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.
Indicate by check mark whether
the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
x
Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company,
indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
¨
Indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
¨
No
x
Based on the last sale price
on the NYSE American of the registrant’s Common Shares on June 29, 2018 (the last business day of the registrant’s
most recently completed second fiscal quarter) of $0.50 per share, the aggregate market value of the voting stock held by non-affiliates
of the registrant was approximately $48.1 million.
As of March 8, 2019, the
registrant had 187,111,857 Common Shares outstanding.
To the extent specifically
referenced in Part III, portions of the registrant’s definitive Proxy Statement on Schedule 14A to be filed with the Securities
and Exchange Commission in connection with the registrant’s 2019 Annual Meeting of Shareholders are incorporated by reference
into this report.
International Tower Hill Mines Ltd. (“we”,
“us”, “our,” “ITH” or the “Company”) is a mineral exploration company engaged in
the acquisition and exploration of mineral properties. As used in this Annual Report on Form 10-K, the terms “mineral
reserve”, “proven mineral reserve” and “probable mineral reserve” are Canadian mining terms as defined
in accordance with Canadian National Instrument 43-101—Standards of Disclosure for Mineral Projects (“NI 43-101”)
and the Canadian Institute of Mining, Metallurgy and Petroleum (the “CIM”)—CIM Definition Standards on Mineral
Resources and Mineral Reserves, adopted by the CIM Council, as amended. These definitions differ from the definitions in the United
States Securities and Exchange Commission (“SEC”) Industry Guide 7 (“SEC Industry Guide 7”). Under SEC
Industry Guide 7 standards, a “final” or “bankable” feasibility study is required to report reserves, the
three-year historical average price is used in any reserve or cash flow analysis to designate reserves, and the primary environmental
analysis or report must be filed with the appropriate governmental authority. In addition, the terms “mineral resource”,
“measured mineral resource”, “indicated mineral resource” and “inferred mineral resource” are
defined in and required to be disclosed by NI 43-101; however, these terms are not defined terms under SEC Industry Guide 7 and
are normally not permitted to be used in reports and registration statements filed with the SEC. Investors are cautioned not to
assume that all or any part of a mineral deposit in these categories will ever be converted into reserves.
“Inferred mineral resources”
have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It
cannot be assumed that all, or any part, of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian
rules, estimates of inferred mineral resources may not form the basis of feasibility or pre-feasibility studies, except in rare
cases. Investors are cautioned not to assume that all or any part of an inferred mineral resource exists or is economically or
legally mineable.
Disclosure of “contained ounces”
in a resource is permitted disclosure under Canadian regulations if such disclosure includes the grade or quality and the quantity
for each category of mineral resource and mineral reserve; however, the SEC normally only permits issuers to report mineralization
that does not constitute “reserves” by SEC standards as in place tonnage and grade without reference to unit measures.
Accordingly, information contained in this report and the documents incorporated by reference herein contain descriptions of our
mineral deposits that may not be comparable to similar information made public by U.S. companies subject to the reporting and disclosure
requirements under the United States federal securities laws and the rules and regulations thereunder.
The term “mineralized material”
as used in this Annual Report on Form 10-K, although permissible under SEC Industry Guide 7, does not indicate “reserves”
by SEC Industry Guide 7 standards. We cannot be certain that any part of the mineralized material will ever be confirmed or converted
into SEC Industry Guide 7 compliant “reserves”. Investors are cautioned not to assume that all or any part of the mineralized
material will ever be confirmed or converted into reserves or that mineralized material can be economically or legally extracted.
The Company currently holds or has the
right to acquire interests in an advanced stage exploration project in Alaska referred to as the Livengood Gold Project (the “Livengood
Gold Project” or the “Project”). Mineral resources that are not mineral reserves have no demonstrated economic
viability. The preliminary assessments on the Project are preliminary in nature and include “inferred mineral resources”
that have a great amount of uncertainty as to their existence, and are considered too speculative geologically to have economic
considerations applied to them that would enable them to be categorized as mineral reserves. It cannot be assumed that all, or
any part, of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred
mineral resources may not form the basis of feasibility or pre-feasibility studies. There is no certainty that such inferred mineral
resources at the Project will ever be realized. Investors are cautioned not to assume that all or any part of an inferred mineral
resource exists or is economically or legally mineable.
This Annual Report on Form 10-K contains
forward-looking statements or information within the meaning of the United States Private Securities Litigation Reform Act of 1995
concerning anticipated results and developments in the operations of the Company in future periods, planned exploration activities,
the adequacy of the Company’s financial resources and other events or conditions that may occur in the future. Forward-looking
statements are frequently, but not always, identified by words such as “expects,” “anticipates,” “believes,”
“intends,” “estimates,” “potential,” “possible” and similar expressions, or statements
that events, conditions or results “will,” “may,” “could” or “should” (or the negative
and grammatical variations of any of these terms) occur or be achieved. These forward looking statements may include, but are not
limited to, statements concerning:
Such forward-looking statements reflect
the Company’s current views with respect to future events and are subject to certain known and unknown risks, uncertainties
and assumptions. Many factors could cause actual results, performance or achievements to be materially different from any future
results, performance or achievements that may be expressed or implied by such forward-looking statements, including, among others:
Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein.
This list is not exhaustive of the factors that may affect any of the Company’s forward-looking statements. Forward-looking
statements are statements about the future and are inherently uncertain, and actual achievements of the Company or other future
events or conditions may differ materially from those reflected in the forward-looking statements due to a variety of risks, uncertainties
and other factors, including without limitation those discussed in Part I, Item 1A, Risk Factors, of this Annual Report on Form
10-K, which are incorporated herein by reference, as well as other factors described elsewhere in this report and the Company’s
other reports filed with the SEC.
The Company’s forward-looking statements
contained in this Annual Report on Form 10-K are based on the beliefs, expectations and opinions of management as of the date of
this report. The Company does not assume any obligation to update forward-looking statements if circumstances or management’s
beliefs, expectations or opinions should change, except as required by law. For the reasons set forth above, investors should not
attribute undue certainty to or place undue reliance on forward-looking statements.
This Annual Report on Form 10-K contains
information with respect to adjacent or similar mineral properties in respect of which the Company has no interest or rights to
explore or mine. Readers are cautioned that the Company has no interest in or right to acquire any interest in any such properties,
and that mineral deposits on adjacent or similar properties, and any results of the mining or exploitation thereof, are not indicative
of mineral deposits on the Company’s properties, or any potential results of the mining or exploitation thereof.
In this Annual Report on Form 10-K,
unless the context otherwise requires, the terms "we", "us", "our", "ITH", "International
Tower Hill", the "Company" or the "Corporation" refer to International Tower Hill Mines Ltd. and its subsidiaries.
All dollar amounts in this Annual Report
on Form 10-K are presented in United States dollars unless otherwise stated. References to C$ refer to Canadian currency.
PART I
ITEM 1. BUSINESS
Overview
ITH is a mineral exploration company engaged
in the acquisition and exploration of mineral properties. The Company currently holds or has the right to acquire interests in
an advanced stage exploration project in Alaska referred to as the “Livengood Gold Project” or the “Project”.
The Company is in the process of optimizing the Livengood Gold Project as discussed below. The Company has not yet begun preparation
for the extraction of mineralization from the deposit or reached commercial production. The Company controls 100% of the Livengood
Gold Project, which has a current (as at August 26, 2016) mineral resource of 497 million measured tonnes at an average grade of
0.68 g/tonne (10.84 million ounces), 28 million indicated tonnes at an average grade of 0.69 g/tonne (0.62 million ounces) and
53 million inferred tonnes at an average grade of 0.66 g/tonne (1.1 million ounces). In 2017, the Company issued the results of
a pre-feasibility study that was summarized in the April 2017 Report which converted a portion of the mineral resources at the
Project into proven reserves of 378 million tonnes at an average grade of 0.71 g/tonne (8.62 million ounces) and probable reserves
of 14 million tonnes at an average grade of 0.72 g/tonne (353,000 ounces) based on a gold price of $1,250 per ounce. All work presently
planned by the Company is directed at maintaining necessary environmental baseline activities at the Livengood Gold Project and
focusing efforts on Project optimization opportunities, including those identified in the April 2017 Report. A more complete description
of the Livengood Gold Project and the current activities is set forth in Part I, Item 2 and Part II, Item 7, Management’s
Discussion and Analysis of Financial Condition and Results of Operations, of this Annual Report on Form 10-K.
Since 2006, the Company has focused primarily
on the acquisition and exploration of mineral properties in Alaska and Nevada by acquiring through staking, purchase, lease or
option (primarily from AngloGold Ashanti (U.S.A.) Exploration Inc. (“AngloGold”) in a transaction which closed on August
4, 2006) interests in a number of mineral properties in Alaska (Livengood Gold Project, Terra, LMS, BMP, Chisna, Coffee Dome, West
Tanana, Gilles, West Pogo, Caribou, Blackshell and South Estelle) and Nevada (North Bullfrog and Painted Hills) that it believed
had the potential to host large precious or base metal deposits. Some of these, such as the Painted Hills, Gilles, West Tanana,
Caribou and Blackshell properties, were, in light of disappointing exploration results, dropped or returned to the respective optionors
or lessors, and the associated costs written off while others, such as the South Estelle property, have been sold. Since early
2008, the Company’s primary focus has been the exploration and advancement of the Livengood Gold Project and the majority
of its resources have been directed to that end. In August 2010, ITH undertook a corporate spin-out arrangement transaction whereby
all of its mineral property interests other than the Project were transferred to Corvus and Corvus was spun out as an independent
and separate public company. Following the completion of that transaction, the sole mineral property held by the Company is the
Livengood Gold Project. Since the completion of such transaction, the Company has focused exclusively on the ongoing exploration
and potential development of the Livengood Gold Project.
The head office and principal executive
address of ITH is located at Suite 2300 – 1177 West Hastings Street, Vancouver, British Columbia, Canada V6E 2K3, and its
registered and records office is located at 2400 – 745 Thurlow Street, Vancouver, British Columbia, Canada V6E 0C5.
2018
Livengood Gold Project
Developments
During the year ended December 31, 2018
and to the date of this Annual Report on Form 10-K, the Company progressed on a number of opportunities with the potential for
optimization and reducing the costs of building and operating a mine at the Project. Outside consultants were retained to conduct
additional metallurgical tests and engineering, including confirmation of the flow sheet and optimizing the operating costs. Using
the improved mineralization and alteration models now available for the Livengood gold deposit arising from the work completed
in 2017, 4,000 kg of metallurgical composites were selected and shipped to SGS Vancouver. Approximately 2,000 kg of these samples
were processed during 2018 to evaluate optimum grind size and to determine whether different recovery parameters should be applied
to different areas of the orebody. The engineering firm of BBA Inc. (“BBA”) was retained to continue to guide the metallurgical
program. During 2018, the Company also completed work to advance the environmental baseline efforts needed to support future permitting.
Director Changes
On March 16, 2018, Mr. Victor Flores notified
the Board of his decision to resign as director effective on March 21, 2018. Mr. Flores was nominated for election as director
by Paulson & Co., Inc. (“Paulson”) pursuant to that certain Investor Rights Agreement, dated December 28, 2016,
between the Company and Paulson. Effective on March 22, 2018, the Company appointed Damola Adamolekun as a director, filling the
vacancy created by the resignation of Mr. Flores.
The Board appointed Mr. Stuart Harshaw to
the Board effective April 1, 2018, to fill the vacancy that resulted from General Hamilton’s November 6, 2017 resignation.
At the 2018 Annual General Meeting of shareholders
in Vancouver, B.C. on May 30, 2018, the shareholders fixed the size of the board at nine with the addition of Mr. Karl Hanneman,
CEO of the Company.
Financing
On March 13, 2018, the Company completed
a non-brokered private placement pursuant in which it issued 24,000,000 common shares at $0.50 per share for gross proceeds of
$12.0 million. The Company intends to use the funds for continuation of optimization studies in the attempt to further improve
and de-risk the Project, for required environmental baseline studies, and for general working capital purposes.
Other Developments
On March 12, 2018, the Board approved recommendations
by management to further reduce corporate overhead costs, including a reduction in CEO salary by 50% (reflecting an approximate
50% reduction in the amount of time the CEO will spend working on the Project), a reduction in board cash compensation and expense,
and staff reductions as appropriate as critical work is completed. Depending upon the level of technical work or permitting efforts
underway in future years, these cost savings are expected to bring total project general and administrative costs into the range
of $2.5 million per year.
2019
Outlook
On November 1, 2018, the Board approved
a 2019 budget of $3.7 million. The work program incorporated in this budget will build upon the metallurgical studies undertaken
in 2018 to continue to define and refine the project flowsheet. Approximately 2,000 kg of samples will be processed in 2019 to
evaluate optimum grind size and to determine whether different recovery parameters should be applied to different areas of the
orebody. BBA will be retained to continue to guide the metallurgical program. Work is also planned to advance the environmental
baseline efforts needed to support future permitting.
The Company remains open
to a strategic alliance to help support the future development of the Project while considering all other appropriate financing
options. The size of the gold resource, the favorable location, and the proven team are some of the reasons the Company would potentially
attract a strategic partner with a long term development horizon who understands the Project is highly leveraged to gold prices.
Regulatory, Environmental
and Social Matters
All of the Company’s currently proposed
exploration is under the jurisdiction of the State of Alaska. In Alaska, low impact, initial stage surface exploration such as
stream sediment, soil and rock chip sampling does not require any permits. The State of Alaska requires an APMA (Alaska Placer
Mining Application) exploration permit for all substantial surface disturbances such as trenching, road building and drilling.
These permits are also reviewed by related state and federal agencies that can comment and require specific changes to the proposed
work plans to minimize impacts on the environment. The permitting process for significant disturbances generally requires 30 days
for processing and all work must be bonded. The Company currently has all necessary permits with respect to its currently planned
exploration activities in Alaska. Although the Company has never had an issue with the timely processing of APMA permits, there
can be no assurances that delays in permit approval will not occur.
ITH has established a Technical Committee,
which has adopted a formal, written charter. As set out in its charter, the overall purpose of the Technical Committee is to assist
the Board in fulfilling its oversight responsibilities with respect to the Company’s continuing commitment to improving the
environment and ensuring that activities are carried out and facilities are operated and maintained in a safe and environmentally
sound manner that reflects the ideals and principles of sustainable development. The primary function of the Technical Committee
is to monitor, review and provide oversight with respect to the technical aspects of the Company’s projects as well as monitor
policies, standards, and programs relative to health, safety, community relations and environmental-related matters. The Technical
Committee also advises the Board and makes recommendations for the Board’s consideration regarding health, safety, community
relations and environmental-related issues.
Although not set out in a specific policy,
the Company strives to be a positive influence in the local communities where its mineral projects are located, not only by contributing
to the welfare of such communities through donations of money and supplies, as appropriate, but also through hiring, when appropriate,
local workers to assist in ongoing exploration programs. The Company considers building and maintaining strong relationships with
such communities to be fundamental to its ability to continue to operate in such regions and to assist in the eventual development
(if any) of mining operations in such regions, and it attaches considerable importance to commencing and fostering such relationships
from the beginning of its involvement in any particular area.
Corporate Structure
ITH was incorporated under the
Company
Act
(British Columbia) under the name “Ashnola Mining Company Ltd.” on May 26, 1978. ITH’s name was changed
to “Tower Hill Mines Ltd.” on June 1, 1988, and subsequently changed to “International Tower Hill Mines Ltd.”
on March 15, 1991. ITH has been transitioned under, and is now governed by, the
Business Corporations Act
(British Columbia).
On November 15, 2005, the shareholders resolved to amend the Company’s Articles to increase its authorized capital from 20,000,000
common shares without par value to 500,000,000 common shares without par value. This increase became effective on April 20, 2006.
ITH has three material subsidiaries:
|
·
|
Tower Hill Mines, Inc. (“TH Alaska”), a corporation incorporated in Alaska on June
27, 2006, which holds most of the Company’s Alaskan mineral properties and is 100% owned by ITH;
|
|
·
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Tower Hill Mines (US) LLC, a limited liability company formed in Colorado on June 27, 2006, which
carries on the Company’s administrative and personnel functions and is wholly owned by TH Alaska; and
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·
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Livengood Placers, Inc., a corporation incorporated in Nevada on June 11, 1998, which holds certain
Alaskan properties and is 100% owned by TH Alaska.
|
The following corporate chart sets forth
all of ITH’s material subsidiaries:
Competition
ITH is an exploration stage company. The
Company competes with other mineral resource exploration and development companies for financing, technical expertise and the acquisition
of mineral properties. Many of the companies with whom the Company competes have greater financial and technical resources. Accordingly,
these competitors may be able to spend greater amounts on the acquisition, exploration and development of mineral properties. This
competition could adversely impact the Company’s ability to finance further exploration and to achieve the financing necessary
for the Company to develop its mineral properties.
Availability of Raw Materials
and Skilled Employees
All aspects of the Company’s business
require specialized skills and knowledge. Such skills and knowledge include the areas of geology, drilling, logistical planning,
preparation of feasibility studies, permitting, construction and operation of a mine, financing and accounting. Since commencing
its current operations in mid-2006, the Company has found and retained appropriate employees and consultants and believes it will
continue to be able to do so in the future.
All of the raw materials the Company requires
to carry on its business are readily available through normal supply or business contracting channels in Canada and the United
States. Since commencing exploration activities at the Livengood Gold Project in mid-2006, the Company has been able to secure
the appropriate personnel, equipment and supplies required to conduct its contemplated programs. While it has experienced difficulty
in procuring some equipment, such as drill equipment or services, experienced drillers and timely assay laboratory services in
previous years, the recent overall slowdown in the mineral exploration business has resulted in more equipment and services being
made available on a timely basis. As a result, the Company does not believe that it will experience any shortages of required personnel,
equipment or supplies in the foreseeable future.
Employees
At December 31, 2018, the Company had 3
employees. The Company also uses consultants with specific skills to assist with various aspects of project evaluation, engineering,
community engagement and investor relations, and corporate governance.
Seasonality
As the Company’s mineral exploration
activity takes place in Alaska, its business is seasonal. Due to the northern climate, exploration work on the Livengood Gold Project
can be limited due to excessive snow cover and cold temperatures. In general, surface sampling work is limited to May through September
and surface drilling from March through November, although some locations afford opportunities for year-round exploration operations
and others, such as road-accessible wetland areas, may only be explored while frozen in the winter.
Available Information
ITH maintains an internet website at www.ithmines.com.
The Company makes available, free of charge, through the Investors section of its website, its Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports filed or furnished pursuant to Section 13
or 15(d) of the Exchange Act, as soon as reasonably practicable after such material is electronically filed with, or furnished
to, the SEC and its Annual Information Form, press releases and material change reports and other reports filed on the System for
Electronic Document Analysis and Retrieval (SEDAR). The Company’s SEC filings are available from the SEC’s internet
website at www.sec.gov which contains reports, proxy and information statements and other information regarding issuers that file
electronically. The Company’s SEDAR filings are available from SEDAR’s internet website at www.sedar.com under the
Company’s profile. The contents of these websites are not incorporated into this report and the references to the URLs for
these websites are intended to be inactive textual references only.
ITEM 1A. RISK FACTORS
You should carefully consider the following
risk factors in addition to the other information included in this Annual Report on Form 10-K. Each of these risk factors could
materially and adversely affect our business, operating results and financial condition, as well as materially and adversely affect
the value of an investment in our common shares. The risks described below are not the only ones facing the Company. Additional
risks that we are not presently aware of, or that we currently believe are immaterial, may also adversely affect our business,
operating results and financial condition. We cannot assure you that we will successfully address these risks or that other unknown
risks exist that may affect our business.
Risks Related to Our Business
Our success depends on the development
and operation of the Livengood Gold Project, which is our only project and which, as contemplated in the April 2017 Report, is
not commercially viable at current gold prices.
Our only property at this time is our Livengood
Gold Project, which is in the exploration stage. We have issued the April 2017 Report on the Livengood Gold Project which indicates
that the Project generates a minimal positive return at a gold price of $1,250 per ounce. The price of gold was $1,297 per ounce
as of March 8, 2019, and the Project as contemplated in the April 2017 Report is not commercially viable at current gold prices.
While management is exploring opportunities identified in the April 2017 Report for optimization and reducing Project costs, there
can be no assurance that any such efforts will be successful, that any of the optimization opportunities or cost savings will in
fact be realized or that the price of gold will increase sufficiently to warrant a decision to develop the Project. If the Project
is not developed, or if the Project is otherwise subject to deterioration, destruction or significant delay, we may never generate
revenues and our shareholders may lose most or all of their investment in our common shares.
While we may be successful in outlining
potential optimizations that might improve the economics of the Project, there can be no assurance that any such optimizations
can actually be incorporated into the Project.
While a review of the pre-feasibility test
work to date on the Project indicates that there is the potential to further optimize the specific parameters of the Project, and
that such optimizations may result in lower capital costs and operating costs for the Project, there can be no assurance that,
even if such optimizations can be achieved and shown to have such effect, it will be possible to actually change the scope, size,
scale and parameters of any revised Project configuration to actually incorporate the optimized results. Even if such optimization
testwork shows that optimization will improve capital or operating costs for the Project, it may not be possible to re-scale the
Project so as to take advantage of all or any part of the optimized processes and therefore it may not be possible, in fact, to
derive any benefit from the optimization work or studies carried out. If we are not able to actually incorporate the optimized
results, our business would be materially adversely affected and our shareholders could lose all or a substantial portion of their
investment.
We have a history of losses and expect
to continue to incur losses in the future.
We have incurred losses and have had no
revenue from operations since inception, and we expect to continue to incur losses in the foreseeable future. We have not commenced
commercial production on the Livengood Gold Project and we have no other mineral properties. We have no revenues from operations,
and we anticipate we will have no operating revenues and will continue to incur operating losses until such time, if ever, as we
place the Livengood Gold Project into production and such project generates sufficient revenues to fund continuing operations.
The Project is currently in the exploration stage and, as contemplated in the April 2017 Report, is not commercially viable at
current gold prices. Our activities may not result in profitable mining operations and we may not succeed in establishing mining
operations or profitably producing metals at the Livengood Gold Project.
We are an exploration stage company
and have no history producing metals from our properties. Any future revenues and profits are uncertain.
We have no history of mining or refining
any mineral products or metals and the Livengood Gold Project is not currently producing. There can be no assurance that the Livengood
Gold Project will be successfully placed into production, produce minerals in commercial quantities, or otherwise generate operating
earnings. Advancing properties from the exploration stage into development and commercial production requires significant capital
and time and will be subject to further feasibility studies, permitting requirements and construction of the mine, processing plants,
roads and related works and infrastructure. We will continue to incur losses until such time, if ever, as our mining activities
successfully reach commercial production levels and generate sufficient revenue to fund continuing operations. There is no certainty
that we will produce revenue from any source, operate profitably or provide a return on investment in the future. If we are unable
to generate revenues or profits, our shareholders might not be able to realize returns on their investment in our common shares.
We will require additional financing
to fund exploration and, if warranted, development and production. Failure to obtain additional financing could have a material
adverse effect on our financial condition and results of operation and could cast uncertainty on our ability to continue as a going
concern.
Advancing properties from exploration into
the development stage requires significant capital and time, and successful commercial production from a property, if any, will
be subject to completing feasibility studies, permitting and construction of the mine, processing plants, roads, and other related
works and infrastructure. The Company does not presently have sufficient financial resources or a source of operating cash flow
to undertake by itself to complete the permitting process and, if a production decision is made, the construction of a mine at
the Livengood Gold Project. The completion of the permitting process, and any construction of a mine at the Livengood Gold Project
following the making of a production decision, will therefore depend upon the Company’s ability to obtain financing through
the sale of its equity securities, enter into a joint venture or strategic alliance relationship, secure significant debt financing
or find alternative means of financing. There is no assurance that the Company will be successful in obtaining the required financing
on favorable terms or at all. Even if the results of exploration are encouraging, the Company may not be able to obtain sufficient
financing to conduct the further exploration that may be necessary to determine whether or not a commercially mineable deposit
exists.
Our ability to obtain additional financing
in the future will depend upon a number of factors, including prevailing capital market conditions, the status of the national
and worldwide economy, our business performance and the price of gold and other precious metals. Capital markets worldwide have
been adversely affected in recent years by substantial losses by financial institutions. Failure to obtain such additional financing
on favorable terms or at all could result in delay or indefinite postponement of further mining operations or exploration and development
and the possible partial or total loss of our interests in the Livengood Gold Project.
We
have
not yet identified, and may never identify, commercially viable reserves that would generate revenues.
We are considered an exploration stage
company and will continue to be such until we identify commercially viable reserves on our properties and develop our properties.
We have no producing properties and have never generated any revenue from our operations. We have issued the April 2017 Report
using a gold price of $1,250 per ounce. Based on the April 2017 Report, the Project generates a minimal positive return; however,
the Project is not commercially viable at current gold prices. The majority of exploration projects do not result in the discovery
of commercially mineable deposits of ore. Further exploration and substantial expenditures are required to establish ore reserves
through drilling and metallurgical and other testing techniques, determine metal content and metallurgical recovery processes to
extract metal from the ore, and construct, renovate or expand mining and processing facilities. No assurance can be given that
any level of recovery of ore reserves will be realized or that any identified mineral deposit will ever qualify as a commercial
mineable ore body which can be legally and economically exploited. If we are not able to identify commercially viable mineral deposits
or profitably extract minerals from such deposits, our business would be materially adversely affected and our shareholders could
lose all or a substantial portion of their investment.
Resource exploration is a highly
speculative business, and certain inherent exploration risks could have a negative effect on our business.
Our long-term success depends on our ability
to identify mineral deposits on the Livengood Gold Project and other properties we may acquire, if any, that can then be developed
into commercially viable mining operations. Resource exploration is a highly speculative business and involves a high degree of
risk, including, among other things, unprofitable efforts resulting both from the failure to discover mineral deposits and from
finding mineral deposits which, though present, are insufficient in size and grade at the then prevailing market conditions to
return a profit from production. Substantial expenditures are required to establish proven and probable mineral reserves through
drilling and analysis, to develop metallurgical processes to extract metal, and to develop the mining and processing facilities
and infrastructure at any site chosen for mining. Although substantial benefits may be derived from the discovery of a major mineralized
deposit, no assurance can be given that minerals will be discovered in sufficient quantities to justify commercial operations or
that funds required for development can be obtained on a timely basis. The marketability of minerals which may be acquired or discovered
by the Company will be affected by numerous factors beyond the control of the Company and cannot be accurately predicted. These
factors include market fluctuations, the proximity and capacity of milling facilities, mineral markets and processing equipment,
and government regulations, including regulations relating to prices, taxes, royalties, land use, importing and exporting of minerals
and environmental protection. The exact effect of these factors cannot be accurately predicted, but the combination of these factors
may result in the Company not receiving an adequate return on invested capital.
Mineral resource estimates are based
on interpretation and assumptions and could be inaccurate or yield less mineral production under actual conditions than is currently
estimated. Any material changes in these estimates will affect the economic viability of placing a property into production.
The mineral resource estimates included
in our reports are estimates only and no assurance can be given that any particular level of recovery of minerals will in fact
be realized or that an identified reserve or resource will ever qualify as a commercially mineable (or viable) deposit which can
be legally and economically exploited. The estimating of mineral resources and mineral reserves is a subjective process and the
accuracy of mineral resource and mineral reserve estimates is a function of the quantity and quality of available data, the accuracy
of statistical computations, and the assumptions used and judgments made in interpreting available engineering and geological information.
There is significant uncertainty in any mineral resource or mineral reserve estimate and the actual deposits encountered and the
economic viability of a deposit may differ materially from the Company’s estimates. In addition, the grade of mineralization
ultimately mined may differ from that indicated by drilling results and such differences could be material. Because we have not
commenced actual production, mineralization estimates, including mineral resource estimates, for the Livengood Gold Project may
require adjustments or downward revisions, and such adjustments or revisions may be material.
Until ore is actually mined and processed,
mineral resources, mineral reserves and grades of mineralization must be considered as estimates only. The grade of ore ultimately
mined, if any, may differ from that indicated by any pre-feasibility or definitive feasibility studies and drill results. There
can be no assurance that minerals recovered in small scale laboratory tests will be duplicated in large scale tests under on-site
conditions or in production scale operations. Extended declines in market prices for gold may render portions or all of our mineral
resources uneconomic and result in reduced reported mineralization or adversely affect the commercial viability determinations
reached by us. Material changes in estimates of mineralization, grades, stripping ratios, recovery rates or of our ability to extract
such mineralization may affect the economic viability of projects and the value of our Livengood Gold Project. The estimated resources
described in our reports should not be interpreted as assurances of mine life or of the profitability of future operations. Estimated
mineral resources and mineral reserves may have to be re-estimated based on changes in applicable commodity prices, further exploration
or development activity or actual production experience. This could materially and adversely affect estimates of the volume or
grade of mineralization, estimated recovery rates or other important factors that influence mineral resource or mineral reserve
estimates. Market price fluctuations for gold, silver or base metals, increased production costs or reduced recovery rates or other
factors may render any particular reserves uneconomical or unprofitable to develop at a particular site or sites. A reduction in
estimated reserves could require material write downs in investment in the affected mining property and increased amortization,
reclamation and closure charges.
Mineral resources are not mineral reserves and there is no assurance that any mineral resources
will ultimately be reclassified as proven or probable reserves. Mineral resources which are not mineral reserves do not have demonstrated
economic viability.
There are differences in U.S. and
Canadian practices for reporting reserves and resources.
Our reserve and resource estimates are
not directly comparable to those made in filings subject to SEC reporting and disclosure requirements, as we report reserves and
resources in accordance with Canadian practices. These practices are different from the practices used to report reserve and resource
estimates in reports and other materials filed with the SEC. It is Canadian practice to report measured, indicated and inferred
mineral resources (and in certain circumstances, deposits that are not measured, indicated or inferred mineral resources but that
are targeted for further exploration), which are generally not permitted in disclosure filed with the SEC by U.S. issuers. In the
United States and in Canada, mineralization may not be classified as a “reserve” unless the determination has been
made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made.
U.S. investors are cautioned not to assume that all or any part of measured, indicated or inferred mineral resources will ever
be converted into reserves.
Further, “inferred mineral resources”
have a great amount of uncertainty as to their existence and as to whether they can be mined legally or economically. Disclosure
of “contained ounces” is permitted disclosure under Canadian regulations if such disclosure includes the grade or quality
and the quantity for each category of mineral resource and mineral reserve; however, the SEC only permits issuers to report “resources”
as in place, tonnage and grade without reference to unit measures.
Accordingly, information concerning descriptions
of mineralization, reserves and resources contained in our reports may not be comparable to information made public by U.S. companies
subject to the reporting and disclosure requirements of the SEC.
Increased costs could affect our
ability to bring our projects into production and, once in production, our financial condition and ability to be profitable.
Management anticipates that costs at the
Livengood Gold Project will frequently be subject to variation from one year to the next due to a number of factors, such as changing
ore grade, metallurgy and revisions to mine plans, if any, in response to the physical shape and location of the ore body. In addition,
costs are affected by the price of commodities such as fuel, rubber and electricity. Such commodities are at times subject to volatile
price movements, including increases that could make production less profitable or not profitable at all. A material increase in
costs could also impact our ability to maintain operations and have a significant effect on the Company’s profitability.
The volatility of the price of gold
could adversely affect our future operations and, if warranted, our ability to develop our properties
.
Even if commercial quantities of mineral
deposits are discovered by the Company, there is no guarantee that a profitable market will exist for the sale of the metals produced,
if any. The Company’s long-term viability and profitability, the value of the Company’s properties, the market price
of its common shares and the Company’s ability to raise funding to conduct continued exploration and development, if warranted,
depend, in large part, upon the market price of gold. The decision to put a mine into production and to commit the funds necessary
for that purpose must be made long before the first revenue from production would be received. A decrease in the price of gold
may prevent the Company’s property from being economically mined or result in the write-off of assets whose value is impaired
as a result of lower gold prices.
The price of gold has experienced significant
movement over short periods of time, and is affected by numerous factors beyond the control of the Company, including economic
and political conditions, expectations of inflation, currency exchange fluctuations, interest rates, global or regional demand,
sale or purchase of gold by various central banks and financial institutions, speculative activities and increased production due
to improved mining and production methods. The volatility of mineral prices represents a substantial risk which no amount of planning
or technical expertise can fully eliminate. There can be no assurance that the price of gold will be such that any such deposits
can be mined at a profit. The volatility in gold prices is illustrated by the following table, which presents the high, low and
average fixed price in U.S. dollars for an ounce of gold, based on the London Bullion Market Association P.M. fix, over
the past five years:
|
|
High
|
|
|
Low
|
|
|
Average
|
|
2014
|
|
$
|
1,385
|
|
|
$
|
1,142
|
|
|
$
|
1,266
|
|
2015
|
|
$
|
1,296
|
|
|
$
|
1,049
|
|
|
$
|
1,159
|
|
2016
|
|
$
|
1,366
|
|
|
$
|
1,077
|
|
|
$
|
1,250
|
|
2017
|
|
$
|
1,346
|
|
|
$
|
1,151
|
|
|
$
|
1,257
|
|
2018
|
|
$
|
1,355
|
|
|
$
|
1,178
|
|
|
$
|
1,269
|
|
January 1, 2019 to March 8, 2019
|
|
$
|
1,344
|
|
|
$
|
1,280
|
|
|
$
|
1,304
|
|
Our results of operations could be
affected by currency fluctuations.
The
Livengood Gold Project is located in the United States, with most costs associated with the Project paid in U.S. dollars, and the
Company maintains its accounts in Canadian and U.S. dollars, making it subject to foreign currency fluctuations. There can be significant
swings in the exchange rate between the U.S. and Canadian dollar. There are no plans at this time to hedge against any exchange
rate fluctuations in currencies. Adverse foreign currency fluctuations may cause losses and materially affect the Company’s
financial position and results.
Resource exploration, development
and production involve a high degree of risk and we do not maintain insurance with respect to certain of these risks, which exposes
us to significant risk of loss.
Resource exploration, development and production
involve a high degree of risk. Our operations are, and any future development or mining operations we may conduct will be, subject
to all of the operating hazards and risks normally incident to exploring for and development of mineral properties, such as, but
not limited to:
|
·
|
economically insufficient mineralized material;
|
|
·
|
fluctuation in exploration, development and production costs;
|
|
·
|
unanticipated variations in grade and other geologic problems;
|
|
·
|
difficult surface or underground conditions;
|
|
·
|
mechanical and equipment failure;
|
|
·
|
failure of pit walls or dams;
|
|
·
|
metallurgical and other processing problems;
|
|
·
|
unusual or unexpected rock formations;
|
|
·
|
personal injury, cave-ins, landslides, flooding, fire, explosions, and rock-bursts;
|
|
·
|
periodic interruptions due to inclement or hazardous weather conditions; and
|
|
·
|
decrease in the value of mineralized material due to lower gold prices.
|
These risks could result in damage to,
or destruction of, mineral properties, facilities or other property, personal injury, environmental damage, delays in operations,
increased cost of operations, monetary losses and possible legal liability. Although the Company maintains or can be expected to
maintain insurance within ranges of coverage consistent with industry practice, no assurance can be given that the Company will
be able to obtain insurance to cover all of these risks at economically feasible premiums or at all. The Company may elect not
to insure where premium costs are disproportionate to the Company’s perception of the relevant risks. The payment of such
insurance premiums and of such liabilities would reduce the funds available for exploration and production activities, if warranted.
Should events such as these that are not covered by insurance arise, they could reduce or eliminate our assets and shareholder
equity as well as result in increased costs and a decline in the value of our assets or common shares.
We may not be able to obtain all
required permits and licenses to place any of our properties into production.
The current and future operations of the
Company require licenses and permits from various governmental authorities. There can be no assurance that the Company will be
able to obtain all necessary licenses and permits that may be required to carry out exploration, development and mining operations
at its projects, on reasonable terms or at all. Costs related to applying for and obtaining permits and licenses may be prohibitive
and could delay our planned exploration and development activities. Failure to comply with permitting requirements may result in
enforcement actions, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed,
and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions.
Delays in obtaining, or a failure to obtain, any such licenses and permits, or a failure to comply with the terms of any such licenses
and permits that the Company does obtain, could delay or prevent production of the Livengood Gold Project and have a material adverse
effect on the Company.
Title to the Livengood Gold Project
may be subject to defects in title or other claims, which could affect our property rights and claims.
There are risks that title to the Livengood
Gold Project may be challenged or impugned. The Livengood Gold Project is located in the State of Alaska and may be subject to
prior unrecorded agreements or transfers or native land claims, and title may be affected by undetected defects. There may be valid
challenges to the title of the Livengood Gold Project which, if successful, could impair development or operations. This is particularly
the case in respect of those portions of our properties in which we hold our interest solely through a lease with the claim holders,
as such interest is substantially based on contract and has been subject to a number of assignments (as opposed to a direct interest
in the property).
Some of the mining claims at the Livengood
Gold Project are U.S. federal or Alaska state “unpatented” mining claims. There is a risk that a portion of such unpatented
mining claims could be determined to be invalid, in which case the Company could lose the right to mine any minerals contained
within those mining claims. Unpatented mining claims are created and maintained in accordance with the applicable U.S. federal
and Alaska state mining laws. Unpatented mining claims are unique property interests and are generally considered to be subject
to greater title risk than other real property interests due to the validity of unpatented mining claims often being uncertain.
This uncertainty arises, in part, out of the complex federal and state laws and regulations under the provisions of the U.S.
General
Mining Law of 1872
(the “Mining Law”). Unpatented mining claims are always subject to possible challenges of third
parties or validity contests by the United States federal government or the Alaska state government, as applicable. The validity
of an unpatented mining claim, in terms of both its location and its maintenance, is dependent on strict compliance with a complex
body of federal and state statutory and decisional law. Title to the unpatented mining claims may also be affected by undetected
defects such as unregistered agreements or transfers and there are few public records that definitively determine the issues of
validity and ownership of unpatented mining claims. The Company has not obtained full title opinions for the majority of its mineral
properties. Not all the mineral properties in which the Company has an interest have been surveyed, and their actual extent and
location may be in doubt. Should the federal government impose a royalty or additional tax burdens on the properties that lie within
public lands, the resulting mining operations could be seriously impacted, depending upon the type and amount of the burden.
The leases and agreements pursuant to which
the Company has interests, or the right to acquire interests, in a significant portion of the Livengood Gold Project provide that
the Company must make a series of cash payments over certain time periods or expend certain minimum amounts on the exploration
of the properties. Failure by the Company to make such payments or make such expenditures in a timely fashion may result in the
Company losing its interest in such properties. There can be no assurance that the Company will have, or be able to obtain, the
necessary financial resources to be able to maintain all of its property agreements in good standing, or to be able to comply with
all of its obligations thereunder, which could result in the Company forfeiting its interest in one or more of its mineral properties.
The Company may not have and may
not be able to obtain surface or access rights to all or a portion of the Livengood Gold Project.
Although the Company acquires the rights
to some or all of the minerals in the ground subject to the mineral tenures that it acquires, or has a right to acquire, in most
cases it does not thereby acquire any rights to, or ownership of, the surface to the areas covered by its mineral tenures. In such
cases, applicable mining laws usually provide for rights of access to the surface for the purpose of carrying on mining activities,
however, the enforcement of such rights through the courts can be costly and time consuming. It is necessary to negotiate surface
access or to purchase the surface rights if long-term access is required. There can be no guarantee that, despite having the right
at law to access the surface and carry on mining activities, the Company will be able to negotiate satisfactory agreements with
any such existing landowners/occupiers for such access or purchase such surface rights, and therefore it may be unable to carry
out planned exploration or mining activities. In addition, in circumstances where such access is denied, or no agreement can be
reached, the Company may need to rely on the assistance of local officials or the courts in such jurisdiction the outcomes of which
cannot be predicted with any certainty. The inability of the Company to secure surface access or purchase required surface rights
could materially and adversely affect the timing, cost or overall ability of the Company to develop any mineral deposits it may
locate.
Our properties and operations may
be subject to litigation or other claims.
From time to time our properties or operations
may be subject to disputes which may result in litigation or other legal claims. We may be required to assert or defend against
these claims which will divert resources and management time from operations. The costs of these claims or adverse filings may
have a material effect on our business and results of operations.
We are subject to significant governmental
regulations which affect our operations and costs of conducting our business.
Any exploration activities carried on by
the Company are, and any future development or mining operations we may conduct will be, subject to extensive laws and regulations
governing various matters, including:
|
·
|
mineral concession acquisition, exploration, development, mining and production;
|
|
·
|
management of natural resources;
|
|
·
|
exports, price controls, taxes and fees;
|
|
·
|
labor standards on occupational health and safety, including mine safety;
|
|
·
|
post-closure reclamation;
|
|
·
|
environmental standards, waste disposal, toxic substances, explosives, land use and environmental
protection; and
|
|
·
|
dealings with indigenous peoples and historic and cultural preservation.
|
Companies engaged in exploration activities
often experience increased costs and delays in production and other schedules as a result of the need to comply with applicable
laws, regulations and permits. Failure to comply with applicable laws, regulations and permits may result in civil or criminal
fines or penalties, enforcement actions thereunder, including the forfeiture of claims, orders issued by regulatory or judicial
authorities requiring operations to cease or be curtailed, and may include corrective measures requiring capital expenditures,
installation of additional equipment or costly remedial actions, any of which could result in the Company incurring significant
expenditures. The Company may also be required to compensate third parties suffering loss or damage as a result of our mineral
exploration activities and may have civil or criminal fines or penalties imposed for violations of such laws, regulations and permits.
It is also possible that future laws and
regulations could cause additional expense, capital expenditures, restrictions on or suspension of the Company’s operations
and delays in the exploration and development of the Company’s properties.
Legislation has been proposed that
would significantly affect the mining industry and our business.
In recent years, members of the United
States Congress have repeatedly introduced bills which would supplant or alter the provisions of the Mining Law. If adopted, such
legislation, among other things, could eliminate or greatly limit the right to a mineral patent, impose federal royalties on mineral
production from unpatented mining claims located on United States federal lands (which includes certain of the mining claims at
the Livengood Gold Project), result in the denial of permits to mine after the expenditure of significant funds for exploration
and development, reduce estimates of mineral reserves and reduce the amount of future exploration and development activity on U.S.
federal lands, all of which could have a material and adverse effect on the Company’s ability to operate and its cash flow,
results of operations and financial condition.
Our activities are subject to environmental
laws and regulations that may increase our costs of doing business and restrict our operations.
The
activities of the Company are subject to environmental regulations in the jurisdictions in which we operate. Environmental legislation
generally provides for restrictions and prohibitions on spills, releases or emissions into the air, discharges into water, management
of waste, management of hazardous substances, protection of natural resources, antiquities and endangered species and reclamation
of lands disturbed by mining operations. Certain types of operations require the submission and approval of environmental impact
assessments. Environmental legislation is evolving in a manner involving stricter standards and enforcement, increased fines and
penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility
for companies and their officers, directors and employees.
Compliance with environmental laws and regulations and future
changes in these laws and regulations may require significant capital outlays, cause material changes or delays in our current
and planned operations and future activities and reduce the profitability of operations. It is possible that future changes in
these laws or regulations could have a significant adverse impact on the Livengood Gold Project or some portion of our business,
causing us to re-evaluate those activities at that time.
Examples of current U.S. federal laws which
may affect our current operations and may impact future business and operations include, but are not limited to, the following:
The Comprehensive Environmental, Response,
Compensation, and Liability Act (“CERCLA”), and comparable state statutes, impose strict, joint and several liability
on current and former owners and operators of sites and on persons who disposed of or arranged for the disposal of hazardous substances
found at such sites. It is not uncommon for the government to file claims requiring cleanup actions, demands for reimbursement
for government-incurred cleanup costs, or natural resource damages, or for neighboring landowners and other third parties to file
claims for personal injury and property damage allegedly caused by hazardous substances released into the environment. The Federal
Resource Conservation and Recovery Act (“RCRA”), and comparable state statutes, govern the disposal of solid waste
and hazardous waste and authorize the imposition of substantial fines and penalties for noncompliance, as well as requirements
for corrective actions. CERCLA, RCRA and comparable state statutes can impose liability for clean-up of sites and disposal of substances
found on exploration, mining and processing sites long after activities on such sites have been completed.
The Clean Air Act (“CAA”) restricts
the emission of air pollutants from many sources, including mining and processing activities. Our mining operations may produce
air emissions, including fugitive dust and other air pollutants from stationary equipment, storage facilities and the use of mobile
sources such as trucks and heavy construction equipment, which are subject to review, monitoring or control requirements under
the CAA and state air quality laws. New facilities may be required to obtain permits before work can begin, and existing facilities
may be required to incur capital costs in order to remain in compliance. In addition, permitting rules may impose limitations on
our production levels or result in additional capital expenditures in order to comply with the regulations.
The National Environmental Policy Act (“NEPA”)
requires federal agencies to integrate environmental considerations into their decision-making processes by evaluating the environmental
impacts of their proposed actions, including issuance of permits to mining facilities, and assessing alternatives to those actions.
If a proposed action could significantly affect the environment, the agency must prepare a detailed statement known as an Environmental
Impact Statement (“EIS”). The U.S. Environmental Protection Agency (“EPA”), other federal agencies, and
any interested third parties will review and comment on the scoping of the EIS and the adequacy of and findings set forth in the
draft and final EIS. We are required to undertake the NEPA process for the Livengood Gold Project permitting. The NEPA process
can cause delays in issuance of required permits or result in changes to a project to mitigate its potential environmental impacts,
which can in turn impact the economic feasibility of a proposed project or the ability to construct or operate the Livengood Gold
Project or other properties and may make them entirely uneconomic.
The Clean Water Act (“CWA”),
and comparable state statutes, impose restrictions and controls on the discharge of pollutants into waters of the United States.
The discharge of pollutants into regulated waters is prohibited, except in accordance with the terms of a permit issued by the
EPA or an analogous state agency. The CWA regulates storm water mining facilities and requires a storm water discharge permit for
certain activities. Such a permit requires the regulated facility to monitor and sample storm water run-off from its operations.
The CWA and regulations implemented thereunder also prohibit discharges of dredged and fill material in wetlands and other waters
of the United States unless authorized by an appropriately issued permit. The CWA and comparable state statutes provide for civil,
criminal and administrative penalties for unauthorized discharges of pollutants and impose liability on parties responsible for
those discharges for the costs of cleaning up any environmental damage caused by the release and for natural resource damages resulting
from the release.
The Safe Drinking Water Act (“SDWA”)
and the Underground Injection Control (“UIC”) program promulgated thereunder, regulate the drilling and operation of
subsurface injection wells. The EPA directly administers the UIC program in some states and in others the responsibility for the
program has been delegated to the state. The program requires that a permit be obtained before drilling a disposal or injection
well. Violation of these regulations or contamination of groundwater by mining related activities may result in fines, penalties,
and remediation costs, among other sanctions and liabilities under the SDWA and state laws. In addition, third party claims may
be filed by landowners and other parties claiming damages for alternative water supplies, property damages, and bodily injury.
Regulations and pending legislation
governing issues involving climate change could result in increased operating costs, which could have a material adverse effect
on our business.
A number of governments or governmental
bodies have introduced or are contemplating regulatory changes in response to various climate change interest groups and the potential
impact of climate change. Legislation and increased regulation regarding climate change could impose significant costs on us, our
future partners and our suppliers, including costs related to increased energy requirements, capital equipment, environmental monitoring
and reporting and other costs to comply with such regulations. Any adopted future climate change regulations could also negatively
impact our ability to compete with companies situated in areas not subject to such limitations. Given the emotion, political significance
and uncertainty around the impact of climate change and how it should be dealt with, we cannot predict how legislation and regulation
will affect our financial condition, operating performance and ability to compete. Furthermore, even without such regulation, increased
awareness and any adverse publicity in the global marketplace about potential impacts on climate change by us or other companies
in our industry could harm our reputation. The potential physical impacts of climate change on our operations are highly uncertain
and would be particular to the geographic circumstances in areas in which we operate. These may include changes in rainfall and
storm patterns and intensities, water shortages, changing sea levels and changing temperatures. These impacts may adversely impact
the cost, production and financial performance of our operations.
Land reclamation requirements for
our properties may be burdensome and expensive in the future.
Land reclamation requirements are generally
imposed on mineral exploration companies (as well as companies with mining operations) in order to minimize long term effects of
land disturbance. Reclamation may include requirements to:
|
·
|
control dispersion of potentially deleterious effluents;
|
|
·
|
treat ground and surface water to drinking water standards; and
|
|
·
|
reasonably re-establish pre-disturbance land forms and vegetation.
|
In order to carry out reclamation obligations
imposed on us in connection with the potential development activities at the Livengood Gold Project, we must allocate financial
resources that might otherwise be spent on further exploration and development programs. We plan to set up a provision for reclamation
obligations on the Livengood Gold Project, as appropriate, but this provision may not be adequate. If we are required to carry
out unanticipated reclamation work, our financial position could be adversely affected.
The mining industry is intensely
competitive, and we have limited financial and personnel resources with which to compete
.
The Company’s business of the acquisition,
exploration and development, if warranted, of mineral properties is intensely competitive. The Company may be at a competitive
disadvantage in acquiring additional mining properties because it must compete with other individuals and companies, many of which
may have greater financial resources, operational experience and technical capabilities than the Company. The Company may also
encounter increasing competition from other mining companies in efforts to hire experienced mining professionals. Increased competition
could adversely affect the Company’s ability to attract necessary capital funding, acquire suitable producing properties
or prospects for mineral exploration in the future, or attract or retain key personnel or outside technical resources.
A shortage of equipment and supplies
could adversely affect our ability to operate our business
.
We are dependent on various supplies and
equipment to carry out our exploration and, if warranted, development and mining operations. The shortage of such supplies, equipment
and parts could have a material adverse effect on our ability to carry out our operations and therefore limit or increase the cost
of production.
We are dependent on key personnel
and the absence of any of these individuals could adversely affect our business. We may experience difficulty attracting and retaining
qualified personnel.
Our
success is largely dependent on the performance and abilities of our directors, officers, employees and management and on our ability
to attract and retain additional key personnel in exploration, mine development, sales, marketing, technical support and finance.
In addition, t
he Company has relied and may continue to rely upon consultants and others for operating expertise. There
is no assurance that we will be able to maintain the services of our directors, officers, employees or other qualified personnel
required to operate our business.
The loss of the
services of these persons could
have a material adverse effect on our business and prospects.
Recruiting and retaining qualified
personnel is critical to our success and there can be no assurance we will be able to recruit and retain such personnel. The number
of persons skilled in the acquisition, exploration and development of mineral properties is limited and competition for such persons
is intense. If we are not successful in attracting and retaining qualified personnel, our ability to develop our properties could
be affected, which could have a material adverse effect on our business, results of operations, cash flows and financial condition.
We do not maintain “key man” life insurance policies on any of our officers or employees.
Canadian investors may not be able
to enforce their civil liabilities against us.
It may be difficult for Canadian investors
to bring and enforce suits against us. As substantially all of the assets of the Company and its subsidiaries are located outside
of Canada, and certain of the directors and officers of the Company are resident outside of Canada, it may be difficult or impossible
for Canadian investors to enforce judgments granted by a court in Canada against the assets of the Company or the directors and
officers of the Company residing outside of Canada. A shareholder should not assume that the courts of the United States (i) would
enforce judgments of Canadian courts obtained in actions against us or such persons predicated upon the civil liability provisions
of the Canadian securities laws or other laws of Canada, or (ii) would enforce, in original actions, liabilities against us or
such persons predicated upon Canadian securities laws or other laws of Canada.
Our ability to use our net operating
loss carryforwards to offset future taxable income may be subject to certain limitations
.
In general, under Section 382 of the U.S.
Internal Revenue Code of 1986, as amended (the “Code”), a corporation that undergoes an “ownership change”
is subject to limitations on its ability to utilize its pre-change net operating loss carryforwards (“NOLs”) to offset
future taxable income. Similarly, where control of a corporation has been acquired by a person or group of persons, subsection
111(5) of the Canadian Income Tax Act (“Canadian Tax Act”), and equivalent provincial income tax legislation restrict
the corporation’s ability to carry forward non-capital losses from preceding taxation years. Our existing NOLs may be subject
to limitations arising from previous ownership changes. Future changes in our stock ownership, some of which are outside of our
control, could result in an ownership change under Section 382 of the Code or an acquisition of control for the purposes of subsection
111(5) of the Canadian Tax Act, and adversely affect our ability to utilize our NOLs in the future. There is also a risk that due
to regulatory changes, such as suspensions on the use of NOLs, or other unforeseen reasons, our existing NOLs could expire or otherwise
be unavailable to offset future income tax liabilities. For these reasons, we may not be able to utilize a material portion of
the NOLs reflected on our balance sheet, even if we attain profitability.
Risks Related to Our Common Shares
Our share price may be volatile and
as a result you could lose all or part of your investment
.
In recent years, the securities markets
in the United States and Canada have experienced a high level of price and volume volatility, and the market price of securities
of many companies, particularly those considered exploration or development stage companies, have experienced wide fluctuations
in price which have not necessarily been related to the operating performance, underlying asset values or prospects of such companies.
It may be anticipated that any quoted market for our common shares will be subject to market trends and conditions generally, notwithstanding
any potential success we have in creating revenues, cash flows or earnings. The price of our common shares has been subject to
price and volume volatility in the past. In 2018, the price of our common shares on the Toronto Stock Exchange ranged from a low
of C$0.48 to a high of C$0.94, and on the NYSE American ranged from a low of $0.36 to a high of $0.75. From January 1, 2019 to
March 8, 2019, the price of our common shares on the TSX ranged from a low of C$0.67 to a high of C$0.85, and on the NYSE American
ranged from a low of $0.49 to a high of $0.64. There can be no assurance that significant fluctuations in the trading price of
the Company’s common shares will not continue to occur, or that such fluctuations will not materially adversely impact the
Company’s ability to raise equity funding without significant dilution to its existing shareholders, or at all. As a result,
our shareholders may be unable to resell their shares at a desired price.
Future sales of our securities in
the public or private markets will dilute our current shareholders and could adversely affect the trading price of our common shares
and our ability to continue to raise funds in new stock offerings.
It is likely that the Company will sell
common shares or securities exercisable or convertible into common shares in the future. The Company may issue securities on less
than favorable terms to raise sufficient capital to fund its business plan. Any transaction involving the issuance of equity securities
or securities convertible into common shares would result in dilution, possibly substantial, to present and prospective holders
of common shares, could adversely affect the trading prices of our common shares, and could impair our ability to raise capital
through future offerings of securities.
We have never paid dividends on our
common shares
.
We have not paid dividends on our common
shares to date, and we may not be in a position to pay dividends for the foreseeable future. Our ability to pay dividends will
depend on our ability to successfully develop the Livengood Gold Project and generate earnings from operations. Further, our initial
earnings, if any, will likely be retained to finance our operations. Any future dividends will depend upon our earnings, our then-existing
financial requirements and other factors, and will be at the discretion of the Board.
Our business is subject to evolving
corporate governance and public disclosure regulations that have increased both our compliance costs and the risk of noncompliance,
which could have an adverse effect on our stock price.
We are subject to changing rules and regulations
promulgated by a number of governmental and self-regulated organizations, including the British Columbia Securities Commission,
the SEC, the TSX, the NYSE American, and the Financial Accounting Standards Board. These rules and regulations continue to evolve
in scope and complexity and many new requirements have been created in response to laws enacted by the United States Congress,
making compliance more difficult and uncertain. For example, on July 21, 2010, the United States Congress passed the Dodd-Frank
Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) with increased disclosure obligations for public
companies and mining companies in the United States. Our efforts to comply with the Dodd-Frank Act and other new regulations have
resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of management
time and attention from operating activities to compliance activities.
We believe that we likely were a
passive foreign investment company (“PFIC”) during the fiscal year ended December 31, 2018, which may result in adverse
U.S. federal income tax consequences to U.S. holders.
We believe that we likely were a PFIC for
U.S. federal income tax purposes during the fiscal year ended December 31, 2018, and we expect that we will be a PFIC in the current
year and that we may continue to be classified as a PFIC in future years. The determination of whether or not the Company is a
PFIC is a factual determination dependent on a number of factors and cannot be made until the close of the applicable tax year.
Accordingly, no assurances can be given regarding the Company’s PFIC status for the current year or any future year. If ITH
is a PFIC at any time during a U.S. holder’s holding period, then certain potentially adverse tax consequences could apply
to such U.S. holder’s acquisition, ownership, and disposition of common shares. For more information, please see the discussion
in “Certain U.S. Federal Income Tax Considerations for U.S. Holders” below.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM
2. PROPERTIES
LIVENGOOD
GOLD PROJECT, ALASKA
The Company currently holds, or has rights
to acquire, ownership or leasehold interests in a group of adjacent mineral properties in Alaska which are collectively referred
to as the “Livengood Gold Project.” The Livengood Gold Project is located approximately 113 km (70 miles) by road northwest
of Fairbanks, Alaska and approximately 65 km (40 miles) north of the boundary of the Fairbanks North Star Borough as shown in Figure
1 below. The project lies within the Tolovana Mining District in the northern part of the Tintina Gold Belt. The Company’s
primary focus is to continue to advance the Livengood Gold Project with the objective of assessing its viability for commercial
gold mining.
The Company is in the process of optimizing
the Livengood Gold Project and does not mine, produce or sell any mineral products at this time. The Company controls 100% of the
Livengood Gold Project, which has a current (as at August 26, 2016) mineral resource of 497 million measured tonnes at an average
grade of 0.68 g/tonne (10.84 million ounces), 28 million indicated tonnes at an average grade of 0.69 g/tonne (0.62 million ounces)
and 53 million inferred tonnes at an average grade of 0.66 g/tonne (1.1 million ounces). In 2017 the Company issued the results
of a pre-feasibility study that was summarized in the April 2017 Report which converted a portion of the mineral resources at the
Project into proven reserves of 378 million tonnes at an average grade of 0.71 g/tonne (8.62 million ounces) and probable reserves
of 14 million tonnes at an average grade of 0.72 g/tonne (353,000 ounces) based on a gold price of $1,250 per ounce. All work presently
planned by the Company is directed at maintaining necessary environmental baseline activities at the Livengood Gold Project and
focusing efforts on Project optimization opportunities, including those identified in the April 2017 Report.
The Company relies upon consultants and
contractors to carry on many of its activities and, in particular, to carry out drilling programs at the Livengood Gold Project
and in connection with metallurgical test work, engineering and the preparation of technical reports on the Project. However, as
ITH expands its activities, it may choose to hire additional employees rather than relying on consultants.
Figure 1: Location
of the Livengood Gold Project
Accessibility, Climate, Local Resources,
Infrastructure and Physiography
The Livengood Gold Project is located approximately
113 km (70 miles) by road northwest of Fairbanks, Alaska in the Tolovana Mining District within the Tintina Gold Belt. The Project
area is centered on Money Knob, a local topographic high point. This feature and the adjoining ridgelines are the probable lode
gold source for the Livengood placer deposits which lie in the adjacent valleys which have been actively mined since 1914 and have
produced more than 500,000 ounces of gold.
The Livengood Gold Project straddles and
is accessed via the Elliot Highway, a paved, all weather road linking the north slope oil fields at Prudhoe Bay to central and
southern Alaska through Fairbanks. At present there are no full time residents in the former mining town of Livengood. A number
of unpaved roads have been developed in the area providing excellent access. A 427 m (1400-foot) runway is located 6 km (3.7 miles)
to the southwest near the former Alyeska Pipeline Company Livengood Camp and is suitable for light aircraft. The Livengood Gold
Project is also adjacent to the Alyeska Pipeline corridor, which transports crude oil from Prudhoe Bay south. This corridor contains
a fiber optic communications cable utilized at the Livengood Gold Project.
Topography at the site is eroded hills
and valleys with a general elevation difference of 200m (656 feet). The valleys generally contain active streams draining into
the Tolovana River system to the west.
The site is approximately 65 km (40 miles)
south of the Arctic Circle, and has a subarctic climate with long, cold winters and short, warm summers. Annual precipitation is
approximately 40 cm (16 inches). Average low temperatures in winter are -21
°
to
-28
°
Celsius (-6
°
to -18
°
Fahrenheit), with records reaching as low as -55
°
Celsius (-67
°
Fahrenheit). Exploration work on the Livengood Gold Project can be limited due to excessive snow cover and cold temperatures. In
general, surface sampling work is limited to May through September and surface drilling from March through November. Road-accessible
wetland areas may only be explored while frozen in the winter. Work to date on the site has been limited to exploration and geotechnical
drilling and environmental baseline activities. The Company does not have any plant or equipment at the site, relying on contractors
to perform the work.
The nearest community to Livengood Gold
Project is the village of Minto, a town with a population of approximately 204 located approximately 65 km (40 miles) southwest
by road. The Fairbanks metropolitan area has a population of approximately 100,000 people, and comprises the regional center with
hospitals, government offices, businesses and the University of Alaska, Fairbanks. The city is linked to southern Alaska along
a north-south transportation and utility corridor that includes two paved highways, a railroad to tide water, an interlinked electrical
grid, and communications infrastructure. Fairbanks has an international airport serviced daily by up to three major airlines.
In preliminary, nonbinding discussions,
the local utility in Fairbanks (Golden Valley Electrical Association) has indicated that 80-100 Megawatts of power could be available
to the Livengood Gold Project. Livengood would be connected to the local grid by building an 82 km (50 miles) 230-kVA line along
the pipeline corridor. Environmental baseline studies required for the electrical line construction started in 2011.
The April 2017 Report developed site layout
plans for the infrastructure required at the Livengood Gold Project. This included evaluating mine shops; process, water and tailing
management facilities; power; access roads; administration offices; and camp facilities.
Livengood Gold Project Lands
The Livengood Gold Project covers approximately
19,546 hectares (48,300 acres), all of which is controlled by the Company through TH Alaska. The Livengood Gold Project is comprised
of multiple land parcels: 100% owned patented mining claims, 100% owned State of Alaska mining claims, 100% owned federal unpatented
placer claims; land leased from the Alaska Mental Health Trust (“AMHT”); land leased from holders of state and federal
patented and unpatented mining and placer claims, and undivided interests in patented mining claims. The property and claims controlled
through ownership, leases or agreements are summarized below.
100% owned patented
mining claims
|
·
|
U.S. Mineral Survey 2447, located on lower Livengood Creek,
subject to the December 2011 land purchase agreement described below and further subject to an agreement to allow Larry Nelson,
as agent for Nelson Mining Company, to operate a placer mine on MS 2447 through February 2, 2020.
|
|
·
|
U.S. Mineral Survey 1956, located on lower Gertrude Creek, subject to a reserved royalty of 5%
of gross value held by Key Trust Company on behalf of the Luther Hess Trust.
|
|
·
|
With respect to portions of U.S. Mineral Survey 1626, located on lower Amy Creek:
|
|
100%
|
of No. 2 Above Discovery Any Creek,
|
|
100%
|
of No. 3 Above Discovery Amy Creek, and
|
|
100%
|
of Up Grade Association Bench
|
100% owned State of Alaska mining
claims
|
·
|
169 state claims acquired by purchase.
|
|
·
|
153 state claims acquired by location.
|
100% owned federal unpatented
placer claims
|
·
|
29 federal unpatented placer claims, subject to the December 2011 land purchase agreement described
below.
|
100% owned Livengood Placers,
Inc.,
a private Nevada corporation that is 100% owned by TH Alaska. Livengood Placers, Inc. is the record owner of the following:
|
·
|
29 patented claims, subject to the December 2011 land purchase agreement described below.
|
|
·
|
108 federal unpatented placer claims, subject to the December 2011 land purchase agreement described
below.
|
|
·
|
24 State of Alaska mining claims, subject to the December 2011 land purchase agreement described
below.
|
Leased property
|
·
|
Alaska Mental Health Trust Lease.
A lease of the AMHT mineral rights having a term commencing
July l, 2004 and extending 19 years until June 30, 2023, subject to further extensions beyond June 30, 2023 by either commercial
production or payment of an advance minimum royalty equal to 125% of the amount paid in year 19 and diligent pursuit of development.
The lease requires minimum work expenditures and advance minimum royalties which escalate annually with inflation. A net smelter
return (“NSR”) production royalty of between 2.5% and 5.0% (depending upon the price of gold) is payable to the lessor
with respect to the lands subject to this lease. In addition, an NSR production royalty of l% is payable to the lessor with respect
to the unpatented federal mining claims subject to the lease described in the Hudson/Geraghty Lease below and an NSR production
royalty of between 0.5% and 1.0% (depending upon the price of gold) is payable to the lessor with respect to the lands acquired
by the Company as a result of the purchase of Livengood Placers, Inc. in December 2011. As of December 31, 2018, there were 9,970
acres included in the AMHT lease.
|
|
·
|
Hudson/Geraghty Lease.
A lease of 20 federal unpatented lode mining claims having an initial
term of ten years commencing on April 21, 2003 and continuing for so long thereafter as advance minimum royalties are paid and
mining related activities, including exploration, continue on the property or on adjacent properties controlled by the Company.
The lease requires an advance minimum royalty of $50,000 on or before each anniversary date (all of which minimum royalties are
recoverable from production royalties). An NSR production royalty of between 2% and 3% (depending on the price of gold) is payable
to the lessors. The Company may purchase 1% of the royalty for $1,000,000.
|
|
·
|
Griffin Lease.
A lease of three patented lode claims having an initial term of ten years
commencing January 18, 2007, and continuing for so long thereafter as advance minimum royalties are paid. The lease requires an
advance minimum royalty of $20,000 on or before each anniversary date through January 18, 2017 and $25,000 on or before each subsequent
anniversary (all of which minimum royalties are recoverable from production royalties). An NSR production royalty of 3% is payable
to the lessors. The Company may purchase all interests of the lessors in the leased property (including the production royalty)
for $1,000,000 (less all minimum and production royalties paid to the date of purchase), of which $500,000 is payable in cash over
four years following the closing of the purchase and the balance of $500,000 is payable by way of the 3% NSR production royalty.
|
|
·
|
Tucker Lease.
A lease of two unpatented federal lode mining claims and four federal unpatented
placer claims having an initial term of ten years commencing on March 28, 2007, and continuing for so long thereafter as advance
minimum royalties are paid and mining related activities, including exploration, continue on the property or on adjacent properties
controlled by the Company. The lease requires an advance minimum royalty of $15,000 on or before each anniversary date (all of
which minimum royalties are recoverable from production royalties). The Company is required to pay the lessor the sum of $250,000
upon making a positive production decision, payable $125,000 within 120 days of the decision and $125,000 within a year of the
decision (all of which are recoverable from production royalties). An NSR production royalty of 2% is payable to the lessor. The
Company may purchase all of the interest of the lessor in the leased property (including the production royalty) for $1,000,000.
|
Patented claims (undivided interests
less than 100%)
|
·
|
An undivided 203/240th interest in that certain patented placer mining claim known as the “Kinney
Bench” claim, included within U.S. Mineral Survey No. 1626 on lower Amy Creek.
|
|
·
|
An undivided 53/90th interest in that certain patented placer mining claim known as the “Union
Bench Association” claim, included within U.S. Mineral Survey No. 1626 on lower Amy Creek.
|
|
·
|
An undivided 83/120th interest in that certain patented placer mining claim known as the “Bessie
Bench” claim, included within U.S. Mineral Survey No. 1626 on lower Amy Creek.
|
|
·
|
An undivided 23/60th interest in those certain patented placer mining claims known as the “War
Association” claim; the “Mutual Association” claim; and the “O.K. Fraction” claim, all included
within U.S. Mineral Survey No. 2033 on lower Amy Creek.
|
On State of Alaska lands, the state holds
both the surface and the subsurface rights. State of Alaska 40-acre mining claims require an annual rental payment of $35/claim
to be paid to the state (by November 30
th
of each year), for the first five years, $70 per year for the second five
years, and $170 per year thereafter. These rental rates are multiplied by 4 for each 160 acre claim. As a consequence of the annual
rentals due, all Alaska State Mining Claims have an expiry date of November 30th each year. In addition, there is a minimum annual
work expenditure requirement of $100 per 40-acre claim (due on or before noon on September 1 in each year) or cash-in-lieu thereof,
and an affidavit evidencing that such work has been performed is required to be filed on or before November 30th in each year.
Excess work can be carried forward for up to four years. If the rental is paid and the work requirements are met, the claims can
be held indefinitely. The work completed by the Company during the 2018 field season was filed as assessment work, and the value
of that work is sufficient to meet the assessment work requirements through September 1, 2021 on all State of Alaska mining claims.
Holders of State of Alaska mining claims
are also required to pay a production royalty on all revenue received from minerals produced on state land during each calendar
year. The production royalty rate is 3% of net income.
Holders of federal unpatented mining claims
are required to pay an annual rental of $140 per 20 acres.
All of the foregoing agreements are in
good standing and are transferable. The Company has taken reasonable steps to verify title to mineral properties in which it has
an interest. Except for the patented claims, none of the properties have been surveyed.
Holders of Federal and Alaska State unpatented
mining claims have the right to use the land or water included within mining claims only when necessary for mineral prospecting,
development, extraction, or basic processing, or for storage of mining equipment. However, the exercise of such rights is subject
to the appropriate permits being obtained.
December 2011 Land Purchase Agreement
In December 2011, the Company completed
a transaction to acquire certain mining claims and related rights in the vicinity of the Livengood Gold Project. This acquisition
included both mining claims and all of the shares of Livengood Placers, Inc. These assets were purchased on December 13, 2011 for
aggregate consideration of $36,600,000 allocated between cash consideration of $13,500,000 and a derivative liability of $23,100,000.
The derivative liability was a contingent payment based on the five-year average daily gold price (“Average Gold Price”)
from the date of the acquisition. The derivative liability equals $23,148 for every dollar that the Average Gold Price exceeds
$720 per troy ounce. The obligation to make the contingent payment was secured by a Deed of Trust over the rights of the Company
in the purchased claims in favor of the vendors. On January 12, 2017, the Company paid $14,694,169 for the timely and full satisfaction
of the final derivative payment, and on January 17, 2017, the Full Deed of Reconveyance releasing the Deed of Trust on the acquired
property was recorded. As a consequence, the Company now fully owns the subject properties and the shares of Livengood Placer,
Inc. and has no further liability to the vendors with respect to this acquisition.
The subject ground was previously vacant
or was used for placer gold mining. No placer mineral reserves or mineral resources have been established on the ground subject
to this agreement. However, records exist for 2,370 placer drill holes that have been completed on the subject ground between 1933
and 2011. Of these, the 945 holes completed between 1933 and 1984 were primarily 6” churn drill holes. The 1,425 drill holes
completed between 1984 and 2000 were 8” reverse circulation (RC) rotary drill holes utilizing a center return tri-cone bit.
All lands controlled by the Company, including the lands acquired pursuant to this agreement, were evaluated as appropriate for
integration into the April 2017 Report for the Livengood Gold Project.
Geology and Mineralization
The rocks at the Livengood Gold Project
are part of the Livengood Terrane, an east–west belt, approximately 240 km (149 miles) long, consisting of tectonically interleaved
assemblages of various ages. These assemblages include the Amy Creek Assemblage, a sequence of latest Proterozoic and/or early
Paleozoic basalt, mudstone, chert, dolomite, and limestone. An early Cambrian ophiolite sequence of mafic and ultramafic sea floor
rocks was thrust over the Amy Creek Assemblage and was, in turn, overthrust by a sequence of Devonian shale, siltstone, conglomerate,
volcanic, and volcaniclastic rocks, which are the dominant host to the mineralization currently under exploration at the Livengood
Gold Project. The Devonian assemblage was overthrust by a second klippe of Cambrian ophiolite rocks. All of these rocks are intruded
by Cretaceous multiphase monzonitic and syenitic dikes and sills. Gold mineralization is spatially and temporally associated with
these intrusive rocks.
Gold mineralization occurs in association
with disseminated arsenopyrite and pyrite in volcanic, sedimentary, and intrusive rocks, and in quartz veins cutting the more competent
lithologies, primarily volcanic rocks, sandstones, and, to a lesser degree, ultramafic rocks. Three principal stages of alteration
are currently recognized, an early biotite stage, followed by albite-quartz, and a late sericite-quartz assemblage. Carbonate appears
to have been introduced with and subsequent to these stages. Arsenopyrite and pyrite were introduced primarily during the albite-quartz
and sericite-quartz stages. Gold correlates strongly with arsenic and occurs primarily within and on the margins of arsenopyrite
and pyrite.
Mineralization is interpreted as intrusion-related,
consistent with other gold deposits of the Tintina Gold Belt, and has a similar As-Sb geochemical association. Mineralization is
controlled partly by lithologic units, but thrust-fold architecture was key to providing pathways for intrusive and associated
hydrothermal fluids.
Local fault and contact limits to mineralization
have been identified, but overall the deposit has not been closed off in any direction. The current resource and area drilled covers
the most significant portion of the area with anomalous gold in surface soil samples, but still represents only about 25% of the
total gold-anomalous area.
Among deposits of the Tintina Gold Belt,
mineralization at the Livengood Gold Project is most similar to the dike and sill-hosted mineralization at the Donlin Creek deposit,
where gold occurs in narrow quartz veins associated with dikes and sills of similar composition. The age of the intrusions and
the genetic link between the mineralization and intrusive rocks are typical of those of other nearby gold deposits of the Tintina
Gold Belt, which have been characterized as intrusion-related gold systems and for these reasons the Livengood Gold Project is
best classified with them.
History and Exploration
Gold was first discovered in the gravels
of Livengood Creek in 1914. Subsequently, over 500,000 ounces of placer gold were produced and the small town of Livengood was
established. From 1914 through the 1970’s, the primary focus of prospecting activity was placer deposits. Historically, prospectors
considered Money Knob and the associated ridgeline the source of the placer gold. Prospecting, in the form of dozer trenches, was
carried out for lode type mineralization in the vicinity of Money Knob primarily in the 1950’s. However, to date no significant
production has been derived from lode gold sources.
The geology and mineral potential of the
Livengood District have been investigated by state and federal agencies and explored by several companies over the past 40-plus
years. Modern mapping and sampling investigations were initially carried out by the U.S. Geological Survey in 1967 as part of a
heavy metal assessment program. Mapping completed in the course of this program recognized the essential rock relations, thrust
faulting, and mineralization associated with Devonian clastic rocks, the thrust system and intrusive rocks. Since then, the Livengood
placer deposits and the surrounding geology have featured in numerous investigations and mapping programs at various scales by
the U.S. Geological Survey and the Alaska State Division of Geological and Geophysical Surveys.
In addition to individuals prospecting
the area, since the 1970’s several mining companies, including Homestake, AMAX, Placer Dome, Cambior and AngloGold, have
investigated the potential for lode gold mineralization beneath the Livengood placers and on the adjacent hillsides, including
at Money Knob. Placer Dome’s work appears to have been the most extensive, but it was focused largely on the northern flank
of Money Knob and the valley of Livengood Creek.
The most recent round of exploration of
the Money Knob area began when AngloGold acquired the property in 2003 and undertook an 8-hole RC program on the Hudson-Geraghty
lease. The results from this program were encouraging and were followed up with an expanded soil geochemical survey which identified
gold-anomalous zones over Money Knob and to the east. Based on the results of this and prior (Cambior) soil surveys, 4 diamond
core holes were drilled in late 2004. Results from these two AngloGold drill programs were deemed favorable but no further work
was executed due to financial constraints and a shift in corporate strategy.
The Company acquired the Livengood Gold
Project in 2006 from AngloGold and has advanced the soil sampling coverage, undertook to drill surface geochemical anomalies and
conducted drilling campaigns on the Livengood Gold Project since that time.
In 2006, the Company conducted a 1,227
m, seven-hole program and continued to demonstrate the presence of mineralization over a broader area. The 2007 campaign consisted
of 15 diamond drill holes for a total of 4,411 m. These holes focused on extending and defining the volcanic-hosted mineralization
first recognized by AngloGold in 2003. However, as drilling progressed, it became clear that although mineralization is strongest
in the volcanic rocks, it occurs in all rock types at Money Knob.
Based on favorable results in 2007, the
2008 program consisted of 29,150 m of RC and 2,187 m core drilling in 109 and 9 holes, respectively. The drill program was designed
to improve definition and expand the resource calculated early in 2008 based on 2007 drill data. The 2008 drill program did not
identify limits to mineralization in any direction. Instead, a thicker mineralized zone (up to 200 m) was identified. In addition,
this campaign highlighted the fact that mineralization occurs in all rock types, not just in Devonian volcanic rocks, indicating
potential more widespread mineralization than envisioned prior to the 2008 drill program.
In 2009, the Company completed 12 diamond
drill holes totaling 4,572 m and 195 RC holes totaling 59,757 m. Six of the diamond drill holes were drilled across the NNW-trending
Core Zone in order to better understand the structural controls and to test the depth continuity of the mineralization. This drilling
confirmed that the Core Zone is the locus of a swarm of 0.2 - 1.0m thick southerly dipping dikes. In addition, a number of larger
(+10 m thick) steeply dipping NNW-trending dikes were observed, suggesting that ENE extension may have occurred at about the time
of dike magmatism. The RC holes were primarily targeted at grid infill drilling to improve resource estimation of the Core Zone
and a step-out program that led to discovery and delineation of the Sunshine and Tower Zones.
In 2010, the Company completed 40 diamond
drill holes totaling 13,631 m and 198 RC holes totaling 56,550 m. These holes, filled in between the Core and Sunshine Zones, expanded
the SW Zone and infilled to 50 m spacing in the Core and Sunshine Zones.
Nearly all drill holes at Money Knob have
been drilled in a northerly direction at an inclination of -50 degrees (RC) and -60 degrees (core) in order to best intercept the
south dipping structures and mineralized zones as close to perpendicular as possible. A few holes have been drilled in other directions
to test other features and aspects of mineralization. Most exploration holes have been spaced at 75m apart along lines 75m apart,
subsequent infill drilling in the center of 75m squares brings the nominal drill spacing to 50m for a significant portion of the
deposit. Core is recovered using triple tube techniques to ensure good recovery (>95%) and confidence in core orientation. RC
holes are bored and cased for the upper 0-30m to prevent down hole contamination and to help keep the hole open for ease of drilling
at greater depths.
In 2011, the Company continued with resource
definition drilling, completing 26,163m of RC drilling and 11,468m of diamond drilling. Two areas of the deposit, the Core and
Sunshine crosses, were selected for 15m-spaced RC in-fill drilling on crosses with north-south and east-west legs 150m in length.
A third area, Area 50 in the Sunshine Zone, measuring 195m by 240m, was drilled on a 37.5m grid with alternating core and RC drilling.
Two resources were generated for each volume using ordinary kriging on samples composited to 10m lengths: the first including those
portions of the 50m grid drilling within the volume; and a second using both the grid and close-spaced drilling within the same
volume. On average, the effect of the increased drilling density on tonnage, grade, and contained ounces of gold was less than
1% and confirmed the integrity of the previously reported resource estimate. In 2011, the Company broadened the scope of the field
program to include 2,240m of exploration drilling outside the resource area, as well as 8,932m of geotechnical drilling and 1,192m
of large diameter groundwater test wells.
In May 2012, the Company commenced an 18-hole
program of condemnation drilling to either sterilize or establish the presence of significant mineralization in the area surrounding
the Money Knob deposit. The purpose of the condemnation drilling program was to determine appropriate areas for infrastructure
development. Additionally, four of these holes are also being used for hydrological studies. The program was completed in July
2012 with 3,065m in 19 holes.
Also in May 2012, the Company commenced
multi-faceted drill programs consisting of hydraulic gradient, infrastructure, borrow source identification, and large-diameter
wells for pump tests. The hydraulic gradient and infrastructure drilling consisted of 5,826m in 49 holes utilizing core drilling.
The geotechnical and borrow source information was obtained from 2,695m drilled in 73 holes, utilizing core, sonic, and auger drilling
methods. Seven large diameter wells have been drilled for a total of 1,031m.
The drill program from February through
October 2012 totaled 15,731m in 199 holes.
No drill programs were completed during
2013.
The Company has not completed any material
exploration at the Project since 2014, but has focused on engineering, metallurgical studies, and environmental baseline.
Sample Preparation, Analyses and Security
The Company samples all holes from surface
to total depth, using defined procedures. For RC samples, pulverized material is passed through a cyclone to separate solids from
drilling fluids, then over a spinning conical splitter. The splitter is set to collect two identical splits of sample weighing
2-5 kg (4.4-11.0 pounds) each. Representative coarse material is collected and saved in chip trays for geological description.
Samples are put in pre-numbered, bar-coded bags by the drill site crew. One sample is submitted for analysis, and one sample is
kept for reference. Samples are secured on site and transported to a sample preparation facility operated by ALS Chemex in Fairbanks.
Core materials are collected at the drill
site and placed in core boxes. Run blocks, orientation blocks and depths are placed in the boxes at site. The core is transported
to a sample management facility at the Project, where it is described, then sawn in half. Half of the core is collected for assaying
and half remains for reference. Core samples are weighed before shipping.
The Company’s geologic work program
at Livengood was designed and is supervised by Chris Puchner, Chief Geologist of the Company, who is a qualified person as defined
by NI 43-101. Mr. Puchner is responsible for all aspects of the work, including the quality control/quality assurance program.
The quality assurance/quality control program implemented by the Company meets or exceeds industry standards. A quality assurance/quality
control program includes insertion of blanks and standards (1/10 samples) and duplicates (1/20 samples). Blanks help assess the
presence of any contamination introduced during sample preparation and help calibrate the low end of the assay detection limits.
Commercial standards are used to assess the accuracy of the analyses. Duplicates help assess the homogeneity of the sample material
and the overall sample variance. The Company has undertaken rigorous protocols to assure accurate and precise results. Among other
methods, weights are tracked throughout the various steps performed in the laboratory to minimize and track errors. A group of
2,096 metallic screen fire assays performed in 2011 did not indicate any bias in the matching fire assays.
On-site Project personnel photograph the
core from each individual borehole prior to preparing the split core. Duplicate RC drill samples are collected with one split sent
for analysis. Representative chips are retained for geological logging. On-site personnel at the Project log and track all samples
prior to sealing and shipping. All sample shipments are sealed and shipped to ALS Chemex in Fairbanks, Alaska, for preparation
and then on to ALS Chemex in Reno, Nevada, or Vancouver, B.C., for assay. ALS Chemex’s quality system complies with the requirements
for the International Standards ISO 9001:2000 and ISO 17025:1999. Analytical accuracy and precision are monitored by the analysis
of reagent blanks, reference material and replicate samples. Quality control is further assured by the use of international and
in-house standards. Finally, representative blind duplicate samples are forwarded to ALS Chemex and an ISO compliant third party
laboratory for additional quality control.
Data entry and database validation procedures
have been checked and found to conform to industry practices. Procedures are in place to minimize data entry errors. These include
pre-numbered, pre-tagged, bar-coded bags, and bar-coded data entry methods which relate all information to sample and drill interval
information. Likewise, data validation checks are run on all information used in the geologic modeling and resource estimation
process. Database entries for a random sample (10%) of drill holes used for the resource estimate were checked against the original
assay certificates by one of the independent authors of the April 2017 Report and the error rate was found to be within acceptable
limits.
Analysis of assay data from core and RC
sampling has been performed to check for downhole contamination of RC and to compare the data distributions produced by the two
methods. Analysis of RC data has not indicated cyclic down hole contamination. Decay analysis conducted on both core drilling and
RC drilling indicates similar patterns of monotonic grade increase or decrease. Comparison of the grade distributions between core
and RC data were conducted using Quantile-Quantile plots, and simulation of population means for different numbers of samples.
The comparison indicated that the mean of all core data was 4% lower than RC data. Comparison of core and RC data below the water
table showed similar population means, suggesting that down hole contamination was not occurring.
Core and RC check samples have been collected
during each drilling campaign by independent third parties. Results from these samples, as well as blanks and standards included,
are consistent with the Company’s initial results. This includes a similar increase in variance for samples at higher grades,
a pattern consistent with nugget effect. No systematic high or low bias has been observed.
April 2017 Report
In April 2017, the Company filed
the
April 2017 Report with respect to the
Livengood Gold Project, which indicates that the Project generates a minimal positive
return at a gold price of $1,250 per ounce. At the current gold price, the Project as contemplated in the April 2017 Report is
not commercially viable. Readers are encouraged to review the entire April 2017 Report on SEDAR, with particular emphasis on the
sensitivity analyses contained therein. Readers are cautioned that the NI 43-101 reports filed on SEDAR by the Company in September
of 2013 and October of 2016 are no longer considered current and should therefore no longer be relied upon by investors.
Environmental Studies, Permitting and Social
and Community Impacts
The Livengood Gold Project is currently
operating within compliance of all environmental regulations that apply during the exploration stage of major mineral projects.
The Company has received all necessary exploration permits for activities such as trenching, drill road building and drilling.
These permits are also reviewed by related state and federal agencies that can comment and require specific changes to the proposed
work plans to minimize impacts on the environment. The permitting process for major exploration projects generally requires 30-60
days for processing. The Company currently has all necessary permits with respect to its exploration activities in Alaska. Although
the Company has never had an issue with the timely processing of exploration permits there can be no assurances that delays in
permit approval will not occur. Reclamation of surface disturbance associated with exploration activities is conducted concurrently
where required.
The Company has been conducting extensive,
multi-disciplinary environmental baseline studies in and around the Project area since 2008 in order to understand the current
environmental conditions and to allow Project design to be optimized to minimize potential environmental effects. The environmental
baseline programs conducted or currently underway at the Project include:
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surface water and hydrology;
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groundwater hydrogeology;
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wetlands and vegetation;
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meteorology and air quality;
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aquatic life and resources;
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rock characterization; and
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geochemical characteristics.
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Based on review of the studies completed
to date, the Company believes that there are no known environmental issues that are anticipated to materially impact the Company’s
ability to conduct mining operations at the Project.
Looking forward to potential project development,
a site-specific monitoring plan and water management plan for both operations and post mine closure will be developed in conjunction
with detailed engineering and project permit planning. Development of the Livengood Gold Project will require a number of state
and federal permits. Federal permits will be issued pursuant to the National Environmental Policy Act (NEPA) and Council of Environmental
Quality (CEQ). In fulfillment of the NEPA requirements, the Livengood Gold Project will be required to prepare an Environmental
Impact Statement. Although at this time it is unknown which department will become the lead federal agency, the State of Alaska
is expected to take a cooperating role to coordinate the NEPA review with the State permit process. Actual permitting timelines
are controlled by the NEPA review and U.S. Federal and State agency decisions. There are no municipal or community agreements required
for the Livengood Gold Project.
ITEM 3. LEGAL PROCEEDINGS
We are periodically a party to or otherwise
involved in legal proceedings arising in the normal course of business. Management does not believe that there is any pending or
threatened proceeding against us which, if determined adversely, would have a material adverse effect on our financial position,
liquidity or results of operations.
ITEM 4. MINE SAFETY DISCLOSURES
Pursuant to Section 1503(a) of the Dodd-Frank
Act, issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the United States are
required to disclose specified information about mine health and safety in their periodic reports. These reporting requirements
are based on the safety and health requirements applicable to mines under the Federal Mine Safety and Health Act of 1977 (the “Mine
Act”) which is administered by the U.S. Department of Labor’s Mine Safety and Health Administration (“MSHA”).
During the fiscal year ended December 31, 2018, the Company and its subsidiaries were not subject to regulation by MSHA under the
Mine Act and thus no disclosure is required under Section 1503(a) of the Dodd-Frank Act.
PART II
ITEM 5. MARKET FOR REGISTRANT’S
COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Price Range of Common
Shares
The common shares of the Company are listed
and posted for trading on the TSX under the symbol “ITH”, on the NYSE American under the symbol “THM”,
and on the Frankfurt Stock Exchange under the symbol “-1I1-”. As at March 8, 2019, there were 187,111,857 common shares
issued and outstanding, and the Company had approximately 100 shareholders of record.
Dividends
Since its inception, ITH has not paid any
dividends. ITH has no present intention of paying any dividends, as it anticipates that all available funds will be invested to
finance the growth of its business. The Board will determine if and when dividends should be declared and paid in the future after
taking into account many factors, including ITH’s financial condition, operating results and anticipated cash needs at the
relevant time. There are no restrictions which prevent ITH from paying dividends.
Recent Sales of Unregistered Equity Securities
None.
Purchases of Equity Securities by the Issuer
and Affiliated Purchasers
None.
Exchange Controls
Canada has no system of exchange controls.
There are no Canadian restrictions on the repatriation of capital or earnings of a Canadian public company to non-resident investors.
There are no laws in Canada or exchange restrictions affecting the remittance of dividends, profits, interest, royalties and other
payments to non-resident holders of the Company’s securities, except as discussed in “Certain Canadian Federal Income
Tax Considerations for U.S. Resident Holders” below.
There are no limitations under the laws
of Canada or in the organizing documents of the Company on the right of foreigners to hold or vote securities of the Company, except
that the
Investment Canada Act
(Canada) may require review and approval by the Minister of Industry (Canada) of certain
acquisitions of “control” of the Company by a “non-Canadian.” The threshold for acquisitions of control
is generally defined as being one-third or more of the voting shares of the Company. “Non-Canadian” generally means
an individual who is not a Canadian citizen, or a corporation, partnership, trust or joint venture that is ultimately controlled
by non-Canadians.
Certain Canadian Federal Income Tax Considerations
for U.S. Resident Holders
This summary is applicable to a holder
of common shares of the Company who, for the purposes of the
Income Tax Act
(Canada) (the “Tax Act”) and
any applicable treaty and at all relevant times, is not (and is not deemed to be) resident in Canada, deals at arm’s length
and is not affiliated with the Company, does not (and is not deemed to) use or hold the common shares in, or in the course of,
carrying on a business in Canada, and is not an insurer that carries on an insurance business in Canada and elsewhere, and holds
the common shares as capital property.
This summary is based on the current provisions
of the Tax Act, the regulations thereunder, all specific proposals to amend such Act and regulations publicly announced by or on
behalf of the Minister of Finance (Canada) prior to the date hereof and the Company’s understanding of the administrative
policies and assessing practices published in writing by the Canada Revenue Agency prior to the date hereof. This summary does
not otherwise take into account any change in law or administrative policy or assessing practice, whether by judicial, governmental,
legislative or administrative decision or action, nor does it take into account other federal or provincial, territorial or foreign
tax consequences, which may vary from the Canadian federal income tax considerations described herein.
This summary is of a general nature only,
is not exhaustive of all Canadian federal income tax considerations, and it is not intended to be, nor should it be construed to
be, legal or tax advice to any holder of common shares and no representation with respect to Canadian federal income tax consequences
to any holder of common shares is made herein. Accordingly, holders of common shares should consult their own tax advisers with
respect to their individual circumstances.
Dividends on Common Shares
Canadian withholding tax at a rate of 25%
(subject to reduction under the provisions of any applicable tax treaty) will be payable on dividends (or amounts paid or credited
on account or in lieu of payment of, or in satisfaction of, dividends) paid or credited or deemed to have been paid or credited
to a holder of common shares. Under the
Canada–U.S. Income Tax Convention (1980)
, as amended (the “Canada–U.S.
Treaty”), the withholding tax rate is generally reduced to 15% for a holder entitled to the benefits of the Canada–U.S.
Treaty who is the beneficial owner of the dividends (or 5% if the holder is a company that owns at least 10% of the common shares).
Certain U.S.-resident entities that are
fiscally transparent for United States federal income tax purposes (including limited liability companies) may not in all circumstances
be entitled to the benefits of the Canada–U.S. Treaty. Members of or holders of an interest in such an entity that holds
common shares should consult their own tax advisers regarding the extent, if any, to which the benefits of the Canada–U.S.
Treaty will be extended to the entity in respect of its common shares.
Capital Gains and Losses
Subject to the provisions of any relevant
tax treaty, capital gains realized by a holder on the disposition or deemed disposition of common shares held as capital property
will not be subject to Canadian tax unless the common shares are “taxable Canadian property” (as defined in the Tax
Act), in which case the capital gains will be subject to Canadian tax at rates which will approximate those payable by a Canadian
resident.
Common shares of the Company generally
will not be “taxable Canadian property” to a holder provided that, at the time of the disposition or deemed disposition,
the common shares are listed on a designated stock exchange (which currently includes the TSX and NYSE American), unless at any
time during the 60-month period that ends at that time: (a) one or any combination of (i) such holder, (ii) persons
not dealing at arm’s length with such holder and (iii) partnerships in which such holder or a person described in (ii)
holds a membership interest directly or indirectly through one or more partnerships, owned 25% or more of the issued shares of
any class or series of the capital stock of the Company; and (b) more than 50% of the fair market value of the common shares
disposed of was derived directly or indirectly from one or any combination of real or immovable property situated in Canada, “Canadian
resource properties” (as defined in the Tax Act), “timber resource properties” (as defined in the Tax Act), and
options in respect of, or interests in, or civil law rights in, any such properties (whether or not such property exists). In certain
circumstances set out in the Tax Act, the common shares may be deemed to be “taxable Canadian property”.
Under the Canada–U.S. Treaty, a holder
entitled to the benefits of the Canada–U.S. Treaty and to whom the common shares are “taxable Canadian property”
will not be subject to Canadian tax on the disposition or deemed disposition of the common shares unless at the time of disposition
or deemed disposition, the value of the common shares is derived principally from real property situated in Canada.
Certain U.S. Federal Income Tax Considerations
for U.S. Holders
The following is a discussion of certain
material U.S. federal income tax consequences to U.S. Holders (as defined below) of acquiring, owning, and disposing of our common
shares. This discussion does not purport to be a comprehensive description of all of the U.S. tax considerations that may be relevant
to a particular investor’s decision to acquire the common shares, including any state, local or non-U.S. tax consequences
of acquiring, owning, and disposing of common shares. This discussion applies only to those U.S. Holders that hold common shares
as capital assets for U.S. tax purposes (generally, for investment and not in connection with the carrying on of a trade or business)
and does not address all aspects of U.S. federal income tax law that may be relevant to investors that are subject to special or
different treatment under U.S. federal income tax law (including, for example, a holder liable for the alternative minimum tax
or a holder that actually or constructively owns 10% or more by voting power or value of our common shares). This discussion is
based on the U.S. Internal Revenue Code of 1986, as amended (the “Code”), its legislative history, existing and proposed
U.S. Treasury regulations, published rulings and other administrative guidance of the U.S. Internal Revenue Service (the “IRS”)
and court decisions, all as in effect on the date hereof. These laws are subject to change or differing interpretation by the IRS
or a court, possibly on a retroactive basis. This discussion also assumes that the Company is not, and will not become, a controlled
foreign corporation (“CFC”) as defined for U.S. federal income tax purposes.
As used herein, the term “U.S. Holder”
means a beneficial owner of our common shares that is:
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an
individual citizen or resident of the United States;
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a
corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in the United
States or under the laws of the United States, any state or political subdivision thereof, or the District of Columbia;
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an
estate, the income of which is subject to U.S. federal income tax regardless of its source; or
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a
trust (i) if a U.S. court is able to exercise primary supervision over the trust’s administration and one or more U.S. persons
are authorized to control all substantial decisions of the trust or (ii) that has a valid election in effect to be treated as
a U.S. person under applicable U.S. Treasury regulations.
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If a partnership (including any entity
treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of the common shares, the U.S. tax treatment
of a partner in the partnership generally will depend on the status of the partner and the activities of the partnership. A holder
of the common shares that is a partnership and partners in such a partnership should consult their own tax advisors about the U.S.
federal income tax consequences of acquiring, owning, or disposing of common shares, particularly in light of recent U.S. tax reform.
Distributions
Subject to the passive foreign investment
company rules discussed below, should a distribution be made, a U.S. Holder must include in gross income as dividend income the
gross amount of any distribution paid on the common shares (including the amount of any non-U.S. taxes withheld from such amount),
to the extent such distribution is paid out of current or accumulated earnings and profits (as determined for U.S. federal income
tax purposes). Distributions in excess of our current and accumulated earnings and profits (as determined for U.S. federal income
tax purposes) will first be treated as a non-taxable return of capital to the extent of the U.S. Holder’s basis in the common
shares and thereafter as gain from the sale or exchange of common shares. See “Sale, Exchange, or Other Disposition of Common
Shares” below.
Dividends received
by U.S. Holders that are individuals, estates, or trusts will be taxed at preferential rates if such dividends meet the requirements
of “qualified dividend income.” Dividends that fail to meet such requirements, and dividends received by corporate
U.S. Holders, are taxed at ordinary income rates. In order for dividends to qualify as “qualified dividend income,”
an entity must be considered a “qualified foreign corporation” and certain other requirements must be met. While we
believe the Company is a qualified foreign corporation, a dividend received by a U.S. Holder will not be qualified dividend income
if the Company is a passive foreign investment company for the taxable year during which the dividend is paid or the immediately
preceding taxable year. See the discussion below regarding our passive foreign investment company status under “Passive
Foreign Investment Company Rules.” In the case of a corporate U.S. Holder, dividends received generally will not be eligible
for the dividends-received deduction.
Dividends paid
on the common shares will generally be treated as foreign source income for U.S. foreign tax credit purposes. Foreign tax credits
are generally subject to various classifications and other limitations. The rules relating to computing foreign tax credits
are complex. U.S. Holders should consult their own tax advisors to determine the foreign tax credit implications of owning common
shares.
Sale, Exchange, or
Other Disposition of Common Shares
Subject to the passive foreign investment
company rules discussed below, a U.S. Holder that sells or otherwise disposes of the common shares will recognize capital gain
or loss for U.S. federal income tax purposes equal to the difference between (i) the U.S. dollar value of the amount realized on
the sale or disposition and (ii) the tax basis, determined in U.S. dollars, of such common shares. Such gain or loss will be treated
as long-term capital gain or loss if the U.S. Holder’s holding period is greater than one year at the time of sale, exchange,
or other disposition. Long-term capital gains of individuals are generally subject to preferential maximum U.S. federal income
tax rates. A U.S. Holder’s ability to deduct capital losses is subject to certain limitations.
Passive Foreign Investment
Company Rules
If the Company is considered a “passive
foreign investment company” (a “PFIC”) for U.S. federal income tax purposes at any time during a U.S. Holder’s
holding period, then certain potentially adverse tax consequences apply to such U.S. Holder’s acquisition, ownership, and
disposition of common shares. In general, a non-U.S. corporation will be a PFIC in any taxable year in which, after applying certain
look-through rules, either (1) at least 75% of its gross income for the taxable year is passive income; or (2) at least 50% of
the average value (determined on a quarterly basis) of its assets is attributable to assets that produce or are held for the production
of passive income. Passive income generally includes dividends, interest, royalties, rents (other than certain rents and royalties
derived in the active conduct of a trade or business), and the excess of gains over losses from the disposition of certain assets
that produce passive income. If a foreign corporation owns at least 25% by value of the stock of another corporation, the foreign
corporation is treated for purposes of the PFIC tests as owning its proportionate share of the assets of the other corporation,
and receiving directly its proportionate share of the other corporation’s income.
We believe that we likely were a PFIC
for U.S. federal income tax purposes during the fiscal year ended December 31, 2018, and we expect that we will be a PFIC in the
current year and that we may be a PFIC in future years. The determination of whether or not the Company is a PFIC is a factual
determination dependent on a number of factors that cannot be made until the close of the applicable tax year. Accordingly, no
assurances can be given regarding the Company’s PFIC status for the current year or any future year. The Company’s
status as a PFIC can have significant adverse tax consequences for a U.S. Holder if we are a PFIC for any year during such U.S.
Holder’s holding period.
A U.S. Holder that holds common shares
while the Company is a PFIC may be subject to increased tax liability upon the sale, exchange, or other disposition of the common
shares or upon the receipt of certain distributions, regardless of whether the Company is a PFIC in the year in which such disposition
or distribution occurs. These adverse tax consequences include:
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“Excess distributions” by the Company are subject
to the following special rules. An excess distribution generally is the excess of the amount a PFIC distributes to a shareholder
during a taxable year over 125% of the average amount it distributed to the shareholder during the three preceding taxable years
or, if shorter, the part of the shareholder’s holding period before the taxable year. Distributions with respect to the
common shares during the taxable year to a U.S. Holder that are excess distributions must be allocated rateably to each day
of the U.S. Holder’s holding period. The amounts allocated to the current taxable year and to taxable years prior to
the first year in which the Company was classified as a PFIC are included as ordinary income in a U.S. Holder’s gross
income for that year. The amount allocated to each other prior taxable year is taxed as ordinary income at the highest tax rate
in effect for the U.S. Holder in that prior year (without offset by any net operating loss for such year) and the tax is
subject to an interest charge at the rate applicable to deficiencies in income taxes (the “special interest charge”).
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(b)
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The entire amount of any gain realized upon the sale or
other disposition of the common shares will be treated as an excess distribution made in the year of sale or other disposition
and as a consequence will be treated as ordinary income and, to the extent allocated to years prior to the year of sale or disposition,
will be subject to the special interest charge described above.
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Special rules apply for calculating
the amount of the foreign tax credit with respect to excess distributions by a PFIC.
While there are certain U.S. federal income
tax elections (described below) that can be made to mitigate the adverse tax consequences described above such elections are only
available in limited circumstances and must be made in a timely manner. These rules are very complex and U.S. Holders are urged
to consult their own tax advisers regarding the potential of making an election to mitigate the adverse consequences described
above of the Company being classified as a PFIC.
Qualifying Electing Fund (“QEF”)
Election
. A U.S. Holder of stock in a PFIC, including the Company, may make a QEF election with respect to such PFIC to elect
out of the tax treatment discussed above. Generally, a QEF election should be made with the filing of a U.S. Holder’s
U.S. federal income tax return for the first taxable year for which both (i) the U.S. Holder holds common shares, and (ii) the
Company was a PFIC. A U.S. Holder that timely makes a valid QEF election with respect to a PFIC will generally include in gross
income for a taxable year (i) as ordinary income, such holder’s pro rata share of the Company’s ordinary earnings
for the taxable year, and (ii) as long-term capital gain, such holder’s pro rata share of the Company’s net capital
gain for the taxable year. However, the QEF election is available only if such PFIC provides such U.S. Holder with certain information
regarding its earnings and profits as required under applicable U.S. Treasury regulations.
There can be no assurance that the
Company will provide U.S. Holders with the information required for them to make a QEF election.
Deemed Sale Election.
If the Company
is a PFIC for any year during which a U.S. Holder holds common shares, but the Company ceases in a subsequent year to be a PFIC,
then a U.S. Holder may make a deemed sale election for such subsequent year in order to avoid the adverse PFIC tax treatment described
above that would otherwise continue to apply because of the Company’s having previously been a PFIC. If such election is
timely made, the U.S. Holder would be deemed to have sold the common shares held by the holder at their fair market value, and
any gain from such deemed sale would be taxed as an excess distribution (as described above). The basis of the common shares would
be increased by the gain recognized, and a new holding period would begin for the common shares for purposes of the PFIC rules.
The U.S. Holder would not recognize any loss incurred on the deemed sale, and such a loss would not result in a reduction
in basis of the common shares. After the deemed sale election, the U.S. Holder’s common shares with respect to which the
deemed sale election was made would not be treated as shares in a PFIC, unless the Company subsequently becomes a PFIC.
Mark-to-Market Election.
Alternatively,
a U.S. Holder of “marketable stock” (as defined in the applicable Treasury regulations) in a PFIC may make a mark-to-market
election for such stock to elect out of the adverse PFIC tax treatment discussed above. If a U.S. Holder makes a mark-to-market
election for shares of marketable stock, the U.S. Holder will include in income each year an amount equal to the excess, if any,
of the fair market value of the shares as of the close of the holder’s taxable year over the holder’s adjusted basis
in such shares. A U.S. Holder is allowed a deduction for the excess, if any, of the adjusted basis of the shares over their fair
market value as of the close of the taxable year. However, deductions are allowable only to the extent of any net mark-to-market
gains on the shares included in the holder’s income for prior taxable years. Amounts included in a U.S. Holder’s income
under a mark-to-market election, as well as gain on the actual sale or other disposition of the shares, are treated as ordinary
income. Ordinary loss treatment also applies to the deductible portion of any mark-to-market loss on the shares, as well as to
any loss realized on the actual sale or disposition of the shares, to the extent that the amount of such loss does not exceed the
net mark-to-market gains previously included for such shares. A U.S. Holder’s basis in the shares will be adjusted to reflect
any such income or loss amounts. However, the special interest charge and related adverse tax consequences described above for
non-electing holders may continue to apply on a limited basis if the U.S. Holder makes the mark-to-market election after such holder’s
holding period for the shares has begun.
Because our common shares are regularly
traded on TSX, the NYSE American, and the Frankfurt Stock Exchange, we anticipate that our common shares will be classified as
“marketable stock.” No assurances can be given, however, that our common shares are or will be marketable stock.
Form 8621 (Information Return by a Shareholder
of a Passive Foreign Investment Company or Qualified Electing Fund).
If we are a PFIC for any taxable year during which a U.S.
Holder holds common shares, such U.S. Holder will be required to file an annual information report with such U.S. Holder’s
U.S. Federal income tax return on IRS Form 8621.
The PFIC rules are complex, and U.S. Holders
should consult their own tax advisors regarding the PFIC rules and how they may affect the U.S. federal income tax consequences
of the acquisition, ownership, and disposition of common shares in the event the Company is a PFIC at any time during the holding
period for such common shares.
Medicare Tax
A U.S. Holder that is an individual or
estate, or a trust that does not fall into a special class of trusts that is exempt from such tax, will be subject to a 3.8% tax
on the lesser of (1) the U.S. Holder’s “net investment income” for the relevant taxable year and (2) the
excess of the U.S. Holder’s modified gross income for the taxable year over a certain threshold (which in the case of an
individual will be between $125,000 and $250,000, depending on the individual’s circumstances). A holder’s net investment
income will generally include dividend income and net gains from the disposition of common shares, unless such dividends or net
gains are derived in the ordinary course of the conduct of a trade or business (other than a trade or business that consists of
certain passive or trading activities). U.S. Holders are urged to consult their own tax advisors regarding the applicability of
the Medicare tax in respect of their investment in the common shares.
Disclosure Requirements for Specified
Foreign Financial Assets
U.S. Holders (including certain domestic
corporations, partnerships, and trusts that are considered formed or availed of for the purpose of holding, directly or indirectly,
“specified foreign financial assets,” referred to as “specified domestic entities” in applicable United
States Treasury regulations) that, during any taxable year, hold any interest in any “specified foreign financial asset”
generally will be required to file with their U.S. federal income tax returns certain information on IRS Form 8938 if the aggregate
value of all such assets exceeds certain specified amounts. The term “specified foreign financial asset” generally
includes any financial account maintained with a non-U.S. financial institution, which may include common shares if they are not
held in an account maintained with a financial institution. Substantial penalties may be imposed, and the period of limitations
on assessment and collection of U.S. federal income taxes may be extended, in the event of a failure to comply with this reporting
and filing requirement. U.S. Holders should consult their own tax advisors as to the possible application to them of these requirements.
Foreign Currency Transactions
Generally, amounts received by a U.S. Holder
in foreign currency (including distributions paid in foreign currency to a U.S. Holder in connection with the ownership of common
shares or on the sale, exchange, or other disposition of common shares) will be equal to the U.S. dollar value of such foreign
currency based on the applicable exchange rate on the date of receipt (regardless of whether such foreign currency is converted
into U.S. dollars at that time). The subsequent disposition of any foreign currency received (including an exchange for U.S. currency)
will generally give rise to ordinary gain or loss in an amount equal to the difference between the U.S. dollar value of the foreign
currency on the date it was received and the date of the subsequent disposition. Each U.S. Holder should consult its own tax adviser
regarding the U.S. federal income tax consequences of receiving, owning, and disposing of foreign currency.
Information Reporting and Backup
Withholding
Payments made within the United States
or by a U.S. payor or U.S. middleman, of dividends on, and/or proceeds arising from the sale or other taxable disposition of, common
shares will generally be subject to information reporting and backup withholding tax (currently at a 24% rate) if a U.S. Holder
(a) fails to furnish such U.S. Holder’s correct U.S. taxpayer identification number (generally on Form W-9), (b) furnishes
an incorrect U.S. taxpayer identification number, (c) is notified by the IRS that such U.S. Holder has previously failed to properly
report items subject to backup withholding tax, or (d) fails to certify, under penalty of perjury, that such U.S. Holder has furnished
its correct U.S. taxpayer identification number and that the IRS has not notified such U.S. Holder that it is subject to backup
withholding tax.
Backup withholding is not an additional
tax. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a credit against a U.S. Holder’s
U.S. federal income tax liability, if any, or will be refunded, if such U.S. Holder furnishes required information to the IRS in
a timely manner. Each U.S. Holder should consult its own tax advisor regarding the information reporting and backup withholding
rules.
Acquiring, owning, or disposing of our
common shares may have tax consequences under the laws of the United States and Canada that are not described in this Annual Report
on Form 10-K. Shareholders are solely responsible for determining the tax consequences applicable to their particular circumstances
and should consult their own tax advisors concerning an investment in the Company’s common shares.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7. MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Current Business Activities
General
Livengood Gold Project
Developments
During the year ended December 31, 2018
and to the date of this Annual Report on Form 10-K, the Company progressed on a number of opportunities with the potential for
optimization and reducing the costs of building and operating a mine at the Project. Outside consultants were retained to conduct
additional metallurgical tests and engineering, including confirmation of the flow sheet and optimizing the operating costs. Using
the improved mineralization and alteration models now available for the Livengood gold deposit arising from the work completed
in 2017, 4,000 kg of metallurgical composites were selected and shipped to SGS Vancouver. Approximately 2,000 kg of these samples
were processed during 2018 to evaluate optimum grind size and to determine whether different recovery parameters should be applied
to different areas of the orebody. The engineering firm of BBA Inc. (BBA) was retained to continue to guide the metallurgical program.
Work was also completed to advance the environmental baseline efforts needed to support future permitting.
Director Changes
On March 16, 2018, Mr. Victor Flores notified
the Board of his decision to resign as director effective on March 21, 2018. Mr. Flores was nominated for election as director
by Paulson & Co., Inc. (“Paulson”) pursuant to that certain Investor Rights Agreement, dated December 28, 2016,
between the Company and Paulson. Effective on March 22, 2018, the Company appointed Mr. Damola Adamolekun as director, filling
the vacancy created by the resignation of Mr. Flores.
The Board appointed Mr. Stuart Harshaw
to the Board effective April 1, 2018, to fill the vacancy that resulted from General Hamilton’s November 6, 2017 resignation.
At the 2018 Annual General Meeting of shareholders
in Vancouver, B.C. on May 30, 2018, the shareholders fixed the size of the board at nine with the addition of the Company’s
chief executive officer, Mr. Karl Hanneman.
Financing
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
$12.0 million. The Company intends to use the funds for continuation of optimization studies in the attempt to further improve
and de-risk the Project, for required environmental baseline studies, and for general working capital purposes.
Other Developments
On March 12, 2018, the Board approved recommendations
by management to further reduce corporate overhead costs, including a reduction in CEO salary by 50% (reflecting an approximate
50% reduction in the amount of time the CEO will spend working on the Project), a reduction in board cash compensation and expense,
and staff reductions as appropriate as critical work is completed. Depending upon the level of technical work or permitting efforts
underway in future years, these cost savings are expected to bring total project G&A costs into the range of $2.5 million per
year.
2019
Outlook
On November 1, 2018, the Board approved
a 2019 budget of $3.7 million. The work program incorporated in this budget will build upon the metallurgical studies undertaken
in 2018 to continue to define and refine the project flowsheet. Approximately 2,000 kg of samples will be processed in 2019 to
evaluate optimum grind size and to determine whether different recovery parameters should be applied to different areas of the
orebody. The engineering firm of BBA Inc. (“BBA”) will be retained to continue to guide the metallurgical program.
Work is also planned to advance the environmental baseline efforts needed to support future permitting.
The Company remains open to a strategic
alliance to help support the future development of the Project while considering all other appropriate financing options. The size
of the gold resource, the favorable location, and the proven team are some of the reasons the Company would potentially attract
a strategic partner with a long term development horizon who understands the Project is highly leveraged to gold prices.
Results of Operations
Summary of Quarterly Results
Description
|
|
December 31, 2018
|
|
|
September 30, 2018
|
|
|
June 30, 2018
|
|
|
March 31, 2018
|
|
Net loss
|
|
$
|
(901,767
|
)
|
|
$
|
(1,269,636
|
)
|
|
$
|
(955,415
|
)
|
|
$
|
(1,065,220
|
)
|
Basic and diluted net loss per common share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
Description
|
|
December 31, 2017
|
|
|
September 30, 2017
|
|
|
June 30, 2017
|
|
|
March 31, 2017
|
|
Net loss
|
|
$
|
(1,380,921
|
)
|
|
$
|
(1,745,513
|
)
|
|
$
|
(1,627,646
|
)
|
|
$
|
(1,677,977
|
)
|
Basic and diluted net loss per common share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
Significant fluctuations in the Company’s
quarterly net loss have mainly been the result of operating cost changes.
Year ended December 31, 2018 compared
to Year ended December 31, 2017
The Company had cash and cash equivalents
of $10,228,964 at December 31, 2018 compared to $2,244,466 at December 31, 2017. The Company incurred a net loss of $4,192,038
for the year ended December 31, 2018, compared to a net loss of $6,432,057 for the year ended December 31, 2017. The following
discussion highlights certain selected financial information and changes in operations between the year ended December 31, 2018
and the year ended December 31, 2017.
Mineral property expenditures were $1,576,251
for the year ended December 31, 2018 compared to $2,446,934 for the year ended December 31, 2017. The decrease of $870,683 is due
to reduced expenditures for metallurgical studies and engineering and the Company limiting field activities to the continuation
of critical environmental baseline work while moving forward with a multi-phase metallurgical test work program.
Share-based payment charges were $603,818
during the year ended December 31, 2018 compared to $443,556 during the year ended December 31, 2017. The $160,262 increase in
share-based payment charges during the period was mainly the result of the incentive options granted on March 21, 2018 to certain
officers and employees of the Company and the deferred share units (“DSUs”) issued on October 17, 2018 to certain members
of the Board of Directors being fully vested upon issuance. The Company granted 420,085 options during the year ended December
31, 2018 compared to 250,000 options granted during the year ended December 31, 2017. At December 31, 2018, there was unrecognized
compensation expense of C$2,242 related to non-vested options outstanding. The cost is expected to be recognized over a weighted-average
remaining period of approximately 0.08 years.
Share based payment charges were allocated
as follows:
Expense category:
|
|
Year ended
December 31,
2018
|
|
|
Year ended
December 31,
2017
|
|
Consulting
|
|
$
|
414,422
|
|
|
$
|
384,516
|
|
Investor relations
|
|
|
5,967
|
|
|
|
848
|
|
Wages and benefits
|
|
|
183,429
|
|
|
|
58,192
|
|
|
|
$
|
603,818
|
|
|
$
|
443,556
|
|
Excluding share-based payment charges of
$183,429 and $58,192, respectively, wages and benefits decreased to $1,706,182 for the year ended December 31, 2018 from $1,877,788
for the year ended December 31, 2017. The reduction of $171,606 is primarily due to staff reductions partially offset by severance
for four staff reductions.
Consulting fees, excluding share-based
payment charges of $414,422 and $384,516, respectively, were $138,870 for the year ended December 31, 2018 compared to $275,846
for the year ended December 31, 2017. The decrease of $136,976 is primarily due to decreased media support services and the Company’s
continued efforts to maintain or reduce spending.
Insurance costs were $169,036 for the year
ended December 31, 2018 compared to $281,948 for the year ended December 31, 2017. The decrease of $112,912 resulted after the
Company completed a review of coverage requirements.
Professional fees were $227,082 for the
year ended December 31, 2018 compared to $263,863 for the year ended December 31, 2017. The decrease of $36,781 is due primarily
to decreased legal fees related to property matters.
Excluding share-based payments, all other
operating expense categories reflected only moderate changes period over period.
Other items amounted to an income of $676,186
during the year ended December 31, 2018 compared to other expense of $314,593 in the year ended December 31, 2017. The Company
had a foreign exchange gain of $522,248 during the year ended December 31, 2018 compared to a loss of $364,188 during the year
ended December 31, 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 year ended December 31, 2018 was C$1 to US$0.7721 compared to C$1 to US$0.7708 for the year
ended December 31, 2017.
Available-for-sale securities were sold
during the year ended December 31, 2018 and were deemed not to be impaired for the year ended December 31, 2017.
Liquidity and Capital Resources
The Company has no revenue generating operations
from which it can internally generate funds. To date, the Company’s ongoing operations have been predominantly financed through
sale of its equity securities by way of private placements and the subsequent exercise of share purchase and broker warrants and
options issued in connection with such private placements. However, the exercise of warrants/options is dependent primarily on
the market price and overall market liquidity of the Company’s securities at or near the expiry date of such warrants/options
(over which the Company has no control) and therefore there can be no guarantee that any existing warrants/options will be exercised.
There are currently no warrants outstanding.
As at December 31, 2018, the Company reported
cash and cash equivalents of $10,228,964 compared to $2,244,466 at December 31, 2017. The increase of approximately $8.0 million
resulted mainly from the completion of a $12.0 million non-brokered private placement on March 13, 2018 and interest and other
income of $0.2 million partially offset by operating expenditures on the Livengood Gold Project of approximately $4.8 million and
a positive foreign currency translation impact of approximately $0.5 million. The Company intends to use the remaining funds for
continuation of optimization studies in the attempt to further improve and de-risk the Project, for required environmental baseline
studies, and for general working capital purposes. As at March 14, 2019, management believes that the Company has sufficient financial
resources to maintain its operations for the next twelve months.
The Company had no cash flows from investing
activities during the year ended December 31, 2017.
Financing activities during the year ended
December 31, 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, $181,026 in proceeds was received during the year in connection
with the issuance of 468,000 common shares.
As at December 31, 2018, the Company had
working capital of $9,884,979 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 2019 work plan at the Livengood Gold Project and satisfy its currently anticipated general and administrative costs
through the 2020 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.” The quantity of funds to be raised and the terms of any proposed equity financing that may
be undertaken will be negotiated by management as opportunities to raise funds arise. Specific plans related to the use of proceeds
will be devised once financing has been completed and management knows what funds will be available for these purposes. Due to
this uncertainty, if the Company is unable to secure additional financing, it may be required to reduce all discretionary activities
at the Project to preserve its working capital to fund anticipated non-discretionary expenditures beyond the 2019 fiscal year.
Other than cash held by its subsidiaries
for their immediate operating needs in the United States, all of the Company’s cash reserves are on deposit with a major
Canadian chartered bank. The Company does not believe that the credit, liquidity or market risks with respect thereto have increased
as a result of the current market conditions.
Contractual Obligations and Commitments
The following table discloses, as of December
31, 2018, the Company’s contractual obligations, including anticipated mineral property payments and work commitments. Under
the terms of the Company’s mineral property purchase agreements, mineral leases and the terms of the unpatented mineral claims
held by it, the Company is required to make certain scheduled acquisition payments, incur certain levels of expenditures, make
lease or advance royalty payments, make payments to government authorities and incur assessment work expenditures as summarized
in the table below in order to maintain and preserve the Company’s interests in the related mineral properties. If the Company
is unable or unwilling to make any such payments or incur any such expenditures, it is likely that the Company would lose or forfeit
its rights to acquire or hold the related mineral properties. The following table assumes that the Company retains the rights to
all of its current mineral properties, but does not exercise any lease purchase or royalty buyout options:
|
|
Payments Due by Year
|
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024 and
beyond
|
|
|
Total
|
|
Mineral Property
Leases
(1)
|
|
$
|
425,389
|
|
|
$
|
430,420
|
|
|
$
|
435,526
|
|
|
$
|
440,709
|
|
|
$
|
445,970
|
|
|
$
|
451,310
|
|
|
$
|
2,629,324
|
|
Mining Claim
Government Fees
|
|
|
114,825
|
|
|
|
114,825
|
|
|
|
114,825
|
|
|
|
114,825
|
|
|
|
114,825
|
|
|
|
114,825
|
|
|
|
688,950
|
|
Total
|
|
$
|
540,214
|
|
|
$
|
545,245
|
|
|
$
|
550,351
|
|
|
$
|
555,534
|
|
|
$
|
560,795
|
|
|
$
|
566,135
|
|
|
$
|
3,318,274
|
|
|
1.
|
Does not include required work expenditures, as it is assumed
that the required expenditure level is significantly below the work which will actually be carried out by the Company. Does not
include potential royalties that may be payable (other than annual minimum royalty payments).
|
Off-Balance Sheet Arrangements
The Company does not have any off balance
sheet arrangements.
Critical Accounting Policies
Mineral properties and exploration and
evaluation expenditures
The Company’s mineral project is
currently in the exploration and evaluation phase. Mineral property acquisition costs are capitalized when incurred. Mineral property
exploration costs are expensed as incurred. At such time that the Company determines that a mineral property can be economically
developed, subsequent mineral property expenses will be capitalized during the development of such property.
The Company assesses interests in exploration
properties for impairment when facts and circumstances suggest that the carrying amount of an asset may exceed its recoverable
amount. Impairment analysis includes assessment of the following circumstances: a significant decrease in the market price of a
long-lived asset or asset group; a significant adverse change in the extent or manner in which a long-lived asset or asset group
is being used or in its physical condition; a significant adverse change in legal factors or in the business climate that could
affect the value of a long-lived asset or asset group, including an adverse action or assessment by a regulator; an accumulation
of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset or
asset group; a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection
or forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group; or a current expectation
that, more likely than not, a long-lived asset or asset group will be sold or otherwise disposed of significantly before the end
of its previously estimated useful life. The term more likely than not refers to a level of likelihood that is more than 50%.
Stock-based compensation
The Company follows the provisions of Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification Section 718 “Compensation - Stock Compensation”,
which establishes accounting for equity based compensation awards to be accounted for using the fair value method. The Company
uses the Black-Scholes option pricing model to determine the grant date fair value of the awards. Compensation expense is measured
at the grant date and recognized over the requisite service period, which is generally the vesting period.
Recently Adopted Accounting Policies
For a description of recently adopted accounting
policies, please see Note 2 –
Summary Of Significant Accounting Policies
within our Notes to Consolidated Financial
Statements in Item 8 of this Annual Report on Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA.
Report of Independent Registered Public
Accounting Firm
To the Shareholders and Directors of
International Tower Hill Mines Ltd.
Opinion on the Consolidated Financial
Statements
We have audited the accompanying consolidated
balance sheets of International Tower Hill Mines Ltd. (the “Company”), as of December 31, 2018 and 2017, and the related
consolidated statements of operations and comprehensive loss, changes in shareholders’ equity, and cash flows for the years
ended December 31, 2018 and 2017, and the related notes (collectively referred to as the “financial statements”). In
our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company
as of December 31, 2018 and 2017, and the results of its operations and its cash flows for the years ended December 31, 2018 and
2017 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required
to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are
required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures
to assess the risks of material misstatements of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures
in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
/s/ Davidson & Company LLP
|
|
Chartered Professional Accountants
|
|
Vancouver, British Columbia, Canada
|
|
March 14, 2019
|
|
We have served as the Company’s auditor
since 2017.
INTERNATIONAL TOWER HILL MINES LTD.
CONSOLIDATED BALANCE SHEETS
As at December 31, 2018 and 2017
(Expressed in U.S. Dollars)
|
|
Note
|
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
$
|
10,228,964
|
|
|
$
|
2,244,466
|
|
Prepaid expenses and other
|
|
|
|
|
|
|
203,968
|
|
|
|
177,730
|
|
Total current assets
|
|
|
|
|
|
|
10,432,932
|
|
|
|
2,422,196
|
|
Property and equipment
|
|
|
|
|
|
|
17,750
|
|
|
|
20,794
|
|
Capitalized acquisition costs
|
|
|
4
|
|
|
|
55,273,432
|
|
|
|
55,204,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
$
|
65,724,114
|
|
|
$
|
57,647,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
|
|
|
$
|
43,475
|
|
|
$
|
82,269
|
|
Accrued liabilities
|
|
|
5
|
|
|
|
504,478
|
|
|
|
346,569
|
|
Total liabilities
|
|
|
|
|
|
|
547,953
|
|
|
|
428,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital, no par value; authorized 500,000,000 shares; 186,990,683 and 162,392,996 shares issued and outstanding at December 31, 2018 and 2017, respectively
|
|
|
8
|
|
|
|
277,852,672
|
|
|
|
265,616,642
|
|
Contributed surplus
|
|
|
|
|
|
|
34,960,292
|
|
|
|
34,459,264
|
|
Obligation to issue shares
|
|
|
|
|
|
|
-
|
|
|
|
63,593
|
|
Accumulated other comprehensive income
|
|
|
|
|
|
|
1,162,900
|
|
|
|
1,686,359
|
|
Deficit
|
|
|
|
|
|
|
(248,799,703
|
)
|
|
|
(244,607,665
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity
|
|
|
|
|
|
|
65,176,161
|
|
|
|
57,218,193
|
|
Total liabilities and shareholders’ equity
|
|
|
|
|
|
$
|
65,724,114
|
|
|
$
|
57,647,031
|
|
Nature of operations
(Note 1)
Commitments
(Note 10)
The accompanying notes are an integral part
of these consolidated financial statements.
INTERNATIONAL TOWER HILL MINES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS
For the Years Ended December 31, 2018 and
2017
(Expressed in U.S. Dollars)
|
|
Note
|
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting fees
|
|
|
8
|
|
|
$
|
553,292
|
|
|
$
|
660,362
|
|
Depreciation
|
|
|
|
|
|
|
3,043
|
|
|
|
4,006
|
|
Insurance
|
|
|
|
|
|
|
169,036
|
|
|
|
281,948
|
|
Investor relations
|
|
|
8
|
|
|
|
58,267
|
|
|
|
83,630
|
|
Mineral property exploration
|
|
|
4
|
|
|
|
1,576,251
|
|
|
|
2,446,934
|
|
Office
|
|
|
|
|
|
|
33,870
|
|
|
|
35,297
|
|
Other
|
|
|
|
|
|
|
16,229
|
|
|
|
18,237
|
|
Professional fees
|
|
|
|
|
|
|
227,082
|
|
|
|
263,863
|
|
Regulatory
|
|
|
|
|
|
|
146,615
|
|
|
|
152,599
|
|
Rent
|
|
|
|
|
|
|
135,736
|
|
|
|
139,735
|
|
Travel
|
|
|
|
|
|
|
59,192
|
|
|
|
94,873
|
|
Wages and benefits
|
|
|
8
|
|
|
|
1,889,611
|
|
|
|
1,935,980
|
|
Total operating expenses
|
|
|
|
|
|
|
(4,868,224
|
)
|
|
|
(6,117,464
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain/(loss) on foreign exchange
|
|
|
|
|
|
|
522,248
|
|
|
|
(364,188
|
)
|
Interest income
|
|
|
|
|
|
|
119,106
|
|
|
|
27,395
|
|
Other income
|
|
|
3
|
|
|
|
34,832
|
|
|
|
22,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
|
|
|
|
676,186
|
|
|
|
(314,593
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year
|
|
|
|
|
|
|
(4,192,038
|
)
|
|
|
(6,432,057
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on marketable securities
|
|
|
|
|
|
|
(1,526
|
)
|
|
|
(8,517
|
)
|
Reclassification of accumulated unrealized loss on available-for-sale securities to other income
|
|
|
|
|
|
|
22,352
|
|
|
|
-
|
|
Exchange difference on translating foreign operations
|
|
|
|
|
|
|
(544,285
|
)
|
|
|
350,657
|
|
Total other comprehensive income/(loss) for the year
|
|
|
|
|
|
|
(523,459
|
)
|
|
|
342,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss for the year
|
|
|
|
|
|
$
|
(4,715,497
|
)
|
|
$
|
(6,089,917
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
|
|
|
|
$
|
(0.02
|
)
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding
|
|
|
|
|
|
|
181,984,179
|
|
|
|
162,283,493
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
INTERNATIONAL TOWER HILL MINES LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’
EQUITY
For the Years Ended December 31, 2018 and
2017
(Expressed in U.S. Dollars)
|
|
Number
of
shares
|
|
|
Share
capital
|
|
|
Contributed
surplus
|
|
|
Obligation
to issue
shares
|
|
|
Accumulated
other
comprehensive
income/(loss)
|
|
|
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
|
|
|
-
|
|
|
|
(52,646
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(52,646
|
)
|
Stock based compensation-option
|
|
|
-
|
|
|
|
-
|
|
|
|
61,998
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
61,998
|
|
Stock based compensation-DSU
|
|
|
-
|
|
|
|
-
|
|
|
|
381,558
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
381,558
|
|
Unrealized loss on available-for-sale
securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(8,517
|
)
|
|
|
-
|
|
|
|
(8,517
|
)
|
Exchange difference on
translating foreign operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
350,657
|
|
|
|
-
|
|
|
|
350,657
|
|
Obligation to issue shares
|
|
|
-
|
|
|
|
-
|
|
|
|
(63,593
|
)
|
|
|
63,593
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Share issuance (Note 11)
|
|
|
206,024
|
|
|
|
99,492
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
99,492
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,432,057
|
)
|
|
|
(6,432,057
|
)
|
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-option
|
|
|
-
|
|
|
|
-
|
|
|
|
189,396
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
189,396
|
|
Stock based compensation-DSU
|
|
|
-
|
|
|
|
-
|
|
|
|
414,422
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
414,422
|
|
Unrealized loss on available-for-sale
securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,526
|
)
|
|
|
-
|
|
|
|
(1,526
|
)
|
Reclassification of accumulated
unrealized loss on available-for-sale securities to other income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22,352
|
|
|
|
-
|
|
|
|
22,352
|
|
Exchange difference on
translating foreign operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(544,285
|
)
|
|
|
-
|
|
|
|
(544,285
|
)
|
Share issuance
|
|
|
24,129,687
|
|
|
|
12,063,593
|
|
|
|
-
|
|
|
|
(63,593
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
12,000,000
|
|
Exercise of options
|
|
|
468,000
|
|
|
|
181,026
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
181,026
|
|
Share issuance costs
|
|
|
-
|
|
|
|
(111,379
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(111,379
|
)
|
Reallocation from contributed surplus
|
|
|
-
|
|
|
|
102,790
|
|
|
|
(102,790
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,192,038
|
)
|
|
|
(4,192,038
|
)
|
Balance, December 31, 2018
|
|
|
186,990,683
|
|
|
$
|
277,852,672
|
|
|
$
|
34,960,292
|
|
|
$
|
-
|
|
|
$
|
1,162,900
|
|
|
$
|
(248,799,703
|
)
|
|
$
|
65,176,161
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
INTERNATIONAL TOWER HILL MINES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2018 and
2017
(Expressed in U.S. Dollars)
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
Loss for the year
|
|
$
|
(4,192,038
|
)
|
|
$
|
(6,432,057
|
)
|
Add items not affecting cash:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
3,043
|
|
|
|
4,006
|
|
Stock-based compensation-option
|
|
|
189,396
|
|
|
|
61,998
|
|
Stock-based compensation-DSU
|
|
|
414,422
|
|
|
|
381,558
|
|
Loss on sale of marketable securities
|
|
|
19,953
|
|
|
|
-
|
|
Shares for services
|
|
|
-
|
|
|
|
99,492
|
|
Changes in non-cash working capital items:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(99,480
|
)
|
|
|
4,129
|
|
Prepaid expenses
|
|
|
48,162
|
|
|
|
25,166
|
|
Accounts payable and accrued liabilities
|
|
|
124,812
|
|
|
|
30,339
|
|
Cash used in operating activities
|
|
|
(3,491,730
|
)
|
|
|
(5,825,369
|
)
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
Issuance of common shares
|
|
|
12,181,026
|
|
|
|
-
|
|
Derivative payment
|
|
|
-
|
|
|
|
(14,694,169
|
)
|
Share issuance costs
|
|
|
(111,379
|
)
|
|
|
(52,646
|
)
|
Cash provided by (used in) financing activities
|
|
|
12,069,647
|
|
|
|
(14,746,815
|
)
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
Capitalized acquisition costs
|
|
|
(69,391
|
)
|
|
|
-
|
|
Sale of marketable securities
|
|
|
14,519
|
|
|
|
-
|
|
Cash used in investing activities
|
|
|
(54,872
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange on cash and cash equivalents
|
|
|
(538,547
|
)
|
|
|
350,157
|
|
Increase/(decrease) in cash and cash equivalents
|
|
|
7,984,498
|
|
|
|
(20,222,027
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
2,244,466
|
|
|
|
22,466,493
|
|
Cash and cash equivalents, end of year
|
|
$
|
10,228,964
|
|
|
$
|
2,244,466
|
|
Supplemental disclosure with respect to cash flows:
|
|
|
|
|
|
|
|
|
Obligation to issue shares
|
|
$
|
-
|
|
|
$
|
63,593
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
INTERNATIONAL TOWER HILL MINES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
|
1.
|
GENERAL INFORMATION, NATURE OF OPERATIONS
|
International Tower Hill Mines
Ltd. (“ITH” or the "Company") is incorporated under the laws of British Columbia, Canada. The Company’s
head office address is 2300-1177 West Hastings Street, Vancouver, British Columbia, Canada.
International Tower Hill Mines
Ltd. consists of ITH and its wholly owned subsidiaries Tower Hill Mines, Inc. (“TH Alaska”) (an Alaska corporation),
Tower Hill Mines (US) LLC (“TH US”) (a Colorado limited liability company), Livengood Placers, Inc. (“LPI”)
(a Nevada corporation), and 813034 Alberta Ltd. (inactive Alberta corporation - dissolved in 2013). The Company is in the business
of acquiring, exploring and evaluating mineral properties, and either joint venturing or developing these properties further or
disposing of them when the evaluation is completed. At December 31, 2018, the Company was in the exploration stage and controls
a 100% interest in its Livengood Gold Project in Alaska, U.S.A.
These consolidated financial
statements have been prepared on a going-concern basis, which presumes the realization of assets and discharge of liabilities in
the normal course of business for the foreseeable future.
The Company will require significant
additional financing to continue its operations in connection with advancing activities at the Livengood Gold Project and for the
development of any mine that may be determined to be built at the Livengood Gold Project. There is no assurance that the Company
will be able to obtain the additional financing required on acceptable terms, if at all.
On January 12, 2017, the Company
paid $14,694,169 for the timely and full satisfaction of the final derivative payment due with respect to the acquisition of certain
mining claims and related rights in the vicinity of the Livengood Gold Project.
In addition, any significant
delays in the issuance of required permits for the ongoing work at the Livengood Gold Project, or unexpected results in connection
with the ongoing work, could result in the Company being required to raise additional funds to advance permitting efforts. The
Company’s review of its financing options includes pursuing a future strategic alliance to assist in further development,
permitting and future construction costs.
Despite the Company’s success
to date in raising significant equity financing to fund its operations, there is significant uncertainty that the Company will
be able to secure any additional financing in the current or future equity markets. The amount of funds to be raised and the terms
of any proposed equity financing that may be undertaken will be negotiated by management as opportunities to raise funds arise.
Specific plans related to the use of proceeds will be devised once financing has been completed and management knows what funds
will be available for these purposes. Due to this uncertainty, if the Company is unable to secure additional financing, it may
be required to reduce all discretionary activities at the Project to preserve its working capital to fund anticipated non-discretionary
expenditures beyond the 2019 fiscal year. As at March 14, 2019, management believes that the Company has sufficient financial resources
to maintain its operations for the next twelve months.
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis of presentation
These consolidated financial
statements are presented in United States dollars and have been prepared in accordance with U.S. generally accepted accounting
principles (“U.S. GAAP”). On March 14, 2019, the Board approved the consolidated financial statements dated December
31, 2018.
Basis of consolidation
These consolidated financial
statements include the accounts of ITH and its wholly owned subsidiaries TH Alaska, TH US, and LPI. All intercompany transactions
and balances have been eliminated.
Significant judgments,
estimates and assumptions
The preparation of financial
statements in accordance with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses during the period. These judgments, estimates and assumptions are regularly evaluated
and are based on management’s experience and knowledge of the relevant facts and circumstances. While management believes
the estimates to be reasonable, actual results could differ from those estimates and could impact future results of operations
and cash flows.
The areas which require significant
judgment and estimates that management has made at the financial reporting date, that could result in a material change to the
carrying amounts of assets and liabilities, in the event actual results differ from the assumptions made, relate to, but are not
limited to the following:
Significant judgments
|
·
|
the determination of functional currencies;
|
|
·
|
quantitative and qualitative factors used in the assessment of impairment of the Company’s
capitalized acquisition costs; and
|
|
·
|
the analysis of resource calculations, drill results, labwork, etc. which can impact the Company’s
assessment of impairment, and provisions, if any, for environmental rehabilitation and restoration.
|
Cash and cash equivalents
Cash equivalents include highly
liquid investments with original maturities of twelve months or less, and which are subject to an insignificant risk of change
in value. Cash equivalents are held for the purpose of meeting short-term cash commitments rather than for investment or other
purposes.
Marketable securities
Marketable securities held in
companies with an active market are classified as available-for-sale securities. Available-for-sale securities are recorded at
fair value in the financial statements with unrealized gains and losses recorded in accumulated other comprehensive income. Accumulated
unrealized gains and losses are recognized in the statement of operations upon the sale of the security or if the security is determined
to be impaired.
Property and equipment
On initial recognition, property
and equipment are valued at cost. Property and equipment is subsequently measured at cost less accumulated depreciation, less any
accumulated impairment losses, with the exception of land which is not depreciated. Depreciation is recorded over the estimated
useful life of the assets at the following annual rates:
Computer equipment
- 30% declining balance;
Computer software -
3 years straight line;
Furniture and equipment
- 20% declining balance; and
Leasehold improvements
- straight-line over the lease term.
Additions during the year are
depreciated at one-half the annual rates. Depreciation methods, useful lives and residual values are reviewed at each financial
year-end and adjusted if appropriate.
Mineral properties and exploration
and evaluation expenditures
The Company’s mineral project
is currently in the exploration and evaluation phase. Mineral property acquisition costs are capitalized when incurred. Mineral
property exploration costs are expensed as incurred. At such time that the Company determines that a mineral property can be economically
developed, subsequent mineral property expenses will be capitalized during the development of such property.
The Company assesses interests
in exploration properties for impairment when facts and circumstances suggest that the carrying amount of an asset may exceed its
recoverable amount. Impairment analysis includes assessment of the following circumstances: a significant decrease in the market
price of a long-lived asset or asset group; a significant adverse change in the extent or manner in which a long-lived asset or
asset group is being used or in its physical condition; a significant adverse change in legal factors or in the business climate
that could affect the value of a long-lived asset or asset group, including an adverse action or assessment by a regulator; an
accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived
asset or asset group; a current-period operating or cash flow loss combined with a history of operating or cash flow losses or
a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group; a current
expectation that, more likely than not, a long-lived asset or asset group will be sold or otherwise disposed of significantly before
the end of its previously estimated useful life. The term more likely than not refers to a level of likelihood that is more than
50%.
Asset retirement
obligations
The Company records a liability
based on the best estimate of costs for site closure and reclamation activities that the Company is legally or contractually required
to remediate. The provision for closure and reclamation liabilities is estimated using expected cash flows based on engineering
and environmental reports and accreted to full value over time through periodic charges to income. The Company does not have any
material provisions for environmental rehabilitation as of December 31, 2018.
Derivatives
Derivatives
are initially recognized at their fair value on the date the derivative contract is entered into and are subsequently re-measured
at their fair value at each reporting period with changes in the fair value recognized in profit and loss.
Impairment
of long-lived assets and long-lived assets to be disposed of
Long-lived
assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to
be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount and the fair value less costs to sell.
Income taxes
The Company
accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be recovered or settled. Under the asset and liability
method, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes
the enactment date. A valuation allowance is recognized if it is more likely than not that some portion or the entire deferred
tax asset will not be recognized.
Net loss per share
Basic loss per share is calculated
using the weighted average number of common shares outstanding during the period. Diluted loss per share reflects the potential
dilution that could occur if securities or contracts that may require the issuance of common shares in the future were converted,
unless the impact is anti-dilutive. For the year ended December 31, 2018, this calculation proved to be anti-dilutive, and therefore
the Company’s 3,655,991 stock options and 1,356,975 deferred share units (“DSUs”) outstanding at year-end have
been excluded from the calculation.
Stock-based compensation
The Company follows the provisions
of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Section 718 “Compensation
- Stock Compensation”, which establishes accounting for equity based compensation awards to be accounted for using the fair
value method. Equity-settled share based payment arrangements are initially measured at fair value at the date of grant and recorded
within shareholders’ equity. Arrangements considered to be cash-settled are initially recorded at fair value and classified
as accrued liabilities, and subsequently re-measured at fair value at each reporting date. The Company’s stock option plan
is an equity-settled arrangement and the Company’s deferred share unit plan can be an equity or cash settled arrangement
depending on the grant date term.
The fair value at grant date
of all share-based payments is recognized as compensation expense over the period for which benefits of services are expected to
be derived, with a corresponding credit to shareholders’ equity or accrued liabilities depending on whether they are equity-settled
or cash-settled. The Company estimates the fair value of stock options granted using the Black-Scholes option pricing model and
estimate the expected forfeiture rate at the date of grant. The value of DSUs is estimated based on the quoted market price of
the Company’s common shares. When awards are forfeited because non-market based vesting conditions are not satisfied, the
expense previously recognized is proportionately reversed.
Functional Currency
The Company’s consolidated
financial statements are presented in U.S. dollars, which is the Company’s reporting currency. The functional currency of
ITH is the Canadian (“CAD” or “C”) dollar and the functional currency of ITH Alaska, TH US and LPI is the
U.S. dollar.
In accordance with ASC 830,
Foreign Currency Matters, the Company translates the assets and liabilities into U.S. dollars using the rate of exchange prevailing
at the balance sheet date and the statements of operations and comprehensive loss and cash flows are translated at an average rate
during the reporting period. Adjustments resulting from the translation from CAD into U.S. dollars are recorded in shareholders'
equity as part of accumulated other comprehensive income.
Foreign currency transactions
are translated into the functional currency of the respective currency of the entity or division, using the exchange rates prevailing
at the dates of the transactions (spot exchange rate). Foreign exchange gains and losses resulting from the settlement of such
transactions and from the re-measurement of monetary items denominated in foreign currency at period-end exchange rates are recognized
in profit or loss. Non-monetary items that are not re-translated at period end are measured at historical cost (translated using
the exchange rates at the transaction date), except for non-monetary items measured at fair value, which are translated using the
exchange rates as at the date when fair value was determined. Gains and losses are recorded in the statement of operations and
comprehensive loss.
Recently Adopted Accounting
Pronouncements
Accounting Standards Update
2016-16—Income Taxes, Intra-Entity Transfers of Assets Other Than Inventory (Topic 740).
In October 2016, the FASB issued
guidance intended to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory
by requiring an entity to recognize the income tax consequences when a transfer occurs, instead of when an asset is sold to an
outside party. The amendments in this guidance should be applied on a modified retrospective basis through a cumulative-effect
adjustment directly to retained earnings as of the beginning of the period of adoption. The adoption of the guidance had no impact
on the Company’s financial statements.
Accounting Standards Update
No. 2014-09—Revenue from Contracts with Customers (Topic 606).
On May 28, 2014, the FASB issued guidance that requires
an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services
to customers. This ASU was further amended in August 2015, March 2016, April 2016, May 2016 and December 2016 by ASU No. 2015-014,
No. 2016-08, No. 2016-10, No. 2016-12 and No. 2016-20, respectively. The guidance provides a five-step approach to be applied to
all contracts with customers and also requires expanded disclosures about revenue recognition. The adoption of the guidance had
no impact on the Company’s financial statements.
Recently Issued Accounting
Standards Updates
Accounting Standards Update
No. 2016-02 Leases (Topic 842).
In February 2016, the FASB issued a new standard regarding leases. These are elements of the
new standard that could impact almost all entities to some extent, although lessees will likely see the most significant changes.
Lessees will need to recognize virtually all of their leases on the balance sheet, by recording a right-of-use asset and a lease
liability. Public business entities are required to adopt the new leasing standard for fiscal years, and interim periods within
those fiscal years, beginning after December 15, 2018. For calendar year-end public companies, this means an adoption date of January
1, 2019. Early adoption is permitted. The Company is currently in the process of evaluating the impact on its consolidated financial
statements and disclosures.
|
3.
|
FAIR VALUE OF FINANCIAL INSTRUMENTS
|
The carrying values of cash
and cash equivalents, accounts receivable and accounts payable and accrued liabilities approximate their fair values due to the
short-term maturity of these financial instruments.
Financial instruments measured
at fair value are classified into one of three levels in the fair value hierarchy according to the significance of the inputs used
in making the measurement. The three levels of the fair value hierarchy are as follows:
|
·
|
Level 1 – Unadjusted quoted prices in active markets
for identical assets or liabilities;
|
|
·
|
Level 2 – Inputs other than quoted prices that are observable for the asset or liability
either directly or indirectly; and,
|
|
·
|
Level 3 – Inputs that are not based on observable market data.
|
|
|
|
Fair value as at
December 31, 2018
|
|
|
|
|
Level 1
|
|
Financial assets:
|
|
|
|
|
Marketable securities
|
|
$
|
-
|
|
Total
|
|
$
|
-
|
|
During the year ended December 31,
2018, the Company sold:
|
i)
|
65,000 shares of Millrock Resources Inc. for gross proceeds
of $7,802 resulting in a realized loss of $26,670.
|
|
ii)
|
40,000 shares of Dunnedin Ventures Inc. for gross proceeds
of $4,699 resulting in a realized gain of $4,699.
|
|
iii)
|
13,333 shares of Solstice Gold Corp. for gross proceeds
of $2,018 resulting in a realized gain of $2,018.
|
The total realized loss of $19,953
was recorded as other income in the statement of operations and comprehensive loss.
|
|
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, 2016
|
|
$
|
55,204,041
|
|
Additions
|
|
|
-
|
|
Balance, December 31, 2017
|
|
$
|
55,204,041
|
|
Additions
|
|
|
69,391
|
|
Balance, December 31, 2018
|
|
$
|
55,273,432
|
|
The following table presents
costs incurred for exploration and evaluation activities for the years ended December 31, 2018 and 2017:
|
|
Year ended
December 31, 2018
|
|
|
Year ended
December 31, 2017
|
|
Exploration costs:
|
|
|
|
|
|
|
|
|
Aircraft services
|
|
$
|
4,200
|
|
|
$
|
6,220
|
|
Assay
|
|
|
-
|
|
|
|
435,879
|
|
Environmental
|
|
|
232,648
|
|
|
|
240,882
|
|
Equipment rental
|
|
|
35,039
|
|
|
|
48,262
|
|
Field costs
|
|
|
91,677
|
|
|
|
112,086
|
|
Geological/geophysical
|
|
|
632,653
|
|
|
|
1,030,543
|
|
Land maintenance & tenure
|
|
|
506,934
|
|
|
|
500,929
|
|
Legal
|
|
|
67,929
|
|
|
|
59,483
|
|
Transportation and travel
|
|
|
5,171
|
|
|
|
12,650
|
|
Total expenditures for the year
|
|
$
|
1,576,251
|
|
|
$
|
2,446,934
|
|
Properties acquired from AngloGold,
Alaska
Pursuant to an Asset Purchase
and Sale and Indemnity Agreement dated June 30, 2006, as amended on July 26, 2007 (the “AngloGold Agreement”), among
the Company, AngloGold Ashanti (U.S.A.) Exploration Inc. (“AngloGold”) and TH Alaska, the Company acquired all of AngloGold’s
interest in a portfolio of seven mineral exploration projects in Alaska and referred to as the Livengood, Chisna, Gilles, Coffee
Dome, West Pogo, Blackshell, and Caribou properties (the “Sale Properties”) in exchange for a cash payment of $50,000
on August 4, 2006, and the issuance of 5,997,295 common shares, representing approximately 19.99% of the Company’s issued
shares following the closing of the acquisition and two private placement financings raising an aggregate of C$11,479,348. AngloGold
had the right to maintain its percentage equity interest in the Company, on an ongoing basis, provided that such right terminated
if AngloGold’s interest was reduced below 10% at any time after January 1, 2009.
As further consideration for
the transfer of the Sale Properties, the Company granted to AngloGold a 90-day right of first offer with respect to the Sale Properties
and any additional mineral properties in Alaska in which the Company acquires an interest and which interest the Company proposes
to farm out or otherwise dispose of. Upon AngloGold’s equity interest in the Company being reduced to less than 10%, this
right of first offer would then terminate.
On December 11, 2014, the Company
closed a private placement financing in which AngloGold elected not to participate. As a result of the shares issued in this private
placement, AngloGold’s ownership in the Company was reduced to less than 10% and thus both AngloGold’s right to maintain
its ownership percentage interest and its right of first offer on the Company’s Alaskan properties terminated upon the closing
of the December 2014 private placement.
Details of the Livengood Property
(being the only Sale Property still held by the Company) are as follows:
Livengood Property:
|
|
The Livengood property is located in the Tintina gold
belt approximately 113 kilometers (70 miles) north of Fairbanks, Alaska. The property consists of land leased from the Alaska
Mental Health Trust, a number of smaller private mineral leases, Alaska state mining claims purchased or located by the Company
and patented ground held by the Company.
|
|
|
Details of the leases are as follows:
|
|
a)
|
a lease of the Alaska Mental Health Trust mineral rights
having a term beginning July 1, 2004 and extending 19 years until June 30, 2023, subject to further extensions beyond June 30,
2023 by either commercial production or payment of an advance minimum royalty equal to 125% of the amount paid in year 19 and
diligent pursuit of development. The lease requires minimum work expenditures and advance minimum royalties which escalate annually
with inflation. A net smelter return (“NSR”) production royalty of between 2.5% and 5.0% (depending upon the price
of gold) is payable to the lessor with respect to the lands subject to this lease. In addition, an NSR production royalty of l%
is payable to the lessor with respect to the unpatented federal mining claims subject to the lease described in b) below and an
NSR production royalty of between 0.5% and 1.0% (depending upon the price of gold) is payable to the lessor with respect to the
lands acquired by the Company as a result of the purchase of Livengood Placers, Inc. in December 2011. As of December 31, 2018,
the Company has paid $2,962,821 from the inception of this lease.
|
|
b)
|
a lease of federal unpatented lode mining claims having an initial term of ten years commencing
on April 21, 2003 and continuing for so long thereafter as advance minimum royalties are paid and mining related activities, including
exploration, continue on the property or on adjacent properties controlled by the Company. The lease requires an advance minimum
royalty of $50,000 on or before each anniversary date (all of which minimum royalties are recoverable from production royalties).
An NSR production royalty of between 2% and 3% (depending on the price of gold) is payable to the lessors. The Company may purchase
1% of the royalty for $1,000,000. As of December 31, 2018, the Company has paid $730,000 from the inception of this lease.
|
|
c)
|
a lease of patented lode claims having an initial term
of ten years commencing January 18, 2007, and continuing for so long thereafter as advance minimum royalties are paid. The lease
requires an advance minimum royalty of $20,000 on or before each anniversary date through January 18, 2017 and $25,000 on or before
each subsequent anniversary (all of which minimum royalties are recoverable from production royalties). An NSR production royalty
of 3% is payable to the lessors. The Company may purchase all interests of the lessors in the leased property (including the production
royalty) for $1,000,000 (less all minimum and production royalties paid to the date of purchase), of which $500,000 is payable
in cash over four years following the closing of the purchase and the balance of $500,000 is payable by way of the 3% NSR production
royalty. As of December 31, 2018, the Company has paid $210,000 from the inception of this lease.
|
|
d)
|
a lease of unpatented federal lode mining and federal unpatented placer claims having an initial
term of ten years commencing on March 28, 2007, and continuing for so long thereafter as advance minimum royalties are paid and
mining related activities, including exploration, continue on the property or on adjacent properties controlled by the Company.
The lease requires an advance minimum royalty of $15,000 on or before each anniversary date (all of which minimum royalties are
recoverable from production royalties). The Company is required to pay the lessor the sum of $250,000 upon making a positive production
decision, payable $125,000 within 120 days of the decision and $125,000 within a year of the decision (all of which are recoverable
from production royalties). An NSR production royalty of 2% is payable to the lessor. The Company may purchase all of the interest
of the lessor in the leased property (including the production royalty) for $1,000,000. As of December 31, 2018, the Company has
paid $143,000 from the inception of this lease.
|
Title to mineral
properties
The acquisition of title to
mineral properties is a detailed and time-consuming process. The Company has taken steps to verify title to mineral properties
in which it has an interest. Although the Company has taken every reasonable precaution to ensure that legal title to its properties
is properly recorded in the name of the Company, there can be no assurance that such title will ultimately be secured.
The following table presents
the accrued liabilities balances at December 31, 2018 and 2017.
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
172,147
|
|
|
$
|
201,673
|
|
Accrued salaries and benefits
|
|
|
332,331
|
|
|
|
144,896
|
|
Total accrued liabilities
|
|
$
|
504,478
|
|
|
$
|
346,569
|
|
Accrued liabilities at December
31, 2018 include accruals for general corporate costs and project costs of $35,176 and $136,971, 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.
A reconciliation of income taxes
at statutory rates with the reported taxes is as follows for the years ended December 31, 2018 and 2017:
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Loss before income taxes
|
|
$
|
(4,192,038
|
)
|
|
$
|
(6,432,057
|
)
|
Statutory Canadian corporate tax rate
|
|
|
27.00
|
%
|
|
|
26.00
|
%
|
|
|
|
|
|
|
|
|
|
Expected income tax (recovery)
|
|
$
|
(1,131,850
|
)
|
|
$
|
(1,672,335
|
)
|
Share-based payments
|
|
|
163,031
|
|
|
|
115,324
|
|
Difference in tax rates in other jurisdictions
|
|
|
(119,329
|
)
|
|
|
(805,662
|
)
|
Effect of change in tax rate
|
|
|
-
|
|
|
|
26,455,632
|
|
Derecognition of derivative liability
|
|
|
-
|
|
|
|
(1,824,065
|
)
|
Share issue cost
|
|
|
(26,284
|
)
|
|
|
(14,540
|
)
|
Adjustment to prior years provision versus statutory tax returns
|
|
|
7,076
|
|
|
|
(1,509,364
|
)
|
Expiry of donations
|
|
|
-
|
|
|
|
64,554
|
|
Expiry of losses
|
|
|
-
|
|
|
|
20,280
|
|
Change in unrecognized deductible temporary differences
|
|
|
1,107,356
|
|
|
|
(20,829,824
|
)
|
Total income tax expense (recovery)
|
|
$
|
-
|
|
|
$
|
-
|
|
The significant components
of the Company’s deferred tax assets are as follows:
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Deferred income tax assets (liabilities):
|
|
|
|
|
|
|
|
|
Mineral properties
|
|
$
|
21,801,955
|
|
|
$
|
23,391,666
|
|
Property and equipment
|
|
|
7,362
|
|
|
|
6,448
|
|
Share issue costs
|
|
|
48,434
|
|
|
|
36,483
|
|
Marketable securities
|
|
|
-
|
|
|
|
54,073
|
|
Allowable capital losses
|
|
|
54,212
|
|
|
|
-
|
|
Net operating losses available for future periods
|
|
|
49,962,349
|
|
|
|
47,278,286
|
|
|
|
|
71,874,312
|
|
|
|
70,766,956
|
|
Valuation allowance
|
|
|
(71,874,312
|
)
|
|
|
(70,766,956
|
)
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
At December 31, 2018, the Company
has available net operating losses for Canadian income tax purposes of approximately $20,779,000 and net operating losses for US
income tax purposes of approximately $145,894,000 available for carry-forward to reduce future years’ taxable income, if
not utilized, expiring as follows:
|
|
|
Canada
|
|
|
United States
|
|
|
|
|
|
|
|
|
|
2038
|
|
|
$
|
125,000
|
|
|
$
|
8,741,000
|
|
2037
|
|
|
|
1,394,000
|
|
|
|
8,800,000
|
|
2036
|
|
|
|
1,383,000
|
|
|
|
8,798,000
|
|
2035
|
|
|
|
406,000
|
|
|
|
10,703,000
|
|
2034
|
|
|
|
1,694,000
|
|
|
|
12,587,000
|
|
2033
|
|
|
|
1,827,000
|
|
|
|
14,208,000
|
|
2032
|
|
|
|
2,629,000
|
|
|
|
16,798,000
|
|
2031
|
|
|
|
4,180,000
|
|
|
|
10,386,000
|
|
2030
|
|
|
|
2,829,000
|
|
|
|
30,439,000
|
|
2029
|
|
|
|
2,074,000
|
|
|
|
18,765,000
|
|
2028
|
|
|
|
1,253,000
|
|
|
|
2,973,000
|
|
2027
|
|
|
|
907,000
|
|
|
|
1,412,000
|
|
2026
|
|
|
|
78,000
|
|
|
|
1,284,000
|
|
|
|
|
$
|
20,779,000
|
|
|
$
|
145,894,000
|
|
The Company also has available
mineral resource expenses that are related to the Company’s exploration activities in the United States of approximately
$126,990,000 which may be deductible for U.S. tax purposes. Future tax benefits, which may arise as a result of applying these
deductions to taxable income, have not been recognized in these accounts due to the uncertainty of future taxable income.
Authorized
500,000,000 common shares without
par value. At December 31, 2017 and 2018, there were 162,392,996 and 186,990,683 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
468,000 common shares pursuant to the exercise of stock options for total proceeds of $181,026 and transferred related contributed
surplus of $102,790 to share capital during the year ended December 31, 2018.
Stock options
The Company adopted an incentive
stock option plan in 2006, as amended September 19, 2012 and re-approved 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.
During the year ended December
31, 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 of the Company. The options vested 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.
During the year ended December
31, 2017, the Company granted incentive stock options to Mr. Karl Hanneman in connection with his appointment as the new CEO of
the Company. Mr. Hanneman is entitled to purchase a total of 250,000 common shares in the capital stock of the Company at an issue
price of C$1.35 per share. The options vested as to one-third on the grant date, one-third on February 1, 2018, and one-third on
February 1, 2019. Expiry date is February 1, 2025.
A summary of the status of the
stock option plan as of December 31, 2018 and 2017 and changes during the fiscal years is presented below:
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price (C$)
|
|
|
Aggregate
Intrinsic
Value (C$)
|
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price (C$)
|
|
|
Aggregate
Intrinsic
Value (C$)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of the year
|
|
|
4,477,000
|
|
|
$
|
1.03
|
|
|
|
|
|
|
|
6,026,200
|
|
|
$
|
1.61
|
|
|
|
|
|
Granted
|
|
|
420,085
|
|
|
$
|
0.61
|
|
|
|
|
|
|
|
250,000
|
|
|
$
|
1.35
|
|
|
|
|
|
Exercised
|
|
|
(468,000
|
)
|
|
$
|
0.50
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Expired
|
|
|
(269,000
|
)
|
|
$
|
2.18
|
|
|
|
|
|
|
|
(1,650,000
|
)
|
|
$
|
3.17
|
|
|
|
|
|
Cancelled
|
|
|
(504,094
|
)
|
|
$
|
0.95
|
|
|
|
|
|
|
|
(149,200
|
)
|
|
$
|
1.24
|
|
|
|
|
|
Balance, end of the year
|
|
|
3,655,991
|
|
|
$
|
0.98
|
|
|
$
|
67,899
|
|
|
|
4,477,000
|
|
|
$
|
1.03
|
|
|
$
|
38,220
|
|
The weighted average remaining
life of options outstanding at December 31, 2018 was 4.0 years.
Stock options outstanding are
as follows:
|
|
December
31, 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
|
|
|
|
360,000
|
|
|
|
360,000
|
|
|
|
$
|
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
|
|
|
|
130,000
|
|
|
|
130,000
|
|
|
|
$
|
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
|
|
|
|
405,991
|
|
|
|
405,991
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
February 1, 2025
|
|
$
|
1.35
|
|
|
|
250,000
|
|
|
|
166,667
|
|
|
|
$
|
1.35
|
|
|
|
250,000
|
|
|
|
83,333
|
|
|
|
|
|
|
|
|
3,655,991
|
|
|
|
3,572,658
|
|
|
|
|
|
|
|
|
4,477,000
|
|
|
|
4,310,333
|
|
* 90,000 options exercised subsequently
** 31,174 options exercised subsequently
A summary of the non-vested options
as of December 31, 2018 and 2017 and changes during the fiscal years ended December 31, 2018 and 2017 is as follows:
Non-vested options:
|
|
Number of options
|
|
|
Weighted average
grant-date fair
value (C$)
|
|
Outstanding at December 31, 2016
|
|
|
672,735
|
|
|
$
|
0.25
|
|
Granted
|
|
|
250,000
|
|
|
$
|
0.40
|
|
Vested
|
|
|
(756,068
|
)
|
|
$
|
0.27
|
|
Outstanding at December 31, 2017
|
|
|
166,667
|
|
|
$
|
0.40
|
|
Granted
|
|
|
420,085
|
|
|
$
|
0.48
|
|
Vested
|
|
|
(503,419
|
)
|
|
$
|
0.47
|
|
Outstanding at December 31, 2018
|
|
|
83,333
|
|
|
$
|
0.40
|
|
At December 31, 2018, there was
unrecognized compensation expense of C$2,242 related to non-vested options outstanding. The cost is expected to be recognized over
a weighted-average remaining period of approximately 0.08 years.
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. As at December 31, 2018, the maximum aggregate number of common shares that could be
issued under the DSU Plan and the 2006 Plan was 18,699,068, representing 10% of the number of issued and outstanding common shares
on that date (on a non-diluted basis). As at December 31, 2018, the Company had stock options to potentially acquire 3,655,991
common shares outstanding under the 2006 Plan (representing approximately 1.96% of the outstanding common shares), leaving up to
15,043,077 common shares available for future grants under the DSU Plan and under the 2006 Plan (combined) based on the number
of outstanding common shares as at that date on a non-diluted basis (representing an aggregate of approximately 8.04% of the outstanding
common shares).
During the year ended December
31, 2018, in accordance with the Company’s DSU Plan, on October 17, 2018 the Company granted each of the members of the Board
of Directors (other than those directors nominated for election by Paulson & Co., Inc.) 101,220 DSUs with a grant date fair
value (defined as the weighted average of the prices at which the common shares traded on the exchange with the most volume for
the five trading days immediately preceding the grant) of C$0.82 per grant, or an aggregate of C$581,003.
During the year ended December
31, 2017, in accordance with the Company’s DSU Plan, on October 23, 2017 the Company granted each of the members of the Board
of Directors (other than those directors nominated for election by Paulson & Co., Inc.) 129,687 DSUs with a grant date fair
value (defined as the weighted average of the prices at which the common shares traded on the exchange with the most volume for
the five trading days immediately preceding the grant) of C$0.62 per grant, or an aggregate of C$482,436.
The DSUs entitle the holders
to receive common shares of the Company’s stock without the payment of any consideration. The DSUs vested immediately upon
being granted but the common shares of stock underlying the DSUs are not deliverable to the grantee until the grantee is no longer
serving on the Company’s Board of Directors.
DSUs outstanding are as follows:
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
|
|
Number
of
Units
|
|
|
Weighted
Average
Exercise
Price (C$)
|
|
|
Number
of
Units
|
|
|
Weighted
Average
Exercise
Price (C$)
|
|
Balance, beginning of the year
|
|
|
648,435
|
|
|
$
|
0.62
|
|
|
|
-
|
|
|
$
|
-
|
|
Issued
|
|
|
708,540
|
|
|
$
|
0.82
|
|
|
|
778,122
|
|
|
$
|
0.62
|
|
Delivered
|
|
|
-
|
|
|
|
-
|
|
|
|
(129,687
|
)
|
|
$
|
0.62
|
|
Balance, end of the year
|
|
|
1,356,975
|
|
|
$
|
0.72
|
|
|
|
648,435
|
|
|
$
|
0.62
|
|
Obligation to issue shares
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.
Share-based payments
During the year ended December
31, 2018, the Company granted 420,085 stock options and 708,540 DSUs for common shares of the Company. Share-based compensation
for the year ended December 31, 2018 totaled $603,818 ($189,396 related to options and $414,422 related to DSUs). Of the total
expense for the year ended December 31, 2018, $414,422 is included in consulting fees, $183,429 in wages and benefits and $5,967
in investor relations in the statement of operations and comprehensive loss.
During the year ended December
31, 2017, the Company granted 250,000 stock options and 778,122 DSUs for common shares of the Company. Share-based compensation
for the year ended December 31, 2017 totaled $443,556 ($61,998 related to options and $381,558 related to DSUs). Of the total expense
for the year ended December 31, 2017, $384,516 is included in consulting fees, $58,192 in wages and benefits and $848 in investor
relations in the statement of operations and comprehensive loss.
The following weighted average
assumptions were used for the Black-Scholes option pricing model calculations:
|
|
Year ended
December 31,
2018
|
|
|
Year ended
December 31,
2017
|
|
Expected life of options
|
|
|
6 years
|
|
|
|
6 years
|
|
Risk-free interest rate
|
|
|
2.12
|
%
|
|
|
1.75
|
%
|
Expected volatility
|
|
|
93.67
|
%
|
|
|
93.02
|
%
|
Dividend rate
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Exercise price (C$)
|
|
$
|
0.61
|
|
|
$
|
1.35
|
|
The expected volatility used
in the Black-Scholes option pricing model is based on the historical volatility of the Company’s shares.
|
9.
|
SEGMENT AND GEOGRAPHIC INFORMATION
|
The Company operates in a single
reportable operating segment, being the exploration and development of mineral properties. The following tables present selected
financial information by geographic location:
|
|
Canada
|
|
|
United States
|
|
|
Total
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized acquisition costs
|
|
$
|
-
|
|
|
$
|
55,273,432
|
|
|
$
|
55,273,432
|
|
Property and equipment
|
|
|
8,191
|
|
|
|
9,559
|
|
|
|
17,750
|
|
Current assets
|
|
|
9,928,115
|
|
|
|
504,817
|
|
|
|
10,432,932
|
|
Total assets
|
|
$
|
9,936,306
|
|
|
$
|
55,787,808
|
|
|
$
|
65,724,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
Year ended
December 31,
2018
|
|
|
Year ended
December 31,
2017
|
|
|
|
|
|
|
|
|
Net loss for the year - Canada
|
|
$
|
(682,348
|
)
|
|
$
|
(1,801,817
|
)
|
Net loss for the year - United States
|
|
|
(3,509,690
|
)
|
|
|
(4,630,240
|
)
|
Net loss for the year
|
|
$
|
(4,192,038
|
)
|
|
$
|
(6,432,057
|
)
|
The following table discloses,
as of December 31, 2018, the Company’s contractual obligations including anticipated mineral property payments and work commitments.
Under the terms of the Company’s mineral property purchase agreements, mineral leases and the terms of the unpatented mineral
claims held by it, the Company is required to make certain scheduled acquisition payments, incur certain levels of expenditures,
make lease or advance royalty payments, make payments to government authorities and incur assessment work expenditures as summarized
in the table below in order to maintain and preserve the Company’s interests in the related mineral properties. If the Company
is unable or unwilling to make any such payments or incur any such expenditures, it is likely that the Company would lose or forfeit
its rights to acquire or hold the related mineral properties. The following table assumes that the Company retains the rights to
all of its current mineral properties, but does not exercise any lease purchase or royalty buyout options:
|
|
Payments Due by Year
|
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024 and
beyond
|
|
|
Total
|
|
Mineral Property Leases
(1)
|
|
$
|
425,389
|
|
|
$
|
430,420
|
|
|
$
|
435,526
|
|
|
$
|
440,709
|
|
|
$
|
445,970
|
|
|
$
|
451,310
|
|
|
$
|
2,629,324
|
|
Mining Claim Government Fees
|
|
|
114,825
|
|
|
|
114,825
|
|
|
|
114,825
|
|
|
|
114,825
|
|
|
|
114,825
|
|
|
|
114,825
|
|
|
|
688,950
|
|
Total
|
|
$
|
540,214
|
|
|
$
|
545,245
|
|
|
$
|
550,351
|
|
|
$
|
555,534
|
|
|
$
|
560,795
|
|
|
$
|
566,135
|
|
|
$
|
3,318,274
|
|
|
1.
|
Does not include required work expenditures, as it is
assumed that the required expenditure level is significantly below the work for which will actually be carried out by the Company.
Does not include potential royalties that may be payable (other than annual minimum royalty payments). See Note 4.
|
|
11.
|
RELATED PARTY TRANSACTIONS
|
In December 2011, in accordance
with a Stock and Asset Purchase Agreement (the “Agreement”) between the Company, Alaska/Nevada Gold Mines, Ltd. (“AN
Gold Mines”) and the Heflinger Group, the Company acquired certain mining claims and related rights in the vicinity of the
Livengood Gold Project located near Fairbanks, Alaska. The Company’s derivative liability, as described in Note 6 above,
represented the remaining consideration for the purchase of these claims and related rights and was paid in January 2017. Under
the Agreement, the payment was made 70% to AN Gold Mines and 30% to the Heflinger Group.
Mr. Hanneman was appointed Chief
Operating Officer of the Company on March 26, 2015 and subsequently appointed Chief Executive Officer of the Company effective
January 31, 2017. Mr. Hanneman 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.
On May 24, 2017, the shareholders
approved the proposed issuance of common shares to Thomas Irwin as a one-time payment associated with his transition from CEO to
senior advisor. Subsequent to the shareholder approval, the Company recognized an obligation to issue 206,024 shares with a value
of $99,492 based on the USD-CAD exchange rate (USD 1.00 = CAD 1.3460) and the closing price of the common shares on the TSX (CAD
0.650), both as at May 24, 2017. On July 13, 2017, a certificate for 206,024 common shares was issued to Mr. Irwin.
In March 2018, the Company closed
a non-brokered private placement financing through the issuance of 4,105,472 shares to Paulson & Co., Inc. (“Paulson”)
and 19,894,528 shares to Electrum Strategic Opportunities Fund II, L.P. (“Electrum”) at a price of $0.50 per share.
As at December 31, 2018, Paulson, Tocqueville Asset Management, and Electrum beneficially own approximately 31.9%, 16.1%, and 14.2%
respectively of the Company's 186,990,683 common shares.
ITEM 9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of December 31, 2018, an evaluation
was carried out under the supervision of and with the participation of the Company’s management, including the Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act). Based on the evaluation, the Chief Executive
Officer and the Chief Financial Officer have concluded that, as of December 31, 2018, the Company’s disclosure controls and
procedures were effective in ensuring that information required to be disclosed in reports filed or submitted to the SEC under
the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in applicable rules and
forms and (ii) accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, in
a manner that allows for timely decisions regarding required disclosures.
The effectiveness of our or any system
of disclosure controls and procedures, however well designed and operated, can provide only reasonable assurance that the objectives
of the system will be met and is subject to certain limitations, including the exercise of judgment in designing, implementing
and evaluating controls and procedures and the assumptions used in identifying the likelihood of future events.
Management’s Annual Report on
Internal Control over Financial Reporting
Management is responsible for establishing
and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). Management evaluated,
with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of internal control over financial
reporting as of December 31, 2018. In conducting this evaluation, management used the framework established by the Committee of
Sponsoring Organizations of the Treadway Commission as set forth in Internal Control – Integrated Framework (2013). Based
on this evaluation under the framework in Internal Control – Integrated Framework (2013), management concluded that internal
control over financial reporting was effective as of December 31, 2018
.
Because of its inherent limitations, a
system of internal control over financial reporting may not prevent or detect misstatements. A control system, no matter how well
designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be
met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls
must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. The design of any system
of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that
any design will achieve its stated objectives under all future conditions.
This Annual Report on Form 10-K does not
include an attestation report of the Company’s independent public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by the Company’s independent public accounting firm pursuant
to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual
Report on Form 10-K.
Changes in Internal Control over Financial
Reporting
There were no changes in internal controls
over financial reporting during the fourth quarter ended December 31, 2018 that have materially, or are reasonably likely to materially
affect, the Company’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.