Ivanhoe Electric Inc. 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion and analysis of our financial condition and results of operations together with the condensed interim consolidated 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, our 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: estimated calculations of mineral reserves and resources at our properties including changes in those estimated calculations, anticipated results and timing of exploration activities, timing of studies for advancing or developing our properties, plans and objectives, industry trends, our requirements for additional capital, treatment under applicable government regimes for permitting or attaining approvals, government regulation, environmental risks, title disputes or claims, synergies of potential future acquisitions, the projected, forecast or anticipated economic parameters of our mineral projects (including capital cost, operating cost, net present value, internal rate of return and other parameters), and our anticipated uses of the net proceeds from our initial public offering or other offerings of our securities. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “could,” “should,” “would,” “achieve,” “budget,” “scheduled,” “forecasts,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” the negative of these terms and other comparable terminology. These forward-looking statements may include projections of our future financial performance, our anticipated growth strategies and anticipated trends in our industry. All forward-looking statements speak only as of the date on which they are made. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions concerning future events that are difficult to predict. Therefore, actual future events or results may differ materially from these statements. We believe that the factors that could cause our actual results to differ materially from those expressed or implied by forward-looking statements include the following: our mineral projects are all at the exploration stage and are subject to the significant risks and uncertainties associated with mineral exploration; the initial assessment for our Santa Cruz Project is only an early stage study of its potential economic viability and future studies and actual economic outcomes may vary greatly from those set forth in the initial assessment; we have no mineral reserves, other than at the San Matias project; we have a limited operating history on which to base an evaluation of our business and prospects; we depend on our material projects for our future operations; our mineral resource and reserve calculations and economic projections relating to our properties are only estimates; actual capital costs, operating costs, production and economic returns at any future mine may differ significantly from those we have anticipated or projected; the title to some of the mineral properties may be uncertain or defective; our business is subject to changes in the prices of copper, gold, silver, nickel, cobalt, vanadium and platinum group metals; we have claims and legal proceedings against one of our subsidiaries; our business is subject to significant risk and hazards associated with future mining operations; we may fail to identify attractive acquisition candidates or joint ventures with strategic partners or be unable to successfully integrate acquired mineral properties; we may fail to successfully manage joint ventures and are reliant on our joint venture partners to comply with their obligations; our business is extensively regulated by the United States and foreign governments as well as local governments; the requirements that we obtain, maintain and renew environmental, construction and mining permits are often a costly and time-consuming process; our non-U.S. operations are subject to additional political, economic and other uncertainties not generally associated with domestic operations; our activities may be hindered, delayed or have to cease as a result of climate change effects, including increased and excessive heating and the potential for forest fires at many of our properties; 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. 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 industry. 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. 17 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. We caution you not to place undue reliance on these forward-looking statements. We do not undertake any obligation to make any revisions to these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events, except as required by law. Business Overview We are a United States domiciled company that combines advanced mineral exploration technologies with electric metals exploration projects predominantly located in the United States. We use our accurate and powerful Typhoon™ geophysical surveying system, together with advanced data analytics provided by our subsidiary, Computational Geosciences Inc. (“CGI”), to accelerate and de-risk the mineral exploration process as we seek to discover new deposits of critical metals that may otherwise be undetectable by traditional exploration technologies. We believe the United States is significantly underexplored and has the potential to yield major new discoveries of critical metals. Our mineral exploration efforts focus on copper as well as other metals including nickel, vanadium, cobalt, platinum group elements, gold and silver. Through the advancement of our portfolio of electric metals exploration projects, headlined by the Santa Cruz Project in Arizona and the Tintic Project in Utah, as well as other exploration projects in the United States, we intend to support the United States' supply chain independence by finding and delivering critical metals necessary for the electrification of the economy. We also operate a 50/50 joint venture with Saudi Arabian Mining Company Ma’aden ("Ma'aden") to explore for minerals on ~48,500 km2 of underexplored Arabian Shield in the Kingdom of Saudi Arabia. Finally, in addition to our mineral projects, we also own a controlling interest in VRB Energy Inc. ("VRB") which is primarily engaged in the design, manufacture, installation, and operation of vanadium redux flow energy storage systems. At our Santa Cruz Project in Arizona, we are evaluating the potential for a high-grade modern underground copper mining operation. We recently completed the Initial Assessment & Technical Report Summary for the Santa Cruz Project (the "IA"), which outlines a potential 5.9 million tonnes per year underground mining operation, supported by 105.2 million tonnes of modeled mill feed with an average grade of 1.58% copper from the Santa Cruz and East Ridge Deposits, resulting in an estimated 20-year mine life. We are advancing further studies for an underground copper mining operation with a focus on minimizing the surface footprint of the mine while at the same time incorporating leading technologies to improve efficiencies and costs. We are designing a technologically advanced mine that we expect to result in low carbon dioxide emissions per pound of copper produced and be a leading example of responsibly produced domestic copper. Key considerations that will influence our decision making include, but are not limited to, using clean and renewable energy in our future mining operations, optimizing and minimizing our water utilization, minimizing our environmental footprint, ensuring workforce diversity and hiring from local communities, health, safety and environmental performance, support of local cultural heritage and biodiversity protection. References to 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 project. Our shares of common stock are listed on the NYSE American and the TSX under the ticker symbol “IE”. Reverse Stock Split On June 16, 2022, we effected a reverse stock split of our outstanding common stock at a ratio of 3-for-1 (the “Reverse Stock Split”). The number of authorized shares and the par value of the common stock were not adjusted as a result of the Reverse Stock Split. 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. Business Developments in the Quarter On May 15, 2023, we signed a Common Stock Subscription Agreement ("the Subscription Agreement") with Saudi Arabian Mining Company Ma’aden (“Ma’aden”). On July 6, 2023, we 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. 18 The Ma'aden Transactions included the establishment of a 50/50 exploration joint venture between Ma’aden and Ivanhoe Electric to explore for minerals on ~48,500 km2 of underexplored Arabian Shield in the Kingdom of Saudi Arabia, and a strategic investment by Ma'aden in Ivanhoe Electric common stock. On July 6, 2023, we issued to Ma’aden an aggregate of 10,269,604 shares of common stock of our Company, constituting 9.9% of the total outstanding number of shares of common stock immediately following closing of the Ma'aden Transactions, for gross proceeds of approximately $127.1 million, representing an aggregate purchase price of $12.38 per share. Of the $127.1 million total proceeds from the private placement, $66.0 million has been contributed to the joint venture to fund its exploration activities, including the purchase of three new-generation Typhoon TM machines from I-Pulse Inc. 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. On July 10, 2023, we filed an automatic shelf registration statement on Form S-3 to permits us to publicly offer and sell securities from time to time, including common stock, preferred stock, debt securities, warrants, subscription rights and units. We may offer and sell securities under the Form S-3 from time to time. On September 6, 2023, we completed and announced the IA. The IA is a preliminary technical and economic study for the Santa Cruz Project and associated high-grade mineral resources included in the Santa Cruz and East Ridge deposits. The study analyzes the potential for a high-grade underground copper mining operation supported by modern technologies to reduce environmental impact and powered predominantly by renewable energy. On September 18, 2023, we closed an underwritten public offering consisting of 11,851,852 shares of our common stock at a public offering price of $13.50 per share. The aggregate gross proceeds to the Company from the offering were approximately $160 million, before deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. In addition, we received notice from the underwriters on September 18, 2023, of the full exercise of their option to purchase an additional 1,777,777 shares of common stock from the Company. The aggregate gross proceeds from the exercise of the underwriters’ option was approximately $24 million, before deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. The sale of the underwriters’ option shares closed on September 21, 2023. On October 23, 2023, we entered into a subscription agreement with Ma’aden whereby Ma’aden agreed to purchase 1,513,650 shares of our 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 our 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. Segments 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 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. We do not expect to generate any revenue from our mining projects for the foreseeable future. Exploration Expenses Exploration expenses include topographical, geological, geochemical and geophysical studies, exploratory drilling, trenching, sampling and activities in relation to identifying a mineral resource and then evaluating the technical feasibility and commercial viability of extracting the mineral resource, as well as value-added taxes in relation to these direct exploration and evaluation costs incurred in foreign jurisdictions where recoverability of those taxes is uncertain. Exploration expenses also include salaries, benefits and stock-based compensation expenses of the employees performing these activities. 19 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-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 are incurring 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. Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022 For the three months ended September 30, 2023 we recorded a net loss attributable to common stockholders of $77.9 million ($0.74 per share), compared to $40.4 million ($0.43 per share) for the three months ended September 30, 2022, which was an increase of $37.5 million. A significant contributor to this increase for the three months ended September 30, 2023 was that the three months ended September 30, 2023 included an increase of $32.7 million in share of losses of equity method investees due to our recognition of a $33.0 million share of loss from the Ma'aden joint venture due to the expensing of the land access rights in accordance with our accounting policy for exploration and evaluation costs. In addition, there was also an increase of $4.6 million in general and administrative expenses compared to the three months ended September 30, 2022. Exploration expenses were $34.2 million for the three months ended September 30, 2023, an increase of $0.2 million from $34.0 million for the three months ended September 30, 2022. Exploration expenses consisted of the following: Three Months Ended September 30, (In thousands) 2023 2022 Exploration Expenses: Santa Cruz, USA $ 11,079 $ 21,811 San Matias, Colombia 7,292 6,000 Tintic, USA 6,030 613 Hog Heaven, USA 3,512 262 Lincoln, USA 1,641 210 White Hill, USA 618 — Pinaya, Peru 178 297 Carolina, USA 158 501 Generative exploration and other 3,700 4,277 Total $ 34,208 $ 33,971 During the three months ended September 30, 2023, exploration expenditures largely focused on activities at: • the Santa Cruz Project where $11.1 million of exploration expenditure was incurred in the three months ended September 30, 2023 compared to $21.8 million incurred in the three months ended September 30, 2022. Activities during the three months ended September 30, 2023 at Santa Cruz were focused on a program of infill resource drilling, geotechnical, hydrological and metallurgical drilling, advancing technical studies, and finalization of the IA 20 and the National Instrument 43-101 Preliminary Assessment and Technical Report ("PEA") which were released on September 6, and September 11, 2023. • Cordoba's San Matias Project where $7.3 million of exploration expenditure was incurred by Cordoba for the three months ended September 30, 2023 compared to $6.0 million incurred in the three months ended September 30, 2022. Activities during the three months ended September 30, 2023 focused on continuing work on the feasibility study on the Alacran deposit including feasibility metallurgical test work, infrastructure, mine, mill and tailings facility design work, investigation of power supply options, environmental studies and market investigations. • the Tintic Project where $6.0 million of exploration expenditure was incurred in the three months ended September 30, 2023 compared to $0.6 million incurred in the three months ended September 30, 2022. Activities during the three months ended September 30, 2023 at Tintic included continuing the two drill rig exploration program that is testing new areas of the historic Main Tintic Mining District. Drilling has focused on deep targets guided by geophysical data; and • the Hog Heaven Project in Montana where $3.5 million of exploration expenditure was incurred in the three months ended September 30, 2023 compared to $0.3 million incurred in the three months ended September 30, 2022. Activities during the three months ended September 30, 2023 at Hog Heaven included continuing the two drill rig exploration program that commenced in June 2023. The program was focused on delineating new epithermal mineralization and testing porphyry copper concepts. The Hog Heaven site was evacuated from July 28 to August 8, 2023 due to nearby wildfire activity, and drilling was again halted August 24 to September 2, 2023 to upgrade roads and install water lines as a safety precaution in advance of colder weather conditions. General and administrative expenses were $11.4 million for the three months ended September 30, 2023, an increase of $4.6 million from $6.9 million in three months ended September 30, 2022. The main items contributed to the increase, including: • a $4.3 million increase in stock-based compensation expense from $0.4 million for the three months ended September 30, 2022 compared to $4.7 million for the three months ended September 30, 2023. This increase was due to the impact of the non-cash stock-based compensation expense incurred in relation to additional Ivanhoe Electric stock option and RSU grants that have occurred since October 2022; and • a $0.6 million increase in salary and wages compared to the three months ended September 30, 2022 due to adding more people to our management and administrative teams following our IPO. Revenue for the three months ended September 30, 2023 was $0.2 million, a decrease of $1.2 million from the three months ended September 30, 2022. Three Months Ended September 30, 2023 2022 (In thousands) CGI: Software licensing and data processing services: Revenue $ 229 554 Cost of sales (114) (277) Gross profit $ 115 277 VRB: Energy storage systems: Revenue $ 10 627 Cost of sales (161) (598) Gross (loss) profit $ (151) 29 Total: Revenue $ 239 1,181 Cost of sales (275) (875) Gross (loss) profit $ (36) 306 CGI’s software licensing and data processing services to the mining and oil and gas industries represented 95.8% of our revenue for the three months ended September 30, 2023 ($0.2 million) and 46.9% for the three months ended 21 September 30, 2022 ($0.6 million). Revenue decreased at CGI as a result of less data processing projects occurring during the third quarter of 2023. CGI continues to focus on generating new business. VRB's revenue represented 4.2% of our revenue for the three months ended September 30, 2023 ($0.0 million) and 53.1% for the three months ended September 30, 2022 ($0.6 million). During the third quarter of 2023, VRB recognized $0.01 million in revenue in relation to a maintenance service project for a customer in China. Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022 For the nine months ended September 30, 2023 we recorded a net loss attributable to common stockholders of $152.2 million ($1.57 per share), compared to $110.2 million ($1.50 per share) for the nine months ended September 30, 2022, which was an increase of $42.0 million. Significant contributors to this increase for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 included an increase of $18.2 million in exploration expenditures, an increase of $18.0 million in general and administrative expenses and an increase of $32.4 million in share of losses of equity method investees due to our recognition of a $33.0 million share of loss from the Ma'aden joint venture. These increases for the nine months ended September 30, 2023 were offset by a decrease of $19.0 million due to the nine months ended September 30, 2022 including an amount of $19.0 million in relation to a non-cash loss on the revaluation of the convertible notes that were automatically converted into shares of our common stock upon the completion of the IPO on June 30, 2022 and there was no similar expense in 2023. Exploration expenses were $93.3 million for the nine months ended September 30, 2023, an increase of $18.2 million from $75.2 million for the nine months ended September 30, 2022. Exploration expenses consisted of the following: Nine Months Ended September 30, (In thousands) 2023 2022 Exploration Expenses: Santa Cruz, USA $ 40,804 $ 46,372 San Matias, Colombia 22,059 11,773 Tintic, USA 9,105 1,309 Hog Heaven, USA 4,566 1,130 Lincoln, USA 2,118 549 White Hill, USA 1,368 — Carolina, USA 1,186 1,015 Pinaya, Peru 828 2,448 Generative exploration and other 11,284 10,561 Total $ 93,318 $ 75,157 During the nine months ended September 30, 2023, exploration expenditures largely focused on activities at: • the Santa Cruz Project where $40.8 million of exploration expenditure was incurred in the nine months ended September 30, 2023 compared to $46.4 million incurred in the nine months ended September 30, 2022. Activities during the nine months ended September 30, 2023 at Santa Cruz were focused on a program of exploration and infill resource, geotechnical, hydrological and metallurgical drilling, advancing technical studies, completing the updated mineral resource estimate released in February 2023 and the finalization of the IA and the National Instrument 43-101 Preliminary Assessment and Technical Report ("PEA") which were released on September 6, and September 11, 2023. • Cordoba's San Matias Project where $22.1 million of exploration expenditure was incurred by Cordoba for the nine months ended September 30, 2023 compared to $11.8 million incurred in the nine months ended September 30, 2022. Activities during the nine months ended September 30, 2023 focused on continuing work on the feasibility study on the Alacran deposit. including infill geotechnical, metallurgical, hydrological and infill resource drilling, feasibility metallurgical test work, infrastructure, mine, mill and tailings facility design work, investigation of power supply options, environmental studies and market investigations; • the Tintic Project where $9.1 million of exploration expenditure was incurred in the nine months ended September 30, 2023 compared to $1.3 million incurred in the nine months ended September 30, 2022. Activities during the nine 22 months ended September 30, 2023 at Tintic were focused on completing an initial diamond drill hole and commencing a two drill rig exploration program that is testing new areas of the historic Main Tintic Mining District. Drilling has focused on deep targets guided by geophysical data; and • the Hog Heaven Project in Montana where $4.6 million of exploration expenditure was incurred in the three months ended September 30, 2023 compared to $1.1 million incurred in the three months ended September 30, 2022. Activities during the three months ended September 30, 2023 at Hog Heaven included a two drill rig exploration program that commenced in June 2023. The program was focused on delineating new epithermal mineralization and testing porphyry copper concepts. The Hog Heaven site was evacuated from July 28 to August 8, 2023 due to nearby wildfire activity, and drilling was again halted August 24 to September 2, 2023 to upgrade roads and install water lines as a safety precaution in advance of colder weather conditions. General and administrative expenses were $34.7 million for the nine months ended September 30, 2023, an increase of $18.0 million from $16.7 million in nine months ended September 30, 2022. Several items contributed to the increase, including: • a $12.3 million increase in stock-based compensation expense from $1.4 million for the nine months ended September 30, 2022 compared to $13.7 million for the nine months ended September 30, 2023. This increase was due to additional non-cash stock-based compensation expense in relation to Ivanhoe Electric stock option and RSU grants that have occurred since October 2022; • a $2.4 million increase in directors and officers insurance expenses from $1.8 million for the nine months ended September 30, 2022 compared to $4.2 million for the nine months ended September 30, 2023. This increase was due to the nine months ended September 30, 2023 including nine months of director and officers insurance expense compared to the nine months ended September 30, 2022 including only four months expense as we entered into the insurance policy in June 2022 immediately before our IPO; and • a $1.9 million increase in salary and wages compared to the nine months ended September 30, 2022 due to adding more people to our management and administrative teams following our IPO. Revenue for the nine months ended September 30, 2023 was $2.2 million, a decrease of $5.9 million from $8.2 million for the nine months ended September 30, 2022. Nine Months Ended September 30, 2023 2022 (In thousands) CGI: Software licensing and data processing services: Revenue $ 950 7,546 Cost of sales (319) (444) Gross profit $ 631 7,102 VRB: Energy storage systems: Revenue $ 1,282 627 Cost of sales (1,396) (598) Gross (loss) profit $ (114) 29 Total: Revenue $ 2,232 8,172 Cost of sales (1,715) (1,042) Gross profit $ 517 7,130 VRB's revenue represented 57.4% of our revenue for the nine months ended September 30, 2023 ($1.3 million) and 7.7% for the nine months ended September 30, 2022 ($0.6 million). During the nine months ended September 30, 2023, VRB delivered, installed and commissioned a 1MW/2MWh energy storage system to a customer in China, which resulted in $1.3 million of revenue being recognized. CGI’s software licensing and data processing services to the mining and oil and gas industries represented 42.6% of our revenue for the nine months ended September 30, 2023 ($1.0 million) and 92.3% for the nine months ended September 30, 2022 ($7.5 million). CGI’s revenue for the nine months ended September 30, 2023 was $1.0 million, a decrease of $6.6 23 million from $7.5 million for the nine months ended September 30, 2022. The decrease in CGI’s revenue was a result of revenue for the nine months ended September 30, 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 nine months ended September 30, 2023 consisted of $0.4 million of software licensing revenue and $0.6 million in revenue from processing data. CGI’s gross profit for the nine months ended September 30, 2023 was $0.6 million, a decrease of $6.5 million from $7.1 million for the nine months ended September 30, 2022. The licensing of certain software for a one-time fee of $6.5 million had a direct impact on gross profit for the nine months ended September 30, 2022 as the licenses had no underlying carrying value and therefore resulted in a $6.5 million gross profit being recognized. Stock-Based Compensation During the nine months ended September 30, 2023, we granted stock options to certain employees of the Company. The fair value of the option grants was determined using the Black-Scholes option-pricing model as follows: February 1, 2023 Grant Date March 1, 2023 Grant Date July 1, 2023 Grant Date August 9, 2023 Grant Date Number of options granted 500,000 100,000 100,000 200,000 Exercise price $13.23 $15.46 $13.04 $16.03 Black-Scholes option-pricing model fair value $7.22 $8.53 $6.95 $8.46 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 Cash Resources We have recurring net losses and negative operating cash flows and we expect that we will continue to operate at a loss for the foreseeable future. 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 through the sale of our equity and convertible securities. At September 30, 2023 and December 31, 2022, we had cash and cash equivalents of $249.0 million and $139.7 million, respectively, and a working capital of $198.3 million and $133.6 million, respectively. 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 these amounts were held by non-wholly-owned subsidiaries. As at November 7, 2023, 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 activities. 24 Cash Balances as of September 30, 2023 The table below discloses the amounts of cash disaggregated by currency denomination as of September 30, 2023 in each jurisdiction that our affiliated entities are domiciled. Currency by Denomination (in USD Equivalents) US dollars Canadian dollars Chinese Renminbi Colombian Pesos Other Total (In thousands) Jurisdiction of Entity: USA $ 234,680 $ 260 $ — $ — $ — $ 234,940 Singapore 8,500 — — — — 8,500 Canada 2,365 504 — — — 2,869 Cayman Islands 1,084 3 — — — 1,087 China — — 743 — — 743 British Virgin Islands 707 1 — — — 709 Other 92 1 — 54 51 197 Total $ 247,429 $ 769 $ 743 $ 54 $ 51 $ 249,045 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 months ended September 30, 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. Note Payable In May 2023, as part of the consideration for the acquisition of 5,975 acres of surface title and associated water rights at the Santa Cruz Project we issued to the vendor a secured promissory note in the principal 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; and • four equal principal payments of $12.1 million on the first, second, third and fourth anniversaries of the closing, plus applicable accrued interest. 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 In December 2022, JCHX Mining Management Co., Ltd (“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. 25 Cash Flows The following table presents our sources and uses of cash for the periods indicated: Nine Months Ended September 30, 2023 2022 Net cash (used in) provided by: Operating activities (106,972) (78,777) Investing activities (114,647) (38,343) Financing activities 330,964 245,508 Effect of foreign exchange on cash 40 (572) Total change in cash 109,385 127,816 Operating activities. 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 nine months ended September 30, 2023 was $107.0 million, an increase of $28.2 million from the $78.8 million of net cash used for the nine months ended September 30, 2022. Investing activities. 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 nine months ended September 30, 2023 of $114.6 million was mainly attributable to the $67.9 million related to purchase of investments subject to significant influence and $45.6 million related to payments for mineral interests. The $67.9 million related to purchase of investments subject to significant influence primarily relates to our $66.0 million investment in the Ma'aden Joint Venture. The $45.6 million of payments for mineral interests included $41.7 million paid to acquire land at the Santa Cruz Project and $3.5 million of option payments at our Tintic Project. Financing activities. Net cash used in investing activities for the nine months ended September 30, 2023 was $331.0 million which was primarily from the $299.9 million in net proceeds we raised through issuances our common stock. We raised net proceeds of $123.7 million as a result of the July 2023 private placement with Ma'aden and raised net proceeds of $175.5 million from our September 2023 public offering. In addition, we received $1.6 million of proceeds from the exercise of employee stock options during the nine months ended September 30, 2023. Our subsidiary, Cordoba, raised $29.5 million during nine months ended September 30, 2023 in relation to financing its Alacran project through its strategic arrangement with JCHX. Contractual Obligations As of September 30, 2023, there were no material changes in our contractual obligations since December 31, 2022 other than those discussed above under "Note Payable". Off Balance Sheet Arrangements As of September 30, 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 12 of our Condensed Interim Consolidated Financial Statements for the three and nine months ended September 30, 2023. 26 Critical Accounting Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated and combined carve-out financial statements which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as the disclosure of contingent assets and liabilities as of the date of our financial statements. Below are the accounting matters that we believe are critical to our financial statements due to the degree of uncertainty regarding the estimates or assumptions involved and the magnitude of the asset, liability, revenue, expense, gain or loss being reported. Actual results may vary from our estimates in amounts that may be material to the financial statements. An accounting estimate is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact our financial statements. We base our assumptions and estimates on historical experience and various other sources that we believe to be reasonable under the circumstances. Actual results may differ from the estimates we calculate due to changes in circumstances, global economics and politics and general business conditions. A summary of our significant accounting policies 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. Recoverable value of exploration mineral interests We review and evaluate exploration mineral interests for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The recoverability of our exploration mineral interests and intangible assets did not involve significant estimation in the periods presented as circumstances did not indicate the carrying amount of our assets may not be recoverable. However, the recoverability of our recorded mineral interests is subject to market factors that could significantly affect the recoverability of our assets, such as commodity prices, results of exploration activities 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. We granted 900,000 stock options during the nine months ended September 30, 2023. The table below details the options granted and the Black-Scholes option pricing model assumptions used to compute the fair value of the options: February 1, 2023 Grant Date March 1, 2023 Grant Date July 1, 2023 Grant Date August 9, 2023 Grant Date Number of options granted 500,000 100,000 100,000 200,000 Exercise price $13.23 $15.46 $13.04 $16.03 Black-Scholes option-pricing model fair value $7.22 $8.53 $6.95 $8.46 Black-Scholes option-pricing model assumptions: Risk-free interest rate 3.7% 4.5% 4.4% 4.4% Dividend yield nil nil nil nil Estimated volatility 69.8% 69.5% 66.2% 65.4% Expected option life 4 years 4 years 4 years 4 years 27 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. Income taxes We make estimates and judgments in determining the provision for income tax expense, deferred tax assets and liabilities and liabilities for unrecognized tax benefits, including interest and penalties. We are subject to income tax laws in many jurisdictions, including the United States, Canada, Colombia, Peru, Australia, the Ivory Coast and the PRC. We report income tax in accordance with U.S. GAAP, which requires the establishment of deferred tax accounts for all temporary differences between the financial reporting and tax bases of assets and liabilities, using currently enacted tax rates. In addition, deferred tax accounts must be adjusted to reflect new rates if enacted into law. Realization of deferred tax assets is contingent on the generation of future taxable income. As a result, we consider whether it is more likely than not that all or a portion of such assets will be realized during periods when they are available, and if not, we provide a valuation allowance for amounts not likely to be recognized. In determining our valuation allowance, we have not assumed future taxable income from sources other than the reversal of existing temporary differences. The extent to which a valuation allowance is warranted may vary as a result of changes in our estimates of future taxable income. In addition to the potential generation of future taxable income through the establishment of economic feasibility, development and operation of mines on our exploration assets, estimates of future taxable income could change in the event of disposal of assets, the identification of tax-planning strategies or changes in tax laws that would allow the benefits of future deductible temporary differences in certain entities or jurisdictions to be offset against future taxable temporary differences in other entities or jurisdictions. We recognize the effect of uncertain income tax positions if those positions are more likely than not of being sustained. The amount recognized is subject to estimates and our judgment with respect to the likely outcome of each uncertain tax position. The amount that is ultimately incurred for an individual uncertain tax position or for all uncertain tax positions in the aggregate could differ from the amount recognized. We had no uncertain tax positions as of September 30, 2023. Transition from Emerging Growth Company Status and Smaller Reporting Company Status We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include: • We are not required to engage an auditor to report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002. • We are not required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis). • We are not required to submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay,” “say-on-frequency” and “say-on-golden parachutes”. • We are not required to disclose certain executive compensation items such as the correlation between executive compensation and performance, and comparisons of the chief executive officer’s compensation to median employee compensation. In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of accounting standards that have different effective dates for public and private companies until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption and, therefore, we will not be subject to the same requirements to adopt new or revised accounting standards as other public companies that are not “emerging growth companies.” 28 We are also a “smaller reporting company” as defined under the Exchange Act. As a smaller reporting company, we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and have reduced disclosure obligations regarding executive compensation. Due to the market value of our equity securities that was held by non-affiliates on June 30, 2023 exceeding $700 million, we anticipate that on December 31, 2023, we will become a “large accelerated filer” as defined under the Exchange Act, and will cease to be an “emerging growth company”. Accordingly, we anticipate that for purposes of our Form 10-K annual report for the year ended December 31, 2023, we will no longer qualify for the accommodations granted to an emerging growth company and will be required to comply with the requirements applicable to a large accelerated filer. Due to the market value of our equity securities held by non-affiliates on June 30, 2023 exceeding $700 million, we will also cease to be a “smaller reporting company”. Due to a transitional period approved by the SEC for former smaller reporting companies, we anticipate that our Form 10-K annual report for the year ended December 31, 2023 and our proxy statement for our 2024 annual meeting of stockholders may continue to take advantage of the reduced disclosure obligations relating to a smaller reporting company. Item 3. Quantitative and Qualitative Disclosures about Market Risk. Not Applicable.