| Mon 31 Mar 2008, 15:42 | | UUU - Uranium One Announces Financial Results for 2007 |
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UUU
UUU
UUU - Uranium One Announces Financial Results for 2007
Uranium One Inc
(Incorporated in Canada)
(Registration number: 15096422420)
Share code on the JSE: UUU & ISIN: CA91701P1053
Share code on the TSX: UUU & ISIN: CA91701P1053
Uranium One Announces Financial Results for 2007
Trading Symbols: UUU - Toronto Stock Exchange, JSE Limited (Johannesburg
Exchange)
TORONTO and JOHANNESBURG, South Africa, March 31 /CNW/ - Uranium One Inc.
("Uranium One") today reported financial results for the year ending
December 31, 2007. All figures are in US dollars unless otherwise indicated.
Q4 2007 Highlights:
- Revenues of $61.0 million from the sale of 689,200 pounds U(3)O(8),
representing an average realized price of $89 per pound U(3)O(8)
- Earnings from mine operations of $46.5 million
- Attributable production from Akdala of 435,400 pounds U(3)O(8)
- Cash cost per pound sold from Akdala was approximately $11 per pound(1)
The net loss for the quarter ending December 31, 2007 was $2.2 million, or
$0.01 per share.
2007 Full-Year Highlights:
- Revenues of $134.0 million from the sale of 1,608,700 pounds U(3)O(8),
representing an average realized price of $83 per pound U(3)O(8)
- Earnings from mine operations of $101.8 million
- Attributable production from Akdala of 1,827,200 pounds U(3)O(8)
- Cash cost per pound sold from Akdala was approximately $11 per pound(1)
- Pre-commercial production from Dominion totalled 171,300 pounds U(3)O(8)
- Attributable pre-commercial production from South Inkai was 39,600
pounds U(3)O(8)
The net loss for the year ending December 31, 2007 was $17.6 million,
or $0.05 per share.
Jean Nortier, Interim CEO of Uranium One commented:
"During 2007, Akdala Uranium Mine remained a steady, low cost operation for
the Company. Also during the year, Uranium One started producing uranium
from two advanced development projects - Dominion in South Africa and South
Inkai in Kazakhstan. South Inkai is currently exceeding our production
expectations and Dominion is performing in line with our revised production
forecast. During 2008, we expect additional assets within our diversified
pipeline of projects to come online as we work towards commencing production
at the Kharasan Uranium Project in Kazakhstan and at the Hobson ISR Facility
in the United States."
Conference Call Details
Uranium One will be hosting a conference call and webcast to discuss the
2007 results today starting at 10:00 a.m. (Toronto time). Participants may
join the call by dialling toll free 1-800-595-8550 or 1-416-644-3422 for
calls from outside Canada and the United States. A live webcast of the call
will be available through CNW Group`s website at: www.newswire.ca/webcast
A recording of the conference call will be available for replay for one week
beginning at approximately 1:00 p.m. on March 31, 2008 by dialling toll free
1-877-289-8525 or 1-416-640-1917 for calls outside Canada and the United
States. The pass code for the replay is 21266689. A replay of the webcast
will be available on our website at www.uranium1.com
About Uranium One
Uranium One Inc. is a Canadian-based uranium producing company with a
primary listing on the Toronto Stock Exchange and a secondary listing on the
JSE Limited (the Johannesburg stock exchange). The Corporation owns a 70%
interest in the producing Akdala Uranium Mine and a 70% interest in the
South Inkai Uranium Project in Kazakhstan. Uranium One also owns the
Dominion Uranium Project in South Africa and a 30% interest in the Kharasan
Uranium Project in Kazakhstan. In the United States, the Corporation owns
projects in the Powder River and Great Divide Basins in Wyoming, the Hobson
ISR Uranium Processing Facility in Texas and the Shootaring Mill in Utah.
The Corporation also owns the Honeymoon Uranium Project in Australia.
Uranium One is engaged in uranium exploration activities in the United
States, the Athabasca Basin of Saskatchewan, South Africa and Australia.
(1) Uranium One has included non-GAAP performance measures: sales per pound
U(3)O(8) and cash cost per pound of U(3)O(8) sold. The Corporation reports
total cash costs on a sales basis. In the uranium mining industry, these are
common performance measures but do not have any standardized meaning, and
are non-GAAP measures. The Corporation believes that, in addition to
conventional measures prepared in accordance with GAAP, the Corporation and
certain investors use this information to evaluate the Corporation`s
performance and ability to generate cash flow. Accordingly, it is intended
to provide additional information and should not be considered in isolation
or as a substitute for measures of performance prepared in accordance with
GAAP.
Cautionary Statement
No stock exchange, securities commission or other regulatory authority has
approved or disapproved the information contained herein.
Forward-looking statements: This press release contains certain forward-
looking statements. Forward-looking statements include but are not limited
to those with respect to the price of uranium and gold, the estimation of
mineral resources and reserves, the realization of mineral reserve
estimates, the timing and amount of estimated future production, costs of
production, capital expenditures, costs and timing of the development of new
deposits, success of exploration activities, permitting time lines, currency
fluctuations, requirements for additional capital, government regulation of
mining operations, environmental risks, unanticipated reclamation expenses,
title disputes or claims and limitations on insurance coverage and the
timing and possible outcome of pending litigation. In certain cases, forward-
looking statements can be identified by the use of words such as "plans",
"expects" or "does not expect", "is expected", "budget", "scheduled",
"estimates", "forecasts", "intends", "anticipates" or "does not anticipate",
or "believes" or variations of such words and phrases, or state that certain
actions, events or results "may", "could", "would", "might" or "will" be
taken, occur or be achieved. Forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of Uranium One to be materially
different from any future results, performance or achievements expressed or
implied by the forward-looking statements. Such risks and uncertainties
include, among others, the actual results of current exploration activities,
conclusions of economic evaluations, changes in project parameters as plans
continue to be refined, possible variations in grade and ore densities or
recovery rates, failure of plant, equipment or processes to operate as
anticipated, accidents, labour disputes or other risks of the mining
industry, delays in obtaining government approvals or financing or in
completion of development or construction activities, risks relating to the
integration of acquisitions, to international operations, to prices of
uranium and gold as well as those factors referred to in the section
entitled "Risk factors" in Uranium One`s Annual Information Form for the
year ended December 31, 2007,which is available on SEDAR at www.sedar.com,
and which should be reviewed in conjunction with this document. Although
Uranium One has attempted to identify important factors that could cause
actual actions, events or results to differ materially from those described
in forward-looking statements, there may be other factors that cause
actions, events or results not to be as anticipated, estimated or intended.
There can be no assurance that forward-looking statements will prove to be
accurate, as actual results and future events could differ materially from
those anticipated in such statements. Accordingly, readers should not place
undue reliance on forward-looking statements. Uranium One expressly
disclaims any intention or obligation to update or revise any forward-
looking statements, whether as a result of new information, future events or
otherwise, except in accordance with applicable securities laws.
For further information about Uranium One, please visit www.uranium1.com
Uranium One Inc.
Management`s Discussion and Analysis
Set out below is a review of the activities, results of operations and
financial condition of Uranium One Inc. (formerly sxr Uranium One Inc.)
("Uranium One") and its subsidiaries (collectively, the "Corporation") for
the year ended December 31, 2007, together with certain trends and factors
that are expected to impact its 2008 financial year. Information herein is
presented as of March 31, 2008 and should be read in conjunction with the
audited consolidated financial statements of the Corporation for the year
ended December 31, 2007 and the notes thereto, the December 31, 2006 audited
consolidated financial statements, and the related annual Management`s
Discussion and Analysis of the Corporation`s predecessor companies, sxr
Uranium One Inc. and UrAsia Energy Ltd. ("UrAsia Energy") and the July 31,
2006 audited consolidated financial statements, and the related annual
Management`s Discussion and Analysis of UrAsia Energy, on file with the
Canadian provincial securities regulatory authorities (referred to herein as
the "consolidated financial statements"). The Corporation`s consolidated
financial statements and the financial data set out below have been prepared
in accordance with Canadian generally accepted accounting principles
("GAAP"). All amounts are in US dollars and tabular amounts are in
thousands, except where otherwise indicated. Canadian dollars are referred
to herein as C$. South African rand are referred to herein as ZAR.
Uranium One completed a business combination with UrAsia Energy on April 20,
2007. The transaction was treated as a reverse take-over under GAAP, with
UrAsia Energy identified as the acquirer and Uranium One as the acquiree.
For periods subsequent to the acquisition date, the comparative figures are
those contained in the financial statements of UrAsia Energy. During 2006,
UrAsia Energy changed its fiscal year end from July 31 to December 31.
Accordingly, the comparative figures used herein are those for the five
months ended December 31, 2006 and the year ended July 31, 2006. References
herein to "the December 2006 Period", "the July 2006 Year" and "the 2007
financial year" refer to the five months ended December 31, 2006, the year
ended July 2006 and the year ended December 31, 2007, respectively.
The common shares of Uranium One are listed on the Toronto and Johannesburg
stock exchanges ("TSX" and "JSE" respectively). Uranium One`s convertible
unsecured subordinated debentures due December 31, 2011 are also listed on
the TSX. The shares of Uranium One`s majority-owned subsidiary, Aflease Gold
Limited ("Aflease Gold"), are listed on the JSE and its convertible bonds
due December 2012 are listed on the Open Market of the Frankfurt Stock
Exchange.
Additional information about the Corporation and its business and operations
can be found in its continuous disclosure documents. These documents are
available under the Corporation`s profile at www.sedar.com.
This Management`s Discussion and Analysis includes certain forward-looking
statements. Please refer to "Forward-Looking Statements".
Key statistics
Full
Q4 2007 year 2007
Attributable production (lbs of U(3)O(8))(1) 435,400 1,827,200
Attributable sales (lbs of U(3)O(8))(1) 689,200 1,608,700
Average sales price achieved ($ per lbs
of U(3)O(8))(2) $89 $83
Average cash cost of production sold ($ per
lbs of U(3)O(8))(2) $11 $11
Revenue ($ millions) $61.0 $134.0
Earnings from mine operations ($ millions) $46.5 $101.8
Net loss ($ millions) $2.2 $17.6
Loss per share - basic and diluted ($ per share) $0.01 $0.05
(1) Attributable production and sales are from assets that are in commercial
production - currently only Akdala
(2) The Corporation has included non-GAAP performance measures: sales per
pound of U(3)O(8) and cost per pound of U(3)O(8) sold. The Corporation
reports total cash costs on a sales basis. In the uranium mining industry,
these are common performance measures but do not have any standardized
meaning, and are non-GAAP measures. The Corporation believes that, in
addition to conventional measures prepared in accordance with GAAP, the
Corporation and certain investors use this information to evaluate the
Corporation`s performance and ability to generate cash flow. Accordingly, it
is intended to provide additional information and should not be considered
in isolation or as a substitute for measures of performance prepared in
accordance with GAAP.
Highlights
Operations
- Akdala continues to produce at expected rates of throughput and grade.
100% production for the year was 2,610,300 pounds of U(3)O(8).
- National shortage of sulphuric acid supply has not affected production at
Akdala.
Projects
- At the South Inkai Project in Kazakhstan, pre-commercial production of
U(3)O(8) has commenced and the completion of the production complex is on
track for mid-year 2008. The industrial production license is expected to be
awarded in the first half of 2009.
- At South Inkai, pre-commercial production totalled 56,500 pounds of
U(3)O(8) (39,600 pounds of U(3)O(8) attributable) in 2007. Pre-commercial
production for the year 2008 to date, on a 100% basis, was approximately
26,000 pounds of U(3)O(8) in January 2008, 52,000 pounds of U(3)O(8) in
February 2008 and is currently at 3,900 - 5,200 lbs of U(3)O(8) per day.
- Acidification of the first wellfield at the Kharasan Project in
Kazakhstan commenced in March 2008. Construction work at Kharasan is
expected to be completed by the end of 2008. The industrial production
licence is expected to be awarded in the first half of 2009.
- The shortage of sulphuric acid has not constrained the ramp-up of
production levels at the South Inkai Project and the Kharasan Project.
- At the Dominion Project in South Africa, pre-commercial production of
U(3)O(8) has commenced. The pressure leach circuit of the plant was
commissioned in December 2007 and underground mine development is ongoing.
- Pre-commercial production from Dominion totalled 171,300 pounds of
U(3)O(8) in 2007. In line with the revised production plan, Dominion has
produced approximately 12,000 pounds of U(3)O(8) in January 2008 and 18,000
pounds of U(3)O(8) in February 2008.
- Refurbishment of the Hobson ISR Uranium Processing Facility in Texas, USA
is well underway and resource delineation and exploration is continuing at
the Corporation`s La Palangana Project, which will provide feed for the
Hobson Facility.
- The U.S. Nuclear Regulatory Commission has completed its acceptance
review of Uranium One`s permit application to build and operate an in situ
uranium recovery facility at the Moore Ranch Project in the Powder River
Basin, Wyoming, USA. The technical review by the U.S. Nuclear Regulatory
Commission is now underway. A feasibility study for the Moore Ranch Project
has been completed and is now being reviewed externally.
Corporate
- In line with the Corporation`s increased focus on its development
projects, Jean Nortier was appointed as Interim Chief Executive Officer and
David Hodgson was appointed as Acting Chief Operating Officer of the
Corporation in February 2008.
- On March 27, 2008, the Corporation entered into an agreement to sell a
portion of its shareholding in Aflease Gold for $40 million and granted an
option to sell its remaining shareholding for additional proceeds of
approximately $49 million.
Outlook
- The Corporation is focused on achieving commercial production from its
projects on schedule, controlling costs at its operations and remaining a
reliable supplier of U(3)O(8) to the nuclear fuel industry.
- The Corporation seeks to dispose of its non-core assets.
- The Corporation`s attributable production in 2008 is expected to be
approximately 3.1 million pounds of U(3)O(8) including 1.8 million pounds
from Akdala and 1.3 million pounds of pre-commercial production from
development projects.
- The Corporation`s attributable production (including pre-commercial
production) in 2009 is expected to be approximately 6.8 million pounds of
U(3)O(8).
- The Corporation expects to incur capital expenditures of $200 million on
fully owned development projects for 2008.
- The Corporation does not expect to be required to contribute towards
additional capital expenditure of $70 million by joint ventures in 2008 (of
which the Corporation`s pro-rata share is $32 million).
- General and administrative expenses, excluding stock based compensation,
are expected to be $45 million for 2008.
- Akdala`s average cash production cost per pound of U(3)O(8) sold is
expected to be approximately $12 in 2008.
Overview
Uranium One is a Canadian uranium corporation engaged through subsidiaries
and joint ventures in the mining and production of uranium, and in the
acquisition, exploration and development of properties for the production of
uranium, in Kazakhstan, South Africa, the United States, Australia and
Canada. The Corporation is in the process of disposing of its 67% interest
in Aflease Gold, which is engaged in the development of the Modder East Gold
Project in South Africa.
Uranium One owns a 70% interest in both the producing Akdala Uranium Mine
and the South Inkai Uranium Project and it is developing the Kharasan
Project in Kazakhstan, in which it owns a 30% interest. The Corporation also
owns the Dominion Uranium Project in South Africa. In the United States, the
Corporation owns projects in the Powder River and Great Divide Basins in
Wyoming, the Hobson ISR Uranium Processing Facility and La Palangana ISR
Project in Texas and the Shootaring Mill in Utah. The Corporation also owns
the Honeymoon Uranium Project in Australia. The Corporation owns, either
directly or through joint ventures, a large portfolio of uranium exploration
properties in South Africa, the western United States, South Australia, and
the Athabasca Basin of Saskatchewan in Canada.
The following mineral properties and operations of the Corporation referred
to in the Corporation`s 2007 annual financial statements are discussed in
more detail in the Management`s Discussion and Analysis below:
The following are the Corporation`s principal mineral properties and
operations:
Operating
mine Project Location Status Ownership
Betpak Dala Akdala Uranium Kazakhstan Producing 70% J.V. interest
LLP Mine
Advanced
development
projects Project Location Status Ownership
Betpak Dala South Inkai Kazakhstan Commission- 70% J.V.
interest
LLP Uranium Project ing(2)
Kyzylkum LLP Kharasan Kazakhstan Development 30% J.V.
interest
Uranium Project
Uranium One Dominion Uranium South Commission- 100% interest(1)
Africa Project Africa ing(2)
Limited
The Corporation is also developing the following mineral properties:
Development
projects Project Location Status Ownership
South Texas Hobson Facility USA Development 99% interest
Mining and La
Venture Palangana
Project, Texas
Energy Powder River USA Development 100% interest
Metals Basin, Wyoming
Corp (US) Projects (Incl.
Moore Ranch,
Peterson,
Ludeman,
Allemand-Ross,
and Barge)
Energy Great Divide USA Development 100% interest
Metals Basin, Wyoming
Corp (US) Projects (Incl.
JAB and
Antelope)
Uranium One Shootaring Mill, USA Development 100% interest
USA Inc. Utah
Uranium One Honeymoon Australia Development 100% interest
Australia Uranium Project
(Proprietary)
Ltd.
Aflease Modder East South Development 67% interest
Gold Gold Project Africa
Limited(3)
Note 1: Uranium One`s 100% interest is subject to a definitive purchase and
sale agreement of an undivided 26% interest in the Dominion Uranium Project
to its Black Economic Empowerment partner Micawber 397 (Proprietary) Limited
("Micawber 397"). The Micawber 397 transaction will be accounted for in the
Corporation`s financial statements when the risks and rewards of the
transaction are deemed to have passed to Micawber 397.
Note 2: The Dominion Uranium Project and the South Inkai Uranium Project are
in the commissioning stage: production has commenced but the mines have not
yet achieved a commercial production level. Commercial production is
achieved when a pre-defined operating level, based on the design of the
plant, is maintained.
Note 3: The Corporation is in the process of disposing of its investment in
Aflease Gold.
Corporate Development
Business Combination of Uranium One and UrAsia Energy Ltd.
On April 20, 2007 Uranium One completed the acquisition of all of the
outstanding common shares of UrAsia Energy. Upon the completion of the
transaction, Uranium One was held approximately 60% by former UrAsia Energy
shareholders and approximately 40% by former Uranium One shareholders.
Accordingly, the business combination has been accounted for as a reverse
takeover under GAAP with UrAsia Energy being identified as the acquirer and
Uranium One as the acquiree.
As a result of this transaction, the Corporation`s assets include Uranium
One`s Dominion Uranium Project and the Honeymoon Uranium Project and UrAsia
Energy`s assets in Kazakhstan, comprising a 70% interest in the Akdala
Uranium Mine and South Inkai Uranium Project and a 30% interest in the
Kharasan Uranium Project.
The total cost of the acquisition of $1.8 billion represents the value of
the common shares of Uranium One issued in exchange for shares of UrAsia
Energy of $1.7 billion, the fair value of options, warrants and restricted
shares outstanding at the announcement date of $62 million, the fair value
of the equity component of convertible debentures of $46 million and
acquisition costs of $19 million. Assets acquired consist primarily of
mineral interests and plant and equipment with a fair value of $2.5 billion,
which includes the related future income tax effect.
Acquisition of U.S. Energy Assets
On April 30, 2007, Uranium One completed the purchase from U.S. Energy
Corporation ("U.S. Energy") of the Shootaring Canyon Uranium Mill in Utah,
as well as a land package comprising uranium exploration properties and a
database of geological information for consideration equal to 6,607,605
Uranium One common shares valued at $99.4 million, a cash payment of
$6.5 million and transaction costs of $2.6 million.
The transaction was accounted for as an asset purchase and the cost of each
item of property, plant and equipment acquired as part of the group of
assets acquired was determined by allocating the price paid for the group of
assets to each item based on its relative fair value at the time of the
acquisition.
The purchase agreement also provided for the assignment of U.S. Energy`s
right to receive $4.1 million in cash and 1.5 million common shares of
Uranium Power Corp. ("UPC") after closing under a purchase and related joint
venture agreement between U.S. Energy and UPC relating to certain of the
purchased properties. The Corporation received these outstanding payments
during Q4 2007 and UPC therefore completed the earn-in process for the
assets under the joint venture agreement.
Acquisition of Energy Metals Corporation
On August 10, 2007 Uranium One completed the acquisition of all of the
outstanding common shares of Energy Metals Corporation ("EMC"). The
transaction resulted in the addition of a large portfolio of uranium
exploration properties located throughout the western United States,
including the Powder River and Great Divide Basin properties in Wyoming, and
the Hobson ISR Uranium Processing Facility in Texas. The Hobson Facility is
currently being refurbished.
The transaction was accounted for as an asset purchase and the cost of each
item of property, plant and equipment acquired as part of the group of
assets acquired was determined by allocating the price paid for the group of
assets to each item based on its relative fair value at the time of
acquisition.
The total cost of the acquisition of $1.1 billion represents the value of
the common shares of Uranium One issued in exchange for shares of EMC of
$1.0 billion, the fair value of options in EMC outstanding at the
acquisition date of $35.3 million and acquisition costs of $9.3 million.
Assets acquired consist primarily of mineral interests with a fair value of
$1.4 billion, which includes the related future income tax effect.
Sale of shareholding in Aflease Gold
During Q1 2008, in line with the Corporation`s strategy to dispose of its
non-core assets, the board of directors approved a plan to pursue the sale
of the Corporation`s shareholding in Aflease Gold and the Corporation
entered into negotiations regarding the sale of Aflease Gold.
Consequently the Corporation entered into an agreement on March 27, 2008,
pursuant to which it agreed to sell 152,195,122 shares in Aflease Gold, held
by the Corporation`s wholly owned subsidiary, Uranium One Africa Limited
("Uranium One Africa"), for consideration of approximately $40 million
(ZAR320 million). The transaction is expected to close during April 2008,
subject to approval by the South African Reserve Bank.
An option has been granted to the purchaser to acquire Uranium One Africa`s
remaining shareholding of 186,816,558 shares in Aflease Gold at a
consideration of approximately $49 million (ZAR393 million) on or before May
8, 2008. Once the option is exercised, the purchase and sale of the shares
in Aflease Gold will be required to comply with the provisions of the
Securities Regulation Code of the Securities Regulation Panel of South
Africa relating to a compulsory offer to the other shareholders of Aflease
Gold and, within 150 days, to obtain approval from the South African Reserve
Bank and the satisfaction of merger approval requirements of the South
African Competition Act, 89 of 1998.
It is expected that the Corporation will reflect a loss of approximately $90
million in Q1 2008 pursuant to this transaction.
Proposed sale of non-core assets
The Corporation remains focused on operating and developing its core uranium
assets and has identified several non-core assets that do not fit into its
long-term growth strategy.
In line with this focus, the Corporation intends to divest several of its
non-core assets and expects to finalize a number of transactions during
2008.
Review of Operations
Akdala Uranium Mine
Akdala is an operating acid in situ recovery ("ISR") uranium mine located in
the Suzak region of South Kazakhstan. The Betpak Dala Joint Venture Limited
Liability Partnership, a Kazakhstan registered limited liability partnership
("Betpak Dala"), owns a 100% interest in the Akdala Mine. Uranium One owns a
70% joint venture interest in Betpak Dala. The remaining 30% is owned by JSC
NAC Kazatomprom ("Kazatomprom"), a Kazakhstani state-owned company
responsible for the mining, importing and exporting of uranium in
Kazakhstan.
The production rate at the Akdala Mine is 2,600,000 pounds of triuranium
octoxide ("U(3)O(8)") (1,000 tonnes uranium ("U")) per year.
In Kazakhstan, in situ recovery involves circulating ground water fortified
with acid through the ore by means of a grid of injection and production
wells and processing the water pumped from the production wells to recover
uranium in a processing plant before returning the leach solution to the
injection wells.
Production:
Akdala produced 2,610,300 pounds of U(3)O(8) (1,004 tonnes U) of which
1,827,200 pounds of U(3)O(8) (703 tonnes U) is attributable to the
Corporation during 2007. As Akdala is operating in steady state at licenced
capacity, production expected for 2008 is in line with production achieved
in 2007.
Operations:
The following is a summary of the operational statistics (100%) for Akdala
during 2007:
Total
wells Average no
completed of Concentra
(including production Average -tion Production
Drill rigs production wells in flow rate in solution (lbs of
on site(1) wells) operation (m(3)/hour) (mg U/l) U(3)O(8))
Q1 2007 3 27 145 893 131.2 697,100
Q2 2007 6 54 129 1,034 112.5 646,000
Q3 2007 7 93 139 1,066 108.2 645,100
Q4 2007 6 90 138 1,047 98.2 622,100
(1) As at end of quarter
Flow rate, concentration and the number of operating wells are carefully
monitored and managed to produce the required amount of U(3)O(8), in
accordance with Akdala`s licence.
Financial information:
The following table shows the attributable production, sales and production
cost trends for Akdala over the prior eight quarterly periods.
(all figures are the 3 months ended
Corporation`s Dec 31 Sept 30 June 30 Mar 31
attributable share) 2007 2007 2007 2007
Production of U(3)O(8) in lbs 435,400 451,600 452,200 488,000
Sales of U(3)O(8) in lbs 689,200 70,000 244,300 605,200
Inventory U(3)O(8) in lbs 748,900 1,007,000 636,800 436,500
Sales ($000`s) 61,010 8,019 23,265 41,730
Sales $/lb of U(3)O(8) sold 89 115 95 69
Operating expenses ($000`s) 7,521 660 2,058 7,043
Operating expenses $/lb of
U(3)O(8) sold 11 9 8 12
Depletion and depreciation
($000`s) 6,972 1,067 2,024 4,859
Depletion and depreciation
$/lb of U(3)O(8) sold 10 15 8 8
2 months
(all figures are the ended 3 months ended
Corporation`s Dec 31 Oct 31 Jul 31 Apr 30
attributable share) 2006 2006 2006 2006
Production of U(3)O(8) in lbs 426,500 513,100 478,300 388,800
Sales of U(3)O(8) in lbs 880,700 99,300 70,100 380,300
Inventory U(3)O(8) in lbs 565,400 1,026,900 637,000 251,900
Sales ($000`s) 46,256 4,193 2,922 14,383
Sales $/lb of U(3)O(8) sold 53 42 42 38
Operating expenses ($000`s) 7,872 1,417 1,630 3,863
Operating expenses $/lb of
U(3)O(8) sold 9 14 23 10
Depletion and depreciation
($000`s) 7,240 1,209 3,294 976
Depletion and depreciation
$/lb of U(3)O(8) sold 8 12 47 3
>>
Uranium revenues are recorded upon delivery of product to utilities and
intermediaries and do not occur evenly throughout the year. Timing of
deliveries is usually at the contracted discretion of customers within a
quarter or similar time period. Changes in revenues, net earnings/loss and
cash flow are therefore affected primarily by fluctuations in contracted
delivery of product from quarter to quarter as well as by changes in the
price of uranium.
Operating expenses are directly related to the quantity of U(3)O(8) sold and
are lower in periods when the quantity of U(3)O(8) sold is lower. There is a
corresponding build-up of inventory in periods when the quantity of U(3)O(8)
sold is lower. During Q4 2007, revenue from sales was $61.0 million from
689,200 pounds of U(3)O(8) sold and cash production costs were $7.5 million
or approximately $11 per pound of U(3)O(8) sold. During Q4 2006, sales were
$46.3 million from 880,700 pounds of U(3)O(8) sold and cash production costs
were $7.9 million or $9 per pound of U(3)O(8) sold. The average depletion
per pound of U(3)O(8) sold in Q4 2007 was $10 per pound of U(3)O(8) sold,
compared to $8 per pound of U(3)O(8) sold in Q4 2006.
Review of Development Projects
South Inkai Uranium Project
South Inkai is an ISR uranium project located in the Suzak region of South
Kazakhstan. Betpak Dala owns a 100% interest in the South Inkai Project.
Accordingly, Uranium One owns a 70% indirect interest in the project.
The design capacity of the South Inkai Project is 5,200,000 pounds of
U(3)O(8) (2,000 tonnes U) per year. It is expected that the annualized rate
of production will reach this level in 2011.
Pre-commercial production:
Pre-commercial production from South Inkai in 2007 was 56,500 pounds of
U(3)O(8) (22 tonnes U) of which 39,600 pounds of U(3)O(8) (15 tonnes U) is
attributable to the Corporation during the year. South Inkai is not
currently permitted to produce more than 780,000 pounds of U(3)O(8) (300
tonnes U) per year under the existing pilot production licence and the
Corporation expects pre-commercial production from South Inkai to be 714,000
pounds of U(3)O(8) (275 tonnes U) of which 500,000 pounds of U(3)O(8) (192
tonnes U) would be attributable to the Corporation during 2008.
Operations:
The following is a summary of the operational statistics (100%) for South
Inkai during 2007:
Total wells Average
completed no of Concentra-
Drill (including production Average tion in Production
rigs production wells in flow rate solution (lbs of
on site(1) wells) operation (m(3)/hour) (mg U/l) U(3)O(8))
Q1 2007 5 38 - - - -
Q2 2007 5 78 - - - -
Q3 2007 6 113 - - - -
Q4 2007 6 92 30 106 122.7 56,500
(1) As at end of quarter
South Inkai has produced approximately 26,000 pounds of U3O8 in January
2008, 52,000 pounds of U3O8 in February 2008 and is currently producing at
3,900 - 5,200 lbs of U3O8 per day.
Industrial production licence:
In Kazakhstan, a sub-soil use permit granted by the Ministry of Mineral &
Energy Resources ("MEMR") is required by a company to mine a deposit. These
permits typically allow for up to a 4-year period of exploration, with two 2-
year extensions, and for 25 years of production. The license is normally
extended to the extent that additional resources are available for recovery.
There is usually a two-phase development of a deposit with a requirement to
commence production initially at a pilot production level. For uranium this
is normally a nominal amount of 300 tonnes U per year of production and
lasts 12- 18 months or longer. The objective of this phase is to operate at
this level to demonstrate that the approach being used for extraction is
achieving acceptable results, specifically in terms of recovery. Upon being
able to demonstrate acceptable performance with the reserve and subject to
the completion of sufficient drilling to convert Russian resources into
Russian reserves and the approval of these reserves by the State Committee
for Resources, a company may apply for an industrial production licence.
An industrial production licence (often also referred to as a "commercial"
production licence) is required by a company to mine any mineral in
Kazakhstan at a commercial or full production rate.
In the case of South Inkai, the subsoil use permit specifies a pilot
production level of 300 tonnes U per year, with industrial production levels
of 600 tonnes U per year. The Corporation expects that the industrial
production licence will be obtained in the first half of 2009. Betpak Dala
is applying to amend the subsoil use permit and to extend the industrial
production levels to 2,000 tonnes per year.
A delineation drilling program to convert a sufficient amount of material
from the Russian C2 category to the Russian C1 category was completed on
schedule in December 2007. A total of 413 exploration holes were drilled for
this purpose and a presentation is being prepared for submission as part of
the industrial production licence application.
The well fields required for the pilot test program to prove the
productivity of the well fields were completed successfully during 2007.
Construction:
Uranium processing facilities being constructed at South Inkai are of a
similar design to those at the Akdala Mine. Construction of the production
complex is on schedule and final completion of the production complex is
expected by the second half of 2008.
Production well drilling and piping has been completed for the first three
production blocks and production flow has commenced from the first two
blocks.
To date, total expenditure incurred by Betpak Dala relating to the
construction project at South Inkai is $36.5 million and further capital
expenditure to complete the project to design capacity is expected to be
$8 million.
Kharasan Uranium Project
Kharasan is an ISR uranium development project located in the Suzak region
of South Kazakhstan. Kyzylkum LLP ("Kyzylkum"), a Kazakhstan registered
limited liability partnership, owns a 100% interest in the Kharasan Project.
Uranium One owns a 30% joint venture interest in Kyzylkum and the remaining
interests in Kyzylkum are owned as to 30% by Kazatomprom and as to 40% by
Energy Asia (BVI) Ltd., which is owned by a consortium of Japanese utilities
and a trading company.
The design capacity of Kharasan is 5,200,000 pounds of U(3)O(8) (2,000
tonnes U) per year. It is expected that the annualized rate of production
will reach this level in 2011.
Pre commercial production:
Acidification of the first well field at Kharasan commenced in March 2008.
Kharasan has not yet obtained its industrial production licence and it
expects to produce 715,000 pounds of U3O8 (275 tonnes U) of which 220,000
pounds of U3O8 (85 tonnes U) will be attributable to the Corporation during
2008 under the existing pilot production licence.
Operations:
The following is a summary of the operational statistics (100%) for Kharasan
during 2007:
Total wells Average
completed no of Concentra-
Drill (including production Average tion in Production
rigs production wells in flow rate solution (lbs of
on site(1) wells) operation (m(3)/hour) (mg U/l) U(3)O(8))
Q1 2007 5 - - - - -
Q2 2007 6 14 - - - -
Q3 2007 7 33 - - - -
Q4 2007 10 47 - - - -
(1) As at end of quarter
Drilling operations were slowed down in December due to extreme cold
temperatures as some of the drill rigs experienced problems with freezing.
In addition to the procurement of winterization covers for the affected
rigs, there will be a focus in Q1 2008 on training personnel on operational
techniques in freezing temperatures.
Industrial production licence:
A delineation drilling program to convert a sufficient amount of material
from the Russian C2 category to the Russian C1 category is ongoing and 78
drill holes were completed in 2007.
During 2007, 19 of the required 26 production wells were completed for the
pilot test program to prove the productivity of the well fields.
The Corporation expects to receive an industrial production licence for
Kharasan in the first half of 2009.
Construction:
Access to the project site was restricted early in 2007 due to the flooding
of the Syr Darya River, and construction activities had to be accelerated in
the second half of 2007 to get the construction program back on schedule.
Good progress has been made in this regard and the estimated percentage of
completion of the process plant was 65% at the end of December 2007, with
the main circuit components installed. The main focus will now be on the
completion of the piping and the enclosure of the plant. The portions of the
plant required for pilot production will be completed during 2008.
To date, total expenditure incurred by Kyzylkum relating to the construction
project at Kharasan is $35.0 million and further capital expenditure to
complete the project to design capacity is expected to be $15 million.
Infrastructure development:
Construction of the paved road and the bridge over the Syr Darya River were
completed in October 2007. The railroad switching station and Phase 1 of the
railroad transhipment base are expected to be completed in Q2 2008.
Completion of the transhipment base for shipment of U(3)O(8) is required as
it is not permitted to ship U(3)O(8) through villages on alternate routes to
other shipping points.
Total expenditure incurred by Kyzylkum relating to infrastructure
development at Kharasan is $39.0 million and further capital expenditure to
complete the required infrastructure is expected to be $40 million.
Negotiations are well advanced with an adjacent uranium ISR development
joint venture to share in the development cost of the local infrastructure
required to support the operations (road, bridge, rail and marshalling
facilities). Once finalized, this will result in a return of capital to
Kyzylkum of approximately 40% of infrastructure amounts expended to date.
Project Finance Facility:
In addition to the $80 million loan from the Corporation, Kyzylkum
negotiated unsecured bank loan facilities totalling $100 million. One
facility in the amount of $70 million was obtained from the Japan Bank for
International Cooperation and the other facility, in the amount of
$30 million, was obtained from Citibank. Draw downs of $60 million against
the facility were received in 2007. The $80 million loan from the
Corporation (capital of $66.7 outstanding as at March 31, 2008) has to be
repaid in full before repayments can be made on these facilities. The
Corporation`s proportionate share of these facilities will amount to $30
million when fully drawn down. The loan facilities have floating interest
rates of LIBOR plus 0.25% and 0.35%, respectively.
Sulphuric acid supply constraints in Kazakhstan
Kazakhstan is experiencing a temporary shortage in the supply of sulphuric
acid. This has been caused by a number of factors including the delayed
commissioning of a sulphuric acid plant at Balkash, which will contribute to
the sulphuric acid supply when operating. The Corporation has identified a
potential source of sulphuric acid in Russia, and while it has been actively
pursuing this source the Corporation believes that it may not be necessary
to purchase this additional acid at this time, as current and expected acid
allocations are sufficient for its operations in Kazakhstan. The Betpak Dala
Joint Venture is currently receiving allotments of sulphuric acid which are
sufficient to operate the Akdala Uranium Mine at an annualized rate of
production of 1,000 tonnes U per year and the South Inkai Uranium Project at
an annualized rate of production in excess of 300 tonnes U per year. At the
Kyzylkum Joint Venture, sulphuric acid deliveries have arrived at the
Kharasan Uranium Project and acidification of the first well field commenced
in March 2008. With the expected start up of the Balkash acid plant in the
second half of 2008, the Corporation expects an increase in acid supply in
Kazakhstan.
Longer term U(3)O(8) production forecasts Akdala, South Inkai and Kharasan
assume that the temporary shortage of sulphuric acid is alleviated in the
latter half of 2008.
To address long term supply constraints, the Corporation is establishing a
joint venture with Kazatomprom and other affected parties to build a
sulphuric acid plant at Zhanakorgan, which is close to Kharasan. Progress on
the project includes the selection of a well established reliable technology
and a suitable contractor for construction of the plant. The contractor will
be supported by local Kazakhstan contractors where necessary and sulphur
will be sourced from the oil and gas fields in western Kazakhstan. The
Corporation`s ownership percentage in the joint venture is expected to be
19%. A final estimate of the total construction cost of the plant is being
prepared and construction of the plant is expected to be completed in 2011.
Dominion Uranium Project
The Dominion Uranium Project is a conventional shallow underground mining
operation, situated in the North West Province of South Africa,
approximately 150 kilometres west-southwest of Johannesburg.
The design throughput capacity of the processing plant is 200,000 tonnes of
material per month. The initial feasibility study considered a life of mine
of 11 years.
Pre-commercial production:
In 2007, pre-commercial production from the Dominion Uranium Project was
171,300 pounds of U(3)O(8). Pre-commercial production in 2008 is estimated
to be 590,000 pounds of U(3)O(8). Sales of this material, produced during
the commissioning period, will be used to partially fund the development
activities.
In line with the revised production plan, Dominion has produced
approximately 12,000 pounds of U(3)O(8) in January 2008 and 18,000 pounds of
U(3)O(8) in February 2008.
Mine Development:
Mining operations for 2007 can be summarized as follows:
Underground Underground Underground
ore
development achieved tonnes mined blasted grade(1)
(metres) (tonnes) (kg U(3)O(8)/tonne)
Q1 2007 2,187 36,200 0.261
Q2 2007 3,197 64,500 0.304
Q3 2007 3,662 84,300 0.406
Q4 2007 3,130 86,800 0.358
(1) Blasted grade includes all in-stope mining dilution and on reef
development.
Underground mine development was slower than expected in 2007. Underground
development has been adversely affected by a number of factors, including
disruption in electrical power supply and equipment breakdowns. Additional
trackless equipment has been ordered to ensure planned development is
achieved. The grade of the material treated was lower than forecast due to a
number of reasons including higher than expected leaching of near-surface
uranium resources, higher than expected mining dilution and lower than
expected grade for the surface tailings materials currently being processed
through the plant.
At the Rietkuil section where mining has occurred at depths well below the
weathered zone, close-spaced sampling conducted during mining operations
have allowed for a quantitative reconciliation between in-situ grades
currently being mined and grades from the resource estimation based on
historic underground sampling data and exploration drilling. The forecast in-
situ grades based on the exploration models approximate those being mined.
At the Dominion section an increase in the anticipated leached zone from 20
metres below surface to approximately 40 metres below surface resulted in
grades within this zone being lower than anticipated. Although insufficient
sampling below the leached area has been completed to undertake quantitative
reconciliations to the existing resource models, increased sample grades
below the leached zone have been intersected with the latest mine
development where the majority of the 2008 forecast production is scheduled.
During February 2008 the in-situ grade of the areas mined was approximately
500g/t U(3)O(8). Stoping dilution and on reef development resulted in a
delivered grade to the plant of approximately 330 g/t U(3)O(8). Higher grade
areas planned to be mined towards the end of the year, an increased ratio of
stoping to on-reef development and a program to minimize dilution are
anticipated to result in improved delivered grades to the plant by the end
of the year.
Electro-hydraulic drill rigs were implemented to facilitate quicker capital
development.
Since November 2007, Dominion has been subject to electrical load shedding
arising from the current South African electrical power crisis. Diesel
generators have been ordered to ensure back-up power for underground
operations is available during periods of load shedding. Installation of the
generators are expected to commence in Q2 2008.
As a consequence of the business combination between Uranium One and UrAsia,
the Dominion Uranium Project is carried at fair value as at April 20, 2007,
plus development costs since the transaction date. The mine development cost
from April 20, 2007 up to December 31, 2007, amounted to $20.6 million.
Metallurgical Plant:
The plant is operating in line with recovery expectations, but below
throughput design capacity. Current throughput is approximately 27,000
tonnes per month from underground and 63,000 tonnes per month from surface
tailings material. Total plant recoveries are approximately 64% at present.
Based on current head grades and residues the estimated U(3)O(8) recovery of
underground material is 76% and recovery of surface tailing material is 54%.
Overall plant recoveries are expected to increase with time as the lower
grade surface material is displaced by higher grade and quantities of
underground ore. Once the surface tailings material has been entirely
replaced with underground ore, recoveries are expected to increase in line
with feasibility study test work.
The commissioning of the pressure leach circuit at the plant was completed
in December 2007 and production of ammonium diuranate commenced in May 2007.
Currently U(3)O(8) is being produced on a continuous basis. Underground ore
and surface tailings material are currently being processed through one
autoclave, and the other autoclave is on standby. An additional 40 tonne per
hour boiler is scheduled to be commissioned in Q3 2008, to allow both
autoclaves to be operated together at design capacity and also to facilitate
expansion.
The plant development cost from April 20, 2007 up to the completion of the
plant in Q4 2007, amounted to $55.4 million.
Hobson and La Palangana
The Hobson Facility is an ISR uranium processing facility located about one
mile south of the town of Hobson in Karnes County, Texas.
In the United States, in situ recovery involves circulating ground water
fortified with carbonate and oxygen through the ore by means of a grid of
injection and production wells and processing the water pumped from the
production wells to recover uranium in a processing plant before returning
the leach solution to the injection wells.
The mill is currently being refurbished to a capacity of approximately
1,000,000 pounds of U(3)O(8) per year. Pre-commercial production from Hobson
and La Palangana in 2008 is estimated to be 35,000 pounds of U(3)O(8).
The refurbishment and construction activity at the Hobson Facility remains
on schedule for completion in Q2 2008. The schedule for initial production
of U(3)O(8) is directly tied to the licencing and development of the La
Palangana Uranium Project, and is expected to take place by the end of 2008.
The La Palangana Uranium Project is an ISR uranium deposit located in close
proximity to the Hobson Facility. Uranium bearing resins from the La
Palangana satellite ion exchange plant will be shipped to the Hobson
Facility for further processing into U(3)O(8). The Corporation is continuing
with a drilling program that commenced prior to acquisition of the property,
to develop an area of the deposit to commence production and to conduct
exploration drilling on other areas of the property.
The Corporation has applied for all permits necessary to conduct ISR
operations at the La Palangana site from the Texas Commission on
Environmental Quality ("TCEQ"). All applications are progressing through the
regulatory process.
A public meeting on the La Palangana Area Permit was held in January 2008
and was well received. The draft Area Permit to approve mining operations at
La Palangana is expected to be issued in Q2 2008. Final approvals of the
RML, Area Permit, and disposal well permit are anticipated to be received in
Q3 2008. Hobson is already permitted for commercial operations. The
Corporation submitted an application to renew the licence for another 10
year period in December 2006. That application was submitted on time and
operations can therefore continue while licence renewal is underway. A new
air permit for Hobson was approved early in 2008.
Powder River Basin, Wyoming
The Powder River Basin in Wyoming hosts several of the Corporation`s uranium
projects. The most advanced project in the Powder River Basin is the Moore
Ranch Project. Moore Ranch has a NI 43-101 compliant measured resource
suitable for in situ recovery. On October 3, the Corporation submitted an
application to the U.S. Nuclear Regulatory Commission ("NRC") for a licence
to construct and operate an in situ uranium recovery facility at Moore
Ranch, the first application of its kind received by the NRC since 1988. The
application contains plans for uranium extraction ramping up to a rate of a
nominal 1,000,000 pounds of U(3)O(8) per year from the Moore Ranch well
fields beginning in 2010, with construction of a central processing plant
with capacity of 2,000,000 pounds of U(3)O(8) per year eventually expandable
to 4,000,000 pounds of U(3)O(8) per year. If installed, the excess plant
capacity would be used to process uranium bearing resins from other
properties owned by the Corporation in the Powder River and/or Great Divide
Basins. Construction of the full central plant may not immediately be
necessary due to a toll-processing agreement with a subsidiary of Cameco
Corporation, executed on August 21, 2007.
The NRC has completed its acceptance review of Uranium One`s licence
application to build and operate an in situ uranium recovery facility at the
Moore Ranch Project. The NRC`s technical review of the application is
currently in progress and the Corporation expects to receive the permit
during 2009. A feasibility study for the Moore Ranch Project has recently
been completed and is now being reviewed externally.
Other Powder River Basin properties where delineation drilling and
environmental data collection for permitting purposes is ongoing include the
Ludeman, Allemand-Ross and Peterson projects.
Great Divide Basin, Wyoming
The Corporation`s principal properties in the Great Divide Basin in Wyoming
are the JAB and Antelope projects. JAB has a NI 43-101 compliant measured
and indicated resource suitable for in situ recovery.
An extensive delineation drilling program comprising 261 holes was concluded
at JAB during 2007 and the Corporation anticipates submitting an application
to the NRC for a licence to construct and operate an in situ uranium
recovery facility for JAB in Q2 2008. Environmental baseline data collection
and additional hydrologic testing of the aquifer were completed in Q1 2008
at JAB and the data collected will be analyzed in Q2 2008.
Environmental baseline data was also collected from the Antelope property
during 2007 for the preparation of an application to the NRC for a licence
to construct and operate an in situ uranium recovery facility. Hydrologic
testing at Antelope is scheduled for the middle of 2008. Submission of the
application to the NRC for Antelope is scheduled for Q2 2008. Further
delineation drilling will occur at Antelope during 2008.
Shootaring Mill and Associated Uranium Properties
On April 30, 2007, Uranium One completed the purchase of the Shootaring Mill
in Utah, an acid leach facility with 750 tons per day throughput capacity.
In addition to the mill, a land package comprising approximately 38,000
acres of uranium exploration properties in Utah, Wyoming, Arizona and
Colorado and a database of geological information were acquired.
A mill assessment by an independent firm was completed in Q4 2007, however
refurbishment cannot begin until the application to change the licence to
operational status has been accepted.
Exploration on properties acquired in the EMC transaction is focused on
proving code compliant resources through upgrading these assets in drilling
and associated exploration programs designed for these properties. A
feasibility study has been initiated on the Shootaring Mill including the
feasibility of mining two of the most suitable underground uranium assets
with conventional mining techniques.
Honeymoon Uranium Project
The Honeymoon ISR Uranium Project is located in the north-eastern section of
the State of South Australia, approximately 75 kilometres northwest of
Broken Hill.
The Honeymoon Project has a design capacity of 880,000 pounds of U(3)O(8)
per year, with an expected mine life of six years. The Corporation does not
expect any production from Honeymoon during 2008.
The redesign of the Honeymoon Project and the new plant layout, including a
reversion to mixer settler technology, was finalized in Q4 2007.
The Corporation received full approval for its mining operations at
Honeymoon in January 2008. The South Australian Government approved the
Corporation`s mining and rehabilitation program and the Environmental
Protection Agency has given its approval to the mine`s radioactive waste
management plan and radiation management plan.
The revised cost estimate for the construction of Honeymoon is
$76.0 million, of which $19.6 million has been spent up to December 31,
2007. Production is expected to commence in 2009.
Exploration Projects
The Corporation is exploring its other properties and has current
exploration programs in progress on its properties in South Africa, the
western United States, Canada and Australia.
Selected Financial Information
The Corporation`s consolidated financial statements and the financial data
set out below have been prepared in accordance with GAAP. Uranium One and
its operating subsidiaries use the United States dollar, the South African
rand, the Australian dollar and the Canadian dollar as measurement
currencies.
(US dollars in thousands except per share amounts)
5 Months Year
Year ended ended ended
December 31 December 31, July 31
2007 2006 2006
$ $ $
Revenue 134,024 50,449 23,507
Net (loss) / earnings (17,609) 19,684 (48,939)
Cash flows from / (to) operating
activities 22,069 (11,375) (1,437)
(Loss) / earnings per share (0.05) 0.09 (0.27)
Adjusted net earnings / (loss)(1) 1,118 (5,052) (6,337)
Product inventory carrying value 15,220 10,826 10,760
Total assets 5,612,898 971,618 951,025
Long term financial liabilities 1,838,401 341,964 368,490
Average realized uranium price per
lb of U(3)O(8) 83 51 29
Average U(3)O(8) spot price per lb 99 60 38
lbs of lbs of lbs of
U(3)O(8) U(3)O(8) U(3)O(8)
Attributable sales volume 1,608,700 980,000 811,700
Attributable production volume 1,827,200 939,600 1,192,800
Attributable inventory 748,900 565,400 637,000
(1) Adjusted net earnings / loss is a non-GAAP measure used to provide
investors with additional information about the Corporation`s
performance. Accordingly, it should be considered as supplemental
in
nature and should not be considered in isolation or as a substitute
for measured performance prepared in accordance with GAAP. Refer
below for a reconciliation of adjusted net earnings to reported net
earnings.
Non-GAAP measures
Adjusted net earnings / loss
The Corporation has included a non-GAAP performance measure, adjusted net
earnings, throughout this document. The Corporation believes that, in
addition to conventional measures prepared in accordance with GAAP, certain
investors use this information to evaluate the Corporation`s performance and
ability to generate cash flow. Accordingly, it is intended to provide
additional information and should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with GAAP. The
following table provides a reconciliation of adjusted net earnings to the
financial statements:
(US dollars in thousands)
5 Months
Year ended ended Year ended
December 31, December 31, July 31,
2007 2006 2006
$ $ $
Net (loss) / earnings (17,609) 19,684 (48,939)
Unrealized foreign exchange
loss / (gain) on future income
tax liabilities 18,727 (24,736) 42,602
Adjusted net earnings / (loss) 1,118 (5,052) (6,337)
Sales per pound of U(3)O(8) and cost per pound of U(3)O(8) sold
The Corporation has included non-GAAP performance measures throughout this
document: sales per pound of U(3)O(8) and cost per pound of U(3)O(8) sold.
The Corporation reports total cash costs on a sales basis. In the uranium
mining industry, these are common performance measures but do not have any
standardized meaning, and are non-GAAP measures. The Corporation believes
that, in addition to conventional measures prepared in accordance with GAAP,
the Corporation and certain investors use this information to evaluate the
Corporation`s performance and ability to generate cash flow. Accordingly, it
is intended to provide additional information and should not be considered
in isolation or as a substitute for measures of performance prepared in
accordance with GAAP. As in previous periods, sales per pound of U(3)O(8)
and cost per pound of U(3)O(8) sold is calculated by dividing the Revenues
and Operating expenses per the Statement of Operations in the Consolidated
Financial Statements by the pounds of U(3)O(8) sold in the period.
Results of Operations and Discussion of Financial Position
Summary of Quarterly Results
Dec 31 Sept 30 June 30 Mar 31
2007 2007 2007 2007
$(000`s) $(000`s) $(000`s) $(000`s)
Revenue from uranium
sales 61,010 8,019 23,265 41,730
Net (loss) / income
for period (2,239) (17,257) (13,694) 7,971
Basic and diluted (loss) /
earnings per share(1) (0.01) (0.04) (0.04) 0.04
Total assets 5,612,898 5,710,605 4,247,176 999,950
Dec 31 Oct 31 Jul 31 Apr 30
2006(2) 2006 2006 2006
$(000`s) $(000`s) $(000`s) $(000`s)
Revenue from
uranium sales 46,256 4,193 2,922 14,383
Net (loss) / income
for period (6,228) 25,912 (32,165) (12,068)
Basic and diluted (loss) /
earnings per share(1) (0.03) 0.12 (0.15) (0.06)
Total assets 971,618 949,530 951,025 810,086
Notes:
1. The basic and diluted earnings / loss per share is computed separately
for each quarter presented and therefore may not sum to the year ended
December 31, 2007 or the 5 months ended December 31, 2006.
2. The December 31, 2006 quarter consists of a 2 month period.
Results of Operations
Uranium sales, inventory and operating costs
Sales attributable to the Corporation during 2007 amounted to approximately
1.6 million pounds of U(3)O(8). The Corporation`s attributed share of
revenue from those sales amounted to $134.0 million. Earnings from mining
operations were $101.8 million after the deduction of operating expenses of
$17.3 million and depreciation and depletion charges of $14.9 million.
During 2007 attributable inventory increased by 183,500 pounds of U(3)O(8)
as more U(3)O(8) was produced than sold during the year.
Attributable sales in the December 2006 Period amounted to approximately 1.0
million pounds of U(3)O(8). The related revenue from those sales amounted to
$50.4 million. Earnings from mining operations were $32.7 million after the
deduction of operating expenses of $9.3 million and depletion costs of
$8.4 million. Attributable sales in the July 2006 Year amounted to
approximately 0.8 million pounds of U(3)O(8). The related revenue from those
sales amounted to $23.5 million. Earnings from mining operations were
$8.9 million after the deduction of operating expenses of $9.5 million and
depletion costs of $5.1 million.
The average unit price received for sales in 2007 was $83 per pound of
U(3)O(8). The average price obtained in the December 2006 Period was $51 per
pound of U(3)O(8) and $29 per pound of U(3)O(8) in the July 2006 Year. The
spot price of uranium at December 31, 2007 was $90 per pound of U(3)O(8),
compared to a spot price of $72 per pound of U(3)O(8) at December 31, 2006
and $47 per pound of U(3)O(8) at July 31, 2006.
General and administration costs
General and administrative costs for 2007 are not comparable to previous
periods, due to the significant changes in the Corporation in the current
financial year, most notably, the transaction between Uranium One and UrAsia
Energy in Q2 2007 and the acquisition of EMC during Q3 2007. The expenses
for the December 2006 Period and the July 2006 Year therefore represent the
expenses for UrAsia Energy only, while the expense in 2007 relates to the
combined operations of Uranium One, UrAsia Energy and EMC.
General and administration expenses, including stock-based compensation
expenses of $37.7 million, amounted to $74.3 million for 2007, compared to
$24.8 million for the December 2006 Period and $14.9 million for the July
2006 Year, including stock-based compensation of $22.2 million and $9.4
million, respectively. Higher administrative costs largely relate to the
substantial increase in size of operations resulting from acquisition
activities and growth. Change of control payments were also made to certain
former officers of the companies acquired. In addition to the growth in the
combined administration activity internationally, integration activities
required considerably greater travel and accommodation than normal, and
salaries and wages increased as a result of an increase in the number of
employees. The expense for 2007 includes salaries of $14.7 million, travel
expenses of $3.1 million, consulting fees of $2.3 million and legal fees of
$2.0 million.
Stock-based compensation expenses are calculated using the Black Scholes
option pricing model. The price at which the options were issued, as well as
the remaining term of the options, affects the fair value of the options and
therefore the expense incurred. In both the Uranium One / UrAsia Energy
transaction and the EMC transaction, the market price of Uranium One`s
shares on date of acquisition was, in most instances, higher than the
exercise price of the unvested options acquired. This, combined with the
volatility of Uranium One`s share price around the time of the transactions,
attributed materially to high fair values attributed to these options. As
most of these options were issued some time before the dates of the
acquisitions, their vesting periods from the date of the transactions are
also relatively short. The stock based compensation expense is recorded
using a graded vesting schedule and the expense is therefore heavily
weighted towards the earlier part of the vesting period. The combined effect
of these factors was that the stock-based compensation expense incurred
during 2007 was abnormally high.
Exploration
Exploration expenditure in 2007 of $19.2 million related to exploration
programs being undertaken on the Corporation`s licence areas in the United
States, South Africa, Canada, Australia and the Kyrgyz Republic. Exploration
expenditures for the December 2006 Period of $2.9 million and the July 2006
Year of $2.6 million, which are included in the Corporate and other segment
of the consolidated financial statements, related to properties in the
Kyrgyz Republic only.
Interest income and expense
Interest income amounted to $13.0 million for 2007, compared to $3.7 million
for the December 2006 Period and $4.4 million for the July 2006 Year. In
addition to the interest earned on loans to joint ventures, interest is
earned on funds held on deposit by the Corporation. Additional interest
income is attributable to an increase in cash and short term investments
acquired in the business combination between Uranium One and UrAsia and the
acquisition of EMC.
The interest expense for 2007 includes interest accrued on the convertible
debentures, the interest expense on the short term loans from Nedcor
Securities and interest on other long term debt. There was no interest
expense incurred for the December 2006 Period and the July 2006 Year.
Dilution gain
Dilution gains or losses occur when the percentage of equity held in Aflease
Gold by Uranium One Africa decrease. Such decreases occur when shares in
Aflease Gold are issued to shareholders other than Uranium One Africa. From
April 20, 2007, when the Corporation`s interest on Aflease Gold was 67.61%,
issuances of shares to outside shareholders resulted in a dilution gain of
$5.3 million. As a result of the acquisition of EMC during Q3 2007, the
Corporation acquired an additional 2.38% interest in Aflease Gold, as EMC
held 12.5 million shares of Aflease Gold. The Corporation`s interest in
Aflease Gold was 67.07% at December 31, 2007. As the interest in Aflease
Gold was acquired during the 2007 year, there were no dilution gains in
previous periods.
Foreign exchange gain / loss
The net foreign exchange loss during 2007 amounted to $13.0 million and
consisted of a $18.7 million loss consisting primarily of an unrealized
exchange loss arising from translation of the future income tax liability in
respect of the Corporation`s investment in Kazakhstan which increased as
result of a strengthening of the Kazakhstan tenge against the US dollar
during the year and an unrealized loss of $7.5 million on other items,
offset by a realized gain of $13.2 million. For the December 2006 Period, a
foreign exchange gain of $23.5 million was recorded and for the July 2006
Year, the loss was $41.1 million.
Income taxes
Current income tax expense for 2007 was $41.3 million and represents taxes
paid and payable in Kazakhstan on profits from the Corporation`s Akdala
Uranium Mine. For the December 2006 Period a $16.0 million tax expense was
recorded for the Akdala Uranium Mine and $5.3 million was recorded for the
July 2006 Year.
The future income tax recovery during 2007 of $17.6 million arises from a
reduction in the future income tax liability related to the acquisition of
assets through the purchase of participating interests in the joint ventures
in Kazakhstan, as well as an increase in future income tax assets due to
temporary differences and tax loss carry forwards. In the December 2006
Period, a recovery of future income taxes of $4.0 million was recorded,
being a reduction in future income tax liability, compared to $1.9 million
for the July 2006 Year.
Non-controlling interest
Non-controlling interest relates to Uranium One Africa`s 67% ownership of
its subsidiary company, Aflease Gold.
Net loss for the period
The net loss for 2007 amounted to $17.6 million or $0.05 per share, compared
to net income of $19.7 million or $0.09 per share (basic and diluted) for
the December 2006 Period and a net loss of $48.9 million or $0.27 per share
for the July 2006 Year.
Financial Condition
On December 31, 2007, the Corporation had cash and cash equivalents of
$252.2 million, compared to $61.8 million at December 31, 2006. The increase
in 2007 is mainly due to the addition of $291.1 million from Uranium One, in
in cash and cash equivalents when the assets of Uranium One and UrAsia
Energy were combined, an increase in $86.0 million in cash and cash
equivalents included in the assets acquired from EMC and the proceeds from a
convertible bond offering by Aflease Gold of $87.4 million. Major outflows
during the year include the capital expenditure on the Corporation`s
development properties of $279.4 million and the repayment of the Nedcor
Securities short term loans in the amount of $53.1 million. Cash and cash
equivalents do not include any asset backed commercial paper.
Inventories increased by $8.9 million over the $12.0 million held at
December 31, 2006, due to the build-up of uranium concentrates and solutions
and concentrates in process, as well as an increase in material and
supplies. As at December 31, 2007 the Corporation had attributable inventory
of 0.7 million pounds of U(3)O(8) of which approximately 0.5 million pounds
is saleable product. All of the saleable product on hand as at December 31,
2007, is committed for delivery under existing sales contracts subsequent to
year end. Shipping times for finished product can be up to four months,
depending on the distance between the mine site and conversion facility,
where sales are concluded through transfer of legal title and ownership.
A summary of attributable inventory carried at year end are as follows:
Thousands of
Category Location pounds of U(3)O(8)
In process Mine site 28.0
In process External processing facilities 150.2
In transit In transit 67.0
Finished product ready
to be shipped External processing facilities 350.5
Finished product at
conversion facility Conversion facilities 153.2
Total inventory 748.9
>>
Loans receivable from Betpak Dala of $62.6 million plus interest of
$0.9 million were repaid during the 2007 financial year. Short term loans
advanced to Betpak Dala of $17.0 million were repaid in full by February 9,
2008.
The Corporation advanced $32 million to Kyzylkum during the period for
development of the Kharasan Uranium Project, completing its commitment to
provide $80 million of project financing. Scheduled repayments on this loan,
of $6.7 million plus interest were received from Kyzylkum during the 2007
financial year. Further repayments of $6.7 million were received for the
period up to March 31, 2008 resulting in an outstanding loan of $66.7
million.
Mineral interests, plant and equipment increased, when compared to the
balance sheet at December 31, 2006, due to the UrAsia/Uranium One business
combination and the addition of $2.5 billion in Uranium One mineral
interests, plant and equipment to UrAsia Energy`s assets. The acquisition of
EMC in Q3 2007 resulted in a further increase in mineral interests of $1.4
billion. Other increases of $104.3 million from the acquisition of the
Shootaring Mill and exploration properties from U.S. Energy and additions to
plant and equipment of $279.4 million occurred during the year.
The increase in current liabilities from December 31, 2006 can be attributed
to an increase in accounts payable and accrued liabilities resulting from
increased costs due to growth and to the costs of the business combination
and an increase in taxes payable in Kazakhstan due to the profits from the
Akdala Uranium Mine.
Long term liabilities increased by $1.5 billion from December 31, 2006. Of
this amount, $136.5 million results from the business combination and the
recording of convertible debentures that were issued by Uranium One in
December 2006. Asset retirement obligations increased by $12.2 million. The
amount outstanding on the convertible bond issued by Aflease Gold during
2007 amounted to $90.6 million. The Corporation`s proportionate share of the
Kyzylkum third party loan facility arranged during 2007 was $18.2 million.
Future income tax liabilities increased by $1.2 billion as a result of
assets acquired in business combinations during the year. These future
income tax liabilities are not accruals for actual taxes payable but arise
due to a temporary taxable difference resulting from the increase in the
carrying value of an asset to fair value without a corresponding adjustment
to the tax basis of the asset. These future income tax credits will be
credited to the Statement of Operations as a recovery against current income
taxes in the periods that the associated asset is depleted.
Shareholders` equity increased by $3.1 billion from December 31, 2006. The
largest component of the increase was share capital which increased by $2.9
billion from December 31, 2006. The increase consists inter alia of
$1.7 billion from shares issued for the acquisition of all of the shares of
UrAsia Energy; $1.0 billion from shares issued for the acquisition of all of
the shares of EMC; $99.4 million from shares issued for the acquisition of
the U.S. Energy assets; and $57.0 million for the exercise of options,
warrants and restricted shares.
Other contributions to the increases in shareholders` equity were the
increase in contributed surplus of $103.1 million. Increases in contributed
surplus were a result of stock-based compensation of which $62.0 million
related to the fair value of options, restricted shares and warrants
acquired in the business combination with UrAsia Energy; $35.3 million
related to the fair value of options acquired in the business combination
with EMC; stock-based compensation expense of $37.7 million recorded for the
period and a reduction of $31.9 million for warrants, options and restricted
shares exercised. Other increases in shareholder`s equity are comprised of
the equity component of the convertible debentures acquired from Uranium One
of $46.5 million and $52.0 million in accumulated other comprehensive income
mainly from foreign currency translation of foreign operations.
Shareholders` equity was reduced by the net loss of $17.6 million ($0.05 per
share) for the 2007 financial year.
Liquidity and Capital Resources
At December 31, 2007 the Corporation had working capital of $316.5 million.
Included in this amount are cash and cash equivalents of $252.2 million,
which includes the proportionate share of the Corporation`s cash and cash
equivalents at its joint venture operations in Kazakhstan and cash held by
Aflease Gold. The interest earned on these cash balances will be applied to
existing commitments in respect of the Corporation`s development projects
and other current commitments. The cash held by Aflease Gold will be applied
to the business of Aflease Gold.
As described elsewhere in this document, the Corporation has entered into an
agreement to sell a portion of its stake in Aflease Gold for approximately
$40 million, with an option to sell the balance of its shareholding for
approximately $49 million. The proceeds from the sale will be used to fund
capital expenditure on the Corporation`s development projects.
The Corporation anticipates that it has sufficient liquidity and capital
resources to meet the Corporation`s approved development plans and corporate
costs for at least the next twelve months. Please refer to "Commitments and
Contingencies".
The Corporation earns revenue from the sale of uranium from the operating
Akdala Uranium Mine in Kazakhstan. Additional sales revenue will be earned
from uranium sales when the South Inkai and Kharasan Uranium Projects in
Kazakhstan, the Dominion Uranium Project in South Africa, the Hobson ISR
facility and the Honeymoon Uranium Project in Australia reach commercial
production.
Uranium is sold under forward long-term delivery contracts. All such
contracted deliveries are planned to be filled from the Corporation`s mining
operations. The ability to deliver contracted product is therefore dependent
upon the continued operation of the mining operations as planned.
The Corporation has entered into market related sales contracts with price
mechanisms that reference the spot price in effect near the time of
delivery. In addition, the Corporation has negotiated floor price protection
in most of its sales contracts.
Committed sales under contracts total 2.55 million pounds U(3)O(8)
(attributable) in 2008. This is comprised of 600,000 pounds from Dominion
and 1,950,000 pounds (attributable) from Betpak Dala.
Should Uranium One be required to provide funds to support the development
of any of the Corporation`s projects, prospective sources of additional
funding include debt financing, the sale of non-core assets, the proceeds
from the exercise of stock options and warrants and equity financing.
Uranium One`s ability to raise capital is highly dependent on the commercial
viability of its projects and the underlying prices of uranium.
Other risk factors, for instance, the Corporation`s ability to develop its
projects into commercially viable mines, international uranium industry
competition, public acceptance of nuclear power and governmental regulation,
can also adversely affect Uranium One`s ability to raise additional funding.
There is no assurance that additional sources of funding, if required, will
be forthcoming. Please refer to "Risks and Uncertainties".
Contractual Obligations
Payments due by period
Less
Contractual than 1 to 3 4 to 5 After
obligations ($`000) Total 1 year years years 5 years
Lease obligations
- Short term 350 350 - - -
- Long term 6,650 2,141 2,004 1,026 1,479
Total 7,000 2,491 2,004 1,026 1,479
Long term debt 18,431 431 4,200 13,800 -
Capital commitments 118,436 118,436 - - -
Asset retirement
obligation 14,676 - - - 14,676
Total contractual
obligations 158,543 121,358 6,204 14,826 16,155
Commitments and Contingencies
Acquisition of the Shootaring Mill
Further payments due under the purchase agreement for the Shootaring Mill
and related uranium exploration properties are:
- $27.5 million depending on the achievement of certain production targets;
and
- the payment of a royalty to U.S. Energy of 5% of the gross proceeds from
the sale of commodities produced at the Mill, to a maximum amount of $12.5
million.
Acquisition of interest in Betpak Dala
A bonus payment is payable in cash based on uranium reserves discovered on
the South Inkai property in excess of 66,000 tonnes. The payment is based on
the Corporation`s share of pounds of U(3)O(8) in excess of 66,000 tonnes
times the average spot price of U(3)O(8) times 6.25%. This payment is
initially to be calculated at the end of 2011 and each year thereafter, and
paid 60 days after the end of the year in which a payment is due. As
security for the bonus payments, the Corporation pledged its participatory
interest in Betpak Dala (including the shares of a subsidiary) and its share
of uranium products produced by Betpak Dala.
Acquisition of interest in Kyzylkum
A bonus payment is due upon commencement of commercial production. The
seller elected, under the terms of the arrangement, to receive 6,964,200
shares of Uranium One upon commencement of commercial production. An
additional bonus payment of 30% of 12.5% (being an effective 3.75%) of the
weighted average spot price of U(3)O(8) will be paid on incremental reserves
in excess of 55,000 tonnes of U(3)O(8) discovered during each fiscal year
end, with payments beginning within 60 days of the end of the 2008 calendar
year.
Acquisition of EMC
The Corporation has assumed all of the obligations of EMC and its
subsidiaries arising under certain option and joint venture agreements with
third parties. Uranium One has reserved a total of 1,925,100 common shares
of Uranium One for issuance pursuant to the assumed obligations under the
Contingent Share Rights Agreements.
Off-balance Sheet Arrangements
The Corporation has no off-balance sheet arrangements.
Outstanding Share Data
As of March 31, 2008, there were issued and outstanding 467,641,548 common
shares and common share purchase warrants for 150,000 Series D warrants
exercisable at C$6.95 per warrant and 2,431,619 warrants exercisable to
acquire common shares at C$3.55 per common share. Each warrant is
exercisable for one common share of Uranium One. In addition (as discussed
under "Commitments and Contingencies"), a warrant was issued in connection
with the acquisition of the Corporation`s interest in Kyzylkum entitling the
holder to acquire 6,964,200 shares in Uranium One for no additional
consideration upon commencement of commercial production from the Kharasan
Uranium Project.
As of March 31, 2008, there were 20,293,052 stock options outstanding under
Uranium One`s stock option plan at exercise prices ranging from C$1.09 to
C$16.87 and 295,532 restricted shares outstanding.
Uranium One has 155,250 convertible debentures outstanding, each convertible
to 50 common shares of Uranium One, representing 7,762,500 common shares.
Dividends
There have been no dividend payments on the common shares of Uranium One.
Holders of common shares are entitled to receive dividends if, as and when
declared by the Board of Directors. There are no restrictions on Uranium
One`s ability to pay dividends except as set out under its governing
statute.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent liabilities at the date of the financial
statements, and reported amounts of revenues and expenditures during the
reporting period. Note 2 to the Corporation`s consolidated financial
statements for the year ended December 31, 2007 describes all of the
Corporation`s significant accounting policies.
New / Changes in Accounting Policies
The Corporation`s accounting policies have been consistently followed except
that the Corporation has adopted the following CICA standards effective
January 1, 2007, none of which had a material impact on the Corporation`s
consolidated financial statements:
(a) Sections 3855 - Financial Instruments - Recognition and Measurement
Section 3855 requires that all financial assets except those classified as
held to maturity, and derivative financial instruments, must be measured at
fair value. All financial liabilities must be measured at fair value when
they are classified as held for trading; otherwise, they are measured at
cost. Investments classified as available for sale are reported at fair
market value (or mark to market) based on quoted market prices with
unrealized gains or losses excluded from earnings and reported as other
comprehensive income or loss. Investments subject to significant influence
are reported at cost and are not adjusted to fair market value.
(b) Section 3861 - Financial Instruments - Disclosure and Presentation
Section 3861 establishes standards for the presentation of financial
instruments and non-financial derivatives, and identifies the information
that should be disclosed about them. The purpose of the section is to
enhance financial statement users` understanding of the significance of
financial instruments to an entity`s financial position, performance and
cash flows.
(c) Section 3865 - Hedges
This standard is applicable when a company chooses to designate a hedging
relationship for accounting purposes. It builds on the existing AcG-13
"Hedging Relationships" and Section 1650 "Foreign Currency Translation", by
specifying how hedge accounting is applied and what disclosures are
necessary when certain financial derivative instruments do not meet the
requirements for hedge accounting. The Corporation did not have any
accounting hedges upon adoption and as at December 31, 2007.
(d) Section 1530 - Comprehensive Income
Comprehensive income is the change in the Corporation`s assets that result
from transactions, events and circumstances from sources other than the
Corporation`s shareholders and includes items that would not normally be
included in net earnings such as unrealized gains or losses on available-for-
sale investments. Other comprehensive income includes the holding gains and
losses such as changes in currency adjustment relating to self-sustaining
foreign operations; and the effective portion of gains or losses on
derivatives designated as cash flow hedges or hedges or the net investment
in self-sustaining foreign operations.
The Corporation has added two new statements to the consolidated financial
statements entitled "Consolidated Statements of Changes in Equity" and
"Consolidated Statements of Comprehensive Income".
The Corporation reclassified currency translation adjustments on its net
investment in self-sustaining foreign operations to other comprehensive
income.
(e) Section 3251 - Equity
This new standard was adopted in combination with the adoption of the
financial instrument standards in 2007. It establishes standards for the
presentation of equity and changes in equity during the reporting period.
(f) Section 1506 - Accounting Changes
Section 1506: Accounting Changes, effective for fiscal years beginning on or
after January 1, 2007 establishes standards and new disclosure requirements
for the reporting of changes in accounting policies and estimates and the
reporting of error corrections. CICA 1506 clarifies that a change in
accounting policy can be made only if it is a requirement under GAAP or if
it provides reliable and more relevant financial statement information.
Voluntary changes in accounting policies require retrospective application
of prior period financial statements, unless the retrospective effects of
the changes are impracticable to determine, in which case the retrospective
application may be limited to the assets and liabilities of the earliest
period practicable, with a corresponding adjustment made to opening retained
earnings.
Effective January 1, 2008, the Corporation will adopt the following CICA
standards, none of which is expected to have a material impact on the
Corporation`s consolidated financial statements:
(a) Section 3031 - Inventories
The new Section 3031 on inventories replaces Section 3030 and converges with
the International Accounting Standard Board`s recently amended standard IAS
2, Inventories. The standard introduces significant changes to the
measurement and disclosure of inventory. Changes apply to interim and annual
financial statements relating to fiscal years beginning on or after January
1, 2008. The main differences between the new section and Section 3030
include measurement of inventories at the lower of cost and net realizable
value, with guidance on the determination of cost, including allocation of
overhead expenses and other costs to inventory. The new section also
requires consistent use of either first in, first out (FIFO) or weighted
average cost formula to measure the cost of other inventories and the
reversal of previous write downs to net realizable when there is a
subsequent increase in the value of inventories. Inventory policies,
carrying amounts, amounts recognized as an expense, write downs and the
reversals of write downs are required to be disclosed.
(b) Section 3862 - Financial Instruments - Disclosures and Section 3863 -
Financial Instruments - Presentation
These sections apply to interim and annual financial statements relating to
fiscal years beginning on or after October 1, 2007. Section 3862 establishes
standards for disclosures about financial instruments and non-financial
derivatives. The main features of this Section are requirements for an
entity to disclose the significance of financial instruments for its
financial position and performance, revised from those of Section 3861. The
requirements for disclosures about fair value are revised, but not
substantially different, from those of Section 3861. The revised
requirements for the disclosure of qualitative and quantitative information
about exposure to risks arising from financial instruments are more
extensive than those of Section 3861. The qualitative disclosures describe
management`s objectives, policies and processes for managing such risks. The
quantitative disclosures provide information about the extent to which the
entity is exposed to credit risk, liquidity risk and market risk (i.e.,
currency risk, interest rate risk, and other price risk). Section 3863
carries forward, unchanged from Section 3861, standards for presentation of
financial instruments and non-financial derivatives.
(c) Section 1535 - Capital Disclosures
The new requirements are effective for interim and annual financial
statements relating to fiscal years beginning on or after October 1, 2007.
This section will require the Corporation to disclose qualitative
information about its objectives, policies and processes for managing
capital and quantitative data about what the Corporation regards as capital.
It will also be a requirement to disclose whether the Corporation has
complied with any externally imposed capital requirements and, if not, the
consequences of such non-compliance.
Risks and uncertainties
The Corporation`s operations and results are subject to various risks and
uncertainties. These include, but are not limited to, the following:
exploration and mining involves operational risks and hazards; mineral
resources and mineral reserves are estimates only; there is no certainty
that further exploration will result in new economically viable mining
operations or yield new reserves to replace and expand current reserves;
Uranium One cannot give any assurance that the South Inkai Uranium Project,
Kharasan Uranium Project, Dominion Uranium Project and Honeymoon Uranium
Project will become operating mines; or when the Shootaring Mill, the Hobson
Uranium ISR Processing Facility or the La Palangana Uranium Project will
become fully operational; mineral rights and tenures may not be granted or
renewed on satisfactory terms and may be revoked, altered or challenged by
third parties; limited supply of desirable mineral lands for acquisition;
risks and problems associated with integrating acquisitions; competition in
marketing uranium and gold; in the case of uranium, competition from other
sources of energy and public acceptance of nuclear energy; volatility and
sensitivity to uranium and gold prices; the capital requirements to complete
the Corporation`s current projects and expand its operations are
substantial; currency fluctuations; the Corporation`s operations and
activities are subject to environmental risks; government regulation may
adversely affect the Corporation; the risks of obtaining and maintaining
necessary licences and permits; risks associated with foreign operations
including, in relation to Kazakhstan, the risk that the sulphuric acid
shortage continues for an extended period of time and in relation to South
Africa, economic, social and political issues such as employment creation,
black economic empowerment and land redistribution, crime, corruption,
poverty and HIV/AIDS; the Corporation is dependent on key personnel; and
potential conflicts of interest.
In November 2007, the parliament of Kazakhstan enacted legislation, giving
the government the right in certain circumstances to re-negotiate previously
concluded subsoil use contracts. Together with its joint venture partner,
Kazatomprom, the Corporation has been reviewing the potential impact and
application of this legislation. Based on these discussions, the Corporation
understands that the legislation is not directed at the uranium mining
industry in Kazakhstan.
Uranium One`s risk factors are discussed in detail in its Annual Information
Form for the year ended December 31, 2007, which is available on SEDAR at
www.sedar.com, and should be reviewed in conjunction with this document.
Stock Option and Restricted Share Plans
A significant contributing factor to Uranium One`s future success is its
ability to attract and retain qualified and competent personnel. To
accomplish this, Uranium One adopted a stock option plan and a restricted
share plan to advance its interests by encouraging directors, officers and
employees to have equity participation in Uranium One.
Under the stock option plan, options granted are non-assignable and may be
granted for a term not exceeding ten years. The aggregate maximum number of
common shares available for issuance under the stock option plan may not
exceed 7.2% of the common shares outstanding from time to time on a non-
diluted basis and the aggregate maximum number of common shares available
for issuance to non-employee directors under the plan may not exceed 1.0% of
the total number of common shares outstanding on a non-diluted basis.
Under the restricted share plan, restricted share rights exercisable for
common shares of Uranium One at the end of a restricted period, for no
additional consideration, are granted by the Board of Directors in its
discretion to eligible directors, officers and employees. The aggregate
maximum number of common shares available for issuance under the restricted
share plan is capped at three million. The number of shares available for
issuance to non-employee directors may not exceed 0.5% of the total number
of common shares outstanding on a non-diluted basis.
During 2007 stock options and restricted share rights activity was as
follows:
- Pursuant to the business combination agreement with UrAsia Energy options
that were outstanding in UrAsia Energy at April 20, 2007 were exchanged for
an equal number of options in Uranium One multiplied by 0.45; at an exercise
price equal to the exercise price of the options of UrAsia Energy divided by
0.45; accordingly 9,763,498 options of Uranium One were granted to UrAsia
Energy option holders at prices ranging from C$1.25 to C$15.63 per share,
with expiry dates ranging from April 20, 2008 to March 30, 2017.
- Pursuant to the business combination agreement with Uranium One, options
that were outstanding in EMC at August 10, 2007 were exchanged for an equal
number of options in Uranium One multiplied by 1.15, at an exercise price
equal to the exercise price of the options of EMC divided by 1.15.
Accordingly, on closing of the EMC acquisition 8,362,546 options of Uranium
One were granted to EMC option holders at prices ranging from C$1.15 to
C$13.57 per share, with expiry dates ranging from November 30, 2009 to July
1, 2012.
- During 2007 1,867,817 options were granted to directors and employees at
a prices ranging from C$8.51 to C$15.59 per share, with expiry dates ranging
from April 26, 2012 to December 24, 2012.
- 4,228,640 options were exercised during 2007 and 351,187 were forfeit.
- 20,000 restricted shares were granted during 2007 at a deemed price of
$14.10 per share;
- 125,977 restricted shares were exercised.
Disclosure Controls and Procedures
Disclosure controls and procedures are designed to provide reasonable
assurance that all relevant information is gathered and reported on a timely
basis to senior management, including Uranium One`s President and Interim
Chief Executive Officer and Chief Financial Officer, so that appropriate
decisions can be made regarding public disclosure. As at the end of the
period covered by this management`s discussion and analysis, management
evaluated the effectiveness of the Corporation`s disclosure controls and
procedures as required by Canadian securities laws.
Based on that evaluation, the President and Interim Chief Executive Officer
and Chief Financial Officer have concluded that, as of the end of the period
covered by this management`s discussion and analysis, the disclosure
controls and procedures were effective to provide reasonable assurance that
information required to be disclosed in Uranium One`s annual filings and
interim filings (as such terms are defined under Multilateral Instrument 52-
109 - Certification of Disclosure in Issuers` Annual and Interim Filings)
and other reports filed or submitted under Canadian securities laws is
recorded, processed, summarized and reported within the time periods
specified by those laws, and that material information is accumulated and
communicated to management including the President and Interim Chief
Executive Officer and Chief Financial Officer as appropriate to allow timely
decisions regarding required disclosure.
Internal Controls and Procedures
The Corporation evaluated the design of its internal controls and procedures
over financial reporting as defined under Multilateral Instrument 52-109 for
the year ended December 31, 2007. Based on this evaluation, the President
and Interim Chief Executive Officer and Chief Financial Officer have
concluded that the design of these internal controls and procedures over
financial reporting was effective.
There have been no material changes in the Corporation`s internal control
over financial reporting during the Corporation`s year ended December 31,
2007 that have materially affected, or are reasonably likely to materially
affect, the Corporation`s internal control over financial reporting.
Outlook
During 2008, the Corporation is focused on achieving commercial production
from its projects on schedule, controlling costs at its operations,
remaining a reliable supplier of U(3)O(8) to the nuclear fuel industry and
maintaining production of U(3)O(8) from Akdala. Accordingly, the
Corporation`s attributable production estimate is 3.1 million pounds of
U(3)O(8) (including 1.8 million pounds of U(3)O(8) from Akdala and 1.3
million pounds of pre-commercial production from development projects) and
6.8 million pounds of U(3)O(8) (including pre-commercial production) for
2008 and 2009 respectively.
The Corporation will continuously be considering opportunities to unlock
value from its non-core assets.
The cash cost per pound of U(3)O(8) sold from Akdala is expected to be
approximately $12 per pound of U(3)O(8) sold in 2008.
The Corporation expects to incur capital expenditure of $200 million on
fully owned development projects for 2008 and does not expect to be required
to contribute towards additional capital expenditure of $70 million by joint
ventures in 2008 (of which the Corporation`s pro-rata share is $32 million).
General and administrative expenses, excluding stock based compensation, are
expected to be $45 million for 2008.
Forward-Looking Statements
This Management`s Discussion and Analysis of Financial Condition and Results
of Operations contains certain forward-looking statements. Forward-looking
statements include but are not limited to those with respect to the price of
uranium and gold, the estimation of mineral resources and reserves, the
realization of mineral reserve estimates, the timing and amount of estimated
future production, the timing of uranium processing facilities being fully
operational, costs of production, capital expenditures, costs and timing of
the development of new deposits, success of exploration activities,
permitting time lines, currency fluctuations, requirements for additional
capital, government regulation of mining operations, environmental risks,
unanticipated reclamation expenses, title disputes or claims and limitations
on insurance coverage and the timing and possible outcome of pending
litigation. In certain cases, forward-looking statements can be identified
by the use of words such as "plans", "expects" or "does not expect", "is
expected", "budget", "scheduled", "estimates", "forecasts", "intends",
"anticipates" or "does not anticipate", or "believes" or variations of such
words and phrases, or state that certain actions, events or results "may",
"could", "would", "might" or "will" be taken, occur or be achieved. Forward-
looking statements involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements of
the Corporation to be materially different from any future results,
performance or achievements expressed or implied by the forward-looking
statements. Such risks and uncertainties include, among others, the actual
results of current exploration activities, conclusions of economic
evaluations, changes in project parameters as plans continue to be refined,
possible variations in grade and ore densities or recovery rates, failure of
plant, equipment or processes to operate as anticipated, possible continued
shortages of sulphuric acid in Kazakhstan, accidents, labour disputes or
other risks of the mining industry, delays in obtaining government approvals
or financing or in completion of development or construction activities,
risks relating to the integration of acquisitions, to international
operations, to prices of uranium and gold as well as those factors referred
to in the section entitled "Risk factors" in Uranium One`s Annual
Information Form for the year ended December 31, 2007 which is available on
SEDAR at www.sedar.com, and which should be reviewed in conjunction with
this document. Although Uranium One has attempted to identify important
factors that could cause actual actions, events or results to differ
materially from those described in forward-looking statements, there may be
other factors that cause actions, events or results not to be as
anticipated, estimated or intended. There can be no assurance that forward-
looking statements will prove to be accurate, as actual results and future
events could differ materially from those anticipated in such statements.
Accordingly, readers should not place undue reliance on forward-looking
statements. Uranium One expressly disclaims any intention or obligation to
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise, except in accordance with
applicable securities laws.
Readers are advised to refer to independent technical reports for detailed
information on the Corporation`s material properties. Those technical
reports, which are available at www.sedar.com under Uranium One`s profile,
and also under UrAsia Energy`s profile, provide the date of each resource or
reserve estimate, details of the key assumptions, methods and parameters
used in the estimates, details of quality and grade or quality of each
resource or reserve and a general discussion of the extent to which the
estimate may be materially affected by any known environmental, permitting,
legal, taxation, socio-political, marketing, or other relevant issues. The
technical reports also provide information with respect to data verification
in the estimation.
This document and the Corporation`s other publicly filed documents use the
terms "measured", "indicated" and "inferred" resources as defined in
accordance with National Instrument 43-101 - Standards of Disclosure for
Mineral Projects. United States investors are advised that while these terms
are recognized and required by Canadian regulations, the SEC does not
recognize them. Investors are cautioned not to assume that all or any part
of the mineral deposits in these categories will ever be converted into
reserves. In addition, "inferred resources" have a great amount of
uncertainty as to their existence and economic and legal feasibility and it
cannot be assumed that all or any part of an inferred mineral resource will
ever be upgraded to a higher category. Investors are cautioned not to assume
that all or any part of an inferred resource exists or is economically or
legally mineable. Mineral resources are not mineral reserves and do not have
demonstrated economic viability.
Historical estimates referred to herein and in the Corporation`s other
publicly filed documents, as Russian C1 and C2 resources are derived from
Kazatomprom documents, an entity of the Government of Kazakhstan. Although
Russian C1 and C2 Resources do not meet Canadian Institute of Mining,
Metallurgy and Petroleum (CIM) standards on Mineral Resource and Reserve
definitions, they are considered relevant because of previous pilot plant
production, but should not be relied upon. The CIM resource definition which
most closely resembles C1 resources is that of Inferred Resources. However,
there is less confidence attributed to a C1 resource since a C1 resource is
estimated on the basis of a lower drill density than an inferred resource.
Scientific and technical information contained herein has been reviewed on
behalf of the Corporation by Mr. M.H.G. Heyns, Pr.Sci.Nat. (SACNASP),
MSAIMM, MGSSA, Senior Vice President Technical Services of the Corporation,
a qualified persons for the purposes of NI 43-101. Neither the Corporation
nor Mr. Heyns have not done sufficient work to classify the historical
estimates as current mineral resources or mineral reserves. The Corporation
does not intend to treat such historical estimates of mineral resources and
mineral reserves as a current estimate and the historical estimates should
not be relied upon.
Annual Consolidated Financial Statements
for the year ended December 31, 2007
Uranium One Inc.
Consolidated Balance Sheets
as at December 31, 2007 and 2006 and July 31, 2006
(in United States dollars)
Dec 31, Dec 31, Jul 31,
2007 2006 2006
Notes $`000 $`000 $`000
ASSETS
Current assets
Cash and cash equivalents 5 252,219 61,838 128,328
Restricted cash - 500 2,500
Accounts and other receivables 6 72,635 49,186 11,350
Current portion of loans to joint
ventures 7.2 32,867 13,488 4,440
Inventories 8 20,994 12,044 11,940
Other assets 18,056 - -
396,771 137,056 158,558
Non-current assets
Mineral interests, plant and
equipment 9 5,112,907 768,887 762,547
Loans to joint ventures 7.2 24,359 39,850 21,000
Available for sale securities 10 21,257 - -
Other assets 11 57,604 25,825 8,920
5,216,127 834,562 792,467
Total assets 5,612,898 971,618 951,025
LIABILITIES
Current liabilities
Accounts payable and accrued
liabilities 12 75,882 12,947 6,095
Income taxes payable 4,402 1,018 3,080
80,284 13,965 9,175
Non-current liabilities
Convertible debentures 13 136,548 - -
Aflease Gold convertible bonds 14 90,551 - -
Asset retirement obligations 15 15,011 2,856 1,953
Future income tax liabilities 16 1,576,262 337,642 365,491
Long term debt 7.1 18,205 - -
Other long term payables 1,824 1,466 1,046
1,838,401 341,964 368,490
Non-controlling interest 11,308 - -
SHAREHOLDERS` EQUITY
Share capital 17 3,496,884 613,607 612,941
Contributed surplus 18 134,387 31,286 9,307
Equity component of convertible
debentures 3.1 46,480 - -
Deficit (46,813) (29,204) (48,888)
Accumulated other comprehensive
income 51,967 - -
3,682,905 615,689 573,360
Total shareholders` equity and
liabilities 5,612,898 971,618 951,025
Basis of presentation and principles of consolidation (note 2.1)
Commitments and contingencies (note 4 & 22)
Subsequent event (note 25)
The accompanying notes form an integral part of these Annual
Consolidated
Financial Statements.
Approved on behalf of the board of directors
Ian Telfer Andrew Adams
Chariman of the board Chairman of the audit committee
Uranium One Inc.
Consolidated Statements of Operations
For the year ended December 31, 2007, 5 months ended December 31, 2006
and year ended July 31, 2006
(in United States dollars)
Year 5 months Year
ended ended ended
Dec 31, Dec 31, Jul 31,
2007 2006 2006
Notes $`000 $`000 $`000
Revenues 134,024 50,449 23,507
Operating expenses (17,282) (9,289) (9,548)
Depreciation and depletion (14,922) (8,449) (5,107)
Earnings from mine operations 101,820 32,711 8,852
General and administrative(1) (74,272) (24,799) (14,863)
Exploration expense (19,178) (2,914) (2,648)
Other 1,129 (552) (169)
Operating earnings/(loss) 9,499 4,446 (8,828)
Interest and other income 13,031 3,742 4,408
Interest expense (12,536) - -
Dilution gain on investment in
Aflease Gold 5,339 - -
Foreign exchange (loss)/gain 19 (13,022) 23,507 (41,120)
Earnings/(loss) before income taxes
and non-controlling interest 2,311 31,695 (45,540)
Current income tax expense 16 (41,346) (15,984) (5,304)
Future income tax recovery 16 17,621 3,973 1,905
(Loss)/earnings before non-
controlling interest (21,414) 19,684 (48,939)
Non-controlling interest 3,805 - -
Net (loss)/earnings (17,609) 19,684 (48,939)
(1) - Stock option and restricted
share expense (non-cash) included
in general and administrative 18 37,660 22,162 9,370
(Loss)/earnings per share
Basic (0.05) 0.09 (0.27)
Diluted (0.05) 0.09 (0.27)
Weighted average number of shares
(in thousands)
Basic 21 360,656 215,999 182,808
Diluted 21 360,656 217,975 182,808
The accompanying notes form an integral part of these Annual
Consolidated
Financial Statements.
Uranium One Inc.
Consolidated Statements of Changes in Equity
For the year ended December 31, 2007, 5 months ended December 31, 2006
and year ended July 31, 2006
(in United States dollars)
Equity Accumulated
component of other
Contributed convertible comprehensive
Share capital surplus debenture income
Balance as at
August 1, 2005 4,094 - - -
Net loss for the
period - - - -
Share options issued
and vested - 9,370 - -
Acquisition of
Signature 271 153 - -
Acquisition of
Kyzylkum 37,500 - - -
Exercise of warrants 673 - - -
Exercise of stock
options and
restricted shares 579 (216) - -
Shares issued for
private placements 569,824 - - -
Balance as at
July 31, 2006 612,941 9,307 - -
Net earnings for
the period - - - -
Share options issued
and vested - 22,162 - -
Exercise of warrants 48 - - -
Exercise of stock
options and
restricted shares 618 (183) - -
Balance as at
December 31, 2006 613,607 31,286 - -
Net loss for the
period - - - -
Share options and
restricted shares
vested - 37,660 - -
Exercise of warrants 2,115 (1,035) - -
Exercise of stock
options and
restricted shares 54,912 (30,873) - -
Uranium One Inc/
UrAsia Energy Ltd
business
combination 1,709,647 62,042 46,480 -
U.S. Energy Corp
asset purchase
consideration 99,401 - - -
Energy Metals
Corporation asset
purchase 1,013,215 35,307 - -
Unrealized gains
recognized on
translation of
self-sustaining
foreign operations - - - 51,779
Shares issued for
services rendered 3,987 - - -
Gain on available
for sale securities,
net of tax benefit
(note 10) - - - 188
Balance as at
December 31, 2007 3,496,884 134,387 46,480 51,967
Deficit Total
Balance as at
August 1, 2005 51 4,145
Net loss for the
period (48,939) (48,939)
Share options issued
and vested - 9,370
Acquisition of Signature - 424
Acquisition of
Kyzylkum - 37,500
Exercise of warrants - 673
Exercise of stock
options and
restricted shares - 363
Shares issued for
private placements - 569,824
Balance as at
July 31, 2006 (48,888) 573,360
Net earnings for
the period 19,684 19,684
Share options issued
and vested - 22,162
Exercise of warrants - 48
Exercise of stock
options and
restricted shares - 435
Balance as at
December 31, 2006 (29,204) 615,689
Net loss for the
period (17,609) (17,609)
Share options and
restricted shares
issued and vested - 37,660
Exercise of warrants - 1,080
Exercise of stock
options and
restricted shares - 24,039
Uranium One Inc/
UrAsia Energy Ltd
business
combination - 1,818,169
U.S. Energy Corp
asset purchase
consideration - 99,401
Energy Metals
Corporation asset
purchase - 1,048,522
Unrealized gains
recognized on
translation of
self-sustaining
foreign operations - 51,779
Shares issued for
services rendered - 3,987
Gain on available
for sale securities,
net of tax benefit
(note 10) - 188
Balance as at
December 31, 2007 (46,813) 3,682,905
Consolidated Statement of Comprehensive Income
For the year ended December 31, 2007
(in United States dollars)
2007
Note $`000
Net loss (17,609)
Unrealized gains recognized on translation of
self-sustaining foreign operations 51,779
Gain on available for sale securities, net of
tax benefit 10 188
Comprehensive income 34,358
The accompanying notes form an integral part of these Annual
Consolidated
Financial Statements.
Uranium One Inc.
Consolidated Statements of Cash Flows
For the year ended December 31, 2007, 5 months ended December 31, 2006
and year ended July 31, 2006
Year 5 months Year
ended ended ended
Dec 31, Dec 31, Jul 31,
2007 2006 2006
Notes $`000 $`000 $`000
Net (loss)/earnings (17,609) 19,684 (48,939)
Items not affecting cash:
- Depreciation and depletion 14,922 8,449 5,107
- Accretion of asset retirement
obligation 15 1,000 - -
- Stock option expense 18 37,660 22,162 9,370
- Interest accrued on loans and
debentures 4,585 - -
- Unrealized foreign exchange
(gain)/loss 26,196 (22,622) 42,662
- Fair value adjustment on
Aflease Gold convertible
bonds 14 3,106 - -
- Future income tax recovery (17,621) (3,973) (1,905)
- Non-controlling interest (1,179) - -
- Other 935 - 120
Movement in non-cash working
capital 20 (29,926) (35,075) (7,852)
Cash flows from/(to) operating
activities 22,069 (11,375) (1,437)
Acquisition of Uranium One Inc.,
net of acquisition costs 3.1 271,670 - -
Acquisition of Energy Metals
Corporation, net of acquisition
costs 4.2 76,706 - -
Acquisition of interest in
Betpak Dala - - (356,224)
Acquisition of interest in Kyzylkum - - (38,925)
Acquisition of Signature - - 465
Acquisition of mineral interests,
plant and equipment (279,370) (13,509) (12,319)
Advance cash payment for other
assets (2,606) (16,054) (8,675)
Joint venture earn in payments
received 1,600 - -
Restricted cash 500 2,000 (2,500)
Cash advances to joint ventures 7 (27,500) (27,150) (25,440)
Cash proceeds from joint ventures 7 23,447 - -
Cash flows from from/(to) investing
activities 64,447 (54,713) (443,618)
Common shares issued, net of issue
costs 25,119 483 570,859
Convertible bond issued by subsidiary 87,445 - -
Shares issued by subsidiary to non-
controlling shareholders 2,061 - -
Loans received by Kyzylkum, net of
acquisition costs 7.1 17,769 7 -
Short term loan repaid 20 53,131) - -
Other - - (106)
Cash flows from financing activities 79,263 490 570,753
Effects of exchange rate changes on
cash and cash equivalents 24,602 (885) -
Net increase/(decrease) in cash and
cash equivalents 190,381 (66,483) 125,698
Cash and cash equivalents at the
beginning of the period 61,838 128,328 2,630
Cash and cash equivalents at the end
of the period 5 252,219 61,845 128,328
Supplemental cash flow information (note 20)
The accompanying notes form an integral part of these Annual Consolidated
Financial Statements.
Uranium One Inc.
Notes to the Consolidated Financial Statements as at December 31, 2007 and
2006 and July 31, 2006
1 Nature of operations
Uranium One Inc. ("Uranium One" or "the Corporation") is a Canadian uranium
corporation engaged through subsidiaries and joint ventures in the mining
and production of uranium, and in the acquisition, exploration and
development of properties for the production of uranium, in Kazakhstan,
South Africa, the United States, Australia and Canada. Uranium One also owns
a 67% interest in Aflease Gold Limited ("Aflease Gold"), which is engaged in
the development of the Modder East Gold Project in South Africa.
Uranium One owns a 70% interest in both the producing Akdala Uranium Mine
and the South Inkai Uranium Project and it is developing the Kharasan
Project in Kazakhstan, in which it owns a 30% interest. The Corporation also
owns the Dominion Uranium Project in South Africa. In the United States,
the Corporation owns projects in the Powder River and Great Divide Basins in
Wyoming, the Hobson ISR Uranium Processing Facility and La Palangana ISR
Project in Texas and the Shootaring Mill in Utah. The Corporation also owns
the Honeymoon Uranium Project in Australia. The Corporation owns a large
portfolio of uranium exploration properties in South Africa, the western
United States, South Australia, and the Athabasca Basin of Saskatchewan in
Canada.
2 Significant accounting policies
2.1 Basis of presentation and principles of consolidation
The consolidated financial statements of Uranium One and its subsidiaries
(collectively, the "Corporation") have been prepared by Uranium One in
accordance with Canadian generally accepted accounting principles ("Canadian
GAAP").
The consolidated financial statements include the accounts of the
Corporation and all of its subsidiaries and the proportionate share of its
interests in joint ventures. All intercompany balances and transactions have
been eliminated.
Uranium One acquired all of the issued and outstanding shares of UrAsia
Energy Limited ("UrAsia Energy") on April 20, 2007 (note 3.1). UrAsia Energy
shareholders received 0.45 Uranium One common shares for each UrAsia Energy
common share. For accounting purposes, the transaction is treated as a
reverse takeover whereby UrAsia Energy is considered the acquiring company
as the shareholders of UrAsia Energy acquired a majority shareholding in
Uranium One. The comparative consolidated balance sheet as at December 31,
2006 and July 31, 2006 and the consolidated statements of operations,
changes in equity and cash flows for the period ended December 31, 2006 and
year ended July 31, 2006 are those of UrAsia Energy. The results of
operations of Uranium One have been included from April 20, 2007.
The following are the Corporation`s principal mineral properties and
operations as at December 31, 2007.
Operating mine:
Mineral property/
Entity Operation Location Ownership Status
Betpak Dala LLP Akdala Uranium Kazakhstan 70% Proportionately
Mine(1) consolidated
Advanced development projects:
Mineral property/
Entity Operation Location Ownership Status
Betpak Dala LLP South Inkai Kazakhstan 70% Proportionately
Uranium consolidated
Project(1)
Kyzylkum LLP Kharasan Uranium Kazakhstan 30% Proportionately
Project(1) consolidated
Uranium One Dominion Uranium South Africa 100% Consolidated
Africa Limited Project(2)(5)
The Corporation is also developing the following mineral properties:
Mineral property/
Entity Operation Location Ownership Status
Energy Metals US development United States
Corp US projects
South Texas Hobson Facility United States 99% Consolidated
Mining Venture and La Palangana
Project(6)
Uranium One Shootaring United States 100% Consolidated
USA Inc Canyon
Uranium Mill(4)
Uranium One Honeymoon Australia 100% Consolidated
Australia Uranium
(Proprietary) Project(2)
Limited
Pitchstone Pitchstone Joint Canada 50%
Proportionately
Joint Venture Venture(2) consolidated
Aflease Gold Modder East Gold South Africa 67% Consolidated
Limited Project(3)
(1) - Legacy UrAsia Energy assets
(2) - Legacy Uranium One assets
(3) - Legacy Uranium One assets. The Modder East Gold Project is owned by
Aflease Gold, a subsidiary of Uranium One (note 25)
(4) - Purchased from U.S. Energy Corp (note 4.1)
(5) - Refer to note 24 for the contingent sale of an interest in the
Dominion Uranium Project
(6) - Legacy Energy Metals Corporation assets (note 4.2)
2.2 Change in accounting policies
On January 1, 2007, the Corporation adopted the following accounting
standards:
Section 1530 - Comprehensive Income
Section 3251 - Equity
Section 3855 - Financial Instruments - Recognition and measurement
Section 3861 - Financial Instruments - Disclosure and presentation
Section 3865 - Hedges
These standards address the classification, recognition and measurement of
financial instruments in the financial statements, the inclusion of other
comprehesive income ("OCI"), and establish the standards for hedge
accounting. In addition, these standards provide guidance for reporting
items in other comprehensive income, which is included on the Consolidated
Balance Sheets as accumulated other comprehensive income or loss, a separate
component of Shareholders` Equity.
The Corporation did not record any adjustments as a result of adopting these
new standards, other than reclassifying currency translation adjustments on
its net investment in self-sustaining foreign operations to other
comprehensive income.
2.3 Measurement and reporting currency
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").
The Corporation`s reporting currency is the United States dollar. Uranium
One, its subsidiaries and joint ventures operate in Kazakhstan, South
Africa, Australia, the United States, Canada, and the Kyrgyz Republic.
The financial statements of the entities that are determined to be
integrated foreign operations have been translated into United States
dollars by translating foreign currency denominated monetary assets and
liabilities, which includes future income tax, at rates of exchange in
effect at the balance sheet date. Non-monetary items are translated at
historical exchange rates and revenues and expenses at average rates of
exchange during the period. Exchange gains and losses arising on translation
are included in the consolidated statements of operations.
The financial statements of the entities that are determined to be self-
sustaining foreign operations have been translated into United States
dollars by translating all assets and liabilities, which includes future
income tax, at rates of exchange in effect at the balance sheet date.
Revenues and expenses are translated at average exchange rates for the
period. All resulting exchange differences are included in accumulated other
comprehensive income on the balance sheet.
2.4 Inventories
Inventories of solutions and uranium concentrates are valued at the lower of
average production cost or net realizable value. Production costs include
the cost of raw materials, direct labour, mine-site related overhead
expenses and depreciation and depletion of mining interests.
The related direct production costs associated with in-process gold are
deferred and charged to costs as the contained gold is recovered. In-process
metals are identified and measured from the ore stockpiles up to and
including the on-site refining plant.
Materials and supplies are valued on the weighted average basis and recorded
at the lower of average cost or replacement cost.
2.5 Mineral interests, plant and equipment
Mineral interests, plant and equipment are recorded at cost less accumulated
depreciation and depletion.
Mineral interests represent capitalized expenditures related to the
development of mineral properties and related plant and equipment.
Capitalized costs and plant and equipment are depreciated and depleted using
either a unit-of-production method, over the estimated economic life of the
mine to which they relate, or using the straight-line method over their
estimated useful lives.
The costs associated with mineral interests are separately allocated to
reserves, resources and exploration potential, and include acquired
interests in production, development and exploration stage properties
representing the fair value at the time they were acquired. The value
allocated to reserves is depreciated on a unit-of-production method over the
estimated recoverable proven and probable reserves at the mine. The reserve
value is noted as depletable mineral properties for operations in commercial
production in note 9. The resource value represents the property interests
that are believed to potentially contain economic mineralized material such
as inferred material; measured, indicated, and inferred resources with
insufficient drill spacing to qualify as proven and probable reserves; and
inferred resources in close proximity to proven and probable reserves.
Resource value and exploration potential value is noted as non-depletable
mineral properties for operations in commercial production in note 9. At
least annually or when otherwise appropriate, value from the non-depletable
category will be transferred to the depletable category as a result of an
analysis of the conversion of resources or exploration potential into
reserves. Costs related to property acquisitions are capitalized until the
viability of the mineral property is determined. Resource value and
exploration potential for development projects not in commercial production
is noted as non-depletable mineral properties. When it is determined that a
property is not economically viable the capitalized costs are impaired.
Exploration expenditures on properties not advanced enough to identify their
development potential are charged to operations as incurred.
Mining expenditures incurred either to develop new ore bodies or to develop
mine areas in advance of current production are capitalized. Commercial
production is deemed to have commenced when management determines that the
completion of operational commissioning of major mine and plant components
is completed, operating results are being achieved consistently for a period
of time and that there are indicators that these operating results will be
continued. Mine development costs incurred to sustain current production are
included in production costs.
Upon sale or abandonment of any mineral interest, plant and equipment, the
cost and related accumulated depreciation or accumulated depletion, are
written off and any gains or losses thereon are included in the statement of
operations.
2.6 Impairment of long-lived assets
The Corporation reviews the carrying values of its property, plant and
equipment when changes in circumstances indicate that those carrying values
may not be recoverable. Estimated future net cash flows are calculated using
estimated recoverable reserves, estimated future commodity prices and the
expected future operating and capital costs. An impairment loss is
recognized when the carrying value of an asset held for use exceeds the sum
of undiscounted future net cash flows. An impairment loss is measured as the
amount by which the asset`s carrying amount exceeds its fair value.
2.7 Asset retirement obligations
The Corporation recognizes liabilities for statutory, contractual or legal
obligations associated with the retirement of mineral property, plant and
equipment, when those obligations result from the acquisition, construction,
development or normal operation of the assets. Initially, the net present
value of the liability for an asset retirement obligation is recognized in
the period incurred. The net present value of the liability is added to the
carrying amount of the associated asset and amortized over the asset`s
useful life. The liability is accreted over time through periodic charges to
earnings and is reduced by actual costs of reclamation. 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.
2.8 Revenue recognition
Revenue from uranium sales is recognized, net of value added tax, when: (i)
persuasive evidence of an arrangement exists; (ii) the risks and rewards of
ownership pass to the purchaser including delivery of the product; (iii) the
selling price is fixed or determinable, and (iv) collectibility is
reasonably assured.
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.
2.9 Future income and mining taxes
The Corporation uses the liability method of accounting for income and
mining taxes. Under the liability method, future tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and for tax losses and other
deductions carried forward. For business acquisitions, the liability method
results in a gross up of mining interests to reflect the recognition of the
future tax liabilities for the tax effect of such differences.
Future 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. A reduction in respect of the benefit of a future
tax asset (a valuation allowance) is recorded against any future tax asset
if it is not likely to be realized. The effect on future tax assets and
liabilities of a change in tax rates is recognized in the statement of
operations in the period in which the change is substantively enacted.
2.10 Stock based compensation
The Corporation`s stock-based compensation plans are described in note 18.
The Corporation uses the fair value method of accounting for all stock
option awards. Under this method, the Corporation determines the fair value
of the compensation expense for all stock options on the date of grant using
an option pricing model. The fair value of the options is expensed over the
vesting period of the options.
Upon exercise of the stock option, consideration received and the related
amount of stock based compensation, is transferred from contributed surplus
and recorded as share capital.
2.11 Earnings/loss per share
Earnings/loss per share calculations are based on the weighted average
number of common shares and common share equivalents issued and outstanding
during the year. Diluted earnings per share are calculated using the
treasury method which assumes that outstanding stock options and warrants
with an average market price that exceeds the average exercise prices of the
options and warrants for the year are exercised, and the assumed proceeds
are used to repurchase shares of Uranium One at the average market price of
the common shares for the period. The impact of outstanding share options
and warrants are excluded from the diluted share calculation for loss per
share amounts, it is anti-dilutive. Dilution from convertible securitities
is calculated based on the number of shares to be issued after taking into
account the reduction of the related after tax interest expense.
2.12 Financial instruments
The Corporation`s financial instruments comprise primarily cash and cash
equivalents, restricted cash, accounts receivable, and accounts payable. The
fair value of these financial instruments approximate their carrying values,
due primarily to their immediate or short-term maturity. Fair values of
other financial instruments have been estimated by reference to quoted
market prices for actual or similar instruments where available and
disclosed accordingly.
Comprehensive income comprises the Corporation`s net income and other
comprehensive income. Comprehensive income represents changes in
shareholders` equity during a period arising from non-owner sources and, for
the Corporation, other comprehensive income includes currency translation
adjustments on its net investment in self-sustaining foreign operations, and
unrealized gains and losses on available-for-sale securities.
Financial assets and financial liabilities are recognized on the balance
sheet when the Corporation has become party to the contractual provisions of
the instruments. 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 marketable investments are recognized on the trade
date at market value, which is the date that the Corporation commits to
purchase or sell the asset. After initial recognition, the investments are
classified as available for sale investments carried at market value, with
the market value adjustments accounted for in other comprehensive income.
The Corporation accounts for its other investments using the cost basis of
accounting whereby investments are initially recorded at cost and earnings
from such investments are recognized only to the extent received or
receivable. The carrying value of other investments is reduced to the
estimated market value, if there is an other than temporary decline in the
value of the investment; such reduction is included in the consolidated
statement of operations.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, bank balances, deposits
held at call and certificates of deposits, money market instruments,
including cashable guaranteed investment certificates, bearer deposit notes
and commercial paper with a remaining maturity of three months or less at
date of purchase, and are carried at fair value.
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.
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 consolidated
statement of operations for the period.
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.
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.
Embedded derivatives
Derivatives may be embedded in other financial instruments (the "host
instrument"). Embedded derivatives are treated as separate derivatives when
their economic characteristics and risks are not clearly and closely related
to those of the host instrument, the terms of the embedded derivative are
the same as those of a stand-alone derivative, and the combined contract is
not held for trading or designated at fair value. These embedded derivatives
are measured at fair value with subsequent changes recognized in gains or
losses on derivatives within interest and other on the consolidated
statements of operations.
Compound instruments
The component parts of compound instruments are classified separately as
financial liabilities and equity in accordance with the substance of the
contractual agreement. At the date of issue, the fair value of the liability
component is estimated using the prevailing market interest rate for similar
non-convertible instruments. This amount is recorded as a liability on an
amortized cost basis until extinguished upon conversion or at the
instrument`s maturity date. The equity component is determined by deducting
the amount of the liability component from the face value of the compound
instrument as a whole. This is recognized and included in equity, net of
income tax effects, and is not subsequently remeasured.
2.13 Equity instruments
Equity instruments issued by Uranium One are recorded at the proceeds
received, net of direct issue costs.
2.14 Use of estimates
The preparation of financial statements in conformity with Canadian GAAP
requires the Corporation`s management to make estimates and assumptions
about future events that affect the amounts reported in the consolidated
financial statements and related notes to the financial statements. Actual
results may differ from those estimates.
Significant estimates used in the preparation of these consolidated
financial statements include, but are not limited to, the recoverability of
accounts receivable and investments, the proven and probable reserves and
resources and the related depletion and amortization, the estimated net
realizable value of inventories, the accounting for stock-based
compensation, the valuation of investments, the provision for income taxes
and composition of income tax assets and liabilities, the expected economic
lives of and the estimated future operating results and net cash flows from
mining interests, the anticipated costs of reclamation and closure cost
obligations, and the fair value of assets and liabilities acquired in
business combinations and asset acquisitions.
2.15 Non-controlling interests
Non-controlling interests exist with respect to less than wholly-owned
subsidiaries of the Corporation and represent the outside interest`s share
of the carrying values of the subsidiaries. When the subsidiary company
issues its own shares to outside party`s, a dilution gain or loss arises as
a result of the difference between the Corporation`s share of the proceeds
and the carrying value of the underlying equity.
2.16 Variable interest entities
Variable interest entities ("VIE`s") as defined by the Accounting Standards
Board in Accounting Guideline ("AcG") 15, "Consolidation of Variable
Interest Entities" are entities in which equity investors do not have
characteristics of a "controlling financial interest" or there is not
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support. VIE`s are subject to
consolidation by the primary beneficiary who will absorb the majority of the
entities expected losses and/or expected residual returns. The Corporation
has determined that none of its equity investments qualify as VIE`s.
2.17 Recent accounting pronouncements - effective January 1, 2008
In March 2007, the CICA issued Section 3862 Financial Instruments -
Disclosures and Section 3863 Financial Instruments - Presentation which will
replace section 3861 - Financial Instruments - Disclosure and Presentation.
These new sections revise and enhance current disclosure requirements for
financial instruments, and place an increased emphasis on disclosure about
risk, including both qualitative and quantitative information about the risk
exposures arising from financial instruments.
Section 1535 Capital Disclosures identifies disclosure requirements about
the Corporation`s objectives, policies, and processes for managing capital,
as well as quantitative information about capital.
Section 3031 Inventories, will replace Section 3030, and provides standards
for the measurement and disclosure of inventories. The new standard provides
more extensive guidance on the determination of cost, including allocation
of overhead, requirements for impairment testing and expands the existing
disclosure requirements. The adoption of this standard is not expected to
have a material impact on the Corporation`s consolidated financial position
and results of operations.
3 Business combinations
3.1 UrAsia Energy acquisition
On February 11, 2007, Uranium One entered into a definitive arrangement
agreement whereby Uranium One agreed to acquire all of the outstanding
common shares of UrAsia Energy. Under the agreement, each UrAsia Energy
share was exchanged for 0.45 Uranium One common shares. Each UrAsia Energy
warrant and stock option, which previously gave the holder the right to
acquire common shares of UrAsia Energy was exchanged for a warrant or stock
option which gives the holder the right to acquire common shares of Uranium
One on the same basis as the shareholders of UrAsia Energy, with all other
terms of such warrants and options (such as term and expiry) remaining
unchanged.
The shareholders of UrAsia Energy approved the arrangement at a Special
Meeting held on April 5, 2007, with the transaction closing on April 20,
2007. Upon completion of the transaction, Uranium One was held approximately
60% by former UrAsia Energy shareholders and approximately 40% by former
Uranium One shareholders. Accordingly, this business combination is
accounted for as a reverse takeover under Canadian GAAP with UrAsia Energy
being identified as the acquirer and Uranium One as the acquiree.
The cost of acquisition includes the fair value of the deemed issuance of
the following instruments: 307.0 million UrAsia Energy common shares at
$5.57 per share, plus 6.1 million share purchase warrants with an average
exercise price of $1.57 per share and a fair value of $26.4 million, plus
12.0 million stock options, of which 8.0 million are exercisable at the date
of acquisition, with an average exercise price of $2.66 per share and a fair
value of the vested portion of $34.8 million, plus 0.8 million restricted
shares with a fair value of $0.9 million, plus the fair value of the equity
component of the Uranium One convertible debenture of $46.5 million plus
UrAsia Energy`s transaction costs of $19.4 million, providing a total
purchase price of $1,837.6 million.
The value of the deemed issuance of UrAsia Energy shares was calculated
using the weighted average share price of UrAsia Energy shares two days
before, the day of, and two days after the date of the announcement of the
arrangement. The following weighted average assumptions were used for the
Black scholes option pricing model for the fair value of the stock options,
warrants, restricted shares and equity component of the convertible
debenture:
Risk-free interest rate 4.17%
Expected volatility of the share price 61%
Expected life 3.79 years
Dividend rate Nil
The aggregate fair values of assets acquired and liabilities
assumed were as follows on acquisition date:
$`000
Purchase price:
Common shares (note 17) 1,709,647
Options, warrants and restricted shares 62,042
Equity component of convertible debentures 46,480
Acquisition costs 19,418
1,837,587
Net assets acquired:
Cash and cash equivalents 291,088
Other current assets 33,442
Mineral interests, plant and equipment 2,459,355
Other assets 13,502
Accounts payable and accrued liabilities (57,223)
Short term loans (54,130)
Asset retirement obligations (4,602)
Convertible debentures (118,450)
Future income tax liabilities (713,732)
Non-controlling interest (11,663)
1,837,587
3.2 Betpak Dala acquisition
On November 7, 2005, the Corporation acquired a 70% joint venture interest
in Betpak Dala LLP ("Betpak") which has 100% interests in the Akdala Mine
and the South Inkai Project, both of which are located in the Republic of
Kazakhstan. In consideration for its interest, the Corporation paid a total
of $350 million. The remaining 30% interest in Betpak is held by JSC NAC
Kazatomprom ("Kazatomprom").
Under the terms of the agreement, a bonus payable in cash or shares, capped
at $36.4 million, was due based on the uranium reserves discovered on the
Akdala and South Inkai properties and surrounding areas during the 12 month
period ended November 7, 2006, in excess of the existing uranium reserves
and resources. As at November 7, 2006, no additional uranium reserves and
resources were discovered on the Akdala and South Inkai properties. No
payment was due at December 31, 2007 (July 31, 2006 - $Nil, December 31,
2006 - $Nil).
A further bonus payment is payable in cash based on uranium reserves
discovered on the South Inkai property in excess of 66,000 tonnes. The
payment is based on the Corporation`s share of U(3)O(8) in excess of 66,000
tonnes times the average spot price of U(3)O(8) times 6.25%. This payment is
to be calculated at the end of 2011 and each year thereafter, and paid 60
days after the end of the year in which a payment is due. No payment was due
at December 31, 2007 (July 31, 2006 - $Nil, 31, 2006 - $Nil).
As security for the bonus payment, the Corporation has pledged its
participatory interest in Betpak (including the shares of a subsidiary) and
its share of uranium products produced by Betpak.
The allocation of the purchase price is summarized in the table below:
$`000
Purchase price:
Cash 350,000
Acquisition costs 7,690
357,690
Net assets acquired:
Cash 1,981
Mineral interests, plant and equipment 614,494
Other net assets 683
Future income taxes (259,468)
357,690
For the purpose of these consolidated financial statements, the purchase
consideration has been allocated to the fair value of assets acquired and
liabilities assumed.
3.3 Kyzylkum Acquisition
On November 7, 2005, the Corporation acquired a 30% joint venture interest
in Kyzylkum LLP ("Kyzylkum") which has a 100% interest in the Kharassan
Project, located in the south central area of the Republic of Kazakhstan. In
consideration for its interest, the Corporation paid a total of $75 million,
including $37.5 million in cash with the balance consisting of the issuance
of 24,181,250 common shares.
A bonus payment is due upon commencement of commercial production. The
seller initially had an option, exercisable until October 31, 2006, to elect
to receive this bonus payment as a cash payment of $24 million or receive
15,476,000 shares of UrAsia Energy. The seller elected under the terms of
the arrangement, to receive 15,476,000 shares of UrAsia Energy upon
commencement of commercial production. The 15,476,000 bonus payment shares
of UrAsia Energy has been converted to 6,964,200 Uranium One shares as part
of the UrAsia Energy acquistion (Note 3.1). The fair value of the
contingently issuable shares has not been included as part of the purchase
price for Kyzylkum as commencement of commercial production could not be
reasonably determined.
An additional bonus payment of 30% of 12.5% (being an effective 3.75%) of
the weighted average spot price of U(3)O(8) will be paid on incremental
reserves in excess of 55,000 tonnes of U(3)O(8) discovered during each
fiscal year with payment beginning within 60 days of the end of the 2008
calendar year. No payment was due at December 31, 2007 (July 31, 2006 -
$Nil, December 31, 2006 - $Nil).
The Corporation is responsible for arranging project financing of $80
million for the construction and commissioning of a mine in respect of the
Kharassan Project. As security for this obligation and the obligation to
make the bonus payments referred to above, the Corporation has granted a
security interest over the shares of a subsidiary holding the Corporation`s
interest in Kharassan.
The allocation of the purchase price is summarized in the table below:
$`000
Purchase price:
Cash 37,500
24,181,250 common shares 37,500
Acquisition costs 1,509
76,509
Net assets acquired:
Cash 84
Mineral interests, plant and equipment 141,487
Other net assets 13
Future income taxes (65,075)
76,509
3.4 Signature acquisition
In September 2005, Signature Resources Ltd ("Signature") signed a binding
letter of agreement with UrAsia Energy Holdings Ltd ("UrAsia BVI"), a
subsidiary of UrAsia Energy, pursuant to which Signature agreed to acquire
all of the issued and outstanding shares of UrAsia BVI in consideration for
the issuance of common shares of Signature. Pursuant to the terms of the
agreement, Signature consolidated its common shares on a one for two basis
and issued one post-consolidation share of Signature for each issued and
outstanding ordinary share of UrAsia BVI.
As the shareholders of UrAsia BVI acquired control of Signature following
the UrAsia Acquisition, this transaction was a reverse takeover and has been
accounted for as an acquisition of Signature by UrAsia BVI. The purchase
price has been determined by reference to the fair value of the net assets
acquired from Signature.
The allocation of the purchase price is summarized in the table below:
$`000
Purchase price:
5,935,621 common shares 271
Stock options and warrants of Signature 153
424
Net assets acquired:
Cash 465
Non-cash working capital deficiency (41)
424
4 Asset purchases
4.1 US Energy
On April 30, 2007, Uranium One completed the purchase, from U.S. Energy
Corporation ("U.S. Energy"), 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
valued at $99.4 million, a cash payment of $6.5 million, and transaction
costs of $2.6 million including $750,000 paid in cash by Uranium One on the
execution of an exclusivity agreement with the vendor. The purchase
agreement provides for further payments by Uranium One of $27.5 million
dependent on the achievement of certain production targets. U.S. Energy will
receive a royalty equal to 5% of the gross proceeds from the sale of
commodities produced at the Shootaring Canyon Mill, to a maximum amount of
$12.5 million.
The transaction was accounted for as an asset purchase and the cost of each
item of property, plant and equipment acquired as part the group of assets
acquired was determined by allocating the price paid for the group of assets
to each item based on its relative fair value at the time of acquisition.
The summarized result of the allocation is indicated in the table below:
Purchase price: $`000
6.6 million common shares of Uranium One 99,401
Cash payment 6,515
Acquisition costs, including exclusivity fee 2,603
108,519
Allocation of purchase price to assets:
Shootaring Canyon Mill 39,107
Exploration properties and geological information 65,183
Stockpiles 7,772
Asset retirment obligation (3,543)
108,519
Pursuant to the asset purchase agreement, the reclamation bonds and
guarantees given by U.S. Energy in connection with the acquired assets were
substituted by Uranium One surety bonds with the appropriate Governmental
Entity to provide coverage for the reclamation obligations of the acquired
assets. The bond payments of $9.3 million are included in other assets as
part of the asset retirement fund. The asset retirement obligation was
assessed and accounted for on acquisition date (Refer note 15).
4.2 Energy Metals Corporation
On June 3, 2007, Uranium One and Energy Metals Corporation ("EMC") entered
into a definitive agreement whereby Uranium One agreed to acquire all of the
issued and outstanding common shares and options to purchase common shares
of EMC. The agreement was approved by the shareholders of EMC on July 31,
2007 and the acquisition was completed on August 10, 2007. Under the
agreement, Uranium One exchanged 1.15 common shares of Uranium One for each
common share of EMC. A total of 100,444,543 Uranium One common shares were
issued in exchange for 87,343,081 EMC common shares.
The cost of the acquisition includes the fair value of the issuance of
100,444,543 Uranium One common shares at $10.09 per share, plus 8,382,546
stock options of Uranium One, of which 5,380,458 were exercisable at the
date of acquisition, with an average exercise price of $8.14 per share and a
fair value of the vested portion of $35.3 million plus Uranium One`s
transaction costs of $9.3 million for a total purchase price of $1,057.8
million.
The value of the Uranium One common shares issued was calculated using the
share price of Uranium One`s shares on the date of acquisition. The
following weighted average assumptions were used for the Black-Scholes
option pricing model for the fair value of the stock options:
Risk-free interest rate 4.57%
Expected volatility of the share price 60%
Expected life 3.07 years
Dividend rate Nil
The transaction was accounted for as an asset purchase and the cost of each
item of property, plant and equipment acquired as part of the group of
assets acquired was determined by allocating the price paid for the group of
assets to each item based on its relative fair value at the time of
acquisition. The summarized results of the allocation is indicated in the
table below:
$`000
Purchase price:
100.4 million shares of Uranium One 1,013,215
Options of Uranium One 35,307
Acquisition costs 9,311
1,057,833
Net assets acquired:
Cash and cash equivalents 86,017
Marketable securities 6,909
Other current assets 12,497
Mineral interests, plant and equipment 1,441,077
Other non-current assets 23,662
Accounts payable and accrued liabilities (5,627)
Asset retirement obligations (2,281)
Future income tax liability (504,421)
1,057,833
5 Cash and cash equivalents
Dec 31, Dec 31, Jul 31,
2007 2006 2006
$`000 $`000 $`000
Cash 240,160 21,624 61,028
Money market instruments, including
cashable guaranteed investment
certificates, bearer deposit notes and
commercial paper 12,059 40,214 67,300
252,219 61,838 128,328
Cash and cash equivalents do not include any asset backed commercial paper.
6 Accounts and other receivables
Dec 31, Dec 31, Jul 31,
2007 2006 2006
$`000 $`000 $`000
Trade receivables 55,595 47,798 10,173
Value added tax and general sales tax 9,528 51 -
Prepayments and advances 5,558 894 1,177
Deposits and guarantees 3,220 - -
Other receivables 1,954 443 -
75,855 49,186 11,350
Less: non current deposits and
guarantees included in other assets
(note 11) 3,220 - -
72,635 49,186 11,350
7 Joint ventures
7.1 Proportionate interests in joint ventures
A number of the exploration properties in the western United States acquired
from U.S. Energy in April 2007, were under an option agreement with Uranium
Power Corp ("UPC") at the time of purchase. The Corporation acquired the
right to the outstanding payments under this agreement together with the
exploration properties. During the fourth quarter of 2007, UPC made the
final payments pursuant to the option agreement and therefore satisfied the
earn in requirements and the Corporation and UPC formed a 50:50 joint
venture to explore and develop these properties.
The Corporation owns the following interests in joint ventures:
Betpak Dala 70%
Kyzylkum 30%
Joint Venture with UPC 50%
Pitchstone 50%
The Corporation`s proportionate share of assets and
liabilities
are as follows:
As at Joint
December 31, Betpak Venture Pitch-
2007 Dala Kyzylkum with UPC stone Total
$`000 $`000 $`000 $`000 $`000
Cash 1,643 3,659 224 77 5,603
Other current
assets 73,039 291 5 68 73,403
Mineral interests,
plant and
equipment 680,046 182,740 50,422 20,191 933,399
Other assets 4,070 4,771 1,093 - 9,934
Current
liabilities (19,395) (900) 72 - (20,223)
Long term
debt(1) - (18,205) - - (18,205)
Other (1,567) (135) - - (1,702)
Future income
taxes (280,075) (72,486) - (5,831) (358,392)
Asset retirement
obligation (3,377) - - - (3,377)
Net assets 454,384 99,735 51,816 14,505 620,440
(1) In addition to the $73.3 million loan (note 7.2) from the Corporation,
Kyzylkum negotiated unsecured bank loan facilities totalling $100 million.
One facility in the amount of $70 million was obtained from the Japan Bank
for International Cooperation and the other facility in the amount of $30
million was obtained from Citibank. A total of $60 million has been drawn
down from the facility during the year. The loan facilities will be
repayable after full repayment of the loan from the Corporation. The
Corporation`s proportionate share of these facilities will amount to $30
million when fully drawn down. The loan facilities have floating interest
rates of LIBOR plus 0.25% and 0.35%, respectively.
As at December 31, 2006 Betpak Dala Kyzylkum Total
$`000 $`000 $`000
Cash 5,321 3,055 8,376
Other current assets 56,424 2,357 58,781
Mineral interests, plant and
equipment 617,740 150,739 768,479
Other assets 10,732 1,679 12,411
Current liabilities (3,717) (154) (3,871)
Other (1,466) - (1,466)
Future income taxes (268,938) (68,662) (337,600)
Asset retirement obligation (2,856) - (2,856)
Net assets 413,240 89,014 502,254
As at July 31, 2006 Betpak Dala Kyzylkum Total
$`000 $`000 $`000
Cash 5,388 6,907 12,295
Other current assets 19,373 16 19,389
Mineral interests, plant and
equipment 618,019 143,874 761,893
Other assets 780 - 780
Current liabilities (6,710) (160) (6,870)
Other (1,046) - (1,046)
Future income taxes (291,803) (73,643) (365,446)
Asset retirement obligation (1,953) - (1,953)
Net assets 342,048 76,994 419,042
The Corporation`s proportionate share of revenue, expenses, net income and
cash flows for the year ended December 31, 2007, five months ended December
31, 2006 and year ended July 31, 2006 are as follows:
Year ended Joint
December 31, Betpak Venture Pitch-
2007 Dala Kyzylkum with UPC stone Total
$`000 $`000 $`000 $`000 $`000
Revenue 134,024 - - - 134,024
Expenses (29,664) (962) (177) (1,938) (32,741)
Foreign exchange
loss (5,774) (432) - - (6,206)
Income/(loss)
before income
taxes 98,586 (1,394) (177) (1,938) 95,077
Provision for
income taxes (38,656) - - - (38,656)
Net income/
(loss) 59,930 (1,394) (177) (1,938) 56,421
Cash flows from/
(to) operating
activities 77,544 (12) (885) (2,507) 74,140
Cash flows to
investing
activities (47,711) (23,736) (128) - (71,575)
Cash flows
(to)/from
financing
activities (33,736) 24,120 1,238 2,583 (5,795)
Net increase/
(decrease) in
cash (3,903) 372 225 76 (3,230)
Five months ended
December 31, Betpak
2006 Dala Kyzylkum Total
$`000 $`000 $`000
Revenue 50,449 - 50,449
Expenses (17,276) - (17,276)
Foreign
exchange
gain 19,337 4,426 23,763
Earnings before
income taxes 52,510 4,426 56,936
(Provision for)
/ recovery of
income taxes (12,117) 106 (12,011)
Net income 40,393 4,532 44,925
Cash flows
from to
operating
activities (18,215) (180) (18,395)
Cash flows
from
investing
activities 33,950 5,400 39,350
Cash flows to
financing
activities (15,792) (8,472) (24,264)
Net decrease
in cash (57) (3,252) (3,309)
Year ended
July 31,
2006 Betpak Dala Kyzylkum Total
$`000 $`000 $`000
Revenue 23,507 - 23,507
(Expenses) /
other
income (13,181) 12 (13,169)
Foreign
exchange loss (32,933) (8,326) (41,259)
Loss before
income taxes (22,607) (8,314) (30,921)
Provision for
income taxes (3,290) (106) (3,396)
Net loss (25,897) (8,420) (34,317)
Cash flows
from operating
activities 6,637 307 6,944
Cash flows from
investing
activities 9,870 9,020 18,890
Cash flows to
financing
activities (13,095) (2,503)
(15,598)
Net decrease in
cash 3,412 6,824
10,236
7.2 Loans to Joint Ventures
Dec 31, Dec 31, Jul
31,
2007 2006 2006
$`000 $`000 $`000
Current portion
Betpak Dala 5,175 12,736 4,394
Kyzylkum 27,692 752 46
32,867 13,488 4,440
Long term portion
Betpak Dala - 6,250 -
Kyzylkum 24,359 33,600 21,000
24,359 39,850 21,000
Total 57,226 53,338 25,440
Subsequent to year end, Kyzylkum has repaid $6.7 million of
the
outstanding loan, and Betpak Dala has repaid the entire
outstanding amount.
Betpak Dala loan Dec 31, Dec 31, Jul 31,
2007 2006 2006
$`000 $`000 $`000
Loan advanced in December 2005.
The loan bears interest at LIBOR
plus 1.5% per annum, with principal
and interest amounts payable
before May 31, 2007. - 14,100 14,100
Loans advanced from July to
November 2006:
Pursuant to its commitment to provide
project financing for construction
and commissioning of the South Inkai
Project, the loans bear interest at
LIBOR plus 1.5% per annum - 48,500
Loans advanced in November and
December 2007:
The loans bear interest at LIBOR plus
6.5% per annum, and is payable
before February 9, 2008 17,000 - -
17,000 62,600 14,100
Interest accrued 249 688 548
17,249 63,288 14,648
Less elimination of proportionate
share - 70% (12,074) (44,302) (10,254)
5,175 18,986 4,394
Less current portion (5,175) (12,736) (4,394)
Long term portion - 6,250 -
The loans to Betpak Dala are
unsecured
Kyzylkum loan Dec 31, Dec 31, Jul 31,
2007 2006 2006
$`000 $`000 $`000
The Corporation made loans to
Kyzylkum pursuant to its obligation
to provide project financing for
construction and commissioning of
the Kharasan Project in the amount
of $80 million on or before
December 31, 2007. The loans bears
interest at LIBOR plus 1.5% per
annum, with interest payable on a
semi-annual basis, commencing
within 2 years of funding. 80,000 48,000 30,000
Repaid to date (6,667)
73,333 48,000 30,000
Interest accrued 1,025 1,074 65
74,358 49,074 30,065
Less elimination of proportionate
share - 30% (22,307) (14,722) (9,019)
52,051 34,352 21,046
Less current portion (27,692) (752) (46)
Long term portion 24,359 33,600 21,000
The loans to Kyzylkum are unsecured.
8 Inventories
Dec 31, Dec 31, Jul 31,
2007 2006 2006
$`000 $`000 $`000
Finished uranium concentrates 10,093 5,791 8,672
Solutions and concentrates in process 5,128 5,035 2,088
Materials and supplies 5,773 1,218 1,180
Stockpiles 7,772 - -
28,766 12,044 11,940
Less: non-current inventory included in
other assets (note 11) 7,772 - -
20,994 12,044 11,940
9 Mineral interests, plant and equipment
December 31,
2007 Net
Accumulated carrying
Cost amortization amount
$`000 $`000 $`000
Mineral interests 4,561,160 (32,771) 4,528,389
Plant and equipment 591,893 (7,375) 584,518
5,153,053 (40,146) 5,112,907
December 31,
2006 Net
Accumulated carrying
Cost amortization amount
$`000 $`000 $`000
Mineral interests 761,627 (17,539) 744,088
Plant and equipment 25,348 (549) 24,799
786,975 (18,088) 768,887
July 31, 2006 Net
Accumulated carrying
Cost amortization amount
$`000 $`000 $`000
Mineral interests 754,605 (9,656) 744,949
Plant and equipment 18,182 (584) 17,598
772,787 (10,240) 762,547
A summary by property of the net book value is as follows:
Total
Mineral interests Plant and December
equipment 31, 2007
Non-
Deple- deple-
table table Total
Country $`000 $`000 $`000 $`000 $`000
Akdala
Uranium Kazakh-
Mine stan 111,302 74,358 185,660 15,906 201,566
South Inkai
Uranium Kazakh-
Project stan - 422,631 422,631 31,388
454,019
Kharasan
Uranium Kazakh-
Project stan - 146,538 146,538 29,376 175,914
Dominion
Uranium South
Project Africa - 1,756,018 1,756,018 350,146 2,106,164
United
States
development United
projects States - 278,654 278,654 7,184 285,838
United
States
exploration United
projects States - 1,073,130 1,073,130 1,285 1,074,415
Hobson
Facility
and La
Palangana United
Project States - 56,869 56,869 33,503 90,372
Shootaring
Canyon United
Mill States - 50,009 50,009 47,614 97,623
Honeymoon
Uranium
Project Australia - 276,087 276,087 23,951 300,038
Modder East
Gold South
Project Africa - 261,332 261,332 24,400 285,732
Pitchstone
exploration Canada - 21,216 21,216 - 21,216
Corporate
and other - 245 245 19,765 20,010
Total 111,302 4,417,087 4,528,389 584,518 5,112,907
Total
Mineral interests Plant and
December
equipment 31,
2006
Non-
Deple- deple-
table table Total
Country $`000 $`000 $`000 $`000 $`000
Akdala
Uranium Kazakh-
Mine stan 118,755 74,358 193,113 16,294 209,407
South Inkai
Uranium Kazakh-
Project stan - 404,125 404,125 3,312 407,437
Kharasan
Uranium Kazakh-
Project stan - 146,717 146,717 4,020 150,737
Corporate
and other - 133 133 1,173 1,306
Total 118,755 625,333 744,088 24,799 768,887
Total
Mineral interests Plant and July 31,
equipment 2006
Non-
Deple- deple-
table table Total
$`000 $`000 $`000 $`000 $`000
Akdala
Uranium Kazakh-
Mine stan 126,638 74,358 200,996 16,831 217,827
South Inkai
Uranium Kazakh-
Project stan - 400,193 400,193 - 400,193
Kharasan
Uranium Kazakh-
Project stan - 143,627 143,627 247 143,874
Corporate
and other - 133 133 520 653
Total 126,638 618,311 744,949 17,598 762,547
10 Available for sale securities
Dec 31, Dec 31, Jul 31,
2007 2006 2006
Market Market Market
value value value
$`000 $`000 $`000
Available for sale securities 21,257 - -
Movement in available for sale securities Dec 31, 2007
$`000
Balance as at July 31, 2006 and December 31, 2006 -
Received as part of a joint venture earn in payment 1,268
Purchased as part of the EMC acquisition (refer note 4.2) 20,391
Purchased during the period 278
Impairment of available for sale securities included in
the statement of operations (932)
Foreign exchange movement 64
Fair value adjustment included in other comprehensive
income 188
Balance as at December 31, 2007 21,257
The Corporation has recognized a future income tax liability of $0.1 million
that relates to the cumulative mark-to-market gains on the available for
sale securities. The tax estimate is based on the assumption that if the
securities were sold at their December 31, 2007 fair market value, the
capital gains would be calculated at the appropriate tax rate of the
jurisdiction in which the security is held.
By holding these long-term investments the Corporation is inherently exposed
to various risk factors including currency risk, market price risk and
liquidity risk.
11 Other assets
Dec 31, Dec 31, Jul 31,
2007 2006 2006
$`000 $`000 $`000
Advances for plant and equipment 12,643 23,085 8,710
Long term deposits (note 6) 3,220 - -
Long term inventory (note 8) 7,772 - -
Asset retirement fund (note 15) 20,316 - -
Advances for future services 10,629 - -
Reclamation Bond payment on behalf of
UPC joint venture 1,094 - -
Other 1,930 2,740 210
57,604 25,825 8,920
12 Accounts payable and accrued liabilities
Dec 31, Dec 31, Jul 31,
2007 2006 2006
$`000 $`000 $`000
Trade payables 30,161 6,471 5,007
Accruals 24,714 260 1,088
Commodity and other taxes payable 11,280 - -
Other 9,727 6,216 -
75,882 12,947 6,095
13 Convertible debentures
On April 20, 2007, the Corporation acquired Uranium One who had an
outstanding debt offering of Cdn $155.3 ($133.2 million) 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 represents 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 debt and equity component were
valued on April 20, 2007, and were included as part of the purchase price
for the Uranium One / UrAsia Energy business combination (note 3.1). The
table below indicates the breakdown of the liability:
Dec 31, Dec 31, Jul 31,
2007 2006 2006
$`000 $`000 $`000
Liability component on date of
business combination (note 3.1) 118,450 - -
Interest incurred 11,641 - -
Coupon payment (6,564) - -
Foreign exchange movement 13,021 - -
Liability as at the end of the period 136,548 - -
14 Aflease Gold convertible bonds
On December 13, 2007, Aflease Gold issued 600 convertible bonds ("the
bonds"), denominated in South African rand ("ZAR"), maturing 5 years from
the issue date at a redemption value of 109.6% of the nominal value. The
bonds were issued at a nominal value of ZAR1 million ($0.15 million) per
bond and bear interest at an annual rate of 8.5%. The effective yield to
maturity is 10%. The holders of the bonds have the option to convert the
bonds into ordinary shares of Aflease Gold at any time up to, and including,
the maturity date, at a fixed conversion rate of 266,058 shares per bond. In
the event that the Modder East Gold Project has not commenced continuous
production by March 31, 2010, the conversion rate will be recalculated using
a formula based on Aflease Gold`s share price at that date.
Aflease Gold or the holders of the bonds can enforce early settlement of the
bonds under certain circumstances. Aflease Gold is not permitted to raise
any additional financing secured by the Modder East Gold Project while any
of the bonds remain outstanding.
The convertible bonds are presented in the balance sheet as designated at
fair value through operations as follows:
Dec 31, Dec 31, Jul 31,
2007 2006 2006
$`000 $`000 $`000
Face value of
convertible bonds issued 87,445 - -
Fair value adjustment
through operations 3,106 - -
Liability as at the end of the
period 90,551 - -
Financial risk factors and critical judgement applied by management
The bonds are designated at fair value and therefore the carrying
amount will approximate the fair value of the financial liability.
The fair value of the convertible bonds has been estimated using
the
following assumptions:
Inception Year end
date 2007
Binomial Binomial
Methodology used pricing pricing
Maturity date: matures Dec 13, Dec 13,
over a period of 5 years 2012 2012
Risk free interest rate: South African
zero coupon bond curves 9.86% 9.86%
Expected dividend yield 0.00% 0.00%
Expected volatility of the Aflease Gold`s
share price: exponentially weighted moving
average methodology (lambda (equal sign) 99%) 48.80% 49.30%
Credit spread: Johannesburg
Interbank Rate (JIBAR) plus 5.00% 5.00%
Aflease Gold`s spot share price R 2.58 R 2.95
Conversion price R 4.12 R 4.12
Dec 31, Dec 31, Jul 31,
2007 2006 2006
$`000 $`000 $`000
Payable in 133,960 - -
- 2007 -
- 2008 7,486
- 2009 7,486
- 2010 7,486
- 2011 7,486
- 2012 104,016
- Thereafter -
15 Asset retirement obligations
Dec 31, Dec 31, Jul 31,
2007 2006 2006
$`000 $`000 $`000
Opening balance 2,856 1,953 1,875
Acquisition of Uranium One (note 3.1) 4,602 - -
Acquisition of U.S. Energy
assets (note 4.1) 3,543 - -
Acquisition of EMC assets (note 4.2) 2,281 - -
Reclamation revision of estimates 423 299 -
Accretion expense 1,000 604 78
Foreign exchange movement 306 - -
Closing balance 15,011 2,856 1,953
Dec 31, Dec 31, Jul 31,
2007 2006 2006
Undiscounted and uninflated amount
of estimated cash flows ($`000) 28,074 4,284 5,355
Payable in years 4 - 27 4 - 18 5 - 19
Inflation rate 2.30% - 8.60% 7.00% 7.00%
Discount rate 7.39% - 14.75% 12.00% 5.00%
Security of $20.3 million for reclamation obligations has been
provided in the form required by the relevant country`s authorities
(note 11).
16 Income taxes
Dec 31, Dec 31, Jul 31,
2007 2006 2006
US$`000 US$`000 US$`000
Current income tax expense 41,346 15,984 5,304
Future income tax recovery (17,621) (3,973) (1,905)
23,725 12,011 3,399
Reconciliation between the average effective tax rate and the
applicable statutory tax rate
Dec 31, Dec 31, Jul 31,
Income tax rate reconciliation 2007 2006 2006
% % %
Earnings / (Loss) before income taxes 2,311 31,695 (45,540)
Canadian federal and
provincial income tax rates 34.12% 34.12% 34.12%
Expected income tax expense
/ (recovery) 788 10,814 (15,534)
Permanent differences, including share
based compensation and foreign
exchange 6,644 (3,018) 13,054
Effect of tax rate changes 2,954 4,481 2,947
Change in valuation allowance 9,121 (495) 1,823
Differences in tax rates in foreign
jurisdictions 4,546 1,229 1,860
Other (328) (1,000) (751)
23,725 12,011 3,399
Tax loss carry forwards
Canada and provincial tax jurisdictions
At December 31, 2007, the Corporation had Canadian federal and provincial
net operating loss carry-fowards totaling $21.5 million that expire from
2016 through 2027. A valuation allowance of $6.0 million has been applied
against the future tax asset representing these losses.
United States federal and state tax jurisdictions
At December 31, 2007, the Corporation had United States federal and state
net operating loss carry-forwards totaling $44.4 million that expire from
2008 through 2027. A valuation allowance of $2.8 million has been applied
against the future tax asset representing these losses.
South Africa tax jurisdictions
At December 31, 2007, the Corporation had South Africa net operating loss
carry-forwards totaling $105.4 million with no expiry. A valuation allowance
of $nil million has been applied against future tax asset representing these
losses.
Kazakhstan tax jurisdictions
At December 31, 2007, the Corporation had Kazakhstan net operating loss
carry-forwards totaling $2.3 million that expire from 2008 through 2010. A
valuation allowance of $1.0 million has been applied against the future tax
asset representing these losses.
Future income tax
The significant components of the Corporation`s future income tax assets and
liabilities are as follows:
Dec 31, Dec 31, Jul 31,
2007 2006 2006
US$`000 US$`000 US$`000
Future income tax assets
Mineral interests, plant & equipment 30,803 1,157 295
Other 31,249 2,910 2,228
Non-capital losses 58,134 503 1,691
Future income tax assets
before valuation allowance 120,186 4,570 4,214
Valuation allowance (20,166) (3,509) (4,004)
Future income tax assets,
net of valuation allowance 100,020 1,061 210
Future income tax liabilities
Mineral interests, plant &
equipment 1,657,663 337,642 365,491
Other 18,619 -
1,676,282 337,642 365,491
Less current portion - - -
Future income tax liabilities 1,676,282 337,642 365,491
Total 1,576,262 336,581 365,281
17 Share capital
Value of
Number of shares
Issued and outstanding common shares Note shares $`000
UrAsia Energy - movement from
August 1, 2005 to April 20, 2007
Balance of common shares
at August 1, 2005 70,400,000 4,094
Shares issued for private placements 375,436,250 569,824
Acquisition of Signature 5,935,621 271
Acquisition of Kyzylkum 24,181,250 37,500
Exercise of warrants 3,219,750 673
Exercise of stock options 550,000 579
Common shares on July 31, 2006 479,722,871 612,941
Exercise of warrants 268,000 48
Exercise of stock options 249,833 618
Common shares on December 31, 2006 480,240,704 613,607
Exercise of warrants 481,000 82
Exercise of stock options 1,866,807 7,601
Common shares on April 20, 2007 482,588,511 621,290
Conversion of UrAsia Energy shares to
Uranium One shares at a ratio of 0.45 3.1 217,164,830 621,290
Shares of Uranium One owned by Uranium
One shareholders at acquisition 138,129,435 1,709,647
Exercise of warrants 150,000 2,033
Exercise of stock options
and restricted shares 4,354,617 47,311
U.S. Energy asset purchase consideration 4.1 6,607,605 99,401
EMC asset purchase consideration 4.2 100,444,543 1,013,215
Shares issued for services rendered 322,393 3,987
Balance of issued and outstanding
common shares at December 31, 2007 467,173,423
3,496,884
18 Contributed surplus
The following table details the movements of contributed surplus during the
period:
Restr-
Note Warr- icted Options TOTAL
ants shares
$`000 $`000 $`000 $`000
As at August 1, 2005 - - - -
Issued on acquisition
of Signature 3.4 - - 153 153
Share options
issued and vested - - 9,370 9,370
Share options exercised - - (216) (216)
As at July 31, 2006 - - 9,307 9,307
Share options
issued and vested - - 22,162 22,162
Share options exercised - - (183) (183)
As at December 31, 2006 - - 31,286 31,286
Issued on Uranium One /
UrAsia Energy business
combination 3.1 26,407 853 34,782 62,042
Issued on EMC
asset acquisition 4.2 - - 35,307 35,307
Share options
issued and vested - - 33,734 33,734
Share options exercised - - (29,213) (29,213)
Restricted shares vested - 3,926 - 3,926
Restricted shares exercised - (1,660) - (1,660)
Warrants exercised (1,035) - - (1,035)
As at December 31, 2007 25,372 3,119 105,896 134,387
Assumptions
The fair value of stock options and restricted shares used to calculate the
compensation expense was estimated using the Black scholes option pricing
model with the following assumptions:
Dec 31, Dec 31, Jul 31,
2007 2006 2006
Risk free interest rate 4.38% 3.80% 4.00%
Expected dividend yield 0% 0% 0%
Expected volatility of the
Uranium One`s share price 61% 46% 38%
Expected life 5 years 10 years 10 years
Options
Under Uranium One`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, which determines individual eligibility under the
plan, number of shares reserved underlying the options granted to each
individual (not exceeding 5% of 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 was previously 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. On December 8, 2006 the Board
of Directors 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 Uranium One that are issuable pursuant to
the plan is limited to 7.2% of issued and outstanding shares.
The following is a summary of Uranium One`s options granted under its stock-
based compensation plan:
Weighted
average
exercise
Number of price
options Cdn $
Balance as at August 1, 2005 - -
Stock options granted on Signature acquisition 500,000 0.53
Granted 11,855,000 2.16
Exercised (550,000) 0.76
Forfeiture of share options
up to July 31, 2006 (20,000) 1.80
Outstanding options as at July 31, 2006 11,785,000 2.16
Granted 10,190,000 3.74
Exercised (249,833) 1.95
Forfeiture or expiry of share options (66,667) 3.00
Outstanding options at December 31, 2006 21,658,500 2.90
Granted up to April 20, 2007 1,935,000 5.99
Exercised up to April 20, 2007 (1,866,807) 2.11
Forfeiture of share options
up to April 20, 2007 (30,000) 1.80
Outstanding options as at April 20, 2007 21,696,693 5.86
Converted UrAsia Energy share options
on date of business combination 9,763,498 7.33
Existing Uranium One share options
on April 20, 2007 5,390,754 6.67
EMC replacement options 8,382,546 8.14
Granted subsequent to April 20, 2007 1,867,817 15.27
Exercised subsequent to April 20, 2007 (4,228,640) 5.14
Forfeiture of share options
subsequent to April 20, 2007 (351,187) 13.14
Outstanding options as at December 31, 2007 20,824,788 8.55
The stock option compensation expense for the year ended December 31, 2007
was $33.7 million, $22.2 million for the 5 months December 31, 2006 and $9.4
million for the year ended July 31, 2006. As at December 31, 2007, the
aggregate unexpended fair value of unvested stock options granted amounted
to $18.6 million. The fair value of options granted during the year amounts
to $18.0 million.
The following table summarizes certain information about Uranium One`s stock
options outstanding at December 31, 2007:
Options outstanding
Number Weighted Weighted
outstanding average average
as at remaining exercise
Range of Exercise Prices Dec 31, 2007 life price
Cdn $ (years) Cdn $
1.09 to 2.74 1,585,746 2.40 2.39
3.03 to 4.81 3,339,250 3.37 4.02
5 to 7.79 3,646,640 5.48 6.68
8.26 to 9.9 5,676,745 4.53 8.42
10.4 to 11.91 740,750 5.38 11.61
12.02 to 13.7 3,528,100 4.13 12.25
14.12 to 16.87 2,307,557 5.88 15.94
20,824,788 4.52 8.55
Options exercisable
Number Weighted Weighted
exercisable average average
as at remaining exercise
Range of Exercise Prices Dec 31, 2007 life price
Cdn $ (years) Cdn
$
1.09 to 2.74 1,585,747 2.40 2.39
3.03 to 4.81 3,336,179 3.37 4.02
5 to 7.79 3,028,550 5.48 6.57
8.26 to 9.9 5,523,746 4.53 8.41
10.4 to 11.91 365,000 5.38 11.55
12.02 to 13.7 1,791,320 4.13 12.15
14.12 to 16.87 588,280 5.88 15.69
16,218,822 4.52 7.32
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 was
initially capped at one million and subsequently increased to 3 million at
Uranium One`s annual and special meeting held on June 7, 2007. 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 Uranium One`s restricted shares issued under
the Restricted Share Plan:
Number of restricted shares
Dec 31, Dec 31, Jul 31,
Note 2007 2006 2006
Restricted shares issued
on business combination 3.1 404,231 - -
Granted 20,000 - -
Exercised during the period (125,977) - -
Expired (2,722) - -
Total restricted shares
outstanding at the end
of the period 295,532 -
-
Of the outstanding number of Restricted share rights, the grant
date
was July 1, 2007 for 20,000 Restricted share rights, December 8,
2006
for 50,440 Restricted share rights, and June 7, 2006 for 225,092
Restricted share rights. Restricted share rights will not expire
while the participant is in the employ of the Corporation.
The Restricted share rights expense for the year ended December 31,
2007 was $4.0 million, $Nil for the 5 months ended December 31,
2006
and $Nil for the year ended July 31, 2006. As at December 31, 2007
the aggregate unexpensed fair value of unvested restricted share
rights granted amounted to $805,506.
Warrants Number of warrants Allocated value
Dec 31, Dec 31, Jul 31, Dec 31, Dec 31, Jul 31,
2007 2006 2006 2007 2006 2006
$`000 $`000 $`000
Issued on
business
combination
(note 3.1) 2,731,619 - - 26,407 - -
Exercised during
the period (150,000) - - (1,035) - -
At the end
of the period 2,581,619 - - 25,372 - -
Number of warrants Average exercise price
Warrants Dec 31, Dec 31, Jul 31, Dec 31, Dec 31, Jul 31,
comprise: 2007 2006 2006 2007 2006 2006
2008 Warrants 2,431,619 - - 3.55 - -
Series D
Warrants 150,000 - - 6.95 - -
Total 2,581,619 - - 3.75 - -
Series D warrants represent 150,000 warrants that expire on January 4, 2008.
The 2008 warrants expire on September 24, 2008.
Contingently issuable shares
Under the terms of the acquisition agreement for the Kyzylkum JV interest,
Uranium One is obligated to issue 6,964,200 common shares of Uranium One
upon commencement of commercial production from Kyzylkum (Note 3.3).
The Corporation has assumed all of the obligations of EMC and its
subsidiaries arising under certain option and joint venture agreements with
third parties. Uranium One has reserved a total of 1,925,100 common shares
of Uranium One for issuance pursuant to the assumed obligations under the
Contingent Share Rights Agreements.
19 Foreign exchange (losses) / gains
A summary of the foreign exchange (loss) / gain by item is as follows:
Dec 31, Dec 31, Jul 31,
2007 2006 2006
$`000 $`000 $`000
Unrealized foreign exchange (loss) /
gain on future income tax liability (18,727) 24,736 (42,602)
Unrealized foreign exchange
loss on other items (7,469) (2,114) (20)
Realized foreign exchange
gain on other items 13,174 885 1,502
(13,022) 23,507 (41,120)
20 Cash flow information
Dec 31, Dec 31, Jul 31,
2007 2006 2006
$`000 $`000 $`000
Changes in non-cash working capital
excluding business combinations:
- Increase in accounts and other
receivables (3,706) (39,816) (4,743)
- Prepaid expenses and other (8,396) 309 1,012
- Increase in inventories (3,442) (475) (3,042)
- Increase / (decrease) in accounts
payable and accrued liabilities (17,750) 7,019 (4,159)
- Increase / (decrease) in income
taxes payable 3,368 (2,112) 3,080
(29,926) (35,075) (7,852)
Significant non-cash
investing activities
EMC asset purchase 1,048,522 - -
- common shares 1,013,215 - -
- options 35,307 - -
Uranium One business combination 1,818,169 - -
- common shares 1,709,647 - -
- options, warrants and
restricted share rights 62,042 - -
- equity component of
convertible debentures 46,480 - -
U.S. Energy asset purchase 99,401 - -
Shares issued for services rendered 3,987 - -
Supplemental cash flow information
Cash interest paid 6,564 - 45
Cash taxation paid 13,636 13,530 6,136
Short term loans
The February 2005 Nedcor Securities loan represented draw-downs on a
facility provided by Nedcor Securities, secured by the investment held by
Uranium One`s wholly owned subsidiary, Uranium One Africa Limited, in
Randgold and Exploration Company Limited shares.
The August 2006 Nedcor Securities loan represented draw-downs on a facility
provided by Nedcor Securities, secured by Uranium One Africa`s investment in
Aflease Gold shares.
Both loans were repaid during the year for a total cash consideration of
$55.2 million including accrued interest of $2.10 million, with the security
over the investments being released upon repayment.
21 Basic and diluted weighted-average number of shares outstanding
Dec 31, Dec 31, Jul 31,
2007 2006 2006
Basic weighted-average number
of shares outstanding (`000) 360,656 215,999 182,808
Effect of dilutive securities:
- stock options - 1,706 -
- warrants - 270 -
Diluted weighted-average
number of shares outstanding 360,656 217,975 182,808
For the year ended December 31, 2007, convertible debentures, stock options,
warrants and restricted shares were not included in the dilutive weighted
average number of shares outstanding as they were anti-dilutive. For the
year ended July 31, 2006, stock options and warrants were not included as
they were anti-dilutive.
22 Contractual obligations
Dec 31,
2007
Capital commitments 118,436
Other 40,107
Total contractual obligations 158,543
Payable in
- 2008 121,358
- 2009 1,129
- 2010 5,075
- 2011 10,550
- 2012 4,276
142,388
- thereafter 16,155
158,543
The capital commitments relates to capital expenditure on the Corporation`s
development projects.
23 Segmented information
The Corporation`s reportable operating segments are summarized in the table
below:
For the year ended December 31, 2007: (in $`000)
Depreciation
Operating and
Country Revenue expenses depletion
Akdala Uranium Mine Kazakhstan 134,024 (17,282) (14,922)
South Inkai
Uranium Project Kazakhstan - - -
Kharasan Uranium
Project Kazakhstan - - -
Dominion Uranium
Project South Africa - - -
US Development
projects United States - - -
US Exploration
projects United States - - -
Hobson facility
and La Palangana
Project United States - - -
Shootaring
Canyon Mill United States - - -
Honeymoon Uranium
Project and
exploration Australia - - -
Modder East
Gold Project South Africa - - -
Pitchstone
exploration Canada - - -
Corporate and other - - -
Total 134,024 (17,282) (14,922)
Net Capital
Exploration earnings/ expend-
expenditure (loss) iture
Akdala Uranium Mine - 56,305 9,108
South Inkai
Uranium Project - 110 39,243
Kharasan Uranium
Project - (1,410) 21,135
Dominion Uranium
Project (1,913) (1,225) 137,954
US Development
projects - - 5,907
US Exploration
projects (5,077) (5,079) 248
Hobson facility
and La Palangana
Project (1,608) (2,764) 14,674
Shootaring
Canyon Mill (32) (63) 2,966
Honeymoon Uranium
Project and
exploration (1,987) (1,745) 21,349
Modder East
Gold Project (1,675) (9,261) 13,377
Pitchstone
exploration (1,938) (1,938) -
Corporate and other (4,948) (50,539) 13,409
Total (19,178) (17,609) 279,370
For the five months ended December 31, 2006: (in $`000)
Depreciation
Operating and
Country Revenue expenses depletion
Akdala Uranium Mine
and South Inkai
Uranium Project Kazakhstan 50,449 (9,289) (8,416)
Kharasan Uranium
Project Kazakhstan - - -
Corporate and other - - (33)
Total 50,449 (9,289) (8,449)
Net Capital
Exploration earnings/ expend-
expenditure (loss) iture
Akdala Uranium Mine
and South Inkai
Uranium Project - 44,628 6,689
Kharasan Uranium
Project - 106 6,793
Corporate and other (2,914) (25,050) 27
Total (2,914) 19,684 13,509
For the year ended July 31, 2006: (in $`000)
Depreciation
Operating and
Country Revenue expenses depletion
Akdala Uranium Mine
and South Inkai
Uranium Project Kazakhstan 23,507 (9,548) (5,030)
Kharasan Uranium
Project Kazakhstan - - -
Corporate and other - - (77)
Total 23,507 (9,548) (5,107)
Net Capital
Exploration earnings/ expend-
expenditure (loss) iture
Akdala Uranium Mine
and South Inkai
Uranium Project - (35,316) 9,588
Kharasan Uranium
Project - 12 2,409
Corporate and other (2,648) (13,635) 322
Total (2,648) (48,939) 12,319
As at December 31, 2007: (in $`000)
Mineral
interest, Total
plant and Total liab-
Country equipment assets ilities
Akdala Uranium Mine Kazakhstan 201,566 266,240 94,710
South Inkai
Uranium Project Kazakhstan 454,019 457,510 207,461
Kharasan Uranium
Project Kazakhstan 175,914 184,283 92,422
Dominion Uranium
Project South Africa 2,106,164 2,111,565 598,102
US Development
projects United States 285,838 285,838 1,637
US Exploration
projects United States 1,074,415 1,079,794 115,368
Hobson facility
and La Palangana
Project United States 90,372 91,879 24,730
Shootaring
Canyon Mill United States 97,623 112,894 2,573
Honeymoon Uranium
Project and
exploration Australia 300,038 300,043 86,613
Modder East
Gold Project South Africa 285,732 381,776 178,275
Pitchstone
exploration Canada 21,216 21,360 5,831
Corporate and other 20,010 319,716 510,963
Total 5,112,907 5,612,898 1,918,685
As at December 31, 2006: (in $`000)
Mineral
interest, Total
plant and Total liab-
Country equipment assets ilities
Akdala Uranium Mine Kazakhstan 209,407 285,654 89,317
South Inkai
Uranium Project Kazakhstan 407,437 407,437 194,236
Kharasan Uranium
Project Kazakhstan 150,737 156,267 68,816
Corporate and other 1,306 122,260 3,560
Total 768,887 971,618 355,929
As at July 31, 2006: (in $`000)
Mineral
interest,
Total
plant and Total liab-
Country equipment assets ilities
Akdala Uranium Mine Kazakhstan 217,827 243,367 93,545
South Inkai
Uranium Project Kazakhstan 400,193 400,193 208,326
Kharasan Uranium
Project Kazakhstan 143,874 150,798 73,803
Corporate and other 653 156,667 1,989
Total 762,547 951,025 377,663
24 Contingent sale of an interest in the Dominion Uranium Project
On June 7, 2005, Uranium One Africa and Micawber 397 (Proprietary)
("Micawber 397"), a company owned by historically disadvantaged South
Africans, entered into a definitive purchase and sale agreement, a
management and skills transfer agreement and a joint venture agreement.
Pursuant to these agreements, Uranium One Africa agreed to sell to Micawber
397 an undivided 26% interest in the Dominion Uranium Project for cash
consideration equal to 26% of the net present value of the Dominion assets
at the date when Micawber elects to pay at least 20% of the purchase price.
This election must occur within three years after receipt of Micawber 397 of
their first profit distribution from the joint venture. After the first
payment, Micawber is obliged to pay at least 20% of the purchase price
during each subsequent three year period, so that the purchase price is paid
in full within twelve years of the date of the first payment.
The parties agreed to contribute their interests in the assets to a joint
venture to be managed by Uranium One Africa, and to fund the development and
operation of those assets in accordance with their respective joint venture
interests. Uranium One agreed to lend to Micawber 397 the funds required to
contribute their share under the joint venture agreement. The aggregate
amount of that loan, plus accrued interest, is repayable from Micawber 397`s
share of joint venture profits.
The Micawber transaction was approved by Uranium One Africa`s shareholders
in September 2005, following which the South African Department of Minerals
and Energy granted a "new order" mining right to the Corporation for the
Dominion Uranium Project in October 2006. The Micawber 397 transaction will
be accounted for in Uranium One`s consolidated financial statements when the
risks and rewards of the transaction are deemed to have passed to Micawber
397. Management has determined that this event will occur on the day that
Micawber 397 elects to pay at least 20% of the purchase price, prompting the
determination of the purchase price. As at December 31, 2007, Micawber 397
has not paid any part of the purchase price.
25 Subsequent event
Partial sale of shareholding in Aflease Gold
During Q1 2008, in line with the Corporation`s strategy to dispose of its
non-core assets, the board of directors approved a plan to pursue the sale
of the Corporation`s shareholding in Aflease Gold and the Corporation
entered into negotiations regarding the sale of Aflease Gold.
Consequently the Corporation entered into an agreement on March 27, 2008,
pursuant to which it agreed to sell 152,195,122 shares in Aflease Gold, held
by the Corporation`s wholly owned subsidiary, Uranium One Africa Limited
("Uranium One Africa"), for consideration of approximately $40 million
(ZAR320 million). The transaction is expected to close during April 2008,
subject to approval by the South African Reserve Bank.
An option has been granted to the purchaser to acquire Uranium One Africa`s
remaining shareholding of 186,816,558 shares in Aflease Gold at a
consideration of no less than approximately $49 million (ZAR393 million) on
or before May 8, 2008. Once the option is exercised, the purchase and sale
of the shares in Aflease Gold will be required to comply with the provisions
of the Securities Regulation Code of the Securities Regulation Panel of
South Africa relating to a compulsory offer to the other shareholders of
Aflease Gold and, within 150 days, to obtain approval from the South African
Reserve Bank and the satisfaction of merger approval requirements of South
African Competition Act, 89 of 1998.
It is expected that the Corporation will reflect a loss of approximately $90
million in Q1 2008 pursuant to this transaction.
%SEDAR: 00005203E
-0-
03/31/2008
/For further information: Jean Nortier, Interim Chief Executive Officer,
Tel:
+ 27 82 418 2241; Chris Sattler, Senior Vice President, Corporate
Development
& Investor Relations, Tel: (416) 350-3657/
(UUU.)
CO: Uranium One Inc.
ST: Ontario
IN: MNG
SU: ERN CCA
-30-
-ME-
corcus
sedar
Date: 31/03/2008 15:42:10 Produced by the JSE SENS Department.
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