Ur-Energy Inc. — Q1 2019 Form 10-Q
Business and period: Uranium producer and exploration-stage mining company operating the Lost Creek in-situ recovery mine in Wyoming. This unaudited filing covers the three months ended March 31, 2019; financial amounts are in U.S. dollars unless stated otherwise.
Financial performance and position
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Revenue | $4.812 million | $19.672 million |
| Gross profit (loss), reported | $(0.334) million | $9.914 million |
| Net income (loss) | $(4.302) million; $(0.03) per share | $6.418 million; $0.04 per share |
| Operating cash flow | $(1.201) million | $6.434 million provided |
| Cash and equivalents at quarter-end | $3.916 million | $6.372 million at Dec. 31, 2018 |
| Restricted cash | $7.460 million | $7.458 million at Dec. 31, 2018 |
| Debt | $13.7 million principal outstanding; $5.173 million current carrying amount | Sweetwater County loan bears fixed 5.75%; principal payments run through October 2021 |
Reported cost of sales included a $1.964 million lower-of-cost-or-net-realizable-value inventory adjustment. Excluding that adjustment, management reported uranium sales gross profit of approximately $1.6 million and a 34% margin; these are non-GAAP presentations. The reported gross loss reflects the inventory write-down.
Q1 sales were 97,500 pounds at an average $49.35 per pound, split evenly between produced and purchased uranium. Lost Creek captured 22,551 pounds and packaged 21,015 pounds; no product was shipped from the plant to the conversion facility during the quarter. Total inventory was valued at $14.952 million. Total assets were $97.087 million and shareholders’ equity was $47.728 million at March 31.
Changes versus Q1 2018
- Revenue fell about 76%, chiefly because sales volume declined to 97,500 pounds from 380,000 pounds. Q1 2018 sales largely comprised purchased inventory.
- Results shifted from $6.418 million net income to a $4.302 million net loss. Besides lower sales, the 2019 quarter included the $1.964 million inventory valuation adjustment and a $0.533 million warrant fair-value loss.
- Operating cash flow declined from $6.434 million provided to $1.201 million used. Cash and equivalents fell $2.456 million from year-end.
- Reported gross margin was negative, versus approximately 50% in Q1 2018. Management’s margin excluding the 2019 inventory adjustment was approximately 34%.
Outlook, commentary and risks
- Management expected Lost Creek production of 75,000–100,000 pounds in 2019 and described production as deliberately restricted given weak uranium-market conditions. It said production could be increased after a “go” decision, with additional MU2 development estimated at less than $14 million.
- The company projected 665,000 pounds of 2019 term-contract deliveries at an average price of approximately $48 per pound, and expected about $12.3 million gross profit from uranium sales (approximately 38% margin). These are forward-looking estimates, not results.
- Management reported 500,000 pounds of 2019 purchase contracts at an average $26 per pound. It also disclosed Q2 delivery and sales activity and remaining Q3/Q4 commitments; the quantities described do not clearly reconcile to the 665,000-pound annual delivery outlook.
- As of May 2, unrestricted cash was $3.0 million. The company said it expected $7.5 million in May proceeds from an April sale of 165,000 pounds. Cash flow is uneven and depends on timing of a small number of large sales; additional financing may be needed, with no assurance it will be available on acceptable terms.
- The uranium spot price was approximately $25.33 per pound at quarter-end, well below term-contract pricing. The Section 232 investigation report was submitted to the President on April 14, 2019; any action and its effect on the U.S. market remained uncertain.
- Permitting remained in progress for LC East and Shirley Basin. Management anticipated required approvals in 2019, but timing and outcomes were uncertain. The company had not established proven or probable mineral reserves.
- Asset retirement obligations were $30.527 million; estimated undiscounted future reclamation cash needs were $29.9 million, with settlement extending through 2033. Restricted cash of $7.460 million collateralized surety bonds providing $29.9 million of reclamation coverage.
Investor verification points
- Reconcile the 665,000-pound 2019 delivery outlook with disclosed Q1/Q2 activity and Q3/Q4 remaining commitments, and distinguish deliveries from sales tied to 2020 obligations.
- Track unrestricted cash, May sale proceeds, operating cash burn, debt installments and any financing needs.
- Assess the inventory valuation adjustment, uranium inventory quantities and carrying costs, and whether future contract prices support recoverability.
- Monitor the Section 232 outcome, spot and long-term uranium prices, and any effect on production decisions and contract economics.
- Check the status and timing of LC East and Shirley Basin approvals and compare actual production with the 2019 outlook.
- Review the continuing reclamation obligations and surety collateral requirements alongside available liquidity.