Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with the condensed interim consolidated and combined carve-out financial statements and related notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q (this “Quarterly Report”) and with our audited consolidated and combined carve-out financial statements and the related notes for the fiscal year ended December 31, 2021 included in our final prospectus (the “Final Prospectus”) filed with the Securities and Exchange Commission (the “SEC”) on June 29, 2022 pursuant to Rule 424(b)(4)of the Securities Act of 1933, as amended (the “Securities Act”).
Special Note Regarding Forward-Looking Statements
This Quarterly Report contains forward-looking statements. Those statements include, but are not limited to, statements with respect to: estimated calculations of mineral reserves and resources at our properties including changes in those estimated calculations, anticipated results of exploration activities, plans and objectives, industry trends, our requirements for additional capital, treatment under applicable government regimes for permitting or attaining approvals, government regulation, environmental risks, title disputes or claims, synergies of potential future acquisitions, and our anticipated uses of the net proceeds from our initial public offering. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “could,” “should,” “would,” “achieve,” “budget,” “scheduled,” “forecasts,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” the negative of these terms and other comparable terminology. These forward-looking statements may include projections of our future financial performance, our anticipated growth strategies and anticipated trends in our industry. All forward-looking statements speak only as of the date on which they are made. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions concerning future events that are difficult to predict. Therefore, actual future events or results may differ materially from these statements. We believe that the factors that could cause our actual results to differ materially from those expressed or implied by forward-looking statements include the following: our mineral projects are all at the exploration stage; we have no mineral reserves, other than at the San Matias project; we have a limited operating history on which to base an evaluation of our business and prospects; we depend on our material projects for our future operations; our mineral resource calculations at the Santa Cruz Project are only estimates; actual capital costs, operating costs, production and economic returns may differ significantly from those we have anticipated; the title to some of the mineral properties may be uncertain or defective; our business is subject to changes in the prices of copper, gold, silver, nickel, cobalt, vanadium and platinum group metals; we have claims and legal proceedings against two of our subsidiaries; our business is subject to significant risk and hazards associated with future mining operations; we may fail to identify attractive acquisition candidates or joint ventures with strategic partners or be unable to successfully integrate acquired mineral properties or successfully manage joint ventures; our business is extensively regulated by the United States and foreign governments as well as local governments; the requirements that we obtain, maintain and renew environmental, construction and mining permits are often a costly and time-consuming process; our non-U.S. operations are subject to additional political, economic and other uncertainties not generally associated with domestic operations; and our operations may be impacted by the COVID-19 pandemic, including impacts to the availability of our workforce, government orders that may require temporary suspension of operations, and the global economy.
These factors should not be construed as exhaustive and should be read in conjunction with the risks described under the heading “Risk Factors” in our Final Prospectus. Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are disclosed under “Risk Factors” in the Final Prospectus. These risks and uncertainties, as well as other risks of which we are not aware or which we currently do not believe to be material, may cause our actual future results to be materially different than those expressed in our forward-looking statements. We caution you not to place undue reliance on these forward-looking statements. We do not undertake any obligation to make any revisions to these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events, except as required by law.
Overview
We are a United States domiciled minerals exploration and development company with a focus on developing mines from mineral deposits principally located in the United States in order to support American supply chain independence and to deliver the critical metals necessary for electrification of the economy. We believe the United States is significantly underexplored and will yield major new discoveries of these metals. Our mineral projects focus on copper, nickel, cobalt, vanadium, gold, silver, and the platinum group metals.
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“Our” mineral projects refers to our interests in such projects which may be a direct ownership interest in mineral titles (including through subsidiary entities), a right to acquire mineral titles through an earn-in or option agreement, or, in the case of our investments in publicly listed companies in Canada, through our ownership of the equity of those companies, that have an interest in such mineral projects.
Our two main mineral projects are located in the United States and are known as the Santa Cruz Copper Project (“Santa Cruz” or the “Santa Cruz Project”) in Arizona and the Tintic Copper-Gold Project (“Tintic” or the “Tintic Project”) in Utah. We have the option to acquire 100% of the mineral rights constituting the Santa Cruz Project, and we currently own an 84.3% ownership interest in the mineral rights to the Tintic Project by acreage with the balance of the mineral rights controlled by leases.
Our other key mineral projects are the Hog Heaven Project, located in Montana (the “Hog Heaven Project”), and the Ivory Coast Project, which is held through our 23% equity interest in Sama Resources Inc. (“Sama”) and our 30% direct interest in the Sama Nickel Corporation Inc. joint venture.
We also have investments in publicly traded companies in Canada, and through our ownership of equity in those companies, we have an indirect interest in mineral projects in the United States, Canada, Colombia, Ivory Coast and Peru.
In addition to our mineral projects, we also own controlling interests in two technology companies: VRB Energy Inc. (“VRB”) and Computational Geosciences Inc. (“CGI”). As of September 30, 2022, we owned 90.0% of the outstanding shares of VRB. VRB and its subsidiary companies are primarily engaged in the design, manufacture, installation, and operation of energy storage systems. As of September 30, 2022, we owned 94.3% of CGI’s outstanding shares. CGI has developed technology that consists of sophisticated codes to process geophysical data and build 3D subsurface images that could indicate the presence of various natural resources, including metallic minerals and water. CGI offers mineral prospectivity and drill target identification services, data analytic tools and optimization of operational processes. CGI provides fee-for-service and licensing agreements for one-off technology applications to customers in the area of critical minerals, energy and water exploration.
Initial Public Offering
On June 30, 2022, we completed an initial public offering (“IPO”) of 14,388,000 shares of our common stock at a price of $11.75 per share, resulting in gross proceeds from the offering of $169.1 million. The Company’s shares were listed on the NYSE American and the Toronto Stock Exchange under the ticker symbol “IE”.
Reverse Stock Split
On June 16, 2022, we effected a reverse stock split of our outstanding common stock at a ratio of 3-for-1 (the “Reverse Stock Split”). The number of authorized shares and the par value of the common stock were not adjusted as a result of the Reverse Stock Split. In this Quarterly Report, all references to common stock, options to purchase common stock, per share data and related information have been retrospectively adjusted to reflect the effect of the Reverse Stock Split for all periods presented.
Impact of the COVID-19 Pandemic
The COVID-19 global pandemic has caused governments worldwide to implement measures to slow the spread of the outbreak through quarantines, travel restrictions, business shutdowns, and other measures. The COVID-19 pandemic has negatively affected the global economy, disrupted financial markets and international trade, resulted in increased unemployment levels and significantly affected global supply chains, all of which have and are expected to continue to affect our future exploration activities and business. To the extent the COVID-19 pandemic adversely affects our business prospects, financial condition, and results of operation, it may also have the effect of exacerbating many of the other risks described under the heading “Risk Factors” in our Final Prospectus.
Segments
We account for our business in three business segments – (i) critical metals; (ii) data processing services and (iii) energy storage systems.
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Significant Components of Results of Operations
Revenue, Cost of Sales and Gross Profit
We generate revenue from our technology businesses CGI and VRB, which are included in the data processing and energy storage systems business segments, respectively. We have not generated any revenue from our mining projects because they are in the exploration stage. We do not expect to generate any revenue from our mining projects for the foreseeable future.
Exploration Expenses
Exploration expenses include topographical, geological, geochemical and geophysical studies, exploratory drilling, trenching, sampling and activities in relation to identifying a mineral resource and then evaluating the technical feasibility and commercial viability of extracting the mineral resource, as well as value-added taxes in relation to these direct exploration and evaluation costs incurred in foreign jurisdictions where recoverability of those taxes is uncertain. Exploration expenses also include salaries, benefits and stock compensation expenses of the employees performing these activities.
Exploration expenses also include payments under earn-in and option agreements where the option right is with respect to entities owning the underlying mineral project in the exploration phase. Through our earn-in and option agreements, we have the right (and in some cases, the obligation) to fund and conduct exploration on the underlying mineral project prior to determining whether to acquire a minority or majority ownership interest through further funding the costs of such exploration and, in some cases, through direct payments to the owners of the project. In the event we cease making expenditures on an exploration mineral project or fail to incur the agreed level of exploration expenditures, we will not obtain an ownership right beyond any which may have been acquired as of the date of termination.
General and Administrative Expenses
Our general and administrative expenses consist of salaries and benefits, stock compensation, professional and consultant fees, insurance and other general administration costs. Our general and administrative expenses have increased significantly now that we are operating as a public company and have commenced strengthening our management team. We expect higher costs related to salaries, benefits, stock compensation, legal fees, compliance and corporate governance, accounting and audit expenses, stock exchange listing fees, transfer agent and other shareholder-related fees, directors’ and officers’ and other insurance costs and other administrative costs.
Research and Development Expenses
Expenditures on research and development activities are recognized as an expense in the period in which they are incurred. Since 2018, the majority of our research and development expenses came from CGI’s data processing business, which includes amortization expenses related to its artificial intelligence intellectual property, which it acquired in 2018. VRB also conducts research and development activities to continue to advance its energy storage system technology. We expect research and development expenses to increase as our technology-based businesses continue to grow.
Results of Operations
Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021
For the three months ended September 30, 2022, we recorded a net loss attributable to common stockholders of $40.4 million ($0.43 per share), compared to $17.6 million ($0.28 per share) for the three months ended September 30, 2021, which was an increase of $22.7 million primarily due to a $24.0 million increase in exploration expenses.
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Exploration expenses of $34.0 million for the three months ended September 30, 2022, increased by $24.0 million from $10.0 million for the three months ended September 30, 2021. This increase is largely attributable to exploration expenditures at the Santa Cruz Project which was acquired in August 2021. During the three months ended September 30, 2022, expenditures mainly focused on exploration activities at:
● the Santa Cruz Project where $21.8 million of exploration expenditure was incurred in the quarter as compared to $2.2 million in the third quarter of 2021. Activities at Santa Cruz were focused on the ongoing large-scale drilling program. As of September 30, 2022, up to seven drill rigs were in operation and a total of 19,398 meters of drilling had been completed during the quarter. As of September 30, 2022, a total of 52,720 meters had been drilled which included 23,106 meters of exploration drilling and 29,614 meters of drilling that is being used to collect resource in-fill, geotechnical, hydrological and metallurgical information required to assess potential mine development options. In addition, in July 2022, we completed a 26.5-km2 (6,500-acre), 3D induced polarization (“IP”) and resistivity geophysical survey using our proprietary high-power Typhoon™ transmitter system. Included in the $21.8 million of exploration expenditure was a $5.7 million expense related to amounts that had been previously capitalized as part of an agreement to purchase certain land adjacent to the Santa Cruz Project. In September 2022, we elected to not proceed with the transaction and terminated the agreement and as a result the mineral interest asset was de-recognized; and
● the San Matias Project where $6.0 million of expenditure was incurred in the quarter. Activities at San Matias were focused on continuing the 25,000-meter initial phase drill program in support of the Feasibility Study.
General and administrative expenses of $6.9 million for the three months ended September 30, 2022 decreased by $1.0 million from $7.9 million in the three months ended September 30, 2021. Several items contributed to the decrease, including:
● the three months ended September 30, 2021 included $1.4 million of financing fees relating to the 2021 Series 1 Convertible Notes and common stock private placement. There was no similar expense in the three months ended September 30, 2022;
● a $0.9 million decrease in aviation expenditures in the three months ended September 30, 2022 to $0.2 million as compared to $1.1 million in the three months ended September 30, 2021.
● a $0.4 million decrease in administration expenses at Kaizen Discovery largely due to lower legal expenses in the quarter as compared to the three months ended September 30, 2021, which included significant costs related to the AM Gold litigation.
● The above decreases were offset by $1.6 million expense in relation to the new directors and officers’ insurance policy we entered into when we became a public company in June 2022. There was no similar expense in 2021.
Revenue for the three months ended September 30, 2022 was $1.2 million, an increase of $0.1 million from $1.0 million for the three months ended September 30, 2021. Although total revenue was relatively consistent with the similar period in 2021, the mix of revenue changed.
Three months ended September 30,
2022
2021
(In thousands)
CGI: Software licensing and data processing services:
Revenue
$
554
$
1,043
Cost of sales
(277)
(531)
Gross profit
$
277
512
VRB: Energy storage systems:
Revenue
$
627
2
Cost of sales
(598)
—
Gross profit
$
29
2
Total:
Revenue
$
1,181
1,045
Cost of sales
(875)
(531)
Gross profit
$
306
514
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CGI’s software licensing and data processing services to the mining and oil and gas industries represented 46.9% of our revenue for the three months ended September 30, 2022 ($0.6 million) and 99.8% for the three months ended September 30, 2021 ($1.0 million). The decrease in CGI’s revenue was a result of a new contract that CGI entered into with one of its customers upon the expiration in 2021 of a previous three-year contract. Under the new agreement with this customer, CGI agreed to license certain software for a one-time fee of $6.5 million, which was received and recognized in the first quarter of 2022. As at September 30, 2022, there only remains a final payment of $250,000 under this agreement due in 2023. We cannot provide any assurance that we will enter into any additional contracts with this customer in the future.
VRB’s energy storage system revenue represented 53.1% of our revenue for the three months ended September 30, 2022 ($0.6 million) and 0.02% for the three months ended September 30, 2021 ($0.0 million). During the three months ended September 30, 2022, VRB delivered, installed and commissioned a 125kW/500kWh energy storage system to a customer which resulted in $0.3 million of revenue being recognized. In addition, VRB also recognized $0.3 million in revenue from the sale of vanadium electrolyte.
Research and development expenses for the three months ended September 30, 2022 were $1.1 million, consistent with the $1.0 million incurred in the same period in 2021.
Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021
For the nine months ended September 30, 2022, we recorded a net loss attributable to common stockholders of $110.2 million ($1.50 per share), compared to $33.0 million ($0.54 per share) for the nine months ended September 30, 2021, which was an increase of $77.2 million. Significant contributors to this increase in the nine months ended September 30, 2022 were a $50.6 million increase in exploration expenditures, a $18.8 million increase in non-cash loss on revaluation of convertible debt and a $2.6 million increase in general and administrative expenses, offset by an increase in revenue of $4.1 million compared to the nine months ended September 30, 2021.
Exploration expenses of $75.2 million for the nine months ended September 30, 2022, increased by $50.6 million from $24.6 million for the nine months ended September 30, 2021. This increase is largely attributed to exploration expenditures at the Santa Cruz Project. During the nine months ended September 30, 2022, expenditures largely focused on exploration activities at:
● the Santa Cruz Project where $46.4 million of exploration expenditure was incurred in the nine months ended September 30, 2022 compared to $2.6 million incurred in the nine months ended September 30, 2021. Activities during the nine months ended September 30, 2022 at Santa Cruz were focused on a program of resource in-fill, geotechnical, hydrological and metallurgical drilling, in addition to a 26.5 km2 (6,500 acre) Typhoon™ 3D IP survey that was completed in July 2022. Included in the $46.4 million of exploration expenditure was a $5.7 million expense related to amounts that had been previously capitalized as part of an agreement to purchase certain land adjacent to the Santa Cruz Project. In September 2022, the agreement was terminated by the Company.
● the San Matias Project where $11.8 million of exploration expenditure was incurred in the nine months ended September 30, 2022, focused on the commencing of a Feasibility Study on the Alacran deposit in May 2022 which included starting the 25,000-metre initial phase drill program; and
● the Pinaya Project where $2.4 million of exploration expenditure was incurred in the nine months ended September 30, 2022. Activities included a 3,046-meter drill program that began in November 2021 and that was completed in January 2022 as well as expenditures related to the IP survey which began in March 2022 and that was completed on June 30, 2022.
General and administrative expenses of $16.7 million for the nine months ended September 30, 2022 increased by $2.6 million from $14.1 million in the nine months ended September 30, 2021. Several items contributed to the increase, including:
● a $1.1 million increase in accounting and audit fees largely related to the requirements of our filings and IPO;
● a $1.7 million increase in directors and officers insurance expenses during the nine months ended September 30, 2022 in relation to the new directors and officers’ insurance policy we entered into when we became a public company in June 2022. There was no similar expense in prior years;
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● a $0.7 million increase in administration expenses at VRB primarily due to an increase in professional fees in relation to certain technical studies that it was conducting;
● The above increases were offset by $1.4 million of financing fees relating to 2021 Series 1 Convertible Notes and common stock private placement in the nine month period ended September 30, 2021. There was no similar expense in the nine months ended September 30, 2022.
During the nine months ended September 30, 2022, we recorded a non-cash $19.0 million loss on revaluation of convertible debt which related to the conversion of the Notes that were automatically converted into shares of common stock upon the completion of the IPO on June 30, 2022.
Revenue for the nine months ended September 30, 2022 was $8.2 million, an increase of $4.1 million from $4.1 million for the nine months ended September 30, 2021.
Nine months ended September 30,
2022
2021
(In thousands)
CGI: Software licensing and data processing services:
Revenue
$
7,545
$
3,993
Cost of sales
(444)
(1,091)
Gross profit
$
7,101
$
2,902
VRB: Energy storage systems:
Revenue
$
627
$
106
Cost of sales
(598)
(81)
Gross profit
$
29
$
25
Total:
Revenue
$
8,172
$
4,099
Cost of sales
(1,042)
(1,172)
Gross profit
$
7,130
$
2,927
CGI’s software licensing and data processing services to the mining and oil and gas industries represented 92.3% of our revenue for the nine months ended September 30, 2022 ($7.5 million) and 97.4% for the nine months ended September 30, 2021 ($4.0 million). The increase in CGI’s revenue was a result of a new contract that CGI entered into with one of its customers upon the expiration in 2021 of a previous three-year contract. Under the new agreement with this customer, CGI agreed to license certain software for a one-time fee of $6.5 million, which was received and recognized in the first quarter of 2022. As at September 30, 2022, there only remains a final payment of $250,000 under this agreement due in 2023. We cannot provide any assurance that we will enter into any additional contracts with this customer in the future.
VRB’s energy storage system revenue represented 7.7% of our revenue for the nine months ended September 30, 2022 ($0.6 million) and 2.6% for the nine months ended September 30, 2021 ($0.1 million). During the nine months ended September 30, 2022, VRB delivered, installed and commissioned a 125kW/500kWh energy storage system to a customer which resulted in $0.3 million of revenue being recognized. In addition, VRB also recognized $0.3 million in revenue from the sale of electrolyte.
Research and development expenses for the nine months ended September 30, 2022 were $3.7 million, an increase of $1.0 million from the same period in 2021 attributable to a $0.6 million increase in research and development activity at CGI and a $0.4 million increase at VRB. Research and development activities increased in 2022 at CGI as CGI has been focused on developing its services to generate new business after completing the $6.5 million software licensing agreement.
Liquidity, Capital Resources and Capital Requirements
Cash Resources
We have recurring net losses and negative operating cash flows and we expect that we will continue to operate at a loss for the foreseeable future.
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We generate revenue only from our technology businesses. We have not generated any revenue from our mining projects and do not expect to generate any revenue from our mining projects for the foreseeable future.
We have funded our operations primarily through the sale of our equity and convertible securities.
On April 5, 2022, we raised funds by selling Series 2 Convertible Notes for gross proceeds of $86.2 million. These funds were raised to finance our activities through the completion of our IPO.
On June 30, 2022, we closed our IPO of 14,388,000 shares of our common stock at a price of $11.75 per share. The gross proceeds from the offering were approximately $169.1 million, before deducting underwriting discounts and commissions and estimated offering expenses payable by us.
At September 30, 2022, and December 31, 2021, we had cash and cash equivalents of $177.7 million and $49.9 million, respectively, and a working capital balance of $172.1 million and $17.7 million, respectively. Of the total cash and cash equivalents at September 30, 2022 and December 31, 2021, $16.7 million and $28.5 million, respectively, was not available for the general corporate purposes of the Company as these amounts were held by non-wholly-owned subsidiaries.
We believe that we will have sufficient cash resources to carry out our business plans, including our currently planned exploration activities at our mineral projects, for at least the next 12 months. We have based these estimates on our current assumptions which may require future adjustments based on our ongoing business decisions as well as, in particular, exploration success at our mineral projects. Accordingly, we may require additional cash resources earlier than we currently expect or we may need to curtail currently planned exploration activities.
Our significant operational expenses include the payments that we anticipate making under the various earn-in and option agreements to which we are a party. These agreements are structured to provide us with flexibility whereby our ability to continue to explore on a mineral project is contingent on funding agreed specified levels over specified time intervals. A summary of our mineral obligations and payments as at September 30, 2022 are as follows:
Mineral Project Obligation and Payments as at September 30, 2022 (in $ thousands)
Mineral Project
Commitment
2022
2023
2024
2025
2026-2032
Total
In $ thousands)
Santa Cruz (USA)
Discretionary
$
—
6,550
10,300
596
$
—
$
17,446
Santa Cruz (USA)
Non-discretionary
—
800
920
—
—
1,720
Total Santa Cruz (USA)
—
7,350
11,220
596
—
19,166
Tintic (USA)
Discretionary
—
5,288
—
—
—
5,288
Hog Heaven (Montana)
Discretionary
—
3,500
500
500
39,000
43,500
Ivory Coast (Ivory Coast)
Discretionary
—
—
—
—
7,762
7,762
South Voisey’s Bay (Canada)
Discretionary
—
—
4,416
—
—
4,416
Crystal Haven (Australia)
Discretionary
—
7,000
—
35,000
—
42,000
Unity (USA)
Discretionary
—
2,000
2,250
—
—
4,250
Cave & Lincoln (USA)
Discretionary
—
150
200
250
2,250
2,850
Carolina Mining (USA)
Discretionary
—
—
—
5,000
20,000
25,000
Total
$
—
$
25,288
$
18,586
$
41,346
$
69,012
$
154,232
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Cash Balances as of September 30, 2022
The table below discloses the amounts of cash disaggregated by currency denomination as of September 30, 2022 in each jurisdiction that our affiliated entities are domiciled.
Currency by Denomination (in USD Equivalents)
Canadian
Chinese
US dollars
dollars
Renminbi
Other
Total
(In $ thousands)
Jurisdiction of Entity:
USA
$
159,733
$
582
$
—
$
—
$
160,315
Cayman Islands
9,398
9
—
—
9,407
Canada
3,046
2,654
—
—
5,700
China
—
—
1,607
—
1,607
British Virgin Islands
451
2
—
—
453
Other
62
1
—
121
184
Total
$
172,690
$
3,248
$
1,607
$
121
$
177,666
Our subsidiary VRB, domiciled in the Cayman Islands, is subject to certain foreign exchange restrictions with respect to its PRC subsidiaries. There are foreign exchange policies in the PRC that limit the amount of capital that can be directly transmitted offshore from VRB’s PRC subsidiaries to VRB. Since their incorporation, these PRC subsidiaries have had accumulated losses and have not declared or paid any dividends or made any distribution of earnings.
There were no cash transfers to or from our PRC subsidiaries in the form of intercompany loans during the three and nine month periods ended September 30, 2022 and 2021.
Refer to Note 22 of our audited consolidated and combined carve out financial statements for the year ended December 31, 2021 included in the Final Prospectus, which outlines other restrictions on transfers of net assets from our consolidated subsidiaries to the Company.
Cash Flows
The following table presents our sources and uses of cash for the periods indicated:
Nine months ended September 30,
2022
2021
(In thousands)
Net cash (used in) provided by:
Operating activities
$
(78,777)
$
(29,523)
Investing activities
(38,343)
(8,803)
Financing activities
245,508
109,355
Effect of foreign exchange on cash
(572)
(183)
Total change in cash
$
127,816
$
70,846
Operating activities.
Net cash used in operating activities for the nine months ended September 30, 2022 was $78.8 million, an increase of $49.3 million from the $29.5 million of net cash used for the nine months ended September 30, 2021.
Net cash used in operating activities for all periods presented was largely spent on our exploration expenses and our general and administrative costs. We do not generate adequate cash from operations to cover our operating expenses and therefore rely on our financing activities to provide the cash resources to fund our operating and investing activities.
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Investing activities.
Our investing activities generally relate to acquisitions of mineral property interests and purchases of shares in companies that we may partner with. To date, because our mining projects are in the exploration stage, we have not incurred material capital expenditures.
Net cash used in investing activities for the nine months ended September 30, 2022 of $38.3 million was mainly attributable to $33.9 million for payments for mineral interests of which $28.8 million were for the Santa Cruz Project and $5.8 million were for the Tintic Project.
Financing activities.
During the nine months ended September 30, 2022, there was $246.5 million of net cash provided by financing activities representing the $159.3 million of net cash raised upon the closing of our IPO on September 30, 2022, and $86.2 million raised from the sale of the Series 2 Convertible Notes.
Contractual Obligations and Commitments
As of September 30, 2022, we had the following material contractual obligations in addition to our mineral project payments described above.
Payments due by period (in thousands)
Less than
More than
Total
1 year
1-3 years
4-5 years
5 years
Long-term debt obligations (a)
$
24,000
$
—
$
—
$
24,000
$
—
Leases
1,347
353
991
2
—
Other long-term contractual liabilities (b)
363
—
363
—
—
Total contractual obligations
$
25,710
$
353
$
1,354
$
24,002
$
—
(a) Long-term obligations include the $24.0 million convertible bond issued by VRB that matures in 2026 if not converted to common shares of VRB prior such date. At September 30, 2022, the value of the convertible bond including accrued interest was $26.4 million.
(b) Includes all other long-term financial liabilities reflected on our balance sheet that are contractually fixed as to timing and amount.
Off-Balance Sheet Arrangements
As of September 30, 2022, we were not involved in any off-balance sheet arrangements that have or are reasonably likely to have a material effect on our financial condition, results of operations, or liquidity.
Critical Accounting Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated and combined carve-out financial statements which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as the disclosure of contingent assets and liabilities as of the date of our financial statements.
Below are the accounting matters that we believe are critical to our financial statements due to the degree of uncertainty regarding the estimates or assumptions involved and the magnitude of the asset, liability, revenue, expense, gain or loss being reported. Actual results may vary from our estimates in amounts that may be material to the financial statements. An accounting estimate is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact our financial statements.
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We base our assumptions and estimates on historical experience and various other sources that we believe to be reasonable under the circumstances. Actual results may differ from the estimates we calculate due to changes in circumstances, global economics and politics and general business conditions. A summary of our significant accounting policies is described in Note 3 to our audited consolidated and combined carve-out financial statements for the year ended December 31, 2021 included in the Final Prospectus. We have outlined below those policies identified as being critical to the understanding of our business and results of operations and that require the application of significant management judgment in developing estimates.
Recoverable value of exploration mineral interests
We review and evaluate exploration mineral interests for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The recoverability of our exploration mineral interests and intangible assets did not involve significant estimation in the periods presented as circumstances did not indicate the carrying amount of our assets may not be recoverable. However, the recoverability of our recorded mineral interests is subject to market factors that could significantly affect the recoverability of our assets, such as commodity prices, results of exploration activities and geopolitical circumstances, particularly in Colombia. By nature, significant changes in these factors are reasonably possible to occur periodically, which could materially impact our financial statements.
Income taxes
We make estimates and judgments in determining the provision for income tax expense, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits, including interest and penalties. We are subject to income tax laws in many jurisdictions, including the United States, Canada, Colombia, Peru, the Ivory Coast and the PRC.
We report income tax in accordance with U.S. GAAP, which requires the establishment of deferred tax accounts for all temporary differences between the financial reporting and tax bases of assets and liabilities, using currently enacted tax rates. In addition, deferred tax accounts must be adjusted to reflect new rates if enacted into law.
Realization of deferred tax assets is contingent on the generation of future taxable income. As a result, we consider whether it is more likely than not that all or a portion of such assets will be realized during periods when they are available, and if not, we provide a valuation allowance for amounts not likely to be recognized. In determining our valuation allowance, we have not assumed future taxable income from sources other than the reversal of existing temporary differences. The extent to which a valuation allowance is warranted may vary as a result of changes in our estimates of future taxable income. In addition to the potential generation of future taxable income through the establishment of economic feasibility, development and operation of mines on our exploration assets, estimates of future taxable income could change in the event of disposal of assets, the identification of tax-planning strategies or changes in tax laws that would allow the benefits of future deductible temporary differences in certain entities or jurisdictions to be offset against future taxable temporary differences in other entities or jurisdictions.
We recognize the effect of uncertain income tax positions if those positions are more likely than not of being sustained. The amount recognized is subject to estimates and our judgment with respect to the likely outcome of each uncertain tax position. The amount that is ultimately incurred for an individual uncertain tax position or for all uncertain tax positions in the aggregate could differ from the amount recognized. We had no uncertain tax positions as of September 30, 2022.
Recently adopted accounting standards and recent accounting pronouncements
There were no significant updates to previously reported accounting standards. See Note 2 of the condensed interim consolidated and combined carve-out financial statements included in this Quarterly Report.
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Emerging Growth Company Status
We are an “emerging growth company”, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). The JOBS Act exempts emerging growth companies from being required to comply with new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have elected not to opt out of this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our condensed interim consolidated and combined carve-out financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
The accounting policies applied in our condensed interim consolidated and combined carve-out financial statements financial statements included elsewhere in this Quarterly Report reflect the early adoption of certain accounting standards as the JOBS Act does not preclude an emerging growth company from early adopting a new or revised accounting standard to the extent early adoption is allowed by the accounting standard.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not Applicable.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.