ENERGY FUELS INC annual report, FY2020

Energy Fuels Inc. — FY2020 Form 10-K

Business context and reporting period. This annual report covers the year ended December 31, 2020; it is not a standalone fourth-quarter filing. Energy Fuels is a U.S.-focused uranium and vanadium recovery and mining company, with its White Mesa Mill in Utah and ISR facilities at Nichols Ranch, Wyoming, and Alta Mesa, Texas. Nichols Ranch recovered limited uranium; Alta Mesa and most conventional mining projects were on standby. The company was developing rare-earth-element (REE) processing at White Mesa. Financial statements are presented in U.S. dollars under U.S. GAAP.

Key financial and operating metrics

Metric	FY2020	FY2019
Revenue	$1.66 million	$5.87 million
Operating loss	$24.63 million	$40.58 million
Net loss	$27.87 million; $0.23 per share	$38.09 million; $0.40 per share
Net cash used in operating activities	$32.18 million	$44.38 million
Cash, cash equivalents and restricted cash at year-end	$40.99 million	$32.89 million
Total assets	$183.24 million	$175.72 million
Working capital	$40.16 million	Not stated here
Debt	No short- or long-term debt	$16.87 million of current loans and borrowings

FY2020 revenue consisted of $1.66 million from third-party ore processing and related fees; the company reported no uranium or vanadium concentrate sales. Revenue fell about 72% from 2019, when it included vanadium sales and toll-processing income.
Gross profit was just $14,000, after $1.64 million of inventory impairment; a gross margin is not meaningful given the very low revenue and absence of concentrate sales. Inventory impairment was down from $14.35 million in 2019.
Uranium recovered was approximately 196,500 pounds: about 190,500 pounds at White Mesa and 6,000 pounds at Nichols Ranch. Vanadium recovery was approximately 67,000 pounds. Neither product was sold in 2020. Year-end finished-goods inventory included approximately 690,700 pounds of uranium and 1.672 million pounds of vanadium.
Cash flow from operations remained negative, though cash used improved by about $12.2 million year over year. Financing provided $36.58 million, principally from share issuances, while $16.02 million was used to repay borrowings. Investing activities provided $3.58 million, mainly from marketable-security maturities.
Unrestricted cash was $20.17 million; an additional $20.82 million was restricted, principally as collateral for reclamation bonds. The company reported $2.25 million of marketable securities at year-end.
The company redeemed all convertible debentures in 2020 and reported no remaining debt. Warrant liabilities were $8.57 million at year-end; these are not borrowings.
Asset retirement obligations were $13.04 million on a discounted basis, versus $18.97 million a year earlier; undiscounted decommissioning obligations were $41.95 million. Restricted cash of $20.82 million was posted against reclamation obligations.
Share capital increased from 100.7 million shares at year-end 2019 to 134.3 million at year-end 2020. Public and ATM offerings provided $52.39 million net during 2020.

Material changes versus prior comparable period

Revenue declined sharply as uranium sales contracts had expired after 2018 and 2020 included no concentrate sales. The company had no uranium sales commitments for 2021 as of the filing date.
Net loss narrowed by approximately $10.2 million. Lower inventory impairment, lower development spending, reduced interest expense, and a $7.85 million downward revision to estimated reclamation obligations contributed; the revision reflects later estimated reclamation timing and is not an operating cash receipt.
Operating cash outflow improved, but remained substantial. Year-end cash and restricted cash increased, supported by equity financing rather than operating cash generation.
Debt was eliminated through the redemption of approximately Cdn$20.86 million principal of convertible debentures. The company also reported higher standby costs, reflecting reduced Nichols Ranch recovery and prolonged mill standby periods.
Operations shifted toward limited uranium recovery, processing services, and REE development. The White Mesa Mill produced pilot-scale REE carbonate from monazite, while its former vanadium pond-return campaign had ended.

Outlook, commentary, risks and unusual items

2021 outlook: Management expected to recover approximately 30,000–60,000 pounds of uranium and produce 2,000–3,000 tons of mixed REE carbonate, containing about 1,000–1,600 tons of total rare earth oxides. No vanadium production was planned. Expected uranium production was generally to be added to inventory; management forecast year-end uranium inventory of approximately 720,000–750,000 pounds.
REE plans: A three-year Chemours supply agreement provides for a minimum 2,500 tons of monazite sands annually. A March 2021 agreement in principle with Neo contemplated shipping some REE carbonate to its Estonian separation facility. Commercial ramp-up, definitive agreements, product specifications, costs, feed supply and sales remain uncertain.
Uranium market and government support: Congress appropriated $75 million toward a proposed U.S. Uranium Reserve, but program implementation and any benefit to Energy Fuels were uncertain. Uranium spot prices increased during 2020, yet management described market conditions as weak and oversupplied. Restarting standby operations depends on prices, contracts, financing and, potentially, government purchases.
Management said existing resources were sufficient to fund the business plan for at least the next 12 months, but also warned that prolonged low uranium prices could require additional financing or other measures. Subsequent to year-end, the company issued 5.50 million shares through its ATM for $29.70 million net proceeds through March 18, 2021; further share issuance could dilute investors.
Key risks include commodity-price volatility, negative operating cash flow, dependence on third-party feed and REE buyers, execution and permitting risks for commercial REE production, potential dilution, and environmental, reclamation and bonding obligations. Most properties have no mineral reserves under SEC Industry Guide 7; Canadian NI 43-101 resource and reserve estimates are not equivalent to SEC reserves.
Legal and regulatory matters include ongoing appeals related to the Pinyon Plain Project and Daneros Mine, and challenges concerning White Mesa Mill permits and remediation plans. Management did not expect the challenges to have a material financial effect, but some remediation scope and costs remain undetermined and could be significant.
The company recorded a $1.04 million one-time management-streamlining expense. KPMG issued an unqualified opinion on the financial statements; it identified asset-retirement-obligation estimates as a critical audit matter. Management reported that previously identified material weaknesses in internal financial controls had been remediated and controls were effective at year-end; the auditor did not attest to ICFR effectiveness.

Most important facts for investors to verify

Whether uranium-market improvement or the U.S. Uranium Reserve leads to actual contracts, sales, and profitable restarts, rather than only higher inventory.
Whether REE production reaches commercial scale, meets customer specifications, secures definitive offtake terms, and generates positive cash margins.
Cash burn, unrestricted liquidity, financing needs and dilution after the reported post-year-end ATM share sales.
The realizability and market value of uranium, vanadium and REE inventories, including the effects of commodity prices and future impairment testing.
Current status and potential cost or operating impact of the Pinyon Plain and Daneros appeals, White Mesa remediation matters, and reclamation-bond requirements.
That mineral resource disclosures use NI 43-101 standards and that the company reported no mineral reserves under SEC Industry Guide 7.