UR-Energy Inc. — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014. Financial amounts are in U.S. dollars; statements are unaudited. Ur-Energy is an exploration-stage uranium company that began production at its Lost Creek, Wyoming project in 2013. It had not established SEC-defined proven or probable reserves.
Financial and operating results
| Metric | Q1 2014 | Comparison |
|---|---|---|
| Net sales | $6.147 million | No sales reported in Q1 2013 |
| Cost of sales / gross profit | $3.240 million / $2.907 million | No cost of sales or gross profit in Q1 2013 |
| Gross margin | Approximately 47% | Management described it as approximately 48% |
| Operating expenses / operating loss | $3.904 million / $0.997 million loss | Operating loss of $7.208 million in restated Q1 2013 |
| Net loss / loss per share | $1.948 million / $0.02 | $7.195 million / $0.06 in restated Q1 2013 |
| Cash from operations | $1.242 million | Used $0.992 million in Q1 2013 |
| Cash and cash equivalents | $4.672 million at March 31 | $1.627 million at December 31, 2013 |
| Total notes payable | $40.577 million | $39.153 million at December 31, 2013 |
The company captured 198,573 pounds of U3O8, packaged 171,233 pounds, shipped 170,216 pounds to a conversion facility, and sold 110,000 pounds. The average contract price was $61.12 per pound; after severance and ad valorem taxes, the realized price was $54.43. Cost of sales per pound sold fell to $29.46 from $34.40 in Q4 2013.
Cash from investing activities was an outflow of $0.358 million; financing activities provided $2.264 million, principally from $1.5 million of additional borrowing and $0.834 million from stock-option exercises. Working capital was approximately $4.665 million. Restricted cash of $5.055 million was largely pledged for reclamation surety bonds and is not freely available for operations. Asset-retirement obligations were $17.318 million.
Changes versus the prior comparable period
- Q1 2014 was the first comparable quarter with uranium sales; Q1 2013 had no sales. Operating loss narrowed substantially as 2013 development spending associated with mine construction declined.
- Interest expense increased as the company carried both the Wyoming bond and RMB debt. A $0.263 million warrant fair-value loss also contributed to Q1 2014 results.
- The 2013 comparative statements were restated after a change in accounting policy: $4.1 million of Lost Creek well-field development costs were expensed rather than capitalized. This increased Q1 2013 loss per share from $0.03 to $0.06.
- Compared with Q4 2013, pounds sold increased from 90,000 to 110,000 and reported cost per pound sold declined, while average realized price decreased from $55.34 to $54.43.
Outlook, commentary, and risks
- Management expected approximately 1.0 million pounds of production in 2014, with roughly half of output sold under existing long-term contracts at an average price of about $52 per pound. It anticipated selling approximately 200,000 pounds in Q2, while Q2 production could remain below initial plans.
- Lost Creek operations were deliberately reduced during commissioning to manage feed rates and address wastewater disposal capacity concerns. Corrective actions brought pond levels to acceptable levels; production rates were being resumed but could fluctuate as commissioning continued.
- Management expected lower average pricing in Q2 and Q3 as spot-market prices weakened. The filing cited a spot price of $30.75 per pound on April 28, 2014.
- Management said current resources and expected sales timing were expected to cover current obligations, but noted that additional funding might be needed for cash-flow timing, reclamation surety requirements, or Shirley Basin development. About $4.2 million of reclamation surety funding was anticipated in 2014. Financing availability and terms were not assured.
- Debt included a $34 million Wyoming bond bearing 5.75% interest, with principal installments beginning in 2015, and a $6.5 million RMB facility at approximately 8.75%, with quarterly principal payments starting June 30, 2014. The RMB amendment also provided a potential additional $3.5 million line of credit subject to completion and results of a technical report.
- Shirley Basin drilling began, with 11 holes reported; weather delayed completion. Environmental baseline studies and permitting work were expected to proceed. Lost Creek permit amendments for LC East and the KM horizon were expected to be submitted in Q2.
- Key risks include continued commissioning and water-management challenges, uranium price and sales concentration, financing and debt-service needs, regulatory and permitting requirements, and the uncertainty of mineral resources that are not SEC-defined reserves. The company reported no new material legal proceedings.
Important facts for investors to verify
- Whether Lost Creek can sustain planned production rates while resolving wastewater and commissioning issues.
- Actual 2014 production and deliveries versus the approximately 1.0 million-pound production outlook and planned Q2 sales.
- Contract coverage, realized uranium prices, and exposure to declining spot prices.
- Cash collections, working-capital needs, upcoming debt installments, and the availability of the potential RMB credit line or other financing.
- Timing and cost of reclamation surety funding, and progress on Lost Creek permit amendments and Shirley Basin technical and permitting work.
- The impact of the 2013 accounting-policy restatement and the limits of resource disclosures: the company stated it had not established SEC-defined proven or probable reserves.