Business context and reporting period
Energy Fuels Inc. filed this unaudited Form 10-Q for the quarter ended September 30, 2018. The company produces and processes uranium concentrates, including through its White Mesa Mill, and may recover vanadium as a by-product. It reported that it had no proven or probable reserves under SEC Industry Guide 7 and was classified as an exploration-stage company.
Financial results and position
Unless noted otherwise, figures are in U.S. dollars. Amounts below are in millions.
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $0.45 | $5.50 | $28.68 | $27.14 |
| Operating loss | $(10.22) | $(5.01) | $(13.50) | $(20.81) |
| Net loss | $(13.90) | $(4.88) | $(17.58) | $(19.96) |
| Basic loss per share | $(0.16) | $(0.07) | $(0.20) | $(0.28) |
- Q3 revenue consisted of alternate-feed processing; no uranium concentrate deliveries were recorded. Nine-month uranium sales were 550,000 pounds at a weighted-average price of $53.19 per pound.
- Q3 gross loss was $0.26 million; nine-month gross profit was $13.71 million, as presented in the filing.
- Operating cash flow was $0.39 million for the nine months, versus cash used of $5.47 million a year earlier. Investing activities used $20.08 million and financing activities provided $15.35 million.
- At September 30, cash and cash equivalents were $14.78 million, marketable securities $27.17 million, and working capital $51.27 million. Cash, cash equivalents and restricted cash totaled $36.33 million.
- Loans and borrowings were $17.25 million, consisting of convertible debentures; the company repaid its Wyoming bond loan, about $8.3 million, in September. Asset retirement obligations were $19.43 million on a discounted basis, versus $43.17 million undiscounted; restricted cash was $21.56 million.
Material changes versus prior comparable periods
- Q3 revenue declined sharply year over year, principally because there were no uranium deliveries in Q3 2018; nine-month revenue increased modestly.
- Nine-month net loss improved from $19.96 million to $17.58 million, while Q3 net loss widened from $4.88 million to $13.90 million. Q3 other expense included losses from fair-value changes in warrants and convertible debentures.
- Nine-month standby costs rose to $5.19 million from $2.98 million, reflecting lower mill activity. Inventory impairment increased to $3.06 million from $2.82 million.
- The company raised $25.64 million net through its at-the-market share offering during the first nine months and issued 12.57 million shares. From October 1 through November 1, it issued a further 1.51 million shares for $5.06 million. Shares outstanding were 89.53 million at September 30 and 91.04 million at November 1.
- Adoption of new revenue-recognition guidance reduced opening deferred revenue and increased opening accumulated equity by $2.47 million; prior-period figures were not restated.
Outlook, management commentary, risks and contingencies
- Management expected 2018 uranium recovery of 460,000–520,000 pounds; 328,000 pounds had been recovered in the first nine months. It expected one further 100,000-pound delivery in Q4. Alta Mesa and several mines remained on standby, and further Nichols Ranch wellfield development was deferred pending improved market conditions or suitable contracts.
- Existing long-term uranium sales contracts expire after 2018 deliveries. Management said 2019-and-later sales would be at spot prices or under new long-term contracts, if satisfactory terms became available. It stated that extended weak uranium prices could require additional capital or other funding measures, although it believed available resources would support its plan for at least 12 months.
- Management expected to begin vanadium recovery from White Mesa Mill pond solutions in November 2018. Potential recovery of up to 4.0 million pounds and a rate of 200,000–225,000 pounds per month were estimates dependent on successful ramp-up, costs, recoveries and market conditions; there were no vanadium sales contracts in place.
- The U.S. Department of Commerce initiated a Section 232 investigation into uranium imports in July 2018. Any trade remedy was uncertain. Management cited improving uranium and vanadium prices but also persistent uranium oversupply and weak market conditions.
- In the Canyon Project litigation, the Ninth Circuit remanded one claim to the district court. If plaintiffs succeed, the project could be required to remain on standby, potentially affecting future operations. Challenges to White Mesa Mill permits and an appeal concerning the Daneros expansion were also pending. The company said it did not expect the White Mesa challenges to have a material financial effect, but remediation scope and cost were undetermined.
- Other key risks include commodity-price volatility, availability of mill feed, permitting and environmental obligations, reclamation collateral requirements, and the ability to secure financing. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the expected Q4 uranium delivery occurred and the realized price, and how the expiration of legacy contracts affects future sales.
- Whether vanadium recovery began as planned, with commercial-scale recoveries, costs and sales terms supporting management’s estimates.
- Cash burn, liquidity and any further ATM share issuance or other financing; also assess the dilution and the convertible debentures’ December 2020 maturity.
- Outcomes and potential operating or remediation costs from the Canyon Project, White Mesa Mill and Daneros proceedings.
- Actual production, inventory impairment and standby costs relative to guidance, particularly if uranium prices or mill-feed availability weaken.