UR-Energy Inc. — FY2013 Form 10-K
Reporting period: Year ended December 31, 2013. Amounts are in U.S. dollars unless stated otherwise. The filing describes Ur-Energy as an exploration-stage uranium company; it began production and made its first sales at its Lost Creek, Wyoming ISR project during 2013, but had not established proven or probable mineral reserves.
Business context and operations
Lost Creek received final operational clearance in August 2013. Commissioning continued through year-end, when all processing circuits had been initiated. The company captured 190,365 pounds of U3O8, packaged 131,216 pounds, shipped 94,827 pounds to a conversion facility and sold 90,000 pounds to utility customers. It also acquired Pathfinder Mines in December 2013, adding the Shirley Basin and Lucky Mc properties in Wyoming.
Financial results and liquidity
| Metric | FY2013 / Dec. 31, 2013 | Comparable period |
|---|---|---|
| Revenue | $7.616 million | 2012: none |
| Gross profit | $4.520 million | 2012: none |
| Net loss | $30.353 million; $0.25 per share | 2012: $17.558 million; $0.15 per share |
| Operating cash flow | $(27.770) million | 2012: $(14.722) million |
| Investing cash flow | $(25.726) million | 2012: $(6.009) million |
| Financing cash flow | $43.791 million | 2012: $16.254 million |
| Cash and cash equivalents | $1.627 million | 2012: $11.536 million, plus $6.460 million short-term investments |
| Working capital | $2.266 million | 2012: $15.608 million |
| Notes payable | $39.000 million: $34 million State Bond Loan and $5 million RMBAH facility | 2012: $0.325 million |
| Total assets / shareholders’ equity | $105.336 million / $38.664 million | 2012: $69.483 million / $65.637 million |
Reported revenue includes $4.981 million of net uranium sales after $0.682 million in severance and ad valorem taxes, plus $2.635 million recognized from assigned contract deliveries. The 90,000 pounds sold had an average realized price of $55.34 per pound after direct taxes; reported total cost of sales was $3.096 million, or $34.40 per pound sold. Management cautioned that the per-pound cost was elevated by commissioning costs, a full quarter of costs and only partial-quarter sales; the reported gross profit is therefore not a clean measure of steady-state product margins.
Changes versus prior year
- Revenue began in 2013; 2012 had no sales. The company reported a larger net loss, with interest expense and development costs contributing to the increase.
- Operating cash use rose as Lost Creek construction and startup advanced. Investing included $23.990 million of capital-asset purchases and $5.319 million for mineral properties, principally Pathfinder.
- Financing included a $34 million Wyoming bond, a $5 million RMBAH redraw and a $5.1 million gross private placement. Cash and short-term investments fell substantially, while debt and asset retirement obligations increased.
- The company changed its accounting policy to expense wellfield development costs because it had not established proven or probable reserves. The 2012 comparative statements were restated, including approximately $4.5 million of additional development expense.
Outlook, risks and unusual items
- Management forecast approximately 1.0 million pounds of Lost Creek production in 2014, with about one-third expected to be sold under existing long-term contracts. Remaining production was expected to be sold at then-current spot prices unless additional contracts were secured.
- Management expected first-quarter 2014 production to be slightly below its initial plan due to maintenance and efficiency work, expected to finish in late February or early March. It projected total cost per pound sold to decline 5%–15% as volumes increased, subject to production and sales reaching targeted rates.
- At year-end, the company had six long-term uranium sales agreements. Uranium spot prices were $34.50 per pound at December 31, 2013, and the filing identified price volatility and dependence on utility demand as material risks.
- Management said current capital and expected sales timing should cover current obligations, but anticipated approximately $6.3 million of additional reclamation surety funding in 2014. Additional financing could be needed; availability and terms were not assured. Lost Creek assets secure the State Bond Loan, and Pathfinder assets secure the RMBAH facility.
- The 2013 loss included $5.654 million of debt-extinguishment costs from write-off of deferred financing costs, a $1.430 million mineral-property write-off, and a $1.006 million loss/write-off related to the Bootheel investment. The Pathfinder purchase-price allocation remained preliminary; acquired reclamation obligations were estimated at $5.7 million.
- A BLM administrative review concerning Lost Creek remained pending. A separate federal court challenge to the BLM authorization was rejected in September 2013. The filing also highlights permitting, environmental, reclamation, operating-ramp, uranium-price, funding, debt-covenant and resource-estimation risks.
- The 2013 PEA reported Lost Creek Property measured and indicated resources totaling 8.655 million pounds and inferred resources of 4.740 million pounds. These are Canadian NI 43-101 resources, not proven or probable reserves, and the filing cautions they may not be comparable to SEC reserve disclosures.
PricewaterhouseCoopers issued an unqualified opinion on the financial statements and reported effective internal control over financial reporting as of year-end. The 2012 comparative financial statements were restated for the accounting-policy change.
Investor verification priorities
- Confirm that Lost Creek’s production ramp, recovery rates, costs and 2014 production forecast were achieved; distinguish captured, packaged, shipped and sold pounds.
- Reconcile reported revenue and cash receipts, including the $2.635 million contract-assignment recognition and deferred amounts tied to future deliveries.
- Review available cash, near-term debt repayment obligations, covenant compliance and the funding plan for reclamation sureties and Shirley Basin work.
- Assess uranium sales contract volumes and pricing, spot-market exposure, and whether additional long-term contracts were obtained.
- Review the final Pathfinder purchase-price allocation, reclamation obligations, royalty conditions and progress toward a compliant Shirley Basin resource estimate.
- Consider the distinction between NI 43-101 resources and SEC-recognized reserves, and the effects of the wellfield-cost accounting policy and 2012 restatement.