For the three months and year ended July 31, 2006
(All amounts are stated in United States dollars (US$) unless otherwise
stated)
Trading Symbol (TSXV: UUU and AIM: UUU)
VANCOUVER, Nov. 22 /CNW/ - UrAsia Energy Ltd. (the 'Company' or 'UrAsia')
is pleased to report the Company's annual financial results for the three
months and year ended July 31, 2006.
The Company is a Canadian-based uranium mining and development company
that is focused on the development and operation of low cost, in-situ leach
uranium projects in Central Asia. On November 7, 2005 UrAsia acquired indirect
interests in three uranium projects in the Republic of Kazakhstan, including
the Akdala operating mine "Akdala" and the South Inkai uranium project "South
Inkai" and the Kharassan uranium project "Kharassan". In addition, the Company
has an extensive uranium exploration portfolio in the Kyrgyz Republic.
The Company acquired its interest in the Akdala operating mine in
November 2005; consequently, results for the twelve months ended July 31, 2006
include those results from mining operations only during the latter nine
months.
<<
Highlights
- Sales of Akdala product (70% attributable) amounted to approximately
812,000 pounds of U(3)O(8) (312,000 Kg U). The Company's attributable
share (70%) of revenue from uranium sales amounted to $23,507,000.
After the deduction of production costs of $9,548,000, depreciation
and depletion charges of $5,107,000, the earnings from mine
operations were $8,852,000.
- Net loss for the year was $48.9 million (0.12 per share). The Company
incurred $42.6 million of non-cash losses from a foreign exchange
loss on the revaluation of future income tax liabilities. Adjusted
for this item, net loss amounted to $6.3 million ($0.02 per share).
- The average unit price obtained for sales during the nine months
ended July 31, 2006 was $29 per pound which resulted from a blend of
old lower priced contracts with newer market-related contracts. Sales
in the last quarter and all current contracts for future deliveries
are Uranium spot price related. The average production cost per pound
of U(3)0(8) sold was $11.76.
- On November 7, 2005, UrAsia Energy (B.V.I) Ltd. ("UrAsia BVI") and
Signature completed a business combination together with a
consolidation of Signature's common shares and a name change from
Signature Resources Ltd. to UrAsia Energy Ltd.
- As a part of the business combination, the Company acquired a 70%
interest in the Betpak Dala Joint Venture, which has a 100% interest
in Akdala and South Inkai for $350 million, and a 30% interest in the
Kyzylkum Joint Venture, which has a 100% interest in Kharassan for
$75 million.
- The Company completed brokered private placements: On August 26, 2005
- 39,000,000 common shares for net proceeds of $45,787,000, and on
November 7, 2005 - 280,000,000 common shares for net proceeds of
$407,017,000.
- In February 2006, the Company closed an underwritten public offering
of a total of 56,436,250 common shares for net proceeds of
$116,993,000.
- Three uranium sales agreements negotiated by UrAsia since its 70%
interest acquisition in Akdala, amounted to approximately 1.0 million
pounds U(3)O(8).
- The Company completed plant expansion at its Akdala mine. The planned
production rate of 1,000 tonnes uranium equivalent to approximately
2.6 million pounds U(3)O(8) (annualized) at Akdala being reached in
April 2006.
- Eight U.S. manufactured drill rigs and accessories were purchased for
approximately $13.7 million and will be delivered in 2006/7.
- Construction commenced at South Inkai and Kharassan.
Subsequent Events
- Construction of the industrial plant complex by contractor Kaz High
Tech Euro Building commenced at South Inkai and the earthwork
(excavation) and concrete foundations necessary for five main
buildings was completed. Completion of the steel erection work is
planned for January 2007.
- Earthwork (excavation) and foundation construction of the main
process plant building at South Inkai by contractor South Kazakhstan
Building Authority is 90% complete and is expected to be finished by
end of November 2006.
- Construction of the main plant site commenced at Kharassan, floor and
equipment foundations were completed in October and major process
equipment is being set in place.
- At Kharassan, six ion-exchange columns were mounted; the remaining
elution and de-nitrification columns are expected to be constructed
by the end of November 2006.
- New appointments to senior management team announced; Mr. Robin
Merrifield, Chief Financial Officer and Senior Vice President;
Mr. Gordon Keep, Senior Vice President and Corporate Secretary;
Mr. Vitaly Melnikov, Vice President Finance and Administration; and
Mrs. Susan Speight, Vice President Marketing and Sales.
- Common Shares of the Company admitted for trading on the Alternative
Investment Market of the London Stock Exchange in August 2006.
- Sales contracts were secured in August, 2006 with a major western
utility company for the purchase of 200,000 pounds U(3)O(8) and an
Asian utility company, for the purchase of 4,780,000 pounds U(3)O(8).
- Additional sales contracts were secured in November, 2006 with North
American utilities, for the total purchase of approximately
5,750,000 pounds U(3)O(8).
- The Inferred Mineral Resource at South Inkai was increased by 69%
from 25.6 to 43.5 million pounds U(3)O(8) (UrAsia's attributable
share) through the successful conversion of a portion of the Russian
P1 Resource at South Inkai.
- Company has changed its financial year end from current year end date
of July 31, to a new year end date of December 31. Based on a change
of year end from July 31 to December 31, the Company will have a
transition year of five months, from August 1, 2006 through
December 31, 2006. The interim reporting periods will be a three
month period ended October 31, 2006 and a two month period ended
December 31, 2006. The Company's new financial year will commence on
January 1, 2007 and end on December 31, 2007.
>>
Financial results of Operations
Sales of Akdala product (70% attributable to UrAsia) amounted to
approximately 812,000 pounds of U(3)O(8) (312,000Kg U). The Company's
attributable share (70%) of revenue from uranium sales amounted to
$23,507,000. After the deduction of production costs of $9,548,000,
depreciation and depletion charges of $5,107,000, the mining operations
reflected pre-tax earnings of $8,852,000.
The average unit price obtained for sales during the nine months was $29
per pound of U(3)O(8), which resulted from a blend of older lower priced
contracts, and higher recent spot related contracts. During the year, which
included the first nine months of operations, production costs were $9,548,000
or approximately $11.76 per pound of U(3)O(8) sold. Depreciation for the year,
including depletion of mineral property based on established values of
purchase price paid for mineable reserves, amounted to $6.29/lb U(3)O(8)
compared to $2.44 for the period ended April 30, 2006. The difference in the
unit non-cash cost arises as a result of the value of the depletable asset
being increased on finalization of the allocation of the purchase price paid
for mineral properties.
Sales to nuclear facilities do not occur evenly throughout the year as
they are dependant upon the delivery schedule requested by the utility
companies. Sales in the last quarter (see News Release dated, June 29, 2006)
were nominal, which resulted in a build-up of inventory at year end. UrAsia's
attributable share of inventory (625,000 pounds of U(3)O(8) or 240,000 Kg U)
is expected to be applied in filling deliveries before the end of the calendar
year, 2006. This is expected to lower reported unit production costs for the
period, as the year end inventory is not carrying its full share of period
costs incurred to the year end.
Exploration expenditure related to geological programs being undertaken
on the Company's license areas in the Kyrgyz Republic amounted to $2,648,000.
General and administration of $5,493,000 incurred in the year ended
July 31, 2006 predominately related to the Company's activity in the latter
nine months. Expenses during the first quarter only amounted to $122,000, as
the Company was capitalizing all costs related to the acquisitions that were
completed on November 7, 2005. The major items in administration costs in the
nine months ended July 31, 2006 included legal, accounting and audit expenses
totalled $989,200; fees and expenses related to the company's listing on the
Alternatative Investment Market of the London Stock Exchange (AIM) in August
2006 totalling $686,500; travel and accommodation expenses of $1,200,000;
consulting fees of $499,000; and salaries and benefits of $1,127,873.
Stock-based compensation (being the amortized fair value of options
issued to directors, senior officers, employees and consultants) amounted to
$9,370,000 for the year ended July 31, 2006.
Interest and other income amounted to $4,408,000 for the year ended
July 31, 2006. Most of the interest was earned on funds received from the
public offering in February 2006.
The foreign exchange loss during the year amounted to $41,120,000. The
majority of the loss related to an unrealized foreign exchange loss of
$42,602,000 offset by a net realized gain of $1,482,000 arising from normal
transactions and regular asset and liability revaluations. The foreign
exchange loss of $42,602,000 arose from a non-cash, currency translation
adjustment, on the future income tax liability, denominated in the Kazakh
Tenge (KZT), which is deemed to be a monetary liability. The future tax
liability arose on the excess amounts paid for the mineral properties when
acquired in November 2005. The exchange rate in November 2005, when the
liability was established, was 134 KZT (equal sign) USD 1. Since then, the KZT has
strengthened by 14% against the US dollar to 118 KZT (equal sign) USD 1 at July 31, 2006.
The unrealized loss occurred in the last half of the year ended July 31, 2006.
Prior to the last six months there was little movement in the KZT - US dollar
exchange rate, and hence minimal currency exchange difference. Subsequent to
the year end, the value of KZT has weakened, at November 21, 2006 the exchange
rate was 128 KZT (equal sign) USD 1.
The foreign exchange loss during the fourth quarter amounted to
$28,707,000 arising from translation of the future income tax liability in
respect of the Company's investment in Kazakhstan. $21.3 million of this loss
relates to the 7% strengthening of the KZT against the US dollar in the 4th
quarter and the balance of $7.3 million is a prior quarter exchange loss
resulting from an increase in the determined value of the future income tax
liability of $142 million. As the KZT weakened by 7% in the quarter ended
October 31, 2006, most, if not all, of the former will be reversed in that
quarter.
The loss before income taxes for the year ended July 31, 2006 amounted to
$45,540,000.
The provision for current income taxes for the year ended July 31, 2006
amounted to $5,304,000, which was offset by a recovery of $1,905,000 future
taxes from the future tax liability described above. Current income taxes are
payable in Kazakhstan as a result of the profitability of the Akdala
operations whereas the Company's expenditures at Head Office in Canada are not
deductible in Kazakhstan. The Company has recognized a valuation allowance for
all tax losses generated in Canada and the Kyrgyz Republic.
The loss after income taxes for the year ended July 31, 2006 amounted to
$48,939 ($0.012 per share).
Cash Position
Currently the Company has cash and cash equivalents of approximately
$97,440,000 including $9,343,000 being the proportionate share of the
Company's cash and cash equivalents at its operations in the Republic of
Kazakhstan and the Kyrgyz Republic. The Company anticipates this is sufficient
to meet its development plans and corporate costs for the next twelve months.
South Inkai and Kharassan Construction and Development
At South Inkai, levelling, staking and surveying of the building site was
completed during the fourth quarter ended July 31, 2006 in preparation for the
concrete foundation work. All foundations have, since year end, been completed
in readiness for process and ancillary plant construction. The roadwork
connecting the facility to the Taukinor highway is well underway. Executive
housing is approximately 70% complete with two structures almost finished.
Site work was initiated during the fourth quarter ended July 31, 2006 at
Kharassan, consisting of site preparation for the process plant site and the
housing site, power line construction, road construction, and engineering of
the bridge over the Syr-Darya River. Since year end concrete work for the
foundations is in progress; the power line associated with the substation has
been completed; two 6,000m(3) leach, fluid ponds are under construction.
Surveying and staking is in progress for the rail yard at Zhanakorgan.
Construction of the bridge began in September, 2006 with the sinking of the
caisson for the first pier. The contract for the steel structure has been
approved, all major construction contracts have been awarded; non-standard
equipment has been ordered.
Kyrgyz Republic Exploration
The exploration for all seven exploration license areas has been
contracted with Kyrgyz geological and geophysical exploration contractors.
During the fourth quarter the exploration program was reviewed in detail.
Initial field exploration commenced at Mayli-Su, Kyzyl-bulak, Kyzyl-Ompul and
Santash license areas. Seven holes were drilled and logged at Mayli-Su, eight
additional holes are planned. At Kyzyl-bulak, thirteen drill holes are planned
and are expected to be completed by the end of the year.
Initial field exploration and geophysical surveys are planned for
Changet, Surentube, Kyzyl-Ompul and Santash. A technical evaluation of the
initial exploration program will occur at the end of the year and a further
work program will be recommended based on the initial field results.
Conference Call Information
We invite you to join us in a conference call at 8:30am PST on Thursday,
November 23, 2006 to discuss the Company's annual financial results. The
conference call will be open to all members of the investment community.
Equity Research Analysts will be invited to ask questions at the end of the
conference call. In order to join the conference call, please dial:
For US and Canada (toll free) (800) 633-8954
For UK (toll free) 0 800 528-0625 or 0 870 001-3125 (toll) or 0 141
555-1725 (back-up toll)
For International call (416) 641-6666 (toll) An operator will put your
call through.
A recorded version of the proceedings will be available after the call,
until midnight, Pacific time, Thursday, November 23, 2006 by calling (416)
626-4100 or (800) 558-5253; Passcode: 21310353.
On behalf of UrAsia Energy Ltd.
"Phillip Shirvington"
President and Chief Executive Officer
UrAsia is a Canadian-based uranium producer that offers investors
exposure to low-cost, uranium production and growth. The Company creates
shareholder value by focusing on the development and operation of low-cost,
in-situ leach uranium projects in Central Asia.
UrAsia is listed on the TSX Venture Exchange and the Alternative
Investment Market (AIM) of the London Stock Exchange, trading under the symbol
UUU on both exchanges.
Forward Looking Statements
Certain statements in this MD&A constitute forward-looking statements.
The words "anticipate" "continue", "estimate", "expect", "may", "will",
"should", "believe" and similar expressions are intended to identify
forward-looking statements. Such forward-looking statements, including but not
limited to statements with respect to anticipated rates of production, the
estimated costs and timing of the Company's planned work programs and reserves
determination involve known and unknown risks, uncertainties and other factors
which may cause the actual rates of production, costs and results to be
materially different from estimated rates of production, costs or results
expressed or implied by such forward-looking statements. The Company believes
the expectations reflected in these forward looking statements are reasonable
but no assurance can be given that these expectations will prove to be correct
and such forward-looking statements should not be unduly relied upon. Factors
that could cause actual results to differ materially from those anticipated in
these forward-looking statements include, among others, uncertainties
associated with estimating uranium reserves, competition for, among other
things, capital, acquisitions of reserves, undeveloped properties and skilled
personnel, risks related to international operations, general risks associated
with mining operations, risks associated with equipment procurement and
equipment failure and volatility in market prices for uranium. Although the
Company has attempted to take into account important factors that could cause
actual costs or operating results to differ materially, there may be other
factors that cause costs of the Company's program or results not to be as
anticipated, estimated or intended.
The TSX Venture Exchange has not reviewed and does not accept
responsibility for the adequacy or accuracy of this release. The foregoing
information may contain forward-looking statements relating to the future
performance of UrAsia Energy Ltd. Forward-looking statements, specifically
those concerning future performance, are subject to certain risks and
uncertainties, and actual results may differ materially. These risks and
uncertainties are detailed from time to time in the Company's filings with the
appropriate securities.
<<
URASIA ENERGY LTD.
(formerly Signature Resources Ltd.)
Consolidated Financial Statements
For the year ended July 31, 2006
URASIA ENERGY LTD. (formerly Signature Resources Ltd.)
Consolidated Balance Sheets
(Expressed in thousands of United States dollars)
-------------------------------------------------------------------------
July 31, July 31,
2006 2005
------------ ------------
ASSETS
Current
Cash and cash equivalents (Note 4) $ 128,328 $ 2,630
Restricted cash (Note 12(a)) 2,500 -
Accounts receivable 10,173 -
Current portion of loans to joint ventures
(Note 5(b)) 4,440 -
Inventory (Note 6) 11,940 -
Prepaid expenses 1,177 752
------------ ------------
158,558 3,382
Loans to joint ventures (Note 5(b)) 21,000 -
Mineral properties, plant and equipment
(Note 7) 762,547 82
Other assets (Note 8) 8,920 1,342
------------ ------------
$ 951,025 $ 4,806
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities $ 6,095 $ 555
Income taxes payable 3,080 -
Short-term loan payable - 106
------------ ------------
9,175 661
Due to Republic of Kazakhstan (Note 9) 1,046 -
Future income taxes (Note 13) 365,491 -
Asset retirement obligation (Note 16) 1,953 -
------------ ------------
377,665 661
------------ ------------
Shareholders' equity
Share capital (Note 10(b)) 612,941 4,094
Contributed surplus (Note 10(b)) 9,307 -
(Deficit) retained earnings (48,888) 51
------------ ------------
573,360 4,145
------------ ------------
$ 951,025 $ 4,806
------------ ------------
------------ ------------
Commitments and contingencies (Notes 7, 9, 12 and 18)
Subsequent events (Notes 12 and 19)
Approved by the Board:
"Ian Telfer" Director
-----------------------
"Phillip Shirvington" Director
-----------------------
URASIA ENERGY LTD. (formerly Signature Resources Ltd.)
Consolidated Statements of Operations and Retained (Deficit) Earnings
(Expressed in thousands of United States dollars, except share amounts)
-------------------------------------------------------------------------
April 19,
2005
(inception
Year ended date)
July 31, to July 31,
2006 2005
------------ ------------
MINE OPERATIONS
Revenue from uranium sales $ 23,507 $ -
------------ ------------
Production costs 9,548 -
Depreciation and depletion 5,107 -
------------ ------------
Earnings from mine operations 8,852 -
------------ ------------
EXPENSES
General and administration 5,493 91
Stock-based compensation (Note 10(e)) 9,370 -
Exploration 2,648 -
Other 169 -
------------ ------------
17,680 91
------------ ------------
Loss from operations (8,828) (91)
------------ ------------
OTHER INCOME (EXPENSE)
Interest and other income 4,408 10
Foreign exchange (loss) gain (Note 15) (41,120) 132
------------ ------------
(36,712) 142
------------ ------------
(Loss) income before income taxes (45,540) 51
------------ ------------
Provision for (recovery of) income taxes
(Note 13)
Current 5,304 -
Future (1,905) -
------------ ------------
3,399 -
------------ ------------
Net (loss) income for the period (48,939) 51
Retained earnings, beginning of period 51 -
------------ ------------
Retained (deficit) earnings, end of period $ (48,888) $ 51
------------ ------------
------------ ------------
Loss per share, basic and diluted $ (0.12) $ 0.00
------------ ------------
------------ ------------
Weighted average number of common shares
outstanding (000's), basic and diluted 406,239 45,902
------------ ------------
URASIA ENERGY LTD. (formerly Signature Resources Ltd.)
Consolidated Statements of Cash Flows
(Expressed in thousands of United States dollars)
-------------------------------------------------------------------------
April 19,
2005
(inception
Year ended date)
July 31, to July 31,
2006 2005
------------ ------------
OPERATING ACTIVITIES
Net (loss) income for the period $ (48,939) $ 51
Items not involving cash:
Depreciation and depletion 5,107 -
Stock-based compensation 9,370 -
Future income taxes (1,905) -
Foreign exchange loss 42,662 -
Other 120 -
Changes in non-cash working capital
Accounts receivable (4,743) -
Prepaid expenses 1,012 (747)
Inventory (3,042) -
Accounts payable and accrued liabilities (1,079) 40
------------ ------------
Cash used in operating activities (1,437) (656)
------------ ------------
FINANCING ACTIVITIES
Issue of common shares, net of issue costs 570,859 4,090
Proceeds of short-term loan (106) 106
------------ ------------
Cash provided by financing activities 570,753 4,196
------------ ------------
INVESTING ACTIVITIES
Acquisition of interest in Betpak, net of cash
acquired (Note 3 (b)) (356,224) -
Acquisition of interest in Kyzyklum, net of
cash acquired (Note 3 (c)) (38,925) -
Acquisition of Signature, net of cash
acquired (Note 3 (a)) 465 -
Deferred acquisition costs - (825)
Cash advances to joint ventures (Note 5(b)) (25,440) -
Acquisitions of mineral properties, plant
and equipment (12,319) (85)
Advance cash payment for other assets (8,675) -
Restricted cash (2,500) -
------------ ------------
Cash used in investing activities (443,618) (910)
------------ ------------
Net cash inflow for the period 125,698 2,630
Cash and cash equivalents, beginning of period 2,630 -
------------ ------------
Cash and cash equivalents, end of period $ 128,328 $ 2,630
------------ ------------
------------ ------------
Supplemental Information
Income taxes paid $ 6,136 $ -
Interest paid $ 45 $ -
Non-cash transactions
The Company issued common shares, warrants and options valued at
$424,000 to acquire Signature (Note 3(a)).
The Company issued common shares valued at $37,500,000 to acquire the
Kharassan project (Note 3(c)).
URASIA ENERGY LTD. (formerly Signature Resources Ltd.)
Notes to the Consolidated Financial Statements
For the year ended July 31, 2006
(expressed in United States dollars except where noted, tabular amounts
in thousands)
-------------------------------------------------------------------------
1. NATURE OF OPERATIONS
UrAsia Energy Ltd. is a Canadian-based uranium mining and development
company that is focused on the development and operation of low cost,
in situ leach uranium projects in Central Asia.
These consolidated financial statements reflect the acquisition of
UrAsia Energy Holdings Ltd. previously known as UrAsia Energy
(B.V.I.) Ltd. ("UrAsia BVI") by Signature Resources Ltd.
("Signature") on November 7, 2005 (the "UrAsia Acquisition"). As the
shareholders of UrAsia BVI acquired control of Signature following
the UrAsia Acquisition, this business combination, described as a
reverse takeover, has been accounted for as an acquisition of
Signature by UrAsia BVI (Note 3(a)). The name of Signature was
changed to UrAsia Energy Ltd. on November 7, 2005, and the shares of
Signature were consolidated on a one for two basis. UrAsia Energy
Ltd. and UrAsia BVI are referred to collectively herein as the
"Company".
UrAsia BVI was incorporated in the British Virgin Islands under the
International Companies Act of the British Virgin Islands on
April 19, 2005. Comparative consolidated statements of operations,
retained earnings and cash flows therefore include the period from
April 19, 2005 (inception date) to July 31, 2005.
Signature was originally incorporated as Tuxedo Resources Ltd. on
March 31, 1988 under the laws of British Columbia and was admitted to
the TSX Venture Exchange ("TSX-V") on March 18, 2003 as a natural
resource company engaged in the acquisition and exploration of mining
properties. On April 20, 2004, Tuxedo Resources Ltd. changed its name
to Signature.
2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared by the Company in
accordance with Canadian generally accepted accounting principles
("Canadian GAAP"). The preparation of the annual financial statements
is based on accounting principles and practices consistent with those
used in the preparation of the annual financial statements in the
prior year.
Unless where otherwise noted, these consolidated financial statements
and their accompanying notes are presented in United States dollars.
Canadian dollars are referred to as "C$".
The Company has adopted the following significant accounting
policies:
(a) Basis of consolidation
These consolidated financial statements include the accounts of
the Company and all of its subsidiaries, including its indirect
70% joint venture interest in Betpak Dala LLP ("Betpak") and its
indirect 30% joint venture interest in Kyzylkum LLP ("Kyzylkum").
The Company's interests in Betpak and Kyzylkum are accounted for
by the proportionate consolidation method, as the Company shares
joint control over these entities. Under this method, the Company
includes in its financial statements its proportionate share of
Betpak's and Kyzylkum's assets, liabilities, revenues and
expenses.
Operations
Mineral and projects
properties Location Ownership Status owned
----------- ---------- --------- --------------- ------------
Betpak Kazakhstan 70% Proportionately Akdala mine
consolidated and South
Inkai
development
project
Kyzylkum Kazakhstan 30% Proportionately Karassan
consolidated development
project
UrAsia in Kyrgyzstan 100% Consolidated Exploration
Kyrgyzstan projects
LLC
All significant inter-company transactions and balances have been
eliminated upon consolidation.
(b) Functional and reporting currency
The Company's reporting currency is the United States dollar. The
Company, its subsidiaries and joint ventures operate in Canada,
Kazakhstan and Kyrgyzstan.
The financial statements of the joint ventures and subsidiaries
have been translated into United States dollars using the
temporal method. The temporal method provides for foreign
currency denominated monetary assets and liabilities, which
includes future income tax, to be translated into United States
dollars at rates of exchange in effect at the balance sheet date.
Non-monetary items are translated at historical exchange rates
and revenues and expenses at average rates of exchange during the
period. Exchange gains and losses arising on translation are
included in the consolidated statements of operations and
deficit.
(c) Cash and cash equivalents
Cash and cash equivalents include cash, and short-term money
market instruments that are readily convertible to cash.
(d) Inventory
Inventories of solutions and uranium concentrates are valued at
the lower of average production cost or net realizable value.
Production costs include the cost of raw materials, direct
labour, mine-site overhead expenses and depreciation and
depletion of mining interests. Consumable materials and supplies
are valued at the lower of average cost or replacement cost.
(e) Mineral properties, plant and equipment
Mineral properties, plant and equipment are recorded at cost less
accumulated depreciation and depletion.
Mineral properties represent capitalized expenditures related to
the exploration and development of mineral properties and related
plant and equipment. Capitalized costs are depreciated and
depleted using either a unit-of-production method over the
estimated economic life of the mine to which they relate, or
using the straight-line method over their estimated useful lives.
The costs associated with mineral properties are separately
allocated to reserves, resources and exploration potential, and
include acquired interests in production, development and
exploration stage properties representing the fair value at the
time they were acquired. The value allocated to reserves is
depreciated on a unit-of-production method over the estimated
recoverable proven and probable reserves at the mine. The reserve
value is noted as depletable mineral properties in Note 7. The
resource value represents the property interests that are
believed to potentially contain economic mineralized material
such as inferred material; measured, indicated, and inferred
resources with insufficient drill spacing to qualify as proven
and probable reserves; and inferred resources in close proximity
to proven and probable reserves.
Resource value and exploration potential value is noted as non-
depletable mineral properties in Note 7. At least annually or
when otherwise appropriate, value from the non-depletable
category will be transferred to the depletable category as a
result of an analysis of the conversion of resources or
exploration potential into reserves. Costs related to property
acquisitions are capitalized until the viability of the mineral
property is determined. When it is determined that a property is
not economically viable the capitalized costs are written-off.
Exploration expenditures on properties not advanced enough to
identify their development potential are charged to operations as
incurred.
Mining expenditures incurred either to develop new ore bodies or
to develop mine areas in advance of current production are
capitalized. Commercial production is deemed to have commenced
when management determines that the completion of operational
commissioning of major mine and plant components is completed,
operating results are being achieved consistently for a period of
time and that there are indicators that these operating results
will be continued. Mine development costs incurred to sustain
current production are included in operations.
Upon sale or abandonment of any mineral property plant and
equipment, the cost and related depreciation or depletion, are
written off and any gains or losses thereon are included in
operations.
(f) Impairment of long-lived assets
Long-lived assets are tested for recoverability annually or
whenever events or changes in circumstances indicate that their
carrying amount may not be recoverable. An impairment loss is
recognized when their carrying value exceeds the total
undiscounted cash flows expected from their use and eventual
disposition. The amount of the impairment loss is determined as
the excess of the carrying value of the asset over its fair
value.
(g) Environmental protection and asset retirement obligation costs
The Company recognizes liabilities for statutory, contractual or
legal obligations associated with the retirement of mineral
property, plant and equipment, when those obligations result from
the acquisition, construction, development or normal operation of
the assets. Initially, the fair value of the liability for an
asset retirement obligation is recognized in the period incurred.
The net present value of the liability is added to the carrying
amount of the associated asset and amortized over the asset's
useful life. The liability is accreted over time through periodic
charges to earnings and is reduced by actual costs of
reclamation. The Company's estimates of reclamation costs could
change as a result of changes in regulatory requirements and
assumptions regarding the amount and timing of the future
expenditures. Expenditures relating to ongoing environmental
programs are charged against operations as incurred.
(h) Revenue recognition
Revenue from uranium sales is recognized, net of value added tax,
when: (i) persuasive evidence of an arrangement exists; (ii) the
risks and rewards of ownership pass to the purchaser including
delivery of the product; (iii) the selling price is fixed or
determinable, and (iv) collectibility is reasonably assured.
(i) Income and mining taxes
The Company uses the liability method of accounting for income
and mining taxes. Under the liability method, future tax assets
and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases and for tax losses and other deductions
carried forward. Upon business acquisitions, the liability method
results in a gross up of mining interests to reflect the
recognition of the future tax liabilities for the tax effect of
such differences.
Future tax assets and liabilities are measured using enacted or
substantively enacted tax rates expected to apply when the asset
is realized or the liability settled. A reduction in respect of
the benefit of a future tax asset (a valuation allowance) is
recorded against any future tax asset if it is not likely to be
realized. The effect on future tax assets and liabilities of a
change in tax rates is recognized in the statement of operations
in the period in which the change is substantively enacted.
(j) Stock compensation
The Company uses the fair value method of accounting for all
stock option awards. Under this method, the Company recognizes a
compensation expense for all stock options based on the fair
value of the options on the date of grant which is determined by
using an option pricing model. The fair value of the options is
expensed over the vesting period of the options.
(k) Earnings per share
Earnings per share calculations are based on the weighted average
number of common shares and common share equivalents issued and
outstanding during the year. Diluted earnings per share are
calculated using the treasury method which requires the
calculation of diluted earnings per share by assuming that
outstanding stock options and warrants with an average market
price that exceeds the average exercise prices of the options and
warrants for the year, are exercised and the assumed proceeds are
used to repurchase shares of the Company at the average market
price of the common shares for the year.
(l) Financial instruments
The Company's financial instruments comprise, primarily, cash and
cash equivalents, restricted cash, accounts receivable, loans to
joint ventures and accounts payable. The fair value of these
financial instruments approximates their carrying values due
primarily to their immediate or short-term maturity.
The Company is exposed to fluctuations in interest rates, foreign
currency exchange rates and commodity prices. The Company has not
entered into any derivative financial instruments to manage
fluctuations in these rates.
(m) Use of estimates
The preparation of financial statements in conformity with
Canadian GAAP requires the Company's management to make estimates
and assumptions about future events that affect the amounts
reported in the consolidated financial statements and related
notes to the financial statements. Actual results may differ from
those estimates.
3. ACQUISITIONS
(a) Signature Acquisition
In September 2005, Signature signed a binding letter of agreement
with UrAsia BVI pursuant to which Signature agreed to acquire all
of the issued and outstanding shares of UrAsia BVI in
consideration for the issuance of common shares of Signature.
Pursuant to the terms of the agreement, Signature consolidated
its common shares on a one for two basis and issued one post-
consolidation share of Signature for each issued and outstanding
ordinary share of UrAsia BVI.
As the shareholders of UrAsia BVI acquired control of Signature
following the UrAsia Acquisition, this transaction is a reverse
takeover and has been accounted for as an acquisition of
Signature by UrAsia BVI. The purchase price has been determined
by reference to the fair value of the net assets acquired from
Signature.
The allocation of the purchase price is summarized in the table
below:
Purchase price:
5,935,621 common shares $ 271
Stock options and warrants of Signature 153
------------
$ 424
------------
------------
Fair value of net assets acquired:
Cash $ 465
Non-cash working capital deficiency (41)
------------
$ 424
------------
------------
For the purpose of these consolidated financial statements, the
purchase consideration has been allocated to the fair value of
assets acquired and liabilities assumed.
(b) Betpak Acquisition
On November 7, 2005, the Company acquired a 70% joint venture
interest in Betpak which has 100% interests in the Akdala Mine
and the South Inkai Project, both of which are located in the
Republic of Kazakhstan. In consideration for its interest, the
Company paid a total of $350 million. The remaining 30% interest
in Betpak is held by JSC NAC Kazatomprom ("Kazatomprom")
Under terms of the agreement, a bonus payable in cash or shares,
capped at $36.4 million, is due based on the uranium reserves
discovered on the Akdala and South Inkai properties and
surrounding areas during the 12 month period ended November 7,
2006, in excess of the existing uranium reserves and resources.
As at November 7, 2006, no additional uranium reserves and
resources were discovered on the Akdala and South Inkai
properties.
A further bonus payment is payable in cash based on uranium
reserves discovered on the South Inkai property in excess of
66,000 tonnes. The payment is based on the Company's share of
U(3)O(8) in excess of 66,000 tonnes times the average spot price
of U(3)O(8) times 6.25%. This payment is to be calculated at the
end of 2011 and each year thereafter, and paid 60 days after the
end of the year in which a payment is due.
As security for the bonus payment, the Company has pledged its
participatory interest in Betpak (including the shares of a
subsidiary) and its share of uranium products produced by Betpak.
The allocation of the purchase price is summarized in the table
below:
Purchase price:
Cash $ 350,000
Acquisition costs 7,690
------------
$ 357,690
------------
------------
Fair value of net assets acquired:
Cash $ 1,981
Mineral properties, plant and equipment 614,494
Other net assets 683
Future income taxes (259,468)
------------
$ 357,690
------------
------------
For the purpose of these consolidated financial statements, the
purchase consideration has been allocated to the fair value of
assets acquired and liabilities assumed.
(c) Kyzylkum Acquisition
On November 7, 2005, the Company acquired a 30% joint venture
interest in Kyzylkum which has a 100% interest in the Kharassan
Project, located in the south central area of the Republic of
Kazakhstan. In consideration for its interest, the Company paid a
total of $75 million, including $37.5 million in cash with the
balance consisting of the issuance of 24,181,250 common shares.
A bonus payment is due upon commencement of commercial
production. The seller initially had an option, exercisable until
October 31, 2006, to elect to receive this bonus payment as a
cash payment of $24 million or receive 15,476,000 shares of the
Company. The seller elected under the terms of the arrangement,
to receive 15,476,000 shares of the Company upon commencement of
commercial production. This fair value of the contingently
issuable shares has not been included as part of the purchase
price for Kyzylkum as commencement of commercial production
cannot be reasonably determined as at July 31, 2006.
An additional bonus payment of 30% of 12.5% (being an effective
3.75%) of the weighted average spot price of U(3)O(8) will be
paid on incremental reserves in excess of 55,000 tonnes of
U(3)O(8) discovered during each fiscal year with payment
beginning within 60 days of the end of the 2008 calendar year.
The Company is responsible for arranging project financing of
$80,000,000 for the construction and commissioning of a mine in
respect of the Kharassan Project. As security for this obligation
and the obligation to make the bonus payments referred to above,
the Company has granted a security interest over the shares of a
subsidiary holding the Company's interest in Kharassan.
The allocation of the purchase price is summarized in the table
below:
Purchase price
Cash $ 37,500
24,181,250 common shares 37,500
Acquisition costs 1,509
------------
$ 76,509
------------
------------
Fair value of net assets acquired:
Cash $ 84
Mineral properties, plant and equipment 141,487
Other net assets 13
Future income taxes (65,075)
------------
$ 76,425
------------
------------
For the purpose of these consolidated financial statements, the
purchase consideration has been allocated to the fair value of
assets acquired and liabilities assumed.
4. CASH AND CASH EQUIVALENTS
July 31, July 31,
2006 2005
------------ ------------
Cash $ 61,028 $ 2,630
Money market instruments, including cashable
Guaranteed Investment Certificates
and Bankers
Depository Notes 67,300 -
------------ ------------
$ 128,328 $ 2,630
------------ ------------
------------ ------------
5. JOINT VENTURES
(a) Proportionate interest in Joint Ventures
The Company owns a 70% interest in Betpak and a 30% interest in
Kyzylkum. The Company's proportionate shares of assets and
liabilities are as follows:
July 31, 2006
-------------------------
Betpak Kyzylkum Total
------------ ------------ ------------
Current assets $ 24,761 $ 6,923 $ 31,684
Mineral properties,
plant and equipment 618,019 143,874 761,893
Other assets 780 - 780
Current liabilities (6,710) (160) (6,870)
Loans to joint ventures (4,394) (21,046) (25,440)
Due to Republic of
Kazakhstan (1,046) - (1,046)
Future income taxes (291,803) (73,643) (365,446)
Asset retirement
obligation (1,953) - (1,953)
------------ ------------ ------------
Net assets $ 337,654 $ 55,948 $ 393,602
------------ ------------ ------------
------------ ------------ ------------
The Company's proportionate share of Betpak and Kyzylkum's
revenues, expenses, net loss and cash flows are as follows:
Year ended
July 31, 2006
-------------------------
Betpak Kyzylkum Total
------------ ------------ ------------
Revenues $ 23,507 $ - $ 23,507
Expenses (13,181) 12 (13,169)
Foreign exchange loss (32,933) (8,326) (41,259)
------------ ------------ ------------
Loss before income taxes (22,607) (8,314) (30,921)
Provision for income taxes (3,290) (106) (3,396)
------------ ------------ ------------
Net loss $ (25,897) $ (8,420) $ (34,317)
------------ ------------ ------------
------------ ------------ ------------
Cash provided by operating
activities 6,637 307 6,944
Cash advances to joint
ventures 9,870 9,020 18,890
Cash used in investing
activities (13,095) (2,503) (15,598)
------------ ------------ ------------
Net increase in cash $ 3,412 $ 6,824 $ 10,236
------------ ------------ ------------
------------ ------------ ------------
(b) Loans to Joint Ventures
Since acquiring Betpak the Company advanced $14.1 million to
Betpak in December 2005. The loan bears interest at LIBOR plus
1.5% per annum, and is repayable on May 31, 2007. As at July 31,
2006 the total amount receivable from Betpak was $14,648,000
including interest accrued on the loan (Note 19(b)).
Pursuant to its obligation to provide project financing for
construction and commissioning of the Kharassan Project in the
amount of $80 million on or before December 31, 2007 the Company
has advanced $30 million to Kyzylkum at July 24, 2006. The loan
bears interest at LIBOR plus 1.5% per annum, with interest
payable on a semi-annual basis commencing December 2006. The
principal amount is to be repaid in six equal consecutive amounts
on a semi-annual basis commencing in June 2008. As at July 31,
2006 the total amount receivable from Kyzylkum was $30,065,000
including interest accrued (Note 19(b)).
Below is a summary of loans to joint ventures adjusted for the
Company's proportionate share of cash advanced:
July 31, 2006
-------------------------
Betpak Kyzylkum Total
------------ ------------ ------------
Principal and interest $ 4,394 $ 21,046 $ 25,440
Less current portion (4,394) (46) (4,440)
------------ ------------ ------------
Long-term portion $ - $ 21,000 $ 21,000
------------ ------------ ------------
------------ ------------ ------------
The Company had no joint venture interests at July 31, 2005.
6. INVENTORY
July 31, July 31,
2006 2005
------------ ------------
Materials and supplies $ 1,180 $ -
Solutions and uranium concentrates 10,760 -
------------ ------------
$ 11,940 $ -
------------ ------------
------------ ------------
7. MINERAL PROPERTIES, PLANT AND EQUIPMENT
The following table summarizes the Company's mineral properties,
plant and equipment:
July 31,
July 31, 2006 2005
-------------------------------------- ------------
Depreciation
and Net book Net book
Cost depletion value value
------------ ------------ ------------ ------------
Mineral
properties $ 754,605 $ (9,656) $ 744,949 $ -
Plant and
equipment 18,182 (584) 17,598 82
------------ ------------ ------------ ------------
$ 772,787 $ (10,240) $ 762,547 $ 82
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
A summary by property of the net book value is as follows:
Mineral properties
--------------------------------------
Non-
Depletable depletable Total
------------ ------------ ------------
Akdala mine $ 126,638 $ 74,358 $ 200,996
South Inkai project - 400,193 400,193
Kharassan project - 143,627 143,627
Kyrgyzstan exploration - 133 133
Corporate and other - - -
------------ ------------ ------------
$ 126,638 $ 618,311 $ 744,949
------------ ------------ ------------
------------ ------------ ------------
Plant and July 31, July 31,
equipment 2006 2005
------------ ------------ ------------
Akdala mine $ 16,831 $ 217,827 $ -
South Inkai project - 400,193 -
Kharassan project 247 143,874 -
Kyrgyzstan exploration 211 344 -
Corporate and other 309 309 82
------------ ------------ ------------
$ 17,598 $ 762,547 $ 82
------------ ------------ ------------
------------ ------------ ------------
The Akdala Contract No. 647 dated March 28, 2001 for exploration and
development of the uranium deposit at the Akdala field in Southern
Kazakhstan as amended by amendments No. 943 dated May 23, 2002,
No. 1423 dated June 7, 2004, which assigned the contract to Betpak,
and No. 1712 dated April 25, 2005 (the "Akdala Contract") is for a
period of 25 years commencing on March 28, 2001 and expiring on
March 27, 2026. The Akdala Contract provides for a commercial
discovery bonus of 0.05% of the value of extractable reserves in
excess of a defined base reserve and a royalty varying between 1.3%
and 2.2% depending on the uranium price.
On September 15, 2005, Kazatomprom, owner of the subsoil use rights
to explore and extract uranium from the Plot No. 4 of South Inkai
deposit in southern Kazakhstan pursuant to Contract No. 1830,
transferred its subsoil use rights to Betpak (the "South Inkai
Contract"). The South Inkai Contract for subsoil use rights covers a
period of 24 years, commencing July 8, 2005. The South Inkai Contract
provides for a commercial discovery bonus of 0.05% of the value of
extractable reserves in excess of a defined base reserve and a
royalty 0.5% of the average sales price of first commercial product.
Betpak is also required, commencing no later than 2010, to drill up
to 240 exploration wells and expend an aggregate of $6.0 million on
an exploration program for the South Inkai property. In terms of the
South Inkai Contract Betpak is required to build a pilot production
facility at an estimated cost of $5.5 million to produce 300 tonnes
of uranium.
The Kharassan Contract No. 1799 dated July 8, 2005, for exploration
and production of uranium at the Kharassan-1 field in Southern
Kazakhstan (the "Kharassan Contract"), amended by amendment No. 1829
dated September 15, 2005, is for a period of 29 years commencing on
July 8, 2005 and expiring on July 7, 2034. The Kharassan Contract
contemplates an exploration period of four years and a production
period of 25 years. During the exploration period an annual work
program must be submitted to the appropriate government body for
approval. The contract provides the Republic of Kazakhstan with a
priority right to purchase uranium produced from the Kharassan
property. A royalty will be charged at a rate of 0.5% of the uranium
produced.
The Company owns seven exploration licenses to explore for uranium in
Kyrgyzstan.
8. OTHER ASSETS
A summary of other assets is provided below:
July 31, July 31,
2006 2005
------------ ------------
Prepaid drill rigs (Note 12 (b)) $ 8,093 $ -
Deferred pre-acquisition costs - 1,342
Future income tax assets (Note 13) 210 -
Other 617 -
------------ ------------
$ 8,920 $ 1,342
------------ ------------
------------ ------------
9. DUE TO REPUBLIC OF KAZAKHSTAN
At July 31, 2006, Betpak was obligated to reimburse the Government of
Kazakhstan for $1,494,000 in respect of the historical cost of
geologic studies performed in respect of the Akdala property, of
which $1,046,000 is proportionately attributable to the Company.
Pursuant to the Akdala Contract, Betpak is obligated to reimburse the
cost of the geologic studies in 40 equal, quarterly instalments,
commencing January 1, 2008 and ending December 31, 2017. Should
Betpak default on these payments, Kazatomprom retains the right to
seize ownership of the Akdala Contract.
Pursuant to the South Inkai Contract, Betpak is obligated to
reimburse the cost of geologic studies of the region aggregating
$1,749,000, of which $1,200,000 is proportionately attributable to
the Company. The payments are to be made as to $35,000 on signing of
the contract, which has been paid and the remaining $1,714,000 to be
paid as to $66.00 per tonne of uranium produced. The remaining
balance is a contingent liability and has not been recorded as South
Inkai is a development property. Should Betpak default on these
payments, Kazatomprom retains the right to seize ownership of the
South Inkai contract.
Pursuant to the Kharassan Contract, at July 31, 2006, Kyzylkum was
obligated to reimburse the Government of Kazakhstan for $2,059,000 in
respect of the historic cost of geologic studies performed in respect
of the Kharassan property, of which $618,000 is proportionately
attributable to the Company. The payments are to be made as to
$31,000 on signing of the contract, which occurred during April 2006,
and the remaining $2,028,000 to be paid as to $66.00 per tonne of
uranium produced. The remaining balance is a contingent liability and
has not been recorded as Kharassan is a development property.
10. SHARE CAPITAL AND CONTRIBUTED SURPLUS
(a) Authorized
Unlimited common shares with no par value
Unlimited preference shares with no par value
(b) Issued and fully paid common shares
Number of Share Contributed
shares(x) capital surplus
------------ ------------ ------------
Issued pursuant to:
Incorporation 57,500,000 $ 5 $ -
Private placement,
net of share issue
costs(i) 12,900,000 4,089 -
------------ ------------ ------------
Balance, July 31, 2005 70,400,000 4,094 -
Issued pursuant to:
August private
placement(ii) 39,000,000 45,787 -
November private
placement(iii) 280,000,000 407,044 -
Acquisition of
Signature (Note 3(a)) 5,935,621 271 153
Acquisition of Kyzylkum
(Note 3(c)) 24,181,250 37,500 -
February private
placement(iv) 56,436,250 116,993
Grant of stock options - - 9,370
Exercise of warrants 3,219,750 673 -
Exercise of options 550,000 579 (216)
------------ ------------ ------------
Balance, July 31, 2006 479,722,871 $ 612,941 $ 9,307
------------ ------------ ------------
------------ ------------ ------------
(x) After giving effect to the share consolidation (see Note 1).
(i) On June 15, 2005, the Company completed a non-brokered
private placement of 12,900,000 common shares at a price
of $0.32 (C$0.40) per share. In connection with this
private placement, share issue costs of $4,000 were
incurred.
(ii) On August 26, 2005, the Company completed a brokered
private placement of 39,000,000 subscription receipts of
the Company at a price of $1.25 (C$1.50) per subscription
receipt, with each subscription receipt exercisable, for
no additional consideration, into one common share,
subject to the terms and conditions of the subscription
receipt agreement. In connection with this private
placement, share issue costs of $3,138,000 were incurred.
(iii) On November 7, 2005, the Company completed a brokered
private placement of 280,000,000 subscription receipts
(including the agents' option), each exercisable into one
common share for no further consideration pursuant to the
private placement at a price of $1.53 (C$1.80) per
subscription receipt. In connection with this private
placement, share issue costs of $21,357,000 were incurred.
(iv) On February 24, 2006, the Company completed an underwritten
public offering of 39,225,000 common shares of the Company
at a price of $2.22 (C$2.55) per common share (the "Issue
Price"). The underwriters exercised their option to
purchase an additional 9,850,000 common shares at the Issue
Price, resulting in gross proceeds of approximately
$108,648,000 (C$125,141,000). In connection with this
private placement, share issue costs of $8,151,000 were
incurred.
On February 28, 2006, the lead underwriter exercised in
full, a greenshoe option to purchase up to 7,361,250
additional common shares of the Company at the Issue Price.
The exercise of the greenshoe option resulted in additional
gross proceeds of $16,495,000 (C$18,771,200).
The total proceeds from the issuance of 56,436,250 common
shares therefore amounted to $125,143,000 (C$143,912,000).
As at July 31, 2006, there were no shares (July 31, 2005:
112,500) held in escrow.
(c) Stock Options
The Company has a "rolling" Stock Option Plan (the "Plan") in
compliance with the TSX-V's policy for granting stock options.
Under the Plan, the number of shares reserved for issuance may
not exceed 10% of the total number of issued and outstanding
shares at the date of the grant. The exercise price of each
option shall not be less than the market price of the Company's
common shares at the date of grant. The options are non-
assignable and may be granted for a term not exceeding ten years.
The exercise price is fixed by the board of directors of the
Company at the time of grant, subject to all applicable
regulatory requirements.
A summary of the changes in outstanding stock options is
presented below:
Weighted
average
Number exercise
of options price
------------ ------------
Balance, August 1, 2005 - -
Stock options issued on Signature
Acquisition (Note 3(a)) 500,000 C$0.53
Granted 11,855,000 C$2.16
Exercised (550,000) C$0.76
Forfeited or expired (20,000) C$1.80
------------ ------------
Balance, July 31, 2006 11,785,000 C$2.16
------------ ------------
------------ ------------
The following table summarizes information about the stock
options outstanding and exercisable at July 31, 2006:
Exercise
Outstanding Exercisable price Expiry date
------------- ------------- ------------ -------------------
50,000 50,000 C$0.56 April 26, 2010
350,000 262,500 C$1.80 November 7, 2007
7,130,000 4,304,497 C$1.80 November 7, 2015
400,000 133,333 C$1.80 December 9, 2015
1,250,000 1,250,000 C$2.90 February 28, 2016
400,000 133,332 C$2.92 March 2, 2016
810,000 269,999 C$3.00 April 3, 2016
525,000 174,999 C$3.20 April 20, 2016
870,000 289,997 C$2.65 July 7, 2016
------------- -------------
11,785,000 6,868,657
------------- -------------
------------- -------------
(d) Warrants
A summary of the changes in outstanding warrants is presented
below:
Weighted
average
Number of exercise
warrants price
------------ ------------
Balance, August 1, 2005 - -
Warrants issued on Signature
Acquisition (Note 3(a)) 3,968,750 C$0.23
Exercised (3,219,750) C$0.24
------------ ------------
Balance, July 31, 2006 749,000 C$0.20
------------ ------------
------------ ------------
The following table summarizes information about the warrants
outstanding and exercisable at July 31, 2006:
Number of Exercise
warrants price Expiry date
------------ ------------ ----------------
749,000 C$0.20 April 25, 2007
------------ ------------ ----------------
------------ ------------ ----------------
(e) Stock based compensation
The fair value of the 11,835,000 options granted was $12,928,000
of which $9,370,000 has been recorded in the statement of
operations as stock-based compensation, with a corresponding
credit to contributed surplus disclosed separately in
shareholders' equity. The remaining fair value will be recorded
in the results of operations over the vesting period. The
following weighted average assumptions were used for the Black-
Scholes valuation of the stock options granted:
Risk-free interest rate 4%
Expected life 10 years
Annualized volatility 38%
Dividend rate 0%
11. RELATED PARTY TRANSACTIONS
During the year ended July 31, 2006, the Company incurred the
following expenses with companies related by way of directors/and or
officers in common:
(a) Transaction success fees totalling $4,250,000 were paid to
Endeavour Financial International Corporation ("Endeavour"), a
company related by way of a common director, and are included in
mineral properties, plant and equipment as part of the cost of
acquiring Betpak and Kyzylkum; Endeavour was also paid a
financing fee of $1,253,000 in relation to the underwritten
public offering of the Company; Endeavour was also paid fees for
financial advisory services totalling $120,000 and office rent
and overhead totalling $26,837. At July 31, 2006 no amounts were
owed to Endeavour (2005 - $Nil).
(b) A company related to a director charged $830,130 for air
transportation services; of this amount $383,505 is included in
accounts payable at July 31, 2006 (2005 - $Nil).
(c) A person related to a director received $43,500 for office rent
and services. At July 31, 2006 no amounts were owed to this
person (2005 - $Nil).
(d) A company controlled by a related party received $36,000 for
office rent and services. At July 31, 2006 no amounts were owed
to this company (2005 - $Nil).
(e) On November 7, 2005, the Company granted 450,000 stock options to
Endeavour, exercisable at $1.53 (C$1.80) per share until
November 7, 2015, which had a fair value of $386,000.
These transactions, occurring in the normal course of operations, are
measured at the exchange amount, which is the amount of consideration
established and agreed to by the related parties.
12. COMMITMENTS
Commitments related to the Akdala, South Inkai and Kharassan mineral
properties are disclosed in Notes 3 and 7. In addition, the Company
has the following commitments:
(a) On February 10 and May 30, 2006, the Company entered into two
sales agreements for the supply of uranium concentrates from the
Akdala uranium mine in the Republic of Kazakhstan. These
contracts included performance bonds in the form of two
Irrevocable Stand-by Letters of Credit for the amount of
$2,000,000 and $500,000, which were issued by the Company in
favour of a buyer on March 7, 2006 and June 26, 2006. These
Letters of Credit will expire on February 7, 2007 and on
April 30, 2007 or upon successful performance under the purchase
contracts, whichever occurs first. The Company has secured the
Stand by Letters of Credit with the cash amount of $2,500,000.
(b) On February 16, 2006, the Company entered into an agreement for
the purchase of eight U.S.-built GEFCO drill rigs to supplement
the current drill program in Kazakhstan. The contract is for a
total of $12,949,000, of which $8,093,000 was paid by July 31,
2006 and is included in other assets. The balance, including the
amount of $1,619,000 paid in September 2006, is payable over the
next year.
(c) On June 1, 2005, the Company entered into a financial advisory
agreement with Endeavour. Endeavour charges $10,000 per month and
may also earn success fees on certain transactions. The initial
term of the agreement was for 12 months after which it continues
in force on a month-to-month basis, subject to termination on 30
days written notice by either party.
(d) Effective November 2005, the Company engaged Vanguard Shareholder
Solutions Inc. to provide public relations services to the
Company. For its services, Vanguard charges C$10,000 per month
plus expenses. The term of the agreement is 12 months. The
Company has granted Vanguard 350,000 stock options at a price of
C$1.80 per share for a period of 2 years, subject to a 12 month
vesting schedule.
(e) Pursuant to the Akdala subsoil contract, the Company is obliged
to finance annually the professional training of the Kazakhstani
staff for not less than 0.5% of operating costs.
13. INCOME TAXES
The provision for income taxes reported differs from the amounts
computed by applying the cumulative Canadian federal and provincial
income tax rates to the loss before tax provision due to the
following:
April 19,
Year ended 2005
July 31, to July 31,
2006 2005
------------ ------------
(Loss) income before income taxes $ (45,540) $ 51
Combined federal and provincial tax rate 34.12% 35.60%
------------ ------------
Expected income tax recovery (15,534) $ 18
Increase (decrease) in taxes resulting from:
Difference between Canadian tax rate
and rates applicable to subsidiaries
in other countries 1,860 -
Exploration expenditures deferred for
tax purposes 891
Foreign exchange 13,054 (18)
Permanent difference (250)
Non-deductible expenditures 3,197 -
Other 181 -
------------ ------------
Income tax provision $ 3,399 $ -
------------ ------------
------------ ------------
The significant components of the Company's future income tax assets
and liabilities are as follows:
July 31, July 31,
2006 2005
------------ ------------
Future income tax assets:
Non-capital loss carryforwards $ 1,691 $ -
Share issue costs and other 2,523
Less: valuation allowance (4,004) -
------------ ------------
Future income tax assets $ 210 $ -
------------ ------------
------------ ------------
Future income tax liabilities:
Mineral properties, plant and equipment $ 365,491 $ -
------------ ------------
------------ ------------
At July 31, 2006, the Company had non-capital losses available for
tax purposes of $6,500,000 that expire from 2011 to 2026.
14. SEGMENTED INFORMATION
(a) Operating segment - The Company's operations are primarily
directed towards the acquisition, exploration and production of
uranium in the natural resources sector.
(b) Geographic segments - The Company's assets, revenues and expenses
by geographic areas for the year ended July 31, 2006 are as
follows:
Kazakhstan Kyrgyzstan Canada Total
------------ ------------ ------------ ------------
Mineral properties,
plant and
equipment $ 762,169 $ 344 $ 34 $ 762,547
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Total assets 802,901 3,732 144,392 951,025
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Plant and equipment
expenditures 11,997 288 34 12,319
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Revenues 23,507 - - 23,507
------------ ------------ ------------ ------------
Expenses
Production costs 9,548 - - 9,548
Depreciation
and depletion 5,030 76 1 5,107
General and
administration - - 5,493 5,493
Stock-based
compensation - - 9,370 9,370
Exploration - 2,648 - 2,648
Other 169 - - 169
------------ ------------ ------------ ------------
14,747 2,724 14,864 32,335
------------ ------------ ------------ ------------
Income (loss)
from operations 8,760 (2,724) (14,864) (8,828)
Other (loss)
income (40,680) 97 3,871 (36,712)
------------ ------------ ------------ ------------
Loss before
income taxes $ (31,920) $ (2,627) $ (10,993) $ (45,540)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
(c) In the period from April 19, 2005 (inception date) to July 31,
2005 all operations, assets and liabilities of the Company were
located primarily in Cayman Islands.
(d) The Company derived all of its revenue from sales to two
customers during the year ended July 31, 2006.
15. FOREIGN EXCHANGE
A summary of foreign exchange (loss) gain by item is as follows:
April 19,
Year ended 2005
July 31, to July 31,
2006 2005
------------ ------------
Unrealized foreign exchange loss on future
income tax liability $ (42,602) $ -
Foreign exchange gain on other items 1,482 132
------------ ------------
$ (41,120) $ 132
------------ ------------
------------ ------------
The amount of $42,602,000 of the total foreign exchange loss of
$41,120,000 recorded for the year ended July 31, 2006 relates to
unrealized foreign exchange loss on translation of the future income
tax liabilities arising as a consequence of the purchase of
participating interests in Betpak and Kyzylkum.
16. ASSET RETIREMENT OBLIGATION
The Company estimates undiscounted future reclamation costs for its
Akdala Mine to be $5,355,000 (70% - $3,749,000).
The following is a summary of the significant assumptions on which
the discounted carrying amount of the asset retirement obligation is
based:
(i) Credit-adjusted risk-free discount rate is 5%;
(ii) The expected timing of estimated future cash outflows is
based on life-of-mine plans. Approximately 18% of the
expenditures will occur between 2011 and 2015 with the
balance commencing during 2025.
July 31, July 31,
2006 2005
------------ ------------
Liability arising from acquisition of
Betpak (Note 3(b)) $ 1,875 $ -
Accretion expense 78 -
------------ ------------
Asset retirement obligation $ 1,953 $ -
------------ ------------
------------ ------------
17. ECONOMIC AND OPERATING ENVIRONMENT
The Company's business activities are located in Kazakhstan.
Kazakhstan continues to undergo substantial political, economic and
social changes. As an emerging market, Kazakhstan does not possess a
well-developed business and regulatory infrastructure that would
generally exist in a more mature market economy. Furthermore, the
government of Kazakhstan has not yet fully implemented the reforms
necessary to create efficient banking, judicial, taxation and
regulatory systems that usually exist in more developed markets. As a
result, operations in this country involve risks that are not
typically associated with those in developed markets. Although in
recent years inflation has not been significant in Kazakhstan,
certain risks persist in the current environment with results that
include, but are not limited to, a currency that is not freely
convertible outside of the country, certain currency controls and
immature debt and equity markets characterised by low liquidity
levels.
Uncertainty regarding political, legal, tax or regulatory
environment, including the potential for adverse changes in any of
these factors, could significantly affect the Company's ability to
operate commercially. It is difficult for management to estimate what
changes may occur or the resulting effect of any such changes on the
Company's financial position or future results of operations. The
accompanying consolidated financial statements do not include any
adjustments that may result from the future clarification of these
uncertainties. Such adjustments, if any, will be reported in the
Company's consolidated financial statements in the period when they
become known and can be estimated.
18. CONTINGENCIES
(a) In accordance with the subsoil contracts, the Company is obliged
to carry medical insurance, insurance against accidents during
production and occupational diseases to its employees. At
July 31, 2006, the Company believes it had sufficient insurance
policies in force in respect of public liability and other
insurable risks.
(b) Due to the complexity and nature of the Company's operations,
various legal and tax matters are pending. In the opinion of
management, these matters will not have a material effect on the
Company's consolidated financial position or results of
operations.
19. SUBSEQUENT EVENTS
(a) The Company's common shares were admitted to trading on the
Alternative Investment Market of the London Stock Exchange on
August 25, 2006.
(b) Subsequent to July 31, 2006, the Company made the following
additional loans to its Joint Ventures in Kazakhstan:
(i) Betpak: in accordance with terms of the Loan Agreement dated
June 28, 2006 a loan totalling $25,000,000 was extended to
Betpak in August and November 2006 at an interest rate of
LIBOR plus 1.5% and repayable before June 28, 2009. As a
result, the principal amounts outstanding under loan
agreements total $39,100,000.
(ii) Kyzylkum: an additional amount of $18,000,000 was extended
in terms of the current loan agreement dated June 28, 2006,
which carries interest at LIBOR plus 1.5% and is repayable
by June 28, 2011. As a result, the principal amount
outstanding under this loan agreement is $48,000,000.
(c) On October 20, 2006, the Company concluded an agreement with
owners of a drilling company in Kazakhstan, Joint Drilling LLP,
whereby the Company has acquired a 50% interest for $3,775,000
payable in cash. In exchange, it has been agreed that Joint
Drilling will purchase at cost, two of the GEFCO drill rigs
currently being delivered to Kazakhstan. The drill rigs, together
with the remaining six being bought by the Company, will be used
to accelerate and complement the drilling being undertaken on the
Akdala, South lnkai and Kharassan properties.
>>
Published Nov 23 2006
3 min read