urg_Current folio_10Q_Taxonomy2015

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United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

 

 

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2018

 

 

 

 

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE TRANSITION PERIOD OF _________ TO _________.

 

Commission File Number: 001-33905

 

UR-ENERGY INC.

(Exact name of registrant as specified in its charter)

 

 

 

Canada

Not Applicable

State or other jurisdiction of incorporation or organization

(I.R.S. Employer Identification No.)

 

10758 West Centennial Road, Suite 200
Littleton, Colorado 80127
(Address of principal executive offices, including zip code)

 

Registrant’s telephone number, including area code: 720-981-4588

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☑No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☑   No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company.  See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

 

Large accelerated filer ☐                     Accelerated filer ☑               Non-accelerated filer ☐             Smaller reporting company ☐

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐No ☑

 

As of May 3, 2018, there were 146,715,824 shares of the registrant’s no par value Common Shares (“Common Shares”), the registrant’s only outstanding class of voting securities, outstanding.

 



 


 

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UR-ENERGY INC.

 

TABLE OF CONTENTS

 

23

33

34

36

 

 

 

 

Page

 

 

 

 

PART I – FINANCIAL INFORMATION

 

 

 

 

Item 1. 

Financial Statements

3

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

Item 3. 

Quantitative and Qualitative Disclosures about Market Risk

37

Item 4. 

Controls and Procedures

37

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

Item 1. 

Legal Proceedings

38

Item 1A. 

Risk Factors

38

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

38

Item 3. 

Defaults Upon Senior Securities

38

Item 4. 

Mine Safety Disclosures

38

Item 5. 

Other Information

38

Item 6. 

Exhibits

39

 

 

 

SIGNATURES 

40

 

 

 

 

 


 

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When we use the terms “Ur-Energy,” “we,” “us,” or “our,” or the “Company” we are referring to Ur-Energy Inc. and its subsidiaries, unless the context otherwise requires. Throughout this document we make statements that are classified as “forward-looking.” Please refer to the “Cautionary Statement Regarding Forward-Looking Statements” section below for an explanation of these types of assertions.

Cautionary Statement Regarding Forward-Looking Information

 

This report on Form 10-Q contains "forward-looking statements" within the meaning of applicable United States (“U.S.”) and Canadian securities laws, and these forward-looking statements can be identified by the use of words such as "expect," "anticipate," "estimate," "believe," "may," "potential," "intends," "plans" and other similar expressions or statements that an action, event or result "may," "could" or "should" be taken, occur or be achieved, or the negative thereof or other similar statements. These statements are only predictions and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance, or achievements expressed or implied by these forward-looking statements. Such statements include, but are not limited to: (i) the ability to maintain controlled, steady-state operations at Lost Creek; (ii) anticipated production of Lost Creek for 2018 and timing for bringing on the additional header house in Mine Unit 2; (iii) the timing and outcome of permitting and regulatory approvals of the amendment for uranium recovery at the LC East project; (iv) the ability to complete additional favorable uranium sales agreements including spot sales if the market warrants and production inventory is available; (v) the potential of our exploration and development projects; (vi) the timing and outcome of applications for regulatory approval to build and operate an in situ recovery mine at Shirley Basin; (vii) the outcome of our forecasts and production projections; (viii) resolution of the continuing challenges within the uranium market, including supply and demand projections; (ix) the outcome of the Department of Commerce Section 232 investigation, including whether the Secretary of Commerce will make a recommendation to the U.S. President, and the nature of the recommendation, whether the President will act on the recommendation and, if so, the nature of the action and remedy; (xii) the expected benefits of the proposed remedies in the trade action; and (xiii) the expected impacts of any remedial measures from the Section 232 action on U.S. production and the U.S. uranium mining industry. Additional factors include, among others, the following: future estimates for production; capital expenditures; operating costs; mineral resources; recovery rates; grades; market prices; business strategies and measures to implement such strategies; competitive strengths; estimates of goals for expansion and growth of the business and operations; plans and references to our future successes; our history of operating losses and uncertainty of future profitability; status as an exploration stage company; the lack of mineral reserves; risks associated with obtaining permits and other authorizations in the U.S.; risks associated with current variable economic conditions; challenges presented by current inventories and largely unrestricted imports of uranium products into the U.S.; our ability to service our debt and maintain compliance with all restrictive covenants related to the debt facility and security documents; the possible impact of future debt or equity financings; the hazards associated with mining production; compliance with environmental laws and regulations; uncertainty regarding the pricing and collection of accounts; the possibility for adverse results in potential litigation; uncertainties associated with changes in law, government policy and regulation; uncertainties associated with a Canada Revenue Agency or U.S. Internal Revenue Service audit of any of our cross border transactions; adverse changes in general business conditions in any of the countries in which we do business; changes in size and structure; the effectiveness of management and our strategic relationships; ability to attract and retain key personnel; uncertainties regarding the need for additional capital; sufficiency of insurance coverages; uncertainty regarding the fluctuations of quarterly results; foreign currency exchange risks; ability to enforce civil liabilities under U.S. securities laws outside the U.S.; ability to maintain our listing on the NYSE American and Toronto Stock Exchange (“TSX”); risks associated with the expected classification as a "passive foreign investment company" under the applicable provisions of the U.S. Internal Revenue Code of 1986, as amended;

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risks associated with our investments and other risks and uncertainties described under the heading “Risk Factors” in our Annual Report on Form 10-K, dated March 2, 2018.

 

Cautionary Note to U.S. Investors Concerning Disclosure of Mineral Resources

 

Unless otherwise indicated, all resource estimates included in this Form 10-Q have been prepared in accordance with Canadian National Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”) and the Canadian Institute of Mining, Metallurgy and Petroleum Definition Standards for Mineral Resources and Mineral Reserves (“CIM Definition Standards”). NI 43-101 is a rule developed by the Canadian Securities Administrators which establishes standards for all public disclosure an issuer makes of scientific and technical information concerning mineral projects.

 

Canadian standards, including NI 43-101, differ significantly from the requirements of the U.S. Securities and Exchange Commission (“SEC”), and resource information contained in this Form 10-Q may not be comparable to similar information disclosed by U.S. companies. In particular, the term “resource” does not equate to the term “‘reserves.” Under SEC Industry Guide 7, mineralization may not be classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. SEC Industry Guide 7 does not define and the SEC’s disclosure standards normally do not permit the inclusion of information concerning “measured mineral resources,” “indicated mineral resources” or “inferred mineral resources” or other descriptions of the amount of mineralization in mineral deposits that do not constitute “reserves” by U.S. standards in documents filed with the SEC. U.S. investors should also understand that “inferred mineral resources” have a great amount of uncertainty as to their existence and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an “inferred mineral resource” will ever be upgraded to a higher category. Under Canadian rules, estimated “inferred mineral resources” may not form the basis of feasibility or pre-feasibility studies except in rare cases. Investors are cautioned not to assume that all or any part of an “inferred mineral resource” exists or is economically or legally mineable. Disclosure of “contained ounces” in a resource is permitted disclosure under Canadian regulations; however, the SEC normally only permits issuers to report mineralization that does not constitute “reserves” by SEC standards as in-place tonnage and grade without reference to unit measures. Accordingly, information concerning mineral deposits set forth herein may not be comparable to information made public by companies that report in accordance with U.S. standards.

 

NI 43-101 Review of Technical Information: James A. Bonner, Ur-Energy Vice President Geology, P.Geo. and Qualified Person as defined by NI 43-101, reviewed and approved the technical information contained in this Form 10-Q.

 

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PART I

Item 1. FINANCIAL STATEMENTS

 

Ur-Energy Inc.

Unaudited Interim Consolidated Balance Sheets

 

(expressed in thousands of U.S. dollars)

 

 

 

 

 

 

March 31,

 

December 31,

 

2018

 

2017

Assets

 

 

 

Current assets

 

 

 

Cash and cash equivalents (note 3)

9,169

 

3,879

Accounts receivable

51

 

33

Inventory (note 4)

6,998

 

4,515

Prepaid expenses

979

 

741

 

17,197

 

9,168

Restricted cash (note 5)

7,458

 

7,558

Mineral properties (note 6)

44,256

 

44,677

Capital assets (note 7)

26,538

 

26,961

 

78,252

 

79,196

 

95,449

 

88,364

Liabilities and shareholders' equity

 

 

 

Current liabilities

 

 

 

Accounts payable and accrued liabilities (note 8)

4,410

 

3,039

Current portion of notes payable (note 9)

4,844

 

4,774

Environmental remediation accrual

72

 

72

 

9,326

 

7,885

Notes payable (note 9)

13,424

 

14,662

Asset retirement obligations (note 10)

27,162

 

27,036

 

49,912

 

49,583

Shareholders' equity (note 11)

 

 

 

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: 146,599,652 at March 31, 2018 and 146,531,933 at December 31, 2017

177,122

 

177,063

Warrants

4,109

 

4,109

Contributed surplus

15,754

 

15,454

Accumulated other comprehensive income

3,642

 

3,663

Deficit

(155,090)

 

(161,508)

 

45,537

 

38,781

 

95,449

 

88,364

 

The accompanying notes are an integral part of these interim consolidated financial statements.

 

Approved by the Board of Directors

 

/s/ Jeffrey T. Klenda, Chairman of the Board              /s/ Thomas Parker, Director

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Ur-Energy Inc.

Unaudited Interim Consolidated Statements of Operations and Comprehensive Income

 

(expressed in thousands of U.S. dollars except for share data)

 

 

 

 

 

Three months ended  March 31,

 

2018

 

2017

 

 

 

 

Sales (note 12)

19,672

 

14,828

Cost of sales

(9,758)

 

(6,295)

Gross profit

9,914

 

8,533

 

 

 

 

Operating Expenses

 

 

 

Exploration and evaluation

(766)

 

(912)

Development

(432)

 

(216)

General and administrative

(1,922)

 

(1,714)

Accretion of asset retirement obligations (note 10)

(126)

 

(132)

Income from operations

6,668

 

5,559

Net interest expense

(288)

 

(378)

Loss on equity investment

(1)

 

 -

Foreign exchange gain

 6

 

 8

Other income

33

 

 -

Net income for the period

6,418

 

5,189

 

 

 

 

Income  per common share

 

 

 

Basic

0.04

 

0.04

Diluted

0.04

 

0.03

Weighted average number of common shares outstanding

 

 

 

Basic

146,568,609

 

145,324,153

Diluted

147,821,876

 

149,901,327

 

 

 

 

COMPREHENSIVE INCOME

 

 

 

Net income for the period

6,418

 

5,189

Other Comprehensive loss, net of tax

 

 

 

Translation adjustment on foreign operations

(21)

 

(11)

Comprehensive income  for the period

6,397

 

5,178

 

The accompanying notes are an integral part of these interim consolidated financial statements.

 

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Ur-Energy Inc.

Unaudited Interim Consolidated Statement 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, 2017

146,531,933

 

177,063

 

4,109

 

15,454

 

3,663

 

(161,508)

 

38,781

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options

67,719

 

59

 

 -

 

(17)

 

 -

 

 -

 

42

Redemption of vested RSUs

 -

 

 -

 

 -

 

(13)

 

 -

 

 -

 

(13)

Non-cash stock compensation

 -

 

 -

 

 -

 

330

 

 -

 

 -

 

330

Net income and comprehensive loss

 -

 

 -

 

 -

 

 -

 

(21)

 

6,418

 

6,397

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2018

146,599,652

 

177,122

 

4,109

 

15,754

 

3,642

 

(155,090)

 

45,537

 

The accompanying notes are an integral part of these interim consolidated financial statements.

 

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Ur-Energy Inc.

Unaudited Interim Consolidated Statements of Cash Flow

 

(expressed in thousands of U.S. dollars)

 

 

 

 

 

 

Three months ended  March 31,

 

2018

 

2017

Cash provided by

 

 

 

Operating activities

 

 

 

Net income for the period

6,418

 

5,189

Items not affecting cash:

 

 

 

Stock based expense

330

 

287

Depreciation and amortization

906

 

1287

Accretion of asset retirement obligations

126

 

132

Amortization of deferred loan costs

29

 

29

Gain on disposition of assets

(2)

 

 -

Gain on foreign exchange

(6)

 

(8)

Change in non-cash working capital items:

 

 

 

Accounts receivable

(18)

 

(2)

Inventory

(2,483)

 

(1,652)

Prepaid expenses

87

 

87

Accounts payable and accrued liabilities

1,047

 

1,217

 

6,434

 

6,566

 

 

 

 

Investing activities

 

 

 

Mineral property costs

(14)

 

 -

Purchase of capital assets

(46)

 

(10)

 

(60)

 

(10)

 

 

 

 

Financing activities

 

 

 

Issuance of common shares for cash

 -

 

1,169

Share issue costs

 -

 

(43)

Proceeds from exercise of stock options

42

 

349

RSUs redeemed to pay withholding or paid in cash

(13)

 

(53)

Repayment of debt

(1,198)

 

(1,131)

 

(1,169)

 

291

 

 

 

 

Effects of foreign exchange rate changes on cash

(15)

 

(6)

 

 

 

 

Net change in cash, cash equivalents and restricted cash

5,190

 

6,841

Beginning cash, cash equivalents and restricted cash

11,437

 

9,109

Ending cash, cash equivalents and restricted cash (note 13)

16,627

 

15,950

 

The accompanying notes are an integral part of these interim consolidated financial statements.

 

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Ur-Energy Inc.

Condensed Notes to Unaudited Interim Consolidated Financial Statements

March 31, 2018

 

(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 was continued under the Canada Business Corporations Act on August 8, 2006. Headquartered in Littleton, Colorado, the Company is an exploration stage mining company, as defined by U.S. 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 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,” 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.Summary of Significant Accounting Policies

 

Basis of presentation

 

These unaudited interim consolidated financial statements do not conform in all respects to the requirements of United States generally accepted accounting principles (“US GAAP”) for annual financial statements. The unaudited interim financial statements reflect all normal adjustments which in the opinion of management are necessary for a fair statement of the results for the periods presented. These unaudited interim consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements for the year ended December 31, 2016. We apply the same accounting policies as in the prior year other than as noted below.  The year-end balance sheet data were derived from the audited financial statements and certain information and footnote disclosures required by US GAAP have been condensed or omitted.

 

New accounting pronouncements which may affect future reporting

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize all leases on the balance sheet, 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.  As at March 31, 2018, the Company’s only leases are for vehicles, equipment, and office space in one location.  The Casper office and copier leases are the only leases currently remaining in effect as of the date of implementation of the standard.  We have gathered the necessary information for proper disclosure of that lease once the ASU is effective. 

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Ur-Energy Inc.

Condensed Notes to Unaudited Interim Consolidated Financial Statements

March 31, 2018

 

(expressed in thousands of U.S. dollars unless otherwise indicated)

 

We will continue to monitor any new leases to ensure that we have all the information necessary to handle the transition to the new standard and properly report the transactions.  We do not anticipate the new standard will affect our net income materially, but will result in additional fixed assets and the related lease liabilities.

 

New accounting pronouncements which were implemented this year

 

In May 2014, the FASB issued Accounting Standards Update (“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 non-financial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). This ASU superseded 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 Company adopted Topic 606 effective January 1, 2018. .  The Company purchases and produces U3O8 and recognizes revenue at point of sale so revenue will continue to be recognized at that point under the new standard.  The adoption of the new standard had no impact on either our current or prior revenue recognition processes or reporting, which, electing the retrospective basis for implementing the standard, results in no changes to prior financial reporting.  In addition, there is no change in our revenue recognition treatment in the current period.

Our revenues are primarily derived from the sale of U3O8 under either long-term (delivery in typically two to five years) or spot (immediate delivery) contracts with our customers. The contracts specify the quantity to be delivered, the price or specific calculation method of the price, payment terms and the year(s) of the delivery. There may be some variability in the dates of the delivery or the quantity to be delivered depending on the contract, but those issues are addressed before the delivery date.  On the date of the delivery, we receive notice from the storage facility of the transfer of material at which point we invoice the customer and record the sale. 

We also receive a small amount of revenue from disposal fees. We have contracts with our customers which specify the type and volume of material which can be disposed. Monthly, we invoice those customers based on deliveries of material to the disposal site by the customer. Materials are measured and categorized at the time of delivery and verified by the customer. We recognize the revenue when the invoice is prepared at the end of the month in which the material was received.

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

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Ur-Energy Inc.

Condensed Notes to Unaudited Interim Consolidated Financial Statements

March 31, 2018

 

(expressed in thousands of U.S. dollars unless otherwise indicated)

 

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. The Company adopted the amended Topic 825 effective January 1, 2018.  The adoption of this guidance had no effect on our financial statements or other financial reporting.

 

 

3.Cash and Cash Equivalents

 

The Company’s cash and cash equivalents consist of the following:

 

 

 

 

 

 

 

As at

 

March 31, 2018

 

December 31, 2017

 

$

 

$

Cash on deposit at banks

1,312

 

1,667

Money market funds

7,857

 

2,212

 

 

 

 

 

9,169

 

3,879

 

 

 

 

4.  Inventory

 

The Company’s inventory consists of the following:

 

 

 

 

 

 

 

As at

 

March 31, 2018

 

December 31, 2017

 

$

 

$

In-process inventory

416

 

315

Plant inventory

538

 

369

Conversion facility inventory

6,044

 

3,831

 

 

 

 

 

6,998

 

4,515

 

In conjunction with our lower of cost or net realizable value calculations, the Company reduced the inventory valuation by $98 for the quarter ended March 31, 2018.

 

 

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Ur-Energy Inc.

Condensed Notes to Unaudited Interim Consolidated Financial Statements

March 31, 2018

 

(expressed in thousands of U.S. dollars unless otherwise indicated)

 

5.    Restricted Cash

 

The Company’s restricted cash consists of the following:

 

 

 

 

 

 

 

As at

 

March 31, 2018

 

December 31, 2017

 

$

 

$

 

 

 

 

Money market account

7,458

 

7,458

Certificates of deposit

 -

 

100

 

 

 

 

 

7,458

 

7,558

 

The bonding requirements for reclamation obligations on various properties have been agreed to by the Wyoming Department of Environmental Quality (“WDEQ”), the Bureau of Land Management (“BLM”) and the Nuclear Regulatory Commission (“NRC”) as applicable.  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 $27.0 million of coverage towards specific reclamation obligations are collateralized by $7.5 million of the restricted cash at March 31, 2018. 

 

6Mineral Properties

 

The Company’s mineral properties consist of the following:

 

 

 

 

 

 

 

 

 

 

 

Lost Creek

 

Pathfinder

 

Other U.S.

 

 

 

Property

 

Mines

 

Properties

 

Total

 

$

 

$

 

$

 

$

Balance, December 31, 2017

11,810

 

19,701

 

13,166

 

44,677

 

 

 

 

 

 

 

 

Acquisition costs

 -

 

 -

 

14

 

14

Amortization

(435)

 

 -

 

 -

 

(435)

 

 

 

 

 

 

 

 

Balance, March 31, 2018

11,375

 

19,701

 

13,180

 

44,256

 

 

 

Lost Creek Property

 

The Company acquired certain Wyoming properties in 2005 when Ur-Energy USA Inc. 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

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Ur-Energy Inc.

Condensed Notes to Unaudited Interim Consolidated Financial Statements

March 31, 2018

 

(expressed in thousands of U.S. dollars unless otherwise indicated)

 

$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. Currently, there are no royalties on the mining claims in the Lost Creek, LC North or LC West Projects.

 

Pathfinder Mines

 

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.  At June 30, 2016, the royalty expired and was terminated.

 

7.Capital Assets

 

The Company’s capital assets consist of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of

 

As of

 

March 31, 2018

 

December 31, 2017

 

 

 

Accumulated

 

Net Book

 

 

 

Accumulated

 

Net Book

 

Cost

 

Depreciation

 

Value

 

Cost

 

Depreciation

 

Value

 

$

 

$

 

$

 

$

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

 

Rolling stock

3,431

 

3,211

 

220

 

3,388

 

3,184

 

204

Enclosures

32,991

 

7,292

 

25,699

 

32,991

 

6,880

 

26,111

Machinery and equipment

1,237

 

679

 

558

 

1,237

 

663

 

574

Furniture, fixtures and leasehold improvements

119

 

106

 

13

 

119

 

104

 

15

Information technology

1,119

 

1,071

 

48

 

1,120

 

1,063

 

57

 

 

 

 

 

 

 

 

 

 

 

 

 

38,897

 

12,359

 

26,538

 

38,855

 

11,894

 

26,961

 

 

 

 

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Table of Contents

Ur-Energy Inc.

Condensed Notes to Unaudited Interim Consolidated Financial Statements

March 31, 2018

 

(expressed in thousands of U.S. dollars unless otherwise indicated)

 

8.Accounts Payable and Accrued Liabilities

 

Accounts payable and accrued liabilities consist of the following:

 

 

 

 

 

 

 

 

 

 

As at

 

March 31, 2018

 

December 31, 2017

 

$

 

$

Accounts payable

1,088

 

840

Payroll and other taxes

2,221

 

1,224

Severance and ad valorem tax payable

1,101

 

975

 

 

 

 

 

4,410

 

3,039

 

 

 

 

 

9.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% 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 financing. Those fees amortizable within 12 months of March 31, 2018 are considered current.

 

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Table of Contents

Ur-Energy Inc.

Condensed Notes to Unaudited Interim Consolidated Financial Statements

March 31, 2018

 

(expressed in thousands of U.S. dollars unless otherwise indicated)

 

The following table lists the current (within 12 months) and long term portion of the Company’s debt instrument:

 

 

 

 

 

 

 

As at

 

March 31, 2018

 

December 31, 2017

 

$

 

$

Current debt

 

 

 

Sweetwater County Loan

4,965

 

4,895

Less deferred financing costs

(121)

 

(121)

 

4,844

 

4,774

 

 

 

 

Long term debt

 

 

 

Sweetwater County Loan

13,728

 

14,996

Less deferred financing costs

(304)

 

(334)

 

13,424

 

14,662

 

Schedule of payments on outstanding debt as of March 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt

Total

 

2018

 

2019

 

2020

 

2021

 

Maturity

 

$

 

$

 

$

 

$

 

$

 

 

Sweetwater County Loan

 

 

 

 

 

 

 

 

 

 

 

Principal

18,693

 

3,697

 

5,183

 

5,487

 

4,326

 

01-Oct-21

Interest

2,077

 

753

 

752

 

447

 

125

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

20,770

 

4,450

 

5,935

 

5,934

 

4,451

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.Asset Retirement and Reclamation Obligations

 

Asset retirement obligations ("ARO") relate to the Lost Creek mine and Pathfinder projects and 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 discounted at a risk-free rate. Included in this liability are the costs of closure, reclamation, demolition and stabilization of the mines, processing plants, infrastructure, aquifer restoration, waste dumps and ongoing post-closure environmental monitoring and maintenance costs.

 

At March 31, 2018, the total undiscounted amount of the future cash needs was estimated to be $26.9 million. The schedule of payments required to settle the ARO liability extends through 2033.

 

The restricted cash as discussed in note 5 is related to the surety bonds which provide security to the governmental agencies on these obligations.

 

 

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Ur-Energy Inc.

Condensed Notes to Unaudited Interim Consolidated Financial Statements

March 31, 2018

 

(expressed in thousands of U.S. dollars unless otherwise indicated)

 

 

 

 

 

 

For the period ended

 

March 31, 2018

 

December 31, 2017

 

 

 

 

 

$

 

$

Beginning of period

27,036

 

26,061

Change in estimated liability

 -

 

448

Accretion expense

126

 

527

 

 

 

 

End of period

27,162

 

27,036

 

 

 

 

 

 

11.Shareholders’ Equity and Capital Stock

 

Stock options

 

In 2005, the Company’s Board of Directors approved the adoption of the Company's stock option plan (the “Option Plan”). The Option Plan was most recently approved by the shareholders, including certain amendments, on May 18, 2017. Eligible participants under the Option Plan include directors, officers, employees and consultants of the Company. Under the terms of the Option Plan, stock options granted prior to the May 2017 amendment generally vest with Option Plan participants as follows: 10% at the date of grant; 22% four and one-half months after grant; 22% three 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, future 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

 

 

 

#

 

$

Balance, December 31, 2017

 

 

9,459,401

 

0.70

 

 

 

 

 

 

Granted

 

 

200,000

 

0.60

Exercised

 

 

(67,719)

 

0.61

Forfeited

 

 

(119,735)

 

0.74

 

 

 

 

 

 

Outstanding, March 31, 2018

 

 

9,471,947

 

0.68

 

The exercise price of a new grant is set at the closing price for the shares 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 three months ended March 31, 2018 was $0.2 million.

 

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Ur-Energy Inc.

Condensed Notes to Unaudited Interim Consolidated Financial Statements

March 31, 2018

 

(expressed in thousands of U.S. dollars unless otherwise indicated)

 

As of March 31, 2018, 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

$

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0.60

 

452,232

 

0.1

 

 -

 

452,232

 

0.1

 

 -

 

25-Apr-18

0.96

 

100,000

 

0.3

 

 -

 

100,000

 

0.3

 

 -

 

01-Aug-18

0.93

 

715,236

 

0.7

 

 -

 

715,236

 

0.7

 

 -

 

27-Dec-18

1.30

 

100,000

 

1.0

 

 -

 

100,000

 

1.0

 

 -

 

31-Mar-19

0.79

 

754,110

 

1.7

 

 -

 

754,110

 

1.7

 

 -

 

12-Dec-19

0.88

 

200,000

 

2.2

 

 -

 

200,000

 

2.2

 

 -

 

29-May-20

0.67

 

617,654

 

2.4

 

 -

 

617,654

 

2.4

 

 -

 

17-Aug-20

0.62

 

1,021,690

 

2.7

 

 -

 

1,021,690

 

2.7

 

 -

 

11-Dec-20

0.57

 

2,674,875

 

3.7

 

92

 

2,059,127

 

3.7

 

71

 

16-Dec-21

0.79

 

300,000

 

3.9

 

 -

 

162,000

 

3.9

 

 -

 

02-Mar-22

0.57

 

200,000

 

4.4

 

 7

 

 -

 

 -

 

 -

 

07-Sep-22

0.70

 

2,136,150

 

4.7

 

 

 

120,000

 

4.7

 

 

 

15-Dec-22

0.60

 

200,000

 

5.0

 

 -

 

 -

 

 -

 

 -

 

30-Mar-23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0.68

 

9,471,947

 

3.1

 

99

 

6,302,049

 

2.5

 

71

 

 

 

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 Cdn$0.77 as of the last trading day in the period ended March 31, 2018, that would have been received by the option holders had they exercised their options as of that date.  The total number of in-the-money stock options outstanding as of March 31, 2018 was 2,874,875. The total number of in-the-money stock options exercisable as of March 31, 2018 was 2,059,127.

 

We elect to estimate the number of awards expected to vest in lieu of accounting for forfeitures when they occur.   

 

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 by our shareholders most recently on May 5, 2016.

 

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Ur-Energy Inc.

Condensed Notes to Unaudited Interim Consolidated Financial Statements

March 31, 2018

 

(expressed in thousands of U.S. dollars unless otherwise indicated)

 

Eligible participants under the RSU Plan include directors and employees of the Company. RSUs in a grant redeem on the second anniversary of the grant.  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, 2017

 

 

1,175,952

 

0.65

 

 

 

 

 

 

Vested

 

 

(80,514)

 

0.70

 

 

 

 

 

 

Unvested, March 31, 2018

 

 

1,095,438

 

0.63

 

As of March 31, 2018, outstanding RSUs are as follows:

 

 

 

 

 

 

 

 

 

 

Number of

 

Remaining

 

Aggregate

 

 

unvested

 

life

 

intrinsic

Grant date

 

RSUs

 

(years)

 

value

 

 

 

 

 

 

$

December 16, 2016

 

591,404

 

0.71

 

361

December 15, 2017

 

504,034

 

1.71

 

307

 

 

 

 

 

 

 

 

 

1,095,438

 

1.42

 

668

 

As of March 30, 2018, one of our directors retired.  Under the terms of our RSU Plan, his 62,000 outstanding RSUs automatically vest.  The compensation committee will determine if he will receive stock or cash for the units redeemed in accordance with the redemption dates as set forth in the Plan. 

 

Warrants

 

The following represents warrant activity during the period ended March 31, 2018:

 

 

 

 

 

 

 

 

 

 

Number

 

Weighted-

 

 

 

of

 

average

 

 

 

warrants

 

exercise price

 

 

 

 

 

$

Outstanding, December 31, 2017

 

 

5,844,567

 

0.94

 

 

 

 

 

 

Outstanding, March 31, 2018

 

 

5,844,567

 

0.94

 

 

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Table of Contents

Ur-Energy Inc.

Condensed Notes to Unaudited Interim Consolidated Financial Statements

March 31, 2018

 

(expressed in thousands of U.S. dollars unless otherwise indicated)

 

As of March 31, 2018, outstanding warrants are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Remaining

 

Aggregate

 

 

Exercise

 

Number

 

contractual

 

Intrinsic

 

 

price

 

of warrants

 

life (years)

 

Value

 

Expiry

$

 

 

 

 

 

$

 

 

0.93

 

4,294,167

 

0.2

 

 -

 

24-Jun-18

0.97

 

1,550,400

 

0.4

 

 -

 

27-Aug-18

 

 

 

 

 

 

 

 

 

0.94

 

5,844,567

 

0.3

 

 -

 

 

 

Share-based compensation expense

 

Share-based compensation expense was $0.4 million for the three months ended March 31, 2018 and $0.3 million for the three months ended March 31, 2017.

 

As of March 31, 2018, there was approximately $0.9 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 totaled less than $0.1 million for the three months ended March 31, 2018 and $0.3 million for the three months ended March 31, 2017.

 

Fair value calculations

 

The initial fair value of options and RSUs granted is determined using the Black-Scholes option pricing model for options and the intrinsic pricing model for RSUs.  There were no RSUs granted in either the three months ended March 31, 2018 or the three months ended March 31, 2017, nor were there any options

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Ur-Energy Inc.

Condensed Notes to Unaudited Interim Consolidated Financial Statements

March 31, 2018

 

(expressed in thousands of U.S. dollars unless otherwise indicated)

 

granted in the three months ended March 31, 2017.  The assumptions used for the options granted during the three months ended March 31, 2018 were as follows:

 

 

 

 

Three months ended  March 31,

 

2018

Expected option life (years)

3.74

Expected volatility

54.59%

Risk-free interest rate

1.90%

Expected dividend rate

0%

Forfeiture rate

6.0%

 

 

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.

 

12.  Sales

 

Sales have been derived from U3O8 being sold to domestic utilities, primarily under term contracts, as well as to a trader through spot sales.

 

Disaggregation of Revenues

 

The following table presents our revenues disaggregated by revenue source and type of revenue for each revenue source

 

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Table of Contents

Ur-Energy Inc.

Condensed Notes to Unaudited Interim Consolidated Financial Statements

March 31, 2018

 

(expressed in thousands of U.S. dollars unless otherwise indicated)

 

Sales consist of:

 

 

 

 

 

 

 

 

 

 

Three months ended  March 31,

 

2018

 

2017

 

$

 

 

 

$

 

 

Sale of produced inventory

 

 

 

 

 

 

 

Company A

237

 

1.2%

 

 -

 

0.0%

Company B

 -

 

0.0%

 

3,141

 

21.2%

 

237

 

1.2%

 

3,141

 

21.2%

Sales of purchased inventory

 

 

 

 

 

 

 

Company C

15,636

 

79.5%

 

8,537

 

57.6%

Company B

3,790

 

19.3%

 

3,141

 

21.2%

 

19,426

 

98.8%

 

11,678

 

78.8%

 

 

 

 

 

 

 

 

Total sales

19,663

 

100.0%

 

14,819

 

100.0%

 

 

 

 

 

 

 

 

Disposal fee income

 9

 

0.0%

 

 9

 

0.0%

 

 

 

 

 

 

 

 

 

19,672

 

100.0%

 

14,828

 

100.0%

 

The names of the individual companies have not been disclosed for reasons of confidentiality.

 

13.Supplemental Information for Statement of Cash Flows

 

Cash per the Statement of Cash Flows consists of the following:

 

 

 

 

 

 

As at

 

March 31, 2018

 

March 31, 2017

 

$

 

$

Cash and cash equivalents

9,169

 

8,393

Restricted cash

7,458

 

7,557

 

 

 

 

 

16,627

 

15,950

 

 

 

14.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 interest rates and management of cash and cash equivalents and short-term investments.

 

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Ur-Energy Inc.

Condensed Notes to Unaudited Interim Consolidated Financial Statements

March 31, 2018

 

(expressed in thousands of U.S. dollars unless otherwise indicated)

 

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 U.S.. 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 U.S. Federal Deposit Insurance Corporation, leaving approximately $16.0 million at risk at March 31, 2018 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 March 31, 2018.

 

All of the Company’s customers have Moody’s Baa or greater ratings and purchase from the Company under contracts with set prices and payment terms.

 

Liquidity risk  

 

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due.

 

As at March 31, 2018, the Company’s financial liabilities consisted of trade accounts payable and accrued trade and payroll liabilities of $1.5 million which are due within normal trade terms of generally 30 to 60 days and a note payable which will be payable over a period of four years.

 

On May 27, 2016, we entered into an At Market Issuance Sales Agreement with MLV & Co. LLC and B Riley FBR, Inc., 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. We have not used the facility in 2018.  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 we received net proceeds of $1.1 million.

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.

 

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Ur-Energy Inc.

Condensed Notes to Unaudited Interim Consolidated Financial Statements

March 31, 2018

 

(expressed in thousands of U.S. dollars unless otherwise indicated)

 

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 a negligible effect on either the three months ended March 31, 2018 or the comparable three months in 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.

 

 

 

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Table of Contents

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, 2017.

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 U.S. subsidiaries remain unchanged since the filing of our Annual Report on Form 10-K, dated March 2, 2018.

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 U3O8, for shipping to a third-party conversion facility for further processing, storage and sales.

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 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.

We have multiple U3O8  sales agreements in place with various U.S. utilities for the sale of U3O8 at mid- and long-term contract pricing. The multi-year sales agreements represent a portion of our anticipated production through 2021. These agreements individually do not represent a substantial portion of our annual projected production, and our business is therefore not substantially dependent upon any one of the agreements. The balance of our Lost Creek production will be sold through spot sales and through additional multi-year agreements.

 

In February, we implemented a limited reduction in labor force, which will serve to further streamline our operations and is expected to reduce our labor costs by approximately $0.6 million per year.

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Table of Contents

Trade Action

In response to the challenges of uranium 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. We await the initiation of the investigation by the Department of Commerce. 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.

Changes to Board of Directors

During the quarter, we announced the retirement of Paul Macdonell from our Board of Directors. Mr. Macdonell has been a board member since the inception of our company in 2004.  Replacing him on our board is Rob Chang.  Rob Chang has 23 years of experience in the financial services industry. Mr. Chang is currently the Chief Financial Officer of Riot Blockchain, Inc. Prior to his current position, he most recently served as the Managing Director and Head of Metals & Mining at Cantor Fitzgerald where he provided research coverage in precious metals, base metals, lithium, and uranium. He is familiar with the uranium mining industry, and is considered a subject matter expert by several media outlets. Mr. Chang previously served as a Director of Research and Portfolio Manager at Middlefield Capital, a Canadian investment firm which managed $3 billion in assets. Mr. Chang completed his MBA at the University of Toronto's Rotman School of Management. Mr. Macdonell’s retirement and Mr. Chang’s appointment were effective March 30, 2018.

Mineral Rights and Properties

 

Eleven of our thirteen U.S. 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 (15,530 hectares) 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”). Additionally, in the Shirley Basin, Wyoming, our Shirley Basin Project comprises more than 3,500 Company-controlled acres.  Finally, we have approximately 2,100 acres in the Excelsior Mountains in Nevada.

 

Lost Creek Property

For the three months ended March 31, 2018, sales from U3O8 produced at Lost Creek totaled 10,000 pounds. The Company also sold 370,000 pounds of purchased U3O8.   In total, 380,000 pounds at an average price of $51.74 were sold for revenues of $19.7 million. The Results of Operations are detailed further below.

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Development and Operations at Lost Creek

 

Production during the first quarter continued from Mine Unit 1 (MU1) as well as Mine Unit 2 (MU2).  The second of three MU2 header houses was brought into operation in January allowing for captured production above the required rate to meet the projected level of 250,000 to 300,000 pounds for the year.   The third MU2 header house, planned for production in 2018, is nearing completion and will likely come online in early May.  Processing, drying and shipping also kept pace with production allowing for continued growth in our inventory at the convertor.

 

Regulatory Update

 

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. Approval will include an aquifer exemption. Reviews by both the NRC and WDEQ were commenced and, in September 2015, the BLM issued a Notice of Intent to prepare an environmental impact statement for the amendments. We have responded to additional comments from the agencies, as part of the review process. 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.

 

Shirley Basin Project

 

WDEQ continues with its technical review of our application for a permit to mine at Shirley Basin, which was submitted in December 2015. Work is well underway on other applications for all necessary authorizations to mine at Shirley Basin as well as initial engineering evaluations, designs and studies. We have monitored 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 Uranium Recovery Program (“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.

 

Excel Gold Project

 

In January 2018, we announced the acquisition of a gold exploration project in west-central Nevada, currently  comprising 102 federal lode mining claims (approximately 2,100 acres). 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 from 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 and/or monetize this new exploration project, including further exploration drilling, identifying a venture partner, or through a sale process.

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Table of Contents

 

Results of Operations

 

U3O8 Production and Sales

 

During the three months ended March 31, 2018, a total of 84,047 pounds of U3O8 were captured within the Lost Creek plant. 79,961 pounds were packaged in drums and 73,515 pounds of the drummed inventory were shipped to the conversion facility. We sold 380,000 pounds of U3O8 during the period of which 370,000 pounds were purchased. Inventory, production and sales figures for the Lost Creek Project are presented in the following tables. We are presenting the data in the tables for the last four quarters because the nature of our operations is not regularly based on the calendar year. We therefore feel that presenting the last four quarters is a more meaningful representation of operations than comparing comparable periods in the previous year and enables the reader to better perform trend analysis. 

 

The cash cost per pound and non-cash cost per pound for produced uranium presented in the following Production Costs and U3O8 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

    

2018 Q1

    

2017 Q4

    

2017 Q3

    

2017 Q2

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pounds captured

 

lb

 

 

84,047

 

 

67,982

 

 

52,812

 

 

65,257

 

 

Ad valorem and severance tax

 

$000

 

$

179

 

$

160

 

$

119

 

$

227

 

 

Wellfield cash cost (1)

 

$000

 

$

671

 

$

686

 

$

743

 

$

599

 

 

Wellfield non-cash cost (2)

 

$000

 

$

403

 

$

575

 

$

730

 

$

780

 

 

Ad valorem and severance tax per pound captured

 

$/lb

 

$

2.13

 

$

2.35

 

$

2.25

 

$

3.48

 

 

Cash cost per pound captured

 

$/lb

 

$

7.98

 

$

10.09

 

$

14.07

 

$

9.18

 

 

Non-cash cost per pound captured

 

$/lb

 

$

4.79

 

$

8.44

 

$

13.82

 

$

11.95

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pounds drummed

 

lb

 

 

79,961

 

 

60,461

 

 

48,336

 

 

70,833

 

 

Plant cash cost (3)

 

$000

 

$

1,226

 

$

1,210

 

$

1,120

 

$

1,267

 

 

Plant non-cash cost (2)

 

$000

 

$

492

 

$

493

 

$

494

 

$

491

 

 

Cash cost per pound drummed

 

$/lb

 

$

15.33

 

$

20.01

 

$

23.17

 

$

17.93

 

 

Non-cash cost per pound drummed

 

$/lb

 

$

6.15

 

$

8.15

 

$

10.20

 

$

6.93

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pounds shipped to conversion facility

 

lb

 

 

73,515

 

 

73,367

 

 

36,797

 

 

74,406

 

 

Distribution cash cost (4)

 

$000

 

$

19

 

$

48

 

$

24

 

$

26

 

 

Cash cost per pound shipped

 

$/lb

 

$

0.26

 

$

0.65

 

$

0.65

 

$

0.35

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pounds purchased

 

lb

 

 

370,000

 

 

 -

 

 

109,000

 

 

210,000

 

 

Purchase costs

 

$000

 

$

9,251

 

$

 -

 

$

2,196

 

$

4,870

 

 

Cash cost per pound purchased

 

$/lb

 

$

25.00

 

$

 -

 

$

20.15

 

$

23.19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Table of Contents

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 U3O8 prior to sale.

 

Production levels during the current quarter continued to increase as our new MU2 header houses came on line.  Generally, our production was limited reflecting our deliberate restriction of production in light of the persistently weak uranium market. Total production costs, decreased 6% in 2018 Q1 compared to 2017 Q4 and 7% compared to 2017 Q3.  The decrease resulted from a combination of certain non-recurring charges not being repeated and the previously announced cost reduction efforts. 

 

Pounds captured increased 16,065 pounds from 2017 Q4 as the second header house in MU2 started up during the period and added to the total production for the quarter.  Total wellfield costs decreased $168 thousand during the quarter.  Ad valorem and severance taxes increased due to higher production rates.  Wellfield cash costs decreased during the quarter due to the reduction in force which occurred in February.  Because of the increase in production combined with the lower costs, the wellfield cash cost per pound captured decreased $2.11 per pound in 2018 Q1. Wellfield non-cash costs are generally fixed although they have been declining as various reclamation and smaller assets are becoming fully depreciated. The related wellfield non-cash cost per pound captured therefore decreased $3.65 per pound.

 

Pounds drummed increased 19,500 pounds in 2018 Q1 over 2017 Q4 commensurate with the increase in pounds captured.  Total plant costs increased $15 thousand during the quarter due to higher fuel and chemical costs.  Because of the increase in pounds drummed, the plant cash cost per pound drummed decreased $4.68 per pound during the quarter. Plant non-cash costs are fixed so the related plant non-cash cost per pound drummed also decreased $2.00 per pound because of the increase in pounds drummed.  

 

Pounds shipped remained relatively constant as two truckloads totaling 73,515 pounds were shipped in 2018 Q1.  Distribution costs in 2018 Q1 were slightly lower than the previous quarter as no barrels were purchased and assay penalties continued their steady decline since production was initiated. The distribution cash cost per pound decreased $0.39 per pound shipped during the quarter.

 

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Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and cost of sales

   

Unit

   

2018 Q1

   

2017 Q4

   

2017 Q3

   

2017 Q2

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pounds sold

 

lb

 

 

380,000

 

 

 -

 

 

289,000

 

 

241,000

 

 

U3O8 sales

 

$000

 

$

19,663

 

$

 -

 

$

11,674

 

$

11,797

 

 

Average contract price

 

$/lb

 

$

52.50

 

$

 -

 

$

40.39

 

$

48.95

 

 

Average spot price

 

$/lb

 

$

23.75

 

$

 -

 

$

 -

 

$

 -

 

 

Average price per pound sold

 

$/lb

 

$

51.74

 

$

 -

 

$

40.39

 

$

48.95

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U3O8 cost of sales (1)

 

$000

 

$

9,758

 

$

376

 

$

11,157

 

$

6,573

 

 

Ad valorem and severance tax cost per pound sold

 

$/lb

 

$

2.30

 

$

 -

 

$

3.15

 

$

4.26

 

 

Cash cost per pound sold

 

$/lb

 

$

31.20

 

$

 -

 

$

29.11

 

$

31.54

 

 

Non-cash cost per pound sold

 

$/lb

 

$

17.20

 

$

 -

 

$

17.52

 

$

19.13

 

 

Cost per pound sold - produced

 

$/lb

 

$

50.70

 

$

 -

 

$

49.78

 

$

54.93

 

 

Cost per pound sold - purchased

 

$/lb

 

$

25.00

 

$

 -

 

$

20.15

 

$

23.19

 

 

Average cost per pound sold

 

$/lb

 

$

25.68

 

$

 -

 

$

38.61

 

$

27.26

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U3O8 gross profit

 

$000

 

$

9,905

 

$

(376)

 

$

517

 

$

5,224

 

 

Gross profit per pound sold

 

$/lb

 

$

26.06

 

$

 -

 

$

1.78

 

$

21.68

 

 

Gross profit margin

 

%

 

 

50.4%

 

 

0.0%

 

 

4.4%

 

 

44.3%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending Inventory Balances

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pounds

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In-process inventory

 

lb

 

 

28,937

 

 

26,796

 

 

22,306

 

 

19,010

 

 

Plant inventory

 

lb

 

 

15,504

 

 

9,043

 

 

21,948

 

 

10,446

 

 

Conversion facility inventory

 

lb

 

 

159,296

 

 

94,077

 

 

17,813

 

 

160,094

 

 

Total inventory

 

lb

 

 

203,737

 

 

129,916

 

 

62,067

 

 

189,550

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In-process inventory

 

$000

 

$

416

 

$

315

 

$

221

 

$

352

 

 

Plant inventory

 

$000

 

$

538

 

$

369

 

$

824

 

$

479

 

 

Conversion facility inventory

 

$000

 

$

6,044

 

$

3,831

 

$

675

 

$

6,620

 

 

Total inventory

 

$000

 

$

6,998

 

$

4,515

 

$

1,720

 

$

7,451

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost per pound

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In-process inventory

 

$/lb

 

$

14.38

 

$

11.76

 

$

9.92

 

$

18.46

 

 

Plant inventory

 

$/lb

 

$

34.70

 

$

40.81

 

$

37.53

 

$

45.85

 

 

Conversion facility inventory

 

$/lb

 

$

37.94

 

$

40.72

 

$

37.89

 

$

41.35

 

 

 

 

Notes:

1

Cost of sales include all production costs (notes 1, 2, 3 and 4 in the previous Production and Production Cost table) adjusted for changes in inventory values.

 

U3O8 sales of $19.7 million for 2018 Q1 were based on selling 380,000 pounds at an average price of $51.74.  We made one spot sale during the quarter for 10,000 pounds at $23.75 to establish our taxation basis for calculating severance and ad valorem taxes. The 370,000 pounds sold under term contracts were purchased for an average price of $25.00 per pound.  For the quarter, our cost of sales totaled $9.8 million at an average cost of $25.68 per pound.

 

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Table of Contents

On a cash basis, the average cost per pound sold was $25.16, which yielded average cash margins of $26.58 per pound and generated cash gross profits of $10.1 million during the quarter. The average cash cost per pound sold was composed of produced and purchased pounds. The cash cost per produced pound sold was $31.20 and the cash cost per purchased pound sold was $25.00.

 

Due to our increased production volumes during the quarter, we recognized smaller lower of cost or net realizable value adjustments as compared to previous quarters.  These costs are included in our cost of sales for the period and reduced the reported gross profit for the period by $99 thousand. Total gross profit was $9.9 million, or a gross profit margin of approximately 50%.

 

At the end of the quarter, we had approximately 159,296 pounds of  U3O8 at the conversion facility at an average cost per pound of $37.94. We intend to sell this product into our lower priced 2019 term contracts in 2019.  While this assumption did increase the non-cash, net realizable value adjustment for the quarter, it will also lower the actual cash paid out for 2019 severance and ad valorem taxes, which are based on the sales value of the product.

 

The following table shows the average cost per pound of the conversion facility pounds.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending Conversion Facility Inventory
Cost Per Pound Summary

 

Unit

31-Mar-18

 

31-Dec-17

 

30-Sep-17

30-Jun-17

Ad valorem and severance tax cost per pound

 

$/lb

 

$

1.66

 

$

1.65

 

$

2.41

 

$

2.82

Cash cost per pound

 

$/lb

 

$

23.88

 

$

25.31

 

$

22.47

 

$

24.62

Non-cash cost per pound

 

$/lb

 

$

12.40

 

$

13.76

 

$

13.01

 

$

13.91

Total cost per pound

 

$/lb

 

$

37.94

 

$

40.72

 

$

37.89

 

$

41.35

 

The cost per pound in ending inventory at the conversion facility has fluctuated during recent quarters, but the fluctuation is primarily the result of the changes in production rate. As it takes time for the prices to move through the in-process, plant and conversion facility inventories, a change in production may not affect the conversion facility inventory valuation for several months. Our costs per pound have been higher than in previous years which reflects our deliberate restriction of production considering the persistently weak uranium  market. While the cost per pound is higher than the current spot market price, it is projected to be sold into existing term contracts at prices greater than the current carrying amount. 

 

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.

 

 

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Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Price Per Pound Sold Reconciliation

 

Unit

 

2018 Q1

    

2017 Q4

    

2017 Q3

    

2017 Q2

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales per financial statements

 

$000

 

$

19,672

 

$

26

 

$

11,693

 

$

11,821

 

Less disposal fees

 

$000

 

$

(9)

 

$

(26)

 

$

(18)

 

$

(24)

 

U3O8 sales

 

$000

 

$

19,663

 

$

 -

 

$

11,675

 

$

11,797

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pounds sold - produced

 

lb

 

 

10,000

 

 

 -

 

 

180,000

 

 

31,000

 

Pounds sold - purchased

 

lb

 

 

370,000

 

 

 -

 

 

109,000

 

 

210,000

 

Total pounds sold

 

lb

 

 

380,000

 

 

 -

 

 

289,000

 

 

241,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average price per pound sold

 

$/lb

 

$

51.74

 

$

 -

 

$

40.40

 

$

48.95

 

 

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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Cost Per Pound Sold
Reconciliation
 

    

Unit

 

2018 Q1

    

2017 Q4

    

2017 Q3

    

2017 Q2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ad valorem & severance taxes

 

$000

 

$

179

 

$

160

 

$

119

 

$

227

Wellfield costs

 

$000

 

$

1,074

 

$

1,260

 

$

1,473

 

$

1,379

Plant and site costs

 

$000

 

$

1,718

 

$

1,703

 

$

1,614

 

$

1,761

Distribution costs

 

$000

 

$

19

 

$

48

 

$

24

 

$

26

Inventory change

 

$000

 

$

(2,483)

 

$

(2,795)

 

$

5,731

 

$

(1,690)

Cost of sales - produced

 

$000

 

$

507

 

$

376

 

$

8,961

 

$

1,703

Cost of sales - purchased

 

$000

 

$

9,251

 

$

 —

 

$

2,196

 

$

4,870

Total cost of sales

 

$000

 

$

9,758

 

$

376

 

$

11,157

 

$

6,573

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pounds sold produced

 

lb

 

 

10,000

 

 

 -

 

 

180,000

 

 

31,000

Pounds sold purchased

 

lb

 

 

370,000

 

 

 -

 

 

109,000

 

 

210,000

Total pounds sold

 

lb

 

 

380,000

 

 

 -

 

 

289,000

 

 

241,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average cost per pound sold - produced (1)

 

$/lb

 

$

50.70

 

$

 -

 

$

49.78

 

$

54.93

Average cost per pound sold - purchased

 

$/lb

 

$

25.00

 

$

 -

 

$

20.15

 

$

23.19

Total average cost per pound sold

 

$/lb

 

$

25.68

 

$

 -

 

$

38.61

 

$

27.27

 

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 inventory, production and sales 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

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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.

 

Three months ended March 31, 2018 compared to the three months ended March 31, 2017

 

The following tables summarize the results of operations for the three months ended March 31, 2018 and 2017 (in thousands of U.S. dollars):

 

 

 

 

 

 

Three months ended  March 31,

 

2018

 

2017

 

$

 

$

 

 

 

 

Sales

19,672

 

14,828

Cost of sales

(9,758)

 

(6,295)

Gross profit

9,914

 

8,533

Exploration and evaluation expense

(766)

 

(912)

Development expense

(432)

 

(216)

General and administrative expense

(1,922)

 

(1,714)

Accretion expense

(126)

 

(132)

Net profit from operations

6,668

 

5,559

Net interest expense

(288)

 

(378)

Loss from equity investment

(1)

 

 -

Foreign exchange loss

 6

 

 8

Other income

33

 

 -

Net income

6,418

 

5,189

 

 

 

 

Income per share – basic

0.04

 

0.04

 

 

 

 

Income per share –  diluted

0.04

 

0.03

 

 

 

 

Revenue per pound sold

51.74

 

59.28

 

 

 

 

Total cost per pound sold

25.68

 

25.18

 

 

 

 

Gross profit per pound sold

26.06

 

34.10

 

Sales

 

We sold a total of 380,000 pounds of U3O8 during the three months ended March 31, 2018 for an average price of $51.74 per pound and 250,000 pounds of U3O8 during the three months ended March 31, 2017 for an average price of $59.28 per pound.   The 2018 sales included term contract sales of 370,000 pounds, all from purchased inventory at an average price of $52.50 and one spot sale of 10,000 pounds of produced inventory for $23.75 per pound.

 

Cost of Sales

 

For the three months ended March 31, 2018, our cost per pound sold for produced inventory increased $5.10 compared to the same period in 2017. This increase is a function of the reduced production rates discussed

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above.  In 2018, we purchased 370,000 pounds of uranium for the three month period at average cost of $25.00 per pound.  Our average cost per pound sold was $25.68 for the quarter ended March 31, 2018, which represents an increase of $0.50 per pound as compared to the same three month period in 2017.

 

Gross Profit 

 

Our gross profit from the sale of uranium totaled $9.9 million for the three months ended March 31, 2018 and represented a gross profit of $26.06 per pound, or 50% gross profit margins.  This compares to 2017 Q1 where our gross profits totaled $8.5 million for the three months and represented a gross profit margin of 57.5%. 

 

We have limited our development activities and thereby reduced production in light of the current depressed spot market, as discussed in previous filings.  While we have taken measures to reduce operating costs, most of our costs are relatively fixed at all production levels, so the reduced production directly relates to the increase in our cost per pound for produced product.  One of the largest costs we cannot reduce is our non-cash costs for depreciation and amortization.  As we do not have reserves and are therefore an exploration company under the guidelines of the U.S. Securities and Exchange Commission, we cannot use production or mineralization as a basis for calculating depreciation or amortization. As a result, our expense for those items are the same now as they were when our production rate was significantly higher. Currently, these non-cash costs total $0.9 million for the three months ended March 31, 2018.

 

Because of the fixed nature of our costs, our inventory cost exceeded the net realizable value of the inventory. Accordingly, we reduced the inventory cost by $0.1 million for the quarter. These costs are added to the cost of sales calculations for our produced product for the quarter.

 

The net result is that while our overall production cost per pound has increased, much of that increase is due to the fixed nature of our costs such as the non-cash amortization of plant and mineral assets, and the inability to adjust the amortization to reflect current production.

 

Operating Expenses

 

Total operating expense for the three months ended March 31, 2018 was $3.1 million.  Operating expenses include exploration and evaluation expense, development expense, and G&A expense. These expenses increased by $0.3 million compared to the same period in 2017.

 

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 $0.8 million for the three month period ended March 31, 2018 and $0.9 million for the same period in 2017. All costs associated with the geology and geographic information systems departments, as well as the costs incurred on exploration-stage projects as described above, are reflected in this category.  These costs are lower due to prior reductions in staff in these departments.

 

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 and Lucky Mc properties as they are in a more advanced stage. Development expenses increased by $0.2 million during the three months ended compared to the same periods in 2017.  The increase was primarily related to the construction of the third header house in MU2 and an increase in professional and governmental fees.

 

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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 increased $0.2 million for the quarter ended March 31, 2018 compared to 2017. The increase was mainly attributable to increased consulting and legal costs primarily related to the trade action.

 

Other Income and Expenses

 

Net interest expense declined $0.1 million during the three months ended March 31, 2018 compared to the prior year. The expense decline was directly attributable to principal payments reducing the outstanding note balances of the Wyoming state loan.

 

Earnings per Common Share

 

The basic earnings per common share for the three months ended March 31, 2018 was $0.04 compared to basic earnings of $0.04 for 2017. For the three months ended March 31, 2018, there were 1,157,438 RSUs and 95,829 options included in the diluted earnings per share calculations.  For the three months ended March 31, 2017, there were 1,075,476 RSUs and 3,501,698 options included in the diluted earnings.  The result was diluted earnings per share of $0.04 and $0.03 for the respective periods.  Dilution from warrants was not included as the strike price exceeded the then current market price of the Common Shares.

 

Liquidity and Capital Resources

 

As of March 31, 2018, we had cash resources consisting of cash and cash equivalents of $9.2 million, an increase of $5.3 million from the December 31, 2017 balance of $3.9 million. The cash resources consist of Canadian and U.S. dollar denominated deposit accounts and money market funds. We generated $6.4 million from operating activities during the three months ended March 31, 2018. During the same period, we used $0.1 million for investing activities and $1.2 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 March 31, 2018, the balance of the State Bond Loan was $18.7 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. The registration was renewed in 2017.

 

On May 27, 2016, we entered into an At Market Issuance Sales Agreement with MLV & Co. LLC and B Riley FBR, Inc., 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. We have not used the facility in 2018.  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 we received net proceeds of $1.1 million.

 

During 2018, a total of 67,719 stock options were exercised, which generated less than $0.1 million.

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Collections from U3O8 sales for the three months ended March 31, 2018 totaled $19.7 million. 

 

Operating activities generated cash of $6.4 million during the three months ended March 31, 2018 as compared to $6.6 million during the same period in 2017. The net income for the three months ended March 31, 2018 was $1.2 million greater than the corresponding income in 2017.

 

Investing activities during 2018 Q1 were minimal and related primarily to the acquisition of a man lift.

 

During the first three months of 2018, the Company used $1.2 million for principal payments on the Sweetwater debt. 

 

Liquidity Outlook

 

As at May 2, 2018, our unrestricted cash position was $6.3 million. Our next contract sales are scheduled to take place in early June 2018.

 

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.

 

Looking ahead

 

At the end of the first quarter of 2018, the average spot price of U3O8, as reported by Ux Consulting Company, LLC and TradeTech, LLC, was approximately $21.05 per pound. Market fundamentals have not changed sufficiently to warrant the accelerated development of MU2. We anticipate completing the third planned header house in MU2 in early May 2018, which will allow us to meet our projected production level of 250,000 to 300,000 pounds drummed for the year.

 

Through March 31, 2018, we sold 370,000 pounds of U3O8 under term contracts at an average price of approximately $52.50 per pound and 10,000 pounds of U3O8  under a spot sale for $23.75 per pound.  We purchased 370,000 pounds at an average cost of $25.00 per pound. The remaining 10,000 pounds were delivered from our produced inventory. We have one final term contract sale for 100,000 pounds at $37.90 scheduled to take place in early June 2018 for which we have a U3O8  purchase contract for 90,000 pounds at $22.25 per pound.

 

We expect to bring the third MU2 header house on line in Q2 2018 and the production target for that same period is between 85,000 and 95,000 pounds U3O8 dried and drummed. Full year 2018 guidance, similar to 2017, estimates production of between 250,000 and 300,000 pounds, but our production rate may be adjusted based on operational matters and other indicators in the market.

 

As at May 2, 2018, our unrestricted cash position was $6.3 million.

Transactions with Related Parties

 

There were no transactions with related parties during the quarter.

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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, 2018, the average current spot and long-term prices of U3O8 were $21.05 and $29.00, respectively. This compares to prices of $23.75 and $31.00 as of December 31, 2017. While prices have declined since December 31, there are several factors including a temporary halt to government sales of uranium into the market and announced reductions in production by major producers which may indicate an increase in the pricing at some point.

 

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. Use of the Black-Scholes model requires management to make estimates regarding the

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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.

 

New accounting pronouncements which may affect future reporting

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize all leases on the balance sheet, 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.  As at March 31, 2018, the Company’s only leases are for vehicles, equipment, and office space in one location.  The Casper office and copier leases are the only leases currently remaining in effect as of the date of implementation of the standard.  We have gathered the necessary information for proper disclosure of that lease once the ASU is effective.  We will continue to monitor any new leases to ensure that we have all the information necessary to handle the transition to the new standard and properly report the transactions.  We do not anticipate the new standard will affect our net income materially, but will result in additional fixed assets and the related lease liabilities.

 

New accounting pronouncements which were implemented this year

 

In May 2014, the FASB issued Accounting Standards Update (“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 non-financial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). This ASU superseded 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 Company adopted Topic 606 effective January 1, 2018. .  The Company purchases and produces U3O8 and recognizes revenue at point of sale so revenue will continue to be recognized at that point under the new standard.  The adoption of the new standard had no impact on either our current or prior revenue recognition processes or reporting, which, electing the retrospective basis for implementing the standard, results in no changes to prior financial reporting.  In addition, there is no change in our revenue recognition treatment in the current period.

Our revenues are primarily derived from the sale of U3O8 under either long-term (delivery in typically two to five years) or spot (immediate delivery) contracts with our customers. The contracts specify the quantity to be delivered, the price or specific calculation method of the price, payment terms and the year(s) of the delivery. There may be some variability in the dates of the delivery or the quantity to be delivered depending on the contract, but those issues are addressed before the delivery date.  On the date of the delivery, we receive notice from the storage facility of the transfer of material at which point we invoice the customer and record the sale. 

We also receive a small amount of revenue from disposal fees. We have contracts with our customers which specify the type and volume of material which can be disposed. Monthly, we invoice those customers based on deliveries of material to the disposal site by the customer. Materials are measured and categorized at the time of delivery and verified by the customer. We recognize the revenue when the invoice is prepared at the end of the month in which the material was received.

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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. The Company adopted the amended Topic 825 effective January 1, 2018.  The adoption of this guidance had no effect on our financial statements or other financial reporting.

 

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 3, 2018, we had outstanding 146,715,824 Common Shares and 9,019,715 options to acquire Common Shares.

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Item 3.  QUANTITAVE 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.

 

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

 

At March 31, 2018, we maintained a balance of approximately $0.4 million in foreign currency resulting in a low currency risk which is our typical balance.

 

Commodity Price Risk

 

The Company is subject to market risk related to the market price of U3O8. We have U3O8 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 U3O8 price fluctuations. Historically, U3O8 prices have been subject to fluctuation, and the price of U3O8 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 U3O8 producing and consuming countries and production levels and costs of production of other producing companies. The spot market price for U3O8 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 September 2007. The spot market price was $21.40 per pound as of May 3, 2018 as reported by TradeTech.

 

Item 4. CONTROLS AND PROCEDURES

 

(a) Evaluation of Disclosure Controls and Procedures

 

As of the end of the period covered by this MD&A, 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.

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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) Changes in Internal Controls over Financial Reporting

 

No changes in our internal control over financial reporting occurred during the three months ended March 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II

 

Item 1. LEGAL PROCEEDINGS

 

No new legal proceedings or material developments in pending proceedings.

 

Item 1A. RISK FACTORS

 

There have been no material changes for the three months ended March 31, 2018 from those risk factors set forth in our Annual Report on Form 10-K.

 

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None

 

Item 3. DEFAULTS UPON SENIOR SECURITIES

 

None

 

Item 4. MINE SAFETY DISCLOSURE

 

Our operations and exploration activities at Lost Creek are not subject to regulation by the federal Mine Safety and Health Administration under the Federal Mine Safety and Health Act of 1977.

 

Item 5. OTHER INFORMATION

 

None

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Item 6. EXHIBITS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Incorporated by Reference

Exhibit
Number

 

Exhibit Description

 

Form

 

Date of
Report

 

Exhibit

 

Filed
Herewith

 

 

 

 

 

 

 

 

 

 

 

31.1

 

Certification of CEO Pursuant to Exchange Act Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

31.2

 

Certification of CFO Pursuant to Exchange Act Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

32.1

 

Certification of CEO Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

32.2

 

Certification of CFO Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

101.INS*

 

XBRL Instance Document

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

101.SCH*

 

XBRL Schema Document

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

101.CAL*

 

XBRL Calculation Linkbase Document

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

101.DEF*

 

XBRL Definition Linkbase Document

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

101.LAB*

 

XBRL Labels Linkbase Document

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

101.PRE*

 

XBRL Presentation Linkbase Document

 

 

 

 

 

 

 

X

 

In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act, is deemed not filed for purposes of section 18 of the Exchange Act, and otherwise is not subject to liability under these sections.

 

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SIGNATURES

 

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: May 4, 2018

By:

/s/ Jeffrey T. Klenda

 

 

Jeffrey T. Klenda

 

 

Chief Executive Officer

 

 

(Principal Executive Officer)

 

 

 

 

Date: May 4, 2018

By:

/s/ Roger L. Smith

 

 

Roger L. Smith

 

 

Chief Financial Officer

 

 

(Principal Financial Officer and

 

 

Principal Accounting Officer)

 

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