UR-Energy Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Financial statement amounts are in U.S. dollars, generally thousands unless stated otherwise. Ur-Energy operates the Lost Creek in-situ uranium mine in Wyoming and reported as an exploration-stage mining company.
Financial and operating results
- Revenue: $1.37 million, down from $4.81 million in Q1 2019. The company sold 33,000 pounds of purchased uranium at an average $41.52 per pound; it had no sales of produced inventory.
- Gross profit (loss): GAAP gross loss was $1.74 million versus $0.33 million in Q1 2019. Cost of sales included a $2.28 million inventory write-down to net realizable value (versus $1.97 million in Q1 2019). Excluding that write-down, uranium sales generated approximately $0.55 million gross profit, or about a 40% margin.
- Operating expenses and net loss: Operating expenses were $2.06 million, down from $3.22 million, mainly reflecting deferred bonuses and lower legal costs. Net loss was $3.64 million ($0.02 per share), compared with $4.30 million ($0.03 per share).
- Cash flow: Operating activities used $2.13 million, compared with $1.20 million used in Q1 2019. Investing activities used $23,000; financing activities had no net cash use. Cash, cash equivalents and restricted cash declined $2.16 million to $13.06 million.
- Liquidity: Unrestricted cash and cash equivalents were $5.59 million at March 31, down from $7.75 million at year-end. Restricted cash was $7.46 million and supports reclamation surety bonds; it is not freely available for operations. Management reported unrestricted cash of $7.0 million as of May 6, after April receipts and the sale described below.
- Debt and obligations: The State Bond Loan balance was $12.4 million, at a fixed 5.75% interest rate. Principal payments were deferred for six quarters; the next was due April 1, 2021, with final payment scheduled for April 2023. Asset retirement obligations were $31.1 million, with estimated settlement extending through 2033.
- Production and inventory: Lost Creek captured 4,113 pounds and drummed 1,433 pounds during the quarter. Ending uranium inventory was 278,289 pounds, valued at $7.33 million before the reported accounting presentation; the company recorded a lower-of-cost-or-net-realizable-value reduction.
Changes versus the comparable period
- Sales volume fell to 33,000 pounds from 97,500 pounds, and reported revenue declined accordingly. The Q1 2020 sale was entirely purchased product; Q1 2019 included both purchased and produced uranium.
- Average selling price per pound was $41.52 versus $49.35, while reported cost per pound sold was $24.94 versus $32.63. Management attributed the lower prior-year average cost in 2020 to the absence of higher-cost produced pounds in the sales mix.
- The GAAP gross loss was driven by the inventory valuation adjustment; excluding the adjustment, management reported uranium gross profit of approximately $0.55 million in Q1 2020.
- Net loss improved by $0.66 million, helped by lower operating expenses and a $0.27 million warrant revaluation gain, compared with a $0.53 million warrant revaluation loss in Q1 2019.
Outlook, commentary and risks
- The company was contractually committed to sell 200,000 pounds during 2020 at an average contracted price of about $42 per pound. It delivered 33,000 pounds in Q1 and the remaining 167,000 pounds in early April at about $41.51 per pound. The April sale generated $6.9 million revenue and $2.6 million net proceeds after uranium purchase costs, as reported by management.
- Management maintained minimal 2020 production plans and did not anticipate selling produced inventory in 2020. It cited persistently weak uranium-market conditions and cost containment; it said Lost Creek production exceeded its low quarterly guidance.
- On April 16, 2020, the company received approximately $0.9 million in Paycheck Protection Program loans. Management expected a significant portion to qualify for forgiveness, subject to program spending, payroll-maintenance and documentation requirements; any unforgiven amount carries 1% interest and a two-year maturity.
- Management described uranium-market supply reductions related to COVID-19 and higher spot prices, but emphasized that the effect on long-term contract prices and the market remained uncertain. The U.S. Nuclear Fuel Working Group recommended government uranium purchases and a national uranium reserve, but implementation, funding and timing were not assured.
- Management said Lost Creek could ramp to full production rates in as little as six months after a decision to proceed, with estimated development expenses of approximately $14 million. Such a ramp-up depends on market conditions and financing.
- Permitting reviews for the LC East amendment and Shirley Basin continued; management anticipated completion and necessary approvals in 2020. COVID-19 could disrupt employees, regulators, suppliers and operations, and its financial impact could not be estimated. The company also cited liquidity needs, uncertain access to financing, uranium-price volatility and its history of operating losses.
- Other notable items: the company recorded no material off-balance-sheet arrangements and reported no new legal proceedings or material developments in pending proceedings.
Key facts investors should verify
- Whether the April delivery and reported May 6 unrestricted cash position reconcile to subsequent cash flows and liquidity needs.
- The amount of PPP loan forgiveness ultimately received and any remaining repayment obligation.
- Future inventory valuation adjustments, the value recoverable from uranium inventory, and the effect of weak long-term prices on reported results.
- Whether government uranium procurement and reserve proposals are funded and implemented, and whether they lead to durable long-term contract pricing.
- Timing and cost of Lost Creek production ramp-up, LC East approvals and Shirley Basin permitting, including the availability of funding.
- Debt repayment capacity, reclamation funding and the availability and terms of any required future financing.