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 August 12, 2005
International Uranium Corporation
(Translation of registrant's name into English)
Independence Plaza, Suite 950, 1050 Seventeenth Street, Denver, CO 80265
(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-_________________.
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: August 12, 2005 By: /s/ Ron F. Hochstein
---------------------
Ron F. Hochstein, President & CEO
EXHIBIT INDEX
Exhibit Number Description
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1 Third Quarter Report for period ending June 30, 2005
EXHIBIT 1
REPORT TO SHAREHOLDERS
3RD QUARTER 2005
(U.S. DOLLARS)
During the third quarter of fiscal 2005, uranium prices continued to rise and
market activity was at record levels. As of June 30, 2005 the uranium spot price
was $29.00 per pound, an increase of $6.50 since last quarter, while the long
term price was up $2.75 to $30.00 per pound. However, over the past five weeks,
the uranium market has entered the typical summer doldrums, with little to no
activity. As of August 8, 2005, the spot market price was quoted at $29.50 per
pound, up only $0.50 from quarter end, and the long-term price was $31.00 per
pound. This period is typically very slow in the uranium market. Buyers appear
hesitant to commit to purchases at these higher prices, while sellers show
little enthusiasm for dropping prices. This is evident in both the spot and
long-term markets.
During the third quarter, International Uranium Corporation ("IUC" or the
"Company") continued to advance its initiatives in the Athabasca Basin region of
northern Saskatchewan, Canada, in Mongolia and in the United States at the
Company's White Mesa Mill. For the first nine months of fiscal 2005, the Company
recorded a net income of $111,585 ($0.00 per share) as compared to a net loss of
$2,818,921 ($0.04 per share) for the first nine months of fiscal 2004. The
income generated during the first nine months of fiscal 2005 was primarily due
to a gain of $2,923,219 from the sale of short term investments, and a dilution
gain of $1,932,252 from the issuance of common shares by Fortress Minerals
Corp., a company in which IUC holds a 45% equity interest. The Company continues
to have a strong cash position of $11,439,503.
In the Athabasca Basin, the Company completed its winter drilling program and in
June began its summer drilling program at its Moore Lake uranium exploration
project. During the winter program, the Company and its joint venture partner,
JNR Resources Inc., completed 31 diamond drill holes comprising 10,533 metres,
established 247 kilometres of grid, completed 303 kilometres of ground
electromagnetic (TDEM) and 67 kilometres of gravity surveys, and carried out a
23.3 kilometre seismic survey over the Maverick mineralized zone.
The winter geophysical program in the Maverick area identified a number of new
priority targets, particularly west and southwest of the main mineralized lens.
Gravity and EM surveys extended the Maverick structure(s) some three kilometers
beyond any previous drilling, and the preliminary results from the seismic
survey have not only provided a better understanding of the Maverick structural
corridor, but also indicate the presence of a number of deep-seated and
prospective structures that require detailed evaluation. Twelve drill holes were
completed in the main Maverick Zone during this program. Although no high grade
mineralization was intersected, the results were very encouraging in that broad
zones of low-grade uranium mineralization accompanied by key `pathfinder'
elements commonly associated with uranium deposits in the Athabasca Basin were
consistently intersected. The best results obtained on the Maverick Northeast
grid during the winter program were from ML-72, which extended the main
mineralized lens a further 50 metres to the northeast. This hole intersected a
30-metre wide interval of low-grade mineralization, within which an 11.3-metre
intercept assayed 0.241% U3O8 and included a higher-grade intercept that assayed
0.462% U3O8 over 5.0 metres.
The summer program began in June with a major focus on extending the main
mineralized lens in the Maverick Zone, along with testing a multitude of targets
in the Maverick Northeast and the Maverick West areas. Two drills are now
drilling both infill and systematic stepout targets along the Maverick
structural corridor, which has now been interpreted to extend over a minimum
strike length of 6.5 kilometres. A third drill is testing ground EM targets
within the southern half of a newly identified 10-kilometre long, 500-metre wide
conductive corridor, which covers the interpreted western and northern contacts
between the Maverick granite and the Lower Wollaston sediments.
In addition to the Moore Lake project, IUC and JNR Resources Inc. have also
established summer/fall exploration programs on a number of other Joint Venture
projects including Lazy Edward Bay, Dufferin South, Kelic Lake, North Wedge and
Pendleton Lake. In addition to the JNR joint venture projects, the Company has
also laid out exploration
programs on its Phelps Dodge joint venture properties, its Hatchet Lake joint
venture with Santoy Resources Ltd., and its 100% owned properties. As of July
31, 2005 the Company owns, has under option or is joint-ventured with other
parties on a total of approximately 540,000 hectares in the Athabasca Basin,
primarily located along the eastern edge of the Basin. Early in August, the
Company opened an exploration office in Saskatoon, Saskatchewan. This office is
directed by Paul Ogryzlo, the Company's Director of Exploration.
In Mongolia the Company initiated a uranium exploration program on properties
100% owned by the Company and on properties held by the Gurvan-Saihan joint
venture. The program includes autogamma surveys, geological field programs and
over 30,000 meters of drilling. To date over 10,000 metres of drilling have been
completed. On June 14, 2005, IUC announced that it has acquired an option to
earn a 65% interest in Erdene Gold Corp.'s ("Erdene's") portfolio of uranium
licenses and applications, through expenditures of Cdn $6.0 million over four
years. In connection with that option, the Company purchased 1.0 million shares
of Erdene at a price of Cdn $1.00 per share. IUC, utilizing Erdene's field
teams, has completed its preliminary evaluation of prospects on the Erdene
properties and will be meeting with Erdene personnel in mid-August to develop an
initial drilling program for the higher priority properties, which will be
carried out during the latter part of the 2005 exploration season. With the
addition of the Erdene properties, the Company controls over 3.6 million
hectares of uranium properties in Mongolia.
On March 21, 2005, the Company's White Mesa uranium mill began processing one of
three alternate feed streams which together contain over 560,000 pounds of U3O8.
All three streams will be processed over the next 6 to 9 months, after which the
Mill will process two additional streams of alternate feed materials, which are
also stockpiled at the Mill. Because of the processing schedule for these
alternate feed streams, the Company does not anticipate recognizing revenue from
the sale of uranium until the next fiscal year.
The Company is continuing to evaluate its U.S. mining properties. During the
quarter, underground access and services to a number of properties was
reestablished to enable the Company to evaluate the conditions underground since
a number of these mines have not been operated for well over 20 years. The
Company has also begun filing notices with the regulatory authorities in
anticipation of restarting a portion of its U.S. mining operations. Permitting
for the Company's Henry Mountains Complex continues to progress.
In addition to the Company's uranium exploration programs in Canada and
Mongolia, the Company maintains a 45% interest in Fortress Minerals Corp.
("Fortress"), which is pursuing an aggressive precious and base metals
exploration program in Mongolia and has initiated an exploration program on its
Svetloye gold project located in eastern Russia. In Mongolia, drilling was
completed on Fortress' Teltiin Gol porphyry copper gold project and its Oyuut
Uul epithermal gold project. In addition, a number of reconnaissance programs
were initiated in the Huvsgol area. A further drill program is planned later
this year on Teltiin Gol to follow up on the results from the initial drilling
program. Fortress has commenced magnetic survey and trenching programs on the
Svetloye gold project in preparation for an extensive 10,000 metre drill program
scheduled for this winter.
While the short-term uranium market appears to be calming down from its torrid
pace set over the past twenty four months, the Company is still very encouraged
by the strong long-term fundamentals of the market. Activities in Saskatchewan,
Mongolia and the United States are continuing in order to develop the existing
assets of the Company, and the Company continues to expand its uranium
exploration activities and aggressively evaluate potential acquisition
opportunities to add to the Company's asset portfolio.
ON BEHALF OF THE BOARD,
Ron F. Hochstein,
President & CEO
August 12, 2005
MANAGEMENT'S DISCUSSION AND ANALYSIS
PREPARED AS OF AUGUST 12, 2005
(U.S. DOLLARS)
The following discussion and analysis of the financial condition and results of
operations for the Company for the period ended June 30, 2005 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 mining and is also 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
those 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 Company's White Mesa uranium mill (the "Mill"). The
Company sells uranium recovered from conventional production and from alternate
feed processing, 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
were shut down in 1999, due to low commodity prices. From that time until late
2003, 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. However,
uranium spot prices have risen significantly from $12.50 per pound U3O8 on
September 30, 2003 to $29.50 per pound U3O8 by August 8, 2005. As a result of
these increases in uranium prices and improved market fundamentals, the Company
acquired and staked uranium exploration properties in the Athabasca Basin region
of Saskatchewan, Canada, and commenced an exploration program on certain of
those properties in early fiscal 2004. The Company also resumed exploration for
uranium in Mongolia during the fourth quarter of fiscal 2004 and is evaluating
re-commencing mining operations in the U.S. The Company continues to expand its
portfolio of uranium properties in the U.S., Canada and Mongolia through
acquisitions.
In addition to its exploration and mining programs, the Company intends to
devote significant resources to the ongoing development of its alternate feed,
uranium-bearing waste recycling business. The Company expects that the recycling
of uranium-bearing materials can continue to help offset Mill and mine standby
costs. While the Company has had considerable success to date in this
initiative, 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
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 ("Urizon"), a 50/50 joint venture company. In April of
2003, NFS submitted an unsolicited 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 higher priority needs.
The DOE has chosen a contractor who will manage the disposition of the materials
that would be the feedstock for the Urizon program, in conjunction with the
closure of an existing DOE site. The joint venture currently expects that a
decision will be made by the DOE or its contractor in fiscal 2005, or 2006, as
to how it intends to proceed on the disposition of the material, and that the
joint venture will have an opportunity to propose the Urizon Program as a
suitable disposition option for this feedstock. The financial results for Urizon
are included in the Company's financial statements on a proportionate
consolidation basis.
In June 2004, the Company sold its Mongolian precious and base metals
exploration program to Fortress Minerals Corp. ("Fortress") in exchange for cash
and a majority share ownership position in that company. Fortress is a public
Canadian company which shares are traded on the TSX-Venture Exchange.
Effective April 30, 2005, the Company's ownership interest in Fortress was
reduced to 49.26% as a result of Fortress issuing additional common shares to
third parties. As of June 30, 2005, the Company held 45.72% of the shares of
Fortress. Previously, the Company had an ownership interest in Fortress that
exceeded 50% and was deemed to have control. Accordingly, the equity method has
been applied to account for the Company's investment in Fortress from that date
onwards. Refer to Investment in Fortress Minerals Corp. for further details.
SELECTED QUARTERLY FINANCIAL DATA
($000, except per share amounts) Jun 2005 Mar 2005 Dec 2004 Sep 2004
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Vanadium sales - - - -
Process milling revenue 47 - 4 390
Engineering services revenue - - - -
Total revenue 47 - 4 390
Net income (loss) 449 292 (630) 632
Basic earnings (loss) per share 0.01 0.00 (0.01) 0.01
Diluted earnings (loss) per share 0.01 0.00 (0.01) 0.01
Total assets 44,648 44,524 38,318 39,388
Total long-term liabilities 13,058 16,674 16,313 16,296
($000, except per share amounts) Jun 2004 Mar 2004 Dec 2003 Sep 2003
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Vanadium sales - 1,583 - -
Process milling revenue - - 31 42
Engineering services revenue - 62 359 135
Total revenue - 1,645 390 177
Net loss (1,198) (455) (1,166) (404)
Basic and diluted loss per share (0.02) (0.01) (0.02) (0.01)
Total assets 33,475 33,104 33,372 25,616
Total long-term liabilities 16,388 15,015 14,997 14,630
REVENUES
During the first nine months of fiscal 2005, the Company had revenue of $50,479
as compared to $2,035,262 for the comparable period in fiscal 2004. The decrease
in revenue of $1,984,783 for the nine months ended June 30, 2005 was primarily
due to the Company selling its inventory of vanadium black flake during the
second quarter of fiscal 2004. In addition, the Company provided engineering
services, during the first and second quarters of fiscal 2004, on a cost plus
basis to a related company that was reclaiming a mine site in the U.S.
The Company continues to hold an inventory of approximately 65,000 pounds of
vanadium, as vanadium pregnant liquor, and is evaluating opportunities to sell
this inventory.
During the third quarter, the Company received deliveries of alternate feed
material from the Molycorp site. The Company receives a recycling fee for this
type of lower grade alternate feed material once it is delivered to the Mill. A
portion of the fees for the Molycorp material, equal to the costs that are
incurred receiving material, is recognized as revenue, while the remaining
recycling fees are recorded as deferred revenue until the material is processed
at which time it is recorded as revenue. In addition, the Company resumed
receipt of another lower grade alternate feed material from a commercial metals
producer in May 2005. The Company receives a fee on receipt of this material,
representing approximately 22% of the total fees from that producer, which is
recorded as revenue, and a recycling fee, representing the remaining 78% of the
fees from that producer, which is recorded as deferred revenue until the
material is processed, at which time it becomes revenue. In addition to the
recycling fees, the Company will retain any uranium recovered from these
materials, which can be sold in subsequent periods at which time the revenue
from the sales will be recorded.
The Mill began processing its stockpile of high-grade alternate feed materials
on March 21, 2005. The Mill had been on stand-by since May 2003. As of June 30,
2005, there were approximately 5,600 tons of these high-grade materials at the
Mill, containing approximately 566,000 lbs of uranium. The Company does not
receive a recycling fee for these types of material; however, the Company is
able to retain all of the proceeds received from the sale of the uranium
produced. The Company currently does not have commercial forward sales
commitments for the projected uranium production in view of the expected
continued rise in uranium prices. The Company will evaluate the most appropriate
timing for its uranium sales.
COST OF PRODUCTS AND SERVICES SOLD
Process milling expenditures for the first nine months of fiscal 2005 were
nominal and represent expenditures incurred receiving alternate feed materials.
These expenditures decreased by $69,366 to $7,328 as compared to process milling
expenditures of $76,694, related to the receipt of alternate feed materials,
during the first nine months of fiscal 2004. During the nine months ended June
30, 2005, the Company received 1,355 tons of alternate feed material as compared
to the first nine months of fiscal 2004 when the Company received 7,147 tons of
material. The Company anticipates that receipt of alternate feed materials will
be at reduced levels until late 2005 when a new alternate feed generator is
expected to begin shipments to the Mill. As of June 30, 2005, approximately
45,900 tons of lower grade alternate feed materials remained in stockpile
waiting to be processed during the current mill run.
The Mill began processing a high-grade alternate feed material on March 21,
2005. All costs incurred preparing for the Mill processing campaign and the
costs incurred processing the material have been capitalized as inventories.
These expenditures for the first nine months of fiscal 2005 were $1,781,890.
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 or other ores have been accumulated to justify an
efficient mill run. Mill stand-by expenses for the third quarter and first nine
months of fiscal 2005 of nil and $1,069,953 respectively, decreased $601,335 and
$735,731 as compared to $601,335 and $1,805,684 for the comparable periods in
fiscal 2004. These decreases were due to the fact that the Mill restarted
operations in March 2005.
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 third quarter
and first nine months of fiscal 2005 were $804,100 and $2,878,713 as compared to
$818,871 and $2,449,476 for the comparable periods in fiscal 2004. The increase
of $429,237 for the comparable nine-month periods was the result of
increases in investor relation expenses of $113,383 and the Company's
consolidation of Fortress' selling, general and administrative expenditures of
$750,481. These increases were partially offset by the decrease in engineering
services costs that the Company provided during the first and second quarters of
fiscal 2004 of $389,950.
EXPLORATION AND DEVELOPMENT
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. During the
remainder of fiscal 2004, the Company continued to increase its land position in
the Athabasca Basin region through acquisition and land staking. Total gross
program expenditures, including capitalized exploration expenditures, for the
first nine months of fiscal 2005 of $3,684,469 increased by $2,549,376 as
compared to $1,135,093 spent during the first nine months of fiscal 2004.
Expenditures to date have primarily been on the Moore Lake project, where the
Company has an extensive drilling program augmented by geophysical and
geological field programs. IUC has an option to earn up to a 75% interest in the
Moore Lake property from JNR Resources Inc. through aggregate expenditures and
investments of Cdn $4.4 million over a period of 4 years. Expenditures on the
Moore Lake Project were $2,795,169 during the first nine months of fiscal 2005.
The remaining expenditures were for geological field programs and land staking
costs and recording fees on a number of other projects in the Athabasca Basin
region.
The Company also has a 70% interest in the Gurvan-Saihan Joint Venture in
Mongolia. The other parties to the joint venture are the Mongolian government as
to 15% and Geologorazvedka, a Russian government entity, as to 15%. With
continued upward pressure on world uranium prices throughout fiscal 2004, the
joint venture recommenced its uranium exploration program in Mongolia.
Additional exploration licenses were acquired by the joint venture in areas
known to be prospective based on past joint venture reconnaissance. In addition,
the Company formed a new Mongolian business entity in fiscal 2004 to conduct
uranium exploration, 100% for the Company's account, in frontier areas in
Mongolia. Total gross program expenditures for the joint venture and for the
Company's own account, including capitalized exploration expenditures, for the
first nine months of 2005 of $619,708 increased by $475,774 as compared to
$143,934 spent during the first nine months of fiscal 2004. Activities through
the third quarter of fiscal 2005 included drilling, autogamma surveys and field
reconnaissance programs.
During the second quarter of fiscal 2005 the Company entered into an agreement
with Erdene Gold Inc. ("Erdene") to acquire a 65% interest in Erdene's uranium
properties in Mongolia in consideration for expenditures of Cdn $6 million over
a period of 4 years. In addition, the Company purchased, by way of private
placement, 1 million common shares of Erdene at a price of Cdn $1.00 per share
during the third quarter of fiscal 2005.
Uranium Development
The Company was successful in a competitive bid for a state lease in
southeastern Utah in the second quarter of fiscal 2005. The state property is
adjoined by a number of privately held unpatented mining claims, which the
Company is in the process of acquiring that together comprise the Tony M Mine.
The Tony M Mine adjoins the Company's existing Bullfrog exploration property,
which together are now referred to as the "Henry Mountains Complex." The Company
has announced initiation of permitting for mining of the Henry Mountains
Complex. The bid for the Utah State lease included an initial cash bonus payment
of $1 million; in addition the state will receive annual advance minimum
royalties and rentals. The private claims are to be acquired for $200,000 in
cash payments and 250,000 shares of Company stock, subject to completion of due
diligence reviews.
Precious and Base Metals Exploration
During the second quarter of fiscal 2002, the Company initiated a precious and
base metals exploration effort in Mongolia. This program was funded 100% by the
Company until the second quarter of 2004 when the Company entered into an
agreement with Fortress for the sale of 100% of the exploration licenses held by
the Company, in consideration for cash and a majority equity interest in
Fortress. During the third quarter of fiscal 2005, the Company's ownership
interest in Fortress was reduced to less than 50% and as a result, the Company's
consolidated balance sheet at June 30, 2005 does not include all of the assets
and liabilities of Fortress.
INVESTMENT IN FORTRESS MINERALS CORP.
On June 23, 2004 the Company completed the sale of its Mongolian base and
precious metals exploration properties held by its Bermuda subsidiary to
Fortress and began recording the minority interests' share of the losses. The
Company had expended $3,088,201 on these properties through June 23, 2004. In
consideration for transferring these properties to Fortress, the Company
received 28 million common shares of Fortress' capital stock, which gave the
Company a 63.14% interest in Fortress, and cash of $656,580 for reimbursement of
costs incurred on the properties from the time of agreement to the transfer
date. No gain or loss was recognized on the transaction. On September 1, 2004,
Fortress completed a private placement of 4,987,500 common shares at Cdn $0.40
per share of which the Company purchased 732,500 common shares. The Company's
percentage ownership in Fortress decreased from 63.14% to 58.24% as a result of
this private placement and the Company recorded a gain on dilution of $548,549
for fiscal 2004.
During the first nine months of fiscal 2005, 13,516,200 common shares of
Fortress were issued pursuant to private placements and exercise of warrants and
stock options providing $6,053,649 in net cash proceeds to Fortress. While the
Company's ownership interest in Fortress was diluted from 58.24% at September
30, 2004 to 45.72% at June 30, 2005, its proportionate share of the net assets
of Fortress increased by $1,932,252, which has been shown as a dilution gain.
Effective April 30, 2005, as a result of the Company's ownership interest in
Fortress being reduced to less than 50%, the Company applies the equity method
to account for the Company's investment in Fortress. Under the equity method,
the Company's percentage interests in the net assets and results of operations
of Fortress are presented in a single line in the balance sheet as Investment in
Fortress Minerals Corp. and the statement of operations as Equity in loss of
Fortress Minerals Corp., respectively.
OTHER INCOME AND EXPENSE
Net interest and other income (excluding gain on dilution, minority interest,
and share of investment loss) for the third quarter and first nine months of
fiscal 2005 was $62,537 and $3,830,018 respectively, as compared to $62,323 and
$360,191 for the third quarter and first nine months of fiscal 2004. The
increase of $3,469,827 during the comparable nine-month periods was primarily
the result of an increase in income from the sale of short-term investments of
$2,923,219 and an increase in foreign exchange gains of $519,874. In addition,
during the second quarter of fiscal 2005, the Company recognized a recovery of
future income tax of $363,199 as a result of the renunciation of expenditures to
flow-through shareholders.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2005, the Company had cash and cash equivalents of $11,439,503 and
working capital of $10,370,603 as compared to cash and cash equivalents of
$12,044,955 and working capital of $15,467,462 at September 30, 2004. The
decrease of $5,096,859 in working capital was in part due to the
reclassification of deferred revenue from a long-term to current liability.
Deferred revenue of $3,772,647 is associated with a stockpile of approximately
45,900 tons
of alternate feed material, which is expected to be processed during the next 12
months. In addition, the Company received net proceeds from a private placement
for 1 million flow through common shares at a price of Cdn $7.00 per share and
proceeds from the sale of short-term investments. These changes in working
capital were offset by increased exploration expenditures during the nine months
ended June 30, 2005 and the acquisition cost for interests in the Tony M Mine
during the second quarter of fiscal 2005.
Net cash used in operating activities was $2,137,501 for the first nine months
of fiscal 2005 and consisted primarily of the net income from continuing
operations of $111,585, adjusted for non-cash items of depreciation and
amortization of $381,648, write-down of mineral properties by Fortress of
$1,869,790, and gain on sale of short-term investments of $2,923,219.
Inventories increased by $1,829,945 reflecting the restart of the Mill in March
2005. In addition, accounts receivable decreased by $1,089,324 reflecting
collection of alternate feed material receipts.
Net cash used in investment activities was $4,108,637 for the first nine months
of fiscal 2005 and consisted primarily of capitalized exploration expenditures
of $5,862,390 offset by proceeds from sale of short-term investments of
$4,013,179 and the recognition of a net $180,387 investment in Fortress under
the equity method. Restricted investments increased by $340,657 as a result of
interest income, and the Company invested $1,094,280 in marketable securities.
Net cash provided by financing activities for the nine months ended June 30,
2005 totaled $5,640,686 and consisted primarily of net proceeds of $5,374,952
from the issuance of one million flow through common shares by the Company.
OUTSTANDING SHARE DATA
As of June 30, 2005, the total number of common shares outstanding was
81,112,066 and the number of stock options outstanding was 2,083,000. As of
August 12, 2005, the total number of common shares outstanding was 81,122,066
and the number of stock options outstanding was 2,073,000.
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.
Significant areas requiring the use of management estimates include the
determination of impairment of intangibles and plant and equipment and mineral
property interests, reclamation obligations, rates for depreciation and
amortization, and variables used in determining stock based compensation. These
estimates are based on management's best judgment. Factors that could affect
these estimates include: changes in the price of uranium and other market
conditions, risks inherent in mineral exploration and development, changes in
reclamation requirements and other laws, changes in government policy and
changes in foreign exchange rates.
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
The Company has a reclamation obligation of $12,934,880, 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 and U.S. mining operations at any
time, the Company currently has no intention of placing the Mill or U.S. mines
into reclamation in the foreseeable future.
In addition, the Company had contractual obligations at June 30, 2005 as
follows:
Less than
Contractual Obligations Total One Year 1-3 Years 4-5 Years After 5 Years
------------------------------------------------------------------------------------------------
Capital Lease Obligations $345,000 $105,000 $240,000 - -
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 applicable regulatory authorities. The Mill and mine reclamation
estimates at June 30, 2005 total $12,934,880, which is 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. At June 30, 2005, the amount of these restricted investments
collateralizing the Company's reclamation obligations was $12,781,565.
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 by a previous operator 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 processing 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 shutdown all of its uranium and
uranium/vanadium mines and its Mongolian Gurvan-Saihan Joint Venture, pending
improvements in commodity prices. 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. Since then, commodity
prices have improved dramatically. During fiscal 2004, uranium prices increased
65%, from $12.20 per pound on October 1, 2003, to $20.00 per pound by September
30, 2004. As of August 8, 2005, the uranium spot price has increased a further
47.5% to $29.50 per pound. The uranium market fundamentals are strong and most
analysts do not forecast any weakening of the uranium prices over the next 3 to
5 years. Vanadium prices have also increased throughout the past 24 months and
are currently trading in the range of $12.00 to $18.00 per pound V2O5., off from
their peak of $25.00 to $30.00 per pound reached earlier this fiscal year.
Historical vanadium prices range from $1.20 to $6.00 per pound V2O5. As a result
of the increase in uranium price, the Company acquired and staked uranium
exploration properties in Canada in fiscal 2004 and has commenced an aggressive
exploration program on certain of those properties, as well as restarted its
uranium exploration program in Mongolia. In the U.S., the Company has begun
processing a high-grade alternate feed material and is currently evaluating
re-commencing certain uranium mining activities in the U.S. In addition, the
Company continues to evaluate opportunities to expand its existing asset
portfolio.
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 or if the Company decides to recommence U.S. mining
operations. 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 2005
The Company will be continuing its uranium exploration programs in both Canada
and Mongolia in 2005. In Canada, the Company along with its joint venture
partner, JNR Resources Inc. completed a winter drilling program, as well as
ground geophysics and a 3D seismic program at the Moore Lake project. In
addition to the program at Moore Lake, the Company also completed a winter
geophysical and drilling program at its 100% owned Key Lake South project. In
June 2005, the Company commenced a summer drilling program on its Moore Lake
project and has begun to lay out additional programs on its 100% staked land, as
well as on its optioned properties. In Mongolia, the Company has commenced a
$2.0 million exploration program that includes 35,000 meters of drilling and
gamma surveys, which will investigate a number of targets on its current land
position and on the recently optioned Erdene properties. The Company will
continue to evaluate other potential exploration projects, as well as more
advanced project acquisitions.
At the beginning of fiscal 2005, the uranium spot price was $20.00 per pound and
the long-term price was $23.00 per pound. As of August 8, 2005, the spot price
had increased to $29.50 per pound and the long-term price had increased to
$31.00 per pound. A number of market projections predict a continued increase in
both spot and long-term uranium prices; however, these projections indicate that
the rate of increase will likely be lower than that seen in 2004.
With the forecasted continued improvement in commodity prices, the Company has
been studying the viability of restarting certain U.S. mining operations. These
operations are higher cost than the current uranium producers due to the lower
grade of the ore bodies; however, with the current uranium and vanadium prices,
and given that a majority of the U.S. mines are fully permitted, the Company is
optimistic that a production decision will be made in fiscal 2005.
In addition to the potential restart of the U.S. mining operations, the Company
restarted the White Mesa Mill late in the second quarter of fiscal 2005 to
process alternate feed materials that contains over 566,000 pounds of uranium.
The processing of these materials is anticipated to take about fourteen months
to complete. With respect to the Urizon project, the Company and its joint
venture partner, Nuclear Fuel Services, Inc., are awaiting a decision by the
U.S. Department of Energy on the path forward for the handling of the Urizon
feed stock.
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 United States Nuclear Regulatory Commission'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 therefrom, 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 mining activities and
other operating and development risks, 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,
ability to attract and retain skilled employees, the ability to find and retain
qualified contractors, 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).
INTERNATIONAL URANIUM CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNITED STATES DOLLARS) (UNAUDITED)
JUNE 30, 2005 SEPTEMBER 30, 2004
------------- ------------------
ASSETS
Current assets:
Cash and cash equivalents $ 11,439,503 $ 12,044,955
Short-term investments - 1,089,960
Trade and other receivables 398,733 1,630,591
Inventories 3,019,336 1,189,391
Prepaid expenses and other 235,549 408,038
------------ -------------
15,093,121 16,362,935
Plant and equipment, net 3,194,037 2,786,570
Mineral properties (Note 3) 7,775,306 6,171,263
Marketable securities (Note 4) 1,986,501 892,221
Intangible assets, net 640,625 687,500
Investment in Fortress Minerals Corp. (Note 5) 3,177,251 -
Restricted investments (Note 6) 12,781,565 12,487,066
------------ -------------
$ 44,648,406 $ 39,387,555
============ =============
LIABILITIES
Current liabilities:
Accounts payable and accrued liabilities $ 933,590 $ 879,994
Notes payable 16,281 15,479
Deferred revenue 3,772,647 -
------------ -------------
4,722,518 895,473
Notes payable, net of current portion 23,260 35,573
Reclamation obligations (Note 7) 12,934,880 12,603,595
Deferred revenue - 3,556,592
Future income tax liability 1,070,897 -
Other long-term liability 99,593 99,593
Minority interest (Note 5) - 1,664,247
------------ -------------
18,851,148 18,855,073
------------ -------------
SHAREHOLDERS' EQUITY
Share capital (Note 8)
Issued and outstanding (81,112,066 and 79,635,066) 54,828,767 50,305,480
Value assigned to stock options (Note 9) 1,628,277 224,718
Deficit (30,659,786) (29,997,716)
------------ -------------
25,797,258 20,532,482
------------ -------------
$ 44,648,406 $ 39,387,555
============ =============
Contingency (Note 11)
ON BEHALF OF THE BOARD
(signed) "Ron F. Hochstein" (signed) "Lukas H. Lundin"
Ron F. Hochstein, Director Lukas H. Lundin, Director
INTERNATIONAL URANIUM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(UNITED STATES DOLLARS) (UNAUDITED)
THREE MONTHS ENDED JUNE 30 NINE MONTHS ENDED JUNE 30
2005 2004 2005 2004
------------ --------------- -------------- ----------------
OPERATIONS
Revenue
Vanadium sales $ - $ - $ - $ 1,582,628
Process milling 46,509 - 50,479 31,452
Engineering services - - - 421,182
------------ --------------- -------------- ----------------
Total revenue 46,509 - 50,479 2,035,262
------------ --------------- -------------- ----------------
Costs and expenses
Vanadium cost of sales - - - 696,905
Process milling expenditures 3,358 3,239 7,328 76,694
Mill stand-by expenditures - 601,335 1,069,953 1,805,684
Selling, general and administrative 804,100 818,871 2,878,713 2,449,476
Stock based compensation 657,259 - 935,090 220,037
Exploration general costs (recovery) - (86,160) 98,089 5,470
Write-down (recovery) of mineral property costs - (37,162) 1,869,790 -
------------ --------------- -------------- ----------------
1,464,717 1,300,123 6,858,963 5,254,266
------------ --------------- -------------- ----------------
Loss before the under noted items (1,418,208) (1,300,123) (6,808,484) (3,219,004)
Gain on sale of land and equipment 10,900 59,051 98,138 99,665
Gain on sale of short-term investments - - 2,923,219 -
Loss on sale of restricted investments (16,317) - (46,158) -
Foreign exchange gain (loss) (115,607) (122,831) 425,408 (94,466)
Net interest and other income 183,561 126,103 494,212 354,992
Bad debt expense - - (64,801) -
Dilution gain 1,860,784 - 1,932,252 -
Minority interest 66,167 39,892 916,687 39,892
Equity in loss of Fortress Minerals Corp. (Note 5) (122,087) - (122,087) -
------------ --------------- -------------- ----------------
Income (loss) for the period before taxes 449,193 (1,197,908) (251,614) (2,818,921)
Recovery of future income tax asset - - 363,199 -
------------ --------------- -------------- ----------------
Net income (loss) for the period 449,193 (1,197,908) 111,585 (2,818,921)
============ =============== ============== ================
Earnings (loss) per share (Note 8)
Basic $ 0.01 ($ 0.02) $ 0.00 ($ 0.04)
============ =============== ============== ================
Diluted $ 0.01 ($ 0.02) $ 0.00 ($ 0.04)
============ =============== ============== ================
Weighted average number of shares outstanding
Basic 81,071,055 77,872,923 80,334,938 75,609,480
============ =============== ============== ================
Diluted 82,452,165 77,872,923 81,762,262 75,609,480
============ =============== ============== ================
DEFICIT
Deficit as previously reported (31,108,979) (29,432,050) (29,997,716) (27,811,037)
Change in policy on stock based compensation (Note 2) - - (773,655) -
------------ --------------- -------------- ----------------
Deficit restated, beginning of period (31,108,979) (29,432,050) (30,771,371) (27,811,037)
Net income (loss) for the period 449,193 (1,197,908) 111,585 (2,818,921)
------------ --------------- -------------- ----------------
DEFICIT, END OF PERIOD $(30,659,786) $ (30,629,958) $ (30,659,786) $ (30,629,958)
============ =============== ============== ================
INTERNATIONAL URANIUM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNITED STATES DOLLARS) (UNAUDITED)
THREE MONTHS ENDED JUNE 30 NINE MONTHS ENDED JUNE 30
2005 2004 2005 2004
------------ ------------ ------------ ------------
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net income (loss) for the period $ 449,193 $ (1,197,908) $ 111,585 $ (2,818,921)
Items not affecting cash
Depreciation 126,858 112,836 334,773 342,388
Amortization 15,625 - 46,875 -
Gain on sale of equipment (10,900) (20,330) (98,138) (60,944)
Gain on sale of short-term investments - - (2,923,219) -
Loss on sale of restricted investments 16,317 - 46,158 -
Bad debt expense - - 64,801 -
Dilution gain (1,860,784) - (1,932,252) -
Minority interest (66,167) (39,892) (916,687) (39,892)
Equity in loss of Fortress Minerals Corp. 122,087 - 122,087 -
Write-down of mineral properties - (37,162) 1,869,790 -
Stock based compensation 657,259 - 935,090 220,037
Recovery of future income tax asset - - (363,199) -
Changes in non-cash working capital items
(Increase) decrease in trade and other receivables (51,933) 1,371,286 1,089,324 887,693
(Increase) decrease in inventories (1,347,544) (31,083) (1,829,945) 605,938
Decrease in other current assets 170,478 19,306 172,489 151,787
(Decrease) increase in other accounts payable and accrued liabilities 335,358 195,910 585,627 (92,658)
Increase in reclamation obligations - - 331,285 -
Increase in deferred revenue 160,207 233,944 216,055 432,224
------------ ------------ ------------ ------------
NET CASH (USED IN) PROVIDED BY OPERATIONS (1,283,946) 606,907 (2,137,501) (372,348)
------------ ------------ ------------ ------------
INVESTING ACTIVITIES
Purchase of properties, plant and equipment (130,549) (42,065) (747,511) (113,786)
Mineral property expenditures (1,398,151) (654,842) (5,862,390) (2,187,505)
Net investment in Fortress Minerals Corp (396,842) - (180,387) -
Proceeds from sale of short-term investments - - 4,013,179 -
Proceeds from sale of surplus equipment 16,171 20,330 103,409 60,944
Purchase of marketable securities (831,340) - (1,094,280) (723,225)
Increase in restricted investments (86,356) (90,805) (340,657) (271,918)
------------ ------------ ------------ ------------
NET CASH USED IN INVESTMENT ACTIVITIES (2,827,067) (767,382) (4,108,637) (3,235,490)
------------ ------------ ------------ ------------
FINANCING ACTIVITIES
Decrease in notes payable (3,902) (4,859) (11,511) (11,138)
Issuance of common shares - - 5,374,952 8,747,097
Minority interest - 1,178,658 - 1,178,658
Exercise of stock options 16,876 5,450 277,245 57,165
------------ ------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 12,974 1,179,249 5,640,686 9,971,782
------------ ------------ ------------ ------------
(Decrease) increase in cash and cash equivalents (4,098,039) 1,018,774 (605,452) 6,363,944
Cash and cash equivalents, beginning of period 15,537,542 8,984,249 12,044,955 3,639,079
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 11,439,503 $ 10,003,023 $ 11,439,503 $ 10,003,023
============ ============ ============ ============
INTERNATIONAL URANIUM CORPORATION
Notes to Interim 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 wholly owned subsidiaries and, on a proportionate consolidation
basis, Urizon Recovery Systems, LLC, have been prepared in accordance with
Canadian generally accepted accounting principles ("Canadian GAAP") for
interim financial statements. As a result, they do not contain all of the
information required by Canadian GAAP for annual financial statements and
should be read in conjunction with the consolidated financial statements
included in the Company's 2004 annual report.
All material adjustments which, in the opinion of management, are
necessary for a fair presentation of the results of the interim periods
have been reflected. With the exception of the accounts of Fortress
Minerals Corp. ("Fortress") as described in Note 5, the results for the
nine months ended June 30, 2005 have been stated utilizing the same
accounting policies and methods of application as the consolidated
financial statements included in the Company's 2004 annual report.
2. Change in Accounting Policy
The Canadian Institute of Chartered Accountants ("CICA") has issued new
recommendations relative to Handbook section 3870, "Stock-based
compensation and other stock-based payments", which is effective for
fiscal years beginning on or after January 1, 2004. The recommendation
requires recognition of an expense arising from stock options granted to
both employees and non-employees, in an amount equal to the fair value of
the options granted. The fair value of options granted is established at
the date of grant using an option-pricing model, and the compensation
expense, equal to the option's fair value, is then recorded over the
option's vesting periods. The Company has applied this standard for
employee stock options retroactively without restatement by a charge to
retained earnings of $773,655 effective October 1, 2004.
3. Mineral Properties
The following is a summary of the Company's mineral properties:
2005
2004 Net Changes 2005
Net During the Period Net
------------------------------------------------
Uranium:
Canada (a) $2,309,178 $ 3,683,947 $5,993,125
United States (b) - 1,206,963 1,206,963
Mongolia (c) 53,076 522,142 575,218
Precious and Base Metals:
Mongolia (d) 3,809,009 (3,809,009) -
------------------------------------------------
$6,171,263 $ 1,604,043 $7,775,306
================================================
3. Mineral Properties (continued)
a. Canadian uranium properties
In the first quarter of fiscal 2004, the Company acquired interests in and
staked uranium exploration properties in the Athabasca Basin region of
Saskatchewan, Canada and commenced exploration on certain properties.
Amounts capitalized by project, which include costs related to acquisition
of land interests, staking costs, recording fees, geological field
programs, airborne and ground geophysical programs, drilling and lab
analysis, are shown below:
2004 2005 2005
Net Expenditures Net
---------- ------------ ----------
Moore Lake $1,779,393 $2,795,169 $4,574,562
Lazy Edward Bay 27,884 27,086 54,970
Pendelton Lake 88,179 104 88,283
South Cigar Lake 69,391 7,497 76,888
Bell Bay - 18,536 18,536
Kelic Lake - 29,269 29,269
South Virgin - 30,880 30,880
North Wedge - 200 200
Crawford Lake 54 - 54
Brown Lake - 1,525 1,525
Ford Lake 3,157 - 3,157
Perpete Lake 1,409 20,268 21,677
Key Lake South 78,350 231,233 309,583
Johnstone Lake 9,826 438 10,264
Hatchet Lake - 52,613 52,613
Other Exploration Costs 251,535 469,129 720,664
----------------------------------------
$2,309,178 $3,683,947 $5,993,125
========================================
b. United States uranium properties
In the second quarter of fiscal 2005, the Company added one key property
and is in the process of completing the acquisition of a second property,
both adjoining its existing Bullfrog property in Garfield County in
southeastern Utah. The combination of these new properties with the
Company's Bullfrog mining claims will collectively be referred to as the
Henry Mountains Complex.
2004 2005 2005
Net Expenditures Net
----------------------------------
Henry Mountains Complex $- $1,193,550 $1,193,550
Other Exploration Costs - 13,413 13,413
----------------------------------
$- $1,206,963 $1,206,963
==================================
3. Mineral Properties (continued)
c. Mongolian uranium properties
Mongolian mineral properties are currently made up of the Company's
interest in the Gurvan-Saihan Joint Venture ("GSJV") as well as properties
held, solely for the account of the Company, through its subsidiary
International Uranium Mongolia, XXK. Amounts capitalized by project, which
include costs related to licensing of land interests, review of geological
data and satellite imagery, and geological field programs, are shown
below:
2004 2005 2005
Net Expenditures Net
------------------------------------
Gurvan Saihan $ - $ 188,303 $ 188,303
Hairhan - 660 660
Huh Tologoi 8,583 7,885 16,468
Deren 385 19,346 19,731
Ikh Hongor Uul 1,588 2,367 3,955
Navtgar 6,000 10,742 16,742
Oshinuur 13,972 36,955 50,927
Ulaan Toiron 162 30,009 30,171
Dorgont - 10,445 10,445
Tsagaan Ovoo - 8,536 8,536
Bayankhongor - 16,401 16,401
Gobiguulin - 9,340 9,340
Other Exploration Costs 22,386 181,153 203,539
------------------------------------
$ 53,076 $ 522,142 $ 575,218
====================================
d. Mongolian precious and base metals properties
The Company's Mongolian precious and base metals properties were
transferred to Fortress in June 2004 in exchange for cash and a
controlling interest in Fortress. Effective April 30, 2005, the Company no
longer held a controlling interest in Fortress and the equity method has
been applied to account for the Company's investment in Fortress (refer to
Note 5). As a result, the costs associated with the Mongolian precious and
base metals properties are no longer included in the Company's
consolidated financial statements, as shown below:
2005
Effects of
2004 2005 2005 Equity Method 2005
Net Expenditures Write-offs Application Net
-------------------------------------------------------------------------
Shiveen Gol $1,777,890 $ 91,900 ($1,869,790) - $ -
Tsagaan Tologoi 597,781 83,811 - (681,592) -
Erdenet 750,171 103,009 - (853,180) -
Huvsgol 339,464 190,291 - (529,755) -
Gants Modot 118,325 4,022 - (122,347) -
Davaa 31,764 2,851 - (34,615) -
Burkheer Khar 110,445 (15,097) - (95,348) -
Ulzit 83,169 (11,449) - (71,720) -
-------------------------------------------------------------------------
$3,809,009 $ 449,338 ($1,869,790) ($2,388,557) $ -
=========================================================================
4. Marketable Securities
Marketable securities consist of common shares held in four
publicly-traded companies at a total cost of $1,986,501. As of June 30,
2005, the total market value of these securities exceeded the total cost
by $3,113,351.
5. Investment in Fortress Minerals Corp.
Effective April 30, 2005, the Company's ownership interest in Fortress was
reduced to less than 50% as a result of Fortress issuing additional common
shares to third parties. Prior to that date, the Company had an ownership
interest that exceeded 50% and was deemed to have control. The Company's
consolidated financial statements for prior periods included the accounts
of Fortress on a consolidated basis with recognition of the minority
interests' share of net assets and results of operations. Consolidated
financial statements are prepared by combining the financial statements of
the parent and all its subsidiaries on a line-by-line basis, adding
together the individual items that make up the assets, liabilities,
revenues, expenses and cash flows and eliminating any intercompany
balances and transactions.
At April 30, 2005, the Company had a 49.26% ownership interest in
Fortress. Accordingly, the equity method has been applied to account for
the Company's investment in Fortress from that date onwards. Under the
equity method, the Company's percentage interests in the net assets and
results of operations of Fortress are presented in a single line in the
balance sheet as Investment in Fortress Minerals Corp. and the statement
of operations as Equity in loss of Fortress Minerals Corp., respectively.
At June 30, 2005, the Company had a 45.72% ownership interest in Fortress.
6. Restricted Investments
Amounts represent cash and fixed income securities the Company has placed
on deposit to secure its reclamation and performance bonds (Note 7).
June 30, 2005 September 30, 2004
------------------------------------
Cash and cash equivalents $ 1,934,937 $ 1,883,073
Fixed income securities 10,846,628 10,603,993
----------------------------------
$ 12,781,565 $ 12,487,066
==================================
7. 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 June 30, 2005, $12,934,880 was accrued for reclamation
costs, and this amount also includes the reclamation liabilities secured
by the bond posted in favor of the State of Utah and the applicable state
regulatory agencies. 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.
8. Share Capital
a. Authorized - unlimited number of common shares.
b. Issued and outstanding
Shares
June 30, 2005 September 30, 2004
-------------------------------------
Beginning of period 79,635,066 68,970,066
Stock options exercised 477,000 715,000
Private placements 1,000,000 9,950,000
-------------------------------------
End of period 81,112,066 79,635,066
=====================================
Amount
June 30, 2005 September 30, 2004
-------------------------------------
Beginning of period $ 50,305,480 $ 37,935,533
Stock options exercised 277,245 546,111
Fair value of stock options exercised 305,186 -
Private placements 5,374,952 12,408,969
Renounced flow through
share expenditures (1,434,096) (585,133)
-------------------------------------
End of period $ 54,828,767 $ 50,305,480
=====================================
Net income or loss per share was calculated on the basis of the weighted
average number of shares outstanding for the periods presented.
9. 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 June 30, 2005 were as follows:
Options Outstanding and Exercisable
------------------------------------------------------------------------------------
Weighted Average Average Remaining
Number Range of Exercise Exercise Price Contractual Life
Outstanding Prices Per Share Per Share (Years)
------------------------------------------------------------------------------------
250,000 Cdn $0.31 Cdn $0.31 0.28
1,213,000 Cdn $1.01 Cdn $1.01 1.41
75,000 Cdn $5.18 Cdn $5.18 1.92
545,000 Cdn $4.27 to Cdn $5.28 Cdn $4.93 2.82
------------- -----------------------------
2,083,000 Cdn $2.10 1.66
============= =============================
Outstanding options expire between October 2005 and June 2008.
9. Stock Options (continued)
A summary of the Company's stock option transactions for the periods ended
June 30, 2005 and September 30, 2004 is presented below:
Nine Months Ended Year Ended
June 30, 2005 September 30, 2004
------------------------------------------------------------------------------------------
Weighted Weighted
Average Average
Stock Options Outstanding Number Exercise Number Exercise
and Exercisable of Shares Price of Shares Price
------------------------------------------------------------------------------------------
Balance, beginning of period 1,940,000 $0.85 670,000 $ 0.32
Granted 620,000 4.96 1,985,000 1.08
Exercised (477,000) 0.71 (715,000) 1.01
----------------------------------------------------------------------------------------
Balance, end of period 2,083,000 $2.10 1,940,000 $ 0.85
========================================================================================
Weighted-average fair value
per share under options
granted during the period $ 1.51 $ 0.46
========================================================================================
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted-average assumptions:
Nine Months Year Ended
Ended September 30,
June 30, 2005 2004
----------------------------------------------------------------------
Risk-free interest rate 2.84% 2.81%
Expected stock price volatility 88.19% 93.00%
Expected option life in years 1.88 3.00
Expected dividend yield - -
A summary of the status of the "Value assigned to stock options" for the
periods ended June 30, 2005 and September 30, 2004 is presented below:
Nine Months Year Ended
Ended September 30,
June 30, 2005 2004
--------------------------------------------------------------------------------
Balance, beginning of period $ 224,718 $ -
Change in policy on stock based compensation
expense 773,655 -
Stock-based compensation expense as
a result of stock options granted 935,090 224,718
Value of stock options assigned to share
capital upon exercise of stock options (305,186) -
-------------------------------------------------------------------------------
Balance, end of period $ 1,628,277 $ 224,718
===============================================================================
10. Segmented Information
Geographic information
Nine Months Ending
June 30, 2005 June 30, 2004
-----------------------------------------
Revenue
United States $ 50,479 $ 2,035,262
---------------------------------------
$ 50,479 $ 2,035,262
=======================================
Net income (loss)
Canada ($ 1,044,937) ($ 926,273)
United States 1,072,013 (2,156,801)
Mongolia 84,509 (214,686)
---------------------------------------
$ 111,585 ($ 3,297,760)
=======================================
At June 30, At September 30,
2005 2004
---------------------------------------
Total assets
Canada $19,967,921 $13,288,701
United States 23,281,664 20,769,794
Mongolia 1,398,821 5,329,060
---------------------------------------
$44,648,406 $39,387,555
=======================================
11. 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 was
believed to have assumed the contracts in question and has subsequently
performed the contracts with the Company. In May 2004 the Company received
a formal Complaint in the bankruptcy proceeding seeking the recovery of
approximately $1.7 million as an alleged preferential payment. The Company
has answered the complaint, disputing the claim, asserting, among other
defenses that there is no liability on account that the Company's contract
was assumed and assigned to Shaw and as a result there is no preference
liability. In December 2004, the Company sought summary judgment in its
favor, which was denied by the Court. In May 2005 the Company filed a
second motion for summary judgement, which has not yet been ruled on by
the Court. If this matter goes to trial, the Company expects that the
trial will take place later in 2005 or in 2006.