Mine and Mill location

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What we own

In February 2017, the Group entered into an agreement to receive the portion of the toll milling proceeds from the McClean Lake Mill attributable to Toronto Stock Exchange listed Denison Mines Inc. (“Denison”) together with an associated conditional streaming agreement. The McClean Lake Mill, operated by a subsidiary of AREVA SA, receives all of the output from the Cigar Lake uranium (“U3O8”) mine, operated by Cameco Corporation. Denison is entitled to 22.5% of the proceeds from the mill, which earns toll revenue on each pound of U3O8 produced from processing Cigar Lake ore.The Denison Financing is structured as a C$40.8 million 13-year loan maturing in 2030 with an interest rate of 10% per annum payable to Anglo Pacific (the “Denison Loan”) and a right to receive Denison’s portion of the toll milling proceeds from the McClean Lake Mill after the first 215 Mlbs of throughput for an upfront payment of C$2.7 million (the “Denison Stream”. The Denison Loan is structured so as to entitle Anglo Pacific to mandatory prepayments of the loan principal when toll revenues exceed scheduled interest payments, payable quarterly in cash.THE MCCLEAN LAKE MILLThe McClean Lake Mill is located in the Athabasca Basin in northern Saskatchewan, Canada. The McClean Lake Mill began producing uranium concentrate from ore mined at the Cigar Lake mine in October 2014. The McClean Lake Mill is a joint-venture between a subsidiary of AREVA SA (70%), a subsidiary of Denison Mines Corp. (22.5%) and a subsidiary of OURD Ltd. (7.5%), and is operated by a subsidiary of AREVA SA. The McClean Lake Mill has been designed and constructed to process high grade uranium ores in a safe and environmentally responsible manner. To accommodate the future 18.0 Mlbs U3O8 per year production, the McClean Lake Mill has obtained authorisation from the Canadian Nuclear Safety Commission (“CNSC”) to increase its annual production capacity of U3O8 from 13 Mlbs to 24 Mlbs per year which will lead to a progressive ramp-up of the mill in line with the Cigar Lake mine’s ramp-up to 18 Mlbs per year. Cnstruction of the expansion would be fully funded by the Cigar Lake Joint Venture.

THE CIGAR LAKE MINE

The Cigar Lake mine is a world-class mine located in the Athabasca Basin, a leading uranium district in Saskatchewan, Canada. The minesite is located near Waterbury Lake, approximately 660 km north of Saskatoon. The McClean Lake Mill is located 69km northeast of the minesite by road. The Cigar Lake mine is accessible by an all-weather road and by air. Site activities occur year round, including supply deliveries. The mine is operated on behalf of the Cigar Lake Joint Venture by Cameco. The Cigar Lake Joint Venture parties are Cameco (50.025% per cent.), a subsidiary of AREVA SA (37.1 per cent.), a subsidiary of Idemitsu Kosan Co Ltd. (7.875%) and a subsidiary of Tokyo Electric Power Company Holdings Inc. (5%).

Performance

The Cigar Lake mine produced 18Mlbs of uranium during 2017, meeting Cameco’s production guidance and our expectations. The cash flow received by Denison under the toll arrangement should produce a regular and predictable flow of cash, owing to the world class deposit and blue-chip operator supplying the mill.

The cash received of £5 million during 2017 included an amount of £1.8 million relating to H2 2016. As such, the remaining £3.2 million generated represents the level of run rate we would expect to see on an annual basis.

The income from the toll revenue is not sensitive to movements in the uranium price, which continues to be depressed. As such, the Group’s cash flows will not alter with uranium price fluctuations.

Valuation

The Loan will be accounted for as a receivable on the Balance Sheet and carried at amortised cost, with the interest portion recognized in the Income Statement and the remaining amount received offsetting the outstanding principal. The Stream will be treated as an IAS 39 debt financial asset and will be carried at fair value at each reporting date.