URANIUM PROPERTIES

9 Months Ended

Sep. 30, 2011

URANIUM PROPERTIES

URANIUM PROPERTIES

3. URANIUM PROPERTIES

Kingsville Dome Project

There was no uranium produced from Kingsville Dome in 2011 or 2010.  The primary activities undertaken at this project in the first nine months of 2011 and 2010 were for restoration, with $730,000 and $693,000 of costs being incurred in the first nine months respectively for restoration work at this project.  Total capital expenditures for Kingsville Dome for the first nine months of 2011 and 2010 were $110,000 and $143,000, respectively, and were related to land and mineral lease payments.

Rosita

There was no uranium produced from Rosita in 2011 and 2010.  Groundwater restoration for the wellfields that have been depleted has been completed and the restoration results for these wellfields have been reviewed and approved by the Texas regulatory agencies.  We expect to achieve final closure on these areas by the third quarter of 2012.  Total capital expenditures for Rosita for the first nine months of 2011 and 2010 was $119,000 and $64,000, respectively, and was related to land and mineral lease payments.

Vasquez Project

Production at the Vasquez project was shut-in during October 2008. The economically recoverable reserves from this project have been mined out.  The primary activities undertaken at this project in the first nine months of 2011 and 2010 were for groundwater restoration, with $441,000 and $379,000 in costs being incurred in the first nine months respectively.  Capital expenditures for Vasquez for the first nine months of 2011 and 2010 were $15,100 and $7,500, respectively primarily for land and mineral lease payments.

Los Finados Project

The exploration rights to the Los Finados project were acquired in December 2010. Evaluation of the uranium mineralization of this property began in the second quarter of 2011 and may continue for up to three years. The lease option agreement included a $1 million fee paid at signing. The lease option includes a three phase exploration program which requires a minimum exploration obligation of one hundred exploration wells or $1.0 million investment in the first year, an additional two hundred exploration wells or $1.5 million investment in the second year and, in the third year, an additional two hundred exploration wells or $2.0 million investment. The timing for the Company’s decision to continue exploration under phase two and phase three of the program is November 30, 2011 and 2012, respectively.  Investment or drilling in excess of the minimum requirement in any year counts toward the following year’s requirements.

In May 2011, the Company entered into an exploration agreement with Cameco Texas, Inc. (“CTI”), a subsidiary of Cameco (NYSE: CCJ) on the Los Finados project.  The agreement with CTI also includes a three phase exploration program.  CTI has agreed to complete phase one of the program and within 60 days after the end of each phase can elect to continue to the next phase of the exploration program.  Under this agreement CTI will fund the majority of the exploration costs and can earn up to a 70% interest in the project in consideration for their investment. Upon execution of the exploration agreement, CTI paid the Company $300,000.  At September 30, 2011, the Company has incurred and billed approximately $700,000 in costs to CTI under the exploration agreement.  The costs expended through October 31, 2011 for the minimum exploration commitment of $1 million for the first phase of the exploration program were approximately $900,000 and the remaining expenditures are expected to be met in November 2011.

At the conclusion of the exploration program, the parties may enter into an operating joint venture to develop and produce any discovered uranium resources and reserves.  The uranium would be processed at URI’s Kingsville Dome or Rosita processing facility, with CTI’s share of production being processed under a toll processing agreement with URI.

Capital expenditures for the first nine months of 2011 totaled approximately $88,000 and were related to land acquisition and depreciable equipment.  Such expenditures were offset by the $300,000 payment received by CTI in connection with the execution of the exploration agreement.  The net carrying value of the property at September 30, 2011 was approximately $955,000.

Impairment of Uranium Properties

At September 30, 2011, we determined the carrying value of our project assets at each of our South Texas production locations exceeded their fair value.  A decline in the market price of uranium and an increase in the estimated costs for each of our South Texas projects resulted in a decrease in the estimated future cash flow to be generated from each site.  Such determination resulted in an impairment provision of approximately $1,082,000 and $742,000 for the first nine months of 2011 and 2010, respectively.

The impairment provision for the first nine months of 2011 and 2010, respectively were $750,000 and $481,000 related to Kingsville Dome, $114,000 and $45,000 for Rosita and $218,000 and $216,000 related to Vasquez.  The net carrying values of the Kingsville Dome, Rosita and Vasquez projects were approximately $5.1 million, $4.9 million and $464,000 at September 30, 2011.