UR-ENERGY INC quarterly report, Q3 FY2014

Ur-Energy Inc. — Q3 2014 Form 10-Q

Reporting period: Three and nine months ended September 30, 2014. Financial figures are in U.S. dollars; dollar amounts below are in millions unless otherwise stated. The company operates the Lost Creek uranium project in Wyoming and began production in August 2013. It reports as an exploration-stage company and has not established SEC-defined proven or probable reserves.

Financial and operating performance

Metric	Q3 2014	Nine months 2014	Comparable 2013
Revenue	$7.329	$22.712	$0
Gross profit / margin	$3.577 / 48.8%	$8.551 / 37.7%	Not applicable
Operating expenses	$6.366	$13.263	$7.323 / $23.233
Operating loss	$2.789	$4.712	$7.323 / $23.233
Net loss	$3.500	$6.252	$7.336 / $24.192
Loss per share	$0.03	$0.05	$0.06 / $0.20

Comparable-period figures are shown as Q3 / nine months. The 2013 financial statements were restated to expense certain wellfield development costs rather than capitalize them. The change increased 2013 development expense and loss per share; 2013 revenue was nil because commercial deliveries and sales began in December 2013.

Sales and production: Q3 sales were 100,000 pounds of U₃O₈ at an average $59.96 per pound. Nine-month sales were 417,760 pounds at an average $47.67 per pound, generating $19.916 million of uranium sales. Reported revenue also included $2.507 million from assigned contract deliveries and other items.
Cash flow: Operating activities used $1.258 million and investing activities used $1.409 million in the first nine months; financing activities provided $4.434 million. Cash and equivalents were $3.372 million at September 30, up from $1.627 million at year-end. Management reported approximately $4.5 million cash at October 30.
Liquidity: Current assets were $13.720 million and current liabilities $12.465 million. Restricted cash of $6.055 million is principally pledged for reclamation surety bonds and is not generally available for operations.
Debt and obligations: Notes payable totaled $42.375 million, comprising the $34 million Sweetwater County bond and $8.375 million RMBAH facility. The RMBAH facility bears approximately 8.75% interest and matures in 2016; the bond bears 5.75%, with principal payments beginning January 2015. Asset retirement obligations were $23.308 million; estimated undiscounted future reclamation cash needs were $24.8 million through 2033.

Changes versus prior period

Revenue began to contribute materially in 2014, versus no sales in the 2013 comparable periods. The nine-month net loss narrowed to $6.252 million from the restated $24.192 million loss, substantially reflecting lower development expense after the 2013 construction build-out.
Q3 cost per pound sold increased to $37.52 from $32.54 in Q2 2014, as lower production and water-disposal remediation spread fixed costs over fewer pounds. Nine-month cost per pound sold was $33.90.
Cash increased from year-end, supported in part by additional RMBAH borrowing and option exercises. Debt also rose from $39.153 million at December 31, 2013 to $42.375 million at September 30, 2014.
After reviewing Pathfinder reclamation estimates, the company increased its asset retirement obligation by $5.698 million during the first nine months. It also wrote off $0.422 million of mineral property costs after abandoning two Canadian claims.

Outlook, commentary and risks

Management expected approximately 150,000 pounds of production in Q4, bringing estimated 2014 production to about 580,000 pounds. It expected Q4 contractual deliveries of 100,000 pounds for approximately $6.5 million revenue.
Existing contracts were expected to cover approximately 518,000 pounds in 2014 at an average $51.10 per pound and 630,000 pounds in 2015 at $50.10 per pound. Management described the spot market as weak and was reluctant to make spot sales; additional uncontracted sales would be exposed to market prices.
Water-management work continued at Lost Creek, and a third disposal well was under construction. The company expected completion before year-end at an estimated total cost of $3.2 million, with approximately $1.2 million of additional spending anticipated after Q3. Production rates could fluctuate during commissioning and remediation.
The company expected to add $2.1 million of cash collateral for surety bonds before year-end and cited approximately $3.0 million of anticipated 2014 reclamation surety funding. It stated that additional funding might be needed to manage cash timing and commitments, although it believed current obligations could be met. A $100 million shelf registration became effective in September; no securities had been sold under it by October 30.
Management reported Shirley Basin measured and indicated resources of 8.816 million pounds at an average grade of 0.23% eU₃O₈. These are NI 43-101 mineral resources, not SEC-defined reserves, and are not assurance of economic recovery.
Key risks include uranium price and sales timing, customer concentration, production and water-disposal performance, permitting for Lost Creek expansions and Shirley Basin, reclamation funding, debt service, and possible need for additional capital. The filing said there were no material changes to previously disclosed risk factors and no new material legal proceedings.

Important facts for investors to verify

Whether Lost Creek can resolve water-disposal issues, sustain production and lower unit costs as volumes stabilize.
Actual Q4 production and deliveries, realized uranium prices, collections from customers, and the concentration and collectability of receivables. One customer represented $5.996 million of September 30 receivables.
Cash requirements for the disposal well and surety collateral, plus the company’s ability to fund them while meeting debt repayments beginning in 2015.
The updated Pathfinder reclamation estimate and whether the $23.308 million recorded asset retirement obligation and related bonding adequately reflect future costs.
Progress and permitting at Shirley Basin and the distinction between its reported Canadian-standard resources and SEC-defined reserves.