Ur-Energy Inc. — 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017. This is an annual filing; quarterly figures below identify fourth-quarter performance where relevant. Amounts are U.S. dollars unless noted.
Business context and reporting period
Ur-Energy explores, develops and produces uranium, principally through its in-situ recovery operation at Lost Creek, Wyoming. Lost Creek began production in 2013 and was the company’s only operating uranium mine in 2017. Shirley Basin remained in development and permitting. The company identifies as an exploration-stage issuer and reports no proven or probable mineral reserves under SEC standards; its disclosed resource estimates are not reserves and do not establish economic viability.
Financial and operating performance
| Metric | 2017 | 2016 |
|---|---|---|
| Revenue | $38.368 million | $27.305 million |
| Gross profit | $13.967 million | $11.457 million |
| Net income (loss) | $76,000 | $(3.010) million |
| Cash from operating activities | $5.626 million | $3.390 million |
| Cash and cash equivalents at year-end | $3.879 million | $1.552 million |
| Working capital | $1.283 million | $(1.706) million |
| Notes payable at year-end | $19.891 million | $24.393 million |
Restricted cash was an additional $7.558 million, largely pledged to reclamation surety bonds. Total assets were $88.364 million and shareholders’ equity was $38.781 million at December 31, 2017. The State Bond Loan bears fixed interest at 5.75%, is secured by Lost Creek assets, and matures in quarterly installments through October 2021. Asset retirement obligations were $27.036 million; estimated undiscounted future reclamation cash needs were $27.0 million, with settlement schedules extending through 2033.
Uranium sales were 780,000 pounds at an average $49.09 per pound: 261,000 pounds from Lost Creek production and 519,000 purchased for resale. No uranium sales were recorded in Q4 2017; quarterly revenue was $26,000 and net loss was $3.426 million. Full-year uranium sales gross profit was $13.9 million, approximately 36% of uranium sales. The average cost per pound sold was $31.28, but produced pounds alone cost $51.03 per pound; purchased pounds cost $21.35 per pound on average. Inventory was $4.515 million and included a $2.6 million lower-of-cost-or-net-realizable-value write-down during 2017.
Lost Creek captured 265,391 pounds in 2017, down from 538,004 in 2016. The company packaged 254,012 pounds and shipped 257,213 pounds to the conversion facility. Its year-end inventory totaled 129,916 pounds, including 94,077 pounds at the conversion facility.
Material changes versus the prior year
- Revenue increased about 41%, while the company moved from a $3.010 million net loss to $76,000 net income. The improvement reflected higher average realized prices and sales volume, partly offset by higher costs and expenses.
- Production fell by more than half as management deliberately reduced output and development amid weak uranium prices. Sales volume nevertheless rose because the company purchased uranium for resale.
- Gross profit rose to $13.967 million from $11.457 million; the reported uranium-sales gross margin increased to approximately 36% from 29%.
- Operating cash flow increased to $5.626 million. Debt repayments reduced notes payable, while cash and cash equivalents rose to $3.879 million. Working capital improved to a $1.283 million surplus.
- Development expense increased to $4.340 million, including construction and development of the first three header houses in Lost Creek’s second mine unit. The company subsequently suspended further development there pending improved market conditions.
Outlook, management commentary and risks
- For 2018, the company expected to deliver 470,000 pounds under term contracts at about $49 per pound. It had contracted to purchase 460,000 pounds at about $24 per pound to cover nearly all commitments. Management expected production of 250,000–350,000 pounds, primarily to build finished inventory, and forecast gross profit of $10–$12 million and a cash-basis gross margin of 45%–50%.
- Management reported unrestricted cash of $7.5 million as of February 28, 2018 and did not anticipate near-term additional funding needs under its current plans. It cautioned that financing might be needed if cash sources prove inadequate. Operating costs were expected to be lower than 2017 due to the development suspension; capital expenditures and loan repayments were expected to be similar to 2017.
- Term contracts covered 470,000 pounds in 2018, 540,000 in 2019, 390,000 in 2020 and 190,000 in 2021. Management said it had not entered into new term contracts in 2017 and did not forecast further 2018 spot sales after a 10,000-pound sale in January, though it might sell spot product if conditions improved.
- Management and Energy Fuels jointly petitioned the U.S. Department of Commerce under Section 232 in January 2018, seeking measures including a quota that would reserve 25% of the U.S. nuclear market for domestic uranium production. The investigation’s outcome and market effects were uncertain.
- Permitting for the LC East expansion remained in process, with completion anticipated in 2018. Shirley Basin permitting and licensing depended in part on Wyoming’s planned agreement-state uranium program. Delays, regulatory changes, or additional environmental and reclamation requirements could increase costs or constrain operations.
- Key risks include persistently low and volatile uranium prices, competing imports and industry inventories, dependence on a limited number of utility customers, production and geologic risks, the need to replenish resources, and potential future financing or shareholder dilution. Debt covenants and the security over Lost Creek assets also create risk if the company cannot meet its obligations.
- The filing reports no legal proceedings. The 2017 financial statements received an unqualified audit opinion, and the auditor and management reported effective internal control over financial reporting. The Tax Cuts and Jobs Act produced a provisional $16.5 million decrease in deferred tax assets, offset by a decrease in the valuation allowance; no net deferred tax asset was recognized.
Investor verification priorities
- Verify the 2018 delivery schedule, purchase-contract pricing and volumes, and whether the planned production and inventory strategy generated the forecast cash margins.
- Track unrestricted versus restricted cash, operating cash generation, quarterly debt repayments, covenant compliance and the secured lender’s rights over Lost Creek assets.
- Assess the $2.6 million inventory write-down, the cost and recoverability of produced uranium, and the economics of purchased-pound resale.
- Check progress and costs for LC East permits and the Wyoming agreement-state program, as well as the status of Shirley Basin approvals.
- Review uranium-price assumptions and resource disclosures carefully: the company has no SEC-defined proven or probable reserves, and its Canadian-standard mineral resources are not demonstrated to be economically mineable.
- Monitor reclamation funding and surety requirements, the Section 232 trade investigation, and any future financing or share dilution.