NP 11-203 -- National Instrument 81-106 Investment Fund Continuous Disclosure -- Variation and revocation of existing decision -- Exemption from requirements to (i) prepared financial statements using Canadian generally accepted accounting principles; (ii) audit those financial statements using Canadian generally accepted auditing standards; (iii) review interim financial statements using standards in Handbook Section 7050; (iv) have an auditor's report signed by a Canadian auditor; and (v) calculate net asset value weekly -- 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 -- Portfolio is comprised of uranium. Net asset value cannot be calculated weekly because the price of uranium (UF6) is published monthly -- Issuer intends to list its securities on the TSX and become a reporting issuer in Canada.
Applicable Legislative Provisions
National Instrument 81-106 Investment Fund Continuous Disclosure, ss. 2.6, 2.7, 2.8, 14.2(3).
Securities Act, R.S.O. 1990, c. S.5, as am., s. 144.
November 5, 2008
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
NUFCOR URANIUM LIMITED (the "FILER")
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 to use International Financial Reporting Standards ("IFRS"), rather than Canadian generally accepted accounting principles ("GAAP") in preparing the Filer's financial statements as required by section 2.6 of National Instrument 81-106 Investment Fund Continuous Disclosure ("NI 81-106");
• relief to use International Standards on Auditing ("ISA") rather than Canadian generally accepted auditing standards ("GAAS") in auditing the Filer's financial statements as required by section 2.7 of NI 81-106;
• relief to allow reviews of interim financial statements to be conducted in accordance with International Standards on Review Engagements 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board rather than Section 7050 Auditor Review of Interim Financial Statements in the Handbook;
• relief to allow PricewaterhouseCoopers CI LLP, Chartered Accountants, Guernsey Channel Islands ("PwC CI") to prepare and sign the Filer's audit reports, once the Filer is a reporting issuer, 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 by section 2.8 of NI 81-106;
NAV Frequency Relief
• relief to calculate the net asset value ("NAV") of the Filer on a monthly basis rather than on a weekly basis as required by Section 14.2(3) of NI 81-106; and
• revocation of the Decision Document granted by the principal regulator on August 27, 2008 in favour of the Filer ("the Existing Decision").
(The Accounting and Auditing Relief, the NAV Frequency Relief, and the Revocation 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 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.
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.
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 U308 and UF6 (collectively, "Uranium Assets" or "Uranium"). 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 filed a preliminary prospectus dated June 27, 2008 (the "Preliminary Prospectus") in each of the provinces and territories of Canada and has applied to list its securities on the TSX.
5. On or about September 17, 2008, the Filer's Board of Directors, pursuant to advice from its banking syndicate, led by Canaccord Capital Corporation and including Deutsche Bank Securities Limited, CIBC World Markets, BMO Capital Markets, TD Securities and GMP Securities, decided to discontinue the initial public offering of the ordinary shares of the Filer in each of the provinces and territories of Canada (the "Offering"), as described in the Preliminary Prospectus, on account of market conditions and movements in the price of uranium affecting the Filers' net asset value and in turn, affecting the Filer's ability to issue ordinary shares under the Offering.
6. On October 7, 2008, the Filer filed a notice of withdrawal of the Preliminary Prospectus with the Principal Regulator. The Filer has not withdrawn its application to list its securities on the TSX.
7. The Filer has received conditional listing approval to list its securities on the TSX. Subject to the fulfilment of certain listing conditions, including a requirement that the Filer file on SEDAR a current annual information form ("AIF") in accordance with the requirements of Part 9 of NI 81-106 and form requirements in Form 81-101F2 Contents of Annual Information Form, the Filer intends to list its securities on the TSX as soon as reasonably practicable.
8. Upon the listing of its securities on the TSX, the Filer will become a reporting issuer in each of the provinces and territories of Canada and become subject to the continuous disclosure obligations imposed on reporting issuers in NI 81-106, and the requirements of National Instrument 81-107 Independent Review Committee for Investment Funds.
9. 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.
10. 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").
11. 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.
12. 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 secondary market liability in connection with its continuous disclosure materials, including the AIF. 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.
13. The Filer, the Advisers and each of their directors or officers will provide undertakings to the Principal Regulator to 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 (the "Undertakings").
14. As a reporting issuer in Canada, the Filer will require the same manner of exemptive relief from certain provisions of NI 81-106 as were granted under the Existing Decision.
Accounting and Auditing
15. The Filer prepares its financial statements in accordance with IFRS and has its financial statements audited in accordance with ISA.
16. The essential books and records of the Filer required for an audit are primarily located in Guernsey.
17. Currently, the Uranium Assets are valued in the financial statements at historic cost. The AIF 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. 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.
19. The Filer would qualify as a "foreign issuer" under NI 52-107 but for the fact that it is an investment fund.
20. 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.
21. NI 52-107 would apply to the Filer but for the fact that it is an investment fund.
22. 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.
23. 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.
24. It is standard industry practice for Uranium funds to calculate NAV on a monthly basis.
25. The price of UF6, one of the two types of Uranium in which the Filer invests, is only published on a monthly basis and there is no intra-month price indicator. U308 prices are published on a weekly basis. Intra-month UF6 prices can be imputed based on general assumptions about U308 prices and conversion prices; however, conversion prices (from U308 to UF6) are also only published on a monthly basis.
26. Section 14.2(3) ensures that securities issued by investment funds that are redeemable on demand are liquid and that holders of such securities will be able to dispose of them on a regular basis with knowledge of the redemption proceeds that they will receive.
27. The ordinary shares of the Filer are not redeemable.
28. The Filer's ordinary shares are traded on AIM of the London Stock Exchange plc and, provided that the TSX approves the listing of the Filer's ordinary shares, shareholders will have the opportunity to trade the Filer's ordinary shares on a daily basis on the TSX, thereby maintaining the liquidity of the Filer's ordinary shares.
29. The Preliminary Prospectus discloses, and the Prospectus will disclose, that the Filer will calculate its NAV and post it on the Filer's website and on www.sedar.com on a monthly basis.
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:
(a) the Undertakings are provided to the Principal Regulator before the Filer's securities are listed on the TSX and the Filer becomes a reporting issuer in Canada;
(b) the NAV calculation is available to the public upon request; and
(c) the public has access to the Filer's website for this purpose;
for so long as:
(d) the ordinary shares of the Filer are listed on the TSX; and
(e) the Filer calculates its NAV at least monthly.