UR-ENERGY INC quarterly report, Q1 FY2015

UR-Energy Inc. — Q1 2015 Form 10-Q

Reporting period: Three months ended March 31, 2015. Ur-Energy is a uranium producer and exploration-stage company under SEC Industry Guide 7, operating its Lost Creek in-situ recovery project in Wyoming. The company has not established SEC-defined proven or probable mineral reserves.

Financial and operating results

Metric	Q1 2015	Q1 2014
Revenue	$7.387 million	$6.147 million
Gross profit	$1.997 million	$2.907 million
Gross margin	27%	Approximately 46% on a comparable tax presentation
Operating loss	$1.360 million	$1.035 million
Net loss	$2.124 million	$1.948 million
Loss per share, basic and diluted	$0.02	$0.02
Cash from operating activities	$0.628 million	$1.242 million

Sold 146,000 pounds of U3O8 at an average $50.55 per pound under long-term contracts; no spot sales were made. Product sales were $7.380 million, with the difference to reported revenue principally reflecting disposal fees.
Captured 192,280 pounds, drummed 177,057 pounds and shipped 171,505 pounds. Captured pounds rose 29% from Q4 2014.
Cost of sales was $5.390 million. Reported cost per pound sold was $36.91 and gross profit per pound was $13.64. The average realized price was lower than in Q1 2014, while total cost per pound was higher.
At March 31, cash and cash equivalents were $2.182 million, down from $3.104 million at year-end. Current assets were $8.184 million versus current liabilities of $15.818 million. Restricted cash of $7.556 million was pledged primarily for reclamation surety bonds and is not ordinary operating cash.
Total notes payable were $38.746 million: $10.934 million current and $27.812 million long-term. Debt is secured by Lost Creek assets or Pathfinder assets, as applicable. The quarter included $1.822 million of debt repayments.
Asset retirement obligations were $23.571 million; estimated undiscounted future settlement costs were $24.8 million, with payments extending through 2033.

Changes versus the prior comparable period

Revenue increased 20%, but gross profit declined 31% and net loss widened 9%. A lower average sales price per pound was the principal pressure on gross profit.
Sales volume rose from 110,000 pounds in Q1 2014 to 146,000 pounds. The reported Q1 2014 sales and cost figures were affected by a later accounting presentation change for severance and ad valorem taxes; on the comparable presentation, 2014 gross profit was approximately $3.077 million.
Development expense increased to $1.029 million from $0.574 million, largely due to Lost Creek-area drilling. Exploration expense fell to $0.685 million from $1.018 million, and general and administrative expense fell to $1.517 million from $2.312 million, principally reflecting lower payroll-related costs.
Cash from operations decreased to $0.628 million from $1.242 million. Investing used $0.024 million; financing used $1.520 million, primarily for debt repayments.

Outlook, management commentary and risks

Management expected 2015 sales of 630,000 pounds at an average realizable price of $50.10 per pound, while planning production of 750,000–850,000 pounds, or about 70,000 pounds per month. Excess production was expected to build inventory. Management anticipated similar or slightly better full-year gross margins, but lower margins in Q2 due to a lower-priced contract.
Management reported unrestricted cash of $3.8 million at April 29, 2015, and said it expected to meet current obligations without new financing. It noted that cash needs could arise from uneven sales receipts or Shirley Basin development; financing may be needed and may not be available on acceptable terms.
The company accelerated a 200,000-pound delivery from September to April and purchased the pounds from a trader at spot prices. Management said this generated approximately $4.0 million of net cash proceeds and reduced its remaining production requirements by 200,000 pounds.
Lost Creek production was slowed slightly late in the quarter for process-circuit maintenance. Management reported operational improvements, including a third deep disposal well and reverse-osmosis circuits becoming operational. Exploration drilling south of the production area was ongoing; results were preliminary.
Shirley Basin environmental baseline studies were nearing completion, and permit and license applications were anticipated later in 2015. Wyoming approved $12.7 million of bonding for Shirley Basin and Lucky Mc in March; NRC approval remained outstanding, and bonding and restricted-cash requirements could change.
Management reported a uranium spot price of $38.38 per pound on April 27, 2015, and said production would be aligned with contracted commitments amid low spot prices. Revenue is concentrated: one customer represented 82.5% of Q1 sales.
CEO Wayne Heili’s employment was to end May 1, 2015; Chairman Jeffrey T. Klenda was to become acting CEO effective May 2. The filing reported no new material legal proceedings, no material changes to previously disclosed risk factors, and effective disclosure controls.
Key risks include uranium price and demand volatility, liquidity and financing needs, production and operating risks, permitting and regulatory approvals, reclamation obligations, and uncertainty about whether mineral properties can be economically developed. The company cautions that Canadian resource disclosures are not equivalent to SEC reserves.

Important facts for investors to verify

Whether production ramps as planned and whether the 2015 production and contractual delivery targets are achieved.
Actual cash receipts and liquidity after the accelerated 200,000-pound delivery, debt service and any changes in restricted cash or bonding.
Contract pricing and customer concentration, including the impact of lower-priced deliveries on margins.
NRC approval and final bonding requirements for Shirley Basin and Lucky Mc, and the timing and cost of required permits.
Whether exploration results, resource estimates and project economics support development; the filing reports no SEC-defined proven or probable reserves.