Item 2. 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 is 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 MD&A contained in our Annual Report on Form 10-K for the year ended December 31, 2019.
Incorporated on March 22, 2004, Ur-Energy is an exploration stage mining company, as that term is defined in SEC Industry Guide 7. We are engaged in uranium mining, recovery and processing activities, including the acquisition, exploration, development and operation of uranium mineral properties in the U.S. We are operating our first in situ recovery uranium mine at our Lost Creek Project in Wyoming. Ur-Energy is a corporation continued under the Canada Business Corporations Act on August 8, 2006. Our Common Shares are listed on the TSX under the symbol “URE” and on the NYSE American under the symbol “URG.”
Ur-Energy has one wholly-owned subsidiary: Ur-Energy USA Inc., incorporated under the laws of the State of Colorado. Ur-Energy USA Inc. has three wholly-owned subsidiaries: NFU Wyoming, LLC, a limited liability company formed under the laws of the State of Wyoming which acts as our land holding and exploration entity; Lost Creek ISR, LLC, a limited liability company formed under the laws of the State of Wyoming to operate our Lost Creek Project and hold our Lost Creek properties and assets; and Pathfinder Mines Corporation (“Pathfinder”), incorporated under the laws of the State of Delaware, which holds, among other assets, the Shirley Basin and Lucky Mc properties in Wyoming. Our material U.S. subsidiaries remain unchanged since the filing of our Annual Report on Form 10-K, dated February 28, 2020.
We utilize in situ recovery (“ISR”) of the uranium at our flagship project, Lost Creek, and will do so at other projects where possible. The ISR technique is employed in uranium extraction because it allows for an effective recovery of roll front uranium mineralization at a lower cost. At Lost Creek, we extract and process uranium oxide (“U3O8”) for shipping to a third-party conversion facility to be weighed, assayed and stored until sold.
Our Lost Creek processing facility, which includes all circuits for the production, drying and packaging of uranium for delivery into sales, is designed and anticipated under current licensing to process up to one million pounds of U3O8 annually from the Lost Creek mine. The processing facility has the physical design capacity to process two million pounds of U3O8 annually, which provides additional capacity to process material from other sources. We expect that the Lost Creek processing facility may be utilized to process captured U3O8 from our Shirley Basin Project. However, 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.
As has been true since we commenced operations and sales, we have term uranium sales agreements in place with U.S. utilities for the sale in 2020 of U3O8 product at contracted pricing. We are contractually committed to sell 200,000 pounds of U3O8 during 2020, at an average price of approximately $42 per pound. Last year, we worked with our customers to establish a delivery schedule for these commitments which were scheduled for H1 2020. We entered into purchase agreements for delivery of purchased product into our contractual commitments for the 200,000 pounds of U3O8. The average cost of the purchases is $26 per pound. We delivered a portion of those 2020 contractual commitments (33,000 pounds) in Q1, and delivered the remaining amount (167,000 pounds) early in Q2.
COVID-19 (Coronavirus)
In addition to our Wyoming-based staff at Lost Creek, and in our Casper operations office, our corporate services group works in an office in Littleton, Colorado (in the Denver metropolitan area). Since mid-March, we have adhered to the White House and CDC guidance of asking personnel to work remote, if their job responsibilities allow them to do so – this includes both the Littleton and Casper-based staff. We have also been guided by Colorado’s “stay home” orders, and Wyoming’s restrictions and guidance, with respect to our various site locations. Our staff has, thus far, remained healthy. Due to the persistently depressed uranium market, our staff at Lost Creek has been reduced by 67% percent through the reductions in force we have implemented since 2016. This does not include the complete elimination of contract work performed at the site. With the fewer remaining employees commuting to and working at Lost Creek, we have altered certain work and commuting arrangements to the site, implemented physical distancing procedures and other suggested precautions, and continue to assess the evolving situation. Similarly, our production at Lost Creek has been intentionally reduced by more than 97% since the beginning of 2016. The COVID-19 situation has not yet altered our currently planned production guidance for 2020 at Lost Creek, which remains at minimal levels (see below). Because our final scheduled sale of 2020, on April 1, was completed by book transfer (effectively a paper transaction), then-existing COVID-19 restrictions did not impede the transfer.
SBA Paycheck Protection Program
In response to the COVID-19 (Coronavirus) pandemic, Congress enacted the CARES Act on March 27, 2020. Among other provisions, it created the Paycheck Protection Program through the SBA. As an eligible borrower under the program, we worked solely with our primary bank in Littleton, Bank of Oklahoma Financial, to apply for two loans (one for each of our subsidiaries with U.S. payroll obligations) to support continuing operations and payroll obligations, and in efforts to avoid further reductions in force or furloughs. Following review of our applications by our lender and the SBA, and having met program requirements, we were approved for both loans by the SBA. The total combined loan amount we qualified for under the program was approximately $0.9 million, which we received on April 16, 2020 (see further discussion below under Liquidity Outlook).
U.S. Nuclear Fuel Working Group and Recent Market Changes
On July 12, 2019, the White House issued a “Memorandum on the Effect of Uranium Imports on the National Security and Establishment of the United States Nuclear Fuel Working Group” (the “President’s Memorandum”), through which it established the United States Nuclear Fuel Working Group (the “Working Group”) to develop recommendations for reviving and expanding domestic uranium production. On April 23, 2020, the Working Group, through the Department of Energy, released its report, “Restoring America’s Competitive Nuclear Energy Advantage – A strategy to assure U.S. national security.” Relevant to uranium miners, the recommendations included, first, that the U.S. government should make direct purchases of 17 to 19 million total pounds of U3O8 to replenish the American Assured Fuel Supply uranium reserve, through direct purchases proposed to commence in 2020. Additionally, it is recommended that a new national uranium reserve be established through the Department of Energy’s proposed budgeted purchases for ten years, beginning in FY2021. If implemented, these purchases would provide direct support to the front end of the fuel cycle and help re-establish our nation’s critical capabilities. As included in the President’s FY2021 Budget Request, during the first year, it is expected that the reserve would directly support the operation of at least two U.S. uranium mines and the sole U.S. conversion facility. The 10-year budget item is for $150 million per year.
Additionally, the report calls for support of the Department of Commerce’s efforts to extend the Russian Suspension Agreement to protect against future uranium dumping. A lower cap on Russian imports should be considered. Consistent with many of the conclusions in the report finding myriad national security concerns, another of the recommendations is that the NRC be permitted to deny imports of nuclear fuel fabricated in
Russia or China for national security purposes. In its ground-up approach, the report then recommends a restart of the sole U.S. conversion plant beginning no later than 2022 and produce 6,000 to 7,500 tons of UF6 and thereafter to restart domestic enrichment in or about 2023, with at least 25% of material being unobligated. By law, unobligated material must be sourced domestically. There can be no certainty of the final outcome of the Working Group’s findings and recommendations in terms of how and when the recommendations to assure national security will be implemented.
During Q1 and in early Q2, several announcements have had an impact on the global uranium market. In March, Cameco announced the temporary suspension of production at its Cigar Lake uranium mine due to concerns over the COVID-19 pandemic. The suspension of Cigar Lake meant that there is no ongoing production in Canada. At the same time, processing at the related McClean Lake Mill was also suspended. Subsequently, Kazatomprom announced its plan to reduce onsite staff to minimum numbers and reduce its production plans for 2020 by approximately 10.4 million pounds U3O8. The reduction is expected to continue for at least a three-month period following the early April announcement. Cameco subsequently addressed this announcement (as to its ownership stake in Kazakh projects), and announced its plan to suspend processing at its Port Hope UF6 conversion facility for four weeks. More recently, Cameco announced it was extending the suspension of Cigar Lake for an indeterminate length of time. Cameco’s announcements mean there is no longer a conversion facility operating in North America and there is no meaningful uranium production in North America
Mineral Rights and Properties
We currently have 12 U.S. uranium properties. Ten of our uranium properties are located in the Great Divide Basin, Wyoming, including Lost Creek. Currently, we control nearly 1,900 unpatented mining claims and three State of Wyoming mineral leases for a total of approximately 37,500 acres in the area of the Lost Creek Property, including the Lost Creek permit area (the “Lost Creek Project” or “Project”), and certain adjoining properties referred to as LC East, LC West, LC North, LC South and EN Project areas (collectively, with the Lost Creek Project, the “Lost Creek Property”). In the Shirley Basin, Wyoming, our Shirley Basin Project comprises more than 3,700 Company-controlled acres. Our Lucky Mc Project holds 1,800 acres in Fremont County, Wyoming. Our Excel gold project holds approximately 2,100 acres of mining claims in Nevada.
Lost Creek Property
For the three months ended March 31, 2020, 4,113 pounds of U3O8 were captured within the Lost Creek plant and 1,433 pounds of U3O8 were packaged in drums. Our inventory at the converter totaled approximately 268,552 at March 31, 2020. The Results of Operations are detailed further below.
Applications for amendment to the Lost Creek licenses and permits were submitted in 2014. The amendments seek to include recovery from the uranium resource in the LC East Project immediately adjacent to the Lost Creek Project. Reviews by WDEQ continue to progress. The BLM has completed its review and granted approval. We anticipate that all permits and authorizations for the modification of the Lost Creek licenses and permits to recover uranium in the LC East Project will be completed in 2020.
Shirley Basin Project
WDEQ continues with its review of our applications for a permit to mine and for a source material license for our Shirley Basin Project. We anticipate the State processes to be complete, with necessary permits and authorizations received, in 2020. The BLM has completed its review and granted approval of the project. Additionally, work is well underway on initial engineering evaluations, designs and studies for the development of Shirley Basin operations.
Results of Operations
The following tables provide detailed financial information on our sales, cost of sales, gross profit and production and ending inventory as they relate to U3O8 pounds.
Reconciliation of Non-GAAP measures with US GAAP financial statement presentation
The U3O8 and cost per pound measures included in the following tables 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. Where applicable, reconciliation of these measures to US GAAP financial statement presentation are included within the respective table.
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit
|
|
2020 Q1
|
|
2019 Q4
|
|
2019 Q3
|
|
2019 Q2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 Sales Reconciliation (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales per financial statements
|
|
$000
|
|
$
|
1,370
|
|
$
|
10,849
|
|
$
|
5,115
|
|
$
|
11,479
|
Less disposal fees
|
|
$000
|
|
$
|
-
|
|
$
|
(1)
|
|
$
|
-
|
|
$
|
(2)
|
U3O8 sales
|
|
$000
|
|
$
|
1,370
|
|
$
|
10,848
|
|
$
|
5,115
|
|
$
|
11,477
|
U3O8 pounds sold
|
|
lb
|
|
|
33,000
|
|
|
180,000
|
|
|
122,500
|
|
|
265,000
|
U3O8 price per pound sold
|
|
$/lb
|
|
$
|
41.52
|
|
$
|
60.26
|
|
$
|
41.76
|
|
$
|
43.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 Sales by Product
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Produced
|
|
$000
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
7,482
|
Purchased
|
|
$000
|
|
$
|
1,370
|
|
$
|
10,848
|
|
$
|
5,115
|
|
$
|
3,995
|
|
|
$000
|
|
$
|
1,370
|
|
$
|
10,848
|
|
$
|
5,115
|
|
$
|
11,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 Pounds Sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Produced
|
|
lb
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
165,000
|
Purchased
|
|
lb
|
|
|
33,000
|
|
|
180,000
|
|
|
122,500
|
|
|
100,000
|
|
|
lb
|
|
|
33,000
|
|
|
180,000
|
|
|
122,500
|
|
|
265,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 Price per Pounds Sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Produced
|
|
$/lb
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
45.35
|
Purchased
|
|
$/lb
|
|
$
|
41.52
|
|
$
|
60.26
|
|
$
|
41.76
|
|
$
|
39.95
|
|
|
$/lb
|
|
$
|
41.52
|
|
$
|
60.26
|
|
$
|
41.76
|
|
$
|
43.31
|
Note:
|
1.
|
|
Sales per the financial statements include revenues from disposal fees received at Shirley Basin. The disposal fees do not relate to U3O8 pounds sold and are excluded from the U3O8 sales and U3O8 price per pound sold figures.
|
The Company delivers U3O8 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 instructions for a title transfer to the customer. Revenue is recognized once a title transfer of the U3O8 is confirmed by the conversion facility.
In 2020 Q1, we sold 33,000 purchased pounds under a term contract at an average price of $41.52 per pound. In early April, we sold 167,000 pounds of purchased inventory at an average price per pound of $41.51 for revenues of $6.9 million. There were no sales of produced inventory in the first quarter and we do not anticipate any sales of produced inventory in 2020.
Cost of Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit
|
|
2020 Q1
|
|
2019 Q4
|
|
2019 Q3
|
|
2019 Q2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 Cost of Sales Reconciliation (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales per financial statements
|
|
$000
|
|
$
|
3,105
|
|
$
|
6,451
|
|
$
|
7,515
|
|
$
|
11,163
|
Lower of cost or NRV adjustment
|
|
$000
|
|
$
|
(2,282)
|
|
$
|
(2,074)
|
|
$
|
(4,087)
|
|
$
|
(2,137)
|
U3O8 cost of sales
|
|
$000
|
|
$
|
823
|
|
$
|
4,377
|
|
$
|
3,428
|
|
$
|
9,026
|
U3O8 pounds sold
|
|
lb
|
|
|
33,000
|
|
|
180,000
|
|
|
122,500
|
|
|
265,000
|
U3O8 cost per pound sold
|
|
$/lb
|
|
$
|
24.94
|
|
$
|
24.31
|
|
$
|
27.98
|
|
$
|
34.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 Cost of Sales by Product
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 Cost of Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ad valorem and severance taxes
|
|
$000
|
|
$
|
3
|
|
$
|
22
|
|
$
|
(14)
|
|
$
|
17
|
Wellfield cash costs
|
|
$000
|
|
$
|
128
|
|
$
|
158
|
|
$
|
210
|
|
$
|
264
|
Wellfield non-cash costs
|
|
$000
|
|
$
|
618
|
|
$
|
611
|
|
$
|
611
|
|
$
|
612
|
Plant cash costs
|
|
$000
|
|
$
|
910
|
|
$
|
898
|
|
$
|
1,045
|
|
$
|
1,134
|
Plant non-cash costs
|
|
$000
|
|
$
|
490
|
|
$
|
494
|
|
$
|
490
|
|
$
|
490
|
Distribution costs
|
|
$000
|
|
$
|
-
|
|
$
|
26
|
|
$
|
12
|
|
$
|
27
|
Inventory change
|
|
$000
|
|
$
|
(2,149)
|
|
$
|
(2,209)
|
|
$
|
(2,354)
|
|
$
|
3,702
|
Produced
|
|
$000
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
6,246
|
Purchased
|
|
$000
|
|
$
|
823
|
|
$
|
4,377
|
|
$
|
3,428
|
|
$
|
2,780
|
|
|
$000
|
|
$
|
823
|
|
$
|
4,377
|
|
$
|
3,428
|
|
$
|
9,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 Pounds Sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Produced
|
|
lb
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
165,000
|
Purchased
|
|
lb
|
|
|
33,000
|
|
|
180,000
|
|
|
122,500
|
|
|
100,000
|
|
|
lb
|
|
|
33,000
|
|
|
180,000
|
|
|
122,500
|
|
|
265,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 Cost per Pound Sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Produced
|
|
$/lb
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
37.85
|
Purchased
|
|
$/lb
|
|
$
|
24.94
|
|
$
|
24.31
|
|
$
|
27.98
|
|
$
|
27.80
|
|
|
$/lb
|
|
$
|
24.94
|
|
$
|
24.31
|
|
$
|
27.98
|
|
$
|
34.06
|
Note:
|
1.
|
|
Cost of sales per the financial statements include lower of cost or net realizable value (“NRV”) adjustments. The NRV adjustments do not relate to U3O8 pounds sold and are excluded from the U3O8 cost of sales and U3O8 cost per pound sold figures.
|
Cost of sales per the financial statements includes ad valorem and severance taxes related to the extraction of uranium, all costs of wellfield and plant 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. The resulting inventoried cost per pound is compared to the NRV of the product, which is based on the estimated sales price of the product, net of any necessary costs to finish the product. Any inventory value in excess of the NRV are charged to cost of sales per the financial statements. These NRV adjustments are excluded from the U3O8 cost of sales and U3O8 cost per pound sold figures because they relate to the pounds of U3O8 in ending inventory and do not relate to the pounds of U3O8 sold during the period.
In 2020 Q1, we sold 33,000 pounds of purchased inventory. The 33,000 pounds were purchased at a weighted average cost of $24.94 per pound. In early April, we sold 167,000 pounds of purchased inventory. The pounds were purchased at an average cost per pound of $26.01 and cost of sales amounted to $4.3 million. There were no sales of produced inventory in the first quarter, and therefore, no cost of sales from produced inventory. We do not anticipate any sales of produced inventory in 2020.
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit
|
|
2020 Q1
|
|
2019 Q4
|
|
2019 Q3
|
|
2019 Q2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 Gross Profit by Product
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 Sales (see Sales Table)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Produced
|
|
$000
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
7,482
|
Purchased
|
|
$000
|
|
$
|
1,370
|
|
$
|
10,848
|
|
$
|
5,115
|
|
$
|
3,995
|
|
|
$000
|
|
$
|
1,370
|
|
$
|
10,848
|
|
$
|
5,115
|
|
$
|
11,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 Cost of Sales (see Cost of Sales Table)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Produced
|
|
$000
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
6,246
|
Purchased
|
|
$000
|
|
$
|
823
|
|
$
|
4,377
|
|
$
|
3,428
|
|
$
|
2,780
|
|
|
$000
|
|
$
|
823
|
|
$
|
4,377
|
|
$
|
3,428
|
|
$
|
9,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Produced
|
|
$000
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
1,236
|
Purchased
|
|
$000
|
|
$
|
547
|
|
$
|
6,471
|
|
$
|
1,687
|
|
$
|
1,215
|
|
|
$000
|
|
$
|
547
|
|
$
|
6,471
|
|
$
|
1,687
|
|
$
|
2,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 Pounds Sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Produced
|
|
lb
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
165,000
|
Purchased
|
|
lb
|
|
|
33,000
|
|
|
180,000
|
|
|
122,500
|
|
|
100,000
|
|
|
lb
|
|
|
33,000
|
|
|
180,000
|
|
|
122,500
|
|
|
265,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 Gross Profit per Pound Sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Produced
|
|
$/lb
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
7.49
|
Purchased
|
|
$/lb
|
|
$
|
16.58
|
|
$
|
35.95
|
|
$
|
13.78
|
|
$
|
12.15
|
|
|
$/lb
|
|
$
|
16.58
|
|
$
|
35.95
|
|
$
|
13.78
|
|
$
|
9.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 Gross Profit Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Produced
|
|
%
|
|
|
0.0%
|
|
|
0.0%
|
|
|
0.0%
|
|
|
16.5%
|
Purchased
|
|
%
|
|
|
39.9%
|
|
|
59.7%
|
|
|
32.9%
|
|
|
30.4%
|
|
|
%
|
|
|
39.9%
|
|
|
59.7%
|
|
|
32.9%
|
|
|
21.4%
|
The last produced inventory was sold in 2019 Q2. Since then, all sales have been from purchased inventory. In 2020 Q1, we sold 33,000 pounds of purchased inventory for $41.52 per pound. The pounds were purchased for a weighted average cost of $24.94 per pound. The resulting gross profit was $16.58 per pound.
Production and Ending Inventory
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit
|
|
31-Mar-20
|
|
31-Dec-19
|
|
30-Sep-19
|
|
30-Jun-19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 Production
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds captured
|
|
lb
|
|
|
4,113
|
|
|
5,004
|
|
|
7,256
|
|
|
13,146
|
Pounds drummed
|
|
lb
|
|
|
1,433
|
|
|
7,116
|
|
|
9,367
|
|
|
13,296
|
Pounds shipped
|
|
lb
|
|
|
-
|
|
|
20,643
|
|
|
37,710
|
|
|
-
|
Pounds purchased
|
|
lb
|
|
|
33,000
|
|
|
180,000
|
|
|
122,500
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 Ending Inventory
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-process inventory
|
|
lb
|
|
|
8,304
|
|
|
5,396
|
|
|
8,074
|
|
|
10,221
|
Plant inventory
|
|
lb
|
|
|
1,433
|
|
|
-
|
|
|
13,526
|
|
|
41,871
|
Conversion inventory - produced
|
|
lb
|
|
|
219,802
|
|
|
220,053
|
|
|
199,411
|
|
|
161,700
|
Conversion inventory - purchased
|
|
lb
|
|
|
48,750
|
|
|
48,750
|
|
|
48,750
|
|
|
48,750
|
|
|
lb
|
|
|
278,289
|
|
|
274,199
|
|
|
269,761
|
|
|
262,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-process inventory
|
|
$000
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
Plant inventory
|
|
$000
|
|
$
|
42
|
|
$
|
-
|
|
$
|
384
|
|
$
|
1,638
|
Conversion inventory - produced
|
|
$000
|
|
$
|
6,082
|
|
$
|
6,250
|
|
$
|
5,721
|
|
$
|
6,134
|
Conversion inventory - purchased
|
|
$000
|
|
$
|
1,209
|
|
$
|
1,176
|
|
$
|
1,252
|
|
$
|
1,355
|
|
|
$000
|
|
$
|
7,333
|
|
$
|
7,426
|
|
$
|
7,357
|
|
$
|
9,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost per Pound
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-process inventory
|
|
$/lb
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
Plant inventory
|
|
$/lb
|
|
$
|
29.31
|
|
$
|
-
|
|
$
|
28.39
|
|
$
|
39.12
|
Conversion inventory - produced
|
|
$/lb
|
|
$
|
27.67
|
|
$
|
28.40
|
|
$
|
28.69
|
|
$
|
37.93
|
Conversion inventory - purchased
|
|
$/lb
|
|
$
|
24.80
|
|
$
|
24.12
|
|
$
|
25.68
|
|
$
|
27.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion inventory - produced:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ad valorem and severance tax
|
|
$/lb
|
|
$
|
0.75
|
|
$
|
0.77
|
|
$
|
0.91
|
|
$
|
1.52
|
Cash cost
|
|
$/lb
|
|
$
|
17.49
|
|
$
|
17.95
|
|
$
|
18.28
|
|
$
|
24.00
|
Non-cash cost
|
|
$/lb
|
|
$
|
9.43
|
|
$
|
9.68
|
|
$
|
9.50
|
|
$
|
12.41
|
|
|
$/lb
|
|
$
|
27.67
|
|
$
|
28.40
|
|
$
|
28.69
|
|
$
|
37.93
|
Production levels during the current quarter decreased as the maturing MU2 header houses exhibited normal production curve declines. Production rates were better than guidance for the quarter. We have intentionally restricted our production in light of the persistently weak uranium market.
Pounds captured decreased 891 pounds from 2019 Q4 as we have added no new header houses since May 2018. Because of the lower capture levels, we are only drumming when we have enough material to economically
operate the dryers. Pounds drummed decreased 5,683 pounds from 2019 Q4 as packaging only occurs on an as-needed basis to minimize costs. There were no shipments in the quarter as we shipped all available product to the conversion facility in December 2019 and have not drummed enough product in 2020 to justify a shipment.
Production costs attributed to inventory decreased three percent from the previous quarter. Ad valorem and severance taxes decreased due to a reduction in the factor used in the calculation of the taxes and because of lower production rates. Wellfield cash costs decreased 18 percent from 2019 Q4 due to decreases in labor and repair costs while wellfield non-cash costs increased slightly from 2019 Q4 due to depreciation on additional ARO assets. Plant cash costs increased slightly due to the higher costs associated with a severe winter. Plant non-cash costs were unchanged.
At the end of the quarter, we had approximately 268,552 pounds of U3O8 at the conversion facility including 219,802 produced pounds at an average cost per pound of $27.67, and 48,750 purchased pounds at an average cost of $24.80 per pound.
Three months ended March 31, 2020 compared to the three months ended March 31, 2019
The following table summarize the results of operations for the three months ended March 31, 2020 and 2019 (in thousands of U.S. dollars):
|
|
|
|
|
Three months ended March 31,
|
|
2020
|
|
2019
|
|
$
|
|
$
|
Sales
|
1,370
|
|
4,812
|
Cost of sales
|
(3,105)
|
|
(5,146)
|
Gross profit (loss)
|
(1,735)
|
|
(334)
|
Exploration and evaluation expense
|
(391)
|
|
(774)
|
Development expense
|
(273)
|
|
(166)
|
General and administrative expense
|
(1,253)
|
|
(2,138)
|
Accretion
|
(145)
|
|
(143)
|
Net loss from operations
|
(3,797)
|
|
(3,555)
|
Interest expense (net)
|
(132)
|
|
(196)
|
Warrant mark to market gain
|
273
|
|
(533)
|
Foreign exchange loss
|
15
|
|
(18)
|
Net loss
|
(3,641)
|
|
(4,302)
|
|
|
|
|
Loss per share – basic and diluted
|
(0.02)
|
|
(0.03)
|
|
|
|
|
U3O8 price per pound sold
|
41.52
|
|
49.35
|
|
|
|
|
U3O8 cost per pound sold
|
24.94
|
|
32.63
|
|
|
|
|
U3O8 gross profit per pound sold
|
16.58
|
|
16.72
|
Sales
We sold 33,000 pounds of U3O8 during the three months ended March 31, 2020 for an average price of $41.52 per pound. We sold a total of 97,500 pounds of U3O8 during the three months ended March 31, 2019 for an average price of $49.35 per pound. The sales were all from term contracts.
Cost of Sales
Cost of sales per the financial statements includes ad valorem and severance taxes related to the extraction of uranium, all costs of wellfield and plant 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. The resulting inventoried cost per pound is compared to the NRV of the product, which is based on the estimated sales price of the product, net of any necessary costs to finish the product. Any inventory value in excess of the NRV are charged to cost of sales per the financial statements. These NRV adjustments are excluded from the U3O8 cost of sales and U3O8 cost per pound sold figures because they relate to the pounds of U3O8 in ending inventory and do not relate to the pounds of U3O8 sold during the period.
All the sales in Q1 2020 were from purchased product. The weighted average purchase price was $24.94 per pound. In Q1 2019, half of the product sold was from purchased inventory and half was from produced
inventory. The cost per pound of the produced inventory was higher than the purchased inventory, which led to the higher average cost per pound sold in 2019 Q1 as compared to 2020 Q1.
In the three months ended March 31, 2020, cost of sales per the financial statements included $2.3 in lower of cost or NRV adjustments compared to $2.0 million in the comparable period in 2019.
Gross Profit
The gross loss per the financial statements for the three months ended March 31, 2020 was $1.7 million. Excluding the lower of cost or NRV adjustments, the U3O8 gross profit was $0.5 million for quarter, which represents a gross profit margin of approximately 40%. Gross profit of $1.6 million in the three months ended March 31, 2019 represents a gross profit margin of approximately 34%. The primary reason for the lower gross profit margin in 2019 was because it included sales of higher cost produced pounds, which increased the cost per pound sold in that year.
Operating Expenses
Total operating expense for the three months ended March 31, 2020 was $2.1 million. Operating expenses include exploration and evaluation expense, development expense, G&A expense and accretion. These expenses were substantially lower than the three-month periods ended March 31, 2019, which were $3.2 million. Lower labor costs accounted for most of the favorable difference. 2019 Q1 labor costs included the annual bonus payments related to the 2018 fiscal year. After considering the uranium market, and other factors including worldwide economic conditions and market reaction to COVID-19, the 2020 bonus payments related to the 2019 fiscal year were deferred. Our board may, in the future, consider the feasibility of making some payout of the bonus amounts.
Exploration and evaluation expense consists of labor and associated costs of the exploration and evaluation departments as well as land holding and costs including drilling and analysis on properties which have not reached the permitting or operations stage. These expenses were $0.4 million for the three-month period ended March 31, 2020 and $0.8 million for the comparable period in 2019. All costs associated with the geology, regulatory compliance and evaluation departments, as well as the costs incurred on exploration-stage projects as described above, are reflected in this category. The decrease in 2020 Q1 is primarily due to the decision to defer bonus payments.
Development expense includes costs incurred at the Lost Creek Project not directly attributable to production activities, including wellfield construction, drilling and development costs. It also includes costs associated with the Shirley Basin which is in a more advanced stage and Lucky Mc which is near the end of reclamation of the historic mine site. Development expenses increased by $0.1 million during the three months ended March 31, 2020, compared to the same period in 2019. The increase related to an adjustment to the accrual of Nuclear Regulatory Commission estimated fees in 2019 as a result of the transfer of reporting to the Wyoming URP program.
G&A expense relates to the administration, finance, investor relations, land and legal functions of the Company and consists principally of personnel, facility and support costs. Total G&A expense decreased $0.9 million for the three months ended March 31, 2020 compared to 2019. The decrease was mainly attributable to the decisions to defer bonus payments, and a reduction in legal and related fees associated with the Section 232 action.
Other Income and Expenses
Net interest expense declined $0.1 million during the three months ended March 31, 2020 compared to the prior year. The expense decline was directly attributable to the lower principal balance in 2020 Q1 as compared to 2019 Q1.
As a part of the September 2018 public offering, we sold 13,062,878 warrants priced at $0.01 per warrant. As the warrants are priced in US$ and the functional currency of the Ur-Energy Inc. is Cdn$, this created a derivative financial liability. The fair value of the liability is adjusted quarterly using the Black-Scholes technique as there is no active market for the warrants. Any income or loss is reflected in net income for the period. The revaluation as of March 31, 2020 resulted in a gain of $0.3 million while the revaluation at March 31, 2019 resulted in a loss for the period of $0.5 million.
Earnings (loss) per Common Share
The basic and diluted losses per common share for the three months ended March 31, 2020 were $0.02 compared to basic and diluted losses of $0.03 per share for the same period in 2019. The diluted losses per common share were equal to the basic losses per common share as there is no dilution for options, warrants and RSUs when net losses are experienced.
Liquidity and Capital Resources
As of March 31, 2020, we had cash resources consisting of cash and cash equivalents of $5.6 million, a decrease of $2.2 million from the December 31, 2019 balance of $7.8 million. The cash resources consist of Canadian and U.S. dollar denominated deposit accounts and money market funds. We used $2.1 million for operating activities during the three months ended March 31, 2020. During the same period, we used less than $0.1 million for both investing and 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 was to be payable in 28 quarterly installments which commenced January 1, 2015. The State Bond Loan is secured by all of the assets at the Lost Creek Project. As of March 31, 2020, the balance of the State Bond Loan was $12.4 million. On October 1, 2019, the Sweetwater County Board of Commissioners and the State of Wyoming approved a six-quarter deferral of principal payments beginning October 1, 2019. The next principal payment is therefore due April 1, 2021 and the final payment is now due in April 2023.
During 2017, we filed a universal shelf registration statement on Form S-3 with the SEC 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 August 3, 2017 for a three-year period.
We entered into an At Market Issuance Sales Agreement with MLV & Co. LLC and B Riley FBR, Inc. (May 27, 2016, as amended August 2017), 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. There were no shares sold under this agreement in 2019 or in the first three months of 2020.
Collections from U3O8 sales for the three months ended March 31, 2020 totaled $1.4 million.
Operating activities used cash of $2.1 million during the three months ended March 31, 2020 as compared to $1.2 million during the same period in 2019. The primary reason for the unfavorable variance is that although the U3O8 gross profit for each year was approximately $17 per pound, we sold 64,500 fewer pounds in 2020 Q1 compared to 2019 Q1.
Liquidity Outlook
We expect that any major capital projects will be funded by operating cash flow, cash on hand or 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 to which 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 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.
In response to the COVID-19 (Coronavirus) pandemic, Congress enacted the CARES Act on March 27, 2020. Among other provisions, it created the Paycheck Protection Program through the SBA. Working with our primary bank, Bank of Oklahoma Financial, we applied for and obtained two loans (one for each of our subsidiaries with U.S. payroll obligations) under this program. The total combined loan amount we qualified for was approximately $0.9 million, which we received on April 16, 2020. (See also the discussion above under Business Overview / SBA Paycheck Protection Program.)
Under the program, the repayment of these loans, including interest, will be forgiven based on payroll, payroll-related, and other allowable costs incurred in the eight-week period following the funding of the loans. In order to have the full amount of the loans forgiven, the following requirements must be met in that eight-week period, and be sufficiently documented:
|
(1)
|
|
Spend not less than 75% of loan proceeds on eligible payroll costs;
|
|
(2)
|
|
Spend the remaining 25% of loan proceeds on
|
|
a.
|
|
additional payroll costs above 75%;
|
|
b.
|
|
payments of interest on mortgage obligations incurred before February 15, 2020;
|
|
c.
|
|
rent payments on leases dated before February 15, 2020; and/or
|
|
d.
|
|
utility payments under service agreements dated before February 15, 2020.
|
|
(3)
|
|
Maintain employee compensation levels (subject to specific program requirements).
|
The program provides for an initial six-month deferral of payments. Any amount owing on the loan has a two-year maturity (April 16, 2022), with an interest rate of one percent per annum. We anticipate that a significant portion of the loans will meet the requirements for forgiveness under this program.
Looking Ahead
Our remaining sale under contract in 2020 occurred on April 1, 2020.
As at May 6, 2020, our unrestricted cash position was $7.0 million. In April, we received $0.9 million from the SBA loans discussed above and collected net proceeds of $2.6 million from the sale of 167,000 pounds at $41.52 per pound. The pounds were purchased for an average cash cost of $26.01 per pound.
Recent market activity, driven by production suspensions and reductions, has elevated U3O8 spot prices by as much as 36% in the past several weeks to over $33 per pound. The suspensions and closures are generally
related to the COVID-19 pandemic. In recent weeks, we have seen the suspension of Cigar Lake, Rossing, and then Husab, as well as lower production guidance announced by Kazatomprom. This amounts to as much as 46 million pounds of primary production on an annualized basis removed from the market. While this increase in uranium pricing is encouraging, it remains to be seen if long-term contracts will follow and once again become available to support sustained development and operations on an economical basis.
As we watch primary uranium production in the U.S., and now in North America, decline to inconsequential levels, it is also historic that North America no longer has any UF6 conversion output. On April 8, 2020, operations at the Port Hope UF6 conversion facility were suspended, which also forced the closure of the Blind River UO3 refinery. In the U.S., ConverDyn’s conversion has been idled since 2017.
At the same time, we note that 2019 was a record year for U.S. nuclear electricity production. Recently, the Nuclear Energy Institute noted key take-aways from 2019 with regard to the U.S. nuclear industry. Among them, after producing nearly 20 percent of all U.S. electricity production and nearly 55 percent of all carbon-free generation in 2019, U.S. nuclear power plants generated the highest amount of electricity since the birth of commercial nuclear power in 1957. This is good news because that record nuclear power generation avoided over 476 million metric tons of carbon emissions. But, is it sustainable when you consider that primary uranium production in North America now stands at virtually zero?
Global demand growth has not subsided either. On April 14, 2020, China’s Nuclear Safety Inspection Department reported that the coronavirus outbreak will have no impact on the progress of nuclear power plant construction in China in the short term, nor have reactors already in operation been affected. Global demand growth will most likely continue, if not increase, in the long-term.
Considering the current state of uranium production and conversion capacity in the U.S. (and now North America), combined with the growing demand for uranium here and around the world, we were relieved to see that the Working Group also realizes that aggressive action must be taken to preserve what remains of the domestic uranium industry before our U.S. nuclear utilities face the consequences of a serious supply disruption.
On April 23, 2020, the Working Group released their Plan to Revitalize the Domestic Uranium Mining Industry, which details the steps required to revitalize the domestic uranium mining and broader nuclear industries. As set forth above, the most relevant recommendation for the uranium mining sector is that the U.S. government should make direct purchases of 17 to 19 million total pounds of U3O8 to replenish the American Assured Fuel Supply uranium reserve. Additionally, the report recommends the establishment of a national uranium reserve, which is included in the President’s Fiscal Year 2021 Budget Request; during the first year, it is expected that the reserve would directly support the operation of at least two U.S. uranium mines. The budget item is for $150 million per year from FY2021 to FY2030. Additionally, the report calls for support of the Department of Commerce’s efforts to extend the RSA to protect against future uranium dumping. A lower cap on Russian imports should be considered.
Consistent with many of the conclusions in the report finding myriad national security concerns, another of the recommendations is that the NRC be permitted to deny imports of nuclear fuel fabricated in Russia or China for national security purposes. In its ground-up approach, the report then recommends a restart the U.S.’s sole conversion plant and thereafter the restart of domestic enrichment, with reserved amounts for unobligated material. By law, unobligated material must be sourced domestically.
The Company stands ready to supply its portion of the new national uranium reserve. We have maintained operational readiness at our fully-permitted Lost Creek Mine with experienced technical and operational staff and a well-maintained plant. More than six and a half years into production at Lost Creek, we are still producing
in the first mine unit and the initial three header houses of the second mine unit. Ur-Energy is prepared to rapidly expand uranium production at Lost Creek, to an annualized runrate of one million pounds.
The Lost Creek facility has the constructed and licensed capacity to produce up to two million pounds of U3O8 per year and the previously-reported mineral resources to feed the processing plant for many years to come. A ramp-up of production at Lost Creek will continue with further development in the fully-permitted first two mine units, followed by the ten additional mining areas as defined in the Lost Creek Property Preliminary Economic Assessment, as amended. With future development and construction in mind, our current staff members were retained as having the greatest level of experience and adaptability allowing for an easier transition back to full operations. Lost Creek operations can increase to full production rates in as little as six months following a go decision, simply by developing additional header houses within the fully permitted MU2. Development expenses during this time are estimated to be approximately $14 million and are almost entirely related to MU2 drilling and header house construction costs.
While the Working Group’s recently released plan is encouraging, there can be no certainty of the final outcome of the Working Group’s findings and recommendations, or the timing and impact of any actions taken in response to those findings and recommendations, including the budget appropriations process related to the national uranium reserve. The outcome of this continuing process and its effects on the U.S. uranium market, therefore, remains uncertain. We look forward with great interest to the President’s next steps to solidify the Working Group’s recommendations and provide much needed clarity to the uranium mining industry, and hope that the Administration acts with the necessary sense of urgency, heeding the language of the Working Group’s report that the “risks are most immediate” in the production and conversion of domestic uranium which are “the most vulnerable facing imminent collapse.” Until such time, we will continue to minimize costs and maximize ‘runway’ to maintain current operations and avoid unnecessary dilution while maintaining the operational readiness needed to ramp-up production when called upon.
Transactions with Related Parties
There were no transactions with related parties during the quarter.
Proposed Transactions
As is typical of the mineral exploration, development and mining industry, we will consider and review potential merger, acquisition, investment and venture transactions and opportunities that could enhance shareholder value. Timely disclosure of such transactions is made as soon as reportable events arise.
Critical Accounting Policies and Estimates
We have established the existence of uranium resources at the Lost Creek Property, 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. Accordingly, we have adopted an accounting policy with respect to the nature of items that qualify for capitalization for in situ U3O8 mining operations to align our policy to the accounting treatment that has been established as best practice for these types of mining operations.
The development of the wellfield includes injection, production and monitor well drilling and completion, piping within the wellfield and to the processing facility, header houses used to monitor production and disposal wells associated with the operation of the mine. These costs are expensed when incurred.
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 March 31, 2020, the average current spot and long-term prices of U3O8 were $27.35 and $32.50, respectively. This compares to prices of $24.93 and $32.50 as of December 31, 2019. The prices have continued to increase in April as a result of the reductions in global production, but the long-term prices have yet to respond to the trend and the volume of transactions remains low.
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.
Inventory and Cost of Sales
Our inventories are valued 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.
Share-Based Expense
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. In addition, the fair value of derivative warrants are recalculated quarterly using the Black-Scholes model with any gain or loss being reflected in the net income for the period. 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.
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.
Outstanding Share Data
As of May 6, 2020, we had outstanding 160,478,059 Common Shares and 11,052,694 options to acquire Common Shares.