Current Report
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
From: May 15, 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.)
(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.)
(If Yes is marked, indicate below the file number assigned to the registrant in connection with
Rule 12g3-2(b): 82-__________.)
Enclosed:
First quarter financial statements, notes and MD&A
Press release
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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IVANHOE MINES LTD.
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Date: May 15, 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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1
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Interim Report for the three months ended, March 31, 2007.
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Share Information
Common shares of Ivanhoe
Mines Ltd. are listed for
trading under the symbol IVN
on the New York Stock
Exchange, NASDAQ and the
Toronto Stock Exchange.
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Investor Information
All financial reports, news
releases and corporate
information can be accessed on
our web site at
www.ivanhoe-mines.com |
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At May 15, 2007 the
Company had 374.4
million common
shares issued and
outstanding and
warrants and stock
options outstanding
for 13.3 million
additional common
shares. |
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Transfer Agents and
Registrars
CIBC Mellon Trust Company
320 Bay Street
Toronto, Ontario, Canada
M5H 4A6
Toll free in North America:
1-800-387-0825 |
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Contact Information
Investors: Bill Trenaman
Media : Bob Williamson
Suite 654-999 Canada Place
Vancouver, B.C., Canada V6C 3E1
E-mail : info@ivanhoemines.com
Tel : (604) 688-5755 |
IVANHOE MINES LTD.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
This discussion and analysis of the financial position and results of operations (MD&A) of
Ivanhoe Mines Ltd. should be read in conjunction with the unaudited consolidated financial
statements of Ivanhoe Mines Ltd. and the notes thereto for the three months ended March 31, 2007,
and 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). 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.
Additional information about the Company, including its Annual Information Form, is available at
www.sedar.com.
This discussion and analysis contains forward-looking statements. Please refer to the cautionary
language on page 26.
The effective date of this MD&A is May 15, 2007.
The principal event to date in 2007 for Ivanhoe Mines occurred on April 10 when Ivanhoe Mines
and its strategic partner, Rio Tinto, announced that they had reached agreement in principle with
the Mongolian Governments Working Group on a draft Investment Agreement for the development of the
Oyu Tolgoi copper-gold project in Mongolias South Gobi Region.
The draft agreement remains subject to review and approval by the Cabinet of the Mongolian
Government and the National Parliament and the settlement of definitive documentation. The draft
agreement also is subject to review and approval by the boards of directors of Ivanhoe Mines and
Rio Tinto.
IVANHOE MINES LTD.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
Detailed information will be released when appropriate, subject to approval of the draft
agreement by the Mongolian Governments Cabinet.
Oyu Tolgoi Development Activities
Site preparation during the quarter continued, ensuring that the project will be in a position
to commence full construction in July 2007. Activities on site are focussed on the sinking of Shaft
No. 1, preliminary work on Shaft No. 2, 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
1,000-metre milestone mark in early May 2007. Shaft No. 1, with its planned depth of more than
1,300 metres, will allow for additional exploration of the Oyu Tolgoi underground mine and also
will provide initial production, and ultimately ventilation, to the 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.
Work is well underway on Shaft No. 2, which is planned to be the initial primary underground
production and service shaft at Oyu Tolgoi. Work completed in 2006 involved shaft engineering and
surface infrastructure. Work now has commenced on pre-sinking and a decision to mobilize crews for
collar construction is expected shortly. Engineering work is continuing on schedule. An order was
placed for the auxiliary hoist for Shaft No. 2 in January 2007, and bids are being sought for the
main friction hoists to allow for the expected start of full construction in July 2007.
The joint Ivanhoe MinesRio Tinto mine planning team completed a significant amount of study work
on the Hugo North ore body during the first quarter of 2007 to ascertain the best base case for the
development of this high-grade resource. This work, together with the detailed engineering for
plant and infrastructure and previous open-pit planning, will be updated and incorporated in the
Integrated Development Plan (2007 IDP) to be released in the second half of 2007.
Oyu Tolgoi resources expanded with ongoing drilling program
Ivanhoe Mines completed approximately 20,650 metres of drilling on the Oyu Tolgoi Project
during Q107, including exploration on the adjoining Entrée Gold-Ivanhoe Mines earn-in joint
venture properties, Shivee Tolgoi and Javkhlant. Significant geotechnical drilling is being
conducted to bring the geotechnical characterization to a pre-feasibility level in the Hugo Dummett
North Deposit, as well as for a starter block cave or a sub-level cave. Sterilization drilling was
completed under the primary crusher site, the route of the conveyor system and the water supply
pipeline across the Shivee Tolgoi property. Drilling also was conducted on the Southern Oyu Wedge
Deposit to follow up previously discovered high-grade copper-gold mineralization located on the
east side of the zone. By the end of the quarter, two drill rigs were operating on the Javkhlant
concession, exploring a 3,000-metre-long gradient array IP anomaly referred to as the Sparrow South
target. A third rig will be added to the Javkhlant program soon.
Drilling at the Sparrow South target, located approximately three kilometres southwest of the
south-western end of South West Oyu, has intersected stratigraphy similar to the late-Devonian host
rocks
2
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
of South West Oyu, including conglomeratic formations with highly mineralized, rounded clasts and
late-stage chalcopyrite mineralization cutting the matrix of the conglomerate. This suggests that a
high-grade, copper-gold deposit existed in the proximity of the IP target that had been exposed to
erosion late in the mineralization period. Drilling will continue in Q207, with the objective
being the location of the source of the high-grade cobbles and the IP chargeability anomaly.
Geotechnical drilling intended to further define the geotechnical characteristics of the Hugo North
Deposit and the Northwest Boundary Fault was completed in Q107. Two geotechnical holes are being
drilled on the eastern side of Hugo North to assess the geotechnical characteristics of the East
BAT fault, which parallels the eastern margin of the deposit and may influence future development
decisions on the Hugo North Deposit.
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. 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.
On May 1, 2007, Ivanhoe Mines and Asia Gold announced that the Government of Mongolia had completed
the transfer of all 35 coal exploration licences held by Ivanhoe Mines in the South Gobi area of
Mongolia. All of the material conditions precedent to the closing now have been satisfied. The
transaction is expected to close after Asia Golds Annual General Meeting on May 25, 2007, at which
time Asia Golds shareholders will be asked to authorize a change of Asia Golds corporate name to
SouthGobi Energy Resources Ltd. to more accurately reflect Asia Golds strategic focus of
integrated coal and energy development in Mongolias South Gobi region. The proposed name change is
subject to regulatory approval. If the name change is approved, SouthGobi Energy Resources will
trade on the TSX Venture Exchange under the trading symbol SGQ.
Ivanhoe Mines is Asia Golds largest shareholder, currently owning approximately 44% of Asia Golds
outstanding shares. Upon the closing of the transaction, Ivanhoe Mines will own approximately 90%
of the issued and outstanding shares of Asia Gold.
Mining Licence Application Process Underway for Ovoot Tolgoi Project
The Nariin Sukhait coal project has been renamed Ovoot Tolgoi to differentiate Ivanhoe Mines
coal exploration and development project in Mongolias South Gobi Province from the adjoining
Nariin Sukhait coal mine owned by a Mongolian-Chinese joint venture company, MAK/Qinhua.
In April 2007, Ivanhoe Mines initiated the formal process for obtaining a Mining Licence for
development of a surface open-pit coal mine at Ovoot Tolgoi. As required by the Minerals Law of
Mongolia, Ivanhoe Mines filed a Detailed Environmental Impact Assessment (DEIA) and a Geological
Resource Report for the Ovoot Tolgoi property.
3
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
In May 2007, the DEIA for the Ovoot Tolgoi coal project was approved by the Mongolian Governments
Ministry of Environment and, following receipt of the Government approval of the Geological
Resource report, Ivanhoe Mines will formally file for a mining licence to commence development and
operation.
According to the Minerals Law, mining licences in Mongolia are granted for a 30-year term, with
accompanying rights to two 20-year extensions. Such mining licences provide broad-based rights
to the licensee, including the rights to mine and conduct further exploration within the mining
claim, sell mineral products at international market prices, transfer all or part of the mining
licence, construct necessary structures to carry out mining activities, pass through adjacent land
and land owned or possessed by other persons and use land and water in compliance with applicable
laws.
AUSTRALIA
Ivanhoe Australia Enters into Investment Agreement with Exco Resources
On May 9, 2007, Ivanhoe Mines 100%-owned subsidiary, Ivanhoe Australia, announced that it had
entered into a private placement investment in, and a joint-venture agreement with, Exco Resources
NL (Exco). Exco is an Australian mineral exploration company listed on the Australian Stock
Exchange. Exco holds extensive exploration tenements in the Cloncurry copper, uranium and gold
region in northwest Queensland and the White Dam gold project in South Australia.
Ivanhoe Australias investment and joint venture with Exco significantly expands Ivanhoe Mines
exploration presence in the highly prospective Cloncurry region in the Mt. Isa District.
The private placement consists of 26.4 million Units at a price of A$0.30 per Unit, for a cost of
A$7.9 million. Each Unit consists of one common share and 0.8 share purchase warrants. One full
share purchase warrant allows Ivanhoe Australia to purchase, subject to Exco shareholders
approval, one Exco common share at a price of A$0.35 on, or before, June 1, 2008. If all the
warrants are exercised, the total investment will be $A15.3 million and will result in Ivanhoe
Australia holding approximately 19.9% of Excos common shares.
The second part of the investment is an exploration joint venture on approximately 785 square
kilometres of Excos 100%-owned tenements located south of the Kuridala tenements, which form the
northern part of Ivanhoe Australias 2,140-square-kilometre Cloncurry copper, uranium and gold
project. The terms of the joint venture call for Ivanhoe Australia to spend A$5 million over three
years to earn an 80% interest in Excos tenements. The joint venture expands and consolidates
Ivanhoe Australias exploration land position around its current Cloncurry Project.
Cloncurry IOCG Project expanding exploration
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. Since January 2007,
Ivanhoe Mines has increased its exploration efforts at Cloncurry and early results have been
encouraging.
Swan Prospect. In Q107, 11 holes were drilled at the Swan Prospect, totalling 5,000 metres. This
drilling has continued to expand the northern zone mineralization at Swan. In addition, drilling
into the
4
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
western footwall has located a new mineralization branch trending to the northwest. The
outlines of the Swan, Swell, Elliott and Corbould mineral zones demonstrate a relationship between
the gravity data results and the copper, uranium and gold mineralization. Future target areas,
interpreted from gravity data results, have not been previously drilled and open up a large area
for potential mineralization.
Amethyst Castle Prospect. Copper, gold and uranium are hosted in a widespread, large-scale breccia
body in the Amethyst Castle area. Ivanhoe Mines identified the presence of uranium and the
IOCG-style of mineralization and has carried out magnetic, conductivity, IP and gravity surveys. In
2006, 14 reverse-circulation (RC) drill holes and six diamond drill (DD) holes were completed. In
2007, a further three DD holes tested intersections discovered in 2006. In January 2007, 1,250
metres were completed, with Holes 7, 8 and 9 testing previous intersections in Holes 6 and 3.
The drill results indicate a large breccia structure containing pods of high-grade gold, copper and
uranium that requires further investigation. To explore this prospect, further deep dipole-dipole
IP is planned, as well as drilling to the northeast.
Metal Ridge and Metal Ridge North. The diamond and RC drill program that commenced in late 2006 was
completed in January 2007. Thirteen holes were drilled, totalling 4,560 metres, with 660 metres of
diamond drilling and 400 metres of RC completed to date in 2007.
No large intersections of mineralization were located during this drilling; however copper, lead,
zinc and uranium values were scattered through the core, with traces of molybdenum. The uranium is
present as a high background with a strong presence in several holes.
Uranium Prospects. In addition to the IOCG prospects identified above, the Cloncurry Project hosts
a significant number of uranium exploration prospects, including Robert Heg, Elizabeth Anne, Great
Wall and Dairy Bore. Drilling has begun on Robert Heg and Elizabeth Anne. Additional drilling
programs are planned in 2007 on the Dairy Bore, Elizabeth Anne, Great Wall and Robert Heg
prospects. An additional 20 targets that were defined by the airborne survey completed in November
2006 are awaiting ground survey inspection prior to drilling.
ASSETS HELD FOR SALE
As part of the 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 held through its Monywa subsidiary in the Monywa Copper
Project. On February 27, 2007, Ivanhoe Mines relinquished ownership of the Monywa subsidiary 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 has divested itself of
ownership in the Monywa Copper Project and 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.
Upon transfer of the Myanmar assets to the Trust in February 2007, Ivanhoe Mines ceased accounting
for its investment in the Monywa Copper Project under the equity method due to an inability to
exercise significant influence. The investment now is accounted for under the cost method.
5
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
EXECUTIVE CHANGES
Bret Clayton, Rio Tintos Chief Executive Copper, was appointed to Ivanhoe Mines board of
directors at the companys Annual General Meeting on May 11, 2007.
Mr. 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 US, and interests in the copper mines of Escondida in Chile, Grasberg in
Indonesia, Northparkes in Australia and Palabora in South Africa, as well as the Oyu Tolgoi
copper-gold partnership with Ivanhoe Mines in Mongolia, the Resolution copper project in the US and
the La Granja copper project in Peru.
During his 13-year career with the Rio Tinto Group, Mr. Clayton has held numerous senior management
positions, including 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. He also was President and CEO of Rio Tinto Energy America, based in Gillette,
Wyoming, where he was responsible for all North American energy-related business of Rio Tinto
Energy, with a primary focus on coal. Mr. Clayton spent nine years at
PricewaterhouseCoopers auditing and consulting to the U.S. mining industry before he joined the Rio
Tinto group.
Mr. Clayton succeeds Tom Albanese as Rio Tintos representative on the Ivanhoe Mines Board. Mr.
Albanese, who served on the board since November, 2006, was recently appointed as Rio Tintos Chief
Executive.
REVIEW OF OPERATIONS
In Q107, Ivanhoe Mines recorded a net loss of $46.8 million (or $0.13 per share), compared to
a net loss of $23.2 million (or $0.07 per share) in Q106. The $23.6 million increase in the loss
from 2006 to 2007 was primarily due to a $21.9 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 quarter also were affected by a $3.4 million increase in
interest income, a $1.0 million increase in foreign exchange gains, a $0.7 million increase in
income from discontinued operations, less a $1.2 million decrease in general and administrative
costs and a $4.0 million decrease in share of income from investment held for sale.
6
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
The MD&A is comprised of the following sections:
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1. |
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Selected Quarterly Data |
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2. |
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Review of Operations |
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A. |
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Exploration Activities |
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B. |
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Assets Held for Sale |
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C. |
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Discontinued Operations |
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D. |
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Administrative and Other Expenses |
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3. |
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Liquidity and Capital Resources |
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4. |
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Share Capital |
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5. |
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Outlook |
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6. |
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Off-Balance-Sheet Arrangements |
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7. |
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Contractual Obligations |
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8. |
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Changes in Accounting Policies |
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9. |
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Critical Accounting Estimates |
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10. |
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Recent Accounting Pronouncements |
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11. |
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Risks and Uncertainties |
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12. |
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Related-Party Transactions |
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13. |
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Changes in Internal Control over Financial Reporting |
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14. |
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Cautionary Statements |
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15. |
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Forward-Looking Statements |
7
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
($ in millions of U.S. dollars, except per share information)
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Quarter Ended |
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Mar-31 |
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Dec-31 |
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Sep-30 |
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Jun-30 |
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2007 |
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2006 |
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2006 |
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2006 |
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Exploration expenses |
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($53.5 |
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($70.4 |
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($67.3 |
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($43.7 |
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General and administrative |
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($5.2 |
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($8.9 |
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($6.9 |
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($6.0 |
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Share of income (loss) from investment held for sale |
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$ |
0.4 |
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$ |
7.4 |
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$ |
9.0 |
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($2.4 |
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Foreign exchange gains (losses) |
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$ |
0.8 |
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($3.7 |
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($0.4 |
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$ |
4.7 |
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Net (loss) from continuing operations |
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($55.4 |
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($73.5 |
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($68.0 |
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($45.7 |
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Net income from discontinued operations |
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$ |
8.6 |
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$ |
4.8 |
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$ |
1.5 |
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$ |
5.4 |
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Net (loss) |
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($46.8 |
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($68.7 |
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($66.5 |
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($40.3 |
) |
Net (loss) income per share |
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Continuing operations |
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($0.15 |
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($0.21 |
) |
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($0.20 |
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($0.14 |
) |
Discontinued operations |
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$ |
0.02 |
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$ |
0.01 |
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$ |
0.00 |
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$ |
0.02 |
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Total |
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($0.13 |
) |
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($0.20 |
) |
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($0.20 |
) |
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($0.12 |
) |
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Quarter Ended |
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Mar-31 |
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Dec-31 |
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Sep-30 |
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Jun-30 |
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2006 |
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2005 |
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2005 |
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2005 |
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Exploration expenses |
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($31.6 |
) |
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($41.7 |
) |
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($30.5 |
) |
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($35.5 |
) |
General and administrative |
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($6.4 |
) |
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($4.2 |
) |
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($5.7 |
) |
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($4.2 |
) |
Share of income (loss) from investment held for sale |
|
$ |
4.5 |
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($0.5 |
) |
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$ |
8.0 |
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|
$ |
7.8 |
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Foreign exchange gains (losses) |
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|
($0.2 |
) |
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|
($0.4 |
) |
|
$ |
7.1 |
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|
$ |
1.7 |
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Net (loss) from continuing operations |
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|
($31.1 |
) |
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($49.8 |
) |
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($20.6 |
) |
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|
($31.1 |
) |
Net income from discontinued operations |
|
$ |
7.9 |
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|
$ |
7.9 |
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|
$ |
6.4 |
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|
$ |
5.9 |
|
Net (loss) |
|
|
($23.2 |
) |
|
|
($41.8 |
) |
|
|
($14.3 |
) |
|
|
($25.2 |
) |
Net (loss) income per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
($0.10 |
) |
|
|
($0.16 |
) |
|
|
($0.07 |
) |
|
|
($0.10 |
) |
Discontinued operations |
|
$ |
0.03 |
|
|
$ |
0.03 |
|
|
$ |
0.02 |
|
|
$ |
0.02 |
|
Total |
|
|
($0.07 |
) |
|
|
($0.13 |
) |
|
|
($0.05 |
) |
|
|
($0.08 |
) |
|
8
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars except where noted)
In Q107, Ivanhoe Mines recorded a net loss of $46.8 million (or $0.13 per share), compared to
a net loss of $23.2 million (or $0.07 per share) in Q106. The $23.6 million increase in the loss
from 2006 to 2007 was primarily due to a $21.9 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 quarter also were affected by a $3.4 million increase in
interest income, a $1.0 million increase in foreign exchange gains, a $0.7 million increase in
income from discontinued operations, less a $1.2 million decrease in general and administrative
costs and a $4.0 million decrease in share of income from investment held for sale.
A. EXPLORATION ACTIVITIES
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 Q107, Ivanhoe Mines expensed $53.5 million in exploration and development activities, compared
to $31.6 million in Q106. 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 $53.5 million was spent on Ivanhoe Mines Mongolian properties ($51.4 million
in Q107, compared to $29.4 million in Q106), which consisted of the following exploration and
development costs:
MONGOLIA EXPLORATION EXPENSES
|
|
|
|
|
|
|
|
|
|
|
Q1'07 |
|
|
% of Total |
|
|
($ in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oyu Tolgoi |
|
|
|
|
|
|
|
|
Concentrator and Infrastructure Engineering |
|
$ |
9.2 |
|
|
|
18 |
% |
Site Construction |
|
|
18.7 |
|
|
|
36 |
% |
Shaft No. 1 Sinking |
|
|
7.2 |
|
|
|
14 |
% |
Exploration |
|
|
4.5 |
|
|
|
9 |
% |
Owners Costs (includes non-cash stock-based compensation) |
|
|
4.8 |
|
|
|
9 |
% |
|
|
|
|
|
|
|
|
|
|
|
44.4 |
|
|
|
|
|
Coal Division |
|
|
1.2 |
|
|
|
2 |
% |
Other Mongolia Exploration (including Asia Gold) |
|
|
3.1 |
|
|
|
6 |
% |
UB Office |
|
|
2.7 |
|
|
|
5 |
% |
|
|
|
$ |
51.4 |
|
|
|
100 |
% |
|
9
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
Exploration and development expenditures capitalized in Q107 totalled $14.9 million, compared
to $10.3 million in Q106. During Q107, the $14.9 million capitalized related mainly to $14.6
million capitalized at Oyu Tolgoi for plant and equipment, camp and office buildings.
MONGOLIA
OYU TOLGOI
The Oyu Tolgoi Project consists of two groups of deposits 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. 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. The revised estimates can be found in the 2006 Annual Information Form on www.sedar.com.
Agreement in principle reached on draft Investment Agreement
On April 10, 2007, Ivanhoe Mines and its strategic partner, Rio Tinto, reached an agreement in
principle with the Mongolian Governments Working Group on a draft Investment Agreement for the
development of the Oyu Tolgoi Project.
The draft agreement remains subject to review and approval by the Cabinet of the Mongolian
Government and the National Parliament and the settlement of definitive documentation. The draft
agreement also is subject to review and approval by the boards of directors of Ivanhoe Mines and
Rio Tinto.
Detailed information will be released when appropriate, subject to approval of the draft agreement
by the Mongolian Governments Cabinet.
Oyu Tolgoi Development Activities
Site preparation during the quarter continued, ensuring that the project will be in a position
to commence full construction in July 2007. Activities on site are focussed on the sinking of Shaft
No. 1, preliminary work on Shaft No. 2, 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
1,000-metre milestone mark in early May 2007. Shaft No. 1, with its planned depth of more than
1,300 metres, will allow for additional exploration of the Oyu Tolgoi underground mine and also
will provide initial production, and ultimately ventilation, to the 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.
10
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
Work is well underway on Shaft No. 2, which is planned to be the initial primary underground
production and service shaft at Oyu Tolgoi. Work completed in 2006 involved shaft engineering and
surface infrastructure. Work now has commenced on pre-sinking and a decision to mobilize crews for
collar construction is expected shortly. Engineering work is continuing on schedule. An order was
placed for the auxiliary hoist for Shaft No. 2 in January 2007, and bids are being sought for the
main friction hoists to allow for the expected start of full construction in July 2007.
The joint Ivanhoe MinesRio Tinto mine planning team completed a significant amount of study work
on the Hugo North ore body during the first quarter of 2007 to ascertain the best base case for the
development of this high-grade resource. This work, together with the detailed engineering for
plant and infrastructure and previous open-pit planning, will be updated and incorporated in the
Integrated Development Plan (2007 IDP) to be released in the second half of 2007.
Oyu Tolgoi resources expanded with ongoing drilling program
Ivanhoe Mines completed approximately 20,650 metres of drilling on the Oyu Tolgoi Project
during Q107, including exploration on the adjoining Entrée Gold-Ivanhoe Mines earn-in joint
venture properties, Shivee Tolgoi and Javkhlant. Significant geotechnical drilling is being
conducted to bring the geotechnical characterization to a pre-feasibility level in the Hugo Dummett
North Deposit, as well as for a starter block cave or a sub-level cave. Sterilization drilling was
completed under the primary crusher site, the route of the conveyor system and the water supply
pipeline across the Shivee Tolgoi property. Drilling also was conducted on the Southern Oyu Wedge
Deposit to follow up previously discovered high-grade copper-gold mineralization located on the
east side of the zone. By the end of the quarter, two drill rigs were operating on the Javkhlant
concession, exploring a 3,000-metre-long gradient array IP anomaly referred to as the Sparrow South
target. A third rig will be added to the Javkhlant program soon.
Drilling at the Sparrow South target, located approximately three kilometres southwest of the
south-western end of South West Oyu, has intersected stratigraphy similar to the late-Devonian host
rocks of South West Oyu, including conglomeratic formations with highly mineralized, rounded clasts
and late-stage chalcopyrite mineralization cutting the matrix of the conglomerate. This suggests
that a high-grade, copper-gold deposit existed in the proximity of the IP target that had been
exposed to erosion late in the mineralization period. Drilling will continue in Q207, with the
objective being the location of the source of the high-grade cobbles and the IP chargeability
anomaly.
Geotechnical drilling intended to further define the geotechnical characteristics of the Hugo North
Deposit and the Northwest Boundary Fault was completed in Q107. Two geotechnical holes are
being drilled on the eastern side of Hugo North to assess the geotechnical characteristics of the
East BAT fault, which parallels the eastern margin of the deposit and may influence future
development decisions on the Hugo North Deposit.
11
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
MONGOLIA
Other copper-gold exploration projects
During Q107, Ivanhoe Mines exploration activities focused on the preparation and submission
of detailed licence reports to the Mongolian Governments Cadastral Office. Submissions for each
licence contained a comprehensive report of work completed during 2006, as well as 2007 exploration
plans. All reports were submitted and accepted.
The only fieldwork completed during the winter was the dipole-dipole IP survey (65 line kilometres)
at Kharmagtai as follow-up to earlier gradient-array surveys. The dipole-dipole programme was
successful in that the results more closely reflect the known geology and mineralization; they also
define extensions to the known mineralization as well as new chargeability targets. The
dipole-dipole work was carried out at a 400-metre line spacing. Drill targets have been defined and
an infill phase is planned to provide a more refined 3D model of the drill targets. Drilling at
Kharmagtai should commence by late May and routine fieldwork on the remainder of the licences
commenced in April.
On the Falcon JV area, BHP Billiton Exploration (BHPB) recommenced exploration with dipole-dipole
IP surveys in March and from January continued with drilling on various targets, with no
significant results to date. BHPB had spent approximately $7.5 million by the end of Q107 and is
expected to meet its earn-in commitment of $8.0 million during May 2007.
Ivanhoe Mines held approximately 6.7 million hectares at the end of 2006, including ground held for
the Coal Division. A total of 2.3 million hectares were relinquished in Q107; the total ground
holding currently is 4.4 million hectares. At least 1.4 million hectares are scheduled to be
relinquished in 2007 and approximately 1.6 million hectares will be transferred to the Coal
Division.
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.
On May 1, 2007, Ivanhoe Mines and Asia Gold announced that the Government of Mongolia had completed
the transfer of all 35 coal exploration licences held by Ivanhoe Mines in the South Gobi
area of Mongolia. All of the material conditions precedent to the closing now have been satisfied.
The
12
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
transaction is expected to close after Asia Golds Annual General Meeting on May 25, 2007, at
which time Asia Golds shareholders will be asked to authorize a change of Asia Golds corporate
name to SouthGobi Energy Resources Ltd. to more accurately reflect Asia Golds strategic focus of
integrated coal and energy development in Mongolias South Gobi region. The proposed name change is
subject to regulatory approval. If the name change is approved, SouthGobi Energy Resources will
trade on the TSX Venture Exchange under the trading symbol SGQ.
Ivanhoe Mines is Asia Golds largest shareholder, currently owning approximately 44% of Asia Golds
outstanding shares. Upon the closing of the transaction, Ivanhoe Mines will own approximately 90%
of the issued and outstanding shares of Asia Gold.
Mining Licence Application Process Underway for Ovoot Tolgoi Project
The Nariin Sukhait coal project has been renamed Ovoot Tolgoi to differentiate Ivanhoe Mines
coal exploration and development project in Mongolias South Gobi Province from the adjoining
Nariin Sukhait coal mine owned by a Mongolian-Chinese joint venture company, MAK/Qinhua.
In April 2007, Ivanhoe Mines initiated the formal process for obtaining a Mining Licence for
development of a surface open-pit coal mine at Ovoot Tolgoi. As required by the Minerals Law of
Mongolia, Ivanhoe Mines filed a Detailed Environmental Impact Assessment (DEIA) and a Geological
Resource Report for the Ovoot Tolgoi property.
In May 2007, the DEIA for the Ovoot Tolgoi coal project was approved by the Mongolian Governments
Ministry of Environment, and following receipt of the Government approval of the Geological
Resource report, Ivanhoe Mines will formally file for a mining licence to commence development and
operation.
According to the Minerals Law, mining licences in Mongolia are granted for a 30-year term, with
accompanying rights to two 20-year extensions. Such mining licences provide broad-based rights to
the licensee, including the rights to mine and conduct further exploration within the mining claim,
sell mineral products at international market prices, transfer all or part of the mining licence,
construct necessary structures to carry out mining activities, pass through adjacent land and land
owned or possessed by other persons and use land and water in compliance with applicable laws.
Total Ovoot Tolgoi 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 and is
available in the Companys Annual Information Form available on www.sedar.com.
Other coal exploration in the South Gobi
The Coal Division also is conducting ongoing exploration for coal on six projects located over
an east/west distance of almost 600 kilometres from the far west part of the South Gobi almost to
Oyu Tolgoi in the east.
13
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
AUSTRALIA
Ivanhoe Australia Enters into Investment Agreement with Exco Resources
On May 9, 2007, Ivanhoe Mines 100%-owned subsidiary, Ivanhoe Australia, announced that it had
entered into a private placement investment in, and a joint-venture agreement with, Exco Resources
NL (Exco). Exco is an Australian mineral exploration company listed on the Australian Stock
Exchange. Exco holds extensive exploration tenements in the Cloncurry copper, uranium and gold
region in northwest Queensland and the White Dam gold project in South Australia.
Ivanhoe Australias investment and joint venture with Exco significantly expands Ivanhoe Mines
exploration presence in the highly prospective Cloncurry region in the Mt. Isa District.
The private placement consists of 26.4 million Units at a price of A$0.30 per Unit, for a cost of
A$7.9 million. Each Unit consists of one common share and 0.8 share purchase warrants. One full
share purchase warrant allows Ivanhoe Australia to purchase, subject to Exco shareholders
approval, one Exco common share at a price of A$0.35 on, or before, June 1, 2008. If all the
warrants are exercised, the total investment will be $A15.3 million and will result in Ivanhoe
Australia holding approximately 19.9% of Excos common shares.
The second part of the investment is an exploration joint venture on approximately 785 square
kilometres of Excos 100%-owned tenements located south of the Kuridala tenements, which form the
northern part of Ivanhoe Australias 2,140-square-kilometre Cloncurry copper, uranium and gold
project. The terms of the joint venture call for Ivanhoe Australia to spend A$5 million over three
years to earn an 80% interest in Excos tenements. The joint venture expands and consolidates
Ivanhoe Australias exploration land position around its current Cloncurry Project.
Cloncurry IOCG Project expanding exploration
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. Since January 2007,
Ivanhoe Mines has increased its exploration efforts at Cloncurry and early results have been
encouraging.
Swan Prospect. In Q107, 11 holes were drilled at the Swan Prospect, totalling 5,000 metres. This
drilling has continued to expand the northern zone mineralization at Swan. In addition, drilling
into the western footwall has located a new mineralization branch trending to the northwest. The
outlines of the Swan, Swell, Elliott and Corbould mineral zones demonstrate a relationship between
the gravity data results and the copper, uranium and gold mineralization. Future target areas,
interpreted from gravity data results, have not been previously drilled and open up a large area
for potential mineralization.
14
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
Amethyst Castle Prospect. Copper, gold and uranium are hosted in a widespread, large-scale breccia
body in the Amethyst Castle area. Ivanhoe Mines identified the presence of uranium and the
IOCG-style of mineralization and has carried out magnetic, conductivity, IP and gravity surveys. In
2006, 14 reverse-circulation (RC) drill holes and six diamond drill (DD) holes were completed. In
2007, a further three DD holes tested intersections discovered in 2006. In January 2007, 1,250
metres were completed, with Holes 7, 8 and 9 testing previous intersections in Holes 6 and 3.
The drill results indicate a large breccia structure containing pods of high-grade gold, copper and
uranium that requires further investigation. To explore this prospect, further deep dipole-dipole
IP is planned, as well as drilling to the northeast.
Metal Ridge and Metal Ridge North. The diamond and RC drill program that commenced in late 2006 was
completed in January 2007. Thirteen holes were drilled, totalling 4,560 metres, with 660 metres of
diamond drilling and 400 metres of RC completed to date in 2007.
No large intersections of mineralization were located during this drilling; however copper, lead,
zinc and uranium values were scattered through the core, with traces of molybdenum. The uranium is
present as a high background with a strong presence in several holes.
Uranium Prospects. In addition to the IOCG prospects identified above, Ivanhoes Cloncurry Project
hosts a significant number of uranium exploration prospects, including Robert Heg, Elizabeth Anne,
Great Wall and Dairy Bore. Drilling has begun on Robert Heg and Elizabeth Anne. Additional drilling
programs are planned in 2007 on the Dairy Bore, Elizabeth Anne, Great Wall and Robert Heg
prospects. An additional 20 targets that were defined by the airborne survey completed in November
2006 are awaiting ground survey inspection prior to drilling.
KAZAKHSTAN
Bakyrchik Gold Project
The mine facilities remained on care-and-maintenance status during Q107. Expenditures for
Q107 totalled $1.2 million, compared to $0.7 million in Q106. The $0.5 million increase in
expenditures in Q107 was due mainly to increased engineering and planning activities.
During Q107, contracts were negotiated to commence the construction of the 150,000 tonnes per
annum Pilot Roasting Plant. Construction commenced in April 2007 and is planned to be completed in
Q108.
Work is continuing on a data compilation and verification program as part of the development of an
updated 3D geological model. Ivanhoe Mines has compiled a new database from Bakyrchik mine
historical Russian/Kazak drilling, GMSI confirmation drilling and additional data that have been
found. Ivanhoe Mines is in the process of verifying and validating the newly compiled database in
preparation for completing an updated resource estimate based on the historical data.
15
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
Scott Wilson Roscoe Postle Associated Inc., of Canada, has been engaged to prepare a new resource
estimate and to provide a technical report for the Project. The report will update the previous
preliminary assessment undertaken by the firm in January 2006 and should be completed by the end of
Q207.
Following the completion of the current work, a program of diamond drilling aimed at increasing
confidence in the resources and also evaluating the projects open-pit potential will be prepared
and submitted for regulatory approval in Kazakhstan.
Ivanhoe Mines is continuing to assess financing alternatives for the Project.
ASIA GOLD (44% owned)
The status
of the coal transaction between Ivanhoe Mines and Asia Gold is
discussed on page 12
in the Mongolian Coal Project section of this MD&A.
Mongolia. 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 located within the West Falcon Gobi Property, a joint-venture property with BHP Billiton
World Exploration Inc. (BHPB). The balance is located on the Tsakhir licence, referred to as
Khongor South, which was optioned by the Company from Solomon Resources Limited (Solomon) and
Gallant Minerals Ltd. (Gallant).
In April 2007, Asia Gold signed a new option agreement with Gallant to earn an 80% interest in the
Tsakhir licence. Prior to this new agreement, Asia Gold had an option to earn a 70% interest in the
Tsakhir licence through an agreement with Solomon and Gallant. Solomon Resources withdrew from this
agreement in March 2007. Further work on the Tsakhir license is planned for in 2007.
Pursuant to an Option Agreement with BHPB, 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, and Asia Gold is expecting results in Q207.
Indonesia. Asia Gold has an 85% interest in the Kaputusan prospect in Indonesia. In February 2007,
a 3,000-metre diamond-drill program commenced. Five drill holes totalling 800 metres were completed
by the end of April 2007.
Bulgaria. In Q107, Asia Gold terminated its mineral exploration activities in Bulgaria.
16
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
CHINA
Inner Mongolia and Northern China exploration
In March 2007, reconnaissance field exploration recommenced in western Inner Mongolia and
elsewhere in Northern China.
Detailed exploration programs are planned to commence in early Q307 over two potential
gold-silver-copper targets that were identified in late 2006. The planned exploration consists of
detailed geological-structural mapping, systematic rock-chip sampling, trenching and ground
geophysics, with an aim of defining drill targets for testing later in the year.
Jinshan (45% owned)
In March 2007, Jinshan commenced a 5,000-metre drilling campaign at the CSH (217) Gold
project. The drilling program, budgeted at $800,000, is concentrated on the Southwest Zone,
including 50-metre-spaced infill drill holes designed to upgrade resources from the inferred
category to the indicated category, and step-out drilling to test the southwest extension of the
mineralized zone.
The Dadiangou project consists of a licenced area of 15 square kilometres in Gansu Province, China.
The Dadiangou project is located in the Qinling Fold Belt, a gold-producing region that trends
west to east through the provinces of Gansu and Shaanxi in central China.
On February 6, 2007, Jinshan commenced a 5,000-metre, Phase 1 diamond drill program designed to
test the Dadiangou main zone over a strike length of approximately 2,000 metres and to depths of
200 metres or more. The drill program consists of wide-spaced drill sections with one or two drill
holes per section. If results of this program show continuity of gold grades over significant
widths, an additional program of infill drilling will be required before commissioning a resource
estimate. To date, all of the planned 22 drill holes have been completed and Jinshan has not
received the final assay results.
In addition to the diamond drilling program, crews currently are on site preparing to collect
high-quality channel samples from the accessible underground cross-cuts and from the trenches on
surface. As both trenches and underground crosscuts have been completed on 40-metre-spaced
sections, the data will give Jinshan a detailed picture of grade distribution in the near-surface
portions of the Dadiangou main zone. Outside the main zone, a property-wide soil sampling program
is underway and will test for strike extensions and possible parallel shear zones at the project.
This program is planned to cover approximately 85% of the 15-square-kilometre property with soil
samples spaced 50 metres apart on 100- and 200-metre-spaced lines.
The budget for all Phase 1 drilling activities at Dadiangou is approximately $1.8 million.
17
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
B. ASSETS HELD FOR SALE
As part of the 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 held through its Monywa subsidiary in the Monywa Copper
Project. On February 27, 2007, Ivanhoe Mines relinquished ownership of the Monywa subsidiary 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 has divested itself of
ownership in the Monywa Copper Project and 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.
Upon transfer of the Myanmar assets to the Trust in February 2007, Ivanhoe Mines ceased accounting
for its investment in the Monywa Copper Project under the equity method due to an inability to
exercise significant influence. The investment now is accounted for under the cost method.
In Q107, the Monywa Copper Project paid $30.0 million in dividends (net $15.0 million to Ivanhoe
Mines).
C. DISCONTINUED OPERATIONS
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.
In 2006, Ivanhoe Mines received the first contingent annual payment of $28.2 million.
On March 30, 2007, Ivanhoe Mines received the second annual contingent payment of $19.0 million
with an additional $1.3 million adjustment expected to be received in May 2007. This $20.3 million
amount includes $8.6 million in contingent income recognized in the first quarter of 2007.
To date, Ivanhoe Mines has received $68.7 million in proceeds from the sale of Savage River.
D. ADMINISTRATIVE AND OTHER
General and administrative costs. Administrative costs in Q107 were $1.2 million lower than
Q106. This was mainly due to a $2.3 million decrease in non-cash, stock-based compensation
charges, offset by a $0.2 million increase in salaries and overhead, a $0.4 million increase in
legal expenses and a $0.2 million increase in listing fees.
18
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
Interest Income. The $3.4 million increase in interest income is due to significantly higher
average cash balances in Q107, coupled with higher interest rates in Q107 compared to Q106.
Foreign exchange gain. The foreign exchange gain during the Q107 was mainly attributable to the
strengthening of the Canadian dollar against the U.S. dollar.
Share of loss on significantly influenced investee. The $0.7 million share of loss on significant
influenced investee represents Ivanhoe Mines share of Jinshans net loss for Q107, in Q12006
Ivanhoe Mines investment in Jinshan was consolidated.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow
Operating activities. The $34.2 million of cash used in operating activities from continuing
operations in Q107 primarily was the result of $52.0 million in cash exploration expenditures,
offset by a $15.0 million dividend received from the investment held for sale.
Investing activities. In Q107, $5.3 million of cash was provided by investing activities,
consisting of the $19.0 million second annual contingent income payment received from the sale of
the Savage River operation, less $14.9 million in property, plant and equipment acquisitions and
construction mainly relating to Oyu Tolgoi.
Financing activities. Financing activities of $2.4 million in Q107 were primarily due to proceeds
received from the exercise of stock options.
Liquidity and Capital Resources
At March 31, 2007, consolidated working capital was $324.5 million, including cash of $337.9
million, compared with working capital of $364.7 million and cash of $363.6 million at December 31,
2006.
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 March 31, 2007, 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.
19
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
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.
At May 15, 2007, the Company had a total of:
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374.4 million common shares outstanding. |
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|
|
13.3 million incentive stock options outstanding, with a weighted average exercise
price per share of Cdn$9.40. Each option is exercisable to purchase a common share of the
Company at prices ranging from Cdn$2.31 to Cdn$14.17 per share. |
|
|
|
|
92.1 million share purchase warrants outstanding granted to Rio Tinto, with exercise
prices ranging between U.S.$8.38 and U.S.$9.02 per share. These warrants are exercisable
until two years after the earlier of completion of the Investment Agreement and October
27, 2009. |
|
|
|
|
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 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. |
20
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
In April 2007, Ivanhoe Mines and Rio Tinto reached an agreement in principle with the
Governments Working Group on a draft Investment Agreement. The draft agreement remains subject to
review and approval by the Cabinet of the Mongolian Government and the National Parliament and the
settlement of definitive documentation. The draft agreement also is subject to review and approval
by the boards of directors of Ivanhoe Mines and Rio Tinto.
Detailed information will be released when appropriate, subject to approval of the draft agreement
by the Mongolian Governments Cabinet.
The Company cannot predict how soon the ongoing negotiations for an Investment 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 in Ivanhoe Mines Managements Discussion and Analysis for the year ended
December 31, 2006.
The Investment Agreement that is being negotiated is expected to address recent amendments that
were made in 2006 to the Minerals and Tax Laws. These amendments 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 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 property, were financed entirely by private capital. The Companys coal discoveries
in the Ovoot Tolgoi 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.
21
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
Royalty rates. The Governments royalty on all metals increased from 2.5% to 5.0% and is based on
gross sales.
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%.
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.
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
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 Profits Tax. In May 2006, an excess profits 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 currently is
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.
22
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
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.
As at March 31, 2007, there were no significant changes in Ivanhoe Mines contractual
obligations and commercial commitments from those reported in Ivanhoe Mines Managements
Discussion and Analysis for the year ended December 31, 2006.
CHANGES IN ACCOUNTING POLICIES
On January 1, 2007, the Company adopted the provisions of 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 adoption of FIN 48 did not have
an impact on the Companys consolidated financial condition or results of operations.
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.
23
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
The Companys significant accounting policies and the estimates derived therefrom identified as
being critical are substantially unchanged from those disclosed in its MD&A for the year ended
December 31, 2006.
RECENT ACCOUNTING PRONOUNCEMENTS
There are no new recently issued United States accounting pronouncements other than those the
Company previously disclosed in its MD&A for the year ended December 31, 2006.
Material risks and uncertainties affecting Ivanhoe Mines, their potential impact, and the
Companys principal risk management strategies are substantially unchanged from those disclosed in
its MD&A for the year ended December 31, 2006.
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. For further details regarding the nature and
relationship of these related party expenditures please refer to the MD&A for the year ended
December 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
(in $000s) |
|
2007 |
|
|
2006 |
|
Global Mining Management Corporation |
|
$ |
1,573 |
|
|
$ |
1,377 |
|
Ivanhoe Capital Aviation LLC |
|
|
960 |
|
|
|
960 |
|
Fognani & Faught, PLLC |
|
|
277 |
|
|
|
214 |
|
Ivanhoe Capital Pte. Ltd. |
|
|
|
|
|
|
53 |
|
Ivanhoe Capital Services Ltd. |
|
|
186 |
|
|
|
169 |
|
|
|
|
$ |
2,996 |
|
|
$ |
2,773 |
|
|
24
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
|
|
|
|
|
|
|
|
|
|
|
Three
months ended March 31, |
|
(in $000s) |
|
2007 |
|
|
2006 |
|
Legal |
|
$ |
277 |
|
|
$ |
214 |
|
Office and administrative |
|
|
570 |
|
|
|
539 |
|
Salaries and benefits |
|
|
1,189 |
|
|
|
1,060 |
|
Travel (including aircraft rental) |
|
|
960 |
|
|
|
960 |
|
|
|
|
$ |
2,996 |
|
|
$ |
2,773 |
|
|
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 March 31, 2007, included $373,000 and $2,024,000,
respectively (March 31, 2006 $241,000 and $1,802,013, 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.
At the end of March 31, 2007, 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, $68.7 million has been received from the sale with an additional $1.3
million expected to be received in May 2007.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the three months ended March 31, 2007 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.
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.
25
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
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.
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
26
IVANHOE MINES LTD.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Stated in U.S. dollars, except where noted)
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 Ovoot Tolgoi 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.
27
FIRST QUARTER REPORT
MARCH 31, 2007
TABLE OF CONTENTS
|
|
|
ITEM 1.
|
|
Financial Statements |
|
|
|
|
|
Unaudited Consolidated Balance Sheets at March 31, 2007 and December 31, 2006 |
|
|
|
|
|
Unaudited Consolidated Statements of Operations for the Three Month Periods ended
March 31, 2007 and 2006 |
|
|
|
|
|
Unaudited Consolidated Statement of Shareholders Equity for the Three Month Period
ended March 31, 2007 |
|
|
|
|
|
Unaudited Consolidated Statements of Cash Flows for the Three Month Periods ended
March 31, 2007 and 2006 |
|
|
|
|
|
Notes to the Unaudited Consolidated Financial Statements |
|
|
|
ITEM 2.
|
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
IVANHOE MINES LTD.
Consolidated Balance Sheets
(Stated in thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
|
2007 |
|
2006 |
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
337,928 |
|
|
$ |
363,572 |
|
Accounts receivable |
|
|
15,462 |
|
|
|
24,739 |
|
Inventories |
|
|
4,615 |
|
|
|
5,313 |
|
Prepaid expenses |
|
|
7,723 |
|
|
|
7,941 |
|
Other current assets |
|
|
286 |
|
|
|
286 |
|
|
TOTAL CURRENT ASSETS |
|
|
366,014 |
|
|
|
401,851 |
|
|
|
|
|
|
|
|
|
|
INVESTMENT HELD FOR SALE (Note 4) |
|
|
143,163 |
|
|
|
157,738 |
|
LONG-TERM INVESTMENTS (Note 5) |
|
|
34,239 |
|
|
|
36,879 |
|
PROPERTY, PLANT AND EQUIPMENT |
|
|
115,872 |
|
|
|
101,994 |
|
DEFERRED INCOME TAXES |
|
|
481 |
|
|
|
481 |
|
OTHER ASSETS |
|
|
4,234 |
|
|
|
4,216 |
|
|
TOTAL ASSETS |
|
$ |
664,003 |
|
|
$ |
703,159 |
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
$ |
41,507 |
|
|
$ |
37,201 |
|
|
TOTAL CURRENT LIABILITIES |
|
|
41,507 |
|
|
|
37,201 |
|
|
|
|
|
|
|
|
|
|
LOANS PAYABLE TO RELATED PARTIES (Note 6) |
|
|
5,088 |
|
|
|
5,088 |
|
DEFERRED INCOME TAXES |
|
|
659 |
|
|
|
660 |
|
ASSET RETIREMENT OBLIGATIONS |
|
|
6,531 |
|
|
|
6,353 |
|
|
TOTAL LIABILITIES |
|
|
53,785 |
|
|
|
49,302 |
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHARE CAPITAL (Note 8) |
|
|
|
|
|
|
|
|
Authorized |
|
|
|
|
|
|
|
|
Unlimited number of preferred shares without par value |
|
|
|
|
|
|
|
|
Unlimited number of common shares without par value |
|
|
|
|
|
|
|
|
Issued and outstanding |
|
|
|
|
|
|
|
|
373,917,043 (2006 - 373,463,637) common shares |
|
|
1,465,421 |
|
|
|
1,462,039 |
|
SHARE PURCHASE WARRANTS AND SHARE ISSUANCE COMMITMENT (Note 8(b)) |
|
|
23,062 |
|
|
|
23,062 |
|
ADDITIONAL PAID-IN CAPITAL |
|
|
35,956 |
|
|
|
33,705 |
|
ACCUMULATED OTHER COMPREHENSIVE INCOME (Note 5) |
|
|
10,762 |
|
|
|
13,233 |
|
DEFICIT |
|
|
(924,983 |
) |
|
|
(878,182 |
) |
|
TOTAL SHAREHOLDERS EQUITY |
|
|
610,218 |
|
|
|
653,857 |
|
|
TOTAL LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS EQUITY |
|
$ |
664,003 |
|
|
$ |
703,159 |
|
|
APPROVED BY THE BOARD:
|
|
|
|
|
|
|
|
|
J. Weatherall, Director
|
|
D. Korbin, Director |
The accompanying notes are an integral part of these interim consolidated financial statements.
IVANHOE MINES LTD.
Consolidated Statements of Operations
(Stated in thousands of U.S. dollars, except for share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
2007 |
|
2006 |
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
Exploration (Note 2) |
|
$ |
(53,487 |
) |
|
$ |
(31,603 |
) |
General and administrative (Note 8 (a)) |
|
|
(5,196 |
) |
|
|
(6,394 |
) |
Accretion |
|
|
(122 |
) |
|
|
(102 |
) |
Depreciation |
|
|
(1,036 |
) |
|
|
(912 |
) |
Mining property care and maintenance |
|
|
(1,227 |
) |
|
|
(720 |
) |
Gain on sale of other mineral property rights |
|
|
|
|
|
|
2,724 |
|
Write-down of carrying values of property, plant and equipment |
|
|
(17 |
) |
|
|
|
|
|
OPERATING LOSS |
|
|
(61,085 |
) |
|
|
(37,007 |
) |
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSES) |
|
|
|
|
|
|
|
|
Share of income from investment held for sale (Note 4) |
|
|
427 |
|
|
|
4,460 |
|
Interest income |
|
|
4,174 |
|
|
|
755 |
|
Foreign exchange gains (losses) |
|
|
814 |
|
|
|
(150 |
) |
Share of loss of significantly influenced investees |
|
|
(733 |
) |
|
|
|
|
Gain on sale of long-term investments (Note 5 (a)) |
|
|
1,018 |
|
|
|
|
|
|
LOSS BEFORE TAXES AND OTHER ITEMS |
|
|
(55,385 |
) |
|
|
(31,942 |
) |
Provision for income taxes |
|
|
(56 |
) |
|
|
(220 |
) |
Minority interests (Note 7) |
|
|
|
|
|
|
1,060 |
|
|
NET LOSS FROM CONTINUING OPERATIONS |
|
|
(55,441 |
) |
|
|
(31,102 |
) |
GAIN ON SALE FROM DISCONTINUED OPERATIONS (Note 3) |
|
|
8,640 |
|
|
|
7,931 |
|
|
NET LOSS |
|
$ |
(46,801 |
) |
|
$ |
(23,171 |
) |
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED (LOSS) EARNINGS PER SHARE FROM |
|
|
|
|
|
|
|
|
CONTINUING OPERATIONS |
|
$ |
(0.15 |
) |
|
$ |
(0.10 |
) |
DISCONTINUED OPERATIONS |
|
|
0.02 |
|
|
|
0.03 |
|
|
|
|
|
(0.13 |
) |
|
|
(0.07 |
) |
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING (000s) |
|
|
373,673 |
|
|
|
316,280 |
|
|
The accompanying notes are an integral part of these interim consolidated financial statements.
IVANHOE MINES LTD.
Consolidated Statements of Shareholders Equity
(Stated in thousands of U.S. dollars, except for share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2006 |
|
|
373,463,637 |
|
|
$ |
1,462,039 |
|
|
$ |
23,062 |
|
|
$ |
33,705 |
|
|
$ |
13,233 |
|
|
$ |
(878,182 |
) |
|
$ |
653,857 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46,801 |
) |
|
|
(46,801 |
) |
Other comprehensive income
(unrealized loss on
available-for-sale
securities) (Note 5): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,471 |
) |
|
|
|
|
|
|
(2,471 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49,272 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options |
|
|
443,200 |
|
|
|
3,291 |
|
|
|
|
|
|
|
(1,060 |
) |
|
|
|
|
|
|
|
|
|
|
2,231 |
|
Share purchase plan |
|
|
7,346 |
|
|
|
66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66 |
|
Share purchase warrants
(Note 8 (c)) |
|
|
2,860 |
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25 |
|
Dilution gain on issuance
of shares by a subsidiary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
837 |
|
|
|
|
|
|
|
|
|
|
|
837 |
|
Stock compensation charged
to operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,474 |
|
|
|
|
|
|
|
|
|
|
|
2,474 |
|
|
Balances, March 31, 2007 |
|
|
373,917,043 |
|
|
$ |
1,465,421 |
|
|
$ |
23,062 |
|
|
$ |
35,956 |
|
|
$ |
10,762 |
|
|
$ |
(924,983 |
) |
|
$ |
610,218 |
|
|
The accompanying notes are an integral part of these interim consolidated financial statements.
IVANHOE MINES LTD.
Consolidated Statements of Cash Flows
(Stated in thousands of U.S. dollars)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2007 |
|
2006 |
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(46,801 |
) |
|
$ |
(23,171 |
) |
Gain on sale from discontinued operations |
|
|
(8,640 |
) |
|
|
(7,931 |
) |
Items not involving use of cash |
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
2,474 |
|
|
|
7,945 |
|
Accretion expense |
|
|
122 |
|
|
|
102 |
|
Depreciation |
|
|
1,036 |
|
|
|
912 |
|
Gain on sale of other mineral property rights |
|
|
|
|
|
|
(2,724 |
) |
Write-down of carrying values of property, plant and equipment |
|
|
17 |
|
|
|
|
|
Share of income from investment held for sale, net of cash distribution |
|
|
14,575 |
|
|
|
(4,460 |
) |
Unrealized foreign exchange (gains) losses |
|
|
(837 |
) |
|
|
307 |
|
Share of loss of significantly influenced investees |
|
|
733 |
|
|
|
|
|
Gain on sale of long-term investments |
|
|
(1,018 |
) |
|
|
|
|
Deferred income taxes |
|
|
(1 |
) |
|
|
79 |
|
Minority interests |
|
|
|
|
|
|
(1,060 |
) |
Net change in non-cash operating working capital items (Note 9) |
|
|
4,139 |
|
|
|
(6,171 |
) |
|
Cash used in operating activities |
|
|
(34,201 |
) |
|
|
(36,172 |
) |
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Proceeds from sale of discontinued operations |
|
|
19,000 |
|
|
|
34,500 |
|
Proceeds from sale of other mineral property rights |
|
|
|
|
|
|
2,724 |
|
Proceeds from sale of long-term investments |
|
|
1,163 |
|
|
|
|
|
Expenditures on property, plant and equipment |
|
|
(14,931 |
) |
|
|
(10,259 |
) |
Proceeds from other assets |
|
|
63 |
|
|
|
127 |
|
Other |
|
|
3 |
|
|
|
(530 |
) |
|
Cash provided by investing activities |
|
|
5,298 |
|
|
|
26,562 |
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Issue of share capital |
|
|
2,322 |
|
|
|
2,414 |
|
Minority interests investment in subsidiaries |
|
|
125 |
|
|
|
|
|
|
Cash provided by financing activities |
|
|
2,447 |
|
|
|
2,414 |
|
|
|
|
|
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH |
|
|
812 |
|
|
|
(242 |
) |
|
|
|
|
|
|
|
|
|
|
NET CASH OUTFLOW |
|
|
(25,644 |
) |
|
|
(7,438 |
) |
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
|
|
363,572 |
|
|
|
101,681 |
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD |
|
$ |
337,928 |
|
|
$ |
94,243 |
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS IS COMPRISED OF: |
|
|
|
|
|
|
|
|
Cash on hand and demand deposits |
|
$ |
30,804 |
|
|
$ |
26,203 |
|
Short-term money market instruments |
|
|
307,124 |
|
|
|
68,040 |
|
|
|
|
$ |
337,928 |
|
|
$ |
94,243 |
|
|
Supplementary cash flow information (Note 9)
The accompanying notes are an integral part of these interim 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. |
|
SIGNIFICANT ACCOUNTING POLICIES |
|
(a) |
|
Basis of preparation |
|
|
|
|
These unaudited interim consolidated financial statements have been prepared in
accordance with United States of America generally accepted accounting principles
(U.S. GAAP). The accounting policies followed in preparing these consolidated
financial statements are those used by Ivanhoe Mines Ltd. (the Company) as set out in
the audited financial statements for the year ended December 31, 2006. |
|
|
|
|
Certain information and note disclosures normally included for annual consolidated
financial statements prepared in accordance with U.S. GAAP have been omitted. These
interim consolidated financial statements should be read together with the audited
financial statements of the Company for the year ended December 31, 2006. |
|
|
|
|
In the opinion of management, all adjustments considered necessary (including
reclassifications and normal recurring adjustments) to present fairly the financial
position, results of operations and cash flows at March 31, 2007 and for all periods
presented, have been included in these financial statements. The interim results are
not necessarily indicative of results for the full year ending December 31, 2007, or
future operating periods. For further information, see the Companys annual
consolidated financial statements, including the accounting policies and notes thereto,
included in the Annual Information Form. |
|
|
|
|
The Company operates in a single reportable segment, being exploration and development
of mineral properties. |
|
|
|
|
References to Cdn$ refer to Canadian currency and $ to United States currency. |
|
|
(b) |
|
Basis of presentation |
|
|
|
|
For purposes of these consolidated financial statements, the Company, subsidiaries of
the Company, and variable interest entities for which the Company is the primary
beneficiary, are collectively referred to as Ivanhoe Mines. |
|
|
|
|
On February 27, 2007 the investment held for sale ceased being accounted for using the
equity method. From February 28, 2007 onwards, the investment held for sale has been
accounted for under the cost method (Note 4). |
|
|
(c) |
|
Comparative figures |
|
|
|
|
Certain of the comparative figures have been reclassified to conform with the
presentation as at and for the three months ended March 31, 2007. In particular,
$4,638,000 of stock-based compensation charged to operations has been reclassified from
general and administrative expenses to exploration expenses. |
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
1. |
|
SIGNIFICANT ACCOUNTING POLICIES (Continued) |
|
(d) |
|
Accounting changes |
|
|
|
|
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 adopted the provisions of FIN 48 on January 1, 2007. No cumulative effect
adjustment to the January 1, 2007 balance of the Companys deficit was required upon
the implementation of FIN 48. As of the date of adoption there were no unrecognized
tax benefits. Under current conditions and expectations, management does not foresee
any significant changes in unrecognized tax benefits that would have a material impact
on the Companys financial statements. |
|
|
|
|
The Company recognizes interest accrued related to unrecognized tax benefits in
interest expense and penalties in operating expenses. As of the date of adoption of
FIN 48 there was no accrued interest or accrued penalties. |
|
|
|
|
The Company files income tax returns in Canada and several foreign jurisdictions. The
Company is no longer subject to income tax audits by taxing authorities in Canada prior
to 2002. For other foreign jurisdictions, including Mongolia, all years remain subject
to tax authority examination. |
2. |
|
EXPLORATION EXPENSES |
|
|
|
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. |
|
|
|
Included in exploration costs are engineering and development costs associated with the
Companys Oyu Tolgoi Project located in Mongolia. It is expected that the Company will
commence capitalizing costs of this nature once an Investment Agreement is finalized. |
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
2. |
|
EXPLORATION EXPENSES (Continued) |
|
|
|
During the three months ended March 31, 2007 the majority of the $53.5 million charged to
exploration expenses was spent on the Companys Mongolian properties, which consisted of the
following exploration and development costs: |
|
|
|
|
|
|
|
Three months ended |
|
|
March 31, |
|
|
2007 |
Oyu Tolgoi |
|
|
|
|
Concentrator and Infrastructure Engineering |
|
$ |
9,196 |
|
Site Construction |
|
|
18,700 |
|
Shaft No. 1 Sinking |
|
|
7,220 |
|
Exploration |
|
|
4,480 |
|
Owners Costs (a) |
|
|
4,796 |
|
|
|
|
|
|
|
|
|
44,392 |
|
Coal Division |
|
|
1,227 |
|
Other Mongolia Exploration (including Asia Gold) |
|
|
3,119 |
|
UB Office |
|
|
2,718 |
|
|
|
|
|
51,456 |
|
|
|
(a) |
|
Includes non-cash stock-based compensation (Note 8 (a)). |
3. |
|
DISCONTINUED OPERATIONS |
|
|
|
In February 2005, Ivanhoe Mines sold the Savage River Iron Ore Project (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. |
|
|
|
On March 30, 2007, Ivanhoe Mines received the second annual contingent payment of $19.0
million with an additional $1.3 million adjustment expected to be received in May 2007. This
payment of $20.3 million includes $8.6 million in contingent income recognized in the first
quarter of 2007. To date, Ivanhoe Mines has received $68.7 million in proceeds from the sale
of the Project. |
|
4. |
|
INVESTMENT HELD FOR SALE |
|
|
|
As part of the negotiation of the Rio Tinto plc 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 held through its Monywa subsidiary in the
Monywa Copper Project. On February 27, 2007, Ivanhoe Mines relinquished ownership of the
Monywa subsidiary 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 has divested itself of ownership in the Monywa Copper Project and 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. |
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) |
|
|
|
Upon transfer of the Myanmar assets to the Trust effective February 27, 2007, Ivanhoe Mines
ceased accounting for the investment held for sale under the equity method due to an
inability to exercise significant influence. The investment held for sale is now accounted
for under the cost method. |
|
|
|
During the three months ended March 31, 2007, dividends of $30.0 million (net $15.0 million
to Ivanhoe Mines) were paid by the Monywa Copper Project which reduced the carrying value of
the investment held for sale. |
|
|
|
At March 31, 2007, Ivanhoe Mines reviewed the carrying value of the investment held for sale
and concluded that it was not impaired. Ivanhoe Mines will continue to review the carrying
value of this investment at each quarter end. |
|
5. |
|
LONG-TERM INVESTMENTS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2007 |
|
December 31, 2006 |
|
|
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. |
|
|
45.3 |
% |
|
$ |
10,845 |
|
|
|
N/a |
|
|
$ |
10,845 |
|
|
|
46.3 |
% |
|
$ |
10,866 |
|
|
|
N/a |
|
|
$ |
10,866 |
|
|
Investments available-for-sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intec Ltd.
(a) |
|
|
6.2 |
% |
|
$ |
917 |
|
|
$ |
3,939 |
|
|
$ |
4,856 |
|
|
|
7.1 |
% |
|
$ |
1,062 |
|
|
$ |
7,088 |
|
|
$ |
8,150 |
|
Entrée Gold Inc. |
|
|
14.8 |
% |
|
|
10,156 |
|
|
|
6,754 |
|
|
|
16,910 |
|
|
|
14.7 |
% |
|
|
10,156 |
|
|
|
6,044 |
|
|
|
16,200 |
|
Redox Diamonds Ltd. |
|
|
12.0 |
% |
|
|
1,451 |
|
|
|
|
|
|
|
1,451 |
|
|
|
13.8 |
% |
|
|
1,451 |
|
|
|
|
|
|
|
1,451 |
|
Wind Energy
Group Inc. |
|
|
21.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Asia Now
Resources Corp. |
|
|
2.0 |
% |
|
|
103 |
|
|
|
69 |
|
|
|
172 |
|
|
|
2.0 |
% |
|
|
103 |
|
|
|
101 |
|
|
|
204 |
|
Other |
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
|
$ |
12,632 |
|
|
$ |
10,762 |
|
|
$ |
23,394 |
|
|
|
|
|
|
$ |
12,780 |
|
|
$ |
13,233 |
|
|
$ |
26,013 |
|
|
|
|
|
|
|
|
$ |
23,477 |
|
|
$ |
10,762 |
|
|
$ |
34,239 |
|
|
|
|
|
|
$ |
23,646 |
|
|
$ |
13,233 |
|
|
$ |
36,879 |
|
|
|
(a) |
|
During the three month period ended March 31, 2007, Ivanhoe Mines sold 5.4 million
shares of its investment in Intec Ltd. for $1,163,000. These transactions resulted in a
gain on sale of $1,018,000 being recognized in operations. |
6. |
|
LOANS PAYABLE TO RELATED PARTIES |
|
|
|
These loans are payable to the Chairman of the Company or a company controlled by him. They
are non-interest bearing, unsecured and repayable in U.S. dollars. Repayment of these loans
has been postponed until Ivanhoe Mines receives an aggregate of $111.1 million from the sale
of the Savage River Project. At March 31, 2007, $68.7 million has been received from the
sale with a further $1.3 million accrued as receivable (Note 3). |
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
7. |
|
MINORITY INTERESTS |
|
|
|
At March 31, 2007 there were minority interests in Bakyrchik Mining Venture (BMV)
(Kazakhstan) (70% owned) and Asia Gold Corp. (Asia Gold) (Canada) (44% owned). Jinshan
Gold Mines Inc. (B.C., Canada) (45% owned) ceased being consolidated on August 31, 2006. |
|
|
|
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. |
|
8. |
|
SHARE CAPITAL |
|
(a) |
|
Equity Incentive Plan |
|
|
|
|
During the three months ended March 31, 2007 345,500 options were granted. These
options have a weighted average exercise price of Cdn$12.43, lives of five years, and
vest over periods ranging from immediately to four years. The weighted average
grant-date fair value of stock options granted during the three months ended March 31,
2007 was Cdn$5.01. The fair value of these options was determined using the
Black-Scholes option pricing model. The option valuation was based on an average
expected option life of 3.0 years, a risk-free interest rate of 4.00%, an expected
volatility of 50%, and a dividend yield of nil%. |
|
|
|
|
During the three months ended March 31, 2007, 443,200 options were exercised and
241,500 options were cancelled. |
|
|
|
|
Stock-based compensation charged to operations was allocated between exploration
expenses and general and administrative expenses as follows: |
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
2007 |
|
2006 |
Exploration |
|
$ |
1,473 |
|
|
$ |
4,638 |
|
General and administrative |
|
|
1,001 |
|
|
|
3,307 |
|
|
|
|
$ |
2,474 |
|
|
$ |
7,945 |
|
|
|
(b) |
|
Rio Tinto Placement |
|
|
|
|
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 and Rio Tinto. Rio Tinto has the option to exercise the second tranche
earlier. This second tranche will consist of approximately 46.3 million shares at a
subscription price of $8.38 per share, for proceeds totalling $388.0 million. |
IVANHOE MINES LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
8. |
|
SHARE CAPITAL (Continued) |
|
(b) |
|
Rio Tinto Placement (Continued) |
|
|
|
|
The following share purchase warrants granted to Rio Tinto during 2006 were outstanding
as at March 31, 2007: |
|
(i) |
|
46,026,522 share purchase warrants with exercise prices ranging
between U.S.$8.38 and U.S.$8.54 per share. These warrants are exercisable until
one year after the earlier of the completion of the Investment Agreement and
October 27, 2009. |
|
|
(ii) |
|
46,026,522 share purchase warrants with exercise prices ranging
between U.S.$8.38 and U.S.$9.02 per share. These warrants are exercisable until
two years after the earlier of the completion of the Investment Agreement and
October 27, 2009. |
|
(c) |
|
Share Purchase Warrants |
|
|
|
|
During 2004 the Company issued 5,760,000 share purchase warrants. 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. |
9. |
|
SUPPLEMENTARY CASH FLOW INFORMATION |
|
|
|
Net change in non-cash operating working capital items |
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
2007 |
|
2006 |
(Increase) decrease in: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
$ |
(1,083 |
) |
|
$ |
(1,708 |
) |
Inventories |
|
|
698 |
|
|
|
1,266 |
|
Prepaid expenses |
|
|
218 |
|
|
|
(269 |
) |
Other current assets |
|
|
|
|
|
|
1,000 |
|
Increase (decrease) in: |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
|
4,306 |
|
|
|
(6,460 |
) |
|
|
|
$ |
4,139 |
|
|
$ |
(6,171 |
) |
|
10. |
|
SUBSEQUENT EVENTS |
|
|
|
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 LTD.
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
10. |
|
SUBSEQUENT EVENTS (Continued) |
|
|
|
On May 1, 2007, Ivanhoe Mines and Asia Gold announced that the Government of Mongolia has
completed the transfer of all 35 coal exploration licences held by Ivanhoe Mines in the South
Gobi area of Mongolia. All of the material conditions precedent to the closing have now been
satisfied. The transaction is expected to close after Asia Golds Annual General Meeting on
May 25, 2007. |
|
|
|
Ivanhoe Mines is Asia Golds largest shareholder, currently owning approximately 44% of Asia
Golds outstanding shares. Upon closing of the transaction, Ivanhoe Mines will own
approximately 90% of the issued and outstanding shares of Asia Gold. |