International Tower Hill Mines Ltd. (ITH) Earnings Call Transcript & Summary

Welcome to the International Tower Hill Mines Ltd. PFS Conference Call. [Operator Instructions] Please note, this event is being recorded. I'd now like to turn the conference over to Karl Hanneman, CEO. Please go ahead.

Thank you. Good afternoon, everyone, and thank you for joining us. Today, I'm excited to share the results of our pre-feasibility study for the Livengood Gold Project in Interior Alaska. Before we proceed, I would like to refer you to our cautionary statements on Slide 2. Please note that the complete 43-101 report will be available within 45 days. The pre-feasibility study, or PFS, confirms that our Livengood Gold Project is the largest independent gold resource in North America, hosting 13.6 million ounces of measured and indicated resources. To those of you who may be unfamiliar with our company, this Livengood Gold Project is ITH's only asset, giving investors great visibility into the quality and security of those ounces in the ground. Compared to other independent gold-only projects in North America, you can see on Slide 3 that ITH is the standout asset. We define independent as any project that is not 50% owned by any of the majors. We would also add that it is very difficult to find pure-play ways of gaining exposure to large assets that are not owned by companies with other assets. So again, from an investor viewpoint, ITH stands out for its pure 100% exposure to this quality and sole gold asset. Additionally, as we emerge from this pandemic, governments all around the world will be under immense fiscal pressure. And so for investors, it will be important to be invested in companies where the rule of law prevails. We think the best jurisdiction to be in is in the United States. The details of our 13.6 million ounce resource are shown here in Slide 4. Contained within our resources are 9 million ounces of reserves, which form the basis of our PFS. Our resources and reserves are supported by robust drilling programs, comprising more than 775 drill holes and 711,000 feet of drilling. The strength and size of our gold reserve is reflected in Slide 5, which shows an outstanding total life of mine production of 6.4 million ounces with average annual production in the first 5 years of approximately 389,000 ounces and an all-in sustaining cost of production for the first 5 years of $1,038 per ounce. To achieve this production, our initial CapEx is $1.93 billion and sustaining CapEx of $658 million. Slide 6 reflects the key elements of the technical work that we have undertaken during the last several years to study and derisk our project. Our goal in completing the PFS was to reflect our latest understanding of the deposit and our project in a comprehensive report, to better understand the ounces we own, to be better able to share that understanding with our shareholders and potential investors and to derisk the project from a future execution standpoint. Before starting the PFS, we spent 9 months collaborating with BBA engineering and Whittle consultants to optimize the project and evaluate alternative project configurations. I will speak more about that work in a moment. In support of the PFS, we developed a new detailed geologic model of our deposit and prepared a new resource model. Several phases of metallurgical test work were completed, giving us a better understanding of the ore body. BBA then integrated this information with first principles design and CapEx estimates, new design criteria and new OpEx estimates into the complete and thorough review of the project as announced yesterday. This PFS now provides a solid foundation for the future. I would now like to provide a little more detail on each of the major elements. The Whittle, BBA and ITH collaboration summarized on Slide 7 applies optimization strategies to an extensive array of technologies, project configurations and operating approaches to ensure that we are maximizing project value. The base case of secondary crushing with single SAG and ball mill was tested against tertiary crushing with both single-line and double-line ball mills. Stand-alone start-up heap leach configurations were examined as well as various heap leach arrangements in parallel with the mill. We are often asked whether we have considered an axillary heap leach such as our Kinross neighbors at Fort Knox have found success with. But Fort Knox is a run-of-mine heap, and our studies show that a run-of-mine heap presents too much risk for us with our best values to be by conventional milling. Livengood ore has an exceptionally high gravity recoverable gold component for its grade with all rock types having GRG above 50% and some as high as 80%. Thus, we explored whether a gravity-only circuit might add value. We also completed test work and engineering on a gravity flotation circuit with atmospheric pressure oxidation of the flotation concentrate prior to CIL. While we demonstrated technical success with pressure oxidation and achieved overall recoveries greater than 90%, it did not add value compared to our base case design. With new metallurgical test work providing much more granularity on both grind recovery and grade recovery relationships, we tested and modeled the gravity/CIL circuit at multiple grind sizes from 50 micron to 250 micron. We determined that based on existing test work, the greatest value is at 250 micron. And of note, for future opportunity, we did not find the upper bound of what grind size might add more value. We determined that there is a positive relationship between grade and recovery. And then we bent -- built all of those recovery relationships into the block model to improve the accuracy of our pit optimization, production forecast and financial model. We also explored various combinations of project ramp-up strategies, mill and mining fleet capacities as well as various stockpile and tailings management strategies. Ultimately, BBA and Whittle recommended the highest NPV project to be further detailed in the PFS should be a conventional gravity/CIL plant at P80 at 250 micron with SO2 detoxification as slurry tailings stored in the line tailing facility. Slide 6 (sic) [ Slide 8 ] discusses our improved geologic model. We completed multi-element assays on additional 20,000 pulps that previously had been assayed for gold. This almost doubled the density of our available information and allowed BBA to develop a robust geologic model using Leapfrog software. This model was used to develop mineralization domains. And for the first time, we were able to interpret and model the location of both low-grade and high-grade antimony mineralization. This allowed us to design a study program to evaluate whether there was a relationship between the antimony mineralization and the recoverability of our gold. With this new model, we also were able to identify multiple 1- to 5-meter wide, vertically dipping, structurally controlled massive stibnite solids that can now be constrained within the model to prevent smearing of higher-grade gold across the resource. Key to derisking the project is the new block bottle. Using the geological model for support, we developed a new resource block model using capped assays, 10-meter composites, 10 meter x 10 meter x 10 meter blocks and inverse distance cubed interpolation methods. We believe this is a robust and conservative estimation method that has an excellent track record of providing positive production reconciliation to plan in large and broadly mineralized ore bodies such as we have at Livengood. Our expanded metallurgical studies are summarized on Slide 10. The availability of the new geological model allowed us to select large composites from within the identified mineralization domains. Approximately 75% of the ore body has antimony concentrations below 100 ppm, while 25% of the ore body is within areas generally above 100 ppm. We selected 100-kilogram composites from within each of these domains at 3 gold ranges at the mean and 1 in 2 standard deviations above the mean to assess grade recovery and grind recovery relationships. Several years and phases of test work were completed by SGS Vancouver, progressively building upon our knowledge. We are now confident that we can achieve repeatable and predictable results from our ore body. The engineering firms and the qualified persons authoring our PFS are presented here on Slide 11. I would especially like to thank BBA, NewFields, JDS and Resource Development Associates for their dedication and collaboration throughout the pandemic to complete this complex review on schedule and budget. The lead QPs at each of these firms have been involved in our project for many years, and it shows in the level of effort and quality of their work. Mining will be by conventional open pit methods using 45-cubic-yard hydraulic shovels and 300-short-ton diesel electric haul trucks. Mining will begin with the owner fleet 2 years before production and continue for 17 years after production begins. Following mining operations, stockpiled low-grade material will be processed for an additional 3 years, resulting in a total life of mine of just over 20 years. The process flow sheet will be primary gyratory crushing followed by secondary cone crushing with single-lining SAG and ball mill grinding. After determining that the ore body supports a large throughput at start-up, the design philosophy was to drive unit costs down by selecting the largest conventional single SAG and ball mill train generally proven in service, then maximizing the throughput at our optimum grind of 80% passing 250 micron. This yielded an average throughput of 65,000 short tons per day. Grinding will be followed by enhanced gravity concentration, then 4-hour pre-oxidation, a 24-hour cyanide leads at an additional -- initial concentration of 400 ppm and a pH of 10.5 and a carbon and leads adsorption, desorption and refining system. Average gold recovery life of mine is expected to be 71.4%. Cyanide detoxification will be completed with sulfur dioxide produced from elemental sulfur with the tailings placed into a line tailings facility. As shown on Slide 13, our ore body with the optimized mine plan and flow sheet yields a strong production profile, averaging 389,000 ounces per year for the first 5 years and 308,000 ounces per year life of mine. Our OpEx at scale and robust production profile provides cash flow and EBITDA with a strong sensitivity to the price of gold. The year 1 through 5 annual average cash flow of $269 million a year almost doubles to $482 million per year at $2,500 per ounce. This Slide 15 is key for investors and shows how sensitivity to a rising price of gold provides excellent leverage. As you can see here, at $1,800 per ounce, our project has modest value, around $400 million. However, at $2,000 per ounce, our NPV 5% increases meaningfully to $975 million, around 6x our current market value. For those who, like us, believe gold prices will ultimately break higher, our NPV increases to $2.3 billion at $2,500 per ounce. This compares to our current market valuation of about $160 million. So to summarize the extraordinary leverage our project has to the rising gold prices, as gold prices go from $1,800 to $2,500, representing a 0.4x increase, our project NPV rises from $400 million to $2.3 billion or a multiple of 6x. I would also add that the NPV calculation only incorporates the 9 million ounces of reserves and does not include the additional 2.8 million ounces of resources identified at $1,980 per ounce. In a rising gold environment, a lot of these resources could fall into reserves, therefore, further increasing NPV and mine life of our project. On Slide 16, we compare ITH's valuation on a per reserve ounce basis to some other gold development public companies. Relative to our peers at $17 per ounce, we trade at the lower end using this metric. As investors begin to digest higher gold prices and we work to expand our exposure within the market, we think it is only a matter of time before they realize that ITH's valuation is too low, especially given its attributes of size and jurisdiction. The graph on Slide 17 is meant to highlight one of the positive attributes of the Livengood deposit. The deposit has an exceptionally low strip ratio, meaning we need to only move 1.2 tons of waste to access a ton of ore. When this strip ratio is viewed in conjunction with our average grade and recovery, you can see that we need to mine only a little over 100 tons to produce 1 ounce. This means less exposure to consumables such as fuel prices and leaves the open pit operation at a size where it does not become overly complex and yet still has good economies of scale. One major challenge at several gold operations has been the struggle to deliver forecast gold grade to the mill as a result of unplanned mining dilution. The [ bulk ] nature of the Livengood deposit increases our confidence in this critical area. For those of you not already familiar with Alaska or our Livengood Gold Project, I refer here to Slide 18 as I share a few brief points that help demonstrate why Interior Alaska is a good place to do business. Livengood was the last major placer gold district to be discovered in Alaska. The mining district was organized soon thereafter, and more than 1.5 million ounces of placer gold have been produced from the area within our ITH property. In recognition of its mineral potential, the State of Alaska selected the entire district as part of its land entitlement from the federal government. And in the public land use process, the State of Alaska has designated mining as the primary surface use for the Livengood area. As State of Alaska organization, the Alaska Mental Health Trust Authority has been granted ownership of a portion of the state's mineral rights in the district. Thus, the Alaska Mental Health Trust is a direct beneficiary of our Livengood development. This relationship will be of tremendous value going forward as the Mental Health Trust will be in a position to become a strong advocate during the permitting process. Alaska has a robust, rigorous and well-defined permitting path. Our Environmental Manager, Denise Herzog, and I worked together years ago to permit the greenfield Pogo project in 3.5 years. When the time is right, we are confident that we can navigate the permitting process for Livengood. On Slide 19, we have an aerial view of the Livengood project in Interior Alaska looking to the Southeast. You will note that there are no extreme mountains or glaciers. It is not the crown jewels of Alaska. The gently rolling terrain and climate is very similar to that of Fort Knox and Pogo, both of which have excellent track records of year-round operation. The point here is that Livengood is in a great location and has relatively low execution risk. Slide 20 shows that Livengood is uniquely situated with ready access to excellent infrastructure. The State of Alaska built a road to the Livengood Mining District in 1934, and that now runs right through our property. This highway is paid and served as the major lifeline to the North Slope oil fields. A railroad brings heavy freight to Fairbanks from tidewater -- and Fairbanks is a community of 100,000 with an international airport, a university and 2 military bases. The Trans-Alaska pipeline follows the highway right by Livengood on its way from the North Slope of Alaska to tidewater. We would follow this existing utility corridor for just 50 miles when connecting to the existing power grid North of Fairbanks. With more than 1,000 employees and contractors working at Pogo and Fort Knox, we have excellent workforce and vendor support, with the advantage of them being able to go home every day because our proximity to Fairbanks means that we do not need to camp. On Slide 21, you see that our gold resource area is presented in the context of our significant land position. And we believe that the best place to explore for gold is where you have already found it. Our previous work has demonstrated significant mineralization both immediately beneath and to the southwest of the existing pit-constrained resource. This potential is in part reflected in our PFS, which reported that our pit-constrained M&I mineralization increased by 2.8 million ounces or 20% from 13.6 million to 16.4 million ounces when the gold price increases from $1,650 to $1,980 per ounce. This mineralization has the potential to be upgraded in classification in a rising gold price environment. We are extraordinarily proud to have the second-to-none shareholder base of Paulson, Sprott, Electrum and Kopernik shown here on Slide 22. These shareholders are some of the most recognized long-term gold investors. Having the strength of this institutional support allowed us to pursue the patient technical work as reflected in this PFS. And I believe that this shareholder base will help drive long-term value creation for ITH investors. To sum things up, we believe that ITH has the potential to become the premier gold vehicle for investors looking for leverage to rising gold prices. As the owner of the largest independent gold-only deposit in North America, ITH offers shareholders pure-play exposure in a geopolitical safe jurisdiction. We have now completed the technical work to thoroughly understand our deposit. For investors, now is the ideal time to invest at a low valuation. Our focus as a company is on progressing this project forward by taking the advantage of the project's many great attributes, including its large mineral endowment, long mine life, low strip ratio, convenient access to critical infrastructure and skilled labor, extensive environmental baseline work, exploration upside and jurisdictional safety. We have a strong foundation for the future, and we look forward to keeping you informed of the progress we make at ITH. With that, now we will open it up to Q&A. So thank you. Operator?

[Operator Instructions] Our first question comes from Lucas Pipes from B. Riley Securities.

Congratulations on completing the PFS. And I wanted to ask, it appears to be a really comprehensive report. And from here, what other studies would be necessary to go to the FS level? Would appreciate your thoughts on that.

Yes. Well, the next engineering level would be the detailed engineering and support of permit application, and that it would be just taking the project concepts that we've now validated in preparing the detailed support for that. Fortunately, our project has the geotechnical work. And the -- a lot of the field work necessary to support that feasibility work is already completed from prior years. And so it would just be a matter of preparing the detailed engineering to support permit applications. We would also envision that because of the metallurgy that we've done and the great improvements actually in developing repeatable results through our metallurgical program that we would do some small round of drilling to develop fresh core to process through our selected flow sheet. And that would be part of the FS as well.

Got it. Got it. Very helpful. And you mentioned permitting briefly in your prepared comments just now in response to the first question. Can you update us on what permits will be required, both on the federal and state level?

Well, this would be a significant project that would go through the federal environmental impact statement process with engagement from both federal and state agencies. And so it's a comprehensive list of permittings, but we're well situated in the mining district to advance that effort when the time is right. We've always recognized that this project is levered to the price of gold. And we have said that we will take these results of the PFS and evaluate those in the context of the price of gold. And the Board was now engaged in that process.

What federal agency would be taking the lead on the permitting side?

Well, sometimes when there are multiple federal agencies involved, it's a negotiation about which agency actually becomes the lead. So it'd be premature for me to project that. But we have the Federal Corps of Engineers and the Federal Bureau of Land Management, both with significant responsibilities in the permitting process, and they would both definitely be engaged.

[Operator Instructions] Our next question comes from Mike Niehuser from ROTH Capital Partners.

This is Mike Niehuser. Interesting call. I was up to see the project years ago at a lower gold price. And at that time, you were looking at $1,500 to breakeven. And this study was done at $1,650. Is that correct?

$1,680 is our base case in the PFS.

Very good. Okay. And what was the IRR for the base case?

Yes. It's 5.3%.

Okay. And what -- can I get you to repeat the recoveries? It was -- I don't...

71.4% average over life of mine.

Very good. And if gold moves up and assuming that other cost variables move up, what do you feel like you're most exposed to in a different, more exciting gold environment where resources become a little more strained, people, all that other kind of stuff? What would be your priorities or -- of concerns?

We maybe -- maybe microchips. Yes, there has certainly been some supply constraints and -- in terms of the either large equipment or minor -- or not minor, but smaller computer electronics. We have the goal of having a lot of automation and integration in this operation and -- if we can't get chips. But that's years out. And I'm not particularly, at this time, moved or concerned about particular supply constraint. It's -- the project has still got a long runway ahead of it.

Yes. An interesting answer. I was more just thinking simply like equipment or labor, that kind of things, but it appears to me that after -- and I've been watching this kind of from the side for years, it seems like you've been really hammering away at optimizing and metallurgy and processes. And I think it's interesting that you seem to have settled on the simplest and the lowest-risk process, considering whether understanding your ore body, and I think I see that as a real positive. One more question for you. Being located in Alaska, I noticed that Contango, I think, access some Alaska money, the first of its kind, to advance their project. And it seems that there's a growing thought in Alaska from a Down South point of view that the state's becoming more engaged to develop business in Alaska, for Alaskans that will keep money in Alaska. And that -- do you see that as being a positive thing in terms of financing the project going forward? Is it -- could that be a component at any point along the line?

Well, it's certainly a very positive thing that Alaska and our government recognizes the contribution that mining makes to the economy and is willing to take steps to support it. So that's very positive. The manner in which the -- it's a certain portion of Alaska's investment capital invested into the stock of the companies is long ways from actually supporting the development of that and the development of the project. So we would not expect to rely on that, but yet the attitude that's reflected by that investment is very significant in providing supportive environment. And with our Alaska Mental Health Trust state agency benefiting from the development, there's a lot of synergy there.

Well, I watched the presentation on Fort Knox where it is in the mine life and how they are looking for additional ore to feed that mill. So I'm sure that's on the radar in the Fairbanks area. And enjoyed your call.

Yes. Thank you for your comment.

[Operator Instructions] There are no more questions in the queue. This concludes our question-and-answer session. I would like to turn the conference back over to Karl Hanneman for any closing remarks.

Well, thank you, operator. And on behalf of International Tower Hill, I'd just like to thank everyone for spending your time with us today.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.