|Uranium Participation Corporation Reports Financial Results for the Year Ended February 28, 2019|
CNW GroupApril 4, 2019
TSX Trading symbol: U
TORONTO, April 4, 2019 /CNW/ - Uranium Participation Corporation ("UPC" or the "Corporation") today filed its Financial Statements and Management's Discussion & Analysis ("MD&A") for the year ended February 28, 2019. Both documents can be found on the Company's website ( www.uraniumparticipation.com) or on SEDAR ( www.sedar.com). The highlights provided below are derived from these documents and should be read in conjunction with them. All amounts are in Canadian dollars, unless otherwise noted. View PDF version
Selected financial information:
| || || || || |
| || ||February 28, |
| ||February 28, |
|Net asset value (in thousands) |
|Net asset value per common share |
|U3O8 spot price(1) (US$) |
|UF6 spot price(1) (US$) |
|Foreign exchange rate (US$ to CAD$) |
| ||1.3169 |
| ||1.2809 |
|(1) Spot prices as published by Ux Consulting Company, LLC ("UxC"). |
The net gain for the year ended February 28, 2019 was mainly driven by unrealized net gains on investments in uranium of $174,201,000 and income from uranium relocation agreements of $541,000, offset by operating expenses of $4,090,000 (2018 – net loss due to unrealized net losses on investments in uranium of $29,368,000, realized losses on the sale of conversion components of $4,079,000, and operating expenses of $4,038,000, slightly offset by income from uranium relocation agreements of $224,000).
Unrealized net gains on investments in uranium during the year ended February 28, 2019 were mainly due to the increase in the spot price for uranium. The spot prices during the fiscal year increased from US$21.25 per pound U3O8 and US$62.00 per KgU as UF6 at February 28, 2018, to US$28.00 per pound U3O8 and US$87.00 per KgU as UF6 at February 28, 2019. The unrealized net gain on investments in uranium was also positively impacted by a 3% increase in the U.S. dollar to Canadian dollar exchange rate during fiscal 2019. Unrealized net losses on investments in uranium during the year ended February 28, 2018 were mainly due to the decrease in spot prices from US$22.25 per pound U3O8 and US$64.00 per KgU as UF6 at February 28, 2017, to US$21.25 per pound U3O8 and US$62.00 per KgU as UF6 at February 28, 2018. The unrealized net loss on investments in uranium was also negatively impacted by a 3% decrease in the U.S. dollar to Canadian dollar exchange rate during fiscal 2018.
During the fourth quarter of fiscal 2019, the Corporation recorded an unrealized net loss on investments in uranium of $30,577,000 and a net loss for the period of $32,171,000. The unrealized net loss on investments in uranium was predominantly driven by the decrease in the spot price of uranium from US$29.10 per pound U3O8 and US$89.25 per KgU as UF6 at November 30, 2018, to US$28.00 and US$87.00, respectively at February 28, 2019. The unrealized net loss on investments in uranium was also negatively impacted by a 1% decrease in the U.S. dollar to Canadian dollar foreign exchange rate in the period. During the fourth quarter of fiscal 2018, the Corporation recorded an unrealized net loss on investments in uranium of $10,703,000 and a net loss for the period of $16,284,000, predominantly driven by the decrease in the spot price of uranium from US$22.00 per pound U3O8 and US$62.00 per KgU as UF6 at November 30, 2017, to US$21.25 and US$62.00 respectively at February 28, 2018, as well as the 1% decrease in the U.S. dollar to Canadian dollar foreign exchange rate in the period. During the fourth quarter of fiscal 2018, the Corporation also recognized a realized loss on the sale of conversion components of $4,079,000.
Total equity increased to $655,778,000 at February 28, 2019, from $463,329,000 at February 28, 2018. The increase in equity was due to the net proceeds of the Company's $23,009,200 equity financing, which resulted in the issuance of 5,612,000 common shares, as well as the net gain for the year.
The Corporation had an effective tax rate of nil for the years ended February 28, 2019 and February 28, 2018, primarily due to the Corporation's available tax shelter giving rise to a net deductible temporary difference – for which the Corporation does not recognize deferred tax assets.
Taken together, UPC's NAV per share increased to $4.75 at February 28, 2019, from $3.50 at February 28, 2018.
Current Market Conditions
Aftershocks echoing throughout the nuclear fuel industry from the 2011 Fukushima Daichii nuclear incident, which led to the multi-year shutdown of all nuclear power generation in Japan, have produced several years of challenging market conditions. In fiscal 2019, however, several significant industry events have helped set the stage for sustained positive change in future years. Stability and a rising uranium price is a welcome change for the nuclear fuel industry, which has been plagued by volatility and a sustained multi-year decline in both the spot price and long-term contract price of uranium. During fiscal 2019, the uranium price declined from approximately US$21.25 per pound U3O8 (at the beginning of the year) to an intra-year low of US$20.50 per pound U3O8 in April 2018, before strengthening and climbing steadily through the balance of the fiscal year to end the 2019 fiscal year at US$28.00 per pound U3O8.
The recent strength in the market has been supported, in part, by a number of events on the supply side. Most significant of these events was Cameco Corp's ('Cameco') announcement that the temporary shutdown of the McArthur River mine would become indefinite, with the timing of a restart dependent on future contracting and market conditions. Tied to this statement was Cameco's confirmation of its continued commitment to meeting existing customer obligations by purchasing large volumes of uranium in the spot market. National Atomic Company Kazatomprom ('Kazatomprom') added to this supply-side shift by keeping its promise to curtail its own production, resulting in a 20% reduction from previously planned production levels. Kazatomprom also indicated that they will maintain this reduced level of production in calendar years 2019 and 2020. Other curtailment efforts have also occurred – including Paladin Energy Ltd. placing its Langer Heinrich operation in Namibia on care and maintenance. The primary production landscape changed further with the decision by Rio Tinto to sell its 68.2% share in the Rössing operation in Namibia to China National Uranium Corporation. This sale does not create a fundamental change to supply and demand in the near term, but it does likely mean that Rössing production, which had been a staple of western utilities for decades, will now likely be destined for Chinese consumption going forward.
According to the World Nuclear Association ('WNA'), as at the end of the 2019 fiscal year, there are 445 nuclear reactors operable in 30 countries. These reactors can generate almost 396 gigawatts of electricity ('GWe'), which equates to approximately 10% of the world's electrical requirements and 21% of electrical requirements in Organisation for Economic Co-operation and Development ('OECD') member countries. As at February 28, 2019, are also 57 nuclear reactors under construction in 15 countries, with the principal drivers of this expansion being China (13 reactors under construction), India (7), Russia (6), South Korea (5), UAE (4) and the United States (4). In addition, there are another 126 reactors currently being planned around the world. Importantly, in February 2019, the Chinese government announced, after a brief hiatus in the approval of new reactor projects in that country, the preliminary approval for the construction of four new domestically designed HPR1000 reactors.
According to UxC's Q1 2019 Uranium Market Outlook ('Q1 2019 Outlook'), global nuclear power capacities are projected to increase to 462 reactors, generating approximately 453 GWe in 35 countries by 2035. In the Q1 2019 Outlook, UxC estimates base case demand in 2019 to be 195 million pounds U3O8. UxC also estimates that annual uranium demand could grow to 210 million pounds U3O8 under their base case for 2035, and to more than 290 million pounds U3O8 in their high case for the same period.
The Japan story remains a slow moving one, but generally positive. Japan's restart effort continues to advance, with the country finally beginning to make meaningful progress in bringing its nuclear fleet back online. In fiscal 2019, Japan increased its total number of nuclear reactors in operation to nine, proving that there is a path to restart in the country. Perhaps more important was the fact that while Japan has struggled with timely restarts over the past eight years, the global nuclear energy industry has continued to advance and has now grown such that the current level of global nuclear power generation has recovered to the pre-Fukushima levels. From this point forward, additional Japanese restarts can be seen as an added bonus to global nuclear generation.
The steady price rise in fiscal 2019 can also be attributed to the high volume of uranium transacted in the spot market. In calendar year 2018, spot market volumes set a record – exceeding 88 million pounds U3O8 and surpassing the previously recorded high of 56 million pounds U3O8 in 2011. While certain nuclear utilities looked to take advantage of low-priced uranium available in the market, the increase in transaction volume was mostly fueled by producer and trader buying resulting from production cutbacks, as well as renewed interest from financial investors speculating in the physical market. While spot market volumes exceeded expectations, long-term contracting in the market continued to lag. Market participants have entered into long term contracts for less than 400 million pounds of U3O8 over the past five years – a period in which consumption exceeded 800 million pounds U3O8.
While uncertainty surrounding Fukushima has started to fade and signposts suggesting that buyers are planning to begin long-term contracting have emerged, a Section 232 trade petition in the United States has brought renewed uncertainty to the market over the last several months. The petition was submitted to the US Department of Commerce ('DOC') at the end of fiscal 2018 by US uranium producers Energy Fuels Inc. and UR Energy Inc., requesting that the DOC investigate whether uranium imports into the United States are detrimental to that country's national security. Uncertainty from the Section 232 trade petition has gradually increased as we approach the conclusion of the DOC investigation. The companies who introduced the trade petition proposed a 25% domestic purchase quota for US utilities as a potential remedy; however, the DOC has the discretion to propose any remedy that it may consider appropriate, ahead of a final decision by the US President as to the implementation of any trade measure. It is expected that the findings of the DOC, as well as an ultimate decision by the US President on whether a remedy will be imposed and what it will look like, could be announced as early as the second calendar quarter of 2019. The overhang created by this potential trade action has had a direct impact on utility procurement, especially those based in the US – causing them to retreat from the market until the impact of the petition is better understood. This slowed purchasing led UxC to revise its projections in its Q1 2019 Outlook, such that cumulative uncovered nuclear utility requirements are now 1.6 billion pounds of U3O8 through 2035.
Other important demand-side events in fiscal 2019 have contributed to shifting market sentiment including positive news from some of the world's leading economies. In November, France released its anticipated energy plan, answering questions that had emerged regarding potential plans by the country to reduce its reliance on nuclear energy. Under the new energy plan, France upheld its goal, introduced by previous French President Hollande, to reduce its reliance on nuclear energy to 50%, but extended the time frame for this change by a decade, from 2025 to 2035. This was seen as a considerable win for nuclear energy both in France, and globally. Closely following the news from France, was an announcement by the European Commission that it will adopt a long-term climate plan that calls for the European Union to become the first major 'climate neutral' economy by 2050. The plan focuses heavily on the energy sector, stating that renewables and nuclear power will be the backbone of a carbon-free European power system. As well, China continued building on its existing reactor portfolio by starting seven new reactors in fiscal 2019. Adding to this accomplishment, China became the first to commercially operate two new reactor designs – Westinghouse Electric Company's AP1000 and France's EPR. Completion of these new designs was a positive signal to the industry that the designs work and will aid deployment of these reactor designs in other jurisdictions.
Effective April 1, 2019, the Corporation entered into a new management services agreement with the Manager (the 'MSA'). The management fee structure in the 2019 MSA is unchanged from the 2016 MSA, with the Manager being entitled to the following: a) a base fee of $400,000 per annum, payable in equal quarterly installments; b) a variable fee equal to (i) 0.3% per annum of the Corporation's total assets in excess of $100,000,000 and up to and including $500,000,000, and (ii) 0.2% per annum of the Corporation's total assets in excess of $500,000,000; c) a fee, at the discretion of the Board, for on-going monitoring or work associated with a transaction or arrangement (other than a financing, or the acquisition of or sale of U3O8 or UF6); and d) a commission of 1.0% of the gross value of any purchases or sales of U3O8 or UF6, or gross interest fees payable to the Corporation in connection with any uranium loan arrangements.
The term of the 2019 MSA is for five years, ending on March 31, 2024. In addition, the 2019 MSA includes a termination provision whereby, subject to certain exceptions, if the 2019 MSA is terminated early by the Corporation, the Manager will receive a termination payment equal to the base and variable management fees that would otherwise be payable to the Manager (calculated based on the Corporation's current uranium holdings at the time of termination) for the lesser period of a) three years; or b) the remaining term of the 2019 MSA.
The remainder of the terms of the 2019 MSA are the same as the 2016 MSA.
Outstanding Share Data
At April 4, 2019, there were 138,060,713 common shares issued and outstanding. There are no stock options or other equity instruments issued and outstanding.
About Uranium Participation Corporation
Uranium Participation Corporation is a company that 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 through increases in the uranium price. 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.
Cautionary Statement Regarding Forward-Looking Statements
Certain information contained in this press release constitutes forward looking statements or forward looking information. These statements 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. In particular, this press release contains forward-looking information pertaining to the value of the Corporation's investments and expectations regarding uranium spot prices and uranium market factors, including expectations regarding uranium production levels, reactor restarts, levels of uncommitted utility reactor requirements, anticipated market supply and demand, the development of new nuclear power projects, the potential impact of international trade actions, and other statements regarding the outlook for the uranium industry and market.
By their very nature, forward looking statements involve numerous factors, 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 in the Corporation's MD&A dated April 4, 2019 available under UPC's profile at www.sedar.com. 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.
SOURCE Uranium Participation Corporation
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