FIRST URANIUM CORPORATION 2011 ANNUAL FINANCIAL STATEMENTS
First Uranium Corporation REPORT OF MANAGEMENT'S ACCOUNTABILITY The accompanying consolidated financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles (Canadian GAAP). Management is responsible for ensuring that these statements, which include amounts based upon estimates and judgement, are consistent with other information and operating data contained elsewhere in the annual financial statements and reflect the Corporation's business transactions and financial position. Management is also responsible for the information disclosed in the management s discussion and analysis including responsibility for the existence of appropriate information systems, procedures and controls to ensure that the information used internally by management and disclosed externally is complete and reliable in all material respects. In addition, management is responsible for establishing and maintaining an adequate system of internal control over financial reporting. The internal control system includes an internal audit function and a code of business conduct and ethics, which is communicated to all levels in the organization and requires all employees to maintain high standards in their conduct of the Corporation's affairs. Such systems are designed to provide reasonable assurance that the financial information is relevant, reliable and accurate and that the Corporation s assets are appropriately accounted for and adequately safeguarded. PricewaterhouseCoopers Inc, an independent firm of Chartered Accountants were appointed by the shareholders as external auditors to examine the consolidated financial statements in accordance with generally accepted auditing standards in Canada and provide an independent professional opinion. Their report is presented with the consolidated financial statements. The Board of Directors, acting through the Audit Committee and composed solely of independent directors, is responsible for determining that management fulfils its responsibilities in the preparation of the consolidated financial statements and the financial control of operations. The Audit Committee recommends the independent auditors for appointment by the shareholders. It meets regularly with management, the internal auditor and the shareholders' auditors to review significant accounting, reporting and internal control matters. Both the internal and shareholders' auditors have unrestricted access to the Audit Committee. The Audit Committee reviews the financial statements, the report of the shareholders' auditors, and management s discussion and analysis and submits its report to the Board of Directors for formal approval. Deon Van Der Mescht President & Chief Executive Officer Emma Oosthuizen Senior Vice President & Chief Financial Officer Toronto, Ontario June 2, 2011
INDEPENDENT AUDITOR S REPORT TO THE SHAREHOLDERS OF FIRST URANIUM CORPORATION We have audited the consolidated financial statements of First Uranium Corporation, which comprise the consolidated balance sheets as at March 31, 2011 and 2010, and the consolidated statements of operations, comprehensive loss, deficit, accumulated other comprehensive income and cash flows for the years then ended, and a summary of significant accounting policies and other explanatory notes. Managements Responsibility for the Financial Statements The Corporation s management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Canadian generally accepted accounting principles (Canadian GAAP), and for such internal control as the directors determine is necessary to enable the preparation of the consolidated financial statements that are free from material misstatements, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of First Uranium Corporation and its subsidiaries as at March 31, 2011 and 2010, and their consolidated financial performance and their consolidated cash flows for the years then ended in accordance with Canadian GAAP. PricewaterhouseCoopers Inc Director: A.J. Rossouw Registered Auditor 2 Eglin Rd, Sunninghill South Africa June 2, 2011 3
First Uranium Corporation Consolidated Balance Sheets As at March 31, 2011 and 2010 (in thousands of US dollars) Notes 2011 2010 ASSETS Current assets Cash and cash equivalents 49,606 10,177 Accounts receivable 4 11,805 8,362 Inventories 5 10,189 8,983 71,600 27,522 Non-current assets Property, plant and equipment 6 723,190 648,713 Asset retirement funds 7 11,076 8,408 734,266 657,121 Total assets 805,866 684,643 LIABILITIES Current liabilities Accounts payable and accrued liabilities 8 35,104 59,344 Facility with Simmer & Jack 9-22,462 Provision for Gold Wheaton penalty 11-17,857 Derivative liability 10 15,348 9,966 Deferred revenue 11 6,508 9,991 Income tax payable 2,232 1,619 Payables to related party 28 12 2,489 59,204 123,728 Non-current liabilities Senior secured convertible notes 12 156,153 - Senior unsecured convertible debentures 13 137,533 119,311 Deferred revenue 11 108,425 109,471 Asset retirement obligations 14 34,171 26,515 Future tax liability 22 11,935 18,536 Derivative liability 10-13,952 448,217 287,785 SHAREHOLDERS EQUITY Share capital 15 417,492 345,344 Equity portion of senior unsecured convertible debentures 46,504 46,504 Equity portion of senior secured convertible notes 18,168 - Contributed surplus 16 28,267 12,992 Contribution from shareholder 18 2,561 2,285 Share purchase warrants 19-10,845 Accumulated other comprehensive income 978 812 Accumulated deficit (215,525) (145,652) 298,445 273,130 Total liabilities and shareholders equity 805,866 684,643 See accompanying notes to the Consolidated Financial Statements Commitments and contingencies 25 Approved on behalf of the Board of Directors John Hick Audit Committee Chairman Peter Surgey Non-Executive Chairman 4
First Uranium Corporation Consolidated Statements of Operations For the years ended March 31, 2011 and 2010 (in thousands of US dollars) Notes 2011 2010 Revenue 171,832 92,460 Cost of sales (151,824) (110,096) Gross profit (loss) 20,008 (17,636) Other income 2,909 2,231 Expenditures General, consulting and administrative expenditures (17,482) (18,801) Pumping, feasibility and rehabilitation costs (8,313) (7,900) Stock-based compensation 17 (4,927) (1,783) Impairment of columns at uranium plant 6 (1,482) - Amortization not included in cost of sales (1,452) (1,411) Settlement fee regarding Auramet claim - (1,800) (33,656) (31,695) Operating loss before the undernoted (10,739) (47,100) Investment income 721 1,163 Interest and accretion expense 21 (39,914) (15,663) Fair value (loss) gain on derivative liability 10 (7,997) 128 Accretion expense on asset retirement obligations 14 (2,493) (2,142) Foreign exchange loss 20 (15,773) (30,123) Loss before income taxes (76,195) (93,737) Income tax recovery 22 6,322 1,559 Loss for the year (69,873) (92,178) Basic and diluted loss per common share (US$) 23 (0.38) (0.56) Weighted average number of basic and diluted common shares outstanding ( 000) 23 185,256 164,234 See accompanying notes to the Consolidated Financial Statements 5
First Uranium Corporation Consolidated Statements of Comprehensive Loss For the years ended March 31, 2011 and 2010 (in thousands of US dollars) Notes 2011 2010 Loss for the year (69,873) (92,178) Other comprehensive income Unrealized gain on investments 7 166 812 Comprehensive loss for the year (69,707) (91,366) First Uranium Corporation Consolidated Statements of Deficit For the years ended March 31, 2011 and 2010 (in thousands of US dollars) Notes 2011 2010 Balance, beginning of the year (145,652) (53,474) Loss for the year (69,873) (92,178) Balance, end of the year (215,525) (145,652) First Uranium Corporation Consolidated Statements of Accumulated Other Comprehensive Income For the years ended March 31, 2011 and 2010 (in thousands of US dollars) Notes 2011 2010 Balance, beginning of the year 812 - Other comprehensive income 166 812 Balance, end of the year 978 812 See accompanying notes to the Consolidated Financial Statements 6
First Uranium Corporation Consolidated Statements of Cash Flows For the years ended March 31, 2011 and 2010 (in thousands of US dollars) Notes 2011 2010 Loss for the year (69,873) (92,178) Changes not affecting cash: - Non-cash portion of interest and accretion expense 19,566 9,866 - Net effect of exchange rate changes on net liabilities held in foreign 13,749 19,123 currencies - Amortization on property, plant and equipment 6 11,407 9,718 - Fair value loss (gain) on derivative liability 10 7,997 (128) - Stock-based compensation 17 4,927 1,783 - Accretion on asset retirement obligations 14 2,493 2,142 - Impairment of columns at uranium plant 6 1,482 - - Net movements in income tax payable 613 (5,404) - Amortization of deferred revenue 11 (4,173) (846) - Net movement in future income taxes (6,818) 9,977 - Non-cash revenue relating to the Gold Stream Transaction (16,567) (12,233) (35,197) (58,180) Costs relating to the Gold Stream Transaction - 441 Movement in working capital: - Increase in inventories (1,206) (5,086) - (Increase) decrease in accounts receivable (3,443) 411 - (Decrease) increase in payables to related parties (2,477) 2,383 - (Decrease) increase in accounts payable and accrued liabilities (5,236) 11,224 Cash flows utilized in operating activities (47,559) (48,807) Additions to property, plant and equipment 24 (102,533) (214,714) Net increase in the asset retirement funds 7 (1,921) (999) Cash flows utilized in investing activities (104,454) (215,713) Cash received from the Bought Deal (net of issue costs) 15 49,989 92,616 Cash received from the issue of senior secured convertible notes (net of issue costs) 12 141,453 - Cash received from the Gold Wheaton Transaction - 49,559 Net proceeds from Facility with Simmer & Jack - 20,517 Cash flows from financing activities 191,442 162,692 Net increase (decrease) in cash and cash equivalents for the year 39,429 (101,828) Cash and cash equivalents at beginning of the year 10,177 112,005 Cash and cash equivalents at end of the year 49,606 10,177 See accompanying notes to the Consolidated Financial Statements Significant non-cash transactions Conversion of the Facility with Simmer & Jack to Rand Notes 9 Conversion of Rand Notes to Equity 12.2 Settlement of the Gold Wheaton penalty with the issuance of Common shares in First Uranium 15 7
First Uranium Corporation Notes to the Consolidated Financial Statements March 31, 2011 All amounts in these financial statements are in United States dollars (US$), except where otherwise indicated. 1. NATURE OF OPERATIONS First Uranium is a Canadian resource company focused on the development of gold and uranium projects in South Africa. The Corporation has a primary listing on the Toronto Stock Exchange (TSX) and a secondary listing on the Johannesburg Stock Exchange (JSE). First Uranium owns 100% of First Uranium Limited (FUL), which in turn holds 100% of First Uranium (Proprietary) Limited (FUSA) and 100% of Ezulwini Mining Company (Proprietary) Limited (EMC). EMC owns and operates the Ezulwini Mine. FUSA owns 100% of Mine Waste Solutions (Proprietary) Limited and its wholly-owned subsidiary, Chemwes (Proprietary) Limited (collectively MWS) which processes tailings from the Buffelsfontein mine (the Buffelsfontein Tailings) at its gold recovery plant. 1.1 Basis of preparation The consolidated financial statements have been prepared in accordance with Canadian GAAP. 2. SIGNIFICANT ACCOUNTING POLICIES 2.1 Consolidation The consolidated financial statements include the accounts of First Uranium and all of its subsidiaries. All significant inter-company balances and transactions have been eliminated on consolidation. 2.2 Subsidiaries A subsidiary is an entity which is controlled by the Corporation. The consolidated financial statements include all the assets, liabilities, revenues, expenses and cash flows of First Uranium and its subsidiaries after eliminating inter-company balances and transactions. 2.3 Use of estimates The preparation of these consolidated financial statements in accordance with Canadian GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses during the year. Areas of judgement that have the most significant effect on the amounts recognized in the financial statements are estimation of asset lives, determination of ore reserve estimates, capitalization of exploration and evaluation costs, and identification of functional currencies. Key sources of estimation uncertainty that have a significant risk of causing material adjustments to the carrying amounts of assets and liabilities are the estimation of close-down and restoration costs and the timing of expenditures, the review of asset carrying values and impairment charges and reversals, the estimation of environmental clean-up costs and the timing of expenditures and the recoverability of potential future income taxes. Financial results as determined by actual events could differ from those estimated. Management estimates are also applied in arriving at the useful lives of items of property, plant and equipment and in determining the fair value of stock options. 2.4 Foreign currency translation Items included in the financial statements of each entity in the Corporation are measured using the currency that best reflects the economic substance of the underlying events and circumstances relevant to that entity (the functional currency). The Corporation s functional and reporting currency is the US$. 8
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognized in the statement of operations. The translated amounts are of a foreign entity where its subsidiaries are accounted for as integrated foreign operations and as such, the translation to US$ was made using the temporal method. Monetary assets and liabilities denominated in foreign currencies are translated in US$ at the year-end exchange rates, while nonmonetary items are translated at the exchange rate in effect at the transaction dates. Revenue and expense items are translated at the exchange rates in effect on the date of the transaction. Exchange gains and losses resulting from the translation of these amounts are included in the consolidated statement of operations. At present the group does not have any self sustaining foreign subsidiaries. 2.5 Property, plant and equipment The cost of an item of property, plant and equipment is recognized as an asset when: it is probable that future economic benefits associated with the item will flow to the Corporation; and the cost of the item can be measured reliably. Costs include expenditures incurred initially to acquire or construct an item of property, plant and equipment and costs incurred subsequently to add to, replace part of, or service it. If a replacement cost is recognized in the carrying amount of an item of property, plant and equipment, the carrying amount of the replaced part is written off. Property, plant and equipment are carried at cost less accumulated amortization and any impairment losses. Amortization is provided on all property, plant and equipment other than freehold land, to write down the cost, less residual value over their useful lives as follows: Item Depreciation Method Average useful life Buildings Straight line Life of mine Office furniture and equipment Straight line 6 years Motor vehicles Straight line 5 years Computer equipment and software Straight line 3 years Mining assets include all the tangible assets used in the direct mining production process. Mining assets also include preproduction expenditure incurred during the development of the mine and borrowing costs capitalised during the construction period where such costs are financed by borrowings. Mining assets are classified into the following categories: i) Plant and equipment Plant and equipment includes any infrastructure that is used in the processing of the products produced. Included in plant and equipment (excluding land and buildings) are gold plants, uranium plants, water purification plants, etc. ii) Mine Infrastructure Mine infrastructure includes all development costs incurred to develop new ore bodies, to define further mineralization in existing ore bodies and to expand the capacity of a mine. This cost includes the permanent equipping of Unit of production this method is based on the units produced during the financial period as a percentage of the total units at the beginning of the period less units produced in the current financial period. The following are the units applied: a) Ounces (oz) of gold b) Units produced the number of ounces of gold produced during the financial period c) Units at beginning of period the number of ounces of gold that the mine had in its reserves at the beginning of the period d) Reserves Estimate of Proven and Probable Ore Reserves of the amount of product that can economically and legally be extracted from the company s properties. These reserves are reassessed annually. Life of mine 9
this development. Mining assets are stated at cost, less accumulated amortization and impairments. Amortization is first charged on new mining ventures from the date on which the mineral property goes into commercial production. Tailings for processing are amortized based on estimated proven and probable reserves. Units-of-production Life of mine Mining rights Straight-line Mining period as per licence The cost of acquiring mining rights are capitalized and amortized over the mining period awarded by the Department of Mineral Resources (DMR) to the Corporation for the respective mining right. If the mining right period exceeds the estimated life of mine, then the amortization period is limited to the life of mine. Exploration costs incurred to the date of establishing that a property has mineral resources are expensed. Exploration and development expenses incurred subsequent to this date and which have the potential of being economically recoverable are capitalized. If the project becomes feasible, the costs are amortized over the life of the mine. If the project is stopped, the costs are written off immediately. Management carries out a review at each financial year-end to determine the appropriateness of the residual value and the useful life of each asset. Each component of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item is amortized. Land is not amortized. The amortization charge for each period is recognized in earnings or loss unless it is included in the carrying amount of another asset. 2.6 Capitalization of interest Net interest costs incurred during the development, construction and start up phase of major projects are capitalized. 2.7 Asset retirement obligations The Corporation recognizes the fair value of a future asset retirement obligation as a liability in the year in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that results from the acquisition, construction, development, and/or normal use of the assets. The Corporation concurrently recognizes a corresponding increase in the carrying amount of the related long-lived asset that is depreciated over the life of the asset. The fair value of the asset retirement obligation is estimated using the expected cash flow approach that reflects a range of possible outcomes discounted at credit adjusted risk-free interest rate. Provision is made in full for the estimated future costs of pollution control and rehabilitation, in accordance with statutory requirements. Subsequent to the initial measurement, the asset retirement obligation is adjusted at the end of each year to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. Changes in the obligation due to the passage of time are recognized in income as an operating expense using the effective interest method. Changes in the obligation due to changes in estimated cash flows are recognized as an adjustment of the carrying amount of the long-lived asset that is depreciated over the remaining life of the asset. 10
2.8 Impairment of long-lived assets Where impairment is identified, the carrying value of the related property, plant and equipment is written down to the recoverable amount. Recoverability of the long term assets of the Corporation, which includes development costs and undeveloped property costs, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable based on future undiscounted cash flows. If the carrying amounts are not recoverable, the Corporation compares the carrying amount of the asset to its fair value. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows. To determine fair value, management makes its best estimates of the future cash inflows that will be obtained each year over the life of the asset and discounts the cash flows by a rate that is based on the time value of money, adjusted for the risk associated with the applicable asset. Management s best estimate includes only those projections which it believes are reliable. These estimates are subject to risks and uncertainties including future metal prices. It is therefore reasonably possible that changes could occur which may affect the recoverability of the assets. 2.9 Future income and mining taxes The Corporation utilizes the asset and liability method of accounting for income and mining taxes. Under the asset and liability method, future income and mining tax assets are recognized for the future tax consequences attributable to differences between the carrying amounts of existing assets and liabilities and their respective tax bases, reduced by a valuation allowance to reflect the recoverability of any future income tax asset. Future income and mining tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to apply when the asset is realized or the liability settled. The effect of a change in tax rates on future income and mining tax assets and liabilities is recognized in income in the year the enactment or substantive enactment occurs. 2.10 Stock-based compensation The Corporation accounts for all equity-settled stock-based payments under the fair value based method. Under the fair value based method, compensation cost is measured at fair value at the grant date using the Black-Scholes pricing model. Compensation cost is recognized in earnings on a straight-line basis over the relevant vesting period with a corresponding adjustment to contributed surplus. Upon the exercise of a stock option, share capital is recorded at the sum of the proceeds received and the related amount of contributed surplus. The fair value attributable to stock options that expire unexercised is credited to contributed surplus. The fair value relating to forfeited stock options is debited to contributed surplus and credited to the statement of operations and deficit, and comprehensive loss. 2.11 Interest income recognition Interest income is recognized on a time proportion basis, taking account of the principal outstanding and the effective rate over the period to maturity, when it is determined that such income will accrue to the Corporation. 2.12 Borrowing costs Borrowing costs are recognized as an expense in the period in which they are incurred. Borrowing costs that are attributable to acquisition, construction or production of a qualifying asset are capitalized as part of that asset until such time as the asset is ready for its intended use. The amount of borrowing costs eligible for capitalization is determined as actual borrowing costs on funds specifically for the purpose of obtaining a qualifying asset less any temporary investment of those borrowings. The capitalization of borrowing costs commences when expenditures for the asset have occurred, borrowing costs have been incurred and activities that are necessary to prepare the asset for intended use of sale. Capitalization ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete. 11
2.13 Leased assets Leases of property, plant and equipment where the Corporation has substantially all the risks and rewards of ownership, are classified as capital leases. Capital leases are capitalized at the inception of the lease at the lower of the fair value of the leased property or the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding obligations, net of finance charges, are included in other liabilities. The interest element of the installment is charged to the statement of operations and deficit, and comprehensive loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under capital leases are depreciated over the shorter of the useful life of the asset or the lease term. 2.14 Inventories Inventories include ore stockpiles, metal work-in-progress, consumables, and finished goods are recorded at the lower of cost or net realizable value. Net realizable values of stockpiles and gold work-in-progress are determined with reference to current market prices and any cost estimation required to bring the products being valued into a saleable condition. Supplies and spares held for use in the production of inventories are not written down below cost if the finished products in which they will be incorporated are expected to be sold at or above cost. However, when a decline in the price of materials indicates that the cost of the finished products exceeds net realizable value, the materials are written down to net realizable value. In such circumstances, the replacement cost of the materials may be the best available measure of their net realizable value. The resulting movements in the net realizable values are charged to the statement of operations. Any provisions made in relation to the net realizable value reverse in future periods in the instance the net realizable value increases due to changes in the input variables considered in its calculation. The statement of operations is credited with this movement. The cost of ore stockpiles and gold produced is determined principally by the weighted average cost method using related production costs. Costs of gold produced inventories include costs such as milling costs, mining costs and mine general and administration costs but exclude transport, refining and taxes. Stockpiles consist of ore to be processed through the processing plant. The stockpiles include those that have been sampled and evaluated and are on surface. All ore is expected to be fully processed within the life of mine. Spares and consumable stores are valued at weighted average cost after appropriate impairment of redundant and slow moving items. 2.15 Revenue recognition Revenue from the sale of goods is recognized when significant risks and rewards of title and ownership are transferred on delivery. 2.16 Earnings or loss per share Basic earnings or loss per share is computed by dividing earnings or loss available to common shareholders by the weighted average number of common shares outstanding during the period. The treasury stock method is used to calculate diluted earnings or loss per share. Diluted earnings or loss per share is similar to basic earnings or loss per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding assuming that options with an average market price for the period greater than their exercise price are exercised and the proceeds used to repurchase common shares. In applying the treasury stock method, options with an exercise price greater than the average quoted market price of the common shares are not included in the calculation of diluted earnings or loss per share, as the effect is anti-dilutive. For convertible securities that may be settled in cash or shares at the holder s option the more dilutive of cash settlement and share settlement is used in computing diluted earnings (loss) per share. Where the exchange price of the convertible securities are greater than the common share price, their impact on the diluted earnings (loss) per share is excluded from the calculation, as they are considered anti-dilutive. 2.17 Financial instruments Recognition and Measurement Financial instruments are measured at fair value on initial recognition, except for certain related party transactions. Fair value is the amount at which an item could be exchanged between willing parties. Measurement in subsequent periods depends on whether the financial instruments have been classified as held-for-trading, available-for-sale, held-to-maturity, loans and receivables, or other financial liabilities. 12
The Corporation has made the following classifications: Cash and cash equivalents Cash and cash equivalents are classified as held-for-trading and are measured at fair value at each balance sheet date. Any changes in fair value are recognized in the statement of operations, deficit and comprehensive income (loss) in the period in which the change arises. Fair value is calculated using published price quotations in an active market, where applicable. Accounts receivable and receivables from related parties These assets are classified as loans and receivables and are recorded at amortized cost, which upon their initial measurement is equal to their fair value. Subsequent measurements are recorded at amortized cost using the effective interest rate method. The carrying amounts for these assets as at March 31, 2011 approximated their fair values because of their short terms of maturity. Asset retirement funds The asset retirement funds are classified as available-for-sale and are measured at fair value at each balance sheet date. Any changes in fair value are recognized in Other comprehensive income in the period in which the change arises. Fair value is calculated using the quoted prices of equities in an active market, with interest and dividends recognized in net income. Any equities without market quotes are carried using the cost method. Accounts payable and accrued liabilities and payable to related parties These liabilities are classified as other financial liabilities and are initially measured at their fair values. Subsequent measurements are recorded at amortized cost using the effective interest rate method. The carrying values for these liabilities as at March 31, 2011 approximated their fair values. Senior unsecured convertible debentures The sum of the carrying amounts assigned to the liability and equity components of the convertible debentures on initial recognition is always equal to the carrying amount that would be ascribed to the instrument as a whole. The debt portion is recorded at fair value on initial recognition and subsequently accreted over the life of the convertible debentures. No gain or loss arises from recognizing and presenting the components of the instrument separately. 2.18 Financial instruments Disclosures Financial risk factors First Uranium s activities expose it to a variety of financial risks, including the effects of changes in debt and equity market prices, foreign currency exchange rates and interest rates. The various financial risks are described in Note 27, Financial Instruments. Fair value estimation In assessing the fair value of other financial instruments, the Corporation uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. The face values less any estimated credit adjustments for financial assets and financial liabilities with a maturity of less than one year are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate available to the Corporation for similar financial instruments. Transaction costs for financial assets and financial liabilities For a financial asset or financial liability classified other than as held for trading, the Corporation has added the transaction costs that are directly attributable to the acquisition or issue of a financial asset or financial liability to the fair value of the asset or liability established at the recognition of the asset or liability. All financial assets, financial liabilities and non-financial derivatives are recognized on the balance sheet when the Corporation becomes a party to the contractual provisions of the financial instrument or a non-financial derivative contract. All financial instruments should be measured at fair value on initial recognition except for certain related party transactions. Fair value is the amount at which an item could be exchanged between willing parties. Measurement in subsequent periods depends on whether the financial instruments have been classified as held for trading, available-for-sale, held-to-maturity, loans and receivables, or other liabilities received for the convertible debenture. 13
Offset Where a legally enforceable right of offset exists for recognized financial assets and financial liabilities, and there is an intention to settle the liability and realize the asset simultaneously, or settle on a net basis, all related financial effects are offset. Equity instruments Equity instruments issued by the Corporation are recorded on the date the proceeds are received, net of direct issue costs. The carrying amounts for cash and cash equivalents, short term investments, accounts receivable and accounts payable and accrued liabilities approximate fair value due to the short maturities of these instruments. Levels of fair value disclosure Section 3862 requires disclosures about the inputs to fair value measurements, including their classification within a hierarchy that prioritizes the inputs to fair value measurements. This disclosure is required for all financial instruments carried at their fair values at the balance sheet date. The three levels of the fair value hierarchy are: Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities Level 2 Inputs other than quoted prices that are observable for the assets or liability either directly or indirectly Level 3 Inputs that are not based on observable market data The Corporation applies judgement in arriving at the significance of a particular input to the fair value measurement of an instrument. 2.19 Segment reporting A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment, that are subject to risks and returns and that are different from those of segments operating in other economic environments. 2.20 Capital disclosures The Corporation s objectives, policies and processes for managing capital are outlined in Note 26, Capital Management. 2.21 Accounting for embedded derivatives During Fiscal 2009 and 2010, the Corporation entered into two gold stream transactions pursuant to which the Corporation is required to deliver guaranteed quantities of gold in specified periods as part of the performance toward these agreements. See Note 10, Derivative Liability. The guaranteed quantities required to be delivered are recognized as embedded derivatives because of the attachment of the delivery to gold, which is a non-financial instrument and is not contractually transferable independent of the entire agreement. In addition, these portions of the agreements have certain specific economic characteristics and risks associated to them that are not closely related to those characteristics and risks of the entire agreement. Failure by the Corporation to produce the guaranteed ounces may automatically lead to the shortfall in guaranteed ounces delivered by the Corporation. This requirement does not span the rest of the agreement and therefore this risk of non performance relates to only the Guaranteed Ounces. The derivative has been classified as held-for-trading on the balance sheet of First Uranium and has been accounted for as a collection of call options with increasing maturities from the shortest maturity of three months to the longest, of twenty-four months. The Black-Scholes pricing model has been used to determine the fair value of all outstanding options at the end of each reporting period, with changes in fair value recognized in the statement of operations, deficit and comprehensive loss. At the end of each reporting period, the options are fair valued and the differences between value of the options at reporting date and the previous valuation are taken through the statement of operations and deficit as a fair value adjustment to the derivative. 14
2.22 Deferred revenue The part of the gold stream transactions referred to in Note 2.21 that does not specify any fixed number of ounces to be delivered is recognized as a pre-payment for the gold to be sold in future. The total deferred revenue has been disclosed on the balance sheet and will be amortized by the total ounces delivered every quarter (excluding the guaranteed ounces recognized as derivative liabilities). The revenue per quarter will be recognized in the statement of operations, deficit and comprehensive loss as the gold is delivered pursuant to the gold stream transactions. (See Note 11, Deferred Revenue) 2.23 Share purchase warrants Share purchase warrants are valued using the relative fair valuation method which applies a weighted average of the fair values of the share capital and the warrants to allocate the total proceeds received from a share issue. 2.24 Goodwill and intangible assets Section 3064 Goodwill and intangible assets establishes revised standards for recognition measurement, presentation and disclosure of goodwill and intangibles assets. Goodwill represents the excess of the cost of an acquisition over the fair value of the group s share of the net identifiable assets of the acquired subsidiary/associate at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Separately recognised goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. Section 3064 also expands on the criteria when intangible assets can be recognized. The Section applies to internally generated intangible assets such as research and development activities and rights under licensing agreements. The section also indicates that expenditures not meeting the recognition criteria of intangible assets are expensed as incurred. The Corporation does not have goodwill and it does not carry out any research and development activities that meet the recognition criteria. 3. CHANGES IN ACCOUNTING POLICIES Business Combinations/Consolidated Financial Statements/Non-Controlling Interests In January 2009, the CICA adopted Sections 1582 - Business Combinations, 1601 - Consolidated Financial Statements, and 1602 - Non-Controlling Interests which superseded current Sections 1581 - Business Combinations and 1600 - Consolidated Financial Statement. Section 1625, Comprehensive Revaluations of Assets and Liabilities, has been amended as a result of issuing CICA 1582, 1601 and 1602. These amendments will be effective prospectively for comprehensive revaluations of assets and liabilities occurring in years beginning on or after January 1, 2011. Section 3251, Equity, has been amended as a result of issuing Section 1602 to be adopted by all entities that will adopt Section 1602. These new sections replace existing guidance on business combinations and consolidated financial statements to harmonize Canadian accounting for business combinations with International Financial Reporting Standards (IFRS). These sections will be applied prospectively to business combinations for which the acquisition date is on or after April 1, 2011. Earlier adoption is permitted. The Corporation did not apply any of these sections before April 1, 2011. The adoption of these changes will have no impact on the Corporation s consolidated financial statements. Future and new accounting standards In terms of the requirements of the Canadian Accounting Standards Board, the Corporation has to adopt IFRS for interim and annual financial statements relating to its fiscal year ending March 31, 2012 (FY 2012). The Corporation is in the process of converting its basis of accounting from Canadian GAAP to IFRS effective for the first quarter report in FY 2012. The transition date of April 1, 2010 will require the conversion, for comparative purposes, of the Corporation s previously reported balance sheet as at March 31, 2011 and March 31, 2010 and its interim and annual consolidated statements of operations and cash flows for the year ended March 31, 2011 from Canadian GAAP to IFRS. 15
4. ACCOUNTS RECEIVABLE Value Added Tax and Goods and Services Tax 7,040 3,102 Prepayments and advances 2,543 1,433 Trade receivables 2,222 3,827 11,805 8,362 5. INVENTORIES Consumables 4,952 3,574 Finished goods 2,690 2,493 Metal work-in-progress 2,547 2,916 10,189 8,983 Included in finished goods and metal work-in-progress for the year ended March 31, 2011, were items carried at net realizable value amounting to $2.7 million (March 31, 2010: $2.7 million) and $1.9 million (March 31, 2010: $1.3 million), respectively. 6. PROPERTY, PLANT AND EQUIPMENT March 31, 2011 (in thousands of dollars) Cost Accumulated Amortization Net carrying amount Mine assets 735,481 (22,076) 713,405 Land and buildings 7,362 (382) 6,980 Office furniture and equipment 4,384 (2,727) 1,657 Motor vehicles 2,389 (1,241) 1,148 Total 749,616 (26,426) 723,190 March 31, 2010 (in thousands of dollars) Cost Accumulated Amortization Net carrying amount Mine assets 652,715 (10,790) 641,925 Land and buildings 5,051 (234) 4,817 Office furniture and equipment 2,422 (1,783) 639 Motor vehicles 2,062 (730) 1,332 Total 662,250 (13,537) 648,713 The accumulated amortization includes an impairment expense of $1.5 million as a result of two columns at the Ezulwini Mine s uranium plant having to be replaced following a structural failure on a loading column. Included in the above are mining related assets with a net carrying amount of $277.2 million (March 31, 2010: $267.0 million) related to the Ezulwini Mine and $442.4 million (March 31, 2010: $380.0 million) related to MWS. 7. ASSET RETIREMENT FUNDS Balance, beginning of the year 8,408 4,734 Investment income 252 417 Contributions in respect of investment funds 1,669 582 Unrealized gain on investments 166 812 Foreign exchange gain 581 1,863 Balance, end of the year 11,076 8,408 The asset retirement funds, consisting of environmental rehabilitation trust funds under the Corporation s control, are to be used to fund the respective mining operation s rehabilitation liabilities. Funds in the trust consist primarily of cash held in interest-bearing accounts, as well as investment funds which consist of a combination of South African unit trusts. An accredited South African financial institution manages the trust funds under the direction of the trustees. The trust deed limits the trustees investments to institutions and investment vehicles as referred to in Section 37A of the South African Income Tax Act. Trust funds can only be drawn for rehabilitation purposes. 16
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Trade payables 26,687 34,859 Accruals 8,417 24,485 35,104 59,344 The trade payables and accruals include capital expenditures of $2.2 million (March 31, 2010: $5.5 million) and $9.2 million (March 31, 2010: $26.4 million) at the Ezulwini Mine and MWS, respectively. 9. FACILITY WITH SIMMER & JACK Capital drawn down on the Facility 22,462 20,517 Capitalized interest on the Facility 240 1,929 Capitalized costs related to the Facility - 615 Foreign exchange (gain) loss (73) 520 Interest paid during the year - (1,119) Conversion of the Facility to Secured Convertible Notes (22,629) - Balance, end of the year - 22,462 The Corporation finalized a one-year term credit facility of ZAR160 million ($21.5 million) (the Facility) with Simmer and Jack Mines, Limited (Simmer & Jack) on August 14, 2009. Amounts borrowed under the Facility bore interest at the three-month Johannesburg Interbank Agreed Rate (JIBAR) for ZAR denominated loans plus 7% per annum. The capitalized costs consisted of an arrangement fee of 3% of the Facility amount. Undrawn amounts were subject to commitment fees of 2.8% per annum. The Corporation drew down the total Facility amount at inception of the Facility and thus no commitment fees were paid. Pursuant to the Offering (as defined in Note 12, Senior Secured Convertible Notes), the Facility with Simmer & Jack including the unpaid interest on the Facility was settled in full on April 26, 2010 with the issue of 167,812 Rand Notes to Simmer & Jack. 10. DERIVATIVE LIABILITY The total derivative liability for the Corporation is as follows: Balance, beginning of the year 23,918 8,766 Initial valuation of derivative liability (Ezulwini Mine) - 27,513 Delivery of gold to settle the derivative liabilities (16,567) (12,233) Fair value loss (gain) on derivative liabilities 7,997 (128) Balance, end of the year 15,348 23,918 Current liabilities 15,348 9,966 Non-current liabilities - 13,952 15,348 23,918 The total derivative liability for the year ended March 31, 2011 related to the Ezulwini Mine. 10.1 Derivative liability in relation to Ezulwini Mine Balance, beginning of the year 23,918 8,766 Initial valuation of derivative liability (Ezulwini Mine) - 27,513 Delivery of gold to settle the derivative liability (16,567) (12,233) Fair value loss (gain) on derivative liability 7,997 (128) Balance, end of the year 15,348 23,918 Current liabilities 15,348 9,966 Non-current liabilities - 13,952 15,348 23,918 17
Gold Wheaton (Barbados) Corporation (GW) was a wholly-owned subsidiary of Gold Wheaton Gold Corp. (GLW). On March 14, 2011, Franco-Nevada Corporation (Franco-Nevada) acquired all of the outstanding common shares of GLW that it did not already own and GLW amalgamated with a wholly-owned subsidiary of Franco-Nevada to form Franco-Nevada GLW Holdings Corp. ( FNGLW ) and GW changed its name to Franco-Nevada (Barbados) Corporation ( FN ). Consequently, going forward in the financial statements of the Corporation all references to GLW and GW will be FNGLW and FN, respectively. On November 5, 2009 First Uranium signed a definitive agreement with FN, whereby FN acquired the right to receive 7 percent of the life-of-mine gold production from the Ezulwini Mine (the Ezulwini Gold Stream Transaction). Pursuant to the Ezulwini Gold Stream Transaction, Ezulwini Mine is obliged to deliver a minimum of 16,500 and 19,500 ounces of gold into the transaction during calendar years 2010 (the 2010 Guaranteed Ounces) and 2011 (the 2011 Guaranteed Ounces), such deliveries to be comprised of 4,125 and 4,875 ounces per quarter, respectively. The Black-Scholes pricing model was used to determine the fair value of the financial derivative at both the initial date of the derivative instrument (December 12, 2009) and the subsequent reporting periods. The gold price on the initial date of recognition was $1,164 per ounce and $1,439 per ounce at March 31, 2011 (March 31, 2010: $1,116). A total of 18,658 ounces were delivered to FN during the year ended March 31, 2011 (March 31, 2010: 13,929 ounces). At March 31, 2011, 14,772 ounces were outstanding pursuant to the 2011 guaranteed ounces. 10.2 Derivative liability in relation to MWS On December 1, 2008 First Uranium signed a definitive agreement with FN, whereby FN acquired the right to receive 25 percent of the life-of-mine gold production from MWS (the MWS Gold Stream Transaction). Pursuant to the MWS Gold Stream Transaction, MWS was obliged to deliver a minimum of 20,000 ounces of gold into the transaction during calendar year 2009, such deliveries to be comprised of at least 5,000 ounces per quarter (the 2009 Guaranteed Ounces). The 2009 Guaranteed Ounces were satisfied in full as at December 31, 2009. The Black-Scholes pricing model was used to determine the fair value of the financial derivative at both the initial date of the derivative instrument (December 18, 2008) and subsequent reporting periods. The gold price on initial date of recognition was $855 per ounce and $1,088 per ounce as at December 31, 2009, when the last of the final 5,000 ounces of gold were required to be delivered. Balance, beginning of the year - 8,766 Delivery of gold to settle the derivative liability - (10,410) Fair value loss on derivative liability - 1,644 Balance, end of the year - - 11. DEFERRED REVENUE The total deferred revenue for the Corporation is as follows: Balance, beginning of the year 119,462 115,678 Upfront payment to the Ezulwini Mine - 50,000 Less: Derivative liability in respect of the 2010 and 2011 Guaranteed Ounces (initial recognition) - (27,513) Revenue recognized during the year (4,173) (846) FN penalty settled with First Uranium shares (Note 15) (356) (17,857) Balance, end of the year 114,933 119,462 Current liabilities 6,508 9,991 Non-current liabilities 108,425 109,471 114,933 119,462 18