Uranium One Inc SXRZF

Financials Out!!!

[wjtanchak]

News Releases UrAsia Energy annual financial results VANCOUVER, Nov. 22, 2006 (Canada NewsWire via COMTEX News Network) -- For the three months and year ended July 31, 2006 (All amounts are stated in United States dollars (US$) unless otherwise stated) Trading Symbol (TSXV: UUU and AIM: UUU) VANCOUVER, Nov. 22 /CNW/ - UrAsia Energy Ltd. (the 'Company' or 'UrAsia') is pleased to report the Company's annual financial results for the three months and year ended July 31, 2006. The Company is a Canadian-based uranium mining and development company that is focused on the development and operation of low cost, in-situ leach uranium projects in Central Asia. On November 7, 2005 UrAsia acquired indirect interests in three uranium projects in the Republic of Kazakhstan, including the Akdala operating mine "Akdala" and the South Inkai uranium project "South Inkai" and the Kharassan uranium project "Kharassan". In addition, the Company has an extensive uranium exploration portfolio in the Kyrgyz Republic. The Company acquired its interest in the Akdala operating mine in November 2005; consequently, results for the twelve months ended July 31, 2006 include those results from mining operations only during the latter nine months. << Highlights - Sales of Akdala product (70% attributable) amounted to approximately 812,000 pounds of U(3)O(8) (312,000 Kg U). The Company's attributable share (70%) of revenue from uranium sales amounted to $23,507,000. After the deduction of production costs of $9,548,000, depreciation and depletion charges of $5,107,000, the earnings from mine operations were $8,852,000. - Net loss for the year was $48.9 million (0.12 per share). The Company incurred $42.6 million of non-cash losses from a foreign exchange loss on the revaluation of future income tax liabilities. Adjusted for this item, net loss amounted to $6.3 million ($0.02 per share). - The average unit price obtained for sales during the nine months ended July 31, 2006 was $29 per pound which resulted from a blend of old lower priced contracts with newer market-related contracts. Sales in the last quarter and all current contracts for future deliveries are Uranium spot price related. The average production cost per pound of U(3)0(8) sold was $11.76. - On November 7, 2005, UrAsia Energy (B.V.I) Ltd. ("UrAsia BVI") and Signature completed a business combination together with a consolidation of Signature's common shares and a name change from Signature Resources Ltd. to UrAsia Energy Ltd. - As a part of the business combination, the Company acquired a 70% interest in the Betpak Dala Joint Venture, which has a 100% interest in Akdala and South Inkai for $350 million, and a 30% interest in the Kyzylkum Joint Venture, which has a 100% interest in Kharassan for $75 million. - The Company completed brokered private placements: On August 26, 2005 - 39,000,000 common shares for net proceeds of $45,787,000, and on November 7, 2005 - 280,000,000 common shares for net proceeds of $407,017,000. - In February 2006, the Company closed an underwritten public offering of a total of 56,436,250 common shares for net proceeds of $116,993,000. - Three uranium sales agreements negotiated by UrAsia since its 70% interest acquisition in Akdala, amounted to approximately 1.0 million pounds U(3)O(8). - The Company completed plant expansion at its Akdala mine. The planned production rate of 1,000 tonnes uranium equivalent to approximately 2.6 million pounds U(3)O(8) (annualized) at Akdala being reached in April 2006. - Eight U.S. manufactured drill rigs and accessories were purchased for approximately $13.7 million and will be delivered in 2006/7. - Construction commenced at South Inkai and Kharassan. Subsequent Events - Construction of the industrial plant complex by contractor Kaz High Tech Euro Building commenced at South Inkai and the earthwork (excavation) and concrete foundations necessary for five main buildings was completed. Completion of the steel erection work is planned for January 2007. - Earthwork (excavation) and foundation construction of the main process plant building at South Inkai by contractor South Kazakhstan Building Authority is 90% complete and is expected to be finished by end of November 2006. - Construction of the main plant site commenced at Kharassan, floor and equipment foundations were completed in October and major process equipment is being set in place. - At Kharassan, six ion-exchange columns were mounted; the remaining elution and de-nitrification columns are expected to be constructed by the end of November 2006. - New appointments to senior management team announced; Mr. Robin Merrifield, Chief Financial Officer and Senior Vice President; Mr. Gordon Keep, Senior Vice President and Corporate Secretary; Mr. Vitaly Melnikov, Vice President Finance and Administration; and Mrs. Susan Speight, Vice President Marketing and Sales. - Common Shares of the Company admitted for trading on the Alternative Investment Market of the London Stock Exchange in August 2006. - Sales contracts were secured in August, 2006 with a major western utility company for the purchase of 200,000 pounds U(3)O(8) and an Asian utility company, for the purchase of 4,780,000 pounds U(3)O(8). - Additional sales contracts were secured in November, 2006 with North American utilities, for the total purchase of approximately 5,750,000 pounds U(3)O(8). - The Inferred Mineral Resource at South Inkai was increased by 69% from 25.6 to 43.5 million pounds U(3)O(8) (UrAsia's attributable share) through the successful conversion of a portion of the Russian P1 Resource at South Inkai. - Company has changed its financial year end from current year end date of July 31, to a new year end date of December 31. Based on a change of year end from July 31 to December 31, the Company will have a transition year of five months, from August 1, 2006 through December 31, 2006. The interim reporting periods will be a three month period ended October 31, 2006 and a two month period ended December 31, 2006. The Company's new financial year will commence on January 1, 2007 and end on December 31, 2007. >> Financial results of Operations Sales of Akdala product (70% attributable to UrAsia) amounted to approximately 812,000 pounds of U(3)O(8) (312,000Kg U). The Company's attributable share (70%) of revenue from uranium sales amounted to $23,507,000. After the deduction of production costs of $9,548,000, depreciation and depletion charges of $5,107,000, the mining operations reflected pre-tax earnings of $8,852,000. The average unit price obtained for sales during the nine months was $29 per pound of U(3)O(8), which resulted from a blend of older lower priced contracts, and higher recent spot related contracts. During the year, which included the first nine months of operations, production costs were $9,548,000 or approximately $11.76 per pound of U(3)O(8) sold. Depreciation for the year, including depletion of mineral property based on established values of purchase price paid for mineable reserves, amounted to $6.29/lb U(3)O(8) compared to $2.44 for the period ended April 30, 2006. The difference in the unit non-cash cost arises as a result of the value of the depletable asset being increased on finalization of the allocation of the purchase price paid for mineral properties. Sales to nuclear facilities do not occur evenly throughout the year as they are dependant upon the delivery schedule requested by the utility companies. Sales in the last quarter (see News Release dated, June 29, 2006) were nominal, which resulted in a build-up of inventory at year end. UrAsia's attributable share of inventory (625,000 pounds of U(3)O(8) or 240,000 Kg U) is expected to be applied in filling deliveries before the end of the calendar year, 2006. This is expected to lower reported unit production costs for the period, as the year end inventory is not carrying its full share of period costs incurred to the year end. Exploration expenditure related to geological programs being undertaken on the Company's license areas in the Kyrgyz Republic amounted to $2,648,000. General and administration of $5,493,000 incurred in the year ended July 31, 2006 predominately related to the Company's activity in the latter nine months. Expenses during the first quarter only amounted to $122,000, as the Company was capitalizing all costs related to the acquisitions that were completed on November 7, 2005. The major items in administration costs in the nine months ended July 31, 2006 included legal, accounting and audit expenses totalled $989,200; fees and expenses related to the company's listing on the Alternatative Investment Market of the London Stock Exchange (AIM) in August 2006 totalling $686,500; travel and accommodation expenses of $1,200,000; consulting fees of $499,000; and salaries and benefits of $1,127,873. Stock-based compensation (being the amortized fair value of options issued to directors, senior officers, employees and consultants) amounted to $9,370,000 for the year ended July 31, 2006. Interest and other income amounted to $4,408,000 for the year ended July 31, 2006. Most of the interest was earned on funds received from the public offering in February 2006. The foreign exchange loss during the year amounted to $41,120,000. The majority of the loss related to an unrealized foreign exchange loss of $42,602,000 offset by a net realized gain of $1,482,000 arising from normal transactions and regular asset and liability revaluations. The foreign exchange loss of $42,602,000 arose from a non-cash, currency translation adjustment, on the future income tax liability, denominated in the Kazakh Tenge (KZT), which is deemed to be a monetary liability. The future tax liability arose on the excess amounts paid for the mineral properties when acquired in November 2005. The exchange rate in November 2005, when the liability was established, was 134 KZT = USD 1. Since then, the KZT has strengthened by 14% against the US dollar to 118 KZT = USD 1 at July 31, 2006. The unrealized loss occurred in the last half of the year ended July 31, 2006. Prior to the last six months there was little movement in the KZT - US dollar exchange rate, and hence minimal currency exchange difference. Subsequent to the year end, the value of KZT has weakened, at November 21, 2006 the exchange rate was 128 KZT = USD 1. The foreign exchange loss during the fourth quarter amounted to $28,707,000 arising from translation of the future income tax liability in respect of the Company's investment in Kazakhstan. $21.3 million of this loss relates to the 7% strengthening of the KZT against the US dollar in the 4th quarter and the balance of $7.3 million is a prior quarter exchange loss resulting from an increase in the determined value of the future income tax liability of $142 million. As the KZT weakened by 7% in the quarter ended October 31, 2006, most, if not all, of the former will be reversed in that quarter. The loss before income taxes for the year ended July 31, 2006 amounted to $45,540,000. The provision for current income taxes for the year ended July 31, 2006 amounted to $5,304,000, which was offset by a recovery of $1,905,000 future taxes from the future tax liability described above. Current income taxes are payable in Kazakhstan as a result of the profitability of the Akdala operations whereas the Company's expenditures at Head Office in Canada are not deductible in Kazakhstan. The Company has recognized a valuation allowance for all tax losses generated in Canada and the Kyrgyz Republic. The loss after income taxes for the year ended July 31, 2006 amounted to $48,939 ($0.012 per share). Cash Position Currently the Company has cash and cash equivalents of approximately $97,440,000 including $9,343,000 being the proportionate share of the Company's cash and cash equivalents at its operations in the Republic of Kazakhstan and the Kyrgyz Republic. The Company anticipates this is sufficient to meet its development plans and corporate costs for the next twelve months. South Inkai and Kharassan Construction and Development At South Inkai, levelling, staking and surveying of the building site was completed during the fourth quarter ended July 31, 2006 in preparation for the concrete foundation work. All foundations have, since year end, been completed in readiness for process and ancillary plant construction. The roadwork connecting the facility to the Taukinor highway is well underway. Executive housing is approximately 70% complete with two structures almost finished. Site work was initiated during the fourth quarter ended July 31, 2006 at Kharassan, consisting of site preparation for the process plant site and the housing site, power line construction, road construction, and engineering of the bridge over the Syr-Darya River. Since year end concrete work for the foundations is in progress; the power line associated with the substation has been completed; two 6,000m(3) leach, fluid ponds are under construction. Surveying and staking is in progress for the rail yard at Zhanakorgan. Construction of the bridge began in September, 2006 with the sinking of the caisson for the first pier. The contract for the steel structure has been approved, all major construction contracts have been awarded; non-standard equipment has been ordered. Kyrgyz Republic Exploration The exploration for all seven exploration license areas has been contracted with Kyrgyz geological and geophysical exploration contractors. During the fourth quarter the exploration program was reviewed in detail. Initial field exploration commenced at Mayli-Su, Kyzyl-bulak, Kyzyl-Ompul and Santash license areas. Seven holes were drilled and logged at Mayli-Su, eight additional holes are planned. At Kyzyl-bulak, thirteen drill holes are planned and are expected to be completed by the end of the year. Initial field exploration and geophysical surveys are planned for Changet, Surentube, Kyzyl-Ompul and Santash. A technical evaluation of the initial exploration program will occur at the end of the year and a further work program will be recommended based on the initial field results. Conference Call Information We invite you to join us in a conference call at 8am PST on Thursday, November 23, 2006 to discuss the Company's annual financial results. The conference call will be open to all members of the investment community. Equity Research Analysts will be invited to ask questions at the end of the conference call. In order to join the conference call, please dial: For US and Canada (toll free) [phone] For UK (toll free) 0 800 528-0625 or 0 870 001-3125 (toll) or 0 141 555-1725 (back-up toll) For International call [phone] (toll) An operator will put your call through. A recorded version of the proceedings will be available after the call, until midnight, Pacific time, Thursday, November 23, 2006 by calling [phone] or [phone]; Passcode: 21310353. On behalf of UrAsia Energy Ltd. "Phillip Shirvington" President and Chief Executive Officer UrAsia is a Canadian-based uranium producer that offers investors exposure to low-cost, uranium production and growth. The Company creates shareholder value by focusing on the development and operation of low-cost, in-situ leach uranium projects in Central Asia. UrAsia is listed on the TSX Venture Exchange and the Alternative Investment Market (AIM) of the London Stock Exchange, trading under the symbol UUU on both exchanges. Forward Looking Statements Certain statements in this MD&A constitute forward-looking statements. The words "anticipate" "continue", "estimate", "expect", "may", "will", "should", "believe" and similar expressions are intended to identify forward-looking statements. Such forward-looking statements, including but not limited to statements with respect to anticipated rates of production, the estimated costs and timing of the Company's planned work programs and reserves determination involve known and unknown risks, uncertainties and other factors which may cause the actual rates of production, costs and results to be materially different from estimated rates of production, costs or results expressed or implied by such forward-looking statements. The Company believes the expectations reflected in these forward looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon. Factors that could cause actual results to differ materially from those anticipated in these forward-looking statements include, among others, uncertainties associated with estimating uranium reserves, competition for, among other things, capital, acquisitions of reserves, undeveloped properties and skilled personnel, risks related to international operations, general risks associated with mining operations, risks associated with equipment procurement and equipment failure and volatility in market prices for uranium. Although the Company has attempted to take into account important factors that could cause actual costs or operating results to differ materially, there may be other factors that cause costs of the Company's program or results not to be as anticipated, estimated or intended. The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this release. The foregoing information may contain forward-looking statements relating to the future performance of UrAsia Energy Ltd. Forward-looking statements, specifically those concerning future performance, are subject to certain risks and uncertainties, and actual results may differ materially. These risks and uncertainties are detailed from time to time in the Company's filings with the appropriate securities. << URASIA ENERGY LTD. (formerly Signature Resources Ltd.) Consolidated Financial Statements For the year ended July 31, 2006 URASIA ENERGY LTD. (formerly Signature Resources Ltd.) Consolidated Balance Sheets (Expressed in thousands of United States dollars) ------------------------------------------------------------------------- July 31, July 31, 2006 2005 ------------ ------------ ASSETS Current Cash and cash equivalents (Note 4) $ 128,328 $ 2,630 Restricted cash (Note 12(a)) 2,500 - Accounts receivable 10,173 - Current portion of loans to joint ventures (Note 5(b)) 4,440 - Inventory (Note 6) 11,940 - Prepaid expenses 1,177 752 ------------ ------------ 158,558 3,382 Loans to joint ventures (Note 5(b)) 21,000 - Mineral properties, plant and equipment (Note 7) 762,547 82 Other assets (Note 8) 8,920 1,342 ------------ ------------ $ 951,025 $ 4,806 ------------ ------------ ------------ ------------ LIABILITIES AND SHAREHOLDERS' EQUITY Current Accounts payable and accrued liabilities $ 6,095 $ 555 Income taxes payable 3,080 - Short-term loan payable - 106 ------------ ------------ 9,175 661 Due to Republic of Kazakhstan (Note 9) 1,046 - Future income taxes (Note 13) 365,491 - Asset retirement obligation (Note 16) 1,953 - ------------ ------------ 377,665 661 ------------ ------------ Shareholders' equity Share capital (Note 10(b)) 612,941 4,094 Contributed surplus (Note 10(b)) 9,307 - (Deficit) retained earnings (48,888) 51 ------------ ------------ 573,360 4,145 ------------ ------------ $ 951,025 $ 4,806 ------------ ------------ ------------ ------------ Commitments and contingencies (Notes 7, 9, 12 and 18) Subsequent events (Notes 12 and 19) Approved by the Board: "Ian Telfer" Director ----------------------- "Phillip Shirvington" Director ----------------------- URASIA ENERGY LTD. (formerly Signature Resources Ltd.) Consolidated Statements of Operations and Retained (Deficit) Earnings (Expressed in thousands of United States dollars, except share amounts) ------------------------------------------------------------------------- April 19, 2005 (inception Year ended date) July 31, to July 31, 2006 2005 ------------ ------------ MINE OPERATIONS Revenue from uranium sales $ 23,507 $ - ------------ ------------ Production costs 9,548 - Depreciation and depletion 5,107 - ------------ ------------ Earnings from mine operations 8,852 - ------------ ------------ EXPENSES General and administration 5,493 91 Stock-based compensation (Note 10(e)) 9,370 - Exploration 2,648 - Other 169 - ------------ ------------ 17,680 91 ------------ ------------ Loss from operations (8,828) (91) ------------ ------------ OTHER INCOME (EXPENSE) Interest and other income 4,408 10 Foreign exchange (loss) gain (Note 15) (41,120) 132 ------------ ------------ (36,712) 142 ------------ ------------ (Loss) income before income taxes (45,540) 51 ------------ ------------ Provision for (recovery of) income taxes (Note 13) Current 5,304 - Future (1,905) - ------------ ------------ 3,399 - ------------ ------------ Net (loss) income for the period (48,939) 51 Retained earnings, beginning of period 51 - ------------ ------------ Retained (deficit) earnings, end of period $ (48,888) $ 51 ------------ ------------ ------------ ------------ Loss per share, basic and diluted $ (0.12) $ 0.00 ------------ ------------ ------------ ------------ Weighted average number of common shares outstanding (000's), basic and diluted 406,239 45,902 ------------ ------------ URASIA ENERGY LTD. (formerly Signature Resources Ltd.) Consolidated Statements of Cash Flows (Expressed in thousands of United States dollars) ------------------------------------------------------------------------- April 19, 2005 (inception Year ended date) July 31, to July 31, 2006 2005 ------------ ------------ OPERATING ACTIVITIES Net (loss) income for the period $ (48,939) $ 51 Items not involving cash: Depreciation and depletion 5,107 - Stock-based compensation 9,370 - Future income taxes (1,905) - Foreign exchange loss 42,662 - Other 120 - Changes in non-cash working capital Accounts receivable (4,743) - Prepaid expenses 1,012 (747) Inventory (3,042) - Accounts payable and accrued liabilities (1,079) 40 ------------ ------------ Cash used in operating activities (1,437) (656) ------------ ------------ FINANCING ACTIVITIES Issue of common shares, net of issue costs 570,859 4,090 Proceeds of short-term loan (106) 106 ------------ ------------ Cash provided by financing activities 570,753 4,196 ------------ ------------ INVESTING ACTIVITIES Acquisition of interest in Betpak, net of cash acquired (Note 3 (b)) (356,224) - Acquisition of interest in Kyzyklum, net of cash acquired (Note 3 (c)) (38,925) - Acquisition of Signature, net of cash acquired (Note 3 (a)) 465 - Deferred acquisition costs - (825) Cash advances to joint ventures (Note 5(b)) (25,440) - Acquisitions of mineral properties, plant and equipment (12,319) (85) Advance cash payment for other assets (8,675) - Restricted cash (2,500) - ------------ ------------ Cash used in investing activities (443,618) (910) ------------ ------------ Net cash inflow for the period 125,698 2,630 Cash and cash equivalents, beginning of period 2,630 - ------------ ------------ Cash and cash equivalents, end of period $ 128,328 $ 2,630 ------------ ------------ ------------ ------------ Supplemental Information Income taxes paid $ 6,136 $ - Interest paid $ 45 $ - Non-cash transactions The Company issued common shares, warrants and options valued at $424,000 to acquire Signature (Note 3(a)). The Company issued common shares valued at $37,500,000 to acquire the Kharassan project (Note 3(c)). URASIA ENERGY LTD. (formerly Signature Resources Ltd.) Notes to the Consolidated Financial Statements For the year ended July 31, 2006 (expressed in United States dollars except where noted, tabular amounts in thousands) ------------------------------------------------------------------------- 1. NATURE OF OPERATIONS UrAsia Energy Ltd. is a Canadian-based uranium mining and development company that is focused on the development and operation of low cost, in situ leach uranium projects in Central Asia. These consolidated financial statements reflect the acquisition of UrAsia Energy Holdings Ltd. previously known as UrAsia Energy (B.V.I.) Ltd. ("UrAsia BVI") by Signature Resources Ltd. ("Signature") on November 7, 2005 (the "UrAsia Acquisition"). As the shareholders of UrAsia BVI acquired control of Signature following the UrAsia Acquisition, this business combination, described as a reverse takeover, has been accounted for as an acquisition of Signature by UrAsia BVI (Note 3(a)). The name of Signature was changed to UrAsia Energy Ltd. on November 7, 2005, and the shares of Signature were consolidated on a one for two basis. UrAsia Energy Ltd. and UrAsia BVI are referred to collectively herein as the "Company". UrAsia BVI was incorporated in the British Virgin Islands under the International Companies Act of the British Virgin Islands on April 19, 2005. Comparative consolidated statements of operations, retained earnings and cash flows therefore include the period from April 19, 2005 (inception date) to July 31, 2005. Signature was originally incorporated as Tuxedo Resources Ltd. on March 31, 1988 under the laws of British Columbia and was admitted to the TSX Venture Exchange ("TSX-V") on March 18, 2003 as a natural resource company engaged in the acquisition and exploration of mining properties. On April 20, 2004, Tuxedo Resources Ltd. changed its name to Signature. 2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES These financial statements have been prepared by the Company in accordance with Canadian generally accepted accounting principles ("Canadian GAAP"). The preparation of the annual financial statements is based on accounting principles and practices consistent with those used in the preparation of the annual financial statements in the prior year. Unless where otherwise noted, these consolidated financial statements and their accompanying notes are presented in United States dollars. Canadian dollars are referred to as "C$". The Company has adopted the following significant accounting policies: (a) Basis of consolidation These consolidated financial statements include the accounts of the Company and all of its subsidiaries, including its indirect 70% joint venture interest in Betpak Dala LLP ("Betpak") and its indirect 30% joint venture interest in Kyzylkum LLP ("Kyzylkum"). The Company's interests in Betpak and Kyzylkum are accounted for by the proportionate consolidation method, as the Company shares joint control over these entities. Under this method, the Company includes in its financial statements its proportionate share of Betpak's and Kyzylkum's assets, liabilities, revenues and expenses. Operations Mineral and projects properties Location Ownership Status owned ----------- ---------- --------- --------------- ------------ Betpak Kazakhstan 70% Proportionately Akdala mine consolidated and South Inkai development project Kyzylkum Kazakhstan 30% Proportionately Karassan consolidated development project UrAsia in Kyrgyzstan 100% Consolidated Exploration Kyrgyzstan projects LLC All significant inter-company transactions and balances have been eliminated upon consolidation. (b) Functional and reporting currency The Company's reporting currency is the United States dollar. The Company, its subsidiaries and joint ventures operate in Canada, Kazakhstan and Kyrgyzstan. The financial statements of the joint ventures and subsidiaries have been translated into United States dollars using the temporal method. The temporal method provides for foreign currency denominated monetary assets and liabilities, which includes future income tax, to be translated into United States dollars at rates of exchange in effect at the balance sheet date. Non-monetary items are translated at historical exchange rates and revenues and expenses at average rates of exchange during the period. Exchange gains and losses arising on translation are included in the consolidated statements of operations and deficit. (c) Cash and cash equivalents Cash and cash equivalents include cash, and short-term money market instruments that are readily convertible to cash. (d) Inventory Inventories of solutions and uranium concentrates are valued at the lower of average production cost or net realizable value. Production costs include the cost of raw materials, direct labour, mine-site overhead expenses and depreciation and depletion of mining interests. Consumable materials and supplies are valued at the lower of average cost or replacement cost. (e) Mineral properties, plant and equipment Mineral properties, plant and equipment are recorded at cost less accumulated depreciation and depletion. Mineral properties represent capitalized expenditures related to the exploration and development of mineral properties and related plant and equipment. Capitalized costs are depreciated and depleted using either a unit-of-production method over the estimated economic life of the mine to which they relate, or using the straight-line method over their estimated useful lives. The costs associated with mineral properties are separately allocated to reserves, resources and exploration potential, and include acquired interests in production, development and exploration stage properties representing the fair value at the time they were acquired. The value allocated to reserves is depreciated on a unit-of-production method over the estimated recoverable proven and probable reserves at the mine. The reserve value is noted as depletable mineral properties in Note 7. The resource value represents the property interests that are believed to potentially contain economic mineralized material such as inferred material; measured, indicated, and inferred resources with insufficient drill spacing to qualify as proven and probable reserves; and inferred resources in close proximity to proven and probable reserves. Resource value and exploration potential value is noted as non- depletable mineral properties in Note 7. At least annually or when otherwise appropriate, value from the non-depletable category will be transferred to the depletable category as a result of an analysis of the conversion of resources or exploration potential into reserves. Costs related to property acquisitions are capitalized until the viability of the mineral property is determined. When it is determined that a property is not economically viable the capitalized costs are written-off. Exploration expenditures on properties not advanced enough to identify their development potential are charged to operations as incurred. Mining expenditures incurred either to develop new ore bodies or to develop mine areas in advance of current production are capitalized. Commercial production is deemed to have commenced when management determines that the completion of operational commissioning of major mine and plant components is completed, operating results are being achieved consistently for a period of time and that there are indicators that these operating results will be continued. Mine development costs incurred to sustain current production are included in operations. Upon sale or abandonment of any mineral property plant and equipment, the cost and related depreciation or depletion, are written off and any gains or losses thereon are included in operations. (f) Impairment of long-lived assets Long-lived assets are tested for recoverability annually or whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. An impairment loss is recognized when their carrying value exceeds the total undiscounted cash flows expected from their use and eventual disposition. The amount of the impairment loss is determined as the excess of the carrying value of the asset over its fair value. (g) Environmental protection and asset retirement obligation costs The Company recognizes liabilities for statutory, contractual or legal obligations associated with the retirement of mineral property, plant and equipment, when those obligations result from the acquisition, construction, development or normal operation of the assets. Initially, the fair value of the liability for an asset retirement obligation is recognized in the period incurred. The net present value of the liability is added to the carrying amount of the associated asset and amortized over the asset's useful life. The liability is accreted over time through periodic charges to earnings and is reduced by actual costs of reclamation. The Company's estimates of reclamation costs could change as a result of changes in regulatory requirements and assumptions regarding the amount and timing of the future expenditures. Expenditures relating to ongoing environmental programs are charged against operations as incurred. (h) Revenue recognition Revenue from uranium sales is recognized, net of value added tax, when: (i) persuasive evidence of an arrangement exists; (ii) the risks and rewards of ownership pass to the purchaser including delivery of the product; (iii) the selling price is fixed or determinable, and (iv) collectibility is reasonably assured. (i) Income and mining taxes The Company uses the liability method of accounting for income and mining taxes. Under the liability method, future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for tax losses and other deductions carried forward. Upon business acquisitions, the liability method results in a gross up of mining interests to reflect the recognition of the future tax liabilities for the tax effect of such differences. Future tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to apply when the asset is realized or the liability settled. A reduction in respect of the benefit of a future tax asset (a valuation allowance) is recorded against any future tax asset if it is not likely to be realized. The effect on future tax assets and liabilities of a change in tax rates is recognized in the statement of operations in the period in which the change is substantively enacted. (j) Stock compensation The Company uses the fair value method of accounting for all stock option awards. Under this method, the Company recognizes a compensation expense for all stock options based on the fair value of the options on the date of grant which is determined by using an option pricing model. The fair value of the options is expensed over the vesting period of the options. (k) Earnings per share Earnings per share calculations are based on the weighted average number of common shares and common share equivalents issued and outstanding during the year. Diluted earnings per share are calculated using the treasury method which requires the calculation of diluted earnings per share by assuming that outstanding stock options and warrants with an average market price that exceeds the average exercise prices of the options and warrants for the year, are exercised and the assumed proceeds are used to repurchase shares of the Company at the average market price of the common shares for the year. (l) Financial instruments The Company's financial instruments comprise, primarily, cash and cash equivalents, restricted cash, accounts receivable, loans to joint ventures and accounts payable. The fair value of these financial instruments approximates their carrying values due primarily to their immediate or short-term maturity. The Company is exposed to fluctuations in interest rates, foreign currency exchange rates and commodity prices. The Company has not entered into any derivative financial instruments to manage fluctuations in these rates. (m) Use of estimates The preparation of financial statements in conformity with Canadian GAAP requires the Company's management to make estimates and assumptions about future events that affect the amounts reported in the consolidated financial statements and related notes to the financial statements. Actual results may differ from those estimates. 3. ACQUISITIONS (a) Signature Acquisition In September 2005, Signature signed a binding letter of agreement with UrAsia BVI pursuant to which Signature agreed to acquire all of the issued and outstanding shares of UrAsia BVI in consideration for the issuance of common shares of Signature. Pursuant to the terms of the agreement, Signature consolidated its common shares on a one for two basis and issued one post- consolidation share of Signature for each issued and outstanding ordinary share of UrAsia BVI. As the shareholders of UrAsia BVI acquired control of Signature following the UrAsia Acquisition, this transaction is a reverse takeover and has been accounted for as an acquisition of Signature by UrAsia BVI. The purchase price has been determined by reference to the fair value of the net assets acquired from Signature. The allocation of the purchase price is summarized in the table below: Purchase price: 5,935,621 common shares $ 271 Stock options and warrants of Signature 153 ------------ $ 424 ------------ ------------ Fair value of net assets acquired: Cash $ 465 Non-cash working capital deficiency (41) ------------ $ 424 ------------ ------------ For the purpose of these consolidated financial statements, the purchase consideration has been allocated to the fair value of assets acquired and liabilities assumed. (b) Betpak Acquisition On November 7, 2005, the Company acquired a 70% joint venture interest in Betpak which has 100% interests in the Akdala Mine and the South Inkai Project, both of which are located in the Republic of Kazakhstan. In consideration for its interest, the Company paid a total of $350 million. The remaining 30% interest in Betpak is held by JSC NAC Kazatomprom ("Kazatomprom") Under terms of the agreement, a bonus payable in cash or shares, capped at $36.4 million, is due based on the uranium reserves discovered on the Akdala and South Inkai properties and surrounding areas during the 12 month period ended November 7, 2006, in excess of the existing uranium reserves and resources. As at November 7, 2006, no additional uranium reserves and resources were discovered on the Akdala and South Inkai properties. A further bonus payment is payable in cash based on uranium reserves discovered on the South Inkai property in excess of 66,000 tonnes. The payment is based on the Company's share of U(3)O(8) in excess of 66,000 tonnes times the average spot price of U(3)O(8) times 6.25%. This payment is to be calculated at the end of 2011 and each year thereafter, and paid 60 days after the end of the year in which a payment is due. As security for the bonus payment, the Company has pledged its participatory interest in Betpak (including the shares of a subsidiary) and its share of uranium products produced by Betpak. The allocation of the purchase price is summarized in the table below: Purchase price: Cash $ 350,000 Acquisition costs 7,690 ------------ $ 357,690 ------------ ------------ Fair value of net assets acquired: Cash $ 1,981 Mineral properties, plant and equipment 614,494 Other net assets 683 Future income taxes (259,468) ------------ $ 357,690 ------------ ------------ For the purpose of these consolidated financial statements, the purchase consideration has been allocated to the fair value of assets acquired and liabilities assumed. (c) Kyzylkum Acquisition On November 7, 2005, the Company acquired a 30% joint venture interest in Kyzylkum which has a 100% interest in the Kharassan Project, located in the south central area of the Republic of Kazakhstan. In consideration for its interest, the Company paid a total of $75 million, including $37.5 million in cash with the balance consisting of the issuance of 24,181,250 common shares. A bonus payment is due upon commencement of commercial production. The seller initially had an option, exercisable until October 31, 2006, to elect to receive this bonus payment as a cash payment of $24 million or receive 15,476,000 shares of the Company. The seller elected under the terms of the arrangement, to receive 15,476,000 shares of the Company upon commencement of commercial production. This fair value of the contingently issuable shares has not been included as part of the purchase price for Kyzylkum as commencement of commercial production cannot be reasonably determined as at July 31, 2006. An additional bonus payment of 30% of 12.5% (being an effective 3.75%) of the weighted average spot price of U(3)O(8) will be paid on incremental reserves in excess of 55,000 tonnes of U(3)O(8) discovered during each fiscal year with payment beginning within 60 days of the end of the 2008 calendar year. The Company is responsible for arranging project financing of $80,000,000 for the construction and commissioning of a mine in respect of the Kharassan Project. As security for this obligation and the obligation to make the bonus payments referred to above, the Company has granted a security interest over the shares of a subsidiary holding the Company's interest in Kharassan. The allocation of the purchase price is summarized in the table below: Purchase price Cash $ 37,500 24,181,250 common shares 37,500 Acquisition costs 1,509 ------------ $ 76,509 ------------ ------------ Fair value of net assets acquired: Cash $ 84 Mineral properties, plant and equipment 141,487 Other net assets 13 Future income taxes (65,075) ------------ $ 76,425 ------------ ------------ For the purpose of these consolidated financial statements, the purchase consideration has been allocated to the fair value of assets acquired and liabilities assumed. 4. CASH AND CASH EQUIVALENTS July 31, July 31, 2006 2005 ------------ ------------ Cash $ 61,028 $ 2,630 Money market instruments, including cashable Guaranteed Investment Certificates and Bankers Depository Notes 67,300 - ------------ ------------ $ 128,328 $ 2,630 ------------ ------------ ------------ ------------ 5. JOINT VENTURES (a) Proportionate interest in Joint Ventures The Company owns a 70% interest in Betpak and a 30% interest in Kyzylkum. The Company's proportionate shares of assets and liabilities are as follows: July 31, 2006 ------------------------- Betpak Kyzylkum Total ------------ ------------ ------------ Current assets $ 24,761 $ 6,923 $ 31,684 Mineral properties, plant and equipment 618,019 143,874 761,893 Other assets 780 - 780 Current liabilities (6,710) (160) (6,870) Loans to joint ventures (4,394) (21,046) (25,440) Due to Republic of Kazakhstan (1,046) - (1,046) Future income taxes (291,803) (73,643) (365,446) Asset retirement obligation (1,953) - (1,953) ------------ ------------ ------------ Net assets $ 337,654 $ 55,948 $ 393,602 ------------ ------------ ------------ ------------ ------------ ------------ The Company's proportionate share of Betpak and Kyzylkum's revenues, expenses, net loss and cash flows are as follows: Year ended July 31, 2006 ------------------------- Betpak Kyzylkum Total ------------ ------------ ------------ Revenues $ 23,507 $ - $ 23,507 Expenses (13,181) 12 (13,169) Foreign exchange loss (32,933) (8,326) (41,259) ------------ ------------ ------------ Loss before income taxes (22,607) (8,314) (30,921) Provision for income taxes (3,290) (106) (3,396) ------------ ------------ ------------ Net loss $ (25,897) $ (8,420) $ (34,317) ------------ ------------ ------------ ------------ ------------ ------------ Cash provided by operating activities 6,637 307 6,944 Cash advances to joint ventures 9,870 9,020 18,890 Cash used in investing activities (13,095) (2,503) (15,598) ------------ ------------ ------------ Net increase in cash $ 3,412 $ 6,824 $ 10,236 ------------ ------------ ------------ ------------ ------------ ------------ (b) Loans to Joint Ventures Since acquiring Betpak the Company advanced $14.1 million to Betpak in December 2005. The loan bears interest at LIBOR plus 1.5% per annum, and is repayable on May 31, 2007. As at July 31, 2006 the total amount receivable from Betpak was $14,648,000 including interest accrued on the loan (Note 19(b)). Pursuant to its obligation to provide project financing for construction and commissioning of the Kharassan Project in the amount of $80 million on or before December 31, 2007 the Company has advanced $30 million to Kyzylkum at July 24, 2006. The loan bears interest at LIBOR plus 1.5% per annum, with interest payable on a semi-annual basis commencing December 2006. The principal amount is to be repaid in six equal consecutive amounts on a semi-annual basis commencing in June 2008. As at July 31, 2006 the total amount receivable from Kyzylkum was $30,065,000 including interest accrued (Note 19(b)). Below is a summary of loans to joint ventures adjusted for the Company's proportionate share of cash advanced: July 31, 2006 ------------------------- Betpak Kyzylkum Total ------------ ------------ ------------ Principal and interest $ 4,394 $ 21,046 $ 25,440 Less current portion (4,394) (46) (4,440) ------------ ------------ ------------ Long-term portion $ - $ 21,000 $ 21,000 ------------ ------------ ------------ ------------ ------------ ------------ The Company had no joint venture interests at July 31, 2005. 6. INVENTORY July 31, July 31, 2006 2005 ------------ ------------ Materials and supplies $ 1,180 $ - Solutions and uranium concentrates 10,760 - ------------ ------------ $ 11,940 $ - ------------ ------------ ------------ ------------ 7. MINERAL PROPERTIES, PLANT AND EQUIPMENT The following table summarizes the Company's mineral properties, plant and equipment: July 31, July 31, 2006 2005 -------------------------------------- ------------ Depreciation and Net book Net book Cost depletion value value ------------ ------------ ------------ ------------ Mineral properties $ 754,605 $ (9,656) $ 744,949 $ - Plant and equipment 18,182 (584) 17,598 82 ------------ ------------ ------------ ------------ $ 772,787 $ (10,240) $ 762,547 $ 82 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ A summary by property of the net book value is as follows: Mineral properties -------------------------------------- Non- Depletable depletable Total ------------ ------------ ------------ Akdala mine $ 126,638 $ 74,358 $ 200,996 South Inkai project - 400,193 400,193 Kharassan project - 143,627 143,627 Kyrgyzstan exploration - 133 133 Corporate and other - - - ------------ ------------ ------------ $ 126,638 $ 618,311 $ 744,949 ------------ ------------ ------------ ------------ ------------ ------------ Plant and July 31, July 31, equipment 2006 2005 ------------ ------------ ------------ Akdala mine $ 16,831 $ 217,827 $ - South Inkai project - 400,193 - Kharassan project 247 143,874 - Kyrgyzstan exploration 211 344 - Corporate and other 309 309 82 ------------ ------------ ------------ $ 17,598 $ 762,547 $ 82 ------------ ------------ ------------ ------------ ------------ ------------ The Akdala Contract No. 647 dated March 28, 2001 for exploration and development of the uranium deposit at the Akdala field in Southern Kazakhstan as amended by amendments No. 943 dated May 23, 2002, No. 1423 dated June 7, 2004, which assigned the contract to Betpak, and No. 1712 dated April 25, 2005 (the "Akdala Contract") is for a period of 25 years commencing on March 28, 2001 and expiring on March 27, 2026. The Akdala Contract provides for a commercial discovery bonus of 0.05% of the value of extractable reserves in excess of a defined base reserve and a royalty varying between 1.3% and 2.2% depending on the uranium price. On September 15, 2005, Kazatomprom, owner of the subsoil use rights to explore and extract uranium from the Plot No. 4 of South Inkai deposit in southern Kazakhstan pursuant to Contract No. 1830, transferred its subsoil use rights to Betpak (the "South Inkai Contract"). The South Inkai Contract for subsoil use rights covers a period of 24 years, commencing July 8, 2005. The South Inkai Contract provides for a commercial discovery bonus of 0.05% of the value of extractable reserves in excess of a defined base reserve and a royalty 0.5% of the average sales price of first commercial product. Betpak is also required, commencing no later than 2010, to drill up to 240 exploration wells and expend an aggregate of $6.0 million on an exploration program for the South Inkai property. In terms of the South Inkai Contract Betpak is required to build a pilot production facility at an estimated cost of $5.5 million to produce 300 tonnes of uranium. The Kharassan Contract No. 1799 dated July 8, 2005, for exploration and production of uranium at the Kharassan-1 field in Southern Kazakhstan (the "Kharassan Contract"), amended by amendment No. 1829 dated September 15, 2005, is for a period of 29 years commencing on July 8, 2005 and expiring on July 7, 2034. The Kharassan Contract contemplates an exploration period of four years and a production period of 25 years. During the exploration period an annual work program must be submitted to the appropriate government body for approval. The contract provides the Republic of Kazakhstan with a priority right to purchase uranium produced from the Kharassan property. A royalty will be charged at a rate of 0.5% of the uranium produced. The Company owns seven exploration licenses to explore for uranium in Kyrgyzstan. 8. OTHER ASSETS A summary of other assets is provided below: July 31, July 31, 2006 2005 ------------ ------------ Prepaid drill rigs (Note 12 (b)) $ 8,093 $ - Deferred pre-acquisition costs - 1,342 Future income tax assets (Note 13) 210 - Other 617 - ------------ ------------ $ 8,920 $ 1,342 ------------ ------------ ------------ ------------ 9. DUE TO REPUBLIC OF KAZAKHSTAN At July 31, 2006, Betpak was obligated to reimburse the Government of Kazakhstan for $1,494,000 in respect of the historical cost of geologic studies performed in respect of the Akdala property, of which $1,046,000 is proportionately attributable to the Company. Pursuant to the Akdala Contract, Betpak is obligated to reimburse the cost of the geologic studies in 40 equal, quarterly instalments, commencing January 1, 2008 and ending December 31, 2017. Should Betpak default on these payments, Kazatomprom retains the right to seize ownership of the Akdala Contract. Pursuant to the South Inkai Contract, Betpak is obligated to reimburse the cost of geologic studies of the region aggregating $1,749,000, of which $1,200,000 is proportionately attributable to the Company. The payments are to be made as to $35,000 on signing of the contract, which has been paid and the remaining $1,714,000 to be paid as to $66.00 per tonne of uranium produced. The remaining balance is a contingent liability and has not been recorded as South Inkai is a development property. Should Betpak default on these payments, Kazatomprom retains the right to seize ownership of the South Inkai contract. Pursuant to the Kharassan Contract, at July 31, 2006, Kyzylkum was obligated to reimburse the Government of Kazakhstan for $2,059,000 in respect of the historic cost of geologic studies performed in respect of the Kharassan property, of which $618,000 is proportionately attributable to the Company. The payments are to be made as to $31,000 on signing of the contract, which occurred during April 2006, and the remaining $2,028,000 to be paid as to $66.00 per tonne of uranium produced. The remaining balance is a contingent liability and has not been recorded as Kharassan is a development property. 10. SHARE CAPITAL AND CONTRIBUTED SURPLUS (a) Authorized Unlimited common shares with no par value Unlimited preference shares with no par value (b) Issued and fully paid common shares Number of Share Contributed shares* capital surplus ------------ ------------ ------------ Issued pursuant to: Incorporation 57,500,000 $ 5 $ - Private placement, net of share issue costs(i) 12,900,000 4,089 - ------------ ------------ ------------ Balance, July 31, 2005 70,400,000 4,094 - Issued pursuant to: August private placement(ii) 39,000,000 45,787 - November private placement(iii) 280,000,000 407,044 - Acquisition of Signature (Note 3(a)) 5,935,621 271 153 Acquisition of Kyzylkum (Note 3(c)) 24,181,250 37,500 - February private placement(iv) 56,436,250 116,993 Grant of stock options - - 9,370 Exercise of warrants 3,219,750 673 - Exercise of options 550,000 579 (216) ------------ ------------ ------------ Balance, July 31, 2006 479,722,871 $ 612,941 $ 9,307 ------------ ------------ ------------ ------------ ------------ ------------ * After giving effect to the share consolidation (see Note 1). (i) On June 15, 2005, the Company completed a non-brokered private placement of 12,900,000 common shares at a price of $0.32 (C$0.40) per share. In connection with this private placement, share issue costs of $4,000 were incurred. (ii) On August 26, 2005, the Company completed a brokered private placement of 39,000,000 subscription receipts of the Company at a price of $1.25 (C$1.50) per subscription receipt, with each subscription receipt exercisable, for no additional consideration, into one common share, subject to the terms and conditions of the subscription receipt agreement. In connection with this private placement, share issue costs of $3,138,000 were incurred. (iii) On November 7, 2005, the Company completed a brokered private placement of 280,000,000 subscription receipts (including the agents' option), each exercisable into one common share for no further consideration pursuant to the private placement at a price of $1.53 (C$1.80) per subscription receipt. In connection with this private placement, share issue costs of $21,357,000 were incurred. (iv) On February 24, 2006, the Company completed an underwritten public offering of 39,225,000 common shares of the Company at a price of $2.22 (C$2.55) per common share (the "Issue Price"). The underwriters exercised their option to purchase an additional 9,850,000 common shares at the Issue Price, resulting in gross proceeds of approximately $108,648,000 (C$125,141,000). In connection with this private placement, share issue costs of $8,151,000 were incurred. On February 28, 2006, the lead underwriter exercised in full, a greenshoe option to purchase up to 7,361,250 additional common shares of the Company at the Issue Price. The exercise of the greenshoe option resulted in additional gross proceeds of $16,495,000 (C$18,771,200). The total proceeds from the issuance of 56,436,250 common shares therefore amounted to $125,143,000 (C$143,912,000). As at July 31, 2006, there were no shares (July 31, 2005: 112,500) held in escrow. (c) Stock Options The Company has a "rolling" Stock Option Plan (the "Plan") in compliance with the TSX-V's policy for granting stock options. Under the Plan, the number of shares reserved for issuance may not exceed 10% of the total number of issued and outstanding shares at the date of the grant. The exercise price of each option shall not be less than the market price of the Company's common shares at the date of grant. The options are non- assignable and may be granted for a term not exceeding ten years. The exercise price is fixed by the board of directors of the Company at the time of grant, subject to all applicable regulatory requirements. A summary of the changes in outstanding stock options is presented below: Weighted average Number exercise of options price ------------ ------------ Balance, August 1, 2005 - - Stock options issued on Signature Acquisition (Note 3(a)) 500,000 C$0.53 Granted 11,855,000 C$2.16 Exercised (550,000) C$0.76 Forfeited or expired (20,000) C$1.80 ------------ ------------ Balance, July 31, 2006 11,785,000 C$2.16 ------------ ------------ ------------ ------------ The following table summarizes information about the stock options outstanding and exercisable at July 31, 2006: Exercise Outstanding Exercisable price Expiry date ------------- ------------- ------------ ------------------- 50,000 50,000 C$0.56 April 26, 2010 350,000 262,500 C$1.80 November 7, 2007 7,130,000 4,304,497 C$1.80 November 7, 2015 400,000 133,333 C$1.80 December 9, 2015 1,250,000 1,250,000 C$2.90 February 28, 2016 400,000 133,332 C$2.92 March 2, 2016 810,000 269,999 C$3.00 April 3, 2016 525,000 174,999 C$3.20 April 20, 2016 870,000 289,997 C$2.65 July 7, 2016 ------------- ------------- 11,785,000 6,868,657 ------------- ------------- ------------- ------------- (d) Warrants A summary of the changes in outstanding warrants is presented below: Weighted average Number of exercise warrants price ------------ ------------ Balance, August 1, 2005 - - Warrants issued on Signature Acquisition (Note 3(a)) 3,968,750 C$0.23 Exercised (3,219,750) C$0.24 ------------ ------------ Balance, July 31, 2006 749,000 C$0.20 ------------ ------------ ------------ ------------ The following table summarizes information about the warrants outstanding and exercisable at July 31, 2006: Number of Exercise warrants price Expiry date ------------ ------------ ---------------- 749,000 C$0.20 April 25, 2007 ------------ ------------ ---------------- ------------ ------------ ---------------- (e) Stock based compensation The fair value of the 11,835,000 options granted was $12,928,000 of which $9,370,000 has been recorded in the statement of operations as stock-based compensation, with a corresponding credit to contributed surplus disclosed separately in shareholders' equity. The remaining fair value will be recorded in the results of operations over the vesting period. The following weighted average assumptions were used for the Black- Scholes valuation of the stock options granted: Risk-free interest rate 4% Expected life 10 years Annualized volatility 38% Dividend rate 0% 11. RELATED PARTY TRANSACTIONS During the year ended July 31, 2006, the Company incurred the following expenses with companies related by way of directors/and or officers in common: (a) Transaction success fees totalling $4,250,000 were paid to Endeavour Financial International Corporation ("Endeavour"), a company related by way of a common director, and are included in mineral properties, plant and equipment as part of the cost of acquiring Betpak and Kyzylkum; Endeavour was also paid a financing fee of $1,253,000 in relation to the underwritten public offering of the Company; Endeavour was also paid fees for financial advisory services totalling $120,000 and office rent and overhead totalling $26,837. At July 31, 2006 no amounts were owed to Endeavour (2005 - $Nil). (b) A company related to a director charged $830,130 for air transportation services; of this amount $383,505 is included in accounts payable at July 31, 2006 (2005 - $Nil). (c) A person related to a director received $43,500 for office rent and services. At July 31, 2006 no amounts were owed to this person (2005 - $Nil). (d) A company controlled by a related party received $36,000 for office rent and services. At July 31, 2006 no amounts were owed to this company (2005 - $Nil). (e) On November 7, 2005, the Company granted 450,000 stock options to Endeavour, exercisable at $1.53 (C$1.80) per share until November 7, 2015, which had a fair value of $386,000. These transactions, occurring in the normal course of operations, are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. 12. COMMITMENTS Commitments related to the Akdala, South Inkai and Kharassan mineral properties are disclosed in Notes 3 and 7. In addition, the Company has the following commitments: (a) On February 10 and May 30, 2006, the Company entered into two sales agreements for the supply of uranium concentrates from the Akdala uranium mine in the Republic of Kazakhstan. These contracts included performance bonds in the form of two Irrevocable Stand-by Letters of Credit for the amount of $2,000,000 and $500,000, which were issued by the Company in favour of a buyer on March 7, 2006 and June 26, 2006. These Letters of Credit will expire on February 7, 2007 and on April 30, 2007 or upon successful performance under the purchase contracts, whichever occurs first. The Company has secured the Stand by Letters of Credit with the cash amount of $2,500,000. (b) On February 16, 2006, the Company entered into an agreement for the purchase of eight U.S.-built GEFCO drill rigs to supplement the current drill program in Kazakhstan. The contract is for a total of $12,949,000, of which $8,093,000 was paid by July 31, 2006 and is included in other assets. The balance, including the amount of $1,619,000 paid in September 2006, is payable over the next year. (c) On June 1, 2005, the Company entered into a financial advisory agreement with Endeavour. Endeavour charges $10,000 per month and may also earn success fees on certain transactions. The initial term of the agreement was for 12 months after which it continues in force on a month-to-month basis, subject to termination on 30 days written notice by either party. (d) Effective November 2005, the Company engaged Vanguard Shareholder Solutions Inc. to provide public relations services to the Company. For its services, Vanguard charges C$10,000 per month plus expenses. The term of the agreement is 12 months. The Company has granted Vanguard 350,000 stock options at a price of C$1.80 per share for a period of 2 years, subject to a 12 month vesting schedule. (e) Pursuant to the Akdala subsoil contract, the Company is obliged to finance annually the professional training of the Kazakhstani staff for not less than 0.5% of operating costs. 13. INCOME TAXES The provision for income taxes reported differs from the amounts computed by applying the cumulative Canadian federal and provincial income tax rates to the loss before tax provision due to the following: April 19, Year ended 2005 July 31, to July 31, 2006 2005 ------------ ------------ (Loss) income before income taxes $ (45,540) $ 51 Combined federal and provincial tax rate 34.12% 35.60% ------------ ------------ Expected income tax recovery (15,534) $ 18 Increase (decrease) in taxes resulting from: Difference between Canadian tax rate and rates applicable to subsidiaries in other countries 1,860 - Exploration expenditures deferred for tax purposes 891 Foreign exchange 13,054 (18) Permanent difference (250) Non-deductible expenditures 3,197 - Other 181 - ------------ ------------ Income tax provision $ 3,399 $ - ------------ ------------ ------------ ------------ The significant components of the Company's future income tax assets and liabilities are as follows: July 31, July 31, 2006 2005 ------------ ------------ Future income tax assets: Non-capital loss carryforwards $ 1,691 $ - Share issue costs and other 2,523 Less: valuation allowance (4,004) - ------------ ------------ Future income tax assets $ 210 $ - ------------ ------------ ------------ ------------ Future income tax liabilities: Mineral properties, plant and equipment $ 365,491 $ - ------------ ------------ ------------ ------------ At July 31, 2006, the Company had non-capital losses available for tax purposes of $6,500,000 that expire from 2011 to 2026. 14. SEGMENTED INFORMATION (a) Operating segment - The Company's operations are primarily directed towards the acquisition, exploration and production of uranium in the natural resources sector. (b) Geographic segments - The Company's assets, revenues and expenses by geographic areas for the year ended July 31, 2006 are as follows: Kazakhstan Kyrgyzstan Canada Total ------------ ------------ ------------ ------------ Mineral properties, plant and equipment $ 762,169 $ 344 $ 34 $ 762,547 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Total assets 802,901 3,732 144,392 951,025 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Plant and equipment expenditures 11,997 288 34 12,319 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Revenues 23,507 - - 23,507 ------------ ------------ ------------ ------------ Expenses Production costs 9,548 - - 9,548 Depreciation and depletion 5,030 76 1 5,107 General and administration - - 5,493 5,493 Stock-based compensation - - 9,370 9,370 Exploration - 2,648 - 2,648 Other 169 - - 169 ------------ ------------ ------------ ------------ 14,747 2,724 14,864 32,335 ------------ ------------ ------------ ------------ Income (loss) from operations 8,760 (2,724) (14,864) (8,828) Other (loss) income (40,680) 97 3,871 (36,712) ------------ ------------ ------------ ------------ Loss before income taxes $ (31,920) $ (2,627) $ (10,993) $ (45,540) ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ (c) In the period from April 19, 2005 (inception date) to July 31, 2005 all operations, assets and liabilities of the Company were located primarily in Cayman Islands. (d) The Company derived all of its revenue from sales to two customers during the year ended July 31, 2006. 15. FOREIGN EXCHANGE A summary of foreign exchange (loss) gain by item is as follows: April 19, Year ended 2005 July 31, to July 31, 2006 2005 ------------ ------------ Unrealized foreign exchange loss on future income tax liability $ (42,602) $ - Foreign exchange gain on other items 1,482 132 ------------ ------------ $ (41,120) $ 132 ------------ ------------ ------------ ------------ The amount of $42,602,000 of the total foreign exchange loss of $41,120,000 recorded for the year ended July 31, 2006 relates to unrealized foreign exchange loss on translation of the future income tax liabilities arising as a consequence of the purchase of participating interests in Betpak and Kyzylkum. 16. ASSET RETIREMENT OBLIGATION The Company estimates undiscounted future reclamation costs for its Akdala Mine to be $5,355,000 (70% - $3,749,000). The following is a summary of the significant assumptions on which the discounted carrying amount of the asset retirement obligation is based: (i) Credit-adjusted risk-free discount rate is 5%; (ii) The expected timing of estimated future cash outflows is based on life-of-mine plans. Approximately 18% of the expenditures will occur between 2011 and 2015 with the balance commencing during 2025. July 31, July 31, 2006 2005 ------------ ------------ Liability arising from acquisition of Betpak (Note 3(b)) $ 1,875 $ - Accretion expense 78 - ------------ ------------ Asset retirement obligation $ 1,953 $ - ------------ ------------ ------------ ------------ 17. ECONOMIC AND OPERATING ENVIRONMENT The Company's business activities are located in Kazakhstan. Kazakhstan continues to undergo substantial political, economic and social changes. As an emerging market, Kazakhstan does not possess a well-developed business and regulatory infrastructure that would generally exist in a more mature market economy. Furthermore, the government of Kazakhstan has not yet fully implemented the reforms necessary to create efficient banking, judicial, taxation and regulatory systems that usually exist in more developed markets. As a result, operations in this country involve risks that are not typically associated with those in developed markets. Although in recent years inflation has not been significant in Kazakhstan, certain risks persist in the current environment with results that include, but are not limited to, a currency that is not freely convertible outside of the country, certain currency controls and immature debt and equity markets characterised by low liquidity levels. Uncertainty regarding political, legal, tax or regulatory environment, including the potential for adverse changes in any of these factors, could significantly affect the Company's ability to operate commercially. It is difficult for management to estimate what changes may occur or the resulting effect of any such changes on the Company's financial position or future results of operations. The accompanying consolidated financial statements do not include any adjustments that may result from the future clarification of these uncertainties. Such adjustments, if any, will be reported in the Company's consolidated financial statements in the period when they become known and can be estimated. 18. CONTINGENCIES (a) In accordance with the subsoil contracts, the Company is obliged to carry medical insurance, insurance against accidents during production and occupational diseases to its employees. At July 31, 2006, the Company believes it had sufficient insurance policies in force in respect of public liability and other insurable risks. (b) Due to the complexity and nature of the Company's operations, various legal and tax matters are pending. In the opinion of management, these matters will not have a material effect on the Company's consolidated financial position or results of operations. 19. SUBSEQUENT EVENTS (a) The Company's common shares were admitted to trading on the Alternative Investment Market of the London Stock Exchange on August 25, 2006. (b) Subsequent to July 31, 2006, the Company made the following additional loans to its Joint Ventures in Kazakhstan: (i) Betpak: in accordance with terms of the Loan Agreement dated June 28, 2006 a loan totalling $25,000,000 was extended to Betpak in August and November 2006 at an interest rate of LIBOR plus 1.5% and repayable before June 28, 2009. As a result, the principal amounts outstanding under loan agreements total $39,100,000. (ii) Kyzylkum: an additional amount of $18,000,000 was extended in terms of the current loan agreement dated June 28, 2006, which carries interest at LIBOR plus 1.5% and is repayable by June 28, 2011. As a result, the principal amount outstanding under this loan agreement is $48,000,000. (c) On October 20, 2006, the Company concluded an agreement with owners of a drilling company in Kazakhstan, Joint Drilling LLP, whereby the Company has acquired a 50% interest for $3,775,000 payable in cash. In exchange, it has been agreed that Joint Drilling will purchase at cost, two of the GEFCO drill rigs currently being delivered to Kazakhstan. The drill rigs, together with the remaining six being bought by the Company, will be used to accelerate and complement the drilling being undertaken on the Akdala, South lnkai and Kharassan properties. >> SOURCE: UrAsia Energy Ltd. contact Investor Relations at 1-866-798-0824 or [phone]; For UK investor enquiries, contact [phone]; For Product Marketing and Sales, contact + 303 325 2377. Copyright (C) 2006 CNW Group. All rights reserved. DOW 12,327.0 +5.4 NASDAQ 2,466.0 +11.1 NYSE 8,948.9 EVEN S&P 500 1,406.1 +3.3 AMEX 2,026.3 EVEN TSX 12,557.0 EVEN TSX-V 2,666.6 EVEN Sponsored Links Lease Busters Canada - Get out of your lease now! Take over a lease and save BIG - LeaseBusters.com Ads by Google * To view your portfolio in StockHouse's old version click here Portfolio calculations should not be relied upon for taxation purposes. Quotes delayed at least 20 minutes for NYSE/AMEX, 15 minutes for other exchanges. © 2005 Stockgroup. Terms & Conditions. Privacy Policy. 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