Ivanhoe Electric Inc. — Q2 2022 Form 10-Q
Business context and reporting period
Quarter ended June 30, 2022. Ivanhoe Electric is an early-stage mineral exploration and development company, with technology businesses in geophysical data processing and vanadium energy storage. Its mineral projects had not generated revenue, and management did not expect mining revenue in the foreseeable future. Unless noted otherwise, amounts below are in U.S. dollars.
The quarter included the company’s June 30 IPO: 14.388 million shares at $11.75 each, for $169.1 million gross proceeds and $158.2 million net proceeds. Shares began trading on NYSE American and the Toronto Stock Exchange as IE. A 3-for-1 reverse split took effect June 16; comparative share and per-share data were retrospectively adjusted. Certain 2021 comparative results are combined carve-out figures from before the April 2021 restructuring and may not reflect stand-alone costs.
Financial performance and liquidity
| Metric | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Six months ended June 30, 2022 | Six months ended June 30, 2021 |
|---|---|---|---|---|
| Revenue | $0.229 million | $1.495 million | $6.991 million | $3.054 million |
| Gross profit | $0.114 million | $1.171 million | $6.824 million | $2.413 million |
| Operating loss | $29.686 million | $11.380 million | $46.892 million | $20.173 million |
| Net loss attributable to common stockholders or parent | $54.366 million | $10.736 million | $69.818 million | $15.389 million |
| Loss per share | $0.85 | $0.18 | $1.09 | $0.26 |
- Q2 revenue fell 85% year over year; the first-half increase of 129% was primarily due to a one-time $6.5 million software license recognized in Q1. The license had no carrying value and materially boosted first-half gross profit. Management cautioned that future contracts with this customer are not assured.
- Exploration expense was $23.9 million in Q2 and $41.2 million in the first half, versus $8.3 million and $14.6 million, respectively, in 2021. Santa Cruz was the largest driver, with $14.8 million of Q2 exploration expense and $24.6 million for the half.
- Q2 included $16.1 million of non-cash loss on convertible-debt revaluation; the first-half amount was $19.0 million. The first-half loss also reflected higher exploration and general and administrative costs.
- Six-month operating cash use was $44.2 million, investing cash use $28.4 million, and financing cash provided $246.8 million. Financing included $160.6 million net IPO proceeds and $86.2 million Series 2 note proceeds. Cash increased to $223.8 million from $49.9 million at year-end.
- At June 30, working capital was $215.2 million, compared with $17.7 million at December 31, 2021. Of cash, $21.5 million was held by non-wholly-owned subsidiaries and unavailable for general corporate purposes. The filing gives six-month, not standalone quarterly, cash flow figures.
- Convertible notes converted to equity at IPO: $50.9 million of Series 1 and $86.8 million of Series 2, including accrued interest, converted into approximately 13.6 million shares. Remaining convertible debt was $24.9 million, principally VRB’s $24.0 million bond, which carries 8% interest and matures in 2026.
Changes, outlook, risks and unusual items
- Management said available cash should fund business plans, including currently planned exploration, for at least 12 months, but noted that exploration results and business decisions could require cash sooner. The company expects recurring losses and negative operating cash flows.
- Exploration plans included an 85,000-meter Santa Cruz drilling program; a San Matias feasibility study and initial 25,000-meter drilling phase; and a completed Pinaya IP survey. Santa Cruz and Pinaya survey results were expected in September 2022. These are forward-looking expectations, not reported outcomes.
- The mineral project obligations table totals $175.4 million through 2032, including $21.1 million in 2022 and $25.3 million in 2023; much is described as discretionary. Separately, the company reported $25.6 million of other contractual obligations, including VRB debt and leases.
- Key risks include exploration-stage projects and uncertain resource estimates, commodity-price exposure, permitting and environmental requirements, title uncertainty, political and operational risks in foreign jurisdictions, and COVID-19-related disruption. The company reported no material change to risk factors previously disclosed in its IPO prospectus.
- Legal matters include a potential further appeal in the Pinaya-related dispute and a Colombian community class action seeking an injunction related to Cordoba’s Alacran-area operations. The filing says an adverse outcome in the Colombian proceeding could materially affect Cordoba; the company did not identify other litigation it believed would have a material adverse effect.
- Management reported disclosure controls effective at the reasonable assurance level and no material changes in internal control over financial reporting during the quarter. No material off-balance-sheet arrangements were reported.
Most important facts for investors to verify
- Whether Santa Cruz, San Matias and other exploration programs deliver results that support resource estimates and development plans, and whether required permits and project rights are secured.
- Cash burn against the stated 12-month funding outlook, including the availability restrictions on subsidiary cash and the timing or discretion of mineral-project commitments.
- Whether CGI replaces the one-time software-license revenue with recurring or new customer business; first-half revenue depended heavily on that license.
- Progress and potential financial effects of the Pinaya and Colombian legal proceedings, especially the Alacran class action.
- Terms, repayment capacity and any changes relating to VRB’s remaining convertible bond, as well as the effects of further share issuance and dilution.