Ur-Energy Inc. — Q3 2017 Form 10-Q
Reporting period: Three and nine months ended September 30, 2017. Financial statements are unaudited; dollar amounts below are U.S. dollars. Unless stated otherwise, financial statement amounts are in millions.
Business context
Ur-Energy is an exploration-stage uranium company operating its Lost Creek in-situ recovery mine in Wyoming. It also holds the Shirley Basin and other Wyoming properties. The company reports no proven or probable mineral reserves. Uranium sales are made primarily under term contracts, with additional spot sales when market conditions and available production allow.
Financial and operating highlights
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Sales | $11.693m | $12.068m | $38.342m | $21.529m |
| Gross profit | $0.536m | $6.250m | $14.317m | $8.762m |
| Gross margin | About 5% | About 52% | About 37% | About 41% |
| Operating income (loss) | $(2.683)m | $3.208m | $4.507m | $(0.249)m |
| Net income (loss) | $(3.003)m | $1.803m | $3.502m | $(3.114)m |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $2.766m | $2.566m |
- Q3 sales were 289,000 pounds of U3O8 at an average $40.39 per pound; 109,000 pounds were purchased uranium and 180,000 were produced inventory. No spot sales occurred during the quarter.
- Nine-month sales comprised 780,000 pounds at an average $49.09 per pound, including 519,000 purchased pounds. The company attributed the period’s higher revenue largely to increased volumes, including purchased uranium.
- Q3 production was below the company’s projected range: 52,812 pounds captured and 48,336 pounds drummed. Nine-month production was 197,409 pounds captured and 193,551 pounds drummed.
- Cash and cash equivalents were $2.146m at September 30, versus $1.552m at December 31, 2016. Restricted cash was $7.557m at both dates and is pledged against reclamation surety bonds. The company reported unrestricted cash of $9.1m as of October 25, after receiving $7.8m for September uranium sales in early October.
- Notes payable had a $21.071m gross principal balance ($20.585m net of deferred financing costs), including $4.704m current and $15.881m long-term carrying amounts. The Wyoming loan bears fixed interest of 5.75% and matures October 2021.
- Asset retirement obligations were $26.910m at September 30; estimated settlement payments extend through 2033. The company reported $27.1m of reclamation surety-bond coverage, collateralized in part by restricted cash.
- Inventory was $1.720m, down from $4.109m at year-end. The company recorded lower-of-cost-or-net-realizable-value reductions of $1.326m in Q3 and $2.219m year to date.
Material changes and management commentary
- Q3 gross profit fell to $0.536m from $6.250m a year earlier, and the company swung to a $3.003m net loss from $1.803m net income. Management cited reduced production, fixed production and depreciation costs, and the inventory valuation reduction. Q3 average revenue per pound was $40.39, while average cost per pound sold was $38.61.
- For the nine months, the company returned to profitability: net income was $3.502m versus a $3.114m loss in 2016. Gross profit increased, while interest expense declined with debt repayments. The 2016 comparison included equity-investment write-offs and revenue from an assigned delivery contract.
- Production was deliberately constrained in response to the weak uranium market. Management said Q3 total production costs fell from Q2, but unit costs rose as fewer pounds were produced. Q3 cash gross profit was reported at $3.7m, distinct from GAAP gross profit, due to non-cash costs and inventory accounting.
- The average spot uranium price was approximately $20.33 per pound at quarter-end, well below the company’s average realized price. Management said market conditions did not warrant accelerated Mine Unit 2 development.
- During 2017, the company sold 1,536,169 shares through its at-the-market program for approximately $1.1m net proceeds and received approximately $0.3m from option exercises. It repaid $3.443m of debt principal during the nine months.
Outlook, risks, and contingencies
- Management maintained 2017 production guidance of 250,000–300,000 dried and drummed pounds. It expected Q4 production of 65,000–75,000 pounds, the second Mine Unit 2 header house to come online in Q4 2017, and the third in early 2018. Output may change with operational conditions and market indicators.
- The company did not anticipate further uranium sales in 2017; the next contract sales were scheduled for early January 2018. Through September, it had sold 780,000 pounds, and stated those sales were under contract.
- Amendments to Lost Creek permits for the KM horizon and LC East remained under regulatory review. Wyoming continued its technical review of the Shirley Basin mine permit application; timing of approvals and the state uranium-recovery program remained uncertain.
- Management said major capital projects may require operating cash flow, available cash, or additional financing. Projects could be delayed if funding is inadequate; debt or equity financing may not be available on acceptable terms. The company also disclosed debt covenant and servicing risks.
- Key risks include persistently weak uranium prices, production and cost variability, permitting delays, reclamation obligations, financing needs, and the absence of proven and probable reserves. Management reported no material risk-factor changes, no new material legal proceedings, and effective disclosure controls.
Important facts for investors to verify
- Whether Q4 and full-year production guidance was achieved, and whether Mine Unit 2 header houses were brought online as planned.
- Collection and timing of uranium-sale receivables: accounts receivable was $7.897m at quarter-end, including $7.821m from one undisclosed customer; the filing says $7.8m was collected in early October.
- Inventory valuation assumptions and the effect of continued low uranium prices on future write-downs and reported margins.
- Liquidity and financing needs relative to debt repayments, planned development, and the company’s reliance on future uranium sales or additional capital.
- Regulatory progress at Lost Creek and Shirley Basin, and the continuing distinction between reported mineral resources and SEC-defined reserves.
- The MD&A states operating cash flow was $5.6m for the comparable 2016 period, while the cash-flow statement reports $2.566m; investors should check the filing’s reconciliation or any subsequent correction.