ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL TOWER HILL MINES LTD.
CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS
As at June 30, 2018 and December 31, 2017
(Expressed in US Dollars - Unaudited)
|
|
Note
|
|
|
June 30,
2018
|
|
|
December
31,
2017
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
$
|
12,113,995
|
|
|
$
|
2,244,466
|
|
Prepaid expenses and other
|
|
|
|
|
|
|
198,893
|
|
|
|
177,730
|
|
Total current assets
|
|
|
|
|
|
|
12,312,888
|
|
|
|
2,422,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
|
|
|
|
19,270
|
|
|
|
20,794
|
|
Capitalized acquisition costs
|
|
|
4
|
|
|
|
55,204,041
|
|
|
|
55,204,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
$
|
67,536,199
|
|
|
$
|
57,647,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
|
|
|
$
|
23,161
|
|
|
$
|
82,269
|
|
Accrued liabilities
|
|
|
5
|
|
|
|
360,474
|
|
|
|
346,569
|
|
Total liabilities
|
|
|
|
|
|
|
383,635
|
|
|
|
428,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital, no par value; authorized 500,000,000 shares; 162,392,996 and 186,816,683 shares issued and outstanding at December 31, 2017 and June 30, 2018, respectively
|
|
|
7
|
|
|
|
277,748,250
|
|
|
|
265,616,642
|
|
Contributed surplus
|
|
|
|
|
|
|
34,573,493
|
|
|
|
34,459,264
|
|
Obligation to issue shares
|
|
|
|
|
|
|
-
|
|
|
|
63,593
|
|
Accumulated other comprehensive income
|
|
|
|
|
|
|
1,459,121
|
|
|
|
1,686,359
|
|
Deficit
|
|
|
|
|
|
|
(246,628,300
|
)
|
|
|
(244,607,665
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity
|
|
|
|
|
|
|
67,152,564
|
|
|
|
57,218,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
|
|
|
|
$
|
67,536,199
|
|
|
$
|
57,647,031
|
|
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.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS
For the Three and Six Months Ended June 30, 2018 and 2017
(Expressed in US Dollars - Unaudited)
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
Note
|
|
|
June 30, 2018
|
|
|
June 30, 2017
|
|
|
June 30, 2018
|
|
|
June 30, 2017
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting fees
|
|
|
|
|
|
$
|
26,195
|
|
|
$
|
74,080
|
|
|
$
|
79,910
|
|
|
$
|
146,775
|
|
Depreciation
|
|
|
|
|
|
|
762
|
|
|
|
998
|
|
|
|
1,524
|
|
|
|
1,997
|
|
Insurance
|
|
|
|
|
|
|
36,503
|
|
|
|
68,738
|
|
|
|
107,953
|
|
|
|
134,733
|
|
Investor relations
|
|
|
|
|
|
|
26,893
|
|
|
|
34,751
|
|
|
|
45,400
|
|
|
|
63,248
|
|
Mineral property exploration
|
|
|
4
|
|
|
|
706,115
|
|
|
|
668,389
|
|
|
|
910,327
|
|
|
|
1,379,505
|
|
Office
|
|
|
|
|
|
|
9,444
|
|
|
|
13,008
|
|
|
|
18,908
|
|
|
|
21,149
|
|
Other
|
|
|
|
|
|
|
4,095
|
|
|
|
5,411
|
|
|
|
8,376
|
|
|
|
9,948
|
|
Professional fees
|
|
|
|
|
|
|
50,308
|
|
|
|
64,899
|
|
|
|
102,271
|
|
|
|
115,118
|
|
Regulatory
|
|
|
|
|
|
|
20,486
|
|
|
|
17,397
|
|
|
|
79,169
|
|
|
|
74,696
|
|
Rent
|
|
|
|
|
|
|
33,933
|
|
|
|
35,445
|
|
|
|
67,865
|
|
|
|
70,794
|
|
Travel
|
|
|
|
|
|
|
12,026
|
|
|
|
16,278
|
|
|
|
30,315
|
|
|
|
47,731
|
|
Wages and benefits
|
|
|
|
|
|
|
350,447
|
|
|
|
579,570
|
|
|
|
878,110
|
|
|
|
1,035,984
|
|
Total operating expenses
|
|
|
|
|
|
|
(1,277,207
|
)
|
|
|
(1,578,964
|
)
|
|
|
(2,330,128
|
)
|
|
|
(3,101,678
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)/gain on foreign exchange
|
|
|
|
|
|
|
239,726
|
|
|
|
(78,001
|
)
|
|
|
212,279
|
|
|
|
(244,125
|
)
|
Interest income
|
|
|
|
|
|
|
41,066
|
|
|
|
7,119
|
|
|
|
42,429
|
|
|
|
17,980
|
|
Other income
|
|
|
|
|
|
|
41,000
|
|
|
|
22,200
|
|
|
|
54,785
|
|
|
|
22,200
|
|
Total other income (expenses)
|
|
|
|
|
|
|
321,792
|
|
|
|
(48,682
|
)
|
|
|
309,493
|
|
|
|
(203,945
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period
|
|
|
|
|
|
|
(955,415
|
)
|
|
|
(1,627,646
|
)
|
|
|
(2,020,635
|
)
|
|
|
(3,305,623
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain/(loss) on marketable securities
|
|
|
|
|
|
|
1,559
|
|
|
|
(6,349
|
)
|
|
|
(1,526
|
)
|
|
|
(4,385
|
)
|
Exchange difference on translating foreign operations
|
|
|
|
|
|
|
(250,574
|
)
|
|
|
91,303
|
|
|
|
(225,712
|
)
|
|
|
256,318
|
|
Total other comprehensive income (loss) for the period
|
|
|
|
|
|
|
(249,015
|
)
|
|
|
84,954
|
|
|
|
(227,238
|
)
|
|
|
251,933
|
|
Comprehensive loss for the period
|
|
|
|
|
|
$
|
(1,204,430
|
)
|
|
$
|
(1,542,692
|
)
|
|
$
|
(2,247,873
|
)
|
|
$
|
(3,053,690
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
|
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding – basic and diluted
|
|
|
|
|
|
|
186,698,298
|
|
|
|
162,186,972
|
|
|
|
177,002,395
|
|
|
|
162,186,972
|
|
The accompanying notes are an integral part
of these condensed consolidated interim financial statements.
INTERNATIONAL TOWER HILL MINES LTD.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the Six Months Ended June 30, 2018 and 2017
(Expressed in US Dollars - Unaudited)
|
|
Number of shares
|
|
|
Share capital
|
|
|
Contributed surplus
|
|
|
Obligation to issue shares
|
|
|
Accumulated other comprehensive income
|
|
|
Deficit
|
|
|
Total
|
|
Balance, December 31, 2016
|
|
|
162,186,972
|
|
|
$
|
265,569,796
|
|
|
$
|
34,079,301
|
|
|
$
|
-
|
|
|
$
|
1,344,219
|
|
|
$
|
(238,175,608
|
)
|
|
$
|
62,817,708
|
|
Share issuance costs
|
|
|
-
|
|
|
|
(45,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(45,000
|
)
|
Stock-based compensation-options
|
|
|
-
|
|
|
|
-
|
|
|
|
13,127
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,127
|
|
Obligation to issue shares
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
99,492
|
|
|
|
-
|
|
|
|
-
|
|
|
|
99,492
|
|
Unrealized gain/(loss) on available-for-sale securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,385
|
)
|
|
|
-
|
|
|
|
(4,385
|
)
|
Exchange difference on translating foreign operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
256,318
|
|
|
|
-
|
|
|
|
256,318
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,305,623
|
)
|
|
|
(3,305,623
|
)
|
Balance, June 30, 2017
|
|
|
162,186,972
|
|
|
|
265,524,796
|
|
|
|
34,092,428
|
|
|
|
99,492
|
|
|
|
1,596,152
|
|
|
|
(241,481,231
|
)
|
|
|
59,831,637
|
|
Stock-based compensation-options
|
|
|
-
|
|
|
|
-
|
|
|
|
48,871
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
48,871
|
|
Stock-based compensation-DSUs
|
|
|
-
|
|
|
|
-
|
|
|
|
381,558
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
381,558
|
|
Unrealized gain/(loss) on available-for-sale securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,132
|
)
|
|
|
-
|
|
|
|
(4,132
|
)
|
Exchange difference on translating foreign operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
94,339
|
|
|
|
-
|
|
|
|
94,339
|
|
Obligation to issue shares
|
|
|
-
|
|
|
|
-
|
|
|
|
(63,593
|
)
|
|
|
(35,899
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(99,492
|
)
|
Share issuance
|
|
|
206,024
|
|
|
|
99,492
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
99,492
|
|
Share issuance costs
|
|
|
-
|
|
|
|
(7,646
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,646
|
)
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,126,434
|
)
|
|
|
(3,126,434
|
)
|
Balance, December 31, 2017
|
|
|
162,392,996
|
|
|
|
265,616,642
|
|
|
|
34,459,264
|
|
|
|
63,593
|
|
|
|
1,686,359
|
|
|
|
(244,607,665
|
)
|
|
|
57,218,193
|
|
Stock-based compensation-options
|
|
|
-
|
|
|
|
-
|
|
|
|
179,265
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
179,265
|
|
Unrealized gain/(loss) on available-for-sale securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,526
|
)
|
|
|
-
|
|
|
|
(1,526
|
)
|
Exchange difference on translating foreign operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(225,712
|
)
|
|
|
-
|
|
|
|
(225,712
|
)
|
Obligation to issue shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(63,593
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(63,593
|
)
|
Share issuance
|
|
|
24,129,687
|
|
|
|
12,063,593
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,063,593
|
|
Share issuance costs
|
|
|
-
|
|
|
|
(111,379
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(111,379
|
)
|
Exercise of options
|
|
|
294,000
|
|
|
|
114,358
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
114,358
|
|
Reallocation from contributed surplus
|
|
|
-
|
|
|
|
65,036
|
|
|
|
(65,036
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,020,635
|
)
|
|
|
(2,020,635
|
)
|
Balance, June 30, 2018
|
|
|
186,816,683
|
|
|
$
|
277,748,250
|
|
|
$
|
34,573,493
|
|
|
$
|
-
|
|
|
$
|
1,459,121
|
|
|
$
|
(246,628,300
|
)
|
|
$
|
67,152,564
|
|
The accompanying notes are an integral part
of these condensed consolidated interim financial statements.
INTERNATIONAL TOWER HILL MINES LTD.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2018 and 2017
(Expressed in US Dollars - Unaudited)
|
|
Six Months Ended
|
|
|
|
June 30, 2018
|
|
|
June 30, 2017
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
Loss for the period
|
|
$
|
(2,020,635
|
)
|
|
$
|
(3,305,623
|
)
|
Add items not affecting cash:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
1,524
|
|
|
|
1,997
|
|
Stock-based compensation
|
|
|
179,265
|
|
|
|
13,127
|
|
Obligation to issue shares
|
|
|
-
|
|
|
|
99,492
|
|
Changes in non-cash items:
|
|
|
|
|
|
|
|
|
Prepaid expenses and other
|
|
|
(28,989
|
)
|
|
|
(148,207
|
)
|
Accounts payable and accrued liabilities
|
|
|
(42,852
|
)
|
|
|
(124,900
|
)
|
Cash used in operating activities
|
|
|
(1,911,687
|
)
|
|
|
(3,464,114
|
)
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
Issuance of shares
|
|
|
12,114,358
|
|
|
|
-
|
|
Derivative payment
|
|
|
-
|
|
|
|
(14,694,169
|
)
|
Share issuance costs
|
|
|
(111,379
|
)
|
|
|
(45,000
|
)
|
Cash provided by (used in) financing activities
|
|
|
12,002,979
|
|
|
|
(14,739,169
|
)
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange on cash
|
|
|
(221,763
|
)
|
|
|
258,762
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
9,869,529
|
|
|
|
(17,944,521
|
)
|
Cash and cash equivalents, beginning of the period
|
|
|
2,244,466
|
|
|
|
22,466,493
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of the period
|
|
$
|
12,113,995
|
|
|
$
|
4,521,972
|
|
The accompanying notes are an integral
part of these condensed consolidated interim financial statements.
INTERNATIONAL TOWER HILL MINES LTD.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Six Months Ended June 30, 2018 and 2017
(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 June 30, 2018, the Company controls a 100% interest in its Livengood Gold Project, an exploration-stage
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 June 30, 2018, the Company
had cash and cash equivalents of $12,113,995 compared to $2,244,466 at December 31, 2017. The Company has no revenue generating
operations from which it can internally generate funds. On March 13, 2018, the Company completed a non-brokered private placement
pursuant to which it issued 24,000,000 common shares at $0.50 per share for gross proceeds of $12,000,000.
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. 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.
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, 2017 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 June 30, 2018 and the results of its operations for the six months then ended. Operating results for
the six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December
31, 2018. The 2017 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.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Six Months Ended June 30, 2018 and 2017
(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 August 9, 2018, the Board
of Directors of the Company (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 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 June 30, 2018
|
|
|
|
Level 1
|
|
Financial assets:
|
|
|
|
|
Marketable securities
|
|
$
|
13,327
|
|
Total
|
|
$
|
13,327
|
|
|
|
Fair value as at December 31, 2017
|
|
|
|
Level 1
|
|
Financial assets:
|
|
|
|
|
Marketable securities
|
|
$
|
15,543
|
|
Total
|
|
$
|
15,543
|
|
|
4.
|
CAPITALIZED ACQUISITION COSTS
|
The Company had the following activity related to
capitalized acquisition costs:
Capitalized acquisition costs
|
|
Amount
|
|
Balance, December 31, 2017
|
|
$
|
55,204,041
|
|
Acquisition costs
|
|
|
-
|
|
Balance, June 30, 2018
|
|
$
|
55,204,041
|
|
INTERNATIONAL TOWER HILL MINES LTD.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Six Months Ended June 30, 2018 and 2017
(Expressed in US dollars – Unaudited)
|
The following table presents costs incurred for exploration
and evaluation activities for the six months ended June 30, 2018 and 2017:
|
|
June 30, 2018
|
|
|
June 30, 2017
|
|
Exploration costs:
|
|
|
|
|
|
|
|
|
Aircraft services
|
|
$
|
4,200
|
|
|
$
|
4,050
|
|
Assay
|
|
|
-
|
|
|
|
412,811
|
|
Environmental
|
|
|
107,014
|
|
|
|
106,905
|
|
Equipment rental
|
|
|
16,805
|
|
|
|
23,875
|
|
Field costs
|
|
|
63,084
|
|
|
|
68,128
|
|
Geological/geophysical
|
|
|
270,463
|
|
|
|
307,023
|
|
Land maintenance & tenure
|
|
|
421,005
|
|
|
|
415,305
|
|
Legal
|
|
|
26,511
|
|
|
|
37,272
|
|
Transportation and travel
|
|
|
1,245
|
|
|
|
4,136
|
|
Total expenditures for the period
|
|
$
|
910,327
|
|
|
$
|
1,379,505
|
|
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 six months
ended June 30, 2018 and from the inception of this lease, the Company has paid $330,433 and $2,962,821, respectively.
|
|
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 six months ended June 30, 2018 and from the inception of this lease, the Company has
paid $50,000 and $730,000, 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
six months ended June 30, 2018 and from the inception of this lease, the Company has paid $25,000 and $210,000, respectively.
|
INTERNATIONAL TOWER HILL MINES LTD.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Six Months Ended June 30, 2018 and 2017
(Expressed in US dollars – Unaudited)
|
|
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 six months ended June 30, 2018
and from the inception of this lease, the Company has paid $15,000 and $143,000, 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 June 30, 2018 and December 31, 2017.
|
|
June
30,
2018
|
|
|
December 31, 2017
|
|
Accrued liabilities
|
|
$
|
303,633
|
|
|
$
|
201,673
|
|
Accrued salaries and benefits
|
|
|
56,841
|
|
|
|
144,896
|
|
Total accrued liabilities
|
|
$
|
360,474
|
|
|
$
|
346,569
|
|
Accrued liabilities at June
30, 2018 include accruals for general corporate costs and project costs of $34,071 and $269,562, respectively. Accrued liabilities
at December 31, 2017 include accruals for general corporate costs and project costs of $34,941 and $166,732, 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 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.
INTERNATIONAL TOWER HILL MINES LTD.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Six Months Ended June 30, 2018 and 2017
(Expressed in US dollars – Unaudited)
|
Authorized
500,000,000 common shares without
par value. At December 31, 2017 and June 30, 2018, there were 162,392,996 and 186,816,683 shares issued and outstanding, respectively.
Share issuances
On March 13, 2018, the Company
completed a non-brokered private placement pursuant to which it issued 24,000,000 common shares at $0.50 per share for gross proceeds
of $12,000,000. Share issuance costs included $111,379 related to the private placement. Following the resignation of director
Mark Hamilton on November 6, 2017, the Company recognized an obligation to issue 129,687 common shares, with a value of $63,593.
On March 27, 2018, the Company issued the 129,687 common shares in full satisfaction of the obligation. The Company also issued
294,000 common shares pursuant to the exercise of stock options for total proceeds of $114,358 and transferred related contributed
surplus of $65,036 to share capital during the six months ended June 30, 2018.
Stock options
The Company adopted an incentive
stock option plan in 2006, as amended September 19, 2012 and reapproved by the Company’s shareholders on May 28, 2015 and
May 30, 2018 (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 issued 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 TSX. Options granted under the 2006 Plan vest immediately,
unless otherwise determined by the directors at the date of grant.
On March 21, 2018, the Company
granted incentive stock options to certain officers, employees and consultants of the Company to purchase a total of 420,085 common
shares in the capital stock of the Company. The options vest 100% on the grant date with an expiry date of March 21, 2024. The
exercise price of these options is C$0.61 per common share.
A summary of the status of the
2006 Plan as of June 30, 2018 and December 31, 2017 and changes is presented below:
|
|
Six Months Ended
|
|
|
Year Ended
|
|
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
|
|
Number of
Options
|
|
|
Weighted Average Exercise Price (C$)
|
|
|
Aggregate Intrinsic Value (C$)
|
|
|
Number of
Options
|
|
|
Weighted Average Exercise Price (C$)
|
|
|
Aggregate Intrinsic Value (C$)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of the period
|
|
|
4,477,000
|
|
|
$
|
1.03
|
|
|
|
|
|
|
|
6,026,200
|
|
|
$
|
1.61
|
|
|
|
|
|
Granted
|
|
|
420,085
|
|
|
$
|
0.61
|
|
|
|
|
|
|
|
250,000
|
|
|
|
1.35
|
|
|
|
|
|
Exercised
|
|
|
(294,000
|
)
|
|
$
|
0.50
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Cancelled
|
|
|
(400,000
|
)
|
|
$
|
1.01
|
|
|
|
|
|
|
|
(149,200
|
)
|
|
|
1.24
|
|
|
|
|
|
Expired
|
|
|
(269,000
|
)
|
|
$
|
2.18
|
|
|
|
|
|
|
|
(1,650,000
|
)
|
|
|
3.17
|
|
|
|
|
|
Balance, end of the period
|
|
|
3,934,085
|
|
|
$
|
0.95
|
|
|
$
|
62,403
|
|
|
|
4,477,000
|
|
|
$
|
1.03
|
|
|
$
|
38,220
|
|
INTERNATIONAL TOWER HILL MINES LTD.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Six Months Ended June 30, 2018 and 2017
(Expressed in US dollars – Unaudited)
|
The weighted average remaining
life of options outstanding at June 30, 2018 was 4.46 years.
Stock options outstanding
are as follows:
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
Expiry Date
|
|
Exercise Price (C$)
|
|
|
Number of Options
|
|
|
Exercisable
|
|
|
Exercise Price (C$)
|
|
|
Number of Options
|
|
|
Exercisable
|
|
March 14, 2018
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
2.18
|
|
|
|
300,000
|
|
|
|
300,000
|
|
February 25, 2022
|
|
$
|
1.11
|
|
|
|
970,000
|
|
|
|
970,000
|
|
|
$
|
1.11
|
|
|
|
1,030,000
|
|
|
|
1,030,000
|
|
February 25, 2022
|
|
$
|
0.73
|
|
|
|
450,000
|
|
|
|
450,000
|
|
|
$
|
0.73
|
|
|
|
540,000
|
|
|
|
540,000
|
|
March 10, 2022
|
|
$
|
1.11
|
|
|
|
370,000
|
|
|
|
370,000
|
|
|
$
|
1.11
|
|
|
|
430,000
|
|
|
|
430,000
|
|
March 16, 2023
|
|
$
|
1.00
|
|
|
|
1,140,000
|
|
|
|
1,140,000
|
|
|
$
|
1.00
|
|
|
|
1,260,000
|
|
|
|
1,260,000
|
|
March 16, 2023
|
|
$
|
0.50
|
|
|
|
304,000
|
|
|
|
304,000
|
|
|
$
|
0.50
|
|
|
|
637,000
|
|
|
|
637,000
|
|
June 9, 2023
|
|
$
|
1.00
|
|
|
|
30,000
|
|
|
|
30,000
|
|
|
$
|
1.00
|
|
|
|
30,000
|
|
|
|
30,000
|
|
March 21, 2024
|
|
$
|
0.61
|
|
|
|
420,085
|
|
|
|
420,085
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
February 1, 2025
|
|
$
|
1.35
|
|
|
|
250,000
|
|
|
|
166,667
|
|
|
$
|
1.35
|
|
|
|
250,000
|
|
|
|
83,333
|
|
|
|
|
|
|
|
|
3,934,085
|
|
|
|
3,850,752
|
|
|
|
|
|
|
|
4,477,000
|
|
|
|
4,310,333
|
|
A summary of the non-vested options
as of June 30, 2018 and changes during the six months ended June 30, 2018 is as follows:
Non-vested options:
|
|
Number of options
|
|
|
Weighted average grant-date fair value (C$)
|
|
Outstanding at December 31, 2017
|
|
|
166,667
|
|
|
$
|
0.40
|
|
Granted
|
|
|
420,085
|
|
|
$
|
0.48
|
|
Vested
|
|
|
(503,419
|
)
|
|
$
|
0.47
|
|
Outstanding at June 30, 2018
|
|
|
83,333
|
|
|
$
|
0.40
|
|
At June 30, 2018, there was unrecognized
compensation expense of C$15,549 related to non-vested options outstanding. The cost is expected to be recognized over a weighted-average
remaining period of approximately 0.59 years.
Share-based payments
During the six month period ended
June 30, 2018, there were 420,085 stock options granted by the Company. Share-based payment charges for the six months ended June
30, 2018 totaled $179,265.
During the six month period ended
June 30, 2017, there were no stock options granted by the Company. Share-based payment charges for the six months ended June 30,
2017 totaled $13,127.
The following weighted average assumptions
were used for the Black-Scholes option pricing model calculations:
|
|
YTD June 30, 2018
|
|
Expected life of options
|
|
|
6 years
|
|
Risk-free interest rate
|
|
|
2.12
|
%
|
Annualized volatility
|
|
|
93.67
|
%
|
Dividend rate
|
|
|
0.00
|
%
|
Exercise price (C$)
|
|
$
|
0.61
|
|
INTERNATIONAL TOWER HILL MINES LTD.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Six Months Ended June 30, 2018 and 2017
(Expressed in US dollars – Unaudited)
|
The expected volatility used in the Black-Scholes
option pricing model is based on the historical volatility of the Company’s shares.
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 maximum aggregate number of common shares that may be issued under the DSU Plan
and the 2006 Plan is 10% of the number of issued and outstanding common shares.
In accordance with the DSU Plan,
on October 23, 2017 the Company granted each of the members of the Board (other than those directors nominated for election by
Paulson & Co., Inc.) 129,687 DSUs with a grant date fair value (defined as the weighted average of the prices at which the
common shares traded on the TSX for the five trading days immediately preceding the grant) of C$0.62 per grant, or an aggregate
of C$482,436. The DSUs entitle the holders to receive common shares without the payment of any consideration. The DSUs vested immediately
upon being granted but the common shares underlying the DSUs are not deliverable to the grantee until the grantee is no longer
serving on the Company’s Board of Directors.
Following the resignation of
director Mark Hamilton on November 6, 2017, the Company recorded an obligation to issue 129,687 DSUs valued at $63,593 (C$80,406).
On March 27, 2018, the Company issued the 129,687 common shares in full satisfaction of the obligation.
DSUs outstanding are as follows:
|
|
Six Months Ended
|
|
|
Year Ended
|
|
|
|
June 30, 2018
|
|
|
December 31, 2017
|
|
|
|
Number of
Units
|
|
|
Weighted Average Exercise Price (C$)
|
|
|
Number of
Units
|
|
|
Weighted Average Exercise Price (C$)
|
|
Balance, beginning of the period
|
|
|
648,435
|
|
|
$
|
0.62
|
|
|
|
-
|
|
|
$
|
0.62
|
|
Issued
|
|
|
-
|
|
|
$
|
-
|
|
|
|
778,122
|
|
|
$
|
0.62
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
(129,687
|
)
|
|
$
|
0.62
|
|
Balance, end of the period
|
|
|
648,435
|
|
|
$
|
0.62
|
|
|
|
648,435
|
|
|
$
|
0.62
|
|
|
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
|
|
June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized acquisition costs
|
|
$
|
-
|
|
|
$
|
55,204,041
|
|
|
$
|
55,204,041
|
|
Property and equipment
|
|
|
8,344
|
|
|
|
10,926
|
|
|
|
19,270
|
|
Current assets
|
|
|
11,642,259
|
|
|
|
670,629
|
|
|
|
12,312,888
|
|
Total assets
|
|
$
|
11,650,603
|
|
|
$
|
55,885,596
|
|
|
$
|
67,536,199
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized acquisition costs
|
|
$
|
-
|
|
|
$
|
55,204,041
|
|
|
$
|
55,204,041
|
|
Property and equipment
|
|
|
8,501
|
|
|
|
12,293
|
|
|
|
20,794
|
|
Current assets
|
|
|
1,794,494
|
|
|
|
627,702
|
|
|
|
2,422,196
|
|
Total assets
|
|
$
|
1,802,995
|
|
|
$
|
55,844,036
|
|
|
$
|
57,647,031
|
|
INTERNATIONAL TOWER HILL MINES LTD.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Six Months Ended June 30, 2018 and 2017
(Expressed in US dollars – Unaudited)
|
Three months ended
|
|
June 30, 2018
|
|
|
June 30, 2017
|
|
Net gain/(loss) for the period – Canada
|
|
$
|
116,108
|
|
|
$
|
(333,167
|
)
|
Net loss for the period – United States
|
|
|
(1,071,523
|
)
|
|
|
(1,294,479
|
)
|
Net loss for the period
|
|
$
|
(955,415
|
)
|
|
$
|
(1,627,646
|
)
|
Six months ended
|
|
June 30, 2018
|
|
|
June 30, 2017
|
|
Net loss for the period – Canada
|
|
$
|
(335,585
|
)
|
|
$
|
(762,987
|
)
|
Net loss for the period – United States
|
|
|
(1,685,050
|
)
|
|
|
(2,542,636
|
)
|
Net loss for the period
|
|
$
|
(2,020,635
|
)
|
|
$
|
(3,305,623
|
)
|
The following table discloses,
as of June 30, 2018, 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
|
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
2023 and beyond
|
|
|
|
Total
|
|
Mineral Property Leases
(1)
|
|
$
|
-
|
|
|
$
|
425,389
|
|
|
$
|
430,420
|
|
|
$
|
435,526
|
|
|
$
|
440,709
|
|
|
$
|
445,970
|
|
|
$
|
2,178,014
|
|
Mining Claim Government Fees
|
|
|
114,825
|
|
|
|
114,825
|
|
|
|
114,825
|
|
|
|
114,825
|
|
|
|
114,825
|
|
|
|
114,825
|
|
|
|
688,950
|
|
Total
|
|
$
|
114,825
|
|
|
$
|
540,214
|
|
|
$
|
545,245
|
|
|
$
|
550,351
|
|
|
$
|
555,534
|
|
|
$
|
560,795
|
|
|
$
|
2,866,964
|
|
|
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 was subsequently appointed Chief Executive Officer of the Company effective
January 31, 2017. Mr. Hanneman was a partner of the general partner, as well as a limited partner, of AN Gold Mines and held an
11.9% net interest in AN Gold Mines.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion
and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with our Annual
Report on Form 10-K for the year ended December 31, 2017. All currency amounts are stated in US dollars unless noted otherwise.
Current Business Activities
General
During the six months ended June 30, 2018
and to the date of this Quarterly Report on Form 10-Q, the Company announced on March 13, 2018 it had completed a non-brokered
private placement pursuant to which it issued 24,000,000 common shares at $0.50 per share for gross proceeds of $12.0 million.
On March 12, 2018, the Board approved a
2018 budget of $5.1 million. The work program incorporated in this budget will build upon the metallurgical studies undertaken
in 2017 to continue to define and refine the project flowsheet. Using the improved mineralization and alteration models now available
for the Livengood gold deposit arising from the work completed in 2017, 4000 kg of metallurgical composites have been selected
based on location within the deposit and shipped to SGS Vancouver (“SGS”). SGS has begun processing portions of these
samples to determine whether different recovery or cost parameters should be applied to different portions of the orebody. The
engineering firm of BBA Inc. will continue to guide the metallurgical program. Work is also planned to advance the environmental
baseline efforts needed to support future permitting.
The Company has sufficient funds to complete
the test programs and engineering work currently underway.
Results of Operations
Summary of Quarterly Results
Description
|
|
June 30, 2018
|
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
September 30, 2017
|
|
Net loss
|
|
$
|
(955,415
|
)
|
|
$
|
(1,065,220
|
)
|
|
$
|
(1,380,921
|
)
|
|
$
|
(1,745,513
|
)
|
Basic and diluted net loss per common share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
|
June 30, 2017
|
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
September 30, 2016
|
|
Net loss
|
|
$
|
(1,627,646
|
)
|
|
$
|
(1,677,977
|
)
|
|
$
|
(1,109,733
|
)
|
|
$
|
(1,524,589
|
)
|
Basic and diluted net loss per common share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
Three Months Ended June 30, 2018 compared to Three Months
Ended June 30, 2017
The Company incurred a net loss of $955,415
for the three month period ended June 30, 2018, compared to a net loss of $1,627,646 for the three month period ended June 30,
2017.
Mineral property expenditures were $706,115
for the three months ended June 30, 2018 compared to $668,389 for the three months ended June 30, 2017. The increase of $37,726
is primarily due to the differences in the scope of technical and baseline environmental work completed during the periods.
Consulting costs were $26,195 for the three
months ended June 30, 2018 compared to $74,080 for the three months ended June 30, 2017. The decrease of $47,885 is primarily due
to the Company’s continued efforts to maintain or reduce spending.
Excluding share-based payment charges of
$5,098 and $Nil for the 2018 and 2017 periods, respectively, wages and benefits for the three months ended June 30, 2018 decreased
to $345,349 from $579,570 for the three months ended June 30, 2017 primarily due to staffing and compensation reductions.
Insurance costs decreased by $32,235 to
$36,503 for the three months ended June 30, 2018 from $68,738 for the three months ended June 30, 2017 after the Company completed
a review of coverage requirements.
Professional fees decreased by $14,591
to $50,308 for the three months ended June 30 from $64,899 for the three months ended June 30, 2017 due primarily to a decrease
in legal fees related to further work in connection with property matters.
Share-based payment charges
Share-based payment charges for the three month periods ended
June 30, 2018 and 2017 were allocated as follows:
Expense category:
|
|
June 30, 2018
|
|
|
June 30, 2017
|
|
Consulting
|
|
$
|
-
|
|
|
$
|
168
|
|
Investor relations
|
|
|
-
|
|
|
|
-
|
|
Wages and benefits
|
|
|
5,098
|
|
|
|
-
|
|
|
|
$
|
5,098
|
|
|
$
|
168
|
|
Share-based payment charges were $5,098
during the three months ended June 30, 2018 compared to $168 during the three months ended June 30, 2017. The increase of $4,930
in share-based payment charges during the period was mainly the result of options issued during the three month period ended June
30, 2018 that were exercisable upon grant.
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 gain of $321,792
during the three month period ended June 30, 2018 compared to a loss of $48,682 during the three month period ended June 30, 2017.
The Company had a foreign exchange gain of $239,726 during the three month period ended June 30, 2018 compared to a loss of $78,001
during the three month period ended June 30, 2017 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 June 30, 2018 was C$1 to US$0.7747 compared
to C$1 to US$0.7437 during the three month period ended June 30, 2017.
Six Months Ended June 30, 2018 compared to Six Months
Ended June 30, 2017
The Company incurred a net loss of $2,020,635
for the six month period ended June 30, 2018, compared to a net loss of $3,305,623 for the six month period ended June 30, 2017.
Mineral property expenditures were $910,327
for the six months ended June 30, 2018 compared to $1,379,505 for the six months ended June 30, 2017. The decrease of $469,178
is primarily due to the differences in the scope of technical work completed during the periods.
Consulting fees were $79,910 for the six
month period ended June 30, 2018 compared to $146,775 for the six month period ended June 30, 2017. The decrease of $66,865 is
due primarily to decreased media support services and the Company’s continued efforts to maintain or reduce spending.
Excluding share-based payment charges of
$173,297 and $9,322 for the 2018 and 2017 periods, respectively, wages and benefits for the six months ended June 30, 2018 decreased
$321,850 to $704,813 from $1,026,662 for the six months ended June 30, 2017 primarily due to staffing and compensation reductions.
Insurance costs decreased by $26,780 to
$107,953 for the six months ended June 30, 2018 from $134,733 for the six months ended June 30, 2017 after the Company completed
a review of coverage requirements.
Professional fees were $102,271 for the
six month period ended June 30, 2018, compared to $115,118 for the six month period ended June 30, 2017. The decrease of $12,847
is due primarily to decreased legal fees related to property matters.
Investor relations costs were $45,400 for
the six months ended June 30, 2018 compared to $63,248 for the six months ended June 30, 2017. The decrease of $17,848 is primarily
due to decreased costs for the 2018 Annual General Meeting materials.
Travel costs decreased by $17,416 to $30,315
for the six months ended June 30, 2018 from $47,731 for the six months ended June 30, 2017 due to the Company’s continued
efforts to maintain or reduce spending.
Share-based payment charges
Share-based payment charges for the six month periods ended
June 30, 2018 and 2017 were allocated as follows:
Expense category:
|
|
June 30, 2018
|
|
|
June 30, 2017
|
|
Consulting
|
|
$
|
-
|
|
|
$
|
2,957
|
|
Investor relations
|
|
|
5,968
|
|
|
|
848
|
|
Wages and benefits
|
|
|
173,297
|
|
|
|
9,322
|
|
|
|
$
|
179,265
|
|
|
$
|
13,127
|
|
Share-based payment charges were $179,265
during the six months ended June 30, 2018 compared to $13,127 during the six months ended June 30, 2017. The increase of $166,138
in share-based payment charges during the period was mainly the result of options issued during the six month period ended June
30, 2018 that were exercisable upon grant.
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 gain of $309,493
during the six month period ended June 30, 2018 compared to a loss of $203,945 during the six month period ended June 30, 2017.
The Company had a foreign exchange gain of $212,279 during the six month period ended June 30, 2018 compared to a loss of $244,125
during the six month period ended June 30, 2017 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 six month period ended June 30, 2018 was C$1 to US$0.7827 compared to
C$1 to US$0.7496 for the six month period ended June 30, 2017.
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 June 30, 2018, the Company had cash
and cash equivalents of $12,113,995 compared to $2,244,466 at December 31, 2017. The increase of approximately $9.9 million resulted
mainly from the completion of a $12.0 million non-brokered private placement on March 13, 2018 partially offset by expenditures
on operating activities of approximately $2.3 million and a positive foreign currency transaction impact of approximately $0.2
million.
Financing activities during the six month
period ended June 30, 2018 included completion of a non-brokered private placement pursuant to which the Company issued 24,000,000
common shares at $0.50 per share for gross proceeds of $12.0 million. Share issuance costs included $111,379 related to the March
2018 private placement. Following the resignation of director Mark Hamilton on November 6, 2017, the Company recognized an obligation
to issue 129,687 common shares, with a value of $63,593. On March 27, 2018, the Company issued the common shares in full satisfaction
of the obligation. As a result of the exercise of stock options, $114,358 in proceeds was received on the issuance of 294,000 common
shares.
Financing activities during the six month
period ended June 30, 2017 included payment of the final derivative payment of approximately $14.7 million and share issuance costs
related to a non-brokered private placement of common shares in December 2014 of $45,000.
The Company had no cash flows from investing
activities during the six month periods ended June 30, 2018 and 2017.
As at June 30, 2018, the Company had working
capital of $11,929,253 compared to working capital of $1,993,358 at December 31, 2017. 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 2018 work plan at the Livengood Gold Project and satisfy its currently anticipated general and administrative costs
through the 2019 fiscal year.
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” included in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year
ended December 31, 2017.
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 June
30, 2018, 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
|
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
2023 and
beyond
|
|
|
Total
|
|
Mineral Property Leases
(1)
|
|
$
|
-
|
|
|
$
|
425,389
|
|
|
$
|
430,420
|
|
|
$
|
435,526
|
|
|
$
|
440,709
|
|
|
$
|
445,970
|
|
|
$
|
2,178,014
|
|
Mining Claim Government Fees
|
|
|
114,825
|
|
|
|
114,825
|
|
|
|
114,825
|
|
|
|
114,825
|
|
|
|
114,825
|
|
|
|
114,825
|
|
|
|
688,950
|
|
Total
|
|
$
|
114,825
|
|
|
$
|
540,214
|
|
|
$
|
545,245
|
|
|
$
|
550,351
|
|
|
$
|
555,534
|
|
|
$
|
560,795
|
|
|
$
|
2,866,964
|
|
|
(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 was a partner of the general partner, as well as a limited partner, of AN Gold Mines and held an 11.9% net interest
in AN Gold Mines.
Off-Balance Sheet Arrangements
The Company does not have any off balance sheet arrangements.
Environmental Regulations
The operations of the Company may in the
future be affected from time to time in varying degrees by changes in environmental regulations, including those for future removal
and site restoration costs. Both the likelihood of new regulations and their overall effect upon the Company vary greatly and are
not predictable. The Company’s policy is to meet or, if possible, surpass standards set by relevant legislation by application
of technically proven and economically feasible measures.
Certain U.S. Federal Income Tax Considerations
for U.S. Holders
The Company has been a “passive foreign investment company” (“PFIC”) for U.S. federal income tax purposes
in recent years and expects to continue to be a PFIC in the future. Current and prospective U.S. shareholders should consult
their tax advisors as to the tax consequences of PFIC classification and the U.S. federal tax treatment of PFICs. Additional
information on this matter is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017,
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.”