Ur-Energy Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Unless otherwise noted, financial amounts are in U.S. dollars and millions; financial statements report in thousands. Ur-Energy is a uranium producer operating its Lost Creek in-situ recovery mine in Wyoming.
Financial performance and liquidity
| Metric | Q2 2020 | Q2 2019 | First half 2020 | First half 2019 |
|---|---|---|---|---|
| Revenue | $6.934 | $11.479 | $8.304 | $16.291 |
| Gross profit (loss), reported | $0.417 | $0.316 | ($1.318) | ($0.018) |
| Operating loss | ($1.810) | ($1.763) | ($5.607) | ($5.318) |
| Net loss | ($2.227) | ($2.031) | ($5.868) | ($6.333) |
| Loss per share | ($0.01) | ($0.01) | ($0.04) | ($0.04) |
- Q2 sales were 167,000 pounds of purchased uranium at $41.50 per pound; no produced inventory was sold. Sales completed the company’s remaining term-contract commitments.
- Reported cost of sales included lower-of-cost-or-net-realizable-value inventory charges of $2.174 million in Q2 and $4.456 million year to date. Excluding those charges, management reported gross margins of about 37% for Q2 and 40% year to date.
- Cash and cash equivalents were $5.567 million at June 30, down from $7.752 million at year-end; restricted cash was $7.463 million and pledged for reclamation surety bonds. Operating activities used $3.055 million in the first half, versus generating $2.664 million in 2019. Cash, cash equivalents and restricted cash totaled $13.030 million.
- At June 30, notes payable were $13.143 million net of deferred financing costs, including the State Bond Loan and $0.893 million of PPP loans. The State Bond Loan bears 5.75% interest; principal payments were deferred and scheduled to resume April 1, 2021. Asset retirement obligations were $31.260 million.
- Current assets were $14.028 million and current liabilities $4.013 million. Inventory was $7.485 million, including $7.347 million of conversion-facility inventory.
Material changes versus the prior comparable period
- First-half revenue fell about 49% year over year, and pounds sold declined to 200,000 from 362,500. The 2020 sales were entirely purchased product; 2019 included produced inventory.
- The average selling price was $41.50 per pound in the first half, compared with $44.94 in 2019. The average cost of pounds sold fell to $25.83 from $33.67, reflecting the lower cost of purchased product.
- First-half net loss narrowed by $0.465 million, but reported gross loss widened to $1.318 million, principally reflecting inventory valuation charges. Operating loss increased to $5.607 million from $5.318 million.
- Operating cash flow shifted from a $2.664 million source to a $3.055 million use, primarily because 2019 sales included previously produced inventory while 2020 sales were of purchased product.
Operations, outlook and risks
- Lost Creek production remained intentionally minimal because of weak uranium markets. Q2 output was 4,119 pounds captured and 2,892 pounds drummed; management said capture rates exceeded quarterly guidance and COVID-19 had not changed its minimal 2020 production outlook.
- Management said June spot uranium prices had risen to about $33 per pound amid industry production cuts, but future market prices and demand remain uncertain. Management expects current cash, expected offering proceeds and available inventory to cover anticipated expenditures for the remainder of 2020, and expects to sell a significant portion of finished inventory in 2021 at then-current prices.
- On July 31, after quarter-end, the company announced a $4.68 million registered direct offering of 9 million shares and warrants for up to 4.5 million shares. Estimated net proceeds were $4.3 million. The offering price was $0.52 per share-and-warrant unit; warrant exercise price is $0.75 per share. This financing is dilutive.
- The company received $0.9 million in PPP loans and anticipated forgiveness but had not applied for or received forgiveness by the filing date. It also had a $100 million shelf registration and a $10 million at-the-market facility, which had not been used in 2020.
- Management anticipated completion in 2020 of permitting for the LC East amendment and Shirley Basin, but approvals remained pending. A production restart at Lost Creek could reach full rates in as little as six months after a go decision; estimated development costs for that ramp-up were about $14 million.
- Key uncertainties include uranium prices and contract availability after term commitments ended, COVID-19 impacts, access to financing, the timing and outcome of permitting, and whether proposed U.S. uranium-reserve and domestic-industry support measures will be funded or implemented. The company states it has not established proven and probable mineral reserves.
Important facts for investors to verify
- Whether the July 2020 offering closed as expected, the net proceeds received, and the resulting share count and warrant dilution.
- Whether PPP loan forgiveness was obtained and how much, if any, remains repayable.
- Subsequent uranium sales, contract terms, and realized prices for remaining inventory, especially in 2021.
- Progress and timing of LC East and Shirley Basin permits, and the financing and cost assumptions for any production ramp-up.
- Changes in cash runway, debt repayment requirements, inventory valuation, and reclamation obligations.
- Whether U.S. government uranium-reserve funding or other policy actions are authorized and implemented.