Ivanhoe Electric Inc. 10-Q

Item 1. Financial Statements. IVANHOE ELECTRIC INC. Condensed Interim Consolidated Balance Sheets (Unaudited) (Expressed in thousands of U.S. dollars) September 30, 2023 December 31, 2022 Assets Current assets: Cash and cash equivalents $ 249,045 $ 139,660 Accounts receivable 2,408 1,497 Inventory 4,756 5,648 Prepaid expenses and deposits 4,578 4,226 260,787 151,031 Non-current assets: Investments subject to significant influence 41,184 5,998 Other investments 1,641 2,220 Exploration properties 216,295 86,758 Property, plant and equipment 4,678 3,934 Intangible assets 171 1,249 Other non-current assets 8,150 9,296 Total assets $ 532,906 $ 260,486 Liabilities and Equity Current liabilities: Accounts payable and accrued liabilities $ 22,022 $ 13,943 Note payable 37,044 — Lease liabilities, current 623 706 Contract liability 2,795 2,783 62,484 17,432 Non-current liabilities: Note payable 48,325 — Convertible debt 27,460 25,918 Deferred income taxes 4,404 3,888 Due to related party — 10,010 Lease liabilities, net of current portion 641 403 Other non-current liabilities 800 388 Total liabilities 144,114 58,039 Commitments and contingencies (Note 15) Equity: Common stock, par value $ 0.0001 ; 700,000,000 shares authorized; 117.5 million shares issued and outstanding as of September 30, 2023 (December 31, 2022 - 700,000,000 authorized; 93.0 million issued and outstanding) 12 9 Additional paid-in capital 744,478 409,683 Accumulated deficit ( 354,345 ) ( 202,128 ) Accumulated other comprehensive income ( 1,944 ) ( 1,189 ) Equity attributable to common stockholders 388,201 206,375 Non-controlling interests 591 ( 3,928 ) Total equity 388,792 202,447 Total liabilities and equity $ 532,906 $ 260,486 3 Table of Contents 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 September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Revenue $ 239 $ 1,181 $ 2,232 $ 8,172 Cost of sales ( 275 ) ( 875 ) ( 1,715 ) ( 1,042 ) Gross profit ( 36 ) 306 517 7,130 Operating expenses: Exploration expenses 34,208 33,971 93,318 75,157 General and administrative expenses 11,445 6,853 34,736 16,738 Research and development expenses 1,247 1,140 5,228 3,728 Selling and marketing expenses 36 51 181 108 Loss from operations 46,972 41,709 132,946 88,601 Other expenses (income): Interest expense, net 1,717 164 2,398 1,199 Foreign exchange (gain) loss 62 972 ( 1,411 ) 1,403 (Gain) loss on revaluation of investments ( 44 ) ( 171 ) ( 990 ) 1,272 Loss on revaluation of convertible debt — — — 18,965 Share of losses of equity method investees 34,216 1,527 35,444 3,077 Other (income) expenses, net 337 ( 181 ) ( 1,500 ) 1,401 Loss before income taxes 83,260 44,020 166,887 115,918 Income tax (recovery) expense — ( 167 ) ( 200 ) 1,084 Net loss 83,260 43,853 166,687 117,002 Less loss attributable to non-controlling interests ( 5,380 ) ( 3,465 ) ( 14,470 ) ( 6,796 ) Net loss attributable to common stockholders or parent 77,880 40,388 152,217 110,206 Net loss 83,260 43,853 166,687 117,002 Other comprehensive loss (income), net of tax: Foreign currency translation adjustments ( 154 ) ( 990 ) 1,185 ( 949 ) Other comprehensive loss (income) ( 154 ) ( 990 ) 1,185 ( 949 ) Comprehensive loss $ 83,106 $ 42,863 $ 167,872 $ 116,053 Comprehensive loss attributable to: Common stockholders or parent 77,766 39,673 152,972 109,556 Non-controlling interests 5,340 $ 3,190 14,900 $ 6,497 $ 83,106 $ 42,863 $ 167,872 $ 116,053 Net loss per share attributable to common stockholders Basic and diluted $ 0.74 $ 0.43 $ 1.57 $ 1.50 Weighted-average common shares outstanding Basic and diluted 104,866,006 92,887,918 97,028,679 73,685,619 4 Table of Contents IVANHOE ELECTRIC INC. Condensed Interim Consolidated Statements of Changes in Equity (Unaudited) (Expressed in thousands of U.S. dollars, except share amounts) Nine months ended September 30, 2023 Additional paid-in capital Accumulated deficit Accumulated other comprehensive Income (loss) Non-controlling interest Total Common Stock Shares Amount 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 Net loss — — — ( 77,880 ) — ( 5,380 ) ( 83,260 ) Other comprehensive loss — — — — 114 40 154 Issuance of common stock; strategic investment, net of issuance costs 10,269,604 1 123,670 — — — 123,671 Issuance of common stock; public offering, net of issuance costs 13,629,629 2 175,540 — — — 175,542 Stock options exercised 156,118 — 389 — — — 389 Share-based compensation — — 5,581 — — 70 5,651 Other changes in non-controlling interests — — ( 144 ) — — 41 ( 103 ) Balance at September 30, 2023 117,519,115 $ 12 $ 744,478 $ ( 354,345 ) $ ( 1,944 ) $ 591 $ 388,792 IVANHOE ELECTRIC INC. Condensed Interim Consolidated Statements of Changes in Equity (Unaudited) (Expressed in thousands of U.S. dollars, except share amounts) Nine months ended September 30, 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 Net loss — — — ( 40,388 ) — ( 3,465 ) ( 43,853 ) Other comprehensive income — — — — 715 275 990 Share issuance costs — — ( 229 ) — — — ( 229 ) Share based compensation — — 581 — — 141 722 Other changes in non-controlling interests — — — — — — — Balance at September 30, 2022 92,887,918 $ 9 $ 407,203 $ ( 162,520 ) $ ( 852 ) $ ( 352 ) $ 243,488 5 Table of Contents IVANHOE ELECTRIC INC. Condensed Interim Consolidated Statements of Cash Flows (Unaudited) (Expressed in thousands of U.S. dollars) Nine months ended September 30, 2023 and 2022 2023 2022 Operating activities Net loss $ ( 166,687 ) $ ( 117,002 ) Adjustments to reconcile net loss to cash provided by (used in) operating activities: Depreciation and amortization 2,133 3,187 Share-based compensation 16,214 2,515 Non-cash exploration expense 1,686 — Non-cash research and development expense 1,935 — Unrealized foreign exchange (gain) loss ( 1,411 ) 1,384 Interest expense 4,925 1,542 Income tax (recovery) expense ( 200 ) 1,084 Loss on revaluation of convertible debt — 18,965 Loss on de-recognition of mineral interest — 5,700 (Gain) Loss on revaluation of investments ( 990 ) 1,272 Share of losses of equity method investees 35,444 3,077 Other ( 400 ) 1,353 Changes in other operating assets and liabilities: Trade accounts receivable ( 911 ) ( 115 ) Inventory 737 ( 263 ) Operating lease liabilities ( 718 ) ( 615 ) Accounts payable and accrued liabilities 2,616 4,019 Other operating assets and liabilities ( 1,345 ) ( 4,880 ) Net cash used in operating activities ( 106,972 ) ( 78,777 ) Investing activities Purchase of investments subject to significant influence ( 67,948 ) ( 3,601 ) Purchase of exploration properties ( 45,557 ) ( 33,889 ) Purchase of property, plant and equipment and intangible assets ( 1,142 ) ( 853 ) Net cash used in investing activities ( 114,647 ) ( 38,343 ) Financing activities Net proceeds from issuance of common stock 299,924 159,320 Proceeds from convertible notes — 86,200 Non-controlling interests investment in subsidiary 29,454 — Proceeds from exercise of stock options 1,586 — Other — ( 12 ) Net cash provided by financing activities 330,964 245,508 Effect of foreign exchange rate changes on cash and cash equivalents 40 ( 572 ) Increase in cash and cash equivalents 109,345 128,388 Cash and cash equivalents, beginning of the year 139,660 49,850 Cash and cash equivalents, end of the period $ 249,045 $ 177,666 Supplemental cash flow information Cash paid for income taxes $ 1,188 $ 558 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 6 Table of Contents 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 Project in Arizona and the Tintic 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 September 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 September 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 62.8 % as at September 30, 2023 (December 31, 2022 — 63.2 %). • 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 September 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 nine month period ended September 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 7 Table of Contents 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 September 30, 2023 and December 31, 2022, $ 13.3 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 September 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 its investment in Ma'aden Ivanhoe Electric Exploration and Development Limited Company ("Ma'aden Joint Venture"). Others include its investments in Sama Resources Inc. (“Sama”), Sama Nickel Corporation (“SNC”), SRQ Resources Inc. ("SRQ") and Go2Lithium Inc. ("Go2Lithium"). 8 Table of Contents IVANHOE ELECTRIC INC. Notes to the Condensed Interim Consolidated Financial Statements (Unaudited - Tabular amounts expressed in thousands of U.S. dollars, unless otherwise indicated) Equity method Carried at fair value Ma'aden Joint Venture (Note a) SNC Go2Lithium (Note b) Sama SRQ (Note c) Fjordland Total Balance at December 31, 2022 $ — $ 890 $ — $ 4,799 $ — $ 309 $ 5,998 Investment 66,013 1,935 1,133 — — — 69,081 Share of losses ( 33,199 ) ( 1,996 ) ( 249 ) — — — ( 35,444 ) Receipt of shares upon spin-out — — — — 555 — 555 Change in fair value — — — 563 739 — 1,302 Reclassification to other investments — — — — — ( 309 ) ( 309 ) Foreign currency translation — 22 ( 21 ) — — — 1 Balance at September 30, 2023 $ 32,814 $ 851 $ 863 $ 5,362 $ 1,294 $ — $ 41,184 (a) Exploration Joint Venture with Ma'aden: 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 on January 11, 2023. On July 6, 2023, the Company completed the closing of the Ma’aden Transactions and entered into an Investor Rights Agreement, a Shareholders’ Agreement and other instruments contemplated thereby. The Ma'aden Transactions included the establishment of a 50/50 exploration joint venture between Ma’aden and Ivanhoe Electric to explore approximately 48,500 km 2 of prospective land (“Ma’aden land”) in Saudi Arabia and a $ 127.1 million strategic investment by Ma'aden in Ivanhoe Electric common stock. Refer to Note 8 for further information with respect to the Ma’aden investment in Ivanhoe Electric common stock. In July 2023, Ivanhoe Electric contributed $ 66.0 million in cash into the Ma'aden Joint Venture. Ma’aden contributed access to Ma’aden land for the purpose of conducting exploration activities as a contribution for its 50 % shareholding in the joint venture. In addition, Ivanhoe Electric and the Ma'aden Joint Venture entered into a separate Typhoon™ equipment purchase agreement with I-Pulse Inc. ("I-Pulse") under which three Typhoon™ units shall be delivered in 2024 to the Joint Venture for an aggregate contract price of approximately $ 12.0 million. The exploration phase of the Ma'aden Joint Venture has an initial term of five years that may be extended for up to an additional five years subject to confirmation by both shareholders. The Shareholder’s Agreement shall terminate at the end of the exploration term if no land area with an economically viable resource has been identified (“Designated Project”). In the event of termination of the shareholder’s agreement or upon conclusion of the exploration phase, the legal and beneficial title to each Typhoon™ unit shall immediately revert to Ivanhoe Electric and Ma’aden shall be entitled to withdraw the land access rights to the Ma’aden land (except concerning Designated Projects). The Ma'aden Joint Venture is managed by the Board of Directors of the joint venture with Ivanhoe Electric and Ma’aden each having the right to appoint three directors. Management has determined that the Ma'aden Joint Venture is subject to joint control and will account for the investment using the equity method of accounting. The Ma'aden Joint Venture has expensed the value of the land access rights of $ 66.0 million, in accordance with Ivanhoe Electric’s accounting policy for exploration and evaluation costs. Ivanhoe Electric has recognized its 50 % share of loss in the joint venture. 9 Table of Contents IVANHOE ELECTRIC INC. Notes to the Condensed Interim Consolidated Financial Statements (Unaudited - Tabular amounts expressed in thousands of U.S. dollars, unless otherwise indicated) (b) 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. (c) SRQ: On August 10, 2023, Sama completed a spin-out of its previously wholly owned subsidiary, SRQ. SRQ holds an exploration stage nickel project in Quebec, Canada. Upon the completion of the spin-out each shareholder of Sama received an equivalent shareholding in SRQ. SRQ is publicly listed on the TSX Venture Exchange. The Company has elected to account for its investment in SRQ at fair value in accordance with its accounting policy for investments subject to significant influence. At September 30, the Company owned 22.8 % of the issued and outstanding common shares in SRQ. 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 125,613 3,525 — — 400 129,538 Foreign currency translation — — ( 1 ) — — ( 1 ) Balance at September 30, 2023 $ 166,493 $ 30,663 $ 2,524 $ 15,315 $ 1,300 $ 216,295 (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. 10 Table of Contents IVANHOE ELECTRIC INC. Notes to the Condensed Interim Consolidated Financial Statements (Unaudited - Tabular amounts expressed in thousands of U.S. dollars, unless otherwise indicated) 7. Convertible debt: VRB Convertible bond Note Balance at December 31, 2022 $ 25,918 Interest expense 1,542 Balance at September 30, 2023 $ 27,460 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 %. 8. Equity: (a) Common stock transactions: (i) Ma'aden Strategic Investment: On July 6, 2023 Ivanhoe Electric completed the closing of the Ma'aden transactions which included the issuance of 10.3 million shares of common stock, representing 9.9 % of common shares on completion of the Ma'aden transactions, at a purchase price of $ 12.38 per share for gross proceeds of $ 127.1 million. Directly attributable issuance costs of $ 3.5 million were incurred in conjunction with the strategic investment were recorded as a reduction in paid in capital. 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 price per share paid in a recent equity financing. 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. (ii) Public offering: On September 18, 2023, Ivanhoe Electric completed a public offering and issued 13.6 million shares of common stock at a price of $ 13.50 per share for gross proceeds of $ 184.0 million. Directly attributable issuance costs of $ 8.5 million were incurred in conjunction with the public offering were recorded as a reduction in paid in capital. 11 Table of Contents IVANHOE ELECTRIC INC. Notes to the Condensed Interim Consolidated Financial Statements (Unaudited - Tabular amounts expressed in thousands of U.S. dollars, unless otherwise indicated) (b) Stock-based compensation: Stock-based payment compensation was allocated to operations as follows: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 General and administrative expenses $ 4,711 $ 426 $ 13,669 $ 1,376 Exploration expenses 934 257 2,529 994 Research and development expenses 6 — 11 — Cost of sales — 39 5 145 $ 5,651 $ 722 $ 16,214 $ 2,515 (i) Stock options: During the nine months ended September 30, 2023, the Company granted stock options to certain executives and senior 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 nine months ended September 30, 2023 is presented below. Grant date: February 1, 2023 Grant date: March 1, 2023 Grant date: July 1, 2023 Grant date: August 9, 2023 Exercise price $ 13.23 $ 15.46 $ 13.04 $ 16.03 Number of options granted 500,000 100,000 100,000 200,000 Weighted average assumptions used to value stock option awards: Expected volatility 69.8 % 69.5 % 66.2 % 65.4 % Expected life of options (in years) 4 4 4 4 Expected dividend rate 0 % 0 % 0 % 0 % Risk-free interest rate 3.73 % 4.52 % 4.41 % 4.35 % Weighted average grant-date fair value (per option) $ 7.22 $ 8.53 $ 6.95 $ 8.46 (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 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. 12 Table of Contents IVANHOE ELECTRIC INC. Notes to the Condensed Interim Consolidated Financial Statements (Unaudited - Tabular amounts expressed in thousands of U.S. dollars, unless otherwise indicated) 9. Revenue: The Company recognized revenue from the following sources: Three Months Ended September 30, Nine Months Ended September 30, Revenue type 2023 2022 2023 2022 Software licensing $ — $ 2 $ 400 $ 6,713 Data processing services 229 552 550 832 Renewable energy storage systems (Note a) 10 627 1,282 627 Total $ 239 $ 1,181 $ 2,232 $ 8,172 (a) At September 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 September 30, Nine Months Ended September 30, Project 2023 2022 2023 2022 Santa Cruz, USA $ 11,079 $ 21,811 $ 40,804 $ 46,372 San Matias, Colombia 7,292 6,000 22,059 11,773 Tintic, USA 6,030 613 9,105 1,309 Hog Heaven, USA 3,512 262 4,566 1,130 Lincoln, USA 1,641 210 2,118 549 White Hill, USA (Note a) 618 — 1,368 — Carolina, USA 158 501 1,186 1,015 Pinaya, Peru 178 297 828 2,448 Generative exploration and other 3,700 4,277 11,284 10,561 Total $ 34,208 $ 33,971 $ 93,318 $ 75,157 (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 13 Table of Contents 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, that are 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 September 30, Transactions for the nine months ended September 30, September 30, 2023 December 31, 2022 2023 2022 2023 2022 Total Expenses Global Mining (Note a) 893 1,383 2,274 3,485 11,487 9,567 Ivanhoe Capital Aviation (Note b) — 83 250 250 750 750 I-Pulse (Note c) 1,195 — 1,131 286 3,446 286 Total 2,088 1,466 3,655 4,021 15,683 10,603 Advances Global Mining (Note a) 2,290 1,987 — — — — Deposit I-Pulse (Note c) 4,877 7,128 — — — — Loan JCHX Mining Management Co., Ltd (Note d) — 10,010 — — — — 14 Table of Contents 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 September 30, Transactions for the nine months ended September 30, 2023 2022 2023 2022 Expense classification Exploration expenses 1,441 2,395 7,773 5,925 General and administrative expenses 1,592 1,626 5,980 4,678 Research and development expenses 622 — 1,930 — 3,655 4,021 15,683 10,603 (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 September 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 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 19.8 % of Cordoba’s issued and outstanding common stock as at September 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: September 30, 2023 December 31, 2022 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Financial assets: Investments subject to significant influence 6,656 — — 5,108 — — Other investments 1,641 — — 2,220 — — Total financial assets $ 8,297 $ — $ — $ 7,328 $ — $ — Financial liabilities: Total financial liabilities $ — $ — $ — $ — $ — $ — There were no movements in level three instruments for the nine months ended September 30, 2023. 15 Table of Contents 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 September 30, 2023 Nine months ended September 30, 2023 Critical Metals Data Processing Energy Storage Total Critical Metals Data Processing Energy Storage Total Revenue $ — $ 229 $ 10 $ 239 $ — $ 950 $ 1,282 $ 2,232 Intersegment revenues — 37 — 37 — 100 — 100 Loss from operations 44,764 152 2,056 46,972 125,572 1,296 6,078 132,946 Segment Assets 509,887 3,810 19,209 532,906 509,887 3,810 19,209 532,906 Three months ended September 30, 2022 Nine months ended September 30, 2022 Critical Metals Data Processing Energy Storage Total Critical Metals Data Processing Energy Storage Total Revenue $ — $ 554 $ 627 $ 1,181 $ — $ 7,545 $ 627 $ 8,172 Intersegment revenues — 89 — 89 — 228 — 228 Loss (income) from operations 38,669 640 2,400 41,709 86,552 ( 3,956 ) 6,005 88,601 Segment Assets 267,548 6,542 20,712 294,802 267,548 6,542 20,712 294,802 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 October 23, 2023, Ivanhoe Electric entered into a subscription agreement with Ma’aden whereby Ma’aden agreed to purchase 1,513,650 shares of the Company's common stock at a purchase price of $ 13.50 per share in a private placement, for aggregate gross proceeds of approximately $ 20.4 million. The subscription agreement is as a result of the "top-up right” granted to Ma'aden under the July 6, 2023 Investor Rights Agreement which enables Ma'aden to purchase additional shares of the Company's common stock to maintain its 9.9 % stock ownership position in the event of any issuances. The sale of the shares closed on October 31, 2023. 16