| Mon 15 Nov 2010, 8:31 | | 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
financial results for the three and six months ended September 30, 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: CA33744R1029
FIRST URANIUM CORPORATION
MANAGEMENT`S DISCUSSION AND ANALYSIS
of the financial results for the three and six months ended
September 30, 2010
Management`s discussion and analysis of the unaudited consolidated financial
condition and results of operations for the three and six months ended September
30, 2010
This Management`s Discussion and Analysis ("MD&A") of the consolidated financial
position and results of operations, reviews the activities, unaudited
consolidated results of operations and financial condition of First Uranium
Corporation and its subsidiaries ("First Uranium" or the "Corporation") as at
and for the three and six months ended September 30, 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:
Abbreviation Period Abbreviation Period
Q1 2010 April 1, 2009 - June Q1 2011 April 1, 2010 - June
30, 2009 30, 2010
Q2 2010 July 1, 2009 - Q2 2011 July 1, 2010 -
September 30, 2009 September 30, 2010
Q3 2010 October 1, 2009 - 2010 YTD April 1, 2009 -
December 31, 2009 September 30, 2009
Q4 2010 January 1, 2010 - 2011 YTD April 1, 2010 -
March 31, 2010 September 30, 2010
FY 2010 April 1, 2009 - FY 2011 April 1, 2010 - March
March 31, 2010 31, 2011
This MD&A is intended to supplement and complement the unaudited consolidated
financial statements for the three and six months ended September 30, 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 November
12, 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.
Business Overview
First Uranium Corporation remains focused on becoming a low-cost producer of
gold and uranium. The Corporation has two operations, the Mine Waste Solutions
tailings recovery project ("MWS") and the underground Ezulwini Mine, both
located in South Africa.
During Q2 2011 MWS produced 18,598 ounces of gold (Q2 2010: 13,422 ounces) and
the Ezulwini Mine produced 14,820 ounces of gold (Q2 2010: 7,952 ounces). The
Ezulwini Mine also produced 12,753 pounds of uranium (Q2 2010: 15,351 pounds) in
the form of ammonium diuranate ("yellowcake") through its uranium plant and
31,408 pounds in the form of refined uranium (Q2 2010: nil) through a third
party calciner during the quarter.
The MWS production build-up remains on-track and all projects are on schedule.
MWS has achieved its third successive quarter of either meeting or exceeding its
market guidance. The capital projects remain on schedule for May 2011 when MWS
is expected to reach its full throughput capacity.
Gold production at the Ezulwini Mine was only slightly higher than last quarter
(14,120 ounces) due to a seismic event that occurred on August 20, 2010 which
resulted in the commissioning of an upgraded backfill plant that will enhance
future production output. The Ezulwini Mine continues to ramp up from previous
quarters and subsequent to the upgrade of the backfill plant, management is
confident in being able to build on these successes.
The Corporation`s common shares and 4.25% senior unsecured convertible
debentures (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"). On October 4, 2010, the Corporation listed the Cdn$110
million aggregate principal amount of its 7% secured convertible notes due March
31, 2013 (the "Canadian Notes") for trading on the TSX. The Notes were issued
under a note indenture dated April 8, 2010, entered into between the Corporation
and BNY Trust Company of Canada, as trustee and are trading under the symbol
"FIU.NT". The Notes, which are issuable in a minimum principal amount of $1,000
each, are quoted based on $100 principal amounts with all trades being made in
multiples of $1,000. On September 29, 2010, First Uranium received a formal
request from Simmer & Jack to list the Cdn$62.6 million (ZAR463.9 million)
aggregate principal amount of the 11% secured convertible notes issued by MWS
due March 31, 2013 (the "Rand Notes") on the JSE.
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 Basic
(thousands of dollars, (Loss) &
except per share income diluted Long-term
amounts) Revenue for the (loss) Total liabiliti
three earning assets es
months s per
share
September 30, 2010 38,315 (21,891) (0.12) 778,146 (434,436)
June 30, 2010 39,661 (12,025) (0.07) 783,847 (429,531)
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)
Market Overview
Gold
Gold price volatility remained high in Q2 2011, with the price ranging between
$1,157 and $1,307 per ounce during the quarter. The average gold spot price per
ounce for Q2 2011 was $1,227 compared to $1,197 for Q1 2011. The gold spot price
per ounce was $1,307 at the end of Q2 2011 and $1,388.50 at November 12, 2010.
Uranium
According to an industry source, the Ux Consulting Company, LLC ("UxC"), the
spot price per pound for uranium ranged between $41.50 and $48.00 during Q2
2011. As of November 12, 2010, the uranium spot price per pound was $58.50. 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.
Currency exchange rates
During Q2 2011, in US dollar terms the ZAR continued to trade in a range of
$0.13 - $0.14 per ZAR, averaging $0.14 and closed at $0.14. Relative to the US
dollar, the Cdn$ traded in a range of Cdn$0.94 - Cdn$0.99, averaging Cdn$0.96
and closed stronger at Cdn$0.97. In Cdn$ terms the ZAR traded in a range of
Cdn$0.14 - Cdn$0.15, averaging Cdn$0.14 and closed stronger at Cdn$0.15.
At September 30, 2010, First Uranium held 61% of its cash in Cdn$, 37% in ZAR
and the balance in US dollars. The funds are primarily held in cash and bank-
sponsored guaranteed investment certificates with Canadian and South African
banks.
In Q2 2011, the impact of the US dollar value on the ZAR and Cdn$ denominated
costs and on assets and liabilities reported in US dollar terms resulted in a
foreign exchange loss on translation. The foreign exchange loss on translation
in Q2 2011 reflects the strengthening of the Cdn$ and, in particular, ZAR
against the US dollar over the quarter. For 2011 YTD, the foreign exchange loss
was partially offset by the foreign exchange gain on translation during Q1 2011.
Inflation
The Corporation`s operations are subject to inflation. The South Africa
inflation rate (Consumer Price Index) declined from 5.1% at the beginning of FY
2011 to 3.2% at the end of Q2 2011.
Operations Overview
Mine Waste Solutions
% 2011 YTD 2010 %
Q2 2011 Q2 2010 Change YTD Change
Production
Tonnes reclaimed 3,170 2,476 28% 6,275 4,311 46%
(000s)
Average gold recovery 0.18 0.17 6% 0.19 0.18 6%
grade (grams/tonne)
Percentage gold 53% 44% 20% 54% 44% 23%
recovered
Ounces of gold 18,598 13,422 39% 38,813 24,429 59%
produced
Ounces of gold sold 18,743 11,739 60% 39,751 22,415 77%
(total)
Ounces of gold 9,512
delivered into MWS 4,770 4,817 (1%) 12,277 (23%)
Gold Stream
Transaction
Average gold selling 1,051 1,007 4% 1,058 959 10%
price per ounce ($)
Average Cash Cost per (537) (467) 15% (491) (406) 21%
ounce of gold sold
($)(a)
Average cost per ounce (615) (488) 26% (562) (431) 30%
sold ($)
Financial
Revenue 19,696 11,823 67% 42,053 21,485 96%
Cost of sales (10,074) (5,485) 84% (19,508) (9,099) 114%
(excluding
amortization)
Amortization (1,449) (249) 482% (2,840) (562) 405%
Gross profit 8,173 6,089 34% 19,705 11,824 67%
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.
The tonnage throughput for Q2 2011 and 2011 YTD, increased by 28% and 46%,
respectively, primarily as a result of the additional production from the second
gold plant module that was commissioned mid-Q2 2010. The 39% and 59% increase in
gold production for Q2 2011 and 2011 YTD was attributable to the additional
production from the second gold plant module along with the improvement in gold
recovered out of the tailings produced from the Buffelsfontein No.2 and No.4
tailings dams. The improved gold recovery resulted from the performance of the
first gold plant module which has been optimized over time. Improved throughput
was driven by certainty related to the commissioning of the new tailings storage
facility ("TSF") which enabled management to deposit at throughput rates higher
than previously anticipated on the MWS No.5 tailings dam.
At MWS, the overall increase in revenues and cost of sales for Q2 2011 and 2011
YTD compared to Q2 2010 and 2010 YTD was mainly attributable to additional
production through the second gold plant module that was commissioned in Q2 2010
along with an improvement in recovery.
For Q2 2011 and 2011 YTD, 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. For Q2 2010 and 2010
YTD, MWS delivered the required ounces to settle the 2009 Guaranteed Ounces,
which was reflected as settlement of the Derivative Liability at the gold spot
price at the time of delivery (see Note 6 to the Financial Statements). The
average cash received per ounce of gold was $1,001 and $1,010 for Q2 2011 and
2011 YTD (Q2 2010: $723; 2010 YTD: $648).
A portion of the operating costs associated with the second gold plant was
capitalized during its commissioning phase resulting in the Cash Cost for Q2
2010 and 2010 YTD being lower compared to the Cash Cost in Q2 2011 and 2011 YTD.
MWS started amortizing capital costs relating to the second gold plant module at
the start of Q4 2010 resulting in higher amortization for Q2 2011 and 2011 YTD
compared to Q2 2010 and 2010 YTD.
The increases in revenues from MWS exceeded the increased costs and amortization
in both Q2 2011 and 2011 YTD and resulted in the gross profit margins increasing
by 34% and 67%, respectively, from Q2 2010 and 2010.
During Q2 2011, MWS resumed the remaining capital program comprising
construction of the third gold plant module and the new tailings storage
facility ("TSF") and is on schedule to complete construction by May 2011. At the
end of Q2 2011 approximately $67 million was planned to be spent within the next
12 months, with the remaining portion, approximately $10 million, relating to
the second phase of the new TSF capital program to be spent during the first
half of FY 2014. Key construction activities that are well underway and include,
but are not limited to:
- The bulk earthworks for the TSF are now materially complete, with civil
construction advancing;
- The third gold plant is approaching mechanical completion with electrical
and instrumentation to follow;
- All critical long lead items have been procured and have been delivered to
site; and
- The vast majority of piping required for the new plant, and to connect the
plant to the new life of mine TSF are on site and in varying degrees of
installation.
Ezulwini Mine
% Change 2011 YTD 2010 YTD %
Q2 2011 Q2 2010 Change
Production
Tonnes milled 146,854 94,599 55% 279,817 187,067 50%
Average gold 3.14 2.51 25% 3.22 1.95 65%
recovery grade
(grams/tonne)
Ounces of gold 14,820 7,952 86% 28,940 11,746 146%
produced
Ounces of gold 15,066 7,047 114% 28,819 10,425 176%
sold (total)
Ounces of gold
delivered into 4,473 - - 9,852 - -
Ezulwini Gold
Stream Transaction
Average gold 1,236 1,022 21% 1,217 1,001 22%
selling price per
ounce ($)
Average Cash Cost 1,710 2,689 (36%) 1,577 2,966 (47%)
per ounce of gold
sold ($)(a)
Average cost per 1,771 2,841 (38%) 1,663 3,158 (47%)
ounce sold ($)
Pounds of 12,753 15,351 (17%) 32,517 28,449 14%
yellowcake
produced
Pounds of refined 31,408 - - 31,408 - -
uranium produced
Pounds of uranium - - - 20,500 - -
sold
Average uranium - - - 41 - -
selling price per
pound ($)
Financial
Revenue 18,619 7,202 159% 35,923 10,435 244%
Cost of sales (25,766) (18,949) 36% (46,278) (30,918) 50%
(excluding
amortization)
Amortization (918) (1,075) (15%) (2,489) (1,999) 25%
Gross loss (8,065) (12,822) (37%) (12,844) (22,482) (43%)
Notes:
(a) Refer to Note (a) on page 4.
During Q2 2011, the anticipated rate of the mine`s production build-up was
impacted by a seismic event that occurred on August 20, 2010. Blasting
activities in the Upper Elsburg were reduced to facilitate the opening up and
support work in areas damaged by the seismic event and impacted extraction rates
in the high-grade Elsburg Reefs for a period of approximately five weeks.
Despite this event, the mine was able to increase production by 5% from Q1 2011.
Future seismic risk has been reduced through the successful upgrade and
commissioning of the backfill plant on September 23, 2010, which has also
provided management with an opportunity to improve mining rates in the high
grade shaft pillar.
The increased backfill capacity will assist in improving production results,
while simultaneously reducing production costs. Moreover, a safer work
environment will be created due to a reduction in the risk of future seismic
activity. Improved production rates are mainly driven by gaining access to
pillars adjacent to drifts (voids) which will now be backfilled and stabilised
through backfill.
During August 2010, the Ezulwini mine closed its uranium plant to replace two
columns in the Ion Exchange section, following a structural failure on a loading
column. The two columns are being manufactured, with installation and
commissioning expected to be completed in Q4 2011. The cost of the two failed
columns that have to be replaced has been written off and expensed in Q2 2011.
At the Ezulwini Mine, gold sales for Q2 2011 and 2011 YTD increased by 159% and
244%, respectively, compared to Q2 2010 and 2010 YTD, reflecting the increase in
production at the mine as well as the improvement in mining efficiencies,
quarter over quarter. The cost of production did not increase in direct
correlation to the revenue increases for Q2 2011 and 2011 YTD compared to Q2
2010 and 2010 YTD, due to the mine`s fixed operating costs being spread over
higher production compared to Q2 2010 and 2010 YTD as indicated by the decrease
in Cash Costs compared to Q2 2010 and 2010 YTD. This resulted in the losses at
the mine in Q2 2011 decreasing by 37% and 43%, respectively, compared to Q2 2010
and 2010 YTD.
Cash Cost for Q2 2011 increased by 20% compared to Q1 2011 which was mainly due
to higher power costs over the winter period, additional cost relating to
manning-up for opening up activities and lost production time due to the seismic
event in August 2010 and the impact of the strengthening ZAR on the US dollar in
Q2 2011 compared to the previous quarter.
The ounces delivered by the Ezulwini Mine to settle the 2010 Guaranteed Ounces
during Q2 2011 and 2011 YTD were reflected as settlement of the Derivative
Liability at the gold spot price at the time of delivery (see Note 6 to the
Financial Statements). The average cash received per ounce of gold was $1,006
and $941 per ounce for Q2 2011 and 2011 YTD, respectively.
Consolidated Financial Review
% 2011 2010 %
Q2 2011 Q2 2010 Change YTD YTD Change
Revenue 38,315 19,025 101% 77,976 31,920 144%
Cost of sales (38,207) (25,758) 48% (71,115) (42,578) 67%
(including
amortization)
Gross profit 108 (6,733) 102% 6,861 (10,658) 164%
(loss)
Other income 655 743 (12%) 1,431 1,023 40%
Other (9,758) (8,823) 11% (20,109) (15,622) 29%
expenditures(b)
Operating loss(c) (8,995) (14,813) (39%) (11,817) (25,257) (53%)
Investment income 257 238 8% 460 944 (51%)
Interest and (10,175) (3,822) 166% (18,780) (7,380) 154%
accretion expenses
Fair value loss on (1,412) (703) 101% (5,434) (1,180) 361%
derivative
liabilities
Accretion expense (22%) (793) 22%
on asset (405) (521) (1,013)
retirement
obligations
Foreign exchange (6,380) 2,364 (370%) (2,489) (14,044) (82%)
(loss) gain
Loss before income (27,110) (17,257) 57% (38,853) (47,930) (19%)
taxes
Income tax 5,219 (1,184) 541% 4,937 (3,775) 231%
recovery (charge)
Loss for the (21,891) (18,441) 19% (33,916) (51,705) (34%)
period
Other 189 - - 157 - -
comprehensive
income
Comprehensive loss (21,702) (18,441) 18% (33,759) (51,705) (34%)
for the period
Loss per common
share (0.12) (0.11) 9% (0.19) (0.32) (41%)
Notes:
(b) Other expenditures include general, consulting and administrative
expenditures, pumping feasibility and rehabilitation costs, stock-based
compensation and non-production related amortization. See page 3 to the
Financial Statements for detail.
(c) This is a non-GAAP measurement. Operating loss is loss before interest
income, interest and accretion expenses, fair value gain or loss on derivative
liability, foreign exchange gain or loss and income tax charges. See page 3 to
the Financial Statements for more detail.
Additional profits generated by MWS from the second gold plant module combined
with much lower losses from the activities at the Ezulwini Mine during both Q2
2011 and 2011 YTD equated to a 102% and 164% improvement from consolidated gross
losses in Q2 2010 and 2010 YTD.
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.
Although the Q2 2011 and 2011 YTD general, consulting and administration costs
included in Other expenditures (as defined in Note (b) to the Consolidated
Financial Review table on page 7) were much lower compared to Q2 2010 and 2010
YTD, pumping costs during the same periods were higher due to increased mining
activities at the Ezulwini Mine and stock-based compensation were also
substantially higher resulting from the 5,368,000 stock options and 826,000
restricted stock units granted during Q1 2011 (see Note 12 to the Financial
Statements). Also included in the Q2 2011 and 2011 YTD Other expenditures was a
$1.5 million impairment of assets resulting from the structural failure of the
Ion Exchange loading column at the Ezulwini Mine`s uranium plant.
Investment income primarily related to interest income earned on cash and cash
equivalents invested in short-term deposits with the Corporation`s bankers until
required for capital projects or to fund operating costs. The overall lower
interest income in Q2 2011 YTD reflected the lower, average, cash balances
compared to 2010 YTD, as well as lower interest rates.
The foreign exchange gain (loss) resulted from the translation of the value of
Canadian and South African denominated assets, liabilities, revenues and
expenses into US dollars. The foreign exchange loss on translation in Q2 2011
reflects the weakening of the US dollar against the Cdn$ and in particular, the
ZAR during the quarter. The foreign exchange gain on translation in Q2 2010
reflects the weakening of the US dollar against the Cdn$ whilst the overall ZAR
weakened against the US dollar during this period. During 2011 YTD the US dollar
weakened against both the ZAR and Cdn$ resulting in the foreign exchange loss
during the period. During 2010 YTD the US dollar weakened significantly against
both the ZAR and the Cdn$ resulting in the substantial foreign exchange loss
during this period.
The accretion expense on Asset Retirement Obligations in Q2 2011 and 2011 YTD
decreased compared to its comparative periods mainly as a result of a reduction
in the interest rate used calculate the accretion expense from 9% to 6%, but
also as a result of the stronger ZAR compared to the US dollar.
The fair value loss on the derivative liabilities in Q2 2011 and 2011 YTD
related to the movement in fair value on the derivative liability related to the
Ezulwini Mine, while the fair value loss in Q2 2010 and 2010 YTD related to the
movement in fair value on the derivative liability related to MWS. For all the
periods, the fair value loss was driven by a higher gold price at the end of the
three and six months compared to the gold price at the end of the preceding
three and six months.
The substantial increase in interest and accretion expenditures of Q2 2011 and
2011 YTD compared to its comparative periods were primarily due to the
additional interest and accretion expenses charged on the Notes issued on April
26, 2010 pursuant to the Offering (see Note 14 to the Financial Statements).
The income tax recovery in Q2 2011 and 2011 YTD compared to the income tax
charge in Q2 2010 and 2010 YTD was derived from the taxable profits generated by
MWS being offset by a higher decrease in net deferred tax liability from MWS
compared to the comparative periods derived from the increase in MWS`s net tax
asset base.
The higher consolidated loss in Q2 2011 compared to Q2 2010 was primarily
attributable to the foreign exchange loss on translation in Q2 2011 along with
the higher interest and accretion expenses partially offset by the lower losses
generated from mining activities at the operations compared to the Q2 2010
quarter. The lower consolidated loss in 2011 YTD compared to 2010 YTD was
primarily attributable to the much lower losses generated from mining activities
at the operations combined with the much lower foreign exchange loss on
translation, partially offset by higher interest and accretion expenses,
increase in fair value loss on derivative liabilities and an increase in Other
expenditures compared to 2010 YTD.
Other comprehensive profit in Q2 2011 and 2011 YTD was comprised of unrealized
profits resulting from an increase in the value of investments included in the
asset retirements funds from the end of the previous reporting periods.
Consolidated Financial Position
Summary Balance Sheet and Key financial ratios
(thousands of dollars)
Sep 30, Mar 31, %
2010 2010 Change
67,569 10,177 564%
Cash and cash equivalents
Other current assets (a) 19,871 17,345 15%
Current liabilities 65,558 123,728 (47%)
Total assets 778,146 684,643 14%
Total liabilities 499,994 411,513 22%
Debt (b) 319,202 169,462 88%
Total shareholders` equity 278,152 273,130 2%
Key financial ratios:
Current ratio (c) 1.33:1 0.22:1
Debt-to-equity (d) 1.15:1 0.62:1
Notes:
(a) Other current assets include accounts receivable and inventories.
(b) Debt is calculated using the principal amount due from the Debentures and
the Notes translated to US dollar 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 comprised of property, plant and equipment, cash and cash
equivalents, inventories, accounts receivable and asset retirement funds.
The 14% increase in total assets since FY 2010 was primarily attributable to the
$141.5 million net cash proceeds raised from the Notes issued pursuant to the
Offering on April 26, 2010 and an increase in property, plant and equipment
resulting mainly from capital expenditures at MWS.
The 22% increase in total liabilities since FY 2010 mainly represented the net
movement relating to the $143.6 million debt portion of the Notes issued offset
by the settlement of the GW penalty and the Facility with Simmer & Jack pursuant
to the terms of the Offering, decreased accounts payable and accrued liabilities
due to the settlement of MWS capital commitments and other long outstanding
accounts and an increase in future tax liability arising from the increased
asset base at MWS during the period.
Off-Balance Sheet Arrangements
The Corporation does not have any off-balance sheet arrangements.
Cash Flows
Cash flows for the three months ended September 30, 2010 are summarized below:
(thousands of dollars)
Q2 2011 Q2 2010 % Change
Cash flows utilized in operating (10,249) (13,514) (24%)
activities
Cash flows utilized in investing (24,803) (70,310) (65%)
activities
Cash flows from financing - 20,517 -
activities
Net increase in cash and cash (35,052) (63,307) (45%)
equivalents for the period
Cash and cash equivalents at 102,621 122,982 (17%)
beginning of period
Cash and cash equivalents at end of 67,569 59,675 13%
period
The decrease in cash utilized compared to Q2 2010 was primarily due to increased
profits generated by MWS and reduced losses incurred by the Ezulwini Mine as
discussed earlier in this MD&A. The cash utilized in operating activities for Q2
2010 was mainly attributable to the Ezulwini Mine, which had limited production
during the quarter and gold sales were not sufficient to cover the quarter`s
operating costs.
During Q2 2011, capital expenditures of $20.9 million were incurred at MWS and
$3.0 million at the Ezulwini Mine, respectively. During Q2 2010 capital
expenditures of $65.7 million and $4.3 million were incurred at MWS and the
Ezulwini Mine, respectively.
During Q2 2010 the Corporation received $20.5 million net proceeds from the
Facility with Simmer & Jack in August 2009.
Cash flows for the six months ended September 30, 2010 are summarized below:
(thousands of dollars)
2011 YTD 2010 YTD %
Change
Cash flows utilized in operating (25,597) (47,626) (46%)
activities
Cash flows utilized in investing (58,463) (117,837) (50%)
activities
Cash flows from financing activities 141,452 113,133 25%
Net increase in cash and cash 57,392 (52,330) 210%
equivalents for the period
Cash and cash equivalents at beginning 10,177 112,005 (91%)
of period
Cash and cash equivalents at end of 67,569 59,675 13%
period
The decreased in cash utilized compared to 2010 YTD was primarily due to
increased profits generated by MWS and reduced losses incurred by the Ezulwini
Mine as discussed earlier in this MD&A. The cash utilized in operating
activities for 2010 YTD was mainly attributable to the Ezulwini Mine, which had
limited production during the period and gold sales were not sufficient to cover
the quarter`s operating costs.
During 2011 YTD, capital expenditures of $50.9 million were incurred at MWS and
$6.7 million at the Ezulwini Mine, respectively. During 2010 YTD capital
expenditures of $88.7 million and $28.3 million were incurred at MWS and the
Ezulwini Mine, respectively.
The cash from financing activities during 2011 YTD was attributable to $141.5
million net cash received pursuant to the Offering in April 2010. During 2010
YTD $92.6 million net proceeds were raised from a bought deal private placement
in June 2009 and $20.5 million net proceeds from the Facility with Simmer &
Jack.
Liquidity and Capital Resources
First Uranium believes that it will be able to settle its current and long term
liabilities (excluding the Debentures and Notes) through the balance of its cash
and cash equivalents of $67.6 million at September 30, 2010 along with cash
flows forecasted to be generated from both of its operations at current
commodity price assumptions and at current planned production forecasts.
Use of Proceeds
Inclusive of the initial public offering in December 2006, First Uranium has
raised over $784.5 million to date. At the end of Q2 2011, $384.8 million of the
funds raised had been utilized at MWS primarily on the MWS capital expansion
project and $249.4 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. The Corporation
used $83.3 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.
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
6 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 note 20 of the Financial Statements. For a
discussion of the methods used to value financial instruments, refer to note 2
of the financial statements for the year ended March 31, 2010.
Commitments and Contingencies
At the end of Q2 2011, the Corporation had $44.9 million of commitments, of
which $41.8 million related to MWS and $3.1 million to the Ezulwini Mine. The
existing commitments at MWS included $0.5 million relating to the construction
and commissioning of the second gold module and the first two uranium modules,
$34.4 million relating to the construction of the third gold module, $5.3
million for the construction of the new TSF and $1.6 million on-mine capital
requirements. The existing commitments at the Ezulwini Mine related mainly to
mine development and infrastructure cost.
Pursuant to the Offering, the Corporation settled the completion penalty
obligation penalty to GW in respect of the MWS Gold Stream Transaction with the
issuance of 14 million common shares in First Uranium valued at $18.2 million 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).
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.
At September 30, 2010, First Uranium had the following contractual obligations:
Payments due by date
Within 3 Months Between After
(thousands of dollars) 3 to a 1-3 3 Total
Months Year Years Years
Notes - 14,796 195,561 - 210,357
Debentures 3,122 3,071 151,917 - 158,110
Derivative liabilities 3,697 13,265 4,421 - 21,383
Purchase obligations 44,899 - - - 44,899
Capital leases 96 287 1,145 477 2,005
Operating leases 48 144 528 - 720
Total contractual 51,862 31,563 353,572 477 437,474
obligations
Note:
The contractual commitments table does not include commitments relating to the
Corporation`s asset retirement obligations.
At September 30, 2010 the Corporation had the following net funding in place
with regards to its rehabilitation obligations:
Ezulwini
(in thousands of dollars) Group Mine MWS
Provision for rehabilitation 30,565 4,789 25,776
Current cost estimate 92,291 21,084 71,207
Less: Rehabilitation trust fund/deposit (9,385) (5,284) (4,101)
Unfunded amount 82,906 15,800 67,106
Guarantees provided against unfunded amount (5,671) (5,671) -
Net amount subject to negotiations with DMR 77,235 10,129 67,106
A significant portion of the net unfunded amount relates to MWS. MWS does not
currently require a new order mining right because tailings recovery facilities
are not covered under the Mineral and Petroleum Resources Development Act
("MPRDA"). Until such time as the MPRDA has been amended to include tailings
recovery facilities, MWS relies upon the EA issued to MWS which is governed by
the National Environmental Management Act.
In anticipation of a change in legislation, MWS submitted an application for a
new order mining right and in July 2009, the new order mining right for MWS was
approved by the Department of Mining and Minerals ("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 Corporation`s preferred method of providing the necessary financial surety
is to make use of an insurance product which will provide the DMR with the
required comfort and will have limited short term cash flow implications,
however in 2009 the DMR suspended its practice of the acceptance of insurance
products to provide the necessary surety. Management is currently in
negotiations with the DMR on a solution for the unfunded amount. If management
is unsuccessful in reaching an agreement with the DMR, MWS may be required to
post a bank guarantee as financial assurance for its environmental
rehabilitation obligations in order to satisfy the conditions of the mining
license. Such funding cost is not currently provided for in the Corporation`s
mine plan.
Outlook
The Corporation continues to identify initiatives at operational and corporate
level that would enhance production and reduce costs with the aim of preserving
First Uranium`s cash reserves, thereby enabling the Corporation to execute on
its capital program and achieve business milestones.
MWS
During Q2 2011 MWS resumed its remaining capital program comprising the third
gold plant module and the new Tailings Storage Facility, including adjoining
infrastructure, and is on schedule to complete construction by May 2011, which
should allow for the re-structured Gold Wheaton completion test to be satisfied
prior to September 1, 2011. The uranium plant will be commissioned immediately
following the successful conclusion of the Gold Wheaton completion test.
Ezulwini Mine
The increased backfill capacity at the Ezulwini Mine will improve panel
availability, allowing management to deploy additional stoping crews. This
capacity underpins management`s confidence in delivering 80,000 ounces of gold
for FY 2011.
Due to the structural failure of two loading columns in August, the uranium
plant has been closed until such time as the two newly manufactured loading
columns have been installed and commissioned, which is scheduled to take place
during Q4 2011. This potentially limits the production of yellowcake through the
uranium plant to the 32,517 pounds of yellowcake produced during the year to
date.
Management expects the Ezulwini Mine to be cash flow positive after capital
expenditures by the end of Q4 2011 at current commodity prices.
Related Party Transactions
As of November 12, 2010 Simmer & Jack owned 34.35% of the common shares of First
Uranium.
During Q2 2011 and 2011 YTD, the Corporation paid $0.1 million and $0.5 million,
respectively, to Simmer & Jack pursuant to the Shared Services Agreement (Q2
2010: $0.7 million; 2010 YTD: $1.5 million). For Q2 2011 and 2011 YTD $0.01
million and $0.2 million of the fees paid to Simmer & Jack were related to
technical services provided to the operations that were capitalized (Q2 2010:
$0.5 million; 2010 YTD: $0.8 million). For a description of the Shared Services
Agreement, see the Corporation`s most recently filed Annual Information Form
("AIF").
At the end of Q2 2011, the amount payable to Simmer & Jack was $0.3 million
compared to $2.5 million payable at the end of FY 2010.
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 Q2 2011 and 2011 YTD, the Corporation paid $0.06 million and $0.1
million, respectively, to Simmer & Jack in connection with such services (Q2
2010: $0.06 million; 2010 YTD: $0.1 million).
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 Q2 2011 and 2011 YTD the total royalties and payments, inclusive of the
amounts due in respect of the Aberdeen Loan Agreement were $0.2 million and $0.5
million, respectively (Q2 2010: $0.1 million; 2010 YTD: $0.2 million).
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 carried 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 until the conclusion of the
Offering in April 2010 was $0.2 million.
Pursuant to the Offering, Simmer & Jack subscribed to 296,084 Rand Notes for a
cash consideration of Cdn$40 million on April 26, 2010. For Q2 2011 and 2011 YTD
interest and accretion expense of $2.5 million and $4.7 million, respectively,
was accrued for relating to Simmer & Jack related Rand Notes of which $3.6
million was paid during Q2 2011. Also pursuant to the Offering, the Facility
with Simmer & Jack including the unpaid interest on the Facility ($22.5 million)
was settled in full on April 26, 2010 with the issue of 167,812 Rand Notes to
Simmer & Jack.
On September 6, 2010, the Corporation advanced $2.4 million in the form of an
interest bearing loan to Simmer & Jack. The loan carried interest at the 30-day
JIBAR for ZAR denominated loans (currently 7.40%) plus 7% per annum. The loan
and accrued interest was repaid on September 30, 2010.
Disclosure Controls and Procedures and Internal Control over Financial Reporting
The CEO and Chief Financial Officer ("CFO"), together with other members of
management, have designed the Corporation`s disclosure controls and procedures
("DC&P") in order to provide reasonable assurance that material information
relating to the Corporation and its consolidated subsidiaries would have been
known to them and by others within those entities.
Additionally, they have designed internal controls over financial reporting
("ICFR") to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial reporting in accordance with Canadian
GAAP. The control framework used in the design of both the DC&P and ICFR is the
internal control integrated framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission ("COSO").
There have been no significant changes in the design of the Corporation`s
internal controls over financial reporting during the six months ending
September 30, 2010 that would materially affect, or is reasonably likely to
affect, the Corporation`s internal controls over financial reporting.
While the Officers of the Corporation have designed the Corporation`s DC&P and
ICFP, they expect that these controls and procedures may not prevent all errors
and fraud. A control system, no matter how well conceived or operated, can only
provide reasonable, not absolute, assurance that the objectives of the control
system are met.
Critical Accounting Policies and Estimates
The accounting policies used in the preparation of the accompanying unaudited
consolidated financial statements are consistent with those used in the
Corporation`s audited consolidated financial statements for the fiscal year
ended March 31, 2010, and described in Note 2 therein, except for the changes in
accounting policies described in the following section.
The preparation of these consolidated financial statements in accordance with
Canadian GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the consolidated financial statements and
the reported amount of revenues and expenses during the 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.
Changes in accounting policies
There were no changes to the accounting polices used in the preparation of the
Corporation`s audited consolidated financial statements for the year ended March
31, 2010.
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. Section 1625, Comprehensive Revaluations of Assets and
Liabilities, has been amended as a result of issuing CICA 1582,1601 and 1602.
These amendments will be effective prospectively for comprehensive revaluations
of assets and liabilities occurring in years beginning on or after January 1,
2011. The Section 3251, Equity, has been amended as a result of issuing Section
1602 to be adopted by all entities that will adopt Section 1602,
These new sections replace existing guidance on business combinations and
consolidated financial statements to harmonize Canadian accounting for business
combinations with International Financial Reporting Standards. These sections
will be applied prospectively to business combinations for which the acquisition
date is on or after April 1, 2011. Earlier adoption is permitted. If the
Corporation applies these sections before April 1, 2011, it is required to
disclose that fact and apply each of the new sections concurrently. The
Corporation is currently evaluating the impact of the adoption of these changes
on its consolidated financial statements.
International financial reporting standards ("IFRS")
The Corporation are in the process of quantifying the differences identified out
of the following key areas identified where the most substantial differences
exist:
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.
Management are also revising the Corporation`s accounting policy manual to
incorporate these differences.
Management plans to have IFRS consolidated financial statements including first-
time adoption reconciliations prepared by the end of Q3 2011.
Management analyzes the Corporation`s accounting policies on an ongoing basis to
identify opportunities where alternatives are permitted including IFRS 1
exemptions, if required.
Outstanding Share Data
2011 YTD FY 2010
Common shares outstanding at beginning of 166,847,037 151,574,037
the period
Shares issued during the period 14,000,000 15,250,000
Restricted share unit shares issued 23,880 23,000
Common shares outstanding at end of the 180,870,917 166,847,037
period
Unexercised common share purchase 10,250,000 10,250,000
warrants at end of the period
Unexercised restricted units outstanding 888,786 177,000
at end of the period
Unexercised stock options outstanding at 7,190,614 3,204,622
end of the period
Average strike price of outstanding 3.28 7.74
options (Cdn$)
At November 12, 2010, First Uranium had 180,872,584 common shares outstanding
and there were 7,000,613 unexercised stock options outstanding at an average
strike price of Cdn$3.34 per share and 823,453 restricted stock units
outstanding.
Each warrant is exercisable for one common share of First Uranium at a purchase
price of Cdn$4.15 until February 11, 2011.
At September 30, 2010 and November 12, 2010, First Uranium had Cdn$150 million
($145.8 million as at September 30, 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 September 30, 2010 and November 12, 2010, First Uranium had Cdn$110 million
($106.9 million as at September 30, 2010) 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. First
Uranium had R463.9 million ($66.5 million as at September 30, 2010) principal
amount of Rand Notes outstanding which are convertible into 107.4 common shares
for each R1,000 principal amount of Rand Notes, representing 49,882,430 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:
- the Corporation`s ability to achieve the planned production at both of its
operations;
- 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 - if the DMR
requires a bank guarantee as condition of the MWS mining right, the
Corporation may determine that it is necessary to allocate sufficient funds
from its working capital to obtain such guarantee. Such funding cost is not
currently provided for in the Corporation`s mine plan;
- 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 start-up. 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.
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 three and six months
ended September 30, 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.
15 November 2010
Sponsor: Investec Bank Limited
Date: 15/11/2010 08:31:01 Produced by the JSE SENS Department.
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