Uranium One Inc. Condensed Consolidated Interim Financial Statements For the three and six months ended June 30, 2014 (unaudited) (In U.S. dollars, tabular amounts in millions, except where indicated)
CONSOLIDATED INCOME STATEMENTS UNAUDITED For the three and six months ended June 30, 2014 and 2013 THREE MONTHS ENDED SIX MONTHS ENDED NOTES JUN 30, 2014 JUN 30, 2013 JUN 30, 2014 JUN 30, 2013 Revenues 41.1 119.7 110.6 142.6 Cost of sales Operating expense (42.6) (108.6) (104.9) (128.0) Depreciation (5.0) (3.5) (7.3) (5.1) Gross (loss) profit (6.5) 7.6 (1.6) 9.5 Share of earnings from joint ventures 5 5.6 18.0 12.7 29.6 Impairment of non-current assets 4 (11.1) - (11.1) - General and administrative (10.7) (7.4) (20.2) (18.5) Exploration expense (0.4) (0.7) (0.8) (1.5) Care and maintenance (2.1) (0.4) (5.3) (0.7) Operating (loss) earnings (25.2) 17.1 (26.3) 18.4 Finance income 2.4 7.7 5.0 10.3 Finance expense (35.0) (27.0) (58.2) (43.8) Foreign exchange (loss) gain (21.1) 15.5 10.6 24.4 Corporate development expense (1.1) (0.9) (1.7) (6.0) Other income (expense), net 17.9 (0.5) (24.1) 2.1 (Loss) earnings before income taxes (62.1) 11.9 (94.7) 5.4 Current and deferred income tax expense (1.3) (1.3) (2.9) (4.3) Net (loss) earnings (63.4) 10.6 (97.6) 1.1 Net loss (earnings) per share Basic and diluted (0.07) 0.01 (0.10) 0.00 Weighted average number of shares (millions) Basic and diluted 957.2 957.2 957.2 957.2 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - UNAUDITED For the three and six months ended June 30, 2014 and 2013 Other comprehensive income (loss) for the period THREE MONTHS ENDED SIX MONTHS ENDED JUN 30, 2014 JUN 30, 2013 JUN 30, 2014 JUN 30, 2013 NOTES Items that are or may be reclassified to income statement Unrealized loss recognized on translation of foreign operations 11 (7.9) (19.7) (261.3) (22.1) De-designation of fair value of Ruble Bonds swap derivative reclassified to income statement (1) 11 - - 0.7 - Realized fair value of Ruble Bonds swap derivatives reclassified to income statement (1) 11 (0.4) - (0.7) - Unrealized foreign exchange (loss) gain on Ruble Bonds reclassified to income statement (1) 11 (5.5) 20.6 5.5 27.8 Unrealized fair value gain (loss) on Ruble Bonds swap derivative (1) 11 2.6 (24.2) (9.3) (31.6) Total other comprehensive loss for the period (11.2) (23.3) (265.1) (25.9) Net (loss) earnings (63.4) 10.6 (97.6) 1.1 Total comprehensive loss (74.6) (12.7) (362.7) (24.8) (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
CONSOLIDATED BALANCE SHEETS UNAUDITED As at June 30, 2014 and December 31, 2013 AS AT JUN 30, 2014 AS AT DEC 31, 2013 NOTES ASSETS Current assets Cash and cash equivalents 134.6 421.5 Restricted cash 19.2 19.1 Dividends receivable 70.4 9.6 Trade and other receivables 5.3 32.5 Inventories 3 16.9 7.7 Loans receivable 6 7.8 7.2 Financial derivatives 12 1.2 1.3 255.4 498.9 Non-current assets Mineral interests, property, plant and equipment 4 192.4 211.6 Investment in associate 47.7 47.7 Investments in joint ventures 5 1,294.7 1,597.5 Loans receivable 6 108.5 98.6 Financial derivatives 12-0.9 Other assets 7 46.9 45.9 1,690.2 2,002.2 Total assets 1,945.6 2,501.1 LIABILITIES Current liabilities Trade and other payables 37.2 51.2 Interest bearing liabilities 8 13.6 14.2 Convertible debentures 9 29.2 214.8 Other liabilities 10 3.4 3.3 83.4 283.5 Non-current liabilities Interest bearing liabilities 8 723.9 731.6 Convertible debentures 9-23.6 Provisions 31.6 30.7 Deferred tax liabilities 1.7 1.2 Financial derivatives 12 61.7 25.5 Other liabilities 10 32.7 31.7 851.6 844.3 Total liabilities 935.0 1,127.8 EQUITY Share capital 4,969.0 4,969.0 Reserves 11 (345.3) (21.6) Deficit (3,613.1) (3,574.1) 1,010.6 1,373.3 Total equity and liabilities 1,945.6 2,501.1 Subsequent event see Note15 Contingency see Note 14 See accompanying notes to the unaudited condensed consolidated interim financial statements URANIUM ONE INC. Financial Statements 2
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY UNAUDITED For the periods ended June 30, 2014 and 2013 NUMBER OF SHARE RESERVES SHARES CAPITAL (NOTE 11) DEFICIT TOTAL (millions) Balance as at January 1, 2014 957.2 4,969.0 (21.6) (3,574.1) 1,373.3 Net loss for the period - - - (97.6) (97.6) Unrealized loss on translation of foreign operations - - (261.3) - (261.3) De-designation of Ruble Bonds swap derivative (1) - - 0.7-0.7 reclassified to income statement Realized fair value of Ruble Bonds swap derivatives (1) - - (0.7) - (0.7) reclassified to income statement Unrealized foreign exchange gain on Ruble Bonds (1) - - 5.5-5.5 reclassified to income statement Unrealized fair value loss on Ruble Bonds swap derivative (1) - - (9.3) - (9.3) mark to market Total comprehensive loss - - (265.1) (97.6) (362.7) Cancellation of equity component of convertible debentures - - (58.6) 58.6 - Balance as at June 30, 2014 957.2 4,969.0 (345.3) (3,613.1) 1,010.6 Balance as at January 1, 2013 957.2 5,325.4 163.1 (3,621.5) 1,867.0 Net loss for the period - - - 1.1 1.1 Unrealized loss on translation of foreign operations (1) - - (22.1) - (22.1) Unrealized foreign exchange gain on Ruble Bonds (1) reclassified to income statement - - 27.8-27.8 Unrealized fair value loss on Ruble Bonds swap derivative (1) mark to market - - (31.6) - (31.6) Total comprehensive loss - - (25.9) 1.1 (24.8) Stock option expense - 1.4-1.4 Balance as at June 30, 2013 957.2 5,325.4 138.6 (3,620.4) 1,843.6 (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
CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED For the periods ended June 30, 2014 and 2013 NOTES THREE MONTHS ENDED SIX MONTHS ENDED JUN 30, 2014 JUN 30, 2013 JUN 30, 2014 JUN 30, 2013 Net (loss) earnings (63.4) 10.6 (97.6) 1.1 Items not affecting cash: - Share of earnings from joint ventures (5.6) (18.0) (12.7) (29.6) - Depreciation 5.0 3.5 7.3 5.1 - Stock option expense - 0.1-1.4 - Impairment of non-current assets 11.1-11.1 - - Finance income (2.4) (7.7) (5.0) (10.3) - Finance expense 35.0 27.0 58.2 43.8 - Unrealized foreign exchange gains (loss) 21.1 (15.5) (10.6) (24.4) - Current and deferred income tax expense 1.3 1.3 2.9 4.3 - Other (income) expense, net (32.5) 9.7 9.8 7.4 Movement in non-cash working capital 13.1 (13.9) 11.5 (13.1) Operating cash flows before interest and tax (17.3) (2.9) (25.1) (14.3) Cash tax paid (1.1) (1.1) (1.1) (1.8) Cash interest paid (14.2) (36.8) (32.6) (36.8) Cash flows used in operating activities (32.6) (40.8) (58.8) (52.9) Additions of mineral interests, property, plant and equipment (0.6) (11.1) (0.9) (26.4) Cash receipts from other assets - 14.0-18.1 Investment in restricted cash - - - (1,450.0) Joint venture charter capital contribution 5 (34.5) - (34.5) (9.0) Loans to related parties 6 (1.8) (8.5) (11.0) (15.5) Loans repaid by joint ventures 6 - - 3.7 - Interest received - 0.8 1.3 2.6 Dividends received 5 19.4-28.7 15.0 Other (0.9) - (1.0) - Cash flows (used in) from investing activities (18.4) (4.8) (13.7) (1,465.2) Debentures repurchased - - (214.8) - Revolving loan facility issued, net of issue costs - - - 1,450.0 Cash flows (used in) from financing activities - - (214.8) 1,450.0 Effects of exchange rate changes on cash and cash equivalents 2.2 2.4 0.4 2.2 Net decrease in cash and cash equivalents (48.8) (43.2) (286.9) (65.9) Cash and cash equivalents at the beginning of the period 183.4 408.0 421.5 430.7 Cash and cash equivalents at the end of the period 134.6 364.8 134.6 364.8 See accompanying notes to the unaudited condensed consolidated interim financial statements URANIUM ONE INC. Financial Statements 4
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED As at June 30, 2014 and December 31, 2013 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 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 Russia s 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, 2014. This resulted in an invalidation of the Betpak Dala and Kyzylkum subsoil use rights. (see Note 5). 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 August 8, 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, 2013. 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. URANIUM ONE INC. Financial Statements 5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED As at June 30, 2014 and December 31, 2013 2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 June 30, 2014 the following standards, which are applicable to the Corporation, were issued but not yet effective. IFRS 9, Financial instruments IFRS 9, Financial Instruments will replace IAS 39, Financial Instruments: Recognition and Measurement for classification and measurement of financial assets and liabilities. IFRS 9 requires all recognized financial assets to be subsequently measured at amortized cost or fair value. Debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding, are generally measured at amortized cost at the end of subsequent accounting periods. All other debt investments and equity investments are measured at their fair values at the end of subsequent accounting periods. A fair value option is provided for financial instruments otherwise measured at amortized cost. This standard also requires a single impairment method to be used, replacing the multiple impairment methods in IAS 39. This standard is effective for annual periods beginning on or after January 1, 2018, and permits early adoption. The Corporation is in the process of determining the impact of this new standard. 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. 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 JUN 30, 2014 JUN 30, 2013 JUN 30, 2014 JUN 30, 2013 DEC 31, 2013 Canadian dollar 1.10 1.03 1.07 1.05 1.07 Australian dollar 1.09 1.02 1.06 1.08 1.13 Russian ruble 35.03 32.32 33.98 32.89 32.80 Kazakh tenge 176.23 151.42 183.51 151.65 153.61 Euro 0.73 0.77 0.73 0.77 0.73 3 INVENTORIES JUN 30, 2014 DEC 31, 2013 Finished uranium concentrates 14.2 4.9 Solutions and concentrates in process 1.3 1.3 Product inventory 15.5 6.2 Materials and supplies 1.4 1.5 16.9 7.7 URANIUM ONE INC. Financial Statements 6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED As at June 30, 2014 and December 31, 2013 4 MINERAL INTERESTS, PROPERTY, PLANT AND EQUIPMENT JUNE 30, 2014 MINERAL INTERESTS PROPERTY, PLANT AND EQUIPMENT DEVELOPMENT EXPENDITURE TOTAL Cost Balance at January 1 107.0 126.2 107.7 340.9 Additions - 0.1 0.8 0.9 Currency translation adjustments taken to reserves - - - - Transfers - 33.7 (33.7) - At the end of the period 107.0 160.0 74.8 341.8 Accumulated depreciation and impairment Balance at January 1 (10.8) (93.0) (25.5) (129.3) Charge for the period - (8.6) - (8.6) Impairment (1) (11.1) - - (11.1) Currency translation adjustments taken to reserves - (0.4) - (0.4) At the end of the period (21.9) (102.0) (25.5) (149.4) Carrying value at June 30, 2014 85.1 58.0 49.3 192.4 DECEMBER 31, 2013 MINERAL INTERESTS PROPERTY, PLANT AND EQUIPMENT DEVELOPMENT EXPENDITURE TOTAL Cost Balance at January 1 107.0 127.8 76.3 311.1 Additions - 4.9 38.5 43.4 Currency translation adjustments taken to reserves - (8.3) (5.3) (13.6) Transfers - 1.8 (1.8) - At the end of the year 107.0 126.2 107.7 340.9 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, 2013 96.2 33.2 82.2 211.6 (1) The Corporation has 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 has reduced because it is anticipated that the asset value may be recovered through a disposition of the assets, the timing of which is uncertain and a plan of disposition which has not been formally approved. URANIUM ONE INC. Financial Statements 7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED As at June 30, 2014 and December 31, 2013 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 JUN 30, 2014 DEC 31, 2013 INCORPORATION ACTIVITY INTEREST Akbastau JSC Kazakhstan Uranium mining 50% 504.2 613.4 Betpak Dala LLP Kazakhstan Uranium mining 70% 364.0 467.8 Karatau LLP Kazakhstan Uranium mining 50% 255.5 326.2 Zarechnoye JSC Kazakhstan Uranium mining 49.98% 101.5 91.9 Kyzylkum LLP Kazakhstan Uranium mining 30% 61.1 85.5 SKZ-U LLP Kazakhstan Sulphuric acid plant 19% 8.4 12.7 1,294.7 1,597.5 Movement in investment in joint ventures JUN 30, 2014 DEC 31, 2013 Balance at January 1 1,597.5 1,718.0 Share of net income 12.7 65.8 Dividends (92.2) (165.5) Charter capital contributions 34.5 9.0 Foreign exchange translation loss (257.8) (29.8) At the end of the period 1,294.7 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, 2014. 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, 2014. 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 will recognize revenue from the sale of uranium produced up until June 4, 2014. Production subsequent to June 4, 2014, is the property of Kazatomprom and Betpak Dala and Kyzylkum will no longer 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 future operations 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, subsequent to June 4, 2014, in addition to revenue from the sale of its uranium inventory as noted above, Betpak Dala and Kyzylkum will also generate service revenue. The agreements provide 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 will not be affected in the period prior to the issuance of the new 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. URANIUM ONE INC. Financial Statements 8
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED As at June 30, 2014 and December 31, 2013 5 INVESTMENTS IN JOINT VENTURES (continued) The joint ventures assets and liabilities are as follows, on a 100% basis (1) : AS AT JUNE 30, 2014 BETPAK AKBASTAU DALA KARATAU ZARECHNOYE KYZYLKUM SKZ-U TOTAL Current assets Cash 6.8 51.1 11.8 7.8 30.7 17.4 125.6 Note receivable - 81.0 - - 94.6-175.6 Inventories 6.5 55.7 13.2 29.0 15.9 3.6 123.9 Other 33.1 50.5 36.1 6.0 22.2 4.0 151.9 46.4 238.3 61.1 42.8 163.4 25.0 577.0 Non-current assets Mineral interests, property, plant and equipment 972.7 462.8 689.2 193.3 245.6 151.3 2,714.9 Goodwill 186.4 - - 29.5 - - 215.9 Other 5.4 3.5 10.7 5.3 4.5 11.5 40.9 1,164.5 466.3 699.9 228.1 250.1 162.8 2,971.7 Total assets 1,210.9 704.6 761.0 270.9 413.5 187.8 3,548.7 Current liabilities Current portion of interest bearing liabilities 18.6-53.7 28.6 84.3 13.7 198.9 Other 4.7 106.9 38.9 11.6 27.0 2.0 191.1 23.3 106.9 92.6 40.2 111.3 15.7 390.0 Non-current liabilities Non-current portion of interest bearing liabilities - - 33.0-52.3 106.4 191.7 Deferred tax liabilities 172.2 73.6 110.8 22.2 43.0 (1.2) 420.6 Provisions 7.1 4.1 10.5 4.2 2.8-28.7 Other - - 3.0-0.5 22.6 26.1 179.3 77.7 157.3 26.4 98.6 127.8 667.1 Total liabilities 202.6 184.6 249.9 66.6 209.9 143.5 1,057.1 Net assets 1,008.3 520.0 511.1 204.3 203.6 44.3 2,491.6 Uranium One s share of net assets Ownership % 50% 70% 50% 49.98% 30% 19% Attributable share of net assets 504.2 364.0 255.5 101.5 61.1 8.4 1,294.7 (1) Balances presented are on a 100% basis except wherever the Corporation s attributable share is noted. URANIUM ONE INC. Financial Statements 9
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED As at June 30, 2014 and December 31, 2013 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 2.2 13.9 1.8 1.3 34.8 9.1 63.1 Inventories 12.6 80.1 30.2 20.2 9.0 3.0 155.1 Other 42.9 32.0 44.5 25.9 34.1 12.4 191.8 57.7 126.0 76.5 47.4 77.9 24.5 410.0 Non-current assets Mineral interests, property, plant and equipment 1,180.9 665.0 847.3 240.1 402.8 181.1 3,517.2 Goodwill 222.7 - - 35.3 - - 258.0 Other 35.4 12.3 17.1 7.4 2.6 19.2 94.0 1,439.0 677.3 864.4 282.8 405.4 200.3 3,869.2 Total assets 1,496.7 803.3 940.9 330.2 483.3 224.8 4,279.2 Current liabilities Current portion of interest bearing liabilities 37.0-43.0 63.3 0.1 13.0 156.4 Other 9.2 16.9 38.6 13.1 7.5-85.3 46.2 16.9 81.6 76.4 7.6 13.0 241.7 Non-current liabilities Non-current portion of interest bearing liabilities - - 57.1-135.9 113.0 306.0 Deferred tax liabilities 209.1 99.1 137.6 31.1 46.2 2.2 525.3 Provisions 8.3 19.0 12.2 4.9 6.7-51.1 Other 6.0 - - 32.5 2.1 30.0 70.6 223.4 118.1 206.9 68.5 190.9 145.2 953.0 Total liabilities 269.6 135.0 288.5 144.9 198.5 158.2 1,194.7 Net assets 1,227.1 668.3 652.4 185.3 284.8 66.6 3,084.5 Uranium One s share of net assets Ownership % 50% 70% 50% 49.67% 30% 19% Attributable share of net assets 613.4 467.8 326.2 91.9 85.5 12.7 1,597.5 (1) Balances presented are on a 100% basis except wherever the Corporation s attributable share is noted. URANIUM ONE INC. Financial Statements 10
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED As at June 30, 2014 and December 31, 2013 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 JUNE 30, 2014 Revenue 26.0 57.5 37.2 10.6 22.7-154.0 84.0 Operating expenses (10.4) (28.5) (10.9) (9.2) (8.8) - (67.8) (37.9) Depreciation (10.7) (12.8) (12.0) (7.5) (6.8) - (49.8) (26.2) Gross profit (loss) 4.9 16.2 14.3 (6.1) 7.1-36.4 19.9 Interest income 0.1 0.1 0.1-0.2 0.1 0.6 0.3 Interest expense (0.7) (0.2) (1.6) (1.1) (1.3) (0.8) (5.7) (2.5) Expenses and other income (1.0) 3.0 (1.4) (2.0) (7.6) 4.9 (4.1) (1.2) Foreign exchange (loss) gain (0.1) 0.6 (0.4) (0.5) (0.8) (1.1) (2.3) (0.6) Earnings (loss) before income taxes 3.2 19.7 11.0 (9.7) (2.4) 3.1 24.9 15.9 Current and deferred income tax (expense) recovery (0.7) (4.5) (2.6) 0.4 (18.9) (0.5) (26.8) (10.3) Net earnings (loss) 2.5 15.2 8.4 (9.3) (21.3) 2.6 (1.9) 5.6 Uranium One s ownership % 50% 70% 50% 49.98% 30% 19% Attributable share of net earnings (loss) 1.3 10.6 4.2 (4.6) (6.4) 0.5 5.6 Dividends paid 23.2-15.6 38.8 19.4 SIX MONTHS ENDED BETPAK CORPORATION S ATTRIBUTABLE AKBASTAU DALA KARATAU ZARECHNOYE KYZYLKUM SKZ-U TOTAL SHARE JUNE 30, 2014 Revenue 60.3 139.7 95.7 20.4 22.7-338.8 192.8 Operating expenses (21.7) (65.6) (26.0) (14.9) (8.9) - (137.1) (79.9) Depreciation (22.8) (33.1) (29.7) (12.1) (7.3) - (105.0) (57.7) Gross profit (loss) 15.8 41.0 40.0 (6.6) 6.5-96.7 55.2 Interest income 0.1 0.3 0.1-0.2 0.1 0.8 0.5 Interest expense (1.5) (0.5) (3.3) (2.4) (2.0) (1.7) (11.4) (5.0) Expenses and other income (1.2) 2.8 (1.9) (2.0) (7.7) 11.0 1.0 (0.7) Foreign exchange (loss) gain (6.3) 6.5 (16.4) (13.0) (16.5) (25.0) (70.7) (23.0) Earnings (loss) before income taxes 6.9 50.1 18.5 (24.0) (19.5) (15.6) 16.4 27.0 Current and deferred income tax (expense) recovery (1.4) (10.6) (9.5) 3.6 (12.8) 3.1 (27.6) (14.3) Net earnings (loss) 5.5 39.5 9.0 (20.4) (32.3) (12.5) (11.2) 12.7 Uranium One s ownership % 50% 70% 50% 49.98% 30% 19% Attributable share of net earnings (loss) 2.8 27.6 4.5 (10.1) (9.7) (2.4) 12.7 Dividends paid 23.2-34.2 - - - 57.4 28.7 URANIUM ONE INC. Financial Statements 11
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED As at June 30, 2014 and December 31, 2013 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 JUNE 30, 2013 Revenue 27.7 92.6 30.4 28.7 9.6-189.0 111.1 Operating expenses (9.4) (43.6) (8.7) (17.6) (7.8) - (87.1) (50.6) Depreciation (10.4) (23.0) (12.6) (13.7) (2.0) - (61.7) (35.0) Gross profit 7.9 26.0 9.1 (2.6) (0.2) - 40.2 25.5 Interest expense (1.3) (0.3) (1.5) (1.4) (1.2) (1.1) (6.8) (3.0) Expenses and other income - 0.3 (1.0) (0.2) 0.1 5.6 4.8 0.8 Foreign exchange (loss) gain (0.2) 0.4 (0.5) (0.5) (0.8) (1.0) (2.6) (0.7) Earnings / (loss) before income taxes 6.4 26.4 6.1 (4.7) (2.1) 3.5 35.6 22.6 Current and deferred income tax (expense) recovery (2.2) (4.8) (0.8) 0.9 (0.1) (0.7) (7.7) (4.6) Net earnings (loss) 4.2 21.6 5.3 (3.8) (2.2) 2.8 27.9 18.0 Uranium One s ownership % 50% 70% 50% 49.67% 30% 19% Attributable share of net earnings (loss) 2.1 15.3 2.7 (1.9) (0.7) 0.5 18.0 - Dividends paid - - - - - - - - (1) Balances presented are on a 100% basis except wherever the Corporation s attributable share is noted. SIX MONTHS ENDED BETPAK CORPORATION S ATTRIBUTABLE AKBASTAU DALA KARATAU ZARECHNOYE KYZYLKUM SKZ-U TOTAL SHARE JUNE 30, 2013 Revenue 46.7 126.2 64.9 43.2 9.6-290.6 168.6 Operating expenses (14.3) (56.6) (18.3) (26.8) (7.8) - (123.8) (71.6) Depreciation (15.9) (31.1) (25.0) (20.6) (2.0) - (94.6) (53.1) Gross profit 16.5 38.5 21.6 (4.2) (0.2) - 72.2 43.9 Interest income - - - - 0.2-0.2 0.1 Interest expense (2.7) (0.4) (2.5) (2.9) (2.2) (2.3) (13.0) (5.5) Expenses and other income (0.7) 0.1 (2.3) (0.4) (1.0) 7.1 2.8 (0.6) Foreign exchange (loss) gain (0.2) 0.3 (0.5) (0.5) (0.7) (0.9) (2.5) (0.8) Earnings / (loss) before income taxes 12.9 38.5 16.3 (8.0) (3.9) 3.9 59.7 37.1 Current and deferred income tax (expense) recovery (3.3) (7.3) (2.9) 1.6 0.2 (0.5) (12.2) (7.5) Net earnings (loss) 9.6 31.2 13.4 (6.4) (3.7) 3.4 47.5 29.6 Uranium One s ownership % 50% 70% 50% 49.67% 30% 19% Attributable share of net earnings (loss) 4.8 21.8 6.7 (3.2) (1.1) 0.6 29.6 Dividends paid - - 30.0 - - - 30.0 15.0 (1) Balances presented are on a 100% basis except wherever the Corporation s attributable share is noted. URANIUM ONE INC. Financial Statements 12
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED As at June 30, 2014 and December 31, 2013 6 LOANS RECEIVABLE JUN 30, 2014 DEC 31, 2013 Loans to related parties Mantra 93.7 79.4 Loans to joint ventures 93.7 79.4 SKZ-U 22.6 26.4 22.6 26.4 Current portion 7.8 7.2 Non-current portion 108.5 98.6 Total 116.3 105.8 (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. JUN 30, 2014 DEC 31, 2013 Opening balance 79.4 47.6 Additions during the year 11.0 27.4 Interest accrued 3.3 4.4 Balance at the end of the year 93.7 79.4 Less: current portion - - Long term portion 93.7 79.4 (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 2017. The loans are unsecured and the final payment is due on March 15, 2017. JUN 30, 2014 DEC 31, 2013 Opening balance 26.4 30.1 Principal received (3.7) (3.7) Interest accrued 0.7 1.9 Interest received (0.8) (1.9) Balance at the end of the year 22.6 26.4 Less: current portion (7.8) (7.2) Long term portion 14.8 19.2 URANIUM ONE INC. Financial Statements 13
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED As at June 30, 2014 and December 31, 2013 7 OTHER ASSETS JUN 30, 2014 DEC 31, 2013 Non-current Asset retirement funds (1) 45.8 44.9 Other 1.1 1.0 46.9 45.9 (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 JUN 30, 2014 DEC 31, 2013 Ruble Bonds 452.0 467.1 Senior Secured Notes 285.5 285.4 Revolving credit facilities - (6.7) 737.5 745.8 Current portion 13.6 14.2 Non-current portion 723.9 731.6 Total 737.5 745.8 (i) RUBLE BONDS JUN 30, 2014 DEC 31, 2013 Opening balance 467.1 466.7 Issued - 380.7 Interest accrued 21.8 45.2 Interest paid (21.4) (34.3) Redeemed - (359.4) Fair value adjustment relating to hedged risk (Note 12) 0.2 (0.2) Amortization of transaction costs (1) 0.4 2.2 Foreign exchange gain (16.1) (33.8) 452.0 467.1 Less: current portion (12.7) (14.2) Long term portion 439.3 452.9 Fair value of Ruble Bonds (2) 427.7 460.6 (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 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 (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 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, 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
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED As at June 30, 2014 and December 31, 2013 8 INTEREST BEARING LIABILITIES (continued) (ii) SENIOR SECURED NOTES JUN 30, 2014 DEC 31, 2013 Opening balance 285.4 - Issued - 300.0 Interest accrued 9.3 1.0 Coupon interest payments (9.4) - Transaction costs capitalized (1.3) (15.6) Amortization of transaction costs 1.5-285.5 285.4 Less: current portion (0.9) - Long term portion 284.6 285.4 Fair value of Senior Secured Notes (1) 296.1 295.9 (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, 2016. 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 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 JUN 30, 2014 DEC 31, 2013 Opening balance (6.7) - Transaction costs (0.5) (6.7) Commitment fee accrued 1.0 - Commitment fee paid (1.0) - Amortization of transaction costs 7.2 - - (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
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED As at June 30, 2014 and December 31, 2013 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 317.46 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, 2013. 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 $30.8 million (as valued on June 30, 2014) principal amount remains outstanding. The table below indicates the movement in the liability: JUN 30, 2014 DEC 31, 2013 Opening balance 238.4 231.1 Repayment (214.8) - Interest accrued 6.1 36.5 Coupon interest payments (0.8) (12.4) Foreign exchange loss (gain) 0.3 (16.8) Liability as at the end of the period 29.2 238.4 Current portion (29.2) (214.8) Non-current portion - 23.6 Fair value of convertible debentures 30.8 244.9 URANIUM ONE INC. Financial Statements 16
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED As at June 30, 2014 and December 31, 2013 10 OTHER LIABILITIES JUN 30, 2014 DEC 31, 2013 Current Unfavorable contracts (1) 2.9 2.7 Other 0.5 0.6 3.4 3.3 Non-current Bonus payment 18.7 18.4 Unfavorable contracts (1) 13.8 13.3 Other (2) 0.2-32.7 31.7 (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, 2014. The number of PSUs outstanding as at June 30, 2014 was 1,250,003 and no PSUs are exercisable at that date. URANIUM ONE INC. Financial Statements 17
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED As at June 30, 2014 and December 31, 2013 11 RESERVES JUN 30, 2014 DEC 31, 2013 Equity settled employee benefits reserve Balance at the beginning of the year - 128.3 Stock options expense - 2.1 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 year 67.0 67.0 Cancellation of equity component of convertible debentures (58.6) - Balance at the end of the period 8.4 67.0 Foreign currency translation reserve Balance at the beginning of the year (90.0) (36.2) Unrealized loss on translation of foreign operations (261.3) (53.8) Balance at the end of the period (351.3) (90.0) Cash flow hedging reserve Balance at the beginning of the year 1.5 4.1 Realized fair value of Ruble Bonds swap derivatives reclassified to income statement (0.7) (4.3) De-designation of Ruble Bonds swap derivative reclassified to income statement 0.7 - Unrealized foreign exchange gain on Ruble Bonds reclassified to income statement 5.5 36.6 Unrealized fair value loss on Ruble Bond swap derivative mark to market (9.3) (34.9) Balance at the end of the period (2.3) 1.5 Available for sale securities reserve Balance at the beginning of the year (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 (345.3) (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 185.00, within a range of 3 Tenge on either side of the target rate, a devaluation of 19% from the previous target rate of US$1.00 = KZT 150.00. The functional currency of the Kazakhstan joint ventures is the Tenge. As such, the Corporation incurs most of its operating costs in Tenge while its revenues are denominated in US$. Of the balance of $261.3 million translation loss, the Tenge devaluation amounted to a loss of $257.7 million (see Note 5). URANIUM ONE INC. Financial Statements 18
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED As at June 30, 2014 and December 31, 2013 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 JUNE 30, 2014 FAIR VALUE HIERARCHY OF ASSETS AND LIABILITIES MEASURED AT FAIR VALUE LEVEL 1 LEVEL 2 LEVEL 3 TOTAL Available for sale securities 0.3 - - 0.3 Financial derivative assets - - 1.2 1.2 Financial derivative liabilities - - (61.7) (61.7) Total 0.3 - (60.5) (60.2) 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 0.3 - - 0.3 Financial derivative assets - - 2.2 2.2 Financial derivative liabilities - - (25.5) (25.5) Total 0.3 - (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 June 30, 2014 and December 31, 2013. 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
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED As at June 30, 2014 and December 31, 2013 12 FAIR VALUE MEASUREMENT (continued) The table below shows a reconciliation of level 3 fair value measurements of financial liabilities / (assets): JUN 30, 2014 DEC 31, 2013 Opening balance 82.7 29.2 Additions - 20.4 Unrealized loss recognized in other comprehensive income 10.1 40.8 Unrealized loss (gain) recognized in profit or loss (1) 27.0 (0.1) Interest accrued on swaps (2) (4.3) (12.4) Interest received 4.4 11.5 Foreign exchange (gain) loss - (6.7) 119.9 82.7 Unrealized loss due to unobservable inputs at inception (3) (59.4) (59.4) 60.5 23.3 Current portion (asset) (1.2) (1.3) Non-current portion (asset) - (0.9) Non-current portion liability 61.7 25.5 (1) Relates to market-to-market change in period on non-hedge accounting derivatives loss of $26.2 million (2013: loss of $0.3 million) and ineffectiveness recognized in the period of hedge-accounting derivatives of $0.8 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) $3.5million (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 six month ended June 30, 2014. Financial derivatives A summary of derivative instruments are as follows: AS AT JUN 30, 2014 AS AT DEC 31, 2013 (Asset) Liability (Asset) Liability Used for hedging Cross currency interest rate swaps - Cash flow hedge (1), (2) 13.8 15.3 - Fair value hedge (3) - (0.1) Other Cross currency interest rate swaps 46.5 8.1 Forward strip contracts 0.2 - Fair value of derivative assets 60.5 23.3 Current (1.2) (1.3) Non-current - (0.9) Fair value of derivative liabilities (1.2) (2.2) Current - - Non-current 61.7 25.5 61.7 25.5 Total fair value of derivatives 60.5 23.3 (1) The maximum term over which Accumulated Other Comprehensive Income will be reclassified to net earnings is 7 years. (2) Ineffectiveness in the amount of $0.8 million loss arising from cash flow hedges is recorded in the Other (expense) income line in the consolidated income statement for the period ended June 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
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED As at June 30, 2014 and December 31, 2013 12 FAIR VALUE MEASUREMENT (continued) CROSS CURRENCY INTEREST RATE SWAPS Cross currency interest rate swap Series 1 Ruble Bonds The Corporation originally issued Series 1 Ruble Bonds having an aggregate principal amount of RUB 14.3 billion ($463.5 million) on December 7, 2011 (Note 8). At the same time the Corporation entered into a cross currency interest rate swap, which economically converted the Series 1 Ruble Bonds into a synthetic US dollar borrowing by fixing the Corporation s principal and interest payments in US dollar terms and, while the hedging relationship was in force, the Corporation was not economically exposed to any ruble currency risks. The swap has a US$ fixed exchange rate of $1.00 = RUB 30.855 and resulted in a US$ fixed interest rate of 6.74% on the principal amount of $463.5 million. For accounting purposes, the original swap was designated as a cash flow hedge and the Corporation applied a hedge ratio of 80% to the debt, resulting in the Swap covering 80% of the foreign currency risk inherent in the interest and principal payments on the RUB 14.3 billion borrowing. On August 23, 2013, the Corporation repurchased and cancelled RUB 11.8 billion of the Series 1 Ruble Bonds, resulting in the original swap being de-designated from the hedging relationship. On October 1, 2013, 17% or RUB 2.5 billion of the original swap was designated as a cash flow hedge against 80% of the remaining RUB 2.5 billion Series 1 Ruble Bonds. The remaining 83% of the original swap is no longer designated in a hedging relationship. Cross currency interest rate swaps designated as hedges Series 2 Ruble Bonds On September 18 and 23, 2013, the Corporation entered into a number of cross currency interest rate swaps and forward strip contracts with the economic objective of managing the foreign exchange and interest rate risks of the Corporation. On October 1, 2013, these instruments / combinations of instruments were designated as hedging instruments against portions of the Series 2 Ruble Bonds (Note 8). The cross currency interest rate swaps and the associated hedging relationships are as follows: (a) A cross currency interest rate swap with a notional amount of RUB 245 million / $7.7 million (fixed at an exchange rate of $1.00 = RUB 31.8) to convert a portion Series 2 Ruble Bonds into a synthetic US dollar borrowing. This swap was designated as a cash flow hedge to hedge a portion (RUB 196 million or an 80% hedge relationship) of the foreign exchange risk arising from the Series 2 semi-annual ruble interest payments and ruble principal amount due at maturity starting from October 1, 2013 to August 11, 2020. (b) A cross currency interest rate swap with a notional value of RUB 4.1 billion / $129.8 million (fixed at an exchange rate of $1.00 = RUB 31.8) and effective date of November 30, 2016, to convert a portion of the Series 2 Ruble Bonds into a synthetic US dollar borrowing, at a fixed rate of 7.5%. This swap was designated as a cash flow hedge to hedge a portion (RUB 3.3 Billion or an 80% hedge relationship) of the foreign exchange risk arising from the Series 2 Semi-annual ruble interest payments and ruble principal amount due at maturity starting November 30, 2016 to August 11, 2020. DERIVATIVES NOT DESIGNATED IN ANY HEDGE RELATIONSHIPS On September 18, 2013, the Corporation entered into a cross currency interest rate swap with a notional amount of RUB 7.7 billion / $238.2 million (fixed at an exchange rate of $1.00 = RUB 32.2) and effective date of February 17, 2017, to convert a portion (RUB 7.7 billion) of the Series 2 Ruble Bonds into a synthetic US dollar floating borrowing (3 month US LIBOR interest rate plus a spread of 4.85%). As noted in Note 8, on August 23, 2013, the Corporation redeemed RUB 11.8 billion of the series 1 Ruble Bonds, resulting in the original swap being de-designated from the hedging relationship. Management decided not to designate 29% or RUB 4.1 billion of the original swap in any hedging relationship. On October 1, 2013, 54% or RUB 7.7 billion of the original swap together with two forward strips were designated as a cash flow hedge against a portion of the foreign exchange risk arising from the Series 2 semi-annual ruble interest payments from October 1, 2013 to February 14, 2017 and the principal payment. On January 1, 2014, management de-designated this hedging relationship so that 54% of the original swap and the two forward strip contracts are no longer in a hedging relationship. As a result, a loss of $0.7 million was reclassified from other comprehensive income to finance expense. On September 18, 2013, the Corporation entered into a cross currency interest rate swap with a notional amount of RUB 455 million / $14.1 million (fixed at an exchange rate of $1.00 = RUB 32.2) to convert a portion of the Series 2 Ruble Bonds into a synthetic US dollar floating borrowing (3 month US LIBOR plus a spread of 5%). On October 1, 2013, this cross currency interest rate swap was designated as a fair value hedge to hedge a portion (RUB 455 million or a 100% hedge relationship) of the foreign exchange risk arising from the Series 2 semi-annual ruble interest payments and ruble principal amount due at maturity starting from October 1, 2013 to August 14, 2020. On January 1, 2014, management de-designated this hedging relationship so that this swap is no longer in a hedging relationship. As a result, a loss of $0.2 million was reclassified from the Ruble Bonds to finance expense. URANIUM ONE INC. Financial Statements 21
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED As at June 30, 2014 and December 31, 2013 12 FAIR VALUE MEASUREMENT (continued) The following table illustrates the movement in the Ruble Bonds and the Swap, and the effect of the application of hedge accounting on the financial results. JUNE 30, 2014 SWAP (ASSET) LIABILITY (NOTE 12) CASH FLOW HEDGING RESERVE (NOTE 11) INCOME STATEMENT (LOSS) GAIN RUBLE BONDS (NOTE 8) Opening balance 467.1 23.3 1.5 - Interest accrued (1) 21.8 (4.3) - (17.5) Interest received (paid) (21.4) 4.4 - - Transaction costs, amortized 0.4 - - (0.4) Fair value adjustment relating to hedged risk 0.2 - - (0.2) De-designation of fair value of Ruble Bonds swap derivative reclassified to income statement - - 0.7 (0.7) Realized fair value of Ruble Bonds swap derivatives reclassified to income statement - - (0.7) 0.7 Unrealized (loss) recognized in the income statement - 27.0 - (27.0) Foreign exchange (16.1) - 5.5 10.6 Revaluation of the swaps - 10.1 (9.3) (0.8) Closing balance 452.0 60.5 (2.3) (35.3) (1) Interest accrued for Swap (asset) liability includes accrued interest of $0.7 million that relates to realized fair value on account of hedging derivatives recognized in the income statement from other comprehensive income. DECEMBER 31, 2013 SWAP (ASSET) LIABILITY (NOTE 12) CASH FLOW HEDGING RESERVE (NOTE 11) INCOME STATEMENT (LOSS) GAIN RUBLE BONDS (NOTE 8) Opening balance 466.7 (9.8) 4.1 - Issued 380.7 - - - Interest accrued 45.2 (12.4) - (32.8) Interest received (paid) (34.3) 11.5 - - Repaid (359.4) - - - Transaction costs, amortized 2.2 - - (2.2) Fair value adjustment relating to hedged risk (0.2) - - 0.2 Unrealized gain (loss) recognized in the income - 0.1 - (0.1) statement Realized fair value reclassified to income statement - - (4.3) 4.3 Foreign exchange (33.8) (6.7) 36.6 3.9 Revaluation of the swaps - 40.6 (34.9) (5.7) Closing balance 467.1 23.3 1.5 (32.4) URANIUM ONE INC. Financial Statements 22
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED As at June 30, 2014 and December 31, 2013 13 SEGMENTED INFORMATION Information reported to the Corporation s chief operating decision maker for the purposes of resource allocation and assessment of segment performance is primarily by operating mine or mineral property and its location. The following financial information is presented by operating segment and is reconciled to these condensed consolidated financial statements. The proportionate share of the Corporation's reportable operating segments is summarized in the table below: (a) THREE MONTHS ENDED JUNE 30, 2014: REVENUES (1) OPERATING EXPENSE DEPRECIATION EXPLORATION EXPENSE NET FINANCE COSTS INCOME TAX (EXPENSE) / RECOVERY NET EARNINGS / (LOSS) Kazakhstan Akbastau Mine 13.0 (5.3) (5.3) - (0.3) (0.3) 1.3 Akdala Mine (5) 9.2 (4.3) (1.9) - - (1.7) 4.2 South Inkai Mine (5) 30.7 (15.4) (7.5) - - (1.4) 5.9 Karatau Mine 18.7 (5.4) (6.0) - (0.8) (1.3) 4.2 Zarechnoye Mine 5.2 (4.6) (3.7) - (0.6) 0.2 (4.6) Kharasan Mine (5) 6.8 (2.8) (2.0) - (0.4) (5.8) (5.9) United States - - - - - - - Willow Creek Mine 2.5 (3.7) (4.8) - (0.1) - (6.1) ISR projects - - - (0.4) - - (0.5) Conventional mining projects - - - - - - (11.7) Australia - - - - - - - Honeymoon Project (6) - - - - 0.1 - (0.8) Corporate and other (2) - - - - (32.7) (1.3) (49.4) Sub-total (4) 86.1 (41.5) (31.2) (0.4) (34.8) (11.6) (63.4) Attributable to joint ventures (3) (84.0) 37.9 26.2-2.2 10.3 - Intercompany purchases from joint ventures 39.0 (39.0) - - - - - 41.1 (42.6) (5.0) (0.4) (32.6) (1.3) (63.4) (1) Excluding the Corporate and other segment, revenues represent the Corporation s proportionate share of sales from its operations. In addition, the gross profit of material sold by the Corporation is allocated back to the operations from which the material was sourced, above the sub-total line. The Corporation then eliminates its proportionate share of the joint ventures revenues. The cost of material sold by the Corporation which was sourced from its joint ventures is added back in the line described as intercompany purchases from joint ventures, in order to properly reflect revenue on a gross basis. (2) Corporate and other includes Toronto head office and other administrative offices. (3) Represents the elimination of the Corporation s proportionate share of the joint ventures revenues and related expenses. (4) The sub-total line captures the revenues and related expenses that management of the Corporation focuses on to monitor and evaluate performance of its business, and is consistent with the results that would be reported under proportionate consolidation accounting. (5) Revenues under the service contract for Akdala, South Inkai and Kharasan were $1.9 million, $3.0 million and $0.5 million respectively. Operating expenses related to these sales were: $1.3 million, $2.1 million and $0.5 million respectively. (See note 1 for a description of the operations of Betpak Dala and Kyzylkum). (6) The Honeymoon project was placed on care and maintenance during the year ended December 31, 2013 URANIUM ONE INC. Financial Statements 23
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED As at June 30, 2014 and December 31, 2013 13 SEGMENTED INFORMATION (continued) (b) SIX MONTHS ENDED JUNE 30, 2014: REVENUES (1) OPERATING EXPENSE DEPRECIATION EXPLORATION EXPENSE NET FINANCE COSTS INCOME TAX (EXPENSE) / RECOVERY NET EARNINGS / (LOSS) Kazakhstan Akbastau Mine 30.1 (10.9) (11.4) - (0.7) (0.7) 2.8 Akdala Mine (5) 22.3 (8.7) (4.5) - - (2.9) 10.2 South Inkai Mine (5) 84.4 (37.0) (19.0) - (0.1) (4.5) 26.0 Karatau Mine 47.9 (13.0) (14.9) - (1.6) (4.7) 4.5 Zarechnoye Mine 10.1 (7.4) (6.0) - (1.2) 1.8 (10.1) Kharasan Mine (5) 6.8 (2.9) (2.2) - (0.8) (3.3) (12.1) United States Willow Creek Mine 2.5 (5.6) (7.0) - (0.2) - (10.4) ISR projects - - - (0.6) - - (0.5) Conventional mining projects - - - - - - (11.7) Australia Honeymoon Project (6) - - - (0.1) 0.2-1.1 Corporate and other (2) - - (0.1) (53.3) (2.9) (97.4) Sub-total (4) 204.1 (85.5) (65.0) (0.8) (57.7) (17.2) (97.6) Attributable to joint ventures (3) (192.8) 79.9 57.7-4.5 14.3 - Intercompany purchases from joint ventures 99.3 (99.3) - - - - - 110.6 (104.9) (7.3) (0.8) (53.2) (2.9) (97.6) (1) Excluding the Corporate and other segment, revenues represent the Corporation s proportionate share of sales from its operations. In addition, the gross profit of material sold by the Corporation is allocated back to the operations from which the material was sourced, above the sub-total line. The Corporation then eliminates its proportionate share of the joint ventures revenues. The cost of material sold by the Corporation which was sourced from its joint ventures is added back in the line described as intercompany purchases from joint ventures, in order to properly reflect revenue on a gross basis. (2) Corporate and other includes Toronto head office and other administrative offices. (3) Represents the elimination of the Corporation s proportionate share of the joint ventures revenues and related expenses. (4) The sub-total line captures the revenues and related expenses that management of the Corporation focuses on to monitor and evaluate performance of its business, and is consistent with the results that would be reported under proportionate consolidation accounting. (5) Revenues under the service contract for Akdala, South Inkai and Kharasan were $1.9 million, $3.0 million and $0.5 million respectively. Operating expenses related to these sales were: $1.3 million, $2.1 million and $0.5 million respectively. (See note 1 for a description of the operations of Betpak Dala and Kyzylkum). (6) The Honeymoon project was placed on care and maintenance during the year ended December 31, 2013. URANIUM ONE INC. Financial Statements 24
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED As at June 30, 2014 and December 31, 2013 13 SEGMENTED INFORMATION (continued) (c) THREE MONTHS ENDED JUNE 30, 2013: REVENUES (1) OPERATING EXPENSE DEPRECIATION EXPLORATION EXPENSE NET FINANCE COSTS INCOME TAX (EXPENSE) / RECOVERY NET EARNINGS / (LOSS) Kazakhstan Akbastau Mine 13.8 (4.7) (5.2) - (0.7) (1.1) 2.3 Akdala Mine 16.4 (4.9) (3.2) - 0.1 (1.1) 7.1 South Inkai Mine 59.6 (25.3) (12.6) - - (2.1) 19.1 Karatau Mine 15.1 (4.3) (6.4) - (0.8) (0.4) 2.2 Zarechnoye Mine 14.2 (8.7) (6.9) - (0.7) 0.4 (2.0) Kharasan Mine 2.9 (2.3) (0.6) - (0.4) (0.1) 0.1 United States Willow Creek Mine 0.9 (3.2) (3.5) (0.1) (0.1) - (5.9) ISR projects - - - (0.2) - - - Conventional mining projects - - - - - - 0.5 Australia Honeymoon Project (2) - - - (0.3) 0.7-0.4 Corporate and other (3) 51.2 (48.7) - (0.1) (20.2) (1.3) (13.2) Sub-total (5) 174.1 (102.1) (38.4) (0.7) (22.1) (5.7) 10.6 Attributable to joint ventures (4) (111.1) 50.2 34.9-2.8 4.4 - Intercompany purchases from joint ventures 56.7 (56.7) - - - - - 119.7 (108.6) (3.5) (0.7) (19.3) (1.3) 10.6 (1) Excluding the Corporate and other segment, revenues represent the Corporation s proportionate share of sales from its operations. In addition, the gross profit of material sold by the Corporation is allocated back to the operations from which the material was sourced, above the sub-total line. The Corporation then eliminates its proportionate share of the joint ventures revenues. The cost of material sold by the Corporation which was sourced from its joint ventures is added back in the line described as intercompany purchases from joint ventures, in order to properly reflect revenue on a gross basis. (2) The Honeymoon Project was placed on care and maintenance during the year ended December 31, 2013. (3) Corporate and other includes Toronto head office and other administrative offices. (4) Represents the elimination of the Corporation s proportionate share of the joint ventures revenues and related expenses. (5) The sub-total line captures the revenues and related expenses that management of the Corporation focuses on to monitor and evaluate performance of its business, and is consistent with the results that would be reported under proportionate consolidation accounting. URANIUM ONE INC. Financial Statements 25
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED As at June 30, 2014 and December 31, 2013 13 SEGMENTED INFORMATION (continued) (d) SIX MONTHS ENDED JUNE 30, 2013: REVENUES (1) OPERATING EXPENSE DEPRECIATION EXPLORATION EXPENSE NET FINANCE COSTS INCOME TAX (EXPENSE) / RECOVERY NET EARNINGS / (LOSS) Kazakhstan Akbastau Mine 23.3 (7.2) (8.0) - (1.4) (1.7) 5.0 Akdala Mine (5) 29.5 (9.5) (6.1) - - (2.3) 11.7 South Inkai Mine 75.1 (30.2) (15.5) - - (2.8) 26.5 Karatau Mine 32.4 (9.2) (12.6) - (1.4) (1.4) 6.2 Zarechnoye Mine 21.4 (13.3) (10.3) - (1.5) 0.8 (3.3) Kharasan Mine 2.9 (2.3) (0.6) - (0.6) - (0.4) United States Willow Creek Mine 1.0 (5.0) (5.1) (0.1) (0.2) - (9.2) ISR projects - - - (0.5) - - (0.1) Conventional mining projects - - - (0.1) - - 0.2 Australia Honeymoon Project (2) - - - (0.6) 1.2-0.4 Corporate and other (3) 51.2 (48.7) (0.2) (35.0) (4.3) (35.9) Sub-total (5) 236.8 (125.4) (58.2) (1.5) (38.9) (11.7) 1.1 Attributable to joint ventures (4) (168.5) 71.7 53.1-5.4 7.4 - Intercompany purchases from joint ventures 74.3 (74.3) - - - - - 142.6 (128.0) (5.1) (1.5) (33.5) (4.3) 1.1 (1) Excluding the Corporate and other segment, revenues represent the Corporation s proportionate share of sales from its operations. In addition, the gross profit of material sold by the Corporation is allocated back to the operations from which the material was sourced, above the sub-total line. The Corporation then eliminates its proportionate share of the joint ventures revenues. The cost of material sold by the Corporation which was sourced from its joint ventures is added back in the line described as intercompany purchases from joint ventures, in order to properly reflect revenue on a gross basis. (2) The Honeymoon Project was placed on care and maintenance during the year ended December 31, 2013. (3) Corporate and other includes Toronto head office and other administrative offices. (4) Represents the elimination of the Corporation s proportionate share of the joint ventures revenues and related expenses. (5) The sub-total line captures the revenues and related expenses that management of the Corporation focuses on to monitor and evaluate performance of its business, and is consistent with the results that would be reported under proportionate consolidation accounting. URANIUM ONE INC. Financial Statements 26
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED As at June 30, 2014 and December 31, 2013 13 SEGMENTED INFORMATION (continued) AS AT JUNE 30, 2014: MINERAL INTERESTS PROPERTY, PLANT TOTAL DEFERRED TAX TOTAL CAPITAL AND EQUIPMENT ASSETS LIABILITIES LIABILITIES ADDITIONS Kazakhstan Akbastau Mine 486.4 605.5 86.1 101.3 2.7 Akdala Mine 79.8 134.6 11.3 25.5 3.6 South Inkai Mine 244.2 358.6 40.2 103.7 8.3 Karatau Mine 344.6 380.5 55.4 125.0 1.0 Zarechnoye Mine 96.0 134.6 11.0 33.1 2.9 Kharasan Mine 102.4 159.7 12.6 90.2 0.8 United States Willow Creek Mine 98.3 162.2-16.3 0.1 ISR projects 60.5 64.3-0.5 0.4 Conventional mining projects 10.7 19.8-6.3 - Australia Honeymoon Project 17.2 26.4-28.1 0.4 Corporate and other (1) 5.7 370.8 1.7 876.4 - (1) (2) Sub-total (2) 1,545.8 2,417.0 218.3 1,406.4 20.2 Attributable to joint ventures (1,353.4) (471.4) (216.6) (471.4) (19.3) 192.4 1,945.6 1.7 935.0 0.9 Corporate and other includes Toronto head office and other administrative offices. The sub-total line captures the assets and liabilities that management of the Corporation focuses on to monitor and evaluate performance of its business, and is consistent with the results that would be reported under proportionate consolidation accounting. AS AT DECEMBER 31, 2013: MINERAL INTERESTS PROPERTY, PLANT TOTAL DEFERRED TAX TOTAL CAPITAL AND EQUIPMENT ASSETS LIABILITIES LIABILITIES ADDITIONS Kazakhstan Akbastau Mine 590.5 748.4 104.6 134.8 21.2 Akdala Mine 110.6 141.8 14.7 10.8 14.4 South Inkai Mine 354.9 420.5 54.7 83.7 28.3 Karatau Mine 423.7 470.5 68.8 144.3 25.0 Zarechnoye Mine 119.3 164.0 15.4 72.0 14.5 Kharasan Mine 155.2 187.7 14.3 89.6 4.3 United States Willow Creek Mine 107.8 168.7-17.7 11.0 ISR projects 60.0 63.7-0.5 2.3 Conventional mining projects 21.8 30.9-6.3 0.1 Australia Honeymoon Project 13.5 22.0-25.4 30.0 Corporate and other (1) 8.5 591.5 1.2 1,051.3 - (1) (2) Sub-total (2) 1,965.8 3,009.7 273.7 1,636.4 151.1 Attributable to joint ventures (1,754.2) (508.6) (272.5) (508.6) (107.7) 211.6 2,501.1 1.2 1,127.8 43.4 Corporate and other includes Toronto head office and other administrative offices. The sub-total line captures the assets and liabilities that management of the Corporation focuses on to monitor and evaluate performance of its business, and is consistent with the results that would be reported under proportionate consolidation accounting. URANIUM ONE INC. Financial Statements 27
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED As at June 30, 2014 and December 31, 2013 14 CONTINGENCIES On March 26, 2014, the Special Inter-District Economic Court for the City of Astana issued an order having the effect of invalidating the original transfers in 2004 and 2005 from Kazatomprom to the Corporation s Betpak Dala and Kyzylkum joint ventures of the subsoil use contracts for the Akdala, South Inkai and Kharasan fields. While the proceedings were held behind closed doors and only limited information was made available, Uranium One understands that the proceedings, which were brought by the State Prosecutor of the Saryark District of the City of Astana, relate to events which occurred two to three years before Uranium One acquired its interest in the two joint ventures. An appeal from this order by the joint ventures and Kazatomprom was dismissed on June 4, 2014 by the Astana City Court. The Corporation s parent company, Rosatom, and the Corporation s joint venture partner in Kazakhstan, Kazatomprom, signed an agreement providing for the issuance of new subsoil use rights on the same terms for the Akdala, South Inkai and Kharasan uranium fields by October 28, 2014. Betpak Dala and Kyzylkum entered into a number of other agreements which provide for the continuation of normal business operations and which are designed to ensure that the economic return to the joint ventures from existing operations will not be affected in the period prior to the issuance of the new 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. The agreement relating to the issuance of new subsoil use rights was signed by Sergiy Kirienko, Chief Executive Officer of Rosatom, and Vladimir Shkolnik, Chairman of Kazatomprom s Management Board, and was among the documents formally signed in the presence of the Presidents of the Russian Federation and the Republic of Kazakhstan at a high level Russia/Kazakhstan summit meeting held in Astana, Kazakhstan on May 29, 2014. A memorandum of understanding for cooperation in the construction of Kazakhstan s first nuclear power plant was also signed during the summit, together with a comprehensive program relating to further cooperation between the two countries in the peaceful uses of nuclear energy as well as a joint statement on closer cooperation in alternative energy and rare earth metals production. Notwithstanding the foregoing, the Corporation and its shareholders have reserved their rights to take all such steps, and exercise all such remedies available to them, including proceedings under international investment treaties, as they may consider necessary or advisable to protect their legal rights and economic interests in this matter. 15 EVENTS AFTER THE REPORTING PERIOD Since March 2014, the US and Canadian governments and the European Union have implemented a number of measures in response to the situation in Ukraine. In the case of the US, these include Executive Orders and regulations imposing visa restrictions and freezing the property and interests in property in the U.S. of persons designated under those Orders as contributing to the situation in Ukraine. In July 2014, directives were issued adding additional designated individuals and entities and prohibiting U.S. persons from transacting in, providing financing for, or otherwise dealing in new debt of longer than 90 days maturity or new equity (i.e. debt or equity issued on or after July 16, 2014) or property of designated Russian financial institutions and energy companies. For its part, the Canadian government has enacted regulations which freeze the assets of certain designated persons and prohibit any person in Canada or any Canadian citizen outside Canada from, among other things, dealing in any property of any designated person, facilitating financial transactions relating to such dealings or providing goods or financial or related services to or for the benefit of designated persons. In July 2014, Canadian regulations were amended to add additional designated individuals and entities and to prohibit Canadian persons from transacting in, providing or otherwise dealing in new debt of longer than 90 days maturity or new equity of designated Russian financial institutions. The European Union has imposed similar visa restrictions and asset freezes on designated persons and in July 2014 blocked financing for new projects in Russia by European development and investment banks and designated additional individuals and entities. The EU also implemented, with effect from August 1, 2014, similar prohibitions on transacting in, providing or otherwise dealing in new debt of longer than 90 days maturity or new equity issued by five Russian financial institutions. The Corporation s operations have not been impacted by the foregoing orders, directives or regulations and the Corporation continues to carry on business as usual. The Corporation does have banking relationships with Gazprombank and Sberbank, both of which are among the Russian banks whose access to certain Western debt and equity capital markets has recently been restricted as noted above; while these restrictions do not affect the Corporation s existing banking relationships, the Corporation will continue to monitor this matter closely to ensure it remains fully compliant with all applicable legislative and regulatory requirements. URANIUM ONE INC. Financial Statements 28
Management s Discussion and Analysis Quarter Ended June 30, 2014 Set out below is a review of the activities, results of operations and financial condition of Uranium One Inc. ( Uranium One ) and its subsidiaries and joint ventures (collectively, the Corporation ) for the three and six months ended June 30, 2014, together with certain trends and factors that are expected to impact the rest of its 2014 financial year. Information herein is presented as of August 8, 2014 and should be read in conjunction with the condensed consolidated interim financial statements of the Corporation for the three and six months ended June 30, 2014 and the notes thereto (referred to herein as the condensed consolidated interim financial statements ). The Corporation s condensed consolidated interim financial statements and the financial data set out below have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board ( IASB ) ( IFRS or GAAP ). All amounts are in US dollars and tabular amounts are in millions, except where otherwise indicated. Canadian dollars are referred to herein as C$, Russian Rubles are referred to herein as Rubles or RUB, and Australian dollars are referred to herein as A$. The functional currency of Uranium One is the US dollar. All references herein to pounds are to pounds of U 3 O 8. Uranium One s unsecured convertible subordinated debentures due March 13, 2015 are listed on the TSX, its unsecured Ruble denominated bonds are listed on the Moscow Exchange and its senior secured notes are listed on the Luxembourg Stock Exchange. Additional information about the Corporation and its business and operations can be found in its continuous disclosure documents. These documents, including the Corporation s annual information form, are filed with Canadian securities regulatory authorities and are available under the Corporation s profile at www.sedar.com. This Management s Discussion and Analysis includes certain forward looking statements. Please refer to Forward Looking Statements and Other Information. URANIUM ONE INC Management s Discussion and Analysis 1