Energy Fuels Inc. — Q3 2017 Form 10-Q
Reporting period: Three and nine months ended September 30, 2017. Amounts are in U.S. dollars unless stated otherwise.
Business context
Energy Fuels extracts and recovers uranium, sells uranium concentrates, and processes uranium-bearing materials for third parties. Its operations include the White Mesa Mill, Nichols Ranch ISR project, and projects held on standby. The company reports that it has no proven or probable reserves under SEC Industry Guide 7 and is classified as an exploration-stage mining company.
Key financial metrics
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $5.50 million | $8.70 million | $27.14 million | $33.70 million |
| Gross profit | $1.93 million | $2.98 million | $8.47 million | $10.12 million |
| Operating loss | $(5.01) million | $(9.54) million | $(20.81) million | $(27.92) million |
| Net loss | $(4.88) million | $(8.25) million | $(19.96) million | $(27.55) million |
| Basic and diluted loss per share | $(0.07) | $(0.14) | $(0.28) | $(0.51) |
- Q3 revenue included $3.50 million from sales of 60,000 pounds of uranium at an average $58.28 per pound and $2.00 million from toll processing. Nine-month uranium sales were $22.04 million; alternate-feed processing and other revenue was $5.10 million.
- Gross profit reflects inventory impairment charges: $0.86 million for Q3 and $2.82 million for the nine-month period. Q3 gross margin was approximately 35% of revenue; nine-month gross margin was approximately 31%.
- Operating cash flow was $(5.47) million for the first nine months, compared with $(13.97) million in 2016. Investing activities provided $0.82 million; financing activities provided $6.89 million, including $9.80 million net proceeds from the at-the-market share offering.
- Cash and cash equivalents were $19.45 million at September 30, 2017, versus $16.90 million at December 31, 2016. Working capital was $32.68 million. Restricted cash was a further $22.36 million and was principally collateral for reclamation surety bonds.
- Balance-sheet loans and borrowings totaled approximately $28.07 million, including $3.37 million current. Total liabilities were $55.78 million. Asset retirement obligations were $17.34 million on a discounted basis; undiscounted decommissioning liability was $43.00 million.
Changes versus prior comparable periods
- Revenue fell 37% in Q3 and 19% for the nine months. Q3 uranium deliveries declined to 60,000 pounds from 150,000 pounds a year earlier; nine-month deliveries were 420,000 pounds versus 600,000 pounds.
- Alternate-feed processing revenue increased substantially from a minimal prior-year level, reaching $2.00 million in Q3 and $5.10 million year to date.
- Net losses narrowed in both periods, primarily alongside lower development, permitting and land-holding costs and lower general and administrative expense. Nine-month operating loss also included a $3.80 million impairment of properties held for sale.
- Cash used in operations declined year over year. Share count increased during the year, including 4.80 million shares issued through the ATM offering; 71.96 million shares were outstanding at quarter-end.
Outlook, risks and unusual items
- Management expected 2017 production of 640,000–665,000 pounds; 374,000 pounds had been produced in the first nine months. The company forecast 2017 Nichols Ranch production of 260,000–270,000 pounds and Mill recovery for its own account of 380,000–395,000 pounds.
- For 2018, management forecast Nichols Ranch production of approximately 140,000–160,000 pounds, with no additional wellfield development planned until uranium prices improve. Alta Mesa was to remain on standby. Management expected to deliver 400,000 pounds under 2018 sales contracts and said existing inventory and expected production should exceed those commitments.
- Management said current uranium prices remained weak and oversupplied. It stated the company had resources to carry out its base business plan beyond November 2, 2018, but warned that prolonged depressed prices could require additional capital or other measures. Major development activities would require financing.
- Management planned to pursue additional Mill feed and toll-processing opportunities and expected to complete minor Canyon Mine work, including permeability testing, by the end of Q1 2018. Timing of Canyon production depends on planning, market conditions and financing.
- A $3.80 million nine-month impairment was recorded on mineral properties classified as held for sale. A definitive agreement to sell the property was signed November 1, 2017, after quarter-end. Separately, the company agreed after quarter-end to sell non-core Reno Creek for $5.39 million, including $2.94 million cash and $2.45 million in shares; closing was expected in late 2017 or Q1 2018.
- The company’s appeal litigation concerning the Canyon Project remained undecided; an adverse outcome could require continued standby and affect future operations. A White Mesa Mill Clean Air Act case was dismissed in the company’s favor in September 2017 and was not appealed. Other disclosed risks include uranium-price volatility, permitting and environmental obligations, reclamation costs, debt repayment and access to capital.
Important facts for investors to verify
- Whether 2017 production and delivery guidance was achieved, and the actual economics of toll-processing revenue and uranium sales.
- Cash burn, working-capital needs and financing capacity if uranium prices remain depressed; also the dilution impact of share issuances and potential future equity funding.
- Debt terms and repayment obligations, including the convertible debentures’ December 2020 maturity and the Wyoming bond’s 2020 maturity.
- Closing terms and proceeds from the announced property sales, and whether the proceeds materially improve liquidity.
- Progress on the Canyon appeal, permitting and development plans, and any changes to reclamation estimates or required surety collateral.