Ur-Energy Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; filed May 6, 2016. Amounts are U.S. dollars unless stated otherwise. Ur-Energy operates its Lost Creek in-situ recovery uranium project in Wyoming and describes itself as an exploration-stage mining company.
Financial and operating highlights
| Metric | Q1 2016 | Q1 2015 / comparison |
|---|---|---|
| Revenue | $2.714 million | $7.387 million; down 63% |
| Gross profit / margin | $0.859 million / approximately 32% | $1.997 million / approximately 27% |
| Operating loss | $2.043 million | $1.360 million loss |
| Net loss | $2.989 million; $0.02 per share | $2.124 million; $0.02 per share |
| Operating cash flow | $1.905 million provided | $0.628 million provided |
| Cash and cash equivalents | $7.317 million at March 31 | $1.443 million at December 31, 2015 |
| Debt, net of deferred financing costs | $30.356 million total; $7.520 million current | $32.464 million at December 31, 2015 |
| Inventory | $5.934 million | $3.345 million at December 31, 2015 |
Ur-Energy sold 75,000 pounds of uranium at an average $36.12 per pound, versus 146,000 pounds at $50.55 per pound in Q1 2015. The 2016 sales included 25,000 pounds under a term contract and 50,000 pounds sold on the spot market. Uranium cost of sales was $1.855 million, or $24.73 per pound sold; reported gross profit was $11.39 per pound sold.
Lost Creek captured 159,331 pounds, drummed 173,844 pounds, and shipped 182,150 pounds to the conversion facility. Total inventory rose to 266,842 pounds, including 173,178 pounds at the conversion facility. Production was lower amid winter weather and no new header houses coming online during the quarter.
Cash provided by operations included a $5.085 million payment received for assigning certain future delivery obligations; the payment remained deferred revenue because the deliveries had not yet occurred. Operating cash flow also reflected a $2.590 million inventory increase. Financing provided $3.715 million net, including approximately $5.9 million net proceeds from a February share offering, partly offset by $2.147 million of debt repayments. Investing activities used $12,000.
Material changes versus comparable periods
- Revenue fell substantially, reflecting fewer pounds sold and a lower average realized price. Gross profit dollars declined, although the reported margin increased from approximately 27% to 32%, partly due to lower costs flowing through sales inventory.
- Net loss widened by $865,000. Exploration expense increased by $170,000; development expense fell by $480,000 and general and administrative expense fell by $152,000.
- Debt declined by approximately $2.1 million from year-end, while cash increased following the equity financing and contract-assignment proceeds. Common shares outstanding increased from 130.2 million at year-end to 143.4 million at March 31.
- The company recorded a $189,000 write-off of its Bootheel equity investment after assessing lower uranium prices. No inventory write-down was recorded.
Outlook, risks and contingencies
- Management projected 2016 production of 650,000–750,000 pounds and monthly drying and drumming of 55,000–60,000 pounds. It expected 2016 contractual sales of 662,000 pounds at an average realizable price of $47.61 per pound, including assigned deliveries, and a 25%–30% profit margin for the year. These are forward-looking estimates, not guarantees.
- Management said it did not expect to need additional funding in 2016 unless advantageous, based on cash resources and expected sales. It noted potential future funding needs for Shirley Basin and cautioned that additional financing may not be available on acceptable terms. Unrestricted cash was $4.1 million as of May 5, 2016.
- The uranium spot price was reported at $27.50 per pound as of May 5, 2016. Management planned to align production with contractual obligations and market conditions. Lower uranium prices could affect future sales, investment values, and project economics.
- Regulatory amendments for recovery from the KM horizon and LC East remained under review. Final approvals for Lost Creek Class V injection wells were anticipated in Q2 2016; the company expected the wells and reverse-osmosis system to be operational in Q3. Shirley Basin’s mine permit application had been submitted, while its source-material license application was being prepared.
- The Lost Creek PEA indicates potential project viability but is not a reserve determination. The company said it had not established proven and probable mineral reserves; recovery of capitalized mineral-property amounts depends on economic resources, financing, and profitable production or disposition.
- Asset retirement obligations were $26.344 million, with estimated undiscounted future cash requirements of $27.2 million extending through 2033. Restricted cash of $7.557 million supported surety bonds providing $27.8 million of reclamation coverage.
- Management reported effective disclosure controls, no material change in internal controls, no new material legal proceedings, and no material changes to the risk factors in its latest Form 10-K.
Important facts for investors to verify
- Whether Lost Creek achieves projected production and delivery volumes, and whether the assigned deliveries alter near-term cash receipts or sales timing.
- Progress and timing of regulatory approvals for Lost Creek amendments and wastewater disposal, and permitting milestones for Shirley Basin.
- Cash availability after the May 5 reported balance, debt-payment schedule and covenants, and whether additional financing becomes necessary.
- Uranium spot and contract pricing, inventory levels and sales concentration; Q1 sales were made to two undisclosed customers.
- Project economics and potential impairment exposure given the absence of proven and probable reserves and sensitivity to uranium prices.