ENERGY FUELS INC annual report, FY2017

Energy Fuels Inc. — FY2017 Form 10-K

Reporting period: Fiscal year ended December 31, 2017. This is an annual report, not a standalone Q4 filing. Amounts are in U.S. dollars unless noted.

Business context

Energy Fuels is a U.S.-focused uranium recovery and exploration company. It operates the White Mesa Mill in Utah and the Nichols Ranch ISR facility in Wyoming; Alta Mesa in Texas and most conventional mining projects were on standby. The company also processes third-party alternate feed materials. It reports no mineral reserves under SEC Industry Guide 7; Canadian NI 43-101 resource and reserve estimates are not equivalent to SEC reserves.

Financial and operating results

Metric	FY2017	FY2016
Revenue	$31.05 million	$54.55 million
Gross profit	$8.34 million	$13.74 million
Gross margin	26.8%	25.2%
Operating loss	$28.46 million	$38.77 million
Net loss	$27.99 million	$39.86 million
Basic and diluted loss per share	$0.39	$0.70
Cash used in operations	$10.34 million	$12.04 million

• Revenue comprised $24.47 million from uranium concentrates and $6.58 million from alternate-feed processing and other activities. Uranium sales were 520,000 pounds at a weighted average of $47.05 per pound; sales volume fell from about 1.15 million pounds in 2016.
• The company recovered approximately 1.57 million pounds of U₃O₈; 624,000 pounds were for its own account and the balance for third parties. White Mesa recovered about 1.31 million pounds, mainly from alternate feed and pond-return material; Nichols Ranch recovered 259,000 pounds.
• Inventory impairment was $3.31 million, versus $5.36 million in 2016. Other notable FY2017 charges included $3.80 million impairment of Reno Creek assets held for sale and $1.73 million asset-retirement accretion. No goodwill or property impairment was recorded in 2017.
• At year-end, cash and cash equivalents were $18.57 million, working capital was $33.30 million, total assets were $185.34 million, and total liabilities were $58.07 million. Restricted cash was $22.13 million and inventory was $16.55 million.
• Loans and borrowings totaled $27.49 million, including a $10.86 million Wyoming bond loan and convertible debentures carried at $16.64 million. The debentures mature in 2020; repayment may be in cash or, subject to terms and approvals, shares. Undiscounted decommissioning liabilities were $43.46 million, with $22.13 million of restricted cash posted as collateral.
• Financing provided $10.42 million of net cash, chiefly from $14.15 million of ATM share issuance, partly offset by $4.10 million of debt repayments. Shares outstanding rose to 74.37 million at year-end from 66.21 million a year earlier. No dividends were declared.

Changes versus prior year

• Revenue declined 43%, largely because uranium deliveries fell; uranium concentrate revenue decreased from $54.43 million to $24.47 million. The net loss narrowed by about 30%, helped by lower development and standby expenses and the absence of 2016’s larger expenses.
• Development, permitting and land-holding costs fell to $8.82 million from $21.12 million; standby costs fell to $3.66 million from $10.23 million. Management cited cost reductions and lower mill standby costs, including toll-processing activity.
• FY2017 other income included $1.91 million from surplus-asset sales and a $0.78 million gain from revaluing warrant liabilities; these helped the reported result and are not recurring operating revenue.

Outlook, commentary and risks

• Management expected 2018 uranium recovery of 460,000–520,000 pounds for the company’s account, including 140,000–160,000 pounds at Nichols Ranch and 320,000–360,000 pounds at White Mesa. The company expected to meet 650,000 pounds of 2018 contract deliveries using inventory and recovery.
• 2018 contract deliveries included 400,000 pounds at a fixed $61.30 per pound, 50,000 pounds at $24.75, and 200,000 pounds priced at a 0.5% discount to spot. Following those deliveries, the company expected no remaining long-term sales commitments; later sales would be exposed to spot prices unless new contracts were secured.
• Management said cash and resources were sufficient for at least the next 12 months, but warned that prolonged weak uranium prices could require additional capital or other liquidity measures. The $30 million ATM authorization provides potential financing but may dilute shareholders.
• The company planned to defer further Nichols Ranch wellfield development, keep Alta Mesa and most conventional projects on standby, continue alternate-feed and pond-return processing, and advance Canyon engineering and metallurgical work. Canyon copper recovery and Roca Honda permitting remained subject to evaluation, financing, approvals and market conditions.
• Management supported a January 2018 trade petition seeking measures that would reserve 25% of the U.S. nuclear market for domestic uranium production. The outcome was uncertain. Uranium spot prices ended 2017 at $23.75 per pound, while the long-term price was $31; management described the market as oversupplied but believed longer-term fundamentals were favorable.
• Key risks include volatile uranium, vanadium and copper prices; dependence on alternate feed and other mill feed; expiring sales contracts; financing and potential dilution; debt and reclamation funding; permitting and environmental obligations; and litigation or land-access challenges. A rehearing petition remained pending in the Canyon Project case, although prior court rulings favored the company. White Mesa groundwater cleanup scope and cost were not fully determined.
• The audited financial statements received an unqualified opinion. Management said disclosure controls and internal control over financial reporting were effective, with no material weaknesses identified; the auditor did not attest to internal controls because the company qualified as an emerging growth company.

Important facts for investors to verify

• Whether cash generation, ATM proceeds or other financing can sustain operations if uranium prices remain weak; also review dilution and the 2020 debt maturities.
• Whether 2018 contract deliveries were completed as expected, and what sales terms and prices were obtained after long-term contracts expired.
• Whether White Mesa secured enough economically attractive feed, and whether forecast recovery volumes and processing margins were achieved.
• Whether Canyon copper recovery proves technically and economically viable, and whether project costs, permitting and litigation affect development timing.
• Whether restricted collateral and reclamation estimates adequately cover the $43.46 million undiscounted decommissioning obligation, and how groundwater remediation costs develop.
• Do not treat NI 43-101 resources or reserves as SEC reserves; the filing states the company had no SEC Industry Guide 7 reserves.