Ivanhoe Electric begins IPO plans

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A brief introduction to Ivanhoe Electric

Ivanhoe Electric Inc. (IE) has applied to raise an estimated $200 million in an initial public offering of its common stock, according to an S-1 registration statement.

The company acts as mineral exploration, development and technology companies in the United States and elsewhere.

IE is still relatively small in terms of revenue and generates significant operating losses.

As we learn more details about the IPO, I’ll make a definitive opinion.

Ivanhoe overview

Based in Vancouver, Canada, Ivanhoe was formed to explore and mine various metals critical to the electrification industry and applications.

Management is led by Chairman and CEO Robert Friedland, who has been with the Company since July 2020 and has over 25 years of experience in international financial and mineral exploration, co-founded Ivanhoe Capital and was Chairman of Energy Capital Group.

The company’s main offerings include:

• Mineral exploration – copper, gold, silver

• Typhoon – geophysical exploration technologies

• VRB Energy – Large scale energy storage systems

Ivanhoe has booked $158.8 million in equity and convertible debt investments at market value as of March 31, 2022 from investors including I-Pulse, Century Vision Holdings, Fidelity Contrafund and others.

Ivanhoe – project acquisition

The Company’s current US mineral projects are shown on the map below:

Operation of US Companies (SEC EDGAR)

IE believes it is strategically important for the US to further develop its own resources to reduce its dependence on foreign sources of critical minerals and increase the resilience of its supply chain.

G&A expenses as a percentage of total revenue has fluctuated as revenue has increased, as shown in the following figures:

General administration	Expenses vs. Income
Period	percentage
Three months. Ends March 31, 2022	77.3%
2021	438.6%
2020	251.5%

(Source)

The general and administrative efficiency multiple, defined as how many dollars in additional new revenue generated by each dollar of general and administrative expenses, increased 1.0-fold over the most recent reporting period, as shown in the following table:

General administration	efficiency rate
Period	Several
Three months. Ends March 31, 2022	1.0
2021	0.0

(Source)

Ivanhoe’s Market & Competition

According to a 2021 US Geological Survey market research report, the US mining industry produced an estimated $82.3 billion worth of minerals in 2020.

This represented a decrease of about $1.5 billion from 2019’s total of $83.7 billion.

The US continues to rely on foreign suppliers for many types of raw and processed materials, with imports accounting for more than 50% of US consumption of various non-fuel minerals.

Additionally, the US relied solely on imported minerals for 17 of the 46 minerals it consumed.

Key contestants or other industry participants include:

• Freeport-McMoRan (FCX);

• Alcoa (AA);

• Newmont Mining;

• Southern Copper (SCCO);

• Peabody Energy (BTU);

• Other.

Financial performance of Ivanhoe Electric

The company’s recent financial results can be summarized as follows:

• Increasing top-line earnings from a small base;

• increase in gross profit and gross margin;

• Growing Operating Losses (Annualized);

• Higher cash burn in operations.

The following are relevant financial results arising from the company’s registration statement:

total revenue
Period	total revenue	% variance vs. before
Three months. Ends March 31, 2022	$6,762,000	333.7%
2021	$4,652,000	0.4%
2020	$4,633,000
gross profit (loss)
Period	gross profit (loss)	% variance vs. before
Three months. Ends March 31, 2022	$6,710,000	440.3%
2021	$3,132,000	10.0%
2020	$2,848,000
gross margin
Period	gross margin
Three months. Ends March 31, 2022	99.23%
2021	67.33%
2020	61.47%
Operating Profit (Loss)
Period	Operating Profit (Loss)	operating margin
Three months. Ends March 31, 2022	$(17,206,000)	-254.5%
2021	$(60,749,000)	-1305.9%
2020	$(26,601,000)	-574.2%
net income (loss)
Period	net income (loss)	net margin
Three months. Ends March 31, 2022	$(17,674,000)	-261.4%
2021	$(59,320,000)	-877.3%
2020	$(25,234,000)	-373.2%
Cash flow from operations
Period	Cash flow from operations
Three months. Ends March 31, 2022	$(14,619,000)
2021	$(47,832,000)
2020	$(22,984,000)
(Glossary of terms)

(Source)

As of March 31, 2022, Ivanhoe had $29.8 million in cash and $130.5 million in total debt.

Free cash flow for the twelve months ended March 31, 2022 was negative ($57.3 million).

Ivanhoe Electric IPO details

Ivanhoe intends to raise an estimated $200 million in gross proceeds from an initial public offering of its common stock, although the final number may vary.

The company plans to have a dual listing on the NYSE American and the Toronto Stock Exchange.

No existing shareholder has expressed an interest in buying shares at the IPO price.

Management says it will use the net proceeds from the IPO as follows:

Our goal is to explore mineral projects to find commercial ore bodies that can be developed into operating mines. Our short and medium-term business goals in furthering this goal (each also representing the significant event that must occur in order for the business goals to be achieved) using the proceeds from this offering are: [i] Exercising options and other rights we have at the Santa Cruz Project to acquire ownership of such mineral titles and surface rights, [ii] Completion of the Santa Cruz project in the second half of 2022, [iii] build additional Typhoon™ sets to expand the number of projects we can use this technology on, and [iv] continue exploration activities on all our projects.

(Source)

Management’s presentation of the company’s roadshow is not available.

With respect to pending litigation, two of the Company’s subsidiaries are involved in litigation, but management believes that:

None of the litigation in which we are currently involved or have been involved since the beginning of our most recently completed fiscal year, individually or collectively, is material to our combined financial condition, cash flows or results of operations.

The listed bookrunners of the IPO are BMO Capital Markets and Jefferies.

Commentary on Ivanhoe’s IPO

IE is seeking public market investment to continue its exploration activities and further develop its technology offering.

Its Typhoon technology has been deployed worldwide by both the Company and third parties on various major mineral deposits.

The company’s financials have resulted in increased revenue, gross profit and gross margin, but a higher operating loss rate and growing cash burn in operations.

Free cash flow for the twelve months ended March 31, 2022 was negative ($57.3 million).

G&A expenses as a percentage of total revenue have changed as revenue has increased; its General & Administrative Efficiency Multiple increased to 1.0x in the most recent reporting period.

The company currently plans not to pay dividends on its shares and anticipates using any profits to reinvest in the company and its growth initiatives.

The market opportunity for mineral mining in the United States is large but highly competitive. The US imports a large percentage of its mineral needs, so the need for domestic sources of production is significant.

BMO Capital Markets is the lead underwriter and there is no data on IPOs led by the firm in the last 12 months.

When we receive more information on management’s proposed IPO prices and valuation assumptions, I will provide a final comment.

Estimated IPO Price Date: To be announced.