UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(cid:95)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
or
(cid:133)
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 executive 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 American
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.
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)
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 every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes (cid:95) 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, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company”
in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
(cid:133)
(cid:95)
Accelerated filer
Smaller reporting company
Emerging Growth Company
(cid:133)
(cid:95)
(cid:133)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. (cid:133)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:133) No (cid:95)
Based on the last sale price on the NYSE American of the registrant’s Common Shares on June 29, 2018 (the last business day of the registrant’s most
recently completed second fiscal quarter) of $0.50 per share, the aggregate market value of the voting stock held by non-affiliates of the registrant was
approximately $48.1 million.
As of March 8, 2019, the registrant had 187,111,857 Common Shares outstanding.
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 2019 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
7
11
22
22
31
31
32
37
38
42
43
60
60
60
61
61
61
61
61
62
64
65
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 if such disclosure includes the grade or quality and the
quantity for each category of mineral resource and mineral reserve; however, the SEC normally only permits issuers to report mineralization that does not
constitute “reserves” by SEC standards as in place tonnage and grade without reference to unit measures. Accordingly, information contained in this report
and the documents incorporated by reference herein contain descriptions of our mineral deposits that may not be comparable to similar information made
public by U.S. companies subject to the reporting and disclosure requirements under the United States federal securities laws and the rules and regulations
thereunder.
The term “mineralized material” as used in this Annual Report on Form 10-K, although permissible under SEC Industry Guide 7, does not indicate “reserves”
by SEC Industry Guide 7 standards. We cannot be certain that any part of the mineralized material will ever be confirmed or converted into SEC Industry
Guide 7 compliant “reserves”. Investors are cautioned not to assume that all or any part of the mineralized material will ever be confirmed or converted into
reserves or that mineralized material can be economically or legally extracted.
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.
1
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:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
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;
the expected reduction in overhead expenses; 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:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
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;
2
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
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;
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.
3
The following is a glossary of certain terms that may be used in this report.
GLOSSARY OF TERMS
“alteration”
Changes in the chemical or mineralogical composition of a rock, generally produced by weathering or hydrothermal
solutions
“anomalous”
Departing from the expected or normal
“April 2017 Report”
The technical report entitled “Canadian National Instrument 43-101 Technical Report Pre-feasibility Study on the
Livengood Gold Project, Livengood, Alaska, USA” dated April 10, 2017 and prepared by certain Qualified Persons under
NI 43-101, as filed under the Company’s profile on SEDAR at www.sedar.com
“As”
“basalt”
“biotite”
“Board”
“chert”
“clastic”
“cm”
“common shares”
“conglomerate”
“Corvus”
“deformation”
“deposit”
“diamond drill”
“dip”
“dike”
“director”
“disseminated”
“epigenetic”
“g/t”
“gabbro”
Arsenic
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
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
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
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
4
“grade”
“host”
“host rock”
“hydrothermal”
“ITH”
“intrusion”
“intrusive”
“kg”
“km”
“lode”
“m”
“mm”
“mafic”
“magma”
“magmatic”
“massive”
“mineral reserve”
“mineral resource”
“mineralization”
“NI 43-101”
To contain a particular quantity of ore or mineral, relative to other constituents, in a specified quantity of rock
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
A term pertaining to hot aqueous solutions of magmatic origin which may transport metals and minerals in solution
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
Kilograms
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 and/or indicated mineral resource. It includes diluting materials and
allowances for losses, which may occur when the material is mined or extracted and is defined by studies at pre-feasibility
or feasibility level as appropriate that include application of “modifying factors” (which are defined in NI 43-101 as
considerations used to convert mineral resources to mineral reserves. These include, but are not restricted to, mining
processing, metallurgical, infrastructure, economic, marketing, legal, environmental, social and governmental factors).
Such studies demonstrate that, at the time of reporting, extraction could reasonably be justified. The reference point at
which mineral reserves are defined, usually the point where the ore is delivered to the processing plant, must be stated. It
is important that, in all situations where the reference point is different, such as for a saleable product, a clarifying
statement is included to ensure that the reader is fully informed as to what is being reported. The public disclosure of a
mineral reserve must be demonstrated by a pre-feasibility study or feasibility study.
A concentration or occurrence of solid material of economic interest in or on the Earth’s crust in such form, grade or
quality and quantity that there are reasonable prospects for eventual economic extraction. The location, quantity, grade or
quality, continuity and other geological characteristics of a mineral resource are known, estimated or interpreted from
specific geological evidence and knowledge, including sampling.
The concentration of metals and their chemical compounds within a body of rock
National Instrument 43-101 of the Canadian Securities Administrators entitled “Standards of Disclosure for Mineral
Projects”
“NSR”
Net smelter return
“NYSE American”
NYSE American (formerly, NYSE MKT and the American Stock Exchange)
5
“ophiolite”
“RC”
“Sb”
“sedimentary”
“sill”
“strike”
“tabular”
“tectonic”
“tectonics”
“TSX”
“ultramafic”
“vein”
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
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
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
CURRENCY
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.
6
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 2017, the Company issued
the results of a pre-feasibility study that was summarized in the April 2017 Report which converted a portion of the mineral resources at the Project into
proven reserves of 378 million tonnes at an average grade of 0.71 g/tonne (8.62 million ounces) and probable reserves of 14 million tonnes at an average grade
of 0.72 g/tonne (353,000 ounces) based on a gold price of $1,250 per ounce. All work presently planned by the Company is directed at maintaining necessary
environmental baseline activities at the Livengood Gold Project and focusing efforts on Project optimization opportunities, including those identified in the
April 2017 Report. A more complete description of the Livengood Gold Project and the current activities is set forth in Part I, Item 2 and Part II, Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of Operations, of this Annual Report on Form 10-K.
Since 2006, the Company has focused primarily on the acquisition and exploration of mineral properties in Alaska and Nevada by acquiring through staking,
purchase, lease or option (primarily from AngloGold Ashanti (U.S.A.) Exploration Inc. (“AngloGold”) in a transaction which closed on August 4, 2006)
interests in a number of mineral properties in Alaska (Livengood Gold Project, Terra, LMS, BMP, Chisna, Coffee Dome, West Tanana, Gilles, West Pogo,
Caribou, Blackshell and South Estelle) and Nevada (North Bullfrog and Painted Hills) that it believed had the potential to host large precious or base metal
deposits. Some of these, such as the Painted Hills, Gilles, West Tanana, Caribou and Blackshell properties, were, in light of disappointing exploration results,
dropped or returned to the respective optionors or lessors, and the associated costs written off while others, such as the South Estelle property, have been sold.
Since early 2008, the Company’s primary focus has been the exploration and advancement of the Livengood Gold Project and the majority of its resources
have been directed to that end. In August 2010, ITH undertook a corporate spin-out arrangement transaction whereby all of its mineral property interests other
than the Project were transferred to Corvus and Corvus was spun out as an independent and separate public company. Following the completion of that
transaction, the sole mineral property held by the Company is the Livengood Gold Project. Since the completion of such transaction, the Company has focused
exclusively on the ongoing exploration and potential development of the Livengood Gold Project.
The head office and principal executive address of ITH is located at Suite 2300 – 1177 West Hastings Street, Vancouver, British Columbia, Canada V6E 2K3,
and its registered and records office is located at 2400 – 745 Thurlow Street, Vancouver, British Columbia, Canada V6E 0C5.
2018
Livengood Gold Project Developments
During the year ended December 31, 2018 and to the date of this Annual Report on Form 10-K, the Company progressed on a number of opportunities with
the potential for optimization and reducing the costs of building and operating a mine at the Project. Outside consultants were retained to conduct additional
metallurgical tests and engineering, including confirmation of the flow sheet and optimizing the operating costs. Using the improved mineralization and
alteration models now available for the Livengood gold deposit arising from the work completed in 2017, 4,000 kg of metallurgical composites were selected
and shipped to SGS Vancouver. Approximately 2,000 kg of these samples were processed during 2018 to evaluate optimum grind size and to determine
whether different recovery parameters should be applied to different areas of the orebody. The engineering firm of BBA Inc. (“BBA”) was retained to
continue to guide the metallurgical program. During 2018, the Company also completed work to advance the environmental baseline efforts needed to support
future permitting.
7
Director Changes
On March 16, 2018, Mr. Victor Flores notified the Board of his decision to resign as director effective on March 21, 2018. Mr. Flores was nominated for
election as director by Paulson & Co., Inc. (“Paulson”) pursuant to that certain Investor Rights Agreement, dated December 28, 2016, between the Company
and Paulson. Effective on March 22, 2018, the Company appointed Damola Adamolekun as a director, filling the vacancy created by the resignation of Mr.
Flores.
The Board appointed Mr. Stuart Harshaw to the Board effective April 1, 2018, to fill the vacancy that resulted from General Hamilton’s November 6, 2017
resignation.
At the 2018 Annual General Meeting of shareholders in Vancouver, B.C. on May 30, 2018, the shareholders fixed the size of the board at nine with the
addition of Mr. Karl Hanneman, CEO of the Company.
Financing
On March 13, 2018, the Company completed a non-brokered private placement pursuant in which it issued 24,000,000 common shares at $0.50 per share for
gross proceeds of $12.0 million. The Company intends to use the funds for continuation of optimization studies in the attempt to further improve and de-risk
the Project, for required environmental baseline studies, and for general working capital purposes.
Other Developments
On March 12, 2018, the Board approved recommendations by management to further reduce corporate overhead costs, including a reduction in CEO salary by
50% (reflecting an approximate 50% reduction in the amount of time the CEO will spend working on the Project), a reduction in board cash compensation and
expense, and staff reductions as appropriate as critical work is completed. Depending upon the level of technical work or permitting efforts underway in future
years, these cost savings are expected to bring total project general and administrative costs into the range of $2.5 million per year.
2019
Outlook
On November 1, 2018, the Board approved a 2019 budget of $3.7 million. The work program incorporated in this budget will build upon the metallurgical
studies undertaken in 2018 to continue to define and refine the project flowsheet. Approximately 2,000 kg of samples will be processed in 2019 to evaluate
optimum grind size and to determine whether different recovery parameters should be applied to different areas of the orebody. BBA will be retained to
continue to guide the metallurgical program. Work is also planned to advance the environmental baseline efforts needed to support future permitting.
The Company remains open to a strategic alliance to help support the future development of the Project while considering all other appropriate financing
options. The size of the gold resource, the favorable location, and the proven team are some of the reasons the Company would potentially attract a strategic
partner with a long term development horizon who understands the Project is highly leveraged to gold prices.
Regulatory, Environmental and Social Matters
All of the Company’s currently proposed exploration is under the jurisdiction of the State of Alaska. In Alaska, low impact, initial stage surface exploration
such as stream sediment, soil and rock chip sampling does not require any permits. The State of Alaska requires an APMA (Alaska Placer Mining
Application) exploration permit for all substantial surface disturbances such as trenching, road building and drilling. These permits are also reviewed by
related state and federal agencies that can comment and require specific changes to the proposed work plans to minimize impacts on the environment. The
permitting process for significant disturbances generally requires 30 days for processing and all work must be bonded. The Company currently has all
necessary permits with respect to its currently planned exploration activities in Alaska. Although the Company has never had an issue with the timely
processing of APMA permits, there can be no assurances that delays in permit approval will not occur.
8
ITH has established a Technical Committee, which has adopted a formal, written charter. As set out in its charter, the overall purpose of the Technical
Committee is to assist the Board in fulfilling its oversight responsibilities with respect to the Company’s continuing commitment to improving the
environment and ensuring that activities are carried out and facilities are operated and maintained in a safe and environmentally sound manner that reflects the
ideals and principles of sustainable development. The primary function of the Technical Committee is to monitor, review and provide oversight with respect to
the technical aspects of the Company’s projects as well as monitor policies, standards, and programs relative to health, safety, community relations and
environmental-related matters. The Technical Committee also advises the Board and makes recommendations for the Board’s consideration regarding health,
safety, community relations and environmental-related issues.
Although not set out in a specific policy, the Company strives to be a positive influence in the local communities where its mineral projects are located, not
only by contributing to the welfare of such communities through donations of money and supplies, as appropriate, but also through hiring, when appropriate,
local workers to assist in ongoing exploration programs. The Company considers building and maintaining strong relationships with such communities to be
fundamental to its ability to continue to operate in such regions and to assist in the eventual development (if any) of mining operations in such regions, and it
attaches considerable importance to commencing and fostering such relationships from the beginning of its involvement in any particular area.
Corporate Structure
ITH was incorporated under the Company Act (British Columbia) under the name “Ashnola Mining Company Ltd.” on May 26, 1978. ITH’s name was
changed to “Tower Hill Mines Ltd.” on June 1, 1988, and subsequently changed to “International Tower Hill Mines Ltd.” on March 15, 1991. ITH has been
transitioned under, and is now governed by, the Business Corporations Act (British Columbia). On November 15, 2005, the shareholders resolved to amend
the Company’s Articles to increase its authorized capital from 20,000,000 common shares without par value to 500,000,000 common shares without par value.
This increase became effective on April 20, 2006.
ITH has three material subsidiaries:
(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:
Competition
ITH is an exploration stage company. The Company competes with other mineral resource exploration and development companies for financing, technical
expertise and the acquisition of mineral properties. Many of the companies with whom the Company competes have greater financial and technical resources.
Accordingly, these competitors may be able to spend greater amounts on the acquisition, exploration and development of mineral properties. This competition
could adversely impact the Company’s ability to finance further exploration and to achieve the financing necessary for the Company to develop its mineral
properties.
Availability of Raw Materials and Skilled Employees
All aspects of the Company’s business require specialized skills and knowledge. Such skills and knowledge include the areas of geology, drilling, logistical
planning, preparation of feasibility studies, permitting, construction and operation of a mine, financing and accounting. Since commencing its current
operations in mid-2006, the Company has found and retained appropriate employees and consultants and believes it will continue to be able to do so in the
future.
All of the raw materials the Company requires to carry on its business are readily available through normal supply or business contracting channels in Canada
and the United States. Since commencing exploration activities at the Livengood Gold Project in mid-2006, the Company has been able to secure the
appropriate personnel, equipment and supplies required to conduct its contemplated programs. While it has experienced difficulty in procuring some
equipment, such as drill equipment or services, experienced drillers and timely assay laboratory services in previous years, the recent overall slowdown in the
mineral exploration business has resulted in more equipment and services being made available on a timely basis. As a result, the Company does not believe
that it will experience any shortages of required personnel, equipment or supplies in the foreseeable future.
Employees
At December 31, 2018, the Company had 3 employees. The Company also uses consultants with specific skills to assist with various aspects of project
evaluation, engineering, community engagement and investor relations, and corporate governance.
Seasonality
As the Company’s mineral exploration activity takes place in Alaska, its business is seasonal. Due to the northern climate, exploration work on the Livengood
Gold Project can be limited due to excessive snow cover and cold temperatures. In general, surface sampling work is limited to May through September and
surface drilling from March through November, although some locations afford opportunities for year-round exploration operations and others, such as road-
accessible wetland areas, may only be explored while frozen in the winter.
10
Available Information
ITH maintains an internet website at www.ithmines.com. The Company makes available, free of charge, through the Investors section of its website, its
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports filed or furnished
pursuant to Section 13 or 15(d) of the Exchange Act, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC
and its Annual Information Form, press releases and material change reports and other reports filed on the System for Electronic Document Analysis and
Retrieval (SEDAR). The Company’s SEC filings are available from the SEC’s internet website at www.sec.gov which contains reports, proxy and information
statements and other information regarding issuers that file electronically. The Company’s SEDAR filings are available from SEDAR’s internet website at
www.sedar.com under the Company’s profile. The contents of these websites are not incorporated into this report and the references to the URLs for these
websites are intended to be inactive textual references only.
ITEM 1A. RISK FACTORS
You should carefully consider the following risk factors in addition to the other information included in this Annual Report on Form 10-K. Each of these risk
factors could materially and adversely affect our business, operating results and financial condition, as well as materially and adversely affect the value of an
investment in our common shares. The risks described below are not the only ones facing the Company. Additional risks that we are not presently aware of, or
that we currently believe are immaterial, may also adversely affect our business, operating results and financial condition. We cannot assure you that we will
successfully address these risks or that other unknown risks exist that may affect our business.
Risks Related to Our Business
Our success depends on the development and operation of the Livengood Gold Project, which is our only project and which, as contemplated in the April
2017 Report, is not commercially viable at current gold prices.
Our only property at this time is our Livengood Gold Project, which is in the exploration stage. We have issued the April 2017 Report on the Livengood Gold
Project which indicates that the Project generates a minimal positive return at a gold price of $1,250 per ounce. The price of gold was $1,297 per ounce as of
March 8, 2019, and the Project as contemplated in the April 2017 Report is not commercially viable at current gold prices. While management is exploring
opportunities identified in the April 2017 Report for optimization and reducing Project costs, there can be no assurance that any such efforts will be
successful, that any of the optimization opportunities or cost savings will in fact be realized or that the price of gold will increase sufficiently to warrant a
decision to develop the Project. If the Project is not developed, or if the Project is otherwise subject to deterioration, destruction or significant delay, we may
never generate revenues and our shareholders may lose most or all of their investment in our common shares.
While we may be successful in outlining potential optimizations that might improve the economics of the Project, there can be no assurance that any such
optimizations can actually be incorporated into the Project.
While a review of the pre-feasibility test work to date on the Project indicates that there is the potential to further optimize the specific parameters of the
Project, and that such optimizations may result in lower capital costs and operating costs for the Project, there can be no assurance that, even if such
optimizations can be achieved and shown to have such effect, it will be possible to actually change the scope, size, scale and parameters of any revised Project
configuration to actually incorporate the optimized results. Even if such optimization testwork shows that optimization will improve capital or operating costs
for the Project, it may not be possible to re-scale the Project so as to take advantage of all or any part of the optimized processes and therefore it may not be
possible, in fact, to derive any benefit from the optimization work or studies carried out. If we are not able to actually incorporate the optimized results, our
business would be materially adversely affected and our shareholders could lose all or a substantial portion of their investment.
11
We have a history of losses and expect to continue to incur losses in the future.
We have incurred losses and have had no revenue from operations since inception, and we expect to continue to incur losses in the foreseeable future. We
have not commenced commercial production on the Livengood Gold Project and we have no other mineral properties. We have no revenues from operations,
and we anticipate we will have no operating revenues and will continue to incur operating losses until such time, if ever, as we place the Livengood Gold
Project into production and such project generates sufficient revenues to fund continuing operations. The Project is currently in the exploration stage and, as
contemplated in the April 2017 Report, is not commercially viable at current gold prices. Our activities may not result in profitable mining operations and we
may not succeed in establishing mining operations or profitably producing metals at the Livengood Gold Project.
We are an exploration stage company and have no history producing metals from our properties. Any future revenues and profits are uncertain.
We have no history of mining or refining any mineral products or metals and the Livengood Gold Project is not currently producing. There can be no
assurance that the Livengood Gold Project will be successfully placed into production, produce minerals in commercial quantities, or otherwise generate
operating earnings. Advancing properties from the exploration stage into development and commercial production requires significant capital and time and
will be subject to further feasibility studies, permitting requirements and construction of the mine, processing plants, roads and related works and
infrastructure. We will continue to incur losses until such time, if ever, as our mining activities successfully reach commercial production levels and generate
sufficient revenue to fund continuing operations. There is no certainty that we will produce revenue from any source, operate profitably or provide a return on
investment in the future. If we are unable to generate revenues or profits, our shareholders might not be able to realize returns on their investment in our
common shares.
We will require additional financing to fund exploration and, if warranted, development and production. Failure to obtain additional financing could
have a material adverse effect on our financial condition and results of operation and could cast uncertainty on our ability to continue as a going
concern.
Advancing properties from exploration into the development stage requires significant capital and time, and successful commercial production from a
property, if any, will be subject to completing feasibility studies, permitting and construction of the mine, processing plants, roads, and other related works
and infrastructure. The Company does not presently have sufficient financial resources or a source of operating cash flow to undertake by itself to complete
the permitting process and, if a production decision is made, the construction of a mine at the Livengood Gold Project. The completion of the permitting
process, and any construction of a mine at the Livengood Gold Project following the making of a production decision, will therefore depend upon the
Company’s ability to obtain financing through the sale of its equity securities, enter into a joint venture or strategic alliance relationship, secure significant
debt financing or find alternative means of financing. There is no assurance that the Company will be successful in obtaining the required financing on
favorable terms or at all. Even if the results of exploration are encouraging, the Company may not be able to obtain sufficient financing to conduct the further
exploration that may be necessary to determine whether or not a commercially mineable deposit exists.
Our ability to obtain additional financing in the future will depend upon a number of factors, including prevailing capital market conditions, the status of the
national and worldwide economy, our business performance and the price of gold and other precious metals. Capital markets worldwide have been adversely
affected in recent years by substantial losses by financial institutions. Failure to obtain such additional financing on favorable terms or at all could result in
delay or indefinite postponement of further mining operations or exploration and development and the possible partial or total loss of our interests in the
Livengood Gold Project.
We have not yet identified, and may never identify, commercially viable reserves that would generate revenues.
We are considered an exploration stage company and will continue to be such until we identify commercially viable reserves on our properties and develop
our properties. We have no producing properties and have never generated any revenue from our operations. We have issued the April 2017 Report using a
gold price of $1,250 per ounce. Based on the April 2017 Report, the Project generates a minimal positive return; however, the Project is not commercially
viable at current gold prices. The majority of exploration projects do not result in the discovery of commercially mineable deposits of ore. Further exploration
and substantial expenditures are required to establish ore reserves through drilling and metallurgical and other testing techniques, determine metal content and
metallurgical recovery processes to extract metal from the ore, and construct, renovate or expand mining and processing facilities. No assurance can be given
that any level of recovery of ore reserves will be realized or that any identified mineral deposit will ever qualify as a commercial mineable ore body which can
be legally and economically exploited. If we are not able to identify commercially viable mineral deposits or profitably extract minerals from such deposits,
our business would be materially adversely affected and our shareholders could lose all or a substantial portion of their investment.
12
Resource exploration is a highly speculative business, and certain inherent exploration risks could have a negative effect on our business.
Our long-term success depends on our ability to identify mineral deposits on the Livengood Gold Project and other properties we may acquire, if any, that can
then be developed into commercially viable mining operations. Resource exploration is a highly speculative business and involves a high degree of risk,
including, among other things, unprofitable efforts resulting both from the failure to discover mineral deposits and from finding mineral deposits which,
though present, are insufficient in size and grade at the then prevailing market conditions to return a profit from production. Substantial expenditures are
required to establish proven and probable mineral reserves through drilling and analysis, to develop metallurgical processes to extract metal, and to develop
the mining and processing facilities and infrastructure at any site chosen for mining. Although substantial benefits may be derived from the discovery of a
major mineralized deposit, no assurance can be given that minerals will be discovered in sufficient quantities to justify commercial operations or that funds
required for development can be obtained on a timely basis. The marketability of minerals which may be acquired or discovered by the Company will be
affected by numerous factors beyond the control of the Company and cannot be accurately predicted. These factors include market fluctuations, the proximity
and capacity of milling facilities, mineral markets and processing equipment, and government regulations, including regulations relating to prices, taxes,
royalties, land use, importing and exporting of minerals and environmental protection. The exact effect of these factors cannot be accurately predicted, but the
combination of these factors may result in the Company not receiving an adequate return on invested capital.
Mineral resource estimates are based on interpretation and assumptions and could be inaccurate or yield less mineral production under actual conditions
than is currently estimated. Any material changes in these estimates will affect the economic viability of placing a property into production.
The mineral resource estimates included in our reports are estimates only and no assurance can be given that any particular level of recovery of minerals will
in fact be realized or that an identified reserve or resource will ever qualify as a commercially mineable (or viable) deposit which can be legally and
economically exploited. The estimating of mineral resources and mineral reserves is a subjective process and the accuracy of mineral resource and mineral
reserve estimates is a function of the quantity and quality of available data, the accuracy of statistical computations, and the assumptions used and judgments
made in interpreting available engineering and geological information. There is significant uncertainty in any mineral resource or mineral reserve estimate and
the actual deposits encountered and the economic viability of a deposit may differ materially from the Company’s estimates. In addition, the grade of
mineralization ultimately mined may differ from that indicated by drilling results and such differences could be material. Because we have not commenced
actual production, mineralization estimates, including mineral resource estimates, for the Livengood Gold Project may require adjustments or downward
revisions, and such adjustments or revisions may be material.
Until ore is actually mined and processed, mineral resources, mineral reserves and grades of mineralization must be considered as estimates only. The grade of
ore ultimately mined, if any, may differ from that indicated by any pre-feasibility or definitive feasibility studies and drill results. There can be no assurance
that minerals recovered in small scale laboratory tests will be duplicated in large scale tests under on-site conditions or in production scale operations.
Extended declines in market prices for gold may render portions or all of our mineral resources uneconomic and result in reduced reported mineralization or
adversely affect the commercial viability determinations reached by us. Material changes in estimates of mineralization, grades, stripping ratios, recovery rates
or of our ability to extract such mineralization may affect the economic viability of projects and the value of our Livengood Gold Project. The estimated
resources described in our reports should not be interpreted as assurances of mine life or of the profitability of future operations. Estimated mineral resources
and mineral reserves may have to be re-estimated based on changes in applicable commodity prices, further exploration or development activity or actual
production experience. This could materially and adversely affect estimates of the volume or grade of mineralization, estimated recovery rates or other
important factors that influence mineral resource or mineral reserve estimates. Market price fluctuations for gold, silver or base metals, increased production
costs or reduced recovery rates or other factors may render any particular reserves uneconomical or unprofitable to develop at a particular site or sites. A
reduction in estimated reserves could require material write downs in investment in the affected mining property and increased amortization, reclamation and
closure charges. Mineral resources are not mineral reserves and there is no assurance that any mineral resources will ultimately be reclassified as
proven or probable reserves. Mineral resources which are not mineral reserves do not have demonstrated economic viability.
13
There are differences in U.S. and Canadian practices for reporting reserves and resources.
Our reserve and resource estimates are not directly comparable to those made in filings subject to SEC reporting and disclosure requirements, as we report
reserves and resources in accordance with Canadian practices. These practices are different from the practices used to report reserve and resource estimates in
reports and other materials filed with the SEC. It is Canadian practice to report measured, indicated and inferred mineral resources (and in certain
circumstances, deposits that are not measured, indicated or inferred mineral resources but that are targeted for further exploration), which are generally not
permitted in disclosure filed with the SEC by U.S. issuers. In the United States and in Canada, mineralization may not be classified as a “reserve” unless the
determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made.
U.S. investors are cautioned not to assume that all or any part of measured, indicated or inferred mineral resources will ever be converted into reserves.
Further, “inferred mineral resources” have a great amount of uncertainty as to their existence and as to whether they can be mined legally or economically.
Disclosure of “contained ounces” is permitted disclosure under Canadian regulations if such disclosure includes the grade or quality and the quantity for each
category of mineral resource and mineral reserve; however, the SEC only permits issuers to report “resources” as in place, tonnage and grade without
reference to unit measures.
Accordingly, information concerning descriptions of mineralization, reserves and resources contained in our reports may not be comparable to information
made public by U.S. companies subject to the reporting and disclosure requirements of the SEC.
Increased costs could affect our ability to bring our projects into production and, once in production, our financial condition and ability to be profitable.
Management anticipates that costs at the Livengood Gold Project will frequently be subject to variation from one year to the next due to a number of factors,
such as changing ore grade, metallurgy and revisions to mine plans, if any, in response to the physical shape and location of the ore body. In addition, costs
are affected by the price of commodities such as fuel, rubber and electricity. Such commodities are at times subject to volatile price movements, including
increases that could make production less profitable or not profitable at all. A material increase in costs could also impact our ability to maintain operations
and have a significant effect on the Company’s profitability.
The volatility of the price of gold could adversely affect our future operations and, if warranted, our ability to develop our properties.
Even if commercial quantities of mineral deposits are discovered by the Company, there is no guarantee that a profitable market will exist for the sale of the
metals produced, if any. The Company’s long-term viability and profitability, the value of the Company’s properties, the market price of its common shares
and the Company’s ability to raise funding to conduct continued exploration and development, if warranted, depend, in large part, upon the market price of
gold. The decision to put a mine into production and to commit the funds necessary for that purpose must be made long before the first revenue from
production would be received. A decrease in the price of gold may prevent the Company’s property from being economically mined or result in the write-off
of assets whose value is impaired as a result of lower gold prices.
14
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:
2014
2015
2016
2017
2018
January 1, 2019 to March 8, 2019
High
Low
Average
$
$
$
$
$
$
1,385
1,296
1,366
1,346
1,355
1,344
$
$
$
$
$
$
1,142
1,049
1,077
1,151
1,178
1,280
$
$
$
$
$
$
1,266
1,159
1,250
1,257
1,269
1,304
Our results of operations could be affected by currency fluctuations.
The Livengood Gold Project is located in the United States, with most costs associated with the Project paid in U.S. dollars, and the Company maintains its
accounts in Canadian and U.S. dollars, making it subject to foreign currency fluctuations. There can be significant swings in the exchange rate between the
U.S. and Canadian dollar. There are no plans at this time to hedge against any exchange rate fluctuations in currencies. Adverse foreign currency fluctuations
may cause losses and materially affect the Company’s financial position and results.
Resource exploration, development and production involve a high degree of risk and we do not maintain insurance with respect to certain of these risks,
which exposes us to significant risk of loss.
Resource exploration, development and production involve a high degree of risk. Our operations are, and any future development or mining operations we
may conduct will be, subject to all of the operating hazards and risks normally incident to exploring for and development of mineral properties, such as, but
not limited to:
(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)
(cid:120)
failure of pit walls or dams;
environmental hazards;
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;
15
(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)
(cid:120)
(cid:120)
(cid:120)
exports, price controls, taxes and fees;
labor standards on occupational health and safety, including mine safety;
post-closure reclamation;
environmental standards, waste disposal, toxic substances, explosives, land use and environmental protection; and
dealings with indigenous peoples and historic and cultural preservation.
17
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.
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.
20
Our ability to use our net operating loss carryforwards to offset future taxable income may be subject to certain limitations.
In general, under Section 382 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), a corporation that undergoes an “ownership change” is
subject to limitations on its ability to utilize its pre-change net operating loss carryforwards (“NOLs”) to offset future taxable income. Similarly, where control
of a corporation has been acquired by a person or group of persons, subsection 111(5) of the Canadian Income Tax Act (“Canadian Tax Act”), and equivalent
provincial income tax legislation restrict the corporation’s ability to carry forward non-capital losses from preceding taxation years. Our existing NOLs may
be subject to limitations arising from previous ownership changes. Future changes in our stock ownership, some of which are outside of our control, could
result in an ownership change under Section 382 of the Code or an acquisition of control for the purposes of subsection 111(5) of the Canadian Tax Act, and
adversely affect our ability to utilize our NOLs in the future. There is also a risk that due to regulatory changes, such as suspensions on the use of NOLs, or
other unforeseen reasons, our existing NOLs could expire or otherwise be unavailable to offset future income tax liabilities. For these reasons, we may not be
able to utilize a material portion of the NOLs reflected on our balance sheet, even if we attain profitability.
Risks Related to Our Common Shares
Our share price may be volatile and as a result you could lose all or part of your investment.
In recent years, the securities markets in the United States and Canada have experienced a high level of price and volume volatility, and the market price of
securities of many companies, particularly those considered exploration or development stage companies, have experienced wide fluctuations in price which
have not necessarily been related to the operating performance, underlying asset values or prospects of such companies. It may be anticipated that any quoted
market for our common shares will be subject to market trends and conditions generally, notwithstanding any potential success we have in creating revenues,
cash flows or earnings. The price of our common shares has been subject to price and volume volatility in the past. In 2018, the price of our common shares
on the Toronto Stock Exchange ranged from a low of C$0.48 to a high of C$0.94, and on the NYSE American ranged from a low of $0.36 to a high of $0.75.
From January 1, 2019 to March 8, 2019, the price of our common shares on the TSX ranged from a low of C$0.67 to a high of C$0.85, and on the NYSE
American ranged from a low of $0.49 to a high of $0.64. There can be no assurance that significant fluctuations in the trading price of the Company’s
common shares will not continue to occur, or that such fluctuations will not materially adversely impact the Company’s ability to raise equity funding without
significant dilution to its existing shareholders, or at all. As a result, our shareholders may be unable to resell their shares at a desired price.
Future sales of our securities in the public or private markets will dilute our current shareholders and could adversely affect the trading price of our
common shares and our ability to continue to raise funds in new stock offerings.
It is likely that the Company will sell common shares or securities exercisable or convertible into common shares in the future. The Company may issue
securities on less than favorable terms to raise sufficient capital to fund its business plan. Any transaction involving the issuance of equity securities or
securities convertible into common shares would result in dilution, possibly substantial, to present and prospective holders of common shares, could adversely
affect the trading prices of our common shares, and could impair our ability to raise capital through future offerings of securities.
21
We have never paid dividends on our common shares.
We have not paid dividends on our common shares to date, and we may not be in a position to pay dividends for the foreseeable future. Our ability to pay
dividends will depend on our ability to successfully develop the Livengood Gold Project and generate earnings from operations. Further, our initial earnings,
if any, will likely be retained to finance our operations. Any future dividends will depend upon our earnings, our then-existing financial requirements and
other factors, and will be at the discretion of the Board.
Our business is subject to evolving corporate governance and public disclosure regulations that have increased both our compliance costs and the risk of
noncompliance, which could have an adverse effect on our stock price.
We are subject to changing rules and regulations promulgated by a number of governmental and self-regulated organizations, including the British Columbia
Securities Commission, the SEC, the TSX, the NYSE American, and the Financial Accounting Standards Board. These rules and regulations continue to
evolve in scope and complexity and many new requirements have been created in response to laws enacted by the United States Congress, making compliance
more difficult and uncertain. For example, on July 21, 2010, the United States Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection
Act (the “Dodd-Frank Act”) with increased disclosure obligations for public companies and mining companies in the United States. Our efforts to comply
with the Dodd-Frank Act and other new regulations have resulted in, and are likely to continue to result in, increased general and administrative expenses and
a diversion of management time and attention from operating activities to compliance activities.
We believe that we likely were a passive foreign investment company (“PFIC”) during the fiscal year ended December 31, 2018, which may result in
adverse U.S. federal income tax consequences to U.S. holders.
We believe that we likely were a PFIC for U.S. federal income tax purposes during the fiscal year ended December 31, 2018, and we expect that we will be a
PFIC in the current year and that we may continue to be classified as a PFIC in future years. The determination of whether or not the Company is a PFIC is a
factual determination dependent on a number of factors and cannot be made until the close of the applicable tax year. Accordingly, no assurances can be given
regarding the Company’s PFIC status for the current year or any future year. If ITH is a PFIC at any time during a U.S. holder’s holding period, then certain
potentially adverse tax consequences could apply to such U.S. holder’s acquisition, ownership, and disposition of common shares. For more information,
please see the discussion in “Certain U.S. Federal Income Tax Considerations for U.S. Holders” below.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
LIVENGOOD GOLD PROJECT, ALASKA
The Company currently holds, or has rights to acquire, ownership or leasehold interests in a group of adjacent mineral properties in Alaska which are
collectively referred to as the “Livengood Gold Project.” The Livengood Gold Project is located approximately 113 km (70 miles) by road northwest of
Fairbanks, Alaska and approximately 65 km (40 miles) north of the boundary of the Fairbanks North Star Borough as shown in Figure 1 below. The project
lies within the Tolovana Mining District in the northern part of the Tintina Gold Belt. The Company’s primary focus is to continue to advance the Livengood
Gold Project with the objective of assessing its viability for commercial gold mining.
The Company is in the process of optimizing the Livengood Gold Project and does not mine, produce or sell any mineral products at this time. The Company
controls 100% of the Livengood Gold Project, which has a current (as at August 26, 2016) mineral resource of 497 million measured tonnes at an average
grade of 0.68 g/tonne (10.84 million ounces), 28 million indicated tonnes at an average grade of 0.69 g/tonne (0.62 million ounces) and 53 million inferred
tonnes at an average grade of 0.66 g/tonne (1.1 million ounces). In 2017 the Company issued the results of a pre-feasibility study that was summarized in the
April 2017 Report which converted a portion of the mineral resources at the Project into proven reserves of 378 million tonnes at an average grade of 0.71
g/tonne (8.62 million ounces) and probable reserves of 14 million tonnes at an average grade of 0.72 g/tonne (353,000 ounces) based on a gold price of $1,250
per ounce. All work presently planned by the Company is directed at maintaining necessary environmental baseline activities at the Livengood Gold Project
and focusing efforts on Project optimization opportunities, including those identified in the April 2017 Report.
22
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.
The Livengood Gold Project straddles and is accessed via the Elliot Highway, a paved, all weather road linking the north slope oil fields at Prudhoe Bay to
central and southern Alaska through Fairbanks. At present there are no full time residents in the former mining town of Livengood. A number of unpaved
roads have been developed in the area providing excellent access. A 427 m (1400-foot) runway is located 6 km (3.7 miles) to the southwest near the former
Alyeska Pipeline Company Livengood Camp and is suitable for light aircraft. The Livengood Gold Project is also adjacent to the Alyeska Pipeline corridor,
which transports crude oil from Prudhoe Bay south. This corridor contains a fiber optic communications cable utilized at the Livengood Gold Project.
23
Topography at the site is eroded hills and valleys with a general elevation difference of 200m (656 feet). The valleys generally contain active streams draining
into the Tolovana River system to the west.
The site is approximately 65 km (40 miles) south of the Arctic Circle, and has a subarctic climate with long, cold winters and short, warm summers. Annual
precipitation is approximately 40 cm (16 inches). Average low temperatures in winter are -21° to -28° Celsius (-6° to -18° Fahrenheit), with records reaching
as low as -55° Celsius (-67° Fahrenheit). Exploration work on the Livengood Gold Project can be limited due to excessive snow cover and cold temperatures.
In general, surface sampling work is limited to May through September and surface drilling from March through November. Road-accessible wetland areas
may only be explored while frozen in the winter. Work to date on the site has been limited to exploration and geotechnical drilling and environmental baseline
activities. The Company does not have any plant or equipment at the site, relying on contractors to perform the work.
The nearest community to Livengood Gold Project is the village of Minto, a town with a population of approximately 204 located approximately 65 km (40
miles) southwest by road. The Fairbanks metropolitan area has a population of approximately 100,000 people, and comprises the regional center with
hospitals, government offices, businesses and the University of Alaska, Fairbanks. The city is linked to southern Alaska along a north-south transportation and
utility corridor that includes two paved highways, a railroad to tide water, an interlinked electrical grid, and communications infrastructure. Fairbanks has an
international airport serviced daily by up to three major airlines.
In preliminary, nonbinding discussions, the local utility in Fairbanks (Golden Valley Electrical Association) has indicated that 80-100 Megawatts of power
could be available to the Livengood Gold Project. Livengood would be connected to the local grid by building an 82 km (50 miles) 230-kVA line along the
pipeline corridor. Environmental baseline studies required for the electrical line construction started in 2011.
The April 2017 Report developed site layout plans for the infrastructure required at the Livengood Gold Project. This included evaluating mine shops;
process, water and tailing management facilities; power; access roads; administration offices; and camp facilities.
Livengood Gold Project Lands
The Livengood Gold Project covers approximately 19,546 hectares (48,300 acres), all of which is controlled by the Company through TH Alaska. The
Livengood Gold Project is comprised of multiple land parcels: 100% owned patented mining claims, 100% owned State of Alaska mining claims, 100%
owned federal unpatented placer claims; land leased from the Alaska Mental Health Trust (“AMHT”); land leased from holders of state and federal patented
and unpatented mining and placer claims, and undivided interests in patented mining claims. The property and claims controlled through ownership, leases or
agreements are summarized below.
100% owned patented mining claims
(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 February 2, 2020.
(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.
(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.
24
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, 2018, 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.
(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.
25
(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 203/240th interest in that certain patented placer mining claim known as the “Kinney Bench” claim, included within
U.S. Mineral Survey No. 1626 on lower Amy Creek.
(cid:120) An undivided 53/90th interest in that certain patented placer mining claim known as the “Union Bench Association” claim,
included within U.S. Mineral Survey No. 1626 on lower Amy Creek.
(cid:120) An undivided 83/120th interest in that certain patented placer mining claim known as the “Bessie Bench” claim, included within
U.S. Mineral Survey No. 1626 on lower Amy Creek.
(cid:120) An undivided 23/60th interest in those certain patented placer mining claims known as the “War Association” claim; the “Mutual
Association” claim; and the “O.K. Fraction” claim, all included within U.S. Mineral Survey No. 2033 on lower Amy Creek.
On State of Alaska lands, the state holds both the surface and the subsurface rights. State of Alaska 40-acre mining claims require an annual rental payment of
$35/claim to be paid to the state (by November 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 2018 field season was filed as assessment work, and the value of that work is sufficient
to meet the assessment work requirements through September 1, 2021 on all State of Alaska mining claims.
Holders of State of Alaska mining claims are also required to pay a production royalty on all revenue received from minerals produced on state land during
each calendar year. The production royalty rate is 3% of net income.
Holders of federal unpatented mining claims are required to pay an annual rental of $140 per 20 acres.
All of the foregoing agreements are in good standing and are transferable. The Company has taken reasonable steps to verify title to mineral properties in
which it has an interest. Except for the patented claims, none of the properties have been surveyed.
Holders of Federal and Alaska State unpatented mining claims have the right to use the land or water included within mining claims only when necessary for
mineral prospecting, development, extraction, or basic processing, or for storage of mining equipment. However, the exercise of such rights is subject to the
appropriate permits being obtained.
26
December 2011 Land Purchase Agreement
In December 2011, the Company completed a transaction to acquire certain mining claims and related rights in the vicinity of the Livengood Gold Project.
This acquisition included both mining claims and all of the shares of Livengood Placers, Inc. These assets were purchased on December 13, 2011 for
aggregate consideration of $36,600,000 allocated between cash consideration of $13,500,000 and a derivative liability of $23,100,000. The derivative liability
was a contingent payment based on the five-year average daily gold price (“Average Gold Price”) from the date of the acquisition. The derivative liability
equals $23,148 for every dollar that the Average Gold Price exceeds $720 per troy ounce. The obligation to make the contingent payment was secured by a
Deed of Trust over the rights of the Company in the purchased claims in favor of the vendors. On January 12, 2017, the Company paid $14,694,169 for the
timely and full satisfaction of the final derivative payment, and on January 17, 2017, the Full Deed of Reconveyance releasing the Deed of Trust on the
acquired property was recorded. As a consequence, the Company now fully owns the subject properties and the shares of Livengood Placer, Inc. and has no
further liability to the vendors with respect to this acquisition.
The subject ground was previously vacant or was used for placer gold mining. No placer mineral reserves or mineral resources have been established on the
ground subject to this agreement. However, records exist for 2,370 placer drill holes that have been completed on the subject ground between 1933 and 2011.
Of these, the 945 holes completed between 1933 and 1984 were primarily 6” churn drill holes. The 1,425 drill holes completed between 1984 and 2000 were
8” reverse circulation (RC) rotary drill holes utilizing a center return tri-cone bit. All lands controlled by the Company, including the lands acquired pursuant
to this agreement, were evaluated as appropriate for integration into the April 2017 Report for the Livengood Gold Project.
Geology and Mineralization
The rocks at the Livengood Gold Project are part of the Livengood Terrane, an east–west belt, approximately 240 km (149 miles) long, consisting of
tectonically interleaved assemblages of various ages. These assemblages include the Amy Creek Assemblage, a sequence of latest Proterozoic and/or early
Paleozoic basalt, mudstone, chert, dolomite, and limestone. An early Cambrian ophiolite sequence of mafic and ultramafic sea floor rocks was thrust over the
Amy Creek Assemblage and was, in turn, overthrust by a sequence of Devonian shale, siltstone, conglomerate, volcanic, and volcaniclastic rocks, which are
the dominant host to the mineralization currently under exploration at the Livengood Gold Project. The Devonian assemblage was overthrust by a second
klippe of Cambrian ophiolite rocks. All of these rocks are intruded by Cretaceous multiphase monzonitic and syenitic dikes and sills. Gold mineralization is
spatially and temporally associated with these intrusive rocks.
Gold mineralization occurs in association with disseminated arsenopyrite and pyrite in volcanic, sedimentary, and intrusive rocks, and in quartz veins cutting
the more competent lithologies, primarily volcanic rocks, sandstones, and, to a lesser degree, ultramafic rocks. Three principal stages of alteration are
currently recognized, an early biotite stage, followed by albite-quartz, and a late sericite-quartz assemblage. Carbonate appears to have been introduced with
and subsequent to these stages. Arsenopyrite and pyrite were introduced primarily during the albite-quartz and sericite-quartz stages. Gold correlates strongly
with arsenic and occurs primarily within and on the margins of arsenopyrite and pyrite.
Mineralization is interpreted as intrusion-related, consistent with other gold deposits of the Tintina Gold Belt, and has a similar As-Sb geochemical
association. Mineralization is controlled partly by lithologic units, but thrust-fold architecture was key to providing pathways for intrusive and associated
hydrothermal fluids.
Local fault and contact limits to mineralization have been identified, but overall the deposit has not been closed off in any direction. The current resource and
area drilled covers the most significant portion of the area with anomalous gold in surface soil samples, but still represents only about 25% of the total gold-
anomalous area.
Among deposits of the Tintina Gold Belt, mineralization at the Livengood Gold Project is most similar to the dike and sill-hosted mineralization at the Donlin
Creek deposit, where gold occurs in narrow quartz veins associated with dikes and sills of similar composition. The age of the intrusions and the genetic link
between the mineralization and intrusive rocks are typical of those of other nearby gold deposits of the Tintina Gold Belt, which have been characterized as
intrusion-related gold systems and for these reasons the Livengood Gold Project is best classified with them.
27
History and Exploration
Gold was first discovered in the gravels of Livengood Creek in 1914. Subsequently, over 500,000 ounces of placer gold were produced and the small town of
Livengood was established. From 1914 through the 1970’s, the primary focus of prospecting activity was placer deposits. Historically, prospectors considered
Money Knob and the associated ridgeline the source of the placer gold. Prospecting, in the form of dozer trenches, was carried out for lode type mineralization
in the vicinity of Money Knob primarily in the 1950’s. However, to date no significant production has been derived from lode gold sources.
The geology and mineral potential of the Livengood District have been investigated by state and federal agencies and explored by several companies over the
past 40-plus years. Modern mapping and sampling investigations were initially carried out by the U.S. Geological Survey in 1967 as part of a heavy metal
assessment program. Mapping completed in the course of this program recognized the essential rock relations, thrust faulting, and mineralization associated
with Devonian clastic rocks, the thrust system and intrusive rocks. Since then, the Livengood placer deposits and the surrounding geology have featured in
numerous investigations and mapping programs at various scales by the U.S. Geological Survey and the Alaska State Division of Geological and Geophysical
Surveys.
In addition to individuals prospecting the area, since the 1970’s several mining companies, including Homestake, AMAX, Placer Dome, Cambior and
AngloGold, have investigated the potential for lode gold mineralization beneath the Livengood placers and on the adjacent hillsides, including at Money
Knob. Placer Dome’s work appears to have been the most extensive, but it was focused largely on the northern flank of Money Knob and the valley of
Livengood Creek.
The most recent round of exploration of the Money Knob area began when AngloGold acquired the property in 2003 and undertook an 8-hole RC program on
the Hudson-Geraghty lease. The results from this program were encouraging and were followed up with an expanded soil geochemical survey which
identified gold-anomalous zones over Money Knob and to the east. Based on the results of this and prior (Cambior) soil surveys, 4 diamond core holes were
drilled in late 2004. Results from these two AngloGold drill programs were deemed favorable but no further work was executed due to financial constraints
and a shift in corporate strategy.
The Company acquired the Livengood Gold Project in 2006 from AngloGold and has advanced the soil sampling coverage, undertook to drill surface
geochemical anomalies and conducted drilling campaigns on the Livengood Gold Project since that time.
In 2006, the Company conducted a 1,227 m, seven-hole program and continued to demonstrate the presence of mineralization over a broader area. The 2007
campaign consisted of 15 diamond drill holes for a total of 4,411 m. These holes focused on extending and defining the volcanic-hosted mineralization first
recognized by AngloGold in 2003. However, as drilling progressed, it became clear that although mineralization is strongest in the volcanic rocks, it occurs in
all rock types at Money Knob.
Based on favorable results in 2007, the 2008 program consisted of 29,150 m of RC and 2,187 m core drilling in 109 and 9 holes, respectively. The drill
program was designed to improve definition and expand the resource calculated early in 2008 based on 2007 drill data. The 2008 drill program did not
identify limits to mineralization in any direction. Instead, a thicker mineralized zone (up to 200 m) was identified. In addition, this campaign highlighted the
fact that mineralization occurs in all rock types, not just in Devonian volcanic rocks, indicating potential more widespread mineralization than envisioned
prior to the 2008 drill program.
In 2009, the Company completed 12 diamond drill holes totaling 4,572 m and 195 RC holes totaling 59,757 m. Six of the diamond drill holes were drilled
across the NNW-trending Core Zone in order to better understand the structural controls and to test the depth continuity of the mineralization. This drilling
confirmed that the Core Zone is the locus of a swarm of 0.2 - 1.0m thick southerly dipping dikes. In addition, a number of larger (+10 m thick) steeply dipping
NNW-trending dikes were observed, suggesting that ENE extension may have occurred at about the time of dike magmatism. The RC holes were primarily
targeted at grid infill drilling to improve resource estimation of the Core Zone and a step-out program that led to discovery and delineation of the Sunshine and
Tower Zones.
28
In 2010, the Company completed 40 diamond drill holes totaling 13,631 m and 198 RC holes totaling 56,550 m. These holes, filled in between the Core and
Sunshine Zones, expanded the SW Zone and infilled to 50 m spacing in the Core and Sunshine Zones.
Nearly all drill holes at Money Knob have been drilled in a northerly direction at an inclination of -50 degrees (RC) and -60 degrees (core) in order to best
intercept the south dipping structures and mineralized zones as close to perpendicular as possible. A few holes have been drilled in other directions to test
other features and aspects of mineralization. Most exploration holes have been spaced at 75m apart along lines 75m apart, subsequent infill drilling in the
center of 75m squares brings the nominal drill spacing to 50m for a significant portion of the deposit. Core is recovered using triple tube techniques to ensure
good recovery (>95%) and confidence in core orientation. RC holes are bored and cased for the upper 0-30m to prevent down hole contamination and to help
keep the hole open for ease of drilling at greater depths.
In 2011, the Company continued with resource definition drilling, completing 26,163m of RC drilling and 11,468m of diamond drilling. Two areas of the
deposit, the Core and Sunshine crosses, were selected for 15m-spaced RC in-fill drilling on crosses with north-south and east-west legs 150m in length. A
third area, Area 50 in the Sunshine Zone, measuring 195m by 240m, was drilled on a 37.5m grid with alternating core and RC drilling. Two resources were
generated for each volume using ordinary kriging on samples composited to 10m lengths: the first including those portions of the 50m grid drilling within the
volume; and a second using both the grid and close-spaced drilling within the same volume. On average, the effect of the increased drilling density on
tonnage, grade, and contained ounces of gold was less than 1% and confirmed the integrity of the previously reported resource estimate. In 2011, the
Company broadened the scope of the field program to include 2,240m of exploration drilling outside the resource area, as well as 8,932m of geotechnical
drilling and 1,192m of large diameter groundwater test wells.
In May 2012, the Company commenced an 18-hole program of condemnation drilling to either sterilize or establish the presence of significant mineralization
in the area surrounding the Money Knob deposit. The purpose of the condemnation drilling program was to determine appropriate areas for infrastructure
development. Additionally, four of these holes are also being used for hydrological studies. The program was completed in July 2012 with 3,065m in 19 holes.
Also in May 2012, the Company commenced multi-faceted drill programs consisting of hydraulic gradient, infrastructure, borrow source identification, and
large-diameter wells for pump tests. The hydraulic gradient and infrastructure drilling consisted of 5,826m in 49 holes utilizing core drilling. The geotechnical
and borrow source information was obtained from 2,695m drilled in 73 holes, utilizing core, sonic, and auger drilling methods. Seven large diameter wells
have been drilled for a total of 1,031m.
The drill program from February through October 2012 totaled 15,731m in 199 holes.
No drill programs were completed during 2013.
The Company has not completed any material exploration at the Project since 2014, but has focused on engineering, metallurgical studies, and environmental
baseline.
Sample Preparation, Analyses and Security
The Company samples all holes from surface to total depth, using defined procedures. For RC samples, pulverized material is passed through a cyclone to
separate solids from drilling fluids, then over a spinning conical splitter. The splitter is set to collect two identical splits of sample weighing 2-5 kg (4.4-11.0
pounds) each. Representative coarse material is collected and saved in chip trays for geological description. Samples are put in pre-numbered, bar-coded bags
by the drill site crew. One sample is submitted for analysis, and one sample is kept for reference. Samples are secured on site and transported to a sample
preparation facility operated by ALS Chemex in Fairbanks.
Core materials are collected at the drill site and placed in core boxes. Run blocks, orientation blocks and depths are placed in the boxes at site. The core is
transported to a sample management facility at the Project, where it is described, then sawn in half. Half of the core is collected for assaying and half remains
for reference. Core samples are weighed before shipping.
29
The Company’s geologic work program at Livengood was designed and is supervised by Chris Puchner, Chief Geologist of the Company, who is a qualified
person as defined by NI 43-101. Mr. Puchner is responsible for all aspects of the work, including the quality control/quality assurance program. The quality
assurance/quality control program implemented by the Company meets or exceeds industry standards. A quality assurance/quality control program includes
insertion of blanks and standards (1/10 samples) and duplicates (1/20 samples). Blanks help assess the presence of any contamination introduced during
sample preparation and help calibrate the low end of the assay detection limits. Commercial standards are used to assess the accuracy of the analyses.
Duplicates help assess the homogeneity of the sample material and the overall sample variance. The Company has undertaken rigorous protocols to assure
accurate and precise results. Among other methods, weights are tracked throughout the various steps performed in the laboratory to minimize and track errors.
A group of 2,096 metallic screen fire assays performed in 2011 did not indicate any bias in the matching fire assays.
On-site Project personnel photograph the core from each individual borehole prior to preparing the split core. Duplicate RC drill samples are collected with
one split sent for analysis. Representative chips are retained for geological logging. On-site personnel at the Project log and track all samples prior to sealing
and shipping. All sample shipments are sealed and shipped to ALS Chemex in Fairbanks, Alaska, for preparation and then on to ALS Chemex in Reno,
Nevada, or Vancouver, B.C., for assay. ALS Chemex’s quality system complies with the requirements for the International Standards ISO 9001:2000 and ISO
17025:1999. Analytical accuracy and precision are monitored by the analysis of reagent blanks, reference material and replicate samples. Quality control is
further assured by the use of international and in-house standards. Finally, representative blind duplicate samples are forwarded to ALS Chemex and an ISO
compliant third party laboratory for additional quality control.
Data entry and database validation procedures have been checked and found to conform to industry practices. Procedures are in place to minimize data entry
errors. These include pre-numbered, pre-tagged, bar-coded bags, and bar-coded data entry methods which relate all information to sample and drill interval
information. Likewise, data validation checks are run on all information used in the geologic modeling and resource estimation process. Database entries for a
random sample (10%) of drill holes used for the resource estimate were checked against the original assay certificates by one of the independent authors of the
April 2017 Report and the error rate was found to be within acceptable limits.
Analysis of assay data from core and RC sampling has been performed to check for downhole contamination of RC and to compare the data distributions
produced by the two methods. Analysis of RC data has not indicated cyclic down hole contamination. Decay analysis conducted on both core drilling and RC
drilling indicates similar patterns of monotonic grade increase or decrease. Comparison of the grade distributions between core and RC data were conducted
using Quantile-Quantile plots, and simulation of population means for different numbers of samples. The comparison indicated that the mean of all core data
was 4% lower than RC data. Comparison of core and RC data below the water table showed similar population means, suggesting that down hole
contamination was not occurring.
Core and RC check samples have been collected during each drilling campaign by independent third parties. Results from these samples, as well as blanks and
standards included, are consistent with the Company’s initial results. This includes a similar increase in variance for samples at higher grades, a pattern
consistent with nugget effect. No systematic high or low bias has been observed.
April 2017 Report
In April 2017, the Company filed the April 2017 Report with respect to the Livengood Gold Project, which indicates that the Project generates a minimal
positive return at a gold price of $1,250 per ounce. At the current gold price, the Project as contemplated in the April 2017 Report is not commercially viable.
Readers are encouraged to review the entire April 2017 Report on SEDAR, with particular emphasis on the sensitivity analyses contained therein. Readers are
cautioned that the NI 43-101 reports filed on SEDAR by the Company in September of 2013 and October of 2016 are no longer considered current and should
therefore no longer be relied upon by investors.
30
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.
ITEM 3. LEGAL PROCEEDINGS
We are periodically a party to or otherwise involved in legal proceedings arising in the normal course of business. Management does not believe that there is
any pending or threatened proceeding against us which, if determined adversely, would have a material adverse effect on our financial position, liquidity or
results of operations.
ITEM 4. MINE SAFETY DISCLOSURES
Pursuant to Section 1503(a) of the Dodd-Frank Act, issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the
United States are required to disclose specified information about mine health and safety in their periodic reports. These reporting requirements are based on
the safety and health requirements applicable to mines under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”) which is administered by the
U.S. Department of Labor’s Mine Safety and Health Administration (“MSHA”). During the fiscal year ended December 31, 2018, the Company and its
subsidiaries were not subject to regulation by MSHA under the Mine Act and thus no disclosure is required under Section 1503(a) of the Dodd-Frank Act.
31
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Price Range of Common Shares
The common shares of the Company are listed and posted for trading on the TSX under the symbol “ITH”, on the NYSE American under the symbol “THM”,
and on the Frankfurt Stock Exchange under the symbol “-1I1-”. As at March 8, 2019, there were 187,111,857 common shares issued and outstanding, and the
Company had approximately 100 shareholders of record.
Dividends
Since its inception, ITH has not paid any dividends. ITH has no present intention of paying any dividends, as it anticipates that all available funds will be
invested to finance the growth of its business. The Board will determine if and when dividends should be declared and paid in the future after taking into
account many factors, including ITH’s financial condition, operating results and anticipated cash needs at the relevant time. There are no restrictions which
prevent ITH from paying dividends.
Recent Sales of Unregistered Equity Securities
None.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Exchange Controls
Canada has no system of exchange controls. There are no Canadian restrictions on the repatriation of capital or earnings of a Canadian public company to non-
resident investors. There are no laws in Canada or exchange restrictions affecting the remittance of dividends, profits, interest, royalties and other payments to
non-resident holders of the Company’s securities, except as discussed in “Certain Canadian Federal Income Tax Considerations for U.S. Resident Holders”
below.
There are no limitations under the laws of Canada or in the organizing documents of the Company on the right of foreigners to hold or vote securities of the
Company, except that the Investment Canada Act (Canada) may require review and approval by the Minister of Industry (Canada) of certain acquisitions of
“control” of the Company by a “non-Canadian.” The threshold for acquisitions of control is generally defined as being one-third or more of the voting shares
of the Company. “Non-Canadian” generally means an individual who is not a Canadian citizen, or a corporation, partnership, trust or joint venture that is
ultimately controlled by non-Canadians.
Certain Canadian Federal Income Tax Considerations for U.S. Resident Holders
This summary is applicable to a holder of common shares of the Company who, for the purposes of the Income Tax Act (Canada) (the “Tax Act”) and any
applicable treaty and at all relevant times, is not (and is not deemed to be) resident in Canada, deals at arm’s length and is not affiliated with the Company,
does not (and is not deemed to) use or hold the common shares in, or in the course of, carrying on a business in Canada, and is not an insurer that carries on an
insurance business in Canada and elsewhere, and holds the common shares as capital property.
This summary is based on the current provisions of the Tax Act, the regulations thereunder, all specific proposals to amend such Act and regulations publicly
announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof and the Company’s understanding of the administrative policies and
assessing practices published in writing by the Canada Revenue Agency prior to the date hereof. This summary does not otherwise take into account any
change in law or administrative policy or assessing practice, whether by judicial, governmental, legislative or administrative decision or action, nor does it
take into account other federal or provincial, territorial or foreign tax consequences, which may vary from the Canadian federal income tax considerations
described herein.
32
This summary is of a general nature only, is not exhaustive of all Canadian federal income tax considerations, and it is not intended to be, nor should it be
construed to be, legal or tax advice to any holder of common shares and no representation with respect to Canadian federal income tax consequences to any
holder of common shares is made herein. Accordingly, holders of common shares should consult their own tax advisers with respect to their individual
circumstances.
Dividends on Common Shares
Canadian withholding tax at a rate of 25% (subject to reduction under the provisions of any applicable tax treaty) will be payable on dividends (or amounts
paid or credited on account or in lieu of payment of, or in satisfaction of, dividends) paid or credited or deemed to have been paid or credited to a holder of
common shares. Under the Canada–U.S. Income Tax Convention (1980), as amended (the “Canada–U.S. Treaty”), the withholding tax rate is generally
reduced to 15% for a holder entitled to the benefits of the Canada–U.S. Treaty who is the beneficial owner of the dividends (or 5% if the holder is a company
that owns at least 10% of the common shares).
Certain U.S.-resident entities that are fiscally transparent for United States federal income tax purposes (including limited liability companies) may not in all
circumstances be entitled to the benefits of the Canada–U.S. Treaty. Members of or holders of an interest in such an entity that holds common shares should
consult their own tax advisers regarding the extent, if any, to which the benefits of the Canada–U.S. Treaty will be extended to the entity in respect of its
common shares.
Capital Gains and Losses
Subject to the provisions of any relevant tax treaty, capital gains realized by a holder on the disposition or deemed disposition of common shares held as
capital property will not be subject to Canadian tax unless the common shares are “taxable Canadian property” (as defined in the Tax Act), in which case the
capital gains will be subject to Canadian tax at rates which will approximate those payable by a Canadian resident.
Common shares of the Company generally will not be “taxable Canadian property” to a holder provided that, at the time of the disposition or deemed
disposition, the common shares are listed on a designated stock exchange (which currently includes the TSX and NYSE American), unless at any time during
the 60-month period that ends at that time: (a) one or any combination of (i) such holder, (ii) persons not dealing at arm’s length with such holder and
(iii) partnerships in which such holder or a person described in (ii) holds a membership interest directly or indirectly through one or more partnerships, owned
25% or more of the issued shares of any class or series of the capital stock of the Company; and (b) more than 50% of the fair market value of the common
shares disposed of was derived directly or indirectly from one or any combination of real or immovable property situated in Canada, “Canadian resource
properties” (as defined in the Tax Act), “timber resource properties” (as defined in the Tax Act), and options in respect of, or interests in, or civil law rights in,
any such properties (whether or not such property exists). In certain circumstances set out in the Tax Act, the common shares may be deemed to be “taxable
Canadian property”.
Under the Canada–U.S. Treaty, a holder entitled to the benefits of the Canada–U.S. Treaty and to whom the common shares are “taxable Canadian property”
will not be subject to Canadian tax on the disposition or deemed disposition of the common shares unless at the time of disposition or deemed disposition, the
value of the common shares is derived principally from real property situated in Canada.
33
Certain U.S. Federal Income Tax Considerations for U.S. Holders
The following is a discussion of certain material U.S. federal income tax consequences to U.S. Holders (as defined below) of acquiring, owning, and disposing
of our common shares. This discussion does not purport to be a comprehensive description of all of the U.S. tax considerations that may be relevant to a
particular investor’s decision to acquire the common shares, including any state, local or non-U.S. tax consequences of acquiring, owning, and disposing of
common shares. This discussion applies only to those U.S. Holders that hold common shares as capital assets for U.S. tax purposes (generally, for investment
and not in connection with the carrying on of a trade or business) and does not address all aspects of U.S. federal income tax law that may be relevant to
investors that are subject to special or different treatment under U.S. federal income tax law (including, for example, a holder liable for the alternative
minimum tax or a holder that actually or constructively owns 10% or more by voting power or value of our common shares). This discussion is based on the
U.S. Internal Revenue Code of 1986, as amended (the “Code”), its legislative history, existing and proposed U.S. Treasury regulations, published rulings and
other administrative guidance of the U.S. Internal Revenue Service (the “IRS”) and court decisions, all as in effect on the date hereof. These laws are subject
to change or differing interpretation by the IRS or a court, possibly on a retroactive basis. This discussion also assumes that the Company is not, and will not
become, a controlled foreign corporation (“CFC”) as defined for U.S. federal income tax purposes.
As used herein, the term “U.S. Holder” means a beneficial owner of our common shares that is:
(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, particularly in light of recent U.S. tax reform.
Distributions
Subject to the passive foreign investment company rules discussed below, should a distribution be made, a U.S. Holder must include in gross income as
dividend income the gross amount of any distribution paid on the common shares (including the amount of any non-U.S. taxes withheld from such amount), to
the extent such distribution is paid out of current or accumulated earnings and profits (as determined for U.S. federal income tax purposes). Distributions in
excess of our current and accumulated earnings and profits (as determined for U.S. federal income tax purposes) will first be treated as a non-taxable return of
capital to the extent of the U.S. Holder’s basis in the common shares and thereafter as gain from the sale or exchange of common shares. See “Sale, Exchange,
or Other Disposition of Common Shares” below.
Dividends received by U.S. Holders that are individuals, estates, or trusts will be taxed at preferential rates if such dividends meet the requirements of
“qualified dividend income.” Dividends that fail to meet such requirements, and dividends received by corporate U.S. Holders, are taxed at ordinary income
rates. In order for dividends to qualify as “qualified dividend income,” an entity must be considered a “qualified foreign corporation” and certain other
requirements must be met. While we believe the Company is a qualified foreign corporation, a dividend received by a U.S. Holder will not be qualified
dividend income if the Company is a passive foreign investment company for the taxable year during which the dividend is paid or the immediately preceding
taxable year. See the discussion below regarding our passive foreign investment company status under “Passive Foreign Investment Company Rules.” In the
case of a corporate U.S. Holder, dividends received generally will not be eligible for the dividends-received deduction.
Dividends paid on the common shares will generally be treated as foreign source income for U.S. foreign tax credit purposes. Foreign tax credits are generally
subject to various classifications and other limitations. The rules relating to computing foreign tax credits are complex. U.S. Holders should consult their own
tax advisors to determine the foreign tax credit implications of owning common shares.
34
Sale, Exchange, or Other Disposition of Common Shares
Subject to the passive foreign investment company rules discussed below, a U.S. Holder that sells or otherwise disposes of the common shares will recognize
capital gain or loss for U.S. federal income tax purposes equal to the difference between (i) the U.S. dollar value of the amount realized on the sale or
disposition and (ii) the tax basis, determined in U.S. dollars, of such common shares. Such gain or loss will be treated as long-term capital gain or loss if the
U.S. Holder’s holding period is greater than one year at the time of sale, exchange, or other disposition. Long-term capital gains of individuals are generally
subject to preferential maximum U.S. federal income tax rates. A U.S. Holder’s ability to deduct capital losses is subject to certain limitations.
Passive Foreign Investment Company Rules
If the Company is considered a “passive foreign investment company” (a “PFIC”) for U.S. federal income tax purposes at any time during a U.S. Holder’s
holding period, then certain potentially adverse tax consequences apply to such U.S. Holder’s acquisition, ownership, and disposition of common shares. In
general, a non-U.S. corporation will be a PFIC in any taxable year in which, after applying certain look-through rules, either (1) at least 75% of its gross
income for the taxable year is passive income; or (2) at least 50% of the average value (determined on a quarterly basis) of its assets is attributable to assets
that produce or are held for the production of passive income. Passive income generally includes dividends, interest, royalties, rents (other than certain rents
and royalties derived in the active conduct of a trade or business), and the excess of gains over losses from the disposition of certain assets that produce
passive income. If a foreign corporation owns at least 25% by value of the stock of another corporation, the foreign corporation is treated for purposes of the
PFIC tests as owning its proportionate share of the assets of the other corporation, and receiving directly its proportionate share of the other corporation’s
income.
We believe that we likely were a PFIC for U.S. federal income tax purposes during the fiscal year ended December 31, 2018, and we expect that we
will be a PFIC in the current year and that we may be a PFIC in future years. The determination of whether or not the Company is a PFIC is a
factual determination dependent on a number of factors that cannot be made until the close of the applicable tax year. Accordingly, no assurances
can be given regarding the Company’s PFIC status for the current year or any future year. The Company’s status as a PFIC can have significant
adverse tax consequences for a U.S. Holder if we are a PFIC for any year during such U.S. Holder’s holding period.
A U.S. Holder that holds common shares while the Company is a PFIC may be subject to increased tax liability upon the sale, exchange, or other disposition
of the common shares or upon the receipt of certain distributions, regardless of whether the Company is a PFIC in the year in which such disposition or
distribution occurs. These adverse tax consequences include:
(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 during the
taxable year to a U.S. Holder that are excess distributions must be allocated rateably to each day of the U.S. Holder’s holding period. The amounts
allocated to the current taxable year and to taxable years prior to the first year in which the Company was classified as a PFIC are included as
ordinary income in a U.S. Holder’s gross income for that year. The amount allocated to each other prior taxable year is taxed as ordinary income at
the highest tax rate in effect for the U.S. Holder in that prior year (without offset by any net operating loss for such year) and the tax is subject to an
interest charge at the rate applicable to deficiencies in income taxes (the “special interest charge”).
(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.
35
While there are certain U.S. federal income tax elections (described below) that can be made to mitigate the adverse tax consequences described above such
elections are only available in limited circumstances and must be made in a timely manner. These rules are very complex and U.S. Holders are urged to
consult their own tax advisers regarding the potential of making an election to mitigate the adverse consequences described above of the Company being
classified as a PFIC.
Qualifying Electing Fund (“QEF”) Election. A U.S. Holder of stock in a PFIC, including the Company, may make a QEF election with respect to such PFIC
to elect out of the tax treatment discussed above. Generally, a QEF election should be made with the filing of a U.S. Holder’s U.S. federal income tax return
for the first taxable year for which both (i) the U.S. Holder holds common shares, and (ii) the Company was a PFIC. A U.S. Holder that timely makes a valid
QEF election with respect to a PFIC will generally include in gross income for a taxable year (i) as ordinary income, such holder’s pro rata share of the
Company’s ordinary earnings for the taxable year, and (ii) as long-term capital gain, such holder’s pro rata share of the Company’s net capital gain for the
taxable year. However, the QEF election is available only if such PFIC provides such U.S. Holder with certain information regarding its earnings and profits
as required under applicable U.S. Treasury regulations. There can be no assurance that the Company will provide U.S. Holders with the information
required for them to make a QEF election.
Deemed Sale Election. If the Company is a PFIC for any year during which a U.S. Holder holds common shares, but the Company ceases in a subsequent year
to be a PFIC, then a U.S. Holder may make a deemed sale election for such subsequent year in order to avoid the adverse PFIC tax treatment described above
that would otherwise continue to apply because of the Company’s having previously been a PFIC. If such election is timely made, the U.S. Holder would be
deemed to have sold the common shares held by the holder at their fair market value, and any gain from such deemed sale would be taxed as an excess
distribution (as described above). The basis of the common shares would be increased by the gain recognized, and a new holding period would begin for the
common shares for purposes of the PFIC rules. The U.S. Holder would not recognize any loss incurred on the deemed sale, and such a loss would not result in
a reduction in basis of the common shares. After the deemed sale election, the U.S. Holder’s common shares with respect to which the deemed sale election
was made would not be treated as shares in a PFIC, unless the Company subsequently becomes a PFIC.
Mark-to-Market Election. Alternatively, a U.S. Holder of “marketable stock” (as defined in the applicable Treasury regulations) in a PFIC may make a mark-
to-market election for such stock to elect out of the adverse PFIC tax treatment discussed above. If a U.S. Holder makes a mark-to-market election for shares
of marketable stock, the U.S. Holder will include in income each year an amount equal to the excess, if any, of the fair market value of the shares as of the
close of the holder’s taxable year over the holder’s adjusted basis in such shares. A U.S. Holder is allowed a deduction for the excess, if any, of the adjusted
basis of the shares over their fair market value as of the close of the taxable year. However, deductions are allowable only to the extent of any net mark-to-
market gains on the shares included in the holder’s income for prior taxable years. Amounts included in a U.S. Holder’s income under a mark-to-market
election, as well as gain on the actual sale or other disposition of the shares, are treated as ordinary income. Ordinary loss treatment also applies to the
deductible portion of any mark-to-market loss on the shares, as well as to any loss realized on the actual sale or disposition of the shares, to the extent that the
amount of such loss does not exceed the net mark-to-market gains previously included for such shares. A U.S. Holder’s basis in the shares will be adjusted to
reflect any such income or loss amounts. However, the special interest charge and related adverse tax consequences described above for non-electing holders
may continue to apply on a limited basis if the U.S. Holder makes the mark-to-market election after such holder’s holding period for the shares has begun.
Because our common shares are regularly traded on TSX, the NYSE American, and the Frankfurt Stock Exchange, we anticipate that our common shares will
be classified as “marketable stock.” No assurances can be given, however, that our common shares are or will be marketable stock.
Form 8621 (Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund). If we are a PFIC for any taxable
year during which a U.S. Holder holds common shares, such U.S. Holder will be required to file an annual information report with such U.S. Holder’s U.S.
Federal income tax return on IRS Form 8621.
36
The PFIC rules are complex, and U.S. Holders should consult their own tax advisors regarding the PFIC rules and how they may affect the U.S. federal
income tax consequences of the acquisition, ownership, and disposition of common shares in the event the Company is a PFIC at any time during the holding
period for such common shares.
Medicare Tax
A U.S. Holder that is an individual or estate, or a trust that does not fall into a special class of trusts that is exempt from such tax, will be subject to a 3.8% tax
on the lesser of (1) the U.S. Holder’s “net investment income” for the relevant taxable year and (2) the excess of the U.S. Holder’s modified gross income for
the taxable year over a certain threshold (which in the case of an individual will be between $125,000 and $250,000, depending on the individual’s
circumstances). A holder’s net investment income will generally include dividend income and net gains from the disposition of common shares, unless such
dividends or net gains are derived in the ordinary course of the conduct of a trade or business (other than a trade or business that consists of certain passive or
trading activities). U.S. Holders are urged to consult their own tax advisors regarding the applicability of the Medicare tax in respect of their investment in the
common shares.
Disclosure Requirements for Specified Foreign Financial Assets
U.S. Holders (including certain domestic corporations, partnerships, and trusts that are considered formed or availed of for the purpose of holding, directly or
indirectly, “specified foreign financial assets,” referred to as “specified domestic entities” in applicable United States Treasury regulations) that, during any
taxable year, hold any interest in any “specified foreign financial asset” generally will be required to file with their U.S. federal income tax returns certain
information on IRS Form 8938 if the aggregate value of all such assets exceeds certain specified amounts. The term “specified foreign financial asset”
generally includes any financial account maintained with a non-U.S. financial institution, which may include common shares if they are not held in an account
maintained with a financial institution. Substantial penalties may be imposed, and the period of limitations on assessment and collection of U.S. federal
income taxes may be extended, in the event of a failure to comply with this reporting and filing requirement. U.S. Holders should consult their own tax
advisors as to the possible application to them of these requirements.
Foreign Currency Transactions
Generally, amounts received by a U.S. Holder in foreign currency (including distributions paid in foreign currency to a U.S. Holder in connection with the
ownership of common shares or on the sale, exchange, or other disposition of common shares) will be equal to the U.S. dollar value of such foreign currency
based on the applicable exchange rate on the date of receipt (regardless of whether such foreign currency is converted into U.S. dollars at that time). The
subsequent disposition of any foreign currency received (including an exchange for U.S. currency) will generally give rise to ordinary gain or loss in an
amount equal to the difference between the U.S. dollar value of the foreign currency on the date it was received and the date of the subsequent disposition.
Each U.S. Holder should consult its own tax adviser regarding the U.S. federal income tax consequences of receiving, owning, and disposing of foreign
currency.
Information Reporting and Backup Withholding
Payments made within the United States or by a U.S. payor or U.S. middleman, of dividends on, and/or proceeds arising from the sale or other taxable
disposition of, common shares will generally be subject to information reporting and backup withholding tax (currently at a 24% rate) if a U.S. Holder (a) fails
to furnish such U.S. Holder’s correct U.S. taxpayer identification number (generally on Form W-9), (b) furnishes an incorrect U.S. taxpayer identification
number, (c) is notified by the IRS that such U.S. Holder has previously failed to properly report items subject to backup withholding tax, or (d) fails to certify,
under penalty of perjury, that such U.S. Holder has furnished its correct U.S. taxpayer identification number and that the IRS has not notified such U.S. Holder
that it is subject to backup withholding tax.
Backup withholding is not an additional tax. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a credit against a U.S.
Holder’s U.S. federal income tax liability, if any, or will be refunded, if such U.S. Holder furnishes required information to the IRS in a timely manner. Each
U.S. Holder should consult its own tax advisor regarding the information reporting and backup withholding rules.
Acquiring, owning, or disposing of our common shares may have tax consequences under the laws of the United States and Canada that are not
described in this Annual Report on Form 10-K. Shareholders are solely responsible for determining the tax consequences applicable to their
particular circumstances and should consult their own tax advisors concerning an investment in the Company’s common shares.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
37
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Current Business Activities
General
Livengood Gold Project Developments
During the year ended December 31, 2018 and to the date of this Annual Report on Form 10-K, the Company progressed on a number of opportunities with
the potential for optimization and reducing the costs of building and operating a mine at the Project. Outside consultants were retained to conduct additional
metallurgical tests and engineering, including confirmation of the flow sheet and optimizing the operating costs. Using the improved mineralization and
alteration models now available for the Livengood gold deposit arising from the work completed in 2017, 4,000 kg of metallurgical composites were selected
and shipped to SGS Vancouver. Approximately 2,000 kg of these samples were processed during 2018 to evaluate optimum grind size and to determine
whether different recovery parameters should be applied to different areas of the orebody. The engineering firm of BBA Inc. (BBA) was retained to continue
to guide the metallurgical program. Work was also completed to advance the environmental baseline efforts needed to support future permitting.
Director Changes
On March 16, 2018, Mr. Victor Flores notified the Board of his decision to resign as director effective on March 21, 2018. Mr. Flores was nominated for
election as director by Paulson & Co., Inc. (“Paulson”) pursuant to that certain Investor Rights Agreement, dated December 28, 2016, between the Company
and Paulson. Effective on March 22, 2018, the Company appointed Mr. Damola Adamolekun as director, filling the vacancy created by the resignation of Mr.
Flores.
The Board appointed Mr. Stuart Harshaw to the Board effective April 1, 2018, to fill the vacancy that resulted from General Hamilton’s November 6, 2017
resignation.
At the 2018 Annual General Meeting of shareholders in Vancouver, B.C. on May 30, 2018, the shareholders fixed the size of the board at nine with the
addition of the Company’s chief executive officer, Mr. Karl Hanneman.
Financing
On March 13, 2018, the Company completed a non-brokered private placement pursuant to which it issued 24,000,000 common shares at $0.50 per share for
gross proceeds of $12.0 million. The Company intends to use the funds for continuation of optimization studies in the attempt to further improve and de-risk
the Project, for required environmental baseline studies, and for general working capital purposes.
Other Developments
On March 12, 2018, the Board approved recommendations by management to further reduce corporate overhead costs, including a reduction in CEO salary by
50% (reflecting an approximate 50% reduction in the amount of time the CEO will spend working on the Project), a reduction in board cash compensation and
expense, and staff reductions as appropriate as critical work is completed. Depending upon the level of technical work or permitting efforts underway in future
years, these cost savings are expected to bring total project G&A costs into the range of $2.5 million per year.
2019
Outlook
38
On November 1, 2018, the Board approved a 2019 budget of $3.7 million. The work program incorporated in this budget will build upon the metallurgical
studies undertaken in 2018 to continue to define and refine the project flowsheet. Approximately 2,000 kg of samples will be processed in 2019 to evaluate
optimum grind size and to determine whether different recovery parameters should be applied to different areas of the orebody. The engineering firm of BBA
Inc. (“BBA”) will be retained to continue to guide the metallurgical program. Work is also planned to advance the environmental baseline efforts needed to
support future permitting.
The Company remains open to a strategic alliance to help support the future development of the Project while considering all other appropriate financing
options. The size of the gold resource, the favorable location, and the proven team are some of the reasons the Company would potentially attract a strategic
partner with a long term development horizon who understands the Project is highly leveraged to gold prices.
Results of Operations
Summary of Quarterly Results
Net loss
Basic and diluted net loss per common share
Description
Net loss
Basic and diluted net loss per common share
Description
December 31, 2018 September 30, 2018 June 30, 2018 March 31, 2018
(1,065,220)
(1,269,636) $
$
(0.01)
(0.01) $
$
(901,767) $
(0.01) $
(955,415) $
(0.01) $
December 31, 2017 September 30, 2017 June 30, 2017 March 31, 2017
(1,677,977)
$
(0.01)
$
(1,745,513) $ (1,627,646) $
(0.01) $
(1,380,921) $
(0.01) $
(0.01) $
Significant fluctuations in the Company’s quarterly net loss have mainly been the result of operating cost changes.
Year ended December 31, 2018 compared to Year ended December 31, 2017
The Company had cash and cash equivalents of $10,228,964 at December 31, 2018 compared to $2,244,466 at December 31, 2017. The Company incurred a
net loss of $4,192,038 for the year ended December 31, 2018, compared to a net loss of $6,432,057 for the year ended December 31, 2017. The following
discussion highlights certain selected financial information and changes in operations between the year ended December 31, 2018 and the year ended
December 31, 2017.
Mineral property expenditures were $1,576,251 for the year ended December 31, 2018 compared to $2,446,934 for the year ended December 31, 2017. The
decrease of $870,683 is due to reduced expenditures for metallurgical studies and engineering and the Company limiting field activities to the continuation of
critical environmental baseline work while moving forward with a multi-phase metallurgical test work program.
Share-based payment charges were $603,818 during the year ended December 31, 2018 compared to $443,556 during the year ended December 31, 2017. The
$160,262 increase in share-based payment charges during the period was mainly the result of the incentive options granted on March 21, 2018 to certain
officers and employees of the Company and the deferred share units (“DSUs”) issued on October 17, 2018 to certain members of the Board of Directors being
fully vested upon issuance. The Company granted 420,085 options during the year ended December 31, 2018 compared to 250,000 options granted during the
year ended December 31, 2017. At December 31, 2018, there was unrecognized compensation expense of C$2,242 related to non-vested options outstanding.
The cost is expected to be recognized over a weighted-average remaining period of approximately 0.08 years.
Share based payment charges were allocated as follows:
Expense category:
Consulting
Investor relations
Wages and benefits
Year ended
December 31,
2018
Year ended
December 31,
2017
$
$
414,422 $
5,967
183,429
603,818 $
384,516
848
58,192
443,556
39
Excluding share-based payment charges of $183,429 and $58,192, respectively, wages and benefits decreased to $1,706,182 for the year ended December 31,
2018 from $1,877,788 for the year ended December 31, 2017. The reduction of $171,606 is primarily due to staff reductions partially offset by severance for
four staff reductions.
Consulting fees, excluding share-based payment charges of $414,422 and $384,516, respectively, were $138,870 for the year ended December 31, 2018
compared to $275,846 for the year ended December 31, 2017. The decrease of $136,976 is primarily due to decreased media support services and the
Company’s continued efforts to maintain or reduce spending.
Insurance costs were $169,036 for the year ended December 31, 2018 compared to $281,948 for the year ended December 31, 2017. The decrease of $112,912
resulted after the Company completed a review of coverage requirements.
Professional fees were $227,082 for the year ended December 31, 2018 compared to $263,863 for the year ended December 31, 2017. The decrease of
$36,781 is due primarily to decreased legal fees related to property matters.
Excluding share-based payments, all other operating expense categories reflected only moderate changes period over period.
Other items amounted to an income of $676,186 during the year ended December 31, 2018 compared to other expense of $314,593 in the year ended
December 31, 2017. The Company had a foreign exchange gain of $522,248 during the year ended December 31, 2018 compared to a loss of $364,188 during
the year ended December 31, 2017 as a result of the impact of exchange rates on certain of the Company’s U.S. dollar cash balances. The average exchange
rate during the year ended December 31, 2018 was C$1 to US$0.7721 compared to C$1 to US$0.7708 for the year ended December 31, 2017.
Available-for-sale securities were sold during the year ended December 31, 2018 and were deemed not to be impaired for the year ended December 31, 2017.
Liquidity and Capital Resources
The Company has no revenue generating operations from which it can internally generate funds. To date, the Company’s ongoing operations have been
predominantly financed through sale of its equity securities by way of private placements and the subsequent exercise of share purchase and broker warrants
and options issued in connection with such private placements. However, the exercise of warrants/options is dependent primarily on the market price and
overall market liquidity of the Company’s securities at or near the expiry date of such warrants/options (over which the Company has no control) and
therefore there can be no guarantee that any existing warrants/options will be exercised. There are currently no warrants outstanding.
40
As at December 31, 2018, the Company reported cash and cash equivalents of $10,228,964 compared to $2,244,466 at December 31, 2017. The increase of
approximately $8.0 million resulted mainly from the completion of a $12.0 million non-brokered private placement on March 13, 2018 and interest and other
income of $0.2 million partially offset by operating expenditures on the Livengood Gold Project of approximately $4.8 million and a positive foreign currency
translation impact of approximately $0.5 million. The Company intends to use the remaining funds for continuation of optimization studies in the attempt to
further improve and de-risk the Project, for required environmental baseline studies, and for general working capital purposes. As at March 14, 2019,
management believes that the Company has sufficient financial resources to maintain its operations for the next twelve months.
The Company had no cash flows from investing activities during the year ended December 31, 2017.
Financing activities during the year ended December 31, 2018 included completion of a non-brokered private placement pursuant to which the Company
issued 24,000,000 common shares at $0.50 per share for gross proceeds of $12.0 million. Share issuance costs included $111,379 related to the March 2018
private placement. Following the resignation of director Mark Hamilton on November 6, 2017, the Company recognized an obligation to issue 129,687
common shares, with a value of $63,593. On March 27, 2018, the Company issued the common shares in full satisfaction of the obligation. As a result of the
exercise of stock options, $181,026 in proceeds was received during the year in connection with the issuance of 468,000 common shares.
As at December 31, 2018, the Company had working capital of $9,884,979 compared to working capital of $1,993,358 at December 31, 2017. The Company
expects that it will operate at a loss for the foreseeable future, but believes the current cash and cash equivalents will be sufficient for it to complete its
anticipated 2019 work plan at the Livengood Gold Project and satisfy its currently anticipated general and administrative costs through the 2020 fiscal year.
The Company will require significant additional financing to continue its operations (including general and administrative expenses) in connection with
advancing activities at the Livengood Gold Project and the development of any mine that may be determined to be built at the Livengood Gold Project, and
there is no assurance that the Company will be able to obtain the additional financing required on acceptable terms, if at all. In addition, any significant delays
in the issuance of required permits for the ongoing work at the Livengood Gold Project, or unexpected results in connection with the ongoing work, could
result in the Company being required to raise additional funds to advance permitting efforts. The Company’s review of its financing options includes pursuing
a future strategic alliance to assist in further development, permitting and future construction costs, although there can be no assurance that any such strategic
alliance will, in fact, be realized.
Despite the Company’s success to date in raising significant equity financing to fund its operations, there is significant uncertainty that the Company will be
able to secure any additional financing in the current or future equity markets. See “Risk Factors – We will require additional financing to fund exploration
and, if warranted, development and production. Failure to obtain additional financing could have a material adverse effect on our financial condition and
results of operation and could cast uncertainty on our ability to continue as a going concern.” The quantity of funds to be raised and the terms of any proposed
equity financing that may be undertaken will be negotiated by management as opportunities to raise funds arise. Specific plans related to the use of proceeds
will be devised once financing has been completed and management knows what funds will be available for these purposes. Due to this uncertainty, if the
Company is unable to secure additional financing, it may be required to reduce all discretionary activities at the Project to preserve its working capital to fund
anticipated non-discretionary expenditures beyond the 2019 fiscal year.
Other than cash held by its subsidiaries for their immediate operating needs in the United States, all of the Company’s cash reserves are on deposit with a
major Canadian chartered bank. The Company does not believe that the credit, liquidity or market risks with respect thereto have increased as a result of the
current market conditions.
Contractual Obligations and Commitments
The following table discloses, as of December 31, 2018, the Company’s contractual obligations, including anticipated mineral property payments and work
commitments. Under the terms of the Company’s mineral property purchase agreements, mineral leases and the terms of the unpatented mineral claims held
by it, the Company is required to make certain scheduled acquisition payments, incur certain levels of expenditures, make lease or advance royalty payments,
make payments to government authorities and incur assessment work expenditures as summarized in the table below in order to maintain and preserve the
Company’s interests in the related mineral properties. If the Company is unable or unwilling to make any such payments or incur any such expenditures, it is
likely that the Company would lose or forfeit its rights to acquire or hold the related mineral properties. The following table assumes that the Company retains
the rights to all of its current mineral properties, but does not exercise any lease purchase or royalty buyout options:
41
2019
2020
2021
2022
2023
2024 and
beyond
Total
Payments Due by Year
Mineral Property
Leases(1)
Mining Claim
Government Fees
Total
$
$
425,389
$
430,420
$
435,526
$
440,709
$
445,970
$
451,310
$
2,629,324
114,825
540,214
$
114,825
545,245
$
114,825
550,351
$
114,825
555,534
$
114,825
560,795
$
114,825
566,135
688,950
3,318,274
$
1. Does not include required work expenditures, as it is assumed that the required expenditure level is significantly below the work which
will actually be carried out by the Company. Does not include potential royalties that may be payable (other than annual minimum
royalty payments).
Off-Balance Sheet Arrangements
The Company does not have any off balance sheet arrangements.
Critical Accounting Policies
Mineral properties and exploration and evaluation expenditures
The Company’s mineral project is currently in the exploration and evaluation phase. Mineral property acquisition costs are capitalized when incurred. Mineral
property exploration costs are expensed as incurred. At such time that the Company determines that a mineral property can be economically developed,
subsequent mineral property expenses will be capitalized during the development of such property.
The Company assesses interests in exploration properties for impairment when facts and circumstances suggest that the carrying amount of an asset may
exceed its recoverable amount. Impairment analysis includes assessment of the following circumstances: a significant decrease in the market price of a long-
lived asset or asset group; a significant adverse change in the extent or manner in which a long-lived asset or asset group is being used or in its physical
condition; a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset or asset group, including an
adverse action or assessment by a regulator; an accumulation of costs significantly in excess of the amount originally expected for the acquisition or
construction of a long-lived asset or asset group; a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a
projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group; or a current expectation that, more likely
than not, a long-lived asset or asset group will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. The term
more likely than not refers to a level of likelihood that is more than 50%.
Stock-based compensation
The Company follows the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Section 718 “Compensation -
Stock Compensation”, which establishes accounting for equity based compensation awards to be accounted for using the fair value method. The Company
uses the Black-Scholes option pricing model to determine the grant date fair value of the awards. Compensation expense is measured at the grant date and
recognized over the requisite service period, which is generally the vesting period.
Recently Adopted Accounting Policies
For a description of recently adopted accounting policies, please see Note 2 – Summary Of Significant Accounting Policies within our Notes to Consolidated
Financial Statements in Item 8 of this Annual Report on Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
42
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Report of Independent Registered Public Accounting Firm
To the Shareholders and Directors of International Tower Hill Mines Ltd.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of International Tower Hill Mines Ltd. (the “Company”), as of December 31, 2018 and 2017,
and the related consolidated statements of operations and comprehensive loss, changes in shareholders’ equity, and cash flows for the years ended December
31, 2018 and 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for
the years ended December 31, 2018 and 2017 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding
of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatements of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Davidson & Company LLP
Chartered Professional Accountants
Vancouver, British Columbia, Canada
March 14, 2019
We have served as the Company’s auditor since 2017.
43
INTERNATIONAL TOWER HILL MINES LTD.
CONSOLIDATED BALANCE SHEETS
As at December 31, 2018 and 2017
(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
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable
Accrued liabilities
Total liabilities
Shareholders’ equity
Share capital, no par value; authorized 500,000,000 shares; 186,990,683 and 162,392,996
shares issued and outstanding at December 31, 2018 and 2017, respectively
Contributed surplus
Obligation to issue shares
Accumulated other comprehensive income
Deficit
Total shareholders’ equity
Total liabilities and shareholders’ equity
Nature of operations (Note 1)
Commitments (Note 10)
Note
December 31,
2018
December 31,
2017
4
5
8
$
$
10,228,964
203,968
10,432,932
17,750
55,273,432
2,244,466
177,730
2,422,196
20,794
55,204,041
$
65,724,114
$
57,647,031
$
$
43,475
504,478
547,953
82,269
346,569
428,838
277,852,672
34,960,292
-
1,162,900
(248,799,703)
265,616,642
34,459,264
63,593
1,686,359
(244,607,665)
65,176,161
65,724,114
$
57,218,193
57,647,031
$
The accompanying notes are an integral part of these consolidated financial statements.
44
INTERNATIONAL TOWER HILL MINES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For the Years Ended December 31, 2018 and 2017
(Expressed in U.S. Dollars)
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
Other income
Total other income (expense)
Net loss for the year
Other comprehensive income (loss)
Unrealized loss on marketable securities
Reclassification of accumulated unrealized loss on available-for-sale securities to other
income
Exchange difference on translating foreign operations
Total other comprehensive income/(loss) for the year
Comprehensive loss for the year
Basic and diluted net loss per share
Weighted average number of shares outstanding
Note
December 31,
2018
December 31,
2017
8
8
4
8
3
$
$
$
$
553,292
3,043
169,036
58,267
1,576,251
33,870
16,229
227,082
146,615
135,736
59,192
1,889,611
(4,868,224)
522,248
119,106
34,832
676,186
660,362
4,006
281,948
83,630
2,446,934
35,297
18,237
263,863
152,599
139,735
94,873
1,935,980
(6,117,464)
(364,188)
27,395
22,200
(314,593)
(4,192,038)
(6,432,057)
(1,526)
(8,517)
22,352
(544,285)
(523,459)
-
350,657
342,140
(4,715,497) $
(6,089,917)
(0.02) $
(0.04)
181,984,179
162,283,493
The accompanying notes are an integral part of these consolidated financial statements.
45
INTERNATIONAL TOWER HILL MINES LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the Years Ended December 31, 2018 and 2017
(Expressed in U.S. Dollars)
Balance, December 31, 2016
Share issuance costs
Stock based compensation-option
Stock based compensation-DSU
Unrealized loss on available-for-sale
securities
Exchange difference on translating foreign
operations
Obligation to issue shares
Share issuance (Note 11)
Net loss
Balance, December 31, 2017
Stock based compensation-option
Stock based compensation-DSU
Unrealized loss on available-for-sale
securities
Reclassification of accumulated
unrealized loss on available-for-sale
securities to other income
Exchange difference on translating foreign
operations
Share issuance
Exercise of options
Share issuance costs
Reallocation from contributed surplus
Net loss
Balance, December 31, 2018
Number of
shares
162,186,972
-
-
-
Share capital
265,569,796
(52,646)
-
-
Contributed
surplus
34,079,301
-
61,998
381,558
-
-
-
-
-
206,024
-
162,392,996
-
-
-
-
-
-
99,492
-
265,616,642
-
-
-
-
-
(63,593)
-
-
34,459,264
189,396
414,422
-
-
Obligation
to issue
shares
-
-
-
-
-
-
63,593
-
-
63,593
-
-
-
-
-
24,129,687
468,000
-
-
-
186,990,683
$
-
12,063,593
181,026
(111,379)
102,790
-
277,852,672
$
-
-
-
-
(102,790)
-
34,960,292
$
-
(63,593)
-
-
-
-
-
$
Accumulated
other
comprehensive
income/(loss)
1,344,219
-
-
-
Deficit
(238,175,608)
-
-
-
Total
62,817,708
(52,646)
61,998
381,558
(8,517)
-
(8,517)
350,657
-
-
-
1,686,359
-
-
(1,526)
22,352
(544,285)
-
-
-
-
-
1,162,900
-
-
-
(6,432,057)
(244,607,665)
-
-
-
-
-
-
-
-
-
(4,192,038)
(248,799,703)
$
$
350,657
-
99,492
(6,432,057)
57,218,193
189,396
414,422
(1,526)
22,352
(544,285)
12,000,000
181,026
(111,379)
-
(4,192,038)
65,176,161
The accompanying notes are an integral part of these consolidated financial statements.
46
INTERNATIONAL TOWER HILL MINES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2018 and 2017
(Expressed in U.S. Dollars)
Operating Activities
Loss for the year
Add items not affecting cash:
Depreciation
Stock-based compensation-option
Stock-based compensation-DSU
Loss on sale of marketable securities
Shares for services
Changes in non-cash working capital items:
Accounts receivable
Prepaid expenses
Accounts payable and accrued liabilities
Cash used in operating activities
Financing Activities
Issuance of common shares
Derivative payment
Share issuance costs
Cash provided by (used in) financing activities
Investing Activities
Capitalized acquisition costs
Sale of marketable securities
Cash used in investing activities
Effect of foreign exchange on cash and cash equivalents
Increase/(decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental disclosure with respect to cash flows:
Obligation to issue shares
December 31,
2018
December 31,
2017
$
(4,192,038) $
(6,432,057)
3,043
189,396
414,422
19,953
-
(99,480)
48,162
124,812
(3,491,730)
12,181,026
-
(111,379)
12,069,647
(69,391)
14,519
(54,872)
(538,547)
7,984,498
2,244,466
10,228,964
-
4,006
61,998
381,558
-
99,492
4,129
25,166
30,339
(5,825,369)
-
(14,694,169)
(52,646)
(14,746,815)
-
-
-
350,157
(20,222,027)
22,466,493
2,244,466
63,593
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
47
INTERNATIONAL TOWER HILL MINES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
1.
GENERAL INFORMATION, NATURE OF OPERATIONS
International Tower Hill Mines Ltd. (“ITH” or the "Company") is incorporated under the laws of British Columbia, Canada. The Company’s head
office address is 2300-1177 West Hastings Street, Vancouver, British Columbia, Canada.
International Tower Hill Mines Ltd. consists of ITH and its wholly owned subsidiaries Tower Hill Mines, Inc. (“TH Alaska”) (an Alaska
corporation), Tower Hill Mines (US) LLC (“TH US”) (a Colorado limited liability company), Livengood Placers, Inc. (“LPI”) (a Nevada
corporation), and 813034 Alberta Ltd. (inactive Alberta corporation - dissolved in 2013). The Company is in the business of acquiring, exploring and
evaluating mineral properties, and either joint venturing or developing these properties further or disposing of them when the evaluation is
completed. At December 31, 2018, the Company was in the exploration stage and controls a 100% interest in its Livengood Gold Project in Alaska,
U.S.A.
These consolidated financial statements have been prepared on a going-concern basis, which presumes the realization of assets and discharge of
liabilities in the normal course of business for the foreseeable future.
The Company will require significant additional financing to continue its operations in connection with advancing activities at the Livengood Gold
Project and for the development of any mine that may be determined to be built at the Livengood Gold Project. There is no assurance that the
Company will be able to obtain the additional financing required on acceptable terms, if at all.
On January 12, 2017, the Company paid $14,694,169 for the timely and full satisfaction of the final derivative payment due with respect to the
acquisition of certain mining claims and related rights in the vicinity of the Livengood Gold Project.
In addition, any significant delays in the issuance of required permits for the ongoing work at the Livengood Gold Project, or unexpected results in
connection with the ongoing work, could result in the Company being required to raise additional funds to advance permitting efforts. The
Company’s review of its financing options includes pursuing a future strategic alliance to assist in further development, permitting and future
construction costs.
Despite the Company’s success to date in raising significant equity financing to fund its operations, there is significant uncertainty that the Company
will be able to secure any additional financing in the current or future equity markets. The amount of funds to be raised and the terms of any proposed
equity financing that may be undertaken will be negotiated by management as opportunities to raise funds arise. Specific plans related to the use of
proceeds will be devised once financing has been completed and management knows what funds will be available for these purposes. Due to this
uncertainty, if the Company is unable to secure additional financing, it may be required to reduce all discretionary activities at the Project to preserve
its working capital to fund anticipated non-discretionary expenditures beyond the 2019 fiscal year. As at March 14, 2019, management believes that
the Company has sufficient financial resources to maintain its operations for the next twelve months.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
These consolidated financial statements are presented in United States dollars and have been prepared in accordance with U.S. generally accepted
accounting principles (“U.S. GAAP”). On March 14, 2019, the Board approved the consolidated financial statements dated December 31, 2018.
Basis of consolidation
These consolidated financial statements include the accounts of ITH and its wholly owned subsidiaries TH Alaska, TH US, and LPI. All
intercompany transactions and balances have been eliminated.
Significant judgments, estimates and assumptions
The preparation of financial statements in accordance with U.S. GAAP requires management to make judgments, estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the period. These judgments, estimates and assumptions are regularly evaluated and are based on
management’s experience and knowledge of the relevant facts and circumstances. While management believes the estimates to be reasonable, actual
results could differ from those estimates and could impact future results of operations and cash flows.
48
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%.
49
Asset retirement obligations
The Company records a liability based on the best estimate of costs for site closure and reclamation activities that the Company is legally or
contractually required to remediate. The provision for closure and reclamation liabilities is estimated using expected cash flows based on engineering
and environmental reports and accreted to full value over time through periodic charges to income. The Company does not have any material
provisions for environmental rehabilitation as of December 31, 2018.
Derivatives
Derivatives are initially recognized at their fair value on the date the derivative contract is entered into and are subsequently re-measured at their fair
value at each reporting period with changes in the fair value recognized in profit and loss.
Impairment of long-lived assets and long-lived assets to be disposed of
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount
and the fair value less costs to sell.
Income taxes
The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under the asset and liability method, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recognized if it is more likely
than not that some portion or the entire deferred tax asset will not be recognized.
Net loss per share
Basic loss per share is calculated using the weighted average number of common shares outstanding during the period. Diluted loss per share reflects
the potential dilution that could occur if securities or contracts that may require the issuance of common shares in the future were converted, unless
the impact is anti-dilutive. For the year ended December 31, 2018, this calculation proved to be anti-dilutive, and therefore the Company’s 3,655,991
stock options and 1,356,975 deferred share units (“DSUs”) outstanding at year-end have been excluded from the calculation.
Stock-based compensation
The Company follows the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Section 718
“Compensation - Stock Compensation”, which establishes accounting for equity based compensation awards to be accounted for using the fair value
method. Equity-settled share based payment arrangements are initially measured at fair value at the date of grant and recorded within shareholders’
equity. Arrangements considered to be cash-settled are initially recorded at fair value and classified as accrued liabilities, and subsequently re-
measured at fair value at each reporting date. The Company’s stock option plan is an equity-settled arrangement and the Company’s deferred share
unit plan can be an equity or cash settled arrangement depending on the grant date term.
The fair value at grant date of all share-based payments is recognized as compensation expense over the period for which benefits of services are
expected to be derived, with a corresponding credit to shareholders’ equity or accrued liabilities depending on whether they are equity-settled or cash-
settled. The Company estimates the fair value of stock options granted using the Black-Scholes option pricing model and estimate the expected
forfeiture rate at the date of grant. The value of DSUs is estimated based on the quoted market price of the Company’s common shares. When awards
are forfeited because non-market based vesting conditions are not satisfied, the expense previously recognized is proportionately reversed.
Functional Currency
The Company’s consolidated financial statements are presented in U.S. dollars, which is the Company’s reporting currency. The functional currency
of ITH is the Canadian (“CAD” or “C”) dollar and the functional currency of ITH Alaska, TH US and LPI is the U.S. dollar.
50
In accordance with ASC 830, Foreign Currency Matters, the Company translates the assets and liabilities into U.S. dollars using the rate of exchange
prevailing at the balance sheet date and the statements of operations and comprehensive loss and cash flows are translated at an average rate during
the reporting period. Adjustments resulting from the translation from CAD into U.S. dollars are recorded in shareholders' equity as part of
accumulated other comprehensive income.
Foreign currency transactions are translated into the functional currency of the respective currency of the entity or division, using the exchange rates
prevailing at the dates of the transactions (spot exchange rate). Foreign exchange gains and losses resulting from the settlement of such transactions
and from the re-measurement of monetary items denominated in foreign currency at period-end exchange rates are recognized in profit or loss. Non-
monetary items that are not re-translated at period end are measured at historical cost (translated using the exchange rates at the transaction date),
except for non-monetary items measured at fair value, which are translated using the exchange rates as at the date when fair value was determined.
Gains and losses are recorded in the statement of operations and comprehensive loss.
Recently Adopted Accounting Pronouncements
Accounting Standards Update 2016-16—Income Taxes, Intra-Entity Transfers of Assets Other Than Inventory (Topic 740). In October 2016, the
FASB issued guidance intended to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory by
requiring an entity to recognize the income tax consequences when a transfer occurs, instead of when an asset is sold to an outside party. The
amendments in this guidance should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings
as of the beginning of the period of adoption. The adoption of the guidance had no impact on the Company’s financial statements.
Accounting Standards Update No. 2014-09—Revenue from Contracts with Customers (Topic 606). On May 28, 2014, the FASB issued guidance that
requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers.
This ASU was further amended in August 2015, March 2016, April 2016, May 2016 and December 2016 by ASU No. 2015-014, No. 2016-08, No.
2016-10, No. 2016-12 and No. 2016-20, respectively. The guidance provides a five-step approach to be applied to all contracts with customers and
also requires expanded disclosures about revenue recognition. The adoption of the guidance had no impact on the Company’s financial statements.
Recently Issued Accounting Standards Updates
Accounting Standards Update No. 2016-02 Leases (Topic 842). In February 2016, the FASB issued a new standard regarding leases. These are
elements of the new standard that could impact almost all entities to some extent, although lessees will likely see the most significant changes.
Lessees will need to recognize virtually all of their leases on the balance sheet, by recording a right-of-use asset and a lease liability. Public business
entities are required to adopt the new leasing standard for fiscal years, and interim periods within those fiscal years, beginning after December 15,
2018. For calendar year-end public companies, this means an adoption date of January 1, 2019. Early adoption is permitted. The Company is
currently in the process of evaluating the impact on its consolidated financial statements and disclosures.
3.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents, accounts receivable and accounts payable and accrued liabilities approximate their fair values due
to the short-term maturity of these financial instruments.
Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the significance of the
inputs used in making the measurement. The three levels of the fair value hierarchy are as follows:
(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
Total
51
Fair value as at
December 31, 2018
Level 1
$
$
-
-
During the year ended December 31, 2018, the Company sold:
65,000 shares of Millrock Resources Inc. for gross proceeds of $7,802 resulting in a realized loss of $26,670.
i)
ii) 40,000 shares of Dunnedin Ventures Inc. for gross proceeds of $4,699 resulting in a realized gain of $4,699.
iii) 13,333 shares of Solstice Gold Corp. for gross proceeds of $2,018 resulting in a realized gain of $2,018.
The total realized loss of $19,953 was recorded as other income in the statement of operations and comprehensive loss.
Financial assets:
Marketable securities
Total
4.
CAPITALIZED ACQUISITION COSTS
The Company had the following activity related to capitalized acquisition costs:
Capitalized acquisition costs
Balance, December 31, 2016
Additions
Balance, December 31, 2017
Additions
Balance, December 31, 2018
Fair value as at
December 31, 2017
Level 1
$
$
15,543
15,543
Amount
$ 55,204,041
-
$ 55,204,041
69,391
$ 55,273,432
The following table presents costs incurred for exploration and evaluation activities for the years ended December 31, 2018 and 2017:
Exploration costs:
Aircraft services
Assay
Environmental
Equipment rental
Field costs
Geological/geophysical
Land maintenance & tenure
Legal
Transportation and travel
Total expenditures for the year
Properties acquired from AngloGold, Alaska
Year ended
December 31, 2018
Year ended
December 31, 2017
$
$
4,200 $
-
232,648
35,039
91,677
632,653
506,934
67,929
5,171
1,576,251 $
6,220
435,879
240,882
48,262
112,086
1,030,543
500,929
59,483
12,650
2,446,934
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.
52
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:
a)
b)
c)
d)
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 lease of the Alaska Mental Health Trust mineral rights having a term beginning July 1, 2004 and extending 19 years until June 30,
2023, subject to further extensions beyond June 30, 2023 by either commercial production or payment of an advance minimum royalty
equal to 125% of the amount paid in year 19 and diligent pursuit of development. The lease requires minimum work expenditures and
advance minimum royalties which escalate annually with inflation. A net smelter return (“NSR”) production royalty of between 2.5%
and 5.0% (depending upon the price of gold) is payable to the lessor with respect to the lands subject to this lease. In addition, an NSR
production royalty of l% is payable to the lessor with respect to the unpatented federal mining claims subject to the lease described in b)
below and an NSR production royalty of between 0.5% and 1.0% (depending upon the price of gold) is payable to the lessor with
respect to the lands acquired by the Company as a result of the purchase of Livengood Placers, Inc. in December 2011. As of December
31, 2018, the Company has paid $2,962,821 from the inception of this lease.
a lease of federal unpatented lode mining claims having an initial term of ten years commencing on April 21, 2003 and continuing for
so long thereafter as advance minimum royalties are paid and mining related activities, including exploration, continue on the property
or on adjacent properties controlled by the Company. The lease requires an advance minimum royalty of $50,000 on or before each
anniversary date (all of which minimum royalties are recoverable from production royalties). An NSR production royalty of between
2% and 3% (depending on the price of gold) is payable to the lessors. The Company may purchase 1% of the royalty for $1,000,000. As
of December 31, 2018, the Company has paid $730,000 from the inception of this lease.
a lease of patented lode claims having an initial term of ten years commencing January 18, 2007, and continuing for so long thereafter
as advance minimum royalties are paid. The lease requires an advance minimum royalty of $20,000 on or before each anniversary date
through January 18, 2017 and $25,000 on or before each subsequent anniversary (all of which minimum royalties are recoverable from
production royalties). An NSR production royalty of 3% is payable to the lessors. The Company may purchase all interests of the
lessors in the leased property (including the production royalty) for $1,000,000 (less all minimum and production royalties paid to the
date of purchase), of which $500,000 is payable in cash over four years following the closing of the purchase and the balance of
$500,000 is payable by way of the 3% NSR production royalty. As of December 31, 2018, the Company has paid $210,000 from the
inception of this lease.
a lease of unpatented federal lode mining and federal unpatented placer claims having an initial term of ten years commencing on
March 28, 2007, and continuing for so long thereafter as advance minimum royalties are paid and mining related activities, including
exploration, continue on the property or on adjacent properties controlled by the Company. The lease requires an advance minimum
royalty of $15,000 on or before each anniversary date (all of which minimum royalties are recoverable from production royalties). The
Company is required to pay the lessor the sum of $250,000 upon making a positive production decision, payable $125,000 within 120
days of the decision and $125,000 within a year of the decision (all of which are recoverable from production royalties). An NSR
production royalty of 2% is payable to the lessor. The Company may purchase all of the interest of the lessor in the leased property
(including the production royalty) for $1,000,000. As of December 31, 2018, the Company has paid $143,000 from the inception of this
lease.
Title to mineral properties
The acquisition of title to mineral properties is a detailed and time-consuming process. The Company has taken steps to verify title to mineral
properties in which it has an interest. Although the Company has taken every reasonable precaution to ensure that legal title to its properties is
properly recorded in the name of the Company, there can be no assurance that such title will ultimately be secured.
53
5.
ACCRUED LIABILITIES
The following table presents the accrued liabilities balances at December 31, 2018 and 2017.
Accrued liabilities
Accrued salaries and benefits
Total accrued liabilities
December 31,
2018
December 31,
2017
$
$
172,147
332,331
504,478
$
$
201,673
144,896
346,569
Accrued liabilities at December 31, 2018 include accruals for general corporate costs and project costs of $35,176 and $136,971, respectively.
Accrued liabilities at December 31, 2017 include accruals for general corporate costs and project costs of $34,941 and $166,732, respectively.
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 equaled $23,148 for every
dollar that the Average Gold Price exceeded $720 per troy ounce. If the Average Gold Price were less than $720, there would not have been any
additional consideration due.
At initial recognition on December 13, 2011, the derivative liability was valued at $23,100,000. As at December 12, 2016, the five-year average daily
gold price was $1,354.79 resulting in a derivative liability of $14,694,169. The obligation to make the contingent payment was secured by a Deed of
Trust over the rights of the Company in the purchased claims in favor of the vendors. On January 12, 2017, the Company paid $14,694,169 for the
timely and full satisfaction of the final derivative payment.
7.
INCOME TAXES
A reconciliation of income taxes at statutory rates with the reported taxes is as follows for the years ended December 31, 2018 and 2017:
Loss before income taxes
Statutory Canadian corporate tax rate
Expected income tax (recovery)
Share-based payments
Difference in tax rates in other jurisdictions
Effect of change in tax rate
Derecognition of derivative liability
Share issue cost
Adjustment to prior years provision versus statutory tax returns
Expiry of donations
Expiry of losses
Change in unrecognized deductible temporary differences
Total income tax expense (recovery)
54
December 31,
2017
December 31,
2018
(4,192,038) $ (6,432,057)
26.00%
27.00%
$
$
$
(1,131,850) $ (1,672,335)
115,324
(805,662)
26,455,632
(1,824,065)
(14,540)
(1,509,364)
64,554
20,280
(20,829,824)
-
163,031
(119,329)
-
-
(26,284)
7,076
-
-
1,107,356
-
$
The significant components of the Company’s deferred tax assets are as follows:
Deferred income tax assets (liabilities):
Mineral properties
Property and equipment
Share issue costs
Marketable securities
Allowable capital losses
Net operating losses available for future periods
Valuation allowance
Net deferred tax asset
December 31,
2018
December 31,
2017
$ 21,801,955
7,362
48,434
-
54,212
49,962,349
71,874,312
(71,874,312)
-
$
$ 23,391,666
6,448
36,483
54,073
-
47,278,286
70,766,956
(70,766,956)
-
$
At December 31, 2018, the Company has available net operating losses for Canadian income tax purposes of approximately $20,779,000 and net
operating losses for US income tax purposes of approximately $145,894,000 available for carry-forward to reduce future years’ taxable income, if
not utilized, expiring as follows:
2038
2037
2036
2035
2034
2033
2032
2031
2030
2029
2028
2027
2026
Canada
United States
$
$
125,000 $
1,394,000
1,383,000
406,000
1,694,000
1,827,000
2,629,000
4,180,000
2,829,000
2,074,000
1,253,000
907,000
78,000
20,779,000 $
8,741,000
8,800,000
8,798,000
10,703,000
12,587,000
14,208,000
16,798,000
10,386,000
30,439,000
18,765,000
2,973,000
1,412,000
1,284,000
145,894,000
The Company also has available mineral resource expenses that are related to the Company’s exploration activities in the United States of
approximately $126,990,000 which may be deductible for U.S. tax purposes. Future tax benefits, which may arise as a result of applying these
deductions to taxable income, have not been recognized in these accounts due to the uncertainty of future taxable income.
8.
SHARE CAPITAL
Authorized
500,000,000 common shares without par value. At December 31, 2017 and 2018, there were 162,392,996 and 186,990,683 shares issued and
outstanding, respectively.
Share issuances
On March 13, 2018, the Company completed a non-brokered private placement pursuant to which it issued 24,000,000 common shares at $0.50 per
share for gross proceeds of $12,000,000. Share issuance costs included $111,379 related to the private placement. Following the resignation of
director Mark Hamilton on November 6, 2017, the Company recognized an obligation to issue 129,687 common shares, with a value of $63,593. On
March 27, 2018, the Company issued the 129,687 common shares in full satisfaction of the obligation. The Company also issued 468,000 common
shares pursuant to the exercise of stock options for total proceeds of $181,026 and transferred related contributed surplus of $102,790 to share capital
during the year ended December 31, 2018.
55
Stock options
The Company adopted an incentive stock option plan in 2006, as amended September 19, 2012 and re-approved by the Company’s shareholders on
May 28, 2015 and May 30, 2018 (the “2006 Plan”). The essential elements of the 2006 Plan provide that the aggregate number of common shares of
the Company’s capital stock that may be issued pursuant to options granted under the 2006 Plan may not exceed 10% of the number of issued shares
of the Company at the time of the granting of the options. Options granted under the 2006 Plan will have a maximum term of ten years. The exercise
price of options granted under the 2006 Plan shall be fixed in compliance with the applicable provisions of the TSX Company Manual in force at the
time of grant and, in any event, shall not be less than the closing price of the Company’s common shares on the TSX on the trading day immediately
preceding the day on which the option is granted, or such other price as may be agreed to by the Company and accepted by the TSX. Options granted
under the 2006 Plan vest immediately, unless otherwise determined by the directors at the date of grant.
During the year ended December 31, 2018, the Company granted incentive stock options to certain officers, employees and consultants of the
Company to purchase a total of 420,085 common shares of the Company. The options vested 100% on the grant date with an expiry date of March
21, 2024. The exercise price of these options is C$0.61 per common share.
During the year ended December 31, 2017, the Company granted incentive stock options to Mr. Karl Hanneman in connection with his appointment
as the new CEO of the Company. Mr. Hanneman is entitled to purchase a total of 250,000 common shares in the capital stock of the Company at an
issue price of C$1.35 per share. The options vested as to one-third on the grant date, one-third on February 1, 2018, and one-third on February 1,
2019. Expiry date is February 1, 2025.
A summary of the status of the stock option plan as of December 31, 2018 and 2017 and changes during the fiscal years is presented below:
Year Ended
December 31, 2018
Weighted
Average
Exercise
Price (C$)
Number of
Options
Aggregate
Intrinsic
Value (C$)
Number of
Options
Year Ended
December 31, 2017
Weighted
Average
Exercise
Price (C$)
Aggregate
Intrinsic
Value (C$)
Balance, beginning of the year
Granted
Exercised
Expired
Cancelled
Balance, end of the year
4,477,000 $
420,085 $
(468,000) $
(269,000) $
(504,094) $
3,655,991 $
1.03
0.61
0.50
2.18
0.95
0.98 $
6,026,200 $
250,000 $
-
(1,650,000) $
(149,200) $
4,477,000 $
1.61
1.35
-
3.17
1.24
1.03 $
67,899
38,220
The weighted average remaining life of options outstanding at December 31, 2018 was 4.0 years.
Stock options outstanding are as follows:
Expiry Date
March 14, 2018
February 25, 2022
February 25, 2022*
March 10, 2022
March 16, 2023
March 16, 2023
June 9, 2023
March 21, 2024**
February 1, 2025
December 31, 2018
December 31, 2017
Exercise
Price (C$)
Number of
Options
$
$
$
$
$
$
$
$
-
1.11
0.73
1.11
1.00
0.50
1.00
0.61
1.35
-
970,000
360,000
370,000
1,140,000
130,000
30,000
405,991
250,000
3,655,991
Exercisable
-
970,000
360,000
370,000
1,140,000
130,000
30,000
405,991
166,667
3,572,658
Exercise
Price (C$)
2.18
$
1.11
$
0.73
$
1.11
$
1.00
$
0.50
$
1.00
$
-
1.35
$
Number of
Options
300,000
1,030,000
540,000
430,000
1,260,000
637,000
30,000
-
250,000
4,477,000
Exercisable
300,000
1,030,000
540,000
430,000
1,260,000
637,000
30,000
-
83,333
4,310,333
* 90,000 options exercised subsequently
** 31,174 options exercised subsequently
56
A summary of the non-vested options as of December 31, 2018 and 2017 and changes during the fiscal years ended December 31, 2018 and 2017 is
as follows:
Non-vested options:
Outstanding at December 31, 2016
Granted
Vested
Outstanding at December 31, 2017
Granted
Vested
Outstanding at December 31, 2018
Number of options
Weighted average
grant-date fair
value (C$)
672,735 $
250,000 $
(756,068) $
166,667 $
420,085 $
(503,419) $
83,333 $
0.25
0.40
0.27
0.40
0.48
0.47
0.40
At December 31, 2018, there was unrecognized compensation expense of C$2,242 related to non-vested options outstanding. The cost is expected to
be recognized over a weighted-average remaining period of approximately 0.08 years.
Deferred Share Unit Incentive Plan
On April 4, 2017, the Company adopted a Deferred Share Unit Plan (the “DSU Plan”). On May 24, 2017, at the Company’s Annual General Meeting
of Shareholders, the DSU Plan was approved. As at December 31, 2018, the maximum aggregate number of common shares that could be issued
under the DSU Plan and the 2006 Plan was 18,699,068, representing 10% of the number of issued and outstanding common shares on that date (on a
non-diluted basis). As at December 31, 2018, the Company had stock options to potentially acquire 3,655,991 common shares outstanding under the
2006 Plan (representing approximately 1.96% of the outstanding common shares), leaving up to 15,043,077 common shares available for future
grants under the DSU Plan and under the 2006 Plan (combined) based on the number of outstanding common shares as at that date on a non-diluted
basis (representing an aggregate of approximately 8.04% of the outstanding common shares).
During the year ended December 31, 2018, in accordance with the Company’s DSU Plan, on October 17, 2018 the Company granted each of the
members of the Board of Directors (other than those directors nominated for election by Paulson & Co., Inc.) 101,220 DSUs with a grant date fair
value (defined as the weighted average of the prices at which the common shares traded on the exchange with the most volume for the five trading
days immediately preceding the grant) of C$0.82 per grant, or an aggregate of C$581,003.
During the year ended December 31, 2017, in accordance with the Company’s DSU Plan, on October 23, 2017 the Company granted each of the
members of the Board of Directors (other than those directors nominated for election by Paulson & Co., Inc.) 129,687 DSUs with a grant date fair
value (defined as the weighted average of the prices at which the common shares traded on the exchange with the most volume for the five trading
days immediately preceding the grant) of C$0.62 per grant, or an aggregate of C$482,436.
The DSUs entitle the holders to receive common shares of the Company’s stock without the payment of any consideration. The DSUs vested
immediately upon being granted but the common shares of stock underlying the DSUs are not deliverable to the grantee until the grantee is no longer
serving on the Company’s Board of Directors.
DSUs outstanding are as follows:
Balance, beginning of the year
Issued
Delivered
Balance, end of the year
Obligation to issue shares
Year Ended
December 31, 2018
Year Ended
December 31, 2017
Number of
Units
Weighted
Average Exercise
Price (C$)
Number of
Units
Weighted
Average Exercise
Price (C$)
648,435 $
708,540 $
-
1,356,975 $
0.62
0.82
-
0.72
- $
778,122 $
(129,687) $
648,435 $
-
0.62
0.62
0.62
Following the resignation of director Mark Hamilton on November 6, 2017, the Company recorded an obligation to issue 129,687 DSUs valued at
$63,593 (C$80,406). On March 27, 2018, the Company issued the 129,687 common shares in full satisfaction of the obligation.
57
Share-based payments
During the year ended December 31, 2018, the Company granted 420,085 stock options and 708,540 DSUs for common shares of the Company.
Share-based compensation for the year ended December 31, 2018 totaled $603,818 ($189,396 related to options and $414,422 related to DSUs). Of
the total expense for the year ended December 31, 2018, $414,422 is included in consulting fees, $183,429 in wages and benefits and $5,967 in
investor relations in the statement of operations and comprehensive loss.
During the year ended December 31, 2017, the Company granted 250,000 stock options and 778,122 DSUs for common shares of the Company.
Share-based compensation for the year ended December 31, 2017 totaled $443,556 ($61,998 related to options and $381,558 related to DSUs). Of the
total expense for the year ended December 31, 2017, $384,516 is included in consulting fees, $58,192 in wages and benefits and $848 in investor
relations in the statement of operations and comprehensive loss.
The following weighted average assumptions were used for the Black-Scholes option pricing model calculations:
Expected life of options
Risk-free interest rate
Expected volatility
Dividend rate
Exercise price (C$)
Year ended
December 31,
2018
Year ended
December 31,
2017
6 years
2.12%
93.67%
0.00%
0.61
$
6 years
1.75%
93.02%
0.00%
1.35
$
The expected volatility used in the Black-Scholes option pricing model is based on the historical volatility of the Company’s shares.
9.
SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in a single reportable operating segment, being the exploration and development of mineral properties. The following tables
present selected financial information by geographic location:
December 31, 2018
Capitalized acquisition costs
Property and equipment
Current assets
Total assets
December 31, 2017
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
$
$
$
$
-
8,191
9,928,115
9,936,306
-
8,501
1,794,494
1,802,995
$
$
$
$
55,273,432 $
9,559
504,817
55,787,808 $
55,273,432
17,750
10,432,932
65,724,114
55,204,041 $
12,293
627,702
55,844,036 $
55,204,041
20,794
2,422,196
57,647,031
Year ended
December 31,
2018
Year ended
December 31,
2017
$
$
(682,348) $
(3,509,690)
(4,192,038) $
(1,801,817)
(4,630,240)
(6,432,057)
58
10.
COMMITMENTS
The following table discloses, as of December 31, 2018, the Company’s contractual obligations including anticipated mineral property payments and
work commitments. Under the terms of the Company’s mineral property purchase agreements, mineral leases and the terms of the unpatented mineral
claims held by it, the Company is required to make certain scheduled acquisition payments, incur certain levels of expenditures, make lease or
advance royalty payments, make payments to government authorities and incur assessment work expenditures as summarized in the table below in
order to maintain and preserve the Company’s interests in the related mineral properties. If the Company is unable or unwilling to make any such
payments or incur any such expenditures, it is likely that the Company would lose or forfeit its rights to acquire or hold the related mineral properties.
The following table assumes that the Company retains the rights to all of its current mineral properties, but does not exercise any lease purchase or
royalty buyout options:
Mineral Property Leases(1)
Mining Claim Government Fees
Total
Payments Due by Year
2019
$ 425,389
114,825
$ 540,214
2020
$ 430,420
114,825
$ 545,245
2021
$ 435,526
114,825
$ 550,351
2022
$ 440,709
114,825
$ 555,534
2023
$ 445,970
114,825
$ 560,795
2024 and
beyond
$ 451,310
114,825
$ 566,135
Total
$2,629,324
688,950
$3,318,274
1. Does not include required work expenditures, as it is assumed that the required expenditure level is significantly below the work for which
will actually be carried out by the Company. Does not include potential royalties that may be payable (other than annual minimum royalty
payments). See Note 4.
11.
RELATED PARTY TRANSACTIONS
In December 2011, in accordance with a Stock and Asset Purchase Agreement (the “Agreement”) between the Company, Alaska/Nevada Gold
Mines, Ltd. (“AN Gold Mines”) and the Heflinger Group, the Company acquired certain mining claims and related rights in the vicinity of the
Livengood Gold Project located near Fairbanks, Alaska. The Company’s derivative liability, as described in Note 6 above, represented the remaining
consideration for the purchase of these claims and related rights and was paid in January 2017. Under the Agreement, the payment was made 70% to
AN Gold Mines and 30% to the Heflinger Group.
Mr. Hanneman was appointed Chief Operating Officer of the Company on March 26, 2015 and subsequently appointed Chief Executive Officer of
the Company effective January 31, 2017. Mr. Hanneman was a partner of the general partner, as well as a limited partner, of AN Gold Mines and
held an 11.9% net interest in AN Gold Mines.
On May 24, 2017, the shareholders approved the proposed issuance of common shares to Thomas Irwin as a one-time payment associated with his
transition from CEO to senior advisor. Subsequent to the shareholder approval, the Company recognized an obligation to issue 206,024 shares with a
value of $99,492 based on the USD-CAD exchange rate (USD 1.00 = CAD 1.3460) and the closing price of the common shares on the TSX (CAD
0.650), both as at May 24, 2017. On July 13, 2017, a certificate for 206,024 common shares was issued to Mr. Irwin.
In March 2018, the Company closed a non-brokered private placement financing through the issuance of 4,105,472 shares to Paulson & Co., Inc.
(“Paulson”) and 19,894,528 shares to Electrum Strategic Opportunities Fund II, L.P. (“Electrum”) at a price of $0.50 per share. As at December 31,
2018, Paulson, Tocqueville Asset Management, and Electrum beneficially own approximately 31.9%, 16.1%, and 14.2% respectively of the
Company's 186,990,683 common shares.
59
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of December 31, 2018, an evaluation was carried out under the supervision of and with the participation of the Company’s management, including the
Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act). Based on the evaluation, the Chief Executive Officer and the Chief Financial Officer have
concluded that, as of December 31, 2018, the Company’s disclosure controls and procedures were effective in ensuring that information required to be
disclosed in reports filed or submitted to the SEC under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods
specified in applicable rules and forms and (ii) accumulated and communicated to management, including the Chief Executive Officer and Chief Financial
Officer, in a manner that allows for timely decisions regarding required disclosures.
The effectiveness of our or any system of disclosure controls and procedures, however well designed and operated, can provide only reasonable assurance that
the objectives of the system will be met and is subject to certain limitations, including the exercise of judgment in designing, implementing and evaluating
controls and procedures and the assumptions used in identifying the likelihood of future events.
Management’s Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f).
Management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of internal control over financial
reporting as of December 31, 2018. In conducting this evaluation, management used the framework established by the Committee of Sponsoring
Organizations of the Treadway Commission as set forth in Internal Control – Integrated Framework (2013). Based on this evaluation under the framework in
Internal Control – Integrated Framework (2013), management concluded that internal control over financial reporting was effective as of December 31, 2018.
Because of its inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements. A control system, no matter
how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a
control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have
been detected. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no
assurance that any design will achieve its stated objectives under all future conditions.
This Annual Report on Form 10-K does not include an attestation report of the Company’s independent public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by the Company’s independent public accounting firm pursuant to rules of the
Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
There were no changes in internal controls over financial reporting during the fourth quarter ended December 31, 2018 that have materially, or are reasonably
likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
60
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
2019 Annual Meeting of Shareholders to be filed with the SEC within 120 days after December 31, 2018 (the “2019 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. We intend to post on our website any
amendments to, or waivers from our Code of Business Conduct and Ethics applicable to senior financial executives.
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 2019 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 2019 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 2019 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 2019 Proxy Statement, and is incorporated by reference in this Annual
Report on Form 10-K.
61
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
Exhibit Number
Description
3.1
4.1
4.2
4.3
10.1
10.2
10.3
10.4
10.5**
10.6
10.7
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)
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)
62
10.8
10.9**
10.10*
10.11*
10.12*
10.13*
10.14*
10.15*
10.16+
10.17
10.18
21.1
23.1+
24+
31.1+
31.2+
32.1+
32.2+
101
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)
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)
2017 Deferred Share Unit Incentive Plan (filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q on August 11,
2017 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)
Amended and Restated Employment Agreement, dated March 12, 2018, between Karl Hanneman and Tower Hill Mines (US) LLC
Amended and Restated Mining Lease, dated November 22, 2017, between Kasey Leigh Tucker and Tower Hill Mines, Inc. to amend
and restate Mining Lease effective as of March 28, 2017, between Ronald Tucker and Talon Gold Alaska, Inc.
Subscription Agreement, dated March 13, 2018, between the Company and Electrum Strategic Opportunities Fund II, L.P. (filed as
Exhibit 10.1 to the Company’s Form 8-K filed on March 16, 2018 and incorporated herein by reference)
Subscription Agreement, dated March 13, 2018, between the Company and Paulson & Co. Inc. (filed as Exhibit 10.2 to the
Company’s Form 8-K filed on March 16, 2018 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 Davidson & Company LLC
Power of Attorney (see signature page)
Certification of Principal 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 Principal 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, 2018 and 2017,
(ii) the Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2018 and 2017, (iii) the
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2018 and 2017, (iv) the
Consolidated Statements of Cash Flows for the Years Ended December 31, 2018 and 2017, 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.
Filed or furnished herewith
63
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.
64
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, 2019
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
By:
/s/ Stuart A. Harshaw
Karl L. Hanneman
Chief Executive Officer and Director
(Principal Executive Officer)
Date: March 15, 2019
By:
/s/ David Cross
David Cross
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: March 15, 2019
By:
/s/ Damola Adamolekun
Damola Adamolekun
Director
Date: March 15, 2019
By:
/s/ Anton J. Drescher
Anton J. Drescher
Director
Date: March 15, 2019
By:
/s/ John J. Ellis
John J. Ellis
Director
Date: March 15, 2019
Stuart A. Harshaw
Director
Date: March 15, 2019
By:
/s/ Thomas E. Irwin
Thomas E. Irwin
Director
Date: March 15, 2019
By:
/s/ Marcelo Kim
Marcelo Kim
Director
Date: March 15, 2019
By:
/s/ Stephen A. Lang
Stephen A. Lang
Director
Date: March 15, 2019
By:
/s/ Thomas S. Weng
Thomas S. Weng
Director
Date: March 15, 2019
65
AMENDED AND RESTATED MINING LEASE
Exhibit 10.16
THIS AMENDED AND RESTATED MINING LEASE ("Agreement"), entered into on November 22, 2017, but effective as of March 28, 2007 (the
"Effective Date"), by and between
(1)
(2)
Kasey Leigh Tucker (successor to Ronald Tucker as more fully described in the Recitals below and thus referred to herein as
"Lessor") and
Tower Hill Mines, Inc., an Alaska corporation formerly known as Talon Gold Alaska, Inc. and thus referred to herein as
"Lessee"),
amends and restates that certain Mining Lease effective as of March 28, 2007, between Ronald Tucker and Talon Gold Alaska, Inc. ("Original Lease")
affecting the property described in Exhibit A attached hereto ("Property"), as the same has been amended of the date first set forth above.
Recitals
WHEREAS, Kasey Leigh Tucker is the successor to the interest of Ronald Tucker under the Original Lease by virtue of that certain Co-Personal
Representatives' Deed dated March 10, 2009, and recorded in the Fairbanks Recording District on March 10, 2009, as Document No. 2009-003983-0;
WHEREAS, Talon Gold Alaska, Inc. changed its name to Tower Hill Mines, Inc., effective as of August 11, 2011;
WHEREAS, Lessor and Lessee desire (a) to amend the Original Lease in several respects, (b) to incorporate said amendments into this Amended and
Restated Mining Lease, and (c) to cause a new memorandum lease to be recorded to impart constructive notice of this Amended and Restated Mining Lease,
NOW, THEREFORE, in consideration of the mutual promises set forth herein, the parties hereby agree as follows:
WITNESSETH:
In consideration of the mutual promises and covenants set forth herein, Ten Dollars ($10.00) in hand paid by Lessee to Lessor, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, Lessee and Lessor (sometimes individually each referred to hereinafter as a
"Party" or collectively as the "Parties") agree as follows:
I. GRANT OF LEASE
1.1 Grant of Lease. Lessor hereby grants and conveys unto Lessee, its successors and assigns forever, subject to Section 5.1, below, an
exclusive lease of the Property on the terms and conditions set forth in this Agreement. As used in this Agreement, the term "Property" means Lessor's
entire undivided interest in those lands described in Exhibit A, attached hereto and made a part hereof, together with all minerals, mineral substances, mineral
rights, water rights, and all surface, access, and other rights, including substitute or successor rights, associated with or appurtenant to such Property.
AMENDED AND RESTATED MINING LEASE (Tucker)-Page 1
1.2 Term. The initial term of this Agreement shall be ten years (10) from the Effective Date (i.e., until March 28, 2017), unless sooner
terminated according to the provisions of this Agreement. This Agreement shall remain in effect after the initial term for so long thereafter as "Mining
Related Activities" (as defined below) continue to be conducted on or for the benefit of the Property or other contiguous or adjacent properties owned or
controlled by Lessee. It shall not be required that Mining Related Activities be continuous in order for this Agreement to be extended beyond the initial term
hereof, provided that Mining Related Activities are conducted at some time during each year of the extended term.
For purposes of this Agreement, "Mining Related Activities" means any or all of the following:
•
•
•
•
•
exploring for minerals in, under, or for the benefit of the Property or contiguous or adjacent properties owned or controlled by Lessee;
determining the quantity and quality of minerals in, under, or for the benefit of the Property or contiguous or adjacent properties owned or
controlled by Lessee;
determining the feasibility of permitting, developing, operating, and reclaiming a mine and associated facilities within or for the benefit of
the Property or contiguous or adjacent properties owned or controlled by Lessee, or undertaking related work that furthers or advances
development of a mine and associated facilities within the Property or contiguous or adjacent properties owned or controlled by Lessee;
conducting studies, including but not limited to environmental, geotechnical, and engineering studies, for the benefit of the Property or
contiguous or adjacent properties owned or controlled by Lessee, or that furthers or advances development of a mine and associated
facilities within the Property or contiguous or adjacent properties owned or controlled by Lessee;
undertaking stakeholder engagement, engaging legal support, and engaging in strategic planning associated with proposing, permitting, and
developing a mine and associated facilities within or for the benefit of the Property or contiguous or adjacent properties owned or controlled
by Lessee, or that furthers or advances development of a mine and associated facilities within the Property or contiguous or adjacent
properties owned or controlled by Lessee.
1.3 Grant of Rights. During the term of this Agreement, Lessor grants to Lessee the following exclusive rights:
AMENDED AND RESTATED MINING LEASE (Tucker)-Page 2
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
the right of entry;
the right, by whatever method is now known or subsequently developed, to survey, explore, prospect, sample, drill, develop, mine
(including without limitation by surface, open pit, underground, solution, or any other method whatsoever), cross-mine, stockpile,
remove, transport, leach, concentrate, mill, smelt, beneficiate, process, treat, ship, market, and sell all minerals, whether extracted
or removed from the Property or other properties;
the right to construct, use, maintain, repair, replace, and relocate buildings, roads, pipelines, ore bins, shafts, declines, inclines,
tunnels, drifts, adits, open pits, openings, haulage ways, mine workings, leach pads, mineral treatment facilities, tailings ponds, waste
dumps, ore stockpiles, reservoirs, power and communication lines, and any other structures, facilities, or improvements of any kind or
description whatsoever;
the right to use the Property for the storage or permanent disposal of minerals, overburden, waste, tailings, water, or other by-
products of materials produced from the Property or from other properties;
the right to use all easements, rights-of-way, and means of access owned or controlled by Lessor for ingress and egress to,
from, across, and through the Property;
the right to take, develop, or use water, whether surface, underground, or artesian, by any lawful taking or development, without
restriction as to the place or places of Lessee's use of the waters;
the right to extract, process, test, remove, and dispose of any minerals and mineral substances for testing purposes (including, without
limitation, for bulk samples) without payment of any Production Royalty or other additional consideration whatsoever to Lessor,
provided that Lessee shall pay Production Royalty on any such minerals removed from the Property for testing purposes for which it
receives actual sales revenues;
the right to use the Property for all of the purposes stated in this Section 1.3 in connection with or in furtherance of Lessee's
activities on other properties; and
the right to exercise all other rights that are incidental to or customarily associated with any or all of the rights granted expressly or
implicitly to Lessee in this Agreement.
1.4
[Deleted) [reserved right to conduct Simultaneous placer Operations has expired].
AMENDED AND RESTATED MINING LEASE (Tucker)-Page 3
2.1 Advance Minimum Royalties. "Advance Royalties" as used herein means the amount required to be paid by Lessee to Lessor, as set
forth below, to provide for a specific minimum payment in such periods. During the term of this Agreement, Lessee shall pay to Lessor the following
Advance Royalties:
II. PAYMENTS TO LESSOR
(a)
(b)
(c)
(d)
Upon the execution of this Agreement: $3,000 [the parties acknowledge and agree that this amount was timely paid in 2007];
Upon the second Anniversary of the Effective Date: $5,000 [the parties acknowledge and agree that this amount was
timely paid in 2008]; and
Upon the third Anniversary of the Effective Date: $10,000 [the parties acknowledge and agree that this amount was
timely paid in 2009]; and
Upon the fourth and each succeeding Anniversary of the Effective Date: $15,000 [the parties acknowledge and agree that (i) amounts
due in 2010-2017 were timely paid and (ii) the next amount due hereunder will be due on March 28, 2018].
Advance Royalties shall be paid on or before the date due. Lessee shall not be responsible or liable for Advance Royalties that become due subsequent to
termination or expiration of this Agreement. Advance Royalties paid hereunder shall be credited against and fully recoupable from any and all Production
Royalty that may accrue under Section 2.2, regardless of whether such Production Royalty accrues or is made in the same or any subsequent year to the year
of payment of the Advance Royalties.
2.2 Production Royalty. Lessor will retain a royalty (the "Production Royalty") on any minerals mined and sold from the Property, equal
to two percent (2%) of "Net Smelter Returns" (as defined in Exhibit B). The Production Royalty will be calculated and paid in accordance with the
provisions of Exhibit B.
2.3 Positive Production Decision Payment. Upon Lessee making a Positive Production Decision, as hereinafter defined, Lessee shall pay
Lessor Two Hundred and Fifty Thousand Dollars ($250,000) payable in two equal installments. The first installment shall be paid within the 120 days
following a Positive Production Decision and the second installment shall be on or before the first anniversary date of the first installment payment. The
Positive Production Decision payment shall be a credit against and fully recoupable from any Production Royalty payments due Lessor. For the purposes
stated herein, the term "Positive Production Decision" shall mean a decision made by Lessee's Board of Directors to commence commercial production
from the Property on the basis that a project feasibility study was completed and gave a positive recommendation to commence production on the date of the
decision.
AMENDED AND RESTATED MINING LEASE (Tucker)-Page 4
2.4 Option to Purchase Property (including Production Royalty). At any time during the term of this Agreement, Lessee shall have the
exclusive option to purchase one hundred percent (100%) of Lessor's right, title and interest in and to the Property (including the Production Royalty), free
and clear of all liens, charges, or encumbrances arising by, through, or under Lessor, for the price of one Million Dollars ($1,000,000).
III. OPERATIONS
3.1 No Implied Covenants. Lessee does not make, and the Advance Royalties and other obligations of Lessee under this Agreement
exclude and negate, any express or implied covenant or duty of Lessee to conduct any activity upon or for the benefit of the Property, including without
limitation any activities related to the exploration, development, or mining of the Property. Whether or not any such exploration, development, mining, or
other activities shall at any time (including, without limitation, during the initial term or any extended term of this Agreement) be conducted and the location,
manner, method, extent, rate, and timing of such activities (if any) shall be determined within the sole and absolute discretion of Lessee.
3.2 Compliance with Law: Reclamation. In connection with its activities upon the Property, Lessee shall endeavor in good faith to comply
with applicable provisions of Federal, State and local laws and regulations. Upon expiration or termination of this Agreement, Lessee shall reclaim all
portions of the Property disturbed by its operations (i.e., to the extent and only to the extent of Lessee's disturbance) in accordance with all applicable
governmental laws, regulations and orders. Lessee shall have the right, without payment of any additional consideration to Lessor, to enter upon the Property
subsequent to termination of this Agreement for purposes of performing such reclamation work.
3.3 Permits and Approvals. Lessor understands that Lessee may make efforts to obtain permits, licenses, rights, approvals or authorizations
from governmental or private persons or entities in connection with the exercise by Lessee of its rights under this Agreement. Upon request by Lessee,
Lessor shall assist and cooperate fully with Lessee in any such endeavor, including, without limitation, the execution of pertinent documents and the making
of verbal endorsements for Lessee's related activities.
3.4 Liens. Lessee shall keep the title to the Property free and clear of all mechanic's and supplier's liens resulting from its operations under
this Agreement. Lessee may refuse, however, to pay any claims asserted against it which Lessee disputes in good faith. Lessee may contest any suit
commenced to enforce such a claim, but under no circumstances shall Lessee allow the Property or any portion thereof to be sold as a result of foreclosure of
such a lien.
3.5 Indemnity. Each Party covenants and agrees to indemnify the other from and against any and all liability, claims, damages (including
attorneys' fees) and causes of action for injury to or death of persons, and damage to or loss or destruction of property and environmental liabilities resulting
from the indemnifying Party's use or occupancy of the Property or its operations hereunder.
AMENDED AND RESTATED MINING LEASE (Tucker)-Page 5
3.6 Commingling. Lessee shall have the right to commingle minerals produced from the Property ("Subject Ore") with minerals produced
from other lands ("Other Ore") for any purposes whatsoever, including, without limitation, processing or conversion to another product. In the event that
Lessee commingles Subject Ore with Other Ore pursuant to this Section 3.6, Lessee shall perform sufficient sampling, weighing, and assaying, in
accordance with standards and practices generally accepted or employed within the industry, to determine the grades and quantities of minerals removed and
sold from the Property. Without limiting the foregoing, in the event that Lessee commingles Subject Ore with Other Ore then, for purposes of determining
Production Royalty payable to Lessor, the percentages of valuable minerals ultimately recovered from the commingled ore (i.e., from the commingled
Subject Ore and Other Ore as a whole) shall conclusively be deemed applicable to the Subject Ore included therein. Lessor has the right, at its own
expense, to take independent samples of commingled ores, upon reasonable advance notice to Lessee and in a manner that will not interrupt Lessee's
operations.
3.7 Taxes.
(a)
(b)
Taxes. Lessor shall promptly pay when due all ad valorem and real property taxes and assessments levied upon, assessed against, or
relating to the Property; provided, however, that Lessee shall reimburse Lessor for any increases in or advance payments of such real
property taxes or assessments that are attributable to any enhancement in the value of the Property resulting from Lessee's activities
under this Agreement, including, without limitation, deferred agricultural property taxes. Each of Lessee and Lessor shall be responsible
for all taxes and assessments levied or assessed upon or against their respective personal property located on or about the Property. Each
of Lessee and Lessor shall be responsible for payment of income taxes on their own respective incomes. If Lessor fails to timely pay
such taxes, Lessee shall have the right, but not the duty, to pay such taxes on Lessor's behalf and deduct such amounts from any amounts
due Lessor hereunder; and
Cooperation. Lessor shall promptly furnish to Lessee all bills, demands, notices, assessments, or statements received by Lessor which
relate to any tax, assessment, or fee for which Lessee is responsible, in whole or in part, pursuant to this Section 3.7. Each Party shall
provide the other Party with copies of all checks and other documentation evidencing the timely payment of all taxes, assessments and
fees for which it is responsible pursuant to this Section 3.7.
3.8 Claim Holding Costs. So long as this Agreement has not been terminated, Lessee will pay all claim holding costs and comply with any
assessment requirements, as necessary to maintain the Property in good standing.
AMENDED AND RESTATED MINING LEASE (Tucker)-Page 6
IV. TITLE
4.1 Provision of lnformation. Upon request by Lessee, Lessor shall furnish to Lessee copies of all information in its possession or under its
control relating to title to or the description of the Property, including without limitation copies of all abstracts, certificates of title, title insurance policies,
commitments for title insurance, title reports, memorandum or opinions of counsel, prior deeds, contracts, maps, surveys, and documents filed with any local,
state or federal governmental agency. Lessee shall promptly reimburse Lessor for the costs of such copies. Upon execution of this Agreement, Lessor shall
provide to Lessee any and all information in their possession or under their control regarding any existing or past industrial, milling, manufacturing, waste
storage, exploration, development, mining, processing, or beneficiating use of the Property. Pursuant to this Section 4.1, Lessor shall only be obligated to
provide to Lessee information that is in their possession or under their control and Lessor shall not be obligated to obtain or provide any other information or
documents.
4.2 Representations. Lessor represents to Lessee that, to the best of Lessor's knowledge, information and belief, after having made due
enquiry, as of the Effective Date and as of the date of execution of this Agreement:
(a)
(b)
(c)
(d)
(e)
(f)
Lessor is the sole legal and equitable owner of a one hundred percent (100%) undivided ownership right, title, and interest in and to
the Property, without limitation or restriction whatsoever;
the Property is free and clear of all leases, liens, charges, encumbrances, adverse claims, burdens on production, and royalty interests;
any and all taxes and assessments that have been levied or assessed against or upon the Property that are due and owing have been
paid;
Lessor has the full right, power, and authority to enter into, execute, and deliver this Agreement and to perform all of Lessor's
obligations hereunder, and such execution and performance shall not violate any contract or other obligation of Lessor;
Lessee shall have the quiet and peaceful possession and enjoyment of the Property, and, upon request by Lessee, Lessor shall defend
title to the Property, and Lessee's quiet and peaceful possession and enjoyment thereof, against any and all persons or entities who may
claim any right, title or interest in or to the Property or any portion thereof;
there is and has been no violation of any applicable federal, state, or local law or regulation, including, without limitation, those
concerning zoning, land use, or environmental protection, with respect to the Property or activities relating thereto;
AMENDED AND RESTATED MINING LEASE (Tucker)-Page 7
(g)
(h)
no actions, claims, or proceedings have been brought, asserted, or threatened concerning the ownership or right to possession of the
Property or any portion thereof or otherwise concerning the Property or activities relating thereto: and
all unpatented mining claims included in the Property have been properly staked and maintained and validly exist in accordance with
applicable law.
4.3 Indemnity. If any of Lessor's representations set forth in Section 4.2 is less than as represented, Lessor shall indemnify and hold Lessee
harmless from and against any and all damage, liability, obligation, claim, demand, judgment, action, cost, loss, and expense, including, without limitation,
reasonable attorneys' fees, arising directly or indirectly as a result of said misrepresentation.
4.4 Title Curative Measures.
(a)
(b)
(c)
(d)
Title Defects. If title to any part of the Property is defective or less than as represented in Section 4.2, Lessee shall have the right, but
not the obligation, to undertake to cure any such defects or to defend or to initiate litigation to perfect, defend or cure title to the
Property;
Crediting of Costs. Lessee shall have the right to credit against any and all payments to Lessor under this Agreement ("Payments"),
including without limitation Advance Royalties, Production Royalty payments and Positive Production Decision payments, any and
all costs and expenses incurred by Lessee in connection with any action to cure, defend, or perfect title pursuant to Section 4.4(a). Such
costs and expenses may include, without limitation, those relating to title research, court costs, surveying, and attorneys' fees;
Redemption. Lessee, at its option, shall have the right to pay off, discharge, or redeem, in whole or in part, any or all mortgages, liens,
encumbrances, or unpaid taxes on, against, or affecting the Property. If Lessee pays any such mortgage, lien, encumbrance, or unpaid
taxes, Lessee shall be subrogated to the rights of the holder thereof and shall have the right to retain and repay itself from any or all
Payments; and
Liability. Lessee at any time may withdraw from or discontinue any action or activity undertaken or initiated by it to cure, defend or
perfect title to the Property pursuant to Section 4.4(a). Lessee shall not be liable to Lessor in any way if Lessee is unsuccessful in,
withdraws from, or discontinues any such action or activity.
4.5 Additional and After-Acquired Title. If Lessor now owns, or subsequently acquires, any further right, title, or interest in or to the
Property, Lessor shall promptly provide Lessee with written notice thereof and such right, title, and interest shall, without payment of additional
consideration, be part of the Property and subject to all of the terms and conditions of this Agreement.
AMENDED AND RESTATED MINING LEASE (Tucker)-Page 8
4.6 Lesser Title. If Lessor owns less than the entire and undivided estate in those lands described as the Property (including, without
limitation, the minerals therein, thereon, and thereunder), as warranted in Section 4.2(a), then Lessee shall have the right to reduce all Payments to Lessor so
that such Payments are made to Lessor only in the proportion that Lessor's actual interests in the Property bears to the entire undivided interest. Lessee shall
be entitled to offset all overpayments or monies erroneously paid to Lessor against any and all subsequent Payments.
4.7 Third Party Claims. If any person or entity (other than Lessor) makes a bona fide claim or asserts or appears to hold any right, title, or
interest whatsoever in or to the Property (including, without limitation, the minerals therein, thereon, or thereunder), production therefrom, or this
Agreement, then the following shall apply:
(a)
(b)
(c)
Lessee may deposit in a special escrow account any Payments otherwise due Lessor;
the sum deposited shall remain in the special escrow account until the claim or controversy is resolved or until there has been a final
determination by a court or administrative body of competent jurisdiction and all appeals have been exhausted or periods for appeal have
expired; and
Lessee shall have the right to deduct from any Payments any amounts that Lessee is required to pay to such third parties or that Lessee
reasonably elects to pay to such third parties in satisfaction of their claims.
V. LESSOR'S USE, INSPECTIONS, RECORDS AND CONFIDENTIALITY
5.1 Lessor's Use and Inspections.
(a)
During the term of this Agreement Lessor shall have, in accordance with applicable laws, the right of entry and use of the Property for
purposes that do not interfere with the current and anticipated activities of Lessee. Lessor acknowledges and agrees that Lessee's use of
the Property shall prevail in the event of any conflict between the use or proposed use of the Property by Lessee and Lessor. Lessor
agrees to assume all liability for, and to indemnify, protect, and hold harmless Lessee from and against any and all damage, loss, liability,
obligation, claim, demand, cost, or expense (including attorneys' fees) which it incurs or to which it becomes subject as a result of or
arising out of any such entry use or the presence or actions of Lessor (or its agents or invitees) upon the Property, including, without
limitation, those relating to death, personal injury, or property damage; and
AMENDED AND RESTATED MINING LEASE (Tucker)-Page 9
(b)
Subject to compliance with applicable federal, state, and local health and safety laws and regulations, and requirements of Lessee's health
and safety program, Lessor shall have the right, upon not less than forty-eight (48) hours prior written notice to Lessee, at a mutually
convenient time and during normal business hours, and at the sole risk of Lessor, to inspect the facilities, operations, and mine workings
of Lessee upon the Property. Lessee shall have the right to accompany Lessor upon any such inspection. Lessor agrees to assume all
liability for, and to indemnify, protect, and hold harmless Lessee from and against any and all damage, loss, liability, obligation, claim,
demand, cost, or expense (including attorneys' fees) which it incurs or to which it becomes subject as a result of or arising out of any such
inspection or the presence or actions of Lessor (or its agents or invitees) upon the Property, including, without limitation, those relating
to death, personal injury, or property damage.
5.2 Books and Records. Lessee shall keep accurate records of all minerals extracted and sold from the Property by Lessee, and of all
calculations relative to Production Royalty payments hereunder for not less than two (2) calendar years. Such records may be inspected by Lessor or duly
authorized representatives of Lessor once each calendar year at a mutually convenient time, during normal business hours, upon providing to Lessee not less
than twenty- one (21) days prior written notice. Under no circumstances shall Lessee be obligated to provide access to Lessor to any confidential, interpretive
or proprietary data, information, or techniques. The indemnification and hold harmless provisions set forth in the last sentence of Section 5.4 shall also apply
to any and all inspections of records pursuant to this Section 5.2.
5.3 Confidentiality. Lessor agrees that, during the term, and for a period of one (1) year thereafter, Lessor shall treat all information related
to or acquired under this Agreement, including, without limitation, any interpretive, proprietary, or financial information, as confidential and shall not give,
disclose, or make available any such information to any third party or to the public without the prior written consent of Lessee, except if such disclosure is
required by law or legal process, in which case Lessor shall notify Lessee so that it may pursue a protective order. Lessor shall not make, disclose, or issue
any press release, statement, or other disclosure, of any type whatsoever, pertaining to the Property, this Agreement, or Lessee's operations hereunder,
without the express prior written consent of Lessee as to both the form and content thereof.
5.4 Provision of Information. Upon written request by Lessor made within ninety (90) days after termination, expiration, or surrender of this
Agreement, Lessee shall provide to Lessor copies of all information and data in its possession or under its control generated by and pertaining directly to
Lessee's operations upon the Property pursuant to this Agreement; provided however, that Lessee shall be under no obligation whatsoever to provide Lessor
with any proprietary, interpretive, or financial information whatsoever. Lessee makes no representations or warranties whatsoever as to the truth, accuracy, or
completeness of any information that may be provided to Lessor pursuant to this Agreement, provided such information is given in good faith. Lessor shall
rely upon such information at its sole risk and shall indemnify, protect, and hold harmless Lessee from and against any and all damage, loss, liability,
obligation, claim, demand, cost, or expense (including attorneys' fees) which it incurs or to which it becomes subject as a result of or arising out of any
reliance upon such information by Lessor or by any person or entity obtaining such information directly or indirectly by or through Lessor.
AMENDED AND RESTATED MINING LEASE (Tucker)-Page 10
VI. TERMINATION
6.1 By Lessor. At the election of Lessor, the failure of Lessee to perform any material obligation according to the terms or provisions of this
Agreement, which failure substantially affects the rights of Lessor under this Agreement, shall constitute an event of default. Upon the occurrence of an
event of default, Lessor shall give to Lessee written notice of default, specifying in reasonable detail the particular default or defaults relied on by Lessor.
Lessee shall have thirty (30) days after receipt of Lessor's notice in which to contest, cure, or commence to cure (and diligently thereafter proceed to cure) the
alleged default or defaults. If Lessee contests that an event of default occurred, it shall so advise Lessor in writing within thirty (30) days after receipt of
Lessor's notice. If, within fifteen (15) days after Lessor's receipt of Lessee's notice the Parties have not resolved the dispute by mutual agreement, the issue
of default may be submitted to a court of competent jurisdiction, and Lessee shall not be deemed to be in default until the matter shall have been determined
finally by the court and all appeals have been waived or exhausted and all periods for appeal have expired. If the judicial process results in a final finding of
default, Lessee shall have thirty (30) days thereafter in which to cure or commence to cure (and diligently thereafter proceed to cure) the default. Upon
Lessee's failure to cure or commence to cure the default within the time periods allowed above, Lessor may declare, by written notice to Lessee, a termination
of this Agreement. Lessor's sole remedy shall be the recovery of actual compensatory damages.
6.2 By Lessee. Lessee shall have the right, at any time and from time to time, to surrender and terminate this Agreement, as to all or any part
of the Property, by providing to Lessor written notice of such surrender. The termination of this Agreement with respect to the portion of the Property
specified in such notice shall take effect upon the date specified in the notice. Upon such termination, Lessee's right, title, interest, and obligations with
respect to the Property surrendered shall terminate, except as provided in this Agreement to the contrary. All Payments which have accrued as of the date of
termination shall be payable to Lessor by Lessee. If Lessee surrenders some, but not all, of the Property, this Agreement shall remain in full force and effect
with respect to that portion of the Property that is not surrendered. Any portion of the Property with respect to which this Agreement is terminated will be in
good standing for at least one year following the date of such termination.
6.3 Removal of Property. Lessee shall have the right, but not the obligation, for a period of one (1) year after expiration, surrender, or
termination of this Agreement, to enter upon and remove from the Property any or all machinery, equipment, fixtures, buildings, improvements,
concentrates, ore, tailings, residue, and personal property of every kind and description erected or placed upon or extracted from the Property by Lessee. Any
such property not removed by Lessee from the Property within the period allowed for removal shall become the exclusive property of Lessor and Lessee
shall have no further right, title, obligation, or interest therein.
AMENDED AND RESTATED MINING LEASE (Tucker)-Page 11
7.1 Force Majeure. The time for the exercise of rights or the performance of obligations hereunder, including, without limitation, the removal of
property pursuant to Section 6.3, and the term of the Agreement included herein, shall be extended for a period equal to the period or periods of Force
Majeure. The term "Force Majeure" refers to any cause of any kind or nature whatsoever beyond Lessee's reasonable control that prevents, inhibits, or
delays Lessee's performance hereunder, including without limitation the following:
VII. FORCE MAJEURE
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
law, ordinance, governmental regulations, restraint, or court orders;
action or inaction of civil or military authorities;
inability to obtain or delay in obtaining any license, permit, or other authorization that may be necessary to any of Lessee's activities
hereunder;
unusually severe weather;
mining casualty, unavoidable mill shutdown, damage to or destruction of mine, plant, or facility;
fire, explosion, flood, storm, earthquake, or other acts of God;
insurrection, war, riot, labor disputes;
inability to obtain workers, fuel, or materials upon reasonable commercial terms; or
delay in transportation.
VIII. ASSIGNMENT
8.1 Assignment. Upon providing written notice to the other Party in accordance with Section 9.2, either Party may assign its respective rights
and obligations under this Agreement. No such assignment shall in any way enlarge or diminish the rights or obligations of Lessee or Lessor hereunder and
the assigning Party shall remain liable for performance of this Agreement in the event that the assignee defaults in its performance hereunder following a
written demand and reasonable time to cure such default. A fully-executed memorandum of assignment in recordable form shall be provided to the non-
assigning Party by the assigning Party.
AMENDED AND RESTATED MINING LEASE (Tucker)-Page 12
IX. PAYMENTS AND NOTICES
9.1 Payments. All Payments provided for in this Agreement may be made by mailing or delivering company checks of Lessee to Lessor at
the address set forth in Section 9.2. Notwithstanding any provision of this Agreement to the contrary or any assignment pursuant to Section 8.1, under no
circumstances shall Lessee be required to make any Payment hereunder, except by mailing or delivering one check to a single address. Upon making such
Payment, Lessee shall be relieved of any and all responsibility for the division or distribution of the amount paid. Payments shall be deemed made upon
delivery (in cases of personal delivery of checks) or upon mailing (in cases of mailing of checks by U.S. mail).
9.2 Notices. Any notice or other instrument required or desired to be given under this Agreement shall be effective only if in writing and
served personally or by certified or registered mail (postage prepaid, return receipt requested) on the Parties at the following addresses:
(a)
If to Lessor:
Kasey Leigh Tucker
2465 NW Raleigh Apt. 200
Portland, OR 97210
Courtesy Telephone: +1 907.888.8036 Courtesy Email: tucker.kasey@gmail.com
(b)
If to Lessee:
Tower Hill Mines, Inc. Attn: President
506 Gaffney Road, Suite 200
Fairbanks, AK 99701
Courtesy Telephone: +1 907.328.2800
Courtesy Email: khanneman@ithmines.com
Notices shall be deemed given upon delivery (in cases of personal service) or mailing (in cases of notice by U.S. mail) as provided in the preceding sentence.
Upon giving notice to Lessor at the address shown above, Lessee shall be deemed to have given notice to all of the individuals and/or entities comprising
Lessor, and Lessee shall be relieved of any and all responsibility for further distribution of the notice. Either Party may change its address by giving written
notice of the change to the other Party in accordance with the provisions of this Section 9.2. Any notice from Lessor hereunder shall be effective only if
executed by all of the individuals and/or entities then comprising Lessor.
AMENDED AND RESTATED MINING LEASE (Tucker)-Page 13
X. MISCELLANEOUS
10.1 Severability. Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, and if any provision of this Agreement shall be or becomes prohibited or invalid in whole or in part for any reason whatsoever, that
provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remaining portion of that provision or the remaining
provisions of this Agreement.
10.2 Binding Effect. Subject to the provisions of Section 8.1, all covenants, conditions and terms of this Agreement shall be deemed to run
with the land and shall be binding upon and inure to the benefit of the Parties and their respective heirs, successors, personal representatives, and assigns. The
headings in this Agreement are for convenience only, do not form part of this Agreement, and shall not affect its interpretation.
10.3 Sole Agreement. This Agreement sets forth the complete, entire, and final Agreement among the Parties with respect to the subject
matter hereof and supersedes all previous agreements or understandings, whether written or otherwise including, without limitation, (a) that certain letter of
intent dated September 12, 2006 among the Parties and
(b) the Original Lease. No modification or alteration of this Agreement shall be effective unless in writing and executed by the Parties. No waiver of
any right hereunder shall be effective unless in writing and executed by the Party to be bound thereby.
10.4 Legal Advice. Lessor expressly acknowledges that it has sought (or has had the opportunity to seek) the advice of Lessor's own legal
counsel to assist Lessor in negotiating and reviewing this Agreement. Lessor expressly acknowledges that Lessor is not relying on any oral or written
statement (not expressly set forth in this Agreement) made by Lessee, its employees or agents regarding any matters pertaining to this Agreement.
10.5 Further Assurances. Upon request by Lessee, and without cost to Lessee, Lessor agrees to execute and/or furnish Lessee with such
additional formal assurances or other written documents, in proper and recordable form, as may be reasonably necessary to carry out the intent, purposes, and
terms of this Agreement.
10.6 Counterparts. This Agreement may be executed in counterparts, all of which taken together shall constitute a single and complete
contract.
10.7 Rights Not Suspended. No dispute between the Parties shall result in a suspension of this Agreement or the rights of the Parties
hereunder.
10.8 Governing Law. This Agreement and any disputes arising hereunder shall be governed by and construed in accordance with the laws of
the State of Alaska.
10.9 Joint and Several Liability. If either Party is now or in the future comprised of more than one person or entity, then all the liabilities,
obligations, duties, covenants, representations, and warranties of such Party shall be the joint and several undertakings of each of such persons and entities.
AMENDED AND RESTATED MINING LEASE (Tucker)-Page 14
10.10 Set Off. Lessee shall have the right to set off and deduct from any or all Payments to Lessor hereunder, any and all amounts owed to
Lessee by Lessor, regardless of whether or not such indebtedness arises under this Agreement.
IN WITNESS WHEREOF the Parties have each entered into, executed and delivered this Agreement as of the date first above written.
/s/ Kasey Leigh Tucker
KASEY LEIGH TUCKER
STATE OF OREGON
MULTONOMAH JUDICIAL DISTRICT
)
) ss.
)
This certifies that on the 11 day of December, 2017, the foregoing instrument was acknowledged before me by KASEY LEIGH TUCKER.
/s/ Sarah E. Travelstead
Notary Public in and for Multnomah County
Residing at 1640 NW 19th Ave. Portland, OR 97209
My Commission expires _Aug 21, 2020 _________
AMENDED AND RESTATED MINING LEASE (Tucker)-Page 15
TOWER HILL MINES, INC.
By: /s/ Karl Hannamen
Karl Hanneman
Title: President
STATE OF ALASKA
FOURTH JUDICIAL DISTRICT
)
) ss.
)
This certifies that on the 22 day of November, 2017, the foregoing instrument was acknowledged before me by Karl Hanneman, President of TOWER HILL
MINES, INC., an Alaska corporation, on behalf of said corporation.
AMENDED AND RESTATED MINING LEASE (Tucker)-Page 16
/s/ Courtney Gathard
Notary Public in and for the State of Alaska
Residing at Wells Fargo
My Commission expires 09/05/2021
EXHIBIT A
to
Amended and Restated Mining Lease (Tucker)
Property
The Property subject to the Amended and Restated Mining Lease comprises the entire undivided interest in the following six unpatented federal mining
claims, together with all minerals, mineral substances, mineral rights, water rights and all surface, access, and other rights, including substitute or successor
rights, associated with or appurtenant to such mining claims or any of them:
BLM
Serial
Number
(AKFF)
037580
037581
037582
037583
037584
037585
Claim
Name
Date of
Posting
Fairbanks
Rec. Dist.
Book/Page
Acres
Type of
Location
Lillian No. 1
Satellite
Nickel Bench R.L.
The Nickel
Overlooked
The Lad
30-Sep-1968
30-Sep-1968
30-Jun-1972
12-Aug-1965
6-Sep-1975
12-Aug-1965
Book 4, Page 25
Book 4, Page 24
Book 29, Page 15
Book 34, Page 250
Book 21, Page 917
Book 34, Page 249
21
20
20
19
18
20
Lode Claim
Lode Claim
Placer Claim
Placer Claim
Placer Claim
Placer Claim
The property is situated in Secs. 15 and 22, T8N R5W, FM.
EXHIBIT A to AMENDED AND RESTATED MINING LEASE (Tucker)-Page 1
EXHIBIT B
to
Amended and Restated Mining Lease (Tucker)
Calculation and Payment of Production Royalty
1.
2.
3.
Pursuant to the agreement to which this Exhibit B is attached (the "Agreement"), Lessor (the "Royalty Holder") is entitled to be paid, by Lessee
or its successor(s)-in-interest (the "Royalty Payor"), a Production Royalty (the "Royalty Interest"), to be calculated and paid in accordance with
this Exhibit B.
It is hereby declared to be the intention of the Royalty Payor and the Royalty Payee that the Royalty Interest be based upon the value, at the
boundary of the Property, of the Products produced and sold or deemed sold, determined by reference to published prices, all as hereinafter
provided. The Royalty Payee acknowledges that it may be necessary or appropriate to process, treat, or upgrade Products off the Property before
they are sold or deemed sold and that to determine the value of such Product at the boundary of the Property, all costs incurred or deemed incurred
by the Royalty Payor after the Products leave the Property will be deducted from the proceeds received or deemed to be received by the Royalty
Payor. The obligation to pay the Royalty Interest will accrue upon the outturn or other production of refined metals meeting the requirements for
good delivery of the specified metals to the Royalty Payor's account or the sooner sale of unrefined metals, dore, concentrates, ores, or other
Products, as hereinafter provided.
For the purposes hereof, words and phrases used in this Exhibit Band which are defined in the Agreement will have the meanings ascribed to
them in the Agreement, and the following words and phrases will have, in this Exhibit B and in the Agreement, the meanings hereinafter ascribed
to them, unless otherwise stated or the context otherwise reqmres:
(a)
"Net Smelter Returns" means the Gross Value of Products, less all costs, charges and expenses paid or incurred by the Royalty Payor
with respect to such Products after such Products leave the Property, including, without limitation:
(i)
all charges for treatment of Products in the smelting and refining processes (including handling, processing, and provisional
settlement fees, sampling, assaying, and representation costs, penalties, and other processor deductions, and interest) provided
that if such treatment is carried out in facilities owned or controlled, in whole or in part, by the Royalty Payor, then the foregoing
charges will be equal to the lesser of:
(1)
the amount the Royalty Payor would have incurred if such treatment were carried out at facilities not owned or
controlled by the Royalty Payor then offering comparable services for comparable products on terms then prevailing
in the area, and
EXHIBIT B to AMENDED AND RESTATED MINING LEASE (Tucker)-Page 1
(2)
the actual amount of such charges charged by the facilities owned or controlled, in whole or in part, by the Royalty
Payor,
(ii)
(iii)
the actual costs of transportation (including freight, insurance, security, transaction taxes, handling, port, demurrage, delay, and
forwarding expenses incurred by reason of or in the course of such transportation) of Products from the Property to the place of
refining, beneficiation, or treatment and then to the place of sale, and
use, gross receipts, severance, export, and ad valorem taxes and any other tax or government royalty or levy payable by the
Royalty Payor and based directly upon and actually assessed against the value or quantity of Product sold or otherwise disposed
or deemed disposed of, but excluding any and all taxes:
(1)
(2)
based upon the net or gross income of the Royalty Payor, or
based upon the value of the Property, the privilege of doing business and other similarly based taxes;
(b)
"Gross Value" means, for the following categories of Products produced and sold by the Royalty Payor:
(i)
if the Royalty Payor causes refined gold (meeting the specifications for good delivery of the London Bullion Market
Association) to be produced from the Property, for purposes of determining the Royalty Interest the refined gold will be deemed
to have been sold at the Weekly Average Gold Price for the week in which it was produced, and the Gross Value will be
determined by multiplying Gold Production during the week in question by the Weekly Average Gold Price for such week. As
used herein, "Gold Production" means, for any week, the quantity of refined gold outtumed to the Royalty Payor's pool account
by an independent third-party refinery for gold produced from the Property during such week on either a provisional or final
settlement basis, and "Weekly Average Gold Price" means the average London Bullion Market Association P.M. Gold Fix,
calculated by dividing the sum of all such prices reported for the week in question by the number of days in such week for which
such prices were reported,
EXHIBIT B to AMENDED AND RESTATED MINING LEASE (Tucker)-Page 2
(ii)
(iii)
(iv)
if the Royalty Payor causes refined silver (meeting the specifications for refined silver subject to the New York Silver Price
published by Handy & Harman) to be produced from the Property, for purposes of determining the Royalty Interest the refined
silver will be deemed to have been sold at the Weekly Average Silver Price for the week in which it was produced, and the
Gross Value will be determined by multiplying Silver Production during the week in question by the Weekly Average Silver
Price. As used herein, "Silver Production" means, for any week, the quantity of refined silver outtumed to the Royalty Payor's
pool account by an independent third-party refinery for silver produced from the Property during the applicable week on either a
provisional or final settlement basis, and "Weekly Average Silver Price" means the average New York Silver Price as published
daily by Handy & Harman, calculated by dividing the sum of all such prices reported for the applicable week by the number of
days in such week for which such prices were reported,
if the Royalty Payor causes copper cathodes (meeting the specifications for Grade A Copper cathodes conforming to BS EN
1978:1998, Cathode Grade Designation Cu-CATH-1 subject to the London Metal Exchange Grade A Copper Price published by
the London Metal Exchange) to be produced from the Property, for purposes of determining the Royalty Interest the cathodic
copper will be deemed to have been sold at the Weekly Average Copper Price for the week in which it was produced, and the
Gross Value will be determined by multiplying Copper Production during the week in question by the Weekly Average Copper
Price. As used herein, "Copper Production" means, for any week, the quantity of cathodic copper produced and delivered for the
account of the Royalty Payor by an independent third-party refinery acceptable to the London Metals Exchange for copper
produced from the Property during the applicable week on either a provisional or final settlement basis, and "Weekly Average
Copper Price" means the average Grade A Copper Price as published daily by the London Metal Exchange, calculated by
dividing the sum of all such prices reported for the applicable week by the number of days in such week for which such prices
were reported,
if the Royalty Payor causes zinc ingots (meeting the specifications for Special High Grade Zinc conforming to BS EN
1179:1996, Standard entitled "Zinc and Zinc Alloys - Primary Zinc" subject to the London Metal Exchange Special High
Grade Zinc Price published by the London Metal Exchange) to be produced from the Property, for purposes of determining the
Royalty Interest the zinc ingots will be deemed to have been sold at the Weekly Average Zinc Price for the week in which it
was produced, and the Gross Value will be determined by multiplying Zinc Production during the week in question by the
Weekly Average Zinc Price. As used herein, "Zinc Production" means, for any week, the quantity of zinc ingots produced and
delivered for the account of the Royalty Payor by an independent third-party refinery acceptable to the London Metals
Exchange for zinc produced from the Property during the applicable week on either a provisional or final settlement basis, and
"Weekly Average Zinc Price" means the average Special High Grade Zinc Price as published daily by the London Metal
Exchange, calculated by dividing the sum of all such prices reported for the applicable week by the number of days in such
week for which such prices were reported,
EXHIBIT B to AMENDED AND RESTATED MINING LEASE (Tucker)-Page 3
(v)
(vi)
if the Royalty Payor causes Products other than refined gold, refined silver, cathodic copper or zinc ingots meeting the foregoing
specifications to be produced from the Property, the Gross Value shall be equal to the Quantity Sold of the particular Product in
question multiplied by the applicable Average Metal Price. As used herein, the term "Quantity Sold" means the volume or
quantity of Product disposed of by the Royalty Payor in a particular sale which settled in the relevant week, provided that if the
Product is ore, concentrate, leachate, precipitate, sponge, dore, or any other material containing impurities, then the Quantity
Sold will be the volume or quantity of the mineral or metal in question actually contained in the sold Product (which volume or
quantity will be established by sound and generally accepted assaying or other analytical practices and procedures) multiplied by
a recovery rate equal to the average recovery rate actually experienced by the Royalty Payor during the preceding six (6) months
with respect to such Product (or, if no such average can be calculated, a rate mutually agreed between the parties or, failing such
agreement, settled by arbitration). "Average Metal Price" means:
(1)
(2)
if the Product is gold, silver, copper or zinc, the Weekly Average Gold, Silver, Copper or Zinc Price, as applicable
during the week in which the sale occurred, or
if the Product is other than gold, silver, copper or zinc, the average price, in U.S. dollars, for the metal or mineral in
question during the week in which the sale occurred as quoted in "Platts Metals Week", published by McGraw-Hill,
if any of the London Bullion Market Association P.M. Gold Fix, the Handy & Harman New York Silver Price, the London
Metal Exchange Grade A Copper Price or the London Metal Exchange Special High Grade Zinc Price are, for any reason, not
published for a week in question, the Weekly Average Gold, Silver, Copper or Zinc Price, as applicable, will be determined by
reference to the prices for refined gold or silver bullion Grade A copper or Special High Grade zinc, as applicable, published in
"Platts Metals Week", published by McGraw-Hill. If the necessary prices with respect to any Products are not quoted, or the
publication of "Platts Metals Week" ceases, or is suspended, then those prices quoted for the Product during the applicable
period by such other publication or source as is generally recognized in the mining industry as reflecting the price at which that
Product was being offered for sale and purchase during such period will be used and, if there is any disagreement with respect
thereto, will be settled by arbitration, and
EXHIBIT B to AMENDED AND RESTATED MINING LEASE (Tucker)-Page 4
(vii)
where outturn ofrefined gold, silver, or other metal, or the production and delivery of cathodic copper or zinc ingots is made by
an independent third party refinery on a provisional basis, the Gross Value will be based upon the amount of such provisional
settlement, but will be adjusted in subsequent statements to account for the amount of refined metal established by final
settlement by such refinery;
"Products" means all minerals, ores, metals, concentrates, leachates, precipitates, dore, bullion, and other products which are produced
from the Property and which are sold to a purchaser who purchases and pays for such product because of its mineral content or other
economic value; and
"week" means a period commencing immediately following 24:00 hours on a Saturday and ending immediately prior to 24:00 hours
on the next immediately succeeding Saturday.
(c)
(d)
4.
5.
The Royalty Payee acknowledges that the purpose of paragraph 3 above is to pay to the Royalty Payee a Royalty Interest on the basis of value of
the refined gold and silver, cathodic copper or zinc ingots produced from the Property as established by the Weekly Average Gold, Silver, Copper,
or Zinc Price, as applicable, regardless of the price or proceeds actually received by the Royalty Payor for or in connection with such metal or the
manner in which a sale of refined metal to a third party is made by the Royalty Payor. The Royalty Payee further acknowledges that the Royalty
Payor will have the right to market and sell or refrain from selling refined gold, silver, copper, zinc, and other metals produced from the Property in
any manner it may, in its sole discretion, elect, and that the Royalty Payor will have the right to engage in forward sales, futures trading or
commodity options trading, and other price hedging, price protection, and speculative arrangements (collectively, "Trading Activities") which may,
but not necessarily, involve the possible delivery of gold, silver, copper, zinc, or other metals produced from the Property. The Royalty Payee and
the Royalty Payor specifically acknowledge and agree that the Royalty Payee will not be entitled to participate in the proceeds or be obligated to
share in any losses generated by the Royalty Payor's actual marketing or sales practices or by its Trading Activities. The Royalty Payor may sell
Products to any purchaser it wishes.
The Royalty Payor may, but is not obligated to, beneficiate, mill, sort, concentrate, refine, smelt or otherwise process and upgrade Products prior to
sale, transfer or conveyance to a purchaser, user or consumer other than the Royalty Payor. The Royalty Payor will not be liable for mineral values
lost in such processing under sound mineral processing practices.
EXHIBIT B to AMENDED AND RESTATED MINING LEASE (Tucker)-Page 5
6.
7.
All Products for which the Royalty Interest is payable will be weighed or measured, sampled and analyzed in accordance with generally
accepted mining and metallurgical practices.
Payments on account of the Royalty Interest will become due and payable quarterly on the last day of each month following the last day of the
calendar quarter in which the same accrued. Payments on account of the Royalty Interest will be accompanied by a statement, signed by the
Chief Financial Officer of the Royalty Payor (a "Statement") showing in reasonable detail:
(a)
(b)
(c)
the quantities and grades of the refined metals; dore, concentrates, or other Products produced and sold or deemed sold by the Royalty
Payor in the preceding calendar quarter;
the applicable Weekly Average Gold, Silver, Copper, and Zinc Prices and Average Metal Prices determined as herein provided
for Products on which payments on account of the Royalty Interest are due;
all costs and other deductions used in computing the applicable Net Smelter Returns for each Product on which payments on account
of the Royalty Interest are due; and
(d)
other pertinent information in sufficient detail to explain the calculation of the payments on account of the Royalty Interest.
8.
Each Statement will also list the quantity and quality of any gold or silver dore which has been retained as inventory by the Royalty Payor for
more than ninety (90) days. The Royalty Payee will have fifteen (15) days after receipt of a Statement to either:
(a)
(b)
request that such dore be deemed sold as provided in subparagraphs 3(b)(i) and (ii) as of such fifteenth (15th) day, utilizing the mine weights
and assays for such dore and utilizing a reasonable recovery rate (based on the average recovery rates experienced during the preceding six
(6) months with respect to Products) for refined metal and reasonable deemed charges for all deductions specified in subparagraph 3(a)
based on average rates incurred in the prior six (6) month period; or
elect to wait until the time that refined gold or silver from such dore is actually outtumed to the Royalty Payor's pool account or such
dore is sooner sold by the Royalty Payor.
EXHIBIT B to AMENDED AND RESTATED MINING LEASE (Tucker)-Page 6
9.
10.
The failure of the Royalty Payee to respond within such time will be deemed to be an election under (b) above. If the Royalty Payee elects under
paragraph 8(a) in respect of any dore, no additional payments on account of the Royalty Interest will be payable in respect of such dore when it is
either actually sold or is refined and outtumed to the Royalty Payor's pool account or purchased by a refinery. No payments on account of the
Royalty Interest will be due with respect to stockpiles of gold or silver dore in respect of which the Royalty Payee has elected, or has been deemed
to have elected, under 8(b) above unless and until such ores or concentrates are actually sold or upgraded to refined Product and outtumed to the
Royalty Payor's pool account or purchased by the refinery or other purchaser.
All payments on account of the Royalty Interest will be considered final and in full satisfaction of all obligations of the Royalty Payor with
respect thereto, unless the Royalty Payee delivers to the Royalty Payor a written notice ("Objection Notice") describing and setting forth a
specific objection to the calculation thereof within ninety (90) days after the end of the fiscal year in which such payment and Statement was
received. If the Royalty Payee objects to a particular Statement as herein provided, the Royalty Payee will, for a period commencing on the
delivery of such Statement and ending upon the day which is one hundred and eighty (180) days after the end of the fiscal year of the Royalty
Payor in which the quarter covered by such Statement falls, have the right, upon reasonable notice and at a reasonable time, to have the Royalty
Payor's accounts and records relating to all of the factors involved in the calculation of the payment in question audited by the auditors of the
Royalty Payor on behalf of both the Royalty Payor and the Royalty Payee. The Royalty Payor will co-operate with and provide all information
requested by such auditors in respect of such audit. If such audit determines that there has been a deficiency or an excess in the payment made
to the Royalty Payee, such deficiency or excess will be resolved by adjusting the next quarterly payment due hereunder. The Royalty Payee will
pay all the costs and expenses of such audit unless a deficiency of two and one-half (2.5%) percent or more of the amount due is determined to
exist. The Royalty Payor will pay the costs and expenses of such audit if a deficiency of two and one-half (2.5%) percent or more of the amount
due is determined to exist. All books and records used and kept by the Royalty Payor to calculate the payments due hereunder will be kept in
accordance with U.S. generally accepted accounting principles. Failure on the part of the Royalty Payee to make claim against the Royalty
Payor for adjustment as herein provided will conclusively establish the correctness and sufficiency of the Statement and Royalty Interest
payments for such quarter, and forever preclude the filing of exceptions thereto or making of claims for adjustment thereon by the Royalty
Payee, except in the case of fraud.
11.
Payment of all amounts on account of the Royalty Interest will be made to the Royalty Payee in immediately available same day United States
funds by bank draft, certified cheque or wire transfer at such place, or to such financial institution, in the United States as the Royalty Payee may
specify to the Royalty Payor in writing from time to time, but in any event not later than fourteen (14) days prior to the due date of any such
payment.
EXHIBIT B to AMENDED AND RESTATED MINING LEASE (Tucker)-Page 7
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements on Forms S-8 (No. 333-174617, 333-158533 and 333-141353) of International
Tower Hill Mines Ltd. of our report dated March 14, 2019, relating to the consolidated financial statements of International Tower Hill Mines Ltd., which
appears in Form 10-K of International Tower Hill Mines Ltd. dated March 14, 2019.
EXHIBIT 23.1
Vancouver, British Columbia
March 14, 2019
(Signed) DAVIDSON & COMPANY LLP
Chartered Professional Accountants
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, 2019
By:
/s/ Karl L. Hanneman
Karl L. Hanneman
Chief Executive Officer
(Principal Executive Officer)
I, David Cross, certify that:
1. I have reviewed this Annual Report on Form 10-K of International Tower Hill Mines Ltd.;
CERTIFICATIONS
EXHIBIT 31.2
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, 2019
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,
2018, 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, 2019
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,
2018, 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, 2019
By:
/s/ David Cross
David Cross
Chief Financial Officer
(Principal Financial and Accounting Officer)