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SXR
SXR
SXR - SXR Uranium One Inc - Consolidated financial statements for the year ended
December 31, 2006
SXR Uranium One Inc
(Formerly Southern Cross Resources Inc.)
(Incorporated in Canada)
(Registration number: 15096422420)
Share code on the JSE: SXR & ISIN: CA87112P162
Share code on the TSX: SXR & ISIN: CA87112P162
("Corporation")
Consolidated Financial Statements for the year ended December 31, 2006
sxr Uranium One Inc.
Consolidated Balance Sheets
As at December 31
(in US dollars)
Notes 2006 2005
US$`000 US$`000
ASSETS
Current assets
Cash 327,516 10,891
Accounts receivable 3 22,184 8,823
Inventories 4 2,342 681
352,042 20,395
Non-current assets
Property, plant and equipment 5 286,855 157,255
Asset retirement fund 6 3,427 1,275
290,282 158,530
Total assets 642,324 178,925
LIABILITIES
Current liabilities
Accounts payable and accrued 8 31,347 15,045
liabilities
Current portion of lease obligations 9 1,272 1,452
Short term loan 10 51,659 993
84,278 17,490
Non-current liabilities
Asset retirement obligation 11 4,924 4,094
Lease obligations 9 304 1,560
Convertible debentures 12 108,653 -
Future taxation liability 16 30,863 21,156
144,744 26,810
Non-controlling interest 7,688 -
SHAREHOLDERS` EQUITY
Share capital 13 513,966 216,123
Contributed surplus 14 15,966 11,367
Convertible debentures 12 20,937 -
Accumulated deficit (157,505) (114,399)
Currency translation adjustments 12,250 21,534
405,614 134,625
Total equity and liabilities 642,324 178,925
See accompanying notes to the Consolidated Financial Statements, including:
* Basis of preparation (note 2.1)
* Contractual obligations (note 18)
* Subsequent events (note 22)
Approved on behalf of the Board of Directors
Andrew Adams Ken Williamson
Non-executive Chairman Non-executive Director
March 28, 2007
sxr Uranium One Inc.
Consolidated Statements of Operations and Deficit
For the year ended December 31
(in US dollars)
Notes 2006 2005
US$`000 US$`000
Gold sales 3,336 2,730
Cost of sales 15 (7,701) (7,221)
Gross loss (4,365) (4,491)
Sundry income 827 770
General and administrative (14,439) (5,539)
expenditure
Share options expensed 14 (10,845) (7,240)
Restricted shares expensed 14 (1,367) -
Exploration expenditure (9,234) (11,019)
Impairment of property, plant and 5 (11,311) -
equipment
Other net income - 265
Operating loss (50,734) (27,254)
Interest received 5,244 1,065
Interest paid (3,039) (2,480)
Profit on disposal of investments - 27
Fair value adjustment of listed - (2,169)
investments
Impairment of investments 7 - (10,929)
Dilution gain on disposal of 17,515 -
investments
Foreign exchange losses on cash and (11,905) -
cash equivalents
Loss before income taxes (42,919) (41,740)
Provision for income taxes 16 (1,065) -
Net loss before minority interest (43,984) (41,740)
Minority interest 878 -
Net loss (43,106) (41,740)
Accumulated deficit at the beginning (114,399) (72,659)
of the year
Accumulated deficit at the end of the (157,505) (114,399)
year
Basic and diluted loss per common 17 (38.33) (58.67)
share (cents)
Weighted average number of basic and 17 112,447,306 71,139,266
diluted common shares outstanding
See accompanying notes to the Consolidated Financial Statements
sxr Uranium One Inc.
Consolidated Statements of Cash Flows
For the year ended December 31
(in US dollars)
Notes 2006 2005
US$`000 US$`000
Net loss (43,106) (41,740)
Add back: Net finance (income) / (2,205) 1,415
costs
Add back: Non-cash items:
- Non-controlling interest in (878) -
earnings of subsidiary
- Dilution gain on disposal of (17,515) -
investments
- Depreciation and amortization 1,059 767
- Write down of inventory to net 15 1,313 -
realisable value
- Future income taxes 1,065 -
- Impairment of property, plant and 5 11,311 -
equipment
- Expensing of share options 14 10,845 7,240
- Expensing of restricted shares 14 1,367
- Profit on disposal of property, - (265)
plant and equipment
- Profit on disposal of investments - (27)
- Fair value adjustment of listed - 2,169
investments
- Impairment of investments - 10,929
Net loss after finance cost and non- (36,744) (19,512)
cash items
Movement in working capital:
- Increase in inventories (3,014) (484)
- Increase in accounts receivable (14,538) (1,183)
- Increase in accounts payable and 17,406 8,978
accrued liabilities
- Increase in asset retirement (1,258) (340)
obligation
Cash utilized by operations (38,148) (12,541)
Net cash interest received / (paid) 4,266 (1,415)
Cash flows from operating activities (33,882) (13,956)
Proceeds from disposal of property, - 265
plant and equipment
Cash taken over from Sub-Nigel 20 1,933 -
Cash taken over from Southern Cross 21 - 8,389
Additions to property, plant and (126,172) (14,762)
equipment
Proceeds on disposal of investments - 10,615
Increase in environmental trust and (1,912) (8)
other investments
Cash flows from investing activities (126,151) 4,499
Net proceeds from the issue of 287,975 29,288
ordinary shares
Net proceeds from the issue of 16,033 -
ordinary shares by subsidiary
Net proceeds from the issue of 128,867 -
debentures
Decrease in investment in debt - 970
redemption fund
Loan received / (repaid) during the 44,192 (7,869)
year
Decrease in capital element of (1,208) (1,924)
finance lease and other long term
debt
Decrease in bank overdraft - (14)
Cash flows from financing activities 475,859 20,451
Effects of exchange rate changes on 799 (332)
cash held in foreign currencies
Net increase in cash 316,625 10,662
Cash at the beginning of the year 10,891 229
Cash at the end of the year 327,516 10,891
See accompanying notes to the Consolidated Financial Statements.
sxr Uranium One Inc.
Notes to the Consolidated Financial Statements
December 31, 2006
1 NATURE OF OPERATIONS
The consolidated financial statements have been prepared by the Corporation
in accordance with Canadian generally accepted accounting principles
("Canadian GAAP"). The preparation of the consolidated financial statements
is based on accounting policies and practices consistent with those used in
the prior year.
sxr Uranium One Inc. (the "Corporation" or "Uranium One") is a Canadian
corporation with a primary listing on the Toronto Stock Exchange and a
secondary listing on the JSE Limited (the Johannesburg stock exchange),
engaged through subsidiaries in the acquisition, exploration and
development of properties for production of uranium in South Africa,
Australia, Canada and the United States, and gold in South Africa.
The Corporation`s principal assets are the Dominion Uranium Project in
South Africa and the permitted Honeymoon Uranium Project in South
Australia. Through a joint venture with Pitchstone Exploration Ltd.,
("Pitchstone") the Corporation is also engaged in uranium exploration
activities in the Athabasca Basin of Saskatchewan. The Corporation`s
Uranium One Africa Limited (previously Aflease Gold and Uranium Resources
Limited) subsidiary holds 71.36% of Aflease Gold Limited, which owns the
Modder East Gold Project and related gold assets in South Africa.
1.1 Acquisition of Aflease Gold Limited
On January 10, 2006 Sub Nigel Gold Mining Company Limited ("Sub Nigel")
acquired all of the issued and outstanding ordinary shares of New
Kleinfontein Mining Company Limited ("New Kleinfontein"), a wholly-owned
subsidiary of Aflease Gold and Uranium Resources Limited, now Uranium One
Africa Limited ("Uranium One Africa"). Sub Nigel changed its name to
Aflease Gold Limited as part of the transaction. All amounts due by New
Kleinfontein to Uranium One Africa were included in the transaction. The
net assets sold had a carrying value of $3.0 million at December 31, 2005
and the purchase consideration was $10.7 million, settled by issuing
68,073,545 new Sub Nigel ordinary shares to Uranium One Africa at 96 South
African cents ($0.16) per share. Uranium One Africa retained an effective
80% of New Kleinfontein through its subsequent holding in Aflease Gold.
Through this transaction and subsequent dilution of Uranium One Africa`s
share holding in Aflease Gold, Uranium One Africa now owns approximately
71.36% of Aflease Gold.
For accounting purposes, the transaction is considered a reverse takeover
whereby New Kleinfontein is considered the acquiring company as the
shareholders of Uranium One Africa acquired more than 50% of the issued and
outstanding shares of Sub Nigel. The purchase method was used for
consolidation purposes. Uranium One Africa therefore effectively sold 20%
of New Kleinfontein and recognized a $7.1 million gain on the disposal. The
results of operations of Sub Nigel were included with effect from January
11, 2006. The consolidated balance sheet as at December 31, 2006 represents
the financial position of the entire Corporation.
1.2 Acquisition of Southern Cross Resources Inc.
The acquisition by Southern Cross Resources Inc. ("Southern Cross") of all
of the issued and outstanding shares of Aflease Gold and Uranium Resources
Limited (now Uranium One Africa) pursuant to the Acquisition Agreement
dated September 14, 2005 and the Scheme of Arrangement, was finalized on
December 8, 2005, being the date that the last condition precedent was met.
The essence of the transaction was that Uranium One Africa shareholders
were offered 0.9 new Southern Cross shares for each Uranium One Africa
issued and outstanding share, resulting in Uranium One Africa eventually
being wholly owned by Southern Cross. Subsequent to this issue, the
following events occurred:
* The share consolidation: Southern Cross shareholders were offered 1
share for every 5 shares held;
* The name change, with Southern Cross being changed to sxr Uranium One
Inc.; and
* The grant of the replacement options in consideration of the Uranium
One Africa options.
For accounting purposes, the transaction is considered a reverse takeover,
whereby Uranium One Africa is considered the acquiring company as the
shareholders of Uranium One Africa acquired more than 50% of the issued and
outstanding shares of Southern Cross.
2 SIGNIFICANT ACCOUNTING POLICIES
2.1 Basis of preparation
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Canada.
2.2 Consolidation
The consolidated financial statements include the amounts of the
Corporation and all of its subsidiaries. All significant intercompany
balances and transactions are eliminated on consolidation.
2.2.1 Subsidiaries
A subsidiary is an entity which is controlled by the Corporation. The
consolidated financial statements include all the assets, liabilities,
revenues, expenses and cash flows of the Corporation and its subsidiaries
after eliminating intercompany balances and transactions. For partly owned
subsidiaries, the net assets and net earnings attributable to minority
shareholders are presented as minority interests on the consolidated
balance sheet and consolidated statement of operations and deficit.
2.2.2 Joint arrangements that are not entities ("Joint Arrangements")
Some of the Corporation`s exploration and development activities are
conducted jointly with others and, accordingly, the consolidated financial
statements reflect only the Corporation`s proportionate interests in such
activities. The Corporation advances funds to its resource property joint
venture partner, Pitchstone, for exploration and development work. Advances
are reclassified as capital costs of resource properties when the funds
have been expended and reported to the Corporation by the joint venture
operator.
2.3 Use of estimates
The preparation of these consolidated financial statements in accordance
with Canadian generally accepted accounting practice 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
date of the consolidated financial statements and the reported amount of
revenues and expenses during the reporting period.
Significant areas requiring the use of management estimates relate to the
determination of impairment of capital assets, goodwill, estimation of
future site restoration costs and future income taxes, and classification
of current portion of long term debt. Financial results as determined by
actual events could differ from those estimated.
2.4 Foreign currency translation
Items included in the financial statements of each entity in the
Corporation are measured using the currency that best reflects the economic
substance of the underlying events and circumstances relevant to that
entity ("the functional currency").
Foreign currency transactions are translated into the functional currency
using the exchange rates prevailing at the dates of the transactions.
Foreign exchange gains and losses resulting from the settlement of such
transactions and from the translation of monetary assets and liabilities
denominated in foreign currencies, are recognized in the statements of
operations and deficit, except when deferred in equity as qualifying cash
flow hedges.
The Corporation considers the United States ("US") dollar ("$") to be the
reporting currency and the South African rand ("ZAR"), Australian dollar
("AUD") and Canadian dollar ("Cdn $") to be the functional currencies of
the companies trading in each of the respective countries. The translated
amounts are of a foreign entity and as such, the translation to US dollar
was made using the current rate method, as follows: assets and liabilities,
including goodwill, are translated to the US dollar at foreign exchange
rates ruling at the balance sheet date. Revenues and expenses are
translated at average exchange rates during the year. All resulting
exchange differences are classified as equity and disclosed as currency
translation adjustments in the balance sheet.
2.5 Financial Instruments
Financial assets and financial liabilities are recognized on the balance
sheet when the Corporation has become party to the contractual provisions
of the instruments.
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
Measurement
Financial instruments are initially measured at cost, which includes
transaction costs. Subsequent to initial recognition these instruments are
measured as set out below:
Investments
Purchases and sales of investments are recognized on the trade date, which
is the date that the Corporation commits to purchase or sell the asset.
After initial recognition, investments, which include the Corporation`s
listed investments and which are designated as long term investments, are
measured at the lesser of historic cost or net realizable value. Listed
investments, which are designated as short term investments, are measured
at fair value. Losses on long term investments and profits and losses on
short term investments are recognized in the income statement.
Other long term investments that are intended to be held to maturity are
subsequently measured at amortized cost using the effective interest rate
method. Amortized cost is calculated by taking into account any discount or
premium on acquisition over the period to maturity. For investments carried
at amortized cost, gains and losses are recognized in the income statement
when the investments are derecognized or impaired, as well as through the
amortization process.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, bank balances, deposits
held at call and certificate of deposits with a remaining maturity of three
months or less. Bank and cash balances are reported separately from bank
overdraft balances, which are included in accounts payable.
Accounts receivable
Accounts receivable are carried at original invoice amount unless a
provision has been recorded for impairment of these receivables. A
provision for impairment of accounts receivable is established when there
is objective evidence that the Corporation will not be able to collect all
amounts due according to the original terms of receivables.
Financial liabilities
After initial recognition, financial liabilities other than trading
liabilities are subsequently measured at amortized cost using the effective
interest rate method. Amortized cost is calculated by taking into account
any transaction costs and any discount or premium on settlement.
Accounts payable
Liabilities for trade and other payables which are normally settled on 30
to 90 day terms are carried at cost.
Impairment and uncollectability of financial assets
An assessment is made at each balance sheet date to determine whether there
is objective evidence that a financial asset or group of financial assets
may be impaired. If such evidence exists, the estimated recoverable amount
of the asset is determined and an impairment loss is recognized for the
difference between the recoverable amount and the carrying amount as
follows: The carrying amount of the asset is reduced to its discounted
estimated recoverable amount, either directly or through the use of an
allowance account and the resulting loss is recognized in the income
statement for the period.
Loans payable
Loans payable are recognized initially at the proceeds received, net of
transaction costs incurred. Loans payable are subsequently stated at
amortized cost using the effective yield method; any difference between
proceeds (net of transaction costs) and the redemption value is recognized
in the income statement over the period of the loan.
Offset
Where a legally enforceable right of offset exists for recognized financial
assets and financial liabilities, and there is an intention to settle the
liability and realize the asset simultaneously, or settle on a net basis,
all related financial effects are offset.
Equity instruments
Equity instruments issued by the Corporation are recorded at the proceeds
received, net of direct issue costs.
The carrying amounts for cash and cash equivalents, short term investments,
accounts receivable and accounts payable and accrued liabilities
approximate fair value due to the short maturities of these instruments.
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
2.6 Property, plant and equipment
Mine development and infrastructure
Mining assets are initially recorded at cost and will include mine
development and mine plant facilities. Costs include pre-production
expenditure. Development costs incurred to evaluate and develop new ore
bodies or to define mineralization in existing ore bodies or to establish
or expand productive capacity are capitalized. Mine development costs in
the ordinary course to maintain production are expensed as incurred.
Initial development and pre-production costs relating to a new ore body are
capitalized until the reef horizon is intersected and commercial levels of
production are achieved, at which time the costs are amortized.
Mineral and surface rights
Mineral and surface rights are recorded at cost of acquisition. When there
is little likelihood of a mineral right being exploited, or the value of
mineral rights have diminished below cost, a write-down is effected against
income in the period that such determination is made.
Mining exploration
Exploration costs are expensed as incurred. When a decision is made that
commercial production on a mining property should commence, all further pre-
production expenditures are capitalized. These costs include evaluation
costs.
2.7 Capitalization of interest
Net interest costs incurred during the development, construction and start
up phase of major projects are capitalized.
2.8 Asset retirement obligations
The Corporation recognizes the fair value of a future asset retirement
obligation as a liability in the year in which it incurs a legal obligation
associated with the retirement of tangible long-lived assets that results
from the acquisition, construction, development, and/or normal use of the
assets. The Corporation concurrently recognizes a corresponding increase in
the carrying amount of the related long-lived asset that is depreciated
over the life of the asset. The fair value of the asset retirement
obligation is estimated using the expected cash flow approach that reflects
a range of possible outcomes discounted at credit adjusted risk-free
interest rate. Provision is made in full for the estimated future costs of
pollution control and rehabilitation, in accordance with statutory
requirements. The fair value of asset retirement obligations is recognized
and provided for in the financial statements and capitalized to mining
assets when incurred.
Subsequent to the initial measurement, the asset retirement obligation is
adjusted at the end of each year to reflect the passage of time and changes
in the estimated future cash flows underlying the obligation.
Changes in the obligation due to the passage of time are recognized in
income as an operating expense using the interest method. Changes in the
obligation due to changes in estimated cash flows are recognized as an
adjustment of the carrying amount of the long-lived asset that is
depreciated over the remaining life of the asset. The impact of this change
in accounting policy was not material.
Annual increases in the provision are accreted into income and consist of
financing costs relating to the change in present value of the provision
and inflationary increases in the provision estimate. The present value of
additional environmental disturbances created is capitalized to mining
assets against an increase in rehabilitation provision.
2.10 Impairment of long-lived assets
Where impairment is identified, the carrying value of the related property,
plant and equipment is written down to fair value. Recoverability of the
long term assets of the Corporation, which includes development costs and
undeveloped property costs, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amounts may not be
recoverable, based on future undiscounted cash flows. In preparing this
evaluation, the Corporation compares the carrying amount of the asset to
its fair value. For the purposes of assessing impairment, assets are
grouped at the lowest levels for which there are separately identifiable
cash flows. To determine fair value, management makes its best estimates of
the future cash inflows that will be obtained each year over the life of
the asset and discounts the cash flows by a rate that is based on the time
value of money, adjusted for the risk associated with the applicable asset.
Management`s best estimate includes only those projections which it
believes are reliable. These estimates are subject to risks and
uncertainties including future metal prices. It is therefore reasonably
possible that changes could occur which may affect the recoverability of
the assets.
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
2.11 Future income and mining taxes
The Corporation utilizes the asset and liability method of accounting for
income and mining taxes. Under the asset and liability method, future
income and mining tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the consolidated
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases reduced by a valuation allowance to reflect the
recoverability of any future income tax asset. Future income and mining tax
assets and liabilities are measured using enacted or substantively enacted
tax rates expected to apply when the asset is realized or the liability
settled. The effect on future income and mining tax assets and liabilities
of a change in tax rates is recognized in income in the year that enactment
or substantive enactment occurs.
2.12 Stock-based compensation
The Corporation`s stock-based compensation plan is described in note 14.
The Corporation recognizes as an expense the fair value of employee share-
stock compensation, including stock options. Any consideration paid upon
the exercise of stock options, in addition to the fair value attributable
to stock options granted, is credited to share capital. The fair value
attributable to stock options that expire unexercised is credited to
contributed surplus.
2.13 Revenue recognition
Revenue from sales is recognized when significant risks and rewards of
title and ownership of the goods are transferred upon delivery to the final
refiner.
Interest income is recognized on a time proportion basis, taking account of
the principal outstanding and the effective rate over the period to
maturity, when it is determined that such income will accrue to the
Corporation.
2.14 Leased assets
Leases of property, plant and equipment where the corporation has
substantially all the risks and rewards of ownership, are classified as
finance leases. Finance leases are capitalized at the inception of the
lease at the lower of the fair value of the leased property or the present
value of the minimum lease payments. Each lease payment is allocated
between the liability and finance charges so as to achieve a constant rate
on the finance balance outstanding. The corresponding rental obligations,
net of finance charges, are included in other long term payables. The
interest element of the instalment is charged to the income statement over
the lease period so as to produce a constant periodic rate of interest on
the remaining balance of the liability for each period. The property, plant
and equipment acquired under finance leases are depreciated over the
shorter of the useful life of the asset or the lease term.
2.15 Inventories
Inventories, which include in process metals and consumable stores, are
stated at the lower of cost or net realizable value. The related direct
production costs associated with in process metals are deferred and charged
to costs as the contained gold is recovered. Consumable stores are valued
on the weighted average basis. In process metals is identified and measured
from the ore stockpiles up to and including the on-site refining plant.
2.16 Earnings or loss per share
Basic earnings or loss per share is computed by dividing earnings or loss
available to common shareholders by the weighted average number of common
shares outstanding during the year. The treasury stock method is used to
calculate diluted earnings or loss per share. Diluted earnings or loss per
share is similar to basic earnings or loss per share, except that the
denominator is increased to include the number of additional common shares
that would have been outstanding assuming that options and warrants with an
average market price for the year greater than their exercise price are
exercised and the proceeds used to repurchase common shares. As a result of
the loss for each of the reporting years, the potential effect of
exercising stock options and warrants has not been included in the
calculation of diluted loss per share as to do so would be anti-dilutive.
3 ACCOUNTS RECEIVABLE
2006 2005
US$`000 US$`000
Trade receivables 1,850 54
Value Added Tax and General Sales Tax 13,327 4,614
Prepayments and advances 5,288 3,803
Deposits and guarantees 977 93
Other receivables 742 259
22,184 8,823
4 INVENTORIES
2006 2005
US$`000 US$`000
In-process metal 883 231
Spares and consumables 1,459 450
2,342 681
5 PROPERTY, PLANT AND EQUIPMENT
Cost 2006 Net Cost 2005 Net
Accumu- carrying Accumu- carrying
US$`000 lated amount US$`000 lated amount
amorti- US$`000 amorti- US$`000
zation zation
US$`000 US$`000
Mine 149,266 (3,561) 145,705 38,014 (3,676) 34,338
development
costs and
mine plant
facilities
Mineral and 140,421 - 140,421 122,639 - 122,639
Undeveloped
properties
Motor 662 (382) 280 433 (316) 117
vehicles
Office 953 (504) 449 544 (383) 161
equipment
291,302 (4,447) 286,855 161,630 (4,375) 157,255
Owned assets 285,065 156,890
Leased assets 1,790 365
Total net 286,855 157,255
carrying
amount as at
end of year
Mine development costs and mine plant facilities comprise of the following
projects:
Cost 2006 Net Cost 2005 Net
Accumu- carrying Accumu- carrying
US$`000 lated amount US$`000 lated amount
amorti- US$`000 amorti- US$`000
zation zation
US$`000 US$`000
Dominium 137,585 (1,709) 135,876 10,428 (47) 10,381
Uranium
Project
Honeymoon 3,253 (1,173) 2,080 2,923 (2,642) 282
Uranium
Project
Modder East 8,428 (679) 7,749 966 (358) 608
Gold Project
Bonanza Gold - - - 23,697 (629) 23,068
Project
149,266 (3,561) 145,705 38,014 (3,676) 34,338
5 PROPERTY, PLANT AND EQUIPMENT (continued)
Mineral Undeveloped
Properties properties
2006 2005 2006 2005
US$`000 US$`000 US$`000 US$`000
Modder East - - 15,020 15,807
Sub-Nigel - - 15,423 -
Spaarwater 300 - - -
Honeymoon, Australia 5,246 6,016 31,818 28,670
Goulds Dam, Australia - - 24,921 24,921
Billeroo / Karkarook, Australia - - 43,170 43,170
Athabasca, Canada 2,366 1,281 2,157 1,427
Loan guarantees and Native title - - - 1,347
claims
7,912 7,297 132,509 115,342
Impairment of property, plant and equipment
During 2006, management stopped operations at Bonanza when the gold plant was to
be integrated with the new uranium plant. The less profitable Bonanza ore
will be replaced by ore from the uranium deposits for the next few years.
As a result, the Bonanza carrying value amounting to $11.1 million has been
impaired. The gold plant was not impaired and was transferred to the
Dominium Uranium Project. Other assets amounting to $0.2 million were also
impaired.
Native title claims
The Corporation`s interests in the Honeymoon and Goulds Dam properties are
subject to two Native Title claims. Agreements have been secured with both
groups, whereby the Corporation pays annual administration fees to each
claimant group. The amount recognized for the Native Title Claims was
reclassified and added to undeveloped properties during the 2006 financial
year.
Dominium Uranium Project
The Dominion Uranium Project is situated in the North West Province of South
Africa. The Dominion Uranium Project is a brownfields development project
consisting of the Dominion and Rietkuil sections which include two former
uranium and gold mining operations. Construction of the Dominion uranium
mine was approved in 2005.
Honeymoon Uranium Project
The Honeymoon Uranium Project is located in north-east South Australia. During
the year, an updated mineral resource estimate and a feasibility study were
published on the Honeymoon Uranium Project. Uranium One`s Board of
Directors approved the development of the Honeymoon Uranium Project on
August 28, 2006.
Modder East Gold Project
In May 2006, Aflease Gold, a subsidiary of the Corporation resolved to develop
the Modder East Gold Project into a mine and commenced the initial phase of
construction. In August 2006, an updated mineral resource and reserve
estimate and a feasibility study prepared by Turgis Consulting (Pty) Ltd.
and audited by SRK Consulting South Africa (Pty) Ltd. was published on the
project and, in light of the results of that study, the Aflease Gold Board
approved full implementation of the Modder East Gold Project.
6 ASSET RETIREMENT FUND
2006 2005
US$`000 US$`000
Investments in Environmental Trust Fund 3,181 1,171
- Opening balance 1,171 1,488
- Investment income 166 13
- Contributions 1,912 -
- Costs incurred - (168)
- Foreign exchange loss (68) (162)
Rehabilitation Cash Management account 246 104
3,427 1,275
The Environmental Trust Fund is a trust under the Corporation`s control and is
to be used to fund the rehabilitation liabilities. Funds in the trust
consist of primarily cash held in interest bearing accounts, together with
investments in South African equities.
The Rehabilitation Cash Management account is a money market fund investment.
Interest is capitalized.
7 LISTED INVESTMENTS
The Corporation has an investment in Randgold and Exploration Company Limited.
The company was delisted from the NASDAQ and suspended by the JSE. Due to
uncertainty that prevails over the value of the shares, management has
resolved to write this investment down to a zero value. The impairment
charge recorded in the 2005 financial year amounted to $8.2 million.
The underlying shares pertaining to the contractual commitment to acquire shares
in Randgold under the futures contract referred to in note 10, were also
impaired. A provision of $2.7 million was recorded in the 2005 financial
year to recognize the Corporation`s future obligation in terms of the
contractual commitment. Refer note 8.
8 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
2006 2005
US$`000 US$`000
Trade payables 24,190 6,651
Accruals 691 4,396
Taxation payable 70 -
Provisions 6,396 3,998
- Provision for leave pay 513 79
- Provision for bonuses 1,887 1,238
- Provision for settlement of employee taxes 1,393 -
- Provision for decline in value of shares 2,412 2,681
(refer note 7)
- Other provisions 191 -
31,347 15,045
9 LEASE OBLIGATIONS
2006 2005
US$`000 US$`000
Present value of finance lease obligations 1,272 1 452
payable within 1 year
Minimum lease payments 1,388 1,650
Finance charges (116) (198)
Present value of finance lease obligations 304 1,560
payable within 2 to 5 years
Minimum lease payments 322 1,772
Finance charges (18) (212)
Payable in 1,710 3,422
- 2006 - 1,650
- 2007 1,388 1,479
- 2008 255 246
- 2009 33 14
- 2010 29 14
- Thereafter 5 19
Total debt 1,576 3,012
Short term portion of finance leases 1,272 1 452
Total long term debt 304 1,560
Finance leases were obtained for the purchase of equipment required for mining
operations. Monthly instalments payable range from $1.0 thousand (2005:
$0.6 thousand) to $38.6 thousand (2005: $35 thousand) and are repayable
over various terms. Interest rates are linked to prime and range from prime
less 2.5% to prime less 0.5%.
Included in the lease obligations are loans that are secured by a general
notarial bond over the moveable assets financed.
10 SHORT TERM LOAN
2006 2005
US$`000 US$`000
February 2005 Nedcor Securities loan 199 993
August 2006 Nedcor Securities loan 51,460 -
Total liability 51,659 993
The February 2005 Nedcor Securities loan represents draw-downs on a facility
provided by Nedcor Securities, secured by Uranium One Africa`s investment
in Randgold and Exploration Company Limited ("Randgold") shares. This loan
attracts interest in South Africa at a variable rate currently at ZAR
8.95%, adjusted in terms of a formula which is influenced by movements in
the Randgold share price. The effective interest rate for the period was
ZAR 23.48%. The loan has no fixed repayment terms. The loan is repayable in
South African rand. Refer note 7.
The August 2006 Nedcor Securities loan represents draw-downs on a facility
provided by Nedcor Securities, secured by Uranium One Africa`s investment
in Aflease Gold shares. This loan attracts interest in South Africa at a
flat rate of ZAR 9% per annum, adjusted in terms of a formula which is
influenced by movements in the Aflease Gold share price. The effective
interest rate for the period was ZAR 9.88%. The loan will be repaid on
September 20, 2007. The loan is repayable in South African rand.
Uranium One`s investment in Randgold and Aflease Gold is encumbered while these
finance arrangements remain in place. These loans are classified as
liabilities held to maturity and are carried at amortized cost.
11 ASSET RETIREMENT OBLIGATION
Australian African Aflease TOTAL TOTAL
Uranium Uranium Gold
Operations Operations Operations 2006 2005
US$`000 US$`000 US$`000 US$`000 US$`000
Opening balance - 3,915 178 4,093 4,186
- Incurred during the 321 1,138 202 1,661 -
year
- Settled - - - - -
- Accretion expense - 307 1 308 360
- Revision - (710) - (710) -
- Foreign exchange 7 (419) (16) (428) (452)
gain / (loss)
Total obligation 328 4,231 365 4,924 4,094
The following are the key assumptions used during 2006:
Dominion Honeymoon Aflease Bonanza TOTAL
Uranium Uranium Gold Gold
Project Project Project 2006
Operatio
ns
US$`000 US$`000 US$`000 US$`000 US$`000
Undiscounted and 2,329 427 504 4,297 7,557
uninflated amount of
estimated cash flows
Currency payable ZAR AUD ZAR ZAR
Payable in years 11 6 13 11
Inflation rate 5.50% 3.00% 5.50% 5.00%
Discount rate 14.50% 7.39% 14.50% 9.65%
The following are the key assumptions used during 2005:
Dominion Honeymoon Aflease Bonanza TOTAL
Uranium Uranium Gold Gold
Project Project Project 2005
Operatio
ns
US$`000 US$`000 US$`000 US$`000 US$`000
Undiscounted and - - 233 5,596 5,829
uninflated amount of
estimated cash flows
Currency payable ZAR AUD ZAR ZAR
Payable in years - - 5 11
Inflation rate - - 5.00% 5.00%
Discount rate - - 9.65% 9.65%
The rehabilitation trusts have been set up as sinking funds for the purposes of
the environmental rehabilitation and closure costs. The trust deed
prohibits use of the funds for any other purpose.
The fair value of the restricted assets at year end is $3.4 million (2005: $1.3
million). Refer note 6.
During the fourth quarter of 2006 an extensive independent and internal review
was performed on the rehabilitation obligations at the South African
operations and an internal review was performed at the Australian
operations. The independent review performed on the South Africa operations
was performed by Prime Resources during November 2006. The provision for
the Bonanza operations remains unchanged except for the portion that was
transferred to the Dominion Reefs Uranium Mine operations. The portion
transferred mainly relates to the rehabilitation of the gold plant. The
review resulted in the initial provision for the rehabilitation of the
Dominion Reefs Uranium Mine and Honeymoon Uranium Mine pertaining to the
development of these operations during the 2006 year.
12 CONVERTIBLE DEBENTURES
4.25% Convertible Unsecured Subordinated 2006 2005
Debentures US$`000 US$`000
Nominal value of convertible loan notes issued 133,239 -
Underwriters Fees (3,997) -
Net proceeds 129,242 -
Equity component 20,937 -
The liability as at December 31, 2006 is made up
as follows:
Liability component at date of issue 112,606 -
Convertible Debentures - costs (4,372) -
Interest charged 429 -
Foreign exchange movement (10) -
Liability as at 31 December 2006 108,653 -
On December 20, 2006, the Corporation completed an offering of $133.2 million
(including exercised over allotment option of $17.4 million granted to
underwriters) convertible unsecured subordinated debentures maturing
December 31, 2011 (the "debentures"). The debentures were issued at Cdn
$1,000 per debenture and the underwriters` fees amounted to Cdn $30 per
debenture, which resulted in the net proceeds to the Corporation of Cdn
$970 per debenture. The Debentures bear interest at an annual rate of
4.25%, payable semi-annually in arrears on June 30 and December 31 of each
year, commencing June 30, 2007. The June 30, 2007 interest payment will
represent accrued interest from the closing of the offering to June 30,
2007. The conversion price was set at Cdn $20 per share, which is
equivalent to 50 common shares for each Cdn $1,000 principal amount of
debentures. The Corporation intends to use the net proceeds of the offering
to fund the development and operation of the Corporation`s Uranium Projects
and for general corporate purposes.
The debentures may not be redeemed by the Corporation prior to January 1, 2010.
On and after that date and prior to the maturity date, the debentures may
be redeemed by the Corporation, in whole or in part from time to time, on
not more than 60 days` and not less than 30 days` prior notice, at a
redemption price equal to their principal amount plus accrued and unpaid
interest, if any, up to but excluding the date set for redemption, provided
that the weighted average trading price of the common shares for the 20
consecutive trading days ending five trading days prior to the date on
which notice of redemption is given, is at least 130% of the conversion
price.
For accounting purposes, the debentures contain both a liability component and
an equity component, being the holder`s conversion right, which have been
separately presented in the consolidated balance sheet. The Corporation has
allocated the $133.2 million face value of the debentures to the individual
liability and equity components by establishing the fair value of the
liability component and then allocating the balance remaining after
subtracting the fair value of the liability from the issue price, to the
equity component. The fair value of the liability component was determined
by discounting the stream of future payments of interest and principal
amounts at the estimated prevailing market rate of 10.56% for a debt
instrument of comparable maturity and credit quality but excluding any
conversion privilege by the holder.
As a result, the Corporation allocated $112.6 million of the gross proceeds
received to debt and $20.9 million to equity. Interest is recognized by
accreting the liability component of $112.6 million less expenses of $4.3
million to its face value of $133.2 million over the term of the
debentures, calculated based on an estimated effective annual interest rate
of 11.77%. For the year ended December 31, 2006, interest relating to the
accretion of the debt totalled $0.4 million, which was expensed and
included as interest and financing expense.
13 SHARE CAPITAL
Number of shares Value of shares
Ordinary shares 2006 2005 2006 2005
US$`000 US$`000
Opening balance of common 89,103,814 336,451,321 216,123 80,736
shares in issue
Common shares issued in 43,195,830 50,325,405 301,510 35,508
public or private offering
Shares issued in settlement - 21,535,107 - 9,312
of Eastbourne Capital loan
Exercise of stock options 2,542,034 998,288 14,786 634
and Restricted shares
Share issue costs - - (18,453) (6,220)
Closing balance of issued 134,841,678 409,310,121 513,966 119,970
and outstanding shares on
December 8, 2005
Conversion of Aflease 368,379,109 119,970
shares to sxr Uranium One
Inc. shares at a ratio of
0.9
Share consolidation: 1 73,675,822 119,970
share for every 5 shares
held
Acquisition of Southern 15,427,992 95,976
Cross Resources Inc.
Warrants exercised after - 177
December 8, 2005
Closing balance of issued 134,841,678 89,103,814 513,966 216,123
and outstanding shares
14 CONTRIBUTED SURPLUS
The following table details the movements of contributed surplus during the
year:
Warrants Restricted Options TOTAL TOTAL
2006 2005
US$`000 US$`000 US$`000 US$`000 US$`000
At the beginning of the 1,813 - 9,554 11,367 2,790
year
Share options expensed - - 10,845 10,845 7,240
Share options exercised - - (7,593) (7,593) (259)
Restricted shares - 1,367 - 1,367 -
expensed
Restricted shares - (20) - (20) -
exercised
Warrants issued to BMO - - - - 1,773
Nesbitt
Warrants exercised - - - - (177)
At the end of the year 1,813 1,347 12,806 15,966 11,367
Assumptions
The fair value of Restricted shares used to calculate the compensation expense
was determined as the share price on the grant date adjusted by the
probability of the recipients remaining in the workforce until the vesting
date.
The fair value of stock options used to calculate the compensation expense has
been estimated using the binomial option pricing model with the following
assumptions:
Dec 31, Dec 31,
2006 2005
Risk free interest rate: Canadian rates 3.81 - 3.70 -
4.11% 4.12%
Expected dividend yield 0% 0%
Expected volatility of the Corporation`s share 60% 61%
price
Changes in the subjective input assumptions can materially affect the fair value
estimate and therefore the existing models do not necessarily provide a
reliable measure of the fair value of the Corporation`s stock options and
restricted shares.
14 CONTRIBUTED SURPLUS (continued)
Options
Under the Corporation`s Option plan, options granted are non-assignable and may
be granted for a term not exceeding ten years. The plan is administered by
the Board of Directors, or a committee of the board, which determines
individual eligibility under the plan, number of shares reserved underlying
the options granted to each individual (not exceeding 5% of the issued and
outstanding shares to any insider and not exceeding 1% of the issued and
outstanding shares to any non-employee director on a non-diluted basis) and
any vesting period, which, pursuant to the stock option plan is generally
one-third on the grant date, one-third on the first anniversary of the
grant date and the remainder on the second anniversary of the grant date
unless the board of directors determines otherwise. The board of directors,
on December 8, 2006, decided to adopt an amended vesting schedule such that
any options granted on and after December 8, 2006, would vest as to one-
third on the first anniversary of the grant date, one-third on the second
anniversary of the grant date and one-third on the third anniversary of the
grant date. The maximum number of shares of the Corporation that are
issuable pursuant to the plan is limited to 7.2% of issued and outstanding
shares.
The following is a summary of the Corporation`s options granted under its stock-
based compensation plan:
Number of options Weighted average
exercise price
2006 2005 2006 2005
US$ US$
At the beginning of the year 5,268,610 13,139,178 0.47 0.47
Granted during the year 2,926,443 12,759,147 8.35 0.46
Exercised during the year (2,518,309) (997,130) 2.61 0.40
Forfeiture of share options (188,843) (784,847) 4.34 0.36
At the end of the year 5,487,901 24,116,348 7.97 0.47
Replacement options issued to 4,340,943
Aflease at a conversion rate of
0.18
Southern Cross options converted 927,667
at a rate of 0.20
Outstanding options as at the end 5,487,901 5,268,610 7.97 2.74
of the year
The stock option compensation expense for 2006 was $10.6 million (2005: $7.2
million) for the sxr Uranium One options and $0,2 million for the Aflease
Gold options. As at December 31, 2006, the aggregate unexpensed fair value
of unvested stock options granted amounted to $7.4 million (2005: $6.4
million).
The following table summarizes certain information about the Corporation`s stock
options outstanding at December 31, 2006:
Options outstanding Options exercisable
Range of Number Weighted Weighted Number Weighted Weighted
Exercise outstanding average average exercisable average average
Prices as at remaining exercise as at remaining exercise
Dec 31, 2006 life price Dec 31, 2006 life price
US$ (years) US$ (years) US$
1.15 to 916,334 3.94 1.48 471,443 3.94 1.49
1.59
2.19 to 174,169 3.94 2.34 121,584 3.94 2.34
2.85
3.13 to 1,241,292 3.92 3.55 1,060,164 3.91 3.56
3.84
4.04 to 352,421 3.78 4.12 217,348 3.83 4.12
4.92
5.52 to 1,647,034 4.14 6.75 499,312 4.13 6.70
6.78
7.17 to 1,156,651 4.88 11.68 164,184 4.82 10.97
12.28
5,487,901 4.22 7.97 2,534,035 4.03 5.65
Options exercised during the 2006 financial year resulted in 2,518,309 shares
being issued at an average exercise price of $2.61 per share.
14 CONTRIBUTED SURPLUS (continued)
Restricted shares
Under the Uranium One Restricted Share Plan, restricted share rights are granted
to eligible employees, contractors and directors. Each restricted share
right is exercisable for one common share of Uranium One at the end of the
restricted period for no additional consideration. The vesting period is
generally two-thirds on the first anniversary of the grant date and the
remainder on the second anniversary of the grant date. The aggregate
maximum number of shares available for issuance under the restricted share
plan is capped at one million; the number of shares for issuance to non-
employee directors may not exceed 0.5% of the total number of common shares
outstanding on a non-diluted basis.
The following is a summary of the Corporation`s Restricted shares issued under
the Restricted Share Plan:
Number of Restricted
shares
2006 2005
Granted during the year 441,915 -
Exercised during the year (28,414) -
Total Restricted shares outstanding at the end 413,501 -
of the period
The grant date of 113 993 Restricted shares was December 8, 2006. The share
price on grant date was $12.07 per share.
The grant date of 327 922 Restricted shares was June 7, 2006. The share price on
grant date was $8.08 per share.
Restricted shares will not expire while the participant is in the employ of the
Corporation.
The Restricted share expense for the year ended December 31, 2006 was $1.4
million (2005: $0). As at December 31, 2006 the aggregate unexpensed fair
value of unvested Restricted shares granted amounted to $2.4 million
(December 31, 2005: $0).
Warrants Number of warrants Allocated Average
value exercise price
2006 2005 2006 2005 2006 2005
US$`000 US$`000 US$ US$
At the beginning 5,976,319 3,876,319 1,813 217 3.69 2.73
of the year
Issued to BMO - 1,800,000 - 1,596 - 5.39
Nesbitt
Warrants acquired - 300,000 - - - 5.96
(Series D
Warrants)
At the end of the 5,976,319 5,976,319 1,813 1,813 3.69 3.69
year
Warrants comprise: Number of warrants
2006 2005
2008 Warrants 3,876,319 3,876,319
BMO Nesbitt Warrants 1,800,000 1,800,000
Series D Warrants 300,000 300,000
Total 5,976,319 5,976,319
The fair value of the 2008 warrants (previously referred to as the "Eastbourne
warrants") was valued, for Canadian GAAP purposes, at $0.2 million on
December 31, 2004. The 3,876,319 warrants have a term of 3 years from the
date of issue and expire on September 24, 2008.
The fair value of the BMO warrants was determined at $1.8 million on December
30, 2005, using the binomial option pricing model with the following
assumptions: United States zero coupon rates of between 4.39% and 4.83%,
expected dividend yield of nil, expected 90 day volatility of 51.5% and
expected warrants term of 1.18 years. The expiry date of these warrants is
March 5, 2007.
Series D Warrants represent those acquired from Southern Cross through the
reverse takeover. 150,000 warrants expire on September 17, 2007 and 150,000
warrants expire on January 4, 2008.
15 COST OF SALES
2006 2005
US$`000 US$`000
Cash operating costs 5,729 6,454
Depreciation and amortization 659 767
Write down of inventory 1,313 -
7,701 7,221
16 INCOME TAXES
2006 2005
US$`000 US$`000
Normal taxation - current 42 -
Future income taxes 1,023 -
1,065 -
Future taxes of $1.0 million were provided on the profit of $7.1 million on
disposal by the Corporation of its investment in New Kleinfontein, which
constitutes a capital gain.
A reconciliation between the average effective taxation rate and the applicable
tax rate is presented below:
Income tax rate reconciliation 2006 2005
% %
Statutory rate of taxation 36% 34%
Income not subject to taxation 14% 0%
Expenses not deductible for taxation purposes (29%) (23%)
Future taxes not provided (21%) (2%)
- Adjustment due to different taxation rate - (1%) (4%)
Australia
- Adjustment due to different taxation rate - (1%) (5%)
South Africa
Effective tax rate (2%) 0%
Taxation is determined by taking into account the taxable income and capital
expenditure from operations during the year. Various operating
jurisdictions are regulated by their respective taxation regimes. No
taxation was payable in 2006 as the Corporation has an estimated unclaimed
capital expenditure balance of $165.7 million (2005: $44.1 million) and
calculated tax losses balance of $86.5 million (2005: $77.2 million). This
is made up as follows:
Unclaimed Taxation losses
capital
expenditure
2006 2005 2006 2005
US$`000 US$`000 US$`000 US$`000
South Africa 165,677 44,075 37,518 50,509
Canada - - 22,166 21,125
Australia - - 26,814 5,592
165,677 44,075 86,498 77,226
16 INCOME TAXES (continued)
The taxation rates utilized as at December 31, 2006 were 36.12% in Canada, 30%
in Australia and 29%-45% in South Africa.
These future deductions are utilizable only against income generated from the
Corporation`s current operations and do not expire unless the mine ceases
to trade.
Non-mining taxable income, which consists primarily of net interest received,
was shielded against mining tax losses that were not ring-fenced for tax
purposes. In South Africa, the Corporation is exempt from payment of
secondary taxation on companies, having made the election not to pay
secondary taxation on companies. Aflease Gold has elected to pay secondary
taxation on companies. The election influences the taxation rate of each of
the companies.
The Corporation`s future income taxation assets and liabilities as at December
31, 2006 and 2005 are summarized below. These amounts incorporate the
unclaimed capital expenditure as well as the taxation loss balances
referred to above, multiplied by the applicable taxation rates.
2006 2005
US$`000 US$`000
Mining and non-mining assets (52,955) (36,762)
Revaluation of undeveloped property (30,863) (21,156)
Provisions 7,434 1,300
(76,384) (56,618)
Unclaimed capital expenditure 67,806 12,782
Taxation losses 28,383 22,893
Net future income taxation asset / (liability) 19,805 (20,943)
Deferred taxation asset not recognized (50,668) (213)
Net future income taxation liability recognized (30,863) (21,156)
The Corporation has not recorded a net deferred taxation asset in the amount of
$50.7 million as at December 31, 2006 (2005 - $0.2 million) because
management believes that the future income tax assets are not more likely
than not to be realized in the carry-forward period.
In 2005, the revaluation assets arose on the fair valuation of assets that
formed part of the reverse takeover of Southern Cross by Uranium One
Africa. In compliance with accounting practice, a future taxation liability
of $21.2 million was recognized to the extent that the ring-fenced future
taxation asset of $2.5 million was insufficient to off-set the full
liability of $23.7 million.
In 2006, the movement in the revaluation assets rose on the fair valuation of
assets that formed part of the reverse takeover of Aflease Gold by New
Kleinfontein. In compliance with accounting practice, a future taxation
liability of $8.7 million was recognized. Included in the movement for the
year is the $1.0 million provision for the profit on disposal of the
investment in New Kleinfontein, as described above.
17 BASIC LOSS PER SHARE AND DILUTED LOSS PER SHARE
2006 2005
Basic and diluted loss per share (cents) (38.33) (58.67)
is calculated based on a net loss of the period (43,106) (41,740)
of ($`000)
and a weighted average number of shares 112,447,306 71,139,266
outstanding of
For the years ended December 31, 2006 and 2005, the impact of outstanding share
options and warrants was excluded from the diluted share calculation
because it was anti-dilutive for earnings per share purposes.
18 CONTRACTUAL OBLIGATIONS
2006 2005
US$`000 US$`000
Short term loan 51,659 992
Capital commitments 38,326 37,931
Total contractual obligations 89,985 38,923
Payable in
- one year 89,985 38,923
- after one year - -
89,985 38,923
The capital commitments relate to capital expenditure on the Dominion Uranium
Project, Honeymoon Uranium Project, Pitchstone and the Modder East Gold
Project.
19 FINANCIAL INSTRUMENTS
Financial risk factors
The Corporation`s activities expose it to a variety of financial risks,
including the effects of changes in debt and equity market prices, foreign
currency exchange rates and interest rates. The Corporation`s overall risk
management programme focuses on the unpredictability of financial markets
and seeks to minimize potential adverse effects on the financial
performance of the Corporation. The Corporation does not hedge its exposure
to foreign currency exchange risk.
Risk management carried out by the Corporation is approved by the Board of
Directors.
(i) Foreign exchange risk
The Corporation is exposed to foreign exchange risk arising predominantly from
foreign currency denominated sales. The Corporation, however, does not
hedge its exposure to foreign currency exchange risk.
(ii)Interest rate risk
The Corporation`s income and operating cash flows are substantially independent
of changes in market interest rates. The Corporation has no set policy on
maintenance of a set proportion of borrowings in fixed rate instruments
versus variable instruments. At the year end no debt was at fixed rates.
(iii) Credit risk
The Corporation has no significant concentrations of credit risk. The
Corporation has policies in place to ensure that sales of products and
services are made to customers with an appropriate credit history. The
Corporation has policies that limit the amount of credit exposure to any
one financial institution.
(iv)Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash and
marketable securities, the availability of funding through an adequate
amount of committed credit facilities and the ability to close out market
positions.
Fair value estimation
The fair value of publicly traded derivatives and trading securities is based on
quoted market prices at the balance sheet date.
In assessing the fair value of other financial instruments, the Corporation uses
a variety of methods and makes assumptions that are based on market
conditions existing at each balance sheet date. Option pricing models and
estimated discounted value of future cash flows, are used to determine fair
value for the remaining financial instruments.
19 FINANCIAL INSTRUMENTS (continued)
The face values less any estimated credit adjustments for financial assets and
liabilities with a maturity of less than one year are assumed to
approximate their fair values. The fair value of financial liabilities for
disclosure purposes is estimated by discounting the future contractual cash
flows at the current market interest rate available to the Corporation for
similar financial instruments.
The actual disclosed values of the financial instruments all approximate the
fair values of these instruments.
20 REVERSE TAKEOVER OF SUB NIGEL
In the current financial year the merger between Sub Nigel and New Kleinfontein
was accomplished through the issue of Sub Nigel shares to Uranium One
Africa in payment for all of the issued and outstanding ordinary shares of
New Kleinfontein and all amounts due by New Kleinfontein to Uranium One
Africa on loan account, as detailed in note 1.
Except for the cash taken over, this transaction has been excluded from the cash
flow statement as it did not result in an exchange of cash.
The aggregate fair values of assets acquired and liabilities assumed on the
purchase of Sub Nigel were as follows:
2006
US$`000
Property, plant and equipment 778
Undeveloped properties - Sub Nigel 17,717
Loan account 1,518
Receivables and prepayments 66
Inventory 9
Cash 1,933
Cost closure obligation (35)
Trade and other payables (1,069)
Future taxation liability (5,138)
Value of business combination 15,779
Non-controlling interest (2,999)
Cash taken over 1,933
Consideration (12,780)
Net cash flow 1,933
The terms of the purchase price were agreed between the parties in terms of an
agreement of acquisition dated August 23, 2005. The effective date of the
reverse takeover was January 10, 2006.
Changes in the percentage shareholding from 79.92% on January 10, 2006 to 71.36%
on December 31, 2006 resulted in a dilution gain of $17.5 million for the
year ended December 31, 2006.
21 REVERSE TAKEOVER OF SOUTHERN CROSS RESOURCES INC.
The aggregate fair values of assets acquired and liabilities assumed on the
purchase of Southern Cross Resources Inc. were as follows:
2005
US$`000
Property, plant and equipment 32,373
Undeveloped properties 76,490
Other assets 96
Receivables and prepayments 2,541
Cash 8,389
Interest bearing borrowings (79)
Trade and other payables (2,678)
Future taxation liability (21,156)
Purchase price 95,976
Cash taken over 8,389
Shares consideration (95,976)
Net cash flow 8,389
The terms of the purchase price were agreed between the parties in terms of an
agreement of acquisition dated September 14, 2005. The effective date of
the reverse takeover was December 8, 2005.
22 SUBSEQUENT EVENTS
UrAsia Energy Limited
On February 12, 2007, the Corporation and UrAsia Energy Ltd. ("UrAsia") entered
into a definitive arrangement agreement under which the Corporation will
acquire all of the outstanding common shares of UrAsia. The business
combination will be effected by way of a court-approved plan of arrangement
under section 288 of the Business Corporations Act (British Columbia).
Under the terms of the arrangement, all holders of UrAsia Shares will
receive 0.45 Uranium One shares for each UrAsia common share held. It is
expected that the current shareholders of the Corporation will own
approximately 40% and the current shareholders of UrAsia will own
approximately 60% of the combined company after giving effect to the
arrangement. Each UrAsia warrant and stock option, which previously gave
the holder the right to acquire common shares of UrAsia, will be exchanged
for warrants or stock options which gives the holder the right to acquire
common shares of the Corporation, at a ratio of 0.45 Uranium One warrant or
stock option for every UrAsia warrant or stock option, with all other terms
of such warrants or stock options remaining unchanged. Subject to approval
by the Corporation`s shareholders, the combined entity will change its
corporate name and continue under the name Uranium One Inc.
The combination is subject to, among other things, approval by a two-thirds
majority of the voles cast by holders of UrAsia common shares and
applicable Canadian regulatory and court approvals. The transaction is
expected to close during the second quarter of 2007. If the combination
does not occur under certain circumstances, UrAsia has agreed to pay
Uranium One a break fee of $90.0 million. A break fee of $60 million is
payable by the Corporation in certain circumstances if they terminate the
arrangement. A break fee of $60.0 million is payable by Uranium One if
UrAsia terminates the agreement as a result of certain material breaches of
the agreement by Uranium One which are not curable.
Shootaring Canyon Uranium Mill and Associated Properties
On February 23, 2007, Uranium One entered into a definitive agreement with U.S.
Energy Corp. for the purchase of the Shootaring Canyon Uranium Mill in
Utah, as well as a land package comprising uranium exploration properties
in Utah, Wyoming, Arizona and Colorado and a substantial database of
geological information for consideration equal to 6,607,605 Uranium One
common shares plus the sum of $750,000 in cash paid by Uranium One on the
execution of a July 2006 exclusivity agreement with the vendor. The
purchase agreement provides for further payments by Uranium One of $20.0
million upon the Shootaring Canyon Mill reaching commercial production and
$7.5 million on the first delivery to the Mill after commercial production
of mineralized material from any of the purchased properties. In addition,
U.S. Energy Corp. will receive a royalty equal to 5% of the gross proceeds
from the sale of commodities produced at the Mill, to a maximum amount of
$12.5 million.
22 SUBSEQUENT EVENTS (continued)
The purchase agreement also provides for the assignment of U.S. Energy Corp`s
right to receive $4.1 million in cash and 1.5 million common shares of
Uranium Power Corp. ("UPC") under a purchase and related joint venture
agreement between U.S. Energy and UPC relating to certain of the purchased
properties for a cash payment equal to a 5.25% annual discount rate applied
to $4.1 million plus the value of such shares (determined with reference to
the weighted average closing price thereof on the TSX Venture Exchange
prior to closing). In addition, Uranium One will on closing reimburse U.S.
Energy Corp. for certain exploration expenditures relating to the purchased
properties and incurred since July 2006.
Closing of the purchase agreement is subject, among other things, to receipt of
applicable U.S. state and federal regulatory approvals
Sweetwater
On January 8, 2007, the Corporation announced that Rio Tinto Energy America,
Inc. ("Rio Tinto") has decided to withdraw the Sweetwater uranium mill and
related properties from sale in order to re-evaluate whether these should
be retained and developed. Rio Tinto has agreed to acquire from the
Corporation copies of the third party technical reports prepared for the
Corporation as part of its due diligence investigations. The cost incurred
by the Corporation in preparation of the technical reports as part of the
due diligence investigations, is presented under accounts receivable.
Pitchstone
In January 2007, the Corporation received formal notice from its joint venture
partner, Pitchstone Exploration, to the effect that the Corporation had
completed the requirements to earn 50% of Pitchstone`s interest in five
properties located in the Athabasca basin in northern Saskatchewan.
Pitchstone further confirmed that a total of $3.4 million in exploration
expenditures had been spent on the five properties and that Pitchstone has
received the required payments.
Aflease Gold
Subsequent to December 31, 2006, Aflease Gold issued 25 million shares to public
shareholders. This share placement further diluted the Corporation`s equity
interest in Aflease Gold to 67.79%.
Warrants
On February 14, 2007, 1.8 million warrants issued to BMO Nesbitt Burns were
exercised at an exercise price of $5.39 for proceeds of $9.7 million.
23 RELATED PARTIES
During the year ended December 31, 2006, Uranium One paid $1.1 million to Davis
& Company LLP on account of fees for legal services rendered. The
Corporation`s executive vice president and general counsel, John Sibley,
was a partner of Davis & Company LLP prior to joining Uranium One in
September 2006 and also served as a director of Uranium One and its Aflease
Gold and Uranium Resources Limited predecessor from April 2003 to June 7,
2006.
24 SEGMENTED INFORMATION
Segmented information is presented in respect of the Corporation`s business and
geographical segments. The primary format, business segments, is based on
the Corporation`s management and internal reporting structure.
Inter-segment reporting is determined on an arm`s length basis.
Segment results, assets and liabilities include items directly attributable to a
segment as well as those that can be allocated on a reasonable basis.
Unallocated items comprise mainly income earning assets and revenue,
interest-bearing loans, borrowing and expenses, and corporate assets and
expenses.
Segment capital expenditure is the total cost incurred during the period to
acquire segment assets that are expected to be used for more that one
period.
For the year ended December 31, 2006:
Africa Australia Canada Aflease Elimi- TOTAL
Gold nations
Corporate
and
Business Uranium Uranium Uranium Gold
US$`000 US$`000 US$`000 US$`000 US$`000 US$`000
Gold Sales 3,336 - - - - 3,336
Cost of Sales (7,701) - - - - (7,701)
Gross loss (4,365) - - - - (4,365)
Sundry income 567 218 - 42 - 827
General and (3,927) (2,288) (6,336) (1,888) - (14,439)
administrative
expenditure
Share options (4,138) (344) (6,122) (241) - (10,845)
expensed
Restricted (134) (19) (1,214) - - (1,367)
shares expensed
Exploration (5,555) (2,180) - (1,499) - (9,234)
expenditure
Impairment of (11,049) - (89) (173) - (11,311)
property, plant
and equipment
Operating loss (28,601) (4,613) (13,761) (3,759) - (50,734)
Interest 1,404 129 3,466 245 - 5,244
received
Interest paid (2,601) (3) (429) (6) - (3,039)
Dilution gain 34,943 - - - (17,428) 17,515
on disposal of
investments
Foreign - - (11,905) - - (11,905)
exchange loss
on cash and
cash
equivalents
Non-controlling - - - - 878 878
interest in
earnings of
subsidiary
Loss before 5,145 (4,487) (22,629) (3,520) (16,550) (42,041)
income taxes
Provision for (1,022) - (26) (17) - (1,065)
income taxes
Net loss 4,123 (4,487) (22,655) (3,537) (16,550) (43,106)
Total assets 224,467 13,288 844,413 33,852 (473,696) 642,324
Total 186,129 43,336 109,920 8,418 (118,781) 229,022
liabilities
Other segment
items
Capital 115,285 1,814 1,964 7,109 - 126,172
expenditure
24 SEGMENTED INFORMATION (continued)
For the year ended December 31, 2005:
Africa Australia Canada New Elimi- TOTAL
nations
Corporate Klein-
and fontein
Business Uranium Uranium Uranium Gold
US$`000 US$`000 US$`000 US$`000 US$`000 US$`000
Gold Sales 2,730 - - - - 2,730
Cost of Sales (6,915) (180) (2) (124) - (7,221)
Gross loss (4,185) (180) (2) (124) - (4,491)
Sundry income 768 2 - - - 770
General and (5,558) 151 (106) (26) - (5,539)
administrative
expenditure
Share options (7,052) - (188) - - (7,240)
expensed
Exploration (10,342) - (677) - - (11,019)
expenditure
Other net 265 - - - - 265
income/(costs)
Operating loss (26,104) (27) (973) (150) - (27,254)
Interest 1,042 - 11 12 - 1,065
received
Interest paid (2,458) - - (22) - (2,480)
Profit on 89 - - (62) - 27
disposal of
investments
Fair value (2,169) - - - - (2,169)
adjustment of
listed
investments
Impairment of (10,929) - - - - (10,929)
investments
Loss before (40,529) (27) (962) (222) - (41,740)
income taxes
Provision for - - - - - -
income taxes
Net loss (40,529) (27) (962) (222) - (41,740)
Total assets 59,616 22,086 444,592 1,509 (348,878) 178,925
Total 17,931 29,915 1,926 2,247 (7,720) 44,300
liabilities
Other segment
items
Capital 14,688 74 - - - 14,762
expenditure
Corporate Office
sxr Uranium One Inc.
Block A, Empire Park
55 Empire Road, Parktown
South Africa, 2193
Telephone: +27 (11) 482-3605
Facsimile: +27 (11) 482-3604
E-mail: info@uranium1.com
Website: www.uranium1.com
Canadian Office
sxr Uranium One Inc.
390 Bay Street, Suite 1610
Toronto, Ontario M5H 2Y2
Telephone: (416) 350-3657
Facsimile: (416) 363-6806
E-mail: info@uranium1.com
Website: www.uranium1.com
Australian Office
Southern Cross Resources Australia (Pty) Ltd.
75a Magill Road, Stepney
South Australia, 5069
Telephone: (61-8) 8363-7006
Facsimile: (61-8) 8363-7009
E-mail: info@uranium1.com
Website: www.uranium1.com
Registrar and Transfer Agent
Computershare Investor Services
100 University Avenue, 8th Floor
Toronto, Ontario M5J 2Y1
Telephone: (416) 981-9500
Facsimile: (416) 981-9800
Auditors
PricewaterhouseCoopers LLP
Royal Trust Tower, TD Centre
77 King Street West
Toronto, Ontario M5K 1G8
Telephone: (416) 863 1133
Facsimile: (416) 814 3220
Legal Counsel
Fasken Martineau DuMoulin LLP
Toronto Dominion Bank Tower
Toronto-Dominion Centre
66 Wellington Street West, Suite 4200
Toronto, Ontario M5K 1N6
Telephone: (416) 366 8381
Facsimile: (416) 364 7813
Stock Exchange Listings
The Toronto Stock Exchange
Trading Symbol: SXR
The JSE Limited
Trading Symbol: SXR
Date: 29/03/2007 16:28:02 Produced by the JSE SENS Department.
