UR-Energy Inc. — Q3 2015 Form 10-Q
Reporting period: Three and nine months ended September 30, 2015. Ur-Energy is a Canadian-incorporated uranium producer and exploration-stage company operating its Lost Creek in-situ recovery project in Wyoming. It began production in 2013 but has not established SEC-defined proven or probable mineral reserves.
Financial performance and position
Amounts below are in U.S. dollars; financial statement amounts are in millions unless otherwise noted.
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Sales | $8.49 | $7.33 | $34.09 | $22.71 |
| Gross profit | $4.31 | $3.58 | $10.73 | $8.55 |
| Gross margin | About 51% | About 49% | About 31% | About 38% |
| Operating profit (loss) | $0.19 | ($3.04) | $0.27 | ($5.04) |
| Net loss | ($0.29) | ($3.50) | ($1.39) | ($6.25) |
| Operating cash flow | Not separately stated | Not separately stated | $5.65 | ($1.26) |
- Q3 uranium sales were 150,000 pounds at an average $56.39 per pound, including 100,000 pounds under a term contract and 50,000 pounds sold at spot. The spot sale price was $35.75 per pound.
- For the first nine months, the company sold 700,000 pounds: 500,000 pounds of its production and 200,000 pounds purchased for resale. Average realized price was $48.65 per pound. Purchased product cost $39.39 per pound.
- Cash and cash equivalents were $3.63 million at quarter-end, versus $3.10 million at December 31, 2014; restricted cash was a further $7.56 million. Cash was $3.0 million on October 29, 2015.
- Current assets of $9.47 million were below current liabilities of $13.55 million. Notes payable were $34.29 million net of deferred financing costs ($8.20 million current; $26.09 million long-term). Debt principal payments and interest totaled $41.1 million over the schedule presented, including interest.
- Asset retirement obligations were $25.29 million recorded; estimated undiscounted future obligations were $26.1 million, with settlement extending through 2033. Restricted cash collateralized surety bonds providing $26.7 million of reclamation coverage.
Changes, outlook, and risks
- Compared with 2014, nine-month sales rose substantially, and the company moved from operating and net losses to a small operating profit while still reporting a net loss. The improvement included higher sales volumes and production, lower costs per pound, and lower development and general and administrative expenses. Q3 2014 gross profit included deferred revenue related to prior-year deliveries, affecting comparability.
- Q3 2015 gross margin benefited from a higher-priced contract delivery. Management expected 2015 full-year profit margins of 25%–30% after delivery of higher-priced contracts.
- Management forecast 2015 production of 750,000–850,000 pounds and monthly drying and drumming of 60,000–70,000 pounds. Contracted sales were 630,000 pounds in 2015 at an average realizable price of $49.49 per pound and 662,000 pounds in 2016 at $47.61. Production could be adjusted for operating and market conditions.
- Management believed current capital and expected sales timing would cover current obligations, and reported no immediate plan to raise capital. It noted that development of Shirley Basin could require additional cash and that future financing may not be available on acceptable terms. Sales receipts are concentrated in a limited number of large deliveries, creating timing-related liquidity risk.
- The October 15, 2015 amendment extended the $3.5 million RMBAH line-of-credit maturity to December 31, 2016 and spread repayment over four quarterly installments beginning March 2016.
- Permitting reviews continued for Lost Creek amendments covering the KM horizon and LC East. Shirley Basin permit applications were being prepared, with filing anticipated before year-end 2015. Required NRC approval of Shirley Basin and Lucky Mc bonding remained outstanding.
- Management cited low uranium spot prices; the reported spot price was $36.50 per pound on October 29, 2015. Other risks include production and recovery performance, permitting, financing and debt covenant compliance, reclamation obligations, and uranium-market volatility. The filing reports no material change to previously disclosed risk factors and no new material legal proceedings.
- The company remains an exploration-stage issuer under SEC Industry Guide 7 and cautions that Canadian mineral-resource disclosures are not equivalent to SEC-defined reserves. Future production and project viability are uncertain.
Investor verification checklist
- Confirm production, sales, and inventory volumes, especially the contribution and margins from purchased uranium versus Lost Creek production.
- Review liquidity against debt maturities, quarterly debt service, working-capital deficit, and the timing of contracted customer receipts.
- Track progress and approvals for Lost Creek amendments and Shirley Basin permits and bonding, as well as related project spending.
- Assess whether the 2015 production and margin outlook is achievable under prevailing uranium prices and contract delivery schedules.
- Verify reclamation funding and obligations, and remember that the company has not established SEC-defined proven or probable reserves.