Energy Fuels Inc. — Q3 2019 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2019. Unaudited U.S. GAAP results; amounts below are U.S. dollars. Energy Fuels is an exploration-stage mining company under SEC Industry Guide 7 and reports that it has no proven or probable reserves under that standard.
Financial and operating results
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $0.423m | $0.451m | $5.164m | $28.678m |
| Operating loss | $8.832m | $10.215m | $30.458m | $13.495m |
| Net loss | $6.939m | $13.897m | $28.387m | $17.582m |
| Loss per share | $0.07 | $0.16 | $0.30 | $0.20 |
| Cash used in operating activities | Not separately stated | Not separately stated | $34.698m | Cash provided: $0.388m |
Q3 gross loss was $1.923m, versus $0.263m in Q3 2018; the nine-month gross loss was $6.866m, versus gross profit of $13.707m in 2018. Gross margins were negative in 2019. Inventory impairment was $2.330m in Q3 and $8.412m for the nine months, primarily reflecting uranium production costs relative to market prices and lower vanadium prices. The quarterly net loss narrowed year over year, while the nine-month net loss increased.
Nine-month revenue fell sharply as the prior-year period included substantial uranium contract sales. 2019 revenue included $1.957m from vanadium sales and $3.141m from alternate-feed processing and other activities; uranium revenue was $0.066m. Q3 revenue was principally toll processing, with $0.016m from vanadium sales.
Liquidity, debt and capital
- At September 30, cash and cash equivalents were $14.728m, marketable securities $7.776m, and restricted cash $20.054m. Management reported working capital of $41.06m and said resources were expected to fund its plan for at least 12 months.
- Operating cash outflow of $34.698m was driven in part by the $28.387m net loss and a $12.854m increase in inventories. Investing cash inflow of $19.530m primarily reflected marketable-security maturities and sales. Financing provided $15.615m, chiefly from ATM share issuance.
- Loans and borrowings totaled $16.631m, including $15.909m of convertible debentures and $0.722m current borrowings. Debentures mature December 2020 and bear interest of 8.5%–13.5%, linked to uranium prices. Total liabilities were $47.160m.
- Shares outstanding increased from 91.445m at December 31, 2018 to 98.189m at September 30, 2019. ATM proceeds net of issuance costs were $14.696m for the nine months. From October 1 to November 1, the company issued 1.13m additional ATM shares for $2.28m.
Operations, outlook and material changes
- The company recovered approximately 56,000 pounds of uranium in the first nine months, all from Nichols Ranch ISR operations. It maintained 2019 uranium recovery guidance of 50,000–125,000 pounds, including 50,000–70,000 pounds from Nichols Ranch. With no uranium sales contracts, 2019 production was expected to be added to inventory.
- White Mesa Mill recovered approximately 1.3m pounds of vanadium pentoxide in the nine months and expected to continue at about 160,000–200,000 pounds monthly while operations continued. Management was building inventory and expected sales to depend on prices; no vanadium sales contracts were in place. Uranium recovery from pond returns stopped September 19 to reduce vanadium production costs.
- Alta Mesa and most conventional uranium properties remained on standby, and further Nichols Ranch wellfield development was deferred pending improved prices or suitable contracts. The company said Nichols Ranch could be placed on standby in early 2020 if market conditions did not improve significantly. It expected mill activities to continue through 2019 and into 2020, subject to feed availability, economics and market conditions.
- A New Mexico cleanup-processing agreement had delivered 4,591 tons through Q3. Expected processing revenue was $0.7m–$3.5m, depending on final deliveries; recovered uranium was estimated at 8,000–70,000 pounds. These amounts are estimates, not reported realized revenue.
- Management viewed uranium markets as weak and uncertain despite potential longer-term support from production cuts and demand. The Presidential Nuclear Fuel Working Group’s recommendations were delayed and any government support remained uncertain. Vanadium prices weakened in Europe after earlier highs, with management citing substitution, subdued steel markets and supply conditions.
- Management warned that extended weak uranium prices could require additional capital or other cost-reduction measures. The company had no uranium long-term contracts and remained exposed to spot prices. Its outlook and production plans are conditional on markets, financing, permits, feed supply and sales opportunities.
Contingencies and unusual items
- Disputes challenging White Mesa Mill permits and groundwater corrective actions remained pending. Management did not expect material effects, but the scope and cost of any required remediation or permit changes were undetermined and could be significant.
- A remanded claim in litigation over the Canyon Project was being briefed. An adverse outcome could require the project to remain on standby and significantly affect future operations. A separate Daneros Mine environmental appeal remained under review.
- Asset retirement obligations were $20.733m on a discounted basis, versus an undiscounted obligation of $41.73m; $20.054m of restricted cash was posted as collateral. Additional collateral requirements and final reclamation costs remain uncertainties.
- Reported other income included fair-value gains on warrant liabilities and convertible debentures; these non-operating valuation changes helped reduce the Q3 and nine-month net losses and may fluctuate.
Key facts for investors to verify
- Whether cash, marketable securities and working capital can support operations if uranium markets remain depressed, given substantial operating cash use and potential need for further financing.
- Progress on uranium and vanadium sales, realized prices, inventory levels and inventory impairment; the company had no uranium or vanadium sales contracts.
- Achievement of 2019 recovery expectations and the timing and cost of any standby decisions, mill campaigns or restart plans.
- Outcomes and potential financial or operating effects of White Mesa, Canyon and Daneros proceedings, plus any changes in reclamation collateral obligations.
- Convertible debenture repayment or refinancing before December 2020, including the possible effects of share settlement, interest terms and further ATM issuance on dilution.