable. Readers are encouraged to review the entire October 2016 Study on SEDAR, with particular emphasis on the sensitivity analyses
contained therein. Readers are cautioned that a NI 43-101 report filed on SEDAR by the Company in September of 2013 is no longer
considered current and should therefore no longer be relied upon by investors.
Environmental Studies, Permitting and
Social and Community Impacts
The Livengood Gold Project is currently
operating within compliance of all environmental regulations that apply during the exploration stage of major mineral projects.
The Company has received all necessary exploration permits for activities such as trenching, drill road building and drilling.
These permits are also reviewed by related state and federal agencies that can comment and require specific changes to the proposed
work plans to minimize impacts on the environment. The permitting process for major exploration projects generally requires 30-60
days for processing. The Company currently has all necessary permits with respect to its exploration activities in Alaska. Although
the Company has never had an issue with the timely processing of exploration permits there can be no assurances that delays in
permit approval will not occur. Reclamation of surface disturbance associated with exploration activities is conducted concurrently
where required.
The Company has been conducting extensive,
multi-disciplinary environmental baseline studies in and around the Project area since 2008 in order to understand the current
environmental conditions and to allow Project design to be optimized to minimize potential environmental effects. The environmental
baseline programs conducted or currently underway at the Project include:
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·
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surface
water and hydrology;
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·
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groundwater
hydrogeology;
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·
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wetlands
and vegetation;
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·
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meteorology
and air quality;
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·
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aquatic
life and resources;
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·
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rock
characterization; and
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·
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geochemical
characteristics.
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Based on review of the studies completed
to date, The Company believes that there are no known environmental issues that are anticipated to materially impact the Company’s
ability to conduct mining operations at the Project.
Looking forward to potential project development,
a site-specific monitoring plan and water management plan for both operations and post mine closure will be developed in conjunction
with detailed engineering and project permit planning. Development of the Livengood Gold Project will require a number of state
and federal permits. Federal permits will be issued pursuant to the National Environmental Policy Act (NEPA) and Council of Environmental
Quality (CEQ). In fulfillment of the NEPA requirements, the Livengood Gold Project will be required to prepare an Environmental
Impact Statement. Although at this time it is unknown which department will become the lead federal agency, the State of Alaska
is expected to take a cooperating role to coordinate the NEPA review with the State permit process. Actual permitting timelines
are controlled by the NEPA review and U.S. Federal and State agency decisions. There are no municipal or community agreements
required for the Livengood Gold Project.
ITEM 3. LEGAL PROCEEDINGS
We are periodically a party to or otherwise
involved in legal proceedings arising in the normal course of business. Management does not believe that there is any pending
or threatened proceeding against us which, if determined adversely, would have a material adverse effect on our financial position,
liquidity or results of operations.
ITEM 4. MINE SAFETY DISCLOSURES
Pursuant to Section 1503(a) of the Dodd-Frank
Act, issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the United States are
required to disclose specified information about mine health and safety in their periodic reports. These reporting requirements
are based on the safety and health requirements applicable to mines under the Federal Mine Safety and Health Act of 1977 (the
“Mine Act”) which is administered by the U.S. Department of Labor’s Mine Safety and Health Administration (“MSHA”).
During the fiscal year ended December 31, 2016, the Company and its subsidiaries were not subject to regulation by MSHA under
the Mine Act and thus no disclosure is required under Section 1503(a) of the Dodd-Frank Act.
PART II
ITEM 5. MARKET FOR REGISTRANT’S
COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Price Range of Common
Shares
The common shares of the Company are listed
and posted for trading on the TSX under the symbol “ITH”, on the NYSE MKT under the symbol “THM”, and
on the Frankfurt Stock Exchange under the symbol “IW9”. The following table sets forth the highest and lowest intraday
sales prices for the common share as reported by the TSX and NYSE MKT for the periods indicated:
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Toronto Stock Exchange
|
|
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NYSE MKT
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Year ended December 31, 2016
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C$ High
|
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C$ Low
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|
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$ High
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$ Low
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Fourth Quarter
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$
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1.12
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$
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0.57
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$
|
0.86
|
|
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$
|
0.44
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Third Quarter
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$
|
1.76
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$
|
1.01
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|
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$
|
1.35
|
|
|
$
|
0.77
|
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Second Quarter
|
|
$
|
1.15
|
|
|
$
|
0.39
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|
|
$
|
0.88
|
|
|
$
|
0.31
|
|
First Quarter
|
|
$
|
0.46
|
|
|
$
|
0.27
|
|
|
$
|
0.33
|
|
|
$
|
0.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Year ended December 31, 2015
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C$ High
|
|
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C$ Low
|
|
|
$ High
|
|
|
$ Low
|
|
Fourth Quarter
|
|
$
|
0.57
|
|
|
$
|
0.26
|
|
|
$
|
0.42
|
|
|
$
|
0.19
|
|
Third Quarter
|
|
$
|
0.48
|
|
|
$
|
0.26
|
|
|
$
|
0.37
|
|
|
$
|
0.20
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|
Second Quarter
|
|
$
|
0.52
|
|
|
$
|
0.40
|
|
|
$
|
0.42
|
|
|
$
|
0.32
|
|
First Quarter
|
|
$
|
0.75
|
|
|
$
|
0.43
|
|
|
$
|
0.62
|
|
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$
|
0.34
|
|
As at March 13, 2017, there were 162,186,972
common shares issued and outstanding, and the Company had approximately 106 shareholders of record. On March 13, 2017, the closing
price of the common shares as reported by the TSX and NYSE MKT was C$0.67 and $0.51, respectively.
Dividends
Since its inception, ITH has not paid
any dividends. ITH has no present intention of paying any dividends, as it anticipates that all available funds will be invested
to finance the growth of its business. The Board will determine if and when dividends should be declared and paid in the future
after taking into account many factors, including ITH’s financial condition, operating results and anticipated cash needs
at the relevant time. There are no restrictions which prevent ITH from paying dividends.
Recent Sales of Unregistered Equity Securities
None.
Purchases of Equity Securities by the
Issuer and Affiliated Purchasers
None.
Exchange Controls
Canada has no system of exchange controls.
There are no Canadian restrictions on the repatriation of capital or earnings of a Canadian public company to non-resident investors.
There are no laws in Canada or exchange restrictions affecting the remittance of dividends, profits, interest, royalties and other
payments to non-resident holders of the Company’s securities, except as discussed in “Certain Canadian Federal Income
Tax Considerations for U.S. Resident Holders” below.
There are no limitations under the laws
of Canada or in the organizing documents of the Company on the right of foreigners to hold or vote securities of the Company,
except that the
Investment Canada Act
(Canada) may require review and approval by the Minister of Industry (Canada) of
certain acquisitions of “control” of the Company by a “non-Canadian.” The threshold for acquisitions of
control is generally defined as being one-third or more of the voting shares of the Company. “Non-Canadian” generally
means an individual who is not a Canadian citizen, or a corporation, partnership, trust or joint venture that is ultimately controlled
by non-Canadians.
Certain Canadian Federal Income Tax Considerations
for U.S. Resident Holders
This summary is applicable to a holder
or prospective purchaser of common shares of the Company who, for the purposes of the
Income Tax Act
(Canada) (the “Tax
Act”) and any applicable treaty and at all relevant times, is not (and is not deemed to be) resident in Canada, does not
(and is not deemed to) use or hold the common shares in, or in the course of, carrying on a business in Canada, and is not an
insurer that carries on an insurance business in Canada and elsewhere.
This summary is based on the current provisions
of the Tax Act, the regulations thereunder, all specific proposals to amend such Act and regulations publicly announced by or
on behalf of the Minister of Finance (Canada) prior to the date hereof and the Company’s understanding of the administrative
policies and assessing practices published in writing by the Canada Revenue Agency prior to the date hereof. This summary does
not otherwise take into account any change in law or administrative policy or assessing practice, whether by judicial, governmental,
legislative or administrative decision or action, nor does it take into account other federal or provincial, territorial or foreign
tax consequences, which may vary from the Canadian federal income tax considerations described herein.
This summary is of a general nature only
and it is not intended to be, nor should it be construed to be, legal or tax advice to any holder of common shares and no representation
with respect to Canadian federal income tax consequences to any holder of common shares is made herein. Accordingly, prospective
purchasers and holders of common shares should consult their own tax advisers with respect to their individual circumstances.
Dividends on Common Shares
Canadian withholding tax at a rate of
25% (subject to reduction under the provisions of any applicable tax treaty) will be payable on dividends (or amounts paid or
credited on account or in lieu of payment of, or in satisfaction of, dividends) paid or credited to a holder of common shares.
Under the
Canada–U.S. Income Tax Convention (1980)
, as amended (the “Canada–U.S. Treaty”),
the withholding tax rate is generally reduced to 15% for a holder entitled to the benefits of the Canada–U.S. Treaty who
is the beneficial owner of the dividends (or 5% if the holder is a company that owns at least 10% of the common shares).
Certain U.S.-resident entities that are
fiscally transparent for United States federal income tax purposes (including limited liability companies) may not in all circumstances
be entitled to the benefits of the Canada–U.S. Treaty. Members of or holders of an interest in such an entity that holds
common shares should consult their own tax advisers regarding the extent, if any, to which the benefits of the Canada–U.S.
Treaty will be extended to the entity in respect of its common shares.
Capital Gains and Losses
Subject to the provisions of any relevant
tax treaty, capital gains realized by a holder on the disposition or deemed disposition of common shares held as capital property
will not be subject to Canadian tax unless the common shares are “taxable Canadian property” (as defined in the Tax
Act), in which case the capital gains will be subject to Canadian tax at rates which will approximate those payable by a Canadian
resident.
Common shares of the Company generally
will not be “taxable Canadian property” to a holder provided that, at the time of the disposition or deemed disposition,
the common shares are listed on a designated stock exchange (which currently includes the TSX and NYSE MKT), unless at any time
during the 60-month period that ends at that time: (a) one or any combination of (i) such holder, (ii) persons
not dealing at arm’s length with such holder and (iii) partnerships in which such holder or a person described in (ii)
holds a membership interest directly or indirectly through one or more partnerships, owned 25% or more of the issued shares of
any class or series of the capital stock of the Company; and (b) more than 50% of the fair market value of the common shares
disposed of was derived directly or indirectly from one or any combination of real or immovable property situated in Canada, “Canadian
resource properties” (as defined in the Tax Act), “timber resource properties” (as defined in the Tax Act),
and options in respect of, or interests in, or civil law rights in, any such properties (whether or not such property exists).
In certain circumstances set out in the Tax Act, the common shares may be deemed to be “taxable Canadian property”.
Under the Canada–U.S. Treaty, a
holder entitled to the benefits of the Canada–U.S. Treaty and to whom the common shares are “taxable Canadian property”
will not be subject to Canadian tax on the disposition or deemed disposition of the common shares unless at the time of disposition
or deemed disposition, the value of the common shares is derived principally from real property situated in Canada.
Certain U.S. Federal Income Tax Considerations
for U.S. Holders
The following is a discussion of certain
material U.S. federal income tax consequences to U.S. Holders (as defined below) of acquiring, owning, and disposing of our common
shares. This discussion does not purport to be a comprehensive description of all of the U.S. tax considerations that may be relevant
to a particular person’s decision to acquire the common shares, including any state, local or non-U.S. tax consequences
of acquiring, owning, and disposing of common shares. This discussion applies only to those U.S. Holders that hold common shares
as capital assets for U.S. tax purposes (generally, for investment and not in connection with the carrying on of a trade or business)
and does not address all aspects of U.S. federal income tax law that may be relevant to investors that are subject to special
or different treatment under U.S. federal income tax law (including, for example, a holder liable for the alternative minimum
tax or a holder that actually or constructively owns 10% or more by voting power or value of our common shares). This discussion
is based on the U.S. Internal Revenue Code of 1986, as amended (the “Code”), its legislative history, existing and
proposed U.S. Treasury regulations, published rulings and other administrative guidance of the U.S. Internal Revenue Service (the
“IRS”) and court decisions, all as in effect on the date hereof. These laws are subject to change or differing interpretation
by the IRS or a court, possibly on a retroactive basis. This discussion also assumes that the Company is not, and will not become,
a controlled foreign corporation (“CFC”) as defined for U.S. federal income tax purposes.
As used herein, the term “U.S. Holder”
means a beneficial owner of our common shares that is:
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·
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an
individual citizen or resident of the United States;
|
|
·
|
a
corporation (or other entity treated as a corporation for U.S. federal income tax purposes)
created or organized in the United States or under the laws of the United States, any
state or political subdivision thereof, or the District of Columbia;
|
|
·
|
an
estate, the income of which is subject to U.S. federal income tax regardless of its source;
or
|
|
·
|
a
trust (i) if a U.S. court is able to exercise primary supervision over the trust’s
administration and one or more U.S. persons are authorized to control all substantial
decisions of the trust or (ii) that has a valid election in effect to be treated as a
U.S. person under applicable U.S. Treasury regulations.
|
If a partnership (including any entity
treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of the common shares, the U.S. tax treatment
of a partner in the partnership generally will depend on the status of the partner and the activities of the partnership. A holder
of the common shares that is a partnership and partners in such a partnership should consult their own tax advisors about the
U.S. federal income tax consequences of acquiring, owning, or disposing of common shares.
Distributions
Subject to the passive foreign investment
company rules discussed below, should a distribution be made, a U.S. Holder must include in gross income as dividend income the
gross amount of any distribution paid on the common shares (including the amount of any non-U.S. taxes withheld from such amount),
to the extent such distribution is paid out of current or accumulated earnings and profits (as determined for U.S. federal income
tax purposes). Distributions in excess of our current and accumulated earnings and profits (as determined for U.S. federal income
tax purposes) will first be treated as a non-taxable return of capital to the extent of the U.S. Holder’s basis in the common
shares and thereafter as gain from the sale or exchange of common shares. See “Sale, Exchange, or Other Disposition of Common
Shares” below.
Dividends
received by U.S. Holders that are individuals, estates, or trusts will be taxed at preferential rates if such dividends meet the
requirements of “qualified dividend income.”
Dividends that fail to meet such requirements, and dividends received
by corporate U.S. Holders, are taxed at ordinary income rates. In order for dividends to qualify as “qualified
dividend income,” an entity must be considered a “qualified foreign corporation” and certain other requirements
must be met. While we believe the Company is a qualified foreign corporation, a dividend received by a U.S. Holder will not be
qualified dividend income if the Company is a passive foreign investment company for the taxable year during which the dividend
is paid or the immediately preceding taxable year. See the discussion below regarding our passive foreign investment
company status under “Passive Foreign Investment Company Rules.”
In the
case of a corporate U.S. Holder, dividends received generally will not be eligible for the dividends-received deduction.
Dividends
paid on the common shares will generally be treated as foreign source income
for U.S. foreign tax credit purposes under
special U.S. federal income tax rules, subject to various classifications and other limitations. The rules relating to computing
foreign tax credits are complex. U.S. Holders should consult their own tax advisors to determine the foreign tax credit implications
of owning common shares.
The distribution rules are complex, and
each U.S. Holder should consult its own tax advisors regarding the distribution rules.
Sale, Exchange, or
Other Disposition of Common Shares
Subject to the passive foreign investment
company rules discussed below, a U.S. Holder that sells or otherwise disposes of common shares will recognize capital gain or
loss for U.S. federal income tax purposes equal to the difference between (i) the U.S. dollar value of the amount realized on
the sale or disposition and (ii) the tax basis, determined in U.S. dollars, of such common shares. Such gain or loss will be treated
as long-term capital gain or loss if the U.S. Holder’s holding period is greater than one year at the time of sale, exchange,
or other disposition. Long-term capital gains of individuals are generally subject to preferential maximum U.S. federal income
tax rates. A U.S. Holder’s ability to deduct capital losses is subject to certain limitations.
Passive Foreign Investment
Company Rules
If the Company is considered a “passive
foreign investment company” (a “PFIC”) for U.S. federal income tax purposes at any time during a U.S. Holder’s
holding period, then certain potentially adverse tax consequences apply to such U.S. Holder’s acquisition, ownership, and
disposition of common shares. In general, a non-U.S. corporation will be a PFIC in any taxable year in which, after applying certain
look-through rules, either (1) at least 75% of its gross income for the taxable year is passive income; or (2) at least 50% of
the average value (determined on a quarterly basis) of its assets is attributable to assets that produce or are held for the production
of passive income. Passive income generally includes dividends, interest, royalties, rents (other than certain rents and royalties
derived in the active conduct of a trade or business), and the excess of gains over losses from the disposition of certain assets
that produce passive income. If a foreign corporation owns at least 25% by value of the stock of another corporation, the foreign
corporation is treated for purposes of the PFIC tests as owning its proportionate share of the assets of the other corporation,
and receiving directly its proportionate share of the other corporation’s income.
We believe that we were a PFIC for
U.S. federal income tax purposes during the fiscal year ended December 31, 2016, and we expect that we will be a PFIC in the current
year and that we may be a PFIC in future years. The determination of whether or not the Company is a PFIC is a factual determination
dependent on a number of factors that cannot be made until the close of the applicable tax year and accordingly no assurances
can be given regarding the Company’s PFIC status for the current year or any future year. The Company’s status as
a PFIC can have significant adverse tax consequences for a U.S. Holder if we are a PFIC for any year during such U.S. Holder’s
holding period.
A U.S. Holder that holds common shares
while the Company is a PFIC may be subject to increased tax liability upon the sale, exchange, or other disposition of the common
shares or upon the receipt of certain distributions, regardless of whether the Company is a PFIC in the year in which such disposition
or distribution occurs. These adverse tax consequences include:
|
(a)
|
“Excess distributions” by the Company
are subject to the following special rules. An excess distribution generally is the excess of the amount a PFIC distributes
to a shareholder during a taxable year over 125% of the average amount it distributed to the shareholder during the three
preceding taxable years or, if shorter, the part of the shareholder’s holding period before the taxable year. Distributions
with respect to the common shares made by ITH during the taxable year to a U.S. Holder that are excess distributions
must be allocated ratably to each day of the U.S. Holder’s holding period. The amounts allocated to
the current taxable year and to taxable years prior to the first year in which ITH was classified as a PFIC are included as
ordinary income in a U.S. Holder’s gross income for that year. The amount allocated to each other prior
taxable year is taxed as ordinary income at the highest tax rate in effect for the U.S. Holder in that prior year (without
offset by any net operating loss for such year) and the tax is subject to an interest charge at the rate applicable to deficiencies
in income taxes (the “special interest charge”).
|
|
(b)
|
The entire amount of any gain realized upon the
sale or other disposition of the common shares will be treated as an excess distribution made in the year of sale or other
disposition and as a consequence will be treated as ordinary income and, to the extent allocated to years prior to the year
of sale or disposition, will be subject to the special interest charge described above.
|
Special rules apply for calculating
the amount of the foreign tax credit with respect to excess distributions by a PFIC.
While there are certain U.S. federal income
tax elections (described below) that can be made to mitigate the adverse tax consequences described above such elections are only
available in limited circumstances and must be made in a timely manner. These rules are very complex and U.S. Holders are urged
to consult their own tax advisers regarding the potential of making an election to mitigate the adverse consequences described
above of the Company being classified as a PFIC.
Qualifying Electing Fund (“QEF”)
Election
. A U.S. Holder of stock in a PFIC, including the Company, may make a QEF election with respect to such PFIC to elect
out of the tax treatment discussed above. Generally, a QEF election should be made with the filing of a U.S. Holder’s
U.S. federal income tax return for the first taxable year for which both (i) the U.S. Holder holds common shares of ITH,
and (ii) the Company was a PFIC. A U.S. Holder that timely makes a valid QEF election with respect to a PFIC will generally
include in gross income for a taxable year (i) as ordinary income, such holder’s pro rata share of the Company’s
ordinary earnings for the taxable year, and (ii) as long-term capital gain, such holder’s pro rata share of the Company’s
net capital gain for the taxable year. However, the QEF election is available only if such PFIC provides such U.S. Holder with
certain information regarding its earnings and profits as required under applicable U.S. Treasury regulations.
There can be
no assurance that ITH will provide U.S. Holders with the information required for them to make a QEF election.
Deemed Sale Election.
If the Company
is a PFIC for any year during which a U.S. Holder holds common shares, but the Company ceases in a subsequent year to be a PFIC,
then a U.S. Holder may make a deemed sale election for such subsequent year in order to avoid the adverse PFIC tax treatment described
above that would otherwise continue to apply because of the Company’s having previously been a PFIC. If such election is
timely made, the U.S. Holder would be deemed to have sold the common shares held by the holder at their fair market value, and
any gain from such deemed sale would be taxed as an excess distribution (as described above). The basis of the common shares would
be increased by the gain recognized, and a new holding period would begin for the common shares for purposes of the PFIC rules.
The U.S. Holder would not recognize any loss incurred on the deemed sale, and such a loss would not result in a reduction
in basis of the common shares. After the deemed sale election, the U.S. Holder’s common shares with respect to which the
deemed sale election was made would not be treated as shares in a PFIC, unless the Company subsequently becomes a PFIC.
Mark-to-Market Election.
Alternatively,
a U.S. Holder of “marketable stock” (as defined in the applicable Treasury regulations) in a PFIC may make a mark-to-market
election for such stock to elect out of the adverse PFIC tax treatment discussed above. If a U.S. Holder makes a mark-to-market
election for shares of marketable stock, the U.S. Holder will include in income each year an amount equal to the excess, if any,
of the fair market value of the shares as of the close of the holder’s taxable year over the holder’s adjusted basis
in such shares. A U.S. Holder is allowed a deduction for the excess, if any, of the adjusted basis of the shares over their fair
market value as of the close of the taxable year. However, deductions are allowable only to the extent of any net mark-to-market
gains on the shares included in the holder’s income for prior taxable years. Amounts included in a U.S. Holder’s income
under a mark-to-market election, as well as gain on the actual sale or other disposition of the shares, are treated as ordinary
income. Ordinary loss treatment also applies to the deductible portion of any mark-to-market loss on the shares, as well as to
any loss realized on the actual sale or disposition of the shares, to the extent that the amount of such loss does not exceed
the net mark-to-market gains previously included for such shares. A U.S. Holder’s basis in the shares will be adjusted to
reflect any such income or loss amounts. However, the special interest charge and related adverse tax consequences described above
for non-electing holders may continue to apply on a limited basis if the U.S. Holder makes the mark-to-market election after such
holder’s holding period for the shares has begun.
Because our common shares are regularly
traded on TSX, the NYSE MKT, and the Frankfurt Stock Exchange, we anticipate that our common shares will be classified as “marketable
stock.” No assurances can be given, however, that our common shares are or will be marketable stock.
Form 8621 (Information Return by a
Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund).
If we are a PFIC for any taxable year during
which a U.S. Holder holds common shares, such U.S. Holder will be required to file an annual information report with such U.S.
Holder’s U.S. Federal income tax return on IRS Form 8621.
The PFIC rules are complex, and U.S. Holders
should consult their own tax advisors regarding the PFIC rules and how they may affect the U.S. federal income tax consequences
of the acquisition, ownership, and disposition of common shares in the event the Company is a PFIC at any time during such holding
period for such common shares.
Medicare Tax
A U.S. Holder that is an individual or
estate, or a trust that does not fall into a special class of trusts that is exempt from such tax, will be subject to a 3.8% tax
on the lesser of (1) the U.S. Holder’s “net investment income” for the relevant taxable year and (2) the
excess of the U.S. Holder’s modified gross income for the taxable year over a certain threshold (which in the case of an
individual will be between $125,000 and $250,000, depending on the individual’s circumstances). A holder’s net investment
income will generally include dividend income and net gains from the disposition of common shares, unless such dividends or net
gains are derived in the ordinary course of the conduct of a trade or business (other than a trade or business that consists of
certain passive or trading activities). U.S. Holders are urged to consult their own tax advisors regarding the applicability of
the Medicare tax in respect of their investment in the common shares.
Disclosure Requirements for Specified
Foreign Financial Assets
U.S. Holders (including certain domestic
corporations, partnerships, and trusts that are considered formed or availed of for the purpose of holding, directly or indirectly,
“specified foreign financial assets,” referred to as “specified domestic entities” in applicable United
States Treasury regulations) that, during any taxable year, hold any interest in any “specified foreign financial asset”
generally will be required to file with their U.S. federal income tax returns certain information on IRS Form 8938 if the aggregate
value of all such assets exceeds certain specified amounts. The term “specified foreign financial asset” generally
includes any financial account maintained with a non-U.S. financial institution, which may include common shares if they are not
held in an account maintained with a financial institution. Substantial penalties may be imposed, and the period of limitations
on assessment and collection of U.S. federal income taxes may be extended, in the event of a failure to comply with this reporting
and filing requirement. U.S. Holders should consult their own tax advisors as to the possible application to them of these requirements.
Foreign Currency Transactions
Generally, amounts received by a U.S.
Holder in foreign currency (including distributions paid in foreign currency to a U.S. Holder in connection with the ownership
of common shares or on the sale, exchange, or other disposition of common shares) will be equal to the U.S. dollar value of such
foreign currency based on the applicable exchange rate on the date of receipt (regardless of whether such foreign currency is
converted into U.S. dollars at that time). The subsequent disposition of any foreign currency received (including an exchange
for U.S. currency) will generally give rise to ordinary gain or loss in an amount equal to the difference between the U.S. dollar
value of the foreign currency on the date it was received and the date of the subsequent disposition. Each U.S. Holder should
consult its own tax adviser regarding the U.S. federal income tax consequences of receiving, owning, and disposing of foreign
currency.
Information Reporting and Backup
Withholding
Payments made within the United States
or by a U.S. payor or U.S. middleman, of dividends on, and/or proceeds arising from the sale or other taxable disposition of,
common shares will generally be subject to information reporting and backup withholding tax (currently at a 28% rate) if a U.S.
Holder (a) fails to furnish such U.S. Holder’s correct U.S. taxpayer identification number (generally on Form W-9), (b)
furnishes an incorrect U.S. taxpayer identification number, (c) is notified by the IRS that such U.S. Holder has previously failed
to properly report items subject to backup withholding tax, or (d) fails to certify, under penalty of perjury, that such U.S.
Holder has furnished its correct U.S. taxpayer identification number and that the IRS has not notified such U.S. Holder that it
is subject to backup withholding tax.
Backup withholding is not an additional
tax. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a credit against a U.S. Holder’s
U.S. federal income tax liability, if any, or will be refunded, if such U.S. Holder furnishes required information to the IRS
in a timely manner. Each U.S. Holder should consult its own tax advisor regarding the information reporting and backup withholding
rules.
Acquiring, owning, or disposing of our
common shares may have tax consequences under the laws of the United States and Canada that are not described in this Annual Report
on Form 10-K. Shareholders are solely responsible for determining the tax consequences applicable to their particular circumstances
and should consult their own tax advisors concerning an investment in the Company’s common shares.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth
in the table below has been taken from the Company’s audited consolidated financial statements and should be read in conjunction
with those financial statements and the notes thereto. The consolidated financial statements have been prepared in accordance
with U.S. generally accepted accounting principles (“U.S. GAAP”). The selected historical financial data is qualified
in its entirety by, and should be read in conjunction with, Item 7, Management’s Discussion and Analysis of Financial Condition
and Results of Operations and the financial statements and the notes thereto attached hereto under Item 8, Financial Statements
and Supplementary Data.
Description
|
|
Year Ended
December 31,
2016
|
|
|
Year Ended
December 31,
2015
|
|
|
Year Ended
December 31,
2014
|
|
|
Year Ended
December 31,
2013
|
|
|
Year Ended
December 31,
2012
|
|
Net loss – continuing operations
|
|
$
|
(7,190,628
|
)
|
|
$
|
(4,812,824
|
)
|
|
$
|
(7,767,096
|
)
|
|
$
|
(9,852,480
|
)
|
|
$
|
(56,643,462
|
)
|
Net loss
|
|
|
(7,190,628
|
)
|
|
|
(4,812,824
|
)
|
|
|
(7,767,096
|
)
|
|
|
(9,852,480
|
)
|
|
|
(56,643,462
|
)
|
Basic and diluted loss per common share from continuing operations
|
|
$
|
(0.06
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
(0.62
|
)
|
Description
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
|
December 31,
2013
|
|
|
December 31,
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
7,588,867
|
|
|
$
|
6,169,233
|
|
|
$
|
12,614,361
|
|
|
$
|
12,699,227
|
|
|
$
|
27,676,797
|
|
Current assets
|
|
|
22,672,714
|
|
|
|
6,685,712
|
|
|
|
13,763,531
|
|
|
|
14,192,923
|
|
|
|
31,424,066
|
|
Total assets
|
|
|
77,901,555
|
|
|
|
61,919,836
|
|
|
|
69,004,700
|
|
|
|
69,464,877
|
|
|
|
86,687,344
|
|
Current liabilities
|
|
|
15,083,847
|
|
|
|
516,479
|
|
|
|
1,149,170
|
|
|
|
1,493,696
|
|
|
|
3,747,269
|
|
Total liabilities
|
|
|
15,083,847
|
|
|
|
14,416,479
|
|
|
|
15,849,170
|
|
|
|
16,293,696
|
|
|
|
26,147,269
|
|
Shareholders’ equity
|
|
$
|
62,817,708
|
|
|
$
|
47,503,357
|
|
|
$
|
53,155,530
|
|
|
$
|
53,171,181
|
|
|
$
|
60,540,075
|
|
ITEM 7. MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Current Business Activities
General
Livengood Gold Project
Developments
During the year ended December 31, 2016
and to the date of this Annual Report on Form 10-K, the Company progressed on a number of opportunities for optimization and reducing
the costs of building and operating a mine at the Project. Outside consultants were retained to conduct additional metallurgical
tests and engineering, including confirmation of the flow sheet and optimizing the operating costs. These inputs were used to
prepare the October 2016 Study, which evaluated several scenarios, ultimately selecting a project that will process 52,600 tons
per day and produce 6.8 million ounces of gold over 23 years. This improved configuration has reduced the capital costs (“CAPEX”)
by 34% or $950 million to $1.84 billion, the process operating cost (“process OPEX”) by 28% or $2.97 per ton to $7.48
per ton, and the all-in costs to $1,247 per ounce, all as compared to the 100,000 tons per day project evaluated in the September
2013 Feasibility Study.
2016
Financing
On December 28, 2016, the Company closed
a non-brokered private placement financing through the issuance of 45,833,334 common shares issued at $0.48 per share for gross
proceeds of $22.0 million. Total share issuance costs for this non-brokered private placement financing amounted to $146,735.
The Company has used $14.7 million of the net proceeds for the final payment with respect to acquisition of certain mining claims
and related rights in the vicinity of the Livengood Gold Project, with the balance to be used for continuation of optimization
studies to further improve and de-risk the Project, required environmental baseline studies, and for general working capital purposes.
Management Changes
On January 23, 2017, the ITH Board approved a management transition plan, which was implemented on January 31, 2017, in which
Karl Hanneman, currently the Chief Operating Officer (COO), became the Chief Executive Officer (CEO), managing both the CEO
and COO responsibilities, and Tom Irwin, the previous CEO, transitioned into a part-time position of Senior Advisor prior
to his being considered for nomination to the Board at the Company's May 2017 Annual General Meeting (AGM).
Appointment of Directors
On December 28, 2016, Marcelo Kim was
appointed as an additional director of ITH, and as the Chair of the Board. Mr. Kim is a Partner at Paulson & Co. Inc., the
Company’s major shareholder, where he oversees global natural resource investments. Commencing from the 2017 AGM of the
Company’s shareholders, Paulson & Co. Inc. will have the right to nominate Mr. Kim and one other individual to stand
for election to the Board. Steve Lang, who has served as the Board Chair since January 2014, was appointed as the lead independent
director for the Company upon the appointment of Mr. Kim as Chair.
Other Developments
On January 12, 2017, the Company paid
$14.7 million for the timely and full satisfaction of the final derivative payment due with respect to acquisition of certain
mining claims and related rights in the vicinity of the Livengood Gold Project. On January 17, 2017, the Full Deed of Reconveyance
releasing the Deed of Trust on the acquired property was recorded and the Company now fully owns this property and has no further
liability with respect to this acquisition.
2017 Outlook
2017 Work Program Details
On January 23, 2017 the Board approved
a 2017 budget of $6.3 million. The work program incorporated in this budget will seek to build upon the Project improvements announced
with the October 2016 Study, focusing on improving the mineralization and alteration models used to support the resource block
model, evaluating alternative block models for production schedule opportunities, and completion of several phases of metallurgical
work to better define and optimize the flowsheet and recovery parameters. The 2017 work program has been specifically designed
to target those aspects of the Project that could deliver the highest NPV increase for the least expenditure. Preliminary work
on the block model and metallurgical recovery variability indicates a potential NPV benefit of up to $280 million and $100 million
respectively (see section below 2017 Work Program Details). The engineering firm of BBA Inc. (BBA), who provided support for the
2016 Pre-feasibility Study (the “2016 PFS”), will be retained to continue work in the 2017 program. Work is also planned
to advance the environmental baseline efforts needed to support future permitting.
However, the Company cautions that,
until this multi-phase metallurgical program and the updated block model are completed and the results thereof are incorporated
into a revised financial model, there can be no assurance that the overall recovery increases, potential process optimizations,
or block model improvements, will, in fact, be realized, or that any such increases, optimizations or improvements will have the
overall effect suggested above
.
The Company remains open to a strategic
alliance to help support the future development of the Project while considering all other appropriate financing options. The
size of the gold resource, the favorable location, and the proven team are some of the reasons the Company would potentially attract
a strategic partner with a long term development horizon who understands the Project is highly leveraged to gold prices.
The Company has sufficient funds to complete
the test programs and engineering work underway.
Results of Operations
Summary of Quarterly Results
Description
|
|
December 31, 2016
|
|
|
September 30, 2016
|
|
|
June 30, 2016
|
|
|
March 31, 2016
|
|
Net loss
|
|
$
|
(1,109,733
|
)
|
|
$
|
(1,524,589
|
)
|
|
$
|
(2,068,850
|
)
|
|
$
|
(2,487,456
|
)
|
Basic and diluted net loss per common share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
|
December 31, 2015
|
|
|
September 30, 2015
|
|
|
June 30, 2015
|
|
|
March 31, 2015
|
|
Net loss
|
|
$
|
(1,119,972
|
)
|
|
$
|
(1,007,489
|
)
|
|
$
|
(2,048,868
|
)
|
|
$
|
(636,495
|
)
|
Basic and diluted net loss per common share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
Significant fluctuations in the Company’s
quarterly net loss have mainly been the result of changes in operating costs and the valuation of the Company’s derivative
liability. The fluctuation in the derivative liability was caused by changes in the price of gold during the period along with
the expected price of gold through the term of the derivative liability, which was paid in January 2017. The following table presents
the unrealized gain or loss on the valuation of the derivative for each quarterly period during the years ended December 31, 2016
and 2015:
Three months ended:
|
|
2016 Unrealized
Gain/(Loss)
|
|
|
2015 Unrealized
Gain/(Loss)
|
|
March 31
|
|
$
|
(700,000
|
)
|
|
$
|
200,000
|
|
June 30
|
|
$
|
(100,000
|
)
|
|
$
|
(100,000
|
)
|
September 30
|
|
$
|
(100,000
|
)
|
|
$
|
400,000
|
|
December 31
|
|
$
|
105,831
|
|
|
$
|
300,000
|
|
Year ended December 31, 2016 compared
to Year ended December 31, 2015
The Company had cash and cash equivalents
of $22,466,493 at December 31, 2016 compared to $6,493,486 at December 31, 2015. The Company incurred a net loss of $7,190,628
for the year ended December 31, 2016, compared to a net loss of $4,812,824 for the year ended December 31, 2015. The following
discussion highlights certain selected financial information and changes in operations between the year ended December 31, 2016
and the year ended December 31, 2015.
Mineral property expenditures were $2,648,631
for the year ended December 31, 2016 compared to $2,381,868 for the year ended December 31, 2015. The increase of $266,763 is
due to increased expenditures for metallurgical studies and engineering partially offset by the Company limiting field activities
to the continuation of critical environmental baseline work while moving forward with a multi-phase metallurgical test work program.
Share-based payment charges were $108,526
during the year ended December 31, 2016 compared to $540,468 during the year ended December 31, 2015. The decrease 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. The Company granted no options during the year ended December 31, 2016 compared to 2,135,200 options during the year
ended December 31, 2015. At December 31, 2016 there was unrecognized compensation expense of $38,644 related to non-vested options
outstanding. The cost is expected to be recognized over a weighted-average remaining period of approximately 0.21 years.
Share based payment charges were allocated
as follows:
Expense category:
|
|
Year ended
December 31,
2016
|
|
|
Year ended
December 31,
2015
|
|
Consulting
|
|
$
|
25,013
|
|
|
$
|
113,150
|
|
Investor relations
|
|
|
6,603
|
|
|
|
27,223
|
|
Wages and benefits
|
|
|
76,910
|
|
|
|
400,095
|
|
|
|
$
|
108,526
|
|
|
$
|
540,468
|
|
Excluding share-based payment charges
of $76,910 and $400,095, respectively, wages and benefits decreased to $2,119,681 for the year ended December 31, 2016 from $2,159,515
for the year ended December 31, 2015. The closure of the Colorado office during 2015 contributed to lower wages and benefits expenses
partially offset by higher healthcare premiums as a result of the base for the employee healthcare programs moving from Colorado
to Alaska.
Excluding share-based payment charges
of $25,013 and $113,150, respectively, consulting fees were $238,321 for the year ended December 31, 2016 compared to $305,274
for the year ended December 31, 2015. The decrease of $66,953 is primarily due to lower consulting fees paid for Chief Financial
Officer services during 2016 as compared to 2015.
Excluding share-based payments, all other
operating expense categories reflected only moderate changes period over period.
Other items amounted to other expense
of $1,076,740 during the year ended December 31, 2016 compared to other income of $1,637,352 in the year ended December 31, 2015.
Total other expense in 2016 resulted from the unrealized loss on the revaluation of the derivative liability of $794,169. This
unrealized loss was caused by the increase in the price per ounce of gold during 2016 and is compared to an unrealized gain of
$800,000 during 2015 which resulted from a decrease in the price of gold during 2015. In addition to the unrealized loss on the
derivative liability, the Company had a foreign exchange loss of $340,551 during the year ended December 31, 2016 compared to
a gain of $990,690 during the year ended December 31, 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 year ended December 31, 2016 was C$1 to US$0.7548 compared to
C$1 to US$0.7820 for the year ended December 31, 2015.
Available-for-sale securities were deemed
not to be impaired for the year ended December 31, 2016 compared to a loss of $219,402 related to the other than temporary impairment
of certain available-for-sale securities during the year ended December 31, 2015.
Year ended December 31, 2015 compared
to Year ended December 31, 2014
The Company had cash and cash equivalents
of $6,493,486 at December 31, 2015 compared to $13,521,473 at December 31, 2014. The Company incurred a net loss of $4,812,824
for the year ended December 31, 2015, compared to a net loss of $7,767,096 for the year ended December 31, 2014. The following
discussion highlights certain selected financial information and changes in operations between the year ended December 31, 2015
and the year ended December 31, 2014.
Mineral property expenditures were $2,381,868
for the year ended December 31, 2015 compared to $2,631,974 for the year ended December 31, 2014. The decrease of $250,106 is
due to the Company limiting field activities to the continuation of critical environmental baseline work while moving forward
with a multi-phase metallurgical test work program.
Professional fees were $230,227 for the
year ended December 31, 2015 compared to $389,218 for the year ended December 31, 2014. The decrease of $158,991 is primarily
due to the Company negotiating lower rates in 2015 for various third party-provided professional fees such as legal and accounting
fees.
Share-based payment charges were $540,468
during the year ended December 31, 2015 compared to $1,285,385 during the year ended December 31, 2014. The decrease in share-based
payment charges during the period was mainly the result of more stock option granted in 2014 as compared to 2015 and a lower fair
value of options in 2015. The Company granted 2,135,200 options during the year ended December 31, 2015 compared to 2,480,000
options during the year ended December 31, 2014. At December 31, 2015 there was unrecognized compensation expense of $118,980
related to non-vested options outstanding. The cost is expected to be recognized over a weighted-average remaining period of approximately
0.82 years.
Share based payment charges were allocated
as follows:
Expense category:
|
|
Year ended
December 31,
2015
|
|
|
Year ended
December 31,
2014
|
|
Consulting
|
|
$
|
113,150
|
|
|
$
|
91,584
|
|
Investor relations
|
|
|
27,223
|
|
|
|
67,923
|
|
Wages and benefits
|
|
|
400,095
|
|
|
|
1,125,878
|
|
|
|
$
|
540,468
|
|
|
$
|
1,285,385
|
|
Excluding share-based payment charges
of $400,095 and $1,125,878, respectively, wages and benefits decreased to $2,159,515 for the year ended December 31, 2015 from
$2,820,873 for the year ended December 31, 2014. A decrease in severance expense of approximately $285,000 from 2014 to 2015 along
with decreased personnel as a result of the resignation of the Company’s Chief Financial Officer effective December 31,
2014 and the closure of the Colorado office during 2015 contributed to lower wages and benefits expenses.
All other operating expense categories
showed moderate decreases period over period reflecting the Company’s efforts to reduce spending.
Other items amounted to other income of
$1,637,352 during the year ended December 31, 2015 compared to other income of $606,192 in the year ended December 31, 2014. Total
other income in 2015 resulted from the unrealized gain on the revaluation of the derivative liability of $800,000. This unrealized
gain was caused by the further decrease in the price per ounce of gold during 2015 and is compared to an unrealized gain of $100,000
during 2014 which resulted from a lesser decrease in the price of gold during 2014. In addition to the unrealized gain on the
derivative liability, the Company had a foreign exchange gain of $990,690 during the year ended December 31, 2015 compared to
a gain of $453,161 during the year ended December 31, 2014 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 year ended December 31, 2015 was C$1 to US$0.7820 compared to
C$1 to US$0.9054 for the year ended December 31, 2014.
The increase in other income was partially
offset by a loss of $219,402 related to the other than temporary impairment of certain available-for-sale securities during the
year ended December 31, 2015. The available-for-sale securities were deemed to be other than temporarily impaired based on the
fair market value of the securities combined with a continued lack of liquidity.
Liquidity 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 December 31, 2016, the Company reported
cash and cash equivalents of $22,466,493 compared to $6,493,486 at December 31, 2015. Net proceeds from financing of approximately
$21.9 million partially offset by expenditures on the Livengood Gold Project of approximately $6.5 million and a negative foreign
currency translation impact of approximately $0.5 million resulted in an increase in cash and cash equivalents of approximately
$16.0 million. The Company continues to utilize its cash resources to pursue opportunities identified in the October 2016 Study,
to fund environmental activities required for preservation of baseline database and future permitting as well as to complete corporate
administrative requirements.
The Company had no cash flows from investing
activities during the years ended December 31, 2016 and December 31, 2015.
Financing activities during the year ended
December 31, 2016 provided proceeds of $21,853,265 from the closing of a non-brokered private placement of common shares in December
2016. Total common shares issued in the financing were 45,833,334 at a price of $0.48 for gross proceeds of $22.0 million. Total
share issuance costs were $146,735. The Company had no cash flows from financing activities during the year ended December 31,
2015.
As at December 31, 2016, the Company had
working capital of $7,588,867 compared to working capital of $6,169,233 at December 31, 2015. 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 2017 work plan at the Livengood Gold Project and satisfy its currently anticipated general and administrative
costs through the 2017 fiscal year. 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, 2017. These essential activities
include maintaining environmental baseline data that in its absence could materially delay future permitting of the Livengood
Gold Project.
The Company will require significant additional
financing to continue its operations (including general and administrative expenses) in connection with advancing activities at
the Livengood Gold Project and the development of any mine that may be determined to be built at the Livengood Gold Project, and
there is no assurance that the Company will be able to obtain the additional financing required on acceptable terms, if at all.
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, although there can be no assurance that any such strategic
alliance will, in fact, be realized.
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.” 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 additional financing, it may be required to reduce all discretionary
activities at the Project to preserve its working capital to fund anticipated non-discretionary expenditures beyond the 2017 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 and Commitments
The following table discloses, as of December
31, 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 expenditures, 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 by Year
|
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022 and
beyond
|
|
|
Total
|
|
Livengood Property Purchase
(1)
|
|
$
|
14,694,169
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
14,694,169
|
|
Mineral Property Leases
(2)
|
|
|
416,678
|
|
|
|
426,653
|
|
|
|
431,703
|
|
|
|
436,829
|
|
|
|
442,031
|
|
|
|
447,311
|
|
|
|
2,601,205
|
|
Mining Claim Government Fees
|
|
|
114,925
|
|
|
|
114,925
|
|
|
|
114,925
|
|
|
|
114,925
|
|
|
|
114,925
|
|
|
|
114,925
|
|
|
|
689,550
|
|
Total
|
|
$
|
15,225,772
|
|
|
$
|
541,578
|
|
|
$
|
546,628
|
|
|
$
|
551,754
|
|
|
$
|
556,956
|
|
|
$
|
562,236
|
|
|
$
|
17,984,924
|
|
|
1.
|
The amount payable in January
2017 of $14,694,169 represents the fair value of the Company’s derivative liability
as at December 31, 2016 based on the five-year average daily gold price for the period
of December 13, 2011 through December 12, 2016. On January 12, 2017, this amount was
paid by the Company for the timely and full satisfaction of the final derivative payment.
|
|
2.
|
Does not include required work
expenditures, as it is assumed that the required expenditure level is significantly below
the work which will actually be carried out by the Company. Does not include potential
royalties that may be payable (other than annual minimum royalty payments).
|
Off-Balance Sheet Arrangements
The Company does not have any off balance
sheet arrangements.
Critical Accounting Policies
Mineral properties and exploration
and evaluation expenditures
The Company’s mineral project is
currently in the exploration and evaluation phase. Mineral property acquisition costs are capitalized when incurred. Mineral property
exploration costs are expensed as incurred. At such time that the Company determines that a mineral property can be economically
developed, subsequent mineral property expenses will be capitalized during the development of such property.
The Company assesses interests in exploration
properties for impairment when facts and circumstances suggest that the carrying amount of an asset may exceed its recoverable
amount. Impairment analysis includes assessment of the following circumstances: a significant decrease in the market price of
a long-lived asset or asset group; a significant adverse change in the extent or manner in which a long-lived asset or asset group
is being used or in its physical condition; a significant adverse change in legal factors or in the business climate that could
affect the value of a long-lived asset or asset group, including an adverse action or assessment by a regulator; an accumulation
of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset or
asset group; a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection
or forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group; a current expectation
that, more likely than not, a long-lived asset or asset group will be sold or otherwise disposed of significantly before the end
of its previously estimated useful life. The term more likely than not refers to a level of likelihood that is more than 50%.
Derivatives
Derivative financial liabilities include
the Company’s future contingent payment based on the five-year average daily gold price from the date of the acquisition
on December 13, 2011 through December 12, 2016. Derivatives are initially recognized at their fair value on the date the derivative
contract is entered into and are subsequently re-measured at their fair value at each reporting period with changes in the fair
value recognized in profit and loss. Fluctuations in the Company’s derivative liability are driven by the price of gold
during the term of the liability. On January 12, 2017, the Company paid $14,694,169 for the timely and full satisfaction of the
final derivative payment due with respect to the acquisition of certain mining claims and related rights in the vicinity of the
Livengood Gold Project. On January 17, 2017, the Full Deed of Reconveyance releasing the Deed of Trust on the acquired property
was recorded and the Company is now in full ownership and has no further liability with respect to this acquisition.
Stock-based compensation
The Company follows the provisions of
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Section 718 “Compensation -
Stock Compensation”, which establishes accounting for equity based compensation awards to be accounted for using the fair
value method. The Company uses the Black-Scholes option pricing model to determine the grant date fair value of the awards. Compensation
expense is measured at the grant date and recognized over the requisite service period, which is generally the vesting period.
Recently Adopted Accounting Policies
For a description of recently adopted
accounting policies, please see Note 2 –
Summary Of Significant Accounting Policies
within our Notes to Consolidated
Financial Statements in Item 8 of this Annual Report on Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK.
The Company has exposure to market risk
in areas of interest rate risk, foreign currency exchange rate risk, concentration of credit risk and other price risk.
Interest Rate Risk
Interest rate risk consists of the risk
that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.
The Company’s cash and cash equivalents
consists of cash and cash equivalents held in bank accounts in the United States and Canada and short term deposit certificates
or Guaranteed Investment Certificates with a major Canadian financial institution that earn interest at variable interest rates.
Future cash flows from interest income on cash and cash equivalents will be affected by interest rate fluctuations. Due to the
short-term nature of these financial instruments, fluctuations in market rates do not have a significant impact on estimated fair
values.
At December 31, 2016, the Company held a
total of $22,466,493 in cash and cash equivalents which include interest bearing accounts and Guaranteed Investment Certificates.
The Company manages interest rate risk
by maintaining an investment policy that focuses primarily on preservation of capital and liquidity. The Company’s sensitivity
analysis suggests that a 0.5% change in interest rates would affect interest income by approximately $32,500.
Foreign Currency Risk
The Company is exposed to foreign currency
risk to the extent that certain monetary financial instruments and other assets are denominated in Canadian dollars. As the majority
of the Company’s assets are denominated in U.S. dollars, currency risk is limited to those Canadian cash balances. The Company
has not entered into any foreign currency contracts to mitigate this risk. Over the past twelve months, the U.S. to Canadian dollar
exchange rate has fluctuated as much as 8%. The Company’s sensitivity analysis suggests that a consistent 8% change in the
absolute rate of exchange for the Canadian dollar would affect net assets by approximately $36,000. Furthermore, depending on
the amount of cash held by the Company in Canadian dollars at the end of each reporting period using the period end exchange rate,
significant changes in the exchange rates could cause significant changes to the currency translation amounts recorded to accumulated
other comprehensive income.
As at December 31, 2016, Canadian dollar
balances were converted at a rate of C$1 to $0.7448.
Credit Risk
Concentration of credit risk exists with
respect to the Company’s cash and cash equivalents as all amounts are held at one major Canadian financial institution.
Credit risk with regard to cash held in the United States at U.S. subsidiaries is mitigated as the amount held in the United States
is only sufficient to cover short-term cash requirements. With respect to receivables at December 31, 2016, the Company is not
exposed to significant credit risk as the receivables are principally interest accruals.
Other Price Risk
Other price risk is the risk that the
fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices, other than those
arising from interest rate risk or foreign exchange risk. The Company’s investment in marketable securities is exposed to
such risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA.
Report of Independent Registered Public
Accounting Firm
To the Shareholders of International
Tower Hill Mines Ltd.
We have audited the accompanying consolidated
financial statements of International Tower Hill Mines Ltd. which comprise the consolidated balance sheets as of December 31,
2016 and December 31, 2015 and the related consolidated statements of operations and comprehensive loss, changes in shareholders’
equity and cash flows for each of the years in the three-year period December 31, 2016, and the related notes, which comprise
a summary of significant accounting policies and other explanatory information. Management is responsible for these consolidated
financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.
Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures
in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management,
and evaluating the overall consolidated financial statement presentation. We were not engaged to perform an audit of the company’s
internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of International Tower Hill Mines
Ltd. as of December 31, 2016 and December 31, 2015 and the results of its operations and its cash flows for each of the years
in the three-year period ended December 31, 2016 in conformity with accounting principles generally accepted in the United States
of America.
/s/ PricewaterhouseCoopers LLP
Chartered Professional Accountants
Vancouver, British Columbia
March 14, 2017
INTERNATIONAL TOWER HILL MINES LTD.
(An Exploration Stage Company)
CONSOLIDATED BALANCE SHEETS
As at December 31, 2016 and 2015
(Expressed
in U.S. Dollars)
|
|
Note
|
|
|
December 31,
2016
|
|
|
December
31,
2015
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
$
|
22,466,493
|
|
|
$
|
6,493,486
|
|
Prepaid expenses and other
|
|
|
|
|
|
|
206,221
|
|
|
|
192,226
|
|
Total current assets
|
|
|
|
|
|
|
22,672,714
|
|
|
|
6,685,712
|
|
Property and equipment
|
|
|
|
|
|
|
24,800
|
|
|
|
30,083
|
|
Capitalized acquisition costs
|
|
|
4
|
|
|
|
55,204,041
|
|
|
|
55,204,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
$
|
77,901,555
|
|
|
$
|
61,919,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
|
|
|
$
|
179,496
|
|
|
$
|
122,043
|
|
Accrued liabilities
|
|
|
|
|
|
|
210,182
|
|
|
|
394,436
|
|
Derivative liability
|
|
|
6
|
|
|
|
14,694,169
|
|
|
|
-
|
|
Total current liabilities
|
|
|
|
|
|
|
15,083,847
|
|
|
|
516,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
|
6
|
|
|
|
-
|
|
|
|
13,900,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
|
|
15,083,847
|
|
|
|
14,416,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital, no par value; authorized 500,000,000
shares; 162,186,972 and 116,313,638 shares issued and outstanding at December 31, 2016 and 2015, respectively
|
|
|
8
|
|
|
|
265,569,796
|
|
|
|
243,692,185
|
|
Contributed surplus
|
|
|
|
|
|
|
34,079,301
|
|
|
|
33,979,717
|
|
Accumulated other comprehensive income
|
|
|
|
|
|
|
1,344,219
|
|
|
|
816,435
|
|
Deficit accumulated during
the exploration stage
|
|
|
|
|
|
|
(238,175,608
|
)
|
|
|
(230,984,980
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity
|
|
|
|
|
|
|
62,817,708
|
|
|
|
47,503,357
|
|
Total liabilities and shareholders’ equity
|
|
|
|
|
|
$
|
77,901,555
|
|
|
$
|
61,919,836
|
|
Nature of operations
(Note 1)
Commitments
(Note 10)
Subsequent events
(Note 6)
The accompanying notes are an integral
part of these consolidated financial statements.
INTERNATIONAL TOWER HILL MINES LTD.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
For the Years Ended December 31, 2016,
2015 and 2014
(Expressed
in U.S. Dollars)
|
|
Note
|
|
|
December
31,
2016
|
|
|
December
31,
2015
|
|
|
December
31,
2014
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting fees
|
|
|
|
|
|
$
|
263,334
|
|
|
$
|
418,424
|
|
|
$
|
333,145
|
|
Depreciation
|
|
|
|
|
|
|
5,283
|
|
|
|
7,047
|
|
|
|
15,779
|
|
Insurance
|
|
|
|
|
|
|
267,863
|
|
|
|
259,753
|
|
|
|
270,724
|
|
Investor relations
|
|
|
|
|
|
|
90,749
|
|
|
|
132,305
|
|
|
|
221,665
|
|
Mineral property exploration
|
|
|
4
|
|
|
|
2,648,631
|
|
|
|
2,381,868
|
|
|
|
2,631,974
|
|
Office
|
|
|
|
|
|
|
38,381
|
|
|
|
33,643
|
|
|
|
68,941
|
|
Other
|
|
|
|
|
|
|
18,976
|
|
|
|
19,789
|
|
|
|
28,792
|
|
Professional fees
|
|
|
|
|
|
|
222,605
|
|
|
|
230,227
|
|
|
|
389,218
|
|
Regulatory
|
|
|
|
|
|
|
130,871
|
|
|
|
160,503
|
|
|
|
119,154
|
|
Rent
|
|
|
|
|
|
|
141,444
|
|
|
|
153,178
|
|
|
|
225,405
|
|
Travel
|
|
|
|
|
|
|
89,160
|
|
|
|
93,829
|
|
|
|
121,740
|
|
Wages and benefits
|
|
|
|
|
|
|
2,196,591
|
|
|
|
2,559,610
|
|
|
|
3,946,751
|
|
Total operating expenses
|
|
|
|
|
|
|
(6,113,888
|
)
|
|
|
(6,450,176
|
)
|
|
|
(8,373,288
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain/(loss) on foreign exchange
|
|
|
|
|
|
|
(340,551
|
)
|
|
|
990,690
|
|
|
|
453,161
|
|
Interest income
|
|
|
|
|
|
|
17,490
|
|
|
|
43,670
|
|
|
|
56,670
|
|
Impairment of available-for-sale securities
|
|
|
|
|
|
|
-
|
|
|
|
(219,402
|
)
|
|
|
-
|
|
Unrealized gain/(loss) on derivative
|
|
|
6
|
|
|
|
(794,169
|
)
|
|
|
800,000
|
|
|
|
100,000
|
|
Other
|
|
|
|
|
|
|
40,490
|
|
|
|
22,394
|
|
|
|
(3,639
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
|
|
|
|
(1,076,740
|
)
|
|
|
1,637,352
|
|
|
|
606,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year
|
|
|
|
|
|
|
(7,190,628
|
)
|
|
|
(4,812,824
|
)
|
|
|
(7,767,096
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on marketable securities
|
|
|
|
|
|
|
(10,794
|
)
|
|
|
(5,838
|
)
|
|
|
(24,717
|
)
|
Impairment of available-for-sale securities
|
|
|
|
|
|
|
-
|
|
|
|
219,402
|
|
|
|
-
|
|
Exchange difference on translating foreign operations
|
|
|
|
|
|
|
538,578
|
|
|
|
(1,593,381
|
)
|
|
|
(800,312
|
)
|
Total other comprehensive loss for the year
|
|
|
|
|
|
|
527,784
|
|
|
|
(1,379,817
|
)
|
|
|
(825,029
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss for the year
|
|
|
|
|
|
$
|
(6,662,844
|
)
|
|
$
|
(6,192,641
|
)
|
|
$
|
(8,592,125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and fully diluted net loss per share
|
|
|
|
|
|
$
|
(0.06
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding
|
|
|
|
|
|
|
116,708,228
|
|
|
|
116,313,638
|
|
|
|
99,068,364
|
|
The accompanying notes are an integral
part of these consolidated financial statements.
INTERNATIONAL TOWER HILL MINES LTD.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS’ EQUITY
For the Years Ended December 31, 2016,
2015 and 2014
(Expressed
in U.S. Dollars)
|
|
Number of
shares
|
|
|
Share capital
|
|
|
Contributed
surplus
|
|
|
Accumulated
other
comprehensive
income/(loss)
|
|
|
Deficit
|
|
|
Total
|
|
Balance, December 31, 2013
|
|
|
98,068,638
|
|
|
$
|
236,401,096
|
|
|
$
|
32,153,864
|
|
|
$
|
3,021,281
|
|
|
$
|
(218,405,060
|
)
|
|
$
|
53,171,181
|
|
Private placement
|
|
|
18,245,000
|
|
|
|
7,315,917
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,315,917
|
|
Share issuance costs
|
|
|
-
|
|
|
|
(24,828
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(24,828
|
)
|
Stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
1,285,385
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,285,385
|
|
Unrealized loss on available-for-sale securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(24,717
|
)
|
|
|
-
|
|
|
|
(24,717
|
)
|
Exchange difference on translating foreign operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(800,312
|
)
|
|
|
-
|
|
|
|
(800,312
|
)
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,767,096
|
)
|
|
|
(7,767,096
|
)
|
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
|
|
|
-
|
|
|
|
-
|
|
|
|
540,468
|
|
|
|
-
|
|
|
|
-
|
|
|
|
540,468
|
|
Unrealized loss on available-for-sale securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,838
|
)
|
|
|
-
|
|
|
|
(5,838
|
)
|
Impairment of available-for-sale securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
219,402
|
|
|
|
-
|
|
|
|
219,402
|
|
Exchange difference on translating foreign operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,593,381
|
)
|
|
|
-
|
|
|
|
(1,593,381
|
)
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,812,824
|
)
|
|
|
(4,812,824
|
)
|
Balance, December 31, 2015
|
|
|
116,313,638
|
|
|
|
243,692,185
|
|
|
|
33,979,717
|
|
|
|
816,435
|
|
|
|
(230,984,980
|
)
|
|
|
47,503,357
|
|
Private placement
|
|
|
45,833,334
|
|
|
|
22,000,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22,000,000
|
|
Share issuance costs
|
|
|
-
|
|
|
|
(146,735
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(146,735
|
)
|
Stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
108,526
|
|
|
|
-
|
|
|
|
-
|
|
|
|
108,526
|
|
Unrealized loss on available-for-sale securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(10,794
|
)
|
|
|
-
|
|
|
|
(10,794
|
)
|
Exchange difference on translating foreign operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
538,578
|
|
|
|
-
|
|
|
|
538,578
|
|
Exercise of options
|
|
|
40,000
|
|
|
|
15,404
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,404
|
|
Reallocation from contributed surplus
|
|
|
-
|
|
|
|
8,942
|
|
|
|
(8,942
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,190,628
|
)
|
|
|
(7,190,628
|
)
|
Balance, December 31, 2016
|
|
|
162,186,972
|
|
|
$
|
265,569,796
|
|
|
$
|
34,079,301
|
|
|
$
|
1,344,219
|
|
|
$
|
(238,175,608
|
)
|
|
$
|
62,817,708
|
|
The accompanying notes
are an integral part of these consolidated financial statements.
INTERNATIONAL TOWER HILL MINES LTD.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2016,
2015 and 2014
(Expressed
in U.S. Dollars)
|
|
December
31,
2016
|
|
|
December
31,
2015
|
|
|
December
31,
2014
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the year
|
|
$
|
(7,190,628
|
)
|
|
$
|
(4,812,824
|
)
|
|
$
|
(7,767,096
|
)
|
Add items not affecting cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
5,283
|
|
|
|
7,047
|
|
|
|
15,779
|
|
Share-based payments
|
|
|
108,526
|
|
|
|
540,468
|
|
|
|
1,285,385
|
|
Unrealized (gain)/loss on derivative liability
|
|
|
794,169
|
|
|
|
(800,000
|
)
|
|
|
(100,000
|
)
|
Impairment of available-for-sale securities
|
|
|
-
|
|
|
|
219,402
|
|
|
|
-
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
15,004
|
|
Changes in non-cash items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
40,522
|
|
|
|
115,527
|
|
|
|
44,744
|
|
Prepaid expenses
|
|
|
4,635
|
|
|
|
(27,786
|
)
|
|
|
25,727
|
|
Advance to contractors
|
|
|
-
|
|
|
|
30,682
|
|
|
|
(30,682
|
)
|
Accounts payable and accrued liabilities
|
|
|
(127,452
|
)
|
|
|
(612,304
|
)
|
|
|
(332,439
|
)
|
Cash used
in operating activities
|
|
|
(6,364,945
|
)
|
|
|
(5,339,788
|
)
|
|
|
(6,843,578
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of share capital
|
|
|
22,015,404
|
|
|
|
-
|
|
|
|
7,315,917
|
|
Share issuance costs
|
|
|
(146,735
|
)
|
|
|
-
|
|
|
|
(24,828
|
)
|
Cash provided
by financing activities
|
|
|
21,868,669
|
|
|
|
-
|
|
|
|
7,291,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in restricted cash
|
|
|
-
|
|
|
|
-
|
|
|
|
30,477
|
|
Capitalized acquisition costs
|
|
|
-
|
|
|
|
-
|
|
|
|
(30,477
|
)
|
Cash used
in investing activities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of
foreign exchange on cash
|
|
|
469,283
|
|
|
|
(1,688,199
|
)
|
|
|
(851,639
|
)
|
Increase/(decrease) in cash and
cash equivalents
|
|
|
15,973,007
|
|
|
|
(7,027,987
|
)
|
|
|
(404,128
|
)
|
Cash and
cash equivalents, beginning of year
|
|
|
6,493,486
|
|
|
|
13,521,473
|
|
|
|
13,925,601
|
|
Cash and cash equivalents, end of year
|
|
$
|
22,466,493
|
|
|
$
|
6,493,486
|
|
|
$
|
13,521,473
|
|
The accompanying
notes are an integral part of these consolidated financial statements.
INTERNATIONAL TOWER HILL MINES LTD.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
|
1.
|
GENERAL INFORMATION,
NATURE OF OPERATIONS
|
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 December 31, 2016, the Company was in the exploration stage and controls a 100% interest in its
Livengood Gold Project in Alaska, U.S.A.
These consolidated 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.
The Company will 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. There is no assurance that the Company
will be able to obtain the additional financing required on acceptable terms, if at all.
As of December 31, 2016, the amount
of the contingent payment was $14,694,169. On January 12, 2017, the Company paid $14,694,169 for the timely and full satisfaction
of the final derivative payment due with respect to the acquisition of certain mining claims and related rights in the vicinity
of 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 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. 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 additional financing, it may
be required to reduce all discretionary activities at the Project to preserve its working capital to fund anticipated non-discretionary
expenditures beyond the 2017 fiscal year.
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
Basis of presentation
These consolidated financial statements
are presented in United States dollars and have been prepared in accordance with U.S. generally accepted accounting principles
(“U.S. GAAP”). On March 14, 2017, the Board approved the consolidated financial statements dated December 31, 2016.
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.
Significant judgments,
estimates and assumptions
The preparation of financial
statements in accordance 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 regularly
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.
The areas which require significant
judgment and estimates that management has made at the financial reporting date, that could result in a material change to the
carrying amounts of assets and liabilities, in the event actual results differ from the assumptions made, relate to, but are not
limited to the following:
Significant judgments
|
·
|
the
determination of functional currencies;
|
|
·
|
quantitative
and qualitative factors used in the assessment of impairment of the Company’s capitalized
acquisition costs; and
|
|
·
|
the
analysis of resource calculations, drill results, labwork, etc. which can impact the
Company’s assessment of impairment, and provisions, if any, for environmental rehabilitation
and restoration.
|
Cash and cash equivalents
Cash equivalents include highly
liquid investments with original maturities of twelve months or less, and which are subject to an insignificant risk of change
in value. Cash equivalents are held for the purpose of meeting short-term cash commitments rather than for investment or other
purposes.
Marketable securities
Marketable securities held in companies
with an active market are classified as available-for-sale securities. Available-for-sale securities are recorded at fair value
in the financial statements with unrealized gains and losses recorded in accumulated other comprehensive income. Accumulated unrealized
gains and losses are recognized in the statement of operations upon the sale of the security or if the security is determined
to be impaired.
Property and equipment
On initial recognition, property
and equipment are valued at cost. Property and equipment is subsequently measured at cost less accumulated depreciation, less
any accumulated impairment losses, with the exception of land which is not depreciated. Depreciation is recorded over the estimated
useful life of the assets at the following annual rates:
Computer equipment -
30% declining balance;
Computer software - 3
years straight line;
Furniture and equipment
- 20% declining balance; and
Leasehold improvements
- straight-line over the lease term.
Additions during the year are depreciated
at one-half the annual rates. Depreciation methods, useful lives and residual values are reviewed at each financial year-end and
adjusted if appropriate.
Mineral properties and exploration
and evaluation expenditures
The Company’s mineral project
is currently in the exploration and evaluation phase. Mineral property acquisition costs are capitalized when incurred. Mineral
property exploration costs are expensed as incurred. At such time that the Company determines that a mineral property can be economically
developed, subsequent mineral property expenses will be capitalized during the development of such property.
The Company assesses interests
in exploration properties for impairment when facts and circumstances suggest that the carrying amount of an asset may exceed
its recoverable amount. Impairment analysis includes assessment of the following circumstances: a significant decrease in the
market price of a long-lived asset or asset group; a significant adverse change in the extent or manner in which a long-lived
asset or asset group is being used or in its physical condition; a significant adverse change in legal factors or in the business
climate that could affect the value of a long-lived asset or asset group, including an adverse action or assessment by a regulator;
an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived
asset or asset group; a current-period operating or cash flow loss combined with a history of operating or cash flow losses or
a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group; a current
expectation that, more likely than not, a long-lived asset or asset group will be sold or otherwise disposed of significantly
before the end of its previously estimated useful life. The term more likely than not refers to a level of likelihood that
is more than 50%.
Asset retirement
obligations
The Company records a liability
based on the best estimate of costs for site closure and reclamation activities that the Company is legally or contractually required
to remediate. The provision for closure and reclamation liabilities is estimated using expected cash flows based on engineering
and environmental reports and accreted to full value over time through periodic charges to income. The Company does not have any
material provisions for environmental rehabilitation as of December 31, 2016.
Derivatives
Derivative
financial liabilities include the Company’s future contingent payment based on the five-year average daily gold price from
the date of the acquisition on December 13, 2011 through December 12, 2016. Derivatives are initially recognized at their fair
value on the date the derivative contract is entered into and are subsequently re-measured at their fair value at each reporting
period with changes in the fair value recognized in profit and loss. Fluctuations in the Company’s derivative liability
are driven by the price of gold during the term of the liability.
Income taxes
The Company
accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to be recovered or settled. Under the asset and
liability method, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. A valuation allowance is recognized if it is more likely than not that some portion or the entire
deferred tax asset will not be recognized.
Net loss per share
Basic loss per share is calculated
using the weighted average number of common shares outstanding during the period. Diluted loss per share reflects the potential
dilution that could occur if securities or contracts that may require the issuance of common shares in the future were converted,
unless the impact is anti-dilutive.
Stock-based compensation
The Company follows the provisions
of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Section 718 “Compensation
- Stock Compensation”, which establishes accounting for equity based compensation awards to be accounted for using the fair
value method. The Company uses the Black-Scholes option pricing model to determine the grant date fair value of the awards. Compensation
expense is measured at the grant date and recognized over the requisite service period, which is generally the vesting period.
Recently Adopted Accounting
Policies
In August 2015, the FASB issued
Accounting Standards Update 2014-15, Presentation of Financial Statements – Going Concern (Topic 205-40): Disclosures Related
to Uncertainties About Going Concern (“ASU 2014-15”). ASU 2014-15 provides guidance about management’s responsibility
to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related
footnote disclosure. The new standard incorporates some of the principles of the current auditing standards and builds upon them,
as follows:
|
•
|
Requires an
assessment each annual and interim reporting period.
|
|
•
|
Defines substantial
doubt.
|
|
•
|
Sets a look-forward
period of one year from the financial statement issuance date.
|
|
•
|
Requires disclosures
even when an initially-identified substantial doubt is alleviated by management's plans.
|
The amendments in ASU 2014-15 are
effective for years ending after December 15, 2016 and for years and interim periods thereafter.
The Company adopted ASU 2014-15
for the year ended December 31, 2016 and implementation has had minimal impact.
|
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 December
31, 2016
|
|
|
|
Level 1
|
|
|
Level 2
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
$
|
22,754
|
|
|
$
|
-
|
|
|
|
$
|
22,754
|
|
|
$
|
-
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
Derivative liability (Note 6)
|
|
$
|
-
|
|
|
$
|
14,694,169
|
|
|
|
$
|
-
|
|
|
$
|
14,694,169
|
|
|
|
Fair value as at December
31, 2015
|
|
|
|
Level 1
|
|
|
Level 2
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
$
|
11,741
|
|
|
$
|
-
|
|
|
|
$
|
11,741
|
|
|
$
|
-
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
Derivative liability (Note 6)
|
|
$
|
-
|
|
|
$
|
13,900,000
|
|
|
|
$
|
-
|
|
|
$
|
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, 2014
|
|
$
|
55,204,041
|
|
Additions
|
|
|
-
|
|
Balance, December 31, 2015
|
|
$
|
55,204,041
|
|
Additions
|
|
|
-
|
|
Balance, December 31, 2016
|
|
$
|
55,204,041
|
|
The following table presents costs
incurred for exploration and evaluation activities for the years ended December 31, 2016 and 2015:
|
|
Year ended
December 31, 2016
|
|
|
Year ended
December 31, 2015
|
|
Exploration costs:
|
|
|
|
|
|
|
|
|
Aircraft services
|
|
$
|
6,511
|
|
|
$
|
4,185
|
|
Assay
|
|
|
-
|
|
|
|
9,984
|
|
Environmental
|
|
|
287,629
|
|
|
|
639,172
|
|
Equipment rental
|
|
|
42,755
|
|
|
|
44,514
|
|
Field costs
|
|
|
107,166
|
|
|
|
186,661
|
|
Geological/geophysical
|
|
|
1,665,296
|
|
|
|
945,390
|
|
Land maintenance & tenure
|
|
|
498,635
|
|
|
|
501,321
|
|
Legal
|
|
|
31,745
|
|
|
|
21,887
|
|
Transportation and travel
|
|
|
8,894
|
|
|
|
28,754
|
|
Total expenditures for the year
|
|
$
|
2,648,631
|
|
|
$
|
2,381,868
|
|
Properties acquired from AngloGold,
Alaska
Pursuant to an Asset Purchase and
Sale and Indemnity Agreement dated June 30, 2006, as amended on July 26, 2007 (the “AngloGold Agreement”), among the
Company, AngloGold Ashanti (U.S.A.) Exploration Inc. (“AngloGold”) and TH Alaska, the Company acquired all of AngloGold’s
interest in a portfolio of seven mineral exploration projects in Alaska and referred to as the Livengood, Chisna, Gilles, Coffee
Dome, West Pogo, Blackshell, and Caribou properties (the “Sale Properties”) in exchange for a cash payment of $50,000
on August 4, 2006, and the issuance of 5,997,295 common shares, representing approximately 19.99% of the Company’s issued
shares following the closing of the acquisition and two private placement financings raising an aggregate of C$11,479,348. AngloGold
had the right to maintain its percentage equity interest in the Company, on an ongoing basis, provided that such right terminated
if AngloGold’s interest was reduced below 10% at any time after January 1, 2009.
As further consideration for the
transfer of the Sale Properties, the Company granted to AngloGold a 90 day right of first offer with respect to the Sale Properties
and any additional mineral properties in Alaska in which the Company acquires an interest and which interest the Company proposes
to farm out or otherwise dispose of. Upon AngloGold’s equity interest in the Company being reduced to less than 10%, this
right of first offer would then terminate. On December 11, 2014 the Company closed a private placement financing in which AngloGold
elected not to participate. As a result of the shares issued in this private placement, AngloGold’s ownership in the Company
was reduced to less than 10% and thus both AngloGold’s right to maintain its ownership percentage interest and its right
of first offer on the Company’s Alaskan properties terminated upon the closing of the December 2014 private placement.
Details of the Livengood Property
(being the only Sale Property still held by the Company) are as follows:
Livengood Property:
The Livengood property is located
in the Tintina gold belt approximately 113 kilometers (70 miles) north 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 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. As of December 31, 2016 the Company has
paid $2,302,666 from the inception of this lease.
|
|
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.
As of December 31, 2016, the Company has paid $630,000 from the inception of this lease.
|
|
c)
|
a lease of patented lode 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. As of December 31, 2016, the Company has paid $165,000 from the inception
of this lease.
|
|
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. As of December 31, 2016,
the Company has paid $113,000 from the inception of this lease.
|
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.
The following table presents the
accrued liabilities balances at December 31, 2016 and 2015.
|
|
December
31,
2016
|
|
|
December
31,
2015
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
41,682
|
|
|
$
|
247,034
|
|
Accrued severance
|
|
|
-
|
|
|
|
19,900
|
|
Accrued salaries and benefits
|
|
|
168,500
|
|
|
|
127,502
|
|
Total accrued liabilities
|
|
$
|
210,182
|
|
|
$
|
394,436
|
|
Accrued liabilities at December
31, 2016 include accruals for general corporate costs and project costs of $13,406 and $28,276, 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. As at December 12, 2016, the five-year average daily gold price was
$1,354.79 resulting in a derivative liability of $14,694,169. The obligation to make the contingent payment was secured by a Deed
of Trust over the rights of the Company in the purchased claims in favor of the vendors. On December 28, 2016, the Company closed
a non-brokered private placement financing of 45,833,334 common shares at a price of $0.48 per share for gross proceeds of $22.0
million. On January 12, 2017, the Company paid $14,694,169 for the timely and full satisfaction of the final derivative payment
due with respect to the acquisition of certain mining claims and related rights in the vicinity of the Livengood Gold Project.
The fair value of the derivative
liability and the calculated Average Gold Price are as follows:
|
|
Fair value
|
|
|
Average Gold
Price/oz.
|
|
|
|
|
|
|
|
|
|
|
Derivative value at December 31, 2014
|
|
$
|
14,700,000
|
|
|
$
|
1,356
|
|
Unrealized gain for the year
|
|
|
(800,000
|
)
|
|
|
|
|
Derivative value at December 31, 2015
|
|
|
13,900,000
|
|
|
$
|
1,320
|
|
Unrealized gain for the year
|
|
|
794,169
|
|
|
|
|
|
Derivative value at December 31, 2016
|
|
$
|
14,694,169
|
|
|
$
|
1,355
|
|
A reconciliation of income taxes
at statutory rates with the reported taxes is as follows for the years ended December 31, 2016 and 2015:
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Loss before income taxes
|
|
$
|
(7,190,628
|
)
|
|
$
|
(4,812,824
|
)
|
Statutory Canadian corporate tax rate
|
|
|
25.00
|
%
|
|
|
25.00
|
%
|
|
|
|
|
|
|
|
|
|
Income tax recovery at statutory rates
|
|
$
|
(1,797,657
|
)
|
|
$
|
(1,203,207
|
)
|
Share-based payments
|
|
|
27,132
|
|
|
|
135,117
|
|
Unrecognized items for tax purposes
|
|
|
173,684
|
|
|
|
(172,870
|
)
|
Difference in tax rates in other jurisdictions
|
|
|
(1,073,449
|
)
|
|
|
(756,235
|
)
|
Change in valuation allowance
|
|
|
2,670,290
|
|
|
|
1,997,195
|
|
|
|
|
|
|
|
|
|
|
Income tax recovery
|
|
$
|
-
|
|
|
$
|
-
|
|
The significant components
of the Company’s deferred income tax assets and liabilities are as follows:
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Deferred income tax assets (liabilities):
|
|
|
|
|
|
|
|
|
Mineral properties
|
|
$
|
57,243,323
|
|
|
$
|
57,243,323
|
|
Derivative liability
|
|
|
(1,824,065
|
)
|
|
|
(1,996,400
|
)
|
Donations
|
|
|
92,160
|
|
|
|
92,160
|
|
Other
|
|
|
55,582
|
|
|
|
55,349
|
|
Share issue costs
|
|
|
31,830
|
|
|
|
31,438
|
|
Non-capital losses available for future
periods
|
|
|
35,997,950
|
|
|
|
33,462,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91,596,780
|
|
|
|
88,888,262
|
|
Valuation allowance
|
|
|
(91,596,780
|
)
|
|
|
(88,888,262
|
)
|
|
|
|
|
|
|
|
|
|
Deferred income tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
At December 31, 2016, the Company
has available net operating losses for Canadian income tax purposes of approximately $19,325,000 and net operating losses for
US income tax purposes of approximately $71,813,000 available for carry-forward to reduce future years’ taxable income,
if not utilized, expiring as follows:
|
|
Canada
|
|
|
United States
|
|
|
|
|
|
|
|
|
2025
|
|
$
|
65,000
|
|
|
$
|
-
|
|
2026
|
|
|
78,000
|
|
|
|
-
|
|
2027
|
|
|
907,000
|
|
|
|
1,252,000
|
|
2028
|
|
|
1,253,000
|
|
|
|
1,350,000
|
|
2029
|
|
|
2,074,000
|
|
|
|
2,600,000
|
|
2030
|
|
|
2,829,000
|
|
|
|
5,691,000
|
|
2031
|
|
|
4,180,000
|
|
|
|
14,730,000
|
|
2032
|
|
|
2,629,000
|
|
|
|
18,371,000
|
|
2033
|
|
|
1,827,000
|
|
|
|
11,962,000
|
|
2034
|
|
|
1,694,000
|
|
|
|
5,901,000
|
|
2035
|
|
|
406,000
|
|
|
|
4,910,000
|
|
2036
|
|
|
1,383,000
|
|
|
|
5,046,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,325,000
|
|
|
|
71,813,000
|
|
In addition, the Company has available
mineral resource related expenditure pools for Canadian income tax purposes totaling approximately $2,628,000 which may be deducted
against future taxable income in Canada on a discretionary basis. The Company also has available mineral resource expenses that
are related to the Company’s exploration activities in the United States of approximately $185,999,000 which may be deductible
for U.S. tax purposes. Future tax benefits, which may arise as a result of applying these deductions to taxable income, have not
been recognized in these accounts due to the uncertainty of future taxable income.
Authorized
500,000,000 common shares without
par value. At December 31, 2015 and 2016, there were 116,313,638 and 162,186,972 shares issued and outstanding, respectively.
Share issuances
During the third quarter of 2016,
the Company 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 fourth quarter of 2016, the Company closed a non-brokered private placement
financing through the issuance of 45,833,334 common shares issued at $0.48 per share for gross proceeds of $22.0 million. The
financing closed on December 28, 2016. Total share issuance costs for this non-brokered private placement financing amounted to
$146,735.
Stock options
The Company adopted an incentive
stock option plan in 2006, as amended September 19, 2012 and re-approved on May 28, 2015 at the Company’s Annual General
Meeting (the “2006 Plan”). The essential elements of the 2006 Plan provide that the aggregate number of common shares
of the Company’s capital stock that may be made issuable pursuant to options granted under the 2006 Plan may not exceed
10% of the number of issued shares of the Company at the time of the granting of the options. Options granted under the 2006 Plan
will have a maximum term of ten years. The exercise price of options granted under the 2006 Plan shall be fixed in compliance
with the applicable provisions of the TSX Company Manual in force at the time of grant and, in any event, shall not be less than
the closing price of the Company’s common shares on the TSX on the trading day immediately preceding the day on which the
option is granted, or such other price as may be agreed to by the Company and accepted by the Toronto Stock Exchange. Options
granted under the 2006 Plan vest immediately, unless otherwise determined by the directors at the date of grant.
During the year ended December
31, 2016, there were no incentive stock options granted by the Company. During the year ended December 31, 2015, the Company granted
incentive stock options to certain officers, employees and consultants of the Company to purchase a total of 2,135,200 common
shares in the capital stock of the Company. All options granted during the year ended December 31, 2015 vest as to one-third on
the grant date, one-third on the first anniversary, and one-third on the second anniversary.
A summary of the status of the
stock option plan as of December 31, 2016 and 2015 and changes during the period is presented below:
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price
(C$)
|
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price (C$)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of the year
|
|
|
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 year
|
|
|
6,026,200
|
|
|
$
|
1.61
|
|
|
|
6,066,200
|
|
|
$
|
1.60
|
|
The weighted average remaining
life of options outstanding at December 31, 2016 was 4.0 years.
Stock options outstanding are as
follows:
|
|
December 31, 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
|
|
A summary of the non-vested options
as of December 31, 2016 and 2015 and changes during the fiscal years ended December 31, 2016 and 2015 is as follows:
Non-vested options:
|
|
Number of options
|
|
|
Weighted
average
grant-date
fair
value
(C$)
|
|
Outstanding at December 31, 2014
|
|
|
1,809,674
|
|
|
$
|
0.49
|
|
Granted
|
|
|
2,135,200
|
|
|
$
|
0.25
|
|
Vested
|
|
|
(1,914,738
|
)
|
|
$
|
0.39
|
|
Outstanding at December 31, 2015
|
|
|
2,030,136
|
|
|
$
|
0.34
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Vested
|
|
|
(1,357,401
|
)
|
|
$
|
0.38
|
|
Outstanding at December 31, 2016
|
|
|
672,735
|
|
|
$
|
0.25
|
|
At December 31, 2016 there was
unrecognized compensation expense of C$17,381
related to non-vested options outstanding. The cost is expected to be recognized
over a weighted-average remaining period of approximately 0.21 years.
Share-based payments
During the year ended December
31, 2016, the Company granted no stock options. The Company recognized share-based payment expense of $108,526, $540,468, and
$1,285,385 during the years ended December 31, 2016, 2015 and 2014, respectively.
The following weighted average
assumptions were used for the Black-Scholes option pricing model calculations:
|
|
Year ended
December
31,
2015
|
|
|
|
|
|
Expected life of options
|
|
|
6 years
|
|
Risk-free interest rate
|
|
|
0.97
|
%
|
Expected volatility
|
|
|
80.60
|
%
|
Dividend rate
|
|
|
0.00
|
%
|
Exercise price (C$)
|
|
$
|
0.80
|
|
The expected volatility used in
the Black-Scholes option pricing model is based on the historical volatility of the Company’s shares.
|
9.
|
SEGMENT AND GEOGRAPHIC INFORMATION
|
The Company operates in a single
reportable operating segment, being the exploration and development of mineral properties. The following tables present selected
financial information by geographic location:
|
|
Canada
|
|
|
United States
|
|
|
Total
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized acquisition costs
|
|
$
|
-
|
|
|
$
|
55,204,041
|
|
|
$
|
55,204,041
|
|
Property and equipment
|
|
|
8,944
|
|
|
|
15,856
|
|
|
|
24,800
|
|
Current assets
|
|
|
22,289,678
|
|
|
|
383,036
|
|
|
|
22,672,714
|
|
Total assets
|
|
$
|
22,298,622
|
|
|
$
|
55,602,933
|
|
|
$
|
77,901,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
Year ended
December 31,
2016
|
|
|
Year ended
December 31,
2015
|
|
|
Year ended
December 31,
2014
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year - Canada
|
|
$
|
(1,356,670
|
)
|
|
$
|
(702,851
|
)
|
|
$
|
(1,936,065
|
)
|
Net loss for the year - United States
|
|
|
(5,833,958
|
)
|
|
|
(4,109,973
|
)
|
|
|
(5,831,031
|
)
|
Net loss for the year
|
|
$
|
(7,190,628
|
)
|
|
$
|
(4,812,824
|
)
|
|
$
|
(7,767,096
|
)
|
The following table discloses,
as of December 31, 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 expenditures, 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 by Year
|
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022 and
beyond
|
|
|
Total
|
|
Livengood
Property Purchase
(1)
|
|
$
|
14,694,169
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
14,694,169
|
|
Mineral Property Leases
(2)
|
|
|
416,678
|
|
|
|
426,653
|
|
|
|
431,703
|
|
|
|
436,829
|
|
|
|
442,031
|
|
|
|
447,311
|
|
|
|
2,601,205
|
|
Mining Claim Government Fees
|
|
|
114,925
|
|
|
|
114,925
|
|
|
|
114,925
|
|
|
|
114,925
|
|
|
|
114,925
|
|
|
|
114,925
|
|
|
|
689,550
|
|
Total
|
|
$
|
15,225,772
|
|
|
$
|
541,578
|
|
|
$
|
546,628
|
|
|
$
|
551,754
|
|
|
$
|
556,956
|
|
|
$
|
562,236
|
|
|
$
|
17,984,924
|
|
|
1.
|
The amount payable in January
2017 of $14,694,169 represents the fair value of the Company’s derivative liability
as at December 31, 2016 based on the five-year average daily gold price for the period
of December 13, 2011 through December 12, 2016. On January 12, 2017, this amount was
paid by the Company for the timely and full satisfaction of the final derivative payment.
See Note 6.
|
|
2.
|
Does not include required work
expenditures, as it is assumed that the required expenditure level is significantly below
the work for which 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.
|
11.
|
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,
represented the remaining consideration for the purchase of these claims and related rights and was paid in January 2017. Under
the Agreement, the payment was made 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 and subsequently appointed Chief Executive Officer of the Company effective
January 31, 2017. 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.
In December 2016, the Company
closed a non-brokered private placement financing through the issuance of 32,429,842 shares to Paulson & Co. Inc., 9,041,554
shares to Tocqueville Asset Management, L.P., and 4,361,938 shares to AngloGold Ashanti (U.S.A.) Exploration Inc at a price of
USD 0.48 per share. As at December 31, 2016, Paulson, Tocqueville, and AngloGold beneficially owns approximately 34.2%, 19.4%,
and 9.5% respectively of the Company's 162,186,972 common shares.
ITEM 9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of December 31, 2016, an evaluation
was carried out under the supervision of and with the participation of the Company’s management, including the Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act). Based on the evaluation, the Chief Executive
Officer and the Chief Financial Officer have concluded that, as of December 31, 2016, the Company’s disclosure controls and
procedures were effective in ensuring that: information required to be disclosed in reports filed or submitted to the SEC under
the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in applicable rules and
forms and (ii) accumulated and communicated to management, including the Chief Executive Officer
and Chief Financial Officer,
in a manner that allows for timely decisions regarding required disclosures.
The effectiveness of our or any system
of disclosure controls and procedures, however well designed and operated, can provide only reasonable assurance that the objectives
of the system will be met and is subject to certain limitations, including the exercise of judgment in designing, implementing
and evaluating controls and procedures and the assumptions used in identifying the likelihood of future events.
Management’s Annual Report on
Internal Control over Financial Reporting
Management is responsible for establishing
and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). Management evaluated,
with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of internal control over financial
reporting as of December 31, 2016. In conducting this evaluation, management used the framework established by the Committee of
Sponsoring Organizations of the Treadway Commission as set forth in Internal Control – Integrated Framework (2013). Based
on this evaluation under the framework in Internal Control – Integrated Framework (2013), management concluded that internal
control over financial reporting was effective as of December 31, 2016
.
Because of its inherent limitations, a
system of internal control over financial reporting may not prevent or detect misstatements. A control system, no matter how well
designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be
met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls
must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. The design of any system
of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that
any design will achieve its stated objectives under all future conditions.
This Annual Report on Form 10-K does not
include an attestation report of the Company’s independent public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by the Company’s independent public accounting firm pursuant
to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual
Report on Form 10-K.
Changes in Internal Control over Financial
Reporting
There were no changes in internal controls
over financial reporting during the fourth quarter ended December 31, 2016 that have materially, or are reasonably likely to materially
affect, the Company’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.