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FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
For May 31, 2004
International Uranium Corporation
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(Translation of registrant's name into English)
Independence Plaza, Suite 950, 1050 Seventeenth
Street, Denver, CO 80265
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(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F.
Form 20-F [X] Form 40-F [ ]
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes [ ] No [X]
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): 82- ________________.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
International Uranium Corporation
---------------------------------
(Registrant)
Date: June 2, 2004 By: /s/ Ron F. Hochstein
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Ron F. Hochstein, President
EXHIBIT INDEX
Exhibit Number Description
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1 Second Quarter Report for six months ended March 31, 2004
REPORT TO SHAREHOLDERS
2ND QUARTER 2004
(U.S. DOLLARS)
Through the first six months of fiscal 2004 uranium prices have increased over
43%, from $12.20 per pound U3O8, on September 30, 2003 to $17.50 per pound by
the end of March, 2004. Due to a lack of spot market activity, prices have
leveled off at $17.75 per pound; however, activity in the latter part of 2004 is
anticipated which could result in further increases in the uranium spot price.
The uranium market supply and demand fundamentals are in a period of significant
change and uncertainty and as illustrated in the figure below, point to the need
for additional primary mine production. Over the past twenty years, the
production deficit has been made up from secondary supplies, such as government
and utility inventories and downblending programs, all of which have a finite
supply. In addition, the impact of Russia attempting to terminate a long term
contract in November 2003, for the supply of high enriched uranium ("HEU")
material with Globe Nuclear Services and Supply GNSS, Limited ("GNSS"), which is
the largest seller of HEU feed to U.S. utilities, has created an additional
sense of uncertainty in the market, and contributed to the increase in the
uranium spot price.
[U308 PRODUCTION VS DEMAND LINE CHART]
As a result of the continued increase in the uranium price, International
Uranium Corporation ("IUC" or the "Company") is expanding its uranium
exploration activities in both Canada and Mongolia.
In the Athabasca Basin region of northern Saskatchewan, Canada, the Company
acquired an interest in the Moore Lake uranium exploration property in the first
quarter from JNR Resources Inc. ("JNR"). The Athabasca Basin region hosts the
world's richest uranium reserves. The Company's exploration properties are
located near to Cameco Corporation's McArthur river uranium mine, the world's
largest uranium mine with annual capacity of 18 million pounds U3O8. This region
fuels well over 10% of the United States' electrical power needs and accounts
for approximately thirty percent of the world's uranium production. In addition
to the property interest acquired last quarter, the Company also acquired 1.5
million shares of JNR during the quarter to bring its total share position to
approximately 6% of the outstanding shares of JNR.
The Company and JNR initiated a drilling program on the Moore Lake property
which focused on following up on the high grade Maverick zone discovery hole,
which was drilled by Kennecott (the previous operator) and JNR in 2000, and
reconnaissance drilling to further determine the potential extent of the
mineralizing system. A total of 6,747 meters were drilled in 19 drill holes
during the successful winter program. The results not only expanded the extent
of the known high grade Maverick zone, but also
significantly expanded the extent of the mineralizing system. The first eight
holes of the 2004 program focused primarily on the high grade Maverick zone and
returned two new high grade uranium intercepts in Holes ML-29 and ML-35. Hole
ML-29, based on probe results, returned a grade equivalent of 1.3% U3O8 over 7.5
meters (261.5 to 269.0 m), including 2.3 meters of 3.6% U3O8. Within the higher
grade core there was one continuous 0.5 meter sample that assayed 7.91% U3O8.
Hole ML-35 intersected 11.1 meters of uranium mineralization (262.4 to 273.5 m).
The upper 4.9 meters was low-grade sandstone-hosted mineralization that assayed
0.05% U3O8. Immediately beneath that was a 0.7 meter section of lost core,
followed by 5.5 meters that assayed 1.61% U3O8, including a 1.5 meter interval
grading 5.3% U3O8. The 0.7 meter lost core interval returned a grade equivalent
of 2.69% U3O8, based on probe results.
The drill program was shut down in mid-April for spring break-up and will
restart in early June. The summer drill program will again focus on the
expansion of the high grade zone with more close-spaced drill holes in the
Maverick zone, as well as additional reconnaissance drilling on the Maverick
zone conductor and drilling on the other identified prospective conductors on
the Moore Lake project.
In addition to the drilling program on the Moore Lake project, the Company also
carried out a 1,250 line-kilometer airborne geophysical program on the Pendleton
Lake, Cigar Lake South and Key Lake South projects. Currently the Company's land
position on both optioned and 100% owned property is over 135,000 hectares. The
Company is planning its 2004 summer exploration program which, in addition to
the Moore Lake drilling program, will include additional geophysics and soil and
boulder sampling on a number of project areas.
In addition to the Company's Canadian exploration program, the Company has begun
planning a summer exploration program on its Gurvan-Saihan Joint Venture in-situ
leach uranium project in Mongolia. The Company is anticipating a reconnaissance
geological field program as well as drilling of new prospect areas.
With respect to IUC's U.S. uranium properties, further increases in both uranium
and vanadium prices above current levels would be required in order for the
Company to recommence its U.S. mining activities; however, the Company has
commenced studying the feasibility of restarting some of these mines in light of
the increase in uranium price and market projections.
In March of 2004, the Company announced that it has entered into a letter
agreement to sell its base and precious metal exploration properties to Fortress
IT Corp. ("Fortress") in consideration for 28 million shares of Fortress, which
will give the Company a 59% interest in Fortress. The various regulatory and
legal approvals for the transaction are progressing with the transaction
anticipated to close in June, 2004. This transaction will enable IUC to focus on
its uranium exploration and production opportunities, while still maintaining
the capability to recognize any increase in value in the base and precious metal
properties through its shareholding in Fortress.
In the U.S., the Company continues to focus on developing its alternate feed
business as a feed source for the Company's White Mesa Mill (the "Mill"). During
the quarter, the Mill began receiving material from a commercial generator and
continued to receive material from the Linde FUSRAP site, although volumes from
the Linde site were reduced during the second quarter of fiscal 2004 as compared
to previous quarter receipts. In addition to the forgoing material, the Company
continues to receive deliveries of alternate feed materials from another uranium
producer. While the Company does not receive a processing fee for this
particular alternate feed material, it will produce uranium from these
materials, which can then be sold. As of the end of the second quarter of fiscal
2004, there was approximately 6,225 tons of this material at the Mill, which
contains approximately 430,000 lbs of uranium. The Company is currently
evaluating the feasibility of processing these materials during 2004.
On its Urizon alternate feed program with Nuclear Fuel Services, Inc. ("NFS"),
NFS and the Company are continuing to investigate the potential for alternative
commercial opportunities to move the program forward. In April of 2003, NFS
submitted a proposal to the U.S. Department of Energy ("DOE") to fund the Urizon
program. In January 2004, NFS was notified that the DOE would not fund the
program at that time due to other programmatic needs. The material that was the
focus of the Urizon program is still held
by the DOE, and NFS and the Company are evaluating alternatives to move forward
without government funding.
With respect to the Company's Moab project, the U.S. Department of Energy
("DOE") has delayed the release of the draft Moab Tailings Environmental Impact
Statement ("EIS") until the fall of 2004. Originally the draft EIS was to be
released in April of this year. The Company's proposal to relocate the Moab
tailings pile to the Mill using slurry pipeline technology is one of five
alternatives currently being considered in the scope of the EIS.
For the first six months of fiscal 2004, the Company recorded a net loss of
$1,621,013 ($0.02 per share), as compared to net income of $5,089,601 ($0.08 per
share) on revenues of $9,091,904 for the first six months of fiscal 2003. This
difference is primarily due to the fact that the Mill was processing alternate
feed materials during the same period of fiscal 2003, which generated operating
profits. The Mill is currently on stand-by. The Company continues to have a
strong cash and short term investment position of $10,074,209.
The Company is now seeing a level of activity not seen since 1997-98 with
exploration activities in Mongolia and Canada and alternate feed activities at
its White Mesa Mill in Utah. The currently improved uranium market fundamentals
and optimistic forecasts are encouraging, and the Company is continuing to
evaluate opportunities to expand and develop its existing portfolio of uranium
assets.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis of the financial condition and results of
operations for the Company for the period ended March 31, 2004 is written as of
May 28, 2004 and should be read in conjunction with the consolidated financial
statements and accompanying notes. The consolidated financial statements are
prepared in accordance with generally accepted accounting principles in Canada.
OVERVIEW
IUC is incorporated under the Business Corporations Act (Ontario). The Company
is engaged primarily in uranium exploration and in the business of recycling
uranium-bearing waste materials, referred to as "alternate feed materials," for
the recovery of uranium, alone or in combination with other metals, as an
environmentally preferable alternative to the direct disposal of these waste
materials. Alternate feed materials are generally ores or residues from other
processing facilities that contain uranium in quantities or forms that can be
recovered at the Mill. In addition, the Company sells uranium recovered from
these operations, as well as vanadium and other metals that can be produced as a
co-product with uranium. The Company owns several uranium and uranium/vanadium
mines in the U.S. that have been shut down pending further improvements in
commodity prices. In addition, the Company is engaged in precious and base
metals exploration in Mongolia.
Due to deteriorating commodity prices at the time and other factors, the Company
ceased its uranium mining and exploration activities in 1999/2000, and shut down
all of its mines and its Mongolian uranium joint venture indefinitely, pending
significant improvements in commodity prices. During that time period, the
Company focused its resources primarily on the continuing development of the
alternate feed, uranium-bearing waste recycling business, and the Company
initiated a precious and base metals exploration program in Mongolia.
As a result of the recent increases in uranium prices and improved market
fundamentals, the Company acquired uranium exploration properties in the
Athabasca Basin region of Saskatchewan, Canada, and commenced an exploration
program on certain of those properties during the first quarter of fiscal 2004.
While the Company is currently evaluating the possibility of recommencing its
uranium exploration program in Mongolia, further increases in both uranium and
vanadium prices above current levels would be
required in order for the Company to recommence its U.S. mining activities,
which have a higher cost of production.
In addition to its exploration programs, the Company intends to continue to
devote significant resources to the development of the alternate feed,
uranium-bearing waste recycling business. The Company expects that the
development of the business of recycling uranium-bearing materials can continue
to help offset Mill and mine standby costs, and, potentially, result in
sustained profitable operations for the Company. While the Company has had
considerable success to date in this initiative, and the alternate feed business
has helped to offset Mill and mine standby costs, the Company has not to date
developed a sufficient backlog of alternate feed business to result in sustained
profitable operations for the Company solely from this business. Developing this
backlog will continue to be a major focus of the Company.
In the first quarter of fiscal 2003, the Company entered into a joint venture
with Nuclear Fuel Services, Inc. ("NFS") for the pursuit of an alternate feed
program for the Company's Mill. The joint venture is carried out through Urizon
Recovery Systems, LLC, a 50/50 joint venture company.
REVENUES
Revenues for the second quarter of fiscal 2004 consisted of revenue from
vanadium sales and fees from engineering services. Revenues for the second
quarter and first six months of fiscal 2004 were $1,644,638 and $2,035,262,
respectively as compared to $4,817,797 and $9,091,904 for the comparable periods
in fiscal 2003. The decrease in revenue of $3,173,159 and $7,056,642 in fiscal
2004 over 2003 is due to the fact that the Mill has been on stand-by since May
2003. As the Mill is currently on stand-by, alternate feed processing activities
during the second quarter of fiscal 2004 consisted primarily of receipt of
material from Linde and another commercial generator.
The Company receives a recycling fee for a majority of the alternate feed
materials once they are delivered to the Mill. Fees are recorded as deferred
revenue until the material is processed at which time they are recorded as
revenue. In addition to the recycling fees, the Company will retain any uranium
recovered from these materials, which can be sold in subsequent periods.
During the second quarter the Company sold its inventory of vanadium as
blackflake, leaving an ending inventory of approximately 65,000 pounds of
vanadium, as vanadium pregnant liquor. Over the past six months, vanadium prices
have improved and are currently trading in the range of $4.50 to $6.00 per pound
V2O5. The Company is continuing to evaluate opportunities to sell its vanadium
pregnant liquor inventory.
In addition to FUSRAP (Formerly Utilized Sites Remedial Action Program) material
from the Linde site, and alternate feed material from another commercial
generator, the Company continues to receive deliveries of alternate feed
materials from another uranium producer under a long-term arrangement. While the
Company will not receive a processing fee for this particular alternate feed
material, it will produce uranium from these materials, which will then be sold.
As of March 31, 2004, there were approximately 6,200 tons of these materials at
the Mill, containing approximately 430,000 lbs of uranium. Revenues from these
materials will be recognized as recovered uranium is sold. Materials received
from other uranium producers or private industry sources tend to be relatively
high in uranium content but relatively small in volume as compared to FUSRAP
materials.
COST OF PRODUCTS AND SERVICES SOLD
In the second quarter of fiscal 2004, cost of goods sold of $696,905 was
recognized as a result of the sale of the Company's vanadium black flake
inventory. Process milling expenditures for the second quarter and first six
months of fiscal 2004 of $40,653 and $73,455 represent expenditures incurred
receiving alternate feed materials. These expenditures decreased by $1,766,399
and $3,421,566 as compared to the second quarter and first six months of fiscal
2003. The decrease is due to the fact that the Mill has been on stand-by since
May 23, 2003. During the second quarter of fiscal 2004, the Company only
received 111 tons of alternate feed material from the Linde site as compared to
the first quarter of fiscal 2004 during which the
Company received 3,329 tons of Linde material. As of March 31, 2004,
approximately 39,000 tons of material remained in stockpile waiting to be
processed during the next mill run. The timing of the next mill run will depend
on a number of factors such as uranium price and the amount of material
available to be processed. In addition to the Linde material, the Company
received 107 tons of material from another commercial generator.
MILL STAND-BY
Mill stand-by expenses consist primarily of payroll and related expenses for
personnel, parts and supplies, contract services and other overhead expenditures
required to maintain the Mill on stand-by status until a sufficient stockpile of
alternate feed material has been accumulated to justify an efficient mill run.
During the second quarter of fiscal 2004, the Mill did not process any alternate
feed material, resulting in Mill stand-by expenditures of $654,540. In the
comparable period for fiscal 2003, there were no stand-by expenses since the
Mill was actively processing alternate feed material.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses consist primarily of payroll and
related expenses for personnel, legal, contract services and other overhead
expenditures. Selling, general and administrative expenses for the second
quarter and first six months of fiscal 2004 were $692,336 and $1,617,225
respectively as compared to $414,177 and $1,000,086 for the comparable periods
in fiscal 2003. The increase of $278,159 and $617,139 as compared to the same
periods in fiscal 2003 were primarily due to increased travel expenses due to
the increased exploration activity, additional costs associated with setting up
the Vancouver office and increased activity associated with the U.S. mining
properties.
EXPLORATION
Uranium Exploration
In the first quarter of fiscal 2004, the Company acquired interests in uranium
exploration properties in the Athabasca Basin region of Saskatchewan, Canada and
commenced an exploration program on certain of those properties. Total gross
program expenditures, including capitalized exploration expenditures, for the
second quarter of fiscal 2004 were $643,875, compared to first quarter
expenditures of $160,583. The increase in expenditures was due to the ongoing
drilling program, as well as additional geophysical programs. For the first six
months of fiscal 2004, exploration expenditures of $58,553 were expensed, which
were mostly related to miscellaneous contract services.
The Company also has a 70% interest in the Gurvan-Saihan Joint Venture ("GSJV")
in Mongolia. The other parties to the joint venture are the Mongolian government
as to 15% and Geologorazvedka, a Russian geological concern, as to 15%. The
joint venture holds 5 exploration licenses totaling 1 million hectares. In the
second quarter, the Company, on behalf of the GSJV, filed for seven additional
exploration licenses in six separate areas, covering a total of 540,000
hectares. The new licenses were issued in the second quarter, bringing the joint
venture's total land holding to 1.65 million hectares as of March 31, 2004.
Other than the licensing of new lands in anticipation of a renewed exploration
program later in fiscal 2004, this in-situ leach uranium project remained on
stand-by. During the first six months of fiscal 2004 the Company spent
approximately $52,378 on GSJV activities.
Precious and Base Metals Exploration
During the second quarter of fiscal 2004, the Company announced the sale of its
precious and base metal exploration properties in Mongolia in consideration for
28 million shares of Fortress IT Corp. (Fortress). This transaction will
constitute a reverse takeover of Fortress and IUC will own approximately 59% of
Fortress. Until the sale is closed this program is being funded 100% by the
Company, and, upon the closing of the transaction, Fortress will reimburse the
Company for expenditures incurred from March 1, 2004 until the closing date. As
of March 31, 2004, the Company controlled 73 licenses totaling 1.74
million hectares. The Company holds 100% of 51 licenses, and the remaining 22
licenses are held under an option to purchase. In the second quarter of 2004,
the Company added 8 licenses totaling 115,000 hectares at the request of
Fortress.
Total gross program expenditures, including capitalized exploration
expenditures, for the second quarter of fiscal 2004 were $365,991 compared to
the first quarter of fiscal 2004 of $408,777 bringing the total expenditures for
the first six months to $774,768, an increase of $528,366 as compared to
$246,402 in the first six months of fiscal 2003. The increase was due to the
drilling program carried out on specific targets in western Mongolia and
increased land payments.
OTHER INCOME AND EXPENSE
Net interest and other income for the second quarter and first six months of
fiscal 2004 was $124,862 and $228,889 respectively, as compared to $235,096 and
$368,562 for the second quarter and first six months of fiscal 2003. The
decrease was primarily the result of lower realized gains on money market
investments. Foreign exchange losses during the quarter were $112,734 due to the
appreciation of the U.S. dollar vis-a-vis the Canadian dollar. This brought the
year to date foreign exchange gain down to $28,365.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2004, the Company had cash and short-term investments of
$10,074,209 and working capital of $12,650,003 as compared to cash and
short-term investments of $4,729,039 and working capital of $7,294,884 at
September 30, 2003. In the first six months of fiscal 2004 the increase of
$5,355,119 in working capital was primarily due to the receipt of net proceeds
from private placements for 6.7 million common shares at a price of Cdn $1.50
per share and 2 million flow through common shares at a price of Cdn $1.10 per
share, offset by increased Canadian exploration activities and investment in
share of JNR Resources Inc.
Net cash used in operating activities was $979,255 for the first six months of
fiscal 2004 and consisted primarily of the net loss from continuing operations
of $1,621,013, adjusted for non-cash items of depreciation of $229,552, offset
by a decrease in inventory of $637,021, and decreases in accounts payable and
accrued liabilities of $288,568. The increase in trade and other receivables
during the quarter was primarily due to the amounts due from the sale of the
vanadium black flake.
Net cash used in investment activities was $2,468,108 for the six months ended
March 31, 2004 and consisted primarily of capitalized exploration expenditures
in Mongolia and Canada of $1,532,663. Restricted investments increased by
$181,113 as a result of interest income during the quarter, and the Company
invested $723,225 in JNR Resources, Inc. during the first six months of fiscal
2004.
Net cash provided by financing activities for the three months ending March 31,
2004 totaled $8,792,533 and consisted primarily of proceeds from the issuance of
8.7 million common shares.
CRITICAL ACCOUNTING ESTIMATES
The preparation of the Company's consolidated financial statements in conformity
with accounting principles in Canada and the United States requires management
to make estimates and assumptions regarding future events. These estimates and
assumptions affect the reported amounts of certain assets and liabilities, and
disclosure of contingent liabilities.
The most critical accounting principles upon which the Company's financial
status depends are those requiring estimates of the timing and amount of future
reclamation obligations and the recoverability of its capitalized mineral
property expenditures.
On an ongoing basis, management re-evaluates its estimates and assumptions.
However actual amounts could differ from those based on such estimates and
assumptions.
CONTRACTUAL OBLIGATIONS
Set out below are the Company's principal contractual obligations in the
following categories:
Less than 1 1 to 3 3 to 5 More than
(expressed in thousands of dollars) Year Years Years 5 Years
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Operating lease obligations $112 $42 $3 $Nil
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In addition, the Company has a reclamation obligation of $12,507,614, the timing
of which will depend upon the Company's business objectives. While this
reclamation obligation was valued on the assumption that the Company must be
able to fund reclamation of the White Mesa Mill at any time, the Company
currently has no intention of placing the Mill into reclamation in the
foreseeable future.
ENVIRONMENTAL RESPONSIBILITY
Each year, the Company reviews the anticipated costs of decommissioning and
reclaiming its Mill and mine sites as part of its environmental planning
process. The Company also formally reviews the Mill's reclamation estimate
annually with the U.S. Nuclear Regulatory Commission. The Mill and mine
reclamation estimates at March 31, 2004 are $12,507,614, which are currently
expected to be sufficient to cover the projected future costs for reclamation of
the Mill and mine operations. However, there can be no assurance that the
ultimate cost of such reclamation obligations will not exceed the estimated
liability contained in the Company's financial statements.
The Company has posted bonds as security for these liabilities and has deposited
cash, cash equivalents, and fixed income securities as collateral against these
bonds. For fiscal 2004 and 2003, the amount of these restricted investments
collateralizing the Company's reclamation obligations was $12,288,000 and
$12,106,947 respectively. The increase of $181,053 was due to interest income
from these investments.
As mentioned in previous reports, the Company had detected some chloroform
contamination at the Mill site that appeared to have resulted from the operation
of a temporary laboratory facility that was located at the site prior to and
during the construction of the Mill facility, and from septic drain fields that
were used for laboratory and sanitary wastes prior to construction of the Mill's
tailings cells. In April 2003, the Company commenced an interim remedial program
of pumping the chloroform-contaminated water from the groundwater to the Mill's
tailings cells. This will enable the Company to begin clean up of the
contaminated areas and to take a further step towards resolution of this
outstanding issue. Although the investigations to date indicate that this
contamination appears to be contained in a manageable area, the scope and costs
of remediation have not yet been determined and could be significant
RESEARCH AND DEVELOPMENT
The Company does not have a research and development program per se. Process
development efforts expended in connection with the processing of alternate
feeds are included as a cost of processing. Process development efforts expended
in the evaluation of potential alternate feed materials that are not ultimately
processed at the Mill are included in Mill overhead costs. The Company does not
rely on patents or technological licenses in any significant way in the conduct
of its business.
TREND INFORMATION
During the period 1997 through 2000, the Company saw a deterioration in both
uranium and vanadium prices, from $11.00 per pound of U3O8 and $4.10 per pound
of V2O5 in October 1997 to $7.40 per pound of U3O8 and $1.70 per pound of V2O5
at the end of September, 2000. As a result of these decreases in commodity
prices, the Company decided to cease its uranium and uranium/vanadium mining and
exploration activities in 1999, and shut down all of its uranium and
uranium/vanadium mines and its
Mongolian Gurvan-Saihan Joint Venture. Also as a result of these market events,
the Company decided to marshal its resources and to concentrate its operations
primarily on the continuing development of the alternate feed, uranium-bearing
waste recycling business. Although uranium prices have increased to over $17.00
per pound U3O8 by the end of May 2004, and vanadium is currently trading in the
range of $4.10 to $6.00 per pound V2O5, prices are still too low to justify the
operation of the Company's U.S. mines given their higher cost of production.
However, with these higher uranium prices, the Company is evaluating the
possibility of recommencing development of its Gurvan-Saihan Joint Venture. In
addition, the Company has acquired additional uranium exploration properties in
Canada in fiscal 2004 and has commenced an aggressive exploration program on
certain of those properties.
Although the Mill's tailings system currently has capacity to process all of the
alternate feed materials under contract with the Company, this capacity is
expected to run out within the next one to three years, depending on the level
of success of the Company in entering into contracts for the processing of
additional feed materials. In order to provide additional tailings capacity, the
Company will have to repair existing tailings Cell No. 4A, at an estimated cost
of $1.5-$3.0 million. In addition, if Cell No. 4A is put into use, the
reclamation obligation for the Mill would increase by approximately $1.0
million, which would require an increase in the Mill's reclamation bond by that
amount. The repair of Cell No. 4A will provide the Company with approximately 2
million tons of additional tailings capacity, which should be ample capacity for
the foreseeable future.
OUTLOOK FOR 2004
With the recent increases in uranium price and the improvement in uranium market
fundamentals, the Company will be putting more focus on acquisition and
development of world-class uranium projects, including its Canadian exploration
properties, while also continuing to aggressively pursue additional alternate
feed material for the White Mesa Mill.
Revenues for the remainder of fiscal 2004 will depend on the timing and length
of the next mill run and the decision by management to sell uranium and vanadium
from inventories. Currently, the Company is performing confirmatory test work
for a potential mill run later in the year, in which three alternate feed
materials, which have uranium grades ranging from 2% to 10%, would be processed.
In addition to these materials, the Company anticipates continuing to receive
alternate feed materials from the Linde FUSRAP site throughout the year;
however, volumes will be reduced. In addition to the Linde material, the Company
is currently receiving material from a commercial generator and another uranium
producer during the remainder of fiscal 2004. With respect to the Urizon
project, the Company and its joint venture partner, Nuclear Fuel Services, Inc.,
are investigating alternative commercial arrangements, and re-evaluating the
feasibility of the project, as a result of the Department of Energy's recent
decision not to fund the program at this time.
With higher uranium prices, the Company is evaluating restarting activity in
Mongolia on its Gurvan-Saihan Joint Venture. With respect to the U.S.
uranium/vanadium mines, however, the Company intends to maintain those assets on
stand-by. The Company is studying the feasibility of re-opening some of these
mine sites pending further increases in uranium and vanadium prices.
In Canada, the Company's exploration program on its Moore Lake project, with JNR
Resources Inc., will continue in 2004 with additional drilling and focused
geophysical programs. In addition to the Moore Lake property, the Company will
expand its exploration program to other properties held 100% by the Company or
joint ventured with other companies, and will continue to joint venture or
acquire additional properties in the Athabasca Basin.
RISKS AND UNCERTAINTIES
Exploration for and development of mineral properties involves significant
financial risks which even a combination of careful evaluation, experience and
knowledge may not eliminate. While discovery of an ore body may result in
substantial rewards, few properties which are explored are ultimately developed
into
producing mines. Major expenditures may be required to establish reserves by
drilling, constructing mining and process facilities at a site, developing
metallurgical processes and extracting uranium and other metals from ore. It is
impossible to ensure that the current exploration programs of the Company will
result in profitable commercial mining operations.
Under the NRC's Alternate Feed Guidance, the Mill is required to obtain a
specific license amendment allowing for the processing of each new alternate
feed material. Various third parties have challenged certain of the Mill's
license amendments, although none of such challenges have been successful to
date. The Company intends to continue to defend its positions and the validity
of its license amendments and proposed license amendments. If the Company does
not ultimately prevail in any such actions and any appeals there from, the
Company's ability to process certain types of alternate feeds, in certain
circumstances, may be adversely affected, which could have a significant impact
on the Company.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in the foregoing Management's Discussion and
Analysis and elsewhere in this Report to Shareholders constitute forward-looking
statements. Such forward-looking statements involve a number of known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
the statements were made, and readers are advised to consider such
forward-looking statements in light of the risks set forth below.
Risk factors that could affect the Company's future results include, but are not
limited to, risks inherent in mineral exploration and development, competition,
environmental regulations, reliance on alternate feed income, the ability to
develop the alternate feed business, changes to reclamation requirements,
dependence on a limited number of customers, volatility and sensitivity to
market prices for uranium and vanadium, the impact of changes in foreign
currencies' exchange rates, political risk arising from operating in Mongolia,
changes in government regulation and policies including trade laws and policies,
demand for nuclear power, replacement of reserves and production, receipt of
permits and approvals from governmental authorities (including amendments for
each alternate feed transaction) and other operating and development risks.
INTERNATIONAL URANIUM CORPORATION
CONSOLIDATED BALANCE SHEETS
(United States Dollars)
MARCH 31, 2004 SEPTEMBER 30, 2003
(UNAUDITED) (AUDITED)
-------------- ------------------
ASSETS
Current assets:
Cash and cash equivalents $ 8,984,249 $ 3,639,079
Short-term investments 1,089,960 1,089,960
Trade and other receivables 1,764,948 833,038
Inventories 1,124,347 1,761,368
Prepaid expenses and other 250,007 382,488
Due from Urizon Joint Venture 2,835 451,152
------------- ------------
13,216,346 8,157,085
Plant and equipment, net 2,854,038 2,825,238
Mineral properties 3,272,483 1,776,982
Marketable securities (Note 2) 723,225 --
Investment in Urizon Joint Venture 750,000 750,000
Restricted investments (Note 3) 12,288,060 12,106,947
------------- ------------
$ 33,104,152 $ 25,616,252
============= ============
LIABILITIES
Current liabilities:
Accounts payable and accrued liabilities $ 558,150 $ 847,729
Notes payable 8,193 14,472
------------- ------------
566,343 862,201
Notes payable, net of current portion 51,052 51,052
Reclamation obligations (Note 4) 12,507,614 12,320,983
Deferred revenue 2,357,218 2,158,938
Other long-term liability 99,593 98,582
------------- ------------
15,581,820 15,491,756
------------- ------------
SHAREHOLDERS' EQUITY
Share capital (77,870,066 and 68,970,066
shares issued and outstanding) 46,734,345 37,935,533
Value assigned to stock options (Note 6) 220,037 --
Deficit (29,432,050) (27,811,037)
------------- ------------
17,522,332 10,124,496
------------- ------------
$ 33,104,152 $ 25,616,252
============= ============
ON BEHALF OF THE BOARD
Ron F. Hochstein, Director Lukas H. Lundin, Director
INTERNATIONAL URANIUM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(United States Dollars) (Unaudited)
THREE MONTHS ENDED MARCH 31 SIX MONTHS ENDED MARCH 31
2004 2003 2004 2003
------------ ------------ ------------ ------------
OPERATIONS
Revenue
Vanadium sales $ 1,582,628 $ -- $ 1,582,628 $ --
Process milling -- 4,817,797 31,452 9,091,904
Engineering services 62,010 -- 421,182 --
------------ ------------ ------------ ------------
Total revenue 1,644,638 4,817,797 2,035,262 9,091,904
------------ ------------ ------------ ------------
Costs and expenses
Vanadium cost of sales 696,905 -- 696,905 --
Process milling expenditures 40,653 1,807,052 73,455 3,495,021
Mill stand-by expenditures 654,540 -- 1,204,349 --
Selling, general and administrative 692,336 414,177 1,617,225 1,000,086
Stock based compensation -- -- 220,037 --
Exploration general 49,305 -- 91,630 10,877
Change in market value of other asset -- -- -- (79,000)
Write-down of mineral properties -- -- 37,162 --
Depreciation 6,599 8,544 13,380 17,088
------------ ------------ ------------ ------------
2,140,338 2,229,773 3,954,143 4,444,072
------------ ------------ ------------ ------------
Operating (loss) income (495,700) 2,588,024 (1,918,881) 4,647,832
Net interest and other income 124,862 235,096 228,889 368,562
Gain (loss) on sale of land and equipment 28,114 125 40,614 72,669
Foreign exchange gain (loss) (112,734) 664 28,365 538
------------ ------------ ------------ ------------
(Loss) income for the period (455,458) 2,823,909 (1,621,013) 5,089,601
============ ============ ============ ============
Basic and diluted (loss) income per share $ (0.01) $ 0.04 $ (0.02) $ 0.08
============ ============ ============ ============
Basic weighted average number of shares outstanding 77,805,622 65,981,695 74,477,758 65,856,337
DEFICIT
Deficit, beginning of period (28,976,592) (31,078,497) (27,811,037) (33,344,189)
Net (loss) income for the period (455,458) 2,823,909 (1,621,013) 5,089,601
------------ ------------ ------------ ------------
DEFICIT, END OF PERIOD $(29,432,050) $(28,254,588) $(29,432,050) $(28,254,588)
============ ============ ============ ============
INTERNATIONAL URANIUM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(United States Dollars) (Unaudited)
THREE MONTHS ENDED MARCH 31 SIX MONTHS ENDED MARCH 31
2004 2003 2004 2003
------------ ----------- ----------- -----------
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net (loss) income for the period $ (455,458) $ 2,823,909 $(1,621,013) $ 5,089,601
Items not affecting cash
Depreciation 112,877 151,028 229,552 347,731
Gain on sale of equipment (28,114) (7,106) (40,614) (79,425)
Gain on sale of short-term investments -- (121,806) -- (121,806)
Gain on disposition of other asset -- -- -- (79,000)
Write-down of mineral properties -- -- 37,162 --
Changes in non-cash working capital items
(Increase) decrease in trade and other receivables (1,351,992) 466,142 (483,593) (552,621)
Decrease (increase) in inventories 637,704 186,732 637,021 (265)
Decrease in other current assets 5,863 12,402 132,481 109,830
Increase (decrease) in other accounts payable and
accrued liabilities 120,400 199,546 (288,568) (173,207)
Increase (decrease) in deferred revenue 14,174 (4,229,876) 198,280 (6,986,357)
Stock based compensation -- -- 220,037 --
------------ ----------- ----------- -----------
NET CASH USED IN OPERATIONS (944,546) (519,029) (979,255) (2,445,519)
------------ ----------- ----------- -----------
INVESTING ACTIVITIES
Purchase of plant and equipment (29,076) (41,936) (71,721) (58,909)
Mineral properties (1,005,628) (90,986) (1,532,663) (246,402)
Purchase of intangible asset -- -- -- (750,000)
Proceeds from sale of short-term investments -- 1,377,260 -- 1,377,260
Proceeds from sale of surplus equipment 28,114 13,700 40,614 91,000
Purchase of marketable securities (570,865) (996,675) (723,225) (996,675)
(Increase) decrease in restricted investments (81,060) 887,374 (181,113) 768,550
------------ ----------- ----------- -----------
NET CASH (USED IN) PROVIDED BY INVESTMENT ACTIVITIES (1,658,515) 1,148,737 (2,468,108) 184,824
------------ ----------- ----------- -----------
FINANCING ACTIVITIES
Decrease in notes payable (2,752) (2,673) (6,279) (5,807)
Settlement of other asset -- -- -- (280,000)
Issuance of common shares -- -- 8,747,097 --
Exercise of employee stock options 51,715 73,544 51,715 73,544
------------ ----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 48,963 70,871 8,792,533 (212,263)
------------ ----------- ----------- -----------
(Decrease) increase in cash and cash equivalents (2,554,098) 700,579 5,345,170 (2,472,958)
Cash and cash equivalents, beginning of period 11,538,347 3,537,245 3,639,079 6,710,782
------------ ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 8,984,249 $ 4,237,824 $ 8,984,249 $ 4,237,824
============ =========== =========== ===========
INTERNATIONAL URANIUM CORPORATION
Notes to Consolidated Financial Statements
(United States Dollars) (Unaudited)
1. Basis of Preparation of Financial Statements
These unaudited interim consolidated financial statements of the Company
and its subsidiaries have been prepared in accordance with accounting
principles generally accepted in Canada on a basis consistent with the
consolidated financial statements of the Company included in its 2003
annual report.
These unaudited interim consolidated financial statements follow the same
accounting policies as the most recent audited annual consolidated
financial statement of the Company. They do not contain all of the
information required by generally accepted accounting principles for annual
financial statements and therefore should be read in conjunction with the
consolidated financial statements included in the Company's 2003 annual
report.
2. Marketable securities
The Company has invested $723,225 in JNR Resources Inc. to purchase
3,500,000 shares during the first six months ended March 31, 2004,
representing approximately 6% of the outstanding shares of JNR. As at March
31, 2004 the market value of the investment was $1,418,741.
3. Restricted Investments
Amounts represent cash and fixed income securities the Company has placed
on deposit to secure its reclamation and performance bonds (Note 3).
March 31, 2004 September 30, 2003
-------------- ------------------
Cash and cash equivalents $ 1,829,105 $ 2,177,688
Fixed income securities 10,458,955 9,929,259
----------- -----------
$12,288,060 $12,106,947
=========== ===========
4. Provisions for Reclamation
Estimated future decommissioning and reclamation costs of the Mill and U.S.
mining properties are based principally on legal and regulatory
requirements. At March 31, 2004, $12,507,614 was accrued for reclamation
costs, and this amount also includes the bond posted in favor of the United
States Nuclear Regulatory Commission and the applicable state regulatory
agencies as partial security for these liabilities. The Company has
deposited cash and fixed income securities on account of these obligations.
Elements of uncertainty in estimating reclamation and decommissioning costs
include potential changes in regulatory requirements, decommissioning and
reclamation alternatives and the scope of reclamation activities. Actual
costs will differ from those estimated and such differences may be
material.
5. Share Capital
a. Authorized - unlimited number of common shares.
b. Issued and outstanding
Shares
March 31, 2004 September 30, 2003
-------------- ------------------
Beginning of period 68,970,066 65,735,066
Employee stock options exercised 200,000 3,235,000
Private placement 8,700,000 --
---------- ----------
End of period 77,870,066 68,970,066
========== ==========
Amount
March 31, 2004 September 30, 2003
-------------- ------------------
Beginning of period $37,935,533 $37,466,609
Employee stock options exercised 51,715 469,924
Private placement 8,747,097 --
----------- -----------
End of period $46,734,345 $37,935,533
=========== ===========
6. Stock options
The Company has adopted a stock option plan under which the Board of
Directors may from time to time grant to directors, officers, key employees
and consultants of the Company, options to purchase shares of the Company's
common stock. These options are intended to advance the interests of the
Company by providing eligible persons with the opportunity, through share
options, to acquire an increased proprietary interest in the Company.
Options granted under the share option plan have an exercise price equal to
the fair market value of such shares on the date of grant. All outstanding
options granted to date vest immediately and expire three years from the
date of the grant of the option.
Stock options outstanding and exercisable as of March 31 2004 were as
follows:
Options Outstanding and Exercisable
------------------------------------------------------------------------------------------
Average Remaining Contractual Weighted Average
Number Outstanding Life (Years) Exercise Price Per Share
------------------------------------------------------------------------------------------
20,000 0.22 Cdn $0.37
200,000 0.75 Cdn $0.30
250,000 1.53 Cdn $0.31
1,875,000 2.55 Cdn $1.01
10,000 2.79 Cdn $1.36
100,000 2.96 Cdn $2.43
------------------------------------------------------------------------------------------
2,455,500 2.30 Cdn $0.93
==========================================================================================
Outstanding options expire on June 2004, October 2005, November 2006, and
March 2007.
For income statement purposes the Company has elected to only expense
stock-based compensation for non-employees, but not directors, officers and
employees of the Company. In the first quarter of fiscal 2004, the Company
expensed stock based compensation for non-employees in the amount of
$220,037, which has been credited to value assigned to stock options. The
compensation expense for the non-employees and the fair values of options
included in pro-forma amounts below, have been estimated using an
option-pricing model. Assumptions used in the pricing model are as follows:
Dividend yield 0%
Average risk free interest rate 3.12%
Expected volatility 65%
Expected life of options 3 years
Had the Company followed the fair value method of accounting, the Company
would have recorded a compensation expense of $73,075 for the second
quarter of 2004 and $721,605 for first six months of fiscal 2004 in respect
of its employee and director stock options. Pro forma earnings information
determined under the fair value method of accounting for stock options is
as follows:
3 Months Ended 6 Months Ended
March 31, 2004 March 31, 2004
-------------- --------------
Net loss as reported $(455,458) $(1,621,013)
Compensation expense $ (73,075) $ (721,605)
Pro forma $(528,533) $(2,342,618)
Basic and diluted loss per share:
As reported $ (0.01) $ (0.02)
Pro forma $ (0.01) $ (0.03)
Net income or loss per share was calculated on the basis of the weighted
average number of shares outstanding for the year. The weighted average
number of shares outstanding for six months to March 31, 2004 was
74,477,758.
Changes in the subjective input assumptions can materially affect the fair
value estimate, and therefore the existing models do not necessarily
provide a reliable single measure of the fair value of the Company's stock
options.
7. Segmented Information
a. Geographic information
Six Months Ending
March 31, 2004 March 31, 2003
-------------- --------------
Revenue
United States $ 2,035,262 $9,091,904
----------- ----------
$ 2,035,262 $9,091,904
=========== ==========
Net Income (loss)
Canada $ (452,461) $ (59,007)
United States (1,059,720) 5,183,004
Mongolia (108,832) (34,393)
----------- ----------
$(1,621,013) $5,089,601
=========== ==========
At March 31, 2004 At September 30, 2003
Total assets
Canada $ 9,579,770 $ 465,510
United States 21,320,214 23,047,594
Mongolia 2,204,168 2,103,148
----------- ----------
$33,104,152 $25,616,252
=========== ===========
8. Contingency
In the first quarter of fiscal 2004, the Company received a demand and
threat of pursuit of litigation in respect of alleged preferential payments
by a former customer, in the amount of approximately $1.2 million, that
were paid pursuant to certain contracts with the Company. The former
customer filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code
in January, 2002. That company subsequently sold substantially all of its
assets to The Shaw Group, Inc. ("Shaw"), who assumed the contracts in
question and is now performing the contracts with the Company. In May 2004
the Company received a formal Complaint under the bankruptcy proceedings,
demanding that any such preferential payments be returned to the bankrupt's
estate, unless the Company can demonstrate that such payments were made
under contracts that were assumed by Shaw. The Company continues to dispute
this claim and is currently in the process of providing such evidence to
the bankrupt's estate in order to bring this matter to a resolution.
9. Commitments
On March 1, 2004, the Company entered into a letter of intent to transfer
to Fortress IT Corporation its Bermudian subsidiary holding all of its
precious metal and base metal exploration properties in Mongolia, in
consideration for 28 million shares of Fortress giving the Company a 59%
interest in Fortress.