Energy Fuels Inc. — Q2 2017 Form 10-Q
Business context and period: Unaudited results for the quarter and six months ended June 30, 2017. Energy Fuels extracts and processes uranium, sells uranium concentrates, and toll-processes uranium-bearing materials. It reported that it had no proven or probable reserves under SEC Industry Guide 7 and therefore remained classified as an exploration-stage company.
Key financial results
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $17.88 million | $7.01 million | $21.64 million | $25.00 million |
| Gross profit | $4.86 million | $1.29 million | $6.54 million | $7.14 million |
| Operating loss | $7.66 million | $10.33 million | $15.79 million | $18.38 million |
| Net loss | $4.48 million | $10.44 million | $15.08 million | $19.31 million |
| Loss per share | $0.06 | $0.20 | $0.22 | $0.38 |
- Q2 revenue rose substantially year over year, mainly as uranium sales increased to 300,000 pounds from 100,000 pounds and toll-processing revenue reached $2.84 million. Six-month revenue fell 13% as uranium sales volume declined to 360,000 pounds from 450,000 pounds.
- Six-month uranium concentrate sales averaged $63.74 per pound under term contracts; 100,000 pounds were sold at a spot-based price of $19.67 per pound. Q2 also included 200,000 pounds sold at a term-contract average of $65.38 per pound.
- Cash used in operating activities was $3.99 million for the six months, versus $6.20 million a year earlier. Cash and cash equivalents were $18.72 million at June 30, 2017, compared with $16.90 million at year-end. Working capital was $34.21 million.
- Cash from financing was $5.37 million, including $7.46 million net proceeds from an at-the-market share offering, partly offset by $2.46 million of debt repayments. Investing activities provided $0.39 million.
- Total loans and borrowings were $28.45 million, including $15.96 million of convertible debentures and $12.49 million outstanding on the Wyoming bond loan. Restricted cash was $22.81 million and is principally collateral for reclamation bonds. Asset retirement obligations totaled $17.18 million on a discounted basis; undiscounted obligations were estimated at $43.00 million.
Changes, outlook and notable items
- Net losses narrowed versus the prior-year periods. Q2 included $3.68 million of other income, chiefly a $3.04 million gain from revaluing warrant liabilities. Six-month other income of $1.76 million also included gains on investments and asset sales, partly offset by a debenture revaluation loss. These gains are not equivalent to recurring operating performance.
- Inventory impairment was $1.96 million in both the quarter and six-month period, attributed to weak uranium prices and lower contract sales. The company also recorded a $3.60 million impairment on an ISR property classified as held for sale and $0.29 million of property abandonment expense for the six months.
- Management forecast 2017 uranium production of 640,000–675,000 pounds, including 204,000 pounds produced in the first half. It expected 160,000 pounds of additional uranium deliveries in the second half and approximately $6.5 million of toll-processing revenue for the year; $3.10 million had been earned in the first half.
- Management expected Nichols Ranch output to decline somewhat, deferred further wellfield development pending better uranium prices or suitable contracts, and kept Alta Mesa on standby. White Mesa Mill recovery could partly offset lower Nichols Ranch production. The company said it believed available cash and resources would support its base plan beyond June 30, 2018, but warned that prolonged weak prices could require additional capital or other measures.
- Uranium spot prices remained weak and oversupplied, in management’s view. Production cuts, demand, nuclear policy, and future contract pricing were significant uncertainties. The company also faced commodity, financing, permitting, operating, reclamation, foreign-exchange and dilution risks.
- Material matters included pending litigation concerning the White Mesa Mill and an appeal relating to the Canyon Project. The company said the parties were awaiting court decisions; an adverse Canyon outcome could require prolonged standby. The scope and cost of potential changes to the White Mesa aquifer corrective-action plan had not been determined and could be significant.
Important facts for investors to verify
- Whether 2017 production and delivery guidance was achieved, and whether toll-processing revenue and feed availability supported continued Mill operations.
- How much of reported earnings depends on fair-value gains and asset-sale gains rather than operating results, and how uranium-price changes affect inventory valuations and sales economics.
- Liquidity needs beyond management’s base-plan estimate, including restricted-cash availability, future financing requirements, debt service and the December 2020 debenture maturity.
- Progress and potential costs relating to the held-for-sale ISR property, reclamation obligations, and the White Mesa and Canyon legal matters.
- Potential dilution: 3.40 million shares were issued through the ATM in the first half, and common shares outstanding increased to 70.57 million at June 30, 2017.