International Tower Hill Mines Ltd.
ITH-V: $1.35
October 31, 2008
TARGET: $4.60
RECOMMENDATION: BUY
RISK RATING: SPECULATIVE
Michael Gray, MSc – 604.694.6961
michael.gray@genuitycm.com
Colin Garner, BASc (Associate) – 604.694.6964
colin.garner@genuitycm.com
10 million oz gold potential
(all figures in C$, unless noted)
Price (10/30/2008) $1.35240.7%
Shares O/S (mm) 43.8Shares
F/D (mm) 57.6
Market cap F/D ($mm)77.8
Market float quote value($mm) 39.610-day
Ave Daily Vol (k) 40.0
Debt ($mm)$0.0
Cash ($mm)$8.0
Fully-diluted cash ($mm)$49.512-mo
Burn-rate ($mm)$6.5
Shareholders
16.4% Tocqueville
14.8% AngloGold
11.2% Cardero Res
7.7% Mgmt & Directors
President & CEO Jeff Pontius
VP Exploration Russell Myers
Chief Geologist Chris Puchner
Company profile
International Tower Hill (ITH) is an Alaska-focused mineral exploration company that was essentially created when AngloGold Ashanti (AngloGold) sold and optioned out its Alaska gold assets in mid-2006. ITH’s flagship asset is its 100% owned Livengood gold project where it has documented a 43-101 indicated and inferred resource of 4.03mm oz of gold (157 mm t at 0.8 g/t gold – using a 0.5 g/t cut-off).
• ITH has established a 4 million oz+ low-grade gold deposit at its 100%-owned, road accessible Livengood project in Alaska. ITH is poised to potentially grow its Livengood gold deposit between 5 million to 10 million oz over the next 12 months. If successful and depending on grades, ITH is well positioned to become a takeover target in 2009. We believe ITH’s pragmatic ex-AngloGold management team will spend exploration dollars wisely in this market and generate value through the expansion and documentation of its resource base.
• Challenges – ITH will need to advance and create value with its flagship Livengood project over the next 12 months, as it intends to deploy an aggressive 2009 budget that would significantly deplete its working capital. Liquidity remains a concern with limited trading in ITH shares – this will need to be addressed to attract more institutional investors. Difficult market conditions could affect ITH – we believe that they may need to raise equity in 2009, depending on the size of the exploration budget.
• Cash position – Allows for an aggressive 2009: We expect ITH will have approximately $6 million in working capital at the end of 2008. If ITH stays on an aggressive path of $6 million per year to advance its 100% Livengood gold project, then it will need to raise equity in the next 12 months. Management would clearly like to emphasize the asset growth opportunity over capital preservation in 2009, so we expect exploration budgets to be as large as possible.
• Revised valuation – Given the soft market outlook and lack of liquidity in ITH shares, we use the midpoint of our conservative and base case 12-month NAV ($264 million or $4.57 per share). This contemplates a projected potential resource size at its flagship Livengood gold deposit of approximately 5-7 million oz to be documented over the next 12 months (at an EV of US$30.00/oz). Thus, we continue to recommend ITH as a BUY with a 12-month target of $4.60 (unchanged). We believe ITH is suitable for risk-tolerant investors only.
Genuity Capital Markets www.genuitycm.com
Position in Sector/Performance Review
ITH is trading -15% from its July 3, 2008 price and is off -26% since we initiated coverage in January 2008 (Exhibit 10). This is one of the strongest performances amongst our coverage list and has outperformed the TSX-V (-66%). We believe ITH’s pragmatic ex-AngloGold management team will spend exploration dollars wisely in this market and generate value through the expansion and documentation of its resource base.
Exhibit 10: ITH relative performance versus indices 050100150NovJanMarMayJulSepS&P TSX Venture CompositeITH-VS&P/TSX Gold
Source: Reuters and Genuity Capital Markets
Challenges
ITH will need to build resources at its 100% Livengood project to 5 million oz+ to 10 million oz to help further differentiate it from other North American undeveloped golds. We also believe ITH will need to overcome the perception of high capital costs in Alaska related to the Donlin Creek gold project, despite Livengood being located on a paved road 100 kilometres north of Fairbanks, Alaska.
Livengood, at 0.83 g/t gold, is low-grade and will require a reasonably high metallurgical recovery. Finally, difficult market conditions could affect ITH – we believe that it may need to raise equity in 2009 depending on the size of the exploration budget.
Cash position – Reasonable but exposed
We expect ITH will have approximately $8 million in working capital at the end of 2008. ITH will stay on an aggressive path of $6 million per year to advance its 100% Livengood gold project in order to build gold resources between 5.0 million to 10.0 million oz. However, we project ITH will only have $6.0 million at the end of 2008 and will need to raise equity in 2009. Management is placing a large emphasis on the asset growth opportunity over capital preservation. We note AngloGold (ANZ-N US$18.59, Not Rated) has the right to purchase approximately 2.35 million shares before the end of 2008, via a private placement. This could result in +/- $3 million in additional working capital for ITH, depending on its share price.