Ur-Energy Inc. — Q3 2016 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2016. Unaudited figures are in U.S. dollars; financial statement amounts are in millions unless noted. Ur-Energy operates the Lost Creek in-situ recovery uranium mine in Wyoming and is classified as an exploration-stage company. The company states it has not established mineral reserves.
Key financial results and position
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Sales | $12.068m | $8.491m | $21.529m | $34.091m |
| Gross profit | $6.250m | $4.311m | $8.762m | $10.730m |
| Gross margin | 51.8% | 50.8% | 40.7% | 31.5% |
| Operating income (loss) | $3.208m | $0.190m | ($0.249m) | $0.274m |
| Net income (loss) | $1.803m | ($0.282m) | ($3.114m) | ($1.386m) |
| Operating cash flow | Not presented separately | Not presented separately | $2.566m | $5.653m |
- Q3 reported earnings per share were $0.01; nine-month loss per share was $0.02. Q3 sales increased year over year, while nine-month sales fell about 37%, reflecting lower sales volume and the timing and mix of deliveries.
- Q3 revenue included $2.588m recognized from a 2016 delivery-contract assignment; produced uranium sales were $9.471m. The company sold 200,000 pounds in Q3 at an average $47.36 per pound. For the nine months, it sold 462,000 pounds at an average $40.95 per pound.
- At September 30, cash and equivalents were $2.961m, accounts receivable $3.298m, and inventory $3.405m. Restricted cash of $7.557m was pledged against reclamation surety bonds and is not freely available. Current assets were $10.530m versus current liabilities of $12.844m.
- Debt carrying value was $26.093m, comprising $5.508m current and $20.585m long-term. The filing separately reports principal balances of about $26.7m on the Sweetwater loan and $1.1m on the RMB facility. Asset-retirement obligations were $26.610m; estimated undiscounted reclamation costs were $27.2m.
- Cash increased $1.518m to $2.961m during the nine months. Investing used $0.195m and financing used $0.789m; financing included $6.486m of debt repayments and net proceeds from the February share offering. Operating cash flow was supported by a $5.085m receipt for assigned deliveries, while receivables increased $3.289m.
Material changes versus comparable periods
- Q3 net income improved from a loss of $0.282m to income of $1.803m. Higher revenue and gross profit were partly offset by a $0.900m Q3 write-off of the Bootheel equity investment.
- Nine-month net loss widened to $3.114m from $1.386m. Sales and gross profit declined, and the 2016 period included a $1.089m Bootheel investment write-off and $0.279m foreign-exchange loss.
- Q3 produced-uranium gross margin was approximately 39% on $9.471m of uranium sales, compared with 52% in Q3 2015; the average realized price was lower year over year. The reported total Q3 revenue and gross profit also include the assigned-delivery revenue.
- Common shares outstanding rose to 143.6m from 130.2m at year-end, mainly following the February 2016 offering of 12.9m shares at $0.50 each. The offering generated $5.7m net of issue costs.
Outlook, management commentary, and risks
- Management said it expected to meet current obligations without additional funding, based on cash resources and expected sales timing. Cash and equivalents were reported at $5.2m as of October 26, 2016. Additional financing may be needed for future major projects; availability and terms are not assured.
- Management reduced production in response to uranium-market weakness, targeting 40,000–45,000 pounds dried and drummed monthly in Q4 and estimated 2016 production of 570,000–585,000 pounds. One 100,000-pound contract delivery remained, at about $33 per pound. Management expected 2016 profit margins of 25%–30% after that delivery.
- Uranium spot prices continued to fall: approximately $23 per pound at September 30 and $20 per pound on October 26; the reported long-term price at September 30 was $37.50. Lower prices may affect future sales, project economics, inventory valuation, and financing needs.
- Lost Creek permit amendments for recovery from the KM horizon and adjacent LC East remained under agency review. Shirley Basin mine-permit review continued, with its source-material license application nearing completion. Management expected the Class V water-disposal system to be operational in Q4 2016, subject to final approvals and testing.
- Other notable exposures include reclamation and environmental obligations, uranium-price and customer-payment timing risk, debt repayment requirements, and uncertainty around future permitting and regulatory changes. Management reported no material change in previously disclosed risk factors and no new material legal proceedings.
Important facts for investors to verify
- Whether Q4 deliveries and the remaining 100,000-pound contract sale occurred as anticipated, and whether the second assigned delivery was recognized.
- Subsequent cash collections of the $3.270m receivable from one unnamed customer and the sustainability of operating cash flow given lumpy deliveries.
- Current unrestricted liquidity, scheduled debt repayments, and the availability and terms of any additional financing.
- Actual production, unit costs, uranium prices, and margins versus management’s 2016 targets; the filing reports non-GAAP cost-per-pound measures alongside GAAP results.
- Progress and outcomes of Lost Creek and Shirley Basin permitting, Class V system approvals, and any final groundwater-restoration rule changes.
- The basis for the Bootheel write-off and management’s impairment assessment of other mineral properties amid falling uranium prices; the company has not established mineral reserves.