UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-33638
INTERNATIONAL TOWER HILL MINES LTD.
(Exact Name of Registrant as Specified in its Charter)
British Columbia, Canada
(State or other jurisdiction of incorporation or
organization)
2300-1177 West Hastings Street,
Vancouver, British Columbia, Canada
(Address of principal administrative offices)
N/A
(I.R.S. Employer
Identification No.)
V6E 2K3
(Zip code)
Securities registered pursuant to Section 12(b) of the Act:
Registrant’s telephone number, including area code: (604) 683-6332
Title of Each Class:
Common Shares, no par value
Name of Each Exchange on Which Registered:
NYSE MKT
Securities registered pursuant to Section 12(g) of the Act: N/A
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes (cid:133) No (cid:95)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes (cid:133) No (cid:95)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes (cid:95) No (cid:133)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes (cid:95)(cid:3)No (cid:133)
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. (cid:95)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
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(cid:133) (Do not check if a smaller reporting company) Smaller reporting company
Accelerated filer
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:134) No (cid:95)
Based on the last sale price on the NYSE MKT of the registrant’s Common Shares on June 30, 2016 (the last business day of the registrant’s most recently
completed second fiscal quarter) of $0.88 per share, the aggregate market value of the voting stock held by non-affiliates of the registrant was approximately
$61,282,537.
As of March 9, 2017, the registrant had 162,186,972 Common Shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
To the extent specifically referenced in Part III, portions of the registrant’s definitive Proxy Statement on Schedule 14A to be filed with the Securities and
Exchange Commission in connection with the registrant’s 2017 Annual Meeting of Shareholders are incorporated by reference into this report.
Table of Contents
Page
Part I
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
Part II
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
Part III
Item 10
Item 11
Item 12
Item 13
Item 14
Part IV
Item 15
Item 16
SIGNATURES
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers, and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
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CAUTIONARY NOTE TO U.S. INVESTORS REGARDING ESTIMATES OF MEASURED, INDICATED AND INFERRED RESOURCES AND
PROVEN AND PROBABLE RESERVES
International Tower Hill Mines Ltd. (“we”, “us”, “our,” “ITH” or the “Company”) is a mineral exploration company engaged in the acquisition and exploration of
mineral properties. As used in this Annual Report on Form 10-K, the terms “mineral reserve”, “proven mineral reserve” and “probable mineral reserve” are
Canadian mining terms as defined in accordance with Canadian National Instrument 43-101—Standards of Disclosure for Mineral Projects (“NI 43-101”) and the
Canadian Institute of Mining, Metallurgy and Petroleum (the “CIM”)—CIM Definition Standards on Mineral Resources and Mineral Reserves, adopted by the
CIM Council, as amended. These definitions differ from the definitions in the United States Securities and Exchange Commission (“SEC”) Industry Guide 7
(“SEC Industry Guide 7”). Under SEC Industry Guide 7 standards, a “final” or “bankable” feasibility study is required to report reserves, the three-year historical
average price is used in any reserve or cash flow analysis to designate reserves, and the primary environmental analysis or report must be filed with the
appropriate governmental authority. In addition, the terms “mineral resource”, “measured mineral resource”, “indicated mineral resource” and “inferred mineral
resource” are defined in and required to be disclosed by NI 43-101; however, these terms are not defined terms under SEC Industry Guide 7 and are normally not
permitted to be used in reports and registration statements filed with the SEC. Investors are cautioned not to assume that all or any part of a mineral deposit in
these categories will ever be converted into reserves.
“Inferred mineral resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be
assumed that all, or any part, of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred mineral
resources may not form the basis of feasibility or pre-feasibility studies, except in rare cases. Investors are cautioned not to assume that all or any part of an
inferred mineral resource exists or is economically or legally mineable.
Disclosure of “contained ounces” in a resource is permitted disclosure under Canadian regulations; however, the SEC normally only permits issuers to report
mineralization that does not constitute “reserves” by SEC standards as in place tonnage and grade without reference to unit measures. Accordingly, information
contained in this report and the documents incorporated by reference herein contain descriptions of our mineral deposits that may not be comparable to similar
information made public by U.S. companies subject to the reporting and disclosure requirements under the United States federal securities laws and the rules and
regulations thereunder.
The term “mineralized material” as used in this Annual Report on Form 10-K, although permissible under SEC Industry Guide 7, does not indicate “reserves” by
SEC Industry Guide 7 standards. We cannot be certain that any part of the mineralized material will ever be confirmed or converted into SEC Industry Guide 7
compliant “reserves”. Investors are cautioned not to assume that all or any part of the mineralized material will ever be confirmed or converted into reserves or
that mineralized material can be economically or legally extracted.
CAUTIONARY NOTE TO ALL INVESTORS CONCERNING ECONOMIC ASSESSMENTS THAT INCLUDE INFERRED RESOURCES
The Company currently holds or has the right to acquire interests in an advanced stage exploration project in Alaska referred to as the Livengood Gold Project
(the “Livengood Gold Project” or the “Project”). Mineral resources that are not mineral reserves have no demonstrated economic viability. The preliminary
assessments on the Project are preliminary in nature and include “inferred mineral resources” that have a great amount of uncertainty as to their existence, and are
considered too speculative geologically to have economic considerations applied to them that would enable them to be categorized as mineral reserves. It cannot
be assumed that all, or any part, of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred mineral
resources may not form the basis of feasibility or pre-feasibility studies. 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.
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FORWARD LOOKING STATEMENTS
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:
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the Company’s future cash requirements, the Company’s ability to meet its financial obligations as they come due, and the Company’s ability to be able
to raise the necessary funds to continue operations on acceptable terms, if at all;
the potential to improve the block model or production schedule at the Livengood Gold Project,
the potential for opportunities to improve recovery or further reduce costs at the Livengood Gold Project;
the Company’s ability to potentially include the results of the optimization process in a new or updated feasibility study or any future financial analysis
of the Project, and the estimated cost of such optimization process;
the Company’s ability to carry forward and incorporate into future engineering studies of the Project updated mine design, production schedule, and
recovery concepts identified during the optimization process;
the potential for the Company to carry out an engineering phase that will evaluate and optimize the Project configuration and capital and operating
expenses, including determining the optimum scale for the Project;
the Company’s strategies and objectives, both generally and specifically in respect of the Livengood Gold Project;
the Company’s belief that there are no known environmental issues that are anticipated to materially impact the Company’s ability to conduct mining
operations at the Project;
the potential for the expansion of the estimated resources at the Livengood Gold Project;
the potential for a production decision concerning, and any production at, the Livengood Gold Project;
the sequence of decisions regarding the timing and costs of development programs with respect to, and the issuance of the necessary permits and
authorizations required for, the Livengood Gold Project;
the Company’s estimates of the quality and quantity of the resources at the Livengood Gold Project;
the timing and cost of any future exploration programs at the Livengood Gold Project, and the timing of the receipt of results therefrom; and
future general business and economic conditions, including changes in the price of gold and the overall sentiment of the markets for public equity.
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:
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the demand for, and level and volatility of the price of, gold;
conditions in the financial markets generally, the overall sentiment of the markets for public equity, interest rates and currency rates;
general business and economic conditions;
government regulation and proposed legislation (and changes thereto or interpretations thereof);
defects in title to claims, or the ability to obtain surface rights, either of which could affect the Company’s property rights and claims;
the Company’s ability to secure the necessary services and supplies on favorable terms in connection with its programs at the Livengood Gold Project
and other activities;
the Company’s ability to attract and retain key staff, particularly in connection with the permitting and development of any mine at the Livengood Gold
Project;
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the accuracy of the Company’s resource estimates (including with respect to size and grade) and the geological, operational and price assumptions on
which these are based;
the timing of the ability to commence and complete planned work programs at the Livengood Gold Project;
the timing of the receipt of and the terms of the consents, permits and authorizations necessary to carry out exploration and development programs at the
Livengood Gold Project and the Company’s ability to comply with such terms on a safe and cost-effective basis;
the ongoing relations of the Company with the lessors of its property interests and applicable regulatory agencies;
the metallurgy and recovery characteristics of samples from certain of the Company’s mineral properties and whether such characteristics are reflective
of the deposit as a whole; and
the continued development of and potential construction of any mine at the Livengood Gold Project property not requiring consents, approvals,
authorizations or permits that are materially different from those identified by the Company.
Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those
described herein. 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.
CAUTIONARY NOTE REGARDING SIMILAR OR ADJACENT MINERAL PROPERTIES
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.
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The following is a glossary of certain terms that may be used in this report.
GLOSSARY OF TERMS
“alteration”
“anomalous”
“As”
“Au”
“basalt”
“biotite”
“Board”
“chert”
“CIL”
“clastic”
“chip sample”
“cm”
“common shares”
“conglomerate”
“Corvus”
“cutoff grade”
“deformation”
“deposit”
“diamond drill”
“dip”
“dike”
“director”
“disseminated”
“epigenetic”
“g/t”
“gabbro”
Changes in the chemical or mineralogical composition of a rock, generally produced by weathering or hydrothermal solutions
Departing from the expected or normal
Arsenic
Gold
A dark coloured igneous rock, commonly extrusive – the fine grained equivalent of gabbro
A common rock forming mineral of the mica group
The Board of Directors of ITH
A hard, dense microcrystalline or cryptocrystalline sedimentary rock, consisting chiefly of interlocking crystals of quartz less
than about 30 microns in diameter
Carbon in Leach
Pertaining to a rock or sediment composed principally of fragments derived from pre-existing rocks or minerals and
transported some distance from their places of origin; also said of the texture of such a rock
A series of small pieces of ore or rock taken at regular intervals across a vein or exposure
Centimeters
The common shares without par value in the capital of ITH as the same are constituted on the date hereof
A coarse grained clastic sedimentary rock, composed of rounded to sub-angular fragments larger than 2mm in diameter set in
a fine-grained matrix of sand or silt, and commonly cemented by calcium carbonate, iron oxide, silica or hardened clay
Corvus Gold Inc., a company subsisting under the laws of British Columbia which was spun off from the Company in August,
2010
The lowest grade of mineralized material that qualifies as ore in a given deposit, that is, material of the lowest assay value that
is included in a resource/reserve estimate
A general term for the processes of folding, faulting, shearing, compression, or extension of rocks as a result of various earth
forces
A mineralized body which has been physically delineated by sufficient drilling, trenching, and/or underground work, and
found to contain a sufficient average grade of metal or metals to warrant further exploration and/or development expenditures.
Such a deposit does not qualify as a commercially mineable ore body or as containing reserves or ore, unless final legal,
technical and economic factors are resolved
A type of rotary drill in which the cutting is done by abrasion rather than percussion. The cutting bit is set with diamonds and
is attached to the end of the long hollow rods through which water is pumped to the cutting face. The drill cuts a core of rock
which is recovered in long cylindrical sections, an inch or more in diameter
The angle that a stratum or any planar feature makes with the horizontal, measured perpendicular to the strike and in the
vertical plane
A tabular body of igneous rock that cuts across the structure of adjacent rocks or cuts massive rocks
A member of the Board of Directors of ITH
Fine particles of mineral dispersed throughout the enclosing rock
Of or relating to a mineral deposit of origin later than that of the enclosing rocks
Grams per metric tonne
A group of dark coloured, basic intrusive igneous rocks – the approximate intrusive equivalent of basalt
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“grade”
“heap leaching”
“host”
“host rock”
To contain a particular quantity of ore or mineral, relative to other constituents, in a specified quantity of rock
A method of recovering minerals from ore whereby crushed rock is stacked on a non-porous liner and an appropriate chemical
solution is sprayed on the top of the pile (the “heap”) and allowed to percolate down through the crushed rock, dissolving the
desired minerals(s) as it does so. The chemical solution is then collected from the base of the heap and is treated to remove
the dissolved mineral(s)
A rock or mineral that is older than rocks or minerals introduced into it or formed within it
A body of rock serving as a host for other rocks or for mineral deposits, or any rock in which ore deposits occur
“hydrothermal”
A term pertaining to hot aqueous solutions of magmatic origin which may transport metals and minerals in solution
“ITH”
“intrusion”
“intrusive”
“km”
“lode”
“m”
“mm”
“mafic”
“magma”
“magmatic”
“massive”
“mineral reserve”
“mineral resource”
International Tower Hill Mines Ltd., a company existing under the laws of British Columbia
The process of the emplacement of magma in pre-existing rock, magmatic activity. Also, the igneous rock mass so formed
Of or pertaining to intrusion, both the process and the rock so formed
Kilometers
A vein of metal ore in the earth.
Meters
Millimeters
Said of an igneous rock composed chiefly of dark, ferromagnesian minerals, also, said of those minerals
Naturally occurring molten rock material, generated within the earth and capable of intrusion and extrusion, from which
igneous rocks have been derived through solidification and related processes
Of, or pertaining to, or derived from, magma
Said of a mineral deposit, especially of sulphides, characterized by a great concentration of ore in one place, as opposed to a
disseminated or veinlike deposit
The economically mineable part of a measured or indicated mineral resource demonstrated by at least a preliminary feasibility
study. This study must include adequate information on mining, processing, metallurgical, economic and other relevant
factors that demonstrate, at the time of reporting, that economic extraction can be justified. A mineral reserve includes
diluting materials and allowances for losses that may occur when the material is mined
Under NI 43-101, “mineral resource” means a concentration or occurrence of diamonds, natural solid inorganic material, or
natural solid fossilized organic material including base and precious metals, coal, and industrial minerals in or on the Earth’s
crust in such form and quantity and of such a grade or quality that it has reasonable prospects for economic extraction. The
location, quantity, grade, geological characteristics and continuity of a mineral resource are known, estimated or interpreted
from specific geological evidence and knowledge
“mineralization”
The concentration of metals and their chemical compounds within a body of rock
“NI 43-101”
“NSR”
“NYSE MKT”
“ophiolite”
National Instrument 43-101 of the Canadian Securities Administrators entitled “Standards of Disclosure for Mineral Projects”
Net smelter return
NYSE MKT (formerly, the American Stock Exchange)
An assemblage of mafic and ultramafic igneous rocks ranging from spilite and basalt to gabbro and peridotite, and always
derived from them by later metamorphism, whose origin is associated with an early phase of the development of a geosyncline
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“RC”
“Sb”
“sedimentary”
“October 2016 Study”
“sill”
“strike”
“tabular”
“tectonic”
“tectonics”
“TSX”
“ultramafic”
“vein”
A method of drilling whereby rock cuttings generated by the drill bit are flushed up from the bit face to the surface through
the drill rods by air or drilling fluids for collection and analysis
Antimony
Pertaining to or containing sediment (typically, solid fragmental material transported and deposited by wind, water or ice that
forms in layers in loose unconsolidated form), or formed by its deposition
The technical report entitled “Canadian National Instrument 43-101 Technical Report on the Livengood Gold Project, Pre-
feasibility Study, Livengood, Alaska” dated October 24, 2016 and prepared by certain Qualified Persons under NI 43-101, as
filed under the Company’s profile on SEDAR
A tabular igneous intrusion that parallels the planar structure of the surrounding rock
The direction taken by a structural surface
Said of a feature having two dimensions that are much larger or longer than the third, or of a geomorphic feature having a flat
surface, such as a plateau
Pertaining to the forces involved in, or the resulting structures of, tectonics
A branch of geology dealing with the broad architecture of the outer part of the earth, that is, the major structural or
deformational features and their relations, origin and historical evolution
Toronto Stock Exchange
Said of an igneous rock composed chiefly of mafic minerals
An epigenetic mineral filling of a fault or other fracture, in tabular or sheet-like form, often with the associated replacement of
the host rock; also, a mineral deposit of this form and origin
“volcaniclastic”
Pertaining to a clastic rock containing volcanic material in whatever proportion, and without regard to its origin or
environment
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.
USE OF NAMES
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.
CURRENCY
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ITEM 1. BUSINESS
Overview
PART I
ITH is a mineral exploration company engaged in the acquisition and exploration of mineral properties. The Company currently holds or has the right to acquire
interests in an advanced stage exploration project in Alaska referred to as the “Livengood Gold Project” or the “Project”. The Company is in the process of
optimizing the Livengood Gold Project as discussed below. The Company has not yet begun preparation for the extraction of mineralization from the deposit or
reached commercial production. The Company controls 100% of the Livengood Gold Project, which has a current (as at August 26, 2016) mineral resource of
497 million measured tonnes at an average grade of 0.68 g/tonne (10.84 million ounces), 28 million indicated tonnes at an average grade of 0.69 g/tonne (0.62
million ounces) and 53 million inferred tonnes at an average grade of 0.66 g/tonne (1.1 million ounces). In 2016 the Company issued the results of a pre-
feasibility study that was summarized in the October 2016 Study which converted a portion of the mineral resources at the Project into proven reserves of 378
million tonnes at an average grade of 0.71 g/tonne (8.62 million ounces) and probable reserves of 14 million tonnes at an average grade of 0.72 g/tonne (353,000
ounces) based on a gold price of $1,250 per ounce. All work presently planned by the Company is directed at maintaining necessary environmental baseline
activities at the Livengood Gold Project and focusing efforts on Project optimization opportunities, including those identified in the October 2016 Study. A more
complete description of the Livengood Gold Project and the current activities is set forth in Part II, Item 7, Management’s Discussion and Analysis of Financial
Condition and Results of Operations, of this Annual Report on Form 10-K.
Since 2006, the Company has focused primarily on the acquisition and exploration of mineral properties in Alaska and Nevada by acquiring through staking,
purchase, lease or option (primarily from AngloGold Ashanti (U.S.A.) Exploration Inc. (“AngloGold”) in a transaction which closed on August 4, 2006) interests
in a number of mineral properties in Alaska (Livengood Gold Project, Terra, LMS, BMP, Chisna, Coffee Dome, West Tanana, Gilles, West Pogo, Caribou,
Blackshell and South Estelle) and Nevada (North Bullfrog and Painted Hills) that it believed had the potential to host large precious or base metal deposits. Some
of these, such as the Painted Hills, Gilles, West Tanana, Caribou and Blackshell properties, were, in light of disappointing exploration results, dropped or returned
to the respective optionors or lessors, and the associated costs written off while others, such as the South Estelle property, have been sold. Since early 2008, the
Company’s primary focus has been the exploration and advancement of the Livengood Gold Project and the majority of its resources have been directed to that
end. In August 2010, ITH undertook a corporate spin-out arrangement transaction whereby all of its mineral property interests other than the Project were
transferred to Corvus and Corvus was spun out as an independent and separate public company. Following the completion of that transaction, the sole mineral
property held by the Company is the Livengood Gold Project. Since the completion of such transaction, the Company has focused exclusively on the ongoing
exploration and potential development of the Livengood Gold Project.
The head office and principal administrative address of ITH is located at Suite 2300 – 1177 West Hastings Street, Vancouver, British Columbia, Canada V6E
2K3, and its registered and records office is located at 1300 – 777 Dunsmuir Street, Vancouver, BC V7Y 1K2.
Recent Developments
Livengood Gold Project Developments
During the year ended December 31, 2016 and to the date of this Annual Report on Form 10-K, the Company progressed on a number of opportunities for
optimization and reducing the estimated costs of building and operating a mine at the Project. Outside consultants were retained to conduct additional
metallurgical tests and engineering, including confirmation of the flow sheet and optimizing the operating costs. These inputs were used to prepare the October
2016 Study, which evaluated several scenarios, ultimately selecting a project that will process 52,600 tons per day and produce 6.8 million ounces of gold over 23
years. This improved configuration has reduced the capital costs (“CAPEX”) by 34% or $950 million to $1.84 billion, the process operating cost (“process
OPEX”) by 28% or $2.97 per ton to $7.48 per ton, and the all-in costs to $1,247 per ounce, all as compared to the 100,000 tons per day project evaluated in the
September 2013 Feasibility Study.
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Financing
On December 28, 2016, the Company closed a non-brokered private placement financing through the issuance of 45,833,334 common shares issued at $0.48 per
share for gross proceeds of $22.0 million. Total share issuance costs for this non-brokered private placement financing amounted to $146,735. The Company has
used $14.7 million of the net proceeds for the final payment with respect to acquisition of certain mining claims and related rights in the vicinity of the Livengood
Gold Project, with the balance to be used for continuation of optimization studies to further improve and de-risk the Project, required environmental baseline
studies, and for general working capital purposes.
Management Changes
On January 23, 2017, the ITH Board approved a management transition plan, which was implemented on January 31, 2017, in which Karl Hanneman, currently
the Chief Operating Officer (COO), became the Chief Executive Officer (CEO), managing both the CEO and COO responsibilities, and Tom Irwin, the previous
CEO, transitioned into a part-time position of Senior Advisor prior to his being considered for nomination to the Board at the Company's May 2017 Annual
General Meeting (AGM).
Appointment of Directors
On December 28, 2016, Marcelo Kim was appointed as an additional director of ITH, and as the Chair of the Board. Mr. Kim is a Partner at Paulson & Co. Inc.,
the Company’s major shareholder, where he oversees global natural resource investments. Commencing from the 2017 AGM of the Company’s shareholders,
Paulson & Co. Inc. will have the right to nominate Mr. Kim and one other individual to stand for election to the Board. Steve Lang, who has served as the Board
Chair since January 2014, was appointed as the lead independent director for the Company upon the appointment of Mr. Kim as Chair.
Other Developments
On January 12, 2017, the Company paid $14.7 million for the timely and full satisfaction of the final derivative payment due with respect to acquisition of certain
mining claims and related rights in the vicinity of the Livengood Gold Project. On January 17, 2017, the Full Deed of Reconveyance releasing the Deed of Trust
on the acquired property was recorded and the Company now fully owns this property and has no further liability with respect to this acquisition.
2017 Outlook
On January 23, 2017 the Board approved a 2017 budget of $6.3 million. The work program incorporated in this budget will seek to build upon the Project
improvements announced with the October 2016 Study, focusing on improving the mineralization and alteration models used to support the resource block model,
evaluating alternative block models for production schedule opportunities, and completion of several phases of metallurgical work to better define and optimize
the flowsheet and recovery parameters. The 2017 work program has been specifically designed to target those aspects of the Project that could deliver the highest
NPV increase for the least expenditure. Preliminary work on the block model and metallurgical recovery variability indicates a potential NPV benefit of up to
$280 million and $100 million respectively (see section below 2017 Work Program Details). The engineering firm of BBA Inc. (BBA), who provided support for
the 2016 Pre-feasibility Study (the “2016 PFS”), will be retained to continue work in the 2017 program. Work is also planned to advance the environmental
baseline efforts needed to support future permitting.
However, the Company cautions that, until this multi-phase metallurgical program and the updated block model are completed and the results thereof
are incorporated into a revised financial model, there can be no assurance that the overall recovery increases, potential process optimizations, or block
model improvements, will, in fact, be realized, or that any such increases, optimizations or improvements will have the overall effect suggested above.
8
The Company remains open to a strategic alliance to help support the future development of the Project while considering all other appropriate financing options.
The size of the gold resource, the favorable location, and the proven team are some of the reasons the Company would potentially attract a strategic partner with a
long term development horizon who understands the Project is highly leveraged to gold prices.
Regulatory, Environmental and Social Matters
All of the Company’s currently proposed exploration is under the jurisdiction of the State of Alaska. In Alaska, low impact, initial stage surface exploration such
as stream sediment, soil and rock chip sampling does not require any permits. The State of Alaska requires an APMA (Alaska Placer Mining Application)
exploration permit for all substantial surface disturbances such as trenching, road building and drilling. These permits are also reviewed by related state and
federal agencies that can comment and require specific changes to the proposed work plans to minimize impacts on the environment. The permitting process for
significant disturbances generally requires 30 days for processing and all work must be bonded. The Company currently has all necessary permits with respect to
its currently planned exploration activities in Alaska. Although the Company has never had an issue with the timely processing of APMA permits, there can be no
assurances that delays in permit approval will not occur.
ITH has created a Technical Committee, which has adopted a formal, written charter. As set out in its charter, the overall purpose of the Technical Committee is
to assist the Board in fulfilling its oversight responsibilities with respect to the Company’s continuing commitment to improving the environment and ensuring
that activities are carried out and facilities are operated and maintained in a safe and environmentally sound manner that reflects the ideals and principles of
sustainable development. The primary function of the Technical Committee is to monitor, review and provide oversight with respect to the technical aspects of
the Company’s projects as well as monitor policies, standards, accountabilities and programs relative to health, safety, community relations and environmental-
related matters. The Technical Committee also advises the Board and makes recommendations for the Board’s consideration regarding health, safety, community
relations and environmental-related issues.
Although not set out in a specific policy, the Company strives to be a positive influence in the local communities where its mineral projects are located, not only
by contributing to the welfare of such communities through donations of money and supplies, as appropriate, but also through hiring, when appropriate, local
workers to assist in ongoing exploration programs. The Company considers building and maintaining strong relationships with such communities to be
fundamental to its ability to continue to operate in such regions and to assist in the eventual development (if any) of mining operations in such regions, and it
attaches considerable importance to commencing and fostering such relationships from the beginning of its involvement in any particular area.
Corporate Structure
ITH was incorporated under the Company Act (British Columbia) under the name “Ashnola Mining Company Ltd.” on May 26, 1978. ITH’s name was changed
to “Tower Hill Mines Ltd.” on June 1, 1988, and subsequently changed to “International Tower Hill Mines Ltd.” on March 15, 1991. ITH has been transitioned
under, and is now governed by, the Business Corporations Act (British Columbia). On November 15, 2005, the shareholders resolved to amend the Company’s
Articles to increase its authorized capital from 20,000,000 common shares without par value to 500,000,000 common shares without par value. This increase
became effective on April 20, 2006.
ITH has three material subsidiaries:
(cid:120)
(cid:120)
(cid:120)
Tower Hill Mines, Inc. (“TH Alaska”), a corporation incorporated in Alaska on June 27, 2006, which holds most of the Company’s Alaskan mineral
properties and is 100% owned by ITH;
Tower Hill Mines (US) LLC, a limited liability company formed in Colorado on June 27, 2006, which carries on the Company’s administrative and
personnel functions and is wholly owned by TH Alaska; and
Livengood Placers, Inc., a corporation incorporated in Nevada on June 11, 1998, which holds certain Alaskan properties and is 100% owned by TH
Alaska.
9
The following corporate chart sets forth all of ITH’s material subsidiaries:
Segment and Geographical Information
The Company operates in a single reportable operating segment, being the exploration and development of mineral properties. The Company’s long-lived assets
are geographically distributed as shown in the following table. The Company did not have revenues from external customers in any of the years shown below.
Canada:
United States:
Total:
Competition
December 31, 2016
December 31, 2015
December 31, 2014
$
$
8,944
55,219,897
55,228,841
$
$
9,563
55,224,561
55,234,124
$
$
10,477
55,230,692
55,241,169
ITH is an exploration stage company. The Company competes with other mineral resource exploration and development companies for financing, technical
expertise and the acquisition of mineral properties. Many of the companies with whom the Company competes have greater financial and technical resources.
Accordingly, these competitors may be able to spend greater amounts on the acquisition, exploration and development of mineral properties. This competition
could adversely impact the Company’s ability to finance further exploration and to achieve the financing necessary for the Company to develop its mineral
properties.
Availability of Raw Materials and Skilled Employees
All aspects of the Company’s business require specialized skills and knowledge. Such skills and knowledge include the areas of geology, drilling, logistical
planning, preparation of feasibility studies, permitting, construction and operation of a mine, financing and accounting. Since commencing its current operations
in mid-2006, the Company has found and retained appropriate employees and consultants and believes it will continue to be able to do so.
All of the raw materials the Company requires to carry on its business are readily available through normal supply or business contracting channels in Canada and
the United States. Since commencing exploration activities at the Livengood Gold Project in mid-2006, the Company has been able to secure the appropriate
personnel, equipment and supplies required to conduct its contemplated programs. While it has experienced difficulty in procuring some equipment, such as drill
equipment or services, experienced drillers and timely assay laboratory services in previous years, the recent overall slowdown in the mineral exploration
business has resulted in more equipment and services being made available on a timely basis. As a result, the Company does not believe that it will experience
any shortages of required personnel, equipment or supplies in the foreseeable future.
Employees
At December 31, 2016, the Company had 10 full-time employees. The Company also uses consultants with specific skills to assist with various aspects of project
evaluation, engineering and corporate governance.
10
Seasonality
As the Company’s mineral exploration activity takes place in Alaska, its business is seasonal. Due to the northern climate, exploration work on the Livengood
Gold Project can be limited due to excessive snow cover and cold temperatures. In general, surface sampling work is limited to May through September and
surface drilling from March through November, although some locations afford opportunities for year-round exploration operations and others, such as road-
accessible wetland areas, may only be explored while frozen in the winter.
Available Information
ITH maintains an internet website at www.ithmines.com. The Company makes available, free of charge, through the Investors section of its website, its Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC and its
Annual Information Form, press releases and material change reports and other reports filed on the System for Electronic Document Analysis and Retrieval
(SEDAR). The Company’s SEC filings are available from the SEC’s internet website at www.sec.gov which contains reports, proxy and information statements
and other information regarding issuers that file electronically. These reports, proxy statements and other information may also be inspected and copied at the
SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of
the Public Reference Room. The Company’s SEDAR filings are available from SEDAR’s internet website at www.sedar.com under the Company’s profile. The
contents of these websites are not incorporated into this report and the references to the URLs for these websites are intended to be inactive textual references
only.
ITEM 1A. RISK FACTORS
You should carefully consider the following risk factors in addition to the other information included in this Annual Report on Form 10-K. Each of these risk
factors could materially and adversely affect our business, operating results and financial condition, as well as materially and adversely affect the value of an
investment in our common shares. The risks described below are not the only ones facing the Company. Additional risks that we are not presently aware of, or
that we currently believe are immaterial, may also adversely affect our business, operating results and financial condition. We cannot assure you that we will
successfully address these risks or that other unknown risks exist that may affect our business.
Risks Related to Our Business
Our success depends on the development and operation of the Livengood Gold Project, which is our only project and which, as contemplated in the October
2016 Study, is not commercially viable at current gold prices.
Our only property at this time is our Livengood Gold Project, which is in the exploration stage. We have issued the October 2016 Study on the Livengood Gold
Project which indicates that the Project generates a minimal positive return at a gold price of $1,250 per ounce. The price of gold is $1,204 per ounce as of March
13, 2017, and the Project as contemplated in the October 2016 Study is not commercially viable at current gold prices. While management is exploring
opportunities identified in the October 2016 Study, for optimization and reducing Project costs, there can be no assurance that any such efforts will be successful,
that any of the optimization opportunities or cost savings will in fact be realized or that the price of gold will increase sufficiently to warrant a decision to develop
the Project. If the Project is not developed, or if the Project is otherwise subject to deterioration, destruction or significant delay, we may never generate revenues
and our shareholders may lose most or all of their investment in our common shares.
11
While we may be successful in outlining potential optimizations that might improve the economics of the Project, there can be no assurance that any such
optimizations can actually be incorporated into the Project.
While a review of the pre-feasibility test work to date on the Project indicates that there is the potential to further optimize the specific parameters of the Project,
and that such optimizations may result in lower capital costs and operating costs for the Project, there can be no assurance that, even if such optimizations can be
achieved and shown to have such effect, it will be possible to actually change the scope, size, scale and parameters of any revised Project configuration to actually
incorporate the optimized results. Even if such optimization testwork shows that optimization will improve capital or operating costs for the Project, it may not be
possible to re-scale the Project so as to take advantage of all or any part of the optimized processes and therefore it may not be possible, in fact, to derive any
benefit from the optimization work or studies carried out.
We have a history of losses and expect to continue to incur losses in the future.
We have incurred losses and have had no revenue from operations since inception, and we expect to continue to incur losses in the future. We have not
commenced commercial production on the Livengood Gold Project and we have no other mineral properties. We have no revenues from operations, and we
anticipate we will have no operating revenues and will continue to incur operating losses until such time, if ever, as we place the Livengood Gold Project into
production and such project generates sufficient revenues to fund continuing operations. The Project is currently in the exploration stage and, as contemplated in
the October 2016 Study, is not commercially viable at current gold prices. Our activities may not result in profitable mining operations and we may not succeed in
establishing mining operations or profitably producing metals at the Livengood Gold Project.
We are an exploration stage company and have no history producing metals from our properties. Any future revenues and profits are uncertain.
We have no history of mining or refining any mineral products or metals and the Livengood Gold Project is not currently producing. There can be no assurance
that the Livengood Gold Project will be successfully placed into production, produce minerals in commercial quantities or otherwise generate operating earnings.
Advancing properties from the exploration stage into development and commercial production requires significant capital and time and will be subject to further
feasibility studies, permitting requirements and construction of the mine, processing plants, roads and related works and infrastructure. We will continue to incur
losses until such time, if ever, as our mining activities successfully reach commercial production levels and generate sufficient revenue to fund continuing
operations. There is no certainty that we will produce revenue from any source, operate profitably or provide a return on investment in the future. If we are unable
to generate revenues or profits, our shareholders might not be able to realize returns on their investment in our common shares.
We will require additional financing to fund exploration and, if warranted, development and production. Failure to obtain additional financing could have a
material adverse effect on our financial condition and results of operation and could cast uncertainty on our ability to continue as a going concern.
Advancing properties from exploration into the development stage requires significant capital and time, and successful commercial production from a property, if
any, will be subject to completing feasibility studies, permitting and construction of the mine, processing plants, roads, and other related works and infrastructure.
The Company does not presently have sufficient financial resources or a source of operating cash flow to undertake by itself to complete the permitting process
and, if a production decision is made, the construction of a mine at the Livengood Gold Project. The completion of the permitting process, and any construction of
a mine at the Livengood Gold Project following the making of a production decision, will therefore depend upon the Company’s ability to obtain financing
through the sale of its equity securities, enter into a joint venture or strategic alliance relationship, secure significant debt financing or find alternative means of
financing. There is no assurance that the Company will be successful in obtaining the required financing on favorable terms or at all. Even if the results of
exploration are encouraging, the Company may not be able to obtain sufficient financing to conduct the further exploration that may be necessary to determine
whether or not a commercially mineable deposit exists.
Our ability to obtain additional financing in the future will depend upon a number of factors, including prevailing capital market conditions, the status of the
national and worldwide economy, our business performance and the price of gold and other precious metals. Capital markets worldwide have been adversely
affected in recent years by substantial losses by financial institutions. Failure to obtain such additional financing on favorable terms or at all could result in delay
or indefinite postponement of further mining operations or exploration and development and the possible partial or total loss of our interests in the Livengood
Gold Project.
12
We have not yet identified, and may never identify, commercially viable reserves that would generate revenues.
We are considered an exploration stage company and will continue to be such until we identify commercially viable reserves on our properties and develop our
properties. We have no producing properties and have never generated any revenue from our operations. We have issued the October 2016 Study using a gold
price of $1,250 per ounce. Based on the October 2016 Study, the Project generates a minimal positive return; however, the Project is not commercially viable at
current gold prices. The majority of exploration projects do not result in the discovery of commercially mineable deposits of ore. Further exploration and
substantial expenditures are required to establish ore reserves through drilling and metallurgical and other testing techniques, determine metal content and
metallurgical recovery processes to extract metal from the ore, and construct, renovate or expand mining and processing facilities. No assurance can be given that
any level of recovery of ore reserves will be realized or that any identified mineral deposit will ever qualify as a commercial mineable ore body which can be
legally and economically exploited. If we are not able to identify commercially viable mineral deposits or profitably extract minerals from such deposits, our
business would be materially adversely affected and our shareholders could lose all or a substantial portion of their investment.
Resource exploration is a highly speculative business, and certain inherent exploration risks could have a negative effect on our business.
Our long-term success depends on our ability to identify mineral deposits on the Livengood Gold Project and other properties we may acquire, if any, that can
then be developed into commercially viable mining operations. Resource exploration is a highly speculative business and involves a high degree of risk,
including, among other things, unprofitable efforts resulting both from the failure to discover mineral deposits and from finding mineral deposits which, though
present, are insufficient in size and grade at the then prevailing market conditions to return a profit from production. Substantial expenditures are required to
establish proven and probable mineral reserves through drilling and analysis, to develop metallurgical processes to extract metal, and to develop the mining and
processing facilities and infrastructure at any site chosen for mining. Although substantial benefits may be derived from the discovery of a major mineralized
deposit, no assurance can be given that minerals will be discovered in sufficient quantities to justify commercial operations or that funds required for development
can be obtained on a timely basis. The marketability of minerals which may be acquired or discovered by the Company will be affected by numerous factors
beyond the control of the Company and cannot be accurately predicted. These factors include market fluctuations, the proximity and capacity of milling facilities,
mineral markets and processing equipment, and government regulations, including regulations relating to prices, taxes, royalties, land use, importing and
exporting of minerals and environmental protection. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may
result in the Company not receiving an adequate return on invested capital.
Mineral resource estimates are based on interpretation and assumptions and could be inaccurate or yield less mineral production under actual conditions
than is currently estimated. Any material changes in these estimates will affect the economic viability of placing a property into production.
The mineral resource estimates included in our reports are estimates only and no assurance can be given that any particular level of recovery of minerals will in
fact be realized or that an identified reserve or resource will ever qualify as a commercially mineable (or viable) deposit which can be legally and economically
exploited. The estimating of mineral resources and mineral reserves is a subjective process and the accuracy of mineral resource and mineral reserve estimates is a
function of the quantity and quality of available data, the accuracy of statistical computations, and the assumptions used and judgments made in interpreting
available engineering and geological information. There is significant uncertainty in any mineral resource or mineral reserve estimate and the actual deposits
encountered and the economic viability of a deposit may differ materially from the Company’s estimates. In addition, the grade of mineralization ultimately
mined may differ from that indicated by drilling results and such differences could be material. Because we have not commenced actual production,
mineralization estimates, including mineral resource estimates, for the Livengood Gold Project may require adjustments or downward revisions, and such
adjustments or revisions may be material.
13
Until ore is actually mined and processed, mineral resources, mineral reserves and grades of mineralization must be considered as estimates only. The grade of
ore ultimately mined, if any, may differ from that indicated by any pre-feasibility or definitive feasibility studies and drill results. There can be no assurance that
minerals recovered in small scale laboratory tests will be duplicated in large scale tests under on-site conditions or in production scale operations. Extended
declines in market prices for gold may render portions or all of our mineral resources uneconomic and result in reduced reported mineralization or adversely
affect the commercial viability determinations reached by us. Material changes in estimates of mineralization, grades, stripping ratios, recovery rates or of our
ability to extract such mineralization may affect the economic viability of projects and the value of our Livengood Gold Project. The estimated resources
described in our reports should not be interpreted as assurances of mine life or of the profitability of future operations. Estimated mineral resources and mineral
reserves may have to be re-estimated based on changes in applicable commodity prices, further exploration or development activity or actual production
experience. This could materially and adversely affect estimates of the volume or grade of mineralization, estimated recovery rates or other important factors that
influence mineral resource or mineral reserve estimates. Market price fluctuations for gold, silver or base metals, increased production costs or reduced recovery
rates or other factors may render any particular reserves uneconomical or unprofitable to develop at a particular site or sites. A reduction in estimated reserves
could require material write downs in investment in the affected mining property and increased amortization, reclamation and closure charges. Mineral resources
are not mineral reserves and there is no assurance that any mineral resources will ultimately be reclassified as proven or probable reserves. Mineral
resources which are not mineral reserves do not have demonstrated economic viability.
There are differences in U.S. and Canadian practices for reporting reserves and resources.
Our reserve and resource estimates are not directly comparable to those made in filings subject to SEC reporting and disclosure requirements, as we report
reserves and resources in accordance with Canadian practices. These practices are different from the practices used to report reserve and resource estimates in
reports and other materials filed with the SEC. It is Canadian practice to report measured, indicated and inferred mineral resources (and in certain circumstances,
deposits that are not measured, indicated or inferred mineral resources but that are targeted for further exploration), which are generally not permitted in
disclosure filed with the SEC by U.S. issuers. In the United States and in Canada, mineralization may not be classified as a “reserve” unless the determination has
been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. U.S. investors are
cautioned not to assume that all or any part of measured, indicated or inferred mineral resources will ever be converted into reserves.
Further, “inferred mineral resources” have a great amount of uncertainty as to their existence and as to whether they can be mined legally or economically.
Disclosure of “contained ounces” is permitted disclosure under Canadian regulations; however, the SEC only permits issuers to report “resources” as in place,
tonnage and grade without reference to unit measures.
Accordingly, information concerning descriptions of mineralization, reserves and resources contained in our reports may not be comparable to information made
public by U.S. companies subject to the reporting and disclosure requirements of the SEC.
Increased costs could affect our ability to bring our projects into production and, once in production, our financial condition and ability to be profitable.
Management anticipates that costs at the Livengood Gold Project will frequently be subject to variation from one year to the next due to a number of factors, such
as changing ore grade, metallurgy and revisions to mine plans, if any, in response to the physical shape and location of the ore body. In addition, costs are affected
by the price of commodities such as fuel, rubber and electricity. Such commodities are at times subject to volatile price movements, including increases that could
make production less profitable or not profitable at all. A material increase in costs could also impact our ability to maintain operations and have a significant
effect on the Company’s profitability.
14
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:
2012
2013
2014
2015
2016
January 1, 2017 to March 13, 2017
High
$
$
$
$
$
$
Low
$
$
$
$
$
$
1,792
1,694
1,385
1,296
1,366
1,257
Average
$
$
$
$
$
$
1,540
1,192
1,142
1,049
1,077
1,151
1,669
1,410
1,266
1,159
1,250
1,214
Our results of operations could be affected by currency fluctuations.
The Livengood Gold Project is located in the United States, with most costs associated with the Project paid in U.S. dollars, and the Company maintains its
accounts in Canadian and U.S. dollars, making it subject to foreign currency fluctuations. There can be significant swings in the exchange rate between the U.S.
and Canadian dollar. There are no plans at this time to hedge against any exchange rate fluctuations in currencies. Adverse foreign currency fluctuations may
cause losses and materially affect the Company’s financial position and results.
Resource exploration, development and production involve a high degree of risk and we do not maintain insurance with respect to certain of these risks,
which exposes us to significant risk of loss.
Resource exploration, development and production involve a high degree of risk. Our operations are, and any future development or mining operations we may
conduct will be, subject to all of the operating hazards and risks normally incident to exploring for and development of mineral properties, such as, but not limited
to:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
economically insufficient mineralized material;
fluctuation in exploration, development and production costs;
labor disputes;
unanticipated variations in grade and other geologic problems;
(cid:120) water conditions;
(cid:120)
difficult surface or underground conditions;
(cid:120) mechanical and equipment failure;
(cid:120)
(cid:120)
failure of pit walls or dams;
environmental hazards;
15
(cid:120)
industrial accidents;
(cid:120) metallurgical and other processing problems;
(cid:120)
(cid:120)
unusual or unexpected rock formations;
personal injury, cave-ins, landslides, flooding, fire, explosions, and rock-bursts;
(cid:120) metal losses;
(cid:120)
(cid:120)
(cid:120)
power outages;
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.
16
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:
(cid:120) mineral concession acquisition, exploration, development, mining and production;
(cid:120) management of natural resources;
(cid:120)
(cid:120)
exports, price controls, taxes and fees;
labor standards on occupational health and safety, including mine safety;
17
(cid:120)
(cid:120)
(cid:120)
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.
18
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.
19
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:
(cid:120)
(cid:120)
(cid:120)
control dispersion of potentially deleterious effluents;
treat ground and surface water to drinking water standards; and
reasonably re-establish pre-disturbance land forms and vegetation.
In order to carry out reclamation obligations imposed on us in connection with the potential development activities at the Livengood Gold Project, we must
allocate financial resources that might otherwise be spent on further exploration and development programs. We plan to set up a provision for reclamation
obligations on the Livengood Gold Project, as appropriate, but this provision may not be adequate. If we are required to carry out unanticipated reclamation work,
our financial position could be adversely affected.
The mining industry is intensely competitive, and we have limited financial and personnel resources with which to compete.
The Company’s business of the acquisition, exploration and development, if warranted, of mineral properties is intensely competitive. The Company may be at a
competitive disadvantage in acquiring additional mining properties because it must compete with other individuals and companies, many of which may have
greater financial resources, operational experience and technical capabilities than the Company. The Company may also encounter increasing competition from
other mining companies in efforts to hire experienced mining professionals. Increased competition could adversely affect the Company’s ability to attract
necessary capital funding, acquire suitable producing properties or prospects for mineral exploration in the future, or attract or retain key personnel or outside
technical resources.
A shortage of equipment and supplies could adversely affect our ability to operate our business.
We are dependent on various supplies and equipment to carry out our exploration and, if warranted, development and mining operations. The shortage of such
supplies, equipment and parts could have a material adverse effect on our ability to carry out our operations and therefore limit or increase the cost of production.
We are dependent on key personnel and the absence of any of these individuals could adversely affect our business. We may experience difficulty attracting
and retaining qualified personnel.
Our success is largely dependent on the performance and abilities of our directors, officers, employees and management and on our ability to attract and retain
additional key personnel in exploration, mine development, sales, marketing, technical support and finance. In addition, the Company has relied and may continue
to rely upon consultants and others for operating expertise. There is no assurance that we will be able to maintain the services of our directors, officers, employees
or other qualified personnel required to operate our business. The loss of the services of these persons could have a material adverse effect on our business and
prospects. Recruiting and retaining qualified personnel is critical to our success and there can be no assurance we will be able to recruit and retain such personnel.
The number of persons skilled in the acquisition, exploration and development of mineral properties is limited and competition for such persons is intense. If we
are not successful in attracting and retaining qualified personnel, our ability to develop our properties could be affected, which could have a material adverse
effect on our business, results of operations, cash flows and financial condition. We do not maintain “key man” life insurance policies on any of our officers or
employees.
20
Canadian investors may not be able to enforce their civil liabilities against us.
It may be difficult for Canadian investors to bring and enforce suits against us. As substantially all of the assets of the Company and its subsidiaries are located
outside of Canada, and certain of the directors and officers of the Company are resident outside of Canada, it may be difficult or impossible for Canadian
investors to enforce judgments granted by a court in Canada against the assets of the Company or the directors and officers of the Company residing outside of
Canada. A shareholder should not assume that the courts of the United States (i) would enforce judgments of Canadian courts obtained in actions against us or
such persons predicated upon the civil liability provisions of the Canadian securities laws or other laws of Canada, or (ii) would enforce, in original actions,
liabilities against us or such persons predicated upon Canadian securities laws or other laws of Canada.
Risks Related to Our Common Shares
Our share price may be volatile and as a result you could lose all or part of your investment.
In recent years, the securities markets in the United States and Canada have experienced a high level of price and volume volatility, and the market price of
securities of many companies, particularly those considered exploration or development stage companies, have experienced wide fluctuations in price which have
not necessarily been related to the operating performance, underlying asset values or prospects of such companies. It may be anticipated that any quoted market
for our common shares will be subject to market trends and conditions generally, notwithstanding any potential success we have in creating revenues, cash flows
or earnings. The price of our common shares has been subject to price and volume volatility in the past. In 2016, the price of our common shares on the Toronto
Stock Exchange ranged from a low of C$0.27 to a high of C$1.76, and on the NYSE MKT ranged from a low of $0.19 to a high of $1.35. From January 1, 2017
to March 13, 2017, the price of our common shares on the TSX ranged from a low of C$0.63 to a high of $0.98, and on the NYSE MKT ranged from a low of
$0.49 to a high of $0.74. There can be no assurance that significant fluctuations in the trading price of the Company’s common shares will not continue to occur,
or that such fluctuations will not materially adversely impact the Company’s ability to raise equity funding without significant dilution to its existing
shareholders, or at all. As a result, our shareholders may be unable to resell their shares at a desired price.
The Toronto Stock Exchange has commenced a delisting review of the Company’s common shares.
In connection with the non-brokered private placement (“Placement”) completed by the Company in December 2016, the Company would, under the rules of the
Toronto Stock Exchange (“TSX”), normally have been required to obtain shareholder approval to the Placement as the aggregate number of common shares
issued pursuant to the Placement exceeded 25% of the then issued and outstanding common shares of the Company, the number of common shares issued to
insiders pursuant to the Placement exceeded 10% of the then issued and outstanding common shares of the Company and the Placement materially affected
control of the Company. However, the Company applied to the TSX for a “financial hardship” exemption from the requirement to obtain shareholder approval for
the Placement, which exemption was granted by the TSX.
However, as a consequence of the Company relying upon the financial hardship exemption, the TSX has commenced a remedial de-listing review, which is
normal practice when a listed issuer seeks to rely on this exemption. This review is ongoing but is likely to be completed before the end of April, 2017. Although
the Company believes that it will be determined to be in compliance with all of the TSX listing requirements, no assurance can be provided as to the outcome of
such review and, therefore, the Company’s continued qualification for listing on the TSX. If the Company is not qualified for listing on the TSX, the Company’s
common shares will be delisted and no longer trade on the TSX.
21
Future sales of our securities in the public or private markets will dilute our current shareholders and could adversely affect the trading price of our common
shares and our ability to continue to raise funds in new stock offerings.
It is likely that the Company will sell common shares or securities exercisable or convertible into common shares in the future. The Company may issue securities
on less than favorable terms to raise sufficient capital to fund its business plan. Any transaction involving the issuance of equity securities or securities convertible
into common shares would result in dilution, possibly substantial, to present and prospective holders of common shares, could adversely affect the trading prices
of our common shares, and could impair our ability to raise capital through future offerings of securities.
We have never paid dividends on our common shares.
We have not paid dividends on our common shares to date, and we may not be in a position to pay dividends for the foreseeable future. Our ability to pay
dividends will depend on our ability to successfully develop the Livengood Gold Project and generate earnings from operations. Further, our initial earnings, if
any, will likely be retained to finance our operations. Any future dividends will depend upon our earnings, our then-existing financial requirements and other
factors, and will be at the discretion of the Board.
Our business is subject to evolving corporate governance and public disclosure regulations that have increased both our compliance costs and the risk of
noncompliance, which could have an adverse effect on our stock price.
We are subject to changing rules and regulations promulgated by a number of governmental and self-regulated organizations, including the British Columbia
Securities Commission, the SEC, the TSX, the NYSE MKT, and the Financial Accounting Standards Board. These rules and regulations continue to evolve in
scope and complexity and many new requirements have been created in response to laws enacted by the United States Congress, making compliance more
difficult and uncertain. For example, on July 21, 2010, the United States Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (the
“Dodd-Frank Act”) with increased disclosure obligations for public companies and mining companies in the United States. Our efforts to comply with the Dodd-
Frank Act and other new regulations have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of
management time and attention from operating activities to compliance activities.
We likely constituted a passive foreign investment company (“PFIC”) during the fiscal year ended December 31, 2016, which may result in adverse U.S.
federal income tax consequences to U.S. holders.
We believe that we were a PFIC for U.S. federal income tax purposes during the fiscal year ended December 31, 2016, and we expect that we will be a PFIC in
the current year and that we may continue to be classified as a PFIC in future years. The determination of whether or not the Company is a PFIC is a factual
determination dependent on a number of factors and cannot be made until the close of the applicable tax year and accordingly no assurances can be given
regarding the Company’s PFIC status for the current year or any future year. If ITH is a PFIC at any time during a U.S. holder’s holding period, then certain
potentially adverse tax consequences could apply to such U.S. holder’s acquisition, ownership, and disposition of common shares. For more information, please
see the discussion in “Certain U.S. Federal Income Tax Considerations for U.S. Holders” below.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
LIVENGOOD GOLD PROJECT, Alaska
The Company currently holds, or has rights to acquire, ownership or leasehold interests in a group of adjacent mineral properties in Alaska which are collectively
referred to as the “Livengood Gold Project.” The Livengood Gold Project is located approximately 113 km (70 miles) by road northwest of Fairbanks, Alaska and
approximately 65 km (40 miles) north of the boundary of the Fairbanks North Star Borough as shown in Figure 1 below. The project lies within the Tolovana
Mining District in the northern part of the Tintina Gold Belt. The Company’s primary focus is to continue to advance the Livengood Gold Project with the
objective of assessing its viability for commercial gold mining.
22
The Company is in the process of optimizing the Livengood Gold Project and does not mine, produce or sell any mineral products at this time. The Company
controls 100% of the Livengood Gold Project, which has a current (as at August 26, 2016) mineral resource of 497 million measured tonnes at an average grade
of 0.68 g/tonne (10.84 million ounces), 28 million indicated tonnes at an average grade of 0.69 g/tonne (0.62 million ounces) and 53 million inferred tonnes at an
average grade of 0.66 g/tonne (1.1 million ounces). In 2016 the Company issued the results of a pre-feasibility study that was summarized in the October 2016
Study which converted a portion of the mineral resources at the Project into proven reserves of 378 million tonnes at an average grade of 0.71 g/tonne (8.62
million ounces) and probable reserves of 14 million tonnes at an average grade of 0.72 g/tonne (353,000 ounces) based on a gold price of $1,250 per ounce. All
work presently planned by the Company is directed at maintaining necessary environmental baseline activities at the Livengood Gold Project and focusing efforts
on Project optimization opportunities, including those identified in the October 2016 Study.
The Company relies upon consultants and contractors to carry on many of its activities and, in particular, to carry out drilling programs at the Livengood Gold
Project and in connection with metallurgical test work, engineering and the preparation of technical reports on the Project. However, as ITH expands its activities,
it may choose to hire additional employees rather than relying on consultants.
Accessibility, Climate, Local Resources, Infrastructure and Physiography
Figure 1: Location of the Livengood Gold Project
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.
23
The Livengood Gold Project straddles and is accessed via the Elliot Highway, a paved, all weather road linking the north slope oil fields at Prudhoe Bay to central
and southern Alaska through Fairbanks. At present there are no full time residents in the former mining town of Livengood. A number of unpaved roads have
been developed in the area providing excellent access. A 427m (1400-foot) runway is located 6 km (3.7 miles) to the southwest near the former Alyeska Pipeline
Company Livengood Camp and is suitable for light aircraft. The Livengood Gold Project is also adjacent to the Alyeska Pipeline corridor, which transports crude
oil from Prudhoe Bay south. This corridor contains a fiber optic communications cable utilized at the Livengood Gold Project.
Topography at the site is eroded hills and valleys with a general elevation difference of 200m (656 feet). The valleys generally contain active streams draining
into the Tolovana River system to the west.
The site is approximately 65 km (40 miles) south of the Arctic Circle, and has a subarctic climate with long, cold winters and short, warm summers. Annual
precipitation is approximately 40 cm (16 inches). Average low temperatures in winter are -21° to -28° Celsius (-6° to -18° Fahrenheit), with records reaching as
low as -55° Celsius (-67° Fahrenheit). Exploration work on the Livengood Gold Project can be limited due to excessive snow cover and cold temperatures. In
general, surface sampling work is limited to May through September and surface drilling from March through November. Road-accessible wetland areas may
only be explored while frozen in the winter. Work to date on the site has been limited to exploration and geotechnical drilling and environmental baseline
activities. The Company does not have any plant or equipment at the site, relying on contractors to perform the work.
The nearest community to Livengood Gold Project is the village of Minto, a town with a population of approximately 258 located approximately 65 km (40
miles) southwest by road. The Fairbanks metropolitan area has a population of approximately 100,000 people, and comprises the regional center with hospitals,
government offices, businesses and the University of Alaska, Fairbanks. The city is linked to southern Alaska along a north-south transportation and utility
corridor that includes two paved highways, a railroad to tide water, an interlinked electrical grid, and communications infrastructure. Fairbanks has an
international airport serviced daily by up to three major airlines.
In preliminary, nonbinding discussions, the local utility in Fairbanks (Golden Valley Electrical Association) has indicated that 80-100 Megawatts of power could
be available to the Livengood Gold Project. Livengood would be connected to the local grid by building a 82 km (50 miles) 230-kVA line along the pipeline
corridor. Environmental baseline studies required for the electrical line construction started in 2011.
The October 2016 Study developed site layout plans for the infrastructure required at the Livengood Gold Project. This included evaluating mine shops; process,
water and tailing management facilities; power; access roads; administration offices; and camp facilities.
Livengood Gold Project Lands
The Livengood Gold Project covers approximately 19,546 hectares (48,300 acres), all of which is controlled by the Company through TH Alaska. The Livengood
Gold Project is comprised of multiple land parcels: 100% owned patented mining claims, 100% owned State of Alaska mining claims, 100% owned federal
unpatented placer claims; land leased from the Alaska Mental Health Trust (“AMHT”); land leased from holders of state and federal patented and unpatented
mining and placer claims, and undivided interests in patented mining claims. The property and claims controlled through ownership, leases or agreements are
summarized below.
100% owned patented mining claims
(cid:120) U.S. Mineral Survey 2447, located on lower Livengood Creek, subject to the December 2011 land purchase agreement described below
and further subject to an agreement to allow Larry Nelson, as agent for Nelson Mining Company, to operate a placer mine on MS 2447
through May 11, 2018.
24
(cid:120) U.S. Mineral Survey 1956, located on lower Gertrude Creek, subject to a reserved royalty of 5% of gross value held by Key Trust
Company on behalf of the Luther Hess Trust, and further subject to an agreement to allow Samuel Eaves and Patricia Eaves to operate a
placer mine on MS 1956 through June 1, 2017.
(cid:120) 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
(cid:120)
(cid:120)
169 state claims acquired by purchase.
153 state claims acquired by location.
100% owned federal unpatented placer claims
(cid:120)
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:
(cid:120)
(cid:120)
(cid:120)
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
(cid:120) Alaska Mental Health Trust Lease. A lease of the AMHT mineral rights having a term commencing July l, 2004 and extending 19 years
until June 30, 2023, subject to further extensions beyond June 30, 2023 by either commercial production or payment of an advance
minimum royalty equal to 125% of the amount paid in year 19 and diligent pursuit of development. The lease requires minimum work
expenditures and advance minimum royalties which escalate annually with inflation. A net smelter return (“NSR”) production royalty of
between 2.5% and 5.0% (depending upon the price of gold) is payable to the lessor with respect to the lands subject to this lease. In
addition, an NSR production royalty of l% is payable to the lessor with respect to the unpatented federal mining claims subject to the
lease described in the Hudson/Geraghty Lease below and an NSR production royalty of between 0.5% and 1.0% (depending upon the
price of gold) is payable to the lessor with respect to the lands acquired by the Company as a result of the purchase of Livengood
Placers, Inc. in December 2011. As of December 31, 2016, there were 9,970 acres included in the AMHT lease.
(cid:120) 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.
25
(cid:120) 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.
(cid:120)
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%)
(cid:120) An undivided 5/6th interest in that certain patented placer mining claim known as the “Kinney Bench” claim, included within U.S.
Mineral Survey No. 1626 on lower Amy Creek.
(cid:120) An undivided 5/9th interest in that certain patented placer mining claim known as the “Union Bench Association” claim, included
within U.S. Mineral Survey No. 1626 on lower Amy Creek.
(cid:120) An undivided 1/6th interest in that certain patented placer mining claim known as the “Bessie Bench” claim, included within
U.S. Mineral Survey No. 1626 on lower Amy Creek.
(cid:120) An undivided 1/3rd interest in those certain patented placer mining claims known as the “War Association” claim; the “Mutual
Association” claim; and the “O.K. Fraction” claim, all included within U.S. Mineral Survey No. 2033 on lower Amy Creek.
On State of Alaska lands, the state holds both the surface and the subsurface rights. State of Alaska 40-acre mining claims require an annual rental payment of
$35/claim to be paid to the state (by November 30th of each year), for the first five years, $70 per year for the second five years, and $170 per year thereafter.
These rental rates are multiplied by 4 for each 160 acre claim. As a consequence of the annual rentals due, all Alaska State Mining Claims have an expiry date of
November 30th each year. In addition, there is a minimum annual work expenditure requirement of $100 per 40-acre claim (due on or before noon on September
1 in each year) or cash-in-lieu thereof, and an affidavit evidencing that such work has been performed is required to be filed on or before November 30th in each
year. Excess work can be carried forward for up to four years. If the rental is paid and the work requirements are met, the claims can be held indefinitely. The
work completed by the Company during the 2016 field season was filed as assessment work, and the value of that work is sufficient to meet the assessment work
requirements through September 1, 2020 on all State of Alaska mining claims.
26
Holders of State of Alaska mining claims are also required to pay a production royalty on all revenue received from minerals produced on state land during each
calendar year. The production royalty rate is 3% of net income.
Holders of federal unpatented mining claims are required to pay an annual rental of $140 per 20 acres.
All of the foregoing agreements are in good standing and are transferable. The Company has taken reasonable steps to verify title to mineral properties in which it
has an interest. Except for the patented claims, none of the properties have been surveyed.
Holders of Federal and Alaska State unpatented mining claims have the right to use the land or water included within mining claims only when necessary for
mineral prospecting, development, extraction, or basic processing, or for storage of mining equipment. However, the exercise of such rights is subject to the
appropriate permits being obtained.
December 2011 Land Purchase Agreement
In December 2011, the Company completed a transaction to acquire certain mining claims and related rights in the vicinity of the Livengood Gold Project. This
acquisition included both mining claims and all of the shares of Livengood Placers, Inc. These assets were purchased on December 13, 2011 for aggregate
consideration of $36,600,000 allocated between cash consideration of $13,500,000 and a derivative liability of $23,100,000. The derivative liability was a
contingent payment based on the five-year average daily gold price (“Average Gold Price”) from the date of the acquisition. The derivative liability equals
$23,148 for every dollar that the Average Gold Price exceeds $720 per troy ounce. The obligation to make the contingent payment was secured by a Deed of
Trust over the rights of the Company in the purchased claims in favor of the vendors. On January 12, 2017, the Company paid $14,694,169 for the timely and full
satisfaction of the final derivative payment, and on January 17, 2017, the Full Deed of Reconveyance releasing the Deed of Trust on the acquired property was
recorded. As a consequence, the Company now fully owns the subject properties and the shares of Livengood Placer, Inc. and has no further liability to the
vendors with respect to this acquisition.
The subject ground was previously vacant or was used for placer gold mining. No placer mineral reserves or mineral resources have been established on the
ground subject to this agreement. However, records exist for 2,370 placer drill holes that have been completed on the subject ground between 1933 and 2011. Of
these, the 945 holes completed between 1933 and 1984 were primarily 6” churn drill holes. The 1,425 drill holes completed between 1984 and 2000 were 8” RC
rotary drill holes utilizing a center return tri-cone bit. All lands controlled by the Company, including the lands acquired pursuant to this agreement, were
evaluated as appropriate for integration into the October 2016 Study for the Livengood Gold Project.
Geology and Mineralization
The rocks at the Livengood Gold Project are part of the Livengood Terrane, an east–west belt, approximately 240 km (149 miles) long, consisting of tectonically
interleaved assemblages of various ages. These assemblages include the Amy Creek Assemblage, a sequence of latest Proterozoic and/or early Paleozoic basalt,
mudstone, chert, dolomite, and limestone. An early Cambrian ophiolite sequence of mafic and ultramafic sea floor rocks was thrust over the Amy Creek
Assemblage and was, in turn, overthrust by a sequence of Devonian shale, siltstone, conglomerate, volcanic, and volcaniclastic rocks, which are the dominant
host to the mineralization currently under exploration at the Livengood Gold Project. The Devonian assemblage was overthrust by a second klippe of Cambrian
ophiolite rocks. All of these rocks are intruded by Cretaceous multiphase monzonitic and syenitic dikes and sills. Gold mineralization is spatially and temporally
associated with these intrusive rocks.
Gold mineralization occurs in association with disseminated arsenopyrite and pyrite in volcanic, sedimentary, and intrusive rocks, and in quartz veins cutting the
more competent lithologies, primarily volcanic rocks, sandstones, and, to a lesser degree, ultramafic rocks. Three principal stages of alteration are currently
recognized, an early biotite stage, followed by albite-quartz, and a late sericite-quartz assemblage. Carbonate appears to have been introduced with and
subsequent to these stages. Arsenopyrite and pyrite were introduced primarily during the albite-quartz and sericite-quartz stages. Gold correlates strongly with
arsenic and occurs primarily within and on the margins of arsenopyrite and pyrite.
27
Mineralization is interpreted as intrusion-related, consistent with other gold deposits of the Tintina Gold Belt, and has a similar As-Sb geochemical association.
Mineralization is controlled partly by lithologic units, but thrust-fold architecture was key to providing pathways for intrusive and associated hydrothermal fluids.
Local fault and contact limits to mineralization have been identified, but overall the deposit has not been closed off in any direction. The current resource and area
drilled covers the most significant portion of the area with anomalous gold in surface soil samples, but still represents only about 25% of the total gold-anomalous
area.
Among deposits of the Tintina Gold Belt, mineralization at the Livengood Gold Project is most similar to the dike and sill-hosted mineralization at the Donlin
Creek deposit, where gold occurs in narrow quartz veins associated with dikes and sills of similar composition. The age of the intrusions and the genetic link
between the mineralization and intrusive rocks are typical of those of other nearby gold deposits of the Tintina Gold Belt, which have been characterized as
intrusion-related gold systems and for these reasons the Livengood Gold Project is best classified with them.
History and Exploration
Gold was first discovered in the gravels of Livengood Creek in 1914. Subsequently, over 500,000 ounces of placer gold were produced and the small town of
Livengood was established. From 1914 through the 1970’s, the primary focus of prospecting activity was placer deposits. Historically, prospectors considered
Money Knob and the associated ridgeline the source of the placer gold. Prospecting, in the form of dozer trenches, was carried out for lode type mineralization in
the vicinity of Money Knob primarily in the 1950’s. However, to date no significant production has been derived from lode gold sources.
The geology and mineral potential of the Livengood District have been investigated by state and federal agencies and explored by several companies over the past
40-plus years. Modern mapping and sampling investigations were initially carried out by the U.S. Geological Survey in 1967 as part of a heavy metal assessment
program. Mapping completed in the course of this program recognized the essential rock relations, thrust faulting, and mineralization associated with Devonian
clastic rocks, the thrust system and intrusive rocks. Since then, the Livengood placer deposits and the surrounding geology have featured in numerous
investigations and mapping programs at various scales by the U.S. Geological Survey and the Alaska State Division of Geological and Geophysical Surveys.
In addition to individuals prospecting the area, since the 1970’s several mining companies, including Homestake, AMAX, Placer Dome, Cambior and
AngloGold, have investigated the potential for lode gold mineralization beneath the Livengood placers and on the adjacent hillsides, including at Money Knob.
Placer Dome’s work appears to have been the most extensive, but it was focused largely on the northern flank of Money Knob and the valley of Livengood Creek.
The most recent round of exploration of the Money Knob area began when AngloGold acquired the property in 2003 and undertook an 8-hole reverse circulation
(RC) program on the Hudson-Geraghty lease. The results from this program were encouraging and were followed up with an expanded soil geochemical survey
which identified gold-anomalous zones over Money Knob and to the east. Based on the results of this and prior (Cambior) soil surveys, 4 diamond core holes
were drilled in late 2004. Results from these two AngloGold drill programs were deemed favorable but no further work was executed due to financial constraints
and a shift in corporate strategy.
The Company acquired the Livengood Gold Project in 2006 from AngloGold and has advanced the soil sampling coverage, undertook to drill surface
geochemical anomalies and conducted drilling campaigns on the Livengood Gold Project since that time.
In 2006, the Company conducted a 1,227m, seven-hole program and continued to demonstrate the presence of mineralization over a broader area. The 2007
campaign consisted of 15 diamond drill holes for a total of 4,411m. These holes focused on extending and defining the volcanic-hosted mineralization first
recognized by AngloGold in 2003. However, as drilling progressed, it became clear that although mineralization is strongest in the volcanic rocks, it occurs in all
rock types at Money Knob.
28
Based on favorable results in 2007, the 2008 program consisted of 29,150m of RC and 2,187m core drilling in 109 and 9 holes, respectively. The drill program
was designed to improve definition and expand the resource calculated early in 2008 based on 2007 drill data. The 2008 drill program did not identify limits to
mineralization in any direction. Instead, a thicker mineralized zone (up to 200m) was identified. In addition, this campaign highlighted the fact that mineralization
occurs in all rock types, not just in Devonian volcanic rocks, indicating potential more widespread mineralization than envisioned prior to the 2008 drill program.
In 2009, the Company completed 12 diamond drill holes totaling 4,572m and 195 RC holes totaling 59,757m. Six of the diamond drill holes were drilled across
the NNW-trending Core Zone in order to better understand the structural controls and to test the depth continuity of the mineralization. This drilling confirmed
that the Core Zone is the locus of a swarm of 0.2 - 1.0m thick southerly dipping dikes. In addition, a number of larger (+10m thick) steeply dipping NNW-
trending dikes were observed, suggesting that ENE extension may have occurred at about the time of dike magmatism. The RC holes were primarily targeted at
grid infill drilling to improve resource estimation of the Core Zone and a step-out program that led to discovery and delineation of the Sunshine and Tower Zones.
In 2010, the Company completed 40 diamond drill holes totaling 13,631m and 198 RC holes totaling 56,550m. These holes, filled in between the Core and
Sunshine Zones, expanded the SW Zone and infilled to 50m spacing in the Core and Sunshine Zones.
Nearly all drill holes at Money Knob have been drilled in a northerly direction at an inclination of -50 degrees (RC) and -60 degrees (core) in order to best
intercept the south dipping structures and mineralized zones as close to perpendicular as possible. A few holes have been drilled in other directions to test other
features and aspects of mineralization. Most exploration holes have been spaced at 75m apart along lines 75m apart, subsequent infill drilling in the center of 75m
squares brings the nominal drill spacing to 50m for a significant portion of the deposit. Core is recovered using triple tube techniques to ensure good recovery
(>95%) and confidence in core orientation. RC holes are bored and cased for the upper 0-30m to prevent down hole contamination and to help keep the hole open
for ease of drilling at greater depths.
In 2011, the Company continued with resource definition drilling, completing 26,163m of RC drilling and 11,468m of diamond drilling. Two areas of the deposit,
the Core and Sunshine crosses, were selected for 15m-spaced RC in-fill drilling on crosses with north-south and east-west legs 150m in length. A third area, Area
50 in the Sunshine Zone, measuring 195m by 240m, was drilled on a 37.5m grid with alternating core and RC drilling. Two resources were generated for each
volume using ordinary kriging on samples composited to 10m lengths: the first including those portions of the 50m grid drilling within the volume; and a second
using both the grid and close-spaced drilling within the same volume. On average, the effect of the increased drilling density on tonnage, grade, and contained
ounces of gold was less than 1% and confirmed the integrity of the previously reported resource estimate. In 2011, the Company broadened the scope of the field
program to include 2,240m of exploration drilling outside the resource area, as well as 8,932m of geotechnical drilling and 1,192m of large diameter groundwater
test wells.
In May 2012, the Company commenced an 18-hole program of condemnation drilling to either sterilize or establish the presence of significant mineralization in
the area surrounding the Money Knob deposit. The purpose of the condemnation drilling program was to determine appropriate areas for infrastructure
development. Additionally, four of these holes are also being used for hydrological studies. The program was completed in July with 3,065m in 19 holes.
Also in May 2012, the Company commenced multi-faceted drill programs consisting of hydraulic gradient, infrastructure, borrow source identification, and large-
diameter wells for pump tests. The hydraulic gradient and infrastructure drilling consisted of 5,826m in 49 holes utilizing core drilling. The geotechnical and
borrow source information was obtained from 2,695m drilled in 73 holes, utilizing core, sonic, and auger drilling methods. Seven large diameter wells have been
drilled for a total of 1,031m.
The drill program from February through October 2012 totaled 15,731m in 199 holes.
No drill programs were completed during 2013.
29
The Company did not complete any material exploration at the Project in 2014, 2015 and 2016.
Sample Preparation, Analyses and Security
The Company samples all holes from surface to total depth, using defined procedures. For RC samples, pulverized material is passed through a cyclone to
separate solids from drilling fluids, then over a spinning conical splitter. The splitter is set to collect two identical splits of sample weighing 2-5 kg (4.4-11.0
pounds) each. Representative coarse material is collected and saved in chip trays for geological description. Samples are put in pre-numbered, bar-coded bags by
the drill site crew. One sample is submitted for analysis, and one sample is kept for reference. Samples are secured on site and transported to a sample preparation
facility operated by ALS Chemex in Fairbanks.
Core materials are collected at the drill site and placed in core boxes. Run blocks, orientation blocks and depths are placed in the boxes at site. The core is
transported to a sample management facility at the Project, where it is described, then sawn in half. Half of the core is collected for assaying and half remains for
reference. Core samples are weighed before shipping.
The Company’s geologic work program at Livengood was designed and is supervised by Chris Puchner, Chief Geologist of the Company, who is a qualified
person as defined by NI 43-101. Mr. Puchner is responsible for all aspects of the work, including the quality control/quality assurance program. The quality
assurance/quality control program implemented by the Company meets or exceeds industry standards. A quality assurance/quality control program includes
insertion of blanks and standards (1/10 samples) and duplicates (1/20 samples). Blanks help assess the presence of any contamination introduced during sample
preparation and help calibrate the low end of the assay detection limits. Commercial standards are used to assess the accuracy of the analyses. Duplicates help
assess the homogeneity of the sample material and the overall sample variance. The Company has undertaken rigorous protocols to assure accurate and precise
results. Among other methods, weights are tracked throughout the various steps performed in the laboratory to minimize and track errors. A group of 2,096
metallic screen fire assays performed in 2011 did not indicate any bias in the matching fire assays.
On-site Project personnel photograph the core from each individual borehole prior to preparing the split core. Duplicate RC drill samples are collected with one
split sent for analysis. Representative chips are retained for geological logging. On-site personnel at the Project log and track all samples prior to sealing and
shipping. All sample shipments are sealed and shipped to ALS Chemex in Fairbanks, Alaska, for preparation and then on to ALS Chemex in Reno, Nevada, or
Vancouver, B.C., for assay. ALS Chemex’s quality system complies with the requirements for the International Standards ISO 9001:2000 and ISO 17025:1999.
Analytical accuracy and precision are monitored by the analysis of reagent blanks, reference material and replicate samples. Quality control is further assured by
the use of international and in-house standards. Finally, representative blind duplicate samples are forwarded to ALS Chemex and an ISO compliant third party
laboratory for additional quality control.
Data entry and database validation procedures have been checked and found to conform to industry practices. Procedures are in place to minimize data entry
errors. These include pre-numbered, pre-tagged, bar-coded bags, and bar-coded data entry methods which relate all information to sample and drill interval
information. Likewise, data validation checks are run on all information used in the geologic modeling and resource estimation process. Database entries for a
random sample (10%) of drill holes used for the resource estimate were checked against the original assay certificates by one of the independent authors of the
October 2016 Study and the error rate was found to be within acceptable limits.
Analysis of assay data from core and RC sampling has been performed to check for downhole contamination of RC and to compare the data distributions
produced by the two methods. Analysis of RC data has not indicated cyclic down hole contamination. Decay analysis conducted on both core drilling and RC
drilling indicates similar patterns of monotonic grade increase or decrease. Comparison of the grade distributions between core and RC data were conducted using
Quantile-Quantile plots, and simulation of population means for different numbers of samples. The comparison indicated that the mean of all core data was 4%
lower than RC data. Comparison of core and RC data below the water table showed similar population means, suggesting that down hole contamination was not
occurring.
30
Core and RC check samples have been collected during each drilling campaign by independent third parties. Results from these samples, as well as blanks and
standards included, are consistent with the Company’s initial results. This includes a similar increase in variance for samples at higher grades, a pattern consistent
with nugget effect. No systematic high or low bias has been observed.
October 2016 Study
In October, 2016, the Company filed the October 2016 Study with respect to the Livengood Gold Project, which indicates that the Project generates a minimal
positive return at a gold price of $1,250 per ounce. At the current gold price, the Project as contemplated in the October 2016 Study is not commercially viable.
Readers are encouraged to review the entire October 2016 Study on SEDAR, with particular emphasis on the sensitivity analyses contained therein. Readers are
cautioned that a NI 43-101 report filed on SEDAR by the Company in September of 2013 is no longer considered current and should therefore no longer be relied
upon by investors.
Environmental Studies, Permitting and Social and Community Impacts
The Livengood Gold Project is currently operating within compliance of all environmental regulations that apply during the exploration stage of major mineral
projects. The Company has received all necessary exploration permits for activities such as trenching, drill road building and drilling. These permits are also
reviewed by related state and federal agencies that can comment and require specific changes to the proposed work plans to minimize impacts on the
environment. The permitting process for major exploration projects generally requires 30-60 days for processing. The Company currently has all necessary
permits with respect to its exploration activities in Alaska. Although the Company has never had an issue with the timely processing of exploration permits there
can be no assurances that delays in permit approval will not occur. Reclamation of surface disturbance associated with exploration activities is conducted
concurrently where required.
The Company has been conducting extensive, multi-disciplinary environmental baseline studies in and around the Project area since 2008 in order to understand
the current environmental conditions and to allow Project design to be optimized to minimize potential environmental effects. The environmental baseline
programs conducted or currently underway at the Project include:
surface water and hydrology;
groundwater hydrogeology;
geohydrology;
(cid:120)
(cid:120)
(cid:120)
(cid:120) wetlands and vegetation;
(cid:120) meteorology and air quality;
aquatic life and resources;
(cid:120)
(cid:120) wildlife and habitat;
cultural resources;
(cid:120)
rock characterization; and
(cid:120)
geochemical characteristics.
(cid:120)
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.
31
ITEM 3. LEGAL PROCEEDINGS
We are periodically a party to or otherwise involved in legal proceedings arising in the normal course of business. Management does not believe that there is any
pending or threatened proceeding against us which, if determined adversely, would have a material adverse effect on our financial position, liquidity or results of
operations.
ITEM 4. MINE SAFETY DISCLOSURES
Pursuant to Section 1503(a) of the Dodd-Frank Act, issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the United
States are required to disclose specified information about mine health and safety in their periodic reports. These reporting requirements are based on the safety
and health requirements applicable to mines under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”) which is administered by the U.S.
Department of Labor’s Mine Safety and Health Administration (“MSHA”). During the fiscal year ended December 31, 2016, the Company and its subsidiaries
were not subject to regulation by MSHA under the Mine Act and thus no disclosure is required under Section 1503(a) of the Dodd-Frank Act.
32
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
Price Range of Common Shares
The common shares of the Company are listed and posted for trading on the TSX under the symbol “ITH”, on the NYSE MKT under the symbol “THM”, and on
the Frankfurt Stock Exchange under the symbol “IW9”. The following table sets forth the highest and lowest intraday sales prices for the common share as
reported by the TSX and NYSE MKT for the periods indicated:
Year ended December 31, 2016
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Year ended December 31, 2015
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Toronto Stock Exchange
C$ High
C$ Low
NYSE MKT
$ High
$ Low
C$ High
1.12
1.76
1.15
0.46
0.57
0.48
0.52
0.75
$
$
$
$
$
$
$
$
C$ Low
0.57
1.01
0.39
0.27
0.26
0.26
0.40
0.43
$
$
$
$
$
$
$
$
$ High
0.86
1.35
0.88
0.33
0.42
0.37
0.42
0.62
$
$
$
$
$
$
$
$
$ Low
0.44
0.77
0.31
0.19
0.19
0.20
0.32
0.34
$
$
$
$
$
$
$
$
As at March 13, 2017, there were 162,186,972 common shares issued and outstanding, and the Company had approximately 106 shareholders of record. On
March 13, 2017, the closing price of the common shares as reported by the TSX and NYSE MKT was C$0.67 and $0.51, respectively.
Dividends
Since its inception, ITH has not paid any dividends. ITH has no present intention of paying any dividends, as it anticipates that all available funds will be invested
to finance the growth of its business. The Board will determine if and when dividends should be declared and paid in the future after taking into account many
factors, including ITH’s financial condition, operating results and anticipated cash needs at the relevant time. There are no restrictions which prevent ITH from
paying dividends.
Recent Sales of Unregistered Equity Securities
None.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Exchange Controls
Canada has no system of exchange controls. There are no Canadian restrictions on the repatriation of capital or earnings of a Canadian public company to non-
resident investors. There are no laws in Canada or exchange restrictions affecting the remittance of dividends, profits, interest, royalties and other payments to
non-resident holders of the Company’s securities, except as discussed in “Certain Canadian Federal Income Tax Considerations for U.S. Resident Holders”
below.
There are no limitations under the laws of Canada or in the organizing documents of the Company on the right of foreigners to hold or vote securities of the
Company, except that the Investment Canada Act (Canada) may require review and approval by the Minister of Industry (Canada) of certain acquisitions of
“control” of the Company by a “non-Canadian.” The threshold for acquisitions of control is generally defined as being one-third or more of the voting shares of
the Company. “Non-Canadian” generally means an individual who is not a Canadian citizen, or a corporation, partnership, trust or joint venture that is ultimately
controlled by non-Canadians.
33
Certain Canadian Federal Income Tax Considerations for U.S. Resident Holders
This summary is applicable to a holder or prospective purchaser of common shares of the Company who, for the purposes of the Income Tax Act (Canada)
(the “Tax Act”) and any applicable treaty and at all relevant times, is not (and is not deemed to be) resident in Canada, does not (and is not deemed to) use or hold
the common shares in, or in the course of, carrying on a business in Canada, and is not an insurer that carries on an insurance business in Canada and elsewhere.
This summary is based on the current provisions of the Tax Act, the regulations thereunder, all specific proposals to amend such Act and regulations publicly
announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof and the Company’s understanding of the administrative policies and
assessing practices published in writing by the Canada Revenue Agency prior to the date hereof. This summary does not otherwise take into account any change
in law or administrative policy or assessing practice, whether by judicial, governmental, legislative or administrative decision or action, nor does it take into
account other federal or provincial, territorial or foreign tax consequences, which may vary from the Canadian federal income tax considerations described herein.
This summary is of a general nature only and it is not intended to be, nor should it be construed to be, legal or tax advice to any holder of common shares and no
representation with respect to Canadian federal income tax consequences to any holder of common shares is made herein. Accordingly, prospective purchasers
and holders of common shares should consult their own tax advisers with respect to their individual circumstances.
Dividends on Common Shares
Canadian withholding tax at a rate of 25% (subject to reduction under the provisions of any applicable tax treaty) will be payable on dividends (or amounts paid
or credited on account or in lieu of payment of, or in satisfaction of, dividends) paid or credited to a holder of common shares. Under the Canada–U.S. Income
Tax Convention (1980), as amended (the “Canada–U.S. Treaty”), the withholding tax rate is generally reduced to 15% for a holder entitled to the benefits of the
Canada–U.S. Treaty who is the beneficial owner of the dividends (or 5% if the holder is a company that owns at least 10% of the common shares).
Certain U.S.-resident entities that are fiscally transparent for United States federal income tax purposes (including limited liability companies) may not in all
circumstances be entitled to the benefits of the Canada–U.S. Treaty. Members of or holders of an interest in such an entity that holds common shares should
consult their own tax advisers regarding the extent, if any, to which the benefits of the Canada–U.S. Treaty will be extended to the entity in respect of its common
shares.
Capital Gains and Losses
Subject to the provisions of any relevant tax treaty, capital gains realized by a holder on the disposition or deemed disposition of common shares held as capital
property will not be subject to Canadian tax unless the common shares are “taxable Canadian property” (as defined in the Tax Act), in which case the capital
gains will be subject to Canadian tax at rates which will approximate those payable by a Canadian resident.
Common shares of the Company generally will not be “taxable Canadian property” to a holder provided that, at the time of the disposition or deemed disposition,
the common shares are listed on a designated stock exchange (which currently includes the TSX and NYSE MKT), unless at any time during the 60-month period
that ends at that time: (a) one or any combination of (i) such holder, (ii) persons not dealing at arm’s length with such holder and (iii) partnerships in which such
holder or a person described in (ii) holds a membership interest directly or indirectly through one or more partnerships, owned 25% or more of the issued shares
of any class or series of the capital stock of the Company; and (b) more than 50% of the fair market value of the common shares disposed of was derived directly
or indirectly from one or any combination of real or immovable property situated in Canada, “Canadian resource properties” (as defined in the Tax Act), “timber
resource properties” (as defined in the Tax Act), and options in respect of, or interests in, or civil law rights in, any such properties (whether or not such property
exists). In certain circumstances set out in the Tax Act, the common shares may be deemed to be “taxable Canadian property”.
34
Under the Canada–U.S. Treaty, a holder entitled to the benefits of the Canada–U.S. Treaty and to whom the common shares are “taxable Canadian property” will
not be subject to Canadian tax on the disposition or deemed disposition of the common shares unless at the time of disposition or deemed disposition, the value of
the common shares is derived principally from real property situated in Canada.
Certain U.S. Federal Income Tax Considerations for U.S. Holders
The following is a discussion of certain material U.S. federal income tax consequences to U.S. Holders (as defined below) of acquiring, owning, and disposing of
our common shares. This discussion does not purport to be a comprehensive description of all of the U.S. tax considerations that may be relevant to a particular
person’s decision to acquire the common shares, including any state, local or non-U.S. tax consequences of acquiring, owning, and disposing of common shares.
This discussion applies only to those U.S. Holders that hold common shares as capital assets for U.S. tax purposes (generally, for investment and not in
connection with the carrying on of a trade or business) and does not address all aspects of U.S. federal income tax law that may be relevant to investors that are
subject to special or different treatment under U.S. federal income tax law (including, for example, a holder liable for the alternative minimum tax or a holder that
actually or constructively owns 10% or more by voting power or value of our common shares). This discussion is based on the U.S. Internal Revenue Code of
1986, as amended (the “Code”), its legislative history, existing and proposed U.S. Treasury regulations, published rulings and other administrative guidance of the
U.S. Internal Revenue Service (the “IRS”) and court decisions, all as in effect on the date hereof. These laws are subject to change or differing interpretation by
the IRS or a court, possibly on a retroactive basis. This discussion also assumes that the Company is not, and will not become, a controlled foreign corporation
(“CFC”) as defined for U.S. federal income tax purposes.
As used herein, the term “U.S. Holder” means a beneficial owner of our common shares that is:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
an individual citizen or resident of the United States;
a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in the United States or under the laws of
the United States, any state or political subdivision thereof, or the District of Columbia;
an estate, the income of which is subject to U.S. federal income tax regardless of its source; or
a trust (i) if a U.S. court is able to exercise primary supervision over the trust’s administration and one or more U.S. persons are authorized to control all
substantial decisions of the trust or (ii) that has a valid election in effect to be treated as a U.S. person under applicable U.S. Treasury regulations.
If a partnership (including any entity treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of the common shares, the U.S. tax
treatment of a partner in the partnership generally will depend on the status of the partner and the activities of the partnership. A holder of the common shares that
is a partnership and partners in such a partnership should consult their own tax advisors about the U.S. federal income tax consequences of acquiring, owning, or
disposing of common shares.
Distributions
Subject to the passive foreign investment company rules discussed below, should a distribution be made, a U.S. Holder must include in gross income as dividend
income the gross amount of any distribution paid on the common shares (including the amount of any non-U.S. taxes withheld from such amount), to the extent
such distribution is paid out of current or accumulated earnings and profits (as determined for U.S. federal income tax purposes). Distributions in excess of our
current and accumulated earnings and profits (as determined for U.S. federal income tax purposes) will first be treated as a non-taxable return of capital to the
extent of the U.S. Holder’s basis in the common shares and thereafter as gain from the sale or exchange of common shares. See “Sale, Exchange, or Other
Disposition of Common Shares” below.
35
Dividends received by U.S. Holders that are individuals, estates, or trusts will be taxed at preferential rates if such dividends meet the requirements of “qualified
dividend income.” Dividends that fail to meet such requirements, and dividends received by corporate U.S. Holders, are taxed at ordinary income rates. In order
for dividends to qualify as “qualified dividend income,” an entity must be considered a “qualified foreign corporation” and certain other requirements must be
met. While we believe the Company is a qualified foreign corporation, a dividend received by a U.S. Holder will not be qualified dividend income if the
Company is a passive foreign investment company for the taxable year during which the dividend is paid or the immediately preceding taxable year. See the
discussion below regarding our passive foreign investment company status under “Passive Foreign Investment Company Rules.” In the case of a corporate U.S.
Holder, dividends received generally will not be eligible for the dividends-received deduction.
Dividends paid on the common shares will generally be treated as foreign source income for U.S. foreign tax credit purposes under special U.S. federal income
tax rules, subject to various classifications and other limitations. The rules relating to computing foreign tax credits are complex. U.S. Holders should consult
their own tax advisors to determine the foreign tax credit implications of owning common shares.
The distribution rules are complex, and each U.S. Holder should consult its own tax advisors regarding the distribution rules.
Sale, Exchange, or Other Disposition of Common Shares
Subject to the passive foreign investment company rules discussed below, a U.S. Holder that sells or otherwise disposes of common shares will recognize capital
gain or loss for U.S. federal income tax purposes equal to the difference between (i) the U.S. dollar value of the amount realized on the sale or disposition and (ii)
the tax basis, determined in U.S. dollars, of such common shares. Such gain or loss will be treated as long-term capital gain or loss if the U.S. Holder’s holding
period is greater than one year at the time of sale, exchange, or other disposition. Long-term capital gains of individuals are generally subject to preferential
maximum U.S. federal income tax rates. A U.S. Holder’s ability to deduct capital losses is subject to certain limitations.
Passive Foreign Investment Company Rules
If the Company is considered a “passive foreign investment company” (a “PFIC”) for U.S. federal income tax purposes at any time during a U.S. Holder’s
holding period, then certain potentially adverse tax consequences apply to such U.S. Holder’s acquisition, ownership, and disposition of common shares. In
general, a non-U.S. corporation will be a PFIC in any taxable year in which, after applying certain look-through rules, either (1) at least 75% of its gross income
for the taxable year is passive income; or (2) at least 50% of the average value (determined on a quarterly basis) of its assets is attributable to assets that produce
or are held for the production of passive income. Passive income generally includes dividends, interest, royalties, rents (other than certain rents and royalties
derived in the active conduct of a trade or business), and the excess of gains over losses from the disposition of certain assets that produce passive income. If a
foreign corporation owns at least 25% by value of the stock of another corporation, the foreign corporation is treated for purposes of the PFIC tests as owning its
proportionate share of the assets of the other corporation, and receiving directly its proportionate share of the other corporation’s income.
We believe that we were a PFIC for U.S. federal income tax purposes during the fiscal year ended December 31, 2016, and we expect that we will be a
PFIC in the current year and that we may be a PFIC in future years. The determination of whether or not the Company is a PFIC is a factual
determination dependent on a number of factors that cannot be made until the close of the applicable tax year and accordingly no assurances can be
given regarding the Company’s PFIC status for the current year or any future year. The Company’s status as a PFIC can have significant adverse tax
consequences for a U.S. Holder if we are a PFIC for any year during such U.S. Holder’s holding period.
A U.S. Holder that holds common shares while the Company is a PFIC may be subject to increased tax liability upon the sale, exchange, or other disposition of
the common shares or upon the receipt of certain distributions, regardless of whether the Company is a PFIC in the year in which such disposition or distribution
occurs. These adverse tax consequences include:
36
(a)
“Excess distributions” by the Company are subject to the following special rules. An excess distribution generally is the excess of the amount a PFIC
distributes to a shareholder during a taxable year over 125% of the average amount it distributed to the shareholder during the three preceding
taxable years or, if shorter, the part of the shareholder’s holding period before the taxable year. Distributions with respect to the common shares
made by ITH during the taxable year to a U.S. Holder that are excess distributions must be allocated ratably to each day of the U.S. Holder’s holding
period. The amounts allocated to the current taxable year and to taxable years prior to the first year in which ITH was classified as a PFIC are
included as ordinary income in a U.S. Holder’s gross income for that year. The amount allocated to each other prior taxable year is taxed as ordinary
income at the highest tax rate in effect for the U.S. Holder in that prior year (without offset by any net operating loss for such year) and the tax is
subject to an interest charge at the rate applicable to deficiencies in income taxes (the “special interest charge”).
(b)
The entire amount of any gain realized upon the sale or other disposition of the common shares will be treated as an excess distribution made in the
year of sale or other disposition and as a consequence will be treated as ordinary income and, to the extent allocated to years prior to the year of sale
or disposition, will be subject to the special interest charge described above.
Special rules apply for calculating the amount of the foreign tax credit with respect to excess distributions by a PFIC.
While there are certain U.S. federal income tax elections (described below) that can be made to mitigate the adverse tax consequences described above such
elections are only available in limited circumstances and must be made in a timely manner. These rules are very complex and U.S. Holders are urged to consult
their own tax advisers regarding the potential of making an election to mitigate the adverse consequences described above of the Company being classified as a
PFIC.
Qualifying Electing Fund (“QEF”) Election. A U.S. Holder of stock in a PFIC, including the Company, may make a QEF election with respect to such PFIC to
elect out of the tax treatment discussed above. Generally, a QEF election should be made with the filing of a U.S. Holder’s U.S. federal income tax return for the
first taxable year for which both (i) the U.S. Holder holds common shares of ITH, and (ii) the Company was a PFIC. A U.S. Holder that timely makes a valid
QEF election with respect to a PFIC will generally include in gross income for a taxable year (i) as ordinary income, such holder’s pro rata share of the
Company’s ordinary earnings for the taxable year, and (ii) as long-term capital gain, such holder’s pro rata share of the Company’s net capital gain for the taxable
year. However, the QEF election is available only if such PFIC provides such U.S. Holder with certain information regarding its earnings and profits as required
under applicable U.S. Treasury regulations. There can be no assurance that ITH will provide U.S. Holders with the information required for them to make
a QEF election.
Deemed Sale Election. If the Company is a PFIC for any year during which a U.S. Holder holds common shares, but the Company ceases in a subsequent year to
be a PFIC, then a U.S. Holder may make a deemed sale election for such subsequent year in order to avoid the adverse PFIC tax treatment described above that
would otherwise continue to apply because of the Company’s having previously been a PFIC. If such election is timely made, the U.S. Holder would be deemed
to have sold the common shares held by the holder at their fair market value, and any gain from such deemed sale would be taxed as an excess distribution (as
described above). The basis of the common shares would be increased by the gain recognized, and a new holding period would begin for the common shares for
purposes of the PFIC rules. The U.S. Holder would not recognize any loss incurred on the deemed sale, and such a loss would not result in a reduction in basis of
the common shares. After the deemed sale election, the U.S. Holder’s common shares with respect to which the deemed sale election was made would not be
treated as shares in a PFIC, unless the Company subsequently becomes a PFIC.
Mark-to-Market Election. Alternatively, a U.S. Holder of “marketable stock” (as defined in the applicable Treasury regulations) in a PFIC may make a mark-to-
market election for such stock to elect out of the adverse PFIC tax treatment discussed above. If a U.S. Holder makes a mark-to-market election for shares of
marketable stock, the U.S. Holder will include in income each year an amount equal to the excess, if any, of the fair market value of the shares as of the close of
the holder’s taxable year over the holder’s adjusted basis in such shares. A U.S. Holder is allowed a deduction for the excess, if any, of the adjusted basis of the
shares over their fair market value as of the close of the taxable year. However, deductions are allowable only to the extent of any net mark-to-market gains on the
shares included in the holder’s income for prior taxable years. Amounts included in a U.S. Holder’s income under a mark-to-market election, as well as gain on
the actual sale or other disposition of the shares, are treated as ordinary income. Ordinary loss treatment also applies to the deductible portion of any mark-to-
market loss on the shares, as well as to any loss realized on the actual sale or disposition of the shares, to the extent that the amount of such loss does not exceed
the net mark-to-market gains previously included for such shares. A U.S. Holder’s basis in the shares will be adjusted to reflect any such income or loss amounts.
However, the special interest charge and related adverse tax consequences described above for non-electing holders may continue to apply on a limited basis if
the U.S. Holder makes the mark-to-market election after such holder’s holding period for the shares has begun.
37
Because our common shares are regularly traded on TSX, the NYSE MKT, and the Frankfurt Stock Exchange, we anticipate that our common shares will be
classified as “marketable stock.” No assurances can be given, however, that our common shares are or will be marketable stock.
Form 8621 (Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund). If we are a PFIC for any taxable year
during which a U.S. Holder holds common shares, such U.S. Holder will be required to file an annual information report with such U.S. Holder’s U.S. Federal
income tax return on IRS Form 8621.
The PFIC rules are complex, and U.S. Holders should consult their own tax advisors regarding the PFIC rules and how they may affect the U.S. federal income
tax consequences of the acquisition, ownership, and disposition of common shares in the event the Company is a PFIC at any time during such holding period for
such common shares.
Medicare Tax
A U.S. Holder that is an individual or estate, or a trust that does not fall into a special class of trusts that is exempt from such tax, will be subject to a 3.8% tax on
the lesser of (1) the U.S. Holder’s “net investment income” for the relevant taxable year and (2) the excess of the U.S. Holder’s modified gross income for the
taxable year over a certain threshold (which in the case of an individual will be between $125,000 and $250,000, depending on the individual’s circumstances). A
holder’s net investment income will generally include dividend income and net gains from the disposition of common shares, unless such dividends or net gains
are derived in the ordinary course of the conduct of a trade or business (other than a trade or business that consists of certain passive or trading activities). U.S.
Holders are urged to consult their own tax advisors regarding the applicability of the Medicare tax in respect of their investment in the common shares.
Disclosure Requirements for Specified Foreign Financial Assets
U.S. Holders (including certain domestic corporations, partnerships, and trusts that are considered formed or availed of for the purpose of holding, directly or
indirectly, “specified foreign financial assets,” referred to as “specified domestic entities” in applicable United States Treasury regulations) that, during any
taxable year, hold any interest in any “specified foreign financial asset” generally will be required to file with their U.S. federal income tax returns certain
information on IRS Form 8938 if the aggregate value of all such assets exceeds certain specified amounts. The term “specified foreign financial asset” generally
includes any financial account maintained with a non-U.S. financial institution, which may include common shares if they are not held in an account maintained
with a financial institution. Substantial penalties may be imposed, and the period of limitations on assessment and collection of U.S. federal income taxes may be
extended, in the event of a failure to comply with this reporting and filing requirement. U.S. Holders should consult their own tax advisors as to the possible
application to them of these requirements.
Foreign Currency Transactions
Generally, amounts received by a U.S. Holder in foreign currency (including distributions paid in foreign currency to a U.S. Holder in connection with the
ownership of common shares or on the sale, exchange, or other disposition of common shares) will be equal to the U.S. dollar value of such foreign currency
based on the applicable exchange rate on the date of receipt (regardless of whether such foreign currency is converted into U.S. dollars at that time). The
subsequent disposition of any foreign currency received (including an exchange for U.S. currency) will generally give rise to ordinary gain or loss in an amount
equal to the difference between the U.S. dollar value of the foreign currency on the date it was received and the date of the subsequent disposition. Each U.S.
Holder should consult its own tax adviser regarding the U.S. federal income tax consequences of receiving, owning, and disposing of foreign currency.
38
Information Reporting and Backup Withholding
Payments made within the United States or by a U.S. payor or U.S. middleman, of dividends on, and/or proceeds arising from the sale or other taxable disposition
of, common shares will generally be subject to information reporting and backup withholding tax (currently at a 28% rate) if a U.S. Holder (a) fails to furnish
such U.S. Holder’s correct U.S. taxpayer identification number (generally on Form W-9), (b) furnishes an incorrect U.S. taxpayer identification number, (c) is
notified by the IRS that such U.S. Holder has previously failed to properly report items subject to backup withholding tax, or (d) fails to certify, under penalty of
perjury, that such U.S. Holder has furnished its correct U.S. taxpayer identification number and that the IRS has not notified such U.S. Holder that it is subject to
backup withholding tax.
Backup withholding is not an additional tax. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a credit against a U.S.
Holder’s U.S. federal income tax liability, if any, or will be refunded, if such U.S. Holder furnishes required information to the IRS in a timely manner. Each U.S.
Holder should consult its own tax advisor regarding the information reporting and backup withholding rules.
Acquiring, owning, or disposing of our common shares may have tax consequences under the laws of the United States and Canada that are not described in this
Annual Report on Form 10-K. Shareholders are solely responsible for determining the tax consequences applicable to their particular circumstances and should
consult their own tax advisors concerning an investment in the Company’s common shares.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth in the table below has been taken from the Company’s audited consolidated financial statements and should be read in
conjunction with those financial statements and the notes thereto. The consolidated financial statements have been prepared in accordance with U.S. generally
accepted accounting principles (“U.S. GAAP”). The selected historical financial data is qualified in its entirety by, and should be read in conjunction with, Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and the notes thereto attached hereto under
Item 8, Financial Statements and Supplementary Data.
Description
Net loss – continuing operations
Net loss
Basic and diluted loss per common share from
continuing operations
Description
Working capital
Current assets
Total assets
Current liabilities
Total liabilities
Shareholders’ equity
$
$
$
$
Year Ended
December 31,
2016
(7,190,628) $
(7,190,628)
Year Ended
December 31,
2015
(4,812,824) $
(4,812,824)
Year Ended
December 31,
2014
(7,767,096) $
(7,767,096)
Year Ended
December 31,
2013
(9,852,480) $
(9,852,480)
Year Ended
December 31,
2012
(56,643,462)
(56,643,462)
(0.06) $
(0.04) $
(0.08) $
(0.10) $
(0.62)
December 31,
2016
December 31,
2015
December 31,
2014
December 31,
2013
December 31,
2012
6,169,233
6,685,712
61,919,836
516,479
14,416,479
47,503,357
$
$
12,614,361
13,763,531
69,004,700
1,149,170
15,849,170
53,155,530
$
$
12,699,227
14,192,923
69,464,877
1,493,696
16,293,696
53,171,181
$
$
27,676,797
31,424,066
86,687,344
3,747,269
26,147,269
60,540,075
7,588,867
22,672,714
77,901,555
15,083,847
15,083,847
62,817,708
$
$
39
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Current Business Activities
General
Livengood Gold Project Developments
During the year ended December 31, 2016 and to the date of this Annual Report on Form 10-K, the Company progressed on a number of opportunities for
optimization and reducing the costs of building and operating a mine at the Project. Outside consultants were retained to conduct additional metallurgical tests
and engineering, including confirmation of the flow sheet and optimizing the operating costs. These inputs were used to prepare the October 2016 Study, which
evaluated several scenarios, ultimately selecting a project that will process 52,600 tons per day and produce 6.8 million ounces of gold over 23 years. This
improved configuration has reduced the capital costs (“CAPEX”) by 34% or $950 million to $1.84 billion, the process operating cost (“process OPEX”) by 28%
or $2.97 per ton to $7.48 per ton, and the all-in costs to $1,247 per ounce, all as compared to the 100,000 tons per day project evaluated in the September 2013
Feasibility Study.
2016
Financing
On December 28, 2016, the Company closed a non-brokered private placement financing through the issuance of 45,833,334 common shares issued at $0.48 per
share for gross proceeds of $22.0 million. Total share issuance costs for this non-brokered private placement financing amounted to $146,735. The Company has
used $14.7 million of the net proceeds for the final payment with respect to acquisition of certain mining claims and related rights in the vicinity of the Livengood
Gold Project, with the balance to be used for continuation of optimization studies to further improve and de-risk the Project, required environmental baseline
studies, and for general working capital purposes.
Management Changes
On January 23, 2017, the ITH Board approved a management transition plan, which was implemented on January 31, 2017, in which Karl Hanneman, currently
the Chief Operating Officer (COO), became the Chief Executive Officer (CEO), managing both the CEO and COO responsibilities, and Tom Irwin, the previous
CEO, transitioned into a part-time position of Senior Advisor prior to his being considered for nomination to the Board at the Company's May 2017 Annual
General Meeting (AGM).
Appointment of Directors
On December 28, 2016, Marcelo Kim was appointed as an additional director of ITH, and as the Chair of the Board. Mr. Kim is a Partner at Paulson & Co. Inc.,
the Company’s major shareholder, where he oversees global natural resource investments. Commencing from the 2017 AGM of the Company’s shareholders,
Paulson & Co. Inc. will have the right to nominate Mr. Kim and one other individual to stand for election to the Board. Steve Lang, who has served as the Board
Chair since January 2014, was appointed as the lead independent director for the Company upon the appointment of Mr. Kim as Chair.
Other Developments
On January 12, 2017, the Company paid $14.7 million for the timely and full satisfaction of the final derivative payment due with respect to acquisition of certain
mining claims and related rights in the vicinity of the Livengood Gold Project. On January 17, 2017, the Full Deed of Reconveyance releasing the Deed of Trust
on the acquired property was recorded and the Company now fully owns this property and has no further liability with respect to this acquisition.
40
2017 Outlook
2017 Work Program Details
On January 23, 2017 the Board approved a 2017 budget of $6.3 million. The work program incorporated in this budget will seek to build upon the Project
improvements announced with the October 2016 Study, focusing on improving the mineralization and alteration models used to support the resource block model,
evaluating alternative block models for production schedule opportunities, and completion of several phases of metallurgical work to better define and optimize
the flowsheet and recovery parameters. The 2017 work program has been specifically designed to target those aspects of the Project that could deliver the highest
NPV increase for the least expenditure. Preliminary work on the block model and metallurgical recovery variability indicates a potential NPV benefit of up to
$280 million and $100 million respectively (see section below 2017 Work Program Details). The engineering firm of BBA Inc. (BBA), who provided support for
the 2016 Pre-feasibility Study (the “2016 PFS”), will be retained to continue work in the 2017 program. Work is also planned to advance the environmental
baseline efforts needed to support future permitting.
However, the Company cautions that, until this multi-phase metallurgical program and the updated block model are completed and the results thereof
are incorporated into a revised financial model, there can be no assurance that the overall recovery increases, potential process optimizations, or block
model improvements, will, in fact, be realized, or that any such increases, optimizations or improvements will have the overall effect suggested above.
The Company remains open to a strategic alliance to help support the future development of the Project while considering all other appropriate financing options.
The size of the gold resource, the favorable location, and the proven team are some of the reasons the Company would potentially attract a strategic partner with a
long term development horizon who understands the Project is highly leveraged to gold prices.
The Company has sufficient funds to complete the test programs and engineering work underway.
Results of Operations
Summary of Quarterly Results
Description
Net loss
Basic and diluted net loss per common share
Net loss
Basic and diluted net loss per common share
December 31, 2016
$
$
(1,109,733) $
(0.01) $
December 31, 2015
$
$
(1,119,972) $
(0.01) $
September 30, 2016
June 30, 2016
March 31, 2016
(1,524,589) $
(0.01) $
(2,068,850) $
(0.02) $
(2,487,456)
(0.02)
September 30, 2015
June 30, 2015
March 31, 2015
(1,007,489) $
(0.01) $
(2,048,868) $
(0.02) $
(636,495)
(0.01)
Significant fluctuations in the Company’s quarterly net loss have mainly been the result of changes in operating costs and the valuation of the Company’s
derivative liability. The fluctuation in the derivative liability was caused by changes in the price of gold during the period along with the expected price of gold
through the term of the derivative liability, which was paid in January 2017. The following table presents the unrealized gain or loss on the valuation of the
derivative for each quarterly period during the years ended December 31, 2016 and 2015:
Three months ended:
March 31
June 30
September 30
December 31
2016 Unrealized
Gain/(Loss)
2015 Unrealized
Gain/(Loss)
$
$
$
$
(700,000)
(100,000)
(100,000)
105,831
$
$
$
$
200,000
(100,000)
400,000
300,000
41
Year ended December 31, 2016 compared to Year ended December 31, 2015
The Company had cash and cash equivalents of $22,466,493 at December 31, 2016 compared to $6,493,486 at December 31, 2015. The Company incurred a net
loss of $7,190,628 for the year ended December 31, 2016, compared to a net loss of $4,812,824 for the year ended December 31, 2015. The following discussion
highlights certain selected financial information and changes in operations between the year ended December 31, 2016 and the year ended December 31, 2015.
Mineral property expenditures were $2,648,631 for the year ended December 31, 2016 compared to $2,381,868 for the year ended December 31, 2015. The
increase of $266,763 is due to increased expenditures for metallurgical studies and engineering partially offset by the Company limiting field activities to the
continuation of critical environmental baseline work while moving forward with a multi-phase metallurgical test work program.
Share-based payment charges were $108,526 during the year ended December 31, 2016 compared to $540,468 during the year ended December 31, 2015. The
decrease in share-based payment charges during the period was mainly the result of a reduction in the fair value of options granted in 2015 as compared to 2014.
The Company granted no options during the year ended December 31, 2016 compared to 2,135,200 options during the year ended December 31, 2015. At
December 31, 2016 there was unrecognized compensation expense of $38,644 related to non-vested options outstanding. The cost is expected to be recognized
over a weighted-average remaining period of approximately 0.21 years.
Share based payment charges were allocated as follows:
Expense category:
Consulting
Investor relations
Wages and benefits
Year ended
December 31,
2016
Year ended
December 31,
2015
$
$
25,013
6,603
76,910
108,526
$
$
113,150
27,223
400,095
540,468
Excluding share-based payment charges of $76,910 and $400,095, respectively, wages and benefits decreased to $2,119,681 for the year ended December 31,
2016 from $2,159,515 for the year ended December 31, 2015. The closure of the Colorado office during 2015 contributed to lower wages and benefits expenses
partially offset by higher healthcare premiums as a result of the base for the employee healthcare programs moving from Colorado to Alaska.
Excluding share-based payment charges of $25,013 and $113,150, respectively, consulting fees were $238,321 for the year ended December 31, 2016 compared
to $305,274 for the year ended December 31, 2015. The decrease of $66,953 is primarily due to lower consulting fees paid for Chief Financial Officer services
during 2016 as compared to 2015.
Excluding share-based payments, all other operating expense categories reflected only moderate changes period over period.
Other items amounted to other expense of $1,076,740 during the year ended December 31, 2016 compared to other income of $1,637,352 in the year ended
December 31, 2015. Total other expense in 2016 resulted from the unrealized loss on the revaluation of the derivative liability of $794,169. This unrealized loss
was caused by the increase in the price per ounce of gold during 2016 and is compared to an unrealized gain of $800,000 during 2015 which resulted from a
decrease in the price of gold during 2015. In addition to the unrealized loss on the derivative liability, the Company had a foreign exchange loss of $340,551
during the year ended December 31, 2016 compared to a gain of $990,690 during the year ended December 31, 2015 as a result of the impact of exchange rates
on certain of the Company’s U.S. dollar cash balances. The average exchange rate during the year ended December 31, 2016 was C$1 to US$0.7548 compared to
C$1 to US$0.7820 for the year ended December 31, 2015.
42
Available-for-sale securities were deemed not to be impaired for the year ended December 31, 2016 compared to a loss of $219,402 related to the other than
temporary impairment of certain available-for-sale securities during the year ended December 31, 2015.
Year ended December 31, 2015 compared to Year ended December 31, 2014
The Company had cash and cash equivalents of $6,493,486 at December 31, 2015 compared to $13,521,473 at December 31, 2014. The Company incurred a net
loss of $4,812,824 for the year ended December 31, 2015, compared to a net loss of $7,767,096 for the year ended December 31, 2014. The following discussion
highlights certain selected financial information and changes in operations between the year ended December 31, 2015 and the year ended December 31, 2014.
Mineral property expenditures were $2,381,868 for the year ended December 31, 2015 compared to $2,631,974 for the year ended December 31, 2014. The
decrease of $250,106 is due to the Company limiting field activities to the continuation of critical environmental baseline work while moving forward with a
multi-phase metallurgical test work program.
Professional fees were $230,227 for the year ended December 31, 2015 compared to $389,218 for the year ended December 31, 2014. The decrease of $158,991
is primarily due to the Company negotiating lower rates in 2015 for various third party-provided professional fees such as legal and accounting fees.
Share-based payment charges were $540,468 during the year ended December 31, 2015 compared to $1,285,385 during the year ended December 31, 2014. The
decrease in share-based payment charges during the period was mainly the result of more stock option granted in 2014 as compared to 2015 and a lower fair value
of options in 2015. The Company granted 2,135,200 options during the year ended December 31, 2015 compared to 2,480,000 options during the year ended
December 31, 2014. At December 31, 2015 there was unrecognized compensation expense of $118,980 related to non-vested options outstanding. The cost is
expected to be recognized over a weighted-average remaining period of approximately 0.82 years.
Share based payment charges were allocated as follows:
Expense category:
Consulting
Investor relations
Wages and benefits
Year ended
December 31,
2015
Year ended
December 31,
2014
$
$
113,150
27,223
400,095
540,468
$
$
91,584
67,923
1,125,878
1,285,385
Excluding share-based payment charges of $400,095 and $1,125,878, respectively, wages and benefits decreased to $2,159,515 for the year ended December 31,
2015 from $2,820,873 for the year ended December 31, 2014. A decrease in severance expense of approximately $285,000 from 2014 to 2015 along with
decreased personnel as a result of the resignation of the Company’s Chief Financial Officer effective December 31, 2014 and the closure of the Colorado office
during 2015 contributed to lower wages and benefits expenses.
All other operating expense categories showed moderate decreases period over period reflecting the Company’s efforts to reduce spending.
Other items amounted to other income of $1,637,352 during the year ended December 31, 2015 compared to other income of $606,192 in the year ended
December 31, 2014. Total other income in 2015 resulted from the unrealized gain on the revaluation of the derivative liability of $800,000. This unrealized gain
was caused by the further decrease in the price per ounce of gold during 2015 and is compared to an unrealized gain of $100,000 during 2014 which resulted from
a lesser decrease in the price of gold during 2014. In addition to the unrealized gain on the derivative liability, the Company had a foreign exchange gain of
$990,690 during the year ended December 31, 2015 compared to a gain of $453,161 during the year ended December 31, 2014 as a result of the impact of
exchange rates on certain of the Company’s U.S. dollar cash balances. The average exchange rate during the year ended December 31, 2015 was C$1 to
US$0.7820 compared to C$1 to US$0.9054 for the year ended December 31, 2014.
43
The increase in other income was partially offset by a loss of $219,402 related to the other than temporary impairment of certain available-for-sale securities
during the year ended December 31, 2015. The available-for-sale securities were deemed to be other than temporarily impaired based on the fair market value of
the securities combined with a continued lack of liquidity.
Liquidity and Capital Resources
The Company has no revenue generating operations from which it can internally generate funds. To date, the Company’s ongoing operations have been
predominantly financed through sale of its equity securities by way of private placements and the subsequent exercise of share purchase and broker warrants and
options issued in connection with such private placements. However, the exercise of warrants/options is dependent primarily on the market price and overall
market liquidity of the Company’s securities at or near the expiry date of such warrants/options (over which the Company has no control) and therefore there can
be no guarantee that any existing warrants/options will be exercised. There are currently no warrants outstanding.
As at December 31, 2016, the Company reported cash and cash equivalents of $22,466,493 compared to $6,493,486 at December 31, 2015. Net proceeds from
financing of approximately $21.9 million partially offset by expenditures on the Livengood Gold Project of approximately $6.5 million and a negative foreign
currency translation impact of approximately $0.5 million resulted in an increase in cash and cash equivalents of approximately $16.0 million. The Company
continues to utilize its cash resources to pursue opportunities identified in the October 2016 Study, to fund environmental activities required for preservation of
baseline database and future permitting as well as to complete corporate administrative requirements.
The Company had no cash flows from investing activities during the years ended December 31, 2016 and December 31, 2015.
Financing activities during the year ended December 31, 2016 provided proceeds of $21,853,265 from the closing of a non-brokered private placement of
common shares in December 2016. Total common shares issued in the financing were 45,833,334 at a price of $0.48 for gross proceeds of $22.0 million. Total
share issuance costs were $146,735. The Company had no cash flows from financing activities during the year ended December 31, 2015.
As at December 31, 2016, the Company had working capital of $7,588,867 compared to working capital of $6,169,233 at December 31, 2015. The Company
expects that it will operate at a loss for the foreseeable future, but believes the current cash and cash equivalents will be sufficient for it to complete its anticipated
2017 work plan at the Livengood Gold Project and satisfy its currently anticipated general and administrative costs through the 2017 fiscal year. To advance the
Livengood Gold Project towards permitting and development, the Company anticipates maintaining certain essential development activities for the fiscal year
ending December 31, 2017. These essential activities include maintaining environmental baseline data that in its absence could materially delay future permitting
of the Livengood Gold Project.
The Company will require significant additional financing to continue its operations (including general and administrative expenses) in connection with
advancing activities at the Livengood Gold Project and the development of any mine that may be determined to be built at the Livengood Gold Project, and there
is no assurance that the Company will be able to obtain the additional financing required on acceptable terms, if at all. In addition, any significant delays in the
issuance of required permits for the ongoing work at the Livengood Gold Project, or unexpected results in connection with the ongoing work, could result in the
Company being required to raise additional funds to advance permitting efforts. The Company’s review of its financing options includes pursuing a future
strategic alliance to assist in further development, permitting and future construction costs, although there can be no assurance that any such strategic alliance
will, in fact, be realized.
44
Despite the Company’s success to date in raising significant equity financing to fund its operations, there is significant uncertainty that the Company will be able
to secure any additional financing in the current or future equity markets. See “Risk Factors – We will require additional financing to fund exploration and, if
warranted, development and production. Failure to obtain additional financing could have a material adverse effect on our financial condition and results of
operation and could cast uncertainty on our ability to continue as a going concern.” The quantity of funds to be raised and the terms of any proposed equity
financing that may be undertaken will be negotiated by management as opportunities to raise funds arise. Specific plans related to the use of proceeds will be
devised once financing has been completed and management knows what funds will be available for these purposes. Due to this uncertainty, if the Company is
unable to secure additional financing, it may be required to reduce all discretionary activities at the Project to preserve its working capital to fund anticipated non-
discretionary expenditures beyond the 2017 fiscal year.
Other than cash held by its subsidiaries for their immediate operating needs in the United States, all of the Company’s cash reserves are on deposit with a major
Canadian chartered bank. The Company does not believe that the credit, liquidity or market risks with respect thereto have increased as a result of the current
market conditions.
Contractual Obligations and Commitments
The following table discloses, as of December 31, 2016, the Company’s contractual obligations, including anticipated mineral property payments and work
commitments. Under the terms of the Company’s mineral property purchase agreements, mineral leases and the terms of the unpatented mineral claims held by it,
the Company is required to make certain scheduled acquisition payments, incur certain levels of expenditures, make lease or advance royalty payments, make
payments to government authorities and incur assessment work expenditures as summarized in the table below in order to maintain and preserve the Company’s
interests in the related mineral properties. If the Company is unable or unwilling to make any such payments or incur any such expenditures, it is likely that the
Company would lose or forfeit its rights to acquire or hold the related mineral properties. The following table assumes that the Company retains the rights to all of
its current mineral properties, but does not exercise any lease purchase or royalty buyout options:
Livengood Property Purchase(1)
Mineral Property Leases(2)
Mining Claim Government Fees
Total
Payments Due by Year
2017
$ 14,694,169
416,678
114,925
$ 15,225,772
2018
-
426,653
114,925
541,578
$
$
2019
-
431,703
114,925
546,628
$
$
2020
-
436,829
114,925
551,754
$
$
2021
-
442,031
114,925
556,956
$
$
2022 and
beyond
$
$
-
447,311
114,925
562,236
Total
$ 14,694,169
2,601,205
689,550
$ 17,984,924
1. The amount payable in January 2017 of $14,694,169 represents the fair value of the Company’s derivative liability as at December 31, 2016
based on the five-year average daily gold price for the period of December 13, 2011 through December 12, 2016. On January 12, 2017, this
amount was paid by the Company for the timely and full satisfaction of the final derivative payment.
2. Does not include required work expenditures, as it is assumed that the required expenditure level is significantly below the work which will
actually be carried out by the Company. Does not include potential royalties that may be payable (other than annual minimum royalty
payments).
Off-Balance Sheet Arrangements
The Company does not have any off balance sheet arrangements.
45
Critical Accounting Policies
Mineral properties and exploration and evaluation expenditures
The Company’s mineral project is currently in the exploration and evaluation phase. Mineral property acquisition costs are capitalized when incurred. Mineral
property exploration costs are expensed as incurred. At such time that the Company determines that a mineral property can be economically developed,
subsequent mineral property expenses will be capitalized during the development of such property.
The Company assesses interests in exploration properties for impairment when facts and circumstances suggest that the carrying amount of an asset may exceed
its recoverable amount. Impairment analysis includes assessment of the following circumstances: a significant decrease in the market price of a long-lived asset or
asset group; a significant adverse change in the extent or manner in which a long-lived asset or asset group is being used or in its physical condition; a significant
adverse change in legal factors or in the business climate that could affect the value of a long-lived asset or asset group, including an adverse action or assessment
by a regulator; an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset or asset
group; a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates
continuing losses associated with the use of a long-lived asset or asset group; a current expectation that, more likely than not, a long-lived asset or asset group will
be sold or otherwise disposed of significantly before the end of its previously estimated useful life. The term more likely than not refers to a level of likelihood
that is more than 50%.
Derivatives
Derivative financial liabilities include the Company’s future contingent payment based on the five-year average daily gold price from the date of the acquisition
on December 13, 2011 through December 12, 2016. Derivatives are initially recognized at their fair value on the date the derivative contract is entered into and
are subsequently re-measured at their fair value at each reporting period with changes in the fair value recognized in profit and loss. Fluctuations in the
Company’s derivative liability are driven by the price of gold during the term of the liability. On January 12, 2017, the Company paid $14,694,169 for the timely
and full satisfaction of the final derivative payment due with respect to the acquisition of certain mining claims and related rights in the vicinity of the Livengood
Gold Project. On January 17, 2017, the Full Deed of Reconveyance releasing the Deed of Trust on the acquired property was recorded and the Company is now in
full ownership and has no further liability with respect to this acquisition.
Stock-based compensation
The Company follows the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Section 718 “Compensation - Stock
Compensation”, which establishes accounting for equity based compensation awards to be accounted for using the fair value method. The Company uses the
Black-Scholes option pricing model to determine the grant date fair value of the awards. Compensation expense is measured at the grant date and recognized over
the requisite service period, which is generally the vesting period.
Recently Adopted Accounting Policies
For a description of recently adopted accounting policies, please see Note 2 – Summary Of Significant Accounting Policies within our Notes to Consolidated
Financial Statements in Item 8 of this Annual Report on Form 10-K.
46
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company has exposure to market risk in areas of interest rate risk, foreign currency exchange rate risk, concentration of credit risk and other price risk.
Interest Rate Risk
Interest rate risk consists of the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.
The Company’s cash and cash equivalents consists of cash and cash equivalents held in bank accounts in the United States and Canada and short term deposit
certificates or Guaranteed Investment Certificates with a major Canadian financial institution that earn interest at variable interest rates. Future cash flows from
interest income on cash and cash equivalents will be affected by interest rate fluctuations. Due to the short-term nature of these financial instruments, fluctuations
in market rates do not have a significant impact on estimated fair values.
At December 31, 2016, the Company held a total of $22,466,493 in cash and cash equivalents which include interest bearing accounts and Guaranteed Investment
Certificates.
The Company manages interest rate risk by maintaining an investment policy that focuses primarily on preservation of capital and liquidity. The Company’s
sensitivity analysis suggests that a 0.5% change in interest rates would affect interest income by approximately $32,500.
Foreign Currency Risk
The Company is exposed to foreign currency risk to the extent that certain monetary financial instruments and other assets are denominated in Canadian dollars.
As the majority of the Company’s assets are denominated in U.S. dollars, currency risk is limited to those Canadian cash balances. The Company has not entered
into any foreign currency contracts to mitigate this risk. Over the past twelve months, the U.S. to Canadian dollar exchange rate has fluctuated as much as 8%.
The Company’s sensitivity analysis suggests that a consistent 8% change in the absolute rate of exchange for the Canadian dollar would affect net assets by
approximately $36,000. Furthermore, depending on the amount of cash held by the Company in Canadian dollars at the end of each reporting period using the
period end exchange rate, significant changes in the exchange rates could cause significant changes to the currency translation amounts recorded to accumulated
other comprehensive income.
As at December 31, 2016, Canadian dollar balances were converted at a rate of C$1 to $0.7448.
Credit Risk
Concentration of credit risk exists with respect to the Company’s cash and cash equivalents as all amounts are held at one major Canadian financial institution.
Credit risk with regard to cash held in the United States at U.S. subsidiaries is mitigated as the amount held in the United States is only sufficient to cover short-
term cash requirements. With respect to receivables at December 31, 2016, the Company is not exposed to significant credit risk as the receivables are principally
interest accruals.
Other Price Risk
Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices, other than those
arising from interest rate risk or foreign exchange risk. The Company’s investment in marketable securities is exposed to such risk.
47
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Report of Independent Registered Public Accounting Firm
To the Shareholders of International Tower Hill Mines Ltd.
We have audited the accompanying consolidated financial statements of International Tower Hill Mines Ltd. which comprise the consolidated balance sheets as
of December 31, 2016 and December 31, 2015 and the related consolidated statements of operations and comprehensive loss, changes in shareholders’ equity and
cash flows for each of the years in the three-year period December 31, 2016, and the related notes, which comprise a summary of significant accounting policies
and other explanatory information. Management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. Our audits of the
consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements,
assessing the accounting principles used and significant estimates made by management, and evaluating the overall consolidated financial statement presentation.
We were not engaged to perform an audit of the company’s internal control over financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of International Tower Hill
Mines Ltd. as of December 31, 2016 and December 31, 2015 and the results of its operations and its cash flows for each of the years in the three-year period
ended December 31, 2016 in conformity with accounting principles generally accepted in the United States of America.
/s/ PricewaterhouseCoopers LLP
Chartered Professional Accountants
Vancouver, British Columbia
March 14, 2017
48
INTERNATIONAL TOWER HILL MINES LTD.
(An Exploration Stage Company)
CONSOLIDATED BALANCE SHEETS
As at December 31, 2016 and 2015
(Expressed in U.S. Dollars)
ASSETS
Current assets
Cash and cash equivalents
Prepaid expenses and other
Total current assets
Property and equipment
Capitalized acquisition costs
Total assets
Current liabilities
Accounts payable
Accrued liabilities
Derivative liability
Total current liabilities
Non-current liabilities
Derivative liability
Total liabilities
Shareholders’ equity
Share capital, no par value; authorized 500,000,000 shares; 162,186,972 and 116,313,638 shares
issued and outstanding at December 31, 2016 and 2015, respectively
Contributed surplus
Accumulated other comprehensive income
Deficit accumulated during the exploration stage
Total shareholders’ equity
Total liabilities and shareholders’ equity
Nature of operations (Note 1)
Commitments (Note 10)
Subsequent events (Note 6)
Note
December 31,
2016
December 31,
2015
4
6
6
8
$
$
$
$
22,466,493
206,221
22,672,714
24,800
55,204,041
6,493,486
192,226
6,685,712
30,083
55,204,041
77,901,555
$
61,919,836
$
179,496
210,182
14,694,169
15,083,847
122,043
394,436
-
516,479
-
13,900,000
15,083,847
14,416,479
265,569,796
34,079,301
1,344,219
(238,175,608)
243,692,185
33,979,717
816,435
(230,984,980)
62,817,708
77,901,555
$
47,503,357
61,919,836
$
The accompanying notes are an integral part of these consolidated financial statements.
49
INTERNATIONAL TOWER HILL MINES LTD.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For the Years Ended December 31, 2016, 2015 and 2014
(Expressed in U.S. Dollars)
Operating Expenses
Consulting fees
Depreciation
Insurance
Investor relations
Mineral property exploration
Office
Other
Professional fees
Regulatory
Rent
Travel
Wages and benefits
Total operating expenses
Other income (expense)
Gain/(loss) on foreign exchange
Interest income
Impairment of available-for-sale securities
Unrealized gain/(loss) on derivative
Other
Total other income (expense)
Net loss for the year
Other comprehensive income (loss)
Unrealized loss on marketable securities
Impairment of available-for-sale securities
Exchange difference on translating foreign operations
Total other comprehensive loss for the year
Comprehensive loss for the year
Basic and fully diluted net loss per share
Note
December 31,
2016
December 31,
2015
December 31,
2014
4
6
$
$
$
$
263,334
5,283
267,863
90,749
2,648,631
38,381
18,976
222,605
130,871
141,444
89,160
2,196,591
(6,113,888)
(340,551)
17,490
-
(794,169)
40,490
$
418,424
7,047
259,753
132,305
2,381,868
33,643
19,789
230,227
160,503
153,178
93,829
2,559,610
(6,450,176)
990,690
43,670
(219,402)
800,000
22,394
(1,076,740)
1,637,352
333,145
15,779
270,724
221,665
2,631,974
68,941
28,792
389,218
119,154
225,405
121,740
3,946,751
(8,373,288)
453,161
56,670
-
100,000
(3,639)
606,192
(7,190,628)
(4,812,824)
(7,767,096)
(10,794)
-
538,578
527,784
(5,838)
219,402
(1,593,381)
(1,379,817)
(24,717)
-
(800,312)
(825,029)
(6,662,844) $
(6,192,641) $
(8,592,125)
(0.06) $
(0.04) $
(0.08)
Weighted average number of shares outstanding
116,708,228
116,313,638
99,068,364
The accompanying notes are an integral part of these consolidated financial statements.
50
INTERNATIONAL TOWER HILL MINES LTD.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the Years Ended December 31, 2016, 2015 and 2014
(Expressed in U.S. Dollars)
Balance, December 31, 2013
Private placement
Share issuance costs
Stock based compensation
Unrealized loss on available-for-
sale securities
Exchange difference on
translating foreign operations
Net loss
Balance, December 31, 2014
Stock based compensation
Unrealized loss on available-for-
sale securities
Impairment of available-for-sale
securities
Exchange difference on
translating foreign operations
Net loss
Balance, December 31, 2015
Private placement
Share issuance costs
Stock based compensation
Unrealized loss on available-for-
sale securities
Exchange difference on
translating foreign operations
Exercise of options
Reallocation from contributed
surplus
Net loss
Balance, December 31, 2016
Number of
shares
98,068,638
18,245,000
-
-
Share capital
$
$
236,401,096
7,315,917
(24,828)
-
Contributed
surplus
Accumulated
other
comprehensive
income/(loss)
$
32,153,864
-
-
1,285,385
3,021,281
-
-
-
-
-
-
(24,717)
-
-
116,313,638
-
-
-
243,692,185
-
-
-
33,439,249
540,468
-
-
-
-
116,313,638
45,833,334
-
-
-
-
40,000
-
-
-
-
243,692,185
22,000,000
(146,735)
-
-
-
15,404
-
-
-
-
33,979,717
-
-
108,526
-
-
-
(800,312)
-
2,196,252
-
(5,838)
219,402
(1,593,381)
-
816,435
-
-
-
(10,794)
538,578
-
Deficit
(218,405,060) $
$
-
-
-
-
-
(7,767,096)
(226,172,156)
-
-
-
-
(4,812,824)
(230,984,980)
-
-
-
-
-
-
Total
53,171,181
7,315,917
(24,828)
1,285,385
(24,717)
(800,312)
(7,767,096)
53,155,530
540,468
(5,838)
219,402
(1,593,381)
(4,812,824)
47,503,357
22,000,000
(146,735)
108,526
(10,794)
538,578
15,404
-
-
162,186,972
$
8,942
-
265,569,796
$
(8,942)
-
34,079,301
$
-
-
1,344,219
$
-
(7,190,628)
(238,175,608) $
-
(7,190,628)
62,817,708
The accompanying notes are an integral part of these consolidated financial statements.
51
INTERNATIONAL TOWER HILL MINES LTD.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2016, 2015 and 2014
(Expressed in U.S. Dollars)
Operating Activities
Loss for the year
Add items not affecting cash:
Depreciation
Share-based payments
Unrealized (gain)/loss on derivative liability
Impairment of available-for-sale securities
Other
Changes in non-cash items:
Accounts receivable
Prepaid expenses
Advance to contractors
Accounts payable and accrued liabilities
Cash used in operating activities
Financing Activities
Issuance of share capital
Share issuance costs
Cash provided by financing activities
Investing Activities
Change in restricted cash
Capitalized acquisition costs
Cash used in investing activities
Effect of foreign exchange on cash
Increase/(decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
December 31,
2016
December 31,
2015
December 31,
2014
$
(7,190,628) $
(4,812,824) $
(7,767,096)
5,283
108,526
794,169
-
-
40,522
4,635
-
(127,452)
(6,364,945)
22,015,404
(146,735)
21,868,669
-
-
-
7,047
540,468
(800,000)
219,402
-
115,527
(27,786)
30,682
(612,304)
(5,339,788)
-
-
-
-
-
-
15,779
1,285,385
(100,000)
-
15,004
44,744
25,727
(30,682)
(332,439)
(6,843,578)
7,315,917
(24,828)
7,291,089
30,477
(30,477)
-
469,283
15,973,007
6,493,486
22,466,493
$
(1,688,199)
(7,027,987)
13,521,473
6,493,486
$
(851,639)
(404,128)
13,925,601
13,521,473
$
The accompanying notes are an integral part of these consolidated financial statements.
52
INTERNATIONAL TOWER HILL MINES LTD.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
1.
GENERAL INFORMATION, NATURE OF OPERATIONS
International Tower Hill Mines Ltd. (“ITH” or the "Company") is incorporated under the laws of British Columbia, Canada. The Company’s head office
address is 2300-1177 West Hastings Street, Vancouver, British Columbia, Canada.
International Tower Hill Mines Ltd. consists of ITH and its wholly owned subsidiaries Tower Hill Mines, Inc. (“TH Alaska”) (an Alaska corporation),
Tower Hill Mines (US) LLC (“TH US”) (a Colorado limited liability company), Livengood Placers, Inc. (“LPI”) (a Nevada corporation), and 813034
Alberta Ltd. (an Alberta corporation). The Company is in the business of acquiring, exploring and evaluating mineral properties, and either joint
venturing or developing these properties further or disposing of them when the evaluation is completed. At December 31, 2016, the Company was in the
exploration stage and controls a 100% interest in its Livengood Gold Project in Alaska, U.S.A.
These consolidated financial statements have been prepared on a going-concern basis, which presumes the realization of assets and discharge of
liabilities in the normal course of business for the foreseeable future.
The Company will require significant additional financing to continue its operations in connection with advancing activities at the Livengood Gold
Project and for the development of any mine that may be determined to be built at the Livengood Gold Project. There is no assurance that the Company
will be able to obtain the additional financing required on acceptable terms, if at all.
As of December 31, 2016, the amount of the contingent payment was $14,694,169. On January 12, 2017, the Company paid $14,694,169 for the timely
and full satisfaction of the final derivative payment due with respect to the acquisition of certain mining claims and related rights in the vicinity of the
Livengood Gold Project.
In addition, any significant delays in the issuance of required permits for the ongoing work at the Livengood Gold Project, or unexpected results in
connection with the ongoing work, could result in the Company being required to raise additional funds to advance permitting efforts. The Company’s
review of its financing options includes pursuing a future strategic alliance to assist in further development, permitting and future construction costs.
Despite the Company’s success to date in raising significant equity financing to fund its operations, there is significant uncertainty that the Company will
be able to secure any additional financing in the current or future equity markets. The amount of funds to be raised and the terms of any proposed equity
financing that may be undertaken will be negotiated by management as opportunities to raise funds arise. Specific plans related to the use of proceeds
will be devised once financing has been completed and management knows what funds will be available for these purposes. Due to this uncertainty, if
the Company is unable to secure additional financing, it may be required to reduce all discretionary activities at the Project to preserve its working
capital to fund anticipated non-discretionary expenditures beyond the 2017 fiscal year.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
These consolidated financial statements are presented in United States dollars and have been prepared in accordance with U.S. generally accepted
accounting principles (“U.S. GAAP”). On March 14, 2017, the Board approved the consolidated financial statements dated December 31, 2016.
Basis of consolidation
These consolidated financial statements include the accounts of ITH and its wholly owned subsidiaries TH Alaska, TH US, LPI and 813034 Alberta Ltd.
All intercompany transactions and balances have been eliminated.
Significant judgments, estimates and assumptions
The preparation of financial statements in accordance with U.S. GAAP requires management to make judgments, estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the period. These judgments, estimates and assumptions are regularly evaluated and are based on
management’s experience and knowledge of the relevant facts and circumstances. While management believes the estimates to be reasonable, actual
results could differ from those estimates and could impact future results of operations and cash flows.
53
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
(cid:120)
(cid:120)
(cid:120)
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%.
54
Asset retirement obligations
The Company records a liability based on the best estimate of costs for site closure and reclamation activities that the Company is legally or
contractually required to remediate. The provision for closure and reclamation liabilities is estimated using expected cash flows based on engineering and
environmental reports and accreted to full value over time through periodic charges to income. The Company does not have any material provisions for
environmental rehabilitation as of December 31, 2016.
Derivatives
Derivative financial liabilities include the Company’s future contingent payment based on the five-year average daily gold price from the date of the
acquisition on December 13, 2011 through December 12, 2016. Derivatives are initially recognized at their fair value on the date the derivative contract
is entered into and are subsequently re-measured at their fair value at each reporting period with changes in the fair value recognized in profit and loss.
Fluctuations in the Company’s derivative liability are driven by the price of gold during the term of the liability.
Income taxes
The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under the asset and liability method, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date. A valuation allowance is recognized if it is more likely than not that some
portion or the entire deferred tax asset will not be recognized.
Net loss per share
Basic loss per share is calculated using the weighted average number of common shares outstanding during the period. Diluted loss per share reflects the
potential dilution that could occur if securities or contracts that may require the issuance of common shares in the future were converted, unless the
impact is anti-dilutive.
Stock-based compensation
The Company follows the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Section 718
“Compensation - Stock Compensation”, which establishes accounting for equity based compensation awards to be accounted for using the fair value
method. The Company uses the Black-Scholes option pricing model to determine the grant date fair value of the awards. Compensation expense is
measured at the grant date and recognized over the requisite service period, which is generally the vesting period.
Recently Adopted Accounting Policies
In August 2015, the FASB issued Accounting Standards Update 2014-15, Presentation of Financial Statements – Going Concern (Topic 205-40):
Disclosures Related to Uncertainties About Going Concern (“ASU 2014-15”). ASU 2014-15 provides guidance about management’s responsibility to
evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related footnote disclosure. The new
standard incorporates some of the principles of the current auditing standards and builds upon them, as follows:
•
•
•
•
Requires an assessment each annual and interim reporting period.
Defines substantial doubt.
Sets a look-forward period of one year from the financial statement issuance date.
Requires disclosures even when an initially-identified substantial doubt is alleviated by management's plans.
The amendments in ASU 2014-15 are effective for years ending after December 15, 2016 and for years and interim periods thereafter.
The Company adopted ASU 2014-15 for the year ended December 31, 2016 and implementation has had minimal impact.
3.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents, accounts receivable and accounts payable and accrued liabilities approximate their fair values due to
the short-term maturity of these financial instruments.
55
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:
(cid:120)
(cid:120)
(cid:120)
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.
Financial assets:
Marketable securities
Financial liabilities:
Derivative liability (Note 6)
Financial assets:
Marketable securities
Financial liabilities:
Derivative liability (Note 6)
4.
CAPITALIZED ACQUISITION COSTS
The Company had the following activity related to capitalized acquisition costs:
Capitalized acquisition costs
Balance, December 31, 2014
Additions
Balance, December 31, 2015
Additions
Balance, December 31, 2016
Fair value as at December 31, 2016
Level 1
Level 2
$
$
$
$
22,754
22,754
-
-
$
$
$
$
-
-
14,694,169
14,694,169
Fair value as at December 31, 2015
Level 1
Level 2
$
$
$
$
11,741
11,741
-
-
$
$
$
$
-
-
13,900,000
13,900,000
$
$
$
Amount
55,204,041
-
55,204,041
-
55,204,041
The following table presents costs incurred for exploration and evaluation activities for the years ended December 31, 2016 and 2015:
Exploration costs:
Aircraft services
Assay
Environmental
Equipment rental
Field costs
Geological/geophysical
Land maintenance & tenure
Legal
Transportation and travel
Total expenditures for the year
Year ended
December 31, 2016
Year ended
December 31, 2015
$
$
6,511 $
-
287,629
42,755
107,166
1,665,296
498,635
31,745
8,894
2,648,631 $
4,185
9,984
639,172
44,514
186,661
945,390
501,321
21,887
28,754
2,381,868
56
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)
b)
c)
a lease of the Alaska Mental Health Trust mineral rights having a term beginning July 1, 2004 and extending 19 years until June 30, 2023,
subject to further extensions beyond June 30, 2023 by either commercial production or payment of an advance minimum royalty equal to
125% of the amount paid in year 19 and diligent pursuit of development. The lease requires minimum work expenditures and advance
minimum royalties which escalate annually with inflation. A net smelter return (“NSR”) production royalty of between 2.5% and 5.0%
(depending upon the price of gold) is payable to the lessor with respect to the lands subject to this lease. In addition, an NSR production
royalty of l% is payable to the lessor with respect to the unpatented federal mining claims subject to the lease described in b) below and an
NSR production royalty of between 0.5% and 1.0% (depending upon the price of gold) is payable to the lessor with respect to the lands
acquired by the Company as a result of the purchase of Livengood Placers, Inc. in December 2011. As of December 31, 2016 the Company
has paid $2,302,666 from the inception of this lease.
a lease of federal unpatented lode mining claims having an initial term of ten years commencing on April 21, 2003 and continuing for so
long thereafter as advance minimum royalties are paid and mining related activities, including exploration, continue on the property or on
adjacent properties controlled by the Company. The lease requires an advance minimum royalty of $50,000 on or before each anniversary
date (all of which minimum royalties are recoverable from production royalties). An NSR production royalty of between 2% and 3%
(depending on the price of gold) is payable to the lessors. The Company may purchase 1% of the royalty for $1,000,000. As of December
31, 2016, the Company has paid $630,000 from the inception of this lease.
a lease of patented lode claims having an initial term of ten years commencing January 18, 2007, and continuing for so long thereafter as
advance minimum royalties are paid. The lease requires an advance minimum royalty of $20,000 on or before each anniversary date through
January 18, 2017 and $25,000 on or before each subsequent anniversary (all of which minimum royalties are recoverable from production
royalties). An NSR production royalty of 3% is payable to the lessors. The Company may purchase all interests of the lessors in the leased
property (including the production royalty) for $1,000,000 (less all minimum and production royalties paid to the date of purchase), of which
$500,000 is payable in cash over four years following the closing of the purchase and the balance of $500,000 is payable by way of the 3%
NSR production royalty. As of December 31, 2016, the Company has paid $165,000 from the inception of this lease.
57
d)
a lease of unpatented federal lode mining and federal unpatented placer claims having an initial term of ten years commencing on March 28,
2007, and continuing for so long thereafter as advance minimum royalties are paid and mining related activities, including exploration,
continue on the property or on adjacent properties controlled by the Company. The lease requires an advance minimum royalty of $15,000
on or before each anniversary date (all of which minimum royalties are recoverable from production royalties). The Company is required to
pay the lessor the sum of $250,000 upon making a positive production decision, payable $125,000 within 120 days of the decision and
$125,000 within a year of the decision (all of which are recoverable from production royalties). An NSR production royalty of 2% is payable
to the lessor. The Company may purchase all of the interest of the lessor in the leased property (including the production royalty) for
$1,000,000. As of December 31, 2016, the Company has paid $113,000 from the inception of this lease.
Title to mineral properties
The acquisition of title to mineral properties is a detailed and time-consuming process. The Company has taken steps to verify title to mineral properties
in which it has an interest. Although the Company has taken every reasonable precaution to ensure that legal title to its properties is properly recorded in
the name of the Company, there can be no assurance that such title will ultimately be secured.
5.
ACCRUED LIABILITIES
The following table presents the accrued liabilities balances at December 31, 2016 and 2015.
Accrued liabilities
Accrued severance
Accrued salaries and benefits
Total accrued liabilities
December 31,
2016
December 31,
2015
$
$
41,682
-
168,500
210,182
$
$
247,034
19,900
127,502
394,436
Accrued liabilities at December 31, 2016 include accruals for general corporate costs and project costs of $13,406 and $28,276, respectively. Accrued
liabilities at December 31, 2015 include accruals for general corporate costs and project costs of $27,535 and $219,499, respectively.
6.
DERIVATIVE LIABILITY
During 2011, the Company acquired certain mining claims and related rights in the vicinity of the Livengood Gold Project located near Fairbanks,
Alaska. The aggregate consideration for the claims and rights was $13,500,000 in cash plus an additional payment based on the five-year average daily
gold price (“Average Gold Price”) from the date of the acquisition (“Additional Payment”). The Additional Payment will equal $23,148 for every dollar
that the Average Gold Price exceeds $720 per troy ounce. If the Average Gold Price is less than $720, there will be no additional consideration due.
At initial recognition on December 13, 2011 the derivative liability was valued at $23,100,000. As at December 12, 2016, the five-year average daily
gold price was $1,354.79 resulting in a derivative liability of $14,694,169. The obligation to make the contingent payment was secured by a Deed of
Trust over the rights of the Company in the purchased claims in favor of the vendors. On December 28, 2016, the Company closed a non-brokered
private placement financing of 45,833,334 common shares at a price of $0.48 per share for gross proceeds of $22.0 million. On January 12, 2017, the
Company paid $14,694,169 for the timely and full satisfaction of the final derivative payment due with respect to the acquisition of certain mining claims
and related rights in the vicinity of the Livengood Gold Project.
58
The fair value of the derivative liability and the calculated Average Gold Price are as follows:
Derivative value at December 31, 2014
Unrealized gain for the year
Derivative value at December 31, 2015
Unrealized gain for the year
Derivative value at December 31, 2016
7.
INCOME TAXES
Fair value
Average Gold
Price/oz.
$
$
14,700,000
(800,000)
13,900,000
794,169
14,694,169
$
$
$
1,356
1,320
1,355
A reconciliation of income taxes at statutory rates with the reported taxes is as follows for the years ended December 31, 2016 and 2015:
Loss before income taxes
Statutory Canadian corporate tax rate
Income tax recovery at statutory rates
Share-based payments
Unrecognized items for tax purposes
Difference in tax rates in other jurisdictions
Change in valuation allowance
Income tax recovery
The significant components of the Company’s deferred income tax assets and liabilities are as follows:
Deferred income tax assets (liabilities):
Mineral properties
Derivative liability
Donations
Other
Share issue costs
Non-capital losses available for future periods
Valuation allowance
Deferred income tax asset
December 31,
2016
(7,190,628)
25.00%
$
December 31,
2015
(4,812,824)
25.00%
$
$
$
$
(1,797,657)
27,132
173,684
(1,073,449)
2,670,290
(1,203,207)
135,117
(172,870)
(756,235)
1,997,195
-
$
-
December 31,
2016
December 31,
2015
$
$
$
57,243,323
(1,824,065)
92,160
55,582
31,830
35,997,950
57,243,323
(1,996,400)
92,160
55,349
31,438
33,462,392
91,596,780
(91,596,780)
88,888,262
(88,888,262)
-
$
-
At December 31, 2016, the Company has available net operating losses for Canadian income tax purposes of approximately $19,325,000 and net
operating losses for US income tax purposes of approximately $71,813,000 available for carry-forward to reduce future years’ taxable income, if not
utilized, expiring as follows:
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
$
Canada
United States
$
65,000
78,000
907,000
1,253,000
2,074,000
2,829,000
4,180,000
2,629,000
1,827,000
1,694,000
406,000
1,383,000
-
-
1,252,000
1,350,000
2,600,000
5,691,000
14,730,000
18,371,000
11,962,000
5,901,000
4,910,000
5,046,000
19,325,000
71,813,000
59
In addition, the Company has available mineral resource related expenditure pools for Canadian income tax purposes totaling approximately $2,628,000
which may be deducted against future taxable income in Canada on a discretionary basis. The Company also has available mineral resource expenses
that are related to the Company’s exploration activities in the United States of approximately $185,999,000 which may be deductible for U.S. tax
purposes. Future tax benefits, which may arise as a result of applying these deductions to taxable income, have not been recognized in these accounts due
to the uncertainty of future taxable income.
8.
SHARE CAPITAL
Authorized
500,000,000 common shares without par value. At December 31, 2015 and 2016, there were 116,313,638 and 162,186,972 shares issued and
outstanding, respectively.
Share issuances
During the third quarter of 2016, the Company issued 40,000 common shares pursuant to the exercise of stock options for total proceeds of $15,404 and
transferred related contributed surplus of $8,942. During the fourth quarter of 2016, the Company closed a non-brokered private placement financing
through the issuance of 45,833,334 common shares issued at $0.48 per share for gross proceeds of $22.0 million. The financing closed on December 28,
2016. Total share issuance costs for this non-brokered private placement financing amounted to $146,735.
Stock options
The Company adopted an incentive stock option plan in 2006, as amended September 19, 2012 and re-approved on May 28, 2015 at the Company’s
Annual General Meeting (the “2006 Plan”). The essential elements of the 2006 Plan provide that the aggregate number of common shares of the
Company’s capital stock that may be made issuable pursuant to options granted under the 2006 Plan may not exceed 10% of the number of issued shares
of the Company at the time of the granting of the options. Options granted under the 2006 Plan will have a maximum term of ten years. The exercise
price of options granted under the 2006 Plan shall be fixed in compliance with the applicable provisions of the TSX Company Manual in force at the
time of grant and, in any event, shall not be less than the closing price of the Company’s common shares on the TSX on the trading day immediately
preceding the day on which the option is granted, or such other price as may be agreed to by the Company and accepted by the Toronto Stock Exchange.
Options granted under the 2006 Plan vest immediately, unless otherwise determined by the directors at the date of grant.
During the year ended December 31, 2016, there were no incentive stock options granted by the Company. During the year ended December 31, 2015,
the Company granted incentive stock options to certain officers, employees and consultants of the Company to purchase a total of 2,135,200 common
shares in the capital stock of the Company. All options granted during the year ended December 31, 2015 vest as to one-third on the grant date, one-third
on the first anniversary, and one-third on the second anniversary.
A summary of the status of the stock option plan as of December 31, 2016 and 2015 and changes during the period is presented below:
Balance, beginning of the year
Granted
Exercised
Cancelled
Balance, end of the year
Year Ended
December 31, 2016
Year Ended
December 31, 2015
Number of
Options
Weighted
Average Exercise
Price (C$)
Number of
Options
Weighted
Average Exercise
Price (C$)
6,066,200 $
- $
40,000 $
- $
6,026,200 $
1.60
-
0.50
-
1.61
5,854,000 $
2,135,200 $
- $
(1,923,000) $
6,066,200 $
2.68
0.80
-
4.01
1.60
The weighted average remaining life of options outstanding at December 31, 2016 was 4.0 years.
60
Stock options outstanding are as follows:
Expiry Date
August 24, 2017
March 14, 2018
February 25, 2022
February 25, 2022
March 10, 2022
March 16, 2023
March 16, 2023
June 9, 2023
Exercise
Price (C$)
December 31, 2016
Number of
Options
Exercisable
Exercise
Price (C$)
December 31, 2015
Number of
Options
Exercisable
$
$
$
$
$
$
$
$
3.17
2.18
1.11
0.73
1.11
1.00
0.50
1.00
1,675,000
319,000
1,030,000
594,000
430,000
1,260,000
688,200
30,000
6,026,200
1,675,000
319,000
1,030,000
594,000
430,000
839,999
445,466
20,000
5,353,465
$
$
$
$
$
$
$
$
3.17
2.18
1.11
0.73
1.11
1.00
0.50
1.00
1,675,000
319,000
1,030,000
594,000
430,000
1,260,000
728,200
30,000
6,066,200
1,675,000
319,000
686,666
396,000
286,666
419,999
242,733
10,000
4,036,064
A summary of the non-vested options as of December 31, 2016 and 2015 and changes during the fiscal years ended December 31, 2016 and 2015 is as
follows:
Non-vested options:
Outstanding at December 31, 2014
Granted
Vested
Outstanding at December 31, 2015
Granted
Vested
Outstanding at December 31, 2016
Number of options
Weighted average
grant-date fair
value (C$)
1,809,674 $
2,135,200 $
(1,914,738) $
2,030,136 $
-
(1,357,401) $
672,735 $
0.49
0.25
0.39
0.34
-
0.38
0.25
At December 31, 2016 there was unrecognized compensation expense of C$17,381 related to non-vested options outstanding. The cost is expected to be
recognized over a weighted-average remaining period of approximately 0.21 years.
Share-based payments
During the year ended December 31, 2016, the Company granted no stock options. The Company recognized share-based payment expense of $108,526,
$540,468, and $1,285,385 during the years ended December 31, 2016, 2015 and 2014, respectively.
The following weighted average assumptions were used for the Black-Scholes option pricing model calculations:
Expected life of options
Risk-free interest rate
Expected volatility
Dividend rate
Exercise price (C$)
Year ended
December 31,
2015
6 years
0.97%
80.60%
0.00%
0.80
$
The expected volatility used in the Black-Scholes option pricing model is based on the historical volatility of the Company’s shares.
61
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:
December 31, 2016
Capitalized acquisition costs
Property and equipment
Current assets
Total assets
December 31, 2015
Capitalized acquisition costs
Property and equipment
Current assets
Total assets
Net loss for the year - Canada
Net loss for the year - United States
Net loss for the year
Canada
United States
Total
$
$
$
$
-
8,944
22,289,678
22,298,622
-
9,563
6,106,135
6,115,698
$
$
$
$
55,204,041
15,856
383,036
55,602,933
55,204,041
20,520
579,577
55,804,138
$
$
$
$
55,204,041
24,800
22,672,714
77,901,555
55,204,041
30,083
6,685,712
61,919,836
Year ended
December 31,
2016
Year ended
December 31,
2015
Year ended
December 31,
2014
$
$
(1,356,670) $
(5,833,958)
(7,190,628) $
(702,851) $
(4,109,973)
(4,812,824) $
(1,936,065)
(5,831,031)
(7,767,096)
62
10.
COMMITMENTS
The following table discloses, as of December 31, 2016, the Company’s contractual obligations including anticipated mineral property payments and
work commitments. Under the terms of the Company’s mineral property purchase agreements, mineral leases and the terms of the unpatented mineral
claims held by it, the Company is required to make certain scheduled acquisition payments, incur certain levels of expenditures, make lease or advance
royalty payments, make payments to government authorities and incur assessment work expenditures as summarized in the table below in order to
maintain and preserve the Company’s interests in the related mineral properties. If the Company is unable or unwilling to make any such payments or
incur any such expenditures, it is likely that the Company would lose or forfeit its rights to acquire or hold the related mineral properties. The following
table assumes that the Company retains the rights to all of its current mineral properties, but does not exercise any lease purchase or royalty buyout
options:
Livengood Property Purchase(1)
Mineral Property Leases(2)
Mining Claim Government Fees
Payments Due by Year
2017
$ 14,694,169
416,678
114,925
Total $ 15,225,772
2018
-
426,653
114,925
541,578
$
$
2019
-
431,703
114,925
546,628
$
$
2020
-
436,829
114,925
551,754
$
$
2021
-
442,031
114,925
556,956
$
$
2022 and
beyond
$
$
-
447,311
114,925
562,236
Total
$ 14,694,169
2,601,205
689,550
$ 17,984,924
1. The amount payable in January 2017 of $14,694,169 represents the fair value of the Company’s derivative liability as at December 31, 2016
based on the five-year average daily gold price for the period of December 13, 2011 through December 12, 2016. On January 12, 2017, this
amount was paid by the Company for the timely and full satisfaction of the final derivative payment. See Note 6.
2. Does not include required work expenditures, as it is assumed that the required expenditure level is significantly below the work for which will
actually be carried out by the Company. Does not include potential royalties that may be payable (other than annual minimum royalty
payments). See Note 4.
11.
RELATED PARTY TRANSACTIONS
In December 2011, in accordance with a Stock and Asset Purchase Agreement (the “Agreement”) between the Company, Alaska/Nevada Gold Mines,
Ltd. (“AN Gold Mines”) and the Heflinger Group, the Company acquired certain mining claims and related rights in the vicinity of the Livengood Gold
Project located near Fairbanks, Alaska. The Company’s derivative liability, as described in Note 6 above, represented the remaining consideration for the
purchase of these claims and related rights and was paid in January 2017. Under the Agreement, the payment was made 70% to AN Gold Mines and
30% to the Heflinger Group.
Mr. Hanneman was appointed Chief Operating Officer of the Company on March 26, 2015 and subsequently appointed Chief Executive Officer of the
Company effective January 31, 2017. Mr. Hanneman is a partner of the general partner, as well as a limited partner, of AN Gold Mines and holds an
11.9% net interest in AN Gold Mines.
In December 2016, the Company closed a non-brokered private placement financing through the issuance of 32,429,842 shares to Paulson & Co. Inc.,
9,041,554 shares to Tocqueville Asset Management, L.P., and 4,361,938 shares to AngloGold Ashanti (U.S.A.) Exploration Inc at a price of USD 0.48
per share. As at December 31, 2016, Paulson, Tocqueville, and AngloGold beneficially owns approximately 34.2%, 19.4%, and 9.5% respectively of the
Company's 162,186,972 common shares.
63
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of December 31, 2016, an evaluation was carried out under the supervision of and with the participation of the Company’s management, including the Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) of the Exchange Act). Based on the evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that,
as of December 31, 2016, the Company’s disclosure controls and procedures were effective in ensuring that: information required to be disclosed in reports filed
or submitted to the SEC under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in applicable rules and
forms and (ii) accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, in a manner that allows for
timely decisions regarding required disclosures.
The effectiveness of our or any system of disclosure controls and procedures, however well designed and operated, can provide only reasonable assurance that the
objectives of the system will be met and is subject to certain limitations, including the exercise of judgment in designing, implementing and evaluating controls
and procedures and the assumptions used in identifying the likelihood of future events.
Management’s Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f).
Management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of internal control over financial
reporting as of December 31, 2016. In conducting this evaluation, management used the framework established by the Committee of Sponsoring Organizations of
the Treadway Commission as set forth in Internal Control – Integrated Framework (2013). Based on this evaluation under the framework in Internal Control –
Integrated Framework (2013), management concluded that internal control over financial reporting was effective as of December 31, 2016.
Because of its inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements. A control system, no matter how
well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been
detected. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that
any design will achieve its stated objectives under all future conditions.
This Annual Report on Form 10-K does not include an attestation report of the Company’s independent public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by the Company’s independent public accounting firm pursuant to rules of the Securities
and Exchange Commission that permit the Company to provide only management’s report in this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
There were no changes in internal controls over financial reporting during the fourth quarter ended December 31, 2016 that have materially, or are reasonably
likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
64
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
PART III
The information required by Items 401, 405, 406, 407(c)(3), (d)(4) and (d)(5) of Regulation S-K will be included in the Company’s Proxy Statement for its 2017
Annual Meeting of Shareholders to be filed with the SEC within 120 days after December 31, 2016 (the “2017 Proxy Statement”), and is incorporated by
reference in this Annual Report on Form 10-K.
The Company’s Code of Business Conduct and Ethics is available on the Company’s website at www.ithmines.com.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 402 and paragraph (e)(4) and (e)(5) of Item 407 of Regulation S-K will be contained in the Company’s 2017 Proxy Statement,
and is incorporated by reference in this Annual Report on Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by Item 201(d) and Item 403 of Regulation S-K will be contained in the Company’s 2017 Proxy Statement, and is incorporated by
reference in this Annual Report on Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by Item 404 and Item 407(a) of Regulation S-K will be contained in the Company’s 2017 Proxy Statement, and is incorporated by
reference in this Annual Report on Form 10-K.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by Item 9(e) of Schedule 14A will be filed in the Company’s 2017 Proxy Statement, and is incorporated by reference in this Annual
Report on Form 10-K.
65
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(a) Documents filed as part of this report
(1) All financial statements
The consolidated statements of operations and comprehensive loss, cash flows, and changes in shareholders’ equity, and the consolidated balance sheets are
included as part of Part II, Item 8, Financial Statements and Supplementary Data.
(2) Financial statement schedules
All financial statement schedules have been omitted, since the information is either not applicable or required, or because the information required is included in
the consolidated financial statements and notes thereto included in this Form 10-K.
(3) Exhibits required by Item 601 of Regulation S-K
The information required by Section (a)(3) of Item 15 is set forth on the Exhibit Index that follows the signatures page of this Form 10-K.
ITEM 16. FORM 10-K SUMMARY
Not applicable.
66
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
SIGNATURES
International Tower Hill Mines Ltd.
By:
/s/ Karl L. Hanneman
Karl L. Hanneman
Chief Executive Officer
Date: March 15, 2017
Power of Attorney
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Karl. L. Hanneman as his attorney-
in-fact, with the power of substitution, for him in any and all capacities, to sign any amendments to this Annual Report on Form 10-K, and to file the same, with
exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said
attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By:
/s/ Karl L. Hanneman
Karl L. Hanneman
Chief Executive Officer
(Principal Executive Officer)
Date: March 15, 2017
By:
/s/ David Cross
David Cross
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: March 15, 2017
By:
/s/ Anton J. Drescher
Anton J. Drescher
Director
Date: March 15, 2017
By:
/s/ John J. Ellis
John J. Ellis
Director
Date: March 15, 2017
By:
/s/ Mark R. Hamilton
Mark R. Hamilton
Director
Date: March 15, 2017
By:
/s/ Marcelo Kim
Marcelo Kim
Director
Date: March 15, 2017
By:
/s/ Stephen A. Lang
Stephen A. Lang
Director
Date: March 15, 2017
By:
/s/ Thomas S. Weng
Thomas S. Weng
Director
Date: March 15, 2017
67
Exhibit Number
EXHIBIT INDEX
Description
3.1
4.1
4.2
4.3
10.1
10.2
10.3
10.4
10.5
10.6**
10.7
10.8
10.9
10.10**
Articles of the Company, as amended on June 11, 2013 (filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q on July
31, 2013 and incorporated herein by reference)
Form of Common Share Certificate (filed as Exhibit 1 to the Company’s Form 8-A on August 2, 2007 and incorporated herein by
reference)
Amended and Restated Shareholder Rights Plan Agreement, dated September 19, 2012, between International Tower Hill Mines Ltd.
and Computershare Investor Services Inc., as rights agent (filed as Exhibit 4.2 to the Company’s Form 10-K on March 13, 2013 and
incorporated herein by reference)
Investor Rights Agreement, dated December 28, 2016, between International Tower Hill Mines Ltd. and Paulson & Co. Inc. (filed as
Exhibit 4.1 to the Company’s Form 8-K filed on January 5, 2017 and incorporated herein by reference)
Asset Purchase and Sale and Indemnity Agreement, dated June 30, 2006 among AngloGold Ashanti (U.S.A.) Exploration Inc., Talon
Gold Alaska, Inc. and International Tower Hill Mines Ltd. (filed as Exhibit 2 to the Company’s Form 20-F on December 29, 2006 and
incorporated herein by reference)
First Amending Agreement, dated July 26, 2006, among AngloGold Ashanti (U.S.A.) Exploration Inc., Talon Gold Alaska, Inc. and
International Tower Hill Mines Ltd. (filed as Exhibit 3 to the Company’s Form 20-F on December 29, 2006 and incorporated herein
by reference)
Indemnity and Pre-Emptive Rights Agreement, dated August 4, 2006, among AngloGold Ashanti (U.S.A.) Exploration Inc., Talon
Gold Alaska, Inc., and International Tower Hill Mines Ltd. (filed as Exhibit 1 to the Company’s Form 20-F/A on December 29, 2006
and incorporated herein by reference)
Mining Lease with Option to Purchase, dated January 18, 2007, between Talon Gold Alaska Inc. and Bernard E. Griffin, Donna
Griffin, Larry Kilgore, Sherry Gerbi, Jerry Griffin, Tim Miller, Lynne Miller, Robert and Marcia Miller (filed as Exhibit 11 to the
Company’s Form 20-F on December 3, 2007 and incorporated herein by reference)
Mining Lease, dated March 28, 2007, between Ronald Tucker and Talon Gold Alaska, Inc. (filed as Exhibit 14 to the Company’s
Form 20-F on December 3, 2007 and incorporated herein by reference)
Upland Mining Lease, effective July 1, 2004, between the Alaska Mental Health Trust Authority and Tower Hill Mines, Inc. (as
successor to AngloGold (U.S.A.)) (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q/A on December 10, 2013
and incorporated herein by reference)
Addendum No. 2 to Upland Mining Lease, effective July 1, 2007, between the State of Alaska, Department of Natural Resources,
Mental Health Trust Land Office and Tower Hill Mines, Inc. (formerly Talon Gold Alaska, Inc.) (filed as Exhibit 10.2 to the
Company’s Quarterly Report on Form 10-Q on November 6, 2013 and incorporated herein by reference)
Addendum No. 3 to Upland Mining Lease, effective January 1, 2010, between the State of Alaska, Department of Natural Resources,
Mental Health Trust Land Office and Tower Hill Mines, Inc. (formerly Talon Gold Alaska, Inc.) (filed as Exhibit 10.3 to the
Company’s Quarterly Report on Form 10-Q on November 6, 2013 and incorporated herein by reference)
Addendum No. 4 to Upland Mining Lease, effective June 27, 2013, between the State of Alaska, Department of Natural Resources,
Mental Health Trust Land Office and Tower Hill Mines, Inc. (filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q
on November 6, 2013 and incorporated herein by reference)
Addendum No. 5 to Upland Mining Lease, effective June 30, 2013, between the State of Alaska, Department of Natural Resources,
Mental Health Trust Land Office and Tower Hill Mines, Inc. (filed as Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q
on November 6, 2013 and incorporated herein by reference)
68
10.11*
10.12*
10.13*
10.14*
10.15*
10.16*
10.17
10.18
21.1
23.1
31.1
31.2
32.1
32.2
101
2006 Stock Option Plan, as amended September 19, 2012 (filed as Exhibit 10.9 to the Company’s Form 10-K on March 13, 2013 and
incorporated herein by reference)
Form of Stock Option Agreement for use under the 2006 Stock Option Plan (filed as Exhibit 10.10 to the Company’s Form 10-K on
March 13, 2013 and incorporated herein by reference)
Employment Agreement, dated March 18, 2014, between Thomas E. Irwin and Tower Hill Mines (US) LLC (filed as Exhibit 10.1 to
the Company’s Form 8-K filed on March 21, 2014 and incorporated herein by reference)
Employment Agreement, dated March 12, 2013, between Karl Hanneman and Tower Hill Mines (US) LLC (filed as Exhibit 10.1 to
the Company’s Quarterly Report on Form 10-Q on May 6, 2015 and incorporated herein by reference)
Consulting Agreement, dated May 11, 2015, between David A. Cross and International Tower Hill Mines Ltd. (filed as Exhibit 10.1 to
the Company’s Form 8-K filed on May 12, 2015 and incorporated herein by reference)
Financial and Accounting Consulting Agreement, dated May 11, 2015, between Cross Davis & Company LLP, Certified General
Accountants and International Tower Hill Mines Ltd. (filed as Exhibit 10.2 to the Company’s Form 8-K filed on May 12, 2015 and
incorporated herein by reference)
Form of Subscription Agreement (Paulson & Co.) (filed as Exhibit 10.1 to the Company’s Form 8-K filed on December 20, 2016 and
incorporated herein by reference)
Form of Subscription Agreement (filed as Exhibit 10.2 to the Company’s Form 8-K filed on December 20, 2016 and incorporated
herein by reference)
Subsidiaries of the Company (filed as Exhibit 21.1 to the Company’s Form 10-K on March 13, 2013 and incorporated herein by
reference)
Consent of PricewaterhouseCoopers LLP
Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
Certification of Principal Financial and Accounting Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
Certification of the Principal Financial and Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets at December 31, 2016 and 2015, (ii)
the Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2016, 2015 and 2014, (iii) the
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2016, 2015 and 2014, (iv) the
Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015 and 2014, and (v) the Notes to the
Consolidated Financial Statements.
*
**
Management contract or compensatory plan or arrangement
Certain portions of this exhibit have been omitted by redacting a portion of the text (indicated by asterisks in the text). This exhibit has been filed
separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.
69
CONSENT OF INDEPENDENT AUDITOR
EXHIBIT 23.1
We hereby consent to the incorporation by reference in the Registration Statements on Forms S-8 (File Nos. 333-174617, 333-158533 and 333-141353) of
International Tower Hill Mines Ltd. of our report dated March 14, 2017, relating to the consolidated financial statements, which appears in this Annual Report on
Form 10-K.
/s/ PricewaterhouseCoopers LLP
Chartered Professional Accountants
Vancouver, British Columbia
March 14, 2017
I, Karl L. Hanneman, certify that:
1. I have reviewed this Annual Report on Form 10-K of International Tower Hill Mines Ltd.;
CERTIFICATION
EXHIBIT 31.1
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: March 15, 2017
By: /s/ Karl L. Hanneman
Karl L. Hanneman
Chief Executive Officer
(Principal Executive Officer)
EXHIBIT 31.2
I, David Cross, certify that:
1. I have reviewed this Annual Report on Form 10-K of International Tower Hill Mines Ltd.;
CERTIFICATIONS
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: March 15, 2017
By: /s/ David Cross
David Cross
Chief Financial Officer
(Principal Financial and Accounting Officer)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.1
In connection with the Annual Report on Form 10-K of International Tower Hill Mines Ltd. (the “Company”), for the period ended December 31, 2016,
as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Karl L. Hanneman, Chief Executive Officer of the Company, hereby
certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
Date: March 15, 2017
By: /s/ Karl L. Hanneman
Karl L. Hanneman
Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.2
In connection with the Annual Report on Form 10-K of International Tower Hill Mines Ltd. (the “Company”), for the period ended December 31, 2016,
as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David Cross, Chief Financial Officer for the Company, hereby certify
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
Date: March 15, 2017
By: /s/ David Cross
David Cross
Chief Financial Officer
(Principal Financial and Accounting Officer)