Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Business Overview
The following discussion is designed to provide information that we believe is necessary for an understanding of our financial condition, changes in financial condition, and results of our operations. The following discussion and analysis should be read in conjunction with the MD&A contained in our Annual Report on Form 10-K for the year ended December 31, 2019.
Incorporated on March 22, 2004, Ur-Energy is an exploration stage mining company, as that term is defined in SEC Industry Guide 7. We are engaged in uranium mining, recovery and processing activities, including the acquisition, exploration, development and operation of uranium mineral properties in the U.S. We are operating our first in situ recovery uranium mine at our Lost Creek Project in Wyoming. Ur-Energy is a corporation continued under the Canada Business Corporations Act on August 8, 2006. Our Common Shares are listed on the TSX under the symbol “URE” and on the NYSE American under the symbol “URG.”
Ur-Energy has one wholly-owned subsidiary: Ur-Energy USA Inc., incorporated under the laws of the State of Colorado. Ur-Energy USA Inc. has three wholly-owned subsidiaries: NFU Wyoming, LLC, a limited liability company formed under the laws of the State of Wyoming which acts as our land holding and exploration entity; Lost Creek ISR, LLC, a limited liability company formed under the laws of the State of Wyoming to operate our Lost Creek Project and hold our Lost Creek properties and assets; and Pathfinder Mines Corporation (“Pathfinder”), incorporated under the laws of the State of Delaware, which holds, among other assets, the Shirley Basin and Lucky Mc properties in Wyoming. Our material U.S. subsidiaries remain unchanged since the filing of our Annual Report on Form 10-K, dated February 28, 2020.
We utilize in situ recovery (“ISR”) of the uranium at our flagship project, Lost Creek, and will do so at other projects where possible. The ISR technique is employed in uranium extraction because it allows for an effective recovery of roll front uranium mineralization at a lower cost. At Lost Creek, we extract and process uranium oxide (“U3O8”) for shipping to a third-party conversion facility to be weighed, assayed and stored until sold.
Our Lost Creek processing facility, which includes all circuits for the production, drying and packaging of uranium for delivery into sales transactions, is designed and anticipated under current licensing to process up to one million pounds of U3O8 annually from the Lost Creek mine. The processing facility has the physical design capacity to process two million pounds of U3O8 annually, which provides additional capacity to process material from other sources. We expect that the Lost Creek processing facility may be utilized to process captured U3O8 from our Shirley Basin Project. However, the Shirley Basin permit application contemplates the construction of a full processing facility, providing greater construction and operating flexibility as may be dictated by market conditions.
We were contractually committed to sell 200,000 pounds of U3O8 during H1 2020, at an average price of approximately $42 per pound. We entered into agreements to purchase product for delivery into those contractual commitments. The average cost of the purchases was approximately $26 per pound. We delivered a portion of those 2020 contractual commitments (33,000 pounds) in Q1, and delivered the remaining amount (167,000 pounds) early in Q2. The Q2 sale completed our remaining term commitment obligations.
COVID-19 (Coronavirus)
During the quarter, gathering and other restrictions continued at various levels in Wyoming and Colorado. As COVID-19 (Coronavirus) restrictions have changed, we have adapted accordingly. We continue to monitor and adhere to State, Federal and public health guidance as it evolves. Our staff continues, thus far, to remain healthy. Due to the persistently depressed uranium market, our staff at Lost Creek has been reduced by 84 percent through the reductions in force we have implemented since 2016, including most recently during this quarter. For our remaining employees at Lost Creek, we have altered certain work and commuting arrangements, with suggested additional safety precautions.
SBA Paycheck Protection Program
In response to the COVID-19 (Coronavirus) pandemic, Congress enacted the CARES Act on March 27, 2020. Among other provisions, it created the Paycheck Protection Program (“PPP”) through the SBA. As an eligible borrower under the program, we worked solely with our primary bank in Littleton, BOKF, to apply for two loans, one for each of our subsidiaries with U.S. payroll obligations. The combined loan amount we qualified for under the program was $0.9 million, which we received on April 16, 2020. The Flexibility Act, which became law on June 5, 2020, changes key provisions of the PPP, including maturity of the loans, deferral of loan payments, and forgiveness of PPP loans, with revisions being retroactive to the date of the CARES Act. The SBA and Department of Treasury (“Treasury”) have published additional guidance and rules related to the PPP, which included modifications and clarifications affecting the term of the loans, and the forgiveness process (portion of payroll expenses, allowable non-payroll expenses and application process). Under the current provisions of the program, we anticipate the loans will meet the requirements for forgiveness. See note 10 to the Unaudited Consolidated Financial Statements and discussion under Liquidity Outlook.
U.S. Nuclear Fuel Working Group, Russian Suspension Agreement and Uranium Market
On April 23, 2020, the United States Nuclear Fuel Working Group (the “Working Group”), through the Department of Energy (“DOE”), released its report, “Restoring America’s Competitive Nuclear Energy Advantage – A strategy to assure U.S. national security.” Relevant to uranium miners, the recommendations included, first, that the U.S. government make direct purchases of 17 to 19 million total pounds of U3O8 proposed to commence in 2020 to replenish the American Assured Fuel Supply uranium reserve. Additionally, it is recommended that a new national uranium reserve be established through DOE’s proposed budgeted purchases for 10 years, beginning in FY2021. If budget appropriations are secured and the program implemented, these purchases would provide direct support to the front end of the fuel cycle and help re-establish our nation’s critical capabilities. The 10-year budget item is for $150 million per year. In July, however, the U.S. House Committee on Appropriations decided not to fund the budget item without obtaining further information from DOE. The Committee directed DOE to submit a plan for the proposed establishment of a uranium reserve within six months. There are alternative avenues to appropriations, including through the legislative process; it remains unknown at this time, however, the actions DOE will pursue.
In July 2020, U.S. Senator Barrasso, Chairman of the Senate Committee on Environment and Public Works, introduced draft legislation designed to revitalize the country’s nuclear infrastructure. The American Nuclear Infrastructure Act of 2020, as it is known, includes the authorization for a uranium reserve to fuel America’s nuclear reactors with domestic fuel, among other items, to preserve America’s uranium industry. Similar legislation was introduced in the House of Representatives by Representatives Cheney and Latta on July 29, 2020.
Also in July 2020, Energy Secretary Brouillette told the House Energy and Commerce Subcommittee on Energy that DOE is working to end U.S. reliance on Russia for nuclear fuel. DOE wants to process American-sourced uranium into high-grade fuel at the DOE facility in Portsmouth, Ohio next year. Centrifuges have been moved from DOE’s Oak Ridge laboratories to Portsmouth. Additionally, DOE is working with lawmakers to authorize the creation of the uranium reserve.
The Working Group report also called for support of the Department of Commerce (“DOC”) efforts to extend the Russian Suspension Agreement (“RSA”) to protect against future uranium dumping. In early October, the DOC completed the amendment and extension of the RSA. The RSA amendment continues caps on Russian imports of nuclear fuel to the U.S. for an additional 20 years, through 2040. The amendment reduces the current cap of 20% of demand to an average of 17% of demand over the 20-year period, with reductions starting in 2028 and continuing through 2040. The amendment also closes other practical loopholes to protect the U.S. market, provides for administrative reviews during the term and contemplates potential extensions. These provisions in the RSA are positive developments in the long term. Additionally, Senator Barrasso has introduced legislation to codify the recent extension of the RSA.
In its ground-up approach, the Working Group report then recommends a restart of the sole U.S. conversion plant beginning no later than 2022 to produce 6,000 to 7,500 tons of UF6 and thereafter to restart domestic enrichment in or about 2023, with at least 25 percent of material being unobligated. By law, unobligated material must be sourced domestically. At this time, no specific actions as a result of the report have been taken and there can be no certainty of the outcome of the Working Group’s findings and recommendations in terms of how and when the recommendations will be implemented. See additional discussion under Looking Ahead.
The pandemic continues to have an impact on the global uranium market. The many temporary suspensions and adjustments in production announced in Q1 led to the removal of as much as 46 million pounds of primary production on an annualized basis. In June and July various global operations announced they would resume production beginning as early as August (Kazatomprom) and September (Cameco/Cigar Lake). However, few confirmed updates are available with respect to these restarts. Kazatomprom’s announced plans include a reduction in 2020 of at least 10.4 million pounds U3O8 with further reductions through 2022.
Equity Financing and Debt Restructuring
On August 4, 2020, we announced the closing of a $4.68 million registered direct offering of 9,000,000 common shares and accompanying one-half common share warrants to purchase up to 4,500,000 common shares, at a combined public offering price of $0.52 per common share and accompanying warrant, with gross proceeds to the Company of $4.68 million. After fees and expenses of $0.4 million, net proceeds to the Company of $4.3 million were received on August 4, 2020.
On October 6, 2020, the Sweetwater County Commissioners and the State of Wyoming approved an additional six-quarter deferral of principal payments. The next quarterly principal payment is therefore due in October 2022 and the final payment will be due in October 2024.
Mineral Rights and Properties
We have 12 U.S. uranium properties. Ten of our uranium properties are located in the Great Divide Basin, Wyoming, including Lost Creek. Currently, we control nearly 1,800 unpatented mining claims and three State of Wyoming mineral leases for a total of approximately 36,000 acres in the area of the Lost Creek Property, including the Lost Creek permit area (the “Lost Creek Project” or “Project”), and certain adjoining properties referred to as LC East, LC West, LC North, LC South and EN Project areas (collectively, with the Lost Creek Project, the “Lost Creek Property”). In the Shirley Basin, Wyoming, our Shirley Basin Project comprises more than 3,700 Company-controlled acres. Our Lucky Mc Project holds 1,800 acres in Fremont County, Wyoming. Our Excel gold project holds approximately 2,100 acres of mining claims in Nevada.
Lost Creek Property
During the quarter, we took steps to further reduce production operations at Lost Creek and adjust to the continued depressed state of the uranium markets while we await the recommended relief from the Working Group and further positive developments in the uranium markets. The reduced production levels allowed us to make further operating cost reductions at Lost Creek and related support cost reductions at the corporate office in Littleton. The cost reductions include savings from additional reductions in force at both locations as well as other cost containment measures. Together with the further deferral of principal payments on the State Bond Loan discussed above, these measures will result in substantial savings to the Company, estimated to exceed $7 million and $4 million in calendar years 2021 and 2022, respectively.
For the three months ended September 30, 2020, 2,503 pounds of U3O8 were captured within the Lost Creek plant and 4,926 pounds of U3O8 were packaged in drums. Our inventory at the converter totaled approximately 268,485 pounds of U3O8 at September 30, 2020.
Applications for amendment to the Lost Creek licenses and permits were submitted in 2014. The amendments seek to include recovery from the uranium resource in the LC East Project immediately adjacent to the Lost Creek Project. Reviews by WDEQ continue to progress. The BLM has completed its review and granted approval. We anticipate that all permits and authorizations for the modification of the Lost Creek licenses and permits to recover uranium in the LC East Project will be completed in the first half of 2021.
Shirley Basin Project
WDEQ continues with its review of our applications for a permit to mine and for a source material license for our Shirley Basin Project. We anticipate the State processes to be complete, with necessary permits and authorizations received, in the first quarter of 2021. The BLM has completed its review and granted approval of the project. Additionally, work is well underway on initial engineering evaluations, designs and studies for the development of Shirley Basin operations.
Results of Operations
The following tables provide detailed financial information on our sales, cost of sales, gross profit and production and ending inventory as they relate to U3O8 pounds.
Reconciliation of Non-GAAP measures with US GAAP financial statement presentation
The U3O8 and cost per pound measures included in the following tables do not have a standardized meaning within US GAAP or a defined basis of calculation. These measures are used by management to assess business performance and determine production and pricing strategies. They may also be used by certain investors to evaluate performance. Where applicable, reconciliation of these measures to US GAAP financial statement presentation are included within the respective table.
Sales
|
|
|
Unit
|
|
|
2020 Q3
|
|
|
2020 Q2
|
|
|
2020 Q1
|
|
|
2019 Q4
|
|
|
2020 YTD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 Sales Reconciliation (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales per financial statements
|
|
|
$000
|
|
|
$
|
-
|
|
|
$
|
6,934
|
|
|
$
|
1,370
|
|
|
$
|
10,849
|
|
|
$
|
8,304
|
|
Disposal fees
|
|
|
$000
|
|
|
$
|
-
|
|
|
$
|
(4
|
)
|
|
$
|
-
|
|
|
$
|
(1
|
)
|
|
$
|
(4
|
)
|
U3O8 sales
|
|
|
$000
|
|
|
$
|
-
|
|
|
$
|
6,930
|
|
|
$
|
1,370
|
|
|
$
|
10,848
|
|
|
$
|
8,300
|
|
U3O8 pounds sold
|
|
|
lb
|
|
|
|
-
|
|
|
|
167,000
|
|
|
|
33,000
|
|
|
|
180,000
|
|
|
|
200,000
|
|
U3O8 price per pound sold
|
|
|
$/lb
|
|
|
$
|
-
|
|
|
$
|
41.50
|
|
|
$
|
41.52
|
|
|
$
|
60.26
|
|
|
$
|
41.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 Sales by Product
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Produced
|
|
|
$000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Purchased
|
|
|
$000
|
|
|
$
|
-
|
|
|
$
|
6,930
|
|
|
$
|
1,370
|
|
|
$
|
10,848
|
|
|
$
|
8,300
|
|
|
|
|
$000
|
|
|
$
|
-
|
|
|
$
|
6,930
|
|
|
$
|
1,370
|
|
|
$
|
10,848
|
|
|
$
|
8,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 Pounds Sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Produced
|
|
|
lb
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Purchased
|
|
|
lb
|
|
|
|
-
|
|
|
|
167,000
|
|
|
|
33,000
|
|
|
|
180,000
|
|
|
|
200,000
|
|
|
|
|
lb
|
|
|
|
-
|
|
|
|
167,000
|
|
|
|
33,000
|
|
|
|
180,000
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 Price per Pounds Sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Produced
|
|
|
$/lb
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Purchased
|
|
|
$/lb
|
|
|
$
|
-
|
|
|
$
|
41.50
|
|
|
$
|
41.52
|
|
|
$
|
60.26
|
|
|
$
|
41.50
|
|
|
|
|
$/lb
|
|
|
$
|
-
|
|
|
$
|
41.50
|
|
|
$
|
41.52
|
|
|
$
|
60.26
|
|
|
$
|
41.50
|
|
Note:
1.Sales per the financial statements include revenues from disposal fees received at Shirley Basin. The disposal fees do not relate to U3O8 pounds sold and are excluded from the U3O8 sales and U3O8 price per pound sold figures.
The Company delivers U3O8 to a conversion facility and receives credit for a specified quantity measured in pounds once the product is confirmed to meet the required specifications. When a delivery is approved, the Company notifies the conversion facility with instructions for a title transfer to the customer. Revenue is recognized once a title transfer of the U3O8 is confirmed by the conversion facility.
There were no sales in the third quarter, and we do not anticipate making any sales in the fourth quarter.
Cost of Sales
|
|
|
Unit
|
|
|
2020 Q3
|
|
|
2020 Q2
|
|
|
2020 Q1
|
|
|
2019 Q4
|
|
|
2020 YTD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 Cost of Sales Reconciliation (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales per financial statements
|
|
|
$000
|
|
|
$
|
1,840
|
|
|
$
|
6,517
|
|
|
$
|
3,105
|
|
|
$
|
6,451
|
|
|
$
|
11,462
|
|
Lower of cost or NRV adjustment
|
|
|
$000
|
|
|
$
|
(1,840
|
)
|
|
$
|
(2,174
|
)
|
|
$
|
(2,282
|
)
|
|
$
|
(2,074
|
)
|
|
$
|
(6,296
|
)
|
U3O8 cost of sales
|
|
|
$000
|
|
|
$
|
-
|
|
|
$
|
4,343
|
|
|
$
|
823
|
|
|
$
|
4,377
|
|
|
$
|
5,166
|
|
U3O8 pounds sold
|
|
|
lb
|
|
|
|
-
|
|
|
|
167,000
|
|
|
|
33,000
|
|
|
|
180,000
|
|
|
|
200,000
|
|
U3O8 cost per pound sold
|
|
|
$/lb
|
|
|
$
|
-
|
|
|
$
|
26.01
|
|
|
$
|
24.94
|
|
|
$
|
24.31
|
|
|
$
|
25.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 Cost of Sales by Product
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 Cost of Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ad valorem and severance taxes
|
|
|
$000
|
|
|
$
|
9
|
|
|
$
|
6
|
|
|
$
|
3
|
|
|
$
|
22
|
|
|
$
|
18
|
|
Wellfield cash costs
|
|
|
$000
|
|
|
$
|
107
|
|
|
$
|
154
|
|
|
$
|
128
|
|
|
$
|
158
|
|
|
$
|
389
|
|
Wellfield non-cash costs
|
|
|
$000
|
|
|
$
|
557
|
|
|
$
|
557
|
|
|
$
|
618
|
|
|
$
|
611
|
|
|
$
|
1,732
|
|
Plant cash costs
|
|
|
$000
|
|
|
$
|
807
|
|
|
$
|
1,064
|
|
|
$
|
910
|
|
|
$
|
898
|
|
|
$
|
2,781
|
|
Plant non-cash costs
|
|
|
$000
|
|
|
$
|
490
|
|
|
$
|
490
|
|
|
$
|
490
|
|
|
$
|
494
|
|
|
$
|
1,470
|
|
Distribution costs
|
|
|
$000
|
|
|
$
|
4
|
|
|
$
|
(3
|
)
|
|
$
|
-
|
|
|
$
|
26
|
|
|
$
|
1
|
|
Inventory change
|
|
|
$000
|
|
|
$
|
(1,974
|
)
|
|
$
|
(2,268
|
)
|
|
$
|
(2,149
|
)
|
|
$
|
(2,209
|
)
|
|
$
|
(6,391
|
)
|
Produced
|
|
|
$000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Purchased
|
|
|
$000
|
|
|
$
|
-
|
|
|
$
|
4,343
|
|
|
$
|
823
|
|
|
$
|
4,377
|
|
|
$
|
5,166
|
|
|
|
|
$000
|
|
|
$
|
-
|
|
|
$
|
4,343
|
|
|
$
|
823
|
|
|
$
|
4,377
|
|
|
$
|
5,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 Pounds Sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Produced
|
|
|
lb
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Purchased
|
|
|
lb
|
|
|
|
-
|
|
|
|
167,000
|
|
|
|
33,000
|
|
|
|
180,000
|
|
|
|
200,000
|
|
|
|
|
lb
|
|
|
|
-
|
|
|
|
167,000
|
|
|
|
33,000
|
|
|
|
180,000
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 Cost per Pound Sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Produced
|
|
|
$/lb
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Purchased
|
|
|
$/lb
|
|
|
$
|
-
|
|
|
$
|
26.01
|
|
|
$
|
24.94
|
|
|
$
|
24.31
|
|
|
$
|
25.83
|
|
|
|
|
$/lb
|
|
|
$
|
-
|
|
|
$
|
26.01
|
|
|
$
|
24.94
|
|
|
$
|
24.31
|
|
|
$
|
25.83
|
|
Note:
1.Cost of sales per the financial statements include lower of cost or net realizable value (“NRV”) adjustments. The NRV adjustments do not relate to U3O8 pounds sold and are excluded from the U3O8 cost of sales and U3O8 cost per pound sold figures.
Cost of sales per the financial statements includes ad valorem and severance taxes related to the extraction of uranium, all costs of wellfield and plant operations including the related depreciation and amortization of capitalized assets, reclamation and mineral property costs, plus product distribution costs. These costs are also used to value inventory. The resulting inventoried cost per pound is compared to the NRV of the product, which is based on the estimated sales price of the product, net of any necessary costs to finish the product. Any inventory value in excess of the NRV is charged to cost of sales per the financial statements. These NRV adjustments are excluded from the U3O8 cost of sales and U3O8 cost per pound sold figures because they relate to the pounds of U3O8 in ending inventory and do not relate to the pounds of U3O8 sold during the period.
Production costs included in cost of sales decreased from the previous quarter, which included higher than normal costs, and because of other cost reduction efforts made in the third quarter. Following another particularly harsh winter impeding access to the site, seasonal field and maintenance projects were undertaken in Q2. As a result, labor and project-related costs increased during Q2. The projects were largely completed in Q2 and the costs were not repeated in Q3. During Q3, various cost reduction measures were undertaken to conserve cash, including a reduction in force at Lost Creek in early September. These efforts resulted in lower wellfield and plant cash costs. Wellfield and plant non-cash costs were unchanged from the previous quarter.
Gross Profit
|
|
|
Unit
|
|
|
2020 Q3
|
|
|
2020 Q2
|
|
|
2020 Q1
|
|
|
2019 Q4
|
|
|
2020 YTD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 Gross Profit by Cost Product
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Produced
|
|
|
$000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Purchased
|
|
|
$000
|
|
|
$
|
-
|
|
|
$
|
6,930
|
|
|
$
|
1,370
|
|
|
$
|
10,848
|
|
|
$
|
8,300
|
|
|
|
|
$000
|
|
|
$
|
-
|
|
|
$
|
6,930
|
|
|
$
|
1,370
|
|
|
$
|
10,848
|
|
|
$
|
8,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 Cost of Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Produced
|
|
|
$000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Purchased
|
|
|
$000
|
|
|
$
|
-
|
|
|
$
|
4,343
|
|
|
$
|
823
|
|
|
$
|
4,377
|
|
|
$
|
5,166
|
|
|
|
|
$000
|
|
|
$
|
-
|
|
|
$
|
4,343
|
|
|
$
|
823
|
|
|
$
|
4,377
|
|
|
$
|
5,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Produced
|
|
|
$000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Purchased
|
|
|
$000
|
|
|
$
|
-
|
|
|
$
|
2,587
|
|
|
$
|
547
|
|
|
$
|
6,471
|
|
|
$
|
3,134
|
|
|
|
|
$000
|
|
|
$
|
-
|
|
|
$
|
2,587
|
|
|
$
|
547
|
|
|
$
|
6,471
|
|
|
$
|
3,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 Pounds Sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Produced
|
|
|
lb
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Purchased
|
|
|
lb
|
|
|
|
-
|
|
|
|
167,000
|
|
|
|
33,000
|
|
|
|
180,000
|
|
|
|
200,000
|
|
|
|
|
lb
|
|
|
|
-
|
|
|
|
167,000
|
|
|
|
33,000
|
|
|
|
180,000
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 Gross Profit per Pound Sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Produced
|
|
|
$/lb
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Purchased
|
|
|
$/lb
|
|
|
$
|
-
|
|
|
$
|
15.49
|
|
|
$
|
16.58
|
|
|
$
|
35.95
|
|
|
$
|
15.67
|
|
|
|
|
$/lb
|
|
|
$
|
-
|
|
|
$
|
15.49
|
|
|
$
|
16.58
|
|
|
$
|
35.95
|
|
|
$
|
15.67
|
|
The last produced inventory was sold in 2019 Q2. Since then, all sales were from purchased inventory. There were no sales and, therefore, no gross profit figures in the third quarter.
U3O8 Production and Ending Inventory
|
|
Unit
|
|
|
2020 Q3
|
|
|
2020 Q2
|
|
|
2020 Q1
|
|
|
2019 Q4
|
|
|
2020 YTD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 Production
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds captured
|
|
lb
|
|
|
|
2,503
|
|
|
|
4,119
|
|
|
|
4,113
|
|
|
|
5,004
|
|
|
|
10,735
|
|
Pounds drummed in
|
|
lb
|
|
|
|
4,926
|
|
|
|
2,892
|
|
|
|
1,433
|
|
|
|
7,116
|
|
|
|
9,251
|
|
Pounds shipped
|
|
lb
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20,643
|
|
|
|
-
|
|
Pounds purchased
|
|
lb
|
|
|
|
-
|
|
|
|
167,000
|
|
|
|
33,000
|
|
|
|
180,000
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 Ending Inventory
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-process inventory
|
|
lb
|
|
|
|
6,901
|
|
|
|
9,267
|
|
|
|
8,304
|
|
|
|
5,396
|
|
|
|
|
|
Plant inventory
|
|
lb
|
|
|
|
9,251
|
|
|
|
4,326
|
|
|
|
1,433
|
|
|
|
-
|
|
|
|
|
|
Conversion inventory - produced
|
|
lb
|
|
|
|
219,735
|
|
|
|
219,802
|
|
|
|
219,802
|
|
|
|
220,053
|
|
|
|
|
|
Conversion inventory - purchased
|
|
lb
|
|
|
|
48,750
|
|
|
|
48,750
|
|
|
|
48,750
|
|
|
|
48,750
|
|
|
|
|
|
|
|
lb
|
|
|
|
284,637
|
|
|
|
282,145
|
|
|
|
278,289
|
|
|
|
274,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-process inventory
|
|
$000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
Plant inventory
|
|
$000
|
|
|
$
|
268
|
|
|
$
|
138
|
|
|
$
|
42
|
|
|
$
|
-
|
|
|
|
|
|
Conversion inventory - produced
|
|
$000
|
|
|
$
|
6,083
|
|
|
$
|
6,079
|
|
|
$
|
6,082
|
|
|
$
|
6,250
|
|
|
|
|
|
Conversion inventory - purchased
|
|
$000
|
|
|
$
|
1,268
|
|
|
$
|
1,268
|
|
|
$
|
1,209
|
|
|
$
|
1,176
|
|
|
|
|
|
|
|
$000
|
|
|
$
|
7,619
|
|
|
$
|
7,485
|
|
|
$
|
7,333
|
|
|
$
|
7,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost per Pound
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-process inventory
|
|
$/lb
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
Plant inventory
|
|
$/lb
|
|
|
$
|
28.97
|
|
|
$
|
31.90
|
|
|
$
|
29.31
|
|
|
$
|
-
|
|
|
|
|
|
Conversion inventory - produced
|
|
$/lb
|
|
|
$
|
27.68
|
|
|
$
|
27.66
|
|
|
$
|
27.67
|
|
|
$
|
28.40
|
|
|
|
|
|
Conversion inventory - purchased
|
|
$/lb
|
|
|
$
|
26.01
|
|
|
$
|
26.01
|
|
|
$
|
24.80
|
|
|
$
|
24.12
|
|
|
|
|
|
|
|
$/lb
|
|
|
$
|
26.77
|
|
|
$
|
26.53
|
|
|
$
|
26.35
|
|
|
$
|
27.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Produced Inventory detail:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ad valorem and severance tax
|
|
$/lb
|
|
|
$
|
0.75
|
|
|
$
|
0.75
|
|
|
$
|
0.75
|
|
|
$
|
0.77
|
|
|
|
|
|
Cash cost
|
|
$/lb
|
|
|
$
|
17.50
|
|
|
$
|
17.48
|
|
|
$
|
17.49
|
|
|
$
|
17.95
|
|
|
|
|
|
Non-cash cost
|
|
$/lb
|
|
|
$
|
9.43
|
|
|
$
|
9.43
|
|
|
$
|
9.43
|
|
|
$
|
9.68
|
|
|
|
|
|
|
|
$/lb
|
|
|
$
|
27.68
|
|
|
$
|
27.66
|
|
|
$
|
27.67
|
|
|
$
|
28.40
|
|
|
|
|
|
During the quarter, we took steps to further reduce production operations at Lost Creek and adjust to the continued depressed state of the uranium markets while we await the recommended relief from the Working Group and further positive developments in the uranium markets. As a result, production rates at Lost Creek declined during the quarter. Pounds captured decreased nearly 40 percent during the quarter and will continue to decrease in Q4. To minimize drying costs, we only dry and package when we have captured enough material for a complete load. As a result, pounds drummed may lag longer and vary from pounds captured more than usual. There were no shipments in the quarter as we shipped all available product to the conversion facility in December 2019 and have not drummed enough product in 2020 to justify a shipment.
At the end of the quarter, we had approximately 268,485 pounds of U3O8 at the conversion facility including 219,735 produced pounds at an average cost per pound of $27.68, and 48,750 purchased pounds at an average cost of $26.01 per pound.
Three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019
The following table summarizes the results of operations for the three and nine months ended September 30, 2020 and 2019:
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
-
|
|
|
|
5,115
|
|
|
|
8,304
|
|
|
|
21,406
|
|
Cost of sales
|
|
|
(1,840
|
)
|
|
|
(7,515
|
)
|
|
|
(11,462
|
)
|
|
|
(23,824
|
)
|
Gross profit (loss)
|
|
|
(1,840
|
)
|
|
|
(2,400
|
)
|
|
|
(3,158
|
)
|
|
|
(2,418
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs
|
|
|
(2,157
|
)
|
|
|
(2,620
|
)
|
|
|
(6,446
|
)
|
|
|
(7,920
|
)
|
Profit (loss) from operations
|
|
|
(3,997
|
)
|
|
|
(5,020
|
)
|
|
|
(9,604
|
)
|
|
|
(10,338
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest expense
|
|
|
(195
|
)
|
|
|
(153
|
)
|
|
|
(522
|
)
|
|
|
(517
|
)
|
Warrant mark to market gain
|
|
|
550
|
|
|
|
981
|
|
|
|
592
|
|
|
|
343
|
|
Foreign exchange gain (loss)
|
|
|
(53
|
)
|
|
|
4
|
|
|
|
(46
|
)
|
|
|
(24
|
)
|
Other income (expense)
|
|
|
(1
|
)
|
|
|
(12
|
)
|
|
|
16
|
|
|
|
3
|
|
Net income (loss)
|
|
|
(3,696
|
)
|
|
|
(4,200
|
)
|
|
|
(9,564
|
)
|
|
|
(10,533
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
36
|
|
|
|
15
|
|
|
|
67
|
|
|
|
(8
|
)
|
Comprehensive income (loss)
|
|
|
(3,660
|
)
|
|
|
(4,185
|
)
|
|
|
(9,497
|
)
|
|
|
(10,541
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
(0.02
|
)
|
|
|
(0.03
|
)
|
|
|
(0.06
|
)
|
|
|
(0.07
|
)
|
Diluted
|
|
|
(0.02
|
)
|
|
|
(0.03
|
)
|
|
|
(0.06
|
)
|
|
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 pounds sold
|
|
|
-
|
|
|
|
122,500
|
|
|
|
200,000
|
|
|
|
485,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 price per pounds sold
|
|
|
-
|
|
|
|
41.76
|
|
|
|
41.50
|
|
|
|
44.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 cost per pounds sold
|
|
|
-
|
|
|
|
27.98
|
|
|
|
25.83
|
|
|
|
32.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 gross per pounds sold
|
|
|
-
|
|
|
|
13.78
|
|
|
|
15.67
|
|
|
|
11.89
|
|
Sales
We sold 200,000 pounds of U3O8 during the nine months ended September 30, 2020 at an average price of $41.50 per pound. We sold 122,500 and 485,000 pounds of U3O8 during the three and nine months ended September 30, 2019 at an average price of $41.76 and $44.13, respectively, per pound. The sales were all from term contracts. There were no sales in the third quarter of 2020.
Cost of Sales
Cost of sales per the financial statements includes ad valorem and severance taxes related to the extraction of uranium, all costs of wellfield and plant operations including the related depreciation and amortization of capitalized assets, reclamation and mineral property costs, plus product distribution costs. These costs are also used to value inventory. The resulting inventoried cost per pound is compared to the NRV of the product, which is based on the estimated sales price of the product, net of any necessary costs to finish the product. Any inventory value in excess of the NRV is charged to cost of sales per the financial statements. These NRV adjustments are excluded from the U3O8 cost of sales and U3O8 cost per pound sold figures because they relate to the pounds of U3O8 in ending inventory and do not relate to the pounds of U3O8 sold during the period.
All sales in 2020 were from purchased product. The weighted average purchase price was $25.83 per pound for the nine months ended September 30, 2020 as compared to $32.24 for the nine months ended September 30, 2019. In 2019, a portion of the product sold was from purchased inventory and the cost per pound of the produced inventory was higher than the purchased inventory, which led to a higher average cost per pound sold in 2019 as compared to 2020. There were no sales in the third quarter of 2020.
In the three and nine months ended September 30, 2020, cost of sales per the financial statements included $1.8 million and $6.3 million, respectively, in lower of cost or NRV adjustments compared to $4.1 and $8.2 million in the comparable periods in 2019.
Gross Profit
The gross loss per the financial statements for the nine months ended September 30, 2020 was $3.2 million. After adding back the $6.3 million lower of cost or NRV adjustment, which included a significant portion of cash production costs, the gross profit related to U3O8 sales was $3.1 million for the nine month period, which represents gross profit margin of approximately 38 percent. Gross profits exclusive of NRV adjustments of $1.7 million and $5.8 million in the three and nine months ended September 30, 2019, respectively, represent gross profit margins of approximately 33 percent and 27 percent. The primary reason for the lower gross profit margin in 2019 was because it included sales of higher cost produced pounds, which increased the cost per pound sold in that year.
Operating Costs
Operating costs include exploration and evaluation expense, development expense, general and administration expense, and accretion expense.
The following table summarizes the operating costs for the three and nine months ended September 30, 2020 and 2019:
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration and evaluation
|
|
|
474
|
|
|
|
822
|
|
|
|
1,419
|
|
|
|
2,084
|
|
Development
|
|
|
284
|
|
|
|
372
|
|
|
|
900
|
|
|
|
831
|
|
General and administration
|
|
|
1,254
|
|
|
|
1,282
|
|
|
|
3,694
|
|
|
|
4,574
|
|
Accretion
|
|
|
145
|
|
|
|
144
|
|
|
|
433
|
|
|
|
431
|
|
|
|
|
2,157
|
|
|
|
2,620
|
|
|
|
6,446
|
|
|
|
7,920
|
|
Total operating costs for the three and nine months ended September 30, 2020 were $2.2 million and $6.4 million, respectively. These expenses compare to the three and nine month periods ended September 30, 2019, which were $2.6 million and $7.9 million, respectively. The decrease for the quarter primarily related to the timing variance of maintenance payments for certain of our federal mining claims, which were paid in the second quarter of this year as compared to being paid in Q3 of last year. Lower labor costs accounted for most of the favorable difference for the nine month period. In 2020 Q1, after considering uranium market conditions, and other factors including worldwide economic conditions and market reactions to COVID-19, our Board of Directors chose to not pay bonus awards for 2019 performance, which accounted for a significant portion of the labor variance.
Exploration and evaluation expense consists of labor and the associated costs of the exploration, evaluation, and regulatory departments, as well as land holding and exploration costs on properties which have not reached the development or operations stage. The quarterly and year-to-date decreases in 2020 are primarily due to the claim maintenance timing difference and the decision to not pay the bonus awards, respectively, as discussed above.
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 Project, which is in a more advanced stage, and Lucky Mc, which is near the end of reclamation at the historic mine site. The quarterly decrease related to the timing of the claim payments as discussed above. The yearly increase related to costs associated with completing the licensing of LC East and Shirley Basin.
General and administration expense relates to the administration, finance, investor relations, land and legal functions of the Company and consists principally of personnel, facility and support costs. Quarterly costs were similar to the previous year while the yearly decrease was mainly attributable to the decision to not pay the bonus awards, as discussed above, and a reduction in legal and related fees associated with the Section 232 trade action incurred in 2019, which were not repeated in 2020.
Other Income and Expenses
Net interest expense remained consistent during the three and nine months ended September 30, 2020 compared to the prior year. In October 2019, the State granted a six-quarter deferral of principal payments on the State Bond Loan, so the principal balance, and the resulting interest charge, did not change significantly.
As a part of the September 2018 public offering, and the August 2020 registered direct offering, we sold warrants that were priced in U.S. dollars. Because the functional currency of the Ur-Energy Inc. is Canadian dollars, a derivative financial liability was created. The liability created, and adjusted quarterly, is calculated using the Black-Scholes technique as there is no active market for the warrants. Any gain or loss on remeasurement of the liability is reflected in net income for the period. The revaluation as of September 30, 2020 and 2019 resulted in gains as presented, respectively.
Earnings (loss) per Common Share
The basic and diluted losses per Common Share for the three and nine months ended September 30, 2020 were $0.02 and $0.06, respectively, compared to basic and diluted losses of $0.03 and $0.07 per share for the same periods in 2019. The diluted losses per Common Share were equal to the basic losses per Common Share as there is no dilution for options, warrants and RSUs when net losses are experienced.
Liquidity and Capital Resources
As of September 30, 2020, we had cash resources consisting of cash and cash equivalents of $6.6 million, a decrease of $0.8 million from the December 31, 2019 balance of $7.4 million. The cash resources consist of Canadian and U.S. dollar denominated deposit accounts and money market funds. We used $5.8 million for operating activities and less than $0.1 million for investing activities, and generated $5.1 million from financing activities.
On October 23, 2013, we closed a $34.0 million Sweetwater County, State of Wyoming, Taxable Industrial Development Revenue Bond financing program loan (“State Bond Loan”). The State Bond Loan calls for payments of interest at a fixed rate of 5.75% per annum on a quarterly basis, which commenced January 1, 2014. The principal was to be payable in 28 quarterly installments, which commenced January 1, 2015. The State Bond Loan is secured by all of the assets at the Lost Creek Project. As of September 30, 2020, the balance of the State Bond Loan was $12.4 million.
On October 1, 2019, the Sweetwater County Commissioners and the State of Wyoming approved a six-quarter deferral of principal payments beginning October 1, 2019. On October 6, 2020, the State Bond Loan was again modified to defer principal payments for an additional eighteen months. Quarterly principal payments are scheduled to resume on October 1, 2022 and the last payment will be due on October 1, 2024.
On April 16, 2020, we obtained two SBA PPP loans (one for each of our subsidiaries with U.S. payroll obligations) through the BOKF. The program was a part of the CARES Act enacted by Congress on March 27, 2020 in response to the COVID-19 (Coronavirus) pandemic. The combined loan amount was $0.9 million.
On June 5, 2020, the Paycheck Protection Program Flexibility Act of 2020 (the “Flexibility Act”) became law. The Flexibility Act changes key provisions of the PPP, including maturity of the loans, deferral of loan payments, and the forgiveness of the PPP loans, with revisions being retroactive to the date of the CARES Act.
Under the program, as modified by the Flexibility Act and SBA and Treasury rulemakings, the repayment of our loans, including interest, may be forgiven based on eligible payroll, payroll-related, and other allowable costs incurred in a twenty-four-week period following the funding of the loans. To have the full amount of the loans forgiven, the following requirements must be met within that period, and be sufficiently documented in the application for forgiveness:
|
(1)
|
Spend not less than 60% of loan proceeds on eligible payroll costs.
|
|
(2)
|
Spend the remaining loan proceeds on:
|
|
a.
|
additional eligible payroll costs above 60%;
|
|
b.
|
payments of interest on mortgage obligations incurred before February 15, 2020;
|
|
c.
|
rent payments on leases dated before February 15, 2020; and/or
|
|
d.
|
utility payments under service agreements dated before February 15, 2020.
|
|
(3)
|
Maintain employee compensation levels (subject to specific program requirements).
|
For any portion of the loans that are not forgiven, the program provides for an initial deferral of payments based upon the timing of a borrower’s application for forgiveness and SBA’s action on the application up to a maximum of ten months after the use and forgiveness covered period ends (July 30, 2021). Any remaining amount owing on the loans has a two-year maturity (April 16, 2022), unless renegotiated with the lender for up to a five-year term, with an interest rate of one percent per annum. We anticipate the loans will meet the requirements for forgiveness under this program, but at this time we have not yet applied for or received loan forgiveness and therefore have treated the PPP loans as debt.
On May 15, 2020, we filed a universal shelf registration statement on Form S-3 with the SEC in order that we may offer and sell, from time to time, in one or more offerings, at prices and terms to be determined, up to $100 million of our Common Shares, warrants to purchase our Common Shares, our senior and subordinated debt securities, and rights to purchase our Common Shares and/or senior and subordinated debt securities. The registration statement became effective May 27, 2020 for a three-year period.
On May 29, 2020, we entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) with B. Riley Securities, Inc. (formerly, B. Riley FBR, Inc.), under which we may, from time to time, issue and sell Common Shares at market prices on the NYSE American or other U.S. market through the agent for aggregate sales proceeds of up to $10,000,000. The Sales Agreement replaces the prior At Market Issuance Sales Agreement entered into by the Company on May 27, 2016, as amended. We have not used the facility in 2020.
On August 4, 2020, the Company closed a $4.68 million registered direct offering of 9,000,000 common shares and accompanying one-half common share warrants to purchase up to 4,500,000 common shares, at a combined public offering price of $0.52 per common share and accompanying warrant, with gross proceeds to the Company of $4.68 million. After fees and expenses of $0.4 million, net proceeds to the Company were $4.3 million.
Collections from U3O8 sales for the nine months ended September 30, 2020 totaled $8.3 million.
Operating activities used cash of $5.8 million during the nine months ended September 30, 2020 as compared to $0.5 million during the same period in 2019. The primary reason for the variance is that 2019 included sales of existing inventory and 2020 did not. In 2019, we sold 213,750 pounds from inventory that we produced and paid for in 2018. As a result, all 2019 sales proceeds related to the produced pounds contributed to cash provided by operating activities for the year. In 2020, all sales were from purchased product and the cost of the purchased pounds reduced the amount of cash provided by operating activities for the year.
Liquidity Outlook
As at October 28, 2020, our unrestricted cash position was $5.9 million.
In addition to our cash position, our finished, ready-to-sell, conversion facility inventory is immediately realizable, if necessary. We anticipate selling a substantial portion of our existing finished-product inventory in 2021 at spot market prices in effect at that time, unless market conditions change, or we choose to obtain additional financing.
Looking Ahead
Following multiple announcements of industry production suspensions and reductions earlier this year, U3O8 spot prices increased to $33 per pound in June. U3O8 spot prices have decreased to just under $30 per pound since then. While the production cuts may amount to as much as 46 million pounds of primary production on an annualized basis, positive impacts on long-term U3O8 prices have not materialized.
As set forth above, the Working Group report makes several strong recommendations to revitalize domestic uranium mining, most relevant among which is that the U.S. government should make direct purchases of 17 to 19 million total pounds of U3O8 to replenish the American Assured Fuel Supply uranium reserve. Additionally, the report recommends the establishment of a national uranium reserve, which is included in the President’s Fiscal Year 2021 Budget Request; during the first year, it is expected that the reserve would directly support the operation of at least two U.S. uranium mines. The budget item is for $150 million per year from FY2021 to FY2030. However, in July the U.S. House Committee on Appropriations decided not to fund the budget item without further information from DOE, for which they directed DOE to submit a plan for the proposed establishment of a uranium reserve within six months of the appropriation bill’s enactment.
The amendment and extension of the RSA, completed in early October, continues caps on Russian imports of nuclear fuel to the U.S. for an additional 20 years, through 2040. The amendment reduces the current cap of 20% of demand to an average of 17% of demand over the 20-year period, with reductions starting in 2028 and continuing through 2040. These provisions in the RSA are positive developments in the long term. Notably, Senator Barrasso has introduced legislation to codify the recent extension of the RSA.
Still, no specific action or remedies have resulted from the Working Group’s plan at this time and, while the report is strong in its recommendations, there can be no certainty of the final outcome of the Working Group’s findings and recommendations, or the timing and impact of any actions taken in response to those findings and recommendations. This includes both the Congressional budget appropriations process and proposed legislation related to the national uranium reserves. The outcome of these continuing processes and its effects on the U.S. uranium market, therefore, remains uncertain.
In addition to the restructuring of the State Bond Loan, we have continued to implement other Company-wide cost-saving measures as we await the recommended relief from the Working Group report and further positive developments in the uranium markets. Recently, we further reduced production operations at Lost Creek to market-appropriate levels. The reduced production levels allowed us to make further operating cost reductions at Lost Creek and related support cost reductions at the corporate office. The cost reductions include savings from additional reductions in force at both locations as well as other cost containment measures. Together with the further deferral of principal payments on the State Bond Loan, these measures will result in substantial savings to the Company, estimated to exceed $7 million and $4 million in calendar years 2021 and 2022, respectively.
With our remaining highly experienced technical and operation staff, we will continue to maintain operational readiness at our fully permitted Lost Creek mine and plant. Ur-Energy is prepared to expand uranium production at Lost Creek to an annualized run rate of one million pounds.
The Lost Creek facility has the constructed and licensed capacity to process up to two million pounds of U3O8 per year and previously reported mineral resources to feed the processing plant for many years to come. A ramp-up of production at Lost Creek will advance further development in the first two mine units, followed by the ten additional mining areas as defined in the Lost Creek Property Preliminary Economic Assessment, as amended. With future development and construction in mind, our current staff members were retained as having the greatest level of experience and adaptability allowing for an easier transition back to full operations. Lost Creek operations can increase to full production rates in as little as six months following a go decision, simply by developing additional header houses within the fully permitted MU2. Development expenses during this six-month ramp up period are estimated to be approximately $14 million and are almost entirely related to MU2 drilling and header house construction costs.
We will continue to closely monitor the uranium market and any actions or remedies resulting from the Working Group’s report, DOE’s and DOC’s efforts, or legislative actions, which may positively impact the uranium production industry. Until such time, we will continue to minimize costs and maximize ‘runway’ to maintain current operations and avoid unnecessary dilution while maintaining the operational readiness needed to ramp-up production when called upon.
Transactions with Related Parties
There were no transactions with related parties during the quarter.
Proposed Transactions
As is typical of the mineral exploration, development and mining industry, we will consider and review potential merger, acquisition, investment and venture transactions and opportunities that could enhance shareholder value. Timely disclosure of such transactions is made as soon as reportable events arise.
Critical Accounting Policies and Estimates
We have established the existence of uranium resources at the Lost Creek Property, but because of the unique nature of in situ recovery mines, we have not established, and have no plans to establish, the existence of proven and probable reserves at this project. Accordingly, we have adopted an accounting policy with respect to the nature of items that qualify for capitalization for in situ U3O8 mining operations to align our policy to the accounting treatment that has been established as best practice for these types of mining operations.
The development of the wellfield includes injection, production and monitor well drilling and completion, piping within the wellfield and to the processing facility and 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.
Development costs including, but not limited to, production wells, header houses, piping and power will be expensed as incurred as we have no proven and probable reserves.
Inventory and Cost of Sales
Our inventories are valued at the lower of cost and net realizable value based on projected revenues from the sale of that product. We are allocating all costs of operations of the Lost Creek facility to the inventory valuation at various stages of production with the exception of wellfield and disposal well costs which are treated as development expenses when incurred. Depreciation of facility enclosures, equipment and asset retirement obligations as well as amortization of the acquisition cost of the related property is also included in the inventory valuation. We do not allocate any administrative or other overhead to the cost of the product.
Share-Based Expense
We are required to initially record all equity instruments including warrants, restricted share units and stock options at fair value in the financial statements.
Management utilizes the Black-Scholes model to calculate the fair value of the warrants and stock options at the time they are issued. In addition, the fair value of derivative warrants is recalculated quarterly using the Black-Scholes model with any gain or loss being reflected in the net income for the period. Use of the Black-Scholes model requires management to make estimates regarding the expected volatility of the Company’s stock over the future life of the equity instrument, the estimate of the expected life of the equity instrument and the number of options that are expected to be forfeited. Determination of these estimates requires significant judgment and requires management to formulate estimates of future events based on a limited history of actual results.
Off Balance Sheet Arrangements
We have not entered into any material off balance sheet arrangements such as guaranteed contracts, contingent interests in assets transferred to unconsolidated entities, derivative instrument obligations, or with respect to any obligations under a variable interest entity arrangement.
Outstanding Share Data
As of October 28, 2020, we had outstanding 169,667,672 Common Shares and 10,091,282 options to acquire Common Shares.