Trading Symbols: UUU - Toronto Stock Exchange, JSE Limited (Johannesburg
Stock Exchange)
TORONTO and JOHANNESBURG, South Africa, Nov. 14 /CNW/ - Uranium One Inc. ("Uranium One") today reported unaudited financial results for the three and nine months ended September 30, 2007. All figures are in US dollars unless otherwise indicated. Complete details of the September 30, 2007 financial statements and management's discussion and analysis thereon will be made available on the Uranium One website www.uranium1.com and on SEDAR at www.sedar.com.
Highlights for the quarter ending September 30, 2007 include:
- Attributable production from Akdala of 463,000 pounds U3O8 - Cash cost per pound sold from Akdala was approximately $9 per pound(1) - Production from Dominion was approximately 86,800 pounds U3O8 - In October, production flow commenced at South Inkai - Revenues of $8.0 million from the sale of 70,000 pounds U3O8, representing an average realized uranium price of $115 per pound - Earnings from mine operations of $6.3 million - The acquisition of Energy Metals Corporation was completed during the quarter - Uranium One was added to the S&P/TSX 60 Index subsequent to quarter end
The net loss for the quarter ending September 30, 2007 was $17.3 million, or $(0.04) per share. This compares to net income of $25.9 million, or $0.12 per share for the quarter ending October 31, 2006.
Uranium One recorded revenue of $73.0 million for the nine months ending September 30, 2007 compared to revenue of $21.5 million for the nine months ending October 31, 2006. Earnings from mine operations were $55.3 million for the nine months ending September 30, 2007 compared to $7.6 million for the nine months ending October 31, 2006. For the nine months ending September 30, 2007, the net loss was $23.0 million, or $(0.07) per share compared to a net loss of $18.3 million, or $(0.08) per share for the nine months ending October 31, 2006. Attributable production of U3O8 was 1,403,200 pounds for the nine months ending September 30, 2007, compared to 1,380,300 pounds for the nine months ending October 31, 2006. The cash cost per pound sold was approximately $11 per pound for the nine months ending September 30, 2007 compared to a cash cost per pound sold of approximately $10 per pound for the nine months ending October 31, 2006.
Commenting on the results, Uranium One's President and CEO Neal Froneman said:
"Our Akdala Uranium Mine continues to meet expectations with 463,000 pounds of U3O8 production during the quarter. The delivery and sale of only 70,000 pounds during the quarter has resulted in a build-up of inventory to approximately 1 million pounds, with a current spot market value of just over $90 million, which we are committed to deliver into our existing sales contracts within the next six months. The ramp-up of production from Dominion is progressing well and I am also pleased to see the commencement of production flow from South Inkai. In the meantime, management remains focused on delivery at all of the Company's mines and development projects."
Conference Call Details
Uranium One will be hosting a conference call and webcast to discuss the third quarter results on November 15, 2007 starting at 10:00 A.M. (Toronto time).
For the live conference call, North American callers may dial 1-800-594-3615 and local or international callers may dial 416-915-5761. A live webcast will also be available at www.newswire.ca/webcast
A recording of the conference call will be available for replay for a one week period beginning at 1:00 p.m. on November 15, 2007. North American callers may dial 1-877-289-8525 and local or international callers may dial 416-640-1917. The pass code for the replay is 21253129.
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 Mine 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, 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 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, 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 Uranium One 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 Annual Information Form of Energy Metals Corporation for the year ended June 30, 2006, both of 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.
For further information about Uranium One, please visit www.uranium1.com
Uranium One Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 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 nine months ended September 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 November 13, 2007 and should be read in conjunction with the unaudited consolidated financial statements of Uranium One for the three and nine months ended September 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, sxr Uranium One Inc. 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 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 nine months ended September 30, 2006, the most closely comparative period in the prior fiscal year was the three and nine months ended October 31, 2006. Accordingly, the comparative figures used herein are those for the three and nine months ended October 31, 2006 and references herein to "Q3 2006" and "Q3 2007" refer to the three months ended October 31, 2006 and the three months ended September 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 Toronto and Johannesburg stock exchanges ("TSX" and "JSE" respectively). 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: Third Quarter 2007
Mine Operations - quarterly update
- Akdala produced 661,400 pounds of U(3)O(8) (463,000 pounds of
U(3)O(8) attributable) in Q3 2007 compared to 733,000 pounds of
U(3)O(8) (513,000 pounds of U(3)O(8) attributable) in Q3 2006.
- Attributable sales during Q3 2007, currently all from the Akdala Mine
in Kazakhstan, were $8.0 million, compared to $4.2 million in
Q3 2006.
- A record average sales price of $115 per pound was achieved during
Q3 2007 versus $42 per pound during Q3 2006.
- The average cash production cost per pound of U(3)O(8) sold was $9
per pound, compared to $14 per pound during Q3 2006.(1)
- Earnings from mine operations in Q3 2007 were $6.3 million, compared
to $1.6 million in Q3 2006.
- Net loss for Q3 2007 was $17.3 million ($0.04 per share), compared to
net profit of $25.9 million for Q3 2006 ($0.12 per share).
- The majority of sales deliveries scheduled for Q3 2007 were deferred
by customers to Q4 2007. Attributable inventory levels at Akdala have
therefore increased to 1.0 million pounds of U(3)O(8).
Mine Operations - nine months update
- Akdala produced 2.0 million pounds of U(3)O(8) (1.4 million of
U(3)O(8) attributable) in the nine months ended September 30, 2007,
matching the production for the nine months ended October 31, 2006.
- Revenue increased by 240% to $73.0 million, compared to $21.5 million
for the nine months ended October 31, 2006.
- Earnings from mine operations increased to $55.3 million, compared to
$7.6 million in the nine months ended October 31, 2006.
Projects
- At the Dominion Mine in South Africa, ADU is now continuously being
produced under pressure leach conditions after successful
commissioning of the first autoclave. The commissioning of the second
autoclave is expected to be completed during Q4 2007 with commercial
production commencing in the first half of 2008.
- At the South Inkai Project in Kazakhstan, construction of the
production complex is on schedule. Construction required for pilot
stage production was completed in October 2007 and production flow
commenced from the first block of pilot well patterns in
October 2007. The final completion of the production complex is
expected by mid year 2008.
- At the Kharasan Project in Kazakhstan, construction of critical
portions of the process plant and camp required for pilot production
were accelerated during the quarter to compensate for construction
delays due to flooding experienced early in the year. Final
completion of the process plant to a stage that is sufficient to
process pilot well field production is expected in Q4 2007.
- Refurbishment of the Hobson ISR Uranium Processing Facility in
Texas, USA is well underway and resource delineation and exploration
is continuing at the Corporation's La Palangana Project, which will
feed the Hobson Facility.
- In the USA, the Corporation executed a toll-processing agreement with
Cameco's processing facilities in the United States.
- On October 3, 2007, the Corporation submitted an application to the
U.S. Nuclear Regulatory Commission to construct and operate an in
situ uranium recovery facility at the Moore Ranch Project in Wyoming.
Corporate
- 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 Facility and the La Palangana
Uranium Project, together with interests in a large portfolio of
uranium exploration properties in the western United States.
- Uranium One was added to the S&P/TSX 60 Index on October 31, 2007.
- Key management appointments during the quarter included Mr. Fletcher
Newton as Executive Vice President, Corporate and Strategic Affairs,
and Dr. Dennis Stover as Executive Vice President, Americas.
Outlook
- The Corporation's U(3)O(8) production estimate for 2007 has been
revised from 2.5 million pounds to approximately 2.1 million pounds,
due to the extended commissioning period of the first autoclave at
Dominion. The 2007 attributable production forecast for Akdala
remains at 1.8 million pounds of U(3)O(8).
- Uranium One's attributable production (including pre-commercial
production) in 2008 is expected to be approximately 4.6 million
pounds of U(3)O(8).
- The current shortage of sulphuric acid in Kazakhstan will affect the
timing of the start up of operations at South Inkai and Kharasan, but
it is not expected to affect production at Akdala.
(1) The Corporation has included a non-GAAP performance measure, sales
and costs per pound of U(3)O(8) sold, throughout this document. The
Corporation reports total cash costs on a sales basis. In the uranium
mining industry, this is a common performance measure but does not
have any standardized meaning, and is a non-GAAP measure. The
Corporation believes that, in addition to conventional measures
prepared in accordance with GAAP, the Corporation and certain
investors use this information to evaluate the Corporation's
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.
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. Uranium One also owns a 70% interest in Aflease Gold, which is engaged in the development of the Modder East Gold Project in South Africa.
Uranium One owns the Dominion Uranium Mine in South Africa and a 70% interest in the producing Akdala Uranium Mine in Kazakhstan. Uranium One is also developing the South Inkai Project, in which it owns a 70% interest and the Kharasan Project, in which it owns a 30% interest, both located in Kazakhstan. The Corporation owns the Honeymoon Uranium Project in Australia. In the United States, the Corporation owns the Shootaring Mill in Utah and the Hobson ISR Uranium Processing Facility in Texas. The Corporation also owns a large portfolio of uranium exploration properties in the western United States, South Australia, the Athabasca Basin of Saskatchewan, Canada and the Kyrgyz Republic.
The following principal mineral properties and operations of the Corporation referred to in the Corporation's Q3 2007 unaudited interim financial statements are discussed in more detail in the Management's Discussion and Analysis below:
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Entity Project Location Status Ownership
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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 Commission- 100%
Africa Limited Mine ing(2) interest
(1)
Aflease Gold Modder East Gold South Africa Development 70%
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
South Texas Hobson Facility USA Development 99%
Mining Venture and La Palangana interest
Project (3)
Pitchstone Joint Pitchstone Joint Canada Exploration 50%
Venture Venture interest
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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
Mine 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.
Note 2: The Dominion Uranium Mine is in the commissioning period,
production has commenced but it has not achieved commercial production.
Commercial Production is achieved when a pre-defined output level, based
on the design of the plant, is maintained.
Note 3: The Corporation owns a 99% interest in the South Texas Mining
Venture, however, due to the immateriality of the effect of accounting
for the non-controlling interest during the construction stage, the non-
controlling interest portion has not been recorded in the Corporation's
financial statements.
Business Combination of Uranium One and UrAsia Energy Ltd.
On April 20, 2007 Uranium One completed the acquisition of all of the outstanding common shares of UrAsia Energy. Upon the completion of the transaction, Uranium One was held approximately 60% by former UrAsia Energy shareholders and approximately 40% by former Uranium One shareholders. Accordingly the business combination has been accounted for as a reverse takeover under Canadian GAAP with UrAsia Energy being identified as the acquirer and Uranium One as the acquiree.
The total cost of the acquisition of $1.8 billion represents the value of the common shares of Uranium One issued in exchange for shares of UrAsia Energy of $1.7 billion, the fair value of options, warrants and restricted shares outstanding at the announcement date of $62 million, the fair value of the equity component of convertible debentures of $46 million and acquisition costs of $19 million. Net assets acquired consist primarily of mineral interests and plant and equipment with a book value of $2.4 billion. Final allocation of the purchase price will be based on completion of a valuation of the assets to be determined by an independent valuator.
Acquisition of US Energy Assets
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.
The transaction was accounted for as an asset purchase and the cost of each item of property plant and equipment acquired as part of 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 the acquisition. Final allocation of the purchase price is subject to further review and analysis.
Acquisition of Energy Metals Corporation
On August 10, 2007 Uranium One completed the acquisition of all of the outstanding common shares of EMC. The transaction resulted in the addition of a large portfolio of uranium exploration properties located throughout the western United States and the Hobson ISR Uranium Processing Facility in Texas. The Hobson Facility is currently being refurbished.
The transaction was accounted for as an asset purchase and the cost of each item of property, plant and equipment acquired as part of 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. Final allocation of the purchase price is subject to further review and analysis.
The total cost of the acquisition of $1.1 billion represents the value of the common shares of Uranium One issued in exchange for shares of EMC of $1.0 billion, the fair value of options in EMC outstanding at the acquisition date of $35.3 million and acquisition costs of $9.4 million. Net assets acquired consist primarily of mineral interests with a book value of $1,452.5 million. Final allocation of the purchase price will be based on completion of a valuation of the assets to be determined by an independent valuator.
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 NAC 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 2,600,000 pounds of triuranium octoxide ("U(3)O(8)") (1,000 tonnes uranium ("U")) 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 a processing plant before returning the leach solution to the injection wells.
Production: Akdala production is ahead of schedule with 1,988,000 pounds of U(3)O(8) (100%) produced for the nine months ended September 30, 2007. Production from the well fields averaged 215,000 pounds of U(3)O(8) (100%) per month during the quarter. Production for 2007 and 2008 is not expected to exceed 2,600,000 pounds of U(3)O(8) per year, which represents production attributable to the Corporation of 1,820,000 pounds of U(3)O(8) per year.
Operations: During the quarter, the operation maintained an average of 139 pumping wells in operation per month. 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. At the end of September 2007 there were seven drill rigs on site. The number of drill rigs is sufficient to ensure that well field development should continue to match budgeted production levels from the Mine.
The current shortage of sulphuric acid in Kazakhstan is not expected to affect production at Akdala.
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% indirect interest in the project.
Resource Delineation Drilling: The drilling program to convert Russian C2 to C1 resources as per the Kazakhstan classification system continued at South Inkai. Since 2006, a total of 319 drill holes of a planned 390 have been drilled as part of this drilling program. Final 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, 64 drill holes were completed and a total of 178 drill holes were completed for the year to date. The drilling program is expected to be completed by Q4 2007 and the related geological report will be submitted for approval to the State Geological Commission in 2008.
Production Drilling and Well Completion: Joint Drilling, Betpak Dala's drilling and well completion contractor, had six rigs drilling production wells on South Inkai during the quarter. A total of 133 wells have been completed for the year to date, as scheduled. The pilot well field demonstration and the certification of adequate C1 resources are required as part of the process of industrial production licensing for South Inkai. The required portion of the process plant and well field production facilities were ready for the commencement of well field acidification in August 2007. Acidification was carried out on the first row of production wells starting in August 2007 and on the second row starting in September 2007. Acidification is at a lower concentration rate than planned due to an unexpected shortage of sulphuric acid in Kazakhstan. Capital construction of the portion of the production complex required for pilot stage production was completed on schedule and production flow commenced from the first block of pilot well patterns in October 2007.
Shortages of sulphuric acid continue in Kazakhstan and the supply of acid for new wells is currently not assured. If the current shortage continues, the ramp up and commencement of commercial production of the South Inkai operation will be delayed, and initial production may be lower than expected due to using lower levels of acid concentration in the well field.
The production from the South Inkai Uranium Project attributable to the Corporation in 2008 is estimated to be 500,000 pounds of U(3)O(8).
Construction: Uranium processing facilities being constructed at South Inkai are of a similar design to those at the Akdala Mine. The South Inkai plant is being constructed to a full production capacity of 5,200,000 pounds of U(3)O(8) (2,000 tonnes U) per year, which will be reached in a staged manner over the next few years. Construction of the production complex is underway and final completion of the production complex is expected during mid year 2008.
To date, expenditure relating to the construction project at South Inkai is $42.0 million.
Kharasan Uranium Project
Kharasan is an ISL 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 and the remaining interests in Kyzylkum are owned as to 30% by Kazatomprom and as to 40% by Energy Asia (BVI) Ltd., which is owned by a consortium of Japanese utilities and a trading company.
Resource Delineation Drilling: The drilling program to convert Russian C2 to C1 resources as per the Kazakhstan classification system continued at Kharasan during the quarter. A total of 137 drill holes were planned to be drilled in 2007 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. The upgraded resource would enable Kyzylkum to apply for an industrial production license. As of the end of Q3 2007, 75 drill holes have been completed for the project with one drilling rig. With the addition of 2 rigs in Q4 2007, the drilling program is expected to be completed by the end of Q2 2008.
Production Drilling: The drilling plan for the first pilot production consists of 26 well patterns made up of 108 wells. The plan is to complete these pilot production patterns in two blocks with an initial 33 wells (7 patterns) comprising the first operating block. Of this program, 46 wells had been completed at September 20, 2007. Joint Drilling currently has 11 drill rigs on site. With 2 additional rigs added to the program in October, it is expected that the production drilling program will be completed by the end of Q1 2008. Acidification of the first pilot well field block is planned for December 2007 and pilot production is expected to commence in the first half of 2008.
Shortages of sulphuric acid continue in Kazakhstan and the supply of acid for new wells is currently not assured. If the current shortage continues, the ramp up and commencement of commercial production of the Kharasan operation will be delayed and initial production may be lower than expected due to using lower levels of acid concentration in the well field.
The production from the Kharasan Uranium Project attributable to the Corporation in 2008 is estimated to be 220,000 pounds of U(3)O(8).
Construction: The production complex, including the first phase with annual production of 1,950,000 pounds of U(3)O(8) (750 tonnes U) per year, is to be developed on the basis of a production capacity of 5,200,000 pounds of U(3)O(8) (2,000 tonnes U) per year. A second processing plant (a satellite plant) with a capacity of 1,000 tonnes U per year is expected to be constructed to allow for production capacity to increase from 2,000 tonnes U to 3,000 tonnes U per year. The design is currently in progress to allow the project to reach a capacity of 3,000 tonnes U, which will include exploration and production well planning.
Construction of critical portions of the plant and camp required for pilot production was accelerated during the quarter to compensate for construction delays due to flooding experienced early in the year. Final completion of the process plant to a stage that is sufficient for pilot well field production is expected in Q4 2007. Construction of the paved road and the bridge were completed in October 2007. The railroad switching station and Phase 1 of the railroad transhipment base are expected to be completed in Q2 2008. Completion of the transhipment base for shipment of U(3)O(8) is required as it is not permitted to ship U(3)O(8) through villages on alternate routes to other shipping points.
To date expenditure relating to the construction project at Kharasan is $49.3 million.
Project Finance Facility: In addition to the $80 million loan from the Corporation, Kyzylkum negotiated unsecured bank loan facilities totalling $100 million. One facility in the amount of $70 million was obtained from the Japan Bank for International Cooperation and the other facility, in the amount of $30 million, was obtained from Citibank. The first draw down against the facility, of $40 million, was received in September 2007. The $80 million loan from the Corporation has to be repaid in full before repayments can be made on these facilities. The Corporation's proportionate share of these facilities will amount to $30 million when fully drawn down. The loan facilities have floating interest rates of LIBOR plus 0.25% and 0.35%, respectively.
Recent changes to legislation in Kazakhstan
In November 2007, the parliament of Kazakhstan enacted legislation, giving the government the right in certain circumstances to re-negotiate previously concluded subsoil use contracts. Together with its joint venture partner, Kazatomprom, the Corporation has been reviewing the potential impact and application of this legislation. Based on these discussions, the Corporation understands that the legislation is not directed at the uranium mining industry in Kazakhstan.
Sulphuric acid supply constraints in Kazakhstan
Kazakhstan is experiencing a temporary shortage in the supply of sulphuric acid. This has been caused by a number of factors including the delayed construction of a local Kazakhstan copper smelter, which will contribute to the sulphuric acid supply when operating. The shortage is expected to cause delays in the commissioning period of both the South Inkai and Kharasan projects. Akdala, South Inkai, Kharasan and other ISL operations in Kazakhstan are receiving acid allotments, administered by the Corporation's joint venture partner, Kazatomprom. The allotments are currently arranged to maintain production at operating mines and the Corporation expects allotments to Akdala to be sufficient to maintain current operating levels.
Together with Kazatomprom, the Corporation is actively seeking short-term sources of sulphuric acid supply to support production in 2008 and longer-term solutions to the sulphuric acid constraint. However, the Corporation has adjusted its 2008 production forecasts for South Inkai and Kharasan downwards. Longer term production forecasts assume that the temporary shortage of sulphuric acid is alleviated in the latter half of 2008.
Dominion Uranium Mine
The Dominion Uranium Mine is situated in the North West Province of South Africa, approximately 150 kilometres west-southwest of Johannesburg.
As previously disclosed, the capital cost to completion is 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: In line with the planned phased commissioning, the atmospheric leach section for phase 1 of the plant with a capacity of 100,000 tonnes per month was successfully commissioned in Q2 2007. The atmospheric leach section for phase 2 was commissioned by the end of October 2007 allowing the design throughput of 200,000 tonnes of ore per month to be processed. Ammonium diuranate ("ADU") production commenced in May 2007 and the first ADU was dispatched to a calcining facility in July 2007. By the end of September 2007, 86,835 pounds of U(3)O(8) had been produced. The first of two autoclaves of the pressure leach section was successfully commissioned in October 2007. Dominion is expected to reach commercial production in the first half of 2008.
During the commissioning process of the first autoclave, it was discovered that the autoclave feed pump valve assemblies were not able to withstand the extreme corrosive conditions in the pressure leach circuit. Subsequently, valves manufactured from a super duplex material have performed according to operational specifications, making continuous operation of the first autoclave possible. Due to the extended commissioning period of the first autoclave, the ADU produced to date has been processed mainly through the atmospheric leach circuit of the plant.
Successful commissioning of the second autoclave will allow the uranium plant's design efficiency parameters to be realized (200,000 tonnes per month throughput with a uranium recovery rate of approximately 85%).
The production from the Dominion Uranium Mine in 2008 is estimated to be 2,000,000 pounds of U(3)O(8).
Mine Development: A total of 9,047 metres of development was achieved in the nine months ended September 30, 2007 compared to a feasibility figure of 11,235 metres. Additional underground declines have been started and electro-hydraulic drill rigs deployed in the declines to speed up the rate of opening up the ore body for mining.
Stoping operations are continuing at all 3 production sections (Dominion 1, Dominion 2 and Rietkuil).
Expansion: A feasibility study for a 100,000 tonnes per month expansion to the Dominion Uranium Mine should be completed by the end of 2007 for audit by external qualified persons in Q1 2008. The feasibility study considers the development of 2 decline sections (Dominion 3 and Dominion 4) to a depth of 500 metres below surface.
The completion of a pre-feasibility study for a further expansion of 100,000 tonnes per month is progressing well and is expected to be completed in Q1 2008, for audit by external qualified persons in Q2 2008. The pre-feasibility study considers the development of a vertical shaft (R1 vertical) to a depth of approximately 1,000 metres below surface to access the down dip extension of the Rietkuil pay shoot.
Resource Delineation Drilling: A total of 88,435 metres of drilling has been completed for the nine months ended September 30, 2007. The primary focus of the drilling campaign at Rietkuil and Dominion is to increase the indicated resource base for the planned expansion program.
Sample analysis of the drill holes has been constrained due to a lack of accredited laboratories. The externally operated and managed laboratory, which has been commissioned on site, has been successful in decreasing the backlog of samples. It is anticipated that sample analysis will normalize by the end of the year.
Honeymoon Uranium Project
The Honeymoon ISL Uranium Project is located in the north-eastern section of the State of South Australia, approximately 75 kilometres northwest of Broken Hill.
In order to minimize an increase in capital expenditures, a design review was implemented that may result in a reversion to mixer settler technology from pulse column technology. A decision to change service providers was also implemented whereby the Corporation will use its in-house project delivery team to coordinate the design and to engineer the entire project. At the end of September 2007, the redesign of the Honeymoon Project was progressing and the new plant layout is expected to be finalized in Q4 2007. As a result of these changes, it is expected that production will commence before the end of 2008.
Initial production from the Honeymoon Project in 2008 is estimated to be 50,000 pounds of U(3)O(8).
Hobson and La Palangana
On August 10, 2007 Uranium One completed the purchase of all of the outstanding shares of EMC. The Hobson ISR Uranium Processing Facility and the La Palangana Uranium Project are the principal assets acquired in the transaction.
Initial production from Hobson and La Palangana in 2008 is estimated to be 35,000 pounds of U(3)O(8).
The Hobson Facility is a uranium in-situ recovery ("ISR") processing facility located in Texas. Refurbishment of the plant is currently underway and includes plans to increase capacity to over 1 million pounds of U(3)O(8) per year. At this time, the recommissioning of the Hobson Facility remains on schedule. The schedule for initial production of U(3)O(8) is directly tied to the licensing and development of the La Palangana Uranium Project, expected to take place by the end of 2008.
The La Palangana Uranium Project is an ISR uranium deposit located in close proximity to the Hobson Facility. Uranium bearing resins from the La Palangana satellite ion exchange plant will be shipped to the Hobson Facility for further processing into U(3)O(8). Uranium One is continuing with a drilling program that was in place prior to acquisition of the property, to develop an area of the deposit to commence production and to conduct exploration drilling on other areas of the property.
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.
A mill assessment by an independent firm commenced in September 2007. Reports on the assessment of systems and cost of refurbishment are expected in Q4 2007; however, refurbishment cannot begin until the application to change the license to operational status has been accepted.
Airborne survey data on properties acquired in the EMC transaction have focused on exploration, enabling drilling programs to be designed for these properties. Pre-feasibility studies have been initiated on two additional properties that could feed the Shootaring Mill.
Powder River Basin, Wyoming
The Powder River Basin in Wyoming hosts several of the Corporation's uranium resources. The most advanced project in the Powder River Basin is the Moore Ranch Project. Moore Ranch has a NI 43-101 compliant measured resource suitable for ISR extraction. On October 3, the Corporation submitted an application to the U.S. Nuclear Regulatory Commission ("NRC") for a license to construct and operate an in situ uranium recovery facility at Moore Ranch, the first application of its kind received by the NRC since 1988. The application contains plans for uranium extraction at a rate of a nominal one million pounds per year from the Moore Ranch well fields, with construction of a central processing plant with capacity of two million pounds per year expandable to four million pounds per year. Construction of the full central plant may not immediately be necessary due to a toll-processing agreement with a subsidiary of Cameco Corporation, executed on August 21, 2007. Under the toll-processing agreement, the Corporation may transport uranium bearing ion exchange resin from any of its Wyoming projects to Cameco's Wyoming processing plant for elution and conversion to dried uranium concentrate. Processing charges will be either a cash fee, or a percentage of the dried concentrates.
Other Powder River Basin properties where delineation drilling and environmental data collection for permitting purposes are ongoing, include the Ludeman, Allemand-Ross, Peterson, and Barge projects.
Aflease Gold Limited
Uranium One owns 70% 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 infrastructure required for development operations in place.
The revision of the Modder East feasibility study was audited by SRK Consulting and approved by the board of Aflease Gold in Q3 2007. The revised feasibility shows a major improvement in net present value and internal rate of return for the project. Development is progressing and construction and infrastructure development activities are continuing, with the first gold pour expected to take place in the third quarter of 2009.
Total project expenditure to date amounts to $13.1 million.
Exploration Projects
The Corporation is exploring its other properties and has current exploration programs in progress on its properties in the western United States, Canada, South Africa, Australia and the Kyrgyz Republic.
Selected Financial Information
The Corporation's interim 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 Ended Nine Months Ended
(US dollars in September 30, October 31, September 30, October 31,
thousands except 2007 2006 2007 2006
per share amounts) $ $ $ $
-------------------------------------------------------
Revenues 8,019 4,193 73,014 21,498
Net (loss)/
income (17,257) 25,912 (22,980) (18,321)
Cash flows (to)/
from operating
activities 917 (841) 30,406 3,236
(Loss)/profit
per share (0.04) 0.12 (0.07) (0.08)
Adjusted net
(loss)/
profit(1) (15,248) (988) (6,194) (2,619)
Average realized
uranium price
(per lb of U(3)O(8)) 115 42 79 39
Sales volume
(lbs of U(3)O(8))
(Corporation's
share) 70,000 lbs 99,200 lbs 919,200 lbs 515,000 lbs
Production volume
(lbs of U(3)O(8)
(Corporation's
share) 463,000 lbs 513,000 lbs 1,403,200 lbs 1,380,300 lbs
Average U(3)O(8)
spot price
per lb 96 55 102 47
(1) Net loss for the three months ended September 30, 2007 has been
adjusted to exclude a $2.0 million unrealized exchange loss
($26.9 million exchange gain for the three months ended October 31,
2006, $16.8 million exchange loss for the nine months ended
September 30, 2007 and $15.7 million exchange loss for the nine
months ended October 31, 2006) on the translation of future income
tax liabilities in respect of the Corporation's investment in
Kazakhstan for the movement 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.
Results of Operations and Discussion of Financial Position
Summary of Quarterly Results
-------------------------------------------------------------------------
Sept 30 2007 June 30 2007 Mar 31 2007 Dec 31 2006(2)
-------------------------------------------------------------------------
$(000's) $(000's) $(000's) $(000's)
-------------------------------------------------------------------------
Revenue from
uranium sales 8,019 23,265 41,730 46,256
-------------------------------------------------------------------------
Net (loss)/
income for
period (17,257) (13,694) 7,971 (6,228)
-------------------------------------------------------------------------
Basic and
diluted
(loss)/earnings
per share (0.04) (0.04) 0.02 (0.01)
-------------------------------------------------------------------------
Total assets 5,710,605 4,247,176 999,950 971,618
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Oct 31 2006 Jul 31 2006 Apr 30 2006 Jan 31 2006
-------------------------------------------------------------------------
$(000's) $(000's) $(000's) $(000's)
-------------------------------------------------------------------------
Revenue from
uranium sales 4,193 2,922 14,383 6,202
-------------------------------------------------------------------------
Net (loss)/
income for
period 25,912 (32,165) (12,068) (5,502)
-------------------------------------------------------------------------
Basic and
diluted
(loss)/earnings
per share 0.12 (0.15) (0.03) (0.01)
-------------------------------------------------------------------------
Total assets 949,530 951,025 810,086 683,418
-------------------------------------------------------------------------
Notes:
------
1. The basic and diluted earnings/loss per share is computed
separately for each quarter presented and therefore may not sum
to the December 31, 2006 five month period.
2. The December 31, 2006 quarter consists of a 2 month period.
Uranium revenues are recorded upon delivery of product to utilities and intermediaries and do not occur evenly throughout the year. Timing of deliveries is usually at the contracted discretion of customers. Changes in revenues, net earnings/loss and cash flow are therefore affected primarily by fluctuations in delivery of product from quarter to quarter as well as by changes in the price of uranium.
Operating expenses are directly related to revenues and are lower in periods when revenues are lower. There is a corresponding build-up of inventory in periods when revenues are lower. During Q3 2007, revenue from sales was $8.0 million and cash production costs were $0.7 million or approximately $9 per pound of U(3)O(8) sold. During Q3 2006, sales were $4.2 million and cash production costs were $1.4 million or $14 per pound of U(3)O(8) sold. The average depletion per pound of U(3)O(8) sold in Q3 2007 was $15 per pound of U(3)O(8) sold, compared to $12 per pound of U(3)O(8) sold in Q3 2006.
During Q3 2007 the Corporation recorded a net foreign exchange gain of $10.7 million, mainly as a result of the weakening of the US dollar against other currencies. The gain of $10.7 million resulted from a gain of $12.7 million, offset by a loss of $2.0 million. The gain of $12.7 million arose on the translation of foreign assets, denominated in other currencies which appreciated against the US dollar. The unrealized foreign exchange loss, resulting from a strengthening of the Kazakhstan tenge against the US dollar by 0.38% during the quarter, resulted in a $2.0 million loss on translation of future income tax liabilities arising from the purchase of assets in Kazakhstan.
The following table shows the production, sales and production costs trends over the prior eight quarterly periods. The interest in the Akdala Uranium Mine was acquired in November 2005.
-------------------------------------------------------------------------
(all figures are 3 months 3 months 3 months 2 months
the Corporation's ended ended ended ended
attributable Sept 30 June 30 Mar 31 Dec 31
share) 2007 2007 2007 2006
-------------------------------------------------------------------------
lbs lbs lbs lbs
-------------------------------------------------------------------------
Production of
U(3)O(8) in lbs 463,000 452,200 488,000 426,500
-------------------------------------------------------------------------
Sales of U(3)O(8)
in lbs 70,000 244,200 605,000 881,000
-------------------------------------------------------------------------
$ $ $ $
-------------------------------------------------------------------------
Sales (000's) 8,019 23,265 41,730 46,256
-------------------------------------------------------------------------
Sales $/lb of
U(3)O(8) sold 115 95 69 53
-------------------------------------------------------------------------
Operating expenses
(000's) 660 2,058 7,043 7,872
-------------------------------------------------------------------------
Operating expenses
$/lb of U(3)O(8) sold 9 8 12 9
-------------------------------------------------------------------------
Depletion and
depreciation (000's) 1,067 2,024 4,859 7,240
-------------------------------------------------------------------------
Depletion and
depreciation $/lb
of U(3)O(8) sold 15 8 8 8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(all figures are 3 months 3 months 3 months 3 months
the Corporation's ended ended ended ended
attributable Oct 31 Jul 31 Apr 30 Jan 31
share) 2006 2006 2006 2006
-------------------------------------------------------------------------
lbs lbs lbs lbs
-------------------------------------------------------------------------
Production of
U(3)O(8) in lbs 513,100 478,400 388,800 325,700
-------------------------------------------------------------------------
Sales of U(3)O(8)
in lbs 99,200 70,000 380,000 361,000
-------------------------------------------------------------------------
$ $ $ $
-------------------------------------------------------------------------
Sales (000's) 4,193 2,922 14,383 6,202
-------------------------------------------------------------------------
Sales $/lb of
U(3)O(8) sold 42 42 38 17
-------------------------------------------------------------------------
Operating expenses
(000's) 1,417 1,630 3,863 2,560
-------------------------------------------------------------------------
Operating expenses
$/lb of U(3)O(8) sold 14 23 10 7
-------------------------------------------------------------------------
Depletion and
depreciation (000's) 1,209 3,294 976 837
-------------------------------------------------------------------------
Depletion and
depreciation $/lb
of U(3)O(8) sold 12 47 3 2
-------------------------------------------------------------------------
Three Months Ended September 30, 2007
Uranium sales and operating costs
Sales attributable to the Corporation during Q3 2007 amounted to approximately 70,000 pounds of U(3)O(8) (26,900 kg U). The Corporation's attributed share of revenue from those sales amounted to $8.0 million. Earnings from mining operations were $6.3 million after the deduction of operating expenses of $0.7 million and depreciation and depletion charges of $1.1 million. Attributable sales in Q3 2006 amounted to approximately 99,200 pounds of U(3)O(8) (38.1 tonnes U). The related revenue from those sales amounted to $4.2 million. Earnings from mining operations were $1.6 million after the deduction of operating expenses of $1.4 million and depletion costs of $1.2 million.
The average unit price received for sales in Q3 2007 was $115 per pound of U(3)O(8). The average price obtained in Q3 2006 was $42 per pound of U(3)O(8). The spot price of uranium at September 30, 2007 was $96 per pound of U(3)O(8), compared to a spot price of $60 per pound of U(3)O(8) at October 31, 2006.
Sales in Q3 2007 are lower than expected as the majority of the deliveries scheduled for Q3 2007 were deferred by the customers until Q4 2007. Timing of deliveries is usually at the contracted discretion of customers.
General and administration costs
General and administrative cost for Q3 2008 are not comparable to Q3 2006, due to the significant changes in the Corporation in the current financial year, most notably, the transaction between Uranium One and UrAsia Energy in Q2 2007 and the acquisition of EMC during Q3 2007. The expense for Q3 2006 therefore represents the expense for UrAsia Energy only, while the expense in Q3 relates to the combined operations of Uranium One, UrAsia Energy and EMC.
General and administration expenses, including stock-based compensation expenses of $15.5 million, amounted to $29.0 million for Q3 2007, compared to $2.3 million for Q3 2006, including stock-based compensation of $1.1 million. The comparative expense for Q3 2006 relates to the costs of UrAsia Energy, while expenses in Q3 2007 include the combined costs of UrAsia Energy, Uranium One and EMC (from August 10, 2007). Higher administrative costs largely relate to the substantial increase in size of operations resulting from acquisition activities and growth. In addition to the growth in the combined administration activity internationally, integration activities required considerably greater travel and accommodation than normal, and salaries and wages increased as a result of an increase in the number of employees. Expenses also increased due to the Corporation incurring professional fees and administrative costs associated with the preparation of an application to list Uranium One's common shares on the London Stock Exchange.
Stock-based compensation expenses are estimated using the Black scholes option pricing model. The price at which the options were issued, as well as the remaining term of the options, also affects the fair value of the options and therefore the expense incurred. In both the Uranium One/UrAsia Energy transaction and the EMC transaction, the market price of Uranium One's shares on date of acquisition was, in most instances, higher than the exercise price of the unvested options acquired. This, combined with the volatility of Uranium One's share price around the time of the transactions, attributed materially to high fair values attributed to these options. As most of these options were issued some time before the dates of the acquisitions, their vesting periods from the date of the transactions are also relatively short. The stock based compensation expense is recorded using a graded vesting schedule and the expense is therefore heavily weighted towards the earlier part of the vesting period. The combined effect of these factors was that the stock-based compensation expense incurred during Q3 2007, was exceptionally high. The expense is expected to return to normal levels over subsequent quarters.
Exploration
Exploration expenditure in Q3 2007 of $5.6 million related to exploration programs being undertaken on the Corporation's license areas in the United States, South Africa, Canada, Australia and the Kyrgyz Republic. During Q3 2006 exploration expenditures totalling $1.8 million related to properties in the Kyrgyz Republic only.
Interest income and expense
Interest income amounted to $6.0 million for Q3 2007, compared to $2.2 million for Q3 2006. In addition to the interest earned on loans to joint ventures, interest is earned on funds held on deposit by the Corporation. Additional interest income is attributable to an increase in cash and short term investments acquired in the acquisition of EMC.
Interest expense for Q3 2007 relates to $2.1 million on the short term loans from Nedcor Securities, the interest expense related to convertible debentures of $3.7 for Q3 2007 ($NIL - Q3 2006) and interest on other long term debt of $0.1 million for Q3 2007 ($NIL - Q3 2006). The Nedcor Securities loans were repaid in September 2007.
Dilution gain
Dilution gains or losses occur when the percentage of equity held in Aflease Gold by Uranium One's wholly-owned subsidiary, Uranium One Africa Limited ("Uranium One Africa"), decrease. Such decreases occur when shares in Aflease Gold are issued to shareholders other than Uranium One Africa. During Q3 2007, issuances of shares to outside shareholders resulted in a dilution gain of $0.9 million. As a result of the acquisition of EMC during Q3 2007, Uranium One's interest in Aflease Gold increased from 67.61% to 69.83%, as EMC held 11.5 million shares of Aflease Gold. There was no dilution gain or loss in the comparative period for the prior year.
Foreign exchange gain/loss
The foreign exchange gain during Q3 2007 amounted to $10.7 million and consisted of an unrealized gain of $12.7 million on the translation of foreign held assets arising from the weakening of the US dollar against other currencies, offset by a $2.0 million loss consisting primarily of an unrealized exchange loss arising from translation of the future income tax liability in respect of the Corporation's investment in Kazakhstan which increased as result of a weakening of the Kazakhstan tenge against the US dollar in the quarter. In Q3 2006, a foreign exchange loss of $27.0 million was recorded.
Income taxes
Current income tax expense for Q3 2007 was $2.0 million and represents taxes paid and payable in Kazakhstan on profits from the Corporation's Akdala Uranium Mine. In Q3 2006 a $1.1 million tax expense was recorded for the Akdala Uranium Mine.
The future income tax recovery during Q3 2007 of $0.7 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 Q3 2006 a recovery of future income taxes of $0.4 million was recorded related to a reduction in future income tax liability.
Non-controlling interest
Non-controlling interest relates to Uranium One Africa's 70% ownership of its subsidiary company, Aflease Gold.
Net loss for the period
The net loss for Q3 2007 amounted to $17.3 million or $0.04 per share, compared to net income of $25.9 million or $0.12 per share in Q3 2006.
Nine Months Ended September 30, 2007
Uranium sales and operating costs
Revenue from uranium sales attributable to the Corporation during the nine months ended September 30, 2007 amounted to $73.0 million for approximately 919,200 pounds of U(3)O(8) (353.5 tonnes U) sold. Earnings from mining operations were $55.3 million after the deduction of operating expenses of $9.8 million and depreciation and depletion charges of $8.0 million. Revenue from attributable uranium sales during the nine months ended October 31, 2006 amounted to $21.5 million for approximately 515,000 pounds of U(3)O(8) (198.0 tonnes U) sold. Earnings from mining operations were $7.6 million after deduction of operating expenses of $8.4 million and depreciation and depletion costs of $5.5 million.
The average unit price received for sales in the nine month period ended September 30, 2007 was $79 per pound of U(3)O(8). The average price obtained in the nine months ended October 31, 2006 was $39 per pound of U(3)O(8).
Operating expenses for the nine month period ended September 30, 2007 were $9.8 million or approximately $11 per pound of U(3)O(8) sold. Operating expenses during the nine months ended October 31, 2006 were $8.4 million or $15 per pound of U(3)O(8) sold. The average unit cost of depletion was $9 per pound of U(3)O(8) sold in the nine months ended September 30, 2007, compared to $10 per pound of U(3)O(8) sold in the nine months ended October 31, 2006.
General and administration costs
General and administration expenses, including stock-based compensation expenses of $28.6 million, were $52.3 million for the nine months ended September 30, 2007, compared to $9.5 million for the nine months ended October 31, 2006 (including stock based-compensation of $6.1 million). The comparative amount for the nine months ended October 31, 2006 includes general and administration costs for UrAsia Energy only. General and administration costs for the nine months ended September 30, 2007 are in line with expectations and are mainly due to an increase in size of operations arising from combining the operations of Uranium One and UrAsia Energy and the acquisition of EMC in Q3 2007. Additionally the expenses increased as a result of the need to increase staffing requirements because of the growth of the Corporation and increased activity related to the acquisition of EMC. Increased costs also related to the preparation of an application for the listing of Uranium One's common shares on the London Stock Exchange.
Exploration
Exploration expenditure in the nine month period ended September 30, 2007 of $12.0 million related to exploration programs being undertaken on the Corporation's exploration properties in the United States, South Africa, Canada, Australia, and the Kyrgyz Republic. During the nine months ended October 31, 2006, exploration expenditures totalling $4.4 million related to properties in the Kyrgyz Republic only.
Interest income and expense
Interest income amounted to $11.6 million for the nine months ended September 30, 2007, compared to $6.0 million for the nine months ended October 31, 2006. The increase in interest results from interest earned on the loans to joint ventures and an increase in cash and short term investments held during the period.
Interest expense relates to $6.0 million for interest paid on convertible debentures (2006 - $Nil) and $2.4 million (2006 - $Nil) for interest on loans payable to Nedcor of and other short term debt. The Nedcor Securities loans were repaid in September 2007.
Dilution gain
During the nine month period ended September 30, 2007 Uranium One Africa's interest in Aflease Gold decreased from 71.36% to 69.83% resulting in a net dilution gain of $0.6 million.
Foreign exchange gain/loss
The foreign exchange loss during the nine months ended September 30, 2007 amounted to $2.7 million, which includes an unrealized loss of $16.8 million arising from the strengthening of the Kazakhstan tenge against the US dollar during the period ($15.7 million loss in nine months ended October 31, 2006), that was offset by a realized gain of $14.1 million (October 31, 2006 - $1.6 million) on translation of normal transactions and asset and liability revaluations.
Income taxes
The current income tax expense for the nine months ended September 30, 2007 was $22.3 million. The income tax expense represents taxes paid and payable in Kazakhstan on income from the Akdala Uranium Mine. For the nine months ended October 31, 2006, a tax expense of $5.7 million was recorded for the Akdala Uranium Mine.
Future income tax recovery of $5.1 million was recorded for the nine months ended September 30, 2007, compared to $2.1 million for the nine months ended October 31, 2006. A recovery of future income tax has been recorded, as the mineral property asset to which it relates has been depleted.
Non-controlling interest
The non-controlling interest relates to Uranium One Africa's 70% ownership of its subsidiary company, Aflease Gold. The non-controlling interest's share of the net loss for the nine months ended September 30, 2007 was $0.8 million.
Net loss for the period
The net loss for the nine months ended September 30, 2007 amounted to $23.0 million or $0.07 per share, compared to a net loss of $18.3 million or $0.08 per share for the nine months ended October 31, 2006.
Financial Condition
On September 30, 2007, the Corporation had cash and cash equivalents of $284.6 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 when the assets of Uranium One and UrAsia Energy were combined and an increase in $91.8 million in cash and cash equivalents included in the assets acquired from EMC.
Inventories increased by $14.4 million over the amount held at December 31, 2006, due to the build-up of uranium concentrates and solutions and concentrates in process on hand as well as an increase in material and supplies. As at September 30, 2007 the Corporation had attributable inventory of 1.0 million pounds of U(3)O(8) of which approximately 0.8 million pounds is saleable product. Virtually all the inventory on hand as at September 30, 2007, were for deliveries under committed sales contracts subsequent to quarter end.
Loans receivable from Betpak Dala of $62.6 million plus interest of $0.9 million were repaid during the nine months ended September 30, 2007. The Corporation advanced $32 million to 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 UrAsia/Uranium One business combination and the addition of $2.4 billion in Uranium One mineral interests, plant and equipment to UrAsia Energy's assets. The acquisition of EMC in Q3 2007 resulted in a further increase in mineral interests of $1.5 billion. Other increases were attributable as to $103.7 million to the acquisition of the Shootaring Mill and exploration properties from U.S. Energy and to additions to plant and equipment of $167.5 million during the nine month period. Goodwill of $243.3 million was recorded as a result of the acquisition of the Uranium One assets of which $112.9 million has been allocated to Aflease Gold and $130.4 million has been allocated to the Dominion Uranium Mine. 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.
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 and an increase in taxes payable in Kazakhstan due to the profits from the Akdala Uranium Mine.
Long term liabilities increased by $1.6 billion from December 31, 2006. Of this amount, $134.9 million 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 $18.5 million. Future income tax liabilities increased by $1.5 billion as a result of assets acquired in the business combinations.
Shareholders' equity increased by $3.0 billion from December 31, 2006, the largest component of the increase was share capital which increased by $2.9 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; $1.0 billion from shares issued for the acquisition of all of the shares of EMC; $99.4 million from shares issued for the acquisition of the U.S Energy assets; $4.0 million for services; and $44.0 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 $97.7 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 with UrAsia Energy; $35.3 million related to the fair value of options acquired in the business combination with EMC; stock-based compensation expense of $28.6 million recorded for the period and a reduction of $27.2 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 $35.3 million in accumulated other comprehensive income mainly from foreign currency translation of foreign operations.
Shareholders' equity was reduced by the net loss of $23.0 million ($0.07 per share) for the nine month period ended September 30, 2007.
Liquidity and Capital Resources
At September 30, 2007 the Corporation had working capital of $303.3 million. Included in this amount are cash and cash equivalents of $284.6 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 be applied to existing commitments in respect of the Kharasan Uranium Project, the Dominion Uranium Mine, the Honeymoon Uranium Project and other current commitments.
The Corporation anticipates that it has sufficient liquidity and capital resources to meet the Corporation's approved development plans and corporate costs for the next twelve months. Please refer to "Commitments and Contingencies"
The Corporation earns revenue 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 Mine 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 operation 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, the sale of non-core assets 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 market price for uranium and the current sulphuric acid shortage in Kazakhstan may negatively impact Uranium One's ability to raise additional funding. Sales contracts have been negotiated for 45% of the worldwide planned production for 2008 to 2010 including 81% of the planned production from 2008 to 2010 from the Akdala Mine and the South Inkai Project; 24% of the Dominion Uranium Mine's planned production from 2008 to 2010; 20% of the planned production from the Kharasan Project for 2008 to 2014; 40% of the Honeymoon Uranium Project's planned production from 2008 to 2014 and 6% of planned production through 2015 from the Hobson Facility. Open executed contracts for sales from Betpak Dala represent future sales of approximately 32.1 million pounds of U(3)O(8). (22.5 million pounds attributable). The Corporation has negotiated floor price protection in certain of its sales contracts, but there are no other mechanisms in place to manage exposure to price fluctuations. Sales contracts for 71% of forecasted production for 2008 of 4.6 million pounds of U(3)O(8) have been negotiated.
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 Q3 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.
Aflease Gold is not funded by Uranium One and has up to now funded itself by issuing shares through its listing on the JSE. Aflease Gold announced on October 25, 2007 that it had secured commitments for subscriptions for approximately $90 million of convertible bonds, due 2012, to international institutional investors. The issuance of the bonds is subject to approval by shareholders and the JSE.
Aflease Gold committed $14.3 million towards the development of the Modder East Gold Project as at September 30, 2007. Cash of $6.8 million and the proceeds from the bond issue are expected to fund the further development of the Modder East Gold Project. Further capital expenditure of $109.4 million, for which no current commitments exist, will be required to complete the construction of the Modder East Gold Project.
Commitments and Contingencies
Development of Uranium Projects
Estimated capital expenditure, mostly towards the development of the Dominion Uranium Mine, the South Inkai Uranium Project and the Kharasan Uranium Project, of $51.0 million during Q4 2007 and $204.1 million during 2008, will be required to fund the construction capital expenditure of the Corporation's uranium development projects.
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 depending on the 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 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 initially to be calculated at the end of 2011 and each year thereafter, and paid 60 days after the end of the year in which a payment is due. As security for the bonus 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.
Acquisition of interest in Kyzylkum
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. 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.
Off-balance Sheet Arrangements
The Corporation has no off-balance sheet arrangements.
Outstanding Share Data
As of November 13, 2007, there were issued and outstanding 466,759,771 common shares and common share purchase warrants for 150,000 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 (as discussed under "Commitments and Contingencies"), a warrant was issued in connection with the acquisition of the Corporation's interest in Kyzylkum entitling 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.
As of November 13, 2007, there were 21,260,464 stock options outstanding under the Uranium One's stock option plan at exercise prices ranging from C$1.09 to C$16.87 and 340,812 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.
Dividends
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 to the Corporation's consolidated financial statements for the three and nine months ended September 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) Sections 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 3861 - Financial Instruments - Disclosure and Presentation
Section 3861 establishes standards for the presentation of
financial instruments and non-financial derivatives, and
identifies the information that should be disclosed about them.
The purpose of the section is to enhance financial statement
users' understanding of the significance of financial instruments
to an entity's financial position, performance and cash flows.
(c) 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 September 30, 2007 have
resulted in no material gains or losses that require separate presentation in
other comprehensive income.
(d) 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.
(e) 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 Mine, Honeymoon Uranium Project and Modder East Gold Project will become operating mines; or when the Shootaring Mill, the Hobson Uranium ISR Processing Facility or the La Palangana Uranium Project 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; the risks of obtaining and maintaining necessary licenses and permits; risks associated with foreign operations including, in relation to Kazakhstan, the risk that the sulphuric acid shortage continues for an extended period of time and 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, for no additional consideration, 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 Q3 2007 stock options and restricted share rights activity was as
follows:
- Pursuant to the business combination agreement with Uranium One,
options that were outstanding in EMC at August 10, 2007 were
exchanged for an equal number of options in Uranium One multiplied by
1.15, at an exercise price equal to the exercise price of the options
of EMC divided by 1.15. Accordingly, on closing of the EMC
acquisition 8,362,546 options of Uranium One were granted to EMC
option holders at prices ranging from C$1.15 to C$13.57 per share,
with expiry dates ranging from November 30, 2009 to July 1, 2012.
- During Q3 2007 369,500 options were granted to directors and
employees at a prices ranging from C$11.37 to C$14.32 per share, with
expiry dates ranging from July 9, 2012 to September 19, 2012.
- 654,954 options were exercised during Q3 2007 and 65,880 were
forfeit.
- 20,000 restricted shares were granted during Q3 2007 at a deemed
price of $14.10 per share;
- 16,585 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 nine month period ended September 30, 2007 that have materially affected, or are reasonably likely to materially affect, the Corporation's internal control over financial reporting.
Forward-Looking Statements
This Management's Discussion and Analysis of Financial Condition and Results of Operations 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, possible continued shortages of sulphuric acid in Kazakhstan, 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.
Uranium One Inc.
Consolidated Balance Sheets
As at September 30, 2007 and December 31, 2006
(in United States dollars)
-------------------------------------------------------------------------
UNAUDITED Sep 30, Dec 31,
2007 2006
Notes $'000 $'000
-------------------------------------------------------------------------
ASSETS
-------------------------------------------------------------------------
Current assets
-------------------------------------------------------------------------
Cash and cash equivalents 5 284,613 61,838
-------------------------------------------------------------------------
Restricted cash - 500
-------------------------------------------------------------------------
Accounts and other receivables 6 29,261 49,186
-------------------------------------------------------------------------
Current portion of loans to
joint ventures 7.2 26,667 13,488
-------------------------------------------------------------------------
Inventories 8 26,417 12,044
-------------------------------------------------------------------------
366,958 137,056
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Non-current assets
-------------------------------------------------------------------------
Mineral interests, plant and equipment 9 4,994,124 768,887
-------------------------------------------------------------------------
Goodwill 9 248,324 -
-------------------------------------------------------------------------
Loans to joint ventures 7.2 30,745 39,850
-------------------------------------------------------------------------
Available for sale securities 10 7,324 -
-------------------------------------------------------------------------
Other assets 11 63,130 25,825
-------------------------------------------------------------------------
5,343,647 834,562
-------------------------------------------------------------------------
Total assets 5,710,605 971,618
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES
-------------------------------------------------------------------------
Current liabilities
-------------------------------------------------------------------------
Accounts payable and accrued liabilities 12 61,158 12,947
-------------------------------------------------------------------------
Income taxes payable 2,523 1,018
-------------------------------------------------------------------------
63,681 13,965
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Non-current liabilities
-------------------------------------------------------------------------
Convertible debentures 13 134,903 -
-------------------------------------------------------------------------
Asset retirement obligations 14 21,331 2,856
-------------------------------------------------------------------------
Future income tax liabilities 1,804,003 337,642
-------------------------------------------------------------------------
Long term debt 7.1 12,000 -
-------------------------------------------------------------------------
Other long term payables 14,110 1,466
-------------------------------------------------------------------------
1,986,347 341,964
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Non-controlling interest 10,444 -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
-------------------------------------------------------------------------
Share capital 15 3,491,568 613,607
-------------------------------------------------------------------------
Contributed surplus 16 129,002 31,286
-------------------------------------------------------------------------
Convertible debentures 3 46,480 -
-------------------------------------------------------------------------
Deficit (52,184) (29,204)
-------------------------------------------------------------------------
Accumulated other comprehensive income 35,267 -
-------------------------------------------------------------------------
3,650,133 615,689
-------------------------------------------------------------------------
Total shareholders' equity and liabilities 5,710,605 971,618
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basis of presentation and principles of consolidation (note 2.1)
Commitments and contingencies (note 4 & 21)
Subsequent event (note 22)
The accompanying notes form an integral part of these Unaudited Interim
Consolidated Financial Statements.
Uranium One Inc.
Consolidated Statements of Operations and Deficit
For the three and nine months ended September 30, 2007 and
October 31, 2006
(in United States dollars)
-------------------------------------------------------------------------
3 months ended 9 months ended
-------------------------------------------------------------------------
UNAUDITED Sep 30, Oct 31, Sep 30, Oct 31,
2007 2006 2007 2006
-------------------------------------------------------------------------
Notes $'000 $'000 $'000 $'000
-------------------------------------------------------------------------
Revenues 8,019 4,193 73,014 21,498
-------------------------------------------------------------------------
Operating expenses (660) (1,417) (9,761) (8,405)
-------------------------------------------------------------------------
Depreciation and
depletion (1,067) (1,209) (7,950) (5,479)
-------------------------------------------------------------------------
Earnings from
mine operations 6,292 1,567 55,303 7,614
-------------------------------------------------------------------------
General and
administrative(1) (28,992) (2,294) (52,326) (9,520)
-------------------------------------------------------------------------
Exploration expense (5,573) (1,779) (11,990) (4,427)
-------------------------------------------------------------------------
Operating loss (28,273) (2,506) (9,013) (6,333)
-------------------------------------------------------------------------
Interest income 6,006 2,215 11,568 6,017
-------------------------------------------------------------------------
Interest expense (5,909) - (8,906) -
-------------------------------------------------------------------------
Dilution gain on
disposal of
investment 872 - 551 -
-------------------------------------------------------------------------
Other income/
(expense) 567 (130) 1,955 (267)
-------------------------------------------------------------------------
Foreign exchange
gain/(loss) 17 10,727 27,023 (2,684) (14,087)
-------------------------------------------------------------------------
(Loss)/earnings
before income
taxes and non-
controlling
interest (16,010) 26,602 (6,529) (14,670)
-------------------------------------------------------------------------
Current income
tax expense (1,961) (1,069) (22,336) (5,728)
-------------------------------------------------------------------------
Future income
tax recovery 668 379 5,114 2,077
-------------------------------------------------------------------------
(Loss)/earnings
before non-
controlling
interest (17,303) 25,912 (23,751) (18,321)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Non-controlling
interest 46 - 771 -
-------------------------------------------------------------------------
Net (loss)/
earnings (17,257) 25,912 (22,980) (18,321)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) - Stock
option and
restricted share
expense (non-
cash) included
in general and
administrative 16 15,477 1,099 28,587 6,073
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basic (loss)/
earnings per
common share 19 (0.04) 0.12 (0.07) (0.08)
-------------------------------------------------------------------------
Diluted (loss)/
earnings per
common share (0.04) 0.12 (0.07) (0.08)
-------------------------------------------------------------------------
Weighted average
number of common
shares
outstanding -
basic 19 422,308,439 217,164,830 324,894,474 217,164,830
-------------------------------------------------------------------------
Weighted average
number of common
shares
outstanding -
diluted 19 422,308,439 217,164,830 324,894,474 217,164,830
-------------------------------------------------------------------------
See accompanying notes to the Unaudited Interim Consolidated Financial
Statements
Uranium One Inc.
Consolidated Statements of Changes in Equity
For the three and nine months ended September 30, 2007
(in United States dollars)
-------------------------------------------------------------------------
UNAUDITED
Equity
component of
Share Contributed convertible
capital surplus debenture
-------------------------------------------------------------------------
Balance as at December 31, 2006 613,607 31,286 -
-------------------------------------------------------------------------
Net profit for the period - 13,110 -
-------------------------------------------------------------------------
Exercise of warrants 82 - -
-------------------------------------------------------------------------
Exercise of stock options and
restricted shares 42,802 (23,859) -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Uranium One Inc./UrAsia Energy Ltd
business combination 1,709,647 62,042 46,480
-------------------------------------------------------------------------
-------------------------------------------------------------------------
U.S. Energy Corp asset
purchase consideration 99,401 - -
-------------------------------------------------------------------------
Shares issued for
services rendered 1,694 - -
-------------------------------------------------------------------------
Unrealized gains recognized on
translation of self sustaining
foreign operations(1) - - -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Balance as at June 30, 2007 2,467,233 82,579 46,480
-------------------------------------------------------------------------
Net loss for the period - 15,477 -
-------------------------------------------------------------------------
Exercise of warrants 2,033 (1,035) -
-------------------------------------------------------------------------
Exercise of stock options and
restricted shares 6,794 (3,326) -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Energy Metals Corporation asset
purchase consideration 1,013,215 35,307 -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Unrealized gains recognized on
translation of self sustaining
foreign operations - - -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Shares issued for
services rendered 2,293 - -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Loss on available for sale
securities, net of
tax benefit (note 10) - - -
-------------------------------------------------------------------------
Balance as at September 30, 2007 3,491,568 129,002 46,480
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Accumulated
other
comprehensive
income Deficit Total
-------------------------------------------------------------------------
Balance as at December 31, 2006 - (29,204) 615,689
-------------------------------------------------------------------------
Net profit for the period - (5,723) 7,387
-------------------------------------------------------------------------
Exercise of warrants - - 82
-------------------------------------------------------------------------
Exercise of stock options and
restricted shares - - 18,943
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Uranium One Inc./UrAsia Energy Ltd
business combination - - 1,818,169
-------------------------------------------------------------------------
-------------------------------------------------------------------------
U.S. Energy Corp asset
purchase consideration - - 99,401
-------------------------------------------------------------------------
Shares issued for
services rendered - - 1,694
-------------------------------------------------------------------------
Unrealized gains recognized on
translation of self sustaining
foreign operations(1) (8,578) - (8,578)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Balance as at June 30, 2007 (8,578) (34,927) 2,552,787
-------------------------------------------------------------------------
Net loss for the period - (17,257) (1,780)
-------------------------------------------------------------------------
Exercise of warrants - - 998
-------------------------------------------------------------------------
Exercise of stock options and
restricted shares - - 3,468
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Energy Metals Corporation asset
purchase consideration - - 1,048,522
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Unrealized gains recognized on
translation of self sustaining
foreign operations 44,216 - 44,216
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Shares issued for
services rendered - - 2,293
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Loss on available for sale
securities, net of
tax benefit (note 10) (371) - (371)
-------------------------------------------------------------------------
Balance as at September 30, 2007 35,267 (52,184) 3,650,133
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) - This amount was incorrectly reported as $77,5 million at June 30,
2007.
Uranium One Inc.
Consolidated Statements of Comprehensive Income
For the three and nine months ended September 30, 2007
(in United States dollars)
-------------------------------------------------------------------------
UNAUDITED 3 months 9 months
ended ended
Sep 30, Sep 30,
2007 2007
$'000 $'000
-------------------------------------------------------------------------
Notes Total Total
-------------------------------------------------------------------------
Net loss (17,257) (22,980)
-------------------------------------------------------------------------
Unrealized gains recognized on
translation of self-sustaining
foreign operations 44,216 35,638
-------------------------------------------------------------------------
Loss on available for sale securities,
net of tax benefit 10 (371) (371)
-------------------------------------------------------------------------
Comprehensive income (26,588) 12,287
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes to the Unaudited Interim Consolidated Financial
Statements
Uranium One Inc.
Consolidated Statements of Cash Flows
For the three and nine months ended September 30, 2007 and
October 31, 2006
(in United States dollars)
-------------------------------------------------------------------------
UNAUDITED 3 months ended 9 months ended
-------------------------------------------------------------------------
Sep 30, Oct 31, Sep 30, Oct 31,
2007 2006 2007 2006
-------------------------------------------------------------------------
Notes $'000 $'000 $'000 $'000
-------------------------------------------------------------------------
Net (loss)/
earnings (17,257) 25,912 (22,980) (18,321)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Items not
affecting cash:
- Depreciation
and depletion 1,067 1,209 7,950 5,479
-------------------------------------------------------------------------
- Accretion
of asset
retirement
obligation 14 280 8 588 68
-------------------------------------------------------------------------
- Stock option
expense 16 15,477 1,099 28,587 6,073
-------------------------------------------------------------------------
- Interest
accrued on
loans and
debentures 3,707 - 5,226 -
-------------------------------------------------------------------------
- Unrealized
foreign
exchange (gain)
/loss (1,545) (27,885) 11,146 14,777
-------------------------------------------------------------------------
- Future
income tax
recovery (668) (379) (5,114) (2,077)
-------------------------------------------------------------------------
- Non-controlling
interest (46) - (771) -
-------------------------------------------------------------------------
- Other (654) - 856 78
-------------------------------------------------------------------------
Movement in
working capital 18 556 (805) 4,918 (2,841)
-------------------------------------------------------------------------
Cash flows (to)/
from operating
activities 917 (841) 30,406 3,236
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Acquisition of
Uranium One
Inc., net of
acquisition
cost 3 - - 271,935 -
-------------------------------------------------------------------------
Acquisition of
Energy Metals
Corporation, net
of acquisition
cost 82,410 - 82,410 -
-------------------------------------------------------------------------
Acquisition of
interest in
Betpak Dala - - - (1,177)
-------------------------------------------------------------------------
Acquisition of
interest in
Kyzylkum - - - (45)
-------------------------------------------------------------------------
Acquisition
of mineral
interests, plant
and equipment (82,770) (14,332) (167,494) (23,820)
-------------------------------------------------------------------------
Advance cash
payment for
other assets (1,331) (2,409) (5,644) (11,035)
-------------------------------------------------------------------------
Joint Venture
earn in payments
received 800 - 800 -
-------------------------------------------------------------------------
Restricted cash - - (500) (2,500)
-------------------------------------------------------------------------
Cash advances to
joint ventures 7 - (4,500) (22,400) (23,913)
-------------------------------------------------------------------------
Cash proceeds from
joint ventures 7 - - 18,780 -
-------------------------------------------------------------------------
Cash flows (to)/
from investing
activities (891) (21,241) 177,887 (62,490)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Common shares
issued, net 4,466 395 22,197 117,850
-------------------------------------------------------------------------
Shares issued by
subsidiary to
non-controlling
shareholders 161 - 499 -
-------------------------------------------------------------------------
Loans received 12,000 - 12,000 -
-------------------------------------------------------------------------
Short term
loan repaid 18 (53,131) - (53,131) -
-------------------------------------------------------------------------
Subscriptions for
special warrants
received by
subsidiary 6,072 - 6,072 -
-------------------------------------------------------------------------
Other - - (175) (106)
-------------------------------------------------------------------------
Cash flows (to)/
from financing
activities (30,432) 395 (12,538) 117,744
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Effects of
exchange rate
changes on cash
and cash
equivalents 16,738 836 27,020 836
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net (decrease)/
increase in cash
and cash
equivalents (13,668) (20,851) 222,775 59,326
-------------------------------------------------------------------------
Cash and cash
equivalents at
the beginning
of the period 298,281 128,328 61,838 48,151
-------------------------------------------------------------------------
Cash and cash
equivalents at
the end of
the period 5 284,613 107,477 284,613 107,477
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplemental cash flow information (note 18)
See accompanying notes to the Unaudited Interim Consolidated Financial
Statements
Uranium One Inc.
Notes to the Interim Consolidated Financial Statements
as at September 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 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 Limited ("Aflease Gold"), Uranium
One is engaged in the development of the Modder East Gold Project in
South Africa.
Uranium One owns the Dominion Uranium Mine in South Africa and a 70%
interest in the producing Akdala Uranium Mine in Kazakhstan. Uranium One
is also developing the South Inkai Project, in which it owns a 70%
interest and the Kharasan Project, in which it owns a 30% interest, both
located in Kazakhstan. The Corporation owns the Honeymoon Uranium Project
in Australia. In the United States, the Corporation owns the Shootaring
Mill in Utah and the Hobson ISR Uranium Processing Facility in Texas. The
Corporation also owns a large portfolio of uranium exploration properties
in the western United States, South Australia, the Athabasca Basin of
Saskatchewan, Canada and the Kyrgyz Republic.
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 October 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
Mine(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)
-------------------------------------------------------------------------
South Texas Hobson United 99% Consolidated
Mining Venture Facility and States
La Palangana
Project(6)
-------------------------------------------------------------------------
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 Corp (note 4)
-------------------------------------------------------------------------
(5) - Refer to note 21 for the contingent sale of an interest in the
Dominion Uranium Project
-------------------------------------------------------------------------
(6) - Legacy Energy Metals Corporation assets (note 4)
-------------------------------------------------------------------------
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 entities that are determined to be
integrated foreign operations have been translated into United States
dollars by translating foreign currency denominated monetary assets and
liabilities, which includes future income tax, 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 entities that are determined to be self-
sustaining foreign operations have been translated into United States
dollars by translating all assets and liabilities, which includes future
income tax, 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 are 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.
Resource value and exploration potential for development projects not in
commercial production is noted as non-depletable mineral properties. 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
Business 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 recorded 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, at least 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 3861 - Financial Instruments - Disclosure and presentation
Section 3865 - Hedges
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 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.
Compound instruments
The component parts of compound instruments are classified separately as
financial liabilities and equity in accordance with substance of the
contractual agreement. At the date of issue, the fair value of the
liability component is estimated using the prevailing market interest
rate for similar non-convertible instruments. This amount is recorded as
a liability on an amortized cost basis until extinguished upon conversion
or at the instrument's maturity date. The equity component is determined
by deducting the amount of the liability component from the fair value of
the compound instrument as a whole. This is recognized and included in
equity, net of income tax effects, and is not subsequently remeasured.
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 with respect to 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, each UrAsia Energy
share was 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 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. Upon completion of the transaction, Uranium One was held
approximately 60% by former UrAsia Energy shareholders and approximately
40% by former Uranium One 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 Energy shares two days
before, the day of, and two days after the date of the announcement of
the arrangement. The following weighted average 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 4.17%
Expected volatility of the share price 61%
Expected life 3.79 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 Mining assets - Impairment and
business combinations. 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 243,297
-------------------------------------------------------------------------
Other assets 13,502
-------------------------------------------------------------------------
Accounts payable and accrued liabilities (56,057)
-------------------------------------------------------------------------
Short term loans (55,345)
-------------------------------------------------------------------------
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
4.1 U.S. Energy
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 $6.9 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 45,739
-------------------------------------------------------------------------
Exploration properties and geological information 67,364
-------------------------------------------------------------------------
Stock pile 4,797
-------------------------------------------------------------------------
Asset retirement obligation (9,381)
-------------------------------------------------------------------------
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).
4.2 Energy Metals Corporation
On June 3, 2007, Uranium One and Energy Metals Corporation ("EMC")
entered into a definitive agreement whereby Uranium One agreed to acquire
all of the issued and outstanding common shares and options to purchase
common shares of EMC. The agreement was approved by the shareholders of
EMC on July 31, 2007 and the acquisition was completed on August 10,
2007. Under the agreement, Uranium One exchanged 1.15 common shares of
Uranium One for each common share of EMC. A total of 100,444,543 Uranium
One common shares were issued in exchange for 87,343,081 EMC common
shares.
The cost of the acquisition includes the fair value of the issuance of
100,444,543 Uranium One common shares at $10.09 per share, plus
8,123,798 stock options of EMC, of which 3,913,102 were exercisable at
the date of acquisition, exchanged for those of Uranium One with an
average exercise price of $5.07 per share and a fair value of the vested
portion of $35.3 million plus Uranium One's estimated transaction costs
of $9.4 million for a total purchase price of $1,057.9 million.
The value of the Uranium One common shares issued was calculated using
the share price of Uranium One's shares on the date of acquisition. The
following weighted average assumptions were used for the Black-Scholes
option pricing model for fair value of the stock options:
Risk-free interest rate 4.57%
Expected volatility of the share price 60%
Expected life 3.07 years
Dividend rate Nil
The transaction was accounted for as an asset purchase and the cost of
each item of property, plant and equipment acquired as part of 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. Uranium One will continue to review the information and
perform further analysis with respect to these assets prior to finalizing
the allocation of the purchase price. The summarized results of the
allocation is indicated in the table below:
-------------------------------------------------------------------------
Purchase price: $'000
-------------------------------------------------------------------------
100.4 million shares of Uranium One 1,013,215
-------------------------------------------------------------------------
Options of Uranium One 35,307
-------------------------------------------------------------------------
Acquisition costs 9,382
-------------------------------------------------------------------------
1,057,904
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net assets acquired:
-------------------------------------------------------------------------
Cash and cash equivalents 91,792
-------------------------------------------------------------------------
Marketable securities 6,909
-------------------------------------------------------------------------
Other current assets 3,550
-------------------------------------------------------------------------
Mining interests 1,452,524
-------------------------------------------------------------------------
Other non-current assets 21,442
-------------------------------------------------------------------------
Accounts payable and accrued liabilities (6,160)
-------------------------------------------------------------------------
Asset retirement obligations (3,241)
-------------------------------------------------------------------------
Other long term liabilities (6,235)
-------------------------------------------------------------------------
Future income tax liability (502,677)
-------------------------------------------------------------------------
1,057,904
-------------------------------------------------------------------------
5 CASH AND CASH EQUIVALENTS
-------------------------------------------------------------------------
Sep 30, Dec 31,
2007 2006
-------------------------------------------------------------------------
$'000 $'000
-------------------------------------------------------------------------
Cash 238,495 21,624
-------------------------------------------------------------------------
Money market instruments, including cashable
guaranteed investment certificates, bearer
deposit notes and commercial paper 46,118 40,214
-------------------------------------------------------------------------
-------------------------------------------------------------------------
284,613 61,838
-------------------------------------------------------------------------
6 ACCOUNTS AND OTHER RECEIVABLES
-------------------------------------------------------------------------
Sep 30, Dec 31,
2007 2006
-------------------------------------------------------------------------
$'000 $'000
-------------------------------------------------------------------------
Trade receivables 3,562 47,798
-------------------------------------------------------------------------
Value added tax and general sales tax 11,918 51
-------------------------------------------------------------------------
Prepayments and advances 7,877 894
-------------------------------------------------------------------------
Deposits and guarantees 4,391 -
-------------------------------------------------------------------------
Other receivables 4,620 443
-------------------------------------------------------------------------
32,368 49,186
-------------------------------------------------------------------------
Less: non current deposits and guarantees
included in other assets (note 11) 3,107 -
-------------------------------------------------------------------------
29,261 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:
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Betpak
As at September 30, 2007 Dala Kyzylkum Pitchstone Total
-------------------------------------------------------------------------
$'000 $'000 $'000 $'000
-------------------------------------------------------------------------
Cash 9,589 7,124 42 16,755
-------------------------------------------------------------------------
Other current assets 24,007 1,479 187 25,673
-------------------------------------------------------------------------
Mineral interests,
plant and equipment 641,125 164,641 5,609 811,375
-------------------------------------------------------------------------
Other assets 14,000 6,583 - 20,583
-------------------------------------------------------------------------
Current liabilities (10,721) (1,914) - (12,635)
-------------------------------------------------------------------------
Intercompany loan(1) - (24,000) - (24,000)
-------------------------------------------------------------------------
Long term debt(2) - (12,000) - (12,000)
-------------------------------------------------------------------------
Other (1,543) (132) - (1,675)
-------------------------------------------------------------------------
Future income taxes (276,020) (65,075) - (341,095)
-------------------------------------------------------------------------
Asset retirement
obligation (3,265) - - (3,265)
-------------------------------------------------------------------------
Net assets 397,172 76,706 5,838 479,716
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Betpak
As at December 31, 2006 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.
(2) In addition to the $80 million loan (note 7.2) from the Corporation,
Kyzylkum negotiated unsecured bank loan facilities totaling
$100 million. One facility in the amount of $70 million was obtained
from the Japan Bank for International Cooperation and the other
facility in the amount of $30 million was obtained from Citibank. The
first draw down against these facilities of $40 million was received
in September 2007. The loan facilities will be repayable after full
repayment of the loan from the Corporation. The Corporation's
proportionate share of these facilities will amount to $30 million
when fully drawn down. The loan facilities have floating interest
rates of LIBOR plus 0.25% and 0.35%, respectively.
The Corporation's proportionate share of revenue, expenses, net income
and cash flows for the three and nine months ended September 30, 2007 are
as follows:
-------------------------------------------------------------------------
Three months ended Betpak
September 30, 2007 Dala Kyzylkum Pitchstone Total
-------------------------------------------------------------------------
$'000 $'000 $'000 $'000
-------------------------------------------------------------------------
Revenue 8,019 - - 8,019
-------------------------------------------------------------------------
Expenses (2,053) 2 (772) (2,823)
-------------------------------------------------------------------------
Foreign exchange gain 119 886 - 1,005
-------------------------------------------------------------------------
Income/(loss) before
income taxes 6,085 888 (772) 6,201
-------------------------------------------------------------------------
Provision for income
taxes (1,625) - - (1,625)
-------------------------------------------------------------------------
Net income/(loss) 4,460 888 (772) 4,576
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Nine months ended Betpak
September 30, 2007 Dala Kyzylkum Pitchstone Total
-------------------------------------------------------------------------
$'000 $'000 $'000 $'000
-------------------------------------------------------------------------
Revenue 73,014 - - 73,014
-------------------------------------------------------------------------
Expenses (18,505) (685) (1,314) (20,504)
-------------------------------------------------------------------------
Foreign exchange loss (5,918) (456) - (6,374)
-------------------------------------------------------------------------
Income/(loss) before
income taxes 48,591 (1,141) (1,314) 46,136
-------------------------------------------------------------------------
Provision for income
taxes (19,943) - - (19,943)
-------------------------------------------------------------------------
Net income/(loss) 28,648 (1,141) (1,314) 26,193
-------------------------------------------------------------------------
During 2007, approximately 60% of Betpak Dala's sales are expected to be
under one contract. This contract was signed prior to the acquisition of
the Corporation's interest in Betpak Dala.
-------------------------------------------------------------------------
The Corporation's proportionate share of revenue, expenses, net income
and cash flows for the three and nine months ended October 31, 2006 are
as follows:
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three months ended Betpak
October 31, 2006 Dala Kyzylkum Total
-------------------------------------------------------------------------
$'000 $'000 $'000
-------------------------------------------------------------------------
Revenue 4,193 - 4,193
-------------------------------------------------------------------------
Expenses (1,505) - (1,505)
-------------------------------------------------------------------------
Foreign exchange gain 22,125 4,776 26,901
-------------------------------------------------------------------------
Profit before income
taxes 24,813 4,776 29,589
-------------------------------------------------------------------------
(Provision for)/
recovery of income taxes (791) 101 (690)
-------------------------------------------------------------------------
Net income 24,022 4,877 28,899
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Nine months ended Betpak
October 31, 2006 Dala Kyzylkum Total
-------------------------------------------------------------------------
$'000 $'000 $'000
-------------------------------------------------------------------------
Revenue 21,498 - 21,498
-------------------------------------------------------------------------
(Expenses)/other income (9,808) 12 (9,796)
-------------------------------------------------------------------------
Foreign exchange loss (10,794) (3,545) (14,339)
-------------------------------------------------------------------------
Profit/(loss) before
income taxes 896 (3,533) (2,637)
-------------------------------------------------------------------------
Provision for income
taxes (4,081) (5) (4,086)
-------------------------------------------------------------------------
Net loss (3,185) (3,538) (6,723)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
7.2 Loans to Joint Ventures
-------------------------------------------------------------------------
Sep 30, Dec 31,
2007 2006
-------------------------------------------------------------------------
$'000 $'000
-------------------------------------------------------------------------
Current portion
-------------------------------------------------------------------------
Betpak Dala - 12,736
-------------------------------------------------------------------------
Kyzylkum 26,667 752
-------------------------------------------------------------------------
26,667 13,488
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Long term portion
-------------------------------------------------------------------------
Betpak Dala - 6,250
-------------------------------------------------------------------------
Kyzylkum 30,745 33,600
-------------------------------------------------------------------------
30,745 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.
-------------------------------------------------------------------------
Sep 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 2,017 1,074
-------------------------------------------------------------------------
82,017 49,074
-------------------------------------------------------------------------
Less elimination of proportionate share - 30% (24,605) (14,722)
-------------------------------------------------------------------------
57,412 34,352
-------------------------------------------------------------------------
Less current portion (26,667) (752)
-------------------------------------------------------------------------
Long term portion 30,745 33,600
-------------------------------------------------------------------------
The loans to Kyzylkum are unsecured.
8 INVENTORIES
-------------------------------------------------------------------------
Sep 30, Dec 31,
2007 2006
-------------------------------------------------------------------------
$'000 $'000
-------------------------------------------------------------------------
Finished uranium concentrates 12,678 5,791
-------------------------------------------------------------------------
Solutions and concentrates in process 7,138 5,035
-------------------------------------------------------------------------
Materials and supplies 6,601 1,218
-------------------------------------------------------------------------
Stockpiles 4,797 -
-------------------------------------------------------------------------
31,214 12,044
-------------------------------------------------------------------------
Less: non current inventory included in other
assets (note 11) 4,797 -
-------------------------------------------------------------------------
26,417 12,044
-------------------------------------------------------------------------
9 MINERAL INTERESTS, PLANT AND EQUIPMENT
-------------------------------------------------------------------------
September 30, 2007
-------------------------------------------------------------------------
Net
Accumulated carrying
Cost amortization amount
-------------------------------------------------------------------------
$'000 $'000 $'000
-------------------------------------------------------------------------
Mineral interests 4,494,723 (29,244) 4,465,479
-------------------------------------------------------------------------
Plant and equipment 538,237 (9,592) 528,645
-------------------------------------------------------------------------
5,032,960 (38,836) 4,994,124
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Owned assets 4,991,974
-------------------------------------------------------------------------
Leased assets 2,150
-------------------------------------------------------------------------
Total net carrying amount as at
end of the period 4,994,124
-------------------------------------------------------------------------
-------------------------------------------------------------------------
December 31, 2006
-------------------------------------------------------------------------
Net
Accumulated carrying
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 Total
-------------------------------------------------------------------------
Non- Plant and June 30,
Country Depletable depletable Total equipment 2007
-------------------------------------------------------------------------
$'000 $'000 $'000 $'000 $'000
-------------------------------------------------------------------------
Honeymoon
Project Australia - 129,348 129,348 16,092 145,440
-------------------------------------------------------------------------
Australia
exploration Australia - 77,351 77,351 - 77,351
-------------------------------------------------------------------------
Pitchstone
exploration Canada - 29,053 29,053 - 29,053
-------------------------------------------------------------------------
Akdala
Uranium
Mine Kazakhstan 112,556 74,358 186,914 14,007 200,921
-------------------------------------------------------------------------
South
Inkai
Uranium
Project Kazakhstan - 411,775 411,775 25,228 437,003
-------------------------------------------------------------------------
Kharasan
Uranium
Project Kazakhstan - 141,548 141,548 23,234 164,782
-------------------------------------------------------------------------
Kyrgyzstan
explora-
tion Kyrgyzstan - 133 133 289 422
-------------------------------------------------------------------------
Dominion
Uranium
Mine South Africa - 1,912,646 1,912,646 300,163 2,212,809
-------------------------------------------------------------------------
Modder
East Gold
project South Africa - 103,931 103,931 13,597 117,528
-------------------------------------------------------------------------
Sub-Nigel
and other
gold
projects South Africa - 22,798 22,798 439 23,237
-------------------------------------------------------------------------
United
States
explora-
tion
projects United States - 1,449,982 1,449,982 13,626 1,463,608
-------------------------------------------------------------------------
Shootaring
Canyon
Mill United States - - - 45,496 45,496
-------------------------------------------------------------------------
Hobson
Facility
and La
Palangana
Project United States - - - 48,891 48,891
-------------------------------------------------------------------------
Corporate
and other - - - 27,583 27,583
-------------------------------------------------------------------------
Total 112,556 4,352,923 4,465,479 528,645 4,994,124
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Mineral interests Total
-------------------------------------------------------------------------
Non- Plant and Dec 31,
Country Depletable depletable Total equipment 2006
-------------------------------------------------------------------------
$'000 $'000 $'000 $'000 $'000
-------------------------------------------------------------------------
Akdala
Uranium
Mine Kazakhstan 118,755 74,358 193,113 16,294 209,407
-------------------------------------------------------------------------
South
Inkai
Uranium
Project Kazakhstan - 404,125 404,125 3,312 407,437
-------------------------------------------------------------------------
Kharasan
Uranium
Project Kazakhstan - 146,717 146,717 4,020 150,737
-------------------------------------------------------------------------
Kyrgyzstan
explora-
tion Kyrgyzstan - 133 133 220 353
-------------------------------------------------------------------------
Corporate
and other - - - 953 953
-------------------------------------------------------------------------
Total 118,755 625,333 744,088 24,799 768,887
-------------------------------------------------------------------------
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
Recognized exchange
on resulting Total
acquisition from Sep 30,
date translation 2007
-------------------------------------------------------------------------
$'000 $'000 $'000
-------------------------------------------------------------------------
Aflease Gold 112,864 2,332 115,196
-------------------------------------------------------------------------
Dominion Uranium
Project 130,433 2,695 133,128
-------------------------------------------------------------------------
243,297 5,027 248,324
-------------------------------------------------------------------------
10 AVAILABLE FOR SALE SECURITIES
-------------------------------------------------------------------------
Sep 30, 2007 Dec 31, 2006
-------------------------------------------------------------------------
Fair value Market to Fair value Market to
market market
-------------------------------------------------------------------------
gain/(loss) gain/(loss)
-------------------------------------------------------------------------
included in included in
other other
-------------------------------------------------------------------------
comprehensive comprehensive
-------------------------------------------------------------------------
income income
-------------------------------------------------------------------------
-------------------------------------------------------------------------
$'000 $'000 $'000 $'000
-------------------------------------------------------------------------
Marketable Securities 7,324 (371) - -
-------------------------------------------------------------------------
Movement in available for sale securities
-------------------------------------------------------------------------
$'000
-------------------------------------------------------------------------
Balance as at December 31, 2006 -
-------------------------------------------------------------------------
Received as part of a joint venture earn in payment 698
-------------------------------------------------------------------------
Purchased as part of the EMC acquisition (refer note 4.2) 6,909
-------------------------------------------------------------------------
Purchased during the period 88
-------------------------------------------------------------------------
Fair value adjustment taken to other comprehensive income (371)
-------------------------------------------------------------------------
Balance as at September 30, 2007 7,324
-------------------------------------------------------------------------
The Corporation has recognized a future income tax asset of $0.1 million
that relates to the cumulative mark-to-market losses on the available-
for-sale securities. The tax estimate is based on the assumption that if
the securities were sold at their September, 2007 fair market value of
the capital losses would be calculated at the appropriate tax rate of the
jurisdiction in which the security is held.
By holding these long-term investments the Corporation is inherently
exposed to various risk factors including currency risk, market price
risk and liquidity risk.
11 OTHER ASSETS
-------------------------------------------------------------------------
Sep 30, Dec 31,
2007 2006
-------------------------------------------------------------------------
$'000 $'000
-------------------------------------------------------------------------
Prepaid drill rigs 2,586 13,295
-------------------------------------------------------------------------
Advances for plant and equipment 11,077 9,790
-------------------------------------------------------------------------
Long term deposits (note 6) 3,107 -
-------------------------------------------------------------------------
Long term inventory (note 8) 4,797 -
-------------------------------------------------------------------------
Asset retirement fund (note 14) 20,061 -
-------------------------------------------------------------------------
Deferred charges for toll milling agreement 10,546 -
-------------------------------------------------------------------------
Other 10,956 2,740
-------------------------------------------------------------------------
63,130 25,825
-------------------------------------------------------------------------
12 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
-------------------------------------------------------------------------
Sep 30, Dec 31,
2007 2006
-------------------------------------------------------------------------
$'000 $'000
-------------------------------------------------------------------------
Trade payables 10,001 6,471
-------------------------------------------------------------------------
Accruals 43,496 260
-------------------------------------------------------------------------
Other 7,661 6,216
-------------------------------------------------------------------------
61,158 12,947
-------------------------------------------------------------------------
13 CONVERTIBLE DEBENTURES
On December 20, 2006, Uranium One completed a debt offering of
Cdn $155.3 million ($133.2 million), (including the exercised over-
allotment option of Cdn $20.3 million ($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:
-------------------------------------------------------------------------
Sep 30, Dec 31,
2007 2006
-------------------------------------------------------------------------
$'000 $'000
-------------------------------------------------------------------------
Liability component on date of business
combination (note 3) 118,450 -
-------------------------------------------------------------------------
Interest charged 7,694 -
-------------------------------------------------------------------------
Coupon payment (3,201) -
-------------------------------------------------------------------------
Foreign exchange movement 11,960 -
-------------------------------------------------------------------------
Liability as at the end of the period 134,903 -
-------------------------------------------------------------------------
14 ASSET RETIREMENT OBLIGATIONS
-------------------------------------------------------------------------
Sep 30, Dec 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 4.1) 9,389 -
-------------------------------------------------------------------------
Acquisition of EMC assets (note 4.2) 3,241 -
-------------------------------------------------------------------------
Incurred during the period 44 -
-------------------------------------------------------------------------
Accretion expense 588 604
-------------------------------------------------------------------------
Revision 27 299
-------------------------------------------------------------------------
Foreign exchange movement 584 -
-------------------------------------------------------------------------
Closing Balance 21,331 2,856
-------------------------------------------------------------------------
Sep 30, Dec 31,
2007 2006
-------------------------------------------------------------------------
$'000 $'000
-------------------------------------------------------------------------
Undiscounted and uninflated amount of
estimated cash flows ($'000) 30,452 4,284
-------------------------------------------------------------------------
Payable in years 1 - 10.5 4 - 18
-------------------------------------------------------------------------
Inflation rate 2.69% - 7.00% 7.00%
-------------------------------------------------------------------------
Discount rate 7.39% - 14.5% 12.00%
-------------------------------------------------------------------------
Security of $20.1 million for reclamation obligations has been provided
in the form required by the relevant country's authorities (note 11).
15 SHARE CAPITAL
-------------------------------------------------------------------------
Common shares Number of shares Value of shares
-------------------------------------------------------------------------
Sep 30, Dec 31, Sep 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 September 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
warrants 150,000 2,033
-------------------------------------------------------------------------
Exercise of
stock options
and restricted
shares 3,850,570 41,995
-------------------------------------------------------------------------
U.S. Energy
asset purchase
consideration 4.1 6,607,605 99,401
-------------------------------------------------------------------------
EMC asset
purchase
consideration 4.2 100,444,543 1,013,215
-------------------------------------------------------------------------
Shares issued
for services
rendered 323,748 3,987
-------------------------------------------------------------------------
Closing balance
of issued and
outstanding
shares 466,670,731 480,240,704 3,491,568 613,607
-------------------------------------------------------------------------
16 CONTRIBUTED SURPLUS
The following table details the movements of contributed surplus during
the period:
-------------------------------------------------------------------------
Movement
for the nine
months ended
September 30,
2007 Warrants Restricted Options TOTAL
-------------------------------------------------------------------------
shares
-------------------------------------------------------------------------
Note $'000 $'000 $'000 $'000
-------------------------------------------------------------------------
As at January 1,
2007 - - 31,286 31,286
-------------------------------------------------------------------------
Issued on
Uranium One/
UrAsia Energy
business
combination 3 26,407 853 34,782 62,042
-------------------------------------------------------------------------
Issued on EMC
asset
acquisition 4.2 - - 35,307 35,307
-------------------------------------------------------------------------
Share options
expensed - - 25,290 25,290
-------------------------------------------------------------------------
Share options
exercised - - (26,110) (26,110)
-------------------------------------------------------------------------
Restricted
shares
expensed - 3,297 - 3,297
-------------------------------------------------------------------------
Restricted
shares
exercised - (1,075) - (1,075)
-------------------------------------------------------------------------
Warrants
exercised (1,035) - - (1,035)
-------------------------------------------------------------------------
As at
September 30,
2007 25,372 3,075 100,555 129,002
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Movement
for the 5
months ended
December 30,
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 and restricted shared used to calculate
the compensation expense was estimated using the Black scholes option
pricing model with the following assumptions:
-------------------------------------------------------------------------
Sep 30, Dec 31,
2007 2006
-------------------------------------------------------------------------
Risk free interest rate 4.28% - 4.64% 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
-------------------------------------------------------------------------
EMC replacement options 8,382,546 8.14
-------------------------------------------------------------------------
Granted subsequent to April 20, 2007 1,679,900 15.77
-------------------------------------------------------------------------
Exercised subsequent to April 20, 2007 (3,769,873) 4.63
-------------------------------------------------------------------------
Forfeiture of share options
subsequent to April 20, 2007 (114,069) 12.82
-------------------------------------------------------------------------
Outstanding options as at
September 30, 2007 21,332,756 8.47
-------------------------------------------------------------------------
The stock option compensation expense for the three and nine months ended
September 30, 2007 was $15.5 million and $28.6 million (October 31, 2006:
$1.1 million and $6.1 million ) for the Uranium One options and $0.1 and
$0.2 million for the Aflease Gold options for the three and nine months
ended September 30, 2007. As at September 30, 2007, the aggregate
unexpended fair value of unvested stock options granted amounted to
$30.8 million.
The following table summarizes certain information about Uranium One's
stock options outstanding at September 30, 2007:
-------------------------------------------------------------------------
Options outstanding Options exercisable
-------------------------------------------------------------------------
Weight Weight Weight Weight
-ed -ed -ed -ed
Number average average Number average average
outstanding remain exer exercisable remain exer
as at -ing -cise as at -ing -cise
----------------------------------------------------------
Range of
Exercise
Prices Sep 30, life price Sep 30, life price
-------------------------------------------------------------------------
US$ 2007 (years) Cdn $ 2007 (years) Cdn $
-------------------------------------------------------------------------
1.09 to 2.74 1,713,519 2.68 2.34 1,362,474 2.68 2.48
-------------------------------------------------------------------------
3.03 to 4.81 3,625,221 3.69 4.02 2,990,887 3.69 4.02
-------------------------------------------------------------------------
5.00 to 7.79 3,725,229 6.46 6.67 3,062,141 6.46 6.57
-------------------------------------------------------------------------
8.26 to 9.90 5,586,828 4.69 8.42 5,231,246 4.69 8.42
-------------------------------------------------------------------------
10.40 to 11.91 746,750 5.72 11.60 365,000 5.72 11.55
-------------------------------------------------------------------------
12.02 to 13.70 3,511,800 4.64 12.25 1,710,528 4.64 12.09
-------------------------------------------------------------------------
14.12 to 16.87 2,423,409 6.42 15.92 442,280 6.42 16.21
-------------------------------------------------------------------------
21,332,756 4.89 8.47 15,164,556 4.74 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
-------------------------------------------------------------------------
Sep 30, Dec 31,
-------------------------------------------------------------------------
2007 2006
-------------------------------------------------------------------------
Restricted shares issued on business
combination (note 3) 404,231 -
-------------------------------------------------------------------------
Granted 20,000 -
-------------------------------------------------------------------------
Exercised during the period (80,697) -
-------------------------------------------------------------------------
Lapsed during the period (2,722) -
-------------------------------------------------------------------------
Total restricted shares outstanding
at the end of the period 340,812 -
-------------------------------------------------------------------------
Of the outstanding number of Restricted share rights, the grant date was
July 1, 2007 for 20,000 Restricted share rights, December 8, 2006 for
95,720 Restricted share rights, and June 7, 2006 for 225,092 Restricted
share rights. Restricted share rights will not expire while the
participant is in the employ of the Corporation.
The Restricted share rights expense for the three and nine months ended
September 30, 2007 was $0.7 million and $3.3 million. As at
September 30, 2007 the aggregate unexpensed fair value of unvested
restricted share rights granted amounted to $1.5 million.
-------------------------------------------------------------------------
Warrants Number of warrants Allocated value
-------------------------------------------------------------------------
Sep 30, Dec 31, Sep 30, Dec 31,
-------------------------------------------------------------------------
2007 2006 2007 2006
-------------------------------------------------------------------------
$'000 $'000
-------------------------------------------------------------------------
Issued on business
combination (note 3) 2,731,619 - 26,407 -
-------------------------------------------------------------------------
Exercised during
the period (150,000) - (1,035) -
-------------------------------------------------------------------------
At the end
of the period 2,581,619 - 25,372 -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Number of warrants Average exercise price
-------------------------------------------------------------------------
Sep 30, Dec 31, Sep 30, Dec 31,
-------------------------------------------------------------------------
Warrants comprise: 2007 2006 2007 2006
-------------------------------------------------------------------------
2008 Warrants 2,431,619 - 3.55 -
-------------------------------------------------------------------------
Series D Warrants 150,000 - 6.95 -
-------------------------------------------------------------------------
Total 2,581,619 - 3.75 -
-------------------------------------------------------------------------
Series D warrants represents 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.
The Corporation has assumed all of the obligations of EMC arising under
certain agreements with its subsidiaries and third parties in connection
with property option and joint venture agreements of EMC or its
subsidiaries, as the case may be. Uranium One has reserved a total of
2,017,100 common shares of Uranium One for issuance pursuant to the
assumed obligations under the Contingent Share Rights Agreements.
17 FOREIGN EXCHANGE GAINS/(LOSSES)
-------------------------------------------------------------------------
3 months ended 9 months ended
-------------------------------------------------------------------------
A summary of the
foreign exchange gain
/(loss) by item is as
follows: Sep 30, Oct 31, Sep 30, Oct 31,
-------------------------------------------------------------------------
2007 2006 2007 2006
-------------------------------------------------------------------------
$'000 $'000 $'000 $'000
-------------------------------------------------------------------------
Unrealized foreign
exchange (loss)/gain
on future income
tax liability (2,009) 26,900 (16,786) (15,702)
-------------------------------------------------------------------------
Foreign exchange gain
on other items 12,736 123 14,102 1,615
-------------------------------------------------------------------------
10,727 27,023 (2,684) (14,087)
-------------------------------------------------------------------------
18 CASH FLOW INFORMATION
-------------------------------------------------------------------------
3 months ended 9 months ended
-------------------------------------------------------------------------
Sep 30, Oct 31, Sep 30, Oct 31,
-------------------------------------------------------------------------
2007 2006 2007 2006
-------------------------------------------------------------------------
$'000 $'000 $'000 $'000
-------------------------------------------------------------------------
Changes in non-cash
working capital:
-------------------------------------------------------------------------
- Decrease/(increase) in
accounts and other
receivables 25,533 5,784 47,885 (2,497)
-------------------------------------------------------------------------
- Increase in
inventories (9,476) (4,810) (17,817) (7,870)
-------------------------------------------------------------------------
- (Decrease)/increase in
accounts payable and
accrued liabilities (10,277) (1,779) (26,227) 7,526
-------------------------------------------------------------------------
- (Decrease)/Increase in
income taxes payable (5,224) - 1,077 -
-------------------------------------------------------------------------
556 (805) 4,918 (2,841)
-------------------------------------------------------------------------
Significant non-cash
investing activities
-------------------------------------------------------------------------
EMC asset purchase 1,048,522 - 1,048,522 -
-------------------------------------------------------------------------
- common shares 1,013,215 - 1,013,215 -
-------------------------------------------------------------------------
- options 35,307 - 35,307 -
-------------------------------------------------------------------------
Uranium One business
combination - - 1,818,169 -
-------------------------------------------------------------------------
- common shares - - 1,709,647 -
-------------------------------------------------------------------------
- options, warrants
and restricted
share rights - - 62,042 -
-------------------------------------------------------------------------
- equity component
of convertible
debentures - - 46,480 -
-------------------------------------------------------------------------
U.S. Energy asset
purchase - - 99,401 -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplemental cash
flow information
-------------------------------------------------------------------------
Cash interest paid - - 3,201 -
-------------------------------------------------------------------------
Cash taxation paid 7,184 748 20,831 6,239
-------------------------------------------------------------------------
Short term loans
The February 2005 Nedcor Securities loan represented 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.
The August 2006 Nedcor Securities loan represented draw-downs on a
facility provided by Nedcor Securities, secured by Uranium One Africa's
investment in Aflease Gold shares.
Both loans were repaid during the quarter for a total cash consideration
of $55.2 million, including accrued interest with the security over the
investments being released upon repayment.
19 BASIC LOSS PER SHARE AND DILUTED LOSS PER SHARE
-------------------------------------------------------------------------
3 months ended 9 months ended
-------------------------------------------------------------------------
Sep 30, Oct 31, Sep 30, Oct 31,
-------------------------------------------------------------------------
2007 2006 2007 2006
-------------------------------------------------------------------------
Basis (loss)/
earnings per share ($);
and (0.04) 0.12 (0.07) (0.08)
-------------------------------------------------------------------------
Diluted (loss)/
earnings per share ($) (0.04) 0.12 (0.07) (0.08)
-------------------------------------------------------------------------
is calculated based
on a net (loss)/profit
for the period of
($'000) and; (17,257) 25,912 (22,980) (18,321)
-------------------------------------------------------------------------
a weighted average
basic number of
shares
outstanding of 422,308,439 217,164,830 324,894,474 217,164,830
-------------------------------------------------------------------------
a weighted average
diluted number of
shares
outstanding of 422,308,439 217,164,830 324,894,474 217,164,830
-------------------------------------------------------------------------
For the three and nine month periods ended September 30, 2007 and the
nine month period ended October 31, 2006, the impact of outstanding share
options and warrants was excluded from the diluted share calculation
because it was anti-dilutive for loss per share purposes.
20 SEGMENTED INFORMATION
The Corporation's reportable operating segments are summarized in the
table below (alphabetically by country):
For the three months ended September 30, 2007: (in $'000)
-------------------------------------------------------------------------
Operating Depreciation
Country Revenue expenses & depletion
-------------------------------------------------------------------------
$'000 $'000 $'000
-------------------------------------------------------------------------
Honeymoon Uranium Project
and exploration Australia - - (104)
-------------------------------------------------------------------------
Pitchstone Exploration Canada - - -
-------------------------------------------------------------------------
Akdala Uranium Mine Kazakhstan 8,019 (660) (655)
-------------------------------------------------------------------------
South Inkai Uranium
Project Kazakhstan - - -
-------------------------------------------------------------------------
Kharasan Uranium Project Kazakhstan - - -
-------------------------------------------------------------------------
Kyrgyzstan exploration Kyrgyzstan - - (22)
-------------------------------------------------------------------------
Dominion Uranium Mine South Africa - - -
-------------------------------------------------------------------------
Modder East Gold Project South Africa - - (3)
-------------------------------------------------------------------------
Shootaring Canyon
Uranium Mill United States - - (121)
-------------------------------------------------------------------------
Hobson facility and
La Palangana Project United States - - (75)
-------------------------------------------------------------------------
Exploration United States - - (78)
-------------------------------------------------------------------------
Corporate and other - - (9)
-------------------------------------------------------------------------
Total 8,019 (660) (1,067)
-------------------------------------------------------------------------
-----------------------------------------------------------------
Exploration Net profit Capital
expenditure /(loss) expenditure
-----------------------------------------------------------------
$'000 $'000 $'000
-----------------------------------------------------------------
Honeymoon Uranium Project
and exploration (491) (906) 6,102
-----------------------------------------------------------------
Pitchstone Exploration (772) (772) -
-----------------------------------------------------------------
Akdala Uranium Mine - 1,998 769
-----------------------------------------------------------------
South Inkai Uranium
Project - (3) 11,491
-----------------------------------------------------------------
Kharasan Uranium Project - 888 7,463
-----------------------------------------------------------------
Kyrgyzstan exploration (541) (755) 3
-----------------------------------------------------------------
Dominion Uranium Mine (167) (150) 49,041
-----------------------------------------------------------------
Modder East Gold Project - 881 1,970
-----------------------------------------------------------------
Shootaring Canyon
Uranium Mill (23) (536) 5
-----------------------------------------------------------------
Hobson facility and
La Palangana Project - (2,636) 3,073
-----------------------------------------------------------------
Exploration (2,261) (4,875) 381
-----------------------------------------------------------------
Corporate and other (1,318) (10,391) 2,472
-----------------------------------------------------------------
Total (5,573) (17,257) 82,770
-----------------------------------------------------------------
For the nine months ended September 30, 2007:
-------------------------------------------------------------------------
Operating Depreciation
Country Revenue expenses & depletion
-------------------------------------------------------------------------
$'000 $'000 $'000
-------------------------------------------------------------------------
Honeymoon Uranium Project
and exploration Australia - - (197)
-------------------------------------------------------------------------
Pitchstone Exploration Canada - - -
-------------------------------------------------------------------------
Akdala Uranium Mine Kazakhstan 73,014 (9,761) (7,252)
-------------------------------------------------------------------------
South Inkai Uranium
Project Kazakhstan - - -
-------------------------------------------------------------------------
Kharasan Uranium Project Kazakhstan - - -
-------------------------------------------------------------------------
Kyrgyzstan exploration Kyrgyzstan - - (42)
-------------------------------------------------------------------------
Dominion Uranium Mine South Africa - - -
-------------------------------------------------------------------------
Modder East Gold Project South Africa - - (6)
-------------------------------------------------------------------------
Shootaring Canyon
Uranium Mill United States - - (201)
-------------------------------------------------------------------------
Hobson facility and
La Palangana Project United States - - (75)
-------------------------------------------------------------------------
Exploration United States - - (161)
-------------------------------------------------------------------------
Corporate and other - - (16)
-------------------------------------------------------------------------
Total 73,014 (9,761) (7,950)
-------------------------------------------------------------------------
-----------------------------------------------------------------
Exploration Net profit Capital
expenditure /(loss) expenditure
-----------------------------------------------------------------
$'000 $'000 $'000
-----------------------------------------------------------------
Honeymoon Uranium Project
and exploration (909) (1,804) 11,554
-----------------------------------------------------------------
Pitchstone Exploration (1,314) (1,314) -
-----------------------------------------------------------------
Akdala Uranium Mine - 26,060 4,211
-----------------------------------------------------------------
South Inkai Uranium
Project - 123 30,504
-----------------------------------------------------------------
Kharasan Uranium Project - (1,141) 14,649
-----------------------------------------------------------------
Kyrgyzstan exploration (2,549) (3,092) 49
-----------------------------------------------------------------
Dominion Uranium Mine (520) 247 88,601
-----------------------------------------------------------------
Modder East Gold Project - 871 3,534
-----------------------------------------------------------------
Shootaring Canyon
Uranium Mill (31) (850) 5
-----------------------------------------------------------------
Hobson facility and
La Palangana Project - (2,636) 3,073
-----------------------------------------------------------------
Exploration (3,229) (26,743) 381
-----------------------------------------------------------------
Corporate and other (3,438) (12,701) 10,933
-----------------------------------------------------------------
Total (11,990) (22,980) 167,494
-----------------------------------------------------------------
As at September 30, 2007: (in $'000)
-------------------------------------------------------------------------
Mineral
property,
plant and Total Total
Country equipment assets liabilities
-------------------------------------------------------------------------
$'000 $'000 $'000
-------------------------------------------------------------------------
Honeymoon Uranium
Project and
exploration Australia 222,791 256,501 59,638
-------------------------------------------------------------------------
Pitchstone exploration Canada 29,053 22,277 3,031
-------------------------------------------------------------------------
Akdala Uranium Mine Kazakhstan 200,921 247,680 85,483
-------------------------------------------------------------------------
South Inkai Uranium
Project Kazakhstan 437,003 441,439 207,440
-------------------------------------------------------------------------
Kharasan Uranium
Project Kazakhstan 164,782 179,915 94,137
-------------------------------------------------------------------------
Kyrgyzstan
exploration Kyrgyzstan 422 1,750 65
-------------------------------------------------------------------------
Dominion Uranium
Mine South Africa 2,212,809 2,221,778 889,437
-------------------------------------------------------------------------
Modder East Gold
Project South Africa 140,765 111,758 47,886
-------------------------------------------------------------------------
Shootaring Canyon
Uranium Mill United States 45,496 57,657 7,266
-------------------------------------------------------------------------
Hobson facility
and La Palangana
Project United States 48,891 1,475,506 506,389
-------------------------------------------------------------------------
Exploration United States 1,463,608 62,336 29,981
-------------------------------------------------------------------------
Corporate and other 27,583 632,008 119,275
-------------------------------------------------------------------------
Total 4,994,124 5,710,605 2,050,028
-------------------------------------------------------------------------
For the three months ended October 31, 2006: (in $'000)
-------------------------------------------------------------------------
Operating Depreciation
Country Revenue expenses & depletion
-------------------------------------------------------------------------
$'000 $'000 $'000
-------------------------------------------------------------------------
Akdala Uranium Mine Kazakhstan 4,192 (1,417) (1,189)
-------------------------------------------------------------------------
South Inkai Uranium
Project Kazakhstan - - -
-------------------------------------------------------------------------
Kharasan Uranium
Project Kazakhstan - - -
-------------------------------------------------------------------------
Kyrgyzstan exploration Kyrgyzstan - - 17
-------------------------------------------------------------------------
Corporate and other - 2,436 3
-------------------------------------------------------------------------
Total 4,192 1,019 (1,169)
-------------------------------------------------------------------------
-----------------------------------------------------------------
Exploration Net profit Capital
expenditure /(loss) expenditure
-----------------------------------------------------------------
$'000 $'000 $'000
-----------------------------------------------------------------
Akdala Uranium Mine - 7,972 11,550
-----------------------------------------------------------------
South Inkai Uranium
Project - 15,337 -
-----------------------------------------------------------------
Kharasan Uranium
Project - 4,877 3,379
-----------------------------------------------------------------
Kyrgyzstan exploration (1,779) (1,733) (138)
-----------------------------------------------------------------
Corporate and other - (541) (459)
-----------------------------------------------------------------
Total (1,779) 25,912 14,332
-----------------------------------------------------------------
For the nine months ended October 31, 2006: (in $'000)
-------------------------------------------------------------------------
Operating Depreciation
Country Revenue expenses & depletion
-------------------------------------------------------------------------
$'000 $'000 $'000
-------------------------------------------------------------------------
Akdala Uranium Mine Kazakhstan 21,498 (8,406) (1,189)
-------------------------------------------------------------------------
South Inkai Uranium
Project Kazakhstan - - -
-------------------------------------------------------------------------
Kharasan Uranium
Project Kazakhstan - - -
-------------------------------------------------------------------------
Kyrgyzstan exploration Kyrgyzstan - - 92
-------------------------------------------------------------------------
Corporate and other - 6,187 3
-------------------------------------------------------------------------
Total 21,498 (2,219) (1,094)
-------------------------------------------------------------------------
-----------------------------------------------------------------
Exploration Net profit Capital
expenditure /(loss) expenditure
-----------------------------------------------------------------
$'000 $'000 $'000
-----------------------------------------------------------------
Akdala Uranium Mine - 4,347 18,574
-----------------------------------------------------------------
South Inkai Uranium
Project - (8,901) -
-----------------------------------------------------------------
Kharasan Uranium
Project - (3,548) 5,555
-----------------------------------------------------------------
Kyrgyzstan exploration (4,427) (4,358) 150
-----------------------------------------------------------------
Corporate and other - (5,861) (459)
-----------------------------------------------------------------
Total (4,427) (18,321) 23,820
-----------------------------------------------------------------
As at December 31, 2006: (in $'000)
-------------------------------------------------------------------------
Mineral
property,
plant and Total Total
Country equipment assets liabilities
-------------------------------------------------------------------------
$'000 $'000 $'000
-------------------------------------------------------------------------
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
-------------------------------------------------------------------------
21 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
for 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 September 30, 2007, Micawber 397 has not paid
any part of the purchase price.
22 SUBSEQUENT EVENT
Aflease Gold convertible bonds
Aflease Gold announced on October 25, 2007 that it had secured
commitments for subscriptions for approximately $90 million of
convertible bonds, due 2012, to international institutional investors.
The bonds issued by Aflease Gold will, subject to the terms and
conditions of the bonds, be convertible at the option of the bondholders
into ordinary shares of Aflease Gold. The bonds will be issued at 100% of
their principal amount. The coupon and the yield to maturity on the bonds
have been set at 8.5% and 10.0% respectively and the coupon will be
payable quarterly in arrears. The conversion price has been set at a
premium of 25% to the volume weighted average price of the ordinary
shares on the JSE on Friday, 19 October 2007. The issuance of the bonds
is subject to approval by shareholders and the JSE (Johannesburg Stock
Exchange).
Corporate Information
Corporate Office
Uranium One Inc.
390 Bay Street, Suite 1610
Toronto, Ontario M5H 2Y2
Telephone: (416) 350 3657
Facsimile: (416) 363 6806
E-mail: info@uranium1.com
Website: www.uranium1.com
Registrar and Transfer Agent
Computershare Investor Services Inc.
100 University Avenue, 8th Floor
Toronto, Ontario M5J 2Y1
Telephone: (416) 981 9500
Facsimile: (416) 981 9800
Auditors
Deloitte & Touche LLP
Four Bentall Centre
2800-1055 Dunsmuir Street
Vancouver, BC V7X1P4
Telephone: (604) 669 4466
Facsimile: (604) 685 0395
Legal Counsel
Fasken Martineau DuMoulin LLP
Toronto Dominion Bank Tower
Toronto-Dominion Centre
66 Wellington Street West, Suite 4200
Toronto, Ontario M5K 1N6
Telephone: (416) 366 8381
Facsimile: (416) 364 7813
Stock Exchange Listings
The Toronto Stock Exchange
Trading Symbol: UUU
The Johannesburg Securities Exchange
Trading Symbol: UUU