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Item 2. Management’s Discussion and Analysis

2023-05-15 compared with 2022-11-14 · 165 added, 171 removed, 117 unchanged (74% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with the condensed interim consolidated and combined carve-out financial statements and related notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q (this “Quarterly Report”) and with our audited consolidated and combined carve-out financial statements and the related notes for the fiscal year ended December 31, 2021 included in our final prospectus (the “Final Prospectus”) filed with the Securities and Exchange Commission (the “SEC”) on June 29, 2022 pursuant to Rule 424(b)(4)of the Securities Act of 1933, as amended (the “Securities Act”).

Special Note Regarding Forward-Looking Statements

This Quarterly Report contains forward-looking statements.

You should read the following discussion and analysis of our financial condition and results of operations together with the condensed interim consolidated financial statements and related notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q (this “Quarterly Report”) and with our audited consolidated and combined carve-out financial statements and the related notes for the fiscal year ended December 31, 2022 included in Part II of our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission (the “SEC”) on March 14, 2023 (the “2022 Form 10-K”).

S pecial Note Regarding Forward-Looking Statements

This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"), that involve risks and uncertainties, including statements based on our current expectations, assumptions, estimates and projections about future events, our business, financial condition, results of operations and prospects, our industry and the regulatory environment in which we operate.

Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements.

Those statements include, but are not limited to, statements with respect to:

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and our operations may be impacted by the COVID-19 pandemic, including impacts to the availability of our workforce, government orders that may require temporary suspension of operations, and the global economy.

These factors should not be construed as exhaustive and should be read in conjunction with the risks described under the heading “Risk Factors” in our Final Prospectus.

Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are disclosed under “Risk Factors” in the Final Prospectus.

You should carefully consider these risks, as well as the additional risks described in other documents we file with the SEC.

We also operate in a very competitive and rapidly changing environment.

New risks emerge from time to time and it is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in, or implied by, any forward-looking statements.

These factors should not be construed as exhaustive and should be read in conjunction with the risks described under the heading “Risk Factors” in our 2022 Form 10-K.

Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are disclosed under “Risk Factors” in the 2022 Form 10-K.

These risks and uncertainties, as well as other risks of which we are not aware or which we currently do not believe to be material, may cause our actual future results to be materially different than those expressed in our forward-looking statements.

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We do not undertake any obligation to make any revisions to these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events, except as required by law.

We are a United States domiciled minerals exploration and development company with a focus on developing mines from mineral deposits principally located in the United States in order to support American supply chain independence and to deliver the critical metals necessary for electrification of the economy.

Business Overview

We are a United States domiciled minerals exploration and development company with a focus on developing mines from mineral deposits principally located in the United States in order to support domestic supply chain independence and to deliver the critical metals necessary for electrification of the economy.

We believe the United States is significantly underexplored and will yield major new discoveries of these metals.

Our mineral projects focus on copper, nickel, cobalt, vanadium, gold, silver, and the platinum group metals.

Our mineral exploration efforts focus on copper, nickel, vanadium, cobalt, platinum group elements, gold and silver.

All of our mineral properties are in the exploration stage.

“Our” mineral projects refers to our interests in such projects which may be a direct ownership interest in mineral titles (including through subsidiary entities), a right to acquire mineral titles through an earn-in or option agreement, or, in the case of our investments in publicly listed companies in Canada, through our ownership of the equity of those companies, that have an interest in such mineral projects.

Our two main mineral projects are located in the United States and are known as the Santa Cruz Copper Project (“Santa Cruz” or the “Santa Cruz Project”) in Arizona and the Tintic Copper-Gold Project (“Tintic” or the “Tintic Project”) in Utah.

We have the option to acquire 100% of the mineral rights constituting the Santa Cruz Project, and we currently own an 84.3% ownership interest in the mineral rights to the Tintic Project by acreage with the balance of the mineral rights controlled by leases.

Our other key mineral projects are the Hog Heaven Project, located in Montana (the “Hog Heaven Project”), and the Ivory Coast Project, which is held through our 23% equity interest in Sama Resources Inc.

Our two material mineral projects are the Santa Cruz Copper Project (“Santa Cruz” or the “Santa Cruz Project”) in Arizona and the Tintic Copper-Gold Project (“Tintic” or the “Tintic Project”) in Utah.

We have the option to acquire 100% of the mineral rights constituting the Santa Cruz and Tintic projects.

On May 11, 2023, we announced the signing of a binding purchase and sale agreement for the acquisition of 6,205 acres of surface title and associated water rights at the Santa Cruz Project for a total purchase price of $120.5 million to be paid in installments over a 4.5-year period.

We also hold the option to acquire all the mineral titles contiguous with the acquired surface lands.

Those mineral rights will be formally acquired upon the completion of scheduled option payments in August 2023 and 2024.

At that time, we will have a unified land and mineral package encompassing the entire Santa Cruz Project.

Our other key mineral projects include the Hog Heaven Project, located in Montana (the “Hog Heaven Project”), and the Ivory Coast Project located in the Ivory Coast, West Africa, which is held through our 22.8% equity interest in Sama Resources Inc.

(“Sama”) and our 30% direct interest in the Sama Nickel Corporation Inc.

joint venture.

We also have investments in publicly traded companies in Canada, and through our ownership of equity in those companies, we have an indirect interest in mineral projects in the United States, Canada, Colombia, Ivory Coast and Peru.

In addition to our mineral projects, we also own controlling interests in two technology companies:

VRB Energy Inc.

(“VRB”) and Computational Geosciences Inc.

As of September 30, 2022, we owned 90.0% of the outstanding shares of VRB.

As of March 31, 2023, we owned 90.0% of the outstanding shares of VRB.

VRB and its subsidiary companies are primarily engaged in the design, manufacture, installation, and operation of energy storage systems.

As of September 30, 2022, we owned 94.3% of CGI’s outstanding shares.

As of March 31, 2023, we owned 94.3% of CGI’s outstanding shares.

CGI has developed technology that consists of sophisticated codes to process geophysical data and build 3D subsurface images that could indicate the presence of various natural resources, including metallic minerals and water.

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CGI provides fee-for-service and licensing agreements for one-off technology applications to customers in the area of critical minerals, energy and water exploration.

Initial Public Offering

On June 30, 2022, we completed an initial public offering (“IPO”) of 14,388,000 shares of our common stock at a price of $11.75 per share, resulting in gross proceeds from the offering of $169.1 million.

The Company’s shares were listed on the NYSE American and the Toronto Stock Exchange under the ticker symbol “IE”.

On May 15, 2023, we signed a definitive agreement with Saudi Arabian Mining Company Ma’aden (“Ma’aden”) which finalized the terms of the transactions previously announced on January 11, 2023.

The transactions include the establishment of a 50/50 exploration joint venture between Ma’aden and Ivanhoe Electric to explore approximately 48,500 km2 of prospective land in Saudi Arabia, and a $126.5 million strategic investment by Ma'aden in Ivanhoe Electric common stock.

We expect to issue approximately 10.2 million common shares to Ma’aden, representing 9.9% of common shares outstanding, at a purchase price of $12.38 per share.

Of the $126.5 million total proceeds from the private placement, $66 million will go to the joint venture to fund exploration activities, including the purchase of three new-generation Typhoon TM machines.

The remaining $60 million will be retained by Ivanhoe Electric to advance our portfolio of US mineral projects, and for working capital and general corporate purposes.

The transactions are expected to close by the end of June 2023 subject to the approval of a supplemental listing application by the New York Stock Exchange and the corporate and regulatory formalities required in Saudi Arabia to incorporate the joint venture entity.

On June 30, 2022, we completed an initial public offering and the Company’s shares were listed on the NYSE American and the TSX under the ticker symbol “IE”.

Reverse Stock Split

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The number of authorized shares and the par value of the common stock were not adjusted as a result of the Reverse Stock Split.

In this Quarterly Report, all references to common stock, options to purchase common stock, per share data and related information have been retrospectively adjusted to reflect the effect of the Reverse Stock Split for all periods presented.

All references to common stock, options to purchase common stock, per share data and related information have been retrospectively adjusted to reflect the effect of the Reverse Stock Split for all periods presented.

Impact of the COVID-19 Pandemic

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The COVID-19 pandemic has negatively affected the global economy, disrupted financial markets and international trade, resulted in increased unemployment levels and significantly affected global supply chains, all of which have and are expected to continue to affect our future exploration activities and business.

To the extent the COVID-19 pandemic adversely affects our business prospects, financial condition, and results of operation, it may also have the effect of exacerbating many of the other risks described under the heading “Risk Factors” in our Final Prospectus.

We account for our business in three business segments – (i) critical metals;

(ii) data processing services and (iii) energy storage systems.

Risk Factors section in our 2022 Form 10-K.

We account for our business in three business segments – (i) critical metals, (ii) data processing and software licensing services and (iii) energy storage systems.

Significant Components of Results of Operations

Revenue, Cost of Sales and Gross Profit

We generate revenue from our technology businesses CGI and VRB, which are included in the data processing and energy storage systems business segments, respectively.

We generate revenue from our technology businesses CGI and VRB, which are included in the data processing and software licensing business segment and the energy storage systems business segment, respectively.

We have not generated any revenue from our mining projects because they are in the exploration stage.

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Exploration expenses include topographical, geological, geochemical and geophysical studies, exploratory drilling, trenching, sampling and activities in relation to identifying a mineral resource and then evaluating the technical feasibility and commercial viability of extracting the mineral resource, as well as value-added taxes in relation to these direct exploration and evaluation costs incurred in foreign jurisdictions where recoverability of those taxes is uncertain.

Exploration expenses also include salaries, benefits and stock compensation expenses of the employees performing these activities.

Exploration expenses also include payments under earn-in and option agreements where the option right is with respect to entities owning the underlying mineral project in the exploration phase.

Exploration expenses also include salaries, benefits and stock-based compensation expenses of the employees performing these activities.

Exploration expenses also include payments under earn-in and option agreements where the option right is with respect to ownership interests in legal entities owning the underlying mineral project in the exploration project phase.

Through our earn-in and option agreements, we have the right (and in some cases, the obligation) to fund and conduct exploration on the underlying mineral project prior to determining whether to acquire a minority or majority ownership interest through further funding the costs of such exploration and, in some cases, through direct payments to the owners of the project.

In the event we cease making expenditures on an exploration mineral project or fail to incur the agreed level of exploration expenditures, we will not obtain an ownership right beyond any which may have been acquired as of the date of termination.

Included in exploration expenses are exploration costs that we incur in relation to generating new projects.

These activities may or may not proceed to earn-in agreements depending on our evaluation.

These are categorized as “Generative exploration and other”.

General and Administrative Expenses

Our general and administrative expenses consist of salaries and benefits, stock compensation, professional and consultant fees, insurance and other general administration costs.

Our general and administrative expenses have increased significantly now that we are operating as a public company and have commenced strengthening our management team.

We expect higher costs related to salaries, benefits, stock compensation, legal fees, compliance and corporate governance, accounting and audit expenses, stock exchange listing fees, transfer agent and other shareholder-related fees, directors’ and officers’ and other insurance costs and other administrative costs.

Our general and administrative expenses consist of salaries and benefits, stock-based compensation, professional and consultant fees, insurance and other general administration costs.

Our general and administrative expenses have increased significantly now that we are operating as a public company and have added to our management team.

In particular, we expect to incur increased general and administrative expenses costs in 2023 compared to 2022 for salaries, non-cash stock-based compensation, compliance related costs and directors’ and officers’ insurance expense.

Research and Development Expenses

Expenditures on research and development activities are recognized as an expense in the period in which they are incurred.

Since 2018, the majority of our research and development expenses came from CGI’s data processing business, which includes amortization expenses related to its artificial intelligence intellectual property, which it acquired in 2018.

VRB also conducts research and development activities to continue to advance its energy storage system technology.

We expect research and development expenses to increase as our technology-based businesses continue to grow.

Results of Operations

Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021

For the three months ended September 30, 2022, we recorded a net loss attributable to common stockholders of $40.4 million ($0.43 per share), compared to $17.6 million ($0.28 per share) for the three months ended September 30, 2021, which was an increase of $22.7 million primarily due to a $24.0 million increase in exploration expenses.

Exploration expenses of $34.0 million for the three months ended September 30, 2022, increased by $24.0 million from $10.0 million for the three months ended September 30, 2021.

This increase is largely attributable to exploration expenditures at the Santa Cruz Project which was acquired in August 2021.

During the three months ended September 30, 2022, expenditures mainly focused on exploration activities at:

● the Santa Cruz Project where $21.8 million of exploration expenditure was incurred in the quarter as compared to $2.2 million in the third quarter of 2021.

Activities at Santa Cruz were focused on the ongoing large-scale drilling program.

As of September 30, 2022, up to seven drill rigs were in operation and a total of 19,398 meters of drilling had been completed during the quarter.

As of September 30, 2022, a total of 52,720 meters had been drilled which included 23,106 meters of exploration drilling and 29,614 meters of drilling that is being used to collect resource in-fill, geotechnical, hydrological and metallurgical information required to assess potential mine development options.

In addition, in July 2022, we completed a 26.5-km2 (6,500-acre), 3D induced polarization (“IP”) and resistivity geophysical survey using our proprietary high-power Typhoon™ transmitter system.

Included in the $21.8 million of exploration expenditure was a $5.7 million expense related to amounts that had been previously capitalized as part of an agreement to purchase certain land adjacent to the Santa Cruz Project.

In September 2022, we elected to not proceed with the transaction and terminated the agreement and as a result the mineral interest asset was de-recognized;

● the San Matias Project where $6.0 million of expenditure was incurred in the quarter.

Activities at San Matias were focused on continuing the 25,000-meter initial phase drill program in support of the Feasibility Study.

General and administrative expenses of $6.9 million for the three months ended September 30, 2022 decreased by $1.0 million from $7.9 million in the three months ended September 30, 2021.

Several items contributed to the decrease, including:

● the three months ended September 30, 2021 included $1.4 million of financing fees relating to the 2021 Series 1 Convertible Notes and common stock private placement.

There was no similar expense in the three months ended September 30, 2022;

● a $0.9 million decrease in aviation expenditures in the three months ended September 30, 2022 to $0.2 million as compared to $1.1 million in the three months ended September 30, 2021.

● a $0.4 million decrease in administration expenses at Kaizen Discovery largely due to lower legal expenses in the quarter as compared to the three months ended September 30, 2021, which included significant costs related to the AM Gold litigation.

● The above decreases were offset by $1.6 million expense in relation to the new directors and officers’ insurance policy we entered into when we became a public company in June 2022.

There was no similar expense in 2021.

Revenue for the three months ended September 30, 2022 was $1.2 million, an increase of $0.1 million from $1.0 million for the three months ended September 30, 2021.

Although total revenue was relatively consistent with the similar period in 2021, the mix of revenue changed.

Three months ended September 30,

VRB also conducts research and development activities to continue to advance its energy storage system technology.

We also have research and development expenses that we incur in relation to Typhoon TM .

In 2023, we have commenced design and development activities for our next generation of Typhoon TM equipment.

Three Months Ended March 31, 2023 Compared to the Three Months Ended March 31, 2022

For the three months ended March 31, 2023 we recorded a net loss attributable to common stockholders of $36.1 million ($0.39 per share), compared to $15.5 million ($0.24 per share) for the three months ended March 31, 2022, which was an increase of $20.6 million.

Significant contributors to this increase for the three months ended March 31, 2023 included an increase of $9.2 million in exploration expenditures, an increase of $5.4 million in general and administrative expenses, and a decrease of $6.1 million in revenue compared to the three months ended March 31, 2022.

Exploration expenses were $26.6 million for the three months ended March 31, 2023, an increase of $9.2 million from $17.3 million for the three months ended March 31, 2022.

Exploration expenses consisted of the following:

Three months ended

(In thousands) 2023 2022

Software licensing and data processing services:

Cost of sales

Energy storage systems:

Cost of sales

CGI’s software licensing and data processing services to the mining and oil and gas industries represented 46.9% of our revenue for the three months ended September 30, 2022 ($0.6 million) and 99.8% for the three months ended September 30, 2021 ($1.0 million).

The decrease in CGI’s revenue was a result of a new contract that CGI entered into with one of its customers upon the expiration in 2021 of a previous three-year contract.

Under the new agreement with this customer, CGI agreed to license certain software for a one-time fee of $6.5 million, which was received and recognized in the first quarter of 2022.

As at September 30, 2022, there only remains a final payment of $250,000 under this agreement due in 2023.

We cannot provide any assurance that we will enter into any additional contracts with this customer in the future.

VRB’s energy storage system revenue represented 53.1% of our revenue for the three months ended September 30, 2022 ($0.6 million) and 0.02% for the three months ended September 30, 2021 ($0.0 million).

During the three months ended September 30, 2022, VRB delivered, installed and commissioned a 125kW/500kWh energy storage system to a customer which resulted in $0.3 million of revenue being recognized.

In addition, VRB also recognized $0.3 million in revenue from the sale of vanadium electrolyte.

Research and development expenses for the three months ended September 30, 2022 were $1.1 million, consistent with the $1.0 million incurred in the same period in 2021.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

For the nine months ended September 30, 2022, we recorded a net loss attributable to common stockholders of $110.2 million ($1.50 per share), compared to $33.0 million ($0.54 per share) for the nine months ended September 30, 2021, which was an increase of $77.2 million.

Significant contributors to this increase in the nine months ended September 30, 2022 were a $50.6 million increase in exploration expenditures, a $18.8 million increase in non-cash loss on revaluation of convertible debt and a $2.6 million increase in general and administrative expenses, offset by an increase in revenue of $4.1 million compared to the nine months ended September 30, 2021.

Exploration expenses of $75.2 million for the nine months ended September 30, 2022, increased by $50.6 million from $24.6 million for the nine months ended September 30, 2021.

This increase is largely attributed to exploration expenditures at the Santa Cruz Project.

During the nine months ended September 30, 2022, expenditures largely focused on exploration activities at:

● the Santa Cruz Project where $46.4 million of exploration expenditure was incurred in the nine months ended September 30, 2022 compared to $2.6 million incurred in the nine months ended September 30, 2021.

Activities during the nine months ended September 30, 2022 at Santa Cruz were focused on a program of resource in-fill, geotechnical, hydrological and metallurgical drilling, in addition to a 26.5 km2 (6,500 acre) Typhoon™ 3D IP survey that was completed in July 2022.

Included in the $46.4 million of exploration expenditure was a $5.7 million expense related to amounts that had been previously capitalized as part of an agreement to purchase certain land adjacent to the Santa Cruz Project.

In September 2022, the agreement was terminated by the Company.

● the San Matias Project where $11.8 million of exploration expenditure was incurred in the nine months ended September 30, 2022, focused on the commencing of a Feasibility Study on the Alacran deposit in May 2022 which included starting the 25,000-metre initial phase drill program;

● the Pinaya Project where $2.4 million of exploration expenditure was incurred in the nine months ended September 30, 2022.

Activities included a 3,046-meter drill program that began in November 2021 and that was completed in January 2022 as well as expenditures related to the IP survey which began in March 2022 and that was completed on June 30, 2022.

General and administrative expenses of $16.7 million for the nine months ended September 30, 2022 increased by $2.6 million from $14.1 million in the nine months ended September 30, 2021.

Exploration Expenses:

Santa Cruz, USA $ 14,682 $ 9,798

San Matias, Colombia 4,658 2,376

Tintic, USA 1,121 289

Hog Heaven, USA 638 560

White Hill, USA 491 —

Lincoln, USA 295 13

Carolina, USA 238 —

Pinaya, Peru 157 686

Generative exploration and other 4,279 3,601

Total $ 26,559 $ 17,323

During the three months ended March 31, 2023, exploration expenditures largely focused on activities at:

• the Santa Cruz Project where $14.7 million of exploration expenditure was incurred in the three months ended March 31, 2023 compared to $9.8 million incurred in the three months ended March 31, 2022.

Activities during the three months ended March 31, 2023 at Santa Cruz were focused on a program of exploration and infill resource, geotechnical, hydrological and metallurgical drilling, advancing technical studies, completing an updated mineral resource estimate and beginning an Initial Assessment Study for the Santa Cruz Copper Project.

• the San Matias Project where $4.7 million of exploration expenditure was incurred by Cordoba Minerals for the three months ended March 31, 2023 focused on continuing work on the feasibility study on the Alacran deposit.

Activities during the three months ended March 31, 2023 included ongoing infill geotechnical, metallurgical, hydrological and infill resource drilling to advance the feasibility study.

During the three months ended March 31, 2023 a total of 3,946 meters of infill diamond drilling was completed.

To date, a total of approximately 40,000 meters out of the planned 42,000 meter infill diamond drilling campaign have been completed;

• the Tintic Project where $1.1 million of exploration expenditure was incurred in the three months ended March 31, 2023 compared to $0.3 million incurred in the three months ended March 31, 2022.

Activities during the three months ended March 31, 2023 at Tintic were focused on completing an initial diamond drill hole which we commenced drilling in November 2022 and completed in February 2023 in challenging snowy conditions.

We expect to execute a more extensive drilling campaign at Tintic during the spring of 2023 when operating conditions improve;

General and administrative expenses were $10.6 million for the three months ended March 31, 2023, an increase of $5.4 million from $5.2 million in three months ended March 31, 2022.

Several items contributed to the increase, including:

● a $1.1 million increase in accounting and audit fees largely related to the requirements of our filings and IPO;

● a $1.7 million increase in directors and officers insurance expenses during the nine months ended September 30, 2022 in relation to the new directors and officers’ insurance policy we entered into when we became a public company in June 2022.

There was no similar expense in prior years;

● a $0.7 million increase in administration expenses at VRB primarily due to an increase in professional fees in relation to certain technical studies that it was conducting;

● The above increases were offset by $1.4 million of financing fees relating to 2021 Series 1 Convertible Notes and common stock private placement in the nine month period ended September 30, 2021.

There was no similar expense in the nine months ended September 30, 2022.

During the nine months ended September 30, 2022, we recorded a non-cash $19.0 million loss on revaluation of convertible debt which related to the conversion of the Notes that were automatically converted into shares of common stock upon the completion of the IPO on June 30, 2022.

Revenue for the nine months ended September 30, 2022 was $8.2 million, an increase of $4.1 million from $4.1 million for the nine months ended September 30, 2021.

Nine months ended September 30,

• a $3.8 million increase in stock-based compensation expense largely due to impact of the additional non-cash stock-based compensation expense of the additional Ivanhoe Electric stock option and RSU grants that occurred in November 2022 and during the three months ended March 31, 2023;

• a $1.6 million increase in directors and officers insurance expenses for the three months ended March 31, 2023 in relation to the new director and officers insurance policy we entered into when we became a public company in June 2022.

There was no similar expense in the three months ended March 31, 2022.

CGI’s software licensing and data processing services to the mining and oil and gas industries represented 100.0% of our revenue for the three months ended March 31, 2023 ($0.7 million) and 100.0% for the three months ended March 31, 2022 ($6.8 million).

VRB generated no revenue during these periods.

Three Months Ended

March 31, 2023 Three Months Ended

March 31, 2022 Percentage Change

(In thousands)

Software licensing and data processing services:

Cost of sales

Energy storage systems:

Cost of sales

Revenue $ 679 $ 6,762 (90) %

Cost of sales (184) (52) 254 %

CGI’s software licensing and data processing services to the mining and oil and gas industries represented 92.3% of our revenue for the nine months ended September 30, 2022 ($7.5 million) and 97.4% for the nine months ended September 30, 2021 ($4.0 million).

The increase in CGI’s revenue was a result of a new contract that CGI entered into with one of its customers upon the expiration in 2021 of a previous three-year contract.

Under the new agreement with this customer, CGI agreed to license certain software for a one-time fee of $6.5 million, which was received and recognized in the first quarter of 2022.

As at September 30, 2022, there only remains a final payment of $250,000 under this agreement due in 2023.

We cannot provide any assurance that we will enter into any additional contracts with this customer in the future.

VRB’s energy storage system revenue represented 7.7% of our revenue for the nine months ended September 30, 2022 ($0.6 million) and 2.6% for the nine months ended September 30, 2021 ($0.1 million).

During the nine months ended September 30, 2022, VRB delivered, installed and commissioned a 125kW/500kWh energy storage system to a customer which resulted in $0.3 million of revenue being recognized.

In addition, VRB also recognized $0.3 million in revenue from the sale of electrolyte.

Research and development expenses for the nine months ended September 30, 2022 were $3.7 million, an increase of $1.0 million from the same period in 2021 attributable to a $0.6 million increase in research and development activity at CGI and a $0.4 million increase at VRB.

Research and development activities increased in 2022 at CGI as CGI has been focused on developing its services to generate new business after completing the $6.5 million software licensing agreement.

Gross profit $ 495 $ 6,710 (93) %

CGI’s revenue for the three months ended March 31, 2023 was $0.7 million a decrease of $6.1 million from $6.8 million for the three months ended March 31, 2022.

The decrease in CGI’s revenue was a result of revenue for the three months ended March 31, 2022 including a one-time amount of $6.5 million relating to a new contract that CGI entered into with one of its customers upon the expiration of a previous three-year contract.

Under that agreement with this customer, CGI agreed to license certain software for a one-time fee of $6.5 million, which was received and recognized in the first quarter of 2022.

CGI’s revenue for the three months ended March 31, 2023 consisted of $0.4 million of software licensing revenue and $0.3 million in revenue from processing data.

CGI’s gross profit for the three months ended March 31, 2023 was $0.5 million, a decrease of $6.2 million from $6.7 for the three months ended March 31, 2022.

The licensing of certain software for a one-time fee of $6.5 million had a direct impact on gross profit for the three months ended March 31, 2022 as the licenses had no underlying carrying value and therefore resulted in a $6.5 million gross profit being recognized.

Research and development expenses for the three months ended March 31, 2023 were $1.8 million, an increase of $0.5 million from the same period in 2022 primarily attributable to incurring $0.6 million of expenditure in the first quarter of 2023 on commencing research and development activities for our next generation of Typhoon TM equipment.

Stock-Based Compensation

During the three months ended March 31, 2023, we granted stock options to certain new employees of the Company.

In February 2023, we granted 500,000 stock options at an exercise price of $13.23 per share and in March 2023, we granted 100,000 stock options at an exercise price of $15.46.

The fair value of the option grants was determined using the Black-Scholes option-pricing model as $7.22 and $8.53 per share, respectively.

In addition, in January 2023, we granted 750,000 RSUs to a new senior officer of the Company which had a fair value on the grant date of $12.15 per share.

Liquidity, Capital Resources and Capital Requirements

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We have recurring net losses and negative operating cash flows and we expect that we will continue to operate at a loss for the foreseeable future.

We generate revenue only from our technology businesses.

We generate revenue from our technology businesses.

We have not generated any revenue from our mining projects and do not expect to generate any revenue from our mining projects for the foreseeable future.

We have funded our operations primarily through the sale of our equity and convertible securities.

On April 5, 2022, we raised funds by selling Series 2 Convertible Notes for gross proceeds of $86.2 million.

These funds were raised to finance our activities through the completion of our IPO.

On June 30, 2022, we closed our IPO of 14,388,000 shares of our common stock at a price of $11.75 per share.

The gross proceeds from the offering were approximately $169.1 million, before deducting underwriting discounts and commissions and estimated offering expenses payable by us.

At September 30, 2022, and December 31, 2021, we had cash and cash equivalents of $177.7 million and $49.9 million, respectively, and a working capital balance of $172.1 million and $17.7 million, respectively.

Of the total cash and cash equivalents at September 30, 2022 and December 31, 2021, $16.7 million and $28.5 million, respectively, was not available for the general corporate purposes of the Company as these amounts were held by non-wholly-owned subsidiaries.

We believe that we will have sufficient cash resources to carry out our business plans, including our currently planned exploration activities at our mineral projects, for at least the next 12 months.

At March 31, 2023 and December 31, 2022, we had cash and cash equivalents of $107.0 million and $139.7 million, respectively, and a working capital of $100.8 million and $133.6 million, respectively.

Of the total cash and cash

equivalents at March 31, 2023 and December 31, 2022, $10.2 million and $20.7 million, respectively, was not available for the general corporate purposes of the Company as these amounts were held by non-wholly-owned subsidiaries.

We believe that we will have sufficient cash resources to carry out our business plans for at least the next 12 months.

We have based these estimates on our current assumptions which may require future adjustments based on our ongoing business decisions as well as, in particular, exploration success at our mineral projects.

Accordingly, we may require additional cash resources earlier than we currently expect or we may need to curtail currently planned exploration activities.

Accordingly, we may require additional cash resources earlier than we currently expect or we may need to curtail currently planned activities.

Our significant operational expenses include the payments that we anticipate making under the various earn-in and option agreements to which we are a party.

These agreements are structured to provide us with flexibility whereby our ability to continue to explore on a mineral project is contingent on funding agreed specified levels over specified time intervals.

A summary of our mineral obligations and payments as at September 30, 2022 are as follows:

Mineral Project Obligation and Payments as at September 30, 2022 (in $ thousands)

Mineral Project

In $ thousands)

Santa Cruz (USA)

Discretionary

Santa Cruz (USA)

Non-discretionary

Total Santa Cruz (USA)

Discretionary

Hog Heaven (Montana)

Discretionary

Ivory Coast (Ivory Coast)

Discretionary

South Voisey’s Bay (Canada)

Discretionary

Crystal Haven (Australia)

Discretionary

Cave & Lincoln (USA)

Discretionary

Carolina Mining (USA)

Discretionary

Cash Balances as of September 30, 2022

The table below discloses the amounts of cash disaggregated by currency denomination as of September 30, 2022 in each jurisdiction that our affiliated entities are domiciled.

Cash Balances as of March 31, 2023

The table below discloses the amounts of cash disaggregated by currency denomination as of March 31, 2023 in each jurisdiction that our affiliated entities are domiciled.

Currency by Denomination (in USD Equivalents)

US dollars Canadian

Colombian Pesos Other Total

(In thousands)

Jurisdiction of Entity:

USA $ 95,456 $ 776 $ — $ — $ — $ 96,232

Colombia — — — 123 — $ 123

Cayman Islands 5,843 4 — — — $ 5,847

Canada 3,041 917 — — — $ 3,958

China — — 336 — — $ 336

British Virgin Islands 422 1 — — — $ 423

Our subsidiary VRB, domiciled in the Cayman Islands, is subject to certain foreign exchange restrictions with respect to its PRC subsidiaries.

Other 42 1 — — 33 76

Total $ 104,804 $ 1,699 $ 336 $ 123 $ 33 $ 106,995

Our subsidiary VRB, domiciled in the Cayman Islands, is subject to certain foreign exchange restrictions with respect to its People's Republic of China ("PRC") subsidiaries.

There are foreign exchange policies in the PRC that limit the amount of capital that can be directly transmitted offshore from VRB’s PRC subsidiaries to VRB.

Since their incorporation, these PRC subsidiaries have had accumulated losses and have not declared or paid any dividends or made any distribution of earnings.

There were no cash transfers to or from our PRC subsidiaries in the form of intercompany loans during the three and nine month periods ended September 30, 2022 and 2021.

Refer to Note 22 of our audited consolidated and combined carve out financial statements for the year ended December 31, 2021 included in the Final Prospectus, which outlines other restrictions on transfers of net assets from our consolidated subsidiaries to the Company.

There were no cash transfers to or from our PRC subsidiaries in the form of intercompany loans during the three months ended March 31, 2023.

Refer to Note 18 of our consolidated and combined carve-out financial statements in our 2022 Form 10-K which outlines other restrictions on transfers of net assets from our consolidated subsidiaries to the Company.

Convertible Bond — VRB.

In 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 will be automatically converted into equity of VRB upon an equity financing or sale event, at a price per share equal to the lower of (A) the transaction price of the equity financing or sale event, and (B) 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.

Bridge Loan — Cordoba Minerals.

In December 2022, JCHX advanced a bridge loan of $10 million to Cordoba Minerals in connection with the strategic arrangement for the joint development of Cordoba Mineral’s Alacran Project.

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, calculated on the basis of a 365-day year.

Upon closing the strategic arrangement on May 8, 2023, all of the principal and interest outstanding on the bridge loan was applied towards the first installment as a payment in kind.

The following table presents our sources and uses of cash for the periods indicated:

Nine months ended September 30,

(In thousands)

Three Months Ended

Net cash (used in) provided by:

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Operating activities.

Net cash used in operating activities for the nine months ended September 30, 2022 was $78.8 million, an increase of $49.3 million from the $29.5 million of net cash used for the nine months ended September 30, 2021.

Net cash used in operating activities for all periods presented was largely spent on our exploration expenses and our general and administrative costs.

Net cash used in operating activities for all periods presented largely was spent on our exploration expenses and our general and administrative costs.

We do not generate adequate cash from operations to cover our operating expenses and therefore rely on our financing activities to provide the cash resources to fund our operating and investing activities.

Net cash used in operating activities for the three months ended March 31, 2023 was $30.0 million, an increase of $15.4 million from the $14.6 million of net cash used for the three months ended March 31, 2022.

Investing activities.

Our investing activities generally relate to acquisitions of mineral property interests and purchases of shares in companies that we may partner with.

To date, because our mining projects are in the exploration stage, we have not incurred material capital expenditures.

Net cash used in investing activities for the nine months ended September 30, 2022 of $38.3 million was mainly attributable to $33.9 million for payments for mineral interests of which $28.8 million were for the Santa Cruz Project and $5.8 million were for the Tintic Project.

Our investing activities generally relate to acquisitions of mineral property interests, purchases of public company shares in companies that we may partner with and capital expenditures at our projects.

To date, due to our mining projects being in the exploration stage we have not incurred material capital expenditures.

Net cash used in investing activities for the three months ended March 31, 2023 of $2.7 million was mainly attributable to $1.8 million related to payments for mineral interests and $0.6 million for the purchase of investments that are subject significant influence.

The $1.8 million of cash used for purchases of mineral interests related to option payments at our Tintic Project.

The $0.6 million for the purchase of investments that are subject to significant influence relates to the funding of our 30% interest in the Sama Nickel Corporation Inc.

joint venture in the Ivory Coast.

Financing activities.

During the nine months ended September 30, 2022, there was $246.5 million of net cash provided by financing activities representing the $159.3 million of net cash raised upon the closing of our IPO on September 30, 2022, and $86.2 million raised from the sale of the Series 2 Convertible Notes.

Contractual Obligations and Commitments

As of September 30, 2022, we had the following material contractual obligations in addition to our mineral project payments described above.

Payments due by period (in thousands)

Long-term debt obligations (a)

Other long-term contractual liabilities (b)

Total contractual obligations

(a) Long-term obligations include the $24.0 million convertible bond issued by VRB that matures in 2026 if not converted to common shares of VRB prior such date.

At September 30, 2022, the value of the convertible bond including accrued interest was $26.4 million.

(b) Includes all other long-term financial liabilities reflected on our balance sheet that are contractually fixed as to timing and amount.

During the three months ended March 31, 2023, there were no significant financing activities as we continued to fund our operations with proceeds from our IPO.

Contractual Obligations

As of March 31, 2023, there have been no material changes, outside the ordinary course of business, in our contractual obligations since December 31, 2022.

Refer to Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 14, 2023, for information regarding our contractual obligations.

Off Balance Sheet Arrangements

As of September 30, 2022, we were not involved in any off-balance sheet arrangements that have or are reasonably likely to have a material effect on our financial condition, results of operations, or liquidity.

As of March 31, 2023, we were not involved in any off-balance sheet arrangements that have or are reasonably likely to have a material effect on our financial condition, results of operations, or liquidity.

Related Party Transactions

See Note 11 of our consolidated and combined carve-out financial statements for the three months ended March 31, 2023.

Critical Accounting Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated and combined carve-out financial statements which have been prepared in accordance with U.S.

The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as the disclosure of contingent assets and liabilities as of the date of our financial statements.

The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of

assets, liabilities, revenues and expenses, as well as the disclosure of contingent assets and liabilities as of the date of our financial statements.

Below are the accounting matters that we believe are critical to our financial statements due to the degree of uncertainty regarding the estimates or assumptions involved and the magnitude of the asset, liability, revenue, expense, gain or loss being reported.

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Actual results may differ from the estimates we calculate due to changes in circumstances, global economics and politics and general business conditions.

A summary of our significant accounting policies is described in Note 3 to our audited consolidated and combined carve-out financial statements for the year ended December 31, 2021 included in the Final Prospectus.

A summary of our significant accounting policies are detailed in Note 3 to our consolidated and combined carve-out financial statements included in our 2022 Form 10-K.

We have outlined below those policies identified as being critical to the understanding of our business and results of operations and that require the application of significant management judgment in developing estimates.

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The recoverability of our exploration mineral interests and intangible assets did not involve significant estimation in the periods presented as circumstances did not indicate the carrying amount of our assets may not be recoverable.

However, the recoverability of our recorded mineral interests is subject to market factors that could significantly affect the recoverability of our assets, such as commodity prices, results of exploration activities and geopolitical circumstances, particularly in Colombia.

However, the recoverability of our recorded mineral interests is subject to market factors that could significantly affect the recoverability of our assets, such as commodity prices, results of exploration activities that may affect our intentions to continue under option or earn-in agreements and geopolitical circumstances, particularly in Colombia.

By nature, significant changes in these factors are reasonably possible to occur periodically, which could materially impact our financial statements.

Stock-based compensation

Compensation expense for options granted to employees, directors and certain service providers is determined based on estimated fair values of the options at the time of grant using the Black-Scholes option pricing model, which takes into account, as of the grant date, the fair market value of the shares, expected volatility, expected life, expected dividend yield and the risk-free interest rate over the expected life of the option.

The use of the Black-Scholes option pricing model requires input estimation of the expected life of the option and volatility, which can have a significant impact on the valuation model and resulting expense recorded.

In February 2023, we granted 500,000 stock options at an exercise price of $13.23 per share and in March 2023, we granted 100,000 stock options at an exercise price of $15.46.

The fair value of the option grants was determined using the Black-Scholes option-pricing model as $7.22 and $8.53 per share, respectively.

The following assumptions were used to compute the fair value of the options granted:

February 1, 2023 Grant Date March 1, 2023 Grant Date

Risk-free interest rate 3.7% 4.5%

Dividend yield nil nil

Estimated volatility 69.8% 69.5%

Expected option life 4 years 4 years

The risk-free interest rate assumption was based on the U.S.

treasury constant maturity yield at the date of the grant over the expected life of the option.

No dividends are expected to be paid.

We calculated the estimated volatility 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 as we only commenced publicly trading in June 2022.

The computation of expected option life was determined based on a reasonable expectation of the option life prior to the option being exercised or forfeited.

We make estimates and judgments in determining the provision for income tax expense, deferred tax assets and liabilities and liabilities for unrecognized tax benefits, including interest and penalties.

We are subject to income tax laws in many jurisdictions, including the United States, Canada, Colombia, Peru, the Ivory Coast and the PRC.

We are subject to income tax laws in many jurisdictions, including the United States, Canada, Colombia, Peru, Australia, the Ivory Coast and the PRC.

We report income tax in accordance with U.S.

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The amount that is ultimately incurred for an individual uncertain tax position or for all uncertain tax positions in the aggregate could differ from the amount recognized.

We had no uncertain tax positions as of September 30, 2022.

Recently adopted accounting standards and recent accounting pronouncements

There were no significant updates to previously reported accounting standards.

See Note 2 of the condensed interim consolidated and combined carve-out financial statements included in this Quarterly Report.

We had no uncertain tax positions as of March 31, 2023.

Emerging Growth Company Status

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We have elected not to opt out of this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act.

As a result, our condensed interim consolidated and combined carve-out financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

The accounting policies applied in our condensed interim consolidated and combined carve-out financial statements financial statements included elsewhere in this Quarterly Report reflect the early adoption of certain accounting standards as the JOBS Act does not preclude an emerging growth company from early adopting a new or revised accounting standard to the extent early adoption is allowed by the accounting standard.

As a result, our consolidated and combined carve-out financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

The accounting policies applied in our consolidated and combined carve-out financial statements included elsewhere in this Quarterly Report reflect the early adoption of certain accounting standards as the JOBS Act does not preclude an emerging growth company from early adopting a new or revised accounting standard to the extent early adoption is allowed by the accounting standard.

Quantitative and Qualitative Disclosures about Market Risk.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis