ENERGY FUELS INC quarterly report, Q3 FY2021

Energy Fuels Inc. — Q3 2021 Form 10-Q

Reporting period: Three and nine months ended September 30, 2021. Unless otherwise noted, financial amounts are U.S. dollars. Energy Fuels extracts and processes uranium, recycles uranium-bearing materials, and is developing rare-earth-element (REE) production. The company identifies as an exploration-stage miner under SEC Industry Guide 7 because it has no proven or probable reserves under that standard.

Financial performance and liquidity

Metric	Q3 2021	Q3 2020	Nine months 2021	Nine months 2020
Revenue	$0.715 million	$0.486 million	$1.524 million	$1.274 million
Operating loss	$8.381 million	$9.348 million	$25.570 million	$23.624 million
Net loss	$7.957 million	$8.938 million	$29.658 million	$22.792 million
Basic and diluted loss per share	$0.05	$0.08	$0.21	$0.19
Operating cash flow	Not separately provided for the quarter	-$21.983 million	-$25.276 million

Q3 revenue included $269,000 from REE concentrates and $446,000 from alternate-feed processing and other activities. REE revenue was new; there were no uranium or vanadium sales during the first nine months.
Q3 revenue exceeded reported revenue-related costs by $13,000; for the nine-month period, the corresponding gross margin was $796,000. Q3 REE costs included $450,000 of underutilized-capacity costs during the production ramp-up.
Nine-month other expense was $4.045 million, principally reflecting an $8.050 million mark-to-market loss on warrant liabilities, partly offset by investment gains and other income. The loss was substantially affected by non-cash items.
At September 30, cash and cash equivalents were $100.238 million; working capital was $132.79 million. Cash, cash equivalents and restricted cash totaled $120.531 million, including $20.293 million restricted as reclamation collateral.
The company reported no outstanding short- or long-term debt. Total liabilities were $17.452 million, including a $14.021 million asset-retirement obligation. The undiscounted reclamation liability was $42.29 million.
Cash increased $79.546 million during the first nine months, largely due to $99.989 million of financing cash flow, including $92.122 million net proceeds from share issuance. Operating activities used $21.983 million.
Shares outstanding rose to 154.494 million at quarter-end from 134.311 million at December 31, 2020. The company reported $245.965 million of shareholders’ equity.

Material changes versus the prior comparable period

Nine-month revenue increased $250,000 year over year, while the company began commercial-scale REE carbonate production and recorded $269,000 of REE concentrate revenue.
Nine-month net loss widened by $6.866 million. The 2021 period included a $8.050 million warrant-liability revaluation loss, compared with a $1.745 million net other-income contribution in 2020.
Development, permitting and land-holding costs rose to $8.683 million from $2.681 million, mainly reflecting REE program development. Standby costs declined to $6.503 million from $8.104 million; general and administrative costs declined to $10.158 million from $11.020 million.
Operating cash use improved from $25.276 million to $21.983 million, while financing proceeds increased sharply. The company also completed substantial ATM share issuance, resulting in dilution.
REE production expectations for 2021 were reduced from 700–1,100 tonnes of mixed carbonate and 350–550 tonnes of TREO to 400–600 tonnes and 180–270 tonnes, respectively, due to reduced monazite supply availability.

Outlook, management commentary, risks and unusual items

Management said available cash and resources were expected to fund its business plan for at least 12 months. It cautioned that prolonged depressed uranium prices could require additional capital or other measures.
The company expected to recover approximately 400–600 tonnes of mixed REE carbonate containing 180–270 tonnes of TREO in 2021, subject to adequate monazite supply. It reported producing approximately 270 tonnes of REE concentrate containing approximately 120 tonnes of TREO in the first nine months. Management said ramp-up costs and low throughput could limit near-term REE profits.
Uranium production was expected to remain insignificant in 2021; uranium recovery was being retained in circuit rather than packaged. Nichols Ranch, Alta Mesa and conventional mines were expected to remain on standby. No vanadium production was expected in 2021.
Management cited volatile uranium prices and improving market interest but said the observed price increases were not yet sufficient to justify restarting production. It intended to pursue term contracts at prices supporting production and continued to evaluate possible inventory sales. Uranium and vanadium inventory sales are exposed to market prices; REE contract pricing is also linked to REE prices.
The proposed U.S. Uranium Reserve had $75 million authorized, but its implementation and potential benefit to the company were not defined. Management’s expectations regarding future government purchases and uranium-market recovery remain uncertain.
Subsequent to quarter-end, on October 27, 2021, the company completed the sale of several non-core conventional uranium assets to Consolidated Uranium Inc. Consideration included $2 million cash, a 19.9% equity interest, deferred cash payments totaling Cdn$6 million, and project production payments totaling Cdn$5 million. The company retained operating responsibilities under agreements.
Other risks include the Pinyon Plain Project appeal, which could prolong a standby period and affect future operations; challenges to White Mesa Mill permits and license amendments; uncertain remediation costs; commodity-price volatility; and the need for sufficient monazite feedstock. Management said it did not believe the disclosed legal matters were likely to materially affect financial position, but some potential remediation or permitting costs were not yet determined.
Disclosure controls were reported effective as of September 30, 2021, and no material change in internal control over financial reporting was reported for the quarter.

Important facts for investors to verify

Whether additional monazite supply is secured and the revised REE production targets, costs and commercial margins are achieved.
How much cash is consumed by operations and development, and whether new financing or further share issuance is needed.
Whether uranium prices and term-contract terms support restarting production, and whether the U.S. Uranium Reserve is implemented in a way that benefits the company.
The value and collectability of deferred and contingent consideration from the October asset sale, alongside the company’s continuing operating obligations.
Developments in the Pinyon Plain appeal, White Mesa Mill challenges, and reclamation bonding and liability estimates.
The effect of warrant and investment revaluations on reported earnings, distinct from cash operating performance.