Ivanhoe Electric Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Unaudited results are in U.S. dollars; figures below are in millions unless noted. Ivanhoe Electric combines early-stage critical-metals exploration with data-processing and vanadium battery businesses. Its mining projects generated no revenue.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $1.3 | $0.2 | $2.0 | $7.0 |
| Gross profit | $0.1 | $0.1 | $0.6 | $6.8 |
| Operating loss | $47.4 | $29.7 | $86.0 | $46.9 |
| Net loss | $44.8 | $55.5 | $83.4 | $73.1 |
| Net loss attributable to common stockholders | $38.3 | $54.4 | $74.3 | $69.8 |
| Loss per share, basic and diluted | $0.41 | $0.85 | $0.80 | $1.09 |
- Q2 revenue was primarily a $1.3 million VRB delivery, installation and commissioning of a 1MW/2MWh battery system in China. Six-month revenue fell because the prior-year period included a one-time $6.5 million CGI software license.
- Exploration expense increased to $32.6 million in Q2 and $59.1 million for the half year, principally reflecting activity at Santa Cruz and San Matias. General and administrative expense rose to $12.7 million and $23.3 million, respectively, including higher share-based compensation, insurance and staffing costs.
- Lower common-stockholder loss in Q2 primarily reflected the absence of the prior-year $16.1 million non-cash convertible-note revaluation loss. For the half year, increased exploration and G&A costs exceeded the benefit of avoiding the prior-year $19.0 million revaluation loss.
Financial position and liquidity
- At June 30, cash and cash equivalents were $63.8 million, versus $139.7 million at year-end 2022; working capital was $14.0 million versus $133.6 million.
- Six-month cash used in operating activities was $65.8 million, compared with $44.2 million in 2022. Cash used in investing was $40.9 million, mainly mineral-interest payments; financing provided $30.7 million, including Cordoba’s JCHX transaction.
- Total liabilities were $143.0 million. The Santa Cruz land acquisition added an $82.6 million secured note bearing prime plus 1%; $34.3 million plus accrued interest is due by November 23, 2023, with four further principal installments of approximately $12.1 million annually. VRB also had $26.9 million of convertible debt at period end, bearing 8% interest and maturing in 2026.
- Management stated on August 14 that it expected available cash resources to fund business plans for at least 12 months. This assessment includes the July Ma’aden investment: $127.1 million gross proceeds, of which $66.0 million was allocated to the Saudi joint venture and approximately $61.1 million retained for U.S. projects, working capital and general corporate purposes. $13.1 million of June 30 cash was held by non-wholly-owned subsidiaries and unavailable for general corporate purposes.
Developments, outlook and risks
- In May, Ivanhoe Electric acquired 5,975 acres and associated water rights at Santa Cruz for $116.9 million, paid partly in cash and partly through the secured note. The company said it may acquire contiguous mineral titles through scheduled option payments in August 2024.
- In May, Cordoba closed a $100 million strategic arrangement with JCHX for a 50% interest in the Alacran project vehicle. The initial $40 million installment closed; further $40 million and $20 million installments depend on feasibility-study and environmental-impact-assessment milestones. JCHX may elect not to make the final payment if the EIA is not approved within two years, with ownership consequences.
- On July 6, after quarter-end, Ma’aden invested $127.1 million for 10.3 million shares, approximately 9.9% ownership, and formed a 50/50 exploration joint venture covering about 48,500 km² in Saudi Arabia. The deal includes a top-up right and board-nominee right for Ma’aden.
- Management planned to complete the Santa Cruz Initial Assessment Study by the end of Q3 2023. It expects continuing losses and no mining-project revenue for the foreseeable future; exploration activity and funding needs may change with results and business decisions.
- Key risks include exploration-stage uncertainty (the company reports no mineral reserves other than at San Matias), commodity-price exposure, permitting and environmental requirements, title and political risks, and reliance on joint-venture partners. Cordoba faces an Alacran community class action seeking an injunction; the company says an adverse outcome could materially affect Cordoba. Management reported no material change to previously disclosed risk factors and no material off-balance-sheet arrangements.
Important facts for investors to verify
- Cash runway assumptions and the availability of subsidiary cash, against recurring operating cash burn and the November 2023 Santa Cruz note payment.
- Santa Cruz study timing, exploration results, and the terms and timing of payments for mineral titles.
- Whether JCHX’s later installments and required Alacran feasibility and EIA milestones are achieved, and the status and potential effect of Cordoba’s litigation.
- Execution, exploration spending and funding allocation under the Ma’aden joint venture, including the $66 million contribution and the company’s retained proceeds.
- Revenue concentration and recurrence in VRB and CGI, particularly given the prior-year one-time CGI license and limited current-period gross profit.