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 November 14, 2006
International Uranium Corporation
(Translation of registrant's name into English)
Suite 2101 - 885 West Georgia Street, Vancouver, BC Canada V6C 3E8
(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: November 14, 2006 By: /s/ Ron F. Hochstein
------------------------------------
Ron F. Hochstein, President and CEO
EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
1 Fourth Quarter Interim Report for period ending September 30,
2006
(IUC LOGO)
INTERNATIONAL URANIUM CORPORATION
2006 FOURTH QUARTER INTERIM REPORT
TWELVE MONTHS ENDED SEPTEMBER 30, 2006
REPORT TO SHAREHOLDERS
4TH QUARTER 2006
(U.S. DOLLARS)
On September 18, 2006, International Uranium Corporation ("IUC" or the
"Company") announced that, subject to shareholder approvals, the Company will be
merging with Denison Mines Inc. ("Denison Mines"), a Canadian uranium producer
with an interest in producing and exploration assets in the Athabasca Basin
region of northern Saskatchewan and exploration interests in Mongolia and
Australia. Provided that shareholder approvals are obtained at the upcoming IUC
and Denison shareholder meetings on November 20, the proposed merger of IUC and
Denison is scheduled to be completed by December 1, 2006. The Board of Directors
of IUC unanimously supports the merger.
This merger will create a new mid-tier uranium company with production focused
in North America. The combined company will own the White Mesa mill in Utah and
22.5% of the McClean Lake mill in Saskatchewan. Both mills are fully permitted,
operating and undergoing expansion. The combined company's share of the licensed
annual milling capacity will be at 10 million lbs U(3)O(8), to be expanded to
10.7 million lbs in 2007. The company will own outright or have an interest in
three currently operating mines and five North American development projects,
all of which are scheduled to commence mining prior to 2010. This merger will be
a very exciting opportunity for the Company, as it will add to our production
portfolio and provide access to critical milling capacity in North America.
The combined company will have a strong exploration position with large land
positions in the Athabasca Basin region of Northern Saskatchewan, the United
States, Mongolia and Australia. The exploration projects range from projects
that are close to having resource estimates expanded or developed, through to
grass roots properties. The combined exploration team will be one of the largest
amongst the mid-tier uranium companies. In addition, the combined company will
have further exposure to uranium exploration through equity investments in JNR
Resources Inc., Energy Metals Limited of Australia and several other uranium
exploration companies.
Peter Farmer, the President and Chief Executive Officer of Denison Mines Inc.
will become Chief Executive Officer of the combined company, and I will become
the President and Chief Operating Officer. James Anderson will be the Chief
Financial Officer. Both Denison and IUC will be equally represented on the Board
of the combined company, with Lukas Lundin as Chairman. The name "Denison Mines"
has significant recognition in the uranium industry, and as a result IUC will be
changing its name to Denison Mines Ltd.
Finally, the new company will have a strong balance sheet with over $100 million
in cash and short term investments and no debt. This will enable the new company
to pursue growth of its uranium production profile from its own operations and
through acquisitions as well as fund an aggressive exploration program.
As outlined in the Company's third quarter financial statements, the Company has
changed its fiscal year from an October 1 - September 30 fiscal year to a
January 1 - December 31 fiscal year. As a result, fiscal 2006 will be 15 months
long, which means that the Company is filing this fourth quarter report for the
quarter ending September 30, 2006. Assuming shareholder approvals are obtained
and the merger completes, the Annual Report for the year ending December 31,
2006 will be for the new company incorporating both IUC and Denison Mines as one
entity.
For the fourth quarter ended September 30, 2006, IUC recorded a net loss of
$3,703,510 ($0.04 per share) and a net loss of $1,974,814 ($0.02 per share) for
the first twelve months of fiscal 2006, as compared to a net loss of $2,483,773
($0.03 per share) and a net loss of $2,372,188 ($0.03 per share) for the fourth
quarter and twelve months of fiscal 2005, respectively. The net loss generated
during the fourth quarter of fiscal 2006 resulted primarily from a write down of
a portion of the Company's properties in Mongolia, which totaled $2,312,357.
This write down was due to the lack of exploration success on these properties
during the 2005 and 2006 exploration programs. Many of these properties were
grass roots exploration prospects that the Company had licensed in 2004 on the
basis of favorable
geology and radiometric anomalies. The Company aggressively evaluated these
prospects in 2005 and 2006 in order to make decisions on the properties prior to
the increase in license fees.
Because of the proposed merger with Denison Mines, the Company has put on hold
its listing application on the American Stock Exchange. The Board of Directors
of the new company will be evaluating the merits of proceeding with the
application upon completion of the merger.
Market Update
On October 23rd, 2006, Cameco Corporation announced that it had experienced
significant water inflow into its Cigar Lake mine. Later on that same day,
Cameco announced that it was unable to contain the water inflow and was
evacuating the mine and would let the mine flood. As a result of this accident,
development of the Cigar Lake mine could be pushed back a number of years. This
mine was due to come on stream in 2008 and ramp up over a three year period to
produce 18 million lbs per year of uranium. Prior to this announcement, uranium
had reached a new all time high of $56.00 per pound and $54.00 per pound
U(3)O(8), on the spot and long term markets, respectively. Given that the Cigar
Lake Mine would represent just under 20% of the world's production, the delay of
this mine has had quite a significant impact on the uranium market. As of
November 6th, the spot price had jumped $4.00 to $60.00 per pound and the long
term price had moved $2.00 to $56.00 per pound U(3)O(8). Until there is a better
understanding of the impact of these events on the production schedule for this
mine, the uranium price could continue to escalate on the basis of the concern
over supply, particularly for the time period 2008 to 2011.
Operations Update
In June, 2006 the Company announced that it was restarting its U.S. mining
operations. As of the end of October, development at the Topaz mine is well
underway, and mining operations at the Pandora mine have begun. Operations at
the West Sunday and Sunday mines are scheduled to commence by the end of the
year. The Company and its contractors have faced delays related to abnormally
high rainfall, which has impacted surface work at the mines, as well as delays
in obtaining necessary Mine Safety and Health Administration ("MSHA") approvals.
The MSHA delays were largely due to limited resources at MSHA. A contract has
been placed for ore haulage and, subject to negotiation of final terms, the
Company should begin haulage of ore from the mine sites to the White Mesa Mill
by the end of November. In addition to the Company's mining activity, IUC has
been in discussion with several parties on potential toll milling agreements,
and is in the process of finalizing an ore purchase schedule. The Company is
still on plan to commence milling of conventional ore in 2008.
Permitting of the Henry Mountains Complex operations continues to proceed as
planned. The permit applications are scheduled to be submitted to the State of
Utah for the start of its review within the next 7 to 10 days, and the Company
anticipates receiving the full operating permit in February 2007. Mining
operations at the Tony M mine in the Henry Mountains Complex will begin as soon
as the permits are issued.
The Company's White Mesa Mill continues to operate, processing alternate feed
materials that are expected to result in the production of more than 500,000
pounds of U(3)O(8) by mid-2007. As of the end of the quarter, the Company has
produced approximately 160,000 pounds of uranium as yellowcake, with another
275,000 pounds in-process. This mill run is anticipated to go well into 2007. In
parallel with the mill run, modifications to and modernization of the Mill have
begun in anticipation of starting up on conventional ore in early 2008. The
total capital program for the mill, including the relining of Cell 4A is
estimated at approximately $15 million.
In June 2006, the Utah Department of Environmental Quality issued an amendment
to the Company's radioactive materials license, allowing the mill to receive and
process up to 32,000 tons of alternate feed material from FMRI's Muskogee
Facility located in Muskogee, Okalahoma. This represents a new source of
alternate feed material for the Mill. The amendment was challenged by the Glen
Canyon Group of the Utah Chapter of the Sierra Club. A hearing was held on
September 8th before the Utah Radiation Control Board on standing. The issues
that the Sierra Club are
raising are very similar to the issues raised on several previous license
amendment challenges, which were subsequently dismissed by the U.S. Nuclear
Regulatory Commission. Nevertheless, the Radiation Control Board granted the
Sierra Club standing to challenge the license amendment. A hearing on the merits
has been scheduled for January 26, 2007. The Company will continue to defend
this action.
Exploration Update
In the Athabasca Basin region of Northern Saskatchewan, Canada, the Company
completed its summer drilling program at its Moore Lake project. Originally the
Company and its joint venture partner, JNR Resources Inc. ("JNR") had planned to
drill 17,500 metres this summer. However, due to limited drill crew
availability, only 14,500 metres were completed. The program focused on the
Maverick Main Zone and the 527 zone. The Company is still awaiting results from
this summer's program.
In addition to the Moore Lake exploration program, IUC had extensive field
programs underway on a number of its wholly owned and optioned properties in the
Basin. On Cameco's Park Creek project, where the Company is incurring
expenditures to earn up to a 75% interest, a ten hole, 2,742 metre drill program
was completed. And, in Labrador, the Company completed a five hole drill program
on the Sims Lake project. The Company is earning up to a 75% interest from
Consolidated Abaddon Resources Ltd. on this project. The Company is awaiting
results from both of these drill programs as well.
The Company also carried out both fixed wing and helicopter geophysical surveys
on portions of its properties in the Basin, as well as regional geochemical
programs. A number of anomalies have been identified on these properties, which
will be followed up in subsequent programs.
This past summer, the Company carried out its largest exploration program ever
undertaken in Mongolia, with over 70,000 metres of drilling. The program
included work on the Gurvan Saihan Joint Venture properties in which the Company
holds a 70% interest, as well as on our 100% owned properties and on the Erdene
Gold properties, in which the Company has an option to earn a 65% interest.
Although this year's exploration program did not identify any new sources of
uranium mineralization, the Company remains very encouraged with the overall
Mongolian program, and in 2007 will be moving from an exploration program to
more of a development program on its existing projects.
----------
As part of the merger with Denison, Ms. Eira Thomas will be resigning from the
Board of IUC. On behalf of the other board members and the employees of the
Company, I would like to thank Eira for her significant contributions to the
Company.
On behalf of the employees of IUC, I would like to thank you the shareholders
for your support as IUC has grown. We look forward to a new horizon for the new
Denison Mines Ltd.
ON BEHALF OF THE BOARD,
/s/ Ron F. Hochstein
-------------------------------------
Ron F. Hochstein,
President & CEO
November 8, 2006
INTERNATIONAL URANIUM CORPORATION
Management's Discussion and Analysis
Twelve Months Ended September 30, 2006
(Unaudited - Prepared by Management)
(Expressed in U.S. Dollars, Unless Otherwise Noted)
INTRODUCTION
This Management's Discussion and Analysis ("MD&A") of International Uranium
Corporation and its subsidiary companies and joint ventures (collectively, the
"Company") for the twelve months ended September 30, 2006 provides a detailed
analysis of the Company's business and compares its financial results with those
of the same period from the previous year. This MD&A is dated as of November 8,
2006 and should be read in conjunction with the Company's unaudited interim
consolidated financial statements for the twelve months ended September 30, 2006
("2006 Period") and the Company's audited consolidated financial statements and
MD&A for the fiscal year ended September 30, 2005 ("2005 Fiscal Year").
References to years only such as "2004" and "2003" represent previously reported
fiscal years ending September 30 of such years. The financial statements are
prepared in accordance with generally accepted accounting principles in Canada.
Other continuous disclosure documents, including the Company's press releases,
quarterly and annual reports and Annual Report on Form 20-F, are available
through its filings with the securities regulatory authorities in Canada at
www.sedar.com and the United States Securities and Exchange Commission at
www.sec.gov.
CHANGE OF YEAR END
In August 2006, the Company changed its fiscal year end from September 30 to
December 31 to align its reporting periods with that of its peers in the uranium
industry. For its upcoming 2006 annual report, the Company elected to use a
15-month period ending December 31, 2006 for its audited consolidated financial
statements in accordance with Canadian securities regulation.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this MD&A and elsewhere in the Company's
quarterly report for the 2006 Period 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 and detailed under RISK FACTORS in the
Company's most recently filed Form 20-F.
Risk factors that could affect the Company's future results include, but are not
limited to, risks inherent in mineral exploration, mining and milling activities
and other operating and development risks, competition, environmental
regulations, changes to reclamation requirements, dependence on a limited number
of customers, volatility and sensitivity to market prices for uranium and
vanadium, milling recoveries, 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 and renewal of licenses, permits and approvals from governmental
authorities.
OVERVIEW
The Company owns the White Mesa uranium mill (the "Mill") and several uranium
and uranium/vanadium mines in the United States and is engaged in uranium
exploration in the Athabasca Basin region of Saskatchewan, Canada and in
Mongolia. In June 2006, the Company re-opened a number of its U.S. mines and has
commenced mining activities with mined ore to be stockpiled at the Mill for
conventional ore processing starting in 2007/2008. Through its Mill, located in
Utah, the Company 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 to be sold by the Company.
In September 2006, the Company announced a proposed business combination with
Denison Mines Inc. ("Denison") under which all of the issued and outstanding
shares of Denison would be acquired in exchange for the
INTERNATIONAL URANIUM CORPORATION
Management's Discussion and Analysis
Twelve Months Ended September 30, 2006
(Unaudited - Prepared by Management)
(Expressed in U.S. Dollars, Unless Otherwise Noted)
Company's shares at a ratio of 2.88 common shares of the Company for each common
share of Denison. Refer to PROPOSED BUSINESS COMBINATION
PROPOSED BUSINESS COMBINATION
Pursuant to an arrangement agreement dated September 18, 2006, as amended and
restated on October 16, 2006, the Company and Denison Mines Inc. ("Denison")
propose to effect a business combination by way of a plan of arrangement (the
"Arrangement"), subject to approval by the security holders of the Company and
Denison, applicable regulatory authorities and the Superior Court of Justice of
Ontario. This merger will create a growth oriented and diversified uranium
producer with a strong financial position of approximately Cdn$130 million in
working capital as of June 30, 2006. The strength of the combined company's
balance sheet will allow it to pursue a development growth strategy and fund an
aggressive exploration program.
The combined company will be positioned as an intermediate North American
uranium producer, with mining assets in the Athabasca Basin Region of
Saskatchewan, Canada and the southwest United States including Colorado, Utah,
and Arizona. Further, the combined company will have ownership interests in two
of the four operating uranium mills in North America today. The combined company
will have a strong exploration position with large land positions in the United
States, Canada and Mongolia. In addition, the combined company will have further
exposure to exploration through equity investments in JNR Resources Inc., Energy
Metals Limited in Australia and several other exploration companies and will
continue to be the manager of Uranium Participation Corporation, a company
created to buy, hold and sell uranium. The combined company will also have a
significant equity interest in Fortress Minerals Corp., a precious/base metal
exploration company with projects in Russia, Mongolia and Nicaragua.
E. Peter Farmer will become the Chief Executive Officer of the combined company
and Ron F. Hochstein will become the President and Chief Operating Officer.
James R. Anderson will be the Chief Financial Officer. Both Denison and the
Company will be equally represented on the board of directors of the combined
company, with Lukas H. Lundin acting as Chairman of the Board.
At the closing of the Arrangement, Denison will amalgamate with a wholly-owned
subsidiary of the Company and holders of Denison common shares will exchange
each one of their Denison common shares for 2.88 common shares of the Company.
Shareholders of the Company will continue to hold their existing common shares.
The combined company will be renamed Denison Mines Ltd. and will retain a
primary listing on the Toronto Stock Exchange. Existing shareholders of Denison
and the Company will each, as a group, own 50.2% and 49.8%, respectively, of the
combined company with approximately 176 million common shares outstanding at the
completion of the merger.
An extraordinary general meeting of the Company's shareholders has been
scheduled on November 20, 2006 in Toronto, Ontario to consider and, if
appropriate, approve the issuance of common shares in connection with the
Arrangement which is currently expected to close by December 1, 2006, subject to
receipt of all requisite approvals. Refer to the notice of special meeting of
shareholders and the management information circular and proxy statement mailed
to the Company's shareholders in October 2006 for detailed information
concerning the Arrangement.
RESULTS OF OPERATIONS
GENERAL
The Company recorded a net loss of $1,974,814 ($0.02 per share) for the 2006
Period compared with $2,372,188 ($0.03 per share) for the 2005 Fiscal Year.
Revenues totaled $1,399,657 for the 2006 Period compared with $130,816 for the
2005 Fiscal Year, an increase of $1,268,841. Expenses totaled $9,427,124 for the
2006 Period compared with $9,047,092 for the 2005 Fiscal Year, an increase of
$380,032 due primarily to an increase in write-down of mineral properties and
process milling expenditures, offset by decreases in mill stand-by expenditures
and general and administrative expenses. As a result, loss from operations
totaled $8,027,467 for the 2006 Period compared with $8,916,276 for the 2005
Fiscal Year, a decrease of $888,809. Other income and expenses totaled a net
other income of $6,052,653 for the 2006 Period compared with $6,570,889 for the
2005 Fiscal Year, a decrease of $518,236.
INTERNATIONAL URANIUM CORPORATION
Management's Discussion and Analysis
Twelve Months Ended September 30, 2006
(Unaudited - Prepared by Management)
(Expressed in U.S. Dollars, Unless Otherwise Noted)
REVENUES
For the 2006 Period, revenues of $1,399,657 consisted primarily of process
milling fees of $1,395,798 (2005 Fiscal Year: $50,479) generated through a toll
milling agreement. Under this agreement, the Company completed the processing of
approximately 500 tons of ore during the 2006 Period and received a gross
process milling fee of $1,373,999, less a consulting fee paid to a third party
of $398,432 included in process milling expenditures.
During the 2006 Period, the Company continued to receive alternate feed
materials. Alternate feed materials, usually classified as waste products by the
processing facilities that generate these materials, contain uranium that can be
recovered at the Mill as an environmentally preferable alternative to direct
disposal. The Company receives a fee for a majority of its alternate feed
materials once they are delivered to the Mill. 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.
During the 2006 Period, the Company received alternate feed materials from a
commercial metals producer. The Company receives a fee on receipt of these
materials 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, which is recorded as deferred revenue until the material is
processed, at which time it becomes revenue. The Company also received material
from the Linde site, a Formerly Utilized Sites Remedial Action Program or FUSRAP
site in the United States. A portion of the Linde fees, equal to the costs that
are incurred receiving the materials, is recognized as revenue, while the
remaining recycling fees are recorded as deferred revenue until the materials
are processed at which time revenues are recognized. Also during the 2006
Period, the Company continued to receive high-grade alternate feed materials
under its existing contract with Cameco Corporation. 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.
During the 2006 Period, the Company received 2,801 tons of alternate feed
materials (2005 Fiscal Year: 2,599 tons. At September 30, 2006, approximately
47,091 tons of alternate feed materials remained in stockpile waiting to be
processed during the current mill run.
The Mill began processing its stockpile of high-grade alternate feed materials
on March 21, 2005. Prior to that, the Mill was on stand-by for a 21-month
period. As of September 30, 2006, there were approximately 2,413 tons of these
high-grade materials at the Mill to be processed, containing approximately
283,000 pounds of uranium.
At September 30, 2006, the Company had produced approximately 160,000 pounds of
uranium from these materials with a market value at September 30, 2006, of
approximately $8.9 million. In view of the continued rise in uranium prices
expected by the Company, it currently does not have commercial forward sales
commitments for the projected uranium production and will determine the most
appropriate timing for its uranium sales. The Company continues to hold
approximately 65,000 pounds of vanadium in inventory, as vanadium pregnant
liquor, for future sale.
The Company has a 50% interest in a joint venture with Nuclear Fuel Services,
Inc. ("NFS") for the pursuit of a U.S. Department of Energy ("DOE") alternate
feed program for the Mill. This 50/50 joint venture is carried out through
Urizon Recovery Systems, LLC ("Urizon"). 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 and its
contractor as to how DOE intends to proceed on the disposition of the material,
and that the joint venture will have an opportunity to propose the Urizon
Program to the DOE contractor 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.
PROCESS MILLING AND MILL STAND-BY EXPENDITURES
Process milling expenditures were $3,021,947 for the 2006 Period compared with
$1,438,844 for the 2005 Fiscal Year, an increase of $1,583,103 as a result of
the Mill startup and operation in March 2005. This increase includes the
consulting fee of $398,432 paid by the Company as disclosed above under
REVENUES. Mill stand-by
INTERNATIONAL URANIUM CORPORATION
Management's Discussion and Analysis
Twelve Months Ended September 30, 2006
(Unaudited - Prepared by Management)
(Expressed in U.S. Dollars, Unless Otherwise Noted)
expenditures were Nil for the 2006 Period compared with $1,037,995 for the 2005
Fiscal Year, representing the pre-startup expenditures of the Mill.
Both process milling and mill stand-by expenditures consist primarily of payroll
and related expenses for personnel, environmental programs, contract services
and other overhead expenditures required to operate the Mill or to maintain the
Mill on stand-by.
GENERAL AND ADMINISTRATIVE
General and administrative expenses were $4,092,820 for the 2006 Period compared
with $4,537,574 for the 2005 Fiscal Year, a decrease of $444,754. This decrease
was primarily the result of the following changes:
a) inclusion of $750,481 of general and administrative expenses of Fortress on
a consolidated basis for the 2005 Fiscal Year compared to Nil for the 2006
Period;
b) stock-based compensation expense of $6,793 for the 2006 Period compared to
$948,420 for the 2005 Fiscal Year, for a decrease of $941,627;
c) offset by an increase in consulting and other fees of $248,378 for the 2006
Period relating to compliance with Section 404 of the Sarbanes-Oxley Act;
and
d) offset by an increase in other public company expenses of $199,340 due to
additional compliance costs.
Stock-based compensation was $280,183 for the 2006 Period (2005 Fiscal Year:
$1,179,901), of which $273,390 (2005 Fiscal Year: $231,481) is included in
capitalized mineral property expenditures and $6,793 (2005 Fiscal Year:
$948,420) is included in general and administrative expense.
General and administrative expenses consist primarily of payroll and related
expenses for personnel, contract and professional services and other overhead
expenditures.
OTHER INCOME AND EXPENSES
Other income and expenses totaled $6,052,653 for the 2006 Period compared with
$6,570,889 for the 2005 Fiscal Year, a decrease of $518,236. This decrease was
due primarily to a one-time gain of $2,938,678 from the sale of short-term
investments and minority interest of $916,687 relating to Fortress, both during
the 2005 Fiscal Year, offset by increases during the 2006 Period in gain on
foreign exchange of $1,627,926 and $1,242,262 in net interest and other income.
Net interest and other income were $1,941,811 for the 2006 Period compared with
$699,549 for the 2005 Fiscal Year, an increase of $1,242,262 due primarily to an
increase of $1,112,184 in interest income and the recognition of $118,710 in
other income relating to the termination of a joint venture agreement on a
certain mineral property in Utah. Interest income increased significantly as a
result of two private placements completed during the 2006 Period providing the
Company with net cash proceeds of $42,241,851. Gain on foreign exchange was
$2,187,526 for the 2006 Period compared with $559,600 for the 2005 Fiscal Year,
an increase of $1,627,926. Foreign exchange gains are due to the effects of the
overall strengthening of the Canadian dollar as compared to the U.S. dollar. As
the Company's cash and cash equivalents are held primarily in Canadian dollars,
a continued strengthening of the Canadian dollar as compared to the U.S. dollar
results in additional gains on foreign exchange being recognized upon
translation to U.S. dollars for financial reporting purposes.
Dilution gain was $2,598,824 for the 2006 Period compared with $2,098,322 for
the 2005 Fiscal Year, an increase of $500,502, while minority interest recovery
was Nil for the 2006 Period compared with $916,687 for the 2005 Fiscal Year.
Dilution gain represents the Company's proportionate share of the increase in
Fortress' net assets resulting from the issuance of common shares by Fortress
over the same period. Minority interest represents the minority interest's
proportionate share of Fortress' loss for the period since acquisition. As an
offset to these increases, the Company's share in the net loss incurred by
Fortress was $434,005 for the 2006 Period compared to $678,953 for the 2005
Fiscal Year reflecting the application of the equity method to account for the
Company's investment in Fortress.
INTERNATIONAL URANIUM CORPORATION
Management's Discussion and Analysis
Twelve Months Ended September 30, 2006
(Unaudited - Prepared by Management)
(Expressed in U.S. Dollars, Unless Otherwise Noted)
MINERAL PROPERTIES
GENERAL
Capitalized mineral property expenditures were $24,915,195 at September 30, 2006
compared with $13,412,885 at September 30, 2005, a net increase of $11,502,310
during the 2006 Period. This increase consists of $9,144,120 incurred in Canada,
$3,165,795 incurred in Mongolia and $1,504,752 incurred in the United States,
offset by a $2,312,357 write-down of mineral properties relating to the
Mongolian properties.
URANIUM EXPLORATION
During 2004, the Company acquired interests in and staked a number of uranium
exploration properties in the Athabasca Basin region of Saskatchewan, Canada and
commenced an exploration program on certain of those properties. The Company
continues to increase its land position in the Athabasca Basin region through
option agreements and land staking.
During the 2005 Fiscal Year, the Company exercised its option to acquire a 75%
interest in the Moore Lake Property from JNR, subject to a 2.5% net smelter
return royalty. Pursuant to the exercise terms under the option agreement, the
Company incurred a minimum Cdn $4,000,000 in exploration expenditures and
purchased common shares of JNR for $317,458 (Cdn $400,000). The Company and JNR
have entered into a 75/25 joint venture agreement for this property.
During the 2006 Period, the Company entered into the following arrangements
relating to its exploration properties:
a) The Company acquired an option from Consolidated Abaddon Resources Inc. to
earn a 51% interest in the Huard-Kirsch Lakes Property located in the
eastern part of the Athabasca Basin, Saskatchewan. The Company paid Cdn
$25,000 in cash and is required to incur Cdn $1.5 million in exploration
expenditures on or before November 1, 2008 to earn its interest;
b) The Company and JNR Resources Inc. formed a 60/40 joint venture to explore
a number of claims in the Bell Lake area located in the northern part of
the Athasbasca Basin. These claims are subject to a 2% net smelter returns
royalty;
c) The Company acquired an option from Consolidated Abaddon Resources Inc. to
earn up to a 75% interest in the Sims Lake Property located in the west
central part of Labrador. The Company is required to pay Cdn $40,000 in
cash and incur Cdn $450,000 in exploration expenditures over two years to
earn an initial 51% interest and incur further exploration expenditures of
Cdn $1 million on or before January 1, 2010 to earn an additional 24%
interest. These claims are subject to a 2% net smelter returns royalty; and
d) The Company signed a letter of intent with Cameco Corporation for an option
to earn up to a 75% interest in the Park Creek Property located in the
eastern part of the Athabasca Basin. The Company is required to incur
exploration expenditures of Cdn $2.8 million over three years to earn an
initial 49% interest and a further Cdn $3 million over two years to earn an
additional 26% interest.
Mineral property expenditures to September 30, 2006 were incurred primarily on
the Company's Canadian and Mongolian exploration properties, where the Company
is undertaking extensive drilling programs augmented by geophysical and
geological field programs.
Capitalized mineral property expenditures on the Moore Lake Property were
$9,248,980 at September 30, 2006 compared with $6,719,079 at September 30, 2005
(September 30, 2004: $1,779,392), an increase of $2,529,901 during the 2006
Period (2005 Fiscal Year: $4,939,687) as a result of drilling and geological
field programs. The remainder of the Canadian-based capitalized mineral property
expenditures relate to other projects in the Athabasca Basin region, for a total
of $9,212,179 at September 30, 2006 compared with $2,597,960 at September 30,
2005 (September 30, 2004: $529,786), an increase of $6,614,219 during the 2006
Period (2005 Fiscal Year: $2,068,174) as a result of land staking costs,
geological field, geophysical and drilling programs.
The Company 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%. Capitalized mineral
property expenditures on the Gurvan Saihan Joint Venture were $1,061,007 at
September 30,
INTERNATIONAL URANIUM CORPORATION
Management's Discussion and Analysis
Twelve Months Ended September 30, 2006
(Unaudited - Prepared by Management)
(Expressed in U.S. Dollars, Unless Otherwise Noted)
2006 compared with $983,904 at September 30, 2005 (September 30, 2004: $35,198),
a net increase of $77,103 (2005 Fiscal Year: $948,706). During the 2006 Period,
the Company incurred $2,085,121 in exploration expenditures as a result of a
major drilling program. The program results for certain properties were
identified to warrant no further exploration work and the Company recorded a
write-down of $2,008,018 relating to these properties.
The Company also conducts uranium exploration in Mongolia on its 100% owned
licenses. Capitalized mineral property expenditures for these licenses were
$642,419 at September 30, 2006 compared with $238,596 at September 30, 2005
(September 30, 2004: $17,878), a net increase of $403,823 during the 2006 Period
(2005 Fiscal Year: $220,718). During the 2006 Period, the Company incurred
$708,162 in exploration expenditures as a result of major drilling programs. The
program results for certain properties were identified to warrant no further
exploration work and the Company recorded a write-down of $304,339 relating to
these properties.
During 2005, the Company entered into an agreement with Erdene Gold Inc.
("Erdene") to acquire a 65% interest in Erdene's Mongolian uranium properties in
consideration for expenditures of Cdn $6 million over a four-year period. In
addition, the Company purchased, by way of private placement, one million common
shares of Erdene at a price of Cdn $1.00 per share. Capitalized mineral property
expenditures on these properties were $783,786 at September 30, 2006 compared
with $411,274 at September 30, 2005 (September 30, 2004: Nil), an increase of
$372,512 during the 2006 Period (2005 Fiscal Year: $411,274) as a result of
drilling programs.
URANIUM MINING AND DEVELOPMENT
In June 2006, the Company announced the recommencement of active mining
operations at a number of its U.S. uranium/vanadium mines. Mining activity has
commenced and mined ore will be stockpiled at the Mill.
During 2005, the Company was successful in a competitive bid for a state lease
in southeastern Utah. The Company paid an initial cash payment of $1 million and
annual advance minimum royalty and rental payments of $60,013. This property is
adjoined by a number of privately-held, unpatented mining claims acquired by the
Company that together comprise the Tony M Mine. These private claims were
acquired for $200,000 in cash payments and 250,000 common shares of the Company,
of which 147,000 common shares were issued at a value of $906,722. The remainder
of the shares will be issued subject to confirmation of certain title matters.
The Tony M Mine adjoins the Company's existing Bullfrog exploration property,
which together are now referred to as the "Henry Mountains Complex". During
2005, the Company announced initiation of permitting for mining of the Henry
Mountains Complex.
Capitalized mineral property expenditures in the United States were $3,966,824
at September 30, 2006 compared with $2,462,072 at September 30, 2005 (September
30, 2004: Nil), an increase of $1,504,752 during the 2006 Period (2005 Fiscal
Year: $2,462,072) primarily as a result of development expenditures incurred on
the Colorado Plateau and permitting expenditures on the Henry Mountains Complex.
INVESTMENT IN FORTRESS MINERALS CORP.
On June 23, 2004, the Company sold its Mongolian precious and base metals
exploration properties to Fortress Minerals Corp. ("Fortress"), a company
incorporated in Canada and listed for trading on the TSX Venture Exchange. In
exchange, the Company received 28,000,000 common shares of Fortress,
representing 63.14% of the issued and outstanding common shares of Fortress at
that time. The Company has since participated in two private placement
financings and acquired a further 1,598,750 common shares of Fortress at a total
cost of $953,491 (Cdn $1,137,750).
At September 30, 2006, the Company held 29,598,750 common shares of Fortress,
representing 41.35% of its issued and outstanding common shares, with a market
value of $24,363,291 (Cdn $27,230,850) based on the closing price as of that
date. Subsequent to September 30, 2006, the Company purchased an additional
1,000,000 common shares of Fortress at a price of Cdn $0.90 per for a total cost
of Cdn $900,000. Immediately after this transaction, the Company held 30,598,750
common shares of Fortress representing 41.58% of its issued and outstanding
common shares. Since April 30, 2005, the Company has applied the equity method
to account for its investment in Fortress.
INTERNATIONAL URANIUM CORPORATION
Management's Discussion and Analysis
Twelve Months Ended September 30, 2006
(Unaudited - Prepared by Management)
(Expressed in U.S. Dollars, Unless Otherwise Noted)
SUMMARY OF QUARTERLY FINANCIAL RESULTS
2006 2006 2006 2006
Q4 Q3 Q2 Q1
----------- -------- -------- ---------
Total revenues $ 580 $ 2,131 $666,025 $ 730,921
Net income (loss) (3,703,510) 758,323 839,696 130,677
Basic and diluted earnings (loss) per share (0.04) 0.01 0.01 0.00
2005 2005 2005 2005
Q4 Q3 Q2 Q1
----------- -------- -------- ---------
Total revenues $ 80,337 $ 46,509 $ 341 $ 3,629
Net income (loss) (2,405,150) 449,193 292,394 (708,625)
Basic and diluted earnings (loss) per share (0.03) 0.01 0.00 (0.01)
Refer to RESULTS OF OPERATIONS above for disclosure of the 2006 Period changes.
Variations in the results of operations for each of the quarters are primarily
the result of changes in expense and other income/expense items. Results for
2006 Q4 include a write-down of mineral properties of $2,312,357. Results for
2006 Q3 include a gain on foreign exchange of $1,755,575. Results for 2006 Q2
include a dilution gain of $1,761,695 relating to the investment in Fortress.
Results for 2005 Q1 include a gain on foreign exchange of $542,543. Results for
2005 Q2 include stock-based compensation of $277,831 and write-down of mineral
property of $1,869,790, offset by a gain on sale of short-term investments of
$2,893,377 and minority interest of $793,372. Results for 2005 Q3 include
stock-based compensation of $657,259 and equity in loss in Fortress of $122,087,
offset by a dilution gain of $1,860,784. Results for 2005 Q4 include process
milling expenditures of $1,431,516 and equity in loss in Fortress of $556,866.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $24,094,231 at September 30, 2006 compared with
$6,111,119 at September 30, 2005, an increase of $17,983,112 during the 2006
Period. This increase was due primarily to net cash proceeds of $42,241,851
received from the issuance of common shares through private placements, offset
primarily by mineral property expenditures of $11,062,311, purchases of plant
and equipment of $2,667,346 and net cash used in operating activities of
$8,418,826.
Working capital was $25,186,417 at September 30, 2006 compared with $4,244,274
at September 30, 2005, an increase of $20,942,143 during the 2006 Period. This
increase was due primarily to the increase in cash and cash equivalents as
discussed above, and increases in trade and other receivables and inventories as
discussed below, offset by an increase in accounts payable and accrued
liabilities.
Net cash used in operating activities was $8,418,826 during the 2006 Period
compared with $4,414,006 during the 2005 Fiscal Year, an increase of $4,004,820.
Net cash used in operating activities are comprised of net loss for the period,
adjusted for non-cash items and for changes in working capital items.
Significant changes in working capital items during the 2006 Period include
increases of $1,942,505 (2005 Fiscal Year: $999,801 decrease) in trade and other
receivables and $4,422,899 (2005 Fiscal Year: $2,134,254) in inventories. The
increase in trade and other receivables during the 2006 Period is primarily the
result of exploration expenditures incurred by the Company charged back to a
joint venture partner. The increase in inventories during the 2006 Period
consists primarily of process milling costs relating to the alternate feed
material processing and the approximately 160,000 pounds of yellowcake produced
to September 30, 2006.
Net cash used in investing activities was $15,150,587 during the 2006 Period
compared with $7,497,032 during the 2005 Fiscal Year, an increase of $7,653,555.
This increase was due primarily to increases of $1,749,809 in purchases of plant
and equipment and $1,797,546 in expenditures on mineral properties during the
2006 Period and
INTERNATIONAL URANIUM CORPORATION
Management's Discussion and Analysis
Twelve Months Ended September 30, 2006
(Unaudited - Prepared by Management)
(Expressed in U.S. Dollars, Unless Otherwise Noted)
the effects of $4,028,638 in net cash received from the sale of short-term
investments during the 2005 Fiscal Year. During the 2006 Period, mineral
property expenditures were $11,062,311 (2005 Fiscal Year: $9,264,765), portfolio
investment purchases were $634,118 (2005 Fiscal Year: $1,259,378) and plant and
equipment purchases totaled $2,667,346 (2005 Fiscal Year: $917,537). During the
2006 Period, restricted investments increased by $786,812 (2005 Fiscal Year:
$458,350) as a result of additional funding of $232,734 and interest income
earned.
During the 2006 Period, the Company completed two significant equity financings
for total gross proceeds of $43,702,776 (Cdn $51,587,500). On October 14, 2005,
the Company completed a private placement of 6,000,000 common shares at a price
of Cdn $7.50 per share for gross proceeds of $38,010,648 (Cdn $45,000,000). On
December 5, 2005, the Company completed a private placement of 850,000
flow-through common shares at a price of Cdn $7.75 per share for gross proceeds
of $5,692,128 (Cdn $6,587,500) which funds are restricted to eligible Canadian
exploration expenditures. Net proceeds from these private placement financings
totaled $42,241,851. During the 2006 Period, the Company participated in a
private placement to purchase 500,000 common shares of Fortress at a price of
Cdn $1.25 per share for a total cost of Cdn $625,000 ($537,496) and exercised a
share purchase warrant to purchase an additional 366,250 common shares at a
price of Cdn $0.60 per share for a total cost of Cdn $219,750 ($195,926).
In total, these sources and uses of cash resulted in a net cash inflow of
$17,983,112 during the 2006 Period compared with a net cash outflow of
$5,933,836 during the 2005 Fiscal Year.
The Company's existing cash and cash equivalents balance and, to a lesser
degree, its expected cash flow from its 2006 operations are sufficient to
satisfy its anticipated working capital requirements, capital expenditure
requirements and planned exploration programs for at least the next twelve
months. Additional funding through the issuance of common shares or flow-through
common shares may be pursued to fund future corporate opportunities.
Flow-through common shares provide a mechanism whereby the tax benefits of
certain Canadian exploration and development expenditures incurred or to be
incurred by the Company are renounced or "flowed-through" to the subscribers.
OFF-BALANCE SHEET ARRANGEMENTS
The Company does not have any off-balance sheet arrangements.
TRANSACTIONS WITH RELATED PARTIES
During the 2006 Period, the Company had the following related party
transactions:
a) incurred legal fees of $168,220 (2005 Fiscal Year: $77,302) with a law firm
of which a partner is a director of the Company;
b) incurred management and administrative service fees of $189,190 (2005
Fiscal Year: $168,799) with a company owned by the Chairman of the Company
which provides corporate development, office premises, secretarial and
other services in Vancouver at a rate of Cdn $18,000 per month plus
expenses. At September 30, 2006, an amount of $32,209 (September 30, 2005:
$70,238) was due to this company;
c) provided mine reclamation management and engineering support services of
$3,859 (2005 Fiscal Year: $80,337) on a cost plus basis to a company with
common directors. At September 30, 2006, an amount of $580 (September 30,
2005: $80,337) was due from this company; and
d) provided executive and administrative services to Fortress and charged an
aggregate $112,420 (2005 Fiscal Year: $20,921) for such services. At
September 30, 2006, an amount of $67,997 (September 30, 2005: $28,696) was
due from Fortress relating to this agreement.
OUTSTANDING SHARE DATA
At September 30, 2006 and November 8, 2006, there were 88,472,066 common shares
issued and outstanding and stock options outstanding to purchase a total of
2,158,000 common shares, for a total of 90,630,066 common shares on a
fully-diluted basis.
INTERNATIONAL URANIUM CORPORATION
Management's Discussion and Analysis
Twelve Months Ended September 30, 2006
(Unaudited - Prepared by Management)
(Expressed in U.S. Dollars, Unless Otherwise Noted)
CRITICAL ACCOUNTING ESTIMATES
The Company's significant accounting policies are summarized in Note 2 of the
audited consolidated financial statements of the Company for the 2005 Fiscal
Year. The preparation of the Company's consolidated financial statements in
conformity with generally accepted accounting principles in Canada requires
management to make judgments with respect to certain estimates and assumptions.
These estimates and assumptions, based on management's best judgment, affect the
reported amounts of certain assets and liabilities, including disclosure of
contingent liabilities. On an ongoing basis, management re-evaluates its
estimates and assumptions. Actual amounts, however, could differ significantly
from those based on such estimates and assumptions.
Significant areas critical in understanding the judgments that are involved in
the preparation of the Company's consolidated financial statements and the
uncertainties inherent within them include the determination of impairment of
long-lived assets, assets retirement obligations and stock-based compensation.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company's long-lived assets consist of plant and equipment, mineral
properties and intangible asset. These assets are recorded at cost and, as to
plant and equipment and intangible asset, depreciated on a straight-line basis
over their estimated useful lives of three to fifteen years. Expenditures
relating to mineral properties are capitalized at cost, less recoveries in the
pre-production stage, until such time these properties are put into commercial
production, sold or abandoned. Upon commencement of production, capitalized
mineral property expenditures will be charged to the results of operations over
the estimated life of the mine in accordance with the unit-of-production method.
At the end of each accounting period, the Company reviews the carrying value of
its long-lived assets based on a number of factors. For capitalized mineral
property expenditures, these factors include analysis of exploration results,
permitting considerations and current economics. Should an impairment be
determined, the Company would write-down the recorded value of the long-lived
asset to fair value.
ASSET RETIREMENT OBLIGATIONS
The Company's asset retirement obligations consist of estimated future
decommissioning and reclamation costs of the Mill and U.S. mining properties,
and have been determined based on engineering estimates of the costs of
reclamation, in accordance with and reviewed periodically by state regulatory
requirements. In the case of the Mill, the cost estimates are reviewed annually
by the State of Utah Department of Environmental Quality, and adjusted by the
Company to reflect the estimated costs of reclamation.
Applicable regulations require the Company to estimate reclamation costs on an
undiscounted basis under the assumption that the reclamation would be performed
at any time by a third party contractor. Management estimates that, once a
decision is made to commence reclamation activities, substantially all of these
activities could be completed in approximately 24-30 months. During the 2006
Period, the Mill's estimated reclamation liability increased by $943,795 to
$11,893,975 (2005 Fiscal Year: $331,285 increase to $10,950,180). During the
2006 Period, the estimated reclamation liability for the Company's mines
increased by $36,144 to $2,020,844 (2005 Fiscal Year: unchanged at $1,984,700).
Elements of uncertainty in estimating decommissioning and reclamation costs
include potential changes in regulatory requirements, and in decommissioning and
reclamation alternatives. Actual costs may be significantly different from those
estimated.
The Company has posted bonds (collateralized by cash and cash equivalents and
fixed income securities) in favor of the State of Utah and the applicable state
regulatory agencies in Colorado and Arizona as partial collateral for these
liabilities and has deposited fixed income securities on account of these
obligations.
STOCK-BASED COMPENSATION
Effective October 1, 2004, the Company retroactively adopted, without
restatement, the amended standards of the Canadian Institute of Chartered
Accountants ("CICA") Handbook Section 3870: Stock-Based Compensation and Other
Stock-Based Payments ("Section 3870") which established standards for the
recognition, measurement and
INTERNATIONAL URANIUM CORPORATION
Management's Discussion and Analysis
Twelve Months Ended September 30, 2006
(Unaudited - Prepared by Management)
(Expressed in U.S. Dollars, Unless Otherwise Noted)
disclosure of stock-based compensation and other stock-based payments made in
exchange for goods and services. Section 3870 requires a fair value-based method
of accounting for stock options granted to employees, including directors, and
to non-employees.
The fair value of each option granted is estimated on the date of grant using
the Black-Scholes option pricing model. This model requires the calculation of
certain variables, including the volatility of the Company's stock price,
requiring various estimates and assumptions to be made by management. Actual
results may be significantly different from those calculated using this model.
Prior to October 1, 2004, the application of the fair value-method of accounting
was limited to stock options granted to non-employees. The intrinsic value-based
method of accounting was applied to stock options granted to employees which did
not result in additional stock-based compensation expense as the exercise price
was equal to the market price on the grant date. Pro forma disclosure of net
income (loss) and earnings (loss) per share had the fair value-method been
applied to stock options granted to employees is required.
The Company adopted the amendments to Section 3870 on a retroactive basis
without restatement of prior periods. As a result, a cumulative adjustment of
$773,655 to opening deficit effective October 1, 2004 has been reported
separately on the consolidated statements of deficit. This adjustment represents
the fair value of stock options granted to employees of $737,904 during 2004 and
$35,751 during 2003.
CHANGES IN ACCOUNTING POLICIES
In January 2005, the CICA issued the following new accounting standards,
effective October 1, 2006:
a) CICA Handbook Section 1530: "Comprehensive Income" establishes standards
for reporting comprehensive income, defined as a change in value of net
assets that is not due to owner activities, by introducing a new
requirement to temporarily present certain gains and losses outside of net
income. The impact of this new standard is discussed below in c);
b) CICA Handbook Section 3251: "Equity" establishes standards for the
presentation of equity and changes in equity during the reporting period.
The adoption of this new standard by the Company is not expected to have a
material impact; and
c) CICA Handbook Section 3855: "Financial Instruments - Recognition and
Measurement" establishes standards for the recognition, classification and
measurement of financial instruments including the presentation of any
resulting gains and losses. Assets classified as available-for-sale
securities will have revaluation gains and losses included in other
comprehensive income until these assets are no longer included on the
balance sheet. At September 30, 2006, the Company had certain long-term
investments that would be classified as available-for-sale securities under
this new standard, and any unrealized gains and losses would be included in
comprehensive income. This new standard may have a material impact on the
Company's financial statements commencing in 2007.
CONTRACTUAL OBLIGATIONS
At September 30, 2006, the Company had a reclamation liability of $13,914,819,
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 addition, the Company's contractual obligations at September 30, 2006 are as
follows:
Less Than After
Total One Year 1-3 Years 4-5 Years 5 Years
-------- --------- --------- --------- -------
Operating lease obligations $366,138 $45,900 $288,003 $32,235 $--
INTERNATIONAL URANIUM CORPORATION
Management's Discussion and Analysis
Twelve Months Ended September 30, 2006
(Unaudited - Prepared by Management)
(Expressed in U.S. Dollars, Unless Otherwise Noted)
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. Further, the Company formally reviews the Mill's reclamation estimate
annually with applicable regulatory authorities. The Mill and mine reclamation
estimates at September 30, 2006 are $13,914,819, which are 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 September 30, 2006 and 2005, the amount of these restricted
investments collateralizing the Company's reclamation obligations was
$13,459,253 and $12,881,972, respectively. The increase of $577,281 was due to
additional collateral payments totaling $232,734 with the remaining amount from
interest income earned.
Although the Mill is designed as a facility that does not discharge to
groundwater, the Company has a Groundwater Discharge Permit ("GWDP") with UDEQ,
which is required for all similar facilities in the State of Utah, and
specifically tailors the implementation of the State groundwater regulations to
the Mill site. The State of Utah requires that every operating uranium mill in
the State have a GWDP, regardless of whether or not the facility discharges to
groundwater.
The GWDP for the Mill was finalized and implemented during the second quarter of
fiscal 2005. The GWDP requires that the Mill add forty additional monitoring
parameters and fifteen additional monitoring wells. In addition, the State and
the Company are currently determining the compliance levels for all the
monitoring parameters.
As mentioned in previous reports, the Company has detected some chloroform
contamination at the Mill site that appears to have resulted from the operation
of a temporary laboratory facility that was located at the site prior to and
during the construction of the Mill facility, and from septic drain fields that
were used for laboratory and sanitary wastes prior to construction of the Mill's
tailings cells. In April 2003, the Company commenced an interim remedial program
of pumping the chloroform-contaminated water from the groundwater to the Mill's
tailings cells. This will enable the Company to begin clean up of the
contaminated areas and to take a further step towards resolution of this
outstanding issue. Although the investigations to date indicate that this
contamination appears to be contained in a manageable area, the scope and costs
of remediation have yet to be determined and may be significant.
RESEARCH AND DEVELOPMENT
The Company does not have a formal research and development program. Process
development efforts expended in connection with processing alternate feed
materials 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
Since October 1, 2003, uranium prices have increased over 350%, from $12.20 per
pound to $55.75 per pound at the end of September 2006. As of November 8, 2006,
the uranium spot price had increased by an additional $4.25 to $60 per pound. As
a result of the increase in the price of uranium, the Company acquired and
staked Canadian uranium exploration properties in 2004 and 2005 and has
commenced an aggressive exploration program on certain of those properties, as
well as restarted its uranium exploration program in Mongolia. In addition the
Company began processing a high-grade uranium alternate feed material at the
Mill. Vanadium prices are currently trading in the range of $8.00 to $9.00 per
pound V2O5, off from their peak of $25.00 to $30.00 per pound reached earlier in
2005. Historical vanadium prices range from $1.20 to $6.00 per pound V2O5. Based
on the strong uranium fundamentals and the vanadium market projections, in June
2006 the Company announced the recommencement of mining operations at a number
of its U.S. uranium/vanadium mines. Operations at the mines began during the
fourth quarter of 2006.
INTERNATIONAL URANIUM CORPORATION
Management's Discussion and Analysis
Twelve Months Ended September 30, 2006
(Unaudited - Prepared by Management)
(Expressed in U.S. Dollars, Unless Otherwise Noted)
The Mill's tailings system currently has capacity to process all of the
alternate feed materials under contract with the Company. This capacity,
however, is expected to run out within the next one to three years given the
recommencement of the Company's U.S. mining operations. In order to provide
additional tailings capacity, the Company will reline the existing tailings Cell
4A, at an estimated cost of $4.0 - $5.0 million. In addition, if Cell 4A is put
into use, the reclamation obligation for the Mill would increase by
approximately $1.5 million, which would require an increase in the Mill's
reclamation bond by that amount. The Company has submitted engineering plans to
the State of Utah for review. The relining of Cell 4A will provide the Company
with approximately 2 million tons of additional tailings capacity, which should
be ample capacity for the next several years.
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 processing 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.
The Company is required to comply with environmental protection laws and
regulations and permitting requirements, and anticipates that it will be
required to continue to do so in the future. Although the Company believes that
its operations are in compliance, in all material respects, with all relevant
permits, licenses and regulations involving worker health and safety as well as
the environment, the historical trend toward stricter environmental regulation
may continue. The uranium industry is subject to not only the worker health and
safety and environmental risks associated with all mining businesses, but also
to additional risks uniquely associated with uranium mining and milling. The
possibility of more stringent regulations exists in the area of worker health
and safety, the disposition of wastes, the decommissioning and reclamation of
mining and milling sites, and other environmental matters, each of which could
have a material adverse effect on the costs of reclamation or the viability of
the operations.
OUTLOOK
Upon completion of the proposed merger of Denison and the Company, the new
combined entity will combine the considerable operating, development and
exploration expertise of the two companies and create a strong foundation for
continued growth. It will have ownership interests in two of the four active
uranium mills in North America and the Company's U.S. mine development programs
will add to Denison's ongoing McClean Lake production. The combined entity will
also have substantial mineral reserves and resources and an exploration program
to provide for future growth potential.
Based on current projections, the combined entity will produce just less than
one million pounds of uranium in 2006 and just less than 1.5 million pounds in
2007. Production will be primarily from Canada with further production from the
U.S. alternate feed program.
The combined entity's exploration efforts will remain focused on the Athabasca
Region of northern Saskatchewan with an anticipated budget of approximately
Cdn$20 million in 2007. The exploration efforts in Mongolia will shift from
grass roots exploration to more of a focus on development of the existing
uranium resources.
The new combined entity will be well financed for its planned production
expansion programs and will continue to aggressively evaluate acquisition and
growth opportunities.
INTERNATIONAL URANIUM CORPORATION
Consolidated Balance Sheets
(Unaudited - Prepared by Management)
(Expressed in U.S. Dollars)
September 30, September 30,
2006 2005
------------- -------------
ASSETS
CURRENT
Cash and cash equivalents $ 24,094,231 $ 6,111,119
Trade and other receivables 2,508,494 565,989
Inventories 7,973,729 3,323,645
Prepaid expenses and other 528,112 125,204
------------ ------------
35,104,566 10,125,957
Long-term investments (Notes 2 & 3) 8,470,414 4,938,055
Plant and equipment, net 8,298,174 3,217,702
Mineral properties (Note 4) 24,915,195 13,412,885
Intangible asset, net 562,500 625,000
Restricted investments (Note 5) 13,459,253 12,881,972
------------ ------------
$ 90,810,102 $ 45,201,571
============ ============
LIABILITIES
CURRENT
Accounts payable and accrued liabilities $ 6,023,945 $ 2,092,479
Notes payable 15,747 16,557
Deferred revenue 3,878,457 3,772,647
------------ ------------
9,918,149 5,881,683
Notes payable, net of current portion 15,822 19,016
Reclamation obligations (Note 6) 13,914,819 12,934,880
Future income tax liability 5,496,460 1,460,897
Other long-term liability 99,593 99,593
------------ ------------
29,444,843 20,396,069
------------ ------------
SHAREHOLDERS' EQUITY
Share capital (Notes 8 & 13)
Authorized: Unlimited number of common shares
without par value Issued and outstanding:
88,472,066 shares (September 30, 2005:
81,569,066 shares) 94,418,952 56,145,784
Contributed surplus (Notes 9, 10 & 13) 2,064,680 1,803,277
Deficit (35,118,373) (33,143,559)
------------ ------------
61,365,259 24,805,502
------------ ------------
$ 90,810,102 $ 45,201,571
============ ============
Commitments and contingencies (Note 14)
ON BEHALF OF THE BOARD OF DIRECTORS:
/s/ Ron F. Hochstein /s/ William A. Rand
------------------------------------- ----------------------------------------
Ron F. Hochstein William A. Rand
See accompanying notes to the consolidated financial statements
INTERNATIONAL URANIUM CORPORATION
Interim Consolidated Statements of Operations
(Unaudited - Prepared by Management)
(Expressed in U.S. Dollars)
Three Months Ended Twelve Months Fiscal Year
September 30, Ended Ended
------------------------- September 30, September 30,
2006 2005 2006 2005
----------- ----------- ------------- -------------
REVENUES
Process milling $ -- $ -- $ 1,395,798 $ 50,479
Engineering services (Note 7) 580 80,337 3,859 80,337
----------- ----------- ----------- -----------
580 80,337 1,399,657 130,816
----------- ----------- ----------- -----------
EXPENSES
Process milling expenditures 623,867 1,399,558 3,021,947 1,438,844
Mill stand-by expenditures -- -- -- 1,037,995
Bad debts -- -- -- 64,801
General and administrative 1,247,368 723,770 4,092,820 4,537,574
General exploration -- -- -- 98,088
Write-down of mineral properties (Note 4) 2,312,357 -- 2,312,357 1,869,790
----------- ----------- ----------- -----------
4,183,592 2,123,328 9,427,124 9,047,092
----------- ----------- ----------- -----------
Loss from operations (4,183,012) (2,042,991) (8,027,467) (8,916,276)
OTHER INCOME AND EXPENSES
Net interest and other income 516,865 205,337 1,941,811 699,549
Gain (loss) on foreign exchange (52,829) 134,192 2,187,526 559,600
Gain (loss) on sale of land and equipment (31,972) 2,312 (31,972) 100,450
Gain on sale of short-term investments -- 15,459 -- 2,938,678
Loss on sale of restricted investments (191,857) (17,286) (209,531) (63,444)
Equity in loss of Fortress Minerals Corp. (40,252) (556,866) (434,005) (678,953)
Dilution gain 279,547 166,070 2,598,824 2,098,322
Minority interest -- -- -- 916,687
----------- ----------- ----------- -----------
Loss for the period before taxes (3,703,510) (2,093,773) (1,974,814) (2,345,387)
Future income tax expense -- (390,000) -- (26,801)
----------- ----------- ----------- -----------
Net loss for the period $(3,703,510) $(2,483,773) $(1,974,814) $(2,372,188)
=========== =========== =========== ===========
Loss per share:
Basic and diluted $ (0.04) $ (0.03) $ (0.02) $ (0.03)
=========== =========== =========== ===========
Weighted-average number of shares outstanding:
Basic and diluted 88,472,066 81,288,720 88,074,175 80,575,343
=========== =========== =========== ===========
See accompanying notes to the consolidated financial statements
INTERNATIONAL URANIUM CORPORATION
Interim Consolidated Statements of Deficit
(Unaudited - Prepared by Management)
(Expressed in U.S. Dollars)
Three Months Ended Twelve Months Fiscal Year
September 30, Ended Ended
--------------------------- September 30, September 30,
2006 2005 2006 2005
------------ ------------ ------------- -------------
Deficit, beginning of period as
previously reported $(31,414,863) $(30,659,786) $(33,143,559) $(29,997,716)
Retroactive effect of change in accounting
policy for stock-based compensation (Note 9) -- -- -- (773,655)
------------ ------------ ------------ ------------
Deficit, beginning of period as restated (31,414,863) (30,659,786) (33,143,559) (30,771,371)
Net loss for the period (3,703,510) (2,483,773) (1,974,814) (2,372,188)
------------ ------------ ------------ ------------
Deficit, end of period $(35,118,373) $(33,143,559) $(35,118,373) $(33,143,559)
============ ============ ============ ============
See accompanying notes to the consolidated financial statements
INTERNATIONAL URANIUM CORPORATION
Interim Consolidated Statements of Cash Flows
(Unaudited - Prepared by Management)
(Expressed in U.S. Dollars)
Three Months Ended Twelve Months Fiscal Year
September 30, Ended Ended
------------------------- September 30, September 30,
2006 2005 2006 2005
----------- ----------- ------------- -------------
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Net loss for the period $(3,703,510) $(2,483,773) $ (1,974,814) $(2,372,188)
Items not affecting cash:
Amortization 15,625 15,625 62,500 62,500
Depreciation 158,988 151,632 448,872 486,405
Bad debts -- -- -- 64,801
Stock-based compensation -- 13,330 6,793 948,420
Write-down of mineral properties 2,312,357 -- 2,312,357 1,869,790
Gain on sale of land & equipment -- (5,271) -- (100,450)
Gain on sale of short-term investments -- (15,459) -- (2,938,678)
Loss on sale of restricted investments 191,857 17,286 209,531 63,444
Equity in loss of Fortress Minerals Corp. 40,252 556,866 434,005 678,953
Dilution gain (279,547) (166,070) (2,598,824) (2,098,322)
Minority interest -- -- -- (916,687)
Future income tax expense -- 390,000 -- 26,801
Changes in non-cash working capital items:
Decrease (increase) in trade and other
receivables (290,226) (89,523) (1,942,505) 999,801
Increase in inventories (1,183,437) (304,309) (4,422,899) (2,134,254)
Decrease (increase) in other current assets (346,138) 110,345 (402,908) 282,834
Increase (decrease) in accounts payable
and accrued liabilities (105,232) (470,143) (656,744) 115,484
Increase in reclamation obligations -- -- -- 331,285
Increase in deferred revenue -- -- 105,810 216,055
----------- ----------- ------------ -----------
Net cash used in operating activities (3,189,011) (2,279,464) (8,418,826) (4,414,006)
----------- ----------- ------------ -----------
INVESTING ACTIVITIES
Purchase of portfolio investments -- (165,098) (634,118) (1,259,378)
Net proceeds from Fortress -- 454,297 -- 273,910
Purchase of plant and equipment (1,902,932) (170,026) (2,667,346) (917,537)
Proceeds from sale of short-term investments -- 15,459 -- 4,028,638
Proceeds from sale of land and equipment -- -- -- 100,450
Expenditures on mineral properties (3,002,956) (3,402,375) (11,062,311) (9,264,765)
Increase in restricted investments (405,170) (117,693) (786,812) (458,350)
----------- ----------- ------------ -----------
Net cash used in investing activities (5,311,058) (3,385,436) (15,150,587) (7,497,032)
----------- ----------- ------------ -----------
FINANCING ACTIVITIES
Decrease in notes payable (17,801) (3,968) (4,004) (15,479)
Issuance of common shares for:
Private placements -- 199,364 42,241,851 5,574,316
Exercise of stock options -- 141,120 48,100 418,365
Subscription for Fortress common shares (195,926) -- (733,422) --
----------- ----------- ------------ -----------
Net cash provided by (used in) financing
activities (213,727) 336,516 41,552,525 5,977,202
----------- ----------- ------------ -----------
Net increase (decrease) in cash and cash
equivalents (8,713,796) (5,328,384) 17,983,112 (5,933,836)
Cash and cash equivalents, beginning of period 32,808,027 11,439,503 6,111,119 12,044,955
----------- ----------- ------------ -----------
Cash and cash equivalents, end of period $24,094,231 $ 6,111,119 $ 24,094,231 $ 6,111,119
=========== =========== ============ ===========
Supplemental cash flow information (Note 12)
See accompanying notes to the consolidated financial statements
INTERNATIONAL URANIUM CORPORATION
Notes to the Consolidated Financial Statements
Twelve Months Ended September 30, 2006
(Unaudited - Prepared by Management)
(Expressed in U.S. Dollars, Unless Otherwise Noted)
1. BASIS OF PRESENTATION AND CHANGE OF YEAR END
These unaudited interim consolidated financial statements of International
Uranium Corporation and its subsidiary companies and joint ventures
(collectively, the "Company") have been prepared in accordance with
Canadian generally accepted accounting principles ("Canadian GAAP") for
interim financial statements. As a result, they do not conform in all
respects with the disclosure requirements for annual financial statements
under Canadian GAAP, and should be read in conjunction with the Company's
audited consolidated financial statements for the fiscal year ended
September 30, 2005 ("2005 Fiscal Year").
In August 2006, the Company changed its fiscal year end from September 30
to December 31 to align its reporting periods with that of its peers in the
uranium industry. For its upcoming 2006 annual report, the Company elected
to use a 15-month period ending December 31, 2006 for its audited
consolidated financial statements in accordance with Canadian securities
regulation.
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. The results for the twelve months ended September 30, 2006 have
been stated utilizing the same accounting policies and methods of
application as the Company's audited consolidated financial statements for
the 2005 Fiscal Year.
2. LONG-TERM INVESTMENTS
September 30, September 30,
2006 2005
------------- -------------
Portfolio investments $2,785,717 $2,151,599
Investment in Fortress Minerals Corp. (Note 3) 5,684,697 2,786,456
---------- ----------
$8,470,414 $4,938,055
========== ==========
At September 30, 2006, portfolio investments consist of common shares of
four publicly-traded companies acquired by the Company at a cost of
$2,785,717 (September 30, 2005: $2,151,599), with an aggregate market value
of $12,576,862 (September 30, 2005: $7,105,564). During the twelve months
ended September 30, 2006, the Company acquired additional equity interests
at a cost of $634,118 through the exercise of share purchase warrants. At
September 30, 2006, the Company held share purchase warrants to acquire
additional equity interests in one of the companies for a total
subscription price of Cdn $201,739 ($180,495).
3. INVESTMENT IN FORTRESS MINERALS CORP.
At September 30, 2006, the Company held 29,598,750 common shares (September
30, 2005: 28,732,500 common shares) of Fortress Minerals Corp.
("Fortress"), representing 41.35% (September 30, 2005: 44.39%) of its
issued and outstanding common shares. During the twelve months ended
September 30, 2006, the Company participated in a private placement to
purchase 500,000 common shares of Fortress at a price of Cdn $1.25 per
share for a total cost of Cdn $625,000 ($537,496) and exercised a share
purchase warrant to purchase an additional 366,250 common shares at a price
of Cdn $0.60 per share for a total cost of Cdn $219,750 ($195,926). Refer
to Note 15
Through this investment, the Company is deemed to have significant
influence over Fortress for accounting purposes. Accordingly, the Company
applies the equity method to account for its investment in Fortress.
4. MINERAL PROPERTIES
At September 30, 2006 and 2005, mineral properties are comprised of
exploration properties located in Canada and Mongolia, and uranium/vanadium
mines and properties in the United States. Capitalized mineral property
costs relating to the mines were previously written-off and charged to the
results of operations during 1999.
During the twelve months ended September 30, 2006, the Company commenced
mining activities through the re-opening of its uranium/vanadium mines in
the United States. The Company's mineral property interests are held
directly or through option or joint venture agreements.
A summary of mineral property expenditures is presented below:
INTERNATIONAL URANIUM CORPORATION
Notes to the Consolidated Financial Statements
Twelve Months Ended September 30, 2006
(Unaudited - Prepared by Management)
(Expressed in U.S. Dollars, Unless Otherwise Noted)
4. MINERAL PROPERTIES (continued)
Twelve Months Ended September 30, 2006
------------------------------------------------------
Beginning Ending
Balance Expenditures Write-Downs Balance
----------- ------------ ----------- -----------
Canadian uranium properties:
Moore Lake Joint Venture $ 6,719,079 $ 2,529,901 $ -- $ 9,248,980
Other 2,597,960 6,614,219 -- 9,212,179
Mongolian uranium properties:
Gurvan Saihan Joint Venture 983,904 2,085,121 (2,008,018) 1,061,007
Other 649,870 1,080,674 (304,339) 1,426,205
U.S. uranium/vanadium mines 2,462,072 1,504,752 -- 3,966,824
----------- ----------- ----------- -----------
$13,412,885 $13,814,667 $(2,312,357) $24,915,195
=========== =========== =========== ===========
Fiscal Year Ended September 30, 2005
-----------------------------------------
Beginning Ending
Balance Expenditures Balance
---------- ------------ -----------
Canadian uranium properties:
Moore Lake $1,779,392 $ 4,939,687 $ 6,719,079
Other 529,786 2,068,174 2,597,960
Mongolian uranium properties:
Gurvan Saihan Joint Venture 35,198 948,706 983,904
Other 17,878 631,992 649,870
U.S. uranium/vanadium mines on standby -- 2,462,072 2,462,072
Mongolian precious/base metal properties (Note 3) 3,809,009 (3,809,009)(1) --
---------- ----------- -----------
$6,171,263 $ 7,241,622 $13,412,885
========== =========== ===========
(1) At September 30, 2005, the accounts of Fortress were no longer reported on
a consolidated basis; therefore, its Mongolian precious/base metal
properties were excluded from mineral properties as reported on the
Company's consolidated balance sheet.
During the twelve months ended September 30, 2006, the Company entered into
the following arrangements relating to its exploration properties:
a) The Company acquired an option from Consolidated Abaddon Resources
Inc. to earn a 51% interest in the Huard-Kirsch Lakes Property located
in the eastern part of the Athabasca Basin, Saskatchewan. The Company
paid Cdn $25,000 in cash and is required to incur Cdn $1.5 million in
exploration expenditures on or before November 1, 2008 to earn its
interest;
b) The Company and JNR Resources Inc. formed a 60/40 joint venture to
explore a number of claims in the Bell Lake area located in the
northern part of the Athabasca Basin. These claims are subject to a 2%
net smelter returns royalty;
c) The Company acquired an option from Consolidated Abaddon Resources
Inc. to earn up to a 75% interest in the Sims Lake Property located in
the west central part of Labrador. The Company is required to pay Cdn
$40,000 in cash and incur Cdn $450,000 in exploration expenditures
over two years to earn an initial 51% interest and incur further
exploration expenditures of Cdn $1 million on or before January 1,
2010 to earn an additional 24% interest. These claims are subject to a
2% net smelter returns royalty; and
d) The Company signed a letter of intent with Cameco Corporation for an
option to earn up to a 75% interest in the Park Creek Property located
in the eastern part of the Athabasca Basin. The Company is required to
incur exploration expenditures of Cdn $2.8 million over three years to
earn an initial 49% interest and a further Cdn $3 million over two
years to earn an additional 26% interest.
During the twelve months ended September 30, 2006, the Company recorded a
write-down of mineral properties totaling $2,312,357 relating to its
Mongolian uranium properties due to exploration program results that did
not warrant further work. Many of these properties were grass roots
exploration prospects licensed in 2004 on the basis of favorable geology
and radiometric anomalies. The properties were aggressively explored in
2005 and 2006. During the 2005 Fiscal Year, the Company recorded a
write-down of mineral property of $1,869,790 relating to a decision by
Fortress not to pursue its option on the Shiveen Gol Property, a
precious/base metal property located in Mongolia.
INTERNATIONAL URANIUM CORPORATION
Notes to the Consolidated Financial Statements
Twelve Months Ended September 30, 2006
(Unaudited - Prepared by Management)
(Expressed in U.S. Dollars, Unless Otherwise Noted)
5. RESTRICTED INVESTMENTS
The Company has cash and cash equivalents and fixed-income securities on
deposit to collateralize its reclamation and certain other obligations
(Note 6).
September 30, September 30,
2006 2005
------------- -------------
Cash and cash equivalents $ 1,117,938 $ 2,573,336
Fixed income securities 12,341,315 10,308,636
----------- -----------
$13,459,253 $12,881,972
=========== ===========
6. RECLAMATION OBLIGATIONS
The Company's asset retirement obligations consist of estimated future
decommissioning and reclamation costs of the Company's White Mesa Mill (the
"Mill") and mining properties, and have been determined based on
engineering estimates of the costs of reclamation, in accordance with legal
and regulatory requirements. These cost estimates are reviewed periodically
by applicable regulatory authorities. In the case of the Mill, the cost
estimates are reviewed and adjusted annually by the Company to reflect the
estimated costs of reclamation and reviewed by the State of Utah Department
of Environmental Quality. During the twelve months ended September 30,
2006, additional reclamation liability of $943,795 relating to the Mill was
recorded.
Twelve Months Fiscal Year
Ended Ended
September 30, September 30,
2006 2005
------------- -------------
Reclamation obligations, beginning of period $12,934,880 $12,603,595
Additions to liabilities 979,939 331,285
----------- -----------
Reclamation obligations, end of period $13,914,819 $12,934,880
=========== ===========
Applicable regulations require the Company to estimate reclamation costs on
an undiscounted basis under the assumption that the reclamation would be
performed at any time by a third party contractor. Management estimates
that, once a decision is made to commence reclamation activities,
substantially all of the reclamation activities could be completed in
approximately 24-30 months. Although the reclamation obligations recognized
represent the fair value of such obligations, elements of uncertainty in
estimating decommissioning and reclamation costs include potential changes
in regulatory requirements, decommissioning and reclamation alternatives.
Actual costs may be materially different from those estimated.
The Company has posted bonds (collateralized by cash and cash equivalents
and fixed income securities) in favor of the State of Utah and the
applicable state regulatory agencies in Colorado and Arizona as partial
collateral for these liabilities (Note 5).
7. RELATED PARTY TRANSACTIONS
During the twelve months ended September 30, 2006, the Company had the
following related party transactions:
a) incurred legal fees of $168,220 (2005 Fiscal Year: $77,302) with a law
firm of which a partner is a director of the Company;
b) incurred management and administrative service fees of $189,190 (2005
Fiscal Year: $168,799) with a company owned by the Chairman of the
Company which provides corporate development, office premises,
secretarial and other services in Vancouver at a rate of Cdn $18,000
per month plus expenses. At September 30, 2006, an amount of $32,209
(September 30, 2005: $70,238) was due to this company;
c) provided mine reclamation management and engineering support services
of $3,859 (2005 Fiscal Year: $80,337) on a cost plus basis to a
company with common directors. At September 30, 2006, an amount of
$580 (September 30, 2005: $80,337) was due from this company; and
d) provided executive and administrative services to Fortress and charged
an aggregate $112,420 (2005 Fiscal Year: $20,921) for such services.
At September 30, 2006, an amount of $67,997 (September 30, 2005:
$28,696) was due from Fortress relating to this agreement.
INTERNATIONAL URANIUM CORPORATION
Notes to the Consolidated Financial Statements
Twelve Months Ended September 30, 2006
(Unaudited - Prepared by Management)
(Expressed in U.S. Dollars, Unless Otherwise Noted)
8. SHARE CAPITAL
a) Authorized: Unlimited number of common shares without par value
b) Issued and Outstanding:
Number of
Common Shares Amount
------------- -----------
Balance at September 30, 2004 79,635,066 $50,305,480
Issued for cash:
Flow-through private placement, net of issue
costs of $227,470 (c) 1,000,000 5,574,316
Exercise of stock options 787,000 418,365
Issued for mineral property acquisition (d) 147,000 906,722
Fair value of stock options exercised -- 374,997
Renunciation effects of flow-through private
placements -- (1,434,096)
---------- -----------
1,934,000 5,840,304
---------- -----------
Balance at September 30, 2005 81,569,066 $56,145,784
---------- -----------
Issued for cash:
Private placement, net of issue costs of
$1,230,168 (c) 6,000,000 36,780,480
Flow-through private placement, net of issue
costs of $230,757 (c) 850,000 5,461,371
Exercise of stock options 53,000 48,100
Fair value of stock options exercised -- 18,780
Renunciation effects of flow-through private
placements (c) -- (4,035,563)
---------- -----------
6,903,000 38,273,168
---------- -----------
Balance at September 30, 2006 88,472,066 $94,418,952
========== ===========
c) Private Placements
In December 2005, the Company completed a private placement of 850,000
flow-through common shares at a price of Cdn $7.75 per share for gross
proceeds of Cdn $6,587,500 ($5,692,128). Share issue costs comprised
of related expenses and finders' fees totaling $230,757 were incurred,
resulting in net proceeds of $5,461,371 from the private placement.
These funds are restricted to eligible Canadian exploration
expenditures and were renounced to the subscribers in February 2006.
In October 2005, the Company completed a private placement of
6,000,000 common shares at a price of Cdn $7.50 per share for gross
proceeds of Cdn $45,000,000 ($38,010,648). Share issue costs comprised
of related expenses and finders' fees totaling $1,230,168 were
incurred, resulting in net proceeds of $36,780,480 from the private
placement.
In March 2005, the Company completed a private placement of 1,000,000
flow-through common shares at a price of Cdn $7.00 per share for gross
proceeds of Cdn $7,000,000 ($5,801,786). Share issue costs comprised
of related expenses and finders' fees totaling $227,470 were incurred,
resulting in net proceeds of $5,574,316 from the private placement.
These funds are restricted to eligible Canadian exploration
expenditures and were renounced to the subscribers in February 2006.
The effects of the foregone tax benefits to the Company of the
flow-through financings, upon renunciation, have been recorded as
additional share issue costs totaling $4,035,563.
d) Mineral Property
In September 2005, the Company issued 147,000 common shares at a price
of Cdn $7.35 per share for a total value of Cdn $1,080,450 ($906,722)
as part of the acquisition of a U.S. uranium property.
INTERNATIONAL URANIUM CORPORATION
Notes to the Consolidated Financial Statements
Twelve Months Ended September 30, 2006
(Unaudited - Prepared by Management)
(Expressed in U.S. Dollars, Unless Otherwise Noted)
9. STOCK OPTIONS
At September 30, 2006, the Company had a stock-based compensation plan
reserving for issuance a maximum of 10,700,000 common shares of the
Company, as amended periodically by shareholder approval (the "Plan"), and
had remaining 3,542,000 common shares available for issuance under the
Plan.
The purpose of the Plan is to attract, retain and motivate directors,
officers, key employees and consultants of the Company and to advance the
interests of the Company by providing eligible persons with the opportunity
to acquire an increased proprietary interest in the Company. Under the
Plan, all stock options are granted at the discretion of the Company's
board of directors, including any vesting provisions if applicable. The
term of any stock option granted may not exceed ten years and the exercise
price may not be lower than the closing price of the Company's shares on
the last trading day immediately preceding the date of grant. In general,
stock options granted under the Plan have a term of three years without
vesting provisions, except for grants to new employees which are subject to
vesting provisions over a period of approximately one year.
A continuity summary of the stock options granted under the Plan is
presented below:
Twelve Months Ended Fiscal Year Ended
September 30, September 30,
2006 2005
--------------------- ---------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Number of Price per Number of Price per
Common Share Common Share
Shares (Cdn $) Shares (Cdn $)
--------- --------- --------- ---------
Balance outstanding, beginning of period 1,863,000 $2.62 1,940,000 $0.85
Granted 348,000 5.52 710,000 5.28
Exercised (53,000) 1.01 (787,000) 0.65
--------- ----- --------- -----
Balance outstanding, end of period 2,158,000 $3.13 1,863,000 $2.62
========= ===== ========= =====
Exercisable, end of period 1,969,000 $2.90 1,863,000 $2.62
========= ===== ========= =====
A summary of stock options outstanding and exercisable at September 30,
2006 is presented below:
Weighted-
Average Average
Range of Exercise Exercise Price Remaining
Number of Prices per Share per Share Contractual Life
Common Shares (Cdn $) (Cdn $) (Years)
------------- ----------------- -------------- ----------------
1,110,000 $1.01 $1.01 0.16
958,000 $4.27 to $5.88 $5.17 1.87
90,000 $7.53 $7.53 1.94
--------- ----- ----
2,158,000 $3.13 0.99
========= ===== ====
Outstanding options expire between November 2006 and August 2009.
During the 2005 Fiscal Year, the Company adopted amended accounting
standards effective October 1, 2004 requiring a fair value-based method of
accounting for stock options granted to employees, including directors, and
to non-employees. This amendment was adopted on a retroactive basis without
restatement of prior periods resulting in a cumulative adjustment of
$773,655 to opening deficit effective October 1, 2004. Prior to October 1,
2004, the application of the fair value-method of accounting was limited to
stock options granted to non-employees.
INTERNATIONAL URANIUM CORPORATION
Notes to the Consolidated Financial Statements
Twelve Months Ended September 30, 2006
(Unaudited - Prepared by Management)
(Expressed in U.S. Dollars, Unless Otherwise Noted)
9. STOCK OPTIONS (continued)
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:
Twelve Months Fiscal Year
Ended Ended
September 30, September 30,
2006 2005
------------- -------------
Risk-free interest rate 3.99% 2.90%
Expected stock price volatility 61% 87%
Expected life 2 years 2 years
Expected dividend yield -- --
Weighted-average fair value per share under options granted $1.71 $1.66
During the twelve months ended September 30, 2006, stock-based compensation
totaled $280,183 of which $273,390 has been included in capitalized mineral
property expenditures related to optionees directly involved with the
Company's mineral properties. The remaining $6,793 was recorded and
included in general and administrative expenses.
During the 2005 Fiscal Year, stock-based compensation totaled $1,179,901 of
which $231,481 has been included in capitalized mineral property
expenditures related to optionees directly involved with the Company's
mineral properties. The remaining $948,420 was recorded and included in
general and administrative expenses.
The fair values of stock options with vesting provisions are amortized on a
straight-line basis as stock-based compensation expense over the applicable
vesting periods. At September 30, 2006, the Company had an additional
$316,126 (September 30, 2005: Nil) in stock-based compensation expense to
be recognized periodically to November 2007.
10. CONTRIBUTED SURPLUS
A continuity summary of contributed surplus is presented below:
Twelve Months Fiscal Year
Ended Ended
September 30, September 30,
2006 2005
------------- -------------
Balance, beginning of period $1,803,277 $ 224,718
Retroactive effect of change in accounting policy
for stock-based compensation -- 773,655
Stock-based compensation as a result of
stock options granted 280,183 1,179,901
Value of stock options transferred to share
capital upon exercise of stock options (18,780) (374,997)
---------- ----------
Balance, end of period $2,064,680 $1,803,277
========== ==========
INTERNATIONAL URANIUM CORPORATION
Notes to the Consolidated Financial Statements
Twelve Months Ended September 30, 2006
(Unaudited - Prepared by Management)
(Expressed in U.S. Dollars, Unless Otherwise Noted)
11. SEGMENTED INFORMATION
a) Geographic Information
Three Months Ended Twelve Months Fiscal Year
September 30, Ended Ended
------------------------- September 30, September 30,
2006 2005 2006 2005
----------- ----------- ------------- -------------
Revenue:
United States $ 580 $ 80,337 $ 1,399,657 $ 130,816
=========== =========== =========== ===========
Net income (loss):
Canada $ (246,604) $ (840,591) $ 2,991,749 $(1,885,528)
United States (1,136,907) (1,450,957) (2,641,858) (378,944)
Mongolia (2,319,999) (192,225) (2,324,705) (107,716)
----------- ----------- ----------- -----------
$(3,703,510) $(2,483,773) $(1,974,814) $(2,372,188)
=========== =========== =========== ===========
September 30, September 30,
2006 2005
------------- -------------
Total assets:
Canada $53,687,825 $20,883,541
United States 34,740,418 22,784,085
Mongolia 2,381,859 1,533,945
----------- -----------
$90,810,102 $45,201,571
=========== ===========
b) Major Customers
The Company's business is such that, at any given time, it sells its
uranium and vanadium concentrates to and enters into process milling
arrangements with a relatively small number of customers. During the
twelve months ended September 30, 2006, process milling customers
accounted for approximately 99% (2005 Fiscal Year: 39%) of total
revenues. Accounts receivable from any individual customer will exceed
10% of total accounts receivable on a regular basis.
12. SUPPLEMENTAL CASH FLOW INFORMATION
Three Months Ended Twelve Months Fiscal Year
September 30, Ended Ended
--------------------- September 30, September 30,
2006 2005 2006 2005
---------- -------- -------------- -------------
Non-cash operating, investing and financing activities:
Accounts payable accruals included in
inventories, mineral properties and
plant and equipment $4,588,210 $ -- $4,588,210 $ --
Issuance of common shares issued for
mineral property -- 906,722 -- 906,722
Stock-based compensation capitalized
as mineral property expenditures -- 231,481 273,390 231,481
Cash received for interest 484,938 182,814 1,705,374 676,206
INTERNATIONAL URANIUM CORPORATION
Notes to the Consolidated Financial Statements
Twelve Months Ended September 30, 2006
(Unaudited - Prepared by Management)
(Expressed in U.S. Dollars, Unless Otherwise Noted)
13. PROPOSED BUSINESS COMBINATION WITH DENISON MINES INC.
Pursuant to an arrangement agreement dated September 18, 2006, as amended
and restated on October 16, 2006, the Company and Denison Mines Inc.
("Denison") propose to effect a business combination by way of a plan of
arrangement (the "Arrangement"), subject to approval by the security
holders of the Company and Denison, applicable regulatory authorities and
the Superior Court of Justice of Ontario. The Company proposes to acquire
all of the issued and outstanding shares of Denison in exchange for the
Company's shares at a ratio of 2.88 common shares of the Company for each
common share of Denison. Upon completion, existing shareholders of the
Company and Denison will each, as a group, own 50.2% and 49.8%,
respectively, of the combined company with approximately 176 million common
shares issued and outstanding excluding the exercise of outstanding stock
options and warrants. It is proposed that the combined company will change
its name to Denison Mines Ltd. immediately following the Arrangement.
An extraordinary general meeting of the Company's shareholders has been
scheduled on November 20, 2006 to consider, and if appropriate, approve the
issuance of common shares in connection with the Arrangement and other
resolutions relating to and/or conditional upon the completion of the
Arrangement including proposed amendments to the Company's stock-based
compensation plan (the "Plan"). The Company is seeking to amend the Plan,
in part, to provide for the granting of stock options up to 10% of the
issued and outstanding common shares from time to time, subject to a
maximum of 20 million common shares.
14. COMMITMENTS AND CONTINGENCIES
The Company has detected some chloroform contamination at the Mill site
that appears to have resulted from the operation of a temporary laboratory
facility that was located at the site prior to and during the construction
of the Mill facility, and 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 final remediation have not yet been determined and could be
significant.
The Company has committed to payments under operating leases for the rental
of office space and office equipment for both the Denver and Saskatoon
offices which expire from May 31, 2008 to July 31, 2010. The future minimum
lease payments are as follows:
Fiscal Year
-----------
2006 $ 45,900
2007 138,683
2008 105,629
2009 43,691
2010 32,235
15. SUBSEQUENT EVENT
In October 2006, the Company purchased an additional 1,000,000 common
shares of Fortress at a price of Cdn $0.90 per share for a total cost of
Cdn $900,000. Immediately after this transaction, the Company held
30,598,750 common shares of Fortress representing 41.58% of its issued and
outstanding common shares.