Exhibit 13.2
IVANHOE MINES
FIRST QUARTER REPORT
MARCH 31, 2002
TABLE OF CONTENTS
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets at March 31, 2002 (unaudited) and
December 31, 2001
Unaudited Consolidated Statements of Operations and Deficit for the
Three Month Period ended March 31, 2002 and 2001
Unaudited Consolidated Statements of Cash Flows for the Three Month
Period ended March 31, 2002 and 2001
Notes to the Unaudited Consolidated Financial Statements
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
IVANHOE MINES LTD.
CONSOLIDATED BALANCE SHEETS
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MARCH 31, DECEMBER 31,
(STATED IN U.S. $000'S) 2002 2001
----------- ------------
(UNAUDITED)
ASSETS
CURRENT
Cash $ 36,110 $ 25,805
Accounts receivable 4,091 2,423
Inventories 22,840 22,529
Prepaid expenses 1,905 1,333
Future income taxes 3,736 4,635
--------- ---------
68,682 56,725
INVESTMENTS 6,569 4,823
MINING PROPERTY, PLANT AND EQUIPMENT 188,680 181,670
OTHER CAPITAL ASSETS 713 524
FUTURE INCOME TAXES 2,772 2,440
OTHER ASSETS 1,438 1,420
--------- ---------
$ 268,854 $247,602
========= =========
LIABILITIES
CURRENT
Accounts payable and accrued liabilities $ 22,433 $ 15,407
Accrued loss on foreign exchange contract 12,452 15,450
Current portion of long-term debt 26,937 20,133
--------- ---------
61,822 50,990
LOANS PAYABLE TO RELATED PARTIES 4,894 4,696
LONG-TERM DEBT 38,279 41,837
FUTURE INCOME TAXES 13,842 13,731
OTHER LIABILITIES 3,759 6,177
--------- ---------
122,596 117,431
========= =========
SHAREHOLDERS' EQUITY
SHARE CAPITAL
Authorized
Unlimited number of preferred shares without par value
Unlimited number of common shares without par value
Issued and outstanding 181,266,048 (2001 - 171,158,484) common shares 475,953 460,389
Additional paid-in capital 1,532 1,697
DEFICIT (331,227) (331,915)
--------- ---------
146,258 130,171
--------- ---------
$ 268,854 $ 247,602
========= =========
APPROVED BY THE BOARD:
- ----------------------------------- -----------------------------------
Director Director
IVANHOE MINES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(UNAUDITED)
- --------------------------------------------------------------------------------
Three months ended March 31,
----------------------------------
(STATED IN U.S. $000'S) 2002 2001
--------- -----------
(Note 1(c))
REVENUE $ 21,775 $ 18,035
COST OF OPERATIONS (15,041) (9,735)
DEPRECIATION AND DEPLETION (2,261) (2,745)
--------- ---------
OPERATING PROFIT 4,473 5,555
OTHER EXPENSES
General and administrative (1,682) (1,328)
Interest on long-term debt (1,230) (2,566)
Exploration expenses (2,878) (881)
Depreciation (40) (42)
--------- ---------
EARNINGS (LOSS) BEFORE THE FOLLOWING (1,357) 738
--------- ---------
OTHER INCOME (EXPENSES)
Mining property shut-down costs (622) (977)
Interest income 194 524
Foreign exchange gain/(loss) 305 (13,522)
Other 2,969 60
--------- ---------
2,846 (13,915)
--------- ---------
INCOME (LOSS) BEFORE INCOME AND CAPITAL TAXES 1,489 (13,177)
(Provision for) recovery of income and capital taxes (801) 4,238
--------- ---------
NET INCOME (LOSS) 688 (8,939)
DEFICIT, BEGINNING OF PERIOD (331,915) (246,917)
--------- ---------
DEFICIT, END OF PERIOD $(331,227) $(255,856)
========= =========
INCOME (LOSS) PER SHARE
Basic $ 0.00 $ (0.07)
Fully Diluted $ 0.00 $ (0.07)
========= =========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING (IN 000'S) 172,144 124,916
========= =========
IVANHOE MINES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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Three months ended March 31,
---------------------------------
(STATED IN U.S. $000'S) 2002 2001
------- -----------
(Note 1(c))
OPERATING ACTIVITIES
Net income/(loss) $ 688 $ (8,939)
Items not involving use of cash
Depreciation and depletion 2,301 2,787
Write-down of work-in-progress inventory 1,664 -
Non-cash interest expense 684 1,215
Unrealized foreign exchange (gain) loss (3,752) 8,926
Provision for future waste mining costs and mine reclamation obligation 164 79
Gain on sale of investments (508) (60)
Non-cash recovery of bad debt (1,248) -
Future income taxes 679 (4,245)
------ -------
672 (237)
Net change in non-cash operating working capital items (1,189) (6,437)
------ -------
(517) (6,674)
------ -------
INVESTING ACTIVITIES
Expenditures on mining property, plant and equipment (5,248) (1,834)
Expenditures on other capital assets (252) -
Other (18) 83
------ -------
(5,518) (1,751)
------ -------
FINANCING ACTIVITIES
Share capital issued 15,399 92
Proceeds from sale of investment 10 -
Proceeds from long-term debt 4,946 -
Repayment of long-term debt (4,015) (4,639)
------- -------
16,340 (4,547)
------- -------
NET CASH INFLOW/(OUTFLOW) 10,305 (12,972)
CASH, BEGINNING OF PERIOD 25,805 40,373
------- -------
CASH, END OF PERIOD $36,110 $27,401
======= =======
CASH IS COMPRISED OF:
Cash on hand and demand deposits $16,128 $3,057
Time deposits
Restricted 4,456 5,666
Short-term money market instruments
Restricted 9,000 2,765
Unrestricted 6,526 15,913
------- -------
$36,110 $27,401
======= =======
Supplementary information (Note 7)
IVANHOE MINES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. dollars)
(Unaudited)
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1) BASIS OF PRESENTATION
a) These interim financial statements do not contain all the information
required by generally accepted accounting principles for annual financial
statements and therefore should be read in conjunction with the most
recent annual financial statements of the Company for the year ended
December 31, 2001.
b) The Company has adopted the recommendations of the new CICA Handbook
Section 3870, Stock-based Compensation and Other Stock-based Payments,
effective January 1, 2002. This section establishes standards for the
recognition, measurement and disclosure of stock-based compensation and
other stock-based payments made in exchange for goods and services. The
standard requires that all stock-based awards made to non-employees be
measured and recognized using a fair value based method. The standard
encourages a fair value based method for all awards granted to employees,
but only requires the use of a fair value based method for direct awards
of stock, stock appreciation rights, and awards that call for settlement
in cash or other assets. Awards that an entity has the ability to settle
in stock are recorded as equity, whereas awards that the entity is
required to or has a practice of settling in cash are recorded as
liabilities. The Company has adopted the intrinsic value method in
accounting for stock options granted to employees and directors and the
disclosure only provision with respect to the fair-value method (Note 5).
In all other respects, these financial statements follow the same
accounting policies and methods of their application as the most recent
annual financial statements.
c) The comparatives figures in these interim financial statements have been
restated to give retroactive effect to the accounting change with respect
to foreign currency translation as described in Note 3 (b) to the annual
financial statements for the year ended December 31, 2001. This change has
resulted in a decrease of $2,232,000 ($0.02 per share) in the net loss
for the three months ended March 31, 2001.
2) ABM MINING LIMITED ("ABM")
The recent sharp global slow down in the steel industry has resulted in
reduced demand for iron ore pellets. As there are no immediate prospects
for an early recovery in the iron ore market, the Savage River operation
commenced, in the third quarter of 2001, a restructuring of the mine plan
and negotiated additional bank loans aggregating Australian ("A") A$19.3
million to March 31, 2002. The Savage River operation is continuing its
efforts in negotiating with its major stakeholders but there can be no
assurance that the Savage River operation will be able to obtain the
desired additional suitable concessions from the major stakeholders.
If suitable concessions from the major stakeholders are not obtained, or
if the Savage River operations deteriorate, the Company may not continue
to provide financial support to ABM. In this case, ABM may not be able to
continue as a going concern and accordingly, adjustments may be required
to the carrying values and classifications of its assets and liabilities.
IVANHOE MINES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. dollars)
(Unaudited)
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2) ABM MINING LIMITED ("ABM") (CONTINUED)
In 2001, the Company made an impairment provision of $53.8 million with
respect to this project. The Company will continue to review the carrying
value of the Savage River capital assets on a regular basis for
indications of further impairment. The economics of the Savage River Mine
Project are particularly sensitive to changes in selling prices and
operating costs. As a consequence, any adverse changes in those selling
prices and/or operating costs would result in further impairment
provisions and those provisions may be material. As at March 31, 2002, the
carrying value of the Savage River capital assets was $47.0 million.
3) MYANMAR IVANHOE COPPER COMPANY LIMITED ("JVCO")
At March 31, 2002, JVCo was not in compliance with its credit agreement's
minimum working capital requirement. If JVCo receives a notice of default
from its lenders, JVCo will have 20 banking days to cure this
non-compliance. At the end of that period, if the non-compliance remains
uncured, the lenders will have the right to demand immediate repayment of
the loan from JVCo. In that case, the long-term portion of the project
loan, amounting to $18.75 million at March 31, 2002, would be reclassified
to current liabilities.
JVCo is confident that this non-compliance will be resolved by negotiating
with its lenders an amendment to the credit agreement. There can be no
assurance, however, that an amendment to the credit agreement will be
obtained.
4) COMMITMENT
ABM has entered into a contract to deliver U.S.$5 million of currency each
month until February 2003 at U.S. $0.6817 per A$1. This forward sales
contract is not designated as a hedge by the Company and, as a result,
marked to market gains or losses are recognized in operations in the
period in which changes in the market value of the contract occurs. At
March 31, 2002, the remaining obligation under this contract was $54.2
million. The accrued unrealized loss at March 31, 2002 amounts to $12.5
million.
Commencing in the third quarter of 2001, ABM negotiated a deferral of this
currency contract with the holder, UBS Australia Limited, resulting in an
increase in the existing bank loan facilities since that time (Note 2).
The additional loan facility is repayable in various payments between May
2002 to December 2004.
5) SHARE CAPITAL
During the three month period ended March 31, 2002 the Company completed
financings consisting of the issue of 6,452,800 Common Shares at an issue
price of $1.55 and 2,932,364 Common Shares at an issue price of $1.71.
Aggregate gross proceeds to the Company from these financings was $15
million.
IVANHOE MINES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. dollars)
(Unaudited)
- --------------------------------------------------------------------------------
5) SHARE CAPITAL (CONTINUED)
In the first quarter of 2002, the Company granted a total of 100,000 stock
options, 710,475 options were exercised, and 465,000 options were
cancelled.
Stock options outstanding at May 28, 2002 totaled 12,823,769 with exercise
prices and expiry dates ranging from Cdn $0.95 to Cdn $12.05 and November
8, 2003 to May 10, 2008, respectively. At May 28, 2002, a total of
199,151,572 Common Shares of the Company were outstanding.
The Company accounts for its stock-based compensation plan using the
intrinsic-value method. Under this method, compensation costs are not
recognized in the financial statements for stock options granted to
employees and directors when issued at market value.
Effective January 1, 2002, Canadian accounting standards require
disclosure on a pro-forma basis of the impact on net income of using the
fair-value method for stock options issued on or after January 1, 2002. If
the fair-value method had been used, the effect on the Company's net
income and net income per share for the three months ended March 31, 2002
would have been immaterial based on the number of stock options granted in
this period.
6) SEGMENTED INFORMATION
THREE MONTHS ENDED MARCH 31, 2002
-----------------------------------------------
(Stated in 000's) COPPER IRON EXPLORATION CORPORATE
------- ------- ----------- ---------
REVENUE 4,653 17,122 - -
COST OF OPERATIONS (2,374) (12,667) - -
DEPRECIATION AND DEPLETION (1,084) (1,177) - -
------ ------ ------ ------
OPERATING PROFIT 1,195 3,278 - -
------ ------ ------ ------
General and administrative (87) (9) - (1,586)
Interest on long-term debt (525) (705) - -
Exploration expenses - - (2,878) -
Depreciation - - (40) -
------ ------ ------ ------
INCOME (LOSS) BEFORE THE FOLLOWING 583 2,564 (2,918) (1,586)
------ ------ ------ ------
Mining property shut-down costs - - - (622)
Interest income 36 24 6 128
Foreign exchange gain/(loss) - 202 (1) (9) 112
Other income 2 (141) 31 3,077
------ ------ ------ ------
INCOME (LOSS) BEFORE INCOME AND CAPITAL
TAXES 621 2,649 (2,890) 1,109
------ ------ ------ ------
(Provision for) recovery of income and
capital taxes (134) (1,721) 472 582
------ ------ ------ ------
NET INCOME (LOSS) 487 928 (2,418) 1,691
====== ====== ====== ======
(1) This amount excludes $3.95 million of realized foreign exchange losses
arising from the foreign exchange contract discussed in Note 4 which became due
during the quarter, as these losses had been previously accrued by the Company
at December 31, 2001.
IVANHOE MINES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. dollars)
(Unaudited)
- --------------------------------------------------------------------------------
6) SEGMENTED INFORMATION (CONTINUED)
THREE MONTHS ENDED MARCH 31, 2001
-----------------------------------------------
(Stated in 000's) COPPER IRON EXPLORATION CORPORATE
------- ------- ----------- ---------
REVENUE 5,220 12,815 -- --
COST OF OPERATIONS (2,191) (7,666) -- --
DEPRECIATION AND DEPLETION (988) (1,757) -- --
------ ------- ------ ------
OPERATING PROFIT 2,041 3,392 -- --
------ ------- ------ ------
General and administrative (121) (94) (223) (768)
Interest on long-term debt (1,050) (1,114) -- (402)
Exploration expenses -- -- (881) --
Depreciation -- -- (42) --
------ ------- ------ ------
INCOME (LOSS) BEFORE THE FOLLOWING 870 2,184 (1,146) (1,170)
------ ------- ------ ------
Mining property shut-down costs -- -- -- (977)
Interest income 135 37 2 350
Foreign exchange (loss) -- (13,013) (64) (445)
Other income -- -- -- 60
------ ------- ------ ------
INCOME (LOSS) BEFORE INCOME AND CAPITAL
TAXES 1,005 (10,792) (1,208) (2,182)
------ ------- ------ ------
(Provision for) recovery of income and
capital taxes 25 4,580 (7) (360)
------ ------- ------ ------
NET INCOME (LOSS) 1,030 (6,212) (1,215) (2,542)
====== -====== ====== ======
7) SUPPLEMENTARY CASH FLOW INFORMATION
a) During the three months ended March 31, 2002, the Company exchanged its
investment in GTL Resources Plc, which had a carrying value of $ 1.4
million, for an equity interest in Resource Investment Trust with a fair
value of $1.9 million.
Also, during that period, the Company completed the earn-in of a 100%
interest in the Oyu Tolgoi project in Mongolia by paying cash of $1
million and by incurring an obligation to make a $4 million payment within
one year.
b)
Three Months Ended March 31,
----------------------------
$(000) 2002 2001
---- -----
Interest paid 546 1,922
Income & capital taxes paid 122 7
8) SUBSEQUENT EVENTS
a) In April 2002, the Company issued 17,450,000 Common Shares at a price of
Cdn.$3.25 (U.S.$2.05) per share for total proceeds of Cdn.$56.7 million
(U.S.$35.7 million).
b) In April 2002, the Company agreed to issue 2,550,000 Special Warrants for
total proceeds of approximately Cdn.$8.3 million (U.S.$5.2 million). Each
Special Warrant will entitle the holder to acquire, at no additional cost,
one Common Share at any time until the close of business on the fifth
business day after the earlier of: (i) the date upon which the applicable
Canadian provincial securities commissions issue receipts for the
Company's final prospectus, and (ii) 120 days after the closing of the
financing
IVANHOE MINES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. dollars)
(Unaudited)
- --------------------------------------------------------------------------------
8) SUBSEQUENT EVENTS (CONTINUED)
c) In May 2002, the Company acquired a total of 29 million shares
(representing 19.8% of the total outstanding shares) of Intec Limited, a
company listed on the Australian Stock Exchange. Total consideration paid
for this acquisition consisted of cash of $3,660,000 and 287,678 Common
Shares of the Company with a fair value of $597,000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Net income for the quarter was $0.7 million or $ nil per share, compared with a
loss of $8.9 million or $0.07 per share in 2001.
The Company spent a total of $ 2.9 million in exploration activities in the
quarter, including $2.2 million on its Mongolian properties. At the end of
January 2002, the Company acquired a 100% interest in the Oyu Tolgoi project in
Mongolia by paying the sum of $1 million cash and incurring an obligation to
make a final $4 million payment within a year. In early April 2002, the
Company's cumulative exploration expenditures on the Oyu Tolgoi property
exceeded $6 million, which completed the entire exploration obligations under
the property earn-in agreement. An exploration budget of approximately $10 to
$15 million is planned for 2002.
The Copper division's operating profit after depreciation and depletion
decreased by $846,000.
The Iron division's operating profit after depreciation and depletion decreased
by $114,000. The Iron division operating results do not include foreign exchange
cash losses of $3.95 million realized in the quarter on the commitment discussed
in Note 4 to the financial statements as the losses were previously accrued.
Also, the 2002 quarterly operating expenses exclude $1.6 million of capitalized
pre-stripping expenses.
Cash flow used for operations decreased from $6.7 million in 2001 to $0.5
million in 2002 attributed largely to a decrease in 2002 in the net change in
non-cash working capital items.
At March 31, 2002 working capital was $6.9 million, including cash of $36.1
million compared with working capital of $5.7 million and cash of $25.8 million
at the end of 2001. The $10.3 million increase in cash was mainly caused by the
issuance of Common Shares totaling $15.4 million less expenditures on mining
property, plant and equipment of $5.2 million.
In April of 2002, the Company raised a total of $40.9 million by issuing an
aggregate of 20 million Common Shares and Special Warrants in order to finance
expected future investments and exploration activities in Mongolia, and for
working capital purposes.
OPERATIONS
COPPER OPERATION
Total operation Company's 50% net share
-------------------------- -----------------------------
PERCENT PERCENT
INCREASE INCREASE
COPPER 1Q'02 1Q'01 (DECREASE) 1Q'02 1Q'01 (DECREASE)
----- ----- --------- ----- ----- --------
Tonnes of Ore to heap Tonnes (000's) 2,595 1,901 36%
Grade CuCn% 0.52% 0.62% -16%
Strip ratio Waste/Ore 0.38 0.18 118%
Cathode production Tonnes 6,485 7,071 -8% 3,243 3,536 -8%
Sales Tonnes 6,513 6,438 1% 3,257 3,219 1%
US$/pound $ 0.69 $ 0.78 -12%
US$(000) 4,653 5,220 -11%
Cost of operations US$(000) 2,374 2,191 8%
Operating profit US$(000) 1,195 2,041 -41%
In 2002, in an effort to maintain the previous year cathode production level,
JCCo increased the total tonnage mined in order to offset the decrease in both
the grade mined and copper recoveries resulting from both the mining of clay ore
and the increase stacking of run of mine ore.
As a result, higher fuel and equipment rental charges and higher maintenance
charges of mining equipment constituted the majority of the increase in cost of
operations.
The decrease in interest charges and interest income is attributed to lower loan
and cash balances, respectively, and to lower interest rates.
IRON OPERATION
The production of iron products in both quarters was very similar as shown in
the table below.
PERCENT
INCREASE
IRON 1Q'02 1Q'01 (DECREASE)
------- ------- ------- ---------
Tonnes milled (000's) 1,136 1,247 -9%
Concentrate production Tonnes 544,313 545,610 0%
Grade DTR % 51% 46% 9%
Pellet production Tonnes 533,495 534,858 0%
Pellet sales Tonnes 587,185 401,329 46%
Sales US$/tonne $29 $32 -9%
US$(000) 17,122 12,815 34%
Cost of operations US$(000) 12,667 7,666 65%
US$/tonne $22 $19 13%
Operating profit US$(000) 3,278 3,392 -3%
The majority of the decrease in the sales unit price is due to increased
commission charges in 2002 and higher sales of concentrate in the first quarter
of 2001.
The increase in the cost of operations is mainly attributed to higher tonnage
sold and higher mining and processing costs. The majority of the increase in
mining costs is attributed to higher fuel, drilling and blasting and equipment
rental charges. The increase in processing costs is mainly attributed to higher
electricity and maintenance charges less
a decrease in depreciation charges resulting from the $53.8 million write-down
of capital assets at the end of 2001.
The Iron division operating results do not include the foreign exchange cash
losses realized in the quarter on the commitment discussed in Note 4 to the
financial statements as these losses were previously accrued. The cash losses
realized in the first quarter of 2002 totaled $3.95 million. Also, the 2002
quarterly operating expenses exclude $1.6 million of capitalized pre-stripping
expenses. If these cash losses and the deferred pre-stripping expenses had been
included in operations, the $3.3 operating profit for the second quarter of 2002
would have been an operating loss of $2.3 million.
The decrease in interest expense is mainly attributed to the reduction in
related party loans at the end of 2001.
The decrease in the foreign exchange loss is attributed to the strengthening of
the Australian currency against the U.S. currency. The Australian dollar hit a
low point of US$0.5069 per Australian dollar at the end of January 2002. By the
end of March 2002, the Australian dollar had increased by 5% to US$0.5328. The
resulting reduction in accrued foreign exchange losses on the Company's U.S.
dollar commitment exceeded the increase in foreign exchange losses on the
Company's Australian monetary assets.
GOLD
The majority of expenditures on the Korea projects were capitalized in the first
quarter of 2002 and the Company expects to start production at its Eunsan gold
and silver mine in the second quarter of 2002. The Bakyrchik gold mine produced
a total of 720 ounces of gold in the first quarter of 2002. The revenues from
this mine are netted against the mine's care and maintenance costs.
EXPLORATION
Exploration expenses in the first quarter totaled $2.9 million compared to $0.9
million in 2001. The $2.0 million increase is a result of the increased
activities in the Mongolia Oyu Tolgoi property. An exploration budget of
approximately $10 to $15 million is planned for 2002.
CORPORATE
The increase in general and administrative expenses is mainly attributed to
higher consulting and travel expenses related to the Company's financing efforts
during the quarter.
The decrease in mining property shut-down costs is mainly attributed to the gold
revenues netted against the care and maintenance costs at the Bakyrchik gold
mine and the reduction of the care and maintenance costs at the Bjonevatn iron
ore mine. The Company intends to divest itself of the Bjonevatn facilities in
the second quarter of 2002.
Other income for $3.0 million resulted mainly from the receipt in January of
2002 of 3.78 million shares of Olympus Pacific Minerals Inc. ("Olympus") and
$1.32 million in cash. The receipt of these proceeds resulted from the
renegotiation of the $3.75 million receivable from Olympus as a result of the
1997 sale of the Company's Vietnam exploration properties. This receivable was
written-off by the Company in previous years.
LIQUIDITY
In the first quarter of 2002, the Savage River operation received a total of
A$9.4 million from its lenders to offset the exchange losses generated by the
U.S. dollar exchange commitment.
In April of 2002, the Company raised a total of $40.9 million by issuing an
aggregate of 20 million Common Shares and Special Warrants of the Company. The
proceeds will be used for funding future investments and exploration in
Mongolia, and for working capital purposes.