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URANIUM PROCESSING White Mesa Uranium Mill Blanding, Utah fhls is an explanation of Energy Fuels Nuclear's uranium processlng facilities in San Juan County, near Blanding, Utah. Energy Fuels Nuclear, lnc. was founded in August, 1976, by Robert W. Adams. First efforts were in the activation of old mines, exploration and development of new mines and the construc- tion of Ore Buying Stations at Hanksville and Blanding, Utah. ln June of 1979, construction was started on the White Mesa Uranium Mill and culminated with Mill startup in May, 1980. The White Mesa Uranium Mill and Tailings Ponds were designed and built at a cost of approxi mately $40,000,000.00. From the time environmental assessment work and licensing procedures were begun, the project took approximately 2-1/2 years to com- plete, with actual Mill construction requiring ele- ven months. The f irst low grade ore was fed to the Mill on May 6, 1980. URAN!UM PROCESSING The function of the Energy Fuels Nuclear Uranium Mill is to extract uranium oxide (UsOe) concentrate, commonly called yellowcake, from uranium bearing ores found within the region. Trucks haul the ore to the mill f rom Company owned and Vendor owned mines in the San Juan County area. Trucks arrive at the Blanding Ore Buying Station and drive up on large scales where the ore is weighed. From there the trucks move to the buying station yard and unload their ore in designated areas. From these smallstockpiles of ore, samples are taken then dried and weighed to determine the moisture content. Accurate compu- tation of the moisture content is highly important because the amount of ore fed to the mill is always figured in dry ton equivalents. From the buying station yard, large f ront end loaders move the ore to the buying station where it is fed through a primary jaw crusher (1)- and reduced to approximately 11/2" size. The ore isthen run through a series of four stages of crushing and sampling (2) where the average 250 ton lot is reduced to approximately 75 pounds of sample at less than 1/i' in maximum size. From there this sample is further mixed, dried and reduced down. Samples weighing less than 5 grams are sent to the metallurgical lab for assay- ing and a duplicate sample is also sent to the -See enclosed drawings for reference process point. EUI f,Eo u F- J o.EurUJ]o.3.t<HO Go U zoo ts)Uo ./ ir,' N, ,/ o-- E;s'r :l 1-l3ur z ol I9Z'or -F1 "-+rL_PU__r LI E Eo U zoo F)UoUUJCdOy Utr-q loGFo IEo U zoa iUGo@ z -.1 H Eo F>)2UO6o) 4sN!UJ J< z L 0z-2 3E@3 ;a E I z)OE go 'i!U>gzoo fONro, 0z @ tUocoI 1 oz;cUOaouOET UGo EU UUr GoF E@;i Eo U zoo 5U6 miner selling the ore. The sampled ore is then put into the stockpile by conveyors and trucks for later processing through the mill. Prior to construction of the mill, all ore received at the ore buying station was run through the sampling plant. With the completion of the mill, ore f rom Company-owned mines will be run directly through the mill and not passes through the sampling plant. To feed the mill f rom the stockpiles, the ore is dumped, usually by f ront end loader, through the 20" stationary grizzly (3) and into the ore receiv- ing hopper. The ore is then transferred to the 6'x'18' diameter semi-autogenous grinding (SAG) mill (5) biaa54" conveyor belt (4). Water is added with the ore into the SAG mill where the grinding is accomplished. The SAG mill is operated in closed circuit with vibrating screens (6). The coarse material, +28 mesh, (28 openings per linear inch) is returned back to the SAG mill for additional grinding and the -28 mesh portion is pumped to the pulp (wet) storage tanks (7). The pulp storage tanks are three 35'diameter by 35' high mechanically agitated tanks. These tanks serve two basic purposes. First they provide storage capacity for the ore prior to chemical processing and second they provide a facility for blending the various types of ore priorto process- ing. From the pulp storage tanks, two steps-pre- leach and leaching-are employed to dissolve the uranium. A hot, strong acid treatment is utilized inthe second stage in order to obtain adequate recoveries. This results in high concentrations of f ree acid in solution. Therefore, a first stage "acid kill" is employed, which is referred to as pre- leach. Ore f rom the pulp storage tanks is metered into the pre-leach tanks (8) at the desired flow usoa PREC TANKS WET SCRUBEER WETSCRUBSER QO FLOC ffi YELLOW CAKE THICKNERS H€ARTH DRYER PRELEACH TANKS I D DO o Va ol PRECIPITATION TANKS <{.- >-< CLAR I FE R A "ffi8 6eo o o='?'. fSDEMTSTER) XX ! !! CCD THICXNERS GENERAL MILL LAYOUT rate. The slurried ore f rom the pulp storage tanks will usually be about 500/o solids mixed with 500/o water. This slurry will be mixed in the pre-leach tanks with a strong acid solution f rom the counter current decantation (CCD) circuit resulting in a density of about 220lo solids. This step is employed to neutralize the excess acid from the second- stage leach with raw ore. By doing this, not only is the excess acid partially neutralized, but some leaching occurs in the preleach circuit and also less acid is needed in the second stage leach. The pre-leach ore flows by gravity to the pre-leach thickener (9). Here, f locculant is added and the solids are separated from the liquid. The under- flow solids are pumped into the second stage leach circuit (10) where acid, heat and an oxidant (sodium chlorate) are added. About 24 hours retention time is utilized in the seven second- stage leach tanks. The leach slurry is then pump- ed to the CCD circuit (1 1) f or washing and solid- liquid separation. The liquid or solution f rom the pre-leach thickener overflow is pumped to the clarif ier (12) and then to the f iltration circuit in the SX building. Seven thickeners are utilized in the CCD circuit to wash the acidic uranium bearing liquids f rom the leached solids. Water or barren solutions are added to the number 7 thickener and flow counter-current to the solids. As the solution advances toward the No. 1 thickener it carries the desolved uranium. Conversely the solids become washed of the uranium as they advance toward the last thickener. By the time the solids are washed through the seven stages of thickening they are 990/o f ree of soluable uranium and may be pumped to the tailings pond. The clear overf low solution from No. 1 CCD thickener advances through the pre-leach circuit and pre-leach thick- ener as previously explained and to the clarifier, which is an additional thickener giving one more step in order to settle any suspended solids prior to advancing the solution to the solvent extraction (SX) circuit. The solvent extraction circuit is utilized to extract dissolved uranium f rom the clarif ied preg- nant liquor. Before entering the solvent extraction circuit the solution is f iltered through charcoal (13) to assure that no minute solid particles of slime are entrained. The uranium solvent extrac- tion, or liquid ion-exchange process, performs two basic f unctions. First, it selectively removes the uranium f rom the acid water solution leaving the unwanted metals in solution. Second, the uranium is concentrated by advancing organic (kerosene) through this circuit al 1/4 the rate of acid-water solution flow. This concentrates the uranium in the organic four-fold. The uranium- acid solution f rom the sand f ilters, or the aqueous feed, is pumped to the No. 1 mixer-settler (14) where it is mixed with the organic and dissolved uranium is transferred from the aqueous into the solvent organic phase. After mixing, the organic and aqueous are left to separate (kerosene floats to the top of water). The aqueous and organic solutions then flow continuously and counter- currently to each other through four stages of extraction. At this time the organic is "loaded" and the aqueous is barren of UsOa. The barren aqueous solution or "raff inate" now f ree of ura- nium leaves the last stage of the extraction circuit and is pumped to the vanadium solvent extraction circuit or into the CCD thickener circuit as a washing solution or is disposed of in the tailings pond. From the extraction circuit, the uranium, now concentrated in the organic solution, is pumped to the stripping circuit. Here the uranium is stripped from the organic in a six-stage mixer- stage mixer-settler circuit (15) and again concen- trated. The latter is accomplished by advancing one part of stripping solution through 10 parts of organic solution. The strip solution, an acidif ied brine, leaves the circuit containing approximately 40 times the concentration of uranium as com- pared to the acid water solution or aqueous that was introduced into the solvent extraction circuit. The organic leaving the last stage of the strip circuit is f ree of uranium and ready for re-use in the extraction circuit. The organic might be refer- red to as a "selective carrier" of uranium. lt picks up uranium in the solvent extraction phase and deposits uranium in the acid stripping solution. The loaded high-grade strip solution is then pumped to the precipitation circuit. ln the precipitation circuit (16) the uranium, which up to this point has been in solution, is caused to precipitate or actually "fall out" of the solution. The addition of ammonia, air, and heat to the precipitation circuit causes the uranium to become insoluble in the acid strip solution. Dur- ing precipitation, the uranium solution is contin- uously agitated to keep the solid particles of uranium in suspension. Leaving the precipitation circuit, the uranium, now a solid particle in sus- pension, rather than in solution, is pumped to a two-stage thickener circuit (17) where the solid uranium particles are allowed to settle to the bottom of the tank. From the bottom of the thickener tank the precipitated uranium in the form of a slurry, about 500/o solids, is pumped to a two-stage centrif uge circuit (18) where the solids are dewatered, then re-pulped, or mixed with wash water again, and de-watered again in the second centrif uge. From this centrif uge, the solid uranium product ls pumped to the multiple hearth dryer (19). ln the dryer, the product is dried at approximately 1200' F which dewaters the ura- nium oxide f urther and also burns off additional impurities. From the dryer, the uranium oxide concentrated to +950/o is stored in a surge bin and packaged in 55 gallon drums. These drums are then labled and readied for shipment. VANADIUM EXTRACTION Along with the uranium operation, the White Mesa Mill also has the ability to extract vanadium from ores containing both these metals. The vanadium bearing ores are run concurrently with the uranium ores through the sampling, grinding, pre-leach and leaching, CCD and uranium solvent extraction circuit. As explained earlier, raffinates f rom the uranium solvent extraction circuit can be either run to the vanadium solvent extraction circuit or the CCD washing circuit or be pumped to tails for disposal. lf vanadium bearing ores are being processed, the raffinates f rom the uranium solvent extraction will be retained and run through a solvent extraction circuit very similar to the uranium SX. The vanadium liquor, however, must be oxidized and pH (acid concentration)adjusted prior to solvent extraction. Raffinates from the uranium circuits that are to be treated for vana- dium are pumped to the EMF (Electromotive Force) Adjustment Tanks (20) where the pH and EMF are adjusted by automatic additions of am- monia and sodium chlorate. The oxidized solu- tion is pumped outside to the three aging or reaction tanks prior to f iltration and solvent extrac- tion (21). Following solvent extraction, the loaded vanadium strip solution is then batch precipitated (22), dewatered on a horizontal belt filter, and dried and packaged in much the same manner as the yellowcake. TAILINGS DISPOSAL SYSTEM Solid and liquid wastes, in the form of leach- ed sands and barren solutions, from the White Mesa Mill, are disposed of in a 65 acre synthetic lined pond. Throughout the life of the Mill, the tailings system will be expanded to include three additional storage ponds with each pond able to hold 3 to 4 years' production of tailings. A fifth pond, to be used strictly for evaporation of water will be used throughout the operating life of the Mill. As each pond, or cell, is filled with tailings, the water will be drawn off and pumped to the evaporation pond and the sands allowed to dry. As each cell reaches final capacity, reclamation will begin with placement of 13 feet of clay, rock and topsoil over the tailings. The area will be revegetated and eventually returned in appear- ance to the surrounding area. Every effort has been made, from environ- mental monitoring, to synthetic lining of the ponds, to f inal cover and reclamation, in order to preserve and protect the environment and citi- zens of San Juan County, Utah. Strength through DIVERSITY 1998 P o o_ 0) /. f C C Co.; ot-o o_ LoU E.lc oL:) o Co o E L o)+ E lnternational Uranium Corporation (lUC) is in the business of producing uranium concentrates and selling and trading these concentrates and other fuel cycle products in the international nuclear fuel market. As a co-product to its uranium production, IUC produces and sells vanadium and other metals. ln addition to mining and processing uranium from natural ores, IUC also recovers uranium by recycling uranlum-bearing waste streams from other processing facilities. o oLo- To Our Shareholders Last year I reported to you that our accomplishments during 1997 - com- mencing mining activities in the U.S., demonstrating the viability of processing uranium-bearing byproducts known as alternate feeds, advancing our explo- ration program in Mongolia, and estab- lishing IUC as a player in the interna- tional uranium marketplace - would lay the groundwork for our future groMh. Despite challenging market conditions, I am pleased to report that your Company advanced its operations on all of these fronts during 1998. The global natural resources sector has been in a depressed state over the last year, and the uranium market has been no exception. Demand was down, the near-term oversupply situation contin- ued, and market prices sank to levels below $1 0 per pound U308. For many uranium companies, simply breaking even was a reason to celebrate. This is why I am pleased to report that IUC ended its first full year of operations with earnings of just over US$1.6 mil- lion, or $0.02 per share. Future prospects for the uranium market remain positive, however. The market is still faced with a primary production deficit of two t0 one against demand. Towards the end of calendar 1998, this situati0n was further amplified by announcements from several major uranium producers of production cutbacks. By the end of 1998, ihere was also reason t0 believe that a commercial arrangement with Russia regarding the disposition of the uranium feed from Russia's Highly Enriched Uranium would be completed by mid-1999, which would help stabilize the market. As a result, the potential for uranium prices to recover and rise over the next few years to levels that would support continued investment in uranium resources has increased dramatically. All of this is consistent with the strategy that IUC embarked upon less than two Mining With this strategy in mind, IUC continued its mining operations during fiscal year 1 998. Production costs 0n a per pound basis at the Company's uranium/vanadium mines were within budget for the yeat although production levels were at a some- what reduced level from those originally anticipated. lUCs mining operations d0 not require a lot of infrastructure and, as a result, the Company will be able to reduce operations quickly if market conditions do not support continued economic operations. Conversely, since many of the Company's mines on standby are in a developed 0r partially developed stage, the Company could readrly expand produc- tion if justified by market conditions. To that end, IUC furthered its progress on the permitting of its Beno Creek in-situ leach property in Wyoming, which should be completed in fiscal 1999. While the Company does not have anyfirm production plans for this property at this time, Reno Creek could be put into production by the end of 2000, if market conditions warrant. years ago. IUC continues to believe that the opportunities for a niche player in the global uranium industry remain great. However, in order to capitalize on these opportunities, we must remain flexible, both in terms of production operations and marketing activities, as well as maintaining the financial strength to capitalize 0n asset acquisitions where appropriate. Through the development of the recycling business - processing uranium-bearing byproducts - IUC expects t0 generate positive earnings even during times of depressed uranium market prices. This will allow IUC to selectively increase its uranium holdings either by acquisition or by exploration, thereby increasing the warrant value on uranium for the future. These uranium resources can then be developed and put into production as dictated by market conditions. All of which should contribute to our primary goal of increasing shareholder value. The Company's independent ore purchase program was a disappointment in 1998. We originally believed that many small, independent mines in the Uravan district of the Colorado Plateau mining region would recommence operations and sell their ore to IUC Unfortunately, this has not materialized to the degree we had hoped. While many independents did evaluate re-opening their mines, most have found that their operations are not economic at current commodity prices due to new regulatory and environmental licensing requirements that have come into effect since they last operated. As a result, the amount of ore purchased by the Company was a fraction of what we originally projected. The ore being produced from the Company's mines and the limited amounts purchased from the independents are being stockpiled at the Company's White Mesa Mill, near Blanding, Utah. This ore will continue to be stockpiled at the Mill until the third or fourth quarter of fiscal 1 999, depending upon the processing schedule for alternate feeds lt will then be processed through the N/ill t0 recover the uranium as well as the vanadium values in the ore. The uranium concentrates produced from the processing of these ores later this year will mark the first uranium production in the United States by conventional means in several years. Processi ng As I reported to you last year, I believe that, aside from our employees, the White Mesa Mill is perhaps IUC's greatest asset. During this pastfiscalyear, we began to show just howvaluable it really is. Commissioned in 1980, the Mill has processed conventional ores for the recovery of uranium and vanadium for many years ln addition, IUC's license from the Nuclear Regulatory Commission gives IUC the right to process other uranium-bearing materials known as "alternate feeds." Alternate feeds are uranium-bearing byproduct materials from other processing facilities, which usually are classified as waste products t0 the generators of the materials. Requiring only a routine amendment to its license for each different alternate feed, IUC can process these uranium-bearing materials and recover uranium, in some cases, at a fraction 0f the cost of processing conventional ore. ln other cases, the generators of these alternate feed materials are willing to pay a recycling fee t0 IUC to process these materials t0 recover uranium and then dispose of the remaining byproduct, instead of just directly disposing of the materials at a limited number of disposal sites. This gives IUC the ability to pr0cess alternate feeds and generate earnings that are largely independent of uranium market prices. During fiscal 1998, IUC had several notable achievements associated with the development of its alternate feed business. The Company completed its processing run of uranium-bearing tantalum residues for a malor tantalum producer. While the costs were higher than originally expected and the tantalum recoveries less than expected, the proiect nevertheless demonstrated the abilrty of the White Mesa Millt0 process uranium-bearing materials and recover co-products other than vanadium. The project, which was completed at a profrt, also drew considerable attention from other tantalum and rare earth producers who have these types of ores and materials that also contain recoverable amounts of uranium Several projects of this type are under consideration by the Company at this time. Lorc o -c0)L Itn Lf The Company also secured several other contracts t0 process alternate feeds and has developed a backlog of future business. Perhaps the most srgnificant of these was the award of a contract to IUC to process over 45,000 tons of uranium-bearing soils that were excavated from a FUSBAP site near Buffalo, New York. These FUSBAP sites, which stands for Formerly Utilized Site Remedial Action Program, are Jormer defense produc- tion sites that are being cleaned up by the U.S Army Corps of Engineers. Previously, material excavated from these sites was only directly disposed of at a limited number of disposal sites, and at considerable cost. The Corps, charged with the task of reduc- ing the cost of this remediatron pro- gram, awarded a contract to IUC to recycle the materials from the Buffalo site and recover uranium before dis- posing of the resulting tailings in the White Mesa Mill's fully licensed tail- ings cells. By processing these soils through the Mill for the recovery of uranium, IUC was able to allow the Corps to clean up thrs site at a frac- tion of the cost that would have been incurred had the disposal-only option been used. ln addition to being more cost-eff ective, this recycl ing technology is also environmentally superior to the disposal-only opti0n, since radioactive uranium is removed from the soils before final disposal. There are potentially several million tons of uranium-bearing soils and materials located at these former defense srtes. The ability to recycle these materials through the White Mesa Mill can be a very profitable business for lUC. However, while the progress we have made to date is considerable, I do need to caution that there are some regulatory uncertain- ties associated with this uranium recycling business. As I noted, lUCs license gives us the right, with appro- priate license amendments, t0 process alternate feeds. These amendments are granted under the rules and regu- lations of the Nuclear Regulatory Commission. Furthermore, these licensing actions are subject to chal- lenge by parties that may or may not have a legitimate reason to be heard on our operations. Some of IUC's alternate feed projects have been challenged by the State of Utah, which believes that the State should have regulatory authority over these projects instead of the NBC. We have also seen challenges to our activities by a commercial disposal company that has heretofore enjoyed a virtual monopoly on the disposal of these materials. lUCs White Mesa Mill has been granted eight license amendments for processing alternate feeds out of eight requests, and we have successfully defended all chal- lenges before the NRC, to date. While no guarantees can be given, we remain confident that the issues between IUC and the State of Utah can be resolved and that challenges to our activities by competitors through the attempted use of the envi- ronmental licensing process for purely commercial reasons wrll continue to fail by virtue of their illegitimacy. We continue to believe that the development of the business of recycling ura- nium-bearing waste materials and the associated safe management of the resulting waste byproduct will not only mrtigate the effects of down cycles in the uranium market but will develop into a profitable stand-alone business in its own right. We intend to continue to devote the resources necessary to aggressively pursue this business opportunity. Exploration As part 0f its strategy to develop additional uranium resources, the Company continued its exploration program in Mongolia during 1998. Bolstered by the success of 1997 s drilling program, the Company conducted 53,000 meters of exploration and resource delineation drilling during the year. This program added another 5.5 million pounds of uranium resources to the deposit discovered in the Hairhan region of the Company's exploration lands last yeat bringing total resources in this area to 16.2 million pounds. Total resources on Company lands amenable to low cost, in situ leach mining are now approxr- mately 23 million pounds. The Company also successfully completed an in situ leach amenability test, a precursor to a full prlot operation. The test demonstrated that the Hairhan deposrt is amenable to in situ leaching with favorable recovery and reagent usage rates. As a result of the declining uranium market during the yeal the Company intends to reduce the level of its exploratron drilling budget for fiscal 1 999. After engaging in such an aggressive program over the last two years, 1 999's efforts will concentrate on correlation and analysis of the data acquired during the past two years and the application of this work to expand our inventory of favorable exploration targets. The Company will also focus efforts on refining productron cost models for Juture mining projects in Mongolia. Marketing The historically challenging conditions of the uranium market led IUC to broaden its vision beyond just simply being a conventional uranium mining company. Such a traditional, single-minded approach willnot accomplish our primary goal of building shareholder value. As a result, we have spent the last year evaluating market conditions to develop opportunities to not only sell uranium but to develop new sources of supply to enhance profitability during market downturns. We are also committing considerable commercial resources to develop our recycling business to the point that it can profitably sustain the Company during these inevitable market downturns, and amplify our profitability when market conditions improve. Despite the weak uranium market during the past fiscal yeal IUC was nevertheless active in the market. 0ver the course of the yeal the Company sold over 1.5 million pounds of uranium concentrates. Lower prices presented some trading opportunities to fill existing contracts with lower cost purchased pounds, as well. Because of the types of alternate feeds projected to be processed in 1999, as well as the planned conventional 0re run, the Company will havemoreuraniumavailablefromrtsownproductionthaninl99B. Thisshouldcoincidewellwithanyupturnin uraniumpricesthatseveralanalystsareforecastingforl999. lnfact,whilethepriceof uraniumfellfrom$11.00 per pound U30B as the frscal year began in October 1 997 to $9.75 per pound by the end of the year in September 1 998, and ultimately to $8.75 per pound by December 1 998, the price had rebounded to $1 0.50 per pound by January 1 999. Fundamentals forthe long-term uranium market remain positive. lUCs comprehensive marketing program continues to be focused on securing long-term contracts for the Companys production, and movrng in and out of the spot market as trading opportunities arise. The Company also expects to be active in the vanadium market during fiscal 1 999, srnce significant quantities 0f vanadium will be produced from the conventional ore processing run scheduled for later in fiscal 1999. This market also came under price pressure during the last fiscal year. Unlike many analysts earlier prolections, the near-record high vanadium prices encountered in early 1998 did not hold as the year progressed. However, having reached a low of $2.50 per pound V205late in calendar 1998, the price has begun to rebound, with most analysts predicting the price to recover to $3.50 per pound by mid-1 999 when IUC expects to be in production. Concl uslon Since our birth in May 1997, the men and women of IUC have worked tirelessly to move this Company from the draw- ing board to a profitable and unique niche player in the uranium production industry. ln so doing, we have bcccmc a team of people who believe in themselves, in each other, and in their ability to improve IUC each day. So, as we turn 0ur eye toward 1999 and beyond, t0 a new millenium, we are excited by the challenges that lie ahead and convinced that our best days are yet t0 come. I am grateful to all of our nearly 1 50 employees for their efforts and dedication in creating this Company, which is committed to building long term value for y0u, our shareholders. 0n behalf of the Board, the management and the employees of lUC, l'd like to thank y0u once again for your continuing support. ?6m EarlE. Hoellen President and Chief Executive 0fficer Lorc- oLo V) Ll Marketing [Jranium Over the last ten years, annual quanti- ties transacted in the uranium spot market have averaged more than 25 nillion pounds U308, representrng 10 15% of total sales volume. However, in 1998 total spot volume fell dramatically t0 ar0und 11 million pounds. Several factors contributed to this condition rncluding a high level of multi-year uranium c0ntractrng by utilities during 1995 and 1996 that reduced unfilled uranium needs in 1997 and 1998. ln addition, there was relatively little purchasing by ura- nium production companies that, at times, have found it economically attractive to f ill some of their exrsting long-term sales commitments by mak- ing spot purchases. Softer demand took its toll in the mar- ket by causing prices to fall into single digits by the end of the year. Although spot market prices actually increased slightly during the fourth quarter of 1 997, by the end of 1 998 the U30B market price had dropped more than 25% The market price began the year at $12.00 per pound U308, but quickly dropped to the $10.50 level, where it stagnated for six months. Then, during the fourth quarter, in response to perceived inventory liquidations, uranium price levels fell below the $9.00 mark, finishing the year at $8.75 per pound U308. Looking forward, 1999 has started out much differently f rom the previous year. Market demand is stronger and prices appear to be headed for improvement, at least in the near term. ln fact, by the end of January, the U30B price had rebounded to $10.50 per pound U308. Apparent factors include increased producer buying to fill uranium needs in 1999 and 2000 Towards the end of 1 998, several large, uranium producing com- panies announced cutbacks in produc- tion levels and the intention to fill some future sales commitments with spot market purchases. As 1999 began, there was also growing opti- mism that a long-term commercial arrangement would be concluded early in the year between Bussia's Ministry of Atomic Energy and three Western companies regarding the dis- p0sition of the natural uranium feed that will result from Bussia's Highly Enriched Uranium military stockpile. It is widely believed that such an arrangement will result in a more moderate and predictable introduction of this material into the marketplace. In the end, the uranium market can continue to be characterized as "good news, bad news." ln the near-term, while there are s0me positrve signs on the horizon, there is still considerable uncertainty in the market. The fate of the Russian and C l.S countries' suspension agreements, Bussian HEU feed, uranium inventories held by the now-privatized USEC, lnc., all contribute to this uncertainty which tends t0 dampen any potential for upward price movement. For the longer-term, however, prospects are much more positive. The market is stillfaced with a primary production deficit of two to one against demand. When near-term uranium inventories f inally clear the market, experts believe the price of uranium will need to rise to the $1 8.00-20.00 per pound U30B range in order to sustain the production necessary t0 help bridge this supply/demand gap. 0bviously, the internati0nal uranium market is complex. Transitory trading patterns, highly competrtive, political by nature--these are all phrases that apply to this market. However, this complexity gives rise to commercial opportunities which IUC plans to take full advantage of, when deemed prudent. ldentification and pursuit of profrtable transactions results from a comprehensive marketing strategy whrch recognizes the ever-changing nature of the marketplace and the value of market intelligence. IUC's marketing strategy rs straightforward. We cannot be content as merely a uranium producer. Value must be added at each turn of the market. IUC intends to maximize the value of its participation in the uranium market by taking a port- folio approach to marketrng its own production, augmented by trading, where appropriate. Long term contracts, with both market related and base escalated pricing, will be our prrmary focus. ln addition, our marketing and trading efforts will not be limited t0 the U.S. IUC intends to truly be an "lnternational" uranium c0mpany and will look to Europe and Asia as opportunities arise. Vanadi um ln general, world metals markets were in a depressed state in 1998, experiencing downward price pressure throughout most of the year. The vanadium market faired better than most of these other metals, however, remaining strong through the middle of the year before succumbing to some of the same negative market pressures experienced by the other metals. Vanadrumbegan'199Bat$5.60perpoundV205,wellovertheaveragehistoricalpriceofthecommodity. Pricesmoved upward to $7.00 by the end of February, then slowly drifted down to $6.00 per pound V205 by July. At this point, prices fell steadily throughout the remainder 0f the year to a low of $2.50 per pound by December. The price began to firm up at this p0int and, by January 1999, had recovered to the $3.00 per pound V205 level. There continues to be cautious optimism for vanadium prices by analysts for the remainder of 1999, especially when comparedtoothermetalsmarkets. Whiledifficultworldconditionsareexpectedtopersistthroughoutl999,analysts have estimated average prrces for the year near $3.50 per pound V205. Stronger vanadium prices bode well for lUC. During the course of the yeal IUC expects to produce nearly two mrllion poundsV205,whichwill representapproximately5%0ftheU.S.marketand1.5%oftheworldmarket. lUCwillre-eval- uate its sales strategy as production commences to minimize the market impact of our production and maximize realized prices. IUC's ability to produce high-quality vanadium also makes us a candidate to take advantage of niche vanadium markets that typically yield higher prices. Thelong{ermoutlookforvanadiumremainspositive. Annualconsumptionisestimatedatl40millionpoundsV205 per year, with a 2% to 3% increase in consumption per year. Extensive research for the uses of vanadium add to market 0ptimism, especially in the development of the redox battery, which could revolutionize the battery industry. Production supply is expected to remain steady for the balance of 1 999. New projects continue to be developed; however, it is too early for any projects to figure into supply numbers in the near term. Processing 0perations White Mesa Mill The White Mesa Mill continues to be one of lUCs most strategic assets. Located near Blanding, Utah, the Mill is a 2000 ton per day, acid leach urani- um recovery facility. The Mill also has a co-product recovery circuit designed to recover the vanadium occurring with uranium in the Colorado Plateau ores. At full capacity, the Mill is capa- ble of producing 6 million pounds of uranium per year from higher grade uranium ores, such as those found in the Arizona Strip, or 3.5 million pounds of uranium and 18 million pounds of vanadium per year from Colorado Plateau ores. With less than 4 million tons of its l0 million ton tail- ings capacity utilized, and with no groundwater contamination or other environmental problems, IUC contin- ues to evaluate ways to maximize the value of this asset. IUC has invested several hundred thousand dollars upgrading the Mill since acquiring it in'1997. During the year, the Mill's Semi-Autogenous Grind (SAG) mill was relined and the vanadium circuit was refurbished in anticipation of processing convention- al Colorado Plateau ores during the third and fourth fiscal quarters of 1 999. Alternate Feeds IUC has demonstrated that processing conventional ores is not the only way to produce uranium. Under IUC's Source Material License issued by the U.S. Nuclear Regulatory Commission (NRC), IUC has the right to process not only conventional ore to recover urani- um but also to process alternate feed materials. Alternate feeds are urani um-bearing byproduct materials from other processing facilities and are usually classif ied as waste products to the generators of the materials. By recycling alternate feeds, IUC can, in some cases, recover uranium at a fraction of the cost of processing conventional ores. ln other cases, IUC is paid a fee to recycle the alternate feed materials to recover uranium, or other metals, and dispose of the remaining byproduct in our tailings cells. By working with IUC through recycling, the suppliers of alternate feed materials can signifi- cantly reduce their remediation costs, as there are only a limited number of disposal sites for uranium-bearing materials in the United States. During fiscal 1998, IUC completed the processing of 16,000 tons of uranium- bearing tantalum residues. This project has opened the door for other tantalum and rare earth producers who have similar uranium-bearing ores to process. IUC also concluded a long-term contract with a major uranium producer to receive and process alternate feeds beginning in 1999. These alternate feed ores contain, on average, anywhere from 1% to 770 natural uranium and will provide IUC with a source of relatively low-cost uranium over the next several years. Alternate feed materials are not just limited to private industry. The federal government has recognlzed the importance of recycling through Congressional and regulatory mandates encouraging the use of recycling. ln the case of the U.S. Army Corps of Engineers, they have responsibility for the remediation of what are known as FUSRAP sites (Formerly Utilized Remedial Action Program), or former defense sites. There are several of these FUSRAP sites across the U.S. that, together, will need to have millions of tons of uranium-bearing soil excavated and then transported to either a disposal facility or to a recycling and disposal facility, like the White Mesa Mill. This past year, USACE awarded the first contract to recycle FUSRAP materials to lUC. The contract was for the Ashland 2 site, located near Buffalo, New York. The use of lUCs innovative recycle and disposal option can result in savings of up to 750k over the cost of using a disposal-only alter- native. The recycling option is also environmentally superior to the disposal-only option, as radioactive uranium is removed from the materials before final disposal. IUC continues to expect that the development 0f the business of recycling uranium-bearing waste materials will result in a profitable, stand-alone business for lUC. As noted above, there are millions of tons of this type of material in the U.S., enough to keep the White Mesa Mill operating at capacity for the foreseeable future. oco ot-oo-o Mining 0perations IUC has adopted a flexible and prag- matic approach to ore production, taking into account delivery commit- ments, market conditions and mining economics for specific deposits. By continually monitoring production costs and maintaining tight opera- tional controls, IUC can cut back oper- ations quickly if market conditions do not support continued economic operations. And, since many of the Companys mines on standby are in a developed or partially developed stage, IUC has the ability to ramp up production quickly, if warranted. The Companys prospective mining properties are diverse, incorporating both conventional and in situ leach mining methods. Conventional Mining lUCs reserves that are mineable by conventional underground methods include properties in the Colorado Plateau and the Arizona Strip uranium districts of the United States. The Colorado Plateau properties are char- acterized by uranium-bearing ores that are also rich in vanadium, which is produced as a co-product to uranium Deepet breccia pipe-type deposits characterize the Arizona Strip proper- ties. The grade of uranium found in this type of deposit is typically between 0.5 and 1.0% uranium, signif icantly higher than the average grade of uranium found in the U.S. today. IUC commenced minrng operations at the Companys Sunday Mine Complex in the Colorado Plateau in late 1997 and, shortly thereafter in January 1998, at the Rim Mine. Ore grades from these mines average 0.2570 for uranium and 1.60% for vanadium. The Company has been stockpiling ore from these mines, along with ore purchased from independent producers, in anticipation of commencing conven- tional ore processing at the White Mesa Mill in the third or fourth quarter of fiscal 1999. ln total, over 60,000 tons of ore have been stockpiled through the end of 1998, containing approximately 280,000 pounds of recoverable uranium c0ncentrates and 2 million pounds of vanadium pentoxide. Totalore production forfiscal 1998 was lowerthan originally projected. While production from Company mines was on target, the ore purchased from independent miners in the area was far below expectations. IUC had expected that many small miners would recommence production operations and sell their ore to the Company, providing additional feedstock for the Mill. Unfortunately, new environmental and regulatory licensing requirements combined with weak commodity prices forced several independent operators who had planned t0 open their mines t0 re-evaluate dorng so. ln Situ Leach Mining lUCs portfolio of future mining projects includes not only conventional mines but in situ leach mines, as well. This envi- ronmentally friendly solution minrng method utilizes naturally occurring groundwater, fortified with oxygen, to mobilize the uranium contained in the geologic formation. That fluid is then pumped to the surface for further processing. This ground- water is then recycled back through the deposit, resultrng in minimal environmental intrusion and reclamation require- ments. Most of the uranium producti0n in the U.S. today is done by the in situ leach solution mining technrque. IUC's Reno Creek property in Wyoming and Dewey-Burdock property in South Dakota are properties with uranium deposits amenable to this mining method. During fiscal 1998, permitting work continued on the Reno Creek property. While IUC had expected to have completed the permitting process by the end of the fiscal year, regulatory changes have moved the expected permit- ting completion date into the fall of 1999. o oLo Mongolia Encompassing an area approximating one million square miles, the Republic of Mongolia is located between China and the Russian Federation. 0nce home to the great ruler and conqueror, Genghis Khan, modern-day Mongolia has embarked on a national program to provide economic growth through reasoned development of its vast endowment of natural resources, including uranium. Recognizing the crucial role of western investment, the Mongolian government has established a foundation of mineral laws and regulations based principally on the United States model. Great effort has been made to shape mining laws in a rapidly changing environ- ment t0 encourage foreign interest in this c0untry's vast natural resources. IUC is conducting a large uranium exploration program in the south cen- tral region of Mongolia thr0ugh its 70% rnterest in the Gurvan Saihan Joint Venture. The Joint Venture, whrch also includes the Mongolran government (15%) and Geologorazvedka 1150k), a Russian geological concern, has an exclusive exploration conces- sion comprising over 4 million acres in 12 separate target areas. 0ne of the largest uranium exploration pro- grams in Mongolia, the Joint Venture was recognized during the past year by the Mongolian Ministry of Agriculture and lndustry as "The Best lnvestor in the Minerals Sector for 1 997-1 998. " The Jornt Venture's 1998 field program included 53,000 meters of both delineation and reconnaissance drrllrng Primary objectives of this year's program consisted of expanding and further delineating the main deposit discovered last year at Hairhan, as well as conducting reconnaissance drrlling on other target areas This drilling added 5 5 million pounds of uranium resources to the Hairhan deposit, bringing total res0urces in the area to over 16 million pounds U30B lnc uding drilling results from all target areas, the Gurvan Sarhan Joint Venture now has total resources of over 23 millron pounds of uranium which are amenable t0 l0w cost, in situ leach mining methods The Joint Venture also conducted a leach amenabilrty test on the Hairhan deposit during 1998 to confirm the suitabrlrty of the dep0sit to in situ leach techniques. The test results were very positive and provided necessary technical data for the design of a commercial mrning facility in the future. Declinrng uranium prices throughout 1998 have required IUC to reduce the level of its exploration drilling budget in Mongolia for fiscal 1999 Extensive drllrng pr0grams performed in 1997 and 1998 have generated valuable and unique data which will be further studied in 1999 to expand the inventory of favorable exploration targets for future programs. Production cost models will also be evaluated to refine estimated costs for future production plans rn Mongolia i.i: ii,;i:: Regulatory and Environment Corporate Commitment IUC is committed to the operation of its facilities in a manner that puts the safety of its employees, its com munity and the environment above all else We believe that every task should be performed with a shared c0ncern for the safety of our fellow employees, contractors, visi [ors, customers and the communities where we operate. Whenever issues of safety conf lict wrth other c0rporate objectives, safety shall be our first consideration. Processi ng IUC's operations at the White Mesa Millare part of a highly regulated industry principally governed by the U S Nuclear Begulatory Commission (NFC) The Mill has a well-estab- lished relationship with the NRC dating back nearly 20 years, since the Mill was constructed in 1980. During that time, the White Mesa Mrll has recelved and processed conventional ores and alternate feeds for the recovery of uranium and disposed of the resulting byproducts under the N/ill's Source Material License rssue by the NBC. The Company continues to work closely with federal, state and local regulators as well as the public t0 ensure the strictest of compliance under the regulations set forth in our license. IUC believes that protection of ground- water is vital. The Mill's tailinqs cells were designed with synthetic liners to contain any liquid, and are sited in such a way that no potential seepage from the tailings cells is likely to ever reach the underlying regional aquifer. ln addrtion, a thin, perched zone of poor quality groundwater rests on top of 1200 feet of dense shale, which seperates the regional aquifer from this perched zone. We follow an NBC approved groundwater monitor- ing program in which we monitor this perched zone to provide early detec- tion of seepage from the tailings cells, i{ any After 1 B years of continuous monitoring, there has been no evi- dence that there have been any releases to the perched zone, much less the regional aquifer. Tailingr Monitorinf wBll 0ike synthetic linen [Gak 0Btection l-ateFal Penched zone UEcd lon Monitoring V.l**.ffirr.ffi'i Gnound $urlace llense $and$tone low Pcrmea[ility Shale -+ Itlll + -+- I r,200'+ ) I-1- Regr-onal Aquiler Diagram not to scale Stakeholder Awareness is a critical issue for nuclear industry participants. IUC took steps this past year to raise the level of public awareness, education and involvement in its operations by developing a quarterly newslettercalled the Rumor Mill. This publication provides informa- tion about regulatory issues, environmental news, general operations and recent and future events. Public outreach programs, like the Rumor Mill, are designed to promote awareness of lUCs operations and help reduce any concerns of the community due to insufficient information, or misinformation. Mining lUCs mines continue to operate under close scrutiny from federal and state regulators, including the State of Colorado Mine Land Reclamation Board, the State of Utah Division of 0il, Gas and Mining, and the Arizona Department of Environmental Ouality. 0ur mines are also regularly inspected by the Mine Safety and Health Administration. Mongolia Environmental protection and restoration procedures are practiced in the exploration and field testing being done in Mongolia. Prior to conducting any drilling, establrshing fixed camps, or assembly of in situ leach test facilities, meetings are held to obtarn approval of local environ- mental authorities. After completion of field work, follow up inspections are conducted to obtain approval of surface reclamation and restoration. The Gurvan Saihan Joint Venture enjoys strong support from local authorities and has established an image as a careful and conscientious neighbor concerned about protecting the unique environment of Mongolia. + o E oL't cIIJ Tco Management's Discussion and Analysis (Amounls in U.S. Dollars unless otherwise stated) The following discussion and analysis of the financial condition and results of operation for International Uranium Corporation (lUC) for the fiscal year ending September 30, 1 998 should be read in conjunction with the consolidated financial statements and related notes therein. The consolidated financial statements are prepared in accordance with generally accepted accounting principles in Canada. Results of 0perations lnternational Uranium Corporation completed rts first full fiscal year on September 30, 1998 Net income for the year was $1,617,331 which was approximately $0.02 per share (approximately Cdn$0.04 per share). Durrng the year IUC had total sales of $32,940,876. 0f these revenues, $19,890,300 was from sales of uranium (60%) and $13,050,576 (40%)was derived from IUC's process milling of alternate feeds. Approximately 62% of total revenues were from three major customers, one of which accounted for 370k of total revenues. These results are significantly higher than the corresponding results for the fiscal period ended September 30, 1997, where IUC had net income of $18,694 resulting from revenues of $523,865. Although IUC was formed on October 3, 1996, its primary oper- ating activities did not commence until after the purchase of Energy Fuels' assets in May 1 997. IUC had no sales of uranium for the year ending September 30, 1997, and its $523,865 of process milling revenues were derived from the startup 0f a maior alternate feed processing run which was completed during the fiscal year ending in September'1 998. The spot market value of uranium (value reflected in c0ntracts with a single delivery which generally call for material to be deliv- ered within a 0ne-year period) began the fiscal year at $11.00 per pound U308, rose to $12.75 in November, then declined during the remainder of the fiscal year to $9.75 in September. The base market price for long-term contracts (contracts which call for deliveries in multiple future years)was approximately $11.10 per pound U30B in September 1998. 0f IUC's 1998 uranium sales, approximately 84% of the material was sourced from uranium purchases and 16% of the material was produced from IUC's alternate feed production. The $19,890,300 of uranium sales proceeds resulted from seven separate sales transactions. Approximately 41ok of the sales revenues 1240/o of the material delivered) arose from long-term contracts and the balance was from transactions in the spot market. The cost of uranium sold was $17,829,592 resulting in gross profits of $2,060,708. lUCs $13,050,576 of alternate feed revenue consisted of $12,304,604 which was derived from the processing of alternate feed containing uranium, tantalum, and niobium from a single customer. This particular alternate feed run required extensive design and engineering work, along with certain circuit modifications, which were m0re than originally contemplated. Therefore, this processing run took considerably longer to complete than planned. Additionally, IUC was expecting to achieve more satisfactory recoveries at lower costs than those actually achieved. Even though these complexities caused results to not be as favorable as originally projected, IUC's alternate feed activities were profitable. IUC's processing costs relating to alternate feeds totalled $10,066,538 for 1998 resulting in a gross profit of $2,984,038. Selling, general and administrative expenses for 1998 totalled $3,580,149, compared t0 $1,008,012 in 1997. The increase was due t0 IUC expanding to a full operating status during '1 998, along with the fact that the 1 997 expenses only reflect approximate- ly five months of activity. Depreciation and amortization expense was $734,267 in 1998, compared to $41 ,387 in 1997. Interest income and other income increased to $1,'l 28,562 in '1 998 from $781,947 in 1 997. These total revenues and expenses resulted in net income before taxes of $1,858,892 in 1 998 compared to $1 8,694 in 1 997. A $241 ,561 provision fortaxes is shown for 1998. No provision was necessary in 1997. The 1998 provision is lowerthan the amount thatwould normally be applicable should the combined federal and provincial expected tax rate be applied to 1998 net income before taxes of $1,858,892 primarily due to lower rates 0n certain income IUC received from its United States operations during the period. It is not anticipated that these lower rates will be available in the future. The above resulted in 1 998 net income of $1 ,61 7,331 compared to 1 997 net income of $1 8,694. IUC continued mining uranium and vanadium bearing ores from its Sunday and Bim Mine complexes in the Colorado Plateau District of western Colorado and eastern Utah. To supplement its own production, IUC also commenced an "0re Purchase Program", buying ore from other independent miners in the district. Ore from IUC's mines and purchased ore is being delivered and stockpiled at IUC's WhiteMesaMill whereitwill beprocessedinl999. TheseorestockpileshavebeenincludedinlUC'sinventoryasof September30, 199B,atacost0f $3,117,441 . Theseorestockpilescontainapproximatelysevenpoundsof vanadiumforeachpoundof uranium. Thus at year end values, vanadium accounted for approximately 70% of the revenue potential from these stockpiles. IUC has been able to produce ore from its Sunday and Rim Mines at costs within its forecast budget and at satisfactory production levels. Management's Discussion and Analysis (Cont.) However, the amount of ore supplied via the ore purchase program has been significantly below projections. lndependent miners have had difficulty in arranging the capital necessary to re-establish their mining properties and have faced delays in completing regulatory and environmental llcensing requirements. IUC continued development work on certain of its mining properties including continued underground drift development of its Topaz Mine. IUC renewed the application and review process for a permit to mine from the Wyoming Department of Environmental Ouality and for a source material license from the Nuclear Regulatory Commission for the Beno Creek in-situ leach project located in the PowderRiverBasinof Wyoming. Thisreviewprocessisexpectedtobecompletedinlggg. IUC'sinvestmentanddevelopment expendituresonitsU.S.miningpropertiestotalled$1,895,814in1998. Thiscompareswiththeapproximately$729,000thatwas expended in 1997 for the period after purchase of the assets in May through September 30,1997. The Gurvan Saihan Joint Venture, IUC's uranium development and exploration program in Mongolia, completed its 1998 drilling programandleachamenabilitytestingwithfavorableresults. TheJointVenturehasnowdelineated ouer22.Smillionpoundsof uraniumresourcesforthisprogram. Total expendituresbylUCrelatingtothisJointVenturewere$3,209,363in1998,c0mpared to the $1,1 91,525 expended after the purchase of the Joint Venture interest in May and continuing through September 30, 1 997. IUC continued to increase its focus on acquiring and processing alternate feeds during the year. This resulted in IUC successfully contracting to receive and process over 41,000 cubic yards of material from a former defense, or FUSRAP (Formerly Utilized Sites Remedial Action Program) site near Tonawanda, New York. Shipments of material commenced in the fourth quarter of IUC's fiscal year and successful processing was substantially completed in the first quarter of fiscal 1 999. Capital Hesources and Liquidity IUC's working capital at September 30, 1998 was $20,298,1 66, of which $6,282,215 consisted of cash and cash equivalenrs. This compares to September 30, 1997 working capital of $24,283,678, of which $13,953,355 consisted of cash and cash equivalents. lncome from operations, after adjustments for expenses not affecting cash (depreciation, amortization of contract purchase costs, andother),provided$3,887,4290f cashcomparedto$267,766in1997. However,netcashusedbyoperationsincreasedfrom $3,163,190 in 1997 to $5,178,612 in 1998, primarily due to the utilization of cash to reduce shortterm liabilities during the year. IUC has also continued to utilize cash to increase its inventory levels. This inventory increase is primarily due t0 IUC's ore stockpiles which will be processed during the next year. Expenditures for property, plant and equipment totaled $3,812,556, of which $2,204,791 represents improvements and circuit modifications at the N/ill to allow for more efficient ore and alternate feed processing. Investments in the Gurvan Saihan Joint Venture totaled $3,209,363. IUC ls projecting fiscal year 1999 expenditures for property, plant and equipment of approximately $2,300,000, of which $1,250,000 will be for further improvements at the Mill. Expendltures on the Mongolia mineral properties are projected t0 be $1,300,000. Additionally, IUC is projecting to purchase approximately $7,950,000 of uranium next year under a long-term purchase contract at prices approximating the then current spot price. These purchases will be utilized for delivery under its current sales contracts or future contracts depending on IUC's uranium production levels. IUC is anticipating funding these outlays from current operations and working capital (which is sufficient to cover these planned expenditures). Nevertheless, IUC ls considering the possibility of negotiating and having available a short-term revolving credit facility during the coming fiscal year to assist and supplement inventory and project financing, in addition to providing short-term cash flexibility, as necessary. Environmental Responsibi lity Each year, IUC reviews the anticipated costs of decommissioning and reclaiming its mill and mine sites as part of its environmental planning process. These estimated costs are also formally reviewed by IUC when it submits license renewal applications to regulatory authorities. Based on this review, it was determined that IUC's estimated reclamation obligation of $13,265,700 is currently sufficient t0 cover these projected future costs. IUC has also posted bonds securing these liabilities and has deposited marketable securities 0n account of these obligations. The amount of these restricted marketable securities collaterallizing IUC's reclamation obligation was $8,300,375 at September 30, 1 998. .2 2.o C rcco Co,a fItn i5 + Management's Discussion and Analysis (Cont.) 1 999 Fiscal Year 0utlook lUCs profitability is highly dependent upon uranium and vanadium prices. These commodity prices both softened considerably in the last half of fiscal 1 998 and have continued t0 fall. As mentioned above, uranium spot prices began the year at $1 1.00 per pound U308, rose to $12.75 then declined to $9.75 in September. Subsequent to year-end, the price continued to fall to $8.75 per pound U308 prior to recovering to $1 0.50 in January 1 999. Vanadium prices began the year at approximately $4.'1 0 per pound V205, rose to approximately $6.70 in the early summer and then declined to approximately $S.ZO by the end of September. Since year-end, the vanadium price declined significantly to approximately $Z.gO per pound V205. Most market analysts are expecting a rebound in the vanadium prices during '1999; however, they do not expect to see the high price levels that were experiencedduringlgg8. Theuraniummarketcontinuestofaceuncertainty,particularlyovertheimpactof newsupplysources, such as highly enriched uranium from Russia and U.S. government stockpiles and the potential sale of 62 million pounds from uranium inventories held by USEC, lnc. through 2005. Due t0 these uncertainties, IUC has discontinued further development of its Topaz Mine until prices recover. Should the spot prices for both uranium and vanadium remain depressed, IUC will re-eval- uate its current mining operations and other properties in order to determine the appropriate level of future production and devel- opment. Although IUC has deliveries scheduled under its current contracts in 1999, any additional sales revenue will be depen- dent on market prices and new demand. To mitigate this exposure in future years, IUC will continue its focus on long-term contracts. ln orderto lessen its dependence on these commodity prices, IUC continues to expand its alternate feed processing activities. With the expansion of the alternate feed business, IUC is faced with continued regulatory review and third party challenges with respect t0 receiving the required approvals and license amendments for each alternate feed project. IUC could be unsuccessful in acquiring the necessary approvals or in defending itself against such challenges t0 these license amendments. Additionally, pro- cessing these materials could require different procedures for each type of material depending on its composition. These efforts will increase lUCs costs relating to processing alternate feeds; however, IUC believes that alternate feed processing will provide signif icant f uture prof its. lUCanticipatesprocessingalternatefeedsattheWhiteMesaMillthroughthefirsthalf offiscalyearl999. lUCwilltheneither process its conventional ores 0r process alternate feeds from proposed future transactions which are currently being pursued. The processing order of these runs will be dependent 0n future market values, the amount of conventional or alternate feed ore available at the White Mesa Mill, the profitability of each run, and other operating factors. IUC will continue its current mining efforts as long as market prices remain at a level that supports such activity. Should prices continue to decline, IUC could place its mining properties in a care and maintenance status in orderto reduce development and production expenditures. This will enable IUC t0 conserve its working capital and maintain its reserve position while preserving the opportunity for IUC to benefit from any future price recovery. Risks and Uncertainties Year 2000 This risk involves the potential for IUC's operations t0 be disrupted by the failure of computer systems, which were not designed to function using dates for the new century. IUC has completed initial reviews t0 assess the risks of Year 2000 compliance and has developed and implemented plans for making necessary program conversions and software upgrades. These steps will be continued in '1999 in order to finalize adjustment plans, implement required changes, and complete necessary compliance testing. Expenses related to Year 2000 compliance are not expected to be material to IUC's financial results or condition. Note that it is not possible to be certain that all aspects of the Year 2000 issue affecting lUC, including those related to the effotls of customers, suppliers, or other third parties, will be fully resolved. Cautionary Note Regarding Fonvard-Looking Statements IUC wishes to caution readers that disclosures made in the foregoing Management's Discussion and Analysis and elsewhere in this annual report which are not historical facts are forward-looking statements that involve risks, uncertainties and other factors that could cause actual results t0 differ materially from those expressed or implied by such fonruard-looking statements. Such factors that affect lUCs results and the above discussion of the 1999 outlook include, but are not limited to, volatility and sensitivity to market prices for uranium and vanadium, competition, environmental regulations, the impact of changes in foreign currencies' exchange rates, political risk arising from operating in Mongolia, changes in government regulation and policies including trade laws and policies, demand for nuclear power, dependence 0n a limited number of customers, replacement of reserves and production, receipt of permits and approvals from governmental authorities (including amendments for each alternate feed transaction) and other operating and development risks. As a result of the foregoing and other factors, no assurance can be given as to the future results, levels of activity and achievement. Management's Report to the Shareholders The accompanying consolidated financial statements have been prepared by Management in accordance with generally accepted accounting principles in Canada. Management is responsible for ensuring that these statements, which include amounts based upon estimates and judgement, are consistent with other information and operating data contained in the annual report and reflect the corporation's business transacti0ns and financial position. Management maintains accounting and internal control systems designed to safeguard assets and to properly record and execute transactions. The accounting and internal systems are utilized to provide reasonable assurance of compliance with Company policies and procedures and the safeguarding of assets. Management has also adhered to policies regarding compliance with laws and governmental regulations. Judgements are required t0 assess and balance the relative costs and expected benefits of these controls. The Company's independent auditors, PricewaterhouseCoopers LLB whose report 0n their examination follows, have audited the consolidated financial statements in accordance with generally accepted auditing standards. The Board of Directors pursues its responsibility for these financial statements through its Audit Committee, which meets periodically with management and the independent auditors, t0 assure that each is carrying out its responsibili- ties. The independent auditors meet with the Audit Committee with and without management representatives present to discuss the scope and results of their audit, their comments on the adequacy of accounting controls, and the quality of f inancial reporting. d,l6/.ry Thad L. Meyer IVice President, Finance and flzm- Earl E. Hoellen President and Chief Executive 0fficer November 2l,1998 Chief Financial 0fficer .llt-oT oIoLo+o o o++Loo-od. rl, Auditors' Report to the Shareholders We have audited the consolrdated balance sheets of lnternational Uranium Corporation as at September 30, 1998 and 1 997 and the consolidated statements of operations and retained earnings, and cash flow for the periods then ended. These financial statements are the responsibility of the Company's management. 0ur responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material mis- statement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. ln our opinion, these consolrdated financial statements present fairly, in all material respects, the financial position of the Company as at September 30, 1 998 and 1 997, and the results of its operations and the changes in tts cash flow for the periods then ended in accordance with generally accepted accounting principles in Canada. PricewaterhouseCoopers LLP Chartered Accountants Vancouver, Canada November 27,1998 I NTERNATIONAL URANIUM COBPORATION CONSOLIDATED BALANCE SHEETS (United States Dollars) September 30, 1 998 September 30, 1 997 a SSetS Current assets: Cash and cash equivalents Marketable securities Trade and other receivables lnventories (Note 3) Notes receivable (Note 4) Favorable uranium sales contracts (Note 5) Prepaid expen es a1A 1tne1 Properties, plant and equipment, net (Note 6) Mongolia mineral properties (Note 7) Notes receivable Restricted marketable securities (Note B) Favorable uranium sales contracts, net of current protion Goodwill and other, net $6,282,275 11,731 2,979,600 12,481,713 729,730 1 88,532 22,613,581 13,516,937 9,500,932 203,538 8,300,375 57s,351 $54,170,114 $13,953,35s 39,978 63,1 98 10,1 '13,853 4,191,513 1,270,210 433,491 30,665,664 10,858,679 6,191,525 206,142 7,945,356 129,130 603,243 $57,200,339 liabilities s h a re h o I d e rs' e q u i ty $1,761,841 37,963 575,611 zritis q1; 54,172 13,265,700 1 5,695,287 31,439,402 1,636,025 39,015,427 isirioi,q $961,865 s,050,000 o tr27J,JO I 210,185 150,399 6,381,986 19,962 13,265,700 1s:9_67:649 37,513,997 i8,694 37,532,691 $57,200,339 Current liabilities: Accounts payable and accrued liabilities lnventory purchases Notes payable Deferred revenue 0u1 to lelate! rrt,,,:: (Note_ 1 4) Notes payable, net of current portion Beclamation oblrgations (Note 9) Share capital (Note 10) Retained earnings oL 0)T o -co)LoJtn o - o +Loo- 0) 24..ru\. 0n behalf of the Board Earl E. Hoellen, Director Lukas H. Lundin, Director INTERNATIONAL URAN IUM CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (United States Dollars) Year Sept.30, 1998 Period from I ncorporation 0ct.3,1996, to Sept.30, 1997 operations Revenue Uranium sales Process milling $ 19,890,300 13,050,576 $- 523,865 Iotal revenue 32,940,876 523,865 Costs and expenses Uranium cost of sales Process milling expenditures Selling, general and admtnistrattve Depreciation 17,829,592 10,066,538 3,580,1 49 134,261 237,719 1,008,012 41,387 32,210,546 1,281 ,118 0perating income (loss) Net interest and other income 730,330 1,128,562 (763,253) 781,941 Net income before taxes Provision for income taxes (Note 11) 1,858,892 241,561 18,694 Net income for the period $ 1,617,331 $ 18,694 Net income per common share 0.02 retained earnings Retained earnings, beginning of period Net income 1 8,694 1,617,331 18,694 Betained earnings, end of perrod $1,636,025 $18,694 INTEBNATIONAL URANIUM COBPORATION CONSOLIDATED STATEMENTS OF CASH FLOW (United States Dollars) Year Sept.30, 1998 Period from lncorporation Oct.3, 1996, to Sept.30, 1997 cash provided by (used in) operating activities Net income for the period Items not affecting cash Depreciation and amortization Gain on sale of equipment Amortization of uranium sales contract purchase cost lncrease in deferred revenue $ 1,617,331 734,261 (s9,865) 1,270,210 365,426 18,694 41,387 (2,s00) 210,185 Changes in non-cash working capital items Decrease in marketable securities lncrease in trade and other receivables lncrease in inventories Decrease (increase) in other current assets (Decrease) increase in liability for inventory purchases lncrease in other accounts payable and accrued liabilities (Decrease) increase in due to related parties 3,887,429 28,247 (2,s16,4021 (2,01s,516) 242,053 (5,050,000) 799,976 (150,399) 261,166 11,334 (63,1 98) (9,1 13,859) (433,497) 5,050,000 961,865 150,399 Net cash used by operations $,178,612\(3,163,'r90) investrng activities (3,812,556) (3,209,363) 102,310 4,794,117 (355,020) (?,619,1491 (1 ,1 91 ,s2s) 2,500 (856,892) 3,028,380 (7,945,3s6) {10,081,071) 1613,2821 Properties, plant and equipment Mongol ia mineral properties Proceeds from sale of surplus equipment Notes receivable Collection of notes receivable lncrease in restricted marketable securities Acquisition of Energy Fuels, net of cash received Acquisition of Thornbury Capital Corp, net of cash received Net cash used in investment activities 12,480,512\(20,396,395) financing activities Stock purchased for retirement lncrease (decrease) in notes payable Common shares issued for cash, net Common shares issued on amalgamation (74,595) 62,639 (1,057) 36,690,454 823,543 Net cash (used in) provided by f inancing activities (1 1 ,956)37,512,940 (Decrease) increase in cash and cash equivalents Cash and cash equivalents,beginning of period (7,671,080) 13,953,355 13,953,355 Cash and cash equivalents, end of period $ 6,282,27s $ 13,9s3,355 I NTERNATIONAL URANIUM CORPORATION Notes to the C0ns0lidated Financial Statements September 30, 1998 and '1997 (United States Dollars) 1 . 0rganization and Nature of 0perations lnternational Uranium Corporation (the "Company")was origrnally incorporated as a private company on 0ctober 3, 1996 under the laws of the province of 0ntario. ln May 1997, the Company achieved public company status and began trading on the Toronto Stock Exchange utilizing the symbol "lUC". Headquartered in Denver, Colorado, the Company is engaged rn the business of producing uranium concentrates and the sellrng and trading of these concentrates in the international nuclear fuel market. ln addition, the Company also produces and sells vanadium, as well as other minerals that can be produced as a co-product with uranium. The Company continues to produce ore at its Sunday Mrne Complex in Colorado and the Rim Mine in Utah. The Company also has several partially developed mines and numerous targeted mines and exploration propeftres within the states of Colorado, Utah, Arizona, Wyoming and South Dakota, as wellas a 70% lointventure interest in an exploration project in central eastern Mongolia. Additionally, the Company owns the 2,000 ton per day White Mesa Mill (the Mill ) near Blanding, Utah. The Mill is used t0 process the Company's mined ore along with ore purchased 0r toll milled from other independent mines. The Mill is also used to process alternate feeds, which generally are ores or residues from other processing facilities that contain uranium rn quantrties or forms that are either uneconomic to recover or cannot be recovered at these other facilities, but can be economically recovered at the Mill. 2. Significant Accounting Policies These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada. a) Use of estimates c) The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires the C0mpany's management to make estimates and assumptions that affect the amounts reported in these financial statements and notes thereto. Actual results could differ from those estimated. Basis of consolidation The consolidated frnancial statements include the accounts of the Company and its wholly-owned subsidiaries, lnternational Uranium Holdings Corporation, lnternational Uranium Alberta Corporation, lnternational Uranium (Bermuda) Ltd., lnternational Uranium Company (Mongolia) Ltd., and lnternational Uranium (USA) Corporation. Cash and cash equivalents Cash and cash equivalents consist of cash on deposit and highly liquid shortrerm interest bearing securities. Marketable securities and restricted short-term investments Marketable securities and restricted short term investments are valued at the lower of cost or market value. e)I nventories lnventories of ore stockpiles, uranium concentrates and refined and converted products are valued at the lower of cost or net realizable value. Consumable supplies and spares are valued at the lower of weighted average cost or replacement value. Properties, plant and equipment Mineral properties, plant and equipment are recorded at cost. Mineral properties are depleted by the units-of-production method based on 0re reserves. Plant and equipment are depreciated on a straight-line basis over their estimated useful lives from three to fifteen years. Exploration properties The Company defers the property acquisition costs and ongoing exploration expenditures on properties still in the exploration stage and carries these as assets until the results of the exploration projects are known. lf a project is successful, the cost 0f the property and the related exploration and development expenditures will be amortized over the life of the property utilizing the units-of-production method. lf a project is unsuccessful, the mining property and the related exploration expenditure are written off. Environmental protection and reclamation costs The estimated costs for decommissioning and reclaiming producing mineral properties, plant and equip- ment acquired by purchase have been fully accrued on an undiscounted basis. Estimated costs of decommissioning and reclamation associated with newly acquired or developed mineral properties, plant and equipment, as well as revised regulatory requirements are accrued through periodic charges to earnings, on the units-of-production basis in the case of mine costs 0r on the straight line basis in the case of millcosts. Actual costs of decommissioning and reclamation incurred at the time of closure are deducted against this accrual. Environmental costs not associated with the decommissioning or reclamation of producing mineral properties, plant and equipment are capitalized as property, plant and equipment costs where they result in the betterment of an asset, 0r expensed as incurred in all other circumstances. Foreign currency translation These consolidated financial statements are denominated in United States dollars, the Company's func- tional currency. Substantially all of the Company's assets and operations are located in the United States, with the exception of the Gurvan-Saihan Joint Venture (Note 7). The majority of its costs are denominated in United States dollars and all of its products for sale are priced in United States dollars. Amounts denominated in foreign currencies are translated into United States dollars as follows: a) Monetary assets and liabilities at the rates of exchange in effect at balance sheet dates; b) Non-monetary assets at historical rates, c) Revenue and expense items at the average rates for the period. The net effect of the foreign currency translation is included in the statement of earnings. s) j) k) Net earnings per share Net earnings per common share is determined using the weighted average number of shares 0utstanding during the yeat which for the year ending September 30, 1998 was 65,698,048 shares and for the period ending September 30, 1 997 was 42,067,497 shares. Goodwill Goodwill rs amortized on a straight-line basis over lwenty years. Revenue recognition ln accordance with normal industry practices, the Company contracts for future delivery of uranium produced. Sales revenue is recorded in the perrod that title passes t0 the customer. Process milling fees are recognized as the applicable material is processed, in accordance with the specifics of the applicable processing agreement. Deferred revenues represent processing proceeds received in advance of the required processing activity. I nventories t) Uranium Concentrates 0re Stockpiles ln Process Parts & Supplies September 30,1 998 $ 7,838,433 3,111,441 79,600 1,446,239 $ 12,481,113 September 30,1997 $ 8,935,544 ft:,1g; 996,512 $ 10,1 13,853 Notes Receivable - Short Term Amount represented the balance of an outstandrng promissory note to the Company from Union Carbide Corporation which bore interest at the U.S. prime rate. The note, plus accrued interest, was payable in monthly installments and waspardoffinitsentiretyinMaylgg8. ThebalanceasofSeptember30, 1997was$4,791,513. 5. Favorable Uranium Sales Contracts As part of the Energy Fuels assets (Note 12), the Company acquired uranium supply contracts with certain utilities. At the time of the Energy Fuels purchase, the value of these contracts was determined to be $2,000,000 based on the excess of the sales price over the market value of the uranium to be delivered. 0f this value, $1 ,270,210 related to the deliveries to be made in the first quarter of the year ended September 30, 1 998, and $729,730 relates to deliverres in the first quarter of the year ending September 30, 1 999. 6. Properties, Plant and Equipment MillBuildings & Equipment $ 5,044,364 Other Machinery & Equipment 2,811,926 Mining Properties I ,054,191 $ r q,gr o,+g7 Accumulated Depreciati onCost & Depletion $ 666,215 421,465 299,870 $ 1,393,5s0 Sept.30, 1998 Net $ 4,378,149 2,384,461 6,754,321 s r s,sr o,ssi Sept. 30,1 997 Net $ 3,241,630 2,461,021 5,156,028 $ 10,858,679 Depreciation and depletion totaled $1,189,203 for the year ending September 30, '1998 of whrch $506,096 rs included in inventory and mineral propertres at year-end. For the period ending September 30, 1997, depreciation and depletion totaled $236,897 of which $208,231 was included in inventory and mrneral properties. 1. Mongolia Mrneral Properties Mongolia mineral properties are made up of the Company's 70% interest in the Gurvan-Saihan JointVenture (the "Venture") which holds nine uranium exploration areas covering 14,700 square kilometers in centraleastern Mongolia. The other parties of theVenturearetheMongoliangovernmentastol5%andGeologorazvedka,aRussiangeologicalconcern,astol5%. A royalty in the amount of 4% is payable to the Mongolian government. The Company has proportionately consolidated its 70% interest in the Venture, which is substantially represented by Mongolia mineral properties. To date the Company has funded all expendrtures and expects to do so for the foreseeable future. B. Bestricted Marketable Securities Amounts represent marketable securities the Company has placed on deposit in favor of a bonding c0mpany to secure its reclamation bonds (Note 9). Provision for Beclamation As part of the acquisition of Energy Fuels (Note 12), the Company assumed responsibility for the environmental and reclama- tion obligations of Energy Fuels relating to all existing mines and the Mill, as wellas for all reclamation and environmental obligations associated with mined out, inactive, reclaimed or partially reclaimed mines and properties, that were so acquired. ThetotalamountofthereclamationliabilityhasbeenestimatedbytheCompanyat$13,265,700. TheCompanyhasposted bonds rn favor of the United States Nuclear Begulatory Commission and the applicable state regulatory agencies securing these liabilities and has deposited marketable securities 0n account of the obligation (Note B). Elements of uncertainty in estimating reclamation and decommissioning costs include potentialchanges in regulatory require- ments, decommissioning and reclamation alternatives. Actualcosts willdifferfrom those estimated and such differences may be material. Share Capital Authorized - unlimited number of common shares. lssued and outstanding Shares Amount 10. a) b) lssued: For cash (Cdn $0.25 per share) 0n conversion of special warrants Amalgamation 26,500,000 37,800,000 1,443,066 $ 4,906,166 31,784,288 823,543 Balance, September 30, 1 997 Stock purchased for retirement 65,743,066 (218,000) $ 37,513,997 (74,595) Balance, September 30, 1998'65,525,066 $ 37,439,402 In May 1997, the Company completed a private placement financing of 37,800,000 common shares pursuant to the exercise of specialwarrants that had been issued in March 1997 at a price of Cdn$1.25 ($0.90)per specialwarrant for net proceeds of Cdn$44,21 7,1 90 ($31 ,784,288), after deducting share issue costs and agent fees of Cdn$3,032,802 ($2,1 86,1 37). c) Stock options The Company has adopted an Employee Stock Option Plan under which the Board of Directors may from time to time grant to directors, officers, eligible employees of, or consultants to, the Company or its sub- sidiaries, or to employees of management companies providing services to the Company, options to acquire common shares in such numbers for such terms and at such exercise prices as may be determined by the Board. The purpose of the Stock 0ption Plan is to advance the interests of the Company by providing eligi- ble personnel with a financial incentive for the continued improvement of the Company's performance and encouragement t0 stay with the Company. Options granted to executive officers and certain employees of the Company vest as to one{hird on the date of grant, as to another one{hird one year after the date of grant and the remainder two years after the date of grant. All other options vest as t0 one-half 0n the date of grant and as to the remainder one year after the date of grant. All options granted to date expire three (3) years from the date of the grant of the option. 0ptions were outstanding as follows: September 30, 1 998 September 30, 1997 0ptron Price per Share Cdn $1.25 Cdn $0.75* 2,000,000 814,000 2,639,000 2,814,000 2,639,000 *Represents options repriced from Cdn $1 .25 to Cdn $.75 on June 1 7, 1 998. 11. lncome Taxes The provrsion for income taxes differs from the amount computed by applying the combined expected federaland provincial income tax rate to earnings before income taxes. The reasons for these differences are as follows: September 30, 1998 Earnings before income taxes Combined federal and provrncial tax rate $ 1,858,892 45% Computed income tax expense lncrease (decrease) in taxes resulting from: Forergn earnings subject to different tax rates Large corporation and other taxes $ 836,501 (636,090) 41 ,1 50 Net income taxes 241,561 12. Acquisition of Energy Fuels Assets and the Amalgamation ln May 1997, the Company completed the acquisition of substantially all of the uranium producing assets and assumed certain obligations of Energy Fuels Ltd., Energy Fuels Exploration Company and Energy Fuels Nucleat lnc (collectively "Energy Fuels") for an approximate total consideration of $35 million. Energy Fuels was in Chapter 11 Bankruptcy proceedings in the United States. The acquisition price was settled as follows: Cash payment to vendors Direct acquisition costs Reclamation obligations assumed Notes payable assumed $ 19,354,336 1,937,631 13,265,700 30,556 $ 34,588,223 The acquisition was accounted for by the purchase method. The allocation of the purchase price is summarized as follows: Cash and certificates of deposit Favorable uranium sales contracts Notes receivable Parts and supplies inventory Properties, plant and equipment Mongolia mineral properties $ 1 1 ,210,896 2,000,000 7,1 69,1 43 999,994 8,208,1 90 5,000,000 $ 34.588.223 The Energy Fuels assets included severaldeveloped mines on standby, several partially developed mines, as wellas numerous targeted mines and exploration properties, within the states of Colorado, Utah, Arizona, Wyoming and South Dakota, as well as a 70% interest in a joint venture with the government of Mongolia and a Bussian geological concern to develop and produce uranium reserves in Mongolia. Assets purchased also included the 2,000 ton per day White Mesa Mill near Blanding, Utah. The Mill also has a vanadium recovery circuit. Concurrent with the acquisition of Energy Fuels, in May 1997, the Company completed an amalgamation wrth Thornbury Capital Corporation ("Thornbury"). Each of the shareholders of Thornbury received one common share in the amalgamated company for every five common shares held prior to the amalgamation and the shareholders of the Company received one common share for every one common share held prior to the amalgamation. As a result of this transaction, the shareholders 0f the Company acquired control of Thornbury and accordingly, the transaction has been accounted for as an acquisition by the Company of Thornbury. o The acquisition is summarlzed as follows: Purchase consideration 1,443,066 common shares issued Net assets acquired at book value $ 823,543 (150,261) Excess purchase consideration $ 673.282 Attributed to Marketable securities Goodwill $ 57,312 615,970 $ 613,282 The purpose of the amalgamation was to facilitate the financing of the Energy Fuels purchase and to achieve public company status. '13. Segmented lnformation a) Geographic segments September 30, 1998 September 30,1 997 Revenue Canada United States Mongolia $- 32,940,876 523,865 Total $ 32,940,876 523,865 Net lncome Canada United States Mongolia $ (608,062) 2,235,975 (10,5821 (13,310) 47,534 (1 5,530) Total $ 1,617,331 18,694 Assets Canada United States Mongolia $ 669,882 44,215J00 9,885,732 $ 999,979 49,380,1 0B 6,820,252 Total $ 54,770,714 $ 57,200,339 14. Major customers The Company's business is such that, at any given time, it can only sell its uranium concentrates t0 and enter into process milling arrangements with a relatively small number of customers. The customers with whom it does business vary substantially from year to year. During the year ended September 30, 1998, a process milling customer and a major electric generating utility accounted ior 31.40/o and 14.8% of total revenues, respectively. ln the period ended September 30, 1997, all revenue was earned from the process milling customer. Accounts receivable from any individual customer will exceed 10% of total accounts receivable on a regular basis. Belated Party Transactions During the year ended September 30, 1998, the Company incurred legal fees of $50,197 with a law firm of which a partner is a director of the Company. Amounts due to this firm were $1,064 as of September 30, 1998. Legal fees incurred with this law firm were $188,692 for the perrod ended September 30, 1997. During the year ended September 30, 1998, the Company incurred management and administrative service fees of $99,383 with a company owned by the Chairman of the Company which provides office premises, secretarial and other services in Vancouver. Management and administration fees of $343,641 were paid to this same company during the period ended September 30, 1997, which include costs incuned throughout 1996 in pursuing the acquisrtion of Energy Fuels assets. During the period ended September 30, 1 997, the Company loaned $850,000 to an officer 0f the Company in order to facilitate relocation to the Company headquarters. 0f this amount, $650,000 was repaid prior to year end leaving $200,000 outstanding at September 30, 1 997 and 1 998. This loan is non-interest bearing and is payable on the earlier of termination of employment or June 30, 1999. The loan is secured by the officers personal residence. During the period ended September 30, 1997, the Company incurred interest of $'147,315 on a letter of credit and other loan facilities provided by a director of the Company as part of the acquisition of Energy Fuels. This amount was paid during the year ending September 30, 1998. Commitments CertainSwissutilitiesholdaroyalty(the SwissRoyalty")of 4.50kofalluraniumand2.50/oofvanadiumandallother minerals produced durrng the period from January 1, 1998 through December 31,2000 from certain ofthe United States properties. Advance royalty payments in the amount of $250,000 are made each year during this period. The royalty increases to 9% of all uranium and 5% of vanadium on January 1,2001, however the advance payments terminate. The Swiss Boyalty does not apply to the Mongolia mineral properties, nor t0 any tolled 0r purchased ore of or from third parties that is processed in the Mill, nor t0 any properties acquired after the date that the Swiss royalty was granted. 16. Financial lnstruments As at September 30, 1998 and 1997, the fair value of the Company's financial instruments approximates therr carrying values because of the shortterm nature of these instruments and, where applicable, because interest rates approximate market rates. 11. Uncertainty Due to the Year 2000 lssue The Year 2000 lssue arises because many computerized systems use two digits rather than four to identify a year. Date-sensitive systems may recognize the Year 2000 as 1900 or some other date, resulting in errors when information using Year 2000 dates is processed. ln addition, similar problems may arise in some systems which use certain dates in l999torepresentsomethingotherthanadate. TheeffectsoftheYear2000lssuemaybeexperiencedbefore,on,orafter January 1,2000, and if not addressed, the impact on operations and financial reporting may range from minor errors t0 significant systems failure which could affect an entity's ability to conduct normal business operations. lt is not possrble to be certain that all aspects ofthe Year 2000 lssue affecting the entity, including those related to the efforts of customers, suppliers, or other third parties, will be fully resolved. a) b) d) 15 EXECUTIVE OFFICEBS Executive officers in order from left to right, David C. Frydenlund,Vice President, General Counsel and Corporate Secretary; Earl E. Hoellen, President and Chief Executive 0fficer; Harold R. Roberts, Vice President, 0perations; Thad L. Meyer, Vice President, Treasurer and Chief Financlal 0fficer BOARD OF DIRECTORS Lukas H. Lundin. Ghairman 2 Vancouver, British Columbia, Canada John H. haig1,2,3,4 Toronto, 0ntario, Canada David C. Frydenlund 4 Denver, Colorado, USA Christopher J.F. Harrop 1'3'4 Toronto. 0ntario, Canada Earl E. Hoellen Denver, Colorado, USA Adolf H. Lundin Geneva, Switzerland William 4. grn6 I,2,3 Vancouver, British Columbia,Canada (1) Audit Committee (2) Compensation Committee (3) Corporate Governance Committee (4) Environment, Health, and Safety Committee INTEBNATIONAT UBANIUM CORPORATION CORPORATE DIRECTORY EXECUTIVE OFFICE lnternational Uranium (USA) Corporation lndependence Plaza, Suite 950 1 050 Seventeenth Street Denver, Colorado, USA 80265 Te I epho n e : 303 .628.1 1 98 Fax:303.389.41 25 CHAIBMAN'S OFFICE lnternational Uranium Corporation BB5 West Georgia Street, Suite 1320 Vancouver, British Columbia, Canada VOC 3EB DISTBICT MINING OFFICES lnternational Uranium (USA) Corporation Box 909 Dove Creek, Colorado, USA 81324 lnternational Uranium (USA) Corporation H.C.64, Box 153 2555 North Highway B9A Fredonia, Arizona, USA 86022 lnternational Uranium Company (Mongolia)Ltd. Central post, Box BB0 Ulaanbaatar-1 3, Mongolia WHITE MESA MILL OFFICE lnternational Uranium (USA) Corporation 6425 S Highway 191 P0. Box 809 Blanding, Utah, USA 8451 1 REGISTERED AND RECORDS OFFICE Cassels Brock & Blackwell Scotia Plaza, Suite 2100 40 King Street West Toronto, 0ntario, Canada N/sH 3C2 TEGAL COUNSEL Cassels Brock & Blackwell Scotia Plaza, Suite 2100 40 King Street West Toronto, 0ntario, Canada M5H 3C2 Shaw Pittman Potts & Trowbridge 2300 N Street N.W. Washington, DC USA 20037 Parsons Behle & Latimer One Utah Center, Suite 1800 201 South Main Street Salt Lake City, Utah USA 84145 INVESTOR RETATIONS lnternational Uranium Corporation BB5 West Georgia Street, Suite 1320 Vancouver, British C0lumbia, Canada V6C 3EB Telephone: 604.689.7842 Fax: 604 689 4250 BANKERS Canadran lmperial Bank of Commerce Vancouver, British Columbia, Canada Norwest Bank Denver, Colorado, USA AUDITOBS Price WaterhouseCoopers LLP Vancouver, British C0lumbia, Canada TBANSFER AGENT Montreal Trust Company of Canada Toronto, 0ntario, Canada SHARE CAPITAT Authorized. unlimited common shares lssued and 0utstanding: 65,525,066 shares STOCK EXCHANGE TISTING The Toronto Stock Exchange Trading Symbol: IUC The Annual General Meetinq will be held at the King Edward Hotel, 37 King Street East, Toronto, 0ntario, Canada, in the Belgravia Room, on Tuesday, March 23, 1999 at the h0ur of 4:30 p.m. (Toronto time). White Mesa Mill Tour May 6, 9:30 AM - Radiation Control Board 1999 l:00 PM Introduction - Earl Hoellen Mill Process Description - Harold Roberts Chemical Usage Discussion - Jo Ann Tischler Hydrogeologic Description - Michelle Rehmann Mill and Tailings Area Tour Lunch and Discussion Heaurx AND Sarew AT THE Wnlre Mesa Mlut- lnternational Uranium (USA) Corporation ("IUSA') is committed to the operation of its facilities in a manner that puts the safety of its employees, its community, and the environment above all else. We believe that every task should be performed with a shared concern for the safety of our fellow employees, contractors, visitors, customers and the communities where we operate. \Nhenever the issues of safety conflict with other corporate objectives, safety shall be our first consideration. IUSA makes every possible effort to ensure that its employees have the safest possible work environment. Radiation Safety and Radiation Monitoring As part of its ongoing program of protecting workers and the community from radiation exposures, IUSA performs the following types of monitoring throughout the Mill, as required by the Mill's NRC license. o Radon daughter product concentrations are measured in 30 or more locations throughout the Mill.o Uranium airbome particulate concentrations are measured in 23 locations throughout the Mill.o Breathing zone samples are collected on individuals who perform any maintenance activities requiring a Radiation Work Permit.. Weekly removable and fixed alpha surveys are conducted throughout the Miil.o Beta gamma surveys are conducted in the Mill building and Mill yard. Employee Health and Medical Monitoring All Mill employees undergo a baseline medical examination, as well as periodic medical examinations throughout their employment at the Mill. All Mill employees must attend a 40 hour occupational health and safety training course on chemical and radiation hazards, and annual 8 hour refresher classes as required by the Mine Safety and Health Administration ("MSHA") and the NRC. All Mill employees are required to wear film badges during their work hours at the Mill for monitoring of external exposures to radiation. The typical radiation dose received by the maximally exposed worker at the Mill is consistently below the allowable exposure for an occupationally exposed individual, as established by Federal law. In fact, the typical dose is less than 10 percent of the regulated allowable exposure level. ALARA Program 10 CFR Part 20, which regulates NRC licensed uranium mills, establishes standards for protection against radiation. This regulation also recommends that, not only should licensees comply with the radiation standards, but that licensees should make every reasonable effort to keep radiation exposures, as well as releases of radioactive material to unrestricted areas, as far below the limits specified in Part 20 as is reasonable achievable. NRC's "Operating Philosophy for Maintaining Occupational Radiation Exposures As Low As Reasonably Achievable (ALARA), describes the management policies and programs that licensees should follow to achieve this objective. IUSA voluntarily initiated a program in 1982 to conform to NRC's guidelines for maintaining radiation exposures As Low As Reasonably Achievable (ALARA). The White Mesa Mill's internal ALARA policy requires maintaining exposure levels at no greater than 25 percent of the level allowed by Federal law. IUSA has conducted annual self-audits at the Mill, with the goal of continuing to lower the likelihood and level of radiation exposure to employees and the public. As a result of the self-audits, the Mill has made voluntary changes to Mill facilities and programs including: o lncreased employee training. lncreased levels of personal protective equipment for specific worker tasks. Redesign of processes and work spaceso Revision of emergency response plans and programs. As a result of its ALARA program, the Mill has consistently maintained both the employee and publicexposure level at less than 10 percent of the level allowed by law. Worker Safety The White Mesa Mill is subject to the authority of the Mine Safety and Health Administration (MSHA), which oversees worker health and safety at all of IUSA's facilities. MSHA oversees compliance with both the worker health and safety requirements of the Occupational Safety and Health Administration (OSHA), as well as additional requirements that apply to below-ground hazards specific to mining operations. The \Mite Mesa Mill receives unannounced inspections by MSHA approximately twice pet year. MSHA inspectors: . inspect operating equipment, safety systems, and personnel protective equipment;o review safety procedures and how well employees are trained in imple- menting them;o interview operating personnel;o review emergency response systems and procedures. IUSA is very proactive in managing safety at the \Mite Mesa Mill. IUSA regularly requests that MSHA provide Courtesy Audit Visits (CAVs) when we design and install new equipment. Once a major piece of equipment is installed, an MSHA CAV inspector provides advice and recommendations to ensure that the equipment is constructed, operated, and maintained in a safe manner - before it is ever started up. Printed on recycled ere", fi After initial baseline sampling of every environmental medium that could be affected by the White Mesa Mill, the Mill has continued monitoring these media for nearly 20 years, since the Mill began operations in 1980. Air Air particulate monitoring for uranium, thorium-230, radium-226, and lead-210 is conducted continuously at four monitoring stations located around the perimeter of the Mill, and reported quarterly to NRC. The Mill has also collected thirteen years of background air quality data from an offsite monitoring station. A fifth monitoring station will be added in the area of the Ute Mountain Ute reservation, at the request of the tribe, with the goal to have this station operative around July of 1999. The Mill has never exceeded the applicable Effluent Release Concentration defined in 10 CFR Part 20 Appendix B, and in fact, the monitoring stations have consistently indicated air particulate results 10 to 100 times lower than the standard. Groundwater The Mill conducts a groundwater detection monitoring program to ensure compliance with 10 CFR Part 40 which regulates uranium mills and the disposition of tailings and wastes produced by the extraction of uranium . For 14 years, the Mill sampled up to 17 wells for up to 32 parameters. Based on these data showing no releases, a streamlined detection monitoring program is now conducted in accordance with the Mill's NRC license, which requires IUSA to perform quarterly sampling of six monitoring wells located adjacent to the tailings cells: WMMW.5 WMMW-11 WMMW-12 WMMW-14 WMMW-15 WMMW-17 These samples are analyzed for indicator anion, cation, heavy metal, and radionuclide parameters that would indicate whether contaminants from the Mill or its tailings system have entered the groundwater. These parameters are: Chloride Potassium Nickel U-nat The results of the sampling are included in the semi-annual environmental monitoring reports submitted to NRC. IUSA's license requires that if any of these parameters undergoes a statistically significant increase, indicating potential effects on the groundwater, the Mill must take a series of predetermined steps to protect groundwater, including increased monitoring, analysis, and reporting; and formulation of a remedial action plan. Since the startup of the Mill to date, no impacts to groundwater have been detected. Surface Water Surface water samples are collected from the two nearby streams - Westwater Creek and Cottonwood creek - when they contain running water. Surface water from Cottonwood Creek is analyzed semiannually for total and dissolved U-nat, Radium-226, and Thorium-230. Surface water (or sediment if there is no water) from Westwater Creek is analyzed annually for the same contaminants. Since the startup of the Mill, there have been no detections of radionuclides in surface water or sediment above the natural background for the area. Soil Soil samples are collected at each of five environmental monitoring stations annually in August. The soils are analyzed for U-nat and Radium-226. Since the startup of the Mill, there have been no statistically significant trends of increasing uranium or other radionuclide concentrations in area soils. Vegetation The Mill collects approximately five pounds of "new groMh" vegetation from areas northeast, northwest, and southwest of the Mill during early spring, late spring and late fall. Vegetation is analyzed for Radium-226 and Lead-210. Since the startup of the Mill, there have been no statistically significant trends of increasing uranium or other radionuclide concentrations in area vegetation. Radiometric Surveys and Scans Gamma radiation levels are determined at five monitoring stations located around the perimeter of the Mill, plus duplicate samples from the residence nearest the Mill. Gamma radiation results are reported quarterly to NRC. Since the startup of the Mill, these values have indicated that radiation dose levels at the Mill perimeter and nearest residence are lower than the natural background established for those locations. Prtnted on recycled paper & Heeurn eruo Serew Rr rne Wntre Mesa Mrl lnternational Uranium (USA) Corporation ("IUSA") is committed to the operation of its facilities in a manner that puts the safety of its employees, its community, and the environment above all else. We believe that every task should be performed with a shared concern for the safety of our fellow employees, contractors, visitors, customers and the cpmmunities where we operate. \l/henever the issues of safety conflict with other corporate objectives, safety shall be our first consideration. IUSA makes every possible effort to ensure that its employees have the safest possible work environment. Radiation Safety and Radiation Monitoring As part of its ongoing program of protecting workers and the community from radiation exposures, IUSA performs the following types of monitoring throughout the Mill, as required by the Mill's NRC license: o Radon daughter product concentrations are measured in 30 or more locations throughout the Mill.. Uranium airbome particulate concentrations are measured in 28 locations throughout the Mill.o Breathing zone samples are collected on individuals who perform any maintenance activities requiring a Radiation Work Permit.o Weekly removable and fixed alpha surveys are conducted throughout the Miil.o Beta gamma surveys are conducted in the Mill building and Mill yard. Employee Health and Medical Monitoring All Mill employees undergo a baseline medical examination, as well as periodic medical examinations throughout their employment at the Mill. All Mill employees must attend a 40 hour occupational health and safety training course on chemical and radiation hazards, and annual 8 hour refresher classes as required by the Mine Safety and Health Administration ("MSHA") and the NRC. All Mill employees are required to wear film badges during their work hours at the Mill for monitoring of external exposures to radiation. The typical radiation dose received by the maximally exposed worker at the Mill is consistently below the allowable exposure for an occupationally exposed individual, as established by Federal law. ln fact, the typical dose is less than 10 percent of the regulated allowable exposure level. ALARA Program 10 CFR Parl 20, which regulates NRC licensed uranium mills, establishes standards for protection against radiation. This regulation also recommends that, not only should licensees comply with the radiation standards, but that licensees should make every reasonable effort to keep radiation exposures, as well as releases of radioactive material to unrestricted areas, as far below the limits specified in Part 20 as is reasonable achievable. NRC's "Operating Philosophy for Maintaining Occupational Radiation Exposures As Low As Reasonably Achievable (ALARA), describes the management policies and programs that licensees should follow to achieve this objective. IUSA voluntarily initiated a program in 1982 to conform to NRC's guidelines for maintaining radiation exposures As Low As Reasonably Achievable (ALARA). The \Mite Mesa Mill's internal ALARA policy requires maintaining exposure levels at no greater than 25 percent of the level allowed by Federal law. IUSA has conducted annual self-audits at the Mill, with the goal of continuing to lower the likelihood and level of radiation exposure to employees and the public. As a result of the self-audits, the Mill has made voluntary changes to Mill facilities and programs including: o lncreased employee trainingo Increased levels of personal protective equipment for specific worker tasks. Redesign of processes and work spaces. Revision of emergency response plans and programs. As a result of its ALARA program, the Mill has consistently maintained both the employee and public exposure level at less than 10 percent of the level allowed by law. Worker Safety The \Mrite Mesa Mill is subject to the authority of the Mine Safety and Health Administration (MSHA), which oversees worker health and safety at all of IUSA's facilities. MSHA oversees compliance with both the worker health and safety requirements of the Occupational Safety and Health Administration (OSHA), as well as additional requirements that apply to below-ground hazards specific to mining operations. The \Mite Mesa Mill receives unannounced inspections by MSHA approximately twice per year. MSHA inspectors: . inspect operating equipment, safety systems, and personnel protective equipment;o review safety procedures and how well employees are trained in imple- menting them;o interview operating personnel;. review emergency response systems and procedures. IUSA is very proactive in managing safety at the \Mite Mesa Mill. IUSA regularly requests that MSHA provide Courtesy Audit Visits (CAVs) when we design and install new equipment. Once a major piece of equipment is installed, an MSHA CAV inspector provides advice and recommendations to ensure that the equipment is constructed, operated, and maintained in a safe manner - before it is ever started up. Prtnted on recycled paper & Tne Wnrre Mesn Mul Tnrur.tos Sysreur lntroduction The White Mesa Mill has constructed four below-grade tailings disposal cells for containment and storage of tailings generated during the uranium milling process, as follows: 1. Cell 1 is constructed with a 30-mil PVC liner covered with earthen material. This cell was completed in 1981 and is used for the evaporation and storage of process solution. 2. Cell 2 is constructed with a 30-mil PVC liner covered with earthen material. This cell was completed in 1980 and is used forthe storage of barren tailings sands. This cell has received an interim cover and presently receives no liquid effluent from the mill. 3. Cell 3 is constructed with a 30-mil PVC liner covered with earthen material. This cell was completed in 1982 and is used forthe storage of barren tailings sands and associated solution.4. Cell 4 is constructed with a 40-mil HDPE liner. This cell was constructed in 1990, is unused, and presently receives no tailings from the mill. Original Design Standards The White Mesa Mill's original license required that the tailings system be constructed in accordance with the design criteria in 40 CFR 192. These criteria required that the system be designed to protect groundwater from: . Radionuclides. The full suite of RCRA characteristic wastes. The full suite of RCRA listed wastes That is, because organic and inorganic chemicals are added in the Mill process, the tailings system liners had to be designed to be as protective as both a hazardous waste disposal system and a radioactive waste containment system. The tailings cells were designed and constructed in accordance with standards and requirements of the United States Nuclear Regulatory Commission (NRC), which approved both the design and the construction of the cells. Construction requirements were incorporated into detailed plans and specifications that were reviewed and approved by the NRC. These specifications called for Registered Professional Engineers and NRC inspectors to oversee and approve the construction. These inspections were documented by as-built records submitted to the NRC, as required by law. These records document that the tailings cells were constructed to a very high standard. ln accordance with license requirements, performance of the cells has been monitored since their construction by annual reports certified by Registered Professional Engineers and on file with the NRC. Composition of the Tailings The Mill's tailings cells contain chemical and radionuclide constituents from three sources: . Components of the ores fed to the Mill. Residuals of chemicals that were added to the ore during processing in the Mill circuito Materials which NRC requires that IUSA collect and dispose of in the tailings system such as,- soils contaminated by windblown dust from the Mill ore pad- floor drain water from the Mill buildings- runoff water from the Mill yard- radioactive debris which NRC requires must be disposed of on site. The primary components (99.9'/o by weight or greater) in the tailings, prior to the introduction of alternate feeds, have been: Mineral sands (residual minerals from ores) Acids Bases Organic hydrocarbons from kerosene lsodecanol Debris Compounds lntroduced with Alternate feeds The liner system was designed for compatibility with the full suite of Criteria 13 organic, metallic, and radionuclide compounds. . EveU contaminant present in conventional ores was anticipated in the design standards for the liner.. EveU chemical introduced in the mill processing circuit was anticipated in the design standards for the liner.. EveU compound introduced in alternate feeds was anticipated in the design standards for the liner. The primary components (99.9% by weight or greater) in the tailings, since the introduction of alternate feeds, have been: . Mineral sands and soil (residual minerals from ores). Acidso Bases. Organic hydrocarbons from Keroseneo lsodecanol. Debris Compatibility of the Liner with Original and Additional Compounds The material selected for the design and construction of the synthetic liner in Cell 1,2, and 3, was 30 mil. polyvinyl-chloride (PVC). is commonly used to meet RCRA hazardous waste liner design standards 1. hazardous waste landfills, and 2. solid waste landfills which contain a combination of domestic and commercial sanitary wastes, municipal trash, and hazardous chemicals. EPA has expended significant effort in recent years to assess what impact, if any, industrial wastes may have on the performance and longevity on various types of liners. These studies have found that PVC liners are compatible with dilute concentrations of organic materials including industrial solvents. Research conducted by the EPA has concluded that PVC liner overall performance is unaffected by exposure to a wide range of solutions (EPA, Lining of Waste lmpoundment and Disposa/ Facilities, 1984, page 184). EPA studies found that PVC liners are fully compatible with most industrial waste solutions including all those potentially applicable to the White Mesa Mill operations. PVC at: Printed on recycled paper Classes of Chemical Contaminants Radionuclides Uranium, thorium, radium, others Heavy Metals Arsenic, cadmium, chromium, lead, mercury, nickel, titanium, vanadium BTEX Compounds Benzene, toluene, xylenes, ethylbenzene PAH Compounds Acenaphthene, acenaphtylene, anth racenes,furans, chrysene, fluoranthenes, fluorene, naphthalenes, perylenes, phenanthrenes, pyrenes, phthalates Oxygenated VOCs Acetone, 2 butanone, isodecanol Cells Were Designed for: x x Tailings from Conventional Ore Contains: x Alternate Feeds May Contain: x xx x x x x x x x x x Halogenated VOCs Carbon tetrachloride, chloroform, PCE, TCE, TCA, hexachlorobutad iene, trichlorofl uoromethane Substituted Aromatics 4 methyl phenol, bromofluorobenzene, phenol Normal Paraffins Pentane, hexane, heptane lsoparaffins lsohexane, iso-octane, decalin Alkenes and Alkynes Butylene, propylene, etc. Pesticides and PCBs Endrin, lindane, methoxychlor, toxaphene Anions Sulfate, chloride Metalloids Sodium, potassium, barium Acids Bases Salts Amines Organo-metallic compou nds x x x x x x x x xx x x x x x x x x x x x x x x x x x Gnounownren Pnorecnoru ar Wntre Mese Mtut- Overuiew of Hydrogeology and Groundwater Occurrence Groundwater occurrence within the proximity of the White Mesa Mill has been documented in three geologic strata: the Dakota sandstone, the Burro Canyon Formation, and the Entrada/Navajo sandstones. o Beneath the Mill, the Burro Canyon Formation hosts perched groundwater over the Brushy Basin Member of the Morrison Formation. The Brushy Basin Member is the uppermost rock unit in a series of nearly impermeable rocks totaling about 1,200 feet in thickness, that separate this perched water from the regional aquifer, the Entrada/Navajo sandstones. o The Entrada/Navajo sandstones form one of the most permeable aquifers in the region. This Aquifer is separated, beneath the Mill, from the Burro Canyon Formation by the combined shales, and sandstones interbedded with significant shales, constituting the Morrison and Summerville Formations. The total thickness of this aquitard unit is approximately 1,200 feet. The uppermost unit in these formations is the Brushy Basin member, a silty shale in excess of 200 feet thick at the site. . Water in the Entrada/Navajo is under artesian pressure and is used at the Mill primarily for showering and toilet facilities. A geologic cross section illustrating the stratigraphic positions of the Entrada/Navajo Aquifer, the perched water zone in the Burro Canyon formation, and the impermeable rock separating the aquifer from the monitored perched zone is shown in Figure 1. Properties of the Saturated Zones and Confining Units The Dakota Sandstone and Burro Canvon Formation The groundwater occurrence within Dakota Sandstone and Burro Canyon Formation in the proximity of the Mill is in the form of a single perched groundwater zone, at depths of approximately 1 10 to 150 feet below the site. . The permeability of these units is relatively low, and cores drilled in these sandstones contained very few minor, hairline cracks which do not have any effect on the permeability of these sandstones. . The saturated thickness of the perched groundwater zone is at most 55 feet north of the Mill, approximately 20 feet thick beneath the site, and thins to less than five feet to the south, where in some locations it is observed to seep into adjacent canyons, as evidenced by seeps and productive vegetation patterns. o Downgradient of the Mill, the groundwater in the perched zone cannot be used for irrigation or domestic consumption because of the natural poor quality of water and low yield rates of the perched zone. Documented pumping rates from on-site wells completed in the perched zone are less than 0.5 gallons per minute (gpm). Even at these low rates, the wells are typically pumped dry within a couple of hours. o At the Mill site, the tailings cells are sited within the unsaturated upper part of the Dakota sandstone. lf cell leakage were to occur from the tailings cells, tailings-related constituents would have to migrate through approximately 1 10 feet of unsaturated material before reaching the perched groundwater zone. o This perched zone, while yielding insufficient water to be considered a usable resource, is the zone used by the Mill for groundwater monitoring purposes. This zone of groundwater is perched above the Brushy Basin Member of the Morrison Formation, the first unit in a 1,200-foot sequence of low-permeability rocks that behave as an "aquitard," preventing downward infiltration of the perched water. The Aquitard . The Entrada/Navajo Aquifer is separated from the Burro Canyon Formation, which hosts the perched zone used for monitoring, by an aquitard composed of approximately 1,200 feet of unsaturated shales, clays, siltstone, and sandstones interbedded with significant shales. The Brushy Basin member, the topmost rock unit, which is 200-450 feet thick, is the first section of the aquitard, and is composed of variegated bentonitic mudstone and claystone that prevents the downward percolation of groundwater. . The permeability of the Brushy Basin Member is lower than the overlying Burro Canyon Formation, and prevents downward percolation of groundwater. . Observed plasticity of the claystones forming the Brushy Basin Member indicates low potential for fractures. Beneath the Brushy Basin member, the remaining units of the Morrison and Summerville Formations, which also overlie the Entrada/Navajo Aquifer, are unsaturated, low-permeability layers, which contain numerous clay zones, including one 300-foot thick section consisting of 80 percent clay. Entrada/Navaio Sandstone Aquifer \Mthin and in proximity to the site, the Entrada/Navajo sandstones are both prolific aquifers. Since the Mill site water well is screened in both aquifers, they are, from a hydrogeologic standpoint, treated as a single aquifer. In the vicinity of the Mill, this Aquifer is present at depths between approximately 1,300 and 1,800 feet below the surface and is capable of delivering from 150 to 225 gpm. The Entrada/Navajo Aquifer is an artesian aquifer and is used regionally for irrigation and domestic consumption. The Aquifer is naturally protected from contamination from activities at the Mill or tailings system because: . At the Mill site, the Entrada/Navajo Aquifer is separated from the perched groundwater zone by more than 1,200 feet of unsaturated, low- permeability formations. The combination of low permeability, thick unsaturated rock over the Aquifer, and the artesian pressure within the Aquifer provides a positive natural physical and hydraulic barrier that protects the Entrada/Navajo Aquifer from being impacted by potential tailing cell leakage. o The confining aquitard is competent enough to maintain pressure of 900 feet of water, or 390 pounds per square inch (PSl) within the Entrada/Navajo Aquifer. Water is present under artesian pressure and is documented to rise in wells about 800 to 900 feet above the top of the Entrada/Navajo sandstone contact with the overlying aquitard. The static water level in wells drilled into the Entrada/Navajo Aquifer, as shown in Figure 1, is 400 to 500 feet below land surface. o Recharge to the Entrada/Navajo Aquifer occurs many miles from the Mill by infiltration of precipitation along the flanks of the Abajo, Henry and LaSal Mountains and the flanks of folds, such as the Comb Ridge Monocline and the San Rafael Swell, where the permeable formations are exposed at the surface. Recharge does not occur from infiltration of precipitation falling on the surface of White Mesa. Groundwater Monitoring Beneath the White Mesa Mill Current groundwater monitoring beneath the site includes the following: . Six wells which are completed in the perched zone . Sampling from the Culinary Well at the site, completed in the Entrada/Navajo Aquifer. Historic monitoring at the site has included: . Groundwater background quality studies before the Mill startup . Sampling of up to 13 wells in the perched zone, and . One or more culinary wells in the Entrada/Navajo Aquifer. Groundwater Monitoring Results The Mill has collected over 20 years of groundwater monitoring data, which show that no tailings constituents have been released to groundwater. o Pre-operational groundwater sampling of surface water, groundwater seeps, perched zone wells, and deep wells, began in 1977 and continued until the Mill started up in June 1980. These analyses were confirmed by the Utah State Division of Environmental Health Laboratory. o A 1981 background study reviewed water quality data before and after startup to confirm that the Mill introduced no new impacts to groundwater. o The Mill has collected and reported quarterly water quality data to the NRC continuously lor 20 years since startup. Twenty years of data have never shown a statistically significant increase in any of the constituents from the perched zone or the deep aquifer. . The Mill switched to Point of Compliance Monitoring in 199+, after reviewing 14 years of quarterly data on up to 20 chemical and radiological constituents in up to 13 wells which indicated that: - The Mill and tailings system have produced no impacts to perched zone or deep aquifer - the most dependable indicators of water quality and potential cell failure would be chloride, nickel, potassium and natural uranium. ls There a Potential for Leakage or Release to Groundwater? Twenty years of operation and monitoring of the perched water zone (located some 1,2AO feet above the Entrada/Navajo Aquifer) have given no indications that the tailings cells in use at the Mill have ever released tailings liquid to the perched zone. The likelihood of impact to the Entrada/Navajo Aquifer, some 1,300 feet belowthe site, which is separated from the tailings impoundments by up to 1,200 feet of very low permeability shales, claystones, and mudstones, is extremely remote. Quality of Local Drinking Water The \Mrite Mesa Ute Community is the nearest community to the Mill that uses the Entrada/Navajo Sandstone aquifer as a potable water supply. The Ute Mountain Ute Environmental Programs Department has responsibility for monitoring the V/hite Mesa Ute drinking water supply for compliance with the Federal Safe Drinking Water Act. The Ute Environmental Department collects quarterly samples for gross alpha and beta analysis to determine whether uranium or other radionuclides associated with the Mill have impacted the \Mrite Mesa water supply. Cindy Crist, Director of the Ute Environmental Department, advised the Utah Department of Environmental Quality (UDEO) in March, 1999 that as a result of quarterly sampling in 1998, " the gross alpha concentrations of the samples were well below EPA's maximum concentration level of 15 pCi/g for drinking water and do not appear to be changing significantly over time." That is, the Mill is not affecting the quality of area drinking water supplies. Ongoing Studies Although IUSA has 20 years of data to show no impacts to groundwater, IUSA voluntarily agreed to a recent request by UDEQ to allow the State to perform split sampling of groundwater al 17 wells on or around the \ /hite Mesa Mill property. The proposed program involves sampling: . Six monitoring wells in the perched zone at the Mill, that IUSA cunently monitors quarterly for water quality reporting to the NRC o Eight additional monitoring wells in the perched zone at the Mill, that IUSA does not currently sample . Two supply wells in the deep Entrada/Navajo Aquifer at the Mill, and o Two supply wells in the deep Entrada/Navajo Aquifer on the V/hite Mesa Ute Reservation. IUSA and UDEQ are developing an agreement to analyze the well samples for volatile organic compounds, semi-volatile organic compounds pesticides, herbicides, radionuclides, ions, heavy metals, and other parameters. 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