UR-Energy Inc. — Q2 2016 Form 10-Q
Reporting period: Three and six months ended June 30, 2016. Amounts are U.S. dollars; financial statement amounts are in thousands unless noted. Ur-Energy operates the Lost Creek in-situ recovery uranium project in Wyoming and describes itself as an exploration-stage company. It has not established proven and probable mineral reserves.
Financial and operating performance
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Revenue | $6.747 million | $18.213 million | $9.461 million | $25.600 million |
| Gross profit | $1.653 million | $4.422 million | $2.512 million | $6.419 million |
| Gross margin | 24.5% | 24.3% | 26.5% | 25.1% |
| Net income (loss) | $(1.928) million | $1.025 million | $(4.917) million | $(1.099) million |
| Operating cash flow | Not separately stated for the quarter | $(0.590) million | $4.029 million |
- Q2 sales were 187,000 pounds at an average $36.05 per pound; six-month sales were 262,000 pounds at $36.07 per pound. Q2 cost of sales was $5.094 million, or $27.24 per pound sold.
- For the first six months, the company captured 292,672 pounds, drummed 304,152 pounds and shipped 330,864 pounds to the conversion facility. Ending inventory was 201,405 pounds, valued at $4.890 million.
- At June 30, cash and cash equivalents were $2.475 million; restricted cash was $7.557 million and pledged against reclamation surety bonds. Accounts receivable were $2.531 million. Current assets of $10.800 million were below current liabilities of $16.202 million.
- Notes payable were $28.233 million net of deferred financing costs ($6.514 million current and $21.719 million long-term). The debt schedule lists $33.387 million of principal and interest payments, including $5.199 million during 2016. Asset retirement obligations were $26.476 million; estimated undiscounted future reclamation cash needs were $27.2 million.
- Six-month cash flows included $0.094 million used in investing and $1.502 million provided by financing, including net proceeds from equity financing and $4.308 million of debt repayments. The company received $5.085 million for assigning delivery obligations, recorded as deferred revenue until deliveries are settled.
Changes versus prior comparable periods
- Revenue fell substantially year over year, principally reflecting lower sales volume: 187,000 pounds in Q2 2016 versus 404,000 in Q2 2015, and 262,000 for the six-month period versus 550,000. Average realized prices also declined, from $45.08 to $36.05 per pound in Q2 and from $46.53 to $36.07 for the six-month period.
- Six-month net loss widened to $4.917 million from $1.099 million, and operating cash flow moved from $4.029 million provided to $0.590 million used. The filing cites lower sales volume, higher inventory and $2.531 million of quarter-end receivables as significant cash-flow factors.
- Cash increased from $1.443 million at December 31, 2015 to $2.475 million at June 30, 2016, aided by the February share financing. Common shares outstanding rose to 143.6 million from 130.2 million at year-end.
- Q2 operating loss was $1.414 million versus operating income of $1.444 million a year earlier. The company also wrote off $189,000 of its Bootheel equity investment in the first quarter and $62,000 related to the abandoned Hauber claims.
Outlook, commentary and key risks
- Management expected 2016 production of 600,000–700,000 pounds, with monthly drying and drumming targeted at 50,000–60,000 pounds. It planned to align production with contracted commitments and market conditions; stated 2016 contractual sales obligations were 662,000 pounds at an average realizable price of $47.61 per pound, including assigned deliveries.
- Management projected 2016 gross margins of 25%–30%. As of July 25, 2016, reported uranium spot price was $25 per pound. Management said it did not anticipate needing additional funding in 2016 unless advantageous, but noted that financing may be required for future projects and is not assured.
- At July 28, unrestricted cash was $0.7 million; management expected to collect $8.7 million on sales of 164,000 pounds within the following week. Verify whether and when these expected collections occurred.
- Lost Creek production was described as near projected levels; header house 13 began operating late in May, and initial results were said to support design refinements. Twelve employees were laid off in June amid weak uranium markets; management reported operations remained uninterrupted.
- Regulatory amendments for recovery from the KM horizon and LC East remained under agency review. Management anticipated final approvals for Class V disposal wells in Q3 2016. Shirley Basin’s mine-permit application was under technical review; its source-material license application was nearing completion, with no project budget or timetable established.
- Principal risks include persistently low uranium prices, reliance on future financing, operating and production uncertainty, customer and collection concentration, and permitting and regulatory outcomes. Company A represented 67.4% of six-month sales. The company reported no new material legal proceedings or material changes to its previously disclosed risk factors.
Investor items to verify
- Whether the anticipated $8.7 million collection occurred and its effect on liquidity, given the low unrestricted cash balance reported July 28.
- Actual 2016 production, sales and realized prices compared with management’s production, contract-delivery and margin outlook.
- Progress and timing of Lost Creek permit amendments and Class V disposal approvals, and Shirley Basin permitting and financing plans.
- Debt repayment requirements, the 2016 RMB maturity, and the extent to which restricted cash is unavailable for general operations.
- Customer concentration and the settlement of assigned delivery obligations recorded as deferred revenue.