UR-ENERGY INC annual report, FY2014

UR-Energy Inc. 2014 Form 10-K

Reporting period: Fiscal year ended December 31, 2014; filed March 2, 2015. Amounts are U.S. dollars unless stated otherwise. Ur-Energy is a uranium producer and exploration-stage company. Its Lost Creek, Wyoming in-situ recovery operation began production in August 2013, making 2014 its first full year of production and sales.

Financial and operating results

Metric	2014	2013
Revenue	$29.349 million	$7.616 million
Gross profit / margin	$11.491 million / approximately 39%	$4.520 million
Operating loss	$6.979 million	$23.379 million
Net loss	$8.749 million	$30.353 million
Basic and diluted loss per share	$0.07	$0.25
Cash provided by (used in) operations	$1.937 million	$(27.770) million
Cash used in investing	$(3.008) million	$(25.726) million
Cash provided by financing	$2.577 million	$43.791 million

For fourth quarter 2014, revenue was $6.637 million and net loss was $2.497 million. The company captured 596,176 pounds of U₃O₈, drummed 547,992 pounds, and sold 517,760 pounds during the year. Sales were all under long-term contracts; there were no spot sales. Average realized price was $51.22 per pound, and reported cost of sales was $34.49 per pound. Management also reported a cash gross margin of $29.01 per pound sold.

Financial position and liquidity

At December 31, 2014, cash and cash equivalents were $3.104 million, inventory $5.168 million, current assets $9.346 million, and current liabilities $11.991 million, resulting in negative working capital of $2.645 million.
Restricted cash was $7.556 million, largely pledged as collateral for reclamation surety bonds. The filing reported total assets of $104.451 million, total liabilities of $72.350 million, and shareholders’ equity of $32.101 million.
Notes payable totaled $40.567 million: $7.374 million current and $33.193 million long-term. Debt included the Sweetwater County bond, bearing 5.75% interest and secured by Lost Creek assets, and the RMBAH facility, bearing approximately 8.75% and secured by Pathfinder assets.
Operating cash flow turned positive from a $27.770 million use in 2013 to $1.937 million provided in 2014. Cash at year-end was $3.104 million; management reported approximately $7.5 million of unrestricted cash as of March 2, 2015.
Contractual obligations totaled $73.864 million, including $40.567 million of notes payable, $7.710 million of future interest, and $24.803 million of asset retirement obligations. These amounts have different payment schedules and should not be treated as all immediately due.

Material changes versus 2013

Revenue rose substantially as production and sales expanded from the initial 2013 start-up year. Net loss narrowed by approximately $21.6 million, while development expense fell from $18.465 million to $7.672 million, reflecting lower construction activity after Lost Creek start-up.
Cash from operations improved as the company collected customer receivables and generated sales proceeds. The company continued to invest in wellfield development and posted additional restricted cash for reclamation surety requirements.
2014 cost of sales included severance and ad valorem taxes that had previously reduced reported revenue. A second-quarter out-of-period adjustment changed the presentation; comparison of reported per-pound costs across years should account for this. A retroactive 31% increase in Wyoming’s taxable-value industry factor raised fourth-quarter extraction taxes.
Asset retirement obligations increased to $23.445 million, including a $5.669 million revision associated with the Pathfinder properties acquired in 2013.

Outlook, commentary, and risks

For 2015, management forecast production of 750,000–850,000 pounds of U₃O₈, targeting an average rate of approximately 70,000 pounds per month. Contractual commitments were 630,000 pounds at an indicated average realizable price of $50.10 per pound. Excess production was expected to build inventory; spot sales depended on market conditions.
Management said it did not anticipate needing additional funding in 2015 based on cash resources, contracted sales, and cash costs, but identified potential funding needs for Shirley Basin and acknowledged that future financing may not be available on acceptable terms.
Lost Creek operations were still being ramped up, with plant and wellfield efficiencies and water-management capacity under development. Management reported head grades above technical projections and completion of commissioning for reverse-osmosis units after year-end.
Nine utility offtake agreements covered scheduled deliveries through 2020. The uranium market remained weak and volatile; management cited low spot prices as a reason to align production with contractual obligations.
Key risks include uranium price and nuclear-demand volatility, operating and water-disposal challenges, permitting and environmental compliance, possible sage-grouse restrictions, reclamation costs, reliance on debt and adequate liquidity, and potential covenant default. The company stated it had not established proven or probable mineral reserves; disclosed mineral resources do not demonstrate economic viability and are not equivalent to reserves under SEC standards.
The Shirley Basin PEA issued in January 2015 indicated possible project viability, but is preliminary and does not establish reserves or demonstrate economic viability. Baseline studies were expected to continue into the first half of 2015.
The filing reported no material legal proceedings. Management and the auditor concluded internal control over financial reporting was effective as of year-end.

Important facts for investors to verify

Whether 2015 production, cost, and margin expectations were achieved, and how much production was sold versus added to inventory.
Actual realized prices and delivery performance under the utility contracts, including the assumptions behind the stated 2015 average price.
Liquidity after scheduled debt service, reclamation collateral requirements, and ongoing Lost Creek and Shirley Basin spending; confirm compliance with debt covenants.
Progress on Lost Creek ramp-up, disposal and water-management capacity, permit amendments for the KM horizon and LC East, and any resulting capital or operating costs.
Reclamation estimates and surety requirements for Lost Creek and Pathfinder properties, including the basis for the 2014 ARO increase.
Shirley Basin permitting, baseline work, and the assumptions and limitations in its preliminary economic assessment; do not treat resource estimates as reserves.