Energy Fuels Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019; amounts are U.S. dollars unless stated otherwise. Energy Fuels produces uranium and vanadium concentrates and processes uranium-bearing materials. The company described itself as exploration-stage under SEC Industry Guide 7 because it had not established proven or probable reserves.
Financial performance and position
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $3.07 million | $26.97 million | $4.74 million | $28.23 million |
| Operating income (loss) | ($11.50 million) | $7.12 million | ($21.63 million) | ($3.28 million) |
| Net income (loss) | ($9.31 million) | $7.14 million | ($21.45 million) | ($3.69 million) |
| Basic loss per share | ($0.10) | $0.09 income | ($0.23) | ($0.05) |
| Gross profit (loss), after inventory impairment | ($4.52 million) | $14.96 million | ($4.94 million) | $13.97 million |
- Revenue mix: Q2 2019 included $2.23 million from alternate-feed processing and other activities, $0.77 million from vanadium sales, and $0.07 million from uranium. The six-month totals were $2.73 million, $1.94 million, and $0.07 million, respectively.
- Cash flow: Operating activities used $22.99 million in the first half, versus $3.01 million generated in the prior-year period. Investing activities provided $16.12 million, mainly from marketable-security maturities and sales; financing provided $9.05 million, primarily ATM share proceeds.
- Liquidity: At June 30, cash and equivalents were $16.58 million, marketable securities $11.43 million, and working capital $42.60 million. Restricted cash was $20.00 million and is not freely available for general operations. Management said resources were sufficient for at least the next 12 months, but warned prolonged low uranium prices could require new capital or other measures.
- Debt and obligations: Loans and borrowings were $17.06 million, consisting of convertible debentures due December 31, 2020. Their interest rate ranges from 8.5% to 13.5%, linked to uranium prices. The recorded asset-retirement obligation was $20.25 million; undiscounted reclamation obligations were $41.73 million, with $20.00 million posted as collateral.
Changes versus the prior comparable period
- Revenue fell sharply, principally because the company had no significant uranium sales in 2019; Q2 2018 included 500,000 pounds of uranium sales, including term-contract deliveries. Existing uranium contracts had expired, leaving future uranium sales exposed to spot prices.
- First-half inventory impairment rose to $6.08 million from $2.35 million, reflecting lower uranium prices relative to production costs and lower vanadium prices. Q2 impairment alone was $4.91 million.
- First-half operating cash use increased substantially. The company cited operating losses and working-capital movements, including inventory changes, lower payables, and settlement of deferred revenue.
- Marketable securities declined to $11.43 million from $27.06 million at year-end 2018, partly reflecting $16.12 million of sales and maturities. Shares outstanding increased to 95.55 million from 91.45 million; ATM proceeds in the first half were $8.85 million.
Outlook, commentary, risks and unusual items
- Production outlook: The company forecast 50,000–125,000 pounds of uranium recovery for 2019, with 50,000–70,000 pounds expected from Nichols Ranch. It recovered about 40,000 pounds in the first half. It expected to produce vanadium at White Mesa through Q3 at roughly 160,000–200,000 pounds monthly, then place the program on standby subject to prices and conditions.
- Operating plans: Further Nichols Ranch wellfield development was deferred pending stronger uranium prices or suitable sales contracts; Alta Mesa and conventional mines remained on standby. The company planned to use White Mesa Mill capacity for stockpiled alternate-feed materials and processing opportunities.
- Sales and pricing: No uranium sales commitments were in place for 2019; production was expected to be added to inventory. Vanadium sales were to be made selectively on the spot market or held in inventory, with no vanadium sales contracts. Management described uranium and vanadium markets as uncertain and volatile.
- Policy uncertainty: A July 2019 presidential memorandum created a Nuclear Fuel Working Group to recommend ways to support domestic nuclear-fuel production. Management saw potential benefit but emphasized that no remedy was assured and the outcome remained uncertain.
- Processing agreement: A June agreement for New Mexico mine cleanup ore could generate $0.7–$3.5 million in processing revenue, depending on deliveries. The company would retain recovered uranium, estimated at 8,000–70,000 pounds. Ore deliveries began in late June; the material was stockpiled for a future mill campaign.
- Legal and environmental matters: Challenges involving the White Mesa Mill license and groundwater corrective-action plan remained outstanding. A Canyon Project claim was remanded for further consideration; success by plaintiffs could require a project standby and affect future operations. Daneros permitting challenges also remained pending. Management said it did not consider these challenges meritorious, but potential remediation or permitting costs were not determined and could be significant.
- Non-cash earnings effects: Q2 other income included a $1.85 million gain from changes in warrant-liability value and a $0.94 million gain on debenture remeasurement. These fair-value movements contributed to reported results and are not operating revenue.
- Subsequent financing: From July 1 through August 2, the company sold 0.86 million shares under its ATM for $2.70 million at an average price of $3.12.
Important facts for investors to verify
- Whether uranium and vanadium prices, sales volumes, or new contracts improve enough to support production and avoid further inventory impairment.
- Actual cash burn and unrestricted liquidity, particularly given operating cash use of $22.99 million in the first half and management’s warning that extended weak uranium prices may require financing.
- Whether the company can realize the expected economics of the New Mexico processing agreement and secure additional mill feed and toll-processing work.
- The outcome and potential costs of White Mesa, Canyon, and Daneros legal and permitting matters, and the adequacy of reclamation collateral against undiscounted obligations.
- The terms and maturity implications of the $17.06 million convertible debentures, along with dilution from ATM share sales, warrants, and equity compensation.