PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
Proxy
Supplemental Return Card
Electronic Consent
2005 year end financial statements, notes and MD&A
IVANHOE MINES LTD. | ||||
Date:March 31, 2006 | By: | /s Beverly A. Bartlett | ||
BEVERLY A. BARTLETT | ||||
Corporate Secretary |
and
Management Proxy Circular
of
IVANHOE MINES LTD.
1. | to receive the annual report of the directors to the shareholders; | |
2. | to receive the audited consolidated financial statements of the Corporation for the year ended December 31, 2005 and the auditors’ report thereon; | |
3. | to elect directors for the ensuing year; | |
4. | to appoint auditors for the ensuing year and to authorize the directors to fix the auditors’ remuneration; | |
5. | to consider, and if thought advisable, to pass an ordinary resolution authorizing the Corporation to amend and restate the Employees’ and Directors’ Equity Incentive Plan (the “Incentive Plan”) to increase the maximum number of Common Shares of the Corporation which may be allocated for issuance pursuant to the terms and conditions of the Incentive Plan from 29,000,000 to 32,000,000 Common Shares; and | |
6. | to transact such other business as may properly come before the meeting or any adjournment thereof. |
BY ORDER OF THE BOARD | ||
“Beverly A. Bartlett” | ||
Corporate Secretary |
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World Trade Centre
Suite 654 – 999 Canada Place
Vancouver, British Columbia, V6C 3E1
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(a) | by depositing an instrument in writing executed by the shareholder or by the shareholder’s attorney authorized in writing |
(i) | with CIBC Mellon Trust Company, not less than 48 hours (excluding Saturdays, Sundays and statutory holidays) before the Meeting or the adjournment thereof at which the Proxy is to be used, | ||
(ii) | at the registered office of the Corporation at any time up to and including the last business day preceding the day of the Meeting, or an adjournment thereof, at which the Proxy is to be used, | ||
(iii) | with the chairman of the Meeting on the day of the Meeting or an adjournment thereof, or |
(b) | in any other manner provided by law. |
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(a) | a voting instruction formwhich is not signed by the Intermediaryand which, when properly completed and signed by the Non-Registered Shareholder andreturned to the Intermediary or its service company, will constitute voting instructions (often called a “voting instruction form”) which the Intermediary must follow. Typically, the voting instruction form will consist of a one page pre-printed form. Sometimes, instead of the one page pre-printed form, the voting instruction form will consist of a regular printed proxy form accompanied by a page of instructions which contains |
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a removable label with a bar-code and other information. In order for the form of proxy to validly constitute a voting instruction form, the Non-Registered Shareholder must remove the label from the instructions and affix it to the form of proxy, properly complete and sign the form of proxy and submit it to the Intermediary or its service company in accordance with the instructions of the Intermediary or its service company; or |
(b) | a form of proxywhich has already been signed by the Intermediary(typically by a facsimile, stamped signature), which is restricted as to the number of shares beneficially owned by the Non-Registered Shareholder but which is otherwise not completed by the Intermediary. Because the Intermediary has already signed the form of proxy, this form of proxy is not required to be signed by the Non-Registered Shareholder when submitting the proxy. In this case, the Non-Registered Shareholder who wishes to submit a proxy should properly complete the form of proxy anddeposit it with the Corporation, c/o CIBC Mellon Trust Company, Suite 1600, The Oceanic Plaza, 1066 Hastings Street, Vancouver, British Columbia, V6E 3K9 or 200 Queens Quay East, Unit 6, Toronto, Ontario, M5A 4K9. |
(a) | the shareholder has transferred the ownership of any such share after the Record Date, and |
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(b) | the transferee produces a properly endorsed share certificate for, or otherwise establishes ownership of, any of the transferred shares and makes a demand to CIBC Mellon Trust Company no later than 10 days before the Meeting that the transferee’s name be included in the list of shareholders in respect thereof. |
�� | ||||||||
Number of Shares Owned, | Percentage of Shares | |||||||
Name and Address | Controlled or Directed | Outstanding | ||||||
Robert M. Friedland | ||||||||
Hong Kong | 100,834,334 | (1) | 31.85 | % | ||||
Directors and Officers as a group(2) | 101,741,248 | (3) | 32.13 | % |
(1) | Common Shares are held directly (as to 19,810,801 shares) and indirectly through Newstar Securities SRL (as to 30,701,000 shares), a company beneficially owned and controlled by Mr. Friedland, and Goldamere Holdings SRL (as to 50,322,533 shares), a company beneficially owned and controlled as to 91.91% by Mr. Friedland. Common Shares held directly and indirectly by Mr. Friedland do not include 2,000,000 unissued Common Shares issuable upon the exercise of incentive stock options. | |
(2) | Common Shares held by the directors and senior officers as a group do not include 8,095,000 unissued Common Shares issuable upon the exercise of incentive stock options. | |
(3) | Includes 100,834,334 Common Shares held directly and indirectly by Robert M. Friedland. |
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Robert M. Friedland Chairman, Chief Executive Officer and Director since 1994; Member of Executive Committee since 2005. |
R. Edward Flood Director since 1995; Deputy Chairman since 1999; formerly President of the Corporation from 1995 to 1999. |
John Macken President and Director since 2004; Member of Executive Committee since 2005. |
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Peter G. Meredith Director since 2005; Chief Financial Officer since 2004, formerly Chief Financial Officer from 1999 to 2001; Member of Executive Committee since 2005. |
David Huberman Lead Director and Chair of Compensation and Benefits Committee and Corporate Governance and Nominating Committee since 2003; Member of Executive Committee since 2005. |
John Weatherall Director since 1996, Chair of Audit Committee since 1997 and member of Corporate Governance and Nominating Committee since 2003. |
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Kjeld Thygesen Director since 2001; Member of Audit Committee since 2001, Compensation and Benefits Committee since 2002 and Corporate Governance and Nominating Committee since 2003. |
Hon. Robert Hanson Director since 2001; Member of Compensation and Benefits Committee since 2002 and Corporate Governance and Nominating Committee since 2003. |
Dr. Markus Faber Director since 2002; Member of Audit Committee since 2002 and Corporate Governance and Nominating Committee since 2004. |
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Howard R. Balloch Director since 2005. The following table sets out the names of management’s nominees for election as directors, their ages, all major offices and positions with the Corporation and any of its significant affiliates each now holds, each nominee’s principal occupation, business or employment, the period of time during which each has been a director of the Corporation, the number of Common Shares of the Corporation beneficially owned by each, directly or indirectly, or over which each exercised control or direction, as at March 30, 2006, and the number of options to purchase Common Shares of the Corporation held by each as at March 30, 2006. |
Shares Beneficially | Stock | |||||||||||
Principal Occupation, Business or | Period as a Director | Owned, Controlled | Options | |||||||||
Name and Position | Employment(1) | of the Corporation | or Directed(1)(2) | Held | ||||||||
ROBERT M. FRIEDLAND(6) Hong Kong Chairman, Chief Executive Officer and Director | Chairman and Chief Executive Officer of the Corporation (March 1994 — present); Chairman and President, Ivanhoe Capital Corporation, a Singapore based venture capital company principally involved in establishing and financing international mining and exploration companies | since March 1994 | 100,834,334 | 2,000,000 | ||||||||
R. EDWARD FLOOD Idaho, United States Deputy Chairman and Director | Deputy Chairman of the Corporation (May 1999 — present); Senior Mining Analyst, Haywood Securities Inc. (May 1999 — November 2001), President of the Corporation (1995 — 1999) | since March 1994 | 218,585 | 685,000 | ||||||||
JOHN MACKEN(6) Co. Louth, Ireland President and Director | President of the Corporation (January 2004 — present); Consultant (2000 — January, 2004); Senior Vice President of Freeport McMoran Copper & Gold (1996 — 2000) | since January 2004 | NIL | 4,000,000 | ||||||||
PETER G. MEREDITH(6) B.C., Canada Chief Financial Officer and Director | Chief Financial Officer of the Corporation (June 1999 — November 2001; May 2004 — present); Chief Financial Officer, Ivanhoe Capital Corporation (1996 — present); Senior Partner, Deloitte & Touche, chartered accountants (1966 — 1996) | since March 2005 | 87,452 | 750,000 | ||||||||
DAVID HUBERMAN(4)(5)(6) B.C.,Canada Lead Director | President, Coda Consulting Corp. (1993 — present); Senior Partner, Freeman & Company, barristers & solicitors |
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Shares Beneficially | Stock | |||||||||||
Principal Occupation, Business or | Period as a Director | Owned, Controlled | Options | |||||||||
Name and Position | Employment(1) | of the Corporation | or Directed(1)(2) | Held | ||||||||
since September 2003 | 20,000 | 300,000 | ||||||||||
JOHN WEATHERALL(3)(4) Ontario, Canada Director | President, Scarthingmoor Assets Management Inc. (1996 — present) | since June 1996 | 74,500 | 100,000 | ||||||||
KJELD THYGESEN(3)(4)(5) England Director | Managing Director of Lion Resource Management (1989 — present) | since February 2001 | 150,000 | 50,000 | ||||||||
HON. ROBERT HANSON(4)(5) England Director | Chairman of Hanson Capital Limited (1998 — present); Chairman of Hanson Transport Group (1990 — present) | since February 2001 | 85,000 | 50,000 | ||||||||
DR. MARKUS FABER(3)(4) Hong Kong Director | Managing Director, Marc Faber Ltd. (investment advisory firm and fund manager) (1990 — present) | since February 2002 | 20,000 | 130,000 | ||||||||
HOWARD R. BALLOCH China Director | President, The Balloch Group (July 2001 — present); President, Canada China Business Council (July 2001 — present); Canadian Ambassador to China, Mongolia and Democratic Republic of Korea (April 1996 — July 2001) | since March 2005 | 20,000 | 90,000 |
(1) | The information as to principal occupation, business or employment and shares beneficially owned, controlled or directed by a nominee is not within the knowledge of the management of the Corporation and has been furnished by the nominee. | |
(2) | Does not include unissued common shares issuable upon the exercise of incentive stock options. See “Voting Shares”. | |
(3) | Member of the Audit Committee.(4) Member of the Corporate Governance and Nominating Committee.(5) Member of the Compensation and Benefits Committee.(6) Member of Executive Committee. |
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Securities Under | ||||||
Options Vested/ | ||||||
Name | Unvested | Vested | Unvested | |||
ROBERT FRIEDLAND | 500,000/1,500,000 | 500,000 granted March 27, 2006 at Cdn.$9.73, expire March 27, 2013. | 1,500,000 granted March 27, 2006 at Cdn.$9.73, expire March 27, 2013; 400,000 to vest on the earlier of December 31, 2006 or achievement of each of four defined development criteria for Oyu Tolgoi currently planned for 2006, 300,000 to vest on the earlier of December 31, 2007 or achievement of each of four additional defined development criteria for Oyu Tolgoi currently planned for 2007, 300,000 to vest on the earlier of December 31, 2008 or achievement of one of two additional defined development criteria currently planned for Oyu Tolgoi for 2008 and the remaining 500,000 to vest on the earlier of December 31, 2009 and achievement of each of two additional defined development criteria planned for Oyu Tolgoi for 2009. | |||
R. EDWARD FLOOD | 385,000/NIL | 385,000 granted September 24, 2001, at Cdn.$1.60, expire September 24, 2006. | N/A | |||
75,000/225,000 | 75,000 granted March 27, 2006 at Cdn.$9.73, expire March 27, 2013. | 225,000 granted March 27, 2006 at Cdn.$9.73, expire March 27, 2013; 60,000 to vest on the earlier of December 31, 2006 or achievement of each of four defined development criteria for Oyu Tolgoi currently planned for 2006, 45,000 to vest on the earlier of December 31, 2007 or achievement of each of four additional defined development criteria for Oyu Tolgoi currently planned for 2007, 45,000 to vest on the earlier of December 31, 2008 or achievement of one of two additional defined development criteria currently planned for Oyu Tolgoi for 2008 and the remaining 75,000 to vest on the earlier of December 31, 2009 and achievement of each of two additional defined development criteria planned for Oyu Tolgoi for 2009. | ||||
JOHN MACKEN | 750,000/250,000 | 750,000 granted November 1, 2003 at Cdn.$12.70, expire November 1, 2013. | 250,000 granted November 1, 2003 at Cdn.$12.70, expire November 1, 2013. 250,000 to vest on November 1, 2006. | |||
700,000/300,000 | 700,000 granted March 30, 2004 at Cdn.$7.78, expire March 30, 2014. | 300,000 granted March 30, 2004 at Cdn.$7.78, expire March 30, 2014; |
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Securities Under | ||||||
Options Vested/ | ||||||
Name | Unvested | Vested | Unvested | |||
to vest on March 10, 2007 or upon commencement of commercial production at Oyu Tolgoi. | ||||||
500,000/1,500,000 | 500,000 granted March 27, 2006 at Cdn.$9.73, expire March 27, 2013. | 1,500,000 granted March 27, 2006 at Cdn.$9.73, expire March 27, 2013; 400,000 to vest on the earlier of December 31, 2006 or achievement of each of four defined development criteria for Oyu Tolgoi currently planned for 2006, 300,000 to vest on the earlier of December 31, 2007 or achievement of each of four additional defined development criteria for Oyu Tolgoi currently planned for 2007, 300,000 to vest on the earlier of December 31, 2008 or achievement of one of two additional defined development criteria currently planned for Oyu Tolgoi for 2008 and the remaining 500,000 to vest on the earlier of December 31, 2009 and achievement of each of two additional defined development criteria planned for Oyu Tolgoi for 2009. | ||||
PETER G. MEREDITH | 30,000/20,000 | 30,000 granted February 4, 2004, at Cdn.$7.69, expire February 4, 2009. | 20,000 granted February 4, 2004, at Cdn.$7.69, expire February 4, 2009. 10,000 to vest on February 4, 2007; 10,000 to vest on February 4, 2008. | |||
80,000/120,000 | 80,000 granted on May 14, 2004, at Cdn.$8.20, expire on May 14, 2009. | 120,000 granted on May 14, 2004, at Cdn.$8.20, expire on May 14, 2009. 40,000 to vest on May 14, 2006; 40,000 to vest on May 14, 2007; 40,000 to vest on May 14, 2008. | ||||
100,000 granted March 27, 2006 at Cdn.$9.73, expire March 27, 2013. | 300,000 granted March 27, 2006 at Cdn.$9.73, expire March 27, 2013; 80,000 to vest on the earlier of December 31, 2006 or achievement of each of four defined development criteria for Oyu Tolgoi currently planned for 2006, 60,000 to vest on the earlier of December 31, 2007 or achievement of each of four additional defined development criteria for Oyu Tolgoi currently planned for 2007, 60,000 to vest on the earlier of December 31, 2008 or achievement of one of two additional defined development criteria currently planned for Oyu Tolgoi for 2008 and the remaining 100,000 to vest on the earlier of December 31, 2009 and achievement of each of two additional defined development criteria planned for Oyu Tolgoi for 2009. |
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Securities Under | ||||||
Options Vested/ | ||||||
Name | Unvested | Vested | Unvested | |||
DAVID HUBERMAN | 150,000/100,000 | 150,000 granted September 16, 2003, at Cdn.$6.75, expire September 16, 2008. | 100,000 granted September 16, 2003, at Cdn.$6.75, expire September 16, 2008. 50,000 to vest on September 16, 2006; 50,000 to vest on September 16, 2007. | |||
25,000/NIL | 25,000 granted September 3, 2004, at Cdn.$7.00, expire September 3, 2009. | N/A | ||||
NIL/25,000 | N/A | 25,000 granted May 10, 2005, at Cdn.$9.37, expire May 10, 2010. Vests May 10, 2006. | ||||
JOHN WEATHERALL | 30,000/20,000 | 30,000 granted June 12, 2003, at Cdn.$3.25, expire June 12, 2008. | 20,000 granted June 12, 2003, at Cdn.$3.25, expire June 12, 2008. 10,000 to vest on June 12, 2006; 10,000 to vest on June 12, 2007. | |||
25,000/NIL | 25,000 granted September 3, 2004, at Cdn.$7.00, expire September 3, 2009. | N/A | ||||
NIL/25,000 | N/A | 25,000 granted May 10, 2005, at Cdn.$9.37, expire May 10, 2010. Vests May 10, 2006. | ||||
KJELD THYGESEN | 25,000/NIL | 25,000 granted September 3, 2004, at Cdn.$7.00, expire September 3, 2009. | N/A | |||
NIL/25,000 | N/A | 25,000 granted May 10, 2005, at Cdn.$9.37, expire May 10, 2010. Vests May 10, 2006. | ||||
HON. ROBERT HANSON | 25,000/NIL | 25,000 granted September 3, 2004, at Cdn.$7.00, expire September 3, 2009. | N/A | |||
NIL/25,000 | N/A | 25,000 granted May 10, 2005, at Cdn.$9.37, expire May 10, 2010. Vests May 10, 2006. | ||||
DR. MARKUS FABER | 80,000/NIL | 80,000 granted February 5, 2002, at Cdn.$3.05, expire February 5, 2007. | N/A | |||
25,000/NIL | 25,000 granted September 3, 2004, at Cdn.$7.00, expire September 3, 2009. | N/A | ||||
NIL/25,000 | N/A | 25,000 granted May 10, 2005, at Cdn.$9.37, expire May 10, 2010. Vests May 10, 2006. |
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Securities Under | ||||||
Options Vested/ | ||||||
Name | Unvested | Vested | Unvested | |||
HOWARD BALLOCH | 60,000/20,000 | 60,000 granted September 6, 2002, at Cdn.$3.25, expires September 6, 2007. | 20,000 granted September 6, 2002, at Cdn.$3.25, expires September 6, 2007. Vests on September 6, 2006. | |||
25,000/NIL | 25,000 granted March 11, 2005, at Cdn.$10.51, expire March 11, 2010. | N/A | ||||
NIL/25,000 | N/A | 25,000 granted May 10, 2005, at Cdn.$9.37, expire May 10, 2010. Vests May 10, 2006. |
ROBERT M. FRIEDLAND | Ivanhoe Energy Inc. (TSX; NASDAQ) | |
R. EDWARD FLOOD | Ivanhoe Energy Inc. (TSX; NASDAQ); Jinshan Gold Mines Inc. (TSX-V); Asia Gold Corp. (TSX-V); American Gold Capital Corp. (TSX-V). | |
PETER G. MEREDITH | Entrée Gold Inc. (TSX-V; AMEX); Jinshan Gold Mines Inc. (TSX-V); Olympus Pacific Minerals Inc. (TSX-V); Asia Gold Corp. (TSX-V); Great Canadian Gaming Corporation (TSX) | |
JOHN WEATHERALL | Stratic Energy Corporation (TSX) | |
KJELD THYGESEN | Resources Investment Trust PLC (LSE); Superior Mining Corporation (TSX-V) | |
HOWARD R. BALLOCH | Ivanhoe Energy Inc. (TSX; NASDAQ); Methanex Corporation (TSX; NASDAQ); Zi Corporation (TSX; NASDAQ); Tiens Biotech Group (USA) Ltd. (OTCBB); Gobi Gold Inc. (TSX-V) |
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Independent Directors | Non-Independent Directors | |
David Huberman(1) | Robert M. Friedland(2) | |
John Weatherall | R. Edward Flood(3) | |
Markus Faber | John Macken(4) | |
Robert Hanson | Peter Meredith(5) | |
Kjeld Thygesen | Howard Balloch(6) |
(1) Mr. Huberman is Lead Director of the Corporation. |
(2) Mr. Friedland is Chairman and Chief Executive Officer of the Corporation. |
(3) Mr. Flood is Deputy Chairman and a management director of the Corporation. |
(4) Mr. Macken is President of the Corporation. |
(5) Mr. Meredith is Chief Financial Officer of the Corporation. |
(6) Mr. Balloch does not presently qualify as an “independent” director under the applicable per se standards of the CSA Corporate Governance Guidelines, the NYSE Corporate Governance Rules and the NASDAQ Corporate Governance Rules, by virtue of a previous consulting relationship with the Corporation. However, Mr. Balloch is not a member of management and the Board considers him to be sufficiently independent of management to permit his exercise of independent judgment in carrying out his responsibilities. See “Corporate Governance – Board Composition”. |
Board of Directors | 5 | |||
Audit Committee | 4 | |||
Compensation and Benefits Committee | 4 | |||
Corporate Governance and Nominating Committee | 4 | |||
Executive Committee | 1 |
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% of | ||||||||||||||||||||||||||||||
Corporate | ||||||||||||||||||||||||||||||
% of | Corporate | Governance | ||||||||||||||||||||||||||||
Compensation & | Compensation | Governance & | & | |||||||||||||||||||||||||||
Audit | % of Audit | Benefits | & Benefits | Nominating | Nominating | % of | ||||||||||||||||||||||||
Board | % of Board | Committee | Committee | Committee | Committee | Committee | Committee | Executive | Executive | |||||||||||||||||||||
Meetings | Meetings | Meetings | Meetings | Meetings | Meetings | Meetings | Meetings | Meetings | Meetings | |||||||||||||||||||||
Name | Attended | Attended | Attended | Attended | Attended | Attended | Attended | Attended | Attended(4) | Attended | ||||||||||||||||||||
Robert M. Friedland | 4 of 5 | 80 | % | n/a | n/a | n/a | n/a | n/a | n/a | 1 of 1 | 100 | % | ||||||||||||||||||
R. Edward Flood(1) | 5 of 5 | 100 | % | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a | |||||||||||||||||||
John Macken | 4 of 5 | 80 | % | n/a | n/a | n/a | n/a | n/a | n/a | 1 of 1 | 100 | % | ||||||||||||||||||
Peter Meredith(2) | 4 of 4 | 100 | % | n/a | n/a | n/a | n/a | n/a | n/a | 1 of 1 | 100 | % | ||||||||||||||||||
David Huberman | 5 of 5 | 100 | % | n/a | n/a | 4 of 4 | 100 | % | 4 of 4 | 100 | % | 1 of 1 | 100 | % | ||||||||||||||||
John Weatherall | 5 of 5 | 100 | % | 4 of 4 | 100 | % | n/a | n/a | 4 of 4 | 100 | % | n/a | n/a | |||||||||||||||||
Kjeld Thygesen | 5 of 5 | 100 | % | 4 of 4 | 100 | % | 3 of 4 | 75 | % | 3 of 4 | 75 | % | n/a | n/a | ||||||||||||||||
Robert Hanson | 5 of 5 | 100 | % | n/a | n/a | 4 of 4 | 100 | % | 4 of 4 | 100 | % | n/a | n/a | |||||||||||||||||
Markus Faber | 4 of 5 | 80 | % | 4 of 4 | 100 | % | n/a | n/a | 3 of 4 | 75 | % | n/a | n/a | |||||||||||||||||
Howard Balloch(2) | 4 of 4 | 100 | % | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a |
(1) Mr. Flood is not a member of any Committee of the Board. | ||
(2) Messrs. Meredith and Balloch joined the Board of Directors on March 11, 2005. | ||
(3) The Executive Committee was formed on March 11, 2005. |
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(Canadian $ in 000’s) | 2005 | 2004 | ||||||
Audit Fees (a) | $ | 824 | $ | 957 | ||||
Audit Related Fees (b) | 196 | 10 | ||||||
Tax Fees (c) | 200 | 369 | ||||||
All Other Fees | — | — | ||||||
Total | $ | 1,220 | $ | 1,336 | ||||
(a) | Fees for audit services billed or expected to be billed relating to fiscal 2005 and 2004 consisted of: |
• | audit of the Corporation’s annual statutory financial statements | ||
• | audit of the financial statements of one of the Corporation’s subsidiaries | ||
• | reviews of the Corporation’s quarterly financial statements | ||
• | comfort letters, consents, and other services related to SEC and Canadian securities regulatory authorities’ matters |
(b) | Fees for audit-related services provided during fiscal 2005 and 2004 consisted of financial accounting and reporting consultations. | |
(c) | Fees for tax services provided during fiscal 2005 and 2004 consisted of tax compliance, and tax planning and advice. |
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% of Issued | ||||||||
and | ||||||||
Outstanding | ||||||||
Common | ||||||||
Number of Common Shares | Shares | |||||||
Common Shares previously issued upon exercise of options under Option Plan | 12,755,552 | 4.02 | % | |||||
Common Shares reserved for future issuance pursuant to unexercised options under Option Plan | 13,336,900 | 4.21 | % | |||||
Common Shares previously issued pursuant to Purchase Plan | 572,361 | 0.18 | % | |||||
Common Shares previously issued pursuant to Bonus Plan | 701,463 | 0.22 | % | |||||
Unissued Common Shares available for future awards under Bonus Plan | 1,299,137 | 0.47 | % | |||||
Unissued Common Shares available for future option grants under Option Plan and purchases under Purchase Plan | 335,187 | 0.11 | % | |||||
Maximum number of Common Shares available for issuance | 29,000,000 | 9.16 | % |
1. | an amendment to the Corporation’s Employees’ and Directors’ Equity Incentive Plan (the “Incentive Plan”) to increase, by 3,000,000 Common Shares, the maximum number of Common Shares of the Corporation issuable under the Incentive Plan from 29,000,000 Common Shares to 32,000,000 Common Shares is hereby authorized, approved and adopted; and | |
2. | the directors of Ivanhoe be and they are hereby authorized and empowered to implement the foregoing amendments to the Incentive Plan. |
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R. Friedland | ||||
Corporation Name | Ownership Interest | |||
Ivanhoe Energy Inc. | 21.11 | % | ||
Ivanhoe Capital Corporation | 100 | % | ||
Ivanhoe Nickel & Platinum Ltd. | 50.06 | % | ||
Jinshan Gold Mines Inc. | (1 | ) | ||
Asia Gold Corp. | (1 | ) |
(1) | Mr. Friedland owned 31.92% of the Common Shares of the Corporation, which owns 52.91% of the common shares of Jinshan Gold Mines Inc. and 47% of the common shares of Asia Gold Corp. as at December 31, 2005. |
U.S.$(000) | ||||||||
Years ended December 31, | ||||||||
2005 | 2004 | |||||||
Exploration | 1,122 | 2,198 | ||||||
Legal | 823 | 468 | ||||||
Office and administrative | 2,216 | 2,057 | ||||||
Salaries and benefits | 2,904 | 2,239 | ||||||
Travel (including aircraft rental) | 3,421 | 3,001 | ||||||
10,486 | 9,963 | |||||||
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Long-Term Compensation | Awards | Payouts | ||||||||||||||||||||||||||||||
Securities | ||||||||||||||||||||||||||||||||
Under | Shares or | |||||||||||||||||||||||||||||||
NEO Name and | Other Annual | Options/ | Units Subject | All Other | ||||||||||||||||||||||||||||
Principal | Salary | Bonus | Compensation(1) | SARs | to Resale | LTIP | Compensation | |||||||||||||||||||||||||
Position | Year | (U.S.$) | (U.S.$) | (U.S.$) | Granted | Restrictions | Payouts | (U.S.$) | ||||||||||||||||||||||||
Robert Friedland | 2005 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
(CEO) | 2004 | — | — | — | — | — | — | 549 | (2) | |||||||||||||||||||||||
2003 | — | — | — | — | — | — | 877 | (2) | ||||||||||||||||||||||||
Peter Meredith(4) | 2005 | 216,402 | — | — | — | — | 11,315 | (3) | ||||||||||||||||||||||||
(CFO) | 2004 | 243,053 | — | — | 250,000 | — | 10,602 | (3) | ||||||||||||||||||||||||
2003 | N/A | N/A | N/A | N/A | N/A | N/A | N/A | |||||||||||||||||||||||||
John Macken | 2005 | 457,400 | — | — | — | — | — | 8,200 | (2) | |||||||||||||||||||||||
(President) | 2004 | 370,022 | — | — | 1,000,000 | — | — | 8,200 | (2) | |||||||||||||||||||||||
2003 | N/A | N/A | N/A | N/A | N/A | N/A | N/A | |||||||||||||||||||||||||
Edward Flood | 2005 | 226,000 | — | — | — | — | — | 3,690 | (2) | |||||||||||||||||||||||
(Deputy Chairman) | 2004 | 179,100 | — | — | — | — | — | 3,690 | (2) | |||||||||||||||||||||||
2003 | 120,792 | — | — | — | — | — | 3,210 | (2) | ||||||||||||||||||||||||
Doug Kirwin | 2005 | 185,770 | — | 36,000 | (5) | — | — | — | 7,837 | (3) | ||||||||||||||||||||||
(VP Exploration) | 2004 | 180,136 | — | 36,000 | (5) | 50,000 | — | 7,765 | (3) | |||||||||||||||||||||||
2003 | 177,443 | 46,429 | 36,000 | (5) | — | — | — | 6,176 | (3) |
(1) | Perquisites and benefits do not exceed the lesser of Cdn.$50,000 and 10% of the total of the annual salary and bonus for any of the Named Executive Officers except where numbers are disclosed in this column. | |
(2) | Includes life insurance premiums. | |
(3) | Includes life insurance premiums and share purchase plan. | |
(4) | Mr. Meredith became the Corporation’s Chief Financial Officer on May 20, 2004. | |
(5) | Represents housing allowance. |
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Unexercised Options at | Value of Unexercised in the | |||||||||||||||
Securities | Aggregate | December 31, 2005 | Money Options at | |||||||||||||
Acquired on | Value | (Exercisable/ | December 31, 2005 | |||||||||||||
Exercise | Realized | Unexercisable) | (Exercisable/Unexercisable) | |||||||||||||
Name | (#) | (Cdn.$) | (#) | (Cdn.$) | ||||||||||||
Robert Friedland | 1,500,000 | $ | 10,875,000 | NIL | NIL | |||||||||||
Peter Meredith | 60,000 | $ | 434,825 | 20,000/30,000 | $ | 13,200/$19,800 | ||||||||||
80,000/120,000 | $ | 12,000/$18,000 | ||||||||||||||
John Macken | NIL | NIL | 1,150,000/850,000 | $ | 223,00/$342,000 | |||||||||||
Edward Flood | 156,111 | (1) | 1,167,366 | (2) | 535,000/NIL | $ | 3,611,250/NIL | |||||||||
Douglas Kirwin | 26,500 | $ | 241,680 | 20,000/30,000 | $ | 13,200/$19,800 |
(1) | Includes 41,111 common shares issued through exercise of a stock appreciation right (SAR) on June 9, 2005 in respect of options for 50,000 shares. | |
(2) | Includes the closing market value on June 8, 2005 for 41,111 common shares issued through exercise of a SAR in respect of options for 50,000 shares. |
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(i) | the desirability of providing a strong incentive to management to work as a team to achieve the Corporation’s corporate long term and short term business development goals; | ||
(ii) | the principle that the economic interests of management and those of the Corporation’s shareholders should be aligned as closely as reasonably possible; | ||
(iii) | the competitive environment that exists in the mining industry for the recruitment and retention of qualified personnel and the resulting need to offer levels of executive compensation that are comparable to those offered by our competitors; and | ||
(iv) | the present stage of development of the Corporation’s business and the corresponding lack of meaningful quantitative factors, other than changes in share price, by which to measure corporate performance in relation to executive compensation. |
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Kjeld Thygesen
Robert Hanson
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BOARD AND | ||||||||||||||||||||||||||||||||||||
NON- | AUDIT | BOARD AND | COMMITTEE | |||||||||||||||||||||||||||||||||
INDEPENDENT | MANAGEMENT | LEAD | COMMITTEE | COMMITTEE | ATTENDANCE | |||||||||||||||||||||||||||||||
DIRECTOR | DIRECTOR’S | DIRECTOR | CHAIRMAN | ATTENDANCE | (conference | TOTAL CASH FEES | STOCK | |||||||||||||||||||||||||||||
RETAINER | FEES | RETAINER | RETAINER | (in person) | call) | PAID | OPTIONS | |||||||||||||||||||||||||||||
NAME | (Cdn.$) | (Cdn.$) | (Cdn.$) | (Cdn.$) | (Cdn.$) | (US$) | (Cdn.$) | (US$) | GRANTED | |||||||||||||||||||||||||||
Robert M. Friedland(1) | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
R. Edward Flood(1) | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
John Macken(1) | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
Peter G. Meredith(1) | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
David Huberman | 15,000 | — | 60,000 | — | 7,200 | 600 | 85,800 | 600 | 25,000 | |||||||||||||||||||||||||||
John Weatherall | 15,000 | — | — | 25,000 | 9,600 | — | 49,600 | — | 25,000 | |||||||||||||||||||||||||||
Kjeld Thygesen | 15,000 | — | — | — | 13,200 | 600 | 28,200 | 600 | 25,000 | |||||||||||||||||||||||||||
Robert Hanson | 15,000 | — | — | — | 10,800 | 600 | 25,800 | 600 | 25,000 | |||||||||||||||||||||||||||
Markus Faber | 15,000 | — | — | — | 8,400 | — | 23,400 | — | 25,000 | |||||||||||||||||||||||||||
John Bruk(3) | 15,000 | — | — | — | 12,000 | 600 | 27,000 | 600 | 25,000 | |||||||||||||||||||||||||||
Howard R. Balloch(2) | — | 11,250 | — | — | 2,400 | — | 13,650 | — | 25,000 | |||||||||||||||||||||||||||
TOTAL | 90,000 | 11,250 | 60,000 | 25,000 | 63,600 | 2,400 | 253,450 | 2,400 | 175,000 |
(1) | Messrs. Friedland, Flood, Macken and Meredith are members of management and as such do not receive compensation as directors of the Corporation. | |
(2) | Mr. Balloch joined the Board of Directors on March 11, 2005. In recognition of Mr. Balloch’s contributions as a non-management director during fiscal 2005, the Board, on the recommendation of the Compensation and Benefits Committee, approved the payment to Mr. Balloch of a director’s fee and stock options equivalent to the annual retainer and stock options paid to the Corporation’s independent directors. From and after January 1, 2006, such fee will be payable annually to all non-management directors. | |
(3) | Mr. Bruk joined the Audit Committee on May 10, 2005. He retired from the Board on March 10, 2006. |
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Number of | Weighted-average | Number of Securities | ||||||||||
Securities to be | exercise price of | remaining available for | ||||||||||
issued upon | outstanding | future issuance under | ||||||||||
exercise of | options, warrants | equity compensation plans | ||||||||||
outstanding options, | and rights | (excluding securities | ||||||||||
Plan Category | warrants and rights | (Cdn.$) | reflecting in column (a)) | |||||||||
Equity compensation plans approved by securityholders | 7,416,700 | $ | 7.27 | 8,303,936 | ||||||||
Equity compensation plans not approved by shareholders | Nil | Nil | Nil | |||||||||
Total | 7,416,700 | $ | 7.27 | 8,303,936 |
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• | a minimum three-member audit committee comprised solely of independent directors; | ||
• | an audit committee charter that specifies certain specific audit committee responsibilities and authority, including, among other things: |
– | the pre-approval of all audit services and permissible non-audit services; and | ||
– | the sole authority to appoint, determine funding for and oversee the outside auditors. |
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i. | approved and adopted a new mandate for the Board; | ||
ii. | appointed an independent director as “lead director”, with specific responsibility for maintaining the independence of the Board and ensuring the Board carries out its responsibilities contemplated by applicable statutory and regulatory requirements and stock exchange listing standards; | ||
iii. | appointed a Corporate Governance and Nominating Committee consisting solely of independent directors; | ||
iv. | changed the membership of the Compensation and Benefits Committee to consist solely of independent directors instead of a majority of independent directors; | ||
v. | approved charters for each of the Corporation’s Board committees, being the Audit Committee, the Compensation and Benefits Committee and the Corporate Governance and Nominating Committee, formalizing the mandates of those committees; | ||
vi. | established a management Disclosure Committee for the Corporation, with the mandate to oversee the Corporation’s disclosure practices; | ||
vii. | formalized the Corporation’s Corporate Disclosure, Confidentiality and Securities Trading Policy; and | ||
viii. | adopted a formal Code of Business Conduct and Ethics for the Corporation that governs the behaviour of directors, officers and employees. |
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(a) | at least one meeting per year will be devoted substantially to review of strategic plans that are proposed by management; | |
(b) | meetings of the Board, at least quarterly, to discuss strategic planning issues, with and without members of management; | |
(c) | the Board reviews and assists management in forming short and long term objectives of the Corporation on an ongoing basis; | |
(d) | the Board also maintains oversight of management’s strategic planning initiatives through annual and quarterly budget reviews and approvals. The strategic planning process adopted by the Board takes into account, among other things, the opportunities and risks of the business. |
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CORPORATE SECRETARY
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CORPORATE GOVERNANCE DISCLOSURE REQUIREMENT(1) | COMMENTS | |||||||
1. | Board of Directors — (a) Disclose the identity of directors who are independent. | The Board of Directors has reviewed the independence of each Director on the basis of the definitions in section 1.4 of MI 52-110, as amended, and the applicable previsions of the NYSE Corporate Governance Rules and the NASDAQ Corporate Governance Rules. A Director is “independent” if he or she has no direct or indirect material relationship with the Corporation, including as a partner, shareholder or officer of an organization that has a relationship with the Corporation. A “material relationship” is one that would, or in the view of the Board of Directors could, be reasonably expected to interfere with the exercise of a Director’s independent judgment. The Board has determined, after reviewing the roles and relationships of each of the Directors, that one-half (5 out of 10) of the nominees proposed by management for election to the Board are independent from the Corporation. The following nominees have been affirmatively determined to be independent by the Board: | ||||||
David Huberman | ||||||||
John Weatherall | ||||||||
Markus Faber | ||||||||
Robert Hanson | ||||||||
Kjeld Thygesen | ||||||||
This determination was made on the basis that: | ||||||||
(a) | they (and their immediate family members) are not and have not been within the last three years an employee or executive officer of the Corporation; | |||||||
(b) | they (and their spouse, minor child or step child) are not and have not been within the last three years a partner or employee of the Corporation’s external auditors firm; | |||||||
(c) | they (and their immediate family members) are not and have not been within the last three years an executive officer of an entity of which the Corporation’s executives served on that entity’s compensation committee; | |||||||
(d) | they (and their immediate family members) did not receive more than U.S.$60,000 in direct compensation from the Corporation (exclusive of any remuneration received for acting as a Board or Committee member) during any 12 month period during the last three years; | |||||||
(e) | they and their immediate family members are not a current executive officer of a company that has |
(1) | Reference is made to the items in Form 58-101F. |
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CORPORATE GOVERNANCE DISCLOSURE REQUIREMENT(1) | COMMENTS | |||||||
made payments to, or received payments from, the Corporation for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of U.S.$1 million or 2% of such other company’s consolidated gross revenues; | ||||||||
(f) | they are not a partner in, or a continuing shareholder or executive officer of any for-profit business organization to which the Corporation made, or from which the Corporation received payments (other than those arising solely from investments in the Corporation’s securities) that exceed 5% of the Corporation’s or business organization’s consolidated gross revenues for that year, or U.S.$200,000, whichever is more, in any of the past three years. | |||||||
(b) | Disclose the identity of directors who are not independent, and describe the basis for that determination. | The Board of Directors and Corporate Governance and Nominating Committee have determined, after reviewing the roles and relationships of each of the Directors, that the following 5 out of 10 nominees proposed by management for election to the Board are not ”independent” from the Corporation as defined in the CSA Corporate Governance Guidelines, the NYSE Corporate Governance Rules and the NASDAQ Corporate Governance Rules: | ||||||
Robert M. Friedland: Chairman and CEO | ||||||||
R. Edward Flood: Deputy Chairman | ||||||||
Peter G. Meredith: CFO | ||||||||
John Macken: President | ||||||||
Howard Balloch | ||||||||
Messrs. Friedland, Flood, Meredith and Macken, as senior officers of the Corporation and/or one or more of its subsidiaries and members of management, are considered to be non-independent directors. | ||||||||
By virtue of an agreement for consulting services between the Corporation and a company beneficially owned by Mr. Balloch and his spouse, pursuant to which the Corporation paid compensation in excess of Cdn.$75,000 in 2004, Mr. Balloch does not qualify as an “independent director” under the applicable per se standards of the CSA Corporate Governance Guidelines, the NYSE Corporate Governance Rules and the NASDAQ Corporate Governance Rules. Payments pursuant to such agreement terminated in October 2004. Mr. Balloch is not a member of management, however, and the Board considers him to be sufficiently independent of management to permit his exercise of independent judgment in carrying out his responsibilities. |
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CORPORATE GOVERNANCE DISCLOSURE REQUIREMENT(1) | COMMENTS | |||||||
(c) | Disclose whether or not a majority of the directors are independent. If a majority of directors are not independent, describe what the Board of Directors (the Board) does to facilitate its exercise of independent judgment in carrying out its responsibilities. | One-half or five of the 10 nominees proposed by Management for election to the Board are “independent directors” as defined in the CSA Corporate Governance Guidelines, the NYSE Corporate Governance Rules and the NASDAQ Corporate Governance Rules. In addition, although Mr. Balloch does not qualify as an “independent director” for the reasons set forth in Item 1(b) above, he is not a member of management and the Board considers him to be sufficiently independent of management to permit his exercise of independent judgment in carrying out his responsibilities. | ||||||
The directors of the Corporation have reviewed the size of the Board and believe that the current Board size and composition results in a balanced representation on the Board of Directors among management, non-management directors and the Corporation’s major shareholder. While the Board functions effectively, given the Corporation’s stage of development and the size and complexity of its business, the Board, through its Corporate Governance and Nominating Committee, will continue to seek additional qualified candidates to augment its experience and expertise and to enhance the Corporation’s ability to effectively develop its business interests. In so doing, the Corporate Governance and Nominating Committee will seek candidates that meet all Canadian, U.S. and other standards of independence applicable to the Corporation. The Corporate Governance and Nominating Committee will continue to examine the size and composition of the Board and recommend adjustments from time to time to ensure that the Board continues to be of a size that facilitates effective decision-making. There are currently 10 Directors on the Board. The maximum number permitted under the Corporation’s articles of incorporation is 12. This will facilitate adding an additional qualified candidate to the Board as the opportunity to do so arises. | ||||||||
(d) | If a director is presently a director of any other issuer that is a reporting issuer (or the equivalent) in a jurisdiction or a foreign jurisdiction, identify both the director and the other issuer. | All directorships with other public entities for each of the nominees are set out in the table under “Election of Directors”. | ||||||
(e) | Disclose whether or not the independent directors hold regularly scheduled meetings at which members of management are not in attendance. If the independent directors hold such meetings, disclose the number of meetings held since the beginning of the issuer’s most recently completed financial year. If the independent directors do not hold such meetings, describe what the Board does to facilitate open and candid discussion among its independent directors. | The Board sets aside a portion of each regularly scheduled meeting to discuss any issues without management Directors being present. In addition, all committees meet without management being present unless the committee specifically requests. The Corporate Governance and Nominating Committee, in particular, provides a forum without management being present to receive any expression of concern from a director, including a concern regarding the independence of the Board from management. There were five such Board meetings and four such meetings of each committee held in 2005. In addition, between each regularly scheduled Board meeting, a meeting of non-management Directors, chaired by the Lead Director, is held by teleconference to update the Directors on developments since the last Board meeting. |
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CORPORATE GOVERNANCE DISCLOSER REQUIREMENT1 | COMMENTS | |||||
Board meeting. | ||||||
(f) | Disclose whether or not the chair of the Board is an independent director. If the Board has a chair or lead director who is an independent director, disclose the identity of the independent chair or lead director, and describe his or her role and responsibilities. If the Board has neither a chair that is independent nor a lead director that is independent, describe what the Board does to provide leadership for its independent directors. | Mr. Friedland, the Corporation’s Chief Executive Officer, currently serves as Chairman of the Board of Directors. The Board of Directors is of the view that appropriate structures and procedures are in place to allow the Board to function independently of management while continuing to provide the Corporation with the benefit of having a Chairman of the Board with extensive experience and knowledge of the Corporation’s business. The Board has created the position of lead director, with specific responsibility for maintaining the independence of the Board and ensuring that the Board carries out its responsibilities. Mr. Huberman, who also serves as chair of the Corporate Governance and Nominating Committee, serves as the Corporation’s lead director. | ||||
(g) | Disclose the attendance record of each director for all Board meetings held since the beginning of the issuer’s most recently completed financial year. | The Board held five meetings in the 2005 financial year and the Nominating and Corporate Governance, the Compensation and Benefits Committee and the Audit Committee each met four times during the year. A record of attendance by Director(s) at meetings of the Board and its Committees as well as the number of Board and Board Committee meetings held during the financial year ended December 31, 2005, is set out under the heading “Attendance of Board and Committee Members” in this Circular. | ||||
2. | Board Mandate - Disclose the text of the Board’s written mandate. If the Board does not have a written mandate, describe how the Board delineates its role and responsibilities. | The Board of Directors has assumed responsibility for the stewardship of the Corporation and has adopted a formal mandate as described in this Circular under the heading “Corporate Governance – Mandate of the Board”, setting out its stewardship responsibilities. The mandate of the Board is available on the Corporation’s website (www.ivanhoemines.co m). A copy may also be obtained upon request to the Corporate Secretary of the Corporation, Suite 654, 999 Canada Place, Vancouver, British Columbia V6C 3E1, telephone (604) 688-5755. | ||||
3. | Position Descriptions - | |||||
(a) | Disclose whether or not the Board has developed written position descriptions for the chair and the chair of each Board committee. If the Board has not developed written position descriptions for the chair and/or the chair of each Board committee, briefly describe how the Board delineates the role and responsibilities of each such position. | The Board of Directors has not yet developed written position descriptions for the Chair, the chair of each Board committee, or the CEO. The Corporate Governance and Nominating Committee is responsible for and is continuing to develop recommendations for structures and procedures to clearly define the role and responsibilities of the Chair, the chair of each Board committee and the CEO. | ||||
(b) | Disclose whether or not the Board and CEO have developed a written position description for the CEO. If the Board and CEO have not developed such a position description, briefly describe how the Board delineates the role and responsibilities of the CEO. |
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CORPORATE GOVERNANCE DISCLOSURE REQUIREMENT(1) | COMMENTS | |||||||
4. | Orientation and Continuing Education | The Corporation takes steps to ensure that prospective directors fully understand the role of the Board and its committees and the contribution individual directors are expected to make, including in particular the commitment of time and energy that the Corporation expects of its directors. New directors are provided with a comprehensive information package, including pertinent corporate documents and a director’s manual containing information on the duties, responsibilities and liabilities of directors. New directors are also briefed by management as to the status of the Corporation’s business. Directors are provided with the opportunity to make site visits to the Corporation’s properties. | ||||||
(a) | Briefly describe what measures the Board takes to orient new members regarding: | |||||||
(i) | the role of the Board, its committees and its directors, and | |||||||
(ii) | the nature and operation of the issuer’s business | |||||||
(b) | Briefly describe what measures, if any, the Board takes to provide continuing education for its directors. If the Board does not provide continuing education, describe how the Board ensures that its directors maintain the skill and knowledge necessary to meet their obligations as directors. | Management and outside advisors provide information and education sessions to the Board and its committees on a continuing basis as necessary to keep the directors up-to-date with the Corporation, its business and the environment in which it operates as well as with developments in the responsibilities of directors. Presentations are made to the Board from time to time to educate and keep them informed of changes within the Corporation and of regulatory and industry requirements and standards. In addition, Directors are encouraged to take courses relevant to the Corporation and its business, particularly with respect to corporate governance and the mining industry. Directors are also encouraged to make site visits to the Corporation’s properties. | ||||||
5. | Ethical Business Conduct — | The Corporation has adopted a Code of Business Conduct and Ethics applicable to all employees, consultants, officers and directors regardless of their position in the organization, at all times and everywhere the Corporation does business. The Code of Business Conduct and Ethics provides that the Corporation’s employees, consultants, officers and directors will uphold its commitment to a culture of honesty, integrity and accountability and the Corporation requires the highest standards of professional and ethical conduct from its employees, consultants, officers and directors. The Corporation’s Code of Business Conduct and Ethics has been filed on SEDAR and is available on the Corporation’s website (www.ivanhoemines.com). A copy may also be obtained, without charge, by request to the Corporate Secretary, 654 — 999 Canada Place, Vancouver, British Columbia, Canada V6C 3E1, telephone to (604) 688-5755. | ||||||
(a) | Disclose whether or not the Board has adopted a written code for its directors, officers and employees. If the Board has adopted a written code: | |||||||
(i) | disclose how a person or company may obtain a copy of the code; | |||||||
(ii) | describe how the Board monitors compliance with its code, or if the Board does not monitor compliance, explain whether and how the Board satisfies itself regarding compliance with its code; and disclose how a person or company may obtain a copy of the code; | |||||||
(iii) | provide a cross-reference to any material change report filed since the beginning of the issuer’s most recently completed financial year that pertains to any conduct of a director or executive officer that constitutes a departure from the code. | The Corporate Governance and Nominating Committee monitors compliance with the Code of Business Conduct and Ethics and also ensures that management encourages and promotes a culture of ethical business conduct. The Board has not granted any waiver of the Code of Business Conduct and Ethics in favor of a Director or executive officer. Accordingly, no material change report has been required or filed. |
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CORPORATE GOVERNANCE DISCLOSURE REQUIREMENT(1) | COMMENTS | |||||||
(b) | Describe any steps the Board takes to ensure directors exercise independent judgment in considering transactions and agreements in respect of which a director or executive officer has a material interest. | The Corporate Governance and Nominating Committee monitors the disclosure of conflicts of interest by Directors and ensures that no Director will vote nor participate in a discussion on a matter in respect of which such Director has a material interest. | ||||||
(c) | Describe any other steps the Board takes to encourage and promote a culture of ethical business conduct. | The Corporation has published a Statement of Values and Responsibilities. It has also developed various corporate policies including Corporate Disclosure, Confidentiality and Securities Trading policies, and a Whistleblower Policy, administered by an independent third party. | ||||||
6. | Nomination of Directors — (a) Describe the process by which the Board identifies new candidates for Board nomination. | The Board has a Corporate Governance and Nominating Committee consisting of Messrs. Huberman, Hanson, Weatherall, Thygesen and Faber all of whom are “independent directors” under the CSA Corporate Governance Guidelines, the NYSE Corporate Governance Rules and the NASDAQ Corporate Governance Rules. Mr. Huberman has been appointed as Chairman of the committee, in addition to being the Corporation’s lead director. The full Board determines, in light of the opportunities and risks facing the Corporation, what competencies, skills and personal qualities it should seek in new Board members in order to add value to the Corporation. Based on this framework, the Corporate Governance and Nominating Committee has responsibility for approaching and proposing to the full Board new nominees to the Board, and for assessing directors on an ongoing basis. The Corporation does not have a shareholder with the ability to exercise a majority of the votes for the election of the Board of Directors. However, the Chairman and the Chief Executive Officer of the Corporation holds approximately 31.85% of the Corporation’s voting securities as at the date of this Circular. The Corporation has a majority of directors who do not have an interest in or relationship with either the Corporation or its principal shareholder and, which fairly reflects the investment in the Corporation by shareholders other than the principal shareholder. The full Board determines, in light of the opportunities and risks facing the Corporation and the recommendations of the Corporate Governance and Nominating Committee, what competencies, skills and personal qualities it should seek in new Board members in order to add value to the Corporation. Based on this framework, the Corporate Governance and Nominating Committee has responsibility for identifying, interviewing and assessing nominees to the Board and proposing to the full Board new nominees, and for assessing directors on an ongoing basis. The Board seeks to achieve a greater representation of independent directors and has determined to continue to seek, through its Corporate Governance and Nominating Committee, additional qualified candidates to augment its experience and expertise and to enhance the Corporation’s ability to effectively develop its business interests. In so doing, the Corporate Governance and Nominating Committee will seek candidates that meet all Canadian, U.S. and other standards of independence applicable to the Corporation. | ||||||
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CORPORATE GOVERNANCE DISCLOSURE REQUIREMENT(1) | COMMENTS | |||||
Corporation. The charter of the Corporate Governance and Nominating Committee is available on the Company’s website (www.ivanhoemines.com). A copy may also be obtained upon request to the Corporate Secretary, 654 – 999 Canada Place, Vancouver, British Columbia, V6C 3E1, telephone (604) 688-5755. | ||||||
7. | Compensation – | The Compensation and Benefits Committee has responsibility for recommending compensation for the Company’s officers to the Board. CEO compensation is approved by the Compensation and Benefits Committee. “Report on Executive Compensation”. | ||||
(a) | Describe the process by which the Board determines the compensation for the issuer’s directors and officers. | |||||
The Compensation and Benefits Committee reviews and makes recommendations to the Board regarding the adequacy and form of the compensation for non-management Directors to ensure that such compensation realistically reflects the responsibilities and risks involved in being an effective director, without compromising a Director’s independence. Directors who are executives of the Company receive no additional remuneration for their services as Directors. | ||||||
“Independent directors”, as defined in the CSA Corporate Governance Guidelines, the NYSE Corporate Governance Rules and the NASDAQ Corporate Governance Rules (and, from and after January 1, 2006, all non-management directors), receive Cdn.$15,000 per annum for acting as such. Mr. David Huberman receives an additional Cdn.$60,000 per annum for acting as the Lead Director of the Board of Directors. Mr. John Weatherall, as Chair of the Audit Committee, receives an additional Cdn.$25,000 per annum, for acting in such capacity. Commencing in 2006 each Chair of the Compensation and Benefits Committee and the Corporate Governance Committee will receive an additional payment of Cdn.$15,000 per annum for acting as such. Independent directors also receive Cdn.$1,200 per in-person Board or Committee meeting attended and US$600 per Board or Committee conference call in which they participate. | ||||||
In addition to their cash compensation, non-executive directors also receive a grant of 25,000 stock options per annum, such options having a five year term and fully vesting on the first anniversary of the date of the grant. | ||||||
(b) | Disclose whether or not the Board has a compensation committee composed entirely of independent directors. If the Board does not have a compensation committee composed entirely of independent directors, describe what steps the Board takes to ensure an objective process for determining such compensation. | The Compensation and Benefits Committee comprises three Directors, all of whom have been affirmatively determined by the Board to be “independent directors” as defined by the CSA Corporate Governance Guidelines, the NYSE Corporate Governance Rules and the NASDAQ Corporate Governance Rules. | ||||
(c) | If the Board has a compensation committee, describe the responsibilities, powers and operation of the compensation committee. | The duties and responsibilities of the Compensation and Benefits Committee include the development of a compensation philosophy and policy; evaluating the performance of the Corporation’s senior executive officers, reviewing their compensation, and monitoring equity incentive arrangements. | ||||
The role of the Compensation and Benefits Committee is primarily to review the adequacy and form of compensation of senior management and the directors |
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CORPORATE GOVERNANCE DISCLOSURE REQUIREMENT(1) | COMMENTS | |||||
with such compensation realistically reflecting the responsibilities and risks of such positions, to administer the Corporation’s Equity Incentive Plan, to determine the recipients of, and the nature and size of share compensation awards granted from time to time and to determine the remuneration of executive officers and to determine any bonuses to be awarded. | ||||||
The members of the Compensation and Benefits Committee are Messrs. Huberman (Chair), Thygesen and Hanson. Each member of the committee is an independent director for the purposes of the CSA Corporate Governance Guidelines, the NYSE Corporate Governance Rules and the NASDAQ Corporate Governance Rules. | ||||||
The charter of the Compensation and Benefits Committee is available on the Company’s website (www.ivanhoemines.com). A copy may also be obtained upon request to the Corporate Secretary, Suite 654, 999 Canada Place, Vancouver, British Columbia V6C 3E1, telephone (604) 688-5755. | ||||||
(d) | If a compensation consultant or advisor has, at any time since the beginning of the issuer’s most recently completed financial year, been retained to assist in determining compensation for any of the issuer’s directors and officers, disclose the identity of the consultant or advisor and briefly summarize the mandate for which they have been retained. If the consultant or advisor has been retained to perform any other work for the issuer, state that fact and briefly describe the nature of the work. | Towers Perrin were retained in 2004 by the Compensation Committee to prepare a director compensation report to assist the Committee in the determination of independent director compensation. They were mandated to provide the review based on compensation levels provided to similarly sized Canadian mining companies. Towers Perrin’s fee for its 2004 report was Cdn$19,821. Gurr Lane & Associates were retained in 2005 by the Compensation Committee to prepare reports to assist the Committee in developing a compensation strategy for the position of President and for the other executive and senior management positions. They were mandated to develop a justifiable compensation strategy which benchmarks such positions in terms of the competitive marketplace of similar-sized international mining companies and, where appropriate, larger operating mining companies. The proposals were intended to address salary, bonus and stock options. Gurr Lane & Associates’ fee for the reports was Cdn$39,697. | ||||
8. | Other Board Committees – If the Board has standing committees other than the audit, compensation and nominating committees, identify the committees and describe their function. | In addition to the Audit Committee, the Compensation and Benefits Committee and the Corporate Governance and Nominating Committee, effective March 11, 2005, the Board has also approved establishment of an Executive Committee consisting of the Chief Executive Officer, Chief Financial Officer, President and one independent director (currently the Lead Director) to meet between formal meetings of the Board as necessary, with authority to approve expenditures of up to U.S.$10,000,000. | ||||
9. | Assessments – Disclose whether or not the Board, its committees and individual directors are regularly assessed with respect to their effectiveness and contribution. If assessments are regularly conducted, describe the process used for the assessments. If assessments are not regularly conducted, describe how the Board satisfies itself that the Board, its committees, and its individual directors are performing effectively. | The Corporate Governance and Nominating Committee has the responsibility for developing and recommending to the Board, and overseeing the execution of, a process for assessing the effectiveness of the Board as a whole, the committees of the Board and the contribution of individual directors, on a regular basis. The Corporate Governance and Nominating Committee has developed and is continuing to refine an assessment process for the Board and each of its committees. In addition, the Committee is refining a |
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CORPORATE GOVERNANCE DISCLOSURE REQUIREMENT(1) | COMMENTS | |||||
process to assess the contribution of individual directors. | ||||||
The Corporate Governance and Nominating Committee reviews and approves a performance evaluation questionnaire that is forwarded annually to the members of the Board of Directors. This questionnaire covers a wide range of issues and allows for comments and suggestions. In 2004, all Directors assessed the performance of the Board as a whole, its Committees, the Chair of each Committee, and the Lead Director. In 2005, each Director assessed his own performance. In 2006, a process of peer review will be initiated for all Directors. The Lead Director compiles responses to the questionnaire and contacts each Director to discuss the evaluations. The Lead Director then reports the results to the Board of Directors. This evaluation process takes place on an annual basis prior to recommendation of nominees to the Board of Directors. | ||||||
The most recent annual evaluation showed that the Board, its Committees, the Committee Chairs, the Lead Director and individual Directors were effectively fulfilling their responsibilities. |
- 50 -
1.1 | Purpose |
1.2 | Definitions |
- 51 -
2.1 | Participation |
2.2 | Administration of Share Option Plan. |
2.3 | Price |
2.4 | Grant of Options |
- 52 -
- 53 -
- 54 -
- 55 -
- 56 -
- 57 -
(a) | the name and address of each Participant; | ||
(b) | the Plan or Plans in which the Participant participates; | ||
(c) | any Participant’s Contributions; |
- 58 -
(d) | the number of unissued Shares reserved for issuance pursuant to an Option or pursuant to an award made under the Share Bonus Plan in favour of a Participant; and | ||
(e) | such other information as the Board may determine. |
(a) | materially increase the benefits under the Plan; | ||
(b) | materially increase the number of Shares issuable under the Plan; or | ||
(c) | materially modify the requirements as to eligibility for participation in the Plan; |
- 59 -
(a) | Unless otherwise determined by the Board, the Plan shall be administered by the Compensation and Benefits Committee (the “Committee”) appointed by the Board and constituted in accordance with such Committee’s charter. The members of the Committee serve at the pleasure of the Board and vacancies occurring in the Committee shall be filled by the Board. | ||
(b) | The Committee shall have the power, where consistent with the general purpose and intent of the Plan and subject to the specific provisions of the Plan, to: |
(i) | adopt and amend rules and regulations relating to the administration of the Plan and make all other determinations necessary or desirable for the administration of the Plan. The interpretation and construction of the provisions of the Plan and related agreements by the Committee shall be final and conclusive. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any related agreement in the manner and to the extent it shall deem expedient to carry the Plan into effect and it shall be the sole and final judge of such expediency; and | ||
(ii) | otherwise exercise the powers delegated to the Committee by the Board and under the Plan as set forth herein. |
(a) | The Board, on the recommendation of the Committee, shall determine anddesignate from time to time the individuals to whom awards shall be made, theamounts of the awards and the other terms and conditions of the awards. | ||
(b) | The Board may delegate any of its responsibilities or powers under the Plan to the Committee, provided that the grant of all Shares, Options or other awards under the Plan shall be subject to the approval of the Board. No Option shall beexercisable in whole or in part unless and until such approval is obtained. | ||
(c) | In the event the Committee is unable or unwilling to act in respect of a matter involving the Plan, the Board shall fulfill the role of the Committee provided forherein. |
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654 - 999 Canada Place, Vancouver, British Columbia V6C 3E1
Tel: (604) 688 5755 Fax: (604) 682 2060
1. | ELECTION OF DIRECTORS | |||||
The nominees proposed by management of the Corporation are: | ||||||
ROBERT M. FRIEDLAND | FOR¨ | WITHHOLD¨ | ||||
R. EDWARD FLOOD | FOR¨ | WITHHOLD¨ | ||||
KJELD THYGESEN | FOR¨ | WITHHOLD¨ | ||||
ROBERT HANSON | FOR¨ | WITHHOLD¨ | ||||
JOHN WEATHERALL | FOR¨ | WITHHOLD¨ | ||||
MARKUS FABER | FOR¨ | WITHHOLD¨ | ||||
JOHN MACKEN | FOR¨ | WITHHOLD¨ | ||||
DAVID HUBERMAN | FOR¨ | WITHHOLD¨ | ||||
HOWARD BALLOCH | FOR¨ | WITHHOLD¨ | ||||
PETER MEREDITH | FOR¨ | WITHHOLD¨ | ||||
2. | APPOINTMENT OF AUDITORS | |||||
To appoint Deloitte & Touche, LLP, Chartered Accountants, as auditors of the Corporation at a remuneration to be fixed by the board of directors. | ||||||
FOR¨ WITHHOLD¨ | ||||||
4. | An amendment to the Corporation’s Employees’ and Directors’ Equity Incentive Plan (the “Plan”) to increase, by 3,000,000 common shares, the maximum number of common shares of the Corporation issuable under the Plan from 29,000,000 common shares to 32,000,000 common shares is hereby authorized, approved and adopted. | |||||
FOR¨ AGAINST¨ | ||||||
5. | Upon any permitted amendment to or variation of any matter identified in the Notice of Annual General Meeting. | |||||
6. | Upon any other matter that properly comes before the Meeting . |
Name of Shareholder
Address of Shareholder
TO: | REGISTERED AND NON-REGISTERED SHAREHOLDERS OF IVANHOE MINES LTD. (the “Corporation”) |
(Please Circle)
IVANHOE MINES LTD.
Name of Shareholder: | ||
Please Print | ||
Address: | ||
Postal Code: | ||
Signature: | ||
Date: | ||
E-Mail Address: | ||
I consent to the electronic delivery of the documents listed below that the Company elects to deliver to me electronically, all in accordance with the terms hereof. The consent granted herein will last until revoked by the Shareholder. | ||
1. | The following documents that are filed with securities regulators and mailed to other Shareholders will at the same time be delivered electronically to me (collectively referred to as the “Documents” or each of them as a “Document”): |
a) | annual reports including financial statements; | ||
b) | quarterly reports, including financial statements; | ||
c) | notices of meetings of shareholders, management information circulars and forms of proxy; and | ||
d) | such other disclosure documents that the Company makes available by electronic means. |
2. | The Documents will be delivered to you by the Company by making them available for your viewing, downloading and/or saving on the Internet websitewww.ivanhoemines.com (the “Website”). | |
A Shareholder must then go to “Investor Information” and “Financial Reports” and locate the document of interest for viewing. | ||
The Company will advise you by e-mail when the documents are available on the Website. |
3. | The viewing, downloading and/or saving of a Document requires me to use: |
a) | a computer with a 486/33 processor (or MacIntosh LC III) or higher with at least 16 megabytes of RAM (Random Access Memory) and Windows 3.1; | ||
b) | access to an Internet service provider; | ||
c) | the program Netscape Navigator 3.0 (or higher) or Microsoft Internet Explorer 3.0 (or higher); | ||
d) | the program Adobe Acrobat Reader 3.0 (or higher) to read the material; and | ||
e) | an electronic mail account to receive notification. |
4. | I acknowledge that I may receive at no cost a paper copy of any Document to be delivered if the Company cannot make electronic delivery available or if I contact the Company’s transfer agent, CIBC Mellon by telephone at (800) 387-0825, regular mail at Ivanhoe Mines Ltd. c/o CIBC Mellon Trust Company, PO Box 1900, Vancouver, BC V6C 3K9 or via electronic mail atinquiries@cibcmellon.com. I further acknowledge that my request of a paper copy of any Document does not constitute revocation of this “Consent to Electronic Delivery of Documents”. | |
5. | The Documents will be posted on the Website for delivery for a period of time corresponding to the notice period stipulated under applicable legislation and the Documents will remain posted on the Website thereafter for a period of time which is appropriate and relevant, given the nature of the document. | |
6. | I understand that my consent may be revoked or changed at any time by notifying the Company’s transfer agent of such revocation or changed by telephone, regular mail or e-mail as specified in paragraph 4 above. |
7. | I understand that the Company maintains in confidence the personal information I provide as a Shareholder and uses it only for the purpose of Shareholder communication. | |
8. | I understand that I am not required to consent to the electronic delivery of Documents. I have read and understand this “Consent to Electronic Delivery of Documents” and I consent to the electronic delivery of Documents on the foregoing terms. |
Print Shareholder(s) Name | ||||||
(as it appears on your cheques, certificates, statements or correspondence) | ||||||
E-mail Address | ||||||
Mailing Address | ||||||
Address 1 | ||||||
Address 2 | ||||||
City, Province/State | ||||||
Country | ||||||
Post Code/Zip Code | ||||||
Date | Shareholder Signature(s) |
Print and mail this form to: | or | Print and fax this form to: | ||
CIBC Mellon Trust Company | 1- 604-688-4301 | |||
PO Box 1900 | ||||
Vancouver, BC V6C 3K9 | ||||
CIBC Mellon Trust Company | 1-416-643-5660 | |||
PO Box 7010 | 1-416-643-5661 | |||
Adelaide Street Postal Station | ||||
Toronto, ON M5C 2W9 |
www.ivanhoemines.com
IVANHOE MINES LTD.
FINANCIAL STATEMENTS
December 31, 2005 and 2004
2005 HIGHLIGHTS
- 1 -
2005 HIGHLIGHTS
Tonnes | ||||||||||||
of Ore | Copper | Gold | ||||||||||
Class | (Million) | (%) | (g/t) (a) | |||||||||
Proven | 127 | 0.58 | 0.93 | |||||||||
Probable | 803 | 0.48 | 0.27 | |||||||||
Total | 930 | 0.50 | 0.36 | |||||||||
(a) | g/t grams per tonne |
Tonnes | Copper | Gold | ||||||||||
Class | (Million) | (%) | (g/t) | |||||||||
Additional inferred resources | ||||||||||||
Using 0.6% copper equivalent cut-off grade(1) | 281 | 1.49 | % | 0.51 | ||||||||
Using 2.0% copper equivalent cut-off grade(1) | 87 | 2.62 | % | 1.19 | ||||||||
(1) | Copper equivalent has been calculated using assumed metal prices ($0.80/pound for copper and $350/ounces gold); % Copper equivalent.= % Cu + Au (gpt) x (11.25/17.64). |
- 2 -
2005 HIGHLIGHTS
• | The first issue concerns plans for the future expansion of the mine. The expected decrease in mined copper grades at the Sabetaung pit coupled with the Company’s potential inability to import into Myanmar additional required mining equipment in a timely manner, may limit production in 2006 to as low as 16,000 tonnes of copper cathode, down from approximately 34,500 tonnes in 2005. | ||
• | The second issue involves a difference of interpretation between the Company and certain Myanmar tax authorities concerning the imposition of commercial tax on all copper cathode exports. The imposition of this commercial tax would be equivalent to an additional 8% net smelter return charge on the project sales, retroactive to January 1, 2003. The Company is seeking a written legal opinion from the Attorney General of Myanmar on the applicability of this tax and the Company has received certain assurances that the ruling may be favorable. | ||
• | The Company is also concerned about timely approvals for the expansion of the Letpadaung deposit. To date, the expansion of the deposit has been neither approved nor denied by the Government of Myanmar. |
- 3 -
2005 HIGHLIGHTS
- 4 -
AND RESULTS OF OPERATIONS
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AND RESULTS OF OPERATIONS
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AND RESULTS OF OPERATIONS
- 7 -
- 8 -
AND RESULTS OF OPERATIONS
- 9 -
AND RESULTS OF OPERATIONS
- 10 -
AND RESULTS OF OPERATIONS
Years ended December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
Exploration expenses | 127.2 | 98.2 | 68.0 | |||||||||
General and administrative costs | 23.8 | 22.2 | 16.4 | |||||||||
Share of income from Joint venture | 23.0 | 21.4 | 1.1 | |||||||||
Foreign exchange gain | 7.8 | 4.6 | 12.6 | |||||||||
Net (loss) from continuing operations | �� | (125.7 | ) | (99.0 | ) | (78.6 | ) | |||||
Net income (loss) from discontinued operations | 35.9 | 4.5 | (9.1 | ) | ||||||||
Net (loss) | (89.8 | ) | (94.5 | ) | (87.7 | ) | ||||||
Net income (loss) per share | ||||||||||||
Continuing operations | ($ | 0.41 | ) | ($ | 0.35 | ) | ($ | 0.32 | ) | |||
Discontinued operations | $ | 0.12 | $ | 0.01 | ($ | 0.04 | ) | |||||
Total assets | 396.8 | 376.3 | 371.6 | |||||||||
Exploration Division | ||||||||||||
Capital expenditures | 29.8 | 6.0 | 8.5 | |||||||||
Joint venture operations | ||||||||||||
Copper cathode - 50% share | ||||||||||||
Units sold — tonnes | 17,485 | 15,730 | 13,808 | |||||||||
Units produced — tonnes | 17,239 | 15,878 | 13,935 | |||||||||
Average sale price | ||||||||||||
Copper cathode — US$/pound | $ | 1.83 | $ | 1.33 | $ | 0.79 |
- 11 -
AND RESULTS OF OPERATIONS
Year | ||||||||||||||||||||
QUARTER ENDED | Ended | |||||||||||||||||||
Mar-31 | Jun-30 | Sep-30 | Dec-31 | Dec.31 | ||||||||||||||||
2005 | ||||||||||||||||||||
Exploration expenses | (24.4 | ) | (33.8 | ) | (28.9 | ) | (40.1 | ) | (127.2 | ) | ||||||||||
General and administrative | (4.8 | ) | (5.9 | ) | (7.3 | ) | (5.8 | ) | (23.8 | ) | ||||||||||
Share of income from joint venture | 7.7 | 7.8 | 8.0 | (0.5 | ) | 23.0 | ||||||||||||||
Gain (loss) on foreign exchange | (0.6 | ) | 1.7 | 7.1 | (0.4 | ) | 7.8 | |||||||||||||
Net (loss) from continuing operations | (24.2 | ) | (31.1 | ) | (20.6 | ) | (49.8 | ) | (125.7 | ) | ||||||||||
Net income (loss) from discontinued operations | 15.7 | 5.9 | 6.4 | 7.9 | 35.9 | |||||||||||||||
Net (loss) | (8.5 | ) | (25.2 | ) | (14.3 | ) | (41.8 | ) | (89.8 | ) | ||||||||||
Net income (loss) per share | ||||||||||||||||||||
Continuing operations | ($ | 0.08 | ) | ($ | 0.10 | ) | ($ | 0.07 | ) | ($ | 0.16 | ) | ($ | 0.41 | ) | |||||
Discontinued operations | $ | 0.05 | $ | 0.02 | $ | 0.02 | $ | 0.03 | $ | 0.12 | ||||||||||
Total | ($ | 0.03 | ) | ($ | 0.08 | ) | ($ | 0.05 | ) | ($ | 0.13 | ) | ($ | 0.29 | ) | |||||
2004 | ||||||||||||||||||||
Exploration expenses | (20.7 | ) | (24.8 | ) | (28.5 | ) | (24.2 | ) | (98.2 | ) | ||||||||||
General and administrative | (5.2 | ) | (4.8 | ) | (6.0 | ) | (6.2 | ) | (22.2 | ) | ||||||||||
Share of income from joint venture | 4.2 | 6.1 | 4.6 | 6.5 | 21.4 | |||||||||||||||
Gain (loss) on foreign exchange | (1.7 | ) | (1.4 | ) | 4.2 | 3.5 | 4.6 | |||||||||||||
Net (loss) from continuing operations | (23.8 | ) | (23.1 | ) | (25.5 | ) | (26.6 | ) | (99.0 | ) | ||||||||||
Net income (loss) from discontinued operations | (7.9 | ) | 2.2 | 0.7 | 9.5 | 4.5 | ||||||||||||||
Net (loss) | (31.6 | ) | (21.0 | ) | (24.8 | ) | (17.1 | ) | (94.5 | ) | ||||||||||
Net income (loss) per share | ||||||||||||||||||||
Continuing operations | ($ | 0.09 | ) | ($ | 0.09 | ) | ($ | 0.09 | ) | ($ | 0.08 | ) | ($ | 0.35 | ) | |||||
Discontinued operations | ($ | 0.03 | ) | $ | 0.01 | $ | 0.00 | $ | 0.03 | $ | 0.01 | |||||||||
Total | ($ | 0.12 | ) | ($ | 0.08 | ) | ($ | 0.09 | ) | ($ | 0.05 | ) | ($ | 0.34 | ) |
- 12 -
AND RESULTS OF OPERATIONS
Ø | Exploration.Total exploration and development expenditures capitalized in Q4’05 totalled $10.2 million, compared to $2.5 million in Q4’04. The $8.1 million increase in capitalized expenditures is mainly due to the capitalization of the Oyu Tolgoi Project’s surface and collar infrastructure for the exploration shaft. | ||
In Q4’05, Ivanhoe Mines expensed $40.1 million in exploration and development activities, compared to $24.2 million in Q4’04. The majority of the $40.1 million was spent on Ivanhoe Mines’ Mongolian properties ($37.6 million compared to $18.3 million). Approximately $29.8 million (79%) of the $37.6 million was spent on the Oyu Tolgoi project and various coal exploration activities in the south Gobi region of Mongolia. The remaining 21% was spent on various exploration activities, including the Bronze Fox District, the Kharmagtai project, regional reconnaissance, licence holding fees and general in-country administrative charges. | |||
Ø | Administrative costs.Administrative costs in Q4’05 were slightly lower, but consistent with expenditures in Q4’04. | ||
Ø | Income from joint venture interest.At the end of 2005, the Company adopted U.S. GAAP as the basis for the consolidation of its financial statements. | ||
Under U.S. GAAP, the equity method is used to account for interests in joint venture operations. Under the equity method, account details of the S&K Mine’s assets, liabilities and operating results are now included in notes to the financial statements and the Company’s share of the net assets and liabilities of the S&K Mine are consolidated on the Company’s balance sheet as a net equity investment in joint venture. The Company’s share of the S&K Mine’s operating results are consolidated on its Consolidated Statement of Operations as share of income from joint venture. | |||
In Q4’05, Ivanhoe Mines’ share of operating profit from the S&K Mine increased by 51% over the same period in 2004. This increase was due to a 65% increase in copper prices less a 17% decrease in cathode production and a 34% increase in operating costs. The increase in operating costs is mainly attributed to increases in the unit costs of power and chemicals. In Q4’05, net loss from the S&K Mine totalled $0.5 million compared to a profit of $6.5 million in Q4’04. | |||
Ø | Investment in joint venture. In Q1’05 the Company announced its intention to expand, in a series of incremental steps, the S&K Mine’s production capacity to a target of 200,000 tonnes per annum. Various mining equipment was ordered at that time to increase the annual copper cathode capacity to 50,000 tonnes per annum by mid-2006 as part of the expansion program. |
- 13 -
AND RESULTS OF OPERATIONS
§ | Economic sanctions imposed against Myanmar by the United States have started to seriously impact the mine’s ability to function in a normal way. In Q4’05, both the mine’s insurance broker and the off-shore banking institution terminated their relationship with the mine on account of these sanctions. Although the mine had in excess of $40 million in off-shore bank accounts at December 31, 2005, the operations of the mine were shut-down in March 2006. The mine is expected to resume operations shortly when additional fuel, required to operate mining equipment and chemicals, required for the leaching and electrowinning process, become available. The management of the S&K Mine has established a new banking relationship with an off-shore institution. | ||
§ | The mine has not yet been able to obtain from the Myanmar authorities the necessary import permits for its previously ordered mining equipment. The equipment is currently off-shore, awaiting approval for delivery. The Company does not know if and when import permits will be granted for the importation of the necessary mining equipment. The Company has received recent oral assurances from its joint venture partner that the necessary documentation is nearing finalization. The increase in mining capacity is crucial to allow waste stripping for the Sabetaung deposit and ultimately for the future development of the Kysingtaung and Letpadaung deposits. Without a substantial increase in mining capacity, these two deposits cannot be economically developed. The drop in copper grades at the Sabetaung pit, combined with the mine’s potential inability to obtain the necessary importing permits resulted in significant decreases in copper cathode production in Q4’05. Significant decreases in copper production are now forecasted for 2006 and subsequent years. |
Copper cathode | ||||||||
production | ||||||||
(tonnes) | ||||||||
Q1’05 | 9,603 | |||||||
Q2’05 | 9,118 | |||||||
Q3’05 | 8,497 | |||||||
Q4’05 | 7,260 | |||||||
Total production - 2005 | 34,478 | |||||||
Actual — Jan’06 | 2,134 | |||||||
Estimated | ||||||||
Feb to March’06 | 3,718 | |||||||
Apr to Dec’06 | 10,428 | |||||||
Total forecasted production - 2006 | 16,280 | |||||||
- 14 -
AND RESULTS OF OPERATIONS
§ | In the Q3’05, the Company reported its disagreement with certain Myanmar tax authorities on a commercial tax issue involving the purported imposition of an eight percent commercial tax on all export sales. The Company’s management believes that tax provisions in the S&K Mine joint venture agreement clearly exempt the mine’s copper exports from all forms of tax of a commercial nature. The imposition of such a commercial tax, equivalent to an additional 8% royalty, would have a significant negative impact on future cash flows and any future development plans for the S&K Mine. The Commercial tax is being claimed retroactively to January 1, 2003, on all copper export sales. If the Myanmar government’s position on this issue prevails, the joint venture’s estimated commercial tax liability at December 2005 would total approximately $22 million ($11.0 million net to the Company). The Company is seeking a written legal opinion from the Attorney General of Myanmar on the applicability of this tax and the Company has received certain assurances that the ruling may be favorable. | ||
§ | The Company is also concerned about the timely approvals for the expansion of the Letpadaung deposit. To date, the expansion of the deposit has been neither approved nor denied by the Government of Myanmar. |
Ø | Net income (loss) from discontinued operations.The Company announced the sale of the Savage River mine operations in February 2005. The 2005 and 2004 operating results from the mine have been reclassified as net income from discontinued operations. | |
Income from the Savage River mine operations totalled $7.9 million in Q4’05, compared to $9.5 million in Q4’04. Income from the Savage River mine in Q4’05 represents the accrual of the pellet premium earned during the quarter on the estimated sale of 600,000 tonnes of iron ore pellets from the Savage River mine. The high earnings in Q4’04 were mainly due to a large portion of pellet sales being settled at the spot market rates, which were much higher than the negotiated normal annual rates. | ||
The net gain from discontinued operations reported for the quarter under U.S. GAAP exceeded by $0.4 million the gain reported under Canadian GAAP. At the |
- 15 -
AND RESULTS OF OPERATIONS
time of sale of the Savage River mine, the mine assets reported under Canadian GAAP exceeded the mine assets value reported under U.S. GAAP. As a result, under Canadian GAAP, smaller profits are reported for the remaining ten months of 2005 as proceeds recorded from the sale of the mine are first recorded to off-set the remaining asset values prior to any revenue being recorded. |
Ø | Foreign exchange gain.In Q4’05, the Company maintained most of its cash resources in Canadian dollars (“Cdn$”). The foreign exchange gain during the quarter was mainly attributable to the strengthening of the Canadian dollar against the U.S. dollar. |
- 16 -
AND RESULTS OF OPERATIONS
- 17 -
AND RESULTS OF OPERATIONS
Recovered | Recovered | |||||||||||||||||||||||||||
Tonnes | CuEq | Copper | Gold | |||||||||||||||||||||||||
of Ore | NSR | Copper | Gold | Grade | (Millions | (Millions | ||||||||||||||||||||||
Class | (Million) | ($/Tonne) | (%) | (gpt) | (%) | pounds) | ounces) | |||||||||||||||||||||
Proven | 127 | 15.91 | 0.58 | 0.93 | 1.18 | 1.5 | 2.8 | |||||||||||||||||||||
Probable | 803 | 7.96 | 0.48 | 0.27 | 0.66 | 7.4 | 4.8 | |||||||||||||||||||||
Total | 930 | 9.05 | 0.50 | 0.36 | 0.73 | 8.9 | 7.6 | |||||||||||||||||||||
* | Reserves estimated using metal prices of $400/oz and $1.00/pound copper and block value of NSR cut-off grades of $3.54/tonne for Southwest Oyu and $3.39/tonne for Central Oyu. |
- 18 -
AND RESULTS OF OPERATIONS
CuEq(1) | ||||||||||||||||||||
CuEq(1) | cut-off | |||||||||||||||||||
Tonnes | Copper | Gold | Grade | grade | ||||||||||||||||
Deposit and Class | (Million) | (%) | (gpt) | (%) | (%) | |||||||||||||||
Southern Oyu deposits | ||||||||||||||||||||
Measured | 101.6 | 0.64 | % | 1.10 | 1.34 | % | 0.60 | % | ||||||||||||
Indicated | 465.6 | 0.62 | % | 0.43 | 0.89 | % | 0.60 | % | ||||||||||||
Measured + Indicated | 567.2 | 0.62 | % | 0.55 | 0.97 | % | 0.60 | % | ||||||||||||
Inferred (2) | 88.5 | 0.47 | % | 0.41 | 0.73 | % | 0.60 | % | ||||||||||||
Hugo Dummett deposits | ||||||||||||||||||||
Indicated | 581.3 | 1.91 | % | 0.41 | 2.17 | % | 0.60 | % | ||||||||||||
Inferred | 1,162.0 | 1.08 | % | 0.23 | 1.24 | % | 0.60 | % | ||||||||||||
Total Oyu Tolgoi Project | ||||||||||||||||||||
Measured | 101.6 | 0.64 | % | 1.10 | 1.34 | % | 0.60 | % | ||||||||||||
Indicated | 1,046.9 | 1.34 | % | 0.42 | 1.60 | % | 0.60 | % | ||||||||||||
Measured + Indicated | 1,148.5 | 1.27 | % | 0.48 | 1.58 | % | 0.60 | % | ||||||||||||
Inferred (2) | 1,250.5 | 1.04 | % | 0.24 | 1.20 | % | 0.60 | % | ||||||||||||
(1) | CuEq has been calculated using assumed metal prices ($0.80/pound for copper and $350/ounces gold); %CuEq.= % Cu + Au (gpt) x (11.25/17.64). | |
(2) | Resources classified as Inferred are separate and in addition to resources classified as Measured or Indicated. |
CuEq(1) | ||||||||||||||||||||
Tonnes | Copper | Gold | CuEq(1) | cut-off | ||||||||||||||||
Deposit and Class | (Million) | (%) | (gpt) | Grade (%) | grade (%) | |||||||||||||||
Ivanhoe/Entrée Shivee Tolgoi property | ||||||||||||||||||||
Inferred | 190.2 | 1.57 | % | 0.53 | 1.91 | % | 0.60 | % | ||||||||||||
(1) | CuEq has been calculated using assumed metal prices ($0.80/pound for copper and $350/ounces gold); %CuEq.= % Cu + Au (gpt) x (11.25/17.64). |
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AND RESULTS OF OPERATIONS
The IDP outlines the framework for the responsible development of the mine, allowing the Company to integrate economic progress with environmental care and social responsibility. The mine development proposed by the IDP will be completed over a 15-year period, resulting in an ultimate mine life expectancy of 40 years. | ||
The IDP combined reports for two major aspects of development of the Oyu Tolgoi Project. First was a feasibility-level evaluation of an initial, large open-pit mine developed on the near-surface Southern Oyu deposits. Second were pre-feasibility and scoping-level evaluations of the associated infrastructure, such as power supply, and of a world-class, underground block-cave mining operation at the Hugo Dummett deposits. Because the information used to prepare the IDP includes different levels of study, in accordance with CIM Standards on Mineral Resources and Reserves referred to in National Instrument 43-101, the overall IDP report was released as a Preliminary Assessment Report. | ||
Phase One- 70,000 tpd scenario –Phase one, expected to start in mid-2008, involves open-pit mining of the Southwest Oyu deposits. At the beginning of 2009, a concentrator is projected to produce a gold-rich copper concentrate at a throughput rate of 70,000 tonnes per day (“tpd”). After three years, following the completion of the underground block-cave development of the Hugo North deposit, mining production from underground will begin. Because the underground mineralization is of much higher economic value than the open-pit mineralization, the concentrator will give priority to the underground material. After year five, open-pit production will be curtailed and material from the Hugo North deposit will represent the predominant source of mill feed to the concentrator. | ||
Phase Two- 140,000 tpd scenario –Phase two involves the development of a block-cave underground operation at Hugo South combined with the deepening of the open pit at Southwest Oyu, and is expected to result in a doubling of the daily throughput for the entire Oyu Tolgoi Project to 140,000 tpd. The decision to proceed with phase two is expected to be made in year three and the doubling of throughput capacity, that would result from proceeding with phase two, is expected to be reached by year seven. Underground production from the Hugo South deposit is expected to commence in year 12, at which time the combined underground production from the Hugo Dummett deposits is expected to reach 140,000 tpd. | ||
Given the significant potential to expand the known resources at the Oyu Tolgoi Project, management believes that the ultimate rate of production could far exceed the projections presented in the IDP. Management anticipates that production from an estimated 29 year mining life in the open pit coupled with block caving operations at Hugo North and Hugo South could ultimately increase mill throughput into the 200,000 to 250,000 tonnes per day range. |
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AND RESULTS OF OPERATIONS
Valuation from IDP-Using a base copper price of $1 per pound and a base gold price of $400 per ounce, and based on interpretation of existing tax, mining and other relevant Mongolian laws and the terms of the draft Special Stability Agreement currently being negotiated with the Mongolian government, the Oyu Tolgoi Project’s estimated net present value (“NPV”), using an 8% discount rate and assuming the implementation of the phase-two scenario, is estimated at $3.44 billion before tax — and $2.71 billion after tax. At a 10% discount rate, the NPV is $2.40 billion before tax and $1.85 billion after tax. | ||
The IDP estimated the average recoveries over the life-of-mine at 90.4% for copper and 78.1% for gold. Assuming implementation of the phase-two scenario, the IDP also estimates that, over the life of the project, total cash costs, after gold credits, will average $0.40 per pound of copper. | ||
The open-pit resources used in the IDP are all in the Measured and Indicated categories. The underground resources used in the IDP include some Inferred resources that have not yet been sufficiently drilled to have economic considerations applied to them to enable them to be categorized as reserves. Mineral resources that are not reserves do not have demonstrated economic viability. Until there is additional underground drilling and geotechnical rock characterization to upgrade the Inferred resources to Measured and Indicated resources, the economic analysis contained in the IDP is a preliminary assessment and there can be no certainty that the predicted results of the IDP will be realized. | ||
Mine Planning Update –.The IDP was based on mineral resources as of March 2005; more recent drilling and mine planning initiatives suggest alternative approaches to the mine schedule that may yield higher returns and/or a lowering of risk associated with the IDP mine plan. Studies commenced in January 2006 to update the IDP mine plan and are expected to be completed in the latter half of 2006. The Company is considering an opportunity to mine, earlier than previously anticipated, a high grade zone at the shallowest part of the southern end of Hugo North deposit using a Sub-Level Cave mining method. This mining would be carried out in parallel with the deeper development work for the block cave mine. Access to the ore zone would be by a 1.3 kilometre drift development from Shaft #1 at an elevation as much as 300 metres shallower than envisaged by the IDP for the “Characterization” drift. This Characterization is required to prove that block caving is a suitable method to mine the Hugo North deposit. This drifting may allow the feasibility study for the block caving of Hugo North to be completed as much as one year earlier than previously anticipated. | ||
Mining from this zone is targeted at a rate in excess of 15,000 tpd during the third year of the project life and while it is envisaged to continue for a period of more than five years until the large deep block cave begins producing, its life may be extended. This targeted mining zone is closest to Shaft #1 and the infrastructure required for the long-term mining at the deeper block caving operations and should not require a duplication of infrastructure. This early mining will provide |
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AND RESULTS OF OPERATIONS
a proving ground to train mining crews. It will also permit Ivanhoe Mines to gather geotechnical data, undertake orebody characterization and evaluate different drawpoint designs and layouts. This knowledge and experience, when applied to the block cave mine, will reduce the mining/technical risks from those associated with a caving operation without the early mining scenario. This early mining option may offer an opportunity to increase the ore column height for the block caving operation allowing the full height to be mined in a single lift and at higher production tonnages. A single lift would dispense with the requirement for a second extraction level and associated infrastructure and would result in a reduction in capital expenditures anticipated to be incurred over the life of the mine. | ||
Additional studies will focus on mining beyond Phase 3 of the open pit and at higher mill throughput tonnages than those indicated in the IDP. Production from an estimated 29 year mining life in the open pit coupled with block caving operations at Hugo North and Hugo South could ultimately increase mill throughput into the 200,000 to 250,000 tpd range. | ||
Exploration shaft– Early access to the deep potential of the Hugo North deposit is important to the financial success of the Oyu Tolgoi Project’s development. In furtherance of this objective, the construction of the headframe, hoisting plant, associated infrastructure and pre-sinking excavation for Shaft #1, a 6.7-metre-diameter exploration shaft, was undertaken in 2005. All surface installations for the shaft were completed by the end of January 2006 including pre-sinking to a depth of 35 metres. As of March 10, 2006, after initial teething problems, sinking has reached a depth of approximately 100 metres. The sinking of the Shaft #1 to an originally planned depth of 1,340 metres below surface is expected to be completed in late-2007, with underground drifting and drilling occurring in 2007 and 2008. | ||
The sinking of Shaft #1 is being performed by the Redpath Group of North Bay, Ontario, Canada, one of the world’s leading shaft-sinking firms. When completed, Shaft #1 will provide access to the Hugo Dummett deposits and enable the completion of detailed feasibility studies, further resource-delineation drilling and rock-characterization work. | ||
To maximize project value from the high-grade Hugo North deposit, the Company plans to commence construction of a ten-metre-diameter production/service shaft (“Shaft #2”) as soon as possible. Engineering and geotechnical studies for the construction of Shaft #2 were initiated in 2005, and are ongoing. Geotechnical drilling to identify suitable ground to locate the proposed “Shaft Pillar” continues and is expected to be completed in Q3’06. Construction of the surface works are not expected to commence until the site investigation is completed. Sinking of the shaft is scheduled to commence in early 2007. |
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AND RESULTS OF OPERATIONS
Planning associated with the open pit phase of the project, covering the Southwest open pit development and the construction of the concentrator and related infrastructures, is well advanced. Major elements or issues yet to be finalized include interim and long-term power, potential rail access and the completion of environmental assessments. | ||
During Q4’05, the consulting engineering firm, Fluor Canada Ltd. (“Fluor”) carried out a strategic planning review of the IDP report, including a strategic assessment of the concentrator facilities development. Following the completion of Fluor’s review, expected in April 2006, Ivanhoe Mines and Fluor intend to negotiate a definitive agreement providing for the management of the offshore design, procurement and onshore construction for the Oyu Tolgoi Project. |
b) | Other Mongolian copper/gold exploration projects. |
During 2005, Ivanhoe Mines continued its exploration efforts on other Mongolian prospects, including the Kharmagtai project and the Bronze Fox district. Diamond drilling at the Kharmagtai project tested several previously untested porphyry prospects. | ||
At the end of September 2005, the Company announced the commencement of the Falcon airborne gravity gradiometer survey by BHP Billiton (“BHPB”) on an area covering approximately 35,640 square kilometres (the “BHPB Joint Venture Area”) of Ivanhoe Mines’ non-core exploration licences in southern Mongolia. The survey is part of a joint-venture agreement with BHPB that allows BHPB the right to earn up to a 50% interest in the BHPB Joint Venture Area. The survey is expected to be completed in early 2006. | ||
The BHPB Joint Venture Area, which represents approximately 40% of Ivanhoe Mines’ land holdings in this region, excludes all coal mineralization, as well as Ivanhoe Mines’ advanced exploration and development-stage projects (the Oyu Tolgoi Project, the Kharmagtai, Yellow Hills and Bronze Fox prospects). | ||
On July 5, 2005, Asia Gold announced a similar agreement with BHPB. The agreement, covering approximately 3,600 square kilometres of Asia Gold’s mineral licences in southern Mongolia, grants BHPB the right to earn a 50% interest by spending $2 million prior to December 31, 2007. The expenditures include an initial commitment to conduct a Falcon airborne gravity gradiometer survey before December 31, 2006. Following the initial earn-in, BHPB has a second option to earn an additional 20% interest (for a total interest of 70%) by funding a feasibility study on one exploration target up to a maximum value of $45 million. BHPB also agreed to purchase an equity interest in Asia Gold by acquiring approximately 1.15 million units valued at $1 million, each unit consisting of one common share and a two-year warrant to purchase one half common share of Asia Gold at Cdn$1.395 per share. |
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AND RESULTS OF OPERATIONS
In Q4’05 and in early 2006, Asia Gold announced the results of several projects all located in Southern Mongolia. In 2005, Asia Gold completed exploration activities on several projects including the Naran Bulag project and the Tsakhir licences located north of the Konghor project. | ||
c) | Mongolian coal projects. | |
Nariin Sukhait Coal Project– The Nariin Sukhait Coal Project, covering an area of 3,240 square kilometres, is located 40 kilometres north of the Mongolia-China border and the shipping terminus for a newly constructed 450-kilometre Chinese rail line. A railway line to the Nariin Sukhait Coal Project from the Mongolia-China border is being evaluated. Engineering mine plans and a detailed Environmental Impact Assessment are being completed in preparation for the application for a mining licence. | ||
On February 14, 2006, the Company announced the results of an updated resource estimate for the Nariin Sukhait Coal Project. The estimate was prepared by Norwest Corporation (“Norwest”), an independent consulting firm and included results from drilling up to the end of October 2005. Total coal resources contained in two separate fields, the South-East field and the West field, is estimated at 124.0 million tonnes of Measured plus Indicated resources (79.5 million tonnes of Measured resources and 44.5 million tonnes of Indicated resources) and an additional Inferred resource of approximately 33.8 million tonnes. |
In Place Resources | ||||||||||||||||
ASTM | (Tonnes Million) | |||||||||||||||
Category | Fields | Measured | Indicated | Inferred | ||||||||||||
High Volatile | South-East Field | 38.8 | 13.8 | 12.4 | ||||||||||||
Bituminous | West Field | 40.7 | 30.7 | 21.4 | ||||||||||||
Total | 124.0 | 33.8 | ||||||||||||||
The results, which were delineated by a total of 212 drill holes, are considered to be of immediate interest as surface open-pit deposits that are amenable to near-term production. Ten coal seams have been identified with an estimated combined total thickness for the coal-bearing sequence of approximately 1,370 metres and a coal thickness ranging from 68 metres to 250 metres. To date, exploration efforts have been focused on identifying resources in seams above, and including, the No. 5 Seam – the thickest seam within the coal bearing sequence. | ||
Extensive laboratory testing has been performed to determine the quality of the coal at Nariin Sukhait. Proximate and thermal testing has been completed on samples obtained from 35 core holes and 45 reverse circulation drill holes, |
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AND RESULTS OF OPERATIONS
washability tests were completed for samples from 26 drill holes and metallurgical tests were completed for samples from 21 drill holes. Following American Society for Testing and Materials standards (“ASTM”), quality testing in both fields ranks the Nariin Sukhait coals as high-volatile bituminous, containing volatiles ranging from 32% to 35% on a dry basis. Also, tests on some of the No. 5 Seam in the West Field categorized the coal as high-rank, low-ash, low-sulphur coal suitable for producing a high-volatile metallurgical blend. | ||
Ivanhoe Mines plans to complete a mining study on the Nariin Sukhait Coal Project some time early in Q2’06. A potential annual throughput of 4 million tonnes of coal is currently being evaluated by Ivanhoe Mines and its independent consultants. Annual production is anticipated to yield thermal coal for power generation and coal products used by the steel industry including coal used in the pulverized coal injection process and metallurgical (coking) blends. Discussions with potential Chinese customers interested in coal supply from Nariin Sukhait are ongoing. | ||
Tsagaan Tolgoi Coal Project– The Project, discovered by Ivanhoe Mines, is located approximately 100 kilometres from the Oyu Tolgoi Project. Significant coal thicknesses were encountered along a strike length of six kilometres as a result of deep trenching efforts and a drilling program which included a total of 46 drill holes. However, due to the wide spacing of the drill holes, an estimate of coal resources cannot be made at this time. Further drilling will be completed in 2006 with the objective of delineating sufficient thermal coal resources to support the preparation of an initial study on the development a major, long-life, coal-fired generating capacity to supply electricity to the Oyu Tolgoi Project and the residents of the sparsely populated southern part of Mongolia. | ||
d) | Other |
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AND RESULTS OF OPERATIONS
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Years ended December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
Total exploration expenditures-($000) | 127,165 | 98,174 | 67,989 | |||||||||
Percentage allocation | ||||||||||||
Mongolia | 92 | % | 86 | % | 87 | % | ||||||
China | 4 | % | 4 | % | 5 | % | ||||||
Myanmar | 1 | % | 2 | % | 4 | % | ||||||
Bulgaria | 2 | % | 1 | % | 0 | % | ||||||
Australia | 1 | % | 5 | % | 0 | % | ||||||
Korea | 0 | % | 0 | % | 3 | % | ||||||
Other | 1 | % | 1 | % | 1 | % | ||||||
100 | % | 100 | % | 100 | % | |||||||
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AND RESULTS OF OPERATIONS
Year ended December 31, | ||||||||||||||||||||||||||
Total Operation | Company’s 50% net share | |||||||||||||||||||||||||
% Increase | % Increase | |||||||||||||||||||||||||
2005 | 2004 | (decrease) | 2005 | 2004 | (decrease) | |||||||||||||||||||||
Total tonnes moved(1) | Tonnes (000’s) | 13,527 | 10,675 | 27 | % | |||||||||||||||||||||
Tonnes of ore to heap | Tonnes (000’s) | 9,544 | 7,151 | 33 | % | |||||||||||||||||||||
Ore grade | CuCN % | 0.48 | % | 0.65 | % | (26 | %) | |||||||||||||||||||
Strip ratio | Waste/Ore | 0.43 | 0.45 | (4 | %) | |||||||||||||||||||||
Cathode production | Tonnes | 34,478 | 31,756 | 9 | % | 17,239 | 15,878 | 9 | % | |||||||||||||||||
Tonnage sold | Tonnes | 34,969 | 31,460 | 11 | % | 17,485 | 15,730 | 11 | % | |||||||||||||||||
Average sale price received | $/pound | $ | 1.83 | $ | 1.33 | 38 | % | |||||||||||||||||||
Sales | $(000) | 65,801 | 44,091 | 49 | % | |||||||||||||||||||||
Cost of operations | $(000) | 17,768 | 12,137 | 46 | % | |||||||||||||||||||||
Operating profit | $(000) | 42,376 | 26,777 | 58 | % | |||||||||||||||||||||
Cost of operations | US$/pound | $ | 0.46 | $ | 0.35 | 32 | % |
(1) | Includes ore and waste material |
Ø | Economic sanctions against Myanmar imposed by the United States have started to seriously impact the mine’s ability to function in a normal way. In Q4’05, both the mine’s insurance broker and the off-shore banking institution terminated their relationship with the mine on account of these sanctions. Although the mine had |
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AND RESULTS OF OPERATIONS
in excess of $40 million in off-shore bank accounts at December 31, 2005, the operations of the mine were shut-down in Q1’06. The mine is expected to resume operations shortly when additional fuel, required to operate mining equipment and chemicals, required for the leaching and electrowinning process, become available. The management of the S&K Mine has established a new banking relationship with an off-shore institution. | |||
Ø | The mine has yet not been able to obtain from the Myanmar authorities the necessary import permits for its previously ordered mining equipment. The equipment is currently off-shore, awaiting approval for delivery. The Company does not know if or when import permits will ever be granted for the importation of the necessary mining equipment. The Company has received recent oral assurances from its joint venture partner that the necessary documentation is nearing finalization. The increase in mining capacity is crucial to allow waste stripping for the Sabetaung deposit and ultimately for the future development of the Kysingtaung and Letpadaung deposits. Without a substantial increase in mining capacity, these two deposits cannot be economically developed. The drop in copper grades at the Sabetaung pit, combined with the mine’s potential inability to obtain the necessary importing permits resulted in significant decreases in copper cathode production in Q4’05. Significant decreases in copper production are now forecasted for 2006 and subsequent years. |
Copper cathode | ||||||||
production | ||||||||
(tonnes) | ||||||||
Q1’05 | 9,603 | |||||||
Q2’05 | 9,118 | |||||||
Q3’05 | 8,497 | |||||||
Q4’05 | 7,260 | |||||||
Total 2005 | 34,478 | |||||||
Actual — Jan’06 | 2,134 | |||||||
Estimated | ||||||||
Feb to March’06 | 3,718 | |||||||
Apr to Dec’06 | 10,428 | |||||||
Total 2006 | 16,280 | |||||||
Ø | In the Q3’05, the Company reported its disagreement with certain Myanmar tax authorities on a commercial tax issue involving the purported imposition of an eight percent commercial tax on all export sales. The Company’s management believes that tax provisions in the S&K Mine joint venture agreement clearly exempt the mine’s copper exports from all forms of tax of a commercial nature. The imposition of such a commercial tax, equivalent to an additional 8% royalty, would have a significant negative impact on future cash flows and any future development plans for the S&K Mine. The commercial tax is being claimed |
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AND RESULTS OF OPERATIONS
retroactively to January 1, 2003, on all copper export sales. If the Myanmar government’s position on this issue prevails, the joint venture’s estimated commercial tax liability at December 2005 would total approximately $22 million ($11 million net to the Company). The Company is seeking a written legal opinion from the Attorney General of Myanmar on the applicability of this tax and the Company has received certain assurances that the ruling may be favorable. |
Ø | The Company is also concerned about the timely approvals for the expansion of the Letpadaung deposit. To date, the expansion of the deposit has been neither approved nor denied by the Government of Myanmar. | ||
In accordance with its accounting policies, as described in note 2 of its audited consolidated financial statements, the Company reviews the carrying value of its assets whenever events or changes in circumstances indicate that the carrying value of an asset might have been impaired. The Company intends to engage in discussions with its joint venture partner and with the relevant Myanmar government authorities with a view to satisfactorily resolving these issues. If these issues cannot be satisfactorily resolved in a timely manner, the Company may, as part of a future review of the carrying value of its assets, be required to reflect a significant impairment of, and reduce on its financial statements, the carrying value of its investment in the S&K Mine. |
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AND RESULTS OF OPERATIONS
Share purchase | Total number of | |||||||||||
warrants outstanding | Maturity date | Exercise price | shares to be issued | |||||||||
5.76 million (1)(2) | February 15, 2007 | $8.68 per share | 0.576 million | |||||||||
(1) | Each 10 warrants entitle the holder to acquire one common share. | |
(2) | In 2006, the expiry date was extended from February, 2006 to February, 2007. |
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Payments due in years ending December 31, | ||||||||||||||||||||||||||||
2006 | 2007 | 2005 | 2009 | 2010 | 2011+ | Total | ||||||||||||||||||||||
Operating leases (1) | 2,146 | 1,115 | 881 | — | — | — | 4,142 | |||||||||||||||||||||
Purchase obligations(1) | 14,199 | 1,291 | 2 | — | — | — | 15,492 | |||||||||||||||||||||
Other long-term obligations(2) | — | 7,647 | — | — | — | 18,356 | 26,003 | |||||||||||||||||||||
16,345 | 10,053 | 883 | — | — | 18,356 | 45,637 | ||||||||||||||||||||||
(1) | These amounts mainly represent various long-term contracts that include commitments for future operating payments under contracts for drilling, engineering, equipment purchases, rentals and other arrangements. | |
(2) | Other long-term obligations mainly consist of asset retirement obligations. |
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AND RESULTS OF OPERATIONS
Ø | Carrying Values of Property, Plant and Equipment; |
Ø | Depletion and Depreciation of Property, Plant and Equipment; |
Ø | Accounting for Stripping Costs |
Ø | Asset Retirement Obligations; |
Ø | Income Taxes. |
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n | Permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation; | ||
n | Clarifies which interest-only strips and principal-only strips are not subject to the requirements of Statement 133; |
AND RESULTS OF OPERATIONS
n | Establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation; | ||
n | Clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives; and | ||
n | Amends Statement 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. |
AND RESULTS OF OPERATIONS
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R. M. | ||||
Friedland’s | ||||
Ownership | ||||
Company Name | Interest | |||
Ivanhoe Energy Inc. | 21.11 | % | ||
Ivanhoe Capital Corporation | 100.00 | % | ||
Ivanhoe Nickel & Platinum Ltd. | 50.06 | % | ||
$(000) | ||||||||
Years ended December 31, | ||||||||
2005 | 2004 | |||||||
Exploration | 1,122 | 2,198 | ||||||
Legal | 823 | 468 | ||||||
Office and administrative | 2,216 | 2,057 | ||||||
Salaries and benefits | 2,904 | 2,239 | ||||||
Travel (including aircraft rental) | 3,421 | 3,001 | ||||||
10,486 | 9,963 | |||||||
AND RESULTS OF OPERATIONS
Property | Qualified Person | Relationship to Company | ||
Oyu Tolgoi Project | Charles P.N. Forster | Employee | ||
Nariin Sukhait Project | Steven Kerr (Norwest Corporation) | Independent consultant | ||
AND RESULTS OF OPERATIONS
By: | /s/ R. M. Friedland | By: | /s/ P. Meredith | |
R. M. FRIEDLAND | P. MEREDITH | |||
Chairman | Chief Financial Officer |
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Deloitte & Touche LLP 2800 — 1055 Dunsmuir Street 4 Bentall Centre P.O. Box 49279 Vancouver BC V7X 1P4 Canada Tel: (604) 669-4466 Fax: (604) 685-0395 www.deloitte.ca |
Ivanhoe Mines Ltd.
Independent Registered Chartered Accountants
Vancouver, British Columbia
March 30, 2006
Independent Registered Chartered Accountants
Vancouver, British Columbia
March 30, 2006
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Consolidated Balance Sheets
(Stated in thousands of U.S. dollars)
December 31, | ||||||||
2005 | 2004 | |||||||
ASSETS | ||||||||
CURRENT | ||||||||
Cash and cash equivalents (Note 5) | $ | 101,681 | $ | 112,478 | ||||
Accounts receivable (Note 6) | 33,350 | 6,552 | ||||||
Inventories | 3,547 | 2,192 | ||||||
Prepaid expenses | 6,353 | 1,196 | ||||||
Other current assets (Note 7) | 3,286 | 3,000 | ||||||
Current assets of discontinued operations (Note 3) | — | 36,636 | ||||||
TOTAL CURRENT ASSETS | 148,217 | 162,054 | ||||||
INVESTMENT IN JOINT VENTURE (Note 4) | 139,874 | 126,911 | ||||||
LONG-TERM INVESTMENTS (Note 8) | 18,417 | 19,160 | ||||||
PROPERTY, PLANT AND EQUIPMENT (Note 9) | 85,706 | 54,434 | ||||||
DEFERRED INCOME TAXES (Note 13) | 171 | 318 | ||||||
OTHER ASSETS (Note 10) | 4,394 | 3,764 | ||||||
NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS (Note 3) | — | 9,627 | ||||||
TOTAL ASSETS | $ | 396,779 | $ | 376,268 | ||||
LIABILITIES | ||||||||
CURRENT | ||||||||
Accounts payable and accrued liabilities (Note 11) | $ | 20,594 | $ | 14,412 | ||||
Current liabilities of discontinued operations (Note 3) | — | 14,082 | ||||||
TOTAL CURRENT LIABILITIES | 20,594 | 28,494 | ||||||
LOANS PAYABLE TO RELATED PARTIES (Note 12) | 5,088 | 5,088 | ||||||
DEFERRED INCOME TAXES (Note 13) | 315 | 476 | ||||||
ASSET RETIREMENT OBLIGATIONS (Note 14) | 6,231 | 5,267 | ||||||
NON-CURRENT LIABILITIES OF DISCONTINUED OPERATIONS (Note 3) | — | 26,380 | ||||||
TOTAL LIABILITIES | 32,228 | 65,705 | ||||||
MINORITY INTERESTS (Note 15) | 8,928 | 3,713 | ||||||
COMMITMENTS AND CONTINGENCIES (NOTE 21) | ||||||||
SHAREHOLDERS’ EQUITY | ||||||||
SHARE CAPITAL (Note 16) | ||||||||
Authorized | ||||||||
Unlimited number of preferred shares without par value | ||||||||
Unlimited number of common shares without par value | ||||||||
Issued and outstanding | ||||||||
315,900,668 (2004 -292,870,998) common shares | 994,442 | 868,606 | ||||||
ADDITIONAL PAID-IN CAPITAL | 25,174 | 16,283 | ||||||
ACCUMULATED OTHER COMPREHENSIVE INCOME (Note 17) | 6,711 | 2,879 | ||||||
DEFICIT | (670,704 | ) | (580,918 | ) | ||||
TOTAL SHAREHOLDERS’ EQUITY | 355,623 | 306,850 | ||||||
TOTAL LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS’ EQUITY | $ | 396,779 | $ | 376,268 | ||||
APPROVED BY THE BOARD: | ||
J. Weatherall, Director | K. Thygesen, Director |
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Consolidated Statements of Operations
(Stated in thousands of U.S. dollars, except for share and per share amounts)
Year ended December 31, | ||||||||
2005 | 2004 | |||||||
OPERATING EXPENSES | ||||||||
Exploration | $ | (127,165 | ) | $ | (98,174 | ) | ||
General and administrative | (23,825 | ) | (22,202 | ) | ||||
Interest | (354 | ) | (309 | ) | ||||
Depreciation | (2,558 | ) | (2,027 | ) | ||||
Mining property care and maintenance costs (Note 9 (a)) | (3,706 | ) | (3,755 | ) | ||||
Write-down of carrying values of property, plant and equipment | (609 | ) | (142 | ) | ||||
OPERATING LOSS | (158,217 | ) | (126,609 | ) | ||||
OTHER INCOME (EXPENSES) | ||||||||
Share of income from joint venture (Note 4) | 23,036 | 21,416 | ||||||
Interest income | 3,421 | 3,126 | ||||||
Foreign exchange gains | 7,751 | 4,631 | ||||||
Share of loss of significantly influenced investees (Note 8 (a) and (b)) | (2,651 | ) | (2,315 | ) | ||||
Gain on sale of long-term investments (Note 8 (c) and (e)) | 115 | 4,523 | ||||||
Write-down of carrying values of long-term investments (Note 8 (a) and (c)) | (1,438 | ) | (5,277 | ) | ||||
LOSS BEFORE TAXES AND OTHER ITEMS | (127,983 | ) | (100,505 | ) | ||||
Provision for income and capital taxes (Note 13) | (433 | ) | (588 | ) | ||||
Minority interests (Note 15) | 2,714 | 2,103 | ||||||
NET LOSS FROM CONTINUING OPERATIONS | (125,702 | ) | (98,990 | ) | ||||
NET INCOME AND GAIN ON SALE FROM DISCONTINUED OPERATIONS (Note 3) | 35,916 | 4,449 | ||||||
NET LOSS | (89,786 | ) | (94,541 | ) | ||||
BASIC AND DILUTED (LOSS) EARNINGS PER SHARE FROM | ||||||||
CONTINUING OPERATIONS | $ | (0.41 | ) | $ | (0.35 | ) | ||
DISCONTINUED OPERATIONS | 0.12 | 0.01 | ||||||
$ | (0.29 | ) | $ | (0.34 | ) | |||
WEIGHTED AVERAGE NUMBER OF SHARES | ||||||||
OUTSTANDING (000’s) | 305,160 | 281,640 | ||||||
- 57 -
Consolidated Statements of Shareholders’ Equity
(Stated in thousands of U.S. dollars, except for share amounts)
Accumulated | ||||||||||||||||||||||||||||
Share Capital | Additional | Other | ||||||||||||||||||||||||||
Number | Special | Paid-In | Comprehensive | |||||||||||||||||||||||||
of Shares | Amount | Warrants | Capital | Income | Deficit | Total | ||||||||||||||||||||||
Balances, December 31, 2003 | 265,440,052 | $ | 714,359 | $ | 49,975 | $ | 10,658 | $ | 1,587 | $ | (478,749 | ) | $ | 297,830 | ||||||||||||||
Effect of accounting change (Note 2 (i)) | — | — | — | — | — | (7,628 | ) | (7,628 | ) | |||||||||||||||||||
Net loss | — | — | — | — | — | (94,541 | ) | (94,541 | ) | |||||||||||||||||||
Other comprehensive income (Note 17): | — | — | — | — | 1,292 | — | 1,292 | |||||||||||||||||||||
Comprehensive loss | — | — | — | — | — | — | (93,249 | ) | ||||||||||||||||||||
Shares issued for: | ||||||||||||||||||||||||||||
Private placements, net of issue costs of $5,765 | 20,000,000 | 100,593 | — | — | — | — | 100,593 | |||||||||||||||||||||
Exercise of special warrants | 5,760,000 | 49,975 | (49,975 | ) | — | — | — | — | ||||||||||||||||||||
Exercise of stock options | 1,502,554 | 2,233 | — | (892 | ) | — | — | 1,341 | ||||||||||||||||||||
Exercise of share purchase warrants | 25,000 | 244 | — | — | — | — | 244 | |||||||||||||||||||||
Share purchase plan | 17,019 | 102 | — | — | — | — | 102 | |||||||||||||||||||||
Consulting fees | 126,373 | 1,100 | — | — | — | — | 1,100 | |||||||||||||||||||||
Stock compensation charged to operations | — | — | — | 6,517 | — | — | 6,517 | |||||||||||||||||||||
Balances, December 31, 2004 | 292,870,998 | $ | 868,606 | $ | — | $ | 16,283 | $ | 2,879 | $ | (580,918 | ) | $ | 306,850 | ||||||||||||||
Net loss | — | — | — | — | — | (89,786 | ) | (89,786 | ) | |||||||||||||||||||
Other comprehensive income (Note 17): | — | — | — | — | 3,832 | — | 3,832 | |||||||||||||||||||||
Comprehensive loss | — | — | — | — | — | — | (85,954 | ) | ||||||||||||||||||||
Shares issued for: | ||||||||||||||||||||||||||||
Private placement, net of issue costs of $6,095 | 19,750,000 | 119,801 | — | — | — | — | 119,801 | |||||||||||||||||||||
Exercise of stock options | 3,213,172 | 5,555 | — | (1,835 | ) | — | — | 3,720 | ||||||||||||||||||||
Property, plant and equipment purchased (Note 19 (b)) | 50,000 | 362 | — | — | — | — | 362 | |||||||||||||||||||||
Share purchase plan | 16,498 | 118 | — | — | — | — | 118 | |||||||||||||||||||||
Dilution gain on issuance of shares by a subsidiary | — | — | — | 3,012 | — | — | 3,012 | |||||||||||||||||||||
Stock compensation charged to operations | — | — | — | 7,714 | — | — | 7,714 | |||||||||||||||||||||
Balances, December 31, 2005 | 315,900,668 | $ | 994,442 | $ | — | $ | 25,174 | $ | 6,711 | $ | (670,704 | ) | $ | 355,623 | ||||||||||||||
- 58 -
Consolidated Statements of Cash Flows
(Stated in thousands of U.S. dollars)
Years ended December 31, | ||||||||
2005 | 2004 | |||||||
OPERATING ACTIVITIES | ||||||||
Net loss from continuing operations | $ | (125,702 | ) | $ | (98,990 | ) | ||
Items not involving use of cash | ||||||||
Depreciation | 2,558 | 2,027 | ||||||
Stock based compensation | 7,714 | 6,517 | ||||||
Accretion expense | 354 | 286 | ||||||
Non-cash exploration expense recovery (Note 8 (a)) | — | (3,248 | ) | |||||
Unrealized foreign exchange gains | (7,691 | ) | (5,443 | ) | ||||
Share of income from joint venture, net of cash distribution | (13,036 | ) | (21,416 | ) | ||||
Share of loss of significantly influenced investees | 2,651 | 2,315 | ||||||
Gain on sale of long-term investments (Note 8 (c) and (e)) | (115 | ) | (4,523 | ) | ||||
Write-down of carrying value of long-term investments (Note 8 (a) and (c)) | 1,438 | 5,277 | ||||||
Deferred income taxes | (15 | ) | 246 | |||||
Minority interests | (2,714 | ) | (2,103 | ) | ||||
Write-down of carrying values of property, plant and equipment | 609 | 142 | ||||||
Loss on sale of property, plant and equipment | — | 197 | ||||||
Net change in non-cash operating working capital items (Note 19 (a)) | (1,756 | ) | (3,174 | ) | ||||
Cash used in operating activities of continuing operations | (135,705 | ) | (121,890 | ) | ||||
Cash provided by operating activities of discontinued operations | 2,592 | 3,150 | ||||||
Cash used in operating activities | (133,113 | ) | (118,740 | ) | ||||
INVESTING ACTIVITIES | ||||||||
Proceeds from sale of discontinued operations | 15,000 | — | ||||||
Redemption of investments | — | 50,000 | ||||||
Purchase of long-term investments | (6,310 | ) | (3,846 | ) | ||||
Purchase of subsidiary, net of cash acquired of $15,414 | 12,022 | — | ||||||
Proceeds from sale of long-term investments | 4,539 | 2,461 | ||||||
Proceeds from sale of property, plant and equipment | — | 2,720 | ||||||
Expenditures on property, plant and equipment | (32,180 | ) | (27,846 | ) | ||||
Expenditures on other assets | (794 | ) | — | |||||
Other | (2,007 | ) | (6,226 | ) | ||||
Cash (used in) provided by investing activities of continuing operations | (9,730 | ) | 17,263 | |||||
Cash used in investing activities of discontinued operations | (502 | ) | (4,657 | ) | ||||
Cash (used in) provided by investing activities | (10,232 | ) | 12,606 | |||||
FINANCING ACTIVITIES | ||||||||
Issue of share capital | 123,639 | 102,280 | ||||||
Minority interests’ investment in subsidiary | 1,104 | — | ||||||
Cash provided by financing activities of continuing operations | 124,743 | 102,280 | ||||||
Cash (used in) provided by financing activities of discontinued operations | (37 | ) | 5,431 | |||||
Cash provided by financing activities | 124,706 | 107,711 | ||||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH | 7,842 | 5,385 | ||||||
NET CASH (OUTFLOW) INFLOW | (10,797 | ) | 6,962 | |||||
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | 112,478 | 105,516 | ||||||
CASH AND CASH EQUIVALENTS, END OF YEAR | $ | 101,681 | $ | 112,478 | ||||
CASH AND CASH EQUIVALENTS IS COMPRISED OF: | ||||||||
Cash on hand and demand deposits | $ | 33,240 | $ | 33,796 | ||||
Short-term money market instruments | 68,441 | 78,682 | ||||||
$ | 101,681 | $ | 112,478 | |||||
- 59 -
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
1. | NATURE OF OPERATIONS | |
Ivanhoe Mines Ltd. (the “Company”), together with its subsidiaries and joint venture (collectively referred to as “Ivanhoe Mines”), is an international mineral exploration and development company holding interests in and conducting operations on mineral resource properties principally located in Southeast and Central Asia and Australia. |
2. | SIGNIFICANT ACCOUNTING POLICIES | |
These consolidated financial statements have been prepared in accordance with United States of America generally accepted accounting principles (“U.S. GAAP”). In the case of the Company, U.S. GAAP differs in certain respects from accounting principles generally accepted in the Canada (“Canadian GAAP”) as explained in Note 23. The significant accounting policies used in these consolidated financial statements are as follows: |
(a) | Principles of consolidation | ||
These consolidated financial statements include the accounts of the Company and all of its subsidiaries. The principal subsidiaries of the Company are Ivanhoe Mines Mongolia Inc. (B.V.I.), Ivanhoe Mines China (B.V.I.), Ivanhoe Cloncurry Mines Pty Ltd (Australia), and their respective subsidiaries, and Bakyrchik Mining Venture (Kazakhstan) (70% owned) (“BMV”). | |||
Jinshan Gold Mines Inc. (B.C., Canada) (“Jinshan”) became a subsidiary of the Company in December 2005 (53% owned). Prior to this the investment in Jinshan was accounted for using the equity method. | |||
Ivanhoe Mines’ investment in Asia Gold Corp. (“Asia Gold”) (B.C., Canada) (47% owned) remains consolidated at December 2005 due to Ivanhoe Mines having control over the operating, financing and strategic decisions of Asia Gold. | |||
Ivanhoe Mines’ investment in Myanmar Ivanhoe Copper Company Limited (“JVCo”) (Myanmar) (50% owned), which is subject to joint control, is accounted for using the equity method. | |||
All intercompany transactions and balances have been eliminated, where appropriate. | |||
Variable Interest Entities (“VIE’s”), which include, but are not limited to, special purpose entities, trusts, partnerships, and other legal structures, as defined by Financial Accounting Standards Board (“FASB”) Interpretation No. 46 (Revised 2003) (“FIN 46R”) “Consolidation of Variable Interest Entities — an Interpretation of ARB No. 51”, are entities in which equity investors do not have the characteristics of a “controlling financial interest” or there is not sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. VIE’s are subject to consolidation by the primary beneficiary who will absorb the majority of the entities’ expected losses and/or expected residual returns. |
- 60 -
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
(b) | Measurement uncertainties | ||
Generally accepted accounting principles require management to make assumptions and estimates that affect the reported amounts and other disclosures in these consolidated financial statements. Actual results may differ from those estimates. | |||
Significant estimates used in the preparation of these consolidated financial statements include, among other things, the recoverability of accounts receivable and investments, the proven and probable ore reserves, the estimated recoverable tonnes of ore from each mine area, the estimated net realizable value of inventories, the provision for income taxes and composition of deferred income tax assets and deferred income tax liabilities, the expected economic lives of and the estimated future operating results and net cash flows from property, plant and equipment, and the anticipated costs and timing of asset retirement obligations. |
(c) | Foreign currencies | ||
The Company considers the U.S. dollar to be its functional currency as it is the currency of the primary economic environment in which the Company and its subsidiaries operate. Accordingly, monetary assets and liabilities denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect at the balance sheet date and non-monetary assets and liabilities are translated at the exchange rates in effect at the time of acquisition or issue. Revenues and expenses are translated at rates approximating the exchange rates in effect at the time of the transactions. All exchange gains and losses are included in operations. |
(d) | Cash and cash equivalents | ||
Cash and cash equivalents include short-term money market instruments with terms to maturity, at the date of acquisition, not exceeding 90 days. |
(e) | Inventories | ||
Mine stores and supplies are valued at the lower of the weighted average cost, less allowances for obsolescence, and replacement cost. |
- 61 -
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
(f) | Long-term investments | ||
Long-term investments in companies in which Ivanhoe Mines has voting interests of 20% to 50%, or where Ivanhoe Mines has the ability to exercise significant influence, are accounted for using the equity method. Under this method, Ivanhoe Mines’ share of the investees’ earnings and losses is included in operations and its investments therein are adjusted by a like amount. Dividends received are credited to the investment accounts. | |||
The other long-term investments are classified as “available-for-sale” investments. Unrealized gains and losses on these investments are recorded in accumulated other comprehensive income as a separate component of shareholders’ equity, unless the declines in market value are judged to be other than temporary, in which case the losses are recognized in income in the period. Realized gains and losses from the sale of these investments are included in income in the period. |
(g) | Exploration and development | ||
All direct costs related to the acquisition of mineral property interests are capitalized in the period incurred. | |||
Exploration costs are charged to operations in the period incurred until such time as it has been determined that a property has economically recoverable reserves, in which case subsequent exploration costs and the costs incurred to develop a property are capitalized. Exploration costs include value-added taxes incurred in foreign jurisdictions when recoverability of those taxes is uncertain. |
- 62 -
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
(h) | Property, plant and equipment | ||
Property, plant and equipment are carried at cost (including development and preproduction costs, capitalized interest, other financing costs and all direct administrative support costs incurred during the construction period, net of cost recoveries and incidental revenues), less accumulated depletion and depreciation including write-downs. Following the construction period, interest, other financing costs and administrative costs are expensed as incurred. | |||
On the commencement of commercial production, depletion of each mining property is provided on the unit-of-production basis, using estimated proven and probable reserves as the depletion basis. | |||
Property, plant and equipment are depreciated, following the commencement of commercial production, over their expected economic lives using either the unit-of-production method or the straight-line method (over one to twenty years). | |||
Capital works in progress are not depreciated until the capital asset has been put into operation. | |||
Ivanhoe Mines reviews the carrying values of its property, plant and equipment whenever events or changes in circumstances indicate that their carrying values may not be recoverable. An impairment is considered to exist if total estimated future cash flows, or probability-weighted cash flows on an undiscounted basis, are less than the carrying value of the assets. An impairment loss is measured and recorded based on discounted estimated future cash flows associated with values beyond proven and probable reserves and resources. In estimating future cash flows, assets are grouped at the lowest level for which there is identifiable future cash flows that are largely independent of cash flows from other asset groups. Generally, in estimating future cash flows, all assets are grouped at a particular mine for which there is identifiable cash flows. |
- 63 -
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
(i) | Stripping costs | ||
On March 30, 2005, the FASB ratified the consensus of the Emerging Issues Task Force (“EITF”) Issue 04-6 that stripping costs incurred during the production phase of a mine are variable production costs that should be included in the costs of the inventory produced during the period that the stripping costs are incurred. Commencing in the first quarter of 2005, Ivanhoe Mines changed its accounting policy with respect to stripping costs to comply with the consensus reached by the EITF. This change has been applied retrospectively by restating prior period financial statements. In 2004 and prior years, Ivanhoe Mines deferred or accrued stripping costs incurred during production, as appropriate, and charged these costs to operations on the basis of the estimated average stripping ratio for each mine area. The effect of this change was to increase the deficit at January 1, 2004 by $7,628,000, to increase the net loss for the year ended December 31, 2004 by $7,889,000 ($0.03 per share) and to decrease assets of discontinued operations and investment in joint venture at December 31, 2004 by $13,973,000 and $1,544,000, respectively. The impact on the year ended December 31, 2005 was to decrease the net loss for the year by $186,000 ($0.00 per share) and to increase assets of discontinued operations and decrease investment in joint venture at December 31, 2005 by $887,000 and $701,000, respectively. |
(j) | Asset retirement obligations | ||
Ivanhoe Mines recognizes liabilities for statutory, contractual or legal obligations associated with the retirement of property, plant and equipment, when those obligations result from the acquisition, construction, development or normal operation of the assets. Initially, a liability for an asset retirement obligation is recognized at its fair value in the period in which it is incurred. Upon initial recognition of the liability, the corresponding asset retirement cost is added to the carrying amount of that asset and the cost is amortized as an expense over the economic life of the related asset. Following the initial recognition of the asset retirement obligation, the carrying amount of the liability is increased for the passage of time and adjusted for changes to the amount or timing of the underlying cash flows needed to settle the obligation. |
(k) | Revenue recognition | ||
Revenue at JVCo from the sale of metals is recognized, net of related royalties and sales commissions, when: (i) persuasive evidence of an arrangement exists; (ii) the risks and rewards of ownership pass to the purchaser including delivery of the product; (iii) the selling price is fixed or determinable; and (iv) collectibility is reasonably assured. Revenue from copper cathode includes provisional pricing arrangements accounted for as embedded derivative instruments under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, as amended. |
- 64 -
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
(l) | Stock-based compensation | ||
The Company has an Employees’ and Directors’ Equity Incentive Plan which is disclosed in Note 16. The Company records compensation expense using the fair value based method in accordance with SFAS No. 123, “Accounting for Stock-Based Compensation”. Accordingly, the fair value of stock options at the date of grant is amortized to operations, with an offsetting credit to additional paid-in capital, on a straight-line basis over the vesting period. If and when the stock options are ultimately exercised, the applicable amounts of additional paid-in capital are transferred to share capital. |
(m) | Deferred income taxes | ||
The Company computes income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes”. SFAS 109 requires that the provision for deferred income taxes be based on the liability method. Deferred taxes arise from the recognition of the tax consequences of temporary differences by applying statutory tax rates applicable to future years to differences between the financial statement’s carrying amounts and the tax bases of certain assets and liabilities. The Company records a valuation allowance against any portion of those deferred income tax assets that management believes will, more likely than not, fail to be realized. |
(n) | Loss per share | ||
The Company follows SFAS No. 128, “Earnings Per Share”, which requires the presentation of basic and diluted earnings per share. The basic loss per share is computed by dividing the net loss attributable to common stock by the weighted average number of common shares and Special Warrants outstanding during the year. All stock options and share purchase warrants outstanding at each period end have been excluded from the weighted average share calculation. The effect of potentially dilutive stock options and share purchase warrants was antidilutive in years ending December 31, 2005 and 2004. | |||
Details of potentially dilutive shares excluded from the loss per share calculation due to antidilution: |
December 31, | ||||||||
2005 | 2004 | |||||||
Options | 7,416,700 | 9,890,942 | ||||||
Share purchase warrants | 576,000 | 7,701,000 | ||||||
Total potentially dilutive shares | 7,992,700 | 17,591,942 | ||||||
- 65 -
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
(o) | Comparative figures | ||
Certain of the comparative figures have been reclassified to conform with the presentation as at and for the year ended December 31, 2005. In particular, the assets and liabilities of ABM Mining Limited (“ABM”) (owner of the Savage River Project) as at December 31, 2004, and its results of operations and cash flows for the year then ended (Note 3), have been classified as discontinued operations. Accounting for stripping costs has also been retrospectively adjusted (Note 2 (i)). |
(p) | Recent accounting pronouncements | ||
Recently issued United States accounting pronouncements have been outlined below. Ivanhoe Mines believes the new standards issued by the U.S. FASB will not have a material impact on the Company. | |||
In March 2005, the Emerging Issues Committee issued EITF 04-3, Mining Assets – Impairment and Business Combinations, which states that an entity should include Value Beyond Proven and Probable Reserves and Resources (“VBPP”) in the value allocated to mining assets in a purchase price allocation to the extent that a market participant would include VBPP in determining the fair value of the asset. EITF 04-3 also states that an entity should include the effects of anticipated fluctuations in the future market price of minerals in determining the fair value of mining assets in a purchase price allocation in a manner that is consistent with the expectations of marketplace participants. In addition, EITF 04-3 states that an entity should include the cash flows associated with VBPP as well as the effects of anticipated fluctuations in the market price of minerals in estimates of future cash flows (both undiscounted and discounted) used for determining whether a mining asset is impaired. The Company’s current accounting policy complies with EITF 04-3. | |||
In November 2005, the FASB issued FASB Staff Position (“FSP”) FAS 115-1 and FAS 124-1 – The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. This FSP addresses the determination as to when an investment is considered impaired, whether that impairment is other than temporary, and the measurement of an impairment loss. This FSP also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. The guidance in this FSP FAS 115-1 and FAS 124-1 is applicable to reporting periods beginning after December 15, 2005. Management does not expect the adoption of this FSP to have a material effect on the Company’s consolidated financial position and results of operations. |
- 66 -
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
(p) | Recent accounting pronouncements (Continued) | ||
In December 2004, the FASB issued SFAS No. 123 (R), “Share-Based Payment”, which replaces SFAS No. 123, “Accounting for Stock-Based Compensation”. In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 – Share-Based Payment, which provides interpretive guidance related to SFAS No. 123 (R). SFAS No. 123 (R) requires compensation costs related to share-based payment transactions to be recognized in the financial statements. With limited exceptions, the amount of compensation cost is measured based on the grant-date fair value of the equity or liability instruments issued. SFAS No. 123 (R) requires liability awards to be re-measured each reporting period and compensation costs to be recognized over the period that an employee provides service in exchange for the award. Management plans to adopt this statement on the modified prospective basis beginning January 1, 2006, and does not expect adoption of this statement to have a material effect on the Company’s consolidated financial position and results of operations. | |||
In October 2005, the FASB issued FASB Staff Position SFAS No. 123 (R)-2, “Practical Accommodation to the Application of Grant Date as Defined in SFAS No. 123 (R)”. FSP 123 (R)-2 provides guidance on the application of grant date as defined in SFAS No. 123 (R). In accordance with this standard a grant date of an award exists if (i) the award is a unilateral grant and (ii) the key terms and conditions of the award are expected to be communicated to an individual recipient within a relatively short time period from the date of approval. The Company will adopt this standard when it adopts SFAS No. 123 (R), and does not anticipate that the implementation of this statement will have a significant impact on its results of operations. | |||
In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections”, a replacement of APB Opinion 20 and FASB Statement 3. This Statement changes the requirements for the accounting for and reporting of a change in accounting principle and applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. The Statement is effective for accounting changes made in fiscal years beginning after December 15, 2005. Management does not expect the adoption of this Statement to have a material effect on the Company’s consolidated financial position and results of operations. |
- 67 -
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
(p) | Recent accounting pronouncements (Continued) | ||
In December 2004, the FASB issued SFAS No. 153, “Exchanges of Non-monetary Assets”, an amendment of APB Opinion 29. This Statement amends Opinion 29 to eliminate the exception for non-monetary exchanges of similar productive assets and replaces it with a general exception for exchanges of non-monetary assets that do not have commercial substance. A non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The Statement is effective for fiscal periods beginning after June 15, 2005. Management does not expect the adoption of this Statement to have a material effect on the Company’s consolidated financial position and results of operations. | |||
In November 2005, the FASB concluded that in their proposed “Accounting for Uncertain Tax Positions – an Interpretation of FASB Statement No. 109”, a benefit recognition model with a two-step approach would be used, with a more-likely-than-not recognition criterion and a best estimate measure attribute. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more-likely-than-not, based solely on the technical merits, that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the appropriate amount of the benefit to recognize, which will be measured using the best estimate of the amount that will be sustained. The tax position should be derecognized when it is no longer more-likely-than-not of being sustained. In January 2006, the FASB concluded that the final Interpretation will be effective as of the beginning of the first annual period beginning after December 31, 2006. The Company is currently evaluating the implications of this Interpretation. | |||
In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments – an amendment of FASB Statements No. 133 and 140”. This Statement resolves issues addressed in Statement 133 Implementation Issue No. D1, “Application of Statement 133 to Beneficial Interests in Securitized Financial Assets.” This Statement: |
- 68 -
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
(p) | Recent accounting pronouncements (Continued) | ||
This Statement is effective for all financial instruments acquired or issued after the beginning of fiscal years that begin after September 15, 2006. The Company is currently evaluating the implications of this Statement. |
3. | DISCONTINUED OPERATIONS | |
In November 2004, the Company adopted a plan to dispose of the Savage River Iron Ore Project (the “Project”). This decision was part of the Company’s plan to rationalize its non-core assets as it focuses on the Oyu Tolgoi project in Mongolia. In February 2005, Ivanhoe Mines sold the Project for two initial payments totalling $21.5 million, plus a series of contingent, annual payments based on annual iron ore pellet tonnes sold and an escalating price formula based on the prevailing annual Nibrasco/JSM pellet price. | ||
Ivanhoe Mines received the first initial payment of $15.0 million on February 28, 2005. The second payment of $6.5 million plus an additional $0.2 million in interest was received on January 31, 2006. | ||
The future payments will be received over five years commencing March 2006. These payments will be calculated at an initial rate of $1.00 per tonne of iron ore pellets sold if the annual benchmark pellet price exceeds $30 per tonne, and will escalate to a maximum of $16.50 per tonne of iron ore pellets sold if the annual price exceeds $80 per tonne. Based on the tonnes of iron ore sold during the nine months ended December 31, 2005, and the escalating price formula, an amount of $20.2 million has been accrued as receivable. | ||
At February 28, 2005, the net book value of the Project was $11.2 million. Therefore, the total income recognized in 2005 reduced the net book value to $nil and resulted in the excess of $30.5 million being included in operations during the year. | ||
At December 31, 2005, Ivanhoe Mines had a total of $26.9 million included in accounts receivable related to the disposition of the Project. The amount was comprised of the second initial payment and related interest of $6.7 million and the contingent income accrual of $20.2 million. |
- 69 -
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
3. | DISCONTINUED OPERATIONS (Continued) |
Years ended December 31, | ||||||||
2005 | 2004 | |||||||
ASSETS | ||||||||
Current | ||||||||
Cash and cash equivalents | $ | — | $ | 7,432 | ||||
Accounts receivable | — | 3,985 | ||||||
Inventories | — | 21,295 | ||||||
Prepaid expenses | — | 882 | ||||||
Other current assets | — | 3,042 | ||||||
Current assets of discontinued operations | — | 36,636 | ||||||
Property, plant and equipment | — | 5,889 | ||||||
Other assets | — | 3,738 | ||||||
Non-current assets of discontinued operations | — | 9,627 | ||||||
Total assets of discontinued operations | $ | — | $ | 46,263 | ||||
LIABILITIES | ||||||||
Current | ||||||||
Accounts payable and accrued liabilities | $ | — | $ | 13,870 | ||||
Current portion of long-term debt | — | 212 | ||||||
Current liabilities of discontinued operations | — | 14,082 | ||||||
Long-term debt (non-recourse to the Company) | — | 13,025 | ||||||
Deferred income taxes | — | 2,078 | ||||||
Other liabilities | — | 11,277 | ||||||
Non-current liabilities of discontinued operations | — | 26,380 | ||||||
Total liabilities of discontinued operations | $ | — | $ | 40,462 | ||||
- 70 -
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
3. | DISCONTINUED OPERATIONS (Continued) | |
The following table presents summarized financial information related to discontinued operations: |
Years ended December 31, | ||||||||
2005(1) | 2004 | |||||||
REVENUE | $ | 18,031 | $ | 83,898 | ||||
COST OF OPERATIONS | (11,965 | ) | (78,778 | ) | ||||
DEPRECIATION AND DEPLETION | — | (1,395 | ) | |||||
OPERATING PROFIT | 6,066 | 3,725 | ||||||
EXPENSES | ||||||||
General and administrative | (195 | ) | (1,425 | ) | ||||
Interest expense | (203 | ) | (1,021 | ) | ||||
INCOME BEFORE THE FOLLOWING | 5,668 | 1,279 | ||||||
Interest income | 16 | 308 | ||||||
Foreign exchange (losses) gains | (285 | ) | 3,745 | |||||
INCOME BEFORE INCOME TAXES | 5,399 | 5,332 | ||||||
Recovery of (provision for) income and capital taxes | 7 | (883 | ) | |||||
NET INCOME | 5,406 | 4,449 | ||||||
Contingent income | 20,243 | — | ||||||
Gain on sale of ABM | 10,267 | — | ||||||
NET INCOME AND GAIN ON SALE FROM DISCONTINUED OPERATIONS | $ | 35,916 | $ | 4,449 | ||||
(1) | Net income for the year ended December 31, 2005, includes only two months of results for the Project as it was sold on February 28, 2005. |
- 71 -
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
4. | INVESTMENT IN JOINT VENTURE | |
Ivanhoe Mines has a 50% interest in JVCo, a joint venture formed to develop open-pit copper mining operations at Monywa in the Union of Myanmar. JVCo completed construction of a mining complex in 1998 to develop the Sabetaung and Kyisintaung (“S&K”) deposits within the Monywa Copper Project. Commercial production from those deposits commenced during the first quarter of 1999. | ||
In early 2005, the Company announced its intention to expand, in a series of incremental steps, the mine’s production capacity to a target of 200,000 tonnes per annum. At that time, mining equipment was ordered to increase the annual copper cathode capacity to 50,000 tonnes per annum by mid-2006 as part of the expansion program. | ||
In the fourth quarter of 2005 and the first quarter of 2006, several circumstances occurred that may potentially have a negative impact on the operations of the mine for 2006 and future years. | ||
Firstly, the economic sanctions imposed against Myanmar by the United States have started to seriously impact the mine’s ability to function in a normal way. In the fourth quarter of 2005, both the mine’s insurance broker and the off-shore banking institution terminated their relationship with the mine on account of these sanctions. Although the mine had in excess of $40 million in off-shore bank accounts at December 31, 2005, the operations of the mine were shut-down in March 2006. The mine is expected to resume operations shortly when additional fuel, required to operate mining equipment, and chemicals required for the leaching and electrowinning process, become available. The management of the S&K Mine has established a new banking relationship with an off-shore institution. | ||
Secondly, the mine has not yet been able to obtain from the Myanmar authorities the necessary import permits for its previously ordered mining equipment. The equipment is currently off-shore, awaiting approval for delivery. The Company does not know if or when import permits will be granted for the importation of this equipment. The Company has received recent oral assurances from its joint venture partner that the necessary documentation is nearing finalization. The increase in mining capacity is crucial to allow waste stripping for the Sabetaung deposit and ultimately for the future development of the Kysingtaung and Letpadaung deposits. Without a substantial increase in mining capacity, these two deposits cannot be economically developed. The drop in copper grades at the Sabetaung pit, combined with the mine’s potential inability to obtain the necessary importing permits resulted in significant decreases in copper cathode production in the fourth quarter of 2005. |
- 72 -
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
4. | INVESTMENT IN JOINT VENTURE (CONTINUED) | |
Thirdly, in the third quarter of 2005, the Company reported its difference of opinion with certain Myanmar tax authorities on a commercial tax issue involving the imposition of an 8% commercial tax on all export sales of JVCo. In the fourth quarter of 2005, Ivanhoe Mines was unable to satisfactorily resolve this issue. The Company’s management believes that the tax provisions in the S&K Mine joint venture agreement clearly exempt the mine’s copper exports from all tax of a commercial nature. The imposition of such a commercial tax, equivalent to an additional 8% royalty, would have a significant negative impact on future cash flows and any future development plans for the S&K Mine. The commercial tax is being claimed retroactively to January 1, 2003, on all export copper sales. If the Myanmar government’s position on this issue prevails, the joint venture’s estimated commercial tax liability at December 31, 2005 would total approximately $22.4 million (net $11.2 million to the Company). The Company is seeking a written legal opinion from the Attorney General of Myanmar on the applicability of this tax and the Company has received certain assurances that the ruling may be favorable. | ||
The Company is also concerned about the timely approvals for the expansion of the Letpadaung deposit. To date, the expansion of the deposit has been neither approved nor denied by the Government of Myanmar. | ||
The Company reviews the carrying value of its assets whenever events or changes in circumstances indicate that the carrying value of an asset might have been impaired. The Company intends to engage in discussions with its joint venture partner and with the relevant Myanmar government authorities with a view to satisfactorily resolving these issues. If these issues cannot be satisfactorily resolved in a timely manner, the Company may, as part of a future review of the carrying value of its assets, be required to reflect a significant impairment of, and reduce on its financial statements, the carrying value of its investment in the S&K Mine. | ||
The following table summarizes Ivanhoe Mines’ investment in JVCo: |
December 31, | ||||||||
2005 | 2004 | |||||||
Balance, at beginning of year | $ | 126,911 | $ | 105,425 | ||||
Share of income from JVCo | 23,036 | 21,416 | ||||||
Cash distribution | (10,000 | ) | — | |||||
Other | (73 | ) | 70 | |||||
Balance, at end of year | $ | 139,874 | $ | 126,911 | ||||
- 73 -
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
4. | INVESTMENT IN JOINT VENTURE (CONTINUED) | |
The following tables summarize Ivanhoe Mines’ 50% share of the financial position and results of operations of JVCo for the years ending December 31, 2005 and 2004. |
December 31, | ||||||||
2005 | 2004 | |||||||
Cash and cash equivalents | $ | 22,843 | $ | 10,099 | ||||
Accounts receivable | 11,364 | 3,734 | ||||||
Inventories | 16,754 | 13,313 | ||||||
Prepaid expenses | 1,558 | 1,800 | ||||||
Other current assets | — | 117 | ||||||
Property, plant and equipment | 128,405 | 130,869 | ||||||
Deferred income tax assets | 432 | 464 | ||||||
Other assets | 1,585 | 1,569 | ||||||
Accounts payable and accrued liabilities | (14,784 | ) | (10,349 | ) | ||||
Current portion of long-term debt | — | (7,500 | ) | |||||
Deferred income tax liabilities | (11,321 | ) | (11,429 | ) | ||||
Other liabilities | (16,962 | ) | (5,776 | ) | ||||
Share of Net Assets of JVCo | $ | 139,874 | $ | 126,911 | ||||
Years ended December 31, | ||||||||
2005 | 2004 | |||||||
Revenue | $ | 65,801 | $ | 44,091 | ||||
Cost of operations | (17,768 | ) | (12,137 | ) | ||||
Depreciation and depletion | (5,657 | ) | (5,177 | ) | ||||
Operating profit | 42,376 | 26,777 | ||||||
Other income / (expense) | (19,340 | ) | (5,361 | ) | ||||
Share of Income of JVCo | $ | 23,036 | $ | 21,416 | ||||
Cash flows | ||||||||
From operating activities | $ | 24,805 | $ | 25,207 | ||||
For investing activities | (4,561 | ) | (9,086 | ) | ||||
For financing activities | (7,500 | ) | (7,500 | ) | ||||
$ | 12,744 | $ | 8,621 | |||||
- 74 -
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
5. | CASH AND CASH EQUIVALENTS | |
Cash and cash equivalents at December 31, 2005, included Asia Gold’s and Jinshan’s cash and cash equivalent balances of $3.1 million and $15.4 million, respectively (2004 — $8.2 million and $nil), which were not available for Ivanhoe Mines’ general corporate purposes. |
6. | ACCOUNTS RECEIVABLE |
December 31, | ||||||||
2005 | 2004 | |||||||
Contingent income (Note 3) | $ | 20,243 | $ | — | ||||
Proceeds from sale of Project (Note 3) | 6,500 | — | ||||||
Refundable taxes | 4,423 | 4,576 | ||||||
Related parties (Note 18 (b)) | 451 | 414 | ||||||
Accrued interest | 340 | 134 | ||||||
Other | 1,393 | 1,428 | ||||||
$ | 33,350 | $ | 6,552 | |||||
7. | OTHER CURRENT ASSETS |
December 31, | ||||||||
2005 | 2004 | |||||||
Loan receivable | $ | 3,000 | $ | 3,000 | ||||
Restricted cash | 286 | — | ||||||
$ | 3,286 | $ | 3,000 | |||||
In December 2004, Ivanhoe Mines loaned Lepanto Consolidated Mining Company (“Lepanto”) $3.0 million, which bore interest at 3.0% per annum. In December 2005, Ivanhoe Mines and Lepanto renegotiated the terms of the loan. The loan now matures in 2006 and bears interest at 6.0% per annum. During 2005, Ivanhoe Mines received $0.1 million in interest income from Lepanto. | ||
In March 2006, Ivanhoe Mines received a loan and interest repayment of $1.04 million from Lepanto. |
- 75 -
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
8. | LONG-TERM INVESTMENTS |
December 31, 2005 | December 31, 2004 | |||||||||||||||||||||||||||||||
Equity | Cost/Equity | Unrealized | Fair/Equity | Equity | Cost/Equity | Unrealized | Fair/Equity | |||||||||||||||||||||||||
Interest | Basis | Gain | Value | Interest | Basis | Gain | Value | |||||||||||||||||||||||||
Investment in companies subject to significant influence: | ||||||||||||||||||||||||||||||||
Jinshan Gold Mines Inc.(a) | N/a | N/a | N/a | N/a | 38.5 | % | $ | 5,024 | N/a | $ | 5,024 | |||||||||||||||||||||
Investments “available-for-sale”: | ||||||||||||||||||||||||||||||||
Intec Ltd.(b) | 12.5 | % | $ | 1,446 | $ | 1,331 | $ | 2,777 | 12.8 | % | $ | 1,446 | $ | 1,469 | $ | 2,915 | ||||||||||||||||
Olympus Pacific Minerals Inc.(c) | — | — | — | — | 19.6 | % | 5,862 | (293 | ) | 5,569 | ||||||||||||||||||||||
Entrée Gold Inc.(d) | 15.0 | % | 10,157 | 5,380 | 15,537 | 9.0 | % | 3,846 | 1,703 | 5,549 | ||||||||||||||||||||||
Other | — | 103 | — | 103 | — | 103 | — | 103 | ||||||||||||||||||||||||
$ | 11,706 | $ | 6,711 | $ | 18,417 | $ | 11,257 | $ | 2,879 | $ | 14,136 | |||||||||||||||||||||
$ | 11,706 | $ | 6,711 | $ | 18,417 | $ | 16,281 | $ | 2,879 | $ | 19,160 | |||||||||||||||||||||
(a) | In 2004, Ivanhoe Mines and Jinshan restructured their participating arrangements in respect of certain joint ventures. In consideration for the transaction, Jinshan issued to Ivanhoe Mines 2.5 million common shares with a fair value of $3,248,000. This amount was included in operations as a recovery of prior exploration expenses. | ||
In November 2005, Ivanhoe Mines and Jinshan further restructured these participating arrangements to simplify Jinshan’s corporate structure. Ivanhoe Mines transferred to Jinshan its entire participating interest in the 217 Gold Project, its interests in other joint venture arrangements between the parties, its existing contractual rights to participate in Jinshan projects in China and cash proceeds of $3,392,000 in exchange for Jinshan issuing Ivanhoe Mines 48,552,948 of its common shares. As a result of this transaction, in December 2005, Ivanhoe Mines ceased equity accounting for its investment in Jinshan as it now holds approximately 53% of the issued and outstanding common shares of Jinshan, thereby making Jinshan a controlled subsidiary, requiring consolidation. | |||
During 2005 and up to the date that it acquired control, Ivanhoe Mines recorded a $2,651,000 (2004 — $1,974,000) equity loss on this investment. In 2004, Ivanhoe Mines recorded an impairment provision of $5,277,000 based on an assessment of the underlying book value of Jinshan’s net assets. |
(b) | In the fourth quarter of 2004, Ivanhoe Mines’ interest in Intec Ltd. (“Intec”) was decreased to 12.8% as a result of the issuance of additional shares by Intec. As a result, Ivanhoe Mines ceased equity accounting for its investment in Intec. During 2004, Ivanhoe Mines recorded a $341,000 equity loss on this investment. |
- 76 -
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
8. | LONG-TERM INVESTMENTS (Continued) |
(c) | During 2004, the Company sold its 32.6% interest in New Vietnam Mining Corp. (B.V.I.) (“NVM”) in exchange for shares of Olympus Pacific Minerals Inc. (“Olympus”), representing a 10.7% equity interest, with a fair value of $3,275,000. The interest in NVM had been fully written down in prior years, thereby resulting in a pre-tax gain of $3,275,000 being recognized in operations. | ||
In March 2005, the share price of Olympus deteriorated, with the result that the market value of Ivanhoe Mines’ investment in Olympus decreased significantly below carrying value. Accordingly, the Company recorded an other-than-temporary impairment of $1,438,000, reducing the carrying value of this investment to $4,424,000. | |||
In May 2005, Ivanhoe Mines sold its investment in Olympus, generating proceeds of $4,539,000. This transaction resulted in a gain on sale of $115,000 being recognized in operations. |
(d) | During 2004, the Company purchased 4.6 million units of Entrée Gold Inc. (“Entrée”) at a cost of $3,846,000 (Cdn$4,600,000). Each unit consisted of one Entrée common share and one share purchase warrant exercisable until October 2006 to purchase an additional Entrée common share at a price of Cdn$1.10. In 2005, the Company exercised these share purchase warrants to acquire 4.6 million common shares of Entrée at a cost of $4,111,000 (Cdn$5,060,000). | ||
Also during 2005, the Company acquired 1.2 million units in Entrée at a cost of $2,199,000 (Cdn$2,718,000). Each unit consisted of one Entrée common share and two share purchase warrants. These share purchase warrants are outstanding at December 31, 2005, and if not exercised will expire in July 2007. |
(e) | During 2004, the Company sold its investment in Resource Investment Trust, generating proceeds of $2,461,000. This transaction resulted in a pre-tax gain of $1,248,000 being recognized in operations. |
- 77 -
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
9. | PROPERTY, PLANT AND EQUIPMENT |
December 31, | ||||||||||||||||||||||||
2005 | 2004 | |||||||||||||||||||||||
Accumulated | Accumulated | |||||||||||||||||||||||
Depletion and | Depletion and | |||||||||||||||||||||||
Depreciation, | Depreciation, | |||||||||||||||||||||||
Including | Net Book | Including | Net Book | |||||||||||||||||||||
Cost | Write-downs | Value | Cost | Write-downs | Value | |||||||||||||||||||
Mining properties Bakyrchik Mining Venture, Kazakhstan (a) | $ | 87,541 | $ | (87,541 | ) | $ | — | $ | 87,541 | $ | (87,541 | ) | $ | — | ||||||||||
Mining plant and equipment Bakyrchik Mining Venture, Kazakhstan (a) | $ | 3,107 | $ | (3,107 | ) | $ | — | $ | 3,107 | $ | (3,107 | ) | $ | — | ||||||||||
Other mineral property interests | ||||||||||||||||||||||||
Oyu Tolgoi, Mongolia (b) | $ | 43,562 | $ | (6,244 | ) | $ | 37,318 | $ | 43,097 | $ | (6,185 | ) | $ | 36,912 | ||||||||||
Cloncurry, Australia (c) | 6,293 | (1,185 | ) | 5,108 | 6,293 | (696 | ) | 5,597 | ||||||||||||||||
Other exploration projects | 1,530 | (115 | ) | 1,415 | 1,594 | (308 | ) | 1,286 | ||||||||||||||||
$ | 51,385 | $ | (7,544 | ) | $ | 43,841 | $ | 50,984 | $ | (7,189 | ) | $ | 43,795 | |||||||||||
Other capital assets | ||||||||||||||||||||||||
Oyu Tolgoi, Mongolia (b) | $ | 14,334 | $ | (3,326 | ) | $ | 11,008 | $ | 6,121 | $ | (1,701 | ) | $ | 4,420 | ||||||||||
Cloncurry, Australia (c) | 1,833 | (174 | ) | 1,659 | 2,399 | (143 | ) | 2,256 | ||||||||||||||||
Other exploration projects | 2,961 | (1,122 | ) | 1,839 | 1,385 | (936 | ) | 449 | ||||||||||||||||
$ | 19,128 | $ | (4,622 | ) | $ | 14,506 | $ | 9,905 | $ | (2,780 | ) | $ | 7,125 | |||||||||||
Capital works in progress | ||||||||||||||||||||||||
Oyu Tolgoi, Mongolia (b) | $ | 22,939 | $ | — | $ | 22,939 | $ | 1,784 | $ | — | $ | 1,784 | ||||||||||||
Bakyrchik Mining Venture, Kazakhstan (a) | 4,420 | — | 4,420 | 1,730 | — | 1,730 | ||||||||||||||||||
$ | 27,359 | $ | — | $ | 27,359 | $ | 3,514 | $ | — | $ | 3,514 | |||||||||||||
$ | 188,520 | $ | (102,814 | ) | $ | 85,706 | $ | 155,051 | $ | (100,617 | ) | $ | 54,434 | |||||||||||
(a) | Ivanhoe Mines placed the Bakyrchik Mining Venture on a care and maintenance basis in prior years. | ||
(b) | Ivanhoe Mines has a 100% interest in the Oyu Tolgoi copper-gold project located in Mongolia. In 2003, Ivanhoe Mines converted its four exploration licences on the project into 60-year mining licences, which are renewable for an additional 40 years. | ||
Capital works in progress at December 31, 2005 consisted mainly of surface assets being constructed for the exploration shaft at Oyu Tolgoi ($21.4 million). | |||
(c) | Ivanhoe Mines owns certain copper-gold and uranium mining and exploration leases in Queensland, Australia. |
- 78 -
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
10. | OTHER ASSETS |
December 31, | ||||||||
2005 | 2004 | |||||||
Advances to suppliers | $ | 1,711 | $ | 917 | ||||
Environmental bond (Queensland, Australia) | 2,683 | 2,847 | ||||||
$ | 4,394 | $ | 3,764 | |||||
11. | ACCOUNTS PAYABLE AND ACCRUED LIABILITIES |
December 31, | ||||||||
2005 | 2004 | |||||||
Accounts payable | $ | 11,902 | $ | 10,970 | ||||
Payroll and other employee related payables | 546 | 157 | ||||||
Accrued construction costs | 7,044 | — | ||||||
Amounts payable to related parties (Note 18 (b)) | 1,102 | 3,285 | ||||||
$ | 20,594 | $ | 14,412 | |||||
12. | LOANS PAYABLE TO RELATED PARTIES | |
These loans are payable to the Chairman of the Company or a company controlled by him. They are non-interest bearing, unsecured and repayable in U.S. dollars. Repayment of these loans has been postponed until Ivanhoe Mines receives an aggregate of $111,055,000 from the sale of the Savage River Project. At December 31, 2005, $15.0 million has been received from the sale with a further $26.7 million accrued as receivable (Note 3 and 6). |
- 79 -
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
13. | INCOME TAXES | |
As referred to in Note 2(b), Ivanhoe Mines must make significant estimates in respect of its provision for income taxes and the composition of its deferred income tax assets and liabilities. Ivanhoe Mines’ operations are, in part, subject to foreign tax laws where interpretations, regulations and legislation are complex and continually changing. As a result, there are usually some tax matters in question that may, on resolution in the future, result in adjustments to the amount of deferred income tax assets and liabilities, and those adjustments may be material to Ivanhoe Mines’ financial position and results of operations. | ||
Ivanhoe Mines’ provision for income and capital taxes for continuing operations consists of the following: |
Years ended December 31, | ||||||||
2005 | 2004 | |||||||
Deferred income taxes | $ | (15 | ) | $ | 246 | |||
Capital taxes | 448 | 342 | ||||||
$ | 433 | $ | 588 | |||||
Deferred income tax assets and liabilities for continuing operations at December 31, 2005 and 2004 arise from the following: |
December 31, | ||||||||
2005 | 2004 | |||||||
Deferred income tax assets | ||||||||
Long-term investments | $ | 279 | $ | 2,441 | ||||
Loss carry-forwards | 133,562 | 86,691 | ||||||
Other | 10,107 | 10,978 | ||||||
143,948 | 100,110 | |||||||
Valuation allowance | (143,777 | ) | (99,792 | ) | ||||
Net deferred income tax assets | 171 | 318 | ||||||
Deferred income tax liabilities Property, plant and equipment | 315 | 476 | ||||||
315 | 476 | |||||||
Deferred income tax liabilities, net | $ | 144 | $ | 158 | ||||
- 80 -
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
13. | INCOME TAXES (Continued) | |
A reconciliation of the provision for income and capital taxes for continuing operations is as follows: |
Years ended December 31, | ||||||||
2005 | 2004 | |||||||
Recovery of income taxes based on the combined | ||||||||
Canadian federal and provincial statutory tax rates of 34.9% in 2005 and 35.6% in 2004 applied to the loss before taxes and other items | $ | 44,666 | $ | 35,780 | ||||
(Deduct) add | ||||||||
Lower foreign tax rates | (7,109 | ) | (734 | ) | ||||
Tax benefit of losses not recognized | (34,703 | ) | (33,831 | ) | ||||
Change in valuation allowance for deferred income tax assets | (147 | ) | 749 | |||||
Capital taxes | (448 | ) | (342 | ) | ||||
Other, including non-deductible expenses | (2,692 | ) | (2,210 | ) | ||||
Provision for income and capital taxes | $ | (433 | ) | $ | (588 | ) | ||
At December 31, 2005, Ivanhoe Mines had deductible temporary differences aggregating approximately $24,554,000 and the following unused tax losses from continuing operations, for which no deferred income tax assets had been recognized: |
Local | U.S. Dollar | Expiry | ||||||||||||
Currency | Equivalent (i) | Dates | ||||||||||||
Non-capital losses: | ||||||||||||||
Canada | Cdn. | $ | 124,078 | $ | 106,780 | 2006 to 2012 | ||||||||
Australia | A | $ | 8,349 | $ | 6,118 | (a) | ||||||||
Mongolia | Mongolian Tugrik | 316,819,140 | $ | 282,370 | (b) | |||||||||
Kazakhstan | Kazakhstan Tenge | 11,354,394 | $ | 84,958 | 2006 to 2012 | |||||||||
Capital losses: | ||||||||||||||
Canada | Cdn. | $ | 90,210 | $ | 77,633 | (c) |
(a) | These losses are carried forward indefinitely, subject to continuity of ownership and business tests. | |
(b) | These losses are carried forward indefinitely until production from a mine commences; thereafter, they can be amortized on a straight-line basis over a period of five years. | |
(c) | These losses are carried forward indefinitely for utilization against any future net realized capital gains. |
- 81 -
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
13. | INCOME TAXES (Continued) | |
Ivanhoe Mines also has deductible temporary differences and unused tax losses in certain other foreign jurisdictions that are not disclosed above, as it is currently highly unlikely that these items will be utilized. |
14. | ASSET RETIREMENT OBLIGATIONS |
December 31, | ||||||||
2005 | 2004 | |||||||
Balance, beginning of year | $ | 5,267 | $ | 4,709 | ||||
Increase in obligations for: | ||||||||
Amounts incurred | 610 | 660 | ||||||
Amounts extinguished on disposal of mineral property interests | — | (388 | ) | |||||
Accretion expense | 354 | 286 | ||||||
Balance, end of year | $ | 6,231 | $ | 5,267 | ||||
The total undiscounted amount of estimated cash flows required to settle the obligations is $20,458,000 (2004- $12,179,000), which has been discounted using credit adjusted risk free rates ranging from 5.6% to 8.4%. All reclamation obligations are not expected to be paid for several years and will be funded from Ivanhoe Mines’ cash balances at the time of mine closures. |
15. | MINORITY INTERESTS | |
At December 31, 2005 and 2004, there were minority interests in the BMV, Asia Gold and Jinshan. Currently, losses applicable to the minority interest in the BMV are being allocated to Ivanhoe Mines since those losses exceed the minority interest in the net assets of the BMV. | ||
The minority interests are comprised of the following: |
December 31, | ||||||||
2005 | 2004 | |||||||
Balance, beginning of year | $ | 3,713 | $ | 5,816 | ||||
Minority interests’ share of loss of Asia Gold | (2,714 | ) | (2,103 | ) | ||||
Increase in minority interest arising from share issuances by Asia Gold | 582 | — | ||||||
Initial interest arising from acquisition of Jinshan in December 2005 | 7,347 | — | ||||||
Balance, end of year | $ | 8,928 | $ | 3,713 | ||||
- 82 -
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
16. | SHARE CAPITAL |
(a) | Equity Incentive Plan | ||
The Company has an Employees’ and Directors’ Equity Incentive Plan (the “Equity Incentive Plan”), which includes three components: (i) a Share Option Plan; (ii) a Share Bonus Plan; and (iii) a Share Purchase Plan. |
(i) | The Share Option Plan authorizes the Board of Directors of the Company to grant options, which vest over a period of years, to directors and employees of Ivanhoe Mines to acquire Common Shares of the Company at a price based on the weighted average trading price of the Common Shares for the five days preceding the date of the grant. The Share Option Plan also provides that these options may, upon approval of the Board of Directors, be converted into stock appreciation rights. | ||
(ii) | The Share Bonus Plan permits the Board of Directors of the Company to authorize the issuance, from time to time, of Common Shares of the Company to employees of the Company and its affiliates. | ||
(iii) | The Share Purchase Plan entitles each eligible employee of Ivanhoe Mines to contribute up to seven percent of each employee’s annual basic salary in semi-monthly instalments. At the end of each calendar quarter, each employee participating in the Share Purchase Plan is issued Common Shares of the Company equal to 1.5 times the aggregate amount contributed by the participant, based on the weighted average trading price of the Common Shares during the preceding three months. |
- 83 -
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
16. | SHARE CAPITAL (Continued) |
(a) | Equity Incentive Plan (Continued) | ||
A summary of stock option activity and information concerning outstanding and exercisable options at December 31, 2005 is as follows: |
Options Outstanding | ||||||||||||
Options | Number of | Weighted | ||||||||||
Available | Common | Average | ||||||||||
for Grant | Shares | Exercise Price | ||||||||||
(Expressed in | ||||||||||||
Canadian dollars) | ||||||||||||
Balances, December 31, 2003 | 3,215,126 | 8,589,894 | 3.26 | |||||||||
Options granted | (3,089,000 | ) | 3,089,000 | 7.91 | ||||||||
Options exercised | — | (1,665,952 | ) | 1.58 | ||||||||
Options cancelled | 122,000 | (122,000 | ) | 2.93 | ||||||||
Shares issued for consulting fees | (126,373 | ) | — | — | ||||||||
Shares issued under share purchase plan | (17,019 | ) | — | — | ||||||||
Balances, December 31, 2004 | 104,734 | 9,890,942 | 5.02 | |||||||||
Increase in amount authorized | 9,000,000 | — | — | |||||||||
Options granted | (1,125,000 | ) | 1,125,000 | 8.86 | ||||||||
Options exercised | — | (3,256,542 | ) | 1.48 | ||||||||
Options cancelled | 342,700 | (342,700 | ) | 2.41 | ||||||||
Shares issued under share purchase plan | (16,498 | ) | — | — | ||||||||
Balances, December 31, 2005 | 8,305,936 | 7,416,700 | $ | 7.27 | ||||||||
- 84 -
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
16. | SHARE CAPITAL (Continued) |
(b) | Equity Incentive Plan (Continued) | ||
The following table summarizes information concerning outstanding and exercisable options at December 31, 2005: |
Options Outstanding | Options Exercisable | |||||||||||||||||||
Weighted | Weighted | Weighted | ||||||||||||||||||
Range of | Average | Average | Average | |||||||||||||||||
Exercise | Number | Remaining | Exercise Price | Number | Exercise Price | |||||||||||||||
Prices | Outstanding | Life (in years) | Per Share | Exercisable | Per Share | |||||||||||||||
(Expressed in | (Expressed in | (Expressed in | ||||||||||||||||||
Canadian | Canadian | Canadian | ||||||||||||||||||
ddollars) | dollars) | dollars) | ||||||||||||||||||
$1.20 to $3.50 | 2,002,200 | 1.54 | $ | 2.75 | 1,645,300 | $ | 2.64 | |||||||||||||
$3.51 to $6.75 | 293,500 | 2.67 | 6.75 | 181,500 | 6.75 | |||||||||||||||
$6.76 to $7.69 | 1,051,000 | 3.26 | 7.46 | 471,330 | 7.37 | |||||||||||||||
$7.70 to $8.20 | 1,430,000 | 6.78 | 7.91 | 572,000 | 7.91 | |||||||||||||||
$8.21 to $8.99 | 1,140,000 | 4.09 | 8.62 | 295,000 | 8.63 | |||||||||||||||
$9.00 to $10.51 | 500,000 | 4.26 | 9.56 | 75,000 | 9.67 | |||||||||||||||
$10.52 to $12.70 | 1,000,000 | 7.84 | 12.70 | 750,000 | 12.70 | |||||||||||||||
7,416,700 | 4.26 | $ | 7.27 | 3,990,130 | $ | 6.61 | ||||||||||||||
2005 | 2004 | |||||||
Risk-free interest rate | 3.76 | % | 4.29 | % | ||||
Expected life | 5.0 years | 6.6 years | ||||||
Expected volatility | 61 | % | 64 | % | ||||
Expected dividends | $Nil | $Nil |
(c) | Share Purchase Warrants | ||
At December 31, 2005, the Company had 5,760,000 share purchase warrants outstanding that were issued in 2004. These warrants entitle the holder to acquire one-tenth of a common share of the Company at any time on or before February 15, 2007, at a price of $8.68 per common share. |
- 85 -
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
17. | ACCUMULATED OTHER COMPREHENSIVE INCOME |
December 31, | ||||||||
2005 | 2004 | |||||||
Balance, beginning of year | $ | 2,879 | $ | 1,587 | ||||
Other comprehensive income for the year: | ||||||||
Changes in fair value of long-term investments | 3,539 | 2,124 | ||||||
Reclassification for losses (gains) recorded in earnings | 293 | (1,025 | ) | |||||
Other comprehensive income before tax: | 3,832 | 1,099 | ||||||
Income tax recovery related to other comprehensive income | — | 193 | ||||||
Other comprehensive income, net of tax: | 3,832 | 1,292 | ||||||
Balance, end of year | $ | 6,711 | $ | 2,879 | ||||
18 | OTHER RELATED PARTY TRANSACTIONS |
(a) | Ivanhoe Mines incurred the following expenses, primarily on a cost recovery basis, with an officer of Ivanhoe Mines, a company subject to significant influence by Ivanhoe Mines, or with companies related by way of directors or shareholders in common: |
Years ended December 31, | ||||||||
2005 | 2004 | |||||||
Exploration | $ | 1,122 | $ | 2,198 | ||||
Legal | 823 | 468 | ||||||
Office and administrative | 2,216 | 2,057 | ||||||
Salaries and benefits | 2,904 | 2,239 | ||||||
Travel (including aircraft rental) | 3,421 | 3,001 | ||||||
$ | 10,486 | $ | 9,963 | |||||
(b) | Accounts receivable and accounts payable at December 31, 2005, included $451,000 and $1,102,000, respectively (December 31, 2004 — $414,000 and $3,285,000, respectively), which were due from/to a company under common control or companies related by way of directors in common. |
- 86 -
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
19. | CASH FLOW INFORMATION |
(a) | Net change in non-cash operating working capital items |
Years ended December 31, | |||||||||||
2005 | 2004 | ||||||||||
(Increase) decrease in: | |||||||||||
Accounts receivable | $ | 522 | $ | (3,254 | ) | ||||||
Inventories | (1,355 | ) | (1,689 | ) | |||||||
Prepaid expenses | (5,132 | ) | (795 | ) | |||||||
Other current assets | — | (1,010 | ) | ||||||||
Increase in: | |||||||||||
Accounts payable and accrued liabilities | 4,209 | 3,574 | |||||||||
$ | (1,756) | $ | (3,174) | ||||||||
(b) | Supplementary information regarding other non-cash transactions | ||
The non-cash investing and financing activities relating to continuing operations not already disclosed in the Consolidated Statement of Shareholders’ Equity or the Consolidated Statements of Cash Flows were as follows: |
Years ended December 31, | ||||||||
2005 | 2004 | |||||||
Investing activities: | ||||||||
Acquisition of property, plant and equipment | $ | 440 | $ | — |
(c) | Other supplementary information |
Years ended December 31, | ||||||||
2005 | 2004 | |||||||
Interest paid | $ | — | $ | — | ||||
Income taxes paid | $ | 448 | $ | 342 | ||||
- 87 -
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
20. | SEGMENT DISCLOSURES | |
Ivanhoe Mines has one operating segment; its exploration division with projects located primarily in Mongolia. The iron ore division located in Australia was sold in February 2005 and has been reported as discontinued operations (Note 3). |
Year ended | Exploration | |||||||||||
December 31, 2005 | Division | Corporate | Consolidated | |||||||||
Operating expenses | ||||||||||||
Exploration | $ | (127,165 | ) | $ | — | (127,165 | ) | |||||
General and administrative | — | (23,825 | ) | (23,825 | ) | |||||||
Interest | (124 | ) | (230 | ) | (354 | ) | ||||||
Depreciation | (2,516 | ) | (42 | ) | (2,558 | ) | ||||||
Mining property care and maintenance costs | — | (3,706 | ) | (3,706 | ) | |||||||
Write-down of carrying values of property, plant and equipment | (442 | ) | (167 | ) | (609 | ) | ||||||
Operating loss | (130,247 | ) | (27,970 | ) | (158,217 | ) | ||||||
Other income (expenses) | ||||||||||||
Share of income from joint venture | — | 23,036 | 23,036 | |||||||||
Interest income | 294 | 3,127 | 3,421 | |||||||||
Foreign exchange losses (gains) | (157 | ) | 7,908 | 7,751 | ||||||||
Share of loss of significantly influenced investees | — | (2,651 | ) | (2,651 | ) | |||||||
Gain on sale of long-term investments | — | 115 | 115 | |||||||||
Write-down of carrying value of long-term investments | — | (1,438 | ) | (1,438 | ) | |||||||
Loss before taxes and other items | (130,110 | ) | 2,127 | (127,983 | ) | |||||||
Provision for income and capital taxes | (205 | ) | (228 | ) | (433 | ) | ||||||
Minority interests | 2,714 | — | 2,714 | |||||||||
Net loss from continuing operations | $ | (127,601 | ) | $ | 1,899 | $ | (125,702 | ) | ||||
Expenditures on property, plant and equipment | $ | 29,754 | $ | 2,866 | $ | 32,620 | ||||||
Total assets | ||||||||||||
Continuing operations | $ | 124,919 | $ | 271,860 | $ | 396,779 | ||||||
Discontinued operations | — | — | — | |||||||||
$ | 124,919 | $ | 271,860 | $ | 396,779 | |||||||
- 88 -
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
20. | SEGMENT DISCLOSURES (Continued) |
Year ended | Exploration | |||||||||||
December 31, 2004 | Division | Corporate | Consolidated | |||||||||
Operating expenses | ||||||||||||
Exploration | $ | (98,174 | ) | $ | — | (98,174 | ) | |||||
General and administrative | — | (22,202 | ) | (22,202 | ) | |||||||
Interest | (134 | ) | (175 | ) | (309 | ) | ||||||
Depreciation | (2,002 | ) | (25 | ) | (2,027 | ) | ||||||
Mining property care and maintenance costs | — | (3,755 | ) | (3,755 | ) | |||||||
Write-down of carrying values of property, plant and equipment | — | (142 | ) | (142 | ) | |||||||
Operating loss | (100,310 | ) | (26,299 | ) | (126,609 | ) | ||||||
Other income (expenses) | ||||||||||||
Share of income from joint venture | — | 21,416 | 21,416 | |||||||||
Interest income | 232 | 2,894 | 3,126 | |||||||||
Foreign exchange gains | 48 | 4,583 | 4,631 | |||||||||
Share of loss of significantly influenced investees | — | (2,315 | ) | (2,315 | ) | |||||||
Gain on sale of long-term investments | — | 4,523 | 4,523 | |||||||||
Write-down of carrying value of long-term investments | — | (5,277 | ) | (5,277 | ) | |||||||
Loss before taxes and other items | (100,030 | ) | (475 | ) | (100,505 | ) | ||||||
Provision for income and capital taxes | (184 | ) | (404 | ) | (588 | ) | ||||||
Minority interests | 2,103 | — | 2,103 | |||||||||
Net loss from continuing operations | $ | (98,111 | ) | $ | (879 | ) | $ | (98,990 | ) | |||
Expenditures on property, plant and equipment | $ | 6,039 | $ | 1,807 | $ | 7,846 | ||||||
Total assets | ||||||||||||
Continuing operations | $ | 84,242 | $ | 245,763 | $ | 330,005 | ||||||
Discontinued operations | — | 46,263 | 46,263 | |||||||||
$ | 84,242 | $ | 292,026 | $ | 376,268 | |||||||
- 89 -
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
20. | SEGMENT DISCLOSURES (Continued) |
December 31, | ||||||||
2005 | 2004 | |||||||
Property, plant and equipment at the end of the year: | ||||||||
Mongolia | $ | 71,666 | $ | 43,308 | ||||
Inner Mongolia, China | 2,459 | 1,293 | ||||||
Australia | 6,767 | 7,853 | ||||||
Kazakhstan | 4,419 | 1,730 | ||||||
Canada | 131 | 144 | ||||||
Other | 264 | 106 | ||||||
$ | 85,706 | $ | 54,434 | |||||
21. | COMMITMENTS AND CONTINGENCIES | |
Ivanhoe Mines has, in the normal course of its business, entered into various long-term contracts, which include commitments for future operating payments under contracts for drilling, engineering, equipment rentals and other arrangements as follows: |
2006 | $ | 16,345 | ||
2007 | 2,406 | |||
2008 | 883 | |||
2009 onwards | — | |||
$ | 19,634 | |||
- 90 -
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
22. | DISCLOSURES REGARDING FINANCIAL INSTRUMENTS |
(a) | The estimated fair value of Ivanhoe Mines’ financial instruments was as follows: |
December 31, | ||||||||||||||||
2005 | 2004 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Amount | Value | Amount | Value | |||||||||||||
Cash | $ | 101,681 | $ | 101,681 | $ | 112,478 | $ | 112,478 | ||||||||
Accounts receivable | 33,350 | 33,350 | 6,552 | 6,552 | ||||||||||||
Other current assets | 3,286 | 3,286 | 3,000 | 3,000 | ||||||||||||
Current assets of discontinued operations (Note 3) | — | — | 36,636 | 36,636 | ||||||||||||
Long-term investments | 18,417 | 18,417 | 19,160 | 24,404 | ||||||||||||
Accounts payable and accrued liabilities | 20,594 | 20,594 | 14,412 | 14,412 | ||||||||||||
Current liabilities of discontinued operations (Note 3) | — | — | 14,082 | 14,082 | ||||||||||||
Loans payable to related parties | 5,088 | 3,733 | 5,088 | 3,393 |
(b) | Ivanhoe Mines is exposed to credit risk with respect to its accounts receivable. The significant concentrations of credit risk are situated in Mongolia and Australia. Ivanhoe Mines does not mitigate the balance of this risk in light of the credit worthiness of its major debtors. |
- 91 -
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
December 31, | ||||||||
2005 | 2004 | |||||||
Total assets in accordance with U.S. GAAP | $ | 396,779 | $ | 376,268 | ||||
Reverse equity accounting for investment in joint venture (a) | 43,067 | 35,054 | ||||||
Increase in fair value of the Savage River Project assets acquired (b) | — | 5,634 | ||||||
Adjustment arising from reversal of write-down of the Savage River Project (c) | — | 14,058 | ||||||
Reversal of amortization of other mineral property interests (d) | 6,329 | 6,521 | ||||||
Adjustment to carrying value of long-term investments (e) | (6,711 | ) | (2,879 | ) | ||||
Total assets in accordance with Canadian GAAP | $ | 439,464 | $ | 434,656 | ||||
Total liabilities in accordance with U.S. GAAP | $ | 32,228 | $ | 65,705 | ||||
Reverse equity accounting for investment in joint venture (a) | 43,067 | 35,054 | ||||||
Income tax effect of U.S. GAAP adjustments for: | ||||||||
Amortization of other mineral property interests (d) | 882 | 882 | ||||||
Total liabilities in accordance with Canadian GAAP | $ | 76,177 | $ | 101,641 | ||||
Total minority interests in accordance with U.S. and Canadian GAAP | $ | 8,928 | $ | 3,713 | ||||
Total shareholders’ equity in accordance with U.S. GAAP | $ | 355,623 | $ | 306,850 | ||||
Increase in fair value of shares issued to acquire ABM (b) | — | 4,930 | ||||||
(Increase) decrease in the deficit for: | ||||||||
Amortization of deferred stock compensation (b) | — | 704 | ||||||
Adjustment arising from write-down of the Savage River Project (c) | — | 14,058 | ||||||
Amortization of other mineral property interests (d) | 5,447 | 5,639 | ||||||
Other comprehensive income (f) | (6,711 | ) | (2,879 | ) | ||||
Total shareholders’ equity in accordance with Canadian GAAP | $ | 354,359 | $ | 329,302 | ||||
- 92 -
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
(in thousands, except for share and per share amounts)
Years ended December 31, | ||||||||
2005 | 2004 | |||||||
Net (loss) from continuing operations in accordance with U.S. GAAP | $ | (125,702 | ) | $ | (98,990 | ) | ||
Dilution gain on issuance of shares by a subsidiary (i) | 3,012 | — | ||||||
Net (loss) from continuing operations in accordance with Canadian GAAP | $ | (122,690 | ) | $ | (98,990 | ) | ||
Net income from discontinued operations in accordance with U.S. GAAP | $ | 35,916 | $ | 4,449 | ||||
Adjustment arising from write-down of the Savage River Project (c) | — | (2,974 | ) | |||||
Write-down of other mineral property interests (d) | (192 | ) | — | |||||
Gain on sale of Savage River Project (h) | (19,692 | ) | — | |||||
Net income from discontinued operations in accordance with Canadian GAAP | $ | 16,032 | $ | 1,475 | ||||
Net (loss) in accordance with Canadian GAAP | $ | (106,658 | ) | $ | (97,515 | ) | ||
Weighted-average number of shares outstanding under Canadian GAAP (in thousands) | 305,160 | 281,640 | ||||||
Basic and diluted (loss) earnings per share in accordance with Canadian GAAP from: | ||||||||
Continuing operations | $ | (0.40 | ) | $ | (0.35 | ) | ||
Discontinued operations | 0.05 | — | ||||||
$ | (0.35 | ) | $ | (0.35 | ) | |||
December 31, | ||||||||
2005 | 2004 | |||||||
Share capital | $ | 999,372 | $ | 873,536 | ||||
Additional paid-in capital | 17,952 | 12,073 | ||||||
Deficit | (662,965 | ) | (556,307 | ) | ||||
$ | 354,359 | $ | 329,302 | |||||
- 93 -
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
Years ended December 31, | ||||||||
2005 | 2004 | |||||||
Cash used in operating activities in accordance with U.S. GAAP | $ | (133,113 | ) | $ | (118,740 | ) | ||
Reverse equity accounting for investment in joint venture (a) | 24,805 | 25,207 | ||||||
Cash used in operating activities in accordance with Canadian GAAP | (108,308 | ) | (93,533 | ) | ||||
Cash (used in) provided by investing activities in accordance with U.S. GAAP | (10,232 | ) | 12,606 | |||||
Reverse equity accounting for investment in joint venture (a) | (4,561 | ) | (9,086 | ) | ||||
Cash (used in) provided by investing activities in accordance with Canadian GAAP | (14,793 | ) | 3,520 | |||||
Cash provided by (used in) financing activities in accordance with U.S. GAAP | 124,706 | 107,711 | ||||||
Reverse equity accounting for investment in joint venture (a) | (7,500 | ) | (7,500 | ) | ||||
Cash provided by financing activities in accordance with Canadian GAAP | 117,206 | 100,211 | ||||||
Effect of exchange rate changes on cash | 7,842 | 5,385 | ||||||
Net cash inflow in accordance with Canadian GAAP | 1,947 | 15,583 | ||||||
Cash, beginning of year in accordance with Canadian GAAP | 122,577 | 106,994 | ||||||
Cash, end of year in accordance with Canadian GAAP | $ | 124,524 | $ | 122,577 | ||||
- 94 -
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
(a) | Investment in Joint Venture | ||
Under U.S. GAAP, Ivanhoe Mines has accounted for its joint venture interest in JVCo (Note 4) using the equity method. Under Canadian GAAP, interests in joint ventures are accounted for on a proportionate consolidation basis. | |||
Under Canadian GAAP, the carrying amount of the Ivanhoe Mines’ investment and its share of equity of JVCo is eliminated. Ivanhoe Mines’ proportionate share of each line item of JVCo’s assets, liabilities, revenue and expenses is included in the corresponding line items of Ivanhoe Mines financial statements. All intercompany balances and transactions would be eliminated. Note 4 discloses the asset, liabilities, revenues and expenses of JVCo that would have been included in the corresponding line items on Ivanhoe Mines’ financial statements had Canadian GAAP been applied. | |||
(b) | Acquisition of ABM | ||
Under U.S. GAAP, the fair value of the shares issued in 2000 to effect the acquisition of ABM were measured at the date the acquisition was announced and the terms agreed to, whereas, under Canadian GAAP, the shares issued would have been measured at the transaction date. This difference would have resulted in the cost of the acquisition under Canadian GAAP being $4,930,000 higher than under U.S. GAAP. | |||
Under U.S. GAAP, the Company included in the cost of the acquisition of ABM the intrinsic value of the unvested options granted by the Company in 2000 as consideration for the acquisition of all of the outstanding stock options of ABM. Under U.S. GAAP, the deferred stock compensation was recognized as a compensation cost over the remaining future vesting period of the options. Under Canadian GAAP, the Company would have included in the cost of acquisition of ABM the $1,750,000 fair value of the stock options. This difference would have resulted in the cost of the acquisition in 2000 under Canadian GAAP being $704,000 higher than under U.S. GAAP. | |||
ABM was sold in February 2005 (Note 3). |
- 95 -
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
(c) | Impairment of long-lived assets | ||
Under U.S. GAAP, impairment charges are recorded based on the discounted, estimated future net cash flows, whereas, under Canadian GAAP, impairment charges on long-lived assets in 2002 and prior years were recorded as the excess of their carrying amount over their recoverable amount, which was determined based on the undiscounted estimated future net cash flows. | |||
Under U.S. GAAP, the Savage River Project was fully written off as at December 31, 2002. However, under Canadian GAAP only an $18 million write-down would have been taken. In 2003, additional amounts capitalized under U.S. GAAP were written off; however, these would have been capitalized under Canadian GAAP. As a result, under Canadian GAAP, these assets would need to be depreciated and depleted. In 2005, additional depreciation recorded under Canadian GAAP was $nil (2004: $2,974,000). | |||
(d) | Other mineral property interests | ||
Under U.S. GAAP, where the mineral property interests are, at the date of acquisition, without economically recoverable reserves, these costs are generally considered to be exploration costs that are expensed as incurred. Under Canadian GAAP, the costs of the acquisition of mineral property interests are capitalized. | |||
In accordance with EITF 04-02, Whether Mining Rights are Tangible or Intangible Assets, the Company classifies its mineral exploration licenses as tangible assets and there is no difference between Canadian and U.S. GAAP. Prior to January 2004, the costs of acquisition of Ivanhoe Mines’ mineral exploration licenses were classified as intangible assets under U.S. GAAP and amortized over the term of the licenses. As a result, for Canadian GAAP purposes, the $6,329,000, net of deferred income taxes of $882,000, in amortization or write-offs of other mineral property interests under U.S. GAAP needs to be reversed. |
- 96 -
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
(e) | Long-term investments | ||
Under U.S. GAAP, portfolio investments are classified as available-for-sale securities, which are carried at market value. The resulting unrealized gains or losses are included in the determination of comprehensive income, net of income taxes where applicable. Under Canadian GAAP, these investments would be carried at their original cost less provisions for impairment. | |||
(f) | Other comprehensive income | ||
U.S. GAAP requires that a statement of comprehensive income be displayed with the same prominence as other financial statements and that the aggregate amount of comprehensive income, excluding the deficit, be disclosed separately in shareholders’ equity. Comprehensive income, which incorporates the net loss, includes all changes in shareholders’ equity during a period except those resulting from investments by, and distributions to, owners. Under Canadian GAAP, companies do not report comprehensive income or loss. | |||
(g) | Income taxes | ||
Under U.S. GAAP, deferred income taxes are calculated based on enacted tax rates applicable to future years. Under Canadian GAAP, future income taxes are calculated based on enacted or substantively enacted tax rates applicable to future years. This difference in GAAP did not have any effect on the financial position or results of operations of the Company for the years ended December 31, 2005 and 2004. | |||
(h) | Gain on Sale of ABM | ||
Under U.S. GAAP, the net book value of ABM when it was sold in February 2005 was $11.2 million, whereas under Canadian GAAP the carrying value was $30.9 million. During 2005, total proceeds from the sale were $41.7 million, representing cash instalments including interest of $21.5 million, plus escalating payments of $20.2 million. Therefore, under Canadian GAAP the gain on sale was $19.7 million less than under U.S. GAAP. |
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Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
23. | DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Continued) |
(i) | Dilution gain on investment in subsidiary | ||
Under U.S. GAAP the $3.0 million dilution gain on investment in a subsidiary was accounted for as part of additional paid-in capital. Under Canadian GAAP, the dilution gain would have been included in the net loss for 2005. | |||
(j) | Recently released Canadian accounting standards | ||
In January 2005, the CICA issued Section 1530, “Comprehensive Income”, Section 3251, “Equity”, Section 3855, “Financial Instruments – Recognition and Measurement”, and Section 3865, “Hedges”. The new standards increase harmonization with US GAAP and will require the following measures: | |||
Financial assets will be classified as held-to-maturity, held-for-trading or available-for-sale. Held-to-maturity classification will be restricted to fixed maturity instruments that the Company intends, and is able, to hold to maturity and will be accounted for at amortized cost. Held-for-trading instruments will be recorded at fair value, with realized and unrealized gains and losses reported in net income. Available-for-sale financial assets will be recorded at fair value, with unrealized gains and losses reported in a new category in shareholders’ equity, called “other comprehensive income”. | |||
Derivatives will be classified as held-for-trading unless designated as hedging instruments. All derivatives, including embedded derivatives that must be separately accounted for, will be recorded at fair value on the Condensed Consolidated Balance Sheet. For derivatives that hedge the changes in fair value of an asset or liability, changes in the derivatives’ fair value will be reported in net income and substantially offset by changes in the fair value of the hedged asset or liability attributable to the risk being hedged. For derivatives that hedge variability in cash flows, the effective portion of the changes in the derivatives’ fair value will be initially recognized in other comprehensive income and the ineffectiveness will be recorded in net income. The amounts temporarily recorded in other comprehensive income subsequently will be reclassified to net income in the periods net income is affected by the variability in the cash flows of the hedged item. | |||
The guidance will apply for interim and annual financial statements relating to fiscal years beginning on or after October 1, 2006. Earlier adoption is permitted only as of the beginning of a fiscal year. The Company will adopt these new standards on January 1, 2006. |
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Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
24. | SUBSEQUENT EVENTS | |
On March 29, 2006, Ivanhoe Mines announced that it had entered into a financing that consists of 16 million common shares at a price of $8.77 per common share (Cdn$10.28), representing an aggregate amount of $140.3 million (Cdn$164.5 million). Ivanhoe Mines has granted the underwriters an option, exercisable at the issue price for a period of 30 days following the closing of this offering, to purchase up to an additional 15% of the issue size, representing 2,400,000 common shares. Closing is expected on or about April 25, 2006. |
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