Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Business Overview
The following discussion is designed to provide information that we believe is necessary for an understanding of our financial condition, changes in financial condition and results of our operations. The following discussion and analysis should be read in conjunction with the MD&A contained in our Annual Report on Form 10-K for the year ended December 31, 2015.
Incorporated on March 22, 2004, Ur-Energy is an exploration stage mining company, as that term is defined in SEC Industry Guide 7. We are engaged in uranium mining, recovery and processing activities, including the acquisition, exploration, development and operation of uranium
mineral properties in the United States. We are operating our first in situ recovery (“ISR”) uranium mine at our Lost Creek Project in Wyoming. Ur-Energy is a corporation continued under the
Canada Business Corporations Act
on August 8, 2006. Our Common Shares are listed on the TSX under the symbol “URE” and on the NYSE MKT under the symbol “URG.”
Ur-Energy has one wholly-owned subsidiary: Ur-Energy USA Inc., incorporated under the laws of the State of Colorado. Ur-Energy USA has three wholly-owned subsidiaries: NFU Wyoming, LLC, a limited liability company formed under the laws of the State of Wyoming which acts as our land holding and exploration entity; Lost Creek ISR, LLC, a limited liability company formed under the laws of the State of Wyoming to operate our Lost Creek Project and hold our Lost Creek properties and assets; and Pathfinder Mines Corp. (“Pathfinder”), incorporated under the laws of the State of Delaware, which holds, among other assets, the Shirley Basin and Lucky Mc properties in Wyoming. Our U.S. subsidiaries remain unchanged since the filing of our Annual Report on Form 10-K, dated February 26, 2016.
We utilize in situ recovery of the uranium at our flagship project, Lost Creek, and will do so at other projects where possible. The ISR technique is employed in uranium extraction because it allows for an effective recovery of roll front uranium mineralization at a lower cost. At Lost Creek, we extract and process U
3
O
8,
for shipping to a third-party facility for storage and sales.
Our Lost Creek processing facility, which includes all circuits for the production, drying and packaging of uranium for delivery into sales, is designed and anticipated to process up to one million pounds of U
3
O
8
annually from the Lost Creek mine. The processing facility has the physical design capacity to process two million pounds of U
3
O
8
annually, which provides additional capacity to process material from other sources. We expect that the Lost Creek processing facility may be utilized to process captured U
3
O
8
from our Shirley Basin Project. However, the Shirley Basin permit application contemplates the construction of a full processing facility, providing greater construction and operating flexibility as may be dictated by market conditions.
We have multiple U
3
O
8
sales agreements in place with various U.S. utilities for the sale of U
3
O
8
at mid- and long-term contract pricing. The multi-year sales agreements represent a portion of our anticipated production through 2021. These agreements individually do not represent a substantial portion of our annual projected production, and our business is therefore not substantially dependent upon any one of the agreements. The balance of our Lost Creek production will be sold through spot sales and through additional multi-year agreements.
Mineral Rights and Properties
Ten of our U.S. properties are located in the Great Divide Basin, Wyoming, including Lost Creek. Currently we control nearly 1,900 unpatented mining claims and three State of Wyoming mineral leases for a total of
approximately 37,500 acres (15,530 hectares) in the area of the Lost Creek Property, including the Lost Creek permit area (the “Lost Creek Project” or “Project”), and certain adjoining properties referred to as LC East, LC West, LC North, LC South and EN Project areas (collectively, with the Lost Creek Project, the “Lost Creek Property”). The decrease in acreage and total mining claims in the greater Lost Creek Property results from the abandonment of approximately 200 claims at the EN Project on the eastern side of the Property. We currently do not report any mineral resource on that particular project. Additionally, in the Shirley Basin, Wyoming, our Shirley Basin Project comprises more than 3,500 Company-controlled acres.
Lost Creek Property
For the nine months ended September 30, 2016, together, contract and spot sales from U
3
O
8
produced at Lost Creek totaled 462,000 pounds at an average price of $40.95 per pound for sales revenues of $18.9 million. The
Results of Operations
are detailed further below. The Company also recognized $2.6 million of deferred revenue in the third quarter from the first half of the assignment transaction that was completed in 2016 Q1. The second half is expected to be recognized in the fourth quarter of 2016.
Development and Operations at Lost Creek
Production rates at Lost Creek during the quarter were within the projected level of 140,000 to 170,000 dried and drummed pounds. We continued to operate all Mine Unit 1 (“MU1”) header houses (“HH”) throughout the quarter, including HH 1, which was first brought on line in August 2013. The thirteenth and final originally-planned header house in MU1 was brought online late in May. As previously reported, HH 13 and its related patterns of production wells include certain refinements in design and well completion techniques in an effort to increase injectivity for even greater well performance. Results of HH 13’s operations continue to validate these refinements, which are now in the process of being selectively applied to the other twelve header houses within MU1.
Regulatory Update
Applications for amendment to the Lost Creek licenses and permits were submitted in 2014. The amendments are intended to include recovery from the KM horizon and to include recovery of the uranium resource in the LC East project immediately adjacent to the Lost Creek project. Reviews by both the NRC and WDEQ were commenced and, in September 2015, the BLM issued a Notice of Intent to prepare an environmental impact statement for the amendments. We are responding to additional comments from the agencies, as part of the review process. Additional monitor wells have been drilled to provide additional hydrologic data in response to certain of the comments.
All general regulatory authorizations for Underground Injection Control (UIC) Class V wells have been completed for Lost Creek. Following receipt of the final such approval from NRC in September, we have been conducting pre-operational analyses and final testing, upon which final operational approvals will be provided by the regulators. These relatively shallow Class V wells will allow for the onsite disposal of
up to 200 gpm of
fresh permeate (
i.e.,
clean water) from operations. Site operators will use the reverse osmosis (RO) circuits, which were installed during initial construction of the plant, to process waste water into brine and permeate streams. The brine stream will continue to be disposed of in the UIC Class I deep wells while the clean, permeate stream will be injected into the UIC Class V wells. We expect that the wells and RO system will be fully operational in
fourth
quarter 2016. We anticipate that this new disposal system will enhance waste water disposal capacity at the site.
Following a public comment period, the EPA continues with its rulemaking on changes to Part 192, which sets forth groundwater restoration and stabilization requirements for ISR uranium projects. Subsequent to the end
of the quarter, the final form of rule has been forwarded to the Office of Management and Budget as a part of the routine progression of the rulemaking prior to its publication in the Federal Register. Together with others in industry, we continue to assess the potential impacts this rulemaking may have on our operations if and as it may be finalized.
Shirley Basin Project
WDEQ continues with its technical review of our application for a permit to mine at Shirley Basin, which was submitted in December 2015. Preparation of the application for source material license is nearing completion. We continue to monitor the progress of WDEQ’s effort to become an agreement state under its Land Quality Uranium Recovery Program.
Other Mineral Properties
In June 2016, we elected to not renew our claims in the area known as the Hauber Project. As a result, we have written off our investment of $62 thousand in that project. We maintain the related geologic database for the project to support future activities if warranted. In addition to the claims at the Hauber Project and those mentioned above at the EN Project, we also chose to abandon certain non-essential claims at other projects. The carrying value of the properties affected by this decision was not affected.
Results of Operations
U
3
O
8
Production and Sales
During the nine months ended September 30, 2016, we captured 434,446 pounds of U3O8 within the Lost Creek plant. 450,045 pounds were packaged in drums and 480,404 pounds of the drummed inventory were shipped to the conversion facility. We sold 462,000 pounds of U3O8 during the period. Inventory, production and sales figures for the Lost Creek Project are presented in the following tables. We are presenting the data in the tables for the last four quarters because the nature of our operations is not regularly based on the calendar year. We therefore feel that presenting the last four quarters is a more meaningful representation of operations than comparing comparable periods in the previous year and enables the reader to better perform trend analysis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production and Production Costs
|
|
Unit
|
|
2016 Q3
|
|
2016 Q2
|
|
2016 Q1
|
|
2015 Q4
|
|
Year to date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds captured
|
|
lb
|
|
|
141,774
|
|
|
133,341
|
|
|
159,331
|
|
|
211,717
|
|
|
434,446
|
|
Ad valorem and severance tax
|
|
$000
|
|
$
|
552
|
|
$
|
304
|
|
$
|
420
|
|
$
|
470
|
|
$
|
1,276
|
|
Wellfield cash cost
(1)
|
|
$000
|
|
$
|
858
|
|
$
|
846
|
|
$
|
1,013
|
|
$
|
1,017
|
|
$
|
2,717
|
|
Wellfield non-cash cost
(1)(2)
|
|
$000
|
|
$
|
778
|
|
$
|
778
|
|
$
|
731
|
|
$
|
619
|
|
$
|
2,287
|
|
Ad valorem and severance tax per pound captured
|
|
$/lb
|
|
$
|
3.89
|
|
$
|
2.28
|
|
$
|
2.64
|
|
$
|
2.22
|
|
$
|
2.94
|
|
Cash cost per pound captured
|
|
$/lb
|
|
$
|
6.05
|
|
$
|
6.34
|
|
$
|
6.36
|
|
$
|
4.80
|
|
$
|
6.25
|
|
Non-cash cost per pound captured
|
|
$/lb
|
|
$
|
5.49
|
|
$
|
5.83
|
|
$
|
4.59
|
|
$
|
2.92
|
|
$
|
5.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds drummed
|
|
lb
|
|
|
145,893
|
|
|
130,308
|
|
|
173,844
|
|
|
189,480
|
|
|
450,045
|
|
Plant cash cost
(3)
|
|
$000
|
|
$
|
1,564
|
|
$
|
1,505
|
|
$
|
1,696
|
|
$
|
1,687
|
|
$
|
4,765
|
|
Plant non-cash cost
(2)(3)
|
|
$000
|
|
$
|
494
|
|
$
|
494
|
|
$
|
497
|
|
$
|
497
|
|
$
|
1,485
|
|
Cash cost per pound drummed
|
|
$/lb
|
|
$
|
10.72
|
|
$
|
11.55
|
|
$
|
9.76
|
|
$
|
8.90
|
|
$
|
10.59
|
|
Non-cash cost per pound drummed
|
|
$/lb
|
|
$
|
3.39
|
|
$
|
3.79
|
|
$
|
2.86
|
|
$
|
2.63
|
|
$
|
3.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds shipped to conversion facility
|
|
lb
|
|
|
149,540
|
|
|
148,714
|
|
|
182,150
|
|
|
181,568
|
|
|
480,404
|
|
Distribution cash cost
(4)
|
|
$000
|
|
$
|
86
|
|
$
|
123
|
|
$
|
88
|
|
$
|
128
|
|
$
|
297
|
|
Cash cost per pound shipped
|
|
$/lb
|
|
$
|
0.58
|
|
$
|
0.83
|
|
$
|
0.48
|
|
$
|
0.70
|
|
$
|
0.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes:
|
1
|
|
Wellfield costs include all wellfield operating costs plus amortization of the related mineral property acquisition costs and depreciation of the related asset retirement obligation costs. Wellfield construction and development costs, which include wellfield drilling, header houses, pipelines, power lines, roads, fences and disposal wells, are treated as development expense and are not included in wellfield operating costs.
|
|
2
|
|
Non-cash costs include depreciation of plant equipment, capitalized ARO costs and amortization of the investment in the mineral property acquisition costs. The expenses are calculated on a straight line basis so the expense is constant for each quarter. The cost per pound from these costs will therefore vary based on production levels only.
|
|
3
|
|
Plant costs include all plant operating costs, site overhead costs and depreciation of the related plant construction and asset retirement obligation costs.
|
|
4
|
|
Distribution costs include all shipping costs and costs charged by the conversion facility for weighing, sampling, assaying and storing the U
3
O
8
prior to sale.
|
Production costs have remained relatively consistent over the past four quarters. However, ad valorem and severance tax did increase during the current quarter, which included a year-to-date adjustment that reflected a recently announced ad valorem tax rate increase. Production levels during the current quarter increased slightly with the addition of pounds from header house 13, which was brought on line in late May. With the exception
of ad valorem and severance taxes, our production cost per pound generally decreased during the quarter because of the production increase.
Our wellfield cash costs increased slightly compared to the second quarter of 2016, due mainly to operating and maintenance supplies which was offset by reduced labor costs. The increase in supply costs was related to larger supply purchases which do not occur regularly. The reduction in labor was due to a reduction in force which occurred in June. Production volume increased for the quarter as header house 13 became fully operational. The higher production resulted in a slight reduction in wellfield cash cost per pound captured to $6.05 per pound.
Plant cash costs also increased slightly for the quarter due mainly to indirect costs such as monitoring, consulting and permitting and related governmental costs. However, pounds drummed increased primarily due to the increase in the number of pounds being captured and subsequently drummed since the completion and implementation of header house 13. The higher production resulted in a decrease of $0.83 to $10.72 per pound.
Distribution costs in 2016 Q3 were lower than the previous quarter as several assays were received which reflected fewer penalties from contaminants in the product shipped, even though more assays were received in the current quarter than the previous quarter. Pounds shipped were consistent with the previous period. As a result, the cash cost per pound shipped decreased to $0.58 per pound.
Non-cash costs are normally fixed. However, most of the capitalized restoration costs for the first mine unit were expensed through depreciation as of September 30, 2015 based on our original estimated time to commence restoration. Actual restoration has not commenced because we are still extracting pounds from each header house in the first mine unit. Restoration will not begin until we have completed the extraction process in the first mine unit. This was reflected in the significant decline in non-cash wellfield costs in the fourth quarter of 2015. At December 31, 2015 and again at March 31, 2016, we recorded additional restoration assets for mine unit one based on the approval of updated projected restoration cost reports by the state of Wyoming. These costs are also being depreciated over approximately two years from the date of recording which will slightly increase the wellfield non-cash costs for the next two years. Plant non-cash costs were unchanged.
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|
|
|
|
|
|
|
|
Sales and cost of sales
|
|
Unit
|
|
2016 Q3
|
|
2016 Q2
|
|
2016 Q1
|
|
2015 Q4
|
|
2016 YTD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds sold
|
|
lb
|
|
|
200,000
|
|
|
187,000
|
|
|
75,000
|
|
|
225,000
|
|
|
462,000
|
U3O8 sales
|
|
$000
|
|
$
|
9,471
|
|
$
|
6,741
|
|
$
|
2,709
|
|
$
|
7,756
|
|
$
|
18,921
|
Average contract price
|
|
$/lb
|
|
$
|
47.36
|
|
$
|
39.35
|
|
$
|
39.35
|
|
$
|
28.49
|
|
$
|
43.77
|
Average spot price
|
|
$/lb
|
|
$
|
-
|
|
$
|
27.00
|
|
$
|
34.50
|
|
$
|
36.18
|
|
$
|
30.75
|
Average price per pound sold
|
|
$/lb
|
|
$
|
47.36
|
|
$
|
36.05
|
|
$
|
36.12
|
|
$
|
34.47
|
|
$
|
40.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 cost of sales
(1)
|
|
$000
|
|
$
|
5,818
|
|
$
|
5,094
|
|
$
|
1,855
|
|
$
|
5,931
|
|
$
|
12,767
|
Ad valorem and severance tax cost per pound sold
|
|
$/lb
|
|
$
|
3.09
|
|
$
|
2.65
|
|
$
|
2.61
|
|
$
|
2.80
|
|
$
|
2.84
|
Cash cost per pound sold
|
|
$/lb
|
|
$
|
17.50
|
|
$
|
16.88
|
|
$
|
15.41
|
|
$
|
15.42
|
|
$
|
16.91
|
Non-cash cost per pound sold
|
|
$/lb
|
|
$
|
8.50
|
|
$
|
7.71
|
|
$
|
6.71
|
|
$
|
8.13
|
|
$
|
7.88
|
Average cost per pound sold
|
|
$/lb
|
|
$
|
29.09
|
|
$
|
27.24
|
|
$
|
24.73
|
|
$
|
26.35
|
|
$
|
27.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 gross profit
|
|
$000
|
|
$
|
3,653
|
|
$
|
1,647
|
|
$
|
854
|
|
$
|
1,825
|
|
$
|
6,154
|
Gross profit per pound sold
|
|
$/lb
|
|
$
|
18.27
|
|
$
|
8.81
|
|
$
|
11.39
|
|
$
|
8.11
|
|
$
|
13.32
|
Gross profit margin
|
|
%
|
|
|
38.6%
|
|
|
24.4%
|
|
|
31.5%
|
|
|
23.5%
|
|
|
32.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Inventory Balances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-process inventory
|
|
lb
|
|
|
57,647
|
|
|
62,028
|
|
|
71,602
|
|
|
88,788
|
|
|
|
Plant inventory
|
|
lb
|
|
|
-
|
|
|
3,654
|
|
|
22,062
|
|
|
30,367
|
|
|
|
Conversion facility inventory
|
|
lb
|
|
|
84,808
|
|
|
135,723
|
|
|
173,178
|
|
|
63,776
|
|
|
|
Total inventory
|
|
lb
|
|
|
142,455
|
|
|
201,405
|
|
|
266,842
|
|
|
182,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-process inventory
|
|
$000
|
|
$
|
866
|
|
$
|
929
|
|
$
|
977
|
|
$
|
994
|
|
|
|
Plant inventory
|
|
$000
|
|
$
|
-
|
|
$
|
115
|
|
$
|
569
|
|
$
|
742
|
|
|
|
Conversion facility inventory
|
|
$000
|
|
$
|
2,539
|
|
$
|
3,846
|
|
$
|
4,388
|
|
$
|
1,609
|
|
|
|
Total inventory
|
|
$000
|
|
$
|
3,405
|
|
$
|
4,890
|
|
$
|
5,934
|
|
$
|
3,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost per pound
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-process inventory
|
|
$/lb
|
|
$
|
15.02
|
|
$
|
14.98
|
|
$
|
13.64
|
|
$
|
11.20
|
|
|
|
Plant inventory
|
|
$/lb
|
|
$
|
-
|
|
$
|
31.47
|
|
$
|
25.79
|
|
$
|
24.43
|
|
|
|
Conversion facility inventory
|
|
$/lb
|
|
$
|
29.94
|
|
$
|
28.32
|
|
$
|
25.34
|
|
$
|
25.23
|
|
|
|
Notes:
|
1
|
|
Cost of sales include all production costs (notes 1, 2, 3 and 4 in the previous Production and Production Cost table) adjusted for changes in inventory values.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Conversion Facility Inventory Cost Per Pound Summary
|
|
Unit
|
|
September 30, 2016
|
|
June 30, 2016
|
|
March 31, 2016
|
|
December 31, 2015
|
Ad valorem and severance tax cost per pound
|
|
$/lb
|
|
$
|
3.30
|
|
$
|
2.68
|
|
$
|
2.57
|
|
$
|
2.66
|
Cash cost per pound
|
|
$/lb
|
|
$
|
17.80
|
|
$
|
17.50
|
|
$
|
15.85
|
|
$
|
15.39
|
Non-cash cost per pound
|
|
$/lb
|
|
$
|
8.84
|
|
$
|
8.14
|
|
$
|
6.92
|
|
$
|
7.18
|
Total cost per pound
|
|
$/lb
|
|
$
|
29.94
|
|
$
|
28.32
|
|
$
|
25.34
|
|
$
|
25.23
|
U
3
O
8
sales of $9.5 million for 2016 Q3 were based on selling 200,000 pounds at an average price of $47.36 into regularly-scheduled contract deliveries. We did not make any spot sales during the quarter.
For the quarter, our cost of sales totaled $5.8 million based on selling 200,000 pounds from production at a total cost per pound of $29.09, up from $27.24 in the previous quarter as the higher priced pounds from the first two quarters made up much of what was sold in the current quarter.
At the end of the quarter, the average cash cost per pound in the conversion facility ending inventory was $17.80, an increase from $17.50 at the end of the previous quarter, and is reflective of the increased cost per pound produced for the previous quarters which was again primarily driven by the lower production levels.
The gross profit from the sale of produced uranium for the quarter was $3.7 million, which represents a gross profit margin of approximately 39%. This was higher than the previous quarter due to a contract sale at a higher price which occurred during the quarter.
GAAP Reconciliations
Cash cost per pound and non-cash cost per pound for produced and sold U
3
O
8
presented in the above tables are non-GAAP measures. These measures do not have a standardized meaning or a consistent basis of calculation under GAAP. These measures are used to assess business performance and may be used by certain investors to evaluate performance. To facilitate a better understanding of these measures, the tables below present a reconciliation of these measures to the financial results as presented in our financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Price Per Pound Sold Reconciliation
|
|
Unit
|
|
2016 Q3
|
|
2016 Q2
|
|
2016 Q1
|
|
2015 Q4
|
|
2016 YTD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales per financial statements
|
|
$000
|
|
$
|
12,059
|
|
$
|
6,747
|
|
$
|
2,714
|
|
$
|
7,786
|
|
$
|
21,520
|
Less disposal fees
|
|
$000
|
|
$
|
-
|
|
$
|
(6)
|
|
$
|
(5)
|
|
$
|
(30)
|
|
$
|
(11)
|
Less revenue from sale of deliveries under contract
|
|
$000
|
|
$
|
(2,588)
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
(2,588)
|
U
3
O
8
sales
|
|
$000
|
|
$
|
9,471
|
|
$
|
6,741
|
|
$
|
2,709
|
|
$
|
7,756
|
|
$
|
18,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pounds sold
|
|
lb
|
|
|
200,000
|
|
|
187,000
|
|
|
75,000
|
|
|
225,000
|
|
|
462,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average price per pound sold
|
|
$/lb
|
|
$
|
47.36
|
|
$
|
36.05
|
|
$
|
36.12
|
|
$
|
34.47
|
|
$
|
40.95
|
The Company delivers U
3
O
8
to a conversion facility and receives credit for a specified quantity measured in pounds once the product is confirmed to meet the required specifications. When a delivery is approved, the
Company notifies the conversion facility with instructions for a title transfer to the customer. Revenue is recognized once a title transfer of the U
3
O
8
is confirmed by the conversion facility.
In March 2016, the Company assigned its 2016 contractual delivery obligations under two of its sales contracts to a natural resources trading company in exchange for a cash payment of $5.1 million. The first delivery occurred in July 2016 while the second is scheduled for the fourth quarter. The Company reflects the payment as revenue when the related deliveries under the contracts are settled. Accordingly, the Company recognized $2.6 million of revenue in the current quarter as a result of the July delivery as reflected above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cost Per Pound Sold
Reconciliation
1
|
|
Unit
|
|
2016 Q3
|
|
2016 Q2
|
|
2016 Q1
|
|
2015 Q4
|
|
2016 YTD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ad valorem & severance taxes
|
|
$000
|
|
$
|
552
|
|
$
|
304
|
|
$
|
420
|
|
$
|
470
|
|
$
|
1,276
|
Wellfield costs
|
|
$000
|
|
$
|
1,636
|
|
$
|
1,624
|
|
$
|
1,744
|
|
$
|
1,636
|
|
$
|
5,004
|
Plant and site costs
|
|
$000
|
|
$
|
2,059
|
|
$
|
1,998
|
|
$
|
2,193
|
|
$
|
2,184
|
|
$
|
6,250
|
Distribution costs
|
|
$000
|
|
$
|
86
|
|
$
|
123
|
|
$
|
88
|
|
$
|
128
|
|
$
|
297
|
Inventory change
|
|
$000
|
|
$
|
1,485
|
|
$
|
1,045
|
|
$
|
(2,590)
|
|
$
|
1,513
|
|
$
|
(60)
|
Total cost of sales
|
|
$000
|
|
$
|
5,818
|
|
$
|
5,094
|
|
$
|
1,855
|
|
$
|
5,931
|
|
$
|
12,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pounds sold
|
|
lb
|
|
|
200,000
|
|
|
187,000
|
|
|
75,000
|
|
|
225,000
|
|
|
462,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average cost per pound sold
|
|
$/lb
|
|
$
|
29.09
|
|
$
|
27.24
|
|
$
|
24.73
|
|
$
|
26.35
|
|
$
|
27.63
|
|
1
|
|
The cost per pound sold reflects both cash and non-cash costs, which are combined as cost of sales in the statement of operations included in this filing. The cash and non-cash cost components are identified in the above inventory, production and sales table.
|
The cost of sales includes ad valorem and severance taxes related to the extraction of uranium, all costs of wellfield, plant and site operations including the related depreciation and amortization of capitalized assets, reclamation and mineral property costs, plus product distribution costs. These costs are also used to value inventory and the resulting inventoried cost per pound is compared to the estimated sales prices based on the contracts or spot sales anticipated for the distribution of the product. Any costs in excess of the calculated market value are charged to cost of sales.
Three and nine months ended September 30, 2016 compared to the three and nine months ended September 30, 2015
The following tables summarize the results of operations for the three and nine months ended September 30, 2016 and 2015 (in thousands of U.S. dollars):
|
|
|
|
|
Three months ended September 30,
|
|
2016
|
|
2015
|
|
$
|
|
$
|
Sales
|
12,068
|
|
8,491
|
Cost of sales
|
(5,818)
|
|
(4,180)
|
Gross profit
|
6,250
|
|
4,311
|
Exploration and evaluation expense
|
(828)
|
|
(981)
|
Development expense
|
(1,108)
|
|
(1,930)
|
General and administrative expense
|
(972)
|
|
(1,081)
|
Accretion
|
(134)
|
|
(129)
|
Write off of mineral property
|
-
|
|
-
|
Net profit (loss) from operations
|
3,208
|
|
190
|
Interest expense (net)
|
(474)
|
|
(624)
|
Warrant mark to market gain
|
5
|
|
140
|
Loss from equity investment
|
(3)
|
|
-
|
Write-off of equity investment
|
(900)
|
|
-
|
Foreign exchange loss
|
(6)
|
|
7
|
Other income
|
(27)
|
|
5
|
Net loss
|
1,803
|
|
(282)
|
|
|
|
|
Profit (loss) per share – basic and diluted
|
0.01
|
|
-
|
|
|
|
|
Revenue per pound sold
|
47.36
|
|
56.39
|
|
|
|
|
Total cost per pound sold
|
29.09
|
|
27.87
|
|
|
|
|
Gross profit per pound sold
|
18.27
|
|
28.52
|
|
|
|
|
|
Nine months ended September 30,
|
|
2016
|
|
2015
|
|
$
|
|
$
|
|
|
|
|
Sales
|
21,529
|
|
34,091
|
Cost of sales
|
(12,767)
|
|
(23,361)
|
Gross profit
|
8,762
|
|
10,730
|
Exploration and evaluation expense
|
(2,370)
|
|
(2,216)
|
Development expense
|
(2,384)
|
|
(3,516)
|
General and administrative expense
|
(3,796)
|
|
(4,341)
|
Accretion expense
|
(399)
|
|
(383)
|
Write-off of mineral properties
|
(62)
|
|
-
|
Net profit (loss) from operations
|
(249)
|
|
274
|
Interest expense (net)
|
(1,543)
|
|
(1,970)
|
Warrant mark to market gain
|
36
|
|
311
|
Loss from equity investment
|
(5)
|
|
(5)
|
Write-off of equity investments
|
(1,089)
|
|
-
|
Foreign exchange loss
|
(279)
|
|
(1)
|
Other income
|
15
|
|
5
|
Net loss
|
(3,114)
|
|
(1,386)
|
|
|
|
|
Loss per share – basic and diluted
|
(0.02)
|
|
(0.01)
|
|
|
|
|
Revenue per pound sold
|
40.95
|
|
48.65
|
|
|
|
|
Total cost per pound sold
|
27.63
|
|
33.37
|
|
|
|
|
Gross profit per pound sold
|
13.32
|
|
15.28
|
Sales
We sold a total of 200,000 and 462,000 produced pounds of U
3
O
8
during the three and nine months ended September 30, 2016 for an average price of $47.36 and $40.95 per pound, respectively, and 150,000 and 500,000 pounds of produced U
3
O
8
during the three and nine months ended September 30, 2015 for an average price of $56.39 and $44.41 per pound, respectively. In addition, we recognized $2.6 million of revenue from the delivery of uranium by a trader under one of the contracts assigned to it, as discussed above. In the second quarter of 2015 we sold 200,000 pounds of purchased U
3
O
8
for $59.23 per pound. This increased our average price per pound sold to $48.65 for the nine months ended September 30, 2015. The fluctuation in uranium sales prices relates primarily to the contractual delivery commitments and higher spot prices in 2015.
Cost of Sales
Our cost per pound sold for produced inventory increased $1.22 to $29.09 from $27.87 compared to the same quarter in 2015 and decreased by $3.34 to $27.63 from $30.97 for the comparable nine month periods. Including the sale of purchased inventory in 2015, the cost per pound increases to $39.39 for the nine month period. The high cost in 2015 was partially due to severance and ad valorem factor increases by the state of Wyoming in the fourth quarter which were later rescinded and reissued at lower amounts. The effect of the higher costs was reflected in the cost of sales in Q1 2015 as the inventory flowed through the process and into conversion facility inventory. Also, much of the depreciation on the reclamation costs of mine unit 1 was
incurred by August 2015 so non-cash costs were significantly higher in 2015. Finally, our costs have stabilized as production has become more consistent although volume was down in the current year.
Gross Profit
The gross profit from the sale of produced U
3
O
8
was $3.7 million and $6.2 million for the three and nine months ended September 30, 2016, respectively, which represents gross profit margins of approximately 39% and 33% as compared to $4.3 million and $6.7 million in the respective periods in 2015, which represented gross profit margins of approximately 52% and 30%, respectively. Gross profit per produced pound sold decreased to $18.27 in 2016 Q3 from $28.52 in 2015 Q3. For the nine month period, gross profit per produced pound increased $0.13 to $13.32 from $13.45 in 2015.
Including the revenue from the assigned delivery in 2016 and the sale of purchased U
3
O
8
in 2015, the gross profit for the three and nine months ended September 30, 2016 would be $6.3 million and $8.8 million respectively for gross profit percentages of 51% and 41%. This compares to gross profit of $4.3 million and $10.7 million for the respective periods in 2015, or 51% and 32%, respectively.
The primary reason for the significant fluctuation in gross profit is the contractual sales prices of the contracts delivered into for the periods. The quarter on quarter fluctuation is due to the timing of the deliveries into various contracts with different pricing points.
Operating Expenses
Total operating expense for the three and nine months ended September 30, 2016 was $3.0 million and $8.9 million, respectively. Operating expenses include exploration and evaluation expense, development expense and G&A expense. These expenses decreased by $1.1 million and $1.4 million compared to the same periods in 2015 due primarily to costs associated with labor, legal and consulting for the current quarter and drilling and header house construction that was lower for the year to date in 2016 compared to 2015.
Exploration and evaluation expense consists of labor and associated costs of the exploration and evaluation departments as well as land holding and exploration costs including drilling and analysis on properties which have not reached the permitting or operations stage. These expenses decreased $0.2 million and increased $0.2 million for the three and nine months ended September 30, 2016, respectively, compared to the same periods in 2015. All costs associated with the geology and geological information systems departments as well as the costs incurred on specific projects as described above are reflected in this category. Claim and land related costs declined $0.1 million for both the three and six month periods. Labor costs were lower during the three months due to the reduction in force, but higher for the nine months due to higher bonuses and a larger staff in the preceding quarters compared to comparable quarters in 2015.
Development expense includes costs incurred at the Lost Creek Project not directly attributable to production activities, including wellfield construction, drilling and development costs. It also includes costs associated with the Shirley Basin and Lucky Mc properties as they are in a more advanced stage. Development expenses decreased by $0.8 million during the current quarter and $1.1 million in the nine months ended September 30, 2016 compared to the same periods in 2015. The decrease was primarily related to a reduction in the drilling and header house construction costs in 2016 compared to 2015.
G&A expense relates to administration, finance, investor relations, land and legal functions and consists principally of personnel, facility and support costs. Expenses decreased by $0.1 million and $0.5 million for the
three and nine months ended September 30, 2016, respectively, compared to 2015. The decrease related mainly to reduced external consulting and legal expenses, which was combined with lower labor costs.
Other Income and Expenses
Net interest expense declined $0.2 million and $0.4 million during the three and nine months ended September 30, 2016 compared to the prior year. The expense decline was directly attributable to principal payments reducing the outstanding note balances.
In December 2013, the Company sold equity units which included one common share and one half warrant for the purchase of stock at US$1.35 per common share. As the warrants were priced in U.S. dollars and not Canadian dollars, which is the parent company’s functional currency, these warrants are considered a derivative and are therefore treated as a liability. The mark to market gain and loss is based on changes in exchange rates and the other factors used in the calculation of Black-Scholes valuations which are not directly related to the Company’s results of operations. The valuation performed at September 30, 2016 indicated that the warrants no longer had any value and the liability was entirely written off.
In 2016, the Company performed quarterly impairment analyses based on the mineralization at the Bootheel property and the then current spot price. It determined that impairments reflecting the then current spot price were warranted. Upon further analysis, it was determined that the deteriorating market conditions have made the investment not currently economically viable. Therefore, while the ownership interest will continue to be carried by the Company and the related resources retained, the Company has elected to write off the remaining basis in the investment as of September 30, 2016 resulting in a charge of $889 for the quarter and $1,089 for the year.
Earnings and Loss per Common Share
The basic and diluted earnings and loss per common share for the three and nine months ended September 30, 2016 were earnings of $0.02 and a loss of $0.01 and losses of $0.00 and $0.01 for the same periods in 2015. The diluted loss per common share is equal to the basic loss per common share due to the anti-dilutive effect of all convertible securities outstanding given that net losses were experienced. Dilution from the warrants was not included as the strike price exceeded the current market price of the common stock.
Liquidity and Capital Resources
As of September 30, 2016, we had cash resources, consisting of cash and cash equivalents of $2.9 million, an increase of $1.5 million from the December 31, 2015 balance of $1.4 million. The cash resources consist of Canadian and U.S. dollar denominated deposit accounts and money market funds. We generated $2.6 million in operating activities during the nine months ended September 30, 2016. During the same period, we used $0.2 million for investing activities and $0.8 million for financing activities.
Prior to the commencement of U
3
O
8
deliveries and corresponding sales, we financed our operations primarily through the issuance of equity securities and debt instruments. Initial deliveries and product sales commenced in December 2013 although the first collections under those sales did not occur until January 2014. The Company may continue to consider additional financing opportunities until it builds sufficient cash reserves to cover the variability of cash receipts that result from a limited number of large sales annually which is typical in this industry.
On October 23, 2013, we closed a $34.0 million Sweetwater County, State of Wyoming, Taxable Industrial Development Revenue Bond financing program (“State Bond Loan”). Prior to closing the State Bond Loan, we had obtained interim financing from RMB which had been paid off from the proceeds of the State Bond Loan. On December 19, 2013, we redrew $5.0 million from the RMB loan facility. We subsequently renegotiated the loan amount to $6.5 million together with an additional line of credit of $3.5 million. The RMB loan facility calls for payments of interest at 8.5% plus the three month LIBOR rate recalculated at the start of each calendar quarter (approximately 9.13% in total) plus eight equal quarterly principal payments which commenced June 30, 2014. On October 15, 2015, the loan was again amended to extend the maturity date of the $3.5 million line of credit to December 31, 2016 and spread the $3.5 million balance originally due March 31, 2016 over four quarterly payments commencing March 31, 2016 and concluding December 31, 2016, plus interest under the same terms as agreed to in September 2014. As of September 30, 2016, the balance on the line of credit is $1.1 million. The RMB loan facility is secured by all of the assets of Pathfinder.
The State Bond Loan calls for payments of interest at a fixed rate of 5.75% per annum on a quarterly basis which commenced January 1, 2014. The principal is payable in 28 quarterly installments which commenced January 1, 2015 and continue through October 1, 2021. The State Bond Loan is secured by all of the assets at the Lost Creek Project. As of September 30, 2016, the balance of the State Bond Loan was $26.7 million.
On August 19, 2014, we filed a universal shelf registration statement on Form S-3 in order that we may offer and sell, from time to time, in one or more offerings, at prices and terms to be determined, up to $100 million of our common shares, warrants to purchase our common shares, our senior and subordinated debt securities, and rights to purchase our common shares and/or our senior and subordinated debt securities. The registration statement became effective September 12, 2014. The 12,921,000 common shares offered in the February 2016 financing were sold for $0.50 per share raising $5.7 million (net of issue costs of $0.8 million) under the shelf registration statement.
On May 27, 2016, we entered into an At Market Issuance Sales Agreement with MLV & Co. LLC and FBR Capital Markets & Co. under which we may, from time to time, issue and sell common shares at market prices on the NYSE MKT or other U.S. market through the distribution agents for aggregate sales proceeds of up to $10,000,000. Since its inception, we have sold 164,979 common shares under the sales agreement at an average price of $0.65 per share for gross proceeds of $108 thousand. After deducting transaction fees and commissions we received net proceeds of $105 thousand. After deducting all other costs associated with the completion of the agreement and filing the related prospectus supplement, we received $13 thousand.
Collections for the nine months from U
3
O
8
sales totaled $15.7 million.
Operating activities generated cash of $2.6 million during the nine months ended September 30, 2016 as compared to $5.7 million during the same period in 2015. The net loss for the nine months ended September 30, 2016 was $1.7 million greater than the corresponding loss in 2015. The most significant features of 2016 were the generation of $2.5 million from the assignment of a delivery scheduled for later in 2016 to a uranium trader, which was offset by $3.3 million in receivables from customers due primarily to a sale occurring on the late in the quarter.
During the first nine months of 2016, the Company invested $0.3 million in equipment and other assets and received $0.1 million in proceeds from the sales of used vehicles.
During the first nine months of 2016, the Company used $6.5 million for principal payments on the RMB and Sweetwater debts. This was partially offset by $5.7 million (net) from a bought deal financing.
Liquidity Outlook
Based upon our current capital balance and the expected timing of product sales, we believe we will be able to meet current obligations without additional funding. Additional cash may be required for the construction and development of our Shirley Basin Project, but no budget or timetable has been established for that project pending approval of permitting.
We expect that any major capital projects will be funded by operating cash flow, cash on hand or additional financing as required. If these cash sources are not sufficient, certain capital projects could be delayed, or alternatively we may need to pursue additional debt or equity financing and there is no assurance that such financing will be available at all or on terms acceptable to us. We do not anticipate the need for additional funding at this time unless it is advantageous to do so.
Looking ahead
At the end of the second quarter of 2016, the average spot price per pound of U
3
O
8
, as reported by Ux Consulting Company, LLC and TradeTech, LLC, had declined to approximately $26.70. As a result of that low spot price environment, we implemented cost savings measures, including workforce reductions at all three of our locations, and we deliberately reduced our production rates to levels that would satisfy the 2016 contractual sales obligations remaining at that time.
The average reported spot price per pound of U
3
O
8
continued to decline during the third quarter of 2016, to approximately $23.00 at the end of the quarter. For the week of October 24, 2016, the average reported price was $20.00 per pound U
3
O
8
, which represents a decline of 42% since January 1, 2016, when the price was approximately $34.20.
In response, we have continued to monitor and prudently manage our costs as demonstrated in the earlier Production and Production Costs table. We have also minimized development expense activities to the extent possible without risking our ability to meet future contractual commitments and have once again lowered our production rates to levels that are consistent with our remaining 2016 and anticipated 2017 contractual sales obligations.
During the quarter, we dried and drummed about 146,000 thousand pounds U
3
O
8
, which was at the lower end of the projected range for the quarter. Because of the deteriorating spot price environment, we have lowered our production forecast again and are now targeting to dry and drum between 40,000 and 45,000 pounds per month in the fourth quarter, which would bring the estimated final production for 2016 within the range of 570,000 to 585,000 pounds.
During the nine months ended September 30, 2016, we sold 462,000 pounds of U
3
O
8
at an average price per pound of $40.95. Our gross margin per pound sold during the nine-month period was $13.32, or approximately 33%. We have one remaining contractual delivery of 100,000 pounds at about $33 per pound and, with it completed, we expect the profit margins for the year 2016 to be between 25% and 30%.
As at October 26, 2016, our unrestricted cash position was $5.2 million. Given our current cash resources, contracted sales positions and low cash costs per pound, we do not anticipate the need for additional funding at this time unless it is advantageous to do so.
Our production rates may be adjusted based on operational refinements, and indicators in the market, including uranium spot market and term pricing, and other factors. These factors may also influence the timing and method of delivery into our contractual sales obligations and the need for discretionary spot sales.
Transactions with Related Parties
Jeff Klenda, Executive Director of the Company, purchased 1,000,000 common shares under the bought-deal financing in February 2016 for gross proceeds of $500,000.
Proposed Transactions
As is typical of the mineral exploration, development and mining industry, we will consider and review potential merger, acquisition, investment and venture transactions and opportunities that could enhance shareholder value. Timely disclosure of such transactions is made as soon as reportable events arise.
Critical Accounting Policies and Estimates
We have established the existence of uranium resources at the Lost Creek Property, but because of the unique nature of in situ recovery mines, we have not established, and have no plans to establish the existence of proven and probable reserves at this project. Accordingly, we have adopted an accounting policy with respect to the nature of items that qualify for capitalization for in situ U
3
O
8
mining operations to align our policy to the accounting treatment that has been established as best practice for these types of mining operations.
The development of the wellfield includes injection, production and monitor well drilling and completion, piping within the wellfield and to the processing facility, header houses used to monitor production and disposal wells associated with the operation of the mine. These costs are expensed when incurred.
Mineral Properties
Acquisition costs of mineral properties are capitalized. When production is attained at a property, these costs will be amortized over a period of estimated benefit.
As of September 30, 2016, the average current spot and long term prices of U
3
O
8
were $23.00 and $37.50, respectively. This compares to prices of $34.23 and $44.00 as of December 31, 2015. Management reviewed impairment indicators and the effect the continued decline in uranium prices have on the valuation of the Company’s mineral properties. Due to the anticipated timing of production and existence of long-term delivery contracts for near term production, management has determined that no impairment of their investment in mineral properties is necessary at this time.
In 2016, the Company performed quarterly impairment analyses based on the mineralization at the Bootheel property and the then current spot price. It determined that impairments reflecting the then current spot price were warranted. Upon further analysis, it was determined that the deteriorating market conditions have made the investment not currently economically viable. Therefore, while the ownership interest will continue to be carried by the Company and the related resources retained, the Company has elected to write off the remaining basis in the investment as of September 30, 2016.
Development costs including, but not limited to, production wells, header houses, piping and power will be expensed as incurred as we have no proven and probable reserves.
Depreciation
The depreciable life of the Lost Creek plant, equipment and enclosure was determined to be the nameplate life of the equipment housed in the processing plant as plans exist for other uses for the equipment beyond the estimated production at the Lost Creek Project.
Inventory and Cost of Sales
Our inventories are valued at the lower of cost and net realizable value based on projected revenues from the sale of that product. We are allocating all costs of operations of the Lost Creek facility to the inventory valuation at various stages of production with the exception of wellfield and disposal well costs which are treated as development expenses when incurred. Depreciation of facility enclosures, equipment and asset retirement obligations as well as amortization of the acquisition cost of the related property is also included in the inventory valuation. We do not allocate any administrative or other overhead to the cost of the product.
Share-Based Expense
We are required to initially record all equity instruments including warrants, restricted share units and stock options at fair value in the financial statements.
Management utilizes the Black-Scholes model to calculate the fair value of the warrants and stock options at the time they are issued. Use of the Black-Scholes model requires management to make estimates regarding the expected volatility of the Company’s stock over the future life of the equity instrument, the estimate of the expected life of the equity instrument and the number of options that are expected to be forfeited. Determination of these estimates requires significant judgment and requires management to formulate estimates of future events based on a limited history of actual results.
New accounting pronouncements
In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, “
Revenue from Contracts with Customers (Topic 606).
” The amendments in ASU 2014-09 affect any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (
e.g.,
insurance contracts or lease contracts). This ASU will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance, and creates a Topic 606 Revenue from Contracts with Customers. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of the promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments are effective for annual reporting periods beginning after December 15, 2017. Early application is not permitted. We are assessing the impact this pronouncement may have on our financial reporting.
In January 2016, the FASB issued ASU 2016-1,
Recognition and Measurement of Financial Assets and Financial Liabilities (Topic 825)
. The amendments in this Update supersede the guidance to classify equity securities with readily determinable fair values into different categories (that is, trading or available-for-sale) and require equity securities (including other ownership interests, such as partnerships, unincorporated joint ventures, and limited liability companies) to be measured at fair value with changes in the fair value recognized through net income. The amendments allow equity investments that do not have readily determinable fair values to be remeasured at fair value either upon the occurrence of an observable price change or upon identification of an impairment. The amendments also require enhanced disclosures about those investments. The
amendments improve financial reporting by providing relevant information about an entity’s equity investments and reducing the number of items that are recognized in other comprehensive income. This guidance is effective for annual reporting beginning after December 15, 2017, including interim periods within the year of adoption, and calls for prospective application, with early application permitted. Accordingly, the standard is effective for us beginning in the first quarter of fiscal 2019. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
, which requires lessees to recognize all leases, including operating leases, on the balance sheet as a lease asset or lease liability, unless the lease is a short-term lease. ASU 2016-02 also requires additional disclosures regarding leasing arrangements. ASU 2016-02 is effective for interim periods and fiscal years beginning after December 15, 2018, and early application is permitted. We are currently evaluating the impact that this standard update will have on our consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09,
Compensation-Stock Compensation- Improvements to Employee Share-Based Payment Accounting (Topic 718)
, which involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Under the new standard, income tax benefits and deficiencies are to be recognized as income tax expense or benefit in the income statement and the tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity should also recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. Excess tax benefits should be classified along with other income tax cash flows as an operating activity. In regards to forfeitures, the entity may make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. This ASU is effective for fiscal years beginning after December 15, 2016 including interim periods within that reporting period, however early adoption is permitted. We are currently evaluating the guidance to determine the Company's adoption method and the effect it will have on the Company's Consolidated Financial Statements.
Off Balance Sheet Arrangements
We have not entered into any material off-balance sheet arrangements such as guaranteed contracts, contingent interests in assets transferred to unconsolidated entities, derivative instrument obligations, or with respect to any obligations under a variable interest entity arrangement.
Outstanding Share Data
The “Management’s Discussion and Analysis of Financial Condition and Results of Operations” includes information available to October 26, 2016. As of October 26, 2016, we had outstanding 143,605,552 common shares and 6,698,233 options to acquire common shares.
Item 3.
Quantitative
AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Market risk
Market risk is the risk to the Company of adverse financial impact due to changes in the fair value or future cash flows of financial instruments as a result of fluctuations in interest rates and foreign currency exchange rates.
Interest rate risk
Financial instruments that expose the Company to interest rate risk are its cash equivalents, deposits, restricted cash and debt financings. Our objectives for managing our cash and cash equivalents are to maintain sufficient funds on hand at all times to meet day-to-day requirements and to place any amounts which are considered in excess of day-to-day requirements on short-term deposit with the Company's financial institutions so that they earn interest.
Currency risk
At September 30, 2016 we maintained a balance of less than $0.1 million in foreign currency resulting in a low currency risk which is our typical balance.
Commodity Price Risk
The Company is subject to market risk related to the market price of U
3
O
8
. We have U
3
O
8
supply contracts with pricing fixed or based on inflation factors applied to a fixed base. Additional future sales would be impacted by both spot and long-term U
3
O
8
price fluctuations. Historically, U
3
O
8
prices have been subject to fluctuation, and the price of U
3
O
8
has been and will continue to be affected by numerous factors beyond our control, including the demand for nuclear power, political and economic conditions, and governmental legislation in U
3
O
8
producing and consuming countries and production levels and costs of production of other producing companies. The spot market price for U
3
O
8
has demonstrated a large range since January 2001. Prices have risen from $7.10 per pound at January 2001 to a high of $136.00 per pound as of June 2007. The spot market price was $20.00 per pound as of October 26, 2016.
Item 4.
Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this MD&A, under the supervision of the Chief Executive Officer and the Chief Financial Officer, the Company evaluated the effectiveness of its disclosure controls and procedures,
as such term is defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective to ensure that information the Company is required to disclose in reports that are filed or submitted under the Exchange Act: (1) is recorded, processed and summarized effectively and reported within the time periods specified in SEC rules and forms, and (2) is accumulated and communicated to Company management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. The Company’s disclosure controls and procedures include components of internal control over financial reporting. No matter how well designed and operated, internal controls over financial reporting can provide only reasonable, but not absolute, assurance that the control system's objectives will be met.
(b) Changes in
Internal Controls over Financial Reporting
No changes in our internal control over financial reporting occurred during the nine months ended September 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II
Item 1. LEGAL PROCEEDING
S
No new legal proceedings or material developments in pending proceedings.
Item 1A. RISK FACTOR
S
There have been no material changes for the nine months ended September 30, 2016 from those risk factors set forth in our Annual Report on Form 10-K.
Item 2.
Unregistered Sale
s of Equity Securities and Use of Proceeds
None
Item 3.
Defaults upon
Senior Securities
None
Item 4. MINE SAFETY
DISCLOSURE
Our operations and exploration activities at Lost Creek are not subject to regulation by the federal Mine Safety and Health Administration under the Federal Mine Safety and Health Act of 1977.
Item 5.
Other Information
None
Item 6. Exhibit
s
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Incorporated by Reference
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Exhibit
Number
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Exhibit Description
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Form
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Date of
Report
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Exhibit
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Filed
Herewith
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31.1
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Certification of CEO Pursuant to Exchange Act Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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X
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31.2
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Certification of CFO Pursuant to Exchange Act Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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X
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32.1
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Certification of CEO Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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X
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32.2
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Certification of CFO Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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X
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101.INS*
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XBRL Instance Document
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101.SCH*
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XBRL Schema Document
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X
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101.CAL*
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XBRL Calculation Linkbase Document
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X
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101.DEF*
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XBRL Definition Linkbase Document
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X
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101.LAB*
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XBRL Labels Linkbase Document
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101.PRE*
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XBRL Presentation Linkbase Document
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X
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In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act, is deemed not filed for purposes of section 18 of the Exchange Act, and otherwise is not subject to liability under these sections.
SIGNATURE
S
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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UR -ENERGY INC.
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Date: October 28, 2016
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By:
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/s/ Jeffrey T. Klenda
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Jeffrey T. Klenda
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Acting Chief Executive Officer
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(Principal Executive Officer)
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Date: October 28, 2016
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By:
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/s/ Roger L. Smith
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Roger L. Smith
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Chief Financial Officer
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(Principal Financial Officer and
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Principal Accounting Officer)
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