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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
For August 27, 2004
International Uranium Corporation
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(Translation of registrant's name into English)
Independence Plaza, Suite 950, 1050 Seventeenth Street, Denver, CO 80265
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(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F.
Form 20-F [X] Form 40-F [ ]
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes [ ] No [X]
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): 82- ________________.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
International Uranium Corporation
---------------------------------
(Registrant)
Date: August 27, 2004 By: /s/ Ron F. Hochstein
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Ron F. Hochstein, President
EXHIBIT INDEX
Exhibit Number Description
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1 Third Quarter Report for period ending June 30, 2004
REPORT TO SHAREHOLDERS
3RD QUARTER 2004
(U.S. DOLLARS)
Through the first six months of fiscal 2004 uranium prices increased from $12.20
per pound U(3)O(8), on September 30, 2003 to $17.50 per pound by the end of
March 2004, an increase of over 43%. In the third quarter of fiscal 2004, the
uranium price continued to increase to $18.50 per pound before the typical
summer market inactivity set in to hold the price at that level for over eight
weeks. In the past couple of weeks, although activity in the spot market is
still minimal, increased activity in the long term market has resulted in an
increase in the published uranium spot price of $0.50 per pound to $19.00 per
pound U(3)O(8). Many analysts believe that this past summer is the "calm before
the storm". As the uranium market fundamentals continue to strengthen from the
suppliers view point, many utilities are lining up at the starting gate and the
question remains, "When will the starting gun fire?" Also, will the race be a
one hundred yard dash resulting in a rapid increase in uranium prices, or a
marathon, resulting in a slow steady increase in uranium prices. Only time will
tell. Based on the strong market fundamentals, International Uranium Corporation
("IUC" or the "Company") continues to expand its uranium exploration activities,
in both Canada and Mongolia, to evaluate acquisition opportunities, and to study
the feasibility of re-opening its U.S. uranium/vanadium mines.
In the Athabasca Basin region of northern Saskatchewan, Canada, the Company
began its summer drilling program on the Moore Lake project in late June. The
program was delayed this year due to a late spring break-up. Nevertheless the
Company and its partner, JNR Resources Inc. ("JNR"), have planned a 15,000 meter
drilling program for the remainder of 2004 and winter of 2005. The drilling
program on the Moore Lake property this year has focused on following up on the
high grade Maverick Zone to further refine the resource potential and provide a
better understanding of the controlling features of the deposit. To date, a
total of 3,266 meters have been drilled in nine drill holes during the very
successful summer program. The results have illustrated the high grade potential
of the Maverick Zone. Four of the first nine holes returned several high grade
intercepts in Holes ML-48, ML-49, ML-54 and ML-55, as shown below.
HOLE INTERVAL (m) LENGTH (m) U(3)O(8) %
----------------------------------------------------------------------------
ML-48 269.00- 273.70 4.7 4.01
including 270.00-272.70 2.7 6.74
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ML-49 262.00-266.50 4.5 2.41
including 262.50-265.00 2.5 4.17
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ML-54 264.50- 269.50 5.0 3.50
including 266.00-268.50 2.5 6.52
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ML-55 263.00-269.20 6.2 5.14
including 263.50-267.90 4.4 7.02
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The Company is extremely excited about these results. A second drill will begin
drilling on the Moore Lake project within a few days and the remainder of the
program will focus on further defining the Maverick Zone, as well as expansion
of the high grade zone along the main graphitic conductor. A ground geophysical
program carried out this summer has extended the potential strike length of the
graphitic conductor to approximately three kilometers.
In addition to its program on the Moore Lake project, the Company has also
carried out a mapping and boulder sampling program on the Pendleton Lake
project, in which IUC can earn a 75% interest from JNR through expenditures of
$500,000. The results from this sampling campaign are not yet available.
Currently the Company's land position on both optioned and 100% owned property
in the Athabasca Basin is approximately 125,000 hectares. The Company has
started planning its 2005 winter exploration program which, in addition to the
Moore Lake drilling program, will include additional drilling programs on a
least two additional project areas.
In addition to its Canadian exploration program, the Company has begun a summer
reconnaissance uranium exploration program centered on its Gurvan-Saihan Joint
Venture ("GSJV") in-situ leach uranium project in Mongolia. During the quarter,
the Company, on behalf of the GSJV, acquired an additional seven licenses in six
different areas totaling approximately 540,000 hectares, which brings the GSJV
total land position in Mongolia to 1.65 million hectares. All of the new license
areas are located in the Central Gobi region and lie along the same regional
belt of sedimentary basins that host significant uranium mineralization at the
GSJV's Hairhan and Haraat deposits. The focus is for sandstone-hosted deposits
that can be mined using in-situ leach technology. The Company will be performing
additional reconnaissance geological field programs on the new areas as well as
other potential new areas in anticipation of an extensive drill program next
year.
With respect to IUC's U.S. uranium properties, further increases in both uranium
and vanadium prices above current levels would be required in order for the
Company to recommence its U.S. mining activities; however, the Company has
commenced studying the feasibility of restarting some of these mines in light of
the increase in uranium price and market projections.
The Company is now seeing a level of activity not seen since 1997-98 with
exploration activities in Mongolia and Canada and studies of the U.S. mining
operations. The currently improved uranium market fundamentals and optimistic
forecasts are encouraging, and the Company is continuing to evaluate additional
opportunities to expand and develop its existing portfolio of uranium assets.
In order for the Company to focus on its uranium activities, the Company sold
its Mongolian base and precious metals exploration properties to Fortress
Minerals Corp. ("Fortress"), formerly Fortress IT Corp., on June 23, 2004. The
Company had expended approximately Cdn$3.4 million on these properties over the
last three years. In consideration for vending these exploration properties to
Fortress, the Company received 28 million common shares, which gives the Company
a 63% interest in Fortress. Currently, Fortress shares are trading in the range
of Cdn $0.34 to $0.40 per share. Due to the Company's 63% interest in Fortress,
the Fortress financials have been consolidated with the Company's financial
statements.
As a result of this transaction, Fortress has approximately 1.75 million
hectares of 100% owned prospective ground located throughout Mongolia. The 2004
field program includes a 2,000 metre drilling program on the Shiveen Gol
project, as well as a number of geochemical, I.P. and ground magnetic
geophysical programs on the Erdenet and Huvsgol project areas.
At the Company's White Mesa Mill (the "Mill"), the Company continues to focus on
developing its alternate feed business as a feed source for the Mill. During the
quarter, the Mill began receiving alternate feed material from a commercial
metals producer. In addition to the forgoing material, the Company continues to
receive deliveries of alternate feed materials from another uranium producer.
While the Company does not receive a processing fee for this particular
alternate feed material, it will produce uranium from these materials which can
then be sold. As of the end of the third quarter of fiscal 2004, there was
approximately 6,800 tons of this material at the Mill that contains over 460,000
lbs of uranium. The Company is currently evaluating the feasibility of
processing these materials during fiscal 2005. The Company did not receive any
material from the Linde site during the quarter due to the near completion of
that project.
On August 16, 2004, the State of Utah became an Agreement State for the
regulation of uranium mills. This means that the primary regulator for the Mill
is now the Utah Department of Environmental Quality ("UDEQ") rather than the
U.S. Nuclear Regulatory Commission. The Company looks forward to working with
UDEQ and does not expect that this change will have a significant effect on Mill
operations or costs.
With respect to its Urizon alternate feed program the Company and its partner,
Nuclear Fuel Services, Inc. ("NFS"), are continuing to investigate the potential
for alternative commercial opportunities to move the program forward in light of
the U.S. Department of Energy's ("DOE's") recent decision not to fund the
program at this time.
On the Company's Moab project, the U.S. Department of Energy ("DOE") is
anticipated to release the draft Moab Tailings Environmental Impact Statement
("EIS") within the next four to six weeks for public comment. Once the draft is
released there will be a period, anticipated to be approximately 45 days, for
the public to comment on the EIS before it is submitted to DOE headquarters. The
Company's proposal to relocate the Moab tailings pile to the Mill using slurry
pipeline technology is one of five alternatives currently being considered in
the scope of the EIS.
For the first nine months of fiscal 2004, the Company recorded a net loss of
$3,297,760 ($0.04 per share) on revenues of $2,035,262, as compared to net
income of $5,936,525 ($0.09 per share) on revenues of $12,372,505 for the first
nine months of fiscal 2003. This difference is primarily due to the fact that
the Mill was processing alternate feed materials during the same period of
fiscal 2003, which generated operating profits combined with the accounting of
the Fortress transaction which resulted in a book loss on the sale of the
properties of $478,839. The Company received 28 million shares of Fortress
recorded at Cdn $0.1185 per share. The Fortress shares are currently trading
between Cdn $0.34 and $0.40 per share. In addition, the Company continues to
have a strong cash and short term investment position of $10,614,144, exclusive
of its Fortress shares.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis of the financial condition and results of
operations for the Company for the period ended June 30, 2004 should be read in
conjunction with the consolidated financial statements and accompanying notes.
The consolidated financial statements are prepared in accordance with generally
accepted accounting principles in Canada.
OVERVIEW
IUC is incorporated under the Business Corporations Act (Ontario). The Company
is engaged primarily in uranium exploration and in the business of recycling
uranium-bearing waste materials, referred to as "alternate feed materials," for
the recovery of uranium, alone or in combination with other metals, as an
environmentally preferable alternative to the direct disposal of these waste
materials. Alternate feed materials are generally ores or residues from other
processing facilities that contain uranium in quantities or forms that can be
recovered at the Company's Mill. In addition, the Company sells uranium
recovered from these operations, as well as vanadium and other metals that can
be produced as a co-product with uranium. The Company owns several uranium and
uranium/vanadium mines in the U.S. that have been shut down pending further
improvements in commodity prices.
Due to deteriorating commodity prices at the time and other factors, the Company
ceased its uranium mining and exploration activities in 1999/2000, and shut down
all of its mines and its Mongolian uranium joint venture indefinitely, pending
significant improvements in commodity prices. During that time period, the
Company focused its resources primarily on the continuing development of the
alternate feed, uranium-bearing waste recycling business and the Company
initiated a precious and base metals exploration program in Mongolia. During the
third quarter of fiscal 2004, the Company completed the sale of its precious and
base metals properties to Fortress. For this third quarter of fiscal 2004
report, results of Fortress have been consolidated from the date of acquisition.
As a result of the recent increases in uranium prices and improved market
fundamentals, the Company acquired uranium exploration properties in the
Athabasca Basin region of Saskatchewan, Canada, and commenced an exploration
program on certain of those properties during the first quarter of fiscal 2004.
While the Company has recommenced its uranium exploration program in Mongolia,
further increases in both uranium and vanadium prices above current levels would
be required in order for the Company to consider recommencing its U.S. mining
activities, which have a higher cost of production.
In addition to its exploration programs, the Company intends to continue to
devote significant resources to the development of the alternate feed,
uranium-bearing waste recycling business. The Company expects that the
development of the business of recycling uranium-bearing materials can continue
to help offset
Mill and mine standby costs and, potentially, result in sustained profitable
operations for the Company. While the Company has had considerable success to
date in this initiative, and the alternate feed business has helped to offset
Mill and mine standby costs, the Company has not to date developed a sufficient
backlog of alternate feed business to result in sustained profitable operations
for the Company solely from this business. Developing this backlog will continue
to be a focus of the Company.
REVENUES
Revenues for the first nine months of fiscal 2004 consisted of revenues from
vanadium sales, process milling fees generated under the Company's alternate
feed processing agreements, and fees from engineering services. Revenues for the
first nine months of fiscal 2004 were $2,035,262 as compared to $12,372,505
during the first nine months of fiscal 2003. There was no revenue during the
third quarter of fiscal 2004. The decrease in revenue of $3,280,601 and
$10,337,243 in the third quarter and the first nine months of fiscal 2004 as
compared to 2003 is due to the fact the Mill has been on stand-by since May 23,
2003.
During the second quarter of fiscal 2004 the Company sold its inventory of
vanadium black flake, which was produced in the 1999 conventional ore mill run,
leaving an ending inventory of approximately 65,000 pounds of vanadium, as
vanadium pregnant liquor. Vanadium prices are currently trading in the range of
$5.00 to $6.25 per pound V(2)O(5). The Company is continuing to evaluate
opportunities to sell its vanadium pregnant liquor inventory.
As the Mill is currently on stand-by, alternate feed processing activities
during the nine months ended June 30, 2004 consisted primarily of the receipt of
material from the Linde site and from another commercial metals producer. The
Company receives a recycling fee for a majority of the alternate feed materials
once they are delivered to the Mill. Fees are recorded as deferred revenue until
the material is processed at which time they are recognized as revenue. In
addition to the recycling fees, the Company will retain any uranium recovered
from these materials, which can be sold in subsequent periods.
In addition to the foregoing alternate feed materials, the Company continues to
receive deliveries of alternate feed materials from another uranium producer
under a long-term arrangement. While the Company will not receive a processing
fee for this particular alternate feed material, it will produce uranium from
these materials, which will then be sold. As of June 30, 2004, there were
approximately 6,800 tons of these materials at the Mill, containing
approximately 461,100 lbs of uranium. Revenues from these materials will be
recognized as recovered uranium is sold. Materials received from other uranium
producers or private industry sources tend to be relatively high in uranium
content but relatively small in volume as compared to materials from the Ashland
and Linde projects.
COST OF PRODUCTS AND SERVICES SOLD
In the second quarter of fiscal 2004, cost of goods sold of $696,905 was
recognized as a result of the sale of the Company's vanadium black flake
inventory.
Process milling expenditures for the first nine months of fiscal 2004 of $76,694
represent expenditures incurred receiving alternate feed materials. These
expenditures decreased by $4,434,893 as compared to processing milling
expenditures of $4,511,587 during the first nine months of fiscal 2003. The
decrease is due to the fact that the Mill has been on stand-by since May 23,
2003. During the first nine months of fiscal 2004, the Company received 3,440
tons of alternate feed material from the Linde site and an additional 3,707 tons
of material from another commercial metals producer. As of June 30, 2004,
approximately 42,900 tons of material remained in stockpile waiting to be
processed during the next mill run. The timing of the next mill run will depend
on a number of factors such as uranium price and the amount of material
available to be processed.
MILL STAND-BY
Mill stand-by expenses consist primarily of payroll and related expenses for
personnel, parts and supplies, contract services and other overhead expenditures
required to maintain the Mill on stand-by status until a sufficient stockpile of
alternate feed material or other ores has been accumulated to justify an
efficient mill run. Mill stand-by expenses for the first nine months of fiscal
2004 were $1,805,684 as compared to $250,443 for the first nine months of fiscal
2003. The increase of $1,555,241 was due to approximately one month of Mill
stand-by during the first nine months of fiscal 2003 versus nine months during
fiscal 2004.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses consist primarily of payroll and
related expenses for personnel, legal, contract services and other overhead
expenditures. Selling, general and administrative expenses for the third quarter
and first nine months of fiscal 2004 were $812,273 (of which $237,615 is
attributable to Fortress) and $2,429,498 (of which $237,615 is attributable to
Fortress) respectively, as compared to selling, general and administrative
expenses of $926,625 and $2,136,478 for the comparable periods in fiscal 2003.
The decrease of $55,402 for the comparable nine month periods, exclusive of
Fortress expenses, was the result of decreases in Urizon and other alternate
feed expenditures of $848,910, offset by increases of $914,301 in other selling,
general and administrative expenditures. These increases are partially
attributable to the engineering services that the Company has provided. In
addition to the engineering services costs, the increase is also the result of
increased audit/accounting fees, legal fees associated with the acquisition of
the Canadian uranium exploration properties, increased investor relation
expenditures and costs associated with the downsizing of the Denver office.
EXPLORATION
Uranium Exploration
-------------------
In the first quarter of fiscal 2004, the Company acquired interests in uranium
exploration properties in the Athabasca Basin region of Saskatchewan, Canada and
commenced an exploration program on certain of those properties. Total gross
program expenditures, including capitalized exploration expenditures, for the
third quarter and first nine months of fiscal 2004 were $344,113 and $1,144,342
respectively. The expenditures to date have primarily been on the Moore Lake
project.
The Company also has a 70% interest in the Gurvan-Saihan Joint Venture ("GSJV")
in Mongolia. The other parties to the joint venture are the Mongolian government
as to 15% and Geologorazvedka, a Russian geological concern, as to 15%. Other
than the licensing of new lands in anticipation of a renewed exploration program
later in fiscal 2004, this in-situ leach uranium project remained on stand-by.
During the first nine months of fiscal 2004 the Company spent approximately
$72,479 on GSJV activities.
Precious and Base Metals Exploration
------------------------------------
During the third quarter of fiscal 2004, the Company completed the sale of its
precious and base metals exploration properties in Mongolia to Fortress to
concentrate on the Company's uranium activities. As of June 30, 2004, the
results of Fortress are accounted for on a consolidated basis.
OTHER INCOME AND EXPENSE
Net interest and other income from the sale of equipment and investments, offset
by foreign exchange losses, for the first nine months of fiscal 2004 was
$360,188 (of which $129,509 is other income reported by Fortress) as compared to
$601,475 during the first nine months of fiscal 2003. The decrease of $241,287
was primarily the result of a reduction in investment income of $164,129 and an
increase in foreign exchange losses of $94,466. The other income was offset by a
loss of $478,839 on the sale of the Company's precious and base metals
properties to Fortress. Also included in the other income is the
minority interest of $39,892, which represents the portion (36.9%) of Fortress'
net loss of $108,109 which is not attributable to the Company on a consolidated
basis.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2004, the Company had cash and short-term investments of $10,614,144
and working capital of $11,639,378 as compared to cash and short-term
investments of $4,729,039 and working capital of $7,294,884 at September 30,
2003. In the first nine months of fiscal 2004 the increase of $4,344,494 in
working capital was primarily due to the receipt of net proceeds from private
placements for 6.7 million common shares at a price of Cdn $1.50 per share and 2
million flow through common shares at a price of Cdn $1.10 per share, offset by
increased Canadian exploration activities and the investment in shares of JNR
Resources Inc.
Net cash used in operating activities was $851,187 for the first nine months of
fiscal 2004 and consisted primarily of the net loss from continuing operations
of $3,297,760, adjusted for non-cash items of depreciation of $342,388, offset
by a decrease in inventory of $605,504, and decreases in accounts payable and
accrued liabilities of $92,658. The decrease in accounts payable and accrued
liabilities reflects the payment of standard operating expenses during the
quarter.
Net cash used in investment activities was $3,235,490 for the nine months ended
June 30, 2004 and consisted primarily of expenditure on mineral properties.
Restricted investments increased by $271,918 as a result of interest income
during the quarter and the Company invested $723,226 in JNR Resources Inc.
during the first six months of fiscal 2004.
Net cash provided by financing activities for the nine months ended June 30,
2004 totaled $9,971,782 and consisted primarily of proceeds from the issuance of
8.7 million common shares and the minority interest.
CRITICAL ACCOUNTING ESTIMATES
The preparation of the Company's consolidated financial statements in conformity
with accounting principles in Canada and the United States requires management
to make estimates and assumptions regarding future events. These estimates and
assumptions affect the reported amounts of certain assets and liabilities, and
disclosure of contingent liabilities.
The most critical accounting principles upon which the Company's financial
status depends are those requiring estimates of the timing and amount of future
reclamation obligations and the recoverability of its capitalized mineral
property expenditures.
On an ongoing basis, management re-evaluates its estimates and assumptions.
However actual amounts could differ from those based on such estimates and
assumptions.
CONTRACTUAL OBLIGATIONS
The Company has a reclamation obligation of $12,507,614, the timing of which
will depend upon the Company's business objectives. While this reclamation
obligation was valued on the assumption that the Company must be able to fund
reclamation of the White Mesa Mill and U.S. mining operations at any time, the
Company currently has no intention of placing the Mill or U.S. mines into
reclamation in the foreseeable future.
The Company also has operating lease obligations of $112,000 for fiscal 2005 and
$34,000 for the following two fiscal years.
ENVIRONMENTAL RESPONSIBILITY
Each year, the Company reviews the anticipated costs of decommissioning and
reclaiming its Mill and mine sites as part of its environmental planning
process. The Company also formally reviews the Mill's reclamation estimate
annually with the U.S. Nuclear Regulatory Commission. The Mill and mine
reclamation estimates at June 30, 2004 are $12,507,614, which are currently
expected to be sufficient to cover the projected future costs for reclamation of
the Mill and mine operations. However, there can be no assurance that the
ultimate cost of such reclamation obligations will not exceed the estimated
liability contained in the Company's financial statements.
The Company has posted bonds as security for these liabilities and has deposited
cash, cash equivalents, and fixed income securities as collateral against these
bonds. For fiscal 2004 and 2003, the amount of these restricted investments
collateralizing the Company's reclamation obligations was $12,378,865 and
$12,106,947 respectively. The increase of $271,918 was due to interest income
from these investments.
As mentioned in previous reports, the Company had detected some chloroform
contamination at the Mill site that appeared to have resulted from the operation
of a temporary laboratory facility that was located at the site prior to and
during the construction of the Mill facility and from septic drain fields that
were used for laboratory and sanitary wastes prior to construction of the Mill's
tailings cells. In April 2003, the Company commenced an interim remedial program
of pumping the chloroform-contaminated water from the groundwater to the Mill's
tailings cells. This will enable the Company to begin clean up of the
contaminated areas and to take a further step towards resolution of this
outstanding issue. Although the investigations to date indicate that this
contamination appears to be contained in a manageable area, the scope and costs
of remediation have not yet been determined and could be significant.
RESEARCH AND DEVELOPMENT
The Company does not have a research and development program per se. Process
development efforts expended in connection with the processing of alternate
feeds are included as a cost of processing. Process development efforts expended
in the evaluation of potential alternate feed materials that are not ultimately
processed at the Mill are included in Mill overhead costs. The Company does not
rely on patents or technological licenses in any significant way in the conduct
of its business.
TREND INFORMATION
During the period 1997 through 2000, the Company saw a deterioration in both
uranium and vanadium prices, from $11.00 per pound of U(3)O(8) and $4.10 per
pound of V(2)O(5) in October 1997 to $7.40 per pound of U(3)O(8) and $1.70 per
pound of V(2)O(5) at the end of September, 2000. As a result of these decreases
in commodity prices, the Company decided to cease its uranium and
uranium/vanadium mining and exploration activities in 1999, and shutdown all of
its uranium and uranium/vanadium mines and its Mongolian Gurvan-Saihan Joint
Venture. The Company decided to marshal its resources and to concentrate its
operations primarily on the continuing development of the alternate feed,
uranium-bearing waste recycling business.
Beginning in July, 2003 uranium prices began to strengthen from $10.90 per pound
U(3)O(8) to $19.00 per pound U(3)O(8) as of August 20, 2004. As a result of
these price increases the Company acquired additional uranium exploration
properties in Canada in fiscal 2004 and has commenced an aggressive exploration
program on certain of those properties. In addition, the Company has recommenced
a preliminary reconnaissance exploration program on its Gurvan-Saihan Joint
Venture uranium project in Mongolia. In addition to the increases in uranium
price, vanadium prices are currently trading in the range of $5.00 to $6.25 per
pound V(2)O(5). With these higher uranium and vanadium prices, the Company has
initiated an internal study on the potential re-opening of its U.S. mining
operations.
Although the Mill's tailings system currently has capacity to process all of the
alternate feed materials under contract with the Company, this capacity is
expected to run out within the next one to three years, depending on the level
of success of the Company in entering into contracts for the processing of
additional feed materials or if the Mill begins processing conventional ore. In
order to provide additional tailings capacity, the Company will have to repair
existing tailings Cell No. 4A, at an estimated cost of $1.5-$3.0 million. In
addition, if Cell No. 4A is put into use, the reclamation obligation for the
Mill would increase by approximately $1.0 million, which would require an
increase in the Mill's reclamation bond by that amount. The repair of Cell No.
4A will provide the Company with approximately 2 million tons of additional
tailings capacity, which should be ample capacity for the foreseeable future.
OUTLOOK FOR 2004
With the recent increases in uranium price and the improvement in uranium market
fundamentals, the Company will be focusing more on acquisition and development
of world-class uranium projects, including its Canadian exploration properties,
while also continuing to aggressively pursue additional alternate feed material
for the White Mesa Mill.
Revenues for fiscal 2004 will be lower than those exhibited in 2003 due to the
decision to extend the Mill stand-by period until the beginning of fiscal 2005.
Currently, the Company is completing the confirmatory test work necessary for a
mill run early in fiscal 2005 in which three alternate feed materials,
containing nearly 500,000 pounds of uranium, would be processed. While no
further materials are anticipated to be shipped from the Linde site or from
other facilities through the remainder of the year, the Company is currently
pursuing projects from other commercial parties, which the Company expects will
result in the receipt of additional alternate feed materials in fiscal 2005.
In the first quarter of fiscal 2003, the Company entered into a joint venture
with Nuclear Fuel Services, Inc. ("NFS") for the pursuit of an alternate feed
program for the Company's Mill. The joint venture is carried out through Urizon
Recovery Systems, LLC, a 50/50 joint venture company. The Company and NFS are
investigating alternative commercial arrangements, and re-evaluating the
feasibility of the project, as a result of the Department of Energy's recent
decision not to fund the program at this time.
With higher uranium prices, the Company has restarted activity in Mongolia on
its Gurvan-Saihan Joint Venture, and has begun a study to evaluate the
feasibility of re-opening some of its U.S. mine sites.
In Canada, the Company's exploration program on its Moore Lake project, with JNR
Resources Inc., will continue throughout 2004 with additional drilling and
focused geophysical programs. In addition to the Moore Lake property, the
Company will expand its exploration program to other properties held 100% by the
Company or joint ventured with other companies and will continue to joint
venture or acquire additional properties in the Athabasca Basin.
RISKS AND UNCERTAINTIES
Exploration for and development of mineral properties involves significant
financial risks which even a combination of careful evaluation, experience and
knowledge may not eliminate. While discovery of an ore body may result in
substantial rewards, few properties which are explored are ultimately developed
into producing mines. Major expenditures may be required to establish reserves
by drilling, constructing mining and process facilities at a site, developing
metallurgical processes and extracting uranium and other metals from ore. It is
impossible to ensure that the current exploration programs of the Company will
result in profitable commercial mining operations.
Under the NRC's Alternate Feed Guidance, the Mill is required to obtain a
specific license amendment allowing for the processing of each new alternate
feed material. Various third parties have challenged certain of the Mill's
license amendments, although none of such challenges have been successful to
date. The Company intends to continue to defend its positions and the validity
of its license amendments and proposed license amendments. If the Company does
not ultimately prevail in any such actions and any
appeals therefrom, the Company's ability to process certain types of alternate
feeds, in certain circumstances, may be adversely affected, which could have a
significant impact on the Company.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in the foregoing Management's Discussion and
Analysis and elsewhere in this Report to Shareholders constitute forward-looking
statements. Such forward-looking statements involve a number of known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
the statements were made, and readers are advised to consider such
forward-looking statements in light of the risks set forth below.
Risk factors that could affect the Company's future results include, but are not
limited to, risks inherent in mineral exploration and development, competition,
environmental regulations, reliance on alternate feed income, the ability to
develop the alternate feed business, changes to reclamation requirements,
dependence on a limited number of customers, volatility and sensitivity to
market prices for uranium and vanadium, the impact of changes in foreign
currencies' exchange rates, political risk arising from operating in Mongolia,
changes in government regulation and policies including trade laws and policies,
demand for nuclear power, replacement of reserves and production, receipt of
permits and approvals from governmental authorities (including amendments for
each alternate feed transaction) and other operating and development risks.
INTERNATIONAL URANIUM CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNITED STATES DOLLARS)
JUNE 30, 2004 SEPTEMBER 30, 2003
(UNAUDITED) (AUDITED)
------------- ------------------
ASSETS
Current assets:
Cash and cash equivalents $ 9,524,184 $ 3,639,079
Short-term investments 1,089,960 1,089,960
Trade and other receivables 393,661 833,038
Inventories 1,155,430 1,761,368
Prepaid expenses and other 230,701 382,488
Due from Urizon Joint Venture 2,836 451,152
------------ ------------
12,396,772 8,157,085
Plant and equipment, net 2,783,266 2,825,238
Mineral properties 3,964,487 1,776,982
Marketable securities (Note 2) 723,226 -
Intangible assets 750,000 750,000
Restricted investments (Note 3) 12,378,865 12,106,947
------------ ------------
$ 32,996,616 $ 25,616,252
============ ============
LIABILITIES
Current liabilities:
Accounts payable and accrued liabilities $ 754,060 $ 847,729
Notes payable 3,334 14,472
------------ ------------
757,394 862,201
Notes payable, net of current portion 51,052 51,052
Reclamation obligations (Note 4) 12,507,614 12,320,983
Deferred revenue 2,591,162 2,158,938
Other long-term liability 99,593 98,582
Minority interest 1,138,766 -
------------ ------------
17,145,581 15,491,756
------------ ------------
SHAREHOLDERS' EQUITY
Share capital (77,890,066 and 68,970,066
shares issued and outstanding) 46,739,795 37,935,533
Value assigned to stock options (Note 7) 220,037 -
Deficit (31,108,797) (27,811,037)
------------ ------------
15,851,035 10,124,496
------------ ------------
$ 32,996,616 $ 25,616,252
============ ============
ON BEHALF OF THE BOARD
Ron F. Hochstein, Director Lukas H. Lundin, Director
INTERNATIONAL URANIUM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(UNITED STATES DOLLARS) (UNAUDITED)
THREE MONTHS ENDED JUNE 30 NINE MONTHS ENDED JUNE 30
2004 2003 2004 2003
------------ ------------ ------------ ------------
OPERATIONS
Revenue
Vanadium $ - $ - $ 1,582,628 $ -
Process milling - 3,280,601 31,452 12,372,505
Engineering services - - 421,182 -
------------ ------------ ------------ ------------
Total revenue - 3,280,601 2,035,262 12,372,505
------------ ------------ ------------ ------------
Costs and expenses
Vanadium cost of sales - - 696,905 -
Process milling expenditures 3,239 1,016,566 76,694 4,511,587
Mill stand-by expenditures 601,335 250,443 1,805,684 250,443
Selling, general and administrative 812,273 926,625 2,429,498 2,136,478
Stock based compensation - - 220,037 -
Exploration general (86,160) 111,984 5,470 192,669
Write-down of mineral properties (37,162) - - -
Gain on disposition of other asset - - - (79,000)
Depreciation 6,598 8,190 19,978 25,278
------------ ------------ ------------ ------------
1,300,123 2,313,808 5,254,266 7,037,455
------------ ------------ ------------ ------------
Operating income (loss) (1,300,123) 966,793 (3,219,004) 5,335,050
Net interest and other income 126,103 149,197 354,992 518,382
Gain (loss) on sale of equipment and investments 59,051 10,424 99,665 83,093
Loss on sale of subsidiary (478,839) - (478,839) -
Foreign exchange gain (loss) (122,831) (538) (94,466) -
Minority interest 39,892 - 39,892 -
------------ ------------ ------------ ------------
Net (loss) income for the period (1,676,747) 1,125,876 (3,297,760) 5,936,525
============ ============ ============ ============
Basic and diluted (loss) income per share $ (0.02) $ 0.02 $ (0.04) $ 0.09
============ ============ ============ ============
Basic weighted average number of shares outstanding 77,872,923 68,178,794 75,609,480 66,389,257
DEFICIT
Deficit, beginning of period (29,432,050) (28,533,540) (27,811,037) (33,344,189)
Net (loss) income for the period (1,676,747) 1,125,876 (3,297,760) 5,936,525
------------ ------------ ------------ ------------
DEFICIT, END OF PERIOD $(31,108,797) $(27,407,664) $(31,108,797) $(27,407,664)
============ ============ ============ ============
INTERNATIONAL URANIUM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNITED STATES DOLLARS) (UNAUDITED)
THREE MONTHS ENDED JUNE 30 NINE MONTHS ENDED JUNE 30
2004 2003 2004 2003
----------- ----------- ----------- -----------
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net (loss) income for the period $(1,676,747) $ 1,125,876 $(3,297,760) $ 5,936,525
Items not affecting cash
Depreciation and amortization 112,836 143,988 342,388 491,718
Gain on sale of equipment (20,330) (13,939) (60,944) (93,364)
Gain on sale of short-term investments - - - (121,806)
Gain on disposition of other asset - - - (79,000)
Write-down of mineral properties (37,162) - -
Changes in non-cash working capital items
Decrease (increase) in trade and other receivables 1,371,286 (405,470) 887,693 (958,091)
(Increase) decrease in inventories (31,083) (139,868) 605,938 (140,133)
Decrease in other current assets 19,306 66,225 151,787 176,055
Increase (decrease) in other accounts payable and
accrued liabilities 195,910 123,276 (92,658) 229,595
Increase (decrease) in deferred revenue 233,944 (2,418,906) 432,224 (9,405,263)
Minority interest (39,892) - (39,892) -
Stock based compensation - 220,037
----------- ----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATIONS 128,068 (1,518,818) (851,187) (3,963,764)
----------- ----------- ----------- -----------
INVESTING ACTIVITIES
Purchase plant and equipment (42,065) (8,243) (113,786) (67,152)
Mineral properties (654,842) (217,919) (2,187,505) (464,321)
Purchase of intangible asset - - - (750,000)
Proceeds from sale of short-term investments - 996,675 - 2,373,935
Proceeds from sale of surplus equipment 20,330 12,054 60,944 103,054
Purchase of marketable securities - - (723,225) (996,675)
(Increase) decrease in restricted investments (90,805) (113,602) (271,918) 654,948
----------- ----------- ----------- -----------
NET CASH (USED IN) PROVIDED BY INVESTMENT ACTIVITIES (767,382) 668,965 (3,235,490) 853,789
----------- ----------- ----------- -----------
FINANCING ACTIVITIES
Decrease in notes payable (4,859) (3,410) (11,138) (9,217)
Settlement of other asset - - - (280,000)
Issuance of common shares - - 8,747,097 -
Minority interest 1,178,658 - 1,178,658 -
Exercise of stock options 5,450 357,242 57,165 430,786
----------- ----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,179,249 353,832 9,971,782 141,569
----------- ----------- ----------- -----------
Increase (decrease) in cash and cash equivalents 539,935 (496,021) 5,885,105 (2,968,406)
Cash and cash equivalents, beginning of period 8,984,249 4,238,397 3,639,079 6,710,782
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,524,184 $ 3,742,376 $ 9,524,184 $ 3,742,376
=========== =========== =========== ===========
INTERNATIONAL URANIUM CORPORATION
Notes to Consolidated Financial Statements
(United States Dollars) (Unaudited)
1. Basis of Preparation of Financial Statements
These unaudited interim consolidated financial statements of the Company,
its subsidiaries and Fortress Minerals Corp., which the Company holds a
63.1% interest in, have been prepared in accordance with accounting
principles generally accepted in Canada on a basis consistent with the
consolidated financial statements of the Company included in its 2003
annual report.
These unaudited interim consolidated financial statements follow the same
accounting policies as the most recent audited annual consolidated
financial statement of the Company. They do not contain all of the
information required by generally accepted accounting principles for
annual financial statements and therefore should be read in conjunction
with the consolidated financial statements included in the Company's 2003
annual report.
2. Marketable securities
The Company has invested in total $723,226 in JNR Resources Inc. during
fiscal 2004 representing approximately 6% of the shares outstanding of JNR
Resources Inc. As at June 30, 2004 the market value of the investment was
$1,208,655 (U.S.)
3. Restricted Investments
Amounts represent cash and fixed income securities the Company has placed
on deposit to secure its reclamation and performance bonds (Note 3).
June 30, 2004 September 30, 2003
------------- ------------------
Cash and cash equivalents $ 2,907,449 $ 2,177,688
Fixed income securities 9,471,416 9,929,259
----------- -----------
$12,378,865 $12,106,947
=========== ===========
4. Provisions for Reclamation
Estimated future decommissioning and reclamation costs of the Mill and
U.S. mining properties are based principally on legal and regulatory
requirements. At June 30, 2004, $12,507,614 was accrued for reclamation
costs, and this amount also includes the bond posted in favor of the
United States Nuclear Regulatory Commission and the applicable state
regulatory agencies as partial security for these liabilities. The Company
has deposited cash and fixed income securities on account of these
obligations.
Elements of uncertainty in estimating reclamation and decommissioning
costs include potential changes in regulatory requirements,
decommissioning and reclamation alternatives and the scope of reclamation
activities. Actual costs will differ from those estimated and such
differences may be material.
5. Share Capital
a. Authorized - unlimited number of common shares.
b. Issued and outstanding
Shares
June 30, 2004 September 30, 2003
------------- ------------------
Beginning of period 68,970,066 65,735,066
Employee stock options exercised 220,000 3,235,000
Private placements 8,700,000 -
---------- ----------
End of period 77,890,066 68,970,066
========== ==========
Amount
June 30, 2004 September 30, 2003
------------- ------------------
Beginning of period $37,935,533 $37,466,609
Employee stock options exercised 57,165 469,924
Private placements 8,747,097 -
----------- -----------
End of period $46,739,795 $37,935,533
=========== ===========
6. Minority interest
During the third quarter ended June 30, 2004, the Company transferred all
its Mongolian precious and base metals exploration properties to Fortress
Minerals Corp. in return for 28 million common shares of Fortress Minerals
Corp., representing 63.1% of the then issued and outstanding shares. This
interest gives the Company a minority interest of $1,178,658. The Company
incurred a loss of $478,839 on the transfer of the properties.
7. Stock options
The Company has adopted a stock option plan under which the Board of
Directors may from time to time grant to directors, officers, key
employees and consultants of the Company, options to purchase shares of
the Company's common stock. These options are intended to advance the
interests of the Company by providing eligible persons with the
opportunity, through share options, to acquire an increased proprietary
interest in the Company. Options granted under the share option plan have
an exercise price equal to the fair market value of such shares on the
date of grant. All outstanding options granted to date vest immediately
and expire three years from the date of the grant of the option.
Stock options outstanding and exercisable as of June 30 2004 were as
follows:
Options Outstanding and Exercisable
--------------------------------------------------------------------------------
Average Remaining Weighted Average
Number Outstanding Contractual Life (Years) Exercise Price Per Share
--------------------------------------------------------------------------------
200,000 0.54 Cdn $0.30
250,000 1.28 Cdn $0.31
1,875,000 2.41 Cdn $1.01
10,000 2.54 Cdn $1.36
100,000 2.71 Cdn $2.43
--------------------------------------------------------------------------------
2,435,000 2.15 Cdn $0.94
================================================================================
For income statement purposes the Company has elected in accordance with
CICA Handbook, Section 3870, to only expense stock-based compensation for
non-employees, but not directors, officers and employees of the Company.
In the first quarter of fiscal 2004, the Company expensed stock based
compensation for non-employees in the amount of $220,037, which has been
credited to value assigned to stock options. The compensation expense for
the non-employees and the fair values of options included in pro-forma
amounts below, have been estimated using an option-pricing model.
Assumptions used in the pricing model are as follows:
Dividend yield 0%
Average risk free interest rate 3.12%
Expected volatility 65%
Expected life of options 3 years
Had the Company followed the fair value method of accounting the Company
would have recorded additional compensation expense of $3,370 for the
third quarter of fiscal 2004 and $724,975 for first nine months of fiscal
2004 in respect of its employee and director stock options. Pro forma
earnings information determined under the fair value method of accounting
for stock options is as follows:
3 Months Ended 9 Months Ended
June 30, 2004 June 30, 2004
-------------- --------------
Net loss as reported $(1,676,747) $(3,297,760)
Compensation expense $ (3,370) $ (724,975)
Pro forma $(1,680,117) $(4,022,735)
Basic and diluted loss per share:
As reported $ (0.02) $ (0.04)
Pro forma $ (0.02) $ (0.05)
Net income or loss per share was calculated on the basis of the weighted
average number of shares outstanding for the year. The weighted average
number of shares outstanding for the nine months to June 30, 2004 was
75,609,480.
Changes in the subjective input assumptions can materially affect the fair
value estimate, and therefore the existing models do not necessarily
provide a reliable single measure of the fair value of the Company's stock
options.
8. Segmented Information
a. Geographic information
Nine Months Ending
June 30, 2004 June 30, 2003
------------- -------------
Revenue
United States $2,035,262 $12,372,505
---------- -----------
$2,035,262 $12,372,505
========== ===========
Nine Months Ending
June 30, 2004 June 30, 2003
------------- -------------
Net Income (loss)
Canada $ (926,273) $ (207,778)
United States (2,156,801) 6,530,177
Mongolia (214,686) (385,874)
----------- ----------
$(3,297,760) $5,936,525
=========== ==========
At June 30, 2004 At September 30, 2003
---------------- ---------------------
Total assets
Canada $ 9,273,899 $ 465,510
United States 22,747,544 23,047,594
Mongolia 975,173 2,103,148
----------- -----------
$32,996,616 $25,616,252
=========== ===========
9. Contingency
In the first quarter of fiscal 2004, the Company received a demand and
threat of pursuit of litigation in respect of alleged preferential
payments by a former customer, in the amount of approximately $1.2
million, that were paid pursuant to certain contracts with the Company.
The former customer filed for bankruptcy under Chapter 11 of the U.S.
Bankruptcy Code in January, 2002. That company subsequently sold
substantially all of its assets to The Shaw Group, Inc. ("Shaw"), who
assumed the contracts in question and is now performing the contracts with
the Company. In May 2004 the Company received a formal Complaint under the
bankruptcy proceedings, demanding that any such preferential payments be
returned to the bankrupt's estate, unless the Company can demonstrate that
such payments were made under contracts that were assumed by Shaw. The
Company continues to dispute this claim and is currently in the process of
providing such evidence to the bankrupt's estate in order to bring this
matter to a resolution.