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Kalkine IPO Report

Should You Subscribe to IPO of Ivanhoe Electric Inc (IE)?

Jun 23, 2022

 

The Offer

Company Overview

Ivanhoe Electric Inc. (IE) is a minerals exploration and development company domiciled in the United States. Its primary focus is on developing mines from mineral deposits primarily found in the country to support American supply chain independence and provide the essential metals required for the electrification of the economy. IE's two important mining projects are the Santa Cruz Copper Project in Arizona and the Tintic Copper-Gold Project in Utah, both of which are situated in the country.

Source: IPO Prospectus

Key Highlights

Primary Offering: The company is offering units of securities, issuing 14,388,000 shares at USD 12.12 per share (which is the midpoint of the price range set in the IPO prospectus). Assuming an initial public offering price of USD 12.12 per share, which is the midpoint of the price range listed on the cover page of this prospectus, and after subtracting estimated underwriting discounts and commissions and estimated offering expenses payable, the company projects that the net proceeds from this offering will be approximately USD 161.0 million, or approximately USD 186.2 million if the underwriters exercise their option to purchase additional shares in full.

Use of Proceeds: The firm plans to use the net proceeds of this offering for working capital and other general business needs, including paying options and earn-ins for the purchase of mineral rights as well as for drilling and other exploratory operations. The table provided below gives a detailed explanation of the uses of proceeds.

Source: IPO prospectus

Dividend Policy:  On its capital stock, the corporation has never declared or distributed any cash dividends. The firm presently aims to keep all future earnings to support its operations and does not currently have any plans to pay any dividends soon. The decision to pay dividends to common stockholders in the future will be at the board of directors' discretion and depend on a variety of criteria, including the company's profitability, capital requirements, DGCL requirements, and other considerations that the board of directors considers pertinent.

Sector Analysis

  • Increased demand for copper in EV batteries: Over the past ten years, there has been more widespread adoption of the move away from energy sources with significant CO2 emissions that are used to produce electrical power, gasoline for cars, and other machines. The Q4 Copper Outlook Report states that battery EVs utilize copper almost four times more than conventional ICEs do. The Q3 Copper Outlook Report predicts that by 2040, compared to around 500 kt in 2021, copper usage in EVs would be over 4,800 kt due to this and a further rise in EV demand.

Source: IPO Prospectus

  • Wide range of applications of copper: Compared to other essential "electrical metals" like nickel, cobalt, and lithium, copper has a wider range of applications in renewable and clean energy technologies, which is further explained in the table below, giving a bullish outlook for the copper industry moving ahead.

Source: IPO Prospectus

Financial Highlights (expressed in thousands USD):

 Source: IPO Prospectus

  • Increasing revenue: The company reported revenue of USD 4.652 million for FY21, which is a little higher than the revenue of USD 4.633 million in FY20.
  • Increase in loss from operations: The loss from operations increased to USD 60.75 million in the FY21 as compared to the loss from operation of USD 26.60 million in the FY20, which was on account of higher operating expenses.
  • Increase in net losses: The company reported net losses of USD 68.51 million in FY21 which is higher than the net loss of USD 29.47 million in FY20.

Key Management Highlights

Source: IPO Prospectus

Risk Associated (High)

Investment in the IPO of "IE’ is exposed to a variety of risks such as:

  • Operational and profitability risk: The firm presently neither owns nor has any stake in any mines that are in operation. Its mineral projects are all in the exploratory phase; none have ever been mined or brought in any money through mining activities. Additionally, the business lacks any operational experience on which to base projections of future operating expenses, capital expenditure needs, site cleanup costs, or asset retirement demands. The firm may never be able to develop and manufacture minerals from an economically viable ore body or mine since it lacks experience in doing either.
  • Underlying commodities risk: A significant or protracted decline in the price of the minerals the company is primarily exploring (copper, gold, silver, nickel, cobalt, vanadium, and platinum group elements) could materially and adversely affect the company's ability to raise capital, conduct exploration activities, and develop or operate a mine.

Conclusion

The company generates revenue from its technology businesses. They have not generated any revenue from their mining projects because they are in the exploration stage. Also, they do not to generate any revenue from mining projects for the foreseeable future. The company is putting majority of cash flows from technology business for exploration of mines which has widened company’s losses. Further, the company has no experience in developing or operating a mine.

Further, a significant decline in the price of the minerals the company is primarily exploring (copper, gold, silver, nickel, cobalt, vanadium, and platinum group elements) could materially and adversely affect the company's stock price post listing of its shares.

Hence, Ivanhoe Electric Inc. (IE) IPO looks "Neutral” at the current price and in the present market scenario, given the associated risks.


Disclaimer-

Kalkine Equities LLC provides general information about companies and their securities. The information contained in the reports, including any recommendations regarding the value of or transactions in any securities, does not take into account any of your investment objectives, financial situation or needs. Kalkine Equities LLC is not registered as an investment adviser in the U.S. with either the federal or state government. Before you make a decision about whether to invest in any securities, you should take into account your own objectives, financial situation and needs and seek independent financial advice. All information in our reports represents our views as at the date of publication and may change without notice.

Kalkine Media LLC, an affiliate of Kalkine Equities LLC, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.