2007 Proxy Statement
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: March 30, 2007
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:
Management proxy circular and Notice of Meeting
Proxy
Supplemental return card
Electronic consent
December 31, 2006 financial statements, notes and MD & A
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: March 30, 2007 |
By: |
/s/ Beverly A. Bartlett
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BEVERLY A. BARTLETT |
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Vice President &
Corporate Secretary |
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Notice of Annual Meeting of the Shareholders
and
Management Proxy Circular
of
IVANHOE MINES LTD.
DATED: March 22, 2007
IVANHOE MINES LTD.
Notice of Annual General Meeting of Shareholders
May 11, 2007
NOTICE IS HEREBY GIVEN that an Annual General Meeting of shareholders of Ivanhoe Mines Ltd.
(the Corporation) will be held on Friday, May 11, 2007, at 9:00 a.m. local time, in Terraces A &
B of the Terminal City Club located at 837 West Hastings Street, Vancouver, British Columbia for
the following purposes:
1. |
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to receive the annual report of the directors to the shareholders; |
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to receive the audited consolidated financial statements of the Corporation for the year
ended December 31, 2006 and the auditors report thereon; |
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to elect directors for the ensuing year; |
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4. |
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to appoint auditors for the ensuing year and to authorize the directors to fix the auditors
remuneration; |
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to consider, and if thought advisable, to pass an ordinary resolution authorizing the
Corporation to amend and restate the Employees and Directors Equity Incentive Plan (the
Incentive Plan) to: (i) increase the maximum number of Common Shares of the Corporation
which may be allocated for issuance from 32,000,000 under the Corporations existing
Incentive Plan to 37,000,000 Common Shares under the proposed amended and restated plan; (ii)
increase the maximum number of Common Shares of the Corporation issuable under the Bonus Plan
component of the Incentive Plan from 2,000,000 Common Shares to 3,500,000 Common Shares;
(iii) amend the existing Incentive Plans general amendment provisions to comply with
recent amendments to the rules and policies of the Toronto Stock Exchange; and (iv) make
other technical amendments to the existing Incentive Plan; |
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to consider, and if thought advisable, to confirm revisions to the By-Laws of the
Corporation to allow for shares to be issued electronically, without a certificate, as will
be required for shares listed on a U.S. stock exchange beginning in 2008; and |
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to transact such other business as may properly come before the meeting or any adjournment
thereof. |
The Board of Directors has fixed March 21, 2007 as the Record Date for the determination of
shareholders entitled to notice of, and to vote at, this Annual General Meeting and at any
adjournment thereof.
A Management Proxy Circular, Form of Proxy, the Audited Consolidated Financial Statements and
Managements Discussion and Analysis for the year ended December 31, 2006 and return envelope
accompany this Notice of Meeting.
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A shareholder, who is unable to attend the Meeting in person and who wishes to ensure that such
shareholders shares will be voted at the Meeting, is requested to complete, date and execute the
enclosed form of proxy and deliver it by facsimile, by hand or by mail in accordance with the
instructions set out in the form of proxy and in the Management Proxy Circular.
Dated at Vancouver, British Columbia, this 22nd day of March, 2007.
BY ORDER OF THE BOARD
Beverly A. Bartlett
Vice President and Corporate Secretary
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IVANHOE MINES LTD.
World Trade Centre
Suite 654 999 Canada Place
Vancouver, British Columbia, V6C 3E1
MANAGEMENT PROXY CIRCULAR
SOLICITATION OF PROXIES
This Management Proxy Circular is furnished to the holders of common shares (shareholders) of
IVANHOE MINES LTD. (the Corporation) by management of the Corporation in connection with the
solicitation of proxies to be voted at the Annual General Meeting (the Meeting) of the
shareholders to be held at 9:00 a.m., local time, on May 11, 2007 in Terraces A & B of the
Terminal City Club located at 837 W. Hastings Street, Vancouver, British Columbia, and at any
adjournment thereof, for the purposes set forth in the Notice of Meeting.
The solicitation of proxies by management will be primarily by mail, but proxies may be solicited
personally or by telephone by directors, officers and regular employees of the Corporation. All
costs of this solicitation will be borne by the Corporation.
The Board of Directors of the Corporation has fixed the close of business on March 21, 2007 as the
record date, being the date for the determination of the registered shareholders entitled to
receive notice of, and to vote at, the Meeting (the Record Date).
Unless otherwise stated, the information contained in this Management Proxy Circular is as of March
22, 2007. All dollar amounts are expressed in Canadian dollars (Cdn.$) or United States dollars
(U.S.$) as indicated.
APPOINTMENT OF PROXYHOLDERS
A shareholder entitled to vote at the Meeting may, by means of a proxy, appoint a proxyholder or
one or more alternate proxyholders, who need not be shareholders, to attend and act at the Meeting
for the shareholder and on the shareholders behalf.
The individuals named in the enclosed form of proxy are directors and/or officers of the
Corporation. A shareholder may appoint, as proxyholder or alternate proxyholder, a person or
persons other than any of the persons designated in the enclosed form of proxy, and may do so
either by inserting the name or names of such persons in the blank space provided in the enclosed
form of proxy or by completing another proper form of proxy.
A shareholder forwarding the enclosed proxy may indicate the manner in which the appointee is to
vote with respect to any specific item by checking the appropriate space. If the shareholder giving
the proxy wishes to confer a discretionary authority with respect to any item of business, then the
space opposite the item is to be left blank. The shares represented by the proxy submitted by a
shareholder will be voted in accordance with the directions, if any, given in the proxy.
An appointment of a proxyholder or alternate proxyholders will not be valid unless a form of proxy
making the appointment, signed by the shareholder or by an attorney of the shareholder authorized
in writing, (a Proxy) is deposited with CIBC Mellon Trust Company, by facsimile to (416) 368-3976
or 1-866-781-3111, by
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mail to P.O. Box 1900, Vancouver, British Columbia, V6E 3X1 or P.O. Box 721, Agincourt, Ontario,
M1S 0A1, or by hand to The Oceanic Plaza, 1600 1066 Hastings Street, Vancouver, British Columbia,
V6E 3K9 or 320 Bay Street, Banking Hall Level, Toronto, Ontario, M5H 4A6, and received by CIBC
Mellon Trust Company not less than 48 hours (excluding Saturdays, Sundays and statutory holidays)
before the Meeting or the adjournment thereof at which the proxy is to be used.
REVOCATION OF PROXIES
A shareholder who has given a Proxy may revoke the Proxy
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by depositing an instrument in writing executed by the shareholder or by the
shareholders attorney authorized in writing |
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with CIBC Mellon Trust Company, not less than 48 hours
(excluding Saturdays, Sundays and statutory holidays) before the Meeting or
the adjournment thereof at which the Proxy is to be used, |
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at the registered office of the Corporation at any time up to
and including the last business day preceding the day of the Meeting, or an
adjournment thereof, at which the Proxy is to be used, |
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with the chairman of the Meeting on the day of the Meeting
or an adjournment thereof, or |
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in any other manner provided by law. |
A revocation of a Proxy will not affect a matter on which a vote is taken before the revocation.
EXERCISE OF DISCRETION
The persons named in the enclosed form of proxy will vote or withhold from voting the shares in
respect of which they are appointed in accordance with the direction of the shareholders appointing
them. In the absence of such direction in respect of a particular matter, such shares will be
voted in favour of such matter. The enclosed form of proxy confers discretionary authority upon
the persons named therein with respect to amendments or variations to matters identified in the
Notice of Meeting and with respect to other matters which may properly come before the Meeting. As
of the date of this Management Proxy Circular, management of the Corporation knows of no such
amendments, variations or other matters to come before the Meeting. However, if any other matters
which are not now known to management should properly come before the Meeting, the proxy will be
voted on such matters in accordance with the best judgment of the named proxies.
VOTES NECESSARY TO PASS RESOLUTIONS
The Corporations by-laws provide that the quorum for the transaction of business at the Meeting is
at least one individual present at the commencement of the Meeting holding, or representing by form
of proxy the holder or holders of, common shares carrying, in the aggregate, not less than
thirty-three and one-third percent (33-1/3%) of the votes eligible to be cast at the Meeting.
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Under the Yukon Business Corporations Act (the YBCA) a majority of the votes cast by shareholders
at the Meeting is required to pass an ordinary resolution and a majority of two-thirds of the votes
cast at the Meeting is required to pass a special resolution.
Shareholders will also be asked to elect directors and appoint auditors for the ensuing year. If
there are more nominees for election as directors or appointment as the Corporations auditors than
there are vacancies to fill, those nominees receiving the greatest number of votes will be elected
or appointed, as the case may be, until all such vacancies have been filled. If the number of
nominees for election or appointment is equal to the number of vacancies to be filled, all such
nominees will be declared elected or appointed by acclamation.
At the Meeting, shareholders will be asked to consider and, if deemed warranted, to pass an
ordinary resolution, the full text of which is set out as Schedule B hereto (the Equity Incentive
Plan Resolution), all as more particularly described in this Management Proxy Circular under
Particulars of Matters to be Acted Upon Amended and Restated Equity Incentive Plan, authorizing
the Corporation to: (i) increase the maximum number of Common Shares of the Corporation which may
be allocated for issuance from 32,000,000 under the Corporations existing Incentive Plan to
37,000,000 Common Shares under the proposed amended and restated plan; (ii) increase the maximum
number of Common Shares of the Corporation issuable under the Bonus Plan component of the Incentive
Plan from 2,000,000 Common Shares to 3,500,000 Common Shares; (iii) amend the existing Incentive
Plans general amendment provisions to comply with recent amendments to the rules and policies of
the Toronto Stock Exchange; and (iv) make other technical amendments to the existing Incentive
Plan. The Equity Incentive Plan Resolution is an ordinary resolution and, as such, requires
approval by a majority of the votes cast by shareholders at the Meeting.
Shareholders will also be asked to consider at the Meeting and, if deemed warranted, to pass an
ordinary resolution, the full text of which is set out under Particulars of Matters to be
Acted Upon By-Law Amendment Resolution in this Management Proxy Circular (the By-Law
Amendment Resolution) confirming revisions to the By-Laws of the Corporation enacted by the
Board on March 9, 2007 to allow for shares to be issued electronically, without a
certificate, as will be required for shares listed on a U.S. stock exchange beginning in
2008. The By-Law Amendment Resolution is an ordinary resolution and, as such, requires
approval by a majority of the votes cast by shareholders at the Meeting.
VOTING BY NON-REGISTERED SHAREHOLDERS
Only registered shareholders of the Corporation or the persons they appoint as their proxies are
permitted to vote at the Meeting. Most shareholders of the Corporation are non-registered
shareholders (Non-Registered Shareholders) because the shares they own are not registered in
their names but are instead registered in the name of the brokerage firm, bank or trust company
through which they purchased the shares. Shares beneficially owned by a Non-Registered Shareholder
are registered either:
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in the name of an intermediary (an Intermediary) that the Non-Registered
Shareholder deals with in respect of the shares of the Corporation (Intermediaries
include, among others, banks, trust companies, securities dealers or brokers and
trustees or administrators of self-administered RRSPs, RRIFs, RESPs and similar
plans); or |
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in the name of a clearing agency (such as The Canadian Depository for
Securities Limited) of which the Intermediary is a participant. |
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In accordance with applicable securities law requirements, the Corporation will have distributed
copies of the Notice of Meeting, this Management Proxy Circular, the form of proxy and the request
form (collectively, the Meeting Materials) to the clearing agencies and Intermediaries for
distribution to Non-Registered Shareholders.
Intermediaries are required to forward the Meeting Materials to Non-Registered Shareholders unless
a Non-Registered Shareholder has waived the right to receive them. Intermediaries often use service
companies to forward the Meeting Materials to Non-Registered Shareholders. Generally,
Non-Registered Shareholders who have not waived the right to receive Meeting Materials will either
be given:
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a voting instruction form which is not signed by the Intermediary and which,
when properly completed and signed by the Non-Registered Shareholder and returned to
the Intermediary or its service company, will constitute voting instructions (often
called a voting instruction form) which the Intermediary must follow. Typically, the
voting instruction form will consist of a one page pre-printed form. Sometimes, instead
of the one page pre-printed form, the voting instruction form will consist of a regular
printed proxy form accompanied by a page of instructions which contains a removable
label with a bar-code and other information. In order for the form of proxy to validly
constitute a voting instruction form, the Non-Registered Shareholder must remove the
label from the instructions and affix it to the form of proxy, properly complete and
sign the form of proxy and submit it to the Intermediary or its service company in
accordance with the instructions of the Intermediary or its service company; or |
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a form of proxy which has already been signed by the Intermediary (typically
by a facsimile, stamped signature), which is restricted as to the number of shares
beneficially owned by the Non-Registered Shareholder but which is otherwise not
completed by the Intermediary. Because the Intermediary has already signed the form of
proxy, this form of proxy is not required to be signed by the Non-Registered
Shareholder when submitting the proxy. In this case, the Non-Registered Shareholder
who wishes to submit a proxy should properly complete the form of proxy and deposit it
with the Corporation, c/o CIBC Mellon Trust Company, The Oceanic Plaza, 1600 1066
Hastings Street, Vancouver, British Columbia, V6E 3K9 or 320 Bay Street, Banking Hall
Level, Toronto, Ontario, M5H 4A6. |
In either case, the purpose of these procedures is to permit Non-Registered Shareholders to direct
the voting of the shares of the Corporation they beneficially own. Should a Non-Registered
Shareholder who receives one of the above forms wish to vote at the Meeting in person (or have
another person attend and vote on behalf of the Non-Registered Shareholder), the Non-Registered
Shareholder should strike out the persons named in the form of proxy and insert the Non-Registered
Shareholder or such other persons name in the blank space provided. In either case, Non-Registered
Shareholders should carefully follow the instructions of their Intermediary, including those
regarding when and where the proxy or voting instruction form is to be delivered.
A Non-Registered Shareholder may revoke a form of proxy or voting instruction form given to an
Intermediary by contacting the Intermediary through which the Non-Registered Shareholders common
shares of the Corporation are held and following the instructions of the intermediary respecting
the revocation of proxies. In order to ensure
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that an Intermediary acts upon a revocation of a proxy form or voting instruction form, the written
notice should be received by the Intermediary well in advance of the Meeting.
VOTING SHARES AND PRINCIPAL HOLDERS
The Corporations authorized capital consists of an unlimited number of Common Shares without par
value and an unlimited number of Preferred Shares without par value.
As of March 22, 2007, the Corporation had issued 373,917,043 fully paid and non-assessable Common
Shares without par value, each carrying the right to one vote. As of such date, no Preferred
Shares were issued or outstanding.
A holder of record of one or more Common Shares on the securities register of the Corporation on
the Record Date who either attends the Meeting personally or deposits a Proxy in the manner and
subject to the provisions described above will be entitled to vote or to have such share or shares
voted at the Meeting, except to the extent that
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the shareholder has transferred the ownership of any such share after the
Record Date, and |
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the transferee produces a properly endorsed share certificate for, or
otherwise establishes ownership of, any of the transferred shares and makes a demand
to CIBC Mellon Trust Company no later than 10 days before the Meeting that the
transferees name be included in the list of shareholders in respect thereof. |
To the knowledge of the directors and senior officers of the Corporation, the only persons who
beneficially own, directly or indirectly, or exercise control or direction over shares carrying
more than 10% of the voting rights attached to the outstanding Common Shares of the Corporation,
the approximate number of Common Shares so owned, controlled or directed and the percentage of
voting shares of the Corporation represented by such shares and the share ownership by the current
directors and senior officers of the Corporation as a group are:
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Number of Shares Owned, |
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Percentage of Shares |
Name and Address |
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Controlled or Directed |
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Outstanding |
Robert M.
Friedland
Singapore |
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100,942,325 |
(1) |
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27.0 |
% |
Tradewinds
Global Investors LLC
California, U.S.A. (2)(3) |
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41,329,001 |
(4) |
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11.05 |
% |
Directors and Officers as a group(5) |
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101,772,370 |
(6) |
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27.12 |
% |
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(1) |
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Common Shares are held directly (as to 19,810,801 shares) and indirectly
through Newstar Securities SRL (as to 30,808,992 shares), a company beneficially owned and
controlled by Mr. Friedland, and Goldamere Holdings SRL (as to 50,322,533 shares), a company
beneficially owned and controlled as to 91.91% by Mr. Friedland. Common Shares held directly
and indirectly by Mr. Friedland do not include 2,000,000 unissued Common Shares issuable
upon the exercise of incentive stock options. |
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Tradewinds Global Investors LLC (Tradewinds) is an advisory and investment
management subsidiary of Nuveen Investments Inc. (NYSE: JNC) (Nuveen) focused on
international and global equity investing. Nuveen is a provider of investment advisory
services and a distributor of open-end, closed-end and managed account products to affluent,
high-net-worth and institutional investors. See note 3 below. |
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Information relating to Tradewinds is not within the knowledge of management of
the Corporation and has been derived from filings with the U.S. Securities and Exchange
Commission. |
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Represents the number of Common Shares held by Tradewinds as of March 19, 2007. |
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Common Shares held by the directors and senior officers as a group do not include
8,993,100 unissued Common Shares issuable upon the exercise of incentive stock options. |
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Includes 100,942,325 Common Shares held directly and indirectly by Robert M.
Friedland. |
In addition to the foregoing, Rio Tinto International Holdings Ltd., of London, England
(Rio Tinto) owns 37,089,883 shares (being 9.92% of the issued and outstanding Common Shares).
Pursuant to an agreement dated October 18, 2006 (the Rio Tinto Agreement), Rio Tinto is
obligated to subscribe for an additional 46,304,473 shares upon the completion of certain
conditions precedent, including the completion of an investment contract with the Government of
Mongolia in connection with the Corporations Oyu Tolgoi project (the Investment Contract). If
such investment is completed, Rio Tinto would hold approximately 19.9% of the Corporations
issued and outstanding Common Shares. Rio Tinto also holds warrants to purchase up to 92,053,044
shares at prices between U.S.$8.38 and U.S.$9.02 per share until two years after the earlier of
completion of the Investment Contract and October 27, 2009. If, in addition to completing the
second tranche investment, the warrants are fully exercised, Rio Tinto would hold approximately
34.25% of the Corporations issued and outstanding Common Shares.
Pursuant to the Rio Tinto Agreement, Rio Tinto is entitled to nominate a person or persons for
appointment or election to the Board from time to time in proportion to the percentage of the
Corporations issued and outstanding shares it holds. Mr. Bret Clayton, an executive officer of
Rio Tinto, has been nominated as one of managements nominees for election as a Director of the
Corporation at the Meeting. See Election of Directors Management Nominees.
Concurrent with the Rio Tinto Agreement, Rio Tinto and Robert M. Friedland entered into a
shareholders agreement, whereby Mr. Friedland has agreed to vote or cause to be voted any Common
Shares he controls, directly or indirectly, in favour of any transaction contemplated by the Rio
Tinto Agreement.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
No person who has been a director or officer of the Corporation at any time since the beginning of
its last completed financial year, any proposed nominee for director of the Corporation or any
associate or affiliate of the foregoing has any material interest, direct or indirect, in any
matter to be acted upon at the Meeting, except as disclosed in this Information Circular.
ELECTION OF DIRECTORS
Term of Office
The Corporations articles provide that the number of directors of the Corporation will be a
minimum of three and a maximum of 12. The term of office of each of the current directors will end
at the conclusion of the Meeting. Unless a directors office is earlier vacated in accordance with
the provisions of the YBCA, each director elected will hold office until the conclusion of the next
annual meeting of the Corporation or, if no director is then elected, until a successor is elected.
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Management Nominees
The following table sets out the names of managements nominees for election as directors, their
ages, all major offices and positions with the Corporation and any of its significant affiliates
each now holds, each nominees principal occupation, business or employment, the period of time
during which each has been a director of the Corporation, the number of Common Shares of the
Corporation beneficially owned by each, directly or indirectly, or over which each exercised
control or direction, as at March 22, 2007, and the number of options to purchase Common Shares of
the Corporation held by each as at March 22, 2007.
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Robert M. Friedland
Singapore
Age: 56
Executive Chairman
Director Since: 1994
Director Status:
Non-Independent
(Management)
Mr. Friedland is the founder and Executive Chairman of the Corporation. He has been a member of the Corporations Executive Committee since its formation in March, 2005.
He is Chairman and President of Ivanhoe Capital Corporation, a company based in Singapore and Beijing that specializes in venture capital and project financing for international
business enterprises, predominantly in the resource sector.
He also is a co-founder and Deputy Chairman, Capital Markets, for Ivanhoe Energy, which is developing advanced, proprietary technology that converts heavy oil into lighter crude oil.
Mr. Friedland was named 2006 Mining Person of the Year by the Northern Miner publishing group of Canada for his success in negotiating a strategic partnership
between Ivanhoe Mines and Rio Tinto to develop the Corporations Oyu Tolgoi copper-gold project in Mongolia. Following his earlier role in the discovery and sale of the Voiseys
Bay nickel-copper-cobalt deposit in Eastern Canada, he was named Developer of the Year in 1996 by the Prospectors and
Developers Association of Canada for his work in establishing and financing companies engaged in mineral exploration and development around the world.
Mr. Friedland graduated from Reed College, Oregon, in 1974 with an undergraduate degree in political science.
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Principal Occupation, Business or Employment(1) |
Chairman of the Corporation (March 1994 present); Chief Executive Officer of the Corporation (March 1994 2006);
Chairman and President, Ivanhoe Capital Corporation (1998 to Present).
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Board/Committee
Membership: |
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2006 Attendance: |
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Other Public Company Board Membership: |
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Company: |
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Since: |
Board of Directors
Executive Committee
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5 of 7
2 of 2 |
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71%
100% |
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Ivanhoe Energy Inc. (TSX; NASDAQ)
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1995
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Common Shares Beneficially Owned, Controlled or Directed(1) (2): |
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Year |
Common Shares |
Total Market Value of
Common Shares(8) |
2006 |
100,942,326 |
$1,372,815,633 |
2005 |
100,834,334 |
$916,584,096 |
Options Held: |
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Date Granted |
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Expiry Date |
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Number |
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Vested/ |
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Exercise |
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Total |
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Value of |
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Granted |
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Unvested |
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Price(9) |
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Unexercised |
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Unexercised Options(10) |
Mar. 27, 2006 |
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Mar. 27, 2013 |
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2,000,000 |
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900,000/ 1,100,000(11) |
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$9.73 |
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2,000,000 |
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$7,740,000 |
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Peter Meredith
North Vancouver,
British Columbia, Canada
Age: 63
Deputy Chairman
Director Since: 2005
Director Status:
Non-Independent
(Management)
Peter Meredith became the Corporations Deputy Chairman in May, 2006 and oversees the Corporations business development and corporate relations. Mr. Meredith was the Corporations CFO from May, 2004 to May, 2006 and from June, 1999 to November, 2001.
Prior to joining the Corporation, Mr. Meredith spent 31 years with Deloitte & Touche LLP, chartered accountants, and retired as a partner in 1996.
Mr. Meredith is a Chartered Accountant, a Certified Management Accountant and a member of the Canadian Institute of Chartered Accountants.
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Principal Occupation, Business or Employment(1) |
Deputy Chairman (May 2006 present); Chief Financial Officer of the Corporation (June 1999 November 2001; May 2004 May 2006); Chief Financial Officer,
Ivanhoe Capital Corporation (1996 present); Senior Partner, Deloitte & Touche, chartered accountants (1966 1996)
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Board/Committee
Membership: |
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2006 Attendance: |
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Other Public Company Board Membership: |
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Company: |
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Since: |
Board of Directors
Executive Committee
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7 of 7
2 of 2 |
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100%
100% |
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Jinshan Gold Mines Inc. (TSX)
Olympus Pacific Minerals Inc. (TSX)
Asia Gold Corp. (TSX-V)
Entrée Gold Inc. (TSX; AMEX)
Great Canadian Gaming Corporation (TSX)
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2004
2004
2003
2002
2000
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Common Shares Beneficially Owned, Controlled or Directed(1) (2): |
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Year |
Common Shares |
Total Market Value of
Common Shares(8) |
2006 |
68,195 |
$927,452 |
2005 |
87,452 |
$794,938.68 |
Options Held: |
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Date Granted |
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Expiry Date |
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Number |
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Vested/ |
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Exercise |
|
Total |
|
Value of |
|
|
|
Granted |
|
Unvested |
|
Price(9) |
|
Unexercised |
|
Unexercised Options(10) |
Mar. 27, 2006 |
|
Mar. 27, 2013 |
|
400,000 |
|
180,000/ 220,000(12) |
|
$9.73 |
|
400,000 |
|
$1,548,000 |
May 14, 2004 |
|
May 14, 2009 |
|
200,000 |
|
120,000/ 80,000(13) |
|
$8.20 |
|
200,000 |
|
$1,080,000 |
Feb. 4, 2004 |
|
Feb. 4, 2009 |
|
50,000 |
|
40,000/ 10,000(14) |
|
$7.69 |
|
50,000 |
|
$295,000 |
- 12 -
John Macken
Co. Louth, Ireland
Age: 55
President and Chief
Executive Officer
Director Since: 2004
Director Status:
Non-Independent
(Management)
John Macken joined the Corporation in November, 2003 and is its
President and Chief Executive Officer. He has been a member of the
Corporations Executive Committee since its formation in March,
2005. Prior to joining the Corporation,
Mr. Macken had spent 19 years with Freeport McMoran
Copper and Gold, most recently as Freeports Senior Vice-President of Strategic Planning and Development.
Mr. Macken spent a total of 13 years with Freeports operating unit, P.T. Freeport Indonesia, and from 1996 to 2000 he held the position of Senior Vice-President,
Strategic Planning and Development at Freeports Grasberg open pit and underground mining complex in Papua, the worlds largest single copper and gold mine. Between 1996 and 1998,
Mr. Macken headed and completed ahead of schedule and under budget an expansion valued at almost U.S.$1 billion at the Grasberg mining complex.
Mr. Macken graduated from Trinity College in Dublin in 1976 with a BA and BAI (Hon) in engineering.
|
|
|
|
|
|
|
|
|
|
|
Principal Occupation, Business or Employment(1) |
Chief Executive Officer of the Corporation (May, 2006 present); President of the Corporation (January 2004 present); Consultant (2000 January, 2004);
Senior Vice President of Freeport McMoran Copper & Gold (1996 2000)
|
|
|
|
|
|
|
|
|
|
|
|
Board/Committee
Membership: |
|
2006 Attendance: |
|
|
Other Public Company Board Membership: |
|
|
|
Company: |
|
Since: |
Board of Directors
Executive Committee
|
|
7 of 7
2 of 2 |
|
100%
100% |
|
|
N/A
|
|
N/A
|
Common Shares Beneficially Owned, Controlled or Directed(1) (2): |
|
|
|
|
|
|
|
|
|
Year |
Common Shares |
Total Market Value of
Common Shares(8) |
2006 |
6,214 |
$84,510 |
2005 |
NIL |
NIL |
Options Held: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Date Granted |
|
Expiry Date |
|
Number |
|
Vested/ |
|
Exercise |
|
Total |
|
Value of |
|
|
|
Granted |
|
Unvested |
|
Price(9) |
|
Unexercised |
|
Unexercised Options(10) |
Mar. 27, 2006 |
|
Mar. 27, 2013 |
|
2,000,000 |
|
900,000/ 1,100,000(11) |
|
$9.73 |
|
2,000,000 |
|
$7,740,000 |
Mar. 30, 2004 |
|
Mar. 30, 2014 |
|
1,000,000 |
|
1,000,000/ NIL |
|
$7.78 |
|
1,000,000 |
|
$5,820,000 |
Nov. 1, 2003 |
|
Nov. 1, 2013 |
|
1,000,000 |
|
1,000,000/ NIL |
|
$12.70 |
|
1,000,000 |
|
$900,000 |
- 13 -
David Huberman
Vancouver, British Columbia
Canada
Age: 72
Lead Director
Director Since: 2003
Director Status:
Independent
David Huberman is the President of Coda Consulting Corp., a law and business consulting firm. He practiced business law from 1972 until 1996 as a senior partner of a Canadian business law firm, specializing in corporate, commercial, banking, securities,
regulatory and mining law. From 1997 to 1999, he served as Executive Vice President and General Counsel of Lions Gate Entertainment Corp.
Mr. Huberman received his B.A. and LL.B. from the University of British Columbia and his LL.M. from Harvard Law School. He was called to the British Columbia bar in 1960 and was a full time member of the
Faculty of Law at the University of British Columbia from 1960 to 1972, focusing on corporation, securities and administrative law.
Mr. Huberman was appointed to the Corporations Board of Directors as Lead Independent Director in September, 2003 and as Chairman of the Corporate Governance & Nominating Committee and the
Compensation & Benefits Committee in November, 2003. He has been
a member of the Corporations Executive Committee since its formation in March, 2005.
|
|
|
|
|
|
|
|
|
|
|
Principal Occupation, Business or Employment(1) |
President, Coda Consulting Corp. (1993 present) |
|
|
|
|
|
|
|
|
|
|
|
Board/Committee
Membership: |
|
2006 Attendance: |
|
|
Other Public Company Board Membership: |
|
|
|
Company: |
|
Since: |
Board of Directors
Executive Committee
Corporate Governance & Nominating Committee Chairman
Compensation & Benefits Committee Chairman
Non-Management Directors
|
|
7 of 7
2 of 2
4 of 4
5 of 5
5 of 5 |
|
100%
100%
100%
100%
100% |
|
|
N/A
|
|
N/A
|
Common Shares Beneficially Owned, Controlled or Directed(1) (2): |
|
|
|
|
|
|
|
|
|
|
|
Year |
Common Shares |
Total Market Value of
Common Shares(8) |
Minimum Share Ownership Required(7) |
2006 |
20,000 |
$272,000 |
20,000 |
2005 |
20,000 |
$181,800 |
Options Held: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Date Granted |
|
Expiry Date |
|
Number |
|
Vested/ |
|
Exercise |
|
Total |
|
Value of |
|
|
|
Granted |
|
Unvested |
|
Price(9) |
|
Unexercised |
|
Unexercised Options(10) |
May 12, 2006 |
|
May 12, 2011 |
|
25,000 |
|
NIL/ 25,000(15) |
|
$10.56 |
|
25,000 |
|
$76,000 |
May 10, 2005 |
|
May 10, 2010 |
|
25,000 |
|
25,000/ NIL |
|
$9.37 |
|
25,000 |
|
$105,750 |
Sept. 3, 2004 |
|
Sept. 3, 2009 |
|
25,000 |
|
25,000/ NIL |
|
$7.00 |
|
25,000 |
|
$165,000 |
Sept. 16, 2003 |
|
Sept. 16, 2008 |
|
210,000 |
|
160,000/ 50,000(16) |
|
$6.75 |
|
210,000 |
|
$1,438,500 |
- 14 -
R. Edward Flood
Reno, Nevada, United
States
Age: 61
Director Since: 1995
Director Status:
Non-Independent(3)
Ed Flood is the Chairman of Western Uranium Corporation, a mineral exploration company with a focus on uranium.
He is also Managing Director, Investment Banking, for Haywood Securities (UK) Ltd., a subsidiary of one of Canadas leading
independent investment dealers. He served as Deputy Chairman of the Corporation until February, 2007, assisting in developing the Corporations
growth and its establishment as a significant presence in Asias mineral exploration and mining sectors. Mr. Flood was the Corporations founding President.
Prior to joining the Corporation, from 1993 to 1995, Mr. Flood was a principal at Robertson Stephens & Co., a U.S.
investment bank and a member of Robertson Stephens investment team. From 1983 to 1993, he served as Manager,
Project Evaluation for NERCO Minerals Company. He has also held the position of senior mining analyst with Haywood Securities Inc from 1999 to 2001.
Mr. Flood holds a Masters of Science (Geology) degree from the University of Montana and a BSc (Geology) degree from the University of Nevada.
|
|
|
|
|
|
|
|
|
|
|
Principal Occupation, Business or Employment(1) |
Chairman of Western Uranium Corporation (March 2007 present); Managing Director, Investment Banking, Haywood Securities (UK) Ltd. (March 2007 present); Deputy Chairman
of the Corporation (May 1999 February 2007); Senior Mining Analyst, Haywood Securities Inc. (May 1999 November 2001), President of the Corporation (1995 1999)
|
|
|
|
|
|
|
|
|
|
|
|
Board/Committee
Membership: |
|
2006 Attendance: |
|
|
Other Public Company Board Membership: |
|
|
|
Company: |
|
Since: |
Board of Directors
|
|
7 of 7
|
|
100% |
|
|
Western Uranium Corporation (TSX-V) Chairman
Asia Gold Corp. (TSX-V)
Jinshan Gold Mines Inc. (TSX)
Ivanhoe Energy Inc. (TSX; NASDAQ)
(will cease as a director of Ivanhoe Energy Inc. at the
conclusion of the next annual meeting of shareholders, scheduled for May 3, 2007)
|
|
2007
2003
2002
1999
|
Common Shares Beneficially Owned, Controlled or Directed(1) (2): |
|
|
|
|
|
|
|
|
|
Year |
Common Shares |
Total Market Value of
Common Shares(8) |
2006 |
313,585 |
$4,264,756 |
2005 |
145,192 |
$1,319,795 |
Options Held: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Date Granted |
|
Expiry Date |
|
Number |
|
Vested/ |
|
Exercise |
|
Total |
|
Value of |
|
|
|
Granted |
|
Unvested |
|
Price(9) |
|
Unexercised |
|
Unexercised Options(10) |
Mar. 27, 2006 |
|
Mar. 27, 2013 |
|
300,000 |
|
135,000/ 165,000(17) |
|
$9.73 |
|
300,000 |
|
$1,161,000 |
- 15 -
John Weatherall
Kingston, Ontario
Canada
Age: 74
Director Since: 1996
Director Status:
Independent
John Weatherall is the President of Scarthingmoor Asset Management Inc. Mr. Weatherall was Chairman of TD Asset Management, the investment unit of a Canadian
chartered bank, and earlier head of Institutional Equity with responsibility for investment research at Wood Gundy Inc., and Greenshields Inc. He has served as a director on the Board of Slocan Forest Products, Greenshields Inc., and Wood Gundy Inc., and was for many years Chairman of Okanagan Skeena Group Ltd.
Mr. Weatherall has previously served on the audit committees of five publicly traded companies.
|
|
|
|
|
|
|
|
|
|
|
Principal Occupation, Business or Employment(1) |
President, Scarthingmoor Asset Management Inc. (April 1996 present)
|
|
|
|
|
|
|
|
|
|
|
|
Board/Committee
Membership: |
|
2006 Attendance: |
|
|
Other Public Company Board Membership: |
|
|
|
Company: |
|
Since: |
Board of Directors
Audit Committee Chairman
Corporate Governance & Nominating Committee
Non-Management Directors
|
|
7 of 7
3 of 4
4 of 4
3 of 5 |
|
100%
75%
100%
60% |
|
|
IFL Investment Foundation (Canada) Limited (TSX-V) (member of Audit Committee)
Stratic Energy Corporation (TSX) |
|
2006
2004 |
Common Shares Beneficially Owned, Controlled or Directed(1) (2): |
|
|
|
|
|
|
|
|
|
|
|
Year |
Common Shares |
Total Market Value of
Common Shares(8) |
Minimum Share Ownership Required(7) |
2006 |
74,500 |
$1,013,200 |
20,000 |
2005 |
74,500 |
$677,205 |
Options Held: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Date Granted |
|
Expiry Date |
|
Number |
|
Vested/ |
|
Exercise |
|
Total |
|
Value of |
|
|
|
Granted |
|
Unvested |
|
Price(9) |
|
Unexercised |
|
Unexercised Options(10) |
May 12, 2006 |
|
May 12, 2011 |
|
25,000 |
|
NIL/ 25,000(15) |
|
$10.56 |
|
25,000 |
|
$76,000 |
May 10, 2005 |
|
May 10, 2010 |
|
25,000 |
|
25,000/ NIL |
|
$9.37 |
|
25,000 |
|
$105,750 |
Sept. 3, 2004 |
|
Sept. 3, 2009 |
|
25,000 |
|
25,000/ NIL |
|
$7.00 |
|
25,000 |
|
$165,000 |
June 12, 2003 |
|
June 12, 2008 |
|
50,000 |
|
40,000/ 10,000(18) |
|
$3.25 |
|
50,000 |
|
$517,500 |
- 16 -
Kjeld Thygesen
London, England
United Kingdom
Age: 60
Director Since: 2001
Director Status:
Independent
Kjeld Thygesen is the Managing Director of Lion Resource Management.
Kjeld Thygesen has over 30 years experience as an analyst and fund manager in the resource sector.
A graduate of the University of Natal in South Africa, he joined African Selection Trust, a subsidiary of Selection Trust Limited, in 1970, researching and managing a portfolio of South African mining companies.
In 1972, Mr. Thygesen joined James Capel & Co. in London, England and served as a member of their gold and mining research team. In 1979, he joined N.M. Rothschild &
Sons Limited as manager of its Commodities and Natural Resources Department with overall responsibility for strategy and management of commodity trusts and precious metal funds.
Mr. Thygesen became an executive director of N.M. Rothschild Asset Management Limited in 1984 and N.M. Rothschild International Asset Management Limited in 1987.
Mr. Thygesen left the N.M. Rothschild Group in 1989 to co-found Lion Resource Management Limited, an FSA regulated and SEC registered specialist investment manager in the mining and natural resources sector.
|
|
|
|
|
|
|
|
|
|
|
Principal Occupation, Business or Employment(1) |
Managing Director of Lion Resource Management (May 1989 present)
|
|
|
|
|
|
|
|
|
|
|
|
Board/Committee
Membership: |
|
2006 Attendance: |
|
|
Other Public Company Board Membership: |
|
|
|
Company: |
|
Since: |
Board of Directors
Audit Committee
Corporate Governance & Nominating Committee
Compensation & Benefits Committee
Non-Management Directors
|
|
6 of 7
4 of 4
4 of 4
5 of 5
5 of 5 |
|
86%
100%
100%
100%
100% |
|
|
Superior Mining Corporation (TSX-V) |
|
2005 |
Common Shares Beneficially Owned, Controlled or Directed(1) (2): |
|
|
|
|
|
|
|
|
|
|
|
Year |
Common Shares |
Total Market Value of
Common Shares(8) |
Minimum Share Ownership Required(7) |
2006 |
150,000 |
$2,040,000 |
20,000 |
2005 |
150,000 |
$1,363,500 |
Options Held: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Date Granted |
|
Expiry Date |
|
Number |
|
Vested/ |
|
Exercise |
|
Total |
|
Value of |
|
|
|
Granted |
|
Unvested |
|
Price(9) |
|
Unexercised |
|
Unexercised Options(10) |
May 12, 2006 |
|
May 12, 2011 |
|
25,000 |
|
NIL/ 25,000(15) |
|
$10.56 |
|
25,000 |
|
$76,000 |
May 10, 2005 |
|
May 10, 2010 |
|
25,000 |
|
25,000/ NIL |
|
$9.37 |
|
25,000 |
|
$105,750 |
Sept. 3, 2004 |
|
Sept. 3, 2009 |
|
25,000 |
|
25,000/ NIL |
|
$7.00 |
|
25,000 |
|
$165,000 |
- 17 -
The Hon. Robert Hanson
London, England
United Kingdom
Age: 46
Director Since: 2001
Director Status:
Independent
Robert Hanson is the Chairman of Hanson Westhouse Limited and Hanson Capital Investments Limited and the Hanson Transport Group Limited, and he is also Managing
Partner of Millennium Hanson Internet Partners. Mr. Hanson was formerly an Associate Director of N.M. Rothschild & Sons from 1983 to 1990, serving in Hong Kong,
Chile and Spain. From 1990 to 1997, he served on the board of directors of Hanson plc responsible for strategy, mergers and acquisition transactions.
He was educated at Eton and received his MA in English Language & Literature from St Peters College, Oxford.
|
|
|
|
|
|
|
|
|
|
|
Principal Occupation, Business or Employment(1) |
Chairman of: Hanson Capital Investments Limited (February 1998 present); Hanson Transport Group (May 1990 present);
and Hanson Westhouse (city of London merchant bank) (2006 present)
|
|
|
|
|
|
|
|
|
|
|
|
Board/Committee
Membership: |
|
2006 Attendance: |
|
|
Other Public Company Board Membership: |
|
|
|
Company: |
|
Since: |
Board of Directors
Corporate Governance & Nominating Committee
Compensation & Benefits Committee
Non-Management Directors
|
|
6 of 7
3 of 4
3 of 5
4 of 5
|
|
86%
75%
60%
80% |
|
|
N/A
|
|
|
Common Shares Beneficially Owned, Controlled or Directed(1) (2): |
|
|
|
|
|
|
|
|
|
|
|
Year |
Common Shares |
Total Market Value of
Common Shares(8) |
Minimum Share Ownership Required(7) |
2006 |
85,000 |
$1,156,000 |
20,000 |
2005 |
85,000 |
$772,650 |
Options Held: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Date Granted |
|
Expiry Date |
|
Number |
|
Vested/ |
|
Exercise |
|
Total |
|
Value of |
|
|
|
Granted |
|
Unvested |
|
Price(9) |
|
Unexercised |
|
Unexercised Options(10) |
May 12, 2006 |
|
May 12, 2011 |
|
25,000 |
|
NIL/ 25,000(15) |
|
$10.56 |
|
25,000 |
|
$76,000 |
May 10, 2005 |
|
May 10, 2010 |
|
25,000 |
|
25,000/ NIL |
|
$9.37 |
|
25,000 |
|
$105,750 |
Sept. 3, 2004 |
|
Sept. 3, 2009 |
|
25,000 |
|
25,000/ NIL |
|
$7.00 |
|
25,000 |
|
$165,000 |
- 18 -
Dr. Markus Faber
Chiang Mai, Thailand
Age: 61
Director Since: 2002
Director Status:
Independent
Markus Faber is the Managing Director of Marc Faber Ltd., an
investment advisory and fund management firm. In addition,
Dr.
Faber acts as an director and advisor to a number of private investment funds, and publishes a widely read monthly investment
newsletter entitled The Gloom, Boom & Doom Report
and is the author of several books including Tomorrows Gold -
Asias Age of Discovery.
He is a regular contributor to several leading financial publications
around the world, including Forbes and Barrons.
He has over 35 years experience in the finance industry, including acting as manager of an investment bank in the U.S.
in which he routinely performed financial analysis on a range of different companies.
Dr. Faber received his PhD in Economics magna cum laude from the University of Zurich.
|
|
|
|
|
|
|
|
|
|
|
Principal Occupation, Business or Employment(1) |
Managing Director, Marc Faber Ltd. (June 1990 present)
|
|
|
|
|
|
|
|
|
|
|
|
Board/Committee
Membership: |
|
2006 Attendance: |
|
|
Other Public Company Board Membership: |
|
|
|
Company: |
|
Since: |
Board of Directors
Audit Committee
Corporate Governance & Nominating Committee
Non-Management Directors
|
|
7 of 7
4 of 4
3 of 4
4 of 5 |
|
100%
100%
75%
80% |
|
|
N/A
|
|
N/A
|
Common Shares Beneficially Owned, Controlled or Directed(1) (2): |
|
|
|
|
|
|
|
|
|
|
|
Year |
Common Shares |
Total Market Value of
Common Shares(8) |
Minimum Share Ownership Required(7) |
2006 |
30,000 |
$408,000 |
20,000 |
2005 |
20,000 |
$181,800 |
Options Held: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Date Granted |
|
Expiry Date |
|
Number |
|
Vested/ |
|
Exercise |
|
Total |
|
Value of |
|
|
|
Granted |
|
Unvested |
|
Price(9) |
|
Unexercised |
|
Unexercised Options(10) |
May 12, 2006 |
|
May 12, 2011 |
|
25,000 |
|
NIL/ 25,000(15) |
|
$10.56 |
|
25,000 |
|
$76,000 |
May 10, 2005 |
|
May 10, 2010 |
|
25,000 |
|
25,000/ NIL |
|
$9.37 |
|
25,000 |
|
$105,750 |
Sept. 3, 2004 |
|
Sept. 3, 2009 |
|
25,000 |
|
25,000/ NIL |
|
$7.00 |
|
25,000 |
|
$165,000 |
- 19 -
Howard R. Balloch
Beijing, China
Age: 55
Director Since: 2005
Director
Status:
Independent(4)
Howard Balloch is President and founding member of the investment advisory firm,
The Balloch Group. He is currently Vice Chairman of the Canada China
Business Council. Mr. Balloch was Canadas Ambassador to China from 1996 to 2001.
Mr. Balloch received his BA (Honours) Political Science and Economics from McGill University in 1971 and his M.A.
International Relations from McGill University in 1972, and was enrolled in further post-graduate studies at the University of Toronto and at the Fondation Nationale de Sciences politiques in Paris from 1973 to 1976.
|
|
|
|
|
|
|
|
|
|
|
Principal Occupation, Business or Employment(1) |
President, The Balloch Group (July 2001 present); Vice Chairman, Canada China Business Council (July 2001 present); Canadian Ambassador to
China, Mongolia and Democratic Republic of Korea (April 1996 July 2001)
|
|
|
|
|
|
|
|
|
|
|
|
Board/Committee
Membership:(4) |
|
2006 Attendance: |
|
|
Other Public Company Board Membership: |
|
|
|
Company: |
|
Since: |
Board of Directors
Corporate Governance & Nominating Committee
Compensation & Benefits Committee
Non-Management Directors
|
|
7 of 7
N/A(4)
N/A(4)
4 of 5 |
|
100%
N/A(4)
N/A(4)
80% |
|
|
East Energy Corp. (TSX-V)
Methanex Corporation (TSX; NASDAQ)
Tiens Biotech Group (USA) Ltd. (OTCBB)
Ivanhoe Energy Inc. (TSX; NASDAQ)
|
|
2006
2004
2003
2002
|
Common Shares Beneficially Owned, Controlled or Directed(1) (2): |
|
|
|
|
|
|
|
|
|
|
|
Year |
Common Shares |
Total Market Value of
Common Shares(8) |
Minimum Share Ownership Required(7) |
2006 |
50,000 |
$680,000 |
20,000 |
2005 |
7,000 |
$63,630 |
Options Held: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Date Granted |
|
Expiry Date |
|
Number |
|
Vested/ |
|
Exercise |
|
Total |
|
Value of |
|
|
|
Granted |
|
Unvested |
|
Price(9) |
|
Unexercised |
|
Unexercised Options(10) |
May 12, 2006 |
|
May 12, 2011 |
|
25,000 |
|
NIL/ 25,000(15) |
|
$10.56 |
|
25,000 |
|
$76,000 |
Mar. 11, 2005 |
|
Mar. 11, 2010 |
|
25,000 |
|
25,000/ NIL |
|
$10.51 |
|
25,000 |
|
$77,250 |
- 20 -
David Korbin
West Vancouver, British
Columbia, Canada
Age: 65
Director Since: 2006
Director Status:
Independent
David Korbin, a management and financial consultant, was appointed to the Corporations
Board of Directors in May, 2006. He is a director of E-Comm Emergency Communications for Southwest British Columbia Incorporated,
and acted as Chairman of
E-Comms board of directors from 2003 to 2006 and as Chair of their audit committee from 2001 to 2004.
From 1992 to 2000, he was a director of the Vancouver General Hospital (Audit Committee Chair: 1993-4) and the Vancouver Hospital and Health Sciences Centre (Chair: 1995-8).
Mr. Korbin qualified as a Chartered Accountant in 1966, and prior to 1987 served as managing partner of a
number of smaller accounting firms. From 1990 to 1992 he was a managing partner of the Vancouver office of Deloitte & Touche LLP.
|
|
|
|
|
|
|
|
|
|
|
Principal Occupation, Business or Employment(1) |
Independent Financial Consultant |
|
|
|
|
|
|
|
|
|
|
|
Board/Committee
Membership:(5) |
|
2006 Attendance: |
|
|
Other Public Company Board Membership: |
|
|
|
Company: |
|
Since: |
Board of Directors
Audit Committee
Corporate Governance & Nominating Committee
Compensation & Benefits Committee
Non-Management Directors
|
|
4 of 4
2 of 2
1 of 1
2 of 2
2 of 2 |
|
100%
100%
100%
100%
100% |
|
|
Seaspan Corporation (NYSE) (Chair of Audit Committee since 2005)
|
|
2005
|
Common Shares Beneficially Owned, Controlled or Directed(1) (2): |
|
|
|
|
|
|
|
|
|
|
|
Year |
Common Shares |
Total Market Value of
Common Shares(8) |
Minimum Share Ownership Required(7) |
2006 |
5,000 |
$68,000 |
20,000 |
Options Held: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Date Granted |
|
Expiry Date |
|
Number |
|
Vested/ |
|
Exercise |
|
Total |
|
Value of |
|
|
|
Granted |
|
Unvested |
|
Price(9) |
|
Unexercised |
|
Unexercised Options(10) |
May 12, 2006 |
|
May 12, 2011 |
|
25,000 |
|
NIL/ 25,000(15) |
|
$10.56 |
|
25,000 |
|
$76,000 |
- 21 -
Bret K. Clayton(6)
London, England, United
Kingdom
Age: 45
Director Since: nominee
Director
Status:
Non-Independent(6)
Bret Clayton is Chief Executive of Rio Tinto Copper based in London. Mr. Clayton provides management oversight to the Copper group,
which comprises Kennecott Utah Copper and Kennecott Minerals Company in the United States, and interests in the copper mines of Escondida in Chile,
Grasberg in Indonesia, Northparkes in Australia, Palabora in South Africa, as well as the Oyu Tolgoi copper project in Mongolia, the Resolution copper project
in the United States and the La Granja copper project in Peru.
During his career with Rio Tinto group, Mr. Clayton has held numerous senior management positions, including President and CEO of Rio Tinto Energy America, Head of
Financial Planning and Reporting for Rio Tinto plc in London and General Manager Commercial and Chief Financial Officer for Hamersley Iron and Rio Tinto Iron Ore in Perth, Australia.
Mr. Clayton holds a Bachelor of Arts Degree in Accounting from the University of Utah in Salt Lake City and is a graduate
of the International Executive Management Program of INSEAD in Fontainebleau, France.
|
|
|
|
|
|
|
|
|
|
|
Principal Occupation, Business or Employment |
Chief Executive, Rio Tinto Copper (July 2006-present); prior thereto, President and CEO of Rio Tinto America (October 2002 to July 2006)
|
|
|
|
|
|
|
|
|
|
|
|
Board/Committee Membership: |
|
Attendance: |
|
|
Other Public Company Board Membership: |
|
|
|
Company |
|
Since |
N/A
|
|
N/A |
|
N/A |
|
N/A |
Common Shares Beneficially Owned, Controlled or Directed(1) (2): |
|
|
|
Common Shares |
|
Total Market Value of Common Shares(8) |
NIL |
|
NIL |
Options Held: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Date Granted |
|
Expiry Date |
|
Number |
|
Vested/ |
|
Exercise |
|
Total |
|
Value of |
|
|
|
Granted |
|
Unvested |
|
Price(9) |
|
Unexercised |
|
Unexercised Options(10) |
N/A |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
|
|
(1) |
|
The information as to principal occupation, business or employment and shares
beneficially owned, controlled or directed by a nominee is not within the knowledge of the
management of the Corporation and has been furnished by the nominee. |
|
(2) |
|
Does not include unissued common shares issuable upon the exercise of incentive stock
options. |
|
(3) |
|
Mr. Flood served as Deputy Chairman of the Corporation and a member of management until
February 15, 2007 and is accordingly considered to be non-independent. |
|
(4) |
|
On January 2, 2007, Mr. Balloch qualified as an independent director under the applicable
standards of the CSA Corporate Governance Guidelines, the NYSE Corporate Governance Rules
and the NASDAQ Corporate Governance Rules. He became a member of each of the Corporate
Governance & Nominating Committee and the Compensation & Benefits Committee on January 12,
2007. |
|
(5) |
|
Mr. Korbin joined the Board of Directors and the Audit Committee on May 12, 2006. He
became a member of each of the Corporate Governance & Nominating Committee and the
Compensation & Benefits Committee on August 11, 2006. |
|
(6) |
|
Mr. Clayton has been nominated for election as a Director by Rio Tinto pursuant to the
provisions of the Rio Tinto Agreement (see Voting Shares and Principal Holders), and is
considered to be non-independent by virtue of the significant investment of Rio Tinto in
the Corporation. From November 10, 2006 until the date of the Meeting, Mr. Tom Albanese,
the Director, Group Resources, and CEO designate of Rio Tinto, has served as a member of the
Board pursuant to the provisions of the Rio Tinto Agreement. |
|
(7) |
|
All independent Directors are required to beneficially own and hold a minimum of 20,000
Common Shares for as long as they are a Director of the Corporation. These Common Shares
may be held either directly in the name of the Director or indirectly in the name of a
company controlled by the Director. All current independent Director nominees, except Mr.
Korbin, have met this minimum shareholding requirement. Mr. Korbin, first elected in 2006,
has until May 12, 2009 to meet the share ownership requirement. |
|
(8) |
|
The Total Market Value of Common Shares is calculated by multiplying the closing price of
the common shares of the Corporation on the Toronto Stock Exchange on March 22, 2007
($13.60) and March 22, 2006 ($9.09), respectively, by the number of common shares held by
the nominee as at the end of the prior year. |
|
(9) |
|
The Exercise Price is the closing price of the Common Shares on the Toronto Stock
Exchange on the day prior to the grant date. |
|
(10) |
|
The Value of Unexercised Options is calculated on the basis of the difference between the
closing price of the common shares on the Toronto Stock Exchange on March 22, 2007 and the
Exercise Price of the options multiplied by the number of unexercised options on March 22,
2007. |
|
(11) |
|
The 1,100,000 unvested options will vest as follows: 300,000 will vest on the earlier of
December 31, 2007 or achievement of each of four additional defined development criteria for
Oyu Tolgoi currently planned for 2007; 300,000 will vest on the earlier of December 31, 2008
or achievement of one of two additional defined development criteria currently planned for
Oyu Tolgoi for 2008; and the remaining 500,000 will vest on the earlier of December 31, 2009
and achievement of each of two additional defined development criteria planned for Oyu
Tolgoi for 2009. |
|
(12) |
|
The 220,000 unvested options will vest as follows: 60,000 to vest on the earlier of
December 31, 2007 or achievement of each of four additional defined development criteria for
Oyu Tolgoi currently planned for 2007; |
- 22 -
|
|
|
|
|
60,000 will vest on the earlier of December 31, 2008
or achievement of one of two additional defined development criteria currently planned for
Oyu Tolgoi for 2008; and the remaining 100,000 will vest on the earlier of December 31, 2009
and achievement of each of two additional defined development criteria planned for Oyu
Tolgoi for 2009. |
|
(13) |
|
40,000 unvested options will vest on May 14, 2007 and the remaining 40,000 unvested options
will vest on May 14, 2008. |
|
(14) |
|
10,000 unvested options will vest on February 4, 2008. |
|
(15) |
|
25,000 unvested options will vest on May 12, 2007. |
|
(16) |
|
50,000 unvested options will vest on September 16, 2007. |
|
(17) |
|
The 165,000 unvested options will vest as follows: 45,000 will vest on the earlier of
December 31, 2007 or achievement of each of four additional defined development criteria for
Oyu Tolgoi currently planned for 2007; 45,000 will vest on the earlier of December 31, 2008
or achievement of one of two additional defined development criteria currently planned for
Oyu Tolgoi for 2008; and the remaining 75,000 will vest on the earlier of December 31, 2009
and achievement of each of two additional defined development criteria planned for Oyu
Tolgoi for 2009. |
|
(18) |
|
10,000 unvested options will vest on June 12, 2007. |
- 23 -
Summary of Board and Committee Meetings Held
The following table summarizes Board and Committee meetings held during the year ended December 31,
2006:
|
|
|
|
|
Board of Directors |
|
|
7 |
|
Audit Committee |
|
|
4 |
|
Compensation and Benefits Committee |
|
|
5 |
|
Corporate Governance and Nominating Committee |
|
|
4 |
|
Executive Committee |
|
|
2 |
|
During 2006, three meetings of the Board, two meetings of the Compensation and Benefits Committee,
one meeting of the Audit Committee and one meeting of the Corporate Governance and Nominating
Committee were held by teleconference. In addition, there were 26 resolutions passed in writing by
the Board, seven by the Compensation and Benefits Committee, two by the Corporate Governance and
Nominating Committee, and three by the Executive Committee. No resolutions in writing were passed
by the Audit Committee in 2006. Resolutions in writing must be executed by all of the directors
entitled to vote on a matter.
- 24 -
APPOINTMENT OF AUDITORS
Deloitte & Touche LLP, Chartered Accountants, will be nominated at the Meeting for re-appointment
as auditors of the Corporation at remuneration to be fixed by the Board of Directors. Deloitte &
Touche LLP have been the Corporations auditors since January 1995.
Fees billed by Deloitte & Touche LLP and its affiliates during fiscal 2006 and fiscal 2005 were
approximately Cdn$2,534,000 and Cdn$1,343,000, respectively. The aggregate fees billed by the
auditors in fiscal 2006 and fiscal 2005 are detailed below.
|
|
|
|
|
|
|
|
|
(Canadian $ in 000s) |
|
2006 |
|
2005 |
Audit Fees (a) |
|
$ |
1,588 |
|
|
$ |
936 |
|
Audit Related Fees (b) |
|
$ |
246 |
|
|
$ |
208 |
|
Tax Fees (c) |
|
$ |
700 |
|
|
$ |
200 |
|
All Other Fees |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,534 |
|
|
$ |
1,343 |
|
|
|
|
(a) |
|
Fees for audit services billed or expected to be billed relating to fiscal 2006 and 2005
consisted of: |
|
|
|
audit of the Corporations annual statutory financial statements; |
|
|
|
|
reviews of the Corporations quarterly financial statements; and |
|
|
|
|
comfort letters, consents, and other services related to SEC and Canadian
securities regulatory authorities matters. |
|
|
In addition, in 2006 fees were paid for services provided in connection with review
pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and the required attestations
relating to internal controls. |
|
(b) |
|
Fees for audit-related services provided during fiscal 2006 and 2005 consisted of financial
accounting and reporting consultations and audit of annual statutory financial statements of
the Corporations subsidiaries. |
|
(c) |
|
Fees for tax services provided during fiscal 2006 and 2005 consisted of income tax
compliance, and tax planning and advice relating to transactions and proposed transactions
of the Corporation and its subsidiaries. |
|
(d) |
|
The Corporation did not incur fees for products and services provided by its principal
accountant during fiscal 2006 and 2005 not disclosed in subsections (a), (b) or (c). |
Pre-Approval Policies and Procedures
All services to be performed by the Corporations independent auditor must be approved in advance
by the Audit Committee or a designated member of the Audit Committee (Designated Member). The
Designated Member is a member of the Audit Committee who has been given the authority to grant
pre-approvals of permitted audit and non-audit services.
The Audit Committee has considered whether the provision of services other than audit services is
compatible with maintaining the auditors independence and has adopted a
- 25 -
policy governing the
provision of these services. This policy requires the pre-approval
by the Audit Committee or the Designated Member of all audit and non-audit services provided by
the external auditor, other than any de minimis non-audit services allowed by applicable law or
regulation. The decisions of the Designated Member to pre-approve a permitted service needs to
be reported to the Audit Committee at its regularly scheduled meetings.
Pre-approval from the Audit Committee or Designated Member can be sought for planned engagements
based on budgeted or committed fees. No further approval is required to pay pre-approved fees.
Additional pre-approval is required for any increase in scope or in final fees.
Pursuant to these procedures, 100% of each of the services provided by the Corporations external
auditors relating to the fees reported as audit, audit-related, tax and all other fees were
pre-approved by the Audit Committee or the Designated Member.
PARTICULARS OF MATTERS TO BE ACTED UPON
Amended and Restated Equity Incentive Plan
Purpose
The Corporation is seeking authorization from its shareholders at the Meeting to amend and restate
the Corporations existing Employees and Directors Equity Incentive Plan (the Incentive Plan)
to: (i) increase the maximum number of Common Shares of the Corporation which may be allocated for
issuance from 32,000,000 under the Corporations existing Incentive Plan (the Existing Plan) to
37,000,000 Common Shares under the proposed amended and restated plan (the Amended Plan); (ii)
increase the maximum number of Common Shares of the Corporation which may be allocated for issuance
under the Bonus Plan component of the Existing Plan from 2,000,000 Common Shares to 3,500,000
Common Shares; (iii) to amend the Existing Plans general amendment provisions to comply with
recent amendments to the rules and policies of The Toronto Stock Exchange (TSX); and (iv) to make
other technical amendments to the Existing Plan (the Incentive Plan Amendment Resolution). The
TSX has approved the proposed amendments to the Existing Plan, subject to approval by the
shareholders at the Meeting.
The Incentive Plan Amendment Resolution is attached to this Circular as Schedule B and the Amended
Plan is attached as Schedule C to this Circular.
Summary of Existing Plan
Overview
The Existing Plan has three components: an Option Plan, which provides for the grant to eligible
participants of incentive stock options exercisable to purchase Common Shares of the Corporation; a
Bonus Plan, which provides for awards of fully paid Common Shares to eligible participants as and
when determined to be warranted on the basis of past performance; and a Purchase Plan, under which
eligible participants have the opportunity to purchase Common Shares through payroll deductions
which are supplemented by Corporation contributions.
The eligible participants in the Existing Plan include directors of the Corporation or any
affiliate, any full time and part time employees (including officers) of the Corporation or any
affiliate thereof that the Board determines to be employees eligible for participation
- 26 -
in the
Existing Plan. Persons or companies engaged by the Corporation or an affiliate to
provide services for an initial, renewable or extended period of 12 months or more are eligible for
participation in the Existing Plan as the Board determines.
The Existing Plan is administered by the Compensation and Benefits Committee (the Committee)
appointed by the Board.
Option Plan
Option Grants
The Option Plan authorizes the Board, on the recommendation of the Committee, to grant options to
purchase Common Shares. The number of Common Shares, the exercise price per Common Share, the
vesting period and any other terms and conditions of options granted pursuant to the Option Plan,
from time to time are determined by the Board, on the recommendation of the Committee, at the time
of the grant, subject to the defined parameters of the Option Plan.
Exercise Price
The exercise price of any option granted under the Existing Plan cannot be less than the weighted
average price of the Common Shares on the Toronto Stock Exchange for the five days on which Common
Shares were traded immediately preceding the date of grant.
Exercise Period and Vesting
Options are exercisable for a period of time determined by the Board not exceeding five years from
the date the option is granted. Options may be earlier terminated in the event of death or
termination of employment or appointment. Vesting of options is determined by the Board. Failing a
specific vesting determination by the Board, options automatically become exercisable incrementally
over a period of five years from the date of grant, as to one-fifth of the total number of shares
under option in each such year. The right to exercise an option may be accelerated in the event a
takeover bid in respect of the Common Shares is made.
Cashless Exercise
Share appreciation rights may also be granted, at the discretion of the Board on the recommendation
of the Committee, to an Optionee in conjunction with, or at any time following the grant of, an
option. Share appreciation rights under the Existing Plan effectively allow an Optionee to exercise
an option on a cashless basis by electing to relinquish, in whole or in part, the right to
exercise the option and receive, in lieu thereof, a number of fully paid Common Shares. The number
of Common Shares issuable on the exercise of share appreciation rights is equal to the quotient
obtained by dividing the difference between the aggregate fair market value and the aggregate
option price of all Common Shares subject to the option by the fair market value of one (1) Common
Share.
Financial Assistance
The Board may, in its discretion but subject to applicable law, authorize the Corporation to make
loans to employees (excluding any director or executive officer) to assist them in exercising
options. The terms of any such loans include security, in favour of the Corporation, in the Common
Shares issued upon exercise of the options, which security may be granted on a non-recourse basis.
No such loans are currently outstanding.
- 27 -
Termination or Death
If an optionee dies while employed by the Corporation, any option held by him will be exercisable
for a period of 12 months or prior to the expiration of the options (whichever is sooner) by the
person to whom the rights of the optionee shall pass by will or applicable laws of descent and
distribution. If an optionee is terminated for cause, no option will be exercisable unless the
Board determines otherwise. If an optionee is terminated for any reason other than cause, then the
options will be exercisable for a period of 12 months or prior to the expiration of the options
(whichever is sooner).
Bonus Plan
The Bonus Plan permits the Board on the recommendation of the Committee to authorize the issuance,
from time to time, of Common Shares to employees and directors of the Corporation and its
affiliates. The criteria for determining if and when such awards should be made and the quantum of
such awards is within the discretion of the Board. The Bonus Plan provides for the issuance of a
maximum of 2,000,000 Common Shares in respect of bonus awards. Common Shares allocated to the
Bonus Plan may be reallocated for issuance under the Option Plan or Purchase Plan and are then no
longer available for issuance under the Bonus Plan.
Purchase Plan
Participation Criteria
Participants in the Purchase Plan are full-time employees of the Corporation who have completed at
least one year (or less, at the discretion of the Board on the recommendation of the Committee) of
continuous service and who elect to participate.
Contribution Limits
Eligible employees are entitled to contribute up to seven per cent (7%) of their annual basic
salary to the Share Purchase Plan in semi-monthly installments. The Corporation (at the discretion
of the Board) makes a contribution of up to one hundred per cent (100%) of the employees
contribution on a quarterly basis.
Number of Shares
Each participant receives, at the end of each calendar quarter during which he or she participates
in the Purchase Plan, a number of Common Shares equal to the quotient obtained by dividing the
aggregate amount of all contributions to the Purchase Plan by the participant, and by the
Corporation on the participants behalf, during the preceding quarter by the weighted average
trading price of the Common Shares on the Toronto Stock Exchange during the quarter.
Termination of Employment
If the participants employment with the Corporation is terminated for any reason, any portion of
the participants contribution then held in trust for a participant pending a quarterly purchase of
Common Shares is returned to him or her or to his or her estate.
Transferability
Benefits, rights and options under the Existing Plan are non-transferable and during the lifetime
of an Existing Plan participant, may only be exercised by such participant.
- 28 -
Amendment Procedure
The Board has the right to amend, modify or terminate the Existing Plan, in whole or in part, at
any time if and when deemed advisable in the absolute discretion of the Board of Directors.
However, any amendment to the Existing Plan which would materially increase the benefits under the
Existing Plan, materially modify the requirements as to eligibility for participation in the
Existing Plan or materially increase the number of Common Shares that may be issued or reserved for
issuance under the Existing Plan will be effective only upon the approval of the shareholders of
the Corporation, and, if required, the approval of any regulatory body having jurisdiction over the
securities of the Corporation and the approval of any stock exchange on which the Common Shares are
then listed for trading.
Share Issuance Limits
The aggregate maximum number of Common Shares which the Corporation may, from time to time, issue
or reserve for issuance under the Existing Plan is 32,000,000 Common Shares. The aggregate number
of Common Shares which the Corporation may at any time reserve for issuance under the Existing Plan
to any one person may not exceed five per cent (5%), and to Insiders under the Existing Plan may
not exceed ten per cent (10%), of the issued and outstanding Common Shares at such time. The
aggregate number of Common Shares that may be issued within any one-year period to Insiders under
the Existing Plan shall not exceed ten per cent (10%), and to any one Insider and his or her
Associates under the Existing Plan may not exceed five per cent (5%), of the issued and outstanding
Common Shares at such time.
Securities Issued and Unissued under the Existing Plan
There are currently 373,917,043 Common Shares of the Corporation issued and outstanding. Since the
date of inception of the Existing Plan on June 26, 1996, the 32,000,000 Common Shares authorized
for issuance under the Existing Plan have been issued or reserved for issuance as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Issued |
|
|
|
|
|
|
and |
|
|
|
|
|
|
Outstanding |
|
|
|
|
|
|
Common |
|
|
Number of Common Shares |
|
Shares |
Common Shares previously issued
upon exercise of options under
Option Plan |
|
|
14,418,918 |
|
|
|
3.9 |
% |
Common Shares reserved for future
issuance pursuant to unexercised
options under Option Plan |
|
|
13,243,734 |
|
|
|
3.54 |
% |
Common Shares previously issued
pursuant to Purchase Plan |
|
|
601,426 |
|
|
|
0.16 |
% |
Common Shares previously issued
pursuant to Bonus Plan |
|
|
826,120 |
|
|
|
0.22 |
% |
Unissued Common Shares available
for future awards under Bonus
Plan |
|
|
572,454 |
|
|
|
0.15 |
% |
Unissued Common Shares available
for future option grants under
Option Plan and purchases under
Purchase Plan |
|
|
2,337,348 |
|
|
|
0.63 |
% |
Maximum number of Common Shares
available for issuance |
|
|
32,000,000 |
|
|
|
8.56 |
% |
- 29 -
There are no entitlements to Common Shares under the Existing Plan which are subject to
ratification by shareholders.
Proposed Amendments
Maximum Number of Shares Under the Incentive Plan and the Bonus Plan
The Existing Plan currently provides that the aggregate number of Common Shares that may be issued
or reserved for issuance may not exceed 32,000,000 Common Shares. There is currently a balance
available of 2,337,348 Common Shares available for future grants under the Option Plan and
purchases under the Purchase Plan.
The Corporation believes that incentive stock options are a valuable mechanism for incentivizing
the Corporations existing employees, attracting new employees and aligning their interests with
those of the Corporations shareholders. To provide the Corporation with the continued flexibility
of granting incentive stock options under the Option Plan, the Corporation is seeking approval from
the shareholders at the Meeting, as part of the Incentive Plan Amendment Resolution, to increase
the number of Common Shares of the Corporation issuable under the Existing Plan to a maximum of
37,000,000 Common Shares, which would represent 9.895% of the Common Shares currently issued and
outstanding.
The Existing Plan currently provides for the issuance of a maximum of 2,000,000 Common Shares
(within the overall maximum number of Common Shares issuable under the Incentive Plan) in respect
of bonus awards. Bonus awards are an integral part of the Corporations compensation policy to
reward extraordinary efforts of the Corporations officers and employees. To date, 826,120 bonus
shares have been issued under the Bonus Plan. To provide the Corporation with the flexibility of
granting incentive bonus shares, the Corporation is seeking approval, as part of the Incentive Plan
Amendment Resolution, to increase the maximum number of Common Shares of the Corporation issuable
under the Bonus Plan component of the Existing Plan to 3,500,000 Common Shares under the Amended
Plan.
The proposed new share issuance limits appear as sections 3.2 and 5.1 of the Amended Plan attached
as Schedule C to this Circular.
Detailed Amendment Procedure
In light of recent amendments to the rules of the TSX (the TSX Rules), the Corporation is seeking
authorization from its shareholders to replace the general amendment provision contained in the
Existing Plan with a more detailed amendment provision that is compliant with TSX Rules. The TSX
Rules now require equity incentive plans to outline more specifically which amendments may be made
with, and without, the approval of the Corporations shareholders. In the absence of a revised
amendment procedure that complies with the TSX Rules, the TSX requires shareholder approval for all
amendments to an equity incentive plan.
The Corporation believes that in order to properly administer the Incentive Plan, the Board should
continue to carry out certain amendments to the Incentive Plan and awards thereunder without having
to seek shareholder approval for each such amendment. The Board has no current intention to make
any amendments to the Plan, or any Options or awards thereunder, except as provided for in the
Incentive Plan
- 30 -
Amendment Resolution. However, in order to adhere to the TSX Rules and to provide
the Corporation with the flexibility to carry out certain amendments to the Incentive Plan
without shareholder approval, the Corporation is seeking approval from the shareholders at the Meeting, as
part of the Incentive Plan Amendment Resolution, to replace the general amendment provision in
the Existing Plan with the more detailed amending
provision in Section 5.7 of the Amended Plan which is attached as Schedule C to this Circular.
If the Amended Plan is adopted, the Board, based on the recommendation of the Compensation and
Benefits Committee, will have the authority and discretion to amend the Incentive Plan and awards
granted thereunder without shareholder approval for all matters, including the matters set forth in
the proposed Section 5.7 of the Amended Plan, except for those matters requiring shareholder
approval. Accordingly, under the Amended Plan, the Board will have the power to amend, suspend or
terminate the Incentive Plan, and awards thereunder, including changes of a clerical or grammatical
nature, changes regarding persons eligible to participate in the Incentive Plan, changes to the
exercise price, vesting, terms and termination provisions of options, changes to the share
appreciation right provisions, changes to the share bonus provisions (other than the maximum number
of bonus shares issuable under the Incentive Plan), changes to the authority and role of the
Compensation and Benefits Committee under the Incentive Plan, changes to the acceleration and
vesting of options in the event of a take-over bid and other matters relating to the Option Plan
and the awards granted thereunder. Subject to regulatory approval, shareholder approval will only
be required for the following amendments:
|
(i) |
|
an amendment to the aggregate number of Shares that may be reserved for
issuance under the Incentive Plan; |
|
|
(ii) |
|
an amendment to the aggregate maximum number of Common Shares issuable under
the Share Bonus Plan component of the Incentive Plan; |
|
|
(iii) |
|
an amendment to the limitations on the maximum number of Shares that may be
reserved for issuance, or issued, to Insiders under the Incentive Plan; |
|
|
(iv) |
|
an amendment that would reduce the exercise price, or extend the expiry date,
of an outstanding Option granted to an Insider under the Incentive Plan; or |
|
|
(v) |
|
an amendment to the amending provisions under the Incentive Plan. |
The proposed new amending provision appears as Section 5.7 of the Amended Plan which is attached as
Schedule C to the Circular.
Blackout Expiration Term
Under the Corporations Corporate Disclosure, Confidentiality and Securities Trading Policy,
trading of the Corporations securities, including the exercise by directors, officers, employees
and certain others of options to purchase Common Shares of the Corporation, is restricted during
certain blackout periods. These blackout periods are imposed from time to time by the
Corporation in circumstances where material non-public information exists, including periods where
financial statements are being prepared but results have not yet been publicly disclosed.
Amendments to the TSX Rules now contemplate that equity incentive plans may provide for the
expiration of the terms of options held by insiders and other plan participants to
- 31 -
be extended to a date shortly after the expiry date of an option, if such expiry occurs during, or shortly
following, a blackout period under an issuers insider trading or similar policy.
In light of these amendments and so that optionees whose Options expire during or within ten days
following an expiry of blackout periods are treated equally with other
optionees under the Plan, the Corporation proposes amending the provisions of the Existing Plan
that deal with the terms of Options to provide for the expiration of the terms of Options held by
Insiders and other plan participants to be the later of the original expiry date and a date that is
ten business days following the end of such blackout period. This provision would apply to all
outstanding options held by insiders and other participants under the Existing Plan and under the
Amended Plan.
The proposed amendment to the terms of Options provision appears in Subsection 1.2(d) and
Subsection 2.5 of the Amended Plan which is attached as Schedule C to this Circular.
Other Amendments
Under the terms of the Incentive Plan, the Board, on the recommendation of the Compensation and
Benefits Committee, authorizes grants of options to eligible participants under the Incentive Plan.
The Corporation proposes a technical amendment to the provisions in respect of the grant of options
to clarify that the date of grant of options will be the date that the Compensation and Benefits
Committee approves such grant for recommendation to the Board, provided the Board approves such
grant, or for a grant of options not approved by the Compensation and Benefits Committee for
recommendation to the Board, the date such grant was approved by the Board.
Also included as technical amendments to the Existing Plan to comply with applicable TSX policies
are amendments to the definitions of Insider and Affiliate in Section 1.2 of the Incentive
Plan, to Section 2.6 (Share Appreciation Right) of the Incentive Plan, as well as to Section 5.1
(a) and (b).
The proposed amendment to the grant of options provisions appears in Subsection 2.4 of the Amended
Plan which is attached as Schedule C to this Circular.
CONFIRMATION OF REVISIONS TO THE BY-LAWS
On March 9, 2007, the Board enacted revisions to Section 7.1 of the By-Laws, which revisions will
cease to be effective unless they are confirmed by resolution passed by a simple majority of the
votes cast by shareholders at the Meeting.
The revisions to Section 7.1 of the By-Laws allow for shares to be issued electronically, without a
certificate, as will be required for shares listed on a U.S. stock exchange beginning in 2008.
A copy of the revised By-Laws is available on request to the Corporate Secretary, 654 999 Canada
Place, Vancouver, British Columbia V6C 3E1, telephone (604) 688-5755, and is available on the
Corporations website at www.ivanhoe-mines.com.
The proposed resolution being put forward for consideration by shareholders is as follows:
RESOLVED as an ordinary resolution, that revisions to Section 7.1 of the By-Laws
of the Corporation, being revisions to allow for shares to be
- 32 -
issued electronically, without a certificate, that were enacted by the Board on March 9,
2007, are hereby confirmed without amendment.
INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS
Other than as disclosed below or elsewhere in this Management Proxy Circular, no insider,
director nominee or associate or affiliate of any such insider or director nominee, has any
material interest, direct or indirect, in any material transaction since
the commencement of the Corporations last financial year or in any proposed transaction, which,
in either case, has materially affected or would materially affect the Corporation.
At the end of 2006 and 2005 subsidiaries of the Corporation holding the Savage River iron ore
project owed approximately U.S.$5.1 million to Mr. Robert Friedland, Chairman of the Corporation,
which indebtedness originated as a result of the December 2000 acquisition by the Corporation of
the Savage River project. Following the sale of the Savage River operations in February 2005,
repayment of this balance is contingent upon the Corporation receiving proceeds in excess of
approximately U.S.$111 million from the sale of the Savage River operations. To date, U.S.$49.7
million has been received from the sale with an additional U.S.$21 million expected to be received
on Match 31, 2007.
The Corporation is a party to cost sharing agreements with other companies in which Mr. Friedland
has a material direct or indirect beneficial interest. Through these agreements, the Corporation
shares, on a cost-recovery basis, office space, furnishings, equipment and communications
facilities in Vancouver, Singapore, Beijing and London, and an aircraft. The Corporation also
shares the costs of employing administrative and non-executive management personnel in these
offices. During the year ended December 31, 2006, the Corporations share of these costs was
U.S.$11.7 million. The companies with which the Corporation is a party to the cost sharing
agreements, and Mr. Friedlands ownership interest in each of them, are as follows:
|
|
|
|
|
|
|
Robert Friedland |
Corporation Name |
|
Ownership Interest |
Ivanhoe Energy Inc. |
|
|
20.24 |
% |
Ivanhoe Capital Corporation |
|
|
100 |
% |
Ivanhoe Nickel & Platinum Ltd. |
|
|
50 |
% |
Jinshan Gold Mines Inc. |
|
|
|
(1) |
Asia Gold Corp. |
|
|
|
(1) |
|
|
|
(1) |
|
Mr. Friedland owns 27.03% of the Common Shares of the Corporation, which owns
46.26 % of the common shares of Jinshan Gold Mines Inc. and 44.5% of the common shares of Asia
Gold Corp. as at December 31, 2006. |
- 33 -
EXECUTIVE COMPENSATION
In accordance with the requirements of applicable securities legislation in Canada, the following
executive compensation disclosure is provided as at December 31, 2006, in respect of the Chief
Executive Officer, Chief Financial Officer and each of the Corporations three executive officers
whose annual compensation exceeded Cdn.$150,000 in the year ended December 31, 2006
(collectively, the Named Executive Officers). During the year ended December 31, 2006, the
aggregate compensation paid to all officers of the Corporation who received more than Cdn.$40,000
in aggregate compensation during such period was U.S.$5,800,000 (Cdn.$6,578,360).
Summary Compensation Table
The following table sets forth a summary of all compensation paid during the years ending
December 31, 2004, 2005 and 2006 to each of the Named Executive Officers (NEO).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Compensation |
|
Awards |
|
Payouts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under |
|
Shares or |
|
|
|
|
|
|
NEO Name and |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Annual |
|
Options/ |
|
Units Subject |
|
|
|
|
|
All Other |
Principal |
|
|
|
|
|
Salary |
|
Bonus |
|
Compensation |
|
SARs |
|
to Resale |
|
LTIP |
|
Compensation |
Position |
|
Year |
|
(U.S.$) |
|
(U.S.$) |
|
(U.S.$) (1) |
|
Granted |
|
Restrictions |
|
Payouts |
|
(U.S.$) |
John Macken(4) |
|
|
2006 |
|
|
|
578,875 |
|
|
|
500,000 |
|
|
|
|
|
|
|
2,000,000 |
|
|
|
|
|
|
|
|
|
|
|
24,473 |
(3) |
(CEO & President) |
|
|
2005 |
|
|
|
457,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,200 |
(2) |
|
|
|
2004 |
|
|
|
370,022 |
|
|
|
|
|
|
|
|
|
|
|
1,000,000 |
|
|
|
|
|
|
|
|
|
|
|
8,200 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tony Giardini(5) |
|
|
2006 |
|
|
|
156,092 |
|
|
|
25,000 |
|
|
|
|
|
|
|
250,000 |
|
|
|
|
|
|
|
|
|
|
|
2,980 |
(3) |
(CFO) |
|
|
2005 |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
|
2004 |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert Friedland(6) |
|
|
2006 |
|
|
|
|
|
|
|
1,000,000 |
(7) |
|
|
|
|
|
|
2,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Chairman and |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
former CEO) |
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
549 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter Meredith(8) |
|
|
2006 |
|
|
|
262,592 |
|
|
|
1,000,000 |
|
|
|
|
|
|
|
400,000 |
|
|
|
|
|
|
|
|
|
|
|
13,481 |
(3) |
(Deputy Chairman |
|
|
2005 |
|
|
|
216,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,315 |
(3) |
& former CFO) |
|
|
2004 |
|
|
|
243,053 |
|
|
|
|
|
|
|
|
|
|
|
250,000 |
|
|
|
|
|
|
|
|
|
|
|
10,602 |
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
R. Edward Flood |
|
|
2006 |
|
|
|
275,000 |
|
|
|
150,000 |
|
|
|
|
|
|
|
300,000 |
|
|
|
|
|
|
|
|
|
|
|
4,215 |
(2) |
(former Deputy |
|
|
2005 |
|
|
|
226,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,690 |
(2) |
Chairman) |
|
|
2004 |
|
|
|
179,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,690 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steve Garcia(9) |
|
|
2006 |
|
|
|
300,000 |
|
|
|
100,000 |
|
|
|
|
|
|
|
250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Executive VP) |
|
|
2005 |
|
|
|
194,318 |
|
|
|
|
|
|
|
|
|
|
|
250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Doug Kirwin |
|
|
2006 |
|
|
|
209,230 |
|
|
|
|
|
|
|
74,635 |
(10) |
|
|
100,000 |
|
|
|
|
|
|
|
|
|
|
|
9,211 |
(3) |
(Executive VP, |
|
|
2005 |
|
|
|
180,360 |
|
|
|
|
|
|
|
94,918 |
(11) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,837 |
(3) |
Exploration) |
|
|
2004 |
|
|
|
180,136 |
|
|
|
|
|
|
|
73,119 |
(12) |
|
|
50,000 |
|
|
|
|
|
|
|
|
|
|
|
7,765 |
(3) |
|
|
|
(1) |
|
Perquisites and benefits do not exceed the lesser of Cdn.$50,000 and 10% of the total
of the annual salary and bonus for any of the Named Executive Officers except where numbers
are disclosed in this column. |
|
(2) |
|
Includes life insurance premiums. |
|
(3) |
|
Includes life insurance premiums and share purchase plan. |
|
(4) |
|
Mr. Macken became the Corporations Chief Executive Officer on May 12, 2006. |
|
(5) |
|
Mr. Giardini commenced employment in May 2006. |
|
(6) |
|
Mr. Friedland ceased being Chief Executive Officer of the Corporation on May 12, 2006. |
|
(7) |
|
Non-cash bonus paid by the issuance of 107,991 Common Shares. |
|
(8) |
|
Mr. Meredith was the Corporations Chief Financial Officer from May 20, 2004 to May 12,
2006. |
|
(9) |
|
Mr. Garcia commenced employment in May, 2005. |
|
(10) |
|
Represents housing allowance of $36,000 and childrens school fees of $41,035. |
- 34 -
|
|
|
(11) |
|
Represents housing allowance of $36,000 and childrens school fees of $58,918. |
|
(12) |
|
Represents housing allowance of $36,000 and childrens school fees of $37,119. |
- 35 -
Long Term Incentive Plan
The Corporation does not presently have a long-term incentive plan for its executive officers.
Options/SAR Grants During The Most Recently Completed Financial Year
Other than as described below, there were no options or SAR grants made to the Named Executive
Officers during the most recently completed financial year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of |
|
|
|
|
|
Market Value of |
|
|
|
|
Securities |
|
Total |
|
|
|
|
|
Securities |
|
|
|
|
Under |
|
Options/SARs |
|
|
|
|
|
Underlying |
|
|
|
|
Options/SARs |
|
Granted to |
|
Exercise or Base |
|
Options/SARs on |
|
|
|
|
Granted |
|
Employees in |
|
Price |
|
the Date of Grant |
|
Expiration |
Name |
|
(#) (1) |
|
Financial Year |
|
(Cdn.$/Security) |
|
(Cdn.$/Security) |
|
Date |
Robert Friedland |
|
|
2,000,000 |
(2) |
|
|
23.4 |
% |
|
$ |
9.73 |
|
|
$ |
9.73 |
|
|
March 27, 2013 |
John Macken |
|
|
2,000,000 |
(2) |
|
|
23.4 |
% |
|
$ |
9.73 |
|
|
$ |
9.73 |
|
|
March 27, 2013 |
Peter Meredith |
|
|
400,000 |
(2) |
|
|
4.68 |
% |
|
$ |
9.73 |
|
|
$ |
9.73 |
|
|
March 27, 2013 |
Tony Giardini |
|
|
250,000 |
(2) |
|
|
2.92 |
% |
|
$ |
9.73 |
|
|
$ |
9.73 |
|
|
March 27, 2013 |
R. Edward Flood |
|
|
300,000 |
(2) |
|
|
3.0 |
% |
|
$ |
9.73 |
|
|
$ |
9.73 |
|
|
March 27, 2013 |
Steve Garcia |
|
|
250,000 |
(3) |
|
|
2.92 |
% |
|
$ |
9.73 |
|
|
$ |
9.73 |
|
|
March 27, 2013 |
Douglas Kirwin |
|
|
100,000 |
(4) |
|
|
1.17 |
% |
|
$ |
7.93 |
|
|
$ |
7.93 |
|
|
May 23, 2011 |
|
|
|
(1) |
|
The securities issued upon exercise of the options are common shares of the
Corporation. |
|
(2) |
|
20% vested on the earlier of December 31, 2006 or achievement of each of four defined
development criteria for Oyu Tolgoi currently planned for 2006, 15% to vest on the earlier
of December 31, 2007 or achievement of each of four additional defined development
criteria for Oyu Tolgoi currently planned for 2007, 15% to vest on the earlier of December
31, 2008 or achievement of one of two additional defined development criteria currently
planned for Oyu Tolgoi for 2008 and the remaining 25% to vest on the earlier of December
31, 2009 and achievement of each of two additional defined development criteria planned
for Oyu Tolgoi for 2009. |
|
(3) |
|
10,000 vested with the partial release of the Oyu Tolgoi project, 20,000 to vest upon
the completion of a definitive estimate, 20,000 to vest when engineering 90% complete,
20,000 to vest when Shaft #1 complete, 40,000 to vest when overall project 75% complete,
20,000 to vest with first ore, 100,000 to vest with nameplate production, and 20,000 to
vest with Hugo North feasibility. |
|
(4) |
|
At any time from the date of grant until the first anniversary of the date of grant,
20% of the options may be exercised. At any time during each of the next four years on
anniversary of the date of grant an additional 20% of the securities may be vested per
year until, in the fifth year of the option, 100% of the options will be exercisable. |
Aggregated Option Exercises
Other than as described below, no options or stock appreciation rights were exercised during the
year ended December 31, 2006 by the Named Executive Officers.
- 36 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unexercised Options at |
|
Value of Unexercised in the |
|
|
Securities |
|
Aggregate |
|
December 31, 2006 (1) |
|
Money Options at |
|
|
Acquired on |
|
Value |
|
(Exercisable/ |
|
December 31, 2006 (1) |
|
|
Exercise |
|
Realized |
|
Unexercisable) |
|
(Exercisable/Unexercisable) |
Name |
|
(#) |
|
(Cdn.$) |
|
(#) |
|
(Cdn.$) |
Robert Friedland |
|
NIL |
|
NIL |
|
900,000/1,100,000 |
|
$1,593,000/$1,947,000 |
|
|
|
|
|
|
|
|
|
John Macken |
|
NIL |
|
NIL |
|
1,000,000/NIL |
|
NIL/NIL |
|
|
|
|
|
|
700,000/300,000 |
|
$2,640,000/$1,116,000 |
|
|
|
|
|
|
900,000/1,100,000 |
|
$1,593,000/$1,947,000 |
|
|
|
|
|
|
|
|
|
Peter Meredith |
|
NIL |
|
NIL |
|
30,000/20,000 |
|
$114,300/$76,200 |
|
|
|
|
|
|
120,000/80,000 |
|
$396,000/$264,000 |
|
|
|
|
|
|
180,000/220,000 |
|
$318,600/$389,400 |
|
|
|
|
|
|
|
|
|
Tony Giardini |
|
NIL |
|
NIL |
|
112,500/137,500 |
|
$199,125/$243,375 |
|
|
|
|
|
|
|
|
|
R. Edward Flood |
|
123,393(2) |
|
$937,786.80 |
|
NIL/NIL |
|
NIL/NIL |
|
|
|
|
|
|
|
|
|
Steve Garcia |
|
NIL |
|
NIL |
|
100,000/150,000 |
|
$309,000/$463,500 |
|
|
|
|
|
|
10,000/240,000 |
|
$17,700/$424,800 |
|
|
|
|
|
|
|
|
|
Douglas Kirwin |
|
30,000 |
|
$58,600 |
|
NIL/10,000 |
|
NIL/$38,100 |
|
|
20,000 |
|
$81,400 |
|
NIL/80,000 |
|
NIL/$285,600 |
|
|
|
(1) |
|
The figures representing Exercisable/Unexercisable options do not include options that have
vested since December 31, 2006 and the date of this Management Proxy Circular. |
|
(2) |
|
Mr. Flood exercised 150,000 stock options by way of the Corporations Share Appreciation
Right and received 123,393 common shares. 26,607 common shares were returned to the
Corporations treasury as payment. |
Option and SAR Repricings
No options or stock appreciation rights were re-priced during the year ended December 31, 2006.
Defined Benefit and Pension Plans
The Corporation does not presently provide any defined benefit or pension plan to its directors,
executive officers or employees.
Indemnity Insurance
During 2006, the Corporation purchased director and officer liability insurance with a
U.S.$100,000,000 limit. The total premiums paid by the Corporation in respect of this insurance
coverage for the twelve month term were U.S.$1,550,395.
Employment Contracts
The Corporation has an employment contract with John Macken respecting his employment as
President of the Corporation. The term of the agreement commenced on January 1, 2004 and provides
for an initial base salary, a housing benefit and the same benefit entitlements available to the
Corporations other executive officers. The Corporation may terminate Mr. Mackens employment
for cause, or, on payment of 12 months base salary, without cause. In the event of a change of
control of the Corporation and if the contract is terminated by the Corporation within twelve
months thereafter, Mr. Macken would be entitled to receive payment of 12 months base salary and
a vesting of all unexercised stock options which will thereafter remain exercisable for six
months. Under the terms of the contract, Mr. Macken was granted an initial incentive stock
option effective January 1, 2004 to acquire 1,000,000 common shares which vested over three years
and expires on November 1, 2013. Mr. Macken was
- 37 -
granted a further option on March 30, 2004 to
acquire an additional 1,000,000 common shares, which options vested as to 20% in March, 2004 and,
as to the balance, 20% in
March, 2005, 30% in March 2006 and 30% in March 2007, subject in each case to earlier vesting
upon specified corporate goals identified by the Board of Directors being met. Mr. Macken was
also granted a further option on March 27, 2006 which options expire on March 27, 2013 and which
vested as to 25% on grant, as to 20% on December 31, 2006, as to 15% on December 31, 2007, as to
15% on December 31, 2008, and as to the balance on December 31, 2009, subject to earlier vesting
upon specific corporate goals being met by the Corporation.
Mr. Giardini was employed by the Corporation on May 1, 2006 as Chief Financial Officer. Under his
contract, the Corporation may terminate Mr. Giardini for cause and if this were to happen, Mr.
Giardini would have no entitlement to claim any compensation with respect to the termination. If
Mr. Giardini is terminated without cause, he is entitled to receive twelve months salary and
benefits in lieu of notice. Should he wish to resign, Mr. Giardini must give the Corporation not
less than eight weeks notice of his resignation. In the event of a change of control and should
the contract be terminated by the Corporation, Mr. Giardini will be entitled to received a lump sum
payment in an amount equal to twelve months salary.
The Corporation has also had employment contracts with Douglas Kirwin respecting his employment
with the Corporation since 1995. His current contract for services as the Corporations
Executive Vice President, Exploration was originally entered into in November 1998 and was
renewed in May 2003. Under the contract, the Corporation may terminate Mr. Kirwins employment
for death, disability or cause, or, on payment of one months salary multiplied by the number of
whole years Mr. Kirwin has been employed by the Corporation, without cause. In the event of a
change of control of the Corporation which has not been approved by the then existing Board, Mr.
Kirwin is entitled to terminate his employment within three months of the date of such change of
control and to receive a payment equal to three times his annual salary.
Steve Garcia was appointed Executive Vice President of the Corporation on June 21, 2006. Mr.
Garcia, through a consulting company, NES Overseas Ltd. (the Consultant), provides services to
the Corporation, including oversight of the development of the Oyu Tolgoi Project, pursuant to a
consulting agreement. The Consultant is paid a monthly basic wage of U.S.$25,000 plus
accommodation, food and support expenses. The term of the agreement is for one year and in the
event of early termination by the Corporation without cause, the Consultant shall be entitled to
receive a lump sum payment equal to the salary that would otherwise be payable to him during the
contract term. The agreement does not contain any change of control provisions and may be
terminated by either party upon one months written notice.
The Corporation does not have employment contracts with any other of its Named Executive
Officers.
Composition of the Compensation and Benefits Committee
During the year ended December 31, 2006, the Compensation and Benefits Committee was comprised of
Messrs. David Huberman (Chair), Kjeld Thygesen, Robert Hanson and David Korbin.
Since the beginning of the most recently completed financial year, which ended on December 31,
2006, none of Messrs. Huberman, Thygesen, Hanson or Korbin was indebted to the Corporation or
any of its subsidiaries or had any material interest in any transaction or proposed transaction
which has materially affected or would materially affect the Corporation or any of its
subsidiaries. None of the Corporations executive
- 38 -
officers serve as a member of the Compensation
and Benefits Committee or Board of Directors of any entity that has an executive officer serving
as a member of the Compensation and Benefits Committee or Board of Directors of the Corporation.
Report on Executive Compensation
Compensation and Benefits Committee and Approach to Executive Compensation
The Compensation and Benefits Committee is established by the Board to assist the Board in
fulfilling its responsibilities relating to compensation issues and human resources. The members of
the Compensation and Benefits Committee are all independent directors. The Compensation and
Benefits Committee ensures that the Corporation has an executive management compensation plan that
is both competitive and motivational so that it will attract, retain and inspire performance of its
executive management of a quality and nature that will enhance the sustainable growth and success
of the Corporation.
The Compensation and Benefits Committee reviews and recommends the compensation philosophy and
guidelines for the Corporation which include reviewing, for recommendation to the Board, the
compensation philosophy and guidelines, both for executive officers and relating to all employees,
including annual salary and incentive policies and programs, and material changes to the
Corporations benefit programs. The Compensation Committee bases its recommendations on its
compensation principles and on the performance of the individual and the Corporation.
The Compensation and Benefits Committee annually reviews the cash compensation, performance and
overall compensation package for each of the Corporations executive officers. It makes
recommendations to the Board concerning the base salary, bonus and equity incentive arrangements
for the executive and senior officers.
The basic philosophy underlying the Corporations executive compensation program is that the
interests of the Corporations executive officers should be aligned as closely as possible with the
interests of the Corporation and its shareholders as a whole. The approach to compensation policy
reflects the Corporations desire to provide a strong incentive to management to work as a team to
achieve the Corporations long term and short term goals. At the same time, the Corporation
recognizes that, because competition in the mining industry for experienced and highly skilled
employees is intense, the levels of compensation we offer must be comparable to those offered by
our competitors in order to attract, retain and motivate executive personnel of the highest
caliber.
The compensation of the Corporations executive officers is comprised of three principal components
- base salary, performance bonuses in cash or fully paid shares, and long term equity incentives.
The Corporation does not maintain a pension plan or other long term compensation plan for its
executive and senior officers. Executive and senior officers are eligible to participate in the
Share Purchase Plan under the Corporations Incentive Plan. At present, although the Corporations
executives are encouraged to do so, the Corporation does not formally maintain a share ownership
expectation for executive officers.
Compensation for executives is established with reference to the disclosed compensation practices
of companies in the Corporations peer comparison group which is comprised of international
industry-leading global mining companies. Annual salaries, performance bonuses and long-term
incentives are established with reference to the fiftieth to seventy-fifth percentile compensation
level of the Corporations peer comparison group.
- 39 -
A number of the principles of executive compensation currently in practice by the Compensation and
Benefits Committee were developed following (i) the engagement during 2005 of outside consultants
who were retained to develop a justifiable compensation strategy for the Corporations executives
that supports business objectives and rewards experience and impact on organizational success; and
(ii) an
internal review by the Compensation and Benefits Committee during the past year. Consequently, the
Compensation and Benefits Committee has determined that a more formalized approach to implementing
the foregoing principles is required and expects to make further progress on this, with the
assistance of outside consultants during 2007.
Base Salary
In determining the base salary for its executive officers, the Compensation and Benefits Committee
places equal weight on the following factors: (i) the executives overall performance; (ii) the
experience level of the executive officer; (iii) the particular responsibilities related to the
executive officers position; and (iv) salaries paid by the Corporations peer compensation group.
Until recently, base salaries generally and bonuses in particular have been at the relatively low
end of the scale compared to industry peers with a greater emphasis placed on options. Annual
salaries are now targeted at the fiftieth to seventy-fifth percentile compensation level of the
Corporations peer comparison group. To ensure the Corporation continues to attract and retain
qualified and experienced executive management, the Compensation and Benefits Committee reviews and
adjusts salaries periodically. During 2006, as set out under Executive Compensation Summary
Compensation Table above, a number of executives received such salary adjustments during 2006.
Bonus Payments
Executive officers are eligible for annual cash bonuses, after taking into account and giving equal
weight to performance of the executive officer relative to individual performance objectives and
the Corporations performance and success in achieving its goals during the year. The performance
criteria considered in determining performance bonus awards varies in accordance with the position
and responsibilities of the executive being evaluated. The significant considerations in
determining performance bonuses for executive officers include corporate development and
organizational indicators as well as individual achievements that demonstrate an extraordinary
contribution to corporate growth and success.
During 2006, the Compensation and Benefits Committee recognized the performance of individual
executives, senior management and key employees in light of the foregoing compensation principles,
and, in particular, the significant role played by certain key executives and employees in
connection with the successful negotiations leading to Rio Tinto Mining and Exploration Limiteds
investment in, and strategic partnership with, the Corporation which was announced on October 18,
2006. Executives receiving awards by the Corporation on the recommendation of the Compensation and
Benefits Committee in recognition of their extraordinary contributions made to the success of the
Rio Tinto transactions, and/or for overall individual and corporate performance included Robert
Friedland, the Corporations Chairman and, until May 2006 the Chief Executive Officer, and Peter
Meredith, the Corporations Deputy Chairman and, until May 2006 the Chief Financial Officer, who
each were awarded special bonuses of U.S.$1 million. Mr. Friedlands bonus was paid by the issue
of 107,991 Common Shares of the Corporation and Mr. Meredith received his bonus in cash. John
Macken, CEO and President received a bonus of U.S.$500,000. At the recommendation of the
Compensation and Benefits Committee, the Board also awarded during 2006 an aggregate of
U.S.$1,000,000 in further bonuses to employees and executive officers, including cash
- 40 -
bonuses to
Edward Flood, Deputy Chairman (until February 15, 2007) (U.S.$150,000), Steve Garcia, Executive
Vice President (U.S.$100,000) and Tony Giardini, Chief Financial Officer (U.S.$25,000).
Long Term Incentives
Under the Corporations compensation philosophy, an equity incentive component in the form of
options is a key part of the executives overall compensation package, reflecting our belief that
stock options offer an effective mechanism for incentivizing management and aligning the interests
of our executive officers with those of our shareholders. Since we do not grant incentive stock
options at a discount to the prevailing market price of the Corporations Common Shares, the
incentive stock options we grant to our executive officers accrete value only if, and to the extent
that, the market price of the Corporations Common Shares increases, thereby linking equity-based
executive compensation to shareholder returns.
Equity based incentives awarded to our executive officers are based on the Compensation and Benefit
Committees evaluation of each executive officers ability to influence our long-term success and
to reward outstanding individual performance and contributions. The Compensation and Benefits
Committee takes into account each executives stock option position, peer comparison group
benchmark and individual performance when determining how many new stock option grants will be made
to an executive officer. Where appropriate, the Corporation includes performance-based criteria as
a key component of stock option grants and during 2006 a number of stock option grants to key
employees included vesting schedules that were based on the achievement of key milestones for the
Corporations development on which such key employee had the potential to positively impact.
During 2006, the Corporation granted incentive stock options to employees, officers and directors
exercisable to purchase a total of 8,549,000 Common Shares, representing approximately 2.3 per cent
of the total number of Common Shares currently issued and outstanding on December 31, 2006.
Included in these grants were stock options expiring on March 27, 2013 granted to John Macken in
respect of 2,000,000 Common Shares, Robert M. Friedland in respect of 2,000,000 Common Shares,
Peter Meredith in respect of 400,000 Common Shares, Edward Flood in respect of 300,000 Common
Shares and Douglas Kirwin, Executive Vice-President Exploration, in respect of 100,000 Common
Shares. The stock options issued to Messrs. Macken, Friedland, Meredith and Flood each vest as to
25% on grant, 20% on December 31, 2006, 15% on December 31, 2007, 15% on December 31, 2008 and the
balance on December 31, 2009, subject to earlier vesting upon specific corporate goals being met by
the Corporation. The stock options issued to Mr. Kirwin expire on May 23, 2011 and vest as to 20%
on grant and thereafter as to 20% each over the following four years.
Chief Executive Officer Compensation
The Compensation and Benefits Committee periodically review the terms of reference for the
Corporations Chief Executive Officer and recommends any changes to the Board for approval. It
reviews corporate goals and objectives with respect to the Chief Executive Officers compensation
and leads the Chief Executive Officer review process. Based on the results of the Chief Executive
Officers evaluation, the committee recommends the Chief Executive Officers overall compensation
package to the Board.
The components of total compensation for the Chief Executive Officer are the same as those which
apply to other senior executive officers of the Corporation, namely, annual salary, performance
bonus and long term incentives.
- 41 -
Robert Friedland, who is the Corporations largest shareholder, was also the Corporations Chief
Executive Officer until May, 2006 but did not receive a salary or any other cash compensation for
acting as such. Mr. Friedland is, however, eligible on the same basis as the Corporations other
executive officers, to receive a salary, bonuses and equity compensation and equity incentives from
time to time at the discretion of the Board of Directors based on recommendations by the
Compensation and Benefits Committee. For 2006, in addition to the special bonus awarded to Mr.
Friedland in
connection with the Rio Tinto transaction, Mr. Friedland was granted 2,000,000 incentive stock
options.
Mr. Macken, who assumed the role of Chief Executive Officer in May, 2006 in addition to his
position as President, received a salary during 2006 of U.S.$578,875, an increase of U.S.$121,475
over his salary in 2005. In addition to a bonus of U.S.$500,000 awarded to Mr. Macken during 2006,
Mr. Macken received 2,000,000 incentive stock options. The increase in salary for Mr. Macken also
reflected, in part, the extra responsibilities Mr. Macken assumed with the role of Chief Executive
Officer. The overall level of compensation for Mr. Macken reflected both Mr. Mackens performance
as President and, after May 2006, as Chief Executive Officer, the Corporations achievement of
objectives during 2006 and the Corporations philosophy of reflecting the competitive marketplace
by targeting overall compensation with reference to the fiftieth to seventy-fifth percentile
compensation level of the Corporations peer comparison group.
Submitted on behalf of the Compensation and Benefits Committee:
David Huberman (Chair)
Kjeld Thygesen
Robert Hanson
David Korbin
Howard Balloch (member since January 12, 2007)
- 42 -
Performance Graph
The following graph and table compares the cumulative shareholder return on a Cdn.$100 investment
in common shares of the Corporation to a similar investment in companies comprising the S&P/TSX
Composite Index, including dividend reinvestment, for the period from December 31, 2001 to
December 31, 2006.
COMPENSATION OF DIRECTORS
Effective May 1, 2007, each non-management director will receive Cdn.$25,000 per annum (prior
thereto, Cdn.$15,000 per annum). Mr. David Huberman receives an additional payment of Cdn.$60,000
per annum for acting as the Lead Director of the Board of Directors. Mr. John Weatherall receives
an additional payment of Cdn.$25,000 for acting as the Chairman of the Audit Committee. Each Chair
of the Compensation and Benefits Committee and the Corporate Governance and Nominating Committee
will receive an additional payment of Cdn.$15,000 per annum for acting as such. Effective March 9,
2007, each non-management director will receive a fee of Cdn.$1,500 for each Board of Directors
meeting and each Committee meeting attended in person (prior thereto, Cdn.$1,200) and, U.S.$600 for
each Director and Committee conference call in which they participate. Each non-management
director (other than the nominee of Rio Tinto in accordance with Rio Tintos corporate policy) also
receives an annual grant of incentive stock options exercisable to purchase up to 25,000 Common
Shares of the Corporation, such options having a five year term, and fully vesting on the first
anniversary of the date of the grant. Each executive director and non-management director is also
entitled to be reimbursed for actual expenses reasonably incurred in the performance of his duties
as a director.
The following table reflects compensation earned by directors in respect of fiscal 2006 under the
compensation arrangements described above.
- 43 -
Directors Compensation for Fiscal 2006
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AUDIT / |
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|
CORPORATE |
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GOVERNANCE |
|
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AND |
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NOMINATING |
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COMPENSATION |
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AND BENFITS |
|
|
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|
|
BOARD |
|
|
|
|
INDEPENDENT |
|
|
|
|
|
LEAD |
|
COMMMITTEE |
|
BOARD AND |
|
AND COMMITTEE |
|
TOTAL CASH FEES |
|
|
DIRECTOR |
|
NON-MANAGEMENT |
|
DIRECTOR |
|
CHAIRPERSON |
|
COMMITTEE IN- |
|
CONFERENCE |
|
PAID |
|
|
RETAINER |
|
DIRECTORS FEES |
|
RETAINER |
|
RETAINERS |
|
PERSON |
|
CALLS |
|
(Cdn.$) |
NAME |
|
(Cdn.$) |
|
(Cdn.$) |
|
(Cdn.$) |
|
(Cdn.$) |
|
(Cdn.$) |
|
(U.S.$) |
|
(U.S.$) |
Robert Friedland(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
R. Edward Flood(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John Macken(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter G. Meredith(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Huberman |
|
|
15,000 |
|
|
|
|
|
|
|
60,000 |
|
|
|
30,000 |
(4) |
|
|
13,200 |
|
|
|
7,800 |
|
|
|
118,200 |
|
|
|
7,800 |
|
John Weatherall |
|
|
15,000 |
|
|
|
|
|
|
|
|
|
|
|
25,000 |
|
|
|
12,000 |
|
|
|
6,600 |
|
|
|
52,000 |
|
|
|
6,600 |
|
Kjeld Thygesen |
|
|
15,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,800 |
|
|
|
7,200 |
|
|
|
31,800 |
|
|
|
7,200 |
|
Robert Hanson |
|
|
15,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,000 |
|
|
|
6,000 |
|
|
|
27,000 |
|
|
|
6,000 |
|
Markus Faber |
|
|
15,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,000 |
|
|
|
1,800 |
|
|
|
27,000 |
|
|
|
1,800 |
|
Howard Balloch (2) |
|
|
|
|
|
|
15,000 |
|
|
|
|
|
|
|
|
|
|
|
7,200 |
|
|
|
5,400 |
|
|
|
22,200 |
|
|
|
5,400 |
|
David Korbin(3) |
|
|
10,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,200 |
|
|
|
4,800 |
|
|
|
17,200 |
|
|
|
4,800 |
|
Tom Albanese |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
|
85,000 |
|
|
|
15,000 |
|
|
|
60,000 |
|
|
|
55,000 |
|
|
|
80,400 |
|
|
|
39,600 |
|
|
|
295,400 |
|
|
|
39,600 |
|
|
|
|
(1) |
|
Messrs. Friedland, Flood, Macken and Meredith were members of management in fiscal 2006 and
did not receive compensation as directors of the Corporation. |
|
(2) |
|
In recognition of Mr. Ballochs contributions as a non-management director during fiscal
2006, the Board, on the recommendation of the Compensation and Benefits Committee, approved
the payment to Mr. Balloch of a directors fee and stock options equivalent to the annual
retainer and stock options paid to the Corporations independent directors. From and after
January 1, 2006, such fee is payable annually to all non-management directors. |
|
(3) |
|
Mr. Bruk joined the Audit Committee on May 10, 2005. He retired from the Board on March 10,
2006. |
|
(4) |
|
Mr. Huberman receives a $15,000 retainer for being Chairman of the Corporate Governance &
Nominating Committee and a $15,000 retainer for being Chairman of the Compensation & Benefits
Committee. |
- 44 -
EQUITY COMPENSATION PLAN INFORMATION
The following information respecting the Incentive Plan is presented as at December 31, 2006:
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|
|
|
|
Number of |
|
Weighted-average |
|
Number of Securities |
|
|
Securities to be |
|
exercise price of |
|
remaining available for |
|
|
issued upon |
|
outstanding |
|
future issuance under |
|
|
exercise of |
|
options, warrants |
|
equity compensation plans |
|
|
outstanding options, |
|
and rights |
|
(excluding securities |
Plan Category |
|
warrants and rights |
|
(Cdn.$) |
|
reflecting in column (a)) |
Equity compensation
plans approved by
securityholders |
|
|
13,644,434 |
|
|
$ |
8.99 |
|
|
|
2,959,648 |
|
Equity compensation
plans not approved
by shareholders |
|
Nil |
|
Nil |
|
Nil |
Total |
|
|
13,644,434 |
|
|
$ |
8.99 |
|
|
|
2,959,648 |
|
On the date of this Management Proxy Circular, there are 2,909,802 Common Shares issuable upon
the exercise of outstanding options, representing approximately 0.78% of the Corporations issued
and outstanding share capital.
Employees and Directors Equity Incentive Plan
A Summary of the material provisions of the Incentive Plan is set forth under the heading
Particulars of Matters to be Acted Upon Summary of Existing Plan.
CORPORATE GOVERNANCE
The Board of Directors considers good corporate governance practices as an important factor in the
continued and long term success of the Corporation by helping to maximize shareholder value over
time.
Until June 30, 2005, the rules and policies of the TSX required corporations listed on the TSX to
disclose their corporate governance practices with reference to a series of guidelines adopted by
the TSX for effective corporate governance (the TSX Guidelines).
Following the enactment in the United States of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley
Act), the TSX initiated a review of its proposed standards in light of new U.S. legislation and
published for public comment proposed amendments to the TSX Guidelines. However, in September 2003
the TSX announced that it would be relinquishing responsibility for setting corporate governance
standards to Canadian securities regulators.
In January 2004, the Canadian Securities Administrators (the CSA) announced new rules governing
(among other things) the independence, competence and responsibility
- 45 -
of audit committees, which rules are substantially similar to those adopted in the United States.
These rules are set out in Multilateral Instrument 52-110 (the CSA Audit Committee Rules) and
came into force on March 30, 2004. In April 2005, the CSA announced amendments to the CSA Audit
Committee Rules designed to ensure the consistency of the definition of independence with that of
the New York Stock Exchanges listing standards. These amendments took effect as of June 30, 2005.
The CSA Audit Committee Rules (with which the Corporation is in compliance) require:
|
|
|
a minimum three-member audit committee comprised solely of independent directors; |
|
|
|
|
an audit committee charter that specifies certain specific audit committee
responsibilities and authority, including, among other things: |
|
- |
|
the pre-approval of all audit services and permissible non-audit
services; and |
|
|
- |
|
the sole authority to appoint, determine funding for and oversee
the outside auditors. |
The CSA also announced, in April 2005, the adoption of Multilateral Policy 58-201 and Multilateral
Instrument 58-101 (collectively, the CSA Corporate Governance Disclosure Requirements), which
took effect as of June 30, 2005. The CSA Corporate Governance Disclosure Requirements replaced the
TSX Guidelines and apply to the Corporations disclosure of its corporate governance practices for
the year ended December 31, 2006. These requirements are substantially consistent with the revised
corporate governance listing standards of the New York Stock Exchange. The CSA Corporate Governance
Disclosure Requirements require the Corporation to make certain prescribed disclosures respecting
its particular corporate governance practices and recommend a series of non-prescriptive corporate
governance guidelines (the CSA Corporate Governance Guidelines) that Canadian public companies
are encouraged to consider in developing their own corporate governance practices.
The Board of Directors has implemented several changes in its corporate governance procedures to
reflect applicable Canadian and U.S. governance guidelines. As part of those changes the Board:
|
i. |
|
approved and adopted a new mandate for the Board; |
|
|
ii. |
|
appointed an independent director as lead director, with specific
responsibility for maintaining the independence of the Board and ensuring the
Board carries out its responsibilities contemplated by applicable statutory and
regulatory requirements and stock exchange listing standards; |
|
|
iii. |
|
appointed a Corporate Governance and Nominating Committee consisting
solely of independent directors; |
|
|
iv. |
|
changed the membership of the Compensation and Benefits Committee to
consist solely of independent directors instead of a majority of independent
directors; |
- 46 -
|
v. |
|
approved charters for each of the Corporations Board committees,
being the Audit Committee, the Compensation and Benefits Committee and the
Corporate Governance and Nominating Committee, formalizing the mandates of those
committees; |
|
|
vi. |
|
established a management Disclosure Committee for the Corporation,
with the mandate to oversee the Corporations disclosure practices; |
|
|
vii. |
|
formalized the Corporations Corporate Disclosure, Confidentiality
and Securities Trading Policy, and Disclosure Controls and Procedures; |
|
|
viii. |
|
instituted regular meetings of non-management Directors by
teleconference between regularly scheduled Board meetings; |
|
|
ix. |
|
published a Statement of Values and Responsibilities; |
|
|
x. |
|
adopted a formal Code of Business Conduct and Ethics for the
Corporation that governs the behaviour of directors, officers and employees; |
|
|
xi. |
|
adopted formalized written position descriptions for the Chairman,
Lead Director, chair of each Board committee. CEO and CFO, clearly defining their
respective roles and responsibilities; |
|
|
xii. |
|
adopted a whistleblower policy administered by an independent third
party; and |
|
|
xiii. |
|
formalized a process for assessing the effectiveness of the Board as
a whole, the committees of the Board and the contribution of individual directors,
on a regular basis. |
The Corporation is engaged in an ongoing review of its corporate governance practices against the
CSA Corporate Governance Guidelines. The Board intends to consider additional changes to its
corporate governance practices with a view to furthering its adherence to the CSA Corporate
Governance Guidelines.
The Corporations Common Shares are listed on the New York Stock Exchange (NYSE) and quoted on
the NASDAQ Stock Market (NASDAQ) and the Corporation is subject to applicable provisions of
U.S. securities laws and regulations relating to corporate governance, which have been the
subject of sweeping changes in recent years. Both as part of the Sarbanes-Oxley Act and
independently, the SEC has enacted a number of new regulations relating to corporate governance
standards for U.S. listed companies. In addition, the NYSE and NASDAQ have implemented numerous
rule changes (the NYSE Corporate Governance Rules and the NASDAQ Corporate Governance Rules,
respectively) that revise the corporate governance standards for NYSE and NASDAQ-listed
companies.
THE CSA Audit Committee Rules, the CSA Corporate Governance Guidelines, the NYSE Corporate
Governance Rules, and the NASDAQ Corporate Governance Rules address, among other things, the
composition and independence of Boards of directors and Board committees. The CSA Corporate
Governance Guidelines are recommendations only and reflect a best practice standard to which
Canadian public companies are encouraged to adhere. For example, the CSA Corporate Governance
- 47 -
Guidelines recommend that a Board should be comprised of a majority of independent directors. On
the other hand, the NYSE Corporate Governance Rules and the NASDAQ Corporate Governance Rules are
prescriptive and require that the Board of a NYSE or NASDAQ-listed company be comprised of a
majority of independent directors.
Each of the Sarbanes-Oxley Act, the NYSE Corporate Governance Rules, the NASDAQ Corporate
Governance Rules and the CSA Corporate Governance Guidelines define independence in a slightly
different way. Although a finding of independence remains a matter of judgment and perception
based on a particular directors circumstances, the Sarbanes-Oxley Act, the NYSE Corporate
Governance Rules, the NASDAQ Corporate Governance Rules and the CSA Corporate Governance
Guidelines prescribe certain per se bars to a finding of independence. In addition, there is a
heightened independence requirement for members of audit committees under the Sarbanes-Oxley Act,
the NYSE Corporate Governance Rules, the NASDAQ Corporate Governance Rules and the CSA Audit
Committee Rules. Unlike the CSA Corporate Governance Guidelines, compliance with the requirements
of the CSA Audit Committee Rules relating to the composition of audit committees and the
heightened standard of independence for audit committee members is mandatory.
Subject to certain exceptions, including the requirement pertaining to the composition and
independence of audit committees, foreign private issuers, like the Corporation, are exempt from
any requirement of the NASDAQ Corporate Governance Rules and the NYSE Corporate Governance Rules
which is contrary to a law, rule or regulation of any public authority exercising jurisdiction
over such issuer or contrary to generally accepted business practices in the issuers country of
domicile. The Corporation believes that it is in full compliance with all of the applicable
requirements of the CSA Audit Committee Rules and all requirements of the Sarbanes-Oxley Act, the
NASDAQ Corporate Governance Rules and the NYSE Corporate Governance Rules applicable to foreign
private issuers for which no exemption is available. The Corporation also believes that most,
but not all, of its corporate governance practices are consistent with the CSA Corporate
Governance Guidelines. The Corporation intends to continue its efforts to improve its corporate
governance practices in order to make them wholly consistent with the CSA Corporate Governance
Guidelines.
Board Composition
The CSA Corporate Governance Guidelines recommend that a majority of the directors of a
corporation be independent directors. Under the CSA Corporate Governance Guidelines, the
applicable provisions of the NYSE Corporate Governance Rules and the NASDAQ Corporate Governance
Rules, an independent director is a director who has no direct or indirect material
relationship with the Corporation, including as a partner, shareholder or officer of an
organization that has a relationship with the Corporation. A material relationship is one that
would, or in the view of the Board of Directors could, be reasonably expected to interfere with
the exercise of a Directors independent judgment.
A total of twelve persons have been nominated for election as directors at the Meeting. The
Board has determined that if all such nominees are elected, the Board will consist of seven
independent directors (as defined in the CSA Corporate Governance Guidelines, the NYSE
Corporate Governance Rules and the NASDAQ Corporate Governance Rules) and five non-independent
directors, as follows:
- 48 -
|
|
|
Independent Director Nominees |
|
Non-independent Director Nominees |
David Huberman
|
|
Robert Friedland 1 |
John Weatherall
|
|
Edward Flood1 |
Markus Faber
|
|
John Macken1 |
Robert Hanson
|
|
Peter Meredith 1 |
Kjeld Thygesen
|
|
Bret Clayton2 |
Howard Balloch |
|
|
David Korbin |
|
|
|
|
|
1 |
|
Each of Messrs. Friedland, Flood, Macken and Meredith are
non-independent director nominees in their capacities as senior officers or former senior
officers of the Corporation and/or one or more of its subsidiaries and members or former members of
management. |
|
2 |
|
Mr. Clayton, an executive officer of Rio Tinto Group, is considered to be a
non-independent director nominee as a result of the material relationship between the Corporation
and the Rio Tinto Group. |
The Chairman of the Corporation holds approximately 27.0% and Rio Tinto holds approximately
9.2% of the Corporations voting securities as of the date of this Management Proxy Circular. The
Board has determined that the Corporation currently has seven of twelve directors in David
Huberman, John Weatherall, Markus Faber, Robert Hanson, Kjeld Thygesen, Howard Balloch and David
Korbin, who are independent as defined in the CSA Corporate Governance Guidelines, the NYSE
Corporate Governance Rules and the NASDAQ Corporate Governance Rules of each of the Chairman of the
Corporation and Rio Tinto. The Board believes that it includes a majority of directors who do not
have an interest in or relationships with either the Corporation or its principal shareholders and
which fairly reflects the investment in the Corporation by shareholders other than the principal
shareholders.
The directors of the Corporation are satisfied with the size and composition of the Board and
believe that the current Board composition results in a balanced representation on the Board of
Directors among management, non-management directors, and the Corporations major shareholder.
While the Board functions effectively given the Corporations stage of development and the size and
complexity of its business, the Board, through its Corporate Governance and Nominating Committee,
will continue to seek qualified candidates to augment its experience and expertise and to enhance
the Corporations ability to effectively develop its business interests.
Mandate of the Board
Under the YBCA, the directors of the Corporation are required to manage the Corporations business
and affairs, and in doing so to act honestly and in good faith with a view to the best interests of
the Corporation. In addition, each director must exercise the care, diligence and skill that a
reasonably prudent person would exercise in comparable circumstances.
The Board of Directors is responsible for supervising the conduct of the Corporations affairs and
the management of its business. The Boards mandate includes setting long term goals and
objectives for the Corporation, formulating the plans and strategies necessary to achieve those
objectives and supervising senior management in their implementation. Although the Board delegates
the responsibility for managing the day to day affairs of the Corporation to senior management
personnel, the Board retains a supervisory role in respect of, and ultimate responsibility for, all
matters relating to the Corporation and its business.
- 49 -
The Boards mandate requires that the Board be satisfied that the Corporations senior management
will manage the affairs of the Corporation in the best interest of the shareholders, in accordance
with the Corporations principles, and that the arrangements made for the management of the
Corporations business and affairs are consistent with their duties described above. The Board is
responsible for protecting shareholder interests and ensuring that the incentives of the
shareholders and of management are aligned. The obligation of the Board must be performed
continuously, and not merely from time to time, and in times of crisis or emergency the Board may
have to assume a more direct role in managing the affairs of the Corporation.
In discharging this responsibility, the Boards mandate provides that the Board oversees and
monitors significant corporate plans and strategic initiatives. The Boards strategic planning
process includes annual budget reviews and approvals, and discussions with management relating to
strategic and budgetary issues. At least one Board meeting per year is to be devoted to a
comprehensive review of strategic corporate plans proposed by management.
As part of its ongoing review of business operations, at each Board meeting the Board reviews the
principal risks inherent in the Corporations business, including financial risks, through periodic
reports from management of such risks, and assesses the systems established to manage those risks.
Directly and through the Audit Committee, the Board also assesses the integrity of internal control
over financial reporting and management information systems.
In addition to those matters that must, by law, be approved by the Board, the Board is required
under its mandate to approve annual operating and capital budgets, any material dispositions,
acquisitions and investments outside of the ordinary course of business or not provided for in
the approved budgets, long-term strategy, organizational development plans and the appointment of
senior executive officers. Management is authorized to act, without Board approval, on all
ordinary course matters relating to the Corporations business.
The mandate provides that the Board also expects management to provide the directors, on a timely
basis, with information concerning the business and affairs of the Corporation, including financial
and operating information and information concerning industry developments as they occur, all with
a view to enabling the Board to discharge its stewardship obligations effectively. The Board
expects management to efficiently implement its strategic plans for the Corporation, to keep the
Board fully apprised of its progress in doing so and to be fully accountable to the Board in
respect to all matters for which it has been assigned responsibility.
The Board has instructed management to maintain procedures to monitor and promptly address
shareholder concerns and has directed and will continue to direct management to apprise the Board
of any major concerns expressed by shareholders.
Each Committee of the Board is empowered to engage external advisors as it sees fit. Any
individual director is entitled to engage an outside advisor at the expense of the Corporation
provided such director has obtained the approval of the Corporate Governance and Nominating
Committee to do so.
The Board has adopted a strategic planning process which involves, among other things, the
following:
- 50 -
(a) |
|
at least one meeting per year will be devoted substantially to review of strategic plans that
are proposed by management; |
(b) |
|
meetings of the Board, at least quarterly, to discuss strategic planning issues, with and
without members of management; |
(c) |
|
the Board reviews and assists management in forming short and long term objectives of the
Corporation on an ongoing basis; and |
(d) |
|
the Board also maintains oversight of managements strategic planning initiatives through
annual and quarterly budget reviews and approvals. The strategic planning process adopted by
the Board takes into account, among other things, the opportunities and risks of the business. |
In order to ensure that the principal business risks borne by the Corporation are identified and
appropriately managed, the Board receives periodic reports from management of the Corporations
assessment and management of such risks. In conjunction with its review of operations which takes
place at each Board meeting, the Board considers risk issues and approves corporate policies
addressing the management of the risk of the Corporations business.
The Board takes ultimate responsibility for the appointment and monitoring of the Corporations
senior management. The Board approves the appointment of senior management and reviews their
performance on an ongoing basis.
The Corporation has a disclosure policy addressing, among other things, how the Corporation
interacts with analysts and the public, and contains measures for the Corporation to avoid
selective disclosure. The Corporation has a Disclosure Committee responsible for overseeing the
Corporations disclosure practices. This committee consists of the Chief Executive Officer, the
Chief Financial Officer, the Corporate Secretary and senior Corporate Communications and Investor
Relations Department personnel, and receives advice from the Corporations outside legal counsel.
The Disclosure Committee assesses materiality and determines when developments justify public
disclosure. The committee will review the disclosure policy annually and as otherwise needed to
ensure compliance with regulatory requirements. The Board reviews and approves the Corporations
material disclosure documents, including its annual report, annual information form and management
proxy circular. The Corporations annual and quarterly financial statements, Managements
Discussion and Analysis and other financial disclosure is reviewed by the Audit Committee and
recommended to the Board prior to its release.
Meetings of the Board
The Board holds regular annual and quarterly meetings. Between the quarterly meetings, the Board
meets as required, generally by means of telephone conferencing facilities. As part of the annual
and quarterly meetings, the independent directors also have the opportunity to meet separate from
management. Between each regularly scheduled Board meeting, a meeting of non-management Directors,
chaired by the Lead Director, is held by teleconference to update the Directors on corporate
developments since the last Board meeting. Management also communicates informally with members of
the Board on a regular basis, and solicits the advice of the Board members on matters falling
within their special knowledge or experience.
- 51 -
Board Committees
The Corporation has an Audit Committee, Compensation and Benefits Committee, Corporate Governance
and Nominating Committee. In addition, the Board has appointed an Executive Committee.
Audit Committee
The mandate of the Audit Committee is to oversee the Corporations financial reporting obligations,
systems and disclosure, including monitoring the integrity of the Corporations financial
statements, monitoring the independence and performance of the Corporations external auditors and
acting as a liaison between the Board and the Corporations auditors. The activities of the Audit
Committee typically include reviewing interim financial statements and annual financial statements,
management discussion and analysis and earnings press releases before they are publicly disclosed,
ensuring that internal controls over accounting and financial systems are maintained and that
accurate financial information is disseminated to shareholders. Other responsibilities include
reviewing the results of internal and external audits and any change in accounting procedures or
policies, and evaluating the performance of the Corporations auditors. The Audit Committee
communicates directly with the Corporations external auditors in order to discuss audit and
related matters whenever appropriate.
The Audit Committee currently consists of Messrs. Weatherall (Chair), Thygesen, Faber and Korbin.
The CSA Audit Committee Rules provide for audit committees to consist solely of independent
directors. All of Messrs. Weatherall, Thygesen, Faber and Korbin are independent directors for
the purposes of the CSA Audit Committee Rules, the NYSE Corporate Governance Rules and the NASDAQ
Corporate Governance Rules, having regard to the heightened independence requirements applicable to
audit committee members.
The Board has determined that all members of the Audit Committee are financially literate since
each member has the ability to read and understand a set of financial statements that present a
breadth and level of complexity of accounting issues that are generally comparable to the breadth
and complexity of the issues that can reasonably be expected to be raised by the Corporations
financial statements.
Each of Messrs. Weatherall and Korbin has been determined by the Board of Directors to be an Audit
Committee Financial Expert, as such term is defined in the U.S. Securities Exchange Act of 1934, as
amended. The Corporation believes that each of Mr. Weatherall, a Chartered Financial Analyst, with
over 40 years experience as an investment analyst, who also has experience as a portfolio manager,
and Mr. Korbin, a Chartered Accountant with over 30 years experience as an auditor with a major
accounting firm, is qualified to be an Audit Committee Financial Expert.
The Corporation has adopted an Audit Committee charter which codifies the mandate of the Audit
Committee to, and specifically defines its relationship with, and expectations of, the external
auditors, including the establishment of the independence of the external auditor and the approval
of any non-audit mandates of the external auditor; the engagement, evaluation, remuneration and
termination of the external auditor; its relationship with, and expectations of, the internal
auditor function and its oversight of internal control; and the disclosure of financial and related
information. The Board will review and reassess the adequacy of the Audit Committee charter on an
annual basis.
- 52 -
The Audit Committee has regular access to the Chief Financial Officer of the Corporation. The
external auditors regularly attend all meetings of the Audit Committee. At each meeting of the
Audit Committee, a portion of the meeting is set aside to discuss matters with the external
auditors without management being present. In addition, the Audit Committee has the authority to
call a meeting with the external auditors without management being present, at the Committees
discretion. Additional information regarding the Audit Committee is located in the Directors and
Officers section of the Corporations Annual Information Form.
Compensation and Benefits Committee
The role of the Compensation and Benefits Committee is primarily to review the adequacy and form of
compensation of senior management and the directors with such compensation realistically reflecting
the responsibilities and risks of such positions, to administer the Corporations Employees and
Directors Equity Incentive Plan, to determine the recipients of, and the nature and size of share
compensation awards granted from time to time, to determine the remuneration of executive officers
and to determine any bonuses to be awarded.
The Compensation and Benefits Committee currently consists of Messrs. Huberman (Chair), Thygesen,
Hanson, Korbin and Balloch. Each member of the committee qualifies as an independent director
for the purposes of the CSA Corporate Governance Guidelines, the NYSE Corporate Governance Rules
and the NASDAQ Corporate Governance Rules.
Corporate Governance and Nominating Committee
The Corporate Governance and Nominating Committee is responsible for making recommendations to the
Board with respect to developments in the area of corporate governance and the practices of the
Board. The Corporate Governance and Nominating Committee has expressly assumed responsibility for
developing the Corporations approach to governance issues. The Committee is also responsible for
reporting to the Board with respect to appropriate candidates for nominations to the Board, for
overseeing the execution of an assessment process appropriate for the Board and its committees and
for evaluating the performance and effectiveness of the Board and its committees.
The Corporate Governance and Nominating Committee of the Board currently consists of Messrs.
Huberman, Weatherall, Hanson, Thygesen, Faber, Korbin and Balloch, of which Mr. Huberman is Chair
of the Committee, in addition to being the Corporations Lead Director. Each member of the
Committee qualifies as an independent director for the purposes of the CSA Corporate Governance
Guidelines, the NYSE Corporate Governance Rules and the NASDAQ Corporate Governance Rules.
Executive Committee
The Executive Committee was created by the Board to meet as required, between meetings of the full
Board, to approve expenditures of up to U.S.$10,000,000. It currently consists of Messrs.
Friedland, Meredith, Macken and Huberman.
- 53 -
Code of Business Conduct and Ethics
The Corporation has adopted a Code of Business Conduct and Ethics applicable to all employees,
consultants, officers and directors regardless of their position in the organization, at all times
and everywhere the Corporation does business. The Code of Business Conduct and Ethics provides that
the Corporations employees, consultants, officers and directors will uphold its commitment to a
culture of honesty, integrity and accountability and the Corporation requires the highest standards
of professional and ethical conduct from its employees, consultants, officers and directors. A copy
of the Corporations Code of Business Conduct and Ethics has been filed on SEDAR and is available
on the Corporations website (www.ivanhoemines.com). A copy may also be obtained, without charge,
by request to the Corporate Secretary, 654 999 Canada Place, Vancouver, British Columbia, Canada
V6C 3E1, telephone to (604) 688-5755.
CSA Corporate Governance Guidelines
The Corporations statement of corporate governance practices with reference to each of the CSA
Corporate Governance Guidelines is set out in Schedule A to this Management Proxy Circular.
OTHER BUSINESS
Management of the Corporation is not aware of any matter to come before the Meeting other than
the matters referred to in the Notice of the Meeting.
DIRECTORS APPROVAL
The contents of this Management Proxy Circular and its distribution to shareholders have been
approved by the Board of Directors of the Corporation.
ADDITIONAL INFORMATION
Copies of the Corporations Annual Information Form, annual financial statements, and Management
Discussion and Analysis for its most recently completed financial year filed pursuant to applicable
Canadian provincial securities laws are available free of charge on or through the Corporations
website at www.ivanhoe-mines.com or through the System for Electronic Document Analysis and
Retrieval (SEDAR) at www.sedar.com. Finally, securityholders may contact the Corporation directly
to receive copies of, such filings, without charge, upon written or oral request to Beverly A.
Bartlett, Vice President and Corporate Secretary, Suite 654-999 Canada Place, Vancouver, British
Columbia, V6C 3E1, or by telephone at (604) 688-5755.
DATED at Vancouver, British Columbia, as of the 22nd day of March, 2007.
BY ORDER OF THE BOARD
BEVERLY A. BARTLETT
VICE PRESIDENT AND CORPORATE SECRETARY
- 54 -
SCHEDULE A
STATEMENT OF CORPORATE GOVERNANCE PRACTICES
Effective June 30, 2005, the Canadian Securities Administrators adopted National Instrument
58-101 (NI 58-101) and the associated National Policy 58-201 (NP 58-201) which require the
Corporation to disclose its corporate governance practices. These new rules replace the former
corporate governance guidelines of the TSX.
|
|
|
CORPORATE GOVERNANCE DISCLOSURE REQUIREMENT(1) |
|
COMMENTS |
1. Board of Directors (the Board)
(a) Disclose the identity of directors who are independent.
|
|
The Board has reviewed the independence of each
Director on the basis of the definitions in section
1.4 of MI 52-110, as amended, and the applicable
provisions of the NYSE Corporate Governance Rules and
the NASDAQ Corporate Governance Rules. A Director is
independent if he or she has no direct or indirect
material relationship with the Corporation, including
as a partner, shareholder or officer of an
organization that has a relationship with the
Corporation. A material relationship is one that
would, or in the view of the Board could, be
reasonably expected to interfere with the exercise of
a Directors independent judgment. The Board has
determined, after reviewing the roles and
relationships of each of the Directors, that 58% (7
out of 12) of the nominees proposed by management for
election to the Board are independent from the
Corporation. The following nominees have been
affirmatively determined to be independent by the
Board: |
|
|
|
|
|
David Huberman |
|
|
John Weatherall |
|
|
Markus Faber |
|
|
Robert Hanson |
|
|
Kjeld Thygesen |
|
|
Howard Balloch |
|
|
David Korbin |
|
|
|
|
|
This determination was made on the basis that: |
|
|
|
|
|
(a) they (and their immediate family members) are
not and have not been within the last three
years an employee or executive officer of the
Corporation; |
|
|
|
|
|
(b) they (and their spouse, minor child or step
child) are not and have not been within the
last three years a partner or employee of the
Corporations external auditors firm; |
|
|
|
|
|
(c) they (and their immediate family members) are
not and have not been within the last three
years an executive officer of an entity of
which the Corporations executives served on
that entitys compensation committee; |
|
|
|
|
|
(d) they (and their immediate family members) did
not receive more than U.S.$60,000 in direct
compensation from the Corporation (exclusive of
any remuneration received for acting as a Board
or Committee member) during any 12 month period
during the last three years; |
|
|
|
|
|
(e) they and their immediate family members are not |
- 55 -
|
|
|
CORPORATE GOVERNANCE DISCLOSURE REQUIREMENT(1) |
|
COMMENTS |
|
|
a current executive officer of a company that
has made payments to, or received payments
from, the Corporation for property or services
in an amount which, in any of the last three
fiscal years, exceeds the greater of U.S.$1
million or 2% of such other companys
consolidated gross revenues; and |
|
|
|
|
|
(f) they are not a partner in, or a continuing
shareholder or executive officer of any
for-profit business organization to which the
Corporation made, or from which the Corporation
received payments (other than those arising
solely from investments in the Corporations
securities) that exceed 5% of the Corporations
or business organizations consolidated gross
revenues for that year, or U.S.$200,000,
whichever is more, in any of the past three
years. |
|
|
|
|
|
In the case of Mr. Balloch, the Board considered an
agreement for consulting services between the
Corporation and a company beneficially owned by Mr.
Balloch and his spouse and determined that payments
pursuant to such agreement (which terminated in 2004)
did not exceed U.S.$60,000 during any 12 month period
in the last three years. Accordingly, Mr. Balloch
has ceased to be disqualified as an independent
director under the applicable per se standards of
the CSA Corporate Governance Guidelines, the NYSE
Corporate Governance Rules and the NASDAQ Corporate
Governance Rules, and the Board has made the
determination that Mr. Balloch is qualified to sit as
an independent director. |
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(b) Disclose the identity of directors who are not
independent, and describe the basis for that
determination.
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The Board and Corporate Governance and Nominating
Committee have determined, after reviewing the roles
and relationships of each of the Directors, that the
following five out of 12 nominees proposed by
management for election to the Board are not
independent from the Corporation as defined in the
CSA Corporate Governance Guidelines, the NYSE
Corporate Governance Rules and the NASDAQ Corporate
Governance Rules: |
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Robert M. Friedland: Executive Chairman |
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Peter G. Meredith: Deputy Chairman |
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John Macken: President and CEO |
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R. Edward Flood |
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Bret Clayton |
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Messrs. Friedland, Meredith and Macken, as senior
officers of the Corporation and/or one or more of its
subsidiaries and members of management, are considered
to be non-independent directors. |
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Mr. Flood, as a senior officer of the Corporation and
a member of management until February 15, 2007, is
also considered to be a non-independent director. |
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In the case of Mr. Bret Clayton, the Board noted his
position as an executive officer of the Rio Tinto
Group (Rio Tinto) and considered the relationship
between Rio Tinto and the Corporation resulting from
Rio Tintos significant investment in the Corporation,
the terms and conditions of the investment agreement
between Rio Tinto and the Corporation and the
shareholders |
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CORPORATE GOVERNANCE DISCLOSURE REQUIREMENT(1) |
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COMMENTS |
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agreement between Rio Tinto and Mr.
Robert Friedland, Executive Chairman of the
Corporation, each dated October 18, 2006. The Board
concluded that such relationship was a material
relationship within the meaning of the applicable
provisions of the CSA Corporate Governance Guidelines,
the NYSE Corporate Governance Rules and the NASDAQ
Corporate Governance Rules, and accordingly considers
Mr. Clayton to be a non-independent nominee director. |
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(c) Disclose whether or not a majority of the directors are
independent. If a majority of directors are not
independent, describe what the Board of Directors does
to facilitate its exercise of independent judgment in
carrying out its responsibilities.
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58% or seven of the 12 nominees proposed by management
for election to the Board are independent directors
as defined in the CSA Corporate Governance Guidelines,
the NYSE Corporate Governance Rules and the NASDAQ
Corporate Governance Rules. |
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The directors of the Corporation have reviewed the
size of the Board and believe that the current Board
size and composition results in a balanced
representation on the Board among management,
non-management directors and the Corporations major
shareholders. While the Board functions effectively,
given the Corporations stage of development and the
size and complexity of its business, the Board,
through its Corporate Governance and Nominating
Committee, will continue to seek additional qualified
candidates to augment its experience and expertise and
to enhance the Corporations ability to effectively
develop its business interests. In so doing, the
Corporate Governance and Nominating Committee will
seek candidates that meet all Canadian, U.S. and other
standards of independence applicable to the
Corporation. The Corporate Governance and Nominating
Committee will continue to examine the size and
composition of the Board and recommend adjustments
from time to time to ensure that the Board continues
to be of a size that facilitates effective
decision-making. During 2006, two Directors were
added to the Board. Mr. David Korbin, who is
qualified to be an Audit Committee financial expert,
joined the Board in May, 2006, and Mr. Tom Albanese,
an executive officer of Rio Tinto, became a member of
the Board in November, 2006. There are currently 12
Directors on the Board. The maximum number permitted
under the Corporations articles of incorporation is
12. |
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(d) If a director is presently a director of any other
issuer that is a reporting issuer (or the equivalent) in
a jurisdiction or a foreign jurisdiction, identify both
the director and the other issuer.
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All directorships with other public entities for each
of the nominees are set out next to the individuals
name under the heading Election of Directors
Management Nominees in this Circular. |
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(e) Disclose whether or not the independent directors hold
regularly scheduled meetings at which members of
management are not in attendance. If the independent
directors hold such meetings, disclose the number of
meetings held since the beginning of the issuers most
recently completed financial year. If the independent
directors do not hold such meetings, describe what the
Board does to facilitate open and candid discussion
among its independent directors.
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The Board sets aside a portion of each regularly
scheduled meeting to discuss any issues without
management Directors being present. In addition, all
committees meet without management being present
unless the committee specifically requests the
presence of one or more such persons.
The Corporate Governance and Nominating Committee, in
particular, provides a forum without management being
present to receive any expression of concern from a
director, including a concern regarding the
independence of the Board from management. |
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CORPORATE GOVERNANCE DISCLOSURE REQUIREMENT(1) |
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COMMENTS |
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There were seven such Board meetings and four such
meetings of each of the Corporate Governance and
Nominating and Audit Committees and five such meetings
of the Compensation and Benefits Committee held in
2006. |
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In addition, between each regularly scheduled Board
meeting, a meeting of non-management Directors,
chaired by the Lead Director, is held by
teleconference to update the non-management Directors
on developments since the last Board meeting. Five
such meetings were held in 2006. Mr. Peter Meredith,
Deputy Chairman of the Corporation, has periodically
been invited to attend these meetings in order to
brief the non-management Directors on recent
developments. |
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The results of discussions of all Board committees,
and of the meetings of non-management Directors, are
communicated to the rest of the Board at its next
scheduled meeting, or more promptly, if required, by
the committee Chairs to the other Directors and
members of management. |
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(f) Disclose whether or not the chair of the Board is an
independent director. If the Board has a chair or lead
director who is an independent director, disclose the
identity of the independent chair or lead director, and
describe his or her role and responsibilities. If the
Board has neither a chair that is independent nor a lead
director that is independent, describe what the Board
does to provide leadership for its independent directors.
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Mr. Friedland currently serves as Chairman of the
Board of Directors. The Board is of the view that
appropriate structures and procedures are in place to
allow the Board to function independently of
management while continuing to provide the Corporation
with the benefit of having a Chairman of the Board
with extensive experience and knowledge of the
Corporations business. |
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The Board has created the position of lead director,
with specific responsibility for maintaining the
independence of the Board and ensuring that the Board
carries out its responsibilities. Mr. Huberman, who
also serves as chair of the Corporate Governance and
Nominating Committee and the Compensation and Benefits
Committee, has served as the Corporations Lead
Director since 2003. Mr. Huberman does not serve in a
similar capacity with any other corporation. |
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(g) Disclose the attendance record of each director for all
Board meetings held since the beginning of the issuers
most recently completed financial year.
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The Board held seven meetings in the 2006 financial
year and the Corporate Governance and Nominating
Committee and the Audit Committee each met four times
and the Compensation and Benefits Committee met five
times during the year. A record of attendance by
Director(s) at meetings of the Board and its
Committees as well as the number of Board and Board
Committee meetings held during the financial year
ended December 31, 2006, is set out next to each
individuals name under the heading Election of
Directors Management Nominees in this Circular. |
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CORPORATE GOVERNANCE DISCLOSURE REQUIREMENT(1) |
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COMMENTS |
2. Board Mandate
Disclose the text of the Boards written mandate. If the
Board does not have a written mandate, describe how the
Board delineates its role and responsibilities.
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The Board has assumed responsibility for the
stewardship of the Corporation and has adopted a
formal mandate as described in this Circular under the
heading Corporate Governance Mandate of the Board,
setting out its stewardship responsibilities. |
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The mandate of the Board is available on the
Corporations website (www.ivanhoe-mines.com). A copy
may also be obtained upon request to the Vice
President and Corporate Secretary of the Corporation,
Suite 654, 999 Canada Place, Vancouver, British
Columbia V6C 3E1, telephone (604) 688-5755. |
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3. Position Descriptions
(a) Disclose whether or not the Board has developed written
position descriptions for the chair and the chair of
each Board committee. If the Board has not developed
written position descriptions for the chair and/or the
chair of each Board committee, briefly describe how the
Board delineates the role and responsibilities of each
such position.
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The Board has developed written position descriptions
for the Chairman, Lead Director, the chair of each
Board committee, CEO and CFO, clearly defining their
respective roles and responsibilities. Such position
descriptions were reviewed by the Corporate Governance
and Nominating Committee and approved by the Board in
November 2006 and will be subject to annual review by
the Corporate Governance and Nominating Committee. |
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(b) Disclose whether or not the Board and CEO have developed
a written position description for the CEO. If the
Board and CEO have not developed such a position
description, briefly describe how the Board delineates
the role and responsibilities of the CEO. |
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4. Orientation and Continuing Education
(a) Briefly describe what measures the Board takes to orient
new members regarding:
(i) the role of the Board, its committees and its
directors, and
(ii) the nature and operation of the issuers business
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The Corporation takes steps to ensure that prospective
directors fully understand the role of the Board and
its committees and the contribution individual
directors are expected to make, including in
particular the commitment of time and energy that the
Corporation expects of its directors. New directors
are provided with a comprehensive information package,
including pertinent corporate documents and a
directors manual containing information on the
duties, responsibilities and liabilities of
directors. New directors are also briefed by
management as to the status of the Corporations
business. Directors are provided with the opportunity
to make site visits to the Corporations properties. |
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(b) Briefly describe what measures, if any, the Board takes
to provide continuing education for its directors. If
the Board does not provide continuing education,
describe how the Board ensures that its directors
maintain the skill and knowledge necessary to meet their
obligations as directors.
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Management and outside advisors provide information
and education sessions to the Board and its committees
on a continuing basis as necessary to keep the
directors up-to-date with the Corporation, its
business and the environment in which it operates as
well as with developments in the responsibilities of
directors. |
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Presentations are made to the Board from time to time
to educate and keep them informed of changes within
the Corporation and of regulatory and industry
requirements and standards. |
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In addition, Directors are encouraged to take courses
relevant to the Corporation and its business,
particularly with respect to corporate governance and
the mining industry, at the Corporations expense.
Directors are also encouraged to make site visits to
the Corporations properties. |
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CORPORATE GOVERNANCE DISCLOSURE REQUIREMENT(1) |
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COMMENTS |
5. Ethical Business Conduct
(a) Disclose whether or not the Board has adopted a written
code for its directors, officers and employees. If the
Board has adopted a written code:
(i) disclose how a person or company may obtain a copy
of the code;
(ii) describe how the Board monitors compliance with its
code, or if the Board does not monitor compliance,
explain whether and how the Board satisfies itself
regarding compliance with its code; and disclose
how a person or company may obtain a copy of the
code;
(iii) provide a cross-reference to any material
change report filed since the beginning of the
issuers most recently completed financial year
that pertains to any conduct of a director or
executive officer that constitutes a departure from
the code.
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The Corporation has adopted a Code of Business Conduct
and Ethics applicable to all employees, consultants,
officers and directors regardless of their position in
the organization, at all times and everywhere the
Corporation does business. The Code of Business
Conduct and Ethics provides that the Corporations
employees, consultants, officers and directors will
uphold its commitment to a culture of honesty,
integrity and accountability and the Corporation
requires the highest standards of professional and
ethical conduct from its employees, consultants,
officers and directors. The Corporations Code of
Business Conduct and Ethics has been filed on SEDAR
and is available on the Corporations website
(www.ivanhoe-mines.com). A copy may also be obtained,
without charge, by request to the Vice President and
Corporate Secretary, 654 999 Canada Place,
Vancouver, British Columbia, Canada V6C 3E1, telephone
to (604) 688-5755. |
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All Directors and employees are provided with a
booklet containing the Corporations Code of Business
Conduct and Ethics and Corporate Securities Trading
Policy (which has been translated into other languages
as required for use in the Corporations international
operations) and are required to sign a written
acknowledgement confirming that they have received and
reviewed it. |
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Corporate supervisors and employees are required to
confirm, on an annual basis, that they have reviewed
the Corporations Code of Business Conduct and Ethics
as part of their annual performance appraisal. |
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The Corporate Governance and Nominating Committee
monitors compliance with the Code of Business Conduct
and Ethics and also ensures that management encourages
and promotes a culture of ethical business conduct. |
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The Board has not granted any waiver of the Code of
Business Conduct and Ethics in favor of a Director or
executive officer. Accordingly, no material change
report has been required or filed. |
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(b) Describe any steps the Board takes to ensure directors
exercise independent judgment in considering
transactions and agreements in respect of which a
director or executive officer has a material interest.
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The Corporate Governance and Nominating Committee
monitors the disclosure of conflicts of interest to
the Board by Directors and ensures that no Director
will vote or participate in a discussion on a matter
in respect of which such Director has a material
interest. Committee Chairs perform the same function
with respect to meetings of each Board committee. |
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(c) Describe any other steps the Board takes to encourage
and promote a culture of ethical business conduct.
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The Corporation has published a Statement of Values
and Responsibilities. It has also developed various
corporate policies including Corporate Disclosure,
Confidentiality and Securities Trading policies, and a
Whistleblower Policy, administered by an independent
third party. |
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The Corporation conducts education programs for its
personnel dealing with matters of corporate ethics and
best practices. |
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During 2006 the Corporate Governance and Nominating
Committee met with the Corporations CEO and CFO to
discuss corporate ethics and best |
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CORPORATE GOVERNANCE DISCLOSURE REQUIREMENT(1) |
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COMMENTS |
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practices and were
satisfied that they are a focus of the CEO, CFO and
throughout the Corporations international operations. |
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6. Nomination of Directors
(a) Describe the process by which the Board identifies new
candidates for Board nomination.
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The Board has a Corporate Governance and Nominating
Committee consisting of Messrs. Huberman, Hanson,
Weatherall, Thygesen, Faber, Korbin and Balloch all of
whom are independent directors under the CSA
Corporate Governance Guidelines, the NYSE Corporate
Governance Rules and the NASDAQ Corporate Governance
Rules. Mr. Huberman has been appointed as Chairman of
the committee. The full Board determines, in light of
the opportunities and risks facing the Corporation,
what competencies, skills and personal qualities it
should seek in new Board members in order to add value
to the Corporation. Based on this framework, the
Corporate Governance and Nominating Committee
developed a skills matrix outlining the Corporations
desired complement of Directors competencies, skills
and characteristics. The Committee annually assesses
the current competencies and characteristics
represented on the Board and utilizes the matrix to
determine the Boards strengths and identify any gaps
that need to be filled. This analysis assists the
Committee in discharging its responsibility for
approaching and proposing to the full Board new
nominees to the Board, and for assessing directors on
an ongoing basis. |
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The Corporate Governance and Nominating Committee has
been given the responsibility for developing an
evergreen list of potential nominees who the Committee
feels would be appropriate to be asked to join the
Board if, as and when there are vacancies pending and
such persons are available to do so and who complement
the current skills matrix. The Committee receives and
reviews recommendations from Directors and members of
management in determining whether to add the names of
new candidates to the list, and has the authority to
hire outside consultants to help to identify
additional qualified candidates as required. |
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The Corporation does not have a shareholder with the
ability to exercise a majority of the votes for the
election of the Board. However, the Chairman of the
Corporation holds approximately 27.0% of the
Corporations voting securities as at the date of this
Circular and Rio Tinto, which is entitled to nominate
a qualified individual or individuals for appointment
or election to the Board in proportion to its
shareholdings from time to time, holds approximately
9.92% of the Corporations voting securities at such
date. The Corporation has a majority of directors who
do not have an interest in or relationship with either
the Corporation, its Chairman or Rio Tinto and, which
fairly reflects the investment in the Corporation by
shareholders other than the Chairman or Rio Tinto. |
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The Board seeks to achieve a greater representation of
independent directors and has determined to continue
to seek, through its Corporate Governance and
Nominating Committee, additional qualified candidates
to augment its experience and expertise and to enhance
the Corporations ability to effectively develop |
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CORPORATE GOVERNANCE DISCLOSURE REQUIREMENT(1) |
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COMMENTS |
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its business interests. In so doing, the Corporate
Governance and Nominating Committee will seek
candidates that meet all Canadian, U.S. and other
standards of independence applicable to the
Corporation. |
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The charter of the Corporate Governance and Nominating
Committee is available on the Corporations website
(www.ivanhoe-mines.com). A copy may also be obtained
upon request to the Corporate Secretary, 654 999
Canada Place, Vancouver, British Columbia, V6C 3E1,
telephone (604) 688-5755. |
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7. Compensation
(a) Describe the process by which the Board determines the
compensation for the issuers directors and officers.
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The Compensation and Benefits Committee has
responsibility for recommending compensation for the
Corporations senior executive officers to the Board.
CEO compensation is approved by the Compensation and
Benefits Committee. See Report on Executive
Compensation. |
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The Compensation and Benefits Committee periodically
reviews and makes recommendations to the Board
regarding the adequacy and form of the compensation
for non-management Directors to ensure that such
compensation realistically reflects the
responsibilities and risks involved in being an
effective director, without compromising a Directors
independence. Directors who are executives of the
Corporation receive no additional remuneration for
their services as Directors. |
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Effective May 1, 2007, all non-management directors
will receive Cdn.$25,000 per annum for acting as such
(prior thereto, Cdn$15,000). Mr. David Huberman
receives an additional Cdn.$60,000 per annum for
acting as the Lead Director of the Board. Mr. John
Weatherall, as Chair of the Audit Committee, receives
an additional Cdn.$25,000 per annum, for acting in
such capacity. Commencing in 2006 each Chair of the
Compensation and Benefits Committee and the Corporate
Governance Committee receives an additional payment of
Cdn.$15,000 per annum for acting as such. Effective
March 9, 2007, non-management directors will also
receive Cdn.$1,500 per in-person Board or Committee
meeting attended (prior thereto, Cdn.$1,200) and
U.S.$600 per Board or Committee conference call in
which they participate. |
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In addition to their cash compensation, non-executive
directors (other than the nominee of Rio Tinto in
accordance with Rio Tintos corporate policy) also
receive a grant of 25,000 stock options per annum,
such options having a five year term and fully vesting
on the first anniversary of the date of the grant. |
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(b) Disclose whether or not the Board has a compensation
committee composed entirely of independent directors.
If the Board does not have a compensation committee
composed entirely of independent directors, describe
what steps the Board takes to ensure an objective
process for determining such compensation.
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The Compensation and Benefits Committee comprises five
Directors, all of whom have been affirmatively
determined by the Board to be independent directors
as defined by the CSA Corporate Governance Guidelines,
the NYSE Corporate Governance Rules and the NASDAQ
Corporate Governance Rules. |
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The members of the committee have diverse professional
backgrounds, with prior experience in executive
compensation. None of the members of the |
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CORPORATE GOVERNANCE DISCLOSURE REQUIREMENT(1) |
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COMMENTS |
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committee
serve as CEOs or senior executive officers of other
public corporations. |
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(c) If the Board has a compensation committee, describe
the responsibilities, powers and operation of the
compensation committee.
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The duties and responsibilities of the Compensation
and Benefits Committee include the development of a
compensation philosophy and policy; evaluating the
performance of the Corporations senior executive
officers, reviewing their compensation, and monitoring
equity incentive arrangements. |
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The role of the Compensation and Benefits Committee is
primarily to review the adequacy and form of
compensation of executive management and the directors
with such compensation realistically reflecting the
responsibilities and risks of such positions, to
administer the Corporations Equity Incentive Plan, to
determine the recipients of, and the nature and size
of share compensation awards granted from time to time
and to determine the remuneration of executive
management and to determine any bonuses to be
awarded. Commencing in 2007, the committee will
conduct a formal review of the Corporations executive
compensation on an annual basis and otherwise as
required to satisfy itself and the Board that the
Corporations compensation objectives are being met. |
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The members of the Compensation and Benefits Committee
are Messrs. Huberman (Chair), Thygesen, Hanson, Korbin
and Balloch. Each member of the committee is an
independent director for the purposes of the CSA
Corporate Governance Guidelines, the NYSE Corporate
Governance Rules and the NASDAQ Corporate Governance
Rules. |
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The charter of the Compensation and Benefits Committee
is available on the Corporations website
(www.ivanhoemines.com). A copy may also be obtained
upon request to the Vice President and Corporate
Secretary, Suite 654, 999 Canada Place, Vancouver,
British Columbia V6C 3E1, telephone (604) 688-5755. |
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(d) If a compensation consultant or advisor has, at any time
since the beginning of the issuers most recently
completed financial year, been retained to assist in
determining compensation for any of the issuers
directors and officers, disclose the identity of the
consultant or advisor and briefly summarize the mandate
for which they have been retained. If the consultant or
advisor has been retained to perform any other work for
the issuer, state that fact and briefly describe the
nature of the work.
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Towers Perrin were retained in 2004 by the
Compensation and Benefits Committee to prepare a
director compensation report to assist the committee
in the determination of independent director
compensation. They were mandated to provide the review
based on compensation levels provided to similarly
sized international mining companies. Towers Perrins
fee for its 2004 report was Cdn$19,821.
Gurr Lane & Associates were retained in 2005 by the
Compensation and Benefits Committee to prepare reports
to assist the committee in developing a compensation
strategy for the position of President and for the
other executive and senior management positions. They
were mandated to develop a justifiable compensation
strategy which benchmarks such positions in terms of
the competitive marketplace of similar-sized
international mining companies and, where appropriate,
larger operating mining companies. The proposals were
intended to address salary, bonus and stock options.
Gurr Lane & Associates fee for the reports was
Cdn$39,697. |
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Towers Perrin were retained in 2006 by the
Compensation and Benefits Committee to prepare a
report on industry standards and best practices
relating |
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CORPORATE GOVERNANCE DISCLOSURE REQUIREMENT(1) |
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COMMENTS |
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to change of control provisions in
executive employment agreements. Towers Perrins fee
for this report was Cdn.$10,788. |
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None of the compensation consultants or advisors
retained by the Compensation and Benefits Committee
have performed other work for the Corporation. The
Committee will require any such consultant or advisor
to obtain its written approval prior to undertaking
any work for management of the Corporation in order to
protect the independence of such consultant or advisor. |
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Recommendations of the Compensation and Benefits
Committee to the Board are the responsibility of the
committee and may reflect factors and considerations
outside of surveys or consultants recommendations. |
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8. Other Board Committees If the Board has standing
committees other than the audit, compensation and nominating
committees, identify the committees and describe their
function.
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In addition to the Audit Committee, the Compensation
and Benefits Committee and the Corporate Governance
and Nominating Committee, in March 2005 the Board
approved the establishment of an Executive Committee,
consisting of Messrs. Friedland, Huberman, Meredith
and Macken, to meet between formal meetings of the
Board as necessary, with authority to approve
expenditures of up to U.S.$10,000,000. |
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In November, 2006 the Board also approved the
establishment of a Currency Advisory Committee,
consisting of the Chairman of the Audit Committee and
each of Mr. Peter Meredith (the Corporations Deputy
Chairman) and its CFO, to make recommendations to the
CFO on managing the Corporations currency exposures
and to report to the Board on a quarterly basis. |
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9. Assessments Disclose whether or not the Board, its
committees and individual directors are regularly assessed
with respect to their effectiveness and contribution. If
assessments are regularly conducted, describe the process
used for the assessments. If assessments are not regularly
conducted, describe how the Board satisfies itself that the
Board, its committees, and its individual directors are
performing effectively.
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The Corporate Governance and Nominating Committee has
the responsibility for developing and recommending to
the Board, and overseeing the execution of, a process
for assessing the effectiveness of the Board as a
whole, the committees of the Board and the
contribution of individual directors, on a regular
basis. The Corporate Governance and Nominating
Committee has developed and is continuing to refine an
assessment process for the Board, each of its
committees, and the contribution of individual
directors. |
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The Corporate Governance and Nominating Committee has,
for the last three years, reviewed and approved a
performance evaluation questionnaire that was
forwarded to all of the members of the Board of
Directors. This questionnaire covers a wide range of
issues providing for quantitative ratings and
subjective comments and recommendations in each area.
In 2004, all Directors assessed the performance of the
Board as a whole, its Committees, the Chair of each
Committee, and the Lead Director. Issues addressed
included Board composition, Board discussion and the
relationship with the CEO, Director orientation and
ongoing development, definition of roles and
responsibilities, Board and Director evaluation,
Director compensation, CEO and management succession,
strategic planning and supporting plans, Committees,
and the role of the Lead Director. Responses were
tabulated and analyzed through independent Board
governance consultants, without attribution of |
- 64 -
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CORPORATE GOVERNANCE DISCLOSURE REQUIREMENT(1) |
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COMMENTS |
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comments to individual directors, and a summary report
was provided to the Lead Director, and through him, to
the Committee and the full Board, with recommendations
for improvement where required. In 2005, each
Director assessed his own performance. Issues
addressed included skills and experience, preparation,
attendance and availability, communication and
interaction, strategies and plans, business,
corporation and industry knowledge, and an overall
assessment. Responses were provided to the Lead
Director. In 2006, a peer review was completed by the
Directors. Each Director was asked to evaluate the
contribution of each of the other Directors in the
following areas: preparation and availability,
accountability and transparency, contribution to
strategic planning, oversight of performance and risk,
contribution to supervision and relationship with
management, contribution to Board internal
effectiveness, and overall contribution of the
individual Director. Each Director was also asked to
comment on what additional skills, experience and
information could benefit the Board and how they might
be accessed, what were his and his fellow Directors
most recent accomplishments for the Corporation, and
what each Director sought to accomplish with his
fellow Directors over the next 1-2 years at the
Corporation. The Lead Director was provided with a
report detailing the average (mean) ratings for all
Directors of the portion of the questionnaire dealing
with the contribution of individual Directors, and a
summary of the responses to the portion dealing with
overall Board contribution, on a non-attributed
basis. Each individual Director was provided with a
confidential report card containing their peers
assessment of their contribution. The Lead Director
will meet with each Director to discuss individual and
Board performance, and report the overall results to
the Board of Directors. |
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The Corporate Governance and Nominating Committee
intends to continue these processes on a regular basis. |
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These evaluations showed that the Board, its
Committees, the Committee Chairs, the Lead Director
and individual Directors were effectively fulfilling
their responsibilities. |
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(1) Reference is made to the items in Form 58-101F. |
- 65 -
SCHEDULE B
EQUITY INCENTIVE PLAN RESOLUTION
BE IT RESOLVED, as an ordinary resolution, that:
1. |
|
the Amended and Restated Incentive Stock Option Plan of the Corporation (the Amended and
Restated Incentive Plan), as described in, and attached as Schedule C to, the Management
Information Circular of the Corporation dated March 22, 2007 which: |
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(a) |
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increases the aggregate number of Common Shares which the Corporation may
issue or reserve for issuance under the Incentive Plan, by 5,000,000 Common Shares,
from 32,000,000 Common Shares to 37,000,000 Common Shares; |
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(b) |
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increases the maximum number of Common Shares which the Corporation may issue
under the Bonus Plan component of the Incentive Plan by 1,500,000 Common Shares, from
2,000,000 Common Shares to 3,500,000 Common Shares; and |
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(c) |
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incorporates the amendments indicated in the form of Employees and
Directors Equity Incentive Plan attached to this Circular as Schedule C; |
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be and is hereby approved; and |
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2. |
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any director or officer of the Corporation be and is hereby authorized, for and on behalf of
the Corporation, to do all such things and execute all such documents and instruments as may
be necessary or desirable to give effect to this resolution. |
-66-
SCHEDULE C
IVANHOE MINES LTD.
EMPLOYEES AND DIRECTORS EQUITY INCENTIVE PLAN
AMENDED AND RESTATED
MAY 10, 2005, AUGUST 10, 2005 and MAY 12, 2006
MAY 11, 2007
PART 1 INTRODUCTION
1.1 Purpose
The purpose of the Plan is to secure for the Company and its shareholders the benefits of incentive
inherent in share ownership by the directors and employees of the Company and its affiliates who,
in the judgment of the Board, will be largely responsible for its future growth and success. It is
generally recognized that share plans of the nature provided for herein aid in retaining and
encouraging employees and directors of exceptional ability because of the opportunity offered them
to acquire a proprietary interest in the Company.
1.2 Definitions
(a) |
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(a) Affiliate has the meaning set forth in Section 1(2) of the Ontario Securities Act, as amended,
and includes those issuers that are similarly related, whether or not any of the issuers are
corporations, companies, partnerships, limited partnerships, trusts, income trusts or investment
trusts or any other organized entity issuing securities. |
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(b) |
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(b) Associate has the meaning assigned to it in the Ontario Securities Act, as amended. |
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(c) |
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(c) Board means the board of directors of the Company. |
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(d) |
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Blackout Period means a period in which the trading of Shares or other securities
of the Company is restricted under the Companys Corporate Disclosure, Confidentiality and
Securities Trading Policy, or under an insider trading policy or other policy of the Company
then in effect. |
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(e) |
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(d) Company means Ivanhoe Mines Ltd., a company continued under the laws of the Yukon Territory. |
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(f) |
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(e) Committee has
the meaning attributed thereto in Section
6.1;6.1. |
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(g) |
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(f) Eligible Directors means the directors of the Company or any Affiliate thereof who are, as
such, eligible for participation in the Plan. |
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(h) |
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(g) Eligible Employees means employees (including employees who are officers and directors) of
the Company or any Affiliate thereof, whether or not they have a written employment contract with Company,
determined by the Board, upon recommendation of the Committee, as employees eligible for participation in the
Plan. Eligible Employees shall include Service Providers eligible for participation in the Plan as determined by
the Board. |
(i) |
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(h) Fair Market Value means, with respect to a Share subject to Option, the weighted average
price of the Shares on The Toronto Stock Exchange for the five days on which Shares were traded immediately
preceding the date in respect of which Fair Market Value is to be determined or, if the Shares are not, as at that
date listed on The Toronto Stock Exchange, on such other exchange or exchanges on which the Shares are listed on
that date. If the Shares are not listed and posted for trading on an exchange on such day, the Fair Market Value
shall be such price per Share as the Board, acting in good faith, may determine. |
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(j) |
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(i) Insider has the meaning assigned to it in the Ontario Securities Act, as amended, and also
includes an Associate or Affiliate of any person who is an
Insider. |
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(k) |
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(j) Option means an option granted under the terms of the Share Option Plan. |
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(l) |
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(k) Option Period means the period during which an Option is outstanding. |
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(m) |
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(l) Optionee means an Eligible Employee or Eligible Director to whom an Option has been granted
under the terms of the Share Option Plan. |
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(n) |
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(m) Participant means, in respect of any Plan, an Eligible Employee or Eligible Director who
participates in such Plan. |
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(o) |
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(n) Plan means, collectively the Share Option Plan, the Share Bonus Plan and the Share Purchase
Plan and Plan means any such plan as the context requires. |
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(p) |
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(o) Service Provider means any person or company engaged by the Company or an Affiliate to
provide services for an initial, renewable or extended period of 12 months or more. |
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(q) |
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(p) Share Bonus Plan means the plan established and operated pursuant to Part 3 and Part 5 hereof. |
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(r) |
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(q) Share Option Plan means the plan established and operated pursuant to Part 2 and Part 5
hereof. |
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(s) |
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(r) Share Purchase Plan means the plan established and operated pursuant to Part 4 and Part 5
hereof.
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(t) |
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(s) Shares means the common shares of the Company. |
PART 2 SHARE OPTION PLAN
2.1 Participation
Options shall be granted only to Eligible Employees and Eligible Directors.
2.2 Administration of Share Option Plan.
The Share Option Plan shall be administered by the Committee.
2.3 Price
The exercise price per Share of any Option shall be not less than one hundred per cent (100%) of
the Fair Market Value on the date of grant.
2.4 Grant of Options
The Board, on the recommendation of the Committee, may at any time authorize the granting of
Options to such Eligible Employees and Eligible Directors as it may select for the number of Shares
that it shall designate, subject to the provisions of the Share Option Plan. When the grant is
authorized, ofUnless a later date is otherwise determined by the Board, the The
date of grant of an Option shall be (i) the date such grant was approved by the Committee for
recommendation to the Board, provided the Board approves such grant; or (ii) for a grant of
an Option not approved by the Committee for recommendation to the Board, the date such grant was
approved by the Board.
Each Option granted to an Eligible Employee or to an Eligible Director shall be evidenced by a
stock option agreement with terms and conditions consistent with the Share Option Plan and as
approved by the Board on the recommendation of the Committee (which terms and conditions need not
be the same in each case and may be changed from time to time, subject to section 5.7 of the
Plan and the approval of any material changes by The Toronto Stock Exchange or such other
exchange or exchanges on which the Shares are then traded).
2.5 Terms of Options
The Option Period shall be five years from the date such Option is granted or such greater or
lesser duration as the Board, on the recommendation of the Committee, may determine at the date of
grant, and may thereafter be reduced with respect to any such Option as provided in Section 2.8
hereof covering termination of employment or death of the Optionee; provided, however, that at
any time the expiry date of the Option Period in respect of any outstanding Option under this Plan
(either before or after its amendment and restatement on May 11, 2007) should be determined to
occur either during a Blackout Period or within ten business days following the expiry of the
Blackout Period, the expiry date of such Option Period shall be deemed to be the date that is the
tenth business day following the expiry of the Blackout Period.
Unless otherwise determined from time to time by the Board, on the recommendation of the Committee,
Options may be exercised (in each case to the nearest full Share) during the Option Period as
follows:
(a) at any time during the first year of the Option Period, the Optionee may
purchase up to 20% of the total number of Shares reserved for issuance pursuant to
his or her Option; and
(b) at any time during each additional year of the Option Period the Optionee may
purchase an additional 20% of the total number of Shares reserved for issuance
pursuant to his or her Option plus any Shares not purchased in accordance with the
preceding subsection (a) until, in the fifth year of the Option Period, 100% of
the Option will be exercisable.
Except as set forth in Section 2.8, no Option may be exercised unless the Optionee is at the time
of such exercise:
(a) in the case of an Eligible Employee, in the employ of the Company or an
Affiliate and shall have been continuously so employed since the grant of his
Option, but absence on leave, having the approval of the Company or such Affiliate,
shall not be considered an interruption of employment for any purpose of the Share
Option Plan; or
(b) in the case of an Eligible Director, a director of the Company or an Affiliate
and shall have been such a director continuously since the grant of his Option.
Subject to Section 2.6, the exercise of any Option will be contingent upon the Optionee having
entered into an Option agreement with the Company on such terms and conditions as have been
approved by the Board, on the recommendation of the Committee, and which incorporates by reference
the terms of the Plan. The exercise of any Option will also be contingent upon receipt by the
Company of cash payment of the full purchase price of the Shares being purchased. No Optionee or
his legal representatives or legatees will be, or will be deemed to be, a holder of any Shares
subject to an Option, unless and until certificates for such Shares are issued to him or them under
the terms of the Share Option Plan.
2.6 Share Appreciation Right
A Participant may, if at any time determined by the Board, on the recommendation of the Committee,
have the right (the Right), when entitled to exercise an Option, to terminate such Option in
whole or in part (the Terminated Option) by notice in writing to the Company and, in lieu of
receiving the Shares (the Option Shares) to which the Terminated Option relates, to receive the
number of Shares, disregarding fractions, which is equal to the quotient obtained by:
(a) subtracting the Option exercise price per Share from the Fair Market Value per
Share on the day immediately prior to the exercise of the Right and multiplying
the remainder by the number of Option Shares; and
(b) dividing the product obtained under subsection 2.6(a) by the Fair Market Value
per Share on the day immediately prior to the exercise of the Right.
If a Right is granted in connection with an Option, it is exercisable only to the extent and on the
same conditions that the related Option is exercisable. For greater certainty, for purposes of
the aggregate number of shares reserved for issuance under Section 5.1 of the Plan, in the event of
an exercise of a Right in respect of an Option, the number of Shares available for issuance under
the Plan will be reduced by the number of Shares to which the Terminated Option relates rather than
the number of Shares issued upon exercise of the Right in respect of such Option.
2.7 Lapsed Options
If Options are surrendered, terminated or expire without being exercised in whole or in part, new
Options may be granted covering the Shares not purchased under such lapsed Options, subject in the
case of the cancellation of an Option in connection with the grant of a new Option to the same
person on different terms, to the consent of The Toronto Stock Exchange.
2.8 Effect of Termination of Employment or Death
If an Optionee:
(a) dies while employed by or while a director of the Company or its Affiliate, any Option held
by him at the date of death shall become exercisable in whole or in part, but only
by the person or persons to whom the Optionees rights under the Option shall pass by the
Optionees will or applicable laws of descent and distribution. Unless otherwise determined by
the Board, on the recommendation of the Committee, all such Options shall be exercisable only to
the extent that the Optionee was entitled to exercise the Option at the date of his death and
only for 12 months after the date of death or prior to the expiration of the Option Period in
respect thereof, whichever is sooner; or
(b) ceases to be employed by or act as a director of the Company or its Affiliate for cause, no
Option held by such Optionee will, unless otherwise determined by the Board, on the
recommendation of the Committee, be exercisable following the date on which such Optionee ceases
to be so employed or ceases to be a director, as the case may be. If an Optionee ceases to be
employed by or act as a director of the Company or its Affiliate for any reason other than cause
then, unless otherwise determined by the Board, on the recommendation of the Committee, any
Option held by such Optionee at the effective date thereof shall become exercisable for a period
of up to 12 months thereafter or prior to the expiration of the Option Period in respect thereof,
whichever is sooner.
2.9 Effect of Takeover Bid
If a bona fide offer (the Offer) for Shares is made to the Optionee or to shareholders generally
or to a class of shareholders which includes the Optionee, which Offer, if accepted in whole or in
part, would result in the offeror exercising control over the Company within the meaning of
subsection 1(3) of the Ontario Securities Act (as amended from time to time), then the Company
shall, immediately upon receipt of notice of the Offer, notify each Optionee currently holding an
Option of the Offer, with full particulars thereof, whereupon, notwithstanding Section 2.5 hereof,
such Option may be exercised in whole or in part by the Optionee so as to permit the Optionee to
tender the Shares received upon such exercise (the Optioned Shares) pursuant to the Offer.
2.10 Effect of Amalgamation or Merger
If the Company amalgamates or merges with or into another corporation, any Shares receivable on the
exercise of an Option shall be converted into the securities, property or cash which the
Participant would have received upon such amalgamation or merger if the Participant had exercised
his Option immediately prior to the record date applicable to such amalgamation or merger, and the
option price shall be adjusted appropriately by the Board and such adjustment shall be binding for
all purposes of the Share Option Plan.
2.11 Adjustment in Shares Subject to the Plan
If there is any change in the Shares through the declaration of stock dividends of Shares or
consolidations, subdivisions or reclassification of Shares, or otherwise, the number of Shares
available under the Share Option Plan, the Shares subject to any Option, and the option price
thereof shall be adjusted appropriately by the Board and such adjustment shall be effective and
binding for all purposes of the Share Option Plan.
2.12 Loans to Employees
Subject to applicable law, the Board may at any time authorize the Company to loan money to an
Eligible Employee (which for purposes of this Section 2.12 excludes any director or executive
officer (or equivalent thereof) of the Company), on such terms and conditions as the Board may
reasonably determine, to assist such Eligible Employee to exercise an Option held by him or
her. Such terms and conditions shall include, in any event, interest at prevailing market rates, a
term not in excess of one year, and security in favour of the Company represented by that number of
Shares issued pursuant to the exercise of an Option in respect of which such loan was made or
equivalent security which equals the loaned amount divided by the Fair Market Value of the Shares
on the date of exercise of the Option, which security may be granted on a non-recourse basis.
PART 3 SHARE BONUS PLAN
3.1 Participants
The Board, on the recommendation of the Committee, shall have the right, subject to Section 3.2, to
issue or reserve for issuance, for no cash consideration, to any Eligible Employee or any Eligible
Director any number of Shares as a discretionary bonus subject to such provisos and restrictions as
the Board may determine.
3.2 Number of Shares
The aggregate maximum number of shares that may be issued pursuant to Section 3.1 will be limited
to 2,000,000 3,500,000 Shares. Shares reserved for issuance and issued under the
Share Bonus Plan shall be subject to the limitations set out in Section 5.1.
The Board, on the recommendation of the Committee, in its absolute discretion, shall have the right
to reallocate any of the Shares reserved for issuance under the Share Bonus Plan for future
issuance under the Share Option Plan or the Share Purchase Plan and, in the event that any Shares
specifically reserved under the Share Bonus Plan are reallocated to the Share Option Plan or the
Share Purchase Plan, as the case may be, the aggregate maximum number of Shares reserved under the
Share Bonus Plan will be reduced to that extent. In no event will the number of Shares allocated
for issuance under the Share Bonus Plan exceed 2,000,000 3,500,000 Shares.
3.3 Necessary Approvals
The obligation of the Company to issue and deliver any Shares pursuant to an award made under the
Share Bonus Plan will be subject to all necessary approvals of any exchange or securities
regulatory authority having jurisdiction over the Shares.
PART 4 SHARE PURCHASE PLAN
4.1 Participants
Participants in the Share Purchase Plan will be Eligible Employees who have been continuously
employed by the Company or any of its Affiliates on a full-time basis for at least 12 consecutive
months and who have been designated by the Board, on the recommendation of the Committee, as
participants in the Share Purchase Plan (Share Purchase Plan Participants). The Board, on the
recommendation of the Committee, shall have the right, in its absolute discretion, to waive such
12-month period or to refuse any Eligible Employee or group of Eligible Employees the right of
participation or continued participation in the Share Purchase Plan.
4.2 Election to Participate in the Share Purchase Plan and Participants Contribution
Any Share Purchase Plan Participant may elect to contribute money (the Participants
Contribution) to the Share Purchase Plan in any calendar year if the Share Purchase Plan
Participant delivers to the Company a written direction in form and substance satisfactory to the
Company authorizing the Company to deduct from the Share Purchase Plan Participants salary, in
equal instalments, the Participants Contribution. Such direction will remain effective until
revoked in writing by the Share Purchase Plan Participant or until the Board terminates or suspends
the Share Purchase Plan, whichever is earlier.
The Share Purchase Plan Participants Contribution as determined by the Board, on the
recommendation of the Committee, shall not exceed 10% of the Share Purchase Plan Participants
basic annual salary from the Company and its Affiliates at the time of delivery of the direction,
before deductions, exclusive of any overtime pay, bonuses or allowances of any kind whatsoever (the
Basic Annual Salary). In the case of a Share Purchase Plan Participant for whom the Board, on
the recommendation of the Committee, has waived the 12-month employment requirement, the Share
Purchase Plan Participants Contribution shall not exceed 10% of his Basic Annual Salary from the
Company and its Affiliates at the time of delivery of the direction, prorated over the remainder of
the calendar year, before deductions and exclusive of any overtime pay, bonuses or allowances of
any kind whatsoever.
4.3 Companys Contribution
Immediately prior to the date any Shares are issued to a Share Purchase Plan Participant in
accordance with Section 4.4, the Company will credit the Share Purchase Plan Participant with, and
thereafter hold in trust for the Share Purchase Plan Participant, an amount determined by the Board
(the Companys Contribution) not to exceed the Participants Contribution then held in trust by
the Company.
4.4 Issue of Shares
On March 31, June 30, September 30 and December 31 in each calendar year the Company will issue to
each Share Purchase Plan Participant fully paid and non-assessable Shares, disregarding fractions,
which is equal to the aggregate amount of the Participants Contribution and the Companys
Contribution divided by the Issue Price. For the purposes of this Section 4.4, Issue Price means
the weighted average price of the Shares on The Toronto Stock Exchange, or such exchange or
exchanges on which the Shares may be traded at such time for the 90-day period immediately
preceding the date of issuance. If the Shares are not traded on an exchange on the date of
issuance, the Issue Price shall be such price per Share as the Board, acting in good faith, may
determine.
The Company shall hold any unused balance of the Participants Contribution for a Share Purchase
Plan Participant until used in accordance with the Share Purchase Plan.
4.5 Delivery of Shares
As soon as reasonably practicable following each issuance of Shares to a Share Purchase Plan
Participant pursuant to Section 4.4, the Company will cause to be delivered to the Share Purchase
Plan Participant a certificate in respect of such Shares provided that, if required by applicable
law or the rules and policies of The Toronto Stock Exchange or such other exchange or exchanges on
which the Shares are traded, a restrictive legend shall be inscribed on the certificate, which
legend shall state that the Shares shall not be transferable for such period as may be prescribed
by law or by any regulatory authority or stock exchange on which the Shares are listed.
4.6 Effect of Termination of Employment or Death
If a Participant dies or otherwise ceases to be employed by the Company or any of its Affiliates
for any reason or receives notice from the Company of the termination of his or her employment, the
Share Purchase Plan Participants participation in the Share Purchase Plan will be deemed to be
terminated and any portion of the Participants Contribution then held in trust shall be paid to
the Share Purchase Plan Participant or his estate or successor as the case may be.
4.7 Effect of Amalgamation or Merger
If the Company amalgamates or merges with or into another corporation, each Share Purchase Plan
Participant to whom Shares are to be issued will receive, on the date on which any Shares would
otherwise have been delivered to the Share Purchase Plan Participant in accordance with Section
4.5, the securities, property or cash to which the Share Purchase Plan Participant would have been
entitled on such amalgamation, consolidation or merger had the Shares been issued immediately prior
to the record date of such amalgamation or merger.
PART 5 GENERAL
5.1 Number of Shares
The aggregate number of Shares that may be reserved for issuance under the Plan shall not exceed
32,000,00037,000,000 Shares inclusive of those Shares reserved under the Share
Bonus Plan pursuant to Section 3.2. In addition, the aggregate number of Shares:
(a) that may be reserved for issuance to Insiders under the Plan (or when combined with all
of the Companys other security based compensation arrangements) shall not exceed 10% of the
Companys outstanding issue from time to time;
(b) that may be issued to Insiders under the Plan (or when combined with all of the Companys
other security based compensation arrangements) within any one-year period shall not exceed
10% of the Companys outstanding issue from time to time; and
(c) that may be issued to any one Insider and his or her Associates under the Plan within any
one-year period shall not exceed 5% of the Companys outstanding issue from time to time.
In no event will the number of Shares at any time reserved for issuance to any Participant exceed
5% of the Companys outstanding issue from time to time.
For the purposes of this Section 5.1, outstanding issue means the total number of Shares, on a
non-diluted basis, that are issued and outstanding as of the date that any Shares are issued or
reserved for issuance pursuant to an award under the Plan to an Insider or such Insiders
Associates, excluding any Shares issued under the Plan during the immediately preceding 12 month
period.
5.2 Transferability
Any benefits, rights and options accruing to any Participant in accordance with the terms and
conditions of the Plan shall not be transferable unless specifically provided herein. During the
lifetime of a Participant all benefits, rights and options may only be exercised by the
Participant. Options are non-transferable except by will or by the laws of descent and
distribution.
5.3 Employment
Nothing contained in any Plan shall confer upon any Participant any right with respect to
employment or continuance of employment with the Company or any, Affiliate, or interfere in any way
with the right of the Company or any Affiliate to terminate the Participants employment at any
time. Participation in any Plan by a Participant is voluntary.
5.4 Record Keeping
The Company shall maintain a register in which shall be recorded:
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(a) |
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the name and address of each Participant; |
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(b) |
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the Plan or Plans in which the Participant participates; |
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(c) |
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any Participants Contributions; |
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(d) |
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the number of unissued Shares reserved for issuance pursuant to an Option or
pursuant to an award made under the Share Bonus Plan in favour of a Participant; and |
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(e) |
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such other information as the Board may determine. |
5.5 Necessary Approvals
The Plan shall be effective only upon formal adoption by the Board following the approval of the
shareholders of the Company in accordance with the rules and policies of The Toronto Stock
Exchange.
The obligation of the Company to sell and deliver Shares in accordance with the Plan is subject to
the approval of any governmental authority having jurisdiction in respect of the Shares or any
exchanges on which the Shares are then listed which may be required in connection with the
authorization, issuance or sale of such Shares by the Company. If any Shares cannot be issued to
any Participant for any reason including, without limitation, the failure to obtain such approval,
the obligation of the Company to issue such Share shall terminate and any Participants
Contribution or option price paid to the Company shall be returned to the Participant.
5.6 Income Taxes
The Company may withhold from any remuneration or consideration whatsoever payable to such
Participant hereunder, any amounts required by any taxing authority to be withheld for taxes of any
kind as a consequence of such participation in the Plan.
5.7 Amendments to Plan
The Board may amend, modify or terminate the Plan at any time if and when it is advisable in
the absolute discretion of the Board, subject to the approval of any material changes by The
Toronto Stock Exchange or such other exchange or exchanges on which the Shares are traded.
However, any amendment of such Plan which would:
(a) materially increase the benefits under the Plan;
(b) materially increase the number of Shares issuable under the Plan; or
(c) materially modify the requirements as to eligibility for participation in
the Plan;
shall be effective only upon the approval of the shareholders of the Company and, if required,
the approval of any regulatory body having jurisdiction over the Shares and any stock exchanges on
which the Shares are then listed for trading. Except as expressly otherwise provided herein,
however, no change in an award already granted under the Plan shall be made without the written
consent of the recipient of such award.
The Board shall have the power to, at any time and from time to time, either prospectively or
retrospectively, amend, suspend or terminate the Plan or any Option or other award granted under
the Plan without shareholder approval, including, without limiting the generality of the foregoing:
changes of a clerical or grammatical nature, changes regarding the persons eligible to participate
in the Plan, changes to the exercise price, vesting, term and termination provisions of Options,
changes to the share appreciation right provisions, changes to the share bonus plan provisions
(other than the maximum number of Shares issuable under the Bonus Plan in Section 3.2 of the Plan),
changes to the authority and role of the Compensation and Benefits Committee under the Plan,
changes to the acceleration and vesting of Options in the event of a takeover bid, and any other
matter relating to the Plan and the Options and awards granted thereunder, provided however
that:
a) |
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such amendment, suspension or termination is in accordance with applicable laws and
the rules of any stock exchange on which the Shares are listed; |
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b) |
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no amendment to the Plan or to an Option granted hereunder will have the effect of
impairing, derogating from or otherwise adversely affecting the terms of an Option which is
outstanding at the time of such amendment without the written consent of the holder of such
Option; |
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c) |
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the expiry date of an Option Period in respect of an Option shall not be more than
ten years from the date of grant of an Option except as expressly provided in Section 2.5; |
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d) |
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the Directors shall obtain shareholder approval of: |
|
(i) |
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any amendment to the aggregate maximum number of Shares specified in
subsection 3.2 (Share Bonus Plan); |
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(ii) |
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any amendment to the aggregate number of Shares specified in subsection 5.1
(being the aggregate number of Shares that may be reserved for issuance under the Plan)
other than pursuant to section 2.11; |
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(iii) |
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any amendment to the limitations on Shares that may be reserved for
issuance, or issued, to Insiders under subsections 5.1(a) (b) and (c); or |
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(iv) |
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any amendment that would reduce the exercise price of an outstanding Option
of an Insider other than pursuant to section 2.11; |
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(v) |
|
any amendment that would extend the expiry date of the Option Period in
respect of any Option granted under the Plan to an Insider except as expressly
contemplated in subsection 2.5; and |
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(vi) |
|
any amendment to the amending provision set out in Section 5.7 (Amendments
to Plan). |
If the Plan is terminated, the provisions of the Plan and any administrative guidelines and
other rules and regulations adopted by the Board and in force on the date of termination will
continue in effect as long as any Option or any rights pursuant thereto remain outstanding and,
notwithstanding the termination of the Plan, the Board shall remain able to make such amendments to
the Plan or the Options as they would have been entitled to make if the Plan were still in
effect.
5.8 No Representation or Warranty
The Company makes no representation or warranty as to the future market value of any Shares issued
in accordance with the provisions of the Plan.
5.9 Compliance with Applicable Law, etc
If any provision of the Plan or any agreement entered into pursuant to the Plan contravenes any
law or any order, policy, by-law or regulation of any regulatory body or stock exchange having
authority over the Company or the Plan then such provision shall be deemed to be amended to the
extent required to bring such provision into compliance therewith.
PART 6 ADMINISTRATION OF THE PLAN
6.1 Administration by the Committee
|
(a) |
|
Unless otherwise determined by the Board, the Plan shall be administered by the
Compensation and Benefits Committee (the Committee) appointed by the Board and
constituted in accordance with such Committees charter. The members of the Committee
serve at the pleasure of the Board and vacancies occurring in the Committee shall be
filled by the Board. |
|
|
(b) |
|
The Committee shall have the power, where consistent with the general purpose
and intent of the Plan and subject to the specific provisions of the Plan, to: |
|
(i) |
|
adopt and amend rules and regulations relating to the
administration of the Plan and make all other determinations necessary or
desirable for the administration of the Plan. The interpretation and
construction of the provisions of the Plan and related agreements by the
Committee shall be final and conclusive. The Committee may correct any defect
or supply any omission or reconcile any inconsistency in the Plan or in any
related agreement in the manner and to the extent it shall deem expedient to
carry the Plan into effect and it shall be the sole and final judge of such
expediency; and |
|
|
(ii) |
|
otherwise exercise the powers delegated to the Committee by the
Board and under the Plan as set forth herein. |
6.2 Board Role
|
(a) |
|
The Board, on the recommendation of the Committee, shall determine and
designate from time to time the individuals to whom awards shall be made, the
amounts of the awards and the other terms and conditions of the awards. |
|
|
(b) |
|
The Board may delegate any of its responsibilities or powers under the Plan to
the Committee, provided that the grant of all Shares, Options or other awards under the
Plan shall be subject to the approval of the Board. No Option shall be
exercisable in whole or in part unless and until such approval is obtained. |
|
|
(c) |
|
In the event the Committee is unable or unwilling to act in respect of a matter
involving the Plan, the Board shall fulfill the role of the Committee provided for
herein. |
IVANHOE MINES LTD.
654 999 Canada Place, Vancouver, British Columbia V6C 3E1
Tel: (604) 688 5755 Fax: (604) 682 2060
P R O X Y
This proxy is solicited by the management of IVANHOE MINES LTD. (the Corporation) for the
Annual General Meeting of its shareholders (the Meeting) to be held on May 11, 2007.
The undersigned hereby appoints, Peter Meredith, Deputy Chairman and Director, or failing him,
Beverly A. Bartlett, Vice President and Corporate Secretary of the Corporation, or instead of
either of the foregoing, (insert name) , as nominee of the undersigned, with full power of
substitution, to attend and vote on behalf of the undersigned at the Meeting to be held in the
Terraces A & B of the Terminal City Club, 837 West Hastings Street, Vancouver, British Columbia, on
May 11, 2007 at 9:00 AM, local time, and at any adjournments thereof, and directs the nominee to
vote or abstain from voting the shares of the undersigned in the manner indicated below:
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1. |
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ELECTION OF DIRECTORS |
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The nominees proposed by management of the Corporation are: |
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ROBERT M. FRIEDLAND
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FOR o
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WITHHOLD o |
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R. EDWARD FLOOD
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FOR o
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WITHHOLD o |
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KJELD THYGESEN
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FOR o
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WITHHOLD o |
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ROBERT HANSON
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FOR o
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WITHHOLD o |
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JOHN WEATHERALL
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FOR o
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WITHHOLD o |
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MARKUS FABER
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FOR o
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WITHHOLD o |
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JOHN MACKEN
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FOR o
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WITHHOLD o |
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DAVID HUBERMAN
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FOR o
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WITHHOLD o |
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HOWARD BALLOCH
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FOR o
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WITHHOLD o |
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PETER MEREDITH
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FOR o
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WITHHOLD o |
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DAVID KORBIN
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FOR o
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WITHHOLD o |
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BRET CLAYTON
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FOR o
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WITHHOLD o |
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2. |
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APPOINTMENT OF AUDITORS |
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To appoint Deloitte & Touche, LLP, Chartered Accountants, as auditors of the Corporation at a
remuneration to be fixed by the board of directors. |
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FOR o WITHHOLD o |
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3. |
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EMPLOYEES AND DIRECTORS EQUITY INCENTIVE PLAN |
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To approve the amended and restated Employees and Directors Equity Incentive Plan as more
particularly defined in the Management Proxy Circular. |
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FOR o AGAINST o |
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4. |
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AMENDMENT TO THE ARTICLES |
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|
To approve and confirm revisions to the By-Laws to allow for the Corporations shares to be
issued electronically, without a certificate, as will be required for shares listed on a U.S.
stock exchange. |
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FOR o AGAINST o |
|
5. |
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To transact any other business as may properly come before the Meeting or at any
adjournment thereof. |
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6. |
|
Upon any permitted amendment to or variation of any matter identified in the Notice of
Meeting. |
THE UNDERSIGNED HEREBY REVOKES ANY PRIOR PROXY OR PROXIES.
DATED: , 2007.
Signature of Shareholder
(Please print name here)
|
|
|
Note: |
|
If not dated, this proxy is deemed to be dated on the day sent by the
Corporation. |
Affix label here
Name of Shareholder
Address of Shareholder
(Please advise the Corporation of any change of address)
NOTES:
A proxy will not be valid unless the completed, signed and dated form of proxy is faxed to CIBC
Mellon Trust Company, Attention: Proxy Department 1-416-368-3976 or 1-866-781-3111 or delivered by
mail to P.O. Box 1900, Vancouver, British Columbia, V6E 3X1 or P.O. Box 721, Agincourt, Ontario,
M1S 0A1 or delivered by hand to Suite 1600, The Oceanic Plaza, 1066 Hastings Street, Vancouver,
British Columbia, V6E 3K9 or 320 Bay Street, Banking Hall Level, Toronto, Ontario, M5H 4A6, and
received by CIBC Mellon Trust Company not less than 48 hours (excluding Saturdays, Sundays and
statutory holidays) before the time at which the Meeting is to be held, or any adjournment thereof.
Any one of the joint holders of a share may sign a form of proxy in respect of the share but, if
more than one of them is present at the Meeting or represented by proxyholder, that one of them
whose name appears first in the register of members in respect of the share, or that ones
proxyholder, will alone be entitled to vote in respect thereof. Where the form of proxy is signed
by a corporation, either its corporate seal must be affixed or the form should be signed by the
corporation under the hand of an officer or attorney duly authorized in writing.
A shareholder has the right to appoint a person, who need not be a shareholder, other than either
of the nominees designated in this form of proxy to attend and act for the shareholder and on the
shareholders behalf at the Meeting, and may do so by inserting the name of that other person in
the blank space provided for that purpose in this form of proxy or by completing another suitable
form of proxy.
The shares represented by this proxy will be voted in accordance with the instructions of the
shareholder on any ballot, and where a choice with respect to a matter to be acted on is specified
the shares will be voted on a ballot in accordance with that specification. This proxy confers
discretionary authority with respect to matters identified or referred to in the accompanying
Notice of Meeting for
which no instruction is given, and with respect to other matters that may properly come before the
Meeting.
IN RESPECT OF A MATTER SO IDENTIFIED OR REFERRED TO FOR WHICH NO INSTRUCTION IS GIVEN, THE NOMINEES
NAMED IN THIS PROXY WILL VOTE SHARES REPRESENTED THEREBY FOR THE APPROVAL OF SUCH MATTER.
IVANHOE MINES LTD.
Dear Shareholder:
As a non-registered shareholder of Ivanhoe Mines Ltd., you are entitled to receive our interim
financial statements, annual financial statements, or both. If you wish to receive them, please
either complete and return this card by mail or submit your request online (see address below).
Your name will then be placed on the Supplemental Mailing List maintained by our Transfer Agent and
Registrar, CIBC Mellon Trust Company.
As long as you remain a non-registered shareholder, you will receive this card each year and will
be required to renew your request to receive these financial statements. If you have any questions
about this procedure, please contact CIBC Mellon Trust Company by phone at 1-800-387-0825 or (416)
643-5500 or at www.cibcmellon.com/InvestorInquiry.
We
encourage you to submit your request online at:
www.cibcmellon.com/FinancialStatements.
Our Company Code Number is 3086B.
NOTE: Do not return this card by mail if you have submitted your request online.
REQUEST FOR FINANCIAL STATEMENTS
TO: CIBC Mellon Trust Company
Please add my name to the Supplemental Mailing List for Ivanhoe Mines Ltd. and send me their
financial statements as indicated below:
|
|
|
Interim Financial Statements
|
|
o |
Annual Financial Statements
|
|
o |
(Please Print)
SHAREHOLDER CONSENT TO DELIVERY OF ELECTRONIC MATERIALS
Ivanhoe Mines Ltd. (the Company) is introducing a voluntary option for the delivery of
Company documents to its shareholders (Shareholders) by electronic means rather than traditional
mailing of paper copies. This option allows the Company to provide its shareholders a convenient
method of receiving materials meant to increase timeliness for Shareholders, provide benefits to
our environment and reduce costs.
|
|
I consent to the electronic delivery of the documents listed below that the Company elects
to deliver to me electronically, all in accordance with the terms hereof. The consent granted
herein will last until revoked by the Shareholder. |
|
1. |
|
The following documents that are filed with securities regulators and mailed to other
Shareholders will at the same time be delivered electronically to me (collectively referred
to as the Documents or each of them as a Document): |
|
a) |
|
annual reports including financial
statements; |
|
|
b) |
|
quarterly reports, including financial statements;
|
|
|
c) |
|
management information circulars; and |
|
|
d) |
|
such other disclosure documents that
the Company makes available by electronic means. |
2. |
|
The Documents will be delivered to me by the Company by making them available for my
viewing, downloading and/or saving on the Internet website
www.ivanhoemines.com (the Website). |
|
|
|
I must then go to Investor Information and Financial Reports and locate the document of
interest for viewing. |
|
|
|
The Company will advise me by e-mail when the documents are available on the Website. |
|
3. |
|
The viewing, downloading and/or saving of a Document requires me to use: |
|
a) |
|
a computer with a 486/33 processor
(or MacIntosh LC III) or higher with at
least 16 megabytes of RAM (Random Access Memory) and Windows 3.1; |
|
|
b) |
|
access to an Internet service provider; |
|
|
c) |
|
the program Netscape Navigator 3.0 (or higher) or Microsoft Internet Explorer 3.0 (or
higher); |
|
|
d) |
|
the program Adobe Acrobat Reader 3.0 (or higher) to read the material; and
|
|
|
e) |
|
an electronic mail account to receive notification. |
|
|
For Shareholders without Adobe Acrobat Reader, a link will be provided to allow the downloading
of this program. Accordingly, I acknowledge that I understand the above technical requirements
and that I possess the technical ability and resources to receive electronic delivery in the
manner outlined in this Consent to Electronic Delivery of Documents. |
|
4. |
|
I acknowledge that I may receive at no cost a paper copy of any Document to be delivered if
the Company cannot make electronic delivery available or if I contact the Companys transfer
agent, CIBC Mellon by telephone at (800) 387-0825, regular mail at
Ivanhoe Mines Ltd. c/o CIBC Mellon Trust Company, PO Box 1900, Vancouver, BC
V6C 3K9 or via electronic mail at inquiries@cibcmellon.com. I further acknowledge
that my request of a paper copy of any Document does not constitute revocation of this Consent
to Electronic Delivery of Documents. |
|
5. |
|
The Documents will be posted on the Website for delivery for a period of time corresponding
to the notice period stipulated
under applicable legislation and the Documents will remain posted on the Website thereafter
for a period of time which is appropriate and relevant, given the nature of the document. |
|
6. |
|
I understand that my consent may be revoked or changed at any time by notifying the Companys
transfer agent of such revocation or changed by telephone, regular mail or e-mail as specified
in paragraph 4 above. |
7. |
|
I understand that the Company maintains in confidence the personal information I provide as a
Shareholder and uses it only for the purpose of Shareholder communication. |
|
8. |
|
I understand that I am not required to consent to the electronic delivery of Documents. I
have read and understand this Consent to Electronic Delivery of Documents and I consent to the
electronic delivery of Documents on the foregoing terms. |
I have read and understand this Consent for Electronic Delivery of Documents for Ivanhoe Mines
Ltd. and consent to the electronic delivery of the Documents on the terms outlined above.
Please complete the sections below then mail or fax the form to CIBC Mellon Trust Company at the
address below.
|
|
|
Print Shareholder(s) Name
|
|
|
|
|
(as it appears on your cheques, certificates, statements or correspondence) |
|
|
|
E-mail Address
|
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Mailing Address |
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Address 1
|
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Address 2
|
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City, Province/State
|
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Country
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Post Code/Zip Code
|
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Date
|
|
|
|
Shareholder Signature(s) |
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Print and mail this form to:
|
|
or
|
|
Print and fax this form to: |
CIBC Mellon Trust Company
|
|
|
|
1-604-688-4301 |
PO Box 1900 |
|
|
|
|
Vancouver, BC |
|
|
|
|
V6C 3K9
|
|
|
|
|
CIBC Mellon Trust Company
|
|
|
|
1-416-643-5501 |
PO Box 7010 |
|
|
|
|
Adelaide Street Postal Station |
|
|
|
|
Toronto, ON |
|
|
|
|
M5C 2W9 |
|
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|
Report of Independent Registered Chartered Accountants and Consolidated Financial Statements
of
IVANHOE MINES LTD.
December 31, 2006 and 2005
|
|
|
|
|
Deloitte & Touche LLP |
|
|
2800 - 1055 Dunsmuir Street |
|
|
4 Bentall Centre |
|
|
P.O. Box 49279 |
|
|
Vancouver BC V7X 1P4 |
|
|
Canada |
|
|
|
|
|
Tel: 604-669-4466 |
|
|
Fax: 604-685-0395 |
|
|
www.deloitte.ca |
Report of independent registered chartered accountants
To the Board of Directors and Shareholders of
Ivanhoe Mines Ltd.
We have audited the accompanying consolidated balance sheets of Ivanhoe Mines Ltd. and subsidiaries
(the Company) as of December 31, 2006 and 2005, and the related consolidated statements of
operations, shareholders equity, and cash flows for each of the years then ended. These financial
statements are the responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
With respect to the financial statements for the year ended December 31, 2006, we conducted our
audit in accordance with Canadian generally accepted auditing standards and the standards of the
Public Company Accounting Oversight Board (United States). With respect to the financial
statements for the year ended December 31, 2005, we conducted our audit in accordance with Canadian
generally accepted auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects,
the financial position of Ivanhoe Mines Ltd. and subsidiaries as of December 31, 2006 and 2005, and
the results of their operations and their cash flows for each of the years then ended in conformity
with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of the Companys internal control over financial reporting
as of December 31, 2006, based on the criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our
report dated March 21, 2007 expressed an unqualified opinion on managements assessment of the
effectiveness of the
Companys internal control over financial reporting and an unqualified opinion on the effectiveness
of the Companys internal control over financial reporting.
Independent Registered Chartered Accountants
March 21, 2007
|
|
|
|
|
Deloitte & Touche LLP |
|
|
2800 - 1055 Dunsmuir Street |
|
|
4 Bentall Centre |
|
|
P.O. Box 49279 |
|
|
Vancouver BC V7X 1P4 |
|
|
Canada |
|
|
|
|
|
Tel: 604-669-4466 |
|
|
Fax: 604-685-0395 |
|
|
www.deloitte.ca |
Report of independent registered chartered accountants
To the Board of Directors and Shareholders of
Ivanhoe Mines Ltd.
We have audited managements assessment, included in the accompanying Managements Report on
Internal Control over Financial Reporting, that Ivanhoe Mines Ltd. and subsidiaries (the Company)
maintained effective internal control over financial reporting as of December 31, 2006, based on
criteria established in Internal Control Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. As described in Managements Report on
Internal Control over Financial Reporting, management excluded from its assessment the internal
control over financial reporting at Myanmar Ivanhoe Copper Company Limited (MICCL) in which it
holds a 50% interest, because the Company does not have the ability to dictate or modify controls
at MICCL and does not have the ability to assess, in practice, the controls at the entity. Under
U.S. generally accepted accounting principles, MICCL is accounted for using the equity method of
accounting and the Companys proportionate interest in individual assets, liabilities, revenues and
expenses is excluded from the consolidated financial statement amounts of the Company. Under
Canadian generally accepted accounting principles, the Company proportionately consolidates MICCL
which constitutes 24% and 29% of net and total assets respectively, and 10% of net loss of the
consolidated financial statement amounts as of and for the year ended December 31, 2006.
Accordingly, our audit did not include the internal control over financial reporting at MICCL. The
Companys management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting.
Our responsibility is to express an opinion on managements assessment and an opinion on the
effectiveness of the Companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating managements assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered it necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinions.
A companys internal control over financial reporting is a process designed by, or under the
supervision of, the companys principal executive and principal financial officers, or persons
performing similar functions, and effected by the companys board of directors, management, and
other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A companys internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the companys assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the
possibility of collusion or improper management override of controls, material misstatements due to
error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, managements assessment that the Company maintained effective internal control over
financial reporting as of December 31, 2006 is fairly stated, in all material respects, based on
the criteria established in Internal Control Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting as of December 31,
2006, based on the criteria established in Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with Canadian generally accepted auditing standards and the
standards of the Public Company Accounting Oversight Board (United States), the consolidated
financial statements as of and for the year ended December 31, 2006 of the Company and our report
dated March 21, 2007 expressed an unqualified opinion on those financial statements.
Independent Registered Chartered Accountants
March 21, 2007
IVANHOE MINES LTD.
Consolidated Balance Sheets
(Stated in thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
363,572 |
|
|
$ |
101,681 |
|
Accounts receivable (Note 5) |
|
|
24,739 |
|
|
|
33,350 |
|
Inventories |
|
|
5,313 |
|
|
|
3,547 |
|
Prepaid expenses |
|
|
7,941 |
|
|
|
6,353 |
|
Other current assets (Note 6) |
|
|
286 |
|
|
|
3,286 |
|
|
TOTAL CURRENT ASSETS |
|
|
401,851 |
|
|
|
148,217 |
|
|
|
|
|
|
|
|
|
|
INVESTMENT HELD FOR SALE (Note 4) |
|
|
157,738 |
|
|
|
139,874 |
|
LONG-TERM INVESTMENTS (Note 7) |
|
|
36,879 |
|
|
|
18,417 |
|
PROPERTY, PLANT AND EQUIPMENT (Note 8) |
|
|
101,994 |
|
|
|
85,706 |
|
DEFERRED INCOME TAXES (Note 12) |
|
|
481 |
|
|
|
171 |
|
OTHER ASSETS (Note 9) |
|
|
4,216 |
|
|
|
4,394 |
|
|
TOTAL ASSETS |
|
$ |
703,159 |
|
|
$ |
396,779 |
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities (Note 10) |
|
$ |
37,201 |
|
|
$ |
20,594 |
|
|
TOTAL CURRENT LIABILITIES |
|
|
37,201 |
|
|
|
20,594 |
|
|
|
|
|
|
|
|
|
|
LOANS PAYABLE TO RELATED PARTIES (Note 11) |
|
|
5,088 |
|
|
|
5,088 |
|
DEFERRED INCOME TAXES (Note 12) |
|
|
660 |
|
|
|
315 |
|
ASSET RETIREMENT OBLIGATIONS (Note 13) |
|
|
6,353 |
|
|
|
6,231 |
|
|
TOTAL LIABILITIES |
|
|
49,302 |
|
|
|
32,228 |
|
|
|
|
|
|
|
|
|
|
|
MINORITY INTERESTS (Note 14) |
|
|
|
|
|
|
8,928 |
|
|
COMMITMENTS AND CONTINGENCIES (Note 20) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHARE CAPITAL (Note 15) |
|
|
|
|
|
|
|
|
Authorized |
|
|
|
|
|
|
|
|
Unlimited number of preferred shares without par value |
|
|
|
|
|
|
|
|
Unlimited number of common shares without par value |
|
|
|
|
|
|
|
|
Issued and outstanding |
|
|
|
|
|
|
|
|
373,463,637 (2005 - 315,900,668) common shares |
|
|
1,462,039 |
|
|
|
994,442 |
|
SHARE PURCHASE WARRANTS AND SHARE ISSUANCE COMMITMENT (Note 15
(b)) |
|
|
23,062 |
|
|
|
|
|
ADDITIONAL PAID-IN CAPITAL |
|
|
33,705 |
|
|
|
25,174 |
|
ACCUMULATED OTHER COMPREHENSIVE INCOME (Note 16) |
|
|
13,233 |
|
|
|
6,711 |
|
DEFICIT |
|
|
(878,182 |
) |
|
|
(670,704 |
) |
|
TOTAL SHAREHOLDERS EQUITY |
|
|
653,857 |
|
|
|
355,623 |
|
|
TOTAL LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS EQUITY |
|
$ |
703,159 |
|
|
$ |
396,779 |
|
|
APPROVED BY THE BOARD:
|
|
|
|
|
|
|
/s/ J. Weatherall
|
|
|
|
/s/ D. Korbin |
|
|
|
|
|
|
|
|
|
J. Weatherall, Director
|
|
|
|
D. Korbin, Director
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
IVANHOE MINES LTD.
Consolidated Statements of Operations
(Stated in thousands of U.S. dollars, except for share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
Exploration (Note 8 (b)) |
|
$ |
(212,955 |
) |
|
$ |
(133,286 |
) |
General and administrative |
|
|
(28,170 |
) |
|
|
(17,704 |
) |
Accretion (Note 13) |
|
|
(458 |
) |
|
|
(354 |
) |
Depreciation |
|
|
(4,117 |
) |
|
|
(2,558 |
) |
Mining property care and maintenance |
|
|
(4,421 |
) |
|
|
(3,706 |
) |
Gain on sale of other mineral property rights |
|
|
2,724 |
|
|
|
|
|
Write-down of carrying values of property, plant and equipment |
|
|
(700 |
) |
|
|
(609 |
) |
|
OPERATING LOSS |
|
|
(248,097 |
) |
|
|
(158,217 |
) |
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSES) |
|
|
|
|
|
|
|
|
Share of income from investment held for sale (Note 4) |
|
|
18,471 |
|
|
|
23,036 |
|
Interest income |
|
|
8,187 |
|
|
|
3,421 |
|
Foreign exchange gains |
|
|
398 |
|
|
|
7,751 |
|
Share of loss of significantly influenced investees (Note 7 (a)) |
|
|
(1,648 |
) |
|
|
(2,651 |
) |
Gain on sale of long-term investments (Note 7 (b) and (f)) |
|
|
2,724 |
|
|
|
115 |
|
Write-down of carrying value of long-term investment (Note 7 (e) and (f)) |
|
|
(1,000 |
) |
|
|
(1,438 |
) |
|
LOSS BEFORE TAXES AND OTHER ITEMS |
|
|
(220,965 |
) |
|
|
(127,983 |
) |
Provision for income taxes (Note 12) |
|
|
(683 |
) |
|
|
(433 |
) |
Minority interests (Note 14) |
|
|
3,369 |
|
|
|
2,714 |
|
|
NET LOSS FROM CONTINUING OPERATIONS |
|
|
(218,279 |
) |
|
|
(125,702 |
) |
NET INCOME AND GAIN ON SALE FROM |
|
|
|
|
|
|
|
|
DISCONTINUED OPERATIONS (Note 3) |
|
|
19,622 |
|
|
|
35,916 |
|
|
NET LOSS |
|
$ |
(198,657 |
) |
|
$ |
(89,786 |
) |
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED (LOSS) EARNINGS PER SHARE FROM |
|
|
|
|
|
|
|
|
CONTINUING OPERATIONS |
|
$ |
(0.65 |
) |
|
$ |
(0.41 |
) |
DISCONTINUED OPERATIONS |
|
|
0.06 |
|
|
|
0.12 |
|
|
|
|
$ |
(0.59 |
) |
|
$ |
(0.29 |
) |
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING (000s) |
|
|
336,128 |
|
|
|
305,160 |
|
|
The accompanying notes are an integral part of these consolidated financial statements.
IVANHOE MINES LTD.
Consolidated Statements of Shareholders Equity
(Stated in thousands of U.S. dollars, except for share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share Purchase |
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
Share Capital |
|
|
Warrants and |
|
|
Additional |
|
|
Other |
|
|
|
|
|
|
|
|
|
Number |
|
|
|
|
|
|
Share Issuance |
|
|
Paid-In |
|
|
Comprehensive |
|
|
|
|
|
|
|
|
|
of Shares |
|
|
Amount |
|
|
Commitment |
|
|
Capital |
|
|
Income |
|
|
Deficit |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2004 |
|
|
292,870,998 |
|
|
$ |
868,606 |
|
|
$ |
|
|
|
$ |
16,283 |
|
|
$ |
2,879 |
|
|
$ |
(580,918 |
) |
|
$ |
306,850 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(89,786 |
) |
|
|
(89,786 |
) |
Other comprehensive income (Note 16): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,832 |
|
|
|
|
|
|
|
3,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(85,954 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private placement, net of issue costs of $6,095 |
|
|
19,750,000 |
|
|
|
119,801 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119,801 |
|
Exercise of stock options |
|
|
3,213,172 |
|
|
|
5,555 |
|
|
|
|
|
|
|
(1,835 |
) |
|
|
|
|
|
|
|
|
|
|
3,720 |
|
Property, plant and equipment purchased (Note 18 (b)) |
|
|
50,000 |
|
|
|
362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
362 |
|
Share purchase plan |
|
|
16,498 |
|
|
|
118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118 |
|
Dilution gain on issuance of shares by a subsidiary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,012 |
|
|
|
|
|
|
|
|
|
|
|
3,012 |
|
Stock compensation charged to operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,714 |
|
|
|
|
|
|
|
|
|
|
|
7,714 |
|
|
Balances, December 31, 2005 |
|
|
315,900,668 |
|
|
$ |
994,442 |
|
|
$ |
|
|
|
$ |
25,174 |
|
|
$ |
6,711 |
|
|
$ |
(670,704 |
) |
|
$ |
355,623 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(198,657 |
) |
|
|
(198,657 |
) |
Other comprehensive income (Note 16): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,522 |
|
|
|
|
|
|
|
6,522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(192,135 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private placements, net of issue costs of $14,731 |
|
|
55,489,883 |
|
|
|
455,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
455,819 |
|
Exercise of stock options |
|
|
1,921,498 |
|
|
|
10,488 |
|
|
|
|
|
|
|
(3,475 |
) |
|
|
|
|
|
|
|
|
|
|
7,013 |
|
Bonus shares |
|
|
124,657 |
|
|
|
1,097 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,097 |
|
Share purchase plan |
|
|
26,931 |
|
|
|
193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
193 |
|
Share purchase warrants and share issuance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
commitment (Note 15 (b)) |
|
|
|
|
|
|
|
|
|
|
23,062 |
|
|
|
(14,240 |
) |
|
|
|
|
|
|
(8,821 |
) |
|
|
1 |
|
Dilution gain on issuance of shares by a subsidiary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,288 |
|
|
|
|
|
|
|
|
|
|
|
6,288 |
|
Stock compensation charged to operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,958 |
|
|
|
|
|
|
|
|
|
|
|
19,958 |
|
|
Balances, December 31, 2006 |
|
|
373,463,637 |
|
|
$ |
1,462,039 |
|
|
$ |
23,062 |
|
|
$ |
33,705 |
|
|
$ |
13,233 |
|
|
$ |
(878,182 |
) |
|
$ |
653,857 |
|
|
The accompanying notes are an integral part of these consolidated financial statements.
IVANHOE MINES LTD.
Consolidated Statements of Cash Flows
(Stated in thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
|
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(198,657 |
) |
|
$ |
(89,786 |
) |
Net income and gain on sale from discontinued operations |
|
|
(19,622 |
) |
|
|
(35,916 |
) |
Items not involving use of cash |
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
19,958 |
|
|
|
7,714 |
|
Accretion expense |
|
|
458 |
|
|
|
354 |
|
Depreciation |
|
|
4,117 |
|
|
|
2,558 |
|
Gain on sale of other mineral property rights |
|
|
(2,724 |
) |
|
|
|
|
Write-down of carrying values of property, plant and equipment |
|
|
700 |
|
|
|
609 |
|
Share of income from investment held for sale, net of cash distribution |
|
|
(18,471 |
) |
|
|
(13,036 |
) |
Unrealized foreign exchange gains |
|
|
108 |
|
|
|
(7,691 |
) |
Share of loss of significantly influenced investees |
|
|
1,648 |
|
|
|
2,651 |
|
Gain on sale of long-term investments |
|
|
(2,724 |
) |
|
|
(115 |
) |
Write-down of carrying value of long-term investments |
|
|
1,000 |
|
|
|
1,438 |
|
Deferred income taxes |
|
|
13 |
|
|
|
(15 |
) |
Minority interests |
|
|
(3,369 |
) |
|
|
(2,714 |
) |
Bonus shares |
|
|
1,097 |
|
|
|
|
|
Net change in non-cash operating working capital items (Note 18 (a)) |
|
|
5,789 |
|
|
|
(1,756 |
) |
|
Cash used in operating activities of continuing operations |
|
|
(210,679 |
) |
|
|
(135,705 |
) |
Cash provided by operating activities of discontinued operations |
|
|
|
|
|
|
2,592 |
|
|
Cash used in operating activities |
|
|
(210,679 |
) |
|
|
(133,113 |
) |
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Proceeds from sale of discontinued operations |
|
|
34,674 |
|
|
|
15,000 |
|
Purchase of long-term investments |
|
|
(2,452 |
) |
|
|
(6,310 |
) |
Purchase of subsidiary, net of cash acquired of $15,414 |
|
|
|
|
|
|
12,022 |
|
Proceeds from sale of other mineral property rights |
|
|
2,724 |
|
|
|
|
|
Proceeds from sale of long-term investments |
|
|
1,777 |
|
|
|
4,539 |
|
Cash reduction on commencement of equity accounting (Note 7 (a)) |
|
|
(4,202 |
) |
|
|
|
|
Expenditures on property, plant and equipment |
|
|
(34,253 |
) |
|
|
(32,180 |
) |
Proceeds from (expenditures on) other assets |
|
|
222 |
|
|
|
(794 |
) |
Other |
|
|
494 |
|
|
|
(2,007 |
) |
|
Cash used in investing activities of continuing operations |
|
|
(1,016 |
) |
|
|
(9,730 |
) |
Cash used in investing activities of discontinued operations |
|
|
|
|
|
|
(502 |
) |
|
Cash used in investing activities |
|
|
(1,016 |
) |
|
|
(10,232 |
) |
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Issue of share capital |
|
|
463,025 |
|
|
|
123,639 |
|
Minority interests investment in subsidiaries |
|
|
10,564 |
|
|
|
1,104 |
|
|
Cash provided by financing activities of continuing operations |
|
|
473,589 |
|
|
|
124,743 |
|
Cash used in financing activities of discontinued operations |
|
|
|
|
|
|
(37 |
) |
|
Cash provided by financing activities |
|
|
473,589 |
|
|
|
124,706 |
|
|
|
|
|
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH |
|
|
(3 |
) |
|
|
7,842 |
|
|
|
NET CASH INFLOW |
|
|
261,891 |
|
|
|
(10,797 |
) |
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
|
|
101,681 |
|
|
|
112,478 |
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD |
|
$ |
363,572 |
|
|
$ |
101,681 |
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS IS COMPRISED OF: |
|
|
|
|
|
|
|
|
Cash on hand and demand deposits |
|
$ |
32,179 |
|
|
$ |
33,240 |
|
Short-term money market instruments |
|
|
331,393 |
|
|
|
68,441 |
|
|
|
|
$ |
363,572 |
|
|
$ |
101,681 |
|
|
Supplementary cash flow information (Note 18 (b) and (c))
The accompanying notes are an integral part of these consolidated financial statements.
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
1. |
|
NATURE OF OPERATIONS |
|
|
|
Ivanhoe Mines Ltd. (the Company), together with its subsidiaries and joint venture
(collectively referred to as Ivanhoe Mines), is an international mineral exploration and
development company holding interests in and conducting operations on mineral resource
properties principally located in Southeast and Central Asia and Australia. |
|
2. |
|
SIGNIFICANT ACCOUNTING POLICIES |
|
|
|
These consolidated financial statements have been prepared in accordance with United States
of America generally accepted accounting principles (U.S. GAAP). In the case of the
Company, U.S. GAAP differs in certain respects from accounting principles generally accepted
in Canada (Canadian GAAP) as explained in Note 22. The significant accounting policies
used in these consolidated financial statements are as follows: |
|
(a) |
|
Principles of consolidation |
|
|
|
|
These consolidated financial statements include the accounts of the Company and all of
its subsidiaries. The principal subsidiaries of the Company are Ivanhoe Mines Mongolia
Inc. (B.V.I.), Ivanhoe Mines China (B.V.I.), Ivanhoe Cloncurry Mines Pty Limited
(Australia), and their respective subsidiaries, and Bakyrchik Mining Venture
(Kazakhstan) (70% owned) (BMV). |
|
|
|
|
Jinshan Gold Mines Inc. (B.C., Canada) (Jinshan) became a subsidiary of the Company
in December 2005 and ceased being a subsidiary in August 2006. From September 1, 2006
it has been accounted for as an equity investment (Note 7 (a)). At December 31, 2006,
Ivanhoe Mines owns 46% of Jinshan. |
|
|
|
|
Ivanhoe Mines investment in Asia Gold Corp. (Asia Gold) (B.C., Canada) (45% owned)
remains consolidated at December 2006 due to Ivanhoe Mines having control over the
operating, financing and strategic decisions of Asia Gold. |
|
|
|
|
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 (Note 4). |
|
|
|
|
All intercompany transactions and balances have been eliminated, where appropriate. |
|
|
|
|
Variable Interest Entities (VIEs), which include, but are not limited to, special
purpose entities, trusts, partnerships, and other legal structures, as defined by
Financial Accounting Standards Board (FASB) Interpretation No. 46 (Revised 2003)
(FIN 46R) Consolidation of Variable Interest Entities an Interpretation of ARB No.
51, are entities in which equity investors do not have the characteristics of a
controlling financial interest or there is not sufficient equity at risk for the
entity to finance its activities without additional subordinated financial support.
VIEs are subject to consolidation by the primary beneficiary who will absorb the
majority of the entities expected losses and/or expected residual returns. |
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
2. |
|
SIGNIFICANT ACCOUNTING POLICIES (Continued) |
|
(b) |
|
Measurement uncertainties |
|
|
|
|
Generally accepted accounting principles require management to make assumptions and
estimates that affect the reported amounts and other disclosures in these consolidated
financial statements. Actual results may differ from those estimates. |
|
|
|
|
Significant estimates used in the preparation of these consolidated financial
statements include, among other things, the recoverability of accounts receivable and
investments, the proven and probable ore reserves, the estimated recoverable tonnes of
ore from each mine area, the estimated net realizable value of inventories, the
provision for income taxes and composition of deferred income tax assets and deferred
income tax liabilities, the expected economic lives of and the estimated future
operating results and net cash flows from property, plant and equipment, stock-based
compensation, estimated fair value of share purchase warrants, estimated fair value of
share issuance commitment, and the anticipated costs and timing of asset retirement
obligations. |
|
|
(c) |
|
Foreign currencies |
|
|
|
|
The Company considers the U.S. dollar to be its functional currency as it is the
currency of the primary economic environment in which the Company and its subsidiaries
operate. Accordingly, monetary assets and liabilities denominated in foreign
currencies are translated into U.S. dollars at the exchange rate in effect at the
balance sheet date and non-monetary assets and liabilities are translated at the
exchange rates in effect at the time of acquisition or issue. Revenues and expenses are
translated at rates approximating the exchange rates in effect at the time of the
transactions. All exchange gains and losses are included in operations. |
|
|
(d) |
|
Cash and cash equivalents |
|
|
|
|
Cash and cash equivalents include short-term money market instruments with terms to
maturity, at the date of acquisition, not exceeding 90 days. |
|
|
(e) |
|
Inventories |
|
|
|
|
Mine stores and supplies are valued at the lower of the weighted average cost, less
allowances for obsolescence, and replacement cost. |
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
2. |
|
SIGNIFICANT ACCOUNTING POLICIES (Continued) |
|
(f) |
|
Long-term investments |
|
|
|
|
Long-term investments in companies in which Ivanhoe Mines has voting interests of 20%
to 50%, or where Ivanhoe Mines has the ability to exercise significant influence, are
accounted for using the equity method. Under this method, Ivanhoe Mines share of the
investees earnings and losses is included in operations and its investments therein
are adjusted by a like amount. Dividends received are credited to the investment
accounts. |
|
|
|
|
The other long-term investments are classified as available-for-sale investments.
Unrealized gains and losses on these investments are recorded in accumulated other
comprehensive income as a separate component of shareholders equity, unless the
declines in market value are judged to be other than temporary, in which case the
losses are recognized in income in the period. Realized gains and losses from the sale
of these investments are included in income in the period. |
|
|
(g) |
|
Exploration and development |
|
|
|
|
All direct costs related to the acquisition of mineral property interests are
capitalized in the period incurred. |
|
|
|
|
Generally, exploration costs are charged to operations in the period incurred until
such time as it has been determined that a property has economically recoverable
reserves, in which case subsequent exploration costs and the costs incurred to develop
a property are capitalized. Exploration costs include value-added taxes incurred in
foreign jurisdictions when recoverability of those taxes is uncertain. |
|
|
|
|
Certain costs incurred constructing surface assets for an exploration shaft were
capitalized (Note 8). These surface assets included the shaft head frame, control
room, hoisting equipment and ancillary facilities. The Company determined that these
costs met the definition of an asset and that they were recoverable through salvage
value or transfer of the assets to other locations. These costs were tested for
impairment using estimated future cash flows based on reserves and resources beyond
proven and probable reserves, in accordance with accounting policy Note 2(h) for
property, plant and equipment. |
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
2. |
|
SIGNIFICANT ACCOUNTING POLICIES (Continued) |
|
(h) |
|
Property, plant and equipment |
|
|
|
|
Property, plant and equipment are carried at cost (including development and
preproduction costs, capitalized interest, other financing costs and all direct
administrative support costs incurred during the construction period, net of cost
recoveries and incidental revenues), less accumulated depletion and depreciation
including write-downs. Following the construction period, interest, other financing
costs and administrative costs are expensed as incurred. |
|
|
|
|
On the commencement of commercial production, depletion of each mining property is
provided on the unit-of-production basis, using estimated proven and probable reserves
as the depletion basis. |
|
|
|
|
Property, plant and equipment are depreciated, following the commencement of
commercial production, over their expected economic lives using either the
unit-of-production method or the straight-line method (over one to twenty years). |
|
|
|
|
Capital works in progress are not depreciated until the capital asset has been
put into operation. |
|
|
|
|
Ivanhoe Mines reviews the carrying values of its property, plant and equipment
whenever events or changes in circumstances indicate that their carrying values may
not be recoverable. An impairment is considered to exist if total estimated future
cash flows, or probability-weighted cash flows on an undiscounted basis, are less than
the carrying value of the assets. An impairment loss is measured and recorded based
on discounted estimated future cash flows associated with values beyond proven and
probable reserves and resources. In estimating future cash flows, assets are grouped
at the lowest level for which there is identifiable future cash flows that are largely
independent of cash flows from other asset groups. Generally, in estimating future
cash flows, all assets are grouped at a particular mine for which there is
identifiable cash flows. |
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
2. |
|
SIGNIFICANT ACCOUNTING POLICIES (Continued) |
|
(i) |
|
Stripping costs |
|
|
|
|
Stripping costs incurred during the production phase of a mine are variable production
costs that are included in the costs of inventory produced during the period that the
stripping costs are incurred. |
|
|
(j) |
|
Asset retirement obligations |
|
|
|
|
Ivanhoe Mines recognizes liabilities for statutory, contractual or legal obligations
associated with the retirement of property, plant and equipment, when those obligations
result from the acquisition, construction, development or normal operation of the
assets. Initially, a liability for an asset retirement obligation is recognized at its
fair value in the period in which it is incurred. Upon initial recognition of the
liability, the corresponding asset retirement cost is added to the carrying amount of
that asset and the cost is amortized as an expense over the economic life of the
related asset. Following the initial recognition of the asset retirement obligation,
the carrying amount of the liability is increased for the passage of time and adjusted
for changes to the amount or timing of the underlying cash flows needed to settle the
obligation. |
|
|
(k) |
|
Revenue recognition |
|
|
|
|
Revenue at JVCo (Note 4) from the sale of copper is recognized, net of related
royalties and sales commissions, when: (i) persuasive evidence of an arrangement
exists; (ii) the risks and rewards of ownership pass to the purchaser including
delivery of the product; (iii) the selling price is fixed or determinable; and (iv)
collectibility is reasonably assured. Revenue from copper cathode includes
provisional pricing arrangements accounted for as embedded derivative instruments under
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as
amended. |
|
|
|
|
JVCo sells its copper cathode with pricing based on the averaged London Metal Exchange
Grade A Copper Cash Settlement Price during the second calendar month following the
contractual month of shipment. Revenues are recorded under these contracts at the
time title passes to the buyer based on the forward price for the expected settlement
period. These contracts provide for a provisional payment based upon provisional assays
and the previous months average quoted copper price. JVCos provisionally priced
sales contain an embedded derivative that, because it is closely related to the
commodity sale, is not required to be accounted for separately from the host contract.
At December 31, 2006 and 2005, JVCo had accrued a loss of $594,000 and a gain of
$320,000, respectively, in accounts receivable and revenue in relation to the embedded
derivative. |
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
2. |
|
SIGNIFICANT ACCOUNTING POLICIES (Continued) |
|
(l) |
|
Stock-based compensation |
|
|
|
|
The Company has an Employees and Directors Equity Incentive Plan which is disclosed
in Note 15. 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. The adoption of SFAS No.
123(R) did not have an impact on the Companys consolidated financial position and
results of operations (Note 15). The fair value of stock options at the date of grant
is amortized to operations, with an offsetting credit to additional paid-in capital, on
a straight-line basis over the vesting period. If and when the stock options are
ultimately exercised, the applicable amounts of additional paid-in capital are
transferred to share capital. |
|
|
(m) |
|
Deferred income taxes |
|
|
|
|
The Company computes income taxes in accordance with SFAS No. 109, Accounting for
Income Taxes. SFAS 109 requires that the provision for deferred income taxes be based
on the liability method. Deferred taxes arise from the recognition of the tax
consequences of temporary differences by applying statutory tax rates applicable to
future years to differences between the financial statements carrying amounts and the
tax bases of certain assets and liabilities. The Company records a valuation allowance
against any portion of those deferred income tax assets that management believes will,
more likely than not, fail to be realized. |
|
|
(n) |
|
Loss per share |
|
|
|
|
The Company follows SFAS No. 128, Earnings Per Share, which requires the presentation
of basic and diluted earnings per share. The basic loss per share is computed by
dividing the net loss attributable to common stock by the weighted average number of
common shares outstanding during the year. All stock options and share purchase
warrants outstanding at each period end have been excluded from the weighted average
share calculation. The effect of potentially dilutive stock options and share purchase
warrants was antidilutive in years ending December 31, 2006 and 2005. |
|
|
|
|
Details of potentially dilutive shares excluded from the loss per share calculation due
to antidilution: |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Options |
|
|
13,644,434 |
|
|
|
7,416,700 |
|
Share purchase warrants |
|
|
92,629,044 |
|
|
|
576,000 |
|
|
Total potentially dilutive shares |
|
|
106,273,478 |
|
|
|
7,992,700 |
|
|
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
2. |
|
SIGNIFICANT ACCOUNTING POLICIES (Continued) |
|
(o) |
|
Segmented reporting |
|
|
|
|
The Company operates in a single reportable segment, being exploration and development
of mineral properties. |
|
|
(p) |
|
Comparative figures |
|
|
|
|
Certain of the comparative figures have been reclassified to conform with the
presentation as at and for the year ended December 31, 2006. In particular, $6,121,000
of stock-based compensation charged to operations has been reclassified from general
and administrative expenses to exploration expenses. |
|
|
(q) |
|
Recent accounting pronouncements |
|
|
|
|
In February 2006, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 155, Accounting for Certain Hybrid Financial
Instrumentsan amendment of FASB Statements No. 133 and 140 (SFAS 155). This
Statement amends FASB Statement No. 133, Accounting for Derivative Instruments and
Hedging Activities, and FASB Statement No. 140, Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities. SFAS 155 resolves issues
addressed in Statement 133 Implementation Issue No. D1, Application of Statement 133
to Beneficial Interests in Securitized Financial Assets. This Statement will be
effective for financial instruments acquired or issued by the Company after the
beginning of its 2007 fiscal year. The Company expects that the adoption of this
Statement will not have a material effect on its financial condition or results of
operations. |
|
|
|
|
In March 2006, the FASB issued Statement of Financial Accounting Standards No. 156,
Accounting for Servicing of Financial Assets an amendment of FASB Statement No. 140
(SFAS 156). This Statement provides guidance addressing the recognition and
measurement of separately recognized servicing assets and liabilities, common with
mortgage securitization activities, and provides an approach to simplify efforts to
obtain hedge accounting treatment. SFAS 156 is effective after the beginning of an
entitys fiscal year that begins after September 15, 2006. The Company expects that the
adoption of this Statement will have no impact on its financial condition or results of
operations. |
|
|
|
|
In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in
Income Taxes an interpretation of FASB Statement No. 109 (FIN 48). This
interpretation clarifies the recognition threshold and measurement of a tax position
taken or expected to be taken on a tax return, and requires expanded disclosure with
respect to the uncertainty in income taxes. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim periods,
disclosures, and transition. FIN 48 is effective for fiscal years beginning after
December 15, 2006. The Company expects that the adoption of FIN 48 will not have a
material effect on its financial condition or results of operations. |
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
2. |
|
SIGNIFICANT ACCOUNTING POLICIES (Continued) |
|
(q) |
|
Recent accounting pronouncements (Continued) |
|
|
|
|
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157,
Fair Value Measurements (SFAS 157). This Statement defines fair value, establishes
guidelines for measuring fair value and expands disclosures regarding fair value
measurements. SFAS 157 does not require any new fair value measurements but rather
eliminates inconsistencies in guidance found in various prior accounting
pronouncements. SFAS 157 is effective for fiscal years beginning after November 15,
2007. The Company expects that adoption of SFAS 157 will not have a material impact on
its financial condition or results of operations. |
|
|
|
|
In September 2006, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 108 (SAB 108). SAB 108 provides guidance on the consideration of the
effects of prior year misstatements in quantifying current year misstatements for the
purpose of a materiality assessment. SAB 108 permits companies to record the cumulative
effect of initially applying this approach in the first fiscal year ending after
November 15, 2006 by recording necessary correcting adjustments to the carrying values
of assets and liabilities as of the beginning of that year with the offsetting
adjustment recorded to the opening balance of retained earnings. Adoption of SAB 108
did not have a material impact on the Companys financial condition and results of
operations. |
|
|
|
|
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159,
The Fair Value Option for Financial Assets and Financial Liabilities including an
amendment of FASB Statement No. 115 (SFAS 159) which permits entities to choose to
measure many financial instruments and certain other items at fair value. This
statement is effective for fiscal periods beginning after November 15, 2007. The
Company is currently evaluating the impact, if any, that adoption of SFAS 159 will have
on its financial condition or results of operations. |
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
3. |
|
DISCONTINUED OPERATIONS |
|
|
|
In February 2005, the Company disposed of the Savage River Iron Ore Project (the Project). |
|
|
|
Ivanhoe Mines sold the Project for two initial payments totalling $21.5 million, plus a
series of contingent, annual payments that commenced on March 31, 2006. The annual payments
are based on annual iron ore pellet tonnes sold and an escalating price formula based on the
prevailing annual Nibrasco/JSM pellet price. |
|
|
|
To date, Ivanhoe Mines has received $49.7 million in proceeds from the sale of the Project.
The first initial payment of $15.0 million was received in 2005 and the second initial
payment of $6.5 million was received in January 2006. In March 2006, Ivanhoe Mines received
its first contingent annual payment of $28.0 million with an additional $0.2 million
adjustment received in May 2006. This $28.2 million payment included $7.9 million in
contingent income which was recognized in the first quarter of 2006 for tonnes sold during
the quarter. |
|
|
|
At December 31, 2006, Ivanhoe Mines has accrued $11.7 million as receivable in relation to
the tonnes of iron ore sold during the nine month period ended December 31, 2006. This
amount will form part of the second contingent annual payment to be received in March 2007. |
|
|
|
The following table presents summarized financial information related to discontinued
operations: |
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|
|
2006 |
|
|
2005 (1) |
|
REVENUE |
|
$ |
|
|
|
$ |
18,031 |
|
COST OF OPERATIONS |
|
|
|
|
|
|
(11,965 |
) |
DEPRECIATION AND DEPLETION |
|
|
|
|
|
|
|
|
GENERAL AND ADMINISTRATIVE |
|
|
|
|
|
|
(195 |
) |
|
OPERATING PROFIT |
|
|
|
|
|
|
5,871 |
|
Interest expense |
|
|
|
|
|
|
(203 |
) |
|
INCOME BEFORE THE FOLLOWING |
|
|
|
|
|
|
5,668 |
|
Interest income |
|
|
|
|
|
|
16 |
|
Foreign exchange losses |
|
|
|
|
|
|
(285 |
) |
|
INCOME BEFORE INCOME TAXES |
|
|
|
|
|
|
5,399 |
|
Recovery of income and capital taxes |
|
|
|
|
|
|
7 |
|
|
NET INCOME |
|
|
|
|
|
|
5,406 |
|
Contingent income |
|
|
19,622 |
|
|
|
20,243 |
|
Gain on sale of Savage River |
|
|
|
|
|
|
10,267 |
|
|
NET INCOME AND GAIN ON SALE
FROM DISCONTINUED OPERATIONS |
|
$ |
19,622 |
|
|
$ |
35,916 |
|
|
|
|
|
(1) |
|
Net income for the year ended December 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)
4. |
|
INVESTMENT HELD FOR SALE |
|
|
|
Ivanhoe Mines has a 50% interest in JVCo, a joint venture formed to develop open-pit copper
mining operations located at Monywa in the Union of Myanmar. |
|
|
|
As part of the Rio Tinto Plc (Rio Tinto) strategic partnership that was announced in
October 2006, Ivanhoe Mines agreed to divest all of its business interests and assets in
Myanmar, including its indirect interest in the Monywa Copper Project. During February 2007
the Myanmar assets were transferred to an independent third-party trust (the Trust),
pending their sale. The sole purpose of the Trust is to sell the assets to one or more
arms-length third parties. Ivanhoe Mines only interest in the Trust is as an unsecured
creditor under a promissory note issued by the Trust on the transfer of the Myanmar assets
that is to be repaid once the assets are sold. |
|
|
|
In consideration for the Myanmar Assets, a company wholly-owned by the Trust (Trust
Holdco) issued a promissory note to a subsidiary of the Company. The principal amount of
the promissory note is equal to the cash proceeds to be realized upon the future sale of the
Myanmar Assets, plus 50% of any cash generated by the Monywa Copper Project that is
available for distribution to the project participants but remains undistributed at the time
of any such sale, less certain contractually specified deductions, including any fees and
expenses incurred in carrying out the sale. Ivanhoe Mines retains no ownership interest in
the Myanmar Assets, directly or indirectly, except as a creditor of Trust Holdco pursuant to
the promissory note. |
|
|
|
Trust Holdcos mandate is to engage one or more qualified third parties (a Sale Service
Provider) who will be responsible for identifying potential third-party purchasers,
soliciting expressions of interest from such potential purchasers, negotiating sale terms
and facilitating the sale of the Myanmar Assets on behalf of Trust Holdco. A Sale Service
Provider who successfully facilitates the sale of the Myanmar Assets to a purchaser will be
entitled to a fee equal to a percentage of the proceeds realized by Trust Holdco on the sale
of the Myanmar Assets. |
|
|
|
Following the sale of the Myanmar Assets, Trust Holdco will use the proceeds to pay the Sale
Service Providers fee and any other expenses or liabilities incurred in carrying out the
sale. Trust Holdco then will use the remaining proceeds of sale, less contractually
specified deductions, to repay the promissory note held by the Companys subsidiary. Upon
having retired the promissory note, the Trust will wind up Trust Holdco and distribute the
remaining assets of the Trust, which are expected to consist solely of cash, to the
designated beneficiaries of the Trust, whereupon the Trust will terminate. |
|
|
|
During 2006, JVCo continued the appeal process with the Myanmar tax authorities regarding
the imposition of an 8% commercial tax on all export sales since April 1, 2003. JVCo
believes that the tax provisions in the S&K mine joint venture agreement clearly exempt the
mines copper exports from all tax of a commercial tax nature. In September 2006, JVCo
received an unfavourable ruling from the tax authorities on its appeal and in October 2006,
JVCo filed a second appeal. Notwithstanding the appeal, JVCo has paid the disputed
commercial tax for the period April 2003 to March 2005 and has accrued in accounts payable
at December 31, 2006, an amount of $20.1 million (net $10.0 million to Ivanhoe Mines) for
the period April 1, 2005 to December 31, 2006. |
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
4. |
|
INVESTMENT HELD FOR SALE (Continued) |
|
|
|
During 2006, JVCo received a ruling from the Myanmar tax authorities regarding its 2003 and
2004 income tax returns. JVCo had filed its 2003 and 2004 returns on the basis that it would
receive a 50% exemption on the 30% corporate tax rate; however, this did not occur.
Notwithstanding an appeal of the corporate tax ruling, JVCo in 2006 paid the disputed
additional tax and has increased its provision for income tax for the 2005 and 2006 tax
years, which cover the period from April 1, 2004 to December 31, 2006. At December 31, 2006,
JVCos accounts payable balance included $39.3 million (net $19.6 million to Ivanhoe Mines)
in income tax for the period April 2005 to December 2006. |
|
|
|
Subsequent to year end, dividends of $30.0 million (net $15.0 million to Ivanhoe Mines) were
paid by JVCo. |
|
|
|
The following table summarizes Ivanhoe Mines investment in JVCo: |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
Balance, at beginning of year |
|
$ |
139,874 |
|
|
$ |
126,911 |
|
Share of income from JVCo |
|
|
18,471 |
|
|
|
23,036 |
|
Cash distribution |
|
|
|
|
|
|
(10,000 |
) |
Other |
|
|
(607 |
) |
|
|
(73 |
) |
|
Balance, at end of year |
|
$ |
157,738 |
|
|
$ |
139,874 |
|
|
|
|
The following table summarizes Ivanhoe Mines 50% share of the financial position of JVCo as
at December 31, 2006 and 2005. |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
57,462 |
|
|
$ |
22,843 |
|
Accounts receivable |
|
|
104 |
|
|
|
11,364 |
|
Inventories |
|
|
18,465 |
|
|
|
16,754 |
|
Prepaid expenses |
|
|
1,574 |
|
|
|
1,558 |
|
Property, plant and equipment |
|
|
148,772 |
|
|
|
128,405 |
|
Deferred income tax assets |
|
|
1,250 |
|
|
|
432 |
|
Other assets |
|
|
1,313 |
|
|
|
1,585 |
|
Accounts payable and accrued liabilities |
|
|
(33,400 |
) |
|
|
(14,784 |
) |
Deferred income tax liabilities |
|
|
(29,487 |
) |
|
|
(11,321 |
) |
Other liabilities |
|
|
(8,315 |
) |
|
|
(16,962 |
) |
|
Share of Net Assets of JVCo |
|
$ |
157,738 |
|
|
$ |
139,874 |
|
|
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
4. |
|
INVESTMENT HELD FOR SALE (Continued) |
|
|
|
The following table summarizes Ivanhoe Mines 50% share of the results of operations of JVCo
for the years ending December 31, 2006 and 2005. |
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
Revenue (1) |
|
$ |
58,731 |
|
|
$ |
54,584 |
|
Cost of operations |
|
|
(15,927 |
) |
|
|
(17,768 |
) |
Depreciation and depletion |
|
|
(4,577 |
) |
|
|
(5,657 |
) |
General and administrative |
|
|
(649 |
) |
|
|
(484 |
) |
Interest expense |
|
|
(300 |
) |
|
|
(489 |
) |
|
OPERATING PROFIT |
|
|
37,278 |
|
|
|
30,186 |
|
Interest income |
|
|
985 |
|
|
|
374 |
|
Foreign exchange gains (losses) |
|
|
1,234 |
|
|
|
(50 |
) |
|
INCOME BEFORE TAXES |
|
|
39,497 |
|
|
|
30,510 |
|
Provision for income taxes |
|
|
(21,026 |
) |
|
|
(7,474 |
) |
|
SHARE OF INCOME FROM JOINT VENTURE |
|
$ |
18,471 |
|
|
$ |
23,036 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows |
|
|
|
|
|
|
|
|
From operating activities |
|
$ |
55,278 |
|
|
$ |
24,805 |
|
For investing activities |
|
|
(20,659 |
) |
|
|
(4,561 |
) |
For financing activities |
|
|
|
|
|
|
(7,500 |
) |
|
|
|
$ |
34,619 |
|
|
$ |
12,744 |
|
|
|
|
|
(1) |
|
Revenue is net of commercial tax. |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
Contingent income (Note 3) |
|
$ |
11,691 |
|
|
$ |
20,243 |
|
Proceeds from sale of Project (Note 3) |
|
|
|
|
|
|
6,500 |
|
Sale of investment (Note 7(b)) |
|
|
1,324 |
|
|
|
|
|
Refundable taxes |
|
|
9,053 |
|
|
|
4,423 |
|
Related parties (Note 17) |
|
|
319 |
|
|
|
451 |
|
Accrued interest |
|
|
910 |
|
|
|
340 |
|
Other |
|
|
1,442 |
|
|
|
1,393 |
|
|
|
|
$ |
24,739 |
|
|
$ |
33,350 |
|
|
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Loan receivable |
|
$ |
|
|
|
$ |
3,000 |
|
Restricted cash |
|
|
286 |
|
|
|
286 |
|
|
|
|
$ |
286 |
|
|
$ |
3,286 |
|
|
|
|
In 2006, the Company received full repayment from Lepanto Consolidated Mining Company of
the $3.0 million plus interest originally loaned to them in December 2004. |
|
7. |
|
LONG-TERM INVESTMENTS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 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 |
|
Investment in companies subject
to significant influence: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jinshan Gold Mines Inc. (a) |
|
|
46.3 |
% |
|
$ |
10,866 |
|
|
|
N/a |
|
|
$ |
10,866 |
|
|
|
N/a |
|
|
|
N/a |
|
|
|
N/a |
|
|
|
N/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intec Ltd. (b) |
|
|
7.1 |
% |
|
$ |
1,062 |
|
|
$ |
7,088 |
|
|
$ |
8,150 |
|
|
|
12.5 |
% |
|
$ |
1,446 |
|
|
$ |
1,331 |
|
|
$ |
2,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entrée Gold Inc. (c) |
|
|
14.7 |
% |
|
|
10,156 |
|
|
|
6,044 |
|
|
|
16,200 |
|
|
|
15.0 |
% |
|
|
10,157 |
|
|
|
5,380 |
|
|
|
15,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redox Diamonds Ltd. (d) |
|
|
13.8 |
% |
|
|
1,451 |
|
|
|
|
|
|
|
1,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wind Energy Group Inc. (e) |
|
|
21.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia Now Resources Corp. |
|
|
2.0 |
% |
|
|
103 |
|
|
|
101 |
|
|
|
204 |
|
|
|
3.1 |
% |
|
|
103 |
|
|
|
|
|
|
|
103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
12,780 |
|
|
$ |
13,233 |
|
|
$ |
26,013 |
|
|
|
|
|
|
$ |
11,706 |
|
|
$ |
6,711 |
|
|
$ |
18,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
23,646 |
|
|
$ |
13,233 |
|
|
$ |
36,879 |
|
|
|
|
|
|
$ |
11,706 |
|
|
$ |
6,711 |
|
|
$ |
18,417 |
|
|
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
7. |
|
LONG-TERM INVESTMENTS (Continued) |
|
(a) |
|
In November 2005, the Company and Jinshan restructured their participating
arrangements to simplify Jinshans corporate structure. The Company transferred to
Jinshan its entire participating interest in the 217 Gold Project, its interests in
other joint venture arrangements between the parties, its existing contractual rights
to participate in Jinshan projects in China and cash proceeds of $3,392,000 in exchange
for Jinshan issuing Ivanhoe Mines 48,552,948 of its common shares. As a result of this
transaction, in December 2005, Ivanhoe Mines ceased equity accounting for its
investment in Jinshan as it held approximately 53% of the issued and outstanding common shares of Jinshan, thereby making Jinshan a controlled subsidiary, requiring
consolidation. |
|
|
|
|
On August 31, 2006, Jinshan completed a private placement which diluted Ivanhoe
Mines investment in Jinshan to 48.9%. As a result of this transaction, Ivanhoe
Mines ceased consolidating Jinshan on August 31, 2006 and commenced equity
accounting for its investment. During the year Ivanhoe Mines recorded a $1,648,000
(2005 $2,651,000) equity loss on this investment. At December 31, 2006, the
carrying value of the Companys investment in Jinshan was lower than its share of
the underlying book value of Jinshans net assets by approximately $1,476,000. This
difference relates to unrecognized dilution gains associated with warrants issued by
Jinshan during the year. These dilution gains will be recognized as the warrants
are exercised. |
|
|
|
|
At December 31, 2006 the quoted market value of the Companys investment in Jinshan
was $88,250,000. |
|
|
(b) |
|
During the fourth quarter of 2006, Ivanhoe Mines sold 14,391,586 shares of its
investment in Intec Ltd. for $3,099,000. These transactions resulted in a gain on sale
of $2,724,000 being recognized in operations. At December 31, 2006, $1,777,000 in
proceeds had been received and $1,324,000 was included in accounts receivable (Note 5). |
|
|
(c) |
|
During 2004, the Company purchased 4.6 million units of Entrée Gold Inc.
(Entrée) at a cost of $3,846,000 (Cdn$4,600,000). Each unit consisted of one Entrée
common share and one share purchase warrant exercisable until October 2006 to purchase
an additional Entrée common share at a price of Cdn$1.10. In 2005, the Company
exercised these share purchase warrants to acquire 4.6 million common shares of Entrée
at a cost of $4,111,000 (Cdn$5,060,000). |
|
|
|
|
Also during 2005, the Company acquired 1.2 million units in Entrée at a cost of
$2,199,000 (Cdn$2,718,000). Each unit consisted of one Entrée common share and two
share purchase warrants. These share purchase warrants are outstanding at December
31, 2006, and if not exercised will expire in July 2007. |
|
|
(d) |
|
During 2006, the Company purchased 8.3 million units of Redox Diamonds Ltd.
(Redox) at a cost of $1.5 million. Each unit consists of one Redox common share and
one Redox
share option exercisable until April 2008 to purchase an additional Redox common
share at a price ranging from Cdn$0.30 to Cdn$0.35. |
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
7. |
|
LONG-TERM INVESTMENTS (Continued) |
|
(e) |
|
During 2006, the Company purchased 2.0 million common shares of Wind Energy
Group Inc. (Wind Energy), in two $0.5 million tranches, at a cost of $1.0 million.
In September 2006, the Company recorded an impairment provision of $1.0 million against
this investment based on an assessment of the underlying book value of Wind Energys
net assets. This investment is not being accounted for using the equity method as the
Company does not have significant influence over Wind Energy. |
|
|
(f) |
|
In March 2005, the share price of Olympus Pacific Minerals Inc. (Olympus)
deteriorated, with the result that the market value of Ivanhoe Mines investment in
Olympus decreased significantly below carrying value. Accordingly, the Company recorded
an other-than-temporary impairment of $1,438,000, reducing the carrying value of this
investment to $4,424,000. |
|
|
|
|
In May 2005, Ivanhoe Mines sold its investment in Olympus, generating proceeds of
$4,539,000. This transaction resulted in a gain on sale of $115,000 being
recognized in operations. |
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
8. PROPERTY, PLANT AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2006 |
|
2005 |
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
Depletion and |
|
|
|
|
|
|
|
|
|
Depletion and |
|
|
|
|
|
|
|
|
Depreciation, |
|
|
|
|
|
|
|
|
|
Depreciation, |
|
|
|
|
|
|
|
|
Including |
|
Net Book |
|
|
|
|
|
Including |
|
Net Book |
|
|
Cost |
|
Write-downs |
|
Value |
|
Cost |
|
Write-downs |
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mining properties |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bakyrchik Mining Venture,
Kazakhstan (a) |
|
$ |
87,541 |
|
|
$ |
(87,541 |
) |
|
$ |
|
|
|
$ |
87,541 |
|
|
$ |
(87,541 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mining plant and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bakyrchik Mining Venture,
Kazakhstan (a) |
|
$ |
3,107 |
|
|
$ |
(3,107 |
) |
|
$ |
|
|
|
$ |
3,107 |
|
|
$ |
(3,107 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other mineral property interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oyu Tolgoi, Mongolia (b) |
|
$ |
43,190 |
|
|
$ |
(6,251 |
) |
|
$ |
36,939 |
|
|
$ |
43,562 |
|
|
$ |
(6,244 |
) |
|
$ |
37,318 |
|
Cloncurry, Australia (c) |
|
|
6,293 |
|
|
|
(126 |
) |
|
|
6,167 |
|
|
|
6,293 |
|
|
|
(126 |
) |
|
|
6,167 |
|
Other exploration projects |
|
|
1,647 |
|
|
|
(115 |
) |
|
|
1,532 |
|
|
|
1,530 |
|
|
|
(115 |
) |
|
|
1,415 |
|
|
|
|
$ |
51,130 |
|
|
$ |
(6,492 |
) |
|
$ |
44,638 |
|
|
$ |
51,385 |
|
|
$ |
(6,485 |
) |
|
$ |
44,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other capital assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oyu Tolgoi, Mongolia (b) |
|
$ |
22,192 |
|
|
$ |
(6,377 |
) |
|
$ |
15,815 |
|
|
$ |
14,334 |
|
|
$ |
(3,326 |
) |
|
$ |
11,008 |
|
Cloncurry, Australia (c) |
|
|
1,518 |
|
|
|
(131 |
) |
|
|
1,387 |
|
|
|
1,833 |
|
|
|
(174 |
) |
|
|
1,659 |
|
Other exploration projects |
|
|
2,489 |
|
|
|
(1,406 |
) |
|
|
1,083 |
|
|
|
2,961 |
|
|
|
(2,181 |
) |
|
|
780 |
|
|
|
|
$ |
26,199 |
|
|
$ |
(7,914 |
) |
|
$ |
18,285 |
|
|
$ |
19,128 |
|
|
$ |
(5,681 |
) |
|
$ |
13,447 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital works in progress |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oyu Tolgoi, Mongolia (b) |
|
$ |
34,295 |
|
|
$ |
|
|
|
$ |
34,295 |
|
|
$ |
22,939 |
|
|
$ |
|
|
|
$ |
22,939 |
|
Bakyrchik Mining Venture,
Kazakhstan (a) |
|
|
4,776 |
|
|
|
|
|
|
|
4,776 |
|
|
|
4,420 |
|
|
|
|
|
|
|
4,420 |
|
|
|
|
$ |
39,071 |
|
|
$ |
|
|
|
$ |
39,071 |
|
|
$ |
27,359 |
|
|
$ |
|
|
|
$ |
27,359 |
|
|
|
|
$ |
207,048 |
|
|
$ |
(105,054 |
) |
|
$ |
101,994 |
|
|
$ |
188,520 |
|
|
$ |
(102,814 |
) |
|
$ |
85,706 |
|
|
|
|
|
(a) |
|
Ivanhoe Mines placed the Bakyrchik Mining Venture on a care and maintenance
basis in prior years. |
|
(b) |
|
Ivanhoe Mines has a 100% interest in the Oyu Tolgoi copper-gold project located
in
Mongolia. In 2003, Ivanhoe Mines converted its four exploration licences on the
project into 60-year mining licences, which are renewable for an additional 40
years. |
|
|
|
Capital works in progress at December 31, 2006 consisted mainly of surface assets
being constructed for the Shaft No. 1 at Oyu Tolgoi ($27.4 million (2005 -
$21.4 million)). |
|
|
|
A significant portion of exploration expenses incurred during the
year relate directly to the development of the Oyu Tolgoi project located in
Mongolia. Included in exploration expenses are shaft sinking, engineering, and
development costs that have been expensed and not capitalized. |
|
(c) |
|
Ivanhoe Mines owns certain copper-gold and uranium mining and exploration
leases in Queensland, Australia. |
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Advances to suppliers |
|
$ |
1,333 |
|
|
$ |
1,711 |
|
Environmental bond (Queensland, Australia) |
|
|
2,883 |
|
|
|
2,683 |
|
|
|
|
$ |
4,216 |
|
|
$ |
4,394 |
|
|
10. |
|
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Accounts payable |
|
$ |
33,101 |
|
|
$ |
11,902 |
|
Payroll and other employee related payables |
|
|
454 |
|
|
|
546 |
|
Accrued construction costs |
|
|
2,227 |
|
|
|
7,044 |
|
Amounts payable to related parties (Note 17) |
|
|
1,419 |
|
|
|
1,102 |
|
|
|
|
$ |
37,201 |
|
|
$ |
20,594 |
|
|
11. |
|
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 $111.1 million from the sale
of the Savage River Project. At December 31, 2006, $49.7 million has been received from the
sale with a further $11.7 million accrued as receivable (Note 3 and 5). |
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
12. |
|
INCOME TAXES |
|
|
|
As referred to in Note 2(b), Ivanhoe Mines must make significant estimates in respect of its
provision for income taxes and the composition of its deferred income tax assets and
liabilities. Ivanhoe Mines operations are, in part, subject to foreign tax laws where
interpretations, regulations and legislation are complex and continually changing. As a
result, there are usually some tax matters in question that may, on resolution in the future,
result in adjustments to the amount of deferred income tax assets and liabilities, and those
adjustments may be material to Ivanhoe Mines financial position and results of operations. |
|
|
|
Ivanhoe Mines provision for income and capital taxes for continuing operations consists of
the following: |
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
Deferred income taxes |
|
$ |
13 |
|
|
$ |
(15 |
) |
Capital taxes |
|
|
670 |
|
|
|
448 |
|
|
|
|
$ |
683 |
|
|
$ |
433 |
|
|
|
|
Deferred income tax assets and liabilities for continuing operations at December 31, 2006 and
2005 arise from the following: |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Deferred income tax assets |
|
|
|
|
|
|
|
|
Long-term investments |
|
$ |
3,921 |
|
|
$ |
279 |
|
Loss carry-forwards |
|
|
208,965 |
|
|
|
133,562 |
|
Other |
|
|
14,379 |
|
|
|
10,107 |
|
|
|
|
|
227,265 |
|
|
|
143,948 |
|
Valuation allowance |
|
|
(226,784 |
) |
|
|
(143,777 |
) |
|
Net deferred income tax assets |
|
|
481 |
|
|
|
171 |
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities |
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
660 |
|
|
|
315 |
|
|
|
|
|
660 |
|
|
|
315 |
|
|
Deferred income tax liabilities, net |
|
$ |
179 |
|
|
$ |
144 |
|
|
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
12. |
|
INCOME TAXES (Continued) |
|
|
|
A reconciliation of the provision for income and capital taxes for continuing operations is
as follows: |
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
Recovery of income taxes based on the combined |
|
|
|
|
|
|
|
|
Canadian federal and provincial statutory tax
rates of 34.1% in 2006 and 34.9% in 2005
applied to the loss before taxes and other items |
|
$ |
75,393 |
|
|
$ |
44,666 |
|
(Deduct) add |
|
|
|
|
|
|
|
|
Lower foreign tax rates |
|
|
(17,253 |
) |
|
|
(7,109 |
) |
Tax benefit of losses not recognized |
|
|
(136,278 |
) |
|
|
(78,836 |
) |
Change in valuation allowance for deferred
income tax assets |
|
|
84,935 |
|
|
|
43,986 |
|
Capital taxes |
|
|
(670 |
) |
|
|
(448 |
) |
Other, including non-deductible expenses |
|
|
(6,810 |
) |
|
|
(2,692 |
) |
|
Provision for income and capital taxes |
|
$ |
(683 |
) |
|
$ |
(433 |
) |
|
|
|
At December 31, 2006, Ivanhoe Mines had the following unused tax losses from continuing
operations, for which no deferred income tax assets had been recognized: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Local |
|
U.S. Dollar |
|
Expiry |
|
|
|
|
|
|
Currency |
|
Equivalent (i) |
|
Dates |
Non-capital losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
|
Cdn. |
|
$ |
127,632 |
|
|
$ |
109,471 |
|
|
2007 to 2026 |
Australia |
|
|
|
A |
|
$ |
17,101 |
|
|
$ |
13,486 |
|
|
(a) |
Mongolia |
|
Mongolian Tugrik |
|
|
551,908,121 |
|
|
$ |
473,741 |
|
|
(b) |
Kazakhstan |
|
Kazakhstan Tenge |
|
|
15,369,664 |
|
|
$ |
121,212 |
|
|
2007 to 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
|
Cdn. |
|
$ |
119,455 |
|
|
$ |
102,457 |
|
|
(c) |
|
|
|
(i) |
|
Translated using the year-end exchange rate. |
|
(a) |
|
These losses are carried forward indefinitely, subject to continuity of ownership
and business tests. |
|
(b) |
|
These losses are carried forward until production from a mine commences;
thereafter, they can be amortized on a straight-line basis over a period of five years. |
|
(c) |
|
These losses are carried forward indefinitely for utilization against any future
net realized capital gains. |
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
12. |
|
INCOME TAXES (Continued) |
|
|
|
Ivanhoe Mines also has deductible temporary differences and unused tax losses in certain
other foreign jurisdictions that are not disclosed above, as it is currently highly unlikely
that these items will be utilized. |
|
13. |
|
ASSET RETIREMENT OBLIGATIONS |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Balance, beginning of year |
|
$ |
6,231 |
|
|
$ |
5,267 |
|
(Decrease) increase in obligations for: |
|
|
|
|
|
|
|
|
Changes in estimates |
|
|
(485 |
) |
|
|
651 |
|
Foreign exchange |
|
|
149 |
|
|
|
(41 |
) |
Accretion expense |
|
|
458 |
|
|
|
354 |
|
|
Balance, end of year |
|
$ |
6,353 |
|
|
$ |
6,231 |
|
|
|
|
The total undiscounted amount of estimated cash flows required to settle the obligations is
$19,841,000 (2005 $20,458,000), which has been discounted using credit adjusted risk free
rates ranging from 7.6% to 8.2%. The majority of reclamation obligations are not expected to
be paid for several years and will be funded from Ivanhoe Mines cash balances and
environmental bonds restricted for the purpose of settling asset retirement obligations (Note
9). |
|
14. |
|
MINORITY INTERESTS |
|
|
|
At December 31, 2006 there were minority interests in BMV and Asia Gold. Jinshan ceased
being consolidated on August 31, 2006 (Note 7(a)). |
|
|
|
Currently, losses applicable to the minority interests in BMV and Asia Gold are being
allocated to Ivanhoe Mines since those losses exceed the minority interests in the net assets
of BMV and Asia Gold. |
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
14. |
|
MINORITY INTERESTS (Continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority Interests |
|
|
Asia Gold |
|
Jinshan |
|
BMV |
|
Total |
Balances, December 31, 2004 |
|
$ |
3,713 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,713 |
|
|
Minority interests share of loss |
|
|
(2,714 |
) |
|
|
|
|
|
|
|
|
|
|
(2,714 |
) |
Increase in minority interest arising
from share issuances by subsidiary |
|
|
582 |
|
|
|
|
|
|
|
|
|
|
|
582 |
|
Initial interest arising from acquisition of
Jinshan in December 2005 |
|
|
|
|
|
|
7,347 |
|
|
|
|
|
|
|
7,347 |
|
|
Balances, December 31, 2005 |
|
$ |
1,581 |
|
|
$ |
7,347 |
|
|
$ |
|
|
|
$ |
8,928 |
|
|
Minority interests share of loss |
|
|
(2,063 |
) |
|
|
(1,306 |
) |
|
|
|
|
|
|
(3,369 |
) |
Increase in minority interest arising
from share issuances by subsidiary |
|
|
482 |
|
|
|
5,388 |
|
|
|
|
|
|
|
5,870 |
|
Commencement of equity accounting
for investment in Jinshan |
|
|
|
|
|
|
(11,429 |
) |
|
|
|
|
|
|
(11,429 |
) |
|
Balance, December 31, 2006 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
(a) |
|
Equity Incentive Plan |
|
|
|
|
The Company has an Employees and Directors Equity Incentive Plan (the Equity
Incentive Plan), which includes three components: (i) a Share Option Plan; (ii) a Share
Bonus Plan; and (iii) a Share Purchase Plan. |
|
(i) |
|
The Share Option Plan authorizes the Board of Directors of the Company
to grant options 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. Options vest over
four years and have five year contractual terms unless otherwise determined from
time to time by the Board of Directors, on the recommendation of the Compensation
and Benefits Committee. The Share Option Plan also provides that these options
may, upon approval of the Board of Directors, be converted into stock appreciation
rights. |
|
|
(ii) |
|
The Share Bonus Plan permits the Board of Directors of the Company to
authorize the issuance, from time to time, of Common Shares of the Company to
employees of the Company and its affiliates. |
|
|
(iii) |
|
The Share Purchase Plan entitles each eligible employee of Ivanhoe
Mines to contribute up to seven percent of each employees annual basic salary in
semi-monthly instalments. At the end of each calendar quarter, each employee
participating in the Share Purchase Plan is issued Common Shares of the Company
equal to 1.5 times the aggregate amount contributed by the participant, based on
the weighted average trading price of the Common Shares during the preceding three
months. |
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
15. |
|
SHARE CAPITAL (Continued) |
|
(a) |
|
Equity Incentive Plan (Continued) |
|
|
|
|
The Company is authorized to issue a maximum of 32,000,000 Common Shares pursuant to the
Equity Incentive Plan. At December 31, 2006, an aggregate of 2,961,648 Common Shares
were available for future grants of awards under the plan. |
|
|
|
|
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 behaviour.
Expected volatility is based on the historical volatility of the Companys stock. These
estimates involve inherent uncertainties and the application of management judgment. In
addition, the Company is 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, the recorded stock-based compensation expense could have been materially
different from that reported. |
|
|
|
|
The weighted average grant-date fair value of stock options granted during 2006 and 2005
was Cdn$4.31 and Cdn$4.95, respectively. The fair value of these options was determined
using a Black-Scholes option pricing model, recognizing forfeitures as they occur, using
the following weighted average assumptions: |
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
Risk-free interest rate |
|
|
4.12 |
% |
|
|
3.76 |
% |
Expected life |
|
3.3 years |
|
|
5.0 years |
|
Expected volatility |
|
|
50 |
% |
|
|
61 |
% |
Expected dividends |
|
$ |
Nil |
|
|
$ |
Nil |
|
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
15. |
|
SHARE CAPITAL (Continued) |
|
(a) |
|
Equity Incentive Plan (Continued) |
|
|
|
|
A summary of stock option activity and information concerning outstanding and
exercisable options at December 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, 2004 |
|
|
104,734 |
|
|
|
9,890,942 |
|
|
$ |
5.02 |
|
Increase in amount authorized |
|
|
9,000,000 |
|
|
|
|
|
|
|
|
|
Options granted |
|
|
(1,125,000 |
) |
|
|
1,125,000 |
|
|
|
8.86 |
|
Options exercised |
|
|
|
|
|
|
(3,256,542 |
) |
|
|
1.48 |
|
Options cancelled |
|
|
342,700 |
|
|
|
(342,700 |
) |
|
|
2.41 |
|
Shares issued under share
purchase plan |
|
|
(16,498 |
) |
|
|
|
|
|
|
|
|
|
Balances, December 31, 2005 |
|
|
8,305,936 |
|
|
|
7,416,700 |
|
|
$ |
7.27 |
|
Increase in amount authorized |
|
|
3,000,000 |
|
|
|
|
|
|
|
|
|
Options granted |
|
|
(8,519,000 |
) |
|
|
8,519,000 |
|
|
|
9.39 |
|
Options exercised |
|
|
|
|
|
|
(1,964,966 |
) |
|
|
4.28 |
|
Options cancelled |
|
|
326,300 |
|
|
|
(326,300 |
) |
|
|
8.80 |
|
Bonus shares |
|
|
(124,657 |
) |
|
|
|
|
|
|
|
|
Shares issued under share
purchase plan |
|
|
(26,931 |
) |
|
|
|
|
|
|
|
|
|
Balances, December 31, 2006 |
|
|
2,961,648 |
|
|
|
13,644,434 |
|
|
$ |
8.99 |
|
|
|
|
|
At December 31, 2006, the U.S. dollar equivalent of the weighted average exercise price
was $7.70 (December 31, 2005 $6.26). |
|
|
|
|
The total intrinsic value of options exercised during the years ended December 31, 2006
and 2005 was $9.1 million and $19.9 million, respectively. |
|
|
|
|
As at December 31, 2006, options vested and expected to vest totalled 13,644,434
(December 31, 2005 7,416,700) and had an aggregate intrinsic value of $29.4 million
(December 31, 2005 $6.9 million). |
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
15. |
|
SHARE CAPITAL (Continued) |
|
(a) |
|
Equity Incentive Plan (Continued) |
|
|
|
|
The following table summarizes information concerning outstanding and exercisable
options at December 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) |
$3.25 to $3.50 |
|
|
667,100 |
|
|
|
1.26 |
|
|
$ |
3.29 |
|
|
|
607,100 |
|
|
$ |
3.29 |
|
$3.51 to $6.75 |
|
|
253,500 |
|
|
|
1.66 |
|
|
|
6.75 |
|
|
|
197,500 |
|
|
|
6.75 |
|
$6.76 to $7.69 |
|
|
1,433,334 |
|
|
|
3.41 |
|
|
|
7.23 |
|
|
|
467,400 |
|
|
|
7.29 |
|
$7.70 to $8.20 |
|
|
2,015,500 |
|
|
|
5.46 |
|
|
|
7.90 |
|
|
|
989,500 |
|
|
|
7.87 |
|
$8.21 to $8.99 |
|
|
940,000 |
|
|
|
3.09 |
|
|
|
8.65 |
|
|
|
370,000 |
|
|
|
8.66 |
|
$9.00 to $10.27 |
|
|
6,995,000 |
|
|
|
6.03 |
|
|
|
9.72 |
|
|
|
2,863,500 |
|
|
|
9.72 |
|
$10.28 to $12.70 |
|
|
1,340,000 |
|
|
|
6.21 |
|
|
|
12.22 |
|
|
|
1,055,500 |
|
|
|
12.60 |
|
|
|
|
|
13,644,434 |
|
|
|
5.17 |
|
|
$ |
8.99 |
|
|
|
6,550,500 |
|
|
$ |
8.98 |
|
|
|
|
|
As at December 31, 2006 there was $21.5 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 1.69 years. |
|
|
|
|
As at December 31, 2006 the aggregate intrinsic value for fully vested stock options was
$14.1 million (December 31, 2005 $5.9 million). |
|
|
(b) |
|
Rio Tinto Placement |
|
|
|
|
On October 18, 2006, Ivanhoe Mines and Rio Tinto announced that they had reached an
agreement to form a strategic partnership whereby Rio Tinto would invest in Ivanhoe
Mines and form a joint Ivanhoe Mines Rio Tinto Technical Committee, to engineer,
construct and operate Ivanhoe Miness Oyu Tolgoi project in Mongolia. |
|
|
|
|
On October 27, 2006, Rio Tinto completed the first private placement tranche under the
agreement consisting of approximately 37.1 million shares at a price of $8.18 per share,
for proceeds totalling $303.4 million. |
|
|
|
|
The agreement provides for Rio Tinto to make investments in the equity of Ivanhoe Mines,
under defined conditions, totalling approximately $1.5 billion. Ivanhoe Mines has agreed
to use at least 90% of the proceeds received from Rio Tinto to finance the development
of Oyu Tolgoi. |
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
15. |
|
SHARE CAPITAL (Continued) |
|
(b) |
|
Rio Tinto Placement (Continued) |
|
|
|
|
Rio Tinto will take up a second tranche private placement following the satisfactory
conclusion of an Investment Agreement between Ivanhoe Mines and the Mongolian
Government. Rio Tinto has the option to exercise the second tranche earlier. This
second tranche consists of approximately 46.3 million shares at a subscription price of
$8.38 per share, for proceeds totalling $388.0 million. |
|
|
|
|
In addition to the two private placements, Rio Tinto has been granted approximately
92.0 million warrants, divided into two series. The lives of these warrants are
determined by the date an approved Investment Agreement for the Oyu Tolgoi Project is
reached with the Mongolian government. The Warrant Determination Date within the
warrant terms presented below is the earlier of the date an approved Investment
Agreement is reached or October 27, 2009: |
|
|
|
|
The 46,026,522 Series A Warrants are non-transferable. Each warrant entitles Rio Tinto
to purchase one Common Share of the Company at a price of: |
|
(i) |
|
$8.38 during the period commencing November 30, 2006 and
ending 180 days following the Warrant Determination Date; and |
|
|
(ii) |
|
$8.54 during the period commencing 181 days after the Warrant
Determination Date and ending 365 days after the Warrant Determination Date. |
|
|
|
The 46,026,522 Series B Warrants are non-transferable. Each warrant entitles Rio Tinto
to purchase one Common Share of the Company at a price of: |
|
(i) |
|
$8.38 during the period commencing November 30, 2006 and
ending 180 days following the Warrant Determination Date; |
|
|
(ii) |
|
$8.54 during the period commencing 181 days after the Warrant
Determination Date and ending 365 days after the Warrant Determination Date; |
|
|
(iii) |
|
$8.88 during the period commencing 366 days after the
Warrant Determination Date and ending 545 days after the Warrant Determination
Date; and |
|
|
(iv) |
|
$9.02 during the period commencing 546 days after the Warrant
Determination Date and ending 725 days after the Warrant Determination Date. |
|
|
|
Ivanhoe Mines has recorded an amount of $23.1 million in shareholders equity,
attributable to the fair value of the Rio Tinto share purchase warrants and second
tranche share issuance commitment. |
|
|
(c) |
|
Share Purchase Warrants |
|
|
|
|
At December 31, 2006, the Company had 5,760,000 share purchase warrants outstanding
that were issued in 2004. These warrants entitled 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. On February 13, 2007, 28,600 of the share purchase warrants
were exercised with the remaining 5,731,400 warrants expiring unexercised. |
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
16. |
|
ACCUMULATED OTHER COMPREHENSIVE INCOME |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Balance, beginning of year |
|
$ |
6,711 |
|
|
$ |
2,879 |
|
Other comprehensive income for the year: |
|
|
|
|
|
|
|
|
Changes in fair value of long-term investments |
|
|
7,534 |
|
|
|
3,539 |
|
Reclassification for (gains) losses recorded in
earnings |
|
|
(1,012 |
) |
|
|
293 |
|
|
Other comprehensive income before tax: |
|
|
6,522 |
|
|
|
3,832 |
|
Income tax recovery related to other
comprehensive income |
|
|
|
|
|
|
|
|
|
Other comprehensive income, net of tax: |
|
|
6,522 |
|
|
|
3,832 |
|
|
Balance, end of year |
|
$ |
13,233 |
|
|
$ |
6,711 |
|
|
17. |
|
OTHER RELATED PARTY TRANSACTIONS |
|
|
|
The following tables summarize related party expenses incurred by Ivanhoe Mines, primarily on
a cost-recovery basis, with an officer of a subsidiary of Ivanhoe Mines, a company subject to
significant influence by Ivanhoe Mines, a company affiliated with Ivanhoe Mines, or with
companies related by way of directors or shareholders in common. The tables summarize the
transactions with related parties and the types of expenditures incurred with related
parties: |
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
Global Mining Management Corporation (a) |
|
$ |
7,015 |
|
|
$ |
4,169 |
|
Ivanhoe Capital Aviation LLC (b) |
|
|
3,840 |
|
|
|
3,421 |
|
Fognani & Faught, PLLC (c) |
|
|
1,394 |
|
|
|
823 |
|
Jinshan Gold Mines Inc. (d) |
|
|
|
|
|
|
1,122 |
|
Ivanhoe Capital Pte. Ltd. (e) |
|
|
78 |
|
|
|
60 |
|
Ivanhoe Capital Services Ltd. (f) |
|
|
743 |
|
|
|
755 |
|
Ivanhoe Energy Inc. (g) |
|
|
|
|
|
|
175 |
|
|
|
|
$ |
13,070 |
|
|
$ |
10,525 |
|
|
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
17. |
|
OTHER RELATED PARTY TRANSACTIONS (Continued) |
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
Exploration |
|
$ |
|
|
|
$ |
1,122 |
|
Legal |
|
|
1,394 |
|
|
|
823 |
|
Office and administrative |
|
|
2,306 |
|
|
|
2,216 |
|
Salaries and benefits |
|
|
5,530 |
|
|
|
2,943 |
|
Travel (including aircraft rental) |
|
|
3,840 |
|
|
|
3,421 |
|
|
|
|
$ |
13,070 |
|
|
$ |
10,525 |
|
|
|
|
The above noted transactions were in the normal course of operations and were measured at the
exchange amount, which is the amount of consideration established and agreed to by the
related parties. |
|
|
|
Accounts receivable and accounts payable at December 31, 2006, included $319,000 and
$1,419,000, respectively (December 31, 2005 $451,000 and $1,102,000, respectively), which
were due from/to a company under common control, a company affiliated with Ivanhoe Mines, or
companies related by way of directors in common. |
|
(a) |
|
Global Mining Management Corporation (Global) is a private company based in
Vancouver owned equally by seven companies, one of which is Ivanhoe Mines. Global has a
director in common with the Company. Global provides administration, accounting, and
other office services to the Company on a cost-recovery basis. |
|
|
(b) |
|
Ivanhoe Capital Aviation LLC (Aviation) is a private company 100% owned by the
Companys Chairman. Aviation operates an aircraft which is rented by the Company on a
cost-recovery basis. |
|
|
(c) |
|
An officer of a subsidiary of Ivanhoe Mines is a partner with Fognani & Faught,
PLLC, a legal firm which provides legal services to Ivanhoe Mines. |
|
|
(d) |
|
During 2005, the Company incurred exploration expenditures as part of several
joint-venture agreements with Jinshan. |
|
|
(e) |
|
Ivanhoe Capital Pte. Ltd. (Ivanhoe Capital) is a private company 100% owned by
the Companys Chairman. Ivanhoe Capital provides for administration, accounting, and
other office services in Singapore and London on a cost-recovery basis. |
|
|
(f) |
|
Ivanhoe Capital Services Ltd. (Services) is a private company 100% owned by the
Companys Chairman. Services provides for salaries associated with certain employees of
the Company located in Singapore on a cost-recovery basis. |
|
|
(g) |
|
Ivanhoe Energy Inc. (Ivanhoe Energy) is a public company in which the Companys
Chairman has a significant interest and holds the position of Deputy Chairman. During
2005 Ivanhoe Energy provided administration and other office services in Beijing on a
cost-recovery basis. |
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
18. |
|
CASH FLOW INFORMATION |
|
(a) |
|
Net change in non-cash operating working capital items |
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
(Increase) decrease in: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
$ |
(10,729 |
) |
|
$ |
522 |
|
Inventories |
|
|
(1,766 |
) |
|
|
(1,355 |
) |
Prepaid expenses |
|
|
(2,025 |
) |
|
|
(5,132 |
) |
Other current assets |
|
|
3,000 |
|
|
|
|
|
Increase in: |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
|
17,309 |
|
|
|
4,209 |
|
|
|
|
$ |
5,789 |
|
|
$ |
(1,756 |
) |
|
|
(b) |
|
Supplementary information regarding other non-cash transactions |
|
|
|
|
The non-cash investing and financing activities relating to continuing operations not
already disclosed in the Consolidated Statement of Shareholders Equity or the
Consolidated Statements of Cash Flows were as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|
|
|
2006 |
|
|
2005 |
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
Acquisition of property, plant and equipment |
|
$ |
|
|
|
$ |
440 |
|
|
(c) |
|
Other supplementary information |
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|
|
|
2006 |
|
|
2005 |
|
|
Interest paid |
|
$ |
|
|
|
$ |
|
|
|
|
|
Income taxes paid |
|
$ |
670 |
|
|
$ |
448 |
|
|
|
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
19. |
|
SEGMENT DISCLOSURES |
|
|
|
Ivanhoe Mines has one operating segment; its exploration division with projects located
primarily in Mongolia. |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Property, plant and equipment at the end of the year: |
|
|
|
|
|
|
|
|
Mongolia |
|
$ |
87,509 |
|
|
$ |
71,666 |
|
Inner Mongolia, China |
|
|
1,408 |
|
|
|
2,459 |
|
Australia |
|
|
7,555 |
|
|
|
6,767 |
|
Kazakhstan |
|
|
4,776 |
|
|
|
4,419 |
|
Canada |
|
|
203 |
|
|
|
131 |
|
Other |
|
|
543 |
|
|
|
264 |
|
|
|
|
$ |
101,994 |
|
|
$ |
85,706 |
|
|
20. |
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
Ivanhoe Mines has, in the normal course of its business, entered into various long-term
contracts, which include commitments for future operating payments under contracts for
drilling, engineering, equipment rentals and other arrangements as follows: |
|
|
|
|
|
2007 |
|
$ |
118,084 |
|
2008 |
|
|
837 |
|
2009 |
|
|
137 |
|
2010 onwards |
|
|
9 |
|
|
|
|
$ |
119,067 |
|
|
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
21. |
|
DISCLOSURES REGARDING FINANCIAL INSTRUMENTS |
|
(a) |
|
The estimated fair value of Ivanhoe Mines financial instruments was as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2006 |
|
2005 |
|
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
|
|
Amount |
|
Value |
|
Amount |
|
Value |
Cash |
|
$ |
363,572 |
|
|
$ |
363,572 |
|
|
$ |
101,681 |
|
|
$ |
101,681 |
|
Accounts receivable |
|
|
24,739 |
|
|
|
24,739 |
|
|
|
33,350 |
|
|
|
33,350 |
|
Other current assets |
|
|
286 |
|
|
|
286 |
|
|
|
3,286 |
|
|
|
3,286 |
|
Long-term investments |
|
|
36,879 |
|
|
|
36,879 |
|
|
|
18,417 |
|
|
|
18,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and
accrued liabilities |
|
|
37,201 |
|
|
|
37,201 |
|
|
|
20,594 |
|
|
|
20,594 |
|
Loans payable to related parties |
|
|
5,088 |
|
|
|
4,106 |
|
|
|
5,088 |
|
|
|
3,733 |
|
|
|
|
The fair value of Ivanhoe Mines long-term investments was determined by reference to
published market quotations, which may not be reflective of future values. |
|
|
|
|
The fair value of loans payable to related parties was estimated by discounting future
payments to their present value. |
|
|
|
|
The fair value of Ivanhoe Mines remaining financial instruments was estimated to
approximate their carrying value, due primarily to the immediate or short-term
maturity of these financial instruments. |
|
|
(b) |
|
Ivanhoe Mines is exposed to credit risk with respect to its accounts receivable.
The significant concentrations of credit risk are situated in Mongolia and Australia.
Ivanhoe Mines does not mitigate the balance of this risk in light of the credit
worthiness of its major debtors. |
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
22. |
|
DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES |
|
|
|
As indicated in Note 2, 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 |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Total assets in accordance with U.S. GAAP |
|
$ |
703,159 |
|
|
$ |
396,779 |
|
Reverse equity accounting for investment held for sale (a) |
|
|
71,202 |
|
|
|
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 |
|
$ |
780,690 |
|
|
$ |
439,464 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities in accordance with U.S. GAAP |
|
$ |
49,302 |
|
|
$ |
32,228 |
|
Reverse equity accounting for investment held for sale (a) |
|
|
71,202 |
|
|
|
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 |
|
$ |
121,386 |
|
|
$ |
76,177 |
|
|
|
|
|
|
|
|
|
|
|
Total minority interests in accordance with U.S.
and Canadian GAAP |
|
$ |
|
|
|
$ |
8,928 |
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity in accordance with U.S. GAAP |
|
$ |
653,857 |
|
|
$ |
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 |
|
$ |
659,304 |
|
|
$ |
354,359 |
|
|
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
22. |
|
DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(Continued) |
|
|
|
Consolidated Statements of Operations
(in thousands, except for share and per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
Net (loss) from continuing operations in accordance with U.S. GAAP |
|
$ |
(218,279 |
) |
|
$ |
(125,702 |
) |
Dilution gain on issuance of shares by a subsidiary (d) |
|
|
6,288 |
|
|
|
3,012 |
|
Share of income from investment held for sale (a) |
|
|
(18,471 |
) |
|
|
(23,036 |
) |
|
Net (loss) from continuing operations in accordance with
Canadian GAAP |
|
$ |
(230,462 |
) |
|
$ |
(145,726 |
) |
|
|
|
|
|
|
|
|
|
|
Net income from discontinued operations in accordance
with U.S. GAAP |
|
$ |
19,622 |
|
|
$ |
35,916 |
|
Share of income from investment held for sale (a) |
|
|
18,471 |
|
|
|
23,036 |
|
Write-down of other mineral property interests (b) |
|
|
|
|
|
|
(192 |
) |
Gain on sale of Savage River Project (e) |
|
|
|
|
|
|
(19,692 |
) |
|
Net income from discontinued operations in accordance
with Canadian GAAP |
|
$ |
38,093 |
|
|
$ |
39,068 |
|
|
Net (loss) in accordance with Canadian GAAP |
|
$ |
(192,369 |
) |
|
$ |
(106,658 |
) |
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding under
Canadian GAAP (in thousands) |
|
|
336,128 |
|
|
|
305,160 |
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted (loss) earnings per share in accordance with
Canadian GAAP from: |
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.68 |
) |
|
$ |
(0.48 |
) |
Discontinued operations |
|
|
0.11 |
|
|
|
0.13 |
|
|
|
|
$ |
(0.57 |
) |
|
$ |
(0.35 |
) |
|
|
|
Under Canadian GAAP, the components of shareholders equity would be as follows: |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2005 |
|
Share capital |
|
$ |
1,466,969 |
|
|
$ |
999,372 |
|
Share purchase warrants and share issuance commitment |
|
|
23,062 |
|
|
|
|
|
Additional paid-in capital |
|
|
33,792 |
|
|
|
17,952 |
|
Accumulated other comprehensive income (c) |
|
|
13,233 |
|
|
|
|
|
Deficit |
|
|
(877,752 |
) |
|
|
(662,965 |
) |
|
|
|
$ |
659,304 |
|
|
$ |
354,359 |
|
|
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
22. |
|
DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(Continued) |
|
|
|
Consolidated Statements of Cash Flows |
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
Cash used in operating activities in accordance
with U.S. GAAP |
|
$ |
(210,679 |
) |
|
$ |
(133,113 |
) |
Reverse equity accounting for investment held for sale (a) |
|
|
55,278 |
|
|
|
24,805 |
|
|
Cash used in operating activities in accordance
with Canadian GAAP |
|
|
(155,401 |
) |
|
|
(108,308 |
) |
|
|
|
|
|
|
|
|
|
|
Cash used in investing activities in accordance
with U.S. GAAP |
|
|
(1,016 |
) |
|
|
(10,232 |
) |
Reverse equity accounting for investment held for sale (a) |
|
|
(20,659 |
) |
|
|
(4,561 |
) |
|
Cash used in investing activities in accordance
with Canadian GAAP |
|
|
(21,675 |
) |
|
|
(14,793 |
) |
|
|
|
|
|
|
|
|
|
|
Cash provided by financing activities in accordance
with U.S. GAAP |
|
|
473,589 |
|
|
|
124,706 |
|
Reverse equity accounting for investment held for sale (a) |
|
|
|
|
|
|
(7,500 |
) |
|
Cash provided by financing activities in accordance
with Canadian GAAP |
|
|
473,589 |
|
|
|
117,206 |
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
(3 |
) |
|
|
7,842 |
|
|
Net cash inflow in accordance with Canadian GAAP |
|
|
296,510 |
|
|
|
1,947 |
|
Cash, beginning of year in accordance with Canadian GAAP |
|
|
124,524 |
|
|
|
122,577 |
|
|
Cash, end of year in accordance with Canadian GAAP |
|
$ |
421,034 |
|
|
$ |
124,524 |
|
|
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
22. |
|
DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(Continued) |
|
(a) |
|
Investment held for sale |
|
|
|
|
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 Ivanhoe Mines investment and its share
of equity of JVCo is eliminated. Ivanhoe Mines proportionate share of each line
item of JVCos assets, liabilities, revenue and expenses is reported as discontinued
operations within Ivanhoe Mines financial statements in accordance with CICA 3475,
Disposal of Long-Lived Assets and Discontinued Operations. All intercompany
balances and transactions would be eliminated. Note 4 discloses the assets and
liabilities of JVCo that would have been disclosed as held for sale and the revenues
and expenses of JVCo that would have been included as discontinued operations within
Ivanhoe Mines financial statements had Canadian GAAP been applied. |
|
|
(b) |
|
Other mineral property interests |
|
|
|
|
Under U.S. GAAP, where the 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 needs to be reversed. |
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
22. |
|
DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(Continued) |
|
(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 7). 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
comprehensive income of $6,522,000 under both Canadian and U.S. GAAP for the year
ended December 31, 2006. |
|
|
(d) |
|
Dilution gain on investment in subsidiary |
|
|
|
|
Under U.S. GAAP the $6,288,000 (2005 $3,012,000) dilution gain on investment in a
subsidiary was accounted for as part of additional paid-in capital. Under Canadian
GAAP, the dilution gain would have been included in the net loss for the year. |
|
|
(e) |
|
Gain on sale of Savage River Project |
|
|
|
|
Under U.S. GAAP, the net book value of the Savage River Project when it was sold in
February 2005 was $11,200,000, whereas under Canadian GAAP the carrying value was
$30,900,000. During 2005, total proceeds from the sale were $41,700,000,
representing cash instalments including interest of $21,500,000, plus escalating
payments of $20,200,000. Therefore, under Canadian GAAP the gain on sale was
$19,700,000 less than under U.S. GAAP. |
|
|
(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 a material effect on the financial position or results
of operations of the Company for the years ended December 31, 2006 and 2005. |
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
22. |
|
DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Continued) |
|
(g) |
|
Recently released Canadian accounting standards |
|
|
|
|
There are no recently issued Canadian accounting standards which have not yet been
adopted by the Company and would be expected to have a material impact on the
Companys financial position and results of operations. |
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
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 audited consolidated financial statements
of Ivanhoe Mines Ltd. and the notes thereto for the year ended December 31, 2006. These financial
statements have been prepared in accordance with United States of America generally accepted
accounting principles (U.S. GAAP). Differences between Canadian generally accepted accounting
principles (Canadian GAAP) and U.S. GAAP that would have materially affected the Companys reported
financial results are set out in Note 22. 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.
The effective date of this MD&A is March 30, 2007.
Additional information about the Company, including its Annual Information Form, is available at
www.sedar.com.
OVERVIEW
MONGOLIA
OYU TOLGOI PROJECT
Ivanhoe Mines forms a strategic partnership with Rio Tinto
The principal event for Ivanhoe Mines in 2006 was the announcement on October 18, 2006, that
Rio Tinto plc (Rio Tinto) and the Company had reached an agreement (the Rio Tinto Agreement) to
form a strategic partnership involving an equity investment in the Company by Rio Tinto and,
through a joint Technical Committee, to oversee the engineering, construction and operation of
Ivanhoe Mines Oyu Tolgoi copper-gold mining complex in Mongolias South Gobi region. The Rio Tinto
Agreement creates a defined path for Rio Tinto to become the largest shareholder in the Company.
Under the terms of the agreement, Rio Tinto purchased approximately 37.1 million common shares at a
price of US$8.18, representing a 25% premium to the closing price on October 17, 2006, and a
premium of 30% to the 20-day moving-average share price prior to October 17. Rio Tinto now owns
approximately 9.92% of the Companys issued share capital.
The Rio Tinto Agreement provides for Rio Tinto to make investments in the equity of the Company,
under defined conditions, of up to approximately US$1.5 billion, inclusive of the first tranche of
financing. The Company has agreed to use at least 90% of the proceeds received from Rio Tinto to
finance the development of Oyu Tolgoi.
The next major milestone in the overall development of Oyu Tolgoi will be the receipt of all
remaining governmental approvals. Senior representatives of Ivanhoe Mines and Rio Tinto began
detailed discussions in January 2007 with a nine-member working group of Mongolian Government
officials. The discussions, which remain ongoing, are intended to produce a draft Investment
Agreement for
1
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
Oyu Tolgoi that will be submitted for approvals by the Cabinet of the Mongolian Government and the
national Parliament.
Economics of high-grade starter mine at Hugo North under study
During 2006, Ivanhoe Mines continued construction, engineering and planning for the
development of the Oyu Tolgoi copper-gold project. The activity positioned Oyu Tolgoi to achieve
first production as early as possible following the start of full-scale construction. Ivanhoe Mines
expects that the first production from Oyu Tolgoi could begin within 30 months of the receipt of
the necessary government approvals, contingent upon timely delivery of key long-lead-time
equipment.
Planning and development activities throughout 2006 were focused on the underground, high-grade
Hugo North Deposit although it is expected that the initial production at Oyu Tolgoi will consist
mainly of ore mined from the open pit on the Southern Oyu Deposits.
Work underway on a new Integrated Development Plan (2007 IDP) suggests that an underground starter
mine at the Hugo North Deposit would enhance the projects initial development. This scenario is
one of the leading cases being evaluated by the Ivanhoe Mines-Rio Tinto joint development team.
Conceptually, a starter mine would target a high-grade portion of Hugo North that is accessible
from the Shaft No. 1 infrastructure already being developed for the larger block-cave mine.
Beginning in mid-2010, the ore from this area likely would supply the concentrator with a mill feed
of approximately seven million tonnes per annum at a copper grade of between 2.0% and 2.5% in
addition to ore being supplied from the Southern Oyu open pit.
Projected benefits of developing an underground starter mine could include:
|
§ |
|
a reduction in the initial capital costs and technical risks associated with a large,
underground block-cave mining operation; |
|
|
§ |
|
enhanced overall value of the Oyu Tolgoi Project by enabling mining of high-grade copper
and gold mineralization earlier than previously estimated; |
|
|
§ |
|
generation of a significant source of near-term cash-flow that could be used to fund
development of the larger Hugo North block-cave mining operation; and, |
|
|
§ |
|
an expected reduction of up to one year in the time required to complete the underground
exploration and development program for the starter mine as a result of expected shorter
and shallower underground drifting distances than previously projected by the 2005
Integrated Development Plan (2005 IDP). |
The Company is continuing to assess whether an underground starter mine would provide a significant
and realistic benefit to the projects economics and risk profile. Adoption of the starter mine
concept could, among other things, positively affect the timing of the upgrading of underground
resources to reserve status.
2
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
Oyu Tolgoi updated Integrated Development Plan to be released in 2007
In 2006, Ivanhoe Mines engaged GRD Minproc Limited (GRD Minproc), of Perth,
Australia, to consolidate the work of other outside consultants and, with input from Rio Tinto,
prepare the 2007 IDP for Oyu Tolgoi. The 2007 IDP, expected to be completed in the second half of
2007, will update the work done for the 2005 IDP and build on GRD Minprocs previous reserve
estimation work.
Ivanhoe Mines has instructed GRD Minproc to integrate into its current work revisions that have
been made to the planned production process during the past 18 months and to present detailed
assessments of two mining scenarios:
|
|
|
The first scenario combines the open-pit reserves, as previously determined, with
high-grade, sub-level-caved material at a pre-feasibility level from the Hugo North
Deposit. |
|
|
|
|
The second scenario, a sensitivity analysis of the first scenario, envisages a
high-grade starter block cave instead of the sub-level cave as the initial underground
development, to be followed by the larger block caves at the Hugo North Deposit and also at
the Hugo South Deposit, as outlined in the 2005 IDP. |
The engineers also have been asked to assess the impact of a change in the concentrator design and
confirm early indications in the development of both scenarios that the concentrators throughput
likely will be significantly higher than the original 70,000 tonnes per day projected in the 2005
IDP and that the initial throughput approaching 100,000 tonnes per day is likely to increase
further as softer ore from the underground is brought into production.
The 2007 IDP is also expected to address the ultimate throughput at the Oyu Tolgoi mining complex,
which Ivanhoe Mines believes based on production from the open pit, having an estimated 29-year
mine life, being combined with production from block-caving at the Hugo North and Hugo South
deposits eventually could increase to a level of between 200,000 and 250,000 tonnes of ore per
day.
Oyu Tolgoi development engineering advanced to 30% completion during 2006
The development profile of the Oyu Tolgoi Project envisioned in the 2005 IDP has improved with
the introduction of Rio Tinto as Ivanhoe Mines strategic partner. Although the Ivanhoe Mines-Rio
Tinto partnership still is in its early stages, Rio Tintos resources and expertise are expected to
significantly benefit the project. The most tangible benefit to date has been the involvement of
Rio Tintos mine planning group, which has some of the most extensive block-caving expertise in the
international mining industry.
Fluor Corporation (Fluor), one of the worlds largest engineering and design companies, was
appointed as the engineering, procurement and construction manager for Oyu Tolgoi in 2005. Fluor,
supported by the Ivanhoe Mines project team and anticipating that the decision to proceed with mine
construction will be made during 2007, has made it a priority to ensure that Ivanhoe Mines is
positioned to meet the earliest possible start of production.
3
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
Engineering was advanced to 30% completion during 2006, key procurement activities were begun and
development of construction facilities progressed at the Oyu Tolgoi site.
During 2006, the project team, in a further step to mitigate project risk, made important changes
to the design of the concentrator plant. A principal change was the replacement of the original
large, single-SAG-and-dual-ball-mill configuration with a circuit comprised of two smaller SAG
mills, each coupled with two ball mills. The electric motors on the smaller SAG mills have a proven
operational record and will significantly reduce the perceived technical risk associated with the
single larger unit. The Company also expects that the dual-circuit configuration will allow Oyu
Tolgoi to continue production at reduced rates in the event of mill outages and that larger
throughput tonnages ultimately can be achieved with a dual-circuit operation.
With engineering and procurement activities well advanced, activities on site slowed during the
2006-2007 winter period, resulting in a reduced workforce. Site preparation to allow full
construction to commence on July 1, 2007, is scheduled to be complete in late May. Activities on
site are continuing to focus on the sinking of Shaft No. 1, excavation for the concentrator
building and development of the water-supply bore field.
Oyu Tolgoi resources expanded with ongoing drilling program
Ivanhoe Mines completed approximately 77,000 metres of drilling on the Oyu Tolgoi Project
during 2006, including exploration on the adjoining Entrée Gold-Ivanhoe Mines earn-in joint venture
property, Shivee Tolgoi. Significant geotechnical drilling also was undertaken to locate the shaft
farm, specifically Shaft No. 2, and evaluate the access route from the shaft farm into the Hugo
North block-cave production level. Sterilization drilling was done under the new concentrator site
selected by Fluor, the construction camp location and the primary crusher site.
The results of this drilling are included in the new Oyu Tolgoi Technical Report, and include
indicated resources on the 650-metre-long extension of Hugo North onto the Entrée-Ivanhoe Mines
Shivee Tolgoi property.
Exploration and sterilization drilling two kilometres east of a proposed airport site, which is
approximately six kilometres north of the northern end of the Hugo North extension, has resulted in
the discovery of low-grade copper-gold mineralization hosted in basaltic volcanic and quartz
monzodiorite intrusive rocks of similar age and composition to the Oyu Tolgoi deposits.
Approximately 12,400 metres of the drilling completed during the year were conducted in this area.
Drilling has been suspended on this target pending a review of the results and additional surface
geophysical work.
In March 2007, an updated Oyu Tolgoi Technical Report prepared by GRD Minproc was released. It
contained a revised estimate of the Projects mineral resources that had been independently
estimated by AMEC Americas Ltd. (AMEC) and is disclosed in detail starting on page 17.
4
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
MONGOLIA
COAL PROJECTS
Ivanhoe Mines Coal Division being merged with Asia Gold
In the second quarter of 2006, Ivanhoe Mines announced a plan to transfer the Companys
Mongolian Coal Division to Asia Gold Corp (Asia Gold) in exchange for approximately 82.6 million
shares of Asia Gold. This transaction was approved by the minority shareholders of Asia Gold on
August 8, 2006. Closing of the transaction is subject to the fulfillment of certain conditions
precedent, including completion of the transfer of certain mineral exploration licences in
Mongolia.
Ivanhoe Mines Coal Division holds 35 coal exploration licences that cover 1.68 million hectares of
land in the South Gobi area of Mongolia. In March 2007, Ivanhoe Mines was notified that 25 of these
licences, including two key licences at Nariin Sukhait which include all the main coal resources
had been transferred by the Mongolian Governments Cadastral Office. Ivanhoe Mines and Asia Gold
expect to close the transaction once the remainder of the coal exploration licences have been
approved for transfer which is expected to occur shortly.
Mine planning underway at Nariin Sukhait coal deposit
The Nariin Sukhait property is in the southwest corner of the Omnogovi Aimag (province) in
southern Mongolia. The deposit is within the Gurvantes Soum (township), 320 kilometres southwest of
the provincial capital of Dalanzadgad and 950 kilometres south of the national capital,
Ulaanbaatar. Nariin Sukhait is 45 kilometres north of the Mongolia-China border. At present, one
north-south, 450-kilometre-long rail line has been built in China up to the China-Mongolia border
at Ceke. A second east-west railway line to Ceke has been started and completion is estimated to be
in late 2007.
Total coal resources are contained in two separate fields, the South-East Field and the West Field.
An updated resource report was prepared in March 2007 by Norwest Corporation (Norwest) and is
disclosed on page 21.
Norwest commenced mine planning in 2006, with an internally prepared preliminary mine plan
completed in August 2006. Norwest recommends that a pre-feasibility study be undertaken in order to
define the coal reserve and economic viability of the Nariin Sukhait project. An updated mining
study and estimate of coal reserves, based in part in the updated resources reported in the Norwest
Report will be forthcoming upon completion of that study.
A secondary exploration focus in 2006 was deeper drilling on the Nariin Sukhait deposit. In
December 2006, Ivanhoe Mines commissioned Norwest to undertake a study to examine underground
mining potential at Nariin Sukhait. The main focus was on 5 Seam which had very thick intersections
and exhibited promising coking characteristics at depth. The study focused on identifying potential
underground mining methods and their applicability to 5 Seam. Additional drilling and engineering
studies will be required to delineate resources that may be amenable to extraction by underground
methods.
5
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
Exploration continuing at Tsagaan Tolgoi coal deposit
The Tsagaan Tolgoi coal project is approximately 105 kilometres west of Oyu Tolgoi. Initial
exploration in 2004, including deep-trenching and 46 drill holes, encountered significant coal
thicknesses along a strike length of six kilometres. During the fourth quarter of 2006, a 73-hole
drilling program was completed at Tsagaan Tolgoi. The geological model will be updated in 2007.
The objective of the drilling program is to delineate sufficient thermal coal resources to support
the preparation of a formal study on the development of a long-life, coal-fired power plant. This
plant is projected to have the capacity to supply electricity to the Oyu Tolgoi Project and the
residents of the sparsely populated southern part of Mongolia. Norwest Corporation developed a
preliminary mine design and mine plans in 2006. Preliminary engineering was conducted on various
power plant options that would use Tsagaan Tolgoi coal.
2007 exploration program to target new coal licences near Tavan Tolgoi coal deposit
In 2006, Ivanhoe Mines indirectly obtained seven coal exploration licences that closely
surround the Tavan Tolgoi coal project to the north, east and south. The land area covers over
665,000 hectares and has never been properly explored for coal. A field reconnaissance program on
the licences was carried out indirectly by Ivanhoe Mines in 2006. The exploration area has been
flown for copper-gold exploration using BHPB Falcon geophysics. Ivanhoe Mines has obtained the
aeromagnetic and aerogravity survey data and will be using the results of the upcoming analysis to
assist in delineating potential coal targets. A significant exploration program is being planned
for this project in 2007.
AUSTRALIA
Cloncurry IOCG Project expanding exploration
The Cloncurry Project covers an area of approximately 2,140 square kilometres in northwestern
Queensland, in Australias storied Mount Isa-Cloncurry mining district. Ivanhoe Mines recent
exploration at the Cloncurry Project has discovered a series of related Iron Oxide Copper Gold
(IOCG) systems, some of which have associated uranium.
Ivanhoe Mines has confirmed that the area hosts several high-grade IOCG systems, with associated
uranium, that are geologically similar to the nearby Ernest Henry Mine, and to the Olympic Dam and
Prominent Hill mines in South Australia. The Northwest Queensland Mineral Belt is one of the most
significant mineral producers in the world. It hosts the Century, Mount Isa, Hilton Group,
Cannington, Lady Loretta and Dugald River base-metal deposits, the Ernest Henry, Osborne and Eloise
IOCG mines, the Tick Hill gold deposit and the Mary Kathleen uranium deposit. Ivanhoe Mines
believes that the Cloncurry Project is one of the most prospective land positions in Australia for
the discovery of new, large-scale IOCG deposits.
The historic Kuridala copper mining district, situated in the northern part of Ivanhoe Mines
tenements, has numerous copper, gold and uranium prospects that were covered in a low-level
magnetic/radiometric aerial survey in November 2006. The survey results confirmed the existence of
uranium targets along structural zones, with associated magnetic anomalies. These targets will be
6
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
tested by geochemical surveys and drilling during 2007. Several uranium targets previously drill
tested by other companies, including Robert Heg, Elizabeth Anne, Dairy Bore and the Old Fence, are
being prepared for a drilling program in the second quarter of 2007.
Ivanhoe Mines increased exploration efforts at Cloncurry in 2007 also will include detailed
gravity surveys, closely-spaced diamond drilling to define a copper-gold resource at Swan, and an
aggressive reconnaissance drilling program to delineate additional mineralization at the highly
prospective Amethyst Castle and Metal Ridge targets. Two rigs that have been drilling since January
2007 will be joined by three additional rigs in the second quarter of 2007. A total of 10 new holes
had been completed at the Swan, Amethyst Castle and Metal Ridge targets before the end of March
2007.
KAZAKHSTAN
Bakyrchik Gold Project
The mine facilities remained on care-and-maintenance status during 2006. During the year,
Ivanhoe Mines reached an agreement with the Kazakhstan Government to extend the projects
exploration licences for five years, until 2010. The Company also received a similar five-year
extension for its investment commitment for the project.
On November 24, 2006, the Kazakhstan Governments 30% participatory interest was privatized via
tender. JSC Altynalmas, of Almaty, Kazakhstan, was the successful bidder.
A work program is being developed, including construction of a test rotary kiln, delineation
drilling to define the potential of an open-pit mine and the continuation of care-and-maintenance
requirements.
The Company is continuing to assess financing alternatives.
CHINA
Jinshan Gold Mines planning to start production in 2007
In September 2006, the Ministry of Land and Resources in Beijing, China, granted Jinshan Gold
Mines Inc. (Jinshan) (46% owned) the mining permit to commence commercial mining activities at the
CSH (217) Gold project in Chinas Inner Mongolia Autonomous Region. Jinshans application for
project registration was approved by the provincial government of the Inner Mongolia Autonomous
Region in July 2006.
In October 2006, Jinshan signed a 10-year mining contract with China National Railway Corporation,
a major Chinese mining contractor. The contractor commenced haul-road construction and open pit
preparation in January 2007, and began placing ore on the heap-leach pad in March. A 500-person
camp is housing contract miners and most of Jinshans start-up work force. The process plant is
expected to begin operations in the second quarter and Jinshan expects to be capable of commencing
commercial gold production in June or July of 2007.
Ivanhoe Mines equity accounts for its investment in Jinshan.
7
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars except where noted)
MYANMAR
Monywa Copper Project Joint Venture
Copper cathode production for the S&K Mine at the Monywa Copper Project in 2006 totalled
19,544 tonnes, representing a decrease of 43% over 2005. The copper price on the London Metal
Exchange averaged $3.05 a pound in 2006, compared to $1.67 a pound in 2005, representing an
increase of 83%. Subsequent to year end, Ivanhoe Mines received $15 million in dividend payments
from the joint venture.
During 2005 and 2006, Ivanhoe Mines engaged in discussions with interested parties, including a
South Korea-based corporation, about the potential sale of a significant portion of Ivanhoe Mines
50% interest in the S&K Mine. The discussions were initiated as part of Ivanhoe Mines stated
priorities of enhancing asset value for shareholders and generating capital for the development of
the Oyu Tolgoi project in Mongolia.
Separately, as part of the subsequent negotiation of the Rio Tinto strategic partnership that was
announced in October 2006, Ivanhoe Mines agreed to divest all of its business interests and assets
in Myanmar, including its indirect interest in the Monywa Copper Project. The Myanmar assets have
been transferred to an independent third-party trust (the Trust), pending their sale. The sole
purpose of the Trust is to sell the assets to one or more arms-length third parties. Ivanhoe
Mines only interest in the Trust is as an unsecured creditor under a promissory note issued by
the Trust on the transfer of the Myanmar assets that is to be repaid once the assets are sold.
For financial statement purposes, the Monywa Copper Project will be classified as investment held
for sale and will continue to be accounted for as such until the Monywa Copper Project is sold by
the Trust.
EXECUTIVE CHANGES
|
|
During the third quarter of 2006, David Woodall was appointed President of the Ivanhoe
Mines gold division. His responsibilities include overseeing the advancement of the Companys
gold exploration and mine development projects, which include the Bakyrchik gold mine
development project in Kazakhstan. |
|
|
|
Mr. Woodall has more than 21 years of professional experience in mining operations. Prior to
joining Ivanhoe Mines, he acquired extensive mine management experience at underground and
open-pit mines in Canada, Australia, Fiji and China. Among numerous mine operation assignments,
he worked as Mine General Manager for Placer Dome at the Musselwhite gold mine in Ontario,
Canada, the Kanowna Belle gold mine in Western Australia and the Osborne copper and gold mine in
Australia. He also worked in senior mine management positions with Robe River, Sino Gold and WMC
Resources. |
|
|
|
In the first quarter of 2007, Peter Reeve was appointed Chief Executive Officer of Ivanhoe
Australia Pty. Limited, a wholly-owned subsidiary company. The appointment is a significant
step in the development of Ivanhoe Mines Australian mineral exploration and development
projects, particularly the discoveries of iron oxide copper gold, with associated uranium, at
the Cloncurry project in the Mount Isa District of northwestern Queensland. |
8
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars except where noted)
Mr. Reeve has been involved in the Australian resources industry for approximately 25 years
after qualifying as a metallurgist in the early 1980s. His industry experience included
positions with Rio Tinto, Shell-Billiton and metallurgical consultant Normet Consulting before
he joined Goldman Sachs JBWere in investment management and corporate finance roles in the
Australian resource industry. Between 2001 and 2006, Mr. Reeve was a member of the Executive
Committee of Newcrest Mining, Australias largest gold producer, with responsibility for
corporate development and market-related duties for the group.
|
|
Also in the first quarter of 2007, Edward Flood stepped down as Deputy Chairman of Ivanhoe
Mines to pursue personal interests. Mr. Flood will continue to serve as a member of the Board
of Directors. |
FINANCIAL RESULTS
In 2006, Ivanhoe Mines recorded a net loss of $198.7 million (or $0.59 per share), compared to
a net loss of $89.8 million (or $0.29 per share) in 2005. The $108.9 million increase in the loss
from 2005 to 2006 was primarily due to a $79.7 million increase in exploration expenses. Included
in exploration expenses are shaft sinking and engineering and development costs for the Oyu Tolgoi
Project that have been expensed and not capitalized. Exploration costs are charged to operations in
the period incurred and often constitute the bulk of the Companys operations loss for that period.
It is expected that the Company will commence capitalizing costs of this nature once an Investment
Agreement is finalized. Results for the year also were affected by a $10.5 million increase in
general and administrative costs, a $4.8 million increase in interest income, less a $7.4 million
decrease in foreign exchange gains and a $16.3 million decrease in income from discontinued
operations.
9
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars except where noted)
INDEX
The MD&A is comprised of the following sections:
1. |
|
Selected Annual Financial Information |
|
2. |
|
Review of Operations |
|
A. |
|
Exploration Activities |
|
|
B. |
|
Myanmar Assets Held for Sale |
|
|
C. |
|
Discontinued Operations |
|
|
D. |
|
Administrative and Other Expenses |
3. |
|
Selected Quarterly Data |
|
4. |
|
Fourth Quarter |
|
5. |
|
Liquidity and Capital Resources |
|
6. |
|
Share Capital |
|
7. |
|
Outlook |
|
8. |
|
Off-Balance-Sheet Arrangements |
|
9. |
|
Contractual Obligations |
|
10. |
|
Changes in Accounting Policies |
|
11. |
|
Critical Accounting Estimates |
|
12. |
|
Recent Accounting Pronouncements |
|
13. |
|
Risks and Uncertainties |
|
14. |
|
Related-Party Transactions |
|
15. |
|
Disclosure Controls and Procedures |
|
16. |
|
Managements Report on Internal Control over Financial Reporting |
|
17. |
|
Qualified Persons |
|
18. |
|
Oversight Role of the Audit Committee |
|
19. |
|
Cautionary Statements |
|
20. |
|
Forward-Looking Statements |
|
21. |
|
Managements Report to Shareholders |
10
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars except where noted)
SELECTED ANNUAL FINANCIAL INFORMATION
This selected financial information is in accordance with U.S. GAAP. Please see Note 22 of the
annual consolidated financial statements for the reconciliation to Canadian GAAP.
($ in millions of U.S. dollars, except per share information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|
2006 |
|
2005 |
|
2004 |
|
Exploration expenses |
|
$ |
(213.0 |
) |
|
$ |
(133.3 |
) |
|
$ |
(98.2 |
) |
General and administrative |
|
|
(28.2 |
) |
|
|
(17.7 |
) |
|
|
(22.2 |
) |
Share of income from investment held for sale |
|
|
18.5 |
|
|
|
23.0 |
|
|
|
21.4 |
|
Foreign exchange gains |
|
|
0.4 |
|
|
|
7.8 |
|
|
|
4.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) from continuing operations |
|
$ |
(218.3 |
) |
|
$ |
(125.7 |
) |
|
$ |
(99.0 |
) |
Net income from discontinued operations |
|
|
19.6 |
|
|
|
35.9 |
|
|
|
4.5 |
|
|
Net loss |
|
$ |
(198.7 |
) |
|
$ |
(89.8 |
) |
|
$ |
(94.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) per share from continuing operations |
|
$ |
(0.65 |
) |
|
$ |
(0.41 |
) |
|
$ |
(0.35 |
) |
Net income per share from discontinued operations |
|
$ |
0.06 |
|
|
$ |
0.12 |
|
|
$ |
0.01 |
|
|
Net loss per share |
|
$ |
(0.59 |
) |
|
$ |
(0.29 |
) |
|
$ |
(0.34 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
703.2 |
|
|
$ |
396.8 |
|
|
$ |
376.3 |
|
|
11
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars except where noted)
REVIEW OF OPERATIONS
In 2006, Ivanhoe Mines recorded a net loss of $198.7 million (or $0.59 per share), compared to
a net loss of $89.8 million (or $0.29 per share) in 2005. The $108.9 million increase in the loss
from 2005 to 2006 was primarily due to a $79.7 million increase in exploration expenses. Included
in exploration expenses are shaft sinking and engineering and development costs for the Oyu Tolgoi
Project that have been expensed and not capitalized. Exploration costs are charged to operations in
the period incurred and often constitute the bulk of the Companys operations loss for that period.
It is expected that the Company will commence capitalizing costs of this nature once an Investment
Agreement is finalized. Results for the year also were affected by a $10.5 million increase in
general and administrative costs, a $4.8 million increase in interest income, less a $7.4 million
decrease in foreign exchange gains and a $16.3 million decrease in income from discontinued
operations.
A. EXPLORATION ACTIVITIES
Summary of exploration expenditures by location:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|
2006 |
|
2005 |
|
2004 |
|
Exploration expense ($ in millions) |
|
$ |
213.0 |
|
|
$ |
133.3 |
|
|
$ |
98.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage allocation |
|
|
|
|
|
|
|
|
|
|
|
|
Mongolia |
|
|
93.1 |
% |
|
|
92.0 |
% |
|
|
86.9 |
% |
China |
|
|
4.3 |
% |
|
|
3.3 |
% |
|
|
4.1 |
% |
Australia |
|
|
1.0 |
% |
|
|
1.1 |
% |
|
|
4.9 |
% |
Bulgaria |
|
|
0.6 |
% |
|
|
1.8 |
% |
|
|
1.0 |
% |
Myanmar |
|
|
0.5 |
% |
|
|
1.0 |
% |
|
|
2.3 |
% |
Other |
|
|
0.5 |
% |
|
|
0.8 |
% |
|
|
0.8 |
% |
|
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
Ivanhoe Mines is engaged primarily in exploration activities, although a significant portion
of its expenditures in Mongolia relate directly to development activities at its Oyu Tolgoi
Project.
In 2006, Ivanhoe Mines expensed $213.0 million in exploration and development activities, compared
to $133.3 million in 2005. Included in exploration costs are engineering and development costs for
the Oyu Tolgoi Project. It is expected that the Company will commence capitalizing costs of this
nature once an Investment Agreement is finalized.
The majority of the $213.0 million was spent on Ivanhoe Mines Mongolian properties ($198.2 million
in 2006, compared to $122.6 million in 2005), which consisted of the following exploration and
development costs:
12
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars except where noted)
MONGOLIA EXPLORATION EXPENSES
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
% of Total |
|
($ in millions) |
|
|
|
|
|
|
|
|
Oyu Tolgoi |
|
|
|
|
|
|
|
|
Concentrator and Infrastructure Engineering |
|
$ |
28.9 |
|
|
|
15 |
% |
Site Construction |
|
|
53.2 |
|
|
|
27 |
% |
Shaft No. 1 Sinking |
|
|
35.5 |
|
|
|
18 |
% |
Exploration |
|
|
14.2 |
|
|
|
7 |
% |
Owners Costs (includes non-cash stock-based compensation) |
|
|
29.4 |
|
|
|
15 |
% |
|
|
|
|
|
|
|
|
|
|
|
161.2 |
|
|
|
|
|
Coal Division |
|
|
10.1 |
|
|
|
5 |
% |
Other Mongolia Exploration (including Asia Gold) |
|
|
12.3 |
|
|
|
6 |
% |
UB Office |
|
|
14.6 |
|
|
|
7 |
% |
|
|
|
$ |
198.2 |
|
|
|
100 |
% |
|
Exploration and development expenditures capitalized in 2006 totalled $34.3 million, compared
to $32.2 million in 2005. During 2005, the $32.2 million capitalized mostly comprised the Oyu
Tolgoi Projects surface and collar infrastructure for Shaft No. 1. Expenditures related to the
deepening of Shaft No. 1 and related underground workings have been expensed. During 2006, the
$34.3 million capitalized related mainly to $16.8 million capitalized at Oyu Tolgoi for plant and
equipment, camp and office buildings and some remaining Shaft No. 1 surface costs. Also included in
2006 capital expenditures was $12.8 million capitalized by Jinshan during January to August 2006,
when it was a subsidiary, representing construction costs for its CSH (217) gold mine.
MONGOLIA
OYU TOLGOI
The Oyu Tolgoi Project consists of two deposit groups the Southern Oyu Deposits and the Hugo
Dummett Deposits that are contained within an aggregate area of approximately 6.3 kilometres
north-south by 3 kilometres east-west.
Ivanhoe Mines forms a strategic partnership with Rio Tinto
The principal event for Ivanhoe Mines in 2006 was the announcement on October 18, 2006, that
Rio Tinto plc (Rio Tinto) and the Company had reached an agreement (the Rio Tinto Agreement) to
form a strategic partnership involving an equity investment in the Company by Rio Tinto and,
through a joint Technical Committee, to oversee the engineering, construction and operation of
Ivanhoe Mines Oyu Tolgoi copper-gold mining complex in Mongolias South Gobi region. The Rio Tinto
Agreement creates a defined path for Rio Tinto to become the largest shareholder in the Company.
Under the terms of the agreement, Rio Tinto purchased approximately 37.1 million common shares at a
price of US$8.18, representing a 25% premium to the closing price on October 17, 2006, and a
premium of 30% to the 20-day moving-average share price prior to October 17. Rio Tinto now owns
approximately 9.92% of the Companys issued share capital.
13
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars except where noted)
The Rio Tinto Agreement provides for Rio Tinto to make investments in the equity of the Company,
under defined conditions, of up to approximately US$1.5 billion, inclusive of the first tranche of
financing. The Company has agreed to use at least 90% of the proceeds received from Rio Tinto to
finance the development of Oyu Tolgoi.
The next major milestone in the overall development of Oyu Tolgoi will be the receipt of all
remaining governmental approvals. Senior representatives of Ivanhoe Mines and Rio Tinto began
detailed discussions in January 2007 with a nine-member working group of Mongolian Government
officials. The discussions, which remain ongoing, are intended to produce a draft Investment
Agreement for Oyu Tolgoi that will be submitted for approvals by the Cabinet of the Mongolian
Government and the national Parliament.
Oyu Tolgoi development engineering advanced to 30% completion during 2006
The development profile of the Oyu Tolgoi Project envisioned in the 2005 IDP has improved with
the introduction of Rio Tinto as Ivanhoe Mines strategic partner. Although the Ivanhoe Mines-Rio
Tinto partnership still is in its early stages, Rio Tintos resources and expertise are expected to
significantly benefit the project. The most tangible benefit to date has been the involvement of
Rio Tintos mine planning group, which has some of the most extensive block-caving expertise in the
international mining industry.
Fluor Corporation (Fluor), one of the worlds largest engineering and design companies, was
appointed as the engineering, procurement and construction manager for Oyu Tolgoi in 2005. Fluor,
supported by the Ivanhoe Mines project team and anticipating that the decision to proceed with mine
construction will be made during 2007, has made it a priority to ensure that Ivanhoe Mines is
positioned to meet the earliest possible start of production.
Engineering was advanced to 30% completion during 2006, key procurement activities were begun and
development of construction facilities progressed at the Oyu Tolgoi site.
During 2006, the project team, in a further step to mitigate project risk, made important changes
to the design of the concentrator plant. A principal change was the replacement of the original
large, single-SAG-and-dual-ball-mill configuration with a circuit comprised of two smaller SAG
mills, each coupled with two ball mills. The electric motors on the smaller SAG mills have a proven
operational record and will significantly reduce the perceived technical risk associated with the
single larger unit. The Company also expects that the dual-circuit configuration will allow Oyu
Tolgoi to continue production at reduced rates in the event of mill outages and that larger
throughput tonnages ultimately can be achieved with a dual-circuit operation.
With engineering and procurement activities well advanced, activities on site slowed during the
2006-2007 winter period, resulting in a reduced workforce. Site preparation to allow full
construction to commence on July 1, 2007, is scheduled to be complete in late May. Activities on
site are continuing to focus on the sinking of Shaft No. 1, excavation for the concentrator
building and development of the water-supply bore field.
Shaft No. 1, the first deep underground development project of its type in Mongolia, passed the
900-metre mark in late March 2007. Shaft No. 1 will allow for additional exploration of the Oyu
Tolgoi
underground mine and also will provide limited initial production, and ultimately ventilation, to
the
14
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars except where noted)
underground mine. The completion of Shaft No. 1 will provide the key geotechnical information
required to advance the underground deposit to a feasibility level, a milestone currently expected
to be reached in 2008.
Shaft No. 2 is expected to be the initial primary underground production and service shaft. Work
completed in 2006 involved shaft engineering and surface infrastructure. Additional technical
evaluation on the shaft location is nearing completion and a decision to commence the pre-sink and
collar construction is expected in April 2007.
Shaft No. 2 is critical for underground production and it is one of the key elements on which Rio
Tintos input was sought before major decisions concerning its construction were made. In January
2007, Ivanhoe Mines ordered the auxiliary hoist for Shaft No. 2 and began seeking bids for the main
friction hoists to allow for the expected start of full construction in July 2007.
Economics of high-grade starter mine at Hugo North under study
During 2006, Ivanhoe Mines continued construction, engineering and planning for the
development of the Oyu Tolgoi copper-gold project. The activity positioned Oyu Tolgoi to achieve
first production as early as possible following the start of full-scale construction. Ivanhoe Mines
expects that the first production from Oyu Tolgoi could begin within 30 months of the receipt of
the necessary government approvals, contingent upon timely delivery of key long-lead-time
equipment.
Planning and development activities throughout 2006 were focused on the underground, high-grade
Hugo North Deposit although it is expected that the initial production at Oyu Tolgoi will consist
mainly of ore mined from the open pit on the Southern Oyu Deposits.
Work underway on a new Integrated Development Plan (2007 IDP) suggests that an underground starter
mine at the Hugo North Deposit would enhance the projects initial development. This scenario is
one of the leading cases being evaluated by the Ivanhoe Mines-Rio Tinto joint development team.
Conceptually, a starter mine would target a high-grade portion of Hugo North that is accessible
from the Shaft No. 1 infrastructure already being developed for the larger block-cave mine.
Beginning in mid-2010, the ore from this area likely would supply the concentrator with a mill feed
of approximately seven million tonnes per annum at a copper grade of between 2.0% and 2.5% in
addition to ore being supplied from the Southern Oyu open pit.
Projected benefits of developing an underground starter mine could include:
|
§ |
|
a reduction in the initial capital costs and technical risks associated with a large,
underground block-cave mining operation; |
|
|
§ |
|
enhanced overall value of the Oyu Tolgoi Project value by enabling mining of high-grade
copper and gold mineralization earlier than previously estimated; |
|
|
§ |
|
generation of a significant source of near-term cash-flow that could be used to fund
development of the larger Hugo North block-cave mining operation; and, |
15
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars except where noted)
|
§ |
|
an expected reduction of up to one year in the time required to complete the underground
exploration and development program for the starter mine as a result of expected shorter
and shallower underground drifting distances than previously projected by the 2005 IDP. |
The Company is continuing to assess whether an underground starter mine would provide a significant
and realistic benefit to the projects economics and risk profile. Adoption of the starter-mine
concept could, among other things, positively affect the timing of the upgrading of underground
resources to reserve status.
Oyu Tolgoi updated Integrated Development Plan to be released in 2007
In 2006, Ivanhoe Mines engaged GRD Minproc Limited (GRD Minproc), of Perth,
Australia, to consolidate the work of other outside consultants and, with input from Rio Tinto,
prepare the 2007 Integrated Development Plan for Oyu Tolgoi. The 2007 IDP, expected to be completed
in the second half of 2007, will update the work done for the 2005 IDP and build on GRD Minprocs
previous reserve estimation work.
Ivanhoe Mines has instructed GRD Minproc to integrate into its current work revisions that have
been made to the planned production process during the past 18 months and to present detailed
assessments of two mining scenarios:
|
|
|
The first scenario combines the open-pit reserves, as previously determined, with
high-grade, sub-level-caved material at a pre-feasibility level from the Hugo North
Deposit. |
|
|
|
|
The second scenario, a sensitivity analysis of the first scenario, envisages a
high-grade starter block cave instead of the sub-level cave as the initial underground
development, to be followed by the larger block caves at the Hugo North Deposit and also at
the Hugo South Deposit, as outlined in the 2005 IDP. |
The engineers also have been asked to assess the impact of a change in the concentrator design, and
confirm early indications in the development of both scenarios that the concentrators throughput
likely will be significantly higher than the original 70,000 tonnes per day projected in the 2005
IDP and that the initial throughput approaching 100,000 tonnes per day is likely to increase
further as softer ore from the underground is brought into production.
The 2007 IDP is also expected to address the ultimate throughput at the Oyu Tolgoi mining complex,
which Ivanhoe Mines believes based on production from the open pit, having an estimated 29-year
mine life, being combined with production from block-caving at the Hugo North and Hugo South
deposits eventually could increase to a level of between 200,000 and 250,000 tonnes of ore per
day.
Oyu Tolgoi resources expanded with ongoing drilling program
Ivanhoe Mines completed approximately 77,000 metres of drilling on the Oyu Tolgoi Project
during 2006, including exploration on the adjoining Entrée Gold-Ivanhoe Mines earn-in joint venture
property, Shivee Tolgoi. Significant geotechnical drilling also was undertaken to locate the shaft
farm, specifically Shaft No. 2, and evaluate the access route from the shaft farm into the Hugo
North block-
cave production level. Sterilization drilling was done under the new concentrator site selected by
Fluor, the construction camp location and the primary crusher site.
16
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars except where noted)
The results of this drilling are included in the new Oyu Tolgoi Technical Report, published below,
and include indicated resources on the 650-metre-long extension of Hugo North.
Exploration and sterilization drilling two kilometres east of a proposed airport site, which is
approximately six kilometres north of the northern end of the Hugo North extension, has resulted in
the discovery of low-grade copper-gold mineralization hosted in basaltic volcanic and quartz
monzodiorite intrusive rocks of similar age and composition to the Oyu Tolgoi deposits.
Approximately 12,400 metres of the drilling completed during the year were conducted in this area.
Drilling has been suspended on this target pending a review of the results and additional surface
geophysical work.
Geotechnical drilling intended to further define the geotechnical characteristics of the Hugo North
Deposit continued through Q406 and into Q107. A total of four holes have been collared
immediately north of the Entrée JV property line and completed and two additional holes are in
progress. Drilling south into the axis of Ivanhoe Mines 100%-owned Hugo North Deposit is designed
to provide pre-feasibility-level information on the caving characteristics of the deposit and
geotechnical characteristics of the North West Boundary Fault, which will influence future
development decisions on the Hugo North Extension Deposit.
In March 2007, an updated Oyu Tolgoi Technical Report prepared by GRD Minproc was released. It
contained a revised estimate of the Projects mineral resources at the Hugo North Deposit that had
been independently estimated by AMEC Americas Ltd. (AMEC).
Total Oyu Tolgoi Project Resources (1)(2)
(based on a 0.60% copper equivalent cut-off ) (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contained Metal(5) |
Resource |
|
|
|
|
|
Cu |
|
Au |
|
CuEq(4) |
|
Cu |
|
|
|
|
|
CuEq(4) |
Category |
|
Tonnes |
|
(%) |
|
(g/t) |
|
(%) |
|
(000 lbs) |
|
Au (ounces) |
|
(000 lbs) |
Measured |
|
|
101,590,000 |
|
|
|
0.64 |
|
|
|
1.10 |
|
|
|
1.34 |
|
|
|
1,430,000 |
|
|
|
3,590,000 |
|
|
|
3,000,000 |
|
Indicated |
|
|
1,285,840,000 |
|
|
|
1.38 |
|
|
|
0.42 |
|
|
|
1.65 |
|
|
|
39,120,000 |
|
|
|
17,360,000 |
|
|
|
46,770,000 |
|
Measured + Indicated |
|
|
1,387,430,000 |
|
|
|
1.33 |
|
|
|
0.47 |
|
|
|
1.63 |
|
|
|
40,680,000 |
|
|
|
20,970,000 |
|
|
|
49,860,000 |
|
Inferred |
|
|
1,397,130,000 |
|
|
|
0.98 |
|
|
|
0.24 |
|
|
|
1.13 |
|
|
|
30,190,000 |
|
|
|
10,780,000 |
|
|
|
34,810,000 |
|
|
|
|
Notes: |
|
(1) |
|
Mineral resources are not mineral reserves until they have demonstrated economic
viability based on a feasibility study or pre-feasibility study. Mineral resources
are reported inclusive of mineral reserves. |
|
(2) |
|
This chart includes estimated resources on the Hugo North Extension Deposits
located on the Shivee Tolgoi Property, which is owned by Entrée but subject to
earn-in rights by Ivanhoe Mines. The estimate includes indicated resources of
117,000,000 tonnes grading 1.8% copper and 0.61 g/t gold and inferred resources of
95,500,000 tonnes grading 1.15% copper and 0.31 g/t gold at a 0.6% cut-off grade on
the Hugo North Extension. |
|
(3) |
|
The 0.6% CuEq cut-off has been used to enable comparison with previous
disclosures. |
|
(4) |
|
CuEq has been calculated using assumed metal prices ($0.80/lb. for copper and
$350/oz for gold); %CuEq. = % Cu + Au (g/t) x (11.25/17.64). |
|
(5) |
|
The contained gold and copper represent estimated contained metal in the ground
and have not been adjusted for the metallurgical recoveries of gold and copper. |
17
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars except where noted)
Resources for Oyu Tolgoi can be further split into the Southern Oyu open-pit resources,
tabulated at a 0.3% copper equivalent cut-off, and the Hugo Dummett underground resources,
tabulated at a 0.6% copper equivalent cut-off. The base case CuEq cut-off grade assumptions for
each deposit were determined using cut-off grades applicable to mining operations exploiting
similar deposits. The updated resource tables are shown below:
Southern Oyu Deposits(1)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contained Metals(4) |
Resource |
|
Tonnage |
|
Cu |
|
Au |
|
CuEq |
|
Cu |
|
Au |
|
CuEq (3) |
Category |
|
(t) |
|
(%) |
|
(g/t) |
|
(%) (3) |
|
(000 lb) |
|
(oz) |
|
(000 lb) |
Measured |
|
|
126,690,000 |
|
|
|
0.58 |
|
|
|
0.93 |
|
|
|
1.17 |
|
|
|
1,620,000 |
|
|
|
3,790,000 |
|
|
|
3,268,000 |
|
Indicated |
|
|
992,400,000 |
|
|
|
0.47 |
|
|
|
0.27 |
|
|
|
0.64 |
|
|
|
10,283,000 |
|
|
|
8,610,000 |
|
|
|
14,002,000 |
|
Measured +
Indicated |
|
|
1,119,100,000 |
|
|
|
0.48 |
|
|
|
0.35 |
|
|
|
0.70 |
|
|
|
11,843,000 |
|
|
|
12,590,000 |
|
|
|
17,270,000 |
|
Inferred |
|
|
266,820,000 |
|
|
|
0.34 |
|
|
|
0.23 |
|
|
|
0.48 |
|
|
|
2,000,000 |
|
|
|
1,970,000 |
|
|
|
2,824,000 |
|
|
|
|
Notes: |
|
|
|
(1) |
|
Mineral resources are not mineral reserves until they have demonstrated economic
viability based on a feasibility study or pre-feasibility study. Mineral resources are
reported inclusive of mineral reserves. |
|
(2) |
|
The resources shown above at a 0.3% CuEq cut-off are inclusive of the resources
tabulated at the 0.6 CuEq cut-off in the consolidated resource statement. |
|
(3) |
|
CuEq has been calculated using assumed metal prices ($0.80/lb. for copper and
$350/oz for gold); %CuEq. = % Cu + Au (g/t) x (11.25/17.64). |
|
(4) |
|
The contained gold and copper represent estimated contained metal in the ground and
have not been adjusted for the metallurgical recoveries of gold and copper. |
Hugo Dummett Deposit Mineral Resources at 0.6% copper equivalent cut-off(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contained Metal(3) |
|
|
Tonnage |
|
Cu |
|
Au |
|
CuEq(2) |
|
Cu |
|
Au |
|
CuEq(2) |
Deposit |
|
(t) |
|
(%) |
|
(g/t) |
|
(%) |
|
(000 lb) |
|
(oz) |
|
(000 lb) |
Indicated (Hugo North) |
|
|
703,200,000 |
|
|
|
1.82 |
|
|
|
0.39 |
|
|
|
2.07 |
|
|
|
28,215,000 |
|
|
|
8,820,000 |
|
|
|
32,091,000 |
|
Indicated (Hugo North
Extension)(4) |
|
|
117,000,000 |
|
|
|
1.80 |
|
|
|
0.61 |
|
|
|
2.19 |
|
|
|
4,643,000 |
|
|
|
2,290,000 |
|
|
|
5,649,000 |
|
Inferred (Hugo North) |
|
|
722,800,000 |
|
|
|
0.97 |
|
|
|
0.30 |
|
|
|
1.17 |
|
|
|
15,457,000 |
|
|
|
6,970,000 |
|
|
|
18,644,000 |
|
Inferred (Hugo North
Extension )(4) |
|
|
95,500,000 |
|
|
|
1.15 |
|
|
|
0.31 |
|
|
|
1.35 |
|
|
|
2,421,000 |
|
|
|
950,000 |
|
|
|
2,842,000 |
|
Inferred (Hugo South) |
|
|
490,330,000 |
|
|
|
1.05 |
|
|
|
0.09 |
|
|
|
1.11 |
|
|
|
11,350,000 |
|
|
|
1,420,000 |
|
|
|
12,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indicated (Hugo North and
Hugo North Extension (4)) |
|
|
820,200,000 |
|
|
|
1.82 |
|
|
|
0.42 |
|
|
|
2.08 |
|
|
|
32,910,000 |
|
|
|
11,080,000 |
|
|
|
37,611,000 |
|
Inferred (Hugo North, Hugo South
and Hugo North
Extension (4)) |
|
|
1,308,630,000 |
|
|
|
1.02 |
|
|
|
0.22 |
|
|
|
1.16 |
|
|
|
29,430,000 |
|
|
|
9,260,000 |
|
|
|
33,470,000 |
|
|
|
|
Notes: |
|
|
|
(1) |
|
Mineral resources are not mineral reserves until they have demonstrated economic
viability based on a feasibility study or pre-feasibility study. Mineral resources are
reported inclusive of mineral reserves. |
18
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars except where noted)
|
|
|
(2) |
|
CuEq has been calculated using assumed metal prices ($0.80/lb. for copper and $350/oz
for gold); %CuEq.= % Cu + Au (g/t) x (11.25/17.64). |
|
(3) |
|
The contained gold and copper represent estimated contained metal in the ground and
have not been adjusted for the metallurgical recoveries of gold and copper. |
|
(4) |
|
The Hugo North Extension is located on the Shivee Tolgoi Property, which property is
owned by Entrée but subject to earn-in rights in favour of Ivanhoe Mines. |
The new GRD Minproc report also restated the previously published Open Pit Reserves for the
Southern Oyu Deposits. The reserve tabulation as of March 2007 is shown below:
Southern Oyu Mineral Reserves March 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CuEq |
|
Recovered |
|
Recovered |
|
|
|
|
|
|
NSR |
|
Copper |
|
Gold |
|
Grade |
|
Copper |
|
Gold |
Class |
|
Ore (tonnes) |
|
$/t |
|
(%) |
|
(g/t ) |
|
(%) |
|
(000 lbs) |
|
(ounces) |
Proven |
|
|
127,000,000 |
|
|
|
15.91 |
|
|
|
0.58 |
|
|
|
0.93 |
|
|
|
1.18 |
|
|
|
1,451,000 |
|
|
|
2,833,000 |
|
Probable |
|
|
803,000,000 |
|
|
|
7.96 |
|
|
|
0.48 |
|
|
|
0.27 |
|
|
|
0.66 |
|
|
|
7,431,000 |
|
|
|
4,768,000 |
|
Total |
|
|
930,000,000 |
|
|
|
9.05 |
|
|
|
0.50 |
|
|
|
0.36 |
|
|
|
0.73 |
|
|
|
8,882,000 |
|
|
|
7,601,000 |
|
The key parameters in determining the Mineral Reserves are (i) assumed metal prices of $400/oz gold
and $1.00/lb copper; and (ii) block value Net Smelter Return (NSR) cut-off grades of $3.54 per
tonne for Southwest Oyu and $3.39 per tonne for Central Oyu. There were no changes in the mineral
reserves compared to the previously stated mineral reserves.
Further details are available in the 2006 Annual Information Form on www.sedar.com.
MONGOLIA
Other copper-gold exploration projects
Ivanhoe Mines exploration activities during 2006 focused on the Baruun Tal and Undur Naran
porphyry targets in the East Gobi region, north of Oyu Tolgoi. Trenching, soil geochemistry and
ground magnetic surveys were carried out at both projects. Fieldwork at remote sites ceased in
October due to the onset of winter. Work in late 2006 mainly involved analysis of results and
preparation of an annual exploration report for each licence to be submitted to the Mongolian
Governments Cadastral Office.
The Undur Naran project is 20 kilometres northeast of the Oyut Ulaan Project. Trenching totalled
3,768 metres (13 trenches) and targeted two areas (the North and the Central zones) of subcropping
stockworked syenites that returned anomalous gold and copper rock-chip assays. The most significant
intercepts are associated with stockwork quartz-sulphide veins. Further mapping and rock-chip
sampling is planned at the Undur Naran project.
The Baruun Tal project is 50 kilometres west of Ivanhoe Mines Kharmagtai Project. The numerous
prospects at the Baruun Tal project, including the BTT and BTU prospects, are located in an area 12
kilometres by 5 kilometres, much of it under cover. Preliminary trenching totalled 7,625 metres
over
32 trenches and was mostly in the areas under cover along strike from anomalous rock-chip samples.
Porphyry, epithermal and mesothermal vein targets are defined. At the BTU prospect, an area 20
metres by 100 metres, of sheeted to stockwork quartz-hematite-malachite-chalcopyrite veins hosted
in silica-sericite-albite altered monzodiorite, returned 10 metres at 2.4 ppm gold and 0.36% Cu
(including 2 metres at 10.60 ppm gold). A trench on the tourmaline breccias at BTT intercepted 22
metres at 0.81% Cu, including narrow gold intercepts. Trench intercepts at BTU included 18 metres
at
19
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars except where noted)
0.51% Cu from granodiorites with hematite-malachite fracture fill. Further reconnaissance is
required over this large prospect.
Work at other advanced prospects included the definition of drill sites, based on previous data and
infill work, at the Chandman Uul and Southeast prospects (the latter at the Oyut Ulaan prospect).
Soil geochemistry surveys were carried out at the Bronze Fox prospect, as well as at the
gold-anomalous Target 6429 immediately north of the Tsagaan Suvarga deposit. Stream sediment
sampling defined anomalies west of Tsagaan Suvarga and in The Gap area, (the zone between the
Bronze Fox and Oyut Ulaan trends, where there are few known mineral occurrences). These
stream-sediment anomalies will be followed up in 2007.
New medium-priority targets include Baga Haich, near Tsagaan Tolgoi, where granite-hosted
quartz-chalcopyrite veins outcrop over an area of 560 metres by 360 metres. Eleven of the 67
samples assayed 0.24% to 1.78% copper, while 18 returned 104 to 6340 ppm molybdenum.
The Falcon airborne gravity survey was completed in April 2006 by BHP Billiton Exploration (BHPB).
After BHPB and Ivanhoe Mines geologists reviewed the data, BHPB carried out gradient-array IP and
Vector IP over the numerous targets defined by the survey. First-pass IP targets were followed up
with dipole-dipole surveys. Drilling of BHPBs higher priority targets began in November 2006 at
the Ulaan Khud prospect, immediately north of Oyu Tolgoi. Results at this prospect were not
significant. BHPBs dipole-dipole surveys and drilling will continue in 2007. BHPB had spent
approximately $6 million by the end of 2006.
The tenement relinquishment program, based on further sterilization reconnaissance, continued
throughout 2006. Approximately 2.1 million hectares of the approximately 8.8 million hectares held
at the beginning of 2006 were relinquished and an additional 3.7 million hectares are scheduled to
be relinquished in 2007.
MONGOLIA
COAL PROJECTS
Ivanhoe Mines Coal Division being merged with Asia Gold
In the second quarter of 2006, Ivanhoe Mines announced a plan to transfer the Companys
Mongolian Coal Division to Asia Gold in exchange for approximately 82.6 million shares of Asia
Gold. This transaction was approved by the minority shareholders of Asia Gold on August 8, 2006.
Closing of the transaction is subject to the fulfillment of certain conditions precedent, including
completion of the transfer of certain mineral exploration licences in Mongolia.
Ivanhoe Mines Coal Division holds 35 coal exploration licences that cover 1.68 million hectares of
land in the South Gobi area of Mongolia. In March 2007, Ivanhoe Mines was notified that 25 of these
licences, including two key licences at Nariin Sukhait which include all the main coal resources
had been transferred by the Mongolian Governments Cadastral Office. Ivanhoe Mines and Asia Gold
expect to close the transaction once the remainder of the coal exploration licences have been
approved for transfer which is expected to occur shortly.
20
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars except where noted)
Mine planning underway at Nariin Sukhait coal deposit
The Nariin Sukhait property is in the southwest corner of the Omnogovi Aimag (province) in
southern Mongolia. The deposit is within the Gurvantes Soum (township), 320 kilometres southwest of
the provincial capital of Dalanzadgad and 950 kilometres south of the national capital,
Ulaanbaatar. Nariin Sukhait is 45 kilometres north of the Mongolia-China border. At present, one
north-south, 450-kilometre-long rail line has been built in China up to the China-Mongolia border
at Ceke. A second east-west railway line to Ceke has been started and completion is estimated to be
in late 2007.
Total coal resources are contained in two separate fields, the South-East Field and the West Field.
An updated resource report was prepared in March 2007 by Norwest Corporation (Norwest); the details
are summarized as follows:
CLASSIFICATION OF RESOURCES GEOLOGY TYPE: COMPLEX (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resources at Nariin Sukhait |
|
|
ASTM |
|
Measured |
|
Indicated |
|
Inferred |
Resource Area |
|
Coal Rank |
|
(million tonnes) |
|
(million tonnes) |
|
(million tonnes) |
South-East Field |
|
hvB to hvA |
|
|
49,752,000 |
|
|
|
15,987,000 |
|
|
|
6,502,000 |
|
West Field |
|
hvB to hvA |
|
|
55,144,000 |
|
|
|
28,698,000 |
|
|
|
22,601,000 |
|
Total |
|
|
|
|
|
149,580,000 |
|
|
29,103,000 |
|
|
|
|
(1) |
|
Mineral resources are not mineral reserves until they have demonstrated economic
viability based on a feasibility study or pre-feasibility study. |
Criteria Used To Define Assurance of Existence For Coals In Complex Geology Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assurance of Existence Category |
Criteria |
|
Measured |
|
Indicated |
|
Inferred |
Cross-section spacing (metres) |
|
|
150 |
|
|
|
300 |
|
|
|
600 |
|
Minimum number of data points per section |
|
|
3 |
|
|
|
3 |
|
|
|
3 |
|
Mean data point spacing (metres) |
|
|
100 |
|
|
|
200 |
|
|
|
400 |
|
Maximum data point spacing (metres) |
|
|
200 |
|
|
|
400 |
|
|
|
800 |
|
Norwest commenced mine planning in 2006, with an internally prepared preliminary mine plan
completed in August 2006. Norwest recommends that a pre-feasibility study be undertaken in order to
define the coal reserve and economic viability of the Nariin Sukhait project. An updated mining
study and estimate of coal reserves, based in part in the updated resources reported in the Norwest
Report will be forthcoming upon completion of that study.
A secondary exploration focus in 2006 was deeper drilling on the Nariin Sukhait deposit. In
December 2006, Ivanhoe Mines commissioned Norwest to undertake a study to examine underground
mining potential at Nariin Sukhait. The main focus was on 5 Seam which had very thick intersections
and exhibited promising coking characteristics at depth. The study focused on identifying potential
underground mining methods and their applicability to 5 Seam. Additional drilling and engineering
studies will be required to delineate resources that may be amenable to extraction by underground
methods.
21
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars except where noted)
Recent other coal exploration in the South Gobi
Recent exploration has been dedicated to a prospect identified approximately 16 kilometres
eastsoutheast of the SouthEast field of Nariin Sukhait. This coal occurrence initially was called
N Field. An additional coal occurrence located approximately 8 kilometres east of N Field has been
identified as O Field.
The Coal Division has focused its exploration on the Upper Permian strata exposed in the Nariin
Sukhait trend. Extensive trenching has been carried out on both coal occurrences and has been
followed up by drilling in 2005 and 2006. Five individual seams have been identified in the N Field
and two in the O Field. Coal thicknesses of over 60 metres have been logged in the 2006 program.
This project will be included in the 2007 exploration program.
Exploration continuing at Tsagaan Tolgoi coal deposit
The Tsagaan Tolgoi coal project is approximately 105 kilometres west of Oyu Tolgoi. Initial
exploration in 2004, including deep-trenching and 46 drill holes, encountered significant coal
thicknesses along a strike length of six kilometres. During the fourth quarter of 2006, a 73-hole
drilling program was completed at Tsagaan Tolgoi. The geological model will be updated in 2007.
The objective of the drilling program is to delineate sufficient thermal coal resources to support
the preparation of a formal study on the development of a long-life, coal-fired power plant. This
plant is projected to have the capacity to supply electricity to the Oyu Tolgoi Project and the
residents of the sparsely populated southern part of Mongolia. Norwest developed a preliminary mine
design and mine plans in 2006. Preliminary engineering was conducted on various power plant options
that would use Tsagaan Tolgoi coal.
2007 exploration program to target new coal licences near Tavan Tolgoi coal deposit
In 2006, Ivanhoe Mines indirectly obtained seven coal exploration licences that closely
surround the Tavan Tolgoi coal project to the north, east and south. The land area covers over
665,000 hectares and has never been properly explored for coal. A field reconnaissance program on
the licences was carried out indirectly by Ivanhoe Mines in 2006. The exploration area has been
flown for copper-gold exploration using BHPB Falcon geophysics. Ivanhoe Mines has obtained the
aeromagnetic and aerogravity survey data and will be using the results of the upcoming analysis to
assist in delineating potential coal targets. A significant exploration program is being planned
for this project in 2007.
Other
The remainder of the licences being held by Ivanhoe Mines Coal Division are in various stages
of assessment for additional exploration or drilling to determine their viability for coal
development.
22
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
AUSTRALIA
Cloncurry IOCG Project expanding exploration
Ivanhoe Mines tenements are located in northwestern Queensland, Australia, centred
approximately 90 kilometres south of Cloncurry and 150 kilometres southeast of Mount Isa. The
tenements cover approximately 2,100 square kilometres of Exploration Permits for Minerals (13 EPMs)
and 4,500 hectares of mineral leases (20 MLs). In addition, applications have been lodged with the
Queensland Department of Natural Resources, Mines and Water for three new MLs totalling
approximately 240 hectares and three new EPMs totalling 101 sub-blocks (320 square kilometres).
Ivanhoe Mines has a 100% interest in these properties and has the exclusive right to explore for
all precious and base metals within the boundaries of the tenements with the exception of a joint
venture area totalling 115 square kilometres, designated the Osborne Joint Venture, which is under
option to Barrick (Osborne) Pty. Ltd. Barrick has a 50% interest in 31 sub-blocks and an 85%
interest in five sub-blocks, known as the Mill Feed JV.
Ivanhoe Mines recent exploration at the Cloncurry project has discovered a series of related iron
oxide copper gold (IOCG) systems, some of which have associated uranium.
At Amethyst Castle, the 2006 RC drilling, followed by a diamond drilling program, confirmed the
presence of a large-scale breccia body hosting IOCG mineralization, with gold, copper and
associated uranium. Further drilling is planned in 2007 after a gravity survey.
Six diamond holes totalling 2,200 metres were drilled into additional geophysical and geological
targets. High-grade, breccia-hosted chalcocite mineralization was intersected in two of the drill
holes. These intercepts are IOCG fluidized hematite matrix multi-clastic breccias, with chalcocite
present in both the clasts and matrix. Chalcocite, bornite, chalcopyrite with carbonate veins and
vein breccias occur in one of the drill holes, while similar assemblages also were noted with
silica, albite and hematite alteration in the second drill hole.
At the Swan discovery, 12 diamond holes, totalling 6,083 metres, were drilled during 2006 and
further drilling is extending mineralization 300 metres to the north. Copper and gold
mineralization is associated with widespread, intense alteration with native copper, chalcocite,
magnetite, pyrite and chalcopyrite veinlets. Swan is located within a large, distinctive magnetic
anomaly that also underlies the former Mt. Elliot mine and Swell and northern Gossan prospects.
This deep-seated feature appears to have a circular form, with a diameter of approximately one
kilometre. Preliminary drilling and the widespread alteration at these targets indicate that they
are all related to one large mineralized system that remains to be tested at depth. Extensive
drilling is being planned to test this concept. Testing for potential oxide and primary copper-gold
resources at Swan will be evaluated by pattern drilling, initially at 100-metre drill centres.
In October 2006, drilling moved onto a third prospect, Metal Ridge North, where surface copper
geochemical anomalies, combined with magnetic and conductivity features, were the target for a
six-hole diamond-drill program and a six-hole RC-drill program. The mineralization occurs along a
northerly trend for several kilometres associated with carbonaceous shales and intense magnetite,
albite, diopside alteration.
23
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
The historic Kuridala copper mining district, situated in the northern part of Ivanhoe Mines
tenements, has numerous copper, gold and uranium prospects that were covered in a low-level
magnetic/radiometric aerial survey in November 2006. The results from the survey confirmed the
existence of uranium targets along structural zones, with associated magnetic anomalies. These
targets will be tested by geochemical surveys and drilling during 2007. Several uranium targets
previously drill-tested by other companies, including Robert Heg, Elizabeth Anne, Dairy Bore and
the Old Fence, are being prepared for a drilling program in the second quarter of 2007.
Ivanhoe Mines increased exploration efforts at Cloncurry in 2007 also will include detailed
gravity surveys, closely-spaced diamond drilling to define a copper-gold resource at Swan, and an
aggressive reconnaissance drilling program to delineate additional mineralization at the highly
prospective Amethyst Castle and Metal Ridge targets. Two rigs that have been drilling since January
2007 will be joined by three additional rigs in the second quarter of 2007. A total of 10 new holes
had been completed at the Swan, Amethyst Castle and Metal Ridge targets before the end of March
2007.
KAZAKHSTAN
Bakyrchik Gold Project
The mine facilities remained on careand-maintenance status during 2006. Expenditures for 2006
totalled $4.4 million compared to $3.7 million in 2005.
During the year, Ivanhoe Mines reached an agreement with the Kazakhstan Government to extend the
projects exploration licences for five years, until 2010. The Company also received a similar
five-year extension for its investment commitment for the project.
On November 24, 2006, the Kazakhstan Governments 30% participatory interest was privatized via
tender. JSC Altynalmas, of Almaty, Kazakhstan, was the successful bidder.
A work program is being developed to meet the obligations of the Sale and Purchase Agreement and
Subsoil Use Contract amendments. This program includes construction of a test rotary kiln,
delineation drilling to define the potential open-pit mine and the continuation of the operations
careand-maintenance requirements.
Work was started in November 2006 on a data compilation and verification program as part of the
development of an updated 3D geological model. Once complete, a program of diamond drilling and
surface exploration aimed at delineating the projects open-pit potential will be prepared and
submitted for regulatory approval in Kazakhstan. Ivanhoe Mines plans to re-establish a team of
Kazakh geologists at the mine site, which will be assisted by key senior geologists seconded from
the exploration team at Oyu Tolgoi.
The Company is continuing to assess financing alternatives.
24
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
ASIA GOLD (45% owned)
The status of the coal transaction between Ivanhoe Mines and Asia Gold is discussed on page 20
in the Mongolian Coal Project section of this MD&A.
Exploration results from the Khongor porphyry copper-gold project in Southern Mongolia confirm a
mineralized strike length of two kilometres. About half of this strike length (Khongor North) is
within the West Falcon Gobi Property, a joint venture property with BHP Billiton (BHPB). The
balance is on the Tsakhir licence, referred to as Khongor South, which is optioned by Asia Gold
from Solomon Resources Limited (Solomon) and Gallant Minerals Ltd (Gallant).
In August 2006, further work was completed to improve the resolution of the IP survey conducted in
April 2006. The Phase 2 drilling program, which was completed in early July 2006, intersected
high-grade mineralization and further mapping, sampling and ground magnetic surveys have defined
four new drill targets. Two new zones of strong quartz stock work also were discovered in August
2006.
On March 6, 2007, Solomon issued a notice of termination of the Gallant-Solomon agreements.
Pursuant to these agreements, Asia Gold held a 30-day option, beginning on March 6, 2007, to an
assignment of the Gallant-Solomon agreements to Asia Gold. On March 12, 2007, Asia Gold signed a
Memorandum of Agreement with Gallant to earn an 80% interest in the Tsakhir license.
Pursuant to an Option Agreement with BHPB dated June 30, 2005, BHPB can earn a 50% interest in the
West Falcon Gobi Property by spending $3.5 million on exploration prior to December 31, 2007, and
an additional 20% interest by funding a feasibility study up to a maximum value of $45 million.
BHPB conducted a Falcon airborne gravity gradiometer survey over the joint venture property in May
2006. Potential coal-bearing basins and prospective areas for porphyry copper systems were
identified. Further IP surveys commenced in March 2007.
After the Falcon survey, a multi-purpose drill rig was mobilized. Drilling commenced at the end of
July 2006 and was completed in October 2006. A total of 34 holes were drilled, mostly consisting of
percussion with diamond tails. Coal was intersected in the southeastern part of the region. The
results are being reviewed.
In Indonesia, Asia Gold signed a definitive Joint Venture Agreement and Cooperation Agreement with
Harita Mineral, effective September 7, 2006. Asia Gold has earned an 85% interest in the Kaputusan
prospect by spending $300,000 on exploration during the first year of the joint venture.
Camp construction, line cutting and logistical preparation have been conducted on the Kaputusan
porphyry copper-gold project. A first-stage exploration program, comprising geological mapping, an
IP geophysical survey and trenching, began in March 2006. Detailed geological mapping by Asia Gold
has confirmed the presence of porphyry copper-gold mineralization. A follow-up trenching program
consisting of 2,958 metres in 15 trenches was completed in November 2006. The trenches expanded the
initial program in the North and South zones and resulted in the discovery of the new West Zone of
porphyry-style copper-gold mineralization. A 3,000-metre diamond-drill program began in February
2007.
25
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
Asia Gold completed a nine-hole diamond drilling program totalling 1,441 metres on its
Bulgarian joint venture earn-in properties during 2006. Under its joint venture agreement with
Hereward Ventures Bulgaria AD, Asia Gold was eligible to earn up to an 80% interest in certain
licences by completing two $2 million exploration programs. During September 2006, Asia Gold
completed the first stage and earned a 51% participating interest in the joint venture. During
February 2007, Asia Gold decided to terminate its mineral exploration activities in Bulgaria and
withdrew from the joint venture effective March 2, 2007.
CHINA
Inner Mongolia exploration
Ivanhoe Mines continued exploration efforts on various prospects in Inner Mongolia during 2006.
A total of 2,995 metres of diamond drilling (22 holes) were completed and 16.9 infill line
kilometres (683 soil samples) were taken from the primary Anomaly Five target area. Holes were
targeted on zones with anomalous surface and soil gold-silver geochemistry and all zones were
adequately tested by the completed program. Gold and gold-silver mineralized vein zones were
intercepted in several holes; however, the narrow (15 centimetres to 70 centimetres), erratic
nature of mineralization and lack of gold-silver grade continuity within veins and lodes has
downgraded the property.
Two potential gold-silver-copper targets were identified through the reconnaissance exploration
program. Follow-up exploration, consisting of detailed geological-structural mapping, systematic
rock-chip sampling, trenching and ground geophysics will be completed over both prospects in early
2007, with an aim of defining drill targets for testing in the later part of 2007.
Jinshan (46% owned)
Jinshan Gold Mines Inc. (Jinshan) announced the results of its final feasibility study for the
CSH (217) Gold project, in Chinas Inner Mongolia Autonomous Region, in April 2006. The study
increased the measured and indicated resources by approximately 700,000 ounces of gold, using a 0.5
grams per tonne (g/t) gold cut-off. The new resource estimate reported by Jinshan, based on a 0.5
g/t gold cut-off, is 42 million tonnes of measured resources and 68 million tonnes of indicated
resources grading 0.85 g/t gold and 0.81 g/t gold. A copy of the 43-101F1 technical report filed by
Jinshan in June 2006 is available on www.sedar.com.
In September 2006, the Ministry of Land and Resources in Beijing granted Jinshans mining permit to
commence commercial mining activities at the CSH (217) Gold project. Jinshans application for
project registration was approved by the provincial government of the Inner Mongolia Autonomous
Region in July 2006.
In October 2006, Jinshan signed a 10-year mining contract with China National Railway Corporation,
a major Chinese mining contractor. The contractor commenced haul-road construction and open pit
preparations in January 2007, and in March began placing ore on the heap-leach pad. A 500-person
camp is housing contract miners and most of Jinshans start-up work force. The process plant is
expected to begin operations in the second quarter and Jinshan expects to be capable of commencing
commercial gold production in June or July of 2007.
26
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
B. MYANMAR ASSETS HELD FOR SALE
Trust Arrangements
As part of the Rio Tinto strategic partnership that was announced in October 2006, Ivanhoe
Mines agreed to divest all of its business interests and assets in Myanmar, including its indirect
interest in the Monywa Copper Project (Monywa). The Myanmar assets have been transferred to an
independent third-party trust (the Trust), pending their sale. The sole purpose of the Trust is to
sell the assets to one or more arms-length third parties. Ivanhoe Mines only interest in the
Trust is as an unsecured creditor under a promissory note issued by the Trust on the transfer of
the Myanmar assets that is to be repaid once the assets are sold.
In consideration for the Myanmar Assets, a company wholly-owned by the Trust (Trust Holdco) issued
a promissory note to a subsidiary of the Company. The principal amount of the promissory note is
equal to the cash proceeds to be realized upon the future sale of the Myanmar Assets, plus 50% of
any cash generated by Monywa that is available for distribution to the project participants but
remains undistributed at the time of any such sale, less certain contractually specified
deductions, including any fees and expenses incurred in carrying out the sale. Ivanhoe Mines
retains no ownership interest in the Myanmar Assets, directly or indirectly, except as a creditor
of Trust Holdco pursuant to the promissory note.
Trust Holdcos mandate is to engage one or more qualified third parties (a Sale Service Provider)
that will be responsible for identifying potential third-party purchasers, soliciting expressions
of interest from such potential purchasers, negotiating sale terms and facilitating the sale of the
Myanmar Assets on behalf of Trust Holdco. A Sale Service Provider that successfully facilitates the
sale of the Myanmar Assets to a purchaser will be entitled to a fee equal to a percentage of the
proceeds realized by Trust Holdco on the sale of the Myanmar Assets.
Following the sale of the Myanmar Assets, Trust Holdco will use the proceeds to pay the Sale
Service Providers fee and any other expenses or liabilities incurred in carrying out the sale.
Trust Holdco then will use the remaining proceeds of the sale, less contractually specified
deductions, to repay the promissory note held by the Companys subsidiary. Upon having retired the
promissory note, the Trust will wind up Trust Holdco and distribute the remaining assets of the
Trust, which are expected to consist solely of cash, to the designated beneficiaries of the Trust,
whereupon the Trust will terminate.
Monywa has been classified as investment held for sale for financial statement purposes and will
continue to be accounted for as such until Monywa is sold by the trustee.
27
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
Monywa Copper Project 2006 Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|
|
|
Total Operation |
|
Companys 50% Net Share |
|
|
|
|
|
|
|
|
|
|
|
|
% Increase |
|
|
|
|
|
|
|
|
|
% Increase |
|
|
|
|
2006 |
|
2005 |
|
(Decrease) |
|
2006 |
|
2005 |
|
(Decrease) |
|
|
|
Total tonnes moved (1) |
|
Tonnes (000s) |
|
|
14,050 |
|
|
|
13,527 |
|
|
|
4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Tonnes of ore to heap |
|
Tonnes (000s) |
|
|
7,704 |
|
|
|
9,544 |
|
|
|
-19 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Ore grade |
|
CuCN% |
|
|
0.36 |
% |
|
|
0.49 |
% |
|
|
-27 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Strip ratio |
|
Waste/Ore |
|
|
1.25 |
|
|
|
0.45 |
|
|
|
178 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Cathode production |
|
Tonnes |
|
|
19,544 |
|
|
|
34,478 |
|
|
|
-43 |
% |
|
|
9,772 |
|
|
|
17,239 |
|
|
|
-43 |
% |
Tonnes sold |
|
Tonnes |
|
|
19,202 |
|
|
|
34,969 |
|
|
|
-45 |
% |
|
|
9,601 |
|
|
|
17,485 |
|
|
|
-45 |
% |
Average sales price received |
|
US$/pound |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3.29 |
|
|
$ |
1.83 |
|
|
|
80 |
% |
Sales |
|
US$(000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
58,731 |
|
|
$ |
54,584 |
|
|
|
8 |
% |
Cost of operations |
|
US$(000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
15,927 |
|
|
$ |
17,768 |
|
|
|
-10 |
% |
Operating profit |
|
US$(000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
37,278 |
|
|
$ |
30,186 |
|
|
|
23 |
% |
Unit cost of operations |
|
US$/pound |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.75 |
|
|
$ |
0.46 |
|
|
|
63 |
% |
|
|
|
(1) |
|
Includes ore and waste material |
Copper prices on the London Metal Exchange (LME) averaged $3.05 per pound in 2006, compared to
$1.67 per pound in 2005, representing an increase of 83%. In 2006 and 2005, all exports of copper
were settled using the average LME copper price for the second month following the month of
shipment. Monywa sold 19,202 tonnes of copper cathode in 2006, a 45% decrease from 2005. Monywa was
able to realize a higher copper price than the average LME due to the timing of its copper sales.
During 2006, mine operations continued to be affected by a shortage of trucking capacity caused by
delays in obtaining the necessary import permits for the mining equipment that had been previously
ordered in 2005. The permits were received in the third quarter and the equipment was commissioned
in September 2006. Total tonnage moved in 2006 increased by 4% compared to 2005. Total cathode
production in 2006 decreased by 43% due to a 19% decrease in tonnages placed on the heaps and a 27%
decrease in copper grades.
During 2006, the unit operating cash costs increased by approximately 63% compared to 2005. The net
increase in operating cash costs was mainly attributed to increases in fuel and power less
decreases in chemicals used in the leaching process.
At the end of 2006, Monywa had $114.9 million in cash (net $57.5 million to Ivanhoe Mines).
Subsequent to year end, dividends of $30.0 million (net $15.0 million to Ivanhoe Mines) were paid
by Monywa. Monywa also paid accrued amounts relating to income and commercial taxes for the year
ended March 31, 2006. As at February 28, 2007, Monywas cash balance was approximately $50.1
million (net $25.1 million to the Trust).
28
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
C. DISCONTINUED OPERATIONS
Gain on sale from discontinued operations consisted of the following amounts:
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
($ in 000s) |
|
2006 |
|
2005 |
|
Book gain on sale of Savage River |
|
$ |
|
|
|
$ |
10,267 |
|
Net income for two months ended February 2005 |
|
|
|
|
|
|
5,406 |
|
Contingent annual payment: |
|
|
|
|
|
|
|
|
Period January to March |
|
|
7,931 |
|
|
|
|
|
Period April to December (accrued) |
|
|
11,691 |
|
|
|
20,243 |
|
|
|
|
$ |
19,622 |
|
|
$ |
35,916 |
|
|
In February 2005, the Company sold its Savage River mining operations (Savage River) in
Tasmania, Australia, for two initial payments totalling $21.5 million ($15.0 million received in
2005 and $6.5 million received in January 2006), plus a series of five contingent, annual payments
that commenced on March 31, 2006.
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
included $7.9 million in contingent income recognized in the first quarter of 2006.
To date, Ivanhoe Mines has received $49.7 million in proceeds from the sale of Savage River.
At December 31, 2006, Ivanhoe Mines had accrued an $11.7 million receivable in relation to the
second contingent annual payment due in March 2007. This amount is calculated based upon the actual
tonnes of iron ore sold during the nine-month period ended December 31, 2006, and the escalating
price formula.
In June 2006, the mines concentrator was damaged by a fire. As a result, pellet production for the
12-month period ending March 31, 2007, is estimated by the management of Savage River to total 1.7
million tonnes down from a previous estimate of 2.2 million tonnes. Also, based on the 3%
reduction in pellet prices negotiated in Q206, the Company is expecting to receive approximately
$19.5 million in total pellet premium at the end of March 2007, representing approximately a 31%
reduction from the $28.2 million received for the year ended March 2006.
D. ADMINISTRATIVE AND OTHER
General and administrative. The $10.5 million increase in general and administrative
expenditures in 2006 primarily was due to a $5.6 million increase in non-cash, stock-based
compensation charges charged to corporate, a $2.8 million increase in salaries and overhead and a
$1.8 million increase in consulting expenses primarily due to contract accounting and auditing
services for Sarbanes-Oxley work.
Interest Income. The $4.8 million increase in interest income is due to higher average cash
balances in 2006, coupled with higher interest rates in 2006 compared to 2005.
29
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
Foreign exchange gains. The Company has benefited from the strengthening of the Canadian dollar
($Cdn) in 2005 and 2006 as it maintained a portion of its cash balances in Canadian dollars.
Share of loss on significantly influenced investee. The $1.6 million share of loss on significant
influenced investee represents the Companys share of Jinshans net loss for the period September
to December 2006, prior to this, Ivanhoe Mines investment in Jinshan was consolidated.
SELECTED QUARTERLY DATA
($ in millions of U.S. dollars, except per share information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
QUARTER ENDED |
|
|
Year Ended |
|
|
Mar-31 |
|
Jun-30 |
|
Sep-30 |
|
Dec-31 |
|
|
Dec-31 |
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration expenses |
|
($ |
31.6 |
) |
|
($ |
43.7 |
) |
|
($ |
67.3 |
) |
|
($ |
70.4 |
) |
|
|
($ |
213.0 |
) |
General and administrative |
|
|
(6.4 |
) |
|
|
(6.0 |
) |
|
|
(6.9 |
) |
|
|
(8.9 |
) |
|
|
|
(28.2 |
) |
Share of income from investment held for sale |
|
|
4.5 |
|
|
|
(2.4 |
) |
|
|
9.0 |
|
|
|
7.4 |
|
|
|
|
18.5 |
|
Foreign exchange gains (losses) |
|
|
(0.2 |
) |
|
|
4.7 |
|
|
|
(0.4 |
) |
|
|
(3.7 |
) |
|
|
|
0.4 |
|
Net (loss) from continuing operations |
|
|
(31.1 |
) |
|
|
(45.7 |
) |
|
|
(68.0 |
) |
|
|
(73.5 |
) |
|
|
|
(218.3 |
) |
Net income from discontinued operations |
|
|
7.9 |
|
|
|
5.4 |
|
|
|
1.5 |
|
|
|
4.8 |
|
|
|
|
19.6 |
|
Net (loss) |
|
|
(23.2 |
) |
|
|
(40.3 |
) |
|
|
(66.5 |
) |
|
|
(68.7 |
) |
|
|
|
(198.7 |
) |
Net (loss) income per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
($ |
0.10 |
) |
|
($ |
0.14 |
) |
|
($ |
0.20 |
) |
|
($ |
0.21 |
) |
|
|
($ |
0.65 |
) |
Discontinued operations |
|
$ |
0.03 |
|
|
$ |
0.02 |
|
|
$ |
0.00 |
|
|
$ |
0.01 |
|
|
|
$ |
0.06 |
|
Total |
|
($ |
0.07 |
) |
|
($ |
0.12 |
) |
|
($ |
0.20 |
) |
|
($ |
0.20 |
) |
|
|
($ |
0.59 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration expenses |
|
($ |
25.6 |
) |
|
($ |
35.5 |
) |
|
($ |
30.5 |
) |
|
($ |
41.7 |
) |
|
|
($ |
133.3 |
) |
General and administrative |
|
|
(3.6 |
) |
|
|
(4.2 |
) |
|
|
(5.7 |
) |
|
|
(4.2 |
) |
|
|
|
(17.7 |
) |
Share of income from investment held for sale |
|
|
7.7 |
|
|
|
7.8 |
|
|
|
8.0 |
|
|
|
(0.5 |
) |
|
|
|
23.0 |
|
Foreign exchange gains (losses) |
|
|
(0.6 |
) |
|
|
1.7 |
|
|
|
7.1 |
|
|
|
(0.4 |
) |
|
|
|
7.8 |
|
Net (loss) from continuing operations |
|
|
(24.2 |
) |
|
|
(31.1 |
) |
|
|
(20.6 |
) |
|
|
(49.8 |
) |
|
|
|
(125.7 |
) |
Net income from discontinued operations |
|
|
15.7 |
|
|
|
5.9 |
|
|
|
6.4 |
|
|
|
7.9 |
|
|
|
|
35.9 |
|
Net (loss) |
|
|
(8.5 |
) |
|
|
(25.2 |
) |
|
|
(14.3 |
) |
|
|
(41.8 |
) |
|
|
|
(89.8 |
) |
Net (loss) income per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
($ |
0.08 |
) |
|
($ |
0.10 |
) |
|
($ |
0.07 |
) |
|
($ |
0.16 |
) |
|
|
($ |
0.41 |
) |
Discontinued operations |
|
$ |
0.05 |
|
|
$ |
0.02 |
|
|
$ |
0.02 |
|
|
$ |
0.03 |
|
|
|
$ |
0.12 |
|
Total |
|
($ |
0.03 |
) |
|
($ |
0.08 |
) |
|
($ |
0.05 |
) |
|
($ |
0.13 |
) |
|
|
($ |
0.29 |
) |
30
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
FOURTH QUARTER
Exploration. In Q406, Ivanhoe Mines expensed $70.4 million in exploration and development
activities, compared to $41.7 million in Q405. The majority of the $70.4 million was spent on
Ivanhoe Mines Mongolian properties ($65.6 million in 2006, compared to $37.6 million in 2005).
Approximately $56.0 million was spent on the Oyu Tolgoi Project, $1.8 million on coal exploration
and the remainder was spent on various exploration activities, including the Undur Naran and Baruun
Tal projects, regional reconnaissance, licence holding fees and general in-country administrative
charges.
Administrative costs. Administrative costs in Q406 were $4.7 million higher than Q405. This was
mainly due to a $0.8 million increase in non-cash, stock-based compensation charges, a $2.3 million
increase in salaries and overhead and a $0.8 million increase in consulting expenses primarily due
to contract accounting and auditing services for Sarbanes-Oxley work.
Income from investment held for sale. In Q406, net income from the S&K Mine totalled $7.4
million, compared to a loss of $0.5 million in Q405. This increase was mainly due to Q405,
including $11.2 million in commercial tax expense that previously had not been accrued.
Net income from discontinued operations. Income from the Savage River mine operations totalled $4.8
million in Q406, compared to $7.9 million in Q405. The decrease from 2005 was due to 186,000
tonnes less sold in Q406 versus Q405 and the reduction in pellet premium being achieved in 2006.
Foreign exchange loss. The Rio Tinto financing in October 2006 was completed in U.S. dollars;
however, the Company still maintained some Canadian dollar resources in Q406 from its April 2006
placement. The foreign exchange loss during the quarter was mainly attributable to the weakening of
the Canadian dollar against the U.S. dollar.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow
Operating activities. The $210.7 million of cash used in operating activities from continuing
operations in 2006 primarily was the result of $213.0 million in exploration expenditures.
Investing activities. In 2006, $1.0 million of cash was provided by investing activities, mainly
consisting of $34.3 million in property, plant and equipment acquisitions and construction for the
Mongolia, Jinshan and Bakyrchik projects, less $34.7 million in proceeds received from the sale of
the Savage River operation.
Financing activities. Financing activities of $473.6 million in 2006 largely consisted of the two
2006 private placements. In April 2006, the Company issued 18.4 million shares for net proceeds of
$159.0 million and in October 2006 the Company issued to Rio Tinto 37.1 million shares for net
proceeds of $296.8 million.
31
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
Liquidity and Capital Resources
At December 31, 2006, consolidated working capital was $364.7 million, including cash of
$363.6 million, compared with working capital of $127.6 million and cash of $101.7 million at the
end of 2005.
The bulk of the Companys expenditures is of a discretionary nature and as such can be deferred
based on the status of the Companys cash resources. The Companys cash resources are considered
sufficient to maintain the Companys minimum level of activities for the next 12 months.
Based on the Companys financial position at December 31, 2006, the Company believes that existing
funds should be sufficient to fund its minimum obligations, including planned Australian and
Bakyrchik obligations and general corporate activities, for at least the next 12 months. Should the
Company be unable to negotiate an Investment Agreement that is acceptable to Rio Tinto, with the
result that Rio Tinto elects not to proceed with the second tranche private placement, Ivanhoe
Mines may delay, postpone or curtail certain of its planned activities for 2007 and thereafter. The
Company will continue to assess the need for project financing relating to the development of power
and other infrastructure-related activities in association with the Oyu Tolgoi Project. See
Outlook for further details.
Financial Instruments
The Companys financial instruments consist of cash, accounts receivable, other current
assets, long-term investments, accounts payable and accrued liabilities and loans payable to
related parties.
The fair value of Ivanhoe Mines long-term investments was determined by reference to published
market quotations, which may not be reflective of future values.
The fair value of Ivanhoe Mines loan payable to related parties was estimated by discounting
future payments to their present value.
The fair value of Ivanhoe Mines remaining financial instruments was estimated to approximate their
carrying value, due primarily to the immediate or short-term maturity of these financial
instruments.
Ivanhoe Mines is exposed to credit risk with respect to its accounts receivable. The significant
concentrations of credit risk are situated in Mongolia and Australia. Ivanhoe Mines does not
mitigate the balance of this risk in light of the credit worthiness of its major debtors.
32
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
SHARE CAPITAL
At March 30, 2007, the Company had a total of:
|
o |
|
373.9 million common shares outstanding. |
|
|
o |
|
13.4 million incentive stock options outstanding, with a weighted average exercise
price per share of Cdn$9.20. Each option is exercisable to purchase a common share of the
Company at prices ranging from Cdn$2.31 to Cdn$13.29 per share. |
|
|
o |
|
92.1 million share purchase warrants outstanding granted to Rio Tinto. The exercise
term of these warrants is determined with reference to the earlier of the following dates
(the Warrant Determination Date): |
|
(a) |
|
the date upon which Ivanhoe Mines enters into an Investment Agreement with
the Government of Mongolia that is mutually acceptable to Ivanhoe Mines and Rio
Tinto; or |
|
|
(b) |
|
October 27, 2009. |
|
|
|
Series A Warrants:
The Series A Warrants are non-transferable and entitle Rio Tinto to purchase up to
46,026,522 Common Shares at a price of: |
|
(a) |
|
US$8.38 per share for proceeds of up to US$385,702,254 during the
period commencing November 30, 2006 and ending 180 days following the
Warrant Determination Date; and |
|
|
(b) |
|
US$8.54 per share for proceeds of up to US$393,066,498 during the
period commencing 181 days after the Warrant Determination Date and ending
365 days after the Warrant Determination Date. |
|
|
|
Series B Warrants:
The Series B Warrants are non-transferable and entitle Rio Tinto to purchase up to
46,026,522 Common Shares at a price of: |
|
(a) |
|
US$8.38 per share for proceeds of up to US$385,702,254 during the
period commencing November 30, 2006 and ending 180 days following the
Warrant Determination Date; |
|
|
(b) |
|
US$8.54 per share for proceeds of up to US$393,066,498 during the
period commencing 181 days after the Warrant Determination Date and ending
365 days after the Warrant Determination Date; |
|
|
(c) |
|
US$8.88 per share for proceeds of up to US$408,715,515 during the
period commencing 366 days after the Warrant Determination Date and ending
545 days after the Warrant Determination Date; and |
|
|
(d) |
|
US$9.02 per share for proceeds of up to US$415,159,228 during the
period commencing 546 days after the Warrant Determination Date and ending
725 days after the Warrant Determination Date. |
|
o |
|
Under the terms of the Rio Tinto Agreement, Rio Tinto will take up the second tranche of the
private placement following the date upon which Ivanhoe Mines enters into an Investment Agreement
with the Government of Mongolia that is mutually acceptable to Ivanhoe Mines |
33
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
|
|
|
and Rio Tinto. Rio Tinto has the option to exercise the second tranche earlier. This
second tranche will consist of 46.3 million shares at a price of US$8.38 per share, for total
proceeds of US$388 million. Ivanhoe Mines has recorded an amount of $23.1 million in
shareholders equity, attributable to the fair value of the Rio Tinto share purchase warrants
and second tranche share issuance commitment. |
OUTLOOK
Development of the Oyu Tolgoi Project. Since its inception in 1994, mineral exploration has
been the Companys principal business focus. During 2006, the Company devoted 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 also is assessing the development potential, extent, and value of the
strategically located coal resources discovered on Ivanhoe Mines exploration concessions in
Southern Mongolia.
Strategic Partnership with Rio Tinto plc. On October 27, 2006, Rio Tinto purchased
approximately 37.1 million shares of the Company at a price of $8.18. This investment gave Rio
Tinto 9.95% of the Companys issued share capital as enlarged by the placement, for a total initial
investment of $303 million.
The strategic partnership with Rio Tinto is expected to provide sufficient funds for the Company to
build Oyu Tolgoi at the current planned production levels. The Company has agreed to use a minimum
of 90% of the proceeds of Rio Tintos investment for the development of Oyu Tolgoi.
The Company cannot predict how soon the ongoing negotiations for an Investment Agreement
(previously called a Stability Agreement) can be finalized. Accordingly, there can be no assurance
that an Investment Agreement containing all of the terms sought by Ivanhoe Mines and/or Rio Tinto
can be obtained in the foreseeable future, or at all. In addition, there can be no assurance that
the Company will be able to close future financings, including private placement and warrant
transactions with Rio Tinto, obtain project financing or otherwise raise capital before its
existing cash resources are expended. See Risks and Uncertainties.
Investment Agreement with the Government of Mongolia. Ivanhoe Mines will continue its efforts
to successfully complete its negotiations with the Government of Mongolia for an Investment
Agreement. Finalization of the Investment Agreement has taken much longer than expected to
complete. There have been numerous reasons for the hampered progress, including three changes in
government since the most recent election in the summer of 2005. Nevertheless, Ivanhoe Mines
believes the most significant reason for delay has been political considerations relating to an
internal debate by Mongolian stakeholders about the scope of obligations and entitlements of mining
companies, the government and other interested parties in the mining industry. Amendments to the
Minerals Law and related laws implemented in the spring of 2006 expanded the scope of obligations
and entitlements of relevant stakeholders in the mining process, and Ivanhoe Mines believes that
these amendments represent the current governments effort to achieve political cooperation.
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
34
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
at facilitating the completion of the Investment Agreement. The meetings coincided with a
series of encouraging statements from Mongolias political leadership reaffirming a commitment to
the early conclusion of an Investment Agreement with Ivanhoe Mines and to maintaining a positive
environment for foreign direct investment.
In May 2006, an excess profits tax was passed by the Mongolian Parliament. This was followed by a
series of revisions to the Tax Law and, on July 8, 2006, by a sweeping revision of the Minerals
Law. The final Mongolian text of these legislative enactments was released in August 2006 and on
October 30, 2006, the official English translation of the Minerals Law was released.
The Company has devoted considerable time and attention to assessing the impacts of the excess
profits tax and the revisions to both the Minerals Law and the Tax Law. The Company has reviewed
available translations of the revised Minerals Law and Tax Law to assess the effect that the
changes would or could have on Ivanhoe Mines plan to develop the Oyu Tolgoi Project. Based on this
review, the Company has determined that the underlying value of the Oyu Tolgoi Project, as
reflected in the 2005 IDP, had not been materially affected.
Following passage of the revisions to the Minerals Law and the Tax Law, the Company and the
Government of Mongolia resumed negotiations on a formal, long-term Investment Agreement. In August
2006, the Mongolian Government announced that its Cabinet had instructed the Minister of Finance,
the Minister of Industry and Trade and the Minister of Nature and Environment to form a new Working
Group to conclude the negotiations with Ivanhoe Mines on the Investment Agreement. Also in August,
the Government of Mongolia established a Working Group of representatives from the ministries of
Finance, Industry and Trade, Justice and Home Affairs and Nature and Environment to work with
Ivanhoe Mines on a formal Investment Agreement. To date, representatives of the Company and Rio
Tinto have met on several occasions with the Working Group to discuss the Oyu Tolgoi Project, the
Companys plans, the resolution of remaining issues necessary for the satisfactory conclusion of
the Investment Agreement particularly in light of the amendments to the Minerals Law and the Tax
Law and the process to be followed to achieve a prompt resolution of the Investment Agreement.
Once a draft Investment Agreement has been prepared by the Working Group, it will be submitted
to the Mongolian Governments Cabinet for approval. Thereafter, if the Investment Agreement is
approved by the Cabinet, as prepared, it will be submitted to Parliament for approval. Parliament
does not reconvene until April 5, 2007.
Amendments to Minerals Law and Tax Law. Significant amendments to the Minerals Law and Tax Law
include, but are not limited to, the following:
Strategic Deposit. The Government of Mongolia has the option to acquire interests in mineral
deposits deemed to be strategic. The law defines a strategic deposit as one with potential to
have an impact on Mongolias national security, economic and social development, with minerals that
are in strong international demand; or a deposit capable of annual mineral production that exceeds
5% of Mongolias gross domestic product. The Government will have a qualified right to acquire an
interest of 1) up to 34% in strategic deposits discovered through privately financed exploration;
and 2) up to 50% in deposits that were discovered through the use of state funds during the former
Soviet era. The
Oyu Tolgoi discoveries on the Companys licences, and on the adjoining Entrée Gold joint venture
35
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
property, were financed entirely by private capital. The Companys coal discoveries in the
Nariin Sukhait region, and at Tsagaan Tolgoi, west of the Oyu Tolgoi Project, also have been funded
solely by private capital.
The Minerals Law states that any acquisition of a state interest in a mining project will be
subject to negotiation with the licence holder as part of the Investment Agreement process.
Although specific provisions of the revised Minerals Law need to be evaluated, addressed and
interpreted, the extent of state participation will be determined in part on a project-by-project
basis by the proportion of the project capital that the state is prepared to invest. For the last
several years, the Company has stated that it was prepared to consult closely with Mongolian
Government leaders to assess all strategic alternatives available for the development of the Oyu
Tolgoi Project, including the possibility of accepting one or more minority investments from
official, government-owned entities whose involvement could be profoundly beneficial to the
projects long-term success.
It is anticipated that the Government of Mongolia will initiate a process to develop regulations
that address and provide greater meaning to the amended Minerals Law.
Increased royalty. The Governments royalty on all metals increased from 2.5% to 5.0% and is based
on gross sales.
Lower tax rates. The 30% income tax rate on personal and corporate income was reduced to 10% and
25% respectively. The value-added tax was reduced from 15% to 10%.
Amendments to licence maturity. The term of an exploration licence was increased from seven to nine
years. The maximum term for a mining licence, including possible extensions, was reduced from 100
years to 70 years. At this time, it is not clear if those amendments will or should apply
retroactively to existing licences.
Employment requirements. A licence holder is obligated to employ no more than 10% foreign
citizens and faces a monthly surcharge of 10 times the minimum monthly salary for each foreign
citizen employee above the 10% limit.
Listing requirements. Entities holding a mining licence for a deposit classified as a deposit
of strategic importance now are required to list at least 10% of their shares on the Mongolian
Stock Exchange. It is uncertain, at present, how this requirement will be implemented in practice
and what steps may need to be taken to accomplish such listing.
Amendments to the maximum duration of Investment Agreements. The maximum duration of Investment
Agreements has been set as follows:
|
|
|
Investment between $50-$100 million 10-year term |
|
|
|
|
Investment between $100-$300 million 15-year term |
|
|
|
|
Investment greater than $300 million 30-year term. |
The Oyu Tolgoi Project qualifies for an Investment Agreement with a 30-year term.
Other income tax amendments. Amendments to the Tax Law also include the introduction of a 10%
investment tax credit, the introduction of a two-year loss-carry-forward provision and improved
36
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
depreciation allowances. These amendments are expected to compensate for the elimination of the
tax holidays that previously applied only to foreign-owned companies, although at present mining is
not considered by the Government of Mongolia to qualify for the investment tax credit.
Excess Profit Tax. In May 2006, an excess profit tax was approved by the Mongolian Parliament. The
tax, at a rate of 68%, will apply to sales revenue, net of all selling and treatment charges, which
exceeds certain threshold levels for copper and gold. Based on the Companys initial assessment,
the effective price at which the tax will apply to Oyu Tolgoi copper is currently estimated to be
$1.45 per pound, since the legislated base price of $1.18 per pound, along with the cost of
external smelting and realization costs, can be deducted from sales proceeds.
The Government also has confirmed that the new excess profits tax would not be applied to copper
smelted in Mongolia and would not apply to the gold contained in copper concentrate. The Oyu Tolgoi
Project will be a producer of copper concentrate and gold produced at Oyu Tolgoi will be contained
in copper concentrate.
In meetings with leaders and senior officials of the Government, the Company reaffirmed its
willingness to work with the Government to have or arrange downstream smelting capacity built in
Mongolia. The 2005 IDP financial results were based on metal prices that are below the metal-price
thresholds set by this new tax on revenue. As a result, the management of the Company believes that
the new tax on excess profits should not compromise the basis for the development of the Oyu Tolgoi
Project.
OFF-BALANCE-SHEET ARRANGEMENTS
During the year ended December 31, 2006, Ivanhoe Mines was not a party to any off-balance-sheet
arrangements that have, or are reasonably likely to have, a current or future effect on the results
of operations, financial condition, revenues or expenses, liquidity, capital expenditures or
capital resources of the Company.
CONTRACTUAL OBLIGATIONS
($000s of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
Less than 1 |
|
|
|
|
|
|
|
|
|
|
|
year |
|
1 - 3 years |
|
4 - 5 years |
|
After 5 years |
|
|
Total |
|
|
|
|
Operating leases (1) |
|
$ |
1,290 |
|
|
$ |
884 |
|
|
$ |
9 |
|
|
$ |
|
|
|
|
$ |
2,183 |
|
Purchase obligations (1) |
|
|
116,794 |
|
|
|
90 |
|
|
|
|
|
|
|
|
|
|
|
|
116,884 |
|
Other long-term obligations (2) |
|
|
315 |
|
|
|
2,194 |
|
|
|
|
|
|
|
17,333 |
|
|
|
|
19,842 |
|
|
|
|
|
Total |
|
$ |
118,399 |
|
|
$ |
3,168 |
|
|
$ |
9 |
|
|
$ |
17,333 |
|
|
|
$ |
138,909 |
|
|
|
|
|
|
|
|
(1) |
|
These amounts mainly represent various long-term contracts that include
commitments for future operating payments under contracts for drilling, engineering,
equipment purchases, rentals and other arrangements. |
|
(2) |
|
Other long-term obligations mainly consist of asset retirement obligations. |
37
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
CHANGES IN ACCOUNTING POLICIES
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. The adoption of SFAS No. 123(R) did not have an impact on the
Companys consolidated financial position and results of operations. The fair value of stock
options at the date of grant is amortized to operations, with an offsetting credit to additional
paid-in capital, on a straight-line basis over the vesting period. If and when the stock options
are ultimately exercised, the applicable amounts of additional paid-in capital are transferred to
share capital.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting
principles in the United States 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.
A detailed summary of all of the Companys significant accounting policies and the estimates
derived therefrom is included in Note 2 to the annual Consolidated Financial Statements for the
year ended December 31, 2006. While all of the significant accounting policies are important to the
Companys consolidated financial statements, the following accounting policies and the estimates
derived therefrom have been identified as being critical:
Ø |
|
Carrying Values of Property, Plant and Equipment; |
|
Ø |
|
Depletion and Depreciation of Property, Plant and Equipment; |
|
Ø |
|
Asset Retirement Obligations; and |
|
Ø |
|
Income Taxes. |
Carrying values of Property, Plant and Equipment
Ivanhoe Mines reviews the carrying values of its property, plant and equipment whenever events or
changes in circumstances indicate that their carrying values may not be recoverable. An impairment
is considered to exist if total estimated future cash flows, or probability-weighted cash flows on
an undiscounted basis, are less than the carrying value of the assets. An impairment loss is
measured and recorded based on discounted estimated future cash flows associated with values beyond
proven and probable reserves and resources. In estimating future cash flows, assets are grouped at
the lowest level for which there is identifiable future cash flows that are largely independent of
cash flows from other asset groups. Generally, in estimating future cash flows, all assets are
grouped at a particular mine for which there is identifiable cash flows.
The estimates used by management are subject to various risks and uncertainties. It is reasonably
possible that changes in estimates could occur which may affect the expected recoverability of the
Companys investments in property, plant and equipment.
38
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
Depletion and Depreciation of Property, Plant and Equipment
Property, plant and equipment comprise one of the largest components of Ivanhoe Mines assets and,
as such, the amortization of these assets has a significant effect on the Companys financial
statements.
On the commencement of commercial production, depletion of each mining property is provided on the
unit-of-production basis using estimated proven and probable reserves as the depletion basis. The
mining plant and equipment and other capital assets are depreciated, following the commencement of
commercial production, over their expected economic lives using either the unit-of-production
method or the straight-line method.
Capital projects in progress are not depreciated until the capital asset has been put into
operation.
The proven and probable reserves are determined based on a professional evaluation using accepted
international standards for the assessment of mineral reserves. The assessment involves the study
of geological, geophysical and economic data and the reliance on a number of assumptions. The
estimates of the reserves may change, based on additional knowledge gained subsequent to the
initial assessment. This may include additional data available from continuing exploration, results
from the reconciliation of actual mining production data against the original reserve estimates, or
the impact of economic factors such as changes in the price of commodities or the cost of
components of production. A change in the original estimate of reserves would result in a change in
the rate of depletion and depreciation of the related mining assets, or could result in impairment,
resulting in a write-down of the assets.
Asset Retirement Obligations
The Company has obligations for site restoration and decommissioning related to its mining
properties. The Company, using mine closure plans or other similar studies that outline the
requirements planned to be carried out, estimates the future obligations for mine closure
activities. Because the obligations are dependent on the laws and regulations of the countries in
which the mines operate, the requirements could change resulting from amendments in those laws
and regulations relating to environmental protection and other legislation affecting resource
companies.
Ivanhoe Mines recognizes liabilities for statutory, contractual or legal obligations associated
with the retirement of property, plant and equipment, when those obligations result from the
acquisition, construction, development or normal operation of the assets. Initially, a liability
for an asset retirement obligation is recognized at its fair value in the period in which it is
incurred. Upon initial recognition of the liability, the corresponding asset retirement cost is
added to the carrying amount of that asset and the cost is amortized as an expense over the
economic life of the related asset. Following the initial recognition of the asset retirement
obligation, the carrying amount of the liability is increased for the
passage of time and adjusted for changes to the amount or timing of the underlying cash flows
needed to settle the obligation.
Because the estimate of obligations is based on future expectations in the determination of closure
provisions, management makes a number of assumptions and judgments. The closure provisions are more
uncertain the further into the future the mine closure activities are to be carried out. Actual
costs
39
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
incurred in future periods in relation to the remediation of Companys existing assets
could differ materially from the $19.8 million undiscounted future value of Ivanhoe Mines
estimated asset retirement obligations at December 31, 2006.
Income Taxes
The Company must make significant estimates in respect of the provision for income taxes and the
composition of its deferred income tax assets and deferred income tax liabilities. Ivanhoe Mines
operations are, in part, subject to foreign tax laws where interpretations, regulations and
legislation are complex and continually changing. As a result, there are usually some tax matters
in question which may, on resolution in the future, result in adjustments to the amount of deferred
income tax assets and deferred income tax liabilities, and those adjustments may be material to the
Ivanhoe Mines financial position and results of operations.
The Company computes the provision for deferred income taxes under the liability method. Deferred
taxes arise from the recognition of the tax consequences of temporary differences by applying
statutory tax rates applicable to future years to differences between the financial statements
carrying amounts and the tax bases of certain assets and liabilities. The Company records a
valuation allowance against any portion of those deferred income tax assets that management
believes will, more likely than not, fail to be realized.
The determination of the ability of the Company to utilize tax loss carry-forwards to offset
deferred income taxes payable requires management to exercise judgment and make assumptions about
the future performance of the Company. Management is required to assess whether the Company is
more likely than not to be able to benefit from these tax losses. Changes in economic conditions,
metal prices and other factors could result in revisions to the estimates of the benefits to be
realized or the timing of utilizing the losses.
RECENT ACCOUNTING PRONOUNCEMENTS
Recently issued United States accounting pronouncements have been outlined below.
In February 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 155, Accounting for Certain Hybrid Financial Instrumentsan amendment of
FASB Statements No. 133 and 140 (SFAS 155). This Statement amends FASB Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities, and FASB Statement No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS
155 resolves issues addressed in Statement 133 Implementation Issue No. D1, Application of
Statement 133 to Beneficial Interests in Securitized Financial Assets. This Statement will be
effective for financial instruments acquired or issued by the Company after the beginning of its
2007 fiscal year. The Company expects that the adoption of this Statement will not have a material
effect on its financial condition or results of operations.
In March 2006, the FASB issued Statement of Financial Accounting Standards No. 156, Accounting for
Servicing of Financial Assets an amendment of FASB Statement No. 140 (SFAS 156). This Statement
provides guidance addressing the recognition and measurement of separately recognized
40
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
servicing assets and liabilities, common with mortgage securitization activities, and provides
an approach to simplify efforts to obtain hedge accounting treatment. SFAS 156 is effective after
the beginning of an entitys fiscal year that begins after September 15, 2006. The Company expects
that the adoption of this Statement will have no impact on its financial condition or results of
operations.
In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes -
an interpretation of FASB Statement No. 109 (FIN 48). This interpretation clarifies the
recognition threshold and measurement of a tax position taken or expected to be taken on a tax
return, and requires expanded disclosure with respect to the uncertainty in income taxes. FIN 48
also provides guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosures, and transition. FIN 48 is effective for fiscal years beginning after
December 15, 2006. The Company expects that the adoption of FIN 48 will not have a material effect
on its financial condition or results of operations.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value
Measurements (SFAS 157). This Statement defines fair value, establishes guidelines for measuring
fair value and expands disclosures regarding fair value measurements. SFAS 157 does not require any
new fair value measurements but rather eliminates inconsistencies in guidance found in various
prior accounting pronouncements. SFAS 157 is effective for fiscal years beginning after November
15, 2007. The Company expects that adoption of SFAS 157 will not have a material impact on its
financial condition or results of operations.
In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108
(SAB 108). SAB 108 provides guidance on the consideration of the effects of prior year
misstatements in quantifying current year misstatements for the purpose of a materiality
assessment. SAB 108 permits companies to record the cumulative effect of initially applying this
approach in the first fiscal year ending after November 15, 2006 by recording necessary correcting
adjustments to the carrying values of assets and liabilities as of the beginning of that year with
the offsetting adjustment recorded to the opening balance of retained earnings. Adoption of SAB 108
did not have a material impact on the Companys financial condition and results of operations.
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities including an amendment of FASB
Statement No. 115 (SFAS 159) which permits entities to choose to measure many financial
instruments and certain other items at fair value. This statement is effective for fiscal periods
beginning after November 15, 2007. The Company is currently evaluating the impact, if any, that
adoption of SFAS 159 will have on its financial condition or results of operations.
RISKS AND UNCERTAINTIES
Material risks and uncertainties affecting Ivanhoe Mines, their potential impact, and the
Companys principal risk management strategies, are as follows:
Ivanhoe Mines may be unsuccessful in completing an Investment Agreement with the Government of
Mongolia for the Oyu Tolgoi Project or may only be able to complete the contract on terms that
effectively impair the economic viability of the project.
41
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
The Investment Agreement with the Government of Mongolia is expected to address a broad range
of matters relevant to the Oyu Tolgoi Project, and the nature and scope of the Investment Agreement
is of fundamental importance to the viability of the Oyu Tolgoi Project. The amendments to the
Mining Law that were implemented in the Spring of 2006 establish a broad framework for an
Investment Agreement, and a substantial portion of the terms are subject to the discretion and
mutual agreement of the Government and the applicable mining license holder. Current negotiations
with the Government on the terms of the Investment Agreement are proceeding in good faith and in a
productive manner. Nevertheless, the Mongolian Government can, within the discretionary mandate
imposed by the Mining Law, propose to complete the Agreement only on terms that would severely
impact the economic viability of the Oyu Tolgoi Project or effectively prevent the Company from
coming to an agreement with the Government on the Investment Agreement. Any such result would have
a significant adverse effect on the development of the Oyu Tolgoi Project and the Company itself.
Ivanhoe
Mines ability to carry on business in Mongolia is subject to
political risk.
Ivanhoe Mines holds its interest in the Oyu Tolgoi Project, the Nariin Sukhait Project and its
Mongolian exploration properties through mining licences and exploration licences that enable it to
conduct operations or development and exploration activities. Notwithstanding these arrangements,
Ivanhoe Mines ability to conduct operations or exploration and development activities is subject
to changes in legislation or government regulations or shifts in political attitudes beyond Ivanhoe
Mines control.
Government policy may change to discourage foreign investment, nationalization of mining industries
may occur or other government limitations, restrictions or requirements not currently foreseen may
be implemented. There can be no assurance that Ivanhoe Mines assets will not be subject to
nationalization, requisition or confiscation, whether legitimate or not, by any authority or body.
There is no assurance that provisions under Mongolian law for compensation and reimbursement of
losses to investors under such circumstances would be effective to restore the value of Ivanhoe
Mines original investment. Similarly, Ivanhoe Mines operations may be affected in varying degrees
by government regulations with respect to restrictions on production, price controls, export
controls, income taxes, environmental legislation, mine safety and annual fees to maintain mineral
licences in good standing. There can be no assurance that Mongolian laws protecting foreign
investments will not be amended or abolished or that existing laws will be enforced or interpreted
to provide adequate protection against any or all of the risks described above.
There can be no assurance that Ivanhoe Mines will be capable of raising the additional funding that
it needs to carry out its development and exploration objectives.
The further development and exploration of the Oyu Tolgoi Project and the various other mineral
properties in which it holds interests depends upon Ivanhoe Mines ability to obtain financing
through capital markets, sales of non-core assets or other means. While the share purchase
entitlements and obligations of Rio Tinto pursuant to the Rio Tinto Transaction may, if consummated
in their entirety, account for a substantial portion of the development cost of the Oyu Tolgoi
Project, there is no assurance that Ivanhoe Mines will meet the conditions necessary to trigger Rio
Tintos purchase obligations or that Rio Tinto will exercise its entitlement to subscribe for more
share capital pursuant to its warrants and other rights. In particular, Rio Tintos obligation to
complete the second tranche
42
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
private placement is subject to the Company obtaining an Investment Agreement on terms
acceptable to Rio Tinto. Until an Investment Agreement with the Government of Mongolia is actually
finalized and approved, it is not possible to predict to what extent the Company will be successful
in negotiating and obtaining terms and conditions in an Investment Agreement that is acceptable to
Rio Tinto. Meanwhile, Rio Tintos warrants are exercisable at the discretion of Rio Tinto, and
Ivanhoe Mines has no control over the decision to exercise those warrants. If the second tranche
private placement is not completed and/or the warrants are not exercised by Rio Tinto, there is no
assurance that the Company will be successful in obtaining financing from other sources necessary
for development of the Oyu Tolgoi Project, on favourable terms or at all. Even if Rio Tinto does
subscribe for the maximum amount contemplated in the Rio Tinto Transaction, such amount would not
necessarily be sufficient to cover all contingencies relating to the Oyu Tolgoi Project or to
develop related projects such as the coal deposits. Depressed markets for precious and base metals
may make it difficult or impossible for Ivanhoe Mines to obtain debt financing or equity financing.
Ivanhoe Mines operates in a region of the world that is prone to economic and political upheaval
and instability, which may make it more difficult for Ivanhoe Mines to obtain debt financing from
project lenders. Failure to obtain additional financing on a timely basis may cause Ivanhoe Mines
to postpone its development plans, forfeit rights in some or all of its properties or joint
ventures or reduce or terminate some or all of its operations.
The Hugo Dummett Deposit mineral resources and the Nariin Sukhait resources do not have
demonstrated economic viability and the feasibility of mining has not
been established.
A substantial portion of the mineral resources identified to date on the Oyu Tolgoi Project and all
of the resources on the Nariin Sukhait Project are not mineral reserves and do not yet have
demonstrated economic viability. There can be no assurance that additional mineral reserves will be
identified on the property. With the exception of the Southern Oyu Deposits, the feasibility of
mining from the Oyu Tolgoi Project and the Nariin Sukhait Project has not been, and may never be,
established.
There is a degree of uncertainty attributable to the estimation of reserves, resources and
corresponding grades being mined or dedicated to future production. Until reserves or resources are
actually mined and processed, the quantity of reserves or resources and grades must be considered
as estimates only. In addition, the quantity of reserves or resources may vary depending on the
prevailing metals market. Any material change in the quantity of its reserves, resources, grades or
stripping ratio may affect the economic viability of a particular property. In addition, there can
be no assurance that metal recoveries in small-scale laboratory tests will be duplicated in larger
scale tests under on-site conditions or during production.
Lack of infrastructure in proximity to the Oyu Tolgoi Project could adversely affect mining
feasibility.
The Oyu Tolgoi Project is located in an extremely remote area which currently lacks basic
infrastructure, including sources of electric power, water, housing, food and transport, necessary
to develop and operate a major mining project. While Ivanhoe Mines has established the limited
infrastructure necessary to conduct its current exploration and development activities,
substantially greater sources of power, water, physical plant and transport infrastructure in the
area will need to be established before Ivanhoe Mines can conduct mining operations. Lack of
availability of the means and inputs necessary to establish such infrastructure may adversely
affect mining feasibility.
43
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
Establishing such infrastructure will, in any event, require significant financing,
identification of adequate sources of raw materials and supplies and necessary approvals from
national and regional governments, none of which can be assured.
The Nariin Sukhait Project is similarly located in a remote area.
Mining
projects are sensitive to the volatility of metal prices.
The long-term viability of Ivanhoe Mines depends in large part on the world market prices of copper
and gold. The market prices for these metals are volatile and are affected by numerous factors
beyond Ivanhoe Mines control. These factors include international economic and political trends,
expectations of inflation, global and regional demand, currency exchange fluctuations, interest
rates and global or regional consumption patterns, speculative activities, increased production due
to improved mining and production methods and economic events, including the performance of Asias
economies.
The aggregate effect of these factors on metals prices is impossible for Ivanhoe Mines to predict.
Should prevailing metal prices fall and remain below variable production costs of Ivanhoe Mines
current and planned mining operations for a sustained period, losses may be sustained and, under
certain circumstances, there may be a curtailment or suspension of some or all of Ivanhoe Mines
mining, development and exploration activities. Ivanhoe Mines would also have to assess the
economic impact of any sustained lower metal prices on recoverability and, therefore, the cut-off
grade and level of Ivanhoe Mines reserves and resources. These factors could have an adverse
impact on Ivanhoe Mines future cash flows, earnings, results of operations, stated reserves and
financial condition.
The following table sets forth for the periods indicated (1) the London Metals Exchanges high, low
and average settlement prices for copper in U.S. dollars per pound and (2) the high, low and
average London afternoon fixing prices for gold.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper |
|
Gold |
Year |
|
High |
|
Low |
|
Average |
|
High |
|
Low |
|
Average |
2001 |
|
$ |
0.83 |
|
|
$ |
0.60 |
|
|
$ |
0.72 |
|
|
$ |
293 |
|
|
$ |
256 |
|
|
$ |
271 |
|
2002 |
|
$ |
0.77 |
|
|
$ |
0.65 |
|
|
$ |
0.71 |
|
|
$ |
349 |
|
|
$ |
278 |
|
|
$ |
310 |
|
2003 |
|
$ |
1.05 |
|
|
$ |
0.71 |
|
|
$ |
0.81 |
|
|
$ |
416 |
|
|
$ |
320 |
|
|
$ |
363 |
|
2004 |
|
$ |
1.49 |
|
|
$ |
1.06 |
|
|
$ |
1.30 |
|
|
$ |
454 |
|
|
$ |
375 |
|
|
$ |
409 |
|
2005 |
|
$ |
2.11 |
|
|
$ |
1.39 |
|
|
$ |
1.67 |
|
|
$ |
536 |
|
|
$ |
411 |
|
|
$ |
444 |
|
2006 |
|
$ |
3.99 |
|
|
$ |
2.06 |
|
|
$ |
3.05 |
|
|
$ |
725 |
|
|
$ |
524 |
|
|
$ |
604 |
|
Ivanhoe Mines business in Mongolia may be harmed if the country fails to complete its transition
from state socialism and a planned economy to political democracy and
a free market economy.
Since 1990, Mongolia has been in transition from state socialism and a planned economy to a
political democracy and a free market economy. Much progress has been made in this transition but
much remains to be done, particularly with respect to the rule of law. Many laws have been enacted,
but in many instances they are neither understood nor enforced. For decades Mongolians have looked
to politicians and bureaucrats as the sources of the law. This has changed in theory, but often
not in
44
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
practice. With respect to most day-to-day activities in Mongolia, government civil servants
interpret, and often effectively make, the law. This situation is gradually changing but at a
relatively slow pace. Laws may be applied in an inconsistent, arbitrary and unfair manner and legal
remedies may be uncertain, delayed or unavailable.
Recent and future amendments to Mongolian laws could adversely affect Ivanhoe Mines mining rights
in the Oyu Tolgoi Project or make it more difficult or expensive to develop the project and carry
out mining.
In 2006, Mongolia implemented revisions to the Minerals Law. A summary of these amendments is
contained in the Outlook section of this report.
Although these amendments have been enacted into law, clarification is required from the Government
as the affect of these laws on the Oyu Tolgoi Project depends on the processing and development
options considered for the project.
Accordingly, until these issues are addressed and clarified, there can be no assurance that the
present government or a future government will refrain from enacting legislation or adopting
government policies that are adverse to Ivanhoe Mines interests or that impair Ivanhoe Mines
ability to develop and operate the Oyu Tolgoi Project on the basis presently contemplated.
Ivanhoe Mines may experience difficulties with its joint venture partners.
Ivanhoe Mines is currently earning an interest in a property held by Entrée which is adjacent to
the Hugo Dummett Deposit. Upon earning an interest, Ivanhoe Mines will form a joint venture with
Entrée and may in the future enter into additional joint ventures in respect of other properties
with third parties. Ivanhoe Mines is subject to the risks normally associated with the conduct of
joint ventures, which include disagreements as to how to develop, operate and finance a project and
possible litigation between the participants regarding joint venture matters. These matters may
have an adverse effect on Ivanhoe Mines ability to realize the full economic benefit of its
interest in the property that is the subject of the joint venture, which could affect its results
of operations and financial condition.
Ivanhoe Mines may be unable to enforce its legal rights in certain circumstances.
In the event of a dispute arising at or in respect of, Ivanhoe Mines foreign operations, including
the Oyu Tolgoi Project, Ivanhoe Mines may be subject to the exclusive jurisdiction of foreign
courts or may not be successful in subjecting foreign persons to the jurisdiction of courts in
Canada or other jurisdictions. Ivanhoe Mines may also be hindered or prevented from enforcing its
rights with respect to a governmental entity or instrumentality because of the doctrine of
sovereign immunity.
The Trust may not be able to sell the interest in the Myanmar Assets on a timely basis or for its
fair value
Pursuant to the transaction establishing the Trust, the Trust is obligated to sell its interest in
the Myanmar Assets to a third party. Until such time as that sale occurs, Ivanhoe Mines will not
receive the consideration that it is seeking for the project. There are numerous international
sanctions directed at the Government of Myanmar by several constituencies, including the United
States, European Union and Canada. While the sanctions in their current form do not affect Ivanhoe
Mines investments in Myanmar, they effectively reduce the number of potential purchasers for the
Myanmar Assets and
45
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
have, in the past, hindered the orderly conduct of commercial operations. Accordingly, it may
difficult for the Trust to arrange a sale of the Myanmar Assets on reasonable commercial terms or
at all.
Changes in, or more aggressive enforcement of, laws and regulations could adversely impact Ivanhoe
Mines business.
Mining operations and exploration activities are subject to extensive laws and regulations. These
relate to production, development, exploration, exports, imports, taxes and royalties, labour
standards, occupational health, waste disposal, protection and remediation of the environment, mine
decommissioning and reclamation, mine safety, toxic substances, transportation safety and emergency
response and other matters.
Compliance with these laws and regulations increases the costs of exploring, drilling, developing,
constructing, operating and closing mines and other facilities. It is possible that the costs,
delays and other effects associated with these laws and regulations may impact Ivanhoe Mines
decision as to whether to continue to operate in a particular jurisdiction or whether to proceed
with exploration or development of properties. Since legal requirements change frequently, are
subject to interpretation and may be enforced to varying degrees in practice, Ivanhoe Mines is
unable to predict the ultimate cost of compliance with these requirements or their effect on
operations. Furthermore, changes in governments, regulations and policies and practices could have
an adverse impact on Ivanhoe Mines future cash flows, earnings, results of operations and
financial condition.
Ivanhoe Mines is subject to substantial environmental and other regulatory requirements and such
regulations are becoming more stringent. Non-compliance with such regulations, either through
current or future operations or a pre-existing condition could materially adversely affect Ivanhoe
Mines.
All phases of Ivanhoe Mines operations are subject to environmental regulations in the various
jurisdictions in which it operates. For example, the Oyu Tolgoi Project is subject to a requirement
to develop an environmental impact assessment, as well as other environmental protection
obligations. Environmental legislation is evolving in a manner which will likely require stricter
standards and enforcement, increased fines and penalties for non-compliance, more stringent
environmental assessments of proposed projects and a heightened degree of responsibility for
companies and their officers, directors and employees. There is no assurance that future changes in
environmental regulation, if any, will not adversely affect Ivanhoe Mines operations.
Environmental hazards may exist on the properties in which Ivanhoe Mines holds interests which are
presently unknown to Ivanhoe Mines and which have been caused by previous or existing third party
owners or operators of the properties.
Government approvals and permits are sometimes required in connection with Ivanhoe Mines
operations. To the extent such approvals are required and not obtained, Ivanhoe Mines may be
delayed or prohibited from proceeding with planned exploration or development of its mineral
properties.
Failure to comply with applicable laws, regulations and permitting requirements may result in
enforcement actions thereunder, including orders issued by regulatory or judicial authorities
causing operations to cease or be curtailed, and may include corrective measures requiring capital
expenditures, installation of additional equipment, or remedial actions. Parties engaged in mining
46
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
operations may be required to compensate those suffering loss or damage by reason of the
mining activities and may have civil or criminal fines or penalties imposed for violations of
applicable laws or regulations.
Amendments to current laws, regulations and permits governing operations and activities of mining
companies, or more stringent implementation thereof, could have a material adverse impact on
Ivanhoe Mines and cause increases in capital expenditures or production costs or reductions in
levels of production at producing properties or require abandonment or delays in the development of
new mining properties.
Previous mining operations may have caused environmental damage at Ivanhoe Mines mining sites, and
if Ivanhoe Mines cannot prove that such damage was caused by such prior operators, its indemnities
and exemptions from liability may not be effective.
Ivanhoe Mines has received exemptions from liability from relevant governmental authorities for
environmental damage caused by previous mining operations at the Monywa Copper Project in Myanmar
and the Bakyrchik gold project in Kazakhstan. There is a risk, however, that, if an environmental
accident occurred at those sites, it may be difficult or impossible to assess the extent to which
environmental damage was caused by Ivanhoe Mines activities or the activities of previous
operators. In that event, the liability exemptions could be ineffective and possibly worthless.
The actual cost of developing the Oyu Tolgoi Project may differ significantly from Ivanhoe Mines
estimates and involve unexpected problems or delays.
The estimates regarding the development and operation of the Oyu Tolgoi Project are based on the
2005 IDP. This study establishes estimates of reserves and resources and operating costs and
projects economic returns. These estimates are based, in part, on assumptions about future metal
prices. The 2005 IDP derives estimates of average cash operating costs based upon, among other
things:
|
|
|
anticipated tonnage, grades and metallurgical characteristics of ore to be mined and processed; |
|
|
|
|
anticipated recovery rates of copper and gold from the ore; |
|
|
|
|
cash operating costs of comparable facilities and equipment; and |
|
|
|
|
anticipated climatic conditions. |
Actual operating costs, production and economic returns may differ significantly from those
anticipated by the 2005 IDP and future development reports.
There are also a number of uncertainties inherent in the development and construction of any new
mine including the Oyu Tolgoi Project. These uncertainties include:
|
|
|
the timing and cost, which can be considerable, of the construction of mining and
processing facilities; |
|
|
|
|
the availability and cost of skilled labour, power, water and transportation; |
|
|
|
|
the availability and cost of appropriate smelting and refining arrangements; |
47
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
|
|
|
the need to obtain necessary environmental and other government permits, and the
timing of those permits; and |
|
|
|
|
the availability of funds to finance construction and development activities. |
The cost, timing and complexities of mine construction and development are increased by the remote
location of a property such as the Oyu Tolgoi Project. It is common in new mining operations to
experience unexpected problems and delays during development, construction and mine start-up. In
addition, delays in the commencement of mineral production often occur. Accordingly, there is no
assurance that Ivanhoe Mines future development activities will result in profitable mining
operations.
Ivanhoe Mines ability to obtain dividends or other distributions from our subsidiaries may be
subject to restrictions imposed by law, foreign currency exchange regulations and our financing
arrangements.
Ivanhoe Mines conducts its operations through subsidiaries. Its ability to obtain dividends or
other distributions from its subsidiaries may be subject to restrictions on dividends or
repatriation of earnings under applicable local law, monetary transfer restrictions and foreign
currency exchange regulations in the jurisdictions in which the subsidiaries operate. The
subsidiaries ability to pay dividends or make other distributions to Ivanhoe Mines is also subject
to their having sufficient funds to do so. If the subsidiaries are unable to pay dividends or make
other distributions, Ivanhoe Mines growth may be inhibited unless it is able to obtain additional
equity or debt financing on acceptable terms. In the event of a subsidiarys liquidation, Ivanhoe
Mines may lose all or a portion of its investment in that subsidiary.
There can be no assurance that the interest held by Ivanhoe Mines in its exploration, development
and mining properties is free from defects or that material contractual arrangements between
Ivanhoe Mines and entities owned or controlled by foreign governments will not be unilaterally
altered or revoked.
Ivanhoe Mines has investigated its rights to explore and exploit its various properties and, to the
best of its knowledge, those rights are in good standing but no assurance can be given that such
rights will not be revoked, or significantly altered, to the detriment of Ivanhoe Mines. There can
also be no assurance that Ivanhoe Mines rights will not be challenged or impugned by third
parties. Ivanhoe Mines has also applied for rights to explore, develop and mine various properties,
but there is no certainty that such rights, or any additional rights applied for, will be granted
on terms satisfactory to Ivanhoe Mines or at all.
The proceeds from the sale of the Savage River Project are dependent on iron ore prices and the
remaining supply of ore at the Savage River Project.
The remaining portion of the proceeds payable to Ivanhoe Mines from the sale of the Savage River
Project are deferred, and the amount of such payments are dependent on prevailing prices for iron
ore (as represented by the Nibrasco/JSM pellet price) in the year that the compensation is paid and
the total tonnage of iron ore pellets sold from the Savage River Project in that year. The price of
iron ore was at the high end of recent historical trends when the first payment occurred in March
2006 and it has softened since then. Such prices are very volatile and in the past prices have
suffered significant declines. Lower prices means lower corresponding payments to Ivanhoe Mines
than the annual payment received in March 2006. In addition, while current reserve and resource
estimates indicate that the mine will be capable of producing sufficient ore to meet the 1,800,000
tonnes per
48
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
year threshold for the term of deferred payments, there is no assurance that these
estimates will actually bear themselves out. If insufficient ore is actually present to produce the
maximum threshold amount of ore, then the corresponding payments to Ivanhoe Mines will be lower.
Competition for new mining properties by larger, more established companies may prevent Ivanhoe
Mines from acquiring interests in additional properties or mining operations.
Significant and increasing competition exists for mineral acquisition opportunities throughout the
world. As a result of this competition, some of which is with large, better established mining
companies with substantial capabilities and greater financial and technical resources, Ivanhoe
Mines may be unable to acquire rights to exploit additional attractive mining properties on terms
it considers acceptable. Accordingly, there can be no assurance that Ivanhoe Mines will acquire any
interest in additional operations that would yield reserves or result in commercial mining
operations.
Ivanhoe Mines has a limited operating history, and there is no assurance that it will be capable of
consistently producing positive cash flows.
Ivanhoe Mines has paid no dividends on its Common Shares since incorporation and does not
anticipate doing so in the foreseeable future. Ivanhoe Mines has a limited operating history and
there can be no assurance of its ability to operate its projects profitably. While Ivanhoe Mines
may in the future generate additional working capital through the operation, development, sale or
possible syndication of its properties, there is no assurance that Ivanhoe Mines will be capable of
producing positive cash flow on a consistent basis or that any such funds will be available for
exploration and development programs.
As an exploration and development company that has a limited production history, Ivanhoe Mines has
incurred losses since its inception, and it expects to continue to incur losses until sometime
after the start-up of production at Oyu Tolgoi. As at December 31, 2006, Ivanhoe Mines had an
accumulated deficit of $878.2 million. There can be no assurance that Ivanhoe Mines will achieve or
sustain profitability in the future.
A substantial portion of Ivanhoe Mines operations involve exploration and development and there is
no guarantee that any such activity will result in commercial production of mineral deposits.
Development of Ivanhoe Mines mineral properties is contingent upon obtaining satisfactory
exploration results. Mineral exploration and development involves substantial expenses and a high
degree of risk, which even a combination of experience, knowledge and careful evaluation may not be
able to adequately mitigate. There is no assurance that additional commercial quantities of ore
will be discovered on any of Ivanhoe Mines exploration properties. There is also no assurance
that, even if commercial quantities of ore are discovered, a mineral property will be brought into
commercial production. The discovery of mineral deposits is dependent upon a number of factors, not
the least of
which is the technical skill of the exploration personnel involved. The commercial viability of a
mineral deposit, once discovered, is also dependent upon a number of factors, some of which are the
particular attributes of the deposit, such as size, grade and proximity to infrastructure, metal
prices and government regulations, including regulations relating to royalties, allowable
production, importing and exporting of minerals, and environmental protection. In addition,
assuming discovery of a commercial ore body, depending on the type of mining operation involved,
several years can elapse
49
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
from the initial phase of drilling until commercial operations are commenced. Most of
the above factors are beyond the control of Ivanhoe Mines.
Ivanhoe Mines cannot insure against all of the risks associated with mining.
Exploration, development and production operations on mineral properties involve numerous risks and
hazards, including:
|
|
|
rock bursts, slides, fires, earthquakes or other adverse environmental occurrences; |
|
|
|
|
industrial accidents; |
|
|
|
|
labour disputes; |
|
|
|
|
political and social instability; |
|
|
|
|
technical difficulties due to unusual or unexpected geological formations; |
|
|
|
|
failures of pit walls; and |
|
|
|
|
flooding and periodic interruptions due to inclement or hazardous weather condition. |
These risks can result in, among other things:
|
|
|
damage to, and destruction of, mineral properties or production facilities; |
|
|
|
|
personal injury; |
|
|
|
|
environmental damage; |
|
|
|
|
delays in mining; |
|
|
|
|
monetary losses; and |
|
|
|
|
legal liability. |
It is not always possible to obtain insurance against all such risks and Ivanhoe Mines may decide
not to insure against certain risks as a result of high premiums or other reasons. The incurrence
of an event that is not fully covered, or covered at all, by insurance, could have a material
adverse effect on Ivanhoe Mines financial conditions, results of operations and cash flows and
could lead to a decline in the value of the securities of Ivanhoe Mines. Ivanhoe Mines does not
maintain insurance against political or environmental risks. Also, because of the recent major
increases in insurance premiums and the inability to obtain full coverage, the Monywa Copper
Project is self-insuring on a portion of the mine assets.
As a result of the rights to acquire common shares and other rights granted to Rio Tinto pursuant
to the Rio Tinto Transaction, Rio Tinto has the ability to significantly influence the business and
affairs of Ivanhoe Mines.
The first tranche of the private placement, together with the additional rights granted to Rio
Tinto in the Rio Tinto Transaction to obtain additional common shares pursuant to a second tranche
private placement and the exercise of the warrants, will give Rio Tinto the voting power to
significantly influence the policies, business and affairs of the Company and the outcome of any
significant corporate transaction or other matter, including a merger, business combination or a
sale of all, or substantially all, of the Companys assets. Subject to certain limited exceptions,
Rio Tinto also has a
50
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
right of first refusal with respect to any proposed disposition by the Company of an
interest in the Oyu Tolgoi Project. Rio Tintos share position in the Company and its right of
first refusal with respect to the Oyu Tolgoi Project may have the effect of delaying, deterring or
preventing a transaction involving a change of control of the Company in favour of a third party
that otherwise could result in a premium in the market price of the common shares in the future.
Rio Tinto will also be able to significantly influence the management, development and operation of
the Oyu Tolgoi Project through its representatives on the OT Technical Committee, established to
manage the Oyu Tolgoi Project. Provided Rio Tinto maintains a minimum level of shareholding in the
Company, Rio Tintos appointees to the OT Technical Committee will have a veto over certain
specified material decisions during the five year period following closing of the first tranche
private placement and, thereafter, Rio Tinto appointees will represent a majority of the members of
the OT Technical Committee and will thereby be entitled to control the ongoing decisions made by
the OT Technical Committee.
Ivanhoe Mines is exposed to risks of changing political stability and government regulation in the
countries in which it operates.
Ivanhoe Mines holds mineral interests in countries which may be affected in varying degrees by
political stability, government regulations relating to the mining industry and foreign investment
therein, and the policies of other nations in respect of these countries. Any changes in
regulations or shifts in political conditions are beyond the control of Ivanhoe Mines and may
adversely affect its business. Ivanhoe Mines operations may be affected in varying degrees by
government regulations, including those with respect to restrictions on production, price controls,
export controls, income taxes, expropriation of property, employment, land use, water use,
environmental legislation and mine safety. Ivanhoe Mines operations may also be affected in
varying degrees by political and economic instability, economic or other sanctions imposed by other
nations, terrorism, military repression, crime, extreme fluctuations in currency exchange rates and
high inflation.
In certain areas where Ivanhoe Mines is active, the regulatory environment is in a state of
continuing change, and new laws, regulations and requirements may be retroactive in their effect
and implementation. The laws of many of the countries in which Ivanhoe Mines operates also contain
inconsistencies and contradictions. Many of them are structured to bestow on government bureaucrats
substantial administrative discretion in their application and enforcement with the result that the
laws are subject to changing and different interpretations. As such, even Ivanhoe Mines best
efforts to comply with the laws may not result in effective compliance in the determination of
government bureaucrats.
Ivanhoe Mines conducts certain of its operations through co-operative joint ventures with
government controlled entities. While this connection benefits Ivanhoe Mines in some respects,
there is a substantial inequality with respect to the influence of the parties with the applicable
government. Governments in these countries hold a substantial degree of subjective control over the
application and enforcement of laws and the conduct of business. This inequality would become
particularly detrimental if a business dispute arises between joint venture parties. Ivanhoe Mines
seeks to minimize this issue by including international arbitration clauses in relevant agreements
whenever possible and by maintaining positive relations with both its joint venture partners and
local
51
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
governments, but there can be no guarantee that these measures will be sufficient to
protect Ivanhoe Mines interest in these countries.
Ivanhoe Mines prospects depend on its ability to attract and retain key personnel.
Recruiting and retaining qualified personnel is critical to Ivanhoe Mines success. The number of
persons skilled in the acquisition, exploration and development of mining properties is limited and
competition for such persons is intense. Ivanhoe Mines believes that it has been successful in
recruiting excellent personnel to meet its corporate objectives but, as Ivanhoe Mines business
activity grows, it will require additional key financial, administrative, mining, marketing and
public relations personnel as well as additional staff on the operations side. Although Ivanhoe
Mines believes that it will be successful in attracting and retaining qualified personnel, there
can be no assurance of such success.
Certain directors of Ivanhoe Mines are directors or officers of, or have significant shareholdings,
in other mineral resource companies and there is the potential that such directors will encounter
conflicts of interest with Ivanhoe Mines.
Certain of the directors of the Company are directors or officers of, or have significant
shareholdings in, other mineral resource companies and, to the extent that such other companies may
participate in ventures in which Ivanhoe Mines may participate, the directors of Ivanhoe Mines may
have a conflict of interest in negotiating and concluding terms respecting the extent of such
participation. This includes the nominees of Rio Tinto, which is entitled to nominate directors to
the board of directors of the Company in proportion to its holdings of the Companys issued and
outstanding common shares from time to time. Certain of these nominees are or may be directors or
officers of, or have significant shareholdings in, Rio Tinto companies or other mineral resource
companies and, to the extent that such companies may engage in business relationships with the
Company, the directors of the Company appointed by Rio Tinto may have conflicts of interest in
negotiating and concluding terms of such relationships. In all case where directors and officers
have an interest in another resource company, such other companies may also compete with Ivanhoe
Mines for the acquisition of mineral property rights. In the event that any such conflict of
interest arises, a director who has such a conflict will disclose the conflict to a meeting of the
directors of the Company and will abstain from voting for or against the approval of such a
participation or such terms. In appropriate cases, Ivanhoe Mines will establish a special committee
of independent directors to review a matter in which several directors, or management, may have a
conflict. From time to time, several companies may participate in the acquisition, exploration and
development of natural resource properties thereby allowing their participation in larger programs,
permitting involvement in a greater number of programs and reducing financial exposure in respect
of any one program. It may also occur that a particular company will assign all or a portion of its
interest in a particular program to another of these companies due to the financial position of the
company making the assignment. In accordance with the laws of the Yukon
Business Corporations Act, the directors of the Company are required to act honestly, in good faith
and in the best interests of the Company. In determining whether or not Ivanhoe Mines will
participate in a particular program and the interest therein to be acquired by it, the directors
will primarily consider the potential benefits to Ivanhoe Mines, the degree of risk to which
Ivanhoe Mines may be exposed and its financial position at that time.
52
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
RELATED-PARTY TRANSACTIONS
The following tables summarize related party expenses incurred by Ivanhoe Mines, primarily on
a cost recovery basis, with an officer of a subsidiary of Ivanhoe Mines, a company subject to
significant influence by Ivanhoe Mines, a company affiliated with Ivanhoe Mines, or with companies
related by way of directors or shareholders in common. The tables below summarize the transactions
with related parties and the types of expenditures incurred with related parties:
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|
2006 |
|
|
2005 |
|
Global Mining Management Corporation (a) |
|
$ |
7,015 |
|
|
$ |
4,169 |
|
Ivanhoe Capital Aviation LLC (b) |
|
|
3,840 |
|
|
|
3,421 |
|
Fognani & Faught, PLLC (c) |
|
|
1,394 |
|
|
|
823 |
|
Jinshan Gold Mines Inc. (d) |
|
|
|
|
|
|
1,122 |
|
Ivanhoe Capital Pte. Ltd. (e) |
|
|
78 |
|
|
|
60 |
|
Ivanhoe Capital Services Ltd. (f) |
|
|
743 |
|
|
|
755 |
|
Ivanhoe Energy Inc. (g) |
|
|
|
|
|
|
175 |
|
|
|
|
$ |
13,070 |
|
|
$ |
10,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|
|
2006 |
|
|
2005 |
|
Exploration |
|
$ |
|
|
|
$ |
1,122 |
|
Legal |
|
|
1,394 |
|
|
|
823 |
|
Office and administrative |
|
|
2,306 |
|
|
|
2,216 |
|
Salaries and benefits |
|
|
5,530 |
|
|
|
2,943 |
|
Travel (including aircraft rental) |
|
|
3,840 |
|
|
|
3,421 |
|
|
|
|
$ |
13,070 |
|
|
$ |
10,525 |
|
|
The above noted transactions were in the normal course of operations and were measured at the
exchange amount, which is the amount of consideration established and agreed to by the related
parties.
Accounts receivable and accounts payable at December 31, 2006, included $319,000 and $1,419,000,
respectively (December 31, 2005 $451,000 and $1,102,000, respectively), which were due from/to a
company under common control, a company affiliated with Ivanhoe Mines, or companies related by way
of directors in common.
(a) |
|
Global Mining Management Corporation (Global) is a private company based in Vancouver owned
equally by seven companies, one of which is Ivanhoe Mines. Global has a director in common
with the Company. Global provides administration, accounting, and other office services to the
Company on a cost-recovery basis. |
53
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
(b) |
|
Ivanhoe Capital Aviation LLC (Aviation) is a private company 100% owned by the Companys
Chairman. Aviation operates an aircraft which is rented by the Company on a cost-recovery
basis. |
|
(c) |
|
An officer of a subsidiary of Ivanhoe Mines is a partner with Fognani & Faught, PLLC, a legal
firm which provides legal services to Ivanhoe Mines. |
|
(d) |
|
During 2005, the Company incurred exploration expenditures as part of several joint venture
agreements with Jinshan. |
|
(e) |
|
Ivanhoe Capital Pte. Ltd. (Ivanhoe Capital) is a private company 100% owned by the Companys
Chairman. Ivanhoe Capital provides for administration, accounting, and other office services
in Singapore and London on a cost-recovery basis. |
|
(f) |
|
Ivanhoe Capital Services Ltd. (Services) is a private company 100% owned by the Companys
Chairman. Services provides for salaries associated with certain employees of the Company
located in Singapore on a cost-recovery basis. |
|
(g) |
|
Ivanhoe Energy Inc. (Ivanhoe Energy) is a public company in which the Companys Chairman has
a significant interest and holds the position of Deputy Chairman. During 2005, Ivanhoe Energy
provided for administration and other office services in Beijing on a cost-recovery basis. |
At the end of 2006 and 2005, Ivanhoe Mines discontinued Savage River operations owed approximately
$5.1 million to the Companys Chairman. This debt originated as a result of the December 2000
acquisition, by Ivanhoe Mines, of the Savage River operation. Following the sale of the Savage
River operations in February 2005, repayment of this balance is contingent upon Ivanhoe Mines
receiving proceeds in excess of approximately $111.1 million from the sale of the Savage River
operations. To date, $49.7 million has been received from the sale with an additional $19.5 million
expected to be received on March 31, 2007.
DISCLOSURE CONTROLS AND PROCEDURES
Disclosure controls and procedures are designed to provide reasonable assurance that all
relevant information is gathered and reported to senior management, including the Companys
principal
executive officer and principal financial officer, on a timely basis so that appropriate decisions
can be made regarding public disclosure.
As of the end of the Companys fiscal year ended December 31, 2006, an evaluation of the
effectiveness of the Companys disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange
Act)) was carried out by the Companys management with the participation of the principal executive
officer and principal financial officer. Based upon that evaluation, the Companys principal
executive officer
54
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
and principal financial officer have concluded that as of the end of that fiscal year,
the Companys disclosure controls and procedures are effective to ensure that information required
to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i)
recorded, processed, summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms and (ii) accumulated and communicated to the Companys
management, including its principal executive officer and principal financial officer, to allow
timely decisions regarding required disclosure.
It should be noted that while the Companys principal executive officer and principal financial
officer believe that the Companys disclosure controls and procedures provide a reasonable level of
assurance that they are effective, they do not expect that the Companys disclosure controls and
procedures or internal control over financial reporting will prevent all errors and fraud. A
control system, no matter how well conceived or operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met.
MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over the
Companys financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the
Exchange Act). Internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements in accordance with United States generally accepted accounting principles and the
requirements of the Securities and Exchange Commission in the United States, as applicable.
Management excluded from its assessment the internal control over financial reporting at Myanmar
Ivanhoe Copper Company Limited (MICCL) in which it holds a 50% interest, because the Company does
not have the ability to dictate or modify controls at MICCL and does not have the ability to
assess, in practice, the controls at the entity. Under U.S. generally accepted accounting
principles, MICCL is accounted for using the equity method of accounting and the Companys
proportionate interest in individual assets, liabilities, revenues and expenses is excluded from
the consolidated financial statement amounts of the Company. Under Canadian generally accepted
accounting principles, the Company proportionately consolidates MICCL which constitutes 24% and 29%
of net and total assets respectively, and 10% of net loss of the consolidated financial statement
amounts as of and for the year ended December 31, 2006. The Companys principal executive officer
and principal financial officer have assessed the effectiveness of the Companys internal control
over financial reporting as at December 31, 2006 in accordance with Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on this assessment, the Companys principal
executive officer and principal financial officer have determined that the Companys internal
control over financial reporting was effective as of December 31, 2006 and have certified Ivanhoe
Mines annual filings with the U.S. Securities and Exchange Commission on Form 40-F as required by
the United States Sarbanes-Oxley Act and with Canadian securities regulatory authorities.
Management reviewed the results of managements assessment with the Audit Committee of the
Companys Board of Directors. Deloitte & Touche LLP, independent registered chartered accountants,
was engaged, as approved by a vote of the Companys shareholders, to audit and provide
55
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
independent opinions on the Companys consolidated financial statements, managements
assessment of internal control over financial reporting and the effectiveness of the Companys
internal control over financial reporting as of December 31, 2006. Deloitte & Touche LLP has
provided such opinions.
Changes in internal control over financial reporting
During the year ended December 31, 2006 there were no changes in the Companys internal control
over financial reporting that have materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial reporting.
QUALIFIED PERSONS
Disclosure of a scientific or technical nature in this MD&A in respect of each of the material
mineral resource properties of Ivanhoe Mines was prepared by or under the supervision of the
qualified persons (as that term is defined in NI 43-101) listed below:
|
|
|
|
|
|
|
|
|
Relationship to |
Property |
|
Qualified Person |
|
Ivanhoe Mines |
|
Oyu Tolgoi Project
|
|
Bernard Peters, GRD Minproc Limited
|
|
Independent consultant |
|
Nariin Sukhait Project
|
|
Richard D. Tifft and Patrick P. Riley,
Norwest Corporation
|
|
Independent consultant |
OVERSIGHT ROLE OF THE AUDIT COMMITTEE
The Audit Committee reviews, with management and the external auditors, the Companys MD&A and
related consolidated financial statements and approves the release of such information to
shareholders. For each audit or quarterly review, the external auditors prepare a report for
members of the Audit Committee summarizing key areas, significant issues and material internal
control weaknesses encountered, if any.
56
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
CAUTIONARY
STATEMENTS
LANGUAGE REGARDING RESERVES AND RESOURCES
Readers are advised that National Instrument 43-101 Standards of Disclosure for Mineral Projects
(NI 43-101) of the Canadian Securities Administrators requires that each category of mineral
reserves and mineral resources be reported separately. For detailed information related to Company
resources and reserves, readers should refer to the Annual Information Form of the Company for the
year ended December 31, 2006, and other continuous disclosure documents filed by the Company since
January 1, 2007, at www.sedar.com.
NOTE TO UNITED STATES INVESTORS CONCERNING ESTIMATES OF MEASURED, INDICATED AND INFERRED RESOURCES
This document, including the documents incorporated by reference herein, has been prepared in
accordance with the requirements of securities laws in effect in Canada, which differ from the
requirements of United States securities laws. Without limiting the foregoing, this document,
including the documents incorporated by reference herein, uses the terms measured, indicated
and inferred resources. United States investors are advised that, while such terms are recognized
and required by Canadian securities laws, the SEC does not recognize them. Under United States
standards, mineralization may not be classified as a reserve unless the determination has been
made that the mineralization could be economically and legally produced or extracted at the time
the reserve determination is made. United States investors are cautioned not to assume that all or
any part of measured or indicated resources will ever be converted into reserves. Further,
inferred resources have a great amount of uncertainty as to their existence and as to whether
they can be mined legally or economically. It cannot be assumed that all or any part of the
inferred resources will ever be upgraded to a higher category. Therefore, United States investors
are also cautioned not to assume that all or any part of the inferred resources exist, or that they
can be mined legally or economically. Disclosure of contained ounces is a permitted disclosure
under Canadian regulations; however, the SEC only permits issuers to report resources as in place
tonnage and grade without reference to unit measures. Accordingly, information concerning
descriptions of mineralization and resources contained in this document, or in the documents
incorporated by reference, may not be comparable to information made public by United States
companies subject to the reporting and disclosure requirements of the SEC. National Instrument
43-101 Standards of Disclosure for Mineral Projects (NI 43-101) is a rule developed by the Canadian
Securities Administrators that establishes standards for all public disclosure an issuer makes of
scientific and technical information concerning mineral projects. Unless otherwise indicated, all
reserve and resource estimates contained in or incorporated by reference in this document have been
prepared in accordance with NI 43-101. These standards differ significantly from the requirements
of the SEC, and reserve and resource information
contained herein and incorporated by reference herein may not be comparable to similar information
disclosed by U.S. companies. NI 43-101 permits a historical estimate made prior to the adoption of
NI 43-101 that does not comply with NI 43-101 to be disclosed using the historical terminology if
the disclosure: (a) identifies the source and date of the historical estimate; (b) comments on the
relevance and reliability of the historical estimate; (c) states whether the historical estimate
uses categories other than those prescribed by NI 43-101; and (d) includes any more recent
estimates or data available.
57
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
FORWARD-LOOKING STATEMENTS
Certain statements made herein, including statements relating to matters that are not
historical facts and statements of our beliefs, intentions and expectations about developments,
results and events which will or may occur in the future, which constitute forward-looking
information within the meaning of applicable Canadian securities legislation and forward-looking
statements within the meaning of the safe harbor provisions of the United States Private
Securities Litigation Reform Act of 1995. Forward-looking information and statements are typically
identified by words such as anticipate, could, should, expect, seek, may, intend,
likely, plan, estimate, believe and similar expressions suggesting future outcomes or
statements regarding an outlook. 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; the
expected timing and outcome of Ivanhoe Mines discussions with representatives of the Government of
Mongolia for an Investment Agreement in respect of the Oyu Tolgoi Project; the estimated timing and
cost of bringing the Oyu Tolgoi Project into commercial production; anticipated future production
and cash flows; target milling rates; the impact of amendments to the laws of Mongolia and other
countries in which Ivanhoe Mines carries on business; the timing for completion of the 2007 IDP and
changes in mine plan contemplated thereunder; the timing of commencement of full construction of
the Oyu Tolgoi Project; the completion of licence transfers and the closing of the Coal Division
merger and completion of an updated mine plan for the Nariin Sukhait Project; the potential sale of
the Monywa Copper Project by the Trust to a third party; 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.
All such forward-looking information and statements are based on certain assumptions and analyses
made by Ivanhoe Mines management in light of their experience and perception of historical trends,
current conditions and expected future developments, as well as other factors management believes
are appropriate in the circumstances. These statements, however, are subject to a variety of risks
and uncertainties and other factors that could cause actual events or results to differ materially
from those projected in the forward-looking information or 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 information or 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. Except as required by law, 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.
58
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
MANAGEMENTS REPORT TO THE SHAREHOLDERS
The Consolidated Financial Statements and the managements discussion and analysis of
financial condition and results of operations (MD&A) are the responsibility of the management of
Ivanhoe Mines Ltd. These financial statements and the MD&A have been prepared by management in
accordance with accounting principles generally accepted in United States and regulatory
requirements, respectively, using managements best estimates and judgment of all information
available up to March 30, 2007.
The Board of Directors has approved the information contained in the consolidated financial
statements and the MD&A. The Board of Directors is responsible for ensuring that management
fulfills its responsibilities for financial reporting and internal controls. The Audit Committee of
the Board of Directors, consisting solely of outside directors, meets regularly during the year
with financial officers of the Company and the external auditors to satisfy itself that management
is properly discharging its financial reporting responsibilities to the Directors who approve the
consolidated financial statements.
These financial statements have, in managements opinion, been properly prepared within reasonable
limits of materiality and within the framework of the accounting policies summarized in Note 2 to
the Consolidated Financial Statements.
The consolidated financial statements have been audited by Deloitte & Touche LLP, independent
registered chartered accountants, in accordance with Canadian generally accepted auditing standards
and the standards of the Public Company Accounting Oversight Board (United States). They have full
and unrestricted access to the Audit Committee.
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John Macken
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Tony Giardini
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President and CEO
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Chief Financial Officer |
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March 30, 2007 |
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Vancouver, BC, Canada |
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