UR-Energy Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017. Financial statement amounts below are in U.S. dollars; unless stated otherwise, figures are in millions. The interim statements are unaudited. Ur-Energy operates the Lost Creek in-situ recovery uranium mine in Wyoming and is classified as an exploration-stage company.
Financial performance and position
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Revenue | $14.828 | $2.714 |
| Gross profit | $8.533 | $0.859 |
| Gross margin | 57.5% | 31.7% |
| Operating income (loss) | $5.559 | $(2.043) |
| Net income (loss) | $5.189 | $(2.989) |
| Basic / diluted earnings (loss) per share | $0.04 / $0.03 | $(0.02) / $(0.02) |
| Cash provided by operating activities | $6.514 | $2.105 |
- Uranium sales were $14.819 million; disposal-fee income was $9,000. The company sold 250,000 pounds at an average $59.28 per pound. Of these, 200,000 pounds were purchased inventory and 50,000 were produced inventory.
- Total cost of sales was $6.295 million. Management reported gross profit of approximately $0.8 million, or 27%, on produced uranium and $7.7 million, or 66%, on purchased uranium. Purchased pounds were acquired at an average $20.08 per pound and sold at an average $58.39.
- At March 31, cash and cash equivalents were $8.393 million, versus $1.552 million at year-end. Current assets were $15.229 million and current liabilities $9.807 million, implying working capital of $5.422 million. Restricted cash of $7.557 million is pledged against reclamation surety bonds and is not freely available.
- Cash flow statement ending cash of $15.950 million includes restricted cash; it should not be read as unrestricted cash. Operating cash flow was $6.514 million, investing cash use $0.010 million, and financing cash flow $0.343 million.
- Debt was reported at $22.836 million net of deferred financing costs ($4.568 million current and $18.268 million long-term); the underlying Sweetwater County loan principal was $23.383 million. The loan bears 5.75% interest and matures in quarterly installments through October 2021.
- Asset retirement obligations were $26.806 million; estimated undiscounted future remediation costs were $27.1 million, with settlements scheduled through 2033. Inventory was $5.761 million, up from $4.109 million at year-end.
Material changes versus the prior comparable period
- Revenue rose to $14.828 million from $2.714 million and the company moved from a $2.989 million net loss to $5.189 million net income. Management attributed the improved gross profit mainly to higher prices on contracts fulfilled in 2017 and substantial purchased-uranium sales.
- Production was lower: 79,340 pounds were captured and 74,382 pounds drummed. Management cited deliberate production restraint amid weak uranium prices and severe winter weather. The lower volume raised reported cash cost per pound captured to $11.20 and per pound drummed to $20.00.
- Operating expenses totaled approximately $2.974 million, up modestly from 2016. General and administrative expense increased, including costs associated with the 2016 incentive plan accrual and severance; development expense declined.
- Operating cash flow increased from $2.105 million to $6.514 million. The 2016 comparison included $5.085 million related to assignment of future contract deliveries, making the periods’ cash generation drivers different.
- Cash and cash equivalents increased by $6.841 million from December 31, 2016. The company raised $1.1 million net through its at-the-market share program and received $0.3 million from option exercises, while repaying $1.131 million of debt.
Outlook, commentary and risks
- Full-year 2017 production guidance remained 250,000–300,000 pounds. Q2 production target was 60,000–75,000 dried and drummed pounds. Management said production levels may change with operational conditions and uranium-market indicators.
- For 2017, the company had 600,000 pounds under contract at an average price of approximately $51 per pound and arranged purchases of 410,000 pounds at an average cost of approximately $22. For Q2, it expected to deliver 241,000 pounds at an average $49 per pound, including 210,000 purchased pounds at an average $23.
- Management was not forecasting spot sales given market conditions. The reported spot price was approximately $23.88 per pound at quarter-end and $22.50 on May 3, 2017; management described the uranium market as persistently weak.
- Development of the first three header houses in Lost Creek Mine Unit 2 began in early April, with the first expected online in Q3 2017. Development spending was expected to increase. A water-disposal and recycling circuit commenced operations during the quarter.
- A March workforce reduction of eight employees was expected to lower annual labor costs by approximately $0.8 million. Unrestricted cash was $8.5 million as of May 3. Management did not anticipate near-term funding needs under its current cash and contracted-sales position, but noted that additional financing may be needed or projects delayed if cash sources prove insufficient.
- Applications to amend Lost Creek permits for the LC East area and KM horizon remained under agency review. Wyoming continued technical review of the Shirley Basin mine permit application; the company anticipated applying for a source-material license through Wyoming’s planned program, with transition expected in 2018.
- Key risks include uranium price and market uncertainty, reliance on future production and contract performance, permitting and regulatory approvals, financing and debt-covenant capacity, environmental and reclamation obligations, and the recoverability of mineral-property carrying values. The company stated it had not established proven and probable reserves. No new legal proceedings or material risk-factor changes were reported.
Most important facts for investors to verify
- How much of Q1’s earnings and margin improvement is repeatable: purchased inventory sales contributed most of reported gross profit, while produced-inventory gross margin was approximately 27%.
- Whether the 2017 sales and uranium-purchase arrangements were completed on the stated prices and volumes, and how they affect margins and available inventory.
- Whether Lost Creek meets production guidance and brings the first Mine Unit 2 header house online as planned, given weak pricing and higher per-pound costs at reduced production.
- Unrestricted liquidity versus restricted reclamation collateral, debt service obligations, and any need for further equity or debt financing.
- Timing and outcomes of Lost Creek amendments and Shirley Basin approvals; resource estimates are not equivalent to SEC-defined reserves, and the company has not established proven and probable reserves.