Business context and reporting period
Ur-Energy Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2019. The company explores, develops and produces uranium in the United States, operating its Lost Creek in-situ recovery mine in Wyoming. It has not established proven or probable mineral reserves. Unless noted otherwise, financial amounts below are in U.S. dollars.
Financial performance and position
| Metric | Q2 or June 30, 2019 | Comparable period or prior year-end |
|---|---|---|
| Sales | $11.479 million | Q2 2018: $3.807 million |
| Gross profit (loss), GAAP | $0.316 million | Q2 2018: $1.582 million |
| Net income (loss) | $(2.031) million | Q2 2018: $2.591 million |
| Six-month sales | $16.291 million | Six months 2018: $23.479 million |
| Six-month net income (loss) | $(6.333) million | Six months 2018: $9.009 million |
| Cash from operating activities, six months | $2.664 million | Six months 2018: $2.413 million |
| Cash and cash equivalents | $6.536 million | December 31, 2018: $6.372 million |
| Restricted cash | $7.461 million | December 31, 2018: $7.458 million |
| Total assets | $93.113 million | December 31, 2018: $100.363 million |
| Total liabilities / shareholders’ equity | $47.125 million / $45.988 million | December 31, 2018: $48.516 million / $51.847 million |
- Q2 sales were 265,000 pounds of U3O8 under term contracts, averaging $43.31 per pound. The company reported a 21.4% gross margin excluding $2.137 million of lower-of-cost-or-net-realizable-value (NRV) inventory charges; GAAP gross margin was approximately 2.8%.
- For the six months, cost of sales included $4.103 million of NRV charges, contributing to a GAAP gross loss of $18,000. These charges reflect inventory valuation, not solely costs attributable to pounds sold.
- Six-month investing cash outflow was $0.133 million; financing cash outflow was $2.428 million, including $2.555 million of debt repayments, partly offset by option proceeds. Cash, cash equivalents and restricted cash together increased $0.167 million.
- Balance-sheet debt, net of deferred financing costs, was $12.171 million: $5.214 million current and $6.957 million long-term. The underlying Sweetwater County loan principal was $12.441 million, bears 5.75% interest and is scheduled to mature October 1, 2021. Asset retirement obligations were $30.671 million, with estimated settlements extending through 2033.
Material changes versus prior comparable periods
- Q2 sales increased from $3.807 million in 2018, while six-month sales fell from $23.479 million. The company sold more produced inventory in 2019; purchased inventory made up most 2018 sales.
- Despite higher Q2 sales, GAAP net income shifted to a loss. The 2018 comparable quarter included $3.540 million of other income from an assignment of contract; 2019 had no comparable gain. The 2019 periods also included material NRV inventory charges.
- Q2 Lost Creek production was 13,146 pounds captured and 13,296 pounds drummed, down from 22,551 captured and 21,015 drummed in Q1 2019. Management attributed the lower output to declining production from mature header houses and intentionally constrained production amid weak uranium prices.
- Production cost per pound rose as volumes fell. Management reported Q2 cash costs of $20.08 per pound captured and $85.29 per pound drummed; these are non-GAAP measures and are sensitive to production volume.
Outlook, management commentary and risks
- Management forecast 665,000 pounds of 2019 term-contract deliveries at an average price of approximately $48 per pound. Remaining scheduled sales were 122,500 pounds in Q3 at an expected $42 per pound and 180,000 pounds in Q4 at $60 per pound. It projected gross profit from uranium sales of approximately $1.7 million in Q3 and $6.3 million in Q4.
- The company had purchase contracts for 500,000 pounds during 2019 at an average cost of approximately $26 per pound. Remaining purchases were scheduled at 122,500 pounds in Q3 at $28 per pound and 180,000 pounds in Q4 at $24 per pound.
- Management reduced 2019 Lost Creek production guidance to 50,000–75,000 pounds and did not anticipate further MU2 development during the remainder of the year. It planned further cost reductions, including significant staffing cuts, while retaining personnel needed to maintain regulatory compliance and preserve the ability to ramp up.
- After the President declined to impose uranium import adjustments under the Section 232 trade action on July 12, 2019, a U.S. Nuclear Fuel Working Group was tasked with recommendations due within 90 days. The outcome and any effect on the uranium market were uncertain. Spot uranium was approximately $24.60 per pound at quarter-end and $25.38 at July 31.
- Lost Creek LC East permit amendments remained under review by Wyoming regulators; management anticipated approvals in 2019 or early 2020. Shirley Basin state and federal permitting reviews were ongoing, with approvals anticipated in 2019. Timing and outcomes were uncertain.
- Liquidity risks include uneven cash flows from large, intermittent uranium sales, continued depressed uranium prices, reliance on inventory sales and possible need for additional financing. Management reported unrestricted cash of $6.1 million at July 31 and stated that financing, if needed, might not be available on acceptable terms. Restricted cash of $7.461 million supports reclamation surety bonds and is not freely available for operations.
- Other notable risks include the absence of proven and probable reserves, uranium price and demand volatility, permitting and environmental obligations, and the company’s ability to service debt and comply with covenants. The filing reported no new legal proceedings or material changes to previously disclosed risk factors.
Important facts for investors to verify
- Reconcile the filing’s differing reported first-half average realized prices: the operating table gives $44.94 per pound, while the outlook discussion says $48.86 for sales through June 30. The filing text does not provide a clear reconciliation.
- Confirm the expected 2019 sales and purchase schedules, contract prices and projected quarterly gross profit, which depend on completing deliveries and on the stated cost assumptions.
- Review the NRV inventory adjustments and underlying price assumptions: $4.103 million was recorded in the first half, materially affecting reported gross profit and earnings.
- Confirm the debt balance and repayment schedule against the filing’s differing presentations of net carrying value, principal and the MD&A reference to a $13.7 million loan balance.
- Monitor cash after planned workforce reductions, reclamation obligations and restricted-cash requirements, as well as the Working Group’s recommendations and the status of Lost Creek and Shirley Basin permits.