EX-13.3 22 o11180exv13w3.txt QUARTERLY REPORT PERIOD ENDED JUNE 30, 2002 Exhibit 13.3 IVANHOE MINES SECOND QUARTER REPORT JUNE 30, 2002 TABLE OF CONTENTS ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets at June 30, 2002 (unaudited) and December 31, 2001 Unaudited Consolidated Statements of Operations and Deficit for the Six and Three Month Periods ended June 30, 2002 and 2001 Unaudited Consolidated Statements of Cash Flows for the Six and Three Month Period ended June 30, 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 --------------------------------------------------------------------------------
JUNE 30, DECEMBER 31, (STATED IN U.S. $000'S) 2002 2001 --------- ----------- (UNAUDITED) ASSETS CURRENT Cash $ 62,436 $ 25,805 Accounts receivable 4,323 2,423 Inventories 24,592 22,529 Prepaid expenses 2,268 1,333 Future income taxes 2,047 4,635 --------- --------- 95,666 56,725 INVESTMENTS 12,149 4,823 MINING PROPERTY, PLANT AND EQUIPMENT 189,532 181,670 OTHER CAPITAL ASSETS 1,311 524 FUTURE INCOME TAXES 3,475 2,440 OTHER ASSETS 1,454 1,420 --------- --------- $ 303,587 $ 247,602 ========= ========= LIABILITIES CURRENT Accounts payable and accrued liabilities $ 22,205 $ 15,407 Accrued loss on foreign exchange contract 6,823 15,450 Current portion of long-term debt 26,546 20,133 --------- --------- 55,574 50,990 LOANS PAYABLE TO RELATED PARTIES 5,092 4,696 LONG-TERM DEBT 40,910 41,837 FUTURE INCOME TAXES 14,071 13,731 OTHER LIABILITIES 4,165 6,177 --------- --------- 119,812 117,431 --------- --------- SHAREHOLDERS' EQUITY SHARE CAPITAL Authorized Unlimited number of preferred shares without par value Unlimited number of common shares without par value Issued and outstanding 201,711,572 (2001-171,158,484) Common Shares 515,851 460,389 ADDITIONAL PAID-IN CAPITAL 1,532 1,697 CONTRIBUTED SURPLUS (ARISING FROM STOCK-BASED COMPENSATION) 2,821 -- DEFICIT (336,429) (331,915) --------- --------- 183,775 130,171 --------- --------- $ 303,587 $ 247,602 ========= =========
APPROVED BY THE BOARD: John Weatherall Kjeld Thyegsen ----------------------------------- ------------------------------------ Director Director IVANHOE MINES LTD. CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT (UNAUDITED) --------------------------------------------------------------------------------
Three months ended June 30, Six months ended June 30, --------------------------- ------------------------- (STATED IN U.S. $000'S) 2002 2001 2002 2001 --------- --------- --------- --------- (Note 1(b)) (Note 1(c)) (Note 1(b)) (Note 1(c)) REVENUE $ 24,804 $ 21,913 $ 46,579 $ 39,948 COST OF OPERATIONS (17,349) (17,153) (32,390) (26,888) DEPRECIATION AND DEPLETION (1,888) (3,655) (4,149) (6,400) --------- --------- --------- --------- OPERATING PROFIT 5,567 1,105 10,040 6,660 OTHER EXPENSES General and administrative (2,899) (1,702) (4,824) (3,030) Interest on long-term debt (1,207) (2,521) (2,437) (5,087) Exploration expenses (5,435) (1,392) (8,313) (2,273) Depreciation (73) (24) (113) (66) --------- --------- --------- --------- EARNINGS (LOSS) BEFORE THE FOLLOWING (4,047) (4,534) (5,647) (3,796) --------- --------- --------- --------- OTHER INCOME (EXPENSES) Mining property shut-down costs (325) (1,029) (947) (2,006) Interest income 376 327 570 851 Foreign exchange gain/(loss) 2,603 5,741 2,908 (7,781) Other 154 55 3,123 115 --------- --------- --------- --------- 2,808 5,094 5,654 (8,821) --------- --------- --------- --------- INCOME (LOSS) BEFORE INCOME AND CAPITAL TAXES (1,239) 560 7 (12,617) (Provision for) recovery of income and capital taxes (1,348) (2,650) (2,149) 1,588 --------- --------- --------- --------- NET LOSS (2,587) (2,090) (2,142) (11,029) DEFICIT, BEGINNING OF PERIOD (331,470) (255,856) (331,915) (246,917) EFFECT OF ACCOUNTING CHANGE (NOTE 1 (B)) (2,372) -- (2,372) -- --------- --------- --------- --------- DEFICIT, END OF PERIOD $(336,429) $(257,946) $(336,429) $(257,946) ========= ========= ========= ========= LOSS PER SHARE Basic $ (0.01) $ (0.02) $ (0.01) $ (0.09) Fully Diluted $ (0.01) $ (0.02) $ (0.01) $ (0.09) ========= ========= ========= ========= WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING (IN 000'S) 199,284 125,034 185,789 124,975 --------- --------- --------- ---------
IVANHOE MINES LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) --------------------------------------------------------------------------------
Three months ended Six months ended June 30, June 30, ----------------------- ----------------------- (STATED IN U.S. $000'S) 2002 2001 2002 2001 -------- -------- -------- -------- (Note 1(c)) (Note 1(c)) OPERATING ACTIVITIES Net loss $ (2,587) $ (2,090) $ (2,142) $(11,029) Items not involving use of cash Depreciation and depletion 1,961 3,679 4,262 6,466 Write-down of work-in-progress inventory -- -- 1,664 -- Non-cash interest expense 711 1,082 1,395 2,297 Unrealized foreign exchange (gain) loss (3,702) (6,539) (7,454) 2,387 Provision for future waste mining costs and mine reclamation obligation 612 1,241 776 1,320 Gain on sale of investments -- (64) (508) (124) Non-cash recovery of bad debt -- -- (1,248) -- Non-cash recovery of mining property shut-down costs (205) -- (205) -- Non-cash stock-based compensation 412 -- 655 -- Future income taxes 1,215 2,643 1,894 (1,602) -------- -------- -------- -------- (1,583) (48) (911) (285) Net change in non-cash operating working capital items (2,576) 5,669 (3,765) (768) -------- -------- -------- -------- (4,159) 5,621 (4,676) (1,053) -------- -------- -------- -------- INVESTING ACTIVITIES Expenditures on investments (4,981) -- (4,981) -- Proceeds from sale of investment -- 278 10 278 Expenditures on mining property, plant and equipment (6,183) (7,008) (11,431) (8,842) Recovery of other mineral property interests -- 143 -- 143 Expenditures on other capital assets (648) -- (900) -- Other (16) (162) (34) (79) -------- -------- -------- -------- (11,828) (6,749) (17,336) (8,500) -------- -------- -------- -------- FINANCING ACTIVITIES Share capital issued 39,093 97 54,492 189 Proceeds from long-term debt 3,516 -- 8,462 -- Repayment of long-term debt (296) (1,012) (4,311) (5,651) -------- -------- -------- -------- 42,313 (915) 58,643 (5,462) -------- -------- -------- -------- NET CASH INFLOW/(OUTFLOW) 26,326 (2,043) 36,631 (15,015) CASH, BEGINNING OF PERIOD 36,110 27,401 25,805 40,373 -------- -------- -------- -------- CASH, END OF PERIOD $ 62,436 $ 25,358 $ 62,436 $ 25,358 ======== ======== ======== ======== CASH IS COMPRISED OF: Cash on hand and demand deposits $ 14,068 $ 9,447 $ 14,068 $ 9,447 Time deposits Restricted 4,456 5,267 4,456 5,267 Short-term money market instruments Restricted 9,000 2,765 9,000 2,765 Unrestricted 34,912 7,879 34,912 7,879 -------- -------- -------- -------- $ 62,436 $ 25,358 $ 62,436 $ 25,358 -------- -------- -------- --------
IVANHOE MINES LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Stated in U.S. dollars) (Unaudited) -------------------------------------------------------------------------------- 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 (the "Annual Financial Statements"). 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, commencing in the three months ended June 30, 2002, the fair value method of accounting for stock options granted to employees and directors. The comparative figures in these interim financial statements have been restated to give retroactive effect to this accounting change with respect to stock-based compensation, which resulted in an increase in the net loss for the three and six months ended June 30, 2002 by $412,000 ($ nil per share) and $655,000 ($nil per share), respectively, and an increase in the deficit as at January 1, 2002 by $2,372,000. 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 comparative 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 an increase of $496,000 ($ Nil per share) in the net loss for the three months ended June 30, 2001 and a decrease of $ 1,736,000 ($ 0.01 per share) in the net loss for the six months ended June 30, 2001. 2) ABM MINING LIMITED ("ABM") During 2001, a sharp global slow down in the steel industry resulted in reduced demand for iron ore pellets. Management therefore commenced a restructuring of the mine plan and negotiated additional bank loans aggregating Australian ("A") A$21 million (U.S. $14 million) to June 30, 2002. The Savage River operation is continuing its efforts in negotiating with its major stakeholders. In particular, discussion among the major stakeholders in the Savage River project, aimed at restructuring ABM project debt and foreign currency commitment, are progressing. IVANHOE MINES LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Stated in U.S. dollars) (Unaudited) -------------------------------------------------------------------------------- 2) ABM MINING LIMITED ("ABM") (CONTINUED) If suitable concessions from the major stakeholders are not obtained, or if the Savage River Operations deteriorate, ABM will probably not receive the continued financial support of those stakeholders. In this case, ABM will not be able to continue as a going concern and accordingly, adjustments would be required to the carrying values and classifications of its assets and liabilities. 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 June 30, 2002, the carrying value of the Savage River capital assets was $50.4 million. 3) MYANMAR IVANHOE COPPER COMPANY LIMITED ("JVCO") The Annual Financial Statements disclosed that it was likely that JVCo would not be in compliance with the minimum working capital requirement in its credit agreement during 2002. JVCo is currently in discussions with its lenders regarding the interpretation of the definition of this requirement. In the meantime, JVCo has received a waiver from its lenders with respect to this requirement at June 30, 2002. JVCo expects that the loan agreement will be amended during its fiscal year ending March 31, 2003 to clarify the definition of the minimum working capital requirement, and that JVCo will be in compliance with the requirement, as amended. 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 June 30, 2002, the remaining obligation under this contract was $36.5 million. The accrued unrealized loss at June 30, 2002 amounts to $6.8 million. IVANHOE MINES LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Stated in U.S. dollars) (Unaudited) -------------------------------------------------------------------------------- 5) LONG-TERM DEBT
June 30, December 31, US$(000) 2002 2001 ---------- ------------ JVCo: Share of loan payable $ 26,250 $ 30,000 ABM: Bank term loan 34,166 22,292 Deferred purchase obligation 4,901 3,933 Equipment purchase loans 2,139 5,205 Unsecured loan -- 540 ---------- ---------- 67,456 61,970 Less: Amount included in current liabilities (26,546) (20,133) ---------- ---------- $ 40,910 $ 41,837 ========== ==========
All of the long-term debt is non-recourse to the Company. 6) SHARE CAPITAL During the three-month period ended June 30, 2002 the Company completed a financing consisting of the issue of 17,450,000 Common Shares at an issue price of $2.05 (Cdn $3.25) and issued 2,550,000 Common Shares as a result of the exercise of outstanding share purchase warrants at an exercise price of $2.05 (Cdn $3.25). Aggregate gross proceeds to the Company from these share issuances were $41 million. In addition, a total of 287,678 Common Shares were issued at a deemed value of $2.08 in respect of the purchase of 7.4 million common shares of Intec Ltd, an Australian Stock Exchange listed company. This transaction was part of a larger transaction whereby the Company acquired an aggregate of 29 million shares of Intec Ltd. for cash and Common Share consideration totalling $ 2.6 million. In the three month ended June 30, 2002, the Company granted a total of 700,000 stock options, 147,500 options were exercised, and 282,500 options were cancelled. Stock options outstanding at August 28, 2002 totaled 13,048,269 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 August 28, 2002, a total of 201,799,213 Common Shares of the Company were outstanding. IVANHOE MINES LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Stated in U.S. dollars) (Unaudited) -------------------------------------------------------------------------------- 7) SEGMENTED INFORMATION
SIX MONTHS ENDED JUNE 30, 2002 --------------------------------------------------------------- (Stated in 000's) COPPER IRON EXPLORATION CORPORATE TOTAL ------- ------- ----------- --------- ------- REVENUE 10,087 36,492 -- -- 46,579 COST OF OPERATIONS (5,093) (27,297) -- -- (32,390) DEPRECIATION AND DEPLETION (2,070) (2,079) -- -- (4,149) ------- ------- ------- ------- ------- OPERATING PROFIT 2,924 7,116 -- -- 10,040 ------- ------- ------- ------- ------- General and administrative (283) (36) -- (4,505) (4,824) Interest on long-term debt (898) (1,539) -- -- (2,437) Exploration expenses -- -- (8,313) -- (8,313) Depreciation -- -- (106) (7) (113) ------- ------- ------- ------- ------- INCOME (LOSS) BEFORE THE FOLLOWING 1,743 5,541 (8,419) (4,512) (5,647) ------- ------- ------- ------- ------- Mining property shut-down costs -- -- -- (947) (947) Interest income 54 53 12 451 570 Foreign exchange gain/(loss) (23) 1,045(1) 64 1,822 2,908 Other income 6 32 9 3,076 3,123 ------- ------- ------- ------- ------- INCOME (LOSS) BEFORE INCOME AND CAPITAL TAXES 1,780 6,671 (8,334) (110) 7 ------- ------- ------- ------- ------- (Provision for) recovery of income and capital taxes (123) (3,654) 645 983 (2,149) ------- ------- ------- ------- ------- NET INCOME (LOSS) 1,657 3,017 (7,689) 873 (2,142) ======= ======= ======= ======= =======
(1) This foreign exchange gain includes a $4.2 million gain on the mark to market accrual of the foreign exchange contract and it excludes $7.0 million of realized foreign exchange losses arising from the foreign exchange contract discussed in Note 4 which became due during the period, 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) -------------------------------------------------------------------------------- 7) SEGMENTED INFORMATION (CONTINUED)
SIX MONTHS ENDED JUNE 30, 2001 --------------------------------------------------------------- (Stated in 000's) COPPER IRON EXPLORATION CORPORATE TOTAL ------- ------- ----------- --------- ------- REVENUE 11,330 28,618 -- -- 39,948 COST OF OPERATIONS (4,248) (22,640) -- -- (26,888) DEPRECIATION AND DEPLETION (1,989) (4,411) -- -- (6,400) ------- ------- ------- ------- ------- OPERATING PROFIT 5,093 1,567 -- -- 6,660 ------- ------- ------- ------- ------- General and administrative (408) (47) -- (2,575) (3,030) Interest on long-term debt (2,396) (2,449) -- (242) (5,087) Exploration expenses -- -- (2,273) -- (2,273) Depreciation -- -- (66) -- (66) ------- ------- ------- ------- ------- INCOME (LOSS) BEFORE THE FOLLOWING 2,289 (929) (2,339) (2,817) (3,796) ------- ------- ------- ------- ------- Mining property shut-down costs -- -- -- (2,006) (2,006) Interest income 194 97 6 554 851 Foreign exchange gain/(loss) -- (7,524) (55) (202) (7,781) Other income -- (7) (2) 124 115 ------- ------- ------- ------- ------- INCOME(LOSS) BEFORE INCOME AND CAPITAL TAXES 2,483 (8,363) (2,390) (4,347) (12,617) ------- ------- ------- ------- ------- (Provision for) recovery of income and capital taxes 30 2,184 (13) (613) 1,588 ------- ------- ------- ------- ------- NET INCOME (LOSS) 2,513 (6,179) (2,403) (4,960) (11,029) ======= ======= ======= ======= =======
THREE MONTHS ENDED JUNE 30, 2002 --------------------------------------------------------------- (Stated in 000's) COPPER IRON EXPLORATION CORPORATE TOTAL ------- ------- ----------- --------- ------- REVENUE 5,434 19,370 -- -- 24,804 COST OF OPERATIONS (2,719) (14,630) -- -- (17,349) DEPRECIATION AND DEPLETION (986) (902) -- -- (1,888) ------- ------- ------- ------- ------- OPERATING PROFIT 1,729 3,838 -- -- 5,567 ------- ------- ------- ------- ------- General and administrative (196) (27) -- (2,676) (2,899) Interest on long-term debt (373) (834) -- -- (1,207) Exploration expenses -- -- (5,435) -- (5,435) Depreciation -- -- (66) (7) (73) ------- ------- ------- ------- ------- INCOME (LOSS) BEFORE THE FOLLOWING 1,160 2,977 (5,501) (2,683) (4,047) ------- ------- ------- ------- ------- Mining property shut-down costs -- -- -- (325) (325) Interest income 18 29 6 323 376 Foreign exchange (loss) (23) 843(2) 73 1,710 2,603 Other income 4 173 (22) (1) 154 ------- ------- ------- ------- ------- INCOME (LOSS) BEFORE INCOME AND CAPITAL TAXES 1,159 4,022 (5,444) (976) (1,239) ------- ------- ------- ------- ------- (Provision for) recovery of income and capital taxes 11 (1,933) 173 401 (1,348) ------- ------- ------- ------- ------- NET INCOME (LOSS) 1,170 2,089 (5,271) (575) (2,587) ======= ======= ======= ======= =======
(2) This foreign exchange gain includes a $1.7 million gain on the mark to market accrual of the foreign exchange contract and it excludes $3.9 million of realized foreign exchange losses arising from the foreign exchange contract discussed in Note 4 which became due during the period, 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) -------------------------------------------------------------------------------- 7) SEGMENTED INFORMATION (CONTINUED)
THREE MONTHS ENDED JUNE 30, 2001 --------------------------------------------------------------- (Stated in 000's) COPPER IRON EXPLORATION CORPORATE TOTAL ------- ------- ----------- --------- ------- REVENUE 6,110 15,803 -- -- 21,913 COST OF OPERATIONS (2,179) (14,974) -- -- (17,153) DEPRECIATION AND DEPLETION (1,001) (2,654) -- -- (3,655) ------- ------- ------- ------- ------- OPERATING PROFIT 2,930 (1,825) -- -- 1,105 ------- ------- ------- ------- ------- General and administrative (165) 47 223 (1,807) (1,702) Interest on long-term debt (1,346) (1,335) -- 160 (2,521) Exploration expenses -- -- (1,392) -- (1,392) Depreciation -- -- (24) -- (24) ------- ------- ------- ------- ------- INCOME (LOSS) BEFORE THE FOLLOWING 1,419 (3,113) (1,193) (1,647) (4,534) ------- ------- ------- ------- ------- Mining property shut-down costs -- -- -- (1,029) (1,029) Interest income 59 60 4 204 327 Foreign exchange (loss) -- 5,489 9 243 5,741 Other income -- (7) (2) 64 55 INCOME (LOSS) BEFORE INCOME AND CAPITAL TAXES 1,478 2,429 (1,182) (2,165) 560 ------- ------- ------- ------- ------- (Provision for) recovery of income and capital taxes 5 (2,396) (6) (253) (2,650) ------- ------- ------- ------- ------- NET INCOME (LOSS) 1,483 33 (1,188) (2,418) (2,090) ======= ======= ======= ======= =======
8) SUPPLEMENTARY CASH FLOW INFORMATION a) During the three months ended June 30, 2002, the Company issued 287,678 Common Shares at a deemed value of $600,000 in respect of the purchase of 7.4 million common shares of Intec Ltd. (Note 5). During the three months ended June 30, 2002, the Company divested itself of its iron ore project in Norway and extinguished the related outstanding debt of $3.5 million. 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 the three months ended March 31, 2002, 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 June 30, Six Months Ended June 30, --------------------------- ------------------------- $(000) 2002 2001 2002 2001 ------ -------- -------- -------- -------- Interest paid 496 1,439 1,042 2,790 Income and capital taxes paid 134 7 256 14