Item 1A. RISK FACTOR
S
An investment in our securities involves a high degree of risk. You should consider the following discussion of risks in addition to the other information in this annual report before purchasing any of our securities. In addition to historical information, the information in this annual report contains “forward-looking” statements about our future business and performance. Our actual operating results and financial performance may be very different from what we expect as of the date of this annual report. The risks below address material factors that may affect our future operating results and financial performance.
Risks Related to Our Business
Current inventories and largely unrestricted imports challenge the US domestic industry and our pending trade action may not achieve the desired results and may be costly to us.
Higher than normal inventories, sales of excess civilian and military inventories (including from the dismantling of nuclear weapons) by governments and industry participants, as well as the production levels and costs of production in countries such as Russia, Kazakhstan, and Uzbekistan have had a substantial impact on the domestic uranium production industry. If the higher inventories and the imports from Kazakhstan and other government subsidized production sites remain unchecked on a continuing basis, there could be a significant negative impact to the uranium market which could adversely impact the Company’s future profitability. We have jointly filed a petition for relief with the U.S. Department of Commerce under Section 232 of the Trade Expansion Act of 1962 from imports of uranium products that threaten U.S. national security. There is no assurance that the petition will result in any impact on the imports of uranium from low-cost state-sponsored production. Moreover, the petition may have unintended consequences that may affect our business relationships with industry and consumers of uranium. These consequences, together with the costs of pursuing the trade action, may have adverse impacts on us.
The uranium market is volatile and has limited customers.
The marketability of uranium and acceptance of uranium mining is subject to numerous factors beyond our control. The price of uranium may experience volatile and significant price movements over short periods of time. Factors affecting the market include demand for nuclear power; changes in public acceptance of nuclear power generation as a result of any future accidents or terrorism at nuclear facilities, including the continuing effects on the market due to the events following the earthquake and tsunami in Japan in March 2011; political and economic conditions in uranium mining, producing and consuming countries; costs and availability of financing of nuclear plants; reprocessing of spent fuel and the re-enrichment of depleted uranium tails or waste.
Our property interests and our projects are subject to volatility in the price of uranium.
The price of uranium is volatile. Changes in the price of uranium depend on numerous factors beyond our control including international, economic and political trends; changes in public acceptance of nuclear power generation as a result of any future accidents or terrorism at nuclear facilities, including the longer-term effects on the market due to the events following the earthquake and tsunami affecting the Fukushima Daiichi nuclear power station in Japan in 2011; changes in governmental regulations; expectations of inflation; currency exchange fluctuations; interest rates; global or regional consumption patterns; speculative activities and increased production due to new extraction developments and improved extraction and production methods. The effect of these factors on the price of uranium, and therefore on the economic viability of our properties cannot accurately be predicted. Because most of our properties are in exploration and development stage and
Lost Creek commenced operations four years ago, it is not yet possible for us to control the impact of fluctuations in the price of uranium.
Mining operations involve a high degree of risk.
Mining operations generally involve a high degree of risk. We continue operations at our first and, currently, only, uranium in situ recovery facility at Lost Creek, where production activities commenced in the second half of 2013. Our operations at the Lost Creek site, which is a remote site in south-central Wyoming, and at other projects as they continue in development will be subject to all the hazards and risks normally encountered in the production of uranium by in situ methods of recovery, including unusual and unexpected geological formations, unanticipated metallurgical difficulties, water management including waste water disposal capacity, equipment malfunctions and parts unavailability, interruptions of electrical power and communications, other conditions involved in the drilling and removal of material through pressurized injection and production wells, radiation safety, transportation and industrial accidents, any of which could result in damage to, or destruction of, mines and other producing facilities, damage to life or property, environmental damage and possible legal liability. Adverse effects on operations and/or further development of our projects could also adversely affect our business, financial condition, results of operations and cash flow.
We have entered into term sales contracts for a portion of our production, but may be unable to enter into new term sales contracts in the future on suitable terms and conditions.
Our term sales contracts, which have historically resulted in uranium sales at prices in excess of spot prices, have fixed delivery terms. Certain of our contracts have delivery terms that have expired with no future deliveries planned. We are contractually committed to sell 470,000 pounds in 2018, 540,000 pounds in 2019, 390,000 pounds in 2020 and 190,000 pounds in 2021. In each case, the sales price of these contracts is substantially in excess of current spot prices. If market conditions do not improve, we do not expect to continue to execute sales agreements at such favorable prices in the future. The failure to enter into new term sales contracts on suitable terms, could adversely impact our operations and mining activity decisions, and resulting cash flows and income.
Our business is subject to extensive environmental and other regulations that may make exploring, mining or related activities expensive, and which may change at any time.
The mining industry is subject to extensive environmental and other laws and regulations, which may change at any time. Environmental legislation and regulation is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. In addition to the ESA decision made in 2015, to not list the greater sage-grouse as an endangered species, other rulemakings and proposed legislation are ongoing. For example, the EPA continues with its rulemaking on changes to Part 192, which sets forth groundwater restoration and stabilization requirements for ISR uranium projects. Other EPA rulemakings relating to maintenance of tailings facilities and holding ponds, which may also have an impact on ISR projects, including Lost Creek are at various stages (
e.g.,
UMTRCA, RCRA and SDWA restoration and stabilization requirements). The changes currently proposed to CERCLA regulations, which would significantly increase financial obligations and surety bonding, could also have a commensurate impact on ISR projects. These are not the only laws and regulations which are the subject of discussion and proposed more restrictive changes. Moreover, compliance with environmental quality requirements and reclamation laws imposed by federal, state and local governmental authorities may require significant capital outlays, materially affect the economics of a given property, cause material changes or delays in intended activities, and potentially expose us to litigation and other legal or administrative
proceedings. We cannot accurately predict or estimate the impact of any such future laws or regulations, or future interpretations of existing laws and regulations, on our operations. Historic exploration activities have occurred on many of our properties and mining and energy production activities have occurred near certain of our properties. If such historic activities have resulted in releases or threatened releases of regulated substances to the environment, or historic activities require remediation, potential for liability may exist under federal or state remediation statutes.
The uranium mining industry is capital intensive, and we may be unable to raise necessary additional funding.
Additional funds likely may be required to fund working capital or to fund exploration and development activities at our properties including Lost Creek and the adjoining projects at the Lost Creek Property, as well as the development of our Shirley Basin project. Potential sources of future funds available to us, in addition to the sales proceeds from Lost Creek production, include the sale of additional equity capital, proceeds from the exercise of outstanding convertible equity instruments, borrowing of funds or other debt structure, project financing, or the sale of our interests in assets. There is no assurance that such funding will be available to us to continue development or future exploration. Furthermore, even if such financing is successfully completed, there can be no assurance that it will be obtained on terms favorable to us or will provide us with sufficient funds to meet our objectives, which may adversely affect our business and financial position. In addition, any future equity financings may result in substantial dilution for our existing shareholders.
Our mineral resource estimates may not be reliable; there is risk and increased uncertainty to commencing and conducting production without established mineral reserves; and we need to develop additional resources to sustain ongoing operations
.
Our properties do not contain any mineral reserves as defined under SEC Industry Guide 7. See
“Cautionary Note to United States Investors Concerning Disclosure of Mineral Resources”
above. Until mineral reserves or mineral resources are actually mined and processed, the quantity of mineral resources and grades must be considered as estimates only. We have established the existence of uranium resources for certain uranium projects, including the Lost Creek Property. We have not established proven or probable reserves, as defined by Canadian securities regulators or the SEC under Industry Guide 7, through the completion of a final or “bankable” feasibility study for any of its uranium projects, including the Lost Creek Property. Furthermore, we have no plans to establish proven or probable reserves for any of our uranium projects for which we plan on utilizing ISR mining, such as the Lost Creek Project or the Shirley Basin Project. As a result, and despite the fact that we commenced recovery of U
3
O
8
at the Lost Creek Project in 2013, there is an increased uncertainty and risk that may result in economic and technical failure which may adversely impact our future profitability.
There are numerous uncertainties inherent in estimating quantities of mineral resources, including many factors beyond our control, and no assurance can be given that the recovery of estimated mineral reserves or mineral resources will be realized. In general, estimates of mineral resources are based upon a number of factors and assumptions made as of the date on which the estimates were determined, including:
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geological and engineering estimates that have inherent uncertainties and the assumed effects of regulation by governmental agencies;
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the judgment of the geologists, engineers and other professionals preparing the estimate;
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estimates of future uranium prices and operating costs;
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the quality and quantity of available data;
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the interpretation of that data; and
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the accuracy of various mandated economic assumptions, all of which may vary considerably from actual results.
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All estimates are, to some degree, uncertain. For these reasons, estimates of the recoverable mineral resources prepared by different professionals or by the same professionals at different times, may vary substantially. As such, there is significant uncertainty in any mineral resource estimate and actual deposits encountered and the economic viability of a deposit may differ materially from our estimates.
As well, because we are now in operation and are depleting our known resource at Lost Creek, we must continue to conduct exploration and develop additional mineral resources. While there remain large areas of our Lost Creek Property which require additional exploration, and we have identified mineral resources at our Shirley Basin Project, we will need to continue to explore other areas of the Lost Creek Property and our other mineral properties in Wyoming, or acquire additional, known mineral resource properties to replenish our mineral resources and sustain continued operations. We estimate life of mine when we prepare our mineral resource estimates, but such estimates may not be correct.
Restrictive covenants in agreements governing our indebtedness may restrict our ability to pursue our business strategies. If we are unable to service our indebtedness, we could lose the assets securing our indebtedness.
Our State Bond Loan, under which we originally received approximately $34 million in debt financing, includes restrictive covenants that, among other things, limit our ability to sell the assets securing our indebtedness (which include our Lost Creek Project and other related assets). Our ability to make scheduled payments and satisfy other covenants in the State Bond Loan depends on our financial condition and operating performance, which are subject to prevailing economic, competitive, legislative and regulatory conditions beyond our control. We may be unable to generate a level of cash flow from operating activities sufficient to permit us to pay the principal, interest and other fees on our indebtedness.
If we cannot make scheduled payments on our debt, we will be in default which, if not addressed or waived, could require accelerated repayment of our indebtedness and the enforcement by the lender against the assets securing our indebtedness. The secured collateral for the State Bond Loan includes the Lost Creek Project and other related assets. These are key assets on which our business is substantially dependent and as such, the enforcement against any one or all of these assets would have a material adverse effect on our operations and financial condition.
Our mining operations are subject to numerous environmental laws, regulations and permitting requirements and bonding requirements that can delay production and adversely affect operating and development costs.
Our business is subject to extensive federal, state, provincial and local laws governing prospecting and development, taxes, labor standards and occupational health, mine and radiation safety, toxic substances, environmental protection, endangered species protections, and other matters. Exploration, development and production operations are also subject to various federal, state and local laws and regulations relating to the protection of the environment. These laws impose high standards on the mining industry, and particularly standards with respect to uranium recovery, to monitor the discharge of waste water and report the results of such monitoring to regulatory authorities, to reduce or eliminate certain effects on or into land, water or air, to progressively restore mine properties, to manage hazardous wastes and materials and to reduce the risk of worker accidents. A violation of these laws may result in the imposition of substantial fines and other penalties and potentially expose us to operational restrictions, suspension, administrative proceedings or litigation. Many
of these laws and regulations have tended to become more stringent over time. Any change in such laws could have a material adverse effect on our financial condition, cash flow or results of operations. There can be no assurance that we will be able to meet all the regulatory requirements in a timely manner or without significant expense or that the regulatory requirements will not change to delay or prohibit us from proceeding with certain exploration, development or operations. Further, there is no assurance that we will not face new challenges by third parties to regulatory decisions when made, which may cause additional delay and substantial expense, or may cause a project to be permanently halted.
Many of our operations require licenses and permits from various governmental authorities. We believe we hold all necessary licenses and permits to carry on the activities which we are currently conducting or propose to conduct under applicable laws and regulations. Such licenses and permits are subject to changes in regulations and changes in various operating circumstances. There can be no guarantee that we will be able to obtain all necessary licenses and permits that may be required to maintain our exploration and mining activities including constructing mines or milling facilities and commencing or continuing exploration or mining activities or operations at any of our properties. In addition, if we proceed to production on any other exploration property, we must obtain and comply with permits and licenses which will contain specific operating conditions. There can be no assurance that we will be able to obtain such permits and licenses or that we will be able to comply with any such conditions.
Lack of acceptance of nuclear energy and deregulation of the electrical utility industry could impede our business.
Our future prospects are tied directly to the electrical utility industry worldwide. Deregulation of the utility industry, particularly in the United States and Europe, is expected to affect the market for nuclear and other fuels for years to come, and may result in a wide range of outcomes including the expansion or the premature shutdown of nuclear reactors. Maintaining the demand for uranium at current levels and future growth in demand will depend upon the continued acceptance of the nuclear technology as a means of generating electricity. Lack of continued public acceptance of nuclear technology would adversely affect the demand for nuclear power and potentially increase the regulation of the nuclear power industry. Following the events of March 2011 in Fukushima Japan, a reaction worldwide called into question the public’s confidence in nuclear energy and technology, the effects of which are still apparent in many countries around the world.
The results of exploration and ultimate production are highly uncertain.
The exploration for, and development of, mineral deposits involves significant risks which a combination of careful evaluation, experience and knowledge may not eliminate. Few properties which are explored are ultimately developed into producing mines. Major expenses may be required to establish mineral resources or reserves, to develop metallurgical processes and to construct mining and processing facilities at a particular site. It is impossible to ensure that our current exploration and development programs will result in profitable commercial operations.
Whether a mineral deposit will be commercially viable depends on a number of factors, some of which are the particular attributes of the deposit, such as size, grade and proximity to infrastructure, as well as uranium prices, which are highly cyclical, and government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of uranium and environmental protection. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in us not receiving an adequate return on invested capital.
The uranium industry is highly competitive and is competitive with other energy sources.
The international uranium industry is highly competitive. Our activities are directed toward the search for, evaluation, acquisition and development of uranium deposits into production operations. There is no certainty that the expenditures to be made by us will result in discoveries of commercial quantities of uranium deposits. There is aggressive competition within the mining industry for the discovery and acquisition of properties considered to have commercial potential. We will compete with other interests, many of which have greater financial resources than we have, for the opportunity to participate in promising projects. Significant capital investment is required to achieve commercial production from successful exploration and development efforts.
Nuclear energy competes with other sources of energy, including oil, natural gas, coal, hydro-electricity and renewable energy sources. These other energy sources are to some extent interchangeable with nuclear energy, particularly over the longer term. Lower prices of oil, natural gas, coal and hydro-electricity may result in lower demand for uranium concentrate and uranium conversion services. Furthermore, the growth of the uranium and nuclear power industry beyond its current level will depend upon continued and increased acceptance of nuclear technology as a means of generating electricity. Because of unique political, technological and environmental factors that affect the nuclear industry, the industry is subject to public opinion risks which could have an adverse impact on the demand for nuclear power and increase the regulation of the nuclear power industry.
Our property title may be uncertain and could be challenged.
Although we have obtained title opinions with respect to certain of our properties, there is no guarantee that title to any of our properties will not be challenged or impugned. Third parties may have valid claims underlying portions of our interests. Our mineral properties in the United States consist of leases to private mineral rights, leases covering state lands, unpatented mining claims and patented mining claims. Many of our mining properties in the United States are unpatented mining claims to which we have only possessory title. Because title to unpatented mining claims is subject to inherent uncertainties, it is difficult to determine conclusively ownership of such claims. These uncertainties relate to such things as sufficiency of mineral discovery, proper posting and marking of boundaries and possible conflicts with other claims not determinable from descriptions of record. The present status of our unpatented mining claims located on public lands allows us the exclusive right to mine and remove valuable minerals. We are allowed to use the surface of the public lands solely for purposes related to mining and processing the mineral-bearing ores. However, legal ownership of the land remains with the United States. We remain at risk that the mining claims may be forfeited either to the United States or to rival private claimants due to failure to comply with statutory requirements. We have taken or will take appropriate curative measures to ensure proper title to our properties where necessary and where possible.
Possible amendments to the General Mining Law could make it more difficult or impossible for us to execute our business plan.
Members of the United States Congress have repeatedly introduced bills which would supplant or alter the provisions of the United States Mining Law of 1872, as amended. Such bills have proposed, among other things, to (i) either eliminate or greatly limit the right to a mineral patent; (ii) significantly alter the laws and regulations relating to uranium mineral development and recovery from unpatented and patented mining claims; (iii) impose a federal royalty on production from unpatented mining claims; (iv) impose time limits on the effectiveness of plans of operation that may not coincide with mine life, (v) impose more stringent environmental compliance and reclamation requirements on activities on unpatented mining claims, (vi) establish a mechanism that would allow states, localities and Native American tribes to petition for the withdrawal of identified tracts of federal land from the operation of the U.S. general mining laws, and (vii)
allow for administrative determinations that mining would not be allowed in situations where undue degradation of the federal lands in question could not be prevented.
If enacted, such legislation could, among other effects, change the cost of holding unpatented mining claims and could significantly impact our ability to develop locatable mineral resources on our patented and unpatented mining claims. Although it is impossible to predict at this point what any legislated royalties might be, enactment could adversely affect the potential for development and the economics of existing operating mines. Passage of such legislation could adversely affect our financial performance.
Additionally, as noted in other risk factors, there are ongoing withdrawals of federal lands for the purposes of mineral location and development. While certain of these proposals have been withdrawn, and others are not final and, as yet, none directly affects the areas of Wyoming and Nevada in which we currently have land holdings, they could have an adverse effect on our financial performance if they are broadened in scope to directly affect the areas in which we have properties.
We do not have an established earnings record, and we have never paid dividends.
We do not have an established earnings record. We have not paid dividends on our Common Shares since incorporation and do not anticipate doing so in the foreseeable future. Payments of any dividends will be at the discretion of our Board after taking into account many factors, including our financial condition and current and anticipated cash needs.
We depend on the services of our management, key personnel, contractors and service providers.
Shareholders will be relying on the good faith, experience and judgment of our management and advisors in supervising and providing for the effective management of the business and our operations and in selecting and developing new investment and expansion opportunities. We may need to recruit additional qualified employees, contractors and service providers to supplement existing management and personnel, the timely availability of which cannot be assured, particularly in the current labor markets in which we recruit our employees and the somewhat remote locations for which employees are needed. As well, the skilled professionals with expertise in engineering and process aspects of in situ recovery, radiation safety and other facets of our business are currently in high demand, as there are relatively few such professionals with both expertise and experience. We will need to hire additional employees as we develop the Shirley Basin Project. We will continue to be dependent on a relatively small number of key persons, including key contractors, the loss of any one or several of whom could have an adverse effect on our business and operations. We do not hold key man insurance in respect of any of our executive officers.
Our insurance coverage could be insufficient.
We currently carry insurance coverage for general liability, directors’ and officers’ liability and other matters. We intend to carry insurance to protect against certain risks in such amounts as we consider adequate. Certain insurances may be cost prohibitive to maintain, and even if we carried all such insurances, the nature of the risks we face in our exploration and uranium production operations is such that liabilities could exceed policy limits in any insurance policy or could be excluded from coverage under an insurance policy. The potential costs that could be associated with any liabilities not covered by insurance or in excess of insurance coverage or compliance with applicable laws and regulations may cause substantial delays and require significant capital outlays, adversely affecting our business and financial position. Additionally, we utilize a bonding surety program for our regulatory, reclamation and restoration obligations at Lost Creek Project and the Pathfinder
Mines sites. Availability of and terms for such surety arrangements may change in the future, resulting in adverse effects to our financial condition.
We are subject to risks associated with regulatory investigations or challenges, litigation and other legal proceedings.
Defense and settlement costs of legal claims can be substantial, even with respect to claims that have no merit. From time to time, we may be involved in disputes with other parties which may result in litigation or other proceedings. Additionally, it is not unlikely that we may find ourselves involved directly or indirectly in legal proceedings, in the form of regulatory investigations, administrative proceedings or litigation, arising from challenges to regulatory actions as described elsewhere in this annual report. Such investigations, administrative proceedings and litigation related to regulatory matters may delay or halt exploration or development of our projects. The results of litigation or any other proceedings cannot be predicted with certainty. If we are unable to resolve any such disputes favorably, it could have a material adverse effect on our financial position, ability to operate, results of operations or our property development.
Acquisitions and integration may disrupt our business.
From time to time, we examine opportunities to acquire additional mining assets and businesses. Any acquisition that we may choose to complete may be of significant size, may change the scale of our business and operations, and/or may expose us to new geographic, political, operating, financial and geological risks. Any acquisitions would be accompanied by risks. For example, there may be a significant change in commodity prices after we have committed to complete the transaction and established the purchase price or share exchange ratio; a material ore body may prove to be below expectations; we may have difficulty integrating and assimilating the operations and personnel of any acquired company, realizing anticipated synergies and maximizing the financial and strategic position of the combined enterprise, and maintaining uniform standards, policies and controls across the organization; the integration of the acquired business or assets may disrupt our ongoing business and relationships with employees, customers, suppliers and contractors; and the acquired business or assets may have unknown liabilities which may be significant. There can be no assurance that we would be successful in overcoming these risks or any other problems encountered in connection with such acquisitions.
We are dependent on information technology systems, which are subject to certain risks.
We depend upon information technology systems in a variety of ways throughout our operations. Any significant breakdown of those systems, whether through virus, cyber-attack, security breach, theft, or other destruction, invasion or interruption, or unauthorized access to our systems, could negatively impact our business and operations. To the extent that such invasion, cyber-attack or similar security breach results in disruption to our operations, loss or disclosure of, or damage to, our data and particularly our confidential or proprietary information, our reputation, business, results of operations and financial condition could be materially adversely affected. Our systems, internal controls and insurance for protecting against such cyber security risks may be insufficient. Although to date we have experienced no such attack resulting in material losses, we may suffer such losses at any time in the future. We may be required to expend significant additional resources to continue to modify and enhance our protective measures or to investigate, restore or remediate any information technology security vulnerabilities.
U.S. Federal Income Tax Consequences to U.S. Shareholders under the Passive Foreign Investment Company Rules
Investors in the Common Shares of Ur-Energy that are U.S. taxpayers (referred to as a U.S. shareholder) should be aware that we may be a “passive foreign investment company” (a “PFIC”) for the period ended December 31, 2017 and may be a PFIC in subsequent years. If we are a PFIC for any year during a U.S. shareholder’s holding period, then such U.S. shareholders generally will be subject to a special, highly adverse tax regime with respect to so-called “excess distributions” received on our Common Shares. Gain realized upon a disposition of our Common Shares (including upon certain dispositions that would otherwise be tax-free) also will be treated as an excess distribution. Excess distributions are punitively taxed and are subject to additional interest charges. Additional special adverse rules also apply to U.S. shareholders who own Common Shares of Ur-Energy if we are a PFIC and have a non-U.S. subsidiary that is also a PFIC (a “lower-tier PFIC”).
A U.S. shareholder may make a timely "qualified electing fund" election (“QEF election”) or a "mark-to-market" election with respect to our Common Shares to mitigate the adverse tax rules that apply to PFICs, but these elections may accelerate the recognition of taxable income and may result in the recognition of ordinary income. To be timely, a QEF election generally must be made for the first year in the U.S. shareholder’s holding period in which Ur-Energy is a PFIC. A U.S. shareholder may make a QEF election only if the U.S. shareholder receives certain information (known as a “PFIC annual information statement”) from us annually. A U.S. shareholder may make a QEF election with respect to a lower-tier PFIC only if it receives a PFIC annual information statement with respect to the lower tier PFIC. The mark-to-market election is available only if our Common Shares are considered regularly traded on a qualifying exchange, which we cannot assure will be the case for years in which it may be a PFIC. The mark-to-market election is not available for a lower-tier PFIC.
We will use commercially reasonable efforts to make available to U.S. shareholders, upon their written request: (a) timely and accurate information as to our status as a PFIC and the PFIC status of any subsidiary in which Ur-Energy owns more than 50% of such subsidiary’s total aggregate voting power, and (b) for each year in which Ur-Energy determines that it is a PFIC, upon written request, a PFIC annual information statement with respect to Ur-Energy and with respect to each such subsidiary that we determine is a PFIC.
Special adverse rules that impact certain estate planning goals could apply to our Common Shares if we are a PFIC. Each U.S. shareholder should consult its own tax advisor regarding the U.S. federal, state and local consequences of the PFIC rules, and regarding the QEF and mark-to-market elections.
Item 1B. UNRESOLVED STAFF COMMENT
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None.
Item 3. LEGAL PROCEEDING
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None.
Item 4. MINE SAFETY DISCLOSUR
E
Our operations and other activities at Lost Creek are not subject to regulation by the Federal Mine Safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”).
PART I
I
Item 5.
MARKET FOR registrant’s COMMON EQUITY, RELATED STOCKHOLDER MATTERS and issuer purcHases of equity securities
Market Information
Since July 24, 2008, Ur-Energy’s Common Shares have been listed for trading on the NYSE American exchange under the trading symbol “URG.” The following table sets forth the price range per share and trading volume for the Common Shares:
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NYSE
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Common Shares
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Volume
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High
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Low
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Quarter Ending
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US$
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31-Mar-16
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19,405,444
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0.70
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0.44
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30-Jun-16
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28,373,457
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0.73
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0.45
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30-Sep-16
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15,562,319
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0.64
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0.47
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31-Dec-16
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23,271,636
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0.59
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0.41
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31-Mar-17
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49,931,758
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0.91
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0.52
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30-Jun-17
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18,653,638
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0.72
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0.50
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30-Sep-17
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13,464,210
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0.72
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0.53
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31-Dec-17
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24,662,934
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0.73
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0.50
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January 1, 2018 to February 28, 2018
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15,167,873
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0.78
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0.64
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Since November 29, 2005, Ur-Energy’s Common Shares have been listed and posted for trading on the Toronto Stock Exchange under the trading symbol “URE.” The following table sets forth the price range per share and trading volume for the Common Shares:
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TSX
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Common Shares
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Volume
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High
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Low
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Quarter Ending
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CDN$
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31-Mar-16
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4,531,828
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0.98
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0.61
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30-Jun-16
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4,164,964
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0.92
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0.60
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30-Sep-16
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2,301,377
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0.82
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0.63
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31-Dec-16
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4,330,226
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0.78
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0.55
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31-Mar-17
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10,638,938
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1.19
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0.70
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30-Jun-17
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2,432,867
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0.97
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0.67
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30-Sep-17
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2,437,686
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0.90
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0.67
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31-Dec-17
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4,731,380
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0.93
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0.62
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January 1, 2018 to February 28, 2018
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2,326,642
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0.98
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0.80
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Holders
The authorized capital of Ur-Energy consists of an unlimited number of Common Shares and an unlimited number of Class A Preference Shares. As of March 1, 2018,
145,616,297
Common Shares are issued and outstanding and no preferred shares are issued and outstanding. We estimate that we have approximately 8,000 beneficial holders of our Common Shares. The holders of the Common Shares are entitled to one vote per share at all meetings of our shareholders. The holders of Common Shares are also entitled to dividends, if and when declared by our Board and the distribution of the residual assets of the company in the event of a liquidation, dissolution or winding up.
Our Class A Preference Shares are issuable by the directors in one or more series and the directors have the right and obligation to fix the number of shares in, and determine the designation, rights, privileges, restrictions and conditions attaching to the shares of each series. The rights of the holders of Common Shares will be subject to, and may be adversely affected by, the rights of the holders of any Class A Preference Shares that may be issued in the future. The Class A Preference Shares, may, at the discretion of the Board, be entitled to a preference over the Common Shares and any other shares ranking junior to the Class A Preference Shares with respect to the payment of dividends and distribution of assets in the event of liquidation, dissolution or winding up.
Shareholder Rights Plan
Ur-Energy maintains a shareholder rights plan (the “Rights Plan”) designed to encourage the fair and equal treatment of shareholders in connection with any take-over bid for the Company's outstanding securities. The Rights Plan is intended to provide the Board with adequate time to assess a take-over bid, to consider alternatives to a take-over bid as a means of maximizing shareholder value, to allow competing bids to emerge, and to provide our shareholders with adequate time to properly assess a take-over bid without undue pressure. The Rights Plan was last reconfirmed by shareholders at Ur-Energy’s annual and special meeting of shareholders on May 28, 2015.
Dividends
To date, we have not paid any dividends on our outstanding Common Shares and have no current intention to declare dividends on the Common Shares in the foreseeable future. Any decision to pay dividends on our Common Shares in the future will be dependent upon our financial requirements to finance future growth, the general financial condition of the Company and other factors which our Board may consider appropriate in the circumstances.
Securities Authorized for Issuance under Equity Compensation Plans
The following table sets forth certain summary information concerning our equity compensation plans as at December 31, 2017. Directors, officers, employees, and consultants are eligible to participate in the Option Plan. Directors and employees, including executive officers, are eligible to participate in the RSU Plan.
|
|
|
|
|
Number of Common Shares to be Issued Upon Exercise of Outstanding Options, Warrants and Rights
(4)
|
Weighted Average Exercise Price of Outstanding Options, Warrants and Rights
(2)
(C$)
|
Number of Common Shares Remaining for Future Issuance (Excluding Common Shares to be Issued Upon Exercise of Outstanding Options, Warrants and Rights)
(3)
|
Equity compensation plans approved by securityholders
(1)
|
16,479,920
|
$ 0.70
|
639,424
|
Equity compensation plans not approved by security-holders
|
-
|
-
|
-
|
|
(1)
|
|
Our shareholders have approved both the Ur-Energy Inc. Amended and Restated Stock Option Plan 2005, as amended, and the Ur-Energy Inc. Amended Restricted Share Unit Plan.
|
|
(2)
|
|
The exercise price represents the weighted exercise price of the 9,459,401 outstanding stock options under the Ur‑Energy Inc. Amended and Restated Stock Option Plan 2005.
|
|
(3)
|
|
Represents 48,050 Common Shares remaining available for issuance under the Ur-Energy Inc. Amended and Restated Stock Option Plan 2005 and 591,374 Common Shares available under the Ur-Energy Amended Restricted Share Unit Plan.
|
|
(4)
|
|
The warrants included represent only those which form a portion of compensation for certain consultants and our commercial lender.
|
Recent Sales of Unregistered Securities
On August 19, 2014, we filed a universal shelf registration statement on Form S-3 in order that we may offer and sell, from time to time, in one or more offerings, at prices and terms to be determined, up to $100 million of our Common Shares, warrants to purchase our Common Shares, our senior and subordinated debt securities, and rights to purchase our Common Shares and/or our senior and subordinated debt securities. The registration statement became effective September 12, 2014. The 12,921,000 Common Shares offered in the February 2016 financing were sold for $0.50 per share raising $5.7 million (net of issue costs of $0.8 million) under the shelf registration statement.
On May 27, 2016, we entered into an At Market Issuance Sales Agreement with MLV & Co. LLC and FBR Capital Markets & Co. under which we may, from time to time, issue and sell Common Shares at market prices on the NYSE American or other U.S. market through the distribution agents for aggregate sales proceeds of up to $10,000,000. During 2017, we sold 1,536,169 Common Shares under the sales agreement at an average price of $0.76 per share for gross proceeds of $1.2 million. After deducting transaction fees and commissions and all other costs we received net proceeds of $1.1 million.
During the fiscal years ended December 31, 2017 and 2016, we did not have any sales of securities in transactions that were not registered under the Securities Act.
Issuer Purchases of Equity Securities
The Company did not purchase its own equity securities during the fiscal year ended December 31, 2017.
Performance Graph
The following information in this Item 5 of this Annual Report on Form 10-K is not deemed to be “soliciting material” or to be “filed” with the SEC or subject to the liabilities of Section 8 of the Exchange Act, and will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent we specifically incorporate it by reference into such a filing.
The following graph illustrates the period from December 31, 2012 to December 31, 2017 and reflects the cumulative shareholder return of an investment in our Common Shares compared to the cumulative return of an investment in (a) the Russell 3000 Index, (b) the NYSE American Composite Index, and (c) the average of a peer group consisting of Denison Mines Corp., Uranium Energy Corp., Energy Fuels, Inc. and Westwater Resources, Inc. since December 31, 2012, assuming that $100 was invested and, where applicable, includes the reinvestment of dividends.
|
|
|
|
|
|
|
|
2012
|
2013
|
2014
|
2015
|
2016
|
2017
|
Ur-Energy Inc.
|
100
|
168
|
111
|
92
|
74
|
92
|
NYSE American Index
|
100
|
103
|
104
|
91
|
98
|
113
|
Russell 3000
|
100
|
131
|
145
|
143
|
157
|
187
|
Peer Average
|
100
|
84
|
70
|
36
|
38
|
43
|
Item 6. SELECTED FINANCIAL DATA
The selected financial data set forth below are derived from our audited consolidated financial statements for the years ended December 31, 2017, 2016, 2015, 2014 and 2013, and should be read in conjunction with those financial statements and the notes thereto. The consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“US GAAP”). Reference should also be made to “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.”
Summary of Financial Condition
(Amounts in thousands of U.S. Dollars except per share data)
|
|
|
|
|
|
|
As of December 31
|
|
2017
|
2016
|
2015
|
2014
|
2013
|
Working capital (deficiency)
|
1,283
|
(1,706)
|
(7,510)
|
(2,645)
|
(242)
|
Current assets
|
9,168
|
6,506
|
5,713
|
9,346
|
10,432
|
Total assets
|
88,364
|
89,940
|
95,757
|
104,451
|
105,336
|
Current liabilities
|
7,885
|
8,212
|
13,223
|
11,991
|
10,674
|
Long-term liabilities
|
41,698
|
45,496
|
50,033
|
60,359
|
55,998
|
Shareholders' equity
|
38,781
|
36,232
|
32,501
|
32,101
|
38,664
|
|
|
|
|
|
|
|
Year ended December 31
|
|
2017
|
2016
|
2015
|
2014
|
2013
|
Revenue
|
38,368
|
27,305
|
41,877
|
29,349
|
7,616
|
Net income (loss) for the year
|
76
|
(3,010)
|
(795)
|
(8,749)
|
(30,353)
|
|
|
|
|
|
|
Income (loss) per common share:
Basic
|
0.00
|
(0.02)
|
(0.01)
|
(0.07)
|
(0.25)
|
Diluted
|
0.00
|
(0.02)
|
(0.01)
|
(0.07)
|
(0.25)
|
|
|
|
|
|
|
Cash dividends per common share
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
No dividends were paid during these five years.
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Business Overview
The following discussion is designed to provide information that we believe necessary for an understanding of our financial condition, changes in financial condition and results of our operations. The following discussion and analysis should be read in conjunction with the accompanying audited consolidated financial statements and related notes. The financial statements have been prepared in accordance with US GAAP.
Industry Update and Trends
The uranium industry continues to be characterized by persistently low pricing. In 2017, several uranium miners, including Lost Creek, implemented reductions in planned construction and development as well as lower rates of production operations. Both early and late in the year, announcements of such reductions were made by leading producers, including Cameco’s November 2017 plan to shut-in production at McArthur River, the world’s largest uranium mine for at least ten months in 2018. As discussed elsewhere in this report, we determined to proceed with a moderated level of development in Lost Creek’s second mine unit to initiate operations in only the first three header houses, while controlling annual production rates at a modest target of 250,000 to 300,000 pounds. Production at Lost Creek in 2017 totaled 265,391 pounds captured in the plant. While U.S. miners lowered production rates, foreign imports continued to dominate the U.S. market in 2017, with U.S. miners accounting for less than five percent of domestic uranium needs.
In response to the challenges of the market conditions, primary among them foreign imports to the U.S. emanating from state-sponsored producers in Russia, Kazakhstan and Uzbekistan, in January 2018, Ur-Energy USA and Energy Fuels Resources (USA) Inc. (Energy Fuels) initiated a trade action with the U.S. Department of Commerce pursuant to Section 232 of the Trade Expansion Act. We chose this statutory framework for relief because we recognized that the current imbalance in the U.S. uranium market has created a very real threat to our national security.
On January 16, 2018, we announced the filing of a Petition for Relief with the U.S. Department of Commerce under Section 232 of the Trade Expansion Act of 1962 (as amended) From Imports of Uranium Products that Threaten U.S. National Security. The Petition, which was filed jointly with Energy Fuels, describes how uranium and nuclear fuel from state-owned and state-subsidized enterprises in Russia, Kazakhstan, Uzbekistan, and China represent a threat to U.S. national security. The Petition seeks a remedy which will set a quota to limit imports of uranium into the U.S., effectively reserving 25% of the U.S. nuclear market for U.S. uranium production. Additionally, the Petition suggests implementation of a requirement for U.S. federal utilities and agencies to buy U.S. uranium in accordance with the Administration's Buy American Policy. There can be no certainty of the outcome of the Department of Commerce investigation or the recommendation of the Secretary of Commerce, and therefore the outcome of this process and its effects on the U.S. uranium market is uncertain
2017 Developments
Lost Creek Property – Great Divide Basin, Wyoming
Following receipt of the final regulatory authorization in October 2012, we commenced construction at Lost Creek. Construction included the plant facility and office building, installation of all process equipment, installation of two access roads, additional power lines and drop lines, deep disposal wells, construction of two
holding ponds, warehouse building, and drill shed building. In August 2013, the Company was given operational approval by the NRC and commenced production operation activities.
Production operations in MU1 within the HJ Horizon began on August 2, 2013 and, through December 31, 2017,
2,334,611
pounds of uranium have been captured from this mine unit, and an additional 38,875 pounds recovered from the first header house in MU2, which came online in August 2017.
All of the original planned wells and 13 header houses (“HHs”) in MU1 as well as one header house and the related wells in MU2 have been completed and were in operation at year end 2017. In January 2018, the second header house in MU2 came online; the third of three MU2 houses developed in 2017 will come online in Q1 2018. Additional work in MU2 had been completed earlier, allowing for submittal of the appropriate operating permits. The main trunkline which has been installed services the first five header houses, and the entirety of MU2 has been fenced. All of these activities will allow for a quick turn-around to production once market fundamentals change.
After more than four years of operations, MU1 still produced 226,516 pounds during 2017 with a yearly average head grade of 25 ppm. Together with the first of the MU2 production coming online in Q3, the annual average head grade for Lost Creek was 28 ppm. The lower head grade during this period of operation, as well as varying month-to-month grades, is a typical result as a mine matures and older operating patterns remain in the flow regime.
During 2017, the Company sold 780,000 pounds under contract at an average price of $49.09. From production, Lost Creek sold a total of 261,000 pounds U
3
O
8
during 2017 at an average price of $48.81 per pound. The balance was purchased for resale, at an average price of $21.35 per pound. During 2017, 265,391 pounds of U
3
O
8
were captured within the Lost Creek plant; 254,012 pounds U
3
O
8
were packaged in drums; and 257,213 pounds U
3
O
8
of drummed inventory were shipped from the Lost Creek processing plant to the converter. At December 31, 2017, inventory at the conversion facility was approximately 94,077 pounds U
3
O
8
.
Lost Creek Regulatory Proceedings
After receiving notice of final operational clearance from the NRC, we commenced production activities at Lost Creek in August 2013. Subsequent to those final approvals, we have made necessary additional filings for approvals of ongoing operations at Lost Creek (
e.g.,
wellfield development; authorizations related to the new deep disposal well; permits and authority for new Class V wells). In September 2014, we filed applications for amendment of all Lost Creek permits and licenses to include recovery from the KM horizon and LC East operations. In 2015, the BLM issued a notice of intent to complete an environmental impact statement for the application. The NRC is participating in this review as a cooperating agency. A permit amendment requesting approval to mine at the LC East Project and within the KM Horizon at the Lost Creek Project was also submitted to the WDEQ. Approval will include an aquifer exemption. At this time, all of those applications continue through the regulatory process, except we have recently withdrawn the application insofar as it relates to two of the eleven projected mine units – those for the KM Horizon at Lost Creek. This change should not delay the completion of the permitting process with respect to the LC East Project (nine mine units total). It is anticipated that permits and authorizations will be completed in 2018.
By the end of 2016, all general regulatory authorizations for Underground Injection Control (UIC) Class V wells were completed for Lost Creek. Following pre-operational analyses and final testing, final operational approvals were received from regulators in December 2016. These relatively shallow Class V wells, which are the first of their kind at an ISR uranium facility, allow for the onsite recirculation of
up to 200 gpm of
fresh permeate (
i.e.,
clean water) from operations. The wells and the reverse osmosis (“RO”) system were brought online in early 2017 and were operational for much of the year. Site operators use the RO circuits, which were installed during initial construction of the plant, to process waste water into brine and permeate streams. The
brine stream will continue to be disposed of in the UIC Class I deep wells while the clean, permeate stream will be injected into the UIC Class V wells. The system ultimately reduces injection requirements in our Class I deep disposal wells and extends the life of those valuable assets.
Shirley Basin Project
Baseline studies necessary for the permitting and licensing of the project commenced in 2014 and were completed in 2015. Subsequently, in December 2015, our application for a permit to mine was submitted to the WDEQ.
While the
Shirley Basin PEA contemplates that the Lost Creek processing facility may be utilized for the drying and packaging of uranium from Shirley Basin, which would mean we would only anticipate the need only for a satellite plant, the Shirley Basin permit application contemplates the construction of a full processing facility, providing greater construction and operating flexibility as may be dictated by market conditions.
In addition to the WDEQ application for permit to mine, work
is well underway
on other
applications for all necessary authorizations to mine at Shirley Basin. We have worked cooperatively with others in our industry to assist with the development of the Wyoming “agreement state” program, by which the NRC will delegate its authority for source material licensure and other radiation safety issues to the WDEQ. We understand that the development of the Wyoming URP remains on schedule for full implementation and transition likely occurring in 2018. Based upon that timing, we currently anticipate submitting our application for a source material license for Shirley Basin to the State URP in 2018.
The Bootheel Project, LLC
In April 2017, the Management Committee of the Bootheel Project determined to continue the ownership and maintenance on the Bootheel property for the fiscal year ending March 31, 2018, which is the fiscal year end of The Bootheel Project, LLC. No additional exploration or development activities are expected at this time for 2018. Due to the continuing decline in the spot price of uranium combined with the reduction in minerals when the related lease was not renegotiated, the Company examined the valuation of the investment and determined that as a standalone investment, it had an insignificant value and was therefore fully impaired during 2016 resulting in a loss on investment of $1.1 million.
Excel Gold Project
In January 2018, we announced the acquisition of a gold exploration project in west-central Nevada, comprising 102 federal lode mining claims (approximately 2,100 acres) currently. The Excel Project is located within the Excelsior Mountains, in proximity to the Camp Douglas and Candelaria Mining Districts. We became aware of the mineral potential of this project area from exploration data contained within the large geologic database acquired as a part of our 2013 purchase of Pathfinder. Compiled over several decades of exploration work by major mining companies, the database contains valuable information on hundreds of mineral deposits and historical exploration and development programs in more than 20 states in the U.S. In this instance, we identified an exploration program in the area of the Excel Project which encountered high-grade gold and silver assays from trenching activities. Company geologists conducted geologic literature research and field examinations, resulting in the initiation of land acquisition activities in March 2017. Once a land position was obtained, rock sampling and geochemical soil sampling programs were conducted. We continue to review and analyze the assay results from the sampling programs, and are considering all alternatives to advance this new exploration project, including drilling the project, identifying a venture partner, or through a sale process.
Corporate Transactions and Financing Developments
At Market Financing
In May 2016, we entered into an At Market Issuance Sales Agreement with MLV & Co. LLC and FBR Capital Markets & Co. under which we may, from time to time, issue and sell Common Shares at market prices on the NYSE American or other U.S. market through the distribution agents for aggregate sales proceeds of up to $10,000,000. During 2017, we sold 1,536,169 Common Shares under the sales agreement. In conjunction with filing for a renewed shelf registration statement in 2017, the At Market Issuance Sales Agreement was amended and remains in place. See discussion below under
Material Changes in Financial Condition, Liquidity and Capital Resources
.
Off Take Sales Agreements
As of December 31, 2017, we have multiple off take sales agreements with various U.S. utilities. These agreements were completed between 2012 and 2015, and now provide for deliveries between 2018 and 2021 as follows:
|
|
SUMMARY OF OFF TAKE SALES AGREEMENTS
|
Production Year
|
Total Pounds Uranium Concentrates Contractually Committed
|
2018
|
470,000 pounds
|
2019
|
540,000 pounds
|
2020
|
390,000 pounds
|
2021
|
190,000 pounds
|
Corporate Organization and Management
In September 2017, Kathy E. Walker was appointed to our Board. The appointment expanded the size of the Board to seven.
Ms. Walker is the president and chief executive officer of Elm Street Resources Inc., an energy marketing company based in Paintsville, Kentucky. She brings more than 30 years’ experience in various energy-related business endeavors to our Board.
In January 2018, one of our founding directors, Paul Macdonell provided notice of his retirement from our Board after more than 13 years of service. Originally projected to become effective March 1, 2018, Mr. Macdonell has agreed to extend the effective date of his retirement.
In March 2017, reductions in workforce were implemented due to continuing depressed uranium market conditions. Eight employees were laid off, and several other employees were asked to change job responsibilities or carry additional responsibilities. Operations at Lost Creek proceeded uninterrupted. A further reduction in force was implemented in February 2018, in which nine employees were laid off, following our Board’s decision to defer any further development at Lost Creek while the uranium market remains at its current depressed levels. Because of the deferral of construction and development, the focus of the layoffs was on positions in the construction and development teams, with additional positions eliminated in departments where the absence of field work will affect workload. Additionally, several employees were asked to change job responsibilities and/or team assignments. We anticipate that Lost Creek operations, at the controlled levels of production will continue uninterrupted.
2017 Results of Operations
U
3
O
8
Production Costs
During 2017, 265,391 pounds of U
3
O
8
were captured within the Lost Creek plant. A total of 254,012 pounds were packaged in drums and 257,213 pounds of the drummed inventory were shipped to the conversion facility where 261,000 produced pounds were sold to utility customers. The cash cost per pound and non-cash cost per pound for produced uranium presented in the following Production Costs and U
3
O
8
Sales and Cost of Sales tables are non-US GAAP measures. These measures do not have a standardized meaning within US GAAP or a defined basis of calculation. These measures are used by management to assess business performance and determine production and pricing strategies. They may also be used by certain investors to evaluate performance. Please see the tables, below, for reconciliations of these measures to the US GAAP compliant financial measures. Production figures for the Lost Creek Project are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production and Production Costs
|
|
Unit
|
|
2017 Q4
|
|
2017 Q3
|
|
2017 Q2
|
|
2017 Q1
|
|
2017 YTD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds captured
|
|
lb
|
|
|
67,982
|
|
|
52,812
|
|
|
65,257
|
|
|
79,340
|
|
|
265,391
|
|
Ad valorem and severance tax
|
|
$000
|
|
$
|
160
|
|
$
|
119
|
|
$
|
227
|
|
$
|
241
|
|
$
|
747
|
|
Wellfield cash cost
(1)
|
|
$000
|
|
$
|
686
|
|
$
|
743
|
|
$
|
599
|
|
$
|
889
|
|
$
|
2,917
|
|
Wellfield non-cash cost
(2)
|
|
$000
|
|
$
|
574
|
|
$
|
730
|
|
$
|
780
|
|
$
|
776
|
|
$
|
2,860
|
|
Ad valorem and severance tax per pound captured
|
|
$/lb
|
|
$
|
2.35
|
|
$
|
2.25
|
|
$
|
3.48
|
|
$
|
3.04
|
|
$
|
2.81
|
|
Cash cost per pound captured
|
|
$/lb
|
|
$
|
10.09
|
|
$
|
14.07
|
|
$
|
9.18
|
|
$
|
11.20
|
|
$
|
10.99
|
|
Non-cash cost per pound captured
|
|
$/lb
|
|
$
|
8.44
|
|
$
|
13.82
|
|
$
|
11.95
|
|
$
|
9.78
|
|
$
|
10.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds drummed
|
|
lb
|
|
|
60,461
|
|
|
48,336
|
|
|
70,833
|
|
|
74,382
|
|
|
254,012
|
|
Plant cash cost
(3)
|
|
$000
|
|
$
|
1,210
|
|
$
|
1,120
|
|
$
|
1,267
|
|
$
|
1,488
|
|
$
|
5,085
|
|
Plant non-cash cost
(2)
|
|
$000
|
|
$
|
493
|
|
$
|
494
|
|
$
|
491
|
|
$
|
491
|
|
$
|
1,969
|
|
Cash cost per pound drummed
|
|
$/lb
|
|
$
|
20.01
|
|
$
|
23.17
|
|
$
|
17.93
|
|
$
|
20.00
|
|
$
|
20.02
|
|
Non-cash cost per pound drummed
|
|
$/lb
|
|
$
|
8.15
|
|
$
|
10.20
|
|
$
|
6.93
|
|
$
|
6.61
|
|
$
|
7.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds shipped to conversion facility
|
|
lb
|
|
|
73,367
|
|
|
36,797
|
|
|
74,406
|
|
|
72,643
|
|
|
257,213
|
|
Distribution cash cost
(4)
|
|
$000
|
|
$
|
48
|
|
$
|
24
|
|
$
|
26
|
|
$
|
47
|
|
$
|
145
|
|
Cash cost per pound shipped
|
|
$/lb
|
|
$
|
0.65
|
|
$
|
0.65
|
|
$
|
0.35
|
|
$
|
0.65
|
|
$
|
0.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds purchased
|
|
lb
|
|
|
-
|
|
|
109,000
|
|
|
210,000
|
|
|
200,000
|
|
|
519,000
|
|
Purchase costs
|
|
$000
|
|
$
|
-
|
|
$
|
2,196
|
|
$
|
4,870
|
|
$
|
4,015
|
|
$
|
11,081
|
|
Cash cost per pound purchased
|
|
$/lb
|
|
$
|
-
|
|
$
|
20.15
|
|
$
|
23.19
|
|
$
|
20.08
|
|
$
|
21.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes:
|
1.
|
|
Wellfield cash costs include all wellfield operating costs. Wellfield construction and development costs, which include wellfield drilling, header houses, pipelines, power lines, roads, fences and disposal wells, are treated as development expense and are not included in wellfield operating costs.
|
|
2.
|
|
Non-cash costs include the amortization of the investment in the mineral property acquisition costs and the depreciation of plant equipment, and the depreciation of their related asset retirement obligation costs. The expenses are calculated on a straight line basis so the expenses are typically constant for each quarter. The cost per pound from these costs will therefore typically vary based on production levels only.
|
|
3.
|
|
Plant cash costs include all plant operating costs and site overhead costs.
|
|
4.
|
|
Distribution cash costs include all shipping costs and costs charged by the conversion facility for weighing, sampling, assaying and storing the U
3
O
8
prior to sale.
|
In total, wellfield, plant and distribution cash costs were very consistent quarter on quarter during 2017. The respective cash costs per pound increased overall during the year primarily driven by decreasing levels of production.
Ad valorem and severance taxes fluctuate based on pounds extracted and the related sales value of those pounds.
Wellfield cash costs in 2017 Q1 were somewhat elevated due to some non-recurring expenses and the annual labor bonus in Q1. They were again elevated in Q3 due to increased activity related to the development of MU2 but declined in Q4 as most of the drilling for the three planned header houses in MU2 was complete in Q3. The average cash cost per pound captured increased to $10.09 in 2017 Q4 and averaged $10.99 for the year, as compared to $6.66 in 2016. The increase was due to lower average production levels during the year. As previously discussed, production levels were deliberately maintained at levels sufficient to satisfy our expected contract sales in light of the depressed uranium market. Wellfield non-cash costs were relatively fixed until Q4 when a portion of the capitalized ARO costs became fully depreciated. The resulting non-cash cost per pound captured was $8.44 in Q4 and averaged $10.78 for the year, as compared to $5.70 in 2016. Again, the increase for the year was due to lower production levels.
Plant cash costs generally decreased during the year with the higher costs in 2017 Q1 being driven by the annual labor bonus. Despite the lower cash costs, the resulting cash cost per pound drummed increased to $20.01 in 2017 Q4 as a result of lower production and averaged $20.02 for the year, as compared to $10.87 in 2016. Plant non-cash costs did not change during the year. The non-cash cost per pound drummed increased to $8.15 in 2017 Q4 and averaged $7.75 for the year, as compared to $3.53 in 2016. The increase was again due to lower production rates.
With the exception of 2017 Q4, distribution costs decreased during the year, as did pounds shipped. The resulting cash cost per pound shipped in 2017 Q4 increased to $0.65 and averaged $0.56 per pound for the year, as compared to $0.63 in 2016. Distribution costs are closely tied to volume, and the resulting cash cost per pound did not change significantly.
U
3
O
8
Sales and Cost of Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and cost of sales
|
|
Unit
|
|
2017 Q4
|
|
2017 Q3
|
|
2017 Q2
|
|
2017 Q1
|
|
2017 YTD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds sold
|
|
lb
|
|
|
-
|
|
|
289,000
|
|
|
241,000
|
|
|
250,000
|
|
|
780,000
|
|
U3O8 sales
|
|
$000
|
|
$
|
-
|
|
$
|
11,674
|
|
$
|
11,797
|
|
$
|
14,819
|
|
$
|
38,290
|
|
Average contract price
|
|
$/lb
|
|
$
|
-
|
|
$
|
40.39
|
|
$
|
48.95
|
|
$
|
59.28
|
|
$
|
49.09
|
|
Average price per pound sold
|
|
$/lb
|
|
$
|
-
|
|
$
|
40.39
|
|
$
|
48.95
|
|
$
|
59.28
|
|
$
|
49.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 cost of sales
(1)
|
|
$000
|
|
$
|
376
|
|
$
|
11,157
|
|
$
|
6,573
|
|
$
|
6,295
|
|
$
|
24,401
|
|
Ad valorem and severance tax cost per pound sold
|
|
$/lb
|
|
$
|
-
|
|
$
|
3.15
|
|
$
|
4.26
|
|
$
|
4.00
|
|
$
|
3.60
|
|
Cash cost per pound sold
|
|
$/lb
|
|
$
|
-
|
|
$
|
29.11
|
|
$
|
31.54
|
|
$
|
26.12
|
|
$
|
29.51
|
|
Non-cash cost per pound sold
|
|
$/lb
|
|
$
|
-
|
|
$
|
17.52
|
|
$
|
19.13
|
|
$
|
15.48
|
|
$
|
17.92
|
|
Cost per pound sold - produced
|
|
$/lb
|
|
$
|
-
|
|
$
|
49.78
|
|
$
|
54.93
|
|
$
|
45.60
|
|
$
|
51.03
|
|
Cost per pound sold - purchased
|
|
$/lb
|
|
$
|
-
|
|
$
|
20.15
|
|
$
|
23.19
|
|
$
|
20.08
|
|
$
|
21.35
|
|
Average cost per pound sold
|
|
$/lb
|
|
$
|
-
|
|
$
|
38.61
|
|
$
|
27.26
|
|
$
|
25.18
|
|
$
|
31.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 gross profit
|
|
$000
|
|
$
|
(376)
|
|
$
|
517
|
|
$
|
5,224
|
|
$
|
8,524
|
|
$
|
13,889
|
|
Gross profit per pound sold
|
|
$/lb
|
|
$
|
-
|
|
$
|
1.78
|
|
$
|
21.68
|
|
$
|
34.10
|
|
$
|
17.81
|
|
Gross profit margin
|
|
%
|
|
|
0.0%
|
|
|
4.4%
|
|
|
44.3%
|
|
|
57.5%
|
|
|
36.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Inventory Balances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-process inventory
|
|
lb
|
|
|
26,796
|
|
|
22,306
|
|
|
19,010
|
|
|
28,164
|
|
|
|
|
Plant inventory
|
|
lb
|
|
|
9,043
|
|
|
21,948
|
|
|
10,446
|
|
|
14,019
|
|
|
|
|
Conversion facility inventory
|
|
lb
|
|
|
94,077
|
|
|
17,813
|
|
|
160,094
|
|
|
113,528
|
|
|
|
|
Total inventory
|
|
lb
|
|
|
129,916
|
|
|
62,067
|
|
|
189,550
|
|
|
155,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-process inventory
|
|
$000
|
|
$
|
315
|
|
$
|
221
|
|
$
|
352
|
|
$
|
712
|
|
|
|
|
Plant inventory
|
|
$000
|
|
$
|
369
|
|
$
|
824
|
|
$
|
479
|
|
$
|
670
|
|
|
|
|
Conversion facility inventory
|
|
$000
|
|
$
|
3,831
|
|
$
|
675
|
|
$
|
6,620
|
|
$
|
4,379
|
|
|
|
|
Total inventory
|
|
$000
|
|
$
|
4,515
|
|
$
|
1,720
|
|
$
|
7,451
|
|
$
|
5,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost per pound
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-process inventory
|
|
$/lb
|
|
$
|
11.76
|
|
$
|
9.92
|
|
$
|
18.46
|
|
$
|
25.28
|
|
|
|
|
Plant inventory
|
|
$/lb
|
|
$
|
40.81
|
|
$
|
37.53
|
|
$
|
45.85
|
|
$
|
47.79
|
|
|
|
|
Conversion facility inventory
|
|
$/lb
|
|
$
|
40.72
|
|
$
|
37.89
|
|
$
|
41.35
|
|
$
|
38.57
|
|
|
|
|
Note:
|
1.
|
|
Costs of sales include all production costs (notes 1, 2, 3 and 4 in the previous Production and Production Costs table) adjusted for changes in inventory values.
|
There were no U
3
O
8
sales in Q4. For the year, we sold 780,000 pounds all of which were under contract at an average price per pound of $49.09 for total uranium sales of $38.3 million. There were no spot sales during the year. A total of 261,000 pounds were sold from Lost Creek production. Additionally, we sold 519,000 purchased pounds into our contractual obligations.
In 2017 Q4, our cost of sales totaled $0.3 million. This is the result of lower of cost or net realizable value inventory adjustments which are included in our cost of sales, recorded during the quarter. For the year, our average cost per pound sold was $31.28, as compared to $28.20 in 2016. In 2017, we purchased 519,000 pounds at an average price of $21.35 per pound. The average cost of the 261,000 pounds we sold from production was $51.03 per pound. As previously discussed, our produced costs per pound were substantially higher than in 2016 due to lower volumes. This, combined with the write down of $2.6 million from lower of cost or net realizable value adjustments, increased our cost of produced product sold by $10.34 per pound.
On a combined basis, the total average cost per pound sold of $31.28 was composed of $1.20 per pound for ad valorem and severance taxes, $24.08 per pound of cash costs from production and purchases, and $6.00 per pound of non-cast costs related to production.
The gross profit from uranium sales for 2017 was $13.9 million, which represents a gross profit margin of approximately 36%. This compares to a gross margin of $6.3 million or 29% in 2016.
At the end of the year, we had approximately 94,077 pounds of U
3
O
8
at the conversion facility at an average cost per pound of $40.72. The following table shows the average cost per pound of the conversion facility pounds.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Conversion Facility Inventory
Cost Per Pound Summary
|
|
Unit
|
31-Dec-17
|
|
30-Sep-17
|
|
30-Jun-17
|
31-Mar-17
|
Ad valorem and severance tax cost per pound
|
|
$/lb
|
|
$
|
1.65
|
|
$
|
2.41
|
|
$
|
2.82
|
|
$
|
2.74
|
Cash cost per pound
|
|
$/lb
|
|
$
|
25.31
|
|
$
|
22.47
|
|
$
|
24.62
|
|
$
|
23.48
|
Non-cash cost per pound
|
|
$/lb
|
|
$
|
13.76
|
|
$
|
13.01
|
|
$
|
13.91
|
|
$
|
12.35
|
Total cost per pound
|
|
$/lb
|
|
$
|
40.72
|
|
$
|
37.89
|
|
$
|
41.35
|
|
$
|
38.57
|
Generally, the cost per pound in ending inventory at the conversion facility increased during the year. The increase was directly related to the lower production figures as production costs were relatively consistent, or decreasing slightly, during the year.
Annual Results Comparison
The following table presents and annual comparison of a portion of the above information for the years ended December 31, 2017, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
Comparison of annual results
|
|
Unit
|
|
2017
|
|
2016
|
|
2015
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
Sales per financial statements
|
|
$000
|
|
$
|
38,371
|
|
$
|
27,297
|
|
$
|
41,877
|
Less disposal fees
|
|
$000
|
|
$
|
(80)
|
|
$
|
(20)
|
|
$
|
(69)
|
Less gain from sale of deliveries under contract
|
$000
|
|
$
|
-
|
|
$
|
(5,086)
|
|
$
|
-
|
U
3
O
8
sales
|
|
$000
|
|
$
|
38,291
|
|
$
|
22,191
|
|
$
|
41,808
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
Ad valorem & severance taxes
|
$000
|
|
$
|
747
|
|
$
|
1,523
|
|
$
|
1,604
|
Wellfield costs
|
$000
|
|
$
|
5,777
|
|
$
|
6,645
|
|
$
|
8,291
|
Plant and site costs
|
$000
|
|
$
|
7,054
|
|
$
|
8,079
|
|
$
|
9,202
|
Distribution costs
|
$000
|
|
$
|
145
|
|
$
|
365
|
|
$
|
494
|
Inventory change
|
$000
|
|
$
|
(405)
|
|
$
|
(763)
|
|
$
|
1,823
|
Cost of sales - produced
|
$000
|
|
$
|
13,318
|
|
$
|
15,849
|
|
$
|
21,414
|
Cost of sales - purchased
|
$000
|
|
$
|
11,081
|
|
$
|
-
|
|
$
|
7,878
|
Total cost of sales
|
$000
|
|
$
|
24,399
|
|
$
|
15,849
|
|
$
|
29,292
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit from U3O8 sales
|
|
$000
|
|
$
|
13,892
|
|
$
|
6,342
|
|
$
|
12,516
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
|
|
|
|
|
|
|
|
|
Pounds extracted
|
|
lb
|
|
|
265,391
|
|
|
538,004
|
|
|
783,547
|
Pounds drummed
|
|
lb
|
|
|
254,012
|
|
|
561,094
|
|
|
727,245
|
Pounds shipped
|
|
lb
|
|
|
257,213
|
|
|
579,179
|
|
|
717,125
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds sold - produced
|
|
lb
|
|
|
261,000
|
|
|
562,000
|
|
|
725,000
|
Pounds sold - purchased
|
|
lb
|
|
|
519,000
|
|
|
-
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Pound Sold
|
|
|
|
|
|
|
|
|
|
|
|
Average contract price
|
|
$/lb
|
|
$
|
49.09
|
|
$
|
41.38
|
|
$
|
49.42
|
Average spot price
|
|
$/lb
|
|
$
|
-
|
|
$
|
30.75
|
|
$
|
36.18
|
Average price
|
|
$/lb
|
|
$
|
49.09
|
|
$
|
39.49
|
|
$
|
45.20
|
|
|
|
|
|
|
|
|
|
|
|
|
Ad valorem and severance tax
|
$/lb
|
|
$
|
3.60
|
|
$
|
2.86
|
|
$
|
3.14
|
Cash cost
|
|
$/lb
|
|
$
|
29.51
|
|
$
|
17.15
|
|
$
|
16.27
|
Non-cash cost
|
|
$/lb
|
|
$
|
17.92
|
|
$
|
8.19
|
|
$
|
10.12
|
Cost - Produced
|
|
$/lb
|
|
$
|
51.03
|
|
$
|
28.20
|
|
$
|
29.53
|
Cost - Purchased
|
|
$/lb
|
|
$
|
21.35
|
|
$
|
-
|
|
$
|
39.39
|
|
|
|
|
|
|
|
|
|
|
|
|
Average cost
|
|
$/lb
|
|
$
|
31.28
|
|
$
|
28.20
|
|
$
|
31.67
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
(1)
|
|
$/lb
|
|
$
|
17.81
|
|
$
|
11.29
|
|
$
|
13.53
|
Note:
|
1.
|
|
For comparative purposes, gross profit and gross profit per pound for the year 2016 excludes the profit recognized on the assignment of deliveries.
|
In 2017, our production levels decreased as we reacted to a continuing weak market. Based on spot prices in effect, we were able to purchase uranium at prices that were less than our cost of production. We therefore felt that rather than reducing our resources, it was prudent to purchase pounds to complement our current production, which was based on existing wellfield assets in MU1 as well as a limited number of new header houses in MU2. The above analysis shows that we reduced some of our costs reflecting the reduced production, but not at the same rate we decreased production. This is consistent with what we have previously reported, in that most of our costs are fixed so that when our production increases, our cost per pound declines and where production is scaled back, as in 2017, our cost per pound will increase. Compounding this is the fact that as our cost per pound increases, the carrying cost of our inventories may be subject to lower of cost or net realizable value adjustments which are reflected in our cost of goods sold and push the cost per pound of produced product sold higher. As we allocate these adjustments to taxes, cash costs and non-cash costs, all cost types show increases. Probably the most profound is in non-cash costs as all of our depletion and amortization expenses are calculated on a straight-line basis per SEC guidelines so if production is decreased by half, the related cost per pound will double. As many of our costs are fixed costs, we are not able to reduce their impact on the overall cost per pound of our products.
As discussed previously, we are continuously surveying the market for opportunities to create future, long-term, contracts at favorable rates. However, long-term pricing remained weak in 2017 and we did not enter into any new contracts. But as previously shown, the Company maintains a good book of contracts into 2021. The average contract price in 2017 was close to $50 per pound for the 780,000 pounds we sold under contract.
Reconciliation of Non-GAAP sales and inventory presentation with US GAAP statement presentation
As discussed above, the cash costs, non-cash costs and per pound calculations are non-US GAAP measures we use to assess business performance. To facilitate a better understanding of these measures, the tables below present a reconciliation of these measures to the financial results as presented in our financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Price Per Pound Sold Reconciliation
|
|
Unit
|
|
2017 Q4
|
|
2017 Q3
|
|
2017 Q2
|
|
2017 Q1
|
|
2017 YTD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales per financial statements
|
|
$000
|
|
$
|
26
|
|
$
|
11,693
|
|
$
|
11,821
|
|
$
|
14,828
|
|
$
|
38,368
|
Less disposal fees
|
|
$000
|
|
$
|
(26)
|
|
$
|
(18)
|
|
$
|
(24)
|
|
$
|
(9)
|
|
$
|
(77)
|
U
3
O
8
sales
|
|
$000
|
|
$
|
-
|
|
$
|
11,675
|
|
$
|
11,797
|
|
$
|
14,819
|
|
$
|
38,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds sold - produced
|
|
lb
|
|
|
-
|
|
|
180,000
|
|
|
31,000
|
|
|
50,000
|
|
|
261,000
|
Pounds sold - purchased
|
|
lb
|
|
|
-
|
|
|
109,000
|
|
|
210,000
|
|
|
200,000
|
|
|
519,000
|
Total pounds sold
|
|
lb
|
|
|
-
|
|
|
289,000
|
|
|
241,000
|
|
|
250,000
|
|
|
780,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average price per pound sold
|
|
$/lb
|
|
$
|
-
|
|
$
|
40.40
|
|
$
|
48.95
|
|
$
|
59.28
|
|
$
|
49.09
|
The Company delivers U
3
O
8
to a conversion facility and receives credit for a specified quantity measured in pounds once the product is confirmed to meet the required specifications. When a delivery is approved, the Company notifies the conversion facility with instruction for a title transfer to the customer. Revenue is recognized once a title transfer of the U
3
O
8
is confirmed by the conversion facility.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cost Per Pound Sold
Reconciliation
1
|
|
Unit
|
|
2017 Q4
|
|
2017 Q3
|
|
2017 Q2
|
|
2017 Q1
|
|
2017 YTD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ad valorem & severance taxes
|
|
$000
|
|
$
|
160
|
|
$
|
119
|
|
$
|
227
|
|
$
|
241
|
|
$
|
747
|
Wellfield costs
|
|
$000
|
|
$
|
1,260
|
|
$
|
1,473
|
|
$
|
1,379
|
|
$
|
1,665
|
|
$
|
5,777
|
Plant and site costs
|
|
$000
|
|
$
|
1,703
|
|
$
|
1,614
|
|
$
|
1,761
|
|
$
|
1,979
|
|
$
|
7,057
|
Distribution costs
|
|
$000
|
|
$
|
48
|
|
$
|
24
|
|
$
|
26
|
|
$
|
47
|
|
$
|
145
|
Inventory change
|
|
$000
|
|
$
|
(2,795)
|
|
$
|
5,731
|
|
$
|
(1,690)
|
|
$
|
(1,652)
|
|
$
|
(406)
|
Cost of sales - produced
|
|
$000
|
|
$
|
376
|
|
$
|
8,961
|
|
$
|
1,703
|
|
$
|
2,280
|
|
$
|
13,320
|
Cost of sales - purchased
|
|
$000
|
|
$
|
—
|
|
$
|
2,196
|
|
$
|
4,870
|
|
$
|
4,015
|
|
$
|
11,081
|
Total cost of sales
|
|
$000
|
|
$
|
376
|
|
$
|
11,157
|
|
$
|
6,573
|
|
$
|
6,295
|
|
$
|
24,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds sold produced
|
|
lb
|
|
|
—
|
|
|
180,000
|
|
|
31,000
|
|
|
50,000
|
|
|
261,000
|
Pounds sold purchased
|
|
lb
|
|
|
—
|
|
|
109,000
|
|
|
210,000
|
|
|
200,000
|
|
|
519,000
|
Total pounds sold
|
|
lb
|
|
|
—
|
|
|
289,000
|
|
|
241,000
|
|
|
250,000
|
|
|
780,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average cost per pound sold - produced
(1)
|
|
$/lb
|
|
$
|
-
|
|
$
|
49.78
|
|
$
|
54.93
|
|
$
|
45.60
|
|
$
|
51.03
|
Average cost per pound sold - purchased
|
|
$/lb
|
|
$
|
-
|
|
$
|
20.15
|
|
$
|
23.19
|
|
$
|
20.08
|
|
$
|
21.35
|
Total average cost per pound sold
|
|
$/lb
|
|
$
|
-
|
|
$
|
38.61
|
|
$
|
27.27
|
|
$
|
25.18
|
|
$
|
31.28
|
Note:
|
1.
|
|
The cost per pound sold reflects both cash and non-cash costs, which are combined as cost of sales in the statement of operations included in this filing. The cash and non-cash cost components are identified in the above production cost table.
|
The cost of sales includes ad valorem and severance taxes related to the extraction of uranium, all costs of wellfield, plant and site operations including the related depreciation and amortization of capitalized assets, reclamation and mineral property costs, plus product distribution costs. These costs are also used to value inventory and the resulting inventoried cost per pound is compared to the estimated sales prices based on the contracts or spot sales anticipated for the distribution of the product. Any costs in excess of the calculated market value are charged to cost of sales.
Year Ended December 31, 2017 Compared to Year Ended December 31, 2016
The following table summarizes the results of operations for the years ended December 31, 2017 and 2016 (in thousands of U.S. dollars):
|
|
|
|
|
Year ended December 31,
|
|
2017
|
|
2016
|
|
$
|
|
$
|
|
|
|
|
Sales
|
38,368
|
|
27,305
|
Cost of sales
|
(24,401)
|
|
(15,848)
|
Gross profit
|
13,967
|
|
11,457
|
Exploration and evaluation expense
|
(2,623)
|
|
(2,964)
|
Development expense
|
(4,340)
|
|
(2,886)
|
General and administrative expense
|
(5,090)
|
|
(4,740)
|
Accretion expense
|
(527)
|
|
(534)
|
Write-off of mineral properties
|
-
|
|
(62)
|
Net profit (loss) from operations
|
1,387
|
|
271
|
Interest expense (net)
|
(1,377)
|
|
(1,977)
|
Warrant mark to market gain
|
-
|
|
36
|
Loss from equity investment
|
(5)
|
|
(5)
|
Write-off of equity investments
|
-
|
|
(1,089)
|
Foreign exchange loss
|
(50)
|
|
(278)
|
Other income
|
121
|
|
15
|
Income (loss) before income taxes
|
76
|
|
(3,027)
|
Income tax recovery (net)
|
-
|
|
17
|
Net income (loss)
|
76
|
|
(3,010)
|
|
|
|
|
Income (loss) per share – basic
|
0.00
|
|
(0.02)
|
|
|
|
|
Income (loss) per share – diluted
|
0.00
|
|
(0.02)
|
|
|
|
|
Revenue per pound sold
|
49.09
|
|
39.49
|
|
|
|
|
Total cost per pound sold
|
31.28
|
|
28.20
|
|
|
|
|
Gross profit per pound sold
|
17.81
|
|
11.29
|
Sales
We sold a total of 780,000 pounds of U
3
O
8
during the year ended December 31, 2017 for an average price of $49.09 per pound as compared to 2016 when we sold 562,000 pounds for an average price of $39.49. The fluctuation in sales prices relates primarily to lower priced spot sales made in 2016 as well as the fulfillment of some lower-priced, shorter-term contracts in 2016. In 2016, we assigned two contract deliveries totaling 200,000 pounds of U
3
O
8
to a third-party trader. The deliveries were made during 2016 and we recognized $5.1 million in sales from those contracts.
For the year ended December 31, 2017, we recognized $80 thousand from disposal fees compared to $29 thousand during 2016.
Cost of Sales
The cost of sales includes all costs of wellfield operations and maintenance, severance and ad valorem taxes, plant operations and maintenance and mine site overhead including depreciation on the related capital assets, capitalized reclamation costs and amortization of mineral property costs, the cost of inventory purchased for resale and distribution costs. Wellfield costs, plant costs, site overhead costs and distribution costs are included in inventory and the resulting inventoried cost per pound is compared to the estimated sales prices based on the contracts or spot sales anticipated for the distribution of the product. Any costs in excess of the calculated market value are charged to expense.
As compared to 2016, our cost per pound sold increased $3.08 to $31.28 in 2017. The increase for the year was mitigated by the purchase of 519,000 pounds at an average price of $21.35. The cost per pound of produced product was $51.03.
Gross Profit
The gross profit from uranium sales was $13.9 million for the year ended December 31, 2017, which represents a gross profit margin of approximately 36%. Gross profits of $6.3 million in 2016 represents a gross profit margin of approximately 29%. The primary reason for the increase in the gross profit margin was the higher average sales price per pound in 2017.
Operating Expenses
Total operating expenses for the year ended December 31, 2017 were $12.6 million. Operating expenses include exploration and evaluation expense, development expense, G&A expense and mineral property write-offs. These expenses increased by $1.4 million compared to 2016.
Exploration and evaluation expense consists of labor and the associated costs of the exploration and evaluation departments as well as land holding and exploration costs including drilling and analysis on properties which have not reached the permitting or operations stage. These expenses decreased $0.3 million for the year ended December 31, 2017 compared to 2016. All costs associated with the geology and geological information systems departments as well as the costs incurred on specific projects as described above are reflected in this category. A reduction in labor and related costs was the primary reason for the decline.
Development expense includes $3.9 million of costs incurred at the Lost Creek Project not directly attributable to production activities, including wellfield construction, drilling and development costs. This is an increase of $1.9 million from 2016 and was related to the construction of the first three header houses in MU2 including the structures, wells and infrastructure. It also includes $0.4 million of costs associated with the Shirley Basin and Lucky Mc properties which are considered development properties as they previously reached the permitting stage or operations stage.
G&A expense relates to administration, finance, investor relations, land and legal functions and consists principally of personnel, facility and support costs. Expenses increased by $0.4 million for the year ended December 31, 2017 compared to 2016. The increase was due to increased external consulting and legal expenses of $0.4 million, a substantial portion of which relates to the trade action filed in early January 2018.
Other Income and Expenses
Net interest expense declined $0.6 million during 2017 compared to the prior year. The decline was due to principal payments on outstanding debt.
In December 2013, the Company sold equity units which included one Common Share and one-half warrant for the purchase of stock at $1.35 per Common Share. As the warrants were priced in U.S. dollars and not Canadian dollars, which is the currency of the Company’s Common Shares, these warrants are considered a derivative and are therefore treated as a liability. The gain for 2016 represents the balance of the liability at December 31, 2015 which was written off in 2016 as the warrants expired without being exercised in 2016.
In April 2017, the Management Committee of the Bootheel Project determined to continue the ownership and maintenance on the Bootheel property for the fiscal year ending March 31, 2018, which is the fiscal year end of The Bootheel Project, LLC. No additional exploration or development activities are expected at this time for 2018. Due to the continuing decline in the spot price of uranium combined with the reduction in minerals when a related lease was not renegotiated, the Company examined the valuation of the investment and determined that as a standalone investment, it had an insignificant value and was therefore fully impaired during 2016 resulting in a loss on investment of $1.1 million.
Income tax recovery
Income tax refunds in 2016 relates to the refund of alternative minimum taxes paid in prior years.
Income (Loss) per Common Share
The basic earnings per common share for the year 2017 was $Nil. Basic and diluted loss per common share was $0.02 for 2016. The diluted loss per common share for the year 2016 was equal to the basic loss per common share due to the anti-dilutive effect of all convertible securities outstanding given that net losses were experienced. For the year ended December 30, 2017, there were a net of 539,620 options using the treasury method and 1,175,952 RSUs included in the diluted earnings per share calculations. The result was diluted earnings per share of $Nil for the year.
Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
The following table summarizes the results of operations for the years ended December 31, 2016 and 2015 (in thousands of U.S. dollars):
|
|
|
|
Year ended December 31,
|
|
2016
|
2015
|
|
$
|
$
|
Revenue
|
27,305
|
41,877
|
Cost of revenues
|
(15,848)
|
(29,292)
|
Gross profit
|
11,457
|
12,585
|
Exploration and evaluation expense
|
(2,964)
|
(2,853)
|
Development expense
|
(2,886)
|
(5,358)
|
General and administrative expense
|
(4,740)
|
(5,715)
|
Accretion expense
|
(534)
|
(515)
|
Write-off of mineral properties
|
(62)
|
-
|
Net loss from operations
|
271
|
(1,856)
|
Interest income (expense) (net)
|
(1,977)
|
(2,557)
|
Mark to market loss
|
36
|
307
|
Loss from equity investment
|
(5)
|
(8)
|
Write-off of equity investments
|
(1,089)
|
-
|
Foreign exchange gain (loss)
|
(278)
|
(1)
|
Other income (loss
|
15
|
5
|
Loss before income taxes
|
(3,027)
|
(4,110)
|
Income tax expense
|
17
|
3,315
|
Net loss
|
(3,010)
|
(795)
|
|
|
|
Loss per share – basic and diluted
|
(0.02)
|
(0.01)
|
|
|
|
Revenue per pound sold
|
39.49
|
45.20
|
|
|
|
Total cost per pound sold
|
28.20
|
31.67
|
|
|
|
Gross profit per pound sold
|
11.29
|
13.53
|
Sales
We sold a total of 562,000 pounds of U
3
O
8
from production during the year ended December 31, 2016 for an average price of $39.49 per pound as compared to 2015 when we sold 925,000 pounds for an average price of $45.20. The fluctuation in sales prices relates primarily to lower priced spot sales made in 2016. In 2016, we assigned two contract deliveries totaling 200,000 pounds of U
3
O
8
to a third-party trader. The deliveries were made during the year and we recognized $5.1 million in sales from those contracts. The sales in 2015 included the sale of 200,000 pounds of U
3
O
8
which were purchased from a
third-party trader.
For the year ended December 31, 2016, we recognized $29 thousand compared to $69 thousand from disposal fees during 2015.
Cost of Sales
The cost of sales includes all costs of wellfield operations and maintenance, severance and ad valorem taxes, plant operations and maintenance and mine site overhead including depreciation on the related capital assets, capitalized reclamation costs and amortization of mineral property costs, the cost of inventory purchased for resale and distribution costs. Wellfield costs, plant costs, site overhead costs and distribution costs are included in inventory and the resulting inventoried cost per pound is compared to the estimated sales prices based on the contracts or spot sales anticipated for the distribution of the product. Any costs in excess of the calculated market value are charged to expense.
As compared to 2015, our cost per pound sold decreased $3.47 to $28.20 in 2016. The year 2015 includes one sale of purchased product, which was at a cost of $39.39 per pound. Excluding this sale, the 2015 cost per pound sold from produced inventory was $29.53, which adjusts the 2016 cost per pound sold to a decrease of $1.33 per pound from 2015.
The reduction in our cost per pound sold from produced inventory is primarily a function of decreased non-cash costs in 2016 as compared to 2015 resulting from the accelerated depreciation of capitalized reclamation costs attributable to MU1. As stated in previous filings, most of our production costs are relatively fixed. Therefore, decreased production in 2016 yielded higher cash costs per pound.
Gross Profit
The gross profit from uranium sales was $6.3 million for the year ended December 31, 2016, which represents a gross profit margin of approximately 29%. Gross profits of $12.5 million in 2015 represents a gross profit margin of approximately 30%. The primary reason for the decrease in the gross profit margin was the lower-priced spot sales in 2016, which more than offset the decrease in the cost per pound sold.
Operating Expenses
Total operating expenses for the year ended December 31, 2016 were $11.2 million. Operating expenses include exploration and evaluation expense, development expense, G&A expense and mineral property write-offs. These expenses decreased by $3.2 million compared to 2015.
Exploration and evaluation expense consists of labor and the associated costs of the exploration and evaluation departments as well as land holding and exploration costs including drilling and analysis on properties which have not reached the permitting or operations stage. These expenses increased $0.1 million for the year ended December 31, 2016 compared to 2015. All costs associated with the geology and geological information systems departments as well as the costs incurred on specific projects as described above are reflected in this category. Costs increased due to higher labor related costs.
Development expense includes $2.4 million of costs incurred at the Lost Creek Project not directly attributable to production activities, including wellfield construction, drilling and development costs. It also includes $0.5 million of costs associated with the Shirley Basin and Lucky Mc properties which are considered development properties as they previously reached the permitting stage or operations stage. Development expenses decreased by $2.5 million in the year ended December 31, 2016 compared to 2015. The decrease was primarily related to the deferral of development activities at Lost Creek in response to depressed uranium prices.
G&A expense relates to administration, finance, investor relations, land and legal functions and consists principally of personnel, facility and support costs. Expenses decreased by $1.0 million for the year ended
December 31, 2016 compared to 2015. The decrease was due to reduced external consulting and legal expenses of $0.3 million combined with $0.6 million in lower labor costs due to reductions in force.
Other Income and Expenses
Net interest expense declined $0.6 million during 2016 compared to the prior year. The decline was due to a reduction in the outstanding principal which was slightly offset by increases in the interest rate on the RMB debt, which was tied to the quarterly LIBOR rate.
In December 2013, the Company sold equity units which included one Common Share and one-half warrant for the purchase of stock at $1.35 per Common Share. As the warrants were priced in U.S. dollars and not Canadian dollars, which is the currency of the Company’s Common Shares, these warrants are considered a derivative and are therefore treated as a liability. The gain for 2016 represents the balance of the liability at December 31, 2015 which was written off in 2016 as the warrants expired without being exercised in 2016.
In April 2016, the Management Committee of the Bootheel Project determined to continue the ownership and maintenance on the Bootheel property for the fiscal year ending March 31, 2017, which is the fiscal year end of The Bootheel Project, LLC. No additional exploration or development activities are expected at this time for 2017. Due to the continuing decline in the spot price of uranium combined with the reduction in minerals when the related lease was not renegotiated, the Company examined the valuation of the investment and determined that as a standalone investment, it had an insignificant value and was therefore fully impaired during 2016 resulting in a loss on investment of $1.1 million.
Income tax recovery
When we acquired Pathfinder in 2013, we recorded a deferred income tax liability as the Pathfinder assets had no tax basis and accounting guidance indicated that the potential liability should be recorded due to Pathfinder not being integrated into our operations and the likelihood that Pathfinder would have a going concern issue as a stand-alone entity. The costs were capitalized as a part of the mineral property acquisition costs and will be amortized for reporting purposes once production commences. The amortization will not be deductible for tax reporting, therefore creating a permanent book versus tax difference.
We did preliminary drilling and baseline testing in 2014, and we filed our permit application with the WDEQ in 2015, therefore demonstrating the intent of incorporating uranium recovery operations at Shirley Basin into our other ongoing operations within the next few years pending the approval of the permit application. As Pathfinder was integrated into our operations, the guidance was no longer applicable and we used a portion of our accumulated net operation losses to offset the liability in 2015. The filing of the permit is an indication that the offset will be used within a few years and is therefore more probable than not that it will be used.
Loss per Common Share
The basic and diluted losses per Common Share for the year ended December 31, 2016 was $0.02 compared to a loss of $0.01 in 2015. The diluted loss per Common Share is equal to the basic loss per Common Share due to the anti-dilutive effect of all convertible securities outstanding given that net losses were experienced.
Material Changes in Financial Condition, Liquidity and Capital Resources
As at December 31, 2017, we had cash resources, consisting of cash and cash equivalents, of $3.9 million, an increase of $2.3 million from the December 31, 2016 balance of $1.6 million. The cash resources consist of Canadian and U.S. dollar denominated deposit accounts, money market funds and certificates of deposit. We generated $5.6 million from operations during the year ended December 31, 2017. During the same period, we used $0.2 million for investing activities and $3.0 million for financing activities.
On October 23, 2013, we closed a $34.0 million Sweetwater County, State of Wyoming, Taxable Industrial Development Revenue Bond financing program (“State Bond Loan”). The State Bond Loan calls for payments of interest at a fixed rate of 5.75% per annum on a quarterly basis which commenced January 1, 2014. The principal is payable in 28 quarterly installments which commenced January 1, 2015 and continue through October 1, 2021. The State Bond Loan is secured by all of the assets at the Lost Creek Project. As of December 31, 2017, the balance of the State Bond Loan was $19.9 million.
On August 19, 2014, we filed a universal shelf registration statement on Form S-3 in order that we may offer and sell, from time to time, in one or more offerings, at prices and terms to be determined, up to $100 million of our Common Shares, warrants to purchase our Common Shares, our senior and subordinated debt securities, and rights to purchase our Common Shares and/or our senior and subordinated debt securities. The registration statement became effective September 12, 2014 for a three-year period and was extended for a subsequent three-year term on July 27, 2017. The 12,921,000 Common Shares offered in the February 2016 financing were sold for $0.50 per share raising $5.7 million (net of issue costs of $0.8 million) under the shelf registration statement.
On May 27, 2016, we entered into an At Market Issuance Sales Agreement with MLV & Co. LLC and FBR Capital Markets & Co. under which we may, from time to time, issue and sell Common Shares at market prices on the NYSE American or other U.S. market through the distribution agents for aggregate sales proceeds of up to $10,000,000. During 2017, we sold 1,536,169 Common Shares under the sales agreement at an average price of $0.76 per share for gross proceeds of $1.2 million. After deducting transaction fees and commissions and all other costs, we received net proceeds of $1.1 million.
Collections for the year from U
3
O
8
sales totaled $38.3 million.
Operating activities generated $5.5 million of cash resources during the year ended December 31, 2017 as compared to $3.3 million in 2016. The change is due primarily to an increase in net income and smaller increases in inventory and decreases in current liabilities.
During 2017, the Company invested $0.3 million in equipment. The Lost Creek Project does not require significant capital expenditures and its sustaining capital expenditures have generally been less than $0.5 million per year.
During 2017, the Company used $3.0 million for financing activities including principal payments on debt of $4.6 million, which was partially offset by net proceeds from the sale of common shares of $1.1 million and proceeds from stock option exercises of $0.5 million.
Liquidity Outlook
As at February 28, 2018, our unrestricted cash position was $7.5 million. We expect that any major capital projects will be funded by operating cash flow, cash on hand and additional financing as required. If these cash
sources are not sufficient, certain capital projects could be delayed, or alternatively we may need to pursue additional debt or equity financing and there is no assurance that such financing will be available at all or on terms acceptable to us. We have no immediate plans to issue additional securities or obtain additional funding other than that which may be required due to the uneven nature of cash flows generated from operations; however, we may issue additional debt or equity securities at any time.
Outlook for 2018
In 2017, the average spot price per pound of U
3
O
8
, as reported by Ux Consulting Company, LLC and TradeTech, LLC, increased approximately 17% from $20.25 in December 2016 to about $23.75 per pound in December 2017. In early 2017, spot pricing moved higher on news of supply-side reductions, only to retreat to the $20 level, where it remained until November 2017. In November, spot prices again increased following several new supply-side announcements. Thus far in 2018, the average spot price per pound of U
3
O
8
decreased to $21.63 as of February 26, indicating the fundamentals of market pricing have not changed sufficiently to warrant further development of MU2.
In response to this persistently weak uranium market, we took aggressive measures in 2016 and 2017, and will again do so in 2018. In 2016, we deliberately slowed development activities at MU2, reduced costs, and focused on enhancing production efficiencies from our operating MU1 header houses. In 2017, we continued to employ this limited-development strategy, implemented further cost reductions, and supplemented existing mine production with favorably priced uranium purchases to meet our 2017 contractual commitments. For 2018, we have suspended further MU2 development activities, implemented further cost reductions, and secured purchase contracts for nearly 100% of our 2018 delivery obligations.
For 2018, we expect to sell 470,000 pounds under term contracts at an average price of approximately $49 per pound. We have entered into purchase contracts to cover 460,000 pounds at an average price of approximately $24 per pound. Production from our operating MU1 and MU2 header houses, expected to be between 250,000 and 350,000 pounds, will be used to build an inventory position of finished, ready-to-sell, product at the conversion facility.
We recently implemented a limited reduction in force to further streamline our operations and reduce costs. This is the third reduction in force in force in two years; the layoffs since 2016 have affected personnel in all three company locations. The most recent reduction was focused on those departments not directly related to production and is expected to reduce our labor costs by approximately $0.6 million per year.
Together, these actions will give the Company the additional flexibility necessary to quickly react to changing market conditions and easily re-start development activities in MU2 when warranted. With future development and construction in mind, the staff who were retained had the greatest level of experience and adaptability allowing for an easier transition back to full operations.
Although we made a small (10,000 pound) spot sale in January 2018, we are not forecasting any further spot sales for 2018 at this time; we may, however, choose to do so if market conditions improve. We expect our average gross profit in 2018 to be between $10 and $12 million, which represents a cash-basis gross profit margin of between 45% and 50%.
Operating costs in 2018 are expected to be lower than 2017 because of the suspended MU2 development activities. Other costs including capital expenditures and loan repayments will be similar to 2017.
As at February 28, 2018, our unrestricted cash position was $7.5 million. Given our current cash resources, contracted sales positions, and expected margins, we do not anticipate the need for additional funding in the near term unless it is advantageous to do so.
As discussed above, the Company has contractual sales commitments of 470,000 pounds during 2018, at an average price of approximately $49 per pound. We have established the schedule for those commitments and determined that an effective model for dealing with the current pricing environment is to continue production from our fully operational header houses in MU1 and MU2, and purchase uranium at favorable low-prices in order to meet our sales commitments. This operating strategy for Lost Creek will allow us to control production costs, minimize development expenditures, maximize cash flows and maintain the flexibility to respond to market conditions.
Table of Contractual Obligations
The following table summarizes our contractual obligations as of December 31, 2017:
|
|
|
|
|
|
|
Payments due (by period) in thousands
|
|
|
Less than
|
|
3 to 5
|
More than
|
|
Total
|
1 year
|
1 to 3 years
|
years
|
5 years
|
|
|
|
|
|
|
Notes payable
|
$ 19,891
|
$ 4,895
|
$ 10,670
|
$ 4,326
|
$ -
|
Interest on notes payable
|
$ 2,363
|
$ 1,039
|
$ 1,199
|
$ 125
|
$ -
|
Operating leases
|
$ 447
|
$ 352
|
$ 95
|
$ -
|
$ -
|
Environmental remediation
|
$ 72
|
$ 72
|
$ -
|
$ -
|
$ -
|
Asset retirement obligations
|
$ 27,036
|
$ -
|
$ 3,558
|
$ 3,558
|
$ 19,920
|
|
|
|
|
|
|
|
$ 49,809
|
$ 6,358
|
$ 15,522
|
$ 8,009
|
$ 19,920
|
Outstanding Share Data
As of December 31, 2017 and 2016, the Company’s capital consisted of the following:
|
|
|
|
|
December 31, 2017
|
December 31, 2016
|
Change
|
|
|
|
|
Common shares
|
146,531,933
|
143,676,384
|
2,855,549
|
Warrants
|
5,844,567
|
5,844,567
|
-
|
RSUs
|
1,175,952
|
1,273,990
|
(98,038)
|
Stock options
|
9,459,401
|
9,748,934
|
(289,533)
|
|
|
|
|
Fully diluted shares outstanding
|
163,011,853
|
160,543,875
|
2,467,978
|
Off Balance Sheet Arrangements
We have not entered into any material off-balance sheet arrangements such as guaranteed contracts, contingent interests in assets transferred to unconsolidated entities, derivative instrument obligations, or with respect to any obligations under a variable interest entity arrangement.
Financial Instruments and Other Instruments
The Company’s cash and cash equivalents are composed of:
|
|
|
|
As at
|
|
December 31, 2017
|
December 31, 2016
|
|
$ (thousands)
|
$ (thousands)
|
|
|
|
Cash on deposit at banks
|
1,667
|
580
|
Money market funds
|
2,212
|
972
|
|
|
|
|
3,879
|
1,552
|
Quarterly financial data (unaudited) (in thousands except for per share data)
|
|
|
|
|
|
|
|
|
2017
|
|
Quarter ended
|
|
Dec. 31
|
|
Sep. 30
|
|
Jun. 30
|
|
Mar. 31
|
|
|
|
|
|
|
|
|
Revenue
|
$ 26
|
|
$ 11,693
|
|
$ 11,821
|
|
$ 14,828
|
Net income (loss) for the period
|
$ (3,426)
|
|
$ (3,004)
|
|
$ 1,317
|
|
$ 5,189
|
|
|
|
|
|
|
|
|
Income (loss) per share – basic and diluted
|
$ (0.02)
|
|
$ (0.02)
|
|
$ 0.01
|
|
$ 0.03
|
|
|
|
|
|
|
|
|
|
2016
|
|
Quarter ended
|
|
Dec. 31
|
|
Sep. 30
|
|
Jun. 30
|
|
Mar. 31
|
|
|
|
|
|
|
|
|
Revenue
|
$ 5,776
|
|
$ 12,068
|
|
$ 6,747
|
|
$ 2,714
|
Net income (loss) for the period
|
$ 104
|
|
$ 1,803
|
|
$ (1,928)
|
|
$ (2,989)
|
|
|
|
|
|
|
|
|
Income (loss) per share – basic and diluted
|
$ 0.00
|
|
$ 0.01
|
|
$ (0.01)
|
|
$ (0.02)
|
Credit risk
Financial instruments that potentially subject us to concentrations of credit risk consist of cash and cash equivalents, deposits and restricted cash, which together totaled approximately $11.4 million at December 31, 2017. These assets include Canadian dollar and U.S. dollar denominated certificates of deposit, money market accounts and demand deposits. These instruments are maintained at financial institutions in Canada and the United States. Of the amount held on deposit, approximately $0.6 million is covered by the Canada Deposit Insurance Corporation, the Securities Investor Protection Corporation or the United States Federal Deposit Insurance Corporation which leaves approximately $10.8 million at risk at December 31, 2017 should the financial institutions with which these amounts are invested be rendered insolvent. We do not consider any of our financial assets to be impaired as of December 31, 2017.
Liquidity risk
Liquidity risk is the risk that we will not be able to meet our financial obligations as they come due.
As at December 31, 2017, the Company’s financial liabilities consisted of trade accounts payable and accrued trade and payroll liabilities of $1.2 million which are due within normal trade terms of generally 30 to 60 days, notes payable which will be payable over periods of 0 to 5 years, and asset retirement obligations with estimated completion dates until 2033.
Item 7A.
Quantitative
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk
Market risk is the risk to the Company of adverse financial impact due to changes in the fair value or future cash flows of financial instruments as a result of fluctuations in interest rates and foreign currency exchange rates. As the US$ is now the functional currency of our U.S. operations, the currency risk has been significantly reduced.
Interest rate risk
Financial instruments that expose the Company to interest rate risk are its cash equivalents, deposits, restricted cash and debt financings. Our objectives for managing our cash and cash equivalents are to maintain sufficient funds on hand at all times to meet day to day requirements and to place any amounts which are considered in excess of day to day requirements on short-term deposit with the Company's financial institutions so that they earn interest.
Currency risk
We maintain a balance of less than $0.3 million in foreign currency resulting in a low currency risk.
Commodity Price Risk
The Company is subject to market risk related to the market price of uranium. We have multiple uranium supply contracts with pricing fixed or based on inflation factors applied to a fixed base. Additional future sales would be impacted by both spot and long-term uranium price fluctuations. Historically, uranium prices have been subject to fluctuation, and the price of uranium has been and will continue to be affected by numerous factors beyond our control, including the demand for nuclear power, political and economic conditions, and governmental legislation in uranium producing and consuming countries and production levels and costs of production of other producing companies. The spot market price for uranium has demonstrated a large range since January 2001. Prices have risen from $7.10 per pound at January 2001 to a high of $136.00 per pound as of June 2007. The spot market price was $21.63 per pound as of February 26, 2018.
Transactions with Related Parties
During the fiscal year ended December 31, 2017, we did not participate in any reportable transactions with related parties.
Proposed Transactions
As is typical of the mineral exploration and development industry, we will consider and review potential merger, acquisition, investment and venture transactions and opportunities that could enhance shareholder value.
New accounting pronouncements which may affect future reporting
In May 2014, the FASB issued ASU 2014-09, “
Revenue
from Contracts with Customers (Topic 606)
.” The amendments in ASU 2014-09 affect any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (
e.g.,
insurance contracts or lease contracts). This ASU will supersede the
revenue
recognition
requirements in Topic 605,
Revenue
Recognition
, and most industry-specific guidance, and creates a Topic 606
Revenue
from Contracts with Customers. The core principle of the guidance is that an entity should recognize
revenue
to depict the transfer of the promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is not permitted. We have reviewed our contracts as well as our procedures and do not anticipate any changes in the manner or timing with which we reflect our revenues.
In January 2016, the FASB issued ASU 2016-1,
Recognition and Measurement of Financial Assets and Financial Liabilities (Topic 825)
. The amendments in this ASU supersede the guidance to classify equity securities with readily determinable fair values into different categories (that is, trading or available-for-sale) and require equity securities (including other ownership interests, such as partnerships, unincorporated joint ventures, and limited liability companies) to be measured at fair value with changes in the fair value recognized through net income. The amendments allow equity investments that do not have readily determinable fair values to be remeasured at fair value either upon the occurrence of an observable price change or upon identification of an impairment. The amendments also require enhanced disclosures about those investments. The amendments improve financial reporting by providing relevant information about an entity’s equity investments and reducing the number of items that are recognized in other comprehensive income. This guidance is effective for annual reporting beginning after December 15, 2017, including interim periods within the year of adoption, and calls for prospective application, with early application permitted. Accordingly, the standard is effective for us beginning in the first quarter of fiscal 2018. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
, which requires lessees to recognize all leases, including operating leases, unless the lease is a short-term lease. ASU 2016-02 also requires additional disclosures regarding leasing arrangements. ASU 2016-02 is effective for interim periods and fiscal years beginning after December 15, 2018, and early application is permitted. Now, the only leases we hold are for equipment, office space in one location and a limited number of leases on selected mineral properties. We do not anticipate the additional disclosures to reflect those leases will have an impact on our statement of financial position, as the total future lease payments are not material.
New accounting pronouncements which were implemented this year
In July 2015, the FASB issued ASU No.
2015-11
,
Inventory
(Topic 330): Simplifying the Measurement of Inventory
.
ASU
2015-11
requires that inventory within the scope of this ASU be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments apply to all inventory, measured using average cost which is how the Company measures inventory. For all entities, the guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016. This is consistent with our past policies and had no financial or reporting impact when implemented during the first quarter.
In March 2016, the FASB issued
ASU
No.
2016-09
,
Compensation-Stock Compensation - Improvements to Employee Share-Based Payment Accounting (Topic 718)
, which involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Under the new standard, income tax benefits and deficiencies are to be recognized as income tax expense or benefit in the income statement and the tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity should also recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. Excess tax benefits should be classified along with other income tax cash flows as an operating activity. Regarding forfeitures, the entity may make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. This
ASU
is effective for fiscal years beginning after December 15, 2016 including interim periods within that reporting period. We currently recognize no income tax expense or benefit due to significant income tax credits and net operating losses which are fully reserved under a valuation allowance. There was therefore no effect on our accounting or reporting at the time of implementation earlier this year. We have made the election to continue to recognize losses from forfeitures at inception rather than when they vest or occur.
In November 2016, the FASB issued
ASU
No.
2016-18
,
Statement of Cash Flows – Restricted Cash a consensus of the FASB Emerging Task Force (Topic 230)
, which addresses the presentation of restricted cash in the statement of cash flows. Under the new standard, restricted cash will be presented with cash and cash equivalents in the statement of cash flows instead of being reflect as non-cash investing or financing activities. A reconciliation of the make-up of the end ending cash, cash equivalent and restricted cash balance will be required for entities who reflect restricted cash as separate items on the statement of financial position. In addition, a description of the restrictions on the cash will be required. This
ASU
is effective for fiscal years beginning after December 15, 2017 including interim periods within that reporting period, however early adoption is permitted. We elected to adopt this standard as of the first quarter. Accordingly, the cash balances reflected in the Statement of Cash Flows have been increased by $7.6 million which has been the restricted cash balance since December 31, 2015. In addition, we have added note 14 – Supplemental Information to the Statement of Cash Flows which reconciles the cash balances shown on the Statement of Cash Flows with the appropriate balances on the Balance Sheet.
Critical Accounting Policies and Estimates
We have established the existence of mineral resources at the Lost Creek Project, but because of the unique nature of in situ recovery mines, we have not established, and have no plans to establish the existence of proven and probable reserves at this project.
Mineral Properties
Acquisition costs of mineral properties are capitalized. When production is attained at a property, these costs will be amortized over a period of estimated benefit.
As of December 31, 2017, the current and long-term prices of uranium were $23.75 and $31.00, respectively. This compares to prices of $20.25 and $30.00 as of December 31, 2016. Senior management updates production, revenue and cash projections on a regular basis, in some cases weekly, but at least monthly. The Company reviews the impairment indicators outlined in US GAAP guidance. The sole indication of possible impairment was the decline in industry-wide reported sales price. While this has no immediate effect on the Company since it has sales contracts until 2021, a cash flow analysis for each of Lost Creek and Shirley Basin was performed. The mine life used was consistent with that reported in the respective NI 43‑101 Preliminary Economic Assessment for each property. Cash flows were calculated on a sales price of $31.00 per pound which was the long-term quoted price in industry periodicals as of December 31, 2017. Based on these undiscounted cash flow models, no impairments were indicated for any of the respective properties.
For other properties which have reported mineral resources supported by NI 43-101 Technical Reports, we applied the estimated market pricing to the mineral resource estimates as well as realization percentages which were taken from a previous valuation completed by a third party with respect to the Lost Creek Project in conjunction with obtaining our Wyoming bond.
Our remaining properties, which have no established mineral resource, continue to be carried at their acquisition cost.
Development costs including, but not limited to, production wells, header houses, piping and power will be expensed as incurred as we have no proven and probable reserves.
Exploration, evaluation and development costs
Exploration and evaluation expenses consist of labor, annual exploration lease and maintenance fees and associated costs of the exploration geology department as well as land holding and exploration costs including drilling and analysis on properties which have not reached the permitting or operations stage. Development expense relates to the Company’s Lost Creek, LC East and Shirley Basin projects, which are more advanced in terms of permitting and preliminary economic assessments. Development expenses include all costs associated with exploring, delineating and permitting new or expanded mine units, the costs associated with the construction and development of permitted mine units including wells, pumps, piping, header houses, roads and other infrastructure related to the preparation of a mine unit to begin extraction operations as well as the cost of drilling and completing disposal wells.
Capital assets
Property, plant and equipment assets, including machinery, processing equipment, enclosures, vehicles and expenditures that extend the life of such assets, are recorded at cost including acquisition and installation costs. The enclosure costs include both the building housing and the processing equipment necessary for the extraction of uranium from impregnated water pumped in from the wellfield to the packaging of uranium yellowcake for delivery into sales. These enclosure costs are combined as the equipment and related installation associated with the equipment is an integral part of the structure itself. The costs of self-constructed assets include direct construction costs, direct overhead and allocated interest during the construction phase. Depreciation is calculated
using a declining balance method
for most assets with the exception of the plant enclosure and related
equipment. Depreciation on the plant enclosure and related equipment is calculated on a straight-line basis. Estimated lives for depreciation purposes range from three years for computer equipment and software to 20 years for the plant enclosure and the name plate life of the related equipment.
Depreciation
The depreciable life of the Lost Creek plant, equipment and enclosure was determined to be the nameplate life of the equipment housed in the processing plant as plans exist to continue to process materials from other sources such as Shirley Basin beyond the estimated production at the Lost Creek Project.
Inventory and Cost of Sales
Our inventories are measured at the lower of cost and net realizable value based on projected revenues from the sale of that product. We are allocating all costs of operations of the Lost Creek facility to the inventory valuation at various stages of production with the exception of wellfield and disposal well costs which are treated as development expenses when incurred. Depreciation of facility enclosures, equipment and asset retirement obligations as well as amortization of the acquisition cost of the related property is also included in the inventory valuation. We do not allocate any administrative or other overhead to the cost of the product.
Because of the nature of in situ operations, it is not economically feasible to accurately measure the amount of in-process inventory at any given time. We use a combination of calculating estimated uranium captured per sampling applied to total water processing flow to determine the estimated pounds captured.
Share-Based Compensation
We are required to initially record all equity instruments including warrants, restricted share units and stock options at fair value in the financial statements.
Management utilizes the Black-Scholes model to calculate the fair value of the warrants and stock options at the time they are issued. Use of the Black-Scholes model requires management to make estimates regarding the expected volatility of the Company’s stock over the future life of the equity instrument, the estimate of the expected life of the equity instrument and the number of options that are expected to be forfeited. Determination of these estimates requires significant judgment and requires management to formulate estimates of future events based on a limited history of actual results.
Income taxes
The Company accounts for income taxes under the asset and liability method which requires the recognition of future income tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities. The Company provides a valuation allowance on future tax assets unless it is more likely than not that such assets will be realized.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Consolidated Financial Statements following the signature page of this Form 10-K.
Item 9. CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9A. Controls and Procedures
|
(a)
|
|
Evaluation of Disclosure Controls and Procedures
|
As of the fiscal year ended December 31, 2017, under the supervision of the Chief Executive Officer and the Chief Financial Officer, the Company evaluated the effectiveness of its disclosure controls and procedures, as such term is defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective to ensure that information the Company is required to disclose in reports that are filed or submitted under the Exchange Act: (1) is recorded, processed and summarized effectively and reported within the time periods specified in SEC rules and forms, and (2) is accumulated and communicated to Company management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. The Company’s disclosure controls and procedures include components of internal control over financial reporting. No matter how well designed and operated, internal controls over financial reporting can provide only reasonable, but not absolute, assurance that the control system's objectives will be met.
(b)
Management’s Report on Internal Control over Financial Reporting
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, the Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with US GAAP.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As of December 31, 2017, management conducted an assessment of the effectiveness of the Company's internal control over financial reporting based on the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on its assessment using those criteria, management concluded that the Company maintained effective internal control over financial reporting as of December 31, 2017. The effectiveness of the Company’s internal control over financial reporting at December 31, 2017, has been audited by PricewaterhouseCoopers LLP, as stated in their report.
(c)
Attestation Report of Registered Public Accounting Firm
PricewaterhouseCoopers LLP’s attestation report on our internal control over financial reporting is included as part of Item 8. Financial Statements and Supplementary Data herein.
(d)
Changes in
Internal Controls over Financial Reporting
No changes in our internal control over financial reporting occurred during the year ended December 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANC
E
Information relating to this item will be included in an amendment to this report or in the proxy statement for our 2018 Annual Meeting of Shareholders and is incorporated by reference in this report.
Code of Ethics
We have adopted a Code of Ethics (“Code”) which applies to all employees, officers and directors. The full text of the Code is available on our website at http://www.ur-energy.com/corporate-governance/. We will post any amendments to, or waivers from, the Code on our corporate website or by filing a Current Report on Form 8‑K.
Item 11. EXECUTIVE COMPENSATIO
N
Information relating to this item will be included in an amendment to this report or in the proxy statement for our 2018 Annual Meeting of Shareholders and is incorporated by reference in this report.
Item 12. SECURITY OWNERSHIP OF
Certain
BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information relating to this item will be included in an amendment to this report or in the proxy statement for our 2018 Annual Meeting of Shareholders and is incorporated by reference in this report.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
, AND DIRECTOR INDEPENDENCE
Information relating to this item will be included in an amendment to this report or in the proxy statement for our 2018 Annual Meeting of Shareholders and is incorporated by reference in this report.
Item 14. PRINCIPAL ACCOUN
Ting
FEES AND SERVICE
S
Information relating to this item will be included in an amendment to this report or in the proxy statement for our 2018 Annual Meeting of Shareholders and is incorporated by reference in this report.
PART I
V
Item 15. Exhibits, Financial statement schedule
s
Financial Statements and Financial Statement Schedules
See “Index to Consolidated financial statements” on page F-1.
|
(1)
|
|
Filed herewith under Items 1 and 2. Business and Properties.
|
ITEM 16. FORM 10-K SUMMARY
SIGNATURE
S
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
UR-ENERGY INC.
|
|
|
|
Date: March 1, 2018
|
By:
|
/s/ Jeffrey T. Klenda
|
|
|
Jeffrey T. Klenda
|
|
|
Chief Executive Officer
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
|
|
Date: March 1, 2018
|
By:
|
/s/ Jeffrey T. Klenda
|
|
|
Jeffrey T. Klenda
|
|
|
Chief Executive Officer (Principal Executive Officer)
|
|
|
|
Date: March 1, 2018
|
By:
|
/s/ Roger L. Smith
|
|
|
Roger L. Smith
|
|
|
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
|
|
|
|
Date: March 1, 2018
|
By:
|
/s/ W. William Boberg
|
|
|
W. William Boberg
|
|
|
Director
|
|
|
|
Date: March 1, 2018
|
By:
|
/s/ James M. Franklin
|
|
|
James M. Franklin
|
|
|
Director
|
|
|
|
Date: March 1, 2018
|
By:
|
/s/ Paul Macdonell
|
|
|
Paul Macdonell
|
|
|
Director
|
|
|
|
Date: March 1, 2018
|
By:
|
/s/ Thomas Parker
|
|
|
Thomas Parker
|
|
|
Director
|
|
|
|
|
|
|
Date: March 1, 2018
|
By:
|
/s/ Gary C. Hube
r
|
|
|
Gary C. Huber
|
|
|
Director
|
|
|
|
|
|
|
Date: March 1, 2018
|
By:
|
/s/ Kathy E. Walker
|
|
|
Kathy E. Walker
|
|
|
Director
|
|
|
|
Ur-Energy Inc.
Headquartered in Littleton, Colorado
Consolidated Financial Statements
December 31, 2017
(expressed in thousands of U.S. dollars unless otherwise indicated)
Report of Independent Registered Public Accounting Firm
To the Shareholders and Directors of Ur-Energy Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Ur-Energy Inc. and its subsidiaries,(together, the Company) as of December 31, 2017 and 2016, and the related consolidated statements of operations and comprehensive loss, consolidated statements of cash flows and consolidated statements of shareholder’s equity for the years then ended, including the related notes (collectively referred to as the consolidated financial statements). We also have audited the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and their results of operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in note 3 to the consolidated financial statements, the Company had changed its presentation of restricted Cash.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Pricewaterhouse Coopers LLP
Chartered Professional Accountants
Vancouver, Canada
March 2, 2018
We have served as the Company's auditor since 2004.
Ur-Energy Inc.
Consolidated Balance Sheets
(expressed in thousands of U.S. dollars)
|
|
|
|
|
December 31,
|
|
December 31,
|
|
2017
|
|
2016
|
Assets
|
|
|
|
Current assets
|
|
|
|
Cash and cash equivalents (note 4)
|
3,879
|
|
1,552
|
Accounts receivable
|
33
|
|
16
|
Inventory (note 5)
|
4,515
|
|
4,109
|
Prepaid expenses
|
741
|
|
829
|
|
9,168
|
|
6,506
|
Restricted cash
(note 6)
|
7,558
|
|
7,557
|
Mineral properties
(note 7)
|
44,677
|
|
47,029
|
Capital assets
(note 8)
|
26,961
|
|
28,848
|
|
79,196
|
|
83,434
|
|
88,364
|
|
89,940
|
Liabilities and shareholders' equity
|
|
|
|
Current liabilities
|
|
|
|
Accounts payable and accrued liabilities (note 9)
|
3,039
|
|
3,625
|
Current portion of notes payable (note 10)
|
4,774
|
|
4,502
|
Environmental remediation accrual
|
72
|
|
85
|
|
7,885
|
|
8,212
|
Notes payable
(note 10)
|
14,662
|
|
19,435
|
Asset retirement obligations
(note 12)
|
27,036
|
|
26,061
|
|
49,583
|
|
53,708
|
Shareholders' equity
(note 13)
|
|
|
|
Share Capital
|
|
|
|
Class A preferred shares, without par value, unlimited shares authorized; no shares issued and outstanding
|
-
|
|
-
|
Common shares, without par value, unlimited shares authorized; shares issued and outstanding: 146,531,933 at December 30, 2017 and 143,676,384 at December 31, 2016
|
177,063
|
|
174,902
|
Warrants
|
4,109
|
|
4,109
|
Contributed surplus
|
15,454
|
|
15,201
|
Accumulated other comprehensive income
|
3,663
|
|
3,604
|
Deficit
|
(161,508)
|
|
(161,584)
|
|
38,781
|
|
36,232
|
|
88,364
|
|
89,940
|
The accompanying notes are an integral part of these consolidated financial statements.
Approved by the Board of Directors
|
|
|
/s/ Jeffrey T. Klenda, Chairman
|
|
/s/ Thomas H. Parker, Director
|
Ur-Energy Inc.
Consolidated Statements of Operations and Comprehensive Loss
(expressed in thousands of U.S. dollars except for share data)
|
|
|
|
|
|
|
Year ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
|
|
|
|
|
|
Sales (note 14)
|
38,368
|
|
27,305
|
|
41,877
|
Cost of sales
|
(24,401)
|
|
(15,848)
|
|
(29,292)
|
Gross profit
|
13,967
|
|
11,457
|
|
12,585
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
Exploration and evaluation
|
(2,623)
|
|
(2,964)
|
|
(2,853)
|
Development
|
(4,340)
|
|
(2,886)
|
|
(5,358)
|
General and administrative
|
(5,090)
|
|
(4,740)
|
|
(5,715)
|
Accretion of asset retirement obligations (note 12)
|
(527)
|
|
(534)
|
|
(515)
|
Write-off of mineral properties (note 7)
|
-
|
|
(62)
|
|
-
|
Income (loss) from operations
|
1,387
|
|
271
|
|
(1,856)
|
Interest expense (net)
|
(1,377)
|
|
(1,977)
|
|
(2,557)
|
Warrant mark to market adjustment
|
-
|
|
36
|
|
307
|
Loss on equity investment
|
(5)
|
|
(5)
|
|
(8)
|
Write-off of equity investments
|
-
|
|
(1,089)
|
|
-
|
Foreign exchange loss
|
(50)
|
|
(278)
|
|
(1)
|
Other income
|
121
|
|
15
|
|
5
|
|
|
|
|
|
|
Income (loss) before income taxes
|
76
|
|
(3,027)
|
|
(4,110)
|
|
|
|
|
|
|
Income tax recovery (net) (note 11)
|
-
|
|
17
|
|
3,315
|
Net income (loss) for the period
|
76
|
|
(3,010)
|
|
(795)
|
|
|
|
|
|
|
Income (loss) per common share
|
|
|
|
|
|
Basic
|
0.00
|
|
(0.02)
|
|
(0.01)
|
Diluted
|
0.00
|
|
(0.02)
|
|
(0.01)
|
Weighted average number of common shares outstanding
|
|
|
|
|
|
Basic
|
145,818,394
|
|
141,999,537
|
|
130,056,932
|
Diluted
|
147,533,966
|
|
141,999,537
|
|
130,056,932
|
|
|
|
|
|
|
COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
Net income (loss) for the period
|
76
|
|
(3,010)
|
|
(795)
|
Other Comprehensive income (loss), net of tax
|
|
|
|
|
|
Translation adjustment on foreign operations
|
59
|
|
247
|
|
20
|
Comprehensive income (loss) for the period
|
135
|
|
(2,763)
|
|
(775)
|
The accompanying notes are an integral part of these consolidated financial statements.
Ur-Energy Inc.
Consolidated Statements of Shareholders’ Equity
(expressed in thousands of U.S. dollars except for share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Capital Stock
|
|
|
|
Contributed
|
|
Comprehensive
|
|
|
|
Shareholders'
|
|
Shares
|
|
Amount
|
|
Warrants
|
|
Surplus
|
|
Income
|
|
Deficit
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
#
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2014
|
129,365,076
|
|
168,118
|
|
4,175
|
|
14,250
|
|
3,337
|
|
(157,779)
|
|
32,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
608,531
|
|
626
|
|
-
|
|
(216)
|
|
-
|
|
-
|
|
410
|
Redemption of vested RSUs
|
215,168
|
|
167
|
|
-
|
|
(295)
|
|
-
|
|
-
|
|
(128)
|
Non-cash stock compensation
|
-
|
|
-
|
|
-
|
|
893
|
|
-
|
|
-
|
|
893
|
Net loss and comprehensive income
|
-
|
|
-
|
|
-
|
|
-
|
|
20
|
|
(795)
|
|
(775)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2015
|
130,188,775
|
|
168,911
|
|
4,175
|
|
14,632
|
|
3,357
|
|
(158,574)
|
|
32,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
16,620
|
|
13
|
|
-
|
|
(4)
|
|
-
|
|
-
|
|
9
|
Common shares issued for cash, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of $884 of issue costs
|
13,085,979
|
|
5,684
|
|
-
|
|
-
|
|
-
|
|
-
|
|
5,684
|
Redemption of vested RSUs
|
385,010
|
|
294
|
|
-
|
|
(350)
|
|
-
|
|
-
|
|
(56)
|
Expiry of warrants
|
-
|
|
-
|
|
(66)
|
|
66
|
|
-
|
|
-
|
|
-
|
Non-cash stock compensation
|
-
|
|
-
|
|
-
|
|
857
|
|
-
|
|
-
|
|
857
|
Net loss and comprehensive income
|
-
|
|
-
|
|
-
|
|
-
|
|
247
|
|
(3,010)
|
|
(2,763)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2016
|
143,676,384
|
|
174,902
|
|
4,109
|
|
15,201
|
|
3,604
|
|
(161,584)
|
|
36,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
871,717
|
|
795
|
|
-
|
|
(253)
|
|
-
|
|
-
|
|
542
|
Common shares issued for cash, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of $93 of issue costs
|
1,536,169
|
|
1,076
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1,076
|
Redemption of vested RSUs
|
447,663
|
|
290
|
|
-
|
|
(385)
|
|
-
|
|
-
|
|
(95)
|
Non-cash stock compensation
|
-
|
|
-
|
|
-
|
|
891
|
|
-
|
|
-
|
|
891
|
Net income and comprehensive income
|
-
|
|
-
|
|
-
|
|
-
|
|
59
|
|
76
|
|
135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2017
|
146,531,933
|
|
177,063
|
|
4,109
|
|
15,454
|
|
3,663
|
|
(161,508)
|
|
38,781
|
The accompanying notes are an integral part of these consolidated financial statements
Ur-Energy Inc.
Consolidated Statements of Cash Flow
(expressed in thousands of U.S. dollars)
|
|
|
|
|
|
|
Year ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
|
|
|
(Restated -
note 2)
|
|
(Restated -
note 2)
|
Cash provided by (used in)
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
Net income (loss) for the period
|
76
|
|
(3,010)
|
|
(795)
|
Items not affecting cash:
|
|
|
|
|
|
Stock based expense
|
891
|
|
857
|
|
893
|
Depreciation and amortization
|
4,890
|
|
5,144
|
|
6,504
|
Accretion of asset retirement obligations
|
527
|
|
534
|
|
515
|
Amortization of deferred loan costs
|
120
|
|
152
|
|
177
|
Provision for reclamation
|
(13)
|
|
-
|
|
-
|
Write off of equity investments
|
-
|
|
1,089
|
|
-
|
Write-off of mineral properties
|
-
|
|
62
|
|
-
|
Warrants mark to market gain
|
-
|
|
(36)
|
|
(307)
|
Gain on disposition of assets
|
(2)
|
|
(14)
|
|
(5)
|
Loss on foreign exchange
|
53
|
|
280
|
|
-
|
Other loss
|
4
|
|
5
|
|
9
|
Income tax recovery
|
-
|
|
(17)
|
|
(3,345)
|
Change in non-cash working capital items:
|
|
|
|
|
|
Accounts receivable
|
(17)
|
|
(7)
|
|
19
|
Inventory
|
(406)
|
|
(765)
|
|
1,823
|
Prepaid expenses
|
109
|
|
(111)
|
|
125
|
Accounts payable and accrued liabilities
|
(606)
|
|
(773)
|
|
(101)
|
|
5,626
|
|
3,390
|
|
5,512
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
Mineral property costs
|
(18)
|
|
-
|
|
1
|
Funding of equity investment
|
(5)
|
|
(5)
|
|
(8)
|
Proceeds from sale of property and equipment
|
-
|
|
91
|
|
26
|
Purchase of capital assets
|
(181)
|
|
(296)
|
|
(79)
|
|
(204)
|
|
(210)
|
|
(60)
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
Issuance of common shares for cash
|
1,169
|
|
6,568
|
|
-
|
Share issue costs
|
(93)
|
|
(884)
|
|
-
|
Proceeds from exercise of stock options
|
542
|
|
9
|
|
410
|
RSUs redeemed to pay withholding or paid in cash
|
(94)
|
|
(56)
|
|
(142)
|
Repayment of debt
|
(4,623)
|
|
(8,679)
|
|
(7,374)
|
|
(3,099)
|
|
(3,042)
|
|
(7,106)
|
|
|
|
|
|
|
Effects of foreign exchange rate changes on cash
|
5
|
|
(28)
|
|
(7)
|
|
|
|
|
|
|
Net change in cash, cash equivalents and restricted cash
|
2,328
|
|
110
|
|
(1,661)
|
Beginning cash, cash equivalents and restricted cash
|
9,109
|
|
8,999
|
|
10,660
|
Ending cash, cash equivalents and restricted cash (note 15)
|
11,437
|
|
9,109
|
|
8,999
|
The accompanying notes are an integral part of these consolidated financial statements
Table of Contents
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2017
(expressed in thousands of U.S. dollars unless otherwise indicated)
1.
Nature of Operations
Ur-Energy Inc. (the “Company”) was incorporated on March 22, 2004 under the laws of the Province of Ontario. The Company continued under the Canada Business Corporations Act on August 8, 2006. The Company is an exploration stage mining company, as defined by United States Securities and Exchange Commission (“SEC”) Industry Guide 7. The Company is engaged in uranium mining and recovery operations, with activities including the acquisition, exploration, development and production of uranium mineral resources located primarily in Wyoming. As of August 2013, the Company commenced uranium production at its Lost Creek Project in Wyoming.
Due to the nature of the uranium mining methods used by the Company on the Lost Creek Property, and the definition of “mineral reserves” under National Instrument 43-101 (“NI 43-101”), which uses the Canadian Institute of Mining, Metallurgy and Petroleum (“CIM”) Definition Standards, the Company has not determined whether the properties contain mineral reserves. However, the Company’s “
Amended Preliminary Economic Assessment of the Lost Creek Property, Sweetwater County, Wyoming,
” as amended in non-substantive ways, February 8, 2016 (“Lost Creek PEA”) outlines the potential viability of the Lost Creek Property. The recoverability of amounts recorded for mineral properties is dependent upon the discovery of economic resources, the ability of the Company to obtain the necessary financing to develop the properties and upon attaining future profitable production from the properties or sufficient proceeds from disposition of the properties.
2.
Liquidity Risk
Our operations are based on a small number of large sales. As a result, our cash flow and therefore our current assets and working capital may vary widely during the year based on the timing of those sales. Virtually all of our sales are under contracts which specify delivery quantities, sales prices and payment dates. The only exceptions are spot sales which we are currently only making when advantageous. As a result, we are able to perform cash management functions over the course of an entire year and are less reliant on current commodity prices and market conditions. We monitor our cash projections on a weekly basis and have used various techniques to manage our cash flows including the assignment of deliveries, as we have done in the past, negotiating changes in delivery dates, purchasing inventory at favorable prices and raising capital.
As at December 31, 2017, the Company’s financial liabilities consisted of trade accounts payable and accrued trade and payroll liabilities of $1.2 million which are due within normal trade terms of generally 30 to 60 days, notes payable of $19.3 million of which $4.7 million is due within 1 year, and asset retirement obligations with estimated completion dates until 2033.
In addition, most of our current assets except for prepaid expenses are immediately realizable, if necessary, while our current liabilities include a substantial portion that is not due for a minimum of three months to over a year which, given the existence of our contracts and set prices, allows us to plan for those payments well in advance and address shortfalls, if any, well in advance.
Table of Contents
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2017
(expressed in thousands of U.S. dollars unless otherwise indicated)
Besides operational cash flows, and our cash flow management functions referred to above, The Company has financed its operations from its inception primarily through the issuance of equity securities and debt instruments
It is possible that additional funding might be sought. Although the Company has been successful in obtaining debt and raising equity financing in the past, there can be no guarantee that such funding will be available in the future.
3.
Summary of Significant Accounting Policies
Basis of presentation
These financial statements have been prepared by management in accordance with United States generally accepted accounting principles (“US GAAP”) and include all the assets, liabilities and expenses of the Company and its wholly-owned subsidiaries Ur-Energy USA Inc.; NFU Wyoming, LLC; Lost Creek ISR, LLC; NFUR Bootheel, LLC; Hauber Project LLC; NFUR Hauber, LLC; and Pathfinder Mines Corporation. All inter-company balances and transactions have been eliminated upon consolidation. Ur-Energy Inc. and its wholly-owned subsidiaries are collectively referred to herein as the “Company.”
Exploration Stage
The Company has established the existence of uranium resources for certain uranium projects, including the Lost Creek Property. The Company has not established proven or probable reserves, as defined by the SEC under Industry Guide 7, through the completion of a final or “bankable” feasibility study for any of its uranium projects, including the Lost Creek Property. Furthermore, the Company has no plans to establish proven or probable reserves for any of its uranium projects for which the Company plans on utilizing in situ recovery (“ISR”) mining, such as the Lost Creek Property or the Shirley Basin Project. As a result, and despite the fact that the Company commenced recovery of uranium at the Lost Creek Project in August 2013, the Company remains in the Exploration Stage as defined under Industry Guide 7, and will continue to remain in the Exploration Stage until such time proven or probable mineral reserves have been established.
Since the Company commenced recovery of uranium at the Lost Creek Project without having established proven and probable reserves, any uranium resources established or extracted from the Lost Creek Project should not be in any way associated with having established proven or probable mineral reserves.
Accordingly, information concerning mineral deposits set forth herein may not be comparable to information made public by companies that have reserves in accordance with United States standards.
Use of estimates
The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The most significant estimates management makes in the preparation of
Table of Contents
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2017
(expressed in thousands of U.S. dollars unless otherwise indicated)
these consolidated financial statements relate to potential impairment in the carrying value of the Company’s long-lived assets due to depressed uranium prices or other internal or external factors, the fair value of stock-based compensation using the factors associated with the Black-Scholes calculations, estimation of the amount of recoverable uranium included in the in-process inventory, estimation of factors surrounding asset retirement obligations such as interest rates, discount rates and inflation rates, total cost and the time until the asset retirement commences and the offset of future income taxes through deferred tax assets. Actual results could differ from those estimates.
Cash and cash equivalents
Cash and cash equivalents consists of cash balances and highly liquid investments with original maturities of three months or less that are considered to be cash equivalents. Cash equivalents are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes. Restricted cash is excluded from cash and cash equivalents and is included in other long-term assets
Restricted cash
Cash which is restricted contractually or which secures various instruments including surety bonds and letters of credit securing reclamation obligations is shown as restricted cash.
Inventory
In-process inventory represents uranium that has been extracted from the wellfield and captured in the processing plant and is currently being transformed into a saleable product. Plant inventory is U
3
O
8
that is contained in yellowcake, which has been dried and packaged in drums, but not yet shipped to the conversion facility. The amount of U
3
O
8
in the plant inventory is determined by weighing and assaying the amount of U
3
O
8
packaged into drums at the plant.
Conversion facility inventory is
U
3
O
8
that has been shipped to
the conversion facility. The amount of
U
3
O
8
in the conversion facility inventory includes the amount of U
3
O
8
contained in drums shipped to the conversion facility plus or minus any final weighing and assay adjustments per the terms of the uranium supplier’s agreement with the conversion facility.
The Company’s inventories are measured at the lower of cost or net realizable value and reflect the U
3
O
8
content in various stages of the production and sales process including in-process inventory, plant inventory and conversion facility inventory. Operating supplies are expensed when purchased.
Mineral properties
Acquisition costs of mineral properties are capitalized. When production is attained,
amortization is calculated on a straight-line basis. The original estimated life for the Lost Creek project was 10 years which is being used to amortize the mineral property acquisition costs.
If properties are abandoned or sold, they are written off. If properties are considered to be impaired in value, the costs of the properties are written down to their estimated fair value at that time.
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Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2017
(expressed in thousands of U.S. dollars unless otherwise indicated)
Exploration, evaluation and development costs
Exploration and evaluation expenses consist of labor, annual lease and maintenance fees and associated costs of the exploration geology department as well as exploration costs including drilling and analysis on properties which have not reached the permitting or operations stage.
Development expense relates to the Company’s Lost Creek, LC East and Shirley Basin projects, which are more advanced in terms of permitting and preliminary economic assessments. Development expenses include all costs associated with exploring, delineating and permitting within those projects, the costs associated with the construction and development of permitted mine units including wells, pumps, piping, header houses, roads and other infrastructure related to the preparation of a mine unit to begin extraction operations as well as the cost of drilling and completing disposal wells.
Capital assets
Property, plant and equipment assets, including machinery, processing equipment, enclosures, vehicles and expenditures that extend the life of such assets, are recorded at cost including acquisition and installation costs. The enclosure costs include both the building housing and the processing equipment necessary for the extraction of uranium from impregnated water pumped in from the wellfield to the packaging of uranium yellowcake for delivery into sales. These enclosure costs are combined as the equipment and related installation associated with the equipment is an integral part of the structure itself.
The costs of self-constructed assets include direct construction costs, direct overhead and allocated interest during the construction phase. Depreciation is calculated
using a declining balance method
for most assets with the exception of the plant enclosure and related equipment. Depreciation on the plant enclosure and related equipment is calculated on a straight-line basis. Estimated lives for depreciation purposes range from three years for computer equipment and software to 20 years for the plant enclosure and the name plate life of the related equipment.
Impairment of long-lived assets
The Company assesses the possibility of impairment in the net carrying value of its long-lived assets when events or circumstances indicate that the carrying amounts of the asset or asset group may not be recoverable. When potential impairment is indicated, management calculates the estimated undiscounted future net cash flows relating to the asset or asset group using estimated future prices, recoverable resources, and operating, capital and reclamation costs. When the carrying value of an asset exceeds the related undiscounted cash flows, the asset is written down to its estimated fair value, which is determined using discounted future cash flows or other measures of fair value.
Asset retirement obligations
For mining properties, various federal and state mining laws and regulations require the Company to reclaim the surface areas and restore groundwater quality to the pre-existing quality or class of use after the completion of mining. The Company
records the fair value of an asset retirement obligation as a liability in the period in which it incurs an obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and/or normal use of the assets.
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Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2017
(expressed in thousands of U.S. dollars unless otherwise indicated)
Asset retirement obligations consist of estimated final well closures, plant closure and removal and associated reclamation and restoration costs to be incurred by the Company in the future. The estimated fair value of the asset retirement obligation is based on the current cost escalated at an inflation rate and discounted at a credit adjusted risk-free rate. This liability is capitalized as part of the cost of the related asset and amortized over its useful life. The liability accretes until the Company settles the obligation.
Revenue recognition
The recognition of revenue from the sale of U
3
O
8
is in accordance with the guidelines outlined in ASC Section 605-10-25, Revenue Recognition. The Company delivers U
3
O
8
to a conversion facility and receives credit for the delivery quantity, measured in pounds, less a reserve for variances in the quantity and quality of the product delivered. Once the product is assayed, the credit is adjusted to the full amount calculated. When a delivery is approved, the Company notifies the conversion facility with instructions for a title transfer to the customer. Revenue is recognized once a title transfer of the U
3
O
8
is confirmed by the conversion facility.
Occasionally, the Company sells delivery commitments to an independent trader. The proceeds are recorded as deferred revenue until the trader or purchaser acknowledges the deliveries had been made, at which time the portion of the sale relating to those deliveries is taken into sales revenue. The Company sold two delivery commitments to an independent trader in 2016. The corresponding deliveries were made in 2016 and the income recognized in that year.
Stock-based compensation
Stock-based compensation cost from the issuance of stock options and restricted share units (“RSUs”) is measured at the grant date based on the fair value of the award and is recognized over the related service period. Stock-based compensation cost is charged to construction, exploration and evaluation, development, and general and administrative expense on the same basis as other compensation costs.
Income taxes
The Company accounts for income taxes under the asset and liability method which requires the recognition of deferred income tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities. The Company provides a valuation allowance on deferred tax assets unless it is more likely than not that such assets will be realized.
Earnings and loss per share calculations
Diluted earnings per common share are calculated by including all options which are in-the-money based on the average stock price for the period as well as RSUs which were outstanding at the end of the quarter. The treasury stock method was applied to determine the dilutive number of options. Warrants are included only if the exercise price is less than the average stock price for the quarter. In periods of loss, the diluted loss per common share is equal to the basic loss per common share due to the anti-dilutive effect of all convertible securities.
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Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2017
(expressed in thousands of U.S. dollars unless otherwise indicated)
Classification of financial instruments
The Company’s financial instruments consist of cash, short-term investments, accounts receivable, restricted cash, deposits, accounts payable and accrued liabilities, other liabilities and notes payable. The Company has made the following classifications for these financial instruments:
|
·
|
|
Cash, accounts receivable, restricted cash and deposits are recorded at amortized cost. Interest income is recorded using the effective interest rate method and is included in income for the period.
|
|
·
|
|
Accounts payable and accrued liabilities and notes payable are measured at amortized cost.
|
|
·
|
|
Other liabilities, which related to the derivative on the warrant issued in U.S. dollars, are adjusted to the market value at the end of each reporting period.
|
New accounting pronouncements which may affect future reporting
In May 2014, the FASB issued ASU 2014-09, “
Revenue
from Contracts with Customers (Topic 606)
.” The amendments in ASU 2014-09 affect any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (
e.g.,
insurance contracts or lease contracts). This ASU will supersede the
revenue
recognition
requirements in Topic 605,
Revenue
Recognition
, and most industry-specific guidance, and creates a Topic 606
Revenue
from Contracts with Customers. The core principle of the guidance is that an entity should recognize
revenue
to depict the transfer of the promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is not permitted. We have reviewed our contracts as well as our procedures and do not anticipate any changes in the manner or timing with which we reflect our revenues.
In January 2016, the FASB issued ASU 2016-1,
Recognition and Measurement of Financial Assets and Financial Liabilities (Topic 825)
. The amendments in this ASU supersede the guidance to classify equity securities with readily determinable fair values into different categories (that is, trading or available-for-sale) and require equity securities (including other ownership interests, such as partnerships, unincorporated joint ventures, and limited liability companies) to be measured at fair value with changes in the fair value recognized through net income. The amendments allow equity investments that do not have readily determinable fair values to be remeasured at fair value either upon the occurrence of an observable price change or upon identification of an impairment. The amendments also require enhanced disclosures about those investments. The amendments improve financial reporting by providing relevant information about an entity’s equity investments and reducing the number of items that are recognized in other comprehensive income. This guidance is effective for annual reporting beginning after December 15, 2017, including interim periods within the year of adoption, and calls for prospective application, with early application permitted. Accordingly, the standard is effective for us beginning in the first quarter of fiscal 2018. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.
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Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2017
(expressed in thousands of U.S. dollars unless otherwise indicated)
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
, which requires lessees to recognize all leases, including operating leases, unless the lease is a short-term lease. ASU 2016-02 also requires additional disclosures regarding leasing arrangements. ASU 2016-02 is effective for interim periods and fiscal years beginning after December 15, 2018, and early application is permitted. Now, the only leases we hold are for equipment, office space in one location and a limited number of leases on select mineral properties. We do not anticipate the additional disclosures to reflect those leases will have an impact on our statement of financial position, as the total future lease payments are not material.
New accounting pronouncements which were implemented this year
In July 2015, the FASB issued ASU No.
2015-11
,
Inventory
(Topic 330): Simplifying the Measurement of Inventory
.
ASU
2015-11
requires that inventory within the scope of this ASU be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments apply to all inventory, measured using average cost which is how the Company measures inventory. For all entities, the guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2016. This is consistent with our past policies and had no financial or reporting impact when implemented during the first quarter of 2017.
In March 2016, the FASB issued
ASU
No.
2016-09
,
Compensation-Stock Compensation - Improvements to Employee Share-Based Payment Accounting (Topic 718)
, which involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Under the new standard, income tax benefits and deficiencies are to be recognized as income tax expense or benefit in the income statement and the tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity should also recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. Excess tax benefits should be classified along with other income tax cash flows as an operating activity. Regarding forfeitures, the entity may make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. This
ASU
is effective for fiscal years beginning after December 15, 2016 including interim periods within that reporting period. We currently recognize no income tax expense or benefit due to significant income tax credits and net operating losses which are fully reserved under a valuation allowance. There was therefore no effect on our accounting or reporting at the time of implementation earlier this year. We have made the election to continue to recognize losses from forfeitures at inception rather than when they vest or occur.
In November 2016, the FASB issued
ASU
No.
2016-18
,
Statement of Cash Flows – Restricted Cash a consensus of the FASB Emerging Task Force (Topic 230)
, which addresses the presentation of restricted cash in the statement of cash flows. Under the new standard, restricted cash will be presented with cash and cash equivalents in the statement of cash flows instead of being reflected as non-cash investing or financing activities. A reconciliation of the make-up of the ending cash, cash equivalent and restricted cash balance will be required for entities who reflect restricted cash as separate items on the statement of financial position. In addition, a description of the restrictions on the cash will be required. This
ASU
is effective for fiscal years beginning after December 15, 2017 including interim periods within that reporting period, however early adoption is permitted. We elected to adopt this standard as of the first quarter of 2017. Accordingly, the cash balances
Table of Contents
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2017
(expressed in thousands of U.S. dollars unless otherwise indicated)
reflected in the Statement of Cash Flows have been increased by $7.8 million for the year ended December 31, 2017 and $7.7 million for the years ended December 31, 2016 and 2015. In addition, we have added note 15 – Supplemental Information for the Statement of Cash Flows which reconciles the cash balances shown on the Statement of Cash Flows with the appropriate balances on the Balance Sheet.
4.
Cash and cash equivalents
The Company’s cash and cash equivalents consists of the following:
|
|
|
|
|
As at
|
|
December 31, 2017
|
|
December 31, 2016
|
|
$
|
|
$
|
Cash on deposit at banks
|
1,667
|
|
580
|
Money market funds
|
2,212
|
|
972
|
|
|
|
|
|
3,879
|
|
1,552
|
5.
Inventory
The Company’s inventory consists of the following:
|
|
|
|
|
As at
|
|
December 31, 2017
|
|
December 31, 2016
|
|
$
|
|
$
|
In-process inventory
|
315
|
|
897
|
Plant inventory
|
369
|
|
461
|
Conversion facility inventory
|
3,831
|
|
2,751
|
|
|
|
|
|
4,515
|
|
4,109
|
As of December 31, 2017, inventory was carried at net realizable value. The cost of inventory is recognized as an expense when the corresponding sale is made and the costs are included in Cost of Sales. Adjustments to inventory to reflect the net realizable value are also included in Cost of Sales. For the year 2017, there was a write down of $2.6 million.
Table of Contents
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2017
(expressed in thousands of U.S. dollars unless otherwise indicated)
6.
Restricted Cash
The Company’s restricted cash consists of the following:
|
|
|
|
|
|
|
|
|
As at
|
|
December 31, 2017
|
|
December 31, 2016
|
|
$
|
|
$
|
|
|
|
|
Money market account
|
7,458
|
|
7,457
|
Certificates of deposit
|
100
|
|
100
|
|
|
|
|
|
7,558
|
|
7,557
|
|
(a)
|
|
The bonding requirements for reclamation obligations on various properties have been agreed to by the Wyoming Department of Environmental Quality, United States Department of the Interior and United States Nuclear Regulatory Commission. The restricted money market accounts are pledged as collateral against performance surety bonds which are used to secure the potential costs of reclamation related to those properties. Surety bonds providing $27,081 of coverage towards specific reclamation obligations are collateralized by $7,444 of the restricted cash at December 31, 2017.
|
Table of Contents
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2017
(expressed in thousands of U.S. dollars unless otherwise indicated)
7.
Mineral Properties
The Company’s mineral properties consist of the following:
|
|
|
|
|
|
|
|
|
Lost Creek
|
|
Pathfinder
|
|
Other U.S.
|
|
|
|
Property
|
|
Mines
|
|
Properties
|
|
Total
|
|
$
|
|
$
|
|
$
|
|
$
|
Balance, December 31, 2015
|
16,662
|
|
20,738
|
|
13,210
|
|
50,610
|
|
|
|
|
|
|
|
|
Change in estimated reclamation costs (note 12)
|
338
|
|
(872)
|
|
-
|
|
(534)
|
Property write-offs
|
-
|
|
-
|
|
(62)
|
|
(62)
|
Amortization
|
(2,985)
|
|
-
|
|
-
|
|
(2,985)
|
|
|
|
|
|
|
|
|
Balance, December 31, 2016
|
14,015
|
|
19,866
|
|
13,148
|
|
47,029
|
|
|
|
|
|
|
|
|
Acquisition costs
|
-
|
|
-
|
|
18
|
|
18
|
Change in estimated reclamation costs (note 12)
|
613
|
|
(165)
|
|
-
|
|
448
|
Amortization
|
(2,818)
|
|
-
|
|
-
|
|
(2,818)
|
|
|
|
|
|
|
|
|
Balance, December 31, 2017
|
11,810
|
|
19,701
|
|
13,166
|
|
44,677
|
United States
Lost Creek Property
The Company acquired certain Wyoming properties when Ur-Energy USA Inc. entered into the Membership Interest Purchase Agreement (“MIPA”) with New Frontiers Uranium, LLC in 2005. Under the terms of the MIPA, the Company purchased 100% of NFU Wyoming, LLC. Assets acquired in this transaction include the Lost Creek Project, other Wyoming properties and development databases. NFU Wyoming, LLC was acquired for aggregate consideration of $20 million plus interest. Since 2005, the Company has increased its holdings adjacent to the initial Lost Creek acquisition through staking additional claims and additional property purchases and leases.
There is a royalty on each of the State of Wyoming sections under lease at the Lost Creek, LC West and EN Projects, as required by law. Other royalties exist on certain mining claims at the LC South, LC East and EN Projects. There are no royalties on the mining claims in the LC North or LC West Projects.
In September 2013, after the Company commenced mineral extraction and production at the Lost Creek Project, it began amortizing the related mineral properties on a straight-line basis.
Table of Contents
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2017
(expressed in thousands of U.S. dollars unless otherwise indicated)
Pathfinder Mines Corporation
The Company acquired additional Wyoming properties when Ur-Energy USA Inc. closed a Share Purchase Agreement (“SPA”) with an AREVA Mining affiliate in December 2013. Under the terms of the SPA, the Company purchased Pathfinder Mines Corporation (“Pathfinder”) to acquire additional mineral properties. Assets acquired in this transaction include the Shirley Basin mine, portions of the Lucky Mc mine, machinery and equipment, vehicles, office equipment and development databases. Pathfinder was acquired for aggregate consideration of $6.7 million, a 5% production royalty under certain circumstances and the assumption of $5.7 million in estimated asset reclamation obligations.
The purchase price allocation attributed $5.7 million to asset retirement obligations, $3.3 million to deferred tax liabilities, $15.3 million to mineral properties and the balance to the remaining assets and liabilities. The royalty expired on June 30, 2016.
Other U.S. properties
The other U.S. properties include the acquisition cost of several potential mineralized properties including the Lost Soldier Project. The Company continues to maintain those properties through claim payments, lease payments, insurance and other holding costs in anticipation of future exploration efforts.
In June 2016, the Company decided to abandon its claims in the Hauber Project and wrote off $62 thousand being the carrying value of the investment in that project.
Impairment testing
The Company reviews the impairment indicators outlined in US GAAP guidance. In 2017, the sole indication of possible impairment was the continuing weakness in industry-wide reported sales prices despite a slight increase in prices for the year. While this price has no immediate effect on the Company since it has sales contracts until 2021, a cash flow analyses for each of Lost Creek and Shirley Basin was performed. The mine life used was consistent with that reported in the respective NI 43-101 Preliminary Economic Assessment for each property. Cash flows were calculated using a sales price of $31 per pound which was the long-term quoted price in industry periodicals as of December 31, 2017. Based on these undiscounted cash flow models, the assets will be recovered and no impairments were indicated for any of the respective properties.
For other properties which have reported mineral resources supported by NI 43-101 Technical Reports, we applied the estimated market pricing to the mineral resource estimates as well as realization percentages which were taken from a previous valuation completed by a third party with respect to the Lost Creek Project in conjunction with obtaining our Wyoming bond loan.
Our remaining properties, which have no estimated mineral resource, continue to be carried at their acquisition costs.
The Company’s accounting policy is to expense development costs including, but not limited to, production wells, header houses, piping and power as we have no proven and probable reserves.
Table of Contents
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2017
(expressed in thousands of U.S. dollars unless otherwise indicated)
8.
Capital Assets
The Company’s capital assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
As of
|
|
December 31, 2017
|
|
December 31, 2016
|
|
|
|
Accumulated
|
|
Net Book
|
|
|
|
Accumulated
|
|
Net Book
|
|
Cost
|
|
Depreciation
|
|
Value
|
|
Cost
|
|
Depreciation
|
|
Value
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
Rolling stock
|
3,388
|
|
3,184
|
|
204
|
|
3,251
|
|
2,966
|
|
285
|
Enclosures
|
32,991
|
|
6,880
|
|
26,111
|
|
32,991
|
|
5,229
|
|
27,762
|
Machinery and equipment
|
1,237
|
|
663
|
|
574
|
|
1,262
|
|
599
|
|
663
|
Furniture, fixtures and leasehold improvements
|
119
|
|
104
|
|
15
|
|
119
|
|
98
|
|
21
|
Information technology
|
1,120
|
|
1,063
|
|
57
|
|
1,153
|
|
1,036
|
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,855
|
|
11,894
|
|
26,961
|
|
38,776
|
|
9,928
|
|
28,848
|
Total depreciation expense was $3.5 million, $3.8 million and $5.1 million for the years ended December 31, 2017, 2016 and 2015, respectively.
9.
Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
|
|
|
|
|
|
|
|
|
As at
|
|
December 31, 2017
|
|
December 31, 2016
|
|
$
|
|
$
|
Accounts payable
|
840
|
|
725
|
Payroll and other taxes
|
1,224
|
|
1,251
|
Severance and ad valorem tax payable
|
975
|
|
1,649
|
|
|
|
|
|
3,039
|
|
3,625
|
10.
Notes Payable
On October 15, 2013, the Sweetwater County Commissioners approved the issuance of a
$34.0 million Sweetwater County, State of Wyoming, Taxable Industrial Development Revenue Bond
(Lost Creek Project), Series 2013 (the “Sweetwater IDR Bond”) to the State of Wyoming, acting by and through the Wyoming State Treasurer, as purchaser. On October 23, 2013, the Sweetwater IDR Bond was issued and the proceeds were in turn loaned by Sweetwater County to Lost Creek ISR, LLC pursuant to a financing agreement dated October 23, 2013 (the “State Bond Loan”). The State Bond Loan calls for payments of interest at a fixed rate of 5.75%
Table of Contents
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2017
(expressed in thousands of U.S. dollars unless otherwise indicated)
per annum on a quarterly basis commencing January 1, 2014. The principal is payable in 28 quarterly installments commencing January 1, 2015 and continuing through October 1, 2021.
Deferred loan fees include legal fees, commissions, commitment fees and other costs associated with obtaining the various financings. Those fees amortizable within 12 months of December 31, 2017 are considered current.
The following table lists the current and long-term portion of the Company’s debt instrument at December 31, 2017 and December 31, 2016:
|
|
|
|
|
As at
|
|
December 31, 2017
|
|
December 31, 2016
|
|
$
|
|
$
|
Current debt
|
|
|
|
Sweetwater County Loan
|
4,895
|
|
4,623
|
Less deferred financing costs
|
(121)
|
|
(121)
|
|
4,774
|
|
4,502
|
|
|
|
|
Long term debt
|
|
|
|
Sweetwater County Loan
|
14,996
|
|
19,891
|
Less deferred financing costs
|
(334)
|
|
(456)
|
|
14,662
|
|
19,435
|
Schedule of payments on outstanding debt as of December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
Debt
|
Total
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
Maturity
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
Sweetwater County Loan
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
19,891
|
|
4,895
|
|
5,183
|
|
5,487
|
|
4,326
|
|
01-Oct-21
|
Interest
|
2,363
|
|
1,039
|
|
752
|
|
447
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
22,254
|
|
5,934
|
|
5,935
|
|
5,934
|
|
4,451
|
|
|
11.
Income Taxes
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cut and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code that affects 2017. The Tax Act reduces the U.S. federal corporate tax rate from 35% to 21% for tax years beginning after December 31, 2017. In addition, the Tax Act makes certain changes to the depreciation rules and implements new limits on the deductibility of certain executive compensation. The Company has evaluated these changes and has recorded a provisional decrease to net deferred tax assets of $16.5 million with a corresponding decrease to the related valuation allowance.
Table of Contents
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2017
(expressed in thousands of U.S. dollars unless otherwise indicated)
A reconciliation of income taxes at the statutory Canadian income tax rate to net income taxes included in the accompanying statements of operations is as follows:
|
|
|
|
|
|
|
Year ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
|
$
|
|
$
|
|
$
|
Income (loss) before income taxes
|
76
|
|
(3,027)
|
|
(4,110)
|
|
|
|
|
|
|
Statutory rate
|
26.50%
|
|
26.50%
|
|
26.50%
|
Expected recovery of income tax
|
20
|
|
(804)
|
|
(1,089)
|
Effect of foreign tax rate differences
|
355
|
|
(28)
|
|
(212)
|
Non-deductible amounts
|
91
|
|
154
|
|
57
|
Effect of changes in enacted future rates from Tax Reform
|
16,493
|
|
-
|
|
-
|
Effect of changes in enacted future rates
|
(499)
|
|
66
|
|
76
|
Effect of change in foreign exchange rates
|
-
|
|
-
|
|
(155)
|
Effect of stock based compensation
|
1,127
|
|
(149)
|
|
-
|
Effect of prior year true-ups and other
|
(6)
|
|
(317)
|
|
-
|
Expiration of prior year NOLs
|
-
|
|
290
|
|
-
|
Change in valuation allowance
|
(17,581)
|
|
771
|
|
(1,992)
|
|
-
|
|
(17)
|
|
(3,315)
|
Recovery of deferred income taxes
|
|
|
|
|
(3,345)
|
|
-
|
|
(17)
|
|
30
|
Deferred tax assets and liabilities reflect the net tax effects of net operating losses, credit carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. The components of the Company’s deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
As at December 31,
|
|
2017
|
|
2016
|
|
2015
|
|
$
|
|
$
|
|
$
|
Future income tax assets
|
|
|
|
|
|
Deferred tax assets
|
9,617
|
|
15,344
|
|
8,386
|
Net operating loss carry forwards
|
30,250
|
|
41,634
|
|
41,647
|
Less: valuation allowance
|
(39,867)
|
|
(56,978)
|
|
(50,033)
|
Net future income tax assets
|
-
|
|
-
|
|
-
|
Based upon the level of historical taxable loss, management believes it is more likely than not that the Company will not realize the benefits of these deductible differences and accordingly has established a full valuation allowance as of December 31, 2017, 2016 and 2015. No deferred tax assets are therefore recognized at this point.
Table of Contents
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2017
(expressed in thousands of U.S. dollars unless otherwise indicated)
|
|
|
|
|
|
Income tax recovery (expense)
|
2017
|
|
2016
|
|
2015
|
|
$
|
|
$
|
|
$
|
Recovery of deferred tax liability stemming from Pathfinder acquisition
|
-
|
|
-
|
|
3,345
|
Current income tax recovery (expense)
|
-
|
|
17
|
|
(30)
|
|
|
|
|
|
|
|
-
|
|
17
|
|
3,315
|
In 2013, we acquired Pathfinder as a corporate entity. In terms for the acquisition, there were no net operating losses or other tax attributes that carried forward to the Company with the acquisition. In addition, the assets acquired had no tax basis within the corporation. The seller also did not make the Sec. 338(h)(10) election to allow us to push the purchase price down to the asset level for tax purposes. As a result, it was determined that the acquisition should not be treated as a business combination since Pathfinder was not a going concern. A tax of $3.3 million was calculated as a potential liability of the acquisition and was recorded as a deferred tax liability and an increase in basis. For accounting/reporting purposes, this value was added to the accounting basis in the assets acquired.
In early 2015, we completed and filed the Shirley Basin PEA based on drilling data purchased as a part of the acquisition combined with data gathered during the exploration / confirmation program undertaken in 2014. After filing the Shirley Basin PEA, we continued to do baseline and confirmation work at Shirley Basin and in late 2015 we submitted a permit application to the state of Wyoming to begin construction and operations at the project. Based on the filing of those permits, we anticipate that we will be in a position to commence construction of a plant facility and the related wellfields within several years. Once operations commence, the cost of the property will be amortized over the anticipated productive life of the property for accounting and reporting purposes. At that point, the asset now has an identifiable life and the associated DTL is available to offset the DTA recorded before the application of the valuation allowance. We therefore applied a portion of the valuation allowance to the DTL arising from the Pathfinder acquisition.
As of December 31, 2017, the Company had the following net operating loss carryforwards available:
|
|
|
|
|
|
Income tax loss carry forwards
|
|
|
|
|
|
Canadian (expiring 2011 - 2031)
|
|
|
|
|
34,520,023
|
United States (expiring 2017 - 2031)
|
|
|
|
|
87,851,252
|
The Company follows a comprehensive model for recognizing, measuring, presenting and disclosing uncertain tax positions taken or expected to be taken on a tax return. Tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.
The Company currently has no uncertain tax positions and is therefore not reflecting any adjustments for such in its deferred tax assets.
Table of Contents
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2017
(expressed in thousands of U.S. dollars unless otherwise indicated)
There are open statutes of limitations for tax authorities in the U.S., Canada and state jurisdictions to audit the Company’s tax returns for the years ended December 31, 2014, 2015 and 2016.
The Company’s policy is to account for income tax related interest and penalties in income tax expense in the accompanying statements of operations. There have been no income tax related interest or penalties assessed or recorded.
Other comprehensive loss was not subject to income tax effects and is therefore shown net of taxes.
12.
Asset Retirement Obligations
Asset retirement obligations ("ARO") for the Lost Creek Project are equal to the present value of all estimated future costs required to remediate any environmental disturbances that exist as of the end of the period, using discount rates ranging from 0.1% to 3.2%.
I
ncluded in this liability are the costs of closure, reclamation, demolition and stabilization of the mine, processing plant, infrastructure, groundwater restoration and ongoing post-closure environmental monitoring and maintenance costs. At December 31, 2017, the total undiscounted amount of the future cash needs was estimated to be $15.6 million. The schedule of payments required to settle the ARO liability extends through 2033.
Asset retirement obligations for the Pathfinder properties are equal to the present value of all estimated future costs required to remediate any environmental disturbances that exist as of the end of the period, using discount rates of 2.16% to 3.0%.
I
ncluded in this liability are the costs of closure, reclamation, demolition and stabilization of the mines, processing plants, infrastructure, groundwater restoration, waste dumps and ongoing post-closure environmental monitoring and maintenance costs. At December 31, 2017, the total undiscounted amount of the future cash needs was estimated to be $11.4 million. The schedule of payments required to settle the ARO liability extends through 2033.
The undiscounted future cash needs are based on information provided to the State of Wyoming in conjunction with annual reclamation bonding renewals. Increases in the estimated future cash needs are normally based on increased disturbances projected for the upcoming year. In 2017, there was a small increase in the estimated liability on the Lost Creek Project.
Table of Contents
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2017
(expressed in thousands of U.S. dollars unless otherwise indicated)
The restricted cash as discussed in note 6 is related to surety bonds and letters of credit which provide security to the related governmental agencies on these obligations.
|
|
|
|
|
For the period ended
|
|
Year ended
|
|
December 31, 2017
|
|
December 31, 2016
|
|
|
|
|
|
$
|
|
$
|
Beginning of period
|
26,061
|
|
26,061
|
Change in estimated liability
|
448
|
|
(534)
|
Accretion expense
|
527
|
|
534
|
|
|
|
|
End of period
|
27,036
|
|
26,061
|
13.
Shareholders’ Equity and Capital Stock
Common share issuances
On August 19, 2014, we filed a universal shelf registration statement on Form S-3 in order that we may offer and sell, from time to time, in one or more offerings, at prices and terms to be determined, up to $100 million of our common shares, warrants to purchase our common shares, our senior and subordinated debt securities, and rights to purchase our common shares and/or our senior and subordinated debt securities. The registration statement became effective September 12, 2014. The 12,921,000 common shares offered in the February 2016 financing were sold for $0.50 per share raising $5.7 million (net of issue costs of $0.8 million) under the shelf registration statement.
On May 27, 2016, we entered into an At Market Issuance Sales Agreement with MLV & Co. LLC and FBR Capital Markets & Co. under which we may, from time to time, issue and sell common shares at market prices on the NYSE American or other U.S. market through the distribution agents for aggregate sales proceeds of up to $10,000,000. During 2016, we sold 164,979 common shares under the sales agreement at an average price of $0.65 per share for gross proceeds of $108 thousand. After deducting transaction fees and commissions we received net proceeds of $105 thousand. After deducting all other costs associated with the completion of the agreement and filing the related prospectus supplement, we received $13 thousand. During 2017, we sold 1,536,169 common shares under the sales agreement at an average price of $0.76 per share for gross proceeds of $1.2 million. After deducting transaction fees, commissions and all other costs associated with the completion of the agreement and filing the related prospectus supplement, we received net proceeds of $1.1 million.
During the year ended December 31, 2017, the Company exchanged 447,663 common shares for vested RSUs. In addition, 871,717 stock options were exercised for proceeds of $0.5 million.
During the year ended December 31, 2016, the Company exchanged 385,010 common shares for vested RSUs. In addition, 16,620 stock options were exercised for proceeds of less than $0.1 million.
Table of Contents
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2017
(expressed in thousands of U.S. dollars unless otherwise indicated)
During the year ended December 31, 2015, the Company exchanged 215,168 common shares for vested RSUs. In addition, 608,531 stock options were exercised for proceeds of $0.4 million.
Stock options
In 2005, the Company’s Board of Directors approved the adoption of the Company's stock option plan (the “Option Plan”). Eligible participants under the Option Plan include directors, officers, employees and consultants of the Company. Under the terms of the Option Plan, stock options generally vest with Option Plan participants as follows: 10% at the date of grant; 22% four and one-half months after grant; 22% nine months after grant; 22% thirteen and one-half months after grant; and the balance of 24% eighteen months after the date of grant. Following the May 2017 amendment of the Option Plan, grants of options will vest over a three-year period: 33.3% on the first anniversary, 33.3% on the second anniversary, and 33.4% on the third anniversary of the grant. The term of options remains unchanged.
Activity with respect to stock options is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
average
|
|
|
|
Options
|
|
exercise price
|
|
|
|
#
|
|
$
|
Outstanding, December 31, 2014
|
|
|
8,468,614
|
|
1.12
|
|
|
|
|
|
|
Granted
|
|
|
2,384,052
|
|
0.67
|
Exercised
|
|
|
(608,531)
|
|
0.66
|
Forfeited
|
|
|
(258,918)
|
|
1.09
|
Expired
|
|
|
(10,810)
|
|
0.64
|
|
|
|
|
|
|
Balance, December 31, 2015
|
|
|
9,974,407
|
|
0.88
|
|
|
|
|
|
|
Granted
|
|
|
3,062,542
|
|
0.57
|
Exercised
|
|
|
(16,620)
|
|
0.58
|
Forfeited
|
|
|
(788,883)
|
|
0.70
|
Expired
|
|
|
(2,482,512)
|
|
1.56
|
|
|
|
|
|
|
Balance, December 31, 2016
|
|
|
9,748,934
|
|
0.63
|
|
|
|
|
|
|
Granted
|
|
|
2,666,644
|
|
0.69
|
Exercised
|
|
|
(871,717)
|
|
0.62
|
Forfeited
|
|
|
(536,178)
|
|
0.64
|
Expired
|
|
|
(1,548,282)
|
|
0.71
|
|
|
|
|
|
|
Outstanding, December 31, 2017
|
|
|
9,459,401
|
|
0.70
|
Table of Contents
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2017
(expressed in thousands of U.S. dollars unless otherwise indicated)
The exercise price of a new grant is set at the closing price for the stock on the Toronto Stock Exchange (TSX) on the trading day immediately preceding the grant date so there is no intrinsic value as of the date of grant. The fair value of options vested during the year ended December 31, 2017 was $0.7 million.
As of December 31, 2017, outstanding stock options are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding
|
|
Options exercisable
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
average
|
|
|
|
|
|
average
|
|
|
|
|
|
|
|
|
remaining
|
|
Aggregate
|
|
|
|
remaining
|
|
Aggregate
|
|
|
Exercise
|
|
Number
|
|
contractual
|
|
Intrinsic
|
|
Number
|
|
contractual
|
|
Intrinsic
|
|
|
price
|
|
of options
|
|
life (years)
|
|
Value
|
|
of options
|
|
life (years)
|
|
Value
|
|
Expiry
|
$
|
|
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.61
|
|
452,656
|
|
0.3
|
|
31
|
|
452,656
|
|
0.3
|
|
31
|
|
25-Apr-18
|
0.99
|
|
100,000
|
|
0.6
|
|
-
|
|
100,000
|
|
0.6
|
|
-
|
|
01-Aug-18
|
0.96
|
|
739,976
|
|
1.0
|
|
-
|
|
739,976
|
|
1.0
|
|
-
|
|
27-Dec-18
|
1.34
|
|
100,000
|
|
1.2
|
|
-
|
|
100,000
|
|
1.2
|
|
-
|
|
31-Mar-19
|
0.81
|
|
777,896
|
|
1.9
|
|
-
|
|
777,896
|
|
1.9
|
|
-
|
|
12-Dec-19
|
0.91
|
|
200,000
|
|
2.4
|
|
-
|
|
200,000
|
|
2.4
|
|
-
|
|
29-May-20
|
0.69
|
|
640,969
|
|
2.6
|
|
-
|
|
640,969
|
|
2.6
|
|
-
|
|
17-Aug-20
|
0.64
|
|
1,047,836
|
|
2.9
|
|
45
|
|
1,047,836
|
|
2.9
|
|
45
|
|
11-Dec-20
|
0.58
|
|
2,733,424
|
|
4.0
|
|
259
|
|
1,474,324
|
|
4.0
|
|
139
|
|
16-Dec-21
|
0.81
|
|
300,000
|
|
4.2
|
|
-
|
|
162,000
|
|
4.2
|
|
-
|
|
02-Mar-22
|
0.58
|
|
200,000
|
|
4.7
|
|
19
|
|
0
|
|
-
|
|
-
|
|
07-Sep-22
|
0.72
|
|
2,166,644
|
|
5.0
|
|
-
|
|
0
|
|
-
|
|
-
|
|
15-Dec-22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.70
|
|
9,459,401
|
|
3.3
|
|
354
|
|
5,695,657
|
|
2.5
|
|
215
|
|
|
The aggregate intrinsic value of the options in the preceding table represents the total pre-tax intrinsic value for stock options with an exercise price less than the Company’s TSX closing stock price of CAD $0.86 as of the last trading day in the year ended December 31, 2017, that would have been received by the option holders had they exercised their options as of that date. There were 4,433,916 in-the-money stock options outstanding and 2,974,816 exercisable as of December 31, 2017.
Restricted share units
On June 24, 2010, the Company’s shareholders approved the adoption of the Company’s restricted share unit plan (the “RSU Plan”). The RSU Plan was approved most recently by our shareholders on May 5, 2016.
Eligible participants under the RSU Plan include directors and employees, including officers, of the Company. Under the terms of the RSU Plan, RSUs vest 100% on the second anniversary of the date of the grant. The RSU Plan also provides for redemption, instead of cancellation, of outstanding RSUs at the date of redemption for retiring directors and executive officers, which is defined as a threshold of combined service and age of 65
Table of Contents
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2017
(expressed in thousands of U.S. dollars unless otherwise indicated)
years, and a minimum of five years of service to the Company.
Upon RSU vesting, the holder of an RSU will receive one common share, for no additional consideration, for each RSU held.
Activity with respect to RSUs is summarized as follows:
|
|
|
|
|
|
|
|
|
Number
|
|
Weighted
|
|
|
|
of
|
|
average grant
|
|
|
|
RSUs
|
|
date fair value
|
|
|
|
|
|
$
|
Unvested, December 31, 2014
|
|
|
379,435
|
|
0.89
|
|
|
|
|
|
|
Granted
|
|
|
795,592
|
|
0.83
|
Vested
|
|
|
(286,223)
|
|
0.91
|
Forfeited
|
|
|
(28,709)
|
|
0.85
|
|
|
|
|
|
|
Unvested, December 31, 2015
|
|
|
860,095
|
|
0.82
|
|
|
|
|
|
|
Granted
|
|
|
715,638
|
|
0.57
|
Vested
|
|
|
(281,342)
|
|
0.81
|
Forfeited
|
|
|
(20,401)
|
|
0.65
|
|
|
|
|
|
|
Unvested, December 31, 2016
|
|
|
1,273,990
|
|
0.60
|
|
|
|
|
|
|
Granted
|
|
|
541,658
|
|
0.69
|
Vested
|
|
|
(575,818)
|
|
0.69
|
Forfeited
|
|
|
(63,878)
|
|
0.58
|
|
|
|
|
|
|
Unvested, December 31, 2017
|
|
|
1,175,952
|
|
0.65
|
As of December 31, 2017, outstanding RSUs are as follows:
|
|
|
|
|
|
|
|
|
Number of
|
|
Remaining
|
|
Aggregate
|
|
|
unvested
|
|
life
|
|
Intrinsic
|
Grant date
|
|
RSUs
|
|
(years)
|
|
Value
|
|
|
|
|
|
|
$
|
December 16, 2016
|
|
634,294
|
|
0.96
|
|
438
|
December 15, 2017
|
|
541,658
|
|
1.96
|
|
374
|
|
|
|
|
|
|
|
|
|
1,175,952
|
|
1.42
|
|
812
|
As of December 31, 2016, 8,374 RSUs had been vested and redeemed but not issued due to the timing of transferring them to the brokers designated by the related employees. They were subsequently issued in January and February 2017.
Table of Contents
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2017
(expressed in thousands of U.S. dollars unless otherwise indicated)
As of December 31, 2015, 212,803 RSUs had been vested but not redeemed. In January 2016, 197,374 were redeemed for common shares while the balance of 15,429 were retained and not redeemed to pay the related taxes due on redemption.
Warrants
The warrants were issued in Canadian dollars and have been converted to their US$ equivalent for presentation purposes. The First Loan Facility with RMB Australia Holdings account for the warrants.
Activity with respect to warrants is summarized as follows:
|
|
|
|
|
|
|
|
|
Number
|
|
Weighted-
|
|
|
|
of
|
|
average
|
|
|
|
Warrants
|
|
exercise price
|
|
|
|
|
|
$
|
Outstanding, December 31, 2014
|
|
|
8,374,112
|
|
1.20
|
|
|
|
|
|
|
Expired
|
|
|
(150,000)
|
|
0.89
|
|
|
|
|
|
|
Outstanding, December 31, 2015
|
|
|
8,224,112
|
|
1.71
|
|
|
|
|
|
|
Expired
|
|
|
(2,379,545)
|
|
1.34
|
|
|
|
|
|
|
Outstanding, December 31, 2016
|
|
|
5,844,567
|
|
1.02
|
|
|
|
|
|
|
Outstanding, December 31, 2017
|
|
|
5,844,567
|
|
0.97
|
As of December 31, 2017, outstanding warrants are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
Aggregate
|
|
|
Exercise
|
|
Number
|
|
contractual
|
|
Intrinsic
|
|
|
price
|
|
of warrants
|
|
life (years)
|
|
Value
|
|
Expiry
|
$
|
|
|
|
|
|
$
|
|
|
0.96
|
|
4,294,167
|
|
0.5
|
|
-
|
|
24-Jun-18
|
1.00
|
|
1,550,400
|
|
0.7
|
|
-
|
|
27-Aug-18
|
|
|
|
|
|
|
|
|
|
0.97
|
|
5,844,567
|
|
0.5
|
|
-
|
|
|
Share-based compensation expense
Stock-based compensation expense was $0.9 million, $0.9 million and $0.9 million for the years ended December 31, 2017, 2016 and 2015, respectively.
Table of Contents
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2017
(expressed in thousands of U.S. dollars unless otherwise indicated)
As of December 31, 2017, there was approximately $1.1 million of total unrecognized compensation expense (net of estimated pre-vesting forfeitures) related to unvested share-based compensation arrangements granted under the Option Plan and $0.6 million under the RSU Plan. The expenses are expected to be recognized over a weighted-average period of 2.3 years and 1.4 years, respectively.
Cash received from stock options exercised during the years ended December 31, 2017, 2016 and 2015 was $0.5 million, less than $0.1 million and $0.4 million, respectively.
Fair Value Calculations
The initial fair value of RSUs, options and warrants granted during the years ended December 31, 2017, 2016 and 2015 was determined using the Black-Scholes option pricing model with the following assumptions:
|
|
|
|
|
2017
|
2016
|
2015
|
|
|
|
|
Expected option life (years)
|
3.73-3.74
|
3.72
|
3.6-3.67
|
Expected volatility
|
56-57%
|
57%
|
55-57%
|
Risk-free interest rate
|
1.0%-1.6%
|
1.0%
|
0.5-0.7%
|
Forfeiture rate (options)
|
5.3%-6.0%
|
5.6%
|
4.9-5.0%
|
Forfeiture rate (RSUs)
|
6.1%
|
6.2%
|
7.2-8.3%
|
Expected dividend rate
|
0%
|
0%
|
0%
|
The Company estimates expected volatility using daily historical trading data of the Company’s common shares, because this is recognized as a valid method used to predict future volatility. The risk-free interest rates are determined by reference to Canadian Treasury Note constant maturities that approximate the expected option term. The Company has never paid dividends and currently has no plans to do so.
Share-based compensation expense is recognized net of estimated pre-vesting forfeitures, which results in recognition of expense on options that are ultimately expected to vest over the expected option term. Forfeitures were estimated using actual historical forfeiture experience.
The fair value used for each RSU issued in 2017 and 2016 was CAD$0.90 and CAD $0.73, respectively. Those issued in 2015 ranged from CAD $0.80 to CAD $1.22 per unit. Each of the issuance prices were the closing prices of the stock on the TSX as of the trading day immediately preceding the grant date.
14.
Sales
Revenue is primarily derived from the sale of U
3
O
8
to domestic utilities under contracts or spot sales. In 2016, the Company also sold deliveries under two of its contracts to a third-party trader. The income was deferred at the time and recognized when the respective deliveries were completed.
Table of Contents
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2017
(expressed in thousands of U.S. dollars unless otherwise indicated)
Revenue consists of:
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2017
|
|
2016
|
|
$
|
|
|
|
$
|
|
|
Sale of produced inventory
|
|
|
|
|
|
|
|
Company A
|
7,821
|
|
20.4%
|
|
-
|
|
0.0%
|
Company B
|
3,141
|
|
8.2%
|
|
12,741
|
|
46.7%
|
Company C
|
1,777
|
|
4.6%
|
|
-
|
|
0.0%
|
Company D
|
-
|
|
0.0%
|
|
6,375
|
|
23.3%
|
Company E
|
-
|
|
0.0%
|
|
3,075
|
|
11.2%
|
|
12,739
|
|
33.2%
|
|
22,191
|
|
81.3%
|
Sales of purchased inventory
|
|
|
|
|
|
|
|
Company B
|
10,212
|
|
26.6%
|
|
-
|
|
0.0%
|
Company C
|
15,340
|
|
40.0%
|
|
-
|
|
0.0%
|
|
25,552
|
|
66.6%
|
|
-
|
|
0.0%
|
|
|
|
|
|
|
|
|
Total sales
|
38,291
|
|
99.8%
|
|
22,191
|
|
81.3%
|
|
|
|
|
|
|
|
|
Disposal fee income
|
77
|
|
0.2%
|
|
29
|
|
0.1%
|
Recognition of revenue from sale of deliveries under assignment
|
-
|
|
0.0%
|
|
5,085
|
|
18.6%
|
|
|
|
|
|
|
|
|
|
38,368
|
|
100.0%
|
|
27,305
|
|
100.0%
|
Table of Contents
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2017
(expressed in thousands of U.S. dollars unless otherwise indicated)
15. Supplemental Information for Statement of Cash Flows
Cash per the Statement of Cash Flows consists of the following:
|
|
|
|
|
|
|
As at
|
|
December 31, 2017
|
|
December 31, 2016
|
|
December 31,
2015
|
|
$
|
|
$
|
|
$
|
Cash and cash equivalents
|
3,879
|
|
1,552
|
|
1,442
|
Restricted cash
|
7,558
|
|
7,557
|
|
7,557
|
|
|
|
|
|
|
|
11,437
|
|
9,109
|
|
8,999
|
16.
Financial instruments
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, restricted cash, deposits, accounts payable and accrued liabilities and notes payable. The Company is exposed to risks related to changes in foreign currency exchange rates, interest rates and management of cash and cash equivalents and short-term investments.
Credit risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents and restricted cash. These assets include Canadian dollar and U.S. dollar denominated certificates of deposits, money market accounts and demand deposits. These instruments are maintained at financial institutions in Canada and the United States. Of the amount held on deposit, approximately $0.6 million is covered by the Canada Deposit Insurance Corporation, the Securities Investor Protection Corporation or the United States Federal Deposit Insurance Corporation, leaving approximately $10.8 million at risk at December 31, 2017 should the financial institutions with which these amounts are invested be rendered insolvent. The Company does not consider any of its financial assets to be impaired as of December 31, 2017.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due.
The Company has financed its operations from its inception primarily through the issuance of equity securities and debt instruments. Production commenced in August 2013 after receiving final operational clearance from the NRC. Product sales commenced in December 2013.
As at December 31, 2017, the Company’s financial liabilities consisted of trade accounts payable and accrued trade and payroll liabilities of $1.3 million which are due within normal trade terms of generally 30 to 60 days,
Table of Contents
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2017
(expressed in thousands of U.S. dollars unless otherwise indicated)
notes payable which will be payable over periods of 0 to 5 years, and asset retirement obligations with estimated completion dates until 2033.
Market risk
Market risk is the risk to the Company of adverse financial impacts due to changes in the fair value or future cash flows of financial instruments as a result of fluctuations in interest rates and foreign currency exchange rates.
Interest rate risk
Financial instruments that expose the Company to interest rate risk are its cash equivalents, deposits, restricted cash and debt financings. The Company’s objectives for managing its cash and cash equivalents are to maintain sufficient funds on hand at all times to meet day to day requirements and to place any amounts considered in excess of day to day requirements on short-term deposit with the Company's financial institutions so that they earn interest.
Currency risk
The Company maintains a balance of less than $0.3 million in foreign currency resulting in a low currency risk.
Sensitivity analysis
The Company has completed a sensitivity analysis to estimate the impact that a change in interest rates would have on the net loss of the Company. This sensitivity analysis shows that a change of +/- 100 basis points in interest rate would have 0.1 impact for the year ended December 31, 2017. The financial position of the Company may vary at the time that a change in interest rates occurs causing the impact on the Company’s results to differ from that shown above.
17.
Commitments
Under the terms of its operating lease for vehicles and the office premises in Casper, Wyoming, the Company is committed to minimum annual lease payments as follows:
|
|
Year ended December 31,
|
$
|
2018
|
352
|
2019
|
95
|
2020 and thereafter
|
-
|
|
447
|
Rent expense under these agreements was $0.2 million, $0.2 million and $0.2 million for the years ended December 31, 2017, 2016 and 2015, respectively.
Table of Contents
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2017
(expressed in thousands of U.S. dollars unless otherwise indicated)
Principal payments required under debt agreements are as follows:
|
|
Year ended:
|
|
31-Dec-18
|
4,895
|
31-Dec-19
|
5,183
|
31-Dec-20
|
5,487
|
31-Dec-21
|
4,326
|
|
19,891
|
Off Take Sales Agreements
As of December 31, 2017, we have multiple off take sales agreements with various U.S. utilities. These agreements were completed between 2012 and 2015 for deliveries between 2018 and 2021 as follows:
|
|
SUMMARY OF OFF TAKE SALES AGREEMENTS
|
Production Year
|
Total Pounds Uranium Concentrates Contractually Committed
|
2018
|
470,000 pounds
|
2019
|
540,000 pounds
|
2020
|
390,000 pounds
|
2021
|
190,000 pounds
|
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