First Uranium Corporation FY 2012 results

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First Uranium Corporation FY 2012 results

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First Uranium Corporation FY 2012 results

  1. 1. FIRST URANIUM CORPORATION MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE FINANCIAL RESULTS For the year ended March 31, 2012
  2. 2. Contents Management’s Discussion and Analysis of the Financial Results for the Year Ended March 31, 2012 Recent Developments .................................................................................................................................... 1 Financial Position ........................................................................................................................................... 2 Corporate Overview ....................................................................................................................................... 5 Business Overview.......................................................................................................................................... 7 Summary Results for Q4 2012 and FY 2012..................................................................................................... 8 IFRS...............................................................................................................................................................10 Summary of Quarterly Results.......................................................................................................................11 Market Overview...........................................................................................................................................11 Operations Overview.....................................................................................................................................12 Permitting .....................................................................................................................................................22 Consolidated Financial Review.......................................................................................................................25 Consolidated Financial Position .....................................................................................................................27 Cash Flow Review..........................................................................................................................................28 Cash flows for the year ended March 31, 2012..............................................................................................29 Use of Proceeds.............................................................................................................................................29 Liquidity and Capital Resources .....................................................................................................................30 Financial Instruments ....................................................................................................................................32 Commitments and Contingencies..................................................................................................................32 Outlook .........................................................................................................................................................35 Related Party Transactions ............................................................................................................................35 Disclosure Controls and Procedures and Internal Control over Financial Reporting........................................36 Critical Accounting Policies and Estimates .....................................................................................................37 Changes in accounting policies ......................................................................................................................41 Outstanding Share Data.................................................................................................................................41 Risks and Uncertainties .................................................................................................................................42 Additional Information..................................................................................................................................46 Forward-looking Information.........................................................................................................................46 Non-IFRS Measures .......................................................................................................................................47 Consolidated Unaudited Financial Statements Consolidated Statement of Financial Position................................................................................................51 Consolidated Statements of Comprehensive Income.....................................................................................52 Consolidated Statements of Changes in Shareholders’ Equity........................................................................53 Consolidated Statements of Cash Flows.........................................................................................................54 Notes to the Consolidated Financial Statements............................................................................................55 Shareholder and Corporate Information...................................................................................................... IBC
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  4. 4. 1. FIU MDA 2012 Management’s discussion and analysis of the audited consolidated financial position and results of operations for the year ended March 31, 2012 This Management’s Discussion and Analysis (“MD&A”) of the consolidated financial position and results of operations reviews the activities, audited consolidated results of operations and financial position of First Uranium Corporation and its subsidiaries (“First Uranium” or the “Corporation”) as at and for the year ended March 31, 2012, together with certain trends and factors that are expected to have an impact in the future. The following abbreviations are used to describe the periods under review throughout this MD&A: Abbreviation Period Abbreviation Period Q1 2012 April 1, 2011 - June 30, 2011 Q1 2011 April 1, 2010 - June 30, 2010 Q2 2012 July 1, 2011 - September 30, 2011 Q2 2011 July 1, 2010 - September 30, 2010 Q3 2012 October 1, 2011 - December 31, 2011 Q3 2011 October 1, 2010 - December 31, 2010 Q4 2012 January 1, 2012 - March 31, 2012 Q4 2011 January 1, 2011 - March 31, 2011 FY 2012 April 1, 2011 - March 31, 2012 FY 2011 April 1, 2010 - March 31, 2011 Q1 2013 April 1, 2012 - June 30, 2012 FY 2013 April 1, 2012 - March 31, 2013 The MD&A is intended to supplement and complement the audited consolidated financial statements for the year ended March 31, 2012 and the notes thereto (collectively the “Financial Statements”) which have been prepared in accordance with International Financial Reporting Standards (“IFRS”). Information contained in this MD&A is current as at June 29, 2012, unless otherwise indicated. The reporting currency for the Corporation is the US dollar, and all amounts in the following discussion are in US dollars (“$”), except where otherwise indicated. This MD&A includes certain forward-looking statements. Please read the cautionary note at the end of this document. Recent Developments The Corporation has entered into definitive agreements for the sale of its principal assets. The Corporation entered into a definitive agreement (the “AGA Agreement”) dated March 2, 2012 for the sale, indirectly, of all of the shares of Mine Waste Solutions (Proprietary) Limited (“MWS”), owner of the tailings recovery project in South Africa, to AngloGold Ashanti Limited (“AGA”) (the “AGA Transaction”). Under the terms of the AGA Agreement AGA will pay $335 million in cash (the “Purchase Price”) for all of the shares and associated claims of First Uranium (Proprietary) Limited (“FUSA”), which holds, indirectly, the MWS tailings recovery project, subject to the fulfillment of a number of conditions precedent. In addition, the Corporation entered into a definitive agreement (the “Gold One Agreement”) for the sale of First Uranium Limited (“FUL”), a wholly-owned subsidiary of the Corporation which owns all of the shares of Ezulwini Mining Company (Proprietary) Limited (“EMC”) to Gold One International Limited (“Gold One”) for $70 million in cash (the “Gold One Transaction”). Gold One also provided a loan facility to the Corporation for an amount of up to $10 million available for drawdown in accordance with the loan agreement between the parties (the “Gold One Loan Facility”) which has been fully drawn subsequent to year-end (See also Financial Conditions section of this MD&A). The proceeds from the sale of First Uranium’s principal assets will enable it to settle the 4.25% senior unsecured convertible debentures (the “Debentures”), the 7% secured convertible notes (the “Canadian Notes”) issued by the Corporation and the 11% secured convertible notes (the “Rand Notes”) issued by MWS (together, the
  5. 5. 2. FIU MDA 2012 “Notes”) and the Gold One Loan Facility under the terms agreed to with the Debenture holders, Note holders and Gold One on June 13, 2012. As of June 25, 2012, all of the conditions precedent to the AGA Transaction had been satisfied or waived. Each of the parties have confirmed such in writing and the Closing Date, as defined in the AGA Agreement, is scheduled to occur on July 3, 2012. On the Closing Date, all of the documents required to conclude the AGA Transaction will be delivered to Edward Nathan Sonnenbergs as Closing Document Stakeholder, the purchase price will, in accordance with the terms of the AGA Agreement, be delivered to Computershare Trust Company of Canada (“CTTC”) and Computershare Investor Services (Proprietary) Inc. (“CIS”), each a Purchase Price Stakeholder, and certain documents (“Discharge Documents”) relating to the discharge of the security held for the benefit of the Note holders and the Gold One Loan Facility will be lodged with the appropriate deeds office. On the Closing Date, CTTC will convert sufficient US dollars to Canadian dollars so that CTTC holds an amount in Canadian dollars to pay the principal amount (C$110 million) of the Canadian Notes outstanding and CIS will convert sufficient US dollars to South African Rand in order for CIS to pay the principal amount (ZAR418.6 million) of the Rand Notes outstanding. Upon registration of the Discharge Documents releasing all security in the MWS assets, the Closing Document Stakeholder will release the remaining closing documents from escrow and the Purchase Price Stakeholders will pay: (i) to BNY Trust Company of Canada, as trustee for the Canadian Notes, C$110 million, and to or to the order of GMG Trust Company (SA) Pty Limited, as trustee for the Rand Notes (together the “Note Trustees”), ZAR418.6 million, (ii) to Gold One, $10 million plus accrued interest to the date of payment; (iii) $25 million (the “AGA Deferred Payment”) to the warranty escrow agent; and (iv) the balance shall be paid to FUL. The Corporation has been advised that it could take up to three weeks for the Discharge Documents to be registered, accordingly, the AGA Transaction is expected to be implemented by July 24, 2012 or an earlier date depending on the date the Discharge Documents are actually registered. In order to provide sufficient time for the AGA Transaction to be implemented, Gold One and the Corporation have agreed to extend the date to satisfy the conditions precedent to the Gold One Transaction to July 31, 2012. Other than the conditions precedent associated with the implementation of the AGA Transaction, the material conditions precedent to the Gold One Transaction have been satisfied or waived subsequent to year-end, including all of the regulatory approvals to the extent required. Financial Position By the middle of calendar 2011, the Corporation was facing a number of financial issues as a result of its capital structure and the limited free cash flow being generated by its assets, as evidenced by the Q1 2012 results when cash and cash equivalents fell to $26.8 million, a drop of 46% from the position at March 31, 2011. At the same date, current liabilities were $227 million compared to $85.8 million at March 31, 2011, an increase of 165%. While management believed that the available cash resources at June 30, 2011 together with the cash forecast to be generated from the sale of gold and uranium would be sufficient to fund outstanding commitments and complete planned capital projects, that forecast excluded the repayment of the Debentures on maturity in June 2012, and shortly thereafter the Notes. In light of this, the Board regarded it as prudent to undertake a strategic analysis of available alternatives to the Corporation and to determine how the Notes and the Debentures could be retired, in the case of the Debentures, without excessive dilution to Shareholders. On June 29, 2011, Village Main Reef Limited (“Village”) announced that it was looking to realize value from its approximately 26% equity interest in the common shares in First Uranium (the “Common Shares”), acquired through its purchase of certain assets from Simmer & Jack Mines Limited. A sale by Village of all or a substantial portion of its Common Shares would seriously impact First Uranium’s BEE credentials which at that time were sustained through the Village ownership and its BEE partner, Vulisango. BEE accreditation is necessary to conduct business in South Africa and to ensure all of the permits and mining licenses of the Corporation
  6. 6. 3. FIU MDA 2012 remained intact. On July 22, 2011, Village announced its intention to sell 47,065,916 Common Shares held by it to AGA at a price of Cdn$0.60 per Common Share. As part of the sale agreement, Village also entered into lock- up and right of first refusal arrangements with AGA with respect to the Rand Notes and the remaining 13,556,737 (approximately 5%) Common Shares owned by Village. Having regard to the foregoing, including the potential loss of the Corporation’s BEE credentials, continuing operational issues and cash flow concerns and the impending maturity of the Debentures and Notes, First Uranium publicly announced on July 12, 2011 that the Board had empowered a Special Committee comprised of independent directors of the Board to undertake a strategic review of the Corporation and its capital structure and to advise on any available strategic alternatives that may be in the interests of the Corporation and its stakeholders. The Special Committee’s mandate included overseeing the process of assessing a range of options for the Corporation, including renegotiating major contracts, considering any business combination transactions which may arise, considering the terms of the Corporation’s outstanding debt instruments, and negotiating alternatives to improve the BEE credentials of the Corporation. As a result, the Vulisango Management Agreement was entered into in August 2011 and provided for certain services, including assisting First Uranium in complying with the Minerals and Petroleum Resources Development Act (“MPRDA”) and assisting and giving guidance to the Corporation with regard to its policies in accordance with the Mining Charter. Following approaches from certain Debenture holders regarding restructuring of the outstanding Debentures and from third parties who expressed interest in acquiring First Uranium and/or entering into potential joint venture transactions in respect of the Corporation’s operations, the Board, on the recommendations of the Special Committee, instructed RBC Capital Markets to begin identifying and contacting parties who might consider an investment in or the purchase of, First Uranium (the “investment and sale process”). On August 10, 2011, AGA signed a confidentiality agreement with First Uranium and commenced due diligence immediately. On August 30, 2011, First Uranium publicly announced that it was reviewing available strategic alternatives and, as a consequence (together with the public disclosure of the Village and AGA transaction) the investment and sale process became public. Throughout the period from mid September 2011 to late January 2012, RBC Capital Markets – who had been appointed as one of the advisors to the Special Committee - was in contact with approximately 20 parties which resulted in the Corporation entering into a confidentiality agreement with one additional party that had expressed an interest in pursuing a strategic transaction with First Uranium. Concurrently with the investment and sale process, from July 2011 to February 2012, RBC Capital Markets undertook a review of potential restructuring alternatives for the Notes and Debentures in conjunction with BEE accreditation requirements. The financial situation had not improved by the end of calendar 2011 as evidenced by the Q3 2012 results, which showed that the Corporation’s cash decreased by approximately $39 million to $10.6 million. As part of its ongoing attempts to improve its operating and financial results and facilitate a potential restructuring, on December 19, 2011, First Uranium announced that it was assessing options to develop and implement a new operating plan at the Ezulwini Mine to optimize cash flow and overall profitability. In an attempt to stem the losses at the Ezulwini Mine and to focus on higher grade areas and reduce overhead expenses, the Ezulwini Mine was substantially downsized by approximately 50% however the expected improvements at the Ezulwini Mine would take several months before coming into effect. Discussion with AGA in connection with a possible acquisition by AGA of First Uranium continued throughout Q3 2012. Ultimately, in December 2011, AGA indicated to First Uranium that it was not interested in purchasing the Corporation as a whole, but was interested only in acquiring MWS. With the unanticipated change in approach by AGA, the Corporation’s ongoing issues of cash flow, the imminent repayment obligations with respect to the Debentures and the inability to interest other parties in an acquisition of, or merger with, First Uranium, the
  7. 7. 4. FIU MDA 2012 Special Committee determined to pursue potential buyers for the separate acquisition of the Ezulwini Mine and, with the assistance of RBC Capital Markets, approached a number of potential interested parties. In reviewing the range of available strategic alternatives for First Uranium, the Special Committee took into consideration recent developments, including the Corporation’s continued losses, lack of liquidity, impaired BEE credentials and concern about the Corporation’s ability to carry on business as a going concern given the updated Ezulwini Mine plan and the impending debt maturities. It was apparent that First Uranium did not have, nor was it in a position to raise the capital required to complete the development of the Ezulwini Mine and the requirements for operating expenditures at the Ezulwini Mine would soon drain First Uranium’s financial resources, notwithstanding the cash flow generated from MWS. In addition, as part of the new Ezulwini Mine plan and the resultant downsizing of its workforce, significant cash severances to employees pursuant to sections 189A and 189 of the South African Labour Relations Act would be required. It became clear that the prospect of generating or raising sufficient capital to finance operations and repay the Debentures when they matured on June 30, 2012 was remote. It was also apparent that refinancing or restructuring the Debentures would be extremely problematic given ongoing operational and cash generation challenges, as well as the potential risk of a default on the Notes in March 2013. Furthermore, the issuance of the additional Common Shares in the event the Debentures were converted to equity would result in significant dilution to the Shareholders. Accordingly, with the lack of an interested buyer for the Corporation as a whole, it was determined that a sale of the MWS and the Ezulwini Mine assets to parties with greater financial resources was necessary to deal with the foregoing issues while still preserving some value for Shareholders. On December 19, 2011, AGA submitted a non-binding proposal for the purchase of MWS for a purchase price of $300 million. After ongoing discussions between First Uranium and AGA, on February 2, 2012, AGA submitted a revised non-binding offer letter with a purchase price of $335 million, which formed the basis for the negotiation and settlement of the AGA Transaction announced on March 2, 2012. In early January 2012, the Corporation also entered into discussions with Gold One regarding its interest in acquiring the Ezulwini Mine, with Gold One being the only party at the time to have expressed interest to the Corporation in making such a proposal for the Ezulwini Mine. On January 17, 2012, Gold One submitted a non- binding proposal to acquire the Ezulwini Mine for $60 million in cash and shares, with the possibility of up to an incremental $20 million in contingent consideration. After consultation with its advisors, the Special Committee, with the concurrence of the Board, declined to accept this offer but indicated to Gold One that it might be prepared to consider a further offer if the financial terms were improved. Following further negotiations culminating during the week of February 6, 2012, Gold One indicated that it would increase the offer price to $70 million. On February 10, 2012, Gold One submitted a binding written offer to purchase the Ezulwini Mine for $70 million in cash. Gold One also offered to provide bridge financing to the Corporation in the amount of up to $10 million, which was particularly important to the Special Committee which had become concerned that the Corporation would run out of cash prior to completion of the Transactions and had already commenced a search for sources of bridge financing. Neither AGA nor Gold One expressed an interest in acquiring First Uranium as a whole, and both required their respective acquisitions to be separately negotiated without any cross conditionality to the other transaction. Consequently, on March 2, 2012 First Uranium entered into the AGA Agreement for the sale indirectly of MWS to AGA for a total consideration of $335 million in cash. Also on March 2, 2012, the Corporation entered into a binding letter agreement which was superseded on March 30, 2012 by a the Gold One Agreement for the sale, indirectly, of the Ezulwini Mine, to Gold One for $70 million in cash (the “Gold One Transaction” and together with the AGA Transaction, the “Transactions”). On March 2, 2012, Gold One also provided the Gold One Loan
  8. 8. 5. FIU MDA 2012 Facility to the Corporation for an amount of up to $10 million available for drawdown in accordance with the loan agreement between the parties. Each of the AGA Transaction and the Gold One Transaction had to be considered separately by shareholders of First Uranium at a Special Meeting convened by the Corporation on June 13, 2012. In order to complete the Transactions, the Corporation also had to convene a meeting of the Debenture holders at which they were required to approve amendments to the Debenture Indenture to agree, amongst other things, that the maturity date will be extended to October 5, 2012, and if the Transactions are to be completed and implemented by October 5, 2012, no interest will accrue after March 2, 2012 and the principal amount of the Debentures will be reduced to: (a) 95% of the principal amount of the outstanding Debentures owing as at April 30, 2012; and (b) the lesser of: (i) 3% of the principal amount of the outstanding Debentures owing as at April 30, 2012; and (ii) all payments in connection with the funds held pursuant to the terms of the AGA Agreement and the Gold One Agreement (each a Warranty Escrow) received by First Uranium, whenever received. In addition, First Uranium will pay to the Debenture Trustee, for distribution pro rata to the holders of Debentures which agreed, on or before May 30, 2012, to vote in favour of the extraordinary resolution of the holders of Debentures approving the supplemental debenture indenture, an additional amount, on account of the principal amount of the Debentures held by such consenting holders of Debentures, equal to 2% of the principal amount of all the outstanding Debentures owing as at April 30, 2012. The Debenture holder meeting was also convened by the Corporation on June 13, 2012. Included as a condition precedent to the Transactions, is the release of all security against FUSA and the MWS assets (in the case of the AGA transaction) and the FUL and the Ezulwini assets (in the case of the Gold One Transaction) relating to the security held for the benefit of the Note holders and the Gold One Loan Facility. For the Corporation to fulfil this condition precedent, the Notes and the Gold One Loan Facility would have to be settled upon closing of the AGA Transaction. Consequently, the Corporation also had to convene a meeting of the Note holders at which they were required to approve amendments to the Note Indentures to agree that upon completion and implementation of the AGA Transaction, the Note holders will accept repayment in cash of 100% of the principal amount outstanding on the Notes and that no interest will accrue after March 31, 2012. The Note holder meeting was also convened by the Corporation on June 13, 2012. On June 13, 2012, both the AGA Transaction and the Gold One Transaction were approved by the shareholders of First Uranium and the Corporation also received the required approvals from the Debenture holders and Note holders (see Note 32 to the Financial Statements). The proceeds from the sale of First Uranium’s principal assets will enable it to settle the Debentures, the Notes and the Gold One Loan Facility under the terms agreed to with the Debenture holders, Note holders and Gold One on June 13, 2012. Corporate Overview As at June 29, 2012, the Corporation had 237,882,967 common shares outstanding. In addition, the Corporation has Cdn$150 million aggregate principal amount of 4.25% senior unsecured convertible debentures (the “Debentures”) due June 30, 2012 outstanding, which are convertible into common shares of First Uranium. The Corporation also has Cdn$110 million aggregate principal amount of 7% senior secured convertible notes issued by First Uranium and due March 31, 2013 (the "Canadian Notes"). During the first quarter of FY 2012, ZAR12.2 million of the ZAR430.8 million aggregate principal amount of the 11% secured convertible notes issued by MWS and due March 31, 2013 (the “Rand Notes”) were converted to 1,311,169 common shares of the Corporation. No further conversions occurred during the remainder of FY 2012. The Corporation’s common shares, Debentures and Canadian Notes are listed on the Toronto Stock Exchange (the “TSX”). In addition, the common shares are also listed on the Johannesburg Stock Exchange (the “JSE”) and
  9. 9. 6. FIU MDA 2012 on July 15, 2011, MWS listed the remaining ZAR418.6 million aggregate principal amount of the Rand Notes on the JSE. On June 13, 2012, three security holder meetings, a meeting (the “Shareholder Meeting”) of Shareholders, a meeting (the “Note holder Meeting”) of the Note holders and a meeting (the “Debenture holder Meeting”) of Debenture holders, were held to consider and vote on a number of resolutions necessary for the successful completion of the AGA Transaction and the Gold One Transaction. The following resolutions were approved at the Shareholder Meeting: (a) The AGA Resolution, whereby the Corporation and FUL agreed to sell to AGA or its designee, the FUSA Claims and all the FUSA Shares; (b) The Gold One Resolution, whereby the Corporation and FUL agreed to sell to Gold One or its designee, among other things, all the shares in the issued capital of FUL or EMC; (c) The Additional Common Shares Resolution, whereby the approval for the issuance, if necessary, of the Additional Common Shares to repay the principal amount due on maturity of the Debentures; (d) The Note Resolution, whereby the Corporation and BNY Trust Company of Canada and GMG Trust Company (SA) Pty Limited, the Note indenture trustees, will execute supplemental Note Indentures to give effect to certain amendments to the Note Indentures to, among other things, permit the completion of the AGA Transaction and the Gold One Transaction; (e) The Continuance Resolution and the By-Law Resolution, whereby the Corporation will be continued from the Province of British Columbia into the Province of Ontario to permit the Corporation to complete the Reorganization of Capital and facilitate the Initial Distribution (as defined below) and the Remaining Distribution (as defined below) realized from the sale of its assets under the AGA Transaction and the Gold One Transaction to the Shareholders in a tax efficient manner; and (f) The Reorganization Resolution, whereby the Corporation’s share capital will be reorganized to facilitate the Initial Distribution and the Remaining Distribution realized from the sale of its assets under the AGA Transaction and the Gold One Transaction to the Shareholders in a tax efficient manner. The Board, following completion of the Transactions and the repayment of all current obligations to the Debenture holders, settlement of all outstanding obligations to the Note holders and providing for a reserve for any continuing and contingent obligations, will determine an amount (the “Initial Distribution”) to be distributed to the Shareholders in the form of a redemption of Class A Special Shares. Following the release of funds from the Warranty Escrows associated with each of the Transactions, and the settlement of all remaining obligations to the Debenture holders and establishment of a reserve for any continuing and contingent obligations, the Board will determine an amount (the “Remaining Distribution”) to be distributed to the Shareholders in the form of a second redemption of Class A Special Shares. At the Note holder Meeting, Note holders approved the Note Resolution, which approves the supplemental note indentures (the “Supplemental Note Indentures”) and authorizes the Note Trustees to execute the Supplemental Note Indentures to give effect to certain amendments to the Note Indentures to permit the completion of the Transactions, in particular: (i) that interest shall not accrue on the Notes after March 31, 2012 provided that all principal amounts owing under the Notes are paid to the Note Trustees on or before October 5,
  10. 10. 7. FIU MDA 2012 2012; and (ii) that on the seventh Business Day after the final completion and implementation of the AGA Transaction, the Notes shall be redeemed by the Corporation and MWS, as applicable, in full, without payment of any prepayment or early redemption fee or bonus. The Supplemental Indentures, dated June 14, 2012, were executed by the parties. At the Debenture holder Meeting, Debenture holders approved the Debenture Resolution, which approves the supplemental debenture indenture (the Supplemental Debenture Indenture) and authorizes the Debenture Indenture Trustee to execute the Supplemental Debenture Indenture to give effect to certain amendments to the Debenture Indenture to permit the completion of the Transactions, in particular: (i) extend the maturity date of the Debentures from June 30, 2012 to the date that is the earlier of: (a) If both the AGA Transaction and the Gold One Transaction are to be completed and implemented on or before October 5, 2012, the seventh business day after the later of: (I) the date the last amount of the Deferred Payment (as defined in the AGA Agreement) is disbursed by the Escrow Agent; and (II) the date the last amount of the Deferred Payment (as defined in the Gold One Agreement) is disbursed by the Escrow Agent; or (b) October 5, 2012 if both the AGA Transaction and the Gold One Transaction are not completed and implemented on or before October 5, 2012; (ii) provide reduced payment terms such that after closing of both of the Transactions, Debenture holders will receive a cash payment of 95% of the principal amount of the Debentures, an additional cash payment of 2% of the principal amount if they have voted in favour of the Debenture Resolution on or before May 30, 2012 (the 2% will be allocated pro rata to Debenture holders tendering by May 30, 2012), and an additional payment of the lesser of: (I) 3% of the principal amount; or (II) the total amount released to the Corporation from the Deferred Payments, in priority to the Initial Distribution; (iii) interest shall not accrue on the Debentures after March 2, 2012 provided that certain minimum payments are made to the Debenture Indenture Trustee on or before October 5, 2012. The Supplemental Debenture Indenture, dated June 14, 2012, was executed. On June 13, 2012, the Corporation filed Articles of Continuance and was continued under the Business Corporations Act (Ontario). On June 25, 2012, articles of amendment were filed in respect of the Share Capital Reorganization which involves issuance of an unlimited number of Class A Special Shares and an unlimited number of Class B Common Shares and the exchange of each common share of the Corporation for a unit (the Units) consisting of 100 Class A Special Shares and one Class B Common Shares. Effective July 3, 2012 and July 2, 2012 the common shares will be delisted and the Units listed on the TSX and the JSE, respectively, under the stock symbols FUI.UN and FUU, respectively. Business Overview To be able to adequately report on the financial performance of the Corporation and its operations in this MD&A, management extracted financial information from the total columns in the Consolidated Statements of Comprehensive Income of the Financial Statements and the Consolidated Statements of Cash Flows, which is based on the consolidated financial results of the Corporation, before excluding the financial results of the discontinued operations. Revenue and cost of production related to the gold ounces delivered pursuant to the Gold Stream Transactions as discussed in note (b) to the IFRS section of this MD&A have been added back to revenue and costs of sales, respectively, in this MD&A and are not included in the derivative expense related to Gold Stream Transactions in profit and loss as disclosed in the Financial Statements. Only the fair value movement on the derivative liabilities related to the Gold Stream Transactions has been included in the
  11. 11. 8. FIU MDA 2012 derivative expense in this MD&A. The summary table on page 9 in this MD&A sets out where the financial information from the Financial Statements vary from the financial information reported in this MD&A (also see financial information tables provided under the Operations Review and Financial Review sections of this MD&A.) This is a non-IFRS measurement and investors are cautioned not to place undue reliance on it and are advised to read all IFRS accounting disclosures presented in the Corporation’s Financial Statements. Summary Results for Q4 2012 and FY 2012 First Uranium reported a consolidated gross profit of $9.2 million and $7.3 million for Q4 2012 and FY 2012, respectively, compared to the consolidated gross losses of $2.8 million and $5.9 million in Q4 2011 and FY 2011. This was as a result of a 31% and 30% improvement, respectively, in the consolidated proceeds from gold and uranium sold of $48.0 million in Q4 2012 (Q4 2011: $36.7 million) and $195.1 million in FY 2012 (FY 2011: $150.5 million). The Corporation reported a consolidated pre-tax profit of $22.7 million in Q4 2012 (Q4 2011: $79.5 million) and a consolidated pre-tax loss of $178.8 million in FY 2012 (FY 2011: $236.3 million). The impairment of the Ezulwini Mine’s assets (see Note 9 of the Financial Statements) was the primary driver for the pre-tax loss in FY 2012 and the derivative expense related to the Gold Stream Transactions was the primary driver for the pre- tax loss in FY 2011. The Corporation utilized $9.6 million cash from its operations in Q4 2012 compared to $20.4 million in Q4 2011. During FY 2012 only $15.5 million of cash was utilized to fund operating activities compared to $50.0 million during FY 2011. The Corporation utilized $29.4 million during FY 2012 (FY 2011: $101.5 million) on capital projects at the operations, mainly on the completion of the third gold module (“Phase 2”) and the new tailings storage facility at Kareerand (“TSF”), including adjoining infrastructure at MWS. Minimal cash was used to fund capital in Q4 2012 (Q4 2011: $11.6 million). The much lower capital spend in FY 2012 reflects the close-out of the major capital projects at MWS which occurred during Q3 2012. (Balance of page intentionally left blank)
  12. 12. 9. FIU MDA 2012 Reconciliation of certain financial information in the Financial Statements with MD&A (thousands of dollars) Q4 2012 Q4 2011 %Change Q3 2012 %Change FY 2012 FY 2011 %Change Revenue Revenue as disclosed in Financial Statements (a) 45,363 32,726 39% 45,572 (1%) 179,176 134,926 33% Proceeds from gold delivered into Gold Stream Transactions(b) 2,615 3,938 (34%) 4,361 (40%) 15,872 15,604 2% Proceeds from gold and uranium sold as disclosed in MD&A 47,978 36,664 31% 49,933 (4%) 195,048 150,530 30% Cost of sales (including amortization) Cost of sales as disclosed in Financial Statements (a) (32,078) (27,342) 17% (34,993) (8%) (137,648) (114,982) 20% Costs related to gold delivered into Gold Stream Transactions (b) (6,703) (12,083) (45%) (13,178) (49%) (50,115) (41,493) 21% Cost of sales related as disclosed in MD&A (38,781) (39,425) (2%) (48,171) (19%) (187,763) (156,475) 20% Gross profit (loss)(a) Gross profit as disclosed in Financial Statements (a) 13,285 5,384 147% 10,579 26% 41,528 19,944 108% Gross loss related to gold delivered into Gold Stream Transactions (c) (4,088) (8,145) (50%) (8,817) (54%) (34,243) (25,889) 32% Gross profit (loss) as disclosed in MD&A 9,197 (2,761) 433% 1,762 422% 7,285 (5,945) 223% Derivative expense related to Gold Stream Transactions Derivative income (expense) related to Gold Stream Transactions as disclosed in Financial Statements (a) 25,307 (61,050) 141% 74,932 (66%) 14,164 (172,698) 108% Add back: Gross loss related to gold delivered into Gold Stream Transactions(c) 4,088 8,145 (50%) 8,817 (54%) 34,243 25,889 32% Derivative income (expense) related to Gold Stream Transactions (fair value movement only) as disclosed in MD&A 29,395 (52,905) 156% 83,749 (65%) 48,407 (146,809) 133% Notes: (a) Revenue and cost of sales (including related amortization) as disclosed in the Total column of the Consolidated Statements of Comprehensive Income in the Financial Statements. (b) Revenue and cost of sales (including related amortization) included in derivative expense related to Gold Stream Transactions in the Total column of the Consolidated Statements of Comprehensive Income in the Financial Statements. Also see Note 21 to the Financial Statements. (c) Net effect of revenue and cost of sales (including related amortization) included in derivative expense related to Gold Stream Transactions in the Total column of the Consolidated Statements of Comprehensive Income in the Financial Statements.
  13. 13. 10. FIU MDA 2012 As at March 31, 2012, current assets, including current assets from discontinued operations, were $21.9 million (March 31, 2011: $73.4 million) and included cash and cash equivalents of $6.7 million (March 31, 2011: $49.6 million). The Corporation’s current assets, excluding current assets from discontinued operations, were $4.1 million as at March 31, 2012 and included cash equivalents of $3.8 million. During Q4 2012, MWS generated $33.9 million in proceeds (Q4 2011: $25.1 million) from 24,862 ounces of gold sold (Q4 2011: 22,150 ounces) at a Cash Cost (as defined in Note (e) on page 7 of this MD&A) of $790 per ounce (Q4 2011: $553 per ounce). MWS generated $132.2 million in proceeds during FY 2012 (FY 2011: $89.0 million) from 99,003 ounces of gold sold (FY 2011: 82,941 ounces) at a Cash Cost of $687 per ounce (FY 2011: $516 per ounce). Although MWS showed an improvement in gold sold, year on year, it’s lower than planned performance was impacted by lower average grade delivered to its gold circuits as a result of challenges with the introduction of new material into the mining mix which was exacerbated by recalcitrant clay levels at the Buffelsfontein No.3 tailings dam, impacting the volume and hence content of feed material that could be delivered to and extracted by the plant infrastructure. The Ezulwini Mine generated $12.9 million in proceeds during Q4 2012 (Q4 2011: $11.6 million) from 8,068 ounces of gold sold (Q4 2011: 11,393 ounces) at a Cash Cost of $2,218 per ounce (Q4 2011: $2,227). During FY 2012, the Ezulwini Mine generated $58.2 million in proceeds (FY 2011: $60.7 million) from 47,442 ounces of gold sold (FY 2011: 59,689 ounces) at a Cash Cost of $2,155 per ounce (FY 2011: $1,605 per ounce). The Ezulwini Mine also sold 23,675 and 82,862 pounds of uranium during Q4 2012 and FY 2012 (FY 2011: 20,500 pounds), respectively, generating $1.2 million in proceeds in Q4 2012 and $4.6 million in proceeds in FY 2012 (FY 2011: $0.8 million). No uranium was sold in Q4 2011. FY 2012 proved a particularly challenging year from a safety and production perspective at Ezulwini Mine, with 4 fatal accidents during calendar 2011, three of which occurred in the latter half of the calendar year, having a significant negative impact on employee morale and productivity of the mine. One of the very few highlights of the year for Ezulwini Mine occurred at the end of Q3 2012 with the settlement of the final quarterly guaranteed ounces requirement to Franco-Nevada pursuant to the Ezulwini Gold Stream Transaction (effectively 64% of the gold sold during Q3 2012 at $400 per ounce of gold). As of January 2012, the mine reverted to delivering only 7% of its gold production to Franco-Nevada at $400 per ounce of gold. IFRS Until March 31, 2011, First Uranium prepared its annual and interim consolidated financial statements in accordance with Canadian GAAP as set out in the Handbook of the Canadian Institute of Chartered Accountants (CICA Handbook). In calendar 2010, the CICA Handbook was revised to incorporate IFRS, and require publicly accountable enterprises to apply such standards effective for financial years beginning on or after January 1, 2011. Accordingly, the Corporation has commenced reporting on this basis in these consolidated financial statements. In these financial statements, the term “Canadian GAAP” refers to Canadian GAAP before the adoption of IFRS. The audited consolidated financial statements for the year ended March 31, 2012 (the “Financial Statements”) have been prepared in accordance with IFRS and include considerations and disclosures as required by IFRS 1, First time adoption of IFRS, using the accounting policies adopted by the Corporation. Subject to certain transition elections disclosed in Note 5 to the Financial Statements, the Corporation has consistently applied the same
  14. 14. 11. FIU MDA 2012 accounting policies in its opening IFRS balance sheet at April 1, 2010 and throughout all periods presented, as if these policies had always been in effect. The Corporation’s financial statements, which were previously prepared in accordance with Canadian GAAP, differ in some areas from IFRS. Note 5 to the Financial Statements discloses IFRS information that is material to the understanding of the Financial Statements. Summary of Quarterly Results The table below sets out selected financial data for the periods indicated as derived from First Uranium’s consolidated financial statements: Fiscal Quarters Ended (thousands of dollars, except per share amounts) Revenue** Profit (loss) for the period Basic & diluted earnings (loss) per share Total assets Long-term Liabilities March 31, 2012 45,363 8,673 0.09 660,310 (723,833) December 31, 2011 45,572 (112,374) (0.49) 623,266 (507,124) September 30, 2011 50,237 (30,598) (0.14) 834,844 (570,002) June 30, 2011 38,004 (30,800) (0.15) 952,619 (573,465) March 31, 2011 32,726 (60,792) (0. 30) 960,979 (697,180) December 31, 2010 42,045 (28,298) (0.16) 930,662 (645,772) September 30, 2010 30,299 (57,964) (0.32) 898,161 (621,499) June 30, 2010 29,856 (56,692) (0.32) 837,146 (578,667) March 31, 2010* 28,561 (26,041) (0.14) 684,643 (287,785) December 31, 2009* 31,979 (14,432) (0.09) 695,581 (264,446) September 30, 2009* 19,025 (18,441) (0.11) 658,989 (252,591) June 30, 2009* 12,895 (33,264) (0.22) 640,672 (245,800) *These numbers were extracted from the Corporation’s interim and annual consolidated financial statements that were prepared in accordance with Canadian GAAP. **Revenue relates to gold and uranium sales at discontinued operations only. Market Overview Gold The gold price remained volatile during FY 2012. In Q4 2012, gold spot prices ranged between $1,598 and $1,781 per ounce, with an average gold spot price of $1,691 for the quarter (Q2 2012: $1,688). The average gold spot price per ounce for FY 2012 was $1,650 (FY 2011: $1,294) with prices ranging between $1,434 and $1,895 per ounce over the year. The gold spot price per ounce was $1,663 at the end of FY 2012 and $1,559 at June 28, 2012. Uranium According to the Ux Consulting Company, LLC (“UxC”), the uranium spot price per pound for uranium ranged between $51 and $53 during Q4 2012 and the term price, the price at which most supply contracts are completed, remained unchanged at $63.00 per pound. During FY 2012 the uranium spot price per pound for uranium ranged between $49 and $59 and the term price, the price at which most supply contracts are completed, remained at the $63 per pound level. As of June 29, 2012, the uranium spot price per pound was $50.75 and the term price was $63.00. The Corporation currently does not have any medium to long-term uranium contracts in place and therefore sells uranium at the spot price per pound on date of delivery.
  15. 15. 12. FIU MDA 2012 Currency exchange rates During Q4 2012, In US dollar terms, the ZAR traded in a range of $0.12 – $0.13 per US dollar, averaging $0.13. For FY 2012, in US dollar terms, the ZAR traded in a range of $0.12 – $0.15 per ZAR, averaging $0.14 and closed at $0.13. Relative to the US dollar, the Cdn$ traded in a range of $0.97 – $1.01, averaging $1.01. Relative to the US dollar, the Cdn$ traded in a range of Cdn$0.97 – Cdn$1.06, averaging Cdn$1.03 and closed at Cdn$1.00. In Cdn$ terms the ZAR traded in a range of Cdn$0.12 – Cdn$0.13, averaging Cdn$0.13. In Cdn$ terms the ZAR traded in a range of Cdn$0.12 – Cdn$0.15, averaging Cdn$0.13 and maintained its position at year-end. At March 31, 2012, First Uranium held 63% in ZAR, 20% in US dollars and the remaining 15% of its cash in Cdn$. At June 29, 2012, the Corporation held 71% in ZAR, 28% in US dollars and the balance in Cdn dollars. The funds are primarily held in cash and bank-sponsored guaranteed investment certificates with Canadian and South African banks. Inflation The Corporation’s operations are subject to inflation. Over the past year the South Africa inflation rate increased from 4.1% per annum at the end of FY 2011 to 6% per annum at the end of FY 2012. However, the mining inflation rate is well above this, due to significant increases in power and reagent costs, as well as wage increases which was also above the current inflation rate. Operations Overview Mine Waste Solutions MWS is a gold and uranium tailings recovery operation located in the western portion of the Witwatersrand Basin, approximately 160 kilometres from Johannesburg. MWS consists of 14 tailings storage facilities from three gold and uranium mines that operated for 50 years of which the Buffelsfontein No.2, No.3 and No.4 tailings dams, as well as the Hartebeesfontein No.1 tailings dam, are currently being mined. In December 2008, First Uranium entered into the MWS Gold Stream Transaction with FN pursuant to which FN paid MWS $125 million upfront. In addition, FN will make an ongoing payment equal to the lesser of $400 per ounce (the Fixed Price) (subject to an annual inflation adjustment of 1 percent, starting in the fourth year after following receipt of the first payment) and the prevailing spot price per ounce at the time the gold delivered by *These rates reflect South African incident frequency rates measured in rate per million hours worked. Safety rates * Lost Time Injury Rate Reportable Injury Rate Fatality Rate Dressing Station Injury Rate FY 2012 7.00 3.50 0.00 10.50 FY 2011 1.30 1.70 0.00 10.05
  16. 16. 13. FIU MDA 2012 MWS – Year under review MWS got off to a good start in the 2012 financial year with the commissioning of the new TSF and the third gold plant module in mid-April 2011, which served to boost tonnage throughput as a result of having increased the processing capacity from an average of 1.2 mtpm to 1.8 mtpm. At the end of Q1 2012, the capital program for the third gold plant module as well as the TSF was fundamentally complete with minor trailing obligations remaining. At the end of April 2012 MWS commenced the first phase of the technical completion tests pursuant to the MWS Gold Stream Transaction which required the operation to achieve consistent production over three consecutive months where the tonnage processed and/or re-processed through the project is within 85% of the 1.933 million tonnes of tailings per month in respect of the project (“Steady State”). At the end of July 2011, MWS concluded the Steady State period, followed by the successful completion on August 24, 2011 of the technical completion test, thereby avoiding the imposition of the penalties provided under the MWS Gold Stream Transaction. However, the commissioning of the new infrastructure together with the introduction of new resources was not without its challenges. While the infrastructure improvements contributed to increased gross profits during the year as a result of higher tonnage throughput driven primarily by the increase in processing capacity, running costs and teething problems associated with the newly completed infrastructure led to increases in Cash Costs, largely as a result of increased fuel, water and power usage. Additionally, the conclusion of the final gold expansion phase of the MWS project in Q1 2012 introduced new resources into the mining mix, namely the Hartebeestfontein tailings dams No.1, and 2, which due to unique material characteristics posed numerous challenges to the plant recovery performance which ultimately impacted negatively on production.
  17. 17. 14. FIU MDA 2012 MWS Q4 2012 Q4 2011 %Change Q3 2012 %Change FY 2012 FY 2011 %Change Production Tonnes reclaimed (000s) 4,982 3,625 37% 5,107 (2%) 19,814 13,421 48% Average gold recovery grade (grams/tonne) 0.16 0.19 (16%) 0.16 (6%) 0.16 0.19 (16%) Percentage gold recovered 48% 55% (13%) 51% - 49% 55% (11%) Total ounces of gold sold 24,862 22,150 12% 25,142 (1%) 99,003 82,941 19% Ounces of gold sold at full market prices 18,604 16,617 12% 18,845 (1%) 74,297 63,040 18% Ounces of gold delivered into MWS Gold Stream Transaction at $400/oz 6,258 5,533 13% 6,297 (1%) 24,706 19,901 24% Average proceeds from gold per ounce sold ($)(d) 1,362 1,131 20% 1,321 3% 1,335 1,073 23% Average Cash Cost per ounce of gold sold ($)(e) (790) (553) 43% (613) 29% (687) (516) 33% Average cost per ounce sold ($) (790) (641) 23% (727) 9% (781) (594) 32% Financial (thousands of dollars) Proceeds from gold sales (d) 33,862 25,052 35% 33,202 2% 132,216 88,982 49% Revenue from gold sold at full market prices(a) 31,442 23,014 37% 30,734 2% 122,417 80,901 51% Proceeds from gold delivered into MWS Gold Stream Transaction(b) 2,420 2,038 19% 2,468 (2%) 9,799 8,081 21% Cost of sales (excluding amortization) (d) (19,648) (12,239) 61% (15,414) 27% (68,063) (42,808) 59% Costs related to gold sold at full market prices(a) (14,167) (9,631) 47% (11,567) 22% (50,559) (32,764) 54% Costs related to gold delivered into MWS Gold Stream Transaction(b) (5,481) (2,608) 110% (3,847) 42% (17,504) (10,044) 74% Amortization(d) - (1,955) - (2,869) - (9,285) (6,441) 44% Amortization related to gold sold at full market prices(a) - (1,470) - (2,160) - (6,979) (4,896) 43% Amortization related to gold delivered into MWS Gold Stream Transaction (b) - (485) - (709) - (2,306) (1,545) 49% Gross profit 14,214 10,858 31% 14,919 (5%) 54,868 39,733 38% Notes: See notes (a) and (b) under Reconciliation of certain financial information in Financial Statement with MD&A table on page 9. (a) To be able to adequately report on the financial performance of the Corporation and its operations in this MD&A, the revenue and cost of production related to the gold ounces delivered pursuant to the Gold Stream Transactions have been added back to revenue and costs of sales, respectively, in this MD&A and are not included in the derivative expense related to Gold Stream Transactions in profit and loss as disclosed in the Total column in the Consolidated Statements of Comprehensive Income of the Financial Statements. Only the fair value movement on the derivative liabilities related to the Gold Stream Transactions has been included in the derivative expense in this MD&A. This is a non-IFRS measurement and investors are cautioned not to place undue reliance on it and are advised to read all IFRS accounting disclosures presented in the Corporation’s Financial Statements. (b) “Cash Costs" are costs directly related to the physical activities of producing gold and uranium and include mining, processing and other plant costs; third-party refining and smelting costs; marketing expense, on-site general and administrative costs; royalties; on-mine drilling expenditures that are related to production and other direct costs. Sales of by-product metals such as uranium and silver are deducted from the above in computing cash costs. Cash costs exclude depreciation, depletion and amortization, corporate general and administrative expense, exploration, interest, and pre-feasibility costs and accruals for mine reclamation. Cash costs are calculated and presented using the "Gold Institute Production Cost Standard" applied consistently for all periods presented. The Gold Institute was a non-profit industry association comprised of leading gold producers, refiners, bullion suppliers and manufacturers. This institute has now been incorporated into the National Mining Association. The guidance was first issued in 1996 and revised in November 1999. Total cash costs per ounce is a non-IFRS measurement and investors are cautioned not to place undue reliance on it and are advised to read all IFRS accounting disclosures presented in the Corporation’s Financial Statements.
  18. 18. 15. FIU MDA 2012 The primary challenge experienced by the newly commissioned third gold module was as a result of the new Hartebeestfontein tailings dams being comprised of materials of a much larger fraction size than the historically mined Buffelsfontein tailings dams. This necessitated modifications to screening ahead of the carbon-in-leach circuit as well as modifications to the elution circuit in an effort to improve recovery performance. Initially, the overall grade delivered to the third gold module as well as recovery performance was maintained by blending the Hartebeesfontein No. 1 tailings dam material with material from higher grade remote satellite dams. During Q3 2012 however, contributions from the remote satellite dams diminished as the resource approached depletion which impacted negatively on overall grade delivered and hence gold production. Gold plant modules one and two also experienced reduced performance as a result of high clay content which reduced reclamation rates and hence gold content delivered to these modules for extraction. As a consequence of lower feed grades, reduced mining rates arising from high clay content and combined with the impact of the temporary suspension by the NNR towards the end of July 2011 (as discussed under the Permitting section of this MD&A), management downgraded its FY 2012 guidance in Q3 2012, from a range of between 105,000 and 115,000 ounces to a range of between 98,000 and 100,000 ounces. For FY 2012, MWS achieved 99,003 ounces, a 19% improvement on the 82,941 ounces in FY 2011. The first gold plant module saw a 7% drop in grade and an associated, anticipated drop in recovery as the resources from the high grade Buffelsfontein No. 2 tailings dam diminished and the proportion of the mining mix from the lower grade Buffelsfontein No. 3 tailings dam increased. The feed grade delivered to the second gold plant module during Q4 2012 increased by 9%, largely due to the proportion of high grade floor material from Buffelsfontein No. 4 tailings dam in the mining mix which is approaching the end of its life. Despite the increase in feed grade compared to Q3 2012, there was no commensurate increase in recoveries, a fact that management attributes to the recent clay intersections on Buffelsfontein No. 3 tailings dam. While a certain quantity of clay was anticipated in processing the Buffelsfontein No. 3 tailings dam, the relative proportion of clay which is difficult to reclaim compared to clean material which is easy to reclaim was not. During March 2012 the estimated split of clay material to clean material was 70%, compared to historical percentages of 20%. This has negatively impacted on both throughput and recovery performance to gold module one and two respectively. The significant proportion of clay to clean material present in the Buffelsfontein No. 3 tailings dam which supplies 90% of the tonnes processed in the first and second gold plant module negatively impacted the revenue of these two modules. Throughput rates at the third gold plant module remained fairly constant, however marginal quarter on quarter decreases in feed grade to the plant coupled with decreased recovery performance impacted negatively on Q4 2012 production compared to Q3 2012. It is expected that going forward the grade delivered to the plant will reduce by approximately 19%. The tonnage throughput increased by 37% from Q4 2011 to Q4 2012, as a result of the additional plant module that came into production during FY 2012, however, the challenges discussed above limited gold production during Q4 2012 to an increase of only 12% in gold ounces sold compared to Q4 2011, which combined with the increase in average gold selling price compared to Q4 2011, resulted in a 35% increase in revenues in Q4 2012 compared to Q4 2011. Due to the challenges experienced at MWS, particularly since Q3 2012, tonnes and ounces sold and the resulting revenues in Q4 2012 were similar to that of Q3 2012. The 49% increase in revenues from the MWS operation in FY 2012 reflects the 19% increase in gold ounces sold in FY 2012 compared to FY 2011 combined with the 23% increase in average gold selling prices year-over-year. The gold
  19. 19. 16. FIU MDA 2012 ounces sold were limited to only 19% due to the lower grades and recoveries realised during the year as mentioned above. The 61% and 49% increases in Cash Costs in Q4 2012 and FY 2012 compared to Q4 2011 and FY 2011, respectively, were driven by several factors, namely: • The high unit cost of operating the Hartebeesfontein No. 7 satellite dam (including trucking) which are important in managing the grade and fraction size mining mix reporting to the third gold module reclamation station; • Additional power costs of running the new TSF, which is situated approximately 16km from the metallurgical complex; • Additional water costs resulting from less than planned return water reporting from the TSF to the reclamation operations and the resultant need to supplement water from more expensive sources. The need to supplement water will reduce in time as the dam begins to fill and is less affected by evaporation. • There was a substantial increase in certain key reagent costs in Q4 2012 (resulting in the 27% increase compared to Q3 2012). Due to the Corporation’s decision to dispose of its principal assets at the start of Q4 2012, no amortization for the MWS assets was provided for on a consolidated basis during Q4 2012. The increase in amortization year- over-year is driven by the 48% higher tonnage throughput for FY 2012 compared to FY 2011. The higher revenues in both Q4 2012 and FY 2012 more than offset the higher costs in the respective periods and resulted in the 31% and 38% increases in gross profits generated by MWS compared to Q4 2011 and FY 2011, respectively. In an effort to try and improve the recovery performance discussed above, within the respective gold modules, optimisation test work continued throughout FY 2012. With the work concluded thus far, an opportunity to improve recovery performance for the first gold module has been defined. Circuit modifications aimed at improving leach time are expected to be concluded by the end of Q1 2013 with the intention of commissioning in early Q2 2013. Economically viable opportunities for the second and third gold modules have not emerged thus far. Notwithstanding the modifications that can be made to gold module one, the relative proportion of clay compared to clean material is expected to increase as the availability of clean sources of material on Buffelsfontein No. 3 tailings dam continues to diminish and with it, mining mix flexibility. Historical clay handling mechanisms are unable to cope with the relative volume of clay, consequently significant focus is being applied to sourcing alternative clay handling mechanisms which have the ability to improve the reclamation rate as well as the quality of the material being delivered to the plant. Until then, the performance of gold module one and two will continue to diminish both in terms of tonnage delivered to the plant and the ability of the plant to maximise recovery from clayey material. It is difficult to quantify the anticipated impact on throughput and recovery performance, however, management anticipate that this could range from 15% to 25% from current levels dependent upon the relative extent of clay to clean material on Buffelsfontein No. 3 tailings dam. Ezulwini Mine The Ezulwini Mine lies within the Witwatersrand Basin, located approximately 40 kilometres from Johannesburg on the outskirts of the town of Westonaria in the Gauteng Province, South Africa. The Ezulwini Mine is an underground mine that has two separate tabular ore bodies about 400 metres apart. The Upper Elsburg (“UE”) ore body, where most of the mining has been done to date, is a gold only deposit. The Middle Elsburg (“ME”) ore body is a gold and uranium deposit and is relatively unexploited.
  20. 20. 17. FIU MDA 2012 The Ezulwini Mine is part of the Ezulwini mining right, which includes certain surface and underground assets, acquired by the Ezulwini Mining Company (Proprietary) Limited (“EMC”). When First Uranium acquired EMC from Simmer & Jack in December 2006, Simmer & Jack was the registered owner of the Ezulwini mining right. Consequently EMC and Simmer & Jack entered into an agreement (the “Ezulwini Mining Right Agreement”) pursuant to which Simmer & Jack agreed to take the necessary steps to obtain all ministerial approvals in order to effect the ceding of the Ezulwini mining right from Simmer & Jack to EMC. On March 20, 2008, the Department of Mineral Resources (“DMR”) consented to the ceding of the Ezulwini mining right to EMC. On April 22, 2010, the Corporation registered the cession of the mining right in the name of EMC. (Balance of page intentionally left blank)
  21. 21. 18. FIU MDA 2012 Notes: See notes (a) and (b) under Reconciliation of certain financial information in Financial Statement with MD&A table on page 9 and notes (d) and (e) under MWS table on page 13. Ezulwini Mine Q4 2012 Q4 2011 %Change Q2 2012 %Change FY 2012 FY 2011 %Change Production Tonnes milled 91,302 152,395 (40%) 148,072 (38%) 566,216 594,378 (5%) Average gold recovery grade (grams/tonne) 3.11 2.64 18% 2.40 30% 2.67 2.41 11% Total ounces of gold sold 8,068 11,393 (29%) 13,405 (40%) 47,442 59,689 (21%) Ounces of gold sold at full market prices 7,574 6,951 9% 8,515 (11%) 32,107 41,031 (22%) Ounces of gold delivered into the Ezulwini Gold Stream Transaction 496 4,442 (89%) 4,889 (90%) 15,336 18,658 (18%) Average proceeds from gold per ounce sold ($)(d) 1,596 1,019 57% 1,142 40% 1,228 1,017 21% Average Cash Cost per ounce of gold sold ($)(e) (2,218) (2,227) - (2,049) 8% (2,155) (1,605) 34% Average cost per ounce sold ($) (2,218) (2,215) - (2,124) 4% (2,231) (1,680) 33% Pounds of uranium sold 23,675 - - 27,780 - 82,862 20,500 304% Average uranium selling price per pound ($) 52 - - 51 - 55 41 34% Financial (thousands of dollars) Proceeds from gold and uranium sold (d) 14,116 11,611 22% 16,731 (16%) 62,832 61,548 2% Revenue from gold sold at full market prices(a) 12,683 9,712 31% 13,416 (5%) 52,175 53,184 (2%) Proceeds from gold delivered into Ezulwini Gold Stream Transaction(b) 195 1,899 (90%) 1,893 (90%) 6,073 7,523 (19%) Revenue from uranium sold(a) 1,238 - - 1,422 - 4,584 841 1,238% Cost of sales (excluding amortization) (d) (19,132) (25,374) (25%) (28,888) (34%) (106,838) (103,712) 3% Costs related to gold and uranium production(a) (17,916) (16,407) 9% (20,480) (13%) (77,678) (74,907) 4% Costs related to gold delivered into Ezulwini Gold Stream Transaction (b) (1,216) (8,967) (86%) (8,408) (86%) (29,160) (28,805) 1% Amortization (d) - 143 - (1,001) - (3,575) (3,514) 2% Amortization related to gold and uranium production(a) - 165 - (785) - (2,436) (2,416) 1% Amortization related to gold delivered into MWS Gold Stream Transaction (b) - (22) - (216) - (1,139) (1,098) 4% Gross loss (5,016) (13,620) (63%) (13,158) (62%) (47,581) (45,678) 4%
  22. 22. 19. FIU MDA 2012 *These rates reflect South African incident frequency rates measured in rate per million hours worked. In November 2009, First Uranium entered into the Ezulwini Gold Stream Transaction with FN pursuant to which FN paid the Ezulwini Mine $50 million upfront. In addition, FN will make an ongoing payment equal to the lesser of $400 per ounce (the Fixed Price) (subject to an annual inflation adjustment of 1 percent, starting in the fourth year after the upfront payment) and the prevailing spot price per ounce, at the time the gold is delivered under the contract. Pursuant to the Ezulwini Gold Stream Transaction, the Ezulwini Mine is obliged to deliver a minimum of 16,500 and 19,500 ounces of gold into the transaction during calendar years 2010 (the 2010 Guaranteed Ounces) and 2011 (the 2011 Guaranteed Ounces) respectively, such deliveries to be comprised of at least 4,125 and 4,875 ounces per quarter, respectively (see Note 15.2 to the Financial Statements). Pursuant to the Ezulwini Gold Stream Transaction, the Ezulwini Mine granted to FN a special bond over certain plant and equipment and a pledge of 7% of the gold production from the Ezulwini Mine. First Uranium has guaranteed the obligations owed by the Ezulwini Mine to FN. Ezulwini – year under review Despite an intensive change management process implemented in Q1 2012, the anticipated improvements at Ezulwini Mine were not forthcoming and at the end of Q3 2012, a restructuring of Ezulwini Mine was announced that resulted in approximately 50% of the workforce being retrenched by the end of Q4 2012. The financial year started off promisingly enough. The uranium plant re-opened in April 2011 after a hiatus of 8 months and soon achieved uranium recoveries in excess of 80%; 5% higher than planned design recoveries of 75%. In Q1 2012 proceeds from gold sales at Ezulwini Mine rose 35% reflecting the overall increase in tonnage throughput (8%), average grade gold recovery grade (7%) and gold prices (25%) over the previous quarter (Q4 2011). These gains were offset by having to deliver higher ounces into the Ezulwini Gold Stream Transaction at $400 per ounce since Ezulwini Mine under-delivered on the required Guaranteed Ounces for Q4 2011 and as a result had to deliver the outstanding ounces in the Q1 2012 (see Note 15.2 to the Financial Statements). Costs spiked sharply with the higher tonnage profile and increase in development meters resulting in higher stores and material costs, while a 25% annual increase in electricity rates on top of a surge in usage due to increased shaft and plant activity, added to the cost burden. These factors, combined with the impact of the shaft maintenance program, meant that despite the improvement in key production metrics, the loss for Q1 2012 widened quarter on quarter and year on year. Despite this, the mood was cautiously optimistic. The shaft maintenance program which had constrained production and development during Q4 2011, was finally complete, and even though the inability to invest in development during Q4 2011 was still expected to impact on the production build-up into Q2 2012, planned additional investments in development where expected to deliver increased production build-up albeit at slower rates than previously planned. This would be aided by an increase in key conveyance speeds as a result of the successful shaft maintenance program. Safety rates * Lost Time Injury Rate Reportable Injury Rate Fatality Rate Dressing Station Injury Rate FY 2012 8.40 2.45 0.35 14.24 FY 2011 9.02 2.48 0.26 15.17
  23. 23. 20. FIU MDA 2012 Towards the end of July 2011, an integrity inspection on the re-designed IX columns in the Ezulwini Mine’s uranium plant confirmed that the columns were performing according to the design criteria. Additionally, the ramp up plan for the ME ore body which supplied ore to the uranium plant was going according to plan, being derived from conventional tabular ore body mining, unlike the complex UE ore body. Additionally, management was looking forward to the fourth quarter where instead of delivering between 30% and 40% of gold produced to FN in terms of the Ezulwini Gold Stream Transaction, Ezulwini Mine would revert to delivering only 7% of its gold production at $400 per ounce, come Q4 2012 – an event that expected to have a significant impact on the cash proceeds received by the Ezulwini Mine for its gold sold. In July, the operation hit two new production records: the plant milled 70,058 tonnes and the development crews achieved 908 development meters, both of which supported the view that the planned production ramp-up was on track. This achievement and the associated upward trends in production were derailed, sadly, by fatal accidents on August 11, 2011 and September 13, 2011. The August accident resulted in all development ends being stopped on the mine for an extended period of time and the September accident resulted in all activities in the reef horizons being stopped for a similar period of time. The impact of the accidents went far beyond the mandatory stoppages enforced by the DMR as even after the re-start of operations, production teams struggled to regain the momentum they had established during July. Given that accident-related stoppages posed one of the most significant risks to Ezulwini Mine’s ability to meet and/or exceed its targets, Management reinforced its efforts to attain a safe working environment by initiating a number of proactive safety drives. Despite these setbacks, evidence of a turnaround could still be seen: development meters per production shift were within the planning parameters and the mining team managed to build good production momentum into late October and early November; costs appeared to be coming down thanks to the various cost controls and initiatives implemented in the first half of the year; and Ezulwini’s gold plant continued to operate efficiently, even in the face of an inconsistent supply of ore following the aforementioned fatal accidents. Gold recovery for the month of September was 95.5% and uranium recovery was 82%. The re-commissioning of the elution circuit received the go ahead during Q2 2012 and was expected to be commissioned by the end of December 2011, meaning that Ezulwini’s gold plant would no longer need to toll treat its carbon at MWS, as well as yielding a number of benefits to the operation, particularly related to inventory management and reduced handling and transportation costs. However, on November 14, 2011 the mine regrettably suffered another fatal accident following a fall of ground. This resulted in a mandatory stoppage which, although necessary, had the effect of undermining the progress that had been made to that point. Tonnage throughput for Q3 2012 fell 9% compared to Q3 2011. This, along with lower average gold recovery grades resulted in a 31% decline in gold ounces sold in Q3 2012 from Q3 2011, resulting in a decrease in the proceeds from gold ounces, although at lower rates due to the higher gold price over the comparative period. Due to much lower production in Q3 2012, the mine effectively delivered 64% of its gold ounces sold during the quarter at $400 per ounce of gold in order to meet the final quarterly payment to FN pursuant to the Ezulwini Gold Stream Transaction. As a consequence, on December 19, 2011, management announced the planned restructuring in accordance with Section 189A and 189 of The South African Labour Relations Act and, at the same time, stopped mining of all marginal production panels. The planned restructuring was concluded by the end of Q4 2012. Following consultation and negotiations with organized labour, the staff complement was reduced by 1,320 employees, with many being offered alternative positions at neighbouring operations. As at April 1, 2012, the Ezulwini Mine employed 1,980 employees.
  24. 24. 21. FIU MDA 2012 In Q4 2012, the on-going drive to improve safety performance resulted in a significant improvement in key safety metrics. On March 14, 2012, the mine reached 250,000 fatality free shifts, which is the first important milestone towards the operation’s goal of 1,000,000 fatality free shifts by the end of FY 2013. Aligned to the restructuring of the Ezulwini Mine, management completed a new ten-year operating plan which included more detailed analysis of the UE section and plans for further technical work to be conducted, in order to define a four-year mineral reserve and a corresponding production plan which yields sustainable and profitable results. In terms of the new four-year plan, mining of all marginal production panels has ceased. As a consequence, mining in the ME ore body has been temporarily halted and the operation of the uranium plant suspended due to the combination of low uranium prices and the high costs associated with mining the ME ore body. The ME ore body is on average 1,500 metre further from the shaft and 300 metre deeper than the UE ore body which adds significantly to the cost of mining this area. The lower gold grades and persistently low uranium prices do not generate sufficient revenue per tonne to offset the high cost per tonne. This is further exacerbated by the high cost per tonne associated with operating the under-utilized uranium plant and the Corporation’s limited cash reserves. As a result, the Ezulwini uranium plant was placed on care and maintenance at the end of February 2012. Notwithstanding the restructured operation at the Ezulwini Mine, and the reduction in the required delivery of gold to FN to 7% of gold production, the turnaround in operations at Ezulwini had not yet realized or yielded the expected results. While the quantity and grade of the blasted tonnes was substantially in-line with the new operating plan, the mine was unable to meet its tonnage targets, due mainly to a number of tramming constraints, including a fall of ground on one of the major ore transfer levels. As a result, the operation continued to lose money in Q4 2012 and consume cash at a greater rate than planned. In order to address these issues, management have developed and are in the process of implementing a detailed action plan, which includes clearing the fall of ground, correcting the trackless section operating conditions and addressing the mechanical condition of the trackless equipment on the level. The above-mentioned issues resulted in a 40% and 5% lower tonnage throughput for Q4 2012 and FY 2012 compared to Q4 2011 and FY 2012, respectively. This, offset by improved gold recovery grades over the comparative periods, resulted in the 29% and 21% decline in gold ounces sold in Q4 2012 and FY 2012, respectively, from its comparative periods. Consequently the proceeds from gold ounces sold also decreased, although at lower rates, primarily due to the higher gold price over the comparative periods. As of Q4 2012, the Ezulwini Mine reverted to delivering only 7% of its gold production to FN pursuant to the Ezulwini Gold Stream Transaction. Costs for Q4 2012 decreased by 25% compared to Q4 2011 primarily as a result of the section 189 process along with the new mine plan implemented during the quarter. Costs for FY 2012 increased marginally (3%) compared to FY 2011, largely as a result of increased labour, power and stores and material costs. Overall costs increases were limited due to various cost controls and initiatives implemented in the first half of calendar 2011 in order to reduce costs. Power costs increased as a result of the 25% annual increase in electricity rates over the comparative periods as well as an increase in usage due to increased shaft and plant activity. Stores and material costs also increased in line with the higher tonnage profile. As of Q1 2012, stores, power and material costs were also higher as a result of the start-up of the uranium plant at the start of Q1 2012. For most of FY 2011 the uranium plant did not operate at the same levels in FY 2012. Due to the Corporation’s decision to dispose of its principal assets at the start of Q4 2012, no amortization for the Ezulwini Mine assets was provided for on a consolidated basis during Q4 2012.
  25. 25. 22. FIU MDA 2012 As at the end of Q1 2013, Ezulwini Mine is beginning to see the results of the restructuring process that was begun in December 2011, with gold sold in Q1 2013 in excess of 9 500 ounces. Cash costs are in line with budget and, assuming production ramps up to the expected levels, the Ezulwini Mine is expected to start breaking even by the close of Q2 2013. The current mine plan is targeting a gold output of approximately 50,000 ounces for FY 2013 from an average monthly production of 44,000 tonnes. Despite the uranium sections of the mine having been closed and the uranium plant put onto care and maintenance, the Ezulwini Mine will realize revenue from uranium sales in Q1 2013 related to the sale of the 25,000 pounds of uranium carried over from uranium production in FY 2012, prior to halting the uranium mining operations. Unfortunately due to constraints on the cash available for certain capital projects and the fact that the Ezulwini Mine is no longer operating its uranium plant, all work on the pilot float plant was terminated in Q4 2012. The aforementioned cash constraints also lead to a delay in the repair of the Ezulwini Mine’s elution circuit, which is now back on track and should be commissioned by the end of Q1 2013. While progress has been made at the Ezulwini Mine over the last 15 months, the operations have not yet turned cash flow positive and it requires additional capital investment to fund the operations until such time as it turns cash positive. Permitting MWS The MWS reclamation and rehabilitation operation is diverse both in terms of the nature of the operations and its geographic spread and is therefore regulated by a host of legislation. Principally by the National Water Act, National Environmental Management Act (“NEMA”) and the National Nuclear Regulator Act. MWS is of the opinion that it currently holds all the necessary authorisations in order to conduct its operations. Despite the fact that a tailings reclamation project does not require a mining right under current South African mining legislation, MWS applied for a new order mining right in 2008 in anticipation of a proposed amendment to the MPRDA which, although drafted in 2008, has yet to come into effect. A New Order Mining Right was granted to MWS in 2009 subject to MWS agreeing on a mechanism to fund the rehabilitation guarantee as well as MWS meeting the requisite BEE credentials (see Corporate Overview section of MD&A) in terms of the New Order Mining Right. This was the status when the Minister of Mineral Resources issued the purported withdrawal of the New Order Mining right on September 15, 2011. However, the withdrawal has no basis in law since MWS does not require a mining right in order to operate. MWS has respectfully informed the Minister of its rights in this regard and will take legal action, if necessary, to protect its right to operate. On this basis, operations continue and MWS will continue to pro-actively engage with the Minister and the DMR to resolve the issue. As reported in the Corporation’s news release issued on January 4, 2012, the South African Water Tribunal dismissed an appeal by a local environmental pressure group, the Federation for a Sustainable Environment, against the issuing of MWS’s Water Use Licence and the Tribunal has closed its file on the matter. On February 1, 2012 MWS received notice that the FSE intends to appeal the Water Tribunal’s decision to the High Court. MWS intends to vigorously oppose the matter. On July 25, 2011, MWS received a directive from the National Nuclear Regulator (“NNR”) to suspend operations. The suspension was related to the operation of the MWS slurry pipelines and spillages emanating from the pipelines. After intensive engagement with the NNR, the suspension was lifted provided MWS could ensure
  26. 26. 23. FIU MDA 2012 continuous improvement relating to the operation of the pipeline. To this end, an updated pipeline management program providing for improved monitoring and maintenance of the pipeline was submitted to the NNR at the end of September 2011. A follow-up inspection was conducted by NNR officials on December 23, 2011 and no major non-compliance issues were noted. MWS continues to work closely with the NNR to ensure that it complies with its licence conditions. On February 10, 2012 MWS received a notice of intention to issue a directive (“Pre-Directive”) in terms of section 31 A of the Environment Conservation Act (No. 73 of 1989) (“ECA”) and or Section 28 of the National Environmental Management Act (No. 107 of 1998) from the Department of Environmental Affairs (“DEA”). The Pre-Directive lists certain concerns that the DEA has with the MWS reclamation project and the environmental impact thereof. The DEA has requested information from MWS relating to the concerns which MWS duly submitted on February 24, 2012. While no formal feedback has been received from the DEA since the submission, management is confident that the issues have been materially addressed. Ezulwini Mine As previously reported, the DMR issued a compliance notice in terms of Section 47 of the MPRDA to the Ezulwini Mine in March 2011 pursuant to an annual DMR compliance audit inspection held at the mine on March 9, 2011. The notice stated that the mine must address certain matters in order to maintain the Ezulwini mining right. After significant interaction with the DMR over the last couple of months, management is pleased to advise that the DMR lifted the Section 47 notice on June 12, 2012. (Balance of page intentionally left blank)
  27. 27. 24. 24 FIU MDA 2012 Consolidated Financial Results (thousands of dollars) Q4 2012 Q4 2011 %Change Q3 2012 %Change FY 2012 FY 2011 %Change Proceeds from gold and uranium sold(d) 47,978 36,664 31% 49,933 (4%) 195,048 150,530 30% Revenue from gold sold at full market prices(a) 44,125 32,726 35% 44,150 - 174,592 134,085 30% Proceeds from gold delivered into Gold Stream Transactions (b) 2,615 3,938 34% 4,361 (40%) 15,872 15,604 2% Revenue from uranium sold (a) 1,238 - - 1,422 - 4,584 841 445% Cost of sales (including amortization) (d) (38,781) (39,425) (2%) (48,171) (19%) (187,763) (156,475) 20% Costs related to gold and uranium production (a) (32,078) (27,342) 17% (34,993) (8%) (137,648) (114,982) 20% Costs related to gold delivered into Gold Stream Transactions (b) (6,703) (12,083) (45%) (13,178) (49%) (50,115) (41,493) 21% Gross profit (loss) (d) 9,197 (2,761) 433% 1,762 422% 7,285 (5,945) 223% Gross profit (loss) related to gold and uranium sold at market prices (a) 13,285 5,384 147% 10,579 26% 41,528 19,944 108% Gross profit (loss) related to gold delivered into Gold Stream Transactions (c) (4,088) (8,145) (50%) (8,817) (54%) (34,243) (25,889) 32% Other income 623 955 (35%) 588 6% 2,497 3,177 (21%) Other expenditures(f) (11,101) (5,222) 113% (6,171) (95%) (31,561) (32,075) (2%) Impairment of Ezulwini Mine’s assets 1,829 - - (180,000) 101% (178,171) (1,482) 119% Fair value movement on Rand Notes liability (4,630) (5,844) (21%) 1,315 (452%) 12,065 (22,133) 155% Derivative income (expense) related to Gold Stream Transactions (fair value movement only) (d) 29,395 (52,905) 156% 83,749 (65%) 48,407 (146,809) 133% Foreign exchange (loss) gain 11,344 (5,041) 325% (2,670) 525% (64) (792) (92%) Profit (loss) before interest and income taxes 36,657 (70,818) 152% (101,427) 136% (139,542) (206,059) 32% Investment income 132 135 (2%) 59 124% 425 726 (41%) Interest and accretion expenditures (12,523) (7,606) 65% (8,290) 51% (36,866) (28,556) 29% Accretion expense on asset retirement obligations (1,530) (1,238) 24% (366) 318% (2,794) (2,452) 14% Profit (loss) before income taxes 22,736 (79,527) 129% (110,024) 121% (178,777) (236,341) (24%) Income tax (charge) recovery (14,064) 18,736 (175%) (2,350) 498% 13,678 32,596 (58%) Profit (loss) for the period 8,672 (60,791) 114% (112,374) 108% (165,099) (203,745) (19%) Other comprehensive income (loss) 78 (101) 177% 216 (64%) 430 166 159% Movement on foreign currency translation reserve 32,053 (26,451) 221% (17,429) (82%) (80,143) 51,191 (256%) Comprehensive profit (loss) for the period 40,803 (87,343) 147% (129,587) 131% (244,812) (152,388) 61% Loss per common share (0.20) (0.31) (35%) (0.49) (59%) (0.69) (1.10) (37%) Notes: See notes (a) to (c) under Reconciliation of certain financial information in Financial Statement with MD&A table on page 9 and notes (d) and (e) under MWS table on page 13. (f) Other expenditures include general, consulting and administrative expenditures, pumping and rehabilitation costs, stock-based compensation, non-production related amortization and FN penalty related to the MWS Gold Stream Transaction.
  28. 28. 25. FIU MDA 2012 Consolidated Financial Review The Corporation reported higher consolidated revenues from gold and uranium sold for Q4 2012 (31%) and FY 2012 (30%) compared to Q4 2011 and FY 2011, with consolidated costs increasing less (3% and 19%, respectively) than revenues, and culminated in consolidated gross profits for Q4 2012 and FY 2012 compared to consolidated gross losses for Q4 2011 and FY 2011. The challenges faced at MWS and the Ezulwini Mine during Q4 2012, as discussed under the Operations review section of this MD&A, resulted in consolidated revenues for Q4 2012 coming in 4% lower compared to Q3 2012. Fortunately, consolidated costs decreased by 12% compared to Q3 2012, and as a result of the Corporation’s decision to dispose of its principal assets, no amortisation (on consolidated basis only) was accounted for during Q4 2012 on the assets of both MWS and the Ezulwini Mine. The decrease in consolidated revenues were offset by the higher reduction in consolidated costs quarter-over-quarter and resulted in a substantial improvement in consolidated gross profits from Q3 2012. As a result of the section 189 process and revised mine plan at the Ezulwini Mine, its cost base reduced by 34% compared to Q3 2012. MWS’s costs, on the other hand, increased by 27% compared to Q3 2012, primarily due to significant price increases in certain key reagents. Other income, consisting primarily of fees for sludge pumping services to a third party, by-product sales, scrap sales and rental income at the Ezulwini Mine, varies from period to period relative to the pumping activity, sales and rental units occupied. Other expenditures (as defined in Note (f) to the Consolidated Financial Review table below) for Q4 2012 were substantially higher compared to Q4 2011 and Q3 2012, primarily as a result of $2.0 million in retrenchment costs in Q4 2012 resulting from Ezulwini Mine’s section 189 process and additional legal and advisory costs incurred during the quarter relating to the process ran by the Special Committee (as discussed under the Financial Position section of this MD&A) along with higher pumping costs offset by lower stock-based compensation over the comparative periods. Notwithstanding the additional and higher costs in Q4 2012, other expenditures for FY 2012 were marginally lower (2%) compared to FY 2011, mainly as a result of various cost cutting initiatives implemented throughout FY 2012. The restructuring process at the Ezulwini Mine in December 2011 resulted in an impairment assessment of the Ezulwini Mine’s assets. In assessing whether the Ezulwini Mine’s assets has been impaired, the carrying value was compared with its recoverable amount at year-end. The recoverable amount was based on the fair value less cost to sell approach derived from the Gold One consideration for the Ezulwini Mine. As a result of the impairment exercise, the carrying amount of the Ezulwini Mine’s assets that was included in property, plant and equipment has been reduced to its recoverable amount as at March 31, 2012 through the recognition of an impairment loss of $178.2 million against the carrying value thereof. The $1.5 million impairment of assets in FY 2011 resulted from a structural failure of the loading columns in the IX section of the Ezulwini Mine’s uranium plant. As discussed in note (e) to the IFRS section in this MD&A, the fair value movement related to the Rand Notes liability is recognized in the Statements of Comprehensive Income. For Q4 2012 and Q4 2011, the fair valuation of the Rand Notes liability at the end of those reporting periods resulted in a negative fair value movement due to the increase in the share price of the Corporation during the respective period. For FY 2012 and FY 2011, the First Uranium share price decreased at the end of the respective reporting periods, resulting in positive fair value movements. As discussed in note (b) to the IFRS section in this MD&A, the fair value movement related to the derivative liability related to the Gold Stream Transactions is recognized in the Statements of Comprehensive Income. The
  29. 29. 26. FIU MDA 2012 overall increase in the gold spot price over the Q4 2011 and FY 2011 reporting periods resulted in the significant increase in fair value of these derivative liabilities at the end of the reporting periods compared to the fair values at the start of the respective reporting periods, and consequently the negative fair value movements in each of these periods. Although the overall gold price strengthened in FY 2012, the fair value of the derivative liabilities decreased as a result of revised mine plans at the Corporation’s operations and were the primary drivers for derivative income being recognized in Q4 2012, FY 2012 and Q3 2012. Foreign exchange losses or gains are the result of foreign exchange differences arising from transactions and the restatement of monetary items denominated in currencies other than the functional currency (see note (a) to the IFRS section in this MD&A) and varies from period to period. Investment income primarily related to interest income earned on cash and cash equivalents invested in short- term deposits with the Corporation’s bankers until required for capital projects or to fund operating costs. The overall lower interest income in Q4 2012 and FY 2012 reflected the, on average, lower cash balances compared to Q4 2011 and FY 2011. The higher interest and accretion expenditures in Q4 2012 compared to Q4 2011 and Q 3 2012 were primarily due to the $4.3 million additional accretion expense on the Canadian Notes at the end of FY 2012, which was recognized in anticipation of the early settlement of the Canadian Notes as discussed in the Financial Position section of this MD&A. The higher interest and accretion expenditures for FY 2012 compared to FY 2011 were also higher because of the additional accretion expense, but also because of the interest and accretion on the Canadian Notes that was charged over the full year in FY 2012, while it was only recognized since issuance on April 26, 2010 in FY 2011. The accretion expense on Asset Retirement Obligations in Q4 2012 and FY 2012 were higher compared to the comparative periods of FY 2011 and Q3 2012, mainly due to the changed in estimates used to calculate the asset retirement obligation at the end of FY 2012 which also resulted in an additional accretion expense recognized at the end of FY 2012. The income tax recovery for FY 2012 was derived from a higher net deferred tax asset (“DTA”) from MWS compared to its DTA at the end of FY 2011, which was mainly driven by MWS’s increased asset base over FY 2012 along with a marginal decrease in the associated deferred tax liability which more than offset taxable income from operations during the year. The income tax charge in Q4 2012 was derived from a decrease in MWS’s DTA from the end of Q3 2012 and was mainly driven by the decrease in the associated deferred tax liability over the quarter which was offset by taxable income from operations. The income tax recoveries for both Q4 2011 and FY 2011 was derived from higher net DTA from MWS compare to its DTA at the end of the preceding reporting periods and was mainly driven by MWS’s increased asset base over Q4 2011 and FY 2011 along with increases in the associated deferred tax liabilities which were substantially more than the taxable income from operations over those periods. The consolidated gross profit from operations in Q4 2012 (compared to loss in Q4 2011), along with the positive fair value movements on the derivative liabilities related to the Gold Stream Transactions and the foreign exchanges gains during the quarter, more than offset the higher other expenditures and interest and accretion expenses compared to Q4 2011, resulting in the Corporation reporting a consolidated income for Q4 2012 compared to a consolidated loss in Q4 2011. The $178.2 million impairment of Ezulwini Mine’s assets, higher interest and accretion expenditures and lower income tax recovery in FY 2012 compared to FY 2011 more than offset the consolidated gross profit from operations in FY 2012 (compared to loss of FY 2011), and the positive fair value movements on the Rand Notes
  30. 30. 27. FIU MDA 2012 liability and derivative liabilities related to the Gold Stream Transactions, resulting in the Corporation reporting a substantially higher consolidated loss for FY 2012 compared that of FY 2011. Other comprehensive income (loss) was comprised of unrealized profits (losses) resulting from an increase in the value of investments included in the asset retirements funds from the end of the previous reporting periods. Consolidated Financial Position Summary Balance Sheet Information and Key Financial Ratios (thousands of dollars) March 31, 2012 Continuing operations March 31, 2012 Discontinued operations March 31, 2012 Total March 31, 2011 Total % Change Cash and cash equivalents 3,817 2,845 6,662 49,606 (87%) Other current assets (a) 356 14,898 15,254 23,802 (36%) Current liabilities 268,828 109,175 378,003 85,816 340% Total assets 4,187 656,123 660,310 960,979 (31%) Total liabilities 268,828 455,005 723,833 782,997 (8%) Debt (b) 266,111 54,521 320,632 330,861 (3%) Total shareholders’ equity (264,641) 201,118 (63,523) 177,982 (136%) Key financial ratios: Current ratio (c) 0.02:1 0.16:1 0.10:1 0.86:1 Debt-to-equity (d) (1.01):1 0.27:1 (5.05):1 1.86:1 Notes: (a) Other current assets include accounts receivable and inventories. (b) Debt is calculated using the principal amount due from the Debentures and the Notes translated to US dollar at the exchange rate at the end of the reporting period plus Facility with Simmer & Jack and the Gold One Loan Facility at the end of the reporting period. (c) Current assets divided by current liabilities at the end of the reporting period. (d) Debt divided by total shareholder’s equity at the end of the reporting period. Balance sheet review Total assets (including assets from discontinued operations) were primarily comprised of property, plant and equipment, a deferred tax asset resulting from the MWS operations, cash and cash equivalents, trade and other receivables, inventories and asset retirement funds. The 31% decrease in total assets since FY 2011 was primarily attributable to a combination of: • A 87% decrease in cash and cash equivalents due to $15.5 million and $30.5 million cash utilized in operating activities and investing activities, respectively; • A 69% decreased in trade and other receivables mainly due to lower value added tax receivable at end of FY 2012 compared to FY 2011, mainly resulting from lower capital expenditures; • A 31% decrease in property plant and equipment (“PPE”) – PPE increased with $20.7 million in additions during FY 2012 mainly related to capital projects at MWS, however, was reduced with $4.8 million as a result of changes in estimates of decommissioning assets, $178.2 million impairment of Ezulwini Mine assets, $13.8 million in amortization and $86.1 million as a result of foreign exchange translation movements resulting from the significant weakening of the Cdn$ and, in particular, the ZAR from the beginning of FY 2012 to the end of FY 2012; and

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