By Shane Lasley
Mining News 

Abrupt CEO departure rocks Tower Hill

Share price plummets 25 percent; management vacuum pulls in aggressive junior's founder to answer questions, examine cost issues

 

Last updated 5/27/2012 at Noon



One year after donning the mantle of chief executive officer at International Tower Hill Mines Ltd., James Komadina abruptly vacated the position recently. The unexpected departure comes less than a week after Tower Hill filed its first-quarter 2012 financial results, revealing a budget overrun of C$46.9 million on Komadina's watch.

The vacuum created in the upper echelon of Tower Hill management has pulled in company founder Jeff Pontius to help steer the company through this tumultuous period.

"My role is to get out there and answer questions and to look at those cost issues," Pontius told Mining News during a May 17 telephone interview.

Pontius, who served as Tower Hill CEO from its founding in 2006 until Komadina took over last year, played a crucial role in expanding the Livengood Project in Interior Alaska from an obscure prospect to a world-class 20-million-ounce gold deposit.


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"The Livengood project from 'Day One' really felt to me like we were on top of a very large gold system, so I was very committed to the project," Pontius told Mining News roughly a year ago on the day he stepped aside to make room for Komadina.

Using a cut-off grade of 0.22 grams of gold per metric ton, which is seen as an economic cut-off for the operation that Tower Hill currently envisions for Livengood, the Money Knob deposit contains a measured and indicated resource of 933 million metric tons averaging 0.55 grams per metric ton gold (16.5 million ounces) plus an inferred resource of 257 million metric tons averaging 0.50 g/t gold (4.1 million ounces).

Over budget

News of the sudden departure of Komadina caused already battered Tower Hill shares to plummet a precipitous 25 percent on May 15 to C$2.41 per share on the Toronto Stock Exchange from an opening price of C$3.41. The stock had tumbled some 70 percent from C$8.95 per share since Komadina took over as Tower Hill's CEO in May 2011.

Though the drop in Tower Hill stock has been particularly steep, the junior mining sector, in general, has been hit hard as worries about the global economy have caused venture capital to become scarce.

"We have taken a beating in the crappy market that we are in, but we have a good project - 20 million ounces on a highway," Pontius told Mining News.

The devaluation of Tower Hill's market cap from some C$775 million a year ago to the current C$250 million range comes at a time when the company is studying the feasibility of developing a mine at Livengood, a venture estimated to cost US$2.2 billion, according to a preliminary economic assessment updated in August of last year.


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In November 2010, Tower Hill raised C$136 million - a sum that was intended to last the company until May 2014.

When Komadina became CEO, he was handed a three-year budget of C$136.6 million. First-quarter 2012 financial results reveal that C$115.6 million, or 85 percent, of this budget had been spent by March 31. The company, however, had only planned to spend C$68.7 million through the end of May, according to its most recent financial report.

Upon the departure of Komadina, Tower Hill said its board of directors is reviewing alternative financing opportunities as well as revising the 2012 Livengood work program to fit within the company's current financial position.

"Those opportunities include raising more money at some point in time, but based on where the markets are, we have the ability to stay within our means," Pontius said.

As of March 31, Tower Hill had C$39.7 million in cash.

While the Tower Hill board may decide to postpone some work programs as it seeks ways to optimize Livengood, Pontius said these changes are not expected to affect the timeline for completion of a feasibility study in 2013 for the Interior Alaska gold project.


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"The board is charged with making sure we take care of our business from a financial standpoint, and there may be some things we may look at deferring but we are very focused on keeping the project on-track, bringing it forward," said the former Tower Hill CEO.

One of Pontius' primary tasks during this tumultuous period was to get on the phone with the largest holders of Tower Hill stock.

"Our big shareholders, I have had a chance to talk to all of them, and they are very supportive of the project and the company going forward," he said. As of May 24, Tower Hill stock prices had rebounded to C$3.45 per share.

Tocqueville Asset Management (16.4 percent), AngloGold Ashanti Ltd. (11.3 percent) and Paulson and Co. Inc. (5.9 percent) are Tower Hill's three largest shareholders.

Optimizing Livengood

When Komadina assumed the position of Tower Hill CEO, multiple scenarios for advancing Livengood to production were being considered.

As summarized in a refined PEA completed in August, Komadina had narrowed the options to a 91,000-metric-ton-per-day mill producing 12.9 million ounces of gold over 23 years. This 562,000-ounce-per-year average is expected to be significantly higher at the onset of operations due to sourcing initial ore from the higher grade heart of Money Knob's Core zone.

The PEA estimates initial capital costs of building a mine of this scale at Livengood will run about US$1.6 billion and another US$585 million or so of sustaining capital will be needed over the current 23-year mine life.

Using a base case gold price of US$1,100 per ounce, the mine outlined in the PEA would pay back the initial capital costs by the end of the first five years of production. At this price the proposed operation is forecast to generate US$3.1 billion in pre-tax cash flow, a US$1.2 billion net present value (at a 5 percent discount rate).

At US$1,400-per-ounce gold, the study's long-term case, the payback period drops to about 3.2 years and produces cumulative pre-tax cash flows of US$6.9 billion, NPV (at a 5 percent discount rate) of US$3.1 billion.

A prefeasibility study based on the updated PEA was scheduled for release in November, 2011, but has been delayed until August of this year.

Komadina explained in March, "Being a degreed metallurgist, there were many questions I had on the metallurgy of the deposit which had not been answered by the testing that was carried out in 2011."

The recently departed Tower Hill CEO said a backlog at assay labs resulting from record levels of exploration in 2011 has resulted in a slow turnaround time for the some 600 samples Tower Hill submitted for metallurgical testing.

"We are having some good results come out on encouraging metallurgy," Pontius told Mining News.

He said the company is taking current market conditions and other new information into consideration as it continues to seek ways to optimize the project that will ultimately be presented in the feasibility study.

"If the project looks different in configuration, we will want to fairly represent that project, as opposed to putting something out that might look similar to the PEA but might not be the path we are going to go on," he said.

Alaska General Manager Tom Irwin is exercising his 35 years of constructing, optimizing, operating and permitting major mining projects with companies such as Amax Gold and Kinross Gold Corp. as he leads the technical team in engineering a mine that Tower Hill can take to permitting.

"Tom and the boys up there in Fairbanks are burning the midnight oil to get this project right," Pontius said.

Tower Hill Chairman Don Ewigleben, who has some 35 years of mining experience including a stint as president and CEO of AngloGold Ashanti North America, is leading the board of directors' review of available development alternatives.

"We are very pleased with the progress we have made on the Livengood project and the range of options open to us as we manage our costs according to our financial resources," he said.

Despite burning the midnight oil, Pontius hinted that further delays in the prefeasibility study are possible.

"Our critical point is we want to get that feasibility done early next year - that is the document that is most important. We can then go out and start engaging the stakeholders and community; and we go out and talk with them about the project we would like to build," he said.


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The prefeasibility study is anticipated to be completed to a high level of confidence, paving the way for a smooth transition to the feasibility level.

The completion of the Livengood feasibility study and the start of project permitting are scheduled for mid-2013. With about three years slated for permitting and two years for construction, Tower Hill is targeting a 2018 startup of mining at the 20-million-ounce gold project.

Seeking barren land

Besides gaining a further understanding of the metallurgy, Tower Hill is still searching for a location at Livengood that is bereft of gold in order to build the mill and other infrastructure.

The largest portion of Tower Hill's budget overrun was US$24.5 million spent in December to consolidate the company's land position at Livengood. The company said the additional property provides alternative locations for site facilities.

The Tower Hill team also investigated the potential of mining the Livengood Bench, a large placer gold deposit situated on the newly acquired property.

"This gives the company an opportunity to look into placer gold extraction that could generate positive cash flows in the near-term while permitting activities are underway for the large-scale Livengood mine," Komadina told shareholders in December.

The Livengood Bench contained an estimated 355,000 ounces of gold, based on historical documentation. In February, Tower Hill released an updated resource of 5.2 million cubic yards of gold-bearing gravel at an average grade of 1 gram per metric ton gold (assuming 3,000 pounds per bank cubic yard) in several defined areas within the placer claims for a total resource of about 230,000 ounces of gold in the measured and indicated categories.

Though the resource is substantial, Tower Hill said in March it had suspended all work on the potential of mining the placer gold.

"Investigating the possibility of placer gold production from our recent placer claims acquisition was a key part of our mandate to explore all opportunities to create value for shareholders in the short-term," Komadina said March 22. "However, the results of our investigations indicate that the greatest benefits will be to optimize site facility locations for the Livengood Project."

Assay results received by Tower Hill in November revealed that condemnation drilling cut gold mineralization beyond the bounds of the Money Knob deposit to the northeast, an area that management had long envisioned as a prime site for the mill and other facilities.

Three holes - MK-11-119 (1.68 meters at 5.72 g/t gold), MK-11-120 (1.22 meters at 5 g/t gold) and MK-123 (9.77 meters at 0.83 g/t gold) - intersected mineralized dikes over a broad area north and east of the deposit indicating further mineralization potential.

To determine the extent of gold mineralization surrounding the Money Knob deposit and extending northeast towards the trio of gold-bearing holes, Tower Hill kicked off a 40-hole, 6,000-meter condemnation program at the beginning of May.

In addition to seeking barren land, Tower Hill has initiated a 3,000-meter exploration drill program to investigate the district-wide potential at Livengood. The 10 holes are slated to investigate an area some 3.5 miles (5.5 kilometers) northeast of Money Knob that was first identified by geochemical sampling carried out in 2010.


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Day job

While Pontius helps steer Tower Hill through this tumultuous time, the board of directors has convened a committee to hire a new CEO.

"We are committed to getting a new CEO and get the company back into its regular structure," Pontius said.

Though the unexpected departure of Komadina caught the company on its heels, several prospective executives have already emerged, he said.

Pontius said his name is not on the list of potential executives; he is looking forward to shifting his focus back to Corvus Gold Corp., a junior formed in 2010 to explore Tower Hill's non-Livengood assets.

"That's my day job," he quipped. "I am doing my best to help ITH go through this transition period and, believe me, I am wanting that committee to get moving on the new CEO."

Corvus' portfolio - the Terra, Chisna, LMS and West Pogo projects in Alaska and the North Bullfrog property in Nevada - provides the junior with an array of gold and copper-gold properties from early stage to near development.

The company is currently focused on North Bullfrog, a heap leach gold project located in southern Nevada just north of the historic Bullfrog gold mine formerly operated by Barrick Gold Corp. A PEA prepared in February outlines a project with low capital expenditures and robust economics.

"We have this thing in Nevada that is taking off like wildfire," Pontius said. "It is a great new exploration discovery, and I am pretty happy to work on that."

 

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