| Mon 16 Mar 2009, 13:00 | | UUU - Uranium One Inc - Annual Consolidated Financial Statements For The Year |
|
UUU
UUU
UUU - Uranium One Inc - Annual Consolidated Financial Statements For The Year
Ended December 31, 2008
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
Annual Consolidated Financial Statements for the year ended December 31, 2008
Management`s Responsibility for Financial Reporting
The consolidated financial statements have been prepared by management, in
accordance with Canadian generally accepted accounting principles, who, when
necessary, have made informed judgments and estimates of the outcome of
events and transactions. Management acknowledges its responsibility for the
fairness, integrity and objectivity of all information in the consolidated
financial statements.
As a means of fulfilling its responsibility, management relies on the
company`s system of internal control. This system has been established to
ensure, within reasonable limits, that the assets are safeguarded,
transactions are properly recorded and are executed in accordance with
management`s authorization and that the accounting records provide a solid
foundation from which to prepare the consolidated financial statements.
Any system of internal control has inherent limitations, therefore even those
systems determined to be effective can provide only reasonable assurance with
respect to financial statement presentation and presentation.
The Board of Directors carries out its responsibility for the consolidated
financial statements principally through its Audit Committee, consisting
solely of non-management independent directors. This committee meets
periodically, reviews the scope of the external audit, the adequacy of the
system of internal control and the appropriateness of the financial reporting
and then makes its recommendations to the Board of Directors. Based on those
recommendations, the Board of Directors approves the consolidated financial
statements.
The consolidated financial statements have been audited by the Company`s
independent auditors, Deloitte & Touche LLP. The Auditors` Report to the
Shareholders of Uranium One Inc., outlines the scope of their examination and
opinion on the consolidated financial statements.
"Jean Nortier" "Robin Merrifield"
Jean Nortier Robin Merrifield
President & Chief Executive Officer Executive Vice President & Chief
Financial Officer
March 11, 2009
Auditors` Report to the Shareholders
To the Shareholders of Uranium One Inc.
We have audited the consolidated balance sheets of Uranium One Inc. as at
December 31, 2008 and 2007 and the consolidated statements of operations,
changes in equity, comprehensive (loss) income, accumulated other
comprehensive (loss) income and cash flows for each of the years then ended.
These financial statements are the responsibility of the Company`s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an
audit to obtain reasonable assurance whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December
31, 2008 and 2007 and the results of its operations and its cash flows for
each of the years then ended in accordance with Canadian generally accepted
accounting principles.
Chartered Accountants
March 11, 2009
Vancouver, B.C, Canada
Uranium One Inc.
Consolidated Balance Sheets
As at December 31, 2008 and 2007
(in United States dollars)
Dec 31, 2008 Dec 31,
2007
Notes $`000 $`000
ASSETS
Current assets
Cash and cash 7 176,225 159,592
equivalents
Accounts and other 8 39,926 70,318
receivables
Current portion of 9.2 19,158 32,867
loans to joint
ventures
Inventories 10 17,390 20,952
Other assets 12 12,043 19,150
Discontinued 3 - 94,986
operations
264,742 397,865
Non-current assets
Mineral interests, 11 1,285,415 4,827,353
plant and equipment
Loans to joint 9.2 14,000 24,359
ventures
Other assets 12 53,952 76,707
Discontinued 3 9,024 286,614
operations
1,362,391 5,215,033
Total assets 1,627,133 5,612,898
LIABILITIES
Current liabilities
Accounts payable and 14 47,423 70,802
accrued liabilities
Income taxes payable 12,639 4,237
Discontinued 3 - 5,245
operations
60,062 80,284
Non-current
liabilities
Long term debt 13 61,275 -
Convertible 15 118,042 136,548
debentures
Asset retirement 16 12,999 13,927
obligations
Future income tax 17 375,293 1,496,060
liabilities
Other long term 18 48,924 20,029
payables
Discontinued 3 - 183,145
operations
616,533 1,849,709
SHAREHOLDERS` EQUITY
Share capital 19 3,522,824 3,496,884
Contributed surplus 20 131,602 134,387
Equity component of 5 46,480 46,480
convertible
debentures
Accumulated other (247,708) 51,967
comprehensive (loss)
/ income
Deficit (2,502,660) (46,813)
950,538 3,682,905
Total shareholders` 1,627,133 5,612,898
equity and
liabilities
Basis of presentation and principles of consolidation (note 2.1), commitments
(note 26(iii)), contingencies (note 29) & subsequent events (note 30)
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"
Ian Telfer Andrew Adams
Director Director
Uranium One Inc.
Consolidated Statements of Operations
For the years ended December 31, 2008 and 2007
(in United States dollars)
Year ended
Dec 31, Dec 31,
2008 2007
Notes $`000 $`000
Revenues 149,776 134,024
Operating expenses (30,490) (17,282)
Depreciation and depletion (22,566) (14,899)
Earnings from mine operations 96,720 101,843
General and administrative (1) (48,689) (68,645)
Exploration expense (14,881) (16,796)
Impairment of mineral interests, plant 11.1 (3,322,222) -
and equipment and closure costs
Care and maintenance (1,868) -
Operating (loss) / earnings (3,290,940) 16,402
Interest and other 21 (7,376) (514)
Gain / (loss) on available for sale 4,345 (932)
securities
Foreign exchange loss 22 (11,709) (13,022)
Other 2,650 5,418
(Loss) / earnings from continuing operations (3,303,030) 7,352
before income taxes
Current income tax expense 17 (44,191) (41,211)
Future income tax recovery 17 1,013,634 17,621
Loss from continuing operations (2,333,587) (16,238)
Loss from discontinued operations 3 (122,260) (1,371)
Net loss (2,455,847) (17,609)
(1) Stock option and restricted 20 15,423 37,660
share expense (non-cash) included
in general and administrative
Loss per share from continuing
operations
Basic and diluted $(4.98) $(0.05)
Loss per share from discontinued
operations
Basic and diluted $(0.26) $(0.00)
Net loss per share
Basic and diluted $(5.24) $(0.05)
Weighted average number of shares
(in thousands)
Basic and diluted 24 468,424 360,656
The accompanying notes form an integral part of these Annual Consolidated
Financial Statements
Uranium One Inc.
Consolidated Statements of Changes in Equity
For the years ended December 31, 2008 and 2007
(in United States dollars)
Share Contributed Equity
capital surplus component of
$`000 $`000 convertible
debentures
$`000
Balance as at January 1, 2007 613,607 31,286 -
Net loss for the year - - -
Stock options and restricted - 37,660 -
shares vested
Exercise of warrants 2,115 (1,035) -
Exercise of stock options and 54,912 (30,873) -
restricted shares
Uranium One Inc / UrAsia 1,709,647 62,042 46,480
Energy Ltd business
combination
U.S. Energy Corp asset 99,401 - -
purchase consideration
Energy Metals Corporation 1,013,215 35,307 -
asset purchase consideration
Unrealized gains recognized on - - -
translation of self-sustaining
foreign operations
Unrealized gains recognized on - - -
translation of self-sustaining
foreign discontinued
operations
Shares issued for services 3,987 - -
rendered
Fair value adjustments on - - -
available for sale securities,
net of tax
Balance as at December 31, 3,496,884 134,387 46,480
2007
Net loss for the year
Stock options and restricted - 15,423 -
shares vested
Exercise of warrants 15,791 (11,460) -
Exercise of stock options and 10,149 (6,748) -
restricted shares
Unrealized loss recognized on - - -
translation of self-sustaining
foreign operations
Unrealized loss recognized on - - -
translation of self-sustaining
foreign discontinued
operations
Realized loss on sale of - - -
Aflease Gold (note 3)
Fair value adjustments on - - -
available for sale securities
and realized loss on sale
Balance as at December 31, 3,522,824 131,602 46,480
2008
Accumulated Deficit Total
other $`000 $`000
comprehen-
sive income
/ (loss)
$`000
Balance as at January 1, 2007 - (29,204) 615,689
Net loss for the year - (17,609) (17,609)
Stock options and restricted - - 37,660
shares vested
Exercise of warrants - - 1,080
Exercise of stock options and - - 24,039
restricted shares
Uranium One Inc / UrAsia - - 1,818,169
Energy Ltd business
combination
U.S. Energy Corp asset - - 99,401
purchase consideration
Energy Metals Corporation - - 1,048,522
asset purchase consideration
Unrealized gains recognized on 47,536 - 47,536
translation of self-sustaining
foreign operations
Unrealized gains recognized on 4,243 - 4,243
translation of self-sustaining
foreign discontinued
operations
Shares issued for services - - 3,987
rendered
Fair value adjustments on 188 - 188
available for sale securities,
net of tax
Balance as at December 31, 51,967 (46,813) 3,682,905
2007
Net loss for the year (2,455,847) (2,455,847)
Stock options and restricted - - 15,423
shares vested
Exercise of warrants - - 4,331
Exercise of stock options and - - 3,401
restricted shares
Unrealized loss recognized on (282,170) - (282,170)
translation of self-sustaining
foreign operations
Unrealized loss recognized on (27,480) - (27,480)
translation of self-sustaining
foreign discontinued
operations
Realized loss on sale of 10,163 - 10,163
Aflease Gold (note 3)
Fair value adjustments on (188) - (188)
available for sale securities
and realized loss on sale
Balance as at December 31, (247,708) (2,502,660) 950,538
2008
The accompanying notes form an integral part of these Annual Consolidated
Financial Statements
Uranium One Inc.
Consolidated Statements of Comprehensive (Loss) / Income
For the years ended December 31, 2008 and 2007
(in United States dollars)
Dec 31, Dec 31,
2008 2007
Notes $`000 $`000
Net loss (2,455,847) (17,609)
Unrealized (loss) / gain recognized on (282,170) 47,536
translation of self-sustaining foreign
operations
Unrealized (loss) / gain recognized on (27,480) 4,243
translation of self-sustaining foreign
discontinued operations
Realized loss on sale of Aflease Gold 3 10,163 -
Fair value adjustments on available for (188) 188
sale securities
Comprehensive (loss) / income (2,755,522) 34,358
Consolidated Statements of Accumulated Other Comprehensive (Loss) / Income
As at December 31, 2008 and 2007
(in United States dollars)
Dec 31, 2008 Dec 31,
2007
$`000 $`000
Accumulated other comprehensive income at 51,967 -
January 1
Other comprehensive (loss) / income for the (299,675) 51,967
year
(247,708) 51,967
Components of accumulated other comprehensive
(loss) / income at the end of the year:
Unrealized foreign exchange adjustment - (234,634) 47,536
continuing operations(1)
Unrealized foreign exchange adjustment - (13,074) 4,243
discontinued operations
Available for sale marketable securities and - 188
investments
(247,708) 51,967
(1) Includes foreign exchange losses of $244.8 million relating to the
translation of the investment in Uranium One Africa Limited (11.1)
The accompanying notes form an integral part of these Annual Consolidated
Financial Statements
Uranium One Inc.
Consolidated Statements of Cash Flows
For the years ended December 31, 2008 and 2007
(in United States dollars)
Year ended
Dec 31, 2008 Dec 31,
2007
Notes $`000 $`000
Net loss from continuing operations (2,333,587) (16,238)
Items not affecting cash:
- Depreciation and depletion 22,566 14,899
- Impairment of mineral interest plant 11.1 3,306,001 -
and equipment
- Gain / (loss) on available for sale (4,345) 932
securities
- Stock option and restricted share 20 15,423 37,660
expense
- Interest accrued on loans and 10,195 4,585
debentures
- Unrealized foreign exchange loss 22 1,339 28,958
- Future income tax recovery 17 (1,013,634) (17,621)
- Other (562) 400
Movement in non-cash working capital 23 32,730 (32,383)
Cash flows from operating activities 36,126 21,192
Acquisition of Uranium One Inc., net of - 271,670
acquisition costs
Acquisition of Energy Metals - 76,706
Corporation, net of acquisition costs
Acquisition of mineral interests, plant 11 (216,757) (265,993)
and equipment
Advance cash payments for other assets (1,036) (2,606)
Proceeds on sale of Honeymoon, net of 4 34,098 -
costs
Cash advance for sulphuric acid plant 12 (5,959) -
investment
Advance cash receipts for sale of 3 3,100 -
portion of Aflease Gold
Proceeds on sale of Aflease Gold 3 44,542 -
Proceeds on sale of available for sale 24,927 -
securities
Cash proceeds from / (advances to) joint 9.2 23,767 (4,053)
ventures
Other - 2,100
Cash flows (used in) / from investing (93,318) 77,824
activities
Common shares issued, net of issue costs 19 7,732 25,119
Loans received by Kyzylkum 9.1 18,000 17,769
Draw-down on credit facility 13 60,467 -
Short term loan repaid - (53,131)
Cash flows from / (used in) financing 86,199 (10,243)
activities
Effects of exchange rate changes on cash (12,374) 21,858
and cash equivalents
Net (decrease) / increase in cash and 16,633 110,631
cash equivalents from continuing
operations
Cash and cash equivalents at the beginning of 159,592 48,961
the year
Cash and cash equivalents at the end of 176,225 159,592
the year
Cash flows of discontinued operations
Cash flows from operating activities - 878
Cash flows used in investing activities - (13,377)
Cash flows used in financing activities - (89,506)
Supplemental cash flow information (note 23)
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, 2008 and 2007
(in United States dollars)
1 NATURE OF OPERATIONS
Uranium One Inc. ("Uranium One"), its subsidiaries and joint ventures
(collectively, the "Corporation") is a Canadian 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, the United States, Australia and South
Africa.
Uranium One owns through the Betpak Dala Joint Venture a 70% interest in both
the producing Akdala Mine and the South Inkai Project. The Kharasan Project
in Kazakhstan, in which the Corporation owns a 30% interest, is being
developed by the Kyzylkum Joint Venture. In the United States, the
Corporation owns projects in the Powder River and Great Divide Basins in
Wyoming. The Corporation has suspended development of its Dominion Project
in South Africa and placed it on care and maintenance while evaluating
strategic alternatives for the project. The Corporation owns a 51% interest
in the Honeymoon 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 and South Australia.
2 SIGNIFICANT ACCOUNTING POLICIES
2.1 Basis of presentation and principles of consolidation
The consolidated financial statements of the Corporation have been prepared
in accordance with Canadian generally accepted accounting principles
("Canadian GAAP").
The consolidated financial statements include the accounts of Uranium One,
its subsidiaries and the proportionate share of its interests in joint
ventures. All intercompany balances and transactions have been eliminated.
The consolidated balance sheet, statement of operations, cash flow and
certain comparative figures has been restated for discontinued operations
(note 3).
The following are the Corporation`s principal mineral properties as at
December 31, 2008:
Operating mine:
Entity Mineral Location Ownership Status
property/Operation
Betpak Akdala Mine Kazakhstan 70% Proportionately
Dala LLP consolidated
Advanced development projects:
Entity Mineral Location Ownership Status
property/Operation
Betpak South Inkai Kazakhstan 70% Proportionately
Dala LLP Project(1) consolidated
Kyzylkum Kharasan Project Kazakhstan 30% Proportionately
LLP consolidated
The Corporation is also developing the following mineral properties:
Entity Mineral Location Ownership Status
property/Operation
Energy Metals United States United 100% Consolidated
Corp (US) development States
projects
Uranium One Honeymoon Project Australia 51% Proportionately
Australia consolidated
(Proprietary)
Limited
The Corporation has suspended development of the following mineral
properties:
Entity Mineral Location Ownership Status
property/Operation
Uranium One Dominion Project South 100% Consolidated
Africa Ltd Africa
South Texas Hobson Facility United 99% Consolidated
Mining Venture and La Palangana States
Project
(1) The South Inkai Project commenced commercial operations on January 1,
2009
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
2.2 Adoption of new standards
Effective January 1, 2008, the Corporation adopted new accounting standards
for Capital Disclosures (CICA Handbook Section 1535), Inventories (CICA
Handbook Section 3031), and Financial Instruments - Disclosure and
Presentation (CICA Handbook Sections 3862 and 3863).
Under Section 1535, the Corporation discloses its objectives, policies and
procedures for managing capital, any summary quantitative data about what the
Corporation manages as capital, whether the Corporation has complied with any
externally imposed capital requirements and, if the Corporation has not
complied with them, any consequences of non-compliance with these capital
requirements.
The new Sections 3862 and 3863 replaced Section 3861 Financial Instruments -
Disclosure and Presentation. Disclosure requirements were revised and
enhanced, while presentation requirements remained essentially unchanged.
The new disclosure requirements expanded discussion around the significance
of financial instruments for the Corporation`s financial position and
performance, the nature and extent of risks arising from financial
instruments to which the entity is exposed during the period and at the
balance sheet date and how the entity manages those risks.
Section 3031 established standards for the measurement and disclosure of
inventories and provided a Canadian equivalent to International Accounting
Standard IAS 2 - Inventories. The main recommendations of the new Section
3031 were:
Measurement of inventories at the lower of cost and net realizable value,
with guidance on the determination of cost, including allocation of overheads
and other costs to inventory.
Specific identification of cost of inventories of items that are not
ordinarily interchangeable, and goods or services produced and segregated for
specific projects.
Consistent use (by type of inventory with similar nature and use) of either
first-in, first-out (FIFO) or weighted average cost formula to measure the
cost of other inventories.
Reversal of previous write-downs to net realizable value when there is a
subsequent increase in the value of inventories.
The adoption of Section 3031 on January 1, 2008, did not have a material
impact on the Corporation`s financial position or operating results.
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, the United
States, Australia, South Africa and Canada.
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 / (loss) 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 mineral interests.
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, plant and equipment includes 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
11. 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 11. 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 written down.
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
capitalized.
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 mineral interests, 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 changes in the estimated future cash flows underlying
the obligation.
2.8 Revenue recognition
Revenue from uranium sales is recognized 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) collectability is reasonably assured.
In a uranium supply arrangement, the Corporation is contractually obligated
to provide uranium concentrates to its customers. Uranium that was produced
by the Corporation is delivered to conversion facilities ("Converters") where
the Converter will credit the Corporation`s account for the volume of
accepted uranium. Based on delivery terms in a sales contract with its
customer, the Corporation instructs the Converter to transfer title of a
contractually specified quantity of uranium to the customer`s account at the
Converter. At this point, the Corporation invoices the customer and
recognizes revenue for the uranium supply. The Corporation does not
recognize revenue in circumstances where it delivers borrowed or purchased
material into contracts.
Interest income is recognized on a time proportion basis, taking account of
the principal outstanding and the effective interest 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 more likely than not 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 uses the fair value method of accounting for all stock based
compensation awards ("Awards"). Under this method, the Corporation
determines the fair value of the compensation expense for all Awards on the
date of grant using an option pricing model. The fair value of the Awards is
expensed over the vesting period of the Awards.
Upon exercise of the Awards, the related amount of stock based compensation
previously expensed is transferred from contributed surplus and together with
consideration received, is recorded as share capital.
The Corporation`s stock based compensation plans consist of the following:
Options
Under Uranium One`s Stock 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, the 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.
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
for restricted shares that is currently in issue is either two-thirds on the
first anniversary of the grant date and the remainder on the second
anniversary of the grant date, or total vesting on the third 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 three 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.
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. The calculation of diluted earnings per share assumes that
outstanding options and warrants that are dilutive to earnings per share are
exercised and the proceeds are used to repurchase shares of Uranium One at
the average market price of the shares for the period. The effect is to
increase the number of shares used to calculate diluted earnings per share.
The impact of outstanding share options and warrants are excluded from the
diluted share calculation for loss per share amounts, because it is anti-
dilutive. The if-converted method is used to compute the dilutive effect of
convertible debt. The dilutive effect of contingently issuable shares is
computed by comparing the conditions required for issuance of shares against
those existing at the end of the period.
2.12 Financial instruments
The Corporation`s financial instruments primarily consist of cash, short-term
money market investments, marketable securities, accounts receivable,
accounts payable and accrued liabilities, loans to joint ventures, draw downs
against the credit facility, other loans, and convertible debentures. The
fair value of these financial instruments, except for the convertible
debentures, approximates 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 fair value,
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.
When available for sale investments are sold, the cumulative market rate
adjustment previously recorded in other comprehensive income is recognized in
the statement of operations.
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.
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.
Financial assets
Financial assets that are classified, as held for trading 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 assets
are carried at fair market value, with the fair value adjustments accounted
for in the statement of operations.
Accounts receivable
Accounts receivable are carried at amortized cost unless a provision has been
recorded for uncollectability 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 year.
For investments included under financial instruments, if there is an other
than temporary decline in the value of the investment, such reduction is
included in the consolidated statement of operations.
Financial liabilities
After initial recognition, financial liabilities, other than held for 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.
Financial liabilities that are classified as held for trading are recognized
on the trade date at fair value, which is the date that the Corporation
commits to the contract. After initial recognition, the liabilities are
carried at fair market value, with the fair value adjustments accounted for
in the statement of operations.
Accounts payable
Liabilities for trade and other payables which are normally settled on 30 to
90 day terms are carried at amortized cost.
Loans payable
Loans payable are recognized initially at the proceeds received, net of
transaction costs incurred. Loans payable are subsequently measured at
amortized cost using the effective interest rate method. Any difference
between proceeds (net of transaction costs) and the redemption value is
recognized in the statement of operations 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.
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.
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 in the consolidated statement of
operations.
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 consolidated 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, resources and
exploration potential of mineral interests and the related depletion and
depreciation, the estimated net realizable value of inventories, impairment
of mineral interests, plant and equipment, determination of fair values of
financial instruments, the fair value 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 interest
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` net assets. When the subsidiary
company issues its own shares to outside parties, 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 entity`s 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, 2009 and October
1, 2011
International Financial Reporting Standards (IFRS)
In February 2008, the Canadian Accounting Standards Board confirmed that
publicly accountable enterprises will be required to adopt IFRS for fiscal
years beginning on or after January 1, 2011, with earlier adoption permitted.
Accordingly, the conversion to IFRS will be applicable to the Corporation`s
reporting no later than in the first quarter of 2011, with restatement of
comparative information presented. The conversion to IFRS will impact the
Corporation`s accounting policies, information technology and data systems,
internal control over financial reporting, and disclosure controls and
procedures. The transition may also impact business activities, such as
foreign currency, certain contractual arrangements, debt covenants and
capital requirements. The Corporation is currently evaluating the future
impact of IFRS on its financial statements and will continue to invest in
training and additional resources to ensure a successful conversion.
Goodwill and intangible assets
Effective January 1, 2009, the Corporation will be adopting the new CICA
Handbook Section 3064 - Goodwill and Intangible Assets, which aligns Canadian
GAAP for goodwill and intangible assets with IFRS. The new standard provides
more comprehensive guidance on intangible assets, in particular for
internally developed intangible assets. The Corporation has not yet
determined the impact of the adoption of this change on its consolidated
financial statements.
Business combinations
Section 1582, Business Combinations, which replaces Section 1581, Business
Combinations, establishes standards for the accounting for a business
combination. It is the Canadian GAAP equivalent to International Financial
Reporting Standard IFRS 3, Business Combinations. This standard is effective
for the Corporation for interim and annual financial statements beginning on
January 1, 2011. Early adoption is permitted. The Corporation has not yet
determined the impact of the adoption of this change on its consolidated
financial statements.
Consolidated financial statements and non-controlling interests
Section 1601, Consolidated Financial Statements and Section 1602, Non-
controlling Interests replaces Section 1600. Section 1601 establishes
standards for the preparation of consolidated financial statements. Section
1602 establishes standards for accounting, for a non-controlling interest in
a subsidiary in consolidated financial statements, subsequent to a business
combination. Section 1602 is equivalent to the corresponding provisions of
International Financial Reporting Standard IAS 27, Consolidated and Separate
Financial Statements. These standards are effective for the Corporation for
interim and annual financial statements beginning on January 1, 2011. Early
adoption is permitted. The Corporation has not yet determined the impact of
the adoption of these changes on its consolidated financial statements.
3 DISCONTINUED OPERATIONS - AFLEASE GOLD
During January 2008, the Board of Directors approved the disposal of the
Corporation`s interest in Aflease Gold. The assets and liabilities of
Aflease Gold, previously disclosed as the Modder East Gold Project, have been
classified as discontinued operations for all periods presented in these
financial statements.
On April 8, 2008 the Corporation sold 152.2 million Aflease Gold shares for
$41.3 million, decreasing the Corporation`s ownership to 38% of the common
shares of Aflease Gold. An option granted to the purchaser to acquire
Uranium One Africa`s remaining shareholding in Aflease Gold lapsed on May 8,
2008. Subsequently, the Corporation sold an additional 12.5 million Aflease
Gold shares for $3.2 million, decreasing the Corporation`s shareholding to
34%. The result of the above transactions, and recording the impairment of
the remaining interest in Aflease Gold, is a loss of $121.3 million.
Subsequent to December 31, 2008, the Corporation sold a further 153.5 million
Aflease Gold shares for proceeds of $16.2 million (including a deposit of
$3.1 million received in 2008), decreasing the Corporation`s shareholding in
Aflease Gold to 6%.
The financial statement effects on the net investment in Aflease Gold and the
statement of operations are illustrated below:
Balance sheet Statement of
operations
$`000 $`000
January 1, 2008 193,210 -
Loss from discontinued operations (1,004) (1,004)
Impairment (121,256) (121,256)
Net carrying value sold during the year (34,446) -
Effect of foreign exchange (27,480) -
December 31, 2008 9,024 (122,260)
Selected financial information of the discontinued operations included in the
comparative periods of the Consolidated Statement of Operations is as
follows:
Year ended
Dec 31, 2007
Net loss from discontinued $`000
operations
Revenues -
Loss from (6,137)
discontinued
operations
Interest and other 961
income
Non-controlling 3,805
interest
(1,371)
The major classes of assets and liabilities of the discontinued operations
are as follows:
Dec 31, Dec 31,
2008 2007
$`000 $`000
Assets
Cash and cash equivalents - 92,623
Accounts receivable and other receivables - 2,321
Inventories - 42
Current assets of discontinued operations - 94,986
Mineral interests, plant and equipment - 285,553
Investment 9,024 -
Other assets - 1,061
Non-current assets of discontinued operations 9,024 286,614
Total assets of discontinued operations 9,024 381,600
Liabilities
Accounts payable, accrued liabilities and - 5,080
other
Income taxes payable - 165
Current liabilities of discontinued - 5,245
operations
Future income tax liabilities - 80,201
Convertible debentures - 90,551
Other long term payables - 1,085
Non-controlling interest - 11,308
Non-current liabilities of discontinued - 183,145
operations
Total liabilities of discontinued operations - 188,390
4 SALE OF INTEREST IN THE HONEYMOON PROJECT
On October 15, 2008, the Corporation entered into an agreement with Mitsui &
Co., Ltd. ("Mitsui & Co.") to create joint ventures in relation to the
Australian assets of the Corporation. The transaction was completed on
December 24, 2008 when the last required regulatory approval was obtained.
Under the agreement, Mitsui & Co. acquired a 49% interest in the Honeymoon
project and the Corporation`s Australian exploration portfolio.
The minimum cash commitment from Mitsui is approximately $72.6 million (A$
104.0 million)(1) for its share of Uranium One Australia`s business. The
majority of these funds will be used to advance the development of the
Honeymoon Project through to commencement of production in 2010.
Pursuant to the terms of the Honeymoon joint venture agreement, the
Corporation committed up to $34.8 million (A$ 49.8 million) of the proceeds
from the investment by Mitsui to fund its share of Honeymoon`s development
expenditures.
The Corporation accounts for its remaining share in the Honeymoon Project on
the proportional consolidation method.
Carrying value of assets before sale $`000
Carrying value of assets and liabilities sold on 281,491
transaction date
Impairment to fair value based on transaction (195,358)
value
Foreign exchange (16,545)
Carrying value after impairment, at 100% 69,588
Assets and liabilities sold:
Mineral interest, plant and equipment 34,707
Accounts receivables and prepayments 26
Accounts payables and other short term payables (356)
Non-current liabilities (279)
Carrying value of assets and liabilities sold 34,098
Carrying value after sale 35,490
(1) A$: Australian dollar
5 BUSINESS COMBINATION BETWEEN URANIUM ONE AND URASIA ENERGY
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 Limited ("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. This gave 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 was
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 included 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 were 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 debentures:
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 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
6 ASSET PURCHASES
6.1 U.S. 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:
Mineral interests, plant and equipment 104,290
Stockpiles 7,772
Asset retirement obligations (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 16).
6.2 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 included 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 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 mineral interests, 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.
6.2 Energy Metals Corporation (continued)
The summarized results of the allocation are indicated in the table below:
Purchase price:
$`000
100.4 million common 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 obligation (2,281)
Future income tax liability (504,421)
1,057,833
7 CASH AND CASH EQUIVALENTS
Dec 31, Dec 31,
2008 2007
$`000 $`000
Cash 134,444 147,532
Money market instruments, including cashable 41,781 12,060
guaranteed investment certificates, bearer
deposit notes and commercial paper
176,225 159,592
Cash and cash equivalents do not include any asset backed commercial paper.
8 ACCOUNTS AND OTHER RECEIVABLES
Dec 31, Dec 31,
2008 2007
$`000 $`000
Trade receivables 26,194 55,520
Value added tax and general sales tax 5,886 7,446
Prepayments and advances 4,151 5,558
Other receivables 3,695 1,794
39,926 70,318
9 JOINT VENTURES
9.1 Proportionate interests in joint ventures
The Corporation owns the following interests in joint ventures:
Betpak Dala 70%
Kyzylkum 30%
Honeymoon 51%
Australia Exploration 51%
The Corporation`s proportionate share of the assets and liabilities of the
joint ventures are as follows:
As at December Betpak Kyzylkum Honeymoo Australi Total
31, 2008 Dala n a
explorat
ion
$`000 $`000 $`000 $`000 $`000
Cash 725 92 - - 817
Other current 8,641 656 16 - 9,313
assets
Mineral 700,006 193,019 26,017 12,603 931,645
interests, plant
and equipment
Other assets 703 4,005 - - 4,708
Current (18,098) (3,084) (653) - (21,835)
liabilities
Long term debt (54) (35,453) (11) - (35,518)
(1)
Other (1,582) (556) - - (2,138)
Future income (270,411 (72,019) (3,271) - (345,701
taxes ) )
Asset retirement (4,609) (117) (223) - (4,949)
obligation
Net Assets 415,321 86,543 21,875 12,603 536,342
In addition to the $33.2 million loan (note 9.2) from the Corporation,
Kyzylkum negotiated unsecured bank loan facilities totaling $100 million in
2007 and another $60 million in 2008. One facility, in the amount of $70
million, was obtained from the Japan Bank for International Cooperation
("JBIC") and the other facility, in the amount of $90 million, was obtained
from Citibank. Total draw downs against these facilities amounted to $120
million as at December 31, 2008, of which the Corporation`s share is $36
million.
As at December 31, 2007 Betpak Dala Kyzylkum Total
$`000 $`000 $`000
Cash 1,643 3,659 5,302
Other current assets 73,039 291 73,330
Mineral interests, plant 680,046 182,740 862,786
and equipment
Other assets 4,771
Current liabilities (900)
Long term debt (18,205)
Other long term liabilities (135)
Future income taxes (72,486)
Asset retirement obligation -
Net Assets 99,735
The Corporation`s proportionate share of revenue, expenses, net earnings /
(loss) and cash flows for the years ended December 31, 2008 and 2007 are as
follows:
Year ended
December 31, 2008
Betpak Kyzylkum Honeymoo Australi Total
Dala n an
explorat
ion
$`000 $`000 $`000 $`000 $`000
Revenue 149,776 - - - 149,776
Expenses and (50,680) 132 - (56) (50,604)
other income
Foreign exchange (18) 660 - - 642
(loss) / gain
Earnings / (loss) 99,078 792 - (56) 99,814
before income
taxes
Current income (42,065) (42) - - (42,107)
tax expense
Future income tax 7,122 186 - - 7,308
recovery
Earnings / (loss) 64,135 936 - (56) 65,015
Cash flows from / 64,344 (78) - - 64,266
(used in)
operating
activities
Cash flows used (53,347) (21,489) - - (74,836)
in investing
activities
Cash flows (used (11,915) 18,000 - - 6,085
in) / from
financing
activities
Net decrease in (918) (3,567) - - (4,485)
cash
Year ended December
31, 2007
Betpak Dala Kyzylkum Total
$`000 $`000 $`000
Revenue 134,024 - 134,024
Expenses and other income (29,664) (962) (30,626)
Foreign exchange loss (5,774) (432) (6,206)
Earnings / (loss) before 98,586 (1,394) 97,192
income taxes
Current income tax expense (43,932) - (43,932)
Future income tax recovery 5,276 - 5,276
Earnings / (loss) 59,930 (1,394) 58,536
Cash flows from / (used in) 77,544 (12) 77,532
operating activities
Cash flows used in (47,711) (23,736) (71,447)
investing activities
Cash flows (used in) / from (33,736) 24,120 (9,616)
financing activities
Net (decrease) / increase (3,903) 372 (3,531)
in cash
9.2 Loans to joint ventures
Dec 31, 2008 Dec 31, 2007
$`000 $`000
Current portion
Betpak Dala - 5,175
Kyzylkum 19,158 27,692
19,158 32,867
Long term portion
Betpak Dala - -
Kyzylkum 14,000 24,359
14,000 24,359
Total 33,158 57,226
During 2007 the Corporation advanced $5.2 million to Betpak Dala on behalf of
its joint venture partner which was repaid during the year ending December
31, 2008.
Kyzylkum loan
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. The loans bear interest at LIBOR plus 1.5% per
annum, with interest payable on a semi-annual basis, commencing within two
years of initial funding.
Dec 31, 2008 Dec 31, 2007
$`000 $`000
Balance at January 1 73,333 80,000
Repaid during the year (26,667) (6,667)
46,666 73,333
Interest accrued 702 1,025
Balance at December 31 47,368 74,358
Less: elimination of proportionate share (14,210) (22,307)
- 30%
33,158 52,051
Less: current portion (19,158) (27,692)
Long term portion 14,000 24,359
The loans to Kyzylkum are unsecured.
10 INVENTORIES
Dec 31, 2008 Dec 31, 2007
$`000 $`000
Finished uranium concentrates 5,401 10,093
Solutions and concentrates in 2,584 5,128
process
Product inventory 7,985 15,221
Materials and supplies 9,405 5,731
Stockpiles - 7,772
17,390 28,724
Less: non-current inventory - 7,772
included in other assets (note 12)
17,390 20,952
11 MINERAL INTERESTS, PLANT AND EQUIPMENT
December 31, 2008 Accumulated Net carrying
Cost amortization amount
$`000 $`000 $`000
Mineral interests 1,035, (46,850) 988,193
043
Plant and equipment 312,36 (15,138) 297,222
0
1,347, (61,988) 1,285,415
403
December 31, 2007 Accumulated Net
carrying
Cost amortization amount
$`000 $`000 $`000
Mineral interests 4,291,594 (32,771) 4,258,823
Plant and equipment 574,846 (6,316) 568,530
4,866,440 (39,087) 4,827,353
A summary by property of the net book value is as follows:
December 31, Mineral interests
2008
Non- Plant and Total
depletabl equipment
e
Depleta Total
ble
Country $`000 $`000 $`000 $`000 $`000
Akdala Mine Kazakhs 92,739 74,358 167,097 28,622 195,719
tan
South Inkai Kazakhs - 396,963 396,963 107,017 503,980
Project tan
Kharasan Kazakhs - 144,722 144,722 48,296 193,018
Project tan
Dominion South - - - 44,586 44,586
Project (1) Africa
United States United - 90,255 90,255 15,589 105,844
development States
projects
United States United - 122,586 122,586 - 122,586
exploration States
projects(1)
Hobson United - - - 22,026 22,026
Facility and States
La Palangana
project (1)
United States United - 39,215 39,215 1,497 40,712
conventional States
mining
projects(1)
(2)
Honeymoon Austral - 25,652 25,652 12,967 38,619
Project(1) ia
Corporate and - 1,703 1,703 16,622 18,325
other (1)
Total 92,739 895,454 988,193 297,222 1,285,415
Refer to note 11.1
Previously Shootaring Canyon Mill
December 31, 2007 Mineral interests
Non- Plant and Total
equipment
Depletable depletable Total
Country $`000 $`000 $`000 $`000 $`000
Akdala Mine Kazakhstan 103,068 74,358 177,426 24,140 201,566
South Inkai Kazakhstan - 422,631 422,631 31,388 454,019
Project
Kharasan Kazakhstan - 146,538 146,538 29,376 175,914
Project
Dominion South - 1,756,018 1,756,018 350,146 2,106,164
Project Africa
United United - 278,654 278,654 7,184 285,838
States States
development
projects
United United - 1,073,130 1,073,130 1,285 1,074,415
States States
exploration
projects
Hobson United - 56,869 56,869 33,503 90,372
Facility and States
La Palangana
Project
United United - 50,009 50,009 47,614 97,623
States States
conventional
mining
projects(1)
Honeymoon Australia - 276,087 276,087 23,951 300,038
Project
Corporate - 21,461 21,461 19,943 41,404
and other
Total 103,068 4,155,755 4,258,823 568,530 4,827,353
Previously Shootaring Canyon Mill
11.1 Impairment of mineral interests, plant and equipment
Impairment Future Net
and income tax impairment
closure recovery
costs
$`000 $`000 $`000
Dominion Project 1,805,452 474,735 1,330,717
United States development 204,289 68,679 135,610
projects
United States exploration 936,556 331,619 604,937
projects
Hobson Facility and La 83,409 19,024 64,385
Palangana Project
United States conventional 65,310 4,070 61,240
mining projects
Honeymoon Project 195,358 59,196 136,162
Corporate and other assets 31,848 5,701 26,147
3,322,222 963,024 2,359,198
Dominion Project
On October 20, 2008, the Corporation`s board of directors decided to place
the Dominion Project ("Dominion") on care and maintenance. A significant
deterioration in Dominion`s economics in conjunction with a continuing
decline in uranium prices over the last year were the major factors that
contributed to the Corporation`s decision to place the Dominion project on
care and maintenance.
The Corporation has valued Dominion at its salvage value of $44.6 million.
Included in the Dominion Project impairment is $17.5 million to place the
project on a care and maintenance basis.
The Corporation carries foreign exchange translation losses of $244.8 million
in accumulated other comprehensive losses relating to the translation to US
dollars of its investment in Uranium One Africa Limited ("Uranium One
Africa"), the wholly owned subsidiary which owns Dominion. The foreign
exchange losses were not taken into consideration in calculating the
impairment value and would only be realized in the statement of operations if
the Corporation sells its investment in Uranium One Africa. The value of the
losses is calculated based on the South African rand and US dollar exchange
rates and will change as exchange rates change.
United States development projects
The Corporation revised the mine plans and economic models for its ISR mining
projects in Wyoming, resulting in an impairment of the carrying value of the
Corporation`s United States development projects.
United States exploration projects
Impairments were recognized on certain United States exploration projects,
due to various factors including economic feasibility, cancellation of option
agreements, metallurgical recovery factors, licensing and environmental
issues.
Hobson Facility and La Palangana Project
From the mine planning process in the United States the Corporation concluded
that the La Palangana project was impaired as its estimated fair value of
$6.2 million was lower than its carrying value. The decrease in value was
due to substantially lower than anticipated recoverable resources at La
Palangana. The Corporation placed the Hobson facility on care and
maintenance and postponed the development of the La Palangana.
United States conventional mining projects
The Corporation concluded that the Shootaring Canyon Mill cannot be operated
economically with the current available resource base and fully impaired the
carrying value of the mill to a negligible salvage value.
Honeymoon Project
The Corporation sold a 49% interest in the Honeymoon Project and the
Corporation`s Australian exploration portfolio to Mitsui & Co. during
December 2008 (note 4).
As the fair value of the assets sold were below the carrying value of the
Honeymoon Project and the Australian exploration properties, they were
written down to fair value based on the transaction value.
Corporate and other assets
Impairments were recognized on corporate and other assets including a $9.6
million impairment on drill rigs and related parts due to the termination of
the existing revenue generating lease agreement and the associated decline of
their fair market value.
12 OTHER ASSETS
Dec 31, Dec 31,
2008 2007
$`000 $`000
Current
Purchased uranium concentrates 9,743 18,056
Future income tax assets 1,206 -
Reclamation bond payment on behalf of UPC 1,094 1,094
joint venture
12,043 19,150
Non-current
Asset retirement fund 19,939 20,316
Advances for future services 10,054 10,629
Borrowed uranium concentrates 8,621 -
Advances for investment in sulphuric acid 5,959 -
plant
Advances for plant and equipment 3,938 12,643
Long term deposits and guarantees 2,489 3,220
Available for sale securities 593 21,257
Long term inventory (note 10) - 7,772
Other 2,359 870
53,952 76,707
Borrowed uranium concentrates
The Corporation entered into an uranium concentrates borrowing agreement to
mitigate the risk of delivery delays enabling the Corporation to meet its
contractual obligations in terms of current uranium sales contracts. The
asset represents the borrowed uranium concentrates, which are held at a
conversion facility in the Corporation`s account. The asset is recorded at
its fair value. A corresponding liability has been recognized (note 18).
A portion of the borrowed uranium concentrates has been delivered into a
sales contract on behalf of Betpak Dala during December 2008. The
Corporation did not recognize revenue for this transaction, in line with the
revenue recognition policy. The revenue will be recognized by Betpak Dala
once they return the uranium concentrates to the Corporation, which occurred
shortly after year-end.
Purchased uranium concentrates
The Corporation entered into uranium concentrates purchasing agreements to
ensure that it could meet its short-term contractual obligations in terms of
uranium sales contracts for Dominion. The asset represents the balance of
the purchased uranium concentrates, which are held at a conversion facility
in the Corporation`s account. The asset is recorded at its fair value.
Available for Sale Securities
During the year, the Corporation disposed of its investment in Randgold and
Exploration Company Limited ("Randgold"). The securities had a carrying
value of $Nil. No value was allocated to the investment as part of the
purchase price allocation on April 20, 2007, due to the suspension of
Randgold on the Johannesburg stock exchange. Proceeds on the sale of these
securities amounted to $13.0 million which resulted in a pre-tax gain on sale
of securities of $13.0 million. Capital gains tax of $1.5 million on the
sale was offset against the assessed losses of Uranium One Africa.
The Corporation disposed of further available for sale securities with a
carrying value of $17.4 million (2007 - $Nil). The securities had a cost
basis of $17.2 million and fair value gains included in accumulated other
comprehensive income of $0.2 million. Proceeds on the sale of these
securities were $11.9 million which resulted in a loss on sale of securities
of $5.5 million. Capital gains tax recovery of $0.9 million was offset
against the Corporation`s assessed losses.
During the year, there was an impairment on available for sale securities of
$3.1 (2007- $0.9 million).
By holding these long-term investments the Corporation is inherently exposed
to various risk factors including currency risk, market price risk and
liquidity risk.
13 LONG TERM DEBT
Dec 31, 2008 Dec 31, 2007
$`000 $`000
Drawn down during the year 65,000 -
Financing fees (3,876) -
Interest paid (386) -
Interest accrued 537 -
Closing balance 61,275 -
On June 27, 2008, the Corporation established a $100 million bank debt senior
secured revolving credit facility (the "facility"). Under the terms of the
facility, the Corporation has the ability to borrow up to $100 million from
the lead lenders, Bank of Montreal and The Bank of Nova Scotia (the "Banks").
The facility has a two year term, and may be extended for a further year with
lender consent.
Draw downs under the facility can be made at interest rates based on either
the US dollar LIBOR rate or the Bank of Montreal base rate for US dollar
denominated loans (note 26). Undrawn amounts are subject to a commitment fee
currently at 0.40% per annum.
Letters of credit can be issued under the facility at a fee of between 1.25%
and 2.00% per annum.
The Corporation has made a drawdown of $65 million under the credit facility
on October 20, 2008. The loan bears interest at 3.5% as at December 31,
2008. A letter of credit in the amount of $12.9 million was issued under the
credit facility on September 25, 2008 as security for a uranium concentrates
loan of 200,000 pounds of U3O8 (note 18).
The debt is payable with no notice, anytime before June 27, 2010.
The Corporation has a balance of $21.7 million available to draw down from
the credit facility after the drawdown and letter of credit issued against
it.
The margins over the base interest rates, the commitment fee and the letter
of credit fee, are dependent on the ratio of the Corporation`s net debt
(consisting of total debt less certain cash balances) to its earnings before
interest, taxes, stock based compensation, depreciation and depletion and
other non-cash items.
Draw downs under the facility may be used for general corporate purposes,
including working capital requirements and funding capital expenditures and
acquisitions.
Financing fees relate to upfront costs and other costs incurred associated
with establishing the credit facility, and are expensed over the term of the
facility.
14 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Dec 31, 2008 Dec 31, 2007
$`000 $`000
Trade payables 18,222 25,334
Accruals 19,874 24,461
Commodity and other taxes payable 4,148 11,280
Deposit received for sale of Aflease Gold 3,100 -
shares (note 3)
Other 2,079 9,727
47,423 70,802
15 CONVERTIBLE DEBENTURES
As part of the Uranium One / UrAsia Energy business combination on April 20,
2007, the Corporation acquired convertible unsecured subordinated debentures
maturing December 31, 2011 (the "debentures") with a face value of Cdn $155.3
million ($133.2 million). The debentures were originally issued at Cdn
$1,000 per debenture and the underwriters` fees amounted to Cdn $30 per
debenture, which resulted in the net proceeds 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 represented 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 components were revalued on acquisition, and were
included as part of the purchase price for the Uranium One/UrAsia Energy
business combination (note 5).
The table below indicates the breakdown of the liability:
Dec 31, 2008 Dec 31, 2007
$`000 $`000
Opening balance 136,548 118,450
Interest incurred 15,075 11,641
Coupon payment (5,989) (6,564)
Foreign exchange movement (27,592) 13,021
Liability as at the end of the year 118,042 136,548
16 ASSET RETIREMENT OBLIGATIONS
Dec 31, 2008 Dec 31, 2007
$`000 $`000
Opening balance 13,927 2,856
Acquired in Uranium One/UrAsia business - 4,602
combination (note 5)
Acquisition of U.S. Energy assets (note - 3,543
6.1)
Acquisition of EMC assets (note 6.2) - 2,281
Revision of estimates (68) 423
Accretion expense 1,407 1,000
Sale of 49% interest in Honeymoon (note (307) -
4)
Other (727) -
Reallocated to discontinued operations - (1,085)
Foreign exchange movement (1,233) 307
Closing balance 12,999 13,927
Dec 31, 2008 Dec 31, 2007
Undiscounted and uninflated amount of 24,864 28,074
estimated cash flows ($`000)
Payable in years 7 - 45 4 - 27
Inflation rate 2.69% - 2.30% - 8.60%
8.50%
Discount rate 8.50% - 7.39% -
15.90% 14.75%
Security of $19.9 million for reclamation obligations has been provided in
the form required by the relevant country`s authorities (note 12).
17 INCOME TAXES
Dec 31, 2008 Dec 31, 2007
$`000 $`000
Current income tax expense 44,191 41,211
Future income tax recovery (1,013,634) (17,621)
(969,443) 23,590
Reconciliation between the average effective tax rate and the applicable
statutory tax rate.
Dec 31, 2008 Dec 31, 2007
$`000 $`000
(Loss) / earnings before income taxes (3,303,030) 7,352
Canadian federal and provincial income 31.00% 34.12%
tax rates
Expected income tax (recovery) / expense (1,023,939) 2,509
Permanent differences, including share 6,075 5,362
based compensation and foreign exchange
Effect of tax rate changes 1,150 2,954
Change in valuation allowance 143,661 9,121
Differences in tax rates in foreign (101,439) 3,994
jurisdictions
Other 5,049 (350)
(969,443) 23,590
Future income tax
The significant components of the Corporation`s future income tax assets and
liabilities are as follows:
Dec 31, 2008 Dec 31, 2007
$`000 $`000
Future income tax assets
Mineral interests, plant & equipment 151,815 30,803
Other 12,105 31,249
Non-capital losses 69,080 58,134
Future income tax assets before 233,000 120,186
valuation allowance
Valuation allowance (163,827) (20,166)
Future income tax assets, net of 69,173 100,020
valuation allowance
Future income tax liabilities
Mineral interests, plant & equipment(1) 435,096 1,577,461
Other 8,164 18,619
Future income tax liabilities 443,260 1,596,080
Net current portion of future income tax 1,206 -
assets
Net long term portion of future income (375,293) (1,496,060)
tax liabilities
Net future income tax liability (374,087) (1,496,060)
Subsequent to year end, the Kazakhstan tenge was devalued by 25% against the
US dollar, which will have an impact on the US dollar equivalent of the
future income tax liabilities for the Kazakhstan operations in the first
quarter of 2009 (note26 (i))
Tax loss carry-forwards
Canada and provincial tax jurisdictions
At December 31, 2008, the Corporation had Canadian federal and provincial net
operating loss carry-forwards totaling $65.7 million that expire from 2009
through 2028. A valuation allowance of $17.3 million has been applied
against the future tax asset representing these losses.
United States federal and state tax jurisdictions
At December 31, 2008, the Corporation had United States federal and state net
operating loss carry-forwards totaling $64.4 million that expire from 2020
through 2028. A valuation allowance of $Nil has been applied against the
future tax asset representing these losses.
South Africa tax jurisdictions
At December 31, 2008, the Corporation had South Africa net operating loss
carry-forwards totaling $69.6 million with no expiry. A valuation allowance
of $24.4 million has been applied against future tax asset representing these
losses.
Kazakhstan tax jurisdictions
At December 31, 2008, the Corporation had Kazakhstan net operating loss carry-
forwards totaling $12.1 million that expire from 2009 through 2011. A
valuation allowance of $1.8 million has been applied against the future tax
asset representing these losses.
Australia tax jurisdictions
At December 31, 2008, the Corporation had Australian net operating loss carry-
forwards totaling $6.8 million with no expiry. A valuation allowance of $Nil
has been applied against the future tax asset representing these losses.
18 OTHER LONG TERM PAYABLES
Dec 31, Dec 31,
2008 2007
$`000 $`000
Uranium concentrates loan 10,692 -
Kyzylkum external loan facility (note 9) 35,453 18,205
Due to the Republic of Kazakhstan 2,138 1,824
Other 641 -
48,924 20,029
Uranium concentrates loan
On September 22, 2008, the Corporation entered into a loan agreement to
borrow 200,000 pounds of U3O8 to be repaid on September 30, 2010. Under the
loan agreement, loan fees of 3.5% per annum are payable based on the value of
the borrowed U3O8. In addition to the loan agreement, the Corporation
incurred $0.4 million in loan arrangement fees, which has been expensed. The
Corporation recognized the borrowed uranium as an Other asset (note 12). The
loan which was classified as a financial liability held for trading, and the
other asset are carried at fair value.
19 SHARE CAPITAL
Number of Value of
Issued and outstanding common shares shares shares
$`000
Common shares on January 1, 2007 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 217,164,830 621,290
Uranium One shares at a ratio of 0.45
Shares of Uranium One owned by Uranium 138,129,435 1,709,647
One shareholders at acquisition
Exercise of warrants 150,000 2,033
Exercise of stock options and restricted 4,354,617 47,311
shares
U.S. Energy asset purchase consideration 6,607,605 99,401
EMC asset purchase consideration 100,444,543 1,013,215
Shares issued for services rendered 322,393 3,987
Common shares on December 31, 2007 467,173,423 3,496,884
Exercise of warrants 1,190,000 15,791
Exercise of stock options 1,043,016 7,358
Exercise of restricted shares 206,517 2,791
Issued and outstanding common shares at 469,612,956 3,522,824
December 31, 2008
On February 9, 2009, Uranium One entered into a subscription agreement with a
corporation formed by The Tokyo Electric Power Company, Incorporated
("TEPCO"), Toshiba Corporation, and The Japan Bank for International
Cooperation ("JBIC") providing for the private placement of an aggregate of
117,000,000 common shares of Uranium One, for gross proceeds of approximately
C$270 million.
The private placement issue price of C$2.30 per share represented a 15%
premium to the 20-day volume weighted average price of Uranium One common
shares on the Toronto Stock Exchange prior to the announcement of the
transaction. Upon closing of the private placement, the consortium will have
a 19.95% equity stake in Uranium One.
Closing of the subscription agreement is subject to the receipt of certain
regulatory approvals, including Toronto Stock Exchange approval, Australian
Foreign Investment Review Board approval and Republic of Kazakhstan Ministry
of Energy and Mineral Resources approval, and to other usual and customary
closing conditions.
20 CONTRIBUTED SURPLUS
The following table details the movement of contributed surplus during the
year:
Warrants Restricte Options Total
d shares
$`000 $`000 $`000 $`000
As at January 1, 2007 - - 31,286 31,286
Issued on Uranium One /
UrAsia Energy
business combination 26,407 853 34,782 62,042
Issued on EMC asset - - 35,307 35,307
acquisition
Stock options issued and - - 33,734 33,734
vested
Stock 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
Stock options issued and - - 14,145 14,145
vested
Stock options exercised - - (3,957) (3,957)
Restricted shares issued - 1,278 - 1,278
and vested
Restricted shares exercised - (2,791) - (2,791)
Warrants exercised (11,460) - - (11,460)
As at December 31, 2008 13,912 1,606 116,084 131,602
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:
December 31, December 31,
2008 2007
Risk free interest rate 2.52% - 3.60% 3.69% - 4.57%
Expected dividend yield 0% 0%
Expected volatility of the Uranium One`s 66% - 120% 40% - 69%
share price
Expected life 5 years 5 years
Stock options
The following is a summary of options granted under the stock-based
compensation plan:
Weighted
Number of average
options exercise
price
Cdn $
Outstanding options as at January 1, 2007 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
Forfeitures of stock options up to April (30,000) 1.80
20, 2007
Outstanding options as at April 20, 2007 21,696,693 3.29
Converted UrAsia Energy stock options on 9,763,498 7.33
date of business combination
Existing Uranium One share options on April 5,390,754 6.67
20, 2007
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
Forfeitures of stock options subsequent to (351,187) 13.14
April 20, 2007
Outstanding options as at December 31, 2007 20,824,788 8.55
Granted options 2,559,948 3.56
Exercised options (1,043,016) 3.74
Forfeitures of stock options (6,483,203) 9.12
Outstanding options as at December 31, 2008 15,858,517 7.82
The stock option compensation expense for the year ended December 31, 2008
was $14.1 million and for the year ended December 31, 2007 it was $33.7
million. As at December 31, 2008, the aggregate unexpensed fair value of
unvested stock options granted amounted to $6.2 million. The fair value of
options granted during the year amounts to $5.5 million.
The following table summarizes stock options outstanding at December 31,
2008:
Options outstanding
Range of Number Weighted average Weighted average
exercise outstanding as remaining life exercise price
prices at December 31,
2008
Cdn $ (years) Cdn $
0.78 to 2.74 1,332,190 1.52 2.08
2.75 to 4.76 4,265,566 3.91 3.86
4.77 to 7.79 2,602,872 2.99 6.77
7.80 to 9.90 3,249,309 6.28 8.46
9.91 to 12.93 2,547,751 3.20 12.10
12.94 to 15.63 744,242 3.11 14.04
15.64 to 16.59 1,116,587 3.33 16.52
15,858,517 3.85 7.82
Table Continued
Options exercisable
Range of Number Weighted average Weighted average
exercise exercisable as remaining life exercise price
prices at December 31,
2008
Cdn $ (years) Cdn $
0.78 to 2.74 1,150,617 1.00 2.28
2.75 to 4.76 2,312,428 3.63 4.02
4.77 to 7.79 2,464,574 2.92 6.87
7.80 to 9.90 3,206,812 6.32 8.46
9.91 to 12.93 1,983,875 2.93 12.11
12.94 to 15.63 410,810 2.86 14.23
15.64 to 16.59 399,312 3.27 16.50
11,928,428 3.80 7.75
Restricted share rights
The following is a summary of Uranium One`s restricted shares issued under
the Restricted Share Plan:
Number of
restricted
shares
Balance at January 1, 2007 404,231
Granted 20,000
Exercised during the year (125,977)
Expired (2,722)
Balance at December 31, 2007 295,532
Granted 609,000
Exercised during the year (206,517)
Expired (74,520)
Balance at December 31, 2008 623,495
The following is a summary of the outstanding restricted share rights:
Number of restricted
shares
Dec 31, Dec 31,
2008 2007
Grant date
June 7, 2006 72,083 225,092
December 8, 2006 9,245 50,440
July 1, 2007 6,667 20,000
April 7, 2008 510,500 -
April 28, 2008 25,000 -
Balance at the end of the year 623,495 295,532
Restricted share rights will not expire while the rights holder is an
employee of the Corporation.
The restricted share rights expense for the year ended December 31, 2008 was
$1.3 million and for the year ended December 31, 2007 was $3.9 million. As
at December 31, 2008 the aggregate unexpensed fair value of unvested
restricted share rights granted amounted to $1.6 million. The fair value of
restricted shares granted during the year amounts to $2.4 million.
Warrants
Number of Allocated value
warrants
$`000
Balance at January 1, 2007 2,731,619 26,407
Exercised during the year (150,000) (1,035)
Balance at December 31, 2007 2,581,619 25,372
Exercised during the year (1,190,000) (11,460)
Lapsed during the year (1,391,619) -
Balance at December 31, 2008 - 13,912
Warrants Number of warrants Average exercise price
Dec 31, Dec 31, Dec 31, Dec 31,
2008 2007 2008 2007
$`000 $`000
2008 Warrants - 2,431,619 - 3.55
Series D Warrants - 150,000 - 6.95
Total - 2,581,619 - 3.75
The series D warrants expired on January 4, 2008 and the 2008 warrants
expired on September 24, 2008.
Contingently issuable shares
The Corporation 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 407,100 common shares for issuance
pursuant to the assumed obligations under contingent share rights agreements.
21 INTEREST AND OTHER
Year ended
Dec 31, Dec 31,
2008 2007
$`000 $`000
Interest income 10,315 11,982
Interest paid (505) (2,835)
Convertible debenture interest (note 15) (15,075) (9,661)
Credit facility charges (1,677) -
Interest and costs incurred on uranium (224) -
concentrates loan (note 18)
Costs incurred in relation to letters of (210) -
credit (note 13)
(7,376) (514)
22 FOREIGN EXCHANGE LOSS
A summary of the foreign exchange loss by item is as follows:
Year ended Dec 31, 2008
Dec 31, Dec 31,
2008 2007
$`000 $`000
Unrealized foreign exchange gain / (loss) on 1,340 (18,727)
future income tax liabilities
Unrealized foreign exchange loss on other (2,679) (10,231)
items
Realized foreign exchange (loss) / gain on (10,370) 15,936
other items
(11,709) (13,022)
23 CASH FLOW INFORMATION
Dec 31, Dec 31,
2008 2007
$`000 $`000
Changes in non-cash working capital
excluding business combinations:
Decrease / (increase) accounts and other 28,818 (2,872)
receivables
Decrease / (increase) in prepaid expenses 2,651 (8,396)
and other
Increase in inventories (910) (3,442)
Decrease in accounts payable and accrued (6,279) (21,042)
liabilities
Increase in income taxes payable 8,450 3,369
32,730 (32,383)
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 - 62,042
rights
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 7,288 6,564
Cash tax paid 35,740 36,107
Short term loans
During 2007, the Corporation repaid short term loans from Nedcor Securities
for a total cash consideration of $55.2 million including accrued interest of
$2.1 million, with the security over the Corporation`s investments in
Randgold and Aflease Gold being released upon repayment.
24 BASIC AND DILUTED WEIGHTED-AVERAGE NUMBER OF SHARES OUTSTANDING
Year ended
Dec 31, Dec 31,
2008 2007
Basic weighted-average number of shares 468,424 360,656
outstanding (`000)
Effect of dilutive securities:
-stock options - -
-warrants - -
Diluted weighted-average number of shares 468,424 360,656
outstanding
For the years ended December 31, 2008 and 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.
25 CAPITAL DISCLOSURES
The Corporation`s objectives when managing capital are to:
(i) Maintain a flexible capital structure which optimizes the cost of
capital at acceptable risk;
(ii) Continue the development and exploration of its mineral properties; and
(iii) Support any expansion plans.
In the management of capital, the Corporation includes shareholders` equity,
long term debt, cash and the current portion of loans to joint ventures.
The Corporation manages its capital structure and makes adjustments to it
when the economic and risk conditions of the underlying assets require
change. In order to maintain or adjust the capital structure, the
Corporation may issue new shares, issue new debt, and/or issue new debt to
replace existing debt with different characteristics. The Corporation has in
place a rigorous planning and budgeting process to help determine the funds
required to ensure the Corporation has the appropriate liquidity to meet its
operating and growth objectives.
The Corporation monitors the following ratios in this respect: total debt to
total capitalization and net debt to total capitalization.
The Corporation must maintain an interest coverage ratio of greater than 2.5
to meet the credit facility`s debt covenants. The interest coverage ratio is
calculated as the ratio of the Corporation`s earnings before interest, taxes,
share based compensation, depreciation and depletion and other non-cash items
("EBITDA") to interest paid.
For years ended
Dec 31, Dec 31,
2008 2007
$`000 $`000
Total liabilities (excluding future income tax 301,302 433,933
liabilities)
Net liabilities (total liabilities less cash,
receivables, and current portion of loans
to joint ventures) 65,993 171,156
Total capitalization (total shareholders` 950,538 3,682,905
equity)
Total liabilities as a percentage of 32% 12%
shareholders` equity
Net liabilities as a percentage of 7% 5%
shareholders` equity
Credit facility:
EBITDA (rolling 4 quarters) 69,755 91,905
Interest coverage ratio 10.5 7.4
26 FINANCIAL INSTRUMENTS
Convertible debentures Dec 31, Dec 31,
2008 2007
$`000 $`000
Liability component 118,042 136,548
Equity component 46,480 46,480
164,522 183,028
Fair value 86,222 145,888
The Corporation`s activities expose it to a variety of financial risks,
including the effects of changes in debt and equity market prices, foreign
currency exchange rates and interest rates. The global nature of the
Corporation`s business exposes the reported financial results and cash flows
of operating segments to risks arising from fluctuations in exchange rates.
The Corporation continuously monitors its exposure to risk. The risk
management carried out by the Corporation is approved by the Board of
Directors. The following describes the type of risks that the Corporation is
exposed to and its objectives and policies for managing those risk exposures.
(i) Foreign exchange risk
The foreign exchange risk relates to the risk that the value of financial
commitments, recognized assets or liabilities will fluctuate due to changes
in foreign currency rates.
The most significant impact of foreign exchange on the Corporation`s net
earnings and other comprehensive income is the translation of foreign
operations into US dollars. The effect of translating the financial
statements of the entities that are determined to be integrated foreign
operations are included in the consolidated statements of operations, and the
effect of translating the financial statements of entities that are
determined to be self-sustaining are included in other comprehensive income.
The Corporation is also exposed to foreign exchange risk arising from:
Cash balances held in foreign currencies;
borrowings denominated in foreign currencies; and
firm commitments or highly probable forecasted transactions for receipts and
payments settled in foreign currencies or with prices dependent on foreign
currencies.
The Corporation does not hedge its exposure to foreign currency exchange
risk.
The Corporation is primarily exposed to foreign currency risk through the
following assets and liabilities denominated in currencies other than US
dollars:
Financial assets and liabilities Non-financial
assets
and liabilities
Cash Account Account Convert Mineral Future
and s s ible interes income
cash receiva payable debentu ts tax
equival ble and res plant liabili
ents accrued and ties
liabili equipme
ties nt
(1)
December
31, 2008
$`000 $`000 $`000 $`000 $`000 $`000
Canadian 438 2,436 3,477 118,042 - -
dollar
South 5,227 4,821 17,506 - 44,586 -
African
rand
Kazakhstan 1,251 5,978 11,515 - - 342,430
tenge
Australian 44,597 1,212 7,558 - 38,619 3,271
dollar
51,513 14,447 40,056 118,042 83,205 345,701
Financial assets and liabilities Non-financial assets and
liabilities
Decembe Cash Account Accoun Conver Minera Future
r 31, and s ts tible l income tax
2007 cash receiva payabl debent intere liabilities
equival ble e and ures st
ents accrue plant
d and
liabil equipm
ities ent
$`000 (1)
$`000 $`000 $`000 $`000 $`000
Canadia 78,938 3,683 10,357 136,54 21,216 5,831
n 8
dollar
South 1,330 9,606 33,168 - 2,106, 567,577
African 164
rand
Kazakhs 2,787 3,128 16,411 - - 351,207
tan
tenge
Austral 24,966 558 5,540 - 300,03 69,039
ian 8
dollar
108,021 16,975 65,476 136,54 2,427, 993,654
8 418
(1) Only includes mineral interests, plant and equipment of self-sustaining
operations.
The following table shows the effect on earnings and other comprehensive
income after tax as at December 31, 2008 of a 10% appreciation or
depreciation in the foreign currencies against the US dollar on the above
mentioned financial and non-financial assets and liabilities of the
Corporation.
Other
comprehensive Net
income earnings
A 10% appreciation in all foreign 3,529 (35,769)
currencies against the US dollar,
with all other variables held
constant.
A 10% depreciation in exchange rates would have the exact opposite effect on
other comprehensive income and net earnings.
The National bank of Kazakhstan has announced on February 4, 2009 that it has
ceased to maintain the Kazakhstan Tenge ("Tenge") within the previous range
of 117-123 Tenge to the US dollar and suggested the rate be set within a
range of 145-155 Tenge to the US dollar. The devaluation amounts to
approximately 25% and will affect the translated values of monetary assets
and liabilities in the first quarter of 2009, with the effect processed
through the statement of operations in 2009.
(ii) Credit risk
Credit risk is primarily associated with trade receivables, and to a lesser
extent, cash equivalents.
The Corporation closely monitors its financial assets and does not have any
significant concentration of credit risk. The Corporation sells its products
exclusively to organizations with strong credit ratings. Cash and cash
equivalents are held through large international financial institutions.
Cash and cash equivalents are comprised of financial instruments issued by
Canadian banks and companies with high investment-grade ratings. The
majority of these investments mature within 90 days of the balance sheet
date.
The Corporation`s maximum exposure to credit risk at the balance sheet date
is as follows:
Dec 31, Dec 31,
2008 2007
$`000 $`000
Cash and cash equivalents 176,225 159,592
Accounts receivable 39,926 73,538
Available for sale securities 593 21,257
216,744 254,387
(iii) Liquidity risk
The Corporation has a cash forecast and budgeting process in place to assist
with the determination of funds required to support the Corporation`s
operating requirements on an ongoing basis and its expansion plans. The
Corporation manages liquidity risk through the management of its capital
structure and financial leverage as outlined in note 25.
The Corporation has established a credit facility (note 13) as part of its
liquidity risk management process. The Corporation has made its first draw
down against the facility in the amount of $65 million on October 20, 2008.
A letter of credit amounting to $12.9 million was issued against the facility
as part of the uranium concentrates loan (note 18). The following table
summarizes the contractual maturities of the Corporation`s significant
financial liabilities and capital commitments, including contractual
obligations:
Less 1 to 3 4 to 5 After 5
than
1 year years years years Total
Lease 511 4,042 1,370 1,491 7,414
obligations
Kyzylkum long - 19,750 15,703 - 35,453
term debt
Capital 9,543 29,000 - - 38,543
commitments
Asset - - - 12,999 12,999
retirement
obligations
Accounts 47,423 - - - 47,423
payable and
accrued
liabilities
Credit - 65,000 - - 65,000
facility
repayments
Uranium - 10,692 - - 10,692
concentrates
loan (note
18)
Convertible - 126,797 - - 126,797
debentures
Other 149 - - 1,402 1,551
57,626 255,281 17,073 15,892 345,872
The convertible debenture is convertible in cash or shares, and may not
result in a cash outflow. The uranium concentrates loan requires settlement
with uranium concentrates, and may not result in a cash outflow.
The Corporation has interests in joint ventures, and is responsible for
partial funding of these joint ventures pursuant to the terms of the joint
venture agreements. The Corporation does not bear direct liquidity risk for
liquidity of these joint ventures, except for the risk relating to the
repayment to loans made to the joint ventures. The Corporation can only
utilize cash generated by the joint ventures when the joint ventures pay
dividends.
On January 19, 2009, in connection with the construction of a sulphuric acid
plant through an established joint venture in which the Corporation is
expected to have a 19% ownership, the Corporation provided a guarantee to a
third party in respect of 19% of the construction cost of the plant, limited
to a maximum amount of $7.6 million (Euro 5.5 million).
The Corporation is exposed to liquidity risk from fluctuating commodity
prices with respect to repayment of the uranium concentrates loan. On
September 22, 2008, the Corporation entered into a loan agreement to borrow
200,000 pounds of uranium concentrates to ensure timely delivery of certain
sales commitments. Under the terms of the loan agreement, the Corporation
received 200,000 pounds of uranium concentrates into its account on September
30, 2008 and is required to repay 200,000 pounds of uranium concentrates on
September 30, 2010 (note 12).
The Corporation is exposed to liquidity risk from fluctuating commodity
prices when the 200,000 pounds of uranium concentrates received as part of a
uranium loan transaction are utilized against contracts. As the market value
of the liability to deliver the uranium concentrates, fluctuates based on
commodity prices, so will the market value of the uranium concentrates held
by the Corporation. The effect that market fluctuations in the uranium price
have on the asset and liability will offset, except in circumstances where
the borrowed uranium has been utilized to make a delivery into a contract.
In these circumstances, the Corporation will recognize a net fair market
value adjustment. As at year end, the Corporation has utilized a portion of
the borrowed material and is thus exposed to the fluctuations of the uranium
price on the market.
A 10% change in commodity prices, should the Corporation be exposed, would
impact the Corporation`s liquidity risk due to the uranium concentrates loan
(note 18), as follows:
Dec 31, Dec 31,
2008 2007
$`000 $`000
A 10% appreciation in commodity
prices, with all other variables held
constant:
- current 198 -
- maximum exposure 1,060 -
A 10% depreciation in the commodity price would have the exact opposite
effect on net earnings.
(iv) Interest rate risk
The Corporation is exposed to interest rate risk on its outstanding
borrowings and short-term investments. The only outstanding interest-bearing
borrowings as at December 31, 2008 are the loan facility obtained by Kyzylkum
(note 9.1) which bears interest at floating rates, the drawn-down amount on
the credit facility which bears interest at floating rates (note 13), and the
convertible debentures, with a fixed interest rate.
A 100 basis point change in the interest rate would impact the Corporation`s
net earnings as follows:
Dec 31, Dec 31,
2008 2007
$`000 $`000
A 100 basis point appreciation in
interest rates, with all other
variables
held constant 811 1,172
A 100 basis point depreciation in the interest rate would have the exact
opposite effect on net earnings.
(v) Commodity price risk
The Corporation is exposed to price risk with respect to commodity prices.
The Corporation does not hedge its exposure to price risk, other than having
market related pricing structures in the long term sales contracts which the
Corporation has entered into. Increases in uranium prices would have a
positive impact on profitability given that the majority of the Corporation`s
sales contracts are priced based on market values for uranium.
A 10% change in commodity prices would impact the Corporation`s net earnings
as follows:
Dec 31, 2008 Dec 31, 2007
$`000 $`000
A 10% appreciation in commodity
prices, with all other
variables held constant 14,978 13,402
A 10% depreciation in the commodity price would have the exact opposite
effect on net earnings.
27 SEGMENTED INFORMATION
The Corporation`s reportable operating segments are summarized in the table
below:
For the year ended December 31, 2008: (in $`000)
Country Revenues Operating Depreciationa
expenses nd depletion
$`000 $`000 $`000
Akdala Mine Kazakhstan 149,776 (30,490) (22,566)
South Inkai Kazakhstan - - -
Project
Kharasan Project Kazakhstan - - -
Dominion Project South - - -
(1) Africa
United States United - - -
development States
projects
United States United - - -
exploration States
projects (1)
Hobson Facility United - - -
and La Palangana States
Project (1)
United States United - - -
conventional States
mining
projects(1)(2)
Honeymoon Australia - - -
Project (1)
Corporate and - - -
other (1)
Total 149,776 (30,490) (22,566)
Country Exploratio Net Capital
n expense earnings/ expenditure
(loss) from
continuing
operations
$`000 $`000 $`000
Akdala Mine Kazakhstan - 61,902 10,651
South Inkai Kazakhstan - 26 43,139
Project
Kharasan Project Kazakhstan - 875 19,466
Dominion Project South (1,412) (1,325,938) 94,211
(1) Africa
United States United - (135,666) 11,455
development States
projects
United States United (6,979) (536,905) 1,013
exploration States
projects (1)
Hobson Facility United (690) (65,077) 17,056
and La Palangana States
Project (1)
United States United (1,189) (85,104) 3,854
conventional States
mining
projects(1)(2)
Honeymoon Australia (2,339) (139,236) 13,525
Project (1)
Corporate and (2,272) (108,464) 2,387
other (1)
Total (14,881) (2,333,587) 216,757
(1) Refer note 11.1
(2) Previously Shootaring Canyon Mill
For the year ended December 31, 2007: (in $`000)
Country Revenues Operating Depreciation
expenses and depletion
$`000 $`000 $`000
Akdala Mine Kazakhstan 134,024 (17,282) (14,899)
South Inkai Kazakhstan - - -
Project
Kharasan Project Kazakhstan - - -
Dominion Project South - - -
Africa
United States United - - -
development States
projects
United States United - - -
exploration States
projects
Hobson Facility United - - -
and La Palangana States
Project
United States United - - -
conventional States
mining
projects(1)
Honeymoon Australia - - -
Project
Corporate and - - -
other
Total 134,024 (17,282) (14,899)
Country Exploration Net Capital
expense earnings/ expenditure
(loss) from
continuing
operations
$`000 $`000 $`000
Akdala Mine Kazakhstan - 56,305 9,108
South Inkai Kazakhstan - 110 39,243
Project
Kharasan Project Kazakhstan - (1,410) 21,135
Dominion Project South (1,913) (1,225) 137,954
Africa
United States United - - 5,907
development States
projects
United States United (5,077) (5,079) 248
exploration States
projects
Hobson Facility United (1,608) (2,764) 14,674
and La Palangana States
Project
United States United (32) (63) 2,966
conventional States
mining
projects(1)
Honeymoon Australia (1,987) (1,745) 21,349
Project
Corporate and (6,179) (60,367) 13,409
other
Total (16,796) (16,238) 265,993
(1) Previously Shootaring Canyon Mill
As at December 31, 2008: (in $`000)
Mineral interest
plant and Total
Country equipment assets
$`000 $`000
Akdala Mine Kazakhsta 195,719 200,497
n
South Inkai Project Kazakhsta 503,980 506,648
n
Kharasan Project Kazakhsta 193,018 197,561
n
Dominion Project South 44,586 69,253
Africa
United States development United 105,844 107,538
projects States
United States exploration United 122,586 123,532
projects States
Hobson Facility and La United 22,026 24,064
Palangana Project States
United States United 40,712 55,098
conventional mining States
projects(1)
Honeymoon Project Australia 38,619 38,858
Corporate and other 18,325 295,060
Total 1,285,415 1,618,109
Future
income tax Total
Country liabilities liabilities
$`000 $`000
Akdala Mine Kazakhsta 66,156 81,385
n
South Inkai Project Kazakhsta 204,255 212,082
n
Kharasan Project Kazakhsta 72,019 111,230
n
Dominion Project South - 28,629
Africa
United States development United - 724
projects States
United States exploration United 24,182 24,418
projects States
Hobson Facility and La United - 1,506
Palangana Project States
United States conventional United 5,410 8,282
mining projects(1) States
Honeymoon Project Australia 3,271 4,158
Corporate and other - 204,181
Total 375,293 676,595
(1) Previously Shootaring Canyon Mill
As at December 31, 2007: (in $`000)
Mineral
interest
plant and Total
Country equipment assets
$`000 $`000
Akdala Mine Kazakhstan 201,566 266,240
South Inkai Kazakhstan 454,019 457,510
Project
Kharasan Project Kazakhstan 175,914 184,283
Dominion Project South 2,106,164 2,111,565
Africa
United States United 285,838 285,838
development States
projects
United States United 1,074,415 1,079,794
exploration States
projects
Hobson Facility United 90,372 91,879
and La Palangana States
Project
United States United 97,623 112,894
conventional States
mining
projects(1)
Honeymoon Australia 300,038 300,043
Project
Corporate and 41,404 341,252
other
Total 4,827,353 5,231,298
Future
income tax Total
Country liabilities liabilities
$`000 $`000
Akdala Mine Kazakhstan 73,623 94,710
South Inkai Kazakhstan 205,053 207,461
Project
Kharasan Project Kazakhstan 72,486 92,422
Dominion Project South 567,577 598,102
Africa
United States United 90,517 92,187
development States
projects
United States United 370,229 374,210
exploration States
projects
Hobson Facility United 19,729 22,639
and La Palangana States
Project
United States United 18,613 21,186
conventional States
mining
projects(1)
Honeymoon Australia 69,040 86,613
Project
Corporate and 9,193 152,073
other
Total 1,496,060 1,741,603
(1) Previously Shootaring Canyon Mill
28 CONTINGENT SALE OF AN INTEREST IN THE DOMINION PROJECT
On June 7, 2005, Uranium One Africa and Micawber 397 (Proprietary) Limited
("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 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.
Uranium One Africa`s shareholders approved the Micawber transaction 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
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, 2008, Micawber 397 has not paid any part
of the purchase price.
29 CONTINGENCIES
Due to the size, complexity and nature of the Corporation`s operations,
various legal and tax matters arise in the ordinary course of business. The
Corporation accrues for such items when a liability is both probable and the
amount can be reasonably estimated. In the opinion of management, these
matters will not have a material effect on the consolidated financial
statements of the Corporation.
Betpak Dala acquisition
As part of the original acquisition of the interest in Betpak Dala on
November 7, 2005, it was agreed that the Corporation is liable for a bonus
payment 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 U3O8 in excess of 66,000 tonnes times the average spot
price of U3O8 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, 2008 (December
31, 2007 - $Nil).
As security for the bonus payment, the Corporation has pledged its
participatory interest in Betpak Dala (including the shares of a subsidiary)
and its share of uranium products produced by Betpak Dala.
Kyzylkum acquisition
As part of the original acquisition of the interest in Kyzylkum on November
7, 2005, it was agreed that the Corporation is liable for a bonus payment,
which 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 have been converted to 6,964,200 Uranium One shares as part
of the UrAsia Energy acquisition. The fair value of the contingently
issuable shares was 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 U3O8 will be paid on incremental reserves in
excess of 55,000 tonnes of U3O8 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, 2008 (December 31, 2007 - $Nil).
Hobson Plant
Production payments are due under the purchase agreement for the Hobson
Processing plant and related exploration properties. The agreement provides
for a payment of $0.75 per pound for the first eight million pounds produced
from the Hobson facility, for a total maximum payment of $6 million.
30 SUBSEQUENT EVENTS
South Inkai commercial production
The Kazakh Ministry of Energy and Mineral Resources formally approved the
commencement of industrial production at South Inkai in December 2008. The
approval was given by way of an amendment to the South Inkai subsoil use
agreement and permits South Inkai to ramp up production over the next three
years to 5,200,000 pounds U3O8 per year. As a result of the approval,
commercial production for accounting purposes will commence at South Inkai on
January 1, 2009.
Other subsequent events
Material transactions occurring subsequent to December 31, 2008 are described
in notes 3,19, 26 (i) and 26 (iii).
Date: 16/03/2009 13:00:02 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
