Item 1A. RISK FACTORS
An investment in our securities involves a high degree of risk. You should consider the following discussion of risks in addition to the other information in this annual report before purchasing any of our securities. In addition to historical information, the information in this annual report contains “forward-looking” statements about our future business and performance. Our actual operating results and financial performance may be very different from what we expect as of the date of this annual report. The risks below address material factors that may affect our future operating results and financial performance.
Risks Related to Our Business
Mining operations involve a high degree of risk.
Mining operations generally involve a high degree of risk. We continue to ramp up our production activities at our first uranium in situ recovery facility at Lost Creek, where production activities commenced in the second half of 2013. Our operations at Lost Creek and other projects as they continue in development will be subject to all the hazards and risks normally encountered in the production of uranium by in situ methods of recovery, including unusual and unexpected geological formations, unanticipated metallurgical difficulties, water management including waste water disposal capacity, equipment malfunctions, other conditions involved in the drilling and removal of material through pressurized injection and production wells, radiation safety and industrial accidents, any of which could result in damage to, or destruction of, mines and other producing facilities, damage to life or property, environmental damage and possible legal liability.
Our property interests and our projects are subject to volatility in the price of uranium.
The price of uranium is volatile. Changes in the price of uranium depend on numerous factors beyond our control including international, economic and political trends; changes in public acceptance of nuclear power generation as a result of any future accidents or terrorism at nuclear facilities, including the longer-term effects on the market due to the events following the earthquake and tsunami affecting the Fukushima nuclear plant in Japan; changes in governmental regulations; expectations of inflation; currency exchange fluctuations; interest rates; global or regional consumption patterns; speculative activities and increased production due to new extraction developments and improved extraction and production methods. The effect of these factors on the price of uranium, and therefore on the economic viability of our properties cannot accurately be predicted. Because most of our properties are in exploration and development stage and Lost Creek commenced operations just over a year ago, it is not yet possible for us to control the impact of fluctuations in the price of uranium.
Our business is subject to extensive environmental regulations that may make exploring, mining or related activities expensive, and which may change at any time.
Environmental legislation and regulation is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. Included in this evolution are the possible listing of the greater sage-grouse as an endangered species, EPA rules promulgated relating to maintenance of tailings facilities and holding ponds, as well as UMTRCA, RCRA and SDWA restoration and stabilization requirements, all as discussed elsewhere in this annual report. These are not the only laws and regulations which are the subject of discussion and proposed more restrictive changes. Moreover, compliance with environmental quality requirements and reclamation laws imposed by federal, state, provincial, and local governmental authorities may require significant capital outlays, materially affect the economics of a given property, cause material changes or delays in intended activities, and
potentially expose us to litigation and other legal or administrative proceedings. We cannot accurately predict or estimate the impact of any such future laws or regulations, or future interpretations of existing laws and regulations, on our operations. Historic exploration activities have occurred on many of our properties and mining and energy production activities have occurred near certain of our properties. If such historic activities have resulted in releases or threatened releases of regulated substances to the environment, or historic activities require remediation, potential for liability may exist under federal or state remediation statutes.
The uranium mining industry is capital intensive, and we may be unable to raise necessary additional funding.
Additional funds likely may be required to fund working capital or to fund exploration and development activities at our properties other than Lost Creek, including Shirley Basin. Potential sources of future funds available to us, in addition to the sales proceeds from Lost Creek production, include the sale of additional equity capital, proceeds from the exercise of outstanding convertible equity instruments, borrowing of funds or other debt structure, project financing, or the sale of our interests in assets. There is no assurance that such funding will be available to us to continue development or future exploration. Furthermore, even if such financing is successfully completed, there can be no assurance that it will be obtained on terms favorable to us or will provide us with sufficient funds to meet our objectives, which may adversely affect our business and financial position. In addition, any future equity financings may result in substantial dilution for our existing shareholders.
Our mineral resource estimates may not be reliable and we need to develop additional resources to sustain ongoing operations.
Until reserves or resources are actually mined and processed, the quantity of resources and grades must be considered as estimates only. There are numerous uncertainties inherent in estimating quantities of resources, including many factors beyond our control, and no assurance can be given that the recovery of estimated reserves or resources will be realized. In general, estimates of resources are based upon a number of factors and assumptions made as of the date on which the estimates were determined, including:
·
geological and engineering estimates that have inherent uncertainties and the assumed effects of regulation by governmental agencies;
·
the judgment of the geologists, engineers and other professionals preparing the estimate;
·
estimates of future uranium prices and operating costs;
·
the quality and quantity of available data;
·
the interpretation of that data; and
·
the accuracy of various mandated economic assumptions, all of which may vary considerably from actual results.
All estimates are, to some degree, uncertain. For these reasons, estimates of the recoverable mineral resources prepared by different engineers or by the same engineers at different times, may vary substantially. As such, there is significant uncertainty in any mineral resource estimate and actual deposits encountered and the economic viability of a deposit may differ materially from our estimates.
As well, because we are now in operation and are depleting our known resource at Lost Creek, we must continue to conduct exploration and develop additional mineral resources. While there remain large areas of Lost Creek Property which require additional exploration, and we have identified mineral resources at our Shirley Basin Project (which is still in the exploration stage), we will need to continue to explore our other mineral properties
in Wyoming or acquire additional, known mineral resource properties to replenish our mineral resources and sustain continued operations.
Restrictive covenants in agreements governing our indebtedness may restrict our ability to pursue our business strategies.
Our State Bond Loan and the RMBAH facility, under which we have received approximately $44 million in debt financing, include restrictive covenants that, among other things, limit our ability to sell the assets securing our indebtedness or to incur additional indebtedness other than permitted indebtedness, which may restrict our ability to pursue certain business strategies from time to time. If we do not comply with these covenants, we could be in default which, if not addressed or waived, could require accelerated repayment of our indebtedness.
If we are unable to service our indebtedness, we could lose the assets securing our indebtedness.
Our ability to make scheduled payments and satisfy other covenants (including financial covenants) in the State Bond Loan and the RMBAH facility depends on our financial condition and operating performance, which are subject to prevailing economic, competitive, legislative and regulatory conditions beyond our control. We may be unable to generate a level of cash flow from operating activities sufficient to permit us to pay the principal, interest and other fees on our indebtedness.
If we cannot make scheduled payments on our debt, we will be in default which, if not addressed or waived, could require accelerated repayment of our indebtedness and the enforcement by the lenders against the assets securing our indebtedness. The secured collateral includes the Lost Creek assets (State Bond Loan) and the Pathfinder assets (RMBAH facility). These are key assets on which our business is substantially dependent and as such, the enforcement against any one or all of these assets would have a material adverse effect on our operations and financial condition.
Our mining operations are subject to numerous environmental laws, regulations and permitting requirements and bonding requirements that can delay production and adversely affect operating and development costs.
Our business is subject to extensive federal, state, provincial and local laws governing prospecting and development, taxes, labor standards and occupational health, mine and radiation safety, toxic substances, environmental protection, endangered species protections, and other matters. Exploration, development and production operations are also subject to various federal, state, provincial and local laws and regulations relating to the protection of the environment. These laws impose high standards on the mining industry, and particularly to uranium recovery, to monitor the discharge of waste water and report the results of such monitoring to regulatory authorities, to reduce or eliminate certain effects on or into land, water or air, to progressively restore mine properties, to manage hazardous wastes and materials and to reduce the risk of worker accidents. A violation of these laws may result in the imposition of substantial fines and other penalties and potentially expose us to operational restrictions, suspension, administrative proceedings or litigation. Many of these laws and regulations have tended to become more stringent over time. Any change in such laws could have a material adverse effect on our financial condition, cash flow or results of operations. There can be no assurance that we will be able to meet all the regulatory requirements in a timely manner or without significant expense or that the regulatory requirements will not change to delay or prohibit us from proceeding with certain exploration, development or operations. Further, there is no assurance that we will not face new challenges by third parties to regulatory decisions when made, which may cause additional delay and substantial expense, or may cause a project to be permanently halted.
Many of our operations require licenses and permits from various governmental authorities. We believe we hold all necessary licenses and permits to carry on the activities which we are currently conducting or propose to conduct under applicable laws and regulations. Such licenses and permits are subject to changes in regulations and changes in various operating circumstances. There can be no guarantee that we will be able to obtain all necessary licenses and permits that may be required to maintain our exploration and mining activities including constructing mines or milling facilities and commencing or continuing exploration or mining activities or operations at any of our properties. In addition, if we proceed to production on any other exploration property, we must obtain and comply with permits and licenses which will contain specific operating conditions. There can be no assurance that we will be able to obtain such permits and licenses or that we will be able to comply with any such conditions.
Lack of acceptance of nuclear energy and deregulation of the electrical utility industry could impede our business.
Our future prospects are tied directly to the electrical utility industry worldwide. Deregulation of the utility industry, particularly in the United States and Europe, is expected to affect the market for nuclear and other fuels for years to come, and may result in a wide range of outcomes including the expansion or the premature shutdown of nuclear reactors. Maintaining the demand for uranium at current levels and future growth in demand will depend upon the continued acceptance of the nuclear technology as a means of generating electricity. Lack of continued public acceptance of nuclear technology would adversely affect the demand for nuclear power and potentially increase the regulation of the nuclear power industry. Following the events of March 2011 in Fukushima Japan, a reaction worldwide called into question the public’s confidence in nuclear energy and technology, the effects of which are still apparent in many countries around the world.
The uranium market is volatile with limited customers.
The marketability of uranium and acceptance of uranium mining is subject to numerous factors beyond our control. The price of uranium may experience volatile and significant price movements over short periods of time. Factors affecting the market include demand for nuclear power; changes in public acceptance of nuclear power generation as a result of any future accidents or terrorism at nuclear facilities, including the continuing effects on the market due to the events following the earthquake and tsunami in Japan in March 2011; political and economic conditions in uranium mining, producing and consuming countries; costs and availability of financing of nuclear plants; reprocessing of spent fuel and the re-enrichment of depleted uranium tails or waste, sales of excess civilian and military inventories (including from the dismantling of nuclear weapons) by governments and industry participants; and production levels and costs of production in geographical areas such as Russia, Kazakhstan, Africa and Australia.
The results of exploration and ultimate production are highly uncertain.
The exploration for, and development of, mineral deposits involves significant risks which a combination of careful evaluation, experience and knowledge may not eliminate. Few properties which are explored are ultimately developed into producing mines. Major expenses may be required to establish mineral resources or reserves, to develop metallurgical processes and to construct mining and processing facilities at a particular site. It is impossible to ensure that our current exploration and development programs will result in profitable commercial operations.
Whether a mineral deposit will be commercially viable depends on a number of factors, some of which are the particular attributes of the deposit, such as size, grade and proximity to infrastructure, as well as uranium prices, which are highly cyclical, and government regulations, including regulations relating to prices, taxes, royalties,
land tenure, land use, importing and exporting of uranium and environmental protection. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in us not receiving an adequate return on invested capital.
We are subject to risks associated with litigation and other legal proceedings.
Defense and settlement costs of legal claims can be substantial, even with respect to claims that have no merit. From time to time, we may be involved in disputes with other parties which may result in litigation or other proceedings. Additionally, it is not unlikely that we may find ourselves involved directly or indirectly in legal proceedings, in the form of administrative proceedings or litigation, arising from challenges to regulatory actions as described elsewhere in this annual report. Such administrative proceedings and litigation related to regulatory matters may delay or halt exploration or development of our projects. The results of litigation or any other proceedings cannot be predicted with certainty. If we are unable to resolve any such disputes favorably, it could have a material adverse effect on our financial position, ability to operate, results of operations or our property development.
The uranium industry is highly competitive and is competitive with other energy sources.
The international uranium industry is highly competitive. Our activities are directed toward the search, evaluation, acquisition and development of uranium deposits into production operations. There is no certainty that the expenditures to be made by us will result in discoveries of commercial quantities of uranium deposits. There is aggressive competition within the mining industry for the discovery and acquisition of properties considered to have commercial potential. We will compete with other interests, many of which have greater financial resources than we have, for the opportunity to participate in promising projects. Significant capital investment is required to achieve commercial production from successful exploration and development efforts.
Nuclear energy competes with other sources of energy, including oil, natural gas, coal, hydro-electricity and renewable energy sources. These other energy sources are to some extent interchangeable with nuclear energy, particularly over the longer term. Lower prices of oil, natural gas, coal and hydro-electricity may result in lower demand for uranium concentrate and uranium conversion services. Furthermore, the growth of the uranium and nuclear power industry beyond its current level will depend upon continued and increased acceptance of nuclear technology as a means of generating electricity. Because of unique political, technological and environmental factors that affect the nuclear industry, the industry is subject to public opinion risks which could have an adverse impact on the demand for nuclear power and increase the regulation of the nuclear power industry.
Our property title may be uncertain and could be challenged.
Although we have obtained title opinions with respect to certain of our properties, there is no guarantee that title to any of our properties will not be challenged or impugned. Third parties may have valid claims underlying portions of our interests. Our mineral properties in the United States consist of leases to private mineral rights, leases covering state lands, unpatented mining claims and patented mining claims. Many of our mining properties in the United States are unpatented mining claims to which we have only possessory title. Because title to unpatented mining claims is subject to inherent uncertainties, it is difficult to determine conclusively ownership of such claims. These uncertainties relate to such things as sufficiency of mineral discovery, proper posting and marking of boundaries and possible conflicts with other claims not determinable from descriptions of record. The present status of our unpatented mining claims located on public lands allows us the exclusive right to mine and remove valuable minerals. We are allowed to use the surface of the public lands solely for purposes related to mining and processing the mineral-bearing ores. However, legal ownership of the land remains with the United States. We remain at risk that the mining claims may be forfeited either to the United States or to rival private claimants due to failure to comply with statutory requirements. We have taken or will take appropriate curative measures to ensure proper title to our properties where necessary and where possible.
Possible amendments to the General Mining Law could make it more difficult or impossible for us to execute our business plan.
Members of the United States Congress have repeatedly introduced bills which would supplant or alter the provisions of the United States Mining Law of 1872, as amended. Such bills have proposed, among other things, to (i) either eliminate or greatly limit the right to a mineral patent; (ii) significantly alter the laws and regulations relating to uranium mineral development and recovery from unpatented and patented mining claims; (iii) impose a federal royalty on production from unpatented mining claims; (iv) impose time limits on the effectiveness of plans of operation that may not coincide with mine life, (v) impose more stringent environmental compliance and reclamation requirements on activities on unpatented mining claims, (vi) establish a mechanism that would allow states, localities and Native American tribes to petition for the withdrawal of identified tracts of federal land from the operation of the U.S. general mining laws, and (vii) allow for administrative determinations that mining would not be allowed in situations where undue degradation of the federal lands in question could not be prevented.
If enacted, such legislation could change the cost of holding unpatented mining claims and could significantly impact our ability to develop locatable mineral resources on our patented and unpatented mining claims. Although it is impossible to predict at this point what any legislated royalties might be, enactment could adversely affect the potential for development and the economics of existing operating mines. Passage of such legislation could adversely affect our financial performance.
Additionally, as noted in other risk factors, there are currently proposed withdrawals of federal lands for the purposes of mineral location and development. While such proposals are not yet final and would require further Congressional action, if they were to occur, it is uncertain whether such withdrawals would affect in any manner our current mineral projects in Wyoming.
Acquisitions and integration may disrupt our business.
From time to time, we examine opportunities to acquire additional mining assets and businesses. Any acquisition that we may choose to complete may be of significant size, may change the scale of our business and operations, and/or may expose us to new geographic, political, operating, financial and geological risks. Any acquisitions would be accompanied by risks. For example, there may be a significant change in commodity
prices after we have committed to complete the transaction and established the purchase price or exchange ratio; a material ore body may prove to be below expectations; we may have difficulty integrating and assimilating the operations and personnel of any acquired company, realizing anticipated synergies and maximizing the financial and strategic position of the combined enterprise, and maintaining uniform standards, policies and controls across the organization; the integration of the acquired business or assets may disrupt our ongoing business and relationships with employees, customers, suppliers and contractors; and the acquired business or assets may have unknown liabilities which may be significant. There can be no assurance that we would be successful in overcoming these risks or any other problems encountered in connection with such acquisitions.
We do not have an earnings record, and we have never paid dividends.
We do not have an established earnings record, having only commenced operations in the second half of 2013. We have not paid dividends on our Common Shares since incorporation and do not anticipate doing so in the foreseeable future. Payments of any dividends will be at the discretion of our Board after taking into account many factors, including our financial condition and current and anticipated cash needs.
We depend on the services of our management, key personnel, contractors and service providers.
Shareholders will be relying on the good faith, experience and judgment of our management and advisors in supervising and providing for the effective management of the business and our operations and in selecting and developing new investment and expansion opportunities. We may need to recruit additional qualified employees, contractors and service providers to supplement existing management and personnel, the availability of which cannot be assured, particularly in the current labor markets in which we recruit our employees and the somewhat remote locations for which employees are needed. As well, the skilled professionals with expertise in engineering and process aspects of in situ recovery, radiation safety and other facets of our business are currently in high demand, as there are relatively few such professionals with both expertise and experience. We will need to hire additional employees as we develop the Shirley Basin Project. We will continue to be dependent on a relatively small number of key persons, including key contractors, the loss of any one or several of whom could have an adverse effect on our business and operations. We do not hold key man insurance in respect of any of our executive officers.
Our insurance coverage could be insufficient.
We currently carry insurance coverage for general liability, directors’ and officers’ liability and other matters. We intend to carry insurance to protect against certain risks in such amounts as we consider adequate. Certain insurances may be cost prohibitive to maintain, and even if we carried all such insurances, the nature of the risks we face in our exploration and uranium production operations is such that liabilities could exceed policy limits in any insurance policy or could be excluded from coverage under an insurance policy. The potential costs that could be associated with any liabilities not covered by insurance or in excess of insurance coverage or compliance with applicable laws and regulations may cause substantial delays and require significant capital outlays, adversely affecting our business and financial position.
We are dependent on information technology systems, which are subject to certain risks.
We depend upon information technology systems in a variety of ways throughout our operations. Any significant breakdown of those systems, whether through virus, cyber-attack, security breach, theft, or other destruction, invasion or interruption, or unauthorized access to our systems, could negatively impact our business and operations. To the extent that such invasion, cyber-attack or similar security breach results in disruption to our operations, loss or disclosure of, or damage to, our data and particularly our confidential or proprietary information, our reputation, business, results of operations and financial condition could be
materially adversely affected. Our systems, internal controls and insurance for protecting against such cyber security risks may be insufficient. Although to date we have experienced no such attack resulting in material losses, we may suffer such losses at any time in the future. We may be required to expend significant additional resources to continue to modify and enhance our protective measures or to investigate, restore or remediate any information technology security vulnerabilities.
U.S. Federal Income Tax Consequences to U.S. Shareholders under the Passive Foreign Investment Company Rules
Investors in the Common Shares of Ur-Energy that are U.S. taxpayers (referred to as a U.S. shareholder) should be aware that we may be a “passive foreign investment company” (a “PFIC”) for the period ended December 31, 2014 and may be a PFIC in subsequent years. If we are a PFIC for any year during a U.S. shareholder’s holding period, then such U.S. shareholders generally will be subject to a special, highly adverse tax regime with respect to so-called “excess distributions” received on our Common Shares. Gain realized upon a disposition of our Common Shares (including upon certain dispositions that would otherwise be tax-free) also will be treated as an excess distribution. Excess distributions are punitively taxed and are subject to additional interest charges. Additional special adverse rules also apply to U.S. shareholders who own Common Shares of Ur-Energy if we are a PFIC and have a non-U.S. subsidiary that is also a PFIC (a “lower-tier PFIC”).
A U.S. shareholder may make a timely "qualified electing fund" election (“QEF election”) or a "mark-to-market" election with respect to our Common Shares to mitigate the adverse tax rules that apply to PFICs, but these elections may accelerate the recognition of taxable income and may result in the recognition of ordinary income. To be timely, a QEF election generally must be made for the first year in the U.S. shareholder’s holding period in which Ur-Energy is a PFIC. A U.S. shareholder may make a QEF election only if the U.S. shareholder receives certain information (known as a “PFIC annual information statement”) from us annually. A U.S. shareholder may make a QEF election with respect to a lower-tier PFIC only if it receives a PFIC annual information statement with respect to the lower tier PFIC. The mark-to-market election is available only if our Common Shares are considered regularly traded on a qualifying exchange, which we cannot assure will be the case for years in which it may be a PFIC. The mark-to-market election is not available for a lower-tier PFIC.
We will use commercially reasonable efforts to make available to U.S. Holders, upon their written request: (a) timely and accurate information as to our status as a PFIC and the PFIC status of any subsidiary in which Ur-Energy owns more than 50% of such subsidiary’s total aggregate voting power, and (b) for each year in which Ur-Energy determines that it is a PFIC, upon written request, a PFIC annual information statement with respect to Ur-Energy and with respect to each such subsidiary that we determine is a PFIC.
Special adverse rules that impact certain estate planning goals could apply to our Common Shares if we are a PFIC. Each U.S. shareholder should consult its own tax advisor regarding the U.S. federal, state and local consequences of the PFIC rules, and regarding the QEF and mark-to-market elections.
As a result of the Canadian Foreign Affiliate Dumping Rules, any foreign purchaser of more than 10% of the Common Shares may be subject to adverse Canadian tax consequences.
Section 212.3 of the Tax Act (the “Foreign Affiliate Dumping Rules”) may apply where a corporation resident in Canada (a “CRIC”) that is, or becomes as part of a series of transactions, controlled by, a non-resident corporation (the “Non-Resident Parent”) makes an investment in a “subject corporation”. An investment in a subject corporation includes an acquisition of shares of another CRIC, where in general terms: (i) more than 75% of the fair market value of the other CRIC’s property is comprised of shares of foreign subsidiaries; and (ii) at the time of the acquisition, or as part of the series of transactions, the acquiring CRIC, together with its
related parties, indirectly owns at least 10% of the shares of any class of any of the target CRIC’s foreign subsidiaries. Where applicable, the Foreign Affiliate Dumping Rules may deem the acquiring CRIC to have paid a dividend to its Non-Resident Parent that would be subject to Canadian withholding tax, or could potentially reduce the paid-up capital of the shares of the target CRIC.
In the event that Ur-Energy is a CRIC and more than 75% of the fair market value of the Company’s property is comprised of shares of foreign subsidiaries, a potential purchaser of Common Shares: (i) that is itself a CRIC; and (ii) that is controlled by, or that becomes at any time during a series of transactions or events (including a purchase of Common Shares) controlled by, a Non-Resident Parent, should consult its own tax advisor with respect to the potential application of the proposed Foreign Affiliate Dumping Rules in connection with any acquisition of Common Shares.
Item 1B.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 3.
Item 3. LEGAL PROCEEDINGS
None.
Item 4.
Item 4. MINE SAFETY DISCLOSURE
Our operations and other activities at Lost Creek are not subject to regulation by the Federal Mine Safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”).
PART II
Item 5.
Item 5. MARKET FOR registrant’s COMMON EQUITY, RELATED STOCKHOLDER MATTERS and issuer purcHases of equity securities
Market Information
Since July 24, 2008, Ur-Energy’s Common Shares have been listed for trading on the NYSE MKT (formerly, NYSE Amex Equities) exchange under the trading symbol “URG.” The following table sets forth the price range per share and trading volume for the Common Shares:
Since November 29, 2005, Ur-Energy’s Common Shares have been listed and posted for trading on the Toronto Stock Exchange under the trading symbol “URE.” The following table sets forth the price range per share and trading volume for the Common Shares:
						
						
						
Holders
The authorized capital of Ur-Energy consists of an unlimited number of Common Shares and an unlimited number of Class A Preference Shares. As of March 2, 2014, 129,733,052 Common Shares are issued and outstanding and no preferred shares are issued and outstanding. We estimate that we have approximately 17,300 beneficial holders of our Common Shares. The holders of the Common Shares are entitled to one vote per share at all meetings of our shareholders. The holders of Common Shares are also entitled to dividends, if and when declared by our Board and the distribution of the residual assets of the company in the event of a liquidation, dissolution or winding up.
Our Class A Preference Shares are issuable by the directors in one or more series and the directors have the right and obligation to fix the number of shares in, and determine the designation, rights, privileges, restrictions and conditions attaching to the shares of each series. The rights of the holders of Common Shares will be subject to, and may be adversely affected by, the rights of the holders of any Class A Preference Shares that may be issued in the future. The Class A Preference Shares, may, at the discretion of the Board, be entitled to a preference over the Common Shares and any other shares ranking junior to the Class A Preference Shares with respect to the payment of dividends and distribution of assets in the event of liquidation, dissolution or winding up.
Shareholder Rights Plan
Ur-Energy maintains a shareholder rights plan (the “Rights Plan”) designed to encourage the fair and equal treatment of shareholders in connection with any take-over bid for the company's outstanding securities. The Rights Plan is intended to provide the Board with adequate time to assess a take-over bid, to consider alternatives to a take-over bid as a means of maximizing shareholder value, to allow competing bids to emerge, and to provide our shareholders with adequate time to properly assess a take-over bid without undue pressure. The Rights Plan was reconfirmed by shareholders at Ur-Energy’s annual and special meeting of shareholders on May 10, 2012. It is anticipated that that Rights Plan will be on the agenda for reconfirmation at the upcoming 2015 Annual Meeting of Shareholders.
Dividends
To date, we have not paid any dividends on our outstanding Common Shares and have no current intention to declare dividends on the Common Shares in the foreseeable future. Any decision to pay dividends on our Common Shares in the future will be dependent upon our financial requirements to finance future growth, the general financial condition of the company and other factors which our Board may consider appropriate in the circumstances.
Securities Authorized for Issuance under Equity Compensation Plans
The following table sets forth certain summary information concerning our equity compensation plans as at December 31, 2014. Directors, officers, employees, and consultants are eligible to participate in the Option Plan. Directors and employees, including executive officers, are eligible to participate in the RSU Plan.
(1)
Our shareholders have approved both the Ur-Energy Inc. Amended and Restated Stock Option Plan 2005, as amended, and the Ur-Energy Inc. Amended Restricted Share Unit Plan.
(2)
The exercise price represents the weighted exercise price of the 8,468,614 outstanding stock options under the 2005 Stock Option Plan.
(3)
Represents 247,778 Common Shares remaining available for issuance under the Ur-Energy Inc. Amended and Restated Stock Option Plan 2005 and 136,391 Common Shares available under the Ur-Energy Amended Restricted Share Unit Plan.
Recent Sales of Unregistered Securities
On December 19, 2013, we closed a private placement through which we issued 4,709,089 share units which comprised one Common Share and one-half warrant for the purchase of Common Shares (for a total of 7,063,634 shares). The issuance of these securities was exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) by virtue of Section 4(a)(2) and Regulation D thereof, as a transaction by an issuer not involving a public offering. To the extent that purchasers were outside the United States, reliance was placed on Regulation S. Proceeds from this private placement were used for development and construction of our Lost Creek project and general corporate purposes.
On April 4, 2013, we issued 1,000,000 Common Shares, through a private placement, in consideration of a purchase agreement by which we repurchased a royalty interest at the Lost Creek Project. The issuance of these securities was exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) and Regulation D thereof, as a transaction by an issuer not involving a public offering.
During the fiscal year ended December 31, 2014, we did not have any sales of securities in transactions that were not registered under the Securities Act.
Issuer Purchases of Equity Securities
The Company did not purchase its own equity securities during the fiscal year ended December 31, 2014.
Performance Graph
The following information in this Item 5 of this Annual Report on Form 10-K is not deemed to be “soliciting material” or to be “filed” with the SEC or subject to the liabilities of Section 8 of the Exchange Act, and will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent we specifically incorporate it by reference into such a filing.
The following graph illustrates the period from December 31, 2009 to December 31, 2014 and reflects the cumulative shareholder return of an investment in our Common Shares compared to the cumulative return of an investment in (a) the Russell 3000 Index, (b) the NYSE MKT Composite Index, and (c) the average of a peer group consisting of Denison Mines Corp., Uranium Energy Corp., Uranerz Energy Corporation and
Uranium Resources, Inc. since December 31, 2009, assuming that US$100 was invested and, where applicable, includes the reinvestment of dividends.
Item 6.
Item 6. SELECTED FINANCIAL DATA
The selected financial data set forth below are derived from our audited consolidated financial statements for the years ended December 31, 2014, 2013, 2012, 2011 and 2010, and should be read in conjunction with those financial statements and the notes thereto. The consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“US GAAP”). Reference should also be made to “Item 7.
Item 7. 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 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 accompanying audited consolidated financial statements and related notes. The financial statements have been prepared in accordance with US GAAP.
2014 Developments
Lost Creek Property - Great Divide Basin, Wyoming
Uranium production at Lost Creek was initiated in August 2013. During 2014, 547,992 pounds of U3O8 were dried and drummed at the Lost Creek plant, and ultimately 517,760 pounds were sold to utility customers. Throughout 2014, production head grade exceeded technical projections and averaged 149.5 mg/l U3O8. For the year. Production head grades have exceeded technical projections for all six quarters of production since commencement of operations.
We worked throughout the year to improve plant and wellfield efficiencies based on lessons learned throughout the commissioning process. Flow rates were intentionally reduced at various times during 2014 to effectively manage production rates while the new plant and water management systems were commissioned, including modifications to production practices and disposal capacities. As a part of these practices, we modified filter press use, better utilized our holding ponds and drilled a third deep disposal well. Subsequent to year-end, we have completed the commissioning of the reverse osmosis (“RO”) units.
We initially budgeted to produce approximately 1.0 million pounds of U3O8, and expected to sell approximately one-third of the production into our existing sales agreements. In response to the decline in the spot market during the first half of 2014, we revised our guidance in May to reflect production levels which would permit us to deliver into our contractual commitments, with excess production to be utilized either for future delivery obligations or discretionary transactions.
Work continued in the development of our wellfield, with additional header houses being brought online throughout the year, as production required. At year end, we had seven header houses operational; subsequently two additional header houses were brought online in early 2015. We continued wellfield construction and development in Mine Unit 1 throughout the year. Subsequent to the end of the year, we commenced an exploration drill program at Lost Creek, which is anticipated to include approximately 100 holes.
Lost Creek Regulatory and Legal Proceedings
After receiving notice of final operational clearance from the NRC, we commenced production activities at Lost Creek in August 2013. Subsequent to those final approvals, we have made necessary additional filings for approvals of ongoing operations at Lost Creek (e.g., wellfield development; authorizations related to the new deep disposal well). In September 2014, we filed applications for amendment of all Lost Creek permits and licenses to include recovery from the KM horizon and LC East operations.
In November 2012, a Wyoming-based group initiated an administrative proceeding requesting review by the State Director’s Office of the BLM of the Bureau of Land Management’s Record of Decision (“ROD”) (issued in October 2012). The review was completed in May 2014, with a decision affirming the ROD.
Corporate Transactions and Financing Developments
RMB Australia Holdings Limited
We established a banking relationship with RMB Australia Holdings Limited (“RMBAH”) in 2013 which allowed for various financings during 2013. The first facility remained available for redraw related to the Pathfinder acquisition, and $5.0 million was redrawn on the facility in December 2013. Amendments to the facility were agreed to in March 2014, permitting an additional $1.5 million drawdown in March, and a subsequent drawdown of $3.5 million as a revolver facility in August. This loan facility is secured by the Pathfinder assets.
Off Take Sales Agreements
We currently have nine off take sales agreements with various North American utilities. In March 2014, we entered into a uranium sales arrangement for production in 2014 and 2016. This arrangement calls for annual deliveries ranging between 150,000 to 250,000 pounds of uranium concentrate and was amended to include additional deliveries in 2015. More recently, in February 2015, we execute another multi-year agreement for sales of 200,000 pounds of uranium concentrates annually. The February 2015 and March 2014 off take agreements supplement earlier off take arrangements which were completed beginning in 2011.
Technical Developments
We commissioned and issued an independent, NI 43-101 technical report on Shirley Basin, “Technical Report on Resources Shirley Basin Uranium Project Carbon County, Wyoming” dated August 27, 2014 (the “Shirley Basin Technical Report”). This was the first technical report on mineral resources issued for Shirley Basin. Subsequently, on January 27, 2015, we commissioned and issued a second independent, NI 43-101 report on Shirley Basin: the “Preliminary Economic Assessment Shirley Basin Uranium Project Carbon County, Wyoming,” (“Shirley Basin PEA”). The Shirley Basin PEA suggests the possible viability of the project, based upon analyses of metallurgy and recoverability, engineering, and economics including costs of capital expenditures and operating costs. The Shirley Basin Technical Report was based primarily on analyses of historic drill hole data acquired with the purchase of the property. In addition, we drilled 14 confirmation holes prior to the preparation of the report. The mineral resources for the Shirley Basin Project were estimated in the Technical Report, and considered for economics and recoverability in the Shirley Basin PEA. The mineral
resource estimate is set forth above, in Items 1 and 2. Business and Properties - Shirley Basin Project - Shirley Basin.
The Bootheel Project, LLC
In April 2014, the Management Committee of the Bootheel Project determined to continue the ownership and maintenance on the Bootheel property for the fiscal year ending March 31, 2015, which is the fiscal year end of The Bootheel Project, LLC. No additional exploration or development activities are planned at this time.
Management Changes
In March 2014, James A. Bonner joined us as Vice President Geology. Mr. Bonner is a Professional Geologist with 23 years in the uranium exploration and development industry, 3 years in the oil and gas industry and 13 years in environmental engineering consulting. He comes to Ur-Energy having most recently served as Vice President of Exploration for Powertech (USA), Inc. Mr. Bonner is a Registered Professional Geologist and a Certified Professional Geologist, and is a member of the Geological Society of America, the American Institute of Professional Geologists and the Society for Mining, Metallurgy and Exploration. Mr. Bonner received a Bachelor of Science in Geology from the University of Wyoming. John Cash, who has served as our Vice President Regulatory Affairs, Exploration and Geology since 2011, continues to serve the Company as Vice President, Regulatory Affairs.
2014 Results of Operations
U3O8 Sales and Production
During 2014, 596,176 pounds of U3O8 were captured within the Lost Creek plant. 547,992 of those pounds were packaged in drums and 562,533 pounds of the drummed inventory were shipped to the conversion facility where 517,760 pounds were sold to utility customers. Inventory, production and sales figures for the Lost Creek Project are as follows:
Notes:
Wellfield costs include all wellfield operating costs plus amortization of the related mineral property acquisition costs and depreciation of the related asset retirement obligation costs. Wellfield construction and development costs, which include wellfield drilling, header houses, pipelines, power lines, roads, fences and disposal wells, are treated as development expense and are not included in wellfield operating costs.
Non-cash costs include depreciation of plant equipment, capitalized ARO costs and amortization of the investment in the mineral property acquisition costs. The expenses are calculated on a straight line basis so the expense is constant for each quarter. The cost per pound from these costs will therefore vary based on production levels only.
Plant costs include all plant operating costs, site overhead costs and depreciation of the related plant construction and asset retirement obligation costs.
Distribution costs include all shipping costs and costs charged by the conversion facility for weighing, sampling, assaying and storing the U3O8 prior to sale.
There were no spot sales in 2014.
Cost of sales include all production costs (notes 1, 2 and 3) adjusted for changes in inventory values.
Cash cost per pound and non-cash cost per pound for produced and sold uranium presented in the table above are non-US GAAP measures. These measures do not have a standardized meaning or a consistent basis of calculation under US GAAP. These measures are used to assess business performance and may be used by certain investors to evaluate performance. To facilitate a better understanding of these measures, the tables below present a reconciliation of these measures to the financial results as presented in our financial statements.
Notes:
Does not include $2.5 million recognized from the gain on assignment of deliveries under long-term contracts because the additional revenue would distort the average realized price per pound (see note 18 to the financial statements).
U3O8 sales of $26.5 million for the year were based on selling 517,760 pounds at an average price of $51.22, which resulted from meeting all of our contractual delivery requirements with no additional spot sales. We also recognized $2.5 million in revenue from two deliveries which were monetized in 2013, but completed in 2014. Finally, we recognized $0.3 million of disposal fees at the Shirley Basin Project. This resulted in total sales of $29.3 million as reported in the financial statements.
The cost per pound sold reflects both cash and non-cash costs, which are combined as cost of sales in the statement of operations included in this filing. The cash and non-cash cost components are identified in the above inventory, production and sales table.
The cost of sales includes ad valorem and severance taxes related to the extraction of uranium, all costs of wellfield, plant and site operations including the related depreciation and amortization of capitalized assets, reclamation and mineral property costs, plus product distribution costs. These costs are also used to value inventory and the resulting inventoried cost per pound is compared to the estimated sales prices based on the contracts or spot sales anticipated for the distribution of the product. Any costs in excess of the calculated market value are charged to cost of sales.
Production costs generally declined throughout the year with the exception of severance and ad valorem taxes. In November 2014, the State of Wyoming retroactively increased the industry factor used in calculating the taxable value of the extracted uranium by 31%. The one-time retroactive adjustment to the tax expense was reflected in the fourth quarter resulting in significantly higher extraction costs per pound in that quarter. In addition, production was lower in the fourth quarter which also resulted in a higher cost per pound as many of our costs are stable regardless of volume. This is reflected in a higher cost per pound sold for the quarter compared to the previous quarters and a higher valuation of the cost per pound in ending inventory. As many of our costs are fixed, a lower production level will result in a higher cost per pound. We would expect to see the cost per pound decrease as production levels increase.
The resulting gross profit for the year was $11.5 million, which represents a gross profit margin of approximately 39%. We had an operating loss of $7.0 million after deducting total operating expenses of $18.5 million (discussed below). After recording interest and other expenses, the final net loss for the year was $8.7 million.
During the year, the WDEQ approved the Shirley Basin and Lucky Mc bonding totaling $12.7 million. We have submitted a bonding renewal application for Lost Creek which is less than what was approved for 2013. Therefore, we do not expect to have an increase in the related bonding or bond collateral. We have placed the applicable surety bonds and increased our restricted cash balances to meet our current surety bonding requirements.
Collections for the year from U3O8 sales totaled $32.2 million including collections on two sales made in late 2013, but collected in 2014. Our cash position at March 2, 2015 was approximately $7.5 million.
Outlook for 2015
The average spot price per pound of U3O8, as reported by Ux Consulting Company, LLC and TradeTech, LLC, for the week of February 25, 2015 was $38.50. As a result of the continuing low spot price environment, we will once again maintain production at levels that will be consistent with our contractual sales obligations, which are 630,000 pounds at an average realizable price of $50.10 per pound in 2015.
Our current production target for 2015 is to maintain an average production rate of approximately 70,000 pounds per month. We expect to produce between 750,000 and 850,000 pounds of U3O8 in 2015. Excess production will be used to build inventory, which may be utilized to complete discretionary spot sales transactions on an as needed basis if market conditions justify it.
In 2014, we sold 517,760 pounds of U3O8 at an average price per pound of $51.22. Our gross margin per pound sold in 2014 was $16.73, or approximately 33%. On a cash basis, our gross margin per pound sold in 2014 was $29.01, or approximately 57%. We expect similar or slightly better margins in 2015.
In January 2015, production head grade continued to exceed technical projections averaging levels of 109 mg/l U3O8. During January, 65,516 pounds of U3O8 were captured within the Lost Creek plant and 50,597 of those
pounds were packaged in drums. To date, 146,000 pounds have been sold to customers under existing long-term contracts in 2015.
As at March 2, 2015, our unrestricted cash position was $7.5 million. Given our current cash resources, contracted sales positions and low cash costs per pound, we do not anticipate the need for additional funding in 2015 unless it is advantageous to do so.
Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
The following table summarizes the results of operations for the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars):
Sales
We sold a total of 517,760 pounds of U3O8 in 2014 for an average price of $51.22 per pound as compared to 2013 when it sold 90,000 pounds for an average price of $62.92. All sales for both years were associated with long-term offtake contracts at rates stated within the contracts. Sales revenues in 2013 were reduced by ad valorem and sales taxes of $682 thousand ($7.58 per pound). Effective second quarter 2014, we stopped treating those taxes as a reduction in sales revenues, but rather as a cost of sales as the taxes are based on pounds extracted, not sold. While we applied the adjustment retroactively for purposes of inventory calculations, we elected to treat it as an out-of-period adjustment in that quarter and not restate the prior periods.
We recognized sales of $2.5 million and $2.6 million for the years 2014 and 2013, respectively, from deliveries under offtake agreements which had been assigned to a third party during 2013 for cash consideration.
We recognized sales of $300 thousand from disposal fees at the Shirley Basin site in 2014. As the property was acquired in December 2013, there were no disposal fees in 2013.
Cost of sales
The cost of sales includes the wellfield, plant maintenance, site administration and distribution costs associated with the production of U3O8 adjusted for changes in inventory balances. There were no direct costs of sales associated with either the recognition of the deferred revenue from the sale under the offtake contracts or the disposal fees described above. The increase on cost of sales in 2014 is primarily related to the increase in pounds sold over 2013, as 2013 was our initial year of production and only included one sale of uranium made late in the year.
Operating Expenses
Total operating expenses for the fiscal year ended December 31, 2014 were $18.5 million which include exploration and evaluation expense, development expense and general & administrative (“G&A”) expense. These expenses decreased by $9.5 million compared to 2013, which included costs associated with completing the first disposal wells and preparing the wellfields for production.
Exploration and evaluation expense consists of labor and the associated costs of the exploration and evaluation departments as well as land holding and exploration costs including drilling and analysis on properties which have not reached the permitting or operations stage. These expenses increased $0.9 million for the year ended December 31, 2014 compared to 2013. This was primarily due to discontinuing the allocation of labor costs to construction and other development projects. Total cash expenditures for exploration and evaluation were consistent with the prior year. Overall expenditures have been lower in recent years as the focus has been on developing the Lost Creek Project and not on exploration activities. We maintain active geological and evaluation teams, however, who focus on developing our existing properties, such as Shirley Basin, as well as identifying new mineral exploration opportunities.
Development expense includes costs incurred at the Lost Creek Project prior to the receipt of final regulatory approval in October 2013 and costs not directly attributable to construction and production activities, including wellfield construction and development costs. Development expenses decreased by $10.8 million in 2014 compared to 2013. The most significant cost associated with in situ recovery is the cost of constructing and developing the wellfield header houses, production wells, pipelines within the wellfield and to the plant and related facilities, roads, fencing, powerlines, and disposal wells. Of the cost of wellfield construction, which totaled $15.3 million, $12.0 million was included in development expenses in 2013 as a part of the
reclassification of wellfield construction costs as non-capital costs pursuant to SEC Industry Guide 7. The costs in 2014 included continuing costs of adding new header houses and completing wells in the production area as well as the drilling and completion of a third disposal well at a cost of approximately $3.2 million. These costs are considered development costs despite potential future benefits as we have no proven and probable mineral reserves as defined by CIM Definition Standards and are precluded from capitalizing these expenses under SEC guidance. These costs will continue to be incurred in future years as we expand and develop new wellfields within the Lost Creek and at other projects.
G&A expense relates to corporate administration, finance, taxation, investor and human relations, and the land and legal functions and consists principally of personnel, facility and support costs. Expenses increased $0.9 million for the year ended December 31, 2014 compared to 2013. This is primarily due to an increase in labor costs of $0.3 million, recording a retirement obligation of $0.5 million, and an increase in outside services including accounting, legal and contracted investor relations of $0.3 million
Write off of mineral properties decreased by $0.9 million from the year 2013. In 2014, we wrote off five Canadian properties and royalties totaling $0.5 million. In 2013, we decided to abandon claims at our South Granite Mountains project in Wyoming and private leases at the Mustang project in Nebraska totaling $1.4 million.
Other Income and Expenses
Interest expense declined by $3.4 million from 2013 to 2014, but this was caused by the write off of loan fees which included the cost of warrants totaling $5.8 million for the year 2013 issued as a part of the loan consideration to RMBAH. Excluding that, interest expense would have increased by $3.8 million due to the payment of a full year’s worth of interest to Sweetwater County Wyoming on their bond loan and interest payments to RMBAH. 2014 interest payment to RMBAH were actually lower in total than in 2013, however RMBAH interest is no longer capitalized as construction period interest and is therefore now included in interest expense.
As a part of a private placement in December 2013 we issued warrants which were priced in U.S. dollars making them a derivative. This liability is revalued quarterly which resulted in a $0.9 million gain from the reduction of the liability in 2014.
Write off of investments in 2013 were $1.0 million as the management of the Bootheel Project venture allowed claims which contained no economic mineralization to lapse on the Bootheel property and all claims at the Buck Point property to lapse. There were no impairments or other write offs of investments in 2014.
Loss per Common Share
Both basic and diluted loss per common share for the year ended December 31, 2014 was $0.07 compared to $0.25 in 2013. The diluted loss per common share is equal to the basic loss per common share due to the anti-dilutive effect of all convertible securities outstanding given that net losses were experienced.
Cost per Pound Sold
The cost per pound of U3O8 sold in 2014 was $34.49 compared to the cost per pound of $34.40 in 2013. Overall the cost per pound actually decreased in 2014 due to increased efficiencies and higher production levels. The reason for the apparent increase was the change in policy to include severance and ad valorem taxes in inventory calculations. A cost per pound of $2.48 was included in the $34.49 cost per pound detailed above in 2014 with
no comparable costs in the cost per pound calculation in 2013. Excluding ad valorem and severance taxes, the adjusted 2014 cost per pound was $32.01 as compared to 2013 unadjusted cost per pound of $34.40.
2013 Results of Operations
U3O8 Sales and Production in 2013
During 2013, 190,365 pounds of U3O8 were captured within the Lost Creek plant. 131,216 of those pounds were packaged in drums and 94,827 pounds of the drummed inventory were shipped to the conversion facility where 90,000 pounds were sold to utility customers. Inventory, production and sales figures for the Lost Creek Project are as follows:
Notes:
1Lost Creek commenced production in 2013. There was no production in 2012
2Wellfield costs include all wellfield operating costs plus amortization of the related mineral property acquisition costs and depreciation of the related asset retirement obligation costs. Wellfield construction and development costs, which include wellfield drilling, header houses, pipelines, power lines, roads, fences and disposal wells, are treated as development expense and are not included in wellfield operating costs.
Non-cash costs include depreciation of plant equipment, capitalized ARO costs and amortization of the investment in the mineral property acquisition costs. The expenses are calculated on a straight line basis so the expense is constant for each quarter. The cost per pound from these costs will therefore vary based on production levels only.
4Plant costs include all plant operating costs, site overhead costs and depreciation of the related plant construction and asset retirement obligation costs.
5Distribution costs include all shipping costs and costs charged by the conversion facility for weighing, sampling, assaying and storing the U3O8 prior to sale.
6There were no spot sales in 2013.
7Net sales revenues and the average realized price are net of county ad valorem and state severance taxes and do not include $2,635,000 recognized from the gain on assignment of deliveries under long-term contracts because the additional revenue would distort the average realized price per pound.
8Cost of sales include all production costs (notes 2, 3 and 4) adjusted for changes in inventory values.
Cash cost per pound and non-cash cost per pound for produced and sold uranium presented in the table above are non-US GAAP measures. These measure do not have a standardized meaning or a consistent basis of calculation under US GAAP. These measures are used to assess business performance and may be used by certain investors to evaluate performance. To facilitate a better understanding of these measures, the tables below present a reconciliation of these measures to the financial results as presented in our financial statements.
Notes:
Does not include $2,635,000 recognized from the gain on assignment of deliveries under long-term contracts because the additional revenue would distort the average realized price per pound.
Ad valorem and severance taxes are calculated on the average price per pound of uranium that we sell and therefore the amount of the tax will fluctuate depending on the price of uranium we receive. Because of this relationship to the price of uranium, the taxes were deducted from sales revenues in 2013 when determining the average realized price per pound sold. The 2013 average realized price per pound sold, after deducting the value-based ad valorem and severance taxes, was $55.34.
While we did have a full-quarter of production costs in Q4 2013, we did not have a full quarter of uranium production. As a result, cost of goods sold ($3,096,000) included a full quarter of production costs, including $683,000 of post-construction commissioning costs. Our only uranium sales took place in the latter part of the quarter when we completed our first sales of 90,000 pounds of U3O8 in December 2013. Because of having a
full quarter of costs, including the post-construction commissioning costs, and only a partial quarter of uranium sales, the average cost per pound sold is somewhat elevated as compared to what we would expect to see going forward. The 2013 average cost per pound sold, including non-cash costs, was $34.40.
Year Ended December 31, 2013 Compared to Year Ended December 31, 2012
The following table summarizes the results of operations for the years ended December 31, 2013 and 2012 (in thousands of U.S. dollars):
Sales
The Company sold a total of 90,000 pounds of U3O8 for an average price of $62.92 in 2013. Sales in 2013 were reduced by ad valorem and sales taxes of $682 thousand ($7.58 per pound) effectively reducing the price per pound to $55.34 per pound. All sales in 2013 were associated with long-term offtake contracts at rates stated within the contracts.
The Company recognized sales of $2.6 million for 2013 from deliveries under offtake agreements which had been sold to a third party during 2013 for cash consideration.
Prior to 2013, the Company had not obtained permits or begun production and sales of U3O8 and had no scheduled deliveries.
Cost of Sales
The cost of sales includes the wellfield, plant maintenance, site administration and conversion facility costs associated with the production of U3O8 adjusted for changes in inventory balances. There were no direct costs associated with either the recognition of the deferred revenue from the sales under the offtake contracts.
Operating Expenses
Total expenses for the year ended December 31, 2013 were $27.9 million which includes exploration and evaluation expense, development expense and G&A expense. These expenses increased by $8.0 million compared to 2012 due primarily to completing the first disposal wells and preparing the wellfields for production.
Exploration and evaluation expense consists of labor and associated costs of the exploration and evaluation departments as well as land holding and exploration costs including drilling and analysis on properties which have not reached the permitting or operations stage. These expenses decreased by $0.9 million for the year ended December 31, 2013 compared to 2012. Payroll and stock based compensation costs declined by $0.8 million for 2013 compared to 2012 due to the transfer of some employees to mine construction and operations on a full time basis and a reduction in stock based compensation costs. Legal fees declined by $0.1 million related to evaluation expenses not repeated in 2013. Overall expenditures have been lower in recent years as the focus has been on developing the Lost Creek property and not on exploration activities. We maintain active geological and evaluation teams, however, who focus on developing existing operations as well as new mineral opportunities.
Development expense includes costs incurred at the Lost Creek Project prior to the receipt of final regulatory approval in October 2012 and costs not directly attributable to construction and production activities, including wellfield construction and development costs. Development expenses increased by $9.5 million in 2013 compared to 2012. The most significant cost associated with in situ mining is the cost of constructing and developing the wellfield header houses, production wells, pipelines within the wellfield and to the plant and related facilities, roads, fencing, powerlines, and disposal wells. Of the cost of wellfield construction totaling $15.3 million, $12.0 million was included in development expenses in 2013 and $3.3 million was included in development expenses in 2012 as a part of the restatement of wellfield construction costs as non-capital costs, pursuant to Industry Guide 7. In addition, $1.9 million associated with the construction and completion of disposal wells was included in development expenses in 2013 and $1.2 million was included in the restatement of 2012. These costs are considered development costs despite potential future benefits as we have no proven and probable mineral reserves as defined by CIM Definition Standards and are precluded from capitalizing these expenses under SEC guidance. These costs will continue to be incurred in future years as we expand and develop new wellfields within the Lost Creek and at other projects.
G&A expense relates to administration, finance, investor relations, land and legal functions and consists principally of personnel, facility and support costs. Expenses decreased $0.5 million for the year ended December 31, 2013, respectively, compared to 2012. This is primarily due to a decrease in stock based compensation expenses of $0.7 million in 2013 compared to 2012. This was partially offset by an increase of $0.3 million in legal fees and other outside services for the year.
Write off of mineral properties increased by $1.4 million for the year 2013 as we decided to abandon claims at our South Granite Mountains project in Wyoming and private leases at the Mustang project in Nebraska.
Other Income and Expenses
We incurred interest expense in excess of interest income for the first time due to borrowing associated with the construction of the Lost Creek facility. Until the completion of construction and commencement of production, we capitalized most interest and loan amortization costs related to capitalized assets as construction costs. Interest expense includes interest on the Wyoming State Bond Loan from its inception in October until
year end of $0.4 million. The write off of loan fees included the cost of warrants issued as a part of the loan consideration to RMBAH totaled $5.8 million for the year 2013 was also included in interest expense.
Write off of investments increased by $1.0 million for the year ended December 31, 2013 as the management of the Bootheel Project venture allowed claims which contained no economic mineralization to lapse on the Buck Point property.
Because of the conversion of functional currency to the US$ for U.S. operations, gains and losses from foreign exchange no longer include the gains and losses associated with translating U.S. balances into Canadian dollars. As a result, these currency gains and losses on transactions are no longer significant.
In February 2012, we exchanged a database of geologic information in the Southwest Powder River Basin, Wyoming for mineral claims, state leases and related data which primarily comprises most of LC East and LC West. The fair value of the property received was $1.0 million which is reported in other income for the year ended December 31, 2012.
Loss per Common Share
Both basic and diluted loss per common share for the year ended December 31, 2013 was $0.25 compared to $0.15 in 2012. The diluted loss per common share is equal to the basic loss per common share due to the anti-dilutive effect of all convertible securities outstanding given that net losses were experienced.
Cost per pound sold
The cost per pound of U3O8 sold in 2013 was $34.40. Costs were higher than originally projected due to normal start-up considerations, lower production levels while starting up and the requirement to calculated depreciation on a straight line basis as mandated by SEC Industry Guide 7 regardless of production levels. There was no production in 2012 and therefore no cost calculations were required.
Material Changes in Financial Condition, Liquidity and Capital Resources
As of December 31, 2014, we had cash resources, consisting of cash and cash equivalents of $3.1 million, an increase of $1.5 million from the December 31, 2013 balance of $1.6 million. The cash resources consist of Canadian and U.S. dollar denominated deposit accounts, money market funds and certificates of deposit. We generated $1.9 million from operations during the year ended December 31, 2014. During the same period, we used $3.0 million for investing activities. We generated $2.7 million from financing activities for the year.
We have financed our operations from inception primarily through the issuance of equity securities and debt instruments. We did not expect to generate any cash resources from operations until we successfully completed start-up activities at the Lost Creek Project. Construction and development of the Lost Creek Project commenced in October 2012 after receiving the Record of Decision from the U.S. Department of the Interior Bureau of Land Management (“BLM”). Production activities began in August 2013 after receiving final operational clearance from the NRC. Initial deliveries and product sales commenced in December 2013 although the first collections under those sales did not occur until January 2014.
During the year, we renegotiated our borrowing with RMBAH and drew an additional $5.0 million against the loan facility. Of the additional funding, $1.5 million was from the First Loan Facility for a total of $6.5 million. The additional $3.5 million represents a line of credit component which is to be extinguished at the end of each calendar quarter, but may be immediately redrawn. The facility calls for payments of interest at at 8.5% plus
the three-month LIBOR rate recalculated at the start of each calendar quarter, approximately 8.755%, plus eight equal quarterly principal payments which commenced June 30, 2014. The facility matures on March 31, 2016. The RMBAH First Loan Facility is secured by all of the assets of the Pathfinder Mines Corporation.
The State Bond Loan calls for payments of interest at a fixed rate of 5.75% per annum on a quarterly basis which commenced on January 1, 2014. The principal is payable in 28 quarterly installments commencing January 1, 2015 and continuing through October 1, 2021. The State Bond Loan is secured by all of the assets at the Lost Creek Project.
Operating activities generated $1.9 million during the year ended December 31, 2014 as compared to using $27.8 million of cash resources in 2013. The change is entirely due to the completion of construction and startup of production and sales. In addition to collecting on all the sales in 2014, we collected $5.8 million from 2013 sales. Of the $29.3 million in sales, however, $2.5 million was the recognition of deferred revenue which was collected in full in 2013. We used $3.1 million to increase inventory, which consists solely of U3O8, which was offset by an increase in severance and ad valorem taxes of $1.3 million.
During 2014, the Company invested $0.4 million in equipment and $0.1 million in additional claims on existing projects. In addition, the Company increased its restricted cash by $2.5 million for cash collateral on surety bonds for reclamation work on the Lucky Mc and Shirley Basin properties.
During 2014, the Company generated $2.6 million from financing activities including $1.3 million from stock options exercises and $5.0 million from the additional borrowing described above. The Company also repaid $3.6 million on the borrowed funds.
Liquidity Outlook
Based upon our current working capital balance and the expected timing of product sales, we believe we will be able to meet current obligations without additional funding. Additional cash may be required for the construction and development of our Shirley Basin Project, but no budget or timetable has been established for that project pending the results from work currently being conducted and related permitting activities.
We expect that any major capital projects will be funded by operating cash flow, cash on hand and additional financing as required. If these cash sources are not sufficient, certain capital projects could be delayed, or alternatively we may need to pursue additional debt or equity financing and there is no assurance that such financing will be available at all or on terms acceptable to us. We have no immediate plans to issue additional securities or obtain additional 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.
Table of Contractual Obligations
The following table summarizes our contractual obligations as of December 31, 2014:
						
						
						
						
						
Outstanding Share Data
As of December 31, 2014 and 2013, the Company’s capital consisted of the following:
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.
Financial Instruments and Other Instruments
The Company’s cash and cash equivalents are composed of:
Quarterly financial data (unaudited)
Credit risk
Financial instruments that potentially subject us to concentrations of credit risk consist of cash and cash equivalents, deposits and restricted cash, which together totaled approximately $10.7 million at December 31, 2014. These assets include Canadian dollar and U.S. dollar denominated certificates of deposit, money market accounts and demand deposits. They bear interest at annual rates ranging from 0.18% to 0.40% and mature at various dates up to February 2, 2016. These instruments are maintained at financial institutions in Canada and the United States. Of the amount held on deposit, approximately $0.9 million is covered by the Canada Deposit Insurance Corporation, the Securities Investor Protection Corporation or the United States Federal Deposit Insurance Corporation which leaves approximately $9.8 million at risk at December 31, 2014 should the financial institutions with which these amounts are invested be rendered insolvent. We do not consider any of our financial assets to be impaired as of December 31, 2014.
Liquidity risk
Liquidity risk is the risk that we will not be able to meet our financial obligations as they come due.
As at December 31, 2014, our financial liabilities consisted of trade accounts payable and accrued trade and payroll liabilities of $3.0 million which are due within normal trade terms of generally 30 to 60 days, notes payable which will be payable over periods 0 to 7 years and asset retirement obligations with estimated completion dates until 2033.
Item 7A.
Item 7A. Quantitative AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk
Market risk is the risk to the Company of adverse financial impact due to changes in the fair value or future cash flows of financial instruments as a result of fluctuations in interest rates and foreign currency exchange rates. As the US$ is now the functional currency of our U.S. operations, the currency risk has been significantly reduced.
Interest rate risk
Financial instruments that expose the Company to interest rate risk are its cash equivalents, deposits, restricted cash and debt financings. Our objectives for managing our cash and cash equivalents are to maintain sufficient funds on hand at all times to meet day to day requirements and to place any amounts which are considered in excess of day to day requirements on short-term deposit with the Company's financial institutions so that they earn interest.
Currency risk
We maintain a balance of less than $0.1 million in foreign currency resulting in a low currency risk.
Commodity Price Risk
The Company is subject to market risk related to the market price of uranium. We have nine uranium 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 uranium price fluctuations. Historically, uranium prices have been subject to fluctuation, and the price of uranium 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 uranium producing and consuming countries and production levels and costs of production of other producing companies. The spot market price for uranium has demonstrated a large range since January 2001. Prices have risen from $7.10 per pound at January 2001 to a high of $136.00 per pound as of June 2007. The spot market price was $38.38 per pound as of March 2, 2014.
Transactions with Related Parties
During the fiscal years ended December 31, 2014 and 2013, we did not participate in any material transactions with related parties.
Proposed Transactions
As is typical of the mineral exploration and development 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.
Recent Accounting Pronouncements Adopted in the Year Ended December 31, 2014
We continue to monitor new accounting pronouncements and their applicability to our operations and reporting. During 2014, there were no new pronouncements which directly affected our accounting policies or reporting.
Recent Accounting Pronouncements Not Yet Adopted
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. Under ASU 2014-09, an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. It also requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. This guidance is effective for annual periods beginning on or after December 15, 2016. The adoption of this standard is not expected to have a material impact on the financial statements of the Company
Critical Accounting Policies and Estimates
We have established the existence of mineral resources at the Lost Creek Project, 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.
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 December 31, 2014, the current and long term price of uranium was $35.50 and $49.50, respectively. This compares to prices of $35.00 and $50.50 as of December 31, 2013. Other than as discussed earlier, management did not identify any impairment indicators for any of the Company’s mineral properties during the twelve months ended December 31, 2014.
Development costs including, but not limited to, production wells, header houses, piping and power will be expensed as incurred as we have no proven and probable reserves.
Depreciation
The depreciable life of the Lost Creek plant, equipment and enclosure was determined to be the nameplate life of the equipment housed in the processing plant as plans exist for other uses for the equipment beyond the estimated production at the Lost Creek Project.
Inventory and Cost of Sales
Our inventories are measured 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.
Because of the nature of in situ operations, it is not economically feasible to accurately measure the amount of in-process inventory at any given time. We use a combination of calculating estimated uranium captured per sampling applied to total water processing flow to determine the estimated pounds captured.
Share-Based Compensation
We are required to initially record all equity instruments including warrants, restricted share units and stock options at fair value in the financial statements.
Management utilizes the Black-Scholes model to calculate the fair value of the warrants and stock options at the time they are issued. Use of the Black-Scholes model requires management to make estimates regarding the expected volatility of the Company’s stock over the future life of the equity instrument, the estimate of the expected life of the equity instrument and the number of options that are expected to be forfeited. Determination of these estimates requires significant judgment and requires management to formulate estimates of future events based on a limited history of actual results.
Item 8.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See “Index to Consolidated Financial Statements” following the signature page of this Form 10-K.
Item 9.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9A.
Item 9A. Controls and Procedures
(a)
Evaluation of Disclosure Controls and Procedures
As of the fiscal year ended December 31, 2014, 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)Management’s Report on Internal Control over Financial Reporting
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, the Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with US GAAP.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement
preparation and presentation. Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As of December 31, 2014, management conducted an assessment of the effectiveness of the Company's internal control over financial reporting based on the criteria established in Internal Control-Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on its assessment using those criteria, management concluded that the Company maintained effective internal control over financial reporting as of December 31, 2014. The effectiveness of the Company’s internal control over financial reporting at December 31, 2014, has been audited by PricewaterhouseCoopers LLP, as stated in their report.
(c)Attestation Report of Registered Public Accounting Firm
PricewaterhouseCoopers LLP’s attestation report on our internal control over financial reporting is included as part of Item 8. Financial Statements and Supplementary Data herein.
(d)Changes in Internal Controls over Financial Reporting
No changes in our internal control over financial reporting occurred during the year ended December 31, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B.
Item 9B. Other Information
None.
PART III
Item 10.
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information relating to this item will be included in an amendment to this report or in the proxy statement for our 2015 Annual Meeting of Shareholders and is incorporated by reference in this report.
Code of Ethics
We have adopted a Code of Ethics (“Code”) which applies to all employees, officers and directors. The full text of the Code is available on our website at Error! Hyperlink reference not valid.We will post any amendments to, or waivers from, the Code on our corporate website or by filing a Current Report on Form 8-K.
Item 11.
Item 11. EXECUTIVE COMPENSATION
Information relating to this item will be included in an amendment to this report or in the proxy statement for our 2015 Annual Meeting of Shareholders and is incorporated by reference in this report.
Item 12.
Item 12. SECURITY OWNERSHIP OF Certain BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information relating to this item will be included in an amendment to this report or in the proxy statement for our 2015 Annual Meeting of Shareholders and is incorporated by reference in this report.
Item 13.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE
Information relating to this item will be included in an amendment to this report or in the proxy statement for our 2015 Annual Meeting of Shareholders and is incorporated by reference in this report.
Item 14.
Item 14. PRINCIPAL ACCOUNTing FEES AND SERVICES
Information relating to this item will be included in an amendment to this report or in the proxy statement for our 2015 Annual Meeting of Shareholders and is incorporated by reference in this report.
PART IV
Item 15.
Item 15. Exhibits, Financial statement schedules
Financial Statements and Financial Statement Schedules
See “Index to Consolidated financial statements” on page.
10.9
						
Employment Agreement with Wayne W. Heili, as amended
						
10-K
						
3/3/2014
						
10.8
						
						
						
						
						
						
						
						
						
						
						
						
10.10
						
Employment Agreement with Roger L. Smith, as amended
						
10-K
						
3/3/2014
						
10.9
						
						
						
						
						
						
						
						
						
						
						
						
10.11
						
Employment Agreement with Steven M. Hatten, as amended
						
10-K
						
3/3/2014
						
10.10
						
						
						
						
						
						
						
						
						
						
						
						
10.12
						
Employment Agreement with John W. Cash, as amended
						
10-K
						
3/3/2014
						
10.11
						
						
						
						
						
						
						
						
						
						
						
						
10.13
						
Employment Agreement with Penne A. Goplerud, as amended
						
10-K
						
3/3/2014
						
10.12
						
						
						
						
						
						
						
						
						
						
						
						
10.14
						
Employment Agreement with James A. Bonner
						
						
						
						
						
						
						
X
						
						
						
						
						
						
						
						
						
						
10.15
						
Ur-Energy Inc. Amended and Restated Stock Option Plan
						
S-8
						
5/14/2012
						
4.1
						
						
						
						
						
						
						
						
						
						
						
						
10.16
						
Amended Restricted Share Unit Plan
						
S-8
						
5/14/2012
						
4.2
						
						
						
						
						
						
						
						
						
						
						
						
14.1
						
Code of Ethics for CEO, CFO and Senior Financial Officers
						
8-K
						
2/11/2014
						
14.1
						
						
						
						
						
						
						
						
						
						
						
						
21.1
Subsidiaries of the Registrant
10-K
						
3/3/2014
						
						
						
						
23.1
Consent of PricewaterhouseCoopers LLP
X
						
						
						
						
						
						
						
						
						
						
23.2
Consent of TREC, Inc.
						
						
						
						
						
						
						
X
23.3
						
Consent of WWC Engineering
						
						
						
						
						
						
						
X
						
						
						
						
						
						
						
						
						
						
31.1
Certification of CEO Pursuant to Exchange Act Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
X
31.2
Certification of CFO Pursuant to Exchange Act Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
X
32.1
Certification of CEO Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
X
32.2
Certification of CFO Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
X
						
						
						
						
						
						
						
						
						
						
101.INS
						
XBRL Instance Document
						
						
						
						
						
						
						
X
						
						
						
						
						
						
						
						
						
						
101.SCH
						
XBRL Schema Document
						
						
						
						
						
						
						
X
						
						
						
						
						
						
						
						
						
						
101.CAL
						
XBRL Calculation Linkbase Document
						
						
						
						
						
						
						
X
						
						
						
						
						
						
						
						
						
						
101.DEF
						
XBRL Definition Linkbase Document
						
						
						
						
						
						
						
X
						
						
						
						
						
						
						
						
						
						
101.LAB
						
XBRL Labels Linkbase Document
						
						
						
						
						
						
						
X
						
						
						
						
						
						
						
						
						
						
101.PRE
						
XBRL Presentation Linkbase Document
						
						
						
						
						
						
						
X
						
						
						
						
						
						
						
						
						
						
99.1
Location maps (1)
10-K
						
3/3/2014
						
						
						
						
(1)
Filed herewith under Items 1 and 2. Business and Properties.
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.
						
						
						
UR-ENERGY INC.
						
						
Date: March 2, 2015
By:
/s/ Wayne W. Heili
						
Wayne W. Heili
						
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
						
						
Date: March 2, 2015
By:
/s/ Wayne W. Heili
						
Wayne W. Heili
						
President and Chief Executive Officer (Principal Executive Officer) and Director
						
						
Date: March 2 , 2015
By:
/s/Roger L. Smith
						
Roger L. Smith
						
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
						
						
Date: March 2, 2015
By:
/s/ Jeffrey T. Klenda
						
Jeffrey T. Klenda
						
Chairman and Executive Director
						
						
Date: March 2, 2015
By:
/s/ W. William Boberg
						
W. William Boberg
						
Director
						
						
Date: March 2, 2015
By:
/s/ James M. Franklin
						
James M. Franklin
						
Director
						
						
Date: March 2, 2015
By:
/s/ Paul Macdonell
						
Paul Macdonell
						
Director
						
						
Date: March 2, 2015
By:
/s/ Thomas Parker
						
Thomas Parker
						
Director
Ur-Energy Inc.
Headquartered in Littleton, Colorado
Consolidated Financial Statements
December 31, 2014
(expressed in thousands of U.S. dollars unless otherwise indicated)
March 2, 2015
Independent Auditor’s Report
To the Shareholders of Ur-Energy Inc.
We have completed integrated audits of Ur-Energy Inc.’s December 31, 2014, 2013 and 2012 consolidated financial statements and its internal control over financial reporting as at December 31, 2014. Our opinions, based on our audits, are presented below.
Report on the consolidated financial statements
We have audited the accompanying consolidated financial statements of Ur-Energy Inc., which comprise the consolidated balance sheets as at December 31, 2014 and December 31, 2013 and the consolidated statements of operations and comprehensive loss, shareholders’ equity and cash flow for each of the years in the three year period ended December 31, 2014, and the related notes, which comprise a summary of significant accounting policies and other explanatory information.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. Canadian generally accepted auditing standards also require that we comply with ethical requirements.
An audit involves performing procedures to obtain audit evidence, on a test basis, about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting principles and policies used and the reasonableness
of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion on the consolidated financial statements.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Ur-Energy Inc. as at December 31, 2014 and December 31, 2013 and 2012 and its financial performance and cash flows for each of the three years in the period ended December 31, 2014 in accordance with accounting principles generally accepted in the United States of America.
Report on internal control over financial reporting
We have also audited Ur-Energy Inc.’s internal control over financial reporting as at December 31, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Management’s responsibility for internal control over financial reporting
Management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting.
Auditor’s responsibility
Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we consider necessary in the circumstances.
We believe that our audit provides a reasonable basis for our audit opinion on the company’s internal control over financial reporting.
Definition of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Inherent limitations
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Opinion
In our opinion, Ur-Energy Inc. maintained, in all material respects, effective internal control over financial reporting as at December 31, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
/s/ PricewaterhouseCoopers LLP
Chartered Accountants
Vancouver, BC
Canada
Ur-Energy Inc.
Consolidated Balance Sheet
(expressed in thousands of U.S. dollars)
The accompanying notes are an integral part of these consolidated financial statements
Approved by the Board of Directors
						
						
/s/ Jeffrey T. Klenda, Chairman
						
/s/ Thomas Parker, Director
Ur-Energy Inc.
Consolidated Statements of Operations and Comprehensive Loss
(expressed in thousands of U.S. dollars except for share data)
The accompanying notes are an integral part of these consolidated financial statements
Ur-Energy Inc.
Consolidated Statements of Shareholders’ Equity
(expressed in thousands of U.S. dollars except for share data)
The accompanying notes are an integral part of these consolidated financial statements
Ur-Energy Inc.
Consolidated Statements of Cash Flow
(expressed in thousands of U.S. dollars)
The accompanying notes are an integral part of these consolidated financial statements
			 		
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2014
			
		
(expressed in thousands of U.S. dollars unless otherwise indicated)
1.Nature of Operations
Ur-Energy Inc. (the “Company”) was incorporated on March 22, 2004 under the laws of the Province of Ontario. The Company continued under the Canada Business Corporations Act on August 8, 2006. The Company is an exploration stage mining company, as defined by United States Securities and Exchange Commission (“SEC”) Industry Guide 7, headquartered in Littleton, Colorado. The Company is engaged in uranium mining and recovery operations, with activities including the acquisition, exploration, development and production of uranium mineral resources located primarily in Wyoming. As of August 2013, the Company commenced uranium production at its Lost Creek Project in Wyoming.
Due to the nature of the uranium mining methods used by the Company on the Lost Creek Property, and the definition of “mineral reserves” under National Instrument 43-101 (“NI 43-101”), which uses the Canadian Institute of Mining, Metallurgy and Petroleum (“CIM”) Definition Standards, the Company has not determined whether the properties contain mineral reserves. However, the Company’s December 30, 2013 NI 43-101 Technical Report on Lost Creek, “Preliminary Economic Assessment of the Lost Creek Property, Sweetwater County, Wyoming,” outlines the potential viability of the Lost Creek Property. The recoverability of amounts recorded for mineral properties is dependent upon the discovery of economic resources, the ability of the Company to obtain the necessary financing to develop the properties and upon attaining future profitable production from the properties or sufficient proceeds from disposition of the properties.
2.Liquidity Risk
The Company has financed its operations from its inception primarily through the issuance of equity securities and debt instruments. Construction and development of the Lost Creek Project commenced in October 2012 after receiving the Record of Decision from the United States Department of the Interior Bureau of Land Management (“BLM”). Production began in August 2013 after receiving final operational clearance from the United States Nuclear Regulatory Commission (“NRC”). The Company made its first deliveries and related sales in December 2013. It is now generating cash flows from operations to finance its ongoing operations.
Based upon the Company’s current working capital balance and the expected timing of product sales, the Company expects to be able to meet current obligations without the need for additional financing but it is possible that additional funding might be sought. Although the Company has been successful in raising debt and equity financing in the past, there can be no guarantee that such funding will be available in the future.
3.Summary of Significant Accounting Policies
Basis of presentation
These financial statements have been prepared by management in accordance with United States generally accepted accounting principles (“US GAAP”) and include all of the assets, liabilities and expenses of the Company and its wholly-owned subsidiaries Ur-Energy USA Inc.; NFU Wyoming, LLC; Lost Creek ISR, LLC; NFUR Bootheel, LLC; Hauber Project LLC; NFUR Hauber, LLC; and Pathfinder Mines Corporation. All inter-company balances and transactions have been eliminated upon consolidation. Ur-Energy Inc. and its wholly-owned subsidiaries are collectively referred to herein as the “Company.”
Functional currency and presentation currency
The Company changed its functional currency prospectively, beginning January 1, 2013, from the Canadian dollar to the U.S. dollar with respect to its operations in the United States. The change in functional currency had a significant impact on the Company’s consolidated financial statements as most of the non-current assets of the Company are situated in the
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2014
			
		
(expressed in thousands of U.S. dollars unless otherwise indicated)
United States and were previously accounted for using the Canadian dollar as the functional currency. As of January 1, 2013, the Company recorded a cumulative transaction adjustment (“CTA”) of approximately $6.2 million for this change, which is shown in the consolidated statement of shareholders’ equity.
The functional currency for Canadian operations will remain the Canadian dollar. They will be consolidated with the U.S. cost basis balances using the spot rate for assets and liabilities, the historical cost rates for shareholders’ equity transactions and the average rate for all operating revenues and expenses. Additional translation adjustments will result from the change in consolidation methods as prescribed by US GAAP where there are multiple functional currencies reflected in consolidated financial statements. These adjustments will not be included in determining net income, but will be reported separately and accumulated in other comprehensive income.
In addition, as a result of losing its foreign private issuer status, the Company changed its presentational currency from the Canadian dollar to U.S. dollars. As a result, comparative information has been changed.
Exploration Stage
The Company has established the existence of mineral resources for certain uranium projects, including the Lost Creek property The Company has not established proven or probable reserves, as defined by the SEC under Industry Guide 7, through the completion of a “final” or “bankable” feasibility study for any of its uranium projects, including Lost Creek property. Furthermore, the Company has no plans to establish proven or probable reserves for any of its uranium projects for which the Company plans on utilizing in situ recovery (“ISR”) mining, such as the Lost Creek property or the Shirley Basin mine. As a result, and despite the fact that the Company commenced extraction of U3O8 at the Lost Creek property in August 2013, the Company remains in the Exploration Stage as defined under Industry Guide 7, and will continue to remain in the Exploration Stage until such time proven or probable reserves have been established.
Since the Company commenced extraction of uranium resources at the Lost Creek property without having established proven and probable reserves, any mineral resources established or extracted from the Lost Creek property should not be in any way associated with having established or produced from proven or probable reserves.
In accordance with US GAAP, expenditures relating to the acquisition of mineral rights are initially capitalized as incurred while exploration and pre-extraction expenditures are expensed as incurred until such time the Company exits the Exploration Stage by establishing proven or probable reserves. Expenditures relating to exploration activities such as drill programs to search for additional mineral resources are expensed as incurred. Expenditures relating to activities such as the construction of mine wellfields, header houses and disposal wells are expensed as incurred until such time proven or probable reserves are established for that uranium project, after which subsequent expenditures relating to mine development activities for that particular project are capitalized as incurred
Companies in the Production Stage as defined under Industry Guide 7, having established proven and probable reserves and exited the Exploration Stage, typically capitalize expenditures relating to ongoing development activities, with corresponding depletion calculated over proven and probable reserves using the units-of-production method and allocated to future reporting periods to inventory and, as that inventory is sold, to cost of goods sold. The Company is in the Exploration Stage which has resulted in the Company reporting larger losses than if it had been in the Production Stage due to the expensing, instead of capitalizing, of expenditures relating to ongoing wellfield development activities. Additionally, there would be no corresponding amortization allocated to future reporting periods of the Company since those costs would have been expensed previously, resulting in both lower inventory costs and cost of goods sold and results of operations with higher gross profits and lower losses than if the Company had been in the Production Stage. Any capitalized costs, such as expenditures relating to the acquisition of mineral rights and asset retirement obligations, are
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2014
			
		
(expressed in thousands of U.S. dollars unless otherwise indicated)
amortized over the estimated mineral life using the straight-line method. As a result, the Company’s consolidated financial statements may not be directly comparable to the financial statements of companies in the Production Stage.
Use of estimates
The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The most significant estimates management makes in the preparation of these consolidated financial statements relate to potential impairment in the carrying value of the Company’s long-lived assets, fair value of stock-based compensation, valuation of the in-process inventory and estimation of asset retirement obligations. Actual results could differ from those estimates.
Restricted cash
Cash which is restricted contractually or which secures various instruments including surety bonds and letters of credit securing reclamation obligations is shown as restricted cash
Inventory
In-process inventory represents U3O8 that has been extracted from the wellfield and captured in the processing plant and is currently being transformed into a saleable product. Plant inventory is U3O8 that is contained in yellowcake, which has been dried and packaged in drums, but not yet shipped to the conversion facility. The amount of U3O8 in the plant inventory is determined by weighing and assaying the amount of U3O8 packaged into drums at the plant. Conversion facility inventory is U3O8 that has been shipped to the conversion facility. The amount of U3O8 in the conversion facility inventory includes the amount of U3O8 contained in drums shipped to the conversion facility plus or minus any final weighing and assay adjustments per the terms of the uranium supplier’s agreement with the conversion facility.
The Company’s inventories are measured at the lower of cost or net realizable value and reflect the uranium content (“U3O8”) in various stages of the production and sales process including in-process inventory, plant inventory and conversion facility inventory. Operating supplies are expensed when purchased.
Mineral properties
Acquisition costs of mineral properties are capitalized. When production is attained, amortization is calculated on a straight-line basis. Estimated life for the current project is 10 years. If properties are abandoned or sold, they are written off. If properties are considered to be impaired in value, the costs of the properties are written down to their estimated fair value at that time.
Exploration, evaluation and development costs
Exploration and evaluation expenses consist of labor, annual exploration lease and maintenance fees and associated costs of the exploration geology department as well as land holding and exploration costs including drilling and analysis on properties which have not reached the permitting or operations stage. Development expense relates to the Company’s Lost Creek and LC East projects, which are more advanced in terms of permitting and development.
Development expenditures for wellfields that are either in production or are being prepared for production, including the cost of wells, pumps, piping, and header houses, are expensed as incurred.
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2014
			
		
(expressed in thousands of U.S. dollars unless otherwise indicated)
Capital assets
Property, plant and equipment assets, including machinery, processing equipment, enclosures, vehicles and expenditures that extend the life of such assets, are recorded at cost including acquisition and installation costs. The costs of self-constructed assets include direct construction costs, direct overhead and allocated interest during the construction phase. Depreciation is calculated using a declining balance method for most assets with the exception of the plant enclosure and related equipment. Depreciation on the plant enclosure and related equipment is calculated on a straight-line basis. Estimated lives for depreciation purposes range from three years for computer equipment and software to 20 years for the plant enclosure and equipment.
Equity investments
Investments in which the Company has a significant influence are accounted for using the equity method, whereby the Company records its proportionate share of the investee’s income or loss.
Impairment of long-lived assets
The Company assesses the possibility of impairment in the net carrying value of its long-lived assets when events or circumstances indicate that the carrying amounts of the asset or asset group may not be recoverable. When potential impairment is indicated, management calculates the estimated undiscounted future net cash flows relating to the asset or asset group using estimated future prices, recoverable resources, and operating, capital and reclamation costs. When the carrying value of an asset exceeds the related undiscounted cash flows, the asset is written down to its estimated fair value, which is determined using discounted future cash flows or other measures of fair value.
Asset retirement obligations
For mining properties, various federal and state mining laws and regulations require the Company to reclaim the surface areas and restore underground water quality to the pre-existing quality or class of use after the completion of mining. The Company records the fair value of an asset retirement obligation as a liability in the period in which it incurs an obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and/or normal use of the assets.
Asset retirement obligations consist of estimated final well closures, plant closure and removal and associated ground reclamation costs to be incurred by the Company in the future. The estimated fair value of the asset retirement obligation is based on the current cost escalated at an inflation rate and discounted at a credit adjusted risk-free rate. This liability is capitalized as part of the cost of the related asset and amortized over its useful life. The liability accretes until the Company settles the obligation.
Revenue recognition
The recognition of revenue from the sale of U3O8 is in accordance with the guidelines outlined in ASC Section 605-10-25, Revenue Recognition. 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.
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2014
			
		
(expressed in thousands of U.S. dollars unless otherwise indicated)
In 2013, the Company sold two years of delivery commitments to an independent broker. The proceeds were recorded as deferred revenue until the broker or purchaser acknowledged the deliveries had been made at which time, the portion of the sale relating to those deliveries was taken into sales revenue.
Stock-based compensation
All stock-based compensation payments made to employees, directors and consultants are accounted for in the consolidated financial statements. Stock-based compensation cost is measured at the grant date based on the fair value of the reward and is recognized over the related service period. Stock-based compensation cost is charged to construction, exploration and evaluation, development, and general and administrative expense on the same basis as other compensation costs.
Income taxes
The Company accounts for income taxes under the asset and liability method which requires the recognition of future income tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities. The Company provides a valuation allowance on future tax assets unless it is more likely than not that such assets will be realized.
Loss per common share
Basic loss per common share is calculated based upon the weighted average number of common shares outstanding during the period. The diluted loss per common share, which is calculated using the treasury stock method, is equal to the basic loss per common share due to the anti-dilutive effect of stock options, restricted share units and share purchase warrants outstanding.
Classification of financial instruments
The Company’s financial instruments consist of cash, short-term investments, accounts receivable, restricted cash, deposits, accounts payable and accrued liabilities, other liabilities and notes payable. The Company has made the following classifications for these financial instruments:
·
Cash, accounts receivable, restricted cash and deposits are recorded at amortized cost. Interest income is recorded using the effective interest rate method and is included in income for the period.
·
Accounts payable and accrued liabilities and notes payable are measured at amortized cost.
·
Other liabilities, which relates to the derivative on the warrant issued in U.S. dollars, are adjusted to the market value at the end of each reporting period.
Out of period adjustment
During the second quarter of 2014, we recorded an out of period adjustment due to the reclassification of severance and ad valorem taxes as a cost of extraction instead of a direct cost of sale.
New accounting pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. Under ASU 2014-09, an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. It also requires more detailed disclosures to enable users of financial statements to
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2014
			
		
(expressed in thousands of U.S. dollars unless otherwise indicated)
understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. This guidance is effective for annual periods beginning on or after December 15, 2016. The adoption of this standard is not expected to have a material impact on the financial statements of the Company.
4.Cash
The Company’s cash consists of the following:
5.Accounts Receivable
The Company’s accounts receivable consist of the following:
The names of Company A and Company B have not been disclosed for confidentiality reasons.
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2014
			
		
(expressed in thousands of U.S. dollars unless otherwise indicated)
6.Inventory
The Company’s inventory consists of the following:
As of December 31, 2014, there was no inventory carried at excess of net realizable value.
7.Restricted Cash
The Company’s restricted cash consists of the following:
(a)
The bonding requirements for reclamation obligations on various properties have been agreed to by the Wyoming Department of Environmental Quality, United States Department of the Interior and United States Nuclear Regulatory Commission. The restricted money market accounts are pledged as collateral against performance surety bonds which are used to secure the potential costs of reclamation related to those properties. Surety bonds providing $26,537 of coverage towards specific reclamation obligations are collateralized by $7,456 of the restricted cash at December 31, 2014.
(b)
A certificate of deposit ($100) provides security for the Company’s credit cards.
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2014
			
		
(expressed in thousands of U.S. dollars unless otherwise indicated)
8. Mineral Properties
The Company’s mineral properties consist of the following:
(a)
As a result of the change in functional currency, a CTA as of the date of conversion reduced the reported cost of the U.S. mineral properties by $5.3 million.
(b)
The adjustments reflect adjustments due to changes in the year end spot rate for Canadian properties.
United States
Lost Creek Property
The Company acquired certain Wyoming properties when Ur-Energy USA Inc. entered into the Membership Interest Purchase Agreement (“MIPA”) with New Frontiers Uranium, LLC in 2005. Under the terms of the MIPA, the Company purchased 100% of NFU Wyoming, LLC. Assets acquired in this transaction include the Lost Creek Project, other Wyoming properties and development databases. NFU Wyoming, LLC was acquired for aggregate consideration of $20 million plus interest. Since 2005, the Company has increased its holdings adjacent to the initial Lost Creek acquisition through staking additional claims and additional property purchases and leases.
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2014
			
		
(expressed in thousands of U.S. dollars unless otherwise indicated)
In April 2013, the Company executed a royalty purchase agreement with the royalty holder who owned the only private royalty reserved on the Lost Creek Project. The 1.67% royalty had existed with respect to future production of uranium on 20 mining claims at the Lost Creek Project. The Company issued one million common shares of the Company with a fair value of $763 in full consideration of the conveyance and termination of the royalty interest. There is a royalty on each of the State of Wyoming sections under lease at the Lost Creek, LC West and EN Projects, as required by law. Other royalties exist on certain mining claims at the LC South and EN Projects. There are no royalties on the mining claims in the LC North, LC East or LC West Projects.
In September 2013, after the Company commenced mineral extraction and production at the Lost Creek Project, it began amortizing the related mineral properties on a straight-line basis.
Pathfinder Mines Corporation
The Company acquired additional Wyoming properties when Ur-Energy USA Inc. closed a Share Purchase Agreement (“SPA”) with an AREVA Mining affiliate in December 2013. Under the terms of the SPA, the Company purchased Pathfinder Mines Corporation (“Pathfinder”) to acquire additional proven mineral properties. Assets acquired in this transaction include the Shirley Basin mine, portions of the Lucky Mc mine, machinery and equipment, vehicles, office equipment and development databases. Pathfinder was acquired for aggregate consideration of $6.7 million, a 5% production royalty under certain circumstances and the assumption of $5.7 million in estimated asset reclamation obligations. The purchase price allocation attributed $5.7 million to asset retirement obligations, $3.3 million to deferred tax liabilities, $15.3 million to mineral properties and the balance to the remaining assets and liabilities.
Other U.S. properties
In June 2013, the Company decided to abandon the South Granite Mountains project by not paying the claim fees due later in 2013. The cost of that project of $261 was written off.
In January 2014, the Company decided to abandon the Mustang project in Nebraska. During 2014, the Company notified the leaseholders of the terminations when the lease renewals become due. The cost of that project of $1,168 was written off in 2013 as there was no value to the Company as of December 31, 2013.
Canada
The claims at Screech Lake and Bugs reached a point during 2014 where the Company needed to take the properties to lease (or make related notices) under the mining regulations and invest in additional exploration or release the claims. The Company elected not to pursue further exploration at these sites. As a result of those decisions, the Company also decided to permit the claims at Gravel Hill, which had been on regulatory suspension relief, to lapse. As a result, the claims were abandoned and the cost of the assets was written off.
The holder of the Mountain Lake and Dismal Lake claims also abandoned their claims on those properties. As a result, the royalties the Company held on those properties also became worthless and were written off in 2014.
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2014
			
		
(expressed in thousands of U.S. dollars unless otherwise indicated)
9.Capital Assets
The Company’s capital assets consist of the following:
In August 2013, the Company received permission from the NRC to begin production at the Lost Creek facility. At that time, the Company reclassified its construction in progress assets to buildings and enclosures as well as machinery and equipment.
Capitalized interest and loan fees included in capital assets totaled approximately $1.3 million. Capitalized depreciation on construction equipment totaled $0.5 million. Total depreciation expense was $7.6 million, $0.5 million and $0.5 million for the years ended December 31, 2014, 2013 and 2012, respectively.
10.Equity Investment
Following its earn-in to The Bootheel Project, LLC in 2009, Crosshair Energy Corporation, now Jet Metals Corp (“Jet Metals”), was required to fund 75% of the Project’s expenditures and the Company the remaining 25%. The Project has been accounted for using the equity accounting method with the Company’s proportionate share of the Project’s loss included in the Consolidated Statement of Operations since the date of earn-in and the Company’s net investment is reflected on the Consolidated Balance Sheet. Under the terms of the agreement, the Company elected not to participate financially for the Project’s financial year ended March 31, 2012 which reduced the Company’s ownership percentage to 19.1%. The equity accounting method has been continued because of the Company’s ability to directly influence the budget process and therefore the operations of the Project. The Company resumed participation financially for the year ended March 31, 2013 and subsequent years. The state leases and claims are being maintained by the venture.
At December 31, 2014, the Company performed an impairment test on the remaining Bootheel property and determined that no impairment was necessary.
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2014
			
		
(expressed in thousands of U.S. dollars unless otherwise indicated)
11.Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
12.Notes Payable
On May 13, 2013, the Company entered into a bridge loan agreement (the "Bridge Loan") with RMBAH. The Bridge Loan was in the amount of $5.0 million and was funded on May 14, 2013. The Bridge Loan provided interim working capital for Lost Creek project development prior to receiving funds to be provided by either the State of Wyoming or the RMBAH loan facility discussed below. The Bridge Loan provided for interest at 7.5% per annum in addition to a 4% origination fee all of which was capitalized as construction period borrowing cost. The Company was required to repay the Bridge Loan upon receipt of funds from any source in an amount exceeding $6.0 million or at the maturity date of July 31, 2013. Accordingly, the Bridge Loan was repaid with proceeds from the senior secured loan facility (the “First Loan Facility”) described below.
On June 24, 2013, the Company entered into a $20.0 million First Loan Facility with RMBAH. The First Loan Facility was intended to fund the acquisition and advancement of the Pathfinder assets in Wyoming, and provide other interim Lost Creek development costs pending final approval of the State Bond Loan discussed below. The First Loan Facility was fully drawn as of June 30, 2013 and carried interest at 7.5% plus the three month LIBOR rate recalculated at the start of each calendar quarter, approximately 7.77%. In addition, the Company issued 4,294,167 warrants at an exercise price of Cdn$1.20 per common share with a three-year expiry. Using the Black-Scholes calculations as discussed in note 18, the warrants were calculated to have a value of approximately $3.1 million. The Company also paid an arrangement fee of 6% ($1.2 million) and legal fees to RMBAH totaling approximately $0.2 million. The total effective interest rate on the First Loan Facility is 21.6%. The loan was repaid on October 23, 2013 from the proceeds of the State Bond Loan, however, up to $5.0 million was available to the Company to be redrawn for the purpose of acquiring Pathfinder.
The repayment created a loss from the early extinguishment of debt of $4,032 from the write-off of unamortized deferred loan costs. This amount was redrawn on December 19, 2013 for the acquisition of Pathfinder. The interest rate was approximately 7.75%. Principal payments of $1.25 million each are due quarterly commencing on March 31, 2014. On March 14, 2014, the loan was amended to change the interest rate, extend the loan maturity date to March 31, 2016 and increase the current loan to $10.0 million which included an additional line of credit of $3.5 million as a result of the completion and results of the Technical Report (NI 43-101) on the newly-acquired Shirley Basin property. On March 14, 2014, the Company also drew down an additional $1.5 million on its First Loan Facility. On September 19, 2014, the Company drew down the $3.5 million line of credit. The amended interest rate is approximately 8.75%. Principal payments of $0.81 million are due quarterly.
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2014
			
		
(expressed in thousands of U.S. dollars unless otherwise indicated)
In August 2013, the Company entered into a $15.0 million second loan facility (the “Second Loan Facility”) with RMBAH. This Second Loan Facility was intended to allow the Company to complete the construction of the Lost Creek facility pending the approval and funding of the State Bond Loan discussed below. In addition, the Company issued 3,100,800 warrants at an exercise price of Cdn$1.25 per common share and a three-year expiry. Using the Black-Scholes calculations as discussed in note 18, the warrants were calculated to have a value of approximately $1.1 million. The Company also paid an arrangement fee of 6% ($0.9 million) and legal fees to RMBAH totaling approximately $0.1 million. The total effective interest rate on the Second Loan Facility is 16.1%. The loan was repaid on October 23, 2013 from the proceeds of the State Bond Loan. The repayment created a loss from the early extinguishment of debt of $1,622 from the write-off of unamortized deferred loan costs. At that time, one half (1,550,400) of the warrants were cancelled per terms of the facility.
On October 15, 2013, the Sweetwater County Commissioners approved the issuance of a $34.0 million Sweetwater County, State of Wyoming, Taxable Industrial Development Revenue Bond (Lost Creek Project), Series 2013 (the “Sweetwater IDR Bond”) to the State of Wyoming, acting by and through the Wyoming State Treasurer, as purchaser. On October 23, 2013, the Sweetwater IDR Bond was issued and the proceeds were in turn loaned by Sweetwater County to Lost Creek ISR, LLC pursuant to a financing agreement dated October 23, 2013 (the “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 commencing January 1, 2014. The principal is payable in 28 quarterly installments commencing January 1, 2015 and continuing through October 1, 2021. The State Bond Loan is collateralized by all of the assets at the Lost Creek Project. As a condition of the financing, the RMBAH First and Second Loan Facilities together with certain construction equipment loans were paid off with the funding proceeds from the State Bond Loan.
Deferred loan fees includes legal fees, commissions, commitment fees and other costs associated with obtaining the various financings. Those fees amortizable within 12 months of the statement date are considered current assets. Interest expense in 2013 includes a loss of $5,654 from the early extinguishment of the RMB First and Second Loan Facilities due to the write-off of unamortized deferred financing costs.
The following table lists the current and long term portion of each of the Company’s debt instruments at December 31, 2014 and December 31, 2013:
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2014
			
		
(expressed in thousands of U.S. dollars unless otherwise indicated)
Schedule of payments on outstanding debt as of December 31, 2014:
13.Deferred Revenue
In March 2013, the Company assigned the 2013 and 2014 contractual delivery obligations under two of its sales contracts to a natural resources trading company in exchange for a cash payment of $5.1 million. The Company reflected the related revenue when the related deliveries under the contracts were settled. As of December 31, 2014, all deliveries called for had been made and the revenue thereon recognized.
14.Income Taxes
A reconciliation of income taxes at the statutory Canadian income tax rate to net income taxes included in the accompanying statements of operations is as follows:
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2014
			
		
(expressed in thousands of U.S. dollars unless otherwise indicated)
Deferred tax assets and liabilities reflect the net tax effects of net operating losses, credit carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. The components of the Company’s deferred tax assets and liabilities are as follows:
Based upon the level of historical taxable loss, management believes it is more likely than not that the Company will not realize the benefits of these deductible differences and accordingly has established a full valuation allowance as of December 31, 2014 and 2013.
As of December 31, 2014, the Company had the following net operating loss carryforwards available:
The Company follows a comprehensive model for recognizing, measuring, presenting and disclosing uncertain tax positions taken or expected to be taken on a tax return. Tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.
The Company currently has no uncertain tax positions and is therefore not reflecting any adjustments for such in its deferred tax assets.
There are open statutes of limitations for tax authorities in U.S., Canada and state jurisdictions to audit the Company’s tax returns for the years ended December 31, 2011, 2012 and 2013.
The Company’s policy is to account for income tax related interest and penalties in income tax expense in the accompanying statements of operations. There have been no income tax related interest or penalties assessed or recorded.
Other comprehensive loss was not subject to income tax effects and is therefore shown net of taxes.
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2014
			
		
(expressed in thousands of U.S. dollars unless otherwise indicated)
15.Asset Retirement and Reclamation Obligations
Asset retirement obligations ("ARO") for the Lost Creek Project are equal to the present value of all estimated future costs required to remediate any environmental disturbances that exist as of the end of the period, using discount rates ranging from 0.3% to 3.3%. Included in this liability are the costs of closure, reclamation, demolition and stabilization of the mines, processing plants, infrastructure, aquifer restoration, waste dumps and ongoing post-closure environmental monitoring and maintenance costs. At December 31, 2014, the total undiscounted amount of the future cash needs was estimated to be $12.1 million. The schedule of payments required to settle the ARO liability extends through 2033.
Asset retirement obligations for the Pathfinder properties are equal to the present value of all estimated future costs required to remediate any environmental disturbances that exist as of the end of the period, using a discount rate of 3.0%. Included in this liability are the costs of closure, reclamation, demolition and stabilization of the mines, processing plants, infrastructure, aquifer restoration, waste dumps and ongoing post-closure environmental monitoring and maintenance costs. At December 31, 2014, the total undiscounted amount of the future cash needs was estimated to be $12.7 million. The schedule of payments required to settle the ARO liability extends through 2033.
The undiscounted future cash needs are based on information provided to the State of Wyoming in conjunction with annual reclamation bonding renewals. Increases in the estimated future cash needs are normally based on increased disturbances projected for the upcoming year. In 2014, there was no increase in the estimated liability on the Lost Creek Project as the anticipated disturbance was less than what had been projected in the previous year. In addition, the Company submitted their initial report to the state since acquiring the Pathfinder properties. The total estimated liability was significantly greater than what had been reflected on the Pathfinder financial statements at of the date of the acquisition in 2013. As a result, the estimated liability was revised in 2014 to reflect the estimates calculated by Company personnel.
The restricted cash as discussed in note 7 is related to surety bonds and letters of credit which provide security to the related governmental agencies on these obligations.
16.Other Liabilities
The Company completed a private placement in December 2013. In connection with this, the Company issued units consisting of one common share and one half warrants. The warrants are priced at US$1.35 which created a non-hedging derivative financial instrument. The liability created is adjusted to a calculated fair value quarterly using the Black-Scholes technique described in note 17 as there is no active market for the warrants. Any income or loss is reflected in net income for the year. The revaluation resulted in a gain of $946 thousand.
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2014
			
		
(expressed in thousands of U.S. dollars unless otherwise indicated)
17.Shareholders’ Equity and Capital Stock
Common share issuances
During the year ended December 31, 2014, the Company exchanged 182,194 common shares for vested Restricted Share Units (“RSUs”). In addition, 1,623,139 stock options were exercised for proceeds of $1.3 million.
During the year ended December 31, 2013, the Company exchanged 338,451 common shares for vested Restricted Share Units (“RSUs”). In addition, 377,927 stock options were exercised for proceeds of $0.3 million.
On December 19, 2013, the Company completed a private placement of 4,709,089 units consisting of one share of common stock and one half warrant at $1.10 per unit raising gross proceeds of $5.1 million. Total direct share issue costs, including the placement agents’ commission, were $0.2 million.
During the year ended December 31, 2012, 88,473 common shares were issued pursuant to the exercise of stock options for proceeds of $0.1 million. In addition, the Company exchanged 120,359 common shares for vested RSUs.
On February 23, 2012, the Company completed a private placement of 17,250,000 common shares at $1.00 per share raising gross proceeds of $17.3 million. Total direct share issue costs, including the placement agents’ commission, were $1.0 million.
Stock options
In 2005, the Company’s Board of Directors approved the adoption of the Company's stock option plan (the “Option Plan”). Eligible participants under the Option Plan include directors, officers, employees and consultants of the Company. Under the terms of the Option Plan, stock options generally vest with Option Plan participants as follows: 10% at the date of grant; 22% four and one-half months after grant; 22% nine months after grant; 22% thirteen and one-half months after grant; and the balance of 24% eighteen months after the date of grant.
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2014
			
		
(expressed in thousands of U.S. dollars unless otherwise indicated)
Activity with respect to stock options is summarized as follows:
The exercise price of a new grant is set at the closing price for the stock on the Toronto Stock Exchange (TSX) on the trading day immediately preceding the grant date so there is no intrinsic value as of the date of grant. The fair value of options vested during the year ended December 31, 2014 was $0.8 million.
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2014
			
		
(expressed in thousands of U.S. dollars unless otherwise indicated)
As of December 31, 2014, outstanding stock options are as follows:
The aggregate intrinsic value of the options in the preceding table represents the total pre-tax intrinsic value for stock options with an exercise price less than the Company’s TSX closing stock price of Cdn$0.99 as of the last trading day in the year ended December 31, 2014, that would have been received by the option holders had they exercised their options as of that date. The total number of in-the-money stock options outstanding as of December 31, 2014 was 3,336,671. The total number of in-the-money stock options exercisable as of December 31, 2014 was 3,336,671.
Restricted share units
On June 24, 2010, the Company’s shareholders approved the adoption of the Company’s restricted share unit plan (the “RSU Plan”). Eligible participants under the RSU Plan include directors and employees, including officers, of the Company. Under the terms of the RSU Plan, RSUs vest with participants as follows: 50% on the first anniversary of the date of the grant and 50% on the second anniversary of the date of the grant.
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2014
			
		
(expressed in thousands of U.S. dollars unless otherwise indicated)
Activity with respect to RSUs is summarized as follows:
As of December 31, 2014, outstanding RSUs are as follows:
As of December 31, 2014, 280,529 RSUs had been vested but not redeemed. In January, 2015, 215,168 were redeemed for common shares while the balance of 65,361 were redeemed to pay the related taxes due on redemption.
Upon RSU vesting, the holder of an RSU will receive one common share, for no additional consideration, for each RSU held.
Warrants
On December 19, 2013, the Company issued 2,354,545 warrants to purchase stock at $1.35 per share in connection with the sale of private placement units (see note 17). The First and Second Loan Facility account for the remainder of the warrants issued during 2013 (see note 12).
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2014
			
		
(expressed in thousands of U.S. dollars unless otherwise indicated)
Activity with respect to warrants is summarized as follows:
As of December 31, 2014, outstanding warrants are as follows:
Share-based compensation expense
Stock-based compensation expense was $0.9 million, $1.2 million and $2.4 million for the years ended December 31, 2014, 2013 and 2012, respectively.
As of December 31, 2014, there was approximately $0.6 million of total unrecognized compensation expense (net of estimated pre-vesting forfeitures) related to unvested share-based compensation arrangements granted under the Option Plan and $0.3 million under the RSU Plan. The expenses are expected to be recognized over a weighted-average period of 1.1 years and 1.6 years, respectively.
Cash received from stock options exercised during the years ended December 31, 2014, 2013 and 2012 was $1.3 million, $0.3 million and less than $0.1 million, respectively.
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2014
			
		
(expressed in thousands of U.S. dollars unless otherwise indicated)
Fair Value Calculations
The initial fair value of RSUs, options and warrants granted during the years ended December 31, 2014, 2013 and 2012 was determined using the Black-Scholes option pricing model with the following assumptions:
The Company estimates expected volatility using daily historical trading data of the Company’s common shares, because this is recognized as a valid method used to predict future volatility. The risk-free interest rates are determined by reference to Canadian Treasury Note constant maturities that approximate the expected option term. The Company has never paid dividends and currently has no plans to do so.
Share-based compensation expense is recognized net of estimated pre-vesting forfeitures, which results in recognition of expense on options that are ultimately expected to vest over the expected option term. Forfeitures were estimated using actual historical forfeiture experience.
The fair value used for the RSUs issued in December 2014, December 2013 and December 2012 was $0.96, $1.20 and $0.82 per unit, respectively which was the closing price of the stock on the TSX as of the trading days immediately preceding the grant dates.
18.Sales
Revenue is primarily derived from the sale of U3O8 to domestic utilities under contracts or spot sales. In 2013, the Company also sold its 2013 and 2014 deliveries under two of its contracts to a third party broker. The income was recognized in the years in which the respective deliveries were completed.
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2014
			
		
(expressed in thousands of U.S. dollars unless otherwise indicated)
Revenue consists of:
During the second quarter of 2014, we recorded an out of period adjustment due to the reclassification of severance and ad valorem taxes as a cost of extraction instead of a direct cost of sale.
19.Financial instruments
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, restricted cash, deposits, accounts payable and accrued liabilities and notes payable. The Company is exposed to risks related to changes in foreign currency exchange rates, interest rates and management of cash and cash equivalents and short-term investments
Credit risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents and restricted cash. These assets include Canadian dollar and U.S. dollar denominated certificates of deposits, money market accounts and demand deposits. They bear interest at annual rates ranging from 0.18% to 0.4% and mature at various dates up to August 27, 2015. These instruments are maintained at financial institutions in Canada and the United States. Of the amount held on deposit, approximately $0.9 million is covered by the Canada Deposit Insurance Corporation, the Securities Investor Protection Corporation or the United States Federal Deposit Insurance Corporation, leaving approximately $9.8 million at risk at December 31, 2014 should the financial institutions with which these amounts are invested be rendered insolvent. The Company does not consider any of its financial assets to be impaired as of December 31, 2014.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due.
The Company has financed its operations from its inception primarily through the issuance of equity securities and debt instruments. Production commenced in August 2013 after receiving final operational clearance from the NRC. Product sales commenced in December 2013.
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2014
			
		
(expressed in thousands of U.S. dollars unless otherwise indicated)
As at December 31, 2014, the Company’s financial liabilities consisted of trade accounts payable and accrued trade and payroll liabilities of $3.0 million which are due within normal trade terms of generally 30 to 60 days, notes payable which will be payable over periods of 0 to 7 years, and asset retirement obligations with estimated completion dates until 2033.
Market risk
Market risk is the risk to the Company of adverse financial impacts due to changes in the fair value or future cash flows of financial instruments as a result of fluctuations in interest rates and foreign currency exchange rates.
Interest rate risk
Financial instruments that expose the Company to interest rate risk are its cash equivalents, deposits, restricted cash and debt financings. The Company’s objectives for managing its 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 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
The Company maintains a balance of less than $0.1 million in foreign currency resulting in a low currency risk.
Sensitivity analysis
The Company has completed a sensitivity analysis to estimate the impact that a change in interest rates would have on the net loss of the Company. This sensitivity analysis shows that a change of +/- 100 basis points in interest rate would have a $0.6 million impact for the year ended December 31, 2014. The financial position of the Company may vary at the time that a change in interest rates occurs causing the impact on the Company’s results to differ from that shown above.
20.Segmented Information
The Company’s operations comprise one reportable segment being the exploration and development of uranium resource properties. All of the Company’s production, sales and other mineral related operations are occurring in the United States. During 2014, the Company decided not to invest additional funds in its Canadian properties. As a result, those claims were dropped and written off. Effective December 31, 2014, the only assets in Canada are non-operating current assets.
Non-current assets segmented by geographic area are as follows:
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2014
			
		
(expressed in thousands of U.S. dollars unless otherwise indicated)
21.Commitments
Under the terms of its operating lease for office premises in Casper, Wyoming, the Company is committed to minimum annual lease payments as follows:
Rent expense under these agreements was $0.2 million, $0.2 million and $0.1 million for the years ended December 31, 2014, 2013 and 2012, respectively.
The Company has agreed to a Contingency and Development Agreement with Sweetwater County for the improvement of a county road servicing the Lost Creek facility. The Company’s portion of the cost will be approximately $200 thousand and will be due after the work is completed.
Off Take Sales Agreements
We currently have nine off take sales agreements with various North American utilities. Most recently, in February 2015, we executed a multi-year agreement for sales deliveries of 200,000 pounds of uranium concentrates annually. In March 2014, we entered into a uranium sales arrangement for production in 2014 and 2016. The agreements call for deliveries ranging between 150,000 to 250,000 pounds of uranium concentrate each year. Those agreements were amended to include additional deliveries in 2015. These agreements supplement earlier offtake arrangements which were completed beginning in 2011.
						
Ur-Energy Inc.
Notes to Consolidated Financial Statements
December 31, 2014
			
		
(expressed in thousands of U.S. dollars unless otherwise indicated)
22.Other items not affecting cash flow