Registration of Securities of a Canadian Issuer — SEA’34 §12(g) — Form 40-F
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 40FR12G Form 40-F HTML 72K
2: EX-3.1 Articles of Continuance and By-Laws 16 68K
3: EX-3.2 Amendment 1 to Articles and By-Laws 1 21K
4: EX-3.3 Amendment 2 to Articles and By-Laws 1 20K
5: EX-3.4 Amendment 3 to Articles and By-Laws 1 20K
6: EX-4.1 Special Warrant Indenture Dated January 25, 2002 56 234K
7: EX-4.2 Special Warrant Indenture Dated April 24, 2002 55 236K
8: EX-4.3 Special Warrant Indenture Dated December 12, 2002 55 240K
9: EX-4.4 Special Warrant Indenture Amendment Agreement 3 25K
10: EX-10.1 Material Change Report Dated January 7, 2002 2 23K
11: EX-10.2 Material Change Report Dated February 12,2002 2 25K
12: EX-10.3 Material Change Report Dated March 21, 2002 5 33K
13: EX-10.4 Material Change Report Dated March 22, 2002 2 25K
14: EX-10.5 Material Change Report Dated September 16, 2002 4 31K
15: EX-10.6 Material Change Report Dated March 7, 2003 4 32K
16: EX-10.7 Material Change Report Dated July 31, 2003 6 40K
17: EX-10.8 Amended Material Change Report of August 18, 2003 6 42K
18: EX-10.9 Material Change Report Dated November 6, 2003 2 24K
19: EX-13.1 Annual Report Year Ended December 31, 2001 8 50K
28: EX-13.10 Renewal Aif for Year Ended December 31, 2002 64 298K
20: EX-13.2 Quarterly Report Period Ended March 31, 2002 14 74K
21: EX-13.3 Quarterly Report Period Ended June 30, 2002 11 73K
22: EX-13.4 Quarterly Report Period Ended September 30, 2002 17 103K
23: EX-13.5 Annual Report Year Ended December 31, 2002 41 214K
24: EX-13.6 Financial Statements for 2002, 2001 46 199K
25: EX-13.7 Quarterly Report Period Ended March 31, 2003 12 66K
26: EX-13.8 Quarterly Report Period Ended June 30, 2003 25 130K
27: EX-13.9 Revised Aif for Year Ended December 31, 2001 60 266K
29: EX-19.1 Roscoe Postle Technical Report Dated Jan. 11, 2002 200 533K
30: EX-19.2 Addendum 1 to Roscoe Postle Technical Report 19 64K
31: EX-19.3 Addendum 2 to Roscoe Postle Technical Report 17 66K
32: EX-19.4 Amec E&C Technical Report Dated February 24, 2003 699 2.73M
33: EX-19.5 Amec E&C Technical Report Dated July 21, 2003 489 914K
34: EX-19.6 Australian App 4B Half Year Report to June 30/02 33 171K
35: EX-19.7 Australia Se Quarterly Tech Report to June 30/03 21 112K
36: EX-19.8 Australia Se App 4D Half Year Report to June 30/03 29 144K
44: EX-23.1 Consent of Deloitte & Touche LLP 1 20K
53: EX-23.10 Consent of Indo Assay Labs 1 20K
54: EX-23.11 Consent of Gordon Toll 1 20K
55: EX-23.12 Consent of Lakefield Research 1 21K
56: EX-23.13 Consent of Derek Rance 1 20K
57: EX-23.14 Consent of Stephen Juras 1 21K
58: EX-23.15 Consent of Chemex Labs 1 22K
59: EX-23.16 Consent of Malcolm Hancock 1 20K
60: EX-23.17 Consent of Ian White 1 20K
61: EX-23.18 Consent of Analabs Co. Ltd. 2 24K
62: EX-23.19 Consent of Dale Sketchley 1 20K
45: EX-23.2 Consent of Roscoe Postle Assoc. Inc. 1 21K
63: EX-23.20 Consent of Charles Forster 1 22K
64: EX-23.21 Consent of D. George Cargill 1 22K
65: EX-23.22 Consent of John McIntyre 1 20K
66: EX-23.23 Consent of Gildar Arseneau 2 24K
67: EX-23.24 Consent of Barry Smee 1 21K
68: EX-23.25 Consent of Als Chemex (Formerly Bondar Clegg) 1 21K
69: EX-23.26 Consent of Anson Griffith 1 22K
70: EX-23.27 Consent of Paul Chare 1 22K
71: EX-23.28 Consent of Minnovex Technologies Inc. 1 21K
72: EX-23.29 Consent of Sgs Mineral Services (Formerly Xral) 1 21K
46: EX-23.3 Consent of Amec E&C Services Ltd. 2 26K
73: EX-23.30 Consent of Goodmans 1 20K
74: EX-23.31 Consent of Douglas Kirwin 1 20K
75: EX-23.32 Consent of Harry Parker 1 22K
47: EX-23.4 Consent of James A. Currie 1 21K
48: EX-23.5 Consent of Dundee Securities Corp. 1 20K
49: EX-23.6 Consent of Grant Thornton 1 20K
50: EX-23.7 Consent of Grd Minproc Ltd. 1 20K
51: EX-23.8 Consent of Rsg Global Pty. Ltd. 1 20K
52: EX-23.9 Consent of Chris Wilson 1 21K
37: EX-20.1 Notice & Proxy Circular Dated May 16, 2002 17 86K
38: EX-20.2 Notice & Proxy Circular Dated November 27, 2002 23 92K
39: EX-20.3 Notice & Proxy Circular Dated April 15, 2003 44 190K
40: EX-20.4 Letter to Shareholders Dated May 8, 2002 8 40K
41: EX-20.5 Letter to Shareholders Dated May 29, 2002 8 47K
42: EX-20.6 Letter to Shareholders Dated August 29, 2002 6 48K
43: EX-20.7 Letter to Shareholders Dated November 28, 2002 8 51K
76: EX-99.1 Short Form Prospectus Dated March 25, 2002 57 255K
77: EX-99.2 Short Form Prospectus Dated March 25, 2002 29 141K
78: EX-99.3 Earn-In Agreement Dated May 5, 2000 24 129K
79: EX-99.4 Amendment 1 to Earn-In Agreement 14 49K
80: EX-99.5 Short Form Prospectus Dated June 6, 2002 15 78K
81: EX-99.6 Short Form Prospectus Dated January 31, 2003 28 142K
82: EX-99.7 Short Form Prospectus Dated January 31, 2003 28 141K
83: EX-99.8 Short Form Prospectus Dated June 2, 2003 11 63K
EX-99.1 — Short Form Prospectus Dated March 25, 2002
Exhibit Table of Contents
Exhibit 99.1
No securities regulatory authority has expressed an opinion about these
securities and it is an offence to claim otherwise.
These securities have not been, and will not be, registered under the United
States Securities Act of 1933, as amended (the "U.S. Securities Act") or any
state securities laws. Accordingly, the securities may not be offered or sold in
the United States or to U.S. persons unless registered under the U.S. Securities
Act and applicable state securities laws or an exemption from such registration
is available. This short form prospectus does not constitute an offer to sell or
a solicitation of an offer to buy any of the securities offered hereby within
the United States. See "Plan of Distribution".
INFORMATION HAS BEEN INCORPORATED BY REFERENCE IN THIS SHORT FORM PROSPECTUS
FROM DOCUMENTS FILED WITH SECURITIES REGULATORY AUTHORITIES IN CANADA. Copies of
the documents incorporated herein by reference may be obtained on request
without charge from the Secretary of Ivanhoe Mines Ltd. at Suite 654 - 999
Canada Place, Vancouver, British Columbia V6C 3E1 (telephone (604) 688-5755).
Short Form Prospectus
New Issue March 25, 2002
IVANHOE MINES LTD.
$56,712,500
17,450,000 COMMON SHARES
This short form prospectus qualifies for distribution (the "Offering")
17,450,000 common shares ("Common Shares") of Ivanhoe Mines Ltd. ("Ivanhoe" or
the "Corporation") at a price of $3.25 per Common Share pursuant to an
underwriting agreement (the "Underwriting Agreement") dated March 13, 2002
between Ivanhoe and Griffiths McBurney & Partners, HSBC Securities (Canada) Inc.
and Haywood Securities Inc. (collectively, the "Underwriters"). The offering
price of the Common Shares was determined by negotiation between Ivanhoe and the
Underwriters. The Common Shares are traded on The Toronto Stock Exchange (the
"TSE") and the Australian Stock Exchange under the symbol "IVN". The price of
the Common Shares as reported by the TSE at the close of business on March 22,
2002 was $3.21 (approximately US$2.04) per Common Share.
------------------------------
PRICE: $3.25 PER COMMON SHARE
------------------------------
[Download Table]
Net Proceeds to
Price to the Public Underwriters' Fee the Company (1)
------------------- ----------------- -----------------
Per Common Share $ 3.25 $ 0.1625 $ 3.0875
Total .......... $ 56,712,500 $ 2,835,625 $ 53,876,875
Note:
(1) Before deducting expenses of this Offering, estimated to be approximately
$200,000 which will be paid from the net proceeds of the Offering.
Unless otherwise stated all references to currency in this short form prospectus
are to Canadian dollars, while references to "A$" refer to lawful currency of
Australia and references to "US$" refer to the lawful currency of the United
States of America.
The Underwriters, as principals, conditionally offer the Common Shares, subject
to prior sale, if, as and when issued by Ivanhoe and accepted by the
Underwriters in accordance with the conditions contained in the Underwriting
Agreement referred to under "Plan of Distribution" and subject to the approval
of certain legal matters on behalf of Ivanhoe by Goodmans, Vancouver and on
behalf of the Underwriters by DuMoulin Black, Vancouver.
Subscriptions for the Common Shares will be received subject to rejection or
allotment in whole or in part and the right is reserved to close the
subscription books at any time without notice. Certificates representing the
Common Shares will be available for delivery at the closing of this Offering,
which is expected to occur on or about April 3, 2002 (the "Closing Date") but in
any event no later than 42 days following the date of a final receipt for this
short form prospectus. In accordance with applicable laws and policies, the
Underwriters may effect transactions that stabilize or maintain the market price
of the Common Shares. See "Plan of Distribution".
2
TABLE OF CONTENTS
[Download Table]
PAGE
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DOCUMENTS INCORPORATED BY REFERENCE .... 3
ELIGIBILITY FOR INVESTMENT ............. 5
NAME AND INCORPORATION ................. 5
SUMMARY DESCRIPTION OF BUSINESS ........ 7
CONSOLIDATED CAPITALIZATION ............ 21
DESCRIPTION OF SHARE CAPITAL ........... 22
PLAN OF DISTRIBUTION ................... 23
USE OF PROCEEDS ........................ 24
RISK FACTORS ........................... 25
SIGNIFICANT ACQUISITIONS ............... 26
OTHER MATERIAL FACTS ................... 27
AUDITORS, TRANSFER AGENT AND REGISTRAR . 27
LEGAL MATTERS .......................... 27
PURCHASERS' STATUTORY RIGHTS ........... 27
INDEX TO FINANCIAL STATEMENTS .......... 28
INDEX TO PRO FORMA FINANCIAL INFORMATION 28
CERTIFICATE OF IVANHOE MINES LTD. ...... C-1
CERTIFICATE OF THE UNDERWRITERS ........ C-2
DOCUMENTS INCORPORATED BY REFERENCE
The following documents of Ivanhoe, filed with the various securities
commissions or similar authorities in all of the provinces and territories of
Canada, are specifically incorporated by reference into, and form an integral
part of, this short form prospectus:
1. Revised Initial Annual Information Form dated May 15, 2001, including the
management's discussion and analysis of financial condition and results of
operations for the financial year ended December 31, 2000 incorporated
therein (the "AIF");
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2. Comparative consolidated financial statements of Ivanhoe for the years
ended December 31, 2000 and 1999, together with the notes thereto and the
auditors' report thereon;
3. Comparative unaudited consolidated interim financial statements of Ivanhoe
for the nine month periods ended September 30, 2001 and 2000, together with
management's discussion and analysis of financial condition and results of
operation for such periods;
4. Management Information Circular dated April 28, 2001 prepared in connection
with Ivanhoe's annual meeting of shareholders held June 15, 2001 (excluding
the report on executive compensation, the performance graph and the
statement of corporate governance practices);
5. Material Change Report dated August 8, 2001, as amended September 13, 2001,
respecting a proposed operational and financial restructuring at the Savage
River iron ore mine in Tasmania;
6. Material Change Report dated January 7, 2002 respecting the conversion of
loans owed by Ivanhoe's subsidiary, ABM Mining Limited, to entities
controlled by Robert M. Friedland, the Chairman of Ivanhoe, into Common
Shares of Ivanhoe;
7. Material Change Report dated February 12, 2002 respecting Ivanhoe's
completion of its earn-in obligations to acquire a 100% interest in the Oyu
Tolgoi exploration project in Mongolia;
8. Material Change Report dated March 21, 2002 respecting the completion of a
resource estimate at the Southwest Oyu zone of the Oyu Tolgoi exploration
project; and
9. Material Change Report dated March 22, 2002 respecting this prospectus
offering.
Any documents of the type referred to in the preceding paragraph, interim
financial statements and any material change reports (excluding confidential
reports) filed by Ivanhoe with the securities commissions or similar authorities
in Canada subsequent to the date of this short form prospectus and prior to the
termination of the Offering shall be deemed to be incorporated by reference in
this short form prospectus.
ANY STATEMENT CONTAINED IN A DOCUMENT INCORPORATED OR DEEMED TO BE INCORPORATED
BY REFERENCE HEREIN SHALL BE DEEMED TO BE MODIFIED OR SUPERSEDED FOR PURPOSES OF
THIS SHORT FORM PROSPECTUS, TO THE EXTENT THAT A STATEMENT CONTAINED HEREIN OR
IN ANY SUBSEQUENTLY FILED DOCUMENT THAT ALSO IS OR IS DEEMED TO BE INCORPORATED
BY REFERENCE HEREIN MODIFIES OR REPLACES SUCH STATEMENT. THE MODIFYING OR
SUPERSEDING STATEMENT NEED NOT STATE THAT IT HAS MODIFIED OR SUPERSEDED A PRIOR
STATEMENT OR INCLUDE ANY OTHER INFORMATION SET FORTH IN THE DOCUMENT THAT IT
MODIFIES OR SUPERSEDES. THE MAKING OF A MODIFYING OR SUPERSEDING STATEMENT SHALL
NOT BE DEEMED AN ADMISSION FOR ANY PURPOSES THAT THE MODIFIED OR SUPERSEDED
STATEMENT WHEN MADE, CONSTITUTED A MISREPRESENTATION, AN UNTRUE STATEMENT OF A
MATERIAL FACT OR AN OMISSION TO STATE A MATERIAL FACT THAT IS REQUIRED TO BE
STATED OR THAT IS NECESSARY TO MAKE A STATEMENT NOT MISLEADING IN LIGHT OF THE
CIRCUMSTANCES IN WHICH IT WAS MADE. ANY STATEMENT SO MODIFIED OR SUPERSEDED
SHALL NOT BE DEEMED IN ITS UNMODIFIED OR SUPERSEDED FORM TO CONSTITUTE A PART OF
THIS SHORT FORM PROSPECTUS.
INFORMATION HAS BEEN INCORPORATED BY REFERENCE IN THIS SHORT FORM PROSPECTUS
FROM DOCUMENTS FILED WITH SECURITIES COMMISSIONS OR SIMILAR AUTHORITIES IN ALL
OF THE PROVINCES OF CANADA. Copies of the documents incorporated herein by
reference may be obtained on request without charge from the Secretary of
Ivanhoe, Suite 654, 999 Canada Place, Vancouver, B.C. V6C 3E1. (telephone (604)
688-5755).
4
ELIGIBILITY FOR INVESTMENT
In the opinion of Goodmans, counsel to the Corporation, provided the Common
Shares offered hereby are listed on a prescribed stock exchange (which currently
includes the TSE), based on the law of the date hereof, the Common Shares will
be qualified investments under the Income Tax Act (Canada) and the regulations
thereunder for trusts governed by registered retirement savings plans,
registered retirement income funds, registered education savings plans and
deferred profit sharing plans. In the opinion of such counsel, the Common Shares
would not as of the date hereof be considered foreign property under the Income
Tax Act (Canada) for trusts governed by registered retirement savings plans,
registered retirement income funds and deferred profit sharing plans.
NAME AND INCORPORATION
Ivanhoe was incorporated under the Company Act (British Columbia) on January 25,
1994 under the name 463212 B.C. Ltd. In February 1994, Ivanhoe changed its name
to Indochina Goldfields Ltd. In March 1994, Ivanhoe increased its authorized
capital from 10,000 common shares without par value to 100,000,000 common shares
without par value and created 100,000,000 preferred shares without par value. In
February 1995, Ivanhoe was continued under the Business Corporations Act
(Yukon). In July 1997, Ivanhoe increased its authorized capital to an unlimited
number of common shares without par value and an unlimited number of preferred
shares without par value. In June 1999, Ivanhoe changed its name to Ivanhoe
Mines Ltd.
Ivanhoe's North American headquarters are located at Suite 654, 999 Canada
Place, Vancouver, B.C. V6C 3E1. Ivanhoe's Asian headquarters are located at 37th
Floor #2, Millenia Tower, 1 Temasek Avenue, Singapore 039192. The Corporation's
registered office is located at Suite 300, 204 Black Street, Whitehorse, Yukon,
Canada, Y1A 2M9.
SUBSIDIARIES AND MANAGEMENT STRUCTURE
The corporate structure of Ivanhoe, its material subsidiaries, the percentage
ownership in subsidiaries which are not wholly-owned by Ivanhoe and the
jurisdiction of incorporation of such corporations as at December 31, 2001 are
set out in the following chart.
5
IVANHOE MINES LTD. -- CORPORATE STRUCTURE
(FLOW CHART)
Note: All subsidiaries are wholly-owned unless otherwise indicated
"BVI" means British Virgin Islands
6
SUMMARY
DESCRIPTION OF BUSINESS
GENERAL
Ivanhoe is an international mineral exploration and development company. Ivanhoe
holds interests in mineral resource properties in Myanmar, Australia,
Kazakhstan, Mongolia, Norway, South Korea and Vietnam. For the purposes of Form
44-101F3 under National Instrument 44-101 the Monywa copper project in Myanmar,
the Savage River iron ore mine in Tasmania, Australia and the Oyu Tolgoi gold
and copper exploration project in Mongolia have been identified as the mineral
resource properties material to Ivanhoe. For a description of the Monywa copper
project and the Savage River iron ore mine, see "Item 3 -- General Development
of the Business" and "Item 4 -- Narrative Description of Business" on pages 9
through 29 of Ivanhoe's AIF, which is incorporated by reference in this short
form prospectus. For a description of the Oyu Tolgoi project, see "Recent
Developments" below. Ivanhoe's interests in Kazakhstan, Mongolia (other than the
Oyu Tolgoi project), Myanmar (other than the Monywa copper project), Norway,
South Korea and Vietnam are not considered material for the purposes of Form
44-101F3 under National Instrument 44-101.
RECENT DEVELOPMENTS
OYU TOLGOI EXPLORATION PROJECT
Except as noted below, all disclosure of a scientific or technical nature in
this short form prospectus respecting the Oyu Tolgoi gold and copper exploration
project has been summarized from a technical report dated January 11, 2002
prepared by D. George Cargill, Ph.D., P. Eng., of Roscoe Postle Associates Inc.
("RPA") of Toronto, Ontario. Dr. Cargill is an independent qualified person for
the purposes of National Instrument 43-101 of the Canadian Securities
Administrators. RPA's inferred mineral resource estimate on the Southwest Oyu
zone of the Oyu Tolgoi gold and copper exploration project was prepared by Dr.
Gildar J. Arseneau, P. Geo., and was based on a review and analysis of a
resource estimate prepared by AMEC E&C Services Limited ("AMEC") of Toronto.
Project Description and Location
Ivanhoe is currently conducting a series of exploration programs at Oyu Tolgoi
(the "Oyu Tolgoi Property") in the south Gobi Region, Mongolia. The objective of
these programs is to define the nature and scope of a recently discovered copper
and gold porphyry zone containing an, as yet, indeterminate amount of gold,
copper and molybdenum mineralization. Mineralization has been identified in four
areas of the Oyu Tolgoi Property, within an area of 3 kilometres north-south by
2 kilometres east-west, designated by Ivanhoe as the Central Oyu, North Oyu,
South Oyu and Southwest Oyu zones. The right to explore for minerals in these
zones is held through four non-contiguous mineral licences encompassing
approximately 24,000 hectares of surface area.
In May 2000, Ivanhoe entered into an earn-in agreement (the "Earn-in Agreement")
with BHP Minerals International Exploration Inc. ("BHP") to earn a 100% interest
in the Oyu Tolgoi Property. Ivanhoe earned its 100% interest in February, 2002
by incurring US$3,000,000 in exploration expenditures and by paying to BHP
US$5,000,000. The Earn-in Agreement also requires Ivanhoe to incur additional
exploration expenditures of US$3,000,000 by February, 2006. BHP retains a 2% net
smelter returns royalty and certain back-in rights. BHP's back-in rights become
exercisable if and when a "significant mineral occurrence" is identified on the
property consisting of not less than 250,000,000 tonnes of 1% copper extractable
by heap leaching and solvent extraction-electrowinning ("SX-EW"). In that event,
BHP has the right to re-purchase a 40% interest in the significant mineral
occurrence. If the significant mineral occurrence consists of not less than
300,000,000 tonnes of ore grading 1% copper recoverable by conventional means of
extraction, BHP has the right to repurchase a 60% interest in the significant
mineral occurrence. In either case, BHP will be required to relinquish its
royalty and pay to Ivanhoe an amount equal to three times the amount of
exploration expenditures incurred and, if the significant mineral occurrence
lies within the "Central Oyu" zone, BHP must also repay to Ivanhoe
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the US$5,000,000 paid by Ivanhoe to BHP to exercise the option. If BHP were to
exercise its back-in rights, BHP and Ivanhoe would form a joint venture in which
the party with the larger participating interest would be entitled to be the
operator. Ongoing expenditure obligations for exploration and development would
be in proportion to each party's participation in the joint venture.
The original exploration licence for the Oyu Tolgoi Property was granted to BHP
in 1997 as Mineral Exploration Licence ("MEL") 210, which was later
re-designated as MEL 66X when new mining legislation was enacted in Mongolia in
1997. Certain areas originally covered by MEL 66X were relinquished in
September, 2000, and MEL 66X was converted into four separate licences, MELs
66X, 66X1, 66X2 and 66X3. The licences, which expire on February 17, 2004,
permit Ivanhoe to conduct drilling and other exploration work on the property.
Ivanhoe must pay a yearly per hectare fee to the Mongolian government in order
to maintain the licences in good standing. If Ivanhoe intends to commence mining
activity on the property, it must apply to the Mongolian government for a mining
licence prior to the expiry of the corresponding MEL. Mining licences are
typically granted for a term of 60 years, and are renewable for up to an
additional 40 years. The Mongolian government also imposes a royalty of 2.5% on
the sale value of all minerals mined in the country.
Ivanhoe also recently acquired MEL 3677, which covers an additional 109,145
hectares of land located in the same geological province that hosts the Oyu
Tolgoi Property. MEL 3677 has an initial term of three years, and is renewable
for up to an additional four years. 59,743 hectares of MEL 3677 overlap areas
originally covered by MEL 66X.
Accessibility, Climate, Local Resources and Physiography
The Oyu Tolgoi Property is located in the south Gobi Region of Mongolia,
approximately 560 kilometres south of the capital city, Ulaanbaatar. Road access
to the property follows a well-defined track directly south from Ulaanbaatar
requiring 12 hours travel time in a four-wheel drive vehicle. Ivanhoe has also
constructed a 1,400 metre airstrip which allows the property to be reached by
small aircraft. Mongolian rail service and a large electric power line lie 350
kilometres east of the property at the main rail line between Ulaanbaatar and
China. The China-Mongolia border sits approximately 80 kilometres south of Oyu
Tolgoi and the Trans-China Rail line following the Yellow River is approximately
160 kilometres south of the border.
A small diesel power station is located 60 kilometres east in Handbogd. The
nearest significant population centre is the regional provincial capital at
Dalandzadgad, located 240 kilometres west northwest of Oyu Tolgoi with a
population of approximately 12,500 people. Dalandzadgad is accessible by unpaved
road.
Although the climate at Oyu Tolgoi is relatively severe, including frequent
strong wind conditions and cold winters with temperatures ranging between -2
degrees to -30 degrees Celsius, Ivanhoe believes that it is possible to conduct
exploration and mining operations on a year round basis.
The property has an average elevation of 1,160 metres above sea level, and has a
relatively flat, undulating topography with less than 50 metres of relief. The
surface area is a semi-desert steppe, with minimal rainfall and vegetation cover
of approximately 20 to 25% of the ground surface.
Ivanhoe's surface rights on the Oyu Tolgoi Property are governed by the Minerals
Law and the Land Law. Water rights are governed by the Water Law and the
Minerals Law. These laws permit Ivanhoe to use the land and water in connection
with exploration operations, subject to the discretionary authority of Mongolian
national, provincial and regional governmental authorities. Ivanhoe expects that
it will have to negotiate with all three levels of government to ensure access
to appropriate land and water rights prior to the commencement of any mining
operations.
Power and water sources are currently sufficient for exploration activities.
However, additional power and water sources will need to be developed prior to
the commencement of mining operations. The nearest power
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line is 350 kilometres away. Water is typically drawn from underground aquifers
in the area. Ivanhoe has not analyzed the sufficiency of such water sources for
mining purposes.
The area is relatively flat, and should be amenable to the construction of the
necessary infrastructure for a mining operation, including tailings storage
sites, heap leach pads, waste disposal and processing plant sites.
History
Old diggings and small amounts of slag found in the area indicate that the Oyu
Tolgoi area was subject to small scale mining activity in ancient times.
However, modern mineral exploration did not commence in the area until 1995,
when the Magma Copper Company Ltd. ("Magma") began a reconnaissance program
which examined more than 60 copper occurrences in various parts of Mongolia. In
1996, after BHP acquired Magma, BHP continued the reconnaissance program in
western and southern Mongolia.
BHP first visited the Oyu Tolgoi Property in September, 1996 as part of its
regional reconnaissance program of the south Gobi region. BHP subsequently
applied for, and was granted, an exploration concession covering 1,350 square
kilometres. After geological mapping, stream and soil sediment surveys and
magnetic and induced polarization ("IP") surveys, BHP completed 6 diamond core
holes totalling 1,000 metres during September and October, 1997. With
encouraging results from two of the holes, a second phase of drilling was
undertaken in 1998, consisting of an additional 13 core holes totalling 2,000
metres. Positive results were obtained in four of the holes prompting a third
phase of drilling in August and September 1998 consisting of 4 holes totalling
800 metres. These holes failed to return significant mineralization and BHP
suspended the project pending economic review. In 1999, following a review of
past results, additional drilling and continued exploration on the property was
planned but never carried out.
In 2000, after entering into the Earn-in Agreement with BHP, Ivanhoe carried out
a reverse circulation ("RC") drill program to delineate a chalcocite blanket
intersected in one of BHP's diamond drill holes. This program consisted of 109
RC holes totalling 8,828 metres. The holes were targeted to define supergene
mineralization that might be amenable to a heap leaching SX-EW process similar
to the one used at Ivanhoe's Monywa copper mine in Myanmar. Ivanhoe reviewed the
results and decided that the chalcocite blanket at Central Oyu was neither large
enough nor high grade enough to be economic as a stand-alone deposit.
In 2001, Ivanhoe began its current drilling program.
Geology and Mineralization
The Oyu Tolgoi Property lies near the boundary of the South Mongolian and the
South Gobi tectonic units, in the Kazakh Mongol Belt. The area contains a
mixture of arc and back arc rocks that accreted to southern Mongolia during the
Paleozoic age.
Within the Oyu Tolgoi Property area, the geology is dominated by a
Siluro-Carboniferous sequence of basalts, basaltic andesites and sedimentary
sequences. Overlying these sequences are Cretaceous-age, flat-lying sediments
consisting of pebbly gravel, sandy silt, sand and clay, with an average
thickness of between 15 to 20 metres. The volcanic rocks are intruded by a
complex variety of feldspar porphyry, feldspar-hornblende porphyry and
quartz-feldspar porphyry stocks and dykes.
Ivanhoe has gathered the most comprehensive understanding of the property
geology from its detailed mapping and extensive drilling of the Southwest Oyu
zone. Ivanhoe believes that the mineralized areas consist of mafic volcanic
rocks intruded by quartz monzodiorite intrusions. Copper and gold mineralization
appears to lie in both the basaltic volcanic country rocks and the intrusions.
There are also barren quartz monzonite porphyries, hornblende, biotite andesite
and rhyolite dykes that regularly cut the quartz monzodiorite intrusions.
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The Oyu Tolgoi Property contains both hypogene and supergene copper
mineralization. The hypogene deposits appear to belong to a porphyry copper-gold
system of the potassic-calcalkaline type. Ivanhoe has discovered evidence of
hypogene deposits in all four zones.
At South Oyu and Southwest Oyu, copper and gold mineralization is found
primarily in intensely veined (stockwork and sheeted) magnetite-rich,
pyrite-poor assemblages dominated by quartz and chalcopyrite, with minor amounts
of bornite and traces of molybdenum in basaltic volcanics and quartz
monzodiorite intrusives. Ivanhoe suspects that South Oyu and Southwest Oyu
belong to the same zone offset by a northeast trending fault. The correlation
between gold and copper grades suggest that the gold distribution is in the form
of attachments to or inclusions in copper sulphides. Molybdenum grades are
erratic and Ivanhoe has not determined the nature of its distribution. Ivanhoe's
preliminary metallurgical work indicates that at least some of the molybdenum is
enriched in rhenium. High values of rhenium in molybdenum is a feature of some
gold-rich porphyry copper deposits.
In North Oyu, copper mineralization occurs in breccias at depths greater than
100 metres below the surface. There appears to be some supergene chalcocite and
covellite, but the higher grade intercepts are associated with veins containing
pyrite, chalcopyrite and traces of covellite and chalcocite, which appear to be
hypogene. Gold values are usually low but sometimes higher in copper-rich zones.
Molybdenum values are usually low.
The principal supergene deposit at Oyu Tolgoi is located at Central Oyu. It
consists of a chalcocite blanket beneath a leached cap. Rock chip samples across
the leached cap contain anomalous concentrations of copper and gold. Meanwhile,
supergene mineralization occurs between 40 to 80 metres below the surface. The
upper 20 to 40 metres of the enrichment blanket is made up of chalcocite with
minor covellite and digenite as coatings on pyrite. The lower parts of the
blanket which have lower copper grades are dominated by covellite. The upper
chalcocite and lower covellite zones are a standard feature of enrichment
blankets. Distribution of gold is not well known. Most of the system contains
less than 30 parts per billion of gold but there are erratic values of 0.1 parts
per million ("ppm") of gold to 1 ppm of gold. The best gold values are in the
west side of Central Oyu, in both the chalcocite blanket and the underlying
basaltic volcanics. There is also hypogene mineralization beneath the enrichment
blanket.
2001/2002 Drilling Program
Ivanhoe commenced its drilling program in 2001 by drilling RC holes at South
Oyu, to test its supergene and the hypogene potential. Ivanhoe then expanded the
exploration project to encompass all four zones, and by February 27, 2002 had
completed 23 RC holes, 3 combined RC and diamond drill ("RCD") holes and 30
diamond drill ("D") holes.
In July, 2001 Ivanhoe encountered a long intersection of high grade hypogene
copper and gold mineralization at OTRCD-150 (508 metres averaging 0.81% copper
and 1.17 grams per tonne ("g/t") gold) at Southwest Oyu. Following this
discovery, Ivanhoe undertook a surface program of magnetic and IP surveys over
an area of roughly 4 kilometres by 3 kilometres. Two magnetic surveys were
performed, each covering an area of 2 kilometres by 3 kilometres. The southern
part of the area was surveyed on north-south lines, 25 metres apart with
stations 5 metres apart. The northern area was surveyed on east-west lines, 50
metres apart with stations at 5 metre intervals. The surveys identified target
areas at Southwest Oyu, South Oyu, Central Oyu, North Oyu, the Airstrip and
anomalies in the far northern end of the Oyu Tolgoi Property.
Ivanhoe has used the preliminary maps from the IP survey as the basis for its
ongoing drilling program. The results indicate that the most promising
exploration target in the area is a zone of high-grade mineralization around
hole OTRCD-150 at the Southwest Oyu zone. Accordingly, Ivanhoe changed its focus
from testing for supergene mineralization at Central Oyu to drilling activity on
Southwest Oyu in order to further define the hypogene zone of mineralization.
10
By the end of January, 2002, Ivanhoe had completed 24 holes at Southwest Oyu.
The drilling indicates that there is a wide zone of mineralization encompassing
a narrow high grade zone. Exploration to date indicates that a zone of
mineralization grading at least 0.3% copper equivalent (a combination of copper
and gold expressed as a copper equivalent and based on 100% recovery for both
metals, as metallurgical studies are still too preliminary to predict recoveries
in a commercial process) is contained within a shell which extends approximately
1,200 metres in a northeast-southwest direction and 350 metres in a
northwest-southeast direction. The zone extends to at least a vertical depth of
approximately 750 metres, commencing at a depth of approximately 50 metres.
OTRCD-180, 183 and 185 returned encouraging mineralization at lower depths.
OTRCD-180 graded 2.37 g/t gold and 1.05% copper for 208 metres beginning at a
down-hole depth of 618 metres. OTRCD-185 intersected 1.31 g/t gold and 0.45%
copper for 400 metres beginning at a down-hole depth of 498 metres.
Ivanhoe drilled holes OTD-184, 185 and 190 as cross-holes (125 degree azimuth)
across the general northeasterly trend of drill holes OTRCD-150 and OTD-160
through 173, which established the horizontal dimensions of the steeply to
vertically plunging mineralized body. The drill results from the 035 degree
azimuth holes OTRCD-150 and 169 indicate the longitudinal width of the high
grade core zone (grading in excess of 0.7% copper and 0.7 g/t gold) is up to 315
metres in length at a depth of 250 metres below surface. Hole OTD-177's (125
degree azimuth) drill results suggest that the thickness of this zone is
approximately 230 metres at the same depth. OTD-185, drilled steeply below
OTD-177, indicates a thickness of 250 metres approximately 500 metres below
surface narrowing to 180 metres thickness in OTD-190, 80 metres to the
southwest. Surrounding the high grade core is lower grade mineralization,
generally in the 0.3% to 0.5% copper and 0.3 to 0.5 g/t gold range extending 100
metres to 200 metres laterally and northwest, 700 metres southeast to the collar
of OTD-167 and approximately 600 metres northeast to OTD-12. On the southeast
margin of Southwest Oyu, the high grade core is cut off by a post mineral fault
and on the northeast margin it is cut off by late mineral dykes.
The results of significant intercepts from the recent drilling at Southwest
Oyu's discovery zone are summarized below.
11
SOUTHWEST OYU "DISCOVERY ZONE"
SUMMARY OF SIGNIFICANT INTERCEPTS
[Download Table]
HOLE NO. FINAL DEPTH CORE LENGTH (m) GOLD ("AU") COPPER ("CU")
METRES ("M") G/T %
-------- ------------ --------------- ----------- --------------
150 590 508 1.17 0.81
160 460.7 288 1.68 0.80
161 472 358 1.70 0.71
162 360.5 190 1.76 0.75
166 601.9 478 1.38 0.74
171 614.3 100 1.29 0.67
172 772 116 2.35 0.88
173 692 24 1.32 0.82
174 554 74 0.45 0.58
175 461 138 0.35 0.45
176 674 146 1.49 0.76
177 591 192 1.10 0.56
178 449 128 1.01 0.59
179 490.4 14 0.32 0.57
180 895 208 2.37 1.05
183 853 454 1.71 0.92
184 705 216 1.87 0.97
185 1015 400 1.31 0.56
189 322 200 1.9 0.77
190 913 178 1.55 0.46
The southern extension of Southwest Oyu was also drilled to test the
continuation of mineralization to the southwest as inferred by IP survey results
and to follow up on previous drilling by BHP which intersected 142 metres of
0.93 g/t gold and 0.53% copper. The results of this drilling are summarized
below.
SOUTHWESTERN OYU -- SOUTHERN EXTENSION
[Download Table]
HOLE NO. CORE LENGTH AU CU
(m) G/T %
-------- ----------- --- ----
165 466 0.31 0.41
167 318 0.52 0.49
168 382 0.30 0.21
Ivanhoe has also conducted recent drilling on the South Oyu zone. The drilling
is designed to test adjacent magnetic and IP chargeability anomalies that
underlie outcroppings of copper oxide mineralization. Previous drilling by
Ivanhoe identified areas of significant copper and gold mineralization in a
series of shallow holes. OTRCD-149 drilled to a depth of 405 metres averaged
1.08% copper and 0.31 g/t gold in a 63 metre supergene blanket, underlain by 52
metres at 1.73% copper and 0.23 g/t gold, followed by 82 metres at 0.57% copper
and 0.27 g/t gold and then 76 metres at 0.49% copper and 0.38 g/t gold. OTD-164
was drilled under OTRCD-149 to a down-hole depth of 516.9 metres to test the
depth of mineralization. OTD-164 returned similar results to the lower-grade
intervals of OTRCD-149, indicating that mineralization continues to a depth of
at least 500 metres. Hole OTD-170 drilled between Southwest Oyu and South Oyu
returned weaker levels of gold and copper. Ivanhoe believes a major northeast
trending fault cuts off mineralization on the southeast side of Southwest Oyu,
and that South Oyu may be an offset of this mineralization. Ivanhoe drilled
OTD-186 to the west of OTRCD-149 in order to test an anomaly identified from the
magnetic survey, but did not intercept significant mineralization.
12
Central Oyu is a separate system with different mineralogy and geochemistry. At
Central Oyu, BHP's hole OTD-3 intersected a thirty metre thick,
supergene-enriched, chalcocite blanket. Ivanhoe's RC drill program in 2000
outlined an area of 1,100 metres by 600 metres that is underlain by the
chalcocite blanket and copper oxide mineralization averaging 20 metres to 35
metres in thickness at depths varying from 20 metres below the surface to 100
metres below the surface.
Primary covellite and chalcopyrite occurs below the chalcocite blanket at
Central Oyu, indicating the potential for hypogene mineralization. Ivanhoe
drilled hole OTD-159 in this area to test for hypogene potential. OTD-159
intersected 301 metres (from 47 to 348 metres) of chalcocite-covellite
mineralization averaging 0.71% copper, within a broader intercept of 375 metres,
from 47 to 422 metres, grading 0.69% copper. This includes 30 metres of
dominantly chalcocite mineralization from 47 to 77 metres, grading 1.50% copper
and 0.22 g/t gold. The hole was a twin, and a deeper re-drill, of a
130-metre-deep, RC hole, OTRC-94, and extends significant copper grades to a
depth of at least 422 metres below surface. The PQ-sized drill core in the top
130 metres also indicates a general increase in copper grades compared to the
earlier RC chip samples.
Ivanhoe received further evidence of hypogene mineralization at Central Oyu from
its IP survey, which identified an IP chargeability anomaly covering the
northwest flank of Central and Northern Oyu. The anomaly has a strike length of
1,600 metres with a width of 400 metres. Ivanhoe recently completed hole OTD-187
to test the hypogene potential of the IP chargeability anomaly in Central Oyu.
OTD-187 was drilled to a depth of 532.6 metres grading 1.40 g/t gold and 0.84%
copper for 102 metres between 334 and 436 metres. Ivanhoe drilled OTD-188 385
metres northwest of OTD-187 to test the extent of the zone of copper
mineralization, but intercepted only weak mineralization. Ivanhoe is currently
drilling additional D holes at Central Oyu to further define the zone of
hypogene mineralization.
In North Oyu, BHP's hole OTO-02 intersected narrow zones of chalcopyrite-rich
stockwork mineralization grading up to 1% copper in volcanic rocks sandwiched
between post-mineral, syenite dykes.
Ivanhoe plans to drill more than 20,000 metres to test the hypogene potential of
the Southwest, Central, North and South Oyu zones and explore for additional
high-grade zones based on the IP and magnetic survey. Ivanhoe has recently
focussed on drilling the Southwest Oyu zone in order to gather sufficient data
to calculate a resource estimate on the discovery zone at Southwest Oyu.
Starting in early 2002, Ivanhoe began to drill in other areas with potential
significant mineralization as indicated by the IP and magnetic surveys.
Resource Estimate -- Central Oyu
In November, 2000 Ivanhoe prepared an internal copper resource estimate of the
Central Oyu zone based on its 2000 drill program. This estimate was verified and
adopted by RPA in RPA's technical report on the Oyu Tolgoi Property dated
January 11, 2002. RPA reported an inferred mineral resource at the Central Oyu
zone as follows:
CENTRAL OYU INFERRED MINERAL RESOURCE ESTIMATE
IVANHOE -- NOVEMBER, 2000
[Download Table]
CATEGORY TONNES GRADE % CU
-------- ---------- -----------
Inferred 39,200,000 0.73
Key assumptions, parameters, methods, and other information RPA considered
relevant to the estimate are as follows:
o The database used for the estimate was in keeping with industry
standards.
13
o D. George Cargill, Ph. D., P.Eng., reviewed and verified the estimate
for RPA.
o Original assays for total copper were done at Analabs Pty. Ltd.
("Analabs") in Ulaanbaatar. No acid soluble or cyanide soluble copper
assays were done but may be warranted in the future. Total coppe r
check assays were done at Indo Assay lab in Indonesia, and results
were reported to be acceptable. Checks on assay values over 1% Cu were
within 5% to 10% of the original assays and for assay values less than
1% were within 10% to 20%. RPA had check assays carried out at XRAL
laboratory in Canada on nine samples from the Central Oyu zone. The
check assays gave reasonable correlation with the original assays.
o Vertical RC holes were used for the estimate. Although a few D holes
were within the resource area, they were not used. The RC holes were
spaced 100 m to 200 m apart along east-west section lines 100 m to 200
m apart. The Central Oyu zone consists of an essentially continuous
blanket of supergene copper mineralization which covers an area
approximately 1,100 m north-south by 600 m east-west. In places the
supergene zone consists of two layers (main and upper zones) separated
by waste material. The deeper main zone predominates and extends to a
depth of 40 m to 80 m in most places. It has been drilled to a maximum
depth of about 120 m.
o For the estimate, Ivanhoe used a cut-off grade of 0.2% Cu. In RPA's
view, this is an appropriate cut-off grade for this type of resource
estimate.
o Ivanhoe used a polygonal estimation method, whereby drill hole
intercepts on plan were assigned an area of influence midway to
adjacent drill holes up to a maximum of 100 m. Polygon areas were
measured by planimeter and multiplied by drill hole intersection
length and by a density factor of 2.3 tonnes per cubic metre to derive
tonnage. This density factor is appropriate. Tonnages were summed and
the grades for each intersection were weighted by tonnage to determine
the average grade of the mineral resource.
o The Oyu Tolgoi Property is still at the exploration stage and it is
too early to assess the possible effect on the resource estimate of
factors such as environmental, permitting, legal, title, taxation,
socio-economic, marketing, political, or other potential issues. At
this time, however, RPA has no reason to belie ve that any of these
potential issues will be an impediment to development of the project.
o The geometry of the Central Oyu supergene zone lends itself readily to
open pit mining with a low strip ratio.
o Metallurgical testwork was carried out recently on three samples from
Central Oyu. The copper minerals reported to be in the samples are
enargite, covellite and digenite. Flotation tests produced good copper
recoveries (82%) for sample S4 ("chalcocite zone") and sample S6
("covellite zone"). Column leach and bottle roll tests on sample S4
gave 62% to 82% copper recovery and on sample S5 gave 5% to 7% copper
recovery.
o Infrastructure is sparse in the area of the Oyu Tolgoi Property and
any mining operation would need suitable infrastructure to be
developed.
o In RPA's opinion, the Central Oyu supergene zone estimate should be
classified as an inferred mineral resource. It should be considered a
preliminary estimate at this time. It has been done by a manual method
and may be done in future as a computerized block model.
o Although Ivanhoe considers the Central Oyu zone to be uneconomic for a
stand-alone mining operation, RPA considers that it has reasonable
prospects for economic extraction in combination with or as a
satellite deposit to other mineral deposits.
14
Resource Estimate -- Southwest Oyu
On March 11, 2002, Ivanhoe announced that AMEC completed a preliminary copper
and gold resource estimate for the northern portion of the Southwest Oyu zone.
AMEC reported an inferred mineral resource at the Southwest Oyu zone as follows:
SOUTHWEST OYU INFERRED MINERAL RESOURCE ESTIMATE
AMEC -- MARCH 2002
[Download Table]
CUTOFF GRADE TONNAGE IN SITU GRADE CU AU
COPPER (TONNES) ---------------------- (BILLIONS OF (OUNCES)
EQUIVALENT(1) CU AU POUNDS)
(%) (%) (G/T)
------------- ----------- ---- ----- ------------ ---------
0.70 185,100,000 0.63 1.04 2.57 6,189,000
0.60 259,700,000 0.57 0.86 3.26 7,181,000
0.50 349,100,000 0.52 0.73 4.00 8,193,000
0.40 457,800,000 0.46 0.62 4.64 9,126,000
0.30 587,700,000 0.41 0.53 5.31 10,014,000
0.20 703,000,000 0.37 0.47 5.73 10,623,000
Note: (1) Based on US$300 per ounce gold and US$0.80 per pound copper at 100%
metal recovery.
RPA prepared an addendum to its technical report describing RPA's review and
verification of the AMEC mineral resource estimate of the Southwest Oyu zone.
RPA's review and verification of AMEC's resource estimate was undertaken by, or
under the supervision of, Dr. Gildar J. Arseneau, P.Geo., of RPA. Dr. Arseneau
is an independent qualified person for the purposes of NI 43-101.
The Southwest Oyu mineral resource was estimated by AMEC with a 3-dimensional
block model utilizing MineSight(R) a commercial mine planning software. To carry
out its review of the Southwest Oyu mineral resource estimate, RPA converted the
3-dimensional database to Gemcom(R), another commercially available mine
planning software. RPA re-estimated the Southwest Oyu mineral resource using the
same and different interpolation parameters as utilized by AMEC.
The Southwest Oyu database consists of assay data for 32 diamond drill holes
totalling 16,991 metres. The drill core was logged at the site and geological
information was transferred to digital files containing drill hole survey
locations, down hole survey data, geological, geophysical and assay data. RPA
carried out checks and validations for both copper and gold assays. RPA believes
that the analytical reproducibility of the data is better for copper than gold.
The quality of the assay database is adequate for the estimation of an inferred
mineral resource but, until better reproducibility can be demonstrated for gold
assays, the resource must remain at an inferred level of classification. The
digital drill hole database is adequate for resource estimation and the
information collected is in keeping with standard industry practices for this
type of exploration target.
The Southwest Oyu block model was organized on an orthogonal grid with a 20
metre by 20 metre block size and a 15 metre bench height. Copper and gold grades
were composited to 15 metres before grade interpolation. Each block in the model
is comprised of six separate models: rock code, density, copper grade, gold
grade, copper equivalent grade and percent ore. Rock codes were assigned to the
block model by first constructing 3-
15
dimensional solids of the high grade portion of the deposit, the three major
post-mineral dikes, the Southwest fault zone and the top of the hypogene
mineralization. Because the bulk of the mineralization is within basaltic
andesite, a bulk density of 2.80 was selected for the resource estimation. RPA
recommends that the bulk density determination program be continued and expanded
to include both mineralized and unmineralized samples. Copper and gold values
were interpolated into the model by ordinary kriging. RPA has reviewed the
variography study undertaken by AMEC and concurs with its conclusions.
Interpolation was restricted within zone boundaries. As such, samples from zone
1 were not used to interpolate grades into blocks of zone 2 and vice-versa. A
maximum of 15 composites were used to estimate a block grade. The minimum number
of composites required to estimate a block was set at 4 for zone 2 and 3 for
zone 1. A maximum of 3 composites (zone 2) and 2 composites (zone 1) were
allowed per drill hole.
RPA re-estimated the mineral resource using the same interpolation parameters as
defined by AMEC. RPA also estimated the mineral resource using inverse distance
weighting to the second power to interpolate the grades. RPA also re-composited
the assay data to 5 metre lengths within the geological domains and re-estimated
the mineral resource using ordinary kriging and inverse distance to the second
power.
Based on the data reviewed, RPA concluded that the mineral resource at the
Southwest Oyu zone was estimated by AMEC in a manner consistent with standard
industry practice for this type of deposit. The mineral resource for the
Southwest Oyu zone is classified as an inferred mineral resource in accordance
with CIM Standards. The mineral resource was reported at CuEQ ($0.80) copper
equivalent cut-off grades. The copper equivalent was calculated, after copper
and gold grades were estimated into the block model, using the following
formula:
CuEQ ($0.80) = % Cu + (Au g/t * 9.65)/17.64
The equivalent grade was calculated to reflect a price of US$0.80 per pound of
copper and US$300 per ounce of gold and 100% metal recovery. RPA believes that
it is premature at this stage to use an equivalent copper grade as cut-off
because inadequate metallurgical testing has been performed. RPA also believes
that some of the mineral resource at the Southwest Oyu zone could be
re-classified as indicated under CIM Standards if better reproducibility could
be achieved with the gold assays.
RPA recommends that all assays that returned copper grades in excess of 0.5%
copper should be re-assayed for gold and the mineral resource be re-estimated
using the new assay data.
RPA validated the resource model by inspection of plans and sections. The plots
included drill hole composite values to allow direct comparison of composite
grades to kriged block values. The checks showed good agreement between drill
hole composite values and kriged model cell values.
The Oyu Tolgoi project is still at the exploration stage and it is too early to
assess the possible effect on the resource estimate of factors such as
environmental, permitting, legal, title, taxation, socio-economic, marketing,
political or other potential issues. At this time, however, RPA has no reason to
believe that any of these potential issues will be an impediment to development
of the project.
Insofar as the inferred mineral resources identified to date in the Central Oyu
and Southwest Oyu zones of the Oyu Tolgoi Property are not mineral reserves,
they do not have demonstrated economic viability.
16
Sampling and Analysis
Ivanhoe's sampling procedure consists of drilling D holes on 80 metre to 120
metre centres at -55 degrees on parallel sections spaced from 80 metres to 100
metres apart. The diameter of the drill core obtained from Ivanhoe's diamond
drill holes varies between 42.0 millimetres (BTW size) and 85.0 millimetres (PQ
size), with the majority being 47.5 millimetres (NQ size) and 63.5 millimetres
(HQ size). Ivanhoe has generally been able to recover greater than 95% of the
core, which is carefully pieced together and cut along the core axis with a
diamond saw.
Ivanhoe places one half of all BTW, NQ and HQ core samples in boxes for future
reference and the other half is placed into numbered bags for shipment to the
laboratory for sample preparation and assay. PQ core is quartered with one
quarter of the core shipped for assay. Typically the core is composited in two
metre lengths to make an assay sample, although RC holes are typically one metre
long. The drill holes are generally oriented on an azimuth of 35 degrees because
it is roughly perpendicular to the observed quartz veins in weathered bedrock at
the surface. Given the intensity of the stockwork vein system (up to 30% over
broad mineralized intervals), Ivanhoe does not anticipate that there will be a
significant bias on the vein set by the drill holes. To verify this assumption,
Ivanhoe has drilled seven holes perpendicular to 35 degrees.
Ivanhoe uses a standard two-metre sampling interval on its drill holes,
regardless of the rock type and internal vein structure. This minimizes the
possibility of improper data entry into the sampling database and will be
compatible with the expected future uses of the sampling database, as
pre-feasibility and feasibility studies will likely rely on between six to
twelve metre intervals. In addition, mining operations will likely employ large
capacity bulk mining equipment that negates detailed analytical mining data.
Barren dykes are assayed with the mineralized zones and included in average
grade intervals unless they are wider than ten metres, which would make them
amenable to selective waste mining.
Samples of previously assayed core are inserted into the sample stream at the
project site on a 1 in 40 basis to provide a check on the sample preparation and
analytical results. Similarly, barren, unmineralized core samples are added into
the sample stream on an alternate 1 in 40 basis to provide an assay blank in the
analytical process. This helps monitor the sample integrity during transport to
the lab in Ulaanbaatar and for contamination in the system.
Analabs Pty. Ltd. ("Analabs"), of Ulaanbaatar, Mongolia, has performed the
assays of the Ivanhoe drill holes. Chemex Labs and Bondar Clegg, both of
Vancouver, British Columbia, previously performed check assays on 79 of those
samples selected on a 1-in-10 basis from hole OTRCD-149 and holes OTD-150. The
results of these check analyses indicate that Analabs' gold fire-assays and
copper assays are statistically similar to both Chemex and Bondar Clegg.
However, Analabs reported gold samples systematically higher than Chemex Lab and
Bondar Clegg. A subsequent check assay on 81 samples by Bondar Clegg resulted in
a satisfactory correlation of both copper and gold compared to Analabs' results.
Analabs' molybdenum assays are consistently running higher than those of both
Chemex Labs and Bondar Clegg, and Ivanhoe intends to retain the services of an
independent geochemist in order to determine the appropriate corrective
measures. Ivanhoe had independent check assays performed on a 1-in-20 basis on
all assayed holes until February, 2002, when certified standards were inserted
into the sample stream at the project site on a 1 in 20 basis.
Ivanhoe shipped six 50 kilogram core samples from OTRCD-149 (South Oyu zone),
OTD-150 (Southwest Oyu zone) and OTD-159 (Central Oyu zone) to Lakefield
Research in Canada for preliminary metallurgical testing of typical intercepts
of high-grade and intermediate grade supergene and hypogene mineralization.
Lakefield conducted preliminary froth flotation tests and column leach tests on
the samples. All samples with the exception of the sample of chalcocite
mineralization, responded well to copper mineral concentration by flotation.
Commercial grade copper mineral concentrates, containing 26-30% copper, were
achieved at metal recoveries between 81-91% of the copper in the feed sample.
Gold recoveries were approximately 76-77% of the metal in the feed.
17
The sample from the chalcocite blanket at Central Oyu did not respond well to
the recovery of copper by flotation but did respond well to bacterial leaching
in a column. The column leach is designed to test the amenability of the sample
to a low cost bacterial heap leaching method of copper extraction. Projected
copper extraction from the chalcocite sample is in the 65-82% range after
approximately 3 months. The tests are still in progress.
Seven samples of core were shipped to Minnovex Technologies in Toronto, Ontario
for comminution testing. In general, the results of the tests indicated that the
rock could be classified as "hard". However, the program was performed on a
limited number of samples and significantly more testing is required before
final conclusions can be drawn.
Finally, RPA collected seven samples of drill core from OTRCD-149 and 150 and
OTD-159. RPA engaged XRAL Laboratories of Toronto to perform specific gravity
testing on the samples. RPA reported that XRAL Laboratories' testing returned a
satisfactory degree of correlation between their results and those of Analabs'
original assays.
ADDITIONAL MONGOLIAN EXPLORATION PROJECTS
In October 2001 Ivanhoe acquired four new copper-gold porphyry-related
exploration projects in Mongolia. The Oyut Ulaan and Chandman Uul prospects are
located in southeastern Mongolia and the Oyut Ovoo and Saran Uul prospects are
located in central Mongolia.
The Oyut Ulaan prospect consists of two targets, Oyut Ulaan and Stariy. The Oyut
Ulaan target, a mineralized tourmaline breccia pipe complex situated in the
southwest part of the licence area, has a surface area of 2.5 square kilometres.
Intense, secondary copper staining occurs within and at the south margin of the
most prominent pipe. Peripheral sheeted quartz-tourmaline chalcopyrite veins
occur northeast and southwest of the pipe and are hosted in Carboniferous
granodiorite. Assays for sixteen reconnaissance rock-chip samples were highly
anomalous in copper (fourteen samples contained more than 5% copper), molybdenum
(30-87 ppm) and gold (up to 0.30 g/t).
The Stariy target is a low-relief area with abundant copper-stained colluvium
and subcrops within a five-square-kilometre zone in the north-central part of
the licence area. Widespread vein quartz (+/-magnetite) and gossanous,
magnetite-bearing, hydrothermal breccias imply underlying porphyry-type
copper-gold systems. Assays for 35 reconnaissance rock-chip samples reported
high copper (18 samples ranging between 1-10%), gold (seven samples ranging
between 0.25-16.8 g/t) and molybdenum (three samples ranging between 200-709
ppm).
The Chandman Uul prospect consists of a large, copper-bearing, magnetite skarn.
The skarn is massive and outcrops extensively as a prominent line of hills over
a distance of approximately three kilometres. The skarn is associated with the
contact of Proterozoic limestones and Devonian granodioritic intrusions. Assays
for 55 reconnaissance rock-chip samples reported high copper (26 samples ranging
between 1-8%) and anomalous gold (a maximum of 2.3 g/t). No molybdenum assays
were done.
The Saran Uul prospect is a porphyry copper system hosted in upper Carboniferous
diorites and syenites. A stockwork quartz-vein zone target has surface
dimensions of 1.5 kilometres by 700 metres. The terrain is flat to undulating
and much of the area is weathered and leached. Assays from 54 reconnaissance
rock-chip samples were highly anomalous in copper (22 samples ranging between
0.1-0.5% and 11 samples ranging between 0.5-5%), gold (six samples ranging
between 0.5-4.9 g/t) and molybdenum (14 samples ranging between 100-2000 ppm).
The Oyut Ovoo prospect is centred on a group of prominent hills comprising
copper-bearing magnetite skarns and hydrothermal breccia pipes hosted in Permian
granitoid stocks. The mineralized zone has a surface area of approximately four
square kilometres and is surrounded by recent alluvium. Assays from 43
reconnaissance
18
rock-chip samples reported anomalous values for copper (17 samples ranging
between 1-10%), gold (nine samples ranging between 0.3-0.7 g/t) and molybdenum
(16 samples ranging between 100ppm and 1%).
Analabs performed the sample preparation and (for consistency) analysis of the
rock-chip samples at its regional laboratory in Ulaanbaatar.
Ivanhoe recently acquired an interest in three new exploration licences in the
South Gobi region: the Kharmagtai Property, the Shuteen Property and the Ovoot
Hyar Property. Ivanhoe holds an MEL over the Kharmagtai Property, but has agreed
to convey a 10% interest to an arm's length private company in exchange for
exploration data owned by that company in respect of the property. Ivanhoe has
the right to earn an 80% interest in both the Shuteen Property and the Ovoot
Hyar Property upon completion of a US$1,500,000 work program over three years on
the Shuteen Property and a US$500,000 work program over one year on the Ovoot
Hyar Property, with the remaining 20% interest to be held by an arm's length
private company. Ivanhoe acquired exploration data from the previous owner of
the respective properties in connection with the transactions. Ivanhoe intends
to review this data and based on that review integrate the properties into its
exploration program in Mongolia.
MYANMAR
In December 2001, the London Metals Exchange ("LME") registered cathode copper
produced from the S & K mine at Ivanhoe's Monywa copper project. LME
registration certifies that copper produced by the mine meets LME standards for
purity, shape and weight as specified by its special contract rules. LME
registration allows Ivanhoe to sell its copper cathode at premium prices.
Ivanhoe is continuing discussions with potential project lenders in order to
commence development of the Letpadaung deposit as the second phase of the Monywa
copper project. No agreement has, to date, been reached for financing the
development of the Letpadaung deposit.
At Ivanhoe's principal exploration project in Myanmar, Modi Taung, Ivanhoe has
identified a series of five parallel running, gold-bearing mesothermal veins.
The veins are steeply dipping and trend northwest. The veins are traceable on
the surface for a distance of approximately 1.5 kilometres and range in
thickness from 0.3 to 2.7 metres wide. Gold contained in the vein occurs as free
gold, in vugs and associated with pyrite.
Since discovering the gold vein system in late 2000, Ivanhoe has explored the
project area with a series of trenches, adits and crosscuts. Preliminary
metallurgical work indicates gold recoveries of 97% are attainable with
conventional processing.
New veins with visible gold were uncovered at four locations in the south and
east of the area. The new veins, and the four vein systems with adits,
demonstrate that the mineralized structures at Modi Taung lie within a
1,100-metre by 3,000-metre, north-northwest trending zone. The zone is
potentially open to the southeast and vein outcrops to the northwest have
visible gold. Mineralized veins in adits occur over a 360-metre vertical
interval without systematic change in style or grade.
The camp capacity at Modi Taung is being doubled, to accommodate up to 12
aditing teams that use mine explosives below the softer, oxidized zone.
Commencing in mid-2002, Ivanhoe intends to drill holes at Modi Taung to a depth
of 500 metres below adit 1to test the down-dip continuity of the vein structure.
SOUTH KOREA
Ivanhoe has begun pre-production mining operations from a small, high-grade open
pit at the Eunsan deposit in South Korea and expects to commence milling gold
and silver ores some time during the first half of 2002. Milling and surface
facilities are being constructed. Open pit mining operations will be followed by
an
19
underground development program designed to provide additional feed for the mill
and further define specific ore zones.
The Eunsan deposit is the most advanced of several prospects identified by
Ivanhoe within the Seongsan gold/silver project in Chollanam-Do Province.
Drilling is ongoing at the other prospects to define the grades and extent of
the gold and silver mineralization. The current development concept is to mine
three or more deposits, using a central milling facility.
Pre-production work and infrastructure development, including a 3,300-tonne per
month mill, site facilities, open-pit and portal, is expected to cost
approximately US$1,000,000. Ivanhoe plans to recover gold and silver using
gravity concentration and a flotation circuit to produce gold and silver
concentrate. The concentrate will be smelted on site to produce gold bullion and
dore bars. Gold recoveries are expected to be approximately 85% from the
oxidized surface ore and approximately 95% from the unoxidized underground ore.
The Seongsan project area contains outcropping, low-sulphidation, epithermal
gold-silver mineralized systems occurring as veins, breccias, stockworks and
zones of silification along a cumulative strike length of at least 3.2
kilometres. The veins lie along a structural zone adjacent to a large, operating
clay mine and, as a result, the area has established infrastructure to support
mining.
KAZAKHSTAN
Ivanhoe has recommenced gold production from oxide ore at the Bakyrchik gold
mine in northeastern Kazakhstan. The initial gold dore bar, weighing 4.2
kilograms (135 ounces), was poured in October, 2001. It was the first gold
produced at the Bakyrchik gold mine since 1996, when Ivanhoe first acquired an
interest in the project.
The mine, at which Ivanhoe plans to gradually build up production to
approximately 20,000 ounces of gold per year, is currently processing oxide ore
stockpiled from previous mining operations at a rate of 500 tonnes per day. The
gold is recovered using the carbon-in-leach recovery method. Open-pit mining of
near-surface oxide ore is scheduled to start in the second quarter of 2002.
Initial recoveries of gold from oxide ore were expected to be in the order of
90% but the uneven nature of the stockpiled material has resulted in a recovery
rate for the last three months of 2001 of approximately 70%. In general the
initial performance was disappointing due to the extreme winter conditions and
variable stockpile conditions. The mining venture plans to engage a local mining
contractor to mine and deliver new ore to the crusher. The mining venture also
plans to expand the crusher facility to accommodate more throughput. At this
time, management is uncertain as to the ultimate viability of the oxide project.
The gold deposits at Bakyrchik consist of a series of mineralized lenses, or
lodes, lying within a large shear zone that is 11.5 kilometres in length. Gold
mineralization is hosted within sheared, carbonaceous sediments of the fault
zones, and is contained within oxide and sulphide mineralization occurring in
association with quartz stockworks. The sulphide and carbon in the deposits may
be variably oxidized to depths of 20 to 40 metres.
Ivanhoe has a 70% interest in Bakyrchik Mining Venture, the Kazakhstani entity
that owns the mine. The government of Kazakhstan holds the remaining 30%.
Ivanhoe is entitled to 100% of all operating cash flows from the mine until it
has recovered all of its previously invested capital in the project.
TASMANIA
The operating and financial results for the fourth quarter of 2001 at the Savage
River iron ore mine in Australia continued the third quarter trend, with total
material shipped during the fourth quarter dropping by 28% from the amount
shipped during the third quarter. The mine's owner, Goldamere Pty. Ltd., an
indirect wholly-owned subsidiary of Ivanhoe, continued its pursuit of a
restructuring of its business plan and financing package with its major lenders
and other stakeholders.
20
Goldamere operates an open pit mine and a crusher/concentrator facility at
Savage River and a pellet plant at Port Latta, approximately 83 kilometres north
of the mine. Goldamere's products are sold to customers in Australia and Asia.
Goldamere continues to convert the out-of-the-money portion of a currency-hedge
obligation to its major creditor, UBS Australia Limited ("UBS"), into project
debt, pending the conclusion of negotiations with UBS and other major
stakeholders to achieve a satisfactory restructuring of Goldamere's finances.
The UBS credit facility at December 31, 2001, consisted of a project loan for
the Savage River operation of approximately A$42.391 million (US$21.594 million
at a year-end exchange rate of $1 Australian = US$0.50945), excluding accrued
interest of A$1.370 million (US$697,735), plus an obligation to deliver
approximately US$5.0 million per month until February, 2003 under the foreign
currency hedge. On a marked-to-market basis, the hedge results in an accrued
loss of approximately A$35.83 million (US$18.032 million). The loan and hedge
are non-recourse to Ivanhoe.
Against a background of significant softening in demand from the world's steel
industry, with the major iron-ore pellet producers reducing output in some cases
by as much as 25%, sales of iron-ore products during 2001 totalled approximately
1,900,000 tonnes, 460,000 tonnes below plan. Goldamere's customers maintained
contracted shipments during the fourth quarter and BHP-Billiton, Goldamere's
largest customer, agreed to increase its purchases of iron-ore pellets by 25%
for the current contract year (which ends in June, 2002).
NORWAY
The Bj0rnevatn iron ore mine, closed since 1997, remains on care and
maintenance. Although Ivanhoe had planned, in the medium term, to refurbish the
existing pellet producing facilities and re-open the mine, Ivanhoe management
has since decided that, insofar as Bj0rnevatn is a non-core asset, its other
projects elsewhere in the world should take priority in the Corporation's
capital expenditure budget and that no further expenditures of a material nature
should be made by the Corporation in respect of the Bj0rnevatn iron ore mine.
Management of Arctic Bulk Minerals AS ("Arctic"), a wholly-owned subsidiary of
Ivanhoe and the owner of the Bj0rnevatn iron ore mine, has proposed to Ivanhoe
that Arctic seek its own source of equity financing in order to continue its
efforts to re-start the mine. The proposal would involve Arctic issuing new
shares to a number of arm's length investors, primarily in Norway.
The Corporation supports the efforts of Arctic's management to raise financing
for the ongoing efforts to reopen the Bj0rnevatn iron ore mine but is not
prepared to commit any significant additional financial resources of its own to
advance or maintain the project. Therefore, the Company is prepared to have its
equity interest in Arctic diluted in order to allow Arctic to raise additional
equity capital in the future.
There can be no assurance that Arctic will be successful in its efforts to
independently raise the capital necessary to restart the Bj0rnevatn iron ore
mine. To date, Arctic has not been successful in its efforts to raise financing.
If Arctic fails to obtain, at a minimum, the funding necessary to retain the
Bj0rnevatn iron ore mine on care and maintenance, Arctic may be forced to
relinquish its entire interest in the project.
CONSOLIDATED CAPITALIZATION
The following table sets forth the consolidated capitalization of Ivanhoe as of
the dates indicated and reflects material changes in Ivanhoe's capitalization
since the date of its most recent audited consolidated annual financial
statements, which are incorporated by reference in this short form prospectus.
The following table should be read in conjunction with those financial
statements and the notes that accompany them.
21
[Enlarge/Download Table]
As at As at
December 31, 2000 February 28, 2002(2)
----------------- --------------------
(in US$000's)
Loans Payable to Related Parties (1) ..... $ 21,588 $ 4,764
Long-term Debt (including current portion) 66,403 62,604
Shareholders' Equity
Share Capital
Common Shares(3) ......................... 414,489 460,837
Special Warrants(4) ...................... -- 14,997
Additional Paid-in Capital ............... 10,375 1,750
Accumulated Deficit ...................... (246,917) (281,000)(5)
--------- ---------
Total Consolidated Capitalization ........ $ 265,938 $ 263,952
========= =========
(1) Changes to Loans Payable to Related Parties reflect the conversion into
30,625,000 Common Shares on December 31, 2001 of US$23,075,474 face value
of loans plus accrued interest owed by Ivanhoe's wholly-owned subsidiary,
ABM Mining Limited, and its subsidiaries to related parties of Ivanhoe. For
more information, see Ivanhoe's material change report dated January 7,
2002, which is incorporated herein by reference.
(2) With the exception of Common Shares, Special Warrants and Additional
Paid-in Capital, the figures reported for February 28, 2002 represent an
estimate.
(3) Changes to Common Share equity reflect the issuance by Ivanhoe of an
aggregate of 15,220,889 Common Shares in private placements and public
offerings during the year ended December 31, 2001, the deemed issue price
for the 30,625,000 Common Shares issued on the conversion of related party
loans as described in Note (1) above and 1,048,975 Common Shares issued
pursuant to incentive stock options and other rights to purchase Common
Shares exercised between December 31, 2000 and February 28, 2002.
(4) Proceeds from the special warrants issued on January 25, 2002.
(5) Reflects a write down of approximately US$5,500,000 in the carrying value
of the Bjornevatn iron ore mine as at December 31, 2001 but does not
reflect an anticipated but as yet unquantified write down in the carrying
value of the Savage River iron ore mine as at December 31, 2001.
DESCRIPTION OF SHARE CAPITAL
The authorized share capital of Ivanhoe consists of an unlimited number of
Common Shares without par value and an unlimited number of preferred shares
without par value ("Preferred Shares"). As of the date of this prospectus, there
are 171,880,884 Common Shares and no Preferred Shares issued and outstanding.
Rights and restrictions in respect of the Common Shares and the Preferred Shares
are set out in Ivanhoe's articles of continuance and in the Yukon Business
Corporations Act, and its regulations, Ivanhoe's governing statute.
The holders of Common Shares are entitled to one vote per Common Share at all
meetings of shareholders, to receive dividends as and when declared by the
directors, and to receive a pro rata share of the remaining property and assets
of the Corporation in the event of liquidation, dissolution or winding up of the
Corporation. The Common Shares have no pre-emptive, redemption, purchase or
conversion rights. There are no sinking
22
fund provisions in relation to the Common Shares and they are not liable to
further calls or to assessment by the Corporation. The Yukon Business
Corporations Act provides that the rights and provisions attached to any class
of shares may not be modified, amended or varied unless consented to by special
resolution passed by a majority of not less than two-thirds of the votes cast in
person or by proxy by holders of shares of that class.
The Preferred Shares as a class rank senior to the Common Shares as to the
payment of dividends and the distribution of property and assets on the
liquidation, dissolution or winding-up of the Corporation. Holders of Preferred
Shares are not entitled to any voting rights as a class except as may be
provided under the Yukon Business Corporations Act and except that the directors
of the Corporation are empowered to attach to any series voting rights relating
to the election of directors on a default in payment of dividends.
The Preferred Shares are issuable in one or more series, each consisting of such
number of Preferred Shares as may be fixed by the Corporation's directors. The
Corporation's directors may from time to time, by resolution passed before the
issue of any Preferred Shares of any particular series, alter the constating
documents of the Corporation to determine the designation of the Preferred
Shares of that series and to fix the number of Preferred Shares therein and
alter the constating documents to create, define and attach special rights and
restrictions to the shares of that series, including, without limitation, the
following: (i) the nature, rate or amount of dividends and the dates, places and
currencies of payment thereof; (ii) the consideration for, and the terms and
conditions of, any purchase of the Preferred Shares for cancellation or
redemption; (iii) conversion or exchange rights; (iv) the terms and conditions
of any share purchase plan or sinking fund; and (v) voting rights and
restrictions.
PLAN OF DISTRIBUTION
Pursuant to an agreement dated as of March 13, 2002 (the "Underwriting
Agreement"), among Ivanhoe and each of the Underwriters, Ivanhoe has agreed to
sell and the Underwriters have severally agreed to purchase, subject to
compliance with all necessary legal requirements and with the terms and
conditions of the Underwriting Agreement, on April 3, 2002 or on such other date
as Ivanhoe and the Underwriters may mutually agree (provided such date is not
more than 42 days after the date of the receipt for this short form prospectus),
all but not less than all of the 17,450,000 Common Shares offered hereby, at a
price of $3.25 per Common Share for total consideration of $56,712,500 payable
in cash against delivery of a share certificate or share certificates
representing such Common Shares. The offering price was determined by
negotiation between Ivanhoe and the Underwriters. The Company has agreed to pay
to the Underwriters a fee equal to $0.1625 per Common Share (5% of the issue
price) in consideration of services rendered by them in connection with the
Offering.
The obligations of the Underwriters under the Underwriting Agreement are several
and not joint and may be terminated upon the occurrence of certain stated
events. The Underwriters are, however, obligated to take up and pay for all of
the Offered Shares offered hereby if any are purchased under the Underwriting
Agreement.
The Company has agreed to indemnify the Underwriters and their broker/dealer
affiliates against certain liabilities, including liabilities under the United
States securities laws and under Canadian securities legislation, and to
contribute to payments that the Underwriters may be required to make in respect
thereof.
Ivanhoe has agreed not to issue or enter into an agreement to issue any common
shares or any securities convertible into or exchangeable for common shares
without the prior consent of the Underwriters, such consent not to be
unreasonably withheld, until the date which is 90 days after the closing of the
offering, except pursuant to: (i) the grant or exercise of stock options and
other similar issuances pursuant to Ivanhoe's share incentive plan and other
compensation arrangements; (ii) the exercise or conversion of outstanding
warrants and special warrants; (iii) obligations in respect of existing mineral
property agreements, and (iv) the issuance of securities in connection with
property or share acquisitions in the normal course of business.
The Corporation has applied to the TSE to list the Common Shares to be
distributed hereunder. Listing of the Common Shares on the TSE will be subject
to the Company fulfilling all listing requirements of the TSE.
23
Pursuant to policies of the Ontario Securities Commission, the Underwriters may
not, throughout the period of distribution under this short form prospectus, bid
for or purchase Common Shares. The foregoing restriction is subject to certain
exceptions, on the condition that the bid or purchase not be engaged in for the
purpose of creating actual or apparent active trading in or raising the price of
the Common Shares. These exceptions include a bid or purchase permitted under
the by-laws and rules of the TSE relating to market stablization and passive
market marking activities and a bid or purchase made for or on behalf of a
customer where the order was not solicited during the period of distribution.
The Company has been advised that, in connection with the offering and subject
to the foregoing, the Underwriters may over-allot or effect transactions which
stabilize or maintain the market price of the Common Shares at levels above that
which would otherwise prevail in the open market. Such transactions, if
commenced, may be discontinued at any time.
The Common Shares have not been and will not be registered under the United
States Securities Act of 1933, as amended (the "1933 Act") or any state
securities laws and, subject to certain exceptions, may not be offered or sold
within the United States or to United States persons. Each Underwriter has
agreed that it will not offer or sell the Common Shares within the United States
except in accordance with exemptions from the registration requirements under
the 1933 Act. The Underwriting Agreement provides that the Underwriters will
offer and sell the Common Shares outside the United States only in accordance
with Regulation S under the U.S. Securities Act. Each Underwriter has agreed
that, except as permitted by the Underwriting Agreement, it will not offer to
sell the Common Shares within the United States or to U.S. Persons. In addition,
until 40 days after the commencement of this offering, an offer or sale of the
Common Shares within the United States by any dealer (whether or not
participating in this offering) may violate the registration requirements of the
1933 Act if such offer or sale is made otherwise than in accordance with an
exemption from such registration requirements.
USE OF PROCEEDS
In January 2002, Ivanhoe completed a private placement of special warrants (the
"Special Warrant Private Placement"). See "Other Material Facts". The aggregate
net proceeds of the Special Warrant Private Placement were approximately
US$15,200,000 (Cdn$24,120,000). The aggregate net proceeds received by Ivanhoe
from the sale of the Common Shares pursuant to this Offering, after deducting
the Underwriters' fee and payment of expenses of the Offering, including
preparation of this short form prospectus, estimated to be US$130,000
(Cdn$200,000), will be approximately US$34,000,000 (Cdn$53,677,000). Ivanhoe
intends to allocate the combined net proceeds of this Offering and the Special
Warrant Private Placement as follows:
[Download Table]
(i) to fund a two phase delineation and
exploration drilling program in the Southwest
Oyu zone of the Oyu Tolgoi Property
-- US$ 8,000,000
(ii) to fund an exploration drilling program in the
South Oyu, Central Oyu, Airstrip and North
Oyu zones of the Oyu Tolgoi Property
-- US$11,200,000
(iii) to fund a metallurgical testing, scoping and
pre-feasibility and related engineering studies
on the Oyu Tolgoi Property -- US$ 3,400,000
(iv) to fund a field reconnaisance and geochemical
sampling program to identify drilling targets
on Ivanhoe's other Mongolian mineral
exploration properties -- US$ 3,500,000
24
[Download Table]
(v) to fund one or more exploration drilling
programs on Ivanhoe's other Mongolian
mineral exploration properties -- US$ 3,600,000
(vi) to fund net holding, care and maintenance and
operating costs of the Bakyrchik gold mine in
Kazakhstan -- US$ 3,750,000
(vii) to fund general and administrative costs -- US$10,000,000
(viii) for working capital -- US$ 5,750,000
-------------
Total: US$49,200,000
=============
Ivanhoe expects to incur the planned expenditures outlined above over a period
of twelve to eighteen months. Drilling and other exploration expenditures will
be contingent upon receipt of results which justify continued exploration of the
target properties. In the absence of exploration results justifying ongoing
expenditures on a particular property, Ivanhoe may re-allocate funds previously
allocated for expenditure on that property to other properties now owned or
acquired in the future.
The expenditures planned for the Bakyrchik gold mine represent the estimated
cost to Ivanhoe of retaining its interest in the project, net of revenue
generated from mining operations, over the next eighteen months. These net
holding costs may be higher or lower depending on fluctuations in the price of
gold and recovery rates from mining operations which, to date, have been lower
than expected.
RISK FACTORS
Investment in securities of Ivanhoe involves a significant degree of risk and
should be considered speculative due to the nature of Ivanhoe's business and the
present stage of its development. Investors should give careful consideration to
the risk factors described in "Item 4 -- Narrative Description of Business --
Risk Factors" on pages 38 through 45 of Ivanhoe's AIF, which is incorporated by
reference in this short form prospectus, and the following additional risk
factors relating to Ivanhoe's Oyu Tolgoi exploration project:
OUR BUSINESS IN MONGOLIA MAY BE HARMED IF THE COUNTRY FAILS TO COMPLETE ITS
TRANSITION FROM STATE SOCIALISM AND A PLANNED ECONOMY TO POLITICAL DEMOCRACY AND
A FREE MARKET ECONOMY.
Since 1990, Mongolia has been in transition from state socialism and a planned
economy to a political democracy and a free market economy. Much progress has
been made in this transition but much progress remains to be made, particularly
with respect to the rule of law. Many laws have been enacted, but in many
instances they are neither understood nor enforced. For decades Mongolians have
looked to politicians and bureaucrats as the sources of the "law". This has
changed in theory, but often not in practice. With respect to most day-to-day
activities in Mongolia government civil servants interpret, and often
effectively make, the law. This situation is gradually changing but at a
relatively slow pace. Laws may be applied in an inconsistent, arbitrary and
unfair manner and legal remedies may be uncertain, delayed or unavailable.
FUTURE AMENDMENTS TO MONGOLIAN LAWS COULD WEAKEN, SHORTEN OR CURTAIL OUR MINERAL
EXPLORATION RIGHTS OR MAKE IT MORE DIFFICULT OR EXPENSIVE TO OBTAIN MINING
RIGHTS AND CARRY OUT MINING.
Mongolia's Minerals Law was drafted with the assistance of Western legal experts
and is regarded as one of the most logical, internally consistent and effective
pieces of mining legislation among all of the developing countries of Asia.
However, future amendments to the Minerals Law or new legislation covering
ostensibly unrelated matters could affect the existing tenure regime under the
Minerals Law and harm Ivanhoe's ability to carry on business in Mongolia.
Mongolian government civil servants have, in the past, unsuccessfully attempted
25
to introduce amendments to the Minerals Law which would, from the perspective of
the international mining industry, be regarded as counterproductive. Future
amendments to the Minerals Law or new legislation, if implemented, could vary or
abrogate key provisions of the Minerals Law in a manner that impairs Ivanhoe's
ability to conduct exploration and mining in Mongolia.
THE MINERAL RESOURCES IDENTIFIED ON THE OYU TOLGOI PROPERTY DO NOT HAVE
DEMONSTRATED ECONOMIC VIABILITY AND THE FEASIBILITY OF MINING HAS NOT BEEN
ESTABLISHED.
The mineral resources identified to date on the Oyu Tolgoi Property are not
mineral reserves and do not have demonstrated economic viability. There can be
no assurance that mineral reserves will be identified on the property. The
feasibility of mining on the Oyu Tolgoi Property has not been, and may never be,
established.
LACK OF INFRASTRUCTURE IN PROXIMITY TO THE OYU TOLGOI PROPERTY COULD ADVERSELY
AFFECT MINING FEASIBILITY.
The Oyu Tolgoi Property is located in an extremely remote area which lacks basic
infrastructure, including sources of power, water, housing, food and transport.
While Ivanhoe has established the limited infrastructure necessary to conduct
exploration activities, it would need to establish substantially greater sources
of power, water, physical plant and transport infrastructure in the area before
it could conduct mining operations. The availability of such sources may
adversely affect mining feasibility and will, in any event, require Ivanhoe to
arrange significant financing, locate adequate supplies and obtain necessary
approvals from national, provincial and regional governments, none of which can
be assured.
IVANHOE'S EXPLORATION LICENCES COULD EXPIRE BEFORE IVANHOE IS READY OR ABLE TO
OBTAIN A MINING LICENCE.
The exploration licences for the Oyu Tolgoi Property expire in less than two
years, and renewals of those licences are unavailable under the Minerals Law.
Prior to such expiry, Ivanhoe will have to convert the exploration licences to
mining licences or risk losing its rights to the Oyu Tolgoi Property. Ivanhoe
may not be ready to commence mining activities when the exploration licences
expire. Early in 2002, a law on Licences for Business Activities was enacted
which has been interpreted by Mongolian bureaucrats as requiring aimag
(provincial) government level approval as a condition to the grant of
exploration and mining licences. There can be no assurance that Ivanhoe will be
able to obtain such approval on acceptable terms or at all when applying for
mining licences and exploration licences in the future.
SIGNIFICANT ACQUISITIONS
On December 31, 2000, Ivanhoe acquired all of the issued and outstanding common
shares of ABM Mining Limited ("ABM"). The acquisition of ABM was a "significant
acquisition" for the purposes of National Instrument 44-101 of the Canadian
Securities Administrators ("NI 44-101").
See page 10 of Ivanhoe's AIF, which is incorporated by reference in this short
form prospectus, for particulars of the terms of Ivanhoe's acquisition of ABM,
the consideration paid, the effect of the transaction on Ivanhoe's financial
position and the valuation opinion obtained in respect of the transaction
pursuant to Ontario Securities Commission Rule 61-501 and Policy Q-27 of the
Commission des valeurs mobilieres du Quebec. Ivanhoe acquired ABM from Robert M.
Friedland, the Chairman of Ivanhoe's board of directors and Ivanhoe's largest
shareholder.
The financial statements required under Part 4 of NI 44-101 are included in, and
form a part of, this short form prospectus. See "Index to Financial Statements"
and "Index to Pro Forma Financial Information".
26
OTHER MATERIAL FACTS
On March 25, 2002, Ivanhoe filed with the securities commissions in each of
British Columbia and Ontario a short form prospectus relating to the issuance of
9,385,164 Common Shares issuable upon the exercise or deemed exercise of
9,385,164 previously issued special warrants sold by way of private placement to
two institutional investors. 6,452,800 special warrants were sold at a price of
Cdn$2.50 per special warrant and 2,932,364 special warrants were sold at a price
of Cdn$2.75 per special warrant.
AUDITORS, TRANSFER AGENT AND REGISTRAR
The auditors of Ivanhoe are Deloitte & Touche LLP, Chartered Accountants,
Vancouver, British Columbia. The registrar and transfer agent for the Common
Shares in Canada is CIBC Mellon Trust Company at its principal offices in
Vancouver.
LEGAL MATTERS
Certain Canadian legal matters in connection with this Offering will be passed
upon by Goodmans on behalf of Ivanhoe and by DuMoulin Black on behalf of the
Underwriters. As at the date hereof, the partners and associates of Goodmans, as
a group, beneficially own directly or indirectly less than one percent of the
outstanding Common Shares.
PURCHASERS' STATUTORY RIGHTS
Securities legislation in certain provinces of Canada provides purchasers with
the right to withdraw from an agreement to purchase securities. This right may
be exercised within two business days after receipt or deemed receipt of a
prospectus and any amendment thereto. The securities legislation further
provides a purchaser with remedies for rescission or, in some jurisdictions,
damages where the prospectus and any amendment contains a misrepresentation or
is not delivered to the purchaser, provided that the remedies for rescission or
damages are exercised by the purchaser within the time limit prescribed by the
securities legislation of the purchaser's province. Purchasers should refer to
any applicable provisions of the securities legislation of the purchaser's
province for the particulars of these rights or consult with a legal adviser.
27
INDEX TO FINANCIAL STATEMENTS
ABM MINING LIMITED AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2000 AND 1999
[Download Table]
Page
----
Auditors' Report ............................................................ A-1
Consolidated Balance Sheet .................................................. A-2
Consolidated Statement of Earnings and Deficit .............................. A-3
Consolidated Statement of Cash Flows ........................................ A-4
Notes to the Consolidated Financial Statements .............................. A-6
INDEX TO PRO FORMA FINANCIAL INFORMATION
PRO FORMA CONSOLIDATED STATEMENT OF LOSS FOR THE YEAR ENDED DECEMBER 31, 2000
[Download Table]
Page
----
Compilation Report .......................................................... B-1
Pro Forma Consolidated Statement of Loss .................................... B-2
Notes to the Pro Forma Consolidated Financial Information ................... B-3
28
GRANT THORNTON LLP [GRANT THORNTON LOGO]
CHARTERED ACCOUNTANTS
MANAGEMENT CONSULTANTS
Canadian Member Firm of
Grant Thornton International
ABM MINING LIMITED
CONSOLIDATED
FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS)
DECEMBER 31, 2000
CONTENTS
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Auditors' Report ........................................................................ 1
Consolidated Balance Sheet .............................................................. 2
Consolidated Statements of Earnings and Deficit ......................................... 3
Consolidated Statement of Cash Flows .................................................... 4-5
Notes to the Consolidated Financial Statements .......................................... 6-20
[GRANT THORNTON LOGO]
GRANT THORNTON LLP [GRANT THORNTON LOGO]
CHARTERED ACCOUNTANTS
MANAGEMENT CONSULTANTS
Canadian Member Firm of
Grant Thornton International
AUDITORS' REPORT
To the Shareholders of
ABM Mining Limited
We have audited the consolidated balance sheet of ABM Mining Limited
as at December 31, 2000 and the consolidated statements of earnings
and deficit and cash flows for the year then ended. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform
an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these consolidated financial statements present
fairly, in all material respects, the financial position of the
company as at December 31, 2000 and the results of its operations and
its cash flows for the year then ended in accordance with Canadian
generally accepted accounting principles.
GRANT THORNTON LLP
Vancouver, Canada
April 2, 2001 Chartered Accountants
P.O. Box 11177, Royal Centre
Suite 2800
1055 West Georgia Street
Vancouver, British Columbia
V6E 4N3
Tel: (604) 687-2711
Fax: (604) 685-6569
A-1
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ABM MINING LIMITED
CONSOLIDATED BALANCE SHEET
(expressed in U.S. dollars)
December 31 2000 1999
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ASSETS
Current
Cash ....................................... $ 3,209,228 $ 1,869,208
Receivables (Note 3) ....................... 3,356,435 3,832,086
Inventories (Note 4) ....................... 10,146,989 11,803,747
Prepayments ................................ 161,829 691,375
------------- -------------
16,874,481 18,196,416
Mining property, plant and equipment (Note 5) . 63,872,385 57,270,886
Deferred start-up costs ....................... 2,239,787 2,355,713
Deferred foreign exchange loss ................ -- 331,436
------------- -------------
$ 82,986,653 $ 78,154,451
============= =============
LIABILITIES
Current
Payables and accruals ...................... $ 9,255,335 $ 8,695,315
Related parties
Ivanhoe Mines Ltd. (Note 6) ............. 1,156,937 --
Goldamere Holdings (L) Limited (Note 7) . -- 2,101,583
Australian Bulk Minerals Limited (Note 8) -- 14,590,187
A beneficial shareholder (Note 9) ....... -- 55,970,280
Current portion of term debt (Note 12) ..... 4,764,878 2,279,239
------------- -------------
15,177,150 83,636,604
Related parties
Goldamere Holdings (L) Limited (Note 7) .... 2,874,018 --
Australian Bulk Minerals Limited (Note 8) .. 7,222,207 --
A former beneficial shareholder (Note 9) ... 5,470,349 --
Ivanhoe Capital Finance Limited (Note 10) .. 9,976,611 --
Term debt (Note 12) ........................... 27,773,416 38,704,755
Deferred foreign exchange gain ................ 3,008,578 --
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71,502,329 122,341,359
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SHAREHOLDER'S EQUITY (DEFICIENCY)
Share capital (Note 13) ....................... 56,609,203 1,652,128
Deficit ....................................... (45,124,879) (45,839,036)
------------- -------------
11,484,324 (44,186,908)
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$ 82,986,653 $ 78,154,451
============= =============
Commitments (Note 18)
On behalf of the Board
"GORDON TOLL" Director "IAN ROSS" Director
See accompanying notes to the consolidated financial statements.
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ABM MINING LIMITED
CONSOLIDATED STATEMENTS OF EARNINGS AND DEFICIT
(expressed in U.S. dollars)
Year Ended December 31 2000 1999
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Revenue
Iron ore sales ................................ $ 62,382,381 $ 59,373,916
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Costs and expenses
Costs of production (including depreciation and
depletion) ................................ 52,603,019 51,759,328
Selling and marketing ......................... 1,648,400 1,448,689
Accounting .................................... 36,963 41,827
Consulting .................................... 1,201,090 1,413,576
Depreciation .................................. 79,659 71,202
Interest on term debt ......................... 1,774,792 1,661,777
Other interest ................................ 3,043,653 7,266,515
Legal and regulatory .......................... 73,235 170,453
Office ........................................ 2,531,156 2,379,693
Salaries ...................................... 1,308,996 1,128,447
Travel ........................................ 393,743 349,465
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64,694,706 67,690,972
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Loss before undernoted ........................... (2,312,325) (8,317,056)
------------ ------------
Other income (expense)
Gain on forgiveness of interest (Note 9) ...... 11,539,200 --
Foreign exchange .............................. (9,253,578) (2,754,293)
Interest ...................................... 171,251 98,370
Other ......................................... 569,609 592,332
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3,026,482 (2,063,591)
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Net earnings (loss) .............................. 714,157 (10,380,647)
Deficit, beginning of year ....................... (45,839,036) (35,458,389)
------------ ------------
Deficit, end of year ............................. $(45,124,879) $(45,839,036)
============ ============
See accompanying notes to the consolidated financial statements.
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ABM MINING LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
(expressed in U.S. dollars)
Year Ended December 31 2000 1999
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Cash derived from (applied to)
OPERATING
Net earnings (loss) ............................... $ 714,157 $(10,380,647)
Depreciation and depletion ........................ 12,929,719 6,842,626
Accrued interest capitalized on debt .............. 3,850,690 7,821,313
Interest forgiven on amounts due to a beneficial
shareholder ..................................... (11,539,200) --
Foreign exchange translation adjustment on
non-U.S. dollar debt ............................ (1,485,463) 782,354
Changes in non-cash operating working capital
(Note 16) ....................................... 2,356,349 (86,304)
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6,826,252 4,979,342
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FOREIGN CURRENCY
Deferred foreign exchange ......................... (248,544) (64,884)
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INVESTING
Acquisition of mining property, plant and equipment (6,238,604) (6,067,886)
Prestrip expenses capitalized ..................... (12,311,062) (8,439,943)
------------ ------------
(18,549,666) (14,507,829)
------------ ------------
FINANCING
Due to Ivanhoe Mines Ltd. ......................... 1,156,937 --
Due to Australian Bulk Minerals Limited ........... 1,237,250 4,047,567
Advances by a former beneficial shareholder ....... 5,000,000 1,915,900
Advances from Ivanhoe Capital Finance Limited ..... 9,500,000 --
Term debt advances ................................ 191,844 7,830,133
Term debt payments ................................ (3,774,053) (4,794,379)
Capital stock issued for cash ..................... -- 124,921
------------ ------------
13,311,978 9,124,142
Net increase (decrease) in cash ...................... 1,340,020 (469,229)
Cash, beginning of year .............................. 1,869,208 2,338,437
------------ ------------
Cash, end of year .................................... $ 3,209,228 $ 1,869,208
============ ============
See accompanying notes to the consolidated financial statements.
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ABM MINING LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
(expressed in U.S. dollars)
Year Ended September 30 2000 1999
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NON-CASH INVESTING AND FINANCING TRANSACTIONS
Capital assets financed by capital leases ...... $ -- $ 290,279
Capital asset acquisitions financed with payables $ 865,626 $ 418,078
Accrued interest capitalized on debt ............ $ 3,850,690 $7,821,313
Deferred payment obligations issued to acquire
mining facilities ............................ $ -- $5,430,533
Loans from related parties converted to shares
(Note 13) .................................... $54,957,075 $1,520,567
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid .................................. $ 1,981,153 $3,144,297
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See accompanying notes to the consolidated financial statements.
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ABM MINING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(expressed in U.S. dollars)
December 31, 2000
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1. OPERATIONS
OPERATIONS
The company ("ABM") was incorporated under the laws of the Yukon Territory,
Canada, on May 1, 1997 as 15425 Yukon Inc. and changed its name to ABM Mining
Limited on January 31, 2000. The company, through its subsidiaries, is engaged
in the operation of an iron ore mine in Tasmania, Australia and in the
development of an open pit mine leading to the production and sale of iron ore
pellets in Kirkenes, Norway.
The company's principal asset is the Savage River Project, an existing iron ore
(magnetite) mining operation in Tasmania, Australia. ABM, through its
wholly-owned subsidiary Goldamere Pty. Ltd. (doing business in Australia as
Australian Bulk Minerals), acquired the Savage River Project from the Tasmanian
Government in March 1997, subject to an Act of the Tasmanian Parliament which
indemnified the company in respect of all environmental liabilities arising out
of past operations of the Savage River Project.
The company also owns the production assets of the Bj0rnevatn iron ore mine and
production facilities in Kirkenes in Northern Norway. The Bj0rnevatn property
was acquired by ABM through its wholly-owned subsidiary Arctic Bulk Minerals AS
in 1997. The Bj0rnevatn mine is currently not in operation.
On February 28, 2000, the company entered into a business combination with ABM
Norway Holdings Limited and Goldamere Holdings Limited, two companies
wholly-owned by the same shareholder as ABM. Because the business combination
was among related parties, no substantial change in beneficial ownership
occurred, and the combination has therefore been accounted for in a manner
similar to that of a pooling of interests.
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Canada. The significant accounting
policies used in these consolidated financial statements are as described below:
CURRENCY
The United States dollar is the company's functional currency; accordingly,
these financial statements are expressed in U.S. dollars.
A-6
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ABM MINING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(expressed in U.S. dollars)
December 31, 2000
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the accounts of the company and
all of its wholly-owned subsidiaries:
Goldamere Holdings (Canada) Limited - A company incorporated in Yukon, Canada.
Beviron Pty. Ltd. - A company incorporated in Australia and a wholly-owned
subsidiary of Goldamere Holdings (Canada) Limited.
Goldamere Pty. Ltd. - A company incorporated in Australia and a wholly-owned
subsidiary of Beviron Pty.Ltd.
ABM Norway Holdings Limited - A company incorporated in Yukon, Canada.
Arctic Bulk Minerals AS - A company incorporated in Norway and a wholly-owned
subsidiary of ABM Norway Holdings Limited.
Because the company acquired the subsidiaries through a business combination
with related parties, the consolidation has been effected on a basis similar to
a pooling of interests. The consolidated results of operations, cash flows, and
financial position of these companies are presented as if they had been combined
throughout the periods presented in these financial statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in Canada requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
TRANSLATION OF FOREIGN CURRENCIES
The company translates monetary assets and liabilities denominated in foreign
currencies into U.S. dollars at the exchange rate in effect at the balance sheet
date and non-monetary assets and liabilities 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 or losses arising on translation are included in operations,
except for unrealized foreign currency gains and losses on term debt denominated
in currencies other than the U.S. dollar, which are deferred. Such deferred
amounts are amortized over the remaining term of the underlying debt.
CASH
Cash includes short term money market instruments with terms to maturity, at the
date of acquisition, not exceeding ninety days.
A-7
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ABM MINING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(expressed in U.S. dollars)
December 31, 2000
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INVENTORIES
Iron ore inventories are valued at the lower of the weighted average cost of
production and net realizable value.
Mine stores and supplies are valued at the lower of the weighted average cost,
less allowances for obsolescence, and replacement cost.
MINING PROPERTY, PLANT AND EQUIPMENT
Mining property, plant and equipment are carried at cost, including development
and preproduction costs, net of cost recoveries and incidental revenues and less
accumulated depreciation and depletion.
On the commencement of commercial production, depletion of each mining property
is provided on the unit-of-production method based on proven and probable
reserves. The 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 at rates ranging from
6.88% to 33.3% per annum.
Mining costs associated with waste rock removal are deferred, and charged to
operations on the basis of the average stripping ratio for each mine. The
average stripping ratio is calculated as the ratio of the tonnes of waste
material estimated to be mined to the estimated recoverable tonnes of iron ore.
The company reviews the carrying values of its mining property, plant and
equipment on a regular basis, primarily by reference to estimated future
operating results and net cash flows. When the carrying values of these assets
exceed their estimated net recoverable amounts, an impairment provision is made
for the other than temporary decline in value.
CAPITAL PROJECTS IN PROGRESS
Capital projects in progress are not depreciated until the capital asset has
been put into operation.
DEFERRED START-UP COSTS
Prior to acquisition of the Savage River Project the company incurred
substantial costs to investigate the feasibility of the Project. Those costs
were capitalized and are being amortized over the expected life of the mine.
STOCK OPTION PLAN
The company has an Employees' and Directors' Equity Incentive Plan which is
disclosed in Note 13. No compensation expense is recognized for this plan when
shares or share options are issued to employees and directors. Any consideration
paid by employees and directors on exercise of share options or purchase of
shares is credited to share capital. If shares or share options are repurchased
from employees and directors, the excess of the consideration paid over the
carrying amount of the shares or share options cancelled is charged to the
deficit.
A-8
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ABM MINING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(expressed in U.S. dollars)
December 31, 2000
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
ENVIRONMENTAL PROTECTION PRACTICES
The company is subject to the laws and regulations relating to environmental
matters in the jurisdictions in which it operates including provisions relating
to property reclamation, discharge of hazardous material and other matters.
Environmental obligations for the mining activities at Savage River have been
specifically addressed in the Goldamere Act, passed by the Tasmanian Parliament.
Under this Act, the Tasmanian Government covenants to indemnify the company from
any environmental claims arising out of operations of the Savage River Project
prior to acquisition by the company.
FUTURE MINE RECLAMATION COSTS
The company reviews, from time to time, the anticipated costs associated with
the reclamation of mine sites. These costs are accrued and charged to operations
over the estimated life of each mine using the unit-of-production method based
on proven and probable reserves.
REVENUE RECOGNITION
Revenue from the sale of iron ore is recognized, net of related royalties, when
the risks and rewards of ownership pass to the purchaser, the selling price is
fixed or determinable and collectibility is reasonably assured. Settlement
adjustments, if any, are reflected in revenue when the amounts are known.
COMMODITY CONTRACTS
The company uses forward sales contracts to effectively provide a minimum sales
price for a portion of inventories and future production.
FOREIGN EXCHANGE CONTRACTS
The company enters into derivative financial instruments (forward foreign
exchange contracts) to reduce the risk associated with the price volatility of
the U.S. dollar in relation to the Australian dollar ("hedging transactions").
The company does not hold or issue derivative financial instruments for trading
purposes. Hedging transactions are matched to anticipated future cash flows from
iron ore sales and are designated in the accounting records as hedges. The
company regularly monitors its currency exposures and ensures that contracted
amounts approximate its anticipated future U.S. dollar cash flows from iron ore
sales.
DEFERRED INCOME TAXES
Deferred income taxes are provided for significant carryforwards and temporary
differences between the tax basis of an asset or liability and its reported
amount in the financial statements that will result in taxable or deductible
amounts in future periods. Deferred tax assets or liabilities are determined by
applying the presently enacted tax rates and laws. A valuation allowance is
required when it is more likely than not that some portion or all of the
deferred tax asset will not be realized.
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ABM MINING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(expressed in U.S. dollars)
December 31, 2000
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3. RECEIVABLES 2000 1999
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Iron ore pellet sales ........................... $ 2,603,873 $ 3,071,357
Concentrate sales ............................... -- 45,974
Shipping agents ................................. 94,698 89,567
Other ........................................... 657,864 625,188
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$ 3,356,435 $ 3,832,086
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4. INVENTORIES 2000 1999
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Iron ore pellets ................................ $ 2,175,085 $ 3,188,387
Concentrate ..................................... 584,263 468,169
Work in process (including Run of Mine stockpile) 2,624,310 3,377,296
Stores and supplies ............................. 4,763,331 4,769,895
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$10,146,989 $11,803,747
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5. MINING PROPERTY, PLANT AND EQUIPMENT 2000 1999
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Accumulated
Depreciation
and Depletion,
including NET Net
Cost Write-downs BOOK VALUE Book Value
----------- -------------- ----------- ------------
Mining property $28,337,806 $17,483,142 $10,854,664 $ 7,814,702
Buildings ...... 6,519,576 813,523 5,706,053 5,379,548
Plant and
equipment ... 53,778,743 8,078,613 45,700,130 43,402,783
Leased plant and
equipment ... 292,516 86,701 205,815 261,333
Capital projects
in progress . 1,405,723 -- 1,405,723 412,520
----------- ----------- ----------- -----------
$90,334,364 $26,461,979 $63,872,385 $57,270,886
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6. DUE TO IVANHOE MINES LIMITED
The amount advanced from the company's parent (Note 19) is repay able in U.S.
dollars. The loan is non-interest bearing and unsecured.
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ABM MINING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(expressed in U.S. dollars)
December 31, 2000
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7. DUE TO GOLDAMERE HOLDINGS (L) LIMITED
This loan from a Labuan-incorporated company with directors in common is
unsecured and repayable in U.S. dollars. The loan bears a fixed interest rate of
11.50% per annum. The balance outstanding at December 31, 2000, includes
interest accrued in the amount of $966,865.
Effective December 31, 2000, this loan became subject to the Related Party Debt
Amending Agreement (Note 11). Under the terms of this agreement, repayment of
amounts advanced under this facility are postponed in accordance with the
Amending Agreement and this loan is convertible as disclosed in Note 11.
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8. DUE TO AUSTRALIAN BULK MINERALS LIMITED
The amounts due to this Bermuda-incorporated company with directors in common
were received under the following facilities:
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2000 1999
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Due on demand, non-interest bearing, unsecured loan,
repayable in Australian dollars. The balance of this
loan at December 31, 1999 was AUD $15,000,000 ...... $ -- $ 9,768,169
Unsecured loan, bearing interest at 3.0% over Citibank
prime for U.S. dollars, payable in U.S. dollars. The
balance outstanding at December 31, 2000 includes
interest accrued in the amount of $1,854,756. The
balance of this loan at year end was NOK 61,865,996
(1999: NOK 38,774,809) ............................. 7,222,207 4,822,018
----------- -----------
$ 7,222,207 $14,590,187
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On February 28, 2000, the lender agreed to convert AUD $15,000,000 (U.S.
$9,477,475) of the Australian dollar loan into common shares (Note 13).
Effective December 31, 2000, this loan became subject to the Related Party Debt
Amending Agreement (Note 11). Under the terms of this agreement, repayment of
amounts advanced under this facility are postponed in accordance with the
Amending Agreement and this loan is convertible as disclosed in Note 11.
A-11
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ABM MINING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(expressed in U.S. dollars)
December 31, 2000
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9. DUE TO A FORMER BENEFICIAL SHAREHOLDER
The amounts advanced have been provided under the following facilities:
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2000 1999
------------ ------------
Loan payable in U.S. dollars, due on demand and
bears interest at the Bank of Montreal U.S. prime rate
plus 2.50%. The balance outstanding at
December 31, 1999 included accrued interest of
$10,490,680 .......................................... $ -- $55,970,280
Loan facility with a maximum amount of U.S.
$5,000,000. This loan is unsecured, payable in U.S.
dollars, due on demand and bears interest at the
Bank of Montreal U.S. prime rate plus 2.50%. The
balance outstanding at December 31, 2000 includes
interest accrued in the amount of U.S. $470,349 ...... 5,470,349 --
----------- -----------
$ 5,470,349 $55,970,280
=========== ===========
On February 28, 2000, U.S. $45,479,600 of the loan was converted into common
shares (Note 13) and interest accrued on the loan in the amount of U.S.
$11,539,200 was forgiven.
Effective December 31, 2000, the loan facility became subject to the Related
Party Debt Amending Agreement (Note 11). Under the terms of this agreement,
repayment of amounts advanced under this facility are postponed in accordance
with the Amending Agreement and this loan is convertible as disclosed in
Note 11.
10. DUE TO IVANHOE CAPITAL FINANCE LIMITED
The amounts due to this Singapore-incorporated company, formerly under common
control are unsecured and repayable in U.S. dollars. This loan has an aggregate
limit of U.S. $9,500,000 and bears interest at the Bank of Montreal U.S. prime
rate plus 3.00%.
The balance outstanding at December 31, 2000 includes interest accrued in the
amount of $476,611.
Effective December 31, 2000, this loan became subject to the Related Party Debt
Amending Agreement (Note 11). Under the terms of this agreement, repayment of
amounts advanced under this facility are postponed in accordance with the
Amending Agreement and this loan is convertible as disclosed in Note 11.
A-12
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ABM MINING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(expressed in U.S. dollars)
December 31, 2000
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11. RELATED PART DEBT AMENDING AGREEMENT
Pursuant to an agreement entered into on November 6, 2000 ("the Amending
Agreement"), and effective December 31, 2000 (Note 18), the company, Ivanhoe
Mines Ltd., and the related party creditors under the facilities disclosed in
Notes 7, 8, 9, and 10 ("the loans") agreed to amend the terms of the collective
agreements. Under the Amending Agreement, Goldamere Holdings (L) Ltd. (Note 7),
Australian Bulk Minerals Limited (Note 8), a former beneficial shareholder (Note
9), and Ivanhoe Capital Finance Limited (Note 10), agreed to, amongst other
things, postponement of the repayment of their loans and accrued interest until
ABM and its subsidiaries begin to generate positive cash flow (as defined in the
Amending Agreement).
As it is unlikely that the company or its subsidiaries will achieve positive
cash flow as defined in the Amending Agreement in advance of January 1, 2002,
these loans have been presented as non-current obligations.
All or any part of the loans may be converted at the option of the lenders into
common shares of Ivanhoe Mines Ltd. at a conversion rate of the U.S. dollar
equivalent of $1.20 Cdn. per share at the conversion date. The maximum number of
common shares of Ivanhoe Mines Ltd. issuable under this Amending Agreement is
limited to 30,625,000 common shares.
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12. TERM DEBT 2000 1999
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Bank loan
The company has a senior secured credit facility with UBS Australia Limited in
the aggregate amount of AUD $41,750,000. This facility includes a project
finance facility of AUD $37,750,000, an environmental letter of credit facility
of AUD $1,500,000 and a working capital facility of AUD $2,500,000. The maturity
date of the senior secured credit facility is December 31, 2004. The balance
owing under this facility at year end was
AUD $35,545,007 (1999: AUD $38,415,149) ........................................ $19,876,422 $25,511,881
----------- -----------
(carried forward) ................................................................. 19,876,422 25,511,881
=========== ===========
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ABM MINING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(expressed in U.S. dollars)
December 31, 2000
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12. TERM DEBT (Continued) 2000 1999
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(brought forward) ................................................................. $19,876,422 $25,511,881
Deferred purchase obligation
The company's subsidiary has an agreement with the Tasmanian Parliament to defer
the payment for the purchase of the assets of the Savage River Project. This
deferred payment is secured by an AUD $13,000,000 second mortgage over the
assets of Goldamere Pty. Ltd. and provides for repayment by December 24, 2014
primarily by carrying out remediation work for the purpose of rehabilitating
areas disturbed by operations prior to the company acquiring an interest in the
site (Note 18). Until December 31, 2001, interest is accrued on the principal
balance on a basis agreed with the Tasmanian government and is payable at agreed
dates. After December 31, 2001, the balance will not bear interest but will
increase annually by the change in the Australian All Groups Consumer Price
Index. The balance owing at year end was AUD $13,719,450 (1999:
AUD $14,808,755) ............................................................... 7,671,783 9,643,628
Loan from Statens Naerings - og Distriktsutviklingsfond
This loan is unsecured and bears interest at a variable rate. At December 31,
2000 that rate was 9.9% per annum, payable in instalments of NOK
484,000 every six months. These instalments commence on January 1, 2002.
The balance owing under this facility at year end was NOK 4,840,000
(1999: NOK 3,200,000) .......................................................... 551,429 397,952
Loan from Sydvaranger ASA
This equipment purchase loan has been secured by receivables and capital assets
and bears interest at 6% per annum. This loan is repayable at the rate of NOK
2,639,000 quarterly, including interest. The balance owing under this facility
at year end was NOK 38,959,000 (1999: NOK 43,668,000) .......................... 4,438,659 5,430,533
----------- -----------
32,538,293 40,983,994
Less: current portion ............................................................. 4,764,878 2,279,239
----------- -----------
$27,773,415 $38,704,755
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A-14
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ABM MINING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(expressed in U.S. dollars)
December 31, 2000
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12. TERM DEBT (Continued)
The company is required to make principal repayments during the years ended:
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December 31, 2001 ............................ $ 4,764,878
December 31, 2002 ............................ 6,097,157
December 31, 2003 ............................ 6,312,445
December 31, 2004 ............................ 6,152,675
December 31, 2005 ............................ 141,379
Thereafter ................................... 1,397,976
Deferred purchase settlement repayable through
remediation work to be performed (Note 18) 7,671,783
-----------
$32,538,293
===========
SECURITY AND COVENANTS
The senior secured credit facility contains a number of restrictive covenants
that impose limitations on the company, with respect to, among other things, (i)
the creation of liens, (ii) dispositions of assets, (iii) incurring
indebtedness, (iv) transactions with affiliates, (v) sale-leaseback
transactions, and (vi) dividends and other payments.
The project finance facility bears interest at a rate equal to the rate
displayed on the Reuters screen BBSY page on the first day of each period plus
2%.
The company also has outstanding an AUD $1,500,000 obligation secured by a bond
issued pursuant to the environmental letter of credit facility to partially pay
for implementation of an environmental rehabilitation plan in the event of
cessation of operations at the Savage River Project.
The obligations of the credit facility are secured by a first lien in favour of
UBS over the company's assets, including the mining lease over the mineral
rights to the Savage River Project.
The loans disclosed in Notes 7, 8, 9 and 10 are subordinated to the senior
secured credit facility.
--------------------------------------------------------------------------------
13. SHARE CAPITAL
AUTHORIZED:
The company is authorized to issue an unlimited amount of common shares without
nominal or par value.
A-15
--------------------------------------------------------------------------------
ABM MINING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(expressed in U.S. dollars)
December 31, 2000
--------------------------------------------------------------------------------
13. SHARE CAPITAL (Continued)
ISSUED:
[Download Table]
Number
of Shares Amount
--------- -----------
Balance, December 31, 1998 ......................... 5,000,050 $ 6,640
Shares issued for cash ............................. 950 124,921
Loan from Australian Bulk Minerals Limited converted
into shares ..................................... 1,800 1,520,567
---------- -----------
Balance, December 31, 1999 ......................... 5,002,800 1,652,128
Loan from Australian Bulk Minerals Limited converted
into shares (Note 8) ............................ 15,000,000 9,477,475
Loan from a beneficial shareholder converted into
shares (Note 9) ................................. 30,319,733 45,479,600
---------- -----------
Balance, December 31, 2000 ......................... 50,322,533 $56,609,203
========== ===========
STOCK OPTIONS
The company has an Employees' and Directors' Option Plan ("The Plan"). Under The
Plan, the company's Board of Directors has the authority to grant options, which
vest evenly over a period of five years. Options were granted to directors,
executive officers and employees of ABM to purchase ABM common shares at a price
of U.S. $1.35 per common share. These options were to expire unless exercised on
March 1, 2006.
Pursuant to the terms of the ABM Stock Option Exchange Agreement, the foregoing
optionees have agreed to convert their options on ABM shares into options on
Ivanhoe Mining Ltd. shares at Cdn. $1.20 per share exercisable until November 6,
2010.
No options were issued in the year ended December 31, 1999. Options issued in
the year ended December 31, 2000 were as follows:
[Enlarge/Download Table]
Options Outstanding
------------------------------------------------------------------------
Average
Weighted Remaining
Options Number of Average Contractual
Available Common Exercise Life
For Grants Shares Price (in years)
---------- ---------- ---------- -----------
Balances, December 31, 1999 ... -- -- $ --
Options authorized ............ 4,475,344 -- --
Options granted ............... (4,475,344) 4,475,344 1.35 U.S.
Options on ABM shares converted -- (4,475,344) (1.35) U.S.
Options on Ivanhoe Mining Ltd.
shares issued .............. -- 4,475,344 1.20 Cdn.
----------- ----------- --------
Balances, December 31,2000 .... Nil 4,475,344 $ 1.20 Cdn. 9.84
----------- ----------- -------- -----------
A-16
--------------------------------------------------------------------------------
ABM MINING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(expressed in U.S. dollars)
December 31, 2000
--------------------------------------------------------------------------------
13. SHARE CAPITAL (Continued)
RECAPITALIZATION
The company's Norwegian subsidiary (Arctic Bulk Minerals AS) has a shareholder's
deficiency of approximately U.S. $6,300,000 at December 31, 2000. Under the
Norwegian Company's Act, this subsidiary is required to undergo a
recapitalization to reduce this shareholder's deficiency. It is management's
intention to reduce this shareholder's deficiency through an additional equity
investment in the Norwegian subsidiary subsequent to the date of these
consolidated financial statements.
CONVERTIBLE LOANS
As disclosed in Note 11, the company has granted certain creditors options to
acquire common shares.
--------------------------------------------------------------------------------
14. INCOME TAXES
These consolidated financial statements do not reflect the tax benefits that may
be realized in future years related to losses incurred by ABM due to the
uncertainty of their realization.
The company has tax loss carryforwards at December 31, 2000 of approximately
U.S. $59,000,000. The majority of these losses have been incurred in Australia
where the Australian operating subsidiaries can carry these losses forward
indefinitely subject to continuity of ownership and business tests.
In the determination of these losses, the company has claimed depreciation for
tax purposes in excess of depreciation taken for accounting purposes in the
amount of approximately U.S. $18,000,000.
--------------------------------------------------------------------------------
15. RELATED PARTY TRANSACTIONS
In addition to the related party transactions and balances disclosed in Notes 6,
7, 8, 9 and 10, the company incurred administrative fees paid to a company with
directors in common in the amount of $947,535 during the year ended December 31,
2000; (1999; $1,139,330).
Included in payables and accruals at December 31, 2000 is $432,606 owed to a
company with directors in common in connection with these administrative fees
incurred, but unpaid at year end (1999: $331,031).
A-17
--------------------------------------------------------------------------------
ABM MINING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(expressed in U.S. dollars)
December 31, 2000
--------------------------------------------------------------------------------
[Download Table]
16. CHANGES IN NON-CASH OPERATING WORKING CAPITAL 2000 1999
------------ ------------
Receivables ........................................... $ 475,651 $ (1,974,641)
Inventories ........................................... 1,656,758 456,118
Prepayments ........................................... 529,546 (691,375)
Payables and accruals ................................. (305,606) 2,123,594
------------ ------------
$ 2,356,349 $ (86,304)
============ ============
17. SEGMENT DISCLOSURES
The company operates in one operating segment (Note 1)
2000 1999
Revenue from iron ore sales
Australia .......................................... $ 62,382,381 $ 59,373,916
============ ============
Earnings (loss)
Australia .......................................... $ 1,567,178 $ (2,740,144)
Norway ............................................. (3,007,375) (4,361,666)
------------ ------------
Segment operating losses .............................. (1,440,197) (7,101,810)
Gain on forgiveness of debt ........................... 11,539,200 --
Foreign exchange loss ................................. (9,253,578) (2,754,293)
Interest income ....................................... 171,251 98,370
Corporate expenses .................................... (872,128) (1,215,246)
Other income .......................................... 569,609 592,332
------------ ------------
Net earnings (loss) ................................... $ 714,157 $(10,380,647)
============ ============
CAPITAL ASSETS AT THE END OF THE YEAR
Australia .......................................... $ 55,026,611 $ 48,396,081
Norway ............................................. 8,845,774 8,874,805
------------ ------------
$ 63,872,385 $ 57,270,886
============ ============
A-18
--------------------------------------------------------------------------------
ABM MINING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(expressed in U.S. dollars)
December 31, 2000
--------------------------------------------------------------------------------
18. COMMITMENTS
OPERATING COMMITMENTS
In the normal course of its business, the company enters into various long term
contracts which include commitments for future payments under contracts for
power, port operations, equipment rentals and other arrangements as follows:
[Download Table]
2001 $ 13,120,000
2002 213,000
2003 46,000
2004 46,000
2005 46,000
COMMITMENTS UNDER DEFERRED PURCHASE OBLIGATION
Under the deferred purchase obligation (Note 12), the company has committed to
co-manage the remediation of environmental exposures created by prior operations
on the Savage River site with the Tasmanian Government. The cost of the
remediation work will be offset against U.S. $7,014,000 of the deferred purchase
price over the term of the agreement with the balance to be paid in cash over
the 15 year term of the deferred purchase obligation. Remediation work may be
carried out by the company in conjunction with normal mining operations.
SALES CONTRACTS
The company has entered into contracts for the sale of a guaranteed quantity of
iron ore with three of its major customers. The sale price of iron ore specified
in these agreements is renegotiated annually.
FORWARD FOREIGN CURRENCY CONTRACT
A subsidiary has agreed to deliver U.S. $5,000,000 each month to UBS AG,
Singapore branch until February 2003, at U.S. $0.6817 per AUD $. As at December
31, 2000, the remaining principal to be delivered under this contract was U.S.
$130,000,000. As the Australian dollar has depreciated since this contract was
entered into, the company is exposed to a potential loss that could total
approximately U.S. $23,000,000 based on the exchange rate at year end of U.S.
$0.559 should it be unable to generate sufficient U.S. dollars from operations.
ROYALTIES
The company has royalty obligations in both Australia and Norway.
In Australia, the company is subject to an ad valorem royalty of 1.6% of net
sales plus an annual profit royalty of a maximum of 40% of the annual profit
margin. The sum of both royalty payments is limited to a maximum of 5% of net
sales.
In Norway, the company must pay a royalty of NOK 0.75 per sales tonne in the
years 2002 and 2003. In subsequent years, the company must pay a royalty of NOK
1.50 per sales tonne.
A-19
--------------------------------------------------------------------------------
ABM MINING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(expressed in U.S. dollars)
December 31, 2000
--------------------------------------------------------------------------------
19. SUBSEQUENT EVENTS
MERGER WITH IVANHOE MINES LTD.
With effect as of December 31, 2000, the shareholders of ABM and Ivanhoe Mines
Ltd. (an international mineral and exploration development company) agreed to
merge the companies. Shareholders of ABM will receive one Ivanhoe Mines Ltd.
share for each ABM share held. After this merger is complete, former ABM
shareholders will hold approximately 40% of the issued and outstanding shares of
Ivanhoe Mines Ltd.
20. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
FAIR VALUE
The company's financial instruments include cash, receivables, payables and
accruals and debts owed to related and unrelated parties. It was not practicable
to estimate the fair value of the amounts due to related parties and the
deferred purchase obligation. The fair value of all other financial instruments
approximates their recorded amounts.
INTEREST RATE RISK
The company is exposed to interest rate risk as most of its term debts and
related party advances bear variable interest rates. The company does not enter
into derivatives to mitigate its interest rate risk.
CREDIT RISK
The company is subject to credit risk. To mitigate this risk, the company
obtains letters of credit in advance of shipping iron ore. Bad debt experience
has not been significant.
FOREIGN EXCHANGE RISK
The company incurs expenses in currencies other than the U.S. dollar and earns
its revenues in U.S. dollars. As such it is subject to risk due to fluctuations
in exchange rates. The company enters into forward foreign exchange contracts to
mitigate its exposure to foreign currency risk.
MARKET RISK
The company is exposed to market risk as it earns its revenue through the sale
of iron ore, which is subject to price fluctuations beyond the company's
control. Management attempts to reduce the company's risk in this regard through
the use of sales contracts designed to fix iron ore sales prices on an annual
basis.
A-20
Unaudited Pro Forma Consolidated Financial Information
IVANHOE MINES LTD.
December 31, 2000
COMPILATION REPORT ON UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
To the Directors of
Ivanhoe Mines Ltd.
We have reviewed, as to compilation only, the accompanying unaudited pro forma
consolidated statement of loss of Ivanhoe Mines Ltd. for the year ended December
31, 2000 which has been prepared for inclusion in the short form prospectus of
the Company dated March 25, 2002 in connection with the issue of Common Shares.
In our opinion, the unaudited pro forma consolidated statement of loss has been
properly compiled to give effect to the assumptions described in the notes
thereto.
The audited consolidated statement of earnings of ABM Mining Limited for the
year ended December 31, 2000, which is included in the compilation, was examined
and reported on by other auditors.
(SIGNED) DELOITTE & TOUCHE LLP
Chartered Accountants
Vancouver, British Columbia
March 25, 2002
B-1
IVANHOE MINES LTD.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF LOSS
YEAR ENDED DECEMBER 31, 2000
(STATED IN U.S. DOLLARS)
[Enlarge/Download Table]
ABM
Ivanhoe Mining
Mines Ltd. Limited Note Adjustments Pro Forma
------------ ------------ -------- -------------- -----------
REVENUE
Copper sales .................. $ 22,470,090 $ -- $ -- $ 22,470,090
Iron ore sales ................ -- 62,382,381 -- 62,382,381
---------------------------------------------------------------------------------------------------------------------------
22,470,090 62,382,381 -- 84,852,471
---------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Production costs (including
depreciation and depletion) . 12,505,509 52,603,019 3(b)(i) 2,762,000 67,870,528
Write-down of work in progress
inventory ................... 2,208,528 -- -- 2,208,528
Selling and marketing expenses 528,751 1,648,400 -- 2,177,151
Exploration ................... 5,338,711 -- -- 5,338,711
Accounting .................... 182,040 36,963 -- 219,003
Consulting .................... 275,647 1,201,090 -- 1,476,737
Depreciation .................. 182,269 79,659 -- 261,928
Interest on long-term debt .... 4,533,728 1,774,792 3(b)(iii) 1,195,00 7,503,520
Other interest ................ -- 3,043,653 -- 3,043,653
Investor relations ............ 279,588 -- -- 279,588
Legal and regulatory .......... 272,547 73,235 -- 345,782
Office ........................ 1,695,051 2,531,154 -- 4,226,205
Salaries ...................... 1,492,125 1,308,996 -- 2,801,121
Travel ........................ 1,188,099 393,743 -- 1,581,842
---------------------------------------------------------------------------------------------------------------------------
30,682,593 64,694,704 3,957,000 99,334,297
---------------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSES)
Write-down of carrying values
of assets, net of recoveries (11,010,553) -- -- (11,010,553)
Gain on forgiveness of interest -- 11,539,200 -- 11,539,200
Mining property shut-down costs (2,530,644) -- -- (2,530,644)
Interest income ............... 2,639,006 171,251 -- 2,810,257
Foreign exchange .............. (725,976) (9,253,578) 3(b)(ii) (14,000,000) (23,979,554)
Other ......................... 1,218,457 569,609 -- 1,788,066
---------------------------------------------------------------------------------------------------------------------------
(10,409,710) 3,026,482 (14,000,000) (21,383,228)
---------------------------------------------------------------------------------------------------------------------------
LOSS (INCOME) BEFORE INCOME
AND CAPITAL TAXES ............. 18,622,213 (714,159) 17,957,000 35,865,054
PROVISION FOR (RECOVERY OF)
INCOME AND CAPITAL TAXES ...... (762,585) -- 3(b)(iv) (5,387,000) (6,149,585)
---------------------------------------------------------------------------------------------------------------------------
NET LOSS (INCOME) ................ $ 17,859,628 $ (714,159) $ 12,570,000 $ 29,715,469
---------------------------------------------------------------------------------------------------------------------------
LOSS PER SHARE ................... $ 0.24 N/A 3(b)(iv) N/A $ 0.24
==========================================================================================================================
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING (in 000's) . 74,491 N/A 124,814
==========================================================================================================================
See accompanying Notes to the Unaudited Pro Forma Consolidated
Financial Information.
B-2
IVANHOE MINES LTD.
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
DECEMBER 31, 2000
(STATED IN U.S. DOLLARS)
--------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying unaudited pro forma consolidated financial information has
been prepared for inclusion in the preliminary short form prospectus (the
"Prospectus") of Ivanhoe Mines Ltd. ("Ivanhoe") dated March 25, 2002 in
connection with the issue of Common Shares. The unaudited pro forma
consolidated financial information consists of an unaudited pro forma
consolidated statement of loss combining the audited consolidated statement
of loss of Ivanhoe with the audited consolidated statement of earnings of
ABM Mining Ltd. ("ABM"), for the year ended December 31, 2000, adjusted for
the assumptions made giving effect to the acquisition of ABM by Ivanhoe as
described in Note 3.
The unaudited pro forma consolidated statement of loss for the year ended
December 31, 2000 assumes that the acquisition of ABM by Ivanhoe had
occurred on January 1, 2000.
The unaudited pro forma consolidated statement of loss is not necessarily
indicative of the results of operations that would have occurred if Ivanhoe
and ABM had previously operated as a single entity.
The unaudited pro forma consolidated financial information should be read
in conjunction with the annual consolidated financial statements of Ivanhoe
and ABM included or incorporated by reference in the Prospectus.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The unaudited pro forma consolidated financial information has been
compiled using the significant accounting policies as set out in the annual
consolidated financial statements of Ivanhoe for the year ended December
31, 2000. The significant accounting policies of ABM conform, where
applicable, in all material respects to those of Ivanhoe.
3. PRO FORMA ASSUMPTIONS
(a) Acquisition
The acquisition of ABM by Ivanhoe has been accounted for in the
accompanying unaudited pro forma consolidated financial information
using the purchase method of accounting as set out in Note 4 to the
consolidated financial statements of Ivanhoe for the year ended
December 31, 2000.
B-3
IVANHOE MINES LTD.
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL INFORMATION
DECEMBER 31, 2000
(STATED IN U.S. DOLLARS)
--------------------------------------------------------------------------------
3. PRO FORMA ASSUOMPTIONS (CONTINUED)
(b) Assumptions for the unaudited pro forma consolidated statement of loss
for the year ended December 31, 2000
(i) Additional depreciation and depletion of $2,762,000 has been
recorded to reflect the amortization of mine property, plant
and equipment resulting from the allocation of the purchase
price on the acquisition of ABM, over 14 years.
(ii) A provision of $14,000,000 has been recorded for the
unrealized loss on ABM's forward currency contract.
(iii) Additional interest expense of $1,195,000 has been recorded
for the amortization of the discounts arising from the loans
payable to related parties and other long-term debt assumed on
the acquisition of ABM.
(iv) A decrease in income and capital tax expense of $5,387,000 has
been recorded to reflect the tax effect of items (i, ii and
iii).
(v) The pro forma loss per share has been calculated using the pro
forma weighted average number of Ivanhoe common shares
outstanding.
B-4
CERTIFICATE OF IVANHOE MINES LTD.
Dated: March 25, 2002
This short form prospectus, together with the documents incorporated herein by
reference, constitutes full, true and plain disclosure of all material facts
relating to the securities being offered by this short form prospectus as
required by the securities laws of each of the provinces of Canada except
Quebec.
(Signed) Daniel Kunz (Signed) Pierre Masse
President Chief Financial Officer
On behalf of the Board of Directors
(Signed) R. Edward Flood (Signed) Eric V. Friedland
Director Director
C-1
CERTIFICATE OF THE UNDERWRITERS
Dated: March 25, 2002
To the best of our knowledge, information and belief, this short form
prospectus, together with the documents incorporated herein by reference,
constitutes full, true and plain disclosure of all material facts relating to
the securities offered by this short form prospectus as required by the
securities laws of each of the provinces of Canada except Quebec.
GRIFFITHS MCBURNEY & PARTNERS HSBC SECURITIES (CANADA) INC.
(signed) Mark Wellings (signed) P.E. Kavanagh
HAYWOOD SECURITIES INC.
(signed) John Willett
C-2
Dates Referenced Herein and Documents Incorporated by Reference
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