| Tue 14 Nov 2006, 16:00 | | sxr Uranium One Inc - Uranium One Announces Financ |
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SXR
SXR
sxr Uranium One Inc - Uranium One Announces Financial Results for Q3 2006
sxr Uranium One Inc
(Formerly Southern Cross Resources Inc.)
(Incorporated in Canada)
(Registration number: 15096422420)
Share code on the JSE: SXR & ISIN: CA87112P1062
Share code on the TSX: SXR & ISIN: CA87112P1062
("Corporation")
Uranium One Announces Financial Results for Q3 2006
Consolidated Balance Sheets
as at September 30, 2006 and December 31, 2005
(in US Dollars)
Unaudited Unaudited
as at as at
Sep 30, Dec 31,
Notes 2006 2005
US$"000 US$"000
ASSETS
Current assets
Cash 98,248 10,891
Accounts receivable 20,232 8,823
Inventories 2,015 681
120,495 20,395
Non-current assets
Property, plant and equipment 2 232,833 157,255
Asset retirement fund 2,310 1,275
235,143 158,530
Total assets 355,638 178,925
LIABILITIES
Current liabilities
Accounts payable and accrued 18,237 15,045
liabilities
Current portion of lease obligations 1,099 1,452
Short term loan 3 45,684 993
65,020 17,490
Non-current liabilities
Asset retirement obligation 3,807 4,094
Lease obligations 528 1,560
Future taxation liability 29,961 21,156
34,296 26,810
Non-controlling interest 8,116 -
SHAREHOLDERS" EQUITY
Share capital 4 358,698 216,123
Contributed surplus 5 19,154 11,367
Accumulated deficit (133,911) (114,399)
Currency translation adjustments 4,265 21,534
248,206 134,625
Total equity and liabilities 355,638 178,925
See accompanying notes to the Consolidated Financial Statements, including:
- Nature of operations and basis of presentation (note 1)
sxr Uranium One Inc.
Consolidated Statements of Operations and Deficit
for the 3 and 9 months ended September 30, 2006
(in US dollars, except for per share amounts)
Unaudited Unaudited
9 months to 3 months to
Sep 30, 2006 Sep 30, 2006
Notes US$"000 US$"000
Gold sales 2,622 680
Cost of sales (6,178) (1,592)
Gross loss (3,556) (912)
Sundry income 643 254
General and administrative (9,781) (3,655)
expenditure
Share options expensed (8,632) (1,632)
Exploration expenditure (5,330) (1,285)
Operating loss (26,656) (7,230)
Interest received 3,407 1,105
Interest paid (1,575) (760)
Dilution gain on disposal of 8 17,940 6,915
investments
Foreign exchange (losses) / gain on (12,113) 2,070
cash and cash equivalents
Non-controlling interest in earnings 550 261
of subsidiary
(Loss) / profit before income taxes (18,447) 2,361
Provision for income taxes 6 (1,065) -
Net (loss) / profit (19,512) 2,361
Accumulated deficit at the beginning (114,399) (136,272)
of the period
Accumulated deficit at the end of the (133,911) (133,911)
period
Basic (loss) / profit per common 7 (18.07) 2.11
share (cents)
Weighted average number of basic 7 108,003,595 112,036,616
common shares outstanding
Diluted profit per common share 7 1,94
(cents)
Weighted average fully diluted number 7 121,460,887
of basic common shares outstanding
See accompanying notes to the Consolidated Financial Statements
sxr Uranium One Inc.
Consolidated Statement of Cash Flows
for the 3 and 9 months ended September 30, 2006
(in US Dollars)
Unaudited Unaudited
9 months 3 months
to to
Notes Sep 30, Sep 30,
2006 2006
US$"000 US$"000
Net (loss) / profit (19,512) 2,361
Add back: Net finance costs (1,832) (345)
Add back: Non-cash items:
- Non-controlling interest in (550) (261)
earnings of subsidiary
- Depreciation and amortization 347 114
- Expensing share options 8,632 1,632
- Dilution gain on disposal of (17,940) (6,915)
investments
- Unrealized foreign exchange losses 2,047 2,047
on cash and cash equivalents
- Future income taxes 1,023 -
(27,785) (1,367)
Movement in working capital:
- Increase in inventories (1,334) (1,360)
- Increase in trade receivables and (11,409) (7,722)
prepayments
- Increase/(decrease) in trade and 3,192 1,936
other payables
Increase in rehabilitation and cost (538) (385)
closure obligations
Cash (utilized by) / generated by (37,874) (8,898)
operations
Net interest received 1,832 345
Cash flows from operating activities (36,042) (8,553)
Cash taken over from Sub-Nigel 8 1,933 -
Additions to property, plant and (56,279) (24,861)
equipment
Increase in environmental trust and (1,219) (1,228)
other investments
Cash flows from investing activities (55,565) (26,089)
Net proceeds from the issue of 140,049 421
ordinary shares
Net proceeds from the issue of 16,558 10,891
ordinary shares by subsidiary
Net loans received during the period 44,691 45,256
Decrease in capital element of (1,385) (415)
finance lease and other long term
debt
Cash flows from financing activities 199,913 56,153
Effects of exchange rate changes on (20,949) (12,232)
cash held in foreign currencies
Net increase in cash 87,357 9,279
Cash at the beginning of the period 10,891 88,969
Cash at the end of the period 98,248 98,248
See accompanying notes to the Consolidated Financial Statements
sxr Uranium One Inc.
Notes to the Unaudited Interim Consolidated Financial Statements
September 30, 2006
1 Nature of operations and basis of presentation
These unaudited interim consolidated financial statements have been prepared by
the Corporation in accordance with Canadian generally accepted accounting
principles ("Canadian GAAP"). The preparation of the financial statements is
based on accounting policies and practices consistent with those used in the
preparation of the audited annual consolidated financial statements. The
accompanying unaudited interim consolidated financial statements should be read
in conjunction with the Notes to the Corporation"s audited annual consolidated
financial statements for the year ended December 31, 2005, since they do not
contain all disclosures required by Canadian GAAP for annual financial
statements. The unaudited interim consolidated financial statements reflect all
normal and recurring adjustments, which are, in the opinion of management,
necessary for a fair presentation of the interim period presented.
sxr Uranium One Inc. (the "Corporation") is a Canadian corporation with a
primary listing on the Toronto Stock Exchange and a secondary listing on the JSE
Limited (the Johannesburg stock exchange), engaged in the acquisition,
exploration and development of properties for production of uranium in South
Africa, Australia and Canada and gold in South Africa.
The Corporation owns 100% of the Dominion uranium project in South Africa and
the permitted Honeymoon uranium project in South Australia. Through a joint
venture with Pitchstone Exploration Ltd., the Corporation is also engaged in
uranium exploration activities in the Athabasca Basin of Saskatchewan. The
Corporation"s Uranium One Africa Limited (previously Aflease Gold and Uranium
Resources Limited) subsidiary holds 71.56% of Aflease Gold Limited, that owns
the Modder East gold property and related gold assets in South Africa.
The exploration and development of mineral properties involves significant
financial risk. In the event these properties are determined to be commercially
viable, additional financing will be required.
Aflease Gold Limited
On January 10, 2006 Sub Nigel Gold Mining Company Limited ("Sub Nigel") acquired
all of the issued and outstanding ordinary shares of New Kleinfontein Mining
Company Limited ("New Kleinfontein"), a wholly-owned subsidiary of Aflease Gold
and Uranium Resources Limited, now Uranium One Africa Limited ("Uranium One
Africa"), and all amounts due by New Kleinfontein to Uranium One Africa on loan
account. As Uranium One Africa retained an effective 80% of New Kleinfontein
through its subsequent holding in Aflease Gold, the net assets so acquired had a
carrying value of $3.0 million at December 31, 2005 and the purchase
consideration was $10.7 million, settled by issuing 68,073,545 new Sub Nigel
ordinary shares to Uranium One Africa at 96 South African cents ($0.16) per
share. Sub Nigel subsequently changed its name to Aflease Gold Limited. Through
this transaction and subsequent dilution of Uranium One"s share holding in
Aflease Gold, Uranium One Africa now owns approximately 71.56% of Aflease Gold.
For accounting purposes, the transaction is considered a reverse takeover
whereby New Kleinfontein is considered the acquiring company as the shareholders
of Uranium One Africa acquired more than 50% of the issued and outstanding
shares of Sub Nigel. Uranium One therefore effectively sold 20% of New
Kleinfontein and recognized a $7.0 million gain on the disposal. The results of
operations of Sub Nigel were included with effect from January 11, 2006. The
consolidated balance sheet at September 30, 2006 represents the financial
position of the entire Group.
Comparatives
The Ontario Securities Commission, as principal regulator of the Corporation,
issued a decision document dated May 4, 2006, pursuant to the Mutual Reliance
Review System for exemptive relief applications, granting the Corporation an
exemption from providing comparative financial information for the three and
nine months ended September 30, 2006 as prior-period information has not been
prepared on a basis consistent with this period.
2 Property, plant and equipment
Cost Sep 30, Net Cost Dec 31, Net
US$"000 2006 US$"000 US$"000 2005 US$"000
Accumu- Accumu-
lated lated
amorti- Amorti-
zation zation
US$"000 US$"000
Mine development
costs and mine plant 97,424 (2,853) 94,571 38,014 (3,676) 34,338
facilities
Undeveloped 137,708 - 137,708 122,639 - 122,639
properties
Motor vehicles 504 (285) 219 433 (316) 117
Office equipment 767 (432) 335 544 (383) 161
236,403 (3,570) 232,833 161,630 (4,375) 157,255
Owned assets 232,761 156,890
Leased assets 72 365
Total net carrying amount as 232,833 157,255
at the end of the period
Mineral Undeveloped
properties properties
Undeveloped Sep 30, Dec 31, Sep 30, Dec 31,
properties comprise: 2006 2005 2006 2005
US$"000 US$"000 US$"000 US$"000
New Kleinfontein - - 13,624 15,807
Sub-Nigel 272 - 13,961 -
Spaarwater - - 336 -
Honeymoon, Australia 6,434 6,016 29,132 28,670
Goulds Dam, Australia - - 24,935 24,921
Billeroo / Karkarook, - - 43,170 43,170
Australia
Athabasca, Canada 1,565 1,281 2,420 1,427
Loan guarantees, Native title - - 1,859 1,347
and project generation
8,271 7,297 129,437 115,342
Native title claims
The Corporation"s interests in the Honeymoon and Goulds Dam properties are
subject to two Native Title claims. Agreements have been secured with both
groups, whereby the Corporation pays annual administration fees to each claimant
group.
3 Short-term loan
Sep 30, Dec 31,
2006 2005
US$"000 US$"000
February 2005 Nedcor Securities loan 212 993
August 2006 Nedcor Securities loan 45,472 -
45,684 993
The February 2005 Nedcor Securities loan represents draw-downs on a facility
provided by Nedcor Securities, secured by Uranium One Africa"s investment in
Randgold and Exploration Company Limited ("Randgold") shares. This loan attracts
interest in South Africa at a variable rate currently at ZAR 8.95%, adjusted in
terms of a formula which is influenced by movements in the Randgold share price.
The effective interest rate for the period was ZAR 18.05%. The loan has no fixed
repayment terms.
The August 2006 Nedcor Securities loan represents draw-downs on a facility
provided by Nedcor Securities, secured by Uranium One Africa"s investment in
Aflease Gold shares. This loan attracts interest in South Africa at a flat rate
of ZAR 9% per annum, adjusted in terms of a formula which is influenced by
movements in the Aflease Gold share price. The effective interest rate for the
period was ZAR 11.94%. The loan will be repaid on September 20, 2007.
Uranium One"s investments in Randgold and Aflease Gold are encumbered while
these finance arrangements remain in place. They are classified as liabilities
held to maturity and are carried at amortized cost.
4 Share capital
Number of shares Value of shares
Ordinary shares Sep 30, 2006 Dec 31, 2005 Sep 30, Dec 31,
2006 2005
US$"000 US$"000
Opening balance of common 89,103,814 336,451,321 216,123 80,736
shares in issue
Common shares issued in 22,380,830 50,325,405 139,628 29,288
public or private offering
Shares issued in settlement - 21,535,107 - 9,312
of Eastbourne Capital loan
Exercise of stock options 607,922 998,288 2,947 634
Closing balance of issued 112,092,566 409,310,121 358,698 119,970
and outstanding shares
(December 8, 2005)
Conversion of Aflease 368,379,109 119,970
shares to sxr Uranium One
Inc. shares at a ratio of
0.9
Share consolidation: 1 73,675,822 119,970
share for every 5 shares
held
Acquisition of Southern 15,427,992 95,976
Cross Resources Inc.
Warrants issued after 177
December 8, 2005
Closing balance of issued 112,092,566 89,103,814 358,698 216,123
and outstanding shares
5 Contributed surplus
Warrants Restricted Options TOTAL TOTAL
shares Sep 30, Dec 31,
US$"000 US$"000 US$"000 2006 2005
US$"000 US$"000
At the beginning of the 1,813 - 9,554 11,367 2,790
year
Share options expensed - - 7,425 7,425 7,240
Share options exercised - - (845) (845) (259)
Restricted shares - 1,207 - 1,207 -
expensed
Restricted shares - - - - -
exercised
Warrants issued to BMO - - - - 1,773
Nesbitt
Warrants exercised - - - - (177)
At the end of the period 1,813 1,207 16,134 19,154 11,367
Assumptions
The fair value of stock options and restricted shares used to calculate
compensation expense has been estimated using the binomial option pricing model
with the following assumptions:
Sep 30, 2006 Dec 31, 2005
Risk free interest rate 4.08% - 4.20% 3.70% - 4.12%
Expected dividend yield 0% 0%
Expected volatility of the Company"s share 47% 61%
price
Changes in the subjective input assumptions can materially affect the fair value
estimate, and therefore, the existing models do not necessarily provide a
reliable measure of the fair value of the Corporation"s stock options, and
restricted shares.
Options
The following is a summary of the Corporation"s options granted under its stock-
based compensation plan:
Number of options Weighted average
exercise price
Sep 30, 2006 Dec 31, 2005 Sep 30, Dec 31, 2005
2006 US$
US $
At the beginning of the 5,268,610 13,139,178 2.74 0.47
year
Granted during the year 1,855,279 12,759,147 6.88 0.46
Exercised during the year (607,922) (997,130) 2.91 0.40
Forfeiture of share (113,849) (784,847) 3.43 0.36
options
6,402,118 24,116,348 3.82 0.47
Replacement options issued 4,340,943
to Aflease at a conversion
rate of 0.18
Southern Cross options 927,667
converted at a rate of
0.20
Outstanding options as at 6,402,118 5,268,610 3.82 2.74
the end of the period
The stock option compensation expense for the nine months ended September 30,
2006 was $7.4 million. As at September 30, 2006 the aggregate unexpensed fair
value of unvested stock options granted amounted to $4.6 million (December 31,
2005: $6.4 million).
The following table summarizes certain information about the Corporations stock
options outstanding at September 30, 2006:
Options outstanding Options exercisable
Range of
exercise
prices
US$
Number Weighted Weighted Number Weighted Weighted
Out- average average Exerci- average average
standing remain- exercise sable remain-ing exercise
as at ning price as at life price
Sep 30, life US$ Sep 30, (years) US$
2006 (years) 2006
1.15 to 1.59 2,096,707 4.09 1.45 1,179,407 4.01 1.43
2.19 to 2.85 298,949 4.18 2.29 193,777 4.17 2.28
3.13 to 3.84 1,555,649 3.67 3.52 1,170,728 3.51 3.54
4.05 to 4.92 529,422 3.91 4.10 281,941 3.80 4.12
5.52 to 8.94 1,921,390 4.40 6.83 658,011 4.38 6.80
6,402,117 4.07 3.82 3,483,864 3.90 3.42
Under the stock option plan, the exercise price of the options are calculated as
the closing share price on the grant date.
Restricted shares
Under the Uranium One Restricted Share Plan, Restricted share rights are granted
to eligible employees, contractors and directors. Each Restricted share right is
exercisable for one common Uranium One share listed on the Toronto stock
exchange at the end of the restricted period. Common shares issuable upon the
exercise of Restricted share rights are referred to as Restricted shares.
The following is a summary of the Corporation"s Restricted shares issued under
the Restricted share plan:
Number of
restricted shares
Sep 30, Dec 31,
2006 2005
At the beginning of the year - -
Granted during the year 372,922 -
Exercised during the year - -
Forfeiture of restricted shares - -
Total restricted shares outstanding at the 372,922 -
end of the period
The grant date of the Restricted shares was June 7, 2006. The share price on
grant date was $7.90.
The restricted shares can be exercised without any consideration. Restricted
shares will not expire while the participant is in the employ of Uranium One.
The restricted share expense for the nine months ended September 30, 2006 was
$1.2 million (2005: $0 million). As at September 30, 2006 the aggregate
unexpensed fair value of unvested restricted shares granted amounted to $1.1
million (December 31, 2005: $0 million).
Warrants
Number of warrants Allocated value Average exercise
price
Sep 30, Dec 31, Sep 30, Dec 31, Sep 30, Dec 31,
2006 2005 2006 2005 2006 2005
US$ US$ US$ US$ US$ US$
At the 5,976,319 3,876,319 1,990 217 - 2.73
beginning of
the year
Issued to BMO - 1,800,000 - 1,773 - 5.39
Nesbitt
Warrants - 300,000 - - - 5.96
acquired
At the end of 5,976,319 5,976,319 1,990 1,990
the year
The fair value of the 2008 warrants (previously referred to as the "Eastbourne
warrants") was valued, for Canadian GAAP purposes, at $0.2 million on December
31, 2004. The 3,876,319 warrants have a term of 3 years from the date of issue
and expire on September 23, 2008.
The fair value of the BMO warrants was valued at $1.8 million on December 30,
2005 using the binomial option pricing model with the following assumptions:
United States zero coupon rates of between 4.39% and 4.83%, expected dividend
yield of nil, expected 90 day volatility of 51.5% and expected warrants term of
1.18 years
The expiry date of the these warrants is the later of (i) March 5, 2007 and (ii)
the expiry of 12 months from the date on which ordinary SXR shares become listed
on Toronto Stock Exchange ("TSX").
Warrants acquired represent those acquired from Southern Cross through the
reverse take over. These warrants expire on September 17, 2007 and the
beneficiary is Pitchstone Exploration Ltd.
6 Income taxes
9 months 3 months
to to
Sep 30, Sep 30,
2006 2006
US$"000 US$"000
South African taxation - current 42 -
Future income taxes 1, 023 -
1,065 -
Future taxes of $1 million were provided on the profit of $7.1 million on
disposal by Aflease of its investment in New Kleinfontein, which constitutes a
capital gain.
A fair value increment in mining assets of $17.7 million arose on the fair
valuation of the assets of Sub Nigel that formed part of the reverse take over
of Sub Nigel by New Kleinfontein. In compliance with accounting practice, a
future tax liability of $5.1 million was recognized on this revaluation.
7 Basic (loss)/PROFIT per share and diluted BASIC PROFIT per share
9 months to 3 months to
Sep 30, 2006 Sep 30, 2006
US$"000 US$"000
Basic (loss)/profit per share of (cents) (18.07) 2.11
is calculated based on net (loss)/profit for (19,512) 2,361
the period of ($"000)
and a weighted average number of shares 108,003,595 112,036,616
outstanding of
Diluted basic profit per share of cents 1.94
is calculated based on net profit for the 2,361
period of ($"000)
Diluted weighted average number of shares 121,460,887
outstanding of:
The additions to the weighted average number
of shares outstanding were:
- in the money vested options 3,447,952
- in the money warrants 5,976,319
8 Reverse take over of Sub Nigel
In the current financial year the merger between Sub Nigel and New Kleinfontein
was accomplished through the issue of Sub Nigel shares to Aflease in payment for
all of the issued and outstanding ordinary shares of New Kleinfontein and all
amounts due by New Kleinfontein to Aflease on loan account, as detailed in note
1.
Except for the cash taken over, this transaction has been excluded from the cash
flow statement as it did not result in an exchange of cash.
The aggregate fair values of assets acquired and liabilities assumed on the
purchase of Sub Nigel were as follows:
US$"000
Property, plant and equipment 778
Undeveloped properties - Sub Nigel 17,717
Loan account 1,518
Receivables and prepayments 66
Inventory 9
Cash 1,933
Cost closure obligation (35)
Trade and other payables (1,069)
Future taxation liability (5,138)
Value of business combination 15,779
Non-controlling interest (2,999)
Cash taken over 1,933
Shares consideration (12,780)
Net cash flow 1,933
The terms of the purchase price were agreed between the parties in terms of an
agreement of acquisition dated August 23, 2005.
The effective date of the reverse take over was January 10, 2006.
The disposal, by Uranium One Africa, of all of the issued and outstanding
ordinary shares of New Kleinfontein and all amounts due by New Kleinfontein to
Uranium One Africa on loan account, as discussed in note 1, resulted in a gain
of $7.0 million.
Changes in the percentage shareholding from 79.92% on January 10, 2006 to 71.56%
on September 30, 2006 resulted in a dilution gain of $10.9 million for the 9
months ending September, 2006. This, together with the initial gain of $7.0
million, resulted in a total dilution gain of $17.9 million for the period.
9 RELATED PARTY TRANSACTIONS
During the nine months ended September 30, 2006, Uranium One paid $0.8 million
to Davis & Company LLP, a partner of which was a director of Uranium One from
December 27, 2005 to June 7, 2006 and was prior to December 27, 2005 a director
of Aflease Gold and Uranium Resources Limited. These payments were for legal
services rendered.
10 EVENTS AFTER THE BALANCE SHEET DATE
Subsequent to the balance sheet date, Uranium One issued 20,815,000 shares in
terms of a public offering, which closed on October 31, 2006. The shares were
issued at $7.39 (Cdn$8.30) per share. The total net proceeds of $146.2 million
will be used to fund ongoing development of its mining projects, exploration
activities and for general corporate purposes.
11 Segmented information
A business segment is a group of assets and operations engaged in providing
products or services that are subject to risks and returns that are different
from those of other business segments. The Corporation is managed according to
the same segments.
For the 9 months ended September 30, 2006:
South Australia Canada TOTAL
Africa US$"000 US$"000 US$"000
US$"000
Gold Sales 2,622 - - 2,622
Cost of Sales (6,178) - - (6,178)
Gross loss (3,556) - - (3,556)
Sundry income 521 122 - 643
General and administrative (3,787) (1,451) (4,543) (9,781)
expenditure
Share options & restricted - - (8,632) (8,632)
shares expensed
Exploration expenditure (3,611) (1,719) - (5,330)
Operating loss (10,433) (3,048) (13,175) (26,656)
Interest received 659 101 2,647 3,407
Interest paid (1,574) (1) - (1,575)
Dilution gain on disposal of 17,940 - - 17,940
investments
Foreign exchange losses on cash - - (12,113) (12,113)
Non-controlling interest in 550 - - 550
earnings of subsidiary
Profit / (loss) before income 7,142 (2,948) (22,641) (18,447)
taxes
Provision for income taxes (1,040) - (25) (1,065)
Net profit / (loss) 6,102 (2,948) (22,666) (19,512)
Other segment items
Capital expenditure 53,465 515 2,299 56,279
Amortization and depreciation 347 - - 347
For the 3 months ended September 30, 2006:
South Australia Canada TOTAL
Africa US$"000 US$"000 US$"000
US$"000
Gold Sales 680 - - 680
Cost of Sales (1,592) - - (1,592)
Gross loss (912) - - (912)
Sundry income 205 49 - 254
General and (1,498) (687) (1,470) (3,655)
administrative
expenditure
Share options & - - (1,632) (1,632)
restricted shares
expensed
Exploration expenditure (969) (316) - (1,285)
Operating loss (3,174) (954) (3,102) (7,230)
Interest received 286 10 809 1,105
Interest paid (760) - - (760)
Dilution gain on disposal 6,915 - - 6,915
of investments
Foreign exchange gains on - - 2,070 2,070
cash
Non-controlling interest 261 - - 261
in earnings of subsidiary
Profit / (loss) before 3,528 (944) (223) 2,361
income taxes
Provision for income - - - -
taxes
Net profit / (loss) 3,528 (944) (223) 2,361
Other segment items
Capital expenditure 23,224 1,252 385 24,861
Amortization and 114 - - 114
depreciation
As at September 30, 2006:
Total assets 100,260 66,167 189,211 355,638
Total liabilities (84,739) (21,732) (961) (107.432)
As at December 31, 2005:
Total assets 34,189 69,700 75,036 178,925
Total liabilities (20,178) (22,196) (1,926) (44,300)
Date: 14/11/2006 04:00:39 PM Produced by the JSE SENS Department
