Energy Fuels Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Amounts are U.S. dollars unless noted. The company is an exploration-stage uranium producer under SEC Industry Guide 7 because it has not established proven or probable reserves.
Financial performance and position
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Revenue | $1.67 million | $1.25 million; up 33% |
| Operating loss | $10.12 million | $10.40 million |
| Net loss | $12.13 million; $0.13 per share | $10.83 million; $0.14 per share |
| Operating cash flow | $(11.55) million | $(11.83) million |
| Cash and cash equivalents | $15.31 million | $14.64 million at December 31, 2018 |
| Marketable securities | $17.45 million | $27.06 million at December 31, 2018 |
| Working capital | $47.26 million | At March 31, 2019 |
- Revenue comprised $1.17 million from vanadium sales and $0.50 million from alternate-feed processing and other activity. There were no uranium sales.
- Costs applicable to revenue were $0.92 million; inventory impairment was $1.18 million, resulting in a gross loss of $0.42 million.
- Cash, cash equivalents and restricted cash totaled $34.99 million. Restricted cash of $19.68 million is pledged as reclamation collateral and is not freely available.
- Loans and borrowings were $17.64 million, consisting of convertible debentures due December 2020. The debentures’ floating interest rate ranges from 8.5% to 13.5%, linked to uranium prices. Warrant liabilities were an additional $7.14 million.
- Asset retirement obligations were $19.62 million on a discounted basis; the estimated undiscounted obligation was $41.32 million. The company had posted $19.68 million against that obligation.
Changes versus the prior comparable period
- Revenue increased, but its composition shifted from uranium sales in Q1 2018 to vanadium sales and processing revenue in Q1 2019.
- Operating loss narrowed by $0.28 million, while net loss increased by $1.31 million. Loss per share improved to $0.13 from $0.14, partly reflecting a higher weighted-average share count.
- Development, permitting and land-holding costs rose to $4.34 million from $1.60 million, mainly due to La Sal vanadium test mining and White Mesa Mill activity. General and administrative expense declined to $3.75 million from $4.77 million; standby costs fell to $1.08 million from $2.51 million.
- Operating cash use remained substantial. The $0.70 million increase in cash, cash equivalents and restricted cash included $9.95 million from marketable-security maturities and sales, alongside $11.55 million of operating cash use.
Outlook, commentary and risks
- Management expected 2019 uranium recovery of approximately 50,000–125,000 pounds, including 50,000–70,000 pounds from Nichols Ranch. Q1 recovery was approximately 20,000 pounds. With no uranium sales contracts, management expected 2019 uranium production to be added to inventory and future sales to be exposed to spot prices.
- The White Mesa Mill’s pond-return campaign produced 325,000 pounds of vanadium pentoxide in Q1. Management planned recovery of approximately 160,000–200,000 pounds per month during the program, subject to successful recovery and suitable prices; it could curtail or stop production if prices remain low or decline. No vanadium sales contracts were in place.
- Management said existing resources were sufficient to carry out its business plan for at least 12 months, but warned that prolonged weak uranium prices could require additional capital or other measures. Q1 ATM share sales raised $2.41 million net; subsequent to quarter-end through May 7, another $1.28 million was raised. Share dilution is a related consideration.
- Uranium spot prices fell 8% during Q1, to $24.90 per pound at quarter-end; vanadium spot prices fell about 19%, to $13.88 per pound. Management cited weak market conditions and uncertainty surrounding the U.S. Section 232 investigation. The Department of Commerce submitted its report on April 14, 2019; the President had 90 days to act. Any remedy and its effect on prices were uncertain.
- Material contingencies include challenges to White Mesa Mill permits and the Canyon Project, and an appeal concerning the Daneros mine plan. The company said it did not expect the proceedings to have a material effect, but noted that some potential remediation or project delays could be significant. A Canyon Project claim was remanded for further proceedings, and a related petition was pending before the U.S. Supreme Court.
- Management’s forward-looking estimates depend on commodity prices, recovery performance, feed availability, permits, financing and sales opportunities. Results may differ materially from expectations.
Most important facts for investors to verify
- Whether the company can fund ongoing operations if uranium prices stay depressed, given operating cash use of $11.55 million in the quarter and management’s stated potential need for capital.
- Actual uranium and vanadium production, sales volumes and realized prices, especially because neither commodity had sales contracts in place.
- Progress and commercial viability of the White Mesa vanadium campaign, including whether production can continue at suitable prices.
- Terms, timing and dilution from further ATM share issuance, and the company’s ability to address the December 2020 debenture maturity.
- Outcomes of the Section 232 process and the White Mesa, Canyon and Daneros proceedings, including any impact on operations, permitting or reclamation costs.