10-Q 1 a13-13429_110q.htm 10-Q

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 


 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2013

 

OR

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from      to

 


 

Commission file number: 001-33638

 

 

INTERNATIONAL TOWER HILL MINES LTD.

(Exact Name of Registrant as Specified in its Charter)

 

British Columbia, Canada

 

N/A

(State or other jurisdiction of incorporation or
organization)

 

(I.R.S. Employer
Identification No.)

 

2300-1177 West Hastings Street
Vancouver, British Columbia, Canada

(Address of principal administrative office)

 

V6E 2K3

(Zip code)

 

Registrant’s telephone number, including area code: (604) 683-3332

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, and accelerated filer, a non-accelerate filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large Accelerated Filer o

 

Accelerated Filer x

 

 

 

Non-Accelerated filer o

 

Small Reporting company o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes o No x

 

As of July 30, 2013, the registrant had 98,068,638 Common Shares outstanding.

 

 

 




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CAUTIONARY NOTE TO U.S. INVESTORS REGARDING ESTIMATES OF MEASURED, INDICATED AND INFERRED RESOURCES AND PROVEN AND PROBABLE RESERVES

 

International Tower Hill Mines Ltd. (“we”, “us”, “our,” “ITH” or the “Company”) is a mineral exploration company engaged in the acquisition and exploration of mineral properties.  As used in this Quarterly Report on Form 10-Q, the terms “mineral reserve”, “proven mineral reserve” and “probable mineral reserve” are Canadian mining terms as defined in accordance with Canadian National Instrument 43-101—Standards of Disclosure for Mineral Projects (“NI 43-101”) and the Canadian Institute of Mining, Metallurgy and Petroleum (the “CIM”)—CIM Definition Standards on Mineral Resources and Mineral Reserves, adopted by the CIM Council, as amended. These definitions differ from the definitions in the United States Securities and Exchange Commission (“SEC”) Industry Guide 7 (“SEC Industry Guide 7”) under the United States Securities Act of 1933, as amended (the “Securities Act”). Under SEC Industry Guide 7 standards, a “final” or “bankable” feasibility study is required to report reserves, the three-year historical average price is used in any reserve or cash flow analysis to designate reserves, and the primary environmental analysis or report must be filed with the appropriate governmental authority. In addition, the terms “mineral resource”, “measured mineral resource”, “indicated mineral resource” and “inferred mineral resource” are defined in and required to be disclosed by NI 43-101; however, these terms are not defined terms under SEC Industry Guide 7 and are normally not permitted to be used in reports and registration statements filed with the SEC. Investors are cautioned not to assume that all or any part of a mineral deposit in these categories will ever be converted into reserves.

 

“Inferred mineral resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all, or any part, of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred mineral resources may not form the basis of feasibility or pre-feasibility studies, except in rare cases. Investors are cautioned not to assume that all or any part of an inferred mineral resource exists or is economically or legally mineable.

 

Disclosure of “contained ounces” in a resource is permitted disclosure under Canadian regulations; however, the SEC normally only permits issuers to report mineralization that does not constitute “reserves” by SEC standards as in place tonnage and grade without reference to unit measures. Accordingly, information contained in this report and the documents incorporated by reference herein contain descriptions of our mineral deposits that may not be comparable to similar information made public by U.S. companies subject to the reporting and disclosure requirements under the United States federal securities laws and the rules and regulations thereunder.

 

The term “mineralized material” as used in this Quarterly Report on Form 10-Q, although permissible under SEC Industry Guide 7, does not indicate “reserves” by SEC Industry Guide 7 standards. We cannot be certain that any part of the mineralized material will ever be confirmed or converted into SEC Industry Guide 7 compliant “reserves”. Investors are cautioned not to assume that all or any part of the mineralized material will ever be confirmed or converted into reserves or that mineralized material can be economically or legally extracted.

 

CAUTIONARY NOTE TO ALL INVESTORS CONCERNING ECONOMIC ASSESSMENTS THAT INCLUDE INFERRED RESOURCES

 

The Company currently holds or has the right to acquire interests in an advanced stage exploration project in Alaska referred to as the Livengood Gold Project (the “Livengood Gold Project” or the “Project”).  Mineral resources that are not mineral reserves have no demonstrated economic viability. The preliminary assessments on the Project are preliminary in nature and include “inferred mineral resources” that have a great amount of uncertainty as to their existence, and are considered too speculative geologically to have economic considerations applied to them that would enable them to be categorized as mineral reserves. It cannot be assumed that all, or any part, of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred mineral resources may not form the basis of feasibility or pre-feasibility studies, except in rare cases. There is no certainty that such inferred mineral resources at the Project will ever be realized. Investors are cautioned not to assume that all or any part of an inferred mineral resource exists or is economically or legally mineable.

 

Forward Looking Statements

 

This Quarterly Report on Form 10-Q and the exhibits attached hereto contain forward-looking statements or information within the meaning of the United States Private Securities Litigation Reform Act of 1995 concerning anticipated results and developments in the operations of the Company in future periods, planned exploration activities, the adequacy of the

 

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Company’s financial resources and other events or conditions that may occur in the future.  Forward-looking statements are frequently, but not always, identified by words such as “expects,” “anticipates,” “believes,” “intends,” “estimates,” “potential,” “possible” and similar expressions, or statements that events, conditions or results “will,” “may,” “could” or “should” (or the negative and grammatical variations of any of these terms) occur or be achieved.  These forward looking statements may include, but are not limited to, statements concerning:

 

·                  the Company’s strategies and objectives, both generally and specifically in respect of the Livengood Gold Project;

 

·                  the potential for the expansion of the estimated resources at the Livengood Gold Project;

 

·                  the potential for a production decision concerning, and any production at, the Livengood Gold Project;

 

·                  the potential for cost savings due to the high gravity gold concentration component of some of the Livengood Gold Project mineralization;

 

·                  the sequence of decisions regarding the timing and costs of development programs with respect to, and the issuance of the necessary permits and authorizations required for, the Livengood Gold Project;

 

·                  the Company’s estimates of the quality and quantity of the resources at the Livengood Gold Project;

 

·                  the timing and cost of the planned future exploration programs at the Livengood Gold Project, and the timing of the receipt of results therefrom;

 

·                  the Company’s future cash requirements;

 

·                  general business and economic conditions, including changes in the price of gold and the overall value of the markets for public equity;

 

·                  the Company’s ability to meet its financial obligations as they come due, and to be able to raise the necessary funds to continue operations on acceptable terms, if at all;

 

·                  the ability of the Company to continue to refine the project economics for the Livengood Gold Project;

 

·                  the potential for opportunities to reduce capital costs for the Livengood Gold Project; and

 

·                  the potential for opportunities to improve the economics of the Livengood Gold Project by reducing certain costs, including through the reduction of reagent consumption and energy costs, and improving recovery through intensive cyanide leach of gravity concentrates.

 

Such forward-looking statements reflect the Company’s current views with respect to future events and are subject to certain known and unknown risks, uncertainties and assumptions.  Many factors could cause actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements, including, among others:

 

·                  the demand for, and level and volatility of the price of, gold;

 

·                  general business and economic conditions;

 

·                  government regulation and proposed legislation (and changes thereto or interpretations thereof);

 

·                  defects in title to other claims, or the ability to obtain surface rights, either of which could affect our property rights and claims;

 

·                  the timing of the receipt of regulatory and governmental approvals, permits and authorizations necessary to implement and carry on the Company’s planned exploration and potential development program at the Livengood Gold Project;

 

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·                  conditions in the financial markets generally, including changes in the price of gold, the overall value of the markets for public equity, interest rates and currency rates;

 

·                  the Company’s ability to secure the necessary consulting, drilling and related services and supplies on favorable terms in connection with its drilling program at the Livengood Gold Project and other activities;

 

·                  the Company’s ability to attract and retain key staff, particularly in connection with the development of any mine at the Livengood Gold Project;

 

·                  the accuracy of the Company’s resource estimates (including with respect to size and grade) and the geological, operational and price assumptions on which these are based;

 

·                  the timing of the ability to commence and complete planned work programs at the Livengood Gold Project;

 

·                  the terms of the consents, permits and authorizations necessary to carry out planned exploration and development programs at the Livengood Gold Project and the Company’s ability to comply with such terms on a safe and cost-effective basis;

 

·                  the ongoing relations of the Company with the lessors of its property interests and applicable regulatory agencies;

 

·                  the metallurgy and recovery characteristics of samples from certain of the Company’s mineral properties and whether such characteristics are reflective of the deposit as a whole; and

 

·                  the continued development of and potential construction of any mine at the Livengood Gold Project property not requiring consents, approvals, authorizations or permits that are materially different from those identified by the Company.

 

Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein or implied by forward-looking statements.  This list is not exhaustive of the factors that may affect any of the Company’s forward-looking statements.  Forward-looking statements are statements about the future and are inherently uncertain, and actual achievements of the Company or other future events or conditions may differ materially from those reflected in the forward-looking statements due to a variety of risks, uncertainties and other factors, including without limitation those discussed in Part II, Item 1A, Risk Factors, of this Quarterly Report on Form 10-Q, which are incorporated herein by reference, as well as other factors described elsewhere in this report and the Company’s other reports filed with the SEC.

 

The Company’s forward-looking statements contained in this Quarterly Report on Form 10-Q are based on the beliefs, expectations and opinions of management as of the date of this report.  The Company does not assume any obligation to update forward-looking statements if circumstances or management’s beliefs, expectations or opinions should change, except as required by law.  For the reasons set forth above, investors should not attribute undue certainty to or place undue reliance on forward-looking statements.

 

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PART 1

 

ITEM 1. FINANCIAL STATEMENTS

 

INTERNATIONAL TOWER HILL MINES LTD.

(An Exploration Stage Company)

CONDENSED CONSOLIDATED BALANCE SHEETS

As at June 30, 2013 and December 31, 2012

(Expressed in US Dollars - Unaudited)

 

 

 

Note

 

June 30,
2013

 

December 31,
2012

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

$

19,874,686

 

$

30,170,905

 

Marketable securities

 

 

 

55,651

 

180,415

 

Accounts receivable

 

 

 

22,754

 

262,516

 

Advance to contractors

 

 

 

514,009

 

582,009

 

Prepaid expenses

 

 

 

283,074

 

228,221

 

Total current assets

 

 

 

20,750,174

 

31,424,066

 

 

 

 

 

 

 

 

 

Property and equipment

 

 

 

79,386

 

89,714

 

Capitalized acquisition costs

 

4

 

55,173,564

 

55,173,564

 

 

 

 

 

 

 

 

 

Total assets

 

 

 

$

76,003,124

 

$

86,687,344

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable

 

 

 

$

730,217

 

$

1,198,771

 

Accrued liabilities

 

 

 

1,005,338

 

2,548,498

 

Total current liabilities

 

 

 

1,735,555

 

3,747,269

 

 

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

 

Derivative liability

 

5

 

16,700,000

 

22,400,000

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

 

18,435,555

 

26,147,269

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

 

 

Share capital, no par value; authorized 500,000,000 shares; 98,068,638 shares issued and outstanding at June 30, 2013 and December 31,2012

 

6

 

236,401,096

 

236,401,096

 

Contributed surplus

 

 

 

31,339,472

 

28,589,591

 

Accumulated other comprehensive income

 

 

 

3,084,913

 

4,101,968

 

Deficit accumulated during the exploration stage

 

 

 

(213,257,912

)

(208,552,580

)

 

 

 

 

 

 

 

 

Total shareholders’ equity

 

 

 

57,567,569

 

60,540,075

 

 

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

 

 

$

76,003,124

 

$

86,687,344

 

 

Nature and continuance of operations (note 1)

Commitments (note 8)

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

 

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INTERNATIONAL TOWER HILL MINES LTD.

(An Exploration Stage Company)

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

For the Three and Six Months Ended June 30, 2013 and 2012

(Expressed in US Dollars - Unaudited)

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

 

 

Note

 

June 30,
2013

 

June 30,
2012

 

June 30,
2013

 

June 30,
2012

 

From
Inception

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Consulting fees

 

 

 

$

479,444

 

$

228,164

 

$

1,118,447

 

$

489,050

 

$

14,742,504

 

Depreciation

 

 

 

5,453

 

7,908

 

10,916

 

15,820

 

254,747

 

Insurance

 

 

 

73,417

 

78,844

 

142,839

 

147,005

 

1,059,016

 

Investor relations

 

 

 

65,654

 

67,686

 

195,035

 

181,051

 

4,595,739

 

Mineral property exploration

 

4

 

2,452,664

 

11,833,137

 

5,247,099

 

16,955,013

 

149,276,148

 

Office

 

 

 

28,094

 

32,800

 

55,191

 

77,189

 

952,448

 

Other

 

 

 

16,638

 

17,039

 

32,992

 

39,018

 

1,767,507

 

Professional fees

 

 

 

89,705

 

125,167

 

273,732

 

252,273

 

3,376,117

 

Regulatory

 

 

 

12,234

 

44,840

 

112,356

 

128,447

 

1,067,054

 

Rent

 

 

 

57,159

 

58,134

 

117,169

 

122,919

 

968,157

 

Travel

 

 

 

34,980

 

76,176

 

128,042

 

147,580

 

1,322,298

 

Wages and benefits

 

 

 

1,763,123

 

2,916,576

 

3,640,087

 

6,179,212

 

42,050,645

 

Write-down of mineral properties

 

 

 

 

 

 

 

1,605,522

 

Total operating expenses

 

 

 

(5,078,565

)

(15,486,471

)

(11,073,905

)

(24,734,577

)

(223,037,902

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expenses)

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on foreign exchange

 

 

 

511,994

 

448,164

 

909,823

 

427,744

 

1,232,448

 

Interest income

 

 

 

23,290

 

28,987

 

57,519

 

113,600

 

2,560,816

 

Income from mineral property earn-in

 

 

 

 

 

 

141,948

 

660,744

 

Impairment of available-for-sale securities

 

 

 

(298,769

)

 

(298,769

)

 

(298,769

)

Spin-out cost

 

 

 

 

 

 

 

(775,249

)

Unrealized gain/(loss) on derivative

 

5

 

4,200,000

 

2,100,000

 

5,700,000

 

(300,000

)

6,400,000

 

Total other income (expense)

 

 

 

4,436,515

 

2,577,151

 

6,368,573

 

383,292

 

9,779,990

 

Loss from continuing operations

 

 

 

(642,050

)

(12,909,320

)

(4,705,332

)

(24,351,285

)

(213,257,912

)

Loss from discontinued operations

 

 

 

 

 

 

 

(19,630,113

)

Net loss for the period

 

 

 

(642,050

)

(12,909,320

)

(4,705,332

)

(24,351,285

)

(232,888,025

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on marketable securities

 

 

 

(68,535

)

(137,218

)

(119,112

)

(159,690

)

(487,811

)

Reclassification of impairment of available-for-sale securities

 

 

 

298,769

 

 

298,769

 

 

298,769

 

Exchange difference on translating foreign operations

 

 

 

(692,563

)

(562,931

)

(1,196,712

)

249,246

 

3,273,955

 

Total other comprehensive income (loss) for the period

 

 

 

(462,329

)

(700,149

)

(1,017,055

)

89,556

 

3,084,913

 

Comprehensive loss for the period

 

 

 

$

(1,104,379

)

$

(13,609,469

)

$

(5,722,387

)

$

(24,261,729

)

$

(229,803,112

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and fully diluted loss per share

 

 

 

$

(0.01

)

$

(0.15

)

$

(0.05

)

$

(0.28

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding

 

 

 

98,068,638

 

86,683,919

 

98,068,638

 

86,683,919

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

 

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INTERNATIONAL TOWER HILL MINES LTD.

(An Exploration Stage Company)

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

For the Six Months Ended June 30, 2013 and 2012

(Expressed in US Dollars - Unaudited)

 

 

 

Number of
shares

 

Share capital

 

Contributed
surplus

 

Accumulated
other
comprehensive
income/(loss)

 

Deficit

 

Total

 

Balance, December 31, 2011

 

86,683,919

 

$

207,186,847

 

$

19,382,616

 

$

3,524,125

 

$

(151,909,118

)

$

78,184,470

 

Stock based compensation

 

 

 

2,948,367

 

 

 

2,948,367

 

Unrealized gain/(loss) on available-for-sale securities

 

 

 

 

(159,690

)

 

(159,690

)

Exchange difference on translating foreign operations

 

 

 

 

249,246

 

 

249,246

 

Net loss

 

 

 

 

 

(24,351,285

)

(24,351,285

)

Balance, June 30, 2012

 

86,683,919

 

207,186,847

 

22,330,983

 

3,613,681

 

(176,260,403

)

56,871,108

 

Private placement

 

11,384,719

 

29,768,529

 

 

 

 

29,768,529

 

Share issuance costs

 

 

(554,280

)

 

 

 

(554,280

)

Stock based compensation

 

 

 

6,258,608

 

 

 

6,258,608

 

Unrealized gain/(loss) on available-for-sale securities

 

 

 

 

(3,486

)

 

(3,486

)

Exchange difference on translating foreign operations

 

 

 

 

491,773

 

 

491,773

 

Net loss

 

 

 

 

 

(32,292,177

)

(32,292,177

)

Balance, December 31, 2012

 

98,068,638

 

236,401,096

 

28,589,591

 

4,101,968

 

(208,552,580

)

60,540,075

 

Stock based compensation

 

 

 

2,749,881

 

 

 

2,749,881

 

Unrealized gain/(loss) on available-for-sale securities

 

 

 

 

(119,112

)

 

(119,112

)

Reclassification of impairment of available-for-sale securities

 

 

 

 

298,769

 

 

298,769

 

Exchange difference on translating foreign operations

 

 

 

 

(1,196,712

)

 

(1,196,712

)

Net loss

 

 

 

 

 

(4,705,332

)

(4,705,332

)

Balance, June 30, 2013

 

98,068,638

 

$

236,401,096

 

$

31,339,472

 

$

3,084,913

 

$

(213,257,912

)

$

57,567,569

 

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

 

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INTERNATIONAL TOWER HILL MINES LTD.

(An Exploration Stage Company)

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS

For the Six Months Ended June 30, 2013 and 2012

(Expressed in US Dollars - Unaudited)

 

 

 

Six Months Ended

 

 

 

 

 

June 30, 2013

 

June 30, 2012

 

From Inception

 

Operating Activities

 

 

 

 

 

 

 

Loss for the period from continuing operations

 

$

(4,705,332

)

$

(24,351,285

)

$

(213,257,912

)

Add items not affecting cash:

 

 

 

 

 

 

 

Depreciation

 

10,916

 

15,820

 

254,747

 

Stock based compensation

 

2,749,881

 

2,948,367

 

36,064,591

 

Unrealized (gain) loss on derivative liability

 

(5,700,000

)

300,000

 

(6,400,000

)

Spin-out recovery

 

 

 

(254,339

)

(Gain) loss on foreign exchange

 

 

 

(254,512

)

Impairment of available-for-sale securities

 

298,769

 

 

298,769

 

Write-down of mineral properties

 

 

 

1,605,522

 

Other

 

 

(41,948

)

(285,323

)

Changes in non-cash items:

 

 

 

 

 

 

 

Accounts receivable

 

298,134

 

520,707

 

25,921

 

Prepaid expenses

 

(66,380

)

(130,173

)

(430,868

)

Advance to contractors

 

68,000

 

(410,000

)

381,082

 

Accounts payable and accrued liabilities

 

(2,006,680

)

(2,379,722

)

1,732,403

 

Cash used in operating activities of continuing operations

 

(9,052,692

)

(23,528,234

)

(180,519,919

)

Cash used in operating activities of discontinued operations

 

 

 

(12,786,324

)

 

 

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

 

 

Issuance of share capital

 

 

 

251,751,411

 

Share issuance costs

 

 

 

(7,643,229

)

Cash provided by financing activities of continuing operations

 

 

 

244,108,182

 

Cash used in financing activities of discontinued operations

 

 

 

(3,902,947

)

 

 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

 

 

Proceeds from sale of available-for-sale-securities

 

 

 

172,734

 

Capitalized acquisition costs

 

 

(2,004,907

)

(27,781,245

)

Expenditures on property and equipment, net

 

 

 

(332,415

)

Cash used in investing activities of continuing operations

 

 

(2,004,907

)

(27,940,926

)

Cash used in investing activities of discontinued operations

 

 

 

(312,593

)

 

 

 

 

 

 

 

 

Effect of foreign exchange on cash of continuing operations

 

(1,243,527

)

142,247

 

1,764,089

 

Effect of foreign exchange on cash of discontinued operations

 

 

 

(534,876

)

(Decrease) increase in cash and cash equivalents

 

(10,296,219

)

(25,390,894

)

19,874,686

 

Cash and cash equivalents, beginning of the period

 

30,170,905

 

54,712,073

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, end of the period

 

$

19,874,686

 

$

29,321,179

 

$

19,874,686

 

 

Supplemental cash flow information (note 9)

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

 

9



Table of Contents

 

INTERNATIONAL TOWER HILL MINES LTD.

(An Exploration Stage Company)

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Six Months Ended June 30, 2013 and 2012

(Expressed in US dollars — Unaudited)

 

1.                                      GENERAL INFORMATION, NATURE AND CONTINUANCE 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.  In these financial statements references to ITH include its wholly owned subsidiaries Tower Hill Mines, Inc. (formerly Talon Gold Alaska, Inc.) (“TH Alaska”) (an Alaska corporation), Tower Hill Mines (US) LLC (formerly Talon Gold (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, 2013, the Company was in the exploration stage and controls a 100% interest in its Livengood Gold Project in Alaska, U.S.A (the “Livengood Gold Project”).

 

The business of mining and exploration involves a high degree of risk and there can be no assurance that current exploration programs will result in profitable mining operations.  The Company has no source of revenue, and has significant cash requirements to meet its administrative overhead and maintain its mineral property interests.  The recoverability of amounts shown for capitalized acquisition costs is dependent on several factors.  These include the discovery of economically recoverable reserves, the ability of the Company to obtain the necessary financing to complete the development of these properties, and future profitable production or proceeds from disposition of capitalized acquisition costs.  The success of the above initiatives cannot be assured.  In the event that the Company is unable to obtain the necessary financing in the short-term, it may be necessary to defer certain discretionary expenditures and other planned activities.

 

2.             BASIS OF PRESENTATION

 

These unaudited condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 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, 2012 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, 2013 and the results of its operations for the six months then ended.  Operating results for the six months ended June 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.  The 2012 year-end balance sheet data was derived from audited financial statements but does not include all disclosures required by US GAAP.

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the period.  These judgments, estimates and assumptions are continuously evaluated and are based on management’s experience and knowledge of the relevant facts and circumstances.  While management believes the estimates to be reasonable, actual results could differ from those estimates and could impact future results of operations and cash flows.

 

Basis of consolidation

 

These consolidated financial statements include the accounts of ITH and its wholly owned subsidiaries TH Alaska, TH US, LPI and 813034 Alberta Ltd.  All intercompany transactions and balances have been eliminated.

 

10



Table of Contents

 

INTERNATIONAL TOWER HILL MINES LTD.

(An Exploration Stage Company)

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Six Months Ended June 30, 2013 and 2012

(Expressed in US dollars — Unaudited)

 

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, 2013

 

 

 

Level 1

 

Level 2

 

Financial assets:

 

 

 

 

 

Marketable securities

 

$

55,651

 

$

 

Total

 

$

55,651

 

$

 

Financial liabilities:

 

 

 

 

 

Derivative liability (note 5)

 

$

 

$

16,700,000

 

Total

 

$

 

$

16,700,000

 

 

 

 

Fair value as at December 31, 2012

 

 

 

Level 1

 

Level 2

 

Financial assets:

 

 

 

 

 

Marketable securities

 

$

180,415

 

$

 

Total

 

$

180,415

 

$

 

Financial liabilities:

 

 

 

 

 

Derivative liability (note 5)

 

$

 

$

22,400,000

 

Total

 

$

 

$

22,400,000

 

 

4.                                      CAPITALIZED ACQUISITION COSTS

 

The Company had the following activity related to capitalized acquisition costs:

 

Capitalized acquisition costs

 

Amount

 

 

 

 

 

Balance, December 31, 2012

 

$

55,173,564

 

Acquisition costs

 

 

Balance, June 30, 2013

 

$

55,173,564

 

 

11



Table of Contents

 

INTERNATIONAL TOWER HILL MINES LTD.

(An Exploration Stage Company)

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Six Months Ended June 30, 2013 and 2012

(Expressed in US dollars — Unaudited)

 

The following table presents costs incurred for exploration and evaluation activities for the six month periods ended June 30, 2013 and 2012:

 

 

 

June 30, 2013

 

June 30, 2012

 

Exploration costs:

 

 

 

 

 

Aircraft services

 

$

4,760

 

$

948,432

 

Assay

 

10,324

 

458,406

 

Drilling

 

(28,714

)

3,700,574

 

Environmental

 

1,369,461

 

1,714,650

 

Equipment rental

 

284,825

 

918,582

 

Field costs

 

550,101

 

4,055,101

 

Geological/geophysical

 

2,522,245

 

4,585,863

 

Land maintenance & tenure

 

380,051

 

318,737

 

Legal

 

117,793

 

95,821

 

Surveying and mapping

 

 

119,050

 

Transportation and travel

 

36,253

 

39,797

 

Total expenditures for the period

 

$

5,247,099

 

$

16,955,013

 

 

Livengood Gold Project Property

 

The Livengood Gold Project property is located in the Tintina gold belt approximately 110 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 an initial term of three years commencing July 1, 2004, subject to two extensions of three years each and subject to further extension beyond June 30, 2013 by payment of a flat annual fee of 125% of the last rate paid for advance minimum royalties and diligent pursuit of development.  The lease requires work expenditures of $10/acre/year in years 1 - 3, $20/acre/year in years 4-6 and $30/acre/year in years 7- 9 and advance minimum royalties of $5/acre/year in years 1 - 3, $15/acre/year in years 4- 6, $25/acre/year in years 7-9, and 125% of the year 9 payment in subsequent years (all of which advance minimum royalties are recoverable from production royalties).  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 in December 2011.  As of June 30, 2013 the Company has paid $1,326,363 from the inception of this lease.

 

b)             a lease of federal unpatented lode mining claims having an initial term of ten years commencing on April 21, 2003 and continuing for so long thereafter as advance minimum royalties are paid and mining related activities, including exploration, continue on the property or on adjacent properties controlled by the Company.   The lease requires an advance minimum royalty of $50,000 on or before each anniversary date, (all of which minimum royalties are recoverable from production royalties).  An NSR production royalty of between 2% and 3% (depending on the price of gold) is payable to the lessors.  The Company may purchase 1% of the royalty for $1,000,000.  As of June 30, 2013, the Company has paid $480,000 from the inception of this lease.

 

c)              a lease of patented lode claims having an initial term of ten years commencing January 18, 2007, and continuing for so long thereafter as advance minimum royalties are paid.  The lease requires an advance minimum royalty of $20,000 on or before each anniversary date through January 18, 2017 and $25,000 on or before each subsequent anniversary (all of which minimum royalties are recoverable from production royalties).  An NSR production royalty of 3% is payable to the lessors.

 

12



Table of Contents

 

INTERNATIONAL TOWER HILL MINES LTD.

(An Exploration Stage Company)

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Six Months Ended June 30, 2013 and 2012

(Expressed in US dollars — Unaudited)

 

The Company may purchase all interests of the lessors in the leased property (including the production royalty) for $1,000,000 (less all minimum and production royalties paid to the date of purchase), of which $500,000 is payable in cash over four years following the closing of the purchase and the balance of $500,000 is payable by way of the 3% NSR production royalty.  As of June 30, 2013, the Company has paid $95,000 from the inception of this lease.

 

d)             a lease of unpatented federal lode mining and federal unpatented placer claims having an initial term of ten years commencing on March 28, 2007, and continuing for so long thereafter as advance minimum royalties are paid and mining related activities, including exploration, continue on the property or on adjacent properties controlled by the Company.  The lease requires an advance minimum royalty of $15,000 on or before each anniversary date, (all of which minimum royalties are recoverable from production royalties).  The Company is required to pay the lessor the sum of $250,000 upon making a positive production decision, payable $125,000 within 120 days of the decision and $125,000 within a year of the decision (all of which are recoverable from production royalties).  An NSR production royalty of 2% is payable to the lessor.  The Company may purchase all of the interest of the lessor in the leased property (including the production royalty) for $1,000,000.  As of June 30, 2013, the Company has paid $68,000 from the inception of this lease.

 

Title to mineral properties

 

The acquisition of title to mineral properties is a detailed and time-consuming process.  The Company has taken steps to verify title to mineral properties in which it has an interest.  Although the Company has taken every reasonable precaution to ensure that legal title to its properties is properly recorded in the name of the Company, there can be no assurance that such title will ultimately be secured.

 

5.                                      DERIVATIVE LIABILITY

 

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 contingent payment based on the five-year average daily gold price (“Average Gold Price”) from the date of the acquisition.  The contingent payment will equal $23,148 for every dollar that the Average Gold Price exceeds $720 per troy ounce.  If the Average Gold Price is less than $720, there will be no additional contingent payment.

 

At initial recognition on December 13, 2011 the derivative liability was valued at $23,100,000.  The key assumption used in the valuation of the derivative is the estimate of the future Average Gold Price.  The estimate of the future Average Gold Price was determined using a forward curve on future gold prices as published by the CME Group.  The CME Group represents the merger of the Chicago Mercantile Exchange (CME), the Chicago Board of Trade (CBOT), the New York Mercantile Exchange (NYMEX) and its commodity exchange division, Commodity Exchange, Inc. (COMEX).  Using this forward curve, the Company estimated an Average Gold Price based on actual gold prices to June 30, 2013 and projected gold prices from June 30, 2013 to the end of the five year period in December 2016 of $1,441 per ounce of gold.

 

The fair value of the derivative liability and the estimated Average Gold Price are as follows:

 

 

 

Fair Value

 

Average Gold
Price ($/oz.)

 

Derivative value at December 31, 2012

 

$

22,400,000

 

$

1,688

 

Unrealized (gain) loss for the period

 

(5,700,000

)

 

 

Derivative value at June 30, 2013

 

$

16,700,000

 

$

1,441

 

 

13



Table of Contents

 

INTERNATIONAL TOWER HILL MINES LTD.

(An Exploration Stage Company)

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Six Months Ended June 30, 2013 and 2012

(Expressed in US dollars — Unaudited)

 

6.                                      SHARE CAPITAL

 

Authorized

 

500,000,000 common shares without par value.  At June 30, 2013 and December 31, 2012 there were 98,068,638 shares issued and outstanding.

 

Stock options

 

The Company has adopted an incentive stock option plan (the “2006 Plan”).  The essential elements of the 2006 Plan provide that the aggregate number of common shares of the Company’s capital stock that may be made issuable pursuant to options granted under the 2006 Plan may not exceed 10% of the number of issued shares of the Company at the time of the granting of the options.  Options granted under the 2006 Plan will have a maximum term of ten years.  The exercise price of options granted under the 2006 Plan will not be less than the discounted market price of the common shares (defined as the last closing market price of the Company’s common shares immediately preceding the issuance of a news release announcing the granting of the options, less the maximum discount permitted under applicable stock exchange policies), or such other price as may be agreed to by the Company and accepted by the Toronto Stock Exchange.  Options granted under the 2006 Plan vest immediately, unless otherwise determined by the directors of the Company at the date of grant.

 

On March 14, 2013, the Company granted incentive stock options to certain officers, employees and consultants of the Company to purchase an aggregate of 613,000 common shares in the capital stock of the Company.  The options are exercisable on or before March 14, 2018 at a price of C$2.18 per share and will vest as to 204,328 shares on March 14, 2013; 204,328 shares on March 14, 2014; and the balance on March 14, 2015.

 

A summary of the status of the stock option plan as of June 30, 2013, and December 31, 2012 and changes is presented below:

 

 

 

Six Months Ended

 

Year Ended

 

 

 

June 30, 2013

 

December 31, 2012

 

 

 

Number of
Options

 

Weighted
Average
Exercise Price
(C$)

 

Number of
Options

 

Weighted
Average
Exercise Price
(C$)

 

Balance, beginning of the period

 

8,570,000

 

$

4.73

 

7,215,000

 

$

7.48

 

Granted

 

613,000

 

$

2.18

 

6,380,000

 

$

3.26

 

Exercised

 

 

$

 

 

$

 

Expired

 

(190,000

)

$

9.15

 

(4,050,000

)

$

7.16

 

Cancelled/forfeited

 

(1,400,000

)

$

7.18

 

(975,000

)

$

5.42

 

Balance, end of the period

 

7,593,000

 

$

3.96

 

8,570,000

 

$

4.73

 

 

The weighted average remaining life of options outstanding at June 30, 2013 was 3.66 years.

 

14



Table of Contents

 

INTERNATIONAL TOWER HILL MINES LTD.

(An Exploration Stage Company)

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Six Months Ended June 30, 2013 and 2012

(Expressed in US dollars — Unaudited)

 

Stock options outstanding are as follows:

 

 

 

June 30, 2013

 

December 31, 2012

 

Expiry Date

 

Exercise
Price (C$)

 

Number of
Options

 

Exercisable

 

Exercise
Price (C$)

 

Number of
Options

 

Exercisable

 

January 10, 2013

 

 

 

 

$

9.15

 

190,000

 

190,000

 

July 28, 2013

 

$

7.47

 

850,000

 

850,000

 

$

7.47

 

950,000

 

950,000

 

May 9, 2016

 

 

 

 

$

8.35

 

1,000,000

 

666,666

 

August 23, 2016

 

$

8.07

 

600,000

 

400,000

 

$

8.07

 

600,000

 

400,000

 

November 15, 2016

 

$

5.64

 

100,000

 

66,666

 

$

5.64

 

100,000

 

66,666

 

January 9, 2017

 

$

4.60

 

30,000

 

20,000

 

$

4.60

 

30,000

 

10,000

 

August 24, 2017

 

$

3.17

 

4,400,000

 

1,466,656

 

$

3.17

 

4,700,000

 

1,566,655

 

September 19, 2017

 

$

2.91

 

1,000,000

 

333,333

 

$

2.91

 

1,000,000

 

333,333

 

March 14, 2018

 

$

2.18

 

613,000

 

204,328

 

 

 

 

 

 

 

 

7,593,000

 

3,340,983

 

 

 

8,570,000

 

4,183,320

 

 

A summary of the non-vested options as of June 30, 2013 and changes during the six months ended June 30, 2013 is as follows:

 

Non-vested options:

 

Number of
options

 

Weighted
average grant-
date fair value
(C$)

 

Outstanding at December 31, 2012

 

4,386,680

 

$

2.05

 

Granted

 

613,000

 

0.50

 

Vested

 

(547,662

)

3.64

 

Cancelled/forfeited

 

(200,001

)

1.61

 

Outstanding at June 30, 2013

 

4,252,017

 

$

1.64

 

 

At June 30, 2013 there was unrecognized compensation expense of C$2,363,663 related to non-vested options outstanding.  The cost is expected to be recognized over a weighted-average remaining period of approximately 0.94 years.

 

Share-based payments

 

During the six month period ended June 30, 2013, the Company granted an aggregate of 613,000 stock options with a fair value of C$304,585 calculated using the Black-Scholes option pricing model.  Share-based payment charges for the six months ended June 30, 2013 totaled $2,749,881.

 

During the six month period ended June 30, 2012, the Company granted an aggregate of 680,000 stock options with a fair value of C$1,799,345 calculated using the Black-Scholes option pricing model.  Share-based payment charges for the six months ended June 30, 2012 totaled $2,948,367.

 

The following weighted average assumptions were used for the Black-Scholes option pricing model calculations:

 

 

 

June 30,
2013

 

December 31,
2012

 

Expected life of options

 

4 years

 

4 years

 

Risk-free interest rate

 

1.29

%

1.32

%

Annualized volatility

 

59.48

%

67.68

%

Dividend rate

 

0.00

%

0.00

%

Exercise price (C$)

 

$

2.18

 

$

3.26

 

 

The expected volatility used in the Black-Scholes option pricing model is based on the historical volatility of the Company’s shares.

 

15



Table of Contents

 

INTERNATIONAL TOWER HILL MINES LTD.

(An Exploration Stage Company)

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Six Months Ended June 30, 2013 and 2012

(Expressed in US dollars — Unaudited)

 

7.                                      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, 2013

 

 

 

 

 

 

 

Capitalized acquisition costs

 

$

 

$

55,173,564

 

$

55,173,564

 

Property and equipment

 

13,728

 

65,658

 

79,386

 

Current assets

 

19,199,095

 

1,551,079

 

20,750,174

 

Total assets

 

$

19,212,823

 

$

56,790,301

 

$

76,003,124

 

December 31, 2012

 

 

 

 

 

 

 

Capitalized acquisition costs

 

$

 

$

55,173,564

 

$

55,173,564

 

Property and equipment

 

14,317

 

75,397

 

89,714

 

Current assets

 

29,046,485

 

2,377,581

 

31,424,066

 

Total assets

 

$

29,060,802

 

$

57,626,542

 

$

86,687,344

 

 

Three months ended

 

June 30, 2013

 

June 30, 2012

 

Net loss for the period — Canada

 

$

(1,283,253

)

$

(984,704

)

Net gain (loss) for the period - United States

 

641,203

 

(11,924,616

)

Net loss for the period

 

$

(642,050

)

$

(12,909,320

)

 

Six months ended

 

June 30, 2013

 

June 30, 2012

 

Net loss for the period — Canada

 

$

(2,939,381

)

$

(3,344,123

)

Net loss for the period - United States

 

(1,765,951

)

(21,007,162

)

Net loss for the period

 

$

(4,705,332

)

$

(24,351,285

)

 

16



Table of Contents

 

INTERNATIONAL TOWER HILL MINES LTD.

(An Exploration Stage Company)

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Six Months Ended June 30, 2013 and 2012

(Expressed in US dollars — Unaudited)

 

8.                                      COMMITMENTS

 

The following table discloses, as of June 30, 2013, the Company’s contractual obligations including optional mineral property payments and work commitments and committed office and equipment lease obligations.  Under the terms of the Company’s mineral property purchase agreements, mineral leases and the terms of the unpatented mineral claims held by it, the Company is required to make certain scheduled acquisition payments, incur certain levels of expenditures, make lease or advance royalty payments, make payments to government authorities and incur assessment work expenditures as summarized in the table below in order to maintain and preserve the Company’s interests in the related mineral properties.  If the Company is unable or unwilling to make any such payments or incur any such expenditures, it is likely that the Company would lose or forfeit its rights to acquire or hold the related mineral properties.  The following table assumes that the Company retains the rights to all of its current mineral properties, but no other lease purchase or royalty buyout options:

 

 

 

Payments Due by Year

 

 

 

2013

 

2014

 

2015

 

2016

 

2017

 

2018

 

2019 and
beyond

 

Total

 

Livengood Property Purchase(1)

 

$

 

$

 

$

 

$

16,700,000

 

$

 

$

 

$

 

$

16,700,000

 

Mineral Property Leases(2)

 

 

396,563

 

396,563

 

396,563

 

396,563

 

401,563

 

401,563

 

2,389,378

 

Mining Claim Government Fees

 

89,110

 

89,110

 

89,110

 

89,110

 

89,110

 

89,110

 

89,110

 

623,770

 

Office and Equipment Lease Obligations

 

79,526

 

102,825

 

362

 

362

 

362

 

362

 

362

 

184,161

 

Total

 

$

168,636

 

$

588,498

 

$

486,035

 

$

17,186,035

 

$

486,035

 

$

491,035

 

$

491,035

 

$

19,897,309

 

 


(1)         The amount payable in December 2016 of $16,700,000 represents the fair value of the Company’s derivative liability as at June 30, 2013 and will be revalued at each subsequent reporting period.  See note 5.

(2)         Does not include required work expenditures, as it is assumed that the required expenditure level is significantly below the work for which will actually be carried out by the Company.  Does not include potential royalties that may be payable (other than annual minimum royalty payments).  See note 4.

 

9.                                      SUPPLEMENTAL CASH FLOW INFORMATION

 

 

 

Six months
ended
June 30, 2013

 

Six months
ended
June 30, 2012

 

 

 

 

 

 

 

Income taxes paid

 

$

 

$

146,172

 

 

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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, 2012.  All currency amounts are stated in US dollars unless noted otherwise.

 

Current Business Activities

 

General

 

During the six months ended June 30, 2013, and to the date of this MD&A, the Company advanced its Livengood Gold Project in Alaska with the issuance of feasibility study (the “Feasibility Study”) results.  The Feasibility Study for the Livengood Gold Project has been underway since early 2012.

 

Livengood Gold Project - Feasibility Study Results

 

The Company announced the results of the Feasibility Study on July 23, 2013.  The purpose of the Feasibility Study is to advance the Livengood Gold Project to a level that will enable a decision to advance to permitting and the execution phase of the Project.  Using the trailing three year gold price of $1,500 per ounce, the Project generates an after-tax internal rate of return of 1.7%.

 

Mining and Production

 

The Project design is a conventional, owner-operated, surface mine that will utilize large-scale mining equipment in a blast/load/haul operation.  Ore is planned to be processed in a 100,000 ton per day (“tpd”) comminution circuit consisting of a primary gyratory crusher, wet grinding in a single semi-autogenous (SAG) mill and two ball mills, followed by a gravity gold circuit, a conventional carbon in leach (CIL) circuit and a refinery.

 

The 100,000 tpd mine plan contains 501 million tons of ore mined from the Livengood open pit over the 14 year operating life.  Total gold recovered is expected to be 8 million ounces.  Average annual gold production over the life-of-mine (“LOM”) is 577,600 ounces, averaging 698,500 ounces during the first five years of operations.  Mining and ore stockpiling will begin during construction phase and will be two years in advance of plant commissioning

 

Project Economics

 

The project economics were generated using the trailing three year average gold price of $1,500 per ounce resulting in an after-tax internal rate of return (IRR) of 1.7% with an all-in cost of production of $1,474 per ounce.  The following table provides additional details of the Project’s economics (after-tax) at various gold prices.

 

Gold Price
per Ounce

 

NPV5%
($M)

 

IRR
(%)

 

Payback
(years)

 

$

1,200

 

(1,835

)

(16.1

)

n/a

 

$

1,300

 

(1,336

)

(7.2

)

n/a

 

$

1,400

 

(854

)

(1.9

)

n/a

 

$

1,500

 

(440

)

1.7

 

10.8

 

$

1,600

 

(50

)

4.6

 

8.8

 

$

1,700

 

336

 

7.3

 

7.2

 

$

1,800

 

723

 

9.7

 

6.1

 

$

1,900

 

1,109

 

12.0

 

5.2

 

$

2,000

 

1,493

 

14.1

 

4.6

 

$

2,100

 

1,869

 

16.1

 

4.2

 

$

2,200

 

2,219

 

17.8

 

3.8

 

 

Capital Costs

 

The total estimated cost to design, procure, construct and commission the facilities described in this section is $2.79 billion and sustaining capital of $893 million.  In addition to the large-scale mining equipment and comminution circuit described above, the Project will include a lined tailings management system, two water reservoirs, an administration office/shop/warehouse complex and a 440 person camp.  The Project will also include construction of an 80 kilometer (50 mile) transmission line to the site from the existing grid power near Fairbanks, Alaska.  The capital costs estimate is expressed in

 

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nominal 2013 US dollars.  No provision has been included to offset future escalation, and the estimate excludes sunk costs (costs prior to the start of detailed design) and risks due to labor disputes, permitting delays, weather delays or any other force majeure occurrences.

 

Site deconstruction and reclamation will proceed in stages at a total cost of $353 million.  Initial reclamation and salvage will take 5 years with costs projected at $253.4 million.  After site stabilization, preparation of final site configuration and ongoing water treatment is anticipated.  The initial and sustaining capital included a fully lined tailings management facility; this facility has been included as best practices for environmental stewardship.

 

Key capital expenditures for initial and sustaining capital requirements are identified in the following table:

 

Capital Expenditures ($Millions)

 

Initial Capital

 

Sustaining Capital

 

Process facilities

 

$

1,119

 

$

26

 

Infrastructure facilities

 

708

 

506

 

Power supply

 

129

 

 

Mine equipment

 

189

 

126

 

Mine development

 

177

 

 

Other owners costs

 

166

 

9

 

Contingency

 

271

 

 

Funding of reclamation trust fund(1)

 

32

 

226

 

Total capital

 

$

2,790

 

$

893

 

 

Note: may not add due to rounding.

 


(1) Total estimated reclamation costs are $353 million.

 

Operating Costs

 

The following table presents a breakdown of all-in operating cost of production over the projected life of the Project.  Operating costs were estimated based on second quarter 2013 current US dollars without escalation.  LOM operating cost is anticipated to be $1,030/oz and all-in after-tax LOM costs is anticipated to be $1,474/oz.  All-in sustaining cost of production is a non-GAAP financial measure and substantially conforms to the World Gold Council guidance on production cost reporting issued in June 2013.  Non-GAAP financial measures are not defined under GAAP and are provided as additional information and should not be considered in isolation or as a substitute for other financial measures prepared in accordance with GAAP.  See further discussion of non-GAAP measures below.

 

All-in Sustaining Cost of Production

 

$/Ounce

 

LOM
($Million)

 

On-site mine operating costs

 

$

933

 

$

7,543

 

Royalties

 

45

 

362

 

Third-party smelting, refining and transport costs

 

9

 

75

 

Sub-total

 

987

 

7,980

 

Reclamation and remediation

 

43

 

353

 

Sub-total production cost before capital

 

1,030

 

8,333

 

Capital expenditures (initial and sustaining)(1)

 

416

 

3,367

 

All-in costs — pre-tax

 

1,447

 

11,700

 

Mining and income taxes

 

27

 

220

 

All-in costs — after-tax

 

$

1,474

 

$

11,920

 

 

Rounding of some figures in the table above may lead to minor discrepancies in totals.

 


(1) Excludes $32 million upfront funding included in reclamation and remediation above and $57 million for recoverable initial stores inventory.

 

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Table of Contents

 

Annual Production

 

The table below highlights the anticipated production schedule.  Total life-of-mine production is projected to be approximately 8,086,000 ounces.  For the first five years, it is anticipated that average annual production would be 698,500 ounces.

 

Years

 

Mill
Feed

Grade
(g/tonne)

 

Ounces
Produced
(000’s)

 

1

 

1.08

 

763.2

 

2

 

0.94

 

844.2

 

3

 

0.67

 

594.0

 

4

 

0.76

 

671.3

 

5

 

0.74

 

619.7

 

6

 

0.63

 

558.3

 

7

 

0.66

 

590.3

 

8

 

0.66

 

582.3

 

9

 

0.67

 

554.2

 

10

 

0.72

 

562.9

 

11

 

0.82

 

720.7

 

12

 

0.54

 

421.6

 

13

 

0.39

 

321.4

 

14

 

0.39

 

282.2

 

LOM

 

0.69

 

8,086.4

 

 

Project Mineral Resources and Reserves

 

The global mineral resource estimate has been updated from that published in August 2011 to include drilling in the deposit since that time.  The resource model was constructed using Gemcom GEMS® and the Stanford GSLIB (Geostatistical Software Library) MIK post processing routine.  The resource was estimated using Multiple Indicator Kriging techniques.

 

A three-dimensionally defined stratigraphic model, based on interpretations by ITH geologists, was used to code the rock type block model.  A three-dimensionally defined probability grade shell (0.1 g/t) was used to constrain the gold estimation.  Gold contained within each block was estimated using nine indicator thresholds.  The block model was tagged with the geologic model using a block majority coding method.  Because there are significant grade discontinuities at stratigraphic contacts, hard boundaries were used between each of the stratigraphic units so that data for each stratigraphic unit was used only for that unit.

 

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Table of Contents

 

A summary of the estimated global (in-situ) mineral resource is presented in the table below for cutoff grades of 0.2, 0.3, 0.5, and 0.7 g/t gold.

 

Classification

 

Gold
Cutoff
(g/t)

 

Tonnes
(Millions)

 

Gold
(g/t)

 

Gold
Ounces
(Millions)

 

Measured

 

0.20

 

994

 

0.52

 

16.4

 

Indicated

 

0.20

 

112

 

0.45

 

1.6

 

Measured & Indicated

 

0.20

 

1,106

 

0.51

 

18.0

 

Inferred

 

0.20

 

438

 

0.41

 

5.8

 

 

 

 

 

 

 

 

 

 

 

Measured

 

0.30

 

731

 

0.61

 

14.4

 

Indicated

 

0.30

 

71

 

0.56

 

1.3

 

Measured & Indicated

 

0.30

 

802

 

0.61

 

15.7

 

Inferred

 

0.30

 

266

 

0.52

 

4.4

 

 

 

 

 

 

 

 

 

 

 

Measured

 

0.50

 

370

 

0.82

 

9.8

 

Indicated

 

0.50

 

31

 

0.80

 

0.8

 

Measured & Indicated

 

0.50

 

401

 

0.82

 

10.6

 

Inferred

 

0.50

 

92

 

0.76

 

2.3

 

 

 

 

 

 

 

 

 

 

 

Measured

 

0.70

 

179

 

1.08

 

6.2

 

Indicated

 

0.70

 

13

 

1.09

 

0.5

 

Measured & Indicated

 

0.70

 

192

 

1.08

 

6.7

 

Inferred

 

0.70

 

34

 

1.08

 

1.2

 

 

Mineral resources that are not mineral reserves do not have demonstrated economic viability. Mineral resource estimates do not account for mineability, selectivity, mining loss and dilution. These mineral resource estimates include inferred mineral resources that are normally considered too speculative geologically to have economic considerations applied to them that would enable them to be categorized as mineral reserves. There is also no certainty that these inferred mineral resources will be converted to measured and indicated categories through further drilling, or into mineral reserves, once economic considerations are applied.

 

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Table of Contents

 

The Feasibility Study has converted a portion of these mineral resources into proven reserves of 434 million tonnes at an average grade of 0.69 g/tonne (9.6 million ounces) and probable reserves of 20 million tonnes at an average grade of 0.70 g/tonne (454,000 ounces) at the gold price of $1,500 per ounce (the trailing three year average).

 

The table below illustrates the updated reserve estimate for the Project, calculated at a gold price of $1,500 per ounce.

 

Rock Type

 

Tonnes
(000s)

 

Average
Grade g Au/t

 

Ounces
(000s)

 

RT4 Cambrian

 

58,247.3

 

0.639

 

1,196.6

 

RT5 Sunshine Upper Sediments

 

126,592.2

 

0.576

 

2,344.6

 

RT6 Upper Sediments

 

80,912.3

 

0.733

 

1,906.0

 

RT7 Lower Sediments-Bleached

 

51,020.0

 

0.772

 

1,266.3

 

RT8 Sunshine Volcanics

 

6,707.4

 

0.659

 

142.1

 

RT9 Volcanics

 

111,013.9

 

0.775

 

2,766.0

 

Total proven:

 

434,493.0

 

0.689

 

9,621.5

 

 

 

 

 

 

 

 

 

RT4 Cambrian

 

5,129.8

 

0.720

 

118.7

 

RT5 Sunshine Upper Sediments

 

1,503.4

 

0.535

 

25.8

 

RT6 Upper Sediments

 

2,754.6

 

0.637

 

56.4

 

RT7 Lower Sediments-Bleached

 

4,005.3

 

0.726

 

9.5

 

RT8 Sunshine Volcanics

 

2,321.2

 

0.669

 

49.9

 

RT9 Volcanics

 

4,416.4

 

0.773

 

109.7

 

Total probable:

 

20,130.8

 

0.702

 

454.0

 

 

 

 

 

 

 

 

 

RT4 Cambrian

 

63,377.1

 

0.645

 

1,315.2

 

RT5 Sunshine Upper Sediments

 

128,095.6

 

0.576

 

2,370.4

 

RT6 Upper Sediments

 

83,666.9

 

0.730

 

1,962.4

 

RT7 Lower Sediments-Bleached

 

55,025.3

 

0.769

 

1,359.8

 

RT8 Sunshine Volcanics

 

9,028.6

 

0.662

 

192.0

 

RT9 Volcanics

 

115,430.3

 

0.775

 

2,875.7

 

Total proven and probable:

 

454,623.8

 

0.689

 

10,075.6

 

 

Rounding of some figures may lead to minor discrepancies in totals.

 

Metallurgy, Processing and Infrastructure

 

ITH has completed extensive metallurgic test work on the five rock types that comprise 98% of the reserve, announced in a separate press release dated December 11 2012.

 

ITH’s metallurgic test work programs evaluated: (1) ore hardness estimates  that showed the Money Knob deposit is consistent and does not change at depth; (2) the selection of a SAG mill and two ball mills instead of High Pressure Grinding Roll technology; (3) the use of a grind, gravity, flotation, CIL circuit versus grind, gravity, whole ore CIL; (4) estimated gold recovery rates based on optimized grind size and leach conditions for the various rock types; and (5) the use of heap leaching  of Livengood ores.

 

The comminution circuit is designed to process material with an average bond-work index 5% in excess of actual rock hardness based on the test work completed.  Gold will be recovered through a traditional crusher, grinding, gravity and CIL circuit.  Recovery rates are based on the results of 99 variability tests.

 

Rock Type

 

Gold Recovery %

 

RT4 Cambrian

 

84.2

 

RT5 Sunshine Upper Sediments

 

87.7

 

RT6 Upper Sediments

 

76.7

 

RT7 Lower Sediments-Bleached

 

58.5

 

RT9 Volcanics

 

84.8

 

 

The Livengood Gold Project is located approximately 110 kilometers (70 miles) northwest of the town of Fairbanks in Central Alaska and is connected by an existing paved highway. The Project is located in an active mining district that has been mined for gold since 1914. The State of Alaska land use plan designates mining as the primary surface use for the Livengood area.

 

22



Table of Contents

 

Next Steps and Opportunities

 

The Company believes that mill throughput and production schedule optimization studies may provide opportunities to reduce project capital costs.  A lower mill throughput may offer an opportunity to enhance mill head grades in early years by a more aggressive stockpile management strategy than is assumed in the Feasibility Study.

 

The Company will also continue to advance environmental baseline work in support of future permitting in order to better position the Livengood Gold Project for a construction decision when warranted by market conditions.

 

There is also opportunity to expand the mineable resource by increasing the in-pit resource, as additional drilling may improve the classification of the material contained within the pit. Additional drilling may expand the resource at depth and to the southwest, incorporating mineralized material below the current grade model. Multiple exploration targets have been identified and may increase the resource with additional exploration.

 

The Company has also identified several opportunities to improve the performance of the Project that warrant further study, including verification of preliminary indications of a higher head grade, verify modeling to improve recovery through intensive cyanide leach reactors, reducing reagent consumption and energy costs.

 

Project Risks

 

Successful commercial production, if any, is subject to successful construction of the designed facilities in the Feasibility Study.  Project risks include, but are not limited to, the following, which may have negative implications to both the execution schedule and project cost:

 

The Project design requires excavation, processing, movement, placement, and preparation of a large quantity of soil, colluvium, alluvial material, and rock.  There is a risk that the contractors and owner’s crews and equipment may not be able to move this material as efficiently as estimated.

 

The Project has a large surface footprint.  While subsurface ground conditions have been investigated by drilling in support of this feasibility study, not all areas have been completely investigated.  The actual subsurface ground conditions encountered during construction may be different than currently understood.

 

The Project will require the surface preparation and placement of approximately 38 million square feet of LLDPE liner and other appurtenances at the tailings management facility during the two planned summer construction seasons available after construction start and prior to production.  There is risk that the contractor may not be able to place the quantity of liner required in the time available.

 

The Feasibility Study execution plan assumes an August 1 project release date, with mobilization to the site and construction to begin on October 1.  This date was selected to conform to the optimum period for mobilization to the site and establishment of temporary support facilities prior to the onset of winter.  This date also is optimum to allow full utilization of the entire winter season to pioneer construction activities at the various project facilities, all of which are located in permafrost terrain.  The actual project release date is uncertain, given the combination of market variables and the multi-year permitting process that must be completed prior to a construction decision.  There is a risk that a project release-date could be substantially different than August 1.

 

2013 Outlook

 

During the remainder of 2013, the Company will continue to review opportunities as identified with the completion of the Feasibility Study including smaller capital expenditure options for the Project, and alternate mine plans with higher cutoffs which allow future development expansion and without compromising the total identified gold resource. The Company also plans to continue critical baseline environmental studies to maintain the integrity of five years of historical data already complied.

 

In light of the recent decrease in the gold price and its effect on the gold mining industry, the Company has prepared for the potential of a continuing lower gold price by revising its 2013 program to limit spending to essential activities. These activities include the completion of the Feasibility Study, environmental baseline work as well as required corporate and compliance matters.

 

The Company will continue to seek a strategic alliance with a larger entity to possibly fund the future development of the Project.  The strength of the gold asset, the favorable location, and the proven permitting team are the reasons the Company would potentially attract a strategic partner with a long term development horizon who understands the Project is highly leveraged to gold prices.  To date ITH has signed multiple confidentiality agreements with large and intermediate mining companies and will be providing the final Feasibility Study results on the 100,000 TPD case as well as various opportunities to be considered by those companies.

 

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Table of Contents

 

Results of Operations

 

Summary of Quarterly Results

 

 

 

June 30, 2013

 

March 31, 2013

 

December 31, 2012

 

September 30, 2012

 

Net loss

 

$

(642,050

)

$

(4,063,282

)

$

(7,258,397

)

$

(25,033,780

)

Basic and diluted net loss per common share

 

$

(0.01

)

$

(0.04

)

$

(0.07

)

$

(0.27

)

 

Description

 

June 30, 2012

 

March 31, 2012

 

4 months
December 31, 2011

 

August 31, 2011

 

Net loss

 

$

(12,909,320

)

$

(11,441,965

)

$

(16,727,561

)

$

(26,582,396

)

Basic and diluted net loss per common share

 

$

(0.15

)

$

(0.13

)

$

(0.19

)

$

(0.31

)

 

Three Months Ended June 30, 2013 compared to Three Months Ended June 30, 2012

 

The Company incurred a net loss of $642,050 for the three months ended June 30, 2013, compared to a net loss of $12,909,320 for the three months ended June 30, 2012.  The following discussion highlights certain selected financial information and changes in operations between the three months ended June 30, 2013 and the three months ended June 30, 2012.

 

Mineral property expenditures decreased significantly to $2,452,664 for the three months ended June 30, 2013 from $11,833,137 for the three months ended June 30, 2012, primarily due to the Company completing its current exploration and drilling programs and shifting to activities related to the completion of the Feasibility Study including metallurgical, process engineering, and environmental baseline work.

 

Share-based payment charges were $1,171,853 during the three months ended June 30, 2013 compared to $1,062,378 during the three months ended June 30, 2012.  The increase in share-based payment charges during the period was mainly the result of vesting related to option grants in March 2013 and the second half of 2012.  The Company did not grant any options during the three month periods ended June 30, 2013 and 2012.

 

Share-based payment charges

 

Share-based payment charges for the three month periods ended June 30, 2013 and 2012 were allocated as follows:

 

Expense category:

 

June 30, 2013

 

June 30, 2012

 

Consulting

 

$

398,113

 

$

36,778

 

Investor relations

 

(26,515

)

 

Wages and benefits

 

800,255

 

1,025,600

 

 

 

$

1,171,853

 

$

1,062,378

 

 

Excluding share-based payment charges of $800,255 and $1,025,600, respectively, wages and benefits decreased to $962,868 during the three months ended June 30, 2013 from $1,890,976 during the three months ended June 30, 2012 as a result of decreased severance charges and decreased personnel during the current year period.

 

Excluding share-based payment charges of $398,113 and $36,778, respectively, consulting fees decreased to $81,331 during the three months ended June 30, 2013 from $191,386 during the three months ended June 30, 2012 due to additional fees incurred in the prior period primarily for general corporate matters.

 

Other expense categories reflected only moderate change period over period.

 

Other items amounted to a gain of $4,436,515 during the three month period ended June 30, 2013 compared to a gain of $2,577,151 during the three month period ended June 30, 2012.  The gain in the current period resulted primarily from an unrealized gain of $4.2 million on the revaluation of the derivative liability at June 30, 2013 resulting from a decrease in the average price of gold, compared to an unrealized gain of $2.1 million on the revaluation of the derivative liability during the prior period which resulted from a smaller decrease in the average price of gold.  In addition to the unrealized gain on the derivative liability, the Company had foreign exchange gain of $511,994 during the three month period ended June 30, 2013 compared to a gain of $448,164 during the three month period ended June 30, 2012 as a result of an increase in the value of the Canadian dollar compared to the US dollar.  The increase in other income was partially offset by a loss of $298,769

 

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related to the other than temporary impairment of certain available-for-sale securities during the three months ended June 30, 2013.

 

Six Months Ended June 30, 2013 compared to Six Months Ended June 30, 2012

 

The Company incurred a net loss of $4,705,332 for the six month period ended June 30, 2013, compared to a net loss of $24,351,285 for the six month period ended June 30, 2012.  The following discussion highlights certain selected financial information and changes in operations between the six months ended June 30, 2013 and the six months ended June 30, 2012.

 

Mineral property expenditures decreased significantly to $5,247,099 for the six months ended June 30, 2013 from $16,955,013 for the six months ended June 30, 2012 primarily due to the Company completing its current exploration and drilling programs and shifting to activities related to the completion of the Feasibility Study such as metallurgical, process engineering, and environmental baseline work.

 

Share-based payment charges were $2,749,881 during the six months ended June 30, 2013 compared to $2,948,367 during the six months ended June 30, 2012.  The decrease in share-based payment charges during the period was primarily the result of a reduction in the number and fair value of options granted during the period and vesting of prior option grants.  The Company granted 613,000 options during the six months ended June 30, 2013 compared to 680,000 during the six months ended June 30, 2012.

 

Share-based payment charges

 

Share-based payment charges for the six month periods ended June 30, 2013 and 2012 were allocated as follows:

 

Expense category:

 

June 30, 2013

 

June 30, 2012

 

Consulting

 

$

942,543

 

$

73,558

 

Investor relations

 

17,310

 

1,472

 

Professional fees

 

 

393

 

Wages and benefits

 

1,790,028

 

2,872,944

 

 

 

$

2,749,881

 

$

2,948,367

 

 

Excluding share-based payment charges of $1,790,028 and $2,872,944, respectively, wages and benefits decreased to $1,850,059 during the six months ended June 30, 2013 from $3,306,268 during the six months ended June 30, 2012 as a result of decreased severance charges and decreased personnel during the current year period.

 

Excluding share-based payment charges of $942,543 and $73,558, respectively, consulting fees decreased to $175,904 during the six months ended June 30, 2013 from $415,492 during the three months ended June 30, 2012 due to additional fees incurred in the prior period primarily for general corporate matters and compensation benefits design and implementation.

 

Other expense categories reflected only moderate change period over period.

 

Other items amounted to a gain of $6,368,573 during the six month period ended June 30, 2013 compared to a gain of $383,292 during the six month period ended June 30, 2012.  The gain in the current period resulted mainly from an unrealized gain of $5.7 million on the revaluation of the derivative liability at June 30, 2013 resulting from a decrease in the average price of gold, compared to an unrealized loss of $0.3 million on the revaluation of the derivative liability during the prior period which resulted from an increase in the average price of gold.  In addition to the unrealized gain on the derivative liability, the Company had foreign exchange gain of $909,823 during the six month period ended June 30, 2013 compared to a gain of $427,744 during the six month period ended June 30, 2012 as a result of an increase in the value of the Canadian dollar compared to the US dollar.  The increase in other income was partially offset by a loss of $298,769 related to the other than temporary impairment of certain available-for-sale securities during the six months ended June 30, 2013.  Furthermore, income of $141,948 from mineral property earn-in was recognized during the six month period ended June 30, 2012 which was related to the Terra and Chisna properties transferred to Corvus Gold Inc. in 2010 compared to no mineral property earn-in income for the six month period ended June 30, 2013.

 

Liquidity and Capital Resources

 

The Company has no revenue generating operations from which it can internally generate funds.  To date, the Company’s ongoing operations have been predominantly financed through sale of its equity securities by way of private placements and the subsequent exercise of share purchase and broker warrants and options issued in connection with such private placements.  However, the exercise of warrants/options is dependent primarily on the market price and overall market liquidity of the Company’s securities at or near the expiry date of such warrants/options (over which the Company has no control) and therefore there can be no guarantee that any existing warrants/options will be exercised.

 

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As at June 30, 2013, the Company reported cash and cash equivalents of $19,874,686 compared to $30,170,905 at December 31, 2012.  The decrease of approximately $10.3 million resulted mainly from expenditures on the Livengood Gold Project, advancing work towards completion of the Feasibility Study.  The Company continues to utilize its cash resources to fund the Livengood Gold Project permitting, feasibility study recommendations, including related metallurgical and geotechnical studies, and corporate administrative requirements.

 

The Company had no investing cash flows during the six months ended June 30, 2013.  Investing activities during the six months ended June 30, 2012 comprised of mineral property acquisitions of approximately $2 million.  Mineral property acquisitions during 2012 related to certain mining claims and related rights in the vicinity of the Livengood Gold Project.

 

The Company had no cash flows from financing activities during the six month periods ended June 30, 2013 and 2012.

 

As at June 30, 2013, the Company had working capital of $19,014,619 compared to working capital of $27,676,797 at December 31, 2012.  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 the non-discretionary activities at the Livengood Gold Project, and its currently anticipated general and administrative costs, through the 2014 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, 2013.  The additional financing completed by the Company in the third quarter of 2012 will fund the continued operations for the 2013 fiscal year and the planned environmental baseline activities for continuing the Livengood Gold Project towards permitting and its currently anticipated general and administrative costs through the 2014 fiscal year.  The Company will require significant additional financing to continue its operations (including general and administrative expenses) in connection with post- Feasibility Study 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.

 

Despite the Company’s success to date in raising significant equity financing to fund its operations, there is significant uncertainty that the Company will be able to secure any additional financing in the current or future equity markets.  See “Risk Factors — We will require additional financing to fund exploration and, if warranted, development and production. Failure to obtain additional financing could have a material adverse effect on our financial condition and results of operation and could cast uncertainty on our ability to continue as a going concern” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.  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 Livengood to preserve its working capital to fund anticipated non-discretionary expenditures beyond the 2013 fiscal year.

 

Other than cash held by its subsidiaries for their immediate operating needs in Alaska and Colorado, 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.  However, to achieve greater security for the preservation of its capital, the Company has, of necessity, been required to accept lower rates of interest which has also lowered its potential interest income.

 

Contractual Obligations

 

The following table discloses the Company’s contractual obligations for optional mineral property payments and work commitments and committed office and equipment lease obligations as of June 30, 2013.  The table also includes amounts payable under the purchase agreement related to the acquisition of certain mining claims and related rights in the vicinity of the Livengood Gold Project (“Livengood Property Purchase”). The Company does not have any other long-term debt or loan obligations.  Under the terms of the Company’s mineral property purchase agreements, mineral leases and the terms of the unpatented mineral claims held by it, the Company is required to make certain scheduled acquisition payments, incur certain levels of expenditures, make lease or advance royalty payments, make payments to government authorities and incur assessment work expenditures as summarized in the table below in order to maintain and preserve the Company’s interests in the related mineral properties.  If the Company is unable or unwilling to make any such payments or incur any such expenditures, it is likely that the Company would lose or forfeit its rights to acquire or hold the related mineral properties. The following table assumes that the Company retains the rights to all of its current mineral properties, but no other lease purchase or royalty buyout options:

 

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Payments Due by Year

 

 

 

2013

 

2014

 

2015

 

2016

 

2017

 

2018

 

2019 and
beyond

 

Total

 

Livengood Property Purchase(1)

 

$

 

$

 

$

 

$

16,700,000

 

$

 

$

 

$

 

$

16,700,000

 

Mineral Property Leases(2)

 

 

396,563

 

396,563

 

396,563

 

396,563

 

401,563

 

401,563

 

2,389,378

 

Mining Claim Government Fees

 

89,110

 

89,110

 

89,110

 

89,110

 

89,110

 

89,110