Energy Fuels Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Unaudited financial statements are presented in U.S. dollars; amounts below are in millions unless noted. Energy Fuels is an exploration-stage uranium company under SEC Industry Guide 7 and reported no proven or probable reserves.
Financial results and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $0.486 | $0.423 | $1.274 | $5.164 |
| Operating loss | $(9.348) | $(8.832) | $(23.624) | $(30.458) |
| Net loss | $(8.938) | $(6.939) | $(22.792) | $(28.387) |
| Loss per share | $(0.08) | $(0.07) | $(0.19) | $(0.30) |
| Operating cash flow | Not provided by quarter | Not provided by quarter | $(25.276) | $(34.698) |
- Q3 revenue was entirely from fees for ore received from a third-party uranium mine; the company made no uranium or vanadium concentrate sales. Revenue for the first nine months fell substantially as 2019 included vanadium sales and uranium toll-processing revenue.
- Gross margin was $0.348 million in Q3 and a loss of $0.370 million for the nine-month period, after inventory impairment. Product-sale margins are not representative because there were no concentrate sales in 2020.
- At September 30, cash and cash equivalents were $26.584 million, marketable securities $1.538 million, and working capital $44.68 million. Cash, cash equivalents and restricted cash totaled $46.812 million, including $20.228 million restricted as reclamation collateral.
- Net cash used in operations was $25.276 million for the nine months. Net financing cash inflow of $36.057 million included $44.642 million in net share proceeds and $8.303 million of debt repayments. Share issuance materially increased the share count.
- At September 30, current loans and borrowings were $7.898 million, representing convertible debentures. The company redeemed the remaining debentures on October 6, 2020 and reported no remaining short- or long-term debt thereafter. The redemption required payment at 101% of principal plus accrued interest.
- Total liabilities were $34.630 million; the asset retirement obligation was $20.406 million, against an undiscounted estimated decommissioning liability of $41.75 million.
Changes versus prior comparable periods
- Q3 net loss increased to $8.938 million from $6.939 million. Standby costs rose to $3.451 million from $0.869 million, while other income fell to $0.628 million from $2.312 million, including smaller fair-value gains.
- Nine-month net loss improved to $22.792 million from $28.387 million, helped by lower inventory impairment ($1.644 million versus $8.412 million) and lower development, permitting and land-holding costs. This improvement occurred despite revenue falling to $1.274 million from $5.164 million.
- Nine-month standby costs increased to $8.104 million from $3.204 million, primarily reflecting reduced Nichols Ranch recovery activity and increased Mill standby activity.
- Inventory impairment remained material but declined year over year; management attributed it to uranium prices below Nichols Ranch production costs.
Outlook, risks and unusual items
- Management said available resources should fund its business plan for at least the next 12 months, while warning that prolonged low uranium prices could require additional capital or other measures. The company raised $44.642 million net through share offerings in the first nine months and issued another $1.35 million net through its ATM after quarter-end.
- 2020 production guidance included 125,000–175,000 pounds of uranium overall and approximately 6,000 pounds from Nichols Ranch. The company reported approximately 169,400 pounds recovered through September, including 6,200 pounds at Nichols Ranch. It expected year-end uranium inventory of 670,000–700,000 pounds and planned to keep production reduced pending improved markets or suitable contracts.
- The company had no uranium sales contracts and chose not to commit 2020 uranium production to sales; future uranium sales are exposed to spot prices. Management reported uranium spot and long-term prices declined during Q3. Vanadium production was generally to be held in inventory unless prices improved materially.
- White Mesa Mill activity depended on alternate feed, pond-return recovery and cleanup-related material. The company was testing the potential to process rare-earth-bearing ores at the Mill, but commercial viability, required permits and customer arrangements remained uncertain.
- Management cited uncertainty around COVID-19, commodity prices, uranium-market recovery, U.S. government uranium-reserve proposals and appropriations, permitting, feedstock availability, reclamation costs and litigation. The Canyon Project appeal and challenges involving the White Mesa Mill and Daneros remained matters to monitor; potential remediation or project delays could be significant, though management did not expect a material adverse effect from the described Mill challenges.
- The company recorded approximately $0.80 million of one-time management-streamlining costs. It also acquired PFN logging technology and equipment for $0.5 million.
- Disclosure controls were deemed ineffective at September 30 due to previously disclosed material weaknesses in internal control over financial reporting. Management expected remediation before year-end 2020, subject to controls operating effectively and successful testing.
Investor verification priorities
- Confirm the October 6 debenture redemption was completed as disclosed and assess the resulting cash impact and absence of debt.
- Track cash burn, restricted reclamation collateral, and whether management’s 12-month liquidity assessment remains supportable without further equity issuance.
- Reconcile uranium production guidance, inventory levels and any future sales contracts against actual production and spot-market prices.
- Evaluate whether White Mesa Mill feed sources, rare-earth processing tests and U.S. uranium-reserve policy translate into funded, permitted commercial activity.
- Review progress and testing evidence for remediation of the material weakness in internal controls, and monitor outstanding project-related legal and permitting matters.