2008 ANNUAL REPORT
2008 Annual Report
www.uraniumparticipation.com
To Our Shareholders,
Fiscal 2008 has been a year of growth in our uranium holdings and volatility in the spot price of uranium.
The Company increased its uranium investment portfolio during the year by acquiring 275,000 pounds
U3O8 at an average price of US$130.00 per pound and 467,230 KgU as UF6 at an average price of
US$228.20. At February 29, 2008, the Company holds 4,475,000 pounds of U3O8 at an average cost of
$43.39 per pound and 1,417,230 KgU as UF6 at an average cost of $181.18 per KgU. The market value
of all uranium is $597,796,000 with a cost of $450,946,000. Uranium spot prices began the year at
US$85.00 per pound U3O8 and US$233.00 per KgU of UF6 and closed the year down to US$73.00 per
pound U3O8 and US$200.00 per KgU as UF6. During the year, the spot prices showed much volatility and
peaked at US$136.00 per pound U3O8 and US$360.00 per KgU as UF6 in June 2007. Throughout this
period, the long-term price as quoted by Ux Consulting, LLP has remained steady at $95.00 per pound
U3O8.
Despite the recent spot price volatility, we continue to believe that the long-term outlook for uranium
prices is positive. We believe that the spot price for uranium is at or near the bottom of the current price
cycle, although this is getting much tougher to predict because of the recent involvement of hedge funds
and the changing role of one of the large trading companies. Uranium is used primarily for nuclear power
production. The low operating cost for nuclear power generation and the increasing concern for the
environment and climate change are driving a nuclear renaissance. The world’s operating nuclear power
per year. As nuclear power capacity
reactors require approximately 180 million pounds of U3O8
increases, uranium fuel requirements also increase and is estimated to rise 2% to 3% each year through
2020. 2007 annual mine production is estimated to be 107 million pounds U3O8. Secondary sources of
supply, which include inventories held by producers and utilities, government inventories, uranium
recycled from government stockpiles and uranium recycled from nuclear weapons, make up the
difference between current demand and supply. These secondary supply sources are finite. Based upon
recent assessments of future secondary uranium supply, the uranium industry’s current mine production
and expected nuclear generating capacity, there is a growing requirement for increased uranium
production to meet the forecast needs of reactors world-wide. The tight market conditions are expected
to result in strong uranium prices for the foreseeable future.
The net asset value of the Company as determined using the Ux Consulting, LLP quoted spot price of
uranium was $582.5 million at February 29, 2008 up from $579.4 million at February 28, 2007. However,
basic net asset value per share decreased by $2.99 to $8.96 from $11.95 at February 28, 2007 which
reflected the decrease in the value of our uranium assets based upon the quoted spot price at the end of
the year. Revenue from investment lending was $7.0 million from the loan of 500,000 KgU as UF6
entered into in fiscal 2007.
Expenses from the year totaled $9.4 million of which $2.2 million was transaction costs from the purchase
of additional uranium and $3.4 million was foreign exchange losses. The Company also recorded a
future tax recovery of $55.7 million related to the decrease in net assets for the year.
Despite the volatile uranium price, market acceptance of Uranium Participation Corporation has remained
strong. In April 2007, the Company issued 6.5 million shares at $14.60 per share raising gross proceeds
of $94.9 million. In October 2007, the Company issued 5.1 million shares at $11.20 raising gross
proceeds of $57.5 million. Subsequent to year end, in March 2008, the Company issued 7.3 million
shares at $10.20 raising gross proceeds of $74.8 million.
Your company will continue to provide a vehicle for equity investment in uranium. The spot price for
uranium will continue to have some volatility in the near future but the market dynamics dictate a
narrowing of the gap between the spot price and the long term price. We would expect the spot price to
increase fairly significantly by this time next year.
E. Peter Farmer
President
April 25, 2008
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Uranium Participation Corporation
Annual Management Report of Fund Performance
February 29, 2008
DISCLOSURE
This Annual Management Report of Fund Performance contains financial highlights but does not
contain the complete Audited Annual Financial Statements of Uranium Participation Corporation
(“Uranium Corp” or “Corporation”). You can get a copy of the Audited Annual Financial
Statements at your request, and at no cost, by calling 416-979-1991, by writing to us at 595 Bay
Street, Suite 402, Toronto, Ontario, M5G 2C2, or by visiting our website at
www.uraniumparticipation.com or SEDAR at www.sedar.com. You may also contact us to obtain
a copy of Uranium Corp’s quarterly portfolio disclosure.
Uranium Corp holds physical commodities and not equity security investments. As a result,
Uranium Corp does not have an investment proxy voting disclosure record, nor does it have
proxy voting policies and procedures.
This Annual Management Report of Fund Performance is current as of April 25, 2008. All
amounts are in Canadian dollars unless otherwise indicated.
CAUTION REGARDING FORWARD LOOKING INFORMATION
This Annual Management Report of Fund Performance contains certain forward looking
statements and forward looking information that are based on the company’s current internal
expectations, estimates, assumptions and beliefs. Forward looking statements generally can be
identified by the use of forward looking terminology such as “may”, “will”, “expect”, “intent”,
“estimate”, “anticipate”, “plan”, “should”, “believe” or “continue” or the negative thereof or
variations thereon or similar terminology.
By their very nature, forward looking statements involve numerous assumptions and estimates. A
variety of factors, many of which are beyond the control of Uranium Corp, may cause actual
results to differ materially from the expectations expressed in the forward looking statements.
See “RISK FACTORS” included later in the Annual Management Report of Fund Performance for
a further description of the principal risks of Uranium Corp.
These and other factors should be considered carefully, and readers are cautioned not to place
undue reliance on these forward looking statements. Although management reviews the
reasonableness of its assumptions and estimates, unusual and unanticipated events may occur
which render them inaccurate. Under such circumstances, future performance may differ
materially from those expressed or implied by the forward looking statements. Except where
required under applicable securities legislation, Uranium Corp does not undertake to update any
forward looking information.
URANIUM PARTICIPATION CORPORATION
Uranium Corp was incorporated on March 15, 2005 under the Ontario Business Corporations Act.
Uranium Corp was created to invest in, hold and sell uranium oxide in concentrates (“U3O8”) and
uranium hexafluoride (“UF6”) (collectively “uranium”). Uranium Corp invests in and holds physical
uranium through its wholly-owned subsidiaries, Uranium Participation Alberta Corp. and Uranium
Participation Cyprus Limited (the “Subsidiaries”). Uranium Participation Alberta Corp. was
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incorporated on May 4, 2005 under the Alberta Business Corporations Act and Uranium
Participation Cyprus Limited (“UPCL”) was incorporated on September 10, 2006 under the laws
of the Republic of Cyprus. In August 2007, UPCL obtained a business license and established a
branch office in Luxembourg through which the operations of UPCL are conducted. Unless
otherwise indicated or where the context otherwise requires, references to “Uranium Corp” or the
“Corporation” includes the Subsidiaries.
Uranium Corp is governed by its board of directors (the “Board of Directors”) and administered by
Denison Mines Inc. (the “Manager”) pursuant to a management services agreement (the
“Management Services Agreement”).The common shares of Uranium Corp trade publicly on the
Toronto Stock Exchange under the symbol “U”.
Uranium Corp established an Independent Review Committee (“IRC”) from its qualified
independent Board members in October 2007. The IRC has adopted a mandate that provides
that the IRC must provide a recommendation or approval of transactions in which there is a
conflict of interest between the Corporation and its Manager, as contemplated by National
Instrument 81-107, Independent Review Committee for Investment Funds of the Canadian
Securities Administrators (“NI 81-107”). The IRC will prepare a report to shareholders on at least
the Corporation’s website at
an annual basis.
www.uraniumparticipation.com and is also available to shareholders at no cost by contacting the
Corporation at info@uraniumparticpation.com.
report will be available on
The
Uranium Corp is an investment fund as defined by the Canadian securities regulatory authorities
in National Instrument 81-106 “Investment Fund Continuous Disclosure”. Unlike many
investment funds, Uranium Corp does not qualify as a mutual fund trust under the provisions of
the Income Tax Act (Canada) (the “Act”) and, accordingly, follows the general corporate income
tax provisions of the Act.
INVESTMENT OBJECTIVES AND STRATEGY
The primary investment objective of Uranium Corp is to achieve long-term appreciation in the
value of its uranium holdings through a buy and hold investment strategy and not actively
speculate with regard to short-term changes in uranium prices. While it is not the current
intention of Uranium Corp to do so in the short term, it may subsequently sell some or all of its
uranium holdings. Ownership of the corporation’s common shares represents an indirect interest
in ownership of physical uranium. This provides an investment alternative for investors interested
in investing in these commodities without incurring the risks associated with investments in
companies that explore for, mine and process uranium related products.
In implementing the investment strategy of the corporation, at least 85% of the gross proceeds of
any common share offerings will be invested in, or set aside for future purchases of uranium. In
strictly limited circumstances, the Corporation can enter into borrowing arrangements to facilitate
the purchases of uranium where the current cash on hand is not adequate to cover such
commitments. The maximum amount of any such borrowing cannot exceed 15% of the net
assets of Uranium Corp. The corporation may also enter into uranium lending transactions in
order to earn additional returns.
For a more detailed description of the corporation’s investment policies and by-laws, please refer
to the Company’s Annual Information Form available on SEDAR.
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INVESTMENT RISK
There are a number of factors that could negatively affect Uranium Corp.’s business and the
value of Uranium Corp’s securities, including the factors listed below. Such factors could
materially affect the Corporation’s future operating results and could cause actual events to differ
materially from those described in forward-looking statements relating to the Corporation. The
following information pertains to the outlook and conditions currently known to Uranium Corp that
could have a material impact on the financial condition of Uranium Corp. This information, by its
nature, is not all-inclusive. It is not a guarantee that other factors will not affect Uranium Corp in
the future.
Uranium Price Volatility from Demand and Supply Factors
Since almost all of Uranium Corp’s activities involve investing in uranium, the value of its
securities will be highly sensitive to fluctuations in the spot prices of uranium. Historically, the
fluctuations in these prices have been, and will continue to be, affected by numerous factors
beyond Uranium Corp’s control. Such factors include, among others: demand for nuclear power;
improvements in nuclear reactor efficiencies; reprocessing of used reactor fuel and the re-
enrichment of depleted uranium tails; sales of excess civilian and military inventories (including
from the dismantling of nuclear weapons) by governments and industry participants; purchases
and sales by brokers and traders of uranium; and production levels and production costs in key
uranium producing countries.
Since UF6 is a different commodity than U3O8, its price is affected by its own supply/demand
balance as well as the supply/demand balances of U3O8 and for conversion services. As a result,
the UF6 price may move differently than the spot price of U3O8 or the spot conversion price alone.
The factors that affect the UF6 price will affect the net asset value per common share (“NAV”) of
the Corporation, which in turn may affect the price of the Corporation's securities.
Set out in the table below is the spot price for U3O8 per pound, and the UF6 price per KgU at
December 31 for the five calendar years ended December 31, 2007, and as at February 29,
2008(1).
U3O8
UF6
2003
$14.50
$43.14(2)
2004
$20.70
$63.09(2)
December 31
2005
$36.25
$105.00
2006
$72.00
$199.00
2007
$90.00
$240.00
February 29
2008
$73.00
$200.00
(1) As published by UxCo in U.S. dollars.
(2) UF6 prices for 2003 and 2004 were not published by UxCo. Amounts shown for those years are the UF6 value,
which is obtained by adding (i) the spot price for U3O8 multiplied by 2.61285; and (ii) the spot conversion price of
UF6.
No Public Market for Uranium
There is no public market for the sale of uranium. The uranium futures market on NYMEX does not
provide for physical delivery of uranium, only cash on settlement; and the trading forum by certain
buyers does not offer a formal market but rather facilitates the introduction of buyers to sellers.
Uranium Corp may not be able to acquire uranium, or once acquired, sell uranium for a number of
months. The pool of potential purchasers and sellers is limited and each transaction may require the
negotiation of specific provisions. Accordingly, a purchase or sale cycle may take several months to
complete. In addition, as the supply of uranium is limited, with average spot market sales over the last
ten years being only approximately 22 million pounds of U3O8 per year, Uranium Corp may
experience additional difficulties purchasing uranium in the event that it is a significant buyer. The
inability to purchase and sell on a timely basis in sufficient quantities could have a material adverse
effect on the securities of Uranium Corp.
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From time to time, the Corporation enters into commitments to purchase U3O8 or UF6. Such
commitments are generally subject to conditions in favour of both the vendor and the Corporation,
and there is no certainty that the purchases contemplated by such commitments will be
completed.
Uranium Industry Competition and International Trade Restrictions
The international uranium industry, including the supply of uranium concentrates, is competitive.
Supplies are available from a relatively small number of western world uranium mining
companies, from certain republics of the former Soviet Union and the People’s Republic of China,
from excess inventories, including inventories made available from decommissioning of nuclear
weapons, from reprocessed uranium and plutonium, from used reactor fuel, and from the use of
excess Russian enrichment capacity to re-enrich depleted uranium tails held by European
enrichers in the form of UF6. The supply of uranium from Russia and from certain republics of the
former Soviet Union is, to some extent, impeded by a number of international trade agreements
and policies. These agreements and any similar future agreements, governmental policies or
trade restrictions are beyond the control of the Corporation and may affect the supply of uranium
available for sale and use in the United States and Europe, which are the largest markets for
uranium in the world.
Foreign Exchange Rates
Uranium Corp maintains its accounting records, reports its financial position and results, pays
certain operating expenses and its securities trade in Canadian currency. As the prices of
uranium are quoted in U.S currency, fluctuations in the U.S. currency exchange rate relative to
the Canadian currency can significantly impact the valuation of uranium and the associated
purchase price from a Canadian currency perspective. Because exchange rate fluctuations are
beyond Uranium Corp’s control, there can be no assurance that such fluctuations will not have an
adverse effect on Uranium Corp’s operations or on the trading value of its common shares or its
outstanding warrants.
Risks Associated with the Facilities
Under the Management Services Agreement, the Manager is required to arrange for all uranium
to be stored at licensed uranium conversion or enrichment facilities (the “Facilities”) and to ensure
that the Facilities provide satisfactory indemnities for the benefit of Uranium Corp or ensure that
Uranium Corp has the benefit of insurance arrangements obtained on standard industry terms.
There is no guarantee that either the indemnities or insurance in favour of Uranium Corp will fully
cover or absolve Uranium Corp in the event of loss or damage. Uranium Corp may be financially
and legally responsible for losses and/or damages not covered by indemnity provisions or
insurance. Such responsibility could have a material adverse effect on the financial condition of
Uranium Corp.
All uranium is stored at licensed Facilities. As the number of duly licensed Facilities is limited,
there can be no assurance that new arrangements that are commercially beneficial to Uranium
Corp will be readily available. Failure to negotiate commercially reasonable storage terms with
the Facilities may have a material adverse effect on the financial condition of Uranium Corp.
Lack of Operational Liquidity
The expenses of Uranium Corp are funded from cash on hand that is not otherwise invested in
uranium and revenue from the lending of uranium. Once such cash available has been
expended, Uranium Corp may either generate cash from the lending or sale of uranium, or the
sale of additional equity securities, which includes the exercise of outstanding warrants. There is
no guarantee that Uranium Corp will be able to sell additional equity or equity related securities
on terms acceptable to Uranium Corp in the future, that the outstanding warrants will be
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exercised, that Uranium Corp will be able to sell uranium in a timely or profitable manner or that
Uranium Corp will be able to generate revenue through lending arrangements.
Competition from Other Energy Sources and Public Acceptance of Nuclear Energy
Nuclear energy competes with other sources of energy, including oil, natural gas, coal and hydro-
electricity. These other energy sources are to some extent interchangeable with nuclear energy,
particularly over the longer term. Sustained lower prices of oil, natural gas, coal and hydro-
electricity, as well as the possibility of developing other low cost sources for energy, may result in
lower demand for uranium.
Furthermore, growth of the uranium and nuclear power industry will depend upon continued and
increased acceptance of nuclear technology as a means of generating electricity. Because of
unique political, technological and environmental factors that affect the nuclear industry, the
industry is subject to public opinion risks which could have an adverse impact on the demand for
nuclear power and increase the regulation of the nuclear power industry. An accident at a nuclear
reactor anywhere in the world could impact on the continued acceptance by the public and
regulatory authorities of nuclear energy and the future prospects for nuclear generators, which
could have a material adverse effect on Uranium Corp.
Lack of Investment Liquidity
Uranium Corp is not a mutual fund, and an investment in its common shares and warrants is not
redeemable. Uranium Corp's liquidity will rely principally on sales or lending by Uranium Corp of
uranium. Accordingly, Uranium Corp may not have the resources to declare any dividends or
make other cash distributions unless and until a determination is made to sell a portion of its
uranium holdings.
Since inception, the Corporation has not declared any dividends and the Corporation has no
current intention to declare any dividends.
Net Asset Value
The net asset value reported by Uranium Corp is based on the spot price of uranium published by
UxCo. Accordingly, the net asset value may not necessarily reflect the actual realizable value of
uranium held by Uranium Corp.
The NAV is calculated by deducting the Corporation’s liabilities from its assets as at the relevant
period end and dividing the result by the number of common shares outstanding. These liabilities
include liabilities for future income taxes. Unlike most investment funds, the Corporation does not
qualify as a mutual fund trust, and, accordingly, follows general income tax provisions of the
Canadian Income Tax Act.
The exercise of the outstanding warrants will have a dilutive effect on the NAV in the event that
the NAV exceeds the exercise price of these warrants. As at February 29, 2008, the September
2006 equity unit warrants (the “2006 Warrants”) were not dilutive to the NAV of the Corporation.
The 2006 Warrants expire on September 14, 2008 and have an exercise price of $12.00.
Market Price of Common Shares
It appears that the market price of the common shares is related to the NAV. Uranium Corp
cannot predict whether the common shares will, in the future, trade above, at or below the NAV.
The market price of the common shares and any outstanding warrants may also be affected by
the management expense ratio, which is calculated for each reporting period as the total
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investment operation expenses (including income tax provisions) for the period over the average
net asset value of the Corporation.
Reliance on Board of Directors and Manager
Uranium Corp is a self-governing corporation that is governed by the Board of Directors
appointed and elected by the holders of common shares. Uranium Corp will, therefore, be
dependent on the services of its Board for investment decisions and the Manager for
management services.
Resignation by Manager
The Manager may terminate the Management Services Agreement after the initial term in
accordance with the terms thereof. Uranium Corp may not be able to readily secure similar
services to, or at management fees comparable to those under the Management Services
Agreement, and its operations may therefore be adversely affected.
Conflict of Interest
Directors and officers of Uranium Corp may provide investment, administrative and other services
to other entities and parties. The directors and officers of Uranium Corp have devoted, and have
undertaken to devote, such reasonable time as is required to properly fulfill their responsibilities in
respect to the business and affairs of Uranium Corp as they arise from time to time.
Uranium Lending
The Corporation has and may enter again into uranium lending arrangements. It has, and will in
the future, ensure that adequate security is provided for any loaned uranium. However, there is a
risk that the borrower may not be able to return the uranium and may, in lieu, repay the equivalent
value of borrowed uranium in cash. In such circumstances, given the limited supply of U3O8 and
UF6, the Corporation may not be able to replace the uranium loaned from its portfolio.
Regulatory Change
Uranium Corp may be affected by changes in regulatory requirements, customs, duties or other
taxes. Such changes could, depending on their nature, benefit or adversely affect Uranium Corp.
RESULTS OF OPERATIONS
Uranium Corp’s basic NAV decreased from $11.95 per share at February 28, 2007 to $8.96 at
February 29, 2008 representing a basic NAV loss of 25.0%. Over the comparable time period,
Uranium Corp’s benchmark, the S&P/TSX Composite Index, increased by 4.1%.
Uranium Corp’s net assets at February 29, 2008 were $582,545,000 representing a 0.5%
increase from the net assets of $579,364,000 at February 28, 2007. Of the net asset value
increase of $3,181,000 over the period, $177,926,000 was attributable to the after-tax net
proceeds of additional equity issues and warrant exercises, offset by a $174,745,000 decrease in
investment operation performance.
Equity Financing
In April 2007, Uranium Corp issued 6,500,000 shares at $14.60 per share for gross proceeds of
$94,900,000.
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In October 2007, Uranium Corp issued 5,134,750 shares at $11.20 per share for gross proceeds
of $57,509,000.
As at February 29, 2008, Uranium Corp had 64,991,841 common shares and 2,828,799 warrants
issued and outstanding. The outstanding warrants were issued in September 2006 and are
exercisable into common shares at $12.00 per warrant.
Since inception, Uranium Corp has raised gross proceeds of $468,660,000 through common
share and equity unit financings and $31,136,000 from the exercise of warrants. Uranium Corp
invested $450,946,000 or 90.2% of these amounts into its portfolio of uranium investments.
Investment Portfolio
During the year, Uranium Corp increased its U308 holdings by 275,000 pounds, raising its total
holdings to 4,475,000 pounds at February 29, 2008. The total average cost of this investment
was $194,180,000 or $43.39 per pound. The fair value of this investment at February 29, 2008
was $320,076,000 or $71.53 (1) per pound, representing an increase of 64.8%. On a U.S dollar
basis, the fair value of this investment has increased by 95.4%.
During the year, Uranium Corp increased its UF6 holdings by 467,230 KgU, raising its total
holdings to 1,417,230 KgU at February 29, 2008. The total average cost of this investment was
$256,766,000 or $181.18 per KgU. The fair value of this investment at February 29, 2008 was
$277,720,000 or $195.96 (1) per KgU, representing an increase of 8.2%. On a U.S dollar basis,
the fair value of this investment has increased by 20.0%.
The Company entered into a lending arrangement effective January 1, 2007 to loan 500,000 KgU
as UF6 to a producer for a period of three years. This arrangement will generate loan fee
revenues and reduce storage costs and is collateralized by an irrevocable letter of credit.
(1) Reflects spot prices published by Ux Consulting Company, LLC on February 25, 2008 of US$73.00 per pound for
U308 and US$200.00 per KgU for UF6 translated at a foreign exchange rate of 0.9798.
Investment Performance
Investment operation results of a $174,745,000 loss for the year ended February 29, 2008 have
been largely driven by unrealized losses on uranium investments of $228,594,000 net of tax
recovery movements of $55,738,000.
Unrealized losses on investments are reflective of the spot price volatility experienced in the year
with U308 prices starting the year at US$85.00 per pound, rising to a high of US$136.00 in June
2007 before dropping to close the financial year at US$73.00, as reported by Ux Consulting
Company, LLC (“UxCo”). Similarly, UF6 spot prices experienced the same volatility climbing from
US$233.00 at the start of the year to its peak of US$360.00 in June 2007 prior to closing the year
at US$200.00. Prices have dropped subsequent to this reporting date (refer to “RECENT
DEVELOPMENTS” section below).
Uranium Corp does not qualify as a mutual fund trust under the provisions of the Canadian
Income Tax Act and therefore it is subject to income tax on its taxable income, computed in
accordance with the ordinary rules and at rates ordinarily applicable to public corporations.
Currently, Uranium Corp accrues future income taxes payable based on the unrealized gains on
investments. Tax recovery movements reflect an effective tax rate of approximately 24 percent for
the year compared to provision movements of approximately 25 percent in the prior year.
Uranium investments made through its wholly owned subsidiary, UPCL, and substantively
enacted corporate tax rate reductions in Canada caused the decline in Uranium Corp’s effective
future tax rate. The resulting revaluation of Uranium Corp’s future tax assets and liabilities using
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the substantively enacted lower tax rates of between 3% and 29% have resulted in a favourable
impact on the in period effective tax rate.
RECENT DEVELOPMENTS
In February 2008, the Manager agreed to purchase, for and on behalf of Uranium Corp, 900,000
pounds of U3O8 for a total price of US$64,900,000 (excluding commissions). 200,000 pounds of
this purchase was delivered in March 2008 with the remainder anticipated to be delivered on or
before May 31, 2008.
In March 2008, the Manager agreed to purchase, for and on behalf of Uranium Corp, 75,000 KgU
as UF6 for a total price of US$14,625,000 (excluding commissions) with delivery in June 2008.
On March 19, 2008, Uranium Corp closed an aggregate offering of 7,331,250 common shares at
$10.20 per share for total gross proceeds of $74,779,000. The proceeds from the offering
together with existing cash on hand was and will be used to fund the above noted purchase
commitments.
As reported by UxCo as at April 21, 2008, the spot price of U3O8 has declined to US$65.00 per
pound from US$73.00 per pound on February 25, 2008 a decrease of 11.0%.
RELATED PARTY TRANSACTIONS
Uranium Corp is a party to a Management Services Agreement with its Manager. Under the
terms of the agreement, Uranium Corp will pay the following fees to the Manager: a) a
commission of 1.5% of the gross value of any purchases or sales of uranium completed at the
request of the Board of Directors; b) a minimum annual management fee of $400,000 (plus
reasonable out-of-pocket expenses) plus an additional fee of 0.3% per annum based upon
Uranium Corp’s net asset value between $100,000,000 and $200,000,000 and 0.2% per annum
based upon Uranium Corp’s net asset value in excess of $200,000,000; c) a fee of $200,000
upon the completion of each equity financing where proceeds payable to Uranium Corp exceed
$20,000,000; d) a fee of $200,000 for each transaction or arrangement (other than the purchase
or sale of uranium) of business where the gross value of such transaction exceeds $20,000,000
(“an initiative”); and e) an annual fee up to a maximum of $200,000, at the discretion of the Board,
for on-going maintenance or work associated with an initiative.
In accordance with the Management Services Agreement, all uranium investments owned by
Uranium Corp are held in accounts with conversion facilities in the name of Denison Mines Inc. as
manager for and on behalf of Uranium Corp.
Uranium Corp entered into two credit agreements with the Manager. A $25,000,000 revolving
credit facility entered into in March 2006 (“March 2006 credit facility”) and a $15,000,000
revolving credit facility entered into in September 2006 (“September 2006 credit facility”). The
March 2006 credit facility charged interest of Canadian bank prime plus 2% with standby fees of
1% of the committed facility amount. The September 2006 credit facility charged interest of
Canadian bank prime plus 1% with standby fees of 1% of the committed facility amount. Both
credit agreements have since been terminated with $10,000,000 drawn and repaid under the
March 2006 credit facility and $11,600,000 drawn and repaid under the September 2006 credit
facility.
In June 2007, Uranium Corp purchased 75,000 pounds of U3O8 from the Manager at a price of
US$130.00 per pound for total consideration of $10,368,000 (US$9,750,000).
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The following transactions were incurred with the Manager during the years ended February 29,
2008 and February 28, 2007:
(in thousands of Canadian dollars)
Fees incurred with the Manager:
Management fees
Facility arrangement fees
Equity financing fees (1)
Transaction fees – uranium purchase commissions
Shareholder Information and other compliance
General office and miscellaneous
Interest and other debt related expenses
Interest on loan payable
Standby fees on line of credit
Total fees incurred with the Manager
February
February
2008
2007
$ 1,901 $
–
400
2,246
6
4
997
400
400
2,456
30
12
313
91
63
4
$ 4,652 $ 4,671
(1) Equity financing fees incurred with the Manager have been recorded as share issue costs and are included in the
value reported for common shares.
As at February 29, 2008, accounts payable and accrued liabilities included $162,000 due to the
Manager with respect to the fees indicated above.
PAST PERFORMANCE
The following tables show the past performance for the NAV attributable to common shares (“net
asset value return”) and the past performance of the share price (“market value return”) of
Uranium Corp and will not necessarily indicate how Uranium Corp will perform in the future. Net
asset return is the best representation of the performance of Uranium Corp while market value
return is the best representation of the return to a shareholder of the Uranium Corp.
Year by Year Returns
The table below shows the annual performance in net asset value return and market value return
of Uranium Corp for each period indicated. The table shows, in percentage terms, how much an
investment held on the first day of each financial period would have increased or decreased by
the last day of each financial year.
Net asset value return (loss) – basic
Net asset value return (loss) – diluted
Market value return (loss)
February
2008 (1)
February
2007 (1)
February
2006 (2)
(25.0%)
(21.6%)
(18.4%)
110.0%
100.9%
94.1%
18.3%
18.3%
40.2%
(1) For the twelve months ended.
(2) Period from completion of initial public offering on May 10, 2005 through to February 28, 2006.
- 11 -
Annual Compounded Returns
The table below shows the annual compounded return in net asset value return and market value
return of Uranium Corp from inception through to the end of the indicated period, compared with
the TSX Composite Index calculated on the same compounded basis.
Net asset value return – basic
Net asset value return – diluted
Market value return
S&P / TSX Composite Index (2)
February
2008 (1)
February
2007 (1)
February
2006 (1)
86.3%
86.3%
122.1%
43.1%
148.4%
137.6%
172.1%
37.4%
18.3%
18.3%
40.2%
23.1%
(1) Period from completion of initial public offering on May 10, 2005 through to February month-end of indicated year.
(2) The S&P / TSX Composite Index is a market capitalization-weighted index that provides a broad measure of
performance of the Canadian equity market.
SUMMARY OF INVESTMENT PORTFOLIO
Uranium Corp’s investment portfolio consists of the following as at February 29, 2008:
(in thousands of Canadian dollars, except quantity
amounts)
Quantity of
Measure
Cost (3)
Market
Value (1)
Investments in Uranium:
Uranium oxide in concentrates (“U3O8”)
Uranium hexafluoride (“UF6”) (2)
4,475,000 lbs
$ 194,180 $ 320,076
1,417,230 KgU $ 256,766 $ 277,720
$ 450,946 $ 597,796
U3O8 average cost and market value per pound:
- In Canadian dollars
- In United States dollars
UF6 average cost and market value per KgU:
- In Canadian dollars
- In United States dollars
$
$
43.39 $ 71.53
37.35 $ 73.00
$ 181.18 $ 195.96
$ 166.73 $ 200.00
(1) The market values have been translated to Canadian dollars using the February 29, 2008 noon foreign exchange
rate of 0.9798.
(2) Of the UF6 holding described above, 500,000 KgU has been lent to a third party.
(3) The average cost of the portfolio has been adjusted to exclude transaction costs incurred since Uranium Corp’s
inception in March 2005.
FINANCIAL HIGHLIGHTS
The following tables show selected key financial information about Uranium Corp and is intended
to help you understand Uranium Corp’s financial performance for the last five reporting periods (if
applicable). This information is derived from the corporation’s audited annual financial
statements.
- 12 -
Net Asset Value per Share
February
2008 (1)
February
2007 (1)
February
2006 (2)
Net Asset Value per Share – Basic:
Net asset value, beginning of period (3)
$ 11.95 $
5.69 $
4.81
Increase (decrease) from operations (3):
Total revenue
Total expenses before taxes (4)
Income tax recovery (provision)
Realized gains (losses) for the period
Unrealized gains (losses) for the period (4)
$
$
$
$
$
0.13 $
(0.16) $
0.93 $
− $
(3.81) $
0.03 $
(0.15) $
(2.06) $
− $
8.45 $
0.03
(0.22)
(0.38)
−
1.30
Total increase (decrease) from operations
$
(2.91)
$
6.27
$
0.73
Net asset value, end of period (3)
$
8.96
$ 11.95
$
5.69
Net asset value per share – diluted:
Net asset value, beginning of period (3)
$ 11.43 $
5.69 $
4.81
Increase (decrease) from operations (3):
Total revenue
Total expenses before taxes (4)
Income tax recovery (provision)
Realized gains (losses) for the period
Unrealized gains (losses) for the period (4)
$
$
$
$
$
0.13 $
(0.16) $
0.93 $
− $
(3.81) $
0.03 $
(0.14) $
(1.97) $
− $
8.08 $
0.03
(0.22)
(0.38)
−
1.30
Total increase (decrease) from operations
$
(2.91)
$
6.00
$
0.73
Net asset value, end of period (3)
$
8.96
$ 11.43
$
5.69
(1) For the twelve months ended.
(2) Period from completion of initial public offering on May 10, 2005 through to February 28, 2006.
(3) Net asset values are based upon the actual number of common shares outstanding at the relevant time. The
increase/decrease from operations is based on the weighted average number of common shares outstanding over
the financial period.
(4) The cost bases of the investments have been adjusted to exclude transaction costs since the Company’s inception in
March 2005.
- 13 -
Ratios and Supplemental Data
Total net asset value, end of the period (000’s)
Average net asset value for the period (000’s)
Number of common shares outstanding (000’s)
Management expense ratio (3)
Total expenses before taxes (4)
Income tax provision (recovery)
Portfolio turnover rate
Trading expense ratio (5)
Closing market price per common share on the TSX
February
2008 (1)
February
2007 (1)
February
2006 (2)
$582,545 $ 579,364 $ 175,010
$336,589 $116,015
$708,476
30,751
64,992
48,474
1.33%
(7.87%)
−
0.32%
1.84%
25.05%
−
0.73%
$ 11.55 $ 14.15 $
4.20%
7.26%
−
1.75%
7.29
(1) For the twelve months ended.
(2) Period from completion of initial public offering on May 10, 2005 through to February 28, 2006.
(3) The management expense ratio for total expenses represents total investment operation expenses for the period
over the average net asset value of the fund for the period.
(4) The cost bases of the investments have been adjusted to exclude transaction costs since the Company’s inception in
March 2005.
(5) Represents total commission expenses for the period over the average net asset value of the fund for the period.
Warehousing and custodian costs have been included in the expense amount for the management expense ratio
calculation.
- 14 -
Responsibility for Financial Reporting
To the Shareholders of Uranium Participation Corporation,
The Company’s management is responsible for the integrity and fairness of presentation of these
consolidated
financial statements have been prepared by
management, in accordance with Canadian generally accepted accounting principles for review by the Audit
Committee and approval by the Board of Directors.
financial statements. The consolidated
The preparation of financial statements requires the selection of appropriate accounting policies in
accordance with generally accepted accounting principles and the use of estimates and judgments by
management to present fairly and consistently the consolidated financial position of the Company. Estimates
are necessary when transactions affecting the current period cannot be finalized with certainty until future
information becomes available. The Company’s management is also responsible for maintaining systems of
internal accounting and administrative controls of high quality, consistent with reasonable cost. Such systems
are designed to provide assurance that the financial information is accurate and reliable in all material
respects and that the Company’s assets are appropriately accounted for and adequately safeguarded. The
Company’s management believes that such systems are operating effectively and has relied on these
systems of internal control in preparing these financial statements.
PricewaterhouseCoopers LLP, Chartered Accountants, are independent external auditors appointed by the
shareholders to issue a report regarding the consolidated financial statements of the Company.
PricewaterhouseCoopers’ audit report outlines the extent and nature of their examination and expresses their
opinion on the consolidated financial statements.
The Board of Directors of the Company is responsible for ensuring that management fulfills its responsibilities
for financial reporting and is ultimately responsible for reviewing and approving the consolidated financial
statements and the accompanying annual management report of fund performance. The Board carries out
this responsibility principally through its Audit Committee, which is appointed annually and consists of three
Directors, none of whom are members of management.
The Audit Committee meets at least twice per year with management, together with the independent auditors,
to satisfy itself that management and the independent auditors are each properly discharging their
responsibilities. The independent external auditors have full access to the Audit Committee with and without
management present. The Committee, among other things, reviews matters related to the quality of internal
control, audit and financial reporting issues. The Audit Committee reviews the consolidated financial
statements and the independent auditors’ report, as well as any public disclosure document that contains
financial information, and reports its findings to the Board of Directors, prior to the Board approving such
information for issuance to the shareholders. The Committee also considers, for review by the Board and
approval by the shareholders, the engagement or reappointment of the Company’s independent auditors.
E. Peter Farmer
President
April 25, 2008
James R. Anderson
Chief Financial Officer
- 15 -
Financial Statements
Independent Auditors’ Report
To the Shareholders of Uranium Participation Corporation
We have audited the accompanying consolidated statements of net assets of Uranium Participation
Corporation (the Company) as at February 29, 2008 and February 28, 2007, the consolidated statements of
operations, changes in net assets and cash flows for the years ended February 29, 2008 and February 28,
2007 and the consolidated statement of investment portfolio as at February 29, 2008. These financial
statements are the responsibility of the Company’s Management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those
standards require that we plan and perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by Management, as well as evaluating the overall
financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial
position of the Company as at February 29, 2008 and February 28, 2007 and the results of its operations and
its cash flows for the years then ended in accordance with Canadian generally accepted accounting
principles.
Chartered Accountants, Licensed Public Accountants
Toronto, Canada
April 25, 2008
- 16 -
Financial Statements
URAN IU M PARTIC IPATION COR PORA T ION
CON SOLIDATED STATEMENT OF N ET A SSETS
A S AT FEBRUAR Y 29, 2008 AND FEBRUAR Y 28, 2007
(in thousands of Canadian dollars, except per share amounts)
As set s
Investments at market value
(at cost: 2008-$450,946; 2007-$301,226)
Cash and cash equivalents
Sundry receivables and other assets
Income taxes receivable
Future income taxes (note 3)
L iab ilit ies
Accounts payable and accrued liabilities
Income taxes payable
Loan payable (note 5)
Future income taxes (note 3)
Ne t as sets
Ne t as sets r ep re sen te d b y
Common shares (note 4)
Warrants (note 4)
Contributed surplus (note 4)
Retained earnings
Co mmon sh ar es
Issued and outstanding (note 4)
Ne t as set va lu e pe r c o mmon sh ar e
Basic
Diluted
February
2008
February
2007
$ 597,796
$ 676,670
13,687
1,113
23
10,570
$ 623,189
1,030
390
–
39,224
$ 582,545
867
1,038
275
7,081
$ 685,931
1,031
106
11,600
93,830
$ 579,364
$ 481,203
2,455
30
98,857
$ 582,545
$ 299,759
6,003
–
273,602
$ 579,364
64,991,841
48,473,727
$
$
8.96
8.96
$ 11.95
$ 11.43
The accompanying notes are an integral part of these financial statements.
ON BEHALF OF THE BOARD OF URANIUM PARTICIPATION CORPORATION
Richard H. McCoy
Director
Garth A. C. MacRae
Director
- 17 -
Financial Statements
URAN IU M PARTIC IPATION COR PORA T ION
CON SOLIDATED STATEM ENT OF O PERA TION S
FOR TH E YEAR S END ED FEBRUAR Y 29, 2008 AND FEBRUARY 28, 2007
(in thousands of Canadian dollars)
Income
Interest
Income from investment lending (note 6)
Unrealized gains (losses) on investments
Operating expenses
Transaction fees (note 5)
Management fees (note 5)
Storage fees
Audit fees
Directors fees
Legal and other professional fees
Shareholder information and other compliance
General office and miscellaneous
Interest and other debt related expenses
Foreign exchange loss
Increase (decrease) in net assets from operations before taxes
February
2008
February
2007
$
435 $
7,080
(228,594)
(221,079)
2,246
1,901
954
49
120
188
206
242
95
3,403
9,404
(230,483)
472
942
346,461
347,875
2,456
1,397
780
17
106
94
222
123
378
618
6,191
341,684
Income tax provision (recovery) (note 3)
(55,738)
84,310
Increase (decrease) in net assets from operations after taxes
(174,745)
257,374
Opening retained earnings
Closing retained earnings
Increase (decrease) in net assets from operations per common share
Basic
Diluted
Weighted average common shares outstanding (note 4)
Basic
Diluted
273,602
16,228
98,857
273,602
$
$
(2.91)
(2.91)
$ 6.28
$ 6.01
60,007,756 40,991,927
60,007,756 42,851,473
The accompanying notes are an integral part of these financial statements.
- 18 -
Financial Statements
URAN IU M PARTIC IPATION COR PORA T ION
STA T EMENT OF CHANGES IN N ET A SSETS
FOR TH E YEAR S END ED FEBRUAR Y 29, 2008 AND FEBRUARY 28, 2007
(in thousands of Canadian dollars)
Net assets at beginning of year
Net proceeds from issue of units and shares, and exercise of
warrants, after tax
Increase (decrease) in net assets from operations after taxes
Net assets at end of year
February
2008
February
2007
$ 579,364
$ 175,010
177,926
146,980
(174,745)
257,374
$ 582,545
$ 579,364
URAN IU M PARTIC IPATION COR PORA T ION
CON SOLIDATED STATEMENT OF CA SH FLOW S
FOR TH E YEAR S END ED FEBRUAR Y 29, 2008 AND FEBRUARY 28, 2007
(in thousands of Canadian dollars)
Operating Activities
Increase (decrease) in net assets from operations after taxes
Adjustments for non-cash items:
Unrealized losses (gains) on investments
Future income tax provision (recovery)
Changes in non-cash working capital:
Change in sundry receivables and other assets
Change in income taxes receivable
Change in accounts payable and accrued liabilities
Change in income taxes payable
Net cash used in operating activities
Investing Activities
Purchases of uranium investments
Net cash used in investing activities
Financing Activities
Additions (repayments) of loans payable
Share and warrant issues net of issue costs
Net cash generated by financing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents – beginning of year
Cash and cash equivalents - end of year
February
2008
February
2007
$(174,745) $ 257,374
228,594
(56,027)
(346,461)
84,380
(75)
252
(1)
284
(1,718)
(866)
(275)
695
(218)
(5,371)
(149,720)
(149,720)
(163,720)
(163,720)
(11,600)
175,858
164,258
11,600
144,362
155,962
12,820
867
$ 13,687
(13,129)
13,996
867
$
The accompanying notes are an integral part of these financial statements.
- 19 -
Financial Statements
URAN IU M PARTIC IPATION COR PORA T ION
CON SOLIDATED STATEMENT OF IN VESTM EN T PORT FO L IO
A S AT FEBRUAR Y 29, 2008
(in thousands of Canadian dollars, except quantity amounts)
Quantity of
Measure
Cost (3)
Market
Value (1)
Investments in Uranium:
Uranium oxide in concentrates (“U3O8”)
Uranium hexafluoride (“UF6”) (2)
U3O8 average cost and market value per pound:
- In Canadian dollars
- In United States dollars
UF6 average cost and market value per KgU:
- In Canadian dollars
- In United States dollars
4,475,000 lbs
$ 194,180 $ 320,076
1,417,230 KgU $ 256,766 $ 277,720
$ 450,946 $ 597,796
$
$
43.39 $ 71.53
37.35 $ 73.00
$ 181.18 $ 195.96
$ 166.73 $ 200.00
(1)
(2)
(3)
The market values have been translated to Canadian dollars using the February 29, 2008 noon foreign exchange rate of 0.9798.
Of the UF6 holding described above, 500,000 KgU has been lent to a third party. See note 6 for further details of this arrangement.
The average cost of the portfolio has been adjusted to exclude transaction fees incurred since the Company’s inception in March
2005. See note 2 “Accounting Changes” for more details.
The accompanying notes are an integral part of these financial statements.
- 20 -
Financial Statements
URAN IU M PARTIC IPATION COR PORA T ION
NOTES TO CON SOLIDA TED FINANC IA L STA T EMENTS
FOR TH E YEAR S END ED FEBRUAR Y 29, 2008 AND FEBRUARY 28, 2007
1. URANIUM PARTICIPATION CORPORATION
Uranium Participation Corporation (“Uranium Corp”) was established under the Business Corporations Act
(Ontario) (“OBCA”) on March 15, 2005. Uranium Corp is an investment fund as defined by the Canadian
securities regulatory authorities in National Instrument 81-106 “Investment Fund Continuous Disclosure”.
Uranium Corp was created to invest substantially all of its assets in uranium oxide in concentrates
(“U3O8”) and uranium hexafloride (“UF6”) (collectively “uranium”) with the primary investment objective of
achieving appreciation in the value of its uranium holdings. Uranium Corp trades publicly on the Toronto
Stock Exchange under the symbol U.
2 . SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements include the assets, liabilities, revenues and
expenses of Uranium Corp and its wholly owned subsidiaries, Uranium Participation Alberta Corp. and
Uranium Participation Cyprus Limited. The consolidated financial statements have been prepared in
All significant
accordance with Canadian generally accepted accounting principles (“GAAP”).
intercompany balances and transactions have been eliminated on consolidation.
Use of Estimates
The preparation of financial statements in conformity with Canadian GAAP requires management to make
estimates and assumptions that effect the reported amounts of assets and liabilities as of the date of the
financial statements and the reported amounts of revenue and expenses during the reporting period.
Actual results could differ materially from those estimates.
Significant Accounting Policies
(a) Investments
The fair value of investments in uranium are based on the most recent spot prices for uranium published
by Ux Consulting Company, LLC prior to the applicable reporting period converted to Canadian dollars
using the month end foreign exchange rate.
The cost of investments in uranium is accounted for on the date that significant risks and rewards to the
uranium passes to Uranium Corp and is converted to Canadian dollars at the rate of exchange prevailing
on that date.
Realized and unrealized gains or losses in uranium represents the difference between the fair value and
average cost of uranium investments, adjusted for foreign exchange rate fluctuations, in Canadian dollars.
(b) Investments Lending
Income earned from investments lending is included in the consolidated statement of operations and is
recognized when earned.
(c) Foreign Exchange Translation
The financial statements of Uranium Corp are expressed in Canadian dollars. Foreign currency monetary
assets and liabilities are translated to Canadian dollars at the rate of exchange prevailing on the date of
the applicable reporting period. Foreign currency income and expense transactions are translated into
- 21 -
Financial Statements
Canadian dollars at the rate of exchange prevailing on the date of the transaction. Changes in the foreign
exchange rates between the transaction date and the applicable reporting period date used to value
monetary assets and liabilities are reflected in the statement of operations as a foreign exchange gain or
loss.
(d) Cash and Cash Equivalents
Cash and cash equivalents consist of cash on deposit and highly-liquid short-term investments in
government or investment grade corporate debt. Short-term investments are carried at cost which,
together with accrued interest, approximates fair value.
(e) Income Taxes Payable
Uranium Corp follows the liability method of accounting for future income taxes. Under this method,
current income taxes are recognized from the estimated income taxes payable for the current period.
Future income tax assets and liabilities are determined based on temporary differences between financial
reporting and tax bases of assets and liabilities, and are measured using the substantively enacted tax
rates and laws that are expected to apply when the differences are expected to reverse. The benefit of
tax losses which are available to be carried forward are recognized as assets to the extent that they are
more likely than not to be recoverable from future taxable income.
Comparative Numbers
Certain classifications of the comparative figures have been changed to conform to those used in the
current period.
Accounting Changes
During fiscal 2007, Uranium Corp adopted the provisions of Section 3855, “Financial Instruments –
Recognition and Measurement” of the Canadian Institute of Chartered Accountants (“CICA”) Handbook.
Section 3855 establishes standards for the fair valuation of investments as well as the accounting
treatment of transaction costs as follows:
(a) Fair value measurement - the new standard requires that the fair value of financial instruments, which are
traded in active markets, be measured on bid price. Prior to this standard, common practice was to fair
value financial instruments based on the last traded price for the day, when available. Adoption of this
standard did not impact the Company’s valuation of its investments.
(b) Transaction fees - the new standard requires that transaction fees, such as purchase commissions,
incurred in the purchase and sale of investments, be recorded as an expense in the consolidated
statement of operations. Prior to this standard, the Company was following a practice of adding purchase
commission expenses to the cost of the uranium investments acquired. There are no income tax
implications and no impact on the net asset value of the Company in using either of these methods.
The Company has adopted the provisions of Section 3855 retroactively without restatement. There is no
impact on the fair value measurement of its uranium investments, its net asset value and its tax liabilities.
Purchase commissions are now expensed in the statement of operations as a separate line item. In the
statement of investment portfolio at February 29, 2008, the Company has decreased the average cost of
its uranium investments to exclude any purchase commissions paid since its inception in March 2005.
Prior to the adoption of Section 3855, the average cost of the Company’s uranium investments would
have included purchase commissions of $6,765,000 (2008 - $2,246,000; 2007 - $2,456,000; 2006 -
$2,063,000).
Recent Pronouncements
The CICA issued the following accounting standards that are effective for the Company’s fiscal years
beginning on or after March 1, 2008:
- 22 -
Financial Statements
a) Section 1535 “Capital Disclosures” requires the disclosure of both qualitative and quantitative
information that enable users to evaluate the company’s objectives, policies and processes for
managing capital. This standard is effective for fiscal years beginning on or after October 1, 2007.
The Company is currently evaluating the impact of adopting this standard on its consolidated financial
statements.
b) Section 3862 “Financial Instruments – Disclosures” and Section 3863 “Financial Instruments –
Presentation” replace Section 3861 “Financial Instruments – Disclosure and Presentation” and
establish standards for increased disclosure and presentation about the nature and extent of risks
arising from financial instruments and how the Company manages those risks. These standards are
effective for fiscal years beginning on or after October 1, 2007. The Company is currently evaluating
the impact of adopting these standards on its consolidated financial statements.
c)
International Financial Reporting Standards – the CICA plans to converge Canadian GAAP with
International Financial Reporting Standards (“IFRS”) for interim and annual financial statements
relating to fiscal years beginning on or after January 1, 2011. The impact on the transition to IFRS on
Uranium Corp’s financial statements has not yet been determined.
3.
INCOME TAXES
Unlike most investment funds, Uranium Corp does not qualify as a mutual fund trust and, accordingly,
follows the general corporate income tax provisions of the Canadian Income Tax Act. Uranium Corp
operates in multiple tax jurisdictions and the related income is subject to varying rates of taxation. The
following is a reconciliation of income taxes, calculated at the combined Canadian federal and Ontario
provincial rate, to the income tax expense included in the consolidated statement of operations for the
years ended February 29, 2008 and February 28, 2007:
(in thousands of Canadian dollars)
February
2008
February
2007
Increase (decrease) in net assets from operations before income taxes
Combined federal and Ontario provincial income tax rate
Computed income tax expense (recovery)
$(230,483)
35.69%
(82,259)
$341,684
36.12%
123,416
Large corporations tax in excess of surtax
Operating loss carry-back
Difference between combined federal and Ontario provincial income tax
rate and rates applicable to subsidiaries in other jurisdictions
Difference due to use of future tax rates rather than current tax rates in
applicable jurisdictions
Other
Provision for (recovery of) income taxes
–
(23)
(65)
(112)
17,000
(29,300)
9,596
(9,718)
(52)
$ (55,738)
89
$ 84,310
Provision for (recovery of) income taxes comprised of:
Current tax expense (recovery)
Future tax expense (recovery)
$
289
(56,027)
$ (55,738)
$
(70)
84,380
$ 84,310
- 23 -
Financial Statements
The components of the Company’s future tax balances as at February 29, 2008 and February 28, 2007 are
as follows:
(in thousands of Canadian dollars)
Future tax assets:
Tax benefit of share issue costs
Tax benefit of loss carryforwards
Unrealized loss on investments
Future tax assets
Future tax liabilities:
Unrealized gain on investments
Tax benefit of loss carryforwards
Future tax liabilities
February
2008
February
2007
$
4,095 $
4,567
1,908
$ 10,570 $
3,893
3,188
–
7,081
$ 39,953 $ 94,109
(279)
$ 39,224 $ 93,830
(729)
4. COMMON SHARES, WARRANTS AND INCREASE IN NET ASSETS PER SHARE
Common Shares
Uranium Corp is authorized to issue an unlimited number of common shares without par value.
The movement in common shares for the years ended February 29, 2008 and February 28, 2007 is as
follows:
(in thousands of Canadian dollars)
Common shares – beginning of year
Shares issued pursuant to:
Common share financings
Gross proceeds on new issues
Less: Allocation of proceeds to issued warrants
Less: Issue costs
Add: Tax effect of issue costs
Warrant activity
Gross proceeds from exercises
Add: Fair value transfer from warrants
Common shares – end of year
February
2008
February
2007
$ 299,759
$ 155,183
152,409
–
(7,133)
2,068
151,751
(2,466)
(7,934)
2,618
30,582
3,518
$ 481,203
545
62
$ 299,759
The movement in the number of common shares for the years ended February 29, 2008 and February 28,
2007 is as follows:
(in number of shares)
Common shares – beginning of year
Shares issued pursuant to:
New issues
Warrant exercises
Common shares – end of year
February
2008
February
2007
48,473,727 30,751,325
11,634,750 17,636,440
85,962
64,991,841 48,473,727
4,883,364
- 24 -
Financial Statements
Common share financings
In October 2007, Uranium Corp issued 5,134,750 shares at $11.20 per share for total gross proceeds of
$57,509,000.
In April 2007, Uranium Corp issued 6,500,000 shares at $14.60 per share for total gross proceeds of
$94,900,000.
In September 2006, Uranium Corp issued 11,363,650 equity units at $8.80 per unit for total gross
proceeds of $100,000,000. Each unit consisted of one common share and one-quarter purchase warrant.
Each whole warrant allows the holder to purchase one common share at $12.00 exercisable prior to
September 14, 2008. Approximately $2,466,000 of the proceeds were allocated as the value of the issued
warrants.
In May 2006, Uranium Corp issued 6,272,790 shares at $8.25 per share for total gross proceeds of
$51,751,000.
Warrants
The movement in warrants for the years ended February 29, 2008 and February 28, 2007 is as follows:
(in thousands of Canadian dollars)
Warrants – beginning of year
Warrants issued during the year
Warrants exercised during the year
Warrants expired during the year
Warrants – allocated fair value end of year
Warrant allocated fair value comprised of:
May 2005 equity unit financing
September 2006 equity unit financing
February
2008
February
2007
$ 6,003
–
(3,518)
(30)
$ 2,455
$ 3,599
2,466
(62)
–
$ 6,003
–
2,455
$ 2,455
3,538
2,465
$ 6,003
The movement in the number of warrants for the years ended February 29, 2008 and February 28, 2007
is as follows:
(in number of warrants)
Warrants – beginning of year
Warrants issued during the year
Warrants exercised during the year
Warrants expired during the year
Warrants – end of year
Warrants outstanding by issue:
May 2005 equity unit financing
September 2006 equity unit financing
February
2008
February
2007
7,753,624 4,998,675
– 2,840,911
(85,962)
–
2,828,799 7,753,624
(4,883,364)
(41,461)
– 4,914,150
2,828,799 2,839,474
2,828,799 7,753,624
When the net asset value from operations per common share of the fund exceeds the exercise prices of
the warrants, the warrants will have a dilutive impact. The May 2005 equity unit financing warrants were
fully exercised or expired as of May 10, 2007. As at February 29, 2008, none of the outstanding warrants
are dilutive to the net asset value of the fund.
- 25 -
Financial Statements
Increase in Net Assets from Operations per Share
The calculation of the basic and diluted increase (decrease) in net assets from operations per common
share was based on the following weighted average number of shares outstanding for the years ended
February 29, 2008 and February 28, 2007:
(in number of shares)
Weighted average number of shares outstanding:
Basic
Add: Warrant Dilution
Diluted
5. RELATED PARTY TRANSACTIONS
February
2008
February
2007
60,007,756 40,991,927
1,859,546
60,007,756 42,851,473
–
Uranium Corp is a party to a management services agreement with Denison Mines Inc., (the “Manager”).
Under the terms of the agreement, Uranium Corp will pay the following fees to the Manager: a) a
commission of 1.5% of the gross value of any purchases or sales of uranium completed at the request of
the Board of Directors; b) a minimum annual management fee of $400,000 (plus reasonable out-of-pocket
expenses) plus an additional fee of 0.3% per annum based upon Uranium Corp’s net asset value between
$100,000,000 and $200,000,000 and 0.2% per annum based upon Uranium Corp’s net asset value in
excess of $200,000,000; c) a fee of $200,000 upon the completion of each equity financing where
proceeds payable to Uranium Corp exceed $20,000,000; d) a fee of $200,000 for each transaction or
arrangement (other than the purchase or sale of uranium) of business where the gross value of such
transaction exceeds $20,000,000 (“an initiative”); and e) an annual fee up to a maximum of $200,000, at
the discretion of the Board, for on-going maintenance or work associated with an initiative.
In accordance with the management services agreement, all uranium investments owned by Uranium
Corp are held in accounts with conversion facilities in the name of Denison Mines Inc. as manager for and
on behalf of Uranium Corp.
Uranium Corp entered into two credit agreements with the Manager. A $25,000,000 revolving credit
facility entered into in March 2006 (“March 2006 credit facility”) and a $15,000,000 revolving credit facility
entered into in September 2006 (“September 2006 credit facility”). The March 2006 credit facility charged
interest of Canadian bank prime plus 2% with standby fees of 1% of the committed facility amount. The
September 2006 credit facility charged interest of Canadian bank prime plus 1% with standby fees of 1%
of the committed facility amount. Both credit agreements have since been terminated with $10,000,000
drawn and repaid under the March 2006 credit facility and $11,600,000 drawn and repaid under the
September 2006 credit facility.
In June 2007, Uranium Corp purchased 75,000 pounds of U3O8 from the Manager at a price of
US$130.00 per pound for total consideration of $10,368,000 (US$9,750,000).
- 26 -
Financial Statements
The following transactions were incurred with the Manager during the years ended February 29, 2008 and
February 28, 2007:
(in thousands of Canadian dollars)
Fees incurred with the Manager:
Management fees
Facility arrangement fees
Equity financing fees (1)
Transaction fees – uranium purchase commissions
Shareholder Information and other compliance
General office and miscellaneous
Interest and other debt related expenses
Interest on loan payable
Standby fees on line of credit
Total fees incurred with the Manager
February
2008
February
2007
1,901
–
400
2,246
6
4
997
400
400
2,456
30
12
91
4
$ 4,652
313
63
$ 4,671
(1)
Equity financing fees incurred with the Manager have been recorded as share issue costs and are included in value reported for
common shares.
As at February 29, 2008, accounts payable and accrued liabilities included $162,000 due to the Manager
with respect to the fees indicated above.
6.
INVESTMENTS LENDING
As at February 29, 2008, the outstanding value of investments on loan and collateral held is as follows:
(in thousands of Canadian dollars, except quantity
amounts)
Quantity of
Measure
Market Value
of Investments
on Loan
Collateral
Held
Uranium hexafluoride (“UF6”)
500,000 KgU $ 97,980
$ 152,582
The UF6 loaned is subject to a loan fee of 5% per annum based upon the adjusted quarterly value of the
material. Collateral held is in the form of an irrevocable letter of credit from a major financial institution,
that is subject to adjustment on an annual basis.
7. SUBSEQUENT EVENTS
In February 2008, the Manager agreed to purchase, for and on behalf of Uranium Corp, 900,000 pounds
of U3O8 for a total price of US$64,900,000 (excluding commissions). 200,000 pounds of this purchase was
delivered in March 2008 with the remainder anticipated to be delivered on or before May 31, 2008.
In March 2008, the Manager agreed to purchase, for and on behalf of Uranium Corp, 75,000 KgU as UF6
for a total price of US$14,625,000 (excluding commissions) with delivery in June 2008.
On March 19, 2008, Uranium Corp closed an aggregate offering of 7,331,250 common shares at $10.20
per share for total gross proceeds of $74,779,000. The proceeds from the offering together with existing
cash on hand was and will be used to fund the above-noted purchase commitments.
- 27 -
Financial Statements
BOARD OF DIRECTORS
OFFICE OF THE CORPORATION
Paul J. Bennett
President and Chief Executive Officer
Energus Resources Ltd.
President and Chief Executive Officer
Rodinia Oil Corp.
Jeff Kennedy
Chief Financial Officer
Cormark Securities Inc.
Garth A. C. MacRae
Independent Financial Consultant
Richard H. McCoy
Chairman of the Board
Retired; formerly Vice Chairman Investment Banking
TD Securities Inc.
OFFICERS
E. Peter Farmer
President
James R. Anderson
Chief Financial Officer
Donald C. Campbell
Vice President, Marketing
Brenda R. Lazare
Corporate Secretary
MANAGER
Denison Mines Inc.
595 Bay Street, Suite 402
Toronto, Ontario
M5G 2C2
www.denisonmines.com
Atrium on Bay
595 Bay Street, Suite 402
Toronto, Ontario M5G 2C2
Telephone: 416-979-1991
Facsimile: 416-979-5893
Website: www.uraniumparticipation.com
AUDITORS
PricewaterhouseCoopers LLP
Toronto
REGISTRAR AND TRANSFER AGENT
Computershare Investor Services Inc.
100 University Avenue, 9th Floor
Toronto, Ontario M5J 2Y1
Telephone:
Canada and U.S.: 1-800-564-6253
Overseas: 1-514-982-7555
STOCK EXCHANGE LISTING
The Toronto Stock Exchange
Trading Symbol: U
Website: www.tsx.com
ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
The Annual and Special Meeting of the Shareholders of
Uranium Participation Corporation will be held at The Gallery
of the TSX Broadcast & Conference Centre, The Exchange
Tower, 130 King Street West, Toronto, Ontario on Monday, the
23rd day of June, 2008 at 10:30 a.m. (Eastern Time)
Managed by:
Atrium on Bay, 595 Bay Street, Suite 402, Toronto, Ontario M5G 2C2
www.denisonmines.com