2010 ANNUAL REPORT
2010 Annual Report
www.uraniumparticipation.com
To Our Shareholders,
Fiscal 2010 has been a year of growth in our uranium holdings and continued weakness in the spot price of
uranium.
The Company increased its uranium investment portfolio during the year by acquiring 120,000 pounds U3O8 at
an average price of US$45.33 per pound and 470,000 KgU as UF6 at an average price of US$131.95 per KgU.
At February 28, 2010, the Company holds 5,545,000 pounds of U3O8 at an average cost of $48.41 per pound
and 1,962,230 KgU as UF6 at an average cost of $173.78 per KgU. The market value of all uranium is
$479,142,000 with a cost of $609,448,000. Uranium spot prices began the year at US$45.00 per pound U3O8
and US$126.00 per KgU of UF6 and closed the year down to US$41.75 per pound U3O8 and US$114.00 per
KgU as UF6. Throughout this period, the long-term price as quoted by Ux Consulting, LLC declined from
$70.00 per pound U3O8 to US$60.00.
Subsequent to the year end, the Company completed the acquisition of Uranium Limited. This increased our
investment portfolio to 7,250,000 pounds U3O8 and 2,374,230 KgU as UF6. This was a share exchange
transaction whereby the Company issued .5 share for each Uranium Limited share outstanding resulting in the
issue of 20,624,672 new common shares.
We continue to believe that the long-term fundamentals of the uranium market are positive. Demand
continues to grow and is forecast to increase from its current level of 185 million pounds per year to 247 million
pounds by 2020 as nuclear power capacity grows, most notably in China, India and Russia. This nuclear
renaissance is being driven by the low operating costs of nuclear relative to other sources of power
generation, and by the growing concern for the environment and climate change. Primary mine production
supplies only about 70% of demand with the balance coming from declining secondary sources such as
excess inventories, down blending of weapons-grade material and the reprocessing of spent fuel rods.
Substantial new primary production is required to meet the demand needs of the industry. Any new production
will take a significant amount of time resulting in the supply demand balance remaining tight for the
foreseeable future.
The net asset value of the Company as determined using the Ux Consulting, LLC quoted spot price of uranium
was $509.6 million at February 28, 2010 down from $541.4 million at February 28, 2009. The, basic net asset
value per share decreased by $1.47 to $7.49 from $8.96 at February 28, 2009 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 $3.1 million. A loan of 500,000 KgU as UF6 was repaid in December, 2009.
Expenses from the year totaled $4.7 million of which $1.3 million was transaction costs from the purchase of
additional uranium. The Company also recorded a future tax recovery of $14.8 million related to the decrease
in net assets for the year.
Your company will continue to provide a low risk 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.
Ron Hochstein
President
April 22, 2010
Uranium Participation Corporation
Annual Management Report of Fund Performance
February 28, 2010
DISCLOSURE
This Annual Management Report of Fund Performance contains financial highlights but does not
contain the complete Audited Annual Consolidated Financial Statements of Uranium Participation
Corporation (“Uranium Corp” or “Corporation”). You can get a copy of the Audited Annual
Consolidated 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 22, 2010. 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
- 2 -
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 prepares a report to shareholders on at least an annual
basis. The report is available on Uranium Corp’s website at www.uraniumparticipation.com and is
also available
the Corporation at
info@uraniumparticipation.com.
to shareholders at no cost by
contacting
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 this commodity 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 equity offering 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 Uranium Corp’s Annual Information Form available on SEDAR.
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
- 3 -
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 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; 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 (“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, 2009, and at February 28, 2010(1).
U3O8
UF6
2005
$36.25
$105.00
2006
$72.00
$199.00
December 31
2007
$90.00
$240.00
2008
$53.00
$145.00
2009
$44.50
$118.00
February 28
2010
$41.75
$114.00
(1) As published by Ux Consulting Company, LLC (“UxCo”) in U.S. dollars.
No Public Market for Uranium
There is no public market for the sale of uranium. The uranium future 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, 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.
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
- 4 -
companies, from certain republics of the former Soviet Union, 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.
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 (“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 generate cash from either the lending or sale of uranium, or the sale of
additional equity securities. 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
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. Technical advancements in renewable and other alternate forms of
energy, such as wind and solar power, could make these forms of energy more commercially
viable and put additional pressure on the demand for uranium concentrates.
- 5 -
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 trust, and an investment in its common shares 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 NAV reported by Uranium Corp is based on the spot price of uranium published by UxCo.
Accordingly, the NAV 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, making it subject to income tax on its taxable income.
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 may also be affected by the management expense ratio,
which is calculated for each reporting period as the total 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.
- 6 -
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 again enter 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.
General Economic Downturn
Increases in spot market volumes may continue to be impacted by the current global economic
downturn causing downward pressure on the spot prices for uranium.
Decreased availability of credit for construction of new reactors and exploration as well as the
amount of incremental supply of uranium made available to the market from remaining excess
inventories, HEU Feed supplies, other stockpiles and the availability of new production form other
uranium producers are all influenced by the current global economic downturn resulting in part
from the recent global financial crisis.
RESULTS OF OPERATIONS
Uranium Corp’s basic NAV decreased from $7.49 per share at February 28, 2009 to $5.95 at
February 28, 2010 representing a basic NAV loss of 20.6%. Over the comparable time period,
Uranium Corp’s benchmark, the S&P/TSX Composite Index, increased by 43.2%.
Uranium Corp’s net assets at February 28, 2010 were $509,592,000 representing a 5.9%
decrease from net assets of $541,397,000 at February 28, 2009. Of the net asset decrease of
$31,805,000 over the period, $132,070,000 was attributable to the decrease in net assets from
operations after taxes offset by after-tax net proceeds of additional equity issues of $100,265,000.
Equity Financing
In the prior period, March 2008, Uranium Corp issued 7,331,250 shares by way of a public
offering priced at $10.20 per share for gross proceeds of $74,779,000.
In May 2009, Uranium Corp issued 13,368,750 shares by way of a public offering priced at $7.75
per share for total gross proceeds of $103,608,000.
As at February 28, 2010, Uranium Corp had 85,697,341 common shares issued and outstanding.
Since inception, Uranium Corp has raised gross proceeds of $647,047,000 through common
share and equity unit financings and $31,202,000 from the exercise of warrants. Uranium Corp
invested $609,448,000 or 89.9% of these amounts into its portfolio of uranium investments.
- 7 -
Investment Portfolio
During the year, Uranium Corp increased its U3O8 holdings by 120,000 pounds, raising its total
holdings to 5,545,000 pounds at February 28, 2010. The cost of U3O8 acquired in the year was
$5,879,000 or $48.99 per pound. This increased the total cost of Uranium Corp’s holdings to
$268,445,000 or $48.41 per pound. The fair value of this investment at February 28, 2010 was
$243,681,000 or $43.95 (1) per pound, representing a decrease of 9.2%. On a U.S dollar basis,
the fair value of this investment has decreased by 3.8%.
During the year, Uranium Corp increased its UF6 holdings by 470,000 KgU, raising its total
holdings to 1,962,230 KgU at February 28, 2010. The cost of UF6 acquired in the year was
$69,537,000 or $147.95 per KgU. This increased the total cost of Uranium Corp’s holdings to
$341,003,000 or $173.78 per KgU. The fair value of this investment at February 28, 2010 was
$235,461,000 or $120.00 (1) per KgU, representing a decrease of 31.0%. On a U.S dollar basis,
the fair value of this investment has decreased by 28.5%.
Uranium Corp 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, which generated loan fee
revenues and reduced storage costs, was collateralized by an irrevocable letter of credit. The
agreement expired on December 31, 2009 with the UF6 returned on that date.
Uranium Corp entered into a loan of the conversion component of 1,332,230 KgU as UF6 in
December 2009. The conversion component is subject to a loan fee of 4.5% per annum based
on the greater of the adjusted monthly value and US$15,654,000. To facilitate the loan of the
conversion component, 1,332,230 KgU as UF6 was transferred to the borrower with 3,480,944
pounds of U3O8 transferred to Uranium Corp and an irrevocable letter of credit received as
collateral. In addition to generating loan fees, the agreement will effectively reduce some of
Uranium Corp’s storage costs. This agreement is due to expire in December 2012.
(1) Reflects spot prices published by UxCo on February 22, 2010 of US$41.75 per pound for U3O8 and US$114.00 per
KgU for UF6 translated at a foreign exchange rate of 1.0526.
Investment Performance
Investment operation losses of $132,070,000 for the year ended February 28, 2010 have been
largely driven by unrealized losses on uranium investments of $145,403,000 net of tax recovery
movements of $14,821,000.
Unrealized losses on investments result from U3O8 prices declining from US$45.00 at February
28, 2009 to US$41.75 at February 28, 2010, as reported by UxCo along with the weakening of the
U.S. dollar relative to the Canadian dollar from 1.2707 at February 28, 2009 to 1.0526 at February
28, 2010. Similarly, UF6 spot prices declined from US$126.00 per KgU at February 28, 2009 to
US$114.00 at February 28, 2010.
Uranium Corp is not a mutual fund trust, 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 in its various jurisdictions. The substantively enacted future tax rates, in
Uranium Corp’s various jurisdictions, range from 3% to 25%. In the current year, Uranium Corp
has provided for a current tax expense of $53,000 and a future tax recovery of $14,874,000. The
combined tax recovery for the current year of $14,821,000 reflects an effective tax rate of
approximately 10% compared to a tax recovery of $19,417,000 and an effective tax rate of 15% in
the prior year. The decline in the effective tax rate is primarily a result of an increase in the
proportion of inventory held in Uranium Corp’s wholly owned subsidiary, UPCL. UPCL is taxed at
the lowest rate within Uranium Corp’s group of companies.
- 8 -
RECENT DEVELOPMENTS
On March 30, 2010, Uranium Corp completed the acquisition of Uranium Limited (“UL”) pursuant
to a scheme of arrangement under the laws of Guernsey. Under the terms of the transaction,
Uranium Corp acquired all of the issued and outstanding shares of UL in a share exchange at a
ratio of 0.5 common shares of Uranium Corp for each common share of UL. As a result, an
aggregate of 20,624,972 common shares were issued to former shareholders of UL.
UL is an investment company created to invest substantially all of its assets in natural uranium
with the primary investment objective of achieving capital appreciation in the value of its uranium
holdings. UL held 1,705,000 pounds of U3O8 and 412,000 KgU as UF6 prior to the close of the
transaction. After completion of the transaction, Uranium Corp transferred the uranium assets of
UL to UPCL. Of the 1,705,000 pounds of U3O8 transferred, 520,000 pounds are subject to a loan
agreement, at a loan rate of 3.5% and is repayable by July 8, 2010.
Uranium Corp has filed a notice of intention to make a Normal Course Issuer Bid for its common
shares with the Toronto Stock Exchange to provide a mechanism to decrease the potential
spread between the net asset value per share and the market price of the shares. The
Corporation may acquire up to 7,483,029 common shares pursuant to the bid, which expires
January 31, 2011. As of the date hereof, the Corporation had not purchased any of its shares
pursuant to the bid.
CHANGEOVER TO INTERNATIONAL FINANCIAL REPORTING STANDARDS
Canadian publicly accountable enterprises, which include investment funds, are required to adopt
international financial reporting standards (“IFRS”), which will replace Canadian generally
accepted accounting principles (GAAP), for fiscal periods beginning on or after January 1, 2011.
The Company’s first set of consolidated financial statements to be reported on under IFRS will be
for the semi-annual period ended August 31, 2011, which will provide corresponding comparative
financial information for 2011, including an opening statement of net assets as at February 28,
2011. The Manager has established a project team responsible for the development and
implementation of a transition plan to ensure that the Company is able to meet its reporting
requirements. The three main elements of the transition plan include the following activities:
•
Identification of the differences between the current accounting policies of the Company,
which reflect current GAAP, and those expected to apply under IFRS and the likely
financial statement impact resulting from the adoption of IFRS
• Analyzing the impact on the business and reporting processes
•
Implementation of the required changes for the fiscal year ending February 29, 2012
Based on the Manager’s analysis of the Company’s current accounting policies and consolidated
financial statement presentation under GAAP against IFRS it is not expected that the adoption of
IFRS will have a material effect on the Company’s net assets or net asset value per share. The
primary impact of IFRS on the Company’s consolidated financial statements will be in the areas of
presentation and note disclosure.
However, additional changes to IFRS are expected to be issued during 2010 and, as a result
there is some uncertainty regarding the expected accounting standards that will be in place in
2011. Accordingly, the Manager is not yet in a position to conclusively determine the impact on
the Company’s financial statements upon the adoption of IFRS.
Throughout the balance of 2010 and early 2011, the Manager will continue monitoring new
standards and recommendations as they are issued by both the International Accounting
Standards Board, who is responsible for the development and publication of IFRS, and the
Canadian Accounting Standards Board to update its analysis as appropriate. By 2011, the
- 9 -
Manager expects to complete this analysis, determine overall financial statement presentation,
including note disclosure, and complete its assessment and initiate any changes required with
respect to its business arrangements.
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”); 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; and f) a fee equal to 1.5% of the
gross value of any uranium held by Uranium Corp prior to the completion of any acquisition of at
least 90% of the common shares of the Corporation.
In March 2010, the initial term of the management services agreement was extended to March
30, 2013, following which, the agreement may be terminated by either party upon the provision of
180 days written notice.
In accordance with the Management Services Agreement, all uranium investments owned by
Uranium Corp are held in accounts with conversion and enrichment facilities in the name of
Denison Mines Inc. as manager for and on behalf of Uranium Corp.
In August 2008, Uranium Corp purchased 50,000 pounds of U3O8 from the Manager at a price of
US$64.50 per pound for total consideration of $3,373,000 (US$3,225,000).
The following additional transactions were incurred with the Manager during the years ended
February 28, 2010 and 2009:
(in thousands of Canadian dollars)
2010
2009
Fees incurred with the Manager:
Management fees
Equity financing and other fees (1)
Transaction fees – uranium purchase commissions
Shareholder information and other compliance
General office and miscellaneous
Total fees incurred with the Manager
$ 1,479
250
1,118
28
7
$ 2,882
$ 1,560
200
1,246
37
3
$ 3,046
(1) Equity financing fees of $200,000 incurred with the Manager have been recorded as share issue costs and are
included in the value reported for common shares.
As at February 28, 2010, accounts payable and accrued liabilities included $103,000 (February
28, 2009: $127,000) due to the Manager with respect to the fees indicated above.
- 10 -
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 value 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.
February
2010 (1)
February
2009 (1)
February
2008 (1)
February
2007 (1)
February
2006 (2)
Net asset value return (loss) – basic
Net asset value return (loss) – diluted
Market value return (loss)
(20.6%)
(20.6%)
1.8%
(16.4%)
(16.4%)
(47.6%)
(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.
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.
February
2010 (1)
February
2009 (1)
February
2008 (1)
February
2007 (1)
February
2006 (1)
Net asset value return – basic
Net asset value return – diluted
Market value return
S&P / TSX Composite Index (2)
4.4%
4.4%
3.5%
4.1%
11.7%
11.7%
3.9%
(3.8%)
23.0%
23.0%
30.5%
12.7%
57.6%
54.2%
65.0%
17.2%
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.
- 11 -
SUMMARY OF INVESTMENT PORTFOLIO
Uranium Corp’s investment portfolio consists of the following as at February 28, 2010:
(in thousands of Canadian dollars, except quantity
amounts)
Quantity of
Measure
Cost (1)
Market
Value (2)
Investments in Uranium:
Uranium oxide in concentrates (“U3O8”)
Uranium hexafluoride (“UF6”) (3)
5,545,000 lbs
$ 268,445 $ 243,681
1,962,230 KgU $ 341,003 $ 235,461
$ 609,448 $ 479,142
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
$
$
48.41 $ 43.95
43.41 $ 41.75
$ 173.78 $ 120.00
$ 159.48 $ 114.00
(1) The cost of the portfolio excludes transaction fees incurred since the Company’s inception.
(2) The market values have been translated to Canadian dollars using the February 28, 2010 noon foreign exchange
rate of 1.0526.
(3) The Company has transferred 1,332,230 KgU as UF6 and taken in exchange 3,480,944 pounds of U3O8, effectively
lending the conversion component of the UF6.
- 12 -
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 consolidated
financial statements.
Net Asset Value per Share
February
2010 (1)
February
2009 (1)
February
2008 (1)
February
2007 (1)
February
2006 (2)
Net Asset Value per Share – Basic:
Net asset value, beginning of period (3)
$
7.49 $
8.96 $ 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)
0.07 $
0.04 $
0.13 $
$
0.03
$ (0.06) $ (0.08) $ (0.16) $ (0.15) $ (0.22)
0.93 $ (2.06) $ (0.38)
$
$
− $
−
1.30
$ (1.77) $ (1.83) $ (3.81) $
0.27 $
− $
0.18 $
− $
− $
8.45 $
0.03 $
Total increase (decrease) from operations
$ (1.61)
$ (1.58)
$ (2.91)
$
6.27
$
0.73
Net asset value, end of period (3)
$
5.95
$
7.49
$
8.96
$ 11.95
$
5.69
Net asset value per share – diluted:
Net asset value, beginning of period (3)
$
7.49 $
8.96 $ 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)
0.07 $
0.04 $
0.13 $
$
0.03
$ (0.06) $ (0.08) $ (0.16) $ (0.14) $ (0.22)
0.93 $ (1.97) $ (0.38)
$
$
− $
−
1.30
$ (1.77) $ (1.83) $ (3.81) $
0.27 $
− $
0.18 $
− $
− $
8.08 $
0.03 $
Total increase (decrease) from operations
$ (1.61)
$ (1.58)
$ (2.91)
$
6.00
$
0.73
Net asset value, end of period (3)
$
5.95
$
7.49
$
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.
- 13 -
Ratios and Supplemental Data
(in millions, except for ratios
and TSX market prices)
February
2010 (1)
February
2009 (1)
February
2008 (1)
February
2007 (1)
February
2006 (2)
Total net asset value, end of period
Average net asset value for the period
Number of common shares outstanding
Management expense ratio (3)
Total expenses before taxes (4)
Income tax provision (recovery)
Portfolio turnover rate
Trading expense ratio (5)
Closing TSX market price per common share
$ 509.6 $ 541.4 $ 582.5 $ 579.4 $ 175.0
$ 555.8 $ 585.1 $ 708.5 $ 336.6 $ 116.0
30.8
85.7
48.5
72.3
65.0
1.01%
0.79%
0.61%
1.11%
(2.67%) (3.32%) (7.87%) 25.05%
−
−
−
0.22%
0.73%
0.32%
$ 6.05 $ 11.55 $ 14.15
−
0.23%
$ 6.16
2.45%
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) Transaction costs are excluded from total expenses in calculating the management expense ratio. These costs are
included in the trading expense ratio calculation.
(5) Represents total transaction costs 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,
Uranium Participation Corporation’s (“Company” or “Uranium Corp”) management is responsible for the
integrity and fairness of presentation of these consolidated financial statements. The 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.
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 Audit 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, and reports its findings to the Board of Directors, prior to the
Board approving such information for issuance to the shareholders. The Audit Committee also considers, for
review by the Board and approval by the shareholders, the engagement or reappointment of the Company’s
independent auditors.
Ron Hochstein
President
April 22, 2010
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 as at February 28, 2010 and 2009, the consolidated statements of operations, changes in net
assets and cash flows for the years ended February 28, 2010 and 2009 and the consolidated statement of
investment portfolio as at February 28, 2010. 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 28, 2010 and 2009 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 22, 2010
- 16 -
Financial Statements
URAN IU M PARTIC IPATION COR PORA T ION
C O N SO L ID A T ED S T A T E M ENT S O F N ET A S S E T S
A S AT FEBRUAR Y 28, 2010 and 2009
(in thousands of Canadian dollars, except per share amounts)
As set s
Investments at market value
(at cost: 2010-$609,448; 2009-$534,031)
Cash and cash equivalents
Sundry receivables and other assets
Future income taxes (note 3)
L iab ilit ies
Accounts payable and accrued liabilities
Income taxes payable
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)
Contributed surplus (note 4)
Deficit
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 and diluted
2010
2009
$479,142
$549,128
22,673
1,098
13,131
$516,044
1,242
159
5,051
$509,592
1,057
878
13,084
$564,147
1,399
108
21,243
$541,397
$653,841
2,481
(146,730)
$509,592
$553,576
2,481
(14,660)
$541,397
85,697,341
72,328,591
$
5.95
$
7.49
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 STATEMEN T S O F O P ER A T I ON S
YEAR S END ED FEBRUAR Y 28, 2010 and 2009
(in thousands of Canadian dollars)
2010
2009
Income
Interest
Income from investment lending (note 6)
Unrealized losses on investments
Operating expenses
Transaction fees (note 5)
Management fees (note 5)
Storage fees
Audit fees
Directors fees
Independent review committee fees and expenses
Legal and other professional fees
Shareholder information and other compliance
General office and miscellaneous
Foreign exchange loss (gain)
Decrease in net assets from operations before taxes
$
63
3,125
(145,403)
(142,215)
1,320
1,479
1,787
50
125
9
24
155
302
(575)
4,676
(146,891)
$
169
4,581
(131,753)
(127,003)
1,290
1,560
1,350
78
96
6
25
220
354
952
5,931
(132,934)
Income tax recovery (note 3)
(14,821)
(19,417)
Decrease in net assets from operations after taxes
(132,070)
(113,517)
Opening retained earnings (deficit)
Closing deficit
(14,660)
98,857
(146,730)
(14,660)
Decrease in net assets from operations after taxes per common share
Basic and diluted
$
(1.60)
$
(1.58)
Weighted average common shares outstanding
Basic and diluted
82,355,154
72,020,143
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 EMENTS OF CHANGES IN N ET A SSETS
YEAR S END ED FEBRUAR Y 28, 2010 and 2009
(in thousands of Canadian dollars)
Net assets at beginning of year
Net proceeds from issue of shares after tax (note 4)
Decrease in net assets from operations after taxes
Net assets at end of year
2010
2009
$541,397
$582,545
100,265
(132,070)
72,369
(113,517)
$509,592
$541,397
URAN IU M PARTIC IPATION COR PORA T ION
CON SOLIDATED STATEMEN T S O F C A SH F LOW S
YEAR S END ED FEBRUAR Y 28, 2010 and 2009
(in thousands of Canadian dollars)
2010
2009
Operating Activities
Decrease in net assets from operations after taxes
Adjustments for non-cash items:
Unrealized losses on investments
Future income tax recovery (note 3)
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
Share issues net of issue costs (note 4)
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
$(132,070)
$(113,517)
145,403
(14,874)
131,753
(19,482)
(220)
–
(157)
51
(1,867)
235
23
369
(282)
(901)
(75,417)
(75,417)
(83,085)
(83,085)
98,900
98,900
71,356
71,356
21,616
1,057
$ 22,673
(12,630)
13,687
$ 1,057
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 28, 2010
(in thousands of Canadian dollars, except quantity amounts)
Quantity of
Measure
Cost (1)
Market
Value (2)
Investments in Uranium:
Uranium oxide in concentrates (“U3O8”)
Uranium hexafluoride (“UF6”) (3)
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
5,545,000 lbs
$ 268,445 $ 243,681
1,962,230 KgU $ 341,003 $ 235,461
$ 609,448 $ 479,142
$
$
48.41 $
43.41 $
43.95
41.75
$ 173.78 $
$ 159.48 $
120.00
114.00
(1)
(2)
(3)
The cost of the portfolio excludes transaction fees incurred since the Company’s inception.
The market values have been translated to Canadian dollars using the February 28, 2010 noon foreign exchange rate of 1.0526.
The Company has transferred 1,332,230 KgU as UF6 to a third party and taken back in exchange 3,480,944 pounds of U3O8, in
order to effect a lending of the conversion component of the UF6. See note 6 for further details of this arrangement.
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
(Expressed in Canadian dollars, unless otherwise noted)
1. 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 hexaflouride (“UF6”)
(collectively “uranium”) with the primary investment objective of achieving appreciation in the value of its
uranium holdings. The common shares of Uranium Corp trade 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 (“UPCL”). The consolidated financial statements have been
prepared in accordance with Canadian generally accepted accounting principles (“GAAP”). All significant
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 (“UxCo”) 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 and highly liquid investments with a maturity of three months
or less at the date of acquisition. 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.
New Accounting Standards
Uranium Corp adopted the following new Canadian Institute of Chartered Accountants (“CICA”) Handbook
accounting standards effective March 1, 2009:
(a) Section 3855 “Financial Instruments” was amended to clarify when an embedded prepayment option is
separated from its host debt instrument for account purposes. Adoption of this standard did not have any
material effect on the consolidated financial statements.
(b) Section 3862 “Financial Instruments – Disclosures” was amended to include additional disclosure
requirements about fair value measurements of financial instruments and to enhance liquidity risk
disclosure requirements. These amendments apply to annual financial statements relating to fiscal years
ending after September 30, 2009. Adoption of this standard did not have any material effect on the
consolidated financial statements.
Uranium Corp will adopt the following new CICA Handbook accounting standards effective March 1, 2010:
(a) Section 1582 “Business Combinations” replaces Sections 1581 “Business Combinations” which provides
the Canadian equivalent to International Financial Reporting Standard (“IFRS”) IFRS 3 “Business
Combinations”. Section 1601 “Consolidated Financial Statements” and Section 1602 “Non-Controlling
Interests” replaces Section 1600 “Consolidated Financial Statements” and establishes standards for the
preparation of consolidated financial statements. Section 1582 applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the first annual reporting period
after January 1, 2011. Sections 1601 and 1602 are required for interim and annual consolidated financial
statements relating to fiscal years beginning on or after January 1, 2011. The Company does not expect
the adoption of these new standards to have a significant impact on the consolidated financial statements.
- 22 -
Financial Statements
3.
INCOME TAXES
Unlike most investment funds, Uranium Corp is not a mutual fund trust, making it subject to income tax on
its taxable income. Uranium Corp is also subject to varying rates of taxation due to its operations in
multiple tax jurisdictions. A reconciliation of the combined Canadian federal and Ontario provincial
income tax rate to Uranium Corp’s effective rate of income tax for the years ended February 28, 2010 and
2009 is as follows:
(in thousands)
2010
2009
Increase (decrease) in net assets from operations before income
taxes
Combined federal and Ontario provincial income tax rate
Computed income tax expense (recovery)
$(146,891)
$(132,934)
32.83%
(48,224)
33.42%
(44,427)
Difference in current tax rates applicable in other jurisdictions
Difference between future and current tax rates
Foreign exchange on future tax balances
Change in valuation allowance
Impact of legislative changes
Taxable permanent differences
Other
Income tax recovery
Income tax recovery comprised of:
Current tax expense
Future tax recovery
26,840
2,553
1,672
576
1,542
–
220
$(14,821)
20,814
3,206
(738)
1,702
–
410
(384)
$(19,417)
$
53
(14,874)
$(14,821)
$
65
(19,482)
$(19,417)
The components of the Company’s future tax balances at February 28, 2010 and 2009 are as follows:
(in thousands)
2010
2009
Future tax assets:
Tax benefit of share issue costs
Tax benefit of loss carryforwards
Unrealized loss on investments
Valuation allowance
Future tax assets
Future tax liabilities:
Unrealized gain on investments
Tax benefit of loss carryforwards
Future tax liabilities
$ 2,592
7,270
5,547
15,409
(2,278)
$ 13,131
$ 3,511
6,304
4,971
14,786
(1,702)
$ 13,084
$ 6,005
(954)
$ 5,051
$ 22,203
(960)
$ 21,243
At February 28, 2010, Uranium Corp has unused tax losses in Canada of $32,895,000 which are
scheduled to expire between 2026 and 2030.
- 23 -
Financial Statements
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. A
continuity schedule of the issued and outstanding common shares and the associated dollar amounts is
as follows:
(in thousands except common share balances)
Number of
Common
Shares
Amount
Balance at February 29, 2008
64,991,841
$481,203
Common share financings
Gross proceeds on new issues
Issue costs
Tax effect of issue costs
Warrant activity
Gross proceeds from exercises
Fair value of exercises
7,331,250
–
–
5,500
–
74,779
(3,489)
1,013
66
4
Balance at February 28, 2009
72,328,591
$553,576
Common share financings
Gross proceeds on new issues
Issue costs
Tax effect of issue costs
Balance at February 28, 2010
Common share financings
13,368,750
–
–
103,608
(4,708)
1,365
85,697,341
$653,841
In May 2009, Uranium Corp issued 13,368,750 shares by way of a public offering priced at $7.75 per
share for total gross proceeds of $103,608,000.
In March 2008, Uranium Corp issued 7,331,250 shares by way of a public offering priced at $10.20 per
share for total gross proceeds of $74,779,000.
Warrants
A continuity schedule of the issued and outstanding warrants and the associated dollar amounts is as
follows:
(in thousands except warrant balances)
Balance at February 29, 2008
Warrants exercised
Warrants expired
Number of
Warrants
Amount
2,828,799
$ 2,455
(5,500)
(2,823,299)
(4)
(2,451)
Balance at February 28, 2009 and 2010
–
$
–
Each whole warrant issued as part of the September 2006 equity unit financing had an expiry date of
September 15, 2008 and was convertible into one common share at an exercise price of $12.00.
- 24 -
Financial Statements
5. RELATED PARTY TRANSACTIONS
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”); 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; and f) a fee equal
to 1.5% of the gross value of any uranium held by Uranium Corp prior to the completion of any acquisition
of at least 90% of the common shares of the Company.
In March 2010, the initial term of the management services agreement was extended to March 30, 2013,
following which, the agreement may be terminated by either party upon the provision of 180 days written
notice.
In accordance with the management services agreement, all uranium investments owned by Uranium
Corp are held in accounts with conversion and enrichment facilities in the name of Denison Mines Inc. as
manager for and on behalf of Uranium Corp.
In August 2008, Uranium Corp purchased 50,000 pounds of U3O8 from the Manager at a price of
US$64.50 per pound for total consideration of $3,373,000 (US$3,225,000).
The following additional transactions were incurred with the Manager for the years ended February 28,
2010 and 2009:
(in thousands)
2010
2009
Fees incurred with the Manager:
Management fees
Equity financing and other fees (1)
Uranium purchase commissions
Shareholder information and other compliance
General office and miscellaneous
Total fees incurred with the Manager
$ 1,479
250
1,118
28
7
$ 2,882
$ 1,560
200
1,246
37
3
$ 3,046
(1)
Equity financing fees of $200,000 incurred with the Manager have been recorded as share issue costs and are included in the
value reported for common shares.
As at February 28, 2010, accounts payable and accrued liabilities included $103,000 (February 28, 2009:
$127,000) due to the Manager with respect to the fees indicated above.
- 25 -
Financial Statements
6.
INVESTMENTS LENDING
Uranium Corp entered into a loan agreement to lend 500,000 KgU as UF6 effective January 1, 2007. The
UF6 loaned was subject to a loan fee of 5% per annum based upon the adjusted quarterly value of the
material. Collateral was held in the form of an irrevocable letter of credit from a major financial instituition,
that was subject to adjustment on an annual basis. The agreement expired on December 31, 2009 with
the UF6 returned on that date.
The Company entered into a loan of the conversion component of 1,332,230 KgU as UF6 in December
2009. The conversion component has a market value of $8,063,000 and is subject to a loan fee of 4.5%
per annum based on the greater of the adjusted monthly value and US$15,654,000. To facilitate the loan
of the conversion component, 1,332,230 KgU as UF6 was transferred to the borrower with 3,480,944
pounds of U3O8 transferred to Uranium Corp and an irrevocable letter of credit of $16,526,000 from a
major financial institution received as collateral. This agreement is due to expire in December 2012.
7. CAPITAL MANAGEMENT AND FINANCIAL INSTRUMENTS
Capital Management
Uranium Corp’s capital structure consists of share capital and contributed surplus. The Company’s
primary objective 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. Uranium purchases are normally funded through common share offerings with at least 85% of the
gross proceeds of aggregate share offerings invested in, or set aside for future purchases of uranium. In
strictly limited circumstances, the Company can enter into borrowing arrangements for up to 15% of the
net assets of Uranium Corp to facilitate the purchases of uranium.
At February 28, 2010, the Company has invested 89.9% of aggregate share offerings in uranium, and has
no outstanding borrowing arrangements for the purchase of uranium.
Risks Associated with Financial Instruments
Investment activities of Uranium Corp expose it to some financial instrument risks: credit risk, liquidity risk,
and currency risk. The source of risk exposure and how each is managed is outlined below:
Credit Risk
Uranium Corp’s primary exposure to credit risk arises from its lending arrangements related to its uranium
holdings. The Company enters into lending arrangements exclusively with large organizations with strong
credit ratings and ensures that adequate security is provided for any material loaned (see note 6).
Liquidity Risk
Financial liquidity represents Uranium Corp’s ability to fund future operating activities. Uranium Corp may
generate cash from the lending or sale of uranium, or the sale of additional equity securities. The
Company’s current cash balance and income from the lending of uranium is currently sufficient to meet its
operating cash requirements. Although Uranium Corp enters into commitments to purchase uranium
periodically, the commitments are normally contingent on the Company’s ability to raise funds through the
sale of additional equity securities.
Foreign Exchange Risk
Changes in the value of the Canadian dollar compared to foreign currencies will affect the value, as
reported, of the Company’s foreign denominated cash and cash equivalents, receivables, and accounts
payables.
- 26 -
Financial Statements
Currently, Uranium Corp does not have any foreign exchange hedge programs in place and manages its
operational foreign exchange requirements through spot purchases in the foreign exchange markets.
8. SUBSEQUENT EVENTS
On March 30, 2010, Uranium Corp completed the acquisition of Uranium Limited (“UL”) pursuant to a
scheme of arrangement under the laws of Guernsey. Under the terms of the transaction, Uranium Corp
acquired all of the issued and outstanding shares of UL in a share exchange at a ratio of 0.5 common
shares of Uranium Corp for each common share of UL. Upon the close of the acquisition, 20,624,672
common shares of Uranium Corp were issued to UL shareholders, representing 19.4% of the total issued
and outstanding common shares of Uranium Corp. Uranium Corp also assumed outstanding, fully-vested
stock options to purchase 2,475,000 common shares of UL at a strike price of GBP£2.05 per option with
an expiry date of July 21, 2011. Each option assumed is exercisable for 0.50 shares of Uranium Corp.
- 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
Corporate Director; formerly Vice Chairman
Investment Banking, TD Securities Inc.
Kelvin H. Williams
Corporate Director; formerly Chairman of the Board
of Nufcor S.A and Uranium Limited and executive
director of AngloGold Ashanti Limited
OFFICERS
Ron Hochstein
President
James R. Anderson
Chief Financial Officer
Donald C. Campbell
Vice President, Commercial
Curt Steel
Vice President, Marketing
Sheila Colman
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.tmx.com
ANNUAL GENERAL MEETING OF SHAREHOLDERS
The Annual General Meeting of the Shareholders of Uranium
Participation Corporation will be held in the Belgravia Room,
Le Meridien King Edward, 37 King Street East, Toronto,
Ontario on Tuesday, the 22nd day of June, 2010 at 10:00 a.m.
(Eastern Time).
Managed by:
Atrium on Bay, 595 Bay Street, Suite 402, Toronto, Ontario M5G 2C2
www.denisonmines.com