Ivanhoe Electric Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Unaudited U.S. GAAP interim statements; amounts below are in U.S. dollars. Ivanhoe Electric is an exploration and development company, with technology subsidiaries in data processing and vanadium energy storage. Its mining projects are at the exploration stage and generated no revenue.
Financial results and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $1.2 million | $1.0 million | $8.2 million | $4.1 million |
| Gross profit (gross margin) | $0.3 million (25.9%) | $0.5 million (49.2%) | $7.1 million (87.2%) | $2.9 million (71.4%) |
| Operating loss | $41.7 million | $18.4 million | $88.6 million | $38.5 million |
| Net loss attributable to common stockholders or parent | $40.4 million ($0.43 per share) | $17.6 million ($0.28 per share) | $110.2 million ($1.50 per share) | $33.0 million ($0.54 per share) |
| Operating cash used | Not stated for the quarter | Not stated for the quarter | $78.8 million | $29.5 million |
- At September 30, cash and cash equivalents were $177.7 million, total assets $294.8 million, and working capital $172.1 million. Cash included $16.7 million held by non-wholly-owned subsidiaries and unavailable for general corporate purposes.
- Cash used in investing activities for the nine months was $38.3 million, mainly mineral-interest purchases; financing provided $245.5 million. The company completed its June IPO, raising $169.1 million gross and approximately $158.0 million net, and received $86.2 million from Series 2 convertible notes.
- Ivanhoe Electric’s Series 1 and Series 2 notes converted into shares at the IPO. Remaining convertible debt on the balance sheet was $25.4 million, relating to VRB; its $24.0 million principal bond matures in 2026 if not converted. The nine-month results included a $19.0 million non-cash loss from revaluing the converted notes.
- Common shares outstanding were 92.9 million at September 30, versus 63.9 million at December 31, 2021. The increase reflects the IPO, debt conversions and settlement of a liability in shares.
Material changes and management commentary
- Q3 exploration expense rose $24.0 million year over year to $34.0 million; nine-month expense rose $50.6 million to $75.2 million. The largest increase was at Santa Cruz, where the company reported $21.8 million of Q3 and $46.4 million of nine-month exploration expense.
- At Santa Cruz, up to seven drill rigs operated in Q3; the company reported 52,720 meters drilled cumulatively through September 30 and completed a 26.5 km² 3D induced-polarization survey. San Matias work included a 25,000-meter initial-phase drilling program supporting a feasibility study.
- Nine-month revenue growth was principally due to a $6.5 million one-time software license recognized in Q1. Management said it cannot assure further contracts with that customer. Q3 revenue was comparatively flat, with lower CGI revenue partly offset by VRB energy-storage and electrolyte sales.
- The company terminated a Santa Cruz adjacent-land purchase agreement and expensed $5.7 million of previously capitalized, non-refundable payments.
- Management expects continued losses and negative operating cash flows and no near-term mining revenue. It believes cash resources will fund current business plans and planned exploration for at least 12 months, subject to assumptions and possible changes in exploration plans.
Outlook, risks and unusual items
- No specific earnings or revenue guidance is provided. Mineral-project payment commitments total approximately $154.2 million across the disclosed periods; some are discretionary and may depend on continuing exploration or project agreements.
- On October 24, 2022, the company agreed to buy six Typhoon transmitters from related party I-Pulse for $12.4 million, with delivery over 39 months, plus annual maintenance costs of $1.7 million. It reported upfront payments of $7.1 million in October.
- Key stated risks include exploration-stage uncertainty, limited operating history, commodity prices, mineral-resource estimates, property title, permitting and regulation, environmental and operational hazards, capital needs, and political and other risks in foreign jurisdictions. The company stated it had no reserves other than at San Matias.
- Cordoba faces a class action seeking injunctions affecting operations and mining declarations in the Alacran area; the proceeding remained pending, and the filing warns an adverse outcome could materially affect Cordoba. Kaizen’s principal Pinaya-related claims were dismissed, with the Supreme Court of Canada refusing leave to appeal; a costs appeal resulted in a modified costs award.
- The company reported no material off-balance-sheet arrangements, no material changes to previously disclosed risk factors, and disclosure controls effective at a reasonable-assurance level.
Important facts for investors to verify
- Whether exploration results, feasibility work, permits and development plans support the expected potential and economics of Santa Cruz and San Matias.
- Whether cash burn, planned exploration spending, subsidiary cash restrictions and mineral commitments remain consistent with management’s estimate of at least 12 months of funding.
- How sustainable technology revenue is after the one-time $6.5 million license, and whether CGI can replace or extend that customer work.
- The terms, delivery schedule, related-party governance and total lifecycle costs of the Typhoon transmitter agreement, including maintenance.
- Developments in Cordoba’s Alacran class action, commodity prices, project permitting, and other legal, title and political risks.