Item 1. Financial Statements
Item 1. Financial Statements.
IVANHOE ELECTRIC INC.
Condensed Interim Consolidated Balance Sheets (Unaudited)
(Expressed in thousands of U.S. dollars)
June 30,
2023 December 31,
2022
Assets
Current assets:
Cash and cash equivalents $ 63,801 $ 139,660
Accounts receivable 2,130 1,497
Inventory 4,630 5,648
Prepaid expenses and deposits 5,977 4,226
76,538 151,031
Non-current assets:
Investments subject to significant influence 8,382 5,998
Other investments 1,871 2,220
Exploration properties 209,890 86,758
Property, plant and equipment 3,987 3,934
Intangible assets 221 1,249
Other non-current assets 8,872 9,296
Total assets $ 309,761 $ 260,486
Liabilities and Equity
Current liabilities:
Accounts payable and accrued liabilities $ 23,846 $ 13,943
Note payable 35,081 —
Lease liabilities, current 768 706
Contract liability 2,810 2,783
62,505 17,432
Non-current liabilities:
Note payable 48,325 —
Convertible debt 26,941 25,918
Deferred income taxes 4,259 3,888
Due to related party — 10,010
Lease liabilities, net of current portion 216 403
Other non-current liabilities 767 388
Total liabilities 143,013 58,039
Commitments and contingencies (Note 15)
Equity:
Common stock, par value $ 0.0001 ; 700,000,000 shares authorized; 93.5 million shares issued and outstanding as of June 30, 2023 (December 31, 2022 - 700,000,000 authorized; 93.0 million issued and outstanding)
9 9
Additional paid-in capital 439,442 409,683
Accumulated deficit ( 276,465 ) ( 202,128 )
Accumulated other comprehensive income ( 2,058 ) ( 1,189 )
Equity attributable to common stockholders 160,928 206,375
Non-controlling interests 5,820 ( 3,928 )
Total equity 166,748 202,447
Total liabilities and equity $ 309,761 $ 260,486
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IVANHOE ELECTRIC INC.
Condensed Interim Consolidated Statements of Loss and Comprehensive Loss (Unaudited)
(Expressed in thousands of U.S. dollars, except for share and per share amounts)
Three Months Ended
June 30, Six Months Ended
June 30,
2023 2022 2023 2022
Revenue $ 1,314 $ 229 $ 1,993 $ 6,991
Cost of sales ( 1,256 ) ( 115 ) ( 1,440 ) ( 167 )
Gross profit 58 114 553 6,824
Operating expenses:
Exploration expenses 32,551 23,863 59,110 41,186
General and administrative expenses 12,658 4,659 23,291 9,885
Research and development expenses 2,138 1,257 3,981 2,588
Selling and marketing expenses 96 21 145 57
Loss from operations 47,385 29,686 85,974 46,892
Other expenses (income):
Interest expense, net 713 523 681 1,035
Foreign exchange (gain) loss ( 1,312 ) 242 ( 1,473 ) 431
(Gain) loss on revaluation of investments ( 1,321 ) 6,102 ( 946 ) 1,443
Loss on revaluation of convertible debt — 16,083 — 18,965
Share of loss of equity method investees 606 1,550 1,228 1,550
Other (income) expenses, net ( 1,096 ) 1,359 ( 1,837 ) 1,582
Loss before income taxes 44,975 55,545 83,627 71,898
Income tax expense (recovery) ( 128 ) ( 70 ) ( 200 ) 1,251
Net loss 44,847 55,475 83,427 73,149
Less loss attributable to non-controlling interests ( 6,584 ) ( 1,109 ) ( 9,090 ) ( 3,331 )
Net loss attributable to common stockholders or parent 38,263 54,366 74,337 69,818
Net loss 44,847 55,475 83,427 73,149
Other comprehensive loss, net of tax:
Foreign currency translation adjustments 1,271 147 1,339 41
Other comprehensive loss 1,271 147 1,339 41
Comprehensive loss $ 46,118 $ 55,622 $ 84,766 $ 73,190
Comprehensive loss attributable to:
Common stockholders or parent 39,086 54,533 75,206 69,883
Non-controlling interests 7,032 $ 1,089 9,560 $ 3,307
$ 46,118 $ 55,622 $ 84,766 $ 73,190
Net loss per share attributable to common stockholders
Basic and diluted $ 0.41 $ 0.85 $ 0.80 $ 1.09
Weighted-average common shares outstanding
Basic and diluted 93,124,994 64,243,603 93,045,066 64,085,348
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IVANHOE ELECTRIC INC.
Condensed Interim Consolidated Statements of Changes in Equity (Unaudited)
(Expressed in thousands of U.S. dollars, except share amounts)
Six months ended June 30, 2023 and 2022
Additional
paid-in
capital Accumulated
deficit Accumulated
other
comprehensive
Income (loss) Non-controlling
interest Total
Common Stock
Shares Amount
Balance at January 1, 2022 63,925,334 $ 6 $ 75,743 $ ( 52,314 ) $ ( 1,502 ) $ 5,881 $ 27,814
Net loss — — — ( 15,452 ) — ( 2,222 ) ( 17,674 )
Other comprehensive income — — — — 102 4 106
Share-based compensation — — 882 — — 73 955
Balance at March 31, 2022 63,925,334 $ 6 $ 76,625 $ ( 67,766 ) $ ( 1,400 ) $ 3,736 $ 11,201
Net loss — — — ( 54,366 ) — ( 1,109 ) ( 55,475 )
Other comprehensive income (loss) — — — — ( 167 ) 20 ( 147 )
Issuance of common stock, net of issuance costs 14,388,000 2 158,200 — — — 158,202
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
Share based compensation — — 784 — — 54 838
Other changes in non-controlling interests — — ( 8 ) — — ( 4 ) ( 12 )
Balance at June 30, 2022 92,887,918 $ 9 $ 406,851 $ ( 122,132 ) $ ( 1,567 ) $ 2,697 $ 285,858
Balance at January 1, 2023 92,960,584 $ 9 $ 409,683 $ ( 202,128 ) $ ( 1,189 ) $ ( 3,928 ) $ 202,447
Net loss — — — ( 36,074 ) — ( 2,506 ) ( 38,580 )
Other comprehensive loss — — — — ( 46 ) ( 22 ) ( 68 )
Issuance of common stock; earn-in payment 10,281 — 150 — — — 150
Stock options exercised 1,000 — 3 — — — 3
Share-based compensation — — 5,067 — — 65 5,132
Other changes in non-controlling interests — — ( 6 ) — — 4 ( 2 )
Balance at March 31, 2023 92,971,865 $ 9 $ 414,897 $ ( 238,202 ) $ ( 1,235 ) $ ( 6,387 ) $ 169,082
Net loss — — — ( 38,263 ) — ( 6,584 ) ( 44,847 )
Other comprehensive loss — — — — ( 823 ) ( 448 ) ( 1,271 )
Stock options exercised 479,909 — 1,194 — — — 1,194
Share-based compensation — — 5,365 — — 66 5,431
Settlement of deferred share units 11,990 — — — — — —
Non-controlling interests investment in subsidiary — — 17,979 — — 19,174 37,153
Other changes in non-controlling interests — — 7 — — ( 1 ) 6
Balance at June 30, 2023 93,463,764 $ 9 $ 439,442 $ ( 276,465 ) $ ( 2,058 ) $ 5,820 $ 166,748
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IVANHOE ELECTRIC INC.
Condensed Interim Consolidated Statements of Cash Flows (Unaudited)
(Expressed in thousands of U.S. dollars)
Six months ended June 30, 2023 and 2022
2023 2022
Operating activities
Net loss $ ( 83,427 ) $ ( 73,149 )
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
Depreciation and amortization 1,714 2,288
Share-based compensation 10,563 1,793
Non-cash exploration expense 1,003 —
Non-cash research and development expense 1,290 —
Unrealized foreign exchange (gain) loss ( 1,494 ) 392
Interest expense 2,374 1,022
Income taxes ( 200 ) 1,251
Loss on revaluation of convertible debt — 18,965
Loss (Gain) on revaluation of investments ( 946 ) 1,443
Share of loss of equity method investees 1,228 1,550
Other ( 752 ) 1,566
Changes in other operating assets and liabilities:
Trade accounts receivable ( 633 ) 247
Inventory 845 ( 466 )
Operating lease liabilities ( 468 ) ( 430 )
Accounts payable and accrued liabilities 6,372 ( 102 )
Other operating assets and liabilities ( 3,299 ) ( 567 )
Net cash used in operating activities ( 65,830 ) ( 44,197 )
Investing activities
Purchase of mineral interests ( 39,157 ) ( 25,727 )
Purchase of property, plant and equipment and intangible assets ( 557 ) ( 615 )
Purchase of investments subject to significant influence ( 1,158 ) ( 1,962 )
Other — ( 110 )
Net cash used in investing activities ( 40,872 ) ( 28,414 )
Financing activities
Net proceeds from issuance of common stock — 160,576
Proceeds from convertible notes — 86,200
Non-controlling interests investment in subsidiary 29,454 —
Proceeds from exercise of stock options 1,197 —
Other — ( 12 )
Net cash provided by financing activities 30,651 246,764
Effect of foreign exchange rate changes on cash and cash equivalents 192 ( 170 )
Decrease in cash and cash equivalents ( 76,051 ) 174,153
Cash and cash equivalents, beginning of the year 139,660 49,850
Cash and cash equivalents, end of the period $ 63,801 $ 223,833
Supplemental cash flow information
Cash paid for income taxes $ 1,166 $ 438
Supplemental disclosure of non-cash investing and financing activities
Note payable issued as consideration for land purchase $ 82,590 $ —
Non-controlling interests investment in subsidiary 10,546
Settlement of loan upon issuance of shares of subsidiary ( 10,546 ) —
Issuance of common stock upon conversion of debt — 160,140
Issuance of common stock upon settlement of liability — 11,111
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IVANHOE ELECTRIC INC.
Notes to the Condensed Interim Consolidated Financial Statements
(Unaudited - 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”) is a US domiciled company that combines advanced mineral exploration technologies with electric metals exploration projects predominantly located in the United States. The Company’s mineral exploration efforts focus on copper as well as other metals including nickel, vanadium, cobalt, platinum group elements, gold and silver. The Company’s portfolio of electric metals exploration projects include the Santa Cruz Copper Project in Arizona and the Tintic Copper-Gold Project in Utah, as well as other exploration projects 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 June 30, 2023 (December 31, 2022 — 90.0 %).
• Computational Geosciences Inc. (“CGI”), provides data analytics, geophysical modeling, 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 June 30, 2023 (December 31, 2022 — 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 June 30, 2023 (December 31, 2022 — 63.3 %).
• Kaizen Discovery Inc. (“Kaizen”) holds the Pinaya copper-gold exploration project in Peru. Ivanhoe Electric had an ownership interest in Kaizen of 82.5 % as at June 30, 2023 (December 31, 2022 — 82.7 %).
The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all information and disclosures required by generally accepted accounting principles in the United States. Therefore, this information should be read in conjunction with the Company's consolidated and combined carve-out financial statements and notes contained on its Form 10-K for the year ended December 31, 2022. The information furnished herein reflects all normal recurring entries, that are in the opinion of management, necessary for a fair statement of the results for the interim periods reported. Operating results for the six month period ended June 30, 2023, are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.
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 value 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 condensed interim consolidated financial statements have been retrospectively adjusted to reflect the effect of the Reverse Stock Split.
The condensed interim consolidated 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.
2. Significant accounting policies:
The Company discloses in its consolidated financial statements for the year ended December 31, 2022, those accounting policies that it considers significant in determining its results of operations and financial position. There
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IVANHOE ELECTRIC INC.
Notes to the Condensed Interim Consolidated Financial Statements
(Unaudited - Tabular amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
have been no material changes to, or in the application of, the accounting policies previously identified and described in the Company’s consolidated and combined carve-out financial statements for the year ended December 31, 2022.
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 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 financial statements.
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 financial statements.
3. Use of estimates:
The preparation of consolidated financial statements 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 significant judgments made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated and combined carve-out financial statements for the year ended December 31, 2022.
4. Cash and cash equivalents:
Of the total cash and cash equivalents at June 30, 2023 and December 31, 2022, $ 13.1 million and $ 20.7 million, respectively, was not available for the general corporate purposes of the Company as it was held by non-wholly-owned subsidiaries.
At June 30, 2023, the Company does no t have any cash equivalents in the form of redeemable short-term investments (December 31, 2022 - $ 2.3 million) .
5. Investments subject to significant influence:
The Company’s principal investment subject to significant influence is Sama Resources Inc. (“Sama”). Others include its investments in Sama Nickel Corporation (“SNC”) and Go2Lithium Inc. ("Go2Lithium").
Carried at fair value Equity method
Sama Fjordland SNC Go2Lithium (Note a) Total
Balance at December 31, 2022 $ 4,799 $ 309 $ 890 — 5,998
Change in fair value 1,621 — — — 1,621
Investment — — 1,158 1,133 2,291
Share of loss — — ( 1,228 ) — ( 1,228 )
Reclassification to other investments — ( 309 ) — — ( 309 )
Foreign currency translation — — 9 — 9
Balance at June 30, 2023 $ 6,420 $ — $ 829 $ 1,133 $ 8,382
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IVANHOE ELECTRIC INC.
Notes to the Condensed Interim Consolidated Financial Statements
(Unaudited - Tabular amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
(a) Go2Lithium:
On April 6, 2023, CGI and Clean TeQ Water Limited, entered into a shareholders agreement whereby both parties became founding and equal 50 % shareholders in Go2Lithium. Go2Lithium was formed for the purpose of financing, acquiring and/or joint venturing a portfolio of technologies to produce battery grade lithium salts from aqueous sources and to build extraction plants based on proprietary continuous ion-exchange direct lithium extraction technology.
6. Exploration properties:
Santa
Cruz (Note a) Tintic Pinaya San
Matias Other Total
Balance at December 31, 2022 $ 40,880 $ 27,138 $ 2,525 $ 15,315 $ 900 $ 86,758
Acquisition costs 119,363 3,525 — — 250 123,138
Foreign currency translation — — ( 6 ) — — ( 6 )
Balance at June 30, 2023 $ 160,243 $ 30,663 $ 2,519 $ 15,315 $ 1,150 $ 209,890
(a) Santa Cruz Land Acquisition:
On May 10, 2023, Ivanhoe Electric signed a binding purchase and sale agreement (“PSA”) for the acquisition of land at its Santa Cruz Project in Arizona. The acquisition closed on May 23, 2023 and totals 5,975 acres of surface title and associated water rights.
The total purchase price was $ 116.9 million, of which the Company has paid a total of $ 34.3 million to the seller as of closing, which included $ 5.1 million of previously paid deposits. The Company has also issued a secured promissory note to the seller in the amount of $ 82.6 million. The promissory note includes an annual interest rate of prime plus 1 % and is to be paid in installments, as follows:
• $ 34.3 million, plus accrued interest, payable on or before November 23, 2023;
• four equal principal payments of $ 12.1 million on the first, second, third and fourth anniversaries of the November 23, 2023 payment, plus applicable accrued interest.
The Company reports land and water rights associated with its exploration projects in exploration properties. Directly attributable acquisition costs of $ 2.2 million were capitalized on acquisition.
7. Convertible debt:
VRB
Convertible
Bond
Balance at December 31, 2022 $ 25,918
Interest expense 1,023
Balance at June 30, 2023 $ 26,941
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.
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IVANHOE ELECTRIC INC.
Notes to the Condensed Interim Consolidated Financial Statements
(Unaudited - Tabular amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
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 %.
8. Equity:
(a) Stock-based compensation:
Stock-based payment compensation was allocated to operations as follows:
Three Months Ended June 30, Six Months Ended June 30,
2023 2022 2023 2022
General and administrative expenses $ 4,759 $ 403 $ 8,958 $ 950
Exploration expenses 667 369 1,595 737
Research and development expenses 5 — 5 —
Cost of sales — 66 5 106
$ 5,431 $ 838 $ 10,563 $ 1,793
(i) Stock options:
During the six months ended June 30, 2023, the Company granted stock options to certain new management of the Company. 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. The stock options were granted at an exercise price equal to the closing stock price on the grant date.
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. 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 six months ended June 30, 2023 is presented below.
Grant date: February 1, 2023 Grant date: March 1, 2023
Exercise price $ 13.23 $ 15.46
Number of options granted 500,000 100,000
Weighted average assumptions used to value stock option awards:
Expected volatility 69.8 % 69.5 %
Expected life of options (in years) 4 4
Expected dividend rate 0 % 0 %
Risk-free interest rate 3.73 % 4.52 %
Weighted average grant-date fair value (per option) $ 7.22 $ 8.53
(ii) Stock settled restricted stock units ("RSUs"):
On January 1, 2023, Ivanhoe Electric granted 750,000 stock-settled RSUs to a new executive of the Company. The RSUs comprise five equal tranches vesting in one-fifth annual increments beginning one year
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IVANHOE ELECTRIC INC.
Notes to the Condensed Interim Consolidated Financial Statements
(Unaudited - Tabular amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
from the grant date. The fair value of the stock-settled RSUs is amortized over the vesting period. The total fair value of the January 1, 2023 RSU grant was $ 9.1 million.
9. Revenue:
The Company recognized revenue from the following sources:
Three Months Ended June 30, Six Months Ended June 30,
Revenue type 2023 2022 2023 2022
Software licensing $ — $ 9 $ 400 $ 6,711
Data processing services 42 220 321 280
Renewable energy storage systems (Note a) 1,272 — 1,272 —
Total $ 1,314 $ 229 $ 1,993 $ 6,991
(a) At June 30, 2023, the Company had a contract liability of $ 2.8 million (December 31, 2022 — $ 2.8 million) relating to the sale of renewable energy storage systems.
10. Exploration expense:
Three Months Ended June 30, Six Months Ended June 30,
Project 2023 2022 2023 2022
Santa Cruz, USA $ 15,043 $ 14,763 $ 29,725 $ 24,561
San Matias, Colombia 10,109 3,397 14,767 5,773
Tintic, USA 1,954 407 3,075 696
Hog Heaven, USA 416 308 1,054 868
Carolina, USA 790 514 1,028 514
White Hill, USA (Note a) 259 — 750 —
Pinaya, Peru 493 1,465 650 2,151
Lincoln, USA 182 326 477 339
Generative exploration and other 3,305 2,683 7,584 6,284
Total $ 32,551 $ 23,863 $ 59,110 $ 41,186
(a) White Hill project:
On February 22, 2023, the Company 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.
11. Non-controlling interests investment in subsidiary:
On May 8, 2023, Cordoba closed the $ 100 million strategic arrangement with JCHX Mining Management Co., Ltd (“JCHX") to advance the Alacran Project in Colombia. Upon closing, JCHX received a 50 % ownership interest in CMH Colombia S.A.S. (“CMH”), a Colombian company that owns 100 % of the Alacran Project and is the joint venture vehicle for Cordoba and JCHX in this strategic project level partnership.
For its 50 % interest, JCHX will pay the $ 100 million purchase price in three installments. As of the closing of the transaction, $ 40 million has been received as a first installment and partial payment for shares issued. A second installment of $ 40 million is receivable 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 shall 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 receivable in cash upon the approval of the
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IVANHOE ELECTRIC INC.
Notes to the Condensed Interim Consolidated Financial Statements
(Unaudited - Tabular amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
EIA, which must be within two years of the transaction’s 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.
As partial consideration for the first installment, the outstanding balance of principal and interest (totaling $ 10.5 million) owing under Cordoba’s bridge loan to JCHX was applied as a payment in kind and the bridge loan was extinguished.
The second installment is secured by a pledge and call option over 20 % of the shares of CMH held by JCHX. In the event JCHX pays the second installment but does not pay the third installment, JCHX’s and Cordoba’s ownership of CMH shares will be adjusted to 40 % and 60 %, respectively.
The Company currently retains control over the relevant activities of CMH therefore continues to consolidate the entity.
The Company measures its non-controlling interest and loss attributable to non-controlling shareholders on the basis of a hypothetical liquidation at book value. Upon closing, the Company recorded the difference between the consideration received and the carrying value of the interest given up of $ 18.0 million in additional paid in capital.
CMH’s loss is attributable to Ivanhoe Electric’s shareholders in the Company’s basic and diluted loss per share based on the extent to which the parties are eligible to participate in dividends, if any, during the period.
12. 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 following table summarizes transactions between the Company and significant related parties.
Balance outstanding as at Transactions for the
three months ended
June 30, Transactions for the
six months ended
June 30,
June 30,
2023 December 31,
2022 2023 2022 2023 2022
Total Expenses
Global Mining (Note a) 1,606 1,383 4,897 3,345 9,213 6,082
Ivanhoe Capital Aviation (Note b) — 83 250 250 500 500
I-Pulse (Note c) — — 1,158 — 2,315 —
Total 1,606 1,466 6,305 3,595 12,028 6,582
Advances
Global Mining (Note a) 2,317 1,987 — — — —
Deposit
I-Pulse (Note c) 4,985 7,128 — — — —
Loan
JCHX Mining Management Co., Ltd (Note d) — 10,010 — — — —
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IVANHOE ELECTRIC INC.
Notes to the Condensed Interim Consolidated Financial Statements
(Unaudited - Tabular amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
Transactions for the
three months ended
June 30, Transactions for the six
months ended
June 30,
2023 2022 2023 2022
Expense classification
Exploration expenses 3,290 2,015 6,332 3,530
General and administrative expenses 2,357 1,580 4,388 3,052
Research and development expenses 658 — 1,308 —
6,305 3,595 12,028 6,582
(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 Company on a cost-recovery basis. The Company held 7.1 % of Global Mining’s outstanding common shares at June 30, 2023 (December 31, 2022 — 7.1 %).
(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.
(c) I-Pulse Inc. (“I-Pulse”) is a 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 three years . The total purchase price for the six Typhoon™ transmitters is $ 12.4 million, which includes research and development costs of $ 2.8 million. The agreement also includes annual maintenance costs of $ 1.7 million per year. The Company is recognizing the research and development costs and annual maintenance costs on a straight line basis in the condensed interim consolidated statement of loss. In October 2022, the Company made deposit payments totaling $ 7.1 million, representing 50 % of each component of the agreement. The remaining payments will be made as each Typhoon™ transmitter system is delivered.
(d) JCHX held 19.9 % of Cordoba’s issued and outstanding common stock as at June 30, 2023 (December 31, 2022 - 19.9 %).
In December 2022, JCHX advanced a bridge loan of $ 10 million to Cordoba. The bridge loan was for an 18-month term and bore interest at 12 % per annum during the first 12 months of the term and 14 % per annum during the remaining six months.
Upon closing the project financing transaction described in Note 11 all of the principal and interest outstanding on the bridge loan was applied towards that transaction’s first installment as a payment in kind.
13. 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:
June 30, 2023 December 31, 2022
Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Financial assets:
Investments subject to significant influence 6,420 — — 5,108 — —
Other investments 1,871 — — 2,220 — —
Total financial assets $ 8,291 $ — $ — $ 7,328 $ — $ —
Financial liabilities:
Total financial liabilities $ — $ — $ — $ — $ — $ —
There were no movements in level three instruments for the six months ended June 30, 2023.
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IVANHOE ELECTRIC INC.
Notes to the Condensed Interim Consolidated Financial Statements
(Unaudited - Tabular amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
14. 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 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, software licensing 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:
Three months ended June 30, 2023 Six months ended June 30, 2023
Critical
Metals Data
Processing Energy
Storage Total Critical
Metals Data
Processing Energy
Storage Total
Revenue $ — $ 42 $ 1,272 $ 1,314 $ — $ 721 $ 1,272 $ 1,993
Intersegment revenues — 15 — 15 — 63 — 63
Loss (income) from operations 44,648 746 1,991 47,385 80,807 1,145 4,022 85,974
Segment Assets 293,234 4,253 12,274 309,761 293,234 4,253 12,274 309,761
Three months ended June 30, 2022 Six months ended June 30, 2022
Critical
Metals Data
Processing Energy
Storage Total Critical
Metals Data
Processing Energy
Storage Total
Revenue $ — $ 229 $ — $ 229 $ — $ 6,991 $ — $ 6,991
Intersegment revenues — 96 — 96 — 139 — 139
Loss (income) from operations 27,103 953 1,630 29,686 47,883 ( 4,596 ) 3,605 46,892
Segment Assets 309,574 7,259 24,161 340,994 309,574 7,259 24,161 340,994
15. Commitments and contingencies:
The Company has entered into a contractual arrangement to purchase six Typhoon™ transmitters from I-Pulse (Note 12).
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 it, are believed to, either individually or taken together, have a material adverse effect on the Company’s business, financial condition or results of operations.
16. Subsequent event:
On May 15, 2023, Ivanhoe Electric signed a Common Stock Subscription Agreement (the “Subscription Agreement”) with Saudi Arabian Mining Company Ma’aden (“Ma’aden”) pursuant to the Heads of Terms entered into on January 11, 2023. On July 6, 2023, the Company completed the closing of the transactions contemplated by the Subscription Agreement (the “Ma’aden Transactions”) and entered into an Investor Rights Agreement, a Shareholders’ Agreement and the other instruments contemplated thereby.
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IVANHOE ELECTRIC INC.
Notes to the Condensed Interim Consolidated Financial Statements
(Unaudited - Tabular amounts expressed in thousands of U.S. dollars, unless otherwise indicated)
The Ma'aden 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 $ 127.1 million strategic investment by Ma'aden in Ivanhoe Electric common stock.
In connection with the Ma'aden Transactions, the Company issued 10.3 million common shares to Ma’aden, representing 9.9 % of common shares on completion of the Ma'aden transactions, at a purchase price of $ 12.38 per share. Of the $ 127.1 million total proceeds from the private placement, $ 66 million has been contributed to the joint venture to fund exploration activities, including the purchase of three new Typhoon TM machines. The remaining $ 61.1 million has been retained by Ivanhoe Electric to advance our portfolio of US mineral projects, and for working capital and general corporate purposes.
At the closing of the Ma'aden Transactions, Ivanhoe Electric granted Ma’aden a top-up right allowing Ma’aden to maintain its 9.9 % ownership for up to eight years through the purchase of additional shares at a market-based price. Ma’aden has agreed to a five-year standstill limiting its shareholding to a maximum of 19.9 %, subject to certain exceptions. Ma’aden was granted the right to appoint a nominee to the Ivanhoe Electric board of directors .
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