Ur-Energy Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; U.S. dollars unless noted. Ur-Energy is a uranium exploration and production company operating its Lost Creek in-situ recovery mine in Wyoming. It reports mineral resources but has not established proven or probable mineral reserves.
Financial and operating results
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $32.3 million | $23.5 million |
| GAAP gross profit | $2.0 million | $11.3 million |
| Net income (loss) | $(8.4) million | $4.5 million |
| Basic and diluted earnings (loss) per share | $(0.05) | $0.03 |
| Cash from operating activities | $4.0 million | $(5.4) million |
| Cash and cash equivalents at year-end | $7.8 million | $6.4 million |
| Working capital | $6.4 million | $1.6 million |
| Total assets | $90.4 million | $100.4 million |
| Shareholders’ equity | $44.3 million | $51.8 million |
- Sold 665,000 pounds of U3O8 under term contracts at an average $48.50 per pound, versus 480,000 pounds at $48.86 in 2018. Sales included 213,750 pounds of produced material and 451,250 purchased pounds. No spot sales were made in 2019.
- Lost Creek captured 47,957 pounds and drummed 50,794 pounds, sharply below 2018’s 302,164 pounds extracted and 286,358 pounds drummed. Average plant head grade was 13 ppm. Year-end finished inventory at the conversion facility was approximately 268,803 pounds, carried at $7.4 million.
- Uranium sales had $12.2 million gross profit and a 38% margin before lower-of-cost-or-net-realizable-value adjustments. A $10.3 million inventory write-down reduced reported GAAP gross profit to $2.0 million. In 2018, the comparable pre-adjustment sales gross profit was $11.6 million; the write-down was $0.3 million.
- Average reported cost per pound sold was $30.09, compared with $24.76 in 2018. Produced pounds cost $37.83 per pound on average; purchased pounds cost $26.43. Lower production increased unit costs because many site and plant costs are fixed.
- Q4 2019 revenue was $10.85 million and net income was $2.12 million. The company sold 180,000 pounds in Q4 at an average $60.26 per pound.
- Cash, cash equivalents and restricted cash totaled $15.2 million at year-end; $7.5 million was restricted, primarily to collateralize reclamation surety bonds. Operating, investing and financing activities generated $4.0 million, used $0.2 million and used $2.4 million, respectively.
- State Bond Loan principal was $12.4 million, bearing 5.75% interest and secured by Lost Creek assets. A six-quarter principal deferral moved the next payment to April 2021 and the final payment to April 2023. Asset retirement obligations were $31.0 million; undiscounted future reclamation cash needs were estimated at $29.8 million.
Material changes and management commentary
- Revenue rose 37% as pounds sold increased, but the company moved from 2018 net income to an $8.4 million loss, principally reflecting the $10.3 million inventory valuation charge and reduced production. The prior-year result also included $3.5 million of income from monetizing a portion of a 2021 customer contract.
- Management curtailed production and development in response to persistently weak uranium prices, reduced staffing by 12 employees, and maintained a smaller workforce intended to preserve regulatory compliance and restart capability. No additional Lost Creek header-house development occurred in 2019.
- The company purchased 500,000 pounds in 2019 at an average $26.36 per pound to support contract deliveries while conserving its own production inventory. It did not enter into new long-term sales contracts during the year.
- Management expected 2020 production not to exceed 5,000 pounds and planned to deliver 200,000 contract pounds at an average price of approximately $42 per pound, supported by purchase contracts for 200,000 pounds at an average cost of approximately $26. Some 2020 contract pounds had already been delivered by the filing date. Another 25,000 pounds were committed for 2021.
- Management said Lost Creek could increase production within roughly six months after a restart decision, but additional development was estimated at approximately $14 million. The company stated it did not anticipate near-term funding needs for current operations, while warning that major projects could require financing or be delayed.
Outlook, risks and unusual items
- Uranium spot prices remained weak: $24.93 per pound at December 31, 2019; long-term price was $32.50. Management’s expectations depend on market improvement, contract opportunities and the ability to sell production at suitable prices.
- The President’s proposed FY2021 budget included $150 million annually through FY2030 for a national uranium reserve. The filing cautions that approval, funding and implementation were uncertain; no direct trade relief followed the company’s Section 232 petition.
- Permits for the LC East expansion and Shirley Basin project were still under review, with completion anticipated in 2020. Delays, additional costs or denial could affect development plans.
- Key risks include low uranium prices and competition from state-supported imports, expiring sales contracts, financing needs, operating and environmental liabilities, regulatory uncertainty, and the absence of mineral reserves. The Lost Creek loan is secured by key operating assets.
- The filing reports no legal proceedings. Management and the auditor concluded that internal control over financial reporting was effective as of year-end. The company cautioned that it may be a passive foreign investment company for U.S. tax purposes.
Important facts for investors to verify
- Reconcile the $10.3 million inventory write-down, its price assumptions and effects on future margins and inventory value.
- Confirm 2020 contract deliveries, purchase costs, remaining contract quantities and whether replacement contracts can be secured on favorable terms.
- Track cash burn, restricted versus unrestricted liquidity, the April 2021 resumption of loan principal payments and covenant compliance.
- Assess whether Lost Creek production can be economically restarted or expanded, and whether the estimated $14 million development cost remains valid.
- Monitor LC East and Shirley Basin permitting, reclamation obligations and any change in resource estimates; resource estimates are not mineral reserves and do not demonstrate economic viability.
- Verify whether the proposed national uranium reserve receives appropriations and becomes operational, and whether this materially changes domestic uranium demand or pricing.