International Tower Hill Mines Ltd.: Exhibit 99.2 - Filed by newsfilecorp.com
| INTERNATIONAL TOWER HILL MINES LTD. |
| (An Exploration Stage Company) |
| |
| FORM 51-102F1 |
| MANAGEMENT DISCUSSION & ANALYSIS |
| |
| May 10, 2012 |
| |
| Introduction |
During 2011, International Tower Hill Mines Ltd. (the “Company”
or “ITH”) changed its fiscal year end to December 31. This Management Discussion
& Analysis (“MD&A”) covers the three month period ended March 31, 2012
and has been prepared by management, in accordance with the requirements of
National Instrument 51-102, as of May 10, 2012 and should be read in conjunction
with the Company’s audited consolidated financial statements for the seven month
period ended December 31, 2011. Due to the change in year end, the three month
period ended February 28, 2011 has been used as the comparative period to the
three month period ended March 31, 2012. The Company’s audited consolidated
financial statements for the seven month period ending December 31, 2011 were
the first annual financial statements that have been prepared in accordance with
International Financial Reporting Standards (“IFRS”). The Company adopted IFRS
on June 1, 2011 with a transition date of June 1, 2010. Except where otherwise
noted, all dollar amounts are stated in Canadian dollars.
Caution Regarding Forward Looking Statements
This MD&A contains forward-looking statements and
forward-looking information (collectively, “forward-looking statements”) within
the meaning of applicable Canadian and US securities legislation. These
statements relate to future events or the future activities or performance of
the Company. All statements, other than statements of historical fact are
forward-looking statements. Information concerning mineral resource estimates
also may be deemed to be forward-looking statements in that it reflects a
prediction of the mineralization that would be encountered if a mineral deposit
were developed and mined. Forward-looking statements are typically identified by
words such as: believe, expect, anticipate, intend, estimate, postulate, plans
and similar expressions, or which by their nature refer to future events. These
forward looking statements include, but are not limited to, statements
concerning:
-
the Company’s strategies and objectives, both generally and specifically in
respect of the Livengood project;
-
the potential for the expansion of the estimated resources at Livengood;
-
the potential for a production decision concerning, and any production at,
the Livengood project;
-
the completion of a Pre-feasibility Study for the Livengood project;
-
the potential for higher grade mineralization to form the basis for a
starter surface mine shell in any production scenario at Livengood;
-
the potential overburden geometry of the Livengood deposit being amenable
for a low cost surface mine that could support a high production rate and
economies of scale;
-
the potential for cost savings due to the high gravity gold concentration
component of some of the Livengood mineralization;
-
the sequence of decisions regarding the timing and costs of development
programs with respect to, and the issuance of the necessary permits and
authorizations required for the Livengood project;
-
the Company’s estimates of the quality and quantity of the resources at
Livengood;
-
the timing and cost of the planned future exploration programs at
Livengood, and the timing of the receipt of results therefrom;
-
the Company’s future cash requirements;
-
general business and economic conditions;
-
the Company’s ability to meet its financial obligations as they come due,
and to be able to raise the necessary funds to continue operations on
acceptable terms, if at all;
-
the use of the proceeds from the financing which closed November 10, 2010;
and
-
the ability of the Company to continue to refine the project economics for
the Livengood project.
Although the Company believes that such statements are
reasonable, it can give no assurance that such expectations will prove to be
correct. Inherent in forward looking statements are risks and uncertainties
beyond the Company’s ability to predict or control, including, but not limited
to, risks related to the Company’s inability to identify one or more economic
deposits on its property, variations in the nature, quality and quantity of any
mineral deposits that may be located, variations in the market price of any
mineral products the Company may produce or plan to produce, the Company’s
inability to obtain any necessary permits, consents or authorizations required
for its activities, to produce minerals from its property successfully or
profitably, to continue its projected growth, to raise the necessary capital or
to be fully able to implement its business strategies, and other risks
identified herein under “Risk Factors”.
The Company cautions investors that any forward-looking
statements by the Company are not guarantees of future performance, and that
actual results are likely to differ, and may differ materially, from those
expressed or implied by forward looking statements contained in this MD&A.
Such statements are based on a number of assumptions which may prove incorrect,
including, but not limited to, assumptions about:
-
the demand for, and level and volatility of the price of, gold;
-
general business and economic conditions;
-
the timing of the receipt of regulatory and governmental approvals, permits
and authorizations necessary to implement and carry on the Company’s planned
exploration and potential development program at Livengood;
-
conditions in the financial markets generally;
2
-
the Company’s ability to secure the necessary consulting, drilling and
related services and supplies on favourable terms in connection with not only
its ongoing exploration program at Livengood but also in connection with the
completion of its pre-feasibility study and in connection with any feasibility
study that may be commissioned;
-
the Company’s ability to attract and retain key staff, particularly in
connection with the carrying out of a feasibility study and the development of
any mine at Livengood;
-
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 the planned work at
Livengood;
-
the anticipated terms of the consents, permits and authorizations necessary
to carry out the planned exploration and development programs at Livengood and
the Company’s ability to comply with such terms on a safe and cost-effective
basis;
-
the ongoing relations of the Company with its underlying lessors and the
applicable regulatory agencies;
-
that the metallurgy and recovery characteristics of samples from certain of
the Company’s mineral properties are reflective of the deposit as a whole;
-
the continued development of and potential construction of any mine at the
Livengood property not requiring consents, approvals, authorizations or
permits that are materially different from those identified to date by the
Company;
-
the ability of the Company to predict how the net proceeds of the financing
which closed on November 10, 2010 will be used; and
-
the timetables for the completion of a pre-feasibility study at Livengood
and for any feasibility study that may be commissioned.
These forward looking statements are made as of the date hereof
and the Company does not intend and does not assume any obligation, to update
these forward looking statements, except as required by applicable law. For the
reasons set forth above, investors should not attribute undue certainty to or
place undue reliance on forward-looking statements.
Historical results of operations and trends that may be
inferred from the following discussion and analysis may not necessarily indicate
future results from operations. In particular, the current state of the global
securities markets may cause significant reductions in the price of the
Company’s securities and render it difficult or impossible for the Company to
raise the funds necessary to continue operations. See “Risk Factors –
Insufficient Financial Resources/Share Price Volatility”.
Caution Regarding Adjacent or Similar Mineral
Properties
This MD&A 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. The Company advises US investors that the mining
guidelines of the US Securities and Exchange Commission (the “SEC”) set forth in
the SEC’s Industry Guide 7 (“SEC Industry Guide 7”) strictly prohibit
information of this type in documents filed with the SEC. As a foreign private
issuer preparing this MD&A pursuant to Canadian disclosure requirements
under the Canada-U.S. Multi-Jurisdictional Disclosure System, this MD&A is
not subject to the requirements of SEC Industry Guide 7.
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 production therefore or economics with respect
thereto, are not indicative of mineral deposits on the Company’s properties or
the potential production from, or cost or economics of, any future mining of any
of the Company’s mineral properties.
3
Cautionary Note to US Investors Concerning Reserve and
Resource Estimates
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 (“CIM Standards”).
These definitions differ from the definitions in SEC Industry Guide 7 under the
United States Securities Act of 1933, as amended (the “Securities Act”). Under
SEC Industry Guide 7 standards, a “final” or “bankable” feasibility study is
required to report reserves, the three-year historical average price is used in
any reserve or cash flow analysis to designate reserves and the primary
environmental analysis or report must be filed with the appropriate governmental
authority.
In addition, the terms “mineral resource”, “measured mineral
resource”, “indicated mineral resource” and “inferred mineral resource” are
defined in and required to be disclosed by NI 43-101 and the CIM Standards;
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 part of a
mineral deposit in these categories will ever be converted into reserves.
“Inferred mineral resources” have a great amount of uncertainty as to their
existence, and great uncertainty as to their economic and legal feasibility. It
cannot be assumed that all or any part of an inferred mineral resource will ever
be upgraded to a higher category. Under Canadian rules, estimates of inferred
mineral resources may not form the basis of feasibility or pre-feasibility
studies, except in rare cases. Investors are cautioned not to assume that all or
any part of an inferred mineral resource exists or is economically or legally
mineable. Disclosure of “contained ounces” in a resource is permitted disclosure
under Canadian regulations; however, the SEC normally only permits issuers to
report mineralization that does not constitute “reserves” by SEC Industry Guide
7 standards as in place tonnage and grade without reference to unit
measures.
Accordingly, information contained in this MD&A and the
documents incorporated by reference herein contain descriptions of the Company’s
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.
| Current
Business Activities |
General
During the three month period ended March 31, 2012, and to the
date of this MD&A, the Company advanced its Livengood Gold Project in Alaska
with the continuation of activities in support of the Pre-feasibility Study
(“PFS”) as well as its Feasibility Study (“FS”). This included completion of
drill programs, analyzing results thereof, the advancement of engineering and
environmental studies, and the build-up of its team in Fairbanks, Alaska and
Englewood, Colorado.
Highlights of activities during and subsequent to the period
include:
- The PFS work proceeded as planned with substantial progress, including
that the majority of engineering studies have been completed on time. A
detailed metallurgical review of the flow-sheet utilized in the Company’s Preliminary
Economic Assessment (“PEA”) of the Livengood Project as contained in the
August 25, 2011 NI 43-101 technical report entitled “August 2011 Summary
Report on the Livengood Project, Tolovana District, Alaska” (“August 2011
Report”) indicated further optimization is possible. The PFS is anticipated to
be completed in the third quarter of 2012 and will include results of these
optimization studies.
4
-
Ongoing environmental baseline data gathering for Livengood permitting
activities continued with samples developed for large scale field testing of
material geochemical characteristics.
-
In January 2012, two major contracts were awarded: process engineering
services and geotechnical infrastructure engineering services for the FS.
Feasibility level work commenced in February 2012.
-
On May 1, 2012 the Company commenced three major field drill programs
consisting of district-wide exploration, condemnation and geotechnical
drilling at Livengood.
Livengood Project
Pre-feasibility Study
A PFS for the Livengood Project is currently underway and
scheduled to be released in the third quarter of 2012. The PFS work continued as
planned during the quarter. With the majority of engineering studies having been
completed in November 2011, the Company is currently carrying out detailed and
extensive metallurgical testing after a review of the Preliminary Economic
Assessment flow sheet indicated that further optimization is possible. The
Livengood PFS will provide an update of the anticipated project configuration
and an overview of the geological, exploration, surface mine planning,
metallurgical test work, process plant and infrastructure engineering, and
environmental baseline studies that have been completed to date. The PFS will
update the PEA, which was based on a surface mining operation supplying
mineralized material to a processing plant with average throughput of 91,000
tonnes per day. The processing plant would produce gravity and flotation
concentrates with gold recovered by Carbon-in-Leach processing of the
concentrates.
Environmental baseline data gathering for Livengood permitting
activities continues for air quality, cultural resources, groundwater, surface
water, fisheries, wildlife, and wetlands and includes additional drilling and
samples during the 2012 field season for geochemical testing.
During the quarter, the Company selected Samuel Engineering,
Inc. of Greenwood Village, Colorado, to provide process engineering services for
its FS. The Company has also engaged AMEC Environment & Infrastructure, Inc.
of Denver, Colorado, to provide geotechnical infrastructure engineering services
for the FS. Feasibility level work commenced in February 2012.
The Company will continue its investigations and studies at the
Livengood Project. In order to support the completion of these work programs as
well as drilling programs (see Drilling below) the Company anticipates spending
approximately $68 million for the 2012 fiscal year ending December 31, 2012,
subject to raising the necessary additional financing. For the three months
ended March 31, 2012, total expenditures on the Livengood Project were
$14,242,782 which includes land acquisitions, drilling related to exploration
activities (see Drilling below) and field costs and other investigations and
studies.
5
Drilling
In March 2012 the Company received the results for 73 in-fill
drill holes completed late in 2011 which confirm the integrity of the May 2011
resource estimate reported in the August 2011 Report. Based on the latest
results, new internal resource estimates calculated for three areas of the
deposit have been verified within 1% to contain the same tonnage, grade and
contained ounces of gold as those calculated from the nominal 50-metre-spaced
grid drilling used to calculate the May 2011 resource. This positive outcome
marks the conclusion of confirmation drilling at the Livengood Project as the
Company focuses on district-wide exploration within its 145 km2 land
package as well as condemnation/geotechnical drilling in support of permitting
activities in 2012.
In May 2012, the Company commenced three major field drill
programs consisting of district-wide exploration, condemnation and geotechnical
drilling. Results from the drill programs are expected throughout the summer and
fall of 2012.
The Company plans to drill 3,000 metres in 10 core holes as
part of its initial district-wide exploration program. Prior drilling, mapping
and surface geochemical sampling conducted in 2010 had identified an area
northeast of the Money Knob deposit where faults, dikes and anomalous gold
coincide, indicating an area of potentially significant mineralization. An
initial three holes are planned to target the area to assess the extent of the
mineralization (see Figure 1 below). Subsequent exploration drill sites are
contingent on the results of the initial holes. With the Money Knob deposit
containing over 16.5 million gold ounces in the Measured and Indicated (933
million tonnes at an average grade of 0.55 grams per tonne (“g/t”) using a 0.22
g/t cutoff), and 4.1 million ounces in the Inferred (257 million tonnes at an
average grade of 0.50 g/t using a 0.22 g/t cutoff), resource categories, the
Company will focus on new areas of our land package for potential additional
gold deposits.
In addition, a 40-hole, 6,000-metre program of condemnation
drilling will be carried out to either sterilize or establish the presence of
significant mineralization in the area surrounding the Money Knob deposit and
extending northeast towards existing mineralized exploration drill holes. The
purpose of the condemnation drilling program is to determine appropriate areas
for infrastructure development.
6
Figure 1: Map showing distribution of regional
geotechnical and exploration holes at Livengood, whether
they intersect gold
mineralization, and the locations of proposed condemnation and exploration core
holes for the 2012 program.
In addition, a 3,000-metre program of geotechnical drilling is
planned for 2012, this program will assist in the development of baseline data
as the Livengood project progresses toward permitting. The data will enable the
Company to prepare the requisite analysis to support permit applications in the
first half of 2013.
Use of Financing Proceeds
The Company closed a bought deal short form prospectus and a
private placement financing on November 10, 2010. The Company disclosed that it
intended to use the net proceeds from the two financings for continued work on
the Livengood Project and for general working capital purposes. The “Use of
Proceeds” plan contained in the Company’s short form prospectus dated November
5, 2010, projected total Livengood project expenditures dating from September 1,
2010 (beginning of Q2 for the Fiscal Year ending May 31, 2011) to May 31, 2014.
The use of proceeds plan totalled $136,575,000 for the period ending May 31,
2014. Table 1 shows the expenditures to March 31, 2012 compared with the
intended use of proceeds.
7
| Table 1: Comparison of Proposed Use of Proceeds
with Actual Use of Proceeds to March 31, 2012 |
| |
| |
|
|
|
|
Total Plan |
|
|
|
|
|
|
|
| |
|
Total Budget |
|
|
(Year Ended |
|
|
|
|
|
|
|
| |
|
Year ended |
|
|
May 31, 2011 |
|
|
Actual |
|
|
Variance |
|
| |
|
May 2011 to |
|
|
and Period |
|
|
Sept 1, 2010 |
|
|
(Total Plan – |
|
| Project Cost |
|
Period ended |
|
|
ended May 31, |
|
|
through March |
|
|
Actual through |
|
| Center |
|
May 2014 |
(2) |
|
2012)(2) |
|
|
31, 2012(1) |
|
|
March 31, 2012) |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Project administration |
$ |
31,101,700 |
|
$ |
13,813,500 |
|
$ |
7,265,806 |
|
$ |
6,547,694 |
|
| Geological and field operations |
|
67,136,000 |
|
|
37,748,800 |
|
|
59,752,930 |
|
|
(22,004,130 |
) |
| Metallurgical studies |
|
6,883,400 |
|
|
5,369,500 |
|
|
4,111,098 |
|
|
1,258,402 |
|
| Infrastructure and engineering |
|
8,887,400 |
|
|
4,721,900 |
|
|
8,922,999 |
|
|
(4,201,099 |
) |
| Environmental and community engagement |
|
14,431,300 |
|
|
5,352,100 |
|
|
6,806,596 |
|
|
(1,454,496 |
) |
| Mining studies |
|
2,415,400 |
|
|
1,094,200 |
|
|
506,224 |
|
|
587,976 |
|
| Project integration |
|
1,882,300 |
|
|
600,000 |
|
|
617,425 |
|
|
(17,425 |
) |
| Land purchases(3) |
|
- |
|
|
- |
|
|
27,135,546 |
|
|
(27,135,546 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Subtotal |
|
132,737,500 |
|
|
68,700,000 |
|
|
115,118,624 |
|
|
(46,418,624 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Offering costs |
|
3,837,500 |
|
|
- |
|
|
502,208 |
|
|
(502,208 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
$ |
136,575,000 |
|
$ |
68,700,000 |
|
$ |
115,620,832 |
|
$ |
(46,920,832 |
) |
(1)Unaudited Livengood Project
Reporting
(2)As disclosed in the prospectus dated
November 5, 2010
(3)The amount does not include the
value of the Company’s derivative liability.
Table 1 shows a variance of approximately $46.9M from the
$68.7M for the total plan period ending May 31, 2012, and total spending of
$115.6M is approximately 85% of the total budget to mid-2014.
The activities planned for the total plan period are generally
on schedule and the completion of the PFS is expected in the third quarter of
2012, including additional optimization opportunities that have been identified
to date. Project administration expenditures are below the plan rate but are
adequate for the needs of the project. Geological and field operations have been
accelerated to support detailed evaluation and increased confidence in the
resource as well as for geotechnical studies. Metallurgical studies were
nominally below plan and have advanced as necessary to support the PFS. Field
programs in support of infrastructure geotechnical investigations have been
expanded and accelerated. The acceleration has added confidence in the
infrastructure characterization, which is a critical path item in the PFS.
Engineering expenditures were nominally on plan. Environmental and community
engagement is on schedule, and has required more expenditure than planned as
additional drilling and environmental sampling were incurred for baseline data
analysis. Expenditure for mining studies was nominally on plan requiring less
expenditures for the period. Project integration is nominally above plan, as the
technical components of the PFS were being compiled during the period. The land
purchases were not originally budgeted for the period prior to
May, 2014, but were accelerated to facilitate infrastructure engineering and
permitting. Offering costs were higher than expected due to the length of time
in filing the short form prospectus incurred in the quarter ended February
2011.
8
Livengood Placer Land
The land acquired in December 2011 enabled the Company to
pursue additional site facility locations and to investigate other land use
opportunities including the potential for placer gold extraction. During the
quarter, the Company undertook a comprehensive review and internal financial
analysis of these placer properties. As a result of the investigations, the
Company determined to postpone all further studies for placer gold extraction.
The review indicated the greatest benefits would be to optimize site facility
locations for the larger Livengood Project rather than focus on short-term
production.
Qualified Person and Quality Control/Quality
Assurance
Development work at the Livengood Project site was directed by
Thomas E. Irwin, Alaska General Manager.
The geologic work program at Livengood was designed and is
supervised by Chris Puchner, Chief Geologist (CPG 07048) of the Company who is a
qualified person as defined by National Instrument 43-101. Mr. Puchner is
responsible for all aspects of the work, including the quality control/quality
assurance program. On-site project personnel photograph the core from each
individual borehole prior to preparing the split core. Duplicate reverse
circulation 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.
Due to the nature of the Company’s proposed business and the
present stage of exploration of its Livengood property interests (which is an
advanced stage exploration project, but with no known reserves), the following
risk factors, among others, will apply:
Resource Exploration and
Development is Generally a Speculative Business: Resource exploration and
development is a 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. The marketability of natural
resources which may be acquired or discovered by the Company will be affected by
numerous factors beyond the control of the Company. These factors include market
fluctuations, the proximity and capacity of natural resource markets, 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.
9
While the Livengood project
has estimated measured, inferred and indicated resources identified, there are
no known reserves on any of the Company’s properties. The majority of
exploration projects do not result in the discovery of commercially mineable
deposits of ore. 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.
Fluctuation of Metal
Prices: 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. The Company’s long-term viability and profitability
depend, in large part, upon the market price of metals which have experienced
significant movement over short periods of time, and are affected by numerous
factors beyond the control of the Company, including international economic and
political trends, expectations of inflation, currency exchange fluctuations,
interest rates and global or regional consumption patterns, speculative
activities and increased production due to improved mining and production
methods. The supply of and demand for metals are affected by various factors,
including political events, economic conditions and production costs in major
producing regions. There can be no assurance that the price of any minerals
produced from the Company’s properties will be such that any such deposits can
be mined at a profit.
Permits and Licenses: The
operations of the Company will 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. 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 have a material adverse
effect on the Company.
Acquisition of Mineral Claims
under Agreements: The agreements pursuant to which the Company has the right
to acquire interests in a number of its properties at Livengood provide that the
Company must make a series of cash payments over certain time periods and/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,
with the result that the Company could forfeit its interest in one or more of
its mineral properties.
Proposed Amendments to the
United States General Mining Law of 1872: In recent years, the United States
Congress has considered a number of proposed amendments to the U.S. General
Mining Law of 1872 (“Mining Law”). If adopted, such legislation, among other
things, could impose royalties on mineral production from unpatented mining
claims located on United States federal lands (which includes certain of the
mining claims at Livengood), 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 United States federal lands, all of which could have a
material and adverse effect on the Company’s cash flow, results of operations
and financial condition.
Uncertainties Relating to
Unpatented Mining Claims: Some of the mining claims at the Livengood
property are 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 US federal and Alaska state mining
laws.
10
Unpatented mining claims are unique to United States 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 Mining Law. Unpatented mining
claims are always subject to possible challenges of third parties or contests by
the United States federal or Alaska State governments. 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. 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.
Surface Rights and Access:
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 of such surface rights, and therefore it may be
unable to carry out planned 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.
No Assurance of
Profitability: The Company has no history of production or earnings and due
to the nature of its business there can be no assurance that the Company will be
profitable. The Company has not paid dividends on its shares since incorporation
and does not anticipate doing so in the foreseeable future. The Company’s
property is in the exploration stage and the Company has not defined or
delineated any proven or probable reserves on its property. The Company’s
property is not currently under development. Continued exploration of its
existing property and the future development of any properties found to be
economically feasible, will require significant funds. The only present source
of funds available to the Company is through the sale of its equity shares,
short-term, high-cost borrowing or the sale or optioning of a portion of its
interest in its mineral properties. Even if the results of exploration are
encouraging, the Company may not have sufficient funds to conduct the further
exploration that may be necessary to determine whether or not a commercially
mineable deposit exists. While the Company may generate additional working
capital through further equity offerings, short-term borrowing or through the
sale or possible syndication of its property, there is no assurance that any
such funds will be available on favourable terms, or at all. At present, it is
impossible to determine what amounts of additional funds, if any, may be
required. Failure to raise such additional capital could put the continued
viability of the Company at risk.
Uninsured or Uninsurable
Risks: Exploration, development and mining operations involve various
hazards, including environmental hazards, industrial accidents, metallurgical
and other processing problems, unusual or unexpected rock formations, structural
cave-ins or slides, flooding, fires, metal losses and periodic interruptions due
to inclement or hazardous weather conditions. 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. The Company may not be
able to obtain insurance to cover 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.
11
Government Regulation: Any
exploration, development or mining operations carried on by the Company will be
subject to government legislation, policies and controls relating to
prospecting, development, production, environmental protection, mining taxes and
labour standards. The Company cannot predict whether or not such legislation,
policies or controls, as presently in effect, will remain so, and any changes
therein (for example, significant new royalties or taxes), which are completely
outside the control of the Company, may materially adversely affect to ability
of the Company to continue its planned business within any such
jurisdictions.
Market events and
conditions: Since 2008, the U.S. credit markets have experienced serious
disruption due to a deterioration in residential property values, defaults and
delinquencies in the residential mortgage market (particularly, sub-prime and
non-prime mortgages) and a decline in the credit quality of mortgage backed
securities. These problems have led to a slow-down in residential housing market
transactions, declining housing prices, delinquencies in non-mortgage consumer
credit and a general decline in consumer confidence. These conditions caused a
loss of confidence in the broader U.S. and global credit and financial markets
and resulting in the collapse of, and government intervention in, major banks,
financial institutions and insurers and creating a climate of greater
volatility, less liquidity, widening of credit spreads, a lack of price
transparency, increased credit losses and tighter credit conditions.
Notwithstanding various actions by the U.S. and foreign governments, concerns
about the general condition of the capital markets, financial instruments,
banks, investment banks, insurers and other financial institutions caused the
broader credit markets to further deteriorate and stock markets to decline
substantially. In addition, general economic indicators have deteriorated,
including declining consumer sentiment, increased unemployment and declining
economic growth and uncertainty about corporate earnings.
While these conditions appear to
have improved slightly in 2011 and into 2012, unprecedented disruptions in the
credit and financial markets have had a significant material adverse impact on a
number of financial institutions and have limited access to capital and credit
for many companies. These disruptions could, among other things, make it more
difficult for the Company to obtain, or increase its cost of obtaining, capital
and financing for its operations. The Company’s access to additional capital may
not be available on terms acceptable to it or at all.
General economic conditions:
The recent unprecedented events in global financial markets have had a
profound impact on the global economy. Many industries, including the gold and
base metal mining industry, are impacted by these market conditions. Some of the
key impacts of the current financial market turmoil include contraction in
credit markets resulting in a widening of credit risk, devaluations and high
volatility in global equity, commodity, foreign exchange and precious metal
markets, and a lack of market liquidity. A continued or worsened slowdown in the
financial markets or other economic conditions, including but not limited to,
consumer spending, employment rates, business conditions, inflation, fuel and
energy costs, consumer debt levels, lack of available credit, the state of the
financial markets, interest rates, and tax rates may adversely affect our growth
and profitability. Specifically:
-
The global credit/liquidity crisis could impact the cost and availability
of financing and the Company’s overall liquidity;
-
the volatility of gold and other base metal prices may impact the Company’s
future revenues, profits and cash flow;
12
-
volatile energy prices, commodity and consumables prices and currency
exchange rates impact potential production costs;
-
the devaluation and volatility of global stock markets impacts the
valuation of the common shares, which may impact the Company’s ability to
raise funds through the issuance of common shares.
These factors could have a material adverse effect on the
Company’s financial condition and results of operations.
Insufficient Financial
Resources: The Company does not presently have sufficient financial
resources to undertake by itself the preparation of a feasibility study and, if
a production decision is made, the construction of a mine at Livengood. The
completion of a feasibility study, and any construction of a mine at Livengood
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,
a possible joint venturing of the project or the securing of significant debt
financing. There is no assurance that the Company will be successful in
obtaining the required financing to complete a feasibility study or construct
and operate a mine at Livengood (should a production decision be made). Failure
to raise the required funds could result in the interest of the Company in the
Livengood project being significantly diluted or lost altogether or the Company
being unable to complete a feasibility study or construct a mine at Livengood
(following any production decision that may be made).
Financing Risks: The
Company has limited financial resources, has no source of operating cash flow
and has no assurance that additional funding will be available to it for further
exploration and development of the Livengood project or to fulfil its
obligations under any applicable agreements. Although the Company has been
successful in the past in obtaining financing through the sale of equity
securities, there can be no assurance that it will be able to obtain adequate
financing in the future or that the terms of such financing will be favourable.
Failure to obtain such additional financing could result in delay or indefinite
postponement of further exploration and development of Livengood with the
possible loss of its interest in such property.
Dilution to the Company’s
existing shareholders: The Company may require additional equity financing
be raised in the future. The Company may issue securities on less than
favourable 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.
Increased costs:
Management anticipates that costs at the Company’s projects 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 at certain operations less profitable. A
material increase in costs at any significant location could have a significant
effect on the Company’s profitability.
Dependence Upon Others and Key
Personnel: The success of the Company’s operations will depend upon numerous
factors, many of which are beyond the Company’s control, including (i) the
ability of the Company to enter into strategic alliances through a combination
of one or more joint ventures, mergers or acquisition transactions; and (ii) the
ability to attract and retain additional key personnel in exploration, mine
development, sales, marketing, technical support and finance. These and other
factors will require the use of outside suppliers as well as the talents and
efforts of the Company. There can be no assurance of success with any or all of
these factors on which the Company’s operations will depend. The Company has relied and
may continue to rely upon consultants and others for operating expertise.
13
Currency Fluctuations: The
Company maintains its accounts in Canadian and U.S. dollars, making it subject
to foreign currency fluctuations. Such fluctuations may materially affect the
Company’s financial position and results.
Share Price Volatility: 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. There can be no assurance that
significant fluctuations in the trading price of the Company’s common shares
will not occur, or that such fluctuations will not materially adversely impact
on the Company’s ability to raise equity funding without significant dilution to
its existing shareholders, or at all.
Exploration and Mining
Risks: Fires, power outages, labour disruptions, flooding, explosions,
cave-ins, landslides and the inability to obtain suitable or adequate machinery,
equipment or labour are other risks involved in the operation of mines and the
conduct of exploration programs. Substantial expenditures are required to
establish reserves through drilling, to develop metallurgical processes, 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 economics of developing mineral properties is affected by many
factors including the cost of operations, variations of the grade of ore mined,
fluctuations in the price of gold or other minerals produced, costs of
processing equipment and such other factors as government regulations, including
regulations relating to royalties, allowable production, importing and exporting
of minerals and environmental protection. In addition, the grade of
mineralization ultimately mined may differ from that indicated by drilling
results and such differences could be material. Short term factors, such as the
need for orderly development of ore bodies or the processing of new or different
grades, may have an adverse effect on mining operations and on the results of
operations. 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. Material changes in geological
resources, grades, stripping ratios or recovery rates may affect the economic
viability of projects.
Environmental
Restrictions: The activities of the Company are subject to environmental
regulations promulgated by government agencies in different countries from time
to time. 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 which means stricter standards, and
enforcement, fines and penalties for non-compliance are more stringent.
Environmental assessments of proposed projects carry a heightened degree of
responsibility for companies and directors, officers and employees. The cost of
compliance with changes in governmental regulations has a potential to reduce
the profitability of operations.
Regulatory Requirements:
The activities of the Company are subject to extensive regulations governing
various matters, including environmental protection, management and use of toxic
substances and explosives, management of natural resources, exploration,
development of mines, production and post-closure reclamation, exports, price
controls, taxation, regulations concerning business dealings with indigenous
peoples, labour standards on occupational health and safety, including mine safety, and historic and cultural preservation.
Failure to comply with applicable laws and regulations may result in civil or
criminal fines or penalties, enforcement actions thereunder, 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, any of which could
result in the Company incurring significant expenditures. The Company may also
be required to compensate those suffering loss or damage by reason of a breach
of such laws, regulations or permitting requirements. It is also possible that
future laws and regulations, or more stringent enforcement of current laws and
regulations by governmental authorities, 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 property.
14
Limited Experience with
Development-Stage Mining Operations: The Company has limited experience in
placing resource properties into production, and its ability to do so will be
dependent upon using the services of appropriately experienced personnel or
entering into agreements with other major resource companies that can provide
such expertise. There can be no assurance that the Company will have available
to it the necessary expertise when and if it places the Livengood project into
production.
Estimates of Mineral Reserves
and Resources and Production Risks: The mineral resource estimates included
in this MD&A 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. Production can be affected by
such factors as permitting regulations and requirements, weather, environmental
factors, unforeseen technical difficulties, unusual or unexpected geological
formations and work interruptions. Short term factors, such as the need for
orderly development of deposits or the processing of new or different grades,
may have a material adverse effect on mining operations and on the results of
operations. 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. Material changes in reserves or
resources, grades, stripping ratios or recovery rates may affect the economic
viability of projects. The estimated resources described in this MD&A 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.
15
Enforcement of Civil
Liabilities: 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 to enforce judgements granted by a court in Canada against the assets
of the Company or the directors and officers of the Company residing outside of
Canada.
Mining Industry is Intensely
Competitive: The Company’s business of the acquisition, exploration and
development 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 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. Competition for
exploration resources at all levels is currently very intense, particularly
affecting the availability of manpower, drill rigs and helicopters. Increased
competition could adversely affect the Company’s ability to attract necessary
capital funding or acquire suitable producing properties or prospects for
mineral exploration in the future.
ITH may be a “passive foreign
investment company” under the U.S. Internal Revenue Code, which may result in
material adverse U.S. federal income tax consequences to investors in Common
Shares that are U.S. taxpayers: Investors in Common Shares that are U.S.
taxpayers should be aware that ITH believes that it has been in prior years, and
expects it will be in the current year, a “passive foreign investment company”
under Section 1297(a) of the U.S. Internal Revenue Code (a “PFIC”). If ITH is or
becomes a PFIC, generally any gain recognized on the sale of the Common Shares
and any “excess distributions” (as specifically defined) paid on the Common
Shares must be rateably allocated to each day in a U.S. taxpayer’s holding
period for the Common Shares. The amount of any such gain or excess distribution
allocated to prior years of such U.S. taxpayer’s holding period for the Common
Shares generally will be subject to U.S. federal income tax at the highest tax
applicable to ordinary income in each such prior year, and the U.S. taxpayer
will be required to pay interest on the resulting tax liability for each such
prior year, calculated as if such tax liability had been due in each such prior
year.
Alternatively, a U.S. taxpayer
that makes a “qualified electing fund” (a “QEF”) election with respect to ITH
generally will be subject to U.S. federal income tax on such U.S. taxpayer’s pro
rata share of ITH’s “net capital gain” and “ordinary earnings” (as specifically
defined and calculated under U.S. federal income tax rules), regardless of
whether such amounts are actually distributed by ITH. U.S. taxpayers should be
aware, however, that there can be no assurance that ITH will satisfy record
keeping requirements under the QEF rules or that ITH will supply U.S. taxpayers
with required information under the QEF rules, in event that ITH is a PFIC and a
U.S. taxpayer wishes to make a QEF election. As a second alternative, a U.S.
taxpayer may make a “mark-to-market election” if ITH is a PFIC and the Common
Shares are “marketable stock” (as specifically defined). A U.S. taxpayer that
makes a mark-to-market election generally will include in gross income, for each
taxable year in which ITH is a PFIC, an amount equal to the excess, if any, of
(a) the fair market value of the Common Shares as of the close of such taxable
year over (b) such U.S. taxpayer’s adjusted tax basis in the Common Shares.
16
| Selected
Financial Information |
The Company’s unaudited condensed consolidated interim
financial statements for the three month period ended March 31, 2012 (the
“Interim Financial Statements”) have been prepared in accordance with
International Accounting Standard (“IAS”) 34, “Interim Financial Reporting”. The
following selected financial information is taken from the Company’s Interim
Financial Statements and should be read in conjunction with those statements
along with the Company’s audited consolidated financial statements for the
period ended December 31, 2011 and for the year ended May 31, 2011. The Company
changed its fiscal year end to December 31 from May 31 effective December 31,
2011. Selected financial information appears below.
| |
|
|
|
|
|
|
| |
|
March 31, 2012 |
|
|
February 28, 2011 |
|
| |
|
$ |
|
|
$ |
|
| Description
|
|
(three months) |
|
|
(three months) |
|
| Operations: |
|
|
|
|
|
|
| Interest Income |
$ |
84,723 |
|
$ |
269,602 |
|
| Consulting fees (including share-based payments) |
|
261,861 |
|
|
122,710 |
|
| Wages and benefits (including share-based
payments) |
|
3,266,172 |
|
|
688,685 |
|
| Investor relations (including share-based payments) |
|
113,511 |
|
|
208,791 |
|
| Foreign exchange loss |
|
(20,445 |
) |
|
(154,418 |
) |
| Unrealized loss
on derivative liability |
$ |
(2,385,360 |
) |
$ |
- |
|
| |
|
|
|
|
|
|
| Net loss |
$ |
(6,331,596 |
) |
$ |
(1,424,785 |
) |
| Exchange difference on translating foreign
operations |
|
(2,178,764 |
) |
|
(3,234,484 |
) |
| |
|
|
|
|
|
|
| Comprehensive loss |
$ |
(8,510,360 |
) |
$ |
(4,659,269 |
) |
| |
|
|
|
|
|
|
| Basic and fully diluted loss per share from continuing
operations |
$ |
(0.07 |
) |
$ |
(0.02 |
) |
| |
|
|
|
|
|
|
| |
|
March 31, 2012 |
|
|
December 31, 2011 |
|
| Statement of Financial Position: |
|
|
|
|
|
|
| Cash and cash equivalents |
$ |
39,722,163 |
|
$ |
55,642,179 |
|
| Total Current Assets |
|
40,311,258 |
|
|
56,599,339 |
|
| Exploration and Evaluation Assets |
|
163,086,344 |
|
|
158,041,441 |
|
| Long term financial liabilities |
|
23,179,120 |
|
|
21,153,600 |
|
| Cash dividends |
$ |
- |
|
$ |
- |
|
Three Months Ended March 31, 2012
The Company ended the period with $39,722,163 of cash and cash
equivalents. The Company spent $14,242,742 on exploration and evaluation assets
and used $1,607,077 in operating activities. Share-based payment charges of
$1,967,740 in the quarter was due to the granting of options and recognizing the
expense associated with the vesting of certain stock options granted in the
quarter and in the prior year to employees and consultants. The Company also
recognized a loss of $2,385,360 due to the increase in the estimated fair value
of its derivative liability.
Three Months Ended March 31, 2012 compared to Three Months
Ended February 28, 2011
Due to the Company changing its fiscal year end to December 31
from May 31 during 2011, the Company’s results and activity for the three months
ended March 31, 2012 are compared to the three month period ended February 28, 2011. The following discussion
highlights certain selected financial information and changes in operations
between the three month periods ended March 31, 2012 and February 28, 2011.
17
The Company incurred a net loss of $6,331,596 for the period
ended March 31, 2012, compared to a net loss of $1,424,785 for the period ended
February 28, 2011. Share-based payment charges were $1,967,740 (February 28,
2011 - $nil). The increase in share-based payment charges during the period was
the result of stock option grants to new employees and vesting of prior stock
option grants. The Company granted 680,000 options during the three months ended
March 31, 2012 compared to 265,000 during the period ended February 28,
2011.
Excluding share-based payment charges of $1,928,876 and $nil
(February 28, 2011), wages and benefits for the period increased to $1,337,296
from $688,685 (February 28, 2011) as a result of increased personnel and hiring
of new officers during the period.
Investor relations expense decreased to $113,511 (February 28,
2011 - $208,791) due to decreased personnel and additional costs incurred during
the three months ended February 28, 2011 related to informing the investment
community about the transfer of assets to Corvus Gold Inc (“Corvus”).
Excluding share-based payment charges of $36,989 and $nil
(February 28, 2011), consulting fees increased to $224,872 (February 28, 2011 -
$122,710) due to additional fees incurred in the current period primarily for
general corporate matters and compensation benefits design and
implementation.
Regulatory expenses increased to $87,310 (February 28, 2011 –
9,966) due to the timing of payments for annual listing fees paid to the Toronto
Stock Exchange (“TSX”) and the NYSE – Amex LLC (“NYSE-A”).
Other expense categories reflected only moderate change period
over period.
Other items amounted to a loss of $2,200,252 during the current
period compared to a gain of $51,029 during the period ended February 28, 2011.
The loss in the current period resulted mainly from an unrealized loss of
$2,385,360 on the revaluation of the derivative liability at March 31, 2012. In
addition to the unrealized loss on the derivative liability, the Company had
unrealized losses on marketable securities of $22,500 (February 28, 2011 -
$9,500) and foreign exchange loss of $20,445 (February 28, 2011 – $154,418).
Offsetting these losses, the Company recognized interest income of $84,723
(February 28, 2011 – $269,602) and income from mineral property earn-in of
$143,330 related to the Terra and Chisna properties transferred to Corvus in
2010 (February 28, 2011 - $nil). During the period ended February 28, 2011 the
Company incurred spin-out costs of $54,655 related to the transfer of assets to
Corvus.
Share-based payment charges
Share-based payment charges for the period ended March 31, 2012
of $1,967,740 (February 28, 2011 -$nil) were allocated as follows:
| |
|
|
|
|
|
|
|
|
|
| |
|
Before allocation |
|
|
Share-based |
|
|
After Allocation |
|
| |
|
of share-based |
|
|
payment |
|
|
of share-based |
|
| Three months
ended March 31, 2012 |
|
payment charges |
|
|
charges |
|
|
payment charges |
|
| Consulting fees |
$ |
224,872 |
|
$ |
36,989 |
|
$ |
261,861 |
|
| Investor relations |
|
112,031 |
|
|
1,480 |
|
|
113,511 |
|
| Professional fees |
|
126,856 |
|
|
395 |
|
|
127,251 |
|
| Wages and benefits |
|
1,337,296 |
|
|
1,928,876 |
|
|
3,266,172 |
|
| |
|
|
|
$ |
1,967,740 |
|
|
|
|
18
Supplemental Information:
Comparison to Prior Quarterly
Periods
The following selected financial information is a summary of
quarterly results taken from the Company’s unaudited condensed consolidated
interim financial statements:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
4 months |
|
|
|
|
|
|
|
| |
|
March 31, |
|
|
December 31, |
|
|
August 31, |
|
|
May 31, |
|
| Description
|
|
2012 |
|
|
2011 |
|
|
2011 |
|
|
2011 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Interest Income |
$ |
84,723 |
|
$ |
270,350 |
|
$ |
320,563 |
|
$ |
317,865 |
|
| Net loss |
|
(6,331,596 |
) |
|
(2,675,646 |
) |
|
(8,364,241 |
) |
|
(1,904,306 |
) |
| Basic and diluted loss per common share |
$ |
(0.07 |
) |
$ |
(0.03 |
) |
$ |
(0.10 |
) |
$ |
(0.01 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
May 31, |
|
| |
|
|
|
|
|
|
|
|
|
|
2010 |
|
| |
|
February 28, |
|
|
November 30, |
|
|
August 31, |
|
|
(Canadian |
|
| Description
|
|
2011 |
|
|
2010 |
|
|
2010 |
|
|
GAAP) |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Interest Income |
$ |
269,602 |
|
$ |
27,142 |
|
$ |
60,537 |
|
$ |
29,643 |
|
| Net loss – continuing operations |
|
(1,424,785 |
) |
|
(2,134,304 |
) |
|
(4,094,290 |
) |
|
(7,762,533 |
) |
| Net loss – discontinued operations |
|
- |
|
|
- |
|
|
(934,157 |
) |
|
(2,153,063 |
) |
| Net loss |
|
(1,424,785 |
) |
|
(2,134,304 |
) |
|
(5,028,447 |
) |
|
(9,915,596 |
) |
| Basic and diluted loss per common share |
$ |
(0.02 |
) |
$ |
(0.03 |
) |
$ |
(0.06 |
) |
$ |
(0.16 |
) |
The discussion above provides certain reasons for some of the
variations in the quarterly numbers but, as with most junior mineral exploration
companies, the results of operations (including interest income and net losses)
are not the main factor in establishing the financial health of the Company. Of
far greater significance are the mineral properties in which the Company has, or
may earn, an interest, its working capital and its number of shares outstanding.
The results over quarters are primarily dependent upon the success of the
Company’s ongoing property evaluation program and the timing and results of the
Company’s exploration activities on its mineral properties. There are no general
trends regarding the Company’s quarterly results, and the Company’s business of
mineral exploration is not seasonal. Quarterly results can vary significantly
depending on whether the Company has abandoned any properties or granted any
stock options or paid any employee bonuses. These are factors that account for
material variations in the Company’s quarterly net losses, none of which are
predictable. The write-off of mineral properties can have a material effect on
quarterly results as and when they occur. Another factor which can cause a
material variation in net loss on a quarterly basis is the grant of stock
options due to the resulting share based payment charges which can be
significant, such as during the quarters ended March 31, 2012, August 31, 2011,
August 31, 2010 and May 31, 2010. The payment of employee bonuses (which have
tended to be awarded in November/December), being once-yearly charges, can also
materially affect operating losses. During the three month period ended March
31, 2012 and the four month period ended December 31, 2011, net loss was
significantly impacted by the change in value of the Company’s derivative
liability. General operating costs other than the specific items noted above
tend to be quite similar from period to period, although they will increase
quarter over quarter as the Company increases the number of employees as
necessary to meet the requirements of its increased work at the Livengood
project. The variation in interest income is related solely to the interest
earned on funds held by the Company, which is dependent upon the success of the
Company in raising the required financing for its activities which will vary
with overall market conditions, and is therefore difficult to predict.
19
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 and 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 and options (over which the Company has no control) and
therefore there can be no guarantee that any existing warrants and options will
be exercised. This situation is unlikely to change until such time as the
Company can develop a bankable feasibility study for the Livengood projects.
As at March 31, 2012, the Company reported cash and cash
equivalents of $39,722,163 compared to $55,642,179 at December 31, 2011. The
decrease of approximately $15.9 million resulted mainly from expenditures on the
Livengood Project through the 2011 exploration season, advancing work towards
the PFS, as well as the payments related to the December 2011 acquisition of
placer claims in the vicinity of the Livengood Project. The Company continues to
utilize its cash resources to fund the Livengood Project exploration,
permitting, prefeasibility data compilation, including related metallurgical and
geotechnical studies, and administrative requirements. Investing activities were
comprised of exploration and evaluation assets expenditures of $14,242,742
(February 28, 2011 -$7,493,136). General operating costs during the period were
$1,607,077 (February 28, 2011 -$1,823,602). Financing activities provided $nil
(February 28, 2011 - $3,690,406).
As at March 31, 2012, the Company had working capital of
$36,550,161 compared to working capital of $46,104,290 at December 31, 2011. The
Company expects that it will operate at a loss for the foreseeable future, but
believes the current cash and cash equivalents will be sufficient for it to
complete the non-discretionary activities at Livengood, and its currently
anticipated general and administrative costs, through the current fiscal year to
December 31, 2012. However, to advance the Livengood project towards permitting
and development at its optimal timeline, the Company anticipates continuing its
investigations, studies and drilling programs and anticipates spending
approximately $68 million for the 2012 fiscal year ending December 31, 2012,
subject to raising the necessary additional financing. If the Company is unable
to secure such financing it will be required to significantly curtail work on
the PFS and FS which could result in a delay in completing these studies. The
Company will require significant additional financing to continue its operations
(including general and administrative expenses) beyond that date, particularly
in connection with any post FS activities at Livengood and the development of
any mine that may be determined to be built at Livengood, 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 Livengood, or
unexpected results in connection with the ongoing work, could result in the
Company being required to raise additional funds to complete the planned FS.
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 – Insufficient Financial
Resources/Share Price Volatility”. 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.
The Company has no exposure to any asset-backed commercial
paper. Other than cash held by its subsidiaries for their immediate operating
needs in Alaska and Colorado, all of the Company’s cash reserves are on deposit
with a major Canadian chartered bank or invested in Government of Canada
Treasury Bills, Certificates of Deposit or Banker’s Acceptances issued by major
Canadian chartered banks. The Company does not believe that the credit, liquidity
or market risks with respect thereto have increased as a result of the current
market conditions. However, to achieve greater security for the preservation of
its capital, the Company has, of necessity, been required to accept lower rates
of interest which has also lowered its potential interest income.
20
There have been no material changes to the Company’s
contractual obligations for optional mineral property payments and work
commitments and committed office and equipment lease obligations as disclosed in
the Company’s MD&A for the period ended December 31, 2011.
| Transactions
with Related Parties |
During the three months ended March 31, 2012, the Company
incurred the following related party expenditures.
| |
|
|
|
|
|
|
| Relationship |
|
Purpose of transaction |
|
|
Amount |
|
| Directors of the Company |
|
Director’s fees |
|
$ |
66,333 |
|
| |
|
|
|
|
|
|
| Director of the Company |
|
Consulting fees |
|
$ |
45,000 |
|
| |
|
|
|
|
|
|
| Key management personnel |
|
Wages & Benefits (including
signing bonus) |
|
$ |
387,963 |
|
| |
|
Share-based payments |
|
$ |
1,861,491 |
|
| |
|
Consulting, investor relations
and rent |
|
$ |
42,000 |
|
| |
|
|
|
|
|
|
| A company controlled by a VP of the Company |
|
Professional fees |
|
$ |
12,500 |
|
| |
|
|
|
|
|
|
| A law firm in which a director of the Company is a partner |
|
Professional fees |
|
$ |
4,454 |
|
| |
|
|
|
|
|
|
| A
company with common officers |
|
Administration and rent |
|
$ |
9,600 |
|
Key management personnel include the Company’s Chief Executive
Officer, the Chief Financial Officer, the Chief Administrative Officer and
General Counsel, as well as certain other officers.
The Company has entered into a retainer agreement dated August
1, 2008 with Lawrence W. Talbot Law Corporation (“LWTLC”), pursuant to which
LWTLC agrees to provide legal services to the Company. Pursuant to the retainer
agreement, the Company has agreed to pay LWTLC an annual retainer of $50,000
(plus applicable taxes and disbursements). The retainer agreement may be
terminated by LWTLC on reasonable notice, and by the Company on one year’s
notice (or payment of one year’s retainer in lieu of notice).
These transactions with related parties have been valued in the
unaudited condensed consolidated interim financial statements at the estimated
fair value, which is the amount of consideration established and agreed to by
the related parties.
21
| Off-Balance
Sheet Arrangements |
The Company has no off-balance sheet arrangements.
As at the date of this MD&A there are no proposed
transactions that the board of directors, or senior management who believe that
confirmation of the decision by the board is probable, have decided to proceed
with and that have not been publicly disclosed.
| Critical
Accounting Estimates |
The preparation of the Company’s unaudited condensed
consolidated interim financial statements in accordance with IAS 34 “Interim
Financial Reporting” requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the unaudited condensed
consolidated interim financial statements, and the reported amounts of revenues
and expenses during the reporting period. Areas requiring the use of estimates
include impairment and recoverability of exploration and evaluation
expenditures, and assumptions used to determine the fair value of share-based
payments and the derivative liability. Management believes the estimates used
are reasonable; however, actual results could differ materially from those
estimates and, if so, would impact future results of operations and cash
flows.
| Financial
Instruments and Other Instruments |
The carrying values of the Company’s current financial
instruments, which include cash and cash equivalents, marketable securities,
accounts receivable, and accounts payable and accrued liabilities, approximate
their respective fair values due to their short-term maturity. Due to the short
term of all such instruments, the Company does not believe that it is exposed to
any material risk with respect thereto.
The Company’s cash and cash equivalents at March 31, 2012 was
$39,722,163 of which $34,235,058 was held in US dollars.
The Company’s accounts receivables and payables at March 31,
2012 were normal course business items that are settled on a regular basis. The
Company’s investment in Millrock Resources Inc. (‘Millrock”) and Ocean Park
Ventures Corp. (“OPV”) were carried at quoted market value, and were classified
as “fair value through profit and loss” for accounting purposes.
During December 2011, the Company acquired certain mining
claims and related rights in the vicinity of the Livengood Project located near
Fairbanks, Alaska. The aggregate consideration was USD 13,500,000 in cash plus
an additional contingent payment based on the five-year average daily gold price
(“Average Gold Price”) from the date of the acquisition. The contingent payment
will equal USD 23,148 for every dollar that the Average Gold Price exceeds USD
720 per troy ounce. If the Average Gold Price is less than USD 720/oz, there
will be no additional contingent payment. This additional contingent payment is
classified as a derivative liability.
At initial recognition on December 13, 2011 the derivative
liability was valued at USD 23,100,000. The key assumption used in the valuation
of the derivative is the estimate of the future Average Gold Price. The estimate
of the future Average Gold Price was determined using a forward curve on future
gold prices as published by the CME Group. The CME Group
represents the merger of the Chicago Mercantile Exchange (CME), the Chicago
Board of Trade (CBOT), the New York Mercantile Exchange (NYMEX) and its
commodity exchange division, Commodity Exchange, Inc. (COMEX). The fair value of
the derivative liability and the estimated future Average Gold Price in USD are
as follows:
22
| |
|
|
|
|
|
|
| |
|
Total |
|
|
Average Gold |
|
| |
|
USD |
|
|
Price (USD/oz.) |
|
| |
|
|
|
|
|
|
| Derivative value at December 13,
2011 |
$ |
23,100,000 |
|
$ |
1,720 |
|
| Unrealized (gain)
loss for the period |
|
(2,300,000 |
) |
|
|
|
| Derivative value at December 31,
2011 |
|
20,800,000 |
|
$ |
1,619 |
|
| Unrealized (gain)
loss for the period |
|
2,400,000 |
|
|
|
|
| Derivative value at March 31, 2012 |
$ |
23,200,000 |
|
$ |
1,722 |
|
| Changes in
Internal Control Over Financial Reporting |
The management of the Company is responsible for establishing
and maintaining adequate internal control over financial reporting. Internal
control over financial reporting is a process to provide reasonable assurance
regarding the reliability of the Company’s financial reporting for external
purposes in accordance with IFRS. Internal control over financial reporting
includes maintaining records that in reasonable detail accurately and fairly
reflect the Company’s transactions and dispositions of the assets of the
Company; providing reasonable assurance that transactions are recorded as
necessary for preparation of the Company’s consolidated financial statements in
accordance with IFRS; providing reasonable assurance that receipts and
expenditures are made in accordance with authorizations of management and the
directors of the Company; and providing reasonable assurance that unauthorized
acquisition, use or disposition of Company’s assets that could have a material
effect on the Company’s consolidated financial statements would be prevented or
detected on a timely basis. Because of its inherent limitations, internal
control over financial reporting is not intended to provide absolute assurance
that a misstatement of the Company’s consolidated financial statements would be
prevented or detected. The Chief Executive Officer and Chief Financial Officer
have concluded that there has been no change in the Company’s internal control
over financial reporting during the period ended March 31, 2012 that has
materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.
23
Disclosure of Outstanding Share Data as at the date of this
MD&A
Authorized and Issued capital stock:
| |
|
|
|
Authorized |
Issued |
Value |
| 500,000,000 common shares without par value |
86,683,919 |
$ 215,865,086 |
Incentive Stock Options Outstanding:
| |
|
|
| Number |
Exercise Price |
Expiry Date |
| |
|
|
| 1,165,000 |
$ 6.57 |
August 19, 2012 |
| 215,000 |
$ 9.15 |
January 10, 2013 |
| 950,000 |
$ 7.47 |
July 28, 2013 |
| 1,000,000 |
$ 8.35 |
May 9, 2016 |
| 650,000 |
$ 8.07 |
August 23, 2016 |
| 100,000 |
$ 5.64 |
November 15, 2016 |
| 650,000 |
$ 4.43 |
January 3, 2017 |
| 30,000 |
$ 4.60 |
January 9, 2017 |
| 4,760,000 |
|
|
Warrants Outstanding:
There were no share purchase warrants outstanding at the date
of this MD&A.
| Additional
Sources of Information |
Additional disclosures pertaining to the Company, including its
most recent Annual Information Form, financial statements, management
information circular, material change reports, press releases and other
information, are available on the SEDAR website at www.sedar.com or on
the Company’s website at www.ithmines.com. Readers are urged to review
these materials, including the technical reports filed with respect to the
Company’s Livengood property.
24
