UR-ENERGY INC quarterly report, Q2 FY2014

UR-Energy Inc. — Q2 2014 Form 10-Q

Reporting period: Three and six months ended June 30, 2014. Unless otherwise noted, financial amounts are in U.S. dollars; financial-statement amounts are in thousands. Ur-Energy is an exploration-stage uranium company that began production at its Lost Creek, Wyoming, project in August 2013 and began product sales in December 2013.

Financial performance

Metric	Q2 2014	Six months 2014
Revenue	$9.236 million	$15.383 million
Cost of sales	$7.169 million	$10.409 million
Gross profit / margin	$2.067 million / approximately 22%	$4.974 million / approximately 32%
Operating expenses	Approximately $2.993 million	Approximately $6.897 million
Operating loss	$0.926 million	$1.923 million
Net loss	$0.804 million	$2.752 million
Basic and diluted loss per share	$0.01	$0.02

Q2 uranium sales were 207,760 pounds at a reported average realized price of $34.64 per pound; six-month sales were 317,760 pounds at $43.81 per pound. The six-month revenue total also includes $1.254 million recognized from a third party’s delivery under an assigned sales contract and other revenue items.

Cash flow, balance sheet and debt

Cash and cash equivalents were $1.554 million at June 30, versus $1.627 million at December 31, 2013. Restricted cash was a further $5.055 million, pledged largely to reclamation surety bonds.
For the six months, operating activities used $1.010 million, investing activities used $0.375 million, and financing activities provided $1.328 million. Cash decreased by $0.073 million.
Current assets were $11.941 million and current liabilities $9.693 million, a working-capital surplus of approximately $2.248 million. Accounts receivable totaled $7.243 million, including $7.197 million from one undisclosed customer.
Notes payable totaled $39.688 million: $6.278 million current and $33.410 million long term. The debt includes a $34 million Wyoming bond at 5.75% and RMBAH borrowing at approximately 8.75%. Total liabilities were $65.857 million.
Management reported cash of approximately $6.1 million as of July 30, following collections on uranium sales. The company expected to add approximately $3.1 million of cash collateral for surety bonds during 2014.

Changes versus the prior comparable period

Revenue began contributing materially in 2014; the comparable 2013 periods reported no sales. Q2 2014 net loss was $0.804 million versus a restated $9.661 million in Q2 2013; six-month net loss was $2.752 million versus a restated $16.856 million. The lower losses primarily reflect substantially reduced development spending after the 2013 construction phase and, in 2014, production sales. The 2014 results also include interest expense from the debt financing and gains from revaluing dollar-denominated warrants.

The 2013 comparative results were restated after a change in accounting policy: Lost Creek wellfield development costs that had been capitalized were instead expensed. This increased reported 2013 development expense and loss per share to $0.08 for Q2 and $0.14 for the six-month period.

Operations, outlook and risks

Lost Creek production was intentionally reduced during Q2 to address wastewater disposal constraints after holding ponds exceeded permitted levels. Corrective actions returned pond levels to acceptable levels; production was increasing again by the end of June. A third disposal well was planned, with estimated cost of approximately $3.2 million and completion expected before year-end.
Management forecast approximately 0.7 million pounds of 2014 production and 150,000–200,000 pounds in Q3. It expected sales of approximately 518,000 pounds in 2014 at an average realizable price of $51.10 per pound, and approximately 630,000 pounds in 2015 at $50.10 per pound. Spot uranium prices were below $30 per pound, increasing exposure on sales not covered by contracts.
Management said it believed current resources and expected sales timing would cover current obligations, but cautioned that cash timing, reclamation collateral and project spending could require additional funding. Financing availability and terms are not assured. Development expense was expected to rise in the second half, including for the disposal well.
Q2 average production head grade was reported at 152 mg/L U₃O₈; the six-month average was 165 mg/L. Management said production head grades continued to exceed technical projections.
Shirley Basin resource analysis identified 8.816 million pounds of measured and indicated resources at an average grade of 0.23% eU₃O₈. These are Canadian-standard mineral resources, not SEC-defined proven or probable reserves; the company stated it had not established reserves at its projects.
An out-of-period accounting adjustment reclassified severance and ad valorem taxes from a reduction of sales to extraction costs included in inventory and cost of sales. It increased sales by $0.7 million, increased cost of sales by $0.5 million, and reduced net loss by $0.2 million; management said it was not material to prior-period statements.
Reclamation obligations were $17.356 million on the balance sheet; estimated undiscounted future cash needs were $17.7 million, with settlement extending through 2033. The BLM administrative review affirmed Lost Creek’s Record of Decision, and the appeal period expired without further action.

Important facts for investors to verify

Reconcile reported Q2 cost per pound: the filing presents $34.51 in its cost-per-pound reconciliation, $30.96 in the production table, and $34.22 in the MD&A narrative. Understand the differing adjustments and bases before comparing unit costs.
Track wastewater management, disposal-well completion, permitted pond levels and whether production returns to the projected operating rate.
Confirm collections on receivables, cash availability after required surety collateral, debt repayments and any additional financing needs.
Assess contracted delivery volumes and prices against production, the weak spot market and customer concentration; one customer represented $7.197 million of receivables at quarter-end.
Distinguish Canadian NI 43-101 resource estimates from SEC-defined reserves and monitor permitting, baseline studies and technical reporting for Shirley Basin and Lost Creek expansion areas.