CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - UNAUDITED

Transcription

1 Uranium One Inc. Condensed Consolidated Interim Financial Statements For the three and nine months ended September 30, 2014 (unaudited) (In U.S. dollars, tabular amounts in millions, except where indicated)

2 CONSOLIDATED INCOME STATEMENTS UNAUDITED For the three and nine months ended September 30, 2014 and 2013 THREE MONTHS ENDED NINE MONTHS ENDED NOTES SEP 30, 2014 SEP 30, 2013 SEP 30, 2014 SEP 30, 2013 Revenues Cost of sales Operating expense (40.9) (108.5) (145.8) (236.4) Depreciation (6.7) (15.8) (14.0) (20.9) Gross (loss) profit (4.0) 13.4 (5.6) 22.9 Share of earnings from joint ventures Impairment of non-current assets - (67.8) (11.1) (67.8) General and administrative (8.2) (9.8) (28.4) (28.3) Exploration expense (0.3) (0.5) (1.1) (2.0) Care and maintenance (1.6) (0.7) (6.9) (1.4) Operating (loss) earnings 8.0 (35.7) (18.3) (17.2) Finance income Finance expense (18.1) (49.8) (76.3) (93.6) Foreign exchange gain Corporate development expense (0.4) (6.6) (2.1) (12.6) Other income (expense), net (43.6) (1.1) (67.7) 0.9 Loss before income taxes (7.9) (63.4) (102.6) (58.0) Current and deferred income tax expense (2.9) (0.2) (5.8) (4.5) Net loss (10.8) (63.6) (108.4) (62.5) Net loss per share Basic and diluted (0.01) (0.07) (0.11) (0.07) Weighted average number of shares (millions) Basic and diluted CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - UNAUDITED For the three and nine months ended September 30, 2014 and 2013 THREE MONTHS ENDED NINE MONTHS ENDED SEP 30, 2014 SEP 30, 2013 SEP 30, 2014 SEP 30, 2013 NOTES Other comprehensive income (loss) for the period Items that are or may be reclassified to income statement Unrealized gain (loss) recognized on translation of foreign operations (20.6) (248.7) (42.7) De-designation of fair value of Ruble Bonds swap derivative reclassified to income statement (1) Realized fair value of Ruble Bonds swap derivatives reclassified to income statement (1) 11 (0.1) (4.3) (0.8) (4.3) Unrealized foreign exchange gain on Ruble Bonds reclassified to income statement (1) Unrealized fair value gain (loss) on Ruble Bonds swap derivative (1) 11 (9.1) 1.5 (18.4) (30.1) Total other comprehensive income (loss) for the period 26.3 (21.5) (238.8) (47.4) Net loss (10.8) (63.6) (108.4) (62.5) Total comprehensive income (loss) 15.5 (85.1) (347.2) (109.9) (1) These amounts are shown net of tax of $nil. See accompanying notes to the unaudited condensed consolidated interim financial statements URANIUM ONE INC. Financial Statements 1

3 CONSOLIDATED BALANCE SHEETS UNAUDITED AS AT SEP 30, 2014 AS AT DEC 31, 2013 NOTES ASSETS Current assets Cash and cash equivalents Restricted cash Dividends receivable Trade and other receivables Inventories Loans receivable Financial derivatives Assets held for sale Non-current assets Mineral interests, property, plant and equipment Investment in associate Investments in joint ventures 5 1, ,597.5 Loans receivable Financial derivatives Other assets , ,002.2 Total assets 1, ,501.1 LIABILITIES Current liabilities Trade and other payables Interest bearing liabilities Convertible debentures Other liabilities Liabilities held for sale Non-current liabilities Interest bearing liabilities Convertible debentures Provisions Deferred tax liabilities Financial derivatives Other liabilities Total liabilities ,127.8 EQUITY Share capital 4, ,969.0 Reserves 11 (319.0) (21.6) Deficit (3,623.9) (3,574.1) 1, ,373.3 Total equity and liabilities 1, ,501.1 Contingency see Note 14 See accompanying notes to the unaudited condensed consolidated interim financial statements URANIUM ONE INC. Financial Statements 2

4 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY UNAUDITED For the periods ended September 30, 2014 and 2013 NUMBER OF SHARE RESERVES SHARES CAPITAL (NOTE 11) DEFICIT TOTAL (millions) Balance as at January 1, ,969.0 (21.6) (3,574.1) 1,373.3 Net loss for the period (108.4) (108.4) Unrealized loss on translation of foreign operations - - (248.7) - (248.7) De-designation of Ruble Bonds swap derivative (1) reclassified to income statement Realized fair value of Ruble Bonds swap derivatives (1) - - (0.8) - (0.8) reclassified to income statement Unrealized foreign exchange gain on Ruble Bonds (1) reclassified to income statement Unrealized fair value loss on Ruble Bonds swap derivative (1) - - (18.4) - (18.4) mark to market Total comprehensive loss - - (238.8) (108.4) (347.2) Cancellation of equity component of convertible debentures - - (58.6) Balance as at September 30, ,969.0 (319.0) (3,623.9) 1,026.1 Balance as at January 1, , (3,621.5) 1,867.0 Net loss for the period (62.5) (62.5) Unrealized loss on translation of foreign operations (1) - - (42.7) - (42.7) Unrealized foreign exchange loss on Ruble Bonds (1) reclassified to income statement - - (4.3) - (4.3) Unrealized fair value loss on Ruble Bonds swap derivative (1) mark to market - - (0.4) - (0.4) Total comprehensive loss - - (47.4) (62.5) (109.9) Exercise of warrants Stock option expense Balance as at September 30, , (3,684.0) 1,759.2 (1) These amounts are shown net of tax of $nil. See accompanying notes to the unaudited condensed consolidated interim financial statements. URANIUM ONE INC. Financial Statements 3

5 CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED For the three and nine month ended September 30, 2014 and 2013 NOTES THREE MONTHS ENDED NINE MONTHS ENDED SEP 30, 2014 SEP 30, 2013 SEP 30, 2014 SEP 30, 2013 Net (loss) earnings (10.8) (63.6) (108.4) (62.5) Items not affecting cash: - Share of earnings from joint ventures (22.1) (29.7) (34.8) (59.4) - Depreciation Stock option expense Impairment of non-current assets Finance income (2.5) (4.6) (7.5) (14.9) - Finance expense Unrealized foreign exchange gains (43.7) (25.2) (54.3) (49.6) - Current and deferred income tax expense Other (income) expense, net Movement in non-cash working capital (13.4) 5.5 (2.0) 10.5 Operating cash flows before interest and tax (1.2) 34.5 (26.4) 38.3 Cash tax paid - (1.0) (1.1) (2.8) Cash interest paid (17.5) (19.6) (50.1) (56.4) Cash flows (used in) from operating activities (18.7) 13.9 (77.6) (20.9) Additions of mineral interests, property, plant and equipment (0.7) (10.4) (1.6) (36.8) Investment in restricted cash (1,450.0) Redemption on letter of credit Joint venture charter capital contribution (34.5) (9.0) Loans to related parties 6 (3.0) (6.0) (14.0) (21.5) Loans repaid by joint ventures Interest received Dividends received Other Cash flows (used in) from investing activities (1,394.4) Debentures repurchased (214.8) - Revolving loan facility issued, net of issue costs ,450.0 Redemption of Ruble Bonds Series 1 - (359.4) - (359.4) Issue of Ruble Bonds Series Cash flows (used in) from financing activities (214.8) 1,471.3 Effects of exchange rate changes on cash and cash equivalents 2.0 (6.6) 2.5 (4.4) Net increase (decrease) in cash and cash equivalents (263.5) 51.6 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 condensed consolidated interim financial statements URANIUM ONE INC. Financial Statements 4

6 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, Australia and Tanzania. The Corporation s head office address is 333 Bay Street, Suite 1710, 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. On March 26, 2014, the Special Inter-District Economic Court for the City of Astana (Republic of Kazakhstan) issued an order having the effect of invalidating the original transfers in 2004 and 2005 from Kazatomprom to the Corporation s Betpak Dala LLP and Kyzylkum LLP joint ventures of the subsoil use contracts for the Akdala, South Inkai and Kharasan fields. The joint ventures appeal of the order was dismissed on June 4, This resulted in an invalidation of the Betpak Dala and Kyzylkum subsoil use rights. On October 17, 2014, the subsoil use rights of Akdala, South Inkai and Kharasan uranium fields were reissued to the Corporation (see Notes 5 and 14). In Kazakhstan, the Corporation holds a 70% interest in the Betpak Dala joint venture, which operates 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 Kyzylkum joint venture, which operates 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 the United States, the Corporation owns the Willow Creek uranium mine in Wyoming. The Corporation owns the Honeymoon Uranium Project in Australia, which is currently on a care and maintenance program. 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 and South Australia. The unaudited condensed consolidated interim financial statements were approved on November 13, 2014 by the Corporation s Audit Committee on behalf of the Board of Directors. 2 SIGNIFICANT ACCOUNTING POLICIES STATEMENT OF COMPLIANCE The unaudited condensed consolidated 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 condensed consolidated 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 the unaudited condensed interim consolidated financial statements do not include all disclosures required by the International Reporting Standards ( IFRS ) for annual financial statements, they should be read in conjunction with the Corporation s annual consolidated financial statements for the year ended December 31, ADOPTION OF NEW STANDARDS AND INTERPRETATIONS EFFECTIVE IN 2014 IFRIC 21, Levies The May 2013 IASB issued IFRIC 21, Levies, sets out the accounting for an obligation to pay a levy that is not income tax. The Interpretation clarifies what the obligating event is that gives rise to a liability to pay a levy. The Interpretation includes guidance illustrating how the Interpretation should be applied. The adoption of IFRIC 21 did not have a material effect on our unaudited condensed consolidated interim financial statements. NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE At the date of authorization of the unaudited condensed consolidated interim financial statements for the period ended September 30, 2014 the following standards, which are applicable to the Corporation, were issued but not yet effective. IFRS 9, Financial instruments In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments to replace IAS 39 Financial Instruments: Recognition and Measurement. The standard is effective for annual periods beginning on or after January 1, 2018, with early adoption permitted. The Corporation is in the process of determining the impact of IFRS 9 on its consolidated financial statements. IFRS 15, Revenue from Contracts with Customers In May 2014, the IASB issued, IFRS 15, Revenue from Contracts with Customers which will replace IAS 11 Construction Contracts, IAS 18 Revenue and various interpretations. IFRS 15 has an effective date for annual periods beginning on or after 1 January 2017 and early adoption is permitted. IFRS 15 establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity s contracts with customers. The Corporation is in the process of determining the impact of this new standard. URANIUM ONE INC. Financial Statements 5

7 2 SIGNIFICANT ACCOUNTING POLICIES (continued) RECLASSIFICATION OF COMPARATIVE FIGURES The Corporation has recast certain balances in the comparative period to conform with the presentation in the current period. FUNCTIONAL AND PRESENTATION CURRENCY The unaudited condensed consolidated 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 condensed consolidated interim financial statements: AVERAGE AVERAGE CLOSING CLOSING CLOSING PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED SEP 30, 2014 SEP 30, 2013 SEP 30, 2014 SEP 30, 2013 DEC 31, 2013 Canadian dollar Australian dollar Russian ruble Kazakh tenge Euro INVENTORIES SEP 30, 2014 DEC 31, 2013 Finished uranium concentrates Solutions and concentrates in process Product inventory Materials and supplies URANIUM ONE INC. Financial Statements 6

8 4 MINERAL INTERESTS, PROPERTY, PLANT AND EQUIPMENT SEPTEMBER 30, 2014 MINERAL INTERESTS PROPERTY, PLANT AND EQUIPMENT DEVELOPMENT EXPENDITURE TOTAL Cost Balance at January Additions Transfer to Assets Held for Sale (18.4) (2.2) (1.4) (22.0) Transfers (34.0) - At the end of the period Accumulated depreciation and impairment Balance at January 1 (10.8) (93.0) (25.5) (129.3) Charge for the period - (13.0) - (13.0) Impairment (1) (11.1) - - (11.1) Transfer to Assets Held for Sale At the end of the period (10.8) (105.8) (25.5) (142.1) Carrying value at September 30, (1) During the second quarter of 2014, the Corporation recognized an impairment loss of $11.1 million to bring the carrying value of the US Conventional Assets to its estimated recoverable amount. The recoverable amount was reduced because it was anticipated that the asset value to be recovered through a disposition was less than the carrying value. The impairment was subsequently transferred to assets held for sale as at September 30, 2014 as detailed in note 4.1 below. DECEMBER 31, 2013 MINERAL INTERESTS PROPERTY, PLANT AND EQUIPMENT DEVELOPMENT EXPENDITURE TOTAL Cost Balance at January Additions Currency translation adjustments taken to reserves - (8.3) (5.3) (13.6) Transfers (1.8) - At the end of the year Accumulated depreciation and impairment Balance at January 1 (4.7) (28.5) - (33.2) Charge for the year (3.9) (24.4) - (28.3) Impairment (2.2) (40.1) (25.5) (67.8) At the end of the year (10.8) (93.0) (25.5) (129.3) Carrying value at December 31, ASSETS HELD FOR SALE On August 14, 2014, the Corporation executed an asset purchase agreement to sell the US Conventional Assets, consisting of the Shootaring Canyon Milll ( Shootaring Mill ) in Utah as well as the Corporation s conventional uranium exploration properties in Utah, Arizona and South Dakota, to Anfield Resources Inc. ( Anfield ), for an aggregate consideration of $5 million and the assumption of certain liabilities including all environmental liabilities related to the purchased assets and certain contingent liabilities which would have become payable if the Shootaring Mill attained commercial production. The $5 million is payable as to $1.0 million in Anfield common shares on the closing date of the agreement, as to $2.0 million in cash on the earlier of July 1, 2017 or the restart of commercial production at the Shootaring Mill and as to $2.0 million in cash on the earlier of July 1, 2019 or 24 months after the restart of commercial production at the Shootaring Mill. The completion of the transaction is subject to various conditions, including regulatory approvals, which have to be satisfied by no later than March 31, The carrying value of the US Conventional Assets was impaired before being presented as Assets held for sale. The net carrying value of these assets as at September 30, 2014 is shown below. SEP 30, 2014 Mineral interests, property, plant and equipment less accumulated depreciation before impairment 21.8 Impairment (11.1) Mineral interests, property, plant and equipment less impairment 10.7 Provision for environmental protection, rehabilitation and closure costs (6.9) There are no amounts recognized through Other Comprehensive Income. URANIUM ONE INC. Financial Statements 7

9 5 INVESTMENTS IN JOINT VENTURES The Corporation owns the following interests subject to joint control as a result of governing contractual agreements. These interests are accounted for under the equity method: COUNTRY OF PRINCIPAL OWNERSHIP SEP 30, 2014 DEC 31, 2013 INCORPORATION ACTIVITY INTEREST Akbastau JSC Kazakhstan Uranium mining 50% Betpak Dala LLP Kazakhstan Uranium mining 70% Karatau LLP Kazakhstan Uranium mining 50% Zarechnoye JSC Kazakhstan Uranium mining 49.98% Kyzylkum LLP Kazakhstan Uranium mining 30% SKZ-U LLP Kazakhstan Sulphuric acid plant 19% , ,597.5 Movement in investment in joint ventures SEP 30, 2014 DEC 31, 2013 Balance at January 1 1, ,718.0 Share of net income Dividends (92.2) (165.5) Charter capital contributions Foreign exchange translation loss (246.1) (29.8) At the end of the period 1, ,597.5 On March 26, 2014, the Special Inter-District Economic Court for the City of Astana (Republic of Kazakhstan) issued an order having the effect of invalidating the original transfers in 2004 and 2005 from Kazatomprom to the Corporation s Betpak Dala LLP and Kyzylkum LLP joint ventures of the subsoil use contracts for the Akdala, South Inkai and Kharasan fields. The joint ventures appeal of the order was dismissed on June 4, The invalidation of the subsoil rights means that Betpak Dala and Kyzylkum no longer have the right to mine uranium from the Akdala, South Inkai and Kharasan mines. Management understands that the previous right to mine uranium has not been affected by the invalidation of the subsoil rights that took place on June 4, The subsoil use right assets were transferred to Kazatomprom on this date at their carrying values of $72.3 million and $84.5 million for Betpak Dala and Kyzylkum respectively, plus applicable VAT in exchange for a note receivable. Betpak Dala and Kyzylkum recognized revenue from the sale of uranium produced up until June 4, The production from June 4, 2014 to September 30, 2014 is the property of Kazatomprom. Betpak Dala and Kyzylkum will not generate revenue from the sale of uranium from that production. However, all inventory produced up to June 4, 2014 is the property of Betpak Dala and Kyzylkum and will be sold and recognized as revenue by these joint ventures in normal due course. To mitigate the effect on operations from June 4, 2014 to September 30, 2014 Betpak Dala and Kyzylkum entered into agreements, which became effective on the dismissal of the appeal, to provide mine development, extraction and processing services to Kazatomprom with respect to the Akdala, South Inkai and Kharasan mines. Therefore, from June 4, 2014 to September 30, 2014, in addition to revenue from the sale of its uranium inventory as noted above, Betpak Dala and Kyzylkum also generated service revenue. The agreements provided for the continuation of normal business operations at the mines and are designed to ensure that the economic return to the joint ventures from existing operations was not affected by the invalidation of the subsoil use rights. Uranium One and Kazatomprom also signed a definitive uranium offtake agreement ensuring the continuity of deliveries to Uranium One and its customers during this period at the same pricing prior to the invalidation. On October 17, 2014, the Ministry of Energy of the Republic of Kazakhstan consented to and approved the transfers by Kazatomprom on that date of (a) subsoil use rights to the Akdala and South Inkai fields to Joint Venture Southern Mining and Chemical Company LLP, indirectly owned 70% by Uranium One and 30% by Kazatomprom, and (b) subsoil use rights to the Kharasan field to Joint Venture Khorasan-U LLP, indirectly owned 30% by Uranium One, 33.98% by Kazatomprom and 36.02% by Energy Asia Holdings Ltd. The execution of definitive documentation relating to the foregoing and the receipt of all required remaining Kazakh regulatory approvals are expected in due course. In June 2014, the Corporation made a capital contribution of $34.5 million to Zarechnoye. The proceeds received by Zarechnoye were used to service its debt repayments and to fund capital and operational expenditures. URANIUM ONE INC. Financial Statements 8

10 5 INVESTMENTS IN JOINT VENTURES (continued) The joint ventures assets and liabilities are as follows, on a 100% basis (1) : AS AT SEPTEMBER 30, 2014 BETPAK AKBASTAU DALA KARATAU ZARECHNOYE KYZYLKUM SKZ-U TOTAL Current assets Cash Note receivable Inventories Other Non-current assets Mineral interests, property, plant and equipment ,726.3 Goodwill Other , ,982.0 Total assets 1, ,502.1 Current liabilities Current portion of interest bearing liabilities Other Non-current liabilities Non-current portion of interest bearing liabilities Deferred tax liabilities (0.2) Provisions Other Total liabilities Net assets 1, ,551.6 Uranium One s share of net assets Ownership % 50% 70% 50% 49.98% 30% 19% Attributable share of net assets ,328.5 (1) Balances presented are on a 100% basis except wherever the Corporation s attributable share is noted. URANIUM ONE INC. Financial Statements 9

11 5 INVESTMENTS IN JOINT VENTURES (continued) The joint ventures assets and liabilities are as follows, on a 100% basis (1) : AS AT DECEMBER 31, 2013 BETPAK AKBASTAU DALA KARATAU ZARECHNOYE KYZYLKUM SKZ-U TOTAL Current assets Cash Inventories Other Non-current assets Mineral interests, property, plant and equipment 1, ,517.2 Goodwill Other , ,869.2 Total assets 1, ,279.2 Current liabilities Current portion of interest bearing liabilities Other Non-current liabilities Non-current portion of interest bearing liabilities Deferred tax liabilities Provisions Other Total liabilities ,194.7 Net assets 1, ,084.5 Uranium One s share of net assets Ownership % 50% 70% 50% 49.67% 30% 19% Attributable share of net assets ,597.5 (1) Balances presented are on a 100% basis except wherever the Corporation s attributable share is noted. URANIUM ONE INC. Financial Statements 10

12 5 INVESTMENTS IN JOINT VENTURES (continued) The joint ventures revenue, cost of sales, earnings from mine operations, expenses and net earnings (loss) are as follows, on a 100% basis (1) : THREE MONTHS ENDED BETPAK CORPORATION S ATTRIBUTABLE AKBASTAU DALA KARATAU ZARECHNOYE KYZYLKUM SKZ-U TOTAL SHARE SEPTEMBER 30, 2014 Revenue Operating expenses (9.4) (29.4) (10.3) (18.3) (6.4) - (73.8) (41.7) Depreciation (12.8) (6.4) (10.2) (14.6) (0.1) - (44.1) (23.2) Gross profit (loss) (2.2) Interest income Interest expense (0.5) - (1.3) (0.7) (1.5) (0.8) (4.8) (1.8) Expenses and other income (0.6) (3.5) (6.5) (0.4) (0.5) 4.5 (7.0) (5.7) Foreign exchange (loss) gain - (0.3) Earnings (loss) before income taxes (3.2) Current and deferred income tax (expense) recovery (1.9) (5.9) (4.3) (0.5) 0.9 (1.0) (12.7) (7.6) Net earnings (loss) (3.7) Uranium One s ownership % 50% 70% 50% 49.98% 30% 19% Attributable share of net earnings (loss) (1.8) Dividends paid NINE MONTHS ENDED BETPAK CORPORATION S ATTRIBUTABLE AKBASTAU DALA KARATAU ZARECHNOYE KYZYLKUM SKZ-U TOTAL SHARE SEPTEMBER 30, 2014 Revenue Operating expenses (31.1) (95.0) (36.3) (33.2) (15.3) - (210.9) (121.6) Depreciation (35.6) (39.5) (39.9) (26.7) (7.4) - (149.1) (80.9) Gross profit (loss) (8.8) Interest income Interest expense (2.0) (0.5) (4.6) (3.1) (3.5) (2.5) (16.2) (6.8) Expenses and other income (1.8) (0.7) (8.4) (2.4) (8.2) 15.5 (6.0) (6.4) Foreign exchange (loss) gain (6.3) 6.2 (15.7) (12.9) (15.7) (24.9) (69.3) (22.1) Earnings (loss) before income taxes (27.2) (18.8) (11.7) Current and deferred income tax (expense) recovery (3.3) (16.5) (13.8) 3.1 (11.9) 2.1 (40.3) (21.9) Net earnings (loss) (24.1) (30.7) (9.6) Uranium One s ownership % 50% 70% 50% 49.98% 30% 19% Attributable share of net earnings (loss) (12.0) (9.2) (1.8) 34.8 Dividends paid (1) Balances presented are on a 100% basis except wherever the Corporation s attributable share is noted. URANIUM ONE INC. Financial Statements 11

13 5 INVESTMENTS IN JOINT VENTURES (continued) The joint ventures revenue, cost of sales, earnings from mine operations, expenses and net earnings (loss) are as follows, on a 100% basis (1) : THREE MONTHS ENDED BETPAK CORPORATION S ATTRIBUTABLE AKBASTAU DALA KARATAU ZARECHNOYE KYZYLKUM SKZ-U TOTAL SHARE SEPTEMBER 30, 2013 Revenue Operating expenses (26.0) (57.7) (23.0) (16.9) (15.0) - (138.6) (77.8) Depreciation (28.8) (34.3) (29.3) (14.4) (8.5) - (115.3) (62.7) Gross profit (11.0) Interest income (0.3) Interest expense (1.0) 0.4 (1.4) (1.2) (1.2) (1.1) (5.5) (2.1) Expenses and other income (1.1) (0.1) (0.7) Foreign exchange (loss) gain (0.2) 1.1 (1.2) (0.8) (1.4) (2.1) (4.6) (1.1) Earnings / (loss) before income taxes (13.1) (1.6) Current and deferred income tax (expense) recovery (2.5) (7.9) (3.8) 2.6 (2.3) (1.1) (15.0) (8.3) Net earnings (loss) (10.5) (3.9) Uranium One s ownership % 50% 70% 50% 49.67% 30% 19% Attributable share of net earnings (loss) (5.2) (1.2) Dividends paid (1) Balances presented are on a 100% basis except wherever the Corporation s attributable share is noted. NINE MONTHS ENDED BETPAK CORPORATION S ATTRIBUTABLE AKBASTAU DALA KARATAU ZARECHNOYE KYZYLKUM SKZ-U TOTAL SHARE SEPTEMBER 30, 2013 Revenue Operating expenses (40.3) (114.3) (41.3) (43.7) (22.8) - (262.4) (149.4) Depreciation (44.7) (65.4) (54.3) (35.0) (10.5) - (209.9) (115.8) Gross profit (15.2) Interest income (0.1) Interest expense (3.7) - (3.9) (4.1) (3.4) (3.4) (18.5) (7.5) Expenses and other income (0.5) 0.3 (3.4) (0.5) (1.7) Foreign exchange (loss) gain (0.4) 1.4 (1.7) (1.3) (2.1) (3.0) (7.1) (1.9) Earnings / (loss) before income taxes (21.1) (5.5) Current and deferred income tax (expense) recovery (5.8) (15.2) (6.7) 4.2 (2.1) (1.6) (27.2) (15.7) Net earnings (loss) (16.9) (7.6) Uranium One s ownership % 50% 70% 50% 49.67% 30% 19% Attributable share of net earnings (loss) (8.4) (2.3) Dividends paid (1) Balances presented are on a 100% basis except wherever the Corporation s attributable share is noted. URANIUM ONE INC. Financial Statements 12

14 6 LOANS RECEIVABLE SEP 30, 2014 DEC 31, 2013 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, 2014 DEC 31, 2013 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, 2014 DEC 31, 2013 Opening balance Principal received (7.4) (3.7) Interest accrued Interest received (1.5) (1.9) Balance at the end of the period Less: current portion (7.4) (7.2) Long term portion URANIUM ONE INC. Financial Statements 13

15 7 OTHER ASSETS SEP 30, 2014 DEC 31, 2013 Non-current Asset retirement funds (1) Other (1) The Corporation has posted letters of credit as collateral for asset retirement obligations of subsidiaries in the United States of America and Australia. 8 INTEREST BEARING LIABILITIES SEP 30, 2014 DEC 31, 2013 Ruble Bonds Senior Secured Notes Revolving credit facilities - (6.7) Current portion Non-current portion Total (i) RUBLE BONDS SEP 30, 2014 DEC 31, 2013 Opening balance Issued Interest accrued Interest paid (38.9) (34.3) Redeemed - (359.4) Fair value adjustment relating to hedged risk (Note 12) 0.2 (0.2) Amortization of transaction costs (1) Foreign exchange gain (80.4) (33.8) Less: current portion (4.3) (14.2) Long term portion Fair value of Ruble Bonds (2) (1) December 31, 2013 consists of amortization of transaction costs of $4.5 million, net of capitalized transaction costs on Series 2 Ruble Bonds of $2.3 million. (2) The fair value was calculated using quoted market prices. On December 7, 2011, the Corporation completed a public offering in Russia 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 (RUB12.5 billion) with a ruble interest rate of 10.25%; and a simultaneous public offering to repurchase, through the facilities of the Moscow Exchange, $359.4 million (RUB11.8 billion) of the Corporation s outstanding $435.5 million (RUB14.3 billion) aggregate principal amount Series 1 Ruble Bonds. 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, effective October 1, 2013, the Corporation designated a number of derivatives as hedging instruments against the Series 1 and Series 2 Ruble Bonds see Note 12 Fair Value Measurement. URANIUM ONE INC. Financial Statements 14

16 8 INTEREST BEARING LIABILITIES (continued) (ii) SENIOR SECURED NOTES SEP 30, 2014 DEC 31, 2013 Opening balance Issued Interest accrued Coupon interest payments (9.4) - Transaction costs capitalized (1.3) (15.6) Amortization of transaction costs Less: current portion (5.7) - Long term portion Fair value of Senior Secured Notes (1) (1) The fair value was calculated using quoted market prices. On December 13, 2013, Uranium One Investments Inc. ( U1 Investments ), a 100% owned subsidiary of Uranium One, completed an offering of US$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 will pay 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. (iii) BANK REVOLVING CREDIT FACILITY SEP 30, 2014 DEC 31, 2013 Opening balance (6.7) Transaction costs (0.5) (6.7) Commitment fee accrued Commitment fee paid (1.0) - Amortization of transaction costs (6.7) Less: current portion - - Long term portion - (6.7) On December 20, 2013, U1 Investments entered into a three year US$120 million revolving credit facility agreement (the Revolving Credit Facility ) with a syndicate of lenders. The Revolving Credit Facility is guaranteed by Uranium One and certain of its subsidiaries, and secured by pledges of certain of their assets. Drawings under the facility bear interest at the rate of 4.0% plus LIBOR and is payable quarterly. An annual fee of 2.0% is charged on the undrawn amount each year. Letters of credit can be issued under the facility at a fee of 0.25% per annum and will bear interest of 4.0% per year. The Corporation has not drawn down any funds under the Revolving Credit Facility. On May 14, 2014, the Corporation elected to cancel the revolving credit facility. As a result, accelerated amortization of the transaction cost in the amount of $7.2 million was recorded in the interest expense line in the income statement. URANIUM ONE INC. Financial Statements 15

17 9 CONVERTIBLE DEBENTURES 2010 Debentures On March 12, 2010, the Corporation issued convertible unsecured subordinated debentures for gross proceeds of C$260 million ($253.3 million), (the 2010 Debentures ). The 2010 Debentures have a March 13, 2015 maturity date, with interest payable at a rate of 5.0% per annum, payable semi-annually. The 2010 Debentures were convertible into common shares of the Corporation at a conversion price of C$3.15 per common share, being a rate of common shares per C$1,000 principal. As a result of the completion of the Going Private Transaction, the remaining 2010 Debentures are no longer convertible into Common Shares. The debentures had a cash settlement option which was accounted for as an embedded derivative. The Corporation allocated the fair value of the debentures to the individual liability and derivative components by establishing the derivative component and then allocating the balance remaining, after subtracting the fair value of the derivative from the face value, to the liability component. The embedded derivative was designated as a financial liability carried at fair value through profit or loss. On October 12, 2010, the Corporation received all necessary Kazakh regulatory approvals to allow the conversion of the 2010 Debentures into common shares of Uranium One at the option of the holders of the 2010 Debentures and as a result the cash settlement option was cancelled. The embedded derivative was reclassified as equity on cancellation of the cash settlement option. On November 15, 2013, the Corporation made an offer to purchase the C$260 million aggregate principal amount of the 2010 Debentures in accordance with the terms of the trust indenture governing the debentures, as required by the trust indenture due to the completion of the Going Private Transaction. As a result of the change in the estimated cash flows an additional charge of $15.6 million was recorded in the year ended December 31, The effective annual interest rate is 10.93%. On January 2, 2014 the Corporation completed the repurchase of C$227,461,000 ($212.6 million) of the aggregate principal amount of its 2010 Debentures. This represents 87.49% of the outstanding aggregate principal amount of the 2010 Debentures, and 12.51%, or $29.0 million (as valued on September 30, 2014) principal amount remains outstanding. The table below indicates the movement in the liability: SEP 30, 2014 DEC 31, 2013 Opening balance Repayment (214.8) - Interest accrued Coupon interest payments (0.8) (12.4) Foreign exchange loss (gain) (1.4) (16.8) Liability as at the end of the period Current portion (28.2) (214.8) Non-current portion Fair value of convertible debentures URANIUM ONE INC. Financial Statements 16

18 10 OTHER LIABILITIES SEP 30, 2014 DEC 31, 2013 Current Unfavorable contracts (1) Other Non-current Bonus payment Unfavorable contracts (1) Long term incentive plan (2) Other (1) The Corporation has legacy sales contracts for Honeymoon with unfavorable terms. With the withdrawal of Mitsui & Co. (the Corporation s former joint venture partner in the Honeymoon project), the Corporation is required to account for these contracts at their realizable values. Stockpiled production from Honeymoon will be used to deliver into these contracts. (2) Long term incentive plan: On March 26, 2014, the Corporation adopted a long-term incentive plan ( LTIP ) for its employees. The LTIP provides for incentive awards in the form of long-term/deferred cash awards and performance share units ( PSUs ). PSUs awarded under the LTIP will vest on December 31 of the third year of a three year performance period. At the end of each year of the performance period, certain performance criteria will be assessed based on the satisfaction of the performance criteria for such year. At the end of each year one-third of the PSUs awarded and the deferred cash awarded may be adjusted by a factor of 0% to 200%, and the resulting adjusted number of PSUs or deferred cash will be banked. Only banked amounts will vest at the end of the three year performance period, and are then converted into a cash payment per PSU equal to the fair value per common share of the Corporation determined as of the end of the third year. A total of 1,360,320 PSUs were awarded under the LTIP to employees on April 14, The numbers of PSUs forfeited during the period to September 30, 2014 was 444,266 PSUs. The number of PSUs outstanding as at September 30, 2014 was 916,054 and no PSUs are exercisable at that date. URANIUM ONE INC. Financial Statements 17

19 11 RESERVES SEP 30, 2014 DEC 31, 2013 Equity settled employee benefits reserve Balance at the beginning of the period Stock options expense Cancellation of stock option plan - (130.4) Balance at the end of the period - - Equity component of convertible debentures Balance at the beginning of the period Cancellation of equity component of convertible debentures (58.6) - Balance at the end of the period Foreign currency translation reserve Balance at the beginning of the period (90.0) (36.2) Unrealized loss on translation of foreign operations (248.7) (53.8) Balance at the end of the period (338.7) (90.0) Cash flow hedging reserve Balance at the beginning of the period Realized fair value of Ruble Bonds swap derivatives reclassified to income statement (0.8) (4.3) De-designation of Ruble Bonds swap derivative reclassified to income statement Unrealized foreign exchange gain on Ruble Bonds reclassified to income statement Unrealized fair value loss on Ruble Bond swap derivative mark to market (18.4) (34.9) Balance at the end of the period Available for sale securities reserve Balance at the beginning of the period (0.1) (0.1) Unrealized fair value adjustments on available for sale securities - - Balance at the end of the period (0.1) (0.1) Total reserves (319.0) (21.6) Equity component of convertible debentures As a result of the repurchase of 87.49% of the 2010 Debentures, the Corporation reclassified 87.49% of the reserve balance to retained earnings. Foreign currency translation reserve On February 11, 2014, The National Bank of Kazakhstan stated that the Tenge will trade at US$ 1.00 = KZT , within a range of 3 Tenge on either side of the target rate, a devaluation of 19% from the previous target rate of US$1.00 = KZT The functional currency of the Kazakhstan joint ventures is the Tenge. As such, the Corporation incurs most of its operating costs in Tenge while its revenues are denominated in US$. Of the balance of $248.7 million translation loss, the Tenge devaluation amounted to a loss of $246.1 million (see Note 5), the remainder is mainly attributable to the Australian operations. URANIUM ONE INC. Financial Statements 18

20 12 FAIR VALUE MEASUREMENT Fair value hierarchy The Corporation categorizes each of its fair value measurements in accordance with a fair value hierarchy. The fair value hierarchy establishes three levels to classify the inputs to valuation techniques used to measure fair value. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices in markets that are not active, quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability (for example, interest rate and yield curves observable at commonly quoted intervals, forward pricing curves used to value currency and commodity contracts and volatility measurements used to value option contracts), or inputs that are derived principally from or corroborated by observable market data or other means. Level 3 inputs are unobservable (supported by little or no market activity). The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. For financial instruments that are recognized at fair value on a recurring basis, the Corporation determines whether transfers have occurred between levels in the hierarchy by re-assessing their classification (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. Assets / (liabilities) measured at fair value on a recurring basis include: AS AT SEPTEMBER 30, 2014 FAIR VALUE HIERARCHY OF ASSETS AND LIABILITIES MEASURED AT FAIR VALUE LEVEL 1 LEVEL 2 LEVEL 3 TOTAL Available for sale securities Financial derivative assets Financial derivative liabilities - - (112.7) (112.7) Total (111.5) (111.2) AS AT DECEMBER 31, 2013 FAIR VALUE HIERARCHY OF ASSETS AND LIABILITIES MEASURED AT FAIR VALUE LEVEL 1 LEVEL 2 LEVEL 3 TOTAL Available for sale securities Financial derivative assets Financial derivative liabilities - - (25.5) (25.5) Total (23.3) (23.0) Transfers between Level 1 and Level 2, and transfers in and out of Level 3 are assumed to occur at the end of the period. There were no transfers for the period ended September 30, 2014 and December 31, The fair value of available-for-sale investments is determined based on a market approach reflecting the closing price of each particular security at the consolidated balance sheet date. The closing price is a quoted market price obtained from the exchange that is the principal active market for the particular security, and therefore available-for-sale investments are classified within Level 1 of the fair value hierarchy. Fair value assets and liabilities classified as Level 2 are valued using pricing models or discounted cash flow (DCF) models. These models require a variety of observable inputs including market prices, forward price curves, yield curves and credit spreads. These inputs are obtained from or verified with the market where possible. Where inputs are based on unobservable market data, and the input is significant to the fair value, fair value assets and liabilities are classified as Level 3. Derivative instruments are valued using pricing models or DCF models. These models require a variety of observable inputs including market prices, forward price curves and yield curves. These inputs are obtained from or verified with the market where possible. The significant unobservable input used in the fair value measurement of the Corporation s Level 3 fair value assets and liabilities is credit spread, which represents either the counterparty credit risk (for assets) or non-performance risk of the Corporation (for liabilities). URANIUM ONE INC. Financial Statements 19

21 12 FAIR VALUE MEASUREMENT (continued) The table below shows a reconciliation of level 3 fair value measurements of financial liabilities / (assets): SEP 30, 2014 DEC 31, 2013 Opening balance Additions Unrealized loss recognized in other comprehensive income Unrealized loss (gain) recognized in profit or loss (1) 68.9 (0.1) Interest accrued on swaps (2) (4.9) (12.4) Interest received Foreign exchange (gain) loss - (6.7) Unrealized loss due to unobservable inputs at inception (3) (59.4) (59.4) Current portion (asset) (1.2) (1.3) Non-current portion (asset) - (0.9) Non-current portion liability (1) Relates to market-to-market change in period on non-hedge accounting derivatives loss of $68.4 million (2013: loss of $0.3 million) and ineffectiveness recognized in the period of hedge-accounting derivatives of $0.5 million loss (2013: gain of $0.4 million). These changes are recognized in the Other (expense) income line in the unaudited condensed consolidated interim income statement. (2) $4.0 million (2013: $0.8 million) relates to non-hedge accounting derivatives interest income and is recognized in the Other (expense) income line in the unaudited condensed consolidated interim income statement. (3) No amounts recognized for this balance in the unaudited condensed consolidated interim income statement for the three and nine month ended September 30, Financial derivatives A summary of derivative instruments are as follows: SEP 30, 2014 DEC 31, 2013 (Asset) Liability (Asset) Liability Used for hedging Cross currency interest rate swaps - Cash flow hedge (1), (2) Fair value hedge (3) - (0.1) Other Cross currency interest rate swaps Forward strip contracts Fair value of derivative assets Current (1.2) (1.3) Non-current - (0.9) Fair value of derivative liabilities (1.2) (2.2) Current - - Non-current Total fair value of derivatives (1) The maximum term over which Accumulated Other Comprehensive Income will be reclassified to net earnings is 6 years. (2) Ineffectiveness in the amount of $0.5 million loss arising from cash flow hedges is recorded in the Other (expense) income line in the consolidated income statement for the nine months ended September 30, 2014 (2013: gain of $0.4 million). (3) The fair value movement attributable to the de-designation of hedged item (RUB 455 million of the Series 2 Bonds) was $0.2 million gain (2013: loss of $0.2 million). URANIUM ONE INC. Financial Statements 20