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, 2018.
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 March 1, 2019. As previously disclosed, we now own 100% of The Bootheel Project, LLC.
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 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, 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 have multiple U3O8 sales agreements in place into 2021 with various U.S. utilities for the sale of U3O8 at term contract pricing. Historically, the multi-year sales agreements represented a portion of our planned production. Individually, term sales agreements do not represent a substantial portion of our operational budget, and our business is therefore not substantially dependent upon any one of the agreements. In recent years, we have purchased U3O8 and delivered the product into our sales contracts. With commitments in place to purchase product for delivery into our 2019 and, most recently, 2020 sales contracts, our Lost Creek production inventory is expected to increase unless market or other conditions warrant sales at spot pricing or we reach agreement for additional term agreements.
Trade Action and Resulting Actions by the Company
As previously disclosed, in January 2018 Ur-Energy USA Inc. and Energy Fuels Resources (USA) Inc. initiated a trade action with the U.S. Department of Commerce (DOC) pursuant to Section 232 of the Trade Expansion Act with the filing of a petition for relief. Following the DOC statutorily-mandated investigation, DOC timely submitted its report to the White House. On July 12, 2019, the White House issued a “Memorandum on the Effect of Uranium Imports on the National Security and Establishment of the United States Nuclear Fuel Working Group” (the “President’s Memorandum”), through which it announced it would take no trade action in response to the DOC report.
The President’s Memorandum cites the Secretary of Commerce finding that “…uranium is being imported in such quantities and under such circumstances as to threaten to impair the national security of the United States....” The President found that “…the United States uranium industry faces significant challenges in producing uranium domestically and that this is an issue of national security [and that] a fuller analysis of national security considerations with respect to the entire nuclear fuel supply chain is necessary at this time.”
Through the President’s Memorandum, he established the United States Nuclear Fuel Working Group (the “Working Group”) to develop recommendations for reviving and expanding domestic uranium production. The Working Group was required to report its recommendations back to the President within 90 days. As the Trump Administration broadened its review of ways to revive and expand domestic uranium production, we have continued our work alongside the Administration and with our customers and other stakeholders to find solutions to correct the dysfunctional market. We have continued to examine all alternatives and possible remedies. On or about October 10, 2019, the Working Group sought and received an additional thirty days to complete its work and to submit its recommendations to the President.
There can be no certainty of the outcome of the Working Group’s findings and recommendations, if any, or the impact of actions taken in response to those findings and recommendation or the President’s Memorandum, and therefore the outcome of this continuing process and its effects on the U.S. uranium market is uncertain.
In light of the President’s decision in July, we implemented further cost reductions, including labor reductions of 12 employees, primarily at Lost Creek. We reduced staffing to the minimum levels necessary to maintain our facilities and meet regulatory compliance, while retaining core operational personnel who possess the critical knowledge necessary for the Company to ramp up when conditions warrant. These actions will enable the Company to maintain the Lost Creek facilities and preserve our ability to react to changing market conditions, while at the same time minimizing our need for additional funding during this protracted period of uncertainty.
In addition to other cost-cutting measures, we worked with the State of Wyoming and the Board of County Commissioners of Sweetwater County to obtain a six-quarter deferral of principal payments on the Lost Creek State Bond Loan, with all approvals being obtained October 1, 2019. Interest payments will continue during that 18-month period. The principal payment due on October 1, 2019 was the first deferred payment; principal payments will recommence in April 2021, and the final payment on the State Bond Loan will be due in April 2023.
Changes in Management
Effective September 30, 2019, James Bonner, Ur-Energy Vice President Geology, retired, following a several decades long career as a Professional Geologist in uranium exploration and development, the last five years with Ur-Energy.
Mineral Rights and Properties
We currently have twelve U.S. uranium properties – ten of which are located in the Great Divide Basin, Wyoming, including Lost Creek. Currently, we control nearly 1,900 unpatented mining claims and three State of Wyoming mineral leases for a total of approximately 37,500 acres (15,530 hectares) in the area of the Lost Creek Property, including the Lost Creek permit area (the “Lost Creek Project” or “Project”), and certain adjoining properties referred to as LC East, LC West, LC North, LC South and EN Project areas (collectively, with the Lost Creek Project, the “Lost Creek Property”). 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. Additionally, we have approximately 2,100 acres of federal lode mining claims near the Excelsior Mountains in Nevada, at our Excel gold project.
Lost Creek Property
For the three months ended September 30, 2019, 122,500 pounds U3O8 were delivered into scheduled 2019 term contract commitments. During the third quarter 7,256 pounds of U3O8 were captured within the Lost Creek plant and 9,367 pounds of U3O8 were packaged in drums. One shipment of Lost Creek product was made to the conversion facility during the quarter. Our inventory at the convertor totaled approximately 248,161 at September 30, 2019. During the quarter, Lost Creek recognized a two-year milestone with no lost-time accidents. The Results of Operations are detailed further below.
Regulatory Update
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. In Q1 2019, the BLM, which led a group of cooperating agencies in the NEPA review of the federal application for amendment, issued its Record of Decision. Reviews by WDEQ continue to progress. 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 2020.
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 2019. The BLM has initiated its review of the Plan of Operations for Shirley Basin. We expect this process to be complete in 2019 or early 2020. Additionally, work is well underway on initial engineering evaluations, designs and studies for the development of Shirley Basin operations.
Results of Operations
U3O8 Production and Sales
During the three months ended September 30, 2019, 7,256 pounds of U3O8 were captured within the Lost Creek plant and 9,367 pounds were packaged in drums. One shipment of Lost Creek product was made to the conversion facility during the quarter. Inventory, production and sales figures for the Lost Creek Project are presented in the following tables. We are presenting the data in the tables for the last four quarters because the nature of our operations is not regularly based on the calendar year. We therefore feel that presenting the last four quarters is a more meaningful representation of operations than comparing comparable periods in the previous year and enables the reader to better perform trend analysis.
The cash cost per pound and non-cash cost per pound for produced uranium presented in the following Production Costs and U3O8 Sales and Cost of Sales tables are non-US GAAP measures. These measures 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. Please see the tables, below, for reconciliations of these measures to the US GAAP compliant financial measures. Production figures for the Lost Creek Project are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production and Production Costs
|
|
Unit
|
|
2019 Q3
|
|
2019 Q2
|
|
2019 Q1
|
|
2018 Q4
|
|
2019 YTD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds captured
|
|
lb
|
|
|
7,256
|
|
|
13,146
|
|
|
22,551
|
|
|
48,304
|
|
|
42,953
|
|
|
Ad valorem and severance tax
|
|
$000
|
|
$
|
(14)
|
|
$
|
17
|
|
$
|
57
|
|
$
|
30
|
|
$
|
60
|
|
|
Wellfield cash cost (1)
|
|
$000
|
|
$
|
210
|
|
$
|
264
|
|
$
|
250
|
|
$
|
459
|
|
$
|
724
|
|
|
Wellfield non-cash cost (2)
|
|
$000
|
|
$
|
611
|
|
$
|
612
|
|
$
|
612
|
|
$
|
400
|
|
$
|
1,835
|
|
|
Ad valorem and severance tax per pound captured
|
|
$/lb
|
|
$
|
(1.93)
|
|
$
|
1.29
|
|
$
|
2.53
|
|
$
|
0.62
|
|
$
|
1.40
|
|
|
Cash cost per pound captured
|
|
$/lb
|
|
$
|
28.94
|
|
$
|
20.08
|
|
$
|
11.09
|
|
$
|
9.50
|
|
$
|
16.86
|
|
|
Non-cash cost per pound captured
|
|
$/lb
|
|
$
|
84.21
|
|
$
|
46.55
|
|
$
|
27.14
|
|
$
|
8.28
|
|
$
|
42.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds drummed
|
|
lb
|
|
|
9,367
|
|
|
13,296
|
|
|
21,015
|
|
|
53,654
|
|
|
43,678
|
|
|
Plant cash cost (3)
|
|
$000
|
|
$
|
1,045
|
|
$
|
1,134
|
|
$
|
1,318
|
|
$
|
1,154
|
|
$
|
3,497
|
|
|
Plant non-cash cost (2)
|
|
$000
|
|
$
|
490
|
|
$
|
490
|
|
$
|
480
|
|
$
|
484
|
|
$
|
1,460
|
|
|
Cash cost per pound drummed
|
|
$/lb
|
|
$
|
111.56
|
|
$
|
85.29
|
|
$
|
62.72
|
|
$
|
21.51
|
|
$
|
80.06
|
|
|
Non-cash cost per pound drummed
|
|
$/lb
|
|
$
|
52.31
|
|
$
|
36.85
|
|
$
|
22.84
|
|
$
|
9.02
|
|
$
|
33.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds shipped to conversion facility
|
|
lb
|
|
|
37,710
|
|
|
—
|
|
|
—
|
|
|
67,040
|
|
|
37,710
|
|
|
Distribution cash cost (4)
|
|
$000
|
|
$
|
12
|
|
$
|
27
|
|
$
|
6
|
|
$
|
47
|
|
$
|
45
|
|
|
Cash cost per pound shipped
|
|
$/lb
|
|
$
|
0.32
|
|
$
|
-
|
|
$
|
-
|
|
$
|
0.70
|
|
$
|
1.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds purchased
|
|
lb
|
|
|
122,500
|
|
|
100,000
|
|
|
97,500
|
|
|
-
|
|
|
320,000
|
|
|
Purchase costs
|
|
$000
|
|
$
|
3,391
|
|
$
|
2,795
|
|
$
|
2,681
|
|
$
|
-
|
|
$
|
8,867
|
|
|
Cash cost per pound purchased
|
|
$/lb
|
|
$
|
27.68
|
|
$
|
27.95
|
|
$
|
27.50
|
|
$
|
-
|
|
$
|
27.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes:
|
|
1
|
|
Wellfield cash costs include all wellfield operating costs. Wellfield construction and development costs, which include wellfield drilling, header houses, pipelines, power lines, roads, fences and disposal wells, are treated as development expenses and are not included in wellfield operating costs.
|
|
|
2
|
|
Non-cash costs include the amortization of the investment in the mineral property acquisition costs and the depreciation of plant equipment, and the depreciation of their related asset retirement obligation costs. The expenses are calculated on a straight-line basis, so the expenses are typically constant for each quarter. The cost per pound from these costs will therefore typically vary based on production levels only.
|
|
|
3
|
|
Plant cash costs include all plant operating costs and site overhead costs.
|
|
|
4
|
|
Distribution cash costs include all shipping costs and costs charged by the conversion facility for weighing, sampling, assaying and storing the U3O8 prior to sale.
|
Production levels during the current quarter decreased as the maturing MU2 header houses exhibited normal production curve declines. Production rates were in line with guidance for the quarter. We have intentionally restricted our production in light of the persistently weak uranium market. Total cash production costs decreased eleven percent in 2019 Q3 compared to 2019 Q2. The decrease resulted from lower repair costs in Q3 as compared to Q2, which included the annual road maintenance. In addition, fuel and energy costs decreased due to the season and fewer dryer loads.
Pounds captured decreased 5,890 pounds from 2019 Q2 as there were no new header houses added since the addition of the third MU2 header house in May 2018. Ad valorem and severance taxes decreased due to a reduction in the factor used in the calculation of the taxes which was applied retroactively to 2018. Wellfield cash costs decreased slightly from 2019 Q2. Despite the decrease in cash costs, the cash cost per pound captured increased $8.86 per pound in 2019 Q3. Wellfield non-cash costs remained consistent with Q2 2019 and the related non-cash cost per pound captured increased $37.66 per pound due to the decrease in pounds captured.
Pounds drummed decreased 3,929 pounds from 2019 Q2 due to the reduction in captured pounds. Plant cash costs decreased $89 as compared to 2019 Q2, due to lower labor, fuel and energy, and repair costs in Q3. Despite the lower cash costs, the plant cash cost per pound drummed increased $26.27 per pound during the quarter because of the decrease in pounds drummed. Plant non-cash costs are fixed so the related plant non-cash cost per pound drummed also increased $15.46 per pound for the same reason.
There was one shipment of 37,710 pounds during the quarter. Distribution costs in 2019 Q2 were related to the converter completing sampling assays on prior deliveries. The cost per pound was $0.32 which was lower than the previous shipment in 2018 Q4.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and cost of sales
|
|
Unit
|
|
2019 Q3
|
|
2019 Q2
|
|
2019 Q1
|
|
2018 Q4
|
|
2019 YTD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds sold
|
|
lb
|
|
|
122,500
|
|
|
265,000
|
|
|
97,500
|
|
|
-
|
|
|
485,000
|
|
|
U3O8 sales
|
|
$000
|
|
$
|
5,115
|
|
$
|
11,477
|
|
$
|
4,812
|
|
$
|
-
|
|
$
|
21,404
|
|
|
Average contract price
|
|
$/lb
|
|
$
|
41.76
|
|
$
|
43.31
|
|
$
|
49.35
|
|
$
|
-
|
|
$
|
44.13
|
|
|
Average spot price
|
|
$/lb
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
Average price per pound sold
|
|
$/lb
|
|
$
|
41.76
|
|
$
|
43.31
|
|
$
|
49.35
|
|
$
|
-
|
|
$
|
44.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 cost of sales (1)
|
|
$000
|
|
$
|
7,515
|
|
$
|
11,163
|
|
$
|
5,146
|
|
$
|
50
|
|
$
|
23,824
|
|
|
Lower of cost or NRV adjustment
|
|
|
|
$
|
(4,087)
|
|
$
|
(2,137)
|
|
$
|
(1,965)
|
|
$
|
(50)
|
|
$
|
(8,189)
|
|
|
U3O8 cost of sales
|
|
|
|
$
|
3,428
|
|
$
|
9,026
|
|
$
|
3,181
|
|
$
|
-
|
|
$
|
15,635
|
|
|
Ad valorem and severance tax cost per pound sold
|
|
$/lb
|
|
$
|
-
|
|
$
|
1.52
|
|
$
|
1.52
|
|
$
|
-
|
|
$
|
1.52
|
|
|
Cash cost per pound sold
|
|
$/lb
|
|
$
|
-
|
|
$
|
23.95
|
|
$
|
23.86
|
|
$
|
-
|
|
$
|
23.93
|
|
|
Non-cash cost per pound sold
|
|
$/lb
|
|
$
|
-
|
|
$
|
12.38
|
|
$
|
12.36
|
|
$
|
-
|
|
$
|
12.38
|
|
|
Cost per pound sold - produced
|
|
$/lb
|
|
$
|
-
|
|
$
|
37.85
|
|
$
|
37.74
|
|
$
|
-
|
|
$
|
37.83
|
|
|
Cost per pound sold - purchased
|
|
$/lb
|
|
$
|
27.98
|
|
$
|
27.80
|
|
$
|
27.50
|
|
$
|
-
|
|
$
|
27.83
|
|
|
Total average cost per pound sold
|
|
$/lb
|
|
$
|
27.98
|
|
$
|
34.06
|
|
$
|
32.63
|
|
$
|
-
|
|
$
|
32.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U3O8 gross profit
|
|
$000
|
|
$
|
1,687
|
|
$
|
2,451
|
|
$
|
1,631
|
|
$
|
-
|
|
$
|
5,769
|
|
|
Gross profit per pound sold
|
|
$/lb
|
|
$
|
13.78
|
|
$
|
9.25
|
|
$
|
16.72
|
|
$
|
-
|
|
$
|
11.89
|
|
|
Gross profit margin
|
|
%
|
|
|
33.0%
|
|
|
21.4%
|
|
|
33.9%
|
|
|
0.0%
|
|
|
26.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Inventory Balances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-process inventory
|
|
lb
|
|
|
8,074
|
|
|
10,221
|
|
|
10,595
|
|
|
9,134
|
|
|
|
|
|
Plant inventory
|
|
lb
|
|
|
13,526
|
|
|
41,871
|
|
|
28,574
|
|
|
7,559
|
|
|
|
|
|
Conversion facility inventory produced
|
|
lb
|
|
|
199,411
|
|
|
161,700
|
|
|
327,053
|
|
|
375,803
|
|
|
|
|
|
Conversion facility inventory purchased
|
|
lb
|
|
|
48,750
|
|
|
48,750
|
|
|
48,750
|
|
|
-
|
|
|
|
|
|
Total inventory
|
|
lb
|
|
|
269,761
|
|
|
262,542
|
|
|
414,972
|
|
|
392,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-process inventory
|
|
$000
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
160
|
|
|
|
|
|
Plant inventory
|
|
$000
|
|
$
|
384
|
|
$
|
1,638
|
|
$
|
1,259
|
|
$
|
345
|
|
|
|
|
|
Conversion facility inventory produced
|
|
$000
|
|
$
|
5,721
|
|
$
|
6,134
|
|
$
|
12,352
|
|
$
|
14,187
|
|
|
|
|
|
Conversion facility inventory purchased
|
|
$000
|
|
$
|
1,252
|
|
$
|
1,355
|
|
$
|
1,341
|
|
$
|
-
|
|
|
|
|
|
Total inventory
|
|
$000
|
|
$
|
7,357
|
|
$
|
9,127
|
|
$
|
14,952
|
|
$
|
14,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost per pound
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-process inventory
|
|
$/lb
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
17.52
|
|
|
|
|
|
Plant inventory
|
|
$/lb
|
|
$
|
28.39
|
|
$
|
39.12
|
|
$
|
44.06
|
|
$
|
45.64
|
|
|
|
|
|
Conversion facility inventory produced
|
|
$/lb
|
|
$
|
28.69
|
|
$
|
37.93
|
|
$
|
37.77
|
|
$
|
37.75
|
|
|
|
|
|
Conversion facility inventory purchased
|
|
$/lb
|
|
$
|
25.68
|
|
$
|
27.80
|
|
$
|
27.50
|
|
$
|
-
|
|
|
|
|
Note:
|
|
1
|
|
U3O8 cost of sales include all production costs (notes 1, 2, 3 and 4 in the previous Production and Production Cost table) adjusted for changes in inventory values and excludes NRV.
|
During the quarter, we sold 122,500 purchased pounds under term contracts at an average price of $41.76 per pound.
For the quarter, our uranium cost of sales totaled $3.4 million which all related to purchased inventory. In 2019 Q3, we purchased 122,500 pounds at an average price of $27.68 per pound. As we already had some purchased inventory, the blended cost was $27.98 per pound sold.
Excluding the NRV adjustment of $4.1 million, the gross profit from uranium sales for 2019 Q3 was $1.7 million, which represents a gross profit margin of approximately 33%.
At the end of the quarter, we had approximately 248,161 pounds of U3O8 at the conversion facility including 199,411 produced pounds at an average cost per pound of $28.69, and 48,750 purchased pounds at an average cost of $25.68 per pound as adjusted for the net receivable value at the end of the quarter. The following table shows the average cost per pound of the conversion facility inventory.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Conversion Facility Inventory
|
|
Unit
|
30-Sep-19
|
|
30-Jun-19
|
|
31-Mar-19
|
31-Dec-18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost Per Pound Summary (Produced)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ad valorem and severance tax cost per pound
|
|
$/lb
|
|
$
|
0.91
|
|
$
|
1.52
|
|
$
|
1.52
|
|
$
|
1.52
|
|
Cash cost per pound
|
|
$/lb
|
|
$
|
18.28
|
|
$
|
24.00
|
|
$
|
23.87
|
|
$
|
23.85
|
|
Non-cash cost per pound
|
|
$/lb
|
|
$
|
9.50
|
|
$
|
12.41
|
|
$
|
12.38
|
|
$
|
12.38
|
|
Total cost per pound
|
|
$/lb
|
|
$
|
28.69
|
|
$
|
37.93
|
|
$
|
37.77
|
|
$
|
37.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost Per Pound Summary (Purchased)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost per pound
|
|
$/lb
|
|
$
|
25.68
|
|
$
|
27.80
|
|
$
|
27.50
|
|
$
|
-
|
The carrying amount of our inventories have been adjusted to reflect NRV adjustments using the projection of the sales into existing term contract and spot prices. In early October 2019, we obtained purchase contracts for the delivery of inventory into our 2020 contracts. As a result, we could no longer use these contracts in valuing our inventory under the lower of cost or market and used the current spot rates as applicable instead. The result was a $2.3 million reduction in the conversion facility inventories.
Reconciliation of Non-GAAP sales and inventory presentation with US GAAP statement presentation
As discussed above, the cash costs, non-cash costs and per pound calculations are non-US GAAP measures we use to assess business performance. To facilitate a better understanding of these measures, the tables below present a reconciliation of these measures to the financial results as presented in our financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Price Per Pound Sold Reconciliation
|
|
Unit
|
|
2019 Q3
|
|
2019 Q2
|
|
2019 Q1
|
|
2018 Q4
|
|
2019 YTD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales per financial statements
|
|
$000
|
|
$
|
5,115
|
|
$
|
11,479
|
|
$
|
4,812
|
|
$
|
14
|
|
$
|
21,406
|
|
Less disposal fees
|
|
$000
|
|
$
|
-
|
|
$
|
2
|
|
$
|
-
|
|
$
|
(14)
|
|
$
|
2
|
|
U3O8 sales
|
|
$000
|
|
$
|
5,115
|
|
$
|
11,477
|
|
$
|
4,812
|
|
$
|
-
|
|
$
|
21,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds sold - produced
|
|
lb
|
|
|
-
|
|
|
165,000
|
|
|
48,750
|
|
|
-
|
|
|
213,750
|
|
Pounds sold - purchased
|
|
lb
|
|
|
122,500
|
|
|
100,000
|
|
|
48,750
|
|
|
-
|
|
|
271,250
|
|
Total pounds sold
|
|
lb
|
|
|
122,500
|
|
|
265,000
|
|
|
97,500
|
|
|
-
|
|
|
485,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average price per pound sold
|
|
$/lb
|
|
$
|
41.76
|
|
$
|
43.31
|
|
$
|
49.35
|
|
$
|
-
|
|
$
|
44.13
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cost Per Pound Sold
Reconciliation (1)
|
|
Unit
|
|
2019 Q3
|
|
2019 Q2
|
|
2019 Q1
|
|
2018 Q4
|
|
2019 YTD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales per financial statements
|
|
|
|
$
|
7,515
|
|
$
|
11,163
|
|
$
|
5,146
|
|
$
|
50
|
|
$
|
23,824
|
|
Less adjustments reflecting the lower of cost or NRV
|
|
|
|
$
|
(4,087)
|
|
$
|
(2,137)
|
|
$
|
(1,965)
|
|
$
|
(50)
|
|
$
|
(8,189)
|
|
U3O8 cost of sales
|
|
|
|
$
|
3,428
|
|
$
|
9,026
|
|
$
|
3,181
|
|
$
|
-
|
|
$
|
15,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ad valorem & severance taxes
|
|
$000
|
|
$
|
(14)
|
|
$
|
17
|
|
$
|
57
|
|
$
|
30
|
|
$
|
60
|
|
Wellfield costs
|
|
$000
|
|
$
|
821
|
|
$
|
876
|
|
$
|
862
|
|
$
|
859
|
|
$
|
2,559
|
|
Plant and site costs
|
|
$000
|
|
$
|
1,535
|
|
$
|
1,624
|
|
$
|
1,798
|
|
$
|
1,638
|
|
$
|
4,957
|
|
Distribution costs
|
|
$000
|
|
$
|
12
|
|
$
|
27
|
|
$
|
6
|
|
$
|
47
|
|
$
|
45
|
|
Inventory change
|
|
$000
|
|
$
|
(2,354)
|
|
$
|
3,702
|
|
$
|
(883)
|
|
$
|
(2,574)
|
|
$
|
465
|
|
Cost of sales - produced
|
|
$000
|
|
$
|
—
|
|
$
|
6,246
|
|
$
|
1,840
|
|
$
|
—
|
|
$
|
8,086
|
|
Cost of sales - purchased
|
|
$000
|
|
$
|
3,428
|
|
$
|
2,780
|
|
$
|
1,341
|
|
$
|
—
|
|
$
|
7,549
|
|
Total cost of sales
|
|
$000
|
|
$
|
3,428
|
|
$
|
9,026
|
|
$
|
3,181
|
|
$
|
—
|
|
$
|
15,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pounds sold produced
|
|
lb
|
|
|
—
|
|
|
165,000
|
|
|
48,750
|
|
|
-
|
|
|
213,750
|
|
Pounds sold purchased
|
|
lb
|
|
|
122,500
|
|
|
100,000
|
|
|
48,750
|
|
|
-
|
|
|
271,250
|
|
Total pounds sold
|
|
lb
|
|
|
122,500
|
|
|
265,000
|
|
|
97,500
|
|
|
-
|
|
|
485,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average cost per pound sold - produced
|
|
$/lb
|
|
$
|
-
|
|
$
|
37.85
|
|
$
|
37.74
|
|
$
|
-
|
|
$
|
37.83
|
|
Average cost per pound sold - purchased
|
|
$/lb
|
|
$
|
27.98
|
|
$
|
27.80
|
|
$
|
27.50
|
|
$
|
-
|
|
$
|
27.83
|
|
Total average cost per pound sold
|
|
$/lb
|
|
$
|
27.98
|
|
$
|
34.06
|
|
$
|
32.63
|
|
$
|
-
|
|
$
|
32.24
|
Note:
|
|
1.
|
|
The cost of sales per the financial statements includes ad valorem and severance taxes related to the extraction of uranium, all costs of wellfield, plant and site operations including the related depreciation and amortization of capitalized assets, reclamation and mineral property costs, plus product distribution costs. These costs are also used to value inventory and the resulting inventoried cost per pound is compared to the estimated sales prices based on the contracts or spot sales anticipated for the distribution of the product. Any costs in excess of the calculated realizable value are charged to the cost of sales per the financial statements as adjustments reflecting the lower of cost or NRV. These adjustments are excluded from U3O8 cost of sales because they relate to the pounds of U3O8 in ending inventories and do not relate to the pounds of U3O8 sold during the period.
|
Three and nine months ended September 30, 2019 compared to the three and nine months ended September 30, 2018
The following tables summarize the results of operations for the three and nine months ended September 30, 2019 and 2018 (in thousands of U.S. dollars):
|
|
|
|
|
|
|
Three months ended September 30,
|
|
|
2019
|
|
2018
|
|
|
$
|
|
$
|
|
Sales
|
5,115
|
|
3
|
|
Cost of sales
|
(7,515)
|
|
(170)
|
|
Gross profit (loss)
|
(2,400)
|
|
(167)
|
|
Exploration and evaluation expense
|
(822)
|
|
(588)
|
|
Development expense
|
(372)
|
|
(522)
|
|
General and administrative expense
|
(1,282)
|
|
(1,169)
|
|
Accretion
|
(144)
|
|
(128)
|
|
Write off of mineral property
|
(11)
|
|
-
|
|
Net loss from operations
|
(5,031)
|
|
(2,574)
|
|
Interest expense (net)
|
(153)
|
|
(241)
|
|
Warrant mark to market gain
|
981
|
|
11
|
|
Foreign exchange loss
|
4
|
|
(5)
|
|
Other income
|
(1)
|
|
-
|
|
Net loss
|
(4,200)
|
|
(2,809)
|
|
|
|
|
|
|
Loss per share – basic
|
(0.03)
|
|
(0.02)
|
|
|
|
|
|
|
Loss per share – diluted
|
(0.03)
|
|
(0.02)
|
|
|
|
|
|
|
Revenue per pound sold
|
41.76
|
|
-
|
|
|
|
|
|
|
Total cost per pound sold
|
27.98
|
|
-
|
|
|
|
|
|
|
Gross profit per pound sold
|
13.78
|
|
-
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
|
|
2019
|
|
2018
|
|
|
$
|
|
$
|
|
|
|
|
|
|
Sales
|
21,406
|
|
23,482
|
|
Cost of sales
|
(23,824)
|
|
(12,153)
|
|
Gross profit (loss)
|
(2,418)
|
|
11,329
|
|
Exploration and evaluation expense
|
(2,084)
|
|
(1,959)
|
|
Development expense
|
(831)
|
|
(1,394)
|
|
General and administrative expense
|
(4,574)
|
|
(4,190)
|
|
Accretion expense
|
(431)
|
|
(380)
|
|
Write-off of mineral properties
|
(11)
|
|
-
|
|
Net profit from operations
|
(10,349)
|
|
3,406
|
|
Net interest expense
|
(517)
|
|
(790)
|
|
Warrant mark to market gain
|
343
|
|
11
|
|
Loss from equity investment
|
-
|
|
(5)
|
|
Foreign exchange gain (loss)
|
(24)
|
|
5
|
|
Other income
|
14
|
|
3,573
|
|
Net income
|
(10,533)
|
|
6,200
|
|
|
|
|
|
|
Income per share – basic
|
(0.07)
|
|
0.04
|
|
|
|
|
|
|
Income per share – diluted
|
(0.07)
|
|
0.04
|
|
|
|
|
|
|
Revenue per pound sold
|
44.13
|
|
48.86
|
|
|
|
|
|
|
Total cost per pound sold
|
32.24
|
|
25.32
|
|
|
|
|
|
|
Gross profit per pound sold
|
11.89
|
|
23.54
|
Sales
We sold a total of 122,500 and 485,000 pounds of U3O8 during the three and nine months ended September 30, 2019 for an average price of $41.76 and $44.13, respectively, per pound. We sold no uranium during the three months ended September 30, 2018 and 480,000 pounds of U3O8 during the nine months ended September 30, 2018 for an average price of $48.86, per pound. The 2019 sales were all from term contracts. The 2018 sales were mostly from purchased inventory into term contracts at an average price of $49.39 and one spot sale of 10,000 pounds of produced inventory for $23.75 per pound.
Cost of Sales
The cost of sales includes all costs of wellfield operations and maintenance, severance and ad valorem taxes, plant operations and maintenance and mine site overhead including depreciation on the related capital assets, capitalized reclamation costs and amortization of mineral property costs, the cost of inventory purchased for resale and distribution costs. Wellfield costs, plant costs, site overhead costs and distribution costs are included in inventory and the resulting inventoried cost per pound is compared to the estimated sales prices based on the contracts or spot sales anticipated for the distribution of the product. Any costs in excess of the calculated net realizable value are charged to cost of sales.
As there were no sales in the three months ended September 30, 2018, there is no comparison of costs or gross profit. Compared to the nine months ended September 30, 2018, our cost per pound sold increased $6.92 to $32.24 in 2019. The increase for the period was driven by using produced inventory for 44% of our 2019 sales as opposed to about three percent in 2018. For the nine months the cost per pound of purchased inventory increased from $24.42 per pound to $27.83 per pound while the cost of produced inventory declined from $67.70 per pound to $37.83 per pound.
In the three and nine months ended September 30, 2019, cost of sales included $4.1 and $8.2 million in lower of cost or NRV adjustments compared to $0.1 and $0.1 million in the comparable periods in 2018.
Gross Profit
Excluding the $4.1 and $8.2 million in lower of cost or NRV adjustments for the three and nine months ended September 30, 2019, which is a non-GAAP measure, the gross profit was $1.7 and $5.8 million for the three and nine months ended September 30, 2019, which represents gross profit margins of approximately 33% and 27%, respectively. Gross profit of $11.5 million in the nine months ended September 30, 2018 represents a gross profit margin of approximately 49%. The primary reason for the higher gross profit margin in 2018 was the purchase of most of the product sold.
Operating Expenses
Total operating expenses for the three and nine months ended September 30, 2019 were $2.6 and $7.9 million, respectively. Operating expenses include exploration and evaluation expense, development expense and G&A expense. These expenses were slightly higher than the three month periods ended September 30, 2018 but were virtually identical for the nine month periods.
Exploration and evaluation expense consists of labor and associated costs of the exploration and evaluation departments as well as land holding and costs including drilling and analysis on properties which have not reached the permitting or operations stage. These expenses were $0.8 and $2.1 million for the three and nine month periods ended September 30, 2019 and $0.6 and $2.0 million for the comparable periods in 2018. All costs associated with the geology, regulatory compliance and evaluation departments, as well as the costs incurred on exploration-stage projects as described above, are reflected in this category. The increase for the quarter related to timing differences in paying annual claim maintenance which was recorded in Q3 in 2019 and Q2 in 2018.
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 which is in a more advanced stage and Lucky Mc which is near the end of reclamation of the historic mine site. Development expenses decreased by $0.1 and $0.5 million during the three and nine months ended September 30, 2019, compared to the same periods in 2018. The decrease was primarily related to lower governmental fees of $0.3 million and professional and other contracting fees of $0.3 million and costs of completion of the two headers houses in 2018 of $0.1 million. This was partially offset by labor costs arising from the reassignment of several staff members to the development department.
G&A expense relates to the administration, finance, investor relations, land and legal functions of the Company and consists principally of personnel, facility and support costs. Total G&A expense increased $0.1 and $0.4 million for the three and nine months ended September 30, 2019 compared to 2018. The increase was mainly attributable to severance accruals related to the reductions in force and the retirement of a corporate officer.
Other Income and Expenses
Net interest expense declined $0.1 and $0.3 million during the three and nine months ended September 30, 2019 compared to the prior year. The expense decline was directly attributable to principal payments reducing the outstanding note balance of the State Bond Loan.
As a part of the September 2018 public offering, we sold 13,062,878 warrants priced at $0.01 per warrant. Two warrants are redeemable for one Common Share of the Company’s stock at a price of $1.00 per full share. As the warrants are priced in US$ and the functional currency of the Ur-Energy Inc. is Cdn$, this created a derivative financial liability. The liability created and adjusted quarterly is a calculated fair value using the Black-Scholes technique described below as there is no active market for the warrants. Any income or loss is reflected in net income for the period. The revaluation as of September 30, 2019 resulted in gains of $0.9 and $0.3 million for the three and nine month periods ended September 30, 2019 which is reflected on the statement of operations.
Earnings (loss) per Common Share
The basic loss per common share for the three and nine months ended September 30, 2019 were $0.03 and $0.07 compared to basic earnings of ($0.02) and $0.04 per share for the same periods in 2018. The diluted loss per common share for the three and nine months ended September 30, 2019 as well as the three months ended September 30, 2018 were equal to the basic loss per common share due to the anti-dilutive effect of all convertible securities outstanding given that net losses were experienced. For the nine months ended September 30, 2018, there were 1,358,227 RSUs and 1,558,151 options included in the diluted earnings per share calculations. The result was diluted earnings per share of $0.04 for the nine months ended September 30, 2018. Dilution from warrants was not included as the strike price exceeded the then current market price of the Common Shares.
Liquidity and Capital Resources
As of September 30, 2019, we had cash resources consisting of cash and cash equivalents of $3.4 million, a decrease of $3.0 million from the December 31, 2018 balance of $6.4 million. The cash resources consist of Canadian and U.S. dollar denominated deposit accounts and money market funds. We used $0.5 million for operating activities during the nine months ended September 30, 2019. During the same period, we used $0.2 million for investing activities and $2.4 million for financing activities.
On October 23, 2013, we closed a $34.0 million Sweetwater County, State of Wyoming, Taxable Industrial Development Revenue Bond financing program (“State Bond Loan”). The State Bond Loan calls for payments of interest at a fixed rate of 5.75% per annum on a quarterly basis which commenced January 1, 2014. The principal is payable in 28 quarterly installments which commenced January 1, 2015 and continue through October 1, 2021. The State Bond Loan is secured by all of the assets at the Lost Creek Project. As of September 30, 2019, the balance of the State Bond Loan was $13.7 million. On October 1, 2019, the Sweetwater County Board of Commissioners and the State of Wyoming approved a six-quarter deferral of principal payments beginning October 1, 2019. The next principal payment is therefore due April 1, 2021 and the final payment is now due in April, 2023.
During 2017, 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 our senior and subordinated debt securities. The registration statement became effective August 3, 2017 for a three-year period.
We entered into an At Market Issuance Sales Agreement with MLV & Co. LLC and B Riley FBR, Inc. (May 27, 2016, as amended August 2017), 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 distribution agents for aggregate sales proceeds of up to $10,000,000. There were no shares sold under this agreement in 2018 or 2019.
During the nine months ended September 30, 2019, we received $0.1 million from the exercise of stock options.
Collections from U3O8 sales for the nine months ended September 30, 2019 totaled $20.3 million.
Operating activities used cash of $0.5 million during the nine months ended September 30, 2019 as compared to $1.7 million during the same period in 2018. The net income for the nine months ended September 30, 2019 was $16.8 million less than the corresponding income in 2018, but the Company invested in $7.9 million in additional inventory in 2018 and recognized a $8.2 loss from NRV adjustments in 2019.
Investing activities consisted of additional claim staking, purchases of lab equipment and computers and costs related to developing a new method of concentrating and reducing waste water.
During the first nine months of 2019, we used $2.6 million for principal payments on the State Bond Loan.
Liquidity Outlook
We expect that any major capital projects will be funded by operating cash flow, cash on hand or additional financing as required. If these cash sources are not sufficient, certain capital projects could be delayed, or alternatively we may need to pursue additional debt or equity financing to which there is no assurance that such financing will be available at all or on terms acceptable to us. We have no immediate plans to issue additional securities or obtain funding other than that which may be required due to the uneven nature of cash flows generated from operations; however, we may issue additional debt or equity securities at any time.
Looking Ahead
In 2019, we expect to deliver 665,000 pounds related to term contracts at an average price of approximately $48 per pound. Through September 30, 2019, we have sold 485,000 pounds of U3O8 at an average price of $44.13 and in Q3 we sold 122,500 pounds at $41.76 for $5.1 million in gross sales. Our remaining 2019 contractual sales commitment is 180,000 pounds in Q4 at an expected average price of $60 per pound, of which 90,000 pounds were sold October 1, 2019.
For 2019, we put in place purchase contracts for 500,000 pounds at an average cost of $26 per pound. Our remaining 2019 purchase contract commitment is 180,000 pounds in Q4 at an expected average cost of $24 per pound.
Gross profits from uranium sales are expected to be approximately $6.3 million in Q4 excluding any net realizable value adjustments, which represent a gross profit margin of approximately 59%.
As at October 31, 2019, our unrestricted cash position was $6.6 million after collection of the October 1, 2019 sales proceeds.
At the end of the third quarter of 2019, the average spot price of U3O8, as reported by UxC, LLC and TradeTech, LLC, had climbed slightly to approximately $25.68 per pound in a market lagging because of low volumes and uncertainty over the Working Group recommendations.
Clearly, market fundamentals have not changed sufficiently to warrant further development of MU2. As a result, we do not anticipate any additional development for the remainder of this year, and we have reduced our production guidance to between 40,000 and 50,000 pounds at Lost Creek.
In response to the persistently weak uranium market, which continued as we awaited the outcome of the Section 232 Trade Action and, subsequently, as we await the outcome of the U.S. Nuclear Working Group, we took aggressive measures to control costs.
In 2017, we deliberately slowed development activities at MU2, reduced costs, focused on enhancing production efficiencies from our operating MU1 header houses and complemented our production with cost-effective purchases of uranium. In 2018, we implemented further cost reductions, purchased 100% of the uranium necessary to meet our 2018 contractual commitments, and increased our ending inventory position.
In the first half of 2019, we suspended further MU2 development activities, secured purchase contracts for 500,000 pounds of uranium at favorable prices, and sold 165,000 pounds related to 2020 obligations under existing term agreements. More recently, in response to the President’s July 2019 decision regarding the Section 232 Trade Action, we once again took aggressive cost cutting measures in the form of additional staffing cuts and a renegotiation of the State Bond Loan to defer principal payments for 18 months. Additionally, we put in place purchase contracts for our 2020 contractual commitments, which leaves our nearly 250,000 pounds of finished inventory available for sale at our discretion.
The President’s Memorandum established a Working Group to develop recommendations for reviving and expanding domestic uranium production. Currently, the Working Group is slated to report its recommendations back to the President at or about November 9, 2019. As set forth above, there can be no certainty of the outcome of the Working Group’s findings and recommendations, if any, or the impact of actions taken in response to those findings and recommendations or the President’s Memorandum, and therefore the outcome of this continuing process and its effects on the U.S. uranium market is uncertain.
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, header houses used to monitor production and disposal wells associated with the operation of the mine. These costs are expensed when incurred.
Mineral Properties
Acquisition costs of mineral properties are capitalized. When production is attained at a property, these costs will be amortized over a period of estimated benefit.
As of September 30, 2019, the average current spot and long-term prices of U3O8 were $25.65 and $32.00, respectively. This compares to prices of $27.75 and $32.00 as of December 31, 2018. The prices decreased with very little trading activity and uncertainty over the Section 232 Trade Action and, subsequently, the appointment of the Working Group.
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 are 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.
New accounting pronouncements which were implemented this year
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize all leases on the balance sheet, including operating leases, unless the lease is a short-term lease. ASU 2016-02 also requires additional disclosures regarding leasing arrangements. ASU 2016-02 became effective for the Company as of January 1, 2019. At January 1, 2019, we had two office equipment leases, and the office lease in Casper which expired in July 2019 and was renewed for only six months. As a result of adoption of ASC 2016-02, we recognized a liability of $83 with a corresponding Right-Of-Use (“ROU”) assets of the same
amount based on present value of the minimum rental payments of the leases which are included in non-current assets, current portion of long-term liabilities and long-term liabilities in the consolidated balance sheet. The discount rates used for leases are based on either the Company’s borrowing rate or the imputed interest rate based on the price of the equipment and the lease terms.
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 31, 2019, we had outstanding 160,053,021 Common Shares and 8,996,012 options to acquire Common Shares.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk
Market risk is the risk to the Company of adverse financial impact due to changes in the fair value or future cash flows of financial instruments as a result of fluctuations in interest rates and foreign currency exchange rates.
Interest rate risk
Financial instruments that expose the Company to interest rate risk are its cash equivalents, deposits, restricted cash and debt financing. Our objectives for managing our cash and cash equivalents are to maintain sufficient funds on hand at all times to meet day-to-day requirements and to place any amounts which are considered in excess of day-to-day requirements on short-term deposit with the Company's financial institutions so that they earn interest.
Currency risk
At September 30, 2019, we maintained a balance of approximately $0.2 million in foreign currency resulting in a low currency risk which is our typical balance.
Commodity Price Risk
The Company is subject to market risk related to the market price of U3O8. We have U3O8 supply contracts with pricing fixed or based on inflation factors applied to a fixed base. Additional future sales would be impacted by both spot and long-term U3O8 price fluctuations. Historically, U3O8 prices have been subject to fluctuation, and the price of U3O8 has been and will continue to be affected by numerous factors beyond our control, including the demand for nuclear power, political and economic conditions, and governmental legislation in U3O8 producing and consuming countries and production levels and costs of production of other producing companies. The spot market price for U3O8 has demonstrated a large range since January 2001. Prices have risen from $7.10 per pound at January 2001 to a high of $136.00 per pound as of September 2007. The spot market price was $24.02 per pound as of October 30, 2019 as reported by TradeTech, LLC and UxC, LLC.
Item 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this MD&A, under the supervision of the Chief Executive Officer and the Chief Financial Officer, the Company evaluated the effectiveness of its disclosure controls and procedures, as such term is defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective to ensure that information the Company is required to disclose in reports that are filed or submitted under the Exchange Act: (1) is recorded, processed and summarized effectively and reported within the time periods specified in SEC rules and forms, and (2) is accumulated and communicated to Company management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. The Company’s disclosure controls and procedures include components of internal control over financial reporting. No matter how well designed and operated, internal controls over financial reporting can provide only reasonable, but not absolute, assurance that the control system's objectives will be met.
(b) Changes in Internal Controls over Financial Reporting
No changes in our internal control over financial reporting occurred during the nine months ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II
Item 1. LEGAL PROCEEDINGS
No new legal proceedings or material developments in pending proceedings.
Item 1A. RISK FACTORS
There have been no material changes for the nine months ended September 30, 2019 from those risk factors set forth in our Annual Report on Form 10-K.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. MINE SAFETY DISCLOSURE
Our operations and exploration activities at Lost Creek are not subject to regulation by the federal Mine Safety and Health Administration under the Federal Mine Safety and Health Act of 1977.
Item 5. OTHER INFORMATION
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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UR -ENERGY INC.
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Date: November 1, 2019
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By:
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/s/ Jeffrey T. Klenda
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Jeffrey T. Klenda
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Chief Executive Officer
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(Principal Executive Officer)
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Date: November 1, 2019
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By:
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/s/ Roger L. Smith
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Roger L. Smith
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Chief Financial Officer
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(Principal Financial Officer and
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Principal Accounting Officer)
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