Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following management’s discussion and analysis of the Company’s financial condition and results of operations (the “MD&A”) contain forward-looking statements that involve risks, uncertainties and assumptions including, among others, statements regarding our capital needs, business plans and expectations. In evaluating these statements you should consider various factors, including the risks, uncertainties and assumptions set forth in reports and other documents we have filed with or furnished to the SEC and, including, without limitation, this Form 10-Q Quarterly Report for the nine months ended April 30, 2022, and our Form 10-K Annual Report for the fiscal year ended July 31, 2021, including the consolidated financial statements and related notes contained therein. These factors, or any one of them, may cause our actual results or actions in the future to differ materially from any forward-looking statement made in this Quarterly Report. Refer to “Cautionary Note Regarding Forward-looking Statements” as disclosed in our Form 10-K Annual Report for the fiscal year ended July 31, 2021, and Item 1A, Risk Factors, under Part II - Other Information, of this Quarterly Report.
Introduction
This MD&A is focused on material changes in our financial condition from July 31, 2021, our most recently completed year end, to April 30, 2022, and our results of operations for the three and nine months ended April 30, 2022, and should be read in conjunction with Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, as contained in our Form 10-K Annual Report for Fiscal 2021.
Business
We are predominantly engaged in uranium mining and related activities, including exploration, pre-extraction, extraction and processing, on uranium projects located in the United States and Paraguay, as more fully described in our Form 10-K Annual Report for Fiscal 2021.
We utilize in-situ recovery (“ISR”) mining where possible which we believe, when compared to conventional open pit or underground mining, requires lower capital and operating expenditures with a shorter lead time to extraction and a reduced impact on the environment. We have one uranium mine located in the State of Texas, the Palangana Mine, which utilizes ISR mining and commenced extraction of U3O8, or yellowcake. We have one uranium processing facility located in the State of Texas, the Hobson Processing Facility, which processes material from the Palangana Mine into drums of U3O8, for shipping to a third-party storage and sales facility. As of April 30, 2022, we had no uranium supply or off-take agreements in place.
Our fully-licensed and 100%-owned Hobson Processing Facility forms the basis for our regional operating strategy in the State of Texas, specifically the South Texas Uranium Belt where we utilize ISR mining. We utilize a “hub-and-spoke” strategy whereby the Hobson Processing Facility acts as the central processing site (the “hub”) for the Palangana Mine and future satellite uranium mining activities, such as our Burke Hollow and Goliad Projects, located within the South Texas Uranium Belt (the “spokes”). The Hobson Processing Facility has a physical capacity to process uranium-loaded resins of up to a total of two million pounds of U3O8 annually and is licensed to process up to one million pounds of U3O8 annually.
We acquired the fully permitted Reno Creek Project in August 2017 and expanded our operations to the strategic Powder River Basin in Wyoming.
On December 17, 2021, we completed the acquisition of all the issued and outstanding shares of U1A (now UEC Wyoming Corp.) for total cash consideration of $128,494,545. The UEC Wyoming Portfolio primarily consists of 12 projects located in Wyoming, six of which are located in the Powder River Basin with four fully permitted, and six of which are located in the Great Divide Basin. The UEC Wyoming Portfolio also consists of dozens of under-explored, mineralized brownfield projects, backed by detailed databases of historic uranium exploration and development programs, thus greatly enhancing the potential for resource expansion. The U1A Acquisition creates a Wyoming hub-and-spoke operation for UEC, anchored by UEC Wyoming’s Irigaray Processing Facility with a licensed capacity of 2.5 million pounds U3O8 per year. Refer to Note 3: Acquisition of Uranium One Americas, Inc. of the Condensed Consolidated Financial Statements for the three and nine months ended April 30, 2022.
We also hold certain mineral rights in various stages of development in the States of Arizona, Colorado, New Mexico, Texas and Wyoming, in Canada and in the Republic of Paraguay, many of which are located in historically successful mining areas and have been the subject of past exploration and pre-extraction activities by other mining companies. We do not expect, however, to utilize ISR mining for all of the uranium mineral rights in which case we would expect to rely on conventional open pit and/or underground mining techniques.
Since we completed the acquisition of the Alto Paraná Titanium Project located in Paraguay in July 2017, we are also involved in titanium mining and related activities, including exploration, development, extraction and processing of titanium minerals such as ilmenite.
Our operating and strategic framework is based on expanding our uranium and titanium extraction activities, which include advancing certain projects with established mineralized materials towards extraction and establishing additional mineralized materials on our existing uranium and titanium projects or through the acquisition of additional projects.
Uranium Market Developments
Over the past few years, global uranium market fundamentals have been improving as the market transitions from an inventory driven to more of a production driven market. The spot market bottomed in November 2016 at about $17.75 per pound U3O8 and stood at approximately $53.00 per pound at April 30, 2022 (Ux U3O8 Daily Price). Production curtailments, mine closures from several global producers and COVID-19 pandemic related shutdowns have lowered annual uranium production over the past few years from approximately 141 million pounds in 2019 to about 123 million pounds in 2021. Global supply and demand projections show a structural deficit between production and utility requirements averaging about 40 million pounds a year over the next 10 years and increasing thereafter (UxC 2022 Q1 Uranium Market Outlook). The current gap is being filled with secondary market sources, including finite inventory that is projected to decline in coming years. As secondary supplies diminish, new production will be needed to meet utility demand and will require higher prices to stimulate new mining activity with market prices still below incentive prices for many producers. Uranium supply has become more complicated due to Russia’s invasion of Ukraine as Russia is a significant supplier of nuclear fuel around the globe. Economic sanctions, transportation restrictions, pending legislation and buyer avoidance of Russian fuel is causing a fundamental change to the nuclear fuel markets. We believe this is likely to result in a bifurcation of the uranium market, increasing an already notable supply gap for western utilities. Secondary supply is also likely to be further reduced with western enrichers reversing operations from underfeeding to overfeeding that requires more uranium to increase the production of enrichment services. While these situations are still unfolding, market analysis is pointing towards at least the U.S. utilities beginning to shift more interest in the security of supply with domestic production.
On the demand side of the equation, the global nuclear energy industry continues robust growth, with 63 new reactors connected to the grid since 2013 and another 55 reactors under construction as of May 2022 (PRIS and WNA May 2022 data). In the 2021 edition of the World Energy Outlook, the International Energy Agency's “Stated Policies Scenario” projected installed nuclear capacity growth of over 26% from 2020 to 2050 (reaching about 525 GWe). Additional upside market pressure also appears to be emerging as utilities finally return to a longer-term contracting cycle to replace expiring contracts, something the market has not experienced for several years. In a more recent market development, financial entities and various producers, including our Company, have been purchasing significant quantities of drummed uranium inventory, further removing excess near term supplies. As mentioned above, the Russian invasion of Ukraine is also a factor and is likely to increase the demand for supply from regions with less geopolitical risk.
Response to COVID-19 Pandemic
In response to the COVID-19 pandemic and for the protection of our employees, we have arranged for our teams at our Vancouver, Corpus Christi, Wyoming and Paraguay offices to work remotely. In the meantime, we continued to operate our Palangana Mine and recently acquired Christensen Ranch Mine at a reduced pace to capture residual uranium only and we continue to advance our ISR projects with engineering and geologic evaluations that support the Company’s extraction readiness strategy.
Results of Operations
The financial information included in the following discussion and analysis of financial condition and results of operations during the three and nine months ended April 30, 2022, compared to the same periods in Fiscal 2021, as well as the results of operations of UEC Wyoming since the closing of the U1A Acquisition on December 17, 2021.
During the three and nine months ended April 30, 2022, we recorded sales and service revenue of $9,892,310 and $23,083,235, respectively, and realized gross profit of $3,337,556 and $7,280,273, respectively. No sales and service revenues were recorded during the three and nine months ended April 30, 2021.
During the three and nine months ended April 30, 2022, we recorded net income of $7,344,738 ($0.03 per share) and net loss of $203,355 ($0.00 per share) and losses from operations of $3,682,093 and $13,483,614, respectively. For the three and nine months ended April 30, 2021, we recorded net losses of $4,590,161 ($0.02 per share) and $13,014,757 ($0.06 per share) and losses from operations of $4,863,141 and $11,773,329, respectively.
During the three and nine months ended April 30, 2022, we continued with our strategic plan for reduced operations at our Palangana Mine and, since the closing of the U1A Acquisition, we continued reduced operations at the Christensen Ranch Mine to capture residual pounds of U3O8 only. As a result, no U3O8 extraction or processing costs were capitalized to inventories during the three and nine months ended April 30, 2022.
During the nine months ended April 30, 2022, we entered into agreements to purchase 1,800,000 pounds of uranium concentrate inventories under our Physical Uranium Program and received 1,100,000 pounds of uranium concentrate inventories at a total cost of $43,699,040. As at April 30, 2022, the total carrying value of our inventories was $57,411,334 (July 31, 2021: $29,172,480).
Sales and Service Revenue
During the three and nine months ended April 30, 2022, we recorded sales of $9,800,000 and $22,946,000, respectively, from the sale of 200,000 and 500,000 pounds of uranium concentrate inventory, respectively. In addition, we recorded revenue from toll processing services of $92,310 and $137,235, respectively, which was generated from processing uranium resins according to a toll processing agreement inherited from the U1A Acquisition. As a result, we realized gross profit of $3,337,556 and $7,280,273, respectively, representing a gross profit margin of $33.7% and 31.5%, respectively. No sales and service revenues were recorded during the three and nine months ended April 30, 2021.
The table below provides a breakdown of sales and service revenue and cost of sales and services:
| |
|
Three Months Ended April 30, |
|
|
Nine Months Ended April 30, |
|
| |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
| Sales of purchased uranium inventory |
|
$ |
9,800,000 |
|
|
$ |
- |
|
|
$ |
22,946,000 |
|
|
$ |
- |
|
| Revenue from toll processing services |
|
|
92,310 |
|
|
|
- |
|
|
|
137,235 |
|
|
|
- |
|
| Total sales and service revenue |
|
$ |
9,892,310 |
|
|
$ |
- |
|
|
$ |
23,083,235 |
|
|
$ |
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cost of purchased uranium inventory |
|
$ |
(6,477,830 |
) |
|
$ |
- |
|
|
$ |
(15,688,600 |
) |
|
$ |
- |
|
| Cost of toll processing services |
|
|
(76,924 |
) |
|
|
- |
|
|
|
(114,362 |
) |
|
|
- |
|
| Total cost of sales and services |
|
$ |
(6,554,754 |
) |
|
$ |
- |
|
|
$ |
(15,802,962 |
) |
|
$ |
- |
|
Operating Costs
Mineral Property Expenditures
Mineral property expenditures primarily consisted of costs relating to permitting, property maintenance, exploration and pre-extraction activities and other non-extraction related activities on our projects.
During the three and nine months ended April 30, 2022, mineral property expenditures totaled $2,912,518 and $6,678,207, respectively, of which $895,796 and $1,334,580, respectively, were mineral property expenditures incurred on the UEC Wyoming Portfolio since December 17, 2021.
During the three and nine months ended April 30, 2022, costs directly related to maintaining operational readiness and permitting compliance for our Palangana Mine, our Hobson Processing Facility and our recently acquired Christensen Ranch Mine and Irigaray Processing Facility totaled $777,389 and $1,517,302, respectively. During the three and nine months ended April 30, 2021, mineral property expenditures totaled $1,478,754 and $3,141,772, respectively, of which $238,015 and $678,082, respectively, were directly related to maintaining operational readiness and permitting compliance for our Palangana Mine and Hobson Processing Facility.
During the nine months ended April 30, 2022, we continued the drilling campaign and drilled 89 exploration holes and cased 30 wells totaling 58,240 feet at our Burke Hollow Project.
The following table provides mineral property expenditures on our projects for the periods indicated:
| |
|
Three Months Ended April 30, |
|
|
Nine Months Ended April 30, |
|
| |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
| Mineral Property Expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Palangana Mine |
|
$ |
299,727 |
|
|
$ |
216,791 |
|
|
$ |
811,443 |
|
|
$ |
648,459 |
|
| Burke Hollow Project |
|
|
938,789 |
|
|
|
626,695 |
|
|
|
2,356,485 |
|
|
|
942,311 |
|
| Goliad Project |
|
|
42,230 |
|
|
|
51,437 |
|
|
|
171,670 |
|
|
|
168,493 |
|
| Longhorn Project |
|
|
15,381 |
|
|
|
2,289 |
|
|
|
22,831 |
|
|
|
6,866 |
|
| Salvo Project |
|
|
4,452 |
|
|
|
7,672 |
|
|
|
14,601 |
|
|
|
23,537 |
|
| Anderson Project |
|
|
27,335 |
|
|
|
19,469 |
|
|
|
59,944 |
|
|
|
58,360 |
|
| Workman Creek Project |
|
|
8,167 |
|
|
|
8,168 |
|
|
|
24,922 |
|
|
|
24,533 |
|
| Slick Rock Project |
|
|
12,993 |
|
|
|
12,994 |
|
|
|
39,477 |
|
|
|
39,123 |
|
| Reno Creek Project |
|
|
258,606 |
|
|
|
215,725 |
|
|
|
682,758 |
|
|
|
485,791 |
|
| Allemand Ross Project |
|
|
90,387 |
|
|
|
- |
|
|
|
139,276 |
|
|
|
- |
|
| Christensen Ranch Mine |
|
|
513,663 |
|
|
|
- |
|
|
|
776,890 |
|
|
|
- |
|
| Ludeman Project |
|
|
78,680 |
|
|
|
- |
|
|
|
124,957 |
|
|
|
- |
|
| Moore Ranch Project |
|
|
55,982 |
|
|
|
- |
|
|
|
74,529 |
|
|
|
- |
|
| Yuty Project |
|
|
33,349 |
|
|
|
7,129 |
|
|
|
53,961 |
|
|
|
21,457 |
|
| Oviedo Project |
|
|
145,853 |
|
|
|
109,676 |
|
|
|
468,447 |
|
|
|
256,091 |
|
| Alto Paraná Titanium Project |
|
|
76,925 |
|
|
|
88,796 |
|
|
|
281,577 |
|
|
|
134,710 |
|
| Other Mineral Property Expenditures |
|
|
309,999 |
|
|
|
111,913 |
|
|
|
574,439 |
|
|
|
332,041 |
|
| |
|
$ |
2,912,518 |
|
|
$ |
1,478,754 |
|
|
$ |
6,678,207 |
|
|
$ |
3,141,772 |
|
General and Administrative
During the three months ended April 30, 2022, general and administrative expenses totaled $2,993,536, which decreased by $292,665 compared to $3,286,201 for the three months ended April 30, 2021, primarily due to a decrease in corporate development and investor relation expenses. During the nine months ended April 30, 2022, general and administrative expenses totaled $9,825,685, which increased by $1,489,092 compared to $8,336,593 for nine months ended April 30, 2021, primarily resulting from increases in salaries and management fees, increase in professional fees, inclusion of expenses related to UEC Wyoming’s operations and recognition of foreign exchange losses.
The following summary provides a discussion of the major expense categories including analyses of the factors that caused significant variances compared to the same period last year:
| |
● |
for the three and nine months ended April 30, 2022, salaries and management fees totaled $733,683 and $2,243,126, respectively, which increased by $216,800 and $980,973 compared to $516,883 and $1,262,153, respectively, for the three and nine months ended April 30, 2021, which was primarily the result of the reinstatement of salaries and management fees and corporate-wide salary increases to adjust for inflation, as well as additional salary expenses related to the recently acquired UEC Wyoming’s operations; |
| |
● |
for the three months ended April 30, 2022, office, insurance, filing and listing fees, investor relations, corporate development and travel expenses totaled $1,037,074, which decreased by $344,275 compared to $1,381,349 for the three months ended April 30, 2021, which was primarily the result of a decrease in expenses related to investor relations and consulting services, offset by expenses incurred by UEC Wyoming operations. For the nine months ended April 30, 2022, office, insurance, filing and listing fees, investor relations, corporate development and travel expenses totaled $3,114,581, which increased by $362,654 compared to $2,751,927 for the nine months ended April 30, 2021, which was primarily the result of increases in expenses for office, administration and insurance and including expenses for UEC Wyoming’s operations; |
| |
● |
for the three months ended April 30, 2022, we recorded a foreign exchange gain of $6,515, compared to a foreign exchange loss of $19,635 for the three months ended April 30, 2021. For the nine months ended April 30, 2022, we recognized foreign exchange losses of $344,653, which increased by $293,350 compared $51,303 for the nine months ended April 30, 2021, primarily as a result of foreign currency transactions; |
| |
● |
for the three and nine months ended April 30, 2022, professional fees totaled $311,742 and $703,978, respectively, which increased by $111,135 and $197,068 compared to $200,607 and $506,910, respectively, for the three and nine months ended April 30, 2021. Professional fees are primarily comprised of legal services related to certain transactional activities and regulatory compliance, in addition to audit and tax services; and |
| |
● |
for the three and nine months ended April 30, 2022, stock-based compensation totaled $917,552 and $3,419,347, respectively, which decreased by $250,175 and $344,953 compared to $1,167,727 and $3,764,300, respectively, for the three and nine months ended April 30, 2021. Stock-based compensation expenses included the fair value of compensation shares at the time of issuance and the amortization of the fair value of various stock awards granted in prior fiscal years using the graded vesting method. |
Acquisition-related Costs
During the three and nine months ended April 30, 2022, in connection with the U1A Acquisition, we incurred acquisition-related costs of $622,297 and $3,267,277, respectively.
Depreciation, amortization and accretion
During the three and nine months ended April 30, 2022, depreciation, amortization and accretion totaled $491,298 and $992,718, respectively, which increased by $393,112 and $697,754 compared to $98,186 and $294,964 for the three and nine months ended April 30, 2021, respectively, primarily due to depreciation of the plant and equipment acquired as a result of the U1A Acquisition.
Other Income and Expenses
Interest and Finance Costs
During the three and nine months ended April 30, 2022, interest and finance costs totaled $144,519 and $1,242,233, respectively, which decreased by $491,659 and $1,114,586 compared to $636,178 and $2,356,819 for the three and nine months ended April 30, 2021, respectively.
For the three and nine months ended April 30, 2022, interest paid on long-term debt totaled $Nil and $408,889, respectively, which decreased by $274,222 and $642,222 compared to $274,222 and $1,051,111, respectively, for the three and nine months ended April 30, 2021. For the three and nine months ended April 30, 2022, amortization of debt discount totaled $Nil and $524,769, respectively, which decreased by $296,401 and $597,327 compared to $296,401 and $1,122,096 for the three and nine months ended April 30, 2021, respectively. Decreases in interest on long-term debt and amortization of debt discount were the result of the decrease in the outstanding principal amount of our long-term debt during the three and nine months ended April 30, 2022 compared to the three and nine months ended April 30, 2021.
For the three and nine months ended April 30, 2022, surety bond premiums totaled $132,879 and $273,791, respectively, which increased by $84,161 and $134,994 compared to $48,718 and $138,797, for the three and nine months ended April 30, 2021, respectively. The increase was primarily a result of assumed surety bond collateral amounts from the U1A Acquisition.
Income from Equity-Accounted Investment
During the three and nine months ended April 30, 2022 and 2021, income from our equity-accounted investment comprised of the following:
| |
|
Three Months Ended April 30, |
|
|
Nine Months Ended April 30, |
|
| |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
| Share of income from URC |
|
$ |
800,445 |
|
|
$ |
456,132 |
|
|
$ |
983,162 |
|
|
$ |
353,440 |
|
| Gain on dilution of ownership interest |
|
|
1,158,239 |
|
|
|
413,881 |
|
|
|
3,730,421 |
|
|
|
413,881 |
|
| Total |
|
$ |
1,958,684 |
|
|
$ |
870,013 |
|
|
$ |
4,713,583 |
|
|
$ |
767,321 |
|
Debt Receivable Recovery
During the three and nine months ended April 30, 2022, we recognized a recovery of $9,171,033 and $9,171,033, respectively, on debt receivable as a result of the Anfield Debt Settlement. Refer to Note 3: Acquisition of Uranium One Americas, Inc.
Realized Gain on Available-for-Sale Security
During the nine months ended April 30, 2022, we recorded a gain of $547,152 from the sale of an available-for-sale security. No gain was recorded for the nine months ended April 30, 2021.
Summary of Quarterly Results
| |
|
For the Quarters Ended |
|
| |
|
April 30, 2022 |
|
|
January 31, 2022 |
|
|
October 31, 2021 |
|
|
July 31, 2021 |
|
| Net income (loss) |
|
$ |
7,344,738 |
|
|
$ |
(5,474,267 |
) |
|
$ |
(2,073,826 |
) |
|
$ |
(1,799,053 |
) |
| Total comprehensive income (loss) |
|
|
7,205,544 |
|
|
|
(6,092,177 |
) |
|
|
(1,930,657 |
) |
|
|
(2,227,462 |
) |
| Basic income (loss) per share |
|
|
0.03 |
|
|
|
(0.02 |
) |
|
|
(0.01 |
) |
|
|
(0.01 |
) |
| Diluted income (loss) per share |
|
|
0.03 |
|
|
|
(0.02 |
) |
|
|
(0.01 |
) |
|
|
(0.01 |
) |
| Total assets |
|
|
330,793,380 |
|
|
|
302,217,146 |
|
|
|
232,718,651 |
|
|
|
169,541,085 |
|
Liquidity and Capital Resources
| |
|
April 30, 2022 |
|
|
July 31, 2021 |
|
| Cash and cash equivalents |
|
$ |
23,754,031 |
|
|
$ |
44,312,780 |
|
| Current assets |
|
|
92,802,397 |
|
|
|
75,045,362 |
|
| Current liabilities |
|
|
4,631,428 |
|
|
|
13,269,210 |
|
| Working capital |
|
|
88,170,969 |
|
|
|
61,776,152 |
|
During the nine months ended April 30, 2022, we received net proceeds of $149,200,901 from our ATM Offerings and $3,549,059 from the exercise of stock options and share purchase warrants. As at April 30, 2022, we had working capital of $88,170,969 after $113,587,952 net cash used in the U1A Acquisition and $10,000,000 repayment of our long-term debt principal. Subsequent to April 30, 2022, we received further cash proceeds of $7,309,084 under the November 2021 ATM Offering and $9,171,033 from the Anfield Debt Settlement.
As of April 30, 2022, we had uranium inventory purchase commitments of 3.4 million pounds with a total purchase price of $134.2 million, of which $49.4 million will become due in the next 12 months from the date of this Quarterly Report.
We believe our existing cash resources and, if necessary, cash generated from the sales of the Company’s uranium inventories, will provide sufficient funds to fulfill our uranium inventory purchase commitments and carry out our planned operations, including UEC Wyoming’s operations, for 12 months from the date of this Quarterly Report. Our continuation as a going concern beyond 12 months from the date of this Quarterly Report will be dependent upon our ability to obtain adequate additional financing, as our operations are capital intensive and future capital expenditures are expected to be substantial.
Historically we have been reliant primarily on equity financings from the sale of our common stock and on debt financings in order to fund our operations. We have also relied, to a limited extent, on cash flows generated from our mining activities during the years ended July 31, 2015 (“Fiscal 2015), 2013 (“Fiscal 2013) and 2012 (“Fiscal 2012”). During the nine months ended April 30, 2022, we received cash proceeds of $22.9 million from the sale of purchased uranium inventories under our Physical Uranium Program. However, we have yet to achieve profitability or develop positive cash flow from operations and we do not expect to achieve profitability or develop positive cash flow from operations in the near term. In the future we may also rely on cash flows generated from the sales of our uranium concentrate inventories to fund our operations. Our reliance on equity and debt financings is expected to continue for the foreseeable future, and their availability, whenever such additional financing is required, will be dependent on many factors beyond our control including, but not limited to, the market price of uranium, the continuing public support of nuclear power as a viable source of electrical generation, the volatility in the global financial markets affecting our stock price and the status of the worldwide economy, any one of which may cause significant challenges in our ability to access additional financing, including access to the equity and credit markets. We may also be required to seek other forms of financing, such as asset divestitures or joint venture arrangements, to continue advancing our uranium projects which would depend entirely on finding a suitable third party willing to enter into such an arrangement, typically involving an assignment of a percentage interest in the mineral project. However, there is no assurance that we will be successful in securing any form of additional financing when required and on terms favorable to us.
Our operations are capital intensive and future capital expenditures are expected to be substantial. We will require significant additional financing to fund our operations, including continuing with our exploration and pre-extraction activities and acquiring additional mineral projects. In the absence of such additional financing, we would not be able to fund our operations, including continuing with our exploration and pre-extraction activities, which may result in delays, curtailment or abandonment of any one or all of our mineral projects.
Our anticipated operations, including exploration and pre-extraction activities, will be dependent on and may change as a result of our financial position, the market price of uranium and other considerations, and such changes may include accelerating the pace or broadening the scope of reducing our operations as originally announced in September 2013.
Our ability to secure adequate funding for these activities will be impacted by our operating performance, other uses of cash, the market price of commodities, the market price of our common stock and other factors which may be beyond our control. Specific examples of such factors include, but are not limited to:
| |
● |
if the market price of uranium weakens; |
| |
● |
if the market price of our common stock weakens; |
| |
● |
if the COVID-19 pandemic worsens or continues over an extended period and causes further financial market uncertainty; and |
| |
● |
if a nuclear incident, such as the events that occurred at Fukushima in March 2011, is to occur, continuing public support of nuclear power as a viable source of electrical generation may be adversely affected, which may result in significant and adverse effects on both the nuclear and uranium industries. |
Our long-term success, including the recoverability of the carrying values of our assets and our ability to acquire additional mineral projects and to continue with exploration and pre-extraction activities and mining activities on our existing mineral projects, will depend ultimately on our ability to achieve and maintain profitability and positive cash flow from our operations by establishing ore bodies that contain commercially recoverable minerals and to develop these into profitable mining activities.
Equity Financings
On May 14, 2021, we entered into the May 2021 ATM Offering Agreement with H.C. Wainwright & Co., LLC and certain co-managers, under which we may, from time to time, sell shares of our common stock having an aggregate offering price of up to $100 million through the ATM Managers selected by us.
On November 26, 2021, we filed the 2021 Shelf with respect to the continuation of the May 2021 ATM Offering Agreement with the ATM Managers under which we may, if eligible, from time to time, sell shares of our common stock having an aggregate offering price of up to $100 million through the ATM Managers selected by us.
During the three and nine months ended April 30, 2022, we issued 4,800,000 and 43,295,536 shares of the Company’s common stock under our 2021 ATM Offerings for net cash proceeds of $18,557,112 and $149,200,901, respectively.
Subsequent to April 30, 2022, we issued 2,102,000 shares of the Company’s common stock under our November 2021 ATM Offering for net cash proceeds of $7,309,084.
Credit Facility
On December 5, 2018, we entered into the Third Amended and Restated Credit Agreement with our Lenders, whereby we and the Lenders agreed to certain further amendments to our Credit Facility, under which initial funding of $10,000,000 was received by the Company upon closing of the Credit Facility on July 30, 2013, and additional funding of $10,000,000 was received by the Company upon closing of the amended Credit Facility on March 13, 2014. The Credit Facility was non-revolving with an amended term of 8.5 years since inception maturing on January 31, 2022, subject to an interest rate of 8% per annum, compounded and payable on a monthly basis. The Third Amended and Restated Credit Agreement superseded, in their entirety, our Second Amended and Restated Credit Agreement dated and effective February 9, 2016, our Amended and Restated Credit Agreement dated and effective March 13, 2014, and our Credit Agreement dated and effective July 30, 2013 with our Lenders.
During Fiscal 2021, we made voluntary payments totaling $10,000,000 to certain Lenders, which decreased the principal balance outstanding to $10,000,000 as at July 31, 2021. On January 31, 2022, we repaid the remaining principal amount of $10,000,000 to our remaining Lender, which decreased the outstanding principal balance to $Nil as at January 31, 2022 and April 30, 2022.
During the nine months ended April 30, 2022, and pursuant to the terms of the Third Amended and Restated Credit Agreement, we issued 161,594 shares with a fair value of $600,000 as payment of anniversary fees to our remaining Lender.
Operating Activities
During the nine months ended April 30, 2022, net cash used in operating activities was $37,038,495, of which $28,046,839 was for net cash used for our uranium concentrate inventory and $1,716,419 was for acquisition-related costs for the U1A Acquisition. Other significant operating expenditures included mineral property expenditures, general and administrative expenses and interest payments, as well as cash used for UEC Wyoming’s operating activities. During the nine months ended April 30, 2021, net cash used in operating activities was $35,250,208, of which $26,193,818 was for purchases of uranium inventory and the balance for mineral property expenditures, general and administrative expenses and interest payments.
Financing Activities
During the nine months ended April 30, 2022, net cash provided by financing activities totaled $142,607,235, comprised of net proceeds of $149,200,901 from the 2021 ATM Offerings and net proceeds of $3,549,059 from the exercise of stock options and share purchase warrants, offset by the $10,000,000 repayment of long-term debt principal under our Credit Facility and $142,725 in payments for a promissory note. During the nine months ended April 30, 2021, net cash provided by financing activities totaled $78,453,548, primarily from net proceeds of $83,842,281 from various share offerings, and net proceeds of $4,709,470 from the exercise of stock options and share purchase warrants, which were offset by $10,000,000 in the voluntary payment to our Lenders under our Credit Facility, and payments of $98,203 for other loans.
Investing Activities
During the nine months ended April 30, 2022, net cash used by investing activities totaled $114,127,071, comprised of net cash used in the U1A Acquisition of $113,587,952, cash used in investment in an available-for-sale security of $9,433,068, cash used for investment in mineral rights and properties of $589,901, and cash used for the purchase of property, plant and equipment of $515,520, offset by cash proceeds of $9,980,220 from sales of an available-for-sale security and $19,150 from the disposition of assets. During the nine months ended April 30, 2021, net cash used by investing activities totaled $4,222,266, primarily for cash used for the investment in term deposits of $10,000,000, cash used for the purchase of property, plant and equipment of $142,266, and cash used for investment in mineral rights and properties of $80,000, offset by cash received from the redemption of term deposits of $6,000,000.
Stock Options and Warrants
As of April 30, 2022, we had stock options outstanding representing 7,881,351 shares at a weighted-average exercise price of $1.21 per share, and share purchase warrants outstanding representing 3,982,779 shares at a weighted-average exercise price of $1.91 per share. As of April 30, 2022, outstanding stock options and warrants, which are all in-the-money, represented a total 11,864,130 shares issuable for gross proceeds of approximately $17.0 million should these stock options and warrants be exercised in full on a cash basis. The exercise of stock options and warrants is at the discretion of the respective holders and, accordingly, there is no assurance that any of the stock options or warrants will be exercised in the future.
Transactions with a Related Party
During the three and nine months ended April 30, 2022, we incurred $1,586 and $5,961, respectively, and for the three and nine months ended April 30, 2021: $17,900 and $52,041, respectively, in general and administrative costs paid to Blender, a company controlled by Arash Adnani, a direct family member of our President and Chief Executive Officer, for various services, including information technology, financial subscriptions, corporate branding, media, website design, maintenance and hosting, provided by Blender to the Company.
As at April 30, 2022, the amount owing to Blender was $Nil (July 31, 2021: $843).
Material Commitments
Uranium Purchase Commitments
During the nine months ended April 30, 2022, we entered into agreements to purchase 1,800,000 pounds of uranium concentrate inventories under our Physical Uranium Program.
Our uranium concentrate purchase commitments at the date of this Quarterly Report are as follows:
| |
|
Purchase Commitments in Pounds |
|
|
Total Purchase Price |
|
| Fiscal 2022 |
|
|
- |
|
|
$ |
- |
|
| Fiscal 2023 |
|
|
1,605,000 |
|
|
|
59,509,000 |
|
| Fiscal 2024 |
|
|
895,000 |
|
|
|
38,913,250 |
|
| Fiscal 2025 |
|
|
600,000 |
|
|
|
23,120,000 |
|
| Fiscal 2026 |
|
|
100,000 |
|
|
|
3,620,000 |
|
| Total |
|
|
3,200,000 |
|
|
$ |
125,162,250 |
|
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies
Business Combination
We recognize and measure the assets acquired and liabilities assumed in a business combination based on their estimated fair values at the acquisition date, while transaction costs related to business combinations are expensed as incurred. An income, market or cost valuation method may be utilized to estimate the fair value of the assets acquired, liabilities assumed, if any, in a business combination. The income valuation method represents the present value of future cash flows over the life of the asset using: (i) discrete financial forecasts, which rely on management’s estimates of resource quantities and exploration potential, costs to produce and develop resources, revenues, and operating expenses; (ii) appropriate discount rates; and (iii) expected future capital requirements . The market valuation method uses prices paid for a similar asset by other purchasers in the market, normalized for any differences between the assets . The cost valuation method is based on the replacement cost of a comparable asset at the time of the acquisition adjusted for depreciation and economic and functional obsolescence of the asset. If the initial accounting for the business combination is incomplete by the end of the reporting period in which the acquisition occurs, an estimate will be recorded. Subsequent to the acquisition date, and not later than one year from the acquisition date, we will record any material adjustments to the initial estimate based on new information obtained that would have existed as of the date of the acquisition. Any adjustment that arises from information obtained that did not exist as of the date of the acquisition will be recorded in the period the adjustments arises.
For a complete summary of all of our significant accounting policies refer to Note 2: Summary of Significant Accounting Policies of the Notes to the consolidated financial statements as presented under Item 8, Financial Statements and Supplementary Data, in our Annual Report on Form 10-K for Fiscal 2021.
Refer to “Critical Accounting Policies” under Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for Fiscal 2021.
Subsequent Events
Subsequent to April 30, 2022, we issued 2,102,000 shares of the Company’s common stock under our November 2021 ATM Offering for net cash proceeds of $7,309,084.
Subsequent to April 30, 2022, we received 200,000 pounds of uranium concentrate inventories at a total purchase price of $9,080,000 under our Physical Uranium Program.
On June 7, 2022, we closed the Anfield Debt Settlement whereby we received $9,171,033 in cash and 96,272,918 Anfield Units. Additionally, we completed the Swap Agreement whereby we will receive from Anfield 25 ISR uranium projects located in Wyoming in exchange for UEC’s Slick Rock and Long Park projects located in Colorado. Refer to Note 3: Acquisition of Uranium One Americas, Inc. to the Condensed Consolidated Financial Statements herein.
On June 13, 2022, we entered into the UEX Agreement pursuant to which we plan to acquire all of the issued and outstanding common shares of UEX by way of statutory plan of arrangement under the Canada Business Corporations Act. Under the terms of the UEX Agreement, each holder of UEX Share will receive 0.0831 of one share of our common stock in exchange for each UEX Share. Refer to Note 17: Subsequent Event to the Condensed Consolidated Financial Statements herein.