CONSOLIDATED CONDENSED INTERIM INCOME STATEMENTS UNAUDITED For the three and nine months ended September 30, 2016 and 2015

Transcription

1 Uranium One Inc. Consolidated Condensed Interim Financial Statements For the nine months ended September 30, 2016 (unaudited) (In U.S. dollars, tabular amounts in millions, except where indicated)

2 CONSOLIDATED CONDENSED INTERIM INCOME STATEMENTS UNAUDITED For the three and nine months ended September 30, 2016 and 2015 THREE MONTHS ENDED NINE MONTHS ENDED NOTES SEP 30, 2016 SEP 30, 2015 SEP 30, 2016 SEP 30, 2015 Revenues Cost of sales Operating expense 4 (35.7) (77.5) (118.4) (242.5) Depreciation (28.7) (3.9) (70.4) (9.1) Gross profit Share of earnings from joint ventures General and administrative (5.4) (3.8) (14.3) (17.0) Impairment of non-current assets 11 (5.0) - (9.9) - Exploration expense (0.1) (0.5) (0.7) (1.2) Care and maintenance - (0.5) - (2.1) Operating earnings Finance income Finance expense (12.7) (13.6) (39.1) (41.9) Foreign exchange gain (loss) (15.0) 13.7 Corporate development expense (0.4) (0.9) (0.5) (1.6) Gain from business combination Other income (expense), net (30.0) Earnings before income taxes Current and deferred income tax expense (11.5) (15.5) (9.9) (24.4) Net earnings Attributable to Shareholders of Uranium One Inc Non-controlling interest Net earnings Net earnings per share Basic and diluted (US$ per share) Weighted average number of shares (millions) Basic and diluted See accompanying notes to the unaudited consolidated condensed interim financial statements URANIUM ONE INC. Financial Statements 2

3 CONSOLIDATED CONDENSED INTERIM STATEMENTS OF COMPREHENSIVE INCOME (LOSS) UNAUDITED For the three and nine months ended September 30, 2016 and 2015 Other comprehensive income (loss) for the period THREE MONTHS ENDED NINE MONTHS ENDED NOTES SEP 30, 2016 SEP 30, 2015 SEP 30, 2016 SEP 30, 2015 Items that may be reclassified subsequently to profit and loss Unrealized gain (loss) recognized on translation of foreign operations (1) 12.7 (404.4) 17.8 (433.4) Translation of foreign operations reclassified to income statement (1) Realized fair value of Ruble Bonds swap derivatives reclassified to income statement (1) Unrealized foreign exchange on Ruble Bonds reclassified to income statement (1) 15 (1.3) 15.3 (11.6) 6.4 Unrealized fair value gain (loss) on Ruble Bonds swap derivative mark to market (1) (8.7) 4.4 (4.7) Unrealized fair value adjustments on available for sale securities (1) 15 (0.3) Total other comprehensive income (loss) for the period 13.7 (397.2) (430.6) Net earnings Total comprehensive income (loss) 43.2 (396.6) (420.7) Attributable to Shareholders of Uranium One Inc (396.6) (420.7) Non-controlling interest Total comprehensive income (loss) 43.2 (396.6) (420.7) (1) This amount is shown net of tax of $nil. See accompanying notes to the unaudited consolidated condensed interim financial statements URANIUM ONE INC. Financial Statements 3

4 CONSOLIDATED CONDENSED INTERIM BALANCE SHEETS UNAUDITED AS AT SEP 30, 2016 AS AT DEC 31, 2015 NOTES ASSETS Current assets Cash and cash equivalents Restricted cash Dividends receivable Trade and other receivables Inventories Income tax receivable Loans receivable Financial derivatives Other assets Non-current assets Mineral interests, property, plant and equipment 7 1, Investments in equity accounted investees Loans receivable Other assets , ,061.8 Total assets 2, ,323.9 LIABILITIES Current liabilities Trade and other payables Current tax payable Interest bearing liabilities Dividends payable Other liabilities Financial derivatives Non-current liabilities Interest bearing liabilities Provisions Deferred tax liabilities Financial derivatives Other liabilities Total liabilities 1, EQUITY Share capital 4, ,969.0 Reserves 15 (678.2) (948.6) Deficit (3,399.9) (3,606.7) Non-controlling interest Total equity 1, Total equity and liabilities 2, ,323.9 See accompanying notes to the unaudited consolidated condensed interim financial statements URANIUM ONE INC. Financial Statements 4

5 CONSOLIDATED CONDENSED INTERIM STATEMENTS OF CHANGES IN EQUITY UNAUDITED For the periods ended September 30, 2016 and 2015 NUMBER OF SHARES SHARE CAPITAL RESERVES (NOTE 15) DEFICIT TOTAL NON- CONTROLLING INTEREST TOTAL EQUITY (millions) Balance as at January 1, ,969.0 (948.6) (3,606.7) Net earnings for the period Unrealized gain on translation of foreign (1) operations Translation of foreign operations reclassified to income statement (1) (Note 3) Realized fair value of Ruble Bonds swap (1) derivative reclassified to income statement Unrealized foreign exchange on Ruble Bonds (1) reclassified to income statement - - (11.6) - (11.6) - (11.6) Unrealized fair value gain on Ruble Bonds (1) swap derivative mark to market Total comprehensive income Business combination (Note 3) Dividends (Note 14) (32.2) (32.2) Balance as at September 30, ,969.0 (678.2) (3,399.9) ,123.6 (1) This amount is shown net of tax of $nil. NUMBER OF SHARES SHARE CAPITAL RESERVES (NOTE 15) DEFICIT TOTAL NON- CONTROLLING INTEREST TOTAL EQUITY (millions) Balance as at January 1, ,969.0 (303.8) (3,685.8) Net earnings for the period Unrealized loss on translation of foreign operations (1) - - (433.4) - (433.4) - (433.4) Realized fair value of Ruble Bonds swap derivatives reclassified to income statement (1) Unrealized foreign exchange gain on Ruble Bonds reclassified to income statement (1) Unrealized fair value loss on Ruble Bonds swap derivative mark to market (1) - - (4.7) - (4.7) - (4.7) Total comprehensive income (loss) - - (430.6) 9.9 (420.7) - (420.7) Cancellation of equity component of convertible debentures - - (8.4) Balance as at September 30, ,969.0 (742.8) (3,667.5) (1) This amount is shown net of tax of $nil. See accompanying notes to the unaudited consolidated condensed interim financial statements URANIUM ONE INC. Financial Statements 5

6 CONSOLIDATED CONDENSED INTERIM STATEMENTS OF CASH FLOWS UNAUDITED For the three and nine months ended September 30, 2016 and 2015 NOTES SEP 30, 2016 THREE MONTHS ENDED SEP 30, 2015 NINE MONTHS ENDED SEP 30, 2016 SEP 30, 2015 Net earnings Items not affecting cash: - Share of earnings from equity accounted investees 8 (22.5) (31.5) (55.2) (68.0) - Depreciation Impairment of non-current assets Finance income (2.8) (2.6) (8.7) (7.7) - Finance expense Unrealized foreign exchange (gain) loss (2.5) (28.6) 15.0 (13.7) - Current and deferred income tax expense Gain from business combination (149.2) - - Unrealized gain on financial liabilities recognized in profit or loss 16 (8.7) - (45.2) - - Loss on disposal of US claims/leases Other (4.3) Movement in non-cash working capital 54.1 (2.9) 63.9 (56.6) Operating cash flows before interest and tax (8.6) (65.0) Cash tax paid (6.6) - (29.4) (1.2) Cash interest paid (17.4) (8.0) (39.3) (46.2) Cash flows from (used in) operating activities 83.6 (16.6) 93.3 (112.4) Additions of mineral interests, property, plant and (8.3) (2.8) (17.2) (2.8) equipment Release of letter of credit Cash received through business combination Proceeds from disposal of US claims/leases Loans to related parties 9 (1.6) (3.6) (9.0) (10.0) Loans repaid by joint ventures Interest received Dividends received Cash flows from investing activities Convertible debentures repurchased (26.2) Loan received from an affiliate Senior Secured Notes purchased 12 (60.8) (27.4) (60.8) (27.4) Dividends paid to non-controlling shareholder 14 (16.0) - (24.9) - Cash flows (used in) from financing activities (76.8) 22.6 (85.7) (3.6) Effects of exchange rate changes on cash and cash equivalents (1.6) 3.0 Net increase (decrease) in cash and cash equivalents (62.6) Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period See accompanying notes to the unaudited consolidated condensed interim financial statements URANIUM ONE INC. Financial Statements 6

7 1 NATURE OF OPERATIONS Uranium One Inc. ( Uranium One, and together with its subsidiaries and joint ventures collectively, the Corporation ) is a Canadian corporation engaged through subsidiaries and joint ventures in the mining, production, purchase and sales of uranium, and in the acquisition, exploration and development of properties for the production of uranium in Kazakhstan, the United States and Tanzania. The Corporation s head office address is 333 Bay Street, Suite 1200, Toronto, Ontario, Canada, M5H 2R2. Uranium One is a wholly-owned indirect subsidiary of State Atomic Energy Company ROSATOM ( ROSATOM ), the Russian state-owned nuclear industry operator. In Kazakhstan, the Corporation holds a 70% interest in the Southern Mining and Chemical Company joint venture ( SMCC ), which owns the Akdala and South Inkai Uranium Mines, a 50% interest in the Karatau joint venture, which owns the Karatau Uranium Mine, a 50% interest in the Akbastau joint venture, which owns the Akbastau Uranium Mine, a 49.98% interest in the Zarechnoye joint venture, which owns the Zarechnoye Uranium Mine, a 30% interest in the Khorasan-U joint venture ( Khorasan ), which owns the Kharasan Uranium Mine, and a 19% interest in the SKZ-U joint venture, which owns a sulphuric acid plant near Kharasan as an additional source of sulphuric acid for its operations. In addition, the Corporation holds a 70% interest in the Betpak Dala joint venture which provided mine development, extraction and processing services to SMCC for the Akdala and South Inkai mines until September 30, 2015 and a 30% interest in the Kyzylkum joint venture which provides mine development, extraction and processing services to Khorasan for the Kharasan mine. In the United States, the Corporation owns the Willow Creek uranium mine in Wyoming. The Corporation operates the Mkuju River Project in Tanzania, and owns a 13.9% interest in Mantra Resources Pty Limited ( Mantra ), which, through its subsidiary Mantra Tanzania Ltd., owns the Mkuju River Project. The Corporation also owns, either directly or through joint ventures, uranium exploration properties in the western United States. The unaudited consolidated condensed interim financial statements were approved on November 10, 2016 by the Board of Directors. 2 SIGNIFICANT ACCOUNTING POLICIES STATEMENT OF COMPLIANCE The unaudited consolidated condensed interim financial statements have been prepared in accordance with International Accounting Standard IAS 34 Interim Financial Reporting as issued by the International Accounting Standards Board ( IASB ). BASIS OF PREPARATION AND CONSOLIDATION The unaudited consolidated condensed interim financial statements, prepared in conformity with IAS 34, follow the same accounting principles and methods of application of the most recent audited annual consolidated financial statements. Since these unaudited consolidated condensed interim financial statements do not include all disclosures required by International Financial Reporting Standards ( IFRS ) for annual financial statements, they should be read in conjunction with the Corporation s audited annual consolidated financial statements for the year ended December 31, Preparing the interim financial statements requires Management to make judgements, estimates assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. In preparing these consolidated condensed interim financial statements significant judgements made by management in applying the Corporation s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as of and for the year ended 31 December NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE At the date of authorization of these unaudited consolidated condensed interim financial statements for the period ended September 30, 2016, the following standards which are applicable to the Corporation, were issued but not yet effective. IFRS 9, Financial instruments IFRS 9, published in July 2014, replaces the existing guidance in IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes revised guidance on the classification and measurement of financial instruments, including a new expected credit loss model for calculating impairment on financial assets, and the new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39. IFRS 9 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted. The Corporation is assessing the potential impact on its consolidated financial statements resulting from the application of IFRS 9. IFRS 15, Revenue from Contracts with Customers IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes. The core principle of the new standard is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard results in enhanced disclosures about revenue, provides guidance for transactions that were not previously addressed comprehensively and improves guidance for multiple-element arrangements. IFRS 15 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted. The Corporation is assessing the potential impact on its consolidated financial statements resulting from the application of IFRS 15. URANIUM ONE INC. Financial Statements 7

8 2 SIGNIFICANT ACCOUNTING POLICIES (continued) IFRS 16, Leases IFRS 16 specifies how an IFRS reporter will recognise, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16 s approach to lessor accounting substantially unchanged from its predecessor, IAS 17. IFRS 16 was issued in January 2016 and applies to annual reporting periods beginning on or after 1 January The Corporation is assessing the potential impact on its consolidated financial statements resulting from the application of IFRS 16. FUNCTIONAL AND PRESENTATION CURRENCY The unaudited consolidated condensed interim financial statements are presented in US dollars. The functional currency of Uranium One Inc. is the US dollar. Judgment is required to determine the functional currency of each entity in the consolidated group. These judgments are continuously evaluated and are based on management s experience and knowledge of the relevant facts and circumstances. EXCHANGE RATES The following exchange rates to the US dollar have been applied in these unaudited consolidated condensed interim financial statements: AVERAGE AVERAGE CLOSING CLOSING CLOSING PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED SEP 30, 2016 SEP 30, 2015 SEP 30, 2016 SEP 30, 2015 DEC 31, 2015 Canadian dollar Australian dollar Russian ruble Kazakh tenge Euro BUSINESS COMBINATION SMCC and Betpak Dala Prior to 2016 Betpak Dala and SMCC had significant contracts for production wells drilling with a subsidiary of Kazatomprom that expired in At the beginning of 2016 SMCC signed long-term (5 year) contracts for drilling services with a subsidiary of Uranium One Holding N.V. Due to changes to the relevant contracts, the Corporation has reassessed its interests in two joint ventures, SMCC and Betpak Dala, and determined that it has gained control over each of the joint ventures starting January 1, As such, the results and financial positions of the two joint ventures have been consolidated as subsidiaries with full consolidation effective since January 1, For the nine months ended September 30, 2016 SMCC and Betpak Dala contributed revenues of $19.4 million and $ nil million respectively and net gain of $8.1 million and net loss of $1.3 million respectively to the Corporation s results. The following table summarizes the fair value of each major class of consideration transferred as of the acquisition date. SMCC Betpak Dala Fair value of the Corporation s investments held before the business combination measured on a provisional basis Negative goodwill Proportionate share of the non-controlling interest URANIUM ONE INC. Financial Statements 8

9 3 BUSINESS COMBINATION (continued) The following table summarises the recognised amounts of assets acquired and liabilities assumed at the date of acquisition. SMCC BETPAK DALA Current assets Cash Notes receivable from SMCC Inventories (1) Other Non-current assets Mineral interests, property, plant and equipment (2) Deferred tax assets Other Total assets (3) 1, Current liabilities Notes payable to Betpak Dala Other Non-current liabilities Deferred tax liabilities Provisions Total liabilities (3) Net assets (1) Inventories of SMCC include inventory valuation adjustments of $28.0 million. (2) Mineral interests, property, plant and equipment of SMCC include measurement adjustment of $701.6 million made on provisional basis. (3) Assets of Betpak Dala and liabilities of SMCC include intercompany balances in the amount of $86.1 million. No goodwill has been recognized as a result of the business combination. The fair values of mineral interests, property, plant and equipment have been measured on a provisional basis as the purchase price allocation is planned to be performed by an independent appraiser by the end of If new information obtained within one year of the date of acquisition about facts and circumstances that existed at the date of acquisition identifies adjustments to the above amounts, or any additional provisions that existed at the date of acquisition, then the accounting for the acquisition will be revised. For the purposes of fair value calculation the following assumptions on forecasted uranium prices and production volumes were used: The uranium prices forecast, on the basis of which the recoverable amount of Uranium One Inc. was determined, was calculated using prices provided by consulting agency Ux Consulting Company and the adjustments reflecting excess of long-term contracts over spot prices. The production volumes forecast was based on the production programs of the relevant entities with the constraints imposed on the term of production by the terms of the subsoil use contracts or mining licenses. Fair values were calculated on the basis of value in use with nominal discount pretax rate of 12.9% (in US dollars). The reassessment of fair value of the Uranium One Inc. s existing 70% in each of the joint ventures (SMCC and Betpak Dala) resulted in gain of $149.2 million. SMCC BETPAK DALA Fair value less the carrying amount of the equity-accounted investments as at acquisition date (2.9) Negative goodwill Translation reserve reclassified to profit and loss (230.2) (31.3) Gain from business combination (31.3) URANIUM ONE INC. Financial Statements 9

10 4 OPERATING EXPENSE THREE MONTHS ENDED NINE MONTHS ENDED SEP 30, 2016 SEP 30, 2015 SEP 30, 2016 SEP 30, 2015 Purchased goods for resale Materials Taxes Personnel costs Impairment of inventory Transportation, loading and storage cost Inventory valuation adjustment reclassified to operating expense (Note 3) Other OTHER INCOME (EXPENSE), NET THREE MONTHS ENDED SEP 30, 2016 SEP 30, 2015 NINE MONTHS ENDED SEP 30, 2016 SEP 30, 2015 Unrealized gain on mark-to-market revaluation of derivative (1) (Note 16) 6.7 (29.7) 39.1 (0.7) Loss on disposal of US claims/leases (2.6) - (2.6) - Other (expense) income (0.3) (0.3) (0.5) 8.1 (1) Includes $6.1 million (September 30, 2015:$4.4 million) of accrued interest expense on the swap derivative liability. 3.8 (30.0) Disposal of certain US claims and leases On September 14, 2016, the Corporation s US subsidiary completed the sale of certain non-material mineral leases and claims in Wyoming. The aggregate consideration was $6.6 million: $0.5 million was paid on execution of the transaction agreement on August 23, 2016, and the remaining $6.1 million is payable in instalments from 2017 to The consolidated result on the disposal for the nine months ended September 30, 2016 will be calculated as follows: Sep 30, 2016 Fair value of consideration 3.5 Cost of US claims/leases disposed (6.1) Loss on disposal (2.6) 6 INVENTORIES SEP 30, 2016 DEC 31, 2015 Finished uranium concentrates (1) Solutions and concentrates in process Product inventory Materials and supplies (1) As of September 30, 2016, finished uranium concentrates include $24.1 million from SMCC, which has been consolidated as subsidiary since January 1, 2016 (Note 3). URANIUM ONE INC. Financial Statements 10

11 7 MINERAL INTERESTS, PROPERTY, PLANT AND EQUIPMENT SEP 30, 2016 MINERAL INTERESTS PROPERTY, PLANT AND EQUIPMENT DEVELOPMENT EXPENDITURE TOTAL Cost Balance at January Business combination (Note 3) Additions Disposals (6.1) (1.8) - (7.9) Currency translation adjustments taken to reserves At the end of the period ,247.5 Accumulated depreciation and impairment Balance at January 1 (8.6) (77.3) - (85.9) Charge for the period (61.2) (18.8) - (80.0) Currency translation adjustments taken to reserves (1.5) (0.3) - (1.8) At the end of the period (71.3) (96.4) - (167.7) Carrying value at September 30, ,079.8 DECEMBER 31, 2015 MINERAL INTERESTS PROPERTY, PLANT AND EQUIPMENT DEVELOPMENT EXPENDITURE TOTAL Cost Balance at January Additions Disposals - (1.7) (6.8) (8.5) Disposal of Uranium One Australia (2.2) (40.1) (27.4) (69.7) At the end of the year Accumulated depreciation and impairment Balance at January 1 (10.8) (110.6) (25.5) (146.9) Charge for the year - (6.8) - (6.8) Disposal of Uranium One Australia At the end of the year (8.6) (77.3) - (85.9) Carrying value at December 31, URANIUM ONE INC. Financial Statements 11

12 8 INVESTMENTS IN EQUITY ACCOUNTED INVESTEES The Corporation owns the following interests subject to equity accounted investees: STATUS OF INVESTEE COUNTRY OF INCORPORATION PRINCIPAL ACTIVITY OWNERSHIP INTEREST SEP 30, 2016 DEC 31, 2015 Akbastau JSC Joint venture Kazakhstan Uranium mining 50% Betpak Dala LLP (1) Joint venture Kazakhstan Uranium processing 70% Southern Mining and (1) Chemical Company LLP Joint venture Kazakhstan Uranium mining 70% Karatau LLP Joint venture Kazakhstan Uranium mining 50% Zarechnoye JSC Joint venture Kazakhstan Uranium mining 49.98% Kyzylkum LLP (2) Associate Kazakhstan Uranium processing 30% Khorasan-U LLP (2) Associate Kazakhstan Uranium mining 30% SKZ-U LLP Joint venture Kazakhstan Sulphuric acid plant 19% Mantra Resources Associate Tanzania Uranium mining 13.9% (1) As of December 31, 2015 Betpak Dala LLP and Southern Mining and Chemical Company LLP were accounted for as joint ventures. Starting January 1, 2016 the Corporation has reassessed its interests in the joint ventures and determined that it has gained control over each of the joint ventures (see Note 3). (2) The Corporation has reclassified its investments in Kyzylkum LLP and Khorasan-U LLP from joint ventures to associates starting January 1, Movement in investment in equity accounted investees (3) SEP 30, 2016 DEC 31, 2015 Balance at January ,368.8 Share of net income Dividends (63.6) (163.2) Revaluation of investments in Betpak Dala and Southern Mining and Chemical Company Disposal of fair value of investments in Betpak Dala and Southern Mining and Chemical Company through business combination (Note 3) (530.5) - Foreign exchange and other adjustments 9.4 (614.8) At the end of the period (3) Excluding Mantra Resources. The carrying value of the Corporation s investment in SKZ-U was nil as of December 31, 2015 as the share of the Corporation s losses from the joint venture exceeded the capital contribution. Kyzylkum LLP and Khorasan-U LLP The Corporation has reclassified its investments in Kyzylkum LLP and Khorasan-U LLP from joint ventures to associates starting January 1, Comparative amounts have been reclassified to conform with the current year presentation. The change in accounting estimates has not affected the consolidated assets, liabilities and net results. Mantra Resources Uranium One provides funding for the project pursuant to a loan agreement with Mantra dated June 6, The loan agreement is guaranteed by ARMZ and provides for a loan of $150.0 million which was increased to $550.0 million after receipt of a special mining license for the Mkuju River Project. Drawdowns of $9.0 million have been made against the facility during the nine months ended September 30, 2016, bringing the total amount owed by Mantra Tanzania to the Corporation, including interest of $27.1 million, to $137.9 million (2015: $122.6 million). Although the Corporation owns less than 20% of the equity shares of Mantra, it exercises significant influence by virtue of an agreement which appoints the Corporation as operator of the Mkuju River project as well as representation on Mantra s board of directors, and the Corporation applies equity accounting to this investment as a result. For the nine months ended September 30, 2016 the Corporation recognised an impairment of $9.9 million on the Mantra investment (Note 11). URANIUM ONE INC. Financial Statements 12

13 8 INVESTMENTS IN EQUITY ACCOUNTED INVESTEES (continued) The assets and liabilities of equity accounted investees are as follows, on a 100% basis (1) : AS AT SEPTEMBER 30, 2016 AKBASTAU KARATAU ZARECHNOYE KYZYLKUM KHORASAN SKZ-U TOTAL Current assets Cash Notes receivable Inventories Other Non-current assets Mineral interests, property, plant and equipment ,174.4 Goodwill Deferred tax assets Other ,331.1 Total assets ,642.4 Current liabilities Current portion of interest bearing liabilities Notes payable Other Non-current liabilities Non-current portion of interest bearing liabilities Deferred tax liabilities Provisions Other Total liabilities Net assets ,128.5 Uranium One s share of net assets Ownership % 50% 50% 49.98% 30% 30% 19% Attributable share of net assets URANIUM ONE INC. Financial Statements 13

14 8 INVESTMENTS IN EQUITY ACCOUNTED INVESTEES (continued) AS AT DECEMBER 31, 2015 AKBASTAU BETPAK DALA SMCC KARATAU ZARECHNOYE KYZYLKUM KHORASAN SKZ-U TOTAL Current assets Cash Notes receivable Inventories Other Non-current assets Mineral interests, property, plant and equipment ,469.8 Goodwill Notes receivable Deferred tax assets Other ,675.8 Total assets ,175.4 Current liabilities Current portion of interest bearing liabilities Notes payable Other Non-current liabilities Non-current portion of interest bearing liabilities Deferred tax liabilities Provisions Other Total liabilities Net assets (4.5) 1,390.3 Uranium One s share of net assets Ownership % 50% 70% 70% 50% 49.98% 30% 30% 19% Adjustment to net assets (2)(3) - - (2.2) (1.3) Attributable share of net assets (1) Balances presented are on a 100% basis except wherever the Corporation s attributable share is noted. Amounts are reported by the equity accounted investee, adjusted to eliminate unrealized profits on transactions between the equity accounted investee and the Corporation to the extent of the Corporation s interest and for fair value adjustments made at the time of acquisition. In accordance with the Corporation s accounting policy, transactions between equity accounted investees are not eliminated. (2) The carrying value of the Corporation s attributable share of net assets is limited to nil, as the Corporation does not have an obligation to fund the equity accounted investee s operations. (3) As of December 31, 2015, the Corporation s inventory includes $2.2 million of the unrealized profit related to purchase from SMCC. URANIUM ONE INC. Financial Statements 14

15 8 INVESTMENTS IN EQUITY ACCOUNTED INVESTEES (continued) The revenue, cost of sales, earnings from mine operations, expenses and net earnings (loss) of equity accounted investees are as follows, on a 100% basis (1) : THREE MONTHS ENDED AKBASTAU KARATAU ZARECHNOYE KYZYLKUM (2) KHORASAN (2) SKZ-U TOTAL CORPORATION S ATTRIBUTABLE SHARE (3) SEPTEMBER 30, 2016 Revenue Operating expenses (6.0) (9.9) (4.8) (5.7) (9.0) (0.6) (36.0) (14.9) Depreciation (7.0) (9.8) (3.3) (0.3) (1.8) - (22.2) (10.7) Gross profit (loss) (0.6) Interest income Interest expense (0.1) (0.3) (0.1) (1.3) - (0.6) (2.4) (0.7) Other (expense) income, net (0.1) (0.7) Foreign exchange gain (loss) (0.4) Earnings before income taxes Current and deferred income tax expense (3.0) (7.1) - (1.0) (0.7) (0.6) (12.4) (5.7) Net earnings Uranium One s ownership % 50% 50% 49.98% 30% 30% 19% Adjustment to net earnings (4) Attributable share of net earnings Dividends paid Dividends payable URANIUM ONE INC. Financial Statements 15

16 8 INVESTMENTS IN EQUITY ACCOUNTED INVESTEES (continued) NINE MONTHS ENDED AKBASTAU KARATAU ZARECHNOYE KYZYLKUM (2) KHORASAN (2) SKZ-U TOTAL CORPORATION S ATTRIBUTABLE SHARE (3) SEPTEMBER 30, 2016 Revenue Operating expenses (15.8) (18.0) (17.6) (14.7) (25.2) (1.7) (93.0) (38.0) Depreciation (18.3) (18.0) (12.5) (1.0) (5.7) - (55.5) (26.4) Gross profit (loss) (1.7) Interest income Interest expense (0.2) (0.5) (0.4) (4.0) - (1.7) (6.8) (2.1) Other (expense) income, net (0.9) (0.9) - (0.7) (0.2) Foreign exchange (loss) gain (0.8) (1.3) (0.4) Earnings before income taxes Current and deferred income tax expense (10.1) (14.5) (2.1) (2.0) (3.1) (2.7) (34.5) (15.4) Net earnings Uranium One s ownership % 50% 50% 49.98% 30% 30% 19% Adjustment to net earnings (4) (0.9) (0.9) (0.9) Attributable share of net earnings Dividends paid Dividends payable URANIUM ONE INC. Financial Statements 16

17 8 INVESTMENTS IN EQUITY ACCOUNTED INVESTEES (continued) CORPORATION S THREE MONTHS ENDED AKBASTAU BETPAK DALA (2) SMCC (2) KARATAU ZARECHNOYE KYZYLKUM (2) KHORASAN (2) SKZ-U TOTAL ATTRIBUTABLE SHARE (3) SEPTEMBER 30, 2015 Revenue Operating expenses (5.5) (9.1) (27.6) (6.8) (6.7) (7.4) (11.1) (0.7) (74.9) (40.6) Depreciation (6.8) (8.7) (5.7) (6.2) (5.1) (0.3) (2.9) - (35.7) (20.1) Gross profit (loss) 10.1 (5.0) (0.7) Interest income Interest expense (0.1) - (0.2) (0.5) (0.3) (1.7) (0.1) (0.7) (3.6) (1.2) Expenses and other income (0.4) (1.3) 0.3 (0.8) Foreign exchange gain (loss) (2.4) (1.6) (32.7) 5.5 (39.8) (54.1) (6.9) Earnings (loss) before income 15.6 (2.5) (2.9) (32.5) 12.0 (35.2) taxes Current and deferred income (1.7) 0.6 (8.6) (3.3) (0.5) 3.0 (2.2) 6.1 (6.6) (7.5) tax (expense) recovery Net earnings (loss) 13.9 (1.9) (3.4) (29.5) 9.8 (29.1) Uranium One s ownership % 50% 70% 70% 50% 49.98% 30% 30% 19% Adjustment to net earnings (losses) (4) Attributable share of net earnings (loss) 7.0 (1.4) (1.7) (8.8) 2.9 (5.5) Dividends paid URANIUM ONE INC. Financial Statements 17

18 8 INVESTMENTS IN EQUITY ACCOUNTED INVESTEES (continued) CORPORATION S NINE MONTHS ENDED AKBASTAU BETPAK DALA (2) SMCC (2) KARATAU ZARECHNOYE KYZYLKUM (2) KHORASAN (2) SKZ-U TOTAL ATTRIBUTABLE SHARE (3) SEPTEMBER 30, 2015 Revenue Operating expenses (19.0) (33.2) (76.2) (28.7) (31.1) (22.7) (32.6) (1.6) (245.1) (132.8) Depreciation (21.2) (21.8) (14.9) (24.8) (21.9) (1.0) (8.3) - (113.9) (62.4) Gross profit (loss) 34.0 (15.3) (1.6) Interest income Interest expense (0.3) (0.2) (0.6) (2.4) (0.9) (4.7) (0.1) (2.0) (11.2) (4.1) Expenses and other income (1.5) 0.2 (0.2) 1.6 (1.3) - (1.8) Foreign exchange gain (loss) (3.5) (2.0) (34.6) 5.5 (42.2) (58.7) (8.0) Earnings (loss) before income 38.8 (12.0) (3.3) (33.7) 15.5 (33.9) taxes Current and deferred income (7.7) (1.1) (20.3) (13.9) (2.5) 2.7 (3.1) 4.4 (41.5) (26.4) tax (expense) recovery Net earnings (loss) 31.1 (13.1) (5.8) (31.0) 12.4 (29.5) Uranium One s ownership % 50% 70% 70% 50% 49.98% 30% 30% 19% Adjustment to net earnings (losses) (4) - - (2.6) (0.8) - (3.4) (3.4) Attributable share of net earnings (loss) 15.6 (9.2) (2.9) (9.3) 2.9 (5.6) Dividends paid (1) Balances presented are on a 100% basis except wherever the Corporation s attributable share is noted. Amounts are reported by the equity accounted investee, adjusted to eliminate unrealized profits on transactions between the equity accounted investee and the Corporation to the extent of the Corporation s interest and for fair value adjustments made at the time of acquisition. In accordance with the Corporation s accounting policy, transactions between equity accounted investees are not eliminated. (2) From January 1, 2016 to September 30, 2016, Kyzylkum earned revenue of $30.3 million pursuant to mine development, extraction and processing service agreements with Khorasan. Operating expenses incurred by Kyzylkum relating to the service agreement were $14.7 million. The cost of such agreements has been accounted for by Khorasan as a directly attributable cost of inventory. From January 1, 2015 to September 30, 2015, Betpak Dala and Kyzylkum earned revenue of $39.7 million and $29.0 million pursuant to mine development, extraction and processing service agreements with SMCC and Khorasan. Operating expenses incurred by Betpak Dala and Kyzylkum relating to the service agreement was $33.2 million and $22.7 million. The cost of such agreements has been accounted for by SMCC and Khorasan as a directly attributable cost of inventory. On September 30, 2015 SMCC and Betpak Dala entered into sale and purchase agreements pursuant to which Betpak Dala agreed to sell all of its remaining production assets to SMCC. As a result, Betpak Dala is no longer providing services to SMCC as of that date. (3) For the nine months ended September 30, 2016, the Corporation s attributable share of revenue includes revenues earned by Kyzylkum from Khorasan of $9.1 million. The Corporation s attributable share of operating expenses includes operating expenses of $4.4 million incurred by Kyzylkum for Khorasan. For the nine months ended September 30, 2015, the Corporation s attributable share of revenue included revenues earned by Betpak Dala from SMCC of $27.8 million and revenues earned by Kyzylkum from Khorasan of $8.7 million. The Corporation s attributable share of operating expenses included operating expenses of $23.2 million incurred by Betpak Dala for SMCC and $6.8 million incurred by Kyzylkum for Khorasan. During the nine months ended September 30, 2015, $2.6 million of losses in SMCC that were previously unrecognized as they were restricted to the Corporation s net investment in SMCC were eliminated against the Corporations share of net earnings in SMCC of $57.6 million, resulting in attributable share of net earnings for SMCC of $55.0 million. In addition, during the nine months ended September 30, 2015, $0.8 million of losses in Khorasan that were previously unrecognized as they were restricted to the Corporation s net investment in Khorasan were eliminated against the Corporation s share of net earnings in Khorasan of $3.7 million, resulting in attributable share of net earnings for Khorasan of $2.9 million. (4) Net losses attributable to the Corporation are limited to the extent that the recognition of the net losses of the equity accounted investee results in the Corporation s net investment being reduced to nil. URANIUM ONE INC. Financial Statements 18

19 9 LOANS RECEIVABLE SEP 30, 2016 DEC 31, 2015 Loans to related parties Mantra Loans to joint ventures SKZ-U Current portion Non-current portion Total (i) MANTRA LOAN The Corporation made a loan available to Mantra to provide project financing for construction and commissioning of the Mkuju River Project. The loan bears interest at 7.74% per annum. The loan has no fixed repayment terms and is guaranteed by ARMZ. SEP 30, 2016 DEC 31, 2015 Opening balance Additions during the period Interest accrued Balance at the end of the period Less: current portion - - Long term portion (ii) SKZ-U LOAN The Corporation made loans available to SKZ-U LLP ( SKZ-U ), a joint venture in which the Corporation has a 19% interest, pursuant to its obligation to provide project financing in the amount of $31.0 million for construction and commissioning of a sulphuric acid plant. The loans bear interest at LIBOR plus 6% per annum, with interest payable on a semi-annual basis between 2013 and The loans are unsecured and the final payment is due on March 15, SEP 30, 2016 DEC 31, 2015 Opening balance Principal received (7.4) (7.4) Interest accrued Interest received (0.6) (1.1) Balance at the end of the period Less: current portion (3.6) (8.1) Long term portion URANIUM ONE INC. Financial Statements 19

20 10 OTHER ASSETS SEP 30, 2016 DEC 31, 2015 Current Other Non-current Asset retirement funds (1) Available for sale securities Other (1) Consists of collateral deposits for letters of credit issued for asset retirement obligations of subsidiaries in the United States of America in the amount of $20.5 million and SMCC in the amount of $0.5 million. 11 IMPAIRMENT The recoverable amount of each cash-generating unit ( CGU ) is determined based on its fair value less cost of disposal, calculated as the present value of the estimated future cash flows, using assumptions such as production volumes, uranium prices, capital expenditures, cash costs of production and discount rate. The same methodology is used for impairment testing of investment in associate and joint ventures, except that the recoverable amount for the investment in associate and joint ventures is determined by estimating the fair value less cost of disposal of the investment. Key Assumptions Production volumes Annual production volumes are estimated based on resource estimates, operational considerations and licensing constraints. Uranium prices Uranium prices are based on analyst consensus estimates and gradually increases from $30 per pound U 3O 8 in 2016 to a long term price of $62 per pound U 3O 8 beyond Discount rate The discount rate used for impairment testing is the real, post tax weighted average cost of capital. The discount rate is further adjusted for political and development risk based on the jurisdiction in which the CGU or investment resides. The discount rates for the nine months 2016 were 10.5% (2015: 10.5%) for Kazakhstan, 9.8% (2015: 9.8%) for USA and 11.7% for Mantra (2015: 11.7%). Investment in associate As at September 30, 2016, an impairment of $9.9 million (December 31, 2015: $0.9 million) was recognized on the Mantra investment (Note 8) mainly due to decrease of uranium pricing assumptions. 12 INTEREST BEARING LIABILITIES SEP 30, 2016 DEC 31, 2015 Ruble Bonds Senior Secured Notes Loan from an affiliate Current portion Non-current portion Total URANIUM ONE INC. Financial Statements 20

21 12 INTEREST BEARING LIABILITIES (continued) (i) RUBLE BONDS SEP 30, 2016 DEC 31, 2015 Opening balance Interest accrued Interest paid (21.9) (34.9) Amortization of transaction costs Foreign exchange loss (gain) 32.4 (40.9) Less: current portion (44.8) (41.0) Long term portion Fair value of Ruble Bonds (1) (1) The fair value was calculated using quoted market prices and is categorized as level 1 in the fair value hierarchy (see note 16). On December 7, 2011, the Corporation carried out an offering and issuance of Series 1 Ruble Bonds having an aggregate principal amount of $463.5 million (RUB 14.3 billion) repayable five years from the date of issuance. The Series 1 Ruble Bonds bear interest at a Ruble rate of 9.75%, payable semi-annually from the date of issue. On August 23, 2013, the Corporation completed a public offering in Russia of seven-year ruble-denominated Series 2 Ruble Bonds for gross proceeds of $380.7 million (RUB 12.5 billion) with a ruble interest rate of 10.25%; and simultaneous public offering to repurchase, through the facilities of the Moscow Exchange, $359.4 million (RUB 11.8 billion) of the Company s outstanding $435.5 million (RUB 14.3 billion) aggregate principal amount five-year Series 1 Ruble Bonds with a Ruble interest rate of 9.75%. This redemption resulted in $76.1 million (RUB 2.5 billion) of the principal of the Series 1 Ruble Bonds remaining outstanding. The Ruble Bonds are direct, unsecured, non-convertible, interest-bearing obligations of the Corporation, subordinated to any present or future secured obligations, and ranking equally with all other unsecured indebtedness. In addition, the Corporation entered into a number of derivative instruments to hedge the Series 1 and Series 2 Ruble Bonds see Note 16 Fair value measurement. (ii) SENIOR SECURED NOTES SEP 30, 2016 DEC 31, 2014 Opening balance Purchase (60.8) (27.4) Interest accrued Coupon interest paid (10.1) (19.6) Amortization of transaction costs Less: current portion (1.4) (1.6) Long term portion Fair value of Senior Secured Notes (1) (1) The fair value was calculated using quoted market prices and is categorized as level 1 in the fair value hierarchy (see note 16). On December 13, 2013, Uranium One Investments Inc. ( U1 Investments ), a 100% owned subsidiary of Uranium One, completed an offering of $300 million aggregate principal amount of non-convertible 6.25% Senior Secured Notes due 2018 (the Senior Secured Notes ). The Senior Secured Notes will mature on December 13, 2018 and U1 Investments pays interest semi-annually on June 13 and December 13 of each year. U1 Investments is entitled to redeem all or a portion of the Senior Secured Notes on or after December 13, The Senior Secured Notes are guaranteed by Uranium One and certain of its subsidiaries and secured by pledges of certain of their assets. The Corporation is required to comply with certain incurrence-based financial covenants in connection with the Senior Secured Notes. The indenture governing the Senior Secured Notes limits, among other things, the ability of the Corporation to: incur additional indebtedness; pay dividends on, redeem or repurchase capital stock (other than payment of dividends up to the Corporation); make certain restricted payments and investments; create certain liens; impose restrictions on the ability of subsidiaries to pay dividends or other payments to the Corporation; transfer or sell assets; merge or consolidate with other entities; and enter into transactions with affiliates. Each of the covenants is subject to a number of exceptions and qualifications. As at September 30, 2016 the Corporation complies with the covenants. URANIUM ONE INC. Financial Statements 21

22 12 INTEREST BEARING LIABILITIES (continued) On September 24, 2015, the Corporation purchased $29.6 million of the principal amount of the Senior Secured Notes at a price of $920 per $1,000 of face value pursuant to a tender offer. The total amount of the transaction was $27.9 million, including $0.5 million of accrued interest and legal fees of $0.2 million. The Corporation financed the purchase with a loan provided by an affiliate. The Senior Secured Notes so purchased have not been retired and remain outstanding. On June 29, 2016, the Corporation closed the tender offer and accepted for purchase $60.5 million of the principal amount of the Senior Secured Notes at a price of $1,000 per $1,000 of face value. The total amount of the transaction was $60.8 million including $0.3 million of accrued interest, as well as legal fees and transaction costs. The Senior Secured Notes so purchased have not been retired and remain outstanding. The settlement of the tender offer was completed on July 7, (iii) LOAN FROM AN AFFILIATE SEP 30, 2016 DEC 31, 2015 Opening balance Drawdown Interest accrued Interest paid (2.0) (0.9) Less: current portion - - Long term portion On September 24, 2015, the Corporation received a loan of $50 million from an affiliate, bearing interest at the rate of 6.15% per annum, subsequently reduced to 4.95% as of July 14, 2016, and due on June 30, 2020 for the purpose of repurchasing Senior Secured Notes. On July 12, 2016, the Corporation entered into a loan facility agreement under which it may borrow up to $81.0 million from an affiliate, at an interest rate of up to 5.5% per annum with a maturity date of May 15, 2021, for the purpose of purchasing, redeeming or settling (respectively) the Senior Secured Notes, Series 1 Ruble Bonds, and/or any related currency exchange swap agreements. The Corporation has not yet drawn down any amounts under this loan facility. On October 28, 2016, the Corporation and the affiliate increased the facility to $95 million. 13 OTHER LIABILITIES SEP 30, 2016 DEC 31, 2015 Current Long term incentive plan (1) Other Non-current Bonus payment (2) Long term incentive plan (1) Other (1) The total number of PSUs awarded under the LTIP on May 27, 2015 was 159,425 PSUs at a price of $1.94 per PSU. The number of PSUs outstanding as at December 31, 2015 was 334,586. There were no exercised or expired PSUs during the period and 224,545 PSUs were forfeited or cancelled in the period to December 31, On March 30, ,047 PSUs were awarded under the LTIP at a price of $2.44 per PSU. The number of PSUs outstanding as at September 30, 2016 is 421,301. There were no exercised or expired PSUs during the period and 101,911 PSUs were forfeited or cancelled in the period to September 30, The fair market value of the PSUs is calculated using various inputs including the weighted average cost of capital in the range of 10% to 12% and uranium prices in the range of $40/lb. to $62/lb. The management of the Corporation is assisted by external valuators in determining the fair market value. The amount charged to the income statement for LTIP was $0.3 million for the quarter ended September 30, 2016 ($0.1 million for the period ended December 31, 2015). (2) Bonus payment: As part of the original acquisition of the interest in Kyzylkum on November 7, 2005, the Corporation also assumed a liability for contingent consideration payable upon commencement of commercial production at the Kharasan mine, which consideration consisted of 15,476,000 shares of UrAsia Energy Ltd. ( UrAsia Energy ), subsequently converted to a warrant for an entitlement to 6,964,200 Uranium One shares as part of the UrAsia Energy acquisition in Commercial production was determined to have commenced at the end of The Corporation issued the 6,964,200 shares into escrow, which in turn were converted into cash proceeds on October 18, 2013, in connection with the Going Private Transaction, for C$19.9 million, and included as part of other liabilities. These funds continue to be held in an escrow account by a wholly owned subsidiary of Uranium One pending their release in accordance with the terms of the escrow agreement. The fair value of the contingently issuable shares was not included as part of the purchase price for Kyzylkum as commencement of commercial production could not be reasonably determined. URANIUM ONE INC. Financial Statements 22