Ur-Energy Inc. — Q3 2019 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2019. Dollar amounts below are U.S. dollars; financial-statement amounts are in millions unless noted. Ur-Energy is a uranium producer and exploration-stage company operating its Lost Creek in-situ recovery mine in Wyoming. The company states that it has not established proven and probable mineral reserves.
Financial results and position
| Metric | Q3 2019 | Nine months 2019 | Comparable 2018 period |
|---|---|---|---|
| Revenue | $5.115m | $21.406m | Q3: $0.003m; nine months: $23.482m |
| GAAP gross profit (loss) | ($2.400m) | ($2.418m) | Q3: ($0.167m); nine months: $11.329m |
| Operating income (loss) | ($5.031m) | ($10.349m) | Q3: ($2.574m); nine months: $3.406m |
| Net income (loss) | ($4.200m) | ($10.533m) | Q3: ($2.809m); nine months: $6.200m |
| Basic and diluted earnings (loss) per share | ($0.03) | ($0.07) | Q3: ($0.02); nine months: $0.04 |
- Q3 sales were 122,500 pounds of purchased uranium under term contracts, averaging $41.76 per pound. Nine-month sales were 485,000 pounds at an average $44.13 per pound, versus 480,000 pounds at $48.86 in 2018.
- Cost of sales included inventory write-downs of $4.1m in Q3 and $8.2m year to date, reflecting lower net realizable value. Excluding these non-GAAP adjustments, management reported uranium sales gross profit of $1.7m for Q3 (about 33% margin) and $5.8m year to date (about 27%).
- Q3 production was 7,256 pounds captured and 9,367 pounds drummed. Nine-month captured production was 42,953 pounds. Management said production was intentionally restricted and lower capture increased unit costs.
- Cash and cash equivalents were $3.360m at September 30, down from $6.372m at year-end 2018. Operating activities used $0.450m in the first nine months; investing used $0.164m and financing used $2.446m. Cash, cash equivalents and restricted cash together totaled $10.823m, including $7.463m restricted primarily as reclamation collateral.
- Current assets were $5.604m and current liabilities $7.768m. Notes payable, net of deferred financing costs, totaled $12.203m on the balance sheet; principal outstanding was reported as $12.441m. The company had $30.756m of asset retirement obligations.
- On October 31, management reported unrestricted cash of $6.6m after collecting October 1 sales proceeds. This is a subsequent-date figure, not the September 30 balance.
Changes versus prior comparable periods
- Year-to-date revenue declined about 9%, while the company moved from $6.2m net income to a $10.5m net loss. The change primarily reflects a $10.6m swing in gross profit, including substantially larger inventory write-downs, and lower other income: 2018 included a $3.54m gain related to assignment of a contract.
- Q3 2018 had virtually no sales; Q3 2019 revenue reflects term-contract deliveries. Nine-month 2019 sales included a greater share of produced inventory than in 2018, and the average selling price was lower.
- Inventory declined from $14.692m at December 31, 2018 to $7.357m at September 30, 2019, including lower-of-cost-or-net-realizable-value adjustments. The filing also reports a further $2.3m reduction to conversion-facility inventory in early October following a change in valuation inputs.
- Cash decreased by $3.0m from year-end. Debt principal payments reduced interest expense, but cash remained constrained by operating needs and scheduled debt obligations.
Outlook, management commentary and risks
- Management expected 2019 deliveries of 665,000 pounds at an average price of about $48 per pound. At September 30, 180,000 pounds remained for Q4 at an expected average price of $60; 90,000 pounds were sold on October 1. These are management expectations, not reported completed results.
- The company had purchase contracts for 500,000 pounds for 2019 at an average cost of about $26 per pound; 180,000 pounds remained to be purchased in Q4 at an expected average cost of $24. Management forecast approximately $6.3m Q4 gross profit from uranium sales, excluding any further net realizable value adjustments.
- Management reduced 2019 Lost Creek production guidance to 40,000–50,000 pounds and did not anticipate additional MU2 development for the remainder of the year. It cited weak uranium market conditions and uncertainty over the U.S. Nuclear Fuel Working Group’s recommendations.
- The July 2019 presidential decision declined trade action on uranium imports and established the Working Group. Its recommendations and any resulting market effects were uncertain; the group had requested an extension, with recommendations then expected around November 2019.
- Management reduced staffing by 12 employees and took other cost-saving steps. The company and Wyoming authorities approved an 18-month, six-quarter deferral of State Bond Loan principal payments: payments were to resume April 1, 2021, with final payment in April 2023. Interest payments continue; the loan is secured by Lost Creek assets.
- Permitting remained material: the company anticipated LC East approvals in 2020. State reviews for Shirley Basin were expected to conclude in 2019, while federal review was expected in 2019 or early 2020; timing and outcomes were uncertain.
- Management warned that uranium prices, production and sales timing, permitting, financing availability, inventory valuations, and the ability to maintain operations and comply with debt covenants could affect results. Additional financing may be needed for major projects, with no assurance it will be available on acceptable terms. The filing reported no material change in previously disclosed risk factors and no new material legal proceedings.
Important facts for investors to verify
- Whether Q4 and full-year contract deliveries, purchase commitments, and expected sales prices were achieved, and how they affected cash and inventory.
- The assumptions behind the $8.2m year-to-date inventory write-down and the additional $2.3m post-quarter valuation reduction, including sensitivity to spot and contract prices.
- Compliance with the amended debt schedule and covenants, and the availability of unrestricted liquidity; restricted cash is pledged against reclamation surety bonds.
- Actual progress and approvals for LC East and Shirley Basin, and any policy or market impact from the Nuclear Fuel Working Group.
- Lost Creek production performance, unit costs, and whether reduced staffing and other cost measures are sufficient to sustain operations.