TORONTO, ONTARIO--(Marketwire - Oct. 7, 2009) -
THIS NEWS RELEASE IS NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES
Uranium Participation Corporation ("Uranium Corp.")(TSX:U) reports results for the six months ended August 31, 2009. All amounts are in Canadian currency unless otherwise noted.
Net assets from operations decreased $63.0 million for the six months ended August 31, 2009. This resulted from $71.5 million in unrealized losses incurred due to the decline in value of Uranium Corp's uranium investments, offset by $8.9 million in income tax recoveries. Additionally, Uranium Corp earned $1.9 million in income from the lending of its uranium investments, and incurred $0.5 million in foreign exchange gains.
This compares to a decrease in net assets from operations of $24.1 million for the six months ended August 31, 2008 resulting from $26.8 million in unrealized losses on uranium investments, $4.4 million in income tax recoveries, and $1.1 million in foreign exchange losses.
Net asset value increased from $541.4 million at February 28, 2009 to $578.6 million at August 31, 2009 with net asset value per common share decreasing from $7.49 to $6.75 over the six month period.
About Uranium Participation Corporation
Uranium Participation Corporation is an investment holding company which invests substantially all of its assets in uranium oxide in concentrates (U3O8) and uranium hexafluoride (UF6) (collectively "uranium"), with the primary) investment objective of achieving appreciation in the value of its uranium holdings. Additional information about Uranium Participation Corporation is available on SEDAR at www.sedar.com and on Uranium Participation Corporation's website at www.uraniumparticipation.com.
Uranium Participation Corporation
Interim Management Report of Fund Performance
August 31, 2009
DISCLOSURE
This Interim Management Report of Fund Performance contains financial highlights but does not contain either interim or annual consolidated financial statements of Uranium Participation Corporation ("Uranium Corp"). You can get a copy of the interim or annual consolidated financial statements at your request, and at no cost, by calling 416-979-1991, by writing to us at 595 Bay Street, Suite 402, Toronto, Ontario, M5G 2C2, or by visiting our website at www.uraniumparticipation.com or SEDAR at www.sedar.com. You may also contact us to obtain a copy of Uranium Corp's quarterly portfolio disclosure.
Uranium Corp holds physical commodities and not equity security investments. As a result, Uranium Corp does not have an investment proxy voting disclosure record, nor does it have proxy voting policies and procedures.
This Interim Management Report of Fund Performance is current as of October 7, 2009. All amounts are in Canadian dollars unless otherwise indicated.
CAUTION REGARDING FORWARD LOOKING INFORMATION
This Interim Management Report of Fund Performance contains certain forward looking statements and forward looking information that are based on the Company's current internal expectations, estimates, assumptions and beliefs. Forward looking statements generally can be identified by the use of forward looking terminology such as "may", "will", "expect", "intent", "estimate", "anticipate", "plan", "should", "believe" or "continue" or the negative thereof or variations thereon or similar terminology.
By their very nature, forward looking statements involve numerous assumptions and estimates. A variety of factors, many of which are beyond the control of Uranium Corp, may cause actual results to differ materially from the expectations expressed in the forward looking statements. For a list of the principal risks of an investment in Uranium Corp, please refer to the "RISK FACTORS" section of the Company's annual management report of fund performance dated February 28, 2009.
These and other factors should be considered carefully, and readers are cautioned not to place undue reliance on these forward looking statements. Although management reviews the reasonableness of its assumptions and estimates, unusual and unanticipated events may occur which render them inaccurate. Under such circumstances, future performance may differ materially from those expressed or implied by the forward looking statements. Except where required under applicable securities legislation, Uranium Corp does not undertake to update any forward looking information.
RESULTS OF OPERATIONS
Uranium Corp's basic net asset value per common share decreased from $7.49 per share at February 28, 2009 to $6.75 at August 31, 2009 representing a basic net asset value loss of 9.9%. Over the comparable time period, Uranium Corp's benchmark, the S&P/TSX Composite Index, increased by 33.8%.
Uranium Corp's net assets at August 31, 2009 were $578,613,000 representing a 6.9% increase from the net assets of $541,397,000 at February 28, 2009. Of the net asset value increase of $37,216,000 over the period, $100,265,000 was attributable to the after-tax net proceeds of additional equity issues, offset by decrease of $63,049,000 from investment operation performance.
Equity Financing
In May 2009, Uranium Corp issued 13,368,750 shares at $7.75 per share for total gross proceeds of $103,608,000. As at August 31, 2009, Uranium Corp had 85,697,341 common shares issued and outstanding.
Since inception, Uranium Corp has raised gross proceeds of $647,047,000 through common share and equity unit financings, with an additional $31,202,000 received through warrant exercises. Uranium Corp invested or committed to invest (refer to Recent Developments section) $608,570,000 or 89.7% of these amounts into its portfolio of uranium investments.
Investment Portfolio
During the period, Uranium Corp increased its U3O8 holdings by 100,000 pounds, raising its total holdings to 5,525,000 pounds at August 31, 2009. The total cost of this investment was $267,566,000 or $48.43 per pound. The fair value of this investment at August 31, 2009 was $278,726,000 or $50.45 (1) per pound, representing an increase of 4.2%. On a U.S dollar basis, the fair value of this investment has increased by 6.0%.
During the period, Uranium Corp increased its UF6 holdings by 350,000 KgU, raising its total holdings to 1,842,230 KgU at August 31, 2009. The total cost of this investment was $324,177,000 or $175.97 per KgU. The fair value of this investment at August 31, 2009 was $256,587,000 or $139.28 (1) per KgU, representing a decrease of 20.8%. On a U.S dollar basis, the fair value of this investment has decreased by 21.3%.
Uranium Corp has loaned 500,000 KgU of UF6 to a producer, subject to a loan fee of 5% per annum based upon the adjusted quarterly value of the material. Collateral is held in the form of an irrevocable letter of credit from a major financial institution that is subject to adjustment on an annual basis. As at August 31, 2009, the market value of investments lent was $69,640,000 with collateral held of $93,075,000. This lending arrangement is due to expire on December 31, 2009 and the title to the UF6 will be returned on that date.
(1) Reflects spot prices published by Ux Consulting Company, LLC on August 31, 2009 of US$46.00 per pound for U3O8 and US$127.00 per KgU for UF6 translated at a foreign exchange rate of 1.0967.
Investment Performance
Investment operation results declined by $63,049,000 in the six months ended August 31, 2009, largely due to unrealized losses on uranium investments of $71,527,000, net of tax recovery movements of $8,860,000.
Unrealized losses on investments reflects the significant weakening of the U.S. dollar from a foreign exchange rate of 1.2707 at February 28, 2009 to 1.0967 at August 31, 2009. U3O8 and UF6 spot prices have remained relatively stable as reported by the Ux Consulting Company, LLC ("UxCo"). U3O8 spot prices increased slightly from US$45.00 per pound at February 28, 2009 to US$46.00 per pound at August 31, 2009 and UF6 spot prices increased from US$126.00 per KgU at February 28, 2009 to US$127.00 per KgU at August 31, 2009.
Uranium Corp is not a mutual fund trust. As a result, it is subject to income tax on its taxable income, computed in accordance with the ordinary rules and at rates ordinarily applicable to public corporations. Uranium Corp is also subject to varying rates of taxation due to its operations in multiple tax jurisdictions. Currently, Uranium Corp accrues future income taxes payable and receivable based on the unrealized gains and losses on investments. Future tax assets are realized to the extent that they are more likely than not to be recoverable from future taxable income. The effective tax rate for the six months ended August 31, 2009 is approximately 12.3% compared to 15.5% for prior year's comparable period. The reduction in the effective tax rate is largely due to an increase in the proportion of Uranium Corp's earnings being tax effected in lower tax jurisdictions, via Uranium Corp's wholly owned subsidiary, Uranium Participation Cyprus Limited.
RECENT DEVELOPMENTS
On September 30, 2009, Uranium Corp purchased 120,000 KgU as UF6, for US$15,600,000, funded from cash on hand.
As reported by UxCo as at October 5, 2009, the spot price of U3O8 has declined to US$43.50 per pound from US$46.00 per pound on August 31, 2009 a decrease of 5.4% while the value of UF6 has declined to US$119.91(1) per KgU from US$127.00 per KgU on August 31, 2009, a decrease of 5.6%.
(1) UF6 value is obtained by adding (i) the spot price for U3O8 multiplied by 2.61285; and (ii) the spot conversion price of UF6.
RELATED PARTY TRANSACTIONS
Uranium Corp is a party to a management services agreement with Denison Mines Inc., (the "Manager"). Under the terms of the agreement, Uranium Corp will pay the following fees to the Manager: a) a commission of 1.5% of the gross value of any purchases or sales of uranium completed at the request of the Board of Directors; b) a minimum annual management fee of $400,000 (plus reasonable out-of-pocket expenses) plus an additional fee of 0.3% per annum based upon Uranium Corp's net asset value between $100,000,000 and $200,000,000 and 0.2% per annum based upon Uranium Corp's net asset value in excess of $200,000,000; c) a fee of $200,000 upon the completion of each equity financing where proceeds payable to Uranium Corp exceed $20,000,000; d) a fee of $200,000 for each transaction or arrangement (other than the purchase or sale of uranium) of business where the gross value of such transaction exceeds $20,000,000 ("an initiative"); e) an annual fee up to a maximum of $200,000, at the discretion of the Board, for on-going maintenance or work associated with an initiative; and f) a fee equal to 1.5% of the gross value of any uranium held by Uranium Corp prior to the completion of any acquisition of at least 90% of the common shares of the Company.
In accordance with the management services agreement, all uranium investments owned by Uranium Corp are held in accounts with conversion facilities in the name of Denison Mines Inc. as manager for and on behalf of Uranium Corp.
In August 2008, Uranium Corp purchased 50,000 pounds of U3O8 from the Manager at the market price at the time of US$64.50 per pound for total consideration of $3,373,000 (US$3,225,000).
The following additional transactions were incurred with the Manager during the six months ended:
----------------------------------------------------------------------------
(in thousands) August 31, August 31,
2009 2008
----------------------------------------------------------------------------
Fees incurred with the Manager:
Management fees $ 764 $ 805
Equity financing fees (1) 200 200
Transaction fees - uranium purchase commissions 866 1,246
Shareholder information and other compliance 28 37
General office and miscellaneous 3 -
----------------------------------------------------------------------------
Total fees incurred with the Manager $ 1,861 $ 2,288
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Equity financing fees incurred with the Manager have been recorded as share issue costs and are included in the value reported for common shares.
As at August 31, 2009, accounts payable and accrued liabilities included $159,000 due to the Manager with respect to the fees indicated above.
PAST PERFORMANCE
The following tables show the past performance of the net asset value attributable to common shares ("Net Asset Value Return") and the past performance of the share price ("Market Value Return") of Uranium Corp and will not necessarily indicate how Uranium Corp will perform in the future. Net Asset Value Return is the best representation of the performance of Uranium Corp while Market Value Return is the best representation of the return to a shareholder of Uranium Corp.
Year by Year Returns
The table below shows the annual performance and the interim performance, in Net Asset Value Return and Market Value Return of Uranium Corp for each period indicated. The table shows, in percentage terms, how much an investment held on the first day of each financial period would have increased or decreased by the last day of each financial period.
----------------------------------------------------------------------------
August February February February February
2009 (1) 2009 (2) 2008 (2) 2007 (2) 2006 (3)
----------------------------------------------------------------------------
Net Asset Value
Return (Loss)
- basic (9.9%) (16.4%) (25.0%) 110.0% 18.3%
Net Asset Value
Return (Loss)
- diluted (9.9%) (16.4%) (21.6%) 100.9% 18.3%
Market Value Return
(Loss) 7.4% (47.6%) (18.4%) 94.1% 40.2%
----------------------------------------------------------------------------
(1) For the six months ended August 31, 2009.
(2) For the twelve months ended.
(3) Period from completion of initial public offering on May 10, 2005
through to February 28, 2006.
Annual Compound Returns
The table below shows the annual compound return in Net Asset Value Return and Market Value Return of Uranium Corp for each period indicated, compared with the TSX Composite Index calculated on the same compound basis.
----------------------------------------------------------------------------
August February February February February
2009 (1) 2009 (1) 2008 (1) 2007 (1) 2006 (1)
----------------------------------------------------------------------------
Net Asset Value
Return - basic 7.8% 11.7% 23.0% 57.6% 18.3%
Net Asset Value
Return - diluted 7.8% 11.7% 23.0% 54.2% 18.3%
Market Value Return 5.1% 3.9% 30.5% 65.0% 40.2%
S&P / TSX Composite
Index (2) 3.1% (3.8%) 12.7% 17.2% 23.1%
----------------------------------------------------------------------------
(1) Period from completion of initial public offering on May 10, 2005
through to end of applicable fiscal period.
(2) The S&P / TSX Composite Index is a market capitalization-weighted index
that provides a broad measure of performance of the Canadian equity
market.
SUMMARY OF INVESTMENT PORTFOLIO
Uranium Corp's investment portfolio consists of the following as at
August 31, 2009:
----------------------------------------------------------------------------
(in thousands,
except quantity Quantity of Market
amounts) Measure Cost (3) Value (1)
----------------------------------------------------------------------------
Investments in Uranium:
Uranium oxide in
concentrates ("U3O8") 5,525,000 lbs $ 267,566 $ 278,726
Uranium hexafluoride
("UF6")(2) 1,842,230 KgU $ 324,177 $ 256,587
----------------------------------------------------------------------------
$ 591,743 $ 535,313
----------------------------------------------------------------------------
----------------------------------------------------------------------------
U3O8 average cost
and market value per pound:
- In Canadian dollars $ 48.43 $ 50.45
- In United States dollars $ 43.41 $ 46.00
UF6 average cost and
market value per KgU:
- In Canadian dollars $ 175.97 $ 139.28
- In United States dollars $ 161.39 $ 127.00
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) The market values have been translated to Canadian dollars using the
August 31, 2009 noon foreign exchange rate of 1.0967.
(2) Of the UF6 holding described above, 500,000 KgU has been lent to a third
party.
(3) The cost of the portfolio excludes transaction fees incurred since the
Company's inception in March 2005.
FINANCIAL HIGHLIGHTS
The following tables show selected key financial information about Uranium Corp and is intended to help you understand Uranium Corp's financial performance for the last five reporting periods (if applicable). This information is derived from the corporation's unaudited interim and audited annual financial statements.
Net Asset Value per Share
----------------------------------------------------------------------------
August February February February February
2009 (1) 2009 (2) 2008 (2) 2007 (2) 2006 (3)
----------------------------------------------------------------------------
Net Asset Value per
Share - Basic:
Net asset value per
share, beginning
of period (3) $ 7.49 $ 8.96 $ 11.95 $ 5.69 $ 4.81
----------------------------------------------------------------------------
Increase (decrease)
from operations(4):
Total revenue $ 0.02 $ 0.07 $ 0.13 $ 0.03 $ 0.03
Total expenses
before taxes $ (0.03) $ (0.08) $ (0.16) $ (0.15) $ (0.22)
Income tax recovery
(provision) $ 0.11 $ 0.27 $ 0.93 $ (2.06) $ (0.38)
Realized gains
(losses) for the
period $ - $ - $ - $ - $ -
Unrealized gains
(losses) for the
period $ (0.91) $ (1.83) $ (3.81) $ 8.45 $ 1.30
----------------------------------------------------------------------------
Total increase
(decrease) from
operations $ (0.80) $ (1.58) $ (2.91) $ 6.27 $ 0.73
----------------------------------------------------------------------------
Net asset value
per share, end
of period (4) $ 6.75 $ 7.49 $ 8.96 $ 11.95 $ 5.69
----------------------------------------------------------------------------
Net Asset Value per Share - Diluted:
Net asset value
per share,
beginning of
period(4) $ 7.49 $ 8.96 $ 11.43 $ 5.69 $ 4.81
----------------------------------------------------------------------------
Increase (decrease)
from operations(4):
Total revenue $ 0.02 $ 0.07 $ 0.13 $ 0.03 $ 0.03
Total expenses
before taxes $ (0.03) $ (0.08) $ (0.16) $ (0.14) $ (0.22)
Income tax recovery
(provision) $ 0.11 $ 0.27 $ 0.93 $ (1.97) $ (0.38)
Realized gains
(losses) for the
period $ - $ - $ - $ - $ -
Unrealized gains
(losses) for the
period $ (0.91) $ (1.83) $ (3.81) $ 8.08 $ 1.30
----------------------------------------------------------------------------
Total increase
(decrease) from
operations $ (0.80) $ (1.58) $ (2.91) $ 6.00 $ 0.73
----------------------------------------------------------------------------
Net asset value
per share,
end of period(4) $ 6.75 $ 7.49 $ 8.96 $ 11.43 $ 5.69
----------------------------------------------------------------------------
(1) For the six months ended August 31, 2009.
(2) For the twelve months ended.
(3) Period from completion of initial public offering on May 10, 2005
through to February 28, 2006.
(4) Net asset values are based upon the actual number of common shares
outstanding at the relevant time. The increase/decrease from operations
is based on the weighted average number of common shares outstanding
over the financial period.
Ratios and Supplemental Data
----------------------------------------------------------------------------
(in millions, except
for ratios and TSX August February February February February
market prices) 2009 (1) 2009 (2) 2008 (2) 2007 (2) 2006 (3)
----------------------------------------------------------------------------
Total net assets,
end of period $ 578.6 $ 541.4 $ 582.5 $ 579.4 $ 175.0
Average net asset
value for the period $ 569.7 $ 585.1 $ 708.5 $ 336.6 $ 116.0
Number of common
shares outstanding 85.7 72.3 65.0 48.5 30.8
Management expense
ratio(4)
Total expenses
before taxes(5) 0.41% 0.79% 1.01% 1.11% 2.45%
Income tax
provision/(recovery) (1.56%) (3.32%) (7.87%) 25.05% 7.26%
Portfolio turnover
rate - - - - -
Trading expense
ratio (6) 0.15% 0.22% 0.32% 0.73% 1.75%
Closing TSX market
Price per common
share $ 6.50 $ 6.05 $ 11.55 $ 14.15 $ 7.29
----------------------------------------------------------------------------
(1) For the six months ended August 31, 2009.
(2) For the twelve months ended.
(3) Period from completion of initial public offering on May 10, 2005
through to February 28, 2006.
(4) The management expense ratio for total expenses represents total
investment operation expenses for the period over the average net asset
value of the fund for the period.
(5) Transaction costs are excluded from total expenses in calculating the
management expense ratio. These costs are included in the trading
expense ratio calculation.
(6) Represents total transaction costs for the period over the average net
asset value of the fund for the period. Warehousing and custodian costs
have been included in the expense amount for the management expense
ratio calculation.
URANIUM PARTICIPATION CORPORATION
CONSOLIDATED STATEMENTS OF NET ASSETS (Unaudited)
----------------------------------------------------------------------------
(in thousands of Canadian August 31, February 28,
dollars, except per share amounts) 2009 2009
----------------------------------------------------------------------------
Assets
Investments at market value $ 535,313 $ 549,128
(at cost: August-$591,743;
February-$534,031)
Cash and cash equivalents 41,811 1,057
Sundry receivables and other assets 745 878
Future income taxes (note 3) 14,583 13,084
----------------------------------------------------------------------------
$ 592,452 $ 564,147
Liabilities
Accounts payable and accrued liabilities 1,216 1,399
Income taxes payable 155 108
Future income taxes (note 3) 12,468 21,243
----------------------------------------------------------------------------
Net assets $ 578,613 $ 541,397
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net assets represented by
Common shares (note 4) $ 653,841 $ 553,576
Contributed surplus 2,481 2,481
Retained earnings (deficit) (77,709) (14,660)
----------------------------------------------------------------------------
$ 578,613 $ 541,397
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Common shares
Issued and outstanding (note 4) 85,697,341 72,328,591
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net asset value per common share
Basic and diluted $ 6.75 $ 7.49
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
URANIUM PARTICIPATION CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
----------------------------------------------------------------------------
(in thousands of Canadian dollars, except per Six Months Ended
share amounts) August 31, August 31,
2009 2008
----------------------------------------------------------------------------
Income
Interest $ 25 $ 165
Income from investment lending (note 6) 1,937 2,425
Unrealized losses on investments (71,527) (26,819)
----------------------------------------------------------------------------
(69,565) (24,229)
----------------------------------------------------------------------------
Operating expenses
Transaction fees (note 5) 866 1,290
Management fees (note 5) 764 805
Storage fees 862 637
Audit fees 22 23
Directors fees 69 57
Legal and other professional fees 13 10
Shareholder information and other compliance 110 135
General office and miscellaneous 142 204
Foreign exchange loss (gain) (504) 1,120
----------------------------------------------------------------------------
2,344 4,281
----------------------------------------------------------------------------
Decrease in net assets from operations before taxes (71,909) (28,510)
Income tax recovery (note 3) (8,860) (4,430)
----------------------------------------------------------------------------
Decrease in net assets from operations after taxes (63,049) (24,080)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Opening retained earnings (deficit) (14,660) 98,857
----------------------------------------------------------------------------
Closing retained earnings (deficit) (77,709) 74,777
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Decrease in net assets from operations after
taxes per common share
Basic and diluted $ (0.80) $ (0.34)
Weighted average common shares outstanding
Basic and diluted 79,012,966 71,712,154
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
URANIUM PARTICIPATION CORPORATION
STATEMENTS OF CHANGES IN NET ASSETS (Unaudited)
----------------------------------------------------------------------------
(in thousands of Canadian dollars) Six Months Ended
August 31, August 31,
2009 2008
----------------------------------------------------------------------------
Net assets at beginning of period $ 541,397 $ 582,545
Net proceeds from issue of shares after tax
(note 4) 100,265 72,312
Decrease in net assets from operations
after taxes (63,049) (24,080)
----------------------------------------------------------------------------
Net assets at end of period $ 578,613 $ 630,777
----------------------------------------------------------------------------
----------------------------------------------------------------------------
URANIUM PARTICIPATION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
----------------------------------------------------------------------------
(in thousands of Canadian dollars) Six Months Ended
August 31, August 31,
2009 2008
----------------------------------------------------------------------------
Operating Activities
Decrease in net assets from operations
after taxes $ (63,049) $ (24,080)
Adjustments for non-cash items:
Unrealized losses on investments 71,527 26,819
Future income tax recovery (note 3) (8,909) (4,446)
Changes in non-cash working capital:
Change in sundry receivables and other assets 133 310
Change in accounts payable and accrued
liabilities (183) 164
Change in income taxes payable 47 (331)
----------------------------------------------------------------------------
Net cash used in operating activities (434) (1,564)
----------------------------------------------------------------------------
Investing Activities
Purchases of uranium investments (57,712) (83,085)
----------------------------------------------------------------------------
Net cash used in investing activities (57,712) (83,085)
----------------------------------------------------------------------------
Financing Activities
Share issues net of issue costs (note 4) 98,900 71,304
----------------------------------------------------------------------------
Net cash generated by financing activities 98,900 71,304
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 40,754 (13,345)
----------------------------------------------------------------------------
Cash and cash equivalents - beginning of period 1,057 13,687
----------------------------------------------------------------------------
Cash and cash equivalents - end of period $ 41,811 $ 342
----------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
URANIUM PARTICIPATION CORPORATION
CONSOLIDATED STATEMENT OF INVESTMENT PORTFOLIO
AS AT AUGUST 31, 2009 (Unaudited)
----------------------------------------------------------------------------
(in thousands of Canadian Quantity of Market
dollars, except quantity amounts) Measure Cost(3) Value(1)
----------------------------------------------------------------------------
Investments in Uranium:
Uranium oxide in
concentrates("U3O8") 5,525,000 lbs $ 267,566 $ 278,726
Uranium hexafluoride ("UF6")(2) 1,842,230 KgU $ 324,177 $ 256,587
----------------------------------------------------------------------------
$ 591,743 $ 535,313
----------------------------------------------------------------------------
----------------------------------------------------------------------------
U3O8 average cost and market
value per pound:
- In Canadian dollars $ 48.43 $ 50.45
- In United States dollars $ 43.41 $ 46.00
UF6 average cost and market
value per KgU:
- In Canadian dollars $ 175.97 $ 139.28
- In United States dollars $ 161.39 $ 127.00
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) The market values have been translated to Canadian dollars using the
August 31, 2009 noon foreign exchange rate of 1.0967.
(2) Of the UF6 holding described above, 500,000 KgU has been lent to a third
party. See note 6 for further details of this arrangement.
(3) The cost of the portfolio excludes transaction fees incurred since the
Company's inception in March 2005.
The accompanying notes are an integral part of these financial statements.
URANIUM PARTICIPATION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Expressed in Canadian dollars, unless otherwise noted)
1. URANIUM PARTICIPATION CORPORATION
Uranium Participation Corporation ("Uranium Corp" or the "Company") was established under the Business Corporations Act (Ontario) ("OBCA") on March 15, 2005. Uranium Corp is an investment fund as defined by the Canadian securities regulatory authorities in National Instrument 81-106 "Investment Fund Continuous Disclosure". Uranium Corp was created to invest substantially all of its assets in uranium oxide in concentrates ("U3O8") and uranium hexafloride ("UF6") (collectively "uranium") with the primary investment objective of) achieving appreciation in the value of its uranium holdings. Uranium Corp trades publicly on the Toronto Stock Exchange under the symbol U.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements include the assets, liabilities, revenues and expenses of Uranium Corp and its wholly owned subsidiaries, Uranium Participation Alberta Corp. and Uranium Participation Cyprus Limited. The consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP") for interim financial statements.
Certain information and note disclosures normally included in the annual consolidated financial statements prepared in accordance with Canadian GAAP have been condensed or excluded. As a result, these unaudited interim consolidated financial statements do not contain all disclosures required for annual financial statements and should be read in conjunction with Uranium Corp's audited consolidated financial statements and notes thereto for the year ended February 28, 2009.
All material adjustments which, in the opinion of management, are necessary for fair presentation of the results of the interim periods have been reflected in these financial statements. The results of operations for the six months ended August 31, 2009 are not necessarily indicative of the results to be expected for the full year.
These unaudited interim consolidated financial statements are prepared following accounting policies consistent with Uranium Corp's audited consolidated financial statements and notes thereto for the year ended February 28, 2009.
Accounting Standards Issued but not yet Adopted
a) International Financial Reporting Standards ("IFRS") - the CICA plans to converge Canadian GAAP with IFRS for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The impact on the transition to IFRS on Uranium Corp's financial statements has not yet been determined.
3. INCOME TAXES
Unlike most investment funds, Uranium Corp is not a mutual fund trust, making it subject to income tax on its taxable income. Uranium Corp is also subject to varying rates of taxation due to its operations in multiple tax jurisdictions. A reconciliation of the combined Canadian federal and Ontario provincial income tax rate to Uranium Corp's effective rate of income tax is as follows:
----------------------------------------------------------------------------
(in thousands) Six Months Ended
August 31, August 31,
2009 2008
----------------------------------------------------------------------------
Decrease in net assets from operations
before income taxes $ (71,909) $ (28,510)
Combined federal and Ontario provincial
income tax rate 32.83% 33.42%
---------------------------
Computed income tax recovery (23,608) (9,528)
Difference between combined federal and
Ontario provincial income tax rate
and rates applicable to subsidiaries in
other jurisdictions 12,477 4,361
Difference due to use of future tax
rates rather than current tax rates in
applicable jurisdictions 1,363 712
Tax losses not benefited 606 -
Operating loss carry-back - (23)
Other 302 48
----------------------------------------------------------------------------
Recovery of income taxes $ (8,860) $ (4,430)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Recovery of income taxes comprised of:
Current tax expense $ 49 $ 16
Future tax recovery (8,909) (4,446)
----------------------------------------------------------------------------
$ (8,860) $ (4,430)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The components of the Company's future
tax balances are as follows:
----------------------------------------------------------------------------
(in thousands) August 31, February 28,
2009 2009
----------------------------------------------------------------------------
Future tax assets:
Tax benefit of share issue costs $ 3,941 $ 3,511
Tax benefit of loss carryforwards 7,373 6,304
Unrealized loss on investments 5,528 4,971
----------------------------------------------------------------------------
16,842 14,786
Valuation allowance (2,259) (1,702)
----------------------------------------------------------------------------
Future tax assets $ 14,583 $ 13,084
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Future tax liabilities:
Unrealized gain on investments $ 13,571 $ 22,203
Tax benefit of loss carryforwards (1,103) (960)
----------------------------------------------------------------------------
Future tax liabilities $ 12,468 $ 21,243
----------------------------------------------------------------------------
----------------------------------------------------------------------------
At August 31, 2009, Uranium Corp has unused tax losses in Canada of $29,832,000 which are scheduled to expire between 2026 and 2030.
4. COMMON SHARES
Uranium Corp is authorized to issue an unlimited number of common shares without par value. A continuity schedule of the issued and outstanding common shares and the associated dollar amounts is as follows:
----------------------------------------------------------------------------
(in thousands except common share balances) Number of
Common
Shares Amount
----------------------------------------------------------------------------
Balance at February 28, 2009 72,328,591 $ 553,576
----------------------------------------------------------------------------
Common share financings
Gross proceeds on new issues 13,368,750 103,608
Issue costs - (4,708)
Tax effect of issue costs - 1,365
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance at August 31, 2009 85,697,341 $ 653,841
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Common share financings
In May 2009, Uranium Corp issued 13,368,750 shares at $7.75 per share for total gross proceeds of $103,608,000.
5. RELATED PARTY TRANSACTIONS
Uranium Corp is a party to a management services agreement with Denison Mines Inc., (the "Manager"). Under the terms of the agreement, Uranium Corp will pay the following fees to the Manager: a) a commission of 1.5% of the gross value of any purchases or sales of uranium completed at the request of the Board of Directors; b) a minimum annual management fee of $400,000 (plus reasonable out-of-pocket expenses) plus an additional fee of 0.3% per annum based upon Uranium Corp's net asset value between $100,000,000 and $200,000,000 and 0.2% per annum based upon Uranium Corp's net asset value in excess of $200,000,000; c) a fee of $200,000 upon the completion of each equity financing where proceeds payable to Uranium Corp exceed $20,000,000; d) a fee of $200,000 for each transaction or arrangement (other than the purchase or sale of uranium) of business where the gross value of such transaction exceeds $20,000,000 ("an initiative"); e) an annual fee up to a maximum of $200,000, at the discretion of the Board, for on-going maintenance or work associated with an initiative; and f) a fee equal to 1.5% of the gross value of any uranium held by Uranium Corp prior to the completion of any acquisition of at least 90% of the common shares of the Company.
In accordance with the management services agreement, all uranium investments owned by Uranium Corp are held in accounts with conversion facilities in the name of Denison Mines Inc. as manager for and on behalf of Uranium Corp.
In August 2008, Uranium Corp purchased 50,000 pounds of U3O8 from the Manager at a price of US$64.50 per pound for total consideration of $3,373,000 (US$3,225,000).
The following additional transactions were incurred with the Manager during the six months ended:
----------------------------------------------------------------------------
(in thousands of Canadian dollars) August 31, August 31,
2009 2008
----------------------------------------------------------------------------
Fees incurred with the Manager:
Management fees 764 805
Equity financing fees (1) 200 200
Transaction fees - uranium purchase commissions 866 1,246
Shareholder information and other compliance 28 37
General office and miscellaneous 3 -
----------------------------------------------------------------------------
Total fees incurred with the Manager $ 1,861 $ 2,288
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Equity financing fees incurred with the Manager have been recorded as
share issue costs and are included in value reported for common shares.
As at August 31, 2009, accounts payable and accrued liabilities included $159,000 (August 31, 2008: $188,000) due to the Manager with respect to the fees indicated above.
6. INVESTMENTS LENDING
As at August 31, 2009, the outstanding value of investments lent and collateral held is as follows:
----------------------------------------------------------------------------
(in thousands except quantity Quantity of Market Value Collateral
amounts) Measure of Investments Held
Lent
----------------------------------------------------------------------------
Uranium hexafluoride ("UF6") 500,000 KgU $ 69,640 $ 93,075
----------------------------------------------------------------------------
The UF6 loaned is subject to a loan fee of 5% per annum based upon the adjusted quarterly value of the material. Collateral held is in the form of an irrevocable letter of credit from a major financial institution, that is subject to adjustment on an annual basis. This agreement is due to expire on December 31, 2009 and the title to the UF6 will be returned on that date.
7. CAPITAL MANAGEMENT AND FINANCIAL INSTRUMENTS
Capital Management
Uranium Corp's capital structure consists of share capital and contributed surplus. The Company's primary objective is to achieve long-term appreciation in the value of its uranium holdings through a buy and hold investment strategy and not actively speculate with regard to short-term changes in uranium prices. Uranium purchases are normally funded through common share offerings with at least 85% of the gross proceeds of aggregate share offerings invested in, or set aside for future purchases of uranium. In strictly limited circumstances, the Company can enter into borrowing arrangements for up to 15% of the net assets of Uranium Corp to facilitate the purchases of uranium.
Risks Associated with Financial Instruments
Investment activities of Uranium Corp expose it to a variety of financial instrument risks: credit risk, liquidity risk, price risk, and currency risk. The source of risk exposure and how each is managed is outlined below:
Credit Risk
Uranium Corp's primary exposure to credit risk arises from its uranium lending arrangements. The Company lends uranium exclusively to large organizations with strong credit ratings and ensures that adequate security is provided for any loaned uranium (see note 6).
Liquidity Risk
Financial liquidity represents Uranium Corp's ability to fund future operating activities. Uranium Corp may generate cash from the lending or sale of uranium, or the sale of additional equity securities. The Company's current cash on hand is sufficient to meet its operating cash requirements. Although Uranium Corp enters into commitments to purchase uranium periodically, the commitments are normally contingent on the Company's ability to raise funds through the sale of additional equity securities.
The commitment disclosed in note 8 below is being funded by the common share offering that closed in May 2009.
Commodity Price Risk
Uranium Corp's net asset value is directly tied to the spot price of uranium published by Ux Consulting Company, LLC. In addition, the uranium loan fee fluctuates quarterly, following uranium spot price movements.
At August 31, 2009, a 10% increase (decrease) in the uranium spot price would have increased (decreased) the Company's net asset value by approximately $46,355,000.
Foreign Exchange Risk
Changes in the value of the Canadian dollar compared to foreign currencies will affect the value, as reported, of the Company's foreign denominated investments, cash and cash equivalents, receivables, and accounts payables.
As the prices of uranium are quoted in U.S. currency, fluctuations in the U.S. dollar relative to the Canadian dollar can significantly impact the valuation of uranium and the associated purchase prices from a Canadian dollar perspective. At August 31, 2009, a 10% increase (decrease) in the U.S. to Canadian dollar exchange rate would have increased (decreased) the Company's net asset value by approximately $46,355,000.
8. COMMITMENTS
At August 31, 2009, Uranium Corp was committed to purchase 120,000 KgU as UF6 for US$15,600,000. This purchase was completed on September 30, 2009 and was funded using cash on hand.
FOR FURTHER INFORMATION PLEASE CONTACT:
Uranium Participation Corporation Ron Hochstein President (416) 979-1991 Ext. 232or
Uranium Participation Corporation James Anderson Chief Financial Officer (416) 979-1991 Ext. 372
© Marketwire
