Ivanhoe Electric Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Unless otherwise noted, amounts are U.S. dollars. Ivanhoe Electric is an exploration-stage critical-metals company, with technology businesses in data processing and energy storage. Its principal projects include Santa Cruz in Arizona and Tintic in Utah; it also operates a 50/50 exploration joint venture with Ma’aden in Saudi Arabia.
Financial results and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $0.2 million | $1.2 million | $2.2 million | $8.2 million |
| Gross profit (loss) | $(0.04) million | $0.3 million | $0.5 million | $7.1 million |
| Operating loss | $47.0 million | $41.7 million | $132.9 million | $88.6 million |
| Net loss attributable to common stockholders | $77.9 million | $40.4 million | $152.2 million | $110.2 million |
| Basic and diluted loss per share | $0.74 | $0.43 | $1.57 | $1.50 |
Nine-month gross margin was approximately 23%, versus approximately 87% in the prior-year period; the prior period included a one-time $6.5 million software-license fee with no associated carrying cost. Q3 gross margin was negative.
At September 30, cash and cash equivalents were $249.0 million, total assets $532.9 million, and working capital $198.3 million. Cash increased from $139.7 million at year-end 2022. Cash used in operations was $107.0 million and cash used in investing was $114.6 million during the first nine months; financing provided $331.0 million. Of reported cash, $13.3 million was held in non-wholly-owned subsidiaries and unavailable for general corporate purposes.
Balance-sheet note payable was $85.4 million, primarily related to the Santa Cruz land acquisition; convertible debt was $27.5 million. Total liabilities were $144.1 million. The Santa Cruz secured note bears interest at prime plus 1%; $34.3 million plus accrued interest was due by November 23, 2023, with four subsequent annual principal installments of approximately $12.1 million each. The filing reports 117.5 million shares outstanding at September 30 and 119.0 million as of November 7.
Material changes and significant items
- Revenue fell 80% in the first nine months, principally because 2022 included the one-time $6.5 million CGI software license. Q3 revenue also declined as CGI had fewer data-processing projects. VRB recognized $1.3 million in nine-month revenue from delivery and commissioning of a 1MW/2MWh system, but its energy-storage segment recorded a gross loss.
- Exploration expense rose to $93.3 million from $75.2 million for the first nine months, including increased activity at San Matias, Tintic and Hog Heaven. General and administrative expense increased to $34.7 million from $16.7 million, largely due to higher stock-based compensation, public-company costs, insurance and staffing.
- The company recorded $35.4 million of equity-method investee losses for the nine months, including approximately $33.0 million from the Ma’aden joint venture. The loss reflects expensing the value of contributed land-access rights under the company’s exploration-cost accounting policy.
- Financing included $127.1 million gross proceeds from Ma’aden’s July strategic investment and $184.0 million gross proceeds from the September public offering. The company contributed $66.0 million to the Ma’aden joint venture. In October, Ma’aden purchased additional shares for approximately $20.4 million gross proceeds under its ownership top-up right.
- The Santa Cruz land acquisition added 5,975 acres and associated water rights for a total purchase price of $116.9 million, partly financed with the secured promissory note.
Outlook, risks and contingencies
Management stated as of November 7 that it expected cash resources to fund business plans for at least the next 12 months, while noting that assumptions may change and exploration outcomes could require earlier financing or reductions in planned activities. The company expects recurring losses and negative operating cash flow and does not expect revenue from mining projects for the foreseeable future. No specific financial guidance was provided.
The Santa Cruz Initial Assessment describes a potential underground copper operation, but is a preliminary study and not a guarantee of economic viability; the company states that its projects are exploration-stage and that resource estimates and projected economics are uncertain. Risks include exploration and permitting uncertainty, commodity prices, project and joint-venture execution, political and environmental factors, and the secured Santa Cruz note. The note’s deed of trust and requirement for repayment before material construction could affect development plans. Cordoba faces a Colombian community class action seeking injunctions relating to Alacran; the filing says an adverse outcome could materially affect the subsidiary. Management reported no litigation it considered material to the company as a whole, but the Cordoba matter remains uncertain.
Hog Heaven exploration was temporarily interrupted by nearby wildfire activity and precautionary site work. Management reported disclosure controls and procedures were effective at the reasonable-assurance level and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the Santa Cruz note’s November 23, 2023 installment was paid as scheduled, and the remaining repayment terms and construction restriction.
- Actual cash burn, cash availability across subsidiaries, and whether management’s stated 12-month funding outlook remains supportable.
- Progress, spending and governance outcomes at the Ma’aden joint venture, including the drivers and accounting treatment of its reported losses.
- Updates to Santa Cruz studies, resources, permits and project economics; the Initial Assessment is preliminary and projected results may differ.
- Revenue recovery at CGI and VRB, and the status and potential impact of the Cordoba community litigation and Alacran development milestones.