Ivanhoe Electric Inc. 10-K

Item 8. Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm To the shareholders and the Board of Directors of Ivanhoe Electric Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Ivanhoe Electric Inc. and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated and combined carve-out statements of loss and comprehensive loss, changes in equity, and cash flows for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Deloitte LLP Chartered Professional Accountants Vancouver, Canada March 14, 2023 We have served as the Company’s auditor since 2021. 101 Table of Contents IVANHOE ELECTRIC INC. CONSOLIDATED BALANCE SHEETS (Expressed in thousands of U.S. dollars) At December 31, 2022 and 2021 2022 2021 Assets Current assets: Cash and cash equivalents $ 139,660 $ 49,850 Accounts receivable 1,497 1,385 Inventory 5,648 5,878 Prepaid expenses and deposits 4,226 1,152 151,031 58,265 Non-current assets: Investments subject to significant influence 5,998 7,701 Other investments 2,220 1,802 Exploration mineral interests 86,758 73,039 Property, plant and equipment 3,934 2,523 Intangible assets 1,249 4,340 Other non-current assets 9,296 5,861 Total assets $ 260,486 $ 153,531 Liabilities and Equity Current liabilities: Accounts payable and accrued liabilities $ 13,943 $ 10,195 Deferred consideration payable — 26,562 Lease liabilities 706 342 Contract liability 2,783 3,484 17,432 40,583 Non-current liabilities: Deferred income taxes 3,888 5,382 Convertible debt 25,918 78,832 Due to related party 10,010 — Lease liabilities, net of current portion 403 55 Other non-current liabilities 388 865 Total liabilities 58,039 125,717 Commitments and contingencies (Note 26) Equity: Common stock, par value $ 0.0001 ; 750,000,000 shares authorized; 93.0 million shares issued and outstanding as of December 31, 2022 (December 31, 2021 - 750,000,000 authorized; 63.9 million issued and outstanding) 9 6 Additional paid-in capital 409,683 75,743 Accumulated deficit ( 202,128 ) ( 52,314 ) Accumulated other comprehensive income ( 1,189 ) ( 1,502 ) Equity attributable to the Company 206,375 21,933 Non-controlling interests ( 3,928 ) 5,881 Total equity 202,447 27,814 Total liabilities and equity $ 260,486 $ 153,531 F-1 Table of Contents IVANHOE ELECTRIC INC. CONSOLIDATED AND COMBINED CARVE-OUT STATEMENTS OF LOSS AND COMPREHENSIVE LOSS (Expressed in thousands of U.S. dollars,except for share and per share amounts) Years ended December 31, 2022 and 2021 2022 2021 Revenue $ 8,440 $ 4,652 Cost of sales ( 3,135 ) ( 1,520 ) Gross profit 5,305 3,132 Operating expenses: Exploration expenses 105,286 39,505 General and administrative expenses 26,971 20,402 Research and development expenses 5,040 3,825 Selling and marketing expenses 173 149 Loss from operations 132,165 60,749 Other expenses (income): Interest expense, net 972 1,534 Foreign exchange loss (gain) 1,327 ( 254 ) Share of loss of equity method investees 3,711 213 Loss on revaluation of investments 1,450 634 Loss on revaluation of convertible debt 18,965 4,571 Other expenses, net 1,013 580 Loss before income taxes 159,603 68,027 Income taxes 618 484 Net loss 160,221 68,511 Less loss attributable to non-controlling interests ( 10,408 ) ( 9,191 ) Net loss attributable to common stockholders or parent 149,813 59,320 Net loss 160,221 68,511 Other comprehensive income, net of tax: Foreign currency translation adjustments ( 560 ) ( 89 ) Other comprehensive income ( 560 ) ( 89 ) Comprehensive loss $ 159,661 $ 68,422 Comprehensive loss attributable to: Common stockholders or parent 149,501 59,284 Non-controlling interests 10,160 9,138 $ 159,661 $ 68,422 Net loss per share attributable to common stockholders or parent Basic and diluted $ 1.91 $ 0.96 Weighted-average common shares outstanding Basic and diluted 78,527,539 61,502,094 F-2 Table of Contents IVANHOE ELECTRIC INC. CONSOLIDATED AND COMBINED CARVE-OUT STATEMENTS OF CHANGES IN EQUITY (Expressed in thousands of U.S. dollars, except for share amounts) Years ended December 31, 2022 and 2021 Common Stock Additional paid-in capital Net parent investment Accumulated deficit Accumulated other comprehensive income (loss) Non- controlling interest Total Shares Amount Balance at January 1, 2021 — — — 43,520 — ( 1,538 ) 6,710 48,692 Net loss — — — ( 7,006 ) ( 52,314 ) — ( 9,191 ) ( 68,511 ) Other comprehensive loss — — — — 36 53 89 Net transfer from parent — — — 29,140 — — — 29,140 Restructuring upon spin off (Note 1) 59,909,344 6 65,648 ( 65,654 ) — — — — Issuance of common stock, net of issuance costs 4,015,990 — 9,678 — — — — 9,678 Stock-based compensation — — 2,800 — — — 406 3,206 Other changes in non-controlling interests — — ( 2,383 ) — — — 7,903 5,520 Balance at December 31, 2021 63,925,334 6 75,743 — ( 52,314 ) ( 1,502 ) 5,881 27,814 Net loss — — — — ( 149,814 ) — ( 10,407 ) ( 160,221 ) Other comprehensive loss — — — — — 313 247 560 Issuance of common stock, net of issuance costs 14,388,000 2 158,048 — — — — 158,050 Issuance of common stock upon conversion of debt 13,628,958 1 160,139 — — — — 160,140 Issuance of common stock upon settlement of liability 945,626 — 11,111 — — — — 11,111 Stock options exercised 72,666 — 181 — — — — 181 Stock-based compensation — — 4,548 — — — 285 4,833 Other changes in non-controlling interests — — ( 87 ) — — — 66 ( 21 ) Balance at December 31, 2022 92,960,584 $ 9 $ 409,683 $ — $ ( 202,128 ) $ ( 1,189 ) $ ( 3,928 ) $ 202,447 F-3 Table of Contents IVANHOE ELECTRIC INC. CONSOLIDATED AND COMBINED CARVE-OUT STATEMENTS OF CASH FLOWS (Expressed in thousands of U.S. dollars) Years ended December 31, 2022 and 2021 2022 2021 Operating activities Net loss $ ( 160,221 ) $ ( 68,511 ) Adjustments to reconcile net loss to cash provided by (used in) operating activities: Depreciation and amortization 4,211 4,250 Stock-based compensation 4,833 3,667 Non-cash exploration expense 1,273 — Loss on de-recognition of mineral interest 5,700 — Unrealized foreign exchange (gain) loss 1,332 ( 376 ) Finance expense 2,071 1,405 Share of loss of equity method investees 3,711 213 Income taxes 618 495 Loss on revaluation of convertible debt 18,965 4,571 Loss on revaluation of investments 1,450 634 Loss on write-down of inventory 1,932 — Other 876 210 Changes in other operating assets and liabilities: Trade accounts receivable ( 112 ) 1,456 Inventory ( 2,083 ) ( 2,340 ) Operating lease liabilities ( 873 ) ( 781 ) Accounts payable and accrued liabilities 2,727 6,262 Other ( 2,144 ) 1,013 Net cash used in operating activities ( 115,734 ) ( 47,832 ) Investing activities Purchase of mineral interests ( 35,905 ) ( 14,400 ) Purchase of property, plant and equipment and intangible assets ( 8,506 ) ( 3,992 ) Purchase of investments subject to significant influence ( 3,973 ) ( 870 ) Other — ( 3,370 ) Net cash used in investing activities ( 48,384 ) ( 22,632 ) Financing activities Net proceeds from issuance of common stock 158,050 9,677 Proceeds from Ivanhoe Electric convertible notes 86,200 49,999 Proceeds from related party loan 10,000 — Proceeds from VRB convertible bond, net of issuance costs — 22,857 Net transfer from parent — 23,152 Proceeds from subsidiary financings — 5,291 Proceeds from exercise of stock options 181 — Other ( 21 ) — Net cash provided by financing activities 254,410 110,976 Effect of foreign exchange rate changes on cash and cash equivalents ( 482 ) ( 3 ) Increase in cash and cash equivalents 89,810 40,509 Cash and cash equivalents, beginning of the year 49,850 9,341 Cash and cash equivalents, end of the year $ 139,660 $ 49,850 Supplemental cash flow information Cash paid for income taxes 666 634 Supplemental disclosure of non-cash investing and financing activities Issuance of common stock upon conversion of debt $ 160,140 — Issuance of common stock upon settlement of liability 11,111 — Settlement of loan from parent — 5,886 Issuance of common stock in exchange for assets (Note 1) — 65,654 F-4 Table of Contents IVANHOE ELECTRIC INC. NOTES TO THE CONSOLIDATED AND COMBINED CARVE-OUT FINANCIAL STATEMENTS (Tabular amounts expressed in thousands of U.S. dollars, unless otherwise indicated) 1. Background and basis of preparation: Ivanhoe Electric Inc. (“Ivanhoe Electric” or “the Company”) was incorporated in the State of Delaware, USA, on July 14, 2020, as a wholly-owned subsidiary of High Power Exploration Inc. (“the Parent” or “HPX”). On April 30, 2021, HPX completed a restructuring whereby HPX contributed (i) all of the issued and outstanding shares of HPX’s subsidiaries, other than those holding direct or indirect interests in its Nimba Iron Ore Project (“Nimba Project”); (ii) certain property, plant and equipment; and (iii) certain financial assets (collectively the “Contributed Assets”) in exchange for common stock of Ivanhoe Electric. HPX then distributed 59,909,344 shares of common stock of Ivanhoe Electric to HPX stockholders by way of an in-kind dividend, with each HPX stockholder receiving one share of common stock of Ivanhoe Electric for each HPX share held by the stockholder. As HPX continued to hold its interest in Ivanhoe Electric immediately following the transfer of the Contributed Assets, there was no resultant change of control in either Ivanhoe Electric or the Contributed Assets. As such, the acquisition by Ivanhoe Electric of the Contributed Assets has been accounted for at historical cost as a transaction between entities under common control. On June 30, 2022, Ivanhoe Electric completed an initial public offering (“IPO”) of 14,388,000 shares of the Company’s 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”. Ivanhoe Electric is a mineral project exploration and development company with a focus on identifying and developing mineral projects, and ultimately mines, associated with the metals necessary for electrification, in particular, copper, nickel, cobalt, vanadium, gold, silver, and the platinum group metals. The Company’s current mineral projects are located predominantly in the United States. In addition to mineral projects in the United States, the Company also holds direct and indirect ownership interests, and in some cases controlling financial interests, in other non-U.S. mineral projects, and in proprietary mineral exploration and minerals-based technologies. The Company conducts the following business activities through certain subsidiaries: • VRB Energy Inc. (“VRB”), develops, manufactures and installs vanadium flow batteries for grid-scale energy storage. Ivanhoe Electric had an ownership interest in VRB of 90.0 % as at December 31, 2022 (December 31, 2021 —  90.0 %). • Computational Geosciences Inc. (“CGI”), provides data analytics, geophysical modelling, software licensing and artificial intelligence services for the mineral, oil & gas and water exploration industries. Ivanhoe Electric had an ownership interest in CGI of 94.3 % as at December 31, 2022 (December 31, 2021 —  94.3 %). • Cordoba Minerals Corp. (“Cordoba”) holds the San Matias copper-gold-silver project in northern Colombia. Ivanhoe Electric had an ownership interest in Cordoba of 63.2 % as at December 31, 2022 (December 31, 2021 —  63.3 %). • Kaizen Discovery Inc. (“Kaizen”) holds the Pinaya copper-gold exploration project in Peru. Ivanhoe Electric had an ownership interest in Kaizen of 82.7 % as at December 31, 2022 (December 31, 2021 —  82.7 %). Basis of preparation: These consolidated and combined carve-out financial statements have been prepared under U.S. Generally Accepted Accounting Principles (“U.S. GAAP”). Basis of preparation — Prior to the restructuring: These consolidated and combined carve-out financial statements include results of the Company for periods prior to the restructuring on April 30, 2021. Up to the date of restructuring, these financial statements have been prepared on a combined basis and the Parent’s net investment in the Company’s operations is shown in lieu of stockholders’ equity. F-5 Table of Contents IVANHOE ELECTRIC INC. NOTES TO THE CONSOLIDATED AND COMBINED CARVE-OUT FINANCIAL STATEMENTS (Tabular amounts expressed in thousands of U.S. dollars, unless otherwise indicated) All intercompany balances and transactions have been eliminated in the consolidated and combined carve-out financial statements. Prior to the restructuring, the financing of operations was historically managed by the Parent. Net parent investment represents the Parent’s historical investment in the Company and includes accumulated net earnings or losses attributable to the Parent, intercompany balances that were capitalized at the time of the restructuring and direct capital contributions and expense allocations from the Parent to the Company. Assets contributed to Ivanhoe Electric at the time of restructuring have been recorded by the Company during the periods the assets were under the control of the Parent. A description of the costs allocated to the Company is included in Note 20. Management believes the assumptions underlying the consolidated and combined carve-out financial statements, including the assumptions regarding allocation of expenses, are systematic, rational and reasonable. Nevertheless, the consolidated and combined carve-out financial statements may not include all of the actual expenses that would have been incurred by the Company on a stand-alone basis, and may not accurately reflect the Company’s historical financial position, results of operations and cash flows that would have been reported if the Company had been a stand-alone entity during the periods prior to the restructuring. The amounts that would have been or will be incurred on a stand-alone basis could differ from the amounts allocated due to economies of scale, management judgment, cash management and financing obtained as a stand-alone company, or other factors. Reverse stock split: In June 2022, the Company’s stockholders approved an amendment to the Company’s certificate of incorporation to effect a reverse stock split of the Company’s outstanding common stock at a ratio of 3-for-1 (the “Reverse Stock Split”) effective as of June 16, 2022. The number of authorized shares and the par values of the common stock were not adjusted as a result of the Reverse Stock Split. For periods before June 16, 2022, all references to common stock, options to purchase common stock, per share data, and related information contained in the financial statements have been retrospectively adjusted to reflect the effect of the Reverse Stock Split. The consolidated and combined carve-out financial statements have been prepared on a going concern basis, which presumes the realization of assets and satisfaction of liabilities in the normal course of business. References to “$” refer to United States dollars and “Cdn$” to Canadian dollars. F-6 Table of Contents IVANHOE ELECTRIC INC. NOTES TO THE CONSOLIDATED AND COMBINED CARVE-OUT FINANCIAL STATEMENTS (Tabular amounts expressed in thousands of U.S. dollars, unless otherwise indicated) 2. Significant accounting policies: (a) Basis of measurement: These consolidated and combined carve-out financial statements have been prepared on the historical cost basis except as disclosed in these accounting policies. (b) Basis of combination: The consolidated and combined carve-out financial statements include the accounts of the Company and entities controlled by HPX transferred to Ivanhoe Electric at the time of the restructuring. For entities controlled through less than a 100% ownership interest, a non-controlling interest is recorded to reflect the non-controlling interest’s share of the net loss and net assets of the entity. Principles of consolidation: The Company consolidates entities in which it has a controlling financial interest based on either the variable interest entity (“VIE”) or the voting interest model. An entity is considered to be a VIE if any of the following conditions exist: (a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support, (b) the holders of the equity investment at risk, as a group, lack either the direct or indirect ability through voting rights or similar rights to make decisions that have a significant effect on the success of the entity or the obligation to absorb the entity’s expected losses or the right to receive the entity’s expected residual returns, or (c) the voting rights of some equity investors are disproportionate to their obligation to absorb losses of the entity, their rights to receive returns from an entity, or both, and substantially all of the entity’s activities either involve or are conducted on behalf of an investor with disproportionately few voting rights. The Company consolidates entities that are VIEs when the Company determines it is the primary beneficiary. Generally, the primary beneficiary of a VIE is a reporting entity that has (a) the power to direct the activities that most significantly affect the VIE’s economic performance, and (b) the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE. The Company’s VIE’s are discussed in Note 17 (Earn-in Options) and Note 18 (Non-controlling Interests). (c) Foreign currency: The functional currency and reporting currency of Ivanhoe Electric is the U.S. dollar. Each subsidiary determines its own functional currency based on the primary economic environment in which it operates. (i) Foreign currency translation: Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at the rates of exchange in effect on the balance sheet date. Transactions in currencies other than the functional currency are measured and recorded in the functional currency at the exchange rate prevailing on the transaction date, and exchange differences arising on remeasurement are recognized in net loss. (ii) Foreign operations: The assets and liabilities of foreign operations whose functional currency is other than the reporting currency are translated into U.S. dollars at the exchange rates in effect on the balance sheet date. Revenues, expenses, gains and losses are translated using the average rates for the year. Translation adjustments are shown as a component of other comprehensive income. (d) Cash and cash equivalents: Cash and cash equivalents comprise deposits held with banks and other short-term highly liquid investments with original maturities of three months or less that are readily convertible into known amounts of cash and which are subject to insignificant risk of changes in value. F-7 Table of Contents IVANHOE ELECTRIC INC. NOTES TO THE CONSOLIDATED AND COMBINED CARVE-OUT FINANCIAL STATEMENTS (Tabular amounts expressed in thousands of U.S. dollars, unless otherwise indicated) (e) Trade accounts receivable: Trade accounts receivable are recorded at cost and do not bear interest. Management evaluates all accounts periodically and an allowance is established based on the best facts available. Management considers historical realization data, accounts receivable aging trends, other operational trends and reasonable forecasts to estimate the collectability of receivables. After all reasonable attempts to collect a receivable have been exhausted, the receivable is written off against the allowance for doubtful accounts. (f) Inventory: Inventories are stated at the lower of cost and net realizable value. Cost comprises direct materials and where applicable, direct labor costs and overheads that have been incurred in bringing the inventory to its present location and condition. Cost is calculated using the weighted average cost method. Net realizable value represents the estimated selling price less all estimated costs of completion and costs necessary to make the sale. Where cost exceeds net realizable value, the recorded value of inventory is written down to its net realizable value, and such impairment losses are not reversed in future periods. (g) Investments subject to significant influence: The Company accounts for its investments over which it has significant influence or joint control, but not a controlling financial interest, using the equity method of accounting unless it has elected to account for an investment subject to significant influence at fair value. Interests in equity-accounted investees are recognized initially at cost. Subsequently, the Company adjusts the carrying amount of the investments to fair value where the fair value option has been elected or recognizes its share of earnings or losses of the investees where applying the equity method. Where investee’s financial information is not produced in a sufficiently timely manner for the Company to apply the equity method of accounting in its consolidated financial statements, the Company records its share of earnings and losses on a lag, not to exceed three months. When a lag period is applied, the Company discloses all material intervening events. The Company evaluates its equity method investments for potential impairment whenever events or changes in circumstances indicate that there is an other-than-temporary decline in the value of the investment. Declines in fair value that are deemed to be other-than-temporary are charged to other expenses. (h) Other investments Changes in the fair value for equity securities with a readily determinable fair value are reported in the combined carve-out statement of loss. The Company records equity securities without readily determinable fair values (such as investment in common stock, warrants and options of privately held companies) at cost, less impairment, and makes subsequent adjustments to the carrying values for observable price changes for the identical or a similar investment of the same issuer. Equity securities without readily determinable fair values are written down to their fair value if a qualitative assessment indicates that the investment is impaired and the fair value of the investment is less than its carrying amount. (i) Derivatives Derivative instruments and embedded derivatives on the balance sheet are carried at fair value with changes in fair value recorded in earnings unless hedge accounting applies. The Company has not applied hedge accounting to any derivatives. (j) Mineral interests and exploration expense Direct costs for the acquisition of mineral exploration rights, including option payments, are capitalized and recorded initially at cost as mineral interests. Exploration and evaluation costs are expensed in the period incurred until such time as it has been determined that a mineral property has proven and probable reserves, in which case subsequent evaluation and costs incurred to develop a mineral property are capitalized. F-8 Table of Contents IVANHOE ELECTRIC INC. NOTES TO THE CONSOLIDATED AND COMBINED CARVE-OUT FINANCIAL STATEMENTS (Tabular amounts expressed in thousands of U.S. dollars, unless otherwise indicated) Mineral interests are not amortized until the underlying property is converted to the production stage, at which point the mineral interests are amortized over the estimated recoverable proven and probable reserves. Exploration and evaluation costs include topographical, geological, geochemical and geophysical studies, exploratory drilling, trenching, sampling, and activities in relation to evaluating the technical feasibility and commercial viability of extracting a mineral resource, as well as value-added taxes in relation to these direct exploration and evaluation costs incurred in foreign jurisdictions when recoverability of those taxes is uncertain. Exploration and evaluation costs include funding exploration and evaluation costs pursuant to earn-in arrangements through which the Company has the right to fund exploration and evaluation activities on assets owned by a third party and the opportunity to earn into a partial ownership position directly or indirectly in the underlying assets upon reaching specified funding thresholds. Earn-in arrangements generally provide no commitment by the Company for future funding and the Company is not entitled to any economic returns associated with the underlying mineral interests unless the Company chooses to fund to certain levels. (k) Property, plant and equipment: Items of property, plant and equipment are measured at cost less accumulated depreciation and any accumulated impairment losses. Major expenditures for replacements and significant improvements that increase asset values and extend useful lives are capitalized. The cost of property, plant and equipment, less its estimated residual value, is depreciated over its estimated useful lives using the straight-line method on the following bases: Asset Basis Equipment and vehicles 3 to 10 years Computer equipment 3 to 5 years Leasehold improvements Shorter of useful life and remaining lease term The useful lives, residual values and depreciation method are reviewed annually, with the effect of any changes in estimate accounted for on a prospective basis. (l) Leases: The Company assesses whether a contract is or contains a lease, at the inception of a contract. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company assesses whether the contract involves the use of an identified asset, whether the Company has the right to obtain substantially all of the economic benefits from use of the asset during the term of the arrangement and if the Company has the right to direct the use of the asset. The Company recognizes a right-of-use asset (“ROU asset”) and a corresponding lease liability at the commencement of the lease, except the company has elected not to recognize ROU assets and liabilities for leases where the total lease term is less than or equal to 12 months. The Company has elected to treat the lease and non-lease components of office leases as a single lease component. Lease liabilities are initially measured at the present value of the unpaid lease payments at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Company uses its incremental borrowing rate. Lease liabilities are subsequently measured by increasing the carrying amount to reflect interest on the lease liability and by reducing the carrying amount to reflect the lease payments made. Operating Leases The ROU asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received. F-9 Table of Contents IVANHOE ELECTRIC INC. NOTES TO THE CONSOLIDATED AND COMBINED CARVE-OUT FINANCIAL STATEMENTS (Tabular amounts expressed in thousands of U.S. dollars, unless otherwise indicated) For operating leases, the Company records the amortization of the ROU assets and the accretion of the lease liabilities as a single lease cost on a straight-line basis over the lease term. Finance Leases For finance leases, the ROU asset is subsequently amortized using the straight-line method from the lease commencement date to the earlier of the end of its useful life or the end of the lease term unless the lease transfers ownership of the underlying asset to the Company or the Company is reasonably certain to exercise an option to purchase the underlying asset. In those cases, the ROU asset is amortized over the useful life of the underlying asset. Amortization of the ROU asset is included in depreciation and interest expense on the lease liability is included in interest expense. (m) Intangible assets: Intangible assets with finite useful lives are carried at cost less accumulated amortization and accumulated impairment losses. Amortization is recognized on a straight-line basis over the asset estimated useful lives. The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in the estimate being accounted for on a prospective basis. The estimated useful lives of intangibles are: Asset Basis Patents and licenses 5 to 20 years Software 1 to 5 years Artificial Intelligence intellectual property 5 years (n) Impairment of long-lived assets: Long-lived assets, such as property, plant, and equipment and intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values or third-party independent appraisals. (o) Revenue recognition: The Company recognizes revenue from the following major sources: • Data processing services; • Sale of software licenses; and • Sale of renewable energy storage systems. (i) Data processing services: The Company sells data processing services to customers in the mineral, oil & gas and water exploration industries. The Company enters into contracts with customers with single and multiple deliverables or performance obligations. General payment terms are net 15 days. A performance obligation is a promise in a contract with a customer to transfer products or services that are distinct. Determining whether products or services are distinct performance obligations that should be accounted for separately, or combined as one unit of accounting and the allocation of the transaction price to each distinct performance obligation may require significant judgment. For short term contracts with a single deliverable, the Company recognizes revenue at the point in time when it transfers control of a distinct performance obligation to a customer. Control transfers on the agreed upon F-10 Table of Contents IVANHOE ELECTRIC INC. NOTES TO THE CONSOLIDATED AND COMBINED CARVE-OUT FINANCIAL STATEMENTS (Tabular amounts expressed in thousands of U.S. dollars, unless otherwise indicated) deliverable being delivered to the customer, the customer accepting the deliverable and the Company has not retained any significant risk of future obligations with respect to the service being provided. The Company is also entered into arrangements for the provision of long-term data processing services. Such services are recognized as a performance obligation satisfied over time. Revenue is recognized for these services based on the stage of completion of the contract using the most appropriate measure of progress towards complete satisfaction of the performance obligations. Payment for these services is in accordance with an agreed billing schedule and therefore either (i) a contract asset is recognized over the period in which the services are performed, representing the Company’s right to consideration for the services performed to date, or (ii) a contract liability is recognized until the corresponding services have been provided. (ii) Sale of software licenses: The Company enters into software license agreements where it provides the use of software to the customer. The Company recognizes revenue at the point in time that it satisfies its performance obligation by making the software available for download, meeting customer specific acceptance criteria, where applicable, and having reasonable certainty that the consideration will be received. Revenue is measured based on the consideration specified in a contract with a customer. (iii) Sale of energy storage systems: The Company designs, develops, and manufactures energy storage systems as products as well as energy storage solutions and operations & maintenance (“O&M”) services. Revenue is measured based on the consideration specified in a contract with a customer. The Company recognizes revenue when it satisfies a performance obligation by transferring a promised good or service to a customer. Energy storage systems as products are transferred at a point in time when the customer obtains control of the product, which is typically upon shipment, delivery, installation and commissioning, depending on the contract terms. Revenue is recognized for sales of battery storage solutions over time based on the estimated progress to completion using a cost-based input method. In applying the cost-based input method of revenue recognition, we use the actual costs incurred relative to the total estimated costs to determine progress towards contract completion and to calculate the corresponding amount of revenue and gross profit to recognize. The cost based input method of revenue recognition is considered a faithful depiction of efforts to satisfy energy storage solutions and therefore reflect the transfer of goods or services to a customer under such contracts. Costs incurred towards contract completion may include costs associated with direct materials, labor, subcontractors, and other indirect costs related to contract performance. The cost-based input method of revenue recognition requires the Company to make estimates of net contract revenues and costs to complete projects. O&M services are transferred over time when customers receive and consume the benefits provided by the Company’s performance under the terms of service arrangements. (p) Contingent liabilities: (i) Warranties: The Company provides maintenance on energy storage products during the warranty period, usually 1 to 5 years. Costs of warranty include the cost of labor, material and related overhead necessary to repair a product during the warranty period. The Company accrues for the estimated cost of the warranty on products shipped upon recognition of the sale of the product. The costs are estimated based on actual historical expenses incurred and on estimated future expenses related to current sales, and are updated each reporting period. (ii) Asset retirement obligations: The Company recognizes asset retirement obligations arising from regulatory, contractual or other legal requirements to perform certain property and asset reclamation activities at the end of the respective asset life. Asset retirement obligations are recorded when environmental disturbance occurs, accompanied by a legal obligation to remediate. Asset retirement obligations, or increases therein, are initially measured at fair value F-11 Table of Contents IVANHOE ELECTRIC INC. NOTES TO THE CONSOLIDATED AND COMBINED CARVE-OUT FINANCIAL STATEMENTS (Tabular amounts expressed in thousands of U.S. dollars, unless otherwise indicated) and subsequently adjusted for accretion expense and changes in the amount or timing of the estimated cash flows. (q) Research and development costs: Expenditure on research and development activities is recognized as an expense in the period in which it is incurred. (r) Stock-based compensation: The Company recognizes employee stock-based compensation as an expense in the consolidated and combined carve-out financial statements. Equity-classified awards are measured at the grant date fair value of the award. The fair value of stock options is determined using the Black-Scholes option valuation model using the grant date stock price, dividend yield, estimated amounts for volatility of the Company’s stock, the expected life of the awards and the risk-free interest rate. Compensation expense is recognized over the requisite service period for each separate tranche of the award. Forfeitures are accounted for as they occur. The fair value of stock-settled restricted stock units (“RSU’s”) is based on the Company’s stock price on the date of grant. Shares of common stock are issued at the vesting date for stock-settled RSU’s. The fair value of stock-settled RSU’s is amortized over the vesting period and recognized as an expense in the consolidated and combined carve-out financial statements. (s) Income taxes: Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company recognizes the effect of uncertain income tax positions if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest related to unrecognized tax benefits in interest expense and penalties, if any, in general and administrative expenses. Each reporting period, the Company reviews its deferred tax assets for the possibility they will not be realized. A valuation allowance will be recorded if it is more likely than not that a deferred tax asset will not be realized. (t) Fair value measurements: The Company uses valuation approaches that maximize the use of observable inputs and minimize the use of unobservable inputs, to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels (Note 22): • Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities accessible at the measurement date. • Level 2: Quoted prices in markets that are not active, quoted prices for similar assets or liabilities in active markets, quoted prices or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability, and model-based valuation techniques (e.g. the Black-Scholes model) for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. • Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity). F-12 Table of Contents IVANHOE ELECTRIC INC. NOTES TO THE CONSOLIDATED AND COMBINED CARVE-OUT FINANCIAL STATEMENTS (Tabular amounts expressed in thousands of U.S. dollars, unless otherwise indicated) (u) Net loss per share: Basic and diluted loss per share attributable to common stockholders are computed by dividing the net loss available to common stockholders by the weighted-average number of common shares outstanding for the respective period presented. The diluted net loss per share attributable to common stockholders is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period, except to the extent they are antidilutive. (v) Convertible debt: Upon the issuance of convertible debt, the Company evaluates embedded conversion features within convertible debt to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in the statement of consolidated and combined loss. If the conversion feature does not require derivative treatment, the instrument is evaluated for consideration of any beneficial conversion features or cash conversion features. The equity component, if any, is treated as a discount on the liability component of the convertible debt, which is amortized over the term of the convertible debt using the effective interest rate method. When it has been determined an instrument does not have an equity component, the Company may elect to account for the instrument at fair value with changes in fair value recorded in the statement of consolidated and combined loss, except with respect to changes in value caused by changes in the Company’s own credit risk. (w) Debt and equity issuance costs: Debt issuance costs directly related to a debt liability, including fees, commissions and legal expenses, are deferred and presented as a direct reduction from the carrying amount of the debt and amortized on an effective interest rate method over the term of the liability. Amortization of debt issuance costs is included in interest expense in the Company’s consolidated and combined carve-out statement of loss. For debt where the Company has elected fair value accounting under ASC 825, debt issuance costs are expensed on recognition in the Company’s consolidated and combined carve-out statement of net loss. Costs directly attributable to the issuance of equity in the Company are netted against the gross proceeds of the equity. F-13 Table of Contents IVANHOE ELECTRIC INC. NOTES TO THE CONSOLIDATED AND COMBINED CARVE-OUT FINANCIAL STATEMENTS (Tabular amounts expressed in thousands of U.S. dollars, unless otherwise indicated) 3. Use of estimates: The preparation of consolidated financial statements in conformity with U.S. GAAP requires management of the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, the related disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Significant areas requiring the use of estimates are as follows (i) Useful lives of property, plant and equipment and finite life intangible assets: Changes in technology or the Company’s intended use of these assets, as well as changes in business prospects or economic and industry factors, may cause the estimated useful lives of these assets to change. (ii) Recoverability of investments in equity securities: The recoverability of the carrying value of the Company’s investments in private equity securities, including those subject to significant influence, is dependent on the Company’s ability to sell the assets privately or the investees’ ability to publicly list the shares or generate profitable operations and pay dividends in the future, in each case in amounts that exceed the carrying value. Changes in the investees’ plans and value or the Company’s expectations related to the manner and timing of realizing the value of its equity investments, may result in changes in the recoverability of recorded amounts. (iii) Recoverability of deferred income tax assets: The Company has recognized significant valuation allowances against its deferred tax assets. The necessity for valuation allowances could be affected by changes in the Company’s estimates of future taxable income. In addition to the generation of future taxable income through the establishment of economic feasibility, development and operation of mines on the Company’s exploration assets, opportunities for future taxable income could arise through disposal of assets, or 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. (iv) Fair value of convertible notes: Certain convertible notes are carried in the statements of financial position at fair value, with changes in fair value reflected in the statement of loss and comprehensive loss. Fair values are estimated by reference to valuation techniques that may include inputs that are not based on observable market data (Note 13). (v) Valuation of stock options: The fair value of stock options granted by the Company is estimated using the Black-Scholes pricing model. Inputs to the model that require management judgment include the options expected life, volatility and share price for the pre-IPO grant. (Note 14). 4. Recently adopted accounting standards and recent accounting pronouncements: Income taxes The Company adopted ASU 2019-12 effective January 1, 2022. The new guidance which simplifies the accounting for income taxes, eliminates certain exceptions with ASC 740 and clarifies certain aspects of the current guidance to promote consistency among reporting entities. The adoption of ASU 2019-12 did not have a material impact on the Company’s consolidated and combined carve-out financial statements. Recent accounting pronouncements not yet adopted In August 2020, the FASB issued ASU 2020-06 Debt — Debt with Conversion and Other Options (Topic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Topic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The update is to address issues identified as a result of the complexity F-14 Table of Contents IVANHOE ELECTRIC INC. NOTES TO THE CONSOLIDATED AND COMBINED CARVE-OUT FINANCIAL STATEMENTS (Tabular amounts expressed in thousands of U.S. dollars, unless otherwise indicated) associated with applying generally accepted accounting principles for certain financial instruments with both liability and equity characteristics. The Company is required to adopt ASU 2020-06 for fiscal years beginning after December 15, 2023 and is currently evaluating the expected impact on the consolidated and combined carve-out financial statements, including the possibility of early adoption as of January 1, 2023. In June 2022, the FASB issued ASU 2022-03 Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The update is to clarify the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security. The update clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The Company intends to adopt ASU 2022-03 on January 1, 2024 and is currently evaluating the expected impact on the consolidated and combined carve-out financial statements. 5. Cash and cash equivalents: Of the total cash and cash equivalents at December 31, 2022 and 2021, $ 20.7 million and $ 28.5 million, respectively, was not available for the general corporate purposes of the Company as it was held by non-wholly-owned subsidiaries (Note 18). At December 31, 2022, the Company has $ 2.3 million in cash equivalents in the form of redeemable short-term investments (December 31, 2021 -  $ 0 ). 6. Inventory: December 31, 2022 December 31, 2021 Raw materials $ 4,935 $ 5,129 Work-in-progress 713 749 $ 5,648 $ 5,878 The Company wrote down $ 1.9 million of inventory during the year ended December 31, 2022 (December 31, 2021 - $ 0 ). 7. Investments subject to significant influence: The Company’s principal investment subject to significant influence is Sama Resources Inc. (“Sama”). Others include its investments in Fjordland Exploration Inc. (“Fjordland”) and Sama Nickel Corporation (“SNC”). The Company has elected to carry its investments in common shares of the publicly-traded companies subject to significant influence, Sama and Fjordland, at fair value. F-15 Table of Contents IVANHOE ELECTRIC INC. NOTES TO THE CONSOLIDATED AND COMBINED CARVE-OUT FINANCIAL STATEMENTS (Tabular amounts expressed in thousands of U.S. dollars, unless otherwise indicated) Carried at fair value Equity Method Sama (Note a) Fjordland (Note b) SNC (Note c) Other Total Balance at December 31, 2020 5,498 1,209 — 1,020 7,727 Investment — — 870 — 870 Change in fair value 221 91 — — 312 Share of loss — — ( 213 ) — ( 213 ) Impairment — — — ( 954 ) ( 954 ) Foreign currency translation — 25 — ( 66 ) ( 41 ) Balance at December 31, 2021 5,719 1,325 657 — 7,701 Investment — — 3,973 — 3,973 Change in fair value ( 920 ) ( 980 ) — — ( 1,900 ) Share of loss — — ( 3,711 ) — ( 3,711 ) Foreign currency translation — ( 36 ) ( 29 ) — ( 65 ) Balance at December 31, 2022 $ 4,799 $ 309 $ 890 $ — $ 5,998 (a) Sama: Sama is a mineral exploration company, listed on the TSX Venture Exchange, focused on exploring nickel — copper projects in Ivory Coast, West Africa. As at December 31, 2022, the Company owned 22.8 % (December 31, 2021 —  22.8 %) of the issued and outstanding common shares in Sama. (b) Fjordland: Fjordland is a mineral exploration company, listed on the TSX Venture Exchange, focused on the exploration and acquisition of nickel, copper and cobalt projects in Canada. As at December 31, 2022, the Company owned 16.9 % (December 31, 2021 —  18.8 %) of the issued and outstanding common shares of Fjordland. The Company has an earn-in agreement with Fjordland on its South Voisey’s Bay Project (Note 17). (c) SNC: The Company has an earn-in agreement with Sama (Note 17), whereby the Company can earn up to a 60 % interest in SNC, a subsidiary of Sama that owns the Ivory Coast Project. On August 27, 2021 the Company funded a $ 870,000 cash call to SNC which resulted in surpassing the spending threshold to earn its initial 30 % minority equity interest in SNC. The Company accounts for its 30 % interest in SNC using the equity method. 8. Exploration mineral interests: Santa Cruz (Note a) Tintic (Note b) Pinaya (Note c) San Matias (Note d) Other Total Balance at January 1, 2020 — 13,888 2,512 15,315 300 $ 32,015 Acquisition costs 35,075 5,700 — — 250 41,025 Foreign currency translation — — ( 1 ) — ( 1 ) Balance at December 31, 2021 35,075 19,588 2,511 15,315 550 73,039 Acquisition costs 11,505 7,550 — — 350 19,405 De-recognition ( 5,700 ) — — — — ( 5,700 ) Foreign currency translation — — 14 — — 14 Balance at December 31, 2022 $ 40,880 $ 27,138 $ 2,525 $ 15,315 $ 900 $ 86,758 (a) The Santa Cruz Project is a copper project near the city of Casa Grande in Arizona, USA. F-16 Table of Contents IVANHOE ELECTRIC INC. NOTES TO THE CONSOLIDATED AND COMBINED CARVE-OUT FINANCIAL STATEMENTS (Tabular amounts expressed in thousands of U.S. dollars, unless otherwise indicated) (i) Assignment agreement : On October 27, 2021, the Company entered into an agreement with Central Arizona Resources Ltd. (“CAR”), a private company, and acquired the option agreement CAR held over the Santa Cruz mineral title owned by DRH Energy Inc. (“DRHE”), and a surface use agreement CAR was party to with another private Arizona based company The total consideration paid to CAR for the assignment of the option and surface access agreements to the Company was as follows: • $ 2.5 million paid in October 2021; • $ 2.5 million paid in April 2022; • $ 15.0 million and issuance of 945,626 shares of common stock of the Company upon completion of the Company’s IPO on June 30, 2022. The purchase of the agreements was binding as the Company had no right to avoid the payment of the purchase price. On October 27, 2021, a $ 26.6 million exploration mineral interest was capitalized and a corresponding liability (reported as deferred consideration payable in the statement of financial position) was recorded. The liability was settled on June 30, 2022. (ii) Option agreement: The option agreement provides the Company with the right, but not the obligation, to acquire 100 % of the mineral title of the Santa Cruz Project by paying $ 27.9 million to DRHE over three years . As at December 31, 2022, $ 11.6 million in cash payments have been made, $ 11.1 million of which were capitalized as exploration mineral interests. In order to maintain the option, the following payments must be made: • $ 6.25 million due on or before August 16, 2023; and • $ 10.0 million due within five days of exercising the option to acquire the mineral title. The deadline to exercise the option is August 16, 2024. The payments are payable in cash or common stock of the Company at the discretion of DRHE. (iii) Surface access agreement : The surface access agreement acquired from CAR is an agreement with another Arizona based private company, which owns certain surface rights. In order to maintain surface access rights, the Company must make certain payments. As at December 31, 2022, $ 1.6 million in payments have been made and recorded as exploration expense in the consolidated and combined carve-out statement of loss. A further $ 800,000 is due on September 9, 2023. The agreement expires on August 3, 2025 but may be extended by one year at the Company’s discretion by making a payment of $ 920,000 . (iv) Terminated land purchase: On November 24, 2021, the Company entered into an agreement to acquire additional land adjacent to the Santa Cruz project and the associated mineral rights. In September 2022, the Company elected not to proceed with the transaction and terminated the purchase and sale agreement. Prior to termination of the agreement the Company had capitalized $ 5.7 million in non-refundable payments. These payments have been de-recognized and recorded as exploration expenses in the consolidated and combined carve-out statement of loss (Note 16). (b) The Tintic project is a copper-gold-silver project in the Tintic District of Utah, USA representing the Company’s accumulation of rights owned by a variety of different parties. Pursuant to agreements entered into in 2017 and 2018, the Company obtained the right to explore the underlying assets and to acquire or optionally acquire specified mineral rights of the underlying assets by making scheduled payments. Payments under these agreements are capitalized as acquisition costs while costs associated with exploring the properties are expensed as exploration costs. F-17 Table of Contents IVANHOE ELECTRIC INC. NOTES TO THE CONSOLIDATED AND COMBINED CARVE-OUT FINANCIAL STATEMENTS (Tabular amounts expressed in thousands of U.S. dollars, unless otherwise indicated) The Company must make further option payments in 2023 in the amount of $ 3.5 million in order to complete its purchase of 100 % of the assets included in the agreements. (c) The Pinaya Project is 100 % indirectly owned by Kaizen and covers 101 square kilometers of granted title, 28 square kilometers under application and includes 10 kilometers of underexplored strike length in southeastern Peru. (d) The San Matias Project is 100 %-owned by Cordoba, which includes 100 % of the Alacran Deposit and satellite deposits at Montiel East, Montiel West and Costa Azul. 9. Property, plant and equipment: The Company’s property, plant and equipment includes equipment and vehicles, computer equipment, leasehold improvements, leased assets and land. December 31, 2022 December 31, 2021 Gross Carrying Amount Accumulated depreciation Net Carrying Amount Gross Carrying Amount Accumulated depreciation Net Carrying Amount Equipment and vehicles 3,124 ( 1,959 ) 1,165 3,076 ( 2,161 ) 915 Computer equipment 587 ( 240 ) 347 400 ( 120 ) 280 Leasehold improvements 773 ( 377 ) 396 582 ( 406 ) 176 Land and buildings 858 — 858 720 — 720 Right of use assets 5,488 ( 4,320 ) 1,168 4,435 ( 4,003 ) 432 Total property, plant and equipment 10,830 ( 6,896 ) 3,934 9,213 ( 6,690 ) 2,523 Depreciation expense for the years ended December 31, 2022 and 2021 was $ 1,263,000 and $ 1,081,000 respectively. 10. Intangible assets: The Company’s intangible assets include patents and licenses, computer software and artificial intelligence intellectual property. December 31, 2022 December 31, 2021 Gross Carrying Amount Accumulated amortization Net Carrying Amount Gross Carrying Amount Accumulated amortization Net Carrying Amount Patents and licenses 13,829 ( 13,520 ) 309 13,835 ( 13,328 ) 507 Computer Software 1,187 ( 1,180 ) 7 1,201 ( 1,194 ) 7 Artificial intelligence intellectual property 13,174 ( 12,241 ) 933 14,119 ( 10,293 ) 3,826 Total intangible assets 28,190 ( 26,941 ) 1,249 29,155 ( 24,815 ) 4,340 Amortization expense for the years ended December 31, 2022 and 2021 was $ 2.9 million and $ 3.2 million respectively. F-18 Table of Contents IVANHOE ELECTRIC INC. NOTES TO THE CONSOLIDATED AND COMBINED CARVE-OUT FINANCIAL STATEMENTS (Tabular amounts expressed in thousands of U.S. dollars, unless otherwise indicated) 11. Other non-current assets: December 31, 2022 December 31, 2021 Deposit (Note a) $ 7,128 $ — Value added taxes recoverable — 1,699 Related party advances (Note 20) 1,987 1,855 Other 181 2,307 $ 9,296 $ 5,861 (a) The Company has a deposit relating to a contract to purchase additional Typhoon™ transmitters (Note 20). 12. Accounts payable and accrued liabilities: December 31, 2022 December 31, 2021 Trade accounts payable $ 4,578 $ 5,721 Accrued liabilities 6,666 2,888 Other payables 2,699 1,586 $ 13,943 $ 10,195 13. Convertible debt: Series 1 Convertible Notes (Note a) Series 2 Convertible Notes (Note a) VRB Convertible bond (Note b) Total Balance at December 31, 2020 $ — $ — $ — $ — Debt issuance 49,999 — 22,857 72,856 Finance expense — — 1,000 1,000 Change in fair value 4,976 — — 4,976 Balance at December 31, 2021 54,975 — 23,857 78,832 Debt issuance — 86,200 — 86,200 Finance expense — — 2,061 2,061 Change in fair value 8,709 10,256 — 18,965 Conversion to common stock ( 63,684 ) ( 96,456 ) — ( 160,140 ) Balance at December 31, 2022 $ — $ — $ 25,918 $ 25,918 (a) Ivanhoe Electric Convertible Notes: (i) Series 1 Convertible Notes: Between August 3, 2021 and November 17, 2021, the Company completed a financing which included the issuance of $ 50.0 million aggregate principal amount of unsecured convertible promissory notes (“Series 1 Convertible Notes”). Upon completion of the Company’s IPO on June 30, 2022, the Series 1 Convertible Notes, including accrued interest of $ 0.9 million, were automatically converted into 5,419,923 shares of common stock of the Company at a conversion price of $ 9.39 per share (Note 14). (ii) Series 2 Convertible Notes: On April 5, 2022, the Company completed a financing in which it issued $ 86.2 million aggregate principal amount of unsecured convertible promissory notes (“Series 2 Convertible Notes”). F-19 Table of Contents IVANHOE ELECTRIC INC. NOTES TO THE CONSOLIDATED AND COMBINED CARVE-OUT FINANCIAL STATEMENTS (Tabular amounts expressed in thousands of U.S. dollars, unless otherwise indicated) The Series 2 Convertible Notes were unsecured and bore interest at 3 % per annum, in arrears and payable on the maturity date of July 31, 2023. Upon completion of the Company’s IPO on June 30, 2022, the Series 2 Convertible Notes, including accrued interest of $ 0.6 million, were automatically converted into 8,209,035 shares of common stock of the Company at a conversion price of $ 10.58 per share being a 10 % discount to the gross price per share at which common stock was sold in the IPO (Note 14). The convertible notes along with their embedded features did not contain any equity components, and therefore were recognized as a liability on issuance. The Company elected to measure the convertible notes at fair value, with subsequent changes in fair value recorded in net loss. (b) VRB Convertible bond: On July 8, 2021, VRB issued a convertible bond for gross proceeds of $ 24.0 million. The bond has a five year term and interest accrues at a rate of 8 % per annum. Prior to the maturity date, the convertible bond is automatically converted into equity of VRB upon an equity financing or sale event, at a price per share equal to the lower of: • the transaction price of the equity financing or sale event; and • the valuation cap price of $ 158.0 million divided by the total shares outstanding at the time of the event. If no equity financing or sale event occurs, VRB must repay the outstanding principal and interest on maturity. The Company has accounted for the convertible bond, including its embedded features, as a debt instrument accounted at amortized cost, as it was determined the embedded features are not required to be bifurcated. Directly attributable transaction costs of $ 1.1 million were recorded against the carrying value of the debt and are amortized using the effective interest method at a rate of 9.1 %. 14. Equity: (a) Common stock transactions: (i) IPO: On June 30, 2022, the Company completed an IPO of 14,388,000 shares of common stock which were issued at a price of $ 11.75 per share for gross proceeds of $ 169.1 million. Directly attributable issuance costs of $ 11.0 million incurred in conjunction with the IPO were recorded as a reduction in paid in capital. (ii) Debt conversions: On June 30, 2022, $ 50.9 million of Series 1 Convertible Notes including accrued interest were automatically converted into 5,419,923 shares of common stock of the Company at a conversion price of $ 9.39 per share. On June 30, 2022, $ 86.8 million of Series 2 Convertible Notes including accrued interest were automatically converted to 8,209,035 shares of common stock of the Company at a conversion price of $ 10.58 per share. The stock issuance resulting from the Series 1 and Series 2 note conversions was recorded at fair value based on the IPO price of $ 11.75 per share. (iii) Stock issuance to CAR: On June 30, 2022, the Company issued 945,626 shares of common stock to CAR (Note 8). The stock issuance was recorded at fair value based on the IPO price of $ 11.75 per share. F-20 Table of Contents IVANHOE ELECTRIC INC. NOTES TO THE CONSOLIDATED AND COMBINED CARVE-OUT FINANCIAL STATEMENTS (Tabular amounts expressed in thousands of U.S. dollars, unless otherwise indicated) (iv) 2021 restructuring and financing: On April 30, 2021, Ivanhoe Electric completed a restructuring that resulted in HPX distributing 59,909,344 shares of common stock of Ivanhoe Electric to the shareholders of HPX (Note 1). In August, September and November, 2021, Ivanhoe Electric completed a financing that included the issuance of 4,015,990 shares of common stock. The shares were issued at a price of $ 2.49 per share, resulting in gross proceeds of $ 10.0 million. Directly attributable transaction costs of $ 322,000 were netted against the gross proceeds of the equity issuance. At December 31, 2022, the Company is authorized to issue 750,000,000 shares of common stock, at $ 0.0001 par value. (b) Stock-based compensation: Ivanhoe Electric, Kaizen, Cordoba, VRB and CGI have equity incentive plans and the stock-based compensation charged to operations was incurred by the Company as follows: Year ended December 31, 2022 2021 Ivanhoe Electric $ 3,407 $ 2,144 Kaizen 462 211 Cordoba 708 784 VRB 89 61 CGI 167 467 $ 4,833 $ 3,667 Option exercises at the subsidiary level, should they occur, will impact the Company’s non-controlling interest in the applicable subsidiary, not the Company’s share capital. Stock-based payment compensation was allocated to operations as follows: Year ended December 31, 2022 2021 Cost of sales $ 161 $ 333 Exploration expenses 1,643 1,558 General and administrative expenses 3,029 1,776 $ 4,833 $ 3,667 Ivanhoe Electric currently has awards outstanding under various stock-based compensation plans. The Company adopted a Long Term Incentive Plan (“LTIP”) on June 30, 2022. The LTIP provides for grants of stock options, stock awards, stock unit awards, and deferred stock unit awards. The Company’s employees, including employees who are directors, consultants and non-employee directors are eligible to receive awards under the LTIP. Stock options may not be granted with an exercise price less than the closing price of our common stock on the grant date. As of December 31, 2022, 1,217,304 shares were available for grant under the LTIP and no shares were available under other plans. (i) Stock options: On November 21, 2022, Ivanhoe Electric granted 2.76 million stock options to certain officers and employees of the Company at an exercise price of $ 11.75 per share. The options have a seven-year term and comprise three equal tranches vesting in one-third annual increments beginning one year from the grant date. On June 30, 2021, under a prior equity incentive plan, Ivanhoe Electric granted 4.48 million stock options to certain directors, officers and employees of the Company at exercise price of $ 2.49 per share. F-21 Table of Contents IVANHOE ELECTRIC INC. NOTES TO THE CONSOLIDATED AND COMBINED CARVE-OUT FINANCIAL STATEMENTS (Tabular amounts expressed in thousands of U.S. dollars, unless otherwise indicated) A summary of stock options outstanding as of December 31, 2022 and activity during the year then ended is presented below. Number of options Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (years) Aggregate Intrinsic Value Outstanding at January 1, 2022 4,483,322 $ 2.49 Granted 2,760,509 11.75 Exercised ( 72,666 ) 2.49 Forfeited/expired ( 100,001 ) 2.49 Outstanding at December 31, 2022 7,071,164 6.11 4.8 $ 42,745 Vested and exercisable at December 31, 2022 2,164,812 2.49 3.5 $ 20,912 The fair value of each stock option is estimated on the date of grant using the Black-Scholes option valuation model. Expected volatility was calculated based on the historical volatility of a group of peer companies’ common stock and a group of relevant stock market indices over the expected option life. Management exercised judgment in determining the expected life of the options and considered factors such as the contractual term of the options, the vesting schedule and expected volatility. For the June 30, 2021 grant, the grant date fair value of the shares of common stock was determined by the Company’s Board of Directors using input from a valuation performed by an independent third-party valuation specialist. The risk-free interest rate is based on Federal Reserve rates in effect for bonds with maturity dates equal to the expected term of the option. Information related to stock options granted during the years ended December 31, 2022 and 2021 is presented below. Grant date: November 21, 2022 Grant date: June 30, 2021 Weighted average assumptions used to value stock option awards: Fair value of common stock  $ 9.98 $ 2.49 Expected volatility 69.5 % 73.7 % Expected life of options (in years) 4.0 2.6 Expected dividend rate 0 % 0 % Risk-free interest rate 4.24 % 0.23 % Weighted average grant-date fair value (per option) $ 5.08 $ 1.09 At December 31, 2022 the Company had $ 13.9 million of total unrecognized compensation cost to be recognized in 2023 through 2025 in relation to stock options. (ii) Stock-settled RSU’s: On November 21, 2022 Ivanhoe Electric granted 750,000 stock-settled RSU’s to an executive of the Company. The RSU’s comprise three equal tranches vesting in one-third annual increments beginning one year from the grant date. The fair value of the stock-settled RSU’s is amortized over the vesting period. The total fair value of the November 21, 2022 RSU grant was $ 7.5 million. A summary of outstanding stock-settled RSU’s as of December 31, 2022 and activity during the year then ended is presented below. F-22 Table of Contents IVANHOE ELECTRIC INC. NOTES TO THE CONSOLIDATED AND COMBINED CARVE-OUT FINANCIAL STATEMENTS (Tabular amounts expressed in thousands of U.S. dollars, unless otherwise indicated) Number of awards Weighted-Average Grant Date Fair Value Per Award Aggregate Intrinsic Value Outstanding at January 1, 2022 — $ — Granted 750,000 9.98 Vested — — Forfeited — — Outstanding at December 31, 2022 $ 750,000 9.98 $ 9,113 At December 31, 2022 the Company had $ 6.8 million of total unrecognized compensation cost to be recognized in 2023 through 2025 in relation to stock-settled RSU’s. 15. Revenue: The Company recognized revenue from the following sources: Year ended December 31, Revenue type 2022 2021 Software licensing (Note a) $ 6,882 $ — Data processing services 847 4,512 Energy storage systems (Note b) 711 140 Total $ 8,440 $ 4,652 (a) On October 15, 2021, the Company entered into a software license agreement whereby the Company provided software that can be used by the licensee in perpetuity for a one-time fee of $ 6.5 million, which was received in January 2022 and at which time its performance obligation with respect to the license was met. As such, in accordance with the Company’s accounting policy for the sale of software licenses, the license fee revenue was recognized in 2022. Software licensing revenue includes associated services included in the software license agreement. This revenue is included in the data processing segment. (b) At December 31, 2022, the Company had a contract liability of $ 2.8 million (2021 — $ 3.5 million) relating to the sale of energy storage systems. The Company has a significant customer that accounted for 82 % and 74 % of total sales for the years ended December 31, 2022 and 2021. F-23 Table of Contents IVANHOE ELECTRIC INC. NOTES TO THE CONSOLIDATED AND COMBINED CARVE-OUT FINANCIAL STATEMENTS (Tabular amounts expressed in thousands of U.S. dollars, unless otherwise indicated) 16. Exploration expense: Year ended December 31, Project 2022 2021 Santa Cruz, USA (Note 8(a)) $ 61,172 $ 9,966 San Matias, Colombia (Cordoba) (Note 8(d)) 18,454 13,789 Pinaya, Peru (Kaizen) (Note 8(c)) 2,616 1,774 Tintic, USA (Note 8(b)) 2,282 2,474 Hog Heaven, USA (Note 17) 2,216 2,029 Yangayu, Papua New Guinea 2,128 497 Perseverance, USA (Cordoba) (Note 17) 1,785 742 Carolina, USA (Note 17) 1,307 — Lincoln, USA 1,312 235 Bitter Creek, USA 644 340 Ivory Coast Project, Ivory Coast (Note 17) 70 1,931 Project Generation and other 11,300 5,728 Total $ 105,286 $ 39,505 Exploration expense at the Santa Cruz Project for the year ended December 31, 2022 includes $ 5.7 million recorded upon the de-recognition of certain non-refundable payments made under a terminated land purchase agreement at the Santa Cruz Project (Note 8(a)). 17. Earn-in option agreements: The Company has entered into various joint venture earn-in agreements whereby it has an option to obtain ownership interests in project entities through a combination of payments to the owner and funding exploration and evaluation expenditures on the underlying exploration assets according to a specified timeframe, while determining whether it wishes to continue to invest to obtain a minority or majority interest. Under these agreements, the Company may obtain ownership rights to the underlying mineral interests through acquisition of the underlying rights or through obtaining control of the entity holding such rights. Project entities are generally considered variable interest entities prior to the Company acquiring an equity interest in the project entity (and thereafter in cases where the entity is financed through additional subordinated financial support such as shareholder debt). The Company has exercised judgment in determining that the activities that most significantly affect the project entity’s performance during the early exploration stage of the Company including the Company’s determination that its decision-making rights, which are practically limited to short-term discretionary exploration activity, are not the activities that most significantly affect the economic results of the project entities. The Company has determined that decisions that most significantly affect the economic results of a non-operating entity holding a single or primary exploration property without reserves include granting or amending exploration concessions and options as well as decisions related to the retention or abandonment of the associated mineral rights, none of which can be undertaken unilaterally by the Company. The table below shows the net carrying value of the Company’s assets in these entities, being the investment in the equity of the ultimate owner of the project (“Project Sponsor”) and the investment in the equity of the underlying project entity, respectively, as of December 31, 2022, which together represent the Company’s maximum exposure to loss on the underlying project as of December 31, 2022 as a result of the earn-in agreement and associated agreements. The Company has no liabilities on the balance sheet with respect to these entities. The Company has no minimum commitment to future expenditures in relation to these arrangements and has not issued guarantees on behalf of these entities. The table also presents certain information with respect to the earn-in option (cumulative expenditures to date, expenditures necessary to obtain an initial minority ownership right and expenditures required to achieve the maximum ownership interest available under the agreement). Exploration expenditures made in respect of these earn-in arrangements, which are at the discretion of the Company and therefore F-24 Table of Contents IVANHOE ELECTRIC INC. NOTES TO THE CONSOLIDATED AND COMBINED CARVE-OUT FINANCIAL STATEMENTS (Tabular amounts expressed in thousands of U.S. dollars, unless otherwise indicated) exceed contractual obligations, are presented in Note 20. The Company funds exploration expenditures in excess of contractual requirements for the purpose of evaluating and investing in option agreements. Project Investment in Project Sponsor Net Carrying Value of Project Entity Cumulative Earn-In Expenditures as of December 31, 2022 Ownership percentage of project entity at December 31, 2022 Expenditures Required to Achieve Maximum Ownership Interest Maximum Potential Ownership Ivory Coast Project $ 4,799 (1) — Cdn $ 20.8 million 30 % Cdn $ 25 million 60 % South Voisey’s Bay $ 309 (1) — Cdn $ 4.2 million 0 % (3) Cdn $ 7.7 million 65 % Hog Heaven $ 1,885 (2) — $ 4.1 million 0 % (4) $ 44.5 million 75 % Perseverance $ 274 (2) — Cdn $ 5.7 million 25 % Cdn $ 17.5 million 80 % Carolina $ — — $ 1.3 million 0 % (5) $ 26.0 million 85 % _______________ (1) Included in investments subject to significant influence (Note 7) (2) Included in other investments (3) The Company must incur Cdn $ 7.7 million in earn-in expenditures to earn a 65 % interest in the South Voisey’s Bay project. There is no initial minority interest that can be earned by the Company. (4) The Company must incur $ 19.5 million in earn-in expenditures to earn an initial 51 % interest in the Hog Heaven project. (5) The Company must incur $ 6.0 million in earn-in expenditures to earn an initial 51 % interest in the Carolina project 18. Non-controlling interests: The Company held a controlling interest in several entities that are not wholly-owned. The associated non-controlling interests and portion of assets and liabilities represented by these subsidiaries are shown below. The assets and liabilities of these entities are not readily accessible by the Company for general corporate purposes as distribution may require the consent of other shareholders. Kaizen VRB Cordoba Other Total Balance at January 1, 2021 ( 600 ) ( 244 ) 7,615 ( 61 ) 6,710 Non-controlling interests share of loss ( 788 ) ( 879 ) ( 7,481 ) ( 43 ) ( 9,191 ) Changes in non-controlling interests arising from changes in ownership interest 2,415 — 5,694 ( 1 ) 8,108 Other changes in non-controlling interests 45 — 176 33 254 Balance at December 31, 2021 1,072 ( 1,123 ) 6,004 ( 72 ) 5,881 Non-controlling interests share of loss ( 617 ) ( 1,376 ) ( 8,536 ) 121 ( 10,408 ) Changes in non-controlling interests arising from changes in ownership interest — — 69 — 69 Other changes in non-controlling interests 68 28 437 ( 3 ) 530 Balance at December 31, 2022 $ 523 $ ( 2,471 ) $ ( 2,026 ) $ 46 $ ( 3,928 ) F-25 Table of Contents IVANHOE ELECTRIC INC. NOTES TO THE CONSOLIDATED AND COMBINED CARVE-OUT FINANCIAL STATEMENTS (Tabular amounts expressed in thousands of U.S. dollars, unless otherwise indicated) Assets and liabilities belonging to the Company’s principal non-wholly owned subsidiaries as of December 31, 2022 are as follows: Kaizen VRB Cordoba Other Total Ownership percentage at December 31, 2022: 82.7 % 90.0 % 63.2 % 94.3 % Total assets 3,565 16,643 24,441 5,322 49,971 Total liabilities 539 41,410 33,454 4,504 79,906 Net assets 3,026 ( 24,766 ) ( 9,012 ) 818 ( 29,936 ) VRB’s liabilities as at December 31, 2022 include a loan payable to Ivanhoe Electric of $ 11.2 million. Each of the non-wholly owned subsidiaries do not have retained earnings as they carry an accumulated deficit. Net assets of non-wholly owned subsidiaries are restricted from being transferred to Ivanhoe Electric without the other shareholders’ consent. The Company and its wholly-owned subsidiaries do not guarantee the obligations of the non-wholly owned subsidiaries and, as such, the creditors of the non-wholly owned subsidiaries do not have recourse against the Company or its wholly owned subsidiaries. In addition, the Company is restricted from paying dividends from non-wholly owned subsidiaries without the other shareholders’ consent. During 2021, VRB raised capital through the issuance of convertible debt (Note 13(b)) resulting in VRB becoming a VIE. Except as disclosed above, the Company has not provided additional subordinated financial support to VRB as at December 31, 2022, although the Company is not precluded from doing so in the future. Ivanhoe Electric does not provide any guarantees or have any commitments to fund VRB. Other creditors of VRB do not have recourse against Ivanhoe Electric. Further information about VRB, including its impact on the Company’s loss from operations, is presented as the Energy Storage segment in Note 24. 19. Income taxes: Major components of the Company’s income tax provision / (benefit) for the years ended December 31, 2022 and 2021 are as follows: Year ended December 31, 2022 2021 Current: U.S. Operations $ — $ — Foreign 1,393 675 Total current income tax provision / (benefit) 1,393 675 Deferred: U.S. Operations — — Foreign ( 775 ) ( 191 ) Total deferred income tax provision / (benefit) ( 775 ) ( 191 ) Total income tax provision / (benefit) $ 618 $ 484 F-26 Table of Contents IVANHOE ELECTRIC INC. NOTES TO THE CONSOLIDATED AND COMBINED CARVE-OUT FINANCIAL STATEMENTS (Tabular amounts expressed in thousands of U.S. dollars, unless otherwise indicated) Income (loss) from continuing operations before income taxes for the years ended December 31, 2022 and 2021 consists of the following: Year ended December 31, 2022 2021 U.S. Operations $ ( 108,909 ) $ ( 31,499 ) Foreign ( 50,694 ) ( 36,528 ) Total $ ( 159,603 ) $ ( 68,027 ) The annual income tax expense (benefit) is different from the amount that would be provided by applying the statutory federal income tax rate to the Company’s pretax (loss) income. The reasons for the difference are: Year ended December 31, 2022 2021 U.S. Federal tax rate 21 % 21 % Expected income tax expense (benefit) at U.S. Federal tax rate $ ( 33,517 ) $ ( 14,286 ) Reconciling items: Difference between statutory and foreign tax rate ( 763 ) ( 151 ) Permanent differences 10,403 3,695 Change in valuation allowance 24,905 11,823 Difference in current versus future tax rates — ( 351 ) Impact of changes in tax rates — ( 608 ) Other ( 410 ) 362 Income tax expense $ 618 $ 484 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2022 and 2021 are presented below. As at December 31, 2022 2021 Deferred tax assets: Intangible assets $ 50 $ 91 Exploration mineral interest 27,840 19,488 Net operating losses 37,730 22,498 Foreign capital losses 4,012 4,285 Capital loss carry-forward 1,282 — Share issuance costs 132 202 Convertible debt — 960 Other 137 97 Total gross deferred tax assets 71,183 47,621 Less: valuation allowance ( 71,063 ) ( 45,619 ) Net deferred tax assets 120 2,002 Deferred tax liabilities: Exploration mineral interest ( 3,686 ) ( 6,303 ) Property, plant and equipment ( 322 ) ( 1,081 ) Total gross deferred tax liabilities ( 4,008 ) ( 7,384 ) Net deferred tax liability $ ( 3,888 ) $ ( 5,382 ) F-27 Table of Contents IVANHOE ELECTRIC INC. NOTES TO THE CONSOLIDATED AND COMBINED CARVE-OUT FINANCIAL STATEMENTS (Tabular amounts expressed in thousands of U.S. dollars, unless otherwise indicated) The Company evaluated the positive and negative evidence available to determine the amount of valuation allowance required on its deferred tax assets. Due to the early stage of exploration, the Company has recognized a valuation allowance against deferred income tax assets in excess of those supported by the reversal of taxable temporary differences. As of December 31, 2022, a $ 71.1 million valuation allowance has been provided. The changes in the valuation allowance for the years ended December 31, 2022 and 2021 are as follows: As at December 31, 2022 2021 Balance, beginning of year $ ( 45,619 ) $ ( 35,521 ) Decrease due to foreign currency translation ( 614 ) 1,614 (Increase) related to non-utilization of deferred tax assets due to uncertainty of recovery and (increase) related to non-utilization of net operating loss carryforwards ( 24,905 ) ( 11,823 ) Decrease related to utilization and expiration of deferred tax assets, other 75 111 Balance, end of year $ ( 71,063 ) $ ( 45,619 ) As of December 31, 2022, the Company has the following net operating loss carryforwards for income tax purposes: Country Losses Expiry U.S.A. $ 84,673 2036 to 2042 Canada 46,256 2030 to 2042 China 28,519 2026 to 2032 Colombia 1,184 2029 to 2032 Peru 104 Indefinite Singapore 2,704 Indefinite The Company’s utilization of U.S. net operating loss carryforwards may be subject to annual limitations if there is a change in control as defined under Internal Revenue Code Section 382. As of December 31, 2022, no change in control has occurred in the Ivanhoe Electric group. The Company file’s income tax returns in the U.S. federal jurisdiction, various U.S. state and foreign jurisdictions. The Company had no unrecognized income tax benefits as of December 31, 2022 or 2021. Due to the net operating loss carryover position coupled with the lack of any unrecognized tax benefits, the Company has not provided for any interest or penalties associated with any uncertain tax positions. If interest and penalties were to be assessed, the Company would charge interest to interest expense, and penalties to general and administrative expense. It is not anticipated that there will be any significant changes to unrecognized tax benefits within the next 12 months. The Company has not recognized a deferred tax liability related to its investments in foreign subsidiaries that are essentially permanent in duration. It is not practicable to estimate the amount of deferred tax liability related to investments in these foreign subsidiaries. 20. Related party transactions: Related parties include entities with common direct or indirect shareholders and/or directors. Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. The Parent The nature of the Company’s related party relationship with the Parent is disclosed in Note 1. F-28 Table of Contents IVANHOE ELECTRIC INC. NOTES TO THE CONSOLIDATED AND COMBINED CARVE-OUT FINANCIAL STATEMENTS (Tabular amounts expressed in thousands of U.S. dollars, unless otherwise indicated) Cost allocations Prior to completing the restructuring described in Note 1, the Parent incurred corporate and technical costs attributable to the Company and the Nimba Project. Accordingly, the consolidated and combined carve-out financial statements include costs allocations from the Parent, including executive oversight, occupancy, office overhead, accounting, tax, treasury, legal, information technology, human resources and mineral exploration. These allocations were made on the basis of direct usage. All such amounts were deemed incurred and settled by the Company in the period in which the costs were recorded and are included in net parent investment. Allocated costs for the four months ended April 30, 2021 totaled $ 1.3 million and are solely from the period prior to the restructuring. The allocated costs are primarily included in general and administrative expenses and exploration expenses in the consolidated and combined statements of loss. Other related parties The following table summarizes transactions between the Company and certain significant related parties. Balance outstanding as at December 31, Transactions for the year ended December 31, 2022 2021 2022 2021 Total Expenses Global Mining (Note a) 1,383 993 13,372 6,776 Ivanhoe Capital Aviation (Note b) 83 — 1,000 1,417 I-Pulse (Note c) — — 213 — HPX (Note d) — — — 499 Total 1,466 993 14,585 8,692 Advances Global Mining (Note a) 1,987 1,855 — — Deposit I-Pulse (Note c) 7,128 — — — Loan JCHX Mining Management Co., Ltd (Note e) 10,010 — — — Transactions for the year ended December 31, 2022 2021 Expense classification General and administrative expenses 6,232 5,454 Exploration expenses 8,353 3,238 14,585 8,692 (a) Global Mining Management Corp. (“Global Mining”) is a private company based in Vancouver, Canada, that provides administration, accounting, and other office services to the Parent and the Company on a cost-recovery basis. The Company held 7.1 % of Global Mining’s outstanding common shares at December 31, 2022. Transactions incurred with Global Mining include cost allocations from the Parent totaling $ 645,000 from the period January 1, 2021 to April 30, 2021. On April 30, 2021, the Contributed Assets received by Ivanhoe Electric included working capital advances to Global Mining totaling $ 791,000 (Note 1). These advances were recognized on the contribution date. (b) Ivanhoe Capital Aviation (“ICA”) is an entity beneficially owned by the Company’s Executive Chairman. ICA provides use of its aircraft to the Company. F-29 Table of Contents IVANHOE ELECTRIC INC. NOTES TO THE CONSOLIDATED AND COMBINED CARVE-OUT FINANCIAL STATEMENTS (Tabular amounts expressed in thousands of U.S. dollars, unless otherwise indicated) (c) I-Pulse Inc. (“I-Pulse”) is a significant shareholder of the Company. On October 24, 2022 the Company entered into an agreement with I-Pulse, to purchase six Typhoon™ transmitters to be delivered in stages over approximately the next three years . The Company uses Typhoon™ to conduct geophysical electrical surveys on exploration targets. The total purchase price for the six Typhoon™ transmitters is $ 12.4 million ( 12.6 million Euros). The agreement also includes annual maintenance costs of $ 1.7 million ( 1.7 million Euros) per year. In October 2022, the Company made deposit payments totaling $ 7.1 million ( 7.1 million Euros). The remaining payments will be made as each Typhoon™ transmitter system is delivered. The Company has also reimbursed I-Pulse certain consulting expenses paid by I-Pulse on the Company’s behalf. (d) HPX was the parent of the Company prior to the restructuring on April 30, 2021 (Note 1). Post restructuring, in 2021, there was reimbursement to HPX for certain costs paid by HPX on the Company’s behalf. (e) JCHX Mining Management Co., Ltd (“JCHX") held 19.9 % of Cordoba’s issued and outstanding common stock as at December 31, 2022 (December 31, 2021 - 19.9 %). On December 27 2022, JCHX advanced a bridge loan of $ 10 million to Cordoba. The bridge loan is for an 18-month term and bears interest at 12 % per annum during the first 12 months of the term and 14 % per annum during the remaining six months, which shall be calculated on the basis of a 365-day year. Upon closing the project financing transaction described in Note 26, all of the principal and interest outstanding on the bridge loan will be applied towards that transaction’s first installment as a payment in kind. In the event the bridge loan is not repaid, JCHX has the option to receive payment in kind equal to 20 % of the total issued shares of CMH Colombia S.A.S. (“CMH”), a Colombian subsidiary of Cordoba. 21. Net loss per share: Basic and diluted net loss per share attributable to common stockholders was calculated as follows: Year ended December 31, 2022 2021 Net loss attributable to common stockholders or parent $ 149,813 $ 59,320 Weighted-average number of shares outstanding Basic and diluted 78,527,539 61,502,094 Basic and diluted net loss per share $ 1.91 $ 0.96 For purposes of this calculation, convertible debt, and options to purchase common stock are considered common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is antidilutive. The amount of antidilutive shares excluded from the calculation as at December 31, 2022 was 7.9 million (December 31, 2021 - 25.4 million). F-30 Table of Contents IVANHOE ELECTRIC INC. NOTES TO THE CONSOLIDATED AND COMBINED CARVE-OUT FINANCIAL STATEMENTS (Tabular amounts expressed in thousands of U.S. dollars, unless otherwise indicated) 22. Fair value measurement: The following table provides the valuation hierarchy classification of assets and liabilities that are recorded at fair value and measured on a recurring basis in the combined balance sheets: December 31, 2022 December 31, 2021 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Financial assets: Investments subject to significant influence 5,108 — — 7,044 — — Other investments 2,220 — — 1,802 — — Total financial assets $ 7,328 $ — $ — $ 8,846 $ — $ — Financial liabilities: Ivanhoe Electric convertible notes — — — — — 54,975 Deferred consideration payable — — — — — 26,562 Total financial liabilities $ — $ — $ — $ — $ — $ 81,537 On June 30, 2022 the Ivanhoe Electric Series 1 and Series 2 Convertible Notes were converted into common stock of the Company (Note 13(a)) and the deferred consideration payable was settled (Note 8). The following table provides a summary of the changes of the Company’s Level 3 assets and liabilities that are not disclosed elsewhere. Deferred consideration payable Balance at December 31, 2020 $ — Additions 26,625 Changes in fair value ( 63 ) Balance at December 31, 2021 26,562 Changes in fair value 2,049 Settlement ( 28,611 ) Balance at December 31, 2022 $ — 23. Financial risk management: The Company is exposed in varying degrees to credit, liquidity, and market risk through its use of financial instruments. The types of risk exposure and the way in which such exposures are managed are as follows: (a) Credit risk: The Company’s principal financial assets are cash and cash equivalents and accounts receivable. The Company’s credit risk is primarily attributable to its accounts receivable. The Company’s maximum exposure to credit risk is approximately $ 1.5 million. The Company regularly reviews its receivables and the economic conditions to determine whether an allowance for expected losses is necessary. Cash at bank is held with credit worthy financial institutions. The Company has no significant concentration of credit risk other than its accounts receivable and the Company’s credit risk has not changed significantly during the years ended December 31, 2022 and 2021. 24. Segment reporting: The Company’s President & Chief Executive Officer and its Executive Chairman combine to form the Chief Operating Decision Maker (“CODM”) of the Company. The CODM evaluates how the Company allocates resources, assesses performance and makes strategic and operational decisions. Based upon such evaluation, the Company has determined F-31 Table of Contents IVANHOE ELECTRIC INC. NOTES TO THE CONSOLIDATED AND COMBINED CARVE-OUT FINANCIAL STATEMENTS (Tabular amounts expressed in thousands of U.S. dollars, unless otherwise indicated) that it has three reportable segments. The Company’s reportable segments are critical metals, data processing and energy storage. Critical metals is focused on mineral project exploration and development with a focus on identifying and developing mineral projects, and ultimately mines, associated with the metals necessary for electrification. The data processing segment provides data analytics, geophysical modeling and artificial intelligence services for the mineral, oil & gas and water exploration industries. The energy storage segment develops, manufactures and installs vanadium flow batteries for grid-scale energy storage. Segment information for the periods presented is as follows: As at and for the year ended December 31, 2022 Critical Metals Data Processing Energy Storage Total Revenue $ — $ 7,729 $ 711 $ 8,440 Intersegment revenues — 323 — 323 Loss (income) from operations 124,932 ( 3,090 ) 10,323 132,165 Depreciation and amortization 814 2,868 529 4,211 Segment assets 238,521 5,322 16,643 260,486 Expenditures for segment assets 43,721 6 684 44,411 Investments subject to significant influence 5,998 — — 5,998 As at and for the year ended December 31, 2021 Critical Metals Data Processing Energy Storage Total Revenue $ — $ 4,512 $ 140 $ 4,652 Intersegment revenues — 112 — 112 Loss from operations 53,188 633 6,928 60,749 Depreciation and amortization 826 2,865 559 4,250 Segment Assets 119,738 6,152 27,641 153,531 Expenditures for segment assets 14,832 8 341 15,181 Investments subject to significant influence 7,701 — — 7,701 The following tables illustrate the geographic makeup of the Company’s revenues and long-lived assets. Year ended December 31, Revenue 2022 2021 Canada $ 7,729 $ 4,512 China 711 140 Other — — Total $ 8,440 $ 4,652 F-32 Table of Contents IVANHOE ELECTRIC INC. NOTES TO THE CONSOLIDATED AND COMBINED CARVE-OUT FINANCIAL STATEMENTS (Tabular amounts expressed in thousands of U.S. dollars, unless otherwise indicated) Revenues are attributed to countries based on the location in which the sale originated. As at December 31, Long-lived assets 2022 2021 U.S.A $ 69,655 $ 55,781 Colombia 15,022 14,604 Peru 2,571 2,558 China 1,545 764 Other 191 147 Total $ 88,984 $ 73,854 Long-lived assets comprise the Company’s exploration mineral interests (excluding a mineral royalty) and property, plant and equipment. Long-lived assets reconcile to segment assets and the balance sheet as follows: As at December 31, 2022 2021 Total long-lived assets $ 88,984 $ 73,854 Total current assets 151,031 58,265 Mineral royalty 1,708 1,708 Investments subject to significant influence 5,998 7,701 Other investments 2,220 1,802 Intangible assets 1,249 4,340 Other non-current assets 9,296 5,861 Total assets and segment assets $ 260,486 $ 153,531 25. Commitments and contingencies: The Company has entered into a contractual arrangement to purchase six Typhoon™ transmitters from I-Pulse (Note 20). In the ordinary course of business, the Company may be involved in various legal proceedings and subject to claims that arise. Although the results of litigation and claims are inherently unpredictable and uncertain, the Company is not currently a party to any legal proceedings the outcome of which, if determined adversely to the Company, are believed to, either individually or taken together, have a material adverse effect on the Company’s business, financial condition or results of operations. 26. Subsequent events: (a) Strategic arrangement for the joint-development of the Alacran project On December 8, 2022, Cordoba announced a strategic arrangement with JCHX, whereby JCHX, through a wholly owned subsidiary, will purchase a 50 % ownership interest in CMH, a company existing under the laws of Colombia, for aggregate consideration of $ 100 million. CMH will own 100 % of the Alacran Project and will be the joint venture vehicle for Cordoba and JCHX in the strategic project level partnership. For its 50 % interest, JCHX will pay the $ 100 million purchase price in three installments. At the closing of the transaction, which is expected to occur before the end of the second quarter of 2023, $ 40 million will be payable in cash as a first installment. A second installment of $ 40 million is payable in cash upon the board of directors of Cordoba approving the Feasibility Study of the Alacran Project, and the filing of the Environmental Impact Assessment (“EIA”) to the relevant Colombian Government authority, but in no event will such second installment be paid later than the second anniversary of the closing of the transaction. A third and final installment of $ 20 million is payable in cash once the approval of the EIA is obtained, which must be within two years of the transaction’s F-33 Table of Contents IVANHOE ELECTRIC INC. NOTES TO THE CONSOLIDATED AND COMBINED CARVE-OUT FINANCIAL STATEMENTS (Tabular amounts expressed in thousands of U.S. dollars, unless otherwise indicated) closing date. Should the EIA not be approved by the second anniversary of the closing date, JCHX will have the option to elect not to complete this final installment, which will result in JCHX being diluted to 40 % and Cordoba increasing to a majority 60 % shareholding in CMH. In December 2022, JCHX advanced a bridge loan of $ 10 million in cash to Cordoba. The bridge loan is for an 18-month term and bears interest at 12 % per annum during the first 12 months of the term and 14 % per annum during the remaining six months, which shall be calculated on the basis of a 365-day year. Upon closing of the transaction, the entire balance owing under the bridge loan and accrued interest will be applied towards the first installment payment as a payment in kind. The closing of the transaction is subject to customary conditions and Cordoba must receive approval from the TSX Venture Exchange and approval of shareholders (excluding JCHX and Ivanhoe Electric). JCHX must receive approval from its board of directors, shareholders, China’s State Administration of Foreign Exchange, and Beijing Municipal Bureau of Commerce. Cordoba received the approval of its shareholders (excluding JCHX and Ivanhoe Electric) on February 8, 2023. (b) Heads of Terms agreement On January 11, 2023, the Company entered into a binding Heads of Terms (the “Agreement”) with Saudi Arabian Mining Company Ma’aden (“Ma’aden”). The Agreement provides the binding framework of key terms for a strategic investment by Ma’aden of an aggregate of $ 126.4 million in newly issued shares of common stock of the Company and the concurrent establishment of a 50/50 exploration joint venture in the Kingdom of Saudi Arabia. Pursuant to the terms of the Agreement, the Company will agree to issue and sell to Ma’aden approximately 10.2 million shares of common stock at a purchase price of $ 12.38 per share for aggregate gross proceeds of $ 126.4 million in a private placement. The Company will contribute $ 66.4 million of the proceeds from the issuance and sale of the Shares to fund the Joint Venture and will retain $ 60 million of the gross proceeds to advance its United States mineral projects, as well as for working capital and general corporate purposes After the issuance and sale of the Shares, Ma’aden will hold 9.9 % of the Company’s common stock. The Company also will grant Ma’aden a right to purchase additional shares of common stock to maintain its 9.9 % stock ownership position in the event of any issuances of common stock by the Company in the future. (c) White Hill Project On February 22, 2023, we entered into an agreement with Exiro Minerals USA Corp. (“Exiro”) which gives the Company the right to earn an 80 % interest in the White Hill Project located in the Gillis Range, Mineral County, Nevada, by incurring $ 10.0 million of expenditures and making payments to Exiro totaling $ 5.0 million ($ 3.6 million in cash and $ 1.4 million in our common stock) within six years of signing the agreement. During the earn-in period, we have the exclusive right to operate, control and direct all exploration and mineral development activities at the White Hill Project. There are no minimum expenditures required in any given year, and we have the right to cease making payments at any time, resulting in us earning no interest in the project. F-34 Table of Contents Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures None