ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
ENERGY FUELS INC.
Consolidated Statements of
Operations and Comprehensive Loss
(unaudited) (Expressed in thousands
of US dollars, except per share amounts)
|
|
For the three months ended
|
|
|
For the six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (Note 11)
|
$
|
7,006
|
|
$
|
23,705
|
|
$
|
25,002
|
|
$
|
31,305
|
|
Costs and expenses applicable to
revenue
|
|
4,099
|
|
|
13,382
|
|
|
16,242
|
|
|
17,226
|
|
Impairment of
inventories (Note 4)
|
|
1,619
|
|
|
-
|
|
|
1,619
|
|
|
-
|
|
Development, permitting and land
holding
|
|
3,475
|
|
|
506
|
|
|
10,917
|
|
|
702
|
|
Standby costs
|
|
1,365
|
|
|
1,781
|
|
|
3,531
|
|
|
3,320
|
|
Accretion of asset retirement
obligation
|
|
176
|
|
|
104
|
|
|
351
|
|
|
207
|
|
Selling costs
|
|
95
|
|
|
91
|
|
|
169
|
|
|
159
|
|
Intangible asset amortization
|
|
2,219
|
|
|
1,255
|
|
|
2,438
|
|
|
1,800
|
|
General and
administration
|
|
4,285
|
|
|
2,625
|
|
|
8,113
|
|
|
5,336
|
|
Costs directly attributable to acquisitions
|
|
-
|
|
|
6,118
|
|
|
-
|
|
|
6,587
|
|
Total operating loss
|
|
(10,327
|
)
|
|
(2,157
|
)
|
|
(18,378
|
)
|
|
(4,032
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
(585
|
)
|
|
(388
|
)
|
|
(1,161
|
)
|
|
(766
|
)
|
Other income (expense) (Note 11)
|
|
471
|
|
|
(1,515
|
)
|
|
233
|
|
|
(465
|
)
|
Net loss
|
|
(10,441
|
)
|
|
(4,060
|
)
|
|
(19,306
|
)
|
|
(5,263
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items that may be
reclassifed in the future to profit and loss
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
327
|
|
|
284
|
|
|
(474
|
)
|
|
1,518
|
|
Unrealized gain (loss) on available-for-sale assets
|
|
34
|
|
|
(52
|
)
|
|
117
|
|
|
(82
|
)
|
Other comprehensive income (loss)
|
|
361
|
|
|
232
|
|
|
(357
|
)
|
|
1,436
|
|
Comprehensive loss
|
$
|
(10,080
|
)
|
$
|
(3,828
|
)
|
$
|
(19,663
|
)
|
$
|
(3,827
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable
to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Owners of the Company
|
$
|
(10,408
|
)
|
$
|
(4,060
|
)
|
$
|
(19,216
|
)
|
$
|
(5,263
|
)
|
Non-controlling interests
|
|
(33
|
)
|
|
-
|
|
|
(90
|
)
|
|
-
|
|
|
$
|
(10,441
|
)
|
$
|
(4,060
|
)
|
$
|
(19,306
|
)
|
$
|
(5,263
|
)
|
Comprehensive loss
attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Owners of the Company
|
$
|
(10,047
|
)
|
$
|
(3,828
|
)
|
$
|
(19,573
|
)
|
$
|
(3,827
|
)
|
Non-controlling interests
|
|
(33
|
)
|
|
-
|
|
|
(90
|
)
|
|
-
|
|
|
$
|
(10,080
|
)
|
$
|
(3,828
|
)
|
$
|
(19,663
|
)
|
$
|
(3,827
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share (Note 9)
|
|
($0.20
|
)
|
|
($0.18
|
)
|
|
($0.38
|
)
|
|
($0.25
|
)
|
7
ENERGY FUELS INC.
Consolidated Balance
Sheets
(unaudited)(Expressed in thousands of US dollars, except per
share amounts)
|
|
As at
|
|
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
14,416
|
|
$
|
12,965
|
|
Trade and other
receivables
|
|
563
|
|
|
2,617
|
|
Inventories (Note 4)
|
|
23,872
|
|
|
30,671
|
|
Prepaid expenses and
other assets
|
|
1,231
|
|
|
1,433
|
|
Mineral properties held for sale
|
|
-
|
|
|
1,301
|
|
Total current assets
|
|
40,082
|
|
|
48,987
|
|
|
|
|
|
|
|
|
Notes receivable and
other
|
|
1,152
|
|
|
1,096
|
|
Plant and equipment (Note 5)
|
|
40,314
|
|
|
29,069
|
|
Mineral properties
(Note 5)
|
|
93,630
|
|
|
91,031
|
|
Intangible assets
|
|
6,680
|
|
|
9,117
|
|
Restricted cash (Note 6)
|
|
19,611
|
|
|
12,980
|
|
Total assets
|
$
|
201,469
|
|
$
|
192,280
|
|
|
|
|
|
|
|
|
LIABILITIES & EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
Accounts payable and
accrued liabilities
|
$
|
7,051
|
|
$
|
9,274
|
|
Warrant liabilities (Note 8)
|
|
1,661
|
|
|
262
|
|
Current portion of
asset retirement obligation (Note 6)
|
|
305
|
|
|
1,000
|
|
Current portion of loans and borrowings (Note 7)
|
|
6,465
|
|
|
3,582
|
|
Total current
liabilities
|
|
15,482
|
|
|
14,118
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
2,422
|
|
|
2,165
|
|
Asset retirement obligation (Note 6)
|
|
13,375
|
|
|
7,573
|
|
Loans and borrowings (Note 7)
|
|
25,745
|
|
|
28,937
|
|
Total liabilities
|
|
57,024
|
|
|
52,793
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
Share capital (Note
8)
Common shares, without par
value, unlimited shares authorized; shares issued and
outstanding
57,653,872 at June 30,
2016 and 46,519,132 at December 31, 2015
|
|
398,555
|
|
|
373,934
|
|
Accumulated deficit
|
|
(261,324
|
)
|
|
(242,108
|
)
|
Accumulated other comprehensive income
|
|
3,148
|
|
|
3,505
|
|
Total shareholders' equity
|
|
140,379
|
|
|
135,331
|
|
Non-controlling interests
|
|
4,066
|
|
|
4,156
|
|
Total equity
|
|
144,445
|
|
|
139,487
|
|
Total liabilities and equity
|
$
|
201,469
|
|
$
|
192,280
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 12)
|
|
|
|
|
|
|
Subsequent events (Note 7a, 15)
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
8
ENERGY FUELS INC.
Consolidated Statements of
Changes in Equity
(unaudited)(Expressed in thousands of US dollars,
except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
comprehensive
|
|
|
shareholders'
|
|
|
Non-controlling
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Deficit
|
|
|
income
|
|
|
equity
|
|
|
interests
|
|
|
Total equity
|
|
Balance at December 31, 2015
|
|
46,519,132
|
|
$
|
373,934
|
|
$
|
(242,108
|
)
|
$
|
3,505
|
|
$
|
135,331
|
|
$
|
4,156
|
|
$
|
139,487
|
|
Net loss
|
|
-
|
|
|
-
|
|
|
(19,216
|
)
|
|
-
|
|
|
(19,216
|
)
|
|
(90
|
)
|
|
(19,306
|
)
|
Other comprehensive income
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(357
|
)
|
|
(357
|
)
|
|
-
|
|
|
(357
|
)
|
Shares issued for cash by at-the-market offering (Note 8a)
|
|
200,200
|
|
|
539
|
|
|
-
|
|
|
-
|
|
|
539
|
|
|
-
|
|
|
539
|
|
Shares issued for public offering (Note 8b)
|
|
5,031,250
|
|
|
10,021
|
|
|
-
|
|
|
-
|
|
|
10,021
|
|
|
-
|
|
|
10,021
|
|
Shares issued for exercise of stock options
|
|
1,200
|
|
|
3
|
|
|
-
|
|
|
-
|
|
|
3
|
|
|
-
|
|
|
3
|
|
Shares issued for the vesting of restricted
stock units
|
|
138,633
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share issuance cost
|
|
-
|
|
|
(1,111
|
)
|
|
-
|
|
|
-
|
|
|
(1,111
|
)
|
|
-
|
|
|
(1,111
|
)
|
Share-based compensation (Note 10)
|
|
-
|
|
|
1,112
|
|
|
-
|
|
|
-
|
|
|
1,112
|
|
|
-
|
|
|
1,112
|
|
Shares issed for acquistion of Alta Mesa (Note 3 and 8d)
|
|
4,551,284
|
|
|
11,378
|
|
|
-
|
|
|
-
|
|
|
11,378
|
|
|
-
|
|
|
11,378
|
|
Shares issued for acquisition of 40% Roca
Honda (Note 8c)
|
|
1,212,173
|
|
|
2,679
|
|
|
-
|
|
|
-
|
|
|
2,679
|
|
|
-
|
|
|
2,679
|
|
Balance at June 30, 2016
|
|
57,653,872
|
|
$
|
398,555
|
|
$
|
(261,324
|
)
|
$
|
3,148
|
|
$
|
140,379
|
|
$
|
4,066
|
|
$
|
144,445
|
|
See accompanying notes to the consolidated financial statements.
9
ENERGY FUELS INC.
Consolidated Statements of Cash
Flows
(unaudited)(Expressed in thousands of US dollars, except per
share amounts)
|
|
For the six months ended
|
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
Net loss for the
period
|
$
|
(19,306
|
)
|
$
|
(5,263
|
)
|
Items not involving
cash:
|
|
|
|
|
|
|
Depletion, depreciation and amortization
|
|
2,591
|
|
|
1,848
|
|
Stock-based compensation (Note 10)
|
|
1,112
|
|
|
497
|
|
Change in value of convertible debentures (Note 7)
|
|
989
|
|
|
890
|
|
Accretion of asset retirement obligation (Note 6)
|
|
351
|
|
|
207
|
|
Unrealized foreign exchange losses
|
|
337
|
|
|
517
|
|
Impairment of inventories
|
|
1,619
|
|
|
-
|
|
Development expenditures
|
|
31
|
|
|
-
|
|
Miscellaneous non- cash (income) expenses
|
|
(1,165
|
)
|
|
3,955
|
|
Changes in assets
and liabilities
|
|
|
|
|
|
|
(Increase) decrease in inventories
|
|
7,681
|
|
|
4,131
|
|
(Increase) decrease in trade and other receivables
|
|
2,206
|
|
|
(2,908
|
)
|
(Increase) decrease in prepaid expenses and other assets
|
|
508
|
|
|
154
|
|
Increase (decrease) in accounts payable and accrued liabilities
|
|
(2,715
|
)
|
|
(51
|
)
|
Changes in deferred
revenue
|
|
257
|
|
|
183
|
|
Cash paid for
reclamation and remediation activities (Note 6)
|
|
(698
|
)
|
|
(195
|
)
|
|
|
(6,202
|
)
|
|
3,965
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
Purchase of mineral
properties and property, plant and equipment
|
|
(42
|
)
|
|
(1,319
|
)
|
Acquisition of
Uranerz Energy Corporation, net of cash acquired
|
|
-
|
|
|
2,457
|
|
Acquisition of Alta
Mesa, net of cash acquired (Note 3)
|
|
(1,290
|
)
|
|
-
|
|
Acquisition of Roca
Honda, net of cash acquired
|
|
101
|
|
|
-
|
|
Change in cash
deposited with regulatory agencies for asset retirement obligations (Note
6)
|
|
(2,147
|
)
|
|
5,267
|
|
Sale of mineral
properties held for sale
|
|
845
|
|
|
-
|
|
|
|
(2,533
|
)
|
|
6,405
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
Issuance of common
shares for cash
|
|
11,503
|
|
|
3
|
|
Option and warrant
exercises
|
|
3
|
|
|
100
|
|
Repayment of loans
and borrowings
|
|
(1,606
|
)
|
|
(25
|
)
|
|
|
9,900
|
|
|
78
|
|
|
|
|
|
|
|
|
INCREASE IN CASH AND
CASH EQUIVALENTS DURING THE PERIOD
|
|
1,165
|
|
|
10,448
|
|
Effect of exchange
rate fluctuations on cash held in foreign currencies
|
|
286
|
|
|
(101
|
)
|
Cash and cash
equivalents - beginning of period
|
|
12,965
|
|
|
10,411
|
|
CASH AND CASH
EQUIVALENTS - END OF PERIOD
|
$
|
14,416
|
|
$
|
20,758
|
|
|
|
|
|
|
|
|
Non-cash investing and financing
transactions:
|
|
|
|
|
|
|
Issuance of secured
notes for acquisition of mineral properties
|
|
-
|
|
|
446
|
|
Issuance of common shares, options and
warrants for acquisition of Uranerz Energy Corporation
|
|
-
|
|
|
110,268
|
|
Issuance of common
shares for acquisition of Alta Mesa (Note 3 and 8d)
|
|
11,378
|
|
|
-
|
|
Issuance of common shares for
acquisition of 40% Roca Honda (Note 8c)
|
|
2,679
|
|
|
-
|
|
See accompanying notes to the consolidated financial statements.
10
ENERGY FUELS INC.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
FOR THE SIX MONTHS ENDED JUNE 30, 2016
|
(Tabular
amounts expressed in thousands of US Dollars except share and per share
amounts)
|
1.
|
THE COMPANY AND DESCRIPTION OF
BUSINESS
|
Energy Fuels Inc. was incorporated under the laws of the
Province of Alberta and was continued under the Business Corporations Act
(Ontario, Canada).
Energy Fuels Inc. and its subsidiary companies (collectively
the Company or EFI) are engaged in uranium extraction, recovery and sales of
uranium from mineral properties and the recycling of uranium bearing materials
generated by third parties. As a part of these activities the Company also
acquires, explores, evaluates and, if warranted, permits uranium properties. The
Companys final uranium product, uranium oxide concentrates
(U
3
O
8
or uranium concentrates), is sold to customers
for further processing into fuel for nuclear reactors.
The Company is an exploration stage mining company as defined
by the United States (US) Securities and Exchange Commission (SEC) Industry
Guide 7 (the SEC Industry Guide 7) as it has not established the existence of
proven or probable reserves on any of our properties.
The consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
(US GAAP) and are presented in thousands of US dollars (USD) except per
share amounts. Certain footnote disclosures have share prices which are
presented in Canadian dollars (Cdn$).
The interim consolidated financial statements included herein
have been prepared by the Company, without audit, pursuant to the rules and
regulations of the SEC. Certain
information and note disclosures normally included in financial statements
prepared in accordance with US GAAP have been condensed or omitted pursuant to
such rules and regulations, although the Company believes that the disclosures
included are adequate to make the information presented not misleading.
In managements opinion, these unaudited interim financial statements
reflect all adjustments, consisting solely of normal recurring items, which are
necessary for the fair presentation of the Companys financial position, results
of operations and cash flows on a basis consistent with that of the Companys
prior audited consolidated financial statements. However, the results of
operations for the interim periods may not be indicative of results to be
expected for the full fiscal year. Therefore these unaudited interim financial
statements should be read in conjunction with the audited financial statements
and notes thereto and summary of significant accounting policies included in the
Companys annual report on Form 10-K for the year ended December 31, 2015.
The consolidated financial statements include the accounts of
the Company and its subsidiaries. All inter-company accounts and transactions
have been eliminated.
11
Recently Adopted Accounting Pronouncements
Fair value measurement
In May 2015, ASU No. 2015-07 was issued related to investments
for which fair value is measured, or are eligible to be measured, using the net
asset value per share practical expedient. This update removes the requirement
to categorize within the fair value hierarchy all investments for which fair
value is measured using the net asset value per share practical expedient. The
amendment also removes certain disclosure requirements for these investments.
This update will impact the annual disclosure related to pension plan assets
measured at fair value. This update is effective in fiscal years, including
interim periods, beginning after December 15, 2015. Adoption of this guidance
effective January 1, 2016 had no impact on the Consolidated Financial
Statements.
Debt issuance costs
In April 2015, ASU No. 2015-03 was issued related to debt
issuance costs. This update simplifies the presentation of debt issuance costs
by requiring debt issuance costs to be presented as a deduction from the
corresponding debt liability. The update is effective in fiscal years, including
interim periods, beginning after December 15, 2015. Adoption of this guidance
effective January 1, 2016 had no impact on the Consolidated Financial
Statements.
Consolidations
In February 2015, ASU No. 2015-02 was issued related to
consolidations. This update makes some targeted changes to current consolidation
guidance and impacts both the voting and the variable interest consolidation
models. In particular, the update changes how companies determine whether
limited partnerships or similar entities are variable interest entities. The
update is effective in fiscal years, including interim periods, beginning after
December 15, 2015. The adoption of this guidance effective January 1, 2016 had
no impact on the Consolidated Financial Statements or disclosures.
Recently Issued Accounting Pronouncements not yet
adopted
The FASB issued the following new and revised standards and
amendments, which are not yet effective which may have future applicability to
the Company:
Investments
In January 2016, ASU No. 2016-01 was issued related to
financial instruments. The new guidance requires entities to measure equity
investments that do not result in consolidation and are not accounted for under
the equity method at fair value and recognize any changes in fair value in net
income. This new guidance also updates certain disclosure requirements for these
investments. This update is effective in fiscal years, including interim
periods, beginning after December 15, 2017, and early adoption is not permitted.
The Company is currently evaluating this guidance and the impact it will have on
the financial statements.
Leases
In February 2016, the FASB issued ASU 2016-02 which core
principle is that a lessee should recognize the assets and the liabilities that
arise from leases, including operating leases. Under the new requirements, a
lessee will recognize in the balance sheet a liability to make lease payments
(the lease liability) and the right-of-use asset representing the right to the
underlying asset for the lease term. For leases with a term of twelve months or
less, the lessee is permitted to make an accounting policy election by class of
underlying asset not to recognize lease assets and lease liabilities. The
recognition, measurement, and presentation of expenses and cash flows arising
from a lease by a lessee have not significantly changed from the previous GAAP.
The standard is effective for fiscal years beginning after December 15, 2018,
including interim periods within such fiscal year, with early adoption
permitted. The ASU requires a modified retrospective transition method with the
option to elect a package of practical expedients. The Company is evaluating the
effect of this amendment and the impact it will have on the Companys financial
statements.
12
Going Concern
In August 2014, ASU 2014-15
guidance was issued which
provides guidance about managements responsibility to evaluate whether there is
substantial doubt about an entitys ability to continue as a going concern and
to provide related footnote disclosures.
The amendments require
management to assess an entitys ability to continue as a going concern by
incorporating and expanding upon certain principles that are currently in US
auditing standards. Specifically, the amendments (1) provide a definition of the
term substantial doubt, (2) require an evaluation every reporting period
including interim periods, (3) provide principles for considering the mitigating
effect of managements plans, (4) require certain disclosures when substantial
doubt is alleviated as a result of consideration of managements plans, (5)
require an express statement and other disclosures when substantial doubt is not
alleviated, and (6) require an assessment for a period of one year after the
date that the financial statements are issued (or available to be issued). The
amendments in this update shall be effective for annual periods ending after
December 15, 2016, and interim periods within annual periods beginning after
December 15, 2016, with early application permitted. The Company is currently
evaluating this guidance and the impact on the Companys financial
statements.
Financial instruments
In January 2016, ASU 2016-01 was issued related to financial
instruments. The update intends to enhance the reporting model for financial
instruments to provide users of financial instruments with more decision-useful
information and addresses certain aspects of the recognition, measurement,
presentation, and disclosure of financial instruments. The update is effective
in fiscal years, including interim periods beginning on or after December 15,
2017. The Company is currently evaluating this guidance and the impact it will
have on the financial statements.
3.
|
ACQUISITION OF THE ALTA MESA ISR
PROJECT
|
On June 16, 2016, the Company acquired 100% of the membership
interests of EFR Alta Mesa LLC (Alta Mesa) (formerly named Mesteña Uranium,
LLC) and its related companies, together referred to as Alta Mesa. Under the
terms of the acquisition agreement, the sellers of Alta Mesa received 4,551,824
common shares of the Company.
Alta Mesa’s primary asset is the Alta Mesa ISR Project (the “Alta Mesa Project”) located in Texas. The Alta Mesa Project is a fully-permitted and licensed production facility that is not currently operating. The acquisition was accounted for as a purchase of assets as Alta Mesa does not meet the definition of a business under ASC Topic 805, Business Combinations because the assets in Alta Mesa do not have developed wellfields which are a key process for extraction of uranium. The development can only commence once uranium prices improve and economic feasibility of the Alta Mesa Project is established. The measurement of the purchase consideration was based on the market price of the Company's common stock on June 16, 2016 of $2.50 per share. The total transaction costs incurred through June 30, 2016 by the Company were $1.29 million which were capitalized as part of the purchase consideration.
The aggregate fair values of assets acquired and liabilities
assumed were as follows on the acquisition date:
13
|
|
|
|
Issuance of 4,551,824
common shares
|
$
|
11,378
|
|
Transaction costs
|
|
1,290
|
|
Purchase consideration
|
$
|
12,668
|
|
The purchase price was allocated as follows:
|
|
|
|
Property, plant and equipment
(a)
|
$
|
13,680
|
|
Inventories
|
|
177
|
|
Restricted cash
|
|
4,478
|
|
Accounts payable and accrued liabilities
|
|
(213
|
)
|
Asset retirement obligation
|
|
(5,454
|
)
|
Net
identifiable assets
|
$
|
12,668
|
|
|
(a)
|
The Property, plant and equipment includes the value
ascribed to the processing plant and equipment. The mineral properties
acquired as part of the acquisition of Alta Mesa in 2016 do not have
proven and probable reserves under SEC Industry Guide 7. Accordingly, all
subsequent expenditures at the Alta Mesa Project and equipment, which do
not have any alternative use, and expenditures on mineral properties are
expensed as incurred.
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Concentrates and
work-in-progress (a)
|
$
|
12,011
|
|
$
|
19,900
|
|
Inventory of ore in stockpiles
|
|
8,798
|
|
|
7,767
|
|
Raw materials and consumables
|
|
3,063
|
|
|
3,004
|
|
|
$
|
23,872
|
|
$
|
30,671
|
|
|
(a)
|
During the period ended June 30, 2016, the Company
recorded an impairment loss of $1.62 million in profit and loss related to
concentrates and work in progress inventories in the ISR
segment.
|
5.
|
PLANT AND EQUIPMENT AND MINERAL
PROPERTIES
|
The following is a summary of plant and equipment:
14
|
|
June
30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Net Book
|
|
|
|
Cost
|
|
|
Depreciation
|
|
|
Net Book Value
|
|
|
Cost
|
|
|
Depreciation
|
|
|
Value
|
|
Plant and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nichols Ranch
|
$
|
29,210
|
|
$
|
(4,583
|
)
|
$
|
24,627
|
|
$
|
29,210
|
|
$
|
(2,370
|
)
|
$
|
26,840
|
|
Alta Mesa (Note 3)
|
|
13,680
|
|
|
-
|
|
|
13,680
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Equipment and other
|
|
13,151
|
|
|
(11,144
|
)
|
|
2,007
|
|
|
13,107
|
|
|
(10,878
|
)
|
|
2,229
|
|
Plant and equipment total
|
$
|
56,041
|
|
$
|
(15,727
|
)
|
$
|
40,314
|
|
$
|
42,317
|
|
$
|
(13,248
|
)
|
$
|
29,069
|
|
The following is a summary of mineral properties:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Mineral properties
|
|
|
|
|
|
|
In-situ Recovery
|
|
|
|
|
|
|
Uranerz ISR properties
|
$
|
36,065
|
|
$
|
36,096
|
|
In-situ Recovery total
|
$
|
36,065
|
|
$
|
36,096
|
|
Conventional
|
|
|
|
|
|
|
Sheep Mountain
|
|
34,183
|
|
|
34,183
|
|
Roca
Honda (a)
|
|
22,095
|
|
|
19,465
|
|
Other
|
|
1,287
|
|
|
1,287
|
|
Conventional total
|
|
57,565
|
|
|
54,935
|
|
Mineral Properties total
|
$
|
93,630
|
|
$
|
91,031
|
|
a)
|
On May 27, 2016, the Company issued 1,212,173 shares to
acquire the remaining 40% interest of the Roca Honda project for
consideration of $2.68 million as well as an additional $4.5 million in
cash payable upon first commencement of commercial mineral extraction. The
acquisition was accounted for as a purchase of assets as Roca Honda does
not meet the definition of a business under ASC Topic 805, Business
Combinations because the Company does not currently have the resources,
both inputs and processes, to apply to the Roca Honda property in order to
extract uranium.
|
6.
|
ASSET RETIREMENT OBLIGATIONS AND RESTRICTED
CASH
|
The following table summarizes the Companys asset retirement
obligations:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Asset retirement obligation,
beginning of period
|
$
|
8,573
|
|
$
|
5,683
|
|
Revision of estimate
|
|
-
|
|
|
877
|
|
Aquried in asset
acquisitions or business combinations
|
|
5,454
|
|
|
2,145
|
|
Accretion of liabilities
|
|
351
|
|
|
494
|
|
Settlements
|
|
(698
|
)
|
|
(626
|
)
|
Asset retirement obligation, end of period
|
$
|
13,680
|
|
$
|
8,573
|
|
Asset retirement obligation:
|
|
|
|
|
|
|
Current
|
$
|
305
|
|
$
|
1,000
|
|
Non-current
|
|
13,375
|
|
|
7,573
|
|
Asset retirement obligation, end of period
|
$
|
13,680
|
|
$
|
8,573
|
|
15
Revision of estimates is as a result of a change in estimates
of the amount or timing of cash flows to settle asset retirement obligations.
Changes to the asset retirement obligations are recorded in profit and loss.
The asset retirement obligations of the Company are subject to
legal and regulatory requirements. Estimates of the costs of reclamation are
reviewed periodically by the applicable regulatory authorities. The above
provision represents the Companys best estimate of the present value of future
reclamation costs, discounted using credit adjusted risk-free interest rates
ranging from 9.5% to 11.5% and an inflation rate of 2.0% (December 31, 2015
2.0%). The total undiscounted decommissioning liability at June 30, 2016 is
$41.23 million (December 31, 2015 - $32.30 million). Reclamation costs are
expected to be incurred between 2016 and 2038 in the following manner: 2016
2020 - $4.67 million, 2021 2025 - $9.41 million, 2026 2030 - $2.69 million,
2031 2035 - $8.78 million, 2036 2038 - $15.67 million.
The following table summarizes the Companys restricted cash:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Restricted cash, beginning of
period
|
$
|
12,980
|
|
$
|
16,148
|
|
Restricted cash from
acquisitions
|
|
4,478
|
|
|
2,100
|
|
Refunds of
collateral
|
|
-
|
|
|
(5,268
|
)
|
Collateral posted
|
|
2,153
|
|
|
-
|
|
Restricted cash, end of period
|
$
|
19,611
|
|
$
|
12,980
|
|
The Company has cash, cash equivalents and fixed income
securities as collateral for various bonds posted in favor of the State of Utah,
the State of Wyoming, the applicable state regulatory agencies in Colorado and
Arizona and the U.S. Bureau of Land Management for estimated reclamation costs
associated with the White Mesa mill and mining properties. Cash equivalents are
short-term highly liquid investments with original maturities of three months or
less. The restricted cash will be released when the Company has reclaimed a
mineral property or restructured the surety and collateral arrangements. See
Note 12 for a discussion of the Companys surety bond commitments.
The contractual terms of the Companys interest-bearing loans
and borrowings, which are measured at amortized cost, and the Companys
convertible debentures which are measured at fair value, are as follows.
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Current portion of loans and
borrowings:
|
|
|
|
|
|
|
Convertible debentures (a)
|
$
|
3,314
|
|
$
|
-
|
|
Secured note (b)
|
|
-
|
|
|
250
|
|
Wyoming Industrial Development Revenue
Bond loan (c)
|
|
3,133
|
|
|
3,291
|
|
Finance leases and other
|
|
18
|
|
|
41
|
|
Total current loans and borrowings
|
$
|
6,465
|
|
$
|
3,582
|
|
Long-term loans and
borrowings:
|
|
|
|
|
|
|
Convertible debentures (a)
|
$
|
13,256
|
|
$
|
14,624
|
|
Secured note (b)
|
|
-
|
|
|
224
|
|
Wyoming Industrial Development Revenue
Bond loan (c)
|
|
12,489
|
|
|
14,078
|
|
Finance leases and other
|
|
-
|
|
|
11
|
|
Total long-term loans and borrowings
|
$
|
25,745
|
|
$
|
28,937
|
|
16
|
(a)
|
On July 24, 2012, the Company completed a bought deal
public offering of 22,000 floating-rate convertible unsecured subordinated
debentures originally maturing June 30, 2017 (the Debentures), but amended August 4, 2016 to mature on December 31, 2020. The Debentures were
issued at a price of Cdn$1,000 per Debenture for gross proceeds of $21.55
million (the Offering). The Debentures were originally convertible into common
shares at the option of the holder at a conversion price of Cdn$15.00 per
common share, but was amended on August 4, 2016 to be a conversion price of Cdn$4.15 per common share. Interest is paid in cash and in addition, unless an event of
default has occurred and is continuing, the Company may elect, from time
to time, subject to applicable regulatory approval, to satisfy its
obligation to pay interest on the Debentures, on the date it is payable
under the indenture (i) in cash; (ii) by delivering sufficient common
shares to the debenture trustee, for sale, to satisfy the interest
obligations in accordance with the indenture in which event holders of the
Debentures will be entitled to receive a cash payment equal to the
proceeds of the sale of such common shares; or (iii) any combination of
(i) and (ii).
|
|
|
|
|
|
The Debentures accrue interest, payable semi-annually in
arrears on June 30 and December 31 of each year at a fluctuating rate, of
not less than 8.5% and not more than 13.5%, indexed to the simple average
spot price of uranium as reported on the UxC Weekly Indicator Price.
Interest can be paid in cash or issuance of the Companys common shares.
The Debentures may be redeemed in whole or part, at par plus accrued
interest and unpaid interest by the Company between June 30, 2015 and June
30, 2017 subject to certain terms and conditions, provided the volume
weighted average trading price of the common shares of the Company on the
TSX during the 20 consecutive trading days ending five days preceding the
date on which the notice of redemption is given is not less than 125% of
the conversion price.
|
|
|
|
|
|
Upon redemption or at maturity, the Company will repay
the indebtedness represented by the Debentures by paying to the debenture
trustee in Canadian dollars an amount equal to the aggregate principal
amount of the outstanding Debentures which are to be redeemed or which
have matured, as applicable, 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 Cdn$1,000 principal amount
of the Debentures, in whole or in part, due at redemption or 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 Cdn$1,000
principal amount of the Debentures maturing or to be redeemed as
applicable, 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 date fixed for redemption or the maturity
date, as the case may be.
|
|
|
|
|
|
On August 4, 2016, the Company, by a vote of the Debentureholders, extended the maturity date of the Debentures from June 30, 2017 to December 31, 2020, reduced the conversion price of the Debentures from Cdn$15.00 to Cdn$4.15 per Common Share of the Company. In addition, a redemption provision was added that will enable the Company, upon giving not less than 30 days notice to Debentureholders, to redeem the Debentures, for cash, in whole or in part at any time after June 30, 2019, but prior to maturity, at a price of 101% of the aggregate principal amount redeemed, plus accrued and unpaid interest (less any tax required by law to be deducted) on such Debentures up to but excluding the redemption date. A right (in favor of each Debentureholder) was also added to give the Debentureholders the option to require the Company to purchase, for cash, on the previous maturity date of June 30, 2017, up to 20% of the Debentures held by the Debentureholders at a price equal to 100% of the principal amount purchased plus accrued and unpaid interest (less any tax required by law to be deducted). In addition, certain other amendments were made to the Indenture, as required by the U.S. Trust Indenture Act of 1939, as amended, and with respect to the addition of a U.S. Trustee in compliance therewith, as well as to remove provisions of the Indenture that no longer apply, such as U.S. securities law restrictions that are no longer relevant.
In accordance with the revised terms approved on August 4, 2016, the Company has classified 20% of the principal amount of the debenture as a current liability.
|
|
|
|
|
|
The debentures are classified as fair value through
profit or loss where the debentures are measured at fair value based on
the closing price on the TSX (a level 1 measurement) and changes are
recognized in earnings. For the six months ended June 30, 2016 the Company
recorded a loss on revaluation of convertible debentures of $0.99 million
(June 30, 2015 $0.89 million).
|
|
|
|
|
(b)
|
In February 2015 the Company issued a secured note in the
amount of $0.45 million for a 50% interest in a joint venture with an
effective interest rate of 7%. In February 2016 the Company amended the
terms of the note to include a onetime payment of $0.05 million on
February 13, 2016 and a payment of $0.45 million due on the date on which
ore from the Wate Project is successfully processed through a mill into
uranium concentrates.
|
|
|
|
|
(c)
|
The Company through its acquisition of Uranerz assumed a
loan through the Wyoming Industrial Development Revenue Bond program (the
"Loan"). The Loan has an annual interest rate of 5.75% and is repayable
over seven years, maturing on October 15, 2020. The Loan originated on
December 3, 2013 and required the payment of interest only for the first
year, with the amortization of principal plus interest over the remaining
six years. The Loan can be repaid earlier than its maturity date if the
Company so chooses without penalty or premium. The Loan is secured by most
of the assets of the Companys wholly owned subsidiary, Uranerz, including
mineral properties, the processing facility, and equipment as well as an
assignment of all of Uranerz rights, title and interest in and to its
product sales contracts and other agreements. Uranerz is also subject to
dividend restrictions. Principal and interest are paid on a quarterly
basis on the first day of January, April, July and October. At June 30,
2016 the loan had an outstanding balance of $15.62 million of which the
current portion of the note was $3.13 million.
|
Authorized capital stock
17
The Company is authorized to issue an unlimited number of
Common Shares without par value, unlimited Preferred Shares issuable in series,
and unlimited Series A Preferred Shares. The Series A Preferred shares are
non-redeemable, non-callable, non-voting and with no right to dividends. The
Preferred Shares issuable in series will have the rights, privileges,
restrictions and conditions assigned to the particular series upon the Board of
Directors approving their issuance.
Issued capital stock
The significant transactions relating to capital stock issued
for the six months ended June 30, 2016 are:
a)
|
In the six months ended June 30, 2016, The Company issued
200,200 shares under the Companys at-the-market offering (the ATM)
for proceeds of $0.53 million.
|
|
|
b)
|
On March 14, 2016, the Company completed a public
offering of 5,031,250 units at a price of $2.40 per unit for gross
proceeds of $12.08 million. Each Unit consists of one common share and one
half of one common share purchase warrant, or a total of 5,031,250 Shares
and 2,515,625 Warrants. Each warrant is exercisable until March 14, 2019
and entitles the holder thereof to acquire one Share upon exercise at an
exercise price of US$3.20 per share. These warrants are accounted for as a
derivative liability, as the functional currency of the entity issuing the
warrant is Cdn$.
|
The following weighted average assumptions were used for the
Black-Scholes option pricing model to calculate the $2.09 million of fair value
for the 2,515,625 warrants issued in connection with the public offering in
March 2016.
Risk-free rate
|
1.15%
|
Expected life
|
3.0 years
|
Expected volatility
|
61.2%*
|
Expected dividend yield
|
0.0%
|
|
*
|
Expected volatility is measured based on the
Companys historical share price volatility over the expected life of the
warrants.
|
c)
|
On May 27, 2016, the Company issued 1,212,173 shares to
acquire the remaining 40% interest of the Roca Honda Joint Venture for
share consideration of $2.68 million.
|
|
|
d)
|
On June 16, 2016 the Company issued 4,551,284 shares to
acquire Alta Mesa with value of $11.38 million.
|
Share Purchase Warrants
The Company has share purchase warrants denominated in Canadian
dollars and US dollars.
The following table summarizes the Companys share purchase
warrants denominated in Cdn$:
|
|
|
|
|
Exercise Price
|
|
|
Warrants
|
|
Month Issued
|
|
Expiry Date
|
|
|
Cdn$
|
|
|
Outstanding
|
|
June 2012(1)
|
|
June 22, 2017
|
|
|
13.25
|
|
|
351,025
|
|
June
2013(1)
|
|
June 15, 2017
|
|
|
9.50
|
|
|
456,948
|
|
|
(1)
|
The expiration date for these warrants was extended by
one year on March 24, 2016.
|
The following table summarizes the Companys share purchase
warrants denominated in USD. These warrants are accounted for as derivative
liabilities as the functional currency of the entity issuing the warrants is
Cdn$.
18
|
|
|
|
|
Exercise Price
|
|
|
Warrants
|
|
|
Fair value at
|
|
Month Issued
|
|
Expiry Date
|
|
|
USD$
|
|
|
Outstanding
|
|
|
June 30, 2016
|
|
June 2015
|
|
January 25, 2017
|
|
|
6.28
|
|
|
1,224,000
|
|
$
|
35
|
|
March 2016
|
|
March 14, 2019
|
|
|
3.20
|
|
|
2,515,625
|
|
|
1,626
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,661
|
|
The US dollar based warrants are classified as Level 2 under
the fair value hierarchy (Note 15).
The following weighted average assumptions were used for the
Black-Scholes option pricing model to calculate the $1.63 million of fair value
for the 2,515,625 warrants at June 30, 2016.
Risk-free rate
|
0.71%
|
Expected life
|
2.7 years
|
Expected volatility
|
99.6%*
|
Expected dividend yield
|
0.0%
|
The following weighted average assumptions were used for the
Black-Scholes option pricing model to calculate the $0.40 million of fair value
for the 1,224,000 warrants at June 30, 2016.
Risk-free rate
|
0.36%
|
Expected life
|
0.6 years
|
Expected volatility
|
56.0%*
|
Expected dividend yield
|
0.0%
|
|
*
|
Expected volatility is measured based on the Companys
historical share price volatility over the expected life of the warrants.
|
9.
|
BASIC AND DILUTED LOSS PER COMMON
SHARE
|
Basic and diluted loss per share
The calculation of diluted earnings per share after adjustment
for the effects of all potential dilutive common shares, calculated as follows:
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Loss attributable to
shareholders
|
|
($10,408
|
)
|
|
($4,060
|
)
|
|
($19,216
|
)
|
|
($5,263
|
)
|
Basic and diluted weighted average number
|
|
|
|
|
|
|
|
|
|
|
|
|
of common shares outstanding
|
|
53,043,512
|
|
|
22,999,968
|
|
|
50,282,647
|
|
|
21,347,938
|
|
Loss per common share
|
|
($0.20
|
)
|
|
($0.18
|
)
|
|
($0.38
|
)
|
|
($0.25
|
)
|
For the three and six months ended June 30, 2016 and 2015, 6.76
million and 3.84 million options and warrants, respectively, and the potential
conversion of the uranium debentures have been excluded from the calculation as
their effect would have been anti-dilutive.
The Company, under the 2015 Omnibus Equity Incentive
Compensation Plan (the Compensation Plan), maintains a stock incentive plan
for directors, executives, eligible employees and consultants. Stock incentive
awards include employee stock options and restricted stock units (RSUs). The
Company issues new shares of common stock to satisfy exercises and vesting under all of its stock incentive awards. At June 30, 2016, a
total of 5,765,387 shares were authorized for stock incentive plan awards.
19
Employee Stock Options
The Company, under the Compensation Plan may grant options to
directors, executives, employees and consultants to purchase common shares of
the Company. The exercise price of the options is set as the higher of the
Companys closing share price on the day before the grant date or the five-day
volume weighted average price. Stock options granted under the Compensation Plan
generally vest over a period of two years or more and are generally exercisable
over a period of five years from the grant date not to exceed 10 years. The
value of each option award is estimated at the grant date using the
Black-Scholes Option Valuation Model. There were 0.42 million options granted in
the six months ended June 30, 2016 (six months ended June 30, 2015 0.13
million). At June 30, 2016, there were 2.21 million options outstanding with
1.96 million options exercisable, at a weighted average exercise price of $6.54,
with a weighted average remaining contractual life of 4.27 years. The aggregate
intrinsic value of the fully vested shares was $0.03 million.
The fair value of the options granted under the Compensation
Plan for the six months ended June 30, 2016 was estimated at the date of grant,
using the Black-Scholes Option Valuation Model, with the following
weighted-average assumptions:
Risk-free interest rate
|
1.43%
|
Expected life
|
5.0 years
|
Expected volatility
|
74.8*
|
Expected dividend yield
|
0.00%
|
Weighted-average expected life of option
|
5.00
|
Weighted-average grant date fair value
|
$1.22
|
|
*
|
Expected volatility is measured based on the Companys
historical share price volatility over a period equivalent to the expected
life of the options.
|
The summary of the Companys stock options at June 30, 2016 and
December 31, 2015, and the changes for the fiscal periods ending on those dates
is presented below:
|
|
Six Months ended
|
|
|
Year ended
|
|
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Range of
|
|
|
Weighted
|
|
|
|
|
|
|
Range of
|
|
|
Average
|
|
|
|
|
|
Exercise
|
|
|
Average
|
|
|
|
|
|
|
Exercise Prices
|
|
|
Exercise Price
|
|
|
Number of
|
|
|
Prices
|
|
|
Exercise Price
|
|
|
Number of
|
|
|
|
$
|
|
|
$
|
|
|
Options
|
|
|
$
|
|
|
$
|
|
|
Options
|
|
Balance, beginning of period
|
|
2.55 -
32.10
|
|
|
6.54
|
|
|
2,122,897
|
|
|
6.55 - 38.12
|
|
|
10.05
|
|
|
905,413
|
|
Transactions during the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
2.12
|
|
|
2.12
|
|
|
418,287
|
|
|
2.55 - 18.55
|
|
|
6.02
|
|
|
2,176,330
|
|
Exercised
|
|
2.12
|
|
|
2.12
|
|
|
(1,200
|
)
|
|
2.55 - 4.48
|
|
|
3.78
|
|
|
(48,802
|
)
|
Forfeited
|
|
2.12 -
19.60
|
|
|
6.58
|
|
|
(223,829
|
)
|
|
4.44 - 29.71
|
|
|
7.29
|
|
|
(574,486
|
)
|
Expired
|
|
2.95 - 33.05
|
|
|
8.06
|
|
|
(106,562
|
)
|
|
7.47 - 32.10
|
|
|
7.42
|
|
|
(335,558
|
)
|
Balance, end of period
|
|
2.12 - 15.61
|
|
|
5.81
|
|
|
2,209,593
|
|
|
2.55 - 32.10
|
|
|
6.54
|
|
|
2,122,897
|
|
Restricted Share Units
The Company grants RSUs to executives and eligible employees.
Awards are determined as a target percentage of base salary and vest over
periods of three years. Prior to vesting, holders of restricted stock units do
not have the right to vote the underlying shares. The restricted stock units are
subject to forfeiture risk and other restrictions. Upon vesting, the employee is
entitled to receive one share of the Companys common stock for each restricted
stock unit for no additional payment. During the three months ended June 30,
2016, the Companys Board of Directors approved the issuance of 948,047 RSUs
under the Compensation Plan (2015 153,850).
20
A summary of the status and activity of non-vested stock
options and RSUs at June 30, 2016 is as follows:
|
|
Stock-option
|
|
|
RSU
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
Average Grant-
|
|
|
Number of
|
|
|
Average Grant-
|
|
|
|
shares
|
|
|
Date Fair Value
|
|
|
shares
|
|
|
Date Fair Value
|
|
Non-vested December 31, 2015
|
|
177,698
|
|
$
|
3.44
|
|
|
272,866
|
|
$
|
4.03
|
|
Granted
|
|
418,287
|
|
|
1.30
|
|
|
948,047
|
|
|
2.12
|
|
Vested
|
|
(317,772
|
)
|
|
2.24
|
|
|
(138,608
|
)
|
|
4.65
|
|
Forfeited
|
|
(28,045
|
)
|
|
2.08
|
|
|
(5,775
|
)
|
|
5.15
|
|
Non-vested June 30, 2016
|
|
250,168
|
|
$
|
1.54
|
|
|
1,076,530
|
|
$
|
2.41
|
|
The total intrinsic value and fair value of RSUs that vested
and were settled for equity in the three months and six months ended June 30,
2016 was $0.30 million (2015 Nil) and $0.6 million (2015 Nil) respectively.
At June 30, 2016, there was $0.18 million and $1.49 million of
unrecognized compensation costs related to the unvested stock options and RSU
awards, respectively. This cost is expected to be recognized over a period of
approximately two years.
In the six months ended June 30, 2016 the Company issued 1,200
shares upon exercise of stock options at an average exercise price of $2.12 for
proceeds of less than $0.01 million. These options had an intrinsic value of
less than $0.01 million.
The share-based compensation recorded during the three and six
months ended June 30, 2016 and 2015 is as follows:
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Share-based compensation
|
$
|
445
|
|
$
|
374
|
|
$
|
1,112
|
|
$
|
497
|
|
Replacement of options from business
combinations and asset acquisitions
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3,683
|
|
Value of stock options granted
|
$
|
445
|
|
$
|
374
|
|
$
|
1,112
|
|
$
|
4,180
|
|
11.
|
SUPPLEMENTAL FINANCIAL
INFORMATION
|
The components of revenues are as follows:
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Uranium concentrates
|
$
|
6,999
|
|
$
|
23,641
|
|
$
|
24,977
|
|
$
|
30,636
|
|
Alternate feed
materials processing and other
|
|
7
|
|
|
64
|
|
|
25
|
|
|
669
|
|
Revenues
|
$
|
7,006
|
|
$
|
23,705
|
|
$
|
25,002
|
|
$
|
31,305
|
|
The components of other income (expense) are as follows:
21
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
$
|
20
|
|
$
|
17
|
|
$
|
40
|
|
$
|
39
|
|
Change in value of investments accounted at
fair value
|
|
(69
|
)
|
|
38
|
|
|
-
|
|
|
(38
|
)
|
Change in value of warrant
liabilities
|
|
448
|
|
|
-
|
|
|
701
|
|
|
-
|
|
Change in value of convertible debentures
|
|
(428
|
)
|
|
(1,599
|
)
|
|
(989
|
)
|
|
(890
|
)
|
Other
|
|
500
|
|
|
29
|
|
|
481
|
|
|
424
|
|
Other income (expense)
|
$
|
471
|
|
$
|
(1,515
|
)
|
$
|
233
|
|
$
|
(465
|
)
|
12.
|
COMMITMENTS AND
CONTINGENCIES
|
General legal matters
White Mesa Mill
In November, 2012, the Company was served with a Plaintiffs
Original Petition and Jury Demand in the District Court of Harris County, Texas,
claiming unspecified damages from the disease and injuries resulting from
mesothelioma from exposure to asbestos, which the Plaintiff claims was
contributed by being exposed to asbestos products and dust while working at the
White Mesa Mill. The Company does not consider this claim to have any merit, and
therefore does not believe it will materially affect its financial position,
results of operations or cash flows. In January, 2013, the Company filed a
Special Appearance challenging jurisdiction and certain other procedural matters
relating to this claim. No other activity involving the Company on this matter
has occurred since that date.
In January, 2013, the Ute Mountain Ute tribe filed a Petition
to Intervene and Request for Agency Action challenging the Corrective Action
Plan approved by the State of Utah Department of Environmental Quality (UDEQ)
relating to nitrate contamination in the shallow aquifer at the White Mesa Mill
site. This challenge is currently being evaluated, and may involve the
appointment of an administrative law judge to hear the matter. The Company does
not consider this action to have any merit. If the petition is successful, the
likely outcome would be a requirement to modify or replace the existing
Corrective Action Plan. At this time, the Company does not believe any such
modification or replacement would materially affect our financial position,
results of operations or cash flows. However, the scope and costs of remediation
under a revised or replacement Corrective Action Plan have not yet been
determined and could be significant.
In April 2014, the Grand Canyon Trust filed a citizen suit in
federal district court for alleged violations of the Clean Air Act at the White
Mesa Mill. In October 2014, the plaintiffs were granted leave by the court to
add further purported violations to their April 2014 suit. The Complaint, as
amended, alleges that radon from one of the Mills tailings impoundments
exceeded the standard; that the mill is in violation of a requirement that only
two tailings impoundments may be in operation at any one time; and that certain
other violations related to the manner of measuring and reporting radon results
from one of the tailings impoundments occurred in 2013. The Complaint asks the
court to impose injunctive relief, civil penalties of up to $38,000 per day per
violation, costs of litigation including attorneys fees, and other relief. The
Company believes the issues raised in the Complaint are being addressed through
the proper regulatory channels and is currently in compliance with all
applicable regulatory requirements relating to those matters. The Company
intends to defend against all issues raised in the Complaint. Cross motions for
summary judgement have been fully briefed, and a hearing is set for November 17,
2016.
Canyon Project
In March, 2013, the Center for Biological Diversity, the Grand
Canyon Trust, the Sierra Club and the Havasupai Tribe (the Canyon Plaintiffs)
filed a complaint in the U.S. District Court for the District of Arizona (the
District Court) against the Forest Supervisor for the Kaibab National Forest
and the United States Forest Service (USFS) seeking an order (a) declaring
that the USFS failed to comply with environmental, mining, public land, and
historic preservation laws in relation to our Canyon Project, (b) setting aside
any approvals regarding exploration and mining operations at the Canyon Project,
and (c) directing operations to cease at the Project and enjoining the USFS from
allowing any further exploration or mining-related activities at the Canyon
Project until the USFS fully complies with all applicable laws. In April 2013,
the Plaintiffs filed a Motion for Preliminary Injunction, which was denied by
the District Court in September, 2013. On April 7, 2015, the District Court
issued its final ruling on the merits in favor of the Defendants and the Company
and against the Canyon Plaintiffs on all counts. The Canyon Plaintiffs appealed
the District Courts ruling on the merits to the Ninth Circuit Court of Appeals,
and filed motions for an injunction pending appeal with the District Court.
Those motions for an injunction pending appeal were denied by the District Court
on May 26, 2015. Thereafter, Plaintiffs filed urgent motions for an injunction
pending appeal with the Ninth Circuit Court of Appeals, which were denied on June 30, 2015. Briefing on the
appeal on the merits is now complete, and the parties are waiting for a hearing
to be scheduled. If the Canyon Plaintiffs are successful on their appeal on the
merits, the Company may be required to maintain the Canyon Project on standby
pending resolution of the matter. Such a required prolonged stoppage of shaft
sinking and mining activities could have a significant impact on our future
operations.
22
Surety bonds
The Company has indemnified third-party companies to provide
surety bonds as collateral for the Companys ARO. The Company is obligated to
replace this collateral in the event of a default, and is obligated to repay any
reclamation or closure costs due. The Company currently has $19.61 million
posted against an undiscounted ARO of $41.23 million (June 2015 - $12.98 million
posted against undiscounted asset retirement obligation of $31.27 million). One
of the Companys surety bond holders has requested additional collateral to be
posted at the following intervals: $1.76 million to be funded by July 31, 2016,
$1.76 million to be funded by November 30, 2016, $1.76 million to be funded by
February 28, 2017.
The Company Is engaged in uranium extraction, recovery and
sales of uranium from mineral properties and the recycling of uranium bearing
materials generated by third parties. As a part of these activities the Company
also acquires, explores, evaluates and, if warranted, permits uranium
properties. The Companys primary mining activities are in the United States.
The reportable segments are those operations whose operating
results are reviewed by the Chief Executive Officer to make decisions about
resources to be allocated to the segment and assess its performance provided
those operations pass certain quantitative thresholds. Operations whose
revenues, earnings or losses or assets exceed 10% of the total consolidated
revenue, earnings or losses or assets are reportable segments. Information about
assets and liabilities of the segment has not been provided because the
information is not used to assess performance.
In order to determine reportable operating segments, management
reviewed various factors, including geographical location and managerial
structure. It was determined by management that a reportable operating segment
generally consists of an individual property managed by a single general manager
and management team. Finance income (expense), other income (expenses) are
managed on a consolidated basis and are not allocated to operating segments.
Non-mining activities and other operations are reported in
Corporate and other.
The Company has two operating segments, the conventional
uranium recovery segment (the Conventional Uranium Segment) and the in-situ
uranium recovery segment (ISR Uranium Segment).
The Conventional Uranium Segment
The Conventional Uranium Segment consists of a standalone
conventional uranium recovery facility (the White Mesa Mill), conventional
mining projects in the vicinity of the White Mesa Mill located in the Colorado
Plateau, Henry Mountains, Arizona Strip, and the Roca Honda Project (Roca
Honda) in New Mexico, and the Sheep Mountain Project (Sheep Mountain) in
Wyoming. At June 30, 2016 the conventional mining projects in the vicinity of
the White Mesa Mill are on standby, being evaluated for continued mining
activities and/or in process of being permitted. The White Mesa Mill also
processes third party uranium bearing mineralized materials from mining and
recycling activities.
The ISR Uranium Segment
The ISR Uranium Segment consists of an operating uranium
recovery facility to recover concentrated uranium from wellfields of the Nichols
Ranch Project located in Wyoming and a uranium recovery facility and wellfields
maintained on standby as part of the Alta Mesa Project in Texas. The Nichols
Ranch Project also includes the Jane Dough property and the Hank Project.
Additionally, the segment includes other mineral properties in the vicinity on
the Nichols Ranch Project and the Alta Mesa Project. The Nichols Ranch Project
and surrounding assets were acquired as part of the Companys 2015 acquisition
of Uranerz Energy Corporation and the Alta Mesa Project was acquired in June of
2016.
The following tables set forth operating results by reportable
segment for the three months ended June 30, 2016:
23
|
|
|
|
|
|
|
|
Non-Operating
|
|
|
|
|
|
|
Operating Segments
|
|
|
Segments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2016
|
|
Conventional
|
|
|
ISR
|
|
|
Corporate & Other
|
|
|
Total
|
|
Revenue
|
$
|
6
|
|
$
|
7,000
|
|
$
|
-
|
|
|
7,006
|
|
Costs and expenses
applicable to revenue
|
|
-
|
|
|
4,099
|
|
|
-
|
|
|
4,099
|
|
Impairment of inventories
|
|
-
|
|
|
1,619
|
|
|
-
|
|
|
1,619
|
|
Development, permitting
and land holding
|
|
2,423
|
|
|
1,052
|
|
|
-
|
|
|
3,475
|
|
Standby costs
|
|
1,365
|
|
|
-
|
|
|
-
|
|
|
1,365
|
|
Accretion of asset
retirement obligation
|
|
129
|
|
|
47
|
|
|
-
|
|
|
176
|
|
Selling costs
|
|
95
|
|
|
-
|
|
|
-
|
|
|
95
|
|
Intangible asset
amortization
|
|
-
|
|
|
2,219
|
|
|
-
|
|
|
2,219
|
|
General and administration
|
|
-
|
|
|
457
|
|
|
3,828
|
|
|
4,285
|
|
Total operating loss
|
|
(4,006
|
)
|
|
(2,493
|
)
|
|
(3,828
|
)
|
|
(10,327
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
-
|
|
|
-
|
|
|
(585
|
)
|
|
(585
|
)
|
Other income (expense)
|
|
-
|
|
|
-
|
|
|
471
|
|
|
471
|
|
Net loss
|
$
|
(4,006
|
)
|
$
|
(2,493
|
)
|
$
|
(3,942
|
)
|
$
|
(10,441
|
)
|
Attributable to shareholders
|
$
|
(4,006
|
)
|
$
|
(2,460
|
)
|
$
|
(3,942
|
)
|
$
|
(10,408
|
)
|
Non-controlling interests
|
|
-
|
|
|
(33
|
)
|
|
-
|
|
|
(33
|
)
|
Net loss for the period
|
$
|
(4,006
|
)
|
$
|
(2,493
|
)
|
$
|
(3,942
|
)
|
$
|
(10,441
|
)
|
The following tables set forth operating results by reportable
segment for the six months ended June 30, 2016:
24
|
|
|
|
|
|
|
|
Non-Operating
|
|
|
|
|
|
|
Operating Segments
|
|
|
Segments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2016
|
|
Conventional
|
|
|
ISR
|
|
|
Corporate & Other
|
|
|
Total
|
|
Revenue
|
$
|
18,002
|
|
$
|
7,000
|
|
$
|
-
|
|
|
25,002
|
|
Costs and expenses applicable to
revenue
|
|
12,143
|
|
|
4,099
|
|
|
-
|
|
|
16,242
|
|
Impairment of
inventories
|
|
-
|
|
|
1,619
|
|
|
-
|
|
|
1,619
|
|
Development, permitting and land
holding
|
|
5,279
|
|
|
5,638
|
|
|
-
|
|
|
10,917
|
|
Standby costs
|
|
3,531
|
|
|
-
|
|
|
-
|
|
|
3,531
|
|
Accretion of asset retirement
obligation
|
|
259
|
|
|
92
|
|
|
-
|
|
|
351
|
|
Selling costs
|
|
169
|
|
|
-
|
|
|
-
|
|
|
169
|
|
Intangible asset amortization
|
|
219
|
|
|
2,219
|
|
|
-
|
|
|
2,438
|
|
General and
administration
|
|
-
|
|
|
796
|
|
|
7,317
|
|
|
8,113
|
|
Total operating loss
|
|
(3,598
|
)
|
|
(7,463
|
)
|
|
(7,317
|
)
|
|
(18,378
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
-
|
|
|
-
|
|
|
(1,161
|
)
|
|
(1,161
|
)
|
Other income (expense)
|
|
-
|
|
|
-
|
|
|
233
|
|
|
233
|
|
Net loss
|
$
|
(3,598
|
)
|
$
|
(7,463
|
)
|
$
|
(8,245
|
)
|
$
|
(19,306
|
)
|
Attributable to
shareholders
|
$
|
(3,598
|
)
|
$
|
(7,373
|
)
|
$
|
(8,245
|
)
|
$
|
(19,216
|
)
|
Non-controlling interests
|
|
-
|
|
|
(90
|
)
|
|
-
|
|
|
(90
|
)
|
Net loss for the period
|
$
|
(3,598
|
)
|
$
|
(7,463
|
)
|
$
|
(8,245
|
)
|
$
|
(19,306
|
)
|
14.
|
FAIR VALUE ACCOUNTING
|
Assets and liabilities measured at fair value on a
recurring basis
The following tables set forth
the fair value of the Company's assets and liabilities measured at fair value on
a recurring basis (at least annually) by level within the fair value hierarchy
as at June 30, 2016. As required by accounting guidance, assets and liabilities
are classified in their entirety based on the lowest level of input that is
significant to the fair value measurement.
As at June 30, 2016, the fair values of cash and cash
equivalents, restricted cash, short-term deposits, receivables, accounts payable
and accrued liabilities approximate their carrying values because of the
short-term nature of these instruments.
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Investments
|
$
|
942
|
|
$
|
-
|
|
$
|
- $
|
|
|
942
|
|
Warrant liabilities (Note 8)
|
|
-
|
|
|
(1,661
|
)
|
|
-
|
|
|
(1,661
|
)
|
Convertible debentures (Note 7)
|
|
(16,570
|
)
|
|
-
|
|
|
-
|
|
|
(16,570
|
)
|
|
$
|
(15,628
|
)
|
$
|
(1,661
|
)
|
$
|
- $
|
|
|
(17,289
|
)
|
The Company's investments are marketable equity securities
which are exchange traded, and are valued using quoted market prices in active
markets and as such are classified within Level 1 of the fair value hierarchy.
The fair value of the investments is calculated as the quoted market price of
the marketable equity security multiplied by the quantity of shares held by the
Company.
Issuance of stock options and RSUs
On July 1, 2016, the Company granted 0.04 million RSUs which vest as follows: 50% on January 27, 2017; 25% on January 27, 2018; and 25% on January 27, 2019. On July 5, 2016 the Company granted 0.03 million RSUs which vest as follows: 100% on January 27, 2017. On August 4, 2016 the Company granted 0.17 million RSUs which vest as follows: 100% on January 27, 2017. On August 4, 2016 the Company granted 0.03 million stock options and 0.01 million RSU’s to its employees, directors and consultants with an exercise price of $2.12. The options carry a five-year life and are vested as follows: 50% immediately; 25% on August 4, 2017; 25% on August 4, 2018. The RSU’s vest as follows: 50% on January 27, 2017; 25% on January 27, 2018; and 25% on January 27, 2019.
25
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements for the three and six month periods ended June 30, 2016, and the related notes thereto, which have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). Additionally, the following discussion and analysis should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements included in Part II of our Annual Report on Form 10-K for the year ended December 31, 2015 filed on March 15, 2016. This discussion and analysis contains forward-looking statements and forward-looking information that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements and information as a result of many factors. See section “Note Regarding Forward-Looking Statements” below.
All dollar amounts stated herein are in U.S. dollars,
except per share amounts and currency exchange rates unless specified otherwise.
References to Cdn$ 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.
On June 16, 2016, Energy Fuels acquired all the outstanding shares of Mesteña Uranium, LLC (“Mesteña”), and on July 8, 2016 changed the name of Mesteña to “EFR Alta Mesa LLC” (“Alta Mesa”). Alta Mesa’s primary asset is the Alta Mesa Project (the “Alta Mesa Project”), a fully-licensed ISR uranium production facility located in South Texas. In order for the Alta Mesa Project to be capable of uranium production, the Company will need to incur capital expenditures to develop wellfields. A decision to commence development will be made once uranium prices improve to a point where economic feasibility of the Alta Mesa Project is established.
26
The operations of Uranerz and assets acquired in the Alta Mesa
acquisition represent the Companys 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 $25.90 per pound on July 28, 2016, or 24% for the
year-to-date. Weekly spot prices reported by TradeTech reached a low of $25.00
per pound on July 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 $38.00 per pound by July
31, 2016.
The drop in uranium prices is believed to be caused by weaker
than expected demand by utilities and persistent over-supply. Most transactions
on the spot market in 2016 have involved traders and intermediaries, though
certain utilities have entered the market to opportunistically buy inexpensive
material. 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
in the US, 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 Corporations April 21, 2016 announcement that it is reducing production
by approximately 4 million pounds per year in 2016, with further production cuts
going forward.
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 events which must
occur for a market recovery to materialize, as previously described in the
Companys Form 10-K for the fiscal year ended December 31, 2015. Of note, China
finalized its 13
th
Five-Year Plan, including a commitment to install
58 GW of nuclear capacity by 2020 (versus todays 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. And, the Company expects
to see certain utilities come to the market later in 2016 to take advantage of
todays low prices through spot and mid-term purchases. However, these positive developments have not yet been sufficient to
offset the downward pressure currently being observed in uranium markets.
27
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 Companys facilities. The Company plans to extract
and/or recover uranium from the following sources in 2016 (each of which is more
fully described below):
|
1)
|
Nichols Ranch ISR Project;
|
|
2)
|
Alternate feed materials; and
|
|
3)
|
Pinenut Project material available for
milling.
|
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.
Acquisition of Alta Mesa
On June 16, 2016, the Company completed the acquisition of Alta Mesa (previously named “Mesteña Uranium, LLC”) which included the Alta Mesa Project. 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. In order for Alta Mesa to be capable of uranium production, the Company will need to incur capital expenditures to develop wellfields. A decision to commence development will be made once uranium prices improve to a point where economic feasibility of the Alta Mesa Project is established. The consideration paid by the Company for Alta Mesa was 4,551,284 common shares, which were issued at the closing of the transaction. The Alta Mesa properties are subject to a royalty equal 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 the recovered U
3
O
8
from the properties sold at a uranium price greater than $95.00 per pound U
3
O
8
.
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
We currently plan to extract and recover approximately 300,000
pounds of U
3
O
8
from our ISR segment for the year ending
December 31, 2016.
28
At June 30, 2016, the Nichols Ranch wellfields had eight header
houses extracting uranium. The Company plans to complete a ninth header house by
the end of 2016. Further header houses will be completed as production needs and
market conditions warrant.
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. 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.
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 Pinenut ore
processing for 2016 concludes (expected to be in late 2016), the Company expects
to recover uranium from certain alternate feed sources and process certain
uranium bearing solutions into mid-2017. Once these processes are completed 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. The Company has also commenced additional underground drilling to further evaluate the deposit. The timing of The Company’s 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.
29
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, 400,000 pounds were delivered in the
first half of the year with the remaining amount to be delivered in the third
quarter 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 Companys 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.
The Company expects to sell an additional 200,000 pounds of U
3
O
8
at spot prices in the second half of the year. Selective additional spot sales may 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 2016 levels.
The Company also continues to pursue new sources of revenue,
including expansion of its alternate feed business.
Results of Operations
The following table summarizes the results of operations for
the three and six months ended June 30, 2016 and 2015 (in thousands of
dollars):
|
|
Three
Months ended
|
|
|
Six Months
ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Revenue
|
$
|
7,006
|
|
$
|
23,705
|
|
$
|
25,002
|
|
$
|
31,305
|
|
Costs and expenses applicable to revenue
|
|
4,099
|
|
|
13,382
|
|
|
16,242
|
|
|
17,226
|
|
Impairment of inventories
|
|
1,619
|
|
|
-
|
|
|
1,619
|
|
|
-
|
|
Gross Profit
|
|
1,288
|
|
|
10,323
|
|
|
7,141
|
|
|
14,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Development, permitting and land holding
|
|
3,475
|
|
|
506
|
|
|
10,917
|
|
|
702
|
|
Standby
costs
|
|
1,365
|
|
|
1,781
|
|
|
3,531
|
|
|
3,320
|
|
Accretion of asset retirement obligation
|
|
176
|
|
|
104
|
|
|
351
|
|
|
207
|
|
Total other operating costs and expenses
|
|
5,016
|
|
|
2,391
|
|
|
14,799
|
|
|
4,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general & administration
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling costs
|
|
95
|
|
|
91
|
|
|
169
|
|
|
159
|
|
Intangible
asset amortization
|
|
2,219
|
|
|
1,255
|
|
|
2,438
|
|
|
1,800
|
|
General and administration
|
|
4,285
|
|
|
2,625
|
|
|
8,113
|
|
|
5,336
|
|
Costs
directly attributable to acquisitions
|
|
-
|
|
|
6,118
|
|
|
-
|
|
|
6,587
|
|
Total selling, general
& administration
|
|
6,599
|
|
|
10,089
|
|
|
10,720
|
|
|
13,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Loss
|
|
(10,327
|
)
|
|
(2,157
|
)
|
|
(18,378
|
)
|
|
(4,032
|
)
|
Interest expense
|
|
(585
|
)
|
|
(388
|
)
|
|
(1,161
|
)
|
|
(766
|
)
|
Other (expense) income
|
|
471
|
|
|
(1,515
|
)
|
|
233
|
|
|
(465
|
)
|
Net loss
|
$
|
(10,441
|
)
|
$
|
(4,060
|
)
|
$
|
(19,306
|
)
|
$
|
(5,263
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
($0.20
|
)
|
|
($0.18
|
)
|
|
($0.38
|
)
|
|
($0.25
|
)
|
30
For the three months ended June 30, 2016 the Company recorded a
net loss of $10.44 million or $0.20 per share compared with a loss of $4.06
million or $0.18 per share for the three months ended June 30, 2015. For the six
months ended June 30, 2016 the Company recorded a net loss of $19.31 million or
$0.38 per share compared with a loss of $5.26 million or $0.25 per share for the
six months ended June 30, 2015.
Revenues
The Companys revenues from uranium are largely based on
delivery schedules under long-term contracts, and selective spot sales, which can vary from quarter to
quarter.
Revenues for the three months ended June 30, 2016 totaled $7.01
million compared with $23.71 million in the three months ended June 30, 2015.
Revenues for the six months ended June 30, 2016 totaled $25.00 million compared
with $31.31 million in the six months ended June 30, 2015.
Revenues for the three months ended June 30, 2016 totaled $7.01
million, of which $7.00 million were sales related to the ISR segment, of
100,000 pounds of U
3
O
8
, pursuant to term contracts at an
average price of $70.00 per pound.
Revenues for the three months ended June 30, 2015 totaled
$23.71 million, of which $23.64 million were sales of 416,667 pounds of uranium
concentrates, all of which were pursuant to term contracts at an average price
of $56.74 per pound.
Revenues for the six months ended June 30, 2016 totaled $25.00
million, of which $24.98 million were sales of 450,000 pounds of U
3
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8
. The 450,000
pounds of U
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8
included the sale of 300,000 pounds of U
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pursuant to term contracts at an average price of $54.19 per pound, the
sale of 100,000 pounds of U
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pursuant to term contracts
at an average price of $70.00 per pound and the sale of 50,000 pounds of
U
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on the spot market at a price of $34.40 per pound. For
the six months ended June 30, 2016 sales related to the Conventional Uranium
Segment were $18.00 million while sales related to the ISR segment were $7.00
million.
Revenues for the six months ended June 30, 2015 totaled $31.31
million, of which $30.64 million were sales of 533,334 pounds of uranium
concentrates, all of which were pursuant to term contracts at an average price
of $57.44 per pound.
Operating Expenses
Uranium recovered and costs and expenses applicable to
revenue
In the three months ended June 30, 2016, the Company recovered 80,000 pounds of U
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from its ISR Uranium Segment and 108,000 pounds of U
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from the Company’s conventional operations. In the three months ended June 30, 2015, there was no production from the Company’s conventional operations and only 12 days of production from the acquired ISR operations.
Costs and expenses applicable to revenue for the three months ended June 30, 2016 totaled $4.10 million, compared with $13.38 million for the three months ended June 30, 2015. The decrease in the cost of sales was primarily attributable to the decrease in the quantity of U
3
O
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sold year over year as discussed above. Costs of goods sold averaged $40.99 per pound and $32.12 per pound for the three months ended June 30, 2016 and 2015, respectively. Additionally, the Company recorded an impairment loss of $1.62 million in profit and loss related to concentrates and work in progress inventories in the ISR segment during the three months ended June 30, 2016.
In the six months ended June 30, 2016, the Company recovered 165,000 pounds of U
3
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8
from its ISR Uranium Segment and 108,000 pounds of U
3
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8
from the Company’s conventional operations. In the six months ended June 30, 2015, the Company recovered approximately 200,000 pounds of U
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8
, of which 110,000 pounds were from alternate feed materials and other processing and 30,000 pounds were from the Company’s Arizona mines, and 60,000 pounds of U
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were processed under a tolling arrangement for the account of a third party.
31
Costs and expenses applicable to revenue for the six months ended June 30, 2016 totaled $16.24 million, compared with $17.23 million for the six months ended June 30, 2015. The decrease in the cost of sales was primarily attributable to the decrease in the quantity of U
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sold year over year as discussed above. Costs of goods sold averaged $36.09 per pound and $32.30 per pound for the six months ended June 30, 2016 and 2015, respectively.
Other operating costs and expenses
Development, permitting and land holding
For the three months ended June 30, 2016, the Company spent $3.48 million for development, permitting, and land holding primarily related to wellfield construction and shaft sinking at the Canyon Project. 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 June 30, 2015, we spent $0.50 million primarily on permitting and land holding for our conventional assets.
For the six months ended June 30, 2016, the Company spent $10.92 million for development, permitting, and land holding primarily related to wellfield construction and completion of the elution circuit at the Nichols Ranch Project, shaft sinking at the Canyon Project and for the replacement of five leach tanks at the White Mesa Mill in preparation for the 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 six months ended June 30, 2015, we spent $0.70 million primarily on permitting and land holding for our conventional assets.
Standby expense
The Companys 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 June 30, 2016, standby costs totaled
$1.37 million compared with $1.78 million in 2015. The decrease is primarily
related to decreased standby costs at the White Mesa Mill, due to higher uranium
recovery levels resulting from a decreased amount of time the Mill was on
standby.
For the six months ended June 30, 2016, standby costs totaled
$3.53 million compared with $3.32 million in 2015. The standby costs remained
approximately the same for each period.
Accretion
Accretion related to the asset retirement obligation for the
Companys properties increased for the three months ended June 30, 2016 ($0.18
million) compared with 2015 ($0.10 million) primarily due to the increase in
the amount of the asset retirement obligation added in connection with the
Uranerz acquisition.
32
Accretion related to the asset retirement obligation for the
Companys properties increased for the six months ended June 30, 2016 ($0.35
million) compared with the 2015 ($0.21 million) primarily due to the increase in
the amount of the asset retirement obligation added in connection with the
Uranerz acquisition.
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 $4.29 million for the three months ended June 30, 2016 compared to $2.63 million for the three months ended June 30, 2015. This increase is due to additional general and administrative expenses of $0.8 million related to the acquired ISR uranium segment which was completed in June 2015 and increase in stock-based compensation of $0.6 million and one time payments totaling $0.53 million.
General and administrative expenses totaled $8.11 million for the six months ended June 30, 2016 compared to $5.34 million for the six months ended June 30, 2015. This increase is due to additional general and administrative expenses of $0.8 million related to the acquired ISR uranium segment which was completed in June 2015, and increase in stock-based compensation of $0.6 million and one-time expenses totaling $0.53 million.
Intangible asset amortization
Intangible asset amortization are non-cash costs of
amortization of above-market sales contract value associated with the
acquisition of Denisons US Mining Division in June 2012 and the Uranerz
acquisition in June 2015. During the three months ended June 30, 2016 intangible
asset amortization totaled $2.22 million compared with $1.26 million for the
three months ended June 30, 2015. This increase was due to the contract sale of
100,000 pounds related to Uranerz as discussed above, causing additional
contract amortization to be recorded.
During the six months ended June 30, 2016 intangible asset
amortization totaled $2.44 million compared with $1.80 million for the six
months ended June 30, 2016. This increase was due to the contract sale of
100,000 pounds related to Uranerz as discussed above, causing additional
contract amortization to be recorded.
Interest Expense and Other Income and Expenses
Interest Expense
Interest expense for the three months ended June 30, 2016 was
$0.59 million compared with $0.39 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.
Interest expense for the six months ended June 30, 2016 was
$1.16 million compared with $0.77 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.
33
Other income and expense
For the three months ended June 30, 2016, other income and expense totaled $0.47 million of income. These amounts primarily consist of a gain on warrant liabilities of $0.45 million and $0.50 million of gains in miscellaneous items offset by a loss on the change in the mark-to-market values of the Company's Convertible Debentures (the “Debentures”) of $0.43 million.
Other income and expense for the three months ended June 30,
2015 totaled $1.52 million of expense and mainly consisted of a change in the
mark-to-market values of the Companys Debentures totaling $1.60 million offset
by other miscellaneous items.
For the six months ended June 30, 2016, other income and
expense totaled $0.23 million of income. These amounts mainly consist of a gain
on warrant liabilities of $0.70 million and gains in other miscellaneous items
of $0.48 million, partially offset by a loss on the change in the mark-to-market
values of the Company's Debentures of $0.99 million.
Other income and expense for the six months ended June 30, 2015
totaled $0.47 million of expense and mainly consisted of a change in the
mark-to-market values of the Companys Debentures totaling $0.89 million of
expense partially offset by income from other miscellaneous items of $0.42 million.
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.
On May 27, 2016, the Company completed the purchase of the 40%
interest in Roca Honda from Sumitomo through the issuance of 1.21 million shares
as well as an additional $4.5 million of cash payable upon first commencement of
commercial mining extraction.
Additionally, on June 16, 2016, the Company completed the
acquisition of Alta Mesa through the issuance of 4,155,824 shares. The total
transaction costs incurred through June 30, 2016 by the Company were $1.29
million, which were capitalized as part of the purchase consideration.
Cash proceeds received for shares and warrants
In the six months ended June 30, 2016, the Company issued 0.20
million shares for net proceeds of $0.53 million under the Companys ATM
Offering.
Additionally, on March 14, 2016 an equity offering of 5,031,250
units (each unit consisting of one common share and one half of one common share
purchase warrant) was closed for net proceeds of $10.98 million after
commissions and estimated expenses of the offering.
Working capital at June 30, 2016
and future requirements for funds
At June 30, 2016, the Company had working capital of $24.60
million, including $14.42 million in cash and cash equivalents and 360,373
pounds of finished goods inventory. The Company believes it has sufficient cash
and resources to carry out its base business plan beyond Q2 2017.
The Company is actively focused on its forward looking liquidity needs, especially in light of the current depressed uranium markets. The Company is evaluating its ongoing fixed cost structure as well as decisions related to project retention, advancement and development. Significant development activities, if warranted, will require that we arrange for financing in advance of planned expenditures. We expect to augment our current financial resources with external financing as our long term business needs require.
34
The Company manages liquidity risk through the management of
its capital structure.
Additional Collateral to be Deposited as Collateral for Surety Bonds
During the three months ended June 30, 2016, one of the Company’s surety bond holders requested additional collateral to support surety bonds held in favor of our White Mesa Mill totaling $5.28 million to be deposited $1.76 million by July 31, 2016 (which was deposited on July 29, 2016), $1.76 million by November 30, 2016 and $1.76 million by February 28, 2017.
Debenture Maturity
The Company currently has 22,000 floating-rate convertible unsecured subordinated debentures originally maturing June 30, 2017 (the “Debentures”) (each Debenture having a principal amount of Cdn$1,000). On August 4, 2016, the following amendments were made to the Debentures:
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the maturity date of the Debentures was extended from
June 30, 2017 to December 31, 2020;
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the conversion price of the Debentures was reduced from
Cdn$15.00 to Cdn$4.15 per common share of the Company;
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a redemption provision was added that enables the Company
to redeem the Debentures, in cash, in whole or in part, at any time after
June 30, 2019, but prior to maturity, at a price of 101% of the aggregate
principal amount redeemed;
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a right in favor of each
Debentureholder was added to enable the Debentureholder to require the
Company to purchase, for cash, on June 30, 2017 (the original maturity
date) up to 20% of the Debentures held by the Debentureholder at a price
equal to 100% of the principal amount tendered; and
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certain other amendments were made to the Debenture
Indenture as required by the U.S. Trust Indenture
Act of 1939, along with certain other amendments to remove provisions of
the Indenture that no longer apply.
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At maturity, the Company can repay the indebtedness represented
by the remaining Debentures by paying to the Debenture trustee in Canadian
dollars an amount equal to the principal amount of the outstanding Debentures
remaining at maturity 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.
Cash and cash flow
Six months ended June 30, 2016
Cash and cash equivalents were $14.42 million at June 30, 2016,
compared to $12.97 million at December 31, 2015. The increase of $1.45 million
was due primarily to cash provided by financing activities of $9.90 million
partially offset by cash used by investing activities of $2.53 million and cash used in
operations of $6.20 million and gain on foreign exchange on cash held in foreign
currencies of $0.29 million.
Net cash provided by financing activities totaled $9.90 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 $1.61
million to repay loans and borrowings.
Net cash used by investing activities was $2.53 million, which
was primarily related to expenditures for the Alta Mesa acquisition transaction
costs of $1.23 million and cash expenditures related to additional cash
deposited with regulatory agencies for asset retirement obligations related to
the acquisition of Alta Mesa of $2.15 million and related reclamation costs
offset by cash received from the sale of mineral properties held for sale of
$0.85 million.
Net cash used in operating activities of $6.20 million is comprised of the net loss of $19.31 million for the period adjusted for non-cash items and for changes in working capital items. Significant items not involving cash were $2.59 million of depreciation and amortization of property, plant and equipment, $1.62 million impairment on inventory, a $7.68 million decrease in inventories, $2.21 million decrease in trade and other receivables offset by a $2.72 million decrease in accounts payable and accrued liabilities and a $1.17 million miscellaneous non-cash income.
35
Six months ended June 30, 2015
Cash and cash equivalents were $20.76 million at June 30, 2015, compared to $10.41 million at December 31, 2014. The increase of $10.35 million was due primarily to cash from investing activities of $6.41 million, cash from operations of $3.97 million, cash from financing activities of $0.08 million and loss on foreign exchange on cash held of $0.10 million.
Net cash from investing activities was $6.41 million, which was primarily related to the release of cash deposited with regulatory agencies of $5.27 million, the $2.46 million cash acquired in the acquisition of Uranerz
offset by expenditures for property, plant and equipment of $1.32 million.
Net cash from financing activities was $0.08 million, which primarily consisted of payments on loans and borrowings of $0.03 million
offset with $0.10 million of proceeds from the issue of shares for options and warrant exercised.
Net cash from operating activities of $3.97 million is comprised of the net loss of $5.26 million for the period adjusted for non-cash items and for changes in working capital items. Significant items not involving cash were $1.85 million of depreciation and amortization of property, plant and equipment, $3.96 million miscellaneous non-cash expenses primarily related to the Uranerz acquisition completed in 2015, $4.13 million decrease in inventories, offset by a $2.91 million increase in trade and other receivables.
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 Companys accounting policies.
These judgments and estimates are based on managements 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
Companys consolidated financial statements may not be directly comparable to
the financial statements of mining companies in the development or production
stages.
36
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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c.
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Valuation of mining and recovery assets in a business
combination
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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
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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.
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d.
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Valuation of mining assets acquired other than in a
business combination
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The costs of mining assets that are acquired in an asset
purchase transaction are recorded as plant and equipment 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.
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e.
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Depreciation of mining and recovery assets
acquired
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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 Companys 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.
37
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g.
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Impairment testing of mining and recovery
assets
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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 assets 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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h.
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Asset retirement
obligations
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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 Companys decommissioning liability could differ from
amounts provided. The estimate of the Companys obligation is subject to change
due to amendments to applicable laws and regulations and as new information
concerning the Companys 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 Companys 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.
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i.
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Determination whether an acquisition represents a
business combination or asset purchase
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Management determines whether an acquisition represent a
business combination or asset purchase by considering the stage of exploration
and development and status 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.