Energy Fuels Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. Financial amounts are in U.S. dollars unless stated otherwise. Energy Fuels produces uranium concentrate and processes uranium-bearing materials; it reported that it had no proven or probable reserves under SEC Industry Guide 7.
Financial performance and position
| Metric | Q1 2018 | Q1 2017 / prior date |
|---|---|---|
| Revenue | $1.25 million | $3.76 million |
| Gross profit (loss) | $(0.99) million | $1.69 million |
| Operating loss | $(10.40) million | $(8.14) million |
| Net loss | $(10.83) million; $(0.14) per share | $(10.60) million; $(0.15) per share |
| Cash used in operating activities | $11.83 million | $9.08 million |
| Cash, cash equivalents and restricted cash | $28.20 million | $40.70 million at Dec. 31, 2017 |
| Working capital | $23.64 million | Not provided as a comparable figure |
- Unrestricted cash was $6.62 million; restricted cash was $21.57 million. Current assets were $32.27 million and current liabilities $8.64 million.
- Total loans and borrowings were $26.35 million, including $3.46 million current and $22.89 million long-term. The convertible debentures mature in December 2020; the Wyoming bond loan matures in October 2020.
- Inventory was $16.83 million, including 600,000 pounds of finished uranium inventory. The company recorded a $1.01 million inventory impairment related to falling uranium prices and reduced contract sales.
- Q1 uranium revenue included a 50,000-pound spot sale at $24.75 per pound. The company recovered 43,000 pounds from ISR operations; it reported no conventional uranium recovery in the quarter.
Changes versus the prior comparable period
- Revenue fell 67%, primarily because Q1 2018 sales volumes and realized prices were lower. Q1 2017 included 60,000 pounds sold under term contracts at an average $58.28 per pound and toll-processing revenue.
- Operating loss widened by $2.26 million. Lower development and permitting costs were more than offset by higher standby costs, the inventory impairment and lower revenue. Standby costs rose to $2.51 million from $1.21 million, mainly because of reduced toll milling at the White Mesa Mill.
- Net loss was modestly higher, while loss per share improved to $0.14 from $0.15, reflecting a higher weighted-average share count.
- Operating cash outflow increased by $2.76 million year over year. Cash, cash equivalents and restricted cash declined $12.50 million from year-end 2017.
Outlook, management commentary and material risks
- Management forecast 2018 uranium production of 460,000–520,000 pounds: 140,000–160,000 pounds from Nichols Ranch and 320,000–360,000 pounds from White Mesa Mill activities. Q1 production was 43,000 pounds, all from Nichols Ranch.
- The company planned to keep Nichols Ranch development deferred and Alta Mesa on standby until uranium prices or sales opportunities improve. It expected planned Mill processing to continue through year-end and generate positive cash flow, subject to securing sufficient feed material.
- Management said production and existing inventory were expected to exceed existing sales-contract commitments. A 400,000-pound delivery under contracts at a fixed $61.30 per pound was completed April 1, after quarter-end. Two further 200,000-pound deliveries were expected later in 2018 at prices based on the preceding five-week average spot price. The filing says existing long-term contracts expired following the April deliveries; future sales would therefore depend on spot prices unless new term contracts are obtained.
- Uranium spot prices declined from $23.75 per pound at the start of 2018 to $21.00 at March 31; long-term prices fell from $31.00 to $28.00. Management cited oversupply, inventories and secondary supply as continuing market pressures, while noting potential support from production cuts and U.S. trade-policy action.
- Management believed available resources were sufficient to fund its business plan for at least 12 months, but warned that prolonged depressed uranium prices could require additional capital or other measures. Q1 ATM share sales raised net proceeds of $1.15 million.
- Subsequent events: from April 1 through May 2, the company sold 2.10 million shares through its ATM for $3.90 million. On May 1, it sold the non-core Reno Creek property for $5.39 million, consisting of $2.94 million cash and $2.45 million in Uranium Energy Corp. shares.
- Asset-retirement obligations were $18.72 million on a discounted basis, with $43.42 million of undiscounted obligations; $21.57 million of cash and securities was posted as collateral. The company identified possible increases in required collateral as a risk.
- Legal matters include challenges to the White Mesa Mill license and permit renewal and an appeal of the Daneros Mine expansion approval. The company said it considered the challenges without merit. The Canyon Project appeal had been decided in the company’s favor, but a rehearing petition remained pending; a prolonged stoppage if the plaintiffs ultimately prevailed could significantly affect future operations.
- The company supported a Section 232 trade petition seeking limits on uranium imports, but stated that the outcome was uncertain. Other key risks include uranium-price volatility, reliance on spot sales after contract deliveries, access to feed materials, permitting and environmental obligations, and the ability to raise capital.
Important facts for investors to verify
- Whether management achieves the 2018 production forecast and secures enough feed material to sustain White Mesa Mill operations and expected cash generation.
- Uranium prices, spot-sale volumes and realized prices following the April contract deliveries, and the company’s ability to obtain new term contracts.
- Cash burn, ATM share issuance and dilution, and whether liquidity remains adequate if low uranium prices persist.
- The valuation and saleability of uranium inventory, including the basis for impairment charges and the amount of finished inventory available for sale.
- Developments in the White Mesa, Daneros and Canyon proceedings, and any resulting operating restrictions, remediation costs or bonding requirements.
- Debt repayment and interest terms, particularly the convertible debentures due in 2020 and the Wyoming bond loan.