Uranium Information Circulars

Summary

This summary has been prepared by the Saskatchewan Ministry of Energy and Resources to assist users in their understanding of the regulations that govern the calculation of uranium royalties. For an exact statement of regulation regarding uranium royalties, reference should be made to The Crown Mineral Royalty Schedule of The Mineral Dispostion Regulations, 1986. In the case of conflict between this summary and the provisions of the Regulations, the Regulations will apply.

Uraniium Royalty System Overview

Each owner or joint venture participant in a uranium mine is a royalty payer. Individual interests of a royalty payer are consolidated on a corporate basis for the calculation of royalties applied to the royalty payer's sales of uranium. The royalty system has three components:

Basic royalty - 5% of gross sales
Tiered royalty - tiers increase from 6% to 15% as sales price increases
Saskatchewan Resource Credit - a credit of 1% gross sales

Calculation of Royalty Payment

Royalty Payment = Basic Royalty + Tiered Royalty - Saskatchewan Resource Credit

Basic Royalty

The basic royalty is 5% of gross sales value. It is not allowed as a credit against tiered royalties.

Tiered Royalty

Tiered royalties may not be payable for a number of years following construction, to allow the company to recover the capital investment in a mine and mill development.

Revenues subject to tiered royalties are reduced by withdrawals from a royalty paper's capital recovery bank. The bank is based on the level of mineral development investment made by a royalty payer. Following recovery of the capital investment, the revenues of the royalty payer are subject to tiered royalties that increase as the price per kilogram increases.

*1999 bracket value to be indexed annually

The basic royalty is not a credit against tiered royalties. Therefore, the net royalty rate for each of the brackets is 4% (basic royalty minus the SRC) plus the bracket rate.

Saskatchewan Resource Credit (SRC)

The SRC is a credit of 1% of gross sales value in the calculation of the royalty payment. The SRC was established to partially offset the Corporation Capital Tax Surcharge and is retained from the current system.

Capital Recovery

The capital recover bank of a royalty payer is not based on actual expenditures, but on standard allowances for certain types of mine development activities. The allowance is based onÈ

For open pit mine development - $45 per kilogram of annual capacity*
For underground mine development - $60 per kilogram of annual capacity*
For mill construction - $80 per kilogram of annual capacity*
For mill expansion (minimum of 25% expansion) - $50 per kilogram of expanded capacity*

*1999 allowance value to be indexed annually

The allowances for mine development are designed to incorporate the concept of a single development project that may involve multiple open pits or mine shafts. Therefore, the royalty system contains provisions to specify which mine operations qualify for which allowance. The annual capacity is that volume set out in the Canadian Nuclear Safety Commission license for the development.

The royalty system also recognizes the impact of inflation. The trigger prices for tiered royalties, the allowance factors and the remaining balance in the royalty payer’s capital recovery bank are adjusted for inflation in each year.

Older mine operations are considered to have recovered their capital investment through the current royalty system and are excluded from establishing mine and mill allowances.

Small Producer Credit

The small producer credit was developed to offset some of the minor royalty redistributions that occur in the transition from the previous system to the new system. To be eligible for the credit, the royalty payer must have annual production of uranium less than 2,000,000 kilograms, deal at arm’s length with other royalty payers receiving the credit and have applied for it before March 31, 2002.

The small producer credit is a credit of $750,000 claimed directly against tiered royalties payable rather than against revenues. It is indexed for inflation to the point at which it is claimed. The small producer credit is applied after the capital recovery bank of the royalty payer has been fully claimed. For more detailed information on the uranium royalty system see Information Circulars.