ENERGY FUELS INC quarterly report, Q2 FY2020

Energy Fuels Inc. — Q2 2020 Form 10-Q

Reporting period: Three and six months ended June 30, 2020. Amounts are U.S. dollars unless noted. Energy Fuels is a uranium extraction, recovery and processing company, but reports as an exploration-stage company under SEC Industry Guide 7 because it has not established proven or probable reserves.

Financial results and liquidity

Metric	Q2 2020	Q2 2019	Six months 2020	Six months 2019
Revenue	$0.40 million	$3.07 million	$0.79 million	$4.74 million
Operating loss	$6.47 million	$11.50 million	$14.28 million	$21.63 million
Net loss	$8.19 million	$9.31 million	$13.85 million	$21.45 million
Loss per share, basic and diluted	$0.08	$0.10	$0.12	$0.23
Operating cash flow	Not separately stated	Not separately stated	$(15.83) million	$(22.99) million

Q2 revenue was entirely from fees for receiving third-party mine ore; there were no uranium or vanadium concentrate sales. H1 revenue was also entirely from those fees.
Revenue fell sharply year over year as the 2019 comparison included vanadium sales and third-party toll processing. Lower inventory impairment and development costs helped reduce operating losses, while Q2 net loss also reflected a swing from other income to other expense.
At June 30, cash and cash equivalents were $26.64 million, marketable securities $1.68 million, and working capital $38.04 million. Cash, cash equivalents and restricted cash totaled $46.87 million, including $20.24 million restricted for reclamation bonding.
Total liabilities were $42.23 million, including $15.61 million of current loans and borrowings, primarily convertible debentures, and a $19.93 million asset retirement obligation. The reported undiscounted decommissioning liability was $41.75 million.
H1 financing provided $27.10 million, largely from common-share offerings; operating activities used $15.83 million. The company issued 11.30 million shares in a February offering and raised $13.02 million net under its ATM program during H1. Shares outstanding rose to 120.53 million at June 30 from 100.74 million at year-end 2019.

Operations, changes and outlook

H1 production included approximately 83,000 pounds of U₃O₈ and 67,000 pounds of V₂O₅. No uranium or vanadium was sold during H1; uranium production was added to inventory, leaving the company exposed to future prices.
Management maintained 2020 uranium recovery guidance of 125,000–175,000 pounds, including 120,000–170,000 pounds expected at White Mesa Mill. Nichols Ranch guidance was approximately 6,000 pounds; the project was placed on standby in Q1 after depletion of existing wellfields. Alta Mesa and conventional mines remained on standby.
Management said it expected sufficient cash and resources to execute its business plan for at least 12 months, including under potential COVID-19 shutdowns. It was pursuing cost reductions and new mill feed and processing opportunities; prolonged depressed uranium prices could require additional capital or other measures.
Uranium spot prices rose during Q2, while European vanadium prices declined modestly. Management cited possible support from a proposed U.S. Uranium Reserve, but congressional appropriations and implementation were uncertain. Uranium sales remained uncontracted and subject to spot-market pricing.
On July 14, 2020, the company redeemed half of its Cdn$20.86 million debentures for approximately $7.78 million; Cdn$10.43 million principal remained. Management said it intended to address the balance over the following months. In July, the company also raised $8.53 million net through ATM share sales, diluting shareholders further.
The company was testing the potential to process rare-earth-element ores at White Mesa Mill; commercial viability, required license amendments, feed arrangements and sales were not assured. It also completed a $0.5 million acquisition of PFN logging technology and equipment on July 31.

Risks, contingencies and unusual items

COVID-19, commodity-price volatility, lack of long-term uranium contracts, financing needs, operational and permitting risks, and uncertainty over U.S. government support were highlighted. Much of the company’s production capacity was on standby.
Appeals and administrative challenges involving the Canyon Project, White Mesa Mill and Daneros were pending. Management did not consider the challenges meritorious, but potential delays, permit changes or remediation costs could be significant; a prolonged Canyon Project delay could affect future operations.
The company reported that disclosure controls were not effective at June 30 because of previously disclosed material weaknesses in internal control over financial reporting. Management expected remediation before year-end 2020, subject to controls operating effectively and testing.
Q2 other expense included mark-to-market losses on warrant liabilities and convertible debentures, partly offset by gains on investments. These valuation changes contributed to earnings volatility and are not equivalent to operating cash flow.

Investor facts to verify

Whether the company redeemed or otherwise settled the remaining Cdn$10.43 million debentures, and the resulting cash use, interest savings and share dilution.
Progress against 2020 uranium production guidance, inventory levels, and any new uranium sales contracts or realized prices.
Whether White Mesa Mill secured sufficient feed and commercially viable rare-earth processing and sales arrangements, including any required permits.
Cash burn, future equity issuance or other financing needs, and the availability of restricted bonding collateral.
Status and potential cost or operating impact of pending project and mill litigation, and whether the material control weaknesses were remediated and validated.