Ur-Energy Inc. — Q2 2017 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2017. Unaudited results are in U.S. dollars unless stated otherwise. Ur-Energy operates the Lost Creek in-situ recovery uranium mine in Wyoming and is classified as an exploration-stage company; it has not established mineral reserves.
Financial and operating highlights
| Metric | Q2 2017 | Six months 2017 |
|---|---|---|
| Revenue | $11.8 million | $26.6 million |
| Gross profit / margin | $5.2 million / 44% | $13.8 million / 52% |
| Operating income | $1.6 million | $7.2 million |
| Net income | $1.3 million | $6.5 million |
| Basic earnings per share | $0.01 | $0.04 |
| Cash from operations | Six-month cash provided: $6.7 million |
At June 30, cash and cash equivalents were $7.3 million, plus $7.6 million of restricted cash pledged to reclamation surety bonds. Current assets were $15.5 million and current liabilities $8.4 million. Notes payable were $21.7 million net of deferred financing costs ($22.2 million principal); the loan bears 5.75% interest and matures October 2021. Asset retirement obligations were $27.1 million. Inventory was $7.5 million, including 160,094 pounds at the conversion facility.
Q2 sales were 241,000 pounds at an average $48.95 per pound, including 210,000 pounds of purchased uranium and 31,000 pounds produced at Lost Creek. Produced uranium generated only about $0.1 million gross profit (approximately 4% margin); purchased uranium generated about $5.1 million gross profit (approximately 51% margin). The company recorded inventory valuation reductions of $456,000 in Q2 and $893,000 year to date.
Material changes versus prior comparable periods
- Q2 revenue increased from $6.7 million in 2016; net results improved from a $1.9 million loss to $1.3 million income. For the first half, revenue rose from $9.5 million and net results improved from a $4.9 million loss to $6.5 million income.
- Improved 2017 results reflected higher contract sales prices and substantial sales of purchased uranium. Q2 gross margin rose to 44% from 24% in Q2 2016; the six-month margin was 52%, versus 27%.
- Lost Creek captured 65,257 pounds in Q2, down from 79,340 in Q1. Management deliberately constrained production amid a weak uranium market, with late-winter weather also limiting access. Lower production increased the cost per pound of produced uranium.
- Development expense rose to $1.8 million in Q2 from $0.7 million, primarily due to initial Mine Unit 2 drilling and construction. Cash and cash equivalents increased from $1.6 million at year-end, while debt principal declined through repayments.
Outlook, commentary and risks
- 2017 production guidance remained 250,000–300,000 pounds; Q3 target was 60,000–70,000 dried and drummed pounds. Management expected the first Mine Unit 2 header house to begin operating in Q3, with two more in Q4, subject to operating and market conditions.
- Management reported 600,000 pounds under contract for 2017 at an average price of about $51 per pound. The final 2017 contract delivery, 109,000 pounds at $35.35 per pound, occurred in July; management said no further contract revenue was scheduled until January 2018. Uranium could be sold into the spot market if advantageous.
- The Q2 spot price was approximately $20.15 per pound, and management said market conditions did not justify accelerating Mine Unit 2 development. A March workforce reduction was expected to lower annual labor costs by about $0.8 million.
- Management stated that major capital projects would be funded from operating cash flow, cash on hand or additional financing; projects could be delayed if funding is insufficient. Additional debt or equity financing may be needed, with no assurance of availability or acceptable terms.
- Key uncertainties include uranium price and demand, low production economics, dependence on purchased inventory for a substantial share of current margins, permits for Lost Creek expansions and Shirley Basin, financing needs, reclamation obligations, and the absence of established mineral reserves. Restricted cash is not available for general liquidity.
- Lost Creek amendment applications for the KM horizon and LC East remained under agency review. Wyoming continued technical review of the Shirley Basin mine permit application; management anticipated applying for a source-material license through the state program, then expected to transition in 2018.
Important facts for investors to verify
- Whether the strong reported margins persist when purchased uranium sales are reduced and produced uranium represents more of sales.
- Actual production, costs per pound, inventory valuation and sales pricing compared with management’s 2017 guidance and market prices.
- Timing and outcome of Mine Unit 2 development and Lost Creek and Shirley Basin permitting.
- Cash needs during the period without scheduled contract deliveries, debt repayments, and whether further financing or equity issuance is required.
- Availability of the $7.6 million restricted cash balance: it is pledged as collateral and should not be treated as unrestricted liquidity.