FINAL RESULTS FOR THE PERIOD FROM 21 FEBRUARY 2005 TO 30 JUNE 2006
16 November 2006
CHAIRMAN'S STATEMENT
HIGHLIGHTS
* The spot price of uranium has continuously risen since Yellowcake was formed
* The investment case for uranium is strengthening
* Projected global uranium supply is unable to meet demand
* Yellowcake listed portfolio up 62.4% at market value
I have pleasure in introducing the audited results of the Company from its incorporation to 30 June 2006.
Since the issue of Yellowcake's Interim Statement in March, the factors driving the price of uranium have considerably strengthened the investment case for the mineral.
The awareness of global warming in the world has increased and more countries are planning to install new nuclear power stations which emit zero greenhouse gases. Even countries like Spain and Sweden which have considered retiring their nuclear stations are now planning to retain them and even build more. In Sweden's case this was as a result of public consultation. The USA, already containing 103 nuclear stations, more than any other country in the world, is seeing its existing stations being extended and enlarged and the emergence of new government initiatives in permitting and licencing new stations, the first since 1978.
A typical 1megawatt coal-fired power station requires over 3 million tons of fuel annually and releases some 7 million tons of pollution including carbon monoxide, sulphur dioxide and other residues including mercury and arsenic into the atmosphere. A nuclear station of the same capacity uses some 25,000 tons of uranium as fuel and generates zero emissions. There are no realistic alternatives to nuclear power to provide the increased levels of emission-free base load electricity the world needs, available 24x7x365 whatever the weather. One of the founders of Greenpeace, James Moore, has stated "Nuclear power is the only non-greenhouse gas-emitting power source that can effectively replace fossil fuels and satisfy global demand."
In a keynote address at the Energy Mining 06 Conference at the London Stock Exchange last month, your company's Chief Executive outlined the positive developments for the uranium market. His presentation will shortly be available on our website at www.yellowcakeplc.co.uk
In 2006, expected global mid-case demand for Uranium Oxide ("U3O8") is forecast by the World Nuclear Association ("WNA") to be 170 million pounds, some 57% greater than all the uranium mines in the world will supply. The shortfall, some 62 million pounds of U3O8, will be made up by secondary supply, predominately from uranium from down-blended nuclear weapons.
Moreover, the WNA estimates that in addition to the 442 nuclear stations currently operating across the world, a further 90 are either under construction or planned and pre-funded and a further 160 are proposed. If they all come to fruition, that would result in a 54% increase in demand. The leading uranium industry authority, Ux Consulting, forecasts that demand for U3O8 will exceed supply for decades ahead; by 2015, when global annual requirements will exceed 230 million pounds, there will still be a supply shortfall of 109 million pounds per annum.
In the same way that oil, a key global resource, has now become an intensely strategic commodity where nations are jostling to achieve forward security of supply, uranium is beginning to show signs of assuming a similar politically strategic role. Ux Consulting forecasts that 61% of the world's supply of uranium will be produced in Canada, Australia and Africa by 2015, providing politically safe sources of supply to the western world.
All of these factors underline why Yellowcake was formed, why the Company's assets are invested as purely as possible in the uranium industry and why we see the prospects for your Company as exceptionally positive in the years ahead.
MARK WATSON-MITCHELL
EXECUTIVE CHAIRMAN
CHIEF EXECUTIVE'S REPORT
These are exciting times for the uranium mining industry. The price of uranium has continuously advanced since demand for uranium began its resurgence in December 2002. At the time of commencing our investments in uranium companies to form Yellowcake's initial portfolio in late September last year, the uranium spot price was US$32 per pound; at the end of March this year it was US$42; it was US$60 by the end of October, an advance of 87% in around a year.
The positive demand/supply factors referred to by our Chairman have caused an increased steepening upwards of the spot price curve over the summer weeks. The industry expects this will continue, with US$70 per pound seen as a next reachable milestone and many forecasters reckoning on a spot price of over US$100 per pound by the end of 2007.
DEVELOPMENTS SINCE SPRING 2006
Conversely, at the end of September 2006, the prices of most shares of companies in the uranium mining industry stood either the same or lower than they did in March this year. This dislocation was in the view of your board and the industry an illogical one. Energy is a must-have; its future is dependent not on a cycle for materials prices but on the available supply to meet the forecast demand
In our view the hiatus in the prices of uranium companies this summer is a result of factors pertaining to metal commodities in general and not to uranium. These include some forecasters predicting the end of the commodities 'supercycle'; a lowering in the largely unrelated prices of oil, gold, silver and several base metals; hedge fund liquidations; and government actions in for example Venezuela, Mongolia and some former Soviet Union countries, introducing new mining taxes and sequestering assets of foreign-based mining companies.
The political outlook for uranium producing companies has improved, not diminished. In North America, uranium is one of the few energy sources providing substantial long-term resources from within the continent. In Australia, which contains the world's largest uranium resources, political risk has markedly been lowered with all the parties in the forthcoming elections recently adopting manifestos allowing uranium production in those States which previously banned it. Australia has an agreed accord with China to supply uranium to fuel that country's increased needs for nuclear power.
Russia announced in June this year that it is not going to implement the so-called HEU2 programme and will cease supplying uranium from its redundant weapons to the West after 2012. It is combining this action with a US$25 billion programme of opening new mines and building new nuclear stations in Russia itself so that it can export more of its natural gas.
Infrastructure investment has continued to pour into the uranium industry. In the USA for example, Yellowcake investee SXR URANIUM ONE paid US$100 million for the mothballed Sweetwater Mill in Wyoming to re-start the processing of mined ore. Construction commenced on the US$1.5 billion Louisiana Energy Services enrichment plant in New Mexico. BHP and Rio Tinto, which are not in the Yellowcake portfolio as they are diversified miners and not mainly engaged in uranium production, both announced substantial capital spending plans to extend their uranium mines. Mitsubishi has agreed to inject US$11 million in exploration expenditure over three years for a share in the West McArthur property owned by one of our exploration investees.
We foresee a "catch-up" in the prices of uranium companies, aided by mergers and acquisitions activity now commencing in the industry. Last month two of Yellowcake's investee companies, INTERNATIONAL URANIUM CORPORATION and DENISON, merged to their mutual benefit and PALADIN RESOURCES, also in our portfolio, acquired Valhalla Uranium in Queensland.
PORTFOLIO PERFORMANCE
During the period to 30 June 2006, the Company declared a loss of GBP123,381, due to our operating costs. At that date the Company's listed portfolio at aggregate market value showed an unrecognised gain of 27.3%. At close of business on 7 November 2006, the latest practical date prior to the production of this Report, the Company's listed portfolio at aggregate market value showed an unrecognised gain of 62.4%,
In the six months since our Interim Report was issued, we have taken profits in some constituents of our portfolio to reposition it for the growth we foresaw and lowered political risk both by reducing our investments in the former Soviet Union and increasing those in Australia. We also monitored the emergence of a new uranium district in the Yukon in Canada and in June made timely investments in two exploration companies at the forefront of exploration there. The share price of one of these companies has since risen 201% due to it striking a high-grade new deposit.
In making these changes to our quoted portfolio, we have not altered our investment policies. The portfolio remains structured to give exposure to current uranium producing companies; to near-term producers with existing compliant resources; and to selected explorers where we can expect that new commercial deposits of uranium will be uncovered within the next two years. This overall structure gives us a widespread exposure to the prospects for the entire uranium mining sector.
There are now over 400 companies in the world claiming to be uranium explorers; following intensive research, we have invested in just 19 of these, all exploring in North America, Africa, Australia or the Far East.
LATEST INDUSTRY UPDATE
The uranium supply industry, already under severe pressure to sufficiently supply the world's nuclear reactors, was thrown into confusion on 23 October when the world's largest yellowcake producer, Canada's CAMECO, announced that main shaft and underground process area in its 50%-owned Cigar Lake mine in Saskatchewan containing 232 million pounds of U3O8 had been flooded. As a result, the mine would not be able to produce any uranium until at least 2009. This will deprive buyers of at least some 7-8 million pounds of near-term Cigar Lake production which had been sold forward and put back Cigar Lake's projected eventual 17% of world supply by some years.
This accident has caused the share prices of other producing companies and near-term producers, most of which are in the Yellowcake portfolio, to immediately surge by up to 20% and could spark a frenzied run on the shares of uranium companies over forthcoming months as utility buyers propel the spot price strongly higher and uranium company share prices catch up with it.
DIRECT INVESTMENTS
In addition to managing our investment portfolio, Yellowcake is continuing to search out opportunities for direct investment in uranium-containing properties. We have so far carried out due diligence on seven properties, one in Russia and six in Canada but have not been able to conclude that the respective properties will be sufficiently commercially viable and or the acquisition or joint venture terms would be sufficiently favourable to be able to recommend the investment concerned to our shareholders.
Your board will be continuing to vigorously search out opportunities for direct investment in the coming months.
ROBERT WALLACE
CHIEF EXECUTIVE
PROFIT AND LOSS ACCOUNT FOR THE PERIOD
FROM 21 FEBRUARY 2005 TO 30 JUNE 2006
2006
GBP
TURNOVER 170,221
Cost of sales (154,390)
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GROSS PROFIT 15,831
Administrative expenses (141,443)
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OPERATING LOSS (125,612)
Interest receivable 2,231
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LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (123,381)
Tax on loss on ordinary activities -
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LOSS FOR THE FINANCIAL PERIOD (123,381)
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LOSS PER SHARE
Basic and diluted loss per share (0.3p)
All of the Company's operations are classed as continuing. There were no gains or losses in the period other than those included in the above profit and loss account.
BALANCE SHEET AS AT 30 JUNE 2006
2006
GBP
CURRENT ASSETS
Current asset investments Note 4 312,940
Cash at bank 5,395
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318,335
CREDITORS: amounts falling due within one year (27,299)
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NET ASSETS 291,036
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CAPITAL AND RESERVES
Called up share capital 144,375
Share premium account 261,674
Profit and loss account (115,013)
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SHAREHOLDERS' FUNDS 291,036
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Notes to the accounts:
- The above audited results cover the period from incorporation on 21 February 2005 to 30 June 2006.
- The Company was admitted to Ofex (now PLUS) on 29 July 2005.
- The Company did not trade during the period from incorporation on 21 February 2005 to 29 July 2005.
- Investment assets are stated at the lesser of cost and net realisable value.
- The directors do not recommend the payment of a dividend in respect of the period.
- The financial information contained in this release has been extracted from the audited accounts.
- The financial information set out above does not constitute the Company's statutory accounts for the period ended 30 June 2006, but is derived from those accounts. Statutory accounts for 2006 will be delivered to the Registrar of Companies following the Company's annual general meeting. The auditors have reported on these accounts, their reports were unqualified and did not contain statements under section 237 (2) or (3) of the Companies Act 1985.
The Directors of Yellowcake plc accept responsibility for this announcement.