Securities Law & Instruments

Headnote

NP 11-203 -- National Instrument 41-101 General Prospectus Requirements and Form 41-101F2 Information Required in an Investment Fund Prospectus -- Exemption from requirements to include in the prospectus (i) annual financial statements prepared in accordance with Canadian generally accepted accounting principles; (ii) annual financial statements audited using Canadian generally accepted auditing standards; and (iii) an auditor's report signed by a Canadian auditor -- Also exemption from the requirement to use one custodian, and to use custodians that meet criteria in s. 14.2 of NI 41-101 -- The issuer is an existing investment fund in the Channel Islands that already produces financial statements in accordance with International Financial Reporting Standards and its auditors in the Channel Islands audit the financial statements using International Standards on Auditing -- The investment fund's portfolio is comprised of physical uranium assets held by entities licensed by nuclear regulatory authorities.

Applicable Legislative Provisions

National Instrument 41-101 General Prospectus Requirements, ss. 4.2(2), 14.1(2), 14.2.

Form 41-101F2 Information Required in an Investment Fund Prospectus, item 38.

National Instrument 81-106 Investment Fund Continuous Disclosure, ss. 2.6, 2.7, 2.8.

August 27, 2008

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO

(the "JURISDICTION")

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

NUFCOR URANIUM LIMITED

(the "FILER")

 

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the "Legislation") granting the following:

Accounting and Auditing Relief

    • relief from the requirement under Part 4 of National Instrument 41-101 General Prospectus Requirements ("NI 41-101") and Item 38 of Form 41-101F2 Information Required in an Investment Fund Prospectus ("41-101F2") to allow the Filer to include financial statements prepared using International Financial Reporting Standards ("IFRS"), rather than Canadian generally accepted accounting principles ("GAAP"), in the final prospectus to be filed in August 2008 in each of the provinces of Canada (the "Prospectus");

    • relief to use International Standards on Auditing ("ISA") rather than Canadian generally accepted auditing standards ("GAAS"), as required by section 4.2(2) of NI 41-101, in auditing the Filer's annual financial statements included in the Prospectus;

    • relief to allow PricewaterhouseCoopers CI LLP, Chartered Accountants, Guernsey Channel Islands ("PwC CI") to prepare and sign the audit report to be included in the Prospectus rather than a person or company that is authorized to sign an auditor's report by the laws of a jurisdiction of Canada and that meets the professional standards of that jurisdiction, as required under Part 4 of NI 41-101 and Item 38 of 41-101F2;

Custodian Relief

    • relief from the requirement in subsection 14.1(2) of NI 41-101 to hold all portfolio assets under the custodianship of one custodian that satisfies the requirements of section 14.2; and

    • relief to appoint various companies that are licensed to hold uranium as custodians for the Filer's assets in U308 and UF6 (collectively, "Uranium Assets" or "Uranium") and that do not meet the requirements for who may act as a custodian or sub-custodian under section 14.2 of NI 41-101.

(The Accounting and Auditing Relief and the Custodian Relief are collectively referred to as the "Exemption Sought").

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission (the "Commission") is the principal regulator for this application (the "Principal Regulator"), and

(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System ("MI 11-102") is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Newfoundland and Labrador and Prince Edward Island.

Interpretation

Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined in this decision.

Representations

This decision is based on the following facts represented by the Filer:

1. The Filer is incorporated under the Companies (Guernsey) Laws 1994 to 2001 and registered on June 28, 2006. The Filer's registered office is located in Guernsey, Channel Islands.

2. The Filer is a non-redeemable investment fund created to invest substantially all of its assets in Uranium Assets. The investment objective of the Filer is to provide long-term capital appreciation by buying and holding Uranium Assets. The strategy of the Filer is to acquire long-term holdings of Uranium and not to actively trade or speculate with regard to short-term changes in the price of Uranium. The Filer uses the funds that it raises from the public to purchase physical quantities of Uranium. The Filer also lends some of its Uranium Assets to third parties and uses the proceeds of such loans to meet a portion of its operating expenses. The Filer does not invest in securities of other issuers, investment funds or mutual funds, or otherwise invest in securities or commodity futures contracts.

3. The ordinary shares of the Filer are admitted for trading on AIM of the London Stock Exchange plc under the trading symbol NU.

4. The Filer has filed a preliminary prospectus dated June 27, 2008 in each of the provinces of Canada and will apply to list its securities on the TSX.

5. Each of the foreign incorporated entities within the Filer's operational complex are registered or regulated under the laws of the United Kingdom and/or Guernsey and are subject to a regulatory regime that is similar to that which exists in Canada. As noted above, the Filer was incorporated under Guernsey Law. From a corporate law perspective, the level of skill and care required of a director under Guernsey Law is similar to that required of directors of companies incorporated under the Canada Business Corporation Act.

6. Nufcor International Limited (the "Storage Consultant") was incorporated in England and Wales under the United Kingdom Companies Act 1985. The Storage Consultant is wholly owned by Constellation Energy Commodities Group Limited ("CECG").

7. Nufcor Capital Limited (the "Adviser") was incorporated in England and Wales under the United Kingdom Companies Act 1985. The Adviser is registered with the Financial Services Authority (the "FSA") as an "authorised person" and all three individuals employed by CECG who provide services to the Adviser (Nicholas Hill, Rian Raghavjee, and Gary Stoker), have been registered with the FSA as "approved persons". These individuals are required to comply with the statutory standards of care imposed by the FSA in carrying out regulated activities on behalf of the Filer. These extend not only to the services provided by the Adviser to the Filer, but also to the systems and controls which the Adviser must have in place in relation to its approved persons, including training and competence of personnel within the Adviser.

8. Once the Filer becomes a reporting issuer in Canada, the Filer will comply with all requirements applicable to reporting issuers under Canadian securities laws and regulations, subject to any exemptions the Filer may receive from such requirements. Canadian investors in the Filer will have statutory rights of action under applicable securities legislation, including, pursuant to the proposed initial public offering, prospectus liability and going forward, secondary market liability. Canadian investors may bring actions against the Filer and its directors in Canadian courts and if successful, those Canadian judgements would be enforceable in jurisdictions where the Filer currently has assets, namely, Canada, the United States, the United Kingdom, France and, subject to certain conditions, Guernsey.

9. The Filer, the Advisers and each of their directors or officers irrevocably and unconditionally submit to the non-exclusive jurisdiction of the judicial, quasi-judicial, and administrative tribunals of each of the provinces and territories of Canada and any administrative proceedings in any such province or territory, in any proceedings arising out of or related to or concerning the conditions and representations of this Decision or its activities as a reporting issuer.

Accounting and Auditing

10. The Filer prepares its financial statements in accordance with IFRS and has its financial statements audited in accordance with ISA.

11. The essential books and records of the Filer required for an audit are primarily located in Guernsey.

12. Under National Instrument 52-107 Acceptable Accounting Principles, Auditing Standards and Reporting Currency ("NI 52-107"), a "foreign issuer" is permitted to prepare its financial statements in accordance with IFRS and to have its financial statements audited in accordance with ISA, provided that an auditor's report describes any material differences in the form and content of such auditor's report as compared to an auditor's report prepared in accordance with Canadian GAAS, and indicates that an auditor's report prepared in accordance with Canadian GAAS would not contain a reservation.

13. The Filer would qualify as a "foreign issuer" under NI 52-107 but for the fact that it is an investment fund.

14. The Uranium Assets are valued in the financial statements at historic cost. IFRS does not provide any specific provision or guidance for valuing investments such as the class represented by the Uranium Assets. At the time of the Filer's admission to AIM in 2006, the Filer was advised by PricewaterhouseCoopers UK LLP ("PwC UK") that using a historical cost basis was the default accounting position for purposes of compliance with IFRS, and PwC UK further advised the Filer to adopt such policy. PwC CI, the Filer's ongoing auditors, concurred with the advice of PwC UK to use historical cost basis in valuing its Uranium Assets.

15. The Filer believed that in the absence of specific guidance there was a risk that, if the Filer adopted a fair value approach in valuing its Uranium Assets, it may not have been in compliance with IFRS.

16. As IFRS has evolved, the view of the permissibility of fair value has also changed. PwC CI, in consultation with PwC UK, now advises that, in the absence of specific guidance, it is possible to use fair value in the valuation of Uranium Assets and be in compliance with IFRS.

17. The Prospectus will disclose that it is the intention of the Board of Directors to resolve at the next quarterly meeting of the Board of Directors, to be held in November 2008, that the Filer shall use the fair value basis for valuation of its assets, including Uranium Assets, in the Filer's financial statements as of December 31, 2008. The Board of Directors believes that adopting the fair value method with respect to the valuation of its Uranium Assets in the Filer's financial statements will provide investors with more relevant information as to the value of the Filer's assets.

18. The Filer currently calculates a net asset value using fair value which will be referred to in the Prospectus as "Adjusted NAV". The audited annual financial statements included in the Prospectus have a reconciliation in the notes to the financial statements between: (i) net asset value calculated at historic cost and Adjusted NAV calculated at fair value; and (ii) net asset value per share calculated at historic cost and Adjusted NAV per share calculated at fair value.

Auditor

19. Section 3.3 of NI 52-107 permits an auditor's report filed by an issuer to be prepared and signed by a person or company that is authorized to sign an auditor's report by the laws of a jurisdiction of Canada or a foreign jurisdiction, and that meets the professional standards of that jurisdiction.

20. NI 52-107 would apply to the Filer but for the fact that it is an investment fund.

21. PwC CI audits the financial statements of the Filer in accordance with relevant legal and regulatory requirements of Guernsey and ISA. PwC CI is authorized to prepare and sign the Filer's audit report under the laws of Guernsey, and PwC CI meets the professional standards of Guernsey and the United Kingdom.

22. PwC CI has agreed to register with the Canadian Public Accountability Board as soon as practicable after the Filer becomes a reporting issuer and, in any event, prior to the date when the Filer will be required to file the financial statements for its most recently completed financial year. PwC CI will comply with National Instrument 52-108 Auditor Oversight.

Custody

23. The portfolio assets of the Filer are comprised of Uranium Assets and cash and cash equivalents.

24. The Filer currently holds 5.0% of its uranium assets (by value) at Cameco Corporation's storage facilities located in Canada.

25. The Filer's cash and cash equivalents are held with Barclays Private Clients International Limited ("BPCI"), a licensed Guernsey bank and a subsidiary of Barclays Bank plc. BCPI meets the requirements set out in section 14.2(2) of NI 41-101 of who may act as a custodian or sub-custodian in that: (i) it is incorporated under the law of a country other than Canada; (ii) it is regulated as a banking institution by the government of the country under whose laws it is incorporated; and (iii) it has shareholders' equity, as reported in its most recent audited financial statements, of not less than the equivalent of CDN $100,000,000.

26. The Filer entered into a custody agreement (the "Custody Agreement") dated July 18, 2006, as amended on May 2, 2007, with the Storage Consultant. Under the Custody Agreement, the Storage Consultant is responsible for establishing, monitoring and maintaining arrangements for the storage of the Filer's Uranium Assets, subject to the approval of the Filer's board of directors. The Storage Consultant has agreed to perform its duties under the Custody Agreement with the degree of skill, diligence, prudence and foresight which would reasonably and ordinarily be expected from a skilled and experienced person acting in good faith and carrying out the same type of activity under the same or equivalent circumstances in a similar location acting generally in accordance with all applicable laws.

27. Under the terms of the Custody Agreement, the Storage Consultant must provide the Filer, on a monthly basis, with a schedule showing, by uranium storage facility, the location and quantity of the Filer's Uranium along with a reconciliation of any transfers of the Filer's Uranium that may have occurred during such month. The Storage Consultant has also agreed to promptly notify the Filer of any issue that might reasonably be expected to adversely affect the solvency of any uranium storage facility or the ability of such uranium storage facility to meet its obligations with respect to the Filer's Uranium Assets.

28. The processing and use of nuclear materials, including Uranium, is highly regulated, both at the national and international level. Such regulation focuses on the physical custody, use and sale of the nuclear material. The Storage Consultant, under the terms of the Custody Agreement and on the instructions of the Filer, has entered into storage agreements in respect of the Filer's Uranium Assets with several storage facilities in Canada, the United States, and France that are licensed and qualified under international and national law to hold and store uranium (individually, a "Uranium Custodian").

29. The total of the Filer's Uranium Assets are reconciled with inventory statements provided by the Uranium Custodians on a periodic basis as and when such statements are received, but at least on an annual basis. The reconciliation between such Uranium Assets with statements provided by the Uranium Custodians are subject to annual audit by the Storage Consultant's auditors, PwC UK.

30. The Uranium Custodians are responsible for physically safeguarding the Uranium Assets held in the accounts at their sites. Each Uranium Custodian has agreed to perform its duties under each Uranium Custodian's storage contract with the degree of skill, diligence, prudence and foresight which would reasonably and ordinarily be expected from a skilled and experienced person acting in good faith and carrying out the same type of activity under the same or equivalent circumstances in a similar location acting generally in accordance with all applicable laws.

Decision

The Principal Regulator is satisfied that the decision meets the test set out in the Legislation for the Principal Regulator to make the decision.

The decision of the Principal Regulator under the Legislation is that the Exemption Sought is granted provided that the Storage Consultant complies with section 14.6 of NI 41-101 as if it were the custodian.

"Leslie Byberg"
Director, Investment Funds
Ontario Securities Commission