UR-Energy Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Figures are in U.S. dollars unless stated otherwise; financial statement amounts are in thousands. Ur-Energy is an exploration-stage uranium company operating the Lost Creek in-situ recovery mine in Wyoming.
Financial and operating performance
- Revenue: No sales in Q1 2021, versus $1.37 million in Q1 2020, when the Company sold 33,000 pounds of purchased uranium at an average $41.52 per pound. Management did not anticipate sales during 2021 at the time of filing.
- Profitability: Gross loss was $1.67 million, compared with $1.74 million a year earlier. The 2021 gross loss reflected a $1.67 million inventory write-down to net realizable value, rather than product sales costs. Operating loss improved to $3.49 million from $3.80 million. Net loss increased to $7.37 million from $3.64 million, or $0.04 per share versus $0.02.
- Key non-operating item: A $3.40 million non-cash loss from remeasuring warrant liabilities compared with a $0.27 million gain in Q1 2020. The Company attributed the increase to its share price, volatility and other valuation inputs. Foreign exchange loss was $0.30 million, primarily from revaluing U.S.-dollar cash balances into the parent company’s Canadian-dollar functional currency.
- Cash flow: Operating activities used $2.08 million; investing activities used no cash; financing provided $15.37 million, primarily from the February equity offering and exercises of options and warrants. Cash, cash equivalents and restricted cash ended the quarter at $25.46 million, including $17.60 million unrestricted cash and $7.86 million restricted cash.
- Balance sheet and liquidity: Total assets were $94.03 million, current assets $18.21 million, and current liabilities $5.26 million. Current notes payable were $0.76 million; non-current notes payable were $12.43 million. Shareholders’ equity was $40.13 million. Restricted cash supports reclamation surety bonds; management reported $27.8 million of bond coverage collateralized by restricted cash.
- Other material balances: Inventory was $7.86 million, all classified as non-current and held at a conversion facility. Asset retirement obligations were $30.09 million. As of March 31, approximately 284,676 pounds of uranium were in inventory, including 235,608 produced pounds and 48,750 purchased pounds.
- Production: Reduced operations continued at Lost Creek. The Company captured 49 pounds in Q1, drummed no pounds, and shipped 15,873 pounds to a conversion facility. Production remained intentionally low while the Company awaited market developments.
Changes versus Q1 2020 and financing
- Revenue fell from $1.37 million to zero. Inventory NRV write-downs declined from $2.28 million to $1.67 million; the resulting reported gross loss was broadly similar year over year.
- Operating costs declined to $1.81 million from $2.06 million, mainly due to lower labor and outside-service costs, partly offset by higher exploration and evaluation spending.
- Net loss widened by $3.73 million, primarily reflecting the $3.40 million warrant remeasurement loss versus a gain in the prior-year quarter, as well as foreign exchange loss.
- On February 4, the Company issued 16.93 million common shares and associated warrants in an underwritten offering. Gross proceeds were approximately $15.2 million and net proceeds approximately $13.9 million. Shares outstanding rose to 189.39 million at March 31, compared with 170.25 million at December 31, 2020.
- The $12.44 million Wyoming State Bond Loan bears fixed interest at 5.75%; principal payments are deferred until October 1, 2022 and are scheduled to resume then. The $0.9 million in PPP loans remained recorded as debt pending SBA forgiveness approval; the applications had been submitted to the SBA in March.
Outlook, commentary and risks
- Management said Q1 financing and cost reductions support operating readiness and working capital. The Company estimated savings from debt restructuring and cost measures of more than $7 million in 2021 and $4 million in 2022.
- Management stated that Lost Creek could return to full production in as little as six months after a go decision, with estimated development costs of approximately $14 million during that ramp-up. It was not providing a firm production restart date; timing depends on market conditions and other developments.
- Wyoming approved the Lost Creek source-material license amendment during Q1, adding six planned mine units and increasing licensed annual plant capacity to 2.2 million pounds, including up to 1.2 million pounds from wellfields and up to 1 million pounds of toll processing. The permit-to-mine amendment remained under review; management anticipated completion in the second half of 2021.
- After quarter-end, Wyoming and the EPA issued the major permits and approvals for Shirley Basin. The project was described as construction-ready, but construction depends on market conditions. The Company cited potential production of up to nine years based on its project assessment.
- Management intended to preserve finished inventory for potentially higher prices or delivery to the U.S. uranium reserve program, rather than sell at spot prices in 2021. As of May 5, unrestricted cash was $15.8 million, finished inventory was valued at $8.6 million using recent spot prices, and the reported uranium spot price was $30.25 per pound.
- Key uncertainties include uranium prices and sales demand, implementation and funding of the U.S. uranium reserve, permit timing, the ability to ramp production and secure future financing, COVID-19 effects, and the potential for additional dilution. The Company reported no proven and probable mineral reserves; its resource disclosures follow Canadian standards and are not equivalent to U.S.-standard reserves.
- Cash and restricted cash totaled $25.46 million, of which approximately $25.0 million was not covered by the deposit-protection programs identified in the filing, creating financial-institution concentration risk. Other notable exposures include reclamation obligations and sensitivity of warrant liabilities to share-price and valuation assumptions.
- Management reported effective disclosure controls, no material changes to internal control over financial reporting, no new material legal proceedings, and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether the Lost Creek permit-to-mine amendment was completed and when management authorized any production ramp-up, including the availability and cost of the estimated $14 million development program.
- Whether the PPP loans received forgiveness and the remaining principal-payment schedule under the Wyoming State Bond Loan.
- Subsequent uranium sales, realized prices, inventory carrying value and any further NRV adjustments, given the absence of Q1 sales and management’s stated inventory strategy.
- Implementation, procurement terms and funding of the U.S. uranium reserve, and any resulting sales or delivery agreements for Ur-Energy.
- Cash runway, future financing needs and dilution, including potential warrant exercises and the effect of warrant remeasurement on reported earnings.
- Reclamation-cost estimates, collateral requirements and the distinction between Canadian mineral resources and U.S.-standard mineral reserves.