Ur-Energy Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. Ur-Energy is a uranium mining and recovery company operating its Lost Creek in-situ recovery project in Wyoming. The company identifies as an exploration-stage company under SEC Industry Guide 7 and has not established proven and probable mineral reserves.
Financial and operating results
Amounts below are in U.S. dollars; financial statement figures are in millions unless stated otherwise.
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Revenue | $19.672 | $14.828 |
| Gross profit | $9.914 | $8.533 |
| Gross margin | 50.4% | 57.5% |
| Income from operations | $6.668 | $5.559 |
| Net income | $6.418 | $5.189 |
| Basic / diluted earnings per share | $0.04 / $0.04 | $0.04 / $0.03 |
| Cash provided by operating activities | $6.434 | $6.566 |
- Uranium sales were 380,000 pounds at an average $51.74 per pound. 370,000 pounds were purchased inventory sold under term contracts at an average $52.50 per pound; 10,000 pounds of company-produced inventory were sold at $23.75 per pound. Purchased uranium represented approximately 99% of uranium sales revenue.
- Cost of sales was $9.758 million. Reported gross profit was approximately $9.9 million; the company recorded an approximately $0.1 million inventory valuation reduction during the quarter.
- Operating expenses were $3.120 million, including $0.766 million exploration and evaluation, $0.432 million development, and $1.922 million general and administrative expense. G&A increased year over year, partly due to legal and consulting costs related to the trade action.
- At March 31, cash and cash equivalents were $9.169 million; restricted cash was $7.458 million and pledged as collateral for reclamation surety bonds. Inventory was $6.998 million. Current assets were $17.197 million versus current liabilities of $9.326 million.
- Notes payable totaled $18.268 million net of deferred financing costs ($18.693 million principal); the loan bears fixed interest of 5.75%, is secured by Lost Creek project assets, and matures in quarterly installments through October 2021. Asset retirement obligations were $27.162 million; estimated undiscounted future reclamation costs were $26.9 million.
- Operating cash flow was $6.434 million, investing cash use was $0.060 million, and financing cash use was $1.169 million, principally debt repayment. Cash, cash equivalents and restricted cash ended the quarter at $16.627 million. Management reported unrestricted cash of $6.3 million as of May 2, 2018.
Changes versus the prior comparable period
- Revenue rose approximately 33% and net income approximately 24% year over year. Gross profit increased, but gross margin fell from 57.5% to 50.4%; average realized price declined from $59.28 to $51.74 per pound.
- Sales volume increased to 380,000 pounds from 250,000 pounds. Q1 2018 sales were predominantly purchased uranium, while only 10,000 pounds came from production.
- Operating cash flow was slightly lower year over year despite higher net income, with inventory growth consuming $2.483 million of cash.
- Cash and cash equivalents increased from $3.879 million at December 31, 2017 to $9.169 million at March 31, 2018. Debt principal repayments continued.
Outlook, commentary and risks
- Management’s 2018 production guidance remained 250,000–300,000 pounds dried and drummed. The second Mine Unit 2 header house began operating in January; the third was expected to come online in early May. Q2 production target was 85,000–95,000 pounds dried and drummed.
- Management said it was limiting development and production in response to weak uranium market conditions. The reported quarter-end spot price was approximately $21.05 per pound, compared with the company’s average $51.74 realized sales price. Management noted that production costs per pound are affected by relatively fixed costs and lower production rates.
- A final 100,000-pound term sale at $37.90 per pound was scheduled for early June 2018; a related purchase contract covered 90,000 pounds at $22.25 per pound. Management said the next contract sales were scheduled in early June.
- The company and Energy Fuels petitioned the U.S. Department of Commerce under Section 232, seeking measures including a quota reserving 25% of the U.S. nuclear market for domestic uranium production. The investigation and any remedy remained uncertain.
- Permitting for uranium recovery at LC East continued, with approvals anticipated in 2018; the company withdrew the application for two proposed Lost Creek mine units. Shirley Basin permitting and related authorization work continued, with a source-material license application to the Wyoming program anticipated in 2018.
- Management expected to fund major projects from operating cash flow, cash on hand or additional financing. It cautioned that projects could be delayed or financing sought if available funds are insufficient, and that financing may not be available on acceptable terms. The company had not used its at-the-market equity facility in 2018.
- Other relevant risks include uranium price volatility, continued losses or limited profitability, permitting and regulatory uncertainty, financing needs, reclamation obligations, and the lack of SEC-defined mineral reserves. The filing reported no material change to previously disclosed risk factors and no new material legal proceedings.
Investor facts to verify
- Whether the projected 250,000–300,000-pound 2018 production range and third header-house startup were achieved.
- Actual cash collections, unrestricted cash, and financing needs after the scheduled June contract sale and related uranium purchase.
- Uranium market prices and the economics of selling inventory into existing term contracts, particularly given spot prices below reported inventory costs.
- Progress and outcomes of the Section 232 investigation and LC East and Shirley Basin permitting.
- Customer and sales concentration: one undisclosed customer accounted for 79.5% of Q1 revenue and another for 19.3%, according to the filing’s sales breakdown.
- Debt repayment capacity and the adequacy of restricted cash and surety-bond coverage relative to reclamation obligations.