UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE TRANSITION PERIOD OF _________ TO _________.

 

Commission File Number: 001-33905

 

UR-ENERGY INC.

(Exact name of registrant as specified in its charter)

 

Canada

 

Not Applicable

State or other jurisdiction of incorporation or organization

 

(I.R.S. Employer Identification No.)

 

10758 West Centennial Road, Suite 200

Littleton, CO 80127

 

Registrant’s telephone number, including area code: 720-981-4588

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class:

 

Trading Symbol

 

Name of each exchange on which registered:

Common stock

 

URG (NYSE American); URE (TSX)

 

NYSE American; TSX

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑   No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑   No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

 

Large accelerated filer

Smaller reporting company

Accelerated filer

Non-accelerated filer

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No ☑

 

As of October 28, 2020, there were 169,667,672shares of the registrant’s no par value Common Shares (“Common Shares”), the registrant’s only outstanding class of voting securities, outstanding.

 

 

 

 

UR-ENERGY INC.

 

TABLE OF CONTENTS

 

 

 

Page

 

 

 

 

 

 

PART I – FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Financial Statements

5

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

40

 

Item 4.

Controls and Procedures

41

 

 

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

 

 

Item 1.

Legal Proceedings

41

 

Item 1A.

Risk Factors

41

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

42

 

Item 3.

Defaults Upon Senior Securities

42

 

Item 4.

Mine Safety Disclosures

42

 

Item 5.

Other Information

42

 

Item 6.

Exhibits

43

 

 

 

 

 

SIGNATURES

44

 

  

 
2

Table of Contents

  

When we use the terms “Ur-Energy,” “we,” “us,” or “our,” or the “Company” we are referring to Ur-Energy Inc. and its subsidiaries, unless the context otherwise requires. Throughout this document we make statements that are classified as “forward-looking.” Please refer to the “Cautionary Statement Regarding Forward-Looking Statements” section below for an explanation of these types of assertions.

 

Cautionary Statement Regarding Forward-Looking Information

 

This report on Form 10-Q contains "forward-looking statements" within the meaning of applicable United States (“U.S.”) and Canadian securities laws, and these forward-looking statements can be identified by the use of words such as "expect," "anticipate," "estimate," "believe," "may," "potential," "intends," "plans" and other similar expressions or statements that an action, event or result "may," "could" or "should" be taken, occur or be achieved, or the negative thereof or other similar statements. These statements are only predictions and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance, or achievements expressed or implied by these forward-looking statements. Such statements include, but are not limited to: (i) the ability to maintain safe and compliant reduced-level production operations at Lost Creek; (ii) the impacts of COVID-19 (Coronavirus) on our business, operations, and financial liquidity, and the impacts of the pandemic directly and indirectly on the uranium market; (iii) the timing and outcome of permitting and regulatory approvals of the amendment for uranium recovery at the LC East Project; (iv) the ability to complete additional favorable uranium sales agreements including spot sales if the market warrants and as may be advantageous to the Company; (v) the timing and outcome of applications for regulatory approval to build and operate an in situ recovery mine at Shirley Basin; (vi) resolution of the continuing challenges within the uranium market, including supply and demand projections; (vii) the timing and impact of implementation of recommendations made by the United States Nuclear Fuel Working Group for the revival and expansion of domestic nuclear fuel production, including the budget appropriations process for the DOE uranium reserve program; (viii) the impacts on the uranium market of the extension and amendment of the Russian Suspension Agreement and whether the pending legislation to codify the amendment is enacted; (ix) whether cost-savings measures which have been and will be implemented will be sufficient to support our operations and avoid dilution to our shareholders; (x) the level of loan forgiveness to be obtained for our loans under the SBA Paycheck Protection Program; and (xi) the ability and timing to ramp up when market conditions warrant, as well as the costs and level of dilution in doing so. Additional factors include, among others, the following: challenges presented by current inventories and largely unrestricted imports of uranium products into the U.S.; future estimates for production; capital expenditures; operating costs; mineral resources, grade estimates and recovery rates; market prices; business strategies and measures to implement such strategies; competitive strengths; estimates of goals for expansion and growth of the business and operations; plans and references to our future successes; our history of operating losses and uncertainty of future profitability; status as an exploration stage company; the lack of mineral reserves; risks associated with obtaining permits and other authorizations in the U.S.; risks associated with current variable economic conditions; our ability to service our debt and maintain compliance with all restrictive covenants related to the debt facility and security documents; the possible impact of future debt or equity financings; the hazards associated with mining production operations; compliance with environmental laws and regulations; wastewater management; uncertainty regarding the pricing and collection of accounts; the possibility for adverse results in potential litigation; uncertainties associated with changes in law, government policy and regulation; uncertainties associated with a Canada Revenue Agency or U.S. Internal Revenue Service audit of any of our cross border transactions; adverse changes in general business conditions in any of the countries in which we do business; changes in size and structure; the effectiveness of management and our strategic relationships; ability to attract and retain key personnel and management; uncertainties regarding the need for additional capital; sufficiency of insurance coverages; uncertainty regarding the fluctuations of quarterly results; foreign currency exchange risks; ability to enforce civil liabilities under U.S. securities laws outside the U.S.; ability to maintain our listing on the NYSE American and Toronto Stock Exchange (“TSX”); risks associated with the expected classification as a "passive foreign investment company" under the applicable provisions of the U.S. Internal Revenue Code of 1986, as amended; risks associated with our investments and other risks and uncertainties described under the heading “Risk Factors” in our Annual Report on Form 10-K, dated February 28, 2020.

 

 
3

Table of Contents

  

Cautionary Note to U.S. Investors Concerning Disclosure of Mineral Resources

 

Unless otherwise indicated, all resource estimates included in this Form 10-Q have been prepared in accordance with Canadian National Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”) and the Canadian Institute of Mining, Metallurgy and Petroleum Definition Standards for Mineral Resources and Mineral Reserves (“CIM Definition Standards”). NI 43-101 is a rule developed by the Canadian Securities Administrators which establishes standards for all public disclosure an issuer makes of scientific and technical information concerning mineral projects.

 

Canadian standards, including NI 43-101, differ significantly from the requirements of the U.S. Securities and Exchange Commission (“SEC”), and resource information contained in this Form 10-Q may not be comparable to similar information disclosed by U.S. companies. In particular, the term “resource” does not equate to the term “reserves.” Under SEC Industry Guide 7, mineralization may not be classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. SEC Industry Guide 7 does not define and the SEC’s disclosure standards normally do not permit the inclusion of information concerning “measured mineral resources,” “indicated mineral resources” or “inferred mineral resources” or other descriptions of the amount of mineralization in mineral deposits that do not constitute “reserves” by U.S. standards in documents filed with the SEC. U.S. investors should also understand that “inferred mineral resources” have a great amount of uncertainty as to their existence and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an “inferred mineral resource” will ever be upgraded to a higher category. Under Canadian rules, estimated “inferred mineral resources” may not form the basis of feasibility or pre-feasibility studies except in rare cases. Investors are cautioned not to assume that all or any part of an “inferred mineral resource” exists or is economically or legally mineable. Disclosure of “contained ounces” in a resource is permitted disclosure under Canadian regulations; however, the SEC normally only permits issuers to report mineralization that does not constitute “reserves” by SEC standards as in-place tonnage and grade without reference to unit measures. Accordingly, information concerning mineral deposits set forth herein may not be comparable to information made public by companies that report in accordance with U.S. standards.

 

NI 43-101 Review of Technical Information: Michael Mellin, Ur-Energy / Lost Creek Mine Geologist, P.Geo. and Qualified Person as defined by NI 43-101, reviewed and approved the technical information contained in this Form 10-Q.

 

 
4

Table of Contents

 

PART I

Item 1. FINANCIAL STATEMENTS

 

Ur-Energy Inc.

 

 

 

 

 

 

 

 

 

Unaudited Conolidated Balance Sheets

 

 

 

 

 

 

(expressed in thousands of U.S. dollars)

 

 

 

 

 

 

 

 

 

(the accompanying notes are an integral part of these consolidated financial statements)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Note

 

 

September 30, 2020

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

4

 

 

 

6,643

 

 

 

7,403

 

Accounts receivable

 

 

 

 

 

 

14

 

 

 

22

 

Inventory

 

 

5

 

 

 

7,619

 

 

 

-

 

Prepaid expenses

 

 

 

 

 

 

943

 

 

 

885

 

Total current assets

 

 

 

 

 

 

15,219

 

 

 

8,310

 

Non-current assets

 

 

 

 

 

 

 

 

 

 

 

 

Non-current portion of inventory

 

 

5

 

 

 

-

 

 

 

7,426

 

Restricted cash

 

 

6

 

 

 

7,857

 

 

 

7,812

 

Mineral properties

 

 

7

 

 

 

41,192

 

 

 

43,212

 

Capital assets

 

 

8

 

 

 

22,356

 

 

 

23,630

 

Total non-current assets

 

 

 

 

 

 

71,405

 

 

 

82,080

 

Total assets

 

 

 

 

 

 

86,624

 

 

 

90,390

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and shareholders' equity

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

 

9

 

 

 

2,365

 

 

 

2,211

 

Current portion of notes payable

 

 

10

 

 

 

479

 

 

 

-

 

Current portion of warrant liability

 

 

 12

 

 

 

 288

 

 

 

 -

 

Environmental remediation accrual

 

 

 

 

 

 

90

 

 

 

72

 

Total current liabilities

 

 

 

 

 

 

3,222

 

 

 

2,283

 

Non-current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Notes payable

 

 

10

 

 

 

12,687

 

 

 

12,215

 

Lease liability

 

 

 

 

 

 

67

 

 

 

12

 

Asset retirement obligations

 

 

11

 

 

 

31,235

 

 

 

30,972

 

Warrant liability

 

 

12

 

 

 

537

 

 

 

575

 

Total non-current liabilities

 

 

 

 

 

 

44,526

 

 

 

43,774

 

Shareholders' equity

 

 

 

 

 

 

 

 

 

 

 

 

Share capital

 

 

13

 

 

 

189,250

 

 

 

185,754

 

Warrants

 

 

 

 

 

 

-

 

 

 

-

 

Contributed surplus

 

 

 

 

 

 

20,861

 

 

 

20,317

 

Accumulated other comprehensive income

 

 

 

 

 

 

3,721

 

 

 

3,654

 

Accumulated deficit

 

 

 

 

 

 

(174,956)

 

 

(165,392)

Total shareholders' equity

 

 

 

 

 

 

38,876

 

 

 

44,333

 

Total liabilities and shareholders' equity

 

 

 

 

 

 

86,624

 

 

 

90,390

 

  

 
5

Table of Contents

 

Ur-Energy Inc.
Unaudited Consolidated Statements of Operations and Comprehensive Loss
(expressed in thousands of U.S. dollars, except per share data)
(the accompanying notes are an integral part of these consolidated financial statements)

 

 

 

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

 

 

 

September 30,

 

 

September 30,

 

 

 

Note

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

 

14

 

 

 

-

 

 

 

5,115

 

 

 

8,304

 

 

 

21,406

 

Cost of sales

 

 

15

 

 

 

(1,840)

 

 

(7,515)

 

 

(11,462)

 

 

(23,824)

Gross profit (loss)

 

 

 

 

 

 

(1,840)

 

 

(2,400)

 

 

(3,158)

 

 

(2,418)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating costs

 

 

16

 

 

 

(2,157)

 

 

(2,620)

 

 

(6,446)

 

 

(7,920)

Profit (loss) from operations

 

 

 

 

 

 

(3,997)

 

 

(5,020)

 

 

(9,604)

 

 

(10,338)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest expense

 

 

 

 

 

 

(195)

 

 

(153)

 

 

(522)

 

 

(517)

Warrant mark to market gain

 

 

 

 

 

 

550

 

 

 

981

 

 

 

592

 

 

 

343

 

Foreign exchange gain (loss)

 

 

 

 

 

 

(53)

 

 

4

 

 

 

(46)

 

 

(24)

Other income (expense)

 

 

 

 

 

 

(1)

 

 

(12)

 

 

16

 

 

 

3

 

Net income (loss)

 

 

 

 

 

 

(3,696)

 

 

(4,200)

 

 

(9,564)

 

 

(10,533)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

 

 

 

 

36

 

 

 

15

 

 

 

67

 

 

 

(8)

Comprehensive income (loss)

 

 

 

 

 

 

(3,660)

 

 

(4,185)

 

 

(9,497)

 

 

(10,541)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

(0.02)

 

 

(0.03)

 

 

(0.06)

 

 

(0.07)

Diluted

 

 

 

 

 

 

(0.02)

 

 

(0.03)

 

 

(0.06)

 

 

(0.07)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

166,130,403

 

 

 

159,946,969

 

 

 

162,375,926

 

 

 

159,833,116

 

Diluted

 

 

 

 

 

 

166,130,403

 

 

 

159,946,969

 

 

 

162,375,926

 

 

 

159,833,116

 

 

 
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Ur-Energy Inc.

Unaudited Consolidated Statements of Changes in Equity

(expressed in thousands of U.S. dollars, except share data)

(the accompanying notes are an integral part of these consolidated financial statements)

   

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

Share Capital

 

 

  Contributed

 

 

Comprehensive

 

 

Accumulated

 

 

 Shareholders'

 

 

Note

 

 

Shares

 

 

Amount

 

 

Surplus  

 

 

Income 

 

 

Deficit 

 

 

Equity 

 

Balance, December 31, 2019

 

 

 

 

160,478,059

 

 

 

185,754

 

 

 

20,317

 

 

 

3,654

 

 

 

(165,392)

 

 

44,333

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-cash stock compensation

 

 

 

 

-

 

 

 

-

 

 

 

234

 

 

 

-

 

 

 

-

 

 

 

234

 

Comprehensive income (loss)

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

27

 

 

 

(3,641)

 

 

(3,614)

Balance, March 31, 2020

 

 

 

 

160,478,059

 

 

 

185,754

 

 

 

20,551

 

 

 

3,681

 

 

 

(169,033)

 

 

40,953

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-cash stock compensation

 

 

 

 

-

 

 

 

-

 

 

 

230

 

 

 

-

 

 

 

-

 

 

 

230

 

Comprehensive income (loss)

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4

 

 

 

(2,227)

 

 

(2,223)

Balance, June 30, 2020

 

 

 

 

160,478,059

 

 

 

185,754

 

 

 

20,781

 

 

 

3,685

 

 

 

(171,260)

 

 

38,960

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common shares issued for cash

 13

 

 

 

9,000,000

 

 

 

3,392

 

 

 

-

 

 

 

 -

 

 

 

 -

 

 

 

3,392

 

Redemption of RSUs

 

 

 

 

189,613

 

 

 

104

 

 

 

(149)

 

 

 -

 

 

 

 -

 

 

 

(45)

Non-cash stock compensation

 

 

 

 

 

 

 

 

 

 

 

 

229

 

 

 

 -

 

 

 

 -

 

 

 

229

 

Comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

36

 

 

 

(3,696)

 

 

(3,660)

Balance, September 30, 2020

 

 

 

 

169,667,672

 

 

 

189,250

 

 

 

20,861

 

 

 

3,721

 

 

 

(174,956)

 

 

38,876

 

 

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Ur-Energy Inc.
Unaudited Consolidated Statements of Changes in Equity
(expressed in thousands of U.S. dollars, except share data)
(the accompanying notes are an integral part of these consolidated financial statements)

  

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Share Capital

 

 

Contributed

 

 

Comprehensive

 

 

Accumulated

 

 

Shareholders'

 

 

Notes

 

 

 

Shares

 

 

 

Amount

 

 

 

Surplus

 

 

 

Income

 

 

 

Deficit

 

 

 

Equity

 

Balance, December 31, 2018

 

 

 

 

159,729,403

 

 

 

185,221

 

 

 

19,930

 

 

 

3,670

 

 

 

(156,974)

 

 

51,847

 

Redemption of RSUs

 

 

 

 

-

 

 

 

-

 

 

 

(6)

 

 

-

 

 

 

-

 

 

 

(6)

Non-cash stock compensation

 

 

 

 

-

 

 

 

-

 

 

 

188

 

 

 

-

 

 

 

-

 

 

 

188

 

Comprehensive income (loss)

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1

 

 

 

(4,302)

 

 

(4,301)

Balance, March 31, 2019

 

 

 

 

159,729,403

 

 

 

185,221

 

 

 

20,112

 

 

 

3,671

 

 

 

(161,276)

 

 

47,728

 

Exercise of stock options

 

 

 

 

206,160

 

 

 

190

 

 

 

(56)

 

 

-

 

 

 

-

 

 

 

134

 

Redemption of RSUs

 

 

 

 

-

 

 

 

-

 

 

 

(1)

 

 

-

 

 

 

-

 

 

 

(1)

Non-cash stock compensation

 

 

 

 

-

 

 

 

-

 

 

 

182

 

 

 

  - 

 

 

 

 

 

 

182

 

Comprehensive income (loss)

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(24)

 

 

(2,031)

 

 

(2,055)

Balance, June 30, 2019

 

 

 

 

159,935,563

 

 

 

185,411

 

 

 

20,237

 

 

 

3,647

 

 

 

(163,307)

 

 

45,988

 

Exercise of stock options

 

 

 

 

12,062

 

 

 

13

 

 

 

(4)

 

 

-

 

 

 

-

 

 

 

9

 

Redemption of RSUs

 

 

 

 

-

 

 

 

-

 

 

 

(27)

 

 

-

 

 

 

-

 

 

 

(27)

Non-cash stock compensation

 

 

 

 

-

 

 

 

-

 

 

 

184

 

 

 

-

 

 

 

-

 

 

 

184

 

Comprehensive income (loss)

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

15

 

 

 

(4,200)

 

 

(4,185)
Balance, September 30, 2019

 

 

 

 

159,947,625

 

 

 

185,424

 

 

 

20,390

 

 

 

3,662

 

 

 

(167,507)

 

 

41,969

 

  

 
8

Table of Contents

  

Ur-Energy Inc.

 

 

 

 

 

 

 

 

 

Unaudited Consolidated Statements of Cash Flow

 

 

 

 

 

 

 

 

 

(expressed in thousands of U.S. dollars)

 

 

 

 

 

 

 

 

 

(the accompanying notes are an integral part of these consolidated financial statements)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended

 

 

 

 

 

 

September 30,

 

 

 

Note

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

Cash provided by (used for):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating activities

 

 

 

 

 

 

 

 

 

Net income (loss) for the period

 

 

 

 

 

(9,564)

 

 

(10,533)

 

 

 

 

 

 

 

 

 

 

 

 

Items not affecting cash:

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation

 

 

 

 

 

693

 

 

 

554

 

Net realizable value adjustments

 

 

 

 

 

6,296

 

 

 

8,189

 

Depreciation of capital assets

 

 

 

 

 

1,365

 

 

 

2,397

 

Amortization of mineral properties

 

 

 

 

 

1,850

 

 

 

978

 

Lease principal payments

 

 

 

 

 

-

 

 

 

(69)

Accretion expense

 

 

 

 

 

433

 

 

 

431

 

Amortization of deferred loan costs

 

 

 

 

 

58

 

 

 

91

 

Provision for reclamation

 

 

 

 

 

18

 

 

 

-

 

Write-off of mineral properties

 

 

 

 

 

-

 

 

 

11

 

Mark to market loss (gain)

 

 

 

 

 

(592)

 

 

(343)

Gain on sale of assets

 

 

 

 

 

(16)

 

 

-

 

Gain (loss) on unrealized Foreign exchange

 

 

 

 

 

-

 

 

 

(23)

Accounts receivable

 

 

 

 

 

8

 

 

 

(1,111)

Inventory

 

 

 

 

 

(6,489)

 

 

(854)

Prepaid expenses

 

 

 

 

 

(58)

 

 

(58)

Accounts payable and accrued liabilities

 

 

 

 

 

154

 

 

 

(110)

 

 

 

 

 

 

(5,844)

 

 

(450)

 

 

 

 

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

 

 

 

 

 

Mineral property costs

 

 

 

 

 

-

 

 

 

(8)

Decrease (increase) in bonding and other deposits

 

 

 

 

 

-

 

 

 

19

 

Proceeds from sale of capital assets

 

 

 

 

 

18

 

 

 

-

 

Purchase of capital assets

 

 

 

 

 

(38)

 

 

(175)

 

 

 

 

 

 

(20)

 

 

(164)

 

 

 

 

 

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

 

 

 

 

 

Issuance of common shares and warrants for cash

 

13

 

 

 

4,680

 

 

 

-

 

Share issue costs

 

13

 

 

 

(429)

 

 

-

 

Proceeds from exercise of warrants and stock options

 

 

 

 

 

-

 

 

 

143

 

RSU redeemed for cash

 

 

 

 

 

(45)

 

 

(34)

Proceeds from debt financing

 

10

 

 

 

893

 

 

 

-

 

Repayment of debt

 

 

 

 

 

-

 

 

 

(2,555)

 

 

 

 

 

 

5,099

 

 

 

(2,446)

 

 

 

 

 

 

 

 

 

 

 

 

Effects of foreign exchange rate changes on cash

 

 

 

 

 

50

 

 

 

53

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash, cash equivalents, and restricted cash

 

 

 

 

 

(715)

 

 

(3,007)

Beginning cash, cash equivalents, and restricted cash

 

 

 

 

 

15,215

 

 

 

13,830

 

Ending cash, cash equivalents, and restricted cash

 

17

 

 

 

14,500

 

 

 

10,823

 

  

 
9

Table of Contents

 

Ur-Energy Inc.

Condensed Notes to Unaudited Consolidated Financial Statements

September 30, 2020

(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 was continued under the Canada Business Corporations Act on August 8, 2006. Headquartered in Littleton, Colorado, the Company is an exploration stage mining company, as defined by U.S. Securities and Exchange Commission (“SEC”) Industry Guide 7. The Company is engaged in uranium mining and recovery operations, with activities including the acquisition, exploration, development and production of uranium mineral resources located in Wyoming. In 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 property contains mineral reserves. However, the Company’s “Amended Preliminary Economic Assessment of the Lost Creek Property, Sweetwater County, Wyoming,” February 8, 2016 (“Lost Creek PEA”), 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 majority of our past sales were made under term contracts, which specify delivery quantities, sales prices and payment dates. As a result, we performed cash management functions over the course of an entire year based on the timing of the term contracts and were less reliant on current commodity prices and market conditions. Our remaining term contracts were completed in 2020 Q2 and any future sales will be dependent on spot market commodity prices until we are able to enter into new term contracts.

 

 

As at September 30, 2020, the Company’s financial liabilities consisted of accounts payable and accrued liabilities of $2.4 million, and the current portion of notes payable of $0.5 million.

 

 

The payment schedule for the $12.4 million State Bond Loan was modified on October 1, 2019 to defer principal payments for six quarters. On October 6, 2020, the State Bond Loan was again modified to defer principal payments for an additional six quarters. Quarterly principal payments are scheduled to resume on October 1, 2022 (see notes 10 and 19).

 

 

On April 16, 2020, we received $0.9 million under the U.S. Small Business Administration (“SBA”) Payroll Protection Program (“PPP”), which was created under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). We anticipate the loans will meet the requirements for forgiveness under this program (see note 10).

 

 

On August 4, 2020, the Company closed a $4.68 million registered direct offering of 9,000,000 common shares and accompanying one-half common share warrants to purchase up to 4,500,000 common shares, at a combined public offering price of $0.52 per common share and accompanying warrant, with gross proceeds to the Company of $4.68 million. After fees and expenses of $0.4 million, net proceeds to the Company were $4.3 million (see note 13).

 

 

In addition to our cash position, our finished, ready-to-sell, conversion facility inventory is immediately realizable, if necessary. We anticipate selling a substantial portion of our existing finished-product inventory in 2021 at spot market prices in effect at that time, unless market conditions change, or we choose to obtain additional financing.

  

 
10

Table of Contents

 

Ur-Energy Inc.

Condensed Notes to Unaudited Consolidated Financial Statements

September 30, 2020

(expressed in thousands of U.S. dollars unless otherwise indicated)

  

3.

Summary of Significant Accounting Policies

 

 

Basis of presentation

 

 

These unaudited consolidated financial statements do not conform in all respects to the requirements of U.S. generally accepted accounting principles (“US GAAP”) for annual financial statements. These unaudited consolidated financial statements reflect all normal adjustments which in the opinion of management are necessary for a fair presentation of the results for the periods presented. These unaudited consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements for the year ended December 31, 2019. We applied the same accounting policies as in the prior year. Certain information and footnote disclosures required by US GAAP have been condensed or omitted in these unaudited consolidated financial statements.

  

  

4.

Cash and Cash Equivalents

 

 

The Company’s cash and cash equivalents consist of the following:

 

 

 

 

 

September 30, 2020

 

 

December 31, 2019

 

 

 

 

 

 

 

 

Cash on deposit

 

 

2,051

 

 

 

1,406

 

Money market funds

 

 

4,592

 

 

 

5,997

 

 

 

 

6,643

 

 

 

7,403

 

  

5.

Inventory

 

 

The Company’s inventory consists of the following:

  

 

 

September 30, 2020

 

 

December 31, 2019

 

 

 

 

 

 

 

 

In-process inventory

 

 

-

 

 

 

-

 

Plant inventory

 

 

268

 

 

 

-

 

Conversion facility inventory

 

 

7,351

 

 

 

7,426

 

 

 

 

7,619

 

 

 

7,426

 

 

 

 

 

 

 

 

 

 

Current portion of inventory

 

 

7,619

 

 

 

-

 

Long-term portion of inventory

 

 

-

 

 

 

7,426

 

 

 

 

7,619

 

 

 

7,426

 

  

 
11

Table of Contents

 

Ur-Energy Inc.

Condensed Notes to Unaudited Consolidated Financial Statements

September 30, 2020

(expressed in thousands of U.S. dollars unless otherwise indicated)

   

Using lower of cost or net realizable value (“NRV”) calculations, the Company reduced the inventory valuation by $1,840 and $6,296 for the three months and nine ended September 30, 2020, respectively, and $10,263 for the year ended December 31, 2019.

  

6.

Restricted Cash

  

 

 

 

September 30, 2020

 

 

December 31, 2019

 

 

 

 

 

 

 

 

Restricted cash

 

 

7,857

 

 

 

7,812

 

 

 

The Company’s restricted cash consists of money market accounts and short-term government bonds.

 

 

The bonding requirements for reclamation obligations on various properties have been reviewed and approved by the Wyoming Department of Environmental Quality (“WDEQ”), the Wyoming Uranium Recovery Program (“URP”) and the Bureau of Land Management (“BLM”) as applicable. The restricted money market accounts are pledged as collateral against performance surety bonds, which secure the estimated costs of reclamation related to the properties. Surety bonds providing $29.5 million of coverage towards reclamation obligations are collateralized by the restricted cash.

 

7.

Mineral Properties

 

 

The Company’s mineral properties consist of the following:

 

 

 

 Lost Creek

 

 

 Pathfinder

 

 

 Other U.S.

 

 

 

 

 

 

 Property

 

 

 Mines

 

 

 Properties

 

 

 Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2019

 

 

10,184

 

 

 

19,850

 

 

 

13,178

 

 

 

43,212

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in estimated reclamation costs

 

 

-

 

 

 

(170)

 

 

-

 

 

 

(170)

Amortization

 

 

(1,850)

 

 

-

 

 

 

-

 

 

 

(1,850)

Balance, September 30, 2020

 

 

8,334

 

 

 

19,680

 

 

 

13,178

 

 

 

41,192

 

 

Lost Creek Property

 

The Company acquired certain Wyoming properties in 2005 when Ur-Energy USA Inc. 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 making additional property purchases and leases.

  

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, LC East and EN Projects. There are no royalties on the mining claims in the Lost Creek, LC North or LC West Projects.

 

 
12

Table of Contents

 

Ur-Energy Inc.

Condensed Notes to Unaudited Consolidated Financial Statements

September 30, 2020

(expressed in thousands of U.S. dollars unless otherwise indicated)

  

 

Pathfinder Mines

 

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”). 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, the assumption of $5.7 million in estimated asset reclamation obligations, and other consideration.

 

8.

Capital Assets

 

 

 

The Company’s capital assets consist of the following:

 

 

 

September 30, 2020

 

 

December 31, 2019

 

 

 

 

 

Accumulated

 

 

Net Book

 

 

 

 

Accumulated

 

 

Net Book

 

 

 

Cost

 

 

Depreciation

 

 

Value

 

 

Cost

 

 

Depreciation

 

 

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rolling stock

 

 

3,450

 

 

 

(3,354)

 

 

96

 

 

 

3,452

 

 

 

(3,311)

 

 

141

 

Enclosures

 

 

33,008

 

 

 

(11,421)

 

 

21,587

 

 

 

33,008

 

 

 

(10,181)

 

 

22,827

 

Machinery and equipment

 

 

1,440

 

 

 

(866)

 

 

574

 

 

 

1,426

 

 

 

(808)

 

 

618

 

Furniture and fixtures

 

 

119

 

 

 

(118)

 

 

1

 

 

 

119

 

 

 

(115)

 

 

4

 

Information technology

 

 

1,123

 

 

 

(1,092)

 

 

31

 

 

 

1,100

 

 

 

(1,072)

 

 

28

 

ROU Assets

 

 

109

 

 

 

(42)

 

 

67

 

 

 

83

 

 

 

(71)

 

 

12

 

 

 

 

39,249

 

 

 

(16,893)

 

 

22,356

 

 

 

39,188

 

 

 

(15,558)

 

 

23,630

 

 

    

9.

Accounts Payable and Accrued Liabilities

 

 

Accounts payable and accrued liabilities consist of the following:

 

 

 

September 30, 2020

 

 

December 31, 2019

 

 

 

 

 

 

 

 

Accounts payable

 

 

653

 

 

 

523

 

Payroll liabilities

 

 

1,612

 

 

 

1,483

 

Severance, ad valorem, and other taxes payable

 

 

100

 

 

 

205

 

 

 

 

2,365

 

 

 

2,211

 

 

10.Notes Payable

 

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 was to be paid in 28 quarterly installments commencing January 1, 2015.

   

 
13

Table of Contents

 

Ur-Energy Inc.

Condensed Notes to Unaudited Consolidated Financial Statements

September 30, 2020

(expressed in thousands of U.S. dollars unless otherwise indicated)

   

 

On October 1, 2019, the Sweetwater County Commissioners and the State of Wyoming approved a six-quarter deferral of principal payments beginning October 1, 2019. On October 6, 2020, the State Bond Loan was again modified to defer principal payments for an additional six quarters. Quarterly principal payments are scheduled to resume on October 1, 2022 and the last payment will be due on October 1, 2024 (see note 19).

 

On April 16, 2020, we obtained two SBA PPP loans (one for each of our subsidiaries with U.S. payroll obligations) through the Bank of Oklahoma Financial (“BOKF”). The program was a part of the CARES Act enacted by Congress March 27, 2020 in response to the COVID-19 (Coronavirus) pandemic. The combined loan amount was $0.9 million.

 

On June 5, 2020, the Paycheck Protection Program Flexibility Act of 2020 (the “Flexibility Act”) became law. The Flexibility Act changes key provisions of the PPP, including maturity of the loans, deferral of loan payments, and the forgiveness of the PPP loans, with revisions being retroactive to the date of the CARES Act.

 

Under the program, as modified by the Flexibility Act and SBA and Treasury rulemakings, the repayment of our loans, including interest, may be forgiven based on eligible payroll, payroll-related, and other allowable costs incurred in a twenty-four-week period following the funding of the loans. To have the full amount of the loans forgiven, the following requirements must be met within that period, and be sufficiently documented in the application for forgiveness:

  

 

(1)

Spend not less than 60% of loan proceeds on eligible payroll costs.

 

(2)

Spend the remaining loan proceeds on:

 

a.

additional eligible payroll costs above 60%;

 

b.

payments of interest on mortgage obligations incurred before February 15, 2020;

 

c.

rent payments on leases dated before February 15, 2020; and/or

 

d.

utility payments under service agreements dated before February 15, 2020.

 

(3)

Maintain employee compensation levels (subject to specific program requirements).

   

For any portion of the loans that are not forgiven, the program provides for an initial deferral of payments based upon the timing of a borrower’s application for forgiveness and SBA’s action on the application up to a maximum of ten months after the use and forgiveness covered period ends (July 30, 2021). Any remaining amount owing on the loans has a two-year maturity (April 16, 2022), unless renegotiated with the lender for up to a five-year term, with an interest rate of one percent per annum. We anticipate the loans will meet the requirements for forgiveness under this program, but at this time we have not yet applied for or received loan forgiveness and therefore have treated the PPP loans as debt.

  

 
14

Table of Contents

 

Ur-Energy Inc.

Condensed Notes to Unaudited Consolidated Financial Statements

September 30, 2020

(expressed in thousands of U.S. dollars unless otherwise indicated)

       

The following table summarizes the Company’s current and long-term debts.

 

 

 

September 30, 2020

 

 

December 31, 2019

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

Small Business Administration PPP Loans

 

 

547

 

 

 

-

 

State Bond Loan

 

 

-

 

 

 

-

 

Deferred financing costs

 

 

(68

 

 

-

 

 

 

 

479

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Long-term

 

 

 

 

 

 

 

 

Small Business Administration PPP Loans

 

 

350

 

 

 

-

 

State Bond Loan

 

 

12,441

 

 

 

12,441

 

Deferred financing costs

 

 

(104)

 

 

(226)

 

 

 

12,687

 

 

 

12,215

 

  

The schedule of remaining payments on outstanding debt as of September 30, 2020 is presented below.

 

 

 

 Total

 

 

 2020

 

 

 2021

 

 

 2022

 

 

 2023

 

 

 2024

 

 

 Final payment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Small Business Administration PPP Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Principal

 

 

897

 

 

 

99

 

 

 

597

 

 

 

201

 

 

 

-

 

 

 

-

 

 

Apr-2022

Interest

 

 

12

 

 

 

6

 

 

 

6

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

State Bond Loan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Principal

 

 

12,441

 

 

 

-

 

 

 

-

 

 

 

1,305

 

 

 

5,409

 

 

 

5,727

 

 

Oct-2024

Interest

 

 

2,163

 

 

 

-

 

 

 

715

 

 

 

715

 

 

 

525

 

 

 

208

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

15,513

 

 

 

105

 

 

 

1,318

 

 

 

2,221

 

 

 

5,934

 

 

 

5,935

 

 

 

  

11.

Asset Retirement Obligations

 

 

Asset retirement obligations ("ARO") relate to the Lost Creek mine and Pathfinder projects and 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 discounted using discount rates ranging from 0.33% to 7.25%. 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 September 30, 2020, the current, non-inflated, closure cost estimate was $29.4 million and the estimated future cost to complete the reclamation, including inflation, is $39.5 million. The schedule of payments required to settle the future reclamation extends through 2033. The present value of the estimated future closure estimate is presented in the following table.

  

 
15

Table of Contents

 

Ur-Energy Inc.

Condensed Notes to Unaudited Consolidated Financial Statements

September 30, 2020

(expressed in thousands of U.S. dollars unless otherwise indicated)

      

 

 

Total

 

 

 

 

 

Balance, December 31, 2019

 

 

30,972

 

 

 

 

 

 

Change in estimated reclamation costs

 

 

(170)

Accretion expense

 

 

433

 

 

 

 

 

 

Balance, September 30, 2020

 

 

31,235

 

  

The restricted cash discussed in note 6 relates to the surety bonds provided to the governmental agencies for these obligations.

    

12.

Warrant Liabilities

 

 

In September 2018, we sold 13,062,878 warrants as part of a public offering with two warrants redeemable for one Common Share of the Company’s stock at a price of $1.00 per full share. The warrants expire in September 2021. Because the warrants expire in September 2021, they are included in the current portion of warrant liability on the consolidated balance sheet at September 30, 2020.

 

 

In August 2020, we sold 9,000,000 warrants as part of a registered direct offering with two warrants redeemable for one Common Share of the Company’s stock at a price of $0.75 per full share. The warrants expire in August 2022.

 

 

Because both warrants are priced in U.S. dollars and the functional currency of Ur-Energy Inc. is Canadian dollars, a derivative financial liability was created. The liability created, and adjusted quarterly, is calculated using the Black-Scholes technique described below as there is no active market for the warrants. Any gain or loss from the adjustment of the liability is reflected in net income for the period. The present value of the warrant liabilities is presented in the following table.

  

 

 

Sep-2018

 

 

Aug-2020

 

 

 

 

 

 

 Warrants

 

 

 Warrants

 

 

 Total

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2019

 

 

575

 

 

 

-

 

 

 

575

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants issued

 

 

-

 

 

 

860

 

 

 

860

 

Mark to market revaluation loss (gain)

 

 

(281)

 

 

(311)

 

 

(592)

Effects for foreign exchange rate changes

 

 

(6)

 

 

(12)

 

 

(18)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2020

 

 

288

 

 

 

537

 

 

 

825

 

  

 
16

Table of Contents

 

Ur-Energy Inc.

Condensed Notes to Unaudited Consolidated Financial Statements

September 30, 2020

(expressed in thousands of U.S. dollars unless otherwise indicated)

    

The fair value of the warrant liabilities at September 30, 2020 was determined using the Black-Scholes model with the following assumptions:

  

 

 

Sep-2018

 

 

Aug-2020

 

 

 

 Warrants

 

 

 Warrants

 

 

 

 

 

 

 

 

Expected forfeiture rate

 

 

0.0%

 

 

0.0%

Expected life (years)

 

 

1.0

 

 

 

1.8

 

Expected volatility

 

 

73.4%

 

 

70.7%

Expected dividend rate

 

 

0.0%

 

 

0.0%

  

13.

Shareholders’ Equity and Capital Stock

 

 

 

The Company’s share capital consists of an unlimited amount of Class A preferred shares authorized, without par value, of which no shares are issued and outstanding; and an unlimited amount of common shares authorized, without par value, of which 169,667,672 shares and 160,478,059 shares were issued and outstanding as of September 30, 2020 and December 31, 2019, respectively.

 

On August 4, 2020, the Company closed a $4.68 million registered direct offering of 9,000,000 common shares and accompanying one-half common share warrants to purchase up to 4,500,000 common shares, at a combined public offering price of $0.52 per common share and accompanying warrant, with gross proceeds to the Company of $4.68 million. After fees and expenses of $0.4 million, net proceeds to the Company were $4.3 million. The common share warrants will expire two years from the date of issuance and will allow the holders to purchase our common shares at an exercise price of $0.75 per whole common share.

 

As the warrants are priced in US$ and the functional currency of Ur-Energy Inc. is Cdn$, this will create a derivative financial liability. The fair value of the liability will be recorded and adjusted quarterly using the Black-Scholes technique described herein as there is no active market for the warrants. Any gain or loss will be reflected in net income for the period. We anticipate that the public offering proceeds will be used to sustain operations, and for working capital and general corporate purposes.

 

Stock options

 

In 2005, the Company’s Board of Directors approved the adoption of the Company's stock option plan (the “Option Plan”). The Option Plan was most recently approved by the shareholders on May 7, 2020. Eligible participants under the Option Plan include directors, officers, employees and consultants of the Company. Under the terms of the Option Plan, grants of options will vest over a three-year period: 33.3% on the first anniversary, 33.3% on the second anniversary, and 33.4% on the third anniversary of the grant. The term of the options is five years.

  

 
17

Table of Contents

 

Ur-Energy Inc.

Condensed Notes to Unaudited Consolidated Financial Statements

September 30, 2020

(expressed in thousands of U.S. dollars unless otherwise indicated)

    

Activity with respect to stock options is summarized as follows:

 

 

 

 

 

 

 Weighted-average

 

 

 

 Options

 

 

 exercise price

 

 

 

#

 

 

$

 

Outstanding, December 31, 2019

 

 

11,076,583

 

 

 

0.64

 

 

 

 

 

 

 

 

 

 

Forfeited

 

 

(268,399)

 

 

0.61

 

Expired

 

 

(716,902)

 

 

0.69

 

 

 

 

 

 

 

 

 

 

Outstanding, September 30, 2020

 

 

10,091,282

 

 

 

0.62

 

  

The exercise price of a new grant is set at the closing price for the shares on the Toronto Stock Exchange (TSX) on the trading day immediately preceding the grant date and there is no intrinsic value as of the date of grant. The fair value of options vested during the nine months ended September 30, 2020 was less than $0.1 million.

 

 

 

As of September 30, 2020, outstanding stock options are as follows:

  

 

 

 

 Options outstanding

 

 

 Options exercisable

 

 

 

 

 

 

 

 

 

 Weighted-

 

 

 

 

 

 

 

 

 Weighted-

 

 

 

 

 

 

 

 

 

 

 

 

 average

 

 

 

 

 

 

 

 

 average

 

 

 

 

 

 

 

 

 

 

 

 

 remaining

 

 

 Aggregate 

 

 

 

 

 

 remaining

 

 

 Aggregate 

 

 

 

 Exercise

 

 

 Number

 

 

 contractual

 

 

 intrinsic

 

 

 Number

 

 

 contractual

 

 

 intrinsic

 

 

 

 price

 

 

 of options

 

 

 life (years)

 

 

 value

 

 

 of options

 

 

 life (years)

 

 

 value

 

 

 Expiry

$

 

 

#

 

 

 

 

 

$

 

 

 

 

 

 

 

 

$

 

 

 

 

0.60

 

 

 

897,508

 

 

 

0.2

 

 

 

-

 

 

 

897,508

 

 

 

0.2

 

 

 

-

 

 

11-Dec-20

 

0.55

 

 

 

2,337,434

 

 

 

1.2

 

 

 

-

 

 

 

2,337,434

 

 

 

1.2

 

 

 

-

 

 

16-Dec-21

 

0.76

 

 

 

300,000

 

 

 

1.4

 

 

 

-

 

 

 

300,000

 

 

 

1.4

 

 

 

-

 

 

02-Mar-22

 

0.55

 

 

 

200,000

 

 

 

1.9

 

 

 

-

 

 

 

200,000

 

 

 

1.9

 

 

 

-

 

 

07-Sep-22

 

0.67

 

 

 

1,734,962

 

 

 

2.2

 

 

 

-

 

 

 

1,187,174

 

 

 

2.2

 

 

 

-

 

 

15-Dec-22

 

0.58

 

 

 

200,000

 

 

 

2.5

 

 

 

-

 

 

 

133,333

 

 

 

2.5

 

 

 

-

 

 

30-Mar-23

 

0.70

 

 

 

960,283

 

 

 

2.9

 

 

 

-

 

 

 

653,312

 

 

 

2.9

 

 

 

-

 

 

20-Aug-23

 

0.68

 

 

 

791,492

 

 

 

3.2

 

 

 

-

 

 

 

276,423

 

 

 

3.2

 

 

 

-

 

 

14-Dec-23

 

0.59

 

 

 

2,669,603

 

 

 

4.1

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

05-Nov-24

 

0.62

 

 

 

10,091,282

 

 

 

2.4

 

 

 

-

 

 

 

5,985,184

 

 

 

1.6

 

 

 

-

 

 

 

  

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$0.66 as of the last trading day in the period ended September 30, 2020, that would have been received by the option holders had they exercised their options as of that date. There were no options issued or exercisable that were in the money at September 30, 2020.

  

 
18

Table of Contents

 

Ur-Energy Inc.

Condensed Notes to Unaudited Consolidated Financial Statements

September 30, 2020

(expressed in thousands of U.S. dollars unless otherwise indicated)

     

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”). The RSU Plan was approved by our shareholders most recently on May 2, 2019.

 

Eligible participants under the RSU Plan include directors and employees of the Company. Granted RSUs are redeemed on the second anniversary of the grant. Upon an RSU vesting, the holder of the RSU will receive one Common Share, for no additional consideration, for each RSU held.

 

Activity with respect to RSUs is summarized as follows:

   

 

 

 

 

 

Weighted average

 

 

 

 

 

 

grant date

 

 

 

RSUs

 

 

fair value

 

 

 

#

 

 

$

 

 

 

 

 

 

 

 

Outstanding, December 31, 2019

 

 

1,155,928

 

 

 

0.65

 

 

 

 

 

 

 

 

 

 

Released

 

 

(270,450)

 

 

0.67

 

Forfeited

 

 

(13,433)

 

 

0.59

 

 

 

 

 

 

 

 

 

 

Outstanding, September 30, 2020

 

 

872,045

 

 

 

0.61

 

   

As of September 30, 2020, outstanding RSUs are as follows:

   

RSUs outstanding

 

 

 

 

Weighted-

 

 

 

 

 

 

 

 

average

 

 

 

 

 

 

 

 

remaining

 

 

Aggregate

 

 

 

Number

 

 

contractual

 

 

intrinsic

 

 

Redemption

 

of RSUs

 

 

life (years)

 

 

value

 

 

Date

 

#

 

 

 

 

$

 

 

 

 

204,636

 

 

 

0.2

 

 

 

98,225

 

 

14-Dec-20

 

 

667,409

 

 

 

1.1

 

 

 

320,356

 

 

05-Nov-21

 

 

872,045

 

 

 

0.9

 

 

 

418,581

 

 

 

 

   

Warrants

 

In September 2018, the Company issued 13,062,878 warrants to purchase 6,531,439 of our Common Shares at $1.00 per full share. In August 2020, the Company issued 9,000,000 warrants to purchase 4,500,000 of our Common Shares at $0.75 per full share (see note 12).

   

 
19

Table of Contents

 

Ur-Energy Inc.

Condensed Notes to Unaudited Consolidated Financial Statements

September 30, 2020

(expressed in thousands of U.S. dollars unless otherwise indicated)

     

The following represents warrant activity during the period ended September 30, 2020:

    

 

 

 Number

 

 

 Number of

 

 

 

 

 

 

 of

 

 

 shares to be issued

 

 

 Per share

 

 

 

 warrants

 

 

 upon exercise

 

 

 exercise price

 

 

 

#

 

 

#

 

 

$

 

Outstanding, December 31, 2019

 

 

13,062,878

 

 

 

6,531,439

 

 

 

1.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

9,000,000

 

 

 

4,500,000

 

 

 

0.75

 

Expired

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding, September 30, 2020

 

 

22,062,878

 

 

 

11,031,439

 

 

 

0.90

 

  

As of September 30, 2020, outstanding warrants are as follows:

 

 

 

 

 

 

 

 Remaining

 

 

 Aggregate 

 

 

 

 

 Exercise

 

 

 Number

 

 

 contractual

 

 

 Intrinsic

 

 

 

 

 price

 

 

 of warrants

 

 

 life (years)

 

 

 Value

 

 

 Expiry

 

$

 

 

#

 

 

 

 

 

$

 

 

 

 

 

1.00

 

 

 

13,062,878

 

 

 

1.0

 

 

 

-

 

 

25-Sep-21

 

 

0.75

 

 

 

9,000,000

 

 

 

1.8

 

 

 

-

 

 

04-Aug-22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0.90

 

 

 

22,062,878

 

 

 

1.3

 

 

 

-

 

 

 

 

  

Share-based compensation expense

 

Share-based compensation expense was $0.2 and $0.5 million for the three and nine months ended September 30, 2020 and $0.2 and $0.6 million for the three and nine months ended September 30, 2019.

 

As of September 30, 2020, there was approximately $0.6 million of total unamortized compensation expense related to unvested share-based compensation arrangements granted under the Option Plan and $0.2 million under the RSU Plan. The expenses are expected to be recognized over a weighted-average remaining life of 2.4 years and 0.9 years under the Option Plan and RSU Plan, respectively.

   

No cash was received from the exercise of stock options for the nine months ended September 30, 2020. We received $0.1 million of cash from options exercised in the nine months ended September 30, 2019.

 

Fair value calculations

 

The initial fair value of options and RSUs granted is determined using the Black-Scholes option pricing model for options and the intrinsic pricing model for RSUs. There were no options or RSUs granted during the nine months ended September 30, 2020 and September 30, 2019.

   

 
20

Table of Contents

 

Ur-Energy Inc.

Condensed Notes to Unaudited Consolidated Financial Statements

September 30, 2020

(expressed in thousands of U.S. dollars unless otherwise indicated)

   

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 Notes with 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.

   

14.

Sales

 

 

 

Sales have been derived from U3O8 being sold to domestic utilities, primarily under term contracts, as well as to traders through spot market sales.

 

Disaggregation of Revenues

 

The following table presents our revenues disaggregated by source and type:

   

 

 

 Nine months ended September 30,

 

 

 

2020

 

 

2019

 

 

 

$

 

 

%

 

 

$

 

 

%

 

Sale of produced inventory

 

 

 

 

 

 

 

 

 

 

 

 

Company A

 

 

-

 

 

 

0.0%

 

 

7,482

 

 

 

35.0%

Company B

 

 

-

 

 

 

0.0%

 

 

2,406

 

 

 

11.2%

 

 

 

-

 

 

 

0.0%

 

 

9,888

 

 

 

46.2%

Sales of purchased inventory

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company C

 

 

8,300

 

 

 

100.0%

 

 

7,990

 

 

 

37.3%

Company B

 

 

-

 

 

 

0.0%

 

 

3,526

 

 

 

16.5%

 

 

 

8,300

 

 

 

100.0%

 

 

11,516

 

 

 

53.8%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total sales

 

 

8,300

 

 

 

100.0%

 

 

21,404

 

 

 

100.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Disposal fee income

 

 

4

 

 

 

0.0%

 

 

2

 

 

 

0.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,304

 

 

 

100.0%

 

 

21,406

 

 

 

100.0%

  

The names of the individual companies have not been disclosed for reasons of confidentiality.

   

 
21

Table of Contents

 

Ur-Energy Inc.

Condensed Notes to Unaudited Consolidated Financial Statements

September 30, 2020

(expressed in thousands of U.S. dollars unless otherwise indicated)

    

15.

Cost of Sales

 

 

 

Cost of sales includes ad valorem and severance taxes related to the extraction of uranium, all costs of wellfield and plant operations including the related depreciation and amortization of capitalized assets, reclamation and mineral property costs, plus product distribution costs. These costs are also used to value inventory. The resulting inventoried cost per pound is compared to the NRV of the product, which is based on the estimated sales price of the product, net of any necessary costs to finish the product. Any inventory value in excess of the NRV is charged to cost of sales.

 

Cost of sales consists of the following:

   

 

 

Three months ended

 

 

Nine months ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of product sales

 

 

-

 

 

 

3,428

 

 

 

5,166

 

 

 

15,635

 

Lower of cost or NRV adjustments

 

 

1,840

 

 

 

4,087

 

 

 

6,296

 

 

 

8,189

 

 

 

 

1,840

 

 

 

7,515

 

 

 

11,462

 

 

 

23,824

 

 

16.

Operating Costs

 

 

Operating costs consist of the following:

  

 

 

 Three months ended

 

 

 Nine months ended

 

 

 

September 30,

 

 

September 30,

 

 

 

             2020

 

 

             2019

 

 

             2020

 

 

             2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exploration and evaluation

 

 

474

 

 

 

822

 

 

 

1,419

 

 

 

2,084

 

Development

 

 

284

 

 

 

372

 

 

 

900

 

 

 

831

 

General and administration

 

 

1,254

 

 

 

1,282

 

 

 

3,694

 

 

 

4,574

 

Accretion

 

 

145

 

 

 

144

 

 

 

433

 

 

 

431

 

 

 

 

2,157

 

 

 

2,620

 

 

 

6,446

 

 

 

7,920

 

  

17.

Supplemental Information for Statement of Cash Flows

 

 

Cash per the Statement of Cash Flows consists of the following:

 

 

 

September 30, 2020

 

 

December 31, 2019

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

6,643

 

 

 

7,403

 

Restricted cash

 

 

7,857

 

 

 

7,812

 

 

 

 

14,500

 

 

 

15,215

 

  

18.

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 interest rates and management of cash and cash equivalents and short-term investments.

  

 
22

Table of Contents

 

Ur-Energy Inc.

Condensed Notes to Unaudited Consolidated Financial Statements

September 30, 2020

(expressed in thousands of U.S. dollars unless otherwise indicated)

   

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 deposit, money market accounts, and demand deposits. These instruments are maintained at financial institutions in Canada and the U.S. Of the amount held on deposit, approximately $0.8 million is covered by the Canada Deposit Insurance Corporation, the Securities Investor Protection Corporation or the U.S. Federal Deposit Insurance Corporation, leaving approximately $13.8 million at risk at September 30, 2020 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 September 30, 2020.

 

Liquidity risk

 

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due.

 

As at September 30, 2020, the Company’s financial liabilities consisted of accounts payable and accrued liabilities of $2.4 million, and the current portion of notes payable of $0.5 million.

 

On May 15, 2020, we filed a universal shelf registration statement on Form S-3 with the SEC in order that we may offer and sell, from time to time, in one or more offerings, at prices and terms to be determined, up to $100 million of our Common Shares, warrants to purchase our Common Shares, our senior and subordinated debt securities, and rights to purchase our Common Shares and/or senior and subordinated debt securities. The registration statement became effective May 27, 2020 for a three-year period. In August 2020, we utilized the registration statement for a $4.68 million registered direct offering (see note 13).

 

On May 29, 2020, we entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) with B. Riley Securities, Inc. (formerly, B. Riley FBR, Inc.), under which we may, from time to time, issue and sell common shares at market prices on the NYSE American LLC through the Agent for aggregate sales proceeds of up to $10,000,000. The Sales Agreement replaces the prior At Market Issuance Sales Agreement entered into by the Company on May 27, 2016, as amended. We have not used the facility in 2020.

   

 
23

Table of Contents

 

Ur-Energy Inc.

Condensed Notes to Unaudited Consolidated Financial Statements

September 30, 2020

(expressed in thousands of U.S. dollars unless otherwise indicated)

   

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 negligible effect on either the nine months ended September 30, 2020 or the comparable nine months in 2019. 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.

   

19.

Subsequent Event

 

 

On October 6, 2020, the Sweetwater County Commissioners and the State of Wyoming approved an additional six-quarter deferral of principal payments. The next quarterly principal payment on our State Bond Loan is therefore due in October 2022 and the final payment will be due in October 2024.

  

 
24

Table of Contents

  

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

Business Overview

 

The following discussion is designed to provide information that we believe is necessary for an understanding of our financial condition, changes in financial condition, and results of our operations. The following discussion and analysis should be read in conjunction with the MD&A contained in our Annual Report on Form 10-K for the year ended December 31, 2019.

 

Incorporated on March 22, 2004, Ur-Energy is an exploration stage mining company, as that term is defined in SEC Industry Guide 7. We are engaged in uranium mining, recovery and processing activities, including the acquisition, exploration, development and operation of uranium mineral properties in the U.S. We are operating our first in situ recovery uranium mine at our Lost Creek Project in Wyoming. Ur-Energy is a corporation continued under the Canada Business Corporations Act on August 8, 2006. Our Common Shares are listed on the TSX under the symbol “URE” and on the NYSE American under the symbol “URG.”

 

Ur-Energy has one wholly-owned subsidiary: Ur-Energy USA Inc., incorporated under the laws of the State of Colorado. Ur-Energy USA Inc. has three wholly-owned subsidiaries: NFU Wyoming, LLC, a limited liability company formed under the laws of the State of Wyoming which acts as our land holding and exploration entity; Lost Creek ISR, LLC, a limited liability company formed under the laws of the State of Wyoming to operate our Lost Creek Project and hold our Lost Creek properties and assets; and Pathfinder Mines Corporation (“Pathfinder”), incorporated under the laws of the State of Delaware, which holds, among other assets, the Shirley Basin and Lucky Mc properties in Wyoming. Our material U.S. subsidiaries remain unchanged since the filing of our Annual Report on Form 10-K, dated February 28, 2020.

 

We utilize in situ recovery (“ISR”) of the uranium at our flagship project, Lost Creek, and will do so at other projects where possible. The ISR technique is employed in uranium extraction because it allows for an effective recovery of roll front uranium mineralization at a lower cost. At Lost Creek, we extract and process uranium oxide (“U3O8”) for shipping to a third-party conversion facility to be weighed, assayed and stored until sold.

 

Our Lost Creek processing facility, which includes all circuits for the production, drying and packaging of uranium for delivery into sales transactions, is designed and anticipated under current licensing to process up to one million pounds of U3O8 annually from the Lost Creek mine. The processing facility has the physical design capacity to process two million pounds of U3O8 annually, which provides additional capacity to process material from other sources. We expect that the Lost Creek processing facility may be utilized to process captured U3O8 from our Shirley Basin Project. However, the Shirley Basin permit application contemplates the construction of a full processing facility, providing greater construction and operating flexibility as may be dictated by market conditions.

 

We were contractually committed to sell 200,000 pounds of U3O8 during H1 2020, at an average price of approximately $42 per pound. We entered into agreements to purchase product for delivery into those contractual commitments. The average cost of the purchases was approximately $26 per pound. We delivered a portion of those 2020 contractual commitments (33,000 pounds) in Q1, and delivered the remaining amount (167,000 pounds) early in Q2. The Q2 sale completed our remaining term commitment obligations.

 

COVID-19 (Coronavirus)

 

During the quarter, gathering and other restrictions continued at various levels in Wyoming and Colorado. As COVID-19 (Coronavirus) restrictions have changed, we have adapted accordingly. We continue to monitor and adhere to State, Federal and public health guidance as it evolves. Our staff continues, thus far, to remain healthy. Due to the persistently depressed uranium market, our staff at Lost Creek has been reduced by 84 percent through the reductions in force we have implemented since 2016, including most recently during this quarter. For our remaining employees at Lost Creek, we have altered certain work and commuting arrangements, with suggested additional safety precautions.

             

 
25

Table of Contents

 

SBA Paycheck Protection Program

 

In response to the COVID-19 (Coronavirus) pandemic, Congress enacted the CARES Act on March 27, 2020. Among other provisions, it created the Paycheck Protection Program (“PPP”) through the SBA. As an eligible borrower under the program, we worked solely with our primary bank in Littleton, BOKF, to apply for two loans, one for each of our subsidiaries with U.S. payroll obligations. The combined loan amount we qualified for under the program was $0.9 million, which we received on April 16, 2020. The Flexibility Act, which became law on June 5, 2020, changes key provisions of the PPP, including maturity of the loans, deferral of loan payments, and forgiveness of PPP loans, with revisions being retroactive to the date of the CARES Act. The SBA and Department of Treasury (“Treasury”) have published additional guidance and rules related to the PPP, which included modifications and clarifications affecting the term of the loans, and the forgiveness process (portion of payroll expenses, allowable non-payroll expenses and application process). Under the current provisions of the program, we anticipate the loans will meet the requirements for forgiveness. See note 10 to the Unaudited Consolidated Financial Statements and discussion under Liquidity Outlook.

 

U.S. Nuclear Fuel Working Group, Russian Suspension Agreement and Uranium Market

 

On April 23, 2020, the United States Nuclear Fuel Working Group (the “Working Group”), through the Department of Energy (“DOE”), released its report, “Restoring America’s Competitive Nuclear Energy Advantage – A strategy to assure U.S. national security.” Relevant to uranium miners, the recommendations included, first, that the U.S. government make direct purchases of 17 to 19 million total pounds of U3O8 proposed to commence in 2020 to replenish the American Assured Fuel Supply uranium reserve. Additionally, it is recommended that a new national uranium reserve be established through DOE’s proposed budgeted purchases for 10 years, beginning in FY2021. If budget appropriations are secured and the program implemented, these purchases would provide direct support to the front end of the fuel cycle and help re-establish our nation’s critical capabilities. The 10-year budget item is for $150 million per year. In July, however, the U.S. House Committee on Appropriations decided not to fund the budget item without obtaining further information from DOE. The Committee directed DOE to submit a plan for the proposed establishment of a uranium reserve within six months. There are alternative avenues to appropriations, including through the legislative process; it remains unknown at this time, however, the actions DOE will pursue.

 

In July 2020, U.S. Senator Barrasso, Chairman of the Senate Committee on Environment and Public Works, introduced draft legislation designed to revitalize the country’s nuclear infrastructure. The American Nuclear Infrastructure Act of 2020, as it is known, includes the authorization for a uranium reserve to fuel America’s nuclear reactors with domestic fuel, among other items, to preserve America’s uranium industry. Similar legislation was introduced in the House of Representatives by Representatives Cheney and Latta on July 29, 2020.

 

Also in July 2020, Energy Secretary Brouillette told the House Energy and Commerce Subcommittee on Energy that DOE is working to end U.S. reliance on Russia for nuclear fuel. DOE wants to process American-sourced uranium into high-grade fuel at the DOE facility in Portsmouth, Ohio next year. Centrifuges have been moved from DOE’s Oak Ridge laboratories to Portsmouth. Additionally, DOE is working with lawmakers to authorize the creation of the uranium reserve.

 

 
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The Working Group report also called for support of the Department of Commerce (“DOC”) efforts to extend the Russian Suspension Agreement (“RSA”) to protect against future uranium dumping. In early October, the DOC completed the amendment and extension of the RSA. The RSA amendment continues caps on Russian imports of nuclear fuel to the U.S. for an additional 20 years, through 2040. The amendment reduces the current cap of 20% of demand to an average of 17% of demand over the 20-year period, with reductions starting in 2028 and continuing through 2040. The amendment also closes other practical loopholes to protect the U.S. market, provides for administrative reviews during the term and contemplates potential extensions. These provisions in the RSA are positive developments in the long term. Additionally, Senator Barrasso has introduced legislation to codify the recent extension of the RSA.

 

In its ground-up approach, the Working Group report then recommends a restart of the sole U.S. conversion plant beginning no later than 2022 to produce 6,000 to 7,500 tons of UF6 and thereafter to restart domestic enrichment in or about 2023, with at least 25 percent of material being unobligated. By law, unobligated material must be sourced domestically. At this time, no specific actions as a result of the report have been taken and there can be no certainty of the outcome of the Working Group’s findings and recommendations in terms of how and when the recommendations will be implemented. See additional discussion under Looking Ahead.

 

The pandemic continues to have an impact on the global uranium market. The many temporary suspensions and adjustments in production announced in Q1 led to the removal of as much as 46 million pounds of primary production on an annualized basis. In June and July various global operations announced they would resume production beginning as early as August (Kazatomprom) and September (Cameco/Cigar Lake). However, few confirmed updates are available with respect to these restarts. Kazatomprom’s announced plans include a reduction in 2020 of at least 10.4 million pounds U3O8 with further reductions through 2022.

 

Equity Financing and Debt Restructuring

 

On August 4, 2020, we announced the closing of a $4.68 million registered direct offering of 9,000,000 common shares and accompanying one-half common share warrants to purchase up to 4,500,000 common shares, at a combined public offering price of $0.52 per common share and accompanying warrant, with gross proceeds to the Company of $4.68 million. After fees and expenses of $0.4 million, net proceeds to the Company of $4.3 million were received on August 4, 2020.

 

On October 6, 2020, the Sweetwater County Commissioners and the State of Wyoming approved an additional six-quarter deferral of principal payments. The next quarterly principal payment is therefore due in October 2022 and the final payment will be due in October 2024.

 

Mineral Rights and Properties

 

We have 12 U.S. uranium properties. Ten of our uranium properties are located in the Great Divide Basin, Wyoming, including Lost Creek. Currently, we control nearly 1,800 unpatented mining claims and three State of Wyoming mineral leases for a total of approximately 36,000 acres in the area of the Lost Creek Property, including the Lost Creek permit area (the “Lost Creek Project” or “Project”), and certain adjoining properties referred to as LC East, LC West, LC North, LC South and EN Project areas (collectively, with the Lost Creek Project, the “Lost Creek Property”). In the Shirley Basin, Wyoming, our Shirley Basin Project comprises more than 3,700 Company-controlled acres. Our Lucky Mc Project holds 1,800 acres in Fremont County, Wyoming. Our Excel gold project holds approximately 2,100 acres of mining claims in Nevada.

 

 
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Lost Creek Property

  

During the quarter, we took steps to further reduce production operations at Lost Creek and adjust to the continued depressed state of the uranium markets while we await the recommended relief from the Working Group and further positive developments in the uranium markets. The reduced production levels allowed us to make further operating cost reductions at Lost Creek and related support cost reductions at the corporate office in Littleton. The cost reductions include savings from additional reductions in force at both locations as well as other cost containment measures. Together with the further deferral of principal payments on the State Bond Loan discussed above, these measures will result in substantial savings to the Company, estimated to exceed $7 million and $4 million in calendar years 2021 and 2022, respectively.

 

For the three months ended September 30, 2020, 2,503 pounds of U3O8 were captured within the Lost Creek plant and 4,926 pounds of U3O8 were packaged in drums. Our inventory at the converter totaled approximately 268,485 pounds of U3O8 at September 30, 2020.

 

Applications for amendment to the Lost Creek licenses and permits were submitted in 2014. The amendments seek to include recovery from the uranium resource in the LC East Project immediately adjacent to the Lost Creek Project. Reviews by WDEQ continue to progress. The BLM has completed its review and granted approval. We anticipate that all permits and authorizations for the modification of the Lost Creek licenses and permits to recover uranium in the LC East Project will be completed in the first half of 2021.

 

Shirley Basin Project

 

WDEQ continues with its review of our applications for a permit to mine and for a source material license for our Shirley Basin Project. We anticipate the State processes to be complete, with necessary permits and authorizations received, in the first quarter of 2021. The BLM has completed its review and granted approval of the project. Additionally, work is well underway on initial engineering evaluations, designs and studies for the development of Shirley Basin operations.

 

 
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Results of Operations

 

The following tables provide detailed financial information on our sales, cost of sales, gross profit and production and ending inventory as they relate to U3O8 pounds.

 

Reconciliation of Non-GAAP measures with US GAAP financial statement presentation

 

The U3O8 and cost per pound measures included in the following tables do not have a standardized meaning within US GAAP or a defined basis of calculation. These measures are used by management to assess business performance and determine production and pricing strategies. They may also be used by certain investors to evaluate performance. Where applicable, reconciliation of these measures to US GAAP financial statement presentation are included within the respective table.

 

Sales

 

 

 

 Unit

 

 

 2020 Q3

 

 

 2020 Q2

 

 

 2020 Q1

 

 

 2019 Q4

 

 

 2020 YTD

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U3O8 Sales Reconciliation (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales per financial statements

 

$000

 

 

$-

 

 

$6,934

 

 

$1,370

 

 

$10,849

 

 

$8,304

 

Disposal fees

 

$000

 

 

$-

 

 

$(4)

 

$-

 

 

$(1)

 

$(4)

U3O8 sales

 

$000

 

 

$-

 

 

$6,930

 

 

$1,370

 

 

$10,848

 

 

$8,300

 

U3O8 pounds sold

 

lb

 

 

 

-

 

 

 

167,000

 

 

 

33,000

 

 

 

180,000

 

 

 

200,000

 

U3O8 price per pound sold

 

$/lb

 

 

$-

 

 

$41.50

 

 

$41.52

 

 

$60.26

 

 

$41.50

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U3O8 Sales by Product

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U3O8 Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Produced

 

$000

 

 

$-

 

 

$-

 

 

$-

 

 

$-

 

 

$-

 

Purchased

 

$000

 

 

$-

 

 

$6,930

 

 

$1,370

 

 

$10,848

 

 

$8,300

 

 

 

$000

 

 

$-

 

 

$6,930

 

 

$1,370

 

 

$10,848

 

 

$8,300

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U3O8 Pounds Sold

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Produced

 

lb

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Purchased

 

lb

 

 

 

-

 

 

 

167,000

 

 

 

33,000

 

 

 

180,000

 

 

 

200,000

 

 

 

lb

 

 

 

-

 

 

 

167,000

 

 

 

33,000

 

 

 

180,000

 

 

 

200,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U3O8 Price per Pounds Sold

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Produced

 

$/lb

 

 

$-

 

 

$-

 

 

$-

 

 

$-

 

 

$-

 

Purchased

 

$/lb

 

 

$-

 

 

$41.50

 

 

$41.52

 

 

$60.26

 

 

$41.50

 

 

 

$/lb

 

 

$-

 

 

$41.50

 

 

$41.52

 

 

$60.26

 

 

$41.50

 

  

Note:

1.Sales per the financial statements include revenues from disposal fees received at Shirley Basin. The disposal fees do not relate to U3O8 pounds sold and are excluded from the U3O8 sales and U3O8 price per pound sold figures.

  

 
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The Company delivers U3O8 to a conversion facility and receives credit for a specified quantity measured in pounds once the product is confirmed to meet the required specifications. When a delivery is approved, the Company notifies the conversion facility with instructions for a title transfer to the customer. Revenue is recognized once a title transfer of the U3O8 is confirmed by the conversion facility.

 

There were no sales in the third quarter, and we do not anticipate making any sales in the fourth quarter.

 

Cost of Sales

 

 

 

 Unit

 

 

 2020 Q3

 

 

 2020 Q2

 

 

 2020 Q1

 

 

 2019 Q4

 

 

 2020 YTD

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U3O8 Cost of Sales Reconciliation (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales per financial statements

 

$000

 

 

$1,840

 

 

$6,517

 

 

$3,105

 

 

$6,451

 

 

$11,462

 

Lower of cost or NRV adjustment

 

$000

 

 

$(1,840)

 

$(2,174)

 

$(2,282)

 

$(2,074)

 

$(6,296)

U3O8 cost of sales

 

$000

 

 

$-

 

 

$4,343

 

 

$823

 

 

$4,377

 

 

$5,166

 

U3O8 pounds sold

 

lb

 

 

 

-

 

 

 

167,000

 

 

 

33,000

 

 

 

180,000

 

 

 

200,000

 

U3O8 cost per pound sold

 

$/lb

 

 

$-

 

 

$26.01

 

 

$24.94

 

 

$24.31

 

 

$25.83

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U3O8 Cost of Sales by Product

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U3O8 Cost of Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ad valorem and severance taxes

 

$000

 

 

$9

 

 

$6

 

 

$3

 

 

$22

 

 

$18

 

Wellfield cash costs

 

$000

 

 

$107

 

 

$154

 

 

$128

 

 

$158

 

 

$389