ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL TOWER HILL MINES LTD.
(An Exploration Stage Company)
CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS
As at September 30, 2017 and December 31, 2016
(Expressed in US Dollars
- Unaudited)
|
|
Note
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
$
|
3,435,287
|
|
|
$
|
22,466,493
|
|
Prepaid expenses and other
|
|
|
|
|
226,025
|
|
|
|
206,221
|
|
Total current assets
|
|
|
|
|
3,661,312
|
|
|
|
22,672,714
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
|
|
21,797
|
|
|
|
24,800
|
|
Capitalized acquisition costs
|
|
4
|
|
|
55,204,041
|
|
|
|
55,204,041
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
$
|
58,887,150
|
|
|
$
|
77,901,555
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
|
$
|
74,014
|
|
|
$
|
179,496
|
|
Accrued liabilities
|
|
5
|
|
|
577,779
|
|
|
|
210,182
|
|
Derivative liability
|
|
6
|
|
|
-
|
|
|
|
14,694,169
|
|
Total liabilities
|
|
|
|
|
651,793
|
|
|
|
15,083,847
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
|
|
|
|
|
|
|
|
Common share, no par value; authorized 500,000,000 shares; 162,186,972 shares issued and outstanding at December 31, 2016 and 162,392,996 shares issued and outstanding at September 30, 2017
|
|
7
|
|
|
265,624,141
|
|
|
|
265,569,796
|
|
Contributed surplus
|
|
7
|
|
|
34,092,428
|
|
|
|
34,079,301
|
|
Accumulated other comprehensive income
|
|
|
|
|
1,745,532
|
|
|
|
1,344,219
|
|
Deficit
|
|
|
|
|
(243,226,744
|
)
|
|
|
(238,175,608
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity
|
|
|
|
|
58,235,357
|
|
|
|
62,817,708
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
|
|
$
|
58,887,150
|
|
|
$
|
77,901,555
|
|
|
|
|
|
|
|
|
|
|
|
|
General Information and Nature of Operations
(Note 1)
Commitments (Note 9)
The accompanying notes are an integral part
of these condensed consolidated interim financial statements.
INTERNATIONAL TOWER HILL MINES LTD.
(An Exploration Stage Company)
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS
For the Three and Nine Months Ended September 30, 2017 and 2016
(Expressed in US Dollars
- Unaudited)
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
Note
|
|
September
30, 2017
|
|
|
September
30, 2016
|
|
|
September
30, 2017
|
|
|
September
30, 2016
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting fees
|
|
|
|
$
|
70,614
|
|
|
$
|
63,973
|
|
|
$
|
217,389
|
|
|
$
|
200,660
|
|
Depreciation
|
|
|
|
|
1,006
|
|
|
|
1,323
|
|
|
|
3,003
|
|
|
|
3,963
|
|
Insurance
|
|
|
|
|
74,134
|
|
|
|
69,326
|
|
|
|
208,867
|
|
|
|
200,532
|
|
Investor relations
|
|
|
|
|
9,504
|
|
|
|
27,119
|
|
|
|
72,752
|
|
|
|
76,506
|
|
Mineral property exploration
|
|
4
|
|
|
867,900
|
|
|
|
528,117
|
|
|
|
2,247,405
|
|
|
|
2,504,284
|
|
Office
|
|
|
|
|
6,338
|
|
|
|
9,546
|
|
|
|
27,487
|
|
|
|
30,005
|
|
Other
|
|
|
|
|
4,577
|
|
|
|
4,487
|
|
|
|
14,525
|
|
|
|
14,508
|
|
Professional fees
|
|
|
|
|
58,227
|
|
|
|
63,057
|
|
|
|
173,345
|
|
|
|
155,007
|
|
Regulatory
|
|
|
|
|
55,963
|
|
|
|
50,307
|
|
|
|
130,659
|
|
|
|
108,281
|
|
Rent
|
|
|
|
|
34,985
|
|
|
|
35,374
|
|
|
|
105,779
|
|
|
|
106,109
|
|
Travel
|
|
|
|
|
27,560
|
|
|
|
42,702
|
|
|
|
75,291
|
|
|
|
81,350
|
|
Wages and benefits
|
|
|
|
|
406,395
|
|
|
|
537,872
|
|
|
|
1,442,379
|
|
|
|
1,630,035
|
|
Total operating expenses
|
|
|
|
|
(1,617,203
|
)
|
|
|
(1,433,203
|
)
|
|
|
(4,718,881
|
)
|
|
|
(5,111,240
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on foreign exchange
|
|
|
|
|
(133,815
|
)
|
|
|
(3,020
|
)
|
|
|
(377,940
|
)
|
|
|
(124,784
|
)
|
Interest income
|
|
|
|
|
5,505
|
|
|
|
3,534
|
|
|
|
23,485
|
|
|
|
15,689
|
|
Unrealized loss on derivative
|
|
6
|
|
|
-
|
|
|
|
(100,000
|
)
|
|
|
-
|
|
|
|
(900,000
|
)
|
Other income
|
|
|
|
|
-
|
|
|
|
8,100
|
|
|
|
22,200
|
|
|
|
39,440
|
|
Total other income (expenses)
|
|
|
|
|
(128,310
|
)
|
|
|
(91,386
|
)
|
|
|
(332,255
|
)
|
|
|
(969,655
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period
|
|
|
|
|
(1,745,513
|
)
|
|
|
(1,524,589
|
)
|
|
|
(5,051,136
|
)
|
|
|
(6,080,895
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on marketable securities
|
|
|
|
|
(1,587
|
)
|
|
|
(13,210
|
)
|
|
|
(5,972
|
)
|
|
|
(2,459
|
)
|
Exchange difference on translating foreign operations
|
|
|
|
|
150,967
|
|
|
|
38,852
|
|
|
|
407,285
|
|
|
|
335,110
|
|
Total other comprehensive income (loss) for the period
|
|
|
|
|
149,380
|
|
|
|
25,642
|
|
|
|
401,313
|
|
|
|
332,651
|
|
Comprehensive loss for the period
|
|
|
|
$
|
(1,596,133
|
)
|
|
$
|
(1,498,947
|
)
|
|
$
|
(4,649,823
|
)
|
|
$
|
(5,748,244
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding – basic and diluted
|
|
|
|
|
162,363,884
|
|
|
|
116,348,855
|
|
|
|
162,246,591
|
|
|
|
116,325,463
|
|
The accompanying notes are an integral part
of these condensed consolidated interim financial statements.
INTERNATIONAL TOWER HILL MINES LTD.
(An Exploration Stage Company)
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS’
EQUITY
For the Nine Months Ended September 30, 2017 and 2016
(Expressed in US Dollars
- Unaudited)
|
|
Number of
shares
|
|
|
Share capital
|
|
|
Contributed
surplus
|
|
|
Accumulated
other
comprehensive
income
|
|
|
Deficit
|
|
|
Total
|
|
Balance, December 31, 2015
|
|
|
116,313,638
|
|
|
$
|
243,692,185
|
|
|
$
|
33,979,717
|
|
|
$
|
816,435
|
|
|
$
|
(230,984,980
|
)
|
|
$
|
47,503,357
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
92,587
|
|
|
|
-
|
|
|
|
-
|
|
|
|
92,587
|
|
Unrealized loss on available-for-sale securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,459
|
)
|
|
|
-
|
|
|
|
(2,459
|
)
|
Exchange difference on translating foreign operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
335,110
|
|
|
|
-
|
|
|
|
335,110
|
|
Exercise of options
|
|
|
40,000
|
|
|
|
15,404
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,404
|
|
Reallocation from contributed surplus
|
|
|
-
|
|
|
|
8,942
|
|
|
|
(8,942
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,080,895
|
)
|
|
|
(6,080,895
|
)
|
Balance, September 30, 2016
|
|
|
116,353,638
|
|
|
|
243,716,531
|
|
|
|
34,063,362
|
|
|
|
1,149,086
|
|
|
|
(237,065,875
|
)
|
|
|
41,863,104
|
|
Private placement
|
|
|
45,833,334
|
|
|
|
22,000,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22,000,000
|
|
Share issuance costs
|
|
|
-
|
|
|
|
(146,735
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(146,735
|
)
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
15,939
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,939
|
|
Unrealized loss on available-for-sale securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(8,335
|
)
|
|
|
-
|
|
|
|
(8,335
|
)
|
Exchange difference on translating foreign operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
203,468
|
|
|
|
-
|
|
|
|
203,468
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,109,733
|
)
|
|
|
(1,109,733
|
)
|
Balance, December 31, 2016
|
|
|
162,186,972
|
|
|
|
265,569,796
|
|
|
|
34,079,301
|
|
|
|
1,344,219
|
|
|
|
(238,175,608
|
)
|
|
|
62,817,708
|
|
Shares for services
|
|
|
206,024
|
|
|
|
99,492
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
99,492
|
|
Share issuance costs
|
|
|
-
|
|
|
|
(45,147
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(45,147
|
)
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
13,127
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,127
|
|
Unrealized loss on available-for-sale securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,972
|
)
|
|
|
-
|
|
|
|
(5,972
|
)
|
Exchange difference on translating foreign operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
407,285
|
|
|
|
-
|
|
|
|
407,285
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,051,136
|
)
|
|
|
(5,051,136
|
)
|
Balance, September 30, 2017
|
|
|
162,392,996
|
|
|
$
|
265,624,141
|
|
|
$
|
34,092,428
|
|
|
$
|
1,745,532
|
|
|
$
|
(243,226,744
|
)
|
|
$
|
58,235,357
|
|
The accompanying notes are an integral part
of these condensed consolidated interim financial statements.
INTERNATIONAL TOWER HILL MINES LTD.
(An Exploration Stage Company)
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2017 and 2016
(Expressed in US
Dollars - Unaudited)
|
|
Nine Months Ended
|
|
|
|
September 30,
2017
|
|
|
September 30,
2016
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
Loss for the period
|
|
$
|
(5,051,136
|
)
|
|
$
|
(6,080,895
|
)
|
Add items not affecting cash:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
3,003
|
|
|
|
3,963
|
|
Stock-based compensation
|
|
|
13,127
|
|
|
|
92,587
|
|
Unrealized loss on derivative liability
|
|
|
-
|
|
|
|
900,000
|
|
Shares for services
|
|
|
99,492
|
|
|
|
-
|
|
Changes in non-cash items:
|
|
|
|
|
|
|
|
|
Prepaid expenses and other
|
|
|
(372,217
|
)
|
|
|
18,951
|
|
Accounts payable and accrued liabilities
|
|
|
254,670
|
|
|
|
24,284
|
|
Cash used in operating activities
|
|
|
(5,053,061
|
)
|
|
|
(5,041,110
|
)
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
Issuance of common share
|
|
|
-
|
|
|
|
15,404
|
|
Derivative payment
|
|
|
(14,694,169
|
)
|
|
|
-
|
|
Share issuance costs
|
|
|
(45,147
|
)
|
|
|
-
|
|
Cash provided
by (used in) financing activities
|
|
|
(14,739,316
|
)
|
|
|
15,404
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange on cash
|
|
|
761,171
|
|
|
|
291,343
|
|
Decrease in cash and cash equivalents
|
|
|
(19,031,206
|
)
|
|
|
(4,734,363
|
)
|
Cash and cash equivalents, beginning of the period
|
|
|
22,466,493
|
|
|
|
6,493,486
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of the period
|
|
$
|
3,435,287
|
|
|
$
|
1,759,123
|
|
The accompanying notes are an integral part of these condensed
consolidated interim financial statements.
INTERNATIONAL TOWER HILL MINES LTD.
(An Exploration Stage Company)
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Nine Months Ended September 30, 2017 and 2016
(Expressed in US dollars
– Unaudited)
|
1.
|
GENERAL INFORMATION AND 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 September 30, 2017, the Company was in the exploration stage and controls a 100% interest in its
Livengood Gold Project in Alaska, U.S.A.
These unaudited condensed consolidated
interim financial statements have been prepared on a going-concern basis, which presumes the realization of assets and discharge
of liabilities in the normal course of business for the foreseeable future.
As at September 30, 2017, the
Company had cash and cash equivalents of $3,435,287 compared to $22,466,493 at December 31, 2016. The Company has no revenue generating
operations from which it can internally generate funds. 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 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. 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.
These unaudited condensed consolidated
interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States
(“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation
S-X under the Securities Exchange Act of 1934, as amended. Accordingly, they do not include all of the information and footnotes
required by U.S. GAAP for annual financial statements. These unaudited condensed consolidated interim financial statements should
be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2016 as filed in our
Annual Report on Form 10-K. In the opinion of the Company’s management these financial statements reflect all adjustments,
consisting of normal recurring adjustments, necessary to present fairly the Company’s financial position at September 30,
2017 and the results of its operations for the nine months then ended. Operating results for the nine months ended September
30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. The 2016 year-end
balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP.
INTERNATIONAL TOWER HILL MINES LTD.
(An Exploration Stage Company)
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Nine Months Ended September 30, 2017 and 2016
(Expressed in US dollars
– Unaudited)
The preparation of financial
statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses during the period. These judgments, estimates and assumptions are continuously
evaluated and are based on management’s experience and knowledge of the relevant facts and circumstances. While management
believes the estimates to be reasonable, actual results could differ from those estimates and could impact future results of operations
and cash flows.
On November 3, 2017, the Board
approved these condensed consolidated interim financial statements.
Basis of consolidation
These condensed consolidated
interim financial statements include the accounts of ITH and its wholly owned subsidiaries TH Alaska, TH US, LPI and 813034 Alberta
Ltd. All intercompany transactions and balances have been eliminated.
|
3.
|
FAIR VALUE OF FINANCIAL INSTRUMENTS
|
The carrying values of cash
and cash equivalents, accounts receivable (included in prepaid expenses and other) and accounts payable and accrued liabilities
approximate their fair values due to the short-term maturity of these financial instruments.
Financial instruments measured
at fair value are classified into one of three levels in the fair value hierarchy according to the significance of the inputs used
in making the measurement. The three levels of the fair value hierarchy are as follows:
|
·
|
Level 1 – Unadjusted quoted prices in active markets
for identical assets or liabilities;
|
|
·
|
Level 2 – Inputs other than quoted prices that are
observable for the asset or liability either directly or indirectly; and
|
|
·
|
Level 3 – Inputs that are not based on observable
market data.
|
|
|
Fair value as at September 30, 2017
|
|
|
|
Level 1
|
|
|
Level 2
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
$
|
18,230
|
|
|
$
|
-
|
|
Total
|
|
$
|
18,230
|
|
|
$
|
-
|
|
|
|
Fair value as at December 31, 2016
|
|
|
|
Level 1
|
|
|
Level 2
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
$
|
22,754
|
|
|
$
|
-
|
|
Total
|
|
$
|
22,754
|
|
|
$
|
-
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
Derivative liability (Note 6)
|
|
$
|
-
|
|
|
$
|
14,694,169
|
|
Total
|
|
$
|
-
|
|
|
$
|
14,694,169
|
|
INTERNATIONAL TOWER HILL MINES LTD.
(An Exploration Stage Company)
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Nine Months Ended September 30, 2017 and 2016
(Expressed in US dollars
– Unaudited)
|
4.
|
CAPITALIZED ACQUISITION COSTS
|
The Company had the following activity related to
capitalized acquisition costs:
Capitalized acquisition costs
|
|
Amount
|
|
|
|
|
|
Balance, December 31, 2016
|
|
$
|
55,204,041
|
|
Acquisition costs
|
|
|
-
|
|
Balance, September 30, 2017
|
|
$
|
55,204,041
|
|
The following table presents costs incurred for exploration
and evaluation activities for the nine months ended September 30, 2017 and 2016:
|
|
September 30,
2017
|
|
|
September 30,
2016
|
|
Exploration costs:
|
|
|
|
|
|
|
|
|
Aircraft services
|
|
$
|
6,220
|
|
|
$
|
6,511
|
|
Assay
|
|
|
412,811
|
|
|
|
-
|
|
Environmental
|
|
|
203,344
|
|
|
|
233,398
|
|
Equipment rental
|
|
|
35,542
|
|
|
|
33,375
|
|
Field costs
|
|
|
91,569
|
|
|
|
87,754
|
|
Geological/geophysical
|
|
|
932,642
|
|
|
|
1,613,994
|
|
Land maintenance & tenure
|
|
|
496,910
|
|
|
|
494,316
|
|
Legal
|
|
|
57,246
|
|
|
|
27,845
|
|
Transportation and travel
|
|
|
11,121
|
|
|
|
7,091
|
|
Total expenditures for the period
|
|
$
|
2,247,405
|
|
|
$
|
2,504,284
|
|
Livengood Gold Project
Property
The Livengood property is located
in the Tintina gold belt approximately 113 kilometers (70 miles) northwest of Fairbanks, Alaska. The property consists of land
leased from the Alaska Mental Health Trust, a number of smaller private mineral leases, Alaska state mining claims purchased or
located by the Company and patented ground held by the Company.
Details of the leases are as follows:
|
a)
|
a lease of the Alaska Mental Health Trust mineral rights having a term beginning July 1, 2004 and
extending 19 years until June 30, 2023, subject to further extensions beyond June 30, 2023 by either commercial production or payment
of an advance minimum royalty equal to 125% of the amount paid in year 19 and diligent pursuit of development. The lease requires
minimum work expenditures and advance minimum royalties (all of which minimum royalties are recoverable from production royalties)
which escalate annually with inflation. A net smelter return (“NSR”) production royalty of between 2.5% and 5.0% (depending
upon the price of gold) is payable to the lessor with respect to the lands subject to this lease. In addition, an NSR production
royalty of l% is payable to the lessor with respect to the unpatented federal mining claims subject to the lease described in b)
below and an NSR production royalty of between 0.5% and 1.0% (depending upon the price of gold) is payable to the lessor with respect
to the lands acquired by the Company as a result of the purchase of Livengood Placers, Inc. in December 2011. During the nine months
ended September 30, 2017 and from the inception of this lease the Company has paid $329,722 and $2,632,388, respectively.
|
INTERNATIONAL TOWER HILL MINES LTD.
(An Exploration Stage Company)
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Nine Months Ended September 30, 2017 and 2016
(Expressed in US dollars
– Unaudited)
|
b)
|
a lease of federal unpatented lode mining claims having an initial term of ten years commencing
on April 21, 2003 and continuing for so long thereafter as advance minimum royalties are paid and mining related activities, including
exploration, continue on the property or on adjacent properties controlled by the Company. The lease requires an advance minimum
royalty of $50,000 on or before each anniversary date (all of which minimum royalties are recoverable from production royalties).
An NSR production royalty of between 2% and 3% (depending on the price of gold) is payable to the lessors. The Company may purchase
1% of the royalty for $1,000,000. During the nine months ended September 30, 2017 and from the inception of this lease the Company
has paid $50,000 and $680,000, respectively.
|
|
c)
|
a lease of patented lode mining claims having an initial term of ten years commencing January 18,
2007, and continuing for so long thereafter as advance minimum royalties are paid. The lease requires an advance minimum royalty
of $20,000 on or before each anniversary date through January 18, 2017 and $25,000 on or before each subsequent anniversary (all
of which minimum royalties are recoverable from production royalties). An NSR production royalty of 3% is payable to the lessors.
The Company may purchase all interests of the lessors in the leased property (including the production royalty) for $1,000,000
(less all minimum and production royalties paid to the date of purchase), of which $500,000 is payable in cash over four years
following the closing of the purchase and the balance of $500,000 is payable by way of the 3% NSR production royalty. During the
nine months ended September 30, 2017 and from the inception of this lease the Company has paid $20,000 and $185,000, respectively.
|
|
d)
|
a lease of unpatented federal lode mining and federal unpatented placer claims having an initial
term of ten years commencing on March 28, 2007, and continuing for so long thereafter as advance minimum royalties are paid and
mining related activities, including exploration, continue on the property or on adjacent properties controlled by the Company.
The lease requires an advance minimum royalty of $15,000 on or before each anniversary date (all of which minimum royalties are
recoverable from production royalties). The Company is required to pay the lessor the sum of $250,000 upon making a positive production
decision, payable $125,000 within 120 days of the decision and $125,000 within a year of the decision (all of which are recoverable
from production royalties). An NSR production royalty of 2% is payable to the lessor. The Company may purchase all of the interest
of the lessor in the leased property (including the production royalty) for $1,000,000. During the nine months ended September
30, 2017 and from the inception of this lease the Company has paid $15,000 and $128,000, respectively.
|
Title to mineral
properties
The acquisition of title to
mineral properties is a detailed and time-consuming process. The Company has taken steps to verify title to mineral properties
in which it has an interest. Although the Company has taken every reasonable precaution to ensure that legal title to its properties
is properly recorded in the name of the Company, there can be no assurance that such title will ultimately be secured.
The following table presents
the accrued liabilities balances at September 30, 2017 and December 31, 2016.
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
520,355
|
|
|
$
|
41,682
|
|
Accrued salaries and benefits
|
|
|
57,424
|
|
|
|
168,500
|
|
Total accrued liabilities
|
|
$
|
577,779
|
|
|
$
|
210,182
|
|
Accrued liabilities at September
30, 2017 include accruals for general corporate costs and project costs of $33,803 and $486,552, respectively. Accrued liabilities
at December 31, 2016 include accruals for general corporate costs and project costs of $13,406 and $28,276, respectively.
INTERNATIONAL TOWER HILL MINES LTD.
(An Exploration Stage Company)
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Nine Months Ended September 30, 2017 and 2016
(Expressed in US dollars
– Unaudited)
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 equaled $23,148 for every dollar that the Average Gold Price exceeded $720 per troy ounce. If the Average Gold Price were
less than $720, there would not have been any 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 January 12, 2017, the Company paid
$14,694,169 for the timely and full satisfaction of the final derivative payment.
Authorized
500,000,000 Common Shares without par value. At December 31, 2016 and September 30, 2017 there were 162,186,972
and 162,392,996 shares issued and outstanding, respectively.
Share issuances
On May 24, 2017, the shareholders
approved the issuance of Common Shares to the previous CEO for services rendered as CEO. On May 24, 2017, the Company recorded
an obligation to issue 206,024 Common Shares valued at $99,492 (CAD $133,916). On July 13, 2017, the Company issued 206,024 Common
Shares in full satisfaction of the obligation.
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 $22,000,000.
Deferred Share Unit
Incentive Plan
On May 24, 2017 at the Company’s
Annual General Meeting of Shareholders, a Deferred Share Unit Incentive Plan (“DSU Plan”) was approved.
As at September 30, 2017, the maximum aggregate number of Common Shares that could be issued under the
DSU Plan and the 2006 Plan (as defined below) was 16,239,299, representing 10% of the number of issued and outstanding Common Shares
on that date (on a non-diluted basis). As at September 30, 2017, the Company had stock options to potentially acquire 4,290,000
Common Shares outstanding under the 2006 Plan defined below (representing approximately 2.64% of the outstanding Common Shares),
leaving up to 11,949,299 Common Shares available for future grants under the DSU Plan and under the 2006 Plan (combined) based
on the number of outstanding Common Shares as at that date on a non-diluted basis (representing an aggregate of approximately 7.36%
of the outstanding Common Shares).
Stock options
The Company adopted an incentive stock option plan in 2006, as amended September 19, 2012 and reapproved
on May 28, 2015 at the Company’s Annual General Meeting (the “2006 Plan”). The essential elements of the 2006
Plan provide that the aggregate number of Common Shares of the Company’s capital stock that may be made issuable pursuant
to options granted under the 2006 Plan, together with shares under the DSU 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 TSX. Options granted under the 2006 Plan vest immediately, unless otherwise
determined by the directors at the date of grant.
INTERNATIONAL TOWER HILL MINES LTD.
(An Exploration Stage Company)
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Nine Months Ended September 30, 2017 and 2016
(Expressed in US dollars
– Unaudited)
During the nine month period
ended September 30, 2017, there were no incentive stock options granted by the Company.
A summary of the status of the
stock option plan as of September 30, 2017 and December 31, 2016 and changes is presented below:
|
|
Nine Months Ended
|
|
|
Year Ended
|
|
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price (C$)
|
|
|
Aggregate
Intrinsic
Value
|
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price (C$)
|
|
|
Aggregate
Intrinsic
Value
|
|
Balance, beginning of the period
|
|
|
6,026,200
|
|
|
$
|
1.61
|
|
|
$
|
183,930
|
|
|
|
6,066,200
|
|
|
$
|
1.60
|
|
|
$
|
Nil
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(40,000
|
)
|
|
|
0.50
|
|
|
|
29,600
|
|
Expired
|
|
|
(1,650,000
|
)
|
|
|
3.17
|
|
|
|
Nil
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(86,200
|
)
|
|
|
1.46
|
|
|
|
4,368
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance, end of the period
|
|
|
4,290,000
|
|
|
$
|
1.01
|
|
|
$
|
131,400
|
|
|
|
6,026,200
|
|
|
$
|
1.61
|
|
|
$
|
183,930
|
|
Stock options outstanding
are as follows:
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
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
|
|
March 14, 2018
|
|
$
|
2.18
|
|
|
|
313,000
|
|
|
|
313,000
|
|
|
$
|
2.18
|
|
|
|
319,000
|
|
|
|
319,000
|
|
February 25, 2022
|
|
$
|
1.11
|
|
|
|
1,030,000
|
|
|
|
1,030,000
|
|
|
$
|
1.11
|
|
|
|
1,030,000
|
|
|
|
1,030,000
|
|
February 25, 2022
|
|
$
|
0.73
|
|
|
|
570,000
|
|
|
|
570,000
|
|
|
$
|
0.73
|
|
|
|
594,000
|
|
|
|
594,000
|
|
March 10, 2022
|
|
$
|
1.11
|
|
|
|
430,000
|
|
|
|
430,000
|
|
|
$
|
1.11
|
|
|
|
430,000
|
|
|
|
430,000
|
|
March 16, 2023
|
|
$
|
1.00
|
|
|
|
1,260,000
|
|
|
|
1,260,000
|
|
|
$
|
1.00
|
|
|
|
1,260,000
|
|
|
|
839,999
|
|
March 16, 2023
|
|
$
|
0.50
|
|
|
|
657,000
|
|
|
|
657,000
|
|
|
$
|
0.50
|
|
|
|
688,200
|
|
|
|
445,466
|
|
June 9, 2023
|
|
$
|
1.00
|
|
|
|
30,000
|
|
|
|
30,000
|
|
|
$
|
1.00
|
|
|
|
30,000
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
4,290,000
|
|
|
|
4,290,000
|
|
|
|
|
|
|
|
6,026,200
|
|
|
|
5,353,465
|
|
A summary of the non-vested options
as of September 30, 2017 and changes during the nine months ended September 30, 2017 is as follows:
Non-vested options:
|
|
Number of
options
|
|
|
Weighted
average grant-
date fair value
(C$)
|
|
Outstanding at December 31, 2016
|
|
|
672,735
|
|
|
$
|
0.25
|
|
Vested
|
|
|
(672,735
|
)
|
|
$
|
0.25
|
|
Outstanding at September 30, 2017
|
|
|
-
|
|
|
|
-
|
|
INTERNATIONAL TOWER HILL MINES LTD.
(An Exploration Stage Company)
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Nine Months Ended September 30, 2017 and 2016
(Expressed in US dollars
– Unaudited)
At September 30, 2017 there was
no unrecognized compensation expense related to non-vested options outstanding.
Share-based payments
During the nine month period
ended September 30, 2017, there were no incentive stock options granted by the Company. Share-based payment charges for the nine
months ended September 30, 2017 totaled $13,127.
During the nine month period
ended September 30, 2016, there were no incentive stock options granted by the Company. Share-based payment charges for the nine
months ended September 30, 2016 totaled $92,587.
The following weighted average assumptions
were used for the Black-Scholes option pricing model calculations:
|
|
YTD December 31,
2015
|
|
Expected life of options
|
|
|
6 years
|
|
Risk-free interest rate
|
|
|
0.97
|
%
|
Annualized volatility
|
|
|
80.60
|
%
|
Dividend rate
|
|
|
0.00
|
%
|
Exercise price (C$)
|
|
$
|
0.80
|
|
The expected volatility used
in the Black-Scholes option pricing model is based on the historical volatility of the Company’s shares.
|
8.
|
SEGMENT AND GEOGRAPHIC INFORMATION
|
The Company operates in a single
reportable segment, being the exploration and development of mineral properties. The following tables present selected financial
information by geographic location:
|
|
Canada
|
|
|
United States
|
|
|
Total
|
|
September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized acquisition costs
|
|
$
|
-
|
|
|
$
|
55,204,041
|
|
|
$
|
55,204,041
|
|
Property and equipment
|
|
|
8,614
|
|
|
|
13,183
|
|
|
|
21,797
|
|
Current assets
|
|
|
3,136,666
|
|
|
|
524,646
|
|
|
|
3,661,312
|
|
Total assets
|
|
$
|
3,145,280
|
|
|
$
|
55,741,870
|
|
|
$
|
58,887,150
|
|
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
|
|
Three months ended
|
|
September 30, 2017
|
|
|
September 30, 2016
|
|
Net loss for the period – Canada
|
|
$
|
(385,257
|
)
|
|
$
|
(276,954
|
)
|
Net loss for the period - United States
|
|
|
(1,360,256
|
)
|
|
|
(1,247,635
|
)
|
Net loss for the period
|
|
$
|
(1,745,513
|
)
|
|
$
|
(1,524,589
|
)
|
Nine months ended
|
|
September 30, 2017
|
|
|
September 30, 2016
|
|
Net loss for the period – Canada
|
|
$
|
(1,148,244
|
)
|
|
$
|
(915,561
|
)
|
Net loss for the period - United States
|
|
|
(3,902,892
|
)
|
|
|
(5,165,334
|
)
|
Net loss for the period
|
|
$
|
(5,051,136
|
)
|
|
$
|
(6,080,895
|
)
|
INTERNATIONAL TOWER HILL MINES LTD.
(An Exploration Stage Company)
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Nine Months Ended September 30, 2017 and 2016
(Expressed in US dollars
– Unaudited)
The following table discloses,
as of September 30, 2017, the Company’s contractual obligations including anticipated mineral property payments. Under the
terms of the Company’s mineral property purchase agreements, mineral leases and the terms of the unpatented mineral claims
held by it, the Company is required to make certain scheduled acquisition payments, incur certain levels of expenditures, make
lease or advance royalty payments, make payments to government authorities and incur assessment work expenditures as summarized
in the table below in order to maintain and preserve the Company’s interests in the related mineral properties. If the Company
is unable or unwilling to make any such payments or incur any such expenditure, it is likely that the Company would lose or forfeit
its rights to acquire or hold the related mineral properties. The following table assumes that the Company retains the rights to
all of its current mineral properties, but does not exercise any lease purchase or royalty buyout options:
|
|
Payments Due by Year
|
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022 and
beyond
|
|
|
Total
|
|
Mineral Property Leases
(1)
|
|
$
|
-
|
|
|
$
|
424,668
|
|
|
$
|
429,688
|
|
|
$
|
434,783
|
|
|
$
|
439,955
|
|
|
$
|
445,204
|
|
|
$
|
2,174,298
|
|
Mining Claim Government Fees
|
|
|
76,950
|
|
|
|
114,925
|
|
|
|
114,925
|
|
|
|
114,925
|
|
|
|
114,925
|
|
|
|
114,925
|
|
|
|
651,575
|
|
Total
|
|
$
|
76,950
|
|
|
$
|
539,593
|
|
|
$
|
544,613
|
|
|
$
|
549,708
|
|
|
$
|
554,880
|
|
|
$
|
560,129
|
|
|
$
|
2,825,873
|
|
|
(1)
|
Does not include required work expenditures, as it is assumed that the required expenditure level
is significantly below the level of work that will actually be carried out by the Company. Does not include potential royalties
that may be payable (other than annual minimum royalty payments). See Note 4.
|
|
10.
|
RELATED PARTY TRANSACTIONS
|
In December 2011, in accordance
with a Stock and Asset Purchase Agreement (the “Agreement”) between the Company, Alaska/Nevada Gold Mines, Ltd. (“AN
Gold Mines”) and the Heflinger Group, the Company acquired certain mining claims and related rights in the vicinity of the
Livengood Gold Project located near Fairbanks, Alaska. The Company’s derivative liability, as described in Note 6 above,
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
$0.48 per share. As at December 31, 2016, Paulson, Tocqueville, and AngloGold beneficially own approximately 34.2%, 19.4%, and
9.5% respectively of the Company's 162,186,972 Common Shares.
In May 2017, the Company recognized
an obligation to issue 206,024 Common Shares to the Company’s previous Chief Executive Officer, Thomas Irwin, with a value
of $99,492. On July 13, 2017, the Company issued 206,024 Common Shares in full satisfaction of the obligation. See Note 7.
INTERNATIONAL TOWER HILL MINES LTD.
(An Exploration Stage Company)
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Nine Months Ended September 30, 2017 and 2016
(Expressed in US dollars
– Unaudited)
At September 30, 2017, accounts payable and accrued
liabilities included related party costs of $7,479 and $4,605, respectively.
At the 2017 Annual General Meeting of shareholders
in Vancouver, B.C. on May 24, 2017, the shareholders fixed the size of the board at eight with the addition of Mr. Victor Flores
and Mr. Thomas Irwin.
In accordance with the Company’s
DSU Plan, on October 23, 2017 the Company granted each of the members of the Board of Directors (other than those directors nominated
for election by Paulson & Co., Inc.) 129,687 DSUs with a grant date fair value of CAD 0.64 per grant, or an aggregate of CAD
497,998. The DSUs entitle the holders to receive shares of the Company’s Common Stock without the payment of any consideration.
The DSUs vested immediately upon being granted but the shares of Common Stock underlying the DSUs are not deliverable to the grantee
until the grantee is no longer serving on the Company’s Board of Directors.
In accordance with the Company’s 2006 Incentive Stock Option Plan, on October 23, 2017 the Company
granted incentive stock options to Mr. Karl Hanneman in connection with his appointment as the new Chief Executive Officer of the
Company. Mr. Hanneman is entitled to purchase a total of 250,000 Common Shares in the capital stock of the Company at an issue
price of CAD 1.35 per share. The options will vest one-third on the grant date, one-third on February 1, 2018, and one-third on
February 1, 2019. Expiry date is February 1, 2025.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion
and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with our Annual
Report on Form 10-K for the year ended December 31, 2016. All currency amounts are stated in US dollars unless noted otherwise.
Current Business Activities
General
During the nine months ended September
30, 2017 and to the date of this Quarterly Report on Form 10-Q, the Company progressed on a number of opportunities with the potential
for optimization and reducing the costs of building and operating a mine at the Project (defined below).
Livengood Gold Project – NI 43-101 Report of 2016
Pre-feasibility Study Results
The Company announced the results of a
Pre-feasibility Study (“2016 PFS”) on September 8, 2016. On October 24, 2016, the Company filed a technical report
on SEDAR entitled “NI 43-101 Technical Report Pre-feasibility Study of the Livengood Gold Project, Livengood, Alaska, USA”
dated October 24, 2016 (“October Report”) that summarized the results of the 2016 PFS on the Livengood Gold Project.
During the first quarter of 2017, it was
determined that the calculation of All-In Sustaining Costs for the Livengood Project (“AISC”), as contained in Table
22-2 on page 22-7 of the October Report, was incorrect as it included, contrary to World Gold Council guidance, both initial capital
costs and mining and income taxes in the AISC calculation. The Company issued a news release on March 8, 2017 advising that as
a result of the restatement, the AISC for the Livengood Gold Project (the “Project”) located near Fairbanks, Alaska,
is projected to be $976/oz. Subsequently, on April 10, 2017, the Company filed an updated technical report on SEDAR entitled “NI
43-101 Technical Report Pre-feasibility Study of the Livengood Gold Project, Livengood, Alaska, USA” dated March 8, 2017
and signed April 10, 2017 (“April Report”) reflecting the following changes:
|
1.
|
The AISC calculation has been corrected to be in accordance with World Gold Council guidance, and
a corrected Table 22-2 has been included. The corrected AISC number has also been included in Table 1-11 on page 1-25. Where appropriate,
text changes have been made to reflect the correct numbers now shown in the tables.
|
|
2.
|
On January 12, 2017, the Company paid USD $14.7 million 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 Project and the Company is now in full ownership and has no further liability with respect to this acquisition. The
disclosure regarding the Livengood Property Description and Location in section 4.1.7, pages 4-5 and 4-6, has been updated accordingly.
|
Management Changes
On January 26, 2017, the ITH Board approved
a management transition plan, which was implemented on January 31, 2017, in which Karl Hanneman, previously the Chief Operating
Officer (COO), became the Chief Executive Officer (CEO), managing both the CEO and COO responsibilities, and Thomas 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). On May 24, 2017, the shareholders elected Mr. Irwin as a director
of the Company Board.
Director Changes
At the 2017 Annual General Meeting of shareholders
in Vancouver, B.C. on May 24, 2017, the shareholders fixed the size of the board at eight with the addition of Mr. Victor Flores
and Mr. Thomas Irwin.
Issuance of Common Shares
In January 2017, the Compensation Committee
approved, and the Board voted to award to Mr. Irwin, subject to shareholder and regulatory approval, a one-time payment of $175,000,
to be settled in Common Shares, in recognition of the exemplary efforts of Mr. Irwin on behalf of the Company during his tenure
as CEO. Based on the USD-CAD exchange rate (USD 1.00 = CAD 1.3030), and the 5-day volume weighted average price of the Common Shares
on the TSX (CAD 0.859), both as at January 31, 2017, the number of Common Shares to be issued to Mr. Irwin was 265,454 (less the
number of Common Shares equivalent to any amounts required to be withheld under statutory withholding requirements). Mr. Irwin
also received a monthly payment of $5,000 in his position as Senior Advisor. The shareholders approved the proposed issuance of
Common Shares to Mr. Irwin on May 24, 2017. See “Other – Related Party Transactions
”
below for more information.
Issuance of Options
In accordance with the Company’s
2006 Incentive Stock Option Plan, on October 23, 2017 the Company granted incentive stock options to Mr. Karl Hanneman in connection
with his appointment as the new Chief Executive Officer of the Company. Mr. Hanneman is entitled to purchase a total of 250,000
Common Shares in the capital stock of the Company at an issue price of CAD 1.35 per share. The options will vest as to one-third
on the grant date, one-third on February 1, 2018, and one-third on February 1, 2019. Expiry date is February 1, 2025.
Deferred Share Unit Incentive Plan
On April 4, 2017, the Company adopted a
Deferred Share Unit Plan (the “DSU Plan”). On May 24, 2017, at the Company’s Annual General Meeting of Shareholders,
the DSU Plan was approved.
The purpose of the DSU Plan is to allow
the Company to grant deferred share units (“DSUs”), each of which is a unit that is equivalent in value to a Common
Share, to directors, officers and employees of the Company or a subsidiary of the Company (“Eligible Persons”) in recognition
of their contributions and to provide for an incentive for their continuing relationship with the Company. The granting of such
DSUs is intended to promote a greater alignment of the interests of Eligible Persons with the interests of shareholders.
As at September 30, 2017, the maximum aggregate
number of Common Shares that could be issued under the DSU Plan and the 2006 Plan was 16,239,299, representing 10% of the number
of issued and outstanding Common Shares on that date (on a non-diluted basis). As at September 30, 2017, the Company had stock
options to potentially acquire 4,290,000 Common Shares outstanding under the 2006 Plan (representing approximately 2.64% of the
outstanding Common Shares), leaving up to 11,949,299 Common Shares available for future grants under the DSU Plan and under the
2006 Plan (combined) based on the number of outstanding Common Shares as at that date on a non-diluted basis (representing an aggregate
of approximately 7.36% of the outstanding Common Shares).
In accordance with the Company’s
DSU Plan, on October 23, 2017 the Company granted each of the members of the Board of Directors (other than those directors nominated
for election by Paulson & Co., Inc.) 129,687 DSUs with a grant date fair value of CAD 0.64 per grant, or an aggregate of CAD
497,998. The DSUs entitle the holders to receive shares of the Company’s Common Stock without the payment of any consideration.
The DSUs vested immediately upon being granted but the shares of Common Stock underlying the DSUs are not deliverable to the grantee
until the grantee is no longer serving on the Company’s Board of Directors.
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.
In connection with the Company’s
$22.0 million private placement completed on December 28, 2016, the Toronto Stock Exchange (the “TSX”) commenced a
de-listing review with respect to the Company. On April 7, 2017, the TSX issued a bulletin confirming that it had completed its
review and that the Company meets the TSX’s continuous listing requirements.
Next Steps and Opportunities
2017 Work Program
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 2016 PFS, 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 engineering expenditure. Preliminary work in 2016
on the block model and metallurgical recovery variability indicates a potential NPV benefit of up to $280 million and $100 million
respectively.
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
.
During the quarter, work progressed on
schedule on the 2017 program. New multi-element assay data from approximately 20,000 pulps have been incorporated into the project
geologic model. Consultants are progressing on alternative block models and support for refinement of the project multiple indicator
kriging (MIK) resource model. SGS Vancouver is proceeding with metallurgical work. The engineering firm of BBA Inc., who provided
support for the 2016 PFS, is engaged to provide oversight on the 2017 program.
The Company has sufficient funds to complete
the test programs and engineering work underway.
Results of Operations
Summary of Quarterly Results
Description
|
|
September 30, 2017
|
|
|
June 30, 2017
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Net loss
|
|
$
|
(1,745,513
|
)
|
|
$
|
(1,627,646
|
)
|
|
$
|
(1,677,977
|
)
|
|
$
|
(1,109,733
|
)
|
Basic and diluted net loss per common share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
|
September 30, 2016
|
|
|
June 30, 2016
|
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
Net loss
|
|
$
|
(1,524,589
|
)
|
|
$
|
(2,068,850
|
)
|
|
$
|
(2,487,456
|
)
|
|
$
|
(1,119,972
|
)
|
Basic and diluted net loss per common share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
Three Months Ended September 30, 2017 compared to Three
Months Ended September 30, 2016
The Company incurred a net loss of $1,745,513
for the three month period ended September 30, 2017, compared to a net loss of $1,524,589 for the three month period ended September
30, 2016.
Mineral property expenditures increased
$339,783 to $867,900 for the three months ended September 30, 2017 from $528,117 for the three months ended September 30, 2016
due to the differences in the scope of technical work completed during the periods.
Consulting fees were $70,614 for the three
month period ended September 30, 2017 compared to $63,973 for the three month period ended September 30, 2016. The increase of
$6,641 is due primarily to one additional compensated director.
Investor relations expenditures were $9,504
for the three month period ended September 30, 2017, compared to $27,119 for the three month period ended September 30, 2016. The
decrease of $17,615 is due primarily to reduced contractor services and lower rates negotiated by the Company for newswire services.
Travel expenditures decreased $15,142 to
$27,560 for the three month period ended September 30, 2017 compared to $42,702 for the three month period ended September 30,
2016. The decrease is due primarily to the Company’s use of teleconferencing to reduce travel costs.
Excluding share-based payment charges of
$Nil and $11,757 respectively, wages and benefits for the three months ended September 30, 2017 decreased $119,720 to $406,395
from $526,115 for the three months ended September 30, 2016 primarily due to staff reductions.
Share-based payment charges
Share-based payment charges for the three month periods ended
September 30, 2017 and 2016 were allocated as follows:
Expense category:
|
|
September 30, 2017
|
|
|
September 30, 2016
|
|
Consulting
|
|
$
|
-
|
|
|
$
|
3,467
|
|
Investor relations
|
|
|
-
|
|
|
|
1,069
|
|
Wages and benefits
|
|
|
-
|
|
|
|
11,757
|
|
|
|
$
|
-
|
|
|
$
|
16,293
|
|
Share-based payment charges were $Nil during
the three months ended September 30, 2017 compared to $16,293 during the three months ended September 30, 2016. The decrease of
$16,293 in share-based payment charges during the period was mainly the result of options granted becoming fully expensed.
Most other expense categories reflected
moderate increases or decreases period over period reflecting the Company’s efforts to maintain or reduce spending.
Other items amounted to a loss of $128,310
during the three month period ended September 30, 2017 compared to a loss of $91,386 during the three month period ended September
30, 2016. On January 12, 2017, the Company paid the final derivative payment due so there was no total other gain or loss for the
three month period ended September 30, 2017 compared to the unrealized loss on the revaluation of the derivative liability of $100,000
caused by the increase in the price per ounce of gold during the three month period ended September 30, 2016. The Company had a
foreign exchange loss of $133,815 during the three month period ended September 30, 2017 compared to a loss of $3,020 during the
three month period ended September 30, 2016 as a result of the impact of exchange rates on certain of the Company’s U.S.
dollar cash balances. The average exchange rate during the three month period ended September 30, 2017 was C$1 to US$0.7984 compared
to C$1 to US$0.7663 for the three month period ended September 30, 2016.
Nine Months Ended September 30, 2017 compared to Nine
Months Ended September 30, 2016
The Company incurred a net loss of $5,051,136
for the nine month period ended September 30, 2017, compared to a net loss of $6,080,895 for the nine month period ended September
30, 2016.
Mineral property expenditures decreased
$256,879 to $2,247,405 for the nine months ended September 30, 2017 from $2,504,284 for the nine months ended September 30, 2016
due to the differences in the scope of technical work completed during the periods.
Consulting fees were $217,389 for the nine
month period ended September 30, 2017 compared to $200,660 for the nine month period ended September 30, 2016. The increase of
$16,729 is due primarily to increased media support services and one additional compensated director.
Professional fees were $173,345 for the
nine month period ended September 30, 2017, compared to $155,007 for the nine month period ended September 30, 2016. The increase
of $18,338 is due primarily to increased legal fees related to further work in connection with property matters and the DSU Plan.
Regulatory costs were $130,659 for the
nine months ended September 30, 2017 compared to $108,281 for the nine months ended September 30, 2016. The increase of $22,378
is primarily due to increased SEDAR filing fees and higher market listing fees as a result of the Company’s increased market
capitalization.
Excluding share-based payment charges of
$9,322 and $65,410, respectively, wages and benefits for the nine months ended September 30, 2017 decreased $131,568 to $1,433,057
from $1,564,625 for the nine months ended September 30, 2016 primarily due to staff reductions partially offset by the previous
CEO stock issuance and severance for one staff reduction.
Share-based payment charges
Share-based payment charges for the nine month periods ended
September 30, 2017 and 2016 were allocated as follows:
Expense category:
|
|
September 30, 2017
|
|
|
September 30, 2016
|
|
Consulting
|
|
$
|
2,957
|
|
|
$
|
21,621
|
|
Investor relations
|
|
|
848
|
|
|
|
5,556
|
|
Wages and benefits
|
|
|
9,322
|
|
|
|
65,410
|
|
|
|
$
|
13,127
|
|
|
$
|
92,587
|
|
Share-based payment charges were $13,127
during the nine months ended September 30, 2017 compared to $92,587 during the nine months ended September 30, 2016. The decrease
of $79,460 in share-based payment charges during the period was mainly the result of options granted becoming fully expensed.
Most other expense categories reflected
moderate increases or decreases period over period reflecting the Company’s efforts to maintain or reduce spending.
Other items amounted to a loss of $332,255
during the nine month period ended September 30, 2017 compared to a loss of $969,655 during the nine month period ended September
30, 2016. On January 12, 2017, the Company paid the final derivative payment due so there was no total other gain or loss for the
nine month period ended September 30, 2017 compared to the unrealized loss on the revaluation of the derivative liability of $900,000
caused by the increase in the price per ounce of gold during the nine month period ended September 30, 2016. The Company had a
foreign exchange loss of $377,940 during the nine month period ended September 30, 2017 compared to a loss of $124,784 during the
nine month period ended September 30, 2016 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 nine month period ended September 30, 2017 was C$1 to US$0.7657 compared to
C$1 to US$0.7565 for the nine month period ended September 30, 2016.
Liquidity Risk and Capital Resources
The Company has no revenue generating operations
from which it can internally generate funds. To date, the Company’s ongoing operations have been predominantly financed through
sale of its equity securities by way of private placements and the subsequent exercise of share purchase and broker warrants and
options issued in connection with such private placements. However, the exercise of warrants/options is dependent primarily on
the market price and overall market liquidity of the Company’s securities at or near the expiry date of such warrants/options
(over which the Company has no control) and therefore there can be no guarantee that any existing warrants/options will be exercised.
There are currently no warrants outstanding.
As at September 30, 2017, the Company had
cash and cash equivalents of $3,435,287 compared to $22,466,493 at December 31, 2016. The decrease of approximately $19.0 million
during the nine month period ended September 30, 2017 resulted mainly from financing activities of approximately $14.7 million,
expenditures on the Livengood Gold Project of approximately $4.7 million, and a negative foreign currency translation impact of
approximately $0.4 million.
Financing activities during the nine month
period ended September 30, 2017 included payment of the final derivative payment of approximately $14.7 million. Share issuance
costs included $45,000 related to a non-brokered private placement of Common Shares in December 2014 and $147 related to the share
issuance to the previous CEO. The Company had no cash flows from financing activities during the nine month period ended September
30, 2016.
The Company had no cash flows from investing
activities during the nine month periods ended September 30, 2017 and 2016.
As at September 30, 2017, the Company had
working capital of $3,009,519 compared to working capital of $7,588,867 at December 31, 2016. The Company expects that it will
operate at a loss for the foreseeable future, but believes the current working capital 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 2018 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. 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 September
30, 2017, the Company’s contractual obligations including anticipated mineral property payments. Under the terms of the Company’s
mineral property purchase agreements, mineral leases and the terms of the unpatented mineral claims held by it, the Company is
required to make certain scheduled acquisition payments, incur certain levels of expenditures, make lease or advance royalty payments,
make payments to government authorities and incur assessment work expenditures as summarized in the table below in order to maintain
and preserve the Company’s interests in the related mineral properties. If the Company is unable or unwilling to make any
such payments or incur any such expenditure, it is likely that the Company would lose or forfeit its rights to acquire or hold
the related mineral properties. The following table assumes that the Company retains the rights to all of its current mineral properties,
but does not exercise any lease purchase or royalty buyout options:
|
|
Payments Due by Year
|
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022 and beyond
|
|
|
Total
|
|
Mineral Property Leases
(1)
|
|
$
|
-
|
|
|
$
|
424,668
|
|
|
$
|
429,688
|
|
|
$
|
434,783
|
|
|
$
|
439,955
|
|
|
$
|
445,204
|
|
|
$
|
2,174,298
|
|
Mining Claim Government Fees
|
|
|
76,950
|
|
|
|
114,925
|
|
|
|
114,925
|
|
|
|
114,925
|
|
|
|
114,925
|
|
|
|
114,925
|
|
|
|
651,575
|
|
Total
|
|
$
|
76,950
|
|
|
$
|
539,593
|
|
|
$
|
544,613
|
|
|
$
|
549,708
|
|
|
$
|
554,880
|
|
|
$
|
560,129
|
|
|
$
|
2,825,873
|
|
|
(1)
|
Does not include required work expenditures, as it is
assumed that the required expenditure level is significantly below the level of work that will actually be carried out by the
Company. Does not include potential royalties that may be payable (other than annual minimum royalty payments).
|
Other – Related Party Transactions
In December 2011, in accordance with a
Stock and Asset Purchase Agreement (the “Agreement”) between the Company, Alaska/Nevada Gold Mines, Ltd. (“AN
Gold Mines”) and the Heflinger Group, the Company acquired certain mining claims and related rights in the vicinity of the
Livengood Gold Project located near Fairbanks, Alaska. The Company’s derivative liability, as described in Note 6 to the
accompanying unaudited condensed consolidated financial statements, 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 $0.48
per share. As at December 31, 2016, Paulson, Tocqueville, and AngloGold beneficially own approximately 34.2%, 19.4%, and 9.5% respectively
of the Company's 162,186,972 common shares.
On January 1, 2014, Thomas Irwin was appointed
as the Chief Executive Officer of the Company. Prior to that he was the Vice President of the Company from August 2012 to December
2013, and was Alaska General Manager from January 2012 to August 2012. Mr. Irwin originally joined the Company as the Livengood
Project Construction Manager in March 2011. During his tenure at the Company, Mr. Irwin assumed greater and greater responsibility
for the progress of the Livengood Project, and, as CEO, successfully spearheaded the completion of the initial stage of the optimization
process that produced the Company’s 2016 PFS. In addition, Mr. Irwin successfully negotiated and closed two significant financings
allowing the Company to continue the optimization work at Livengood and to retire the outstanding derivative payment which resulted
in the Company securing a strategic land package at the Livengood Project.
During Mr. Irwin’s tenure as CEO,
his employment contract provided for a target bonus equal to 100% of his annual base salary. However, as a consequence of the Company’s
cash position in a down market, and the desire to fully fund the optimization studies on the Livengood Project, Mr. Irwin was,
based on his recommendation, not awarded a bonus for any of the fiscal years during which he served as Chief Executive Officer.
Upon his transition to Senior Advisor on
January 31, 2017, the Compensation Committee approved, and the Board voted to award to Mr. Irwin, subject to shareholder and regulatory
approval, a one-time payment of $175,000, to be settled in Common Shares, in recognition of the exemplary efforts of Mr. Irwin
on behalf of the Company during his tenure as CEO. Based on the USD-CAD exchange rate (USD 1.00 = CAD 1.3030), and the 5-day volume
weighted average price of the Common Shares on the TSX (CAD 0.859), both as at January 31, 2017, the number of Common Shares to
be issued to Mr. Irwin was 265,454 (less the number of Common Shares equivalent to any amounts required to be withheld under statutory
withholding requirements). The 265,454 Common Shares represented 0.16% of the currently outstanding Common Shares as at January
31, 2017. Mr. Irwin also received a monthly payment of $5,000 in his position as Senior Advisor.
Because the issuance to Mr. Irwin was (a)
a security-based compensation arrangement, (b) to an insider and (c) not pursuant to a security based compensation arrangement
previously approved by the shareholders of the Company, the TSX and the NYSE-MKT both required that such issuance be subject to
shareholder approval. At the Company’s 2017 Annual General Meeting of Shareholders held in Vancouver, B.C. on May 24, 2017,
the shareholders approved the proposed issuance of Common Shares to Mr. Irwin as a one-time payment associated with his transition
to Senior Advisor.
Subsequent to shareholder approval of the
one-time payment on May 24, 2017, the Company recognized an obligation to issue 206,024 shares with a value of $99,492 based on
the USD-CAD exchange rate (USD 1.00 = CAD 1.3460) and the closing price of the Common Shares on the TSX (CAD 0.650), both as at
May 24, 2017. On July 13, 2017, a certificate for 206,024 Common Shares was issued to Mr. Irwin.
Off-Balance Sheet Arrangements
The Company does not have any off balance sheet arrangements.
Environmental Regulations
The operations of the Company may in the
future be affected from time to time in varying degrees by changes in environmental regulations, including those for future removal
and site restoration costs. Both the likelihood of new regulations and their overall effect upon the Company vary greatly and are
not predictable. The Company’s policy is to meet or, if possible, surpass standards set by relevant legislation by application
of technically proven and economically feasible measures.
Certain U.S. Federal Income Tax Considerations
for U.S. Holders
The Company has been a “passive foreign investment company” (“PFIC”) for U.S. federal income tax purposes
in recent years and expects to continue to be a PFIC in the future. Current and prospective U.S. shareholders should consult
their tax advisors as to the tax consequences of PFIC classification and the U.S. federal tax treatment of PFICs. Additional
information on this matter is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016,
under “Part II. Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities - Certain U.S. Federal Income Tax Considerations for U.S. Holders.”