Ur-Energy Inc. — Q2 2021 Form 10-Q
Business context and period. This unaudited quarterly report covers the three and six months ended June 30, 2021. Ur-Energy is a U.S.-focused uranium mining and recovery company, operating Lost Creek in Wyoming; it also holds the Shirley Basin project and other mineral properties. Amounts below are in U.S. dollars unless stated otherwise. Financial statement amounts are in millions, rounded.
Financial results and position
| Metric | Q2 2021 | Six months 2021 | Comparable 2020 period |
|---|---|---|---|
| Revenue | $0.007m | $0.007m | $6.934m Q2; $8.304m six months |
| Gross profit (loss) | $(1.828)m | $(3.501)m | $0.417m Q2; $(1.318)m six months |
| Operating costs | $2.777m | $4.589m | $2.227m Q2; $4.289m six months |
| Operating loss | $(4.605)m | $(8.090)m | $(1.810)m Q2; $(5.607)m six months |
| Net loss | $(6.879)m | $(14.251)m | $(2.227)m Q2; $(5.868)m six months |
| Loss per share, basic and diluted | $(0.04) | $(0.08) | $(0.02) Q2; $(0.04) six months |
- No uranium product was sold in the first half of 2021. The small reported revenue was disposal-fee income. In 2020, sales were 167,000 pounds in Q2 and 200,000 pounds in the first half, at an average $41.50 per pound.
- Gross loss in 2021 primarily reflects lower-of-cost-or-net-realizable-value inventory adjustments: $1.8m in Q2 and $3.5m in the first half. Management said these adjustments accounted for the 2021 losses despite no product sales. By contrast, 2020 gross profit excluding inventory adjustments was $2.6m for Q2 and $3.1m for the first half, with stated margins of approximately 37% and 38%.
- Net loss included non-cash warrant mark-to-market losses of $2.9m in Q2 and $6.3m in the first half, driven by changes in share price, volatility and other valuation inputs. Q2 also included a $0.9m gain from forgiveness of the PPP loans and accrued interest.
- Six-month cash used in operations was $5.8m; investing activities used $0.04m; financing activities provided $23.0m. Financing included a February offering, At Market share sales, and exercises of warrants and options.
- At June 30, cash and cash equivalents were $21.5m, versus $4.3m at December 31, 2020. Restricted cash was $7.9m and pledged for reclamation bonds. Working capital was $19.2m, calculated from reported current assets of $25.0m less current liabilities of $5.8m.
- Long-term State Bond Loan debt was $12.3m net of deferred financing costs ($12.4m principal); the loan bears 5.75% interest and is secured by Lost Creek assets. Principal payments are deferred until October 2022 and scheduled to finish in October 2024. PPP loans were forgiven in Q2.
- Total liabilities were $55.9m, including $29.3m in asset retirement obligations and $10.6m in warrant liabilities. Shareholders’ equity was $41.6m. Shares outstanding at June 30 were 194.8m; at July 28, 195.4m.
Material changes versus prior period
- Sales fell from $6.9m in Q2 2020 to near zero in Q2 2021, as the company reported no uranium product sales in the first half of 2021 and said it did not anticipate sales for the full year.
- First-half net loss increased to $14.3m from $5.9m. In addition to the absence of prior-year product sales, the change included larger warrant revaluation losses and foreign exchange losses; inventory write-downs remained material.
- Cash increased by $17.2m from year-end, largely due to equity financing. The February 2021 public offering generated approximately $13.9m net proceeds; At Market sales generated $6.7m net proceeds through June 30.
- Operating costs rose by $0.3m for the first half, which management attributed mainly to Q2 bonuses, partly offset by labor and facility savings.
Outlook, management commentary and risks
- Lost Creek continued at reduced production levels. First-half production captured was 107 pounds; the company said it was maintaining readiness to ramp up when market conditions or policy support warrant.
- Management said a Lost Creek ramp-up could take as little as six months after a decision, with estimated development spending of approximately $14m during that period. The company stated it had cash and finished-product inventory to support readiness, while intending to preserve U.S.-origin inventory for a possible national uranium reserve program.
- At July 28, unrestricted cash was $20.8m. Management valued nearly 285,000 pounds of finished inventory at $9.2m using recent spot prices and said it did not anticipate selling it in 2021 absent a sufficient market change.
- Shirley Basin received its source material license, permit to mine and aquifer exemption in Q2, which management described as the final major permits needed before construction. The company said it was ready to build when market conditions warrant; no construction commitment or schedule was stated.
- The Wyoming regulator approved an amendment expanding Lost Creek’s source material license and processing capacity to 2.2m pounds annually, including up to 1.2m pounds from the wellfield and up to 1m pounds of toll processing. A separate state permit-to-mine amendment for LC East remained under review; management anticipated completion in 2021.
- Key uncertainties include uranium prices and sales opportunities, implementation and terms of the U.S. uranium reserve, permitting, ability to finance operations and development, and whether the company can sustain reduced-level operations. The company disclosed that it has not established mineral reserves at its properties; resource estimates are not equivalent to reserves.
- Other disclosed exposures include $29.3m of reclamation obligations, uranium commodity-price risk, and concentration risk on cash and restricted deposits: approximately $28.8m was reported as uninsured or otherwise not covered by deposit-protection programs. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether and when the national uranium reserve program is implemented, and whether it creates a viable sales opportunity for Ur-Energy.
- Whether management’s expectation of no 2021 sales and the strategy of retaining finished inventory change with uranium market conditions.
- Timing, cost and funding for a Lost Creek ramp-up, including the stated six-month period and approximately $14m development estimate.
- Completion of the LC East permit-to-mine amendment review and any construction decision or schedule for Shirley Basin.
- Cash burn, financing needs, dilution from equity issuance and warrant/option exercises, and the State Bond Loan repayment schedule.
- Inventory valuation and future NRV adjustments, warrant-liability revaluations, reclamation obligations, and the assumptions behind reported resource and project estimates.