| Mon 21 Jun 2010, 8:30 | | FUM - First Uranium Corporation - Management`s discussion and analysis of the |
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FUM
FIU
FUM - First Uranium Corporation - Management`s discussion and analysis of the
unaudited consolidated financial condition and results of operations for the
year ended March 31, 2010
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: CA 33744R1029
FIRST URANIUM CORPORATION
MANAGEMENT`S DISCUSSION AND ANALYSIS of the financial results for the year ended
March 31, 2010
Management`s discussion and analysis of the unaudited consolidated financial
condition and results of operations for the year ended March 31, 2010
This Management`s Discussion and Analysis ("MD&A") of the consolidated financial
position and results of operations reviews the activities, audited consolidated
results of operations and financial condition of First Uranium Corporation and
its subsidiaries ("First Uranium" or the "Corporation") as at and for the year
ended March 31, 2010, 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 March FY 2010 April 1, 2009 to
31, 2009 March 31, 2010
Q1 2009 April 1, 2008 to June Q1 2010 April 1, 2009 to
30, 2008 June 30, 2009
Q2 2009 July 1, 2008 to Q2 2010 July 1, 2009 to
September 30, 2008 September 30, 2009
Q3 2009 October 1, 2008 to Q3 2010 October 1, 2009 to
December 31, 2008 December 31, 2009
Q4 2009 January 1, 2009 to Q4 2010 January 1, 2010 to
March 31, 2009 March 31, 2010
FY 2011 April 1, 2010 to March Q1 2011 April 1, 2010 to
31, 2011 June 30, 2010
This MD&A is intended to supplement and complement the audited consolidated
financial statements for the year ended March 31, 2010 and the notes thereto
(collectively the "Financial Statements") which have been prepared in accordance
with Canadian generally accepted accounting principles ("Canadian GAAP").
Information contained in this MD&A is current as at June 17, 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
During FY 2010, the Corporation relied, in part, on cash generated from the
operations to fund the significant capital expenditure obligations to complete
construction and commissioning of the current capital projects at Mine Waste
Solutions ("MWS"). The slower build-up of production at the Ezulwini Mine during
the year, 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 an effort to improve the Corporation`s financial position, the Corporation
entered into various financing arrangements during FY 2010. In June 2009, First
Uranium raised $92.6 million net cash proceeds with a bought deal financing,
finalized a one-year term credit facility of ZAR160 million ($20.5 million) with
Simmer and Jack Mines, Limited ("Simmer & Jack") in August 2009 (the "Facility
with Simmer & Jack") and in December 2009, raised $49.6 million net cash
proceeds from a gold stream transaction relating to the Ezulwini Mine.
The Corporation`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
Corporation was actively engaged in exploring additional financing options.
The financing initiative was interrupted by a change in status of the
Corporation`s Environmental Authorization ("EA") for the new Tailings Storage
Facility ("TSF") designed to accommodate future tailings deposition capacity
requirements at MWS, including a withdrawal of the EA in January 2010. In
February 2010, after extensive engagement with the North West Provincial
Government`s Department of Agriculture, Conservation, Environment and Rural
Development ("NWDACERD"), First Uranium received notice from NWDACERD that the
EA had been reinstated and amended allowing MWS to recommence planning
activities for the construction of the new TSF (see Permitting at MWS section in
this MD&A).
The withdrawal and subsequent reinstatement of the EA not only interrupted
construction activities for the new TSF but, combined with the slower production
build up at the Ezulwini Mine, also disrupted financing options, severely
compromising First Uranium`s financial position. The Corporation revised the
Ezulwini Mine plan and the capital programme at MWS and also curtailed future
development expenditures as part of a company-wide program to conserve cash.
The Board of Directors of the Corporation formed a Special Committee to review
the financial position of First Uranium and to review and advise the Corporation
on the various strategic alternatives that were available at that time.
On March 12, 2010, the Corporation entered into a heads of agreement for a
private placement offering (the "Offering") of a minimum of Cdn$125 million and
maximum of Cdn$150 million in secured convertible notes due March 31, 2013 (the
"Notes"). The Notes consist of:
(i) Cdn$40 million in South African Rand ("ZAR") denominated Notes (the "Rand
Notes") to be purchased by Simmer & Jack;
(ii) Cdn$20 million in Canadian dollar ("Cdn$") denominated Notes (the "Canadian
Notes") to be purchased by Gold Wheaton Corporation ("GW"); and
(iii)a minimum of Cdn$65 million and maximum of Cdn$90 million Canadian Notes to
be offered to accredited investors by RBC Capital Markets Inc. acting as
exclusive placement agent for the Corporation.
In connection with the Offering and in addition to the $40 million Rand Notes,
Simmer & Jack agreed to exchange the Facility with Simmer & Jack plus accrued
and unpaid interest for an equivalent value of Rand Notes (see Related Party
Transactions section in this MD&A).
Also in connection with the Offering, GW agreed to settle the $42 million
completion penalty obligation pursuant to the MWS Gold Stream Transaction with
the issuance of 14 million common shares in First Uranium to GW and a commitment
by the Corporation to complete construction of the third gold plant module at
MWS and satisfaction of the technical completion tests prior to September 1,
2011 (see Commitments and Contingencies section in this MD&A).
Changes to management and the board of directors were conditions of the
Offering. These changes included the appointment of Deon van der Mescht as
Interim President and Chief Executive Officer ("CEO"). On March 16, 2010, the
Corporation received the resignation of Gordon Miller as President, Chief
Executive Officer and a director of the Corporation and appointed Deon van der
Mescht, formerly CEO of Simmer & Jack as Interim President and CEO of the
Corporation. On March 31, 2010 Nigel Brunette resigned as Chairman of the Board
of Directors. The board was restructured on closing of the Offering with the
resignation of three incumbent directors and the appointment of three nominees
of Simmer & Jack and one nominee from GW.
On April 26, 2010, the Offering of the Notes was concluded and the Corporation
received Cdn$150 million in cash.
As a result of the Cdn$150 million gross proceeds raised from the Offering, the
Corporation is in a position to fund its operations under the revised plans. The
Corporation plans to rely, in part, on cash generated from the operations to
fund its capital expenditure obligations. To reduce the risk of requiring
further funding going forward, the Corporation is currently undergoing a
detailed review of all areas within the business to optimize cash flow.
Subsequent to the Offering, senior management within the organisation were
restructured. With the Offering concluded, and with a restructured management
team in place, the Corporation will 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. At the Ezulwini Mine, management
is reviewing the historical performance of the mine in detail with the intention
of understanding the reasons for underperformance against past plans. The mine
plan is also being reviewed using a bottom-up approach to ensure buy-in from
production staff and to identify critical activities which need to be addressed
in a timely manner in order to meet planned objectives. At MWS, the operations
are being optimized to ensure maximum cash generation while the remaining
capital programme is being re-structured to manage peak funding risk.
Business Overview
First Uranium Corporation has been focused on becoming a significant, low-cost
producer of gold and uranium. Both the Ezulwini Mine and MWS are located in
South Africa.
First Uranium went public in December 2006, raising net proceeds of $177.7
million from the sale of 33 million common shares. In May 2007, an additional
$130.6 million (net of expenses) was raised from the sale of senior unsecured
convertible debentures ("the Debentures").
In November 2008, the Corporation signed a definitive agreement with GW, whereby
GW acquired the right to receive 25% of the life-of-mine gold production from
MWS (the "MWS Gold Stream Transaction") for proceeds of $125.0 million. In
February 2009, the Corporation completed a bought deal private placement (the
"Private Placement") and raised net proceeds of $47.6 million by issuing 20.5
million units at a price per unit of Cdn$3.00 that consisted of one common share
of First Uranium (a "Unit Share") and one-half of one common share purchase
warrant (a "Warrant"), each full Warrant being exercisable to acquire one common
share of First Uranium at a purchase price of Cdn$4.15 for a period of 24 months
following the closing date.
In June 2009, the Corporation completed a bought deal financing (the "Bought
Deal") and raised gross proceeds of Cdn$106.8 million through the issuance of
15,250,000 common shares at a price per share of Cdn$7.00. In August 2009, the
Corporation finalized the Facility with Simmer & Jack. In December 2009, the
Corporation signed a second definitive agreement with GW, whereby GW acquired
the right to receive 7% of life-of-mine gold production from the Ezulwini Mine
(the "Ezulwini Gold Stream Transaction") for proceeds of $50.0 million.
As discussed earlier in this MD&A, in March 2010 First Uranium entered into a
heads of agreement for the Offering of the Notes. The Offering was concluded on
April 26, 2010 and the Corporation received gross proceeds of Cdn$150 million,
settled the Facility with Simmer & Jack and restructured the GW penalty
obligation and completion tests.
The common shares and the Debentures are listed on the Toronto Stock Exchange
(the "TSX"). In addition, the common shares are listed on the Johannesburg Stock
Exchange (the "JSE"). The Corporation intends to apply to have the Canadian
Notes listed on the TSX after the expiry of a four-month hold period dating from
the closing in escrow of the Notes on April 8, 2010. No assurance can be given
that the TSX will accept the Canadian Notes for listing on the exchange.
As of June 17, 2010, Simmer & Jack owned 34% of the common shares of First
Uranium.
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 Ended (Loss) Basic &
(thousands of dollars, income diluted
except per share amounts) for the (loss) Long-term
Revenue three earnings Total liabilitie
months per share assets s
March 31, 2010 28,561 (26,041) (0.14) 684,643 (287,785)
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)
Operations Overview
Mine Waste Solutions
MWS is a uranium and gold tailings recovery operation located in the western
portion of the Witwatersrand Basin, approximately 160 kilometres from
Johannesburg. MWS consists of 14 tailings deposits from three gold and uranium
mines that operated for 50 years of which the Buffelsfontein No.2 and No.4
tailings dams are currently being mined. These tailings represent in excess of
349 million tonnes of mineral resources, including inferred resources, of which
323 million are mineable reserves estimated to contain 55 million pounds of
uranium and 2.9 million ounces of gold. The tailings dams are spread over an
area that stretches approximately 13.5 kilometres north-south and 14 kilometres
east-west and cover an area of approximately 1,100 hectares. The tailings dams
are mined hydraulically with high-pressure water cannons.
In December 2008, First Uranium entered into the MWS Gold Stream Transaction
with GW pursuant to which GW paid MWS $125 million upfront. In addition GW will
make an ongoing payment equal to the lesser of $400 per ounce (the Fixed Price)
(subject to an annual inflation adjustment of 1 percent, starting in the fourth
year after following receipt of the first payment) and the prevailing spot price
per ounce at the time the gold delivered by MWS under the contract.
Pursuant to the MWS Gold Stream Transaction, MWS was obliged to deliver a
minimum of 20,000 ounces of gold into the transaction during calendar year 2009,
such deliveries to be comprised of at least 5,000 ounces per quarter (the 2009
Guaranteed Ounces). The 2009 Guaranteed Ounces were satisfied in full as at
December 31, 2009 (see Note 11.1 to the Financial Statements).
The table below sets out certain selected operational data of MWS per quarter
for FY 2010:
Quarterly Production Summary Q1 2010 Q2 2010 Q3 2010 Q4 2010 FY 2010
Tonnes reclaimed (000s) 1,835 2,476 3,528 3,232 11,071
Average gold recovery grade 0.18 0.17 0.19 0.19 0.19
(grams/tonne)
Percentage gold recovered 44% 47% 58% 56% 51%
Ounces of gold produced 11,007 13,422 21,891 19,693 66,013
Ounces of gold sold (total) 10,676 11,739 21,099 18,505 62,019
Ounces of gold delivered into MWS
Gold Stream Transaction 7,460 4,817 5,510 4,982 22,769
Average gold selling price per 905 1,007 1,096 889 985
ounce ($)
Average Cash Cost per ounce of
gold sold ($)(as defined in note (338) (467) (368) (402) (392)
a on page 14)
During Q1 2010, MWS commenced commissioning of the second gold plant module,
continued construction of the first two uranium plant modules and finalized the
plans for construction and commissioning of the third gold plant module.
During Q2 2010, MWS commissioned the second reclamation station that feeds ore
to the second gold plant module and also commenced construction of the third
gold plant module.
During Q3 2010, MWS completed the commissioning of the second gold plant module,
increasing the processing capacity of the first two gold plant modules from
633,000 tonnes of tailings per month to 1.3 million tonnes. The additional
production from the second gold plant module resulted in tonnage throughput
increasing by 43% from 2.5 million tonnes in Q2 2010 to 3.5 million tonnes in Q3
2010. Gold production during Q3 2010 increased by 63% from 13,422 ounces of gold
in Q2 2010 to 21,891 ounces of gold in Q3 2010. Construction of the first two
uranium plant modules and the third gold plant module continued.
During Q4 2010, tonnage throughput decreased by 8% to 3.2 million tonnes and
gold production by 10% to 19,693 ounces of gold from Q3 2010 due to
uncharacteristically high seasonal rainfall affecting density delivered to the
plant as well as decreased grade delivered from the Buffelsfontein No.2 tailings
dam.
The 58% increase in tonnage throughput and the 54% increase in gold production
year over year as per the Consolidated Results of Operations table on page 14 is
primarily attributable to the additional production from the second gold plant
module, offset slightly by the diminished grade from the Buffelsfontein No.2
tailings dam which feeds the first gold plant module.
At the start of Q4 2010, the construction of the third gold plant module was
progressing ahead of schedule and scheduled for completion in May 2010, however,
the Corporation had to suspend construction of the third gold plant module due
to the withdrawal of the EA for the TSF on January 18, 2010. The withdrawal of
the EA compromised to a large extent the Corporation`s financing efforts and
triggered the need for a company-wide program to conserve capital. As a result
of suspending construction and the subsequent actions to reduce the
Corporation`s capital commitments related to the third gold plant module, First
Uranium was placed in a position where it could no longer complete construction
of the third gold plant module by June 1, 2010 (the Construction Completion date
pursuant to the original terms of the MWS Gold Stream Transaction). Pursuant to
terms of the Offering, GW agreed to settle the completion penalty in respect of
the MWS Gold Stream Transaction with the issuance of shares in First Uranium to
GW and a commitment by the Corporation to complete construction of the third
gold plant module at MWS and satisfaction of the technical completion tests
prior to September 1, 2011 (see Commitments and Contingencies section in this
MD&A).
Subsequent to extensive discussions with NWDACERD, the EA was reinstated in
February 2010, however, the uncertainties and delays precipitated by the
withdrawal of the EA and the resultant financial pressure placed on the
Corporation caused management to revise the MWS business plan and to update the
technical report for MWS, which was filed onto SEDAR on March 19, 2010.
Construction of the first two uranium plant modules was substantially completed
during January 2010, however, in terms of the revised business plan, management
decided to delay the commissioning of the two uranium plant modules until the
successful commissioning of the third gold plant module so as to manage the
projected corporate peak funding risk.
Under the revised business plan upon which the associated technical report is
based, it was anticipated that the MWS No.5 tailings dam (the current tailings
deposition facility) would provide sufficient tailings deposition capacity for
one gold plant module until the end of December 2011. However, with the recent
recapitalization of the Corporation (including the re-structuring of the GW
completion test), and the updated report on the structural integrity of MWS No.5
tailings dam, management has decided to continue utilizing two gold plant
modules with two-stream deposition, albeit at reduced throughput of 975 ktpm
until the end of May 2011. See the Outlook section of this MD&A for a summary of
the production forecast for FY 2011 and FY 2012 under the two-stream deposition
plan compared to the production forecasts set out in the technical report.
On June 15, 2010, the Corporation received approval for a new order water user
license from the Department of Water Affairs ("DWA"). The approval allows MWS to
consider bringing forward the seven-month construction schedule of the TSF. The
revised plan upon which the technical report is based, assumed that MWS would
receive approval of the new order license by the end of September 2010. By
bringing forward the construction schedule of the TSF, MWS would have more time
available to satisfy the revised GW construction completion and Technical
Completion Test discussed earlier in this MD&A.
During FY 2010, management performed and concluded test work to finalize heat
and oxygen control elements within the pressure leach process. The outcome of
the test work was integrated into the historical Cost Budget Estimate ("CBE") of
the pressure leach process and the revised CBE was finalized during Q4 2010. The
test work highlighted a significant requirement for oxygen. A market survey
indicated that supply of oxygen could not be easily secured, which will
necessitate the requirement for an oxygen plant, consequently the CBE has
increased from $34 million to $61 million. The increase in capital is offset by
a significant reduction in operating cost as oxygen will not be purchased from a
third party supplier. As with the decision to defer the commissioning of the
uranium plant, the pressure leach capital programme has been re-scheduled to
commence from January 2012.
Ezulwini Mine
The Ezulwini Mine is located approximately 40 kilometres from Johannesburg on
the outskirts of the town of Westonaria in the Gauteng Province, South Africa.
The Ezulwini Mine is an underground mine constructed in the 1960s with
historical production of approximately 14 million pounds of uranium and 12
million ounces of gold until it was put on care-and-maintenance in 2001, which
was its status when the Corporation acquired the mine in 2006. The mine has two
separate tabular ore bodies about 400 metres apart. The Upper Elsburg ("UE") ore
body, where most of the mining has been done to date, is a gold only deposit.
The Middle Elsburg ("ME") ore body is a gold and uranium deposit and is
relatively unexploited.
The Ezulwini Mine is part of the Ezulwini mining right, which includes certain
surface and underground assets, acquired by the Ezulwini Mining Company
(Proprietary) Limited ("EMC"). When First Uranium acquired EMC from Simmer &
Jack in December 2006, Simmer & Jack was the registered owner of the Ezulwini
mining right. Consequently EMC and Simmer & Jack entered into an agreement (the
"Ezulwini Mining Right Agreement") pursuant to which Simmer & Jack agreed to
take the necessary steps to obtain all ministerial approvals in order to effect
the ceding of the Ezulwini mining right from Simmer & Jack to EMC. On March 20,
2008, the Department of Mining and Minerals ("DMR") consented to the ceding of
the Ezulwini mining right to EMC. On April 22, 2010, the Corporation registered
the cession of the mining right in the name of EMC.
In November 2009, First Uranium entered into the Ezulwini Gold Stream
Transaction with GW pursuant to which GW paid the Ezulwini Mine $50 million
upfront. In addition GW will make an ongoing payment equal to the lesser of $400
per ounce (the Fixed Price) (subject to an annual inflation adjustment of 1
percent, starting in the fourth year after the upfront payment) and the
prevailing spot price per ounce, at the time the gold is delivered under the
contract.
Pursuant to the Ezulwini Gold Stream Transaction, the Ezulwini Mine is obliged
to deliver a minimum of 16,500 and 19,500 ounces of gold into the transaction
during calendar years 2010 (the 2010 Guaranteed Ounces) and 2011 (the 2011
Guaranteed Ounces) respectively, such deliveries to be comprised of at least
4,125 and 4,875 ounces per quarter respectively (see Note 11.2 to the Financial
Statements).
Pursuant to the Ezulwini Gold Stream Transaction, the Ezulwini Mine granted to
GW a special bond over certain plant and equipment and a pledge of 7% of the
gold production from the Ezulwini Mine. First Uranium has guaranteed the
obligations owed by the Ezulwini Mine to GW.
The table below sets out certain selected operational data of the Ezulwini Mine
per quarter for FY 2010:
Quarterly Production Summary Q1 2010 Q2 2010 Q3 2010 Q4 2010 FY 2010
Tonnes hoisted 64,965 98,831 117,164 130,822 411,782
Tonnes milled 92,468 94,599 108,503 129,532 425,102
Average gold recovery grade 1.3 2.5 2.8 2.4 2.3
(grams/tonne)
Ounces of gold produced 3,794 7,952 10,685 7,526 29,957
Ounces of gold sold (total) 3,378 7,047 8,213 8,327 26,965
Ounces of gold delivered into
Ezulwini Gold Stream Transaction - - 102 2,571 2,673
Average gold selling price per 957 1,022 1,078 1,404 1,149
ounce ($)
Average Cash Cost per ounce of
gold sold ($)(as defined in note a (3,545) (2,689) (2,648) (2,929) (2,858)
on page 14)
Pounds of uranium ("U3O8") - - 23,761 20,638 44,399
produced
Pounds of U3O8 sold - - - 22,500 22,500
The establishment of the Ezulwini Mine, which was substantially completed during
Q4 2009, included the rehabilitation and re-engineering of the mine`s main shaft
through the installation of a floating steel tower and the construction of a
200,000 tonne per month gold plant and a 100,000 tonne per month uranium plant.
With the capital intensive projects substantially completed, management turned
its focus at the start of FY 2010 on underground mine development to accelerate
the amount of ore being fed to the gold and uranium plants. The primary
objective is to increase available mineable faces ("face length") to allow a
higher rate of mining in the future. The build-up of production at the Ezulwini
Mine as planned is key to the success of this operation. To ensure the build-up
and production ramp-up is realistic and achievable, management is currently
reviewing a detailed `bottom-up` production plan. This detailed review of the
plan is expected to be completed by the end of June 2010.
The Ezulwini Mine has yet to build up sufficient production to generate positive
operating cash flow. The production build-up to date has progressed much slower
than originally anticipated due to a number of factors including:
* The estimation of gold available compared to the gold accounted for was
significantly below expectations, a relationship better known as the mine
call factor. The planned mine call factor for the year was 87% whereas the
mine achieved a factor of lower than 70% during the first nine months of
the year.
* The face length creation proceeded as planned but the start-up and
conversion from development to stoping was slower than anticipated.
Significant improvements are expected in FY 2011.
* The face length utilization was relatively low during the year due to the
newly appointed mining teams as well as inadequate face equipping. Special
attention is being paid to the training of crews and equipping of panels,
thus mining readiness is expected to improve in the forthcoming year.
* During the fiscal year, some seismic activity occurred in the shaft pillar
which caused delays but more importantly required special attention to
resolve it in a safe manner. The extra precautions and diligence paid to
rock engineering issues resulted in slower than anticipated performance in
FY 2010. The majority of the engineering issues are now resolved, thus
improved mining performance is expected.
Due to the lower production achieved, management reviewed the actual mine call
factors achieved by the mine during the first nine months of the year. One of
the issues identified was in the primary evaluation of gold and uranium
estimation as well as mining techniques resulting in cross mining of various
stratigraphic units. Based on the results of the review, management changed its
focus to extracting higher grade ore from the ME gold and uranium ore-body.
Opening up and development work was reduced to a minimum while refinancing
discussions were being held and the focus went on to maximizing the potential of
the face length being mined by increasing the pay limit used for mining
decisions. The mine call factor at the Ezulwini Mine proved to be problematic
during Q2 2010 and Q3 2010 and necessitated an additional review of the
valuation methods used. This resulted in lower grades being forecasted in the
revised plan, but better mining efficiencies being achieved, thereby increasing
the mine call factor from 64% in Q3 2010 to 78% in Q4 2010.
Although the Ezulwini gold plant is capable of working to design specification,
the plant was not utilized optimally during FY 2010. Utilization of the gold
plant was on average approximately 25% to 50% of design capacity during the
year. The under-utilisation of the plant is in accordance with the plan as the
build-up of the Ezulwini Mine is only expected to reach peak production in two
years time. The underground production has been less than originally planned,
which resulted in lower mill utilization and lower gold production. As the
underground development increases, the mine production and mill throughput will
increase, and thus gold production will improve. It is expected that
metallurgical processes will further improve when operations are running at
design capacity.
During Q1 2010, the Ezulwini Mine commissioned the first of two streams of its
100,000 tonne per month uranium plant. The mine calcined its first batch of
yellowcake through a third-party calciner producing 23,761 pounds of uranium at
the end of Q3 2010. This first container of uranium was shipped to an overseas
converter on February 10, 2010. The Corporation sold 22,500 pounds of uranium to
an overseas converter on March 9, 2010. A second container of uranium was
shipped overseas on April 2, 2010.
In May 2010, First Uranium settled a dispute with the Engineering Procurement
and Construction Management ("EPCM") contractor over the construction of the
Ezulwini gold and uranium plant project. The terms of the settlement are subject
to the approval of the respective boards, and negotiating and signing of the
formal documentation. The EPCM contractor experienced delays in the completion
and commissioning of the uranium plant and as a result, First Uranium claimed a
reduction in the performance margin payable to the EPCM contractor.
The plant is still experiencing some commissioning issues, which include
corrosion, due to the design and material selection. Management is in the
process of resolving these issues. The uranium plant, however, is operational
and has been modified to effectively treat the current tonnages delivered from
underground. A project engineer has also been engaged to ensure focus on
addressing the challenges in the uranium plant.
Permitting at MWS
In July 2009, a new order mining right for MWS was approved by 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 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.
On February 10, 2010, after extensive engagement with NWDACERD the EA was
reinstated. The notice, however, contained conflicting and ambiguous references
to the location of the tailings site and consequently the Corporation was not in
a position to move forward. First Uranium received notice from NWDACERD on
February 25, 2010 that the reinstated EA had been amended to correctly describe
the project location, including the site of the TSF south-east of the town of
Stilfontein. The reinstated EA also allows MWS to recommence planning activities
for the construction of the TSF, subject to sufficient availability of finance.
On June 15, 2010, the DWA approved the Corporation`s application for a new order
water user license. The new order water user license was required before
construction activities on the TSF could recommence.
Market Overview
During the latter half of FY 2010, 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.
Gold
The price of gold is subject to volatile price movements over short periods of
time, especially in the current market environment, and is affected by numerous
industry and macro-economic factors. Gold price volatility remained high in FY
2010, with the price ranging between $870 to $1,213 per ounce during the year.
The average market price for the year of $1,023 per ounce was an all-time high.
The market price of gold has been influenced by low US dollar interest rates,
volatility in the credit and financial markets, investment demand and the
monetary policies put in place by the world`s most prominent central banks. As a
result of the global easing of monetary policy, as well as increases in
announced government spending, particularly in the US, we believe that there is
a possibility that both inflation and US dollar depreciation could emerge in the
coming years. Historically gold has been a natural hedge against inflation and
has been inversely correlated to the US dollar. Therefore, higher inflation
and/or depreciation in the US dollar should be positive for the price of gold.
As of June 17, 2010, the gold spot price was $1,245 per ounce.
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 strength 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. 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.
Uranium
According to an industry source, The Ux Consulting Company, LLC ("UxC"), the
spot price per pound for uranium ranged between $40 and $54 during FY 2010 and
the term price, that at which most supply contracts are completed, started the
year at $70 per pound and ended the year at $58 per pound. As of June 17, 2010,
the uranium spot price per pound was $40.75 and the term price was $58. The
Corporation currently does not have any medium to long-term uranium contracts in
place and therefore sells uranium at the spot price per pound on date of
delivery.
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 2011,
the range of this volatility has narrowed considerably to the low $40 range.
Demand for uranium as a clean source of base-load power is expected to grow over
the next 20 years in excess of four percent, perhaps even stronger around the
end of the next decade. Many countries are making announcements about building
new nuclear power plants, none more aggressively than China.
The US is recommending a tripling of its existing loan guarantee program in its
proposed budget for its 2011 fiscal year, which the country`s Energy Secretary
has indicated could support construction of seven to ten new nuclear power
plants. The renaissance of nuclear power will, however, have to overcome the
major challenges of the economics of building nuclear power plants and the waste
disposal issue. For instance, in the US, funding for Yucca Mountain was recently
cut, formalizing the end of this US nuclear waste storage project.
Currency exchange rates
During FY 2010, both the Canadian dollar ("Cdn$") and the ZAR experienced
significant exchange rate swings relative to the US dollar as a result of
uncertainty in global markets and US dollar weaknesses highlighted by
fluctuations in commodity prices.
During FY 2010, in US dollar terms the ZAR traded in a range of $0.10 - $0.14
per ZAR, averaging $0.13 and closed at $0.14. Relative to the US dollar, the
Cdn$ traded in a range of Cdn$0.80 - Cdn$0.98, averaging Cdn$0.92 and closed
stronger at Cdn$0.98. In Cdn$ terms the ZAR traded in a range of Cdn$0.13 -
Cdn$0.15, averaging Cdn$0.14 and maintained its position at year-end.
At March 31, 2010, First Uranium held 54% of its cash in ZAR, 25% in US dollars
and the balance in Cdn$. At June 17, 2010, the Corporation held 71% of its cash
in Cdn$, 28% in ZAR and the balance in US dollar. The funds are primarily held
in cash and bank-sponsored guaranteed investment certificates with Canadian and
South African banks. As a substantial portion of the cash will be utilized in
ZAR to fund the outstanding commitments relating to the capital program at MWS,
the movement in the relative values of the currencies continues to have a
significant impact on the funding available to finance capital projects and
operations. To minimize the impact of currency fluctuations on the Corporation`s
business plan management is monitoring fluctuations in the foreign exchange
rates and will convert its funds currently held in Cdn$ to ZAR when the rates
are within a range which meets the Corporation`s forecast assumptions.
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 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 first quarter of 2011 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 Q4 2010 and FY 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 inflation rate of 8.5% at the end of FY 2009 to 5.1% at the end of FY 2010.
The rise in construction costs in South Africa witnessed in 2008 and early 2009,
began to ease during the latter half of calendar year 2009. 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.
Financial Review
At the Ezulwini Mine, gold production for Q4 2010 and FY 2010 increased by 65%
and 161%, respectively, compared to Q4 2009 and FY 2009 as per the Consolidated
Results of Operations table on page 14. 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. The
Ezulwini Mine`s gold plant was deemed to be in commercial production as of Q3
2009 and accordingly, from the beginning of that quarter, the revenues and
related costs derived from the gold processing plant at the Ezulwini Mine were
no longer capitalized. While revenues are increasing (resulting from increased
production and increased gold selling prices), the cost of production remains
high due to the fact that the mine is still ramping up production and currently
operates at considerably less than capacity.
The losses at the Ezulwini Mine for both Q4 2010 and FY 2010 were 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 than
initially indicated. The ounces delivered by the Ezulwini Mine to settle the
2010 Guaranteed Ounces during Q4 2010 were sold at the contract price of $400
per ounce, but accounted for in revenue at the gold spot price at the time of
delivery. The proceeds from these ounces were used to settle the Derivative
Liability (see Note 11.2 to the Financial Statements). If the ounces delivered
to GW were recognized at $400 per ounce as per the agreement then the average
gold selling price would have been $1,185 and $1,081 per ounce for Q4 2010 and
FY 2010, respectively. 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.
Production of ammonium diuranate ("yellowcake") increased by 46% from Q3 2010 to
22,488 pounds in Q4 2010. The mine recorded its first sale of uranium on March
9, 2010, selling 22,500 pounds of uranium for $956,250. A portion of the uranium
revenue was capitalized against property, plant and equipment.
At MWS, the overall increase in revenues and cost of sales in Q4 2010 and FY
2010 compared to its comparative periods was mainly attributable to additional
production through the second gold plant module which was commissioned in Q1
2010. The ounces delivered by MWS to settle the 2009 Guaranteed Ounces were sold
at the contract price of $400 per ounce, but accounted for in revenue at the
gold spot price at the time of delivery. The proceeds from these ounces were
used to settle the Derivative Liability (see Note 11.1 to the Financial
Statements). As of Q4 2010, the revenue related to ounces delivered into the MWS
Gold Stream Transaction comprised of revenue from the ounces delivered at $400
per ounce plus deferred revenue amortized for the quarter. This resulted in
lower gold revenue for Q4 2010 and was also the reason for the average gold
selling price in Q4 2010 and FY 2010 being much lower than the average gold spot
price over the comparative periods. If the ounces delivered to GW were
recognized at $400 per ounce as per the agreement then the average gold selling
price would have been $883 and $815 per ounce for Q4 2010 and FY 2010,
respectively (Q4 2009: $800; FY 2009: $845).
Consolidated Results of Operations
Production Q4 2010 Q4 2009 %Change FY 2010 FY 2009 %Chan
Summary ge
Ezulwini Mine
Tonnes milled 129,532 108,622 19% 425,102 232,715 83%
Ounces of gold 7,526 4,569 65% 29,957 11,494 161%
produced
Ounces of gold 8,327 4,267 95% 26,965 10,678 153%
sold (total)
Ounces of gold
delivered into 2,571 - 100% 2,673 - 100%
Ezulwini Gold
Stream
Transaction
Average gold 1,404 917 53% 1,149 920 25%
selling price
per ounce ($)
Average Cash
Cost per ounce (2,929) (2,032) 44% (2,858) (1,941) 47%
of gold sold
($)(a)
Average cost per (3,112) (2,069) 50% (3,036) (1,956) 55%
ounce sold ($)
Pounds of U3O8 20,638 - 100% 44,399 - 100%
produced
Pounds of U3O8 22,500 - 100% 22,500 - 100%
sold
MWS
Tonnes reclaimed 3,232 1,693 91% 11,071 6,995 58%
(000s)
Ounces of gold 19,693 10,513 87% 66,444 43,099 54%
produced
Ounces of gold 18,505 10,417 78% 62,019 42,857 45%
sold (total)
Ounces of gold
delivered into 5,392 2,540 112% 26,145 3,293 694%
MWS Gold Stream
Transaction
Average gold 889 948 (6%) 985 881 12%
selling price
per ounce ($)
Average Cash
Cost per ounce (402) (379) 6% (392) (397) (1%)
of gold sold
($)(a)
Average cost per (549) (412) 33% (449) (418) 7%
ounce sold ($)
Revenue 28,561 13,787 107% 92,460 47,596 94%
Ezulwini Mine 12,104 3,915 209% 31,393 9,825 220%
MWS 16,457 9,872 67% 61,067 37,771 62%
Cost of sales (32,248) (12,623) 156% (101,789) (37,735) 170%
(excluding
amortization)
Ezulwini Mine (24,807) (8,671) 186% (77,479) (20,725) 274%
MWS (7,441) (3,952) 88% (24,310) (17,010) 43%
Amortization (4,244) (494) 759% (8,307) (1,081) 669%
Ezulwini Mine (1,523) (158) 864% (4,790) (158) 2,932
%
MWS (2,721) (336) 710% (3,517) (923) 281%
Gross (loss) (7,931) 670 (1,284%) (17,636) 8,780 (301%
profit )
Ezulwini Mine (14,226) (4,914) 190% (50,876) (11,058) 360%
MWS 6,295 5,584 13% 33,240 19,838 68%
Other income 62 869 (93%) 2,231 2,008 11%
Other (8,035) (7,207) 12% (31,695) (28,035) 13%
expenditures(b)
Operating (15,904) (5,668) 181% (47,100) (17,247) 173%
loss(c)
Investment (363) 251 (245%) 1,163 3,439 (66%)
income
Fair value gain (991) (697) 128 (983)
(loss) on 42% 113%
derivative
liabilities
Accretion (607) (424) (2,142) (1,511) 42%
expense on asset (43%)
retirement
obligations
Interest and (4,193) (3,031) 38% (15,663) (12,720) 23%
accretion
expenditures
Foreign exchange (8,727) 3,063 (385%) (30,123) 18,404 (264%
(loss) gain )
Loss before (30,785) (6,506) 373% (93,737) (10,618) 783%
income taxes
Income tax 4,744 (4,216) 213% 1,559 (5,724) 127%
recovery
(charge)
Loss for the (26,041) (10,722) 143% (92,178) (16,342) 464%
period
Other 812 - 100% 812 - 100%
comprehensive
income
Comprehensive (25,229) (10,722) 135% (91,366) (16,342) 459%
loss for the
period
Earnings (loss) (0.14) (0.08) 75% (0.56) (0.12) 367%
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 such as uranium and silver 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 Financial Statements.
(b) Other expenditures include general, consulting and administrative
expenditures, pumping feasibility and rehabilitation costs, stock-based
compensation, the settlement fee regarding the Auramet claim and non-
production related amortization. See page 5 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 gain or loss on
derivative liability, foreign exchange gain or loss and income tax charges.
See page 5 to the Financial Statements for more detail.
MWS started amortizing the capital costs relating to the second gold plant
module at the start of Q4 2010 resulting in amortization for Q4 2010 and FY 2010
increasing by 710% and 281%, respectively, compared to Q4 2009 and FY 2010. The
increase in revenues more than offset the increase in costs and amortization due
to the additional production in both Q4 2010 and FY 2010, resulting in the
operating margin at MWS increasing by 20% and 70% compared to Q4 2009 and FY
2009, respectively.
The consolidated gross losses in Q4 2010 and FY 2010 compared to the gross
profits in Q4 2009 and FY 2009 were primarily attributable to the substantial
losses resulting from the activities at the Ezulwini Mine which more than offset
the additional profits generated by MWS from the second gold plant module.
The Corporation incurred a larger operating loss in FY 2010 compared to FY 2009.
The larger loss reflected the fact that for the first six months of FY 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 20 to
the Financial Statements).
Other expenditures (as defined in Note b) to the Consolidated Results of
Operations table on page 19) increased in both Q4 2010 and FY 2010 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, the inclusion of $1.8 million settlement amount pursuant to the
Auramet claim in Q2 2010 and $1.4 million regarding the loan to the CEO that was
written off in Q4 2010 in connection with the terms of his resignation (see also
Commitments and Contingencies and Related Party Transactions 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 overall lower
interest income in FY 2010 reflected the on average lower cash balances compared
to FY 2009, as well as lower interest rates.
The interest and accretion expenditures include interest and accretion expenses
related to the convertible debentures based on the Cdn$150 million Debenture
issue in May 2007 as well as interest charged on the Facility with Simmer & Jack
since the utilization of the facility in August 2009. The higher interest and
accretion expenditures compared to Q4 2009 and FY 2009 was primarily due to the
additional interest charged on the Facility with Simmer & Jack along with the
increase in interest and accretion expense relating to the Debentures as a
result of the Cdn$ strengthening relative to the US dollar over the comparative
periods.
The accretion expense on Asset Retirement Obligations in Q4 2010 and FY 2010
mainly increased compared to its comparative periods as a result of the stronger
ZAR compared to the US dollar.
The fair value loss on the derivative liabilities in Q4 2010 related to the
movement in fair value on the derivative liability related to the Ezulwini Mine,
while the fair value loss in Q4 2009 related to the movement in fair value on
the derivative liability related to MWS. MWS satisfied the 2009 Guaranteed
Ounces pursuant to the MWS Gold Stream Transaction and settled its derivative
liability at the end of Q3 2010. In both quarters the fair value loss was driven
by a higher gold price at the end of the quarter compared to the gold price at
the end of the preceding quarter. The fair value loss for FY 2010 comprises of
the fair value loss on the derivative liability related to MWS offset by the
fair value gain on the derivative liability related to the Ezulwini Mine. The
fair value loss related to the MWS derivative liability reflects the increase in
fair value (due to the increase in the gold price at the end of FY 2010 from the
gold price at end of FY 2009) of the 2009 Guaranteed Ounces delivered pursuant
to the MWS Gold Stream Transaction during the year (see Note 11.1 to the
Financial Statements).
The fair value 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
FY 2010 from the gold price at initial recognition) of the 2010 and 2011
Guaranteed Ounces to be delivered pursuant to the Ezulwini Gold Wheaton
Transaction from initial recognition to the end of FY 2010 (see Note 11.2 to the
Financial Statements).
The foreign exchange gain (loss), which was primarily unrealized, 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
Q4 2010 and FY 2010 reflects primarily the weakening of the US$ against the
Cdn$, but also its overall weakening against the ZAR during the respective
periods. During Q4 2009 and FY 2009 both the ZAR and the Cdn$ weakened against
the US dollar resulting in the foreign exchange gains during these periods.
The income tax recovery in Q4 2010 and FY 2010 is primarily the result of the
net increase in the asset base at MWS, along with the reversal of the $125
million advance payment received by MWS pursuant to the MWS Gold Stream
Transaction from the taxable amount in Q2 2010, which increased the future tax
liability during the respective periods. In FY 2009, the $125 million advance
payment received from GW was fully taxed and, when combined with various tax
deductions, resulted in an income tax charge of $4.7 million for MWS.
The substantial consolidated losses in Q4 2010 and FY 2010 were attributable to
the gross losses incurred at the Ezulwini Mine during Q4 2010 and FY 2010
(inclusion of its operating results for the full twelve months) combined with
the significant foreign exchange loss on translation during Q4 2010 and FY 2010.
The much lower consolidated loss in FY 2009 only included the operating results
from the Ezulwini Mine as of Q3 2009 and the loss incurred during FY 2009 was
offset by the significant foreign exchange gain during that year.
Other comprehensive income in Q4 2010 and FY 2010 was comprised of unrealized
gains resulting from increases in the value of investments included in the asset
retirements funds from the end of the previous period.
Consolidated Financial Position
Summary Balance Sheet and Key financial ratios
(thousands of dollars)
FY 2010 FY 2009 %
Change
Cash and cash equivalents 10,177 112,005 (91%)
Other current assets (a) 17,345 12,670 37%
Current liabilities 123,728 58,629 111%
Total assets 684,643 566,472 21%
Total liabilities 411,513 296,375 39%
Debt (b) 169,462 121,710 39%
Total shareholders` equity 273,130 270,097 2%
Key financial ratios:
Current ratio (c) 0.22:1 2.13:1
Debt-to-equity (d) 0.62:1 0.45:1
Notes:
(a) Other current assets include accounts receivable and inventories.
(b) Convertible debentures liability of Cdn$150 million translated to US$ at
the exchange rate at the end of the reporting period plus Facility with
Simmer & Jack at the end of the reporting 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, inventories, asset retirement funds and
future tax asset.
The 21% increase in total assets since FY 2009 was primarily attributable to a
substantial increase in property, plant and equipment as a result of the capital
projects at both operations, the addition of a future tax asset relating to MWS,
increases in accounts receivable and inventories related to increased production
at the Ezulwini Mine during the year, and an increase in asset retirement funds,
partially offset by reduced cash and cash equivalents resulting from capital
expenditures and cash operating losses.
The 39% increase in total liabilities since FY 2009 represented 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$), a drawdown of the Facility with Simmer & Jack in August 2009 (see
Related Party Transactions section in this MD&A), increased accounts payable and
accrued liabilities arising from the increased capital expenditures at MWS, the
provision of a GW penalty due to the Corporation not being able to meet the
Construction Completion date (see Commitments and Contingencies section in this
MD&A), increased derivative liabilities related to the 2010 and 2011 Guaranteed
Ounces pursuant to the Ezulwini Gold Stream Transaction, an increase in deferred
revenue resulting from the Ezulwini Gold Stream Transaction in December 2009 and
an increase in future tax liability arising from the increased asset base at MWS
during the year.
Liquidity and Capital Resources
As a result of the Cdn$150 million gross proceeds raised from the Offering on
April 26, 2010, the Corporation is now in a position to fund its operations and
capital projects under the revised plans. The Corporation plans to rely, in
part, on cash generated from the operations to fund the capital expenditure
obligations to complete construction and commissioning of the remaining capital
projects at MWS. To reduce the risk of requiring any further funding to meet the
current plans, the Corporation is currently undergoing a detailed review on all
areas of the business to optimize cash flow and thus manage its peak funding
risk.
At March 31, 2010, the Corporation had existing capital commitments of $22.3
million. In addition, pursuant to the terms of the Offering, First Uranium
issued shares to GW on April 26, 2010 as partial settlement of the Gold Wheaton
Penalty and committed to complete construction of the third gold plant module at
MWS and satisfaction of the technical completion tests prior to September 1,
2011 (see Commitments and Contingencies section in this MD&A). Also pursuant to
the terms of the Offering, the Facility with Simmer & Jack and the unpaid
interest on the Facility was settled in full on April 26, 2010 with the issue of
R167.8 million in Rand Notes to Simmer & Jack (see Related Party Transactions
section in this MD&A).
Management believes that the available cash resources of $10.2 million at the
end of FY 2010, along with the Cdn$150 million gross proceeds raised from the
Offering on April 26, 2010 and the cash forecasted to be generated from the sale
of gold and uranium at both of its operations, will be sufficient to fund the
Corporation`s outstanding commitments and to complete the capital projects under
the current revised plans based on the following price assumptions for the
fiscal years:
2011 2012 2013 2014 2015 Beyond
Gold price ($/oz) 1,152 1,142 1,047 1,004 971 867
Uranium price ($/lbs) 42 56 61 57 55 55
ZAR/$ 7.73 8.11 8.55 8.93 9.33 9.64
Cdn$/$ 0.97 0.96 0.95 0.93 0.92 0.88
The current revised and restructured mine plans are based on the assumption that
it will take the Corporation up to the end of September 2010 to secure the new
order water user license for MWS at which time the remaining capital projects at
MWS will resume. On June 15, 2010, the Corporation received approval for a new
order water user license from the DWA. The approval allows MWS to consider
bringing forward the seven-month construction schedule of the TSF.
Cash Flows
Cash flows for the three months ended March 31, 2010 are summarized below:
(thousands of dollars)
Q4 2010 Q4 2009 %
Change
Cash flows generated from (utilized in) 13,515 (11,005) 223%
operating activities
Cash flows utilized in investing (31,646) (36,913) (14%)
activities
Cash flows from financing activities - 120,907 (100%)
Net (decrease) increase in cash and cash (18,131) 72,989 (125%)
equivalents for the period
Cash and cash equivalents at beginning 28,308 39,016 (27%)
of period
Cash and cash equivalents at end of 10,177 112,005 (91%)
period
The Corporation recovered $20.6 million in VAT and income tax refunds which
increased the cash flow in Q4 2010. During Q4 2010, the Corporation did,
however, require substantially more cash to be utilized in operating activities
compared to Q4 2009 due primarily to increased mining activities at the Ezulwini
Mine, but due to the constrained financial condition of the Corporation during
the latter part of Q4 2010, payments to suppliers relating to operating expenses
and capital expenditures were limited which resulted in less cash being spent
during the quarter.. The cash utilized in operating activities for Q4 2009 is
mainly attributable to the Ezulwini Mine which had limited production during the
quarter that was not sufficient to cover the quarter`s operating costs.
During Q4 2010, capital expenditures of $30.6 million were incurred at MWS and
$1.0 million at the Ezulwini Mine. During Q4 2009 capital expenditures of $13.2
million and $22.0 million were incurred at the Ezulwini Mine and MWS,
respectively.
The cash from financing activities during Q4 2009 was attributable to $47.6
million received pursuant to the Private Placement in February 2009 and the
second payment of $75 million received in March 2009 pursuant to the MWS Gold
Stream Transaction.
Cash flows for the year ended March 31, 2010 are summarized below:
(thousands of dollars)
FY 2010 FY 2009 %
Change
Cash flows utilized in operating (34,855) (11,745) 197%
activities
Cash flows utilized in investing (229,665) (211,896) 8%
activities
Cash flows from financing activities 162,692 170,907 (5%)
Net decrease in cash and cash (101,828) (52,734) 93%
equivalents for the year
Cash and cash equivalents at beginning 112,005 164,739 (32%)
of year
Cash and cash equivalents at end of year 10,177 112,005 (91%)
The higher cash consumption from operating activities in FY 2010 was primarily
attributable to the increased mine activities, and limited production at the
Ezulwini Mine. For FY 2009 the first six months` operating costs and related
revenues from the Ezulwini Mine were capitalized.
During FY 2010, cash used in investing activities increased marginally compared
to FY 2009. The significant increase in expenditures at MWS due to the ramp up
of its capital programs over the year, was substantially offset by a decrease in
the current capital expenditure program at the Ezulwini Mine, which is mostly
complete. During FY 2010, capital expenditures of $21.7 million and $206.9
million were incurred at the Ezulwini Mine and MWS, respectively. During FY 2009
capital expenditures of $102.0 million and $109.3 million were incurred at the
Ezulwini Mine and MWS, respectively.
The cash from financing activities during FY 2010 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 FY 2009 the Corporation received
$123.3 million net proceeds pursuant to the MWS Gold Stream Transaction and
$47.6 million net proceeds raised from the Private Placement.
Use of Proceeds
Inclusive of the Offering in December 2006, First Uranium has raised over $780
million to date. At the end of FY 2010, $240.3 million of the funds raised had
been utilized at the Ezulwini Mine on the rehabilitation and re-engineering of
the mine`s main shaft, the building of the gold and uranium plant and pre-
production costs. $336.5 million of the funds raised had been utilized at MWS
primarily on the MWS capital expansion project. The Corporation used $56.6
million to fund costs relating to operating activities at the Ezulwini Mine,
which currently still exceeds its cash revenues generated, and general and
working capital requirements.
To date, the Corporation has brought both of its operations into gold production
and the Ezulwini Mine into uranium production, while having to manage a myriad
of challenges including: a global economic crisis and the resultant tightening
of credit and funding opportunities; power shortages; the temporary withdrawal
of the EA of the TSF at MWS; high clay content in the MWS tailings being
reclaimed; escalating costs for construction materials and considerable
fluctuations in the price of re-agents such as sulphuric acid and cyanide. In
addition to building and commissioning new processing plants, First Uranium
refurbished the Ezulwini Mine shaft, installed diesel-fired generators at both
operations as insurance against future shortages of electrical power,
commissioned two tailings reclamation stations and pipelines at MWS and, to
achieve its business goals, negotiated key supplier contracts with various
partners, including labour and the local uranium calcining operation. With the
most recent financing and changes to the management team, management believes
that the Corporation is positioned to complete its primary capital projects and
progress to full production at the Ezulwini Mine and MWS.
Financial Instruments
First Uranium uses a mixture of cash, long-term debt and shareholders` equity to
maintain an efficient capital structure and ensure adequate liquidity exists to
meet the cash needs of its operations. In the normal course of business, the
Corporation is inherently exposed to currency and commodity price risk. The
Corporation does not currently hedge its exposure to currency or commodity price
risk. The Corporation does hold certain derivative instruments that do not
qualify for hedge accounting. These non-hedge derivatives are described in note
11 of the Financial Statements. For a discussion of certain risks and
assumptions that relate to the use of derivatives, including market risk, market
liquidity risk and credit risk, refer to notes 2 and 27 of the Financial
Statements. For a discussion of the methods used to value financial instruments,
refer to note 2 of the Financial Statements.
Commitments and Contingencies
At the end of FY 2010, the Corporation had $22.3 million of commitments, of
which $0.1 million related to the Ezulwini Mine and $22.2 million to MWS. The
existing commitments at MWS included $1.2 million relating to the construction
and commissioning of the second gold module and the first two uranium modules,
$8.3 million relating to the construction of the third gold module, $12.2
million for the construction of the new TSF and $0.5 million on-mine capital
requirements.
Pursuant to the terms of the Offering, GW agreed to settle the completion
penalty of $42 million in respect of the MWS Gold Stream Transaction with the
issuance of 14 million common shares in First Uranium to GW and a commitment by
the Corporation to complete construction of the third gold plant module at MWS
and satisfaction of the technical completion tests prior to September 1, 2011.
In the event that the construction and tests are not met by such date, a $1.5
million payment shall be payable by the Corporation to GW on the first day of
each of September, October, November and December 2011 unless such tests have
been met prior to such date. In the event that these commitments to construction
and technical completion are not met prior to December 1, 2011, a remaining
penalty of $30 million will be payable, such sum to be settled in cash or in
common shares of First Uranium at the election of GW (at the lowest issue price
permitted by the rules of the TSX).
Any payment made by MWS related to the delay in construction completion of the
third gold plant module or the satisfaction of the Technical Completion Test
including but not limited to the 14 million common shares and the further
potential penalty of $30 million if paid to GW shall be considered a refund to
GW. The full $42 million potential penalty due will be deemed to have been paid
on June 1, 2010 for the purposes of any Default Interest (as defined in the MWS
Gold Stream Transaction) but will not be considered a refund that would reduce
the Uncredited Balance. Refunds which may become due and owing by GW to MWS
shall continue to be conditional upon MWS having fully satisfied the Technical
Completion Test as defined in the MWS Gold Purchase Agreement and, if made by
Gold Wheaton shall constitute an increase to the Uncredited Balance (as defined
in the MWS Gold Stream Transaction).
First Uranium issued 14 million common shares to GW on April 26, 2010 as partial
settlement of the Gold Wheaton Penalty. At the end of FY 2010, a provision of
$17.9 million for this penalty has been included in the Financial Statements
(see Note 12.1 to the Financial Statements).
In December 2008, Auramet Trading LLC ("Auramet") served a statement of claim on
the Corporation. 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 and as such the
Corporation has not made any provision in this regard.
The Corporation entered into an agreement with a third party, commencing in
January 2009, to calcine the yellowcake from First Uranium to produce uranium
oxide packaged for dispatch to converters (the Toll Treatment Arrangement).
Either party may terminate the agreement on eighteen months notice. The third
party calciner constructed a plant with one half of the capacity of the plant to
be dedicated for the processing of the First Uranium yellowcake and acquired a
road tanker to transport the yellowcake from the First Uranium operations to the
calciner`s operations. First Uranium was obliged to pay one-half of the
construction cost of the calcining plant up to a maximum of $1.6 million and one
half of the cost of the tanker (together referred to as the Loan). The Loan is
effective as of January 5, 2009 and is repaid in monthly instalments over a
seven year period commencing January 30, 2009. The Loan bears interest equal to
the prime overdraft rate as quoted by the SARB, plus 2%. During the year ended
March 31, 2010, the Corporation paid $0.9 million (2009: $0.2 million) pursuant
to the arrangement and expects to pay $1.1 million in the next 12 months and
$1.1 million thereafter, until the end of the agreement.
At March 31, 2010, First Uranium had the following contractual obligations:
Payments due by date
Within 3 Between After
(thousands of dollars) 3 Months 1-3 3 Total
Months to a Years Years
Year
Senior unsecured 3,101 3,152 156,539 - 162,792
convertible debentures
Asset retirement 304 911 2,783 22,517 26,515
obligations
Derivative liabilities 4,063 9,391 10,464 - 23,918
Facility with Simmer & 22,462 - - - 22,462
Jack*
Purchase obligations 22,311 - - - 22,311
Provision for GW penalty** 17,857 - - - 17,857
Capital leases 55 178 584 1,163 1,980
Operating leases 48 144 576 - 768
Total contractual 70,201 13,776 170,946 23,680 278,603
obligations
*The Facility with Simmer & Jack has been settled with Rand Notes subsequent to
March 31, 2010.
**The GW penalty was settled with the issue of 14 million common shares
subsequent to March 31, 2010.
Outlook
The Corporation continues to focus on attaining optimal output from gold and
uranium facilities at both of its operations under the restructured plans being
developed. At the Ezulwini Mine, the underground mine and development plans are
being restructured to focus additional attention on the targets that need to be
achieved. At MWS, the current operations are being optimized to ensure maximum
cash generation and the remaining capital programme is being reviewed in detail
to identify any opportunities to reduce peak funding requirements without
compromising project sustainability or efficiency. Future expansion and
production activities will be subject to capital availability.
In addition to these initiatives, a cost cutting exercise has been initiated
across the Corporation. The key focus is to reduce corporate and non-core costs
to ensure that the Corporation`s overall cost base can be reduced to enhance
operational margins. This exercise is also intended to create flexibility with
respect to cash flow and ensure that the Corporation is able to execute on its
plans.
MWS
As discussed under the Operations Review section in this MD&A, management has
decided to continue utilizing two gold plant modules with two-stream deposition,
albeit at reduced throughput of 975 ktpm until the end May 2011. Under the two-
stream deposition plan, the previously communicated one-stream production run
rate increases by 56% from approximately 11,500 ounces per month to
approximately 18,000 ounces per month and should contribute significantly
towards mitigating corporate peak funding risk.
The table below summarizes the production forecast under the two-stream
deposition plan for the financial years ending March 31, 2011 and 2012 compared
to the production forecasts under the technical report:
Two Streams to end May Technical Report
2011
FY 2011 FY 2012 FY 2011 FY 2012
Gold production
Production (oz) 72,000 128,000 48,000 128,000
Estimated Cash Cost 479 494 474 494
($/oz)
Uranium production
Production (lb) - - - 498,000
Estimated Cash Cost - - - 33
($/lb)Squared
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.
On the expected completion of the third gold plant module and TSF by May 2011,
MWS will commence with the GW technical completion tests which must be satisfied
prior to September 1, 2011 in order to avoid paying further penalties to GW as
discussed under the Commitments and Contingencies section of this MD&A.
Subsequent to the achievement of the GW completion test, MWS will commission the
first two modules of the uranium plant.
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 available face length, trained mining crews and equipping of
panels thereby increasing production build-up;
* reducing dilution and improving its mine call factor, including 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 is being revised in response to slower than expected
mine production build-up to date and the capital constraints. To ensure the
build-up and production ramp-up is realistic and achievable, management is
currently reviewing a detailed `bottom-up` production plan. This detailed review
of the plan is expected to be completed by the end of June 2010
Technical Disclosure
All technical disclosure in this MD&A 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. Mr. Fisher is
an executive officer of the Corporation.
Related Party Transactions
On August 14, 2009, the Corporation finalized a one-year term credit facility of
ZAR160 million (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. As at March 31, 2010, the Facility with Simmer & Jack was $22.5
million. The interest accrued on the Facility for Q4 2010 and FY 2010 was $0.8
million and $1.9 million, respectively. Interest paid during Q4 2010 and FY 2010
was $0.4 million and $1.1 million respectively. Pursuant to the terms of the
Offering, the Facility with Simmer & Jack plus the unpaid interest on the
Facility (approximately $22.7 million) was settled in full on April 26, 2010
with the issue of R167.8 million in Rand Notes to Simmer & Jack.
Pursuant to the Offering, Simmer & Jack also subscribed to a further R296.1
million of Rand Notes for a cash consideration of Cdn$40 million on April 26,
2010.
During Q4 2010 and FY 2010, the Corporation paid $1.0 million and $3.4 million,
respectively, to Simmer & Jack pursuant to the Shared Services Agreement (Q4
2009: $0.5 million and FY 2009: $2.1 million). For Q4 2010 and FY 2010 $0.7
million and $2.2 million, respectively, of the fees paid to Simmer & Jack were
related to technical services provided to the operations that were capitalized
(Q4 2009: $0.2 million and FY 2009: $0.7 million). For a description of the
Shared Services Agreement, see the Corporation`s most recently filed Annual
Information Form ("AIF").
At the end of Q4 2010, the amount payable to Simmer & Jack was $2.5 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 Q4 2010 and FY 2010, the Corporation paid $0.1 million and $0.2 million,
respectively to Simmer & Jack in connection with such services (Q4 2009: $0.05
million and FY 2009: $0.2 million).
On September 27, 2007, the Board approved a loan in the amount of Cdn$1 million
to the President and CEO of First Uranium for the purpose of facilitating his
purchase of a family home. The loan was for a term of six years, was unsecured
and bore interest at 4% per annum payable monthly in arrears. At the resignation
of the CEO in March 2010 and as part of his severance package, the Board agreed
to forgive this loan in full. The outstanding loan amount of Cdn$1 million was
therefore written off and recognized as an expense in the current statement of
operations. In addition, a tax amount related to this transaction of $0.4
million was also incurred by the Corporation and recognised as an expense in the
current statement of operations.
On March 15, 2010, Deon van der Mescht as interim President and CEO of the
Corporation was granted 300,000 share options that were conditional upon the
successful conclusion of the Offering and his subsequent appointment as
permanent President and CEO. On May 6, 2010, Deon van der Mescht was confirmed
as President and CEO and also appointed a director of the Corporation.
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 Q4 2010 and FY 2010, the total royalties and payments, inclusive of the
amounts due in respect of the Aberdeen Loan Agreement were $0.2 million and $0.7
million, respectively (Q4 2009: $0.04 million and FY 2009: $0.2 million).
Disclosure Controls and Procedures and Internal Control over Financial Reporting
Disclosure Controls and Procedures
The 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
March 31, 2010. 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 March 31, 2010 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 March 31, 2010 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 March 31, 2010.
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 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 year. Areas of judgement
that have the most significant effect on the amounts recognized in the financial
statements are estimation of asset lives, determination of ore reserve
estimates, capitalization of exploration and evaluation costs, and
identification of functional currencies. Key sources of estimation uncertainty
that have a significant risk of causing material adjustments to the carrying
amounts of assets and liabilities are the estimation of close-down and
restoration costs and the timing of expenditures, the review of asset carrying
values and impairment charges and reversals, the estimation of environmental
clean-up costs and the timing of expenditures and the recoverability of
potential future income taxes. Financial results as determined by actual events
could differ from those estimated. Management estimates are also applied in
arriving at the useful lives of items of property, plant and equipment and in
determining the fair value of stock options. Note 2 to the Financial Statements
describes the Corporation`s significant accounting policies.
Property, plant and equipment
The cost of an item of property, plant and equipment is recognized as an asset
when:
* it is probable that future economic benefits associated with the item will
flow to the Corporation; and
* the cost of the item can be measured reliably.
Costs include expenditures incurred initially to acquire or construct an item of
property, plant and equipment and costs incurred subsequently to add to, replace
part of, or service it. If a replacement cost is recognized in the carrying
amount of an item of property, plant and equipment, the carrying amount of the
replaced part is written off.
Property, plant and equipment are carried at cost less accumulated amortization
and any impairment losses. Exploration costs incurred to the date of
establishing that a property has mineral resources are expensed. Exploration and
development expenses incurred subsequent to this date and which have the
potential of being economically recoverable are capitalized. If the project
becomes feasible, the costs are amortized over the life of the mine. If the
project is stopped, the costs are written off immediately.
Management carries out a review at each financial yearend to determine the
appropriateness of the residual value and the useful life of each asset. Each
component of an item of property, plant and equipment with a cost that is
significant in relation to the total cost of the item is amortized. Amortization
is provided on all property, plant and equipment other than freehold land, to
write down the cost, less residual value over their useful lives. Land is not
amortized. The amortization charge for each period is recognized in earnings or
loss unless it is included in the carrying amount of another asset.
Asset retirement obligations
The Corporation recognizes the fair value of a future asset retirement
obligation as a liability in the year in which it incurs a legal obligation
associated with the retirement of tangible long-lived assets that results from
the acquisition, construction, development, and/or normal use of the assets. The
Corporation concurrently recognizes a corresponding increase in the carrying
amount of the related long-lived asset that is depreciated over the life of the
asset. The fair value of the asset retirement obligation is estimated using the
expected cash flow approach that reflects a range of possible outcomes
discounted at credit adjusted risk-free interest rate. Provision is made in full
for the estimated future costs of pollution control and rehabilitation, in
accordance with statutory requirements. The fair value of asset retirement
obligations is recognized and provided for in the financial statements and
capitalized to mining assets when incurred.
Subsequent to the initial measurement, the asset retirement obligation is
adjusted at the end of each year to reflect the passage of time and changes in
the estimated future cash flows underlying the obligation.
Changes in the obligation due to the passage of time are recognized in income as
an operating expense using the interest method. Changes in the obligation due to
changes in estimated cash flows are recognized as an adjustment of the carrying
amount of the long-lived asset that is depreciated over the remaining life of
the asset.
Annual increases in the provision are accreted into income and consist of
financing costs relating to the change in present value of the provision and
inflationary increases in the provision estimate. The present value of
additional environmental disturbances created is capitalized to mining assets
against an increase in rehabilitation provision.
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. 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 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.
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 were
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 was 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
was 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")
In terms of the requirements of the Canadian Accounting Standards Board, First
Uranium has to adopt IFRS for interim and annual financial statements relating
to its fiscal year ending March 31, 2012 ("FY 2012"). First Uranium is in the
process of converting its basis of accounting from Canadian GAAP to IFRS
effective for the first quarter report in FY 2012. The transition date of April
1, 2010 will require the conversion, for comparative purposes, of the
Corporation`s previously reported balance sheet as at March 31, 2010 and March
31, 2011 and its interim and annual consolidated statements of operations and
cash flows for the year ending March 31, 2011 from Canadian GAAP to IFRS.
The impact analysis and design phase is currently underway. During management`s
analysis phase to date, 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 cash flow 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.
The key areas identified where the most substantial differences exist are as
follows:
* the accounting treatment of the gold stream transactions;
* the valuation methods used for the debt and equity portions on convertible
debentures;
* the discount rates and foreign exchange rates used to determine the value
of the asset retirement obligations at the end of reporting periods; and
* the determination of functional currency and the treatment of foreign
exchange differences resulting from the translation of functional
currencies of the different reporting entities within the group to
reporting currencies.
Over the next twelve months, management plans to:
* analyze and select ongoing accounting policies where alternatives are
permitted including IFRS 1 exemptions, if required;
* quantify the key differences between IFRS and Corporation`s application of
Canadian GAAP;
* revise the Corporation`s accounting policy manual; and
* prepare IFRS consolidated financial statements including first-time
adoption reconciliations.
To maintain effective disclosure controls and procedures and internal controls
over financial reporting throughout the IFRS project, management is also in the
process of evaluating the impact of the conversion to IFRS on the Corporation`s
control environment in order to identify the additional controls that need to be
developed. Management plans to have the additional controls identified and
developed by the end of Q2 2011 for the review of the IFRS comparative financial
information.
All key personnel will undergo ongoing training as and when needed. Management
will also review the financial information systems to identify changes required
by the transition date and setup processes to ensure that financial information
is recorded under both Canadian GAAP and IFRS for comparative purposes.
Outstanding Share Data
FY 2010 FY 2009
Common shares outstanding at beginning 151,574,037 131,074,037
of the year
Shares issued during the year 15,250,000 20,500,000
Restricted share unit shares issued 23,000 -
Common shares outstanding at end of 166,847,037 151,574,037
the year
Unexercised common share purchase 10,250,000 10,250,000
warrants at end of the year
Unexercised restricted units 177,000 -
outstanding at end of the year
Unexercised stock options outstanding 3,204,622 3,588,194
at end of the year
Average strike price of outstanding 7.74 7.79
options (Cdn$)
At June 17, 2010, First Uranium had 180,847,037 common shares outstanding and
there were 3,504,622 unexercised stock options outstanding at an average strike
price of Cdn$7.22 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 March 31, 2010 and June 17, 2010, First Uranium also had Cdn$150 million
($147 million as at March 31, 2010) 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.
At June 17, 2010, First Uranium also had Cdn$110 million principal amount of
Canadian Notes outstanding which are convertible into 769.23 common shares for
each Cdn$1,000 principal amount of Canadian Notes, representing 84,615,384
common shares.
At June 17, 2010, First Uranium also had R463.9 million principal amount of Rand
Notes outstanding which are convertible into 107.53 common shares for each
R1,000 principal amount of Rand Notes, representing 49,882,736 common shares.
Risks and Uncertainties
Uncertainties
There are a number of uncertainties in the mining business of First Uranium,
some of which are beyond First Uranium`s control:
* 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;
* prices for the Corporation`s future production of uranium and gold;
* foreign exchange and interest rates;
* the supply and cost of other re-agents, including sulphuric acid, used by *
* the Corporation in the process to extract gold and uranium;
* the consistent supply of sufficient electrical power;
* 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 growing 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 Corporation`s
most recent AIF, which is available on the Corporation`s website
www.firsturanium.com and on www.sedar.com or upon request from the Corporation.
Business Risks
Mining and Prospecting Rights
The Corporation has not secured all mining rights and government approvals
required to develop its proposed uranium and gold project at MWS. In July 2009,
a new order mining right for MWS was approved by 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. It should however be noted that MWS
does not require the new order mining right because tailings recovery facilities
are not currently covered under the MPRDA. Until such time as the MRPDA has been
amended to include tailings recovery facilities, MWS relies upon the recently
issued EA governed by NEMA (see also Permitting issues at MWS section in this
MD&A).
Gold Stream Transaction Obligations
If the MWS Project experiences further construction delays, including labour
stoppages, delays supplies of goods and services or lack of availability of
equipment, it may impact MWS` ability to meet certain obligations under the MWS
Gold Stream Transaction (see Commitments and Contingencies section to this MD&A
for a description of obligations and repercussions if such obligations are not
satisfied).
Foreign Currency Exchange Rates
The Corporation has exposure to the risk of significant change in foreign
currency exchange rates between US dollars, Canadian dollars and the South
African rand. Most of the Corporation`s expenses are currently in ZAR. The
Corporation`s current and future gold and uranium production will be sold in US
dollars. As a result, an increase in the US dollar value relative to the ZAR
would decrease profitability. In addition, the Corporation runs a small office
in Canada and also holds Debentures that is Canadian dollar denominated, which
will result in increased expenses and increased liabilities in the case of any
further increases in the value of the Canadian dollar relative to the US dollar
as the Corporation`s reporting currency is in US dollars.
Financing
Management has considered the market turbulence arising from the credit crises
and taken the related risks into consideration and is carefully monitoring
future developments, the impact they may have on the Corporation`s operations,
financial condition and outlook and is actively assessing non-critical capital
expenditures and opportunities to reduce overheads and operating costs and
improve returns.
Business Interruption
The Corporation is exposed to risks that could interrupt its business. One of
the Corporation`s two projects, the Ezulwini Mine, is an underground mine that
has historically had ground movement problems in the Upper Elsburg shaft pillar.
On one occasion it was necessary to cease shaft operations and excavate the lava
unit around the shaft to reinstall the necessary shaft hardware. To eliminate
the ground control problems in the shaft area, the Corporation is executing its
plan to mine out the shaft pillar and to stabilize the main shaft.
There is a risk of flooding at the Ezulwini Mine, where the Corporation daily
pumps approximately 65 million litres of water from the site. The pumps are well
maintained and there are several contingency arrangements including multiple
power sources, large diesel generators, back-up pumps and catch basins in the
event of failure of the main pumps. The mine has never been flooded, including
during the period of 2001 through 2006 when the mine ceased operations and was
on care and maintenance.
Black Economic Empowerment ("BEE") Requirements
In all industries in South Africa, BEE is a program that promotes the
accelerated integration of black people into the South African economy and has
been a policy of the South African government since 1994. In April 2004, the
Broad-Based Black Economic Empowerment Act (the "BEE Act") came into effect. The
BEE Act establishes the legislative framework for the promotion of BEE across
all industries that sell or wish to sell products and/or services to Government
departments and agencies and all public sector entities, and in particular, what
it refers to as "broad-based" BEE.
Broad-based BEE has as its goal, the economic empowerment of all black people,
including women, youth, people with disabilities and people living in rural
areas through strategies which seek to, amongst others, increase the number of
black people that manage, own and control enterprises and productive assets.
In the South African mineral industry the Mining Charter and the Codes
promulgated thereunder in April 2009 (the "Mining Codes") with its accompanying
compliance targets establish a set of criteria and compliance targets for the SA
minerals industry that is separate from, but which overlaps certain provisions
and principles in the Codes of Good Practice issued by South Africa`s Minister
of Trade and Industry.
The Mining Codes establish compliance targets across nine elements comprising:
ownership, Management control, employment equity, human resource development,
preferential procurement, mine community and rural development, beneficiation,
housing and living conditions standards. The ownership or equity participation
by HDSA`s target for 2009 and 2014 is 15% and 26%, respectively. (For more
information on BEE, please refer to the Corporation`s most recent AIF).
Although compliant with the above set requirements for shareholder
representation of 15%, the proportion of BEE holdings in the Corporation`s
shares have recently declined to approximately 16% as a result of recent equity
financings by the Corporation and Simmer & Jack. Both the Corporation and Simmer
& Jack are considering securing more investment interest in their companies by
BEE investors in advance of the higher 2014 shareholder representation
requirement of 26%. Failure to comply with BEE requirements may complicate the
ability of applicants to obtain and retain mining and prospecting rights.
Disclosure
The Corporation is required to comply with securities reporting legislation and
accounting standards in Canada and South Africa. To ensure that First Uranium
meets its regulatory obligations and mitigate risks associated with inaccurate
or incomplete disclosure, the Audit Committee is responsible for reviewing and
assessing the quality and integrity of the Corporation`s continuous disclosure
documents. The Corporation is also in the process of implementing a disclosure
policy.
Insurance
First Uranium`s insurance coverage does not cover all of its potential losses,
liabilities and damage related to its business and certain risks are uninsured
or uninsurable. The Corporation makes its insurance decisions based on the
likelihood of any risk occurring, the cost of the insurance and the
Corporation`s tolerance for risk.
Simmer & Jack
Simmer & Jack and First Uranium share several services that benefit both
companies. In addition, Simmer & Jack maintains a significant interest in the
Corporation, which investors view as an overhang on the value of the
Corporation`s shares in the event that Simmer & Jack should decide to further
dilute their shareholding in the Corporation. First Uranium also relies on
Simmer & Jack for the majority of its BEE credentials, among other things.
Litigation
From time to time, the Corporation is involved in litigation, investigations, or
proceedings related to claims arising out of its operations in the ordinary
course of business. In the opinion of the Corporation`s management, these claims
and lawsuits in the aggregate, even if adversely settled, will not have a
material effect on the consolidated financial statements.
Operational Risks
Mining
The business of mining generally involves a high degree of risk and First
Uranium has a limited operating history. No assurance can be given that the
development and bringing into commercial production of a mine or tailings
processing facility will be completed as contemplated and for the estimated
capital costs or within the estimated schedule. Also, no assurance can be given
that the intended production schedule, metal recoveries, estimated operating
costs and/or that profitable operations will be achieved.
Confidence in Resources
The economic analysis for the Ezulwini Mine is based, in part, on inferred
resources, and is preliminary in nature. Inferred resources are considered too
geologically speculative to have mining and economic considerations applied to
them and to be categorized as mineral reserves. There is no certainty that the
reserves, development, production and economic forecasts on which such
preliminary assessments are based, will be realized.
Labour
The Corporation will employ most of its labour at its two operations. There has
historically been much higher employment in the areas in which the two
operations are situated and management does not consider availability of general
labourers a risk. The higher demand for uranium, gold and other metals has
raised the demand for skilled professionals, such as mining engineers,
metallurgists and geologists.
The cost of labour is a risk since labour costs have risen significantly from
the last time uranium mines were in production at these sites. Higher costs have
been identified and factored into the economic forecasts for these operations.
A trend that could increase risk for the Corporation is the heightened labour
unrest in South Africa. Workers at various South African mining operations have
been demanding, through their unions, higher compensation as a result of
increased revenues in the mining sector being driven by rising mineral prices.
First Uranium`s two-year settlements expired at the end of FY 2010 and wage
negotiations are currently in process at both operations with the aim of
concluding new two-year agreements.
South Africa has significantly higher HIV infection rates than those prevailing
in North America and Europe. Current and future First Uranium employees may have
or could contract this potentially deadly virus. The prevalence of HIV could
cause the Corporation to sustain higher costs to replace sick employees.
Operational safety is considered a top priority by management and the Board has
established an Environmental, Health and Safety Committee. The Committee has the
responsibility to review and make recommendations regarding the Corporation`s
health and safety programs and compliance issues.
Power
Power outages beset South Africa in early 2008 and have continued sporadically
in 2009, causing disruption in business activities. In 2008, coal-fed power
stations ran low on fuel and several power-generating facilities were down for
maintenance. No significant new power-generating facilities are expected to
start up in South Africa until 2012.
On January 24, 2008, Eskom advised that continuity of electric power supply
could not be guaranteed. Specific warnings were communicated to South African
mining companies, including the Corporation. To mitigate the impact of further
power restrictions, the Corporation has power generation installed at its two
operations, with a 30 MW power plant installed at its MWS operation and 14 MW of
power at the Ezulwini Mine. The supply of power from Eskom has recently
increased, aided by the sluggish economic growth in South Africa and the
curtailment of production by high-demand users such as smelter operations in the
mining industry. Eskom is implementing significant electricity price increases,
but Eskom`s supply remains at a significantly lower cost than diesel-generated
power.
Construction Costs
First Uranium is in the development stage and is continuing construction of
additional gold and uranium modules at the MWS plant. To complete the
construction of the additional plant modules requires steel, concrete and
construction tradespeople.
Fuel
Rising costs of fuel impact the costs of running the plants and the
transportation of labour and materials to the sites and eventually the costs of
moving rock from the underground mine and the metals that are to be produced at
both operations. Higher costs of other fuels have increased the demand for
uranium, offsetting the negative impact of the increase in the costs of these
fuels in the Corporation`s operations.
As a result of the Corporation`s decision to install diesel-fired generators, it
will be exposed to changes in the availability and price of diesel fuel. Close
geographic proximity to a government source of fuel provides the Corporation
with some confidence in its ability to source some of its diesel fuel
requirements domestically, but it may also have to transport diesel fuel from
South African ports. To mitigate the risk of price escalation for the transport
of diesel fuel, the Corporation will seek long term transportation contracts.
The Corporation had factored additional costs into the economic models at both
operations for the expected need to run its diesel generators to fill peak
electricity demand, in the event that Eskom fails to provide sufficient power.
To date, the Corporation has not yet had to use its diesel-fired generators and
has, therefore, kept costs for electricity below planned levels.
Environmental and hazardous materials
Laws and regulations involving the protection and remediation of the environment
and the governmental policies for implementation of such laws and regulations
are constantly changing and are generally becoming more restrictive. Mining
operations have inherent risks and liabilities associated with pollution of the
environment and the disposal of waste products and hazardous materials occurring
as a result of mining and production. First Uranium cannot give any assurance
that, notwithstanding its precautions, breaches of environmental laws (whether
inadvertent or not) or environmental pollution will not materially and adversely
affect its financial condition and its operations` results.
First Uranium`s proposed mining projects are subject to the risk of uranium
exposure. The Corporation has put systems in place to manage exposure to uranium
or uranium metal and no known exposures have occurred at First Uranium to date.
Exposure by First Uranium`s employees, however, could result in the Corporation
having to incur extra compensation costs.
Market risks
Uranium and Gold Prices
First Uranium`s future revenues will be directly related to the world market
prices of uranium and gold as its revenues will be derived primarily from gold
and uranium mining. Uranium and gold prices can be subject to volatile price
movements, which can be material and can occur over short periods of time and
are affected by numerous factors beyond First Uranium`s control.
If, after the commencement of commercial production, uranium and/or gold prices
fall below the costs of production at First Uranium`s operations for a sustained
period, it may not be economically feasible to continue production at such
operations. This would materially and adversely affect production, profitability
and First Uranium`s financial position. A decline in uranium and/or gold prices
may also require First Uranium to write down its mineral reserves and mineral
resources, which would have a material adverse effect on its earnings and
profitability. First Uranium`s future profitability may be materially and
adversely affected by the effectiveness of any hedging strategy. Apart from the
two gold stream transactions with GW, the Corporation currently does not hedge
any of its future gold and uranium production.
In December 2008, the Corporation entered into the MWS Gold Stream Transaction
to sell approximately 25% of its expected life-of-mine gold production at the
lesser of $400 per ounce of gold or spot price (See also Note 11.1 to the
Financial Statements). In December 2009, the Corporation entered into the
Ezulwini Gold Stream Transaction to sell approximately 7% of its expected life-
of-mine gold production at the lesser of $400 per ounce of gold or spot price
(see also Note 11.2 to the Financial Statements).
Public Perception and Acceptance of Nuclear Energy
Growth of the uranium and nuclear power industry will depend, amongst other
factors, upon continued and increased acceptance of nuclear technology as a
means of generating electricity. Because of unique political, technological and
environmental factors that affect the nuclear industry, the industry is subject
to public opinion risks that could have an adverse impact on the demand for
nuclear power and increase the regulation of the nuclear power industry. An
accident at a nuclear reactor anywhere in the world could impact the continuing
acceptance of nuclear energy and the future prospects for nuclear power
generation, which may have a material adverse effect on First Uranium.
Uranium and Gold Industry Competition
International uranium and gold industries are highly competitive. There is no
guarantee that First Uranium will be able to compete successfully with other
mining companies, particularly the larger, seasoned mining companies. The
Corporation cannot assure that it will be able to compete successfully with its
competitors in developing or acquiring uranium or gold projects or in attracting
and retaining skilled and experienced employees.
First Uranium intends to market its uranium in a number of potential markets in
direct competition with supplies available from a relatively small number of
mining companies. Current and future international trade agreements and
policies, governmental policies and trade restrictions are beyond the control of
First Uranium and may affect the supply of uranium available to the market.
Competition from other energy sources
Nuclear energy competes with other sources of energy, including oil, natural
gas, coal and hydroelectricity. These other energy sources are to some extent
interchangeable with nuclear energy, particularly over the longer term.
Sustained lower prices of oil, natural gas, coal and hydro-electricity may
result in lower demand for uranium concentrates.
Additional Information
Additional information relating to First Uranium 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 year ended March 31,
2010 contain certain forward-looking statements. Forward-looking statements
include but are not limited to those with respect to the timing and amount of
estimated future production, 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, 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) projected metal production, 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 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.
Non-GAAP Measures
The Corporation believes that in addition to conventional measures prepared in
accordance with Canadian GAAP, the Corporation and certain investors and
analysts use certain other non-GAAP financial measures to evaluate the
Corporation`s performance including its ability to generate cash flow and
profits from its operations. The Corporation has included certain non-GAAP
measures in this document. Non-GAAP measures do not have any standardized
meaning prescribed under Canadian GAAP, and therefore they may not be comparable
to similar measures employed by other companies. The data is intended to provide
additional information and should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with Canadian
GAAP. Readers are advised to read all GAAP accounting disclosures presented in
the Corporation`s Financial Statements for more detail.
Date: 21/06/2010 08:30:01 Produced by the JSE SENS Department.
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