PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
Proxy
Supplemental return card
Electronic consent
December 31, 2006 financial statements, notes and MD & A
IVANHOE MINES LTD. | ||||
Date:March 30, 2007 | By: | /s/ Beverly A. Bartlett | ||
BEVERLY A. BARTLETT | ||||
Vice President & Corporate Secretary | ||||
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, 2006 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: (i) increase the maximum number of Common Shares of the Corporation which may be allocated for issuance from 32,000,000 under the Corporation’s existing Incentive Plan to 37,000,000 Common Shares under the proposed amended and restated plan; (ii) increase the maximum number of Common Shares of the Corporation issuable under the Bonus Plan component of the Incentive Plan from 2,000,000 Common Shares to 3,500,000 Common Shares; (iii) amend the existing Incentive Plan’s “general amendment” provisions to comply with recent amendments to the rules and policies of the Toronto Stock Exchange; and (iv) make other technical amendments to the existing Incentive Plan; | |
6. | to consider, and if thought advisable, to confirm revisions to the By-Laws of the Corporation to allow for shares to be issued electronically, without a certificate, as will be required for shares listed on a U.S. stock exchange beginning in 2008; and | |
7. | to transact such other business as may properly come before the meeting or any adjournment thereof. |
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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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(i) | in the name of an intermediary (an “Intermediary”) that the Non-Registered Shareholder deals with in respect of the shares of the Corporation (Intermediaries include, among others, banks, trust companies, securities dealers or brokers and trustees or administrators of self-administered RRSPs, RRIFs, RESPs and similar plans); or | ||
(ii) | in the name of a clearing agency (such as The Canadian Depository for Securities Limited) of which the Intermediary is a participant. |
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(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 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 and deposit it with the Corporation, c/o CIBC Mellon Trust Company, The Oceanic Plaza, 1600 — 1066 Hastings Street, Vancouver, British Columbia, V6E 3K9 or 320 Bay Street, Banking Hall Level, Toronto, Ontario, M5H 4A6. |
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(a) | the shareholder has transferred the ownership of any such share after the Record Date, and | ||
(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 Singapore | 100,942,325 | (1) | 27.0 | % | ||||
Tradewinds Global Investors LLC California, U.S.A.(2)(3) | 41,329,001 | (4) | 11.05 | % | ||||
Directors and Officers as a group(5) | 101,772,370 | (6) | 27.12 | % |
(1) | Common Shares are held directly (as to 19,810,801 shares) and indirectly through Newstar Securities SRL (as to 30,808,992 shares), a company beneficially owned and controlled by Mr. Friedland, and Goldamere Holdings SRL (as to 50,322,533 shares), a company beneficially owned and controlled as to 91.91% by Mr. Friedland. Common Shares held directly and indirectly by Mr. Friedland do not include 2,000,000 unissued Common Shares issuable upon the exercise of incentive stock options. | |
(2) | Tradewinds Global Investors LLC (“Tradewinds”) is an advisory and investment management subsidiary of Nuveen Investments Inc. (NYSE: JNC) (“Nuveen”) focused on international and global equity investing. Nuveen is a provider of investment advisory services and a distributor of open-end, closed-end and managed account products to affluent, high-net-worth and institutional investors. See note 3 below. | |
(3) | Information relating to Tradewinds is not within the knowledge of management of the Corporation and has been derived from filings with the U.S. Securities and Exchange Commission. | |
(4) | Represents the number of Common Shares held by Tradewinds as of March 19, 2007. |
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(5) | Common Shares held by the directors and senior officers as a group do not include 8,993,100 unissued Common Shares issuable upon the exercise of incentive stock options. | |
(6) | Includes 100,942,325 Common Shares held directly and indirectly by Robert M. Friedland. |
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Singapore
Age: 56
Executive Chairman
Director Since: 1994
Non-Independent
(Management)
Principal Occupation, Business or Employment(1) | ||||||||||
Chairman of the Corporation (March 1994 – present); Chief Executive Officer of the Corporation (March 1994 – 2006); Chairman and President, Ivanhoe Capital Corporation (1998 to Present). |
Board/Committee Membership: | 2006 Attendance: | Other Public Company Board Membership: | |||||||||
Company: | Since: | ||||||||||
Board of Directors Executive Committee | 5 of 7 2 of 2 | 71% 100% | Ivanhoe Energy Inc. (TSX; NASDAQ) | 1995 | |||||||
Common Shares Beneficially Owned, Controlled or Directed(1) (2): |
Year | Common Shares | Total Market Value of Common Shares(8) | |||||||
2006 | 100,942,326 | $1,372,815,633 | |||||||
2005 | 100,834,334 | $916,584,096 | |||||||
Options Held: |
Date Granted | Expiry Date | Number | Vested/ | Exercise | Total | Value of | ||||||
Granted | Unvested | Price(9) | Unexercised | Unexercised Options(10) | ||||||||
Mar. 27, 2006 | Mar. 27, 2013 | 2,000,000 | 900,000/ 1,100,000(11) | $9.73 | 2,000,000 | $7,740,000 |
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North Vancouver,
British Columbia, Canada
Age: 63
Deputy Chairman
Director Since: 2005
Non-Independent
(Management)
Principal Occupation, Business or Employment(1) | ||||||||||
Deputy Chairman (May 2006 – present); Chief Financial Officer of the Corporation (June 1999 – November 2001; May 2004 – May 2006); Chief Financial Officer, Ivanhoe Capital Corporation (1996 – present); Senior Partner, Deloitte & Touche, chartered accountants (1966 – 1996) |
Board/Committee Membership: | 2006 Attendance: | Other Public Company Board Membership: | |||||||||
Company: | Since: | ||||||||||
Board of Directors Executive Committee | 7 of 7 2 of 2 | 100% 100% | Jinshan Gold Mines Inc. (TSX) Olympus Pacific Minerals Inc. (TSX) Asia Gold Corp. (TSX-V) Entrée Gold Inc. (TSX; AMEX) Great Canadian Gaming Corporation (TSX) | 2004 2004 2003 2002 2000 | |||||||
Common Shares Beneficially Owned, Controlled or Directed(1) (2): |
Year | Common Shares | Total Market Value of Common Shares(8) | |||||||
2006 | 68,195 | $927,452 | |||||||
2005 | 87,452 | $794,938.68 | |||||||
Options Held: |
Date Granted | Expiry Date | Number | Vested/ | Exercise | Total | Value of | ||||||
Granted | Unvested | Price(9) | Unexercised | Unexercised Options(10) | ||||||||
Mar. 27, 2006 | Mar. 27, 2013 | 400,000 | 180,000/ 220,000(12) | $9.73 | 400,000 | $1,548,000 | ||||||
May 14, 2004 | May 14, 2009 | 200,000 | 120,000/ 80,000(13) | $8.20 | 200,000 | $1,080,000 | ||||||
Feb. 4, 2004 | Feb. 4, 2009 | 50,000 | 40,000/ 10,000(14) | $7.69 | 50,000 | $295,000 |
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Co. Louth, Ireland
Age: 55
President and Chief
Executive Officer
Director Since: 2004
Non-Independent
(Management)
Mr. Macken had spent 19 years with Freeport McMoran Copper and Gold, most recently as Freeport’s Senior Vice-President of Strategic Planning and Development.
Principal Occupation, Business or Employment(1) | ||||||||||
Chief Executive Officer of the Corporation (May, 2006 – present); President of the Corporation (January 2004 – present); Consultant (2000 – January, 2004); Senior Vice President of Freeport McMoran Copper & Gold (1996 – 2000) |
Board/Committee Membership: | 2006 Attendance: | Other Public Company Board Membership: | |||||||||
Company: | Since: | ||||||||||
Board of Directors Executive Committee | 7 of 7 2 of 2 | 100% 100% | N/A | N/A | |||||||
Common Shares Beneficially Owned, Controlled or Directed(1) (2): |
Year | Common Shares | Total Market Value of Common Shares(8) | |||||||
2006 | 6,214 | $84,510 | |||||||
2005 | NIL | NIL | |||||||
Options Held: |
Date Granted | Expiry Date | Number | Vested/ | Exercise | Total | Value of | ||||||
Granted | Unvested | Price(9) | Unexercised | Unexercised Options(10) | ||||||||
Mar. 27, 2006 | Mar. 27, 2013 | 2,000,000 | 900,000/ 1,100,000(11) | $9.73 | 2,000,000 | $7,740,000 | ||||||
Mar. 30, 2004 | Mar. 30, 2014 | 1,000,000 | 1,000,000/ NIL | $7.78 | 1,000,000 | $5,820,000 | ||||||
Nov. 1, 2003 | Nov. 1, 2013 | 1,000,000 | 1,000,000/ NIL | $12.70 | 1,000,000 | $900,000 |
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Vancouver, British Columbia
Canada
Age: 72
Lead Director
Director Since: 2003
Independent
Principal Occupation, Business or Employment(1) | ||||||||||
President, Coda Consulting Corp. (1993 – present) |
Board/Committee Membership: | 2006 Attendance: | Other Public Company Board Membership: | |||||||||
Company: | Since: | ||||||||||
Board of Directors Executive Committee Corporate Governance & Nominating Committee – Chairman Compensation & Benefits Committee – Chairman Non-Management Directors | 7 of 7 2 of 2 4 of 4 5 of 5 5 of 5 | 100% 100% 100% 100% 100% | N/A | N/A | |||||||
Common Shares Beneficially Owned, Controlled or Directed(1) (2): |
Year | Common Shares | Total Market Value of Common Shares(8) | Minimum Share Ownership Required(7) | |||||||
2006 | 20,000 | $272,000 | 20,000 | |||||||
2005 | 20,000 | $181,800 | ||||||||
Options Held: |
Date Granted | Expiry Date | Number | Vested/ | Exercise | Total | Value of | ||||||
Granted | Unvested | Price(9) | Unexercised | Unexercised Options(10) | ||||||||
May 12, 2006 | May 12, 2011 | 25,000 | NIL/ 25,000(15) | $10.56 | 25,000 | $76,000 | ||||||
May 10, 2005 | May 10, 2010 | 25,000 | 25,000/ NIL | $9.37 | 25,000 | $105,750 | ||||||
Sept. 3, 2004 | Sept. 3, 2009 | 25,000 | 25,000/ NIL | $7.00 | 25,000 | $165,000 | ||||||
Sept. 16, 2003 | Sept. 16, 2008 | 210,000 | 160,000/ 50,000(16) | $6.75 | 210,000 | $1,438,500 |
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Reno, Nevada, United
States
Age: 61
Director Since: 1995
Non-Independent(3)
Principal Occupation, Business or Employment(1) | ||||||||||
Chairman of Western Uranium Corporation (March 2007 – present); Managing Director, Investment Banking, Haywood Securities (UK) Ltd. (March 2007 – present); Deputy Chairman of the Corporation (May 1999 – February 2007); Senior Mining Analyst, Haywood Securities Inc. (May 1999 – November 2001), President of the Corporation (1995 – 1999) |
Board/Committee Membership: | 2006 Attendance: | Other Public Company Board Membership: | |||||||||
Company: | Since: | ||||||||||
Board of Directors | 7 of 7 | 100% | Western Uranium Corporation (TSX-V) – Chairman Asia Gold Corp. (TSX-V) Jinshan Gold Mines Inc. (TSX) Ivanhoe Energy Inc. (TSX; NASDAQ) (will cease as a director of Ivanhoe Energy Inc. at the conclusion of the next annual meeting of shareholders, scheduled for May 3, 2007) | 2007 2003 2002 1999 | |||||||
Common Shares Beneficially Owned, Controlled or Directed(1) (2): |
Year | Common Shares | Total Market Value of Common Shares(8) | |||||||
2006 | 313,585 | $4,264,756 | |||||||
2005 | 145,192 | $1,319,795 | |||||||
Options Held: |
Date Granted | Expiry Date | Number | Vested/ | Exercise | Total | Value of | ||||||
Granted | Unvested | Price(9) | Unexercised | Unexercised Options(10) | ||||||||
Mar. 27, 2006 | Mar. 27, 2013 | 300,000 | 135,000/ 165,000(17) | $9.73 | 300,000 | $1,161,000 |
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Kingston, Ontario
Canada
Age: 74
Director Since: 1996
Independent
Principal Occupation, Business or Employment(1) | ||||||||||
President, Scarthingmoor Asset Management Inc. (April 1996 – present) |
Board/Committee Membership: | 2006 Attendance: | Other Public Company Board Membership: | |||||||||
Company: | Since: | ||||||||||
Board of Directors Audit Committee – Chairman Corporate Governance & Nominating Committee Non-Management Directors | 7 of 7 3 of 4 4 of 4 3 of 5 | 100% 75% 100% 60% | IFL Investment Foundation (Canada) Limited (TSX-V) (member of Audit Committee) Stratic Energy Corporation (TSX) | 2006 2004 | |||||||
Common Shares Beneficially Owned, Controlled or Directed(1) (2): |
Year | Common Shares | Total Market Value of Common Shares(8) | Minimum Share Ownership Required(7) | |||||||
2006 | 74,500 | $1,013,200 | 20,000 | |||||||
2005 | 74,500 | $677,205 | ||||||||
Options Held: |
Date Granted | Expiry Date | Number | Vested/ | Exercise | Total | Value of | ||||||
Granted | Unvested | Price(9) | Unexercised | Unexercised Options(10) | ||||||||
May 12, 2006 | May 12, 2011 | 25,000 | NIL/ 25,000(15) | $10.56 | 25,000 | $76,000 | ||||||
May 10, 2005 | May 10, 2010 | 25,000 | 25,000/ NIL | $9.37 | 25,000 | $105,750 | ||||||
Sept. 3, 2004 | Sept. 3, 2009 | 25,000 | 25,000/ NIL | $7.00 | 25,000 | $165,000 | ||||||
June 12, 2003 | June 12, 2008 | 50,000 | 40,000/ 10,000(18) | $3.25 | 50,000 | $517,500 |
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London, England
United Kingdom
Age: 60
Director Since: 2001
Independent
Principal Occupation, Business or Employment(1) | ||||||||||
Managing Director of Lion Resource Management (May 1989 – present) |
Board/Committee Membership: | 2006 Attendance: | Other Public Company Board Membership: | |||||||||
Company: | Since: | ||||||||||
Board of Directors Audit Committee Corporate Governance & Nominating Committee Compensation & Benefits Committee Non-Management Directors | 6 of 7 4 of 4 4 of 4 5 of 5 5 of 5 | 86% 100% 100% 100% 100% | Superior Mining Corporation (TSX-V) | 2005 | |||||||
Common Shares Beneficially Owned, Controlled or Directed(1) (2): |
Year | Common Shares | Total Market Value of Common Shares(8) | Minimum Share Ownership Required(7) | |||||||
2006 | 150,000 | $2,040,000 | 20,000 | |||||||
2005 | 150,000 | $1,363,500 | ||||||||
Options Held: |
Date Granted | Expiry Date | Number | Vested/ | Exercise | Total | Value of | ||||||
Granted | Unvested | Price(9) | Unexercised | Unexercised Options(10) | ||||||||
May 12, 2006 | May 12, 2011 | 25,000 | NIL/ 25,000(15) | $10.56 | 25,000 | $76,000 | ||||||
May 10, 2005 | May 10, 2010 | 25,000 | 25,000/ NIL | $9.37 | 25,000 | $105,750 | ||||||
Sept. 3, 2004 | Sept. 3, 2009 | 25,000 | 25,000/ NIL | $7.00 | 25,000 | $165,000 |
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London, England
United Kingdom
Age: 46
Director Since: 2001
Independent
Principal Occupation, Business or Employment(1) | ||||||||||
Chairman of: Hanson Capital Investments Limited (February 1998 – present); Hanson Transport Group (May 1990 – present); and Hanson Westhouse (city of London merchant bank) (2006 – present) |
Board/Committee Membership: | 2006 Attendance: | Other Public Company Board Membership: | |||||||||
Company: | Since: | ||||||||||
Board of Directors Corporate Governance & Nominating Committee Compensation & Benefits Committee Non-Management Directors | 6 of 7 3 of 4 3 of 5 4 of 5 | 86% 75% 60% 80% | N/A | ||||||||
Common Shares Beneficially Owned, Controlled or Directed(1) (2): |
Year | Common Shares | Total Market Value of Common Shares(8) | Minimum Share Ownership Required(7) | |||||||
2006 | 85,000 | $1,156,000 | 20,000 | |||||||
2005 | 85,000 | $772,650 | ||||||||
Options Held: |
Date Granted | Expiry Date | Number | Vested/ | Exercise | Total | Value of | ||||||
Granted | Unvested | Price(9) | Unexercised | Unexercised Options(10) | ||||||||
May 12, 2006 | May 12, 2011 | 25,000 | NIL/ 25,000(15) | $10.56 | 25,000 | $76,000 | ||||||
May 10, 2005 | May 10, 2010 | 25,000 | 25,000/ NIL | $9.37 | 25,000 | $105,750 | ||||||
Sept. 3, 2004 | Sept. 3, 2009 | 25,000 | 25,000/ NIL | $7.00 | 25,000 | $165,000 |
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Chiang Mai, Thailand
Age: 61
Director Since: 2002
Independent
Dr. Faber acts as an director and advisor to a number of private investment funds, and publishes a widely read monthly investment newsletter entitled “The Gloom, Boom & Doom Report” and is the author of several books including “Tomorrow’s Gold - Asia’s Age of Discovery”. He is a regular contributor to several leading financial publications around the world, including Forbes and Barron’s. He has over 35 years experience in the finance industry, including acting as manager of an investment bank in the U.S. in which he routinely performed financial analysis on a range of different companies.
Principal Occupation, Business or Employment(1) | ||||||||||
Managing Director, Marc Faber Ltd. (June 1990 – present) |
Board/Committee Membership: | 2006 Attendance: | Other Public Company Board Membership: | |||||||||
Company: | Since: | ||||||||||
Board of Directors Audit Committee Corporate Governance & Nominating Committee Non-Management Directors | 7 of 7 4 of 4 3 of 4 4 of 5 | 100% 100% 75% 80% | N/A | N/A | |||||||
Common Shares Beneficially Owned, Controlled or Directed(1) (2): |
Year | Common Shares | Total Market Value of Common Shares(8) | Minimum Share Ownership Required(7) | |||||||
2006 | 30,000 | $408,000 | 20,000 | |||||||
2005 | 20,000 | $181,800 | ||||||||
Options Held: |
Date Granted | Expiry Date | Number | Vested/ | Exercise | Total | Value of | ||||||
Granted | Unvested | Price(9) | Unexercised | Unexercised Options(10) | ||||||||
May 12, 2006 | May 12, 2011 | 25,000 | NIL/ 25,000(15) | $10.56 | 25,000 | $76,000 | ||||||
May 10, 2005 | May 10, 2010 | 25,000 | 25,000/ NIL | $9.37 | 25,000 | $105,750 | ||||||
Sept. 3, 2004 | Sept. 3, 2009 | 25,000 | 25,000/ NIL | $7.00 | 25,000 | $165,000 |
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Beijing, China
Age: 55
Director Since: 2005
Independent(4)
Principal Occupation, Business or Employment(1) | ||||||||||
President, The Balloch Group (July 2001– present); Vice Chairman, Canada China Business Council (July 2001 – present); Canadian Ambassador to China, Mongolia and Democratic Republic of Korea (April 1996 – July 2001) |
Board/Committee Membership:(4) | 2006 Attendance: | Other Public Company Board Membership: | |||||||||
Company: | Since: | ||||||||||
Board of Directors Corporate Governance & Nominating Committee Compensation & Benefits Committee Non-Management Directors | 7 of 7 N/A(4) N/A(4) 4 of 5 | 100% N/A(4) N/A(4) 80% | East Energy Corp. (TSX-V) Methanex Corporation (TSX; NASDAQ) Tiens Biotech Group (USA) Ltd. (OTCBB) Ivanhoe Energy Inc. (TSX; NASDAQ) | 2006 2004 2003 2002 | |||||||
Common Shares Beneficially Owned, Controlled or Directed(1) (2): |
Year | Common Shares | Total Market Value of Common Shares(8) | Minimum Share Ownership Required(7) | |||||||
2006 | 50,000 | $680,000 | 20,000 | |||||||
2005 | 7,000 | $63,630 | ||||||||
Options Held: |
Date Granted | Expiry Date | Number | Vested/ | Exercise | Total | Value of | ||||||
Granted | Unvested | Price(9) | Unexercised | Unexercised Options(10) | ||||||||
May 12, 2006 | May 12, 2011 | 25,000 | NIL/ 25,000(15) | $10.56 | 25,000 | $76,000 | ||||||
Mar. 11, 2005 | Mar. 11, 2010 | 25,000 | 25,000/ NIL | $10.51 | 25,000 | $77,250 |
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West Vancouver, British
Columbia, Canada
Age: 65
Director Since: 2006
Independent
E-Comm’s board of directors from 2003 to 2006 and as Chair of their audit committee from 2001 to 2004. From 1992 to 2000, he was a director of the Vancouver General Hospital (Audit Committee Chair: 1993-4) and the Vancouver Hospital and Health Sciences Centre (Chair: 1995-8).
Principal Occupation, Business or Employment(1) | ||||||||||
Independent Financial Consultant |
Board/Committee Membership:(5) | 2006 Attendance: | Other Public Company Board Membership: | |||||||||
Company: | Since: | ||||||||||
Board of Directors Audit Committee Corporate Governance & Nominating Committee Compensation & Benefits Committee Non-Management Directors | 4 of 4 2 of 2 1 of 1 2 of 2 2 of 2 | 100% 100% 100% 100% 100% | Seaspan Corporation (NYSE) (Chair of Audit Committee since 2005) | 2005 | |||||||
Common Shares Beneficially Owned, Controlled or Directed(1) (2): |
Year | Common Shares | Total Market Value of Common Shares(8) | Minimum Share Ownership Required(7) | |||||||
2006 | 5,000 | $68,000 | 20,000 | |||||||
Options Held: |
Date Granted | Expiry Date | Number | Vested/ | Exercise | Total | Value of | ||||||
Granted | Unvested | Price(9) | Unexercised | Unexercised Options(10) | ||||||||
May 12, 2006 | May 12, 2011 | 25,000 | NIL/ 25,000(15) | $10.56 | 25,000 | $76,000 |
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London, England, United
Kingdom
Age: 45
Director Since: nominee
Non-Independent(6)
Principal Occupation, Business or Employment | ||||||||||
Chief Executive, Rio Tinto Copper (July 2006-present); prior thereto, President and CEO of Rio Tinto America (October 2002 to July 2006) |
Board/Committee Membership: | Attendance: | Other Public Company Board Membership: | |||||||||
Company | Since | ||||||||||
N/A | N/A | N/A | N/A | ||||||||
Common Shares Beneficially Owned, Controlled or Directed(1) (2): |
Common Shares | Total Market Value of Common Shares(8) | |
NIL | NIL | |
Options Held: |
Date Granted | Expiry Date | Number | Vested/ | Exercise | Total | Value of | ||||||
Granted | Unvested | Price(9) | Unexercised | Unexercised Options(10) | ||||||||
N/A | N/A | N/A | N/A | N/A | N/A | N/A |
(1) | The information as to principal occupation, business or employment and shares beneficially owned, controlled or directed by a nominee is not within the knowledge of the management of the Corporation and has been furnished by the nominee. | |
(2) | Does not include unissued common shares issuable upon the exercise of incentive stock options. | |
(3) | Mr. Flood served as Deputy Chairman of the Corporation and a member of management until February 15, 2007 and is accordingly considered to be “non-independent”. | |
(4) | On January 2, 2007, Mr. Balloch qualified as an “independent” director under the applicable standards of the CSA Corporate Governance Guidelines, the NYSE Corporate Governance Rules and the NASDAQ Corporate Governance Rules. He became a member of each of the Corporate Governance & Nominating Committee and the Compensation & Benefits Committee on January 12, 2007. | |
(5) | Mr. Korbin joined the Board of Directors and the Audit Committee on May 12, 2006. He became a member of each of the Corporate Governance & Nominating Committee and the Compensation & Benefits Committee on August 11, 2006. | |
(6) | Mr. Clayton has been nominated for election as a Director by Rio Tinto pursuant to the provisions of the Rio Tinto Agreement (see “Voting Shares and Principal Holders”), and is considered to be “non-independent” by virtue of the significant investment of Rio Tinto in the Corporation. From November 10, 2006 until the date of the Meeting, Mr. Tom Albanese, the Director, Group Resources, and CEO designate of Rio Tinto, has served as a member of the Board pursuant to the provisions of the Rio Tinto Agreement. | |
(7) | All independent Directors are required to beneficially own and hold a minimum of 20,000 Common Shares for as long as they are a Director of the Corporation. These Common Shares may be held either directly in the name of the Director or indirectly in the name of a company controlled by the Director. All current independent Director nominees, except Mr. Korbin, have met this minimum shareholding requirement. Mr. Korbin, first elected in 2006, has until May 12, 2009 to meet the share ownership requirement. | |
(8) | The “Total Market Value of Common Shares” is calculated by multiplying the closing price of the common shares of the Corporation on the Toronto Stock Exchange on March 22, 2007 ($13.60) and March 22, 2006 ($9.09), respectively, by the number of common shares held by the nominee as at the end of the prior year. | |
(9) | The “Exercise Price” is the closing price of the Common Shares on the Toronto Stock Exchange on the day prior to the grant date. | |
(10) | The “Value of Unexercised Options” is calculated on the basis of the difference between the closing price of the common shares on the Toronto Stock Exchange on March 22, 2007 and the Exercise Price of the options multiplied by the number of unexercised options on March 22, 2007. | |
(11) | The 1,100,000 unvested options will vest as follows: 300,000 will vest on the earlier of December 31, 2007 or achievement of each of four additional defined development criteria for Oyu Tolgoi currently planned for 2007; 300,000 will vest on the earlier of December 31, 2008 or achievement of one of two additional defined development criteria currently planned for Oyu Tolgoi for 2008; and the remaining 500,000 will vest on the earlier of December 31, 2009 and achievement of each of two additional defined development criteria planned for Oyu Tolgoi for 2009. | |
(12) | The 220,000 unvested options will vest as follows: 60,000 to vest on the earlier of December 31, 2007 or achievement of each of four additional defined development criteria for Oyu Tolgoi currently planned for 2007; |
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60,000 will vest on the earlier of December 31, 2008 or achievement of one of two additional defined development criteria currently planned for Oyu Tolgoi for 2008; and the remaining 100,000 will vest on the earlier of December 31, 2009 and achievement of each of two additional defined development criteria planned for Oyu Tolgoi for 2009. | ||
(13) | 40,000 unvested options will vest on May 14, 2007 and the remaining 40,000 unvested options will vest on May 14, 2008. | |
(14) | 10,000 unvested options will vest on February 4, 2008. | |
(15) | 25,000 unvested options will vest on May 12, 2007. | |
(16) | 50,000 unvested options will vest on September 16, 2007. | |
(17) | The 165,000 unvested options will vest as follows: 45,000 will vest on the earlier of December 31, 2007 or achievement of each of four additional defined development criteria for Oyu Tolgoi currently planned for 2007; 45,000 will vest on the earlier of December 31, 2008 or achievement of one of two additional defined development criteria currently planned for Oyu Tolgoi for 2008; and the remaining 75,000 will vest on the earlier of December 31, 2009 and achievement of each of two additional defined development criteria planned for Oyu Tolgoi for 2009. | |
(18) | 10,000 unvested options will vest on June 12, 2007. |
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Board of Directors | 7 | |||
Audit Committee | 4 | |||
Compensation and Benefits Committee | 5 | |||
Corporate Governance and Nominating Committee | 4 | |||
Executive Committee | 2 |
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(Canadian $ in 000’s) | 2006 | 2005 | ||||||
Audit Fees (a) | $ | 1,588 | $ | 936 | ||||
Audit Related Fees (b) | $ | 246 | $ | 208 | ||||
Tax Fees (c) | $ | 700 | $ | 200 | ||||
All Other Fees | — | — | ||||||
Total | $ | 2,534 | $ | 1,343 | ||||
(a) | Fees for audit services billed or expected to be billed relating to fiscal 2006 and 2005 consisted of: |
• | audit of the Corporation’s annual statutory financial statements; | ||
• | reviews of the Corporation’s quarterly financial statements; and | ||
• | comfort letters, consents, and other services related to SEC and Canadian securities regulatory authorities’ matters. |
In addition, in 2006 fees were paid for services provided in connection with review pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and the required attestations relating to internal controls. | ||
(b) | Fees for audit-related services provided during fiscal 2006 and 2005 consisted of financial accounting and reporting consultations and audit of annual statutory financial statements of the Corporation’s subsidiaries. | |
(c) | Fees for tax services provided during fiscal 2006 and 2005 consisted of income tax compliance, and tax planning and advice relating to transactions and proposed transactions of the Corporation and its subsidiaries. | |
(d) | The Corporation did not incur fees for products and services provided by its principal accountant during fiscal 2006 and 2005 not disclosed in subsections (a), (b) or (c). |
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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 | 14,418,918 | 3.9 | % | |||||
Common Shares reserved for future issuance pursuant to unexercised options under Option Plan | 13,243,734 | 3.54 | % | |||||
Common Shares previously issued pursuant to Purchase Plan | 601,426 | 0.16 | % | |||||
Common Shares previously issued pursuant to Bonus Plan | 826,120 | 0.22 | % | |||||
Unissued Common Shares available for future awards under Bonus Plan | 572,454 | 0.15 | % | |||||
Unissued Common Shares available for future option grants under Option Plan and purchases under Purchase Plan | 2,337,348 | 0.63 | % | |||||
Maximum number of Common Shares available for issuance | 32,000,000 | 8.56 | % |
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(i) | an amendment to the aggregate number of Shares that may be reserved for issuance under the Incentive Plan; | ||
(ii) | an amendment to the aggregate maximum number of Common Shares issuable under the Share Bonus Plan component of the Incentive Plan; | ||
(iii) | an amendment to the limitations on the maximum number of Shares that may be reserved for issuance, or issued, to “Insiders” under the Incentive Plan; | ||
(iv) | an amendment that would reduce the exercise price, or extend the expiry date, of an outstanding Option granted to an “Insider” under the Incentive Plan; or | ||
(v) | an amendment to the amending provisions under the Incentive Plan. |
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Robert Friedland | ||||
Corporation Name | Ownership Interest | |||
Ivanhoe Energy Inc. | 20.24 | % | ||
Ivanhoe Capital Corporation | 100 | % | ||
Ivanhoe Nickel & Platinum Ltd. | 50 | % | ||
Jinshan Gold Mines Inc. | (1) | |||
Asia Gold Corp. | (1) |
(1) | Mr. Friedland owns 27.03% of the Common Shares of the Corporation, which owns 46.26 % of the common shares of Jinshan Gold Mines Inc. and 44.5% of the common shares of Asia Gold Corp. as at December 31, 2006. |
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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 | SARs | to Resale | LTIP | Compensation | |||||||||||||||||||||||||
Position | Year | (U.S.$) | (U.S.$) | (U.S.$) (1) | Granted | Restrictions | Payouts | (U.S.$) | ||||||||||||||||||||||||
John Macken(4) | 2006 | 578,875 | 500,000 | — | 2,000,000 | — | — | 24,473 | (3) | |||||||||||||||||||||||
(CEO & President) | 2005 | 457,400 | — | — | — | — | — | 8,200 | (2) | |||||||||||||||||||||||
2004 | 370,022 | — | — | 1,000,000 | — | — | 8,200 | (2) | ||||||||||||||||||||||||
Tony Giardini(5) | 2006 | 156,092 | 25,000 | — | 250,000 | — | — | 2,980 | (3) | |||||||||||||||||||||||
(CFO) | 2005 | n/a | n/a | n/a | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||
2004 | n/a | n/a | n/a | n/a | n/a | n/a | n/a | |||||||||||||||||||||||||
Robert Friedland(6) | 2006 | — | 1,000,000 | (7) | — | 2,000,000 | — | — | — | |||||||||||||||||||||||
(Chairman and | 2005 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
former CEO) | 2004 | — | — | — | — | — | — | 549 | (2) | |||||||||||||||||||||||
Peter Meredith(8) | 2006 | 262,592 | 1,000,000 | — | 400,000 | — | — | 13,481 | (3) | |||||||||||||||||||||||
(Deputy Chairman | 2005 | 216,402 | — | — | — | — | — | 11,315 | (3) | |||||||||||||||||||||||
& former CFO) | 2004 | 243,053 | — | — | 250,000 | — | — | 10,602 | (3) | |||||||||||||||||||||||
R. Edward Flood | 2006 | 275,000 | 150,000 | — | 300,000 | — | — | 4,215 | (2) | |||||||||||||||||||||||
(former Deputy | 2005 | 226,000 | — | — | — | — | — | 3,690 | (2) | |||||||||||||||||||||||
Chairman) | 2004 | 179,100 | — | — | — | — | — | 3,690 | (2) | |||||||||||||||||||||||
Steve Garcia(9) | 2006 | 300,000 | 100,000 | — | 250,000 | — | — | — | ||||||||||||||||||||||||
(Executive VP) | 2005 | 194,318 | — | — | 250,000 | — | — | — | ||||||||||||||||||||||||
2004 | n/a | n/a | n/a | n/a | n/a | n/a | n/a | |||||||||||||||||||||||||
Doug Kirwin | 2006 | 209,230 | — | 74,635 | (10) | 100,000 | — | — | 9,211 | (3) | ||||||||||||||||||||||
(Executive VP, | 2005 | 180,360 | — | 94,918 | (11) | — | — | — | 7,837 | (3) | ||||||||||||||||||||||
Exploration) | 2004 | 180,136 | — | 73,119 | (12) | 50,000 | — | — | 7,765 | (3) |
(1) | Perquisites and benefits do not exceed the lesser of Cdn.$50,000 and 10% of the total of the annual salary and bonus for any of the Named Executive Officers except where numbers are disclosed in this column. | |
(2) | Includes life insurance premiums. | |
(3) | Includes life insurance premiums and share purchase plan. | |
(4) | Mr. Macken became the Corporation’s Chief Executive Officer on May 12, 2006. | |
(5) | Mr. Giardini commenced employment in May 2006. | |
(6) | Mr. Friedland ceased being Chief Executive Officer of the Corporation on May 12, 2006. | |
(7) | Non-cash bonus paid by the issuance of 107,991 Common Shares. | |
(8) | Mr. Meredith was the Corporation’s Chief Financial Officer from May 20, 2004 to May 12, 2006. | |
(9) | Mr. Garcia commenced employment in May, 2005. | |
(10) | Represents housing allowance of $36,000 and children’s school fees of $41,035. |
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(11) | Represents housing allowance of $36,000 and children’s school fees of $58,918. | |
(12) | Represents housing allowance of $36,000 and children’s school fees of $37,119. |
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Percent of | Market Value of | |||||||||||||||||||
Securities | Total | Securities | ||||||||||||||||||
Under | Options/SARs | Underlying | ||||||||||||||||||
Options/SARs | Granted to | Exercise or Base | Options/SARs on | |||||||||||||||||
Granted | Employees in | Price | the Date of Grant | Expiration | ||||||||||||||||
Name | (#)(1) | Financial Year | (Cdn.$/Security) | (Cdn.$/Security) | Date | |||||||||||||||
Robert Friedland | 2,000,000 | (2) | 23.4 | % | $ | 9.73 | $ | 9.73 | March 27, 2013 | |||||||||||
John Macken | 2,000,000 | (2) | 23.4 | % | $ | 9.73 | $ | 9.73 | March 27, 2013 | |||||||||||
Peter Meredith | 400,000 | (2) | 4.68 | % | $ | 9.73 | $ | 9.73 | March 27, 2013 | |||||||||||
Tony Giardini | 250,000 | (2) | 2.92 | % | $ | 9.73 | $ | 9.73 | March 27, 2013 | |||||||||||
R. Edward Flood | 300,000 | (2) | 3.0 | % | $ | 9.73 | $ | 9.73 | March 27, 2013 | |||||||||||
Steve Garcia | 250,000 | (3) | 2.92 | % | $ | 9.73 | $ | 9.73 | March 27, 2013 | |||||||||||
Douglas Kirwin | 100,000 | (4) | 1.17 | % | $ | 7.93 | $ | 7.93 | May 23, 2011 |
(1) | The securities issued upon exercise of the options are common shares of the Corporation. | |
(2) | 20% vested on the earlier of December 31, 2006 or achievement of each of four defined development criteria for Oyu Tolgoi currently planned for 2006, 15% to vest on the earlier of December 31, 2007 or achievement of each of four additional defined development criteria for Oyu Tolgoi currently planned for 2007, 15% to vest on the earlier of December 31, 2008 or achievement of one of two additional defined development criteria currently planned for Oyu Tolgoi for 2008 and the remaining 25% to vest on the earlier of December 31, 2009 and achievement of each of two additional defined development criteria planned for Oyu Tolgoi for 2009. | |
(3) | 10,000 vested with the partial release of the Oyu Tolgoi project, 20,000 to vest upon the completion of a definitive estimate, 20,000 to vest when engineering 90% complete, 20,000 to vest when Shaft #1 complete, 40,000 to vest when overall project 75% complete, 20,000 to vest with first ore, 100,000 to vest with nameplate production, and 20,000 to vest with Hugo North feasibility. | |
(4) | At any time from the date of grant until the first anniversary of the date of grant, 20% of the options may be exercised. At any time during each of the next four years on anniversary of the date of grant an additional 20% of the securities may be vested per year until, in the fifth year of the option, 100% of the options will be exercisable. |
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Unexercised Options at | Value of Unexercised in the | |||||||
Securities | Aggregate | December 31, 2006(1) | Money Options at | |||||
Acquired on | Value | (Exercisable/ | December 31, 2006(1) | |||||
Exercise | Realized | Unexercisable) | (Exercisable/Unexercisable) | |||||
Name | (#) | (Cdn.$) | (#) | (Cdn.$) | ||||
Robert Friedland | NIL | NIL | 900,000/1,100,000 | $1,593,000/$1,947,000 | ||||
John Macken | NIL | NIL | 1,000,000/NIL | NIL/NIL | ||||
700,000/300,000 | $2,640,000/$1,116,000 | |||||||
900,000/1,100,000 | $1,593,000/$1,947,000 | |||||||
Peter Meredith | NIL | NIL | 30,000/20,000 | $114,300/$76,200 | ||||
120,000/80,000 | $396,000/$264,000 | |||||||
180,000/220,000 | $318,600/$389,400 | |||||||
Tony Giardini | NIL | NIL | 112,500/137,500 | $199,125/$243,375 | ||||
R. Edward Flood | 123,393(2) | $937,786.80 | NIL/NIL | NIL/NIL | ||||
Steve Garcia | NIL | NIL | 100,000/150,000 | $309,000/$463,500 | ||||
10,000/240,000 | $17,700/$424,800 | |||||||
Douglas Kirwin | 30,000 | $58,600 | NIL/10,000 | NIL/$38,100 | ||||
20,000 | $81,400 | NIL/80,000 | NIL/$285,600 |
(1) | The figures representing Exercisable/Unexercisable options do not include options that have vested since December 31, 2006 and the date of this Management Proxy Circular. | |
(2) | Mr. Flood exercised 150,000 stock options by way of the Corporation’s Share Appreciation Right and received 123,393 common shares. 26,607 common shares were returned to the Corporation’s treasury as payment. |
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Kjeld Thygesen
Robert Hanson
David Korbin
Howard Balloch (member since January 12, 2007)
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AUDIT / | ||||||||||||||||||||||||||||||||
CORPORATE | ||||||||||||||||||||||||||||||||
GOVERNANCE | ||||||||||||||||||||||||||||||||
AND | ||||||||||||||||||||||||||||||||
NOMINATING | ||||||||||||||||||||||||||||||||
COMPENSATION | ||||||||||||||||||||||||||||||||
AND BENFITS | BOARD | |||||||||||||||||||||||||||||||
INDEPENDENT | LEAD | COMMMITTEE | BOARD AND | AND COMMITTEE | TOTAL CASH FEES | |||||||||||||||||||||||||||
DIRECTOR | NON-MANAGEMENT | DIRECTOR | CHAIRPERSON | COMMITTEE IN- | CONFERENCE | PAID | ||||||||||||||||||||||||||
RETAINER | DIRECTOR’S FEES | RETAINER | RETAINERS | PERSON | CALLS | (Cdn.$) | ||||||||||||||||||||||||||
NAME | (Cdn.$) | (Cdn.$) | (Cdn.$) | (Cdn.$) | (Cdn.$) | (U.S.$) | (U.S.$) | |||||||||||||||||||||||||
Robert Friedland(1) | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
R. Edward Flood(1) | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
John Macken(1) | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Peter G. Meredith(1) | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
David Huberman | 15,000 | — | 60,000 | 30,000 | (4) | 13,200 | 7,800 | 118,200 | 7,800 | |||||||||||||||||||||||
John Weatherall | 15,000 | — | — | 25,000 | 12,000 | 6,600 | 52,000 | 6,600 | ||||||||||||||||||||||||
Kjeld Thygesen | 15,000 | — | — | — | 16,800 | 7,200 | 31,800 | 7,200 | ||||||||||||||||||||||||
Robert Hanson | 15,000 | — | — | — | 12,000 | 6,000 | 27,000 | 6,000 | ||||||||||||||||||||||||
Markus Faber | 15,000 | — | — | — | 12,000 | 1,800 | 27,000 | 1,800 | ||||||||||||||||||||||||
Howard Balloch(2) | — | 15,000 | — | — | 7,200 | 5,400 | 22,200 | 5,400 | ||||||||||||||||||||||||
David Korbin(3) | 10,000 | — | — | — | 7,200 | 4,800 | 17,200 | 4,800 | ||||||||||||||||||||||||
Tom Albanese | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
TOTAL | 85,000 | 15,000 | 60,000 | 55,000 | 80,400 | 39,600 | 295,400 | 39,600 |
(1) | Messrs. Friedland, Flood, Macken and Meredith were members of management in fiscal 2006 and did not receive compensation as directors of the Corporation. | |
(2) | In recognition of Mr. Balloch’s contributions as a non-management director during fiscal 2006, the Board, on the recommendation of the Compensation and Benefits Committee, approved the payment to Mr. Balloch of a 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 is payable annually to all non-management directors. | |
(3) | Mr. Bruk joined the Audit Committee on May 10, 2005. He retired from the Board on March 10, 2006. | |
(4) | Mr. Huberman receives a $15,000 retainer for being Chairman of the Corporate Governance & Nominating Committee and a $15,000 retainer for being Chairman of the Compensation & Benefits Committee. |
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Number of | Weighted-average | Number of Securities | ||||||||||
Securities to be | exercise price of | remaining available for | ||||||||||
issued upon | outstanding | future issuance under | ||||||||||
exercise of | options, warrants | equity compensation plans | ||||||||||
outstanding options, | and rights | (excluding securities | ||||||||||
Plan Category | warrants and rights | (Cdn.$) | reflecting in column (a)) | |||||||||
Equity compensation plans approved by securityholders | 13,644,434 | $ | 8.99 | 2,959,648 | ||||||||
Equity compensation plans not approved by shareholders | Nil | Nil | Nil | |||||||||
Total | 13,644,434 | $ | 8.99 | 2,959,648 |
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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. |
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; |
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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 Disclosure Controls and Procedures; | ||
viii. | instituted regular meetings of non-management Directors by teleconference between regularly scheduled Board meetings; | ||
ix. | published a Statement of Values and Responsibilities; | ||
x. | adopted a formal Code of Business Conduct and Ethics for the Corporation that governs the behaviour of directors, officers and employees; | ||
xi. | adopted formalized written position descriptions for the Chairman, Lead Director, chair of each Board committee. CEO and CFO, clearly defining their respective roles and responsibilities; | ||
xii. | adopted a whistleblower policy administered by an independent third party; and | ||
xiii. | formalized a process for assessing the effectiveness of the Board as a whole, the committees of the Board and the contribution of individual directors, on a regular basis. |
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Independent Director Nominees | Non-independent Director Nominees | |
David Huberman | Robert Friedland1 | |
John Weatherall | Edward Flood1 | |
Markus Faber | John Macken1 | |
Robert Hanson | Peter Meredith1 | |
Kjeld Thygesen | Bret Clayton2 | |
Howard Balloch | ||
David Korbin |
1 | Each of Messrs. Friedland, Flood, Macken and Meredith are “non-independent” director nominees in their capacities as senior officers or former senior officers of the Corporation and/or one or more of its subsidiaries and members or former members of management. | |
2 | Mr. Clayton, an executive officer of Rio Tinto Group, is considered to be a non-independent director nominee as a result of the material relationship between the Corporation and the Rio Tinto Group. |
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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; and |
(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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VICE PRESIDENT AND CORPORATE SECRETARY
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CORPORATE GOVERNANCE DISCLOSURE REQUIREMENT(1) | COMMENTS | |
1. Board of Directors (the “Board”) – (a) Disclose the identity of directors who are independent. | The Board has reviewed the independence of each Director on the basis of the definitions in section 1.4 of MI 52-110, as amended, and the applicable provisions of the NYSE Corporate Governance Rules and the NASDAQ Corporate Governance Rules. A Director is “independent” if he or she has no direct or indirect material relationship with the Corporation, including as a partner, shareholder or officer of an organization that has a relationship with the Corporation. A “material relationship” is one that would, or in the view of the Board could, be reasonably expected to interfere with the exercise of a Director’s independent judgment. The Board has determined, after reviewing the roles and relationships of each of the Directors, that 58% (7 out of 12) of the nominees proposed by management for election to the Board are independent from the Corporation. The following nominees have been affirmatively determined to be independent by the Board: | |
David Huberman | ||
John Weatherall | ||
Markus Faber | ||
Robert Hanson | ||
Kjeld Thygesen | ||
Howard Balloch | ||
David Korbin | ||
This determination was made on the basis that: | ||
(a) they (and their immediate family members) are not and have not been within the last three years an employee or executive officer of the Corporation; | ||
(b) they (and their spouse, minor child or step child) are not and have not been within the last three years a partner or employee of the 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 |
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CORPORATE GOVERNANCE DISCLOSURE REQUIREMENT(1) | COMMENTS | |
a current executive officer of a company that has made payments to, or received payments from, the Corporation for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of U.S.$1 million or 2% of such other company’s consolidated gross revenues; and | ||
(f) they are not a partner in, or a continuing shareholder or executive officer of any for-profit business organization to which the Corporation made, or from which the Corporation received payments (other than those arising solely from investments in the 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. | ||
In the case of Mr. Balloch, the Board considered an agreement for consulting services between the Corporation and a company beneficially owned by Mr. Balloch and his spouse and determined that payments pursuant to such agreement (which terminated in 2004) did not exceed U.S.$60,000 during any 12 month period in the last three years. Accordingly, Mr. Balloch has ceased to be disqualified as an “independent director” under the applicable per se standards of the CSA Corporate Governance Guidelines, the NYSE Corporate Governance Rules and the NASDAQ Corporate Governance Rules, and the Board has made the determination that Mr. Balloch is qualified to sit as an “independent director”. | ||
(b) Disclose the identity of directors who are not independent, and describe the basis for that determination. | The Board and Corporate Governance and Nominating Committee have determined, after reviewing the roles and relationships of each of the Directors, that the following five out of 12 nominees proposed by management for election to the Board are not ”independent” from the Corporation as defined in the CSA Corporate Governance Guidelines, the NYSE Corporate Governance Rules and the NASDAQ Corporate Governance Rules: | |
Robert M. Friedland: Executive Chairman | ||
Peter G. Meredith: Deputy Chairman | ||
John Macken: President and CEO | ||
R. Edward Flood | ||
Bret Clayton | ||
Messrs. Friedland, Meredith and Macken, as senior officers of the Corporation and/or one or more of its subsidiaries and members of management, are considered to be non-independent directors. | ||
Mr. Flood, as a senior officer of the Corporation and a member of management until February 15, 2007, is also considered to be a non-independent director. | ||
In the case of Mr. Bret Clayton, the Board noted his position as an executive officer of the Rio Tinto Group (“Rio Tinto”) and considered the relationship between Rio Tinto and the Corporation resulting from Rio Tinto’s significant investment in the Corporation, the terms and conditions of the investment agreement between Rio Tinto and the Corporation and the shareholders’ |
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CORPORATE GOVERNANCE DISCLOSURE REQUIREMENT(1) | COMMENTS | |
agreement between Rio Tinto and Mr. Robert Friedland, Executive Chairman of the Corporation, each dated October 18, 2006. The Board concluded that such relationship was a “material relationship” within the meaning of the applicable provisions of the CSA Corporate Governance Guidelines, the NYSE Corporate Governance Rules and the NASDAQ Corporate Governance Rules, and accordingly considers Mr. Clayton to be a non-independent nominee director. | ||
(c) Disclose whether or not a majority of the directors are independent. If a majority of directors are not independent, describe what the Board of Directors does to facilitate its exercise of independent judgment in carrying out its responsibilities. | 58% or seven of the 12 nominees proposed by management for election to the Board are “independent directors” as defined in the CSA Corporate Governance Guidelines, the NYSE Corporate Governance Rules and the NASDAQ Corporate Governance Rules. | |
The directors of the Corporation have reviewed the size of the Board and believe that the current Board size and composition results in a balanced representation on the Board among management, non-management directors and the Corporation’s major shareholders. 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. During 2006, two Directors were added to the Board. Mr. David Korbin, who is qualified to be an Audit Committee financial expert, joined the Board in May, 2006, and Mr. Tom Albanese, an executive officer of Rio Tinto, became a member of the Board in November, 2006. There are currently 12 Directors on the Board. The maximum number permitted under the Corporation’s articles of incorporation is 12. | ||
(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 next to the individual’s name under the heading “Election of Directors – Management Nominees” in this Circular. | |
(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 presence of one or more such persons. The Corporate Governance and Nominating Committee, in particular, provides a forum without management being present to receive any expression of concern from a director, including a concern regarding the independence of the Board from management. |
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CORPORATE GOVERNANCE DISCLOSURE REQUIREMENT(1) | COMMENTS | |
There were seven such Board meetings and four such meetings of each of the Corporate Governance and Nominating and Audit Committees and five such meetings of the Compensation and Benefits Committee held in 2006. | ||
In addition, between each regularly scheduled Board meeting, a meeting of non-management Directors, chaired by the Lead Director, is held by teleconference to update the non-management Directors on developments since the last Board meeting. Five such meetings were held in 2006. Mr. Peter Meredith, Deputy Chairman of the Corporation, has periodically been invited to attend these meetings in order to brief the non-management Directors on recent developments. | ||
The results of discussions of all Board committees, and of the meetings of non-management Directors, are communicated to the rest of the Board at its next scheduled meeting, or more promptly, if required, by the committee Chairs to the other Directors and members of management. | ||
(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 currently serves as Chairman of the Board of Directors. The Board is of the view that appropriate structures and procedures are in place to allow the Board to function independently of management while continuing to provide the Corporation with the benefit of having a Chairman of the Board with extensive experience and knowledge of the 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 and the Compensation and Benefits Committee, has served as the Corporation’s Lead Director since 2003. Mr. Huberman does not serve in a similar capacity with any other corporation. | ||
(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 seven meetings in the 2006 financial year and the Corporate Governance and Nominating Committee and the Audit Committee each met four times and the Compensation and Benefits Committee met five times during the year. A record of attendance by Director(s) at meetings of the Board and its Committees as well as the number of Board and Board Committee meetings held during the financial year ended December 31, 2006, is set out next to each individual’s name under the heading “Election of Directors – Management Nominees” in this Circular. |
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CORPORATE GOVERNANCE DISCLOSURE REQUIREMENT(1) | COMMENTS | |
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 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.ivanhoe-mines.com). A copy may also be obtained upon request to the Vice President and Corporate Secretary of the Corporation, Suite 654, 999 Canada Place, Vancouver, British Columbia V6C 3E1, telephone (604) 688-5755. | ||
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 has developed written position descriptions for the Chairman, Lead Director, the chair of each Board committee, CEO and CFO, clearly defining their respective roles and responsibilities. Such position descriptions were reviewed by the Corporate Governance and Nominating Committee and approved by the Board in November 2006 and will be subject to annual review by the Corporate Governance and Nominating Committee. | |
(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. | ||
4. Orientation and Continuing Education (a) Briefly describe what measures the Board takes to orient new members regarding: (i) the role of the Board, its committees and its directors, and (ii) the nature and operation of the issuer’s business | 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. | |
(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, at the Corporation’s expense. Directors are also encouraged to make site visits to the Corporation’s properties. |
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CORPORATE GOVERNANCE DISCLOSURE REQUIREMENT(1) | COMMENTS | |
5. Ethical Business Conduct – (a) Disclose whether or not the Board has adopted a written code for its directors, officers and employees. If the Board has adopted a written code: (i) disclose how a person or company may obtain a copy of the code; (ii) describe how the Board monitors compliance with its code, or if the Board does not monitor compliance, explain whether and how the Board satisfies itself regarding compliance with its code; and disclose how a person or company may obtain a copy of the code; (iii) provide a cross-reference to any material change report filed since the beginning of the 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 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.ivanhoe-mines.com). A copy may also be obtained, without charge, by request to the Vice President and Corporate Secretary, 654 – 999 Canada Place, Vancouver, British Columbia, Canada V6C 3E1, telephone to (604) 688-5755. | |
All Directors and employees are provided with a booklet containing the Corporation’s Code of Business Conduct and Ethics and Corporate Securities Trading Policy (which has been translated into other languages as required for use in the Corporation’s international operations) and are required to sign a written acknowledgement confirming that they have received and reviewed it. | ||
Corporate supervisors and employees are required to confirm, on an annual basis, that they have reviewed the Corporation’s Code of Business Conduct and Ethics as part of their annual performance appraisal. | ||
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. | ||
(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 to the Board by Directors and ensures that no Director will vote or participate in a discussion on a matter in respect of which such Director has a material interest. Committee Chairs perform the same function with respect to meetings of each Board committee. | |
(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. | |
The Corporation conducts education programs for its personnel dealing with matters of corporate ethics and best practices. | ||
During 2006 the Corporate Governance and Nominating Committee met with the Corporation’s CEO and CFO to discuss corporate ethics and best |
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CORPORATE GOVERNANCE DISCLOSURE REQUIREMENT(1) | COMMENTS | |
practices and were satisfied that they are a focus of the CEO, CFO and throughout the Corporation’s international operations. | ||
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, Faber, Korbin and Balloch all of whom are “independent directors” under the CSA Corporate Governance Guidelines, the NYSE Corporate Governance Rules and the NASDAQ Corporate Governance Rules. Mr. Huberman has been appointed as Chairman of the committee. The full Board determines, in light of the opportunities and risks facing the Corporation, what competencies, skills and personal qualities it should seek in new Board members in order to add value to the Corporation. Based on this framework, the Corporate Governance and Nominating Committee developed a skills matrix outlining the Corporation’s desired complement of Directors’ competencies, skills and characteristics. The Committee annually assesses the current competencies and characteristics represented on the Board and utilizes the matrix to determine the Board’s strengths and identify any gaps that need to be filled. This analysis assists the Committee in discharging its responsibility for approaching and proposing to the full Board new nominees to the Board, and for assessing directors on an ongoing basis. | |
The Corporate Governance and Nominating Committee has been given the responsibility for developing an evergreen list of potential nominees who the Committee feels would be appropriate to be asked to join the Board if, as and when there are vacancies pending and such persons are available to do so and who complement the current skills matrix. The Committee receives and reviews recommendations from Directors and members of management in determining whether to add the names of new candidates to the list, and has the authority to hire outside consultants to help to identify additional qualified candidates as required. | ||
The Corporation does not have a shareholder with the ability to exercise a majority of the votes for the election of the Board. However, the Chairman of the Corporation holds approximately 27.0% of the Corporation’s voting securities as at the date of this Circular and Rio Tinto, which is entitled to nominate a qualified individual or individuals for appointment or election to the Board in proportion to its shareholdings from time to time, holds approximately 9.92% of the Corporation’s voting securities at such date. The Corporation has a majority of directors who do not have an interest in or relationship with either the Corporation, its Chairman or Rio Tinto and, which fairly reflects the investment in the Corporation by shareholders other than the Chairman or Rio Tinto. | ||
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 |
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CORPORATE GOVERNANCE DISCLOSURE REQUIREMENT(1) | COMMENTS | |
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 charter of the Corporate Governance and Nominating Committee is available on the Corporation’s website (www.ivanhoe-mines.com). A copy may also be obtained upon request to the Corporate Secretary, 654 – 999 Canada Place, Vancouver, British Columbia, V6C 3E1, telephone (604) 688-5755. | ||
7. Compensation – (a) Describe the process by which the Board determines the compensation for the issuer’s directors and officers. | The Compensation and Benefits Committee has responsibility for recommending compensation for the Corporation’s senior executive officers to the Board. CEO compensation is approved by the Compensation and Benefits Committee. See “Report on Executive Compensation”. | |
The Compensation and Benefits Committee periodically reviews and makes recommendations to the Board regarding the adequacy and form of the compensation for non-management Directors to ensure that such compensation realistically reflects the responsibilities and risks involved in being an effective director, without compromising a Director’s independence. Directors who are executives of the Corporation receive no additional remuneration for their services as Directors. | ||
Effective May 1, 2007, all non-management directors will receive Cdn.$25,000 per annum for acting as such (prior thereto, Cdn$15,000). Mr. David Huberman receives an additional Cdn.$60,000 per annum for acting as the Lead Director of the Board. Mr. John Weatherall, as Chair of the Audit Committee, receives an additional Cdn.$25,000 per annum, for acting in such capacity. Commencing in 2006 each Chair of the Compensation and Benefits Committee and the Corporate Governance Committee receives an additional payment of Cdn.$15,000 per annum for acting as such. Effective March 9, 2007, non-management directors will also receive Cdn.$1,500 per in-person Board or Committee meeting attended (prior thereto, Cdn.$1,200) and U.S.$600 per Board or Committee conference call in which they participate. | ||
In addition to their cash compensation, non-executive directors (other than the nominee of Rio Tinto in accordance with Rio Tinto’s corporate policy) also receive a grant of 25,000 stock options per annum, such options having a five year term and fully vesting on the first anniversary of the date of the grant. | ||
(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 five Directors, all of whom have been affirmatively determined by the Board to be “independent directors” as defined by the CSA Corporate Governance Guidelines, the NYSE Corporate Governance Rules and the NASDAQ Corporate Governance Rules. | |
The members of the committee have diverse professional backgrounds, with prior experience in executive compensation. None of the members of the |
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CORPORATE GOVERNANCE DISCLOSURE REQUIREMENT(1) | COMMENTS | |
committee serve as CEOs or senior executive officers of other public corporations. | ||
(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 executive management and the directors 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 management and to determine any bonuses to be awarded. Commencing in 2007, the committee will conduct a formal review of the Corporation’s executive compensation on an annual basis and otherwise as required to satisfy itself and the Board that the Corporation’s compensation objectives are being met. | ||
The members of the Compensation and Benefits Committee are Messrs. Huberman (Chair), Thygesen, Hanson, Korbin and Balloch. Each member of the committee is an independent director for the purposes of the CSA Corporate Governance Guidelines, the NYSE Corporate Governance Rules and the NASDAQ Corporate Governance Rules. | ||
The charter of the Compensation and Benefits Committee is available on the Corporation’s website (www.ivanhoemines.com). A copy may also be obtained upon request to the Vice President and Corporate Secretary, Suite 654, 999 Canada Place, Vancouver, British Columbia V6C 3E1, telephone (604) 688-5755. | ||
(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 and Benefits Committee to prepare a director compensation report to assist the committee in the determination of independent director compensation. They were mandated to provide the review based on compensation levels provided to similarly sized international mining companies. Towers Perrin’s fee for its 2004 report was Cdn$19,821. Gurr Lane & Associates were retained in 2005 by the Compensation and Benefits Committee to prepare reports to assist the committee in developing a compensation strategy for the position of President and for the other executive and senior management positions. They were mandated to develop a justifiable compensation strategy which benchmarks such positions in terms of the competitive marketplace of similar-sized international mining companies and, where appropriate, larger operating mining companies. The proposals were intended to address salary, bonus and stock options. Gurr Lane & Associates’ fee for the reports was Cdn$39,697. | |
Towers Perrin were retained in 2006 by the Compensation and Benefits Committee to prepare a report on industry standards and best practices relating |
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CORPORATE GOVERNANCE DISCLOSURE REQUIREMENT(1) | COMMENTS | |
to “change of control” provisions in executive employment agreements. Towers Perrin’s fee for this report was Cdn.$10,788. | ||
None of the compensation consultants or advisors retained by the Compensation and Benefits Committee have performed other work for the Corporation. The Committee will require any such consultant or advisor to obtain its written approval prior to undertaking any work for management of the Corporation in order to protect the independence of such consultant or advisor. | ||
Recommendations of the Compensation and Benefits Committee to the Board are the responsibility of the committee and may reflect factors and considerations outside of surveys’ or consultants’ recommendations. | ||
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, in March 2005 the Board approved the establishment of an Executive Committee, consisting of Messrs. Friedland, Huberman, Meredith and Macken, to meet between formal meetings of the Board as necessary, with authority to approve expenditures of up to U.S.$10,000,000. | |
In November, 2006 the Board also approved the establishment of a Currency Advisory Committee, consisting of the Chairman of the Audit Committee and each of Mr. Peter Meredith (the Corporation’s Deputy Chairman) and its CFO, to make recommendations to the CFO on managing the Corporation’s currency exposures and to report to the Board on a quarterly basis. | ||
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, each of its committees, and the contribution of individual directors. | |
The Corporate Governance and Nominating Committee has, for the last three years, reviewed and approved a performance evaluation questionnaire that was forwarded to all of the members of the Board of Directors. This questionnaire covers a wide range of issues providing for quantitative ratings and subjective comments and recommendations in each area. In 2004, all Directors assessed the performance of the Board as a whole, its Committees, the Chair of each Committee, and the Lead Director. Issues addressed included Board composition, Board discussion and the relationship with the CEO, Director orientation and ongoing development, definition of roles and responsibilities, Board and Director evaluation, Director compensation, CEO and management succession, strategic planning and supporting plans, Committees, and the role of the Lead Director. Responses were tabulated and analyzed through independent Board governance consultants, without attribution of |
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CORPORATE GOVERNANCE DISCLOSURE REQUIREMENT(1) | COMMENTS | |
comments to individual directors, and a summary report was provided to the Lead Director, and through him, to the Committee and the full Board, with recommendations for improvement where required. In 2005, each Director assessed his own performance. Issues addressed included skills and experience, preparation, attendance and availability, communication and interaction, strategies and plans, business, corporation and industry knowledge, and an overall assessment. Responses were provided to the Lead Director. In 2006, a peer review was completed by the Directors. Each Director was asked to evaluate the contribution of each of the other Directors in the following areas: preparation and availability, accountability and transparency, contribution to strategic planning, oversight of performance and risk, contribution to supervision and relationship with management, contribution to Board internal effectiveness, and overall contribution of the individual Director. Each Director was also asked to comment on what additional skills, experience and information could benefit the Board and how they might be accessed, what were his and his fellow Directors most recent accomplishments for the Corporation, and what each Director sought to accomplish with his fellow Directors over the next 1-2 years at the Corporation. The Lead Director was provided with a report detailing the average (mean) ratings for all Directors of the portion of the questionnaire dealing with the contribution of individual Directors, and a summary of the responses to the portion dealing with overall Board contribution, on a non-attributed basis. Each individual Director was provided with a confidential ‘report card’ containing their peers’ assessment of their contribution. The Lead Director will meet with each Director to discuss individual and Board performance, and report the overall results to the Board of Directors. | ||
The Corporate Governance and Nominating Committee intends to continue these processes on a regular basis. | ||
These evaluations showed that the Board, its Committees, the Committee Chairs, the Lead Director and individual Directors were effectively fulfilling their responsibilities. |
(1) Reference is made to the items in Form 58-101F. |
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1. | the Amended and Restated Incentive Stock Option Plan of the Corporation (the “Amended and Restated Incentive Plan”), as described in, and attached as Schedule C to, the Management Information Circular of the Corporation dated March 22, 2007 which: |
(a) | increases the aggregate number of Common Shares which the Corporation may issue or reserve for issuance under the Incentive Plan, by 5,000,000 Common Shares, from 32,000,000 Common Shares to 37,000,000 Common Shares; | ||
(b) | increases the maximum number of Common Shares which the Corporation may issue under the Bonus Plan component of the Incentive Plan by 1,500,000 Common Shares, from 2,000,000 Common Shares to 3,500,000 Common Shares; and | ||
(c) | incorporates the amendments indicated in the form of Employees’ and Directors’ Equity Incentive Plan attached to this Circular as Schedule C; |
be and is hereby approved; and | ||
2. | any director or officer of the Corporation be and is hereby authorized, for and on behalf of the Corporation, to do all such things and execute all such documents and instruments as may be necessary or desirable to give effect to this resolution. |
-66-
MAY 11, 2007
(a) | ||
(b) | ||
(c) | ||
(d) | “Blackout Period”means a period in which the trading of Shares or other securities of the Company is restricted under the Company’s Corporate Disclosure, Confidentiality and Securities Trading Policy, or under an insider trading policy or other policy of the Company then in effect. | |
(e) | ||
(f) | ||
(g) | ||
(h) |
(i) | ||
(j) | ||
(k) | ||
(l) | ||
(m) | ||
(n) | ||
(o) | ||
(p) | ||
(q) | ||
(r) | ||
(s) | ||
(t) |
(a) | the name and address of each Participant; | ||
(b) | the Plan or Plans in which the Participant participates; | ||
(c) | any Participant’s Contributions; | ||
(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) | such amendment, suspension or termination is in accordance with applicable laws and the rules of any stock exchange on which the Shares are listed; | |
b) | no amendment to the Plan or to an Option granted hereunder will have the effect of impairing, derogating from or otherwise adversely affecting the terms of an Option which is outstanding at the time of such amendment without the written consent of the holder of such Option; | |
c) | the expiry date of an Option Period in respect of an Option shall not be more than ten years from the date of grant of an Option except as expressly provided in Section 2.5; | |
d) | the Directors shall obtain shareholder approval of: |
(i) | any amendment to the aggregate maximum number of Shares specified in subsection 3.2 (Share Bonus Plan); | ||
(ii) | any amendment to the aggregate number of Shares specified in subsection 5.1 (being the aggregate number of Shares that may be reserved for issuance under the Plan) other than pursuant to section 2.11; | ||
(iii) | any amendment to the limitations on Shares that may be reserved for issuance, or issued, to Insiders under subsections 5.1(a) (b) and (c); or | ||
(iv) | any amendment that would reduce the exercise price of an outstanding Option of an Insider other than pursuant to section 2.11; | ||
(v) | any amendment that would extend the expiry date of the Option Period in respect of any Option granted under the Plan to an Insider except as expressly contemplated in subsection 2.5; and |
(vi) | any amendment to the amending provision set out in Section 5.7 (Amendments to Plan). |
(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. |
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 | FORo | WITHHOLDo | ||||
R. EDWARD FLOOD | FORo | WITHHOLDo | ||||
KJELD THYGESEN | FORo | WITHHOLDo | ||||
ROBERT HANSON | FORo | WITHHOLDo | ||||
JOHN WEATHERALL | FORo | WITHHOLDo | ||||
MARKUS FABER | FORo | WITHHOLDo | ||||
JOHN MACKEN | FORo | WITHHOLDo | ||||
DAVID HUBERMAN | FORo | WITHHOLDo | ||||
HOWARD BALLOCH | FORo | WITHHOLDo | ||||
PETER MEREDITH | FORo | WITHHOLDo | ||||
DAVID KORBIN | FORo | WITHHOLDo | ||||
BRET CLAYTON | FORo | WITHHOLDo | ||||
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. | ||||||
FORo WITHHOLDo | ||||||
3. | EMPLOYEES’ AND DIRECTORS’ EQUITY INCENTIVE PLAN | |||||
To approve the amended and restated Employee’s and Directors’ Equity Incentive Plan as more particularly defined in the Management Proxy Circular. | ||||||
FORo AGAINSTo | ||||||
4. | AMENDMENT TO THE ARTICLES | |||||
To approve and confirm revisions to the By-Laws to allow for the Corporation’s shares to be issued electronically, without a certificate, as will be required for shares listed on a U.S. stock exchange. | ||||||
FORo AGAINSTo |
5. | To transact any other business as may properly come before the Meeting or at any adjournment thereof. | ||
6. | Upon any permitted amendment to or variation of any matter identified in the Notice of Meeting. |
(Please print name here)
Note: | If not dated, this proxy is deemed to be dated on the day sent by the Corporation. |
Name of Shareholder
Address of Shareholder
Interim Financial Statements | o | |
Annual Financial Statements | o |
Name | ||||
Address | ||||
Postal Code/Zip Code | ||||
I consent to the electronic delivery of the documents listed below that the Company elects to deliver to me electronically, all in accordance with the terms hereof. The consent granted herein will last until revoked by the Shareholder. | ||
1. | The following documents that are filed with securities regulators and mailed to other Shareholders will at the same time be delivered electronically to me (collectively referred to as the “Documents” or each of them as a “Document”): |
a) | annual reports including financial statements; | ||
b) | quarterly reports, including financial statements; | ||
c) | management information circulars; and | ||
d) | such other disclosure documents that the Company makes available by electronic means. |
2. | The Documents will be delivered to me by the Company by making them available for my viewing, downloading and/or saving on the Internet websitewww.ivanhoemines.com (the “Website”). | |
I must then go to “Investor Information” and “Financial Reports” and locate the document of interest for viewing. | ||
The Company will advise me by e-mail when the documents are available on the Website. | ||
3. | The viewing, downloading and/or saving of a Document requires me to use: |
a) | a computer with a 486/33 processor (or MacIntosh LC III) or higher with at least 16 megabytes of RAM (Random Access Memory) and Windows 3.1; | ||
b) | access to an Internet service provider; | ||
c) | the program Netscape Navigator 3.0 (or higher) or Microsoft Internet Explorer 3.0 (or higher); | ||
d) | the program Adobe Acrobat Reader 3.0 (or higher) to read the material; and | ||
e) | an electronic mail account to receive notification. |
For Shareholders without Adobe Acrobat Reader, a link will be provided to allow the downloading of this program. Accordingly, I acknowledge that I understand the above technical requirements and that I possess the technical ability and resources to receive electronic delivery in the manner outlined in this “Consent to Electronic Delivery of Documents”. | ||
4. | I acknowledge that I may receive at no cost a paper copy of any Document to be delivered if the Company cannot make electronic delivery available or if I contact the 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 | 1-416-643-5501 | |||
PO Box 7010 | ||||
Adelaide Street Postal Station | ||||
Toronto, ON | ||||
M5C 2W9 |
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.
March 21, 2007
Deloitte & Touche LLP | ||
2800 - 1055 Dunsmuir Street | ||
4 Bentall Centre | ||
P.O. Box 49279 | ||
Vancouver BC V7X 1P4 | ||
Canada | ||
Tel: 604-669-4466 | ||
Fax: 604-685-0395 | ||
www.deloitte.ca |
Ivanhoe Mines Ltd.
March 21, 2007
Consolidated Balance Sheets
(Stated in thousands of U.S. dollars)
December 31, | ||||||||
2006 | 2005 | |||||||
ASSETS | ||||||||
CURRENT | ||||||||
Cash and cash equivalents | $ | 363,572 | $ | 101,681 | ||||
Accounts receivable (Note 5) | 24,739 | 33,350 | ||||||
Inventories | 5,313 | 3,547 | ||||||
Prepaid expenses | 7,941 | 6,353 | ||||||
Other current assets (Note 6) | 286 | 3,286 | ||||||
TOTAL CURRENT ASSETS | 401,851 | 148,217 | ||||||
INVESTMENT HELD FOR SALE (Note 4) | 157,738 | 139,874 | ||||||
LONG-TERM INVESTMENTS (Note 7) | 36,879 | 18,417 | ||||||
PROPERTY, PLANT AND EQUIPMENT (Note 8) | 101,994 | 85,706 | ||||||
DEFERRED INCOME TAXES (Note 12) | 481 | 171 | ||||||
OTHER ASSETS (Note 9) | 4,216 | 4,394 | ||||||
TOTAL ASSETS | $ | 703,159 | $ | 396,779 | ||||
LIABILITIES | ||||||||
CURRENT | ||||||||
Accounts payable and accrued liabilities (Note 10) | $ | 37,201 | $ | 20,594 | ||||
TOTAL CURRENT LIABILITIES | 37,201 | 20,594 | ||||||
LOANS PAYABLE TO RELATED PARTIES (Note 11) | 5,088 | 5,088 | ||||||
DEFERRED INCOME TAXES (Note 12) | 660 | 315 | ||||||
ASSET RETIREMENT OBLIGATIONS (Note 13) | 6,353 | 6,231 | ||||||
TOTAL LIABILITIES | 49,302 | 32,228 | ||||||
MINORITY INTERESTS (Note 14) | — | 8,928 | ||||||
COMMITMENTS AND CONTINGENCIES (Note 20) | ||||||||
SHAREHOLDERS’ EQUITY | ||||||||
SHARE CAPITAL (Note 15) | ||||||||
Authorized | ||||||||
Unlimited number of preferred shares without par value | ||||||||
Unlimited number of common shares without par value | ||||||||
Issued and outstanding | ||||||||
373,463,637 (2005 - 315,900,668) common shares | 1,462,039 | 994,442 | ||||||
SHARE PURCHASE WARRANTS AND SHARE ISSUANCE COMMITMENT (Note 15 (b)) | 23,062 | — | ||||||
ADDITIONAL PAID-IN CAPITAL | 33,705 | 25,174 | ||||||
ACCUMULATED OTHER COMPREHENSIVE INCOME (Note 16) | 13,233 | 6,711 | ||||||
DEFICIT | (878,182 | ) | (670,704 | ) | ||||
TOTAL SHAREHOLDERS’ EQUITY | 653,857 | 355,623 | ||||||
TOTAL LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS’ EQUITY | $ | 703,159 | $ | 396,779 | ||||
/s/ J. Weatherall | /s/ D. Korbin | |||||
J. Weatherall, Director | D. Korbin, Director |
Consolidated Statements of Operations
(Stated in thousands of U.S. dollars, except for share and per share amounts)
Year ended December 31, | ||||||||
2006 | 2005 | |||||||
OPERATING EXPENSES | ||||||||
Exploration (Note 8 (b)) | $ | (212,955 | ) | $ | (133,286 | ) | ||
General and administrative | (28,170 | ) | (17,704 | ) | ||||
Accretion (Note 13) | (458 | ) | (354 | ) | ||||
Depreciation | (4,117 | ) | (2,558 | ) | ||||
Mining property care and maintenance | (4,421 | ) | (3,706 | ) | ||||
Gain on sale of other mineral property rights | 2,724 | — | ||||||
Write-down of carrying values of property, plant and equipment | (700 | ) | (609 | ) | ||||
OPERATING LOSS | (248,097 | ) | (158,217 | ) | ||||
OTHER INCOME (EXPENSES) | ||||||||
Share of income from investment held for sale (Note 4) | 18,471 | 23,036 | ||||||
Interest income | 8,187 | 3,421 | ||||||
Foreign exchange gains | 398 | 7,751 | ||||||
Share of loss of significantly influenced investees (Note 7 (a)) | (1,648 | ) | (2,651 | ) | ||||
Gain on sale of long-term investments (Note 7 (b) and (f)) | 2,724 | 115 | ||||||
Write-down of carrying value of long-term investment (Note 7 (e) and (f)) | (1,000 | ) | (1,438 | ) | ||||
LOSS BEFORE TAXES AND OTHER ITEMS | (220,965 | ) | (127,983 | ) | ||||
Provision for income taxes (Note 12) | (683 | ) | (433 | ) | ||||
Minority interests (Note 14) | 3,369 | 2,714 | ||||||
NET LOSS FROM CONTINUING OPERATIONS | (218,279 | ) | (125,702 | ) | ||||
NET INCOME AND GAIN ON SALE FROM | ||||||||
DISCONTINUED OPERATIONS (Note 3) | 19,622 | 35,916 | ||||||
NET LOSS | $ | (198,657 | ) | $ | (89,786 | ) | ||
BASIC AND DILUTED (LOSS) EARNINGS PER SHARE FROM | ||||||||
CONTINUING OPERATIONS | $ | (0.65 | ) | $ | (0.41 | ) | ||
DISCONTINUED OPERATIONS | 0.06 | 0.12 | ||||||
$ | (0.59 | ) | $ | (0.29 | ) | |||
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING (000’s) | 336,128 | 305,160 | ||||||
Consolidated Statements of Shareholders’ Equity
Share Purchase | Accumulated | |||||||||||||||||||||||||||
Share Capital | Warrants and | Additional | Other | |||||||||||||||||||||||||
Number | Share Issuance | Paid-In | Comprehensive | |||||||||||||||||||||||||
of Shares | Amount | Commitment | Capital | Income | Deficit | Total | ||||||||||||||||||||||
Balances, December 31, 2004 | 292,870,998 | $ | 868,606 | $ | — | $ | 16,283 | $ | 2,879 | $ | (580,918 | ) | $ | 306,850 | ||||||||||||||
Net loss | — | — | — | — | — | (89,786 | ) | (89,786 | ) | |||||||||||||||||||
Other comprehensive income (Note 16): | — | — | — | — | 3,832 | — | 3,832 | |||||||||||||||||||||
Comprehensive loss | — | — | — | — | — | — | (85,954 | ) | ||||||||||||||||||||
Shares issued for: | ||||||||||||||||||||||||||||
Private placement, net of issue costs of $6,095 | 19,750,000 | 119,801 | — | — | — | — | 119,801 | |||||||||||||||||||||
Exercise of stock options | 3,213,172 | 5,555 | — | (1,835 | ) | — | — | 3,720 | ||||||||||||||||||||
Property, plant and equipment purchased (Note 18 (b)) | 50,000 | 362 | — | — | — | — | 362 | |||||||||||||||||||||
Share purchase plan | 16,498 | 118 | — | — | — | — | 118 | |||||||||||||||||||||
Dilution gain on issuance of shares by a subsidiary | — | — | — | 3,012 | — | — | 3,012 | |||||||||||||||||||||
Stock compensation charged to operations | — | — | — | 7,714 | — | — | 7,714 | |||||||||||||||||||||
Balances, December 31, 2005 | 315,900,668 | $ | 994,442 | $ | — | $ | 25,174 | $ | 6,711 | $ | (670,704 | ) | $ | 355,623 | ||||||||||||||
Net loss | — | — | — | — | — | (198,657 | ) | (198,657 | ) | |||||||||||||||||||
Other comprehensive income (Note 16): | — | — | — | — | 6,522 | — | 6,522 | |||||||||||||||||||||
Comprehensive loss | — | — | — | — | — | — | (192,135 | ) | ||||||||||||||||||||
Shares issued for: | ||||||||||||||||||||||||||||
Private placements, net of issue costs of $14,731 | 55,489,883 | 455,819 | — | — | — | — | 455,819 | |||||||||||||||||||||
Exercise of stock options | 1,921,498 | 10,488 | — | (3,475 | ) | — | — | 7,013 | ||||||||||||||||||||
Bonus shares | 124,657 | 1,097 | — | — | — | — | 1,097 | |||||||||||||||||||||
Share purchase plan | 26,931 | 193 | — | — | — | — | 193 | |||||||||||||||||||||
Share purchase warrants and share issuance | ||||||||||||||||||||||||||||
commitment (Note 15 (b)) | — | — | 23,062 | (14,240 | ) | — | (8,821 | ) | 1 | |||||||||||||||||||
Dilution gain on issuance of shares by a subsidiary | — | — | �� | 6,288 | — | — | 6,288 | |||||||||||||||||||||
Stock compensation charged to operations | — | — | — | 19,958 | — | — | 19,958 | |||||||||||||||||||||
Balances, December 31, 2006 | 373,463,637 | $ | 1,462,039 | $ | 23,062 | $ | 33,705 | $ | 13,233 | $ | (878,182 | ) | $ | 653,857 | ||||||||||||||
Consolidated Statements of Cash Flows
(Stated in thousands of U.S. dollars)
Year ended December 31, | ||||||||
2006 | 2005 | |||||||
OPERATING ACTIVITIES | ||||||||
Net loss | $ | (198,657 | ) | $ | (89,786 | ) | ||
Net income and gain on sale from discontinued operations | (19,622 | ) | (35,916 | ) | ||||
Items not involving use of cash | ||||||||
Stock-based compensation | 19,958 | 7,714 | ||||||
Accretion expense | 458 | 354 | ||||||
Depreciation | 4,117 | 2,558 | ||||||
Gain on sale of other mineral property rights | (2,724 | ) | — | |||||
Write-down of carrying values of property, plant and equipment | 700 | 609 | ||||||
Share of income from investment held for sale, net of cash distribution | (18,471 | ) | (13,036 | ) | ||||
Unrealized foreign exchange gains | 108 | (7,691 | ) | |||||
Share of loss of significantly influenced investees | 1,648 | 2,651 | ||||||
Gain on sale of long-term investments | (2,724 | ) | (115 | ) | ||||
Write-down of carrying value of long-term investments | 1,000 | 1,438 | ||||||
Deferred income taxes | 13 | (15 | ) | |||||
Minority interests | (3,369 | ) | (2,714 | ) | ||||
Bonus shares | 1,097 | — | ||||||
Net change in non-cash operating working capital items (Note 18 (a)) | 5,789 | (1,756 | ) | |||||
Cash used in operating activities of continuing operations | (210,679 | ) | (135,705 | ) | ||||
Cash provided by operating activities of discontinued operations | — | 2,592 | ||||||
Cash used in operating activities | (210,679 | ) | (133,113 | ) | ||||
INVESTING ACTIVITIES | ||||||||
Proceeds from sale of discontinued operations | 34,674 | 15,000 | ||||||
Purchase of long-term investments | (2,452 | ) | (6,310 | ) | ||||
Purchase of subsidiary, net of cash acquired of $15,414 | — | 12,022 | ||||||
Proceeds from sale of other mineral property rights | 2,724 | — | ||||||
Proceeds from sale of long-term investments | 1,777 | 4,539 | ||||||
Cash reduction on commencement of equity accounting (Note 7 (a)) | (4,202 | ) | — | |||||
Expenditures on property, plant and equipment | (34,253 | ) | (32,180 | ) | ||||
Proceeds from (expenditures on) other assets | 222 | (794 | ) | |||||
Other | 494 | (2,007 | ) | |||||
Cash used in investing activities of continuing operations | (1,016 | ) | (9,730 | ) | ||||
Cash used in investing activities of discontinued operations | — | (502 | ) | |||||
Cash used in investing activities | (1,016 | ) | (10,232 | ) | ||||
FINANCING ACTIVITIES | ||||||||
Issue of share capital | 463,025 | 123,639 | ||||||
Minority interests’ investment in subsidiaries | 10,564 | 1,104 | ||||||
Cash provided by financing activities of continuing operations | 473,589 | 124,743 | ||||||
Cash used in financing activities of discontinued operations | — | (37 | ) | |||||
Cash provided by financing activities | 473,589 | 124,706 | ||||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH | (3 | ) | 7,842 | |||||
NET CASH INFLOW | 261,891 | (10,797 | ) | |||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 101,681 | 112,478 | ||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 363,572 | $ | 101,681 | ||||
CASH AND CASH EQUIVALENTS IS COMPRISED OF: | ||||||||
Cash on hand and demand deposits | $ | 32,179 | $ | 33,240 | ||||
Short-term money market instruments | 331,393 | 68,441 | ||||||
$ | 363,572 | $ | 101,681 | |||||
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
1. | NATURE OF OPERATIONS | |
Ivanhoe Mines Ltd. (the “Company”), together with its subsidiaries and joint venture (collectively referred to as “Ivanhoe Mines”), is an international mineral exploration and development company holding interests in and conducting operations on mineral resource properties principally located in Southeast and Central Asia and Australia. | ||
2. | SIGNIFICANT ACCOUNTING POLICIES | |
These consolidated financial statements have been prepared in accordance with United States of America generally accepted accounting principles (“U.S. GAAP”). In the case of the Company, U.S. GAAP differs in certain respects from accounting principles generally accepted in Canada (“Canadian GAAP”) as explained in Note 22. The significant accounting policies used in these consolidated financial statements are as follows: |
(a) | Principles of consolidation | ||
These consolidated financial statements include the accounts of the Company and all of its subsidiaries. The principal subsidiaries of the Company are Ivanhoe Mines Mongolia Inc. (B.V.I.), Ivanhoe Mines China (B.V.I.), Ivanhoe Cloncurry Mines Pty Limited (Australia), and their respective subsidiaries, and Bakyrchik Mining Venture (Kazakhstan) (70% owned) (“BMV”). | |||
Jinshan Gold Mines Inc. (B.C., Canada) (“Jinshan”) became a subsidiary of the Company in December 2005 and ceased being a subsidiary in August 2006. From September 1, 2006 it has been accounted for as an equity investment (Note 7 (a)). At December 31, 2006, Ivanhoe Mines owns 46% of Jinshan. | |||
Ivanhoe Mines’ investment in Asia Gold Corp. (“Asia Gold”) (B.C., Canada) (45% owned) remains consolidated at December 2006 due to Ivanhoe Mines having control over the operating, financing and strategic decisions of Asia Gold. | |||
Ivanhoe Mines’ investment in Myanmar Ivanhoe Copper Company Limited (“JVCo”) (Myanmar) (50% owned), which is subject to joint control, is accounted for using the equity method (Note 4). | |||
All intercompany transactions and balances have been eliminated, where appropriate. | |||
Variable Interest Entities (“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. |
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
(b) | Measurement uncertainties | ||
Generally accepted accounting principles require management to make assumptions and estimates that affect the reported amounts and other disclosures in these consolidated financial statements. Actual results may differ from those estimates. | |||
Significant estimates used in the preparation of these consolidated financial statements include, among other things, the recoverability of accounts receivable and investments, the proven and probable ore reserves, the estimated recoverable tonnes of ore from each mine area, the estimated net realizable value of inventories, the provision for income taxes and composition of deferred income tax assets and deferred income tax liabilities, the expected economic lives of and the estimated future operating results and net cash flows from property, plant and equipment, stock-based compensation, estimated fair value of share purchase warrants, estimated fair value of share issuance commitment, and the anticipated costs and timing of asset retirement obligations. | |||
(c) | Foreign currencies | ||
The Company considers the U.S. dollar to be its functional currency as it is the currency of the primary economic environment in which the Company and its subsidiaries operate. Accordingly, monetary assets and liabilities denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect at the balance sheet date and non-monetary assets and liabilities are translated at the exchange rates in effect at the time of acquisition or issue. Revenues and expenses are translated at rates approximating the exchange rates in effect at the time of the transactions. All exchange gains and losses are included in operations. | |||
(d) | Cash and cash equivalents | ||
Cash and cash equivalents include short-term money market instruments with terms to maturity, at the date of acquisition, not exceeding 90 days. | |||
(e) | Inventories | ||
Mine stores and supplies are valued at the lower of the weighted average cost, less allowances for obsolescence, and replacement cost. |
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
(f) | Long-term investments | ||
Long-term investments in companies in which Ivanhoe Mines has voting interests of 20% to 50%, or where Ivanhoe Mines has the ability to exercise significant influence, are accounted for using the equity method. Under this method, Ivanhoe Mines’ share of the investees’ earnings and losses is included in operations and its investments therein are adjusted by a like amount. Dividends received are credited to the investment accounts. | |||
The other long-term investments are classified as “available-for-sale” investments. Unrealized gains and losses on these investments are recorded in accumulated other comprehensive income as a separate component of shareholders’ equity, unless the declines in market value are judged to be other than temporary, in which case the losses are recognized in income in the period. Realized gains and losses from the sale of these investments are included in income in the period. | |||
(g) | Exploration and development | ||
All direct costs related to the acquisition of mineral property interests are capitalized in the period incurred. | |||
Generally, exploration costs are charged to operations in the period incurred until such time as it has been determined that a property has economically recoverable reserves, in which case subsequent exploration costs and the costs incurred to develop a property are capitalized. Exploration costs include value-added taxes incurred in foreign jurisdictions when recoverability of those taxes is uncertain. | |||
Certain costs incurred constructing surface assets for an exploration shaft were capitalized (Note 8). These surface assets included the shaft head frame, control room, hoisting equipment and ancillary facilities. The Company determined that these costs met the definition of an asset and that they were recoverable through salvage value or transfer of the assets to other locations. These costs were tested for impairment using estimated future cash flows based on reserves and resources beyond proven and probable reserves, in accordance with accounting policy Note 2(h) for property, plant and equipment. |
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. |
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
(i) | Stripping costs | ||
Stripping costs incurred during the production phase of a mine are variable production costs that are included in the costs of inventory produced during the period that the stripping costs are incurred. | |||
(j) | Asset retirement obligations | ||
Ivanhoe Mines recognizes liabilities for statutory, contractual or legal obligations associated with the retirement of property, plant and equipment, when those obligations result from the acquisition, construction, development or normal operation of the assets. Initially, a liability for an asset retirement obligation is recognized at its fair value in the period in which it is incurred. Upon initial recognition of the liability, the corresponding asset retirement cost is added to the carrying amount of that asset and the cost is amortized as an expense over the economic life of the related asset. Following the initial recognition of the asset retirement obligation, the carrying amount of the liability is increased for the passage of time and adjusted for changes to the amount or timing of the underlying cash flows needed to settle the obligation. | |||
(k) | Revenue recognition | ||
Revenue at JVCo (Note 4) from the sale of copper is recognized, net of related royalties and sales commissions, when: (i) persuasive evidence of an arrangement exists; (ii) the risks and rewards of ownership pass to the purchaser including delivery of the product; (iii) the selling price is fixed or determinable; and (iv) collectibility is reasonably assured. Revenue from copper cathode includes provisional pricing arrangements accounted for as embedded derivative instruments under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, as amended. | |||
JVCo sells its copper cathode with pricing based on the averaged London Metal Exchange Grade – A Copper Cash Settlement Price during the second calendar month following the contractual month of shipment. Revenues are recorded under these contracts at the time title passes to the buyer based on the forward price for the expected settlement period. These contracts provide for a provisional payment based upon provisional assays and the previous month’s average quoted copper price. JVCo’s provisionally priced sales contain an embedded derivative that, because it is closely related to the commodity sale, is not required to be accounted for separately from the host contract. At December 31, 2006 and 2005, JVCo had accrued a loss of $594,000 and a gain of $320,000, respectively, in accounts receivable and revenue in relation to the embedded derivative. |
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
(l) | Stock-based compensation | ||
The Company has an Employees’ and Directors’ Equity Incentive Plan which is disclosed in Note 15. On January 1, 2006, the Company adopted the provisions of SFAS No. 123(R), “Share-Based Payment”, on a modified prospective basis. Prior to January 1, 2006, the Company recorded compensation costs using the fair value based method in accordance with SFAS No. 123, “Accounting for Stock-Based Compensation”. The adoption of SFAS No. 123(R) did not have an impact on the Company’s consolidated financial position and results of operations (Note 15). The fair value of stock options at the date of grant is amortized to operations, with an offsetting credit to additional paid-in capital, on a straight-line basis over the vesting period. If and when the stock options are ultimately exercised, the applicable amounts of additional paid-in capital are transferred to share capital. | |||
(m) | Deferred income taxes | ||
The Company computes income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes”. SFAS 109 requires that the provision for deferred income taxes be based on the liability method. Deferred taxes arise from the recognition of the tax consequences of temporary differences by applying statutory tax rates applicable to future years to differences between the financial 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 outstanding during the year. All stock options and share purchase warrants outstanding at each period end have been excluded from the weighted average share calculation. The effect of potentially dilutive stock options and share purchase warrants was antidilutive in years ending December 31, 2006 and 2005. | |||
Details of potentially dilutive shares excluded from the loss per share calculation due to antidilution: |
December 31, | ||||||||
2006 | 2005 | |||||||
Options | 13,644,434 | 7,416,700 | ||||||
Share purchase warrants | 92,629,044 | 576,000 | ||||||
Total potentially dilutive shares | 106,273,478 | 7,992,700 | ||||||
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
(o) | Segmented reporting | ||
The Company operates in a single reportable segment, being exploration and development of mineral properties. | |||
(p) | Comparative figures | ||
Certain of the comparative figures have been reclassified to conform with the presentation as at and for the year ended December 31, 2006. In particular, $6,121,000 of stock-based compensation charged to operations has been reclassified from general and administrative expenses to exploration expenses. | |||
(q) | Recent accounting pronouncements | ||
In February 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 155, “Accounting for Certain Hybrid Financial Instruments—an amendment of FASB Statements No. 133 and 140” (“SFAS 155”). This Statement amends FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, and FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS 155 resolves issues addressed in Statement 133 Implementation Issue No. D1, “Application of Statement 133 to Beneficial Interests in Securitized Financial Assets”. This Statement will be effective for financial instruments acquired or issued by the Company after the beginning of its 2007 fiscal year. The Company expects that the adoption of this Statement will not have a material effect on its financial condition or results of operations. | |||
In March 2006, the FASB issued Statement of Financial Accounting Standards No. 156, “Accounting for Servicing of Financial Assets — an amendment of FASB Statement No. 140” (“SFAS 156”). This Statement provides guidance addressing the recognition and measurement of separately recognized servicing assets and liabilities, common with mortgage securitization activities, and provides an approach to simplify efforts to obtain hedge accounting treatment. SFAS 156 is effective after the beginning of an entity’s fiscal year that begins after September 15, 2006. The Company expects that the adoption of this Statement will have no impact on its financial condition or results of operations. | |||
In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”). This interpretation clarifies the recognition threshold and measurement of a tax position taken or expected to be taken on a tax return, and requires expanded disclosure with respect to the uncertainty in income taxes. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company expects that the adoption of FIN 48 will not have a material effect on its financial condition or results of operations. |
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
(q) | Recent accounting pronouncements (Continued) | ||
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”). This Statement defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The Company expects that adoption of SFAS 157 will not have a material impact on its financial condition or results of operations. | |||
In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108 (“SAB 108”). SAB 108 provides guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of a materiality assessment. SAB 108 permits companies to record the cumulative effect of initially applying this approach in the first fiscal year ending after November 15, 2006 by recording necessary correcting adjustments to the carrying values of assets and liabilities as of the beginning of that year with the offsetting adjustment recorded to the opening balance of retained earnings. Adoption of SAB 108 did not have a material impact on the Company’s financial condition and results of operations. | |||
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – including an amendment of FASB Statement No. 115” (“SFAS 159”) which permits entities to choose to measure many financial instruments and certain other items at fair value. This statement is effective for fiscal periods beginning after November 15, 2007. The Company is currently evaluating the impact, if any, that adoption of SFAS 159 will have on its financial condition or results of operations. |
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
3. | DISCONTINUED OPERATIONS | |
In February 2005, the Company disposed of the Savage River Iron Ore Project (the “Project”). | ||
Ivanhoe Mines sold the Project for two initial payments totalling $21.5 million, plus a series of contingent, annual payments that commenced on March 31, 2006. The annual payments are based on annual iron ore pellet tonnes sold and an escalating price formula based on the prevailing annual Nibrasco/JSM pellet price. | ||
To date, Ivanhoe Mines has received $49.7 million in proceeds from the sale of the Project. The first initial payment of $15.0 million was received in 2005 and the second initial payment of $6.5 million was received in January 2006. In March 2006, Ivanhoe Mines received its first contingent annual payment of $28.0 million with an additional $0.2 million adjustment received in May 2006. This $28.2 million payment included $7.9 million in contingent income which was recognized in the first quarter of 2006 for tonnes sold during the quarter. | ||
At December 31, 2006, Ivanhoe Mines has accrued $11.7 million as receivable in relation to the tonnes of iron ore sold during the nine month period ended December 31, 2006. This amount will form part of the second contingent annual payment to be received in March 2007. | ||
The following table presents summarized financial information related to discontinued operations: |
Years ended December 31, | ||||||||
2006 | 2005(1) | |||||||
REVENUE | $ | — | $ | 18,031 | ||||
COST OF OPERATIONS | — | (11,965 | ) | |||||
DEPRECIATION AND DEPLETION | — | — | ||||||
GENERAL AND ADMINISTRATIVE | (195 | ) | ||||||
OPERATING PROFIT | — | 5,871 | ||||||
Interest expense | — | (203 | ) | |||||
INCOME BEFORE THE FOLLOWING | — | 5,668 | ||||||
Interest income | — | 16 | ||||||
Foreign exchange losses | — | (285 | ) | |||||
INCOME BEFORE INCOME TAXES | — | 5,399 | ||||||
Recovery of income and capital taxes | — | 7 | ||||||
NET INCOME | — | 5,406 | ||||||
Contingent income | 19,622 | 20,243 | ||||||
Gain on sale of Savage River | — | 10,267 | ||||||
NET INCOME AND GAIN ON SALE FROM DISCONTINUED OPERATIONS | $ | 19,622 | $ | 35,916 | ||||
(1) | Net income for the year ended December 31, 2005, includes only two months of results for the Project as it was sold on February 28, 2005. |
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
4. | INVESTMENT HELD FOR SALE | |
Ivanhoe Mines has a 50% interest in JVCo, a joint venture formed to develop open-pit copper mining operations located at Monywa in the Union of Myanmar. | ||
As part of the Rio Tinto Plc (“Rio Tinto”) strategic partnership that was announced in October 2006, Ivanhoe Mines agreed to divest all of its business interests and assets in Myanmar, including its indirect interest in the Monywa Copper Project. During February 2007 the Myanmar assets were transferred to an independent third-party trust (the “Trust”), pending their sale. The sole purpose of the Trust is to sell the assets to one or more arm’s-length third parties. Ivanhoe Mines’ only interest in the Trust is as an unsecured creditor under a promissory note — issued by the Trust on the transfer of the Myanmar assets — that is to be repaid once the assets are sold. | ||
In consideration for the Myanmar Assets, a company wholly-owned by the Trust (“Trust Holdco”) issued a promissory note to a subsidiary of the Company. The principal amount of the promissory note is equal to the cash proceeds to be realized upon the future sale of the Myanmar Assets, plus 50% of any cash generated by the Monywa Copper Project that is available for distribution to the project participants but remains undistributed at the time of any such sale, less certain contractually specified deductions, including any fees and expenses incurred in carrying out the sale. Ivanhoe Mines retains no ownership interest in the Myanmar Assets, directly or indirectly, except as a creditor of Trust Holdco pursuant to the promissory note. | ||
Trust Holdco’s mandate is to engage one or more qualified third parties (a “Sale Service Provider”) who will be responsible for identifying potential third-party purchasers, soliciting expressions of interest from such potential purchasers, negotiating sale terms and facilitating the sale of the Myanmar Assets on behalf of Trust Holdco. A Sale Service Provider who successfully facilitates the sale of the Myanmar Assets to a purchaser will be entitled to a fee equal to a percentage of the proceeds realized by Trust Holdco on the sale of the Myanmar Assets. | ||
Following the sale of the Myanmar Assets, Trust Holdco will use the proceeds to pay the Sale Service Provider’s fee and any other expenses or liabilities incurred in carrying out the sale. Trust Holdco then will use the remaining proceeds of sale, less contractually specified deductions, to repay the promissory note held by the Company’s subsidiary. Upon having retired the promissory note, the Trust will wind up Trust Holdco and distribute the remaining assets of the Trust, which are expected to consist solely of cash, to the designated beneficiaries of the Trust, whereupon the Trust will terminate. | ||
During 2006, JVCo continued the appeal process with the Myanmar tax authorities regarding the imposition of an 8% commercial tax on all export sales since April 1, 2003. JVCo believes that the tax provisions in the S&K mine joint venture agreement clearly exempt the mine’s copper exports from all tax of a commercial tax nature. In September 2006, JVCo received an unfavourable ruling from the tax authorities on its appeal and in October 2006, JVCo filed a second appeal. Notwithstanding the appeal, JVCo has paid the disputed commercial tax for the period April 2003 to March 2005 and has accrued in accounts payable at December 31, 2006, an amount of $20.1 million (net $10.0 million to Ivanhoe Mines) for the period April 1, 2005 to December 31, 2006. |
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
4. | INVESTMENT HELD FOR SALE (Continued) | |
During 2006, JVCo received a ruling from the Myanmar tax authorities regarding its 2003 and 2004 income tax returns. JVCo had filed its 2003 and 2004 returns on the basis that it would receive a 50% exemption on the 30% corporate tax rate; however, this did not occur. Notwithstanding an appeal of the corporate tax ruling, JVCo in 2006 paid the disputed additional tax and has increased its provision for income tax for the 2005 and 2006 tax years, which cover the period from April 1, 2004 to December 31, 2006. At December 31, 2006, JVCo’s accounts payable balance included $39.3 million (net $19.6 million to Ivanhoe Mines) in income tax for the period April 2005 to December 2006. | ||
Subsequent to year end, dividends of $30.0 million (net $15.0 million to Ivanhoe Mines) were paid by JVCo. | ||
The following table summarizes Ivanhoe Mines’ investment in JVCo: |
December 31, | ||||||||
2006 | 2005 | |||||||
Balance, at beginning of year | $ | 139,874 | $ | 126,911 | ||||
Share of income from JVCo | 18,471 | 23,036 | ||||||
Cash distribution | — | (10,000 | ) | |||||
Other | (607 | ) | (73 | ) | ||||
Balance, at end of year | $ | 157,738 | $ | 139,874 | ||||
The following table summarizes Ivanhoe Mines’ 50% share of the financial position of JVCo as at December 31, 2006 and 2005. |
December 31, | ||||||||
2006 | 2005 | |||||||
Cash and cash equivalents | $ | 57,462 | $ | 22,843 | ||||
Accounts receivable | 104 | 11,364 | ||||||
Inventories | 18,465 | 16,754 | ||||||
Prepaid expenses | 1,574 | 1,558 | ||||||
Property, plant and equipment | 148,772 | 128,405 | ||||||
Deferred income tax assets | 1,250 | 432 | ||||||
Other assets | 1,313 | 1,585 | ||||||
Accounts payable and accrued liabilities | (33,400 | ) | (14,784 | ) | ||||
Deferred income tax liabilities | (29,487 | ) | (11,321 | ) | ||||
Other liabilities | (8,315 | ) | (16,962 | ) | ||||
Share of Net Assets of JVCo | $ | 157,738 | $ | 139,874 | ||||
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
4. | INVESTMENT HELD FOR SALE (Continued) | |
The following table summarizes Ivanhoe Mines’ 50% share of the results of operations of JVCo for the years ending December 31, 2006 and 2005. |
Years ended December 31, | ||||||||
2006 | 2005 | |||||||
Revenue(1) | $ | 58,731 | $ | 54,584 | ||||
Cost of operations | (15,927 | ) | (17,768 | ) | ||||
Depreciation and depletion | (4,577 | ) | (5,657 | ) | ||||
General and administrative | (649 | ) | (484 | ) | ||||
Interest expense | (300 | ) | (489 | ) | ||||
OPERATING PROFIT | 37,278 | 30,186 | ||||||
Interest income | 985 | 374 | ||||||
Foreign exchange gains (losses) | 1,234 | (50 | ) | |||||
INCOME BEFORE TAXES | 39,497 | 30,510 | ||||||
Provision for income taxes | (21,026 | ) | (7,474 | ) | ||||
SHARE OF INCOME FROM JOINT VENTURE | $ | 18,471 | $ | 23,036 | ||||
Cash flows | ||||||||
From operating activities | $ | 55,278 | $ | 24,805 | ||||
For investing activities | (20,659 | ) | (4,561 | ) | ||||
For financing activities | — | (7,500 | ) | |||||
$ | 34,619 | $ | 12,744 | |||||
(1) | Revenue is net of commercial tax. |
5. | ACCOUNTS RECEIVABLE |
December 31, | ||||||||
2006 | 2005 | |||||||
Contingent income (Note 3) | $ | 11,691 | $ | 20,243 | ||||
Proceeds from sale of Project (Note 3) | — | 6,500 | ||||||
Sale of investment (Note 7(b)) | 1,324 | — | ||||||
Refundable taxes | 9,053 | 4,423 | ||||||
Related parties (Note 17) | 319 | 451 | ||||||
Accrued interest | 910 | 340 | ||||||
Other | 1,442 | 1,393 | ||||||
$ | 24,739 | $ | 33,350 | |||||
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
6. | OTHER CURRENT ASSETS |
December 31, | ||||||||
2006 | 2005 | |||||||
Loan receivable | $ | — | $ | 3,000 | ||||
Restricted cash | 286 | 286 | ||||||
$ | 286 | $ | 3,286 | |||||
In 2006, the Company received full repayment from Lepanto Consolidated Mining Company of the $3.0 million plus interest originally loaned to them in December 2004. | ||
7. | LONG-TERM INVESTMENTS |
December 31, 2006 | December 31, 2005 | |||||||||||||||||||||||||||||||
Equity | Cost/Equity | Unrealized | Fair/Equity | Equity | Cost/Equity | Unrealized | Fair/Equity | |||||||||||||||||||||||||
Interest | Basis | Gain | Value | Interest | Basis | Gain | Value | |||||||||||||||||||||||||
Investment in companies subject to significant influence: | ||||||||||||||||||||||||||||||||
Jinshan Gold Mines Inc. (a) | 46.3 | % | $ | 10,866 | N/a | $ | 10,866 | N/a | N/a | N/a | N/a | |||||||||||||||||||||
Investments “available-for-sale”: | ||||||||||||||||||||||||||||||||
Intec Ltd. (b) | 7.1 | % | $ | 1,062 | $ | 7,088 | $ | 8,150 | 12.5 | % | $ | 1,446 | $ | 1,331 | $ | 2,777 | ||||||||||||||||
Entrée Gold Inc. (c) | 14.7 | % | 10,156 | 6,044 | 16,200 | 15.0 | % | 10,157 | 5,380 | 15,537 | ||||||||||||||||||||||
Redox Diamonds Ltd. (d) | 13.8 | % | 1,451 | — | 1,451 | — | — | — | — | |||||||||||||||||||||||
Wind Energy Group Inc. (e) | 21.3 | % | — | — | — | — | — | — | — | |||||||||||||||||||||||
Asia Now Resources Corp. | 2.0 | % | 103 | 101 | 204 | 3.1 | % | 103 | — | 103 | ||||||||||||||||||||||
Other | — | 8 | — | 8 | — | — | — | — | ||||||||||||||||||||||||
$ | 12,780 | $ | 13,233 | $ | 26,013 | $ | 11,706 | $ | 6,711 | $ | 18,417 | |||||||||||||||||||||
$ | 23,646 | $ | 13,233 | $ | 36,879 | $ | 11,706 | $ | 6,711 | $ | 18,417 | |||||||||||||||||||||
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
7. | LONG-TERM INVESTMENTS (Continued) |
(a) | In November 2005, the Company and Jinshan restructured their participating arrangements to simplify Jinshan’s corporate structure. The Company transferred to Jinshan its entire participating interest in the 217 Gold Project, its interests in other joint venture arrangements between the parties, its existing contractual rights to participate in Jinshan projects in China and cash proceeds of $3,392,000 in exchange for Jinshan issuing Ivanhoe Mines 48,552,948 of its common shares. As a result of this transaction, in December 2005, Ivanhoe Mines ceased equity accounting for its investment in Jinshan as it held approximately 53% of the issued and outstanding common shares of Jinshan, thereby making Jinshan a controlled subsidiary, requiring consolidation. | ||
On August 31, 2006, Jinshan completed a private placement which diluted Ivanhoe Mines’ investment in Jinshan to 48.9%. As a result of this transaction, Ivanhoe Mines ceased consolidating Jinshan on August 31, 2006 and commenced equity accounting for its investment. During the year Ivanhoe Mines recorded a $1,648,000 (2005 — $2,651,000) equity loss on this investment. At December 31, 2006, the carrying value of the Company’s investment in Jinshan was lower than its share of the underlying book value of Jinshan’s net assets by approximately $1,476,000. This difference relates to unrecognized dilution gains associated with warrants issued by Jinshan during the year. These dilution gains will be recognized as the warrants are exercised. | |||
At December 31, 2006 the quoted market value of the Company’s investment in Jinshan was $88,250,000. | |||
(b) | During the fourth quarter of 2006, Ivanhoe Mines’ sold 14,391,586 shares of its investment in Intec Ltd. for $3,099,000. These transactions resulted in a gain on sale of $2,724,000 being recognized in operations. At December 31, 2006, $1,777,000 in proceeds had been received and $1,324,000 was included in accounts receivable (Note 5). | ||
(c) | During 2004, the Company purchased 4.6 million units of Entrée Gold Inc. (“Entrée”) at a cost of $3,846,000 (Cdn$4,600,000). Each unit consisted of one Entrée common share and one share purchase warrant exercisable until October 2006 to purchase an additional Entrée common share at a price of Cdn$1.10. In 2005, the Company exercised these share purchase warrants to acquire 4.6 million common shares of Entrée at a cost of $4,111,000 (Cdn$5,060,000). | ||
Also during 2005, the Company acquired 1.2 million units in Entrée at a cost of $2,199,000 (Cdn$2,718,000). Each unit consisted of one Entrée common share and two share purchase warrants. These share purchase warrants are outstanding at December 31, 2006, and if not exercised will expire in July 2007. | |||
(d) | During 2006, the Company purchased 8.3 million units of Redox Diamonds Ltd. (“Redox”) at a cost of $1.5 million. Each unit consists of one Redox common share and one Redox share option exercisable until April 2008 to purchase an additional Redox common share at a price ranging from Cdn$0.30 to Cdn$0.35. |
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
7. | LONG-TERM INVESTMENTS (Continued) |
(e) | During 2006, the Company purchased 2.0 million common shares of Wind Energy Group Inc. (“Wind Energy”), in two $0.5 million tranches, at a cost of $1.0 million. In September 2006, the Company recorded an impairment provision of $1.0 million against this investment based on an assessment of the underlying book value of Wind Energy’s net assets. This investment is not being accounted for using the equity method as the Company does not have significant influence over Wind Energy. | ||
(f) | In March 2005, the share price of Olympus Pacific Minerals Inc. (“Olympus”) deteriorated, with the result that the market value of Ivanhoe Mines’ investment in Olympus decreased significantly below carrying value. Accordingly, the Company recorded an other-than-temporary impairment of $1,438,000, reducing the carrying value of this investment to $4,424,000. | ||
In May 2005, Ivanhoe Mines sold its investment in Olympus, generating proceeds of $4,539,000. This transaction resulted in a gain on sale of $115,000 being recognized in operations. |
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
December 31, | |||||||||||||||||||||||||
2006 | 2005 | ||||||||||||||||||||||||
Accumulated | Accumulated | ||||||||||||||||||||||||
Depletion and | Depletion and | ||||||||||||||||||||||||
Depreciation, | Depreciation, | ||||||||||||||||||||||||
Including | Net Book | Including | Net Book | ||||||||||||||||||||||
Cost | Write-downs | Value | Cost | Write-downs | Value | ||||||||||||||||||||
Mining properties | |||||||||||||||||||||||||
Bakyrchik Mining Venture, Kazakhstan (a) | $ | 87,541 | $ | (87,541 | ) | $ | — | $ | 87,541 | $ | (87,541 | ) | $ | — | |||||||||||
Mining plant and equipment | |||||||||||||||||||||||||
Bakyrchik Mining Venture, Kazakhstan (a) | $ | 3,107 | $ | (3,107 | ) | $ | — | $ | 3,107 | $ | (3,107 | ) | $ | — | |||||||||||
Other mineral property interests | |||||||||||||||||||||||||
Oyu Tolgoi, Mongolia (b) | $ | 43,190 | $ | (6,251 | ) | $ | 36,939 | $ | 43,562 | $ | (6,244 | ) | $ | 37,318 | |||||||||||
Cloncurry, Australia (c) | 6,293 | (126 | ) | 6,167 | 6,293 | (126 | ) | 6,167 | |||||||||||||||||
Other exploration projects | 1,647 | (115 | ) | 1,532 | 1,530 | (115 | ) | 1,415 | |||||||||||||||||
$ | 51,130 | $ | (6,492 | ) | $ | 44,638 | $ | 51,385 | $ | (6,485 | ) | $ | 44,900 | ||||||||||||
Other capital assets | |||||||||||||||||||||||||
Oyu Tolgoi, Mongolia (b) | $ | 22,192 | $ | (6,377 | ) | $ | 15,815 | $ | 14,334 | $ | (3,326 | ) | $ | 11,008 | |||||||||||
Cloncurry, Australia (c) | 1,518 | (131 | ) | 1,387 | 1,833 | (174 | ) | 1,659 | |||||||||||||||||
Other exploration projects | 2,489 | (1,406 | ) | 1,083 | 2,961 | (2,181 | ) | 780 | |||||||||||||||||
$ | 26,199 | $ | (7,914 | ) | $ | 18,285 | $ | 19,128 | $ | (5,681 | ) | $ | 13,447 | ||||||||||||
Capital works in progress | |||||||||||||||||||||||||
Oyu Tolgoi, Mongolia (b) | $ | 34,295 | $ | — | $ | 34,295 | $ | 22,939 | $ | — | $ | 22,939 | |||||||||||||
Bakyrchik Mining Venture, Kazakhstan (a) | 4,776 | — | 4,776 | 4,420 | — | 4,420 | |||||||||||||||||||
$ | 39,071 | $ | — | $ | 39,071 | $ | 27,359 | $ | — | $ | 27,359 | ||||||||||||||
$ | 207,048 | $ | (105,054 | ) | $ | 101,994 | $ | 188,520 | $ | (102,814 | ) | $ | 85,706 | ||||||||||||
(a) | Ivanhoe Mines placed the Bakyrchik Mining Venture on a care and maintenance basis in prior years. | |
(b) | Ivanhoe Mines has a 100% interest in the Oyu Tolgoi copper-gold project located in Mongolia. In 2003, Ivanhoe Mines converted its four exploration licences on the project into 60-year mining licences, which are renewable for an additional 40 years. | |
Capital works in progress at December 31, 2006 consisted mainly of surface assets being constructed for the Shaft No. 1 at Oyu Tolgoi ($27.4 million (2005 - $21.4 million)). | ||
A significant portion of exploration expenses incurred during the year relate directly to the development of the Oyu Tolgoi project located in Mongolia. Included in exploration expenses are shaft sinking, engineering, and development costs that have been expensed and not capitalized. | ||
(c) | Ivanhoe Mines owns certain copper-gold and uranium mining and exploration leases in Queensland, Australia. |
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
9. | OTHER ASSETS |
December 31, | ||||||||
2006 | 2005 | |||||||
Advances to suppliers | $ | 1,333 | $ | 1,711 | ||||
Environmental bond (Queensland, Australia) | 2,883 | 2,683 | ||||||
$ | 4,216 | $ | 4,394 | |||||
10. | ACCOUNTS PAYABLE AND ACCRUED LIABILITIES |
December 31, | ||||||||
2006 | 2005 | |||||||
Accounts payable | $ | 33,101 | $ | 11,902 | ||||
Payroll and other employee related payables | 454 | 546 | ||||||
Accrued construction costs | 2,227 | 7,044 | ||||||
Amounts payable to related parties (Note 17) | 1,419 | 1,102 | ||||||
$ | 37,201 | $ | 20,594 | |||||
11. | LOANS PAYABLE TO RELATED PARTIES | |
These loans are payable to the Chairman of the Company or a company controlled by him. They are non-interest bearing, unsecured and repayable in U.S. dollars. Repayment of these loans has been postponed until Ivanhoe Mines receives an aggregate of $111.1 million from the sale of the Savage River Project. At December 31, 2006, $49.7 million has been received from the sale with a further $11.7 million accrued as receivable (Note 3 and 5). |
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
12. | INCOME TAXES | |
As referred to in Note 2(b), Ivanhoe Mines must make significant estimates in respect of its provision for income taxes and the composition of its deferred income tax assets and liabilities. Ivanhoe Mines’ operations are, in part, subject to foreign tax laws where interpretations, regulations and legislation are complex and continually changing. As a result, there are usually some tax matters in question that may, on resolution in the future, result in adjustments to the amount of deferred income tax assets and liabilities, and those adjustments may be material to Ivanhoe Mines’ financial position and results of operations. | ||
Ivanhoe Mines’ provision for income and capital taxes for continuing operations consists of the following: |
Years ended December 31, | ||||||||
2006 | 2005 | |||||||
Deferred income taxes | $ | 13 | $ | (15 | ) | |||
Capital taxes | 670 | 448 | ||||||
$ | 683 | $ | 433 | |||||
Deferred income tax assets and liabilities for continuing operations at December 31, 2006 and 2005 arise from the following: |
December 31, | ||||||||
2006 | 2005 | |||||||
Deferred income tax assets | ||||||||
Long-term investments | $ | 3,921 | $ | 279 | ||||
Loss carry-forwards | 208,965 | 133,562 | ||||||
Other | 14,379 | 10,107 | ||||||
227,265 | 143,948 | |||||||
Valuation allowance | (226,784 | ) | (143,777 | ) | ||||
Net deferred income tax assets | 481 | 171 | ||||||
Deferred income tax liabilities | ||||||||
Property, plant and equipment | 660 | 315 | ||||||
660 | 315 | |||||||
Deferred income tax liabilities, net | $ | 179 | $ | 144 | ||||
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
12. | INCOME TAXES (Continued) | |
A reconciliation of the provision for income and capital taxes for continuing operations is as follows: |
Years ended December 31, | ||||||||
2006 | 2005 | |||||||
Recovery of income taxes based on the combined | ||||||||
Canadian federal and provincial statutory tax rates of 34.1% in 2006 and 34.9% in 2005 applied to the loss before taxes and other items | $ | 75,393 | $ | 44,666 | ||||
(Deduct) add | ||||||||
Lower foreign tax rates | (17,253 | ) | (7,109 | ) | ||||
Tax benefit of losses not recognized | (136,278 | ) | (78,836 | ) | ||||
Change in valuation allowance for deferred income tax assets | 84,935 | 43,986 | ||||||
Capital taxes | (670 | ) | (448 | ) | ||||
Other, including non-deductible expenses | (6,810 | ) | (2,692 | ) | ||||
Provision for income and capital taxes | $ | (683 | ) | $ | (433 | ) | ||
At December 31, 2006, Ivanhoe Mines had the following unused tax losses from continuing operations, for which no deferred income tax assets had been recognized: |
Local | U.S. Dollar | Expiry | ||||||||||||
Currency | Equivalent (i) | Dates | ||||||||||||
Non-capital losses: | ||||||||||||||
Canada | Cdn. | $ | 127,632 | $ | 109,471 | 2007 to 2026 | ||||||||
Australia | A | $ | 17,101 | $ | 13,486 | (a) | ||||||||
Mongolia | Mongolian Tugrik | 551,908,121 | $ | 473,741 | (b) | |||||||||
Kazakhstan | Kazakhstan Tenge | 15,369,664 | $ | 121,212 | 2007 to 2013 | |||||||||
Capital losses: | ||||||||||||||
Canada | Cdn. | $ | 119,455 | $ | 102,457 | (c) |
(i) | Translated using the year-end exchange rate. | |
(a) | These losses are carried forward indefinitely, subject to continuity of ownership and business tests. | |
(b) | These losses are carried forward until production from a mine commences; thereafter, they can be amortized on a straight-line basis over a period of five years. | |
(c) | These losses are carried forward indefinitely for utilization against any future net realized capital gains. |
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
12. | INCOME TAXES (Continued) | |
Ivanhoe Mines also has deductible temporary differences and unused tax losses in certain other foreign jurisdictions that are not disclosed above, as it is currently highly unlikely that these items will be utilized. | ||
13. | ASSET RETIREMENT OBLIGATIONS |
December 31, | ||||||||
2006 | 2005 | |||||||
Balance, beginning of year | $ | 6,231 | $ | 5,267 | ||||
(Decrease) increase in obligations for: | ||||||||
Changes in estimates | (485 | ) | 651 | |||||
Foreign exchange | 149 | (41 | ) | |||||
Accretion expense | 458 | 354 | ||||||
Balance, end of year | $ | 6,353 | $ | 6,231 | ||||
The total undiscounted amount of estimated cash flows required to settle the obligations is $19,841,000 (2005 — $20,458,000), which has been discounted using credit adjusted risk free rates ranging from 7.6% to 8.2%. The majority of reclamation obligations are not expected to be paid for several years and will be funded from Ivanhoe Mines’ cash balances and environmental bonds restricted for the purpose of settling asset retirement obligations (Note 9). | ||
14. | MINORITY INTERESTS | |
At December 31, 2006 there were minority interests in BMV and Asia Gold. Jinshan ceased being consolidated on August 31, 2006 (Note 7(a)). | ||
Currently, losses applicable to the minority interests in BMV and Asia Gold are being allocated to Ivanhoe Mines since those losses exceed the minority interests in the net assets of BMV and Asia Gold. |
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
14. | MINORITY INTERESTS (Continued) |
Minority Interests | ||||||||||||||||
Asia Gold | Jinshan | BMV | Total | |||||||||||||
Balances, December 31, 2004 | $ | 3,713 | $ | — | $ | — | $ | 3,713 | ||||||||
Minority interests’ share of loss | (2,714 | ) | — | — | (2,714 | ) | ||||||||||
Increase in minority interest arising from share issuances by subsidiary | 582 | — | — | 582 | ||||||||||||
Initial interest arising from acquisition of Jinshan in December 2005 | — | 7,347 | — | 7,347 | ||||||||||||
Balances, December 31, 2005 | $ | 1,581 | $ | 7,347 | $ | — | $ | 8,928 | ||||||||
Minority interests’ share of loss | (2,063 | ) | (1,306 | ) | — | (3,369 | ) | |||||||||
Increase in minority interest arising from share issuances by subsidiary | 482 | 5,388 | — | 5,870 | ||||||||||||
Commencement of equity accounting for investment in Jinshan | — | (11,429 | ) | — | (11,429 | ) | ||||||||||
Balance, December 31, 2006 | $ | — | $ | — | $ | — | $ | — | ||||||||
15. | 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 to directors and employees of Ivanhoe Mines to acquire Common Shares of the Company at a price based on the weighted average trading price of the Common Shares for the five days preceding the date of the grant. Options vest over four years and have five year contractual terms unless otherwise determined from time to time by the Board of Directors, on the recommendation of the Compensation and Benefits Committee. The Share Option Plan also provides that these options may, upon approval of the Board of Directors, be converted into stock appreciation rights. | ||
(ii) | The Share Bonus Plan permits the Board of Directors of the Company to authorize the issuance, from time to time, of Common Shares of the Company to employees of the Company and its affiliates. | ||
(iii) | The Share Purchase Plan entitles each eligible employee of Ivanhoe Mines to contribute up to seven percent of each 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. |
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
15. | SHARE CAPITAL (Continued) |
(a) | Equity Incentive Plan (Continued) | ||
The Company is authorized to issue a maximum of 32,000,000 Common Shares pursuant to the Equity Incentive Plan. At December 31, 2006, an aggregate of 2,961,648 Common Shares were available for future grants of awards under the plan. | |||
Under SFAS No. 123 (R), the value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires the input of subjective assumptions, including the expected term of the option award and stock price volatility. The expected term of options granted is derived from historical data on employee exercise and post-vesting employment termination behaviour. Expected volatility is based on the historical volatility of the Company’s stock. These estimates involve inherent uncertainties and the application of management judgment. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those options expected to vest. As a result, if other assumptions had been used, the recorded stock-based compensation expense could have been materially different from that reported. | |||
The weighted average grant-date fair value of stock options granted during 2006 and 2005 was Cdn$4.31 and Cdn$4.95, respectively. The fair value of these options was determined using a Black-Scholes option pricing model, recognizing forfeitures as they occur, using the following weighted average assumptions: |
2006 | 2005 | |||||||
Risk-free interest rate | 4.12 | % | 3.76 | % | ||||
Expected life | 3.3 years | 5.0 years | ||||||
Expected volatility | 50 | % | 61 | % | ||||
Expected dividends | $ | Nil | $ | Nil |
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
15. | SHARE CAPITAL (Continued) |
(a) | Equity Incentive Plan (Continued) | ||
A summary of stock option activity and information concerning outstanding and exercisable options at December 31, 2006 is as follows: |
Options Outstanding | ||||||||||||
Options | Number of | Weighted | ||||||||||
Available | Common | Average | ||||||||||
for Grant | Shares | Exercise Price | ||||||||||
(Expressed in | ||||||||||||
Canadian dollars) | ||||||||||||
Balances, December 31, 2004 | 104,734 | 9,890,942 | $ | 5.02 | ||||||||
Increase in amount authorized | 9,000,000 | — | — | |||||||||
Options granted | (1,125,000 | ) | 1,125,000 | 8.86 | ||||||||
Options exercised | — | (3,256,542 | ) | 1.48 | ||||||||
Options cancelled | 342,700 | (342,700 | ) | 2.41 | ||||||||
Shares issued under share purchase plan | (16,498 | ) | — | — | ||||||||
Balances, December 31, 2005 | 8,305,936 | 7,416,700 | $ | 7.27 | ||||||||
Increase in amount authorized | 3,000,000 | — | — | |||||||||
Options granted | (8,519,000 | ) | 8,519,000 | 9.39 | ||||||||
Options exercised | — | (1,964,966 | ) | 4.28 | ||||||||
Options cancelled | 326,300 | (326,300 | ) | 8.80 | ||||||||
Bonus shares | (124,657 | ) | — | — | ||||||||
Shares issued under share purchase plan | (26,931 | ) | — | — | ||||||||
Balances, December 31, 2006 | 2,961,648 | 13,644,434 | $ | 8.99 | ||||||||
At December 31, 2006, the U.S. dollar equivalent of the weighted average exercise price was $7.70 (December 31, 2005 — $6.26). | |||
The total intrinsic value of options exercised during the years ended December 31, 2006 and 2005 was $9.1 million and $19.9 million, respectively. | |||
As at December 31, 2006, options vested and expected to vest totalled 13,644,434 (December 31, 2005 – 7,416,700) and had an aggregate intrinsic value of $29.4 million (December 31, 2005 — $6.9 million). |
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
15. | SHARE CAPITAL (Continued) |
(a) | Equity Incentive Plan (Continued) | ||
The following table summarizes information concerning outstanding and exercisable options at December 31, 2006: |
Options Outstanding | Options Exercisable | |||||||||||||||||||
Weighted | Weighted | Weighted | ||||||||||||||||||
Range of | Average | Average | Average | |||||||||||||||||
Exercise | Number | Remaining | Exercise Price | Number | Exercise Price | |||||||||||||||
Prices | Outstanding | Life (in years) | Per Share | Exercisable | Per Share | |||||||||||||||
(Expressed in | (Expressed in | (Expressed in | ||||||||||||||||||
Canadian | Canadian | Canadian | ||||||||||||||||||
dollars) | dollars) | dollars) | ||||||||||||||||||
$3.25 to $3.50 | 667,100 | 1.26 | $ | 3.29 | 607,100 | $ | 3.29 | |||||||||||||
$3.51 to $6.75 | 253,500 | 1.66 | 6.75 | 197,500 | 6.75 | |||||||||||||||
$6.76 to $7.69 | 1,433,334 | 3.41 | 7.23 | 467,400 | 7.29 | |||||||||||||||
$7.70 to $8.20 | 2,015,500 | 5.46 | 7.90 | 989,500 | 7.87 | |||||||||||||||
$8.21 to $8.99 | 940,000 | 3.09 | 8.65 | 370,000 | 8.66 | |||||||||||||||
$9.00 to $10.27 | 6,995,000 | 6.03 | 9.72 | 2,863,500 | 9.72 | |||||||||||||||
$10.28 to $12.70 | 1,340,000 | 6.21 | 12.22 | 1,055,500 | 12.60 | |||||||||||||||
13,644,434 | 5.17 | $ | 8.99 | 6,550,500 | $ | 8.98 | ||||||||||||||
As at December 31, 2006 there was $21.5 million of total unrecognized compensation cost related to unvested stock options. This cost is expected to be recognized over a weighted-average period of approximately 1.69 years. | |||
As at December 31, 2006 the aggregate intrinsic value for fully vested stock options was $14.1 million (December 31, 2005 — $5.9 million). | |||
(b) | Rio Tinto Placement | ||
On October 18, 2006, Ivanhoe Mines and Rio Tinto announced that they had reached an agreement to form a strategic partnership whereby Rio Tinto would invest in Ivanhoe Mines and form a joint Ivanhoe Mines — Rio Tinto Technical Committee, to engineer, construct and operate Ivanhoe Mines’s Oyu Tolgoi project in Mongolia. | |||
On October 27, 2006, Rio Tinto completed the first private placement tranche under the agreement consisting of approximately 37.1 million shares at a price of $8.18 per share, for proceeds totalling $303.4 million. | |||
The agreement provides for Rio Tinto to make investments in the equity of Ivanhoe Mines, under defined conditions, totalling approximately $1.5 billion. Ivanhoe Mines has agreed to use at least 90% of the proceeds received from Rio Tinto to finance the development of Oyu Tolgoi. |
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
15. | SHARE CAPITAL (Continued) |
(b) | Rio Tinto Placement (Continued) | ||
Rio Tinto will take up a second tranche private placement following the satisfactory conclusion of an Investment Agreement between Ivanhoe Mines and the Mongolian Government. Rio Tinto has the option to exercise the second tranche earlier. This second tranche consists of approximately 46.3 million shares at a subscription price of $8.38 per share, for proceeds totalling $388.0 million. | |||
In addition to the two private placements, Rio Tinto has been granted approximately 92.0 million warrants, divided into two series. The lives of these warrants are determined by the date an approved Investment Agreement for the Oyu Tolgoi Project is reached with the Mongolian government. The Warrant Determination Date within the warrant terms presented below is the earlier of the date an approved Investment Agreement is reached or October 27, 2009: | |||
The 46,026,522 Series A Warrants are non-transferable. Each warrant entitles Rio Tinto to purchase one Common Share of the Company at a price of: |
(i) | $8.38 during the period commencing November 30, 2006 and ending 180 days following the Warrant Determination Date; and | ||
(ii) | $8.54 during the period commencing 181 days after the Warrant Determination Date and ending 365 days after the Warrant Determination Date. |
The 46,026,522 Series B Warrants are non-transferable. Each warrant entitles Rio Tinto to purchase one Common Share of the Company at a price of: |
(i) | $8.38 during the period commencing November 30, 2006 and ending 180 days following the Warrant Determination Date; | ||
(ii) | $8.54 during the period commencing 181 days after the Warrant Determination Date and ending 365 days after the Warrant Determination Date; | ||
(iii) | $8.88 during the period commencing 366 days after the Warrant Determination Date and ending 545 days after the Warrant Determination Date; and | ||
(iv) | $9.02 during the period commencing 546 days after the Warrant Determination Date and ending 725 days after the Warrant Determination Date. |
Ivanhoe Mines has recorded an amount of $23.1 million in shareholders’ equity, attributable to the fair value of the Rio Tinto share purchase warrants and second tranche share issuance commitment. | |||
(c) | Share Purchase Warrants | ||
At December 31, 2006, the Company had 5,760,000 share purchase warrants outstanding that were issued in 2004. These warrants entitled the holder to acquire one-tenth of a common share of the Company at any time on or before February 15, 2007, at a price of $8.68 per common share. On February 13, 2007, 28,600 of the share purchase warrants were exercised with the remaining 5,731,400 warrants expiring unexercised. |
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
16. | ACCUMULATED OTHER COMPREHENSIVE INCOME |
December 31, | ||||||||
2006 | 2005 | |||||||
Balance, beginning of year | $ | 6,711 | $ | 2,879 | ||||
Other comprehensive income for the year: | ||||||||
Changes in fair value of long-term investments | 7,534 | 3,539 | ||||||
Reclassification for (gains) losses recorded in earnings | (1,012 | ) | 293 | |||||
Other comprehensive income before tax: | 6,522 | 3,832 | ||||||
Income tax recovery related to other comprehensive income | — | — | ||||||
Other comprehensive income, net of tax: | 6,522 | 3,832 | ||||||
Balance, end of year | $ | 13,233 | $ | 6,711 | ||||
17. | OTHER RELATED PARTY TRANSACTIONS | |
The following tables summarize related party expenses incurred by Ivanhoe Mines, primarily on a cost-recovery basis, with an officer of a subsidiary of Ivanhoe Mines, a company subject to significant influence by Ivanhoe Mines, a company affiliated with Ivanhoe Mines, or with companies related by way of directors or shareholders in common. The tables summarize the transactions with related parties and the types of expenditures incurred with related parties: |
Years ended December 31, | ||||||||
2006 | 2005 | |||||||
Global Mining Management Corporation (a) | $ | 7,015 | $ | 4,169 | ||||
Ivanhoe Capital Aviation LLC (b) | 3,840 | 3,421 | ||||||
Fognani & Faught, PLLC (c) | 1,394 | 823 | ||||||
Jinshan Gold Mines Inc. (d) | — | 1,122 | ||||||
Ivanhoe Capital Pte. Ltd. (e) | 78 | 60 | ||||||
Ivanhoe Capital Services Ltd. (f) | 743 | 755 | ||||||
Ivanhoe Energy Inc. (g) | — | 175 | ||||||
$ | 13,070 | $ | 10,525 | |||||
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
17. | OTHER RELATED PARTY TRANSACTIONS (Continued) |
Years ended December 31, | ||||||||
2006 | 2005 | |||||||
Exploration | $ | — | $ | 1,122 | ||||
Legal | 1,394 | 823 | ||||||
Office and administrative | 2,306 | 2,216 | ||||||
Salaries and benefits | 5,530 | 2,943 | ||||||
Travel (including aircraft rental) | 3,840 | 3,421 | ||||||
$ | 13,070 | $ | 10,525 | |||||
The above noted transactions were in the normal course of operations and were measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. | ||
Accounts receivable and accounts payable at December 31, 2006, included $319,000 and $1,419,000, respectively (December 31, 2005 — $451,000 and $1,102,000, respectively), which were due from/to a company under common control, a company affiliated with Ivanhoe Mines, or companies related by way of directors in common. |
(a) | Global Mining Management Corporation (“Global”) is a private company based in Vancouver owned equally by seven companies, one of which is Ivanhoe Mines. Global has a director in common with the Company. Global provides administration, accounting, and other office services to the Company on a cost-recovery basis. | ||
(b) | Ivanhoe Capital Aviation LLC (“Aviation”) is a private company 100% owned by the Company’s Chairman. Aviation operates an aircraft which is rented by the Company on a cost-recovery basis. | ||
(c) | An officer of a subsidiary of Ivanhoe Mines is a partner with Fognani & Faught, PLLC, a legal firm which provides legal services to Ivanhoe Mines. | ||
(d) | During 2005, the Company incurred exploration expenditures as part of several joint-venture agreements with Jinshan. | ||
(e) | Ivanhoe Capital Pte. Ltd. (“Ivanhoe Capital”) is a private company 100% owned by the Company’s Chairman. Ivanhoe Capital provides for administration, accounting, and other office services in Singapore and London on a cost-recovery basis. | ||
(f) | Ivanhoe Capital Services Ltd. (“Services”) is a private company 100% owned by the Company’s Chairman. Services provides for salaries associated with certain employees of the Company located in Singapore on a cost-recovery basis. | ||
(g) | Ivanhoe Energy Inc. (“Ivanhoe Energy”) is a public company in which the Company’s Chairman has a significant interest and holds the position of Deputy Chairman. During 2005 Ivanhoe Energy provided administration and other office services in Beijing on a cost-recovery basis. |
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
18. | CASH FLOW INFORMATION |
(a) | Net change in non-cash operating working capital items |
Years ended December 31, | ||||||||
2006 | 2005 | |||||||
(Increase) decrease in: | ||||||||
Accounts receivable | $ | (10,729 | ) | $ | 522 | |||
Inventories | (1,766 | ) | (1,355 | ) | ||||
Prepaid expenses | (2,025 | ) | (5,132 | ) | ||||
Other current assets | 3,000 | — | ||||||
Increase in: | ||||||||
Accounts payable and accrued liabilities | 17,309 | 4,209 | ||||||
$ | 5,789 | $ | (1,756 | ) | ||||
(b) | Supplementary information regarding other non-cash transactions | ||
The non-cash investing and financing activities relating to continuing operations not already disclosed in the Consolidated Statement of Shareholders’ Equity or the Consolidated Statements of Cash Flows were as follows: |
Years ended December 31, | |||||||||
2006 | 2005 | ||||||||
Investing activities: | |||||||||
Acquisition of property, plant and equipment | $ | — | $ | 440 |
(c) | Other supplementary information |
Years ended December 31, | |||||||||
2006 | 2005 | ||||||||
Interest paid | $ | — | $ | — | |||||
Income taxes paid | $ | 670 | $ | 448 | |||||
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
19. | SEGMENT DISCLOSURES | |
Ivanhoe Mines has one operating segment; its exploration division with projects located primarily in Mongolia. |
December 31, | ||||||||
2006 | 2005 | |||||||
Property, plant and equipment at the end of the year: | ||||||||
Mongolia | $ | 87,509 | $ | 71,666 | ||||
Inner Mongolia, China | 1,408 | 2,459 | ||||||
Australia | 7,555 | 6,767 | ||||||
Kazakhstan | 4,776 | 4,419 | ||||||
Canada | 203 | 131 | ||||||
Other | 543 | 264 | ||||||
$ | 101,994 | $ | 85,706 | |||||
20. | COMMITMENTS AND CONTINGENCIES | |
Ivanhoe Mines has, in the normal course of its business, entered into various long-term contracts, which include commitments for future operating payments under contracts for drilling, engineering, equipment rentals and other arrangements as follows: |
2007 | $ | 118,084 | ||
2008 | 837 | |||
2009 | 137 | |||
2010 onwards | 9 | |||
$ | 119,067 | |||
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
21. | DISCLOSURES REGARDING FINANCIAL INSTRUMENTS |
(a) | The estimated fair value of Ivanhoe Mines’ financial instruments was as follows: |
December 31, | ||||||||||||||||
2006 | 2005 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Amount | Value | Amount | Value | |||||||||||||
Cash | $ | 363,572 | $ | 363,572 | $ | 101,681 | $ | 101,681 | ||||||||
Accounts receivable | 24,739 | 24,739 | 33,350 | 33,350 | ||||||||||||
Other current assets | 286 | 286 | 3,286 | 3,286 | ||||||||||||
Long-term investments | 36,879 | 36,879 | 18,417 | 18,417 | ||||||||||||
Accounts payable and accrued liabilities | 37,201 | 37,201 | 20,594 | 20,594 | ||||||||||||
Loans payable to related parties | 5,088 | 4,106 | 5,088 | 3,733 |
The fair value of Ivanhoe Mines’ long-term investments was determined by reference to published market quotations, which may not be reflective of future values. | |||
The fair value of loans payable to related parties was estimated by discounting future payments to their present value. | |||
The fair value of Ivanhoe Mines’ remaining financial instruments was estimated to approximate their carrying value, due primarily to the immediate or short-term maturity of these financial instruments. | |||
(b) | Ivanhoe Mines is exposed to credit risk with respect to its accounts receivable. The significant concentrations of credit risk are situated in Mongolia and Australia. Ivanhoe Mines does not mitigate the balance of this risk in light of the credit worthiness of its major debtors. |
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
22. | DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES | |
As indicated in Note 2, these consolidated financial statements have been prepared in accordance with U.S. GAAP, which, in the case of the Company, conform in all material respects with Canadian GAAP, except as set forth below. | ||
Consolidated Balance Sheets |
December 31, | ||||||||
2006 | 2005 | |||||||
Total assets in accordance with U.S. GAAP | $ | 703,159 | $ | 396,779 | ||||
Reverse equity accounting for investment held for sale (a) | 71,202 | 43,067 | ||||||
Reversal of amortization of other mineral property interests (b) | 6,329 | 6,329 | ||||||
Adjustment to carrying value of long-term investments (c) | — | (6,711 | ) | |||||
Total assets in accordance with Canadian GAAP | $ | 780,690 | $ | 439,464 | ||||
Total liabilities in accordance with U.S. GAAP | $ | 49,302 | $ | 32,228 | ||||
Reverse equity accounting for investment held for sale (a) | 71,202 | 43,067 | ||||||
Income tax effect of U.S. GAAP adjustments for: | ||||||||
Reversal of amortization of other mineral property interests (b) | 882 | 882 | ||||||
Total liabilities in accordance with Canadian GAAP | $ | 121,386 | $ | 76,177 | ||||
Total minority interests in accordance with U.S. and Canadian GAAP | $ | — | $ | 8,928 | ||||
Total shareholders’ equity in accordance with U.S. GAAP | $ | 653,857 | $ | 355,623 | ||||
Decrease in the deficit for: | ||||||||
Reversal of amortization of other mineral property interests (b) | 5,447 | 5,447 | ||||||
Other comprehensive income (c) | — | (6,711 | ) | |||||
Total shareholders’ equity in accordance with Canadian GAAP | $ | 659,304 | $ | 354,359 | ||||
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
22. | DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Continued) | |
Consolidated Statements of Operations (in thousands, except for share and per share amounts) |
Years ended December 31, | ||||||||
2006 | 2005 | |||||||
Net (loss) from continuing operations in accordance with U.S. GAAP | $ | (218,279 | ) | $ | (125,702 | ) | ||
Dilution gain on issuance of shares by a subsidiary (d) | 6,288 | 3,012 | ||||||
Share of income from investment held for sale (a) | (18,471 | ) | (23,036 | ) | ||||
Net (loss) from continuing operations in accordance with Canadian GAAP | $ | (230,462 | ) | $ | (145,726 | ) | ||
Net income from discontinued operations in accordance with U.S. GAAP | $ | 19,622 | $ | 35,916 | ||||
Share of income from investment held for sale (a) | 18,471 | 23,036 | ||||||
Write-down of other mineral property interests (b) | — | (192 | ) | |||||
Gain on sale of Savage River Project (e) | — | (19,692 | ) | |||||
Net income from discontinued operations in accordance with Canadian GAAP | $ | 38,093 | $ | 39,068 | ||||
Net (loss) in accordance with Canadian GAAP | $ | (192,369 | ) | $ | (106,658 | ) | ||
Weighted-average number of shares outstanding under Canadian GAAP (in thousands) | 336,128 | 305,160 | ||||||
Basic and diluted (loss) earnings per share in accordance with Canadian GAAP from: | ||||||||
Continuing operations | $ | (0.68 | ) | $ | (0.48 | ) | ||
Discontinued operations | 0.11 | 0.13 | ||||||
$ | (0.57 | ) | $ | (0.35 | ) | |||
Under Canadian GAAP, the components of shareholders’ equity would be as follows: |
December 31, | ||||||||
2006 | 2005 | |||||||
Share capital | $ | 1,466,969 | $ | 999,372 | ||||
Share purchase warrants and share issuance commitment | 23,062 | — | ||||||
Additional paid-in capital | 33,792 | 17,952 | ||||||
Accumulated other comprehensive income (c) | 13,233 | — | ||||||
Deficit | (877,752 | ) | (662,965 | ) | ||||
$ | 659,304 | $ | 354,359 | |||||
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
22. | DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Continued) | |
Consolidated Statements of Cash Flows |
Years ended December 31, | ||||||||
2006 | 2005 | |||||||
Cash used in operating activities in accordance with U.S. GAAP | $ | (210,679 | ) | $ | (133,113 | ) | ||
Reverse equity accounting for investment held for sale (a) | 55,278 | 24,805 | ||||||
Cash used in operating activities in accordance with Canadian GAAP | (155,401 | ) | (108,308 | ) | ||||
Cash used in investing activities in accordance with U.S. GAAP | (1,016 | ) | (10,232 | ) | ||||
Reverse equity accounting for investment held for sale (a) | (20,659 | ) | (4,561 | ) | ||||
Cash used in investing activities in accordance with Canadian GAAP | (21,675 | ) | (14,793 | ) | ||||
Cash provided by financing activities in accordance with U.S. GAAP | 473,589 | 124,706 | ||||||
Reverse equity accounting for investment held for sale (a) | — | (7,500 | ) | |||||
Cash provided by financing activities in accordance with Canadian GAAP | 473,589 | 117,206 | ||||||
Effect of exchange rate changes on cash | (3 | ) | 7,842 | |||||
Net cash inflow in accordance with Canadian GAAP | 296,510 | 1,947 | ||||||
Cash, beginning of year in accordance with Canadian GAAP | 124,524 | 122,577 | ||||||
Cash, end of year in accordance with Canadian GAAP | $ | 421,034 | $ | 124,524 | ||||
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
22. | DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Continued) |
(a) | Investment held for sale | ||
Under U.S. GAAP, Ivanhoe Mines has accounted for its joint venture interest in JVCo (Note 4) using the equity method. Under Canadian GAAP, interests in joint ventures are accounted for on a proportionate consolidation basis. | |||
Under Canadian GAAP, the carrying amount of Ivanhoe Mines’ investment and its share of equity of JVCo is eliminated. Ivanhoe Mines’ proportionate share of each line item of JVCo’s assets, liabilities, revenue and expenses is reported as discontinued operations within Ivanhoe Mines’ financial statements in accordance with CICA 3475, “Disposal of Long-Lived Assets and Discontinued Operations”. All intercompany balances and transactions would be eliminated. Note 4 discloses the assets and liabilities of JVCo that would have been disclosed as held for sale and the revenues and expenses of JVCo that would have been included as discontinued operations within Ivanhoe Mines’ financial statements had Canadian GAAP been applied. | |||
(b) | Other mineral property interests | ||
Under U.S. GAAP, where the mineral property interests are, at the date of acquisition, without economically recoverable reserves, these costs are generally considered to be exploration costs that are expensed as incurred. Under Canadian GAAP, the costs of the acquisition of mineral property interests are capitalized. | |||
In accordance with EITF 04-02, “Whether Mining Rights are Tangible or Intangible Assets”, the Company classifies its mineral exploration licenses as tangible assets and there is no difference between Canadian and U.S. GAAP. Prior to January 2004, the costs of acquisition of Ivanhoe Mines’ mineral exploration licenses were classified as intangible assets under U.S. GAAP and amortized over the term of the licenses. As a result, for Canadian GAAP purposes, the $6,329,000, net of deferred income taxes of $882,000, in amortization or write-offs of other mineral property interests under U.S. GAAP needs to be reversed. |
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
22. | DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Continued) |
(c) | Financial instruments | ||
On January 1, 2006, the Company adopted CICA Section 1530, “Comprehensive Income”, Section 3855, “Financial Instruments – Recognition and Measurement”, Section 3861, “Financial Instruments – Disclosure and Presentation” and Section 3865, “Hedges”. These new standards increased harmonization between U.S. and Canadian GAAP. | |||
Under U.S. and Canadian GAAP, portfolio investments are classified as available-for-sale securities, which are carried at market value (Note 7). The resulting unrealized gains or losses are included in the determination of comprehensive income, net of income taxes where applicable. Prior to adopting Section’s 3855 and 1530, these investments were carried at their original cost less provisions for impairment under Canadian GAAP. Upon adoption, the Company recorded a retroactive balance representing the unrealized gains on available-for-sale securities of $6,711,000 at January 1, 2006. Available-for-sale securities generated comprehensive income of $6,522,000 under both Canadian and U.S. GAAP for the year ended December 31, 2006. | |||
(d) | Dilution gain on investment in subsidiary | ||
Under U.S. GAAP the $6,288,000 (2005 — $3,012,000) dilution gain on investment in a subsidiary was accounted for as part of additional paid-in capital. Under Canadian GAAP, the dilution gain would have been included in the net loss for the year. | |||
(e) | Gain on sale of Savage River Project | ||
Under U.S. GAAP, the net book value of the Savage River Project when it was sold in February 2005 was $11,200,000, whereas under Canadian GAAP the carrying value was $30,900,000. During 2005, total proceeds from the sale were $41,700,000, representing cash instalments including interest of $21,500,000, plus escalating payments of $20,200,000. Therefore, under Canadian GAAP the gain on sale was $19,700,000 less than under U.S. GAAP. | |||
(f) | Income taxes | ||
Under U.S. GAAP, deferred income taxes are calculated based on enacted tax rates applicable to future years. Under Canadian GAAP, future income taxes are calculated based on enacted or substantively enacted tax rates applicable to future years. This difference in GAAP did not have a material effect on the financial position or results of operations of the Company for the years ended December 31, 2006 and 2005. |
Notes to the Consolidated Financial Statements
(Stated in U.S. dollars unless otherwise noted; tabular amounts in thousands)
22. | DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Continued) |
(g) | Recently released Canadian accounting standards | ||
There are no recently issued Canadian accounting standards which have not yet been adopted by the Company and would be expected to have a material impact on the Company’s financial position and results of operations. |
RESULTS OF OPERATIONS
1
RESULTS OF OPERATIONS
§ | a reduction in the initial capital costs and technical risks associated with a large, underground block-cave mining operation; | ||
§ | enhanced overall value of the Oyu Tolgoi Project by enabling mining of high-grade copper and gold mineralization earlier than previously estimated; | ||
§ | generation of a significant source of near-term cash-flow that could be used to fund development of the larger Hugo North block-cave mining operation; and, | ||
§ | an expected reduction of up to one year in the time required to complete the underground exploration and development program for the starter mine as a result of expected shorter and shallower underground drifting distances than previously projected by the 2005 Integrated Development Plan (2005 IDP). |
2
RESULTS OF OPERATIONS
• | The first scenario combines the open-pit reserves, as previously determined, with high-grade, sub-level-caved material at a pre-feasibility level from the Hugo North Deposit. | ||
• | The second scenario, a sensitivity analysis of the first scenario, envisages a high-grade “starter” block cave instead of the sub-level cave as the initial underground development, to be followed by the larger block caves at the Hugo North Deposit and also at the Hugo South Deposit, as outlined in the 2005 IDP. |
3
RESULTS OF OPERATIONS
4
RESULTS OF OPERATIONS
5
RESULTS OF OPERATIONS
6
RESULTS OF OPERATIONS
7
RESULTS OF OPERATIONS
• | During the third quarter of 2006, David Woodall was appointed President of the Ivanhoe Mines gold division. His responsibilities include overseeing the advancement of the Company’s gold exploration and mine development projects, which include the Bakyrchik gold mine development project in Kazakhstan. | |
Mr. Woodall has more than 21 years of professional experience in mining operations. Prior to joining Ivanhoe Mines, he acquired extensive mine management experience at underground and open-pit mines in Canada, Australia, Fiji and China. Among numerous mine operation assignments, he worked as Mine General Manager for Placer Dome at the Musselwhite gold mine in Ontario, Canada, the Kanowna Belle gold mine in Western Australia and the Osborne copper and gold mine in Australia. He also worked in senior mine management positions with Robe River, Sino Gold and WMC Resources. | ||
• | In the first quarter of 2007, Peter Reeve was appointed Chief Executive Officer of Ivanhoe Australia Pty. Limited, a wholly-owned subsidiary company. The appointment is a significant step in the development of Ivanhoe Mines’ Australian mineral exploration and development projects, particularly the discoveries of iron oxide copper gold, with associated uranium, at the Cloncurry project in the Mount Isa District of northwestern Queensland. |
8
RESULTS OF OPERATIONS
• | Also in the first quarter of 2007, Edward Flood stepped down as Deputy Chairman of Ivanhoe Mines to pursue personal interests. Mr. Flood will continue to serve as a member of the Board of Directors. |
9
RESULTS OF OPERATIONS
1. | Selected Annual Financial Information | |
2. | Review of Operations |
A. | Exploration Activities | ||
B. | Myanmar Assets Held for Sale | ||
C. | Discontinued Operations | ||
D. | Administrative and Other Expenses |
3. | Selected Quarterly Data | |
4. | Fourth Quarter | |
5. | Liquidity and Capital Resources | |
6. | Share Capital | |
7. | Outlook | |
8. | Off-Balance-Sheet Arrangements | |
9. | Contractual Obligations | |
10. | Changes in Accounting Policies | |
11. | Critical Accounting Estimates | |
12. | Recent Accounting Pronouncements | |
13. | Risks and Uncertainties | |
14. | Related-Party Transactions | |
15. | Disclosure Controls and Procedures | |
16. | Management’s Report on Internal Control over Financial Reporting | |
17. | Qualified Persons | |
18. | Oversight Role of the Audit Committee | |
19. | Cautionary Statements | |
20. | Forward-Looking Statements | |
21. | Management’s Report to Shareholders |
10
RESULTS OF OPERATIONS
Years ended December 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
Exploration expenses | $ | (213.0 | ) | $ | (133.3 | ) | $ | (98.2 | ) | |||
General and administrative | (28.2 | ) | (17.7 | ) | (22.2 | ) | ||||||
Share of income from investment held for sale | 18.5 | 23.0 | 21.4 | |||||||||
Foreign exchange gains | 0.4 | 7.8 | 4.6 | |||||||||
Net (loss) from continuing operations | $ | (218.3 | ) | $ | (125.7 | ) | $ | (99.0 | ) | |||
Net income from discontinued operations | 19.6 | 35.9 | 4.5 | |||||||||
Net loss | $ | (198.7 | ) | $ | (89.8 | ) | $ | (94.5 | ) | |||
Net (loss) per share from continuing operations | $ | (0.65 | ) | $ | (0.41 | ) | $ | (0.35 | ) | |||
Net income per share from discontinued operations | $ | 0.06 | $ | 0.12 | $ | 0.01 | ||||||
Net loss per share | $ | (0.59 | ) | $ | (0.29 | ) | $ | (0.34 | ) | |||
Total assets | $ | 703.2 | $ | 396.8 | $ | 376.3 | ||||||
11
RESULTS OF OPERATIONS
Years ended December 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
Exploration expense ($ in millions) | $ | 213.0 | $ | 133.3 | $ | 98.2 | ||||||
Percentage allocation | ||||||||||||
Mongolia | 93.1 | % | 92.0 | % | 86.9 | % | ||||||
China | 4.3 | % | 3.3 | % | 4.1 | % | ||||||
Australia | 1.0 | % | 1.1 | % | 4.9 | % | ||||||
Bulgaria | 0.6 | % | 1.8 | % | 1.0 | % | ||||||
Myanmar | 0.5 | % | 1.0 | % | 2.3 | % | ||||||
Other | 0.5 | % | 0.8 | % | 0.8 | % | ||||||
100.0 | % | 100.0 | % | 100.0 | % | |||||||
12
RESULTS OF OPERATIONS
2006 | % of Total | |||||||
($ in million’s) | ||||||||
Oyu Tolgoi | ||||||||
Concentrator and Infrastructure Engineering | $ | 28.9 | 15 | % | ||||
Site Construction | 53.2 | 27 | % | |||||
Shaft No. 1 Sinking | 35.5 | 18 | % | |||||
Exploration | 14.2 | 7 | % | |||||
Owner’s Costs (includes non-cash stock-based compensation) | 29.4 | 15 | % | |||||
161.2 | ||||||||
Coal Division | 10.1 | 5 | % | |||||
Other Mongolia Exploration (including Asia Gold) | 12.3 | 6 | % | |||||
UB Office | 14.6 | 7 | % | |||||
$ | 198.2 | 100 | % | |||||
13
RESULTS OF OPERATIONS
14
RESULTS OF OPERATIONS
§ | a reduction in the initial capital costs and technical risks associated with a large, underground block-cave mining operation; | ||
§ | enhanced overall value of the Oyu Tolgoi Project value by enabling mining of high-grade copper and gold mineralization earlier than previously estimated; | ||
§ | generation of a significant source of near-term cash-flow that could be used to fund development of the larger Hugo North block-cave mining operation; and, |
15
RESULTS OF OPERATIONS
§ | an expected reduction of up to one year in the time required to complete the underground exploration and development program for the starter mine as a result of expected shorter and shallower underground drifting distances than previously projected by the 2005 IDP. |
• | The first scenario combines the open-pit reserves, as previously determined, with high-grade, sub-level-caved material at a pre-feasibility level from the Hugo North Deposit. | ||
• | The second scenario, a sensitivity analysis of the first scenario, envisages a high-grade “starter” block cave instead of the sub-level cave as the initial underground development, to be followed by the larger block caves at the Hugo North Deposit and also at the Hugo South Deposit, as outlined in the 2005 IDP. |
16
RESULTS OF OPERATIONS
(based on a 0.60% copper equivalent cut-off ) (3)
Contained Metal(5) | ||||||||||||||||||||||||||||
Resource | Cu | Au | CuEq(4) | Cu | CuEq(4) | |||||||||||||||||||||||
Category | Tonnes | (%) | (g/t) | (%) | (‘000 lbs) | Au (ounces) | (‘000 lbs) | |||||||||||||||||||||
Measured | 101,590,000 | 0.64 | 1.10 | 1.34 | 1,430,000 | 3,590,000 | 3,000,000 | |||||||||||||||||||||
Indicated | 1,285,840,000 | 1.38 | 0.42 | 1.65 | 39,120,000 | 17,360,000 | 46,770,000 | |||||||||||||||||||||
Measured + Indicated | 1,387,430,000 | 1.33 | 0.47 | 1.63 | 40,680,000 | 20,970,000 | 49,860,000 | |||||||||||||||||||||
Inferred | 1,397,130,000 | 0.98 | 0.24 | 1.13 | 30,190,000 | 10,780,000 | 34,810,000 |
Notes: | ||
(1) | Mineral resources are not mineral reserves until they have demonstrated economic viability based on a feasibility study or pre-feasibility study. Mineral resources are reported inclusive of mineral reserves. | |
(2) | This chart includes estimated resources on the Hugo North Extension Deposits located on the Shivee Tolgoi Property, which is owned by Entrée but subject to earn-in rights by Ivanhoe Mines. The estimate includes indicated resources of 117,000,000 tonnes grading 1.8% copper and 0.61 g/t gold and inferred resources of 95,500,000 tonnes grading 1.15% copper and 0.31 g/t gold at a 0.6% cut-off grade on the Hugo North Extension. | |
(3) | The 0.6% CuEq cut-off has been used to enable comparison with previous disclosures. | |
(4) | CuEq has been calculated using assumed metal prices ($0.80/lb. for copper and $350/oz for gold); %CuEq. = % Cu + Au (g/t) x (11.25/17.64). | |
(5) | The contained gold and copper represent estimated contained metal in the ground and have not been adjusted for the metallurgical recoveries of gold and copper. |
17
RESULTS OF OPERATIONS
Contained Metals(4) | ||||||||||||||||||||||||||||
Resource | Tonnage | Cu | Au | CuEq | Cu | Au | CuEq(3) | |||||||||||||||||||||
Category | (t) | (%) | (g/t) | (%)(3) | (‘000 lb) | (oz) | (‘000 lb) | |||||||||||||||||||||
Measured | 126,690,000 | 0.58 | 0.93 | 1.17 | 1,620,000 | 3,790,000 | 3,268,000 | |||||||||||||||||||||
Indicated | 992,400,000 | 0.47 | 0.27 | 0.64 | 10,283,000 | 8,610,000 | 14,002,000 | |||||||||||||||||||||
Measured + Indicated | 1,119,100,000 | 0.48 | 0.35 | 0.70 | 11,843,000 | 12,590,000 | 17,270,000 | |||||||||||||||||||||
Inferred | 266,820,000 | 0.34 | 0.23 | 0.48 | 2,000,000 | 1,970,000 | 2,824,000 |
Notes: | ||
(1) | Mineral resources are not mineral reserves until they have demonstrated economic viability based on a feasibility study or pre-feasibility study. Mineral resources are reported inclusive of mineral reserves. | |
(2) | The resources shown above at a 0.3% CuEq cut-off are inclusive of the resources tabulated at the 0.6 CuEq cut-off in the consolidated resource statement. | |
(3) | CuEq has been calculated using assumed metal prices ($0.80/lb. for copper and $350/oz for gold); %CuEq. = % Cu + Au (g/t) x (11.25/17.64). | |
(4) | The contained gold and copper represent estimated contained metal in the ground and have not been adjusted for the metallurgical recoveries of gold and copper. |
Contained Metal(3) | ||||||||||||||||||||||||||||
Tonnage | Cu | Au | CuEq(2) | Cu | Au | CuEq(2) | ||||||||||||||||||||||
Deposit | (t) | (%) | (g/t) | (%) | (‘000 lb) | (oz) | (‘000 lb) | |||||||||||||||||||||
Indicated (Hugo North) | 703,200,000 | 1.82 | 0.39 | 2.07 | 28,215,000 | 8,820,000 | 32,091,000 | |||||||||||||||||||||
Indicated (Hugo North Extension)(4) | 117,000,000 | 1.80 | 0.61 | 2.19 | 4,643,000 | 2,290,000 | 5,649,000 | |||||||||||||||||||||
Inferred (Hugo North) | 722,800,000 | 0.97 | 0.30 | 1.17 | 15,457,000 | 6,970,000 | 18,644,000 | |||||||||||||||||||||
Inferred (Hugo North Extension )(4) | 95,500,000 | 1.15 | 0.31 | 1.35 | 2,421,000 | 950,000 | 2,842,000 | |||||||||||||||||||||
Inferred (Hugo South) | 490,330,000 | 1.05 | 0.09 | 1.11 | 11,350,000 | 1,420,000 | 12,000,000 | |||||||||||||||||||||
Total | ||||||||||||||||||||||||||||
Indicated (Hugo North and Hugo North Extension(4)) | 820,200,000 | 1.82 | 0.42 | 2.08 | 32,910,000 | 11,080,000 | 37,611,000 | |||||||||||||||||||||
Inferred (Hugo North, Hugo South and Hugo North Extension(4)) | 1,308,630,000 | 1.02 | 0.22 | 1.16 | 29,430,000 | 9,260,000 | 33,470,000 |
Notes: | ||
(1) | Mineral resources are not mineral reserves until they have demonstrated economic viability based on a feasibility study or pre-feasibility study. Mineral resources are reported inclusive of mineral reserves. |
18
RESULTS OF OPERATIONS
(2) | CuEq has been calculated using assumed metal prices ($0.80/lb. for copper and $350/oz for gold); %CuEq.= % Cu + Au (g/t) x (11.25/17.64). | |
(3) | The contained gold and copper represent estimated contained metal in the ground and have not been adjusted for the metallurgical recoveries of gold and copper. | |
(4) | The Hugo North Extension is located on the Shivee Tolgoi Property, which property is owned by Entrée but subject to earn-in rights in favour of Ivanhoe Mines. |
CuEq | Recovered | Recovered | ||||||||||||||||||||||||||
NSR | Copper | Gold | Grade | Copper | Gold | |||||||||||||||||||||||
Class | Ore (tonnes) | $/t | (%) | (g/t ) | (%) | (‘000 lbs) | (ounces) | |||||||||||||||||||||
Proven | 127,000,000 | 15.91 | 0.58 | 0.93 | 1.18 | 1,451,000 | 2,833,000 | |||||||||||||||||||||
Probable | 803,000,000 | 7.96 | 0.48 | 0.27 | 0.66 | 7,431,000 | 4,768,000 | |||||||||||||||||||||
Total | 930,000,000 | 9.05 | 0.50 | 0.36 | 0.73 | 8,882,000 | 7,601,000 |
19
RESULTS OF OPERATIONS
20
RESULTS OF OPERATIONS
Resources at Nariin Sukhait | ||||||||||||||||
ASTM | Measured | Indicated | Inferred | |||||||||||||
Resource Area | Coal Rank | (million tonnes) | (million tonnes) | (million tonnes) | ||||||||||||
South-East Field | hvB to hvA | 49,752,000 | 15,987,000 | 6,502,000 | ||||||||||||
West Field | hvB to hvA | 55,144,000 | 28,698,000 | 22,601,000 | ||||||||||||
Total | 149,580,000 | 29,103,000 |
(1) | Mineral resources are not mineral reserves until they have demonstrated economic viability based on a feasibility study or pre-feasibility study. |
Assurance of Existence Category | ||||||||||||
Criteria | Measured | Indicated | Inferred | |||||||||
Cross-section spacing (metres) | 150 | 300 | 600 | |||||||||
Minimum number of data points per section | 3 | 3 | 3 | |||||||||
Mean data point spacing (metres) | 100 | 200 | 400 | |||||||||
Maximum data point spacing (metres) | 200 | 400 | 800 |
21
RESULTS OF OPERATIONS
22
RESULTS OF OPERATIONS
23
RESULTS OF OPERATIONS
24
RESULTS OF OPERATIONS
25
RESULTS OF OPERATIONS
26
RESULTS OF OPERATIONS
27
RESULTS OF OPERATIONS
Years ended December 31, | ||||||||||||||||||||||||||
Total Operation | Company’s 50% Net Share | |||||||||||||||||||||||||
% Increase | % Increase | |||||||||||||||||||||||||
2006 | 2005 | (Decrease) | 2006 | 2005 | (Decrease) | |||||||||||||||||||||
Total tonnes moved(1) | Tonnes (000’s) | 14,050 | 13,527 | 4 | % | |||||||||||||||||||||
Tonnes of ore to heap | Tonnes (000’s) | 7,704 | 9,544 | -19 | % | |||||||||||||||||||||
Ore grade | CuCN% | 0.36 | % | 0.49 | % | -27 | % | |||||||||||||||||||
Strip ratio | Waste/Ore | 1.25 | 0.45 | 178 | % | |||||||||||||||||||||
Cathode production | Tonnes | 19,544 | 34,478 | -43 | % | 9,772 | 17,239 | -43 | % | |||||||||||||||||
Tonnes sold | Tonnes | 19,202 | 34,969 | -45 | % | 9,601 | 17,485 | -45 | % | |||||||||||||||||
Average sales price received | US$/pound | $ | 3.29 | $ | 1.83 | 80 | % | |||||||||||||||||||
Sales | US$(000) | $ | 58,731 | $ | 54,584 | 8 | % | |||||||||||||||||||
Cost of operations | US$(000) | $ | 15,927 | $ | 17,768 | -10 | % | |||||||||||||||||||
Operating profit | US$(000) | $ | 37,278 | $ | 30,186 | 23 | % | |||||||||||||||||||
Unit cost of operations | US$/pound | $ | 0.75 | $ | 0.46 | 63 | % |
(1) | Includes ore and waste material |
28
RESULTS OF OPERATIONS
Years ended December 31, | ||||||||
($ in 000’s) | 2006 | 2005 | ||||||
Book gain on sale of Savage River | $ | — | $ | 10,267 | ||||
Net income for two months ended February 2005 | 5,406 | |||||||
Contingent annual payment: | ||||||||
Period January to March | 7,931 | — | ||||||
Period April to December (accrued) | 11,691 | 20,243 | ||||||
$ | 19,622 | $ | 35,916 | |||||
29
RESULTS OF OPERATIONS
QUARTER ENDED | Year Ended | ||||||||||||||||||||
Mar-31 | Jun-30 | Sep-30 | Dec-31 | Dec-31 | |||||||||||||||||
2006 | |||||||||||||||||||||
Exploration expenses | ($ | 31.6 | ) | ($ | 43.7 | ) | ($ | 67.3 | ) | ($ | 70.4 | ) | ($ | 213.0 | ) | ||||||
General and administrative | (6.4 | ) | (6.0 | ) | (6.9 | ) | (8.9 | ) | (28.2 | ) | |||||||||||
Share of income from investment held for sale | 4.5 | (2.4 | ) | 9.0 | 7.4 | 18.5 | |||||||||||||||
Foreign exchange gains (losses) | (0.2 | ) | 4.7 | (0.4 | ) | (3.7 | ) | 0.4 | |||||||||||||
Net (loss) from continuing operations | (31.1 | ) | (45.7 | ) | (68.0 | ) | (73.5 | ) | (218.3 | ) | |||||||||||
Net income from discontinued operations | 7.9 | 5.4 | 1.5 | 4.8 | 19.6 | ||||||||||||||||
Net (loss) | (23.2 | ) | (40.3 | ) | (66.5 | ) | (68.7 | ) | (198.7 | ) | |||||||||||
Net (loss) income per share | |||||||||||||||||||||
Continuing operations | ($ | 0.10 | ) | ($ | 0.14 | ) | ($ | 0.20 | ) | ($ | 0.21 | ) | ($ | 0.65 | ) | ||||||
Discontinued operations | $ | 0.03 | $ | 0.02 | $ | 0.00 | $ | 0.01 | $ | 0.06 | |||||||||||
Total | ($ | 0.07 | ) | ($ | 0.12 | ) | ($ | 0.20 | ) | ($ | 0.20 | ) | ($ | 0.59 | ) | ||||||
2005 | |||||||||||||||||||||
Exploration expenses | ($ | 25.6 | ) | ($ | 35.5 | ) | ($ | 30.5 | ) | ($ | 41.7 | ) | ($ | 133.3 | ) | ||||||
General and administrative | (3.6 | ) | (4.2 | ) | (5.7 | ) | (4.2 | ) | (17.7 | ) | |||||||||||
Share of income from investment held for sale | 7.7 | 7.8 | 8.0 | (0.5 | ) | 23.0 | |||||||||||||||
Foreign exchange gains (losses) | (0.6 | ) | 1.7 | 7.1 | (0.4 | ) | 7.8 | ||||||||||||||
Net (loss) from continuing operations | (24.2 | ) | (31.1 | ) | (20.6 | ) | (49.8 | ) | (125.7 | ) | |||||||||||
Net income from discontinued operations | 15.7 | 5.9 | 6.4 | 7.9 | 35.9 | ||||||||||||||||
Net (loss) | (8.5 | ) | (25.2 | ) | (14.3 | ) | (41.8 | ) | (89.8 | ) | |||||||||||
Net (loss) income per share | |||||||||||||||||||||
Continuing operations | ($ | 0.08 | ) | ($ | 0.10 | ) | ($ | 0.07 | ) | ($ | 0.16 | ) | ($ | 0.41 | ) | ||||||
Discontinued operations | $ | 0.05 | $ | 0.02 | $ | 0.02 | $ | 0.03 | $ | 0.12 | |||||||||||
Total | ($ | 0.03 | ) | ($ | 0.08 | ) | ($ | 0.05 | ) | ($ | 0.13 | ) | ($ | 0.29 | ) |
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RESULTS OF OPERATIONS
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RESULTS OF OPERATIONS
o | 373.9 million common shares outstanding. | ||
o | 13.4 million incentive stock options outstanding, with a weighted average exercise price per share of Cdn$9.20. Each option is exercisable to purchase a common share of the Company at prices ranging from Cdn$2.31 to Cdn$13.29 per share. | ||
o | 92.1 million share purchase warrants outstanding granted to Rio Tinto. The exercise term of these warrants is determined with reference to the earlier of the following dates (the Warrant Determination Date): |
(a) | the date upon which Ivanhoe Mines enters into an Investment Agreement with the Government of Mongolia that is mutually acceptable to Ivanhoe Mines and Rio Tinto; or | ||
(b) | October 27, 2009. |
• | Series A Warrants: The Series A Warrants are non-transferable and entitle Rio Tinto to purchase up to 46,026,522 Common Shares at a price of: |
(a) | US$8.38 per share for proceeds of up to US$385,702,254 during the period commencing November 30, 2006 and ending 180 days following the Warrant Determination Date; and | ||
(b) | US$8.54 per share for proceeds of up to US$393,066,498 during the period commencing 181 days after the Warrant Determination Date and ending 365 days after the Warrant Determination Date. |
• | Series B Warrants: The Series B Warrants are non-transferable and entitle Rio Tinto to purchase up to 46,026,522 Common Shares at a price of: |
(a) | US$8.38 per share for proceeds of up to US$385,702,254 during the period commencing November 30, 2006 and ending 180 days following the Warrant Determination Date; | ||
(b) | US$8.54 per share for proceeds of up to US$393,066,498 during the period commencing 181 days after the Warrant Determination Date and ending 365 days after the Warrant Determination Date; | ||
(c) | US$8.88 per share for proceeds of up to US$408,715,515 during the period commencing 366 days after the Warrant Determination Date and ending 545 days after the Warrant Determination Date; and | ||
(d) | US$9.02 per share for proceeds of up to US$415,159,228 during the period commencing 546 days after the Warrant Determination Date and ending 725 days after the Warrant Determination Date. |
o | Under the terms of the Rio Tinto Agreement, Rio Tinto will take up the second tranche of the private placement following the date upon which Ivanhoe Mines enters into an Investment Agreement with the Government of Mongolia that is mutually acceptable to Ivanhoe Mines |
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RESULTS OF OPERATIONS
and Rio Tinto. Rio Tinto has the option to exercise the second tranche earlier. This second tranche will consist of 46.3 million shares at a price of US$8.38 per share, for total proceeds of US$388 million. Ivanhoe Mines has recorded an amount of $23.1 million in shareholders’ equity, attributable to the fair value of the Rio Tinto share purchase warrants and second tranche share issuance commitment. |
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RESULTS OF OPERATIONS
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RESULTS OF OPERATIONS
• | Investment between $50-$100 million — 10-year term | ||
• | Investment between $100-$300 million — 15-year term | ||
• | Investment greater than $300 million — 30-year term. |
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RESULTS OF OPERATIONS
Payments Due by Period | |||||||||||||||||||||
Less than 1 | |||||||||||||||||||||
year | 1 - 3 years | 4 - 5 years | After 5 years | Total | |||||||||||||||||
Operating leases(1) | $ | 1,290 | $ | 884 | $ | 9 | $ | — | $ | 2,183 | |||||||||||
Purchase obligations(1) | 116,794 | 90 | — | — | 116,884 | ||||||||||||||||
Other long-term obligations(2) | 315 | 2,194 | — | 17,333 | 19,842 | ||||||||||||||||
Total | $ | 118,399 | $ | 3,168 | $ | 9 | $ | 17,333 | $ | 138,909 | |||||||||||
(1) | These amounts mainly represent various long-term contracts that include commitments for future operating payments under contracts for drilling, engineering, equipment purchases, rentals and other arrangements. | |
(2) | Other long-term obligations mainly consist of asset retirement obligations. |
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RESULTS OF OPERATIONS
Ø | Carrying Values of Property, Plant and Equipment; | |
Ø | Depletion and Depreciation of Property, Plant and Equipment; | |
Ø | Asset Retirement Obligations; and | |
Ø | Income Taxes. |
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RESULTS OF OPERATIONS
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RESULTS OF OPERATIONS
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RESULTS OF OPERATIONS
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RESULTS OF OPERATIONS
Copper | Gold | |||||||||||||||||||||||
Year | High | Low | Average | High | Low | Average | ||||||||||||||||||
2001 | $ | 0.83 | $ | 0.60 | $ | 0.72 | $ | 293 | $ | 256 | $ | 271 | ||||||||||||
2002 | $ | 0.77 | $ | 0.65 | $ | 0.71 | $ | 349 | $ | 278 | $ | 310 | ||||||||||||
2003 | $ | 1.05 | $ | 0.71 | $ | 0.81 | $ | 416 | $ | 320 | $ | 363 | ||||||||||||
2004 | $ | 1.49 | $ | 1.06 | $ | 1.30 | $ | 454 | $ | 375 | $ | 409 | ||||||||||||
2005 | $ | 2.11 | $ | 1.39 | $ | 1.67 | $ | 536 | $ | 411 | $ | 444 | ||||||||||||
2006 | $ | 3.99 | $ | 2.06 | $ | 3.05 | $ | 725 | $ | 524 | $ | 604 |
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RESULTS OF OPERATIONS
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RESULTS OF OPERATIONS
• | anticipated tonnage, grades and metallurgical characteristics of ore to be mined and processed; | ||
• | anticipated recovery rates of copper and gold from the ore; | ||
• | cash operating costs of comparable facilities and equipment; and | ||
• | anticipated climatic conditions. |
• | the timing and cost, which can be considerable, of the construction of mining and processing facilities; | ||
• | the availability and cost of skilled labour, power, water and transportation; | ||
• | the availability and cost of appropriate smelting and refining arrangements; |
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RESULTS OF OPERATIONS
• | the need to obtain necessary environmental and other government permits, and the timing of those permits; and | ||
• | the availability of funds to finance construction and development activities. |
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RESULTS OF OPERATIONS
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RESULTS OF OPERATIONS
• | rock bursts, slides, fires, earthquakes or other adverse environmental occurrences; | ||
• | industrial accidents; | ||
• | labour disputes; | ||
• | political and social instability; | ||
• | technical difficulties due to unusual or unexpected geological formations; | ||
• | failures of pit walls; and | ||
• | flooding and periodic interruptions due to inclement or hazardous weather condition. |
• | damage to, and destruction of, mineral properties or production facilities; | ||
• | personal injury; | ||
• | environmental damage; | ||
• | delays in mining; | ||
• | monetary losses; and | ||
• | legal liability. |
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RESULTS OF OPERATIONS
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RESULTS OF OPERATIONS
Years ended December 31, | ||||||||
2006 | 2005 | |||||||
Global Mining Management Corporation (a) | $ | 7,015 | $ | 4,169 | ||||
Ivanhoe Capital Aviation LLC (b) | 3,840 | 3,421 | ||||||
Fognani & Faught, PLLC (c) | 1,394 | 823 | ||||||
Jinshan Gold Mines Inc. (d) | — | 1,122 | ||||||
Ivanhoe Capital Pte. Ltd. (e) | 78 | 60 | ||||||
Ivanhoe Capital Services Ltd. (f) | 743 | 755 | ||||||
Ivanhoe Energy Inc. (g) | — | 175 | ||||||
$ | 13,070 | $ | 10,525 | |||||
Years ended December 31, | ||||||||
2006 | 2005 | |||||||
Exploration | $ | — | $ | 1,122 | ||||
Legal | 1,394 | 823 | ||||||
Office and administrative | 2,306 | 2,216 | ||||||
Salaries and benefits | 5,530 | 2,943 | ||||||
Travel (including aircraft rental) | 3,840 | 3,421 | ||||||
$ | 13,070 | $ | 10,525 | |||||
(a) | Global Mining Management Corporation (Global) is a private company based in Vancouver owned equally by seven companies, one of which is Ivanhoe Mines. Global has a director in common with the Company. Global provides administration, accounting, and other office services to the Company on a cost-recovery basis. |
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RESULTS OF OPERATIONS
(b) | Ivanhoe Capital Aviation LLC (Aviation) is a private company 100% owned by the Company’s Chairman. Aviation operates an aircraft which is rented by the Company on a cost-recovery basis. | |
(c) | An officer of a subsidiary of Ivanhoe Mines is a partner with Fognani & Faught, PLLC, a legal firm which provides legal services to Ivanhoe Mines. | |
(d) | During 2005, the Company incurred exploration expenditures as part of several joint venture agreements with Jinshan. | |
(e) | Ivanhoe Capital Pte. Ltd. (Ivanhoe Capital) is a private company 100% owned by the Company’s Chairman. Ivanhoe Capital provides for administration, accounting, and other office services in Singapore and London on a cost-recovery basis. | |
(f) | Ivanhoe Capital Services Ltd. (Services) is a private company 100% owned by the Company’s Chairman. Services provides for salaries associated with certain employees of the Company located in Singapore on a cost-recovery basis. | |
(g) | Ivanhoe Energy Inc. (Ivanhoe Energy) is a public company in which the Company’s Chairman has a significant interest and holds the position of Deputy Chairman. During 2005, Ivanhoe Energy provided for administration and other office services in Beijing on a cost-recovery basis. |
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RESULTS OF OPERATIONS
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RESULTS OF OPERATIONS
Relationship to | ||||
Property | Qualified Person | Ivanhoe Mines | ||
Oyu Tolgoi Project | Bernard Peters, GRD Minproc Limited | Independent consultant | ||
Nariin Sukhait Project | Richard D. Tifft and Patrick P. Riley, Norwest Corporation | Independent consultant |
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John Macken | Tony Giardini | |||
President and CEO | Chief Financial Officer | |||
March 30, 2007 | ||||
Vancouver, BC, Canada |