| Tue 16 Feb 2010, 10:36 | | FUM - First Uranium Corporation - News on Financial Results |
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FUM
FIU
FUM - First Uranium Corporation - News on Financial Results
First Uranium Corporation
(Continued under the laws of British Columbia, Canada)
(Registration number C0777384)
(South African registration number 2007/009016/10)
Share code: FUM
ISIN: CA33744R1029
NEWS RELEASE - February 15, 2010
FIRST URANIUM REPORTS FINANCIAL RESULTS FOR
THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2009
All amounts are in US dollars unless otherwise noted.
The Q3 2010 Management Discussion & Analysis has been appended to this
release.
For the Q3 2010 Financial Statements, please see the Company`s website,
www.firsturanium.com under "Investor Centre / Interim Reports".
Toronto and Johannesburg - First Uranium Corporation (TSX:FIU, JSE:FUM)
(ISIN:CA33744R1029) ("First Uranium" or "the Company") today announced that
for the three-month period ended December 31, 2009 ("Q3 2010") the Company
recorded a consolidated loss of $14.4 million or $0.09 per share as compared
with a consolidated profit of $1.3 million or $0.01 per share in the same
quarter of the prior year ("Q3 2009"). The consolidated loss in Q3 2010 was
primarily attributable to corporate expenses (comprised of general
administrative expenditures, pumping, feasibility and rehabilitation costs,
stock-based compensation and amortization) of $8.1 million and a foreign
exchange loss of $7.4 million. In Q3 2010, the gross loss at the Ezulwini
Mine of $14.2 million was more than offset by the gross profit of $15.1
million at the Mine Waste Solutions tailings recovery operation ("MWS"). The
consolidated profit in Q3 2009 was primarily attributable to a $12.6 million
foreign exchange gain on translation, which more than offset $5.9 million of
corporate expenses and the $1.0 million gross loss from operations.
For the nine-month period ended December 31, 2009 ("2010 YTD") the Company
recorded a consolidated loss of $66.1 million or $0.40 per share as compared
with a consolidated loss of $5.6 million or $0.04 per share in the same period
of the prior year ("2009 YTD"). The 2010 YTD consolidated loss was primarily
attributable to corporate expenses of $23.7 million and a foreign exchange
loss of $21.4 million. The 2010 YTD gross loss at the Ezulwini Mine of $36.7
million was only partially offset by the gross profit of $26.9 million at MWS.
The 2009 YTD consolidated loss was primarily attributable to corporate
expenses of $20.9 million and interest expenses of $9.6 million, which more
than offset a $15.3 million foreign exchange gain on translation and the $8.1
million gross profit from operations.
Gordon Miller, First Uranium`s President and Chief Executive Officer
commented, "In Q3 2010, the Company`s operations continued to improve their
production over the same period last year, with record gold production at both
MWS and the Ezulwini Mine and the shipment of its first container of uranium
bound for conversion. First Uranium, however, faces significant challenges in
its need to fund its current and future financial commitments and to secure
the environmental authorization for a long-term tailings deposition facility
at Mine Waste Solutions.
"To resolve these issues, we are engaged in a process to secure sufficient
alternative financing to meet our needs and are actively appealing the
decision to withdraw our environmental authorization at MWS. In addition, we
have taken significant steps to curtail our costs and financial commitments
across the Company and are focused on achieving specific production targets
and operating cash flows at both operations."
Summary of Consolidated Financial Results
(in thousands of % 2010 2009 %
dollars, except Q3 2010 Q3 2009 Change YTD YTD Change
per share
amounts)
Revenue 31,979 16,458 94.3% 63,899 33,809 89.0%
Gross profit 972 (956) (202%) (9,705) 8,135 (219%)
(loss)
Operating loss(a) (5,939) (6,657) (10.8%) (31,196) (11,579) 169%
Note:
(a) This is a non-GAAP measurement. Operating loss is loss before interest
income, interest and accretion expenses, fair value loss on derivative
liability, foreign exchange gain or loss and income tax charges. See page 3 to
the Q3 2010 Financial Statements for more detail.
(in thousands of % 2010 2009 %
dollars, except Q3 2010 Q3 2009 Change YTD YTD Change
per share
amounts)
(Loss) income (15,022) 1,741 (963%) (62,952) (4,112) (1,431%)
before income
taxes
Income tax 590 (460) 228% (3,185) (1,508) (111%)
recovery (charge)
(Loss) income for (14,432) 1,281 (1,227%) (66,137) (5,620) (1,077%)
the period
Basic and diluted (0.09) 0.01 (1,000%) (0.40) (0.04) (925%)
earnings (loss)
per common share
The Company`s requirement to raise capital to fund both the Ezulwini Mine`s
operating losses and the remaining capital expenditure program at MWS became
increasingly critical during the latter part of Q3 2010 and into Q4 2010. The
Company was actively engaged in exploring additional financing options and in
January 2010 management was preparing to recommend one of several well-
advanced financing options to the Board for their approval.
This financing project was interrupted by a change in status of the Company`s
environmental authorization ("EA") for a new Tailings Storage Facility ("TSF")
designed to accommodate future tailings deposition capacity requirements at
MWS. In October 2009, MWS received a notification from the North West
Provincial Government`s Department of Agriculture, Conservation, Environment
and Rural Development ("NWDACERD") stating its intention to withdraw the EA.
Notwithstanding intensive discussions with senior officials and numerous
submissions to NWDACERD, as well as securing the withdrawal of most of the
appeals, the Company received notice from NWDACERD of the withdrawal of the EA
in January 2010.
On February 10, 2010, after extensive and continuing dialogue at the most
senior levels of government, the Company received notice that the EA had been
reinstated. However, this notice contained conflicting and ambiguous
references to tailings sites upon which the approval was supplied and until
this is resolved to the Company`s satisfaction, it is not in a position to
move forward. The Company is continuing discussions with authorities regarding
the scope of the EA. If these discussions are not successful and the EA is not
reinstated with reference to the correct tailings site, the EA may be of
limited or no value to the Company.
The withdrawal of the EA not only caused a delay in the construction of the
TSF, it has also disrupted the above-mentioned advanced financing options, and
along with the much slower than expected production build-up at the Ezulwini
Mine, has severely compromised First Uranium`s financial position.
Management estimates that, based on the current revised and restructured mine
plans as discussed under the Operations Review and Outlook sections in the
MD&A, the additional cash required would be approximately $50 million. The
current revised and restructured mine plans are based on the assumption that
it will take the Company up to a year to resolve the permitting issue and that
the future development projects at MWS will only resume in a year`s time, upon
resolution of the permitting issue. If, however, in the next three months the
permitting issue was to be resolved and the capital projects at MWS were to
resume, the additional cash required would be approximately $100 million.
These funding requirements do not include any cash outflow relating to the
potential $42 million penalty to GW or the repayment of the $22.4 million
Facility with Simmer and Jack Mines, Limited ("Simmer & Jack").
The Board of Directors of the Company has formed a Special Committee to review
the financial position of the Company and to review and advise the Company on
strategic alternatives that may be available. To this end, the Special
Committee and its advisors have been actively engaged in discussions with
respect to alternative financing arrangements and is assessing various
financing alternatives, however the terms of these alternatives are likely to
be more onerous than the previous financing options.
No assurance can be given that any transaction will be consummated within the
short time frame required to fund the Company`s immediate cash requirements or
that the EA will be successfully re-instated. (See also Note 1 to the Q3 2010
Financial Statements.)
During Q3 2010, First Uranium:
- increased its treatment of tailings through the MWS gold plant from Q2
2010 by 43% for a total of 3.5 million tonnes;
- increased gold produced at MWS by 63% from 13,422 ounces in Q2 2010 to
21,891 ounces in Q3 2010 at a Cash Cost (as defined in the notes to the
Consolidated Results of Operations table of the Q3 2010 MD&A) of $367 per
ounce (Q2 2010: $409);
- increased operating profit at MWS by 149% compared to Q2 2010;
- continued construction of the first two uranium modules and the third
gold plant module at MWS;
- increased ore hoisted from the Ezulwini Mine from 98,831 tonnes in Q2
2010 by -11% to 117,164 tonnes in Q3 2010;
- increased the recovered grade of ore from the Ezulwini Mine from an
average grade of 2.51 grams of gold per tonne in Q2 2010 to an average
recovered grade of 2.80 grams of gold per tonne in Q3 2010;
- increased production of gold from the Ezulwini Mine by 34% from Q2 2010
to 10,685 ounces of gold;
- increased the workable face length for the Upper Elsburg ("UE") gold-only
ore body by 123% from Q2 2010 to 1,672 metres at a blasted face grade of
7.42 grams per tonne;
- increased the workable face length for the Middle Elsburg ("ME") gold and
uranium ore body by 36% from Q2 2010 to 1,024 metres with a blasted face
gold grade of 3.20 grams per tonne and a uranium grade of 0.557 grams per
tonne;
- calcined the first batch of ammonium diuranate ("yellowcake") from the
Ezulwini Mine at a third-party calciner producing 23,760 pounds of
uranium;
- submitted a response to the Member of the Executive Council regarding a
notification received by MWS on October 18, 2009 from NWDACERD stating
its intention to withdraw the EA to construct the TSF at MWS;
- signed a second definitive agreement with Gold Wheaton (Barbados)
Corporation ("GW"), whereby GW purchased 7 percent of the estimated 5.2
million ounces of the life-of-mine gold production from the Ezulwini Mine
("the Ezulwini Gold Stream Transaction") for a $50 million upfront
payment and, upon each gold delivery, an ongoing payment equal to the
lesser of $400 per ounce and the prevailing spot price (subject to an
annual inflation adjustment of 1 percent, starting in the fourth year
after the closing payment); and
- closed the Ezulwini Gold Stream Transaction and received the $50 million
upfront payment from GW on December 8, 2009.
Subsequent to Q3 2010, First Uranium:
- received notice from the NWDACERD on January 18, 2010 of their decision
to withdraw the Company`s EA for the TSF at MWS;
- learned that the EA was reinstated on February 10, 2010, however the
decision contained conflicting and ambiguous references to tailings sites
which do not form part of the planned project at MWS;
- formed a Special Committee of the Board of Directors to review the
financial position of the Company and review strategic alternatives;
- implemented a revised business plan to conserve cash resources as the EA
remains unsettled and financing alternatives are being considered;
- commenced project restructuring at MWS and revised the Ezulwini Mine
Plan; and
- shipped its first container of 23,760 pounds of uranium to an overseas
converter on February 10, 2010.
Financial Results Conference Call
First Uranium will conduct a conference call with investors to discuss the
information in this news release at 9 a.m. local Toronto time and 4:00 p.m.
local Johannesburg time on Wednesday, February 17, 2010. The conference call
will be available simultaneously to all interested analysts, investors and
media.
Callers may dial 1 800 319-4610 (Canada and the US) or 0800 981 705 (South
Africa). Callers from other international locations may call +1 604 638-
5340. The call will be webcast at
http://services.choruscall.com/links/firsturanium100216.html and available for
replay shortly after the call for 90 days.
A telephone replay of the conference call will be available for 30 days. To
access the replay, callers may dial 1 800 319-6413 (Canada and the US).
Callers from other international locations may access the replay by dialing +1
604 638-9010 (Canada). Access to the replay will require the code 2128,
followed by #.
Cautionary Language Regarding Forward-Looking Information
This news release contains and refers to forward-looking information based on
current expectations. All other statements other than statements of
historical fact included in this release including, without limitation,
statements regarding production and development plans and future plans and
objectives of First Uranium are forward-looking statements (or forward-looking
information) that involve various risks and uncertainties. These forward-
looking statements are made as of the date hereof and there can be no
assurance that such statements will prove to be accurate, such statements are
subject to significant risks and uncertainties, and actual results and future
events could differ materially from those anticipated in such statements.
Accordingly, readers should not place undue reliance on forward-looking
statements that are included herein, except in accordance with applicable
securities laws.
Important factors could cause actual results to differ materially from First
Uranium`s expectations. Such factors include, among others: the availability
of capital; the timing and amount of estimated future production and the costs
thereof; the failure of plant, equipment or processes to operate as
anticipated; accidents; labour disputes; delays in obtaining governmental
approvals, as well as those factors discussed under "Risk Factors" in First
Uranium`s Annual Information Form dated June 29, 2009 as filed with securities
regulatory authorities in Canada. Although First Uranium has attempted to
identify important factors that could cause actual results to differ
materially, there may be other factors that cause results not to be as
anticipated, estimated or intended.
About First Uranium Corporation
First Uranium Corporation (TSX:FIU, JSE:FUM) is focused on its goal of
becoming a significant low-cost producer of uranium and gold through the
expansion of the underground development to feed the new uranium and gold
plants at the Ezulwini Mine and through the expansion of the plant capacity of
the Mine Waste Solutions tailings recovery facility, both operations situated
in South Africa.
For further information, please contact:
Bob Tait, Vice President, Investor Relations at bob@firsturanium.ca
+1 416 342-5639 (office) or +1 416 558-3858 (mobile)
1240-155 University Avenue, Toronto, ON M5H 3B7
FIRST URANIUM CORPORATION
MANAGEMENT`S DISCUSSION AND ANALYSIS
of the financial results
for the three and nine months ended
December 31, 2009
Management`s discussion and analysis of the unaudited consolidated financial
condition and results of operations for the three and nine months ended
December 31, 2009
This Management`s Discussion and Analysis ("MD&A") of the consolidated
financial position and results of operations reviews the activities, unaudited
consolidated results of operations and financial condition of First Uranium
Corporation and its subsidiaries ("First Uranium" or the "Corporation") as at
and for the three and nine months ended December 31, 2009, together with
certain trends and factors that are expected to have an impact in the future.
The following abbreviations are used to describe the periods under review
throughout this MD&A:
Abbreviati Period Abbreviati Period
on on
FY 2009 April 1, 2008 to Q1 2010 April 1, 2009 to
March 31, 2009 June 30, 2009
FY 2010 April 1, 2009 to Q2 2010 July 1, 2009 to
March 31, 2010 September 30, 2009
FY 2011 April 1, 2010 to Q3 2010 October 1, 2009 to
March 31, 2011 December 31, 2009
FY 2012 April 1, 2011 to Q4 2010 January 1, 2010 to
March 31, 2012 March 31, 2010
FY 2013 April 1, 2012 to 2009 YTD April 1, 2008 to
March 31, 2013 December 31, 2008
Q3 2009 October 1, 2008 to 2010 YTD April 1, 2009 to
December 31, 2008 December 31, 2009
This MD&A is intended to supplement and complement the unaudited consolidated
financial statements and notes thereto for the three and nine months ended
December 31, 2009 and December 31, 2008 (collectively the "Financial
Statements") which have been prepared in accordance with Canadian generally
accepted accounting principles ("Canadian GAAP"). The MD&A should be read in
conjunction with the Financial Statements and First Uranium`s audited
consolidated financial statements for the fiscal year ended March 31, 2009
("FY 2009") and the notes thereto and the related management`s discussion and
analysis. Information contained in this MD&A is current as at February 15,
2010, unless otherwise indicated.
The reporting currency for the Corporation is the US dollar, and all amounts
in the following discussion are in US dollars ("$"), except where otherwise
indicated.
This MD&A includes certain forward-looking statements. Please read the
cautionary note at the end of this document.
Financial Condition
The Corporation`s financial condition has been severely impacted by the
following recent events.
The Ezulwini Mine became fully operational early in calendar year 2009. As the
year progressed, it became apparent that the mine was not building up gold and
uranium production from underground nearly as fast as planned. The
Corporation`s requirement to raise capital to fund both the Ezulwini Mine`s
operating losses and the remaining capital expenditure program at Mine Waste
Solutions ("MWS") became increasingly critical during the latter part of Q3
2010 and into Q4 2010. The Corporation was actively engaged in exploring
additional financing options and in January 2010 management was preparing to
recommend one of several well-advanced financing options to the Board for
their approval.
This financing project was interrupted by a change in status of the
Corporation`s environmental authorization ("EA") for a new Tailings Storage
Facility ("TSF") designed to accommodate future tailings deposition capacity
requirements at MWS. In October 2009, MWS received a notification from the
North West Provincial Government`s Department of Agriculture, Conservation,
Environment and Rural Development ("NWDACERD") stating its intention to
withdraw the EA. Notwithstanding intensive discussions with senior officials
and numerous submissions to NWDACERD, as well as securing the withdrawal of
most of the appeals, the Corporation received notice from NWDACERD of the
withdrawal of the EA in January 2010.
On February 10, 2010, after extensive and continuing dialogue at the most
senior levels of government, the Corporation received notice that the EA had
been reinstated. This notice contained conflicting and ambiguous references to
tailings sites upon which the approval was supplied and until this is resolved
to the Corporation`s satisfaction, it is not in a position to move forward.
The Corporation is continuing discussions with authorities regarding the scope
of the EA. If these discussions are not successful and the EA is not
reinstated with reference to the correct tailings site, the EA may be of
limited or no value to the Corporation.
The withdrawal of the EA not only caused a delay in the construction of the
TSF, it has also disrupted the above-mentioned advanced financing options, and
along with the much slower than expected production build-up at the Ezulwini
Mine, has severely compromised First Uranium`s financial position.
Management estimates that, based on the current revised and restructured mine
plans as discussed under the Operations Review and Outlook sections of this
MD&A, the additional cash required would be approximately $50 million. The
current revised and restructured mine plans are based on the assumption that
it will take the Corporation up to a year to resolve the permitting issue and
that the future development projects at MWS will only resume in a year`s time,
upon resolution of the permitting issue. If, however, in the next three months
the permitting issue was to be resolved and the capital projects at MWS were
to resume, the additional cash required would be approximately $100 million.
These funding requirements do not include any cash outflow relating to the
potential $42 million penalty to GW or the repayment of the $22.4 million
Facility with Simmer and Jack Mines, Limited ("Simmer & Jack") (see
Commitments and Contingencies section to this MD&A).
The Board of Directors of the Corporation has formed a Special Committee to
review the financial position of the Corporation and to review and advise the
Corporation on strategic alternatives that may be available. To this end, the
Special Committee and its advisors have been actively engaged in discussions
with respect to alternative financing arrangements and is assessing various
financing alternatives, however the terms of these alternatives are likely to
be more onerous than the previous financing options.
No assurance can be given that any transaction will be consummated within the
short time frame required to fund the Corporation`s immediate cash
requirements or that the EA will be successfully re-instated. (See also Note 1
to the Financial Statements.)
Business Overview
The Corporation`s common shares (TSX:FIU, JSE:FUM) and convertible debentures
are listed on the Toronto Stock Exchange (the "TSX"). The common shares are
also listed on the Johannesburg Stock Exchange (the "JSE"). As of February 15,
2010, Simmer & Jack, a South African incorporated public company listed on the
JSE, owned 37.2% of the common shares of First Uranium.
First Uranium Corporation has been focused on becoming a significant, low-cost
producer of uranium and gold through the expansion of the underground
development to feed the new uranium and gold plants at the Ezulwini Mine and
through the expansion of the plant capacity of the MWS. Both the Ezulwini Mine
and MWS are located in South Africa.
Recent activities have focused on:
- optimizing capital and operational requirements with the cash resources
available;
- advancing several financing options, which were subsequently interrupted
by the notice of the NWDACERD to withdraw the EA for the TSF at MWS;
- developing active face length in the underground workings of the Ezulwini
Mine and increasing volumes hoisted from the mine;
- optimizing the uranium plant at the Ezulwini Mine;
- completion of commissioning of the second gold plant module at MWS;
- constructing the first two uranium plant modules at MWS; and
- construction of the third gold plant module at MWS.
The withdrawal of the EA by NWDACERD subsequent to Q3 2010 has not only
delayed construction of the TSF, it has also disrupted certain financing
opportunities. The Corporation is presently continuing discussions regarding
the EA with NWDACERD, reviewing strategic alternatives, and evaluating
alternative financing opportunities.
Notwithstanding progress at its operations discussed below, the continuing
discussions regarding the EA and the continuing financing discussions, the
Corporation has revised the Ezulwini Mine plan and the production schedule at
MWS and also curtailed future development expenditures, particularly at MWS as
part of a company-wide program to conserve capital.
Highlights
During Q3 2010, First Uranium:
- increased its treatment of tailings through the MWS gold plant from Q2
2010 by 43% for a total of 3.5 million tonnes;
- increased gold produced at MWS by 63% from 13,422 ounces in Q2 2010 to
21,891 ounces in Q3 2010 at a Cash Cost (as defined in the notes to the
Consolidated Results of Operations table on page 11 of this MD&A) of $367
per ounce (Q2 2010: $409);
- increased operating profit at MWS by 149% compared to Q2 2010;
- continued construction of the first two uranium modules and the third
gold plant module at MWS;
- increased ore hoisted from the Ezulwini Mine from 98,831 tonnes in Q2
2010 by 11% to 117,164 tonnes in Q3 2010;
- increased the recovered grade of ore from the Ezulwini Mine from an
average grade of 2.51 grams of gold per tonne in Q2 2010 to an average
recovered grade of 2.80 grams of gold per tonne in Q3 2010;
- increased production of gold from the Ezulwini Mine by 34% from Q2 2010
to 10,685 ounces of gold;
- increased the workable face length for the Upper Elsburg ("UE") gold-only
ore body by 123% from Q2 2010 to 1,672 metres at a blasted face grade of
7.42 grams per tonne;
- increased the workable face length for the Middle Elsburg ("ME") gold and
uranium ore body by 36% from Q2 2010 to 1,024 metres with a blasted face
gold grade of 3.20 grams per tonne and a uranium grade of 0.557 grams per
tonne;
- calcined the first batch of ammonium diuranate ("yellowcake") from the
Ezulwini Mine at a third-party calciner producing 23,760 pounds of
uranium;
- submitted a response to the Member of the Executive Council (the "MEC")
regarding a notification received by MWS on October 18, 2009 from
NWDACERD stating its intention to withdraw the EA to construct the TSF at
MWS;
- signed a second definitive agreement with Gold Wheaton (Barbados)
Corporation ("GW"), whereby GW purchased 7 percent of the estimated 5.2
million ounces of the life-of-mine gold production from the Ezulwini Mine
("the Ezulwini Gold Stream Transaction") for a $50 million upfront
payment and, upon each gold delivery, an ongoing payment equal to the
lesser of $400 per ounce and the prevailing spot price (subject to an
annual inflation adjustment of 1 percent, starting in the fourth year
after the closing payment); and
- closed the Ezulwini Gold Stream Transaction and received the $50 million
upfront payment from GW on December 8, 2009.
Pursuant to the Ezulwini Gold Stream Transaction, the Ezulwini Mine is obliged
to deliver a guaranteed minimum of 16,500 ounces in calendar 2010 and 19,500
ounces in calendar 2011 (the "2010 and 2011 Guaranteed Ounces"). Thereafter,
the average annual unguaranteed delivery is estimated to be approximately
19,000 ounces.
Subsequent to Q3 2010, First Uranium:
- received notice from the NWDACERD on January 18, 2010 of their decision
to withdraw the Corporation`s EA for the TSF at MWS;
- learned that the EA was reinstated on February 10, 2010, however this
decision contained conflicting and ambiguous references to tailings sites
which do not form part of the planned project at MWS;
- formed a Special Committee of the Board of Directors to review the
financial position of the Corporation and review strategic alternatives;
- implemented a revised business plan to conserve cash resources as the EA
remains unsettled and financing alternatives are being considered;
- commenced project restructuring at MWS and revised the Ezulwini Mine
Plan; and
- shipped its first container of 23,760 pounds of uranium to an overseas
converter on February 10, 2010.
Summary of Quarterly Results
The table below sets out selected financial data for the periods indicated (as
derived from First Uranium`s consolidated financial statements):
Fiscal Quarters (Loss) Basic &
Ended income diluted
(thousands of for the (loss) Long-term
dollars, except per Revenue three earnings Total liabilitie
share amounts) months per share assets s
December 31, 2009 31,979 (14,432) (0.09) 695,581 (264,446)
September 30, 2009 19,025 (18,441) (0.11) 658,989 (252,591)
June 30, 2009 12,895 (33,264) (0.22) 640,672 (245,800)
March 31, 2009 13,787 (10,722) (0.08) 566,472 (239,162)
December 31, 2008 16,458 1,281 0.01 439,721 (159,396)
September 30, 2008 10,546 (1,106) (0.01) 395,188 (132,817)
June 30, 2008 6,805 (5,795) (0.04) 394,416 (131,741)
March 31, 2008 6,360 (26,871) (0.21) 387,742 (130,430)
Operations Overview
Ezulwini Mine
The Ezulwini Mine has yet to build up sufficient production to generate
positive operating cash flow. As a result of the mine`s focus over the past
two quarters on underground mine development to accelerate the amount of ore
being fed to the gold and uranium plants, the development plan is back on
schedule. Nonetheless, production build-up is progressing much slower than
originally anticipated due to the challenges of training and building up the
efficiency of the mining crews. The mine production forecast has been revised
and reduced to take into account the actual mine efficiencies achieved to
date. See the Outlook section of this MD&A for detail of the revised plan.
The tables below demonstrate the progress in the development of the mine`s two
ore bodies over the last three quarters:
UE gold only ore body Q1 Q2 Q3
2010 2010 2010
Cumulative metres of workable face length 369 605 1,672
% increase quarter over quarter 64% 123%
Blasted face grade - gold (g/t) 4.66 7.79 7.42
ME gold and uranium ore body Q1 Q2 Q3
2010 2010 2010
Cumulative metres of workable face length 408 754 1,024
% increase quarter over quarter 85% 36%
Blasted face grade - gold (g/t) 2.95 3.13 3.20
Blasted face grade - uranium (g/t) 480 439 557
Notes:
1. The face-length build-up is a metric to indicate the content of gold and
uranium produced for a horizontal metre of blasted face length.
During the quarter, the mine also continued to optimize its uranium output
resulting in increased production of yellowcake by 32% from Q2 2010 to 14,537
pounds in Q3 2010. The mine also calcined its first batch of yellowcake
through a third-party calciner producing 23,760 pounds of uranium in December
2009. This first container of uranium was shipped to overseas converters on
February 10, 2010. The uranium will be sold once it reaches the overseas
converters. Including the time required for shipping and converting uranium,
the recognition of revenue from sales of uranium is expected on average to lag
production by three months.
Mine Waste Solutions
During Q3 2010, MWS completed the commissioning of the second gold plant
module which resulted in tonnage throughput increasing by 43% from Q2 2010.
Gold production during the quarter increased by 26% from Q2 2010. This was
less than forecasted in the Corporation`s Production Update released on
October 8, 2009, as the grade reconciliation of the Buffelsfontein No.4
tailings dam was slightly below expectations and operations were interrupted
by heavy rain storms during the quarter.
MWS continued construction of the first two uranium plant modules and the
third gold plant module during Q3 2010. The construction of the third gold
plant module was progressing ahead of schedule and scheduled for completion in
May 2010, however, the Corporation has now suspended construction of the third
gold plant module due to the withdrawal of the EA for the TSF which triggered
the need for a company-wide program to conserve capital and contributed to
compromising the financial situation of the Corporation. As a result of this
decision and the subsequent actions to reduce the Corporation`s capital
commitments related to the third gold plant module, First Uranium no longer
expects to complete this plant by June 1, 2010 (the Construction Completion
date pursuant to the MWS Gold Stream Transaction - see also Commitments and
Contingencies section in this MD&A).
Construction of the first two uranium plant modules is expected to be
concluded by the end of February 2010, at which time commissioning of only one
of the two uranium plant modules will commence. The uranium plant is expected
to commence production of yellowcake during the second half of calendar year
2010.
Production at MWS will be scaled back from the currently operating two gold
plant modules to one at the end of February 2010. The reduced production will
enable the Corporation to maximize the availability of its current deposition
capacity until the permitting issue has been resolved, but will also result in
lower revenues and will increase the amount of financing required by the
Corporation.
Under the revised construction schedule the MWS No. 5 tailings dam (the
tailings deposition facility utilized currently) will provide sufficient
tailings deposition capacity for one gold plant module until the end of
December 2011. Subject to re-instatement of the EA for the TSF and the receipt
of additional capital in the near term, the project would be able to continue
along its originally planned production of 35,000 ounces per quarter.
Permitting at Mine Waste Solutions
In July 2009, a new order mining right for MWS was approved by the Department
of Mineral Resources (the "DMR"). The execution of the mining license is
subject to certain conditions which MWS is in the process of satisfying
including providing financial assurance for rehabilitation liabilities to the
satisfaction of the DMR.
The expansion of the MWS operations and the future realization of the MWS
assets is dependent on the addition of a new life-of-mine TSF. The TSF is
designed to store all of the future tailings depositions for the remaining
life of the operation. The TSF is also important to ensure the significant
economic benefit for the region that is expected to stem from MWS and the
continued employment at the construction site and operations of MWS.
The TSF has been designed to significantly reduce the environmental impact of
mining in the area and to improve the site`s visual appeal as the TSF is
planned to have:
- a more environmentally benign impact than the existing tailings sites as
a significant amount of certain metals and minerals present in the
existing tailings, such as uranium, pyrite and sulphur are to be removed
during re-processing of these tailings;
- reduced risk of erosion as the side slopes will be built at a flatter
gradient and continuously vegetated as the facility is built;
- contours that will be more rounded to blend with the surrounding natural
landscape;
- systems that will recycle and re-use the water used to transport the
tailings to the new site; and
- been built on impermeable soils, unlike the porous dolomites which host
much of the historical tailings.
The older tailings deposits are to be rehabilitated once the tailings from
each such deposit are reprocessed.
MWS received the EA to construct the TSF from the NWDACERD in July 2009 on
property that is owned by MWS and located to the south-east of the town of
Stilfontein. After the EA was received, three appeals were lodged with the
offices of the MEC for the Northwest Province. In reaction to the appeals, the
MEC subsequently advised MWS that the EA was being suspended pending the
outcome of the appeal process governed by the National Environmental
Management Act ("NEMA"). In October 2009, the NWDACERD notified MWS that it
intended to withdraw the EA. MWS submitted its response to the appeals on
November 5, 2009 to NWDACERD. In December 2009, the Corporation secured the
withdrawals of two of three previously filed third-party appeals and was
advised that the third appeal would also be withdrawn. On January 18, 2010,
MWS received notice from the NWDACERD of its withdrawal of the EA.
Subsequent to the withdrawal, the Corporation and its representatives have
been engaged in intensive discussions at the most senior levels with officials
of the North West Provincial government, including the Premier. The EA
withdrawal has seriously compromised the Corporation`s financial efforts, and,
along with the much slower cash generation from the Ezulwini Mine, required
the Corporation to dramatically revise its planned construction completion and
production plans over the next several quarters and has severely impacted the
Corporation`s financial condition.
On February 10, 2010, after extensive and continuing dialogue at the most
senior levels of government, the Corporation received notice that the EA had
been reinstated. This notice contained conflicting and ambiguous references to
tailings sites upon which the approval was supplied and until this is resolved
to the Corporation`s satisfaction, it is not in a position to move forward.
The Corporation is continuing discussions with authorities regarding the scope
of the EA. If these discussions are not successful and the EA is not
reinstated with reference to the correct tailings site, the EA may be of
limited or no value to the Corporation.
Market Overview
During the latter half of the 2009 calendar year, the financial markets
improved, as demonstrated by the easing of credit risk spreads, lower levels
of volatility in many markets and some improvement in investor confidence.
While access to equity was selectively available, other forms of capital,
including debt financing on acceptable terms remained difficult to obtain.
In the current business environment the profitability and liquidity of many
businesses in North America has been severely tested. Most industries,
including the gold and uranium mining businesses, are still impacted by weak
economic conditions, uncertain demand and pricing, volatile financial markets,
and a much diminished supply of capital.
The withdrawal of the EA for the TSF at MWS and of the market conditions
described above has had a significant impact on First Uranium`s business,
particularly with regard to the cost and availability of capital and other
sources of liquidity.
Gold and uranium prices
During Q3 2010, the gold price traded in a range of $1,003.50 to $1,212.50 per
ounce, closing at $1,087.50 and averaging $1,100.74, 15% higher than the
previous quarter and 38% higher than the prior year average. As of February
15, 2010, the gold spot price was $1,098.25 per ounce.
The price of gold has historically been a natural hedge against inflation and
has had an inverse correlation to the value of the US dollar. Therefore,
higher inflation and/or a depreciating US dollar could be positive for the
price of gold. The increase in the gold price compared to the prior year is a
reflection of the impact of lower interest rates, significant uncertainty in
the global credit and financial markets, currency movements and, particularly
in Europe and the US, changes in monetary policies in response to the world
economic crisis.
Management believes that the world`s gold production will continue to decline.
Obtaining permits for new mines is a primary deterrent to starting up new gold
mines, but new projects are also becoming more difficult to find, are facing
increasing public scrutiny, need to be bigger to be economically viable and
are subject to inflationary pressures on capital and operating costs. In South
Africa, the rise of the South African Rand ("ZAR") relative to the US dollar,
as well as recent increases in labour and power costs, have squeezed operating
margins and led to the curtailment of marginal operations. These factors have
been exacerbated by the much more restrictive financing conditions worldwide,
constraining the ability of mining companies to finance projects. In addition,
there has been a lack of global exploration success in recent years and few
new promising regions for gold exploration and production. A decrease in
global industry production heightens the potential increases in the
sustainable long-term gold price.
According to an industry source, The Ux Consulting Company, LLC ("UxC"), the
spot price per pound for uranium ranged between $43.0 and $49.5 during Q3 2010
and the term price, that at which most supply contracts are completed, started
the quarter at $64 per pound and ended the quarter at $62 per pound. As of
February 15, 2010, the uranium spot price per pound was $42.50 and the term
price was $62.
In the current environment, the uranium spot price has been variable within
this range, with demand increasing as the price falls and diminishing as the
price rises. While this pattern is expected to continue for the remainder of
FY 2010, the range of this volatility has narrowed considerably to the low $40
range.
Demand for uranium as a clean source of base-load power is expected to grow
over the next 20 years in excess of four percent, perhaps even stronger around
the end of the next decade. Many countries are making announcements about
building new nuclear power plants, none more aggressively than China.
The US is recommending a tripling of its existing loan guarantee program in
its proposed budget for its 2011 fiscal year, which the country`s Energy
Secretary has indicated could support construction of seven to ten new nuclear
power plants. The renaissance of nuclear power will, however, have to overcome
the major challenges of the economics of building nuclear power plants and the
waste disposal issue. For instance, in the US, funding for Yucca Mountain was
recently cut, formalizing the end of this US nuclear waste storage project.
Currency exchange rates
In Q3 2010, both the Canadian dollar ("Cdn$") and the ZAR experienced
significant exchange rate swings relative to the US dollar as a result of
uncertainty in global markets highlighted by fluctuations in commodity prices.
During Q3 2010, in US dollar terms the ZAR traded in a range of 0.13 - 0.14,
averaging 0.13 (remaining constant with the previous quarter) and closed at
0.13. Relative to US dollar, the Cdn$ traded in a range of 0.92 - 0.97,
averaging 0.95 (4% stronger than the previous quarter) and closed stronger at
0.96.
During Q3 2010, in Cdn$ terms the ZAR traded consistently at an average of
0.14, illustrating that the Cdn$ maintained its position against the ZAR
compared to the previous quarter.
At December 31, 2009, First Uranium held 84% of its cash in ZAR, 14% in Cdn$
and the balance in US dollars. The Corporation currently holds its funds in
cash and bank-sponsored guaranteed investment certificates with Canadian and
South African banks. As a substantial portion of the cash will be utilized in
ZAR to fund the outstanding commitments relating to the capital program at
MWS, the movement in the relative values of the currencies continues to have a
significant impact on the funding available to finance capital projects and
operations. To minimize the impact of currency fluctuations management
converted most of its US dollar funds to ZAR by the end of December.
Historically the ZAR had a strong inverse correlation to the US dollar, which
meant that when the US dollar weakened, the ZAR strengthened, as did the gold
price. The 2008 worldwide economic downturn and US government-sponsored
bailouts in 2009, have driven investors to seek countries with proven track
records and conservative fiscal policies. Due to sound fiscal and monetary
policies and high interest rates, South Africa is attracting the interest of
currency traders. This resulted in the overall strengthening of the ZAR
against the US dollar during the first nine months of the 2009 calendar year,
with only modest gains in the ZAR gold price. During the fourth quarter of the
2009 calendar year, however, the ZAR started to show some weakening against
the US dollar, along with a steady increase in the gold price. Continuation of
these trends could have a positive impact on the Corporation`s revenues.
Swings in the value of the US dollar also continued to have an impact on the
ZAR and Cdn$ denominated costs and on assets and liabilities reported in US
dollar terms, resulting in the significant foreign exchange movements in the
Corporation`s financial results. In Q3 2010, currency movements produced a
loss, primarily unrealized, reflecting the impact of the weakening US dollar
relative to the Cdn$ and ZAR.
Inflation
The Corporation`s operations are subject to inflation. Over the past twelve
months there has been a steady decline in the South Africa inflation rate from
an average annual high inflation rate of 12% at the end of calendar year 2008
to consumer price index of 6% in calendar year 2009. The rise in construction
costs in South Africa witnessed in 2008 and early 2009, began to ease during
the latter half of the year. As a result, First Uranium has been able to
negotiate lower costs for some of the services and materials ordered to build
new gold and uranium plants at MWS during that time period.
Consolidated Results of Operations
Production % 2010 2009 %
Summary Q3 2010 Q3 2009 Change YTD YTD Change
Ezulwini Mine
Tonnes 117,164 30,892 279% 280,960 97,595 188%
hoisted
Tonnes 108,503 80,079 35.5% 295,570 124,093 138%
milled
Ounces of 10,685 6,568 62.7% 22,428 6,568 242%
gold produced
Ounces of 8,213 6,411 28.1% 18,639 6,411 191%
gold sold
Average gold 1,078 922 16.9% 1,035 922 12.3%
selling price
per ounce ($)
Average gold 2,803 1,880 49.1% 3,001 1,880 59.6%
cost per ounce
reclaimed ($)
Average Cash
Cost per ounce 2,649 1,880 40.9% 2,826 1,880 50.3%
of gold
reclaimed
($)(a)
Pounds of 14,537 - 100% 27,634 - 100%
yellowcake
produced
Pounds of 23,760 - 100% 23,760 - 100%
U3O8 produced
MWS
Tonnes 3,528 1,798 96.2% 7,839 5,302 47.8%
reclaimed
(000s)
Average gold
recovery grade 0.19 0.21 (9.5)% 0.19 0.19 -
(grams/tonne)
Ounces of 21,891 12,235 82.4% 46,320 32,586 43.5%
gold reclaimed
Ounces of 21,099 12,581 67.7% 43,514 32,440 34.1%
gold sold
Average gold 1,096 838 30.8% 1,025 860 19.2%
selling price
per ounce ($)
Average gold (378) (428) (11.7%) (406) (421) (3.6%)
cost per ounce
reclaimed ($)
Average Cash
Cost per ounce (367) (368) - (388) (385) -
of gold
reclaimed
($)(a)
Summary of Consolidated Financial Results
(in thousands of dollars, except per share amounts)
Revenue 31,979 16,458 94.3% 63,899 33,809 89.0%
Ezulwini Mine 8,854 5,910 49.8% 19,289 5,910 226%
MWS 23,125 10,548 119% 44,610 27,899 59.9%
Cost of sales (29,504) (16,629) 77.4% (69,540) (24,501) 184%
(excluding
amortization)
Ezulwini Mine (21,754) (12,054) 80.5% (52,672) (12,054) 337%
MWS (7,750) (4,575) 69.4% (16,868) (12,447) 35.5%
Amortization (1,503) (785) 91.5% (4,064) (1,173) 247%
Ezulwini Mine (1,268) - 100% (3,267) - 100%
MWS (235) (785) (70.1%) (797) (1,173) (32.1%)
Gross profit 972 (956) (202%) (9,705) 8,135 (219%)
(loss)
Ezulwini Mine (14,168) (6,144) (131%) (36,650) (6,144) (497%)
MWS 15,140 5,188 192% 26,945 14,279 88.7%
Other income 1,146 196 485% 2,169 1,196 81.4%
Other (8,057) (5,897) 36.6% (23,660) (20,910) 13.2%
expenditures(b
)
Operating (5,939) (6,657) (10.8%) (31,196) (11,579) 169%
loss(c)
Investment 582 125 366% 1,526 3,130 (51.2%)
income
Interest and (4,090) (3,694) 10.7% (11,470) (9,631) 19.1%
accretion
expenditures
Fair value 2,299 (286) 1,119 (286)
gain (loss) on 904% 491%
derivative
liabilities
Accretion (522) (325) (1,535) (1,087) 41.2%
expense on 60.6%
asset
retirement
obligations
Foreign (7,352) 12,578 (158%) (21,396) 15,341 (240%)
exchange gain
(loss)
Income (loss) (15,022) 1,741 (963%) (62,952) (4,112) (1,431%)
before income
taxes
Income tax 590 (460) 228% (3,185) (1,508) (111%)
recovery
(charge)
Income (loss) (14,432) 1,281 (1,227%) (66,137) (5,620) (1,077%)
for the period
Basic and (0.09) 0.01 (1,000%) (0.40) (0.04) (925%)
diluted
earnings
(loss) per
common share
Notes:
(a) "Cash Costs" are costs directly related to the physical activities of
producing gold and uranium and include mining, processing and other plant
costs; third-party refining and smelting costs; marketing expense, on-site
general and administrative costs; royalties; on-mine drilling expenditures
that are related to production and other direct costs. Sales of by-product
metals are deducted from the above in computing cash costs. Cash costs exclude
depreciation, depletion and amortization, corporate general and administrative
expense, exploration, interest, and pre-feasibility costs and accruals for
mine reclamation. Cash costs are calculated and presented using the "Gold
Institute Production Cost Standard" applied consistently for all periods
presented. The Gold Institute was a non-profit industry association comprised
of leading gold producers, refiners, bullion suppliers and manufacturers. This
institute has now been incorporated into the National Mining Association. The
guidance was first issued in 1996 and revised in November 1999. Total cash
costs per ounce is a non-GAAP measurement and investors are cautioned not to
place undue reliance on it and are advised to read all GAAP accounting
disclosures presented in the Corporation`s audited consolidated financial
statements for FY 2009 and accompanying footnotes thereto.
(b) Other expenditures include general, consulting and administrative
expenditures, pumping feasibility and rehabilitation costs, stock-based
compensation and non-production related amortization. See page 3 to the
Financial Statements for detail.
(c) This is a non-GAAP measurement. Operating loss is loss before interest
income, interest and accretion expenses, fair value loss on derivative
liability, foreign exchange gain or loss and income tax charges. See page 3 to
the Financial Statements for more detail.
Financial Review
At the Ezulwini Mine, gold production for Q3 2010 increased by 53% compared to
Q3 2009 and by 26% compared to Q2 2010. The Ezulwini Mine`s gold plant was
deemed to be in commercial production as of Q3 2009 and as indicated by the
increase in production year-over-year and quarter-over-quarter, the mine is
steadily increasing output, although the build-up is much slower than
anticipated. While revenues are increasing, the cost of production remains
high due to the fact that the mine is still in its development stage and
currently operates at considerably less than capacity. The substantial loss in
the reporting periods was as a result of the mine`s fixed operating costs
being spread over the limited early-stage production. It is anticipated that
the high unit costs will decrease and operating and financial performance will
improve as the underground mine development and production levels increase,
albeit at a slower pace. Although the uranium plant at the Ezulwini Mine was
commissioned in Q1 2010, it was only deemed to be in commercial production as
of November 2009 (Q3 2010), so any costs derived from the uranium plant prior
to November 2009 have been capitalized against property, plant and equipment.
The production of yellowcake increased by 32% from Q2 2010 to 14,537 pounds.
No uranium has yet been sold.
At MWS, the commissioned second gold plant module increased the Q3 2010
tonnage throughput by 96% compared to Q3 2009 and 43% compared to Q2 2010. The
increased throughput resulted in a 96% increase in revenues and 148% increase
in operating profit margin at MWS compared to Q2 2010. The impact of the gold
streams from both the first and second gold plant modules having to share
elution capacity in Q2 2010 resulted in less gold recovered during that period
than would be the case if each gold stream had its own elution circuit, and
also resulted in a disproportionate rise in cost (53%) versus revenue (22%) in
Q2 2010. This was corrected in Q3 2010 when the second elution circuit was put
in place, contributing to the 96% increase in revenues versus the 41% increase
in cost of production when compared to Q2 2010.
The consolidated gross profit in Q3 2010 compared to the gross loss in Q3 2009
was primarily attributable to the 156% increase in profit margin from MWS due
to increased production, largely offset by the 131% increase in operating loss
at the Ezulwini Mine due to increased mine activities.
The Corporation incurred a larger operating loss in 2010 YTD compared to 2009
YTD. The larger loss reflected the fact that for the first six months of
fiscal 2009, the Ezulwini Mine was not in commercial production. During that
six-month period the costs of production from the Ezulwini Mine were
capitalized and the related proceeds of gold sales were credited against
property, plant and equipment.
Other income consisted primarily of fees for sludge pumping services to a
third party, scrap sales and rental income at the Ezulwini Mine and varies
from period to period relative to the pumping activity, sales and occupation.
(See Note 16 to the Financial Statements.)
Other expenditures (as defined in Note b to the Consolidated Results of
Operations table on page 11) increased in both Q3 2010 and 2010 YTD relative
to the comparative periods and were mainly attributable to increased corporate
activities, increased pumping costs due to increased mining activities at the
Ezulwini Mine and, for the 2010 YTD specifically, the inclusion of $1.8
million settlement amount pursuant to the Auramet claim in Q2 2010. (See also
Commitments and Contingencies in this MD&A)
Investment income primarily related to interest income earned on cash and cash
equivalents invested in short-term deposits with the Corporation`s bankers
until required for capital projects or to fund operating costs. The lower
interest income in Q3 2010 and 2010 YTD reflected the on average lower cash
balances compared to Q3 2009 and 2009 YTD, as well as lower interest rates.
The higher interest and accretion expenditures compared to Q3 2009 and 2009
YTD was primarily due to the interest charged on the Facility with Simmer &
Jack since the utilization of the facility in August 2009. The accretion
expenditures also include interest and accretion expenses related to the
convertible debentures based on the Cdn$150 million Debenture issue in May
2007. The stronger Cdn$ compared to the US dollar resulted in higher interest
and accretion expense in Q3 2010 relative to the comparative period. (See Note
13 to the Financial Statements.)
The accretion expense on Asset Retirement Obligations in Q3 2010 and 2010 YTD
increased compared to its comparative periods as a result of the stronger ZAR
compared to the US dollar.
The fair value gain on the derivative liabilities consisted of a fair value
gain on the derivative liability related to the Ezulwini Mine offset by a loss
on the derivative liability related to MWS. The gain related to the Ezulwini
Mine derivative liability reflects the decrease in fair value (due to the
decrease in the gold price at the end of Q3 2010 from the gold price on
initial valuation) of the 2010 and 2011 guaranteed ounces to be delivered
pursuant to the Ezulwini Gold Wheaton Transaction at the end of Q3 2010
compared to the fair value on initial valuation. (See Note 11.2 to the
Financial Statements.) The fair value loss related to the MWS derivative
liability reflected the increase in fair value (due to the increase in the
gold price at the end of Q3 2010 from the gold price at the end of Q2 2010) of
the remaining 2009 guaranteed ounces delivered during Q3 2010 pursuant to the
MWS Gold Wheaton Transaction. (See Note 11.1 to the Financial Statements.)
The foreign exchange gain (loss) results from the translation of the value of
Canadian and South African denominated assets, liabilities, revenues and
expenses into US dollars. The foreign exchange loss in Q3 2010 and 2010 YTD
reflects primarily the weakening of the US$ against the Cdn$, but also its
overall weakening against the ZAR during the period. During Q3 2009 and 2009
YTD both the ZAR and the Cdn$ weakened against the US dollar resulting in the
foreign exchange gains during these periods.
The higher income tax charge in 2010 YTD was attributable to the overall
increase in profitability from the MWS operations.
The substantial consolidated loss in 2010 YTD was attributable to the gross
loss incurred at the Ezulwini Mine during Q3 2010 and 2010 YTD (inclusion of
its operating results for the full nine months) combined with the significant
foreign exchange loss on translation during 2010 YTD. The much lower
consolidated loss in 2009 YTD only included the operating results from the
Ezulwini Mine for Q3 2009 and the loss incurred during the 2009 YTD was offset
by the significant foreign exchange gain during that period.
Consolidated Financial Position
Summary Balance Sheet and Key financial ratios
(thousands of dollars)
Q3 2010 FY 2009 %
Change
Cash and cash equivalents 28,308 112,005 (74.7%)
Other current assets (a) 35,689 12,670 182%
Current liabilities (133,154) (58,629) 127%
Total assets 695,581 566,472 22.8%
Total liabilities (397,600) (296,375) 34.2%
Debt (b) (142,980) (121,710) 17.5%
Total shareholders` equity (297,981) (270,097) 10.3%
Key financial ratios:
Current ratio (c) 0.48:1 2.13:1
Debt-to-equity (d) 0.48:1 0.45:1
Notes:
(a) Other current assets include accounts receivable, income tax receivable
and inventories.
(b) Convertible debentures liability of Cdn$150 million translated to US$ at
the exchange rate at the end of the period.
(c) Current assets divided by current liabilities at the end of the reporting
period.
(d) Debt divided by total shareholder`s equity at the end of the reporting
period.
Balance sheet review
Total assets were primarily comprised of property, plant and equipment,
reflecting the capital intensive projects at the Ezulwini Mine and MWS, cash
and cash equivalents, accounts receivable, income taxes recoverable and
inventories.
The 23% increase in total assets since FY 2009 was attributable to an increase
in property, plant and equipment as a result of the capital projects at both
operations, income taxes recoverable in respect of the MWS gold stream
transaction, and an increase in accounts receivable and inventories related to
the increase in production at the Ezulwini Mine, partially offset by the
reduced cash and cash equivalents resulting from capital expenditures and cash
operating losses.
The 34% increase in total liabilities since FY 2009 represented an increase in
deferred revenue resulting from the Ezulwini Gold Stream Transaction in
December 2009, drawdown of the Facility with Simmer & Jack in August 2009 (see
Related Party Transactions section in this MD&A), an increase in the Cdn$
denominated debt portion of the senior unsecured convertible debentures (the
US dollar equivalent is higher because of the weaker US dollar relative to the
Cdn$), increased derivative liabilities related to the 2010 and 2011
guaranteed ounces pursuant to the Ezulwini Gold Stream Transaction, increased
accounts payable and accrued liabilities arising from the increased capital
expenditures at MWS and an increase in future tax liability arising from the
increased asset base at MWS during 2010 YTD.
Financial position
Over the past year the Corporation`s funding requirements and continuing cash
availability have been affected by the global market turbulence in general and
but more specifically by:
- the much lower than expected rate of underground mining activities at the
Ezulwini Mine;
- permitting delays and subsequent withdrawal of the EA for the TSF;
- changes in capital construction scope, scheduling and increased costs;
- delays in timing the commissioning of plant modules relative to plan; and
- fluctuations in commodity prices and currency exchange rates.
As discussed earlier in this MD&A, the withdrawal of the EA by NWDACERD and
the apparent reinstatement of the EA in relation to tailings sites not
included in the Corporation`s project plans for MWS, along with the much
slower increase of production at the Ezulwini Mine had severely compromised
the Corporation`s financial position. The Corporation has revised the Ezulwini
Mine plan and the production schedule at MWS and also curtailed future
development expenditures as part of a company-wide program to conserve
capital. Management`s key priorities now are to resolve the permitting issue
as quickly as possible, seek strategic alternatives for financing and the
immediate restructuring of the operations.
The Board of Directors of the Corporation has formed a Special Committee to
review the financial position of the Corporation and to review strategic
alternatives. The Special Committee and its advisors have been actively
engaged in discussions with respect to alternative financing arrangements and
is assessing various financing alternatives, however, the terms of these
alternatives are likely to be more onerous than the previous financing
options.
Within its funding constraints, the Corporation plans to continue to focus on
underground development and work to achieve increased production at the
Ezulwini Mine and attain optimal output from gold and uranium facilities at
both operations under the restructured plans. Future expansion and production
activities will be subject to resolving the permitting issue at MWS and
capital availability.
Liquidity and Capital Resources
The Corporation`s financing efforts to date are not sufficient in and of
themselves to enable the Corporation to fund all aspects of its operations and
consequently the Corporation relies, in part, on cash generated from the
operations to fund the capital expenditure obligations to complete
construction and commissioning of the current capital projects at MWS. The
much slower build-up of production at the Ezulwini Mine, delays in
commissioning additional plant modules at both the Ezulwini Mine and MWS,
along with increased capital requirements have resulted in less cash being
generated by the Corporation than previously anticipated. In addition, the
delays in permitting relating to the construction of its new life-of-mine TSF
during Q3 2010 and the subsequent withdrawal of the EA has not only delayed
construction of the TSF, it has also disrupted certain well-advanced corporate
financing opportunities, which, along with the much slower than expected
production build-up at the Ezulwini Mine have severely compromised the
Corporation`s financial position.
At December 31, 2009, the Corporation had existing commitments of $60.8
million. In addition, due to the suspension of the current and future
development projects at MWS, the Corporation will no longer be able to meet
the June 1, 2010 Construction Completion Date pursuant to the MWS Gold Stream
Transaction agreement (See Commitments and Contingencies section in this
MD&A). Subject to the terms of its agreement with GW and any defences that MWS
may have, MWS may be required to pay GW the $42 million penalty in June 2010.
Available cash resources of $28.3 million at December 31, 2009 and the cash
forecasted to be generated from the sale of gold and uranium will not be
sufficient to fund the Corporation`s outstanding commitments and the potential
$42 million penalty. In addition, the Corporation must repay the $22.4 million
Facility with Simmer & Jack by August 14, 2010. The Corporation will be
engaging in discussions with Simmer & Jack and GW with respect to these
obligations.
Management estimates that, based on the current revised and restructured mine
plans as discussed under the Operations Review and Outlook sections of this
MD&A, the additional cash required would be approximately $50 million. The
current revised and restructured mine plans are based on the assumption that
it will take the Corporation up to a year to resolve the permitting issue and
that the future development projects at MWS will only resume in a year`s time,
upon resolution of the permitting issue. If, however, in the next three months
the permitting issue was to be resolved and the capital projects at MWS were
to resume, the additional cash required would be approximately $100 million.
These funding requirements do not include any cash outflow relating to the
potential $42 million penalty to GW or the repayment of the $22.4 million
Facility with Simmer & Jack (see Commitments and Contingencies section to this
MD&A).
The Board of Directors of the Corporation has formed a Special Committee to
review the financial position of the Corporation and to review strategic
alternatives. The Special Committee and its advisors is currently assessing
various financing alternatives. No assurance can be given that any transaction
will be consummated within the short time frame required to fund the
Corporation`s immediate cash requirements.
Cash flows
Cash flows for the three months ended December 31, 2009 are summarized below:
(thousands of dollars)
Q3 2010 Q3 2009 % Change
Cash flows (utilized in) generated from (1,185) 3,679 (132%)
operating activities
Cash flows utilized in investing (80,182) (51,388) 56.0%
activities
Cash flows from financing activities 50,000 50,000 -
Net (decrease) increase in cash and (31,367) 2,291 (1,469%)
cash equivalents for the period
Cash and cash equivalents at beginning 59,675 36,725 62.5%
of period
Cash and cash equivalents at end of 28,308 39,016 (27.4%)
period
The increase in cash used in operating activities compared to Q3 2009 was
primarily attributable to increased mining costs from increased mining
activities at the Ezulwini Mine which has not yet generated a commensurate
amount of cash revenues.
The increase in cash used in investing activities was primarily attributable
to a significant increase in expenditures at MWS due to the ramp up of its
capital programs offset by a decrease in capital expenditures at the Ezulwini
Mine as its currently-identified capital programs have substantially been
completed. During Q3 2010, capital expenditures of $7.3 million and $72.6
million were incurred at the Ezulwini Mine and MWS, respectively. During Q3
2009 capital expenditures of $17.2 million and $36.3 million were incurred at
the Ezulwini Mine and MWS, respectively.
The cash from financing activities during Q3 2010 was attributable to $50
million received pursuant to the Ezulwini Gold Stream Transaction. The cash
from financing activities during Q3 2009 was attributable to $50 million
received pursuant to the MWS Gold Stream Transaction.
Cash flows for the nine months ended December 31, 2009 are summarized below:
(thousands of dollars) 2010 2009
YTD YTD % Change
Cash flows utilized in operating (48,811) (740) (6,500%)
activities
Cash flows utilized in investing (198,019) (174,983) 13.2%
activities
Cash flows from financing activities 163,133 50,000 226%
Net decrease in cash and cash (83,697) (125,723) (34.0%)
equivalents for the period
Cash and cash equivalents at 112,005 164,739 (32.0%)
beginning of period
Cash and cash equivalents at end of 28,308 39,016 (27.4%)
period
The higher cash consumption from operating activities in 2010 YTD was
primarily attributable to the increased mine activities, but as yet limited
production at the Ezulwini Mine. For 2009 YTD a large portion of the operating
costs from the Ezulwini Mine were capitalized.
During 2010 YTD, cash used in investing activities increased marginally
compared to 2009 YTD.The significant increase in expenditures at MWS due to
the ramp up of its capital programs over the last nine months, was
substantially offset by a decrease in the current capital expenditure program
at the Ezulwini Mine, which is virtually complete. During 2010 YTD, capital
expenditures of $35.6 million and $161.4 million were incurred at the Ezulwini
Mine and MWS, respectively. During 2009 YTD capital expenditures of $86.8
million and $87.2 million were incurred at the Ezulwini Mine and MWS,
respectively.
The cash from financing activities during 2010 YTD was attributable to $92.6
million net proceeds received from the June 2009 bought deal financing, $20.5
million net cash from the Facility with Simmer & Jack and $50 million pursuant
to the Ezulwini Gold Stream Transaction. During 2009 YTD the Corporation
received $50 million pursuant to the MWS Gold Stream Transaction.
Commitments and contingencies
At the end of Q3 2010, the Corporation had $60.8 million of existing
commitments, of which $1.8 million related to the Ezulwini Mine and $59.0
million to MWS. The existing commitments at the Ezulwini Mine related to mine
development and infrastructure costs. The existing commitments at MWS included
$5.9 million relating to the construction and commissioning of the second gold
module and the first two uranium modules, $38.8 million relating to the
construction of the third gold module and the third stream of the uranium
flotation plant and $14.3 million for the construction of a new TSF.
Pursuant to the MWS Gold Stream Transaction, construction of the third gold
plant module is to be completed by no later than June 1, 2010, the
Construction Completion Date. (Also see Note 12.1 to the Financial
Statements). If construction of the third gold module is not completed by the
Construction Completion Date, the agreement provides for payment of a $42
million penalty, at GW`s election; the payment of such a penalty is subject to
the terms of the agreement and any defences MWS may have. However, if MWS
completes construction within one year or two years of the election, GW must
repay MWS $30 million or $20 million, respectively. As a result of the
withdrawal of the EA at MWS, and the subsequent suspension of the construction
of the third gold plant module at MWS, First Uranium does not expect to meet
the Construction Completion Date.
In December 2008, Auramet Trading LLC ("Auramet") served a statement of claim
on the Corporation, claiming a fee in the amount of $3.25 million in
connection with the Gold Stream Transaction. The parties reached a settlement
on a total amount of $1.8 million on November 10, 2009, pursuant to which the
Corporation paid $0.6 million on signing the minutes of settlement and has
agreed to pay the remaining $1.2 million in three equal installments over the
first three quarters of calendar 2010.
On August 4, 2009, Aberdeen International Inc. ("Aberdeen") filed a claim for
$11.4 million against Simmer & Jack and First Uranium (Proprietary) Limited
("FUSA"), a subsidiary of First Uranium, alleging certain breaches of a loan
agreement dated March 30, 2006 and as amended by agreement on November 30,
2006 (together the "Loan Agreement"). FUSA was not a party to the Loan
Agreement. Simmer & Jack, FUSA and Aberdeen entered into an arrangement
agreement (the "Arrangement Agreement") dated December 20, 2006. Also see
Related Party Transactions section in this MD&A in connection with the sale of
the Buffelsfontein Tailings by Simmer & Jack to FUSA. The Arrangement
Agreement provides for FUSA to pay to Simmer & Jack an amount equal the
royalty payable to Aberdeen by Simmer & Jack under the Loan Agreement in
respect of the gold produced from the Buffelsfontein Tailings. Of the total
amount claimed, Aberdeen asserts that an additional royalty was payable by
FUSA for the period October 16, 2008 to December 31, 2008 in the amount of
approximately $400,000. FUSA has fulfilled or has caused its obligations to be
fulfilled under the Arrangement Agreement and the agreement explicitly states
that Aberdeen shall have no recourse to FUSA. Management believes that the
claim against FUSA has no merit and that Aberdeen has no recourse to First
Uranium or FUSA.
At December 31, 2009, First Uranium had the following contractual obligations:
Payments due by date
Less 1-3 4-5 After
(thousands of dollars) than Years Years 5 Total
1 year Years
Senior unsecured 6,074 9,095 142,92 - 158,08
convertible debentures 0 9
Purchase obligations 60,841 - - - 60,841
Provision for GW penalty 42,000 - - - 42,000
Asset retirement - 2,791 1,865 24,730 29,386
obligations
Derivative liabilities 11,344 13,406 - - 24,750
Facility with Simmer & Jack 22,448 - - - 22,448
Capital leases 361 1,083 722 - 2,166
Operating leases 678 344 172 - 1,194
Total contractual 143,74 26,719 145,67 24,730 340,87
obligations 6 9 4
Outlook
Liquidity
In an effort to limit its funding requirements, the Corporation has revised
the Ezulwini Mine plan and the production schedule at MWS and also curtailed
future development expenditures as part of a company-wide program to conserve
capital. Management`s key priorities now are to resolve the permitting issue
as quickly as possible, consider strategic alternatives for financing and the
immediate restructuring of the operations. The Corporation has been actively
engaged in discussions with respect to alternative financing arrangements and
is assessing various financing alternatives, however, the terms of these
alternatives are likely to be more onerous than the previous financing
options.
Ezulwini Mine
The key elements that drive production and operating results at the Ezulwini
Mine are:
- the creation of available face length, with uranium and gold grades
within planned ranges;
- increasing production build-up;
- improving gold and uranium recoveries;
- favourable ZAR prices for uranium and gold; and
- the sale of uranium to nuclear power utilities.
As discussed in the Ezulwini Mine Operations Review section in this MD&A, the
mine production forecast has been revised in response to slower than expected
mine production ramp up to date and the capital constraints.
The table below summarizes the revised Ezulwini Mine production forecast for
the financial years ending March 31, 2011, 2012 and 2013:
Gold production FY 2011 FY 2012 FY 2013
Production (oz) 132,000 194,000 265,000
Estimated Cash Costs ($/oz) 766 598 721
Uranium production FY 2011 FY 2012 FY 2013
Production (lb) 207,000 312,000 390,000
Estimated Cash Costs ($/lb) 46 41 53
Notes:
1. "Cash Costs" are costs directly related to the physical activities of
producing gold and uranium and include mining, processing and other plant
costs; third-party refining and smelting costs; marketing expense, on-
site general and administrative costs; royalties; on-mine drilling
expenditures that are related to production and other direct costs. Sales
of by-product metals are deducted from the above in computing cash costs.
Cash costs exclude depreciation, depletion and amortization, corporate
general and administrative expense, exploration, interest, and pre-
feasibility costs and accruals for mine reclamation. Cash costs are
calculated and presented using the "Gold Institute Production Cost
Standard" applied consistently for all periods presented. The Gold
Institute was a non-profit industry association comprised of leading gold
producers, refiners, bullion suppliers and manufacturers. This institute
has now been incorporated into the National Mining Association. The
guidance was first issued in 1996 and revised in November 1999. Total
cash costs per ounce is a non-GAAP measurement and investors are
cautioned not to place undue reliance on it and are advised to read all
GAAP accounting disclosures presented in the Corporation`s audited
consolidated financial statements for FY 2009 and accompanying footnotes
thereto.
2. The Cash Costs are shown on co-product basis, where costs are allocated
to each metal on the basis of the revenue contribution from each metal.
MWS
As discussed in the MWS Operations Review section in this MD&A, the
Corporation has taken action to delay future development expenditures,
particularly at its MWS tailings recovery operation as part of a company-wide
program to conserve capital.
The table below summarizes the revised MWS production forecast for the
financial years ending March 31, 2011 and 2012:
Gold production FY 2011 FY 2012
Production (oz) 57,000 64,000
Estimated Cash Cost ($/oz) 459 490
Uranium production FY 2011 FY 2012
Production (lb) 270,000 560,000
Estimated Cash Cost ($/lb)Squared 43 36
Notes:
1. Gold "Cash Costs" are costs directly related to the physical activities
of producing gold and include mining, processing and other plant costs;
third-party refining and smelting costs; marketing expense, on-site
general and administrative costs; royalties; on-mine drilling
expenditures that are related to production and other direct costs. Sales
of by-product metals are deducted from the above in computing cash costs.
Cash costs exclude depreciation, depletion and amortization, corporate
general and administrative expense, exploration, interest, and pre-
feasibility costs and accruals for mine reclamation. Cash costs are
calculated and presented using the "Gold Institute Production Cost
Standard" applied consistently for all periods presented. The Gold
Institute was a non-profit industry association comprised of leading gold
producers, refiners, bullion suppliers and manufacturers. This institute
has now been incorporated into the National Mining Association. The
guidance was first issued in 1996 and revised in November 1999. Total
cash costs per ounce is a non-GAAP measurement and investors are
cautioned not to place undue reliance on it and are advised to read all
GAAP accounting disclosures presented in the Corporation`s audited
consolidated financial statements for FY 2009 and accompanying footnotes
thereto.
2. Uranium "Cash Costs" calculations take into account the incremental
ounces of gold recovered when the ore is run through the atmospheric
leach tanks of the uranium plant.
The annualized production rate presented above assumes a protracted permitting
process during which MWS runs at an average reduced throughput of 600,000
tonnes per month until January 2012. Securing the EA as well as funding
required to complete the capital projects sooner will allow acceleration of
the annualized gold production rate to 140,000 ounces per annum and uranium
production to 960,000 pounds per annum as originally planned. From the point
at which the EA and funding are secured, MWS will require a six-month window
to conclude the necessary construction activities to realize the increased
production rate.
Technical Disclosure
All technical disclosure in this MD&A relating to the Ezulwini underground
mine project will be presented in a Preliminary Assessment Technical Report to
be prepared in accordance with National instrument 43-101 ("NI 43-101) by R.
Dennis Bergen, P.Eng and Wayne Valliant P.Geo of Scott Wilson Roscoe Postle
Associates Inc., each of whom is a "qualified person" under NI 43-101 and is
independent of First Uranium. The disclosure contained in this MD&A has been
reviewed and approved by Mr. Bergen and Mr. Valliant.
All technical disclosure in this news release relating to MWS has been
prepared in accordance with National Instrument 43-101 ("NI 43-101) by Jim
Fisher who is a Chartered Engineer and is a "qualified person" under NI 43-
101.
Related Party Transactions
On August 14, 2009 the Corporation finalized a one-year term credit facility
of ZAR160 million (approximately $21.6 million as at December 31, 2009) (the
"Facility") with Simmer & Jack. The Corporation drew down the entire Facility
during Q2 2010. The Facility bears interest at the three-month Johannesburg
Interbank Agreed Rate (JIBAR) for ZAR denominated loans (currently 7.40%) plus
7% per annum. An arrangement fee of 3% was paid on the Facility amount and the
Corporation paid for the legal and other costs relating to the Facility. The
Corporation may repay the principal and accrued interest and terminate the
Facility at any time before the one year anniversary without notice or
penalty.
During Q3 2010 and 2010 YTD, the Corporation paid $0.9 million and $2.4
million, respectively, to Simmer & Jack pursuant to the Shared Services
Agreement (Q3 2009: $0.4 million and 2009 YTD: $1.6 million). For Q3 2010 and
2010 YTD $0.7 million and $1.5 million, respectively, of the fees paid to
Simmer & Jack was related to technical services provided to the operations
that were capitalized (Q3 2009: $0.2 million and 2009 YTD: $0.5 million). For
a description of the Shared Services Agreement, see the Corporation`s Annual
Information Form ("AIF") dated June 29, 2009.
At the end of Q3 2010, the amount payable to Simmer & Jack was $0.3 million
compared to $0.9 million payable at the end of FY 2009.
First Uranium has agreed to reimburse Simmer & Jack for 50% of the fees that
Simmer & Jack is required to pay to an empowerment company for consulting.
During Q3 2010 and 2010 YTD, the Corporation paid $0.06 million and $0.2
million, respectively to Simmer & Jack in connection with such services (Q3
2009: $0.05 million and 2009 YTD: $0.2 million).
On September 27, 2007, the Board approved a loan in the amount of Cdn$1
million to the President and Chief Executive Officer of First Uranium for the
purpose of facilitating the relocation of him and his family to Toronto, where
the corporate office is located. The loan carries interest at 4% payable
monthly in arrears, for a term of six years from the date of closing of the
purchase of a family residence and is unsecured. The loan was advanced on
October 17, 2007. Interest received on this loan was $0.01 million and $0.03
million during Q3 2010 and 2010 YTD (Q3 2009: $0.01 million and 2009 YTD:
$0.03 million). The higher loan balance ($1.0 million at the end of Q3 2010
compared to $0.8 million at the end of FY 2009) reflects the strengthening of
the Cdn$ against the US dollar during 2010 YTD.
Pursuant to the Buffelsfontein Tailings and Rights Agreement and the Aberdeen
Arrangement (Refer to the Corporation`s AIF for more detail), MWS is liable to
pay: (i) to Simmer & Jack, an amount equal to the royalty payable by Simmer &
Jack to Aberdeen pursuant to the Aberdeen Loan Agreement in respect of gold
produced from the Buffelsfontein Tailings, and (ii) to BGM a royalty of 1% of
the gross revenue earned by MWS from the sale of uranium, gold, sulphur and
other minerals recovered from the processing of the Buffelsfontein Tailings.
During Q3 2010 and 2010 YTD the total royalties and payments, inclusive of the
amounts due in respect of the Aberdeen Loan Agreement were $0.5 million and
$0.9 million, respectively (Q3 2009: $0.2 million and 2009 YTD: $1.2 million).
Disclosure Controls and Procedures and Internal Control over Financial
Reporting
Disclosure Controls and Procedures
The Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") are
responsible for establishing and maintaining adequate disclosure controls and
procedures, as defined in National Instrument 52-109 - Certification of
Disclosure in Issuers` Annual and Interim Filings (NI 52-109). Disclosure
controls and procedures are designed to provide reasonable assurance that
information required to be disclosed in the Corporation`s filings under
securities legislation is accumulated and communicated to management,
including the CEO and CFO as appropriate, to allow timely decisions regarding
public disclosure. They are also designed to provide reasonable assurance that
all information required to be disclosed in these filings is recorded,
processed, summarized and reported within the time periods specified in
securities legislation. Management regularly reviews the disclosure controls
and procedures; however, they cannot provide an absolute level of assurance
because of the inherent limitations in control systems to prevent or detect
all misstatements due to error or fraud.
Management, including the CEO and CFO, conducted an evaluation of the
effectiveness of the Corporation`s disclosure controls and procedures as of
December 31, 2009. Based on this evaluation, the CEO and CFO have concluded
that the disclosure controls and procedures were effective to provide
reasonable assurance that as of December 31, 2009 information required to be
disclosed in First Uranium`s annual and interim filings (as such terms are
defined under NI 52-109) and other reports filed and submitted under Canadian
securities laws is recorded, processed, summarized and reported within the
time periods specified by those laws, and that material information is
accumulated and communicated to management, including the CEO and CFO as
appropriate, to allow timely decisions regarding required disclosure.
Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal
control over financial reporting, as defined in NI 52-109. Internal control
over financial reporting means a process designed by and under the supervision
of the CEO and CFO, management and other personnel to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with Canadian
GAAP. All internal control systems have inherent limitations and therefore the
internal control over financial reporting can only provide reasonable
assurance and may not prevent or detect misstatements due to error or fraud.
Management, including the CEO and CFO, conducted an evaluation of the
effectiveness of the Corporation`s internal control over financial reporting
as of December 31, 2009 using the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) framework. Based on this evaluation, the CEO and
CFO have concluded that the internal control over financial reporting was
effective to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with Canadian GAAP as of December 31, 2009.
Changes in Internal Control over Financial Reporting
During the most recent period there were no changes in the Corporation`s
internal controls over financial reporting that materially affected, or are
reasonably likely to materially affect, the Corporation`s internal control
over financial reporting.
Critical Accounting Policies and Estimates
The accounting policies used in the preparation of the accompanying unaudited
consolidated financial statements are consistent with those used in the
Corporation`s audited consolidated financial statements for the fiscal year
ended March 31, 2009, and described in Note 2 therein, except for the changes
in accounting policies described in the following section.
The preparation of these consolidated financial statements in accordance with
Canadian GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amount of revenues and expenses during the
reporting period. Significant areas requiring the use of management estimates
relate to the determination of impairment of long-lived assets, estimation of
future site restoration costs and future income taxes, and classification of
current portion of long term debt. Financial results as determined by actual
events could differ from those estimated.
Impairment of Long-Lived Assets
The Corporation`s long-lived assets consist of property, plant and equipment.
At the end of each accounting period, the Corporation reviews the carrying
value of its long-lived assets based on a number of factors. These factors
include analysis of net recoverable amounts, permitting considerations and
current economics. The withdrawal of the Corporation`s EA for the TSF at MWS
could have a significant impact on the recoverability of the long-lived assets
at MWS if the EA is not re-instated in an acceptable timeframe. Estimates of
the recoverable amount of long-lived assets may also be impacted by changes in
commodity prices, currency exchange rates, operating costs, production levels
and other factors that may be different from those used in determining the
recoverable amount. Changes in estimates or failure to secure re-instatement
of the MWS EA in an acceptable timeframe could have a material impact on the
carrying value of the long-lived assets. Should impairment be determined, the
Corporation would write-down the recorded value of the long-lived asset to
fair value.
Full details of all the critical accounting estimates are described in the
Corporation`s audited consolidated financial statements for the fiscal year
ended March 31, 2009.
Changes in accounting policies
Goodwill and Intangible Assets
Canadian Institute of Chartered Accountants (CICA) Handbook Section 3064 -
Goodwill and Intangible Assets, establishes revised standards for recognition,
measurement, presentation and disclosure of goodwill and intangible assets.
Concurrent with the introduction of this standard, the CICA withdrew EIC 27,
Revenues and Expenses during the pre-operating period. The changes are
effective for the Corporation`s interim and annual financial statements
beginning on or after April 1, 2009. The adoption of this section had no
impact on the results of the Corporation.
Credit Risk and the Fair Value of Financial Assets and Financial Liabilities
In January 2009, the CICA issued EIC-173, "Credit Risk and the Fair Value of
Financial Assets and Financial Liabilities" which requires the Corporation to
consider its own credit risk as well as the credit risk of its counterparty
when determining the fair value of financial assets and liabilities, including
derivative instruments. The standard became effective for the Corporation`s
first quarter of Fiscal 2010 and is required to be applied retrospectively
without restatement of prior periods. The adoption of this section had no
impact on the results of the Corporation.
Mining Exploration Costs
In March 2009, the CICA issued EIC-174, "Mining Exploration Costs" which
provides guidance to mining enterprises related to the measurement of
exploration costs and the conditions that a mining enterprise should consider
when determining the need to perform an impairment review of such costs. EIC-
174 is applicable for the Corporation`s interim and annual financial
statements for its fiscal year ending March 31, 2010, with retroactive
application. The adoption of this section had no impact on the results of the
Corporation.
Future and new accounting standards
The CICA issued the following amendments to the accounting standards for
periods beginning on or after April 1, 2011:
Business Combinations/Consolidated Financial Statements/Non-Controlling
Interests
In January 2009, the CICA adopted Sections 1582 - Business Combinations, 1601
- Consolidated Financial Statements, and 1602 - Non-Controlling Interests
which superseded current Sections 1581 - Business Combinations and 1600 -
Consolidated Financial Statement.
These new sections replace existing guidance on business combinations and
consolidated financial statements to harmonize Canadian accounting for
business combinations with International Financial Reporting Standards. These
sections will be applied prospectively to business combinations for which the
acquisition date is on or after April 1, 2011. Earlier adoption is permitted.
If the Corporation applies these sections before April 1, 2011, it is required
to disclose that fact and apply each of the new sections concurrently. The
Corporation is currently evaluating the impact of the adoption of these
changes on its consolidated financial statements.
International financial reporting standards ("IFRS")
The Canadian Accounting Standards Board will require all public companies to
adopt IFRS for interim and annual financial statements relating to fiscal
years beginning on or after January 1, 2011. First Uranium will be required
to adopt IFRS in the fiscal year ending March 31, 2012. The Corporation will
also be required to provide IFRS comparative information for the fiscal year
immediately preceding the year in which they first adopt IFRS. While IFRS uses
a conceptual framework similar to Canadian GAAP, there are significant
differences in accounting policy which must be addressed.
The impact analysis and design phase is currently underway, as is the
implementation phase. Detailed implementation plans and timelines were
prepared for each area identified during the initial evaluation phase.
Evaluation and selection of accounting policies and management`s review of the
recommended accounting policies, including first time adoption exemptions, is
expected to be completed during Q4 2010. Other work that is underway includes
analysis of additional financial statement and note disclosures and
development of additional training required for key personnel.
During management`s analysis phase, it has been established that all of First
Uranium`s subsidiaries (directly and indirectly owned) are required (and have
been since the listing of the Corporation on the TSX in December 2006) under
their respective jurisdiction`s company`s act, to prepare financial statements
in accordance with IFRS. The Corporation`s operational activities resides
within its subsidiaries. Therefore most of the Corporation`s financial
reporting systems and processes already take IFRS into consideration and the
staff involved in the financial reporting process are knowledgeable on IFRS.
On consolidation of First Uranium`s group financial statements at the end of
each reporting period, the subsidiaries` financial information is reviewed to
consider any potential differences between IFRS and Canadian GAAP, and if any
differences are identified, such differences are adjusted to the consolidated
financial statements to ensure that the Corporation`s group consolidated
financial statements are reported in accordance with Canadian GAAP.
IFRS are premised on a conceptual framework similar to Canadian GAAP, however,
significant differences exist in certain matters of recognition, measurement
and disclosure. While adoption of IFRS will not change the actual cash flow
movements of the Corporation, the adoption of IFRS will result in changes to
the reported financial position and results of operations of the Corporation.
The Corporation identified a number of key areas where differences between
Canadian GAAP and IFRS exist and the Corporation reviews any new financial
information on an ongoing basis to identify further areas of differences.
Outstanding Share Data
FY 2010 FY 2009
Common shares outstanding at beginning 151,574,037 131,074,03
of the period 7
Shares issued during the period 15,250,000 20,500,000
Restricted share unit shares issued 23,000 -
Common shares outstanding at end of the 166,847,037 151,574,03
period 7
Unexercised common share purchase 10,250,000 10,250,000
warrants at end of the period
Unexercised restricted units outstanding 177,000 -
at end of the period
Unexercised stock options outstanding at 3,204,622 3,588,194
end of the period
Average strike price of outstanding 7.74 7.79
options (Cdn$)
At February 15, 2010, First Uranium had 166,824,037 common shares outstanding
and there were 3,204,622 unexercised stock options outstanding at an average
strike price of Cdn$7.74 per share.
Each warrant is exercisable for one common share of First Uranium at a
purchase price of Cdn$4.15 until February 11, 2011.
At December 31, 2009 and February 15, 2010, First Uranium also had Cdn$150
million (approximately $143 million as at December 31, 2009) principal amount
of Debentures outstanding which are convertible into 60.9013 common shares for
each Cdn$1,000 principal amount of Debentures, representing 9,135,195 common
shares.
Risks and Uncertainties
Uncertainties
There are a number of uncertainties in the mining business of First Uranium,
some that are beyond First Uranium`s control, including:
- the Corporation`s ability to continue as a going concern;
- securing the adequate supply of capital;
- the Corporation`s plans to increase the production at MWS is dependent on
the successful conclusion of the appeal process with the MEC and a
revocation of the withdrawal of the EA from NWDACERD with effect upon
properties included in the project plans of the Corporation;
- demand and prices for the Corporation`s future production of uranium and
gold;
- foreign exchange and interest rates;
- government legislation regarding mining companies in South Africa,
including without limitation, securing authorizations and permits
required thereunder within the timeframes required to achieve the
Corporation`s plans and objectives;
- the ability of the Corporation to provide financial assurance for
rehabilitation liabilities to the satisfaction of the DMR;
- the cost of other re-agents used by the Corporation in the process to
extract uranium and gold;
- the consistent supply of sufficient electrical power;
- the consistent supply of sufficient sulphuric acid;
- the decisions and activities of the Corporation`s competitors in the
uranium and gold mining business, which impact the supply of uranium and
the demand for available services, construction materials, labour and the
rights for prospecting and mining;
- the continued endorsement of nuclear power as a preferred source for the
world`s energy needs;
- the decisions of investors to continue to buy and hold the securities of
the Corporation;
- securities regulation regarding public listed companies in Canada and
South Africa; and
- natural disasters, war or random occurrences or acts that could result in
a material change to economic and market performance, business conditions
or operations.
Risks
In addition, First Uranium`s mining properties are in the development stage
and are subject to the risks and challenges similar to other companies in a
comparable stage of development and production startup. The risks include, but
are not limited to, certain business, operational and market risks. For a
detailed discussion of the Corporation`s risks please refer to the most
recently AIF filed on SEDAR.
Additional Information
Additional information is contained in the Corporation`s filings with the
Canadian Securities regulator, including the AIF. These are available on SEDAR
at www.sedar.com and on the Corporation`s website at www.firsturanium.com.
Forward-looking Information
This MD&A and consolidated financial statements for the period ended December
31, 2009 contain certain forward-looking statements. Forward-looking
statements include but are not limited to those with respect to the timing and
receipt of financing on acceptable terms, the timing and receipt of required
permits, costs of production, capital expenditures, price of uranium and gold,
supply and price of sulphuric acid, the availability and price of electrical
power, the estimation of mineral resources and reserves, the realization of
mineral reserve estimates, the timing and amount of estimated future
production, costs and timing of development of new deposits, success of
exploration activities, permitting time lines, currency fluctuations,
requirements for additional capital, availability of financing on acceptable
terms, government regulation of mining operations, environmental risks,
unanticipated reclamation expenses and title disputes or claims and
limitations on insurance coverage. In certain cases, forward-looking
statements can be identified by the use of words such as "goal", "objective",
"plans", "expects" or "does not expect", "is expected", "budget", "scheduled",
"estimates", "forecasts", "intends", "anticipates", or "does not anticipate",
or "believes" or variations of such words and phrases, or state that certain
actions, events or results "may", "could", "would", "might" or "will" be
taken, occur or be achieved. Forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of First Uranium to be materially
different from any future results, performance or achievement expressed or
implied by the forward-looking statements. Such risks and uncertainties
include, among others, the actual results of current exploration activities,
conclusions of economic evaluations, changes in project parameters as plans
continue to be refined, possible variations in grade and ore densities or
recovery rates, failure of plant, equipment or processes to operate as
anticipated, accidents, labour disputes or other risks of the mining industry,
delays in obtaining government approvals or financing or in completion of
development or construction activities, risks relating to the integration of
acquisitions, to international operations, to prices of uranium and gold.
Although First Uranium has attempted to identify important factors that could
cause actual actions, events or results to differ materially from those
described in forward-looking statements, there may be other factors that cause
actions, events or results not to be as anticipated, estimated or intended.
It is important to note, that: (i) unless otherwise indicated, forward-looking
statements indicate the Corporation`s expectations as at the date of this
MD&A; (ii) actual results may differ materially from the Corporation`s
expectations if known and unknown risks or uncertainties affect its business,
or if estimates or assumptions prove inaccurate; (iii) the Corporation cannot
guarantee that any forward-looking statement will materialize and,
accordingly, readers are cautioned not to place undue reliance on these
forward-looking statements; and (iv) the Corporation disclaims any intention
and assumes no obligation to update or revise any forward-looking statement
even if new information becomes available, as a result of future events or for
any other reason. In making the forward-looking statements in this MD&A,
First Uranium has made several material assumptions, including but not limited
to, the assumption that: (i) operating and capital cost estimates, metal
prices, exchange rates and discount rates applied in the preliminary economic
assessment for the Ezulwini Mine and the prefeasibility study for MWS and as
updated by the Corporation in its continuous disclosure from time to time are
achieved;(ii) approvals to transfer or grant, as the case may be, mining
rights or prospecting rights will be obtained; (iii) consistent supply of
sufficient power will be available to develop and operate the projects as
planned; (iv) mineral reserve and resource estimates are accurate; (v) the
technology used to develop and operate its two projects has, for the most
part, been proven and will work effectively; (vi) that labour and materials
will be sufficiently plentiful as to not impede the projects or add
significantly to the estimated cash costs of operations; (vii) that Black
Economic Empowerment ("BEE") investors will maintain their interest in the
Corporation and the Corporation will be able to secure additional BEE
investment in the Corporation`s common shares to a sufficient level to
maintain compliance with BEE requirements as required by applicable law; and
(viii) that the innovative work on stabilizing the main shaft at the Ezulwini
Mine will be successful in maintaining a safe and uninterrupted working
environment until 2024.
16 February 2010
Sponsor: Investec Bank Limited
Date: 16/02/2010 10:36:01 Produced by the JSE SENS Department.
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