Energy Fuels Inc. — Q2 2018 Form 10-Q
Reporting period: Three and six months ended June 30, 2018. Financial amounts are in U.S. dollars; statements are presented in thousands except per-share amounts. The company produces and processes uranium concentrates, including through its White Mesa Mill and in-situ recovery operations. It reported that it had no proven or probable reserves under SEC Industry Guide 7.
Key financial results
| Metric | Q2 2018 | Q2 2017 | First half 2018 | First half 2017 |
|---|---|---|---|---|
| Revenue | $27.0 million | $17.9 million | $28.2 million | $21.6 million |
| Gross profit | $15.0 million | $4.9 million | $14.0 million | $6.5 million |
| Operating income (loss) | $7.1 million | $(7.7) million | $(3.3) million | $(15.8) million |
| Net income (loss) | $7.1 million | $(4.5) million | $(3.7) million | $(15.1) million |
| Basic earnings (loss) per share | $0.09 | $(0.06) | $(0.05) | $(0.22) |
| Cash from operating activities | Not separately presented for the quarter | $3.0 million provided | $4.0 million used |
- Q2 uranium-concentrate revenue was $26.8 million; alternate-feed processing and other revenue was $0.2 million, down from $2.8 million a year earlier. The filing attributes the quarterly revenue increase primarily to higher uranium delivery volume.
- Q2 cost of goods sold averaged $21.34 per pound, versus $30.91 in Q2 2017. Inventory impairment was $1.3 million for the quarter and $2.3 million for the first half.
- Q2 other income was $0.5 million, compared with $3.7 million in Q2 2017. Fair-value movements in warrants, debentures and investments, as well as asset-sale gains, affected results; these items make reported earnings less indicative of recurring operations.
- At June 30, cash and cash equivalents were $43.2 million and restricted cash was $21.6 million. Working capital was $55.25 million. Total assets were $202.8 million and total liabilities were $54.2 million.
- Loans and borrowings totaled $24.7 million, including $15.5 million of convertible debentures and a $9.2 million Wyoming bond loan. The debentures mature in December 2020 and bear a variable rate of 8.5% to 13.5%, linked to uranium prices.
- First-half cash flow included $22.1 million of net ATM share proceeds and $2.9 million received from the Reno Creek sale. The company issued 11.2 million shares through the ATM during the first half; shares outstanding rose to 86.6 million from 74.4 million at year-end 2017.
Material changes versus prior comparable periods
- Q2 revenue increased 51% year over year, while the company moved from a Q2 loss to profit. First-half revenue rose 30%, and the first-half net loss narrowed substantially.
- Quarterly results benefited from higher uranium sales and lower unit costs, while first-half operating costs included higher standby costs: $3.9 million versus $2.2 million. Management attributed the increase mainly to lower toll-milling activity at White Mesa.
- First-half development, permitting and land-holding expense declined to $2.6 million from $4.5 million; general and administrative expense declined to $7.2 million from $7.8 million, primarily due to lower headcount.
- Cash and cash equivalents increased from $18.6 million at December 31, 2017 to $43.2 million at June 30, 2018, substantially supported by equity issuance. Inventory fell to $10.3 million from $16.6 million.
- Adoption of the new revenue standard on January 1, 2018 reduced opening accumulated deficit by $2.47 million through a cumulative accounting adjustment related primarily to disposal contracts.
Outlook, commentary and risks
- Management forecast 2018 uranium production of 460,000–520,000 pounds; 171,000 pounds had been produced in the first half. The forecast included 140,000–160,000 pounds from Nichols Ranch and 320,000–360,000 pounds recovered at White Mesa for the company’s own account.
- The company planned to defer further Nichols Ranch wellfield development and keep Alta Mesa on standby until uranium-market conditions improve or suitable contracts are available. Management expected White Mesa processing to continue through year-end and generate positive cash flow, subject to feed availability and economics.
- Management expected to begin recovering vanadium from White Mesa pond solutions in late 2018 or early 2019, initially targeting approximately 500,000 pounds of V2O5. This plan and longer-term recovery potential depend on costs, recoveries and market conditions.
- Management stated it believed it had sufficient cash and resources for at least the next 12 months, but warned that prolonged low uranium prices could require additional capital or other funding measures. After the planned 2018 deliveries, future uranium sales would depend on spot prices unless new long-term contracts are secured.
- The company and Ur-Energy filed a Section 232 trade petition seeking import restrictions or other remedies. The Department of Commerce initiated an investigation on July 18, 2018; the outcome and any effect on uranium prices are uncertain.
- Uranium spot prices rose during Q2, ending at $22.75 per pound; the reported July 31 spot price was $25.85. Management cited persistent oversupply and market uncertainty. It also described improving vanadium prices and tight supply as potential opportunities.
- Key contingencies include challenges to White Mesa Mill license and permit renewals, an appeal concerning the Daneros expansion, and a pending rehearing petition in the Canyon Project litigation. The company said it did not expect the White Mesa challenges to have a material effect, but noted remediation costs under a revised plan are not yet determined. A prolonged Canyon stoppage, if ordered, could significantly affect future operations.
- Restricted cash of $21.6 million supported reclamation surety arrangements against an undiscounted asset-retirement obligation of $43.3 million. The company identified reclamation estimates, commodity prices, permitting, feed availability and access to capital as material uncertainties.
Most important facts for investors to verify
- Whether the 2018 production and White Mesa processing forecasts were achieved, and whether the mill generated the expected cash flow.
- How much of Q2 and first-half earnings came from recurring uranium operations versus fair-value changes and asset-sale gains.
- Cash availability after excluding restricted cash, future operating needs, debt service and reclamation collateral requirements.
- Potential dilution and funding needs: ATM share issuance, post-quarter ATM sales, and the terms and repayment alternatives for the 2020 debentures.
- Uranium sales pricing and contract coverage after 2018, including the company’s ability to secure satisfactory new term contracts.
- Results and timing of the Section 232 investigation, along with outcomes of the White Mesa, Daneros and Canyon proceedings.
- Whether vanadium recovery plans are technically and economically viable; the filing’s projections are forward-looking and conditional.