TORONTO and JOHANNESBURG, South Africa, Aug. 13 /CNW/ - Uranium One Inc. ("Uranium One") today reported unaudited financial results for the three and six months ended June 30, 2007. All figures are in US dollars unless otherwise indicated. Complete details of the June 30, 2007 financial statements and management's discussion and analysis thereon can also be found on the Uranium One website www.uranium1.com and on SEDAR at www.sedar.com.
The net loss for the quarter ending June 30, 2007 was $13.7 million, or $0.04 per share. This compares to a net loss of $32.2 million, or $0.15 per share for the quarter ending July 31, 2006.
Highlights for quarter ending June 30, 2007 include:
- Revenues of $23.3 million from the sale of 244,200 pounds U(3)O(8),
representing an average realized uranium price of $95 per pound
- Earnings from mine operations of $19.2 million
- Attributable production of 452,200 pounds U(3)O(8)
- Cash cost per pound sold was approximately $8 per pound(1)
- The UrAsia Energy Ltd. transaction and the acquisition of the uranium
assets of U.S. Energy Corp. were completed during the quarter
- The acquisition of Energy Metals Corporation was completed subsequent
to the end of the quarter
Uranium One recorded revenue of $65.0 million for the six months ending June 30, 2007 compared to revenue of $17.3 million for the six months ending July 31, 2006. Earnings from mine operations were $49.0 million for the six months ending June 30, 2007 compared to $6.0 million for the six months ending July 31, 2006. For the six months ended June 30, 2007, the net loss was $5.7 million, or $0.02 per share compared to a net loss of $44.2 million, or $0.20 per share for the six months ending July 31, 2006. Attributable production of U(3)O(8) was 940,200 pounds for the six months ending June 30, 2007, which represents an 8% increase over attributable production of 867,200 pounds for the six months ending July 31, 2006. The cash cost per pound sold was approximately $11 per pound for the six months ending June 30, 2007 compared to a cash cost per pound sold of approximately $12 per pound for the six months ending July 31, 2006.
Commenting on the results, Uranium One's President and CEO Neal Froneman said:
"Uranium One's sales of uranium from Akdala proves that we have one of the best contract books in the industry with an average realized price of $95 per pound sold during the quarter. Our contract book has allowed us to achieve solid revenues and earnings from mine operations for the six months ending June 30, 2007. From this sound platform of low cost production from Akdala, and with sales from new production expected at Dominion, South Inkai, Kharasan and Honeymoon over the upcoming quarters, Uranium One offers its shareholders excellent leverage to the current price for uranium. In addition, these results demonstrate tangible progress that our operational and project development teams have made toward our goal of becoming one of the world's top five, low cost international uranium producers."
About Uranium One
Uranium One Inc. is a Canadian-based uranium producing company with a primary listing on the Toronto Stock Exchange and a secondary listing on the JSE Limited (the Johannesburg stock exchange). The Corporation owns 70% of the operating Akdala Uranium Mine in Kazakhstan and is also developing the South Inkai and Kharasan Uranium Projects in Kazakhstan. Uranium One owns the Dominion Uranium Project in South Africa, as well as the Honeymoon Uranium Project in South Australia. In the United States, Uranium One has extensive property holdings in Wyoming, Texas, Utah and New Mexico, including the Shootaring Canyon Mill and the Hobson ISR facility. Uranium One is also engaged in uranium exploration activities in the United States, the Athabasca Basin of Saskatchewan, South Africa, Australia and the Kyrgyz Republic.
(1) Uranium One has included a non-GAAP performance measure, total cash
cost per pound sold, throughout this document. The Company believes that,
in addition to conventional measures prepared in accordance with GAAP,
certain investors use total cash cost per pound sold to evaluate the
Company's operating performance and ability to generate cash flow.
Accordingly, it is intended to provide additional information and should
not be considered in isolation or as a substitute for measures of
performance prepared in accordance with GAAP.
Cautionary Statement
No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein.
Forward-looking statements: This press release contains certain forward- looking statements. Forward-looking statements include but are not limited to those with respect to the price of uranium and gold, the estimation of mineral resources and reserves, the realization of mineral reserve estimates, the timing and amount of estimated future production, the timing of uranium processing facilities being fully operational, costs of production, capital expenditures, costs and timing of the development of new deposits, success of exploration activities, permitting time lines, currency fluctuations, requirements for additional capital, government regulation of mining operations, environmental risks, unanticipated reclamation expenses, title disputes or claims and limitations on insurance coverage and the timing and possible outcome of pending litigation. In certain cases, forward-looking statements can be identified by the use of words such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes" or variations of such words and phrases, or state that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Corporation to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such risks and uncertainties include, among others, the actual results of current exploration activities, conclusions of economic evaluations, changes in project parameters as plans continue to be refined, possible variations in grade and ore densities or recovery rates, failure of plant, equipment or processes to operate as anticipated, accidents, labour disputes or other risks of the mining industry, delays in obtaining government approvals or financing or in completion of development or construction activities, risks relating to the integration of acquisitions, to international operations, to prices of uranium and gold as well as those factors referred to in the section entitled "Risk factors" in Uranium One's Annual Information Form for the year ended December 31, 2006, and in the section entitled "Risks Factors" in UrAsia Energy's Annual Information Form for the year ended July 31, 2006 which are available on SEDAR at www.sedar.com, and which should be reviewed in conjunction with this document. Although Uranium One has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. Uranium One expressly disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except in accordance with applicable securities laws.
Readers are advised to refer to independent technical reports for detailed information on the Corporation's material properties. Those technical reports, which are available at www.sedar.com under Uranium One's profile, and also under UrAsia Energy's profile, provide the date of each resource or reserve estimate, details of the key assumptions, methods and parameters used in the estimates, details of quality and grade or quality of each resource or reserve and a general discussion of the extent to which the estimate may be materially affected by any known environmental, permitting, legal, taxation, socio-political, marketing, or other relevant issues. The technical reports also provide information with respect to data verification in the estimation.
This document and the Corporation's other publicly filed documents use the terms "measured", "indicated" and "inferred" resources as defined in accordance with National Instrument 43-101 - Standards of Disclosure for Mineral Projects. United States investors are advised that while these terms are recognized and required by Canadian regulations, the SEC does not recognize them. Investors are cautioned not to assume that all or any part of the mineral deposits in these categories will ever be converted into reserves. In addition, "inferred resources" have a great amount of uncertainty as to their existence and economic and legal feasibility and it cannot be assumed that all or any part of an inferred mineral resource will be ever be upgraded to a higher category. Investors are cautioned not to assume that all or any part of an inferred resource exists or is economically or legally mineable. Mineral resources are not mineral reserves and do not have demonstrated economic viability.
Historical estimates referred to herein and in the Corporation's other publicly filed documents, as Russian C1 and C2 resources are derived from Kazatomprom documents, an entity of the Government of Kazakhstan. Although Russian C1 and C2 Resources do not meet Canadian Institute of Mining, Metallurgy and Petroleum (CIM) standards on Mineral Resource and Reserve definitions, they are considered relevant because of previous pilot plant production, but should not be relied upon. The CIM resource definition which most closely resembles C1 resources is that of Inferred Resources. However, there is less confidence attributed to a C1 resource since a C1 resource is estimated on the basis of a lower drill density than an inferred resource.
Scientific and technical information contained herein has been reviewed on behalf of the Corporation by Mr. M.H.G. Heyns, Pr.Sci.Nat. (SACNASP), MSAIMM, MGSSA, Senior Vice President Technical Services of the Corporation, a qualified persons for the purposes of NI 43-101. Neither the Corporation nor Mr. Heyns have not done sufficient work to classify the historical estimates as current mineral resources or mineral reserves. The Corporation does not intend to treat such historical estimates of mineral resources and mineral reserves as a current estimate and the historical estimates should not be relied upon.
For further information about Uranium One, please visit www.uranium1.com
MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE SECOND QUARTER AND
SIX MONTHS ENDED JUNE 30, 2007
Set out below is a review of the activities, results of operations and financial condition of Uranium One Inc. (formerly sxr Uranium One Inc.) ("Uranium One") and its subsidiaries (collectively, the "Corporation") for the three and six months ended June 30, 2007, together with certain trends and factors that are expected to impact the remainder of its 2007 financial year. Information herein is presented as of August 10, 2007 and should be read in conjunction with the unaudited consolidated financial statements of Uranium One for the three and six months ended June 30, 2007 and the notes thereto, the December 31, 2006 audited consolidated financial statements, and the related annual Management's Discussion and Analysis of the Corporation's predecessor companies, Uranium One and UrAsia Energy Ltd. ("UrAsia Energy"), on file with the Canadian provincial securities regulatory authorities (referred to herein as the "consolidated financial statements"). The Corporation's consolidated financial statements and the financial data set out below have been prepared in accordance with Canadian generally accepted accounting principles ("Canadian GAAP"). All amounts are in US dollars, except where otherwise indicated, tabular amounts are in thousands, Canadian dollars are referred to herein as C$.
Uranium One completed a business combination with UrAsia Energy on April 20, 2007. The transaction was treated as a reverse take-over under Canadian GAAP, with UrAsia Energy identified as the acquirer and Uranium One as the acquiree. For periods subsequent to the acquisition date, the comparative figures are accordingly those contained in the financial statements of UrAsia Energy. During 2006, UrAsia Energy changed its fiscal year end from July 31 to December 31. As UrAsia Energy did not prepare financial statements for the three and six months ended June 30, 2006, the most closely comparative period in the prior fiscal year was the three and six months ended July 31, 2006. Accordingly, the comparative figures used herein are those for the three and six months ended July 31, 2006 and references herein to "Q2 2006" and "Q2 2007" refer to the three months ended July 31, 2006 and the three months ended June 30, 2007, respectively, and references to "FY 2006" refer to the five months ended December 31, 2006.
The common shares of Uranium One are listed on the TSX and JSE (Johannesburg Stock Exchange). Uranium One's convertible unsecured subordinated debentures due December 31, 2011 are also listed on the TSX. The shares of Uranium One's majority-owned subsidiary, Aflease Gold Limited ("Aflease Gold"), are listed on the JSE.
Additional information about the Corporation and its business and operations can be found in its continuous disclosure documents. These documents are available under the Corporation's profile at www.sedar.com.
This Management's Discussion and Analysis includes certain forward- looking statements. Please refer to "Forward Looking Statements".
Highlights: Second Quarter 2007
Key features for the quarter
- Attributable sales from Akdala during Q2 2007 were $23.3 million,
compared to $2.9 million in Q2 2006.
- Sales from Akdala achieved a record average price of $95 per lb
during Q2 2007 versus $42 per lb during Q2 2006.
- The average cash production cost per lb of U(3)O(8) sold was $8 per
lb, compared to $23 per lb during Q2 2006.
- Earnings from mine operations in Q2 2007 were $19.2 million compared
to a loss from operations in Q2 2006 of $2.0 million.
- Net loss for Q2 2007 was $13.7 million ($0.04 per share) compared to
a net loss of $32.2 million for Q2 2006 ($0.15 per share).
- Akdala has increased inventory levels in expectation of scheduled
deliveries during Q3 2007.
- The Kyzylkum Joint Venture has arranged a third party project loan of
$100 million.
Key features for the half year to June 30, 2007
- Akdala Uranium Mine produced a record of 1.3 million lbs U(3)O(8) in
the six months ended June 30, 2007, slightly ahead of nameplate
capacity.
- Revenue increased by 276% to $65.0 million compared to the six months
ended July 31, 2006.
- Earnings from mine operations increased to $49.0 million compared to
$6.0 million in the six months ended July 31, 2006.
- Net loss reduced to $5.7 million from $44.2 million in the six months
ended July 31, 2006.
Projects
- At Dominion, plant commissioning continued and U(3)O(8) production
has commenced.
- Underground development at Dominion is increasing on a monthly basis
and in the first half of 2007 has exceeded 5 kilometres.
- The South Inkai and Kharasan plant and well field development in
Kazakhstan continues with targeted commencement of production in late
2007 and early 2008, respectively.
Corporate
- On April 20, 2007, the business combination between Uranium One and
UrAsia Energy was completed, creating a globally diversified
low-cost uranium producer; as a result, the Corporation's assets
now include Uranium One's Dominion Uranium Project and
Honeymoon Uranium Project and UrAsia Energy's assets in Kazakhstan,
comprising a 70% interest in the Akdala Uranium Mine and South Inkai
Uranium Project and a 30% interest in the Kharasan Uranium Project.
- On April 30, 2007, Uranium One completed its purchase of assets from
US Energy Corp., consisting of the Shootaring Mill in Utah and
approximately 38,000 acres of uranium exploration properties in Utah,
Wyoming, Arizona and Colorado.
- On August 10, 2007, Uranium One acquired all of the outstanding
shares of Energy Metals Corporation ("EMC"); EMC owns a 99% interest
in the Hobson ISR Uranium Processing Plant and the La Palangana
Uranium Project, together with interests in a large portfolio of
uranium exploration properties in the western United States.
- Additional appointments of senior personnel were made during the
quarter resulting in a further strengthening of the Corporation's
global corporate management team.
Outlook
- The Corporation expects to achieve attributable production of
2.5 million lbs U(3)O(8) for the year, including 1.8 million lbs
of U(3)O(8) from the operating Akdala Uranium Mine.
- In Kazakhstan, production from the South Inkai Uranium Project and
the Kharasan Uranium Project is scheduled to commence in Q4 2007 and
Q1 2008, respectively.
- At the Dominion Uranium Project, the Corporation expects to complete
the commissioning of the first autoclave in August and to commence
commissioning of the second autoclave in September.
- Despite the loss of approximately 100 production days due to
commissioning challenges, and with the successful commissioning of
both autoclaves, it is anticipated that the Corporation will achieve
its current pre-commercial production target from Dominion during
2007 from the processing of both tailings material and underground
ore. Dominion is expected to reach commercial production in early
2008.
- Uranium One is proceeding with an application for a secondary listing
of its common shares on the main board of the London Stock Exchange.
- Uranium One intends to take full advantage of what it anticipates
will be a continuing favourable uranium price environment by selling
most of its uranium under long-term contracts that offer market-
related pricing at the time of delivery.
- Uranium One intends to continue exploration on its projects, with a
focus on projects which it believes to be prospective and have low
technical risk.
Overview
Uranium One is a Canadian uranium corporation engaged through subsidiaries
and joint ventures in the mining and production of uranium, and in the
acquisition, exploration and development of properties for the production of
uranium, in Kazakhstan, South Africa, Australia, the United States, Canada and
the Kyrgyz Republic. Through Aflease Gold, Uranium One is engaged in the
development of the Modder East Gold Project in South Africa.
Uranium One owns the Dominion Uranium Project in South Africa and a 70%
interest in the producing Akdala Uranium Mine in Kazakhstan. Uranium One is
also developing the South Inkai and Kharasan Uranium Projects in Kazakhstan.
South Inkai, in which the Corporation owns a 70% interest, and Kharasan, in
which the Corporation owns a 30% interest, are scheduled to come into
production in Q4 2007 and Q1 2008, respectively. In Australia, the Corporation
owns the Honeymoon Uranium Project. In the United States, the Corporation owns
the Shootaring Mill in Utah and the Hobson ISR Uranium Processing Plant in
Texas, both of which are currently being refurbished. The Corporation also
owns a large portfolio of uranium exploration properties in the western United
States, South Australia, the Athabasca Basin of Saskatchewan and the Kyrgyz
Republic.
The discussion and analysis contained in this MD&A follows the reporting
segments as described in the Corporation's Q2 2007 interim financial
statements.
-------------------------------------------------------------------------
Entity Project Location Status Ownership
-------------------------------------------------------------------------
Betpak Dala LLP Akdala Uranium Mine Kazakhstan Producing 70% J.V.
interest
Betpak Dala LLP South Inkai Uranium Kazakhstan Development 70% J.V.
Project interest
Kyzylkum LLP Kharasan Uranium Kazakhstan Development 30% J.V.
Project interest
Uranium One Dominion Uranium South Africa Development 100%
Africa Limited Project interest
(1)
Aflease Gold Modder East Gold South Africa Development 68%
Limited Project interest
Uranium One Honeymoon Uranium Australia Development 100%
Australia Project interest
(Proprietary)
Ltd.
Uranium One Shootaring Mill USA Development 100%
(USA) Inc. interest
Pitchstone Joint Pitchstone Joint Canada Exploration 50%
Venture Venture interest
-------------------------------------------------------------------------
Note 1: Uranium One's 100% interest is subject to a definitive purchase
and sale agreement of an undivided 26% interest in the Dominion Uranium
Project to its Black Economic Empowerment partner Micawber 397
(Proprietary) Limited ("Micawber 397"). The Micawber 397 transaction will
be accounted for in the Corporation's financial statements when the risks
and rewards of the transaction are deemed to have passed to Micawber 397.
Acquisition of Energy Metals Corporation
On June 3, 2007, Uranium One and EMC entered into a definitive business
combination agreement pursuant to which Uranium One agreed to acquire all of
the outstanding common shares of EMC on the basis of 1.15 shares of Uranium
One for each share of EMC. The acquisition was completed on August 10, 2007.
The transaction resulted in the addition of a large portfolio of uranium
exploration properties located throughout the western United States and the
Hobson ISR processing facility in Texas. The Hobson processing facility is
currently being refurbished.
Based on the March 31, 2007 balance sheet of EMC, the preliminary
allocation of the purchase price, summarized in the table below, is subject to
change (Note 1):
$'000's
Purchase price:
99.3 million shares of Uranium One 1,494,700
Options outstanding of EMC 72,500
Acquisition costs 8,000
-------------------------------------------------------------------------
1,575,200
-------------------------------------------------------------------------
Net assets acquired:
Cash and cash equivalents 76,500
Marketable securities 31,800
Other current assets 2,100
Mining interests 128,300
Other non-current assets 5,900
Accounts payable and accrued liabilities (1,400)
Asset retirement obligations (2,300)
Future income tax liability (28,500)
Unallocated purchase price 1,362,800
-------------------------------------------------------------------------
1,575,200
-------------------------------------------------------------------------
Note 1: The fair value of all identifiable assets and liabilities
acquired as well as any goodwill arising upon the acquisition will be
determined through an independent valuation as at the date of closing of
the transaction. On completion of the valuation, with corresponding
adjustments to the carrying amounts of mining interests, or on recording
of any finite life intangible assets on acquisition, these adjustments
will impact the measurement of amortization recorded in the consolidated
financial statements after the date of acquisition. No adjustments have
been reflected in the table above for any change in future tax assets or
liabilities that would result from recording EMC's identifiable assets
and liabilities at fair value as the process of estimating the fair value
of identifiable assets and liabilities is not complete.
Selected Financial Information
The Corporation's consolidated financial statements and the financial data
set out below have been prepared in accordance with Canadian GAAP. Uranium One
and its operating subsidiaries use the United States dollar, the South African
rand, the Australian dollar and the Canadian dollar as measurement currencies.
Three Months Three Months
(US dollars in thousands Ended Ended
except per share amounts) June 30, 2007 July 31, 2006
--------------- ---------------
Revenues $ 23,265 $ 2,922
Net loss (13,694) (32,165)
Cash flows from operating activities (18,728) 16,353
Loss per share (0.04) (0.15)
Adjusted net loss(1) (7,517) (3,587)
Average realized uranium price
(per lb U(3)O(8)) 95 42
Sales volume (lbs of U(3)O(8))
(Corporation's share) 244,200 lbs 70,000 lbs
Production volume (lbs of U(3)O(8))
(Corporation's share) 452,200 lbs 478,400 lbs
Average uranium (U(3)O(8)) spot price $ 126 $ 46
(1) Net loss for the three months ended June 30, 2007 has been adjusted
to exclude a $6.2 million unrealized exchange loss ($28.6 million
exchange loss for the three months ended July 31, 2006) on the
translation of future income tax liabilities in respect of the
Corporation's investment in Kazakhstan for the strengthening of the
local currency against the US dollar. Adjusted net earnings/(loss) is
a non-GAAP measure used to provide investors with additional
information about the Corporation's performance. Accordingly, it
should be considered as supplemental in nature and should not be
considered in isolation or as a substitute for measured performance
prepared in accordance with GAAP.
Review of Operations
Akdala Uranium Mine
Akdala is an operating acid in situ leach ("ISL") uranium mine located in the Suzak region of South Kazakhstan. Betpak Dala Joint Venture Limited Liability Partnership, a Kazakhstan registered limited liability partnership ("Betpak Dala") owns a 100% interest in the Akdala Mine. Uranium One owns a 70% joint venture interest in Betpak Dala; the remaining 30% is owned by JSC NAK Kazatomprom ("Kazatomprom"), a Kazakhstani state owned company responsible for the mining, importing and exporting of uranium in Kazakhstan.
The production rate at the Akdala Mine is 1,000 tonnes (2,600,000 lbs U(3)O(8)) of uranium per year. It is expected that production will continue at this rate until exhaustion of the current resources in approximately 2020.
In situ leaching involves circulating ground water fortified with acid through the ore by means of a grid of injection and production wells and processing the water pumped from the production wells to recover uranium in the processing plant before returning the leach solution to the injection wells.
Production: Akdala production is ahead of schedule with 1,343,000 lbs of U(3)O(8) produced for the six months ended June 30, 2007, which is slightly above nameplate capacity.
Operations: The total number of production well patterns in operation was managed by adjusting the number of wells in operation to average 132 pumping wells during the quarter. At June 30, 2007 there were 137 operating production wells. Feed to the pregnant solutions plant from the well field had an average grade of 113 ppm U during the quarter. The number of wells in operation and the flow from each well is adjusted based on uranium content in the flow from each well to produce the targeted production rate. The number of drill rigs at site has been increased from three to six with the addition of a second drilling contractor. The number of drill rigs is sufficient to ensure that well field development should continue to match budgeted production levels from the mine.
Construction: Construction of the yellowcake precipitation and filtration plant commenced in April 2007 and is expected to be completed by the fourth quarter of 2007. When operational, this plant is expected to result in cash operating cost savings as the Corporation will then no longer be required to use external facilities for yellowcake precipitation and filtration. Installation of the drying plant is in the design phase and construction is scheduled for completion in 2008.
South Inkai Uranium Project
South Inkai is an ISL uranium development project located in the Suzak region of South Kazakhstan. Betpak Dala owns a 100% interest in the South Inkai Project. Accordingly, Uranium One owns a 70% interest in the project.
Exploration Drilling: The drilling program to convert Russian C2 to C1 resources as per the Kazakhstan classification system continued at South Inkai. For this project, beginning in 2006, a total of 255 drill holes have been drilled of a planned project of 390. Final preparation of a report and approval by the State Committee for Reserves is expected in 2008 for a total addition of 15,000-17,000 tonnes of C1 category resource. Approval of adequate C1 resources is part of the process for approval of industrial production from South Inkai. During the quarter, 54 drill holes were completed compared to a plan for 48 drill holes.
Production Drilling and Well Completion: Joint Drilling, Betpak Dala's drilling and well completion contractor, had five Russian Ziff 1200 rigs drilling production wells on South Inkai. Currently, five Russian Ziff rigs and two GEFCO SS-40 rigs are drilling and completing wells. A total of 64 wells have been completed as scheduled for the September 2007 start of pilot well field production, as part of the process of Industrial Production Licensing. Management expects that the required portion of process plant and well field production facilities will be ready for the commencement of well field acidification by August 2007 with production flow commencing from the first block of pilot well patterns by September 2007 in preparation for pilot stage production in Q4 2007. Capital construction of the portion of the industrial complex required for pilot stage production is currently on schedule for operation by Q4 2007. A training program for the drill crews on the new GEFCO rigs is underway and is expected to result in drilling productivity improvements when training is completed.
Construction: Uranium processing facilities being constructed at South Inkai are similar to the processing plant that has been constructed at the Akdala Mine. The plant is being fully constructed to the capacity of 2,000 tonnes U per year. Construction of the industrial complex is underway. Completion of the required portion of the processing acidification system is expected to be completed by September 2007 to facilitate the initiation of production from the first block of pilot well fields. Final completion is expected for mid year 2008. Completion of the buildings in the complex is as follows:
- main administration building - 56% complete - utility building - 54% complete - special laundry - 57% complete - auxiliary buildings - 58% complete - ammonium nitrate storage building - 32% complete
The shift camp is partially completed and one section is in use. The sulphuric acid storage has been completed with the exception of commissioning for use. The processing plant has all major equipment installed, structural steel erected, and piping of the first two ion exchange (absorption) columns and the first elution (desorption) column is expected to be completed by September 2007 to allow the start of pilot production in Q4 2007 to demonstrate performance for the obtaining of the Industrial Production Licenses.
Project to date expenditure relating to the construction project at South Inkai is $19.5 million.
Kharasan Uranium Project
The Kharasan Project is a uranium development project located in the Suzak region of South Kazakhstan. Kyzylkum LLP ("Kyzylkum"), a Kazakhstan registered limited liability partnership, owns a 100% interest in the Kharasan Project. Uranium One owns a 30% joint venture interest in Kyzylkum; the remaining interests in Kyzylkum are owned as to 30% by Kazatomprom and 40% by Energy Asia (BVI) Ltd., which is owned by a consortium of Japanese utilities and a trading company.
Exploration Drilling: Kyzylkum has plans to drill 137 drill holes in 2007 to convert Russian C2 to C1 resources as per the Kazakhstan classification system. As of June 9, 2007 - 59 drill holes have been completed. The plan is to complete this program by the end of the year to add 5,000 tonnes of C1 resources to the already approved 6,560 tonnes to bring total C1 resources at Kharasan to 11,560 tonnes, sufficient for the Industrial Production License. For this program, Volkogeology, a Kyzylkum drilling contractor, drilled 15 drill holes during 2006 and has agreed to complete an additional 25 drill holes to bring the total to be completed by Volkogeology to 75 in this program. This leaves 62 drill holes which are planned for Joint Drilling, a second Kyzylkum drilling contractor to complete. Currently Volkogeology has 1 drill rig on site drilling on this program.
Production Drilling: The drilling plan for the first pilot production consists of 26 well patterns made up of 108 wells. It is planned to complete these pilot production patterns in two blocks. An initial 33 wells (7 patterns) will comprise the first operating block. Of this program, Joint Drilling has completed 14 wells to date. Joint Drilling has five Russian Ziff Rigs and 6 GEFCO SS-40 drill rigs on site. Training on the GEFCO rigs began in May and continues to progress. The training and certification of sufficient qualified and trained drillers will allow the GEFCO rigs to significantly accelerate the rate of drilling and completing wells.
Construction: The industrial complex, including the first phase with annual production of 750 tonnes per year, is to be developed on the basis of an annual production rate of 2,000 tonnes of U. A second processing plant, (a satellite plant) with capacity of 1,000 tonnes of U per year is expected to be constructed to allow for production to increase from 2,000 tonnes to 3,000 tonnes per year. Design is currently in progress to allow the project to reach a capacity of 3,000 tonnes U.
The construction schedule for the process plant and shift camp has been designed to deliver initial pilot production in Q1 2008. The full completion of the process plant and related facilities is expected in November 2007, the road construction and the bridge are expected to be completed in October 2007. The railroad switching station and Phase 1 of the railroad transshipment base are expected to be completed in March 2008. Until the transshipment base is available for shipment of U(3)O(8), it will be necessary to store the product on site, as it is not legally approved to ship U(3)O(8) through the villages on the alternate routes to other shipping points.
Project to date expenditure relating to the construction project at Kharasan is $39.1 million.
Project Finance Facility: Kyzylkum has entered into an unsecured bank loan facility totaling $100 million. $70 million of this facility is provided by the Japan Bank for International Cooperation and $30 million is provided by Citibank. The first draw down on these facilities is planned for August 2007. These loan facilities, when drawn down, will be repayable after full repayment of the existing loan from the Corporation. The Corporation's proportionate share of the new unsecured bank loan facility will be $30 million when fully drawn down. The loan facilities have floating interest rates of LIBOR plus 0.25% and 0.35%, respectively.
Dominion Uranium Project
The Dominion Uranium Project is situated in the North West Province of South Africa, approximately 150 kilometres west-southwest of Johannesburg.
Total capital cost to completion is now estimated to be approximately 25% over the early 2006 feasibility study estimate of $180 million. Changes in design, scope, material specifications and material prices accounts for approximately 70% of the forecasted overrun.
Metallurgical Plant Construction: Commissioning of the atmospheric leach circuit commenced on February 28, 2007, with the first uranium bearing material being processed through the plant; the first ADU was produced on May 18, 2007. Two shipments of ADU were delivered to a calcining facility in July 2007, yielding 20,339 lbs of U(3)O(8).
The commissioning of the uranium plant is following a planned phased approach using a blend of underground ore and lower grade historic tailings material as feed stock. The solvent extraction section of the plant was successfully commissioned during June 2007, marking completion of the commissioning of the atmospheric leach production circuit. The first autoclave (pressure leach vessel) was mechanically and electrically completed by the end of June 2007; has been brought up to design temperature and pressure and is currently being prepared to be fed with a blend of lower grade historic tailings material and ore from underground. Construction of the second autoclave is progressing well and is scheduled for completion by the end of August 2007 and commissioning is expected to commence in September 2007. The completion and successful commissioning of both autoclaves will allow the uranium plant's design efficiency parameters to be realized (200,000 tonnes per month throughput and a uranium recovery rate of approximately 85%).
Mine Development: A total of 5,384 metres of development was achieved in the six months ended June 30, 2007 compared to feasibility of 7,485 metres. The previously reported problematic ground conditions associated with a fault zone at the Dominion 2 decline has been successfully negotiated and decline development is now progressing in normal ground conditions.
Stoping operations have commenced at all 3 production sections (Dominion 1, Dominion 2 and Rietkuil).
Process re-optimization: The tailings material has provided the project with considerable flexibility and as a result the Corporation is completing a study that will assess the optimal mix of tailings material and ore from underground in order to maximize plant throughput and recovery rates.
Expansion: A conceptual study considering the expansion of the Dominion Uranium Project commenced in September 2006 and was completed in May 2007. The conceptual study is based predominantly on inferred resources. The expansion considers two areas, namely the Dominion North (D3 and D4 decline areas) and a vertical shaft at Rietkuil. The full feasibility study for the D3 and D4 area, based on the upgraded indicated resources, will be completed by the end of Q4 2007 and a pre-feasibility for the vertical shaft area by Q1 2008. The plans consider staged production and plant expansion from the current 200,000 tonnes per month, to 300,000 and then to 400,000 tonnes per month.
Exploration: A total of 58,975 m of exploration drilling has been completed for the six months ended June 30, 2007. The primary focus of the exploration campaign at Rietkuil and Dominion remains to increase the indicated resource base for the planned expansion program.
Sample analysis of the exploration holes have been constrained due to the lack of accredited laboratories. To facilitate catching up on the sample back log, an externally operated and managed laboratory has been commissioned on site which commenced sample analysis on August 1, 2007.
An aero-radiometric and magnetic survey to be flown across the Corporation's existing prospecting rights commenced on July 28, 2007 and is anticipated to be completed by the middle of August 2007. Physical exploration (i.e. surface drilling) is expected to commence in the Ottosdal area once required approvals are received.
Honeymoon Uranium Project
The Honeymoon Uranium Project is located in the north-eastern section of the State of South Australia, approximately 75 kilometres northwest of Broken Hill.
Honeymoon construction is progressing and a new design using pulse columns is being finalized. The Corporation is currently completing a revised timeline and cost estimate for the project.
Shootaring Mill and Associated Uranium Properties
On April 30, 2007, Uranium One completed the purchase of the Shootaring Mill in Utah, an acid leach facility with 750 tons per day throughput capacity.
In addition to the mill, a land package comprising approximately 38,000 acres of uranium exploration properties in Utah, Wyoming, Arizona and Colorado and a substantial database of geological information were acquired.
The process to request for proposals on the refurbishment of the Shootaring Mill was initiated during Q2 2007.
An exploration program consisting of airborne surveys has been conducted over certain of the U.S. exploration properties, additional claims were staked as a result of the targets identified in the surveys.
Aflease Gold Limited
Uranium One owns 68% of Aflease Gold. Aflease Gold's principal property is the Modder East Gold Project in the East Rand gold fields of South Africa's Witwatersrand Basin. Aflease Gold is solely responsible for funding the development of its assets, including the Modder East Gold Project.
Modder East Gold Project
The Modder East Gold Project is located approximately 30 kilometres east of Johannesburg, South Africa. Project construction commenced in May 2006 and has advanced significantly, with the entire mine infrastructure required for development operations in place.
The revision of the Modder East feasibility study was completed and submitted to SRK Consulting for auditing. The preliminary results for the feasibility have shown significant improvement in values for the project. Audit completion is scheduled for August 2007.
Total project expenditure to date amounts to $11.0 million.
Sub Nigel Gold Project
A revised pre-feasibility study was completed and will be submitted to SRK for audit at the beginning of August. Upon completion the feasibility study will be presented to the board of Aflease Gold.
Exploration Projects
The Corporation is exploring its other properties and has current exploration programs in progress on its properties in the western United States, the Pitchstone Joint Venture in Canada and the Kyrgyzstan exploration properties.
Results of Operations and Discussion of Financial Position
Summary of Quarterly Results
-------------------------------------------------------------------------
June 30 Mar 31 Dec 31 Oct 31
2007 2007 2006(2) 2006
-------------------------------------------------------------------------
$(000's) $(000's) $(000's) $(000's)
-------------------------------------------------------------------------
Revenue from uranium sales 23,265 41,730 46,256 4,193
-------------------------------------------------------------------------
Net income/(loss) for period (13,694) 7,971 (6,228) 25,912
-------------------------------------------------------------------------
Basic and diluted earnings/
(loss) per share (0.04) 0.02 (0.01) 0.05
-------------------------------------------------------------------------
Total assets 4,247,176 999,950 971,618 949,530
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Jul 31 Apr 30 Jan 31 Oct 31
2006 2006 2006 2005
-------------------------------------------------------------------------
$(000's) $(000's) $(000's) $(000's)
-------------------------------------------------------------------------
Revenue from uranium sales 2,922 14,383 6,202 -
-------------------------------------------------------------------------
Net income/(loss) for period (32,165) (12,068) (5,502) 796
-------------------------------------------------------------------------
Basic and diluted earnings/
(loss) per share (0.15) (0.03) (0.01) 0.01
-------------------------------------------------------------------------
Total assets 951,025 810,086 683,418 45,523
-------------------------------------------------------------------------
Note:
1. The basic and diluted earnings/(loss) per share is computed
separately for each quarter presented and therefore may not sum
to the July 31, 2006 twelve month period or December 31, 2006
five month period.
2. The December 31, 2006 quarter consists of a 2 month period.
Uranium sales are recorded upon delivery to utilities and intermediaries
and do not occur evenly throughout the year. Changes in sales, net
earnings/(loss) and cash flow are affected primarily by fluctuations in
delivery of product from quarter to quarter as well as changes in the price of
uranium.
Operating expenses are related to sales and are lower in periods when
sales are lower. There is a corresponding build up of inventory in periods
when sales are lower. Operating expenses related to sales for Q2 2007 were
$2.1 million and sales were $23.3 million compared to production costs of
$1.6 million for Q2 2006 with corresponding sales of $2.9 million.
During Q2 2007 a net loss was affected by an unrealized foreign exchange
loss resulting from a strengthening of the Kazakhstan tenge against the US
dollar. The $6.0 million loss on exchange recorded in the current quarter
results from a $6.2 million loss related to an unrealized foreign exchange
loss on translation of future income tax liabilities arising from the purchase
of assets in Kazakhstan and a $0.2 million gain related to other items.
The following table shows the production, sales and production costs
trends over the quarterly periods. The interest in the Akdala Uranium Mine was
acquired in November 2005; consequently there are no figures for operations
during the three month period ended October 31, 2005.
-------------------------------------------------------------------------
3 months 3 months 2 months 3 months
ended ended ended ended
(all figures are the June 30 March 31 Dec 31 Oct 31
Corporation's attributable share) 2007 2007 2006 2006
-------------------------------------------------------------------------
lbs lbs lbs lbs
-------------------------------------------------------------------------
Production of U(3)O(8)
in lbs 452,200 488,000 426,500 513,100
-------------------------------------------------------------------------
Sales of U(3)O(8) in lbs 244,200 605,000 881,000 99,000
-------------------------------------------------------------------------
$ $ $ $
-------------------------------------------------------------------------
Sales (000's) 23,265 41,730 46,256 4,193
-------------------------------------------------------------------------
Sales $/lb U(3)O(8) sold 95 69 53 42
-------------------------------------------------------------------------
Operating expenses (000's) 2,058 7,043 7,872 1,417
-------------------------------------------------------------------------
Operating expenses $/lb U(3)O(8) sold 8 12 9 14
-------------------------------------------------------------------------
Depletion and depreciation (000's) 2,024 4,859 7,240 1,209
-------------------------------------------------------------------------
Depletion and depreciation $/lb
U(3)O(8) sold 8 8 8 12
-------------------------------------------------------------------------
----------------------------------------------------------------
3 months 3 months 3 months
ended ended ended
(all figures are the Jul 31 Apr 30 Jan 31
Corporation's attributable share) 2006 2006 2006
----------------------------------------------------------------
lbs lbs lbs
----------------------------------------------------------------
Production of U(3)O(8)
in lbs 478,400 388,800 325,700
----------------------------------------------------------------
Sales of U(3)O(8) in lbs 70,000 380,000 361,000
----------------------------------------------------------------
$ $ $
----------------------------------------------------------------
Sales (000's) 2,922 14,383 6,202
----------------------------------------------------------------
Sales $/lb U(3)O(8) sold 42 38 17
----------------------------------------------------------------
Operating expenses (000's) 1,630 3,863 2,560
----------------------------------------------------------------
Operating expenses $/lb U(3)O(8) sold 23 10 7
----------------------------------------------------------------
Depletion and depreciation (000's) 3,294 976 837
----------------------------------------------------------------
Depletion and depreciation $/lb
U(3)O(8) sold 47 3 2
----------------------------------------------------------------
Three Months Ended June 30, 2007
Uranium sales and operating costs
Sales attributable to the Corporation during Q2 2007 amounted to approximately 244,200 lbs U(3)O(8) (93,900 kg U). The Corporation's attributed share of revenue from uranium sales amounted to $23.3 million. Mining operations reflected a pre-tax income of $19.2 million after the deduction of operating expenses of $2.1 million and depreciation and depletion charges of $2.0 million. Sales in Q2 2006 amounted to approximately 70,000 lbs of U(3)O(8) (27,000 kg U). Attributable revenue from uranium sales amounted to $2.9 million. Mining operations reflected a loss of $2.0 million after the deduction of operating expenses and depletion costs of $4.9 million.
The average unit price received for sales in Q2 2007 was $95 per pound of U(3)O(8), which is a 38% increase over the average unit price for sales in the prior quarter. The average price obtained in Q2 2006 was $42 per pound of U(3)O(8). The spot price of uranium at June 30, 2007 was $136 per pound of U(3)O(8) compared to a spot price of $47 per pound of U(3)O(8) at Q2 2006.
During Q2 2007 operating expenses were $2.1 million or approximately $8 per pound of U(3)O(8) sold. Operating expenses in the prior quarter were $12 per pound of U(3)O(8) sold. Operating costs during Q2 2006 were $1.6 million or $23 per pound of U(3)O(8) sold. The average unit cost of depletion in Q2 2007 was $8 per pound of U(3)O(8) sold compared to $8 per pound of U(3)O(8) sold in the prior quarter.
General and administration costs
General and administration expenses, including stock-based compensation expense, were $18.7 million for Q2 2007 compared to $4.5 million Q2 2006. The comparative expense for Q2 2006 relates to the costs of UrAsia Energy while expenses in Q2 2007 include the combined costs of UrAsia Energy and Uranium One. Higher administrative costs are related to increase in size of operations resulting from acquisition activities and growth. The major increases in general and administration during Q2, other than the combined administration expenses resulting from the business combination, were increased travel and accommodation expenses as a result of integration sessions held in the regions and increased salaries and wages as a result of additional employees and executive salaries.
Stock-based compensation expense, which is included in general and administration expense, has increased to $9.7 million in Q2 2007 from $1.6 million in Q2 2006.
Exploration
Exploration expenditure in Q2 2007 of $5.0 million related to geological programs being undertaken on the Corporation's license areas in Canada, Australia, Africa, the United States and Kyrgyzstan. During Q2 2006 exploration expenditures totaling $1.6 million related to properties in Kyrgyzstan only.
Interest and Prior Financing Activities
Interest income amounted to $4.5 million for Q2 2007 compared to $2.3 million for Q2 2006. In addition to the interest earned on loans to joint ventures, the acquisition of Uranium One assets resulted in increased interest income due to income from funds held on deposit by Uranium One.
Interest expense relates primarily to the short term loans from Nedcor Securities.
In the year ended December 31, 2006, Uranium One completed two financings for aggregate net proceeds of $272.3 million. The proposed use of those proceeds (other than for working capital), amounts spent in Q2 2007 and amounts spent to date are as follows:
Proposed Use Amounts Spent Amounts Spent
of Proceeds in Q2 2007 To Date
-------------------------------------------------------------------------
Dominion Uranium Project -
completion of mine and
related facilities and
mine working capital $113.6 million $55.0 million $103.6 million
Honeymoon Uranium Project -
construction of mine and
related facilities $39.3 million $4.8 million $8.1 million
Refinancing credit
facilities $39.5 million - -
Dilution loss on disposal of investment
Dilution loss on disposal of investments occurs when the percentage of equity held in Aflease Gold by Uranium One's wholly owned subsidiary, Uranium One Africa Limited ("Uranium One Africa"), decreases when shares in Aflease Gold are issued to shareholders other than Uranium One Africa. During Q2 2007 Uranium One's interest in Aflease Gold decreased from 68.05% to 67.61% resulting in a dilution loss of $0.3 million. There was no dilution loss in the comparative period for the prior year.
Foreign exchange losses
The foreign exchange loss during Q2 2007 amounted to $6.0 million consisting of an unrealized loss of $6.2 million arising from the strengthening of the Kazakhstan tenge against the US dollar during the period and a $0.2 million gain related to other items. In Q2 2006, a foreign exchange loss of $28.7 million was recorded, mostly consisting of a $28.6 million unrealized exchange loss arising from a strengthening of the Kazakhstan tenge against the US dollar in the quarter.
Income taxes
Current income tax expense for Q2 2007 was $7.8 million and represents taxes paid and payable in Kazakhstan on profits from the Corporation's Akdala Uranium Mine. In Q2 2006 a $0.7 million tax recovery was recorded as a result of over provision of taxes in prior quarters.
Future income tax recovery during Q2 2007 of $2.2 million arises from a reduction in the future income tax liability related to the acquisition of assets through the purchase of participating interests in the joint ventures in Kazakhstan. In Q2 2006 a recovery of future income taxes of $1.4 million was recorded related to the reduction in the future income tax liability.
Non-controlling interest
Non-controlling interest relates to Uranium One Africa's 68% ownership of its subsidiary company, Aflease Gold. The non-controlling interest's share of the net loss for the three months ended June 30, 2007 was $0.7 million.
Net loss for the period
The net loss for Q2 2007 amounted to $13.7 million or $0.04 per share compared to a net loss of $32.2 million or $0.15 per share in Q2 2006.
Six Months Ended June 30, 2007
Uranium sales and operating costs
Revenue from uranium sales attributable to the Corporation during the six months ended June 30, 2007 amounted to $65.0 million for approximately 849,200 lbs U(3)O(8) (319,000 Kg U) sold. Mining operations reflected a pre-tax income of $49.0 million after the deduction of operating expenses of $9.1 million and depreciation and depletion charges of $6.9 million. Revenue from attributable uranium sales during the six months ended July 31, 2006 amounted to $17.3 million for approximately 450,000 lbs of U(3)O(8) (173,000 Kg U) sold. Mining operations reflected a pre-tax income of $6.0 million after deduction of production and depletion costs totaling $11.3 million.
The average unit price received for sales in the six month period ended June 30, 2007 was $77 per pound of U(3)O(8). The average price obtained in the six months ended July 31, 2006 was $38 per pound of U(3)O(8).
Operating expenses for the six month period ended June 30, 2007 were $9.1 million or approximately $11 per pound of U(3)O(8) sold. Operating expenses during the six months ended July 31, 2006 were $7.0 million or $16 per pound of U(3)O(8) sold. The average unit cost of depletion was $8 per pound of U(3)O(8) sold in the six months ended June 30, 2007 compared to $9 per pound of U(3)O(8) sold in the six months ended July 31, 2006.
General and administration costs
General and administration expenses, including stock-based compensation expense, of $23.3 million were recorded for the six months ended June 30, 2007 compared to $7.2 million in the six months ended July 31, 2006. The comparative amount for the six months ended July 31, 2006 includes general and administration costs for UrAsia Energy only. General and administration costs are in line with expectations and are due to an increase in size of operations resulting from the acquisition of Uranium One, and an increase in staffing requirements due to growth of the Corporation.
Stock-based compensation expense included in general and administration costs of $13.1 million was recorded for the six months ended June 30, 2007 compared to $5.0 million for the six month period ended July 31, 2006.
Exploration
Exploration expenditures in the six month period ended June 30, 2007 of $6.4 million related to geological programs being undertaken on the Corporation's exploration programs in Canada, Australia, Africa, the United States and Kyrgyzstan. During the six months ended July 31, 2006 exploration expenditures totaling $2.6 million related to properties in Kyrgyzstan only.
Interest
Interest income amounted to $5.6 million for the six months ended June 30, 2007 compared to $3.8 million for the six months ended July 31, 2006. The increase in interest results from interest earned on the loans to joint ventures and cash balances during the period.
Dilution loss on disposal of investment
During the six month period ended June 30, 2007 Uranium One Africa's interest in Aflease Gold decreased from 71.36% to 67.61% resulting in a dilution loss of $0.3 million.
Foreign exchange losses
The foreign exchange loss during the six months ended June 30, 2007 amounted to $13.4 million which includes an unrealized loss of $14.8 million arising from the strengthening of the Kazakhstan tenge against the US dollar during the period. In the six months ended July 31, 2006 a foreign exchange loss of $41.1 million was recorded that included a $42.6 million unrealized exchange loss that arose from translation of the future income tax liability denominated in Kazakhstan tenge, and was offset by a realized gain of $1.5 million on translation of normal transactions and asset and liability revaluations.
Income taxes
Current income tax expense for the six months ended June 30, 2007 was $20.4 million. Income tax expense represents taxes paid and payable in Kazakhstan on income from the Akdala Uranium Mine. For the six months ended July 31, 2006 a $4.7 million tax expense was recorded.
Future income tax recovery of $4.4 million was recorded for the six months ended June 30, 2007 compared to $1.7 million for the six months ended July 31, 2006. A recovery of future income tax is recorded as the mineral property asset to which it relates is depreciated.
Non-controlling interest
Non-controlling interest relates to Uranium One Africa's 68% ownership of its subsidiary company, Aflease Gold. The non-controlling interest's share of the net loss for the six months ended June 30, 2007 was $0.7 million.
Net loss for the period
The net loss for the six months ended June 30, 2007 amounted to $5.7 million or $0.02 per share compared to a net loss of $44.2 million or $0.20 per share for the six months ended July 31, 2006.
Financial Condition
On June 30, 2007, the Corporation had cash and cash equivalents of $298.3 million compared to $61.8 million at December 31, 2006. The increase is mainly due to the addition of $291.1 million in cash and cash equivalents on acquisition when the assets of Uranium One and UrAsia Energy were combined.
Accounts receivable increased by $12.0 million over the six months ended June 30, 2007; the increase is mainly a result of an increase in recoverable value added taxes.
Inventories increased by $4.8 million or 40% over the amount held at December 31, 2006, the increase was due to build up of uranium concentrates and solutions and concentrates in process on hand as well as an increase in material and supplies.
Loans receivable from the joint venture, Betpak Dala, of $62.6 million plus interest of $0.9 million were repaid during the six months ended June 30, 2007. The Corporation advanced $32 million to the joint venture Kyzylkum during the period for development of the Kharasan Uranium Project.
Mineral interests, plant and equipment increased when compared to the balance sheet at December 31, 2006 due to the business combination and the addition of $2.4 billion in Uranium One assets to UrAsia Energy's assets. Other increases were attributable as to $102.0 million to the acquisition of the Shootaring Mill and exploration properties from U.S. Energy Corp. ("U.S. Energy") and to additions to plant and equipment during the period of $84.7 million. Goodwill of $255.3 million was recorded as a result of the acquisition of the Uranium One assets; of which $119.2 million has been allocated to Aflease Gold and $136.2 million has been allocated to the Dominion Uranium Project. Allocation of the excess purchase price to Uranium One assets acquired and to goodwill is subject to change; a valuation report is being prepared and will be the basis of the final allocation.
Other assets increased by $24.0 million over the six month period, $13.5 million, of which was due to the asset additions resulting from the business combination with UrAsia Energy and the acquisition of the U.S. Energy assets, and consists primarily of an asset retirement fund.
The increase in current liabilities from December 31, 2006 can be attributed to an increase in accounts payable and accrued liabilities resulting from increased costs due to growth and to the costs of the business combination; an increase in taxes payable in Kazakhstan due to the profits from the Akdala Uranium Mine; and the short term loan liability assumed on acquisition of Uranium One.
Long term liabilities increased by $1.1 billion from December 31, 2006; $122.7 million of this amount results from the business combination and the recording of convertible debentures that were issued by Uranium One in December 2006. Asset retirement obligations increased by $14.5 million. Future income tax liabilities increased by $928 million as a result of assets acquired in the business combination.
A non-controlling interest of $11.3 million is a result of the acquisition of the Uranium One assets and represents the non-controlling interest share of its subsidiary, Aflease Gold.
Shareholders' equity increased by $2.0 billion from December 31, 2006, the largest component of the increase was share capital which increased by $1.9 billion from December 31, 2006. The increase consists of $1.7 billion from shares issued for the acquisition of all of the shares of UrAsia Energy; $99.4 million from shares issued for the acquisition of U.S Energy assets; $1.7 million for services; and $42.9 million for the exercise of options, warrants and restricted shares.
Other contributions to the increases in shareholders' equity were the increase in contributed surplus of $51.3 million. Increases in contributed surplus were a result of stock based compensation of which $62.0 million related to the fair value of options, restricted shares and warrants acquired in the business combination; and stock based compensation expense of $13.1 million recorded for options and restricted shares granted during the period and a reduction of $23.9 million for options and restricted shares exercised. Other increases in shareholder's equity are a result of the equity component of the convertible debentures acquired from Uranium One of $46.5 million; and $77.5 million in accumulated other comprehensive income from foreign currency translation of foreign operations.
Shareholders' equity was reduced by the net loss of $5.7 million ($0.02 per share) for the six month period ended June 30, 2007.
Liquidity and Capital Resources
At June 30, 2007 the Corporation had working capital of $249.8 million. As of June 30, 2007 the Corporation has cash and cash equivalents of $298.3 million, including the proportionate share of the Corporation's cash and cash equivalents at its joint venture operations in Kazakhstan and cash held by Aflease Gold. The interest earned on these cash balances will also be applied to existing commitments in respect of the Kharasan Uranium Project, the Dominion Uranium Project, the Honeymoon Uranium Project and other current commitments.
The Corporation anticipates that it has sufficient liquidity and capital resources to meet the Corporation's development plans and corporate costs for the next twelve months. Please refer to "Commitments and Contingencies".
The Corporation's liquidity position could be influenced if margin calls in excess of ZAR175 million are made in respect of Uranium One Africa's futures position under the August 2006 Nedcor facility. A margin call may be made if Aflease Gold's share price declines to approximately ZAR1.65 per share. In the period since the facility was drawn down, Aflease Gold's share price has strengthened, closing at ZAR 2.90 per share on July 31, 2007.
The Corporation earns revenue on the income from the sale of uranium from the operating Akdala Uranium Mine in Kazakhstan. Additional sales revenue will be earned from uranium sales when the South Inkai and Kharasan Uranium Projects in Kazakhstan, the Dominion Uranium Project in South Africa and the Honeymoon Uranium Project in Australia reach commercial production.
Uranium is sold under forward long-term delivery contracts. All such contracted deliveries are planned to be filled from the Corporation's mining operations. The ability to deliver contracted product is therefore dependent upon the continued operations of the mining operations as planned.
Should Uranium One be required to provide funds to support the development of any of the Corporation's projects, prospective sources of additional funding include equity financing, debt financing and the proceeds from the exercise of stock options and warrants. Uranium One's ability to raise capital is highly dependent on the commercial viability of its projects and the underlying prices of uranium.
Declines in the prices for uranium may negatively impact Uranium One's ability to raise additional funding. The Corporation has negotiated sales contracts for 28% of the Dominion Uranium Project's planned production from 2008 to 2012; 40% of the Honeymoon Uranium Project's planned production from 2008 to 2014; and 20% of the production from the Kharasan Uranium Project. Open executed contracts for sales from Betpak Dala represent future sales of approximately 24.9 million lbs of U(3)O(8). The Corporation has negotiated floor price protection on certain sales contracts, there are no other mechanisms in place to manage exposure to price fluctuations.
Other risk factors, for instance, the Corporation's ability to develop its projects into commercially viable mines, international uranium industry competition, public acceptance of nuclear power and governmental regulation can also adversely affect Uranium One's ability to raise additional funding. There is no assurance that additional sources of funding, if required, will be forthcoming. Please refer to "Risks and Uncertainties".
During Q2 2007 there have been no material changes in the specified contractual obligations identified in Uranium One's Management's Discussion and Analysis for the year ended December 31, 2006 that are outside the ordinary course of Uranium One's business.
Commitments and Contingencies
a) Betpak Dala has entered into various agreements for the construction
and commissioning of the South Inkai Project. Pursuant to these
agreements, Betpak Dala had future payment commitments of
$19.4 million as of June 30, 2007, of which $13.6 million is the
Corporation's proportionate share. The Corporation is not required to
fund the Joint Venture; funds are expected to come from operations.
b) Kyzylkum has entered into various agreements for construction and
commissioning of the Kharasan Project. Pursuant to these agreements,
Kyzylkum had future payment commitments of $55.2 million as of
June 30, 2007, of which $16.6 million is the Corporation's share. The
Corporation is not required to fund the joint venture; Kyzylkum has
arranged an unsecured credit facility totaling $100 million.
$70 million of the facility was acquired from Japan Bank for
International Cooperation and $30 million from Citibank. The first
draw down on these facilities is planned for August 2007. The loan
facilities, when drawn down will be repayable after full repayment of
the loan from the Corporation. The Corporation's proportionate share
of the loan, when fully drawn down, will be $30 million. The loan
facility bears interest at the floating rates of LIBOR (3 month LIBOR
rate) plus 0.25% - 0.30% per annum.
c) Capital expenditures of $42.5 million, of which $16.1 million
represent current commitments, will be required to complete the
construction of phase 1 of the Dominion Uranium Project.
d) The Corporation has approved budgeted expenditures totaling
$17.7 million for planned exploration programs as follows:
Budget Spent to Date
Project (millions) (millions)
---------------------------------------------------------------------
Dominion Uranium Project $ 9.4 $ 4.9
Honeymoon Uranium Project 1.0 0.7
Pitchstone Joint Venture 1.2 1.1
Modder East Gold Project 3.8 1.0
Kyrgyzstan Exploration 2.3 0.7
---------------------------------------------------------------------
Total $17.7 $ 8.4
---------------------------------------------------------------------
e) Aflease Gold is not funded by Uranium One and it currently funds
itself by issuing shares through its listing on the JSE. Aflease Gold
committed $20.0 million towards the development of the Modder East
Gold Project as at June 30, 2007. Cash of $13.7 million and ongoing
share placements to shareholders other than Uranium One are expected
to fund the further development of the Modder East Gold Project.
Further capital expenditure of $90.0 million, for which no current
commitments exist, will be required to complete the construction of
the Modder East Gold Project.
f) The Corporation entered into agreements for the purchase of twelve
U.S.-built GEFCO drill rigs to supplement the current drill program
in Kazakhstan. The contract is for a total of $17.9 million, of which
$14.4 million was paid by June 30, 2007.
g) On October 20, 2006, UrAsia Energy concluded an Accession
Agreement, which is subject to certain closing conditions, with
owners of a drilling company in Kazakhstan, Joint Drilling LLP,
whereby the Corporation will acquire a 50% interest for $3.8 million
payable in cash. At June 30, 2007 the transaction had not yet closed.
h) The Corporation has two loan facilities with Nedcor Securities, the
loans are secured by Uranium One Africa's investment in Randgold and
Exploration Company Limited ("Randgold") shares and by Uranium One
Africa's investment in Aflease Gold shares respectively. The loans
bear interest in South Africa at a specified rate that is adjusted
pursuant to a formula which is influenced by the movements in the
share price of the shares held as security. Of the total liability of
$53.1 million; one loan for $52.8 million is due on September 20,
2007; the remaining loan for $0.3 million has no fixed repayment
terms. Both loans are denominated in South African rand.
i) On December 20, 2006, Uranium One completed a debt offering of
$133.2 million convertible unsecured subordinated debentures maturing
December 31, 2011. The debentures bear interest at 4.25% payable
semi-annually in arrears on June 30 and December 31 of each year,
commencing June 30, 2007. The conversion price was set at C$20 per
share, which is equivalent to 50 common shares for each C$1,000
principal amount of debentures.
Acquisition of the Shootaring Mill
Further payments due under the purchase agreement for the Shootaring Mill
and related uranium exploration properties are $27.5 million dependent on
achievement of certain production targets and the payment of a royalty to U.S.
Energy of 5% of the gross proceeds from the sale of commodities produced at
the Mill, to a maximum amount of $12.5 million.
Acquisition of interest in Betpak Dala
a) A 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 Corporation's share of pounds 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 initially calculated at the end of
year 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
payments, the Corporation pledged its participatory interest in
Betpak Dala (including the shares of a subsidiary) and its share of
uranium products produced by Betpak Dala.
b) In respect of the Akdala Uranium Mine, Betpak Dala is obligated to
reimburse the Government of Kazakhstan for the cost of the geologic
studies of the region aggregating $1.5 million, of which $1.0 million
is attributable to the Corporation. The payments are to be made in 40
equal, quarterly installments, commencing January 1, 2008 and ending
December 31, 2017.
c) In respect of the South Inkai Project, Betpak Dala is obligated to
reimburse the Government of Kazakhstan for the cost of geologic
studies of the region, aggregating $1.7 million of which $1.2 million
is proportionately attributable to the Corporation. The payments are
to be made as to $35,000 on signing of the contract and the remaining
$1.7 million to be paid as to $66 per tonne of uranium produced.
Acquisition of interest in Kyzylkum
a) A bonus payment is due upon commencement of commercial production.
The seller elected, under the terms of the arrangement, to receive
6,964,200 shares of Uranium One upon commencement of commercial
production.
b) 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 end with payments beginning within
60 days of the end of the 2008 calendar year.
c) At June 30, 2007, Kyzylkum was obligated to reimburse the Government
of Kazakhstan for $2.1 million in respect of the historic cost of
geologic studies performed in respect of the Kharasan property, of
which $0.6 million is proportionately attributable to the
Corporation; $31,000 was paid on signing of the contract and the
remainder is to be paid as to $66 per tonne of uranium produced.
Off-balance Sheet Arrangements
The Corporation has no off-balance sheet arrangements.
Outstanding Share Data
As of the August 10, 2007, there were 365,487,753 common shares issued and outstanding and common share purchase warrants for 300,000 Series D warrants exercisable at C$6.95 per warrant and 2,431,619 warrants exercisable at C$3.55 per warrant. Each warrant is exercisable for one common share of Uranium One. In addition, a warrant was issued in connection with the acquisition of the Corporation's interest in Kyzylkum and entitles the holder to acquire 6,964,200 shares in Uranium One for no additional consideration upon commencement of commercial production from the Kharasan Uranium Project in Kazakhstan.
As of August 10, 2007, there were 13,083,897 stock options outstanding under the Uranium One's stock option plan at exercise prices ranging from $1.33 to $16.87 and 360,119 restricted shares outstanding.
Uranium One has 155,250 convertible debentures outstanding, each convertible to 50 common shares of Uranium One, representing 7,762,500 common shares.
Dividend Policy
There have been no dividend payments on the common shares of Uranium One. Holders of common shares are entitled to receive dividends if, as and when declared by the Board of Directors. There are no restrictions on Uranium One's ability to pay dividends except as set out under its governing statute.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements, and reported amounts of revenues and expenditures during the reporting period. Note 2 of the Corporation's consolidated financial statements for the three and six months ended June 30, 2007 describes all of the Corporation's significant accounting policies.
New/Changes in Accounting Policies
The Corporation's accounting policies have been consistently followed except that the Corporation has adopted the following CICA standards effective January 1, 2007:
(a) Section 3855 - Financial Instruments - Recognition and
Measurement
Section 3855 requires that all financial assets except those
classified as held to maturity, and derivative financial
instruments, must be measured at fair value. All financial
liabilities must be measured at fair value when they are
classified as held for trading; otherwise, they are measured at
cost. Investments classified as available for sale are reported
at fair market value (or mark to market) based on quoted market
prices with unrealized gains or losses excluded from earnings
and reported as other comprehensive income or loss. Investments
subject to significant influence are reported at cost and are
not adjusted to fair market value.
(b) Section 1530 - Comprehensive Income
Comprehensive income is the change in the Corporation's assets
that result from transactions, events and circumstances from
sources other than the Corporation's shareholders and includes
items that would not normally be included in net earnings such
as unrealized gains or losses on available-for-sale
investments. Other comprehensive income includes the holding
gains and losses such as changes in currency adjustment
relating to self-sustaining foreign operations; and the
effective portion of gains or losses on derivatives designated
as cash flow hedges or hedges or the net investment in
self-sustaining foreign operations.
The classification of the Corporation's financial instruments as at
January 1, 2007 and their subsequent changes to June 30, 2007 have resulted in
no material gains or losses that require separate presentation in other
comprehensive income.
(c) Section 3251 - Equity
Section 3251 establishes standards for the presentation of
equity and changes in equity during the reporting period. The
adoption of this new standard by the Corporation is not
expected to have a material impact.
(d) Section 1506 - Accounting Changes
Section 1506: Accounting Changes, effective for fiscal years
beginning on or after January 1, 2007 establishes standards and
new disclosure requirements for the reporting of changes in
accounting policies and estimates and the reporting of error
corrections. CICA 1506 clarifies that a change in accounting
policy can be made only if it is a requirement under Canadian
GAAP or if it provides reliable and more relevant financial
statement information. Voluntary changes in accounting policies
require retrospective application of prior period financial
statements, unless the retrospective effects of the changes are
impracticable to determine, in which case the retrospective
application may be limited to the assets and liabilities of the
earliest period practicable, with a corresponding adjustment
made to opening retained earnings.
Risks and uncertainties
The Corporation's operations and results are subject to various risks and uncertainties. These include, but are not limited to, the following: exploration and mining involves operational risks and hazards; mineral resources and mineral reserves are estimates only; there is no certainty that further exploration will result in new economically viable mining operations or yield new reserves to replace and expand current reserves; Uranium One cannot give any assurance that the South Inkai Uranium Project, Kharasan Uranium Project, Dominion Uranium Project, Honeymoon Uranium Project and Modder East Gold Project will become operating mines; or when the Shootaring Mill or the Hobson Uranium ISR Processing Facility will become fully operational; mineral rights and tenures may not be granted or renewed on satisfactory terms and may be revoked, altered or challenged by third parties; limited supply of desirable mineral lands for acquisition; risks and problems associated with integrating acquisitions; competition in marketing uranium and gold; in the case of uranium, competition from other sources of energy and public acceptance of nuclear energy; volatility and sensitivity to uranium and gold prices; the capital requirements to complete the Corporation's current projects and expand its operations are substantial; currency fluctuations; the Corporation's operations and activities are subject to environmental risks; government regulation may adversely affect the Corporation; risks associated with foreign operations including, in relation to South Africa, economic, social and political issues such as employment creation, black economic empowerment and land redistribution, crime, corruption, poverty and HIV/AIDS; the Corporation is dependent on key personnel; and potential conflicts of interest.
Uranium One's risk factors are discussed in detail in its Annual Information Form for the year ended December 31, 2006, which is available on SEDAR at www.sedar.com, and should be reviewed in conjunction with this document. UrAsia Energy's risk factors are discussed in detail in its Annual Information Form for the year ended July 31, 2006 which is available on SEDAR at www.sedar.com, and should be reviewed in conjunction with this document.
Stock Option and Restricted Share Plans
A significant contributing factor to Uranium One's future success is its ability to attract and retain qualified and competent personnel. To accomplish this, Uranium One adopted a stock option plan and a restricted share plan to advance its interests by encouraging directors, officers and employees to have equity participation in Uranium One.
Under the stock option plan, options granted are non-assignable and may be granted for a term not exceeding ten years. The aggregate maximum number of common shares available for issuance under the stock option plan may not exceed 7.2% of the common shares outstanding from time to time on a non- diluted basis and the aggregate maximum number of common shares available for issuance to non-employee directors under the plan may not exceed 1.0% of the total number of common shares outstanding on a non-diluted basis.
Under the restricted share plan, restricted share rights exercisable for common shares of Uranium One at the end of a restricted period are granted by the Board of Directors in its discretion to eligible directors, officers and employees. The aggregate maximum number of common shares available for issuance under the restricted share plan is capped at three million; the number of shares available for issuance to non-employee directors may not exceed 0.5% of the total number of common shares outstanding on a non-diluted basis.
During Q2 2007 stock options or restricted share rights activity was as
follows:
- Pursuant to the business combination agreement with UrAsia Energy
options that were outstanding in UrAsia Energy at April 20, 2007 were
exchanged for an equal number of options in Uranium One multiplied by
0.45; at an exercise price equal to the exercise price of the options
of UrAsia Energy divided by 0.45; accordingly 9,763,498 options of
Uranium One were granted to UrAsia Energy option holders at prices
ranging from C$1.25 to C$15.63 per share, with expiry dates ranging
from April 20, 2008 to March 30, 2017.
- On April 26, 2007, 1,310,400 options were granted to directors and
employees at a price of C$16.59 per share, exercisable on or before
April 26, 2012.
- 4,746,498 options were exercised during Q2 2007 and 57,198 were
forfeit.
- No restricted shares were granted during Q2 2007; 64,112 restricted
shares were exercised.
Disclosure Controls and Procedures
Disclosure controls and procedures are designed to provide reasonable assurance that all relevant information is gathered and reported on a timely basis to senior management, including Uranium One's President and Chief Executive Officer and Chief Financial Officer, so that appropriate decisions can be made regarding public disclosure. As at the end of the period covered by this management's discussion and analysis, management evaluated the effectiveness of the Corporation's disclosure controls and procedures as required by Canadian securities laws.
Based on that evaluation, the President and Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this management's discussion and analysis, the disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in Uranium One's annual filings and interim filings (as such terms are defined under Multilateral Instrument 52-109 - Certification of Disclosure in Issuers' Annual and Interim Filings) and other reports filed or submitted under Canadian securities laws is recorded, processed, summarized and reported within the time periods specified by those laws, and that material information is accumulated and communicated to management including the President and Chief Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure.
Internal Controls and Procedures
The Corporation evaluated the design of its internal controls and procedures over financial reporting as defined under Multilateral Instrument 52-109 for the five months ended December 31, 2006. Based on this evaluation, the President and Chief Executive Officer and Chief Financial Officer have concluded that the design of these internal controls and procedures over financial reporting was effective.
There have been no material changes in the Corporation's internal control over financial reporting during the Corporation's six month period ended June 30, 2007 that have materially affected, or are reasonably likely to materially affect, the Corporation's internal control over financial reporting.
Uranium One Inc.
Consolidated Balance Sheets
As at June 30, 2007 and December 31, 2006
(in United States dollars)
-------------------------------------------------------------------------
UNAUDITED June 30, Dec 31,
2007 2006
Notes $'000 $'000
-------------------------------------------------------------------------
ASSETS
-------------------------------------------------------------------------
Current assets
-------------------------------------------------------------------------
Cash and cash equivalents 5 298,281 61,838
-------------------------------------------------------------------------
Restricted cash - 500
-------------------------------------------------------------------------
Accounts and other receivables 6 61,208 49,186
-------------------------------------------------------------------------
Current portion of loans to
joint ventures 7.2 - 13,488
-------------------------------------------------------------------------
Inventories 8 16,829 12,044
-------------------------------------------------------------------------
376,318 137,056
-------------------------------------------------------------------------
Non-current assets
-------------------------------------------------------------------------
Mineral interests, plant
and equipment 9 3,508,618 768,887
-------------------------------------------------------------------------
Goodwill 9 255,342 -
-------------------------------------------------------------------------
Loans to joint ventures 7.2 57,072 39,850
-------------------------------------------------------------------------
Other assets 10 49,826 25,825
-------------------------------------------------------------------------
3,870,858 834,562
-------------------------------------------------------------------------
Total assets 4,247,176 971,618
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES
-------------------------------------------------------------------------
Current liabilities
-------------------------------------------------------------------------
Accounts payable and
accrued liabilities 11 65,671 12,947
-------------------------------------------------------------------------
Income taxes payable 7,746 1,018
-------------------------------------------------------------------------
Short term loans 12 53,131 -
-------------------------------------------------------------------------
126,548 13,965
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Non-current liabilities
-------------------------------------------------------------------------
Convertible debentures 13 122,699 -
-------------------------------------------------------------------------
Asset retirement obligations 14 17,369 2,856
-------------------------------------------------------------------------
Future income tax liabilities 1,328,361 337,642
-------------------------------------------------------------------------
Other long term payables 2,023 1,466
-------------------------------------------------------------------------
1,470,452 341,964
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Non-controlling interest 11,309 -
-------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
-------------------------------------------------------------------------
Share capital 15 2,467,233 613,607
-------------------------------------------------------------------------
Contributed surplus 16 82,579 31,286
-------------------------------------------------------------------------
Convertible debentures 3 46,480 -
-------------------------------------------------------------------------
Deficit (34,927) (29,204)
-------------------------------------------------------------------------
Accumulated other
comprehensive income 77,502 -
-------------------------------------------------------------------------
2,638,867 615,689
-------------------------------------------------------------------------
Total equity and liabilities 4,247,176 971,618
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basis of presentation and principles of consolidation (note 2.1)
Commitments and contingencies (note 4, 9 & 20)
Subsequent event (note 21)
The accompanying notes form an integral part of these Interim Unaudited
Consolidated Financial Statements.
Uranium One Inc.
Consolidated Statements of Operations and Deficit
For the three and six months ended June 30, 2007 and July 31, 2006
(in United States dollars)
-------------------------------------------------------------------------
3 months ended 6 months ended
-------------------------------------------------------------------------
UNAUDITED Jun 30, Jul 31, Jun 30, Jul 31,
2007 2006 2007 2006
-------------------------------------------------------------------------
Notes $'000 $'000 $'000 $'000
-------------------------------------------------------------------------
Revenues 23,265 2,922 64,995 17,305
-------------------------------------------------------------------------
Operating
expenses (2,058) (1,630) (9,101) (6,988)
-------------------------------------------------------------------------
Depreciation
and
depletion (2,024) (3,294) (6,883) (4,270)
-------------------------------------------------------------------------
Earnings/
(loss) from
mine
operations 19,183 (2,002) 49,011 6,047
-------------------------------------------------------------------------
General and
administ-
rative(1) (18,653) (4,494) (23,334) (7,226)
-------------------------------------------------------------------------
Exploration
expense (4,958) (1,562) (6,417) (2,648)
-------------------------------------------------------------------------
Operating
(loss)/
profit (4,428) (8,058) 19,260 (3,827)
-------------------------------------------------------------------------
Interest
income 4,540 2,312 5,562 3,802
-------------------------------------------------------------------------
Interest
expense (2,997) - (2,997) -
-------------------------------------------------------------------------
Dilution loss
on disposal
of investment (321) - (321) -
-------------------------------------------------------------------------
Other income/
(expense) 368 118 1,388 (137)
-------------------------------------------------------------------------
Foreign
exchange
losses 17 (5,980) (28,707) (13,411) (41,110)
-------------------------------------------------------------------------
(Loss)/profit
before
income taxes
and non-
controlling
interest (8,818) (34,335) 9,481 (41,272)
-------------------------------------------------------------------------
Current
income tax
(expense)/
recovery (7,847) 729 (20,375) (4,659)
-------------------------------------------------------------------------
Future
income tax
recovery 2,246 1,441 4,446 1,698
-------------------------------------------------------------------------
Loss before
non-
controlling
interest (14,419) (32,165) (6,448) (44,233)
-------------------------------------------------------------------------
Non-
controlling
interest 725 - 725 -
-------------------------------------------------------------------------
Net loss (13,694) (32,165) (5,723) (44,233)
-------------------------------------------------------------------------
Deficit at
the beginning
of the period (21,233) (16,723) (29,204) (4,655)
-------------------------------------------------------------------------
Deficit at the
end of
the period (34,927) (48,888) (34,927) (48,888)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) - Stock
option and
restricted
share expense
included in
general and
administrative 16 9,733 1,602 13,110 4,974
-------------------------------------------------------------------------
Basic and
diluted loss
per common
share 18 (0.04) (0.15) (0.02) (0.20)
-------------------------------------------------------------------------
Weighted
average
number of
basic and
diluted
common shares
outstanding 18 332,955,827 217,164,830 275,380,193 217,164,830
-------------------------------------------------------------------------
See accompanying notes to the Interim Unaudited Consolidated Financial
Statements.
Uranium One Inc.
Consolidated Statements of Comprehensive Income
For the three and six months ended June 30, 2007
(in United States dollars)
-------------------------------------------------------------------------
UNAUDITED 3 months 6 months
ended ended
Jun 30, Jun 30,
2007 2007
$'000 $'000
-------------------------------------------------------------------------
Total Total
-------------------------------------------------------------------------
Net loss (13,694) (5,723)
-------------------------------------------------------------------------
Unrealized gains recognized on translation of
self-sustaining foreign operations 77,502 77,502
-------------------------------------------------------------------------
Comprehensive income 63,808 71,779
-------------------------------------------------------------------------
Uranium One Inc.
Consolidated Statements of Cash Flows
For the three and six months ended June 30, 2007 and July 31, 2006
(in United States dollars)
-------------------------------------------------------------------------
3 months ended 6 months ended
-------------------------------------------------------------------------
UNAUDITED Jun 30, Jul 31, Jun 30, Jul 31,
2007 2006 2007 2006
-------------------------------------------------------------------------
Notes $'000 $'000 $'000 $'000
-------------------------------------------------------------------------
Net loss (13,694) (32,165) (5,723) (44,233)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Items not
affecting
cash:
-------------------------------------------------------------------------
- Depreciation
and depletion 2,024 3,294 6,883 4,270
-------------------------------------------------------------------------
- Accretion
of asset
retirement
obligation 14 308 78 308 78
-------------------------------------------------------------------------
- Stock
option
expense 16 9,733 1,602 13,110 4,974
-------------------------------------------------------------------------
- Interest
accrued on
loans and
debentures 4,720 - 4,720 -
-------------------------------------------------------------------------
- Unrealized
foreign
exchange loss 5,474 28,560 12,691 42,662
-------------------------------------------------------------------------
- Future
income tax
recovery (2,246) (1,441) (4,446) (1,698)
-------------------------------------------------------------------------
- Non-
controlling
interest (725) - (725) -
-------------------------------------------------------------------------
- Other 1,161 73 1,510 60
-------------------------------------------------------------------------
Changes in
non-cash
working
capital:
-------------------------------------------------------------------------
- Increase/
(Decrease) in
accounts and
other
receivables 2,043 16,756 22,352 (8,281)
-------------------------------------------------------------------------
- Increase in
inventories (9,842) (3,909) (8,341) (3,060)
-------------------------------------------------------------------------
- (Decrease)/
increase in
accounts
payable and
accrued
liabilities (18,093) 3,505 (15,950) 9,305
-------------------------------------------------------------------------
- Increase in
income taxes
payable 409 - 6,301 -
-------------------------------------------------------------------------
Cash flows
(from)/to
operating
activities (18,728) 16,353 32,690 4,077
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Acquisition of
Uranium One,
net of
acquisition
costs 3 271,935 - 271,935 -
-------------------------------------------------------------------------
Acquisition
of interest
in Betpak
Dala - (578) - (1,177)
-------------------------------------------------------------------------
Acquisition of
interest in
Kyzylkum - 79 - (45)
-------------------------------------------------------------------------
Acquisition of
mineral
interests,
plant and
equipment (68,031) (5,836) (84,724) (9,488)
-------------------------------------------------------------------------
Advance cash
payment for
other assets - (8,420) (4,313) (8,626)
-------------------------------------------------------------------------
Restricted
cash (500) (500) (500) (2,500)
-------------------------------------------------------------------------
Cash advances
to joint
ventures 7 (15,400) (13,996) (22,400) (19,413)
-------------------------------------------------------------------------
Cash proceeds
from joint
ventures 7 - - 18,780 -
-------------------------------------------------------------------------
Cash flows
from/(to)
investing
activities 188,004 (29,251) 178,778 (41,249)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Common shares
issued, net 17,224 28 17,731 117,455
-------------------------------------------------------------------------
Shares issued
by subsidiary
to non-
controlling
shareholders 338 - 338 -
-------------------------------------------------------------------------
Coupon interest
payment on
convertible
debentures 13 (3,201) - (3,201) -
-------------------------------------------------------------------------
Other (175) (78) (175) (106)
-------------------------------------------------------------------------
Cash flows
from/(to)
financing
activities 14,186 (50) 14,693 117,349
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Effects of
exchange
rate changes
on cash and
cash
equivalents 10,068 - 10,282 -
-------------------------------------------------------------------------
Net increase/
(decrease) in
cash and cash
equivalents 193,530 (12,948) 236,443 80,177
-------------------------------------------------------------------------
Cash and cash
equivalents at
the beginning
of the period 104,751 141,276 61,838 48,151
-------------------------------------------------------------------------
Cash and cash
equivalents
at the end
of the period 5 298,281 128,328 298,281 128,328
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Significant
non-cash
investing
activities
include:
-------------------------------------------------------------------------
Uranium One
business
combination 3 1,818,169 - 1,818,169 -
-------------------------------------------------------------------------
- Common
shares 1,709,647 - 1,709,647 -
-------------------------------------------------------------------------
- Options,
warrants and
restricted
shares 62,042 - 62,042 -
-------------------------------------------------------------------------
- Equity
component
of
convertible
debentures 46,480 - 46,480 -
-------------------------------------------------------------------------
U.S. Energy
asset
purchase 4 99,401 - 99,401
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplemental
information
-------------------------------------------------------------------------
Cash
interest
paid 3,201 - 3,201 -
-------------------------------------------------------------------------
Cash
taxation
paid 7,338 1,069 13,647 5,491
-------------------------------------------------------------------------
See accompanying notes to the Interim Unaudited Consolidated Financial
Statements.
Uranium One Inc.
Notes to the Interim Consolidated Financial Statements
as at June 30, 2007 and December 31, 2006
UNAUDITED
1 NATURE OF OPERATIONS
Uranium One Inc. (previously sxr Uranium One Inc.) ("Uranium One") is a
Canadian uranium corporation with a primary listing on the Toronto Stock
Exchange and a secondary listing on the JSE Limited (the Johannesburg
stock exchange), engaged through subsidiaries and joint ventures in the
mining and production of uranium, and in acquisition, exploration, and
development of properties for production of uranium in Kazakhstan, South
Africa, Australia, the United States, Canada, and the Kyrgyz Republic.
Through Aflease Gold Limited ("Aflease Gold"), Uranium One is engaged in
the development of the Modder East Gold Project in South Africa.
2 SIGNIFICANT ACCOUNTING POLICIES
2.1 Basis of presentation and principles of consolidation
The consolidated financial statements of Uranium One and its subsidiaries
(collectively the "Corporation") have been prepared by Uranium One in
accordance with Canadian generally accepted accounting principles
("Canadian GAAP"). The preparation of the consolidated financial
statements is based on accounting policies and practices consistent with
those used in the audited financial statements of UrAsia Energy Limited
("UrAsia Energy") for the period ended December 31, 2006.
The consolidated financial statements include the accounts of the
Corporation and all of its subsidiaries and the proportionate share of
its interests in joint ventures. All intercompany balances and
transactions have been eliminated.
Uranium One acquired all of the issued and outstanding shares of UrAsia
Energy on April 20, 2007 (note 3). UrAsia Energy shareholders received
0.45 Uranium One common shares for each UrAsia Energy common
share. For accounting purposes, the transaction is treated as a reverse
takeover whereby UrAsia Energy is considered the acquiring company as the
shareholders of UrAsia Energy acquired a majority shareholding in Uranium
One. The comparative consolidated balance sheet as at December 31, 2006
and the consolidated statements of operations and deficit and cash flows
for the periods ended July 31, 2006 are those of UrAsia Energy. The
results of operations of Uranium One have been included from
April 20, 2007.
The principal mineral properties and operations of the Corporation are
listed below:
-------------------------------------------------------------------------
Mineral
property/
Entity Operation Location Ownership Status
-------------------------------------------------------------------------
Betpak Dala LLP Akdala Kazakhstan 70% Proportionately
Uranium consolidated
Mine(1)
-------------------------------------------------------------------------
Betpak Dala LLP South Inkai Kazakhstan 70% Proportionately
Uranium consolidated
Project(1)
-------------------------------------------------------------------------
Kyzylkum LLP Kharasan Kazakhstan 30% Proportionately
Uranium consolidated
Project(1)
-------------------------------------------------------------------------
Uranium One Dominion South 100% Consolidated
Africa Limited Uranium Africa
Project(2)(5)
-------------------------------------------------------------------------
Aflease Gold Modder East South 68% Consolidated
Limited Gold Africa
Project(3)
-------------------------------------------------------------------------
Uranium One
Australia
-------------------------------------------------------------------------
(Proprietary) Honeymoon Australia 100% Consolidated
Limited Uranium
Project(2)
-------------------------------------------------------------------------
Uranium One Shootaring United 100% Consolidated
USA Inc Canyon States
Uranium
Mill(4)
-------------------------------------------------------------------------
Pitchstone Pitchstone Canada 50% Proportionately
Joint Venture Joint consolidated
Venture(2)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) - Legacy UrAsia Energy assets
-------------------------------------------------------------------------
(2) - Legacy Uranium One assets
-------------------------------------------------------------------------
(3) - Legacy Uranium One assets. The Modder East Gold Project is owned by
Aflease Gold, an indirect subsidiary of Uranium One
-------------------------------------------------------------------------
(4) - Purchased from U.S. Energy (note 4)
-------------------------------------------------------------------------
(5) - Refer to note 20 for the contingent sale of an interest in the
Dominion Uranium Project
-------------------------------------------------------------------------
2.2 Measurement and reporting currency
Items included in the financial statements of each entity in the
Corporation are measured using the currency that best reflects the
economic substance of the underlying events and circumstances relevant to
that entity (the "functional currency").
The Corporation's reporting currency is the United States dollar. Uranium
One, its subsidiaries and joint ventures operate in Kazakhstan, South
Africa, Australia, the United States, Canada, and the Kyrgyz Republic.
The financial statements of the joint ventures and subsidiaries that are
determined to be integrated foreign operations 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.
The financial statements of the joint ventures and subsidiaries that are
determined to be self-sustaining foreign operations have been translated
into United States dollars using the current rate method. The current
rate method provides for all 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. Revenues and expenses
are translated at average exchange rates for the period. All resulting
exchange differences are included in accumulated other comprehensive
income on the balance sheet.
2.3 Inventories
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 related
overhead expenses and depreciation and depletion of mining interests.
The related direct production costs associated with in process gold are
deferred and charged to costs as the contained gold is recovered. In
process metals is identified and measured from the ore stockpiles up to
and including the on-site refining plant.
Consumable stores are valued on the weighted average basis and recorded
at the lower of average cost or replacement cost.
2.4 Mineral interests, plant and equipment
Mineral interests, plant and equipment are recorded at cost less
accumulated depreciation and depletion.
Mineral interests represent capitalized expenditures related to the
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 interests 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 for operations in
commercial production in Note 9. 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 for operations in commercial production in note 9. 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 impaired. 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 production costs.
Upon sale or abandonment of any mineral interest, plant and equipment,
the cost and related accumulated depreciation or accumulated depletion,
are written off and any gains or losses thereon are included in the
statement of operations.
2.5 Impairment of long-lived assets
Management regularly reviews the net carrying value of each long lived
asset whenever events or changes in circumstances indicate that the
carrying amounts may not be recoverable. To determine fair value,
management makes its best estimates of the future cash inflows that will
be obtained each year over the life of the asset and discounts the cash
flows by a rate that is based on the time value of money, adjusted for
the risk associated with the applicable asset. Where impairment is
identified, the carrying value of the related mineral interest, plant and
equipment is written down to fair value.
2.6 Goodwill
Acquisitions are accounted for using the purchase method whereby assets
and liabilities acquired are recorded at their fair values as of the date
of acquisition and any excess of the purchase price over such fair value
is recoded as goodwill. Goodwill is identified and allocated to reporting
units by preparing estimates of the fair value of each reporting unit and
comparing this amount to the fair value of assets and liabilities in the
reporting unit. Goodwill is not amortized.
The Corporation evaluates, on an annual basis, the carrying amount of
goodwill to determine whether current events and circumstances indicate
that such carrying amount may no longer be recoverable. To accomplish
this, the Corporation compares the fair value of its reporting units to
their carrying amounts. If the carrying value of a reporting unit exceeds
its fair value, the Corporation compares the implied fair value of the
reporting unit's goodwill to its carrying amount, and any excess of the
carrying value over the fair value is charged to operations. Assumptions
underlying fair value estimates are subject to significant risks and
uncertainties.
2.7 Asset retirement obligations
The Corporation 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. Subsequent to the initial measurement, the asset retirement
obligation is adjusted at the end of each year to reflect the passage of
time and changes in the estimated future cash flows underlying the
obligation.
Provision is made in full for the estimated future costs of pollution
control and rehabilitation, in accordance with statutory requirements.
2.8 Revenue recognition
Revenue from uranium 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.
Interest income is recognized on a time proportion basis, taking account
of the principal outstanding and the effective rate over the period to
maturity, when it is determined that such income will accrue to the
Corporation.
2.9 Future income and mining taxes
The Corporation 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. For 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.
2.10 Stock based compensation
The Corporation's stock-based compensation plans are described in
note 16.
The Corporation uses the fair value method of accounting for all stock
option awards. Under this method, the Corporation determines the fair
value of the compensation expense for all stock options on the date of
grant using an option pricing model. The fair value of the options is
expensed over the vesting period of the options.
Upon exercise of the stock option, consideration received and the related
amount of stock based compensation, is transferred from contributed
surplus and recorded as share capital.
2.11 Earnings/loss per share
Earnings/loss per share calculations are based on the weighted average
number of common shares and common share equivalents issued and
outstanding during the period. 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 Uranium One at the
average market price of the common shares for the period. The impact of
outstanding share options and warrants are excluded from the diluted
share calculation for loss per share amounts, because it is
anti-dilutive.
2.12 Financial instruments
On January 1, 2007, the Corporation adopted the following financial
instrument accounting standards:
Section 1530 - Comprehensive Income
Section 3855 - Financial Instruments - Recognition and measurement
Section 3865 - Hedges
The adoption of these standards had no material financial impact on the
financial statements of the Corporation. The newly adopted policies are
explained below:
Financial assets and financial liabilities are recognized on the balance
sheet when the Corporation has become party to the contractual provisions
of the instruments. Financial instruments are initially measured at cost,
which includes transaction costs. Subsequent to initial recognition these
instruments are measured as set out below:
Investments
Purchases and sales of investments are recognized on the trade date at
fair value, which is the date that the Corporation commits to purchase or
sell the asset. After initial recognition, listed investments are
classified as available for sale investments and are carried at fair
value, with the fair value adjustments accounted for in other
comprehensive income.
Other long term investments that are intended to be held to maturity are
subsequently measured at amortized cost using the effective interest rate
method. Amortized cost is calculated by taking into account any discount
or premium on acquisition over the period to maturity. For investments
carried at amortized cost, gains and losses are recognized in the income
statement when the investments are derecognized or impaired, as well as
through the amortization process.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, bank balances,
deposits held at call and certificate of deposits with a remaining
maturity of three months or less.
Accounts receivable
Accounts receivable are carried at original invoice amount unless a
provision has been recorded for impairment of these receivables. A
provision for impairment of accounts receivable is established when there
is objective evidence that the Corporation will not be able to collect
all amounts due according to the original terms of receivables.
Financial liabilities
After initial recognition, financial liabilities other than trading
liabilities are subsequently measured at amortized cost using the
effective interest rate method. Amortized cost is calculated by taking
into account any transaction costs and any discount or premium on
settlement.
Accounts payable
Liabilities for trade and other payables which are normally settled on
30 to 90 day terms are carried at cost.
Impairment and uncollectability of financial assets
An assessment is made at each balance sheet date to determine whether
there is objective evidence that a financial asset or group of financial
assets may be impaired. If such evidence exists, the estimated
recoverable amount of the asset is determined and an impairment loss is
recognized for the difference between the recoverable amount and the
carrying amount as follows: the carrying amount of the asset is reduced
to its discounted estimated recoverable amount, either directly or
through the use of an allowance account and the resulting loss is
recognized in the income statement for the period.
Loans payable
Loans payable are recognized initially at the proceeds received, net of
transaction costs incurred. Loans payable are subsequently stated at
amortized cost using the effective yield method; any difference between
proceeds (net of transaction costs) and the redemption value is
recognized in the income statement over the period of the loan.
Offset
Where a legally enforceable right of offset exists for recognized
financial assets and financial liabilities, and there is an intention to
settle the liability and realize the asset simultaneously, or settle on a
net basis, all related financial effects are offset.
Equity instruments
Equity instruments issued by Uranium One are recorded at the proceeds
received, net of direct issue costs. The carrying amounts for cash and
cash equivalents, short term investments, accounts receivable and
accounts payable and accrued liabilities approximate fair value due to
the short maturities of these instruments.
2.13 Use of estimates
The preparation of financial statements in conformity with Canadian GAAP
requires the Corporation'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.
Significant estimates used in the preparation of these consolidated
financial statements include, but are not limited to, the recoverability
of accounts receivable and investments, the proven and probable reserves
and resources and the related depletion and amortization, the estimated
net realizable value of inventories, the accounting for stock-based
compensation, the provision for income and mining taxes and composition
of future income and mining tax assets and liabilities, the expected
economic lives of and the estimated future operating results and net cash
flows from mining interests, the anticipated costs of reclamation and
closure cost obligations, and the fair value of assets and liabilities
acquired in business combinations.
2.14 Non-controlling interest
Non-controlling interests exist in less than wholly-owned subsidiaries of
the Corporation and represent the outside interest's share of the
carrying values of the subsidiaries. When the subsidiary company issues
its own shares to outside interests, a dilution gain or loss arises as a
result of the difference between the Corporation's share of the proceeds
and the carrying value of the underlying equity..
2.15 Variable interest companies
Variable interest entities ("VIE's") as defined by the Accounting
Standards Board in Accounting Guideline ("AcG") 15, "Consolidation of
Variable Interest Entities" are entities in which equity investors do not
have characteristics of a "controlling financial interest" or there is
not sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support. VIE's are subject to
consolidation by the primary beneficiary who will absorb the majority of
the entities expected losses and / or expected residual returns. The
Corporation has determined that none of its equity investments qualify as
VIE's.
3 BUSINESS COMBINATION
On February 11, 2007, Uranium One entered into a definitive arrangement
agreement whereby Uranium One agreed to acquire all of the outstanding
common shares of UrAsia Energy. Under the agreement, every UrAsia Energy
share would be exchanged for 0.45 Uranium One common shares. Each UrAsia
Energy warrant and stock option, which previously gave the holder the
right to acquire common shares of UrAsia Energy was agreed to be
exchanged for a warrant or stock option which gives the holder the right
to acquire common shares of Uranium One on the same basis as the
shareholders of UrAsia Energy, with all other terms of such warrants and
options (such as term and expiry) remaining unchanged.
The shareholders of UrAsia Energy approved the arrangement at a Special
Meeting held on April 5, 2007, with the transaction closing on
April 20, 2007. As a result of the transaction, Uranium One is held
approximately 60% by former UrAsia Energy shareholders and approximately
40% by former sxr Uranium One Inc. shareholders. Accordingly, this
business combination is accounted for as a reverse takeover under
Canadian GAAP with UrAsia Energy being identified as the acquirer and
Uranium One as the acquiree.
The cost of acquisition includes the fair value of the deemed issuance of
the following instruments: 307.0 million UrAsia Energy common shares at
$5.57 per share, plus 9.3 million share purchase warrants with an average
exercise price of $1.45 per share and a fair value of $26.4 million, plus
12.0 million stock options, of which 6.9 million are exercisable at the
date of acquisition, with an average exercise price of $2.66 per share
and a fair value of $34.8 million, plus 0.9 million restricted shares
with a fair value of $0.9 million, plus the fair value of the equity
component of the Uranium One convertible debenture of $46.5 million plus
UrAsia Energy's transaction costs of $19.2 million, providing a total
preliminary purchase price of $1,837.3 million.
The value of the deemed issuance of UrAsia Energy shares was calculated
using the weighted average share price of UrAsia shares two days before,
the day of, and two days after the date of the announcement of the
arrangement. The following assumptions were used for the Black-Scholes
option pricing model for the fair value of the stock options, warrants
and restricted shares and equity component of the convertible debenture:
Risk-free interest rate 4.19 - 4.25%
Expected volatility of the share price 61%
Expected life 0.58 - 4.07 years
Dividend rate Nil
For the purposes of these consolidated financial statements, the purchase
consideration has been allocated on a preliminary basis to the fair value
of assets acquired and liabilities assumed, with goodwill assigned to a
specific reporting unit, based on management's best estimates and taking
into account all available information at the time of the acquisition as
well as applicable information at the time these consolidated financial
statements were prepared. The Corporation will continue to review
information and perform further analysis with respect to these assets,
including an independent valuation, prior to finalizing the allocation of
the purchase price. This process will be performed in accordance with
Emerging Issues Committee Abstract 152. Although the results of this
review are presently unknown, it is anticipated that it may result in a
material change to the amount assigned to goodwill and a change to the
value attributable to tangible assets and future income tax liabilities.
The aggregate preliminary fair values of assets acquired and liabilities
assumed were as follows on acquisition date:
-------------------------------------------------------------------------
$'000
-------------------------------------------------------------------------
Purchase price:
-------------------------------------------------------------------------
Common shares (note 15) 1,709,647
-------------------------------------------------------------------------
Options, warrants and restricted shares 62,042
-------------------------------------------------------------------------
Equity component of convertible debentures 46,480
-------------------------------------------------------------------------
Acquisition costs 19,153
-------------------------------------------------------------------------
1,837,322
-------------------------------------------------------------------------
Net assets acquired:
-------------------------------------------------------------------------
Cash and cash equivalents 291,088
-------------------------------------------------------------------------
Other current assets 33,442
-------------------------------------------------------------------------
Mineral interests, plant and equipment 2,430,160
-------------------------------------------------------------------------
Goodwill 241,855
-------------------------------------------------------------------------
Other assets 13,502
-------------------------------------------------------------------------
Accounts payable and accrued liabilities (56,057)
-------------------------------------------------------------------------
Short term loans (53,903)
-------------------------------------------------------------------------
Asset retirement obligations (4,602)
-------------------------------------------------------------------------
Convertible debentures (118,450)
-------------------------------------------------------------------------
Future income tax liabilities (928,050)
-------------------------------------------------------------------------
Non-controlling interest (11,663)
-------------------------------------------------------------------------
1,837,322
-------------------------------------------------------------------------
4 ASSET PURCHASE
On April 30, 2007, Uranium One completed the purchase, from U.S. Energy
Corporation ("U.S. Energy"), of the Shootaring Canyon Uranium Mill in
Utah, as well as a land package comprising uranium exploration properties
in Utah, Wyoming, Arizona and Colorado and a substantial database of
geological information for consideration equal to 6,607,605 Uranium One
common shares valued at $99.4 million, a cash payment of $6.5 million,
and transaction costs of $2.6 million including $750,000 paid in cash by
Uranium One on the execution of an exclusivity agreement with the vendor.
The purchase agreement provides for further payments by Uranium One of
$27.5 million dependent on the achievement of certain production targets.
U.S. Energy will receive a royalty equal to 5% of the gross proceeds from
the sale of commodities produced at the Mill, to a maximum amount of
$12.5 million.
The transaction was accounted for as an asset purchase and the cost of
each item of property, plant and equipment acquired as part the group of
assets acquired was determined by allocating the price paid for the group
of assets to each item based on its relative fair value at the time of
acquisition. The Corporation will continue to review information and
perform further analysis with respect to these assets prior to finalizing
the allocation of the purchase price. The summarized result of the
allocation is indicated in the table below:
-------------------------------------------------------------------------
Purchase price: $'000
-------------------------------------------------------------------------
6.6 million common shares of Uranium One 99,401
-------------------------------------------------------------------------
Cash payment 6,515
-------------------------------------------------------------------------
Acquisition costs, including exclusivity fee 2,603
-------------------------------------------------------------------------
108,519
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Allocation of purchase price to assets:
-------------------------------------------------------------------------
Shootaring Canyon Mill 38,948
-------------------------------------------------------------------------
Exploration properties and geological information 64,774
-------------------------------------------------------------------------
Stock pile 4,797
-------------------------------------------------------------------------
108,519
-------------------------------------------------------------------------
Pursuant to the asset purchase agreement, the reclamation bonds and
guarantees given by U.S. Energy in connection with the acquired assets
were substituted by Uranium One surety bonds with the appropriate
Governmental Entity to provide coverage for the reclamation obligations
of the acquired assets. The bond payments of $9.3 million are included in
other assets as part of the asset retirement fund. The asset retirement
obligation was assessed and accounted for on acquisition date (Refer
note 14).
5 CASH AND CASH EQUIVALENTS
-------------------------------------------------------------------------
Jun 30, Dec 31,
2007 2006
-------------------------------------------------------------------------
$'000 $'000
-------------------------------------------------------------------------
Cash 256,843 21,624
-------------------------------------------------------------------------
Money market instruments, including cashable
guaranteed investment certificates, bearer
deposit notes and commercial paper 41,438 40,214
-------------------------------------------------------------------------
-------------------------------------------------------------------------
298,281 61,838
-------------------------------------------------------------------------
6 ACCOUNTS AND OTHER RECEIVABLES
-------------------------------------------------------------------------
Jun 30, Dec 31,
2007 2006
-------------------------------------------------------------------------
$'000 $'000
-------------------------------------------------------------------------
Trade receivables 26,992 47,798
-------------------------------------------------------------------------
Value added tax and general sales tax 26,659 51
-------------------------------------------------------------------------
Prepayments and advances 5,367 894
-------------------------------------------------------------------------
Deposits and guarantees 3,934 -
-------------------------------------------------------------------------
Other receivables 1,183 443
-------------------------------------------------------------------------
64,135 49,186
-------------------------------------------------------------------------
Less: non current deposits and guarantees
included in other assets (note 10) 2,927
-------------------------------------------------------------------------
61,208 49,186
-------------------------------------------------------------------------
7 JOINT VENTURES
7.1 Proportionate interests in joint ventures
The Corporation owns the following interests in joint ventures:
-------------------------------------------------------------------------
Betpak Dala 70%
-------------------------------------------------------------------------
Kyzylkum 30%
-------------------------------------------------------------------------
Pitchstone 50%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The Corporation's proportionate share of assets and liabilities are
as follows:
-------------------------------------------------------------------------
As at June 30, 2007 Betpak Dala Kyzylkum Pitchstone Total
-------------------------------------------------------------------------
$'000 $'000 $'000 $'000
-------------------------------------------------------------------------
Cash 4,866 4,010 168 9,044
-------------------------------------------------------------------------
Other current assets 42,958 339 151 43,448
-------------------------------------------------------------------------
Mineral interests,
plant and equipment 627,636 156,407 5,164 789,207
-------------------------------------------------------------------------
Other assets 17,827 5,993 - 23,820
-------------------------------------------------------------------------
Current liabilities (19,858) (1,599) - (21,457)
-------------------------------------------------------------------------
Intercompany loan(1) - (24,128) - (24,128)
-------------------------------------------------------------------------
Other (1,525) (130) - (1,655)
-------------------------------------------------------------------------
Future income taxes (276,020) (65,075) - (341,095)
-------------------------------------------------------------------------
Asset retirement
obligation (3,155) - - (3,155)
-------------------------------------------------------------------------
Net assets 392,729 75,817 5,483 474,029
-------------------------------------------------------------------------
-------------------------------------------------------------------------
As at
December 31, 2006 Betpak Dala Kyzylkum Total
-------------------------------------------------------------------------
$'000 $'000 $'000
-------------------------------------------------------------------------
Cash 5,321 3,055 8,376
-------------------------------------------------------------------------
Other current assets 56,424 2,357 58,781
-------------------------------------------------------------------------
Mineral interests,
plant and equipment 617,740 150,739 768,479
-------------------------------------------------------------------------
Other assets 10,732 1,679 12,411
-------------------------------------------------------------------------
Current liabilities (3,717) (154) (3,871)
-------------------------------------------------------------------------
Intercompany loan(1) (18,986) (34,352) (53,338)
-------------------------------------------------------------------------
Other (1,466) - (1,466)
-------------------------------------------------------------------------
Future income taxes (268,938) (68,662) (337,600)
-------------------------------------------------------------------------
Asset retirement
obligation (2,856) - (2,856)
-------------------------------------------------------------------------
Net assets 394,254 54,662 448,916
-------------------------------------------------------------------------
(1) The intercompany loan represents the portion of the loan from Uranium
One that is eliminated on consolidation.
Kyzylkum has arranged unsecured bank loan facilities totaling
$100 million. $70 million of the facility is from Japan Bank for
International Cooperation, and $30 million from Citibank. The first draw-
down on these facilities is planned for August 2007. The loan facilities,
when drawn down, will be repayable after full repayment of the loan from
Uranium One. Uranium One's proportionate share of these loans will be
$30 million when fully drawn down. The loan facilities have floating
interest rates of Libor plus 0.25% - 0.35% respectively.
The Corporation's proportionate share of revenue, expenses, net income
and cash flows for the three and six months ended June 30, 2007 are as
follows:
-------------------------------------------------------------------------
Three months ended
June 30, 2007 Betpak Dala Kyzylkum Pitchstone Total
-------------------------------------------------------------------------
$'000 $'000 $'000 $'000
-------------------------------------------------------------------------
Revenue 23,265 - - 23,265
-------------------------------------------------------------------------
Expenses (4,841) (687) (542) (6,070)
-------------------------------------------------------------------------
Foreign exchange
gain 102 52 - 154
-------------------------------------------------------------------------
Income/(loss)
before income taxes 18,526 (635) (542) 17,349
-------------------------------------------------------------------------
Provision for
income taxes (7,659) - - (7,659)
-------------------------------------------------------------------------
Net income/(loss) 10,867 (635) (542) 9,690
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Six months ended
June 30, 2007 Betpak Dala Kyzylkum Pitchstone Total
-------------------------------------------------------------------------
$'000 $'000 $'000 $'000
-------------------------------------------------------------------------
Revenue 64,995 - - 64,995
-------------------------------------------------------------------------
Expenses (16,452) (687) (542) (17,681)
-------------------------------------------------------------------------
Foreign exchange loss (6,037) (1,342) - (7,379)
-------------------------------------------------------------------------
Income/(loss)
before income taxes 42,506 (2,029) (542) 39,935
-------------------------------------------------------------------------
Provision for
income taxes (18,318) - - (18,318)
-------------------------------------------------------------------------
Net income/(loss) 24,188 (2,029) (542) 21,617
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The Corporation's proportionate share of revenue, expenses, net income
and cash flows for the three and six months ended July 31, 2006 are as
follows:
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three months ended
July 31, 2006 Betpak Dala Kyzylkum Total
-------------------------------------------------------------------------
$'000 $'000 $'000
-------------------------------------------------------------------------
Revenue 2,922 - 2,922
-------------------------------------------------------------------------
Expenses (3,338) 25 (3,313)
-------------------------------------------------------------------------
Foreign
exchange loss (22,646) (5,963) (28,609)
-------------------------------------------------------------------------
Loss before
income taxes (23,062) (5,938) (29,000)
-------------------------------------------------------------------------
Provision for
income taxes (3,290) (3,290) (6,580)
-------------------------------------------------------------------------
Net loss (26,352) (9,228) (35,580)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Six months ended
July 31, 2006 Betpak Dala Kyzylkum Total
-------------------------------------------------------------------------
$'000 $'000 $'000
-------------------------------------------------------------------------
Revenue 17,305 - 17,305
-------------------------------------------------------------------------
Expenses (8,303) 12 (8,291)
-------------------------------------------------------------------------
Foreign exchange
loss (32,919) (8,321) (41,240)
-------------------------------------------------------------------------
Loss before
income taxes (23,917) (8,309) (32,226)
-------------------------------------------------------------------------
Provision for
income taxes (3,290) (106) (3,396)
-------------------------------------------------------------------------
Net loss (27,207) (8,415) (35,622)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
7.2 Loans to Joint Ventures
-------------------------------------------------------------------------
Jun 30, Dec 31,
2007 2006
-------------------------------------------------------------------------
$'000 $'000
-------------------------------------------------------------------------
Current portion
-------------------------------------------------------------------------
Betpak Dala - 12,736
-------------------------------------------------------------------------
Kyzylkum - 752
-------------------------------------------------------------------------
- 13,488
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Long term portion
-------------------------------------------------------------------------
Betpak Dala - 6,250
-------------------------------------------------------------------------
Kyzylkum 57,072 33,600
-------------------------------------------------------------------------
57,072 39,850
-------------------------------------------------------------------------
During the 3 months ended March 31, 2007, in advance of scheduled payment
dates, Betpak Dala repaid the principal amount of $62.6 million to the
Corporation, together with $0.9 million of accrued interest.
-------------------------------------------------------------------------
Jun 30, Dec 31,
2007 2006
-------------------------------------------------------------------------
$'000 $'000
-------------------------------------------------------------------------
Pursuant to its obligation to provide project
financing for construction and commissioning
of the Kharasan Project in the amount of
$80 million on or before December 31, 2007,
the Corporation has made the following loans
to Kyzylkum:
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Loan advanced in July 2006:
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The loan bears interest at LIBOR plus 1.5%
per annum, with interest payable on a semi-
annual basis commencing January 2007. The
principal amount is to be repaid in six
equal consecutive amounts on a semi-annual
basis commencing October 2007. 30,000 30,000
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Loan advanced in November 2006:
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The loan bears interest at LIBOR plus
1.5% per annum, with interest payable on a
semi-annual basis commencing May 2007.
The principal amount is payable in six equal
consecutive amounts on a semi-annual basis
commencing February 2008. 18,000 18,000
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Loan advanced in March 2007:
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The loan bears interest at LIBOR plus 1.5% per
annum, with interest payable on a semi-annual
basis commencing June 2007. The principal
amount is payable in six equal consecutive
amounts on a semi-annual basis commencing
December 2007. 10,000 -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Loan advanced in April 2007:
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The loan bears interest at LIBOR plus 1.5% per
annum, with interest payable on a semi-annual
basis commencing June 2007. The principal
amount is payable in six equal consecutive
amounts on a semi-annual basis commencing
January 2008. 22,000 -
-------------------------------------------------------------------------
80,000 48,000
-------------------------------------------------------------------------
Interest accrued 1,200 1,074
-------------------------------------------------------------------------
81,200 49,074
-------------------------------------------------------------------------
Less elimination of proportionate share - 30% (24,128) (14,722)
-------------------------------------------------------------------------
57,072 34,352
-------------------------------------------------------------------------
Less current portion - (752)
-------------------------------------------------------------------------
Long term portion 57,072 33,600
-------------------------------------------------------------------------
The loans to Kyzylkum are unsecured.
8 INVENTORIES
-------------------------------------------------------------------------
Jun 30, Dec 31,
2007 2006
-------------------------------------------------------------------------
$'000 $'000
-------------------------------------------------------------------------
Finished uranium concentrates 7,192 5,791
-------------------------------------------------------------------------
Solutions and concentrates in process 4,890 5,035
-------------------------------------------------------------------------
Materials and supplies 4,747 1,218
-------------------------------------------------------------------------
Stockpiles 4,797 -
-------------------------------------------------------------------------
21,626 12,044
-------------------------------------------------------------------------
Less: non current inventory included in
other assets (note 10) 4,797 -
-------------------------------------------------------------------------
16,829 12,044
-------------------------------------------------------------------------
9 MINERAL INTERESTS, PLANT AND EQUIPMENT
-------------------------------------------------------------------------
Net
Accumulated carrying
June 30, 2007 Cost amortization amount
-------------------------------------------------------------------------
$'000 $'000 $'000
-------------------------------------------------------------------------
Mineral interests 3,168,696 (25,591) 3,143,105
-------------------------------------------------------------------------
Plant and equipment 372,378 (6,865) 365,513
-------------------------------------------------------------------------
3,541,074 (32,456) 3,508,618
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Owned assets 3,499,691
-------------------------------------------------------------------------
Leased assets 8,927
-------------------------------------------------------------------------
Total net carrying amount as
at end of the period 3,508,618
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net
Accumulated carrying
December 31, 2006 Cost amortization amount
-------------------------------------------------------------------------
$'000 $'000 $'000
-------------------------------------------------------------------------
Mineral interests 761,627 (17,539) 744,088
-------------------------------------------------------------------------
Plant and equipment 25,348 (549) 24,799
-------------------------------------------------------------------------
786,975 (18,088) 768,887
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Owned assets 768,887
-------------------------------------------------------------------------
Leased assets -
-------------------------------------------------------------------------
Total net carrying amount as
at end of the period 768,887
-------------------------------------------------------------------------
A summary by property of the net book value is as follows (alphabetically
by country):
-------------------------------------------------------------------------
Mineral interests
-------------------------------------------------------------------------
Non- Plant and
Country Depletable depletable Total equipment
-------------------------------------------------------------------------
$'000 $'000 $'000 $'000
-------------------------------------------------------------------------
Honeymoon Australia
Project - 128,900 128,900 9,368
-------------------------------------------------------------------------
Australia Australia
explora-
tion - 74,171 74,171 -
-------------------------------------------------------------------------
Pitchstone Canada
explor-
ation - 27,235 27,235 -
-------------------------------------------------------------------------
Akdala Kazakhstan
Uranium
Mine 115,669 74,358 190,027 13,348
-------------------------------------------------------------------------
South Kazakhstan
Inkai
Project - 406,871 406,871 17,390
-------------------------------------------------------------------------
Kharasan Kazakhstan
Uranium
Project - 141,460 141,460 14,947
-------------------------------------------------------------------------
Kyrgyzstan Kyrgyzstan
explora-
tion - 133 133 309
-------------------------------------------------------------------------
Dominion South
Uranium Africa
Project - 1,985,102 1,985,102 237,165
-------------------------------------------------------------------------
Modder South
East Africa
Gold
project - 101,622 101,622 11,403
-------------------------------------------------------------------------
Sub-Nigel South
and Africa
other
gold
projects - 22,811 22,811 417
-------------------------------------------------------------------------
Shootaring United
Canyon States
Mill - - - 45,611
-------------------------------------------------------------------------
United United
States States
explor-
ation - 64,773 64,773 2,618
-------------------------------------------------------------------------
Corporate
and other - - - 12,937
-------------------------------------------------------------------------
Total 115,669 3,027,436 3,143,105 365,513
-------------------------------------------------------------------------
----------------------------------
Total
----------------------------------
June 30,
Country 2007
----------------------------------
$'000
----------------------------------
Honeymoon Australia
Project 138,268
----------------------------------
Australia Australia
explora-
tion 74,171
----------------------------------
Pitchstone Canada
explor-
ation 27,235
----------------------------------
Akdala Kazakhstan
Uranium
Mine 203,375
----------------------------------
South Kazakhstan
Inkai
Project 424,261
----------------------------------
Kharasan Kazakhstan
Uranium
Project 156,407
----------------------------------
Kyrgyzstan Kyrgyzstan
explora-
tion 442
----------------------------------
Dominion South
Uranium Africa
Project 2,222,267
----------------------------------
Modder South
East Africa
Gold
project 113,025
----------------------------------
Sub-Nigel South
and Africa
other
gold
projects 23,228
----------------------------------
Shootaring United
Canyon States
Mill 45,611
----------------------------------
United United
States States
explor-
ation 67,391
----------------------------------
Corporate
and other 12,937
----------------------------------
Total 3,508,618
----------------------------------
-------------------------------------------------------------------------
Mineral interests
-------------------------------------------------------------------------
Non- Plant and
Country Depletable depletable Total equipment
-------------------------------------------------------------------------
$'000 $'000 $'000 $'000
-------------------------------------------------------------------------
Akdala Kazakhstan
Uranium
Mine 118,755 74,358 193,113 16,294
-------------------------------------------------------------------------
South Kazakhstan
Inkai
Uranium
Project - 404,125 404,125 3,312
-------------------------------------------------------------------------
Kharasan Kazakhstan
Uranium
Project - 146,717 146,717 4,020
-------------------------------------------------------------------------
Kyrgyzstan Kyrgyzstan
explor-
ation - 133 133 220
-------------------------------------------------------------------------
Corporate
and other - - - 953
-------------------------------------------------------------------------
Total 118,755 625,333 744,088 24,799
-------------------------------------------------------------------------
----------------------------------
Total
----------------------------------
Dec. 30,
Country 2006
----------------------------------
$'000
----------------------------------
Akdala Kazakhstan
Uranium
Mine 209,407
----------------------------------
South Kazakhstan
Inkai
Uranium
Project 407,437
----------------------------------
Kharasan Kazakhstan
Uranium
Project 150,737
----------------------------------
Kyrgyzstan Kyrgyzstan
explor-
ation 353
----------------------------------
Corporate
and other 953
----------------------------------
Total 768,887
----------------------------------
Commitments exist for capital expenditures of $69.8 million.
The goodwill arising in the Uranium One/UrAsia Energy business
combination included in the respective reportable operating segments is
shown in the table below:
-------------------------------------------------------------------------
Foreign
exchange
Recognized resulting
on from Total
acquisition transl- June 30,
date ation 2007
-------------------------------------------------------------------------
$'000 $'000 $'000
-------------------------------------------------------------------------
Aflease Gold 112,864 6,294 119,158
-------------------------------------------------------------------------
Dominion Uranium Project 128,991 7,193 136,184
-------------------------------------------------------------------------
241,855 13,487 255,342
-------------------------------------------------------------------------
10 OTHER ASSETS
-------------------------------------------------------------------------
Jun 30, Dec 31,
2007 2006
-------------------------------------------------------------------------
$'000 $'000
-------------------------------------------------------------------------
Prepaid drill rigs 4,324 13,295
-------------------------------------------------------------------------
Advances for plant and equipment 14,064 9,790
-------------------------------------------------------------------------
Long term deposits (note 6) 2,927 -
-------------------------------------------------------------------------
Long term inventory (note 8) 4,797 -
-------------------------------------------------------------------------
Asset retirement fund (note 14) 13,892 -
-------------------------------------------------------------------------
Other 9,822 2,740
-------------------------------------------------------------------------
49,826 25,825
-------------------------------------------------------------------------
11 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
-------------------------------------------------------------------------
Jun 30, Dec 31,
2007 2006
-------------------------------------------------------------------------
$'000 $'000
-------------------------------------------------------------------------
Trade payables 10,643 6,471
-------------------------------------------------------------------------
Accruals 45,032 260
-------------------------------------------------------------------------
Other 9,996 6,216
-------------------------------------------------------------------------
65,671 12,947
-------------------------------------------------------------------------
12 SHORT TERM LOANS
-------------------------------------------------------------------------
Jun 30, Dec 31,
2007 2006
-------------------------------------------------------------------------
$'000 $'000
-------------------------------------------------------------------------
February 2005 Nedcor Securities loan 352 -
-------------------------------------------------------------------------
August 2006 Nedcor Securities loan 52,779 -
-------------------------------------------------------------------------
Total liability 53,131 -
-------------------------------------------------------------------------
The February 2005 Nedcor Securities loan represents draw-downs on a
facility provided by Nedcor Securities, secured by the investment held by
Uranium One's wholly owned subsidiary, Uranium One Africa Limited
("Uranium One Africa"), in Randgold and Exploration Company Limited
("Randgold") shares. This loan bears interest at a variable rate
currently at 8.95%. The loan has no fixed repayment terms and is
denominated in South African rand.
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 bears interest at a flat
rate of 9% per annum. Interest on the loan is offset by interest income
received on offsetting deposits required in connection with this loan.
The interest on the deposits in influenced by movements in the Aflease
Gold share price. The loan will be repaid on September 20, 2007 and is
denominated in South African rand. Nedcor can request early payment for a
portion of the August 2006 loan, if Aflease Gold's share price decline to
levels below approximately ZAR 1.65 per share. During the six months
ended June 30, 2007, Aflease Gold traded between ZAR 2.75 and ZAR 4.20,
closing at ZAR 2.99 on June 29, 2007.
The combined effective interest rate for the three and six month period
was 6.4% and 5.8% respectively.
Uranium One's investments in Randgold and Aflease Gold are encumbered
while these finance arrangements remain in place. These loans are
classified as liabilities held to maturity and are carried at amortized
cost.
13 CONVERTIBLE DEBENTURES
On December 20, 2006, Uranium One completed a debt offering of
$133.2 million (including the exercised over-allotment option of
$17.4 million granted to underwriters) convertible unsecured subordinated
debentures maturing December 31, 2011 (the "debentures"). The debentures
were issued at Cdn $1,000 per debenture and the underwriters' fees
amounted to Cdn $30 per debenture, which resulted in the net proceeds to
the Corporation of Cdn $970 per debenture. The debentures bear interest
at an annual rate of 4.25%, payable semi-annually in arrears on June 30
and December 31 of each year, commencing June 30, 2007. The June 30, 2007
interest payment represents accrued interest from the closing of the
offering to June 30, 2007. The conversion price was set at Cdn $20 per
share, which is equivalent to 50 common shares for each Cdn $1,000
principal amount of debentures. The debt and equity component were
revalued on April 20, 2007, and were included as part of the purchase
price for the Uranium One/UrAsia Energy business combination (note 3).
The table below indicates the breakdown of the liability:
-------------------------------------------------------------------------
Jun 30, Dec 31,
2007 2006
-------------------------------------------------------------------------
$'000 $'000
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liability component on date of business
combination (note 3) 118,450 -
-------------------------------------------------------------------------
Interest charged 3,988 -
-------------------------------------------------------------------------
Coupon payment (3,201) -
-------------------------------------------------------------------------
Foreign exchange movement 3,462 -
-------------------------------------------------------------------------
Liability as at the end of the period 122,699 -
-------------------------------------------------------------------------
14 ASSET RETIREMENT OBLIGATIONS
-------------------------------------------------------------------------
June 30, December 31,
2007 2006
-------------------------------------------------------------------------
$'000 $'000
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Opening balance 2,856 1,953
-------------------------------------------------------------------------
Acquisition of Uranium One (note 3) 4,602 -
-------------------------------------------------------------------------
Acquisition of US Energy assets (note 4) 9,389 -
-------------------------------------------------------------------------
Accretion expense 308 604
-------------------------------------------------------------------------
Revision 27 299
-------------------------------------------------------------------------
Foreign exchange movement 187 -
-------------------------------------------------------------------------
Closing Balance 17,369 2,856
-------------------------------------------------------------------------
June 30, December 31,
2007 2006
-------------------------------------------------------------------------
Undiscounted and uninflated amount of
estimated cash flows ($'000) 30,452 4,284
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Payable in years 4 - 10.5 4 - 18
-------------------------------------------------------------------------
Inflation rate 2.69% - 7.00% 7.00%
-------------------------------------------------------------------------
Discount rate 7.39% - 14.5% 12.00%
-------------------------------------------------------------------------
Funding of $13.9 million of these obligations has been provided in Asset
Retirement Funds in Kazakhstan, South Africa and the United States.
15 SHARE CAPITAL
-------------------------------------------------------------------------
Common shares Number of shares Value of shares
-------------------------------------------------------------------------
Jun 30, Dec 31, Jun 30, Dec 31,
-------------------------------------------------------------------------
2007 2006 2007 2006
Note $'000 $'000
-------------------------------------------------------------------------
UrAsia Energy
- movement
from January 1,
2007 to
April 20,
2007
-------------------------------------------------------------------------
Opening balance
of common
shares in
issue 480,240,704 479,722,871 613,607 612,941
-------------------------------------------------------------------------
Exercise of
warrants 481,000 268,000 82 48
-------------------------------------------------------------------------
Exercise of
stock options 1,866,807 249,833 7,601 618
-------------------------------------------------------------------------
Closing balance
of issued and
outstanding
shares on
April 20,
2007 482,588,511 480,240,704 621,290 613,607
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Uranium One -
Movement from
April 20, 2007
to June 30,
2007
-------------------------------------------------------------------------
Conversion of
UrAsia Energy
shares to
Uranium One
shares at a
ratio of 0.45 3 217,164,830 621,290
-------------------------------------------------------------------------
Shares of
Uranium One
owned by
Uranium One
shareholders
at
acquisition 138,129,435 1,709,647
-------------------------------------------------------------------------
Exercise of
stock options
and restricted
shares 3,180,386 35,201
-------------------------------------------------------------------------
U.S. Energy
asset purchase
consideration 4 6,607,605 99,401
-------------------------------------------------------------------------
Shares issued
for services
rendered 124,379 1,694
-------------------------------------------------------------------------
Closing balance
of issued and
outstanding
shares 365,206,635 480,240,704 2,467,233 613,607
-------------------------------------------------------------------------
16 CONTRIBUTED SURPLUS
The following table details the movements of contributed surplus during
the period:
-------------------------------------------------------------------------
Movement for the 6
months ended
June 30, 2007 Warrants Restricted Options TOTAL
-------------------------------------------------------------------------
shares
-------------------------------------------------------------------------
$'000 $'000 $'000 $'000
-------------------------------------------------------------------------
As at January 1, 2007 - - 31,286 31,286
-------------------------------------------------------------------------
Issued on business
acquisition 26,407 853 34,782 62,042
-------------------------------------------------------------------------
Share options expensed - - 10,541 10,541
-------------------------------------------------------------------------
Share options exercised - - (23,006) (23,006)
-------------------------------------------------------------------------
Restricted shares
expensed - 2,569 - 2,569
-------------------------------------------------------------------------
Restricted shares
exercised - (853) - (853)
-------------------------------------------------------------------------
As at June 30, 2007 26,407 2,569 53,603 82,579
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Movement for the 5
months ended
December 31, 2006 Warrants Restricted Options TOTAL
-------------------------------------------------------------------------
shares
-------------------------------------------------------------------------
$'000 $'000 $'000 $'000
-------------------------------------------------------------------------
As at August 1, 2006 - - 9,307 9,307
-------------------------------------------------------------------------
Share options expensed - - 22,162 22,162
-------------------------------------------------------------------------
Share options exercised - - (183) (183)
-------------------------------------------------------------------------
As at December 31, 2006 - - 31,286 31,286
-------------------------------------------------------------------------
Assumptions
The fair value of stock options used to calculate the
compensation expense was estimated using the Black scholes pricing model
with the following assumptions:
-------------------------------------------------------------------------
Jun 30, Dec 31,
2007 2006
-------------------------------------------------------------------------
Risk free interest rate 4.14% 3.80%
-------------------------------------------------------------------------
Expected dividend yield 0% 0%
-------------------------------------------------------------------------
Expected volatility of Uranium One's share price 69% 46%
-------------------------------------------------------------------------
Expected life 5 years 10 years
-------------------------------------------------------------------------
Options
Under Uranium One's Option plan, options granted are non-assignable and
may be granted for a term not exceeding ten years. The plan is
administered by the Board of Directors, which determines individual
eligibility under the plan, number of shares reserved underlying the
options granted to each individual (not exceeding 5% of issued and
outstanding shares to any insider and not exceeding 1% of the issued and
outstanding shares to any non-employee director on a non-diluted basis)
and any vesting period which, pursuant to the stock option plan was
previously one-third on the grant date, one-third on the first
anniversary of the grant date and the remainder on the second anniversary
of the grant date. On December 8, 2006 the Board of Directors decided to
adopt an amended vesting schedule such that any options granted on and
after December 8, 2006, would vest as to one-third on the first
anniversary of the grant date, one-third on the second anniversary of the
grant date and one-third on the third anniversary of the grant date. The
maximum number of shares of Uranium One that are issuable pursuant to the
plan is limited to 7.2% of issued and outstanding shares.
The following is a summary of Uranium One's options granted under its
stock-based compensation plan:
-------------------------------------------------------------------------
Weighted
average
Number of exercise
options price
-------------------------------------------------------------------------
Cdn $
-------------------------------------------------------------------------
Balance as at August 1, 2006 11,785,000 2.16
-------------------------------------------------------------------------
Granted 10,190,000 3.74
-------------------------------------------------------------------------
Exercised (249,833) 1.95
-------------------------------------------------------------------------
Forfeiture or expiry of share options (66,667) 3.00
-------------------------------------------------------------------------
Outstanding options at December 31, 2006 21,658,500 2.90
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Granted up to April 20, 2007 1,935,000 5.99
-------------------------------------------------------------------------
Exercised up to April 20, 2007 (1,866,807) 2.11
-------------------------------------------------------------------------
Forfeiture of share options up to
April 20, 2007 (30,000) 1.80
-------------------------------------------------------------------------
Outstanding options as at April 20, 2007 21,696,693 5.86
-------------------------------------------------------------------------
Converted UrAsia Energy share options on date
of business combination 9,763,498 7.33
-------------------------------------------------------------------------
Existing Uranium One share options on
April 20, 2007 5,390,754 6.67
-------------------------------------------------------------------------
Granted subsequent to April 20, 2007 1,310,400 16.59
-------------------------------------------------------------------------
Exercised subsequent to April 20, 2007 (3,116,519) 5.28
-------------------------------------------------------------------------
Forfeiture of share options subsequent to
April 20, 2007 (57,198) 13.09
-------------------------------------------------------------------------
Outstanding options as at June 30, 2007 13,290,935 8.43
-------------------------------------------------------------------------
The stock option compensation expense for the three and six months ended
June 30, 2007 was $7.0 and $10.4 million (July 31, 2006: $1.6 million and
$5.0 million) for the Uranium One options and $0.1 million for the
Aflease Gold options for the three and six months ended June 30, 2007. As
at June 30, 2007, the aggregate unexpensed fair value of unvested stock
options granted amounted to $13.1 million.
The following table summarizes certain information about Uranium One's
stock options outstanding at June 30, 2007:
-------------------------------------------------------------------------
Options outstanding Options exercisable
-------------------------------------------------------------------------
Weight Weight Weight Weight
-ed -ed -ed -ed
Number average average Number average average
outstanding remain exer exercisable remain exer
as at -ing -cise as at -ing -cise
----------------------------------------------------------
Range of Exercise
Prices Jun 30, life price Jun 30, life price
-------------------------------------------------------------------------
US$ 2007 (years) Cdn $ 2007 (years) Cdn $
-------------------------------------------------------------------------
1.33 to 2.74 507,684 3.09 1.73 151,354 3.09 1.62
-------------------------------------------------------------------------
3.03 to 4.76 2,996,267 4.02 4.06 2,362,163 4.02 4.06
-------------------------------------------------------------------------
5.00 to 7.79 2,452,703 7.49 7.06 1,695,341 7.49 7.08
-------------------------------------------------------------------------
8.32 to 9.90 4,279,903 5.88 8.35 3,924,321 5.88 8.34
-------------------------------------------------------------------------
11.78 to 12.93 749,849 7.90 12.33 249,917 4.39 12.23
-------------------------------------------------------------------------
14.12 to 15.63 792,929 7.13 14.61 231,333 6.78 15.36
-------------------------------------------------------------------------
16.59 to 16.87 1,511,600 3.71 16.63 250,000 4.83 16.84
-------------------------------------------------------------------------
13,290,935 5.78 8.43 8,864,429 5.61 7.38
-------------------------------------------------------------------------
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 share of Uranium One at the end
of the restricted period for no additional consideration. The vesting
period is generally two-thirds on the first anniversary of the grant date
and the remainder on the second anniversary of the grant date. The
aggregate maximum number of shares available for issuance under the
restricted share plan was initially capped at one million and
subsequently increased to 3 million at Uranium One's annual and special
meeting held on June 7, 2007. The number of shares for issuance to non-
employee directors may not exceed 0.5% of the total number of common
shares outstanding on a non-diluted basis.
The following is a summary of Uranium One's restricted shares issued
under the Restricted Share Plan:
-------------------------------------------------------------------------
Number of
restricted shares
-------------------------------------------------------------------------
Jun 30, Dec 31,
2007 2006
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Restricted shares issued on business
combination (note 3) 404,231 -
-------------------------------------------------------------------------
Exercised during the period (64,112) -
-------------------------------------------------------------------------
Total restricted shares outstanding
at the end of the period 340,119 -
-------------------------------------------------------------------------
Of the outstanding number of Restricted shares, the grant date of 92,123
Restricted shares was December 8, 2006 and grant date of 247,996
Restricted shares was June 7, 2006. Restricted shares will not expire
while the participant is in the employ of the Corporation.
The Restricted share expense for both the three and six months ended June
30, 2007 was $2.6 million. As at June 30, 2007 the aggregate unexpensed
fair value of unvested restricted shares granted amounted to $2.5
million.
-------------------------------------------------------------------------
Warrants Number of
warrants Allocated value
-------------------------------------------------------------------------
Jun 30, Dec 31, Jun 30, Dec 31,
2007 2006 2007 2006
-------------------------------------------------------------------------
$'000 $'000
-------------------------------------------------------------------------
Issued on business
combination (note 3) 2,731,619 - 26,407 -
-------------------------------------------------------------------------
At the end of the
period 2,731,619 - 26,407 -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Number of Average exercise
warrants price
-------------------------------------------------------------------------
Jun 30, Dec 31, Jun 30, Dec 31,
-------------------------------------------------------------------------
Warrants comprise: 2007 2006 2007 2006
-------------------------------------------------------------------------
2008 Warrants 2,431,619 - 3.55 -
-------------------------------------------------------------------------
Series D Warrants 300,000 - 6.95 -
-------------------------------------------------------------------------
Total 2,731,619 - 3.92 -
-------------------------------------------------------------------------
Series D warrants represents 150,000 warrants that expire on
September 16, 2007 and 150,000 warrants that expire on January 4, 2008.
The 2008 warrants expire on September 24, 2008.
Contingently issuable shares
Under the terms of the acquisition agreement for the Kyzylkum JV
interest, Uranium One is obligated to issue 6,964,200 common shares of
Uranium One upon commencement of commercial production from Kyzylkum.
17 FOREIGN EXCHANGE LOSSES
-------------------------------------------------------------------------
3 months ended 6 months ended
-------------------------------------------------------------------------
A summary of the
foreign exchange gain
/(loss) by item is as
follows: Jun 30, Jul 31, Jun 30, Jul 31,
-------------------------------------------------------------------------
2007 2006 2007 2006
-------------------------------------------------------------------------
$'000 $'000 $'000 $'000
-------------------------------------------------------------------------
Unrealized foreign
exchange loss on
future income tax
liability (6,177) (28,578) (14,777) (42,602)
-------------------------------------------------------------------------
Foreign exchange gain
/(loss) on other items 197 (129) 1,366 1,492
-------------------------------------------------------------------------
(5,980) (28,707) (13,411) (41,110)
-------------------------------------------------------------------------
18 BASIC LOSS PER SHARE AND DILUTED LOSS PER SHARE
-------------------------------------------------------------------------
3 months ended 6 months ended
-------------------------------------------------------------------------
Jun 30, Jul 31, Jun 30, Jul 31,
-------------------------------------------------------------------------
2007 2006 2007 2006
-------------------------------------------------------------------------
Basic and diluted
loss per share ($) (0.04) (0.15) (0.02) (0.20)
-------------------------------------------------------------------------
is calculated based
on a net loss for
the period of
($'000) (13,694) (32,165) (5,723) (44,233)
-------------------------------------------------------------------------
and a weighted
average number of
shares outstanding
of 332,955,827 217,164,830 275,380,193 217,164,830
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the three and six month periods ended June 30, 2007 and July 31,
2006, the impact of outstanding share options and warrants was excluded
from the diluted share calculation because it was anti-dilutive for
earnings per share purposes.
19 SEGMENTED INFORMATION
The Corporation's reportable operating segments are summarized in the
table below (alphabetically by country):
For the three months ended June 30, 2007:
-------------------------------------------------------------------------
Operating Depreciation
Country Revenue expenses & depletion
-------------------------------------------------------------------------
Honeymoon Uranium Project
and exploration Australia - - (93)
-------------------------------------------------------------------------
Exploration - Pitchstone Canada - - -
-------------------------------------------------------------------------
Akdala Uranium Mine Kazakhstan 23,265 (2,058) (1,738)
-------------------------------------------------------------------------
South Inkai Uranium
Project Kazakhstan - - -
-------------------------------------------------------------------------
Kharasan Uranium Project Kazakhstan - - -
-------------------------------------------------------------------------
Kyrgyzstan exploration Kyrgyzstan - - (20)
-------------------------------------------------------------------------
Dominion Uranium Project South Africa - - -
-------------------------------------------------------------------------
Modder East Gold Project South Africa - - (3)
-------------------------------------------------------------------------
Shootaring Canyon
Uranium Mill United States - - (80)
-------------------------------------------------------------------------
Exploration United States - - (7)
-------------------------------------------------------------------------
Corporate and other - - (83)
-------------------------------------------------------------------------
Total 23,265 (2,058) (2,024)
-------------------------------------------------------------------------
-----------------------------------------------------------------
Exploration Net profit Capital
expenditure /(loss) expenditure
-----------------------------------------------------------------
Honeymoon Uranium Project
and exploration (418) (896) 5,452
-----------------------------------------------------------------
Exploration - Pitchstone (542) (542) -
-----------------------------------------------------------------
Akdala Uranium Mine - 10,933 2,016
-----------------------------------------------------------------
South Inkai Uranium
Project - 126 11,441
-----------------------------------------------------------------
Kharasan Uranium Project - (635) 7,186
-----------------------------------------------------------------
Kyrgyzstan exploration (549) (857) 46
-----------------------------------------------------------------
Dominion Uranium Project (353) 397 39,560
-----------------------------------------------------------------
Modder East Gold Project - (10) 1,564
-----------------------------------------------------------------
Shootaring Canyon
Uranium Mill (8) (314) -
-----------------------------------------------------------------
Exploration (2,120) (2,310) -
-----------------------------------------------------------------
Corporate and other (968) (19,644) 766
-----------------------------------------------------------------
Total (4,958) (13,694) 68,031
-----------------------------------------------------------------
For the six months ended June 30, 2007:
-------------------------------------------------------------------------
Operating Depreciation
Country Revenue expenses & depletion
-------------------------------------------------------------------------
Honeymoon Uranium Project
and exploration Australia - - (93)
-------------------------------------------------------------------------
Exploration - Pitchstone Canada - - -
-------------------------------------------------------------------------
Akdala Uranium Mine Kazakhstan 64,995 (9,101) (6,597)
-------------------------------------------------------------------------
South Inkai Uranium
Project Kazakhstan - - -
-------------------------------------------------------------------------
Kharasan Uranium Project Kazakhstan - - -
-------------------------------------------------------------------------
Kyrgyzstan exploration Kyrgyzstan - - (20)
-------------------------------------------------------------------------
Dominion Uranium Project South Africa - - -
-------------------------------------------------------------------------
Modder East Gold Project South Africa - - (3)
-------------------------------------------------------------------------
Shootaring Canyon
Uranium Mill United States - - (80)
-------------------------------------------------------------------------
Exploration United States - - (7)
-------------------------------------------------------------------------
Corporate and other - - (83)
-------------------------------------------------------------------------
Total 64,995 (9,101) (6,883)
-------------------------------------------------------------------------
-----------------------------------------------------------------
Exploration Net profit Capital
expenditure /(loss) expenditure
-----------------------------------------------------------------
Honeymoon Uranium Project
and exploration (418) (898) 5,452
-----------------------------------------------------------------
Exploration - Pitchstone (542) (542) -
-----------------------------------------------------------------
Akdala Uranium Mine - 24,062 3,442
-----------------------------------------------------------------
South Inkai Uranium
Project - 126 19,013
-----------------------------------------------------------------
Kharasan Uranium Project - (2,029) 7,186
-----------------------------------------------------------------
Kyrgyzstan exploration (2,008) (2,337) 46
-----------------------------------------------------------------
Dominion Uranium Project (353) 397 39,560
-----------------------------------------------------------------
Modder East Gold Project - (10) 1,564
-----------------------------------------------------------------
Shootaring Canyon
Uranium Mill (8) (314) -
-----------------------------------------------------------------
Exploration (2,120) (2,310) -
-----------------------------------------------------------------
Corporate and other (968) (21,868) 8,461
-----------------------------------------------------------------
Total (6,417) (5,723) 84,724
-----------------------------------------------------------------
As at June 30, 2007:
-------------------------------------------------------------------------
Mineral
property,
plant and Total Total
Country equipment assets liabilities
-------------------------------------------------------------------------
Honeymoon Uranium
Project and
exploration Australia 212,439 235,081 54,959
-------------------------------------------------------------------------
Exploration -
Pitchstone Canada 27,235 26,505 2,700
-------------------------------------------------------------------------
Akdala Uranium
Mine Kazakhstan 203,375 261,051 93,361
-------------------------------------------------------------------------
South Inkai
Uranium Project Kazakhstan 424,261 432,236 207,197
-------------------------------------------------------------------------
Kharasan Uranium
Project Kazakhstan 156,407 166,749 73,405
-------------------------------------------------------------------------
Kyrgyzstan
exploration Kyrgyzstan 442 1,422 231
-------------------------------------------------------------------------
Dominion Uranium South
Project Africa 2,222,267 2,376,557 921,613
-------------------------------------------------------------------------
Modder East Gold South
Project Africa 113,025 255,880 51,911
-------------------------------------------------------------------------
Shootaring Canyon United
Uranium Mill States 45,611 57,421 6,886
-------------------------------------------------------------------------
United
Exploration States 67,391 69,861 2,918
-------------------------------------------------------------------------
Corporate and
other 36,165 364,413 181,819
-------------------------------------------------------------------------
Total 3,508,618 4,247,176 1,597,000
-------------------------------------------------------------------------
For the three months ended July 31, 2006:
-------------------------------------------------------------------------
Operating Depreciation
Country Revenue expenses & depletion
-------------------------------------------------------------------------
Akdala Uranium Mine Kazakhstan 2,922 (1,886) (3,286)
-------------------------------------------------------------------------
South Inkai Uranium
Project Kazakhstan - - -
-------------------------------------------------------------------------
Kharasan Uranium Project Kazakhstan - - -
-------------------------------------------------------------------------
Kyrgyzstan exploration Kyrgyzstan - - -
-------------------------------------------------------------------------
Corporate and other - 256 (8)
-------------------------------------------------------------------------
Total 2,922 (1,630) (3,294)
-------------------------------------------------------------------------
----------------------------------------------------------------
Exploration Net profit Capital
expenditure /(loss) expenditure
----------------------------------------------------------------
Akdala Uranium Mine - 2,119 3,620
----------------------------------------------------------------
South Inkai Uranium
Project - (24,237) -
----------------------------------------------------------------
Kharasan Uranium Project - (6,058) 2,168
----------------------------------------------------------------
Kyrgyzstan exploration (1,562) (1,459) 48
----------------------------------------------------------------
Corporate and other - (2,530) -
----------------------------------------------------------------
Total (1,562) (32,165) 5,836
----------------------------------------------------------------
For the six months ended July 31, 2006:
-------------------------------------------------------------------------
Operating Depreciation
Country Revenue expenses & depletion
-------------------------------------------------------------------------
Akdala Uranium Mine Kazakhstan 17,305 (6,988) (4,252)
-------------------------------------------------------------------------
South Inkai Uranium
Project Kazakhstan - - -
-------------------------------------------------------------------------
Kharasan Uranium Project Kazakhstan - - -
-------------------------------------------------------------------------
Kyrgyzstan exploration Kyrgyzstan - - -
-------------------------------------------------------------------------
Corporate and other - - (18)
-------------------------------------------------------------------------
Total 17,305 (6,988) (4,270)
-------------------------------------------------------------------------
----------------------------------------------------------------
Exploration Net profit Capital
expenditure /(loss) expenditure
----------------------------------------------------------------
Akdala Uranium Mine - (3,625) 7,024
----------------------------------------------------------------
South Inkai Uranium
Project - (24,237) -
----------------------------------------------------------------
Kharasan Uranium Project - (8,425) 2,176
----------------------------------------------------------------
Kyrgyzstan exploration (2,648) (2,626) 288
----------------------------------------------------------------
Corporate and other - (5,320) -
----------------------------------------------------------------
Total (2,648) (44,233) 9,488
----------------------------------------------------------------
As at December 31, 2006:
-------------------------------------------------------------------------
Mineral
property,
plant and Total Total
Country equipment assets liabilities
-------------------------------------------------------------------------
Akdala Uranium
Mine Kazakhstan 209,407 285,654 89,317
-------------------------------------------------------------------------
South Inkai
Uranium Project Kazakhstan 407,437 407,437 194,236
-------------------------------------------------------------------------
Kharasan Uranium
Project Kazakhstan 150,737 156,267 68,816
-------------------------------------------------------------------------
Kyrgyzstan
exploration Kyrgyzstan 353 1,271 166
-------------------------------------------------------------------------
Corporate and
other 953 120,989 3,394
-------------------------------------------------------------------------
Total 768,887 971,618 355,929
-------------------------------------------------------------------------
20. CONTINGENT SALE OF AN INTEREST IN THE DOMINION URANIUM PROJECT
On June 7, 2005, Uranium One Africa and Micawber 397 (Proprietary)
Limited ("Micawber 397"), a company owned by historically disadvantaged
South Africans, entered into a definitive purchase and sale agreement, a
management and skills transfer agreement and a joint venture agreement.
Pursuant to these agreements, Uranium One Africa agreed to sell to
Micawber 397 an undivided 26% interest in the Dominion Uranium Project at
a cash consideration equal to 26% of the net present value of the
Dominion assets at the date when Micawber elects to pay at least 20% of
the purchase price. This election must occur within three years after
receipt of Micawber 397 of their first profit distribution from the joint
venture. After the first payment, Micawber is obliged to pay at least
20% of the purchase price during each subsequent three year period, so
that the purchase price is paid in full within twelve years of the date
of the first payment.
The parties agreed to contribute their interests in the assets to a joint
venture to be managed by Uranium One Africa, and to fund the development
and operation of those assets in accordance with their respective joint
venture interests. Uranium One agreed to lend to Micawber 397 the funds
required to contribute their share under the joint venture agreement. The
aggregate amount of that loan, plus accrued interest, is repayable from
Micawber 397's share of joint venture profits.
The Micawber transaction was approved by Uranium One Africa's
shareholders in September 2005, following which the South African
Department of Minerals and Energy granted a "new order" mining right to
the Corporation for the Dominion Uranium Project in October 2006.
The Micawber 397 transaction will be accounted for in Uranium One's
consolidated financial statements when the risks and rewards of the
transaction are deemed to have passed to Micawber 397. Management has
determined that this event will occur on the day that Micawber 397 elects
to pay at least 20% of the purchase price, prompting the determination of
the purchase price. As at June 30, 2007, Micawber 397 has not paid any
part of the purchase price.
21 SUBSEQUENT EVENT
Energy Metals Corporation
On June 3, 2007, Uranium One and Energy Metals Corporation ("EMC")
entered into a definitive arrangement agreement whereby Uranium One
agreed to acquire all of the outstanding common shares and options to
purchase common shares of EMC. The shareholders of EMC will receive
1.15 Uranium One common shares for each EMC common share held on closing
of the transaction. Each EMC stock option, which previously gave the
holder the right to acquire common shares of EMC, will be exchanged for
1.15 stock options which gives the holder the right to acquire common
shares of Uranium One on the same basis as the shareholders of EMC, with
all other terms of such options (such as term and expiry) remaining
unchanged. The shareholders of EMC approved the arrangement at a Special
Meeting held on July 31, 2007, and the transaction closed on August 10,
2007, after receipt of, among other items, court approval and certain
regulatory approvals. As a result of the transaction, EMC shareholders
will hold approximately 21 percent of the issued Uranium One shares.
The cost of acquisition includes the fair value of the issuance of
99.3 million Uranium One common shares at $15.06 per share, plus
7.8 million stock options of EMC, of which 5.6 million are exercisable at
the date of acquisition, exchanged for those of Uranium One with an
average exercise price of $5.47 per share and a fair value of
$72.5 million, plus Uranium One's estimated transaction costs of
$8.0 million, providing a total preliminary purchase price of
$1,575.2 million.
The value of the Uranium One common shares to be issued was calculated
using the weighted average share price of Uranium One's shares two days
before, the day of, and two days after the date of the announcement of
the arrangement. The following assumptions were used for the Black-
Scholes option pricing model for fair valuation of the stock options:
Risk free interest rate 4.70%
Expected volatility 55%
Expected life 0.8 - 5.0 years
Dividend rate Nil
The excess of the purchase consideration over the adjusted book values of
EMC's assets and liabilities has been presented as "unallocated purchase
price" in the table below. The fair value of all identifiable assets and
liabilities acquired as well as any goodwill arising upon the acquisition
will be determined through an independent valuation as at the date of
closing of the transaction. Therefore, it is likely that the fair values
of assets and liabilities acquired will vary from the book values shown
in the table below and the differences may be material.
On completion of the valuation, with corresponding adjustments to the
carrying amounts of mining interests, or on recording of any finite life
intangible assets on acquisition, these adjustments will impact the
measurement of amortization recorded in the consolidated statements of
operations of the combined company for periods after the date of
acquisition. No adjustments have been reflected in the table below for
any changes in future tax assets or liabilities that would result from
recording EMC's identifiable assets and liabilities at fair value as the
process of estimating the fair value of identifiable assets and
liabilities is not complete.
Based on the March 31, 2007 balance sheet of EMC, the preliminary
allocation of the purchase price, summarized in the table below, is
subject to change:
-------------------------------------------------------------------------
$'000
-------------------------------------------------------------------------
Purchase price:
-------------------------------------------------------------------------
99.3 million shares of Uranium One 1,494,700
-------------------------------------------------------------------------
Options of Uranium One 72,500
-------------------------------------------------------------------------
Acquisition costs 8,000
-------------------------------------------------------------------------
1,575,200
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net assets required:
-------------------------------------------------------------------------
Cash and cash equivalents 76,500
-------------------------------------------------------------------------
Marketable securities 31,800
-------------------------------------------------------------------------
Other current assets 2,100
-------------------------------------------------------------------------
Mining interests 128,300
-------------------------------------------------------------------------
Other non-current assets 5,900
-------------------------------------------------------------------------
Accounts payable and accrued liabilities (1,400)
-------------------------------------------------------------------------
Asset retirement obligations (2,300)
-------------------------------------------------------------------------
Future income tax liability (28,500)
-------------------------------------------------------------------------
Unallocated purchase price 1,362,800
-------------------------------------------------------------------------
1,575,200
-------------------------------------------------------------------------
%SEDAR: 00005203E