Quarterly Report Period Ended March 31, 2006
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
From:
May 12, 2006
IVANHOE MINES LTD.
(Translation of Registrants Name into English)
Suite 654 999 CANADA PLACE, VANCOUVER, BRITISH COLUMBIA V6C 3E1
(Address of Principal Executive Offices)
(Indicate by check mark whether the registrant files or will file annual reports under cover of
Form 20-F or Form 40-F.)
Form 20-F- o Form 40-F- þ
(Indicate by check mark whether the registrant by furnishing the information contained in this form
is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the
Securities Exchange Act of 1934.)
Yes: o No: þ
(If Yes is marked, indicate below the file number assigned to the registrant in connection with
Rule 12g3-2(b): 82- .)
Enclosed:
First quarter unaudited financial statements, notes and Managements Discussion and Analysis to
March 31, 2006.
CEO Certification
CFO Certification
Press release
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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IVANHOE MINES LTD.
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Date: April 3, 2006 |
By: |
/s/ Beverly A. Bartlett
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BEVERLY A. BARTLETT |
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Corporate Secretary |
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FIRST QUARTER REPORT
MARCH 31, 2006
(Prepared in accordance with United States of America generally accepted accounting
principles)
TABLE OF CONTENTS
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ITEM 1. Financial Statements |
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IVANHOE MINES LTD.
Consolidated Balance Sheets
(Stated in thousands of U.S. dollars)
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March 31, |
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December 31, |
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2006 |
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2005 |
(Unaudited) |
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ASSETS |
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CURRENT |
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Cash and cash equivalents (Note 3) |
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$ |
94,243 |
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$ |
101,681 |
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Accounts receivable |
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8,489 |
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33,350 |
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Inventories |
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2,281 |
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3,547 |
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Prepaid expenses |
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6,622 |
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6,353 |
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Other current assets |
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2,286 |
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3,286 |
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TOTAL CURRENT ASSETS |
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113,921 |
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148,217 |
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INVESTMENT IN JOINT VENTURE (Note 4) |
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144,323 |
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139,874 |
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LONG-TERM INVESTMENTS (Note 5) |
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27,332 |
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18,417 |
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PROPERTY, PLANT AND EQUIPMENT |
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94,844 |
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85,706 |
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DEFERRED INCOME TAXES |
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130 |
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171 |
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OTHER ASSETS |
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4,203 |
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4,394 |
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TOTAL ASSETS |
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$ |
384,753 |
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$ |
396,779 |
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LIABILITIES |
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CURRENT |
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Accounts payable and accrued liabilities |
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$ |
14,134 |
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$ |
20,594 |
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TOTAL CURRENT LIABILITIES |
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14,134 |
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20,594 |
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LOANS PAYABLE TO RELATED PARTIES (Note 6) |
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5,088 |
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5,088 |
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DEFERRED INCOME TAXES |
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353 |
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315 |
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ASSET RETIREMENT OBLIGATIONS |
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6,124 |
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6,231 |
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TOTAL LIABILITIES |
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25,699 |
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32,228 |
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MINORITY INTERESTS |
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7,641 |
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8,928 |
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SHAREHOLDERS EQUITY |
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SHARE CAPITAL (Notes 7 and 10) |
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Authorized |
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Unlimited number of preferred shares without par value
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Unlimited number of common shares without par value
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Issued and outstanding |
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316,624,073 (2005 - 315,900,668) common shares |
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998,067 |
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994,442 |
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ADDITIONAL PAID-IN CAPITAL |
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31,595 |
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25,174 |
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ACCUMULATED OTHER COMPREHENSIVE INCOME |
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15,626 |
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6,711 |
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DEFICIT |
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(693,875 |
) |
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(670,704 |
) |
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TOTAL SHAREHOLDERS EQUITY |
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351,413 |
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355,623 |
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TOTAL LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS
EQUITY |
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$ |
384,753 |
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$ |
396,779 |
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APPROVED BY THE BOARD:
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Director
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Director |
IVANHOE MINES LTD.
Consolidated Statements of Operations
(Stated in thousands of U.S. dollars, except for share and per share amounts)
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Three months ended |
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March 31, |
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2006 |
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2005 |
(Unaudited) |
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OPERATING EXPENSES |
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Exploration |
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$ |
(26,965 |
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$ |
(24,405 |
) |
General and administrative |
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(11,032 |
) |
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(4,787 |
) |
Accretion |
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(102 |
) |
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(89 |
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Depreciation |
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(912 |
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(413 |
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Mining property care and maintenance costs |
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(720 |
) |
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(852 |
) |
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OPERATING LOSS |
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(39,731 |
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(30,546 |
) |
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OTHER INCOME (EXPENSES) |
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Share of income from joint venture |
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4,460 |
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7,673 |
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Interest income |
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755 |
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595 |
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Foreign exchange losses |
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(150 |
) |
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(569 |
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Share of loss of significantly influenced investees |
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(239 |
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Gain on sale of other mineral property rights |
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2,724 |
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Write-down of carrying value of long-term investment |
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(1,438 |
) |
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LOSS BEFORE TAXES AND OTHER ITEMS |
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(31,942 |
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(24,524 |
) |
Provision for income taxes |
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(220 |
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(56 |
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Minority interests |
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1,060 |
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426 |
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NET LOSS FROM CONTINUING OPERATIONS |
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(31,102 |
) |
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(24,154 |
) |
NET INCOME AND GAIN ON SALE FROM DISCONTINUED
OPERATIONS (Note 2) |
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7,931 |
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15,673 |
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NET LOSS |
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$ |
(23,171 |
) |
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$ |
(8,481 |
) |
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BASIC AND DILUTED (LOSS) EARNINGS PER SHARE FROM |
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CONTINUING OPERATIONS |
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$ |
(0.10 |
) |
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$ |
(0.08 |
) |
DISCONTINUED OPERATIONS |
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0.03 |
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0.05 |
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$ |
(0.07 |
) |
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$ |
(0.03 |
) |
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WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING (000S) |
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316,280 |
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293,313 |
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IVANHOE MINES LTD.
Consolidated Statement of Shareholders Equity
(Stated in thousands of U.S. dollars, except for share amounts)
(Unaudited)
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Accumulated |
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Share Capital |
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Additional |
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Other |
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Number |
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Paid-In |
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Comprehensive |
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of Shares |
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Amount |
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Capital |
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Income |
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Deficit |
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Total |
Balances, December 31, 2005 |
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315,900,668 |
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$ |
994,442 |
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$ |
25,174 |
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$ |
6,711 |
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$ |
(670,704 |
) |
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$ |
355,623 |
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Net loss |
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(23,171 |
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(23,171 |
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Other comprehensive income (unrealized
gain on
available-for-sale securities) |
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8,915 |
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8,915 |
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Comprehensive loss |
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(14,256 |
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Shares issued for: |
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Exercise of stock options |
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718,193 |
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3,585 |
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(1,211 |
) |
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2,374 |
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Share purchase plan |
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5,212 |
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40 |
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40 |
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Dilution loss on issuance of shares
by a subsidiary |
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(313 |
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(313 |
) |
Stock compensation charged to operations |
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7,945 |
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7,945 |
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Balances, March 31, 2006 |
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316,624,073 |
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|
$ |
998,067 |
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|
$ |
31,595 |
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$ |
15,626 |
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$ |
(693,875 |
) |
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$ |
351,413 |
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|
IVANHOE MINES LTD.
Consolidated Statements of Cash Flows
(Stated in thousands of U.S. dollars)
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Three Months Ended March 31, |
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2006 |
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2005 |
(Unaudited) |
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OPERATING ACTIVITIES |
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Net loss from continuing operations |
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$ |
(31,102 |
) |
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$ |
(24,154 |
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Items not involving use of cash |
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Depreciation |
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|
912 |
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|
413 |
|
Stock-based compensation |
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7,945 |
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|
1,516 |
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Accretion expense |
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102 |
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89 |
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Unrealized foreign exchange loss |
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307 |
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513 |
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Share of income from joint venture |
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(4,460 |
) |
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(7,673 |
) |
Share of loss of significantly influenced investees |
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239 |
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Write-down of carrying value of long-term investments |
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1,438 |
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Gain on sale of other mineral property rights |
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(2,724 |
) |
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Deferred income taxes |
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79 |
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(4 |
) |
Minority interests |
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(1,060 |
) |
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(426 |
) |
Net change in non-cash operating working capital items
(Note 8 (b)) |
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(6,171 |
) |
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(5,058 |
) |
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Cash used in operating activities of continuing operations |
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(36,172 |
) |
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(33,107 |
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Cash provided by operating activities of discontinued
operations |
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2,592 |
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Cash used in operating activities |
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(36,172 |
) |
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(30,515 |
) |
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INVESTING ACTIVITIES |
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Proceeds from sale of discontinued operations |
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34,500 |
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15,000 |
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Proceeds from sale of other mineral property rights |
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2,724 |
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Expenditures on property, plant and equipment |
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(10,259 |
) |
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(3,132 |
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Proceeds from other assets |
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127 |
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124 |
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Other |
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(530 |
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(2,077 |
) |
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Cash provided by investing activities of continuing operations |
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26,562 |
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9,915 |
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Cash used in investing activities of discontinued operations |
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(502 |
) |
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Cash provided by investing activities |
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26,562 |
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9,413 |
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FINANCING ACTIVITIES |
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Issue of share capital |
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2,414 |
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|
935 |
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Cash provided by financing activities of continuing operations |
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2,414 |
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|
935 |
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Cash used in financing activities of discontinued operations |
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(37 |
) |
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Cash provided by financing activities |
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2,414 |
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|
898 |
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EFFECT OF EXCHANGE RATE CHANGES ON CASH |
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(242 |
) |
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(508 |
) |
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NET CASH OUTFLOW |
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(7,438 |
) |
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(20,712 |
) |
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
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|
101,681 |
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|
112,478 |
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CASH AND CASH EQUIVALENTS, END OF PERIOD |
|
$ |
94,243 |
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$ |
91,766 |
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CASH AND CASH EQUIVALENTS IS COMPRISED OF: |
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Cash on hand and demand deposits |
|
$ |
26,203 |
|
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$ |
21,121 |
|
Short-term money market instruments |
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|
68,040 |
|
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|
70,645 |
|
|
|
|
$ |
94,243 |
|
|
$ |
91,766 |
|
|
Supplementary cash flow information (Note 8)
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
(Unaudited)
1. |
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SIGNIFICANT ACCOUNTING POLICIES |
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These unaudited interim consolidated financial statements have been prepared in
accordance with United States of America generally accepted accounting principles (U.S.
GAAP). The accounting policies followed in preparing these consolidated financial
statements are those used by the Company as set out in the audited financial statements for
the year ended December 31, 2005, except that on January 1, 2006, the Company adopted the
provisions of SFAS No. 123(R), Share-Based Payment, on a modified prospective basis. The
adoption of SFAS No. 123 (R) did not have an impact on the Companys consolidated financial
position and results of operations (Note 7). In the case of Ivanhoe Mines Ltd. (the
Company), U.S. GAAP differs in certain respects from accounting principles generally
accepted in Canada (Canadian GAAP) as explained in Note 9. |
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|
Certain information and note disclosures normally included for annual consolidated financial
statements prepared in accordance with U.S. GAAP have been omitted. These interim
consolidated financial statements should be read together with the Companys audited
financial statements for the year ended December 31, 2005. |
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|
In the opinion of management, all adjustments considered necessary (including
reclassifications and normal recurring adjustments) to present fairly the financial position,
results of operations and cash flows at March 31, 2006 and for all periods presented, have
been included in these financial statements. The interim results are not necessarily
indicative of results for the full year ending December 31, 2006, or future operating
periods. For further information, see the Companys annual consolidated financial
statements, including the accounting policies and notes thereto, included in the Annual
Information Form. |
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|
For purposes of these consolidated financial statements, the Company and its subsidiaries and
joint venture are collectively referred to as Ivanhoe Mines. |
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|
The Company operates in a single reportable segment, being exploration and development of
mineral properties. |
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
(Unaudited)
2. |
|
DISCONTINUED OPERATIONS |
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|
In February 2005, Ivanhoe Mines disposed of the Savage River Iron Ore Project (the
Project). This decision was part of the plan to rationalize its non-core assets as it
focuses on the Oyu Tolgoi project in Mongolia. |
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|
Ivanhoe Mines sold the Project for two initial payments totalling $21.5 million, plus a
series of five contingent, annual payments that commenced on March 31, 2006. The annual
payments are based on the annual iron ore pellet tonnes sold and an escalating price formula
based on the prevailing annual Nibrasco/JSM pellet price. |
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|
In 2005, Ivanhoe Mines received the first initial payment of $15.0 million and the second
initial payment of $6.5 million was received on January 31, 2006. |
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|
On March 31, 2006, Ivanhoe Mines received its first contingent annual payment of $28.0
million with an additional $0.2 million adjustment received in April 2006. This $28.2
million payment was based on 2.2 million tonnes of iron ore sold during the twelve month
period ended March 31, 2006 and the escalating price formula. |
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|
To date, Ivanhoe Mines has received $49.7 million in proceeds from the sale of the Project. |
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|
The following table presents summarized financial information related to discontinued
operations: |
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|
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|
|
|
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|
|
|
Three months ended |
|
|
March 31, |
|
|
2006 |
|
2005(1) |
REVENUE |
|
$ |
|
|
|
$ |
18,031 |
|
COST OF OPERATIONS |
|
|
|
|
|
|
(11,965 |
) |
|
OPERATING PROFIT |
|
|
|
|
|
|
6,066 |
|
EXPENSES |
|
|
|
|
|
|
|
|
General and administrative |
|
|
|
|
|
|
(4 |
) |
Interest expense |
|
|
|
|
|
|
(203 |
) |
|
INCOME BEFORE THE FOLLOWING |
|
|
|
|
|
|
5,859 |
|
Interest income |
|
|
|
|
|
|
16 |
|
Foreign exchange loss |
|
|
|
|
|
|
(285 |
) |
Other expense |
|
|
|
|
|
|
(191 |
) |
|
INCOME BEFORE INCOME TAXES |
|
|
|
|
|
|
5,399 |
|
Recovery of income taxes |
|
|
|
|
|
|
7 |
|
|
NET INCOME |
|
|
|
|
|
|
5,406 |
|
Contingent Income |
|
|
7,931 |
|
|
|
|
|
Gain on sale of ABM |
|
|
|
|
|
|
10,267 |
|
|
NET INCOME AND GAIN ON SALE
FROM DISCONTINUED OPERATIONS |
|
$ |
7,931 |
|
|
$ |
15,673 |
|
|
(1) |
|
Net income for the three month period ended March 31, 2005, includes only two
months of results for the Project as it was sold on February 28, 2005. |
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
(Unaudited)
3. |
|
CASH AND CASH EQUIVALENTS |
|
|
|
Cash and cash equivalents at March 31, 2006 included Jinshans and Asia Golds cash and
cash equivalents balances of $11.4 million and $1.8 million, respectively (December 31, 2005:
$15.4 million and $3.1 million), which were not available for Ivanhoe Mines general corporate
purposes. |
|
4. |
|
INVESTMENT IN JOINT VENTURE |
|
|
|
Ivanhoe Mines investment in Myanmar Ivanhoe Copper Company Limited (JVCo) (Myanmar)
(50% owned), which is subject to joint control, is accounted for using the equity method. |
|
|
|
The following tables summarize Ivanhoe Mines 50% share of the financial position of JVCo as
at March 31, 2006 and December 31, 2005 and its share of the results of operations for the
three months ended March 31, 2006 and 2005. |
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Cash and cash equivalents |
|
$ |
26,297 |
|
|
$ |
22,843 |
|
Accounts receivable |
|
|
12,639 |
|
|
|
11,364 |
|
Inventories |
|
|
14,840 |
|
|
|
16,754 |
|
Prepaid expenses |
|
|
1,333 |
|
|
|
1,558 |
|
Property, plant and equipment |
|
|
127,263 |
|
|
|
128,405 |
|
Deferred income tax assets |
|
|
432 |
|
|
|
432 |
|
Other assets |
|
|
1,593 |
|
|
|
1,585 |
|
Accounts payable and accrued liabilities |
|
|
(11,850 |
) |
|
|
(14,784 |
) |
Deferred income tax liabilities |
|
|
(11,295 |
) |
|
|
(11,321 |
) |
Other liabilities |
|
|
(16,929 |
) |
|
|
(16,962 |
) |
|
Share of Net Assets of JVCo |
|
$ |
144,323 |
|
|
$ |
139,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2006 |
|
|
2005 |
|
Revenue |
|
$ |
11,036 |
|
|
$ |
15,144 |
|
Cost of operations |
|
|
(6,222 |
) |
|
|
(4,057 |
) |
Depreciation and depletion |
|
|
(1,243 |
) |
|
|
(1,631 |
) |
|
Operating profit |
|
|
3,571 |
|
|
|
9,456 |
|
Other income / (expense) |
|
|
889 |
|
|
|
(1,783 |
) |
|
Share of Income of JVCo |
|
$ |
4,460 |
|
|
$ |
7,673 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows |
|
|
|
|
|
|
|
|
From operating activities |
|
$ |
7,225 |
|
|
$ |
12,006 |
|
For investing activities |
|
|
(3,771 |
) |
|
|
(4,561 |
) |
For financing activities |
|
|
|
|
|
|
(3,750 |
) |
|
|
|
$ |
3,454 |
|
|
$ |
3,695 |
|
|
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2006 |
|
|
December 31, 2005 |
|
|
|
Equity |
|
|
Cost/Equity |
|
|
Unrealized |
|
|
Fair/Equity |
|
|
Equity |
|
|
Cost/Equity |
|
|
Unrealized |
|
|
Fair/Equity |
|
|
|
Interest |
|
|
Basis |
|
|
Gain |
|
|
Value |
|
|
Interest |
|
|
Basis |
|
|
Gain |
|
|
Value |
|
Investments available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intec Ltd. |
|
|
12.5 |
% |
|
$ |
1,446 |
|
|
$ |
649 |
|
|
$ |
2,095 |
|
|
|
12.5 |
% |
|
$ |
1,446 |
|
|
$ |
1,331 |
|
|
$ |
2,777 |
|
Entrée Gold Inc. |
|
|
14.8 |
% |
|
|
10,157 |
|
|
|
14,757 |
|
|
|
24,914 |
|
|
|
15.0 |
% |
|
|
10,157 |
|
|
|
5,380 |
|
|
|
15,537 |
|
Asia Now Resources Corp. |
|
|
2.1 |
% |
|
|
103 |
|
|
|
220 |
|
|
|
323 |
|
|
|
3.1 |
% |
|
|
103 |
|
|
|
|
|
|
|
103 |
|
|
|
|
|
|
|
|
$ |
11,706 |
|
|
$ |
15,626 |
|
|
$ |
27,332 |
|
|
|
|
|
|
$ |
11,706 |
|
|
$ |
6,711 |
|
|
$ |
18,417 |
|
|
6. |
|
LOANS PAYABLE TO RELATED PARTIES |
|
|
|
These loans are payable to the Chairman of the Company or a company controlled by him.
They are non-interest bearing, unsecured and repayable in U.S. dollars. Repayment of these
loans has been postponed until Ivanhoe Mines receives an aggregate of $111,055,000 from the
sale of the Savage River Project. At March 31, 2006, proceeds received from the sale of the
Project totaled $49.7 million (Note 2). |
|
7. |
|
SHARE CAPITAL |
|
(a) |
|
Equity Incentive Plan |
|
|
|
|
The Company has an Employees and Directors Equity Incentive Plan (the Equity
Incentive Plan). This plan authorizes the Board of Directors of the Company to grant
options, which vest over a period of years, to directors and employees of Ivanhoe Mines
to acquire Common Shares of the Company at a price based on the weighted average
trading price of the Common Shares for the five days preceding the date of the grant. |
|
|
|
|
On January 1, 2006, the Company adopted the provisions of SFAS No. 123(R), Share-Based
Payment, on a modified prospective basis. Prior to January 1, 2006, the Company
recorded compensation costs using the fair value based method in accordance with SFAS
No. 123, Accounting for Stock-Based Compensation. |
|
|
|
|
Under SFAS No. 123 (R), the value of each option award is estimated on the date of
grant using the Black-Scholes option-pricing model. The Black-Scholes option-pricing
model requires the input of subjective assumptions, including the expected term of the
option award and stock price volatility. The expected term of options granted is
derived from historical data on employee exercise and post-vesting employment
termination behavior. Expected volatility is based on the historical volatility of our
stock. These estimates involve inherent uncertainties and the application of management
judgment. In addition, we are required to estimate the expected forfeiture rate and
only recognize expense for those options expected to vest. As a result, if other
assumptions had been used, our recorded stock-based compensation expense could have
been materially different from that reported. |
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
(Unaudited)
7. SHARE CAPITAL (CONTINUED)
The weighted average grant-date fair value of stock options granted during three
months ended March 31, 2006 and 2005 was Cdn$4.69 and Cdn$4.88, respectively. The fair
value of these options was determined using the Black-Scholes option pricing model,
using the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2006 |
|
|
2005 |
|
Risk-free interest rate |
|
|
4.10 |
% |
|
|
3.86 |
% |
Expected life |
|
3.5 years |
|
5.0 years |
Expected volatility |
|
|
49 |
% |
|
|
62 |
% |
Expected dividends |
|
$Nil |
|
$Nil |
A summary of stock option activity and information concerning options available for
grant under the Companys Equity Incentive Plan, options outstanding, and exercisable
options at March 31, 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
|
|
|
|
Options |
|
|
Number of |
|
|
Weighted |
|
|
|
Available |
|
|
Common |
|
|
Average |
|
|
|
for Grant |
|
|
Shares |
|
|
Exercise Price |
|
|
|
|
|
|
|
|
|
|
|
(Expressed in |
|
|
|
|
|
|
|
|
|
|
|
Canadian dollars) |
|
|
Balances, December 31, 2005 |
|
|
8,305,936 |
|
|
|
7,416,700 |
|
|
$ |
7.27 |
|
Options granted |
|
|
(6,685,000 |
) |
|
|
6,685,000 |
|
|
|
9.73 |
|
Options exercised |
|
|
|
|
|
|
(744,800 |
) |
|
|
3.99 |
|
Options cancelled |
|
|
20,000 |
|
|
|
(20,000 |
) |
|
|
3.25 |
|
Shares issued under share
purchase plan |
|
|
(5,212 |
) |
|
|
|
|
|
|
|
|
|
Balances, March 31, 2006 |
|
|
1,635,724 |
|
|
|
13,336,900 |
|
|
$ |
8.69 |
|
|
At March 31, 2006, the U.S. dollar equivalent of the weighted average exercise price
was $7.44.
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
(Unaudited)
7. |
|
SHARE CAPITAL (CONTINUED) |
The following table summarizes information about stock options outstanding at
March 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
Options Exercisable |
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
Range of |
|
|
|
|
|
|
Average |
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
Exercise |
|
|
Number |
|
|
Remaining |
|
|
Exercise Price |
|
|
Number |
|
|
Exercise Price |
|
|
|
Prices |
|
|
Outstanding |
|
|
Life (in years) |
|
|
Per Share |
|
|
Exercisable |
|
|
Per Share |
|
|
|
(Expressed in |
|
|
|
|
|
|
|
|
|
|
(Expressed in |
|
|
|
|
|
|
(Expressed in |
|
|
|
Canadian |
|
|
|
|
|
|
|
|
|
|
Canadian |
|
|
|
|
|
|
Canadian |
|
|
|
dollars) |
|
|
|
|
|
|
|
|
|
|
dollars) |
|
|
|
|
|
|
dollars) |
|
|
|
$ |
1.20 to $3.50 |
|
|
|
1,424,600 |
|
|
|
1.39 |
|
|
$ |
2.76 |
|
|
|
1,087,700 |
|
|
$ |
2.60 |
|
|
|
$ |
3.51 to $6.75 |
|
|
|
293,500 |
|
|
|
2.42 |
|
|
|
6.75 |
|
|
|
181,500 |
|
|
|
6.75 |
|
|
|
$ |
6.76 to $7.69 |
|
|
|
943,800 |
|
|
|
3.00 |
|
|
|
7.44 |
|
|
|
511,666 |
|
|
|
7.40 |
|
|
|
$ |
7.70 to $8.20 |
|
|
|
1,350,000 |
|
|
|
6.73 |
|
|
|
7.89 |
|
|
|
792,000 |
|
|
|
7.83 |
|
|
|
$ |
8.21 to $8.99 |
|
|
|
1,140,000 |
|
|
|
3.84 |
|
|
|
8.62 |
|
|
|
305,000 |
|
|
|
8.63 |
|
|
|
$ |
9.00 to $10.51 |
|
|
|
7,185,000 |
|
|
|
6.78 |
|
|
|
9.72 |
|
|
|
1,486,000 |
|
|
|
9.74 |
|
|
|
$ |
10.52 to $12.70 |
|
|
|
1,000,000 |
|
|
|
7.59 |
|
|
|
12.70 |
|
|
|
750,000 |
|
|
|
12.70 |
|
|
|
|
|
|
|
|
|
13,336,900 |
|
|
|
5.65 |
|
|
$ |
8.69 |
|
|
|
5,113,866 |
|
|
$ |
7.95 |
|
|
|
|
|
As of March 31, 2006, there was $27.8 million of total unrecognized compensation cost
related to unvested stock options. This cost is expected to be recognized over a
weighted-average period of approximately 1.9 years. |
|
|
|
|
The Company granted 250,000 options during the quarter for which the measurement date
had not yet occurred at March 31, 2006. Compensation cost related to these options
will commence being recorded during the second quarter. |
|
|
(b) |
|
Share Purchase Warrants |
|
|
|
|
At March 31, 2006, the Company had 5,760,000 share purchase warrants outstanding that
were issued in 2004. These warrants entitle the holder to acquire one-tenth of a
common share of the Company at any time on or before February 15, 2007, at a price of
$8.68 per common share. |
8. |
|
SUPPLEMENTARY CASH FLOW INFORMATION |
(a)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2006 |
|
|
2005 |
|
|
Income taxes paid |
|
$ |
145 |
|
|
$ |
24 |
|
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
(Unaudited)
8. |
|
SUPPLEMENTARY CASH FLOW INFORMATION (CONTINUED) |
|
(b) |
|
Net change in non-cash operating working capital items: |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2006 |
|
|
2005 |
|
|
(Increase) decrease in: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
$ |
(1,708 |
) |
|
$ |
857 |
|
Inventories |
|
|
1,266 |
|
|
|
352 |
|
Prepaid expenses |
|
|
(269 |
) |
|
|
(498 |
) |
Other current assets |
|
|
1,000 |
|
|
|
(23 |
) |
Increase in: |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
|
(6,460 |
) |
|
|
(5,746 |
) |
|
|
|
$ |
(6,171 |
) |
|
$ |
(5,058 |
) |
|
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
(Unaudited)
9. |
|
DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES |
|
|
|
As indicated in Note 1, these consolidated financial statements have been prepared in
accordance with U.S. GAAP, which, in the case of the Company, conform in all material
respects with Canadian GAAP, except as set forth below. |
|
|
|
Consolidated Balance Sheets |
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Total assets in accordance with U.S. GAAP |
|
$ |
384,753 |
|
|
$ |
396,779 |
|
Reverse equity accounting for investment in joint venture (a) |
|
|
40,074 |
|
|
|
43,067 |
|
Reversal of amortization of other mineral property interests (b) |
|
|
6,329 |
|
|
|
6,329 |
|
Adjustment to carrying value of long-term investments (c) |
|
|
|
|
|
|
(6,711 |
) |
|
Total assets in accordance with Canadian GAAP |
|
$ |
431,156 |
|
|
$ |
439,464 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities in accordance with U.S. GAAP |
|
$ |
25,699 |
|
|
$ |
32,228 |
|
Reverse equity accounting for investment in joint venture (a) |
|
|
40,074 |
|
|
|
43,067 |
|
Income tax effect of U.S. GAAP adjustments for: |
|
|
|
|
|
|
|
|
Reversal of amortization of other mineral property interests (b) |
|
|
882 |
|
|
|
882 |
|
|
Total liabilities in accordance with Canadian GAAP |
|
$ |
66,655 |
|
|
$ |
76,177 |
|
|
|
|
|
|
|
|
|
|
|
Total minority interests in accordance with U.S.
and Canadian GAAP |
|
$ |
7,641 |
|
|
$ |
8,928 |
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity in accordance with U.S. GAAP |
|
$ |
351,413 |
|
|
$ |
355,623 |
|
Decrease in the deficit for: |
|
|
|
|
|
|
|
|
Reversal of amortization of other mineral property interests (b) |
|
|
5,447 |
|
|
|
5,447 |
|
Other comprehensive income (c) |
|
|
|
|
|
|
(6,711 |
) |
|
Total shareholders equity in accordance with Canadian GAAP |
|
$ |
356,860 |
|
|
$ |
354,359 |
|
|
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
(Unaudited)
9. |
|
DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Continued) |
|
|
|
Consolidated Statements of Operations
(in thousands, except for share and per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2006 |
|
|
2005 |
|
Net (loss) from continuing operations in accordance with U.S. GAAP |
|
$ |
(31,102 |
) |
|
$ |
(24,154 |
) |
Dilution loss on issuance of shares by a subsidiary (d) |
|
|
(313 |
) |
|
|
|
|
|
Net (loss) from continuing operations in accordance with
Canadian GAAP |
|
$ |
(31,415 |
) |
|
$ |
(24,154 |
) |
|
|
|
|
|
|
|
|
|
|
Net income from discontinued operations in accordance
with U.S. GAAP |
|
$ |
7,931 |
|
|
$ |
15,673 |
|
Gain on sale of Savage River Project (e) |
|
|
|
|
|
|
(10,267 |
) |
|
Net income from discontinued operations in accordance
with Canadian GAAP |
|
$ |
7,931 |
|
|
$ |
5,406 |
|
|
Net (loss) in accordance with Canadian GAAP |
|
$ |
(23,484 |
) |
|
$ |
(18,748 |
) |
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding under
Canadian GAAP (in thousands) |
|
|
316,280 |
|
|
|
293,313 |
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted (loss) earnings per share in accordance with
Canadian GAAP from: |
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.10 |
) |
|
$ |
(0.08 |
) |
Discontinued operations |
|
|
0.03 |
|
|
|
0.01 |
|
|
|
|
$ |
(0.07 |
) |
|
$ |
(0.07 |
) |
|
Under Canadian GAAP, the components of shareholders equity would be as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Share capital |
|
$ |
1,002,997 |
|
|
$ |
999,372 |
|
Additional paid-in capital |
|
|
24,686 |
|
|
|
17,952 |
|
Accumulated other comprehensive income (c) |
|
|
15,626 |
|
|
|
|
|
Deficit |
|
|
(686,449 |
) |
|
|
(662,965 |
) |
|
|
|
$ |
356,860 |
|
|
$ |
354,359 |
|
|
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
(Unaudited)
9. |
|
DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Continued) |
|
|
|
Consolidated Statements of Cash Flows |
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2006 |
|
|
2005 |
|
Cash used in operating activities in accordance with
U.S. GAAP |
|
$ |
(36,172 |
) |
|
$ |
(30,515 |
) |
Reverse equity accounting for investment in
joint venture (a) |
|
|
7,225 |
|
|
|
12,006 |
|
|
Cash used in operating activities in accordance with
Canadian GAAP |
|
|
(28,947 |
) |
|
|
(18,509 |
) |
|
|
|
|
|
|
|
|
|
|
Cash (used in) provided by investing activities in accordance
with U.S. GAAP |
|
|
26,562 |
|
|
|
9,413 |
|
Reverse equity accounting for investment in
joint venture (a) |
|
|
(3,771 |
) |
|
|
(4,561 |
) |
|
Cash (used in) provided by investing activities in
accordance with Canadian GAAP |
|
|
22,791 |
|
|
|
4,852 |
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) financing activities in
accordance with U.S. GAAP |
|
|
2,414 |
|
|
|
898 |
|
Reverse equity accounting for investment in
joint venture (a) |
|
|
|
|
|
|
(3,750 |
) |
|
Cash provided by financing activities in accordance
with Canadian GAAP |
|
|
2,414 |
|
|
|
(2,852 |
) |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
(242 |
) |
|
|
(508 |
) |
|
Net cash inflow in accordance with Canadian GAAP |
|
|
(3,984 |
) |
|
|
(17,017 |
) |
Cash, beginning of year in accordance with Canadian GAAP |
|
|
124,524 |
|
|
|
122,577 |
|
|
Cash, end of year in accordance with Canadian GAAP |
|
$ |
120,540 |
|
|
$ |
105,560 |
|
|
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
(Unaudited)
9. |
|
DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Continued) |
|
(a) |
|
Investment in Joint Venture |
|
|
|
|
Under U.S. GAAP, Ivanhoe Mines has accounted for its joint venture interest in JVCo
(Note 4) using the equity method. Under Canadian GAAP, interests in joint ventures are
accounted for on a proportionate consolidation basis. |
|
|
|
|
Under Canadian GAAP, the carrying amount of the Ivanhoe Mines investment and its share
of equity of JVCo is eliminated and replaced with Ivanhoe Mines proportionate share of
each line item of JVCos assets, liabilities, revenue and expenses which is included in
the corresponding line items of Ivanhoe Mines financial statements. All intercompany
balances and transactions would be eliminated. Note 4 discloses the asset,
liabilities, revenues and expenses of JVCo that would have been included in the
corresponding line items on Ivanhoe Mines financial statements had Canadian GAAP been
applied. |
|
|
(b) |
|
Other mineral property interests |
|
|
|
|
Under U.S. GAAP, where mineral property interests are, at the date of acquisition,
without economically recoverable reserves, these costs are generally considered to be
exploration costs that are expensed as incurred. Under Canadian GAAP, the costs of the
acquisition of mineral property interests are capitalized. |
|
|
|
|
In accordance with EITF 04-02, Whether Mining Rights are Tangible or Intangible Assets,
the Company classifies its mineral exploration licenses as tangible assets and there is
no difference between Canadian and U.S. GAAP. Prior to January 2004, the costs of
acquisition of Ivanhoe Mines mineral exploration licenses were classified as
intangible assets under U.S. GAAP and amortized over the term of the licenses. As a
result, for Canadian GAAP purposes, the $6,329,000, net of deferred income taxes of
$882,000, in amortization or write-offs of other mineral property interests under U.S.
GAAP has been reversed. |
|
|
(c) |
|
Financial Instruments |
|
|
|
|
On January 1, 2006, the Company adopted CICA Section 1530, Comprehensive Income,
Section 3855, Financial Instruments Recognition and Measurement, Section 3861,
Financial Instruments Disclosure and Presentation and Section 3865, Hedges. These
new standards increased harmonization between U.S. and Canadian GAAP. |
|
|
|
|
Under U.S. and Canadian GAAP, portfolio investments are classified as
available-for-sale securities, which are carried at market value (Note 5). The
resulting unrealized gains or losses are included in the determination of comprehensive
income, net of income taxes where applicable. Prior to adopting Sections 3855 and
1530, these investments were carried at their original cost less provisions for
impairment under Canadian GAAP. Upon adoption, the Company recorded a retroactive
balance representing the unrealized gains on available-for-sale securities of
$6,711,000 at January 1, 2006. Available-for-sale securities generated a comprehensive
income of $8,915,000 under both Canadian and U.S. GAAP for the quarter ended March 31,
2006. |
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
(Unaudited)
9. |
|
DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Continued) |
|
(d) |
|
Dilution gain on investment in subsidiary |
|
|
|
|
Under U.S. GAAP the $0.3 million dilution loss on investment in a subsidiary was
accounted for as part of additional paid-in capital. Under Canadian GAAP, the dilution
loss has been included in the net loss for the three months ended March 31, 2006. |
|
|
(e) |
|
Gain on Sale of ABM |
|
|
|
|
Under U.S. GAAP, the net book value of ABM when it was sold in February 2005 was $11.2
million, whereas under Canadian GAAP the carrying value was $30.9 million. At March
31, 2005, total proceeds from the sale were $21.5 million. Therefore, under Canadian
GAAP a balance of $9.4 million was included on the balance sheet as deferred
consideration receivable, whereas under U.S. GAAP a gain on sale of $10.3 million was
recognized. |
|
|
(f) |
|
Income taxes |
|
|
|
|
Under U.S. GAAP, deferred income taxes are calculated based on enacted tax rates
applicable to future years. Under Canadian GAAP, future income taxes are calculated
based on enacted or substantively enacted tax rates applicable to future years. This
difference in GAAP did not have any effect on the financial position or results of
operations of the Company for the three month periods ended March 31, 2006 and 2005. |
|
(a) |
|
In April 2006, Ivanhoe Mines completed a $167.2 million (Cdn$189.1 million)
financing that consisted of 18.4 million common shares at a price of $9.08 per share
(Cdn$10.28). |
|
|
(b) |
|
In April 2006, Ivanhoe Mines received the final $2.0 million loan
repayment from Lepanto Consolidated Mining Company. This loan receivable was included in
other current assets at March 31, 2006. |
|
|
(c) |
|
In April 2006, Ivanhoe Mines acquired 8,312,142 units of Redox Diamonds Ltd.
(Redox) at a cost of $1.5 million (Cdn$ 1.7 million). Each unit consists of one Redox
common share and one share option exercisable until April 5, 2008 to purchase an
additional Redox common share at a price of Cdn$0.30 per share. Ivanhoe Mines
investment represents 15% of the issued and outstanding share capital of Redox. |
|
|
(d) |
|
In April 2006, Ivanhoe Mines announced that it had reached an agreement in
principle for Asia Gold Corp. (Asia Gold) (currently 47% owned by Ivanhoe Mines) to
acquire Ivanhoe Mines Coal Division in exchange for 82,576,383 common shares of Asia
Gold. The proposed transaction will result in Ivanhoe Mines owning approximately 91.4%
of the issued and outstanding common shares of Asia Gold and 88.8% on a fully diluted
basis. As part of the transaction, Ivanhoe Mines has agreed to extend an interim
working line of credit to Asia Gold of up to US$10 million. The transaction is subject
to the signing of a definitive agreement, approval of Asia Golds shareholders, approval
from the TSX Venture Exchange and fulfillment of all other applicable regulatory and
stock exchange requirements. |
IVANHOE MINES LTD.
|
|
|
|
|
|
|
1
|
|
Interim Report For the three months ended March 31, 2006
|
|
Share Information
Common shares of Ivanhoe
Mines Ltd. are listed for
trading under the symbol
IVN on the New York Stock
Exchange, NASDAQ and the
Toronto Stock Exchange.
|
|
Investor Information
All financial reports, news
releases and corporate
information can be accessed
on our web site at
www.ivanhoe-mines.com |
|
|
|
|
|
|
|
At May 12, 2006 the Company had 335.2 million common shares issued and
outstanding and warrants and stock options exercisable for 13.1 million
additional common shares. |
|
Transfer Agents and
Registrars
CIBC Mellon Trust Company
320 Bay Street
Toronto, Ontario, Canada M5H
4A6
Toll free in North America:
1-800-387-0825 |
|
Contact Information
Investors: Bill Trenaman
Media : Bob Williamson
Suite 654-999 Canada Place
Vancouver, BC, Canada V6C 3E1
E-mail : info@ivanhoemines.com
Tel : (604) 688-5755 |
HIGHLIGHTS
Ivanhoe Mines is an international mining company currently focused on exploring and developing
a major discovery of copper and gold at its Oyu Tolgoi project in southern Mongolia (the Oyu
Tolgoi Project). Consistent with exploration projects, exploration costs are charged to
operations in the period incurred and as a result often constitute the bulk of the Companys
operation loss for that period.
Results of Operations The Company recorded a net loss of $23.2 million (or $0.07 per
share) for the first quarter of 2006 compared to a net loss of $8.5 million (or $0.03 per share) in
Q105. The increase in the loss from 2005 to 2006 is primarily due to a $3.2 million decrease in
income from our joint venture, a $7.7 million decrease in income from the sale of discontinued
operations and a $6.4 million increase in stock compensation expense.
Oyu Tolgoi Project -
Integrated Development Plan - During the quarter, the construction of the headframe, hoisting
plant, associated infrastructure and pre-sinking excavation for Shaft #1, a 6.7-metre-diameter
exploration shaft, was completed. This infrastructure will allow the Company to access the deep
potential of the Hugo North deposit as it moves forward in the development of the Oyu Tolgoi
Project.
Mine planning update Recent drilling and mine planning initiatives suggest that alternative
approaches to the mine schedule may yield higher returns and/or lower the risk associated with the
initial mines Integrated Development Plan (IDP). Studies are ongoing into applying a
sub-level-cave mining method to a high-grade zone located in the shallowest part of the southern
end of the Hugo North deposit and analyzing the possibility of starting underground mining earlier
than previously contemplated. Under the scenario being analyzed, future production from this
shallow zone would reach an estimated 15,000 tonnes per day in the third year of the project life
and would extend for a minimum period of five years until the large deep block-cave begins on the
Hugo North deposit.
Additional studies planned for later this year will focus on increasing the open pit life, ultimate
underground production and milling throughput tonnages beyond the 140,000 tonnes per day reported
in the IDP. Management anticipates that production from an estimated 29-year mining life in the
open pit, coupled with block-caving operations at Hugo North and Hugo South, could ultimately
increase mill throughput into the 200,000 to 250,000 tonnes per day range.
Reserve and resource estimates - During the quarter, the Company announced reserve estimates for
the open-pit southern part of the Oyu Tolgoi Project and provided an updated resource estimate,
which incorporated drilling results from the Ivanhoe-Entrée property up to January 13, 2006.
Stability Agreement - In March 2006, a delegation of Ivanhoe Mines senior management met with
leaders and senior officials of the Government of Mongolia and presented a series of
investment-related initiatives aimed at facilitating the completion of the Special Stability
Agreement. The meetings coincided with a series of encouraging statements from Mongolias political
leadership reaffirming a commitment to the early conclusion of a stability agreement with Ivanhoe
Mines and to maintaining a positive environment for foreign investment.
Based on these developments, Ivanhoe Mines senior management is optimistic that the Special
Stability Agreement can be concluded successfully within a timeframe that will not unduly delay the
development of the Oyu Tolgoi Project.
Other Projects
Myanmar: S&K Mine. The Monywa Copper Project began a planned, annual two-and-a-half week service
shut down on February 24, 2006. This was expected to be a routine interruption in production to
permit changes to be made to the SX-EW cathode copper plant and to complete work to improve the
efficiency of the use of reagents. Around the same time, Myanmar experienced a temporary shortage
of diesel fuel, which lasted three weeks. MICCL also experienced a delay in the receipt of
approvals needed to receive and transport production chemicals to the Monywa mine. As a result,
MICCL extended the service shutdown period an additional two-and-a-half weeks. The mine resumed
normal operations on April 2, 2006.
In Q1 06, the Company maintained a dialogue with the Myanmar tax authorities regarding the
applicability of the commercial tax.
The Company has entered into a memorandum of understanding (MOU) with a consortium of three large
established South Korean companies regarding the possible sale of a 25% net property interest in
the S&K Mine for approximately $120 million.
Kazakhstan: Bakyrchik Project. The rise in the gold price, from $520 per ounce at the beginning of
2006 to $715 per ounce currently, has the potential to significantly improve the economics of this
project. In Q106, discussions were held between representatives from the Company and various
Kazakhstan government authorities on the current status and future prospects of the Bakyrchik
Project. Ivanhoe Mines reached a satisfactory agreement with the Kazakhstan government authorities
in Q106, extending the Project exploration licences for five years. The Company has received a
similar five-year
extension for its investment commitment for the project which, subject to the finalization of
certain documentation, may allow the Company to advance the project to commercial production
following an aggressive schedule.
Sale of Savage River In Q106 the Company received a total of $34.7 million, which included $6.7
million representing principal and accrued interest repayment of the final tranche of the $21.5
million guaranteed cash payments, as well as $28.0 million representing the first contingent annual
payment.
Jinshan - On April 24, 2006, Jinshan Gold Mines Inc. announced the completion of the final
feasibility study for its Project 217 open-pit gold mine in Inner Mongolia, China. The study
indicates that the mine would be capable of producing approximately 117,000 ounces of gold per year
for an initial mine life of approximately 9 years at an average cash cost of approximately $253 per
ounce. The feasibility study estimates total Proven and Probable open-pit reserves at 66.7 million
tonnes averaging 0.75 grams per tonne gold, containing approximately 1.2 million ounces of
recovered gold. The study was prepared by KD Engineering of Tucson, Arizona, pursuant to Canadas
National Instrument 43-101.
Mongolia Coal In Q106, the Company also announced the results of an updated resource estimate
for the Nariin Sukhait Coal Project located in southern Mongolia. Total coal resources contained
in two separate fields, the South-East Field and the West Field, were estimated at 124.0 million
tonnes of Measured plus Indicated resources (79.5 million tonnes of Measured resources and 44.5
million tonnes of Indicated resources) and an additional Inferred resource of approximately 33.8
million tonnes.
On April 26, 2006, the Company announced its plans to transfer its Mongolian coal division into
Asia Gold in exchange for approximately 82.6 million common shares of Asia Gold. The transaction,
once completed, will result in Ivanhoe Mines owning approximately 91.4% of the issued and
outstanding common shares of Asia Gold. As part of the transaction, Ivanhoe Mines has agreed to
extend an interim working line of credit to Asia Gold of $10 million. The transaction is subject
to the signing of a definitive agreement, regulatory approvals and the approval of Asia Golds
minority shareholders.
Financings On April 25, 2006, Ivanhoe Mines completed a financing that consisted of 18.4 million
common shares at a price of $9.08 per common share (Cdn$10.28), representing an aggregate amount
of $167.2 million (Cdn$189.2 million).
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
This discussion and analysis of the financial position and results of operations (MD&A) of
Ivanhoe Mines Ltd. should be read in conjunction with the unaudited consolidated financial
statements of Ivanhoe Mines Ltd. and the notes thereto for the three months ended March 31, 2006,
and with the audited consolidated financial statements of Ivanhoe Mines Ltd. and the notes thereto
for the year ended December 31, 2005. These financial statements have been prepared in accordance
with United States of America generally accepted accounting principles (U.S. GAAP). Differences
between Canadian and U.S. GAAP that would have materially affected the Companys reported financial
results are set out in Note 9. In this MD&A, unless the context otherwise dictates, a reference to
the Company refers to Ivanhoe Mines Ltd. and a reference to Ivanhoe Mines refers to Ivanhoe Mines
Ltd, together with its subsidiaries and joint ventures. The effective date of this MD&A is May 12,
2006.
Additional information about the Company, including its Annual Information Form, is available at
www.sedar.com.
FORWARD-LOOKING STATEMENTS
Certain statements made herein, other than statements of historical fact relating to Ivanhoe
Mines, are forward-looking statements. These include, but are not limited to, statements respecting
anticipated business activities, planned expenditures, corporate strategies, proposed acquisitions
and dispositions of assets, discussions with third parties respecting material agreements,
participation in projects and financing, the expected timing and outcome of Ivanhoe Mines
discussions with representatives of the Government of Mongolia for a stability agreement in respect
of the Oyu Tolgoi Project , the likelihood and potential impact of proposed amendments to the laws
of Mongolia and other countries in which Ivanhoe Mines carries on business, the estimated cost of
bringing the Oyu Tolgoi Project into commercial production, anticipated future production and cash
flows, target milling rates, the outcome of Ivanhoe Mines discussions with its joint venture
partner in the Monywa Copper Project and with certain governmental authorities in Myanmar aimed at
resolving impediments to the ongoing operation and potential expansion of the project, the
possibility of having to record, in the future, a significant reduction of the projects carrying
value on the Companys financial statements and other statements that are not historical facts.
When used in this MD&A, the words such as , could, plan, estimate, expect, intend, may,
potential, should and similar expressions, are forward-looking statements. Although Ivanhoe
Mines believes that its expectations reflected in these forward-looking statements are reasonable,
such statements involve risks and uncertainties and no assurance can be given that actual results
will be consistent with these forward-looking statements. Forward-looking statements are based on
the opinions and estimates of management at the date the statements are made, and are subject to a
variety of risks and uncertainties and other
IVANHOE MINES LTD.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
factors that could cause actual events or results to differ materially from those projected in the
forward-looking statements. Important factors that could cause actual results to differ from these
forward-looking statements include those described under the heading Risks and Uncertainties
elsewhere in this MD&A. The reader is cautioned not to place undue reliance on forward-looking
statements.
This MD&A also contains references to estimates of mineral reserves and mineral resources. The
estimation of reserves and resources is inherently uncertain and involves subjective judgments
about many relevant factors. The accuracy of any such estimates is a function of the quantity and
quality of available data, and of the assumptions made and judgments used in engineering and
geological interpretation, which may prove to be unreliable. There can be no assurance that these
estimates will be accurate or that such mineral reserves and mineral resources can be mined or
processed profitably. Mineral resources that are not mineral reserves do not have demonstrated
economic viability. The Company does not assume the obligation to revise or update these
forward-looking statements after the date of this document or to revise them to reflect the
occurrence of future unanticipated events, except as may be required under applicable securities
laws.
IVANHOE MINES LTD.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CORPORATE STRATEGY & OUTLOOK
Ivanhoe Mines is an international mining company currently focused on exploring and developing
a major discovery of copper and gold at its Oyu Tolgoi project in southern Mongolia (the Oyu
Tolgoi Project).
Development of the Oyu Tolgoi Project - Since its inception in 1994, mineral exploration has been
the Companys main focus of interest. In Q106, the Company devoted most of its management and
financial resources to furthering the exploration and development of the Oyu Tolgoi Project, while
at the same time continuing to explore for minerals in other parts of Mongolia, Eastern Asia and
Australia. The Company is also assessing the extent, value and development potential of the
strategically located coal resources recently discovered on Ivanhoe Mines exploration concessions
in southern Mongolia.
Stability Agreement Since 2005, discussions have been ongoing with the government of Mongolia
regarding the finalization and approval of the Special Stability Agreement for Ivanhoe Mines Oyu
Tolgoi Project. Intensive negotiations were undertaken by the Company in late 2003 and early 2004
with a working group designated by the Government of Mongolia which culminated in a comprehensive
draft Special Stability Agreement. The draft Special Stability Agreement has been under review by
the Government of Mongolia since that time.
Finalization of the Special Stability Agreement has taken much longer than expected to complete.
Progress has been hampered by changes in government since the most recent election in the summer of
2005. These successive changes in government have necessarily involved changes to the government
personnel involved in the Special Stability Agreement negotiations, resulting in further delays.
In March 2006, a delegation of Ivanhoe Mines senior management met with leaders and senior
officials of the Government of Mongolia and presented a series of investment-related initiatives
aimed at facilitating the completion of the Special Stability Agreement. The meetings coincided
with a series of encouraging statements from Mongolias political leadership reaffirming a
commitment to the early conclusion of a stability agreement with Ivanhoe Mines and to maintaining a
positive environment for foreign investment.
The Mongolian Government also announced that its cabinet had instructed the Minister of Finance and
the Minister of Industry and Trade to form a new working group to conclude the negotiations with
Ivanhoe Mines on the Special Stability Agreement and to negotiate a parallel agreement to give
effect to the new investment-related initiatives proposed by Ivanhoe Mines. This parallel agreement
is expected to address, among other things, such matters as the employment, skills-training and
minimum wages of Mongolians on the Oyu Tolgoi Project, the provision of interim power supply and
the production of long-term electrical power generation in the South Gobi region and possible
development of downstream smelting and refining facilities in Mongolia. This new working group will
also be responsible for working with Ivanhoe Mines to facilitate
IVANHOE MINES LTD.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
opportunities for a broad spectrum of Mongolian citizens to invest in Ivanhoe Mines and thus own an
interest in the Oyu Tolgoi Project.
Based on these developments, Ivanhoe Mines senior management is optimistic that the Special
Stability Agreement can be concluded successfully within a timeframe that will not unduly delay the
development of the Oyu Tolgoi Project. However, Ivanhoe Mines cannot predict how long it will take
for the new working group to be formed or for its members to familiarize themselves with those
aspects of the Special Stability Agreement that remain to be finalized. Proposed changes to
Mongolian tax and minerals legislation may also affect how quickly the discussions in respect of
the Special Stability Agreement can be finalized. Accordingly, there can be no assurance that a
stability agreement containing all of the terms sought by Ivanhoe Mines can be obtained in the
foreseeable future, or at all.
Various public statements were made in Q405 and Q106 by members of the Mongolian Government and
Parliament about proposed changes to tax and minerals legislation and the potential resulting
impact on the ownership of mineral rights and licenses in Mongolia. Certain of those announcements
created some confusion among the media, international capital markets and members of the mining
industry about the potential ramifications of the proposed legislative changes.
Ivanhoe Mines believes that it is too early to speculate on what laws, if any, the Government of
Mongolia and Parliament may eventually seek to amend or modify. Ivanhoe Mines welcomes the ongoing
public assurances by the Government that a positive environment for foreign investment will be
maintained in Mongolia and that international mining companies will continue to play an important
role in the development of the countrys natural resources and its free-market economy.
Irrespective of any proposed changes to tax and minerals legislation that may brought forward, the
Company expects to continue to work closely with the Government in the formulation of its
development plans for the Oyu Tolgoi Project a project that is expected to bring enormous
economic benefits to the people of Mongolia and the Companys shareholders.
Financing alternatives The Company continues to assess strategic alternatives for the
development and financing of the Oyu Tolgoi Project. The Companys current plan is to aggressively
advance the development of the project while continuing to discuss financing options with various
parties. The Company has engaged CIBC World Markets and BMO Nesbitt Burns to assist in this
process.
During the quarter, the Company entered into advanced discussions with major international mining
companies capable of financing and developing the project. The Company believes that significant
advantages could be realized from the participation of strategic partners and continues to assess
opportunities, as they arise, to extend to one or more such partners a participating interest in
the project. The Company is not soliciting bids from potential partners and has not set a deadline
or target date for concluding any such agreement. Accordingly, there can be no assurance that any
ongoing or future discussions will result in an agreement with a strategic partner or that the
Company will pursue development of the Oyu Tolgoi Project with a strategic partner at all.
IVANHOE MINES LTD.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
In April 2006, the Company announced its intention to separate its coal assets from its core copper
and gold assets with a view to creating a separate, self-financing coal company (See Review of
Operations Exploration Mongolian Coal Projects). The Company is investigating possibilities to
obtain outside financing to develop these coal assets.
Asset rationalization - The Company is continuing to explore opportunities to rationalize non-core
assets through potential disposition alternatives involving the outright or partial sale of
non-core project interests, the formation of one or more joint ventures in respect of certain
non-core projects or other transactions that would dilute or eliminate the Companys interest in,
and relieve the Company of financial obligations in respect of, such non-core projects. In 2005,
the Company signed an MOU with three large established Korean corporations with the intent to sell
a significant portion of the Companys interest in the S&K Mine. The MOU, which is non-binding, is
subject to completion of due diligence, currently ongoing, and various approvals, including
approval from Myanmar governmental authorities. The Companys principal objectives are to
generate, or otherwise preserve, cash and to devote more managerial and financial resources to the
Oyu Tolgoi Project. There can be no assurance that any disposition of non-core assets presently
under consideration will occur on a timely basis, or at all.
Liquidity and future funding requirements - The bulk of the Companys expenditures are of a
discretionary nature and as such can be deferred based on the status of the Companys cash
resources. Ivanhoe Mines cash resources are considered sufficient to maintain the Companys
minimum level of activities for the next two years. On April 25, 2006, Ivanhoe Mines completed a
financing that consisted of 18.4 million common shares at a price of $9.08 per common share
(Cdn$10.28), representing an aggregate amount of $167.2 million (Cdn$189.2 million). The net
proceeds of the offering are intended to be used to further the development of various Mongolian
projects, including the Oyu Tolgoi Project.
Following completion of an open-pit reserve estimate in respect of the Southern Oyu deposits on
February 1, 2006, the Company expects to be in a position to seek project financing to implement
its initial open-pit development plans at the Oyu Tolgoi Project. As well, the Company is pursuing
a number of initiatives that, if consummated, would raise capital. However, there can be no
assurance that the Company will be able to obtain project financing or otherwise raise capital
before its existing cash resources are expended. See Cash Resources and Liquidity.
Since its inception, the Company has relied on capital markets (and in particular equity markets)
to fund its exploration and other activities. If the Companys existing cash resources are
insufficient to fund all of the Companys planned activities, or if the Company is unable to obtain
project financing before its existing cash resources are expended, the Company will have to rely
upon equity markets or other sources of capital (from potential joint venture partners or through
other arrangements) the availability of which cannot be assured to continue funding the
development of the Oyu Tolgoi Project. Capital markets are subject to significant volatilities and
uncertainties.
IVANHOE MINES LTD.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
There can be no assurance that Ivanhoe Mines undeveloped or partially developed projects can be
fully developed, in whole or in part, since factors beyond the Companys control may adversely
affect its access to funding or its ability to recruit third-party participants.
SELECTED FINANCIAL INFORMATION
($ in millions of U.S. dollars, except per share information)
|
|
|
|
|
|
|
|
|
|
|
Quarter ended March 31, |
|
|
|
2006 |
|
|
2005 |
|
Exploration expenses |
|
|
(27.0 |
) |
|
|
(24.4 |
) |
General and administrative costs |
|
|
(11.0 |
) |
|
|
(4.8 |
) |
Share of income from Joint
venture |
|
|
4.5 |
|
|
|
7.7 |
|
Foreign exchange losses |
|
|
(0.2 |
) |
|
|
(0.6 |
) |
Net (loss) from continuing
operations |
|
|
(31.1 |
) |
|
|
(24.2 |
) |
Net income from discontinued
operations |
|
|
7.9 |
|
|
|
15.7 |
|
Net (loss) |
|
|
(23.2 |
) |
|
|
(8.5 |
) |
Net (loss) income per share |
|
|
|
|
|
|
|
|
Continuing operations |
|
($ |
0.10 |
) |
|
($ |
0.08 |
) |
Discontinued operations |
|
$ |
0.03 |
|
|
$ |
0.05 |
|
Total assets |
|
|
384.8 |
|
|
|
322.2 |
|
|
|
|
|
|
|
|
|
|
Joint venture operations |
|
|
|
|
|
|
|
|
Copper
cathode 50% share |
|
|
|
|
|
|
|
|
Units sold tonnes |
|
|
1,926 |
|
|
|
4,670 |
|
Units produced tonnes |
|
|
1,643 |
|
|
|
4,802 |
|
|
|
|
|
|
|
|
|
|
Average sale price |
|
|
|
|
|
|
|
|
Copper cathode US$/pound |
|
$ |
2.72 |
|
|
$ |
1.60 |
|
IVANHOE MINES LTD.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SELECTED
QUARTERLY DATA
(Expressed in millions of U.S. dollars, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended |
|
|
|
Mar 31 |
|
|
Dec 31 |
|
|
Sept 30 |
|
|
Jun 30 |
|
|
|
2006 |
|
|
2005 |
|
|
2005 |
|
|
2005 |
|
|
Exploration expenses |
|
|
(27.0 |
) |
|
|
(40.1 |
) |
|
|
(28.9 |
) |
|
|
(33.8 |
) |
General and administrative |
|
|
(11.0 |
) |
|
|
(5.8 |
) |
|
|
(7.3 |
) |
|
|
(5.9 |
) |
Share of income from joint venture |
|
|
4.5 |
|
|
|
(0.5 |
) |
|
|
8.0 |
|
|
|
7.8 |
|
(Loss) gain on foreign exchange |
|
|
(0.2 |
) |
|
|
(0.4 |
) |
|
|
7.1 |
|
|
|
1.7 |
|
Net (loss) from continuing operations |
|
|
(31.1 |
) |
|
|
(49.8 |
) |
|
|
(20.6 |
) |
|
|
(31.1 |
) |
Net income from discontinued operations |
|
|
7.9 |
|
|
|
7.9 |
|
|
|
6.4 |
|
|
|
5.9 |
|
Net (loss) |
|
|
(23.2 |
) |
|
|
(41.8 |
) |
|
|
(14.3 |
) |
|
|
(25.2 |
) |
Net (loss) income per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operation |
|
|
(0.10 |
) |
|
|
(0.16 |
) |
|
|
(0.07 |
) |
|
|
(0.10 |
) |
Discontinued operations |
|
|
0.03 |
|
|
|
0.03 |
|
|
|
0.02 |
|
|
|
0.02 |
|
|
Total |
|
|
(0.07 |
) |
|
|
(0.13 |
) |
|
|
(0.05 |
) |
|
|
(0.08 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mar 31 |
|
|
Dec 31 |
|
|
Sept 30 |
|
|
Jun 30 |
|
|
|
2005 |
|
|
2004 |
|
|
2004 |
|
|
2004 |
|
|
Exploration expenses |
|
|
(24.4 |
) |
|
|
(24.2 |
) |
|
|
(28.5 |
) |
|
|
(24.8 |
) |
General and administrative |
|
|
(4.8 |
) |
|
|
(6.2 |
) |
|
|
(6.0 |
) |
|
|
(4.8 |
) |
Share of income from joint venture |
|
|
7.7 |
|
|
|
6.5 |
|
|
|
4.6 |
|
|
|
6.1 |
|
(Loss) gain on foreign exchange |
|
|
(0.6 |
) |
|
|
3.5 |
|
|
|
4.2 |
|
|
|
(1.4 |
) |
Net (loss) from continuing operations |
|
|
(24.2 |
) |
|
|
(26.6 |
) |
|
|
(25.5 |
) |
|
|
(23.1 |
) |
Net income from discontinued operations |
|
|
15.7 |
|
|
|
9.5 |
|
|
|
0.7 |
|
|
|
2.2 |
|
Net (loss) |
|
|
(8.5 |
) |
|
|
(17.1 |
) |
|
|
(24.8 |
) |
|
|
(21.0 |
) |
Net (loss) income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operation |
|
|
(0.08 |
) |
|
|
(0.08 |
) |
|
|
(0.09 |
) |
|
|
(0.09 |
) |
Discontinued operations |
|
|
0.05 |
|
|
|
0.03 |
|
|
|
0.00 |
|
|
|
0.01 |
|
|
Total |
|
|
(0.03 |
) |
|
|
(0.05 |
) |
|
|
(0.09 |
) |
|
|
(0.08 |
) |
|
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
REVIEW OF OPERATIONS
A) EXPLORATION
Total exploration and development expenditures capitalized in Q106 totalled approximately
$10.3 million, compared to $2.3 million in Q105. In Q106, $8.4 million was spent on capital
expenditures in Mongolia and $1.6 million was spent on Jinshans 217 Project.
In Q106, Ivanhoe Mines expensed $27.0 million in exploration and development activities, compared
to $24.4 million in Q105. The majority of the $27.0 million was spent on Ivanhoe Mines Mongolian
properties ($22.6 million compared to $21.2 million in Q105). Approximately $17.0
million (75%) of the $22.6 million was spent on the Oyu Tolgoi Project and various coal exploration
activities in the south Gobi region of Mongolia. The remaining 25% was mainly spent on the
Kharmagtai project, regional reconnaissance, licence holding fees and general, in-country
administrative charges.
At March 31, 2006, Ivanhoe Mines held four mining licences at the Oyu Tolgoi Project totalling
approximately 24,000 hectares. Ivanhoe Mines also held directly, and indirectly with Asia Gold
Corp. (Asia Gold), a company 47%-owned by the Company, interests in Mongolian exploration
licences covering approximately 13.4 million hectares.
a) Oyu Tolgoi Project, Mongolia
i) Oyu Tolgoi Exploration.
Drilling program In Q106, the bulk of Ivanhoe Mines drilling efforts were focused on
testing the Hugo Far Norths mineralized northern extension on the Ivanhoe-Entrée
Joint-Venture property. At the end of Q106, a total of six drill rigs were performing
geotechnical, sterilization and resource delineation drilling.
Reserve estimate On January 30, 2006, the Company announced reserve estimates for the
open-pit southern part of the Oyu Tolgoi Project. The reserves, prepared by independent
engineering consultants GRD Minproc Limited (Minproc), were valued using $400 per ounce
for gold and $1.00 per pound for copper. At March 31, 2006, metal prices were $582 per
ounce for gold and $2.51 per pound for copper.
Mineral Reserves* - Southern Oyu Open pits, Oyu Tolgoi January, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recovered |
|
Recovered |
|
|
Tonnes |
|
|
|
|
|
|
|
|
|
|
|
|
|
CuEq |
|
Copper |
|
Gold |
|
|
of Ore |
|
NSR |
|
Copper |
|
Gold |
|
Grade |
|
(Billion |
|
(Million |
Class |
|
(Million) |
|
($/Tonne) |
|
(%) |
|
(gpt) |
|
(%) |
|
pounds) |
|
ounces) |
|
Proven |
|
|
127 |
|
|
|
15.91 |
|
|
|
0.58 |
|
|
|
0.93 |
|
|
|
1.18 |
|
|
|
1.5 |
|
|
|
2.8 |
|
|
Probable |
|
|
803 |
|
|
|
7.96 |
|
|
|
0.48 |
|
|
|
0.27 |
|
|
|
0.66 |
|
|
|
7.4 |
|
|
|
4.8 |
|
|
Total |
|
|
930 |
|
|
|
9.05 |
|
|
|
0.50 |
|
|
|
0.36 |
|
|
|
0.73 |
|
|
|
8.9 |
|
|
|
7.6 |
|
|
|
|
|
|
* |
Reserves estimated using metal prices of $400/oz and $1.00/pound copper and
block value of NSR cut-off grades of $3.54/tonne for Southwest Oyu and $3.39/tonne for
Central Oyu. |
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Minproc study drew on the work included in the Oyu Tolgoi IDP released at the end of
Q305 and only considered mineral resources in the Measured and Indicated categories.
Comparison of the reserves estimated by the Minproc study to total tonnes in the resource
model indicates that at the reserve cut-off grade 100% of Measured resource tonnages have
been converted to Proven Mineral reserves. The average conversion ratios from the resource
model to the Minproc reserve estimates are as follows: tonnages 55%; recovered copper metal 64%; and recovered
gold 70%.
Resource estimate On February 1, 2006, the Company released an updated resource estimate,
which incorporated drilling results from the Ivanhoe-Entrée property up to January 13,
2006.
At February 1, 2006, total mineral resources for the Oyu Tolgoi Project were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CuEq(1) |
|
Contained |
|
Contained |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CuEq(1) |
|
cut-off |
|
copper |
|
Gold |
|
|
Tonnes |
|
Copper |
|
Gold |
|
Grade |
|
grade |
|
(Billion |
|
(Million |
Deposit and Class |
|
(Million) |
|
(%) |
|
(gpt) |
|
(%) |
|
(%) |
|
pounds) |
|
ounces) |
|
Southern Oyu deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Measured |
|
|
101.6 |
|
|
|
0.64 |
% |
|
|
1.10 |
|
|
|
1.34 |
% |
|
|
0.60 |
% |
|
|
1.4 |
|
|
|
3.6 |
|
|
|
Indicated |
|
|
465.6 |
|
|
|
0.62 |
% |
|
|
0.43 |
|
|
|
0.89 |
% |
|
|
0.60 |
% |
|
|
6.4 |
|
|
|
6.4 |
|
|
Measured + Indicated |
|
|
567.2 |
|
|
|
0.62 |
% |
|
|
0.55 |
|
|
|
0.97 |
% |
|
|
0.60 |
% |
|
|
7.8 |
|
|
|
10.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inferred
(2) |
|
|
88.5 |
|
|
|
0.47 |
% |
|
|
0.41 |
|
|
|
0.73 |
% |
|
|
0.60 |
% |
|
|
0.9 |
|
|
|
1.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hugo Dummett deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indicated |
|
|
581.3 |
|
|
|
1.91 |
% |
|
|
0.41 |
|
|
|
2.17 |
% |
|
|
0.60 |
% |
|
|
24.4 |
|
|
|
7.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inferred |
|
|
1,162.0 |
|
|
|
1.08 |
% |
|
|
0.23 |
|
|
|
1.24 |
% |
|
|
0.60 |
% |
|
|
27.8 |
|
|
|
8.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Oyu Tolgoi Project |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Measured |
|
|
101.6 |
|
|
|
0.64 |
% |
|
|
1.10 |
|
|
|
1.34 |
% |
|
|
0.60 |
% |
|
|
1.4 |
|
|
|
3.6 |
|
|
Indicated |
|
|
1,046.9 |
|
|
|
1.34 |
% |
|
|
0.42 |
|
|
|
1.60 |
% |
|
|
0.60 |
% |
|
|
30.8 |
|
|
|
14.0 |
|
|
Measured + Indicated |
|
|
1,148.5 |
|
|
|
1.27 |
% |
|
|
0.48 |
|
|
|
1.58 |
% |
|
|
0.60 |
% |
|
|
32.2 |
|
|
|
17.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inferred (2) |
|
|
1,250.5 |
|
|
|
1.04 |
% |
|
|
0.24 |
|
|
|
1.20 |
% |
|
|
0.60 |
% |
|
|
28.8 |
|
|
|
9.9 |
|
|
|
|
|
|
(1) |
|
CuEq has been calculated using assumed metal prices ($0.80/pound
for copper and $350/ounce gold); %CuEq.= % Cu + Au (gpt) x (11.25/17.64). |
|
(2) |
|
Resources classified as Inferred are separate and in addition to resources
classified as Measured or Indicated. |
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
In addition, mineral resources from the Ivanhoe/Entrée Shivee Tolgoi property were as
follows at January 13, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CuEq(1) |
|
CuEq(1) |
|
|
Tonnes |
|
Copper |
|
Gold |
|
Grade |
|
cut-off |
Deposit and Class |
|
(Million) |
|
(%) |
|
(gpt) |
|
(%) |
|
grade (%) |
|
Ivanhoe/Entrée Shivee Tolgoi property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inferred |
|
|
190.2 |
|
|
|
1.57 |
% |
|
|
0.53 |
|
|
|
1.91 |
% |
|
|
0.60% |
|
|
|
|
|
|
(1) |
|
CuEq has been calculated using assumed metal prices ($0.80/pound for
copper and $350/ounces gold); %CuEq.= % Cu + Au (gpt) x (11.25/17.64). |
See Cautionary Language Regarding Reserves and Resources at the end of the MD&A.
ii) Oyu Tolgoi Integrated Development Plan
Mine Planning Update The IDP, a report released on September 29, 2005 by the Company, was
based on mineral resources as of March 2005 (a copy of the IDPs executive summary is
available from the Companys website at www.ivanhoe-mines.com). Drilling and additional
mine-planning initiatives over the last 12 months suggest alternative approaches to the
mine schedule that may yield higher returns and/or a lowering of risk associated with the
IDP mine plan. Studies commenced in January 2006 to update the IDP mine plan and are
expected to be completed in the latter half of 2006. The Company is considering an
opportunity to mine, earlier than previously anticipated, a high-grade zone at the
shallowest part of the southern end of Hugo North Deposit using a Sub-Level-Cave mining
method. This mining would be carried out in parallel with the deeper development work for
the block-cave mine. Access to the ore zone would be by a 1.3-kilometre drift development
from Shaft #1 at an elevation as much as 300 metres shallower than envisaged by the IDP for
the Characterization drift. This Characterization is required to prove that block caving
is a suitable method to mine the Hugo North Deposit. This drifting may allow the
feasibility study for the block caving of Hugo North to be completed as much as one year
earlier than previously anticipated.
Mining from this zone is targeted at a rate in excess of 15,000 tonnes per day (tpd)
during the third year of the project life and, while it is envisaged to continue for a
period of more than five years until the large, deep block cave begins producing, its life
may be extended. This targeted mining zone is closest to Shaft #1 and the infrastructure
required for long-term mining at the deeper block-caving operations, and should not require
a duplication of infrastructure. This early mining will provide an opportunity to train
mining crews. It will also permit Ivanhoe Mines to gather geotechnical data, undertake
orebody characterization and evaluate different drawpoint designs and layouts. This
knowledge and experience, when applied to the block-cave mine, will reduce the
mining/technical risks from those associated with a caving operation without the
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
early-mining scenario. This early-mining option may offer an opportunity to increase the
ore column height for the block-caving operation, allowing the full height to be mined in a
single lift and at higher production tonnages. A single lift would dispense with the
requirement for a second extraction level and associated infrastructure, and would result
in a reduction in capital expenditures anticipated to be incurred over the life of the
mine.
Additional studies will focus on mining beyond Phase 3 of the open pit and at higher mill
throughput tonnages than those indicated in the IDP. Production from an estimated 29-year
mining life in the open pit, coupled with block-caving operations at Hugo North and Hugo
South, could ultimately increase mill throughput into the 200,000 to 250,000 tpd range.
Exploration shaft Early access to the deep potential of the Hugo North Deposit is
important to the financial success of the Oyu Tolgoi Projects development. In furtherance
of this objective, the construction of the headframe, hoisting plant, associated
infrastructure and pre-sinking excavation for Shaft #1, a 6.7-metre-diameter exploration
shaft, was undertaken in 2005. All surface installations for the shaft were completed by
the end of January 2006 including pre-sinking to a depth of 35 metres. As of May 12, 2006,
sinking has reached a depth of approximately 200 metres. The sinking of the Shaft #1 to an
originally planned depth of 1,340 metres below surface is expected to be completed in
late-2007, with underground drifting and drilling occurring in 2007 and 2008.
The sinking of Shaft #1 is being performed by the Redpath Group of North Bay, Ontario,
Canada, one of the worlds leading shaft-sinking firms. When completed, Shaft #1 will
provide access to the Hugo Dummett deposits and enable the completion of detailed
feasibility studies, further resource-delineation drilling and rock-characterization work.
To maximize project value from the high-grade Hugo North Deposit, the Company plans to
commence construction of a 10-metre-diameter production/service shaft (Shaft #2) as soon
as possible. Engineering and geotechnical studies for the construction of Shaft #2 were
initiated in 2005, and are ongoing. Geotechnical drilling to identify suitable ground to
locate the proposed Shaft Pillar continues and is expected to be completed in Q306.
Construction of the surface works is not expected to commence until the site investigation
is completed. Sinking of the shaft is scheduled to commence in early 2007.
Planning associated with the open-pit phase of the project, covering the Southwest open-pit
development and the construction of the concentrator and related infrastructures, is well
advanced. Major elements or issues yet to be finalized include interim and long-term
power, potential rail access and the completion of environmental assessments.
During Q405, the consulting engineering firm, Fluor Canada Ltd. (Fluor) carried out a
strategic planning review of the IDP report, including a strategic
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
assessment of the
concentrator facilities development. Following the completion of Fluors review, Ivanhoe
Mines and Fluor intend to negotiate a definitive agreement providing for the management of
the design, procurement and construction for the Oyu Tolgoi Project.
b) |
|
Other Mongolian copper/gold exploration projects. |
During Q106, Ivanhoe Mines continued its exploration efforts on various
Mongolian prospects, including the Kharmagtai project.
c) |
|
Mongolian coal projects. |
Nariin Sukhait Coal Project The Nariin Sukhait Coal Project, covering an area of 3,240
square kilometres, is located 40 kilometres north of the Mongolia-China border and the
shipping terminus for a newly constructed 450-kilometre Chinese rail line. A railway line
to the Nariin Sukhait Coal Project from the Mongolia-China border is being evaluated.
Engineering mine plans and a detailed Environmental Impact Assessment are being completed
in preparation for the application for a mining licence.
In Q106, the Company also announced the results of an updated resource estimate for the
Nariin Sukhait Coal Project located in southern Mongolia. Total coal resources contained
in two separate fields, the South-East Field and the West Field, were estimated at 124.0
million tonnes of Measured plus Indicated resources (79.5 million tonnes of Measured
resources and 44.5 million tonnes of Indicated resources) and an additional Inferred
resource of approximately 33.8 million tonnes. The new estimate was independently prepared
by Norwest Corporation of Salt Lake City, Utah, pursuant to Canadas National Instrument
43-101. Details of the classification, estimation and reporting of coal resources are
contained in Ivanhoes February 14, 2006, news release. Steven B. Kerr, Senior Geologist
with Norwest Corporation, a qualified person, reviewed and approved the technical and
scientific information in the release.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In Place Resources |
|
|
|
|
|
|
(Tonnes Million) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Measured |
|
|
ASTM |
|
|
|
|
|
|
|
|
|
|
|
|
|
and |
|
|
Category |
|
Fields |
|
Measured |
|
Indicated |
|
Indicated |
|
Inferred |
|
High
Volatile Bituminous |
|
South-East Field |
|
|
38.8 |
|
|
|
13.8 |
|
|
|
52.6 |
|
|
|
12.4 |
|
|
High
Volatile Bituminous |
|
West Field |
|
|
40.7 |
|
|
|
30.7 |
|
|
|
71.4 |
|
|
|
21.4 |
|
|
|
|
Total |
|
|
79.5 |
|
|
|
44.5 |
|
|
|
124.0 |
|
|
|
33.8 |
|
|
The results, which were delineated by a total of 212 drill holes, support the
Companys current geological model for surface open-pit deposits that are amenable to
near-term production. Ten coal seams have been identified with an estimated combined total
thickness for the coal-bearing sequence of approximately 1,370 metres and a coal thickness
ranging from 68 metres to 250
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
metres. To date, exploration efforts have been focused on
identifying resources in seams above, and including, the No. 5 Seam the thickest seam
within the coal-bearing sequence.
Extensive laboratory testing has been performed to determine the quality of the coal at
Nariin Sukhait. Proximate and thermal testing has been completed on samples obtained from
35 core holes and 45 reverse-circulation drill holes, washability tests were completed for
samples from 26 drill holes and metallurgical tests were completed for samples from 21
drill holes. Following American Society for Testing and Materials standards (ASTM),
quality testing in both fields ranks the Nariin Sukhait coals as high-volatile bituminous,
containing volatiles ranging from 32% to 35% on a dry basis. Also, tests on some of the
No. 5 Seam in the West Field categorized the coal as high-rank, low-ash, low-sulphur coal
suitable for producing a high-volatile metallurgical blend.
Ivanhoe Mines plans to complete a mining study on the Nariin Sukhait Coal Project some time
in the current quarter. A potential annual throughput of 4 million tonnes of coal is
currently being evaluated by Ivanhoe Mines and its independent consultants. Annual
production is anticipated to yield thermal coal for power generation and coal products used
by the steel industry, including coal used in the pulverized coal injection process and
metallurgical (coking) blends. Discussions with potential Chinese customers interested in
coal supply from Nariin Sukhait are ongoing.
Tsagaan Tolgoi Coal Project The Project, discovered by Ivanhoe Mines, is located
approximately 100 kilometres west of the Oyu Tolgoi Project. Significant coal thicknesses
were encountered along a strike length of six kilometres as a result of deep trenching
efforts and a drilling program, which included a total of 46 drill holes. However, due to
the wide spacing of the drill holes, an estimate of coal resources cannot be made at this
time. Further drilling will be completed in 2006 with the objective of delineating
sufficient thermal coal resources to support the preparation of an initial study on the
development a major, long-life, coal-fired generating capacity to supply electricity to the
Oyu Tolgoi Project and the residents of the sparsely populated southern part of Mongolia.
On April 26, 2006, the Company announced its plans to vend its Mongolian coal division into
Asia Gold in exchange for a majority ownership of Asia Gold. The transaction would result
in Ivanhoe Mines owning approximately 91.4% of the issued and outstanding common shares of
Asia Gold. As part of the transaction, Ivanhoe Mines has agreed to extend an interim
working line of credit to Asia Gold of $10 million. The transaction is subject to the
signing of a definitive agreement, regulatory approvals and the approval of Asia Golds
minority shareholders.
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
i) Kazakhstan: Bakyrchik Project.
The rise in the gold price, from $520 per ounce at the beginning of 2006 to $715 per ounce
currently, has the potential to significantly improve the economics of this project. In
Q106, discussions were held between representatives from the Company and various
Kazakhstan government authorities on the current status and future prospects of the
Bakyrchik Project. Ivanhoe Mines reached a satisfactory agreement with the Kazakhstan
government authorities in Q106, extending the Project exploration licences for five years.
The Company has received a similar five-year extension for its investment commitment for
the project which, subject to the finalization of certain documentation, may allow the Company
to advance the project to commercial production following an aggressive schedule.
ii) China: Jinshan Gold Mines Inc. (Jinshan).
On January 19, 2006, Jinshan announced results of its 217 Project drilling campaign, which
consisted of 20 diamond drill holes totalling 4,630 metres. Jinshans current plans are to
incorporate these drill-hole results in a updated resource estimate early in Q206 and to
complete the final feasibility study on 217 Project as soon as possible thereafter.
On April 24, 2006, Jinshan Gold Mines Inc. announced the completion of the final
feasibility study for its Project 217 open-pit gold mine in Inner Mongolia, China. The
study indicates that the mine would be capable of producing approximately 117,000 ounces of
gold per year for an initial mine life of approximately nine years at an average cash cost
of approximately $253 per ounce. The feasibility study estimates total Proven and Probable
open-pit reserves at 66.7 million tonnes averaging 0.75 gram per tonne gold, containing
approximately 1.2 million ounces of recovered gold. Details of the study, which was
prepared by KD Engineering of Tucson, Arizona, pursuant to Canadas National Instrument
43-101, are contained in Jinshans April 24, 2006, news release. Joseph Keane, President of
KD Engineering, and Mario E. Rossi, of GeoSystems International Inc., and John Nilsson, of
Vancouver, Canada, qualified persons, supervised the preparation of the technical and
scientific information contained in the release.
iii) Australia: Cloncurry
The Cloncurry Project, covering an area of more than 1,450 square kilometres, was acquired
in September 2003. Since its acquisition, Ivanhoe Mines has been conducting a
comprehensive exploration program on the property, with the objective of identifying
bulk-tonnage copper-gold mining opportunities.
On April 18, 2006, the Company announced a 5,000-metre drill program with the
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
intent to
focus on the strongest combined anomalies identified from the recently completed
geophysical program and previous copper and gold soil anomalies on the Amethyst Castle
Project and the Three Amigos Project.
Amethyst Castle copper, gold and uranium Project The Amethyst Castle Project is
considered to be an Iron Oxide Copper-Gold-Uranium (IOCG) mineralized system. In Q106,
Ivanhoe Mines completed a geophysical program over a 2.5-kilometere by 2.0 kilometre grid,
followed by a dipole-dipole Induced Polarization (IP) survey over a 1.5-kilometre by
1.0-kilometre grid. The IP survey lines will be extended to investigate additional
anomalies on three sides of the grid. The magnetic survey results established the
potential for significant near-surface mineralization to the depth of the IP response.
Three Amigos copper gold Project The Three Amigos Project is located
approximately 700 metres south of the Amethyst Castle Project. Soil samplings assay
results confirmed the presence of moderately to highly anomalous gold, copper and cobalt.
The presence of anomalous copper, gold and cobalt could suggest similarities to Amethyst
Castle or an extension of Amethyst Castle to the south.
B) INVESTMENT IN JOINT VENTURE
MONYWA COPPER PROJECT (S&K MINE), MYANMAR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three month period ended March 31, |
|
|
Total Operation |
|
Companys 50% net share |
|
|
|
|
|
|
|
|
% Increase |
|
|
|
|
|
% Increase |
|
|
|
|
2006 |
|
2005 |
|
(decrease) |
|
2006 |
|
2005 |
|
(decrease) |
|
|
|
|
|
Total tonnes moved (1) |
|
Tonnes (000s) |
|
2,127 |
|
3,616 |
|
(41%) |
|
|
|
|
|
|
Tonnes of ore to heap |
|
Tonnes (000s) |
|
1,888 |
|
2,444 |
|
(23%) |
|
|
|
|
|
|
Ore grade |
|
CuCN % |
|
0.49% |
|
0.62% |
|
(21%) |
|
|
|
|
|
|
Strip ratio |
|
Waste/Ore |
|
0.33 |
|
0.40 |
|
(18%) |
|
|
|
|
|
|
Cathode production |
|
Tonnes |
|
3,285 |
|
9,603 |
|
(66%) |
|
1,643 |
|
4,802 |
|
(66%) |
Tonnage sold |
|
Tonnes |
|
3,852 |
|
9,339 |
|
(59%) |
|
1,926 |
|
4,670 |
|
(59%) |
Average sale price received |
|
US$/pound |
|
|
|
|
|
|
|
$ 2.72 |
|
$ 1.60 |
|
70% |
Sales |
|
US$(000) |
|
|
|
|
|
|
|
11,036 |
|
15,144 |
|
(27%) |
Cost of operations |
|
US$(000) |
|
|
|
|
|
|
|
6,222 |
|
4,057 |
|
53% |
Operating profit |
|
US$(000) |
|
|
|
|
|
|
|
3,571 |
|
9,456 |
|
(62%) |
Cost of operations |
|
US$/pound |
|
|
|
|
|
|
|
$ 1.47 |
|
$ 0.39 |
|
272% |
|
|
|
(1) |
|
Includes ore and waste material |
Copper prices on the London Metal Exchange averaged $2.24 per pound in Q106, compared to $1.48 per
pound in Q105, representing an increase of 51%. Total mines copper cathode production in Q106
totalled 3,285 tonnes, representing a decrease of 66% over Q105.
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Monywa Copper Project began a planned, annual two-and-a-half week service shut down on February
24, 2006. This was expected to be a routine interruption in production to permit changes to be made
to the SX-EW cathode copper plant and to complete work to improve the efficiency of the use of
reagents. Around the same time, Myanmar experienced a temporary shortage of diesel fuel, which
lasted three weeks. MICCL also experienced a delay in the receipt of approvals needed to receive
and transport production chemicals to the Monywa mine. As a result, MICCL extended the service
shutdown period an additional two-and-a-half weeks. The mine resumed normal operations on April 2,
2006. Based on the most recent annual budget starting on April 1, 2006, cathode copper production
is estimated to average 2,000 tonnes per month.
Mine operations were affected by a shortage of trucking capacity caused by delays in obtaining the
necessary import permits. Total tonnage moved in Q106 decreased by 41% compared to Q105. Total
cathode production in Q106 decreased by 66% due to the lower tonnage moved, combined with a 21%
decrease in copper grade.
During Q106, operating cash costs decreased by approximately 30% compared to Q105. The decrease
in operating cash costs is mainly attributed to decreases in power (-46%), chemicals (-76%) and
other operating supplies (-6%). This decrease in mine operating costs was offset by a $10.8
million charge ($5.4 million net to the Company), representing a reduction in the recoverable
quantities of metal contained within the heaps, that caused the operating unit cost per tonne to
increase by 272% during the quarter.
At the end of Q106, the S&K Mine had $52.6 million in cash.
Investment in joint venture. In Q105 the Company announced its intention to expand, in a series
of incremental steps, the mines production capacity to a target of 200,000 tonnes per annum.
Various mining equipment was ordered at that time to increase the
annual copper cathode capacity to 50,000 tonnes per annum by mid-2006 as part of the expansion
program.
Several unresolved factors may potentially have a negative impact on the operations of the mine for
2006 and future years.
|
Ø |
|
The mine has yet not been able to obtain from the Myanmar authorities the necessary
import permits for its previously ordered mining equipment. The equipment is currently
off-shore, awaiting approval for delivery. The Company does not know if or when import
permits will be granted for the importation of the necessary mining equipment. The Company
has received recent verbal assurances from its joint venture partner that the necessary
documentation is nearing finalization. The increase in mining capacity will allow waste
stripping for the Sabetaung deposit and assist in the future development of the
Kysingtaung and Letpadaung deposits. Without a substantial increase in mining capacity it
is doubtful whether these two deposits can be economically developed. |
|
|
Ø |
|
In Q1 06, the Company maintained a dialogue with the Myanmar tax authorities regarding
the applicability of the commercial tax. |
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
In accordance with its accounting policies, as described in note 2 of its audited consolidated
financial statements at December 31, 2005, the Company reviews the carrying value of its assets
whenever events or changes in circumstances indicate that the carrying value of an asset might have
been impaired. The Company intends to engage in discussions with its joint venture partner and
with the relevant Myanmar government authorities with a view to satisfactorily resolving these
issues. If these issues cannot be satisfactorily resolved in a timely manner, the Company may, as
part of a future review of the carrying value of its assets, be required to reflect a significant
impairment of, and reduce on its financial statements, the carrying value of its investment in the
S&K Mine.
C) DISCONTINUED OPERATIONS
Savage River Mine, Tasmania
In Q106 the Company received a total of $34.7 million, which included $6.7 million representing
principal and accrued interest repayment of the final tranche of the $21.5 million guaranteed cash
payments and $28 million representing the first contingent annual payment covering the period from
April 1, 2005 to March 31, 2006. Based on 2005 iron ore pellet prices and actual sales volumes for
Q106, the Company accrued $7.9 million in income from the mine.
The iron ore industrys negotiations to set the 2006 benchmark price for iron ore pellet prices are
still ongoing. Iron ore pellet prices for the period from April 1, 2006 to March 31, 2007 are
currently forecasted to increase. The Savage River sale agreement provides for escalated
contingent premiums based on iron ore pellet annual prices. In 2006, if pellet prices were to
equal or exceed $80 per tonne an increase of approximately 13% over 2005 prices the Company
would receive the maximum premium agreed under the Savage River sale agreement equivalent to $16.50
per tonne.
D) ADMINISTRATIVE AND OTHER
General and administrative. The $6.2 million increase in general and administrative
expenditures in Q106 was due to a $6.4 million increase in stock-based compensation charges.
Gain on sale of other mineral property rights. The $2.7 million gain on sale of other mineral
property rights represents the proceeds received in Q106 from the sale of various Vietnamese
property interests.
Share Capital - At May 12, 2006, the Company had a total of 335.2 million common shares and the
following purchase warrants outstanding:
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
|
|
|
|
|
|
|
Share purchase |
|
|
|
|
|
Total number of |
warrants outstanding |
|
Maturity date |
|
Exercise price |
|
shares to be issued |
|
5.76 million
(1)(2)
|
|
February 15, 2007
|
|
$8.68 per share
|
|
0.576 million |
|
|
|
|
|
(1) |
|
Each 10 warrants entitle the holder to acquire one common share. |
|
(2) |
|
In 2006, the expiry date was extended from February 2006 to February 2007. |
At May 12, 2006, the Company had a total of approximately 13.1 million incentive stock options
outstanding, with a weighted average exercise price per share of Cdn$8.73. Each option is
exercisable to purchase a common share of the Company at prices ranging from Cdn$1.60 to Cdn$12.70
per share.
CASH RESOURCES AND LIQUIDITY
At March 31, 2006, consolidated working capital was $99.8 million, including cash of $94.2
million, compared with working capital of $127.6 million and cash of $101.7 million at December 31,
2005.
Operating activities. The $36.2 million of cash used in operating activities from continuing
operations in Q106 primarily was the result of $27.0 million in exploration expenditures, general
and administration costs of approximately $3.1 million and $6.2 million net outlays in working
capital items.
Investing activities. In Q106, $26.6 million was received from investing activities, mainly
consisting of $34.5 million received from the sale of discontinued operations, $2.7 million
received from the sale of certain Vietnamese mineral property interests, less $10.3 million
invested in property plant and equipment acquisitions.
Financing activities. Financing activities of $2.4 million in Q106 represents the proceeds
received from the exercise of stock options.
The bulk of the Companys expenditures are of a discretionary nature and as such can be deferred
based on the status of the Companys cash resources. Ivanhoe Mines cash resources are considered
sufficient to maintain the Companys minimum level of activities for the next twelve months. On
April 25, 2006, Ivanhoe Mines completed a
financing that consisted of 18.4 million common shares at a price of $9.08 per common share
(Cdn$10.28), representing an aggregate amount of $167.2 million (Cdn$189.2 million) The net
proceeds of the offering are intended to be used to further the development of various Mongolian
projects, including the Oyu Tolgoi Project.
Following the release on February 1, 2006 of the Minprocs open-pit reserve estimate in respect of
the Southern Oyu deposits, the Company expects to be in a position to seek project financing to
implement its initial open-pit development plans at the Southern Oyu deposits. As well, the
Company is pursuing a number of initiatives that, if consummated, would raise capital.
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
However, there can be no assurance that the Company will be able to obtain project financing or
otherwise raise capital before its existing cash resources are exhausted. Failure to generate
sufficient funding from one or more currently anticipated sources may require Ivanhoe Mines to
delay, postpone or curtail certain of its planned activities for 2006 and thereafter.
Proceeds received from the sale of the Savage River mine will be used to supplement the funding of
the Companys ongoing activities at Oyu Tolgoi, although there can be no assurance that these
funds, if and when received, will be sufficient to meet all of the Companys funding requirements.
The Company expects to fund additional planned expenditures for 2006 and beyond from external
sources, which may include debt or equity financing, proceeds from the sale of existing non-core
assets, third-party participation in one or more of the Companys projects, or a combination
thereof. There can be no assurance that the Company will be successful in generating sufficient
funds from any of these sources. Failure to generate sufficient funding from one or more of these
sources may require Ivanhoe Mines to delay, postpone or curtail certain of its planned activities.
Over the long term, the Company will need to obtain additional funding for, or third-party
participation in, its undeveloped or partially developed projects (including the Oyu Tolgoi
Project, the Companys other Mongolian exploration projects, its Chinese and Australian exploration
projects and the Bakyrchik project) to bring them into full production.
CONTRACTUAL OBLIGATIONS and OFF BALANCE SHEET ARRANGEMENTS
As of March 31, 2006, there were no significant changes in our contractual obligations and
commercial commitments from those reported in our Managements Discussion and Analysis for the year
ended December 31, 2005.
At the end of March 2006, the Company did not have any off-balance sheet arrangements that have, or
are reasonably likely to have, a current or future effect on the results of operations or financial
condition of the Company.
CRITICAL ACCOUNTING ESTIMATES and RECENT ACCOUNTING PRONOUNCEMENTS
The preparation of financial statements in conformity with generally accepted accounting
principles in the United States of America requires the Company to establish accounting policies
and to make estimates that affect both the amount and timing of the recording of assets,
liabilities, revenues and expenses. Some of these estimates require judgments about matters that
are inherently uncertain. The Companys significant accounting
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
policies and the estimates derived
therefrom identified as being critical are substantially unchanged form those disclosed in its MD&A
for the year ended December 31, 2005.
On January 1, 2006, the Company adopted the provisions of SFAS No. 123(R), Share-Based Payment,
on a modified prospective basis. Prior to January 1, 2006, the Company recorded compensation costs
using the fair value based method in accordance with SFAS no. 123, Accounting for Stock-Based
Compensation.
RISKS AND UNCERTAINTIES
Material risks and uncertainties affecting Ivanhoe Mines, their potential impact, and the
Companys principal risk management strategies are substantially unchanged from those disclosed in
its MD&A for the year ended December 31, 2005.
RELATED-PARTY TRANSACTIONS
The Companys related-party transactions in Q106 are substantially unchanged from the
disclosure in its MD&A for the year ended December 31, 2005.
CAUTIONARY LANGUAGE REGARDING RESERVES AND RESOURCES
Readers are advised that National Instrument 43-101 of the Canadian Securities Administrators
requires that each category of mineral reserves and mineral resources be reported separately.
Readers should refer to the Annual information form of the Company for the year ended December 31,
2005 and other continuous disclosure documents file by the Company since January 1, 2006 available
at www.sedar.com, for this detailed information, which is subject to the qualifications and notes
set forth therein.
Cautionary Note to United States Investors concerning estimates of Measured, Indicated and Inferred
Resources:
The information contained herein uses the terms Measured, Indicated and Inferred Resources.
United States investors are advised that while such terms are recognized and required by Canadian
regulations, the United States Securities and Exchange Commission does not recognize them.
Inferred Mineral Resources have a great amount of uncertainty as to their existence, as to their
economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral
Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred
Mineral
Resources may not form the basis of feasibility or other economic studies. United States investors
are cautioned not to assume that all or any part of Measured or Indicated Mineral Resources will
ever be converted into Mineral Reserves. United States investors are also cautioned not to assume
that all or any part of an Inferred Mineral Resource exists, or is economically or legally
mineable.
FORM 52-109F2 CERTIFICATION OF INTERIM FILINGS
I, Robert M. Friedland, Chief Executive Officer of Ivanhoe Mines Ltd., certify that:
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1. |
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I have reviewed the interim filings (as this term is defined in Multilateral
Instrument 52-109 Certification of Disclosure in Issuers Annual and Interim Filings) of
Ivanhoe Mines Ltd., (the issuer) for the interim period ended March 31, 2006; |
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2. |
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Based on my knowledge, the interim filings do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated or that is necessary
to make a statement not misleading in light of the circumstances under which it was made,
with respect to the period covered by the interim filings; |
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3. |
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Based on my knowledge, the interim financial statements together with the other
financial information included in the interim filings fairly present in all material
respects the financial condition, results of operations and cash flows of the issuer, as
of the date and for the periods presented in the interim filings; and |
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4. |
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The issuers other certifying officers and I are responsible for establishing and
maintaining disclosure controls and procedures for the issuer, and we have designed such
disclosure controls and procedures, or caused them to be designed under our supervision,
to provide reasonable assurance that material information relating to the issuer,
including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which the interim filings are being prepared. |
Date: May 12, 2006
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Robert M. Friedland
Robert M. Friedland
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Chief Executive Officer |
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Ivanhoe Mines Ltd. |
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FORM 52-109F2 CERTIFICATION OF INTERIM FILINGS
I, Peter Meredith, Chief Financial Officer of Ivanhoe Mines Ltd., certify that:
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1. |
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I have reviewed the interim filings (as this term is defined in Multilateral
Instrument 52-109 Certification of Disclosure in Issuers Annual and Interim Filings) of
Ivanhoe Mines Ltd., (the issuer) for the interim period ended March 31, 2006; |
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2. |
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Based on my knowledge, the interim filings do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated or that is necessary
to make a statement not misleading in light of the circumstances under which it was made,
with respect to the period covered by the interim filings; |
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3. |
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Based on my knowledge, the interim financial statements together with the other
financial information included in the interim filings fairly present in all material
respects the financial condition, results of operations and cash flows of the issuer, as
of the date and for the periods presented in the interim filings; and |
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4. |
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The issuers other certifying officers and I are responsible for establishing and
maintaining disclosure controls and procedures for the issuer, and we have designed such
disclosure controls and procedures, or caused them to be designed under our supervision,
to provide reasonable assurance that material information relating to the issuer,
including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which the interim filings are being prepared. |
Date: May 12, 2006
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Peter Meredith
Peter Meredith
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Chief Financial Officer |
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Ivanhoe Mines Ltd. |
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May 12, 2006 |
IVANHOE MINES ANNOUNCES Q1 2006 RESULTS
Singapore Ivanhoe Mines today announced its results for the first-quarter of 2006. (All
figures are in US dollars unless otherwise stated). The Company recorded a net loss of $23.2
million (or $0.07 per share) for the first quarter of 2006 compared to a net loss of $8.5 million
(or $0.03 per share) in Q105. The increase in the loss from 2005 to 2006 is primarily due to a
$3.2 million decrease in income from our joint venture, a $7.7 million decrease in income from the
sale of discontinued operations and a $6.4 million increase in stock compensation expense.
Total exploration and development expenditures capitalized in Q106 totalled approximately $10.3
million, compared to $2.3 million in Q105. In Q106, Ivanhoe Mines expensed $27.0 million in
exploration and development activities, compared to $24.4 million in Q105. The majority of the
$27.0 million was spent on Ivanhoe Mines Mongolian properties ($22.6 million compared to $21.2
million in Q105). Approximately $17.0 million, or 75%, of the $22.6 million was spent on the Oyu
Tolgoi Project and various coal exploration activities in the South Gobi region of Mongolia. The
remaining 25% was mainly spent on the Kharmagtai project, regional reconnaissance, licence holding
fees and general, in-country administrative charges.
At March 31, 2006, consolidated working capital was $99.8 million, including cash of $94.2 million,
compared with working capital of $127.6 million and cash of $101.7 million at December 31, 2005.
On April 25, 2006, Ivanhoe Mines completed a financing that consisted of 18.4 million common shares
at a price of $9.08 per common share (Cdn$10.28), representing an aggregate amount of $167.2
million (Cdn$189.2 million).
Highlights:
Mongolia, Oyu Tolgoi Copper and Gold Project
Integrated Development Plan During the quarter, the construction of the headframe, hoisting
plant, associated infrastructure and pre-sinking excavation for Shaft #1, a 6.7-metre-diameter
exploration shaft, was completed. This infrastructure will allow the Company to access the deep
potential of the Hugo North deposit as it moves forward in the development of the Oyu Tolgoi
Project. As of May 12, 2006, the shaft had reached a depth of approximately 200 metres below
surface.
Mine planning update Recent drilling and mine planning initiatives suggest that alternative
approaches to the mine schedule may yield higher returns and/or lower the risk associated with the
initial mines Integrated Development Plan (IDP). Studies are ongoing into applying a
sub-level-cave mining method to a high-grade zone located in the shallowest part of the southern
end of the Hugo North deposit and analyzing the possibility of starting underground mining earlier
than previously contemplated. Under the scenario being analyzed, future production from this
shallow zone would reach an
estimated 15,000 tonnes per day in the third year of the project life and would extend for a
minimum period of five years until the large deep block-cave begins on the Hugo North deposit.
Additional studies planned for later this year will focus on increasing the open pit life, ultimate
underground production and milling throughput tonnages beyond the 140,000 tonnes per day reported
in the IDP. Management anticipates that production from an estimated 29-year mining life in the
open
2
pit, coupled with block-caving operations at Hugo North and Hugo South, could ultimately
increase mill throughput into the 200,000 to 250,000 tonnes per day range.
Reserve and resource estimates During the quarter, the Company announced reserve estimates for
the open-pit southern part of the Oyu Tolgoi Project and provided an updated resource estimate,
which incorporated drilling results from the Ivanhoe-Entrée property up to January 13, 2006.
Stability Agreement In March 2006, a delegation of Ivanhoe Mines senior management met with
leaders and senior officials of the Government of Mongolia and presented a series of
investment-related initiatives aimed at facilitating the completion of the Special Stability
Agreement. The meetings coincided with a series of encouraging statements from Mongolias political
leadership reaffirming a commitment to the early conclusion of a stability agreement with Ivanhoe
Mines and to maintaining a positive environment for foreign investment.
Based on these developments, Ivanhoe Mines senior management is optimistic that the Special
Stability Agreement can be concluded successfully within a timeframe that will not unduly delay the
development of the Oyu Tolgoi Project.
Other Projects
Kazakhstan: Bakyrchik Project The rise in the gold price, from $520 per ounce at the beginning of
2006 to $715 per ounce currently, has the potential to significantly improve the economics of this
project. In Q106, discussions were held between representatives from the Company and various
Kazakhstan government authorities on the current status and future prospects of the Bakyrchik
Project.
Ivanhoe Mines reached a satisfactory agreement with the Kazakhstan government authorities in Q106,
extending the Project exploration licences for five years. The Company has received a similar
five-year extension for its investment commitment for the project which, subject to the
finalization of certain documentation, may allow the Company to advance the project to commercial
production following an aggressive schedule.
Jinshan Gold Mines On April 24, 2006, Jinshan Gold Mines Inc. announced the completion of the
final feasibility study for its Project 217 open-pit gold mine in Inner Mongolia, China. The study
indicates that the mine would be capable of producing approximately 117,000 ounces of gold per year
for an initial mine life of approximately nine years at an average cash cost of approximately $253
per ounce. The feasibility study estimates total Proven and Probable open-pit reserves at 66.7
million tonnes averaging 0.75 grams per tonne gold, containing approximately 1.2 million ounces of
recovered gold. Details of the study, which was prepared by KD Engineering of Tucson, Arizona,
pursuant to Canadas National Instrument 43-101, are contained in Jinshans
April 24, 2006, news release. Joseph Keane, President of KD Engineering, and Mario E. Rossi, of
GeoSystems International Inc., and John Nilsson, of Vancouver, Canada, qualified persons,
supervised the preparation of the technical and scientific information contained in the
release.
Mongolia Coal In Q106, the Company also announced the results of an updated resource
estimate for the Nariin Sukhait Coal Project located in southern Mongolia. Total coal resources
contained in two separate fields, the South-East Field and the West Field, were estimated at 124.0
million tonnes of Measured plus Indicated resources (79.5 million tonnes of Measured resources and
44.5 million tonnes of Indicated resources) and an additional Inferred resource of approximately
33.8 million tonnes. The new estimate was independently prepared by Norwest Corporation of Salt
Lake City, Utah, pursuant to Canadas National Instrument 43-101. Details of the classification,
estimation and reporting of coal resources are contained in Ivanhoes February 14, 2006, news
release. Steven
3
B. Kerr, Senior Geologist with Norwest Corporation, a qualified person, reviewed
and approved the technical and scientific information in the release.
On April 26, 2006, the Company announced its plans to transfer its Mongolian coal division into
Asia Gold in exchange for approximately 82.6 million common shares of Asia Gold. The transaction,
once completed, will result in Ivanhoe Mines owning approximately 91.4% of the issued and
outstanding common shares of Asia Gold. As part of the transaction, Ivanhoe Mines has agreed to
extend an interim working line of credit to Asia Gold of $10 million. The transaction is subject
to the signing of a definitive agreement, regulatory approvals and the approval of Asia Golds
minority shareholders.
Australia: Cloncurry Project The Cloncurry Project, covering an area of more than 1,450 square
kilometres, was acquired in September 2003. Since its acquisition, Ivanhoe Mines has been
conducting a comprehensive exploration program on the property, with the objective of identifying
bulk-tonnage copper-gold mining opportunities.
On April 18, 2006, the Company announced a 5,000-metre drill program with the intent to focus on
the strongest combined anomalies identified from the recently completed geophysical program and
previous copper and gold soil anomalies on the Amethyst Castle Project and the Three Amigos
Project.
Australia: Sale of Savage River Iron Ore Mine In Q106 the Company received a total of $34.7
million, which included $6.7 million representing principal and accrued interest repayment of the
final tranche of the $21.5 million guaranteed cash payments, as well as $28.0 million representing
the first contingent annual payment.
The Iron ore industrys negotiations to set the 2006 benchmark price for iron ore pellet prices are
still ongoing. Iron ore pellet prices for the period from April 1, 2006 to March 31, 2007 are
currently forecasted to increase over 2005 prices. The Savage River sale agreement provides for
escalated contingent premiums based on iron ore pellet annual prices. In 2006, if pellet prices
were to equal or exceed $80 per tonne, an increase of approximately 13% over 2005 prices, the
Company would receive the maximum premium agreed under the Savage River sale agreement equivalent
to $16.50 per tonne.
Ivanhoes results for the first three months of 2006 are contained in the unaudited Consolidated
Financial Statements and Managements Discussion and Analysis of Financial Condition and Results of
Operations, available on the SEDAR website at www.sedar.com and Ivanhoes website at
www.ivanhoemines.com.
4
SELECTED QUARTERLY DATA
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Quarter ended |
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Mar 31 |
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Dec 31 |
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Sept 30 |
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Jun 30 |
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(Expressed in millions of U.S. dollars, except per share amounts) |
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2006 |
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2005 |
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2005 |
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2005 |
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Exploration expenses |
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(27.0 |
) |
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(40.1 |
) |
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(28.9 |
) |
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(33.8 |
) |
General and administrative |
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(11.0 |
) |
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(5.8 |
) |
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(7.3 |
) |
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(5.9 |
) |
Share of income from joint venture |
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4.5 |
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(0.5 |
) |
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8.0 |
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7.8 |
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(Loss) gain on foreign exchange |
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(0.2 |
) |
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(0.4 |
) |
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7.1 |
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1.7 |
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Net (loss) from continuing operations |
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(31.1 |
) |
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(49.8 |
) |
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(20.6 |
) |
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(31.1 |
) |
Net income from discontinued operations |
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7.9 |
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7.9 |
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6.4 |
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5.9 |
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Net (loss) |
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(23.2 |
) |
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(41.8 |
) |
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(14.3 |
) |
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(25.2 |
) |
Net (loss) income per share
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Continuing operation |
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(0.10 |
) |
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(0.16 |
) |
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(0.07 |
) |
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(0.10 |
) |
Discontinued operations |
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0.03 |
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0.03 |
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0.02 |
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0.02 |
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Total |
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(0.07 |
) |
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(0.13 |
) |
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(0.05 |
) |
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(0.08 |
) |
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Mar 31 |
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Dec 31 |
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Sept 30 |
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Jun 30 |
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2005 |
|
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2004 |
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2004 |
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2004 |
|
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|
|
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Exploration expenses |
|
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(24.4 |
) |
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(24.2 |
) |
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(28.5 |
) |
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|
(24.8 |
) |
General and administrative |
|
|
(4.8 |
) |
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(6.2 |
) |
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(6.0 |
) |
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(4.8 |
) |
Share of income from joint venture |
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|
7.7 |
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6.5 |
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4.6 |
|
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6.1 |
|
(Loss) gain on foreign exchange |
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|
(0.6 |
) |
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3.5 |
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4.2 |
|
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(1.4 |
) |
Net (loss) from continuing operations |
|
|
(24.2 |
) |
|
|
(26.6 |
) |
|
|
(25.5 |
) |
|
|
(23.1 |
) |
Net income from discontinued operations |
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|
15.7 |
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|
|
9.5 |
|
|
|
0.7 |
|
|
|
2.2 |
|
Net (loss) |
|
|
(8.5 |
) |
|
|
(17.1 |
) |
|
|
(24.8 |
) |
|
|
(21.0 |
) |
Net (loss) income per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operation |
|
|
(0.08 |
) |
|
|
(0.08 |
) |
|
|
(0.09 |
) |
|
|
(0.09 |
) |
Discontinued operations |
|
|
0.05 |
|
|
|
0.03 |
|
|
|
0.00 |
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|
0.01 |
|
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|
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Total |
|
|
(0.03 |
) |
|
|
(0.05 |
) |
|
|
(0.09 |
) |
|
|
(0.08 |
) |
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Ivanhoe shares are listed on the Toronto and New York stock exchanges and NASDAQ under the
symbol IVN.
Information contacts:
Investors: Bill Trenaman: +1.604.688.5755 / Media: Bob Williamson: +1.604.688.5755
Forward-Looking Statements: This document includes forward-looking statements.
Forward-looking statements include, but are not limited to, statements concerning estimates of the
planned development and engineering at the Oyu Tolgoi project, statements concerning the expected
timing and outcome of Ivanhoe Mines discussions with representatives of the Government of Mongolia
for a stability agreement in respect of the Oyu Tolgoi project, statements relating to future,
contingent payments for the sale of Savage River mine, statements relating to the continued
advancement of Ivanhoe Mines projects and other statements which are not historical facts. When
used in this document, the words such as could, plan, estimate, expect, intend, may,
potential, should, and similar expressions are forward-looking statements. Although Ivanhoe
believes that its expectations reflected in these forward-looking statements are reasonable, such
statements involve risks and uncertainties and no assurance can be given that actual results will
be consistent with these forward-looking statements. Important factors that could cause actual
results to differ from these forward-looking statements are disclosed under the heading Risk
Factors and elsewhere in the corporations periodic filings with Canadian and US securities
regulators.