UUUU Energy Fuels Inc

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements for the three months ended March 31, 2016, and the related notes thereto, which have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). Additionally, the following discussion and analysis should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements included in Part II of our Annual Report on Form 10-K for the year ended December 31, 2015 filed on March 15, 2016. This discussion and analysis contains forward-looking statements and forward-looking information that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements and information as a result of many factors. See section “Note Regarding Forward-Looking Statements” below.

All dollar amounts stated herein are in U.S. dollars, except per share amounts and currency exchange rates unless specified otherwise. References to Cdn$ refer to Canadian currency, and $ to United States currency.

Overview

Prior to June 2012, Energy Fuels was primarily a uranium and vanadium exploration, permitting, and evaluation company with no revenue or operating properties. In June 2012, Energy Fuels acquired the US Mining Division of Denison Mines Corp. and began revenue producing activities from these properties. The activities of Energy Fuels, including support staff and expenditures, increased dramatically upon completion of the acquisition. All activities of the Company prior to the June 18, 2015 acquisition of Uranerz Energy Corporation (“Uranerz”) concerned the Conventional Uranium Segment.

On June 18, 2015, Energy Fuels acquired all of the outstanding shares of Uranerz which had, among other properties, an active in situ (“ISR”) uranium extraction and recovery facility. These operations acquired from Uranerz are included in the consolidated financial statements as of June 18, 2015 and represent the Company’s ISR Uranium Segment.

While the Company has uranium extraction and recovery activities and generates revenue, it is considered to be in the Exploration Stage (as defined by SEC Industry Guide 7) as it has no Proven or Probable Reserves within the meaning of SEC Industry Guide 7. Under US GAAP, for a property that has no Proven or Probable Reserves, the Company capitalizes the cost of acquiring the property (including mineral properties and rights) and expenses all costs related to the property incurred subsequent to the acquisition of such property. Acquisition costs of a property are depreciated over its estimated useful life for a revenue generating property or expensed if the property is sold or abandoned. Acquisition costs are subject to impairment if so indicated.

Outlook

Uranium Market Update

According to price data from TradeTech LLC (“TradeTech”), uranium spot prices are down from $34.20 per pound on December 31, 2015 to $27.50 per pound on April 30, 2016, or 20% for the year-to-date. Weekly spot prices reported by TradeTech reached a low of $25.50 per pound on April 15, 2016, which was the lowest value observed by TradeTech since April 22, 2005. TradeTech price data also indicate that long-term U ₃ O ₈ prices, which began 2016 at $44.00 per pound, dropped to $42.00 per pound by April 30, 2016.

The drop in uranium prices is believed to be caused by weaker than expected demand by utilities and persistent oversupply. Most transactions on the spot market in 2016 have involved traders and intermediaries as utilities appear to be well supplied in the short term. The Company continues to believe the weak uranium markets are the result of excess uranium supplies caused by large quantities of secondary uranium extraction, excess inventories and insufficient production cut-backs. The oversupply situation is further exacerbated by reduced demand due to the continued delays in the restart of Japanese reactors, premature reactor closures, and general weakness in the global economy and energy sector. However, since the beginning of the year, certain announcements have been made which may lessen some of the oversupply now burdening the market, including Cameco Corporation’s April 21, 2016 announcement that it is reducing production by approximately 4 million pounds per year in 2016, with further production cuts going forward.

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As a result of the expected growth of nuclear energy, the Company continues to believe the long-term fundamentals of the uranium industry are positive. The Company believes prices must rise to higher levels to support new primary production that will be required to meet the increasing demand we expect to see as more nuclear units are constructed around the world. According to TradeTech, world uranium requirements continue to exceed primary mine production, with the gap being bridged by secondary supplies and excess uranium inventories in various forms that have already been mined. As excess inventories are drawn down and as production from existing mines declines, the Company believes primary mine production will be required to meet demand over the long-term.

Despite current market uncertainty and recently falling prices, the Company continues to believe it has begun to see certain early signs of a market recovery, as previously described in the Company’s Form 10-K for the fiscal year ended December 31, 2015. Of note, China recently finalized its 13 ^th Five-Year Plan, including a commitment to install 58 GW of nuclear capacity by 2020 (versus today’s 27 GW in installed capacity). In addition, China connected eight reactors to the grid in 2015 (World Nuclear News, January 4, 2016). Japanese utilities are also making slow progress in restarting their nuclear fleet. Two reactors have restarted (Sendai 1 and 2), two more units are approved to restart pending resolution of an injunction (Takahama 3 and 4), and one more reactor has completed the final regulatory step needed prior to approval for restart (Ikata 3). It is worth noting that 42 reactors in Japan are operable according to the World Nuclear Association, and, in addition to the five mentioned above, 19 have applied for approvals to restart. Finally, as mentioned above Cameco recently announced that it is reducing uranium production by approximately 4 million pounds for 2016, and in addition, Rio Tinto and BHP have reported decreased uranium production in Q1-2016 versus Q4-2015.

Operations and Sales Outlook

With the June 2015 acquisition of Uranerz, which includes the Nichols Ranch ISR Project, Energy Fuels has increased its flexibility to adjust its uranium production levels to respond to market conditions and to meet the requirements of its sales contracts. This allows the Company to efficiently fulfill its existing commitments and commit to new spot and term sales that will be sourced from uranium recovered from the Company’s facilities. The Company plans to extract and/or recover uranium from the following sources in 2016 (each of which is more fully described below):

In response to continued uranium price weakness and market uncertainty, the Company expects to continue cash conservation efforts until such time that sustained improvement in uranium market conditions is observed. In addition, the Company is continuing to manage its activities and assets conservatively, maintaining its substantial uranium resource base and its ISR and conventional uranium extraction and recovery capabilities, and only scheduling recovery at the White Mesa Mill and the Nichols Ranch Project as market conditions, availability of mill feed, cash needs, and/or contract delivery requirements may warrant.

Definitive agreement to acquire Mesteña

On March 4, 2016, the Company entered into a definitive agreement (the “Mesteña Purchase Agreement”) between the Company and Mesteña Uranium, LLC, Leoncito Plant, LLC, Leoncito Project, LLC (collectively, the “Subject Companies”) and Mesteña, Inc., Jones Ranch Minerals Unproven, Ltd. and Mesteña Unproven, Ltd. (collectively with the Subject Companies, the “Selling Parties”) to acquire all of the membership interests of the Subject Companies. Mesteña is a uranium recovery company that owns the Alta Mesa ISR uranium recovery project (the “Alta Mesa Project”), located in Texas. The Alta Mesa Project has a fully-licensed and constructed ISR uranium recovery plant, with a design capacity of 1.5 million pounds of uranium concentrate per year. The recovery plant is currently being maintained on standby. Under the Mesteña Purchase Agreement, the Company has agreed to issue 4,551,284 common shares to the Selling Parties at the closing of the transaction, subject to receipt of all applicable regulatory and stock exchange approvals and the satisfaction of certain other conditions to closing. The properties will be subject to a royalty equal (in total) to 3.125% of the value of the recovered U ₃ O ₈ from the Properties sold at a uranium price of $65.00 or less per pound U ₃ O ₈ , 6.25% of the value of the recovered U ₃ O ₈ from the Properties sold at a uranium price greater than $65.00 and up to and including $95.00 per pound U ₃ O ₈ , and 7.5% of the value of therecovered U ₃ O ₈  from the Properties sold at a uranium price greater than $95.00 per pound U ₃ O ₈ . The Company expects to complete the acquisition of Mesteña in the second quarter of 2016 as previously announced.

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The Company will continue to evaluate additional acquisition opportunities that may arise.

Extraction and Recovery Activities – Overview

The Company expects to recover approximately 950,000 pounds of U ₃ O ₈ for the year ending December 31, 2016, as further described below.

The Company currently has finished goods inventory and uranium extraction and recovery capabilities that exceed the commitments contained in its existing sales contracts. As a result, both ISR and conventional uranium extraction and/or recovery have been, and are expected to continue to be, maintained at conservative levels until such time as market conditions improve sufficiently and/or the Company requires cash to meet its business needs.

Extraction and Recovery – ISR Uranium Segment

In response to market conditions, the Company expects to delay the planned construction of one of its wellfields to 2017. We currently plan to extract and recover approximately 300,000 pounds of U ₃ O ₈ for the year ending December 31, 2016, compared with our previous estimate of 350,000 pounds for 2016, as a result of this planned delay.

At March 31, 2016, the Nichols Ranch wellfields had seven header houses extracting uranium. The Company plans to complete an eighth header house by the end of 2016. A ninth header house was originally planned for completion in 2016 but has been delayed due to market conditions. The Company has completed all monitor wells in Production Area #2.

In February 2016, the Company completed construction of the elution circuit and began the elution process at the Nichols Ranch Plant. Yellowcake slurry from this circuit is being shipped to our White Mesa Mill for final yellowcake drying, packaging, and shipment to a conversion facility.

Permitting of the adjacent Jane Dough Property is continuing and is expected to be completed in advance of our need to begin wellfield construction. Also, the Hank Project is fully permitted to be constructed as a satellite facility to the Nichols Ranch Plant.

Extraction and Recovery – Conventional Uranium Segment

The Company expects the White Mesa Mill to recover approximately 650,000 pounds of U ₃ O ₈ for the year ending December 31, 2016.

The Company is planning to recover approximately 425,000 pounds of U ₃ O ₈ extracted from its Pinenut Project. This is an increase of 50,000 pounds over what was previously announced, due to updated weights and assays upon receipt of material at the Mill. Shipment of this material to the Mill was completed in March 2016. The Pinenut Project is now fully depleted, and the Company has commenced reclamation activities.

During 2016, the Company also expects to recover approximately 225,000 pounds of U ₃ O ₈ from alternate feed materials.

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The White Mesa Mill has historically operated on a campaign basis, whereby uranium recovery is scheduled as mill feed, cash needs, contract requirements, and/or market conditions may warrant. Once the processing for 2016 concludes (expected to be in late 2016), the Company expects to place uranium recovery activities at the Mill on standby until additional mill feed becomes available. The Mill will dry and package material from the Nichols Ranch Plant and continue to receive and stockpile alternate feed materials for future milling campaigns. Each future milling campaign will be subject to receipt of sufficient mill feed that would allow the Company to operate the Mill on a profitable basis and/or recover a portion of its standby costs.

The Company is continuing shaft sinking activities at the Canyon Project and has completed the installation of new equipment and infrastructure to optimize shaft sinking rates and realize construction cost savings. Once the shaft depth approaches the mineralized zone, we plan to complete additional exploration drilling to further evaluate the deposit. The timing of our plans to extract and process mineralized materials from this project will be based on the results of this additional evaluation work, along with market conditions, available financing, and sales requirements.

The Company expects to continue to pursue permitting activities at certain of its conventional projects, including the Roca Honda Project and the Sheep Mountain Project. The Company will also continue to evaluate the Bullfrog Property at its Henry Mountains Project. Expenditures for certain of these projects have been adjusted to coincide with expected dates of price recoveries based on our forecasts.

Finally, the Company plans to continue to maintain, and update as necessary, all permits on its standby properties. These properties will remain on standby until market conditions improve such that the material can be sold at prices that support extraction. The Company also plans to continue to evaluate its non-core properties for sale or abandonment in order to reduce costs and/or receive value for these properties. The Company is continuing to monitor corporate and field overhead to reflect the lower levels of activity.

Sales

For 2016, the Company forecasts sales under its existing long-term contracts to total approximately 550,000 pounds of U ₃ O ₈ . Of this total, 300,000 pounds were delivered in the first quarter of the year with the remaining amount in the second and third quarters of the year. The prices for material sold under the existing long-term contracts are either fixed or at floors. The average sales price under the Company’s long-term contracts is expected to be higher in 2016 than 2015 levels. The Company expects to complete these sales from U ₃ O ₈ already in inventory or expected to be recovered from its planned activities discussed above.

The Company also sold 50,000 pounds of U ₃ O ₈ to a utility based on spot prices at the time of the contract. The Company is currently monitoring market conditions for additional sales opportunities. Selective spot sales are expected to be made as necessary to generate cash for operations and development activities.

In 2017, the Company expects to have existing inventory or expected production to meet all of its commitments to sell 620,000 pounds of uranium under its existing long-term contracts at average sales prices higher than 2015 levels.

The Company also continues to pursue new sources of revenue, including expansion of its alternate feed business.

For the three months ended March 31, 2016 the Company recorded a net loss of $8.87 million or $0.19 per share compared with a loss of $1.20 million or $0.06 per share for the three months ended March 31, 2015.

Revenues

The Company’s revenues from uranium are largely based on delivery schedules under long-term contracts, which can vary from quarter to quarter.

Revenues for the three months ended March 31, 2016 totaled $18.00 million compared with $7.60 million in the three months ended March 31, 2015.

Revenues for the three months ended March 31, 2016 totaled $18.00 million, of which $17.98 million were sales of 350,000 pounds of U ₃ O ₈ , which included the sale of 300,000 pounds of U ₃ O ₈ pursuant to term contracts at an average price of $54.19 per pound and the sale of 50,000 pounds of U ₃ O ₈ on the spot market at a price of $34.40 per pound. All of the sales for the three months ended March 31, 2016 were related to the Conventional Uranium Segment.

There were no sales related to the ISR Uranium Segment for the three months ended March 31, 2016.

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Revenues for the three months ended March 31, 2015 totaled $7.60 million, of which $6.99 million were sales of 116,667 pounds of uranium concentrates, all of which were pursuant to long term contracts at an average price of $59.95 per pound and related to the Conventional Uranium Segment and $0.60 million related to revenue received under a processing agreement.

Operating Expenses

Uranium recovered and costs and expenses applicable to revenue

In the three months ended March 31, 2016, the Company recovered 85,000 pounds of U ₃ O ₈ from its ISR Uranium Segment. As the Company operates its Conventional Uranium Segment on a campaign basis no uranium concentrates were recovered. In the three months ended March 31, 2015, the Company recovered 200,000 pounds of U ₃ O ₈ (all from the Conventional Uranium Segment) of which 58,000 pounds of U ₃ O ₈ were for the account of a third party under a processing agreement. Uranium recovered for its own account included 142,000 pounds from alternate feed sources.

Costs and expenses applicable to revenue for the three months ended March 31, 2016 totaled $12.14 million, compared with $3.84 million for the three months ended March 31, 2015. The increase in the cost of sales was primarily attributable to the increase in the quantity of U ₃ O ₈ sold year over year as discussed above. Costs of goods sold averaged $34.69 per pound and $32.95 per pound for the three months ended March 31, 2016 and 2015, respectively.

Other operating costs and expenses

Development, permitting and land holding

For the three months ended March 31, 2016, the Company spent $7.44 million for development, permitting, and land holding primarily related to wellfield construction and partial construction of the elution circuit at the Nichols Ranch Project and for the replacement of five leach tanks at the White Mesa Mill in preparation for the upcoming campaign. While we expect the amounts expensed will add value to the Company, we expense these amounts as we do not have proven or probable reserves at the Nichols Ranch Project or the White Mesa asset group under SEC Industry Guide 7. For the three months ended March 31, 2015, we spent $0.20 million primarily on permitting and land holding for our conventional assets.

Standby expense

The Company’s La Sal and Daneros Projects were placed on standby in the last quarter of calendar year 2012, as a result of market conditions. In February 2014, the Company placed its Arizona 1 Project on standby. In 2015, the White Mesa Mill was operated at lower levels of uranium recovery, including prolonged periods of standby. Costs related to the care and maintenance of the standby mines, along with standby costs incurred while the White Mesa Mill was operating at low levels of uranium recovery or on standby, are expensed.

For the three months ended March 31, 2016, standby costs totaled $2.17 million compared with $1.54 million in 2015. The increase is primarily related to increased standby costs at the White Mesa Mill, due to lower uranium recovery levels resulting from an increased amount of time the Mill was on standby. In the three months ended March 31, 2016 the Mill was on standby.

Accretion

Accretion related to the asset retirement obligation for the Company’s properties increased for the three months ended March 31, 2016 ($0.18 million) compared with the 2015 ($0.10 million) primarily due to the increase in the amount of the asset retirement obligation added in connection with the Uranerz acquisition.

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General, and Administrative

General, and administrative expense includes costs associated with marketing uranium, corporate general and administrative costs. General and administrative expenses consist primarily of payroll and related expenses for personnel, contract and professional services, stock-based compensation expense and other overhead expenditures. General and administrative expenses totaled $3.83 million for the three months ended March 31, 2016 compared to $2.71 million for the three months ended March 31, 2015. This increase is due to additional general and administration expenses of $0.35 million related to the acquired ISR uranium segment which was completed in June 2015, and increase in stock-based compensation of $0.54 million and one time payments totaling $0.20 million.

Intangible asset amortization

Intangible asset amortization are non-cash costs of amortization of above-market sales contract value associated with the acquisition of Denison’s US Mining Division in June 2012 and the Uranerz acquisition in June 2015. During the three months ended March 31, 2016 intangible asset amortization totaled $0.22 million compared with $0.55 million for the three months ended March 31, 2015. As the ISR Uranium Segment had no sales in the quarter no amortization was recorded.

Interest Expense and Other Income and Expenses

Interest Expense

Interest expense for the three months ended March 31, 2016 was $0.58 million compared with $0.38 million in the prior year. The increase is primarily due to interest on the $18.81 million in debt assumed from the June 2015 Uranerz acquisition.

Other income and expense

For the three months ended March 31, 2016, other income and expense totaled $0.08 million of income. These amounts consist of a gain on warrant liabilities of $0.25 million and gains in other miscellaneous items of $0.39 million, partially offset by a loss on the change in the mark-to-market values of the Company's Debentures of $0.56 million.

Other income and expense for the three months ended March 31, 2015 totaled $1.05 million of income and mainly consisted of a change in the mark-to-market values of the Company’s Debentures totaling $0.71 million along with other miscellaneous items.

Liquidity and Capital Resources

Funding of major business and property acquisitions

Over the past four years the Company has funded major business and property acquisitions with capital provided by issuance of its common shares. In 2012 Titan Uranium Inc. and the US Mining Division of Denison were acquired, in 2013 Strathmore Minerals Corp. was acquired and in 2015 Uranerz was acquired, each in exchange for newly issued shares. The Company intends to continue to acquire assets utilizing common shares when it can be done under attractive terms.

The Company also intends to complete the acquisition of Mesteña in 2016 through the issuance of 4.55 million shares and pay advisor fees with shares. Additionally, the Company expects to complete the purchase of the 40% interest in Roca Honda from Sumitomo through a combination of cash and common shares.

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Cash issued for shares and warrants

In the first quarter of 2016 0.20 million shares were sold for net proceeds of $0.52 million under the Company’s ATM Offering. Additionally, on March 14, 2016 an equity offering of 5,031,250 units (each unit consisting of one share and one half warrant) was closed for net proceeds of $10.98 million after commissions and estimated expenses of the offering.

Working capital at March 31, 2016

At March 31 2016, the Company had working capital of $37.47 million, including $16.50 million in cash, an account receivable of $8.34 million which was collected in April 2016 and 225,000 pounds of finished goods inventory. The Company believes it has sufficient cash and resources to carry out its business plan beyond Q1 2017.

The Company manages liquidity risk through the management of its capital structure.

Debenture Maturity

The Company currently has 22,000 debentures (each debenture equals Cdn$1,000) that mature on June 30, 2017. At maturity, the Company can repay the indebtedness represented by the Debentures by paying to the debenture trustee in Canadian dollars an amount equal to the aggregate Cdn$22.0 million (US$16.96 million) principal amount of the outstanding Debentures together with accrued and unpaid interest thereon.

Subject to any required regulatory approval and provided no event of default has occurred and is continuing, the Company has the option to satisfy its obligation to repay the Debentures, in whole or in part, at maturity, upon at least 40 days and not more than 60 days prior notice, by delivering that number of common shares obtained by dividing the principal amount of the Debentures maturing by 95% of the volume-weighted average trading price of the common shares on the TSX during the 20 consecutive trading days ending five trading days preceding the maturity date.

The Company intends to keep each of these two options open as it continues to evaluate the best option for the Company based on capital availability and cost of such capital between now and the maturity date of the debentures.

Cash and cash flow

Three months ended March 31, 2016

Cash and cash equivalents were $16.50 million at March 31, 2016, compared to $12.97 million at December 31, 2015. The increase of $3.53 million was due primarily to cash provided by financing activities of $10.70 million, cash provided by investing activities of $0.75 million partially offset by cash used in operations of $8.70 million and gain on foreign exchange on cash held in foreign currencies of $0.79 million.

Net cash provided by financing activities totaled $10.70 million consisting primarily of $11.50 million proceeds from the issuance of stock in the March 2016 public offering and the ATM Offering partially offset by $0.81 million to repay loans and borrowings.

Net cash provided by investing activities was $0.75 million, which was primarily related to cash received from the sale of mineral properties held for sale of $0.85 million partially offset by expenditures for mineral properties and property, plant and equipment of $0.09 million.

Net cash used in operating activities of $8.70 million is comprised of the net loss of $8.87 million for the period adjusted for non-cash items and for changes in working capital items.

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Three months ended March 31, 2015

Cash and cash equivalents were $6.44 million at March 31, 2015, compared to $10.41 million at December 31, 2014. The decrease of $3.97 million was due primarily to cash used by operating activities of $3.03 million, cash used by investing activities of $0.72 million, cash used in financing activities of $0.02 million and loss on foreign exchange on cash held of $0.10 million.

Net cash used by financing activities totaled $0.02 million for repayment of loans and borrowings.

Net cash used by investing activities was $0.72 million for expenditures for property, plant and equipment and mineral properties.

Net cash used in operating activities of $3.03 million is comprised of the net loss of $1.20 million for the period adjusted for non-cash items and for changes in working capital items.

Critical accounting estimates and judgments

The preparation of these consolidated financial statements in accordance with US GAAP requires the use of certain critical accounting estimates and judgments that affect the amounts reported. It also requires management to exercise judgment in applying the Company’s accounting policies. These judgments and estimates are based on management’s best knowledge of the relevant facts and circumstances taking into account previous experience. Although the Company regularly reviews the estimates and judgments made that affect these financial statements, actual results may be materially different.

Significant estimates made by management include:

SEC Industry Guide 7 defines a reserve as “that part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination”. The classification of a reserve must be evidenced by a bankable feasibility study using the latest three-year price average. While the Company has established the existence of mineral resources and has successfully extracted and recovered saleable uranium from certain of these resources, the Company has not established proven or probable reserves, as defined under SEC Industry Guide 7, for these operations or any of its uranium projects. As a result, the Company is in the Exploration Stage as defined under Industry Guide 7. Furthermore, the Company has no plans to establish proven or probable reserves for any of its uranium projects.

While in the Exploration Stage, among other things, the Company must expense all amounts that would normally be capitalized and subsequently depreciated or depleted over the life of the mining operation on properties that have proven or probable reserves. Items such as the construction of wellfields and related header houses, additions to our recovery facilities and advancement of properties will all be expensed in the period incurred. As a result, the Company’s consolidated financial statements may not be directly comparable to the financial statements of mining companies in the development or production stages.

The Company utilizes estimates of its mineral resources based on information compiled by appropriately qualified persons. The information relating to the geological data on the size, depth and shape of the ore body requires complex geological judgments to interpret the data. The estimation of future cash flows related to resources is based upon factors such as estimates of future uranium prices, future construction and operating costs along with geological assumptions and judgments made in estimating the size and grade of the resource. Changes in the mineral resource estimates may impact the carrying value of mining and recovery assets, goodwill, reclamation and remediation obligations and depreciation and impairment.

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We value assets in a business combination based on our estimates of the fair value of the mining and recovery assets acquired.

For mining and recovery assets actively extracting and recovering uranium as well as those assets that we expect to extract uranium from, we value the assets based on the income approach. As we have not acquired proven or probable reserves in our business combinations the value ascribed to these assets is based on our estimates of value beyond proven and probable reserves. The value is calculated based, in part, on technical reports prepared under NI 43-101. Our estimates of extraction and recovery activities and related timing of extraction and recovery as well as the costs involved are demonstrated by at least a preliminary economic assessment. We then adjust the results of the technical reports to include the effects of anticipated fluctuations in the future market price of uranium consistent with what we believe to be the expectations of other market participants as well as any expected operational or cost changes that we expect in the future operations of these mining assets. These cash flow estimates include the estimated cash outflows to develop, extract and recover the estimated saleable U ₃ O ₈ from these operations.

For mining assets that will be held for further evaluation or for sale, we use the market approach utilizing implied transaction multiples from historical uranium transactions.

The costs of mining assets that are acquired in an asset purchase transaction are recorded as mineral interests on the date of purchase based on the consideration given up for the assets. If multiple assets are involved in a transaction, the consideration is allocated based on the relative values of the properties acquired.

For mining and recovery assets actively extracting and recovering uranium we depreciate the acquisition costs of the mining and recovery assets on a straight line basis over our estimated lives of the mining and recovery assets. The process of estimating the useful life of the mining and recovery assets requires significant judgment in evaluating and assessing available geological, geophysical, engineering and economic data, projected rates of extraction and recovery, estimated commodity price forecasts and the timing of future expenditures, all of which are, by their very nature, subject to interpretation and uncertainty.

Changes in these estimates may materially impact the carrying value of the Company’s mining and recovery assets and the recorded amount of depreciation.

Management uses judgment in applying the acquisition method of accounting for business combinations and in determining fair values of the identifiable assets and liabilities acquired. The value placed on the acquired assets and liabilities, including identifiable intangible assets, will have an effect on the amount of goodwill or bargain purchase gain that the Company may record on an acquisition. Changes in economic conditions, commodity prices and other factors between the date that an acquisition is announced and when it finally is consummated can have a material difference on the allocation used to record a preliminary purchase price allocation versus the final purchase price allocation which can take up to one year after acquisition to complete. See b. above for information related to the valuation of mining and recovery assets in this process.

The Company undertakes a review of the carrying values of its mining and recovery assets whenever events or changes in circumstances indicate that their carrying values may exceed their estimated net recoverable amounts determined by reference to estimated future operating results and net cash flows. An impairment loss is recognized when the carrying value of a mining or recovery asset is not recoverable based on this analysis. In undertaking this review, the management of the Company is required to make significant estimates of, among other things, future production and sale volumes, forecast commodity prices, future operating and capital costs and reclamation costs to the end of the mining asset’s life. These estimates are subject to various risks and uncertainties, which may ultimately have an effect on the expected recoverability of the carrying values of mining and recovery assets.

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Asset retirement obligations are recorded as a liability when an asset that will require reclamation and remediation is initially acquired. For disturbances created on a property owned that will require future reclamation and remediation the Company records asset retirement obligations for such disturbance when occurred. The Company has accrued its best estimate of its share of the cost to decommission its mining and milling properties in accordance with existing laws, contracts and other policies. The estimate of future costs involves a number of estimates relating to timing, type of costs, mine closure plans, and review of potential methods and technical advancements. Furthermore, due to uncertainties concerning environmental remediation, the ultimate cost of the Company’s decommissioning liability could differ from amounts provided. The estimate of the Company’s obligation is subject to change due to amendments to applicable laws and regulations and as new information concerning the Company’s operations becomes available. The Company is not able to determine the impact on its financial position, if any, of environmental laws and regulations that may be enacted in the future. Additionally, the expected cash flows in the future are discounted at the Company’s estimated cost of capital based on the periods the Company expects to complete the reclamation and remediation activities. Differences in the expected periods of reclamation or in the discount rates used could have a material difference in the actual settlement of the obligations compared with the amounts provided.

Management determines whether an acquisition represent a business combination or asset purchase by considering the stage of exploration and development of an acquired operation. Consideration is given to whether the acquired properties include mineral reserves or mineral resources, in addition to the permitting required and results of economic assessments.