THIS NEWS RELEASE IS NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR
DISSEMINATION IN THE UNITED STATES
Uranium Participation Corporation ("UPC" or the "Corporation") (TSX:U) reports
results for the six months ended August 31, 2012. All amounts are in Canadian
currency unless otherwise noted.
Net asset value decreased $41.8 million to $670.4 million at August 31, 2012
from $712.2 million at February 29, 2012 primarily due to unrealized losses on
uranium holdings. As reported by Ux Consulting Company, LLC, spot prices for
U3O8 and UF6 decreased to US$48.50 per pound and US$133.75 per KgU at August 31,
2012 from US$52.00 per pound and US$141.00 per KgU at February 29, 2012,
respectively. This resulted in net asset value per common share decreasing to
$6.30 at August 31, 2012 from $6.70 at February 29, 2012.
The Company recorded $42.2 million in unrealized losses on its uranium
investment due to the decline in the spot price of uranium during the period.
This was offset by $0.4 million in income from investment lending and interest.
Expenses totaling $2.1 million due primarily to management and storage fees was
offset by $2.0 million in future income tax recoveries related to the unrealized
losses.
About Uranium Participation Corporation
Uranium Participation Corporation is an investment holding company which invests
substantially all of its assets in uranium oxide in concentrates (U3O8) and
uranium hexafluoride (UF6) (collectively "uranium"), with the primary investment
objective of achieving appreciation in the value of its uranium holdings.
Additional information about Uranium Participation Corporation is available on
SEDAR at www.sedar.com and on Uranium Participation Corporation's website at
www.uraniumparticipation.com.
URANIUM PARTICIPATION CORPORATION
INTERIM MANAGEMENT REPORT OF FUND PERFORMANCE
AUGUST 31, 2012
DISCLOSURE
This Interim Management Report of Fund Performance contains financial highlights
but does not contain either the interim financial report or annual consolidated
financial statements of Uranium Participation Corporation ("UPC" or the
"Corporation"). You can get a copy of the interim financial report or 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 UPC's quarterly
portfolio disclosure.
UPC holds physical commodities and not equity security investments. As a result,
UPC does not have an investment proxy voting disclosure record, nor does it have
proxy voting policies and procedures.
This Interim Management Report of Fund Performance is current as of October 3,
2012, and has been prepared in accordance with International Financial Reporting
Standards ("IFRS"), unless otherwise noted. All amounts are in Canadian dollars
unless otherwise indicated.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Interim Management Report of Fund Performance contains certain
forward-looking statements and forward-looking information that are based on the
Corporation'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", "intend",
"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
UPC, may cause actual results to differ materially from the expectations
expressed in the forward-looking statements. For a list of the principal risks
of an investment in UPC, please refer to the "RISK FACTORS" section of UPC's
Annual Information Form dated April 26, 2012.
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, UPC does not undertake to update any
forward-looking information.
RESULTS OF OPERATIONS
UPC's basic net asset value per common share ("NAV") decreased from $6.70 per
share at February 29, 2012 to $6.30 at August 31, 2012 representing a basic NAV
loss of 6.0%. Over the comparable time period, UPC's benchmark, the S&P/TSX
Composite Index, decreased by 5.5%.
UPC's net asset value at August 31, 2012 was $670,350,000 representing a 5.9%
decrease from its net asset value of $712,160,000 at February 29, 2012. The
entire net asset value decrease of $41,810,000 was attributable to investment
operation performance.
Investment Portfolio
UPC did not acquire any additional uranium oxide in concentrates ("U3O8") or
uranium hexafluoride ("UF6") in the period.
The total cost of UPC's U3O8 holdings at August 31, 2012 remains $342,495,000 or
$47.24 per pound (US$43.23 per pound), compared to its fair value of
$346,808,000 or $47.84(1) per pound (US$48.50(1) per pound). This represents an
increase of 1.3% relative to its cost or 12.2% on a U.S. dollar basis.
The total cost of UPC's UF6 holdings at August 31, 2012 remains $389,998,000 or
$164.26 per KgU (US$152.06 per KgU), compared to its fair value of $313,203,000
or $131.92(1) per KgU (US$133.75(1) per KgU). This represents a decrease of
19.7% relative to its cost or 12.0% on a U.S. dollar basis.
(1) Reflects spot prices published by Ux Consulting Company, LLC ("UxCo") on
August 31, 2012 of US$48.50 per pound for U3O8 and US$133.75 per KgU for UF6
translated at a foreign exchange rate of 0.9863.
Investment Performance
Investment operation losses of $41,810,000 in the six months ended August 31,
2012 were largely driven by the change in unrealized losses on uranium
investments of $42,218,000, net of tax recoveries of $2,034,000.
The change in unrealized losses on investments reflects the weakening of U3O8
and UF6 spot prices. As reported by UxCo, spot prices for U3O8 decreased from
US$52.00 per pound at February 29, 2012 to US$48.50 per pound at August 31,
2012. UF6 similarly decreased from US$141.00 at February 29, 2012 to US$133.75
at August 31, 2012. Prices have decreased subsequent to this reporting date
(refer to "RECENT DEVELOPMENTS" section below).
RECENT DEVELOPMENTS
In July 2012, UPC filed a normal course issuer bid ("NCIB") with the Toronto
Stock Exchange authorizing the Corporation to purchase up to 9,273,299 common
shares of the Corporation during the 12-month period commencing July 31, 2012
and ending July 30, 2013 or on such earlier date as UPC completes its purchases.
The purpose of the NCIB is to provide the Corporation with a mechanism to
decrease the potential spread between the NAV and the market price of the
shares. At October 3, 2012, UPC has not repurchased any of its common shares
under this NCIB.
In August 2012, the maturity date of the outstanding loan of the conversion
component of 1,332,230 KgU as UF6 was extended to December 2013 with an option
to further extend the loan to December 2014, at the borrower's discretion.
As reported by UxCo as at October 1, 2012, the spot price of U3O8 has decreased
to US$45.75 per pound from US$48.50 per pound on August 31, 2012, a decrease of
5.7% while the value of UF6 has decreased to US$128.54(2) per KgU from US$133.75
per KgU on August 31, 2012, a decrease of 3.9%.
RELATED PARTY TRANSACTIONS
The following outlines income earned and fees paid to Denison Mines Inc. (the
"Manager") in the six months ended August 31, 2012 and 2011:
----------------------------------------------------------------------------
(in thousands) 2012 2011
----------------------------------------------------------------------------
Income from investment lending with the Manager $ - $ 35
Fees incurred with the Manager:
Management fees $ 863 $ 915
----------------------------------------------------------------------------
Net fees incurred with the Manager $ 863 $ 880
----------------------------------------------------------------------------
----------------------------------------------------------------------------
As at August 31, 2012, accounts payable and accrued liabilities included
$163,000 due to the Manager with respect to the fees indicated above.
(2) UF6 value is obtained by adding (i) the spot price for U3O8 multiplied by
2.61285; and (ii) the spot conversion price.
FINANCIAL HIGHLIGHTS
The following tables show selected key financial information about UPC and are
intended to help you understand UPC's financial performance for the six months
ended August 31, 2012 and the past five reporting periods ended February 2008 to
2012. This information is derived from the Corporation's unaudited interim and
audited annual consolidated financial statements.
Net Asset Value per Share
----------------------------------------------------------------------------
August February February February February February
2012(1) 2012(2) 2011(2) 2010(2) 2009(2) 2008(2)
----------------------------------------------------------------------------
NAV - Basic:
NAV,
beginning
of period $ 6.70 $ 8.79 $ 5.95 $ 7.49 $ 8.96 $ 11.95
----------------------------------------------------------------------------
Increase
(decrease)
from
operations
(3):
Total
revenue $ - $ 0.01 $ 0.01 $ 0.04 $ 0.07 $ 0.13
Total
expenses
before
taxes $ (0.02) $ (0.04) $ (0.08) $ (0.06)$ (0.08)$ (0.16)
Income tax
recovery
(expense) $ 0.02 $ 0.17 $ (0.29) $ 0.18 $ 0.27 $ 0.93
Realized
gains
(losses)
for the
period $ - $ - $ - $ - $ - $ -
Unrealized
gains
(losses)
for the
period $ (0.40) $ (2.23) $ 3.24 $ (1.77)$ (1.83)$ (3.81)
----------------------------------------------------------------------------
Total
increase
(decrease)
from
operations $ (0.40) $ (2.09) $ 2.88 $ (1.61)$ (1.58)$ (2.91)
----------------------------------------------------------------------------
NAV, end of
period $ 6.30 $ 6.70 $ 8.79 $ 5.95 $ 7.49 $ 8.96
----------------------------------------------------------------------------
NAV -
Diluted:
NAV,
beginning
of period $ 6.70 $ 8.76 $ 5.95 $ 7.49 $ 8.96 $ 11.43
----------------------------------------------------------------------------
Increase
(decrease)
from
operations
(3 ):
Total
revenue $ - $ 0.01 $ 0.01 $ 0.04 $ 0.07 $ 0.13
Total
expenses
(recovery) $ (0.02) $ (0.04) $ (0.08) $ (0.06)$ (0.08)$ (0.16)
Income tax
recovery
(expense) $ 0.02 $ 0.17 $ (0.29) $ 0.18 $ 0.27 $ 0.93
Realized
gains
(losses)
for the
period $ - $ - $ - $ - $ - $ -
Unrealized
gains
(losses)
for the
period $ (0.40) $ (2.23) $ 3.24 $ (1.77)$ (1.83)$ (3.81)
----------------------------------------------------------------------------
Total
increase
(decrease)
from
operations $ (0.40) $ (2.09) $ 2.88 $ (1.61)$ (1.58)$ (2.91)
----------------------------------------------------------------------------
NAV, end of
period $ 6.30 $ 6.70 $ 8.76 $ 5.95 $ 7.49 $ 8.96
----------------------------------------------------------------------------
(1) For the six months ended August 31, 2012.
(2) For the twelve months ended.
NAV is based on the actual number of common shares outstanding at the
relevant time. The increase (decrease) from operations is based on the
(3) weighted average number of common shares outstanding over the financial
period.
Ratios and Supplemental Data
----------------------------------------------------------------------------
(in
millions,
except for
ratios, NAV
and TSX
market August February February February February February
prices) 2012(1) 2012(2) 2011(2) 2010(2) 2009(2) 2008(2)
----------------------------------------------------------------------------
Total net
asset
value, end
of period $ 670.4 $ 712.2 $ 934.5 $ 509.6 $ 541.4 $ 582.5
Number of
common
shares
outstanding 106.4 106.4 106.3 85.7 72.3 65.0
Average net
asset value
for the
period $ 705.9 $ 760.7 $ 729.5 $ 555.8 $ 585.1 $ 708.5
Management
expense
ratio(3)
Excluding
income tax
expense
(recovery) 0.29% 0.61% 0.68% 0.61% 0.79% 1.01%
Including
income tax
expense
(recovery) - (1.89%) 4.81% (2.06%) (2.53%) (6.86%)
Trading
expense
ratio(4) - - 0.46% 0.23% 0.22% 0.32%
Portfolio
turnover
rate - - - - - -
NAV, end of
period $ 6.30 $ 6.70 $ 8.79 $ 5.95 $ 7.49 $ 8.96
Closing TSX
market
price per
common
share $ 5.38 $ 6.03 $ 9.03 $ 6.16 $ 6.05 $ 11.55
----------------------------------------------------------------------------
(1) For the six months ended August 31, 2012.
(2) For the twelve months ended.
(3) The management expense ratio is based on total expenses (excluding
commissions and other portfolio transaction costs) for the stated period
and is expressed as an annualized percentage of the average net asset
value during the period.
(4) The trading expense ratio represents total commissions and other
portfolio transaction costs expressed as an annualized percentage of the
average net asset value during the period.
PAST PERFORMANCE
The following tables and graphs illustrate the past performance of the NAV
Return (Loss) and share price ("Market Value Return (Loss)") of UPC and will not
necessarily indicate how UPC will perform in the future. NAV Return (Loss) is
the best representation of the performance of UPC while Market Value Return
(Loss) is the best representation of the return to a shareholder of UPC.
Year-by-Year Returns
The table and graph below shows the annual and interim performance, in NAV
Return (Loss) and Market Value Return (Loss) of UPC for each period indicated.
The table and graph shows, in percentage terms, how much an investment made on
the first day of each financial period would have increased or decreased by the
last day of each financial period.
----------------------------------------------------------------------------
Feb- Feb- Feb- Feb- Feb- Feb- Feb-
ruary ruary ruary ruary ruary ruary ruary August
2006(1) 2007(2) 2008(2) 2009(2) 2010(2) 2011(2) 2012(2) 2012(3)
----------------------------------------------------------------------------
NAV Return
(Loss) -
basic 18.3% 110.0% (25.0%) (16.4%) (20.6%) 47.7% (23.8%) (6.0%)
NAV Return
(Loss) -
diluted 18.3% 100.9% (21.6%) (16.4%) (20.6%) 47.2% (23.5%) (6.0%)
Market Value
Return
(Loss) 40.2% 94.1% (18.4%) (47.6%) 1.8% 46.6% (33.2%) (10.8%)
----------------------------------------------------------------------------
(1) Period from completion of initial public offering on May 10, 2005
through to February 28, 2006.
(2) For the twelve months ended.
(3) For the six months ended August 31, 2012.
To view the figure associated with this press release, please view the following
link: http://media3.marketwire.com/docs/UPCfigure1.pdf
SUMMARY OF INVESTMENT PORTFOLIO
UPC's investment portfolio consists of the following as at August 31, 2012:
----------------------------------------------------------------------------
(in thousands, except Quantity of Market
quantity amounts) Measure Cost(1) Value(2)
----------------------------------------------------------------------------
Investments in Uranium:
U3O8 7,250,000 lbs $ 342,495 $ 346,808
UF6(3) 2,374,230 KgU $ 389,998 $ 313,203
----------------------------------------------------------------------------
$ 732,493 $ 660,011
----------------------------------------------------------------------------
----------------------------------------------------------------------------
U3O8 average cost and market value per pound:
- In Canadian dollars $ 47.24 $ 47.84
- In United States
dollars $ 43.23 $ 48.50
UF6 average cost and market
value per KgU:
- In Canadian dollars $ 164.26 $ 131.92
- In United States
dollars $ 152.06 $ 133.75
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) The cost of the portfolio excludes transaction fees incurred.
(2) The market values have been translated to Canadian dollars using the
August 31, 2012 noon foreign exchange rate of 0.9863.
(3) The Corporation 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.
Due to on-going transactions of the Corporation, this summary of investment
portfolio may be inaccurate after August 31, 2012. Please check UPC's most
recently announced NAV for updated information on UPC's holdings.
URANIUM PARTICIPATION CORPORATION
INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
----------------------------------------------------------------------------
(in thousands of Canadian dollars, except At August 31, At February 29,
per share amounts) 2012 2012
----------------------------------------------------------------------------
Assets
Investments at market value (note 3) $ 660,011 $ 702,229
Cash and cash equivalents 12,595 14,321
Sundry receivables and other assets 287 294
----------------------------------------------------------------------------
Total assets $ 672,893 $ 716,844
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Liabilities
Accounts payable and accrued liabilities 1,436 1,529
Income taxes payable 120 134
Deferred tax liabilities (note 4) 987 3,021
----------------------------------------------------------------------------
Total liabilities $ 2,543 $ 4,684
----------------------------------------------------------------------------
Equity - Net assets represented by:
Share capital (note 5) $ 776,174 $ 776,174
Contributed surplus 4,564 4,564
Deficit (110,388) (68,578)
----------------------------------------------------------------------------
Total equity 670,350 712,160
----------------------------------------------------------------------------
Total liabilities and equity $ 672,893 $ 716,844
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Common shares
Issued and outstanding (note 5) 106,350,413 106,350,413
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net asset value per common share
Basic and diluted $ 6.30 $ 6.70
----------------------------------------------------------------------------
----------------------------------------------------------------------------
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
SIX MONTHS ENDED AUGUST 31, 2012 and 2011
----------------------------------------------------------------------------
(in thousands of Canadian dollars, except per
share amounts) 2012 2011
----------------------------------------------------------------------------
Income
Change in unrealized losses on investments
(note 3) $ (42,218) $ (272,924)
Income from investment lending (note 7) 357 379
Interest 86 90
----------------------------------------------------------------------------
(41,775) (272,455)
----------------------------------------------------------------------------
Expenses
Management fees (note 6) 863 915
Storage fees 860 1,004
Audit fees 22 34
Directors' fees 75 86
Legal and other professional fees 42 55
Shareholder information and other compliance 189 205
General office and miscellaneous 87 134
Foreign exchange loss (gain) (69) 32
----------------------------------------------------------------------------
2,069 2,465
----------------------------------------------------------------------------
Decrease in net assets from operations before
taxes (43,844) (274,920)
Income tax recovery (note 4) (2,034) (24,010)
----------------------------------------------------------------------------
Decrease in net assets from operations after
taxes (41,810) (250,910)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Decrease in net assets from operations after
taxes per common share
Basic and diluted $ (0.39) $ (2.33)
Weighted average common shares outstanding
Basic and diluted 106,350,413 107,456,688
----------------------------------------------------------------------------
----------------------------------------------------------------------------
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)
SIX MONTHS ENDED AUGUST 31, 2012 and 2011
----------------------------------------------------------------------------
(in thousands of Canadian Retained
dollars) Share Contributed earnings Total
capital surplus (deficit) equity
----------------------------------------------------------------------------
Balance at February 29, 2012 $ 776,174 $ 4,564 $ (68,578) $ 712,160
Decrease in net assets from
operations after taxes - - (41,810) (41,810)
----------------------------------------------------------------------------
Balance at August 31, 2012 $ 776,174 $ 4,564 $ (110,388) $ 670,350
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance at February 28, 2011 $ 775,942 $ 3,588 $ 154,925 $ 934,455
Stock options exercised 9,058 (1,107) - 7,951
Decrease in net assets from
operations after taxes - - (250,910) (250,910)
----------------------------------------------------------------------------
Balance at August 31, 2011 $ 785,000 $ 2,481 $ (95,985) $ 691,496
----------------------------------------------------------------------------
----------------------------------------------------------------------------
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED AUGUST 31, 2012 and 2011
----------------------------------------------------------------------------
(in thousands of Canadian dollars) 2012 2011
----------------------------------------------------------------------------
Operating Activities
Decrease in net assets from operations after taxes $ (41,810) $ (250,910)
Adjustments for non-cash items:
Change in unrealized losses on investments (note 3) 42,218 272,924
Deferred income tax recovery (note 4) (2,034) (24,010)
Changes in non-cash working capital:
Change in sundry receivables and other assets 7 63
Change in accounts payable and accrued liabilities (93) 124
Change in income taxes payable (14) -
----------------------------------------------------------------------------
Net cash used in operating activities (1,726) (1,809)
----------------------------------------------------------------------------
Financing Activities
Stock option exercises - 7,951
----------------------------------------------------------------------------
Net cash generated by financing activities - 7,951
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (1,726) 6,142
----------------------------------------------------------------------------
Cash and cash equivalents - beginning of period 14,321 16,659
----------------------------------------------------------------------------
Cash and cash equivalents - end of period $ 12,595 $ 22,801
----------------------------------------------------------------------------
----------------------------------------------------------------------------
INTERIM CONSOLIDATED STATEMENT OF INVESTMENT PORTFOLIO (UNAUDITED)
AS AT AUGUST 31, 2012
----------------------------------------------------------------------------
(in thousands of Canadian dollars, Quantity of Cost(1) Market
except quantity amounts) Measure Value(2)
----------------------------------------------------------------------------
Investments in Uranium:
Uranium oxide in concentrates
("U3O8") 7,250,000 lbs $ 342,495 $ 346,808
Uranium hexafluoride ("UF6") (3) 2,374,230 KgU $ 389,998 $ 313,203
----------------------------------------------------------------------------
$ 732,493 $ 660,011
----------------------------------------------------------------------------
----------------------------------------------------------------------------
U3O8 average cost and market
value per pound:
- In Canadian dollars $ 47.24 $ 47.84
- In United States dollars $ 43.23 $ 48.50
UF6 average cost and market value
per KgU:
- In Canadian dollars $ 164.26 $ 131.92
- In United States dollars $ 152.06 $ 133.75
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) The cost of the portfolio excludes transaction fees incurred.
(2) The market values have been translated to Canadian dollars using the
August 31, 2012 noon foreign exchange rate of 0.9863.
(3) The Corporation has transferred 1,332,230 KgU as UF6 to a third party
and taken in exchange 3,480,944 pounds of U3O8, effectively lending the
conversion component of the UF6. See note 7 for further details of this
arrangement.
The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Expressed in Canadian dollars, unless otherwise noted)
1. URANIUM PARTICIPATION CORPORATION
Uranium Participation Corporation ("UPC") was established under the Business
Corporations Act (Ontario) ("OBCA") on March 15, 2005. The address of its
registered head office is 595 Bay Street, Suite 402, Toronto, Ontario, Canada,
M5G 2C2.
UPC, including its subsidiary (collectively, the "Corporation") is a
non-redeemable investment fund as defined by the Canadian securities regulatory
authorities in National Instrument 81-106-Investment Fund Continuous Disclosure.
The Corporation was created to invest substantially all of its assets in U3O8
and UF6 (collectively "investments in uranium") with the primary investment
objective of achieving appreciation in the value of its uranium holdings.
Denison Mines Inc. (the "Manager"), under the direction of the Corporation's
board of directors, provides general administration and management services to
the Corporation. The common shares of UPC trade publicly on the Toronto Stock
Exchange under the symbol U.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These interim consolidated financial statements have been prepared in accordance
with International Financial Reporting Standards ("IFRS") as issued by the
International Accounting Standards Board ("IASB"), applicable to the preparation
of interim financial statements, including International Accounting Standard
("IAS") 34 Interim Financial Reporting.
These interim consolidated financial statements do not include all of the
information required for full annual financial statements and should be read in
conjunction with the Corporation's year ended February 29, 2012 consolidated
financial statements. The accounting policies used in preparing these interim
consolidated financial statements are consistent with those used in the
Corporation's year ended February 29, 2012 consolidated financial statements.
These financial statements were authorized for issue by the Corporation's board
of directors on October 3, 2012.
3. INVESTMENTS IN URANIUM
The investments continuity summary is as follows:
----------------------------------------------------------------------------
(in thousands) Fair Value Market
Cost Adjustment Value
----------------------------------------------------------------------------
Balance at beginning of period $ 732,493 $ (30,264) $ 702,229
Change in unrealized losses on
investments - (42,218) (42,218)
----------------------------------------------------------------------------
Balance at end of period $ 732,493 $ (72,482) $ 660,011
----------------------------------------------------------------------------
----------------------------------------------------------------------------
4. INCOME TAXES
Unlike most investment funds, the Corporation is not a mutual fund trust, making
it subject to income tax on its taxable income. The Corporation is also subject
to varying rates of taxation due to its operations in multiple tax
jurisdictions. Reconciliations of the income tax recovery for the six months
ended August 31, 2012 and 2011 are as follows:
----------------------------------------------------------------------------
(in thousands) 2012 2011
----------------------------------------------------------------------------
Current tax expense $ - $ -
Deferred tax recovery (2,034) (24,010)
----------------------------------------------------------------------------
Total income tax recovery $ (2,034) $ (24,010)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Reconciliations of the combined Canadian federal and Ontario provincial income
tax rate to the Corporation's effective rate of income tax for the six months
ended August 31, 2012 and 2011 are as follows:
----------------------------------------------------------------------------
(in thousands) 2012 2011
----------------------------------------------------------------------------
Increase (decrease) in total equity from
operations, before income taxes $ (43,844) $ (274,920)
Combined federal and Ontario provincial income
tax rate(1) 26.50% 27.92%
----------------------------------------------------------------------------
Computed income tax expense (recovery) (11,619) (76,758)
Difference in current tax rates applicable in
other jurisdictions 8,233 47,008
Difference between deferred and current tax
rates - 1,176
Change in deferred tax assets not recognized 1,048 4,818
Impact of legislative changes 173 -
Other 131 (254)
----------------------------------------------------------------------------
Income tax recovery $ (2,034) $ (24,010)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) The combined federal and Ontario provincial income tax rate for the six
months ended August 31, 2012 declined due to: 1) federal tax rate decrease
from 16.5% to 15.0% effective January 1, 2012; and 2) Ontario tax rate
decrease from 12.0% to 11.5% effective July 1, 2011.
The components of the Corporation's deferred tax balances are comprised of
temporary differences as presented below:
----------------------------------------------------------------------------
(in thousands) At August 31, At February
2012 29, 2012
----------------------------------------------------------------------------
Deferred tax assets:
Tax benefit of share issue costs $ 485 $ 662
Tax benefit of operating loss
carryforwards 3,387 2,780
Other 75 73
----------------------------------------------------------------------------
Gross deferred tax assets 3,947 3,515
Deferred tax assets set off against deferred
tax liabilities (3,947) (3,515)
----------------------------------------------------------------------------
Deferred tax assets $ - $ -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Deferred tax liabilities:
Unrealized gain on investments $ 4,934 $ 6,536
----------------------------------------------------------------------------
Gross deferred tax liabilities 4,934 6,536
Deferred tax assets set off against deferred
tax liabilities (3,947) (3,515)
----------------------------------------------------------------------------
Deferred tax liabilities $ 987 $ 3,021
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The Corporation believes that it is not probable that sufficient taxable income
will be available in future years to allow the benefit of the following deferred
tax assets to be utilized:
----------------------------------------------------------------------------
(in thousands) Expiry At August 31, At February
Date 2012 29, 2012
----------------------------------------------------------------------------
Deductible temporary differences Unlimited $ 5,467 $ 4,431
Income tax losses Unlimited 51 39
----------------------------------------------------------------------------
Total deferred tax assets not
recognized $ 5,518 $ 4,470
----------------------------------------------------------------------------
----------------------------------------------------------------------------
COMMON SHARES
The Corporation 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, 2012 and August 31, 2012 106,350,413 $ 776,174
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Normal Course Issuer Bid
In July 2012, a normal course issuer bid ("NCIB") was filed with the Toronto
Stock Exchange authorizing the Corporation to purchase up to 9,273,299 of the
Corporation's common shares during the 12-month period commencing July 31, 2012
and ending July 30, 2013 or on such earlier date as the Corporation completes
its purchases. The purpose of the NCIB is to provide the Corporation with a
mechanism to decrease the potential spread between the net asset value per
common share and the market price of the shares. At August 31, 2012, UPC had not
repurchased any of its outstanding shares under the NCIB.
6. RELATED PARTY TRANSACTIONS
The following outlines the income earned and fees paid to the Manager in the six
months ended August 31, 2012 and 2011:
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(in thousands) 2012 2011
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Income from investment lending with the Manager $ - $ 35
Fees incurred with the Manager:
Management fees $ 863 $ 915
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Net fees incurred with the Manager $ 863 $ 880
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As at August 31, 2012, accounts payable and accrued liabilities included
$163,000 due to the Manager with respect to the fees indicated above.
UPC did not employ any personnel during the period, as its affairs were
administered by the personnel of the Manager.
7. INVESTMENT LENDING
The Corporation entered into a loan of the conversion component of 1,332,230 KgU
as UF6 in December 2009. The conversion component loaned 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 and an
irrevocable letter of credit of US$15,700,000 from a major financial institution
sent to UPC as collateral. In November 2010, the irrevocable letter of credit
was increased to US$17,835,000. In August 2012, the loan was extended to
December 2013 with an option to further extend the loan to December 2014, at the
borrower's discretion. At August 31, 2012, the conversion component loaned had a
market value of $9,192,000 (US$9,326,000).
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