Ur-Energy Inc. — 2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016; quarterly figures below include the three months ended December 31, 2016. Amounts are U.S. dollars unless stated otherwise.
Business context
Ur-Energy explores, develops and produces uranium, principally through in situ recovery (ISR) at its Lost Creek operation in Wyoming, its only producing mine. The company remained classified as an exploration-stage issuer and reported no proven or probable mineral reserves under SEC standards. Shirley Basin is a principal development project; applications for its permits and licenses were in progress. The company’s shares trade on NYSE MKT and the TSX.
Financial results and key metrics
| Metric | 2016 | 2015 |
|---|---|---|
| Revenue | $27.305 million | $41.877 million |
| Gross profit (GAAP) | $11.457 million | $12.585 million |
| Net loss | $3.010 million | $0.795 million |
| Loss per share | $0.02 | $0.01 |
| Cash provided by operating activities | $3.333 million | $5.370 million |
| Cash and cash equivalents at year-end | $1.552 million | $1.443 million |
- Uranium production was 538,004 pounds captured, 561,094 pounds packaged and 579,179 pounds shipped to the converter. The company sold 562,000 pounds from production at an average $39.49 per pound. Reported uranium-sales gross profit was $6.342 million, or 28.6%; average cost was $28.20 per pound sold.
- Revenue included $5.085 million recognized on assignment of two 2016 contract deliveries to a third party. The remaining production sales were 462,000 contract pounds at an average $41.38 and 100,000 spot pounds at $30.75 per pound.
- Fourth-quarter revenue was $5.776 million and net income was $104,000. Quarterly results were uneven: the third quarter had $1.802 million net income, while the first and second quarters recorded losses of $2.989 million and $1.927 million, respectively.
- At December 31, working capital was negative $1.706 million; current assets were $6.506 million and current liabilities $8.212 million. The balance sheet included $7.557 million of restricted cash, principally collateral for reclamation surety bonds; it was not freely available cash.
- Debt principal was $24.514 million at year-end, comprising the Wyoming State Bond Loan secured by Lost Creek assets. The separate RMB facility was fully repaid in December. Asset retirement obligations were $26.061 million; contractual debt principal and interest totaled $28.188 million.
- Reported shareholders’ equity was $36.232 million and total assets were $89.940 million. The company raised $5.7 million net in a February share offering and issued additional shares through its at-market program.
Changes versus prior year
- Revenue fell about 35% from 2015, reflecting fewer pounds sold and lower average selling prices. Production captured declined from 783,547 to 538,004 pounds; production sales declined from 725,000 to 562,000 pounds.
- GAAP gross profit decreased by $1.128 million, while net loss widened by $2.215 million. The prior-year result included a $3.315 million income-tax recovery; 2016 also included a $1.089 million write-off of the Bootheel equity investment and a $62,000 Hauber property write-off.
- Operating cash flow declined by about $2.0 million. Cash on hand increased modestly, supported by equity financing, while $8.679 million of debt principal was repaid.
- Management slowed development at Lost Creek’s second mine unit (MU2) in response to weak uranium prices, focused on operating the existing MU1 wellfields, and reduced staff. Lower production increased unit cash costs during 2016.
- The uranium spot price was $20.25 per pound at year-end, versus $34.23 a year earlier; the quoted long-term price fell to $30 from $44.
Outlook, risks and unusual items
- For 2017, management reported 600,000 pounds contractually committed at an average price of approximately $51 per pound and forecast production of 250,000–300,000 pounds. It also entered purchase agreements for 410,000 pounds at an average cost of $22 per pound to help meet deliveries; some had already been delivered. No spot sales were forecast, although management retained that option if prices improved.
- Management planned controlled MU2 development, targeting operation of its first three header houses in the second half of 2017. It forecast 2017 gross profit of $13–$15 million, a 45%–50% margin, and a cash gross margin of 50%–55%. These are forecasts, not results.
- Unrestricted cash was reported at $11.3 million as of March 2, 2017. Management said it did not anticipate near-term additional funding needs under its current assumptions, but noted that financing might be required if cash sources proved insufficient.
- Key risks include volatile uranium prices and demand, dependence on a small number of utility customers and deliveries, funding and debt-service needs, operating and water-disposal risks, reclamation obligations, and permitting or regulatory delays. Applications to expand Lost Creek into LC East and the KM horizon remained under review; Shirley Basin required further permits and a source-material license.
- Resource estimates are not reserves and do not demonstrate economic viability. Management’s property impairment analysis used a $30-per-pound long-term uranium price and undiscounted cash flows; it indicated no impairment for Lost Creek or Shirley Basin. The Bootheel investment was fully impaired in 2016.
- The company reported no legal proceedings or unresolved SEC staff comments. Management and the auditor concluded that internal control over financial reporting was effective at year-end.
Most important facts for investors to verify
- Whether 2017 contracted deliveries, purchased uranium and forecast production can be reconciled on timing, quantities, costs and customer delivery terms.
- Whether forecast gross profit and cash generation are achievable given low production rates, rising unit costs and uranium-price exposure.
- Progress and timing of Lost Creek MU2, LC East and KM approvals, and Shirley Basin permitting and licensing.
- Debt repayment capacity, unrestricted liquidity, the availability of restricted cash, and the security interests over Lost Creek assets.
- The assumptions supporting resource estimates, mine life, impairment assessments and reclamation-cost estimates, noting that the company has no SEC-defined mineral reserves.