Ur-Energy Inc. — Q2 2015 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2015. Unaudited U.S. GAAP figures; financial statement amounts are in U.S. dollars in thousands unless stated otherwise.
Business context
Ur-Energy explores, develops and produces uranium in Wyoming. Lost Creek, its operating in-situ recovery project, began production in August 2013. The company remained classified as an exploration-stage company under SEC Industry Guide 7 and had not established proven or probable reserves for its projects. It also holds the Shirley Basin project.
Financial results and liquidity
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Sales | $18,213 | $9,236 | $25,600 | $15,383 |
| Gross profit | $4,422 | $2,067 | $6,419 | $4,974 |
| Operating profit (loss) | $1,444 | ($965) | $84 | ($2,000) |
| Net profit (loss) | $1,025 | ($804) | ($1,099) | ($2,752) |
| Basic and diluted earnings (loss) per share | $0.01 | ($0.01) | ($0.01) | ($0.02) |
- Q2 gross margin was 24.3%; six-month gross margin was 25.1%. Q2’s average realized price was $45.08 per pound; the six-month average was $46.53.
- In Q2, 404,000 pounds were sold: 204,000 pounds produced at Lost Creek and 200,000 pounds purchased for an accelerated contract delivery. The purchased pounds cost $39.39 per pound. The quarter’s sales included 70,000 pounds sold on the spot market at an average $36.50 per pound.
- Six-month operating cash flow was positive $4,029, compared with cash used of $1,010 in the prior-year period. Investing activities used $43 and financing activities used $3,250. Cash and cash equivalents ended at $3,851, up from $3,104 at year-end 2014.
- Current assets were $8,665 and current liabilities $14,288 at June 30. Restricted cash of $7,556 was pledged primarily against reclamation surety bonds and was not ordinary operating cash.
- Notes payable had a net carrying value of $36,098, comprising $10,008 current and $26,090 long-term. The stated principal outstanding was approximately $36.9 million. Scheduled principal and interest payments totaled $43.371 million. Asset retirement obligations were $23,699; estimated undiscounted future reclamation cash needs were $24.8 million.
Material changes and operating developments
- Compared with Q2 2014, Q2 2015 sales nearly doubled and the company moved from a net loss to a net profit. For the six-month period, the net loss narrowed year over year.
- Lost Creek captured 207,268 pounds in Q2 and 399,548 pounds in the first half. The project reached one million cumulative pounds produced. Q2 production rates and captured pounds increased, while dryer maintenance temporarily constrained drumming; management said July rates had returned to normal.
- Q2 cost of sales included the purchased uranium used to meet a delivery accelerated from September to April. Management said the lower Q2 realized price reflected delivery timing, a lower-priced contract and the first spot sale. Produced-uranium cost per pound declined as production increased.
- Inventory was $3,885 at quarter-end, down from $5,168 at December 31, 2014. The company reported no inventory carried above net realizable value.
- In April, the company announced that CEO Wayne Heili would leave effective May 1; Chairman Jeffrey T. Klenda became Acting CEO. Two new uranium sales agreements were completed during the quarter, bringing the total to eleven.
Outlook, risks and unusual items
- Management’s 2015 production plan was approximately 70,000 pounds per month, or 750,000–850,000 pounds for the year. Contractual sales obligations for 2015 were 630,000 pounds at an average realizable price of $49.49 per pound. Excess production could be held as inventory or sold if market conditions warranted.
- Management said current cash resources and expected sales should cover current obligations and that it did not anticipate needing additional funding in 2015 unless advantageous. It also cautioned that funding could be needed for Shirley Basin development or if cash sources proved insufficient; financing availability and terms were not assured.
- Shirley Basin environmental baseline studies were nearing completion, with permit and license applications anticipated in Q3 2015. The NRC had not yet approved bonding for Shirley Basin and Lucky Mc. No project construction budget or timetable had been established.
- Key exposures include uranium-price and sales-timing risk, production and processing execution, customer concentration, debt service, future financing needs, permitting, and reclamation obligations. The filing states that the company had no SEC-defined proven or probable reserves; mineral resource estimates are not equivalent to reserves.
- Unusual Q2 items included the 200,000-pound purchased delivery and a one-time $0.2 million road-maintenance charge. A $248 thousand Q2 warrant revaluation gain contributed to reported earnings and is non-operating.
Important facts for investors to verify
- Whether production and drumming sustain the planned 750,000–850,000 pounds for 2015, and whether Lost Creek can operate at expected rates.
- Actual cash collections, timing and margins on contracted and spot sales, including the economics of purchased uranium deliveries and customer concentration.
- Cash available after restricted funds, near-term debt payments, covenant compliance and whether additional financing becomes necessary.
- Progress, NRC bonding approval, permits, funding requirements and schedule for Shirley Basin.
- The basis and limitations of resource estimates, given the absence of proven or probable reserves, and the adequacy of reclamation funding and estimates.