UR-ENERGY INC annual report, FY2018

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Ur-Energy Inc. — 2018 Form 10-K

Reporting period: Fiscal year ended December 31, 2018. The filing is an annual report, not a standalone fourth-quarter filing. Amounts are in U.S. dollars unless stated otherwise. Ur-Energy operates the Lost Creek in-situ recovery uranium mine in Wyoming and is classified as an exploration-stage company; it reports no mineral reserves under SEC standards.

Financial and operating results

  • Revenue: $23.5 million for 2018, down from $38.4 million in 2017. Uranium sales were $23.45 million; the balance was primarily disposal-fee income. In Q4, reported revenue was $14,000, consisting of disposal fees; no uranium was sold.
  • Profit: Net income was $4.53 million, compared with $76,000 in 2017. Income from operations was $1.31 million, versus $1.39 million. Gross profit was $11.29 million, down from $13.97 million; the filing reports a gross margin of approximately 48% for 2018 versus 36% in 2017. Q4 net loss was $1.67 million.
  • Sales and production: The company sold 480,000 pounds of U3O8 at an average $48.86 per pound: 470,000 purchased pounds under term contracts and 10,000 pounds of production in a spot sale. Lost Creek captured 302,164 pounds and packaged 286,358 pounds, compared with 265,391 and 254,012 pounds, respectively, in 2017. Produced pounds sold averaged $40.80 per pound in cost; purchased pounds averaged $24.42.
  • Cash flow: Operating activities used $5.36 million, compared with $5.63 million generated in 2017. Investing activities provided $3.45 million, including $3.54 million of proceeds from monetizing future contract deliveries. Financing activities provided $4.42 million, primarily reflecting the share-and-warrant offering, partly offset by $4.90 million of debt repayments. Cash, cash equivalents and restricted cash totaled $13.83 million at year-end; unrestricted cash and cash equivalents were $6.37 million.
  • Liquidity and debt: Working capital was positive $1.61 million, versus $1.28 million in 2017. Current assets were $9.09 million and current liabilities $7.48 million. State Bond Loan principal was $15.0 million at year-end, secured by Lost Creek assets, bearing 5.75% interest and scheduled to mature in October 2021; $5.18 million of principal was due in 2019. Asset retirement obligations were $30.38 million, with estimated settlement extending through 2033.
  • Inventory and equity: Total inventory was $14.69 million, including $12.85 million classified as long-term; year-end finished inventory at the conversion facility was approximately 375,803 pounds. Inventory increased substantially during the year, and the company recorded a $318,000 lower-of-cost-or-net-realizable-value write-down. Shareholders’ equity was $51.85 million, up from $38.78 million; common shares outstanding increased to 159.7 million.

Material changes versus 2017

  • Revenue fell about 39%, reflecting fewer pounds sold: 480,000 versus 780,000. Average realized price was nearly flat at $48.86 versus $49.09 per pound.
  • Net income increased to $4.53 million, but included $3.61 million of other income, principally a $3.54 million gain from monetizing portions of 2021 customer contracts, and a $581,000 warrant fair-value gain. These items are important to distinguish from recurring mine operations.
  • Uranium gross profit declined to $11.57 million from $16.49 million, while the reported margin improved. Most 2018 contractual sales were supplied by purchased uranium rather than production.
  • Operating cash flow shifted from a $5.63 million source to a $5.36 million use, with inventory growth a major factor. The company completed a public offering that generated approximately $9.1 million in net proceeds and issued 12.2 million common shares plus warrants.
  • Development spending fell to $1.65 million from $4.34 million as the company deferred further Lost Creek development. Asset retirement obligations rose by $3.35 million to $30.38 million, including revised remediation estimates.

Outlook, commentary and key risks

  • Management planned to deliver 500,000 pounds in 2019 at an average contracted price of approximately $49 per pound, with purchase contracts covering those pounds at an average cost of approximately $26. It forecast about $11.5 million of gross profit from those purchased-pound sales, before other expenses. No 2019 spot sales were included in its forecast.
  • For 2020 and 2021, contracted deliveries were 390,000 and 25,000 pounds, respectively. Management intended to build inventory using expected production of 75,000–100,000 pounds in 2019. It said it did not anticipate near-term financing needs, while noting that additional capital might be required or unavailable on acceptable terms.
  • Further MU2 development was suspended amid weak uranium prices. Management said Lost Creek could increase production within about six months after a restart decision, with estimated development spending of approximately $14 million. The company reported year-end spot and long-term uranium prices of $27.75 and $32 per pound, respectively.
  • Permitting for LC East and Shirley Basin was expected to progress in 2019; approvals were not assured. The Wyoming Uranium Recovery Program assumed regulatory responsibility for uranium recovery facilities in September 2018. The company also pursued a Section 232 trade petition seeking a 25% domestic-market quota; its outcome and any impact on uranium markets were uncertain.
  • Principal risks include depressed and volatile uranium prices, imports and limited customers, reliance on term contracts and purchased inventory, lack of SEC-defined mineral reserves, production and resource-estimation uncertainty, permitting and environmental obligations, financing needs and debt covenants, reclamation costs, and potential dilution. The State Bond Loan is secured by key Lost Creek assets. U.S. shareholders should also consider the disclosed potential passive foreign investment company tax treatment.
  • Management and the auditor reported effective internal control over financial reporting. The auditor issued an unqualified opinion on the financial statements and internal controls.

Most important facts for investors to verify

  • Whether 2019 contracted deliveries, purchase costs and projected gross profit were achieved, and how much inventory remained available to meet later commitments.
  • Operating cash generation after inventory purchases, debt service and the scheduled 2019 principal payment; also, the timing and terms of any additional financing.
  • How much of 2018 net income depended on the one-time contract monetization and warrant valuation gain, rather than recurring operations.
  • Progress and costs for LC East and Shirley Basin permitting, and whether market conditions support restarting MU2 development.
  • Current uranium prices, Lost Creek production costs and resource performance, recognizing that the reported resources are not SEC-defined reserves and do not demonstrate economic viability.
  • The filing presents differing figures for cash exposure to financial-institution credit risk ($13.1 million in MD&A and approximately $13.7 million in the financial-statement note); investors should verify the applicable amount and coverage.